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Expert Financial Analysis and Reporting

Antares: 2015 Could Be the Breakout Year for the Stock (ATRS, $2.24, Buy)

  • I project 2015 sales of Otrexup at $22 million; if so, it would be generating profit in the latter half of 2015.
  • Antares seems confident that Teva’s generic to EpiPen will be approved in June 2015 and AB rated.
  • On an annualized basis, I see this this generic contributing $25 million pretax by 4Q, 2015.
  • My sales estimates for Antares projects rapid growth from $26 million in 2014 to $58 million in 2015 and $93 million in 2016.
  • My price target range for 2016 is $6.00 to $12.00

Investment Thesis

I reiterate my long standing buy recommendation on Antares (ATRS). Before launching into the reasons why I think 2015 will be a breakout year, let me review the reasons that the stock has done poorly in 2014.

  • The Otrexup launch has not yet reached an upward inflection point for sales and bears argue that the launch is a disappointment or a failure.
  • Earlier this year, the general expectation was that Otrexup would be the only methotrexate auto-injector in the market, but Medac suddenly jumped onto the scene and launched their comparable product Rasuvo last month.
  • There have been a number of conflicting reports on potential overuse as well as safety issues with testosterone replacement therapy prompting the FDA to look closely at these products. This caused uncertainty about the potential for Antares’ auto injector QST, which has been looked at as the next big product after Otrexup.
  • The highly regarded CEO, Paul Wotton, resigned to become CEO at Advanced Cell Technology (ACTCD), and
  • It has been a poor environment for emerging biotechnology and pharma companies as a class. The sector has been very much out of favor and heavily shorted.

This report focuses primarily on the key factors that will affect the Otrexup launch over the next year. I believe that this will be one of the predominant factors that will determine the stock price in 2015 and 2016. I have presented in this report the reasons why I believe that Otrexup will be a very successful product in the context of a company of Antares’ size and have constructed a detailed sales model.

I am not going over my detailed thinking on QST although I believe that it will also be a commercial success for Antares following its launch in 2017. I am also not discussing the pipeline although there are a broad number of products in development for partners and for the account of the Company that have considerable promise. While I have great respect for Paul Wotton, I think that the strategic direction of the Company is set and his leaving won’t have any impact on the success of the Company.

Amid the string of disconcerting events in 2014, a bright spot has recently emerged. A joint development effort with Teva (TEVA) to develop an AB rated generic to Mylan’s (MYL) EpiPen is a significant opportunity. Throughout much of 2014, it seemed that Teva was having difficulty in its pursuit of an AB rating. However, in the last two months the Company has waxed enthusiastic on the probability that Teva will launch an AB generic on schedule in June 2015. It is my thinking that the sales achieved by Otrexup and the AB rated generic to EpiPen will determine the price movement of Antares in the coming year. Here is my detailed sales model, for which underlying assumptions are presented later in this report.

Table 1: Sales and Profit Model for Antares
Revenues $ thousands 2013 2014 2015 2016
Product sales
Otrexup 0 7,970 22,573 36,612
Reusable needle free injectors 1,279 4,498 7,250 8,720
Pre-commercial pen injectors 0 735 400 400
AB Epi-Pen injectors 3,000 0 9,628 19,008
  Total Product Sales 10,958 13,203 39,851 64,740
EpiPen 0 0 4,752 12,672
Actavis, others 3,949 1,987 1,650 2,050
  Total Royalties 4,672 1,987 6,402 14,722
Licensing revenues
LEO deferred revenues 0 3,429 3,429 3,429
Other 849 284 305 336
  Total licensing revenues 849 3,712 3,733 3,765
Development revenues 4,140 6,769 8,015 9,376
Total Revenues 20,619 25,672 58,001 92,602
Cost of product sales
Otrexup 0 4,665 6,180 4,927
Other 0 2,716 9,448 14,626
Total cost of product sales 6,990 7,381 15,627 19,554
Cost of develop, licensing 2,207 1,145 1,419 1,431
Cost of goods sold 9,197 8,527 17,046 20,984
Sales and marketing 8,714 19,095 18,194 19,693
General and administrative 8,294 12,281 10,634 11,066
Research and development 15,263 17,441 19,313 21,318
Total operating costs 32,272 48,816 48,140 52,076
Operating income (20,850) (31,672) (7,185) 19,542
Total other income 44 (19) (51) (51)
Pretax income (20,807) (31,690) (7,236) 19,491
Taxes (300) 0 0 0
Net income (21,107) (31,690) (7,236) 19,491
Fully diluted EPS GAAP ($0.17) ($0.24) ($0.05) $0.13
Diluted shares 127,483 130,476 133,076 150,121


