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Expert Financial Analysis and Reporting

Antares Pharma: Approval of Xyosted on or before September 29, 2018 Is Highly Probable (ATRS, Buy, $2.12)

Background on Xyosted NDA Resubmission Following Complete Response Letter

The original PDUFA date for the Xyosted NDA was October 20, 2017, but Antares received a complete response letter (CRL) on October 11, 2017 which shocked management and investors. Just days earlier management had said that the FDA review was progressing smoothly and that they were in late stage discussions on labeling, which is usually one of the last things that the FDA checks off on before approval. They thought approval was imminent.

At the time, it was very hard for me to conceive of reasons for the CRL given the excellent clinical data that indicates to me that Xyosted has the best pharmacokinetics (PK) data of any of the approved gel or injectable testosterone replacement products. Maximizing efficacy and minimizing side effects through better pharmacokinetics (PK) is what this class of drugs is all about. Xyosted’s PK looks to me to be best in class of all of the testosterone formulations, whether gel or injectable.

Possible Reasons for the CRL

In my last note, I did speculate on a potential reason for the CRL. There are two oral testosterone products in late stage clinical development that were due for AdCom meetings in early 2018. These products have more concerning pharmacokinetics and resultant efficacy and side effect issues than Xyosted. On January 9, 2018 an Advisory Committee voting on a recommendation for approval of Clarus Therapeutics’ Jatenzo split with nine favoring approval and ten against. On January 10, the same AdCom voted six in favor of and thirteen against approval for Lipocene’s Tlando. Antares has not been asked by the FDA to go before an AdCom suggesting that the FDA is more comfortable with Xyosted. Still, it could have been the case that they wanted to settle questions on the orals before moving ahead on Xyosted and issued the CRL to buy some time.

It could also be the case that the FDA at the last minute decided to ask for some risk mitigation strategies. I asked management if that might be the case and was told somewhat mysteriously that the Company didn’t want to get into this for competitive reasons. So let me speculate. The FDA has been concerned with the potential for depression and cardiac complications that might be associated with testosterone replacement therapy. To date, this association has not been shown in a controlled clinical trial. It is possible that the FDA might require Antares as a condition for approval to conduct a post marketing study to see if there is a link.

The FDA has asked for such studies from companies with approved products and has been ignored. Xyosted has better pharmacokinetics than any marketed testosterone replacement product and I would expect it to be less causative of side effects related to testosterone replacement. If Antares conducted a post marketing study that showed no issue with hypertension and depression Xyosted would be the only product to have demonstrated this. Sales reps could point to the superior PK profile to suggest that this safety is unique to Xyosted. It would be a hugely positive differentiation in the market. It there are issues, it would confirm FDA fears that this is a class effect and Xyosted would not be disadvantaged against other products although the class as a whole might be negatively affected.

The FDA Unexpectedly Responded to the NDA Resubmission with Lightning Speed; this is Highly Positive

In December 2017, Antares prepared for and requested a type A meeting with the FDA to discuss the CRL: this took place on February 21; 2018. The Company described the meeting as cordial. Antares announced on March 27, that it had received the official minutes on the type A meeting with the FDA. The Company said that based upon this that it believed that it would not need to conduct any new clinical studies to resubmit the NDA for Xyosted. At the time, Antares said that it expected to refile the NDA in 2Q, 2018. FDA guidelines mandate that the FDA respond within 30 days to determine whether the filing constitutes a complete response that addresses all deficiencies in the CRL.

On April 5, 2018 Antares announced that the FDA acknowledged receipt of the resubmission to the Complete Response Letter (CRL) which Antares had submitted on March 29, 2018, earlier than the earlier guidance of a second quarter resubmission. Moving with unaccustomed speed, the FDA said that it considered this resubmission a complete, class 2 response and assigned a PDUFA date of September 29, 2018. The FDA had 30 days to consider the resubmission and my experience is that if the FDA has 30 or whatever days to respond, it invariably uses the full amount of time. It is out of character to respond in just eight days. This acceptance also takes away the risk and uncertainty that a new trial would be required.

Key Conclusions

This quick action by Antares in resubmitting the NDA just two days after receiving minutes of the type A meeting and the FDA accepting the filing as complete just eight days later is very positive. It indicates to me that just as the Company indicated in early October, the FDA is quite satisfied with the contents of the NDA as originally submitted and far along in the approval process. Whether the CRL was issued to allow AdCom review of the oral testosterone product NDAs or to gain a commitment from Antares to do a post marketing study is still unclear. The FDA could have classified this as a class 1 review which would have set a PDUFA date of May 29, 2018 instead of the class 2 that results in a September 29, 2018 review. If I am right that the CRL issues are minimal, why wasn’t a class 1 review designated? The reason is simple. The FDA is graded on meeting deadlines and there is no incentive to commit to an earlier PDUFA date that they might miss, even if only narrowly.

