Expert Financial Analysis and Reporting

Investment Thesis

Xyosted is viewed by investors as the most important product in Antares” broad pipeline. In anticipation of approval on the PDUFA date of October 20, 2017 the stock price reached a high of $3.96 on October 10. Unexpectedly, Antares announced on October 11 that the FDA had identified deficiencies that prevented going forward with the NDA review causing the stock to quickly drop to $2.32. On October 20, Antares received a CRL and the stock has steadily declined from around $2.10 to a current price of $1.63, some 59% below the high of $3.96 on October 10.

Antares management was shocked by this entirely unexpected FDA action. Until October 11^th, it felt that the review was going smoothly and expected that Xyosted would be approved on October 20. The Company will not be able to receive any clarifying information on what the concerns of the FDA might be until it meets with the FDA. This requires the preparation of a detailed briefing book for the FDA and a request for a meeting which usually takes a month to schedule. Antares goal is to have the briefing book prepared and then request a meeting with the FDA which would likely take place in January 2007.

At this point, investors are completely baffled as to whether Antares can satisfy the FDA with existing clinical data or if new trials might be required. The latter could mean that Xyosted might not be approved for one, two or more years. The most pessimistic view (highly unlikely) is that there is some fatal flaw in the clinical data that would prohibit approval.

This FDA action is unusual but not without precedent. Very importantly, I think that we can look at the recent regulatory experience of TherapeuticsMD (TXMD) with its new product Yuvvexy to form a hypothesis as to what is going on with Xyosted. There are striking parallels between the regulatory actions on these two product. Later in this report, I go into the course of events for Yuvvexy in detail.

Briefly, in the case of Yuvvexy, the FDA sent TXMD a letter similar to that for Xyosted citing deficiencies just before the PDUFA date. Like Antares, until then TXMD felt the regulatory review was going very well and expected approval on the PDUFA date. In both the case of Xyosted and Yuvvexy, the FDA did not identify any issues related to efficacy and did not identify any approvability issues related to chemistry, manufacturing, and controls. TXMD ultimately resolved the situation without the requirement for any new data.

I believe that the objective of the FDA was to get TXMD to make an iron clad agreement to do a phase 4 post approval marketing study as a condition for approval in order to give FDA data on real world experience with Yuvvexy. TXMD has agreed to this request and will soon (has) resubmit the NDA and the probability of approval is very high. TXMD has not disclosed details on this trial design, but has said that it would not require a significant financial commitment The action on Xyosted may have been because the FDA has been frustrated that its requests for manufacturers of currently marketed testosterone replacement drugs to do post approval phase 4 trials have so far not led to any such trials being started. They appear to be using this new strategy to make sure they get the real world data they would like.

In my hypothesis that the issues with Yuvvexy and Xyosted are the same, we can look at the timelines for the Yuvvexy situation to the put together the timeline for approval of Xyosted. I go over the Yuvvexy timeline in detail later in this report. Based on this reasoning, here is my hypothetical timeline for Xyosted approval.

December 2017: Antares submits detailed briefing book and requests a meeting with the FDA.

January 2017: Meeting with FDA occurs. FDA informs Antares that there is no need for new clinical trial data for resubmission of NDA. The only new requirement is an absolute commitment for a phase 4 post-marketing observational study. This would be extremely bullish for the stock.

February 2017: Antares resubmits the NDA.

March 2017: FDA accepts the NDA. If the review is classified as a class I (two month) review, the PDUFA date is May 2017. If the review is class II (six month review), the PDUFA date is September 2017. My guess is that it will be a class II review, but in dealing with the FDA there is no certainty and the agency is overworked and missing deadline after deadline.

I must caution you that Antares has made no comment on this hypothesis nor would I expect them to. Also, the FDA can sometimes take some unpredictable courses of action that my hypothesis does not envision. That said, I think that my hypothesis is sound and there is a very good chance that I am right. The stock at this point seems to assume that Xyosted approval is going to be delayed for a long time and possibly never. Lifting of this dark cloud might enable the stock to recover much of the recent l loss and return to the $3.96 high seen on October 10.

Background

On October 11, Antares received a Deficiencies Preclude Discussion Letter from the FDA. This was nine days before the PDUFA date of October 20. The letter stated that as part of the ongoing review on the Xyosted application, deficiencies had been identified which precluded the continuation of labeling discussions and post-marketing requirements or commitments at that time. Then on October 20, Antares received a CRL that identified two deficiencies related to the clinical data. The FDA was concerned that Xyosted could cause a clinically meaningful increase in blood pressure and might be linked to the occurrence of depression and suicidality. Management was surprised and shocked as until then the review seemed to be moving smoothly and interactions with the FDA encouraged Antares that an approval on October 20 was highly likely.

As of November 7, 2017, Antares has had no further dialog with the FDA. The normal course of action after receipt of a CRL is to request a meeting to get further clarification from the FDA in order to understand and then work to resolve outstanding issues and to determine a time table for responding to the CRL. In order to do so, a comprehensive briefing book has to be completed. The goal of ATRS is to have the briefing book completed and request a meeting before yearend. Typically, this meeting is scheduled within 30 days of the request suggesting that the meeting could be in January 2018. Until ATRS has that meeting, they will have no clarity on what data the FDA is looking for and cannot give any guidance as to timing on when Xyosted might be approved and launched.