Price Target Thinking

Let’s assume for the time being that you accept my sales and earnings projections. How might the stock be valued in 2016? Using a P/E based on EPS is not really meaningful as the company would just be emerging into profitability. Valuing the company on the basis of sales may provide more insight into a possible valuation.

Let’s look at the example of Avanir (AVNR). This Company launched its only product, Nuedexta for pseudobulbar affect, in 2010. The sales growth (mostly due to Nuedexta) has been as follows: $10 million in 2011, $41 million in 2012, $75 million in 2013 and a projected $111 million in 2014. The stock currently sells at $13.88 and there are 160 million shares outstanding giving it a market capitalization of $2.2 billion. The ratio of market capitalization to 2014 projected sales is 20. Avanir is expected to lose about $50 million in 2014 and become profitable in 2015.

Based on my model, Antares may develop sales on a comparable trajectory. Projected sales are $26 million in 2014, $58 million in 2015 and $93 million in 2016. I am projecting full year profitability in 2016. While there are substantial fundamental differences between Avanir and Antares, the sales trajectories are pretty similar as is the manner in which they are projected to become profitable. They are also both thought of as specialty pharma companies.

I think that we can look at the possibility of Antares being valued similarly to Avanir. If Antares were to sell at 20 times 2016 sales its market capitalization would be $1.8 billion and based on say 150 million shares outstanding (allows for some share issuance as current share count is 136 million), the price per share would be $12.00. If it were to sell at ten times sales the price per share would be $6.00. I think that this price target range of $6.00 to $12.00 probably captures the range of possibilities, but doesn’t pinpoint the most probable outcome. My best judgment is that it will be in excess of ten times sales or $6.00 per share with a reasonable chance of something greater.


Factors to Consider in Projecting Otrexup Sales

The Clinical Rationale for the Use of Otrexup in the Treatment of Rheumatoid Arthritis is Compelling

Rheumatoid arthritis patients generally start on drugs such as aspirin, naproxen and ibuprofen that treat the pain and inflammation symptoms of the disease. As the disease worsens, they progress to more potent disease modifying agents (DMARDs) that treat the underlying cause of the disease and the first drug used is almost always methotrexate.

Methotrexate (hereinafter referred to as MTX) is the gold standard therapy for rheumatoid arthritis patients who need a DMARD. It is the most widely prescribed and valued drug in the rheumatologist’s tool kit. I have listened to numerous presentations at conferences by key opinion leaders in rheumatology and am always struck by the confidence that they have in this drug. If patients fail to respond to MTX, physicians turn to newer biologic agents such as Enbrel, Humira, Remicade and Orencia. Some studies have concluded that the efficacy of oral methotrexate used as monotherapy is comparable to the new biologic agents.

Rheumatoid arthritis is a progressive disease and as it progresses, the dose of MTX must be increased. The most common starting dosage form is an oral tablet given once a week. Dosing is started at 7.5 mg/mm2/week and then as the disease progresses, it is titrated up by to as much as 20 to 25 mg/mm2/week. The problem is that as the dose is titrated above 15 mg/mm2/week, blood levels do not increase as the dose is increased. This means that the ability of the drug to control the disease wanes. This is a major factor for the physician deciding to move the patient to one of the newer biologic drugs.

