Expert Financial Analysis and Reporting

Introduction

I recently began coverage of Antares with a buy. The basis of my recommendation was the exceptional pipeline of drugs that the company is working on. In my initial report, I could not go into great detail on each of these products so that I plan a series of reports that focus on just one product. In this report the focus is on Anturol for overactive bladder. It has a PDUFA date of December 8, 2011 and my best judgment is that it will gain approval on that date. However, biotechnology investors know that the FDA can come up with unexpected issues that can delay approval.

Overactive Bladder

Overactive bladder (OAB) is a disease characterized by its symptoms: frequent urination, urinary urgency, urinary incontinence, incontinence and painful urination. The cause of OAB is not fully understood, but it is closely tied to over activity of the detrusor muscle that causes bladder contraction during urination. OAB is distinct from stress urinary incontinence, but the two conditions can occur together in a condition known as mixed incontinence.

Treating Overactive Bladder

Treatment for OAB usually begins with lifestyle modification such as reduction of fluid intake and avoidance of coffee. If this doesn’t work, patients usually progress to a class of drugs called anti-muscarinic agents which decrease detrusor muscle spasms of the bladder. Currently marketed drugs of this class are shown in the following table:

The oral OAB drugs are comparably effective and have similar side effect profiles. Their principal drawback is that they have significant off-target activity that results in annoying cholinergic side effects such as dry mouth, dizziness, drowsiness, constipation and nausea. It is believed that the side effects of the anti-muscarinic agents result in part from metabolites produced as the drugs make their first pass through the liver. Surveys suggest that 40% of patients stop their prescriptions within six months because of side effects.

Licensing Deal with Watson Pharmaceuticals

Antares announced an exclusive licensing deal for Anturol in the US and Canada with Watson Pharmaceuticals, which has considerable experience with OAB drugs. Starting several years ago, Watson began an effort aimed at matching the efficacy profile of the oral drugs while reducing side effects. Development efforts focused on formulations that were delivered directly across the skin and did not undergo first pass liver metabolism. Based on this, Watson introduced its oxybutynin patch Oxytrol, in 2004. It reduced the incidence of dry mouth to 4% from the 29% seen with Ditropan XL and the incidence of constipation to 3% from 13%. However, the patch brought with it new side effects such as inflammation at the application site (8%) and itchiness (14%). In addition, the patches were unsightly and the dosage schedule of twice a week caused compliance issues.

Watson next sought to improve on the patch with a gel formulation of oxybutynin called Gelnique which was launched in 2009. This product matched the efficacy and reduced side effect profile of Oxytrol, but was designed to avoid its application site side effects, aesthetic drawbacks and dosing schedule uncertainty.

Gelnique fell short on other key issues. Delivery of the drug requires squeezing it from a sachet which was cumbersome. Importantly, there was no way to titrate the dosage which is important in treating OAB. The oral drugs come in a low dose and high dose formulations. Physicians like to start with a high dose to achieve quick efficacy and then titrate the dose downward. The high dose might also be employed for a long trip or going to a movie, situations in which going to the bathroom are inconvenient. The higher dose brings with it a higher incidence of side effects so that a low dose is preferred in more normal life situations.

Anturol

Anturol was developed through the 505 (b) 2 regulatory pathway. This allowed Antares to draw on the data from past studies of toxicology and not have to repeat them. Also, the company only had to show that the product was effective and safe. This is much less rigorous than the pathway for a new molecular entity. Two randomized, placebo controlled phase III trials were conducted in 600 patients with OAB in which the primary endpoint was reduction of the number of urinary episodes. A 56 mg and 84 mg dose were tested and were statistically significant at p=0.028 and p=0.033 respectively. Anti-cholinergic side effects occurred at the same low incidence as Gelnique.

Anturol is a once day gel formulation that is provided in a gel dispenser. The low 56 mg dose is given as two squirts from the dispenser and the high 84 mg dose is given as three squirts delivered from the same container. Anturol has a rapid onset of action that is attributable to the permeation enhancer used. The recent clinical studies showed an effect on incontinence at week 1 that was durable and continued through the conclusion of the study at week 13.

Physicians will likely start patients on the high dose of Anturol and then titrate down. A prescription will consist of a dispenser that will last for 30 days. The dispenser will have enough material to deliver the high dose (three squirts) on each day of the month with a little overage. Anturol will likely be priced at parity with other brand name drugs or roughly $150 for the one month prescription. The initial marketing program is likely to use a sample that would be a one week supply.

Market Opportunity for Anturol

Watson will take Gelnique off the market following the approval of Anturol; the name will probably be changed to something more like Gelnique. Watson is a power house in third party reimbursement. Gelnique is generally available as a tier 2 product on formularies while most of the branded products are on tier 3. Watson obtained this tier 2 status as a result of its marketing prowess with managed care and the superior side effect profile of Gelnique.

Watson believes they will be able to substitute Anturol for Gelnique on formularies and that patients will switch immediately to Anturol. The involvement of Watson suggests that the uptake of Anturol could be quite rapid and much better than what we have been seeing with most biotechnology launches of late. Anturol might be able to get to peak sales in three to four years.

Antares will receive a milestone upon approval of Anturol and a royalty that starts in the mid-single digits and escalates to the mid-teens as sales increase. Gelnique’s current run rate is on the order of $35 million. Peak Anturol sales of $100 million seem reasonable by 2015 and at a royalty rate of 7.5% could produce royalties to Antares of $7.5 million.

Antares will receive a milestone payment from Watson upon approval on or following the PDUFA date of December 8, 2011. This is likely to be on the order of $5 to $8 million.

Disclosure: The author of this article owned shares of Antares at the time this note was written. This should be taken into account as it may introduce bias into the conclusions and interpretations that are made. In reading this note, you acknowledge that you have not used it as the sole basis of your decision making and that all investment decisions are based on your own analysis. An investment in Antares carries substantial risk and investors could potentially lose much of their investment. The reader acknowledges that he/she has carefully read the Investment Approach, Terms/Conditions and Disclosures sections in the About Us section of the website. The reader acknowledges that he/she will not hold SmithOnStocks accountable for any investment loss that may be incurred if a decision is made to invest in Antares.