Expert Financial Analysis and Reporting

Investment Opinion

In my opinion, Antares is substantially undervalued. My price target is $6 60 in 2018. The thinking behind this was explained in my April 22, 2016  report "An Outstanding Product Pipeline Promises Dramatic Growth Through 2022" (see this link)  If you are unfamiliar with the Company or need to be refreshed, I would suggest that you read that note before going further. You might also want to read my September 16, 2016 report "Updates on QST and AB Generic to EpiPen; Reiteration of Buy Recommendation" (see this link)

My opinion on the Company and its products was reinforced by the conference call discussing 3Q, results. The highlights of that call are discussed in this note.

AB Rated Generic to Injectable Sumatriptan:  Potential Contribution to Profits

Antares shipped $2.9 million of the finished auto injector product to the joint venture with Teva in the second quarter and $3.4 million in the third quarter. The sales to the joint venture were at cost. Teva then takes a markup over this price to reach a sales price. So what might $3.4 million of finished product sales translate into in terms of retail sales for the joint venture? This is not straightforward.  It is important to understand that Antares does not book profits from the joint venture until the product is sold into trade channels. This of course lags shipment of the product from Antares to the joint venture. And then, Antares in its financial reporting lags reporting sales to the trade by one quarter. This creates a lot of complexity and makes it difficult to estimate 4Q sales.

I am guessing that sumatriptan retail sales of the joint venture at around $9 million (no help from management) in 3Q, 2016. Remember that there is a one quarter lag until 4Q, 2016 before profits from these sales are reported by Antares. I am also guessing that the gross margin is 70% (no help from management) and that selling costs are about 10% of sales. This suggests pretax profits of $5.4 million which is split evenly between Teva and Antares. Take these numbers with a grain of salt, but it suggests that Antares could book $2.7 million of pretax profits in 4Q, 2016.

Based on the most recent weekly prescription data from Symphony, the 4 mg dose of sumatriptan has a 27% share of its market segment and the 6 mg dose has a 17% share. Overall, Teva has captured an 18% share of the sumatriptan injection market, which is quite impressive after only three months. Annual sales of generic sumatriptan are about $230 million so this portends annual sales of $41 million and using the same reasoning as above indicates annualized pretax profits of $12 million for the joint venture of which $6 million would go to Antares.

How much of the market can Teva get? Teva has to be careful not to upset pricing and cause a price war so I suspect that the market will be split fairly evenly among the four generic companies (includes Teva) in the market. A 25% market share translates into $57 million of annualized sales for the joint venture and annualized pretax profits of $8 million for Antares.

New CFO Hired

On November 1, 2016, Antares announced that Fred Powell was hired as CFO. He was previously at Celator and in charge of accounting, corporate finance and financial planning functions. He played a central role in the sale of Celator to Jazz Pharmaceuticals for over $1.5 billion. Prior to joining Celator, he was the CFO at OraPharma which was acquired by Valeant for $312 million plus contingent payments of as much as $100 million. Prior to that he was CFO at BMP Sunstone Corporation which was sold to Sanofi-Aventis for $520 million.

There does seem to be pattern here. Was Mr. Powell brought in to help facilitate the sale of Antares if the board so decides? I think that the potential for Antares to be acquired, probably by Teva, is meaningful.

Otrexup

Otrexup recorded sales of $3.9 million in 3Q, 2016 which represented a 9% year over year increase from 3Q, 2015 and a 3% sequential increase over 2Q, 2016. My sales estimate was $4.0 million. I have consistently overestimated sales of Otrexup since its launch. My optimism has been based on the belief that Otrexup has a significant role to play in treating rheumatoid arthritis, but clearly the product has not yet gained traction. I have discussed in prior reports the potential impact of unexpected competitive and reimbursement issues. Annualized sales are now running at a rate of $16 million. I think Otrexup reaches breakeven profitability at sales of about $20 to $22 million. My 2017 sales estimate is $19 million and 2018 is $22 million.

QST

The NDA for QST is likely to be filed in 4Q, 2016. This will trigger a $2.5 million filing fee which will be recorded in the R&D line. As I have discussed at length in prior reports, I think that QST is the best product of any gel or injectable product now being marketed. I think it can compete equally well against gels or injectables; the market is divided about 50/50 between gels and injectables. Management offered some supporting comments for my position during the 3Q conference calls.

In the QST clinical trials, approximately 2,500 injections were assessed. There were only 10 reported instances of mild pain, all others were scored as no pain. This supports the thesis that QST can compete effectively with gel formulations as well as injectables.

There was also encouraging data from the phase 3 study. A secondary endpoint measured psychosexual function through the use of a patient diary called the psychosexual daily questionnaire (PDQ). The PDQ is a validated measure used to assess among other things, sexual enjoyment, activity, and positive and negative mood for seven consecutive days. PDQ’s were administered to 150 testosterone deficient men enrolled in the study. Study participants completed the PDQ at baselines weeks 1, 6, 12, and week 26. According to Antares, the results of this study show statistically significant improvements in sexual functions across numerous PDQ domains.

There are over 6 million prescriptions written in a year for testosterone products which as noted are split fairly evenly between gels versus injectables. I believe that QST will be priced equivalent to generic gels which is about $300 per prescription. However the realized price by manufacturers is more like $150 so the addressable market is about $900 million.

Antares says that they believe they can penetrate a very substantial amount of the market with a sales force of about 75 reps. I am not sure that either management or investors want to go through the ordeal of another launch following the Otrexup experience.

AB Rated Generic to EpiPen

Antares and Teva continue to work closely on their response to the CRL and Antares says that they continue to believe that all questions can be addressed. CEO Bob Apple said this during the call “What I can tell you is, that, the two teams are working really well together and we are looking to get this approved in 2017.”

Makena

Last month, AMAG reported that the definitive PK study and the comparative pain steady had been initiated and the first patients dosed. AMAG is targeting a second quarter 2017 sNDA filing and anticipates a decision on approval in the first quarter of 2018. I believe that Makena could represent the largest single commercial opportunity in the Antares product portfolio. There is some complexity to this situation as I detailed in my initiation report on AMAG. "Initiation of Research on a Complex but Potentially Very Interesting Investment Situation". See this link

Potential Product Approvals

Antares is poised for five approvals in the next two years. These are QST and AB rated generics to EpiPen and Byetta in 2017 and Makena and an AB rated generic to Forteo in 2018. These were discussed at length in my report of April 22 report An Outstanding Product Pipeline Promises Dramatic Growth Through 2022 (see this link).