Gastrointestinal side effects such as nausea are troublesome for somewhere between 20% and 50% of patients when initially treated and this can prevent dosing to the appropriate level. In some patients these side effects disappear on their own or may be controlled by lowering the dose, spreading the dose out over the course of a day or the use of medicines to treat the side effects. Still these side effects are so troubling that some patients take their dose on Saturday so that the side effects occur primarily on the weekend and do not interfere with the work week. This is an issue for oral MTX, but less so than the blood level plateauing issue.

While Antares has conducted no efficacy studies comparing Otrexup to oral MTX, there have been some studies in Europe where the Medac subcutaneous dosage form has been approved for a number of years. In a literature search, the best paper that I came across that looked at the clinical use of subcutaneous MTX was a study done by Braun, et al in 2008 called “Comparison of the Clinical Efficacy and Safety of Subcutaneous Versus Oral Administration of Methotrexate in Patients with Active Rheumatoid Arthritis.”

This study assigned 194 patients to a group which was given subcutaneous MTX plus an oral placebo and compared to 190 patients given oral MTX and a subcutaneous placebo injection. The authors concluded that subcutaneous MTX using a dosage of 15 mg/mm2/week that was allowed to be titrated up over a period of 24 weeks was superior to oral MTX that was similarly titrated. They also said that the superior clinical efficacy was not accompanied by a significantly higher rate of adverse events.

An important article was published in the April 17, 2014 issue of the Annals of the Rheumatic Diseases on an open-label study that compared blood levels of Otrexup to oral methotrexate for various dosages. This study showed for the first time that plasma levels of oral dosed MTX are no greater for 20 mg or 25 mg doses than for 15 mg dose whereas much higher blood levels could be obtained with Otrexup. However, blood levels of MTX increased with Otrexup as it was titrated above 15 mg/mm2/week.

The probable reason for subcutaneous MTX being more effective than oral is that it is delivered more reproducibly. There are significant variations in the way patients metabolize oral MTX so that as many as one-third of patients don’t reach the intended dose. Injectable methotrexate enters the blood stream before being metabolized and altered by the liver which makes for more predictable blood levels. It may also be the case that when patients are titrated to higher doses of oral methotrexate that they may not consume all of their dosage due to side effects. With an injectable, it is virtually certain that the patient will get the intended dose.

Using the logical progression that oral methotrexate is as good as biologicals and that Otrexup is superior to oral, one could make the argument that Otrexup potentially could be the most effective DMARD. However, this has not been established in efficacy trials. It is also the case that Otrexup has less troublesome side effects than either oral MTX or the biologicals.

I believe that in future clinical practice, physicians will continue to start with oral MTX because it is effective, cheaper and more convenient. However, when the patient fails to respond to oral MTX, it seems reasonable that they will turn to Otrexup or Rasuvo before switching to or adding a biologic. These drugs could be providing a new interim step in the treatment paradigm. Physicians will start with oral MTX and when patients don’t respond adequately will next go to Otrexup or Rasuvo instead of a biologic. Ultimately the disease is likely to progress and a biologic will be needed.

Cost Argument Also Weighs in Favor of Otrexup

In addition to the therapeutic argument that can be made for switching patients who are performing poorly on oral MTX to Otrexup or Rasuvo before turning to a biologic, there is also a cost argument. Vibex MTX will cost less than $5,000 per year versus $20,000 or more for the biologics.

If payors come to accept the argument that switching to Otrexup after oral MTX fails is a better therapeutic option than going to a biologic, they could see significant cost savings from requiring this therapeutic step. However, they will have to be convinced that physicians will not be using Otrexup in patients who could be treated with oral generic MTX. They also may be slowed by the lack of clinical and pharmacoeconomic data that supports the profile of Otrexup that I just laid out. Otrexup was approved under the 505 (b) 2 pathway that only required the demonstration of comparable pharmacokinetic to oral MTX.

