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corresp

December 13, 2005

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Attn: Mr. Jim B. Rosenberg

    Re:

    Advancis Pharmaceutical Corporation

    Form 10-Q for the Fiscal Period Ended September 30, 2005

    File No. 000-50414

Dear Mr. Rosenberg,

     This letter responds to the Commission’s letter to Advancis Pharmaceutical Corporation (“the
Company”), dated November 30, 2005 (the “SEC Letter”), regarding the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2005. Set forth below is the text of the comment
contained in the SEC Letter and the Company’s response thereto.

COMMENT IN SEC LETTER:

Form 10-Q — September 30, 2005

Item 1. Financial Statements (Unaudited), page 2

9. Private Placement of Common Stock, page 12

We note that the warrants issued in connection with this private placement contain registration
rights that require the payment of liquidated damages as a result of the failure to maintain an
effective registration statement. It appears that these liquidated damages represent a penalty for
failure to maintain an effective registration statement due to the significant amount that is
required as repayment under this agreement. Please explain to us how you arrived at the conclusion
under EITF 00-19 that these warrants were appropriately classified within permanent equity. We
note that EITF 05-4 that you referenced in this note related to this issue is not finalized and
does not include any accounting treatment at this time. Refer to paragraph 16 of EITF 00-19.

RESPONSE BY THE COMPANY:

     We determined that the warrants were appropriately classified as permanent equity by applying
EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a Company’s Own Stock” to the specific facts and circumstances of our private placement
transaction. We concluded that the conditions required by Paragraphs 14 through 32 of EITF 00-19
were met. This evaluation treated the warrants and the registration rights agreement related to the
stock and warrants as separate freestanding contracts in accordance with Paragraph 2 of EITF 00-19,
and we believe that the agreements can be accounted for separately because they do not meet the
combining criteria contained in DIG Issue K-1.

     We did not rely on EITF 05-4, “The Effect of a Liquidated Damages Clause on a Freestanding
Financial Instrument Subject to EITF Issue. No. 00-19,” (no consensus to date) to determine the
accounting treatment under EITF 00-19. However, we added the reference to EITF 05-4 in the
footnote because there is diversity in practice in accounting for financial instruments that have a
liquidated damages provision in a related registration rights agreement, and, because this issue
was currently being discussed by the EITF, we felt that we should disclose our approach in case a
consensus was reached that could potentially change our future accounting treatment.

    Our response is organized as follows:

    •

    Description of the private placement transaction

    •

    Analysis of Paragraph 16 of EITF 00-19

    •

    Conclusion.

Description of the Transaction

     Advancis Pharmaceutical Corporation entered into agreements with certain investors on April
26, 2005 in which the investors agreed to purchase newly-issued shares of common stock at $3.98 per
share in a private placement (the “Offering”). The aggregate number of shares of common stock
issued was 6,846,735 shares, for a total consideration of $27.25 million. In addition, the
investors received warrants which entitled them to purchase up to an aggregate of 2,396,357 shares
of common stock for $4.78 per share, commencing six months after the closing. The warrants may be
physically settled or net-share settled, at the investor’s election. The warrant agreement does
not contain a net-cash settlement feature, except for a feature which under Paragraph 27 of EITF
00-19 is permissible in order for the warrant to be classified as permanent equity. The Offering
closed on April 29, 2005. The S-3 Registration Statement was declared effective by the SEC on June
1, 2005. At a special meeting held on June 21, 2005, the Company’s stockholders approved a
resolution that authorized the sale price of

$3.98 per share for the common stock, at which point the investors were legally entitled to
trade their shares.

     The private placement (PIPE, or Private Investment in a Public Entity) involved two separate
agreements: the Purchase Agreement and the Warrant Agreement. Although the agreements were
entered into contemporaneously, they are nevertheless two separate legal agreements.

