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Expert Financial Analysis and Reporting

Antares: Disappointing News on AB Rated Version of EpiPen (ATRS, $0.95)

Investment Perspective

Teva filed a 6-K regulatory document last night that stated: “Teva received a complete response letter on February 23, 2016 relating to its epinephrine ANDA in which the FDA identified certain major deficiencies. Teva is evaluating the CRL and intends to submit a response. Due to the major nature of the CRL, Teva expects that its epinephrine product will be significantly delayed and that any launch will not take place before 2017.”

Teva had previously indicated that it expected a CRL. Apparently, the CRL was received on February 23 and the company worked through it for the past week before making any announcement. The use of the term major deficiencies suggests to me that there are more difficulties with the ANDA than Teva, Antares and investors had anticipated. The consensus expectation was that the deficiencies would be minor, could be readily addressed and might lead to approval and possibly a launch in late 2016.

The reference to the major nature of the CRL (almost certainly a surprise to Teva) is more than disconcerting as is the statement that any launch will not take place before 2017. Teva seems to be raising the possibility that the product might not be approved with an AB rating. At the same time, it has not stated that there will not be a launch of the AB rated product. It is doubtful that Teva will elaborate on the nature of the deficiencies so as investors we can only say that the product may or may not be approved-not a happy situation.

In terms of historical precedent, I would note that Teva and Antares were able to gain approval of an AB rated version of sumatriptan after receiving a CRL. I was told that in that CRL, there was actually a fatal deficency with the device. I make this point only to show that this CRL on the AB rated version of EpiPen could be something that can be overcome.

Investors can retain hope that the AB rated version of EpiPen still has a path forward and hopefully Teva may have more to say on this later this year. However, it is only prudent to consider the investment potential of Antares without an AB rated version of EpiPen.

The first thing that comes to my mind is whether this will force the Company into a financing. Management states that it is not necessarily the case that they will need to finance. They point to the pending launch of an AB rated version of sumatriptan in mid-2016 and a possible launch of an AB rated version of exenatide in mid-2017 as having major cash flow potential. While Otrexup is cash flow negative, it is becoming less so. And also, there should be development revenues, notably from AMAG from Makena. Management is holding a conference call on March 8th at 8:30 AM and will almost certainly address its cash needs at that time.

On a very rough basis, I estimate that Antares ended 2015 with about $40 million of cash. My estimate for the cash burn in 2016 is $30 million or so before taking into account revenues from the sumatriptan launch and development revenues. I will try  in the next several days to come up with a better cash burn estimate for 2016. Looking at 2017, the potential exenatide launch could be a major contributor to cash and profits. A wild card cash flow item is potentially a partnering deal on QST. My preliminary judgment is that the Company may need to raise some cash, but will not be in a desperate cash position.

Investment Thinking

The reaction to the 6-K of the stock has been muted suggesting that the CRL was priced into the stock. I must admit that this is a significant disappointment for me. Whenever, there is a major disappointment in my investment thesis with a stock, I like to take some time and thought before rushing to a judgment on what to do next. With the limited reaction of the stock to the 6-K filing, we probably have some time to think about what to do.

My initial reaction is that the stock even in the event that the AB rated version of EpiPen is dead is interesting at this level. I think that Otrexup will reach breakeven perhaps late this year or early 2017 and I think that QST will be launched in 2017 and has major potential. Also, the approved AB rated version of sumatriptan and the potential approval of an AB rated version of exenatide are major positives. Antares seems to be a good story even without the potential for an AB rated version of EpiPen.

I am focused on the March 8th call as a time point for finalizing my thinking on Antares. If the Company indeed does not have to finance, there seems little risk to holding the stock or even buying it at these levels. I would also submit that there remains some finite chance that the AB rated version of EpiPen could be launched in 2017. I plan to put out a detailed sales and profit model after the March 8th call and decide on my course of action then.

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  1. TDPeterson123 says:

    If the injector device is part of the CRL, Teva will have to contact Antares and notify them accordingly. If that happens, Antares will have to issue material news to that affect. I would expect news from Teva to Antares to happen no later than next week, if it happens. If the device is not part of the CRL, then I don’t expect to hear anything from Antares of Teva on the details of the CRL.

    I think the concern is as you stated, when will Antares have to raise cash? A strong QST partnership may be needed to keep cash at an acceptable level for Antares. At this juncture, Antares cannot afford to market any aspect of QST themselves. They’ll need to find a strong partner to market QST or possibly buy Antares for the potential value of QST. A wild card remains the amount of development revenues from Makena each quarter.

  2. TDPeterson123 says:

    The most skewed aspect of the CRL is that it was initially unexpected per comments made by Teva last July. In other words, the FDA had been guiding Teva to believing that the ANDA would be approved in latter 2015. Then, at some point, the FDA changed their stance on whatever prior guidance had been given to Teva, slowed their review, then issued a CRL. Teva first thought that the FDA would issue a CRL simply because they were so far behind in the review. So, out of the blue, what seemed like approval in 2015 became a major CRL in Q1 of 2016. How was this possible, and who is holding the FDA accountable for misleading Teva in 2015?


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