The Addressable Market for Otrexup is Substantial

One way of estimating the addressable market for Otrexup is to look at the current sales of biologics, which are used primarily for treating rheumatoid arthritis; they are also used to a lesser extent in other autoimmune diseases. Projected 2014 US sales for the leading products are Humira ($7.0 billion), Enbrel ($4.1 billion), Remicade ($4.1 billion), and Orencia ($1.0 billion) and there are several other products such as Cimzia, Actavis, Rituxan and Xeljanz that are also used extensively. If Humira, Enbrel, Remicade and Orencia were priced at the same price as the listed Otrexup price of $5,160 per year instead of $20,000+, their combined sales would be $4.2 billion. I estimate that over 70% of their usage in in rheumatoid arthritis so that their sales in rheumatoid arthritis would be $2.9 billion.

The above example is not to suggest that the addressable market is the entire biologics market. However, Otrexup and Rasuvo should get a small but meaningful share and just 10% would be $300 million which divided equally would make each product a major success. There is another way to approach the size of the addressable market. During a recent presentation, Antares presented data from a research study that they had commissioned. It estimated that the number of patients on MTX who have not yet progressed to biologics is 420,000. At the Otrexup list price of $5,160 per year, the size of this market is $2.2 billion.

The biologics market is estimated at 590,000 patients who are no longer controlled by methotrexate and at the Otrexup price this would be a market of $3.0 billion. Many of the patients who start on oral MTX could eventually move to Otrexup for a period of time before they move onto a biologic. Again, this suggests a large addressable market.

The presentation also suggested that there are already 62,000 patients who are receiving subcutaneous methotrexate with an unapproved dosage. There is no approved subcutaneous methotrexate product so this represents an off-label formulation that uses injectable methotrexate delivered with an insulin syringe. If these numbers are correct, the current injectable market is 62,000 patients and this represents a current injectable market of $300 million at Otrexup prices.

There is the reasonable question as to whether patients will switch to Otrexup and Rasuvo from off-label injectable use. I think that on pure product characteristics, these new products are superior in being easier to administer and better tolerated. I think that doctors also prefer using approved products over off label ones. The only issue that would cause patients to not switch to Otrexup and Rasuvo would be cost to the patient or inertia. However, now that Antares is buying down the co-pay, the out of pocket cost to the patient is $0.

Management had given guidance that Otrexup could achieve $200 million of peak sales. However, this estimate was made before the potential for approval Rasuvo was taken into account. For the sake of illustration, let’s assume that this is now to be split 50/50 between Otrexup and the Medac product. With this back of the envelope logic, Otrexup would achieve $100 million of peak sales.

Antares has estimated that Otrexup breaks even at about $24 million of sales per year or $6 million per quarter. I think that Antares could begin to have profitable quarters in 2H, 2015 based on growth of Otrexup sales. This would be big psychologically. At $100 million of sales, the pretax profits could be $95 million or so. Applying a tax rate of 30% to $95 million of pretax profits and dividing by 150 million outstanding shares, results in a $0.45 EPS contribution from Otrexup when it reaches peak sales in perhaps 2019. Then putting a 15 P/E on these EPS suggests that the stock price solely due to Otrexup in 2019 could be $6.75. I hope that you take these numbers for what they are intended to be, i.e. giving magnitude and trend and not being ball bearing precise.

Otrexup Launch Update

Management Thoughts on the Launch

During recent presentations management has been upbeat about the Otrexup launch which is now eight months old. They said that in the early phases of the launch they were watching for big problems, but didn’t see any in terms of the sales message. They have received uniformly positive feedback from physicians and patients on the ease of use of the device and its utility. The product performance has been excellent and as anticipated in their view.

Physicians don’t have to be sold on the efficacy of MTX and the rheumatologists are thoroughly familiar with the oral MTX dosing issue. Hence, they don’t have to convince physicians on the efficacy of Otrexup as is usually the case with new products. Positioning Otrexup as a more therapeutically and cost effective step before turning to biologics is a powerful message. I always anticipate that managements will present things in the most positive light, but if problems are developing you can usually get some hint. I haven’t detected any such hints as yet.

Evaluating and grading a new product launch is a challenge for corporate managers as well as investors. Antares has looked at recent launches in rheumatoid arthritis and has found them to be slow and steady which matches the disease progression and the physician’s cycle of care with patients. Comparing to recent launches based on the trajectory for prescriptions per week, Otrexup is right in the middle of the pack. In terms of sales per representative it is leading the pack.

