Expert Financial Analysis and Reporting

Investment Opinion

The failure of the Libi-Gel trial rocked the stock of Antares (AIS) and caused it to drop from around $2.62 to $1.67 with a subsequent recovery to $2.40. I think that this reaction failed to recognize the broad potential of the Antares product line beyond Libi-Gel. In particular, I think that the market is not giving sufficient value to Antares’s Teva related pipeline products and its proprietary injectable methotrexate product. The latter will be the focus on an upcoming report. I continue to recommend purchase of the stock.

Overview of the Teva Self-Injector Pipeline

Antares has two potential new self-injector drug launches in 2012 with its partner Teva (TEVA). The first has been disclosed as a generic competitor to Pfizer’s Epi-Pen epinephrine injector. The second hasn’t been disclosed, but is widely speculated to be Glaxo’s migraine drug sumatriptan.

There are a lot of moving parts on these two drugs that makes projections difficult. For each of these drugs, there are four potential scenarios: (1) Teva could launch the generic product, (2) Teva could reach a deal with the current brand name marketer and launch an authorized generic, (3) Teva could reach an agreement in which it would agree not to launch until some future time in return for a cash settlement, and (4) Teva could conceivably be found to be in violation of patents and blocked from launching; I am inclined to believe that the possibility of this is quite low.

The economics to Antares are different in scenarios 1, 2 and 3. In this report I have laid out my thinking on the potential economics if Teva launches a generic. In the case of an authorized generic, Pfizer and not Antares would be providing the injector. Antares would receive compensation in relationship to sales, but it has not been explained how this would be calculated. Antares has disclosed that in the case of a settlement that it would receive a “meaningful” percentage of the cash settlement.

I think that the most positive outcome for Antares for both the epinephrine and sumatriptan product would be for Teva to launch a generic. I think that the next most favorable scenario would be a settlement that would bring in a significant amount of cash quickly. The authorized generic might be somewhat less favorable as the cash received might be less and would come in somewhat more slowly than with a settlement. I also think that investors would value the ongoing revenues from a generic launch more highly than just receiving cash.

In addition, there are two other product development efforts underway using Antares’ disposable pen injectors. The two products haven’t been disclosed other than to say that one product will be an ANDA filing (generic) and the other a 505 (b) 2 filing, which leads to a proprietary product. The ANDA will be filed in 2012 the product launch could occur following a 30 month stay which ends in 2013. The 505 (b) 2 product is a protein that is produced through synthesis rather than by recombinant production technology. The FDA will require a safety study prior to approval. Product approval could come in 2013 or 2014. The two innovator products that these drugs will compete with have combined sales of about $1.5 billion

Modeling all of this presents a challenge. In the following table, I present my most likely case sales estimates. I have modeled the epinephrine and sumatriptan products on the basis of a generic launch. In the case of an authorized generic launch or a settlement, the estimates would be dramatically different. I have chosen not to include any estimates for the ANDA product that could be launched in 2013 nor for the 505 (b) 2 product under development. This is probably conservative, but I won’t start estimating sales until I know what these products are and more details on the timing of their launches. All of these uncertainties have the potential to dramatically change the sales model from what I am showing below. However, in forming an investment judgment, one has to start somewhere and this is my most reasonable starting point.

Antares’ Self-Injection Business; the Teva Relationship

Antares entered into a transforming business relationship with Teva Pharmaceuticals (TEVA) in 2009 for its self-injection business. Teva was struggling to make headway in the human growth hormone market with its proprietary product TevTropin and turned to the reusable needle free injector technology (Vision, Tjet) of Antares to differentiate its product from a host of older, well-entrenched competitors. This led to significant acceleration in TevTropin sales and this highly positive experience opened the way to a much broader collaboration combining Antares’s self-injection technologies and Teva’s expertise in proprietary and generic drug development.

Prior to the Teva relationship Antares had licensed its reusable needleless self-injector to the Danish company Ferring in Europe and RJR Pharmaceuticals in the Far East to use with human growth hormone manufactured by Ferring; both products are commercialized. Ferring provides the active pharmaceutical ingredient so that each of these products is essentially the same.

Teva’s and Antares’ skills mesh very well. For each product, Antares will exclusively provide its injector technology to Teva. The three types of Antares injectors have long patent lives while many of the drugs being developed with Teva have limited or no patent protection. Another company wanting to market a generic to Teva’s product will not be able to use the Antares self- injection device. In order to gain approval, the competitor will have to demonstrate that its injection device as well as its drug is interchangeable. This makes development more complex and in many cases could require long clinical trials and in the end the FDA might conclude that the products are not interchangeable.

The advantages of the collaboration for Antares are that it brings a partner that has expertise in obtaining regulatory approval, payor acceptance and commercialization. It also reduces the risk of development failure or a disappointing launch and provides capital that allows for the development of a much broader array of products.

The companies have announced that they are working on four additional products beyond TevTropin. Two of these use Antares’ Vibex disposable pressure-assisted auto-injectors. Both have been filed as ANDAs which means that Teva hopes to market them as generics. One has been disclosed to be an epinephrine injector that would be a generic to Pfizer’s (PFE) Epic-Pen which is used to prevent anaphylaxis. The other hasn’t been disclosed, but is widely speculated to be Glaxo’s sumatriptan injector for migraine.

Teva was the first to file an ANDA in 2008 against Epi-Pen which does about $270 million of sales in the US. This caused King, subsequently acquired by Pfizer (PFE) to sue Teva for patent infringement and the court trial is scheduled to begin in July of 2012. If the trial goes in Teva’s favor, it could launch its generic in 2H, 2012, but there are other possibilities. It could launch at risk before the court decision is made, launch as an authorized generic or reach cash settlement in which it would agree not to market the product until a much later date.

If introduced as a generic, I estimate that Teva could capture 40% of the Epi-Pen unit market and roughly 20% of current sales, or about $54 million, in the first year of introduction. This is consistent with many other generic launches. In regard to the sumatriptan product, Glaxo launched a disposable needle device in the 1990s which has sales of about $220 million per year. Again, I estimate that Teva might be able to capture 40% of the unit market and 20% of the current sales level of Glaxo’s drug or $44 million.

In addition, there are two other product development efforts underway using Antares’ disposable pen injectors. The two products haven’t been disclosed other than to say that one product will be an ANDA filing (generic) and the other a 505 (b) 2 filing, which leads to a proprietary product. The ANDA will be filed in 2012 the product launch could occur following a 30 month stay which ends in 2013. The 505 (b) 2 product is a protein that is produced through synthesis rather than by recombinant production technology. The FDA will require a safety study prior to approval. Product approval could come in 2013 or 2014. The two innovator products that these drugs will compete with have combined sales of about $1.5 billion

Beyond the five current products, there is a long list of drugs that Teva and Antares can eventually team up to market including drugs for hepatitis C, multiple sclerosis and so on. High on Teva’s list is likely to be a formulation of Copaxone that will provide a life extension to that product. Other product categories and key drugs that might eventually be targeted are diabetes (Humalog, Novalog), rheumatoid arthritis (Enbrel, Humira), multiple sclerosis (Avonex), hepatitis C (PEG-Intron, Pegasys) and anemia (Epogen, Aranesp and Neulasta).