All of this raises the question as to whether Xyosted approval could come before September 29, 2018. I am torn on this. Let me reiterate what is a well-documented pattern of behavior that shows that if the FDA sets a PDUFA date (in this case September 29, 2018) then it is highly likely that the FDA will not issue a judgment before the PDUFA date. On the other hand, the quick actions of Antares in resubmitting the NDA and the FDA in accepting it suggests that there are only minimal issues to be resolved on the NDA, if any. Hence, I hold out some hope of an earlier approval. Overall, I assign an extremely high probability for approval on or before September 29, 2018.

Thoughts on the Launch of Xyosted

If approval is received as expected, the launch could begin in October or November of 2018. I believe that Xyosted ultimately could emerge as the best in class testosterone replacement product and dominate what is now a $1 billion market in the US. This does not mean that the product will jump out of the blocks with a quick sales uptake. Antares has to negotiate with insurers and PBMs to gain formulary acceptance and negotiate contracts which is a slow process.

The PBMs will be a major hurdle. These organizations were first created with the noble purpose of giving insurers leverage to negotiate better drug prices and reduce insurance costs and patient co-pays. While this is an important function, unfortunately the PBMs have evolved to become more focused on getting rebates and discounts than on controlling costs. Why? Because they get a percentage of the rebates and discounts. It is actually in the self-interest of the PBMs for drug companies to raise prices because it increases the level of rebates and discounts and their take from them. They are not incented by what is the best product, only with the level of rebates and discounts. This means that it may be in their self-interest to continue to emphasize older gels and injectables in the near term.

Let me give you an example of what PBMs do based on an Eli Lilly discussion about how it has been affected by pharmacy negotiations. In 2017, the Company discounted the average list prices of its portfolio of drugs by 51%, up from 50% in 2016. Because of its huge presence in the extremely competitive insulin market, Ell Lilly is much more affected than most of big pharma, but still this is shocking. In 2017, LLY raised list prices by 9.7% in 2017, but after rebates and discounts, the realized price increases came to 6.0%.

Antares has already seen the hurdle posed by PBMs play out with Otrexup. I thought that this would be an extremely successful product. Its drug properties allowed for patients to remain on methotrexate, the gold standard treatment for rheumatoid arthritis, for much more time before they had to switch to much higher priced biologicals. I naively thought that these characteristics would lead to a quick uptake but instead the launch has been very slow. Here is why. A biological might be priced at $20,000 per year while Otrexup is priced around $4,000. PBMs are probably getting 30% to 50% rebates and discounts on the biologicals so that for each patient treated with a biological, the PBM gets a meaningful percentage of the $6,000 to $10,000 in rebates and discounts. Even if Otrexup matched the percentage level of rebating and discounting, the amount per patient would be only $1,200 to $2000. The primary incentive of the PBMs is not to assure that the best medicine for the patient is received or that health care spending is reduced. For them, it is increasing the amount of rebates and discounts per person treated.

Xyosted will face the same PBM hurdle as Otrexup although there are significant differences that may allow for faster acceptance. It will be priced at the same level as generic products (the category is heavily genericized) and the PK advantages will be very apparent to prescribing physicians who will want to prescribe the product over older gels and injectables because of the PK. This could make the Xyosted launch meaningfully less painful than was the case with Otrexup, but it will still be constrained as the PBMs figure how to get their pound of flesh.

Let’s look on down the road. If it is the case that Antares has committed to do a trial that assesses cardiovascular and depression risks, this could be an absolute and very positive game changer for Xyosted. If a post marketing study showed no issue with cardiovascular risks and depression, Xyosted would be the only product to have demonstrated this. It would be a hugely positive differentiation in the market. The PK profile suggests that this may be the case. If there are issues, it would confirm FDA fears that this is a class effect and Xyosted would not be disadvantaged against other products although the class as a whole might be negatively affected. Executing and completing this study would take some time, probably two years or more.

Could the Approval of Xyosted Lead to an Acquisition of Antares?

If numerous past launches are any indication and if Xyosted is launched in 4Q, 2018, it might take until 2020 to assess how well sales are progressing. This could lead to uncertainty by investors about its potential and restrain the stock price. This raises the possibility that Antares management might take an easier course of action by being receptive to a takeover. Antares would be a very good fit for AbbVie as it could use Xyosted to protect its position in the market as AndroGel sales fade. It has the market presence and insurance and PBM relationships to make Xyosted the dominant product in the market more quickly, especially if a post marketing study shows no meaningful risk for depression and cardiovascular issues. Aside from AbbVie, virtually every specialty pharmaceutical company would love to gain control of Xyosted.

On the other hand, Antares has a lot of other developments going for it on the new product side such as the launch of an AB rated generic to EpiPen (which is way overdue) and the Makena launch that is just starting. Both are big opportunities and in my mind, Antares would be unlikely to sell before the potential for both products is evidenced and reflected in the stock price. This could suggest that management probably would not commit to an acquisition until 2019.

Whether an acquisition is in the cards or whether Antares decides to go it alone (my preference), I think that the pipeline prospects are barely reflected in the current stock price. My price target thinking was explained in an August 17, 2017 report in which I indicated a 2018 price target of $5.50 to $7.60. At the time, I was anticipating the approval of Xyosted in October 2017 and the AB rated generic to EpiPen by the end of the year. The delay in approval for both probably means that we should look at the lower end of this target price range for 2018, i.e. $5.50.