Reimbursement Issues Are a Big Hurdle

The biggest hurdle to the sales ramp has been the payors and reimbursement process. Any new product launch faces significant reimbursement issues for the first year or two. Progress in a launch is significantly affected by the ability to gain payor access and reimbursement. Payors present a catch 22 in they want to see demand for a product before reimbursing but creating demand requires reimbursement. There is a lot of work in the early stages in getting a written prescription through the reimbursement process. Blocking and tackling processes are needed to help the physician maneuver through the reimbursement process.

Otrexup has coverage in over 70% of commercial plans. The Company is looking to improve access to contracts, but at this moment have none. Some plans have policies in which they will generally not reimburse a new product for the first six months after launch. The status of Otrexup on formularies is generally tier 3 and patients are being asked for co-pays of $30 to $80 per prescription. Some require 25% co-insurance for the drug which is $133 per prescription. They all have requirements that patients must not be responding to oral MTX before considering Otrexup.

Co-Pays Are Being Bought Down; Rebates are Coming

The Company did make a potentially important move on co-payments this summer. Physicians were prescribing Otrexup at a much greater rate than it was being dispensed from pharmacies, which probably reflected resistance to the patient co-pay. In response, they have implemented a co-pay assistance card for patients in which the patient pays nothing and Antares covers up to $125. This would cover up to 25% co-insurance. This has had an impact and has been well received by patients and physicians.

Antares is realizing about $450 to $480 per prescription which compares to the listed price of $530 for a package of four injectors. This reflects discounts to the Veterans Administration, Medicare and Medicaid and the buy down of the co-pay. They don’t have any rebates in place right now with third party payers and so they get a very high value based off of the wholesale acquisition cost or WAC.

They expect to enter into some rebate arrangements with third party payers, and that clearly would bring the net price per prescription down but with a substantial jump in unit volume. However, there will be nothing dramatic in the near term. As they enter into contracts, there will be a decrease in net price just like for every other product.

Sales Force is at An Effective Size but Could be Increased

Antares is studying an expansion of the sales force given the encouraging sales per representative. They have 25 sales reps in 25 territories. Looking into 2015, they will be expanding the number of regions and frequency of doctor calls with measured growth in the number of sales representatives and territories to maximize Otrexup marketing.

Launch Metrics Are Encouraging

The total audience for Otrexup is 3,500 physicians and they are targeting 2,000 of these. The number of prescribing doctors was 600 at the end of June, 750 at the end of July and 1000 at the end of October. This is a strong indication of the willingness of physicians to use the product. To-date, based on monthly prescription data from Symphony Health Solutions, there have been approximately 9,000 prescriptions written by 1,000 different prescribers. Doctors initially are trying Otrexup in one or two patients. If results with these patients are good, they will expand the number of patients they treat.

A key metric used in the launch analysis is prescriptions generated per sales representative compared to the same data for the recent rheumatology product launches of Xeljanz and other products. To date, prescriptions per sales rep are beating Xeljanz. They continue to see positive growth in sequential prescription trends.

Competition from Rasuvo

While it would have been preferable if Otrexup was the only product in the market, I do not see Rasuvo as a major negative. Otrexup has first mover advantage and in most pharmaceutical categories, there are generally two or more similar products competing. The market opportunity in rheumatoid arthritis and psoriasis is large and oftentimes having two or more companies promoting a particular type of product can expand the market to the benefit of all participants. Rasuvo launched about a month or so ago and they seem to have about the same number representatives and they seem to be messaging the use of injectable methotrexate like Antares.

Some investors have raised the concern that there will be price competition. I just don’t see that Medac would compete on a price basis. If they come in at a significantly lower price than Otrexup that forced Antares to match the price, Medac would gain no advantage in unit market share and would suffer on sales because of the lower price. Based on experience with past launches of similar or me-too products, I would expect Rasuvo to be priced at the same, a slightly lower or a slightly higher price.

