Expert Financial Analysis and Reporting

EpiPen is a self-administered injection of epinephrine used to avert anaphylactic shock following a severe allergic reaction, as with a bee sting. It is manufactured by Pfizer (PFE) and distributed by Mylan Laboratories (MYL). EpiPen is on track to exceed $300 million of US sales in 2012. Teva (TEVA) is first to file and is trying to gain US approval for a generic to EpiPen; Antares (AIS) is supplying the self-injector for this product. Approval would create very favorable economics for Antares. I estimate that in the first year of marketing that it could create $10 million of injector sales and $1.8 million of royalties.

There are already a number of competitors to EpiPen in the US market -- with the latest coming from Sanofi (SNY) -- that have used the 505 (B) 2 pathway to approval. This process allows the competitor to reference the master NDA file of the innovator, which in this case is Pfizer. Additional studies may or may not be required to establish the efficacy of the product. Very importantly, a 505 2 approval differs significantly from a generic approval. In the case of a generic product, the pharmacist filling an EpiPen prescription can substitute the generic. In the case of a 505 2 product the physician must write the prescription specifically for that product and the pharmacist cannot substitute it for EpiPen.

The 505 2 competitors have had no noticeable impact on EpiPen. This is probably because physicians are loathe to take any kind of chance that these products might not be identical to EpiPen. They are used in life-threatening situations and the physician does not want to risk the possibility that even a slight deviation in product design would interfere with effective administration. They also don't want to be at risk of being sued if this were to occur. As a consequence, they have remained loyal to EpiPen. It retains over a 90% market share and Pfizer has not only maintained the price, it has actually increased it.

There are two hurdles that Teva has to clear in order to market a generic version of EpiPen. The first is to make sure that there are no patents that bar entry to the market. In July 2009, Teva filed a paragraph IV challenge to key EpiPen patents and Pfizer promptly sued Teva for patent infringement. Following the Markman hearing and discovery which ended late last year, a bench trial was started on February 16 and is scheduled to conclude on March 9, 2012. The conclusion of the trial does not mean that a decision on patent validity would be immediately forthcoming. It can sometimes take several months for a judge to write and issue an opinion. It is uncertain as to when this could occur, but I am guessing the latter half of 2012.

The second hurdle for Teva is to gain ANDA approval from the FDA which would allow it to be substituted for EpiPen. In the past, Mylan and Pfizer have argued that any generic competitor to EpiPen must be identical in every design aspect. However, these companies have marketed a new and old version of EpiPen at the same time that counters this argument as they had different design characteristics.

It seems probable that the FDA may not require absolutely identical designs for EpiPen and the Teva drug. However, it is not clear exactly what will be required. I would think that FDA might require a user study to show that the generic and EpiPen are indeed interchangeable although Teva has not spoken on this issue. The FDA will certainly be concerned that the Teva generic perform identically to EpiPen because of the life threatening situations in which they are used. The FDA decision on ANDA approval is not necessarily linked to the trial outcome and timing for its decision is uncertain. I cannot predict the outcome of the litigation and FDA decision on generic approval with high levels of confidence.

In my models, I am assuming a generic launch on January 1, 2013, but this is obviously a guess and it could be a sooner or later. This would be a big positive for Antares. There are several other possible outcomes that would be less positive. As I have written in the past, Pfizer and Mylan might reach a settlement in which Teva (and Antares) would receive a cash payment to delay marketing a generic. Pfizer might also let Teva market an authorized generic which would also have reduced economics for Antares. The most negative event would be a denial of ANDA status for Teva so that it could only market its product as a 505 2 drug.

In all possible outcomes for this situation, I will continue with my Buy recommendation on the stock. I base this on the pipeline potential of the Antares and Teva collaboration for injectable drugs about which I have written extensively. I also think that the licensing to Watson (WPI) of the transdermal gel Anturol for urinary incontinence has excellent potential for Antares. Finally, I think that the potential of Vibex MTX product is the single most important reason to own Antares.

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.