Anacor Pharmaceuticals' ANAC.O experimental drug for treating fungal infection of the nails showed it can cure the disease, but the results fell short of those from a competing drug from Valeant Pharmaceuticals International Inc (VRX.TO) (VRX.N).
Anacor shares fell 24 percent to $3.95 on the Nasdaq, their lowest in almost one-and-a-half years, before recovering to $4.17, but were still down 19 percent.
Anacor said on Tuesday that 6.5 percent patients treated with its drug tavaborole experienced a complete cure, compared with 0.5 percent of patients on a placebo.
Data released by Valeant in November showed that its drug efinaconazole completely cured 17.8 percent of patients, compared with 3.3 percent of those receiving a placebo.
"The degree of benefit fell short of our expectations, and is below that which was recently achieved by Valeant's efinaconazole," Cowen and Co analyst Eric Schmidt wrote in a note.
"While we view tavaborole as an FDA approvable therapeutic, investors are likely to question its commercial potential."
Palo Alto, California-based Anacor, which has a market value of about $184 million, has seven drugs in its pipeline. Tavaborole is its most advanced clinical candidate.
Both Anacor and Valeant used the same trial goal of complete cure - no trace of fungal infection and a clear nail.
"We are intrigued by the fact that (Anacor) had nearly 90 percent sterilization of the nail but the completely clear nail growth that people focused some attention on is a little bit less than what a potential competitor, Valeant, has published," Wedbush Securities analyst Gregory Wade said.
However, Cowen's Schmidt said the difference between the "almost cured" and "cured" rates, as compared with Valeant's numbers, may be explained by Valeant's trial having enrolled a healthier population.
Anacor's Study 301 was the first of two late-stage trials on tavaborole conducted in the United States and Mexico, and enrolled 594 patients.
The fungal infection, named onychomycosis, affects about 35 million people in the United States and causes nails to deform, discolor, thicken, become brittle and split and separate from the nail bed, Anacor said.
Tavaborole was safe and well-tolerated across study subjects and there were no serious adverse events related to the drug, the company said in a statement.
Results from the second late-stage trial, held in the United States and Canada, are expected in March.
Anacor plans to file for regulatory approval in mid-2013 in the United States.
The company experienced a setback last October when its partner, GlaxoSmithKline Plc (GSK.L), stopped the development of a drug aimed to treat urinary tract and intra-abdominal infections.
The drug, named GSK2251052, was in mid-stage trials.
Separately, Anacor is suing Valeant for damages of at least $215 million for breach of contract relating to certain development services provided by Valeant's subsidiary, Dow Pharmaceuticals, for tavaborole.
(Reporting by Esha Dey and Pallavi Ail in Bangalore; Editing by Roshni Menon and Sreejiraj Eluvangal)