LEO Pharma’s Efforts in Dermatology

Leo Pharma had their first full month of detailing in October. They have accounted for approximately 10% of Otrexup prescriptions to-date. They believe that Otrexup in the psoriasis market given the number of patients with this condition has significant potential. However, in the dermatology area, methotrexate is not the gold standard. This requires more messaging and getting the dermatologists comfortable that methotrexate is a valuable tool in their treatment of psoriasis.

Sales and Earnings Model for Otrexup

This section summarizes the key assumptions that go into my sales model for Otrexup. I have used two methods to come up with my sales estimates. The first method was based on modeling the launch of Otrexup through the end of 2015 using the same sales trajectory as Pfizer’s new drug for rheumatoid arthritis Xeljanz, which was launched in 1Q, 2013.

I looked at the sequential rates of sales increases for Xeljanz at various points in the launch and applied them to Otrexup. For example, Otrexup has reported three quarters of sales. To project sales in 4Q, 2014, I looked at the rate of sequential sales increase for Xeljanz from its third quarter of sales which was from 3Q, 2013 to 4Q, 2013; the rate of increase was 31%. In order to project 4Q sales of Otrexup, I multiplied its 3Q, 2014 sales of $2.6 million by 31%. This same approach was used for each quarter of 2015. The result is that the magnitude of sales for Otrexup and Xeljanz will be different, but the sales trajectory is the same.

In method 2, I calculated the incremental sales increase from 2Q, 2014 to 3Q, 2014 for Otrexup which was $936,000. To project 4Q, 2014 sales I added this increment to 3Q, 2014 to get an estimate of $3.5 million. I used the same incremental sales increase of $936,000 for each quarter of 2015. The results for the two methods were surprisingly similar as can be seen in the following table.

Table 2: Modeling Otrexup Launch Trajectory
Xeljanz launch in the US
2013 2014
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q E
Xeljanz ($thousands) 11,000 22,000 35,000 46,000 52,000 68,000 80,000 90,000
 Sequential increase 100% 59% 31% 13% 31% 18% 13%
Estimating Otrexup sales
2014 2015
1Q 2Q 3Q 4Q E 1Q E 2Q E 3Q E 4Q E
Method 1: Sales for Otrexup if it follows Xeljanz quarterly trajectory
Otrexup ($thousands) 213 1,671 2,607 3,415 3,859 5,055 5,965 6,741
 Sequential increase 685% 56% 31% 13% 31% 18% 13%
Method 2: Assumes sequential increase of Otrexup quarterly sales of $936,000 per quarter
Otrexup ($thousands) 213 1,671 2,607 3,542 4,478 5,413 6,349 7,284
 Sequential sales 1,459 936 936 936 936 936 936
Sales estimates for Otrexup using average of method 1 and 2
Otrexup ($thousands) 213 1,671 2,607 3,479 4,169 5,234 6,157 7,013


Method 1 projected sales of $7.9 million in 2014 and $21.6 million in 2015. Method 2 projected sales of $$8.0 million in 2014 and $23.5 million in 2015. In my model, I used an average of the two. I would caution the reader that while these numbers give the appearance of great precision, the numbers are not cast in stone. They may differ significantly, but this is a good starting point. My personal belief is that sales in 2015 will be higher than $22.6 million estimate which stems from these methods.

AB Rated Generic to EpiPen

The Opportunity for an AB Rated Generic EpiPen is Substantial.

EpiPen will reach over $1 billion of US sales in 2014. Teva and Antares have partnered to produce the first AB rated generic which allows pharmacists to substitute the product for EpiPen. Antares and Teva are not aware of any products in development that are seeking an AB rating. Antares has developed the injector for this product and will receive revenues on device shipments and royalties on sales

In late 2013 and throughout much of 2014, management has been quiet on this product. Also, the company shipped over $6 million of injectors to Teva in 2013 and none so far in 2014. This caused some concern on my part that Teva was encountering difficulties gaining the AB rating. This appears to have all turned around in the last couple of months and management has become pretty confident of an AB rating and launch on July 2015.