The Side Effect Issues

The two items mentioned in the CRL were a clinically meaningful increase in blood pressure and a link to depression and suicidality. In the data from the clinical trials of Xyosted, there were no unremarkable increases in blood pressure over 52 weeks and there  were no significant outliers with respect to change in the blood pressure. Discussion of links to high blood pressure, depression and suicidality is included in all of the labels of other products in the testosterone replacement class. Until they meet with the FDA, ATRS can’t really determine if FDA has more of an issue with Xyosted on these side effects than with other drugs in the class (unlikely) nor specific information on whether the issue can be addressed with current data or if additional trials might be required.

In all testosterone replacement drug labels there is a discussion of links to hypertension and also depression and suicidality. Xyosted was filed under the 505 (b) 2 pathway which is based on pharmacokinetic (PK) studies that indicate comparable blood levels are obtained when compared to approve testosterone products. There was no control group. This means that the label in regards to Xyosted would be expected to be pretty much the same as all other products in the class. The major difference for Xyosted is in PK data. The FDA, based on long experience with the class has established an acceptable upper bound of testosterone levels in the blood; excursions above this level can produce side effects. It has also established a lower bound; excursions below this level reduce efficacy. The FDA focuses on excursions above the upper bound and excursions below the lower bound. The pharmacokinetic profile of Xyosted appears to be the best in class in maintaining testosterone blood levels within this range and this is the major differentiating point for Xyosted. Based on PK data, one would expect Xyosted to have a better side effect profile and better efficacy than other testosterone replacement drugs.

This concern about side effects seems to have been an 11^th hour concern. Prior to then, the 505 (b) 2 process seemed to be moving smoothly toward approval on October 20. These side effects were a known class effect and because of the much better PK profile, there is a strong suggestion that Xyosted is best in class. This suggests that managers higher up in the FDA stepped in to put the brakes on the process. If so, this would almost certainly be due to issues related to testosterone replacement products as a class. There is a striking parallel with TherapeuticMD’s recent experience Yuvvexy which may explain the FDA’s action.

The Experience with TherauticsMD’s Yuvvexy May Explain What is going on with Xyosted

TherapeuticsMD had a strikingly similar experience in 2017 with its regulatory filing for Yuvvexy. If I am correct that the course of action by the FDA provides an insight into the likely outcome for Xyosted, it is important to understand the timeline for Yuvvexy as follows:

September 19, 2016:  TherapeuticsMD (TXMD) announced the acceptance of the NDA for Yuvvexy, a bio-identical 17β-estradiol vaginal soft gel capsule for the treatment of moderate-to-severe vaginal pain during sexual intercourse (dyspareunia). This is a symptom of vulvar vaginal atrophy (VVA) in postmenopausal women. Xyosted in intended to be a better formulation of testosterone while Yuvvexy is intended to be a better formulation of estradiol. The PDUFA target action date was set at May 7, 2017.

The NDA was a 505(b)(2) NDA submission that was supported by positive results from the phase 3 Rejoice Trial, which evaluated the effect of three doses of Yuvvexy (4 mcg, 10 mcg and 25 mcg) compared to placebo from baseline to week 12. The results demonstrated statistically significant and clinically meaningful improvements in dyspareunia, a co-primary endpoint, and vaginal dryness, a secondary endpoint. Statistically significant results were seen as early as two weeks after beginning treatment. The NDA included all three doses of Yuvvexy that were evaluated in the Rejoice Trial.

April 10, 2017: Twenty seven days before the PDUFA date, TXMD received a Deficiencies Preclude Discussion Letter which said that FDA had identified deficiencies that preclude discussion of labeling and post-marketing (sounds familiar to Xyosted). Like Antares, TherapeuticsMD was baffled at that the FDA’s concerns might be. Safety issues cited in the CRL were well covered and documented in clinical trial and the product seemed to be sailing toward an approval on May 7.

May 7, 2017: TXMD received a CRL that cited the lack of long-term endometrial safety data. This was remarkably similar to the side effect issues raised in Antares’s CRL. In the 12 week pivotal phase 3 Rejoice Trial, there were no cases of endometrial hyperplasia reported at 12 weeks. As with Antares, the CRL did not identify any issues related to the efficacy of Yuvvexy and did not identify any approvability issues related to chemistry, manufacturing, and controls.

November 3, 2017: TXMD prepared a briefing book and then met with the Division of Bone, Reproductive, and Urologic Products of the Food and Drug Administration. At the meeting, the Division agreed to the resubmission of the NDA for Yuvvexy without the need for any additional pre-approval study. However, in order to gain approval, the FDA required TXMD to commit to conduct a post-approval observational study.

In order to gain approval, TXMD had to agree to do an observational phase 4 post-marketing trial.   Phase 4 trials are usually required to be conducted after drug approval. Historically the FDA has not asked for such trials until after approval nor made this a requirement for approval. They appear to be setting a precedent to make this a commitment for approval. TXMD will be resubmitting their NDA which includes an agreement with FDA for post a marketing commitment without the need for additional safety study to supplement what was originally conducted.

I expect a similar result for Antares and Xyosted. The FDA has been asking current testosterone marketers to conduct a study like this for the last two or more years. To date, none of the manufacturers has begun a study. This could be an FDA strategy to make sure that they get real life data and it might prod other manufacturers to conduct such studies. There might be a bright spot to this if Xyosted does a phase 4 which produces results encouraging on hypertension and depression and suicidality. This would give them a differentiated label as compared to other drugs in the testosterone class.