Expert Financial Analysis and Reporting

Antares is preparing to launch Otrexup for rheumatoid arthritis in the US in late January of 2014 with its own sales force. The FDA approved Otrexup for use in both rheumatoid arthritis and psoriasis. Marketing for these two indications requires different expertise and different sales organizations, one focused on rheumatology and one on dermatology. Antares had said that it would focus only on rheumatology and would find a marketing partner for dermatology.

Antares just announced that it has entered into a marketing agreement in which Leo Pharma will market Otrexup for psoriasis in the US. LEO has a commercial operation in the US that is focused on dermatology and its 75 man sales force is exclusively focused on psoriasis. The Company’s two major US products are Taclonex and Dovonex that are primarily used to treat psoriasis. Drug sales auditing organizations suggest that US sales of Leo are about $300 million with Dovonex and Taclonex accounting for most of this. This suggests that Leo is an excellent choice as a partner to market Otrexup for psoriasis in the US.

Dovonex is a cream whose active ingredient is calcipotriene, a synthetic derivative of vitamin D that is beleived to have disease modifying characerisitcs. Its mechanism of action is hypothesized as suppression of T cells involved in psoriasis through binding to the vitamin D receptor. Taclonex is a combination of calcipotriene and the steroid betamethasone that is marketed as a cream and a topical suspension.

This deal was completed after Leo performed due diligence on the pricing and reimbursement strategy of Antares for the Otrexup launch. There is some investor concern that Antares might have difficulty with the launch of Otrexup, its first commercial product. The partnering with Leo gives some degree of validation that Antares understands what is required for a successful launch.

Antares will receive an upfront payment of $5 million and possibly and another $15 million if certain undisclosed milestones, (probably based on sales levels) are met. This is a deal in perpetuity. Antares Pharma will record all product revenue achieved by LEO and will pay LEO an undisclosed percentage of sales for its promotion and marketing activities in dermatology.

The opportunity in the US for psoriasis is not as large as that in rheumatoid arthritis. Antares has given guidance that peak sales for Otrexup in the US could reach the upper end of a $100 to $200 million range. Based on the sales split of some of the biologics used in both rheumatoid arthritis and psoriasis, I estimate that the psoriasis opportunity might be 30% of the opportunity in rheumatoid arthritis or perhaps $30 to $60 million.

While the terms of the deal with Leo are not disclosed, I estimate that the profit split between Antares and Leo might be 50/50. The profits would be based on sales less cost of goods sold less marketing and sales expenses directly attributable to selling Otrexup. As sales reach meaningful levels, profits defined in this way might reach 50% of sales so that Antares share might be 25% of sales. At a $30 million level of sales this could contribute $9.0 million of pretax profits and tax affected at 30% would contribute about $0.04 per share. At $60 million the contribution might be $0.08 per share. This doesn’t move the needle dramatically for the Antares investment thesis, but it is a nice positive.

My first year sales estimate for Otrexup in rheumatoid arthritis is $11.5 million. This falls within a range of $9 to $16 million on the Street. Based on the above logic, I am increasing 2014 sales estimate to $14.6 million based on this partnering agreement. My new quarterly estimates are 1Q, 2014 ($375 thousand), 2Q, 2014 ($1.3 million), 3Q, 2014 ($5.2 million) and 4Q, 2014 ($7.8 million). The modest sales in the first half of 2014 reflect the time needed to get the product on managed care formularies and is fairly typical of what new product launches now look like.