Teva has stated publicly that they will file the final amendment to their application in December. Antares is prepared to manufacture substantial device quantities and anticipates that it will begin shipping the devices to TEVA early next year. I believe that Teva is on track for a June 2015 FDA approval and an AB rating on their generic.

Antares will be shipping devices before the approval. Teva has to have a fully packaged product at launch and so Antares will be recognizing those device sales before the launch just as they did in 2013 when they shipped $6 million of product. From a royalty standpoint, it's obviously a function of when Teva starts selling its product. Antares will receive a high single-digit royalty on the value of those products when they are shipped into the trade.

Sales Model for AB Rated Generic to EpiPen

Teva reached a patent settlement with Pfizer (PFE) that will allow the launch of this product on June 15, 2015. Pfizer owns the product, but Mylan (MYL) markets it. An AB rating from the FDA allows pharmacists to substitute Teva’s generic for EpiPen. With an AB rating, the Teva generic could quickly capture a significant share of the market. Without the AB rating, Teva would be forced to market it as a new product and would have to devote considerable resources to establish sales; the commercial potential would be much less.

I estimate that in 2014 EpiPen will have US sales of nearly $1.0 billion and by mid-2015 could reach a sales run rate of $1.2 billon. Mylan is raising prices at 20% per year and continues to aggressively market the product. Mylan has said that if the Teva product obtains an AB rating that it believes that the generic can capture 40% of the market. This is based on the anticipation that Teva will be the only entrant in the market for some time and will not aggressively cut price.

I think that Teva may come in at a 40% price discount to EpiPen. With these assumptions, I think that Teva could achieve annualized sales run rate of $320 million by year end 2015 based on gaining a 40% share of the unit market. Because of the difficulty in obtaining an AB rating versus EpiPen (indeed it is not a given that Teva will be successful), it may be the case that Mylan and Teva could be the only entrants in this market for some time.

Antares has given guidance that through sales of the auto-injector to Teva and royalties that it will achieve sales equivalent to roughly 10% to 12% of Teva’s sales or roughly $32 to $38 million if Teva’s sales reach $320 million. Antares has not given guidance, but I estimate that 60% of these revenues or roughly $22 million will be due to product sales and 40% or $14 million will come from royalties. Assuming a gross margin of 50% on product sales, this would result in a gross profit of $11 million. The combination of $11 million of gross profits and $14 million of royalties based on $320 million of Teva sales would produce $25 million of pretax profits for Antares. Quarterly estimates for 2015 and 2016 are shown below:

Table 3: Sales Model for AB Generic to EpiPen
2015 2016
($thousands) 3Q E 4Q E 1Q E 2Q E 3Q E 4Q E
EpiPen sales at Mylan price 300,000 300,000 300,000 300,000 300,000 300,000
Teva penetration of unit market 20.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Teva price discount 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Teva sales 36,000 72,000 72,000 72,000 72,000 72,000
Royalties 1,584 3,168 3,168 3,168 3,168 3,168
Injector sales 2,376 4,752 4,752 4,752 4,752 4,752
Antares Revenues 3,960 7,920 7,920 7,920 7,920 7,920



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  1. Dear Larry,

    first of all thank you for your update.

    In your article you are writing “Doctors initially are trying Otrexup in one or two patients. If results with these patients are good, they will expand the number of patients they treat.”

    Does this not mean that we will see a relatively strong increase in the prescribtions if the results with the first patients is good?

    Furthermore, do you see a partnership for OTREXUP outside the US Market?

    Best Regards, Stefan

  2. I think that most physicians when first exposed to a new drug will try it is one or a few patients to see how the patients respond before using the product on all patients who might benefit from treatment. Also, the reimbursement procedures are so difficult in the early stages of a launch that physicians want to get the procedure understood with a few cases before moving on to a broader number. I think that if their clinical experiences are good as I expect them to be and if the reimbursement is made more routine, it should cause an inflection in sales.

