Palo Alto, Calif.
February 2, 2007

Anacor Pharmaceuticals, a privately held pharmaceutical company, announced today that it has entered into an exclusive, worldwide agreement with Schering-Plough Corporation for the development and commercialization of AN2690. The drug is a topical anti-fungal therapy currently in Phase 2 clinical trials for onychomycosis, a fungal infection of the nail and nail bed that affects 7 to 10 percent of the U.S. population.

Under the terms of the agreement, Anacor will receive a $40 million upfront payment and a $10 million financing commitment from Schering-Plough. The company is eligible to receive payments potentially exceeding $575 million for development, regulatory and commercial milestones. In addition, Anacor will receive double-digit royalty payments on future sales. Schering-Plough will assume all costs for the drug's development for onychomycosis and other indications, and Anacor retains an option to co-promote the drug in the United States to dermatologists. The transaction is expected to close in the first quarter subject to expiration or early termination of the waiting period under the Hart, Scott, Rodino Antitrust Improvements Act (HSR).

"The deal enables the development and commercialization of AN2690 to its fullest potential and provides the resources necessary to advance other promising, proprietary drug candidates in our pipeline. In addition, the co-promote option gives Anacor the opportunity to build a fully-integrated pharmaceutical company in the future," said David Perry, Chief Executive Officer of Anacor. "Schering-Plough's worldwide reach, ability to effectively market to general practitioners, and experience with topical and dermatologic treatments makes them an ideal partner for Anacor and AN2690."

AN2690 is a topical anti-fungal that works by inhibiting a validated drug target in a novel and unprecedented manner. It was identified utilizing Anacor's proprietary boron chemistry platform. Preclinical studies demonstrated that AN2690 disseminates rapidly throughout the nail and kills the fungus at the site of infection. AN2690 is currently being evaluated in three fully-enrolled Phase 2 studies. Results to date have shown that the drug is well tolerated and highly potent, with patients who received the treatment demonstrating significant clear nail growth.

Onychomycosis affects 20 to 30 million people in the United States alone, including nearly half of those over age 70. Untreated, the disease causes nails to thicken, resulting in localized pressure-related pain. Topical treatments succeed in fewer than 12 percent of patients, and systemic treatments, which are effective in approximately half of all cases, have known toxicity. Yet sales of treatments for onychomycosis top $1.5 billion annually worldwide.

Anacor will present data on three of its clinical-stage drug candidates at the 65th Annual Meeting of the American Academy of Dermatology in Washington this weekend. The nine poster presentations will include data from the Phase 2 programs for both AN2690 and AN0128. In addition, the first-ever data presentations on AN2728, a potential topical treatment for psoriasis, will show results from preclinical testing that demonstrate the compound's anti-inflammatory properties.

Goldman Sachs, Heller Ehrman LLP and Cooley Godward Kronish LLP served as advisors to Anacor.

About Anacor Pharmaceuticals
Anacor is a privately held, clinical-stage pharmaceutical company developing novel product candidates for inflammatory and infectious diseases based on its proprietary, small-molecule, boron-based chemistry. Initially, Anacor is focusing development efforts on dermatological disorders with AN2690 in Phase 2 trials for onychomycosis, a fungal infection of nails and nail beds. Another mid-stage product candidate, AN0128, is in Phase 2b clinical trials for atopic dermatitis, a disorder that affects approximately 15 million in the United States. The principal investors in Anacor are Rho Ventures, Venrock Associates, Care Capital and Aberdare Ventures.