Purchase Agreement (Registration Rights Agreement)

     The Purchase Agreement (“Purchase Agreement” or “Registration Rights Agreement”) applies both
to the shares and warrants sold and includes typical provisions for such an offering, including the
requirements in Section 7.1 of the Agreement requiring the Company to

    •

    prepare and file with the SEC a Registration Statement on Form S-3 relating to the
resale of the shares;

    •

    use its reasonable best efforts to cause the SEC to declare the Registration Statement
effective within 60 days;

    •

    use its reasonable best efforts to avoid the issuance of, or if issued, obtain the
withdrawal of any order suspending the effectiveness of any Registration Statement; and

    •

    comply with various other provisions.

Section 7.7 provides for liquidated damages in the event that the Registration Statement is not
declared effective by the required date and in the event that a purchaser is prevented from selling
shares as a result of a suspension of more than 45 days in a one-year period. The liquidated
damages are payable in cash at the rate of 0.0333% of principal per day, and there is no stated cap
or maximum specified in the agreement although from a practical standpoint the damages no longer
apply after the expiration of the Rule 144(k) period, or about two years (except for one investor
that is an affiliate).

Warrant Agreement

     The Warrant Agreement provides that the warrants are exercisable beginning with the six-month
anniversary of the issue date (i.e. October 29, 2005) and ending at the end of the fifth-year
anniversary of the issue date (i.e. April 29, 2010). The expiration date may be extended by the
number of days the Registration Statement is not effective or by the number of days the Company
fails to have a sufficient number of shares reserved for issuance upon exercise of the warrants.
The warrant holder may satisfy their obligation by paying cash or by paying through a “cashless
exercise” (net-share settlement) if the market price of the common stock exceeds the exercise price
of the warrant.

Analysis of Paragraph 16 of EITF 00-19

     We considered paragraph 16 of EITF 00-19, but concluded that the registration rights contained
in the stock purchase agreement (which provided for the liquidated damages) was a freestanding
instrument (under Paragraph 2 of EITF 00-19) separate

from the warrant agreement resulting in the liquidated damages provision not being applicable
to our evaluation of the warrants under EITF 00-19.

     The agreements, although entered into contemporaneously, are separate legal agreements. The
registration rights not only relate to the warrants, they also relate to the common shares that
were issued. The payment of liquidated damages under the registration rights agreement, if
required, would not change an investor’s rights under the warrant agreement (nor does it alter the
rights of the common shares that were also issued) as the investor would still retain the right to
exercise the full notional amount of the financial instrument. The financial return to an investor
from the warrant agreement, which is based on the Company’s stock price, is independent of payment
of liquidated damages which potentially could occur under the registration rights agreement.
Further, the agreements do not meet all of the combining criteria of DIG Issue K-1, as the
agreements do not share the same risk. The risk involved in the warrant relates to the share
price, and the risk involved in the liquidated damages provision of the registration rights
agreement relates to the filing of a registration statement, having it declared effective and
maintaining its effectiveness. Though the registration rights is to be accounted for as a separate
agreement, we have determined the registration rights agreement to have nominal value due to the
pending and actual registration of the shares.

     In preparing our Form 10-Q for the Fiscal Period Ended June 30, 2005 and again for the Fiscal
Period Ended September 30, 2005, we reviewed this evolving area. We reviewed the published minutes
of the EITF meetings and Issue Summary No. 1 for EITF 05-4. We noted that the approach to the
accounting that we followed was included in the acceptable alternatives detailed in the documents,
and that our view was most analogous to “View C,” under which the registration rights agreement
related to the shares and warrants and the financial instrument agreements are separate
freestanding agreements which should be accounted for separately. We will monitor the development
of this issue and modify our accounting if necessary under the circumstances.

Conclusion

     We have carefully reviewed the warrant and registration rights agreements, and the accounting
literature discussed above. We concluded that the conditions required by EITF 00-19 for the
warrant to be recorded as permanent equity were met. This evaluation treated the warrants and the
registration rights agreement related to the stock and warrants as separate freestanding financial
instruments, with the liquidated damages provision in the registration rights agreement having
nominal value.

     We believe that the warrants are appropriately classified as permanent equity.

    Very truly yours,

    Robert C. Low, Vice President, Finance

and Acting Chief Financial Officer

    cc:

    Ms. Tabatha Atkins, Staff Accountant

    Mr. Jim Atkinson, Accounting Branch Chief