  3. Hi Larry,

    I’m hoping you can add some insight regarding AB rated generics. We’re hoping (and believing) that Teva will receive an AB rating on their generic Epi. If another AB Epi were to come along and be approved, how would the pharmacy determine which product to substitute for the branded drug?

    It’s my understanding that Sandoz Is trying to get a generic AB rated Epi approved and marketed. They, like Teva, where sued by the branded inventor company, but unlike Teva they have not settled out of court (where their case still resides). Are you familiar with the Sandoz threat and how likely they may be in achieving their goal?


  4. Sanofi received approval of Alivi-Q, which is an epinephrine auto-injector, on August 13, 2012. This was approved under the 505 (b) 2 pathway as a new product and was not AB rated. It has had minimal impact on Epi-Pen sales. Antares is not aware nor am I of any other company trying to develop an AB rated product.

  5. Barclays has a note out this morning (12/17) adjusting Mylan numbers up slightly reflecting “lower probability that TEVA will enter the market in 2H 15 with an AB rated EpiPen. MYL’s spring loaded delivery vs Teva’s operator force could make approval difficult”. Not sure why they would have arrived at that conclusion….MYL’s opinion? The fact that Otrexup is approved would seemingly make the device issue moot, unless there is something different about the active ingredients. Have you heard anyone else raise this issue?

  6. My assessment of the situation stems from information coming from Antares. The FDA has issued no information on whether it will grant an AB rating for Teva’s injector device. Earlier in 2014, Antares was silent on the potential for an AB rating and they were downplaying the possibility. Then about two months ago, they became more positive and said that they were optimistic that they would get an AB rating. At the Oppenheimer conference on December 10th, they said that they were going to be shipping large quantities of injectors in anticipation of the launch of an AB rated generic to EpiPen.

    Could something have happened in the interim? Antares did say that Teva was waiting on one final item from the FDA in December in regard to the AB rating but did not specify what this involved. I have a call in to the Company to see if there is any change in their positive posture on the AB rating.

  7. Thanks Larry.

  8. Larry,

    Are you familiar with Pfizer vs. Sandoz litigation over ANDA Epi?

  9. I am not familiar with it. My guess is that Pfizer is suing Sandoz under the same reasoning that they sued Teva. In the Teva case, they were alleging that the Teva Antares auto-injector infringed patents for Epi-Pen. It was not about the AB rating. Pfizer and Teva reached a settlement that allows Teva to launch its product after June 22, 2015 whether or not it is AB rated. I would think that Pfizer is suing Sandoz for the same reason. Here is what the 10-K says about it.

    “King Pharmaceuticals, Inc. (Pfizer acquired King) brought a patent-infringement action
    against Sandoz in the U.S. District Court for the District of New Jersey in
    July 2010 as the result of its abbreviated new drug application with the
    FDA seeking approval to market an epinephrine injectable product. Sandoz is
    challenging patents, which expire in 2025, covering the next-generation
    autoinjector for use with epinephrine that is sold under the EpiPen brand

    Sandoz apparaently launched its product Alivi-Q at risk without settling with Pfizer. This really has no bearing on Antares. Remember that Alivi-Q is not AB rated which means that a pharmacist can not substitute it for Epi-Pen.

  10. Larry, excellent. Appreciate you digging into this. Wishing you and your family a merry Christmas and a wonderful holiday season!

  11. TDPeterson123 says:

    Hi Larry,

    Just wanted to pass along some info from Antares latest 10K specific to the market size for Epipen.

    “The EpiPen® is the global market leader in the epinephrine auto injector market. In the U.S., according to Symphony Health Solutions, sales of epinephrine injection products were approximately $1.8 billion in 2014 with the EpiPen® accounting for 87% ($1.57B) of the total. Mylan, Inc. reported that EpiPen® has a 90% ($1.62B) world market share in the U.S. and worldwide.”

    These are big numbers and foretell the potential impact of Teva’s generic AB EPI. Even at just 50% market share (seemingly a conservative percentage for first move AB rated genterics), and even at a discounted generic price, that translates to a lot of dollars for both Teva and Antares.

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