 

 

 


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4 Comments

  1. TDPeterson123 says:

    Nice report Larry. The last topic touched on can be a tough one to predict. Still, having a new best in class product with strong global P protection that’s coming into an already established $1B+ product category will be tough for a specialty pharma (i.e. someone that needs to “buy” growth) to ignore. Of pertinence, current Symphony script data shows injected testosterone as the dominant adminstration within the category (currently 66%+ of all testosterone scrips dispensed), and on a solid trajectory that would put it close to 70% of all testosterone scripts by December 2018. Injected testosterone overtook the gels in 2015 and hasn’t looked back. Though the marketing stragety of Antares is to attack both the gel and IM segments, the patient benefits of Xyosted vs. deep muscle injections are enormous from a pain and convenience standpoint while still getting the benefits of exended efficacy and superior “rock solid” testosterone level control between dosing. The large IM segment would seem to be the logical “enormously better mouse trap” solution to offer the HCPs and patients in that segment. The Xyosted value propostion does have similarities to the new Makena AI. Word is the HCPs in the Makena AI space have embraced the new administration, they really it, and the transition to the AI may happen quickly. We’ll get a formal update when Amag provides Q1 resutls and guidance in May. Perhaps Antares can learn a few pointers from the Amag launch of Makena AI. The financial upside could be very strong for Antares, and we’ll probably know sooner than later.

    As for Gx epipen, when that drug finally gets approved, the bottom line dollars for Antares from both Makena AI and Gx epipen will be substantial, and enough to more than de-risk Antares financially (assure profitable operations?) and support the lauch of Xyosted and the new product(s) in the pipeline.

    Another potentially overlooked financial contributor is Gx Forteo, an already approved drug in the EU for Teva (and Antares) with an expected 2018 run rate to exceed $800M just in the EU. The only unknown is launch timing. Still, it’s when not if that drug will launch in the EU, further bolstering Antares financial position.

    All of these strong financial contributing products will help keep Antares from being painted into a weak corner of negotating leverage by a would-be acquirer. As for potential timing, I highly doubt that the “watchers” will sit back and wait for every aspect to become derisked. That’s not the way I’ve seen big pharma operate. If you wait you’re late, and if you’re late, you lose. It’s the early bird that gets the worm. Many pharmas are facing patent cliffs and to keep up they’ll have to “buy” their growth. Xyosted is positioned to become the best in class drug hands down, and as time permits, may get even stronger contingent on P4 trial results. Good sales results are all but a certainty. Tremedous sales results don’t require a lot f imagination. With approval seemingly a certainty at this juncture, the only risk aspect would be speed of market penetration. If the P4 aspect goes well, it could provide a “lockout” competitive advantage for Xyosted. Will “the world” of specialty pharmas sit back and wait on the latter? I highly, highly doubt it. I suspect that someone(s) will make a play sooner than later, and this is the pattern I’ve seen in recent years with big and mid-sized pharmas that must “buy” their growth. They don’t have time to wait and possilby watch the train take off without them. Xyosted is already highly derisked and a large global market stands to benefit. Once approved it will be derisked even more so. The company can’t be levered into a corner and especially once Gx epipen gets approved. Antares doesn’t have to sell, no. However, it may make sense to sell, and they’ll soon be in a position to have a level playing field so a fair negotiation can be facilitated. Let the games begin.

  2. TDPeterson123 says:

    Just a point of clarification, when mentioned Gx Forteo, the $800M run rate for the EU was specific to the branded product. Once Teva’s Gx gets launched (the settlement date for launch has not been made public yet), it’s possible that Lily will launch an AG, but being a biologic, the discounted AG Forteo is expected to be a small lessor drop from the branded price (maybe 15% to 20%), allowing room for Teva’s Gx pricing to still be substantial versus the branded and authorized generic (AG).

  3. TDPeterson123 says:

    Earnings call today, good updates on a few key areas. Xyosted, Bob Apple noted that the P3 already included an ABPM study. My guess is this was part of the additional safety trial (005) requested by the FDA. Knowing this helps explain the speed of interaction between Antares and the FDA post Type A meeting. Mr. Apple noted that the label, and possibly P4 requirements, were the hot buttons that had to be addressed prior to moving to next steps. To Larry’s credit, he identified these as the primary suspects in Q4 of last year.

    Suma share is now 32%. Otrexup showed good Q1 vs prior Q1 growth. Q1 is a slow quarter for most drugs due to deductables needing to be met. Makena subcu looks strong. Wildcard remains when will generic Makena come to market? Could be mid year, or, could be awhile (2019 or other).

    A PAC is making epipen noise. Part of their petitioning is to get the FDA moving on approving Teva’s AB epipen.

    A couple of unknowns remain for pipeline and/or partnering activities.

  4. TDPeterson123 says:

    Update to the first comments post above. IM TRT, per Symphony, hit 70% of all dispensed scripts in April and May and now is on a trajectory to be somewhere between 70% and 75% of all dispensed TRT scripts by end of year. Share gains have come at the gels expense. I don’t see that trend changing.

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