Expert Financial Analysis and Reporting

Overview and Investment Opinion

In my opinion, Antares is substantially undervalued. My price target is $6 60 $8 in 2018 and the thinking behind this was explained in my April 22 report An Outstanding Product Pipeline Promises Dramatic Growth Through 2022

Antares: An Outstanding Product Pipeline Promises Dramatic Growth Through 2022 (ATRS, Buy, $0.92)

The stock has been devastated by the slow and disappointing launch of Otrexup and the receipt of a CRL on the AB rated generic to EpiPen, sinking to a low of $0.81 on May 12, 2016. The stock began to turn with the approval of the AB rated generic to sumatriptan. This product opportunity had been largely ignored by investors, but now is seen as a major product in the context of the size of Antares. And then recently, the problems that Mylan ran into with its price hikes on EpiPen has increased investor confidence that the Teva/ Antares AB rated generic to EpiPen will be approved.

Product success and stock momentum is bringing more investor attention to the stock. As they begin to look into the fundamentals I believe that they will see like me a fabulous pipeline that has been pretty much ignored. In this report, I lay out my thinking on potential QST revenues. I think that perhaps five year after launch (2022) that QST could capture one third of the market or $230 million. I further project that Antares could record $75 million through direct sales and then receive royalties on an additional $155 million sales by a partner.

I think that annualized revenues for the Teva/Antares AB generic to EpiPen could be on the order on $300 million eighteen months after introduction. I estimate that at this level of sales, Antares would record $27 million of pretax profits from a combination of royalties and gross profits on injector sales to Teva. I am looking for a launch sometime in 2017.

QST, Otrexup and the AB rated generics to sumatriptan and EpiPen are only a part of an extremely broad and growing pipeline. I am not going to discuss the pipeline in this report, but for more detail see my April 22 report that I referenced in the first paragraph. I believe this is going to be a very big stock.

Quick Shot Testosterone Update

Antares announced on September 22 that it had completed the QST-005 safety study for QuickShot Testosterone (QST).  The conclusion of this supplemental safety study completes the clinical work necessary to begin the NDA submission process. Antares is on track to file an NDA in 4Q, 2016. The press release listed side effects seen in the study which appear to be consistent with testosterone replacement therapy and should satisfy the FDA on safety issues. I am projecting an NDA filing on January 1, 2017. I expect a ten month review which would lead to approval on November 1, 2017 followed by a launch on January 1, 2018. Hopefully, these are conservative estimates.

The major attribute of QST is that the clinical data suggests that it is markedly better than most (all) testosterone replacement products in maintaining the blood level of testosterone in the therapeutic range over the course of one week between injections. This is below the concentrations in the blood that cause side effects and above the minimum level needed to maintain efficacy. As an injectable, it also largely eliminates the issuance of transference of testosterone to someone else, an issue that plagues the gel formulations which are currently the largest factors in the market.

Another major attribute of QST is lack of pain on injection. This trial included an assessment of pain and in 965 injections, there was only one report of pain and that was classified as mild. I think that this means that QST can compete effectively against not just injectable testosterone products (40% of the market), but also the gels (60% of the market). It can target the entire testosterone market which currently has manufactures revenues of about $1 billion.

Some investors are concerned that the discouraging launch of Otrexup does not augur well for the QST launch and that it will also be disappointing. Let me address that. It is now the case that almost all product launches are initially slow due to hurdles put up by managed care and QST will initially face this obstacle. However, Otrexup faced two other major challenges. Medac introduced Rasuvo (a very similar product) on the heels of Otrexup and to the surprise of most investors competed on the basis of price. Medac is a private company and does not have to worry about showing revenues and profits so it went for unit market share using price as the principal strategy. The second issue was that pharmacy benefits managers receive huge rebates from biologicals. Even though Otrexup has a major role to play in delaying the time to beginning therapy with the extremely expensive biologicals and is much cheaper to the health care system, the economic interest of the PBMs was to place biologicals ahead of Otrexup because of the rebates they receive. These two issues are unique to Otrexup.

So how big could QST be? There are currently about 6.5 million prescriptions written per year and these are 60% gel and 40% injectable and other. By the time, QST comes to market there will be generic gels and the injectable market is already largely generic. The current manufacturer’s price of the gels is about $300 per prescription and the realized price is perhaps $150 so that manufactures revenues are about $1 billion. I expect that the manufactures price for the gels will erode to $200 as the generic gels enter the market and the realized price to $100 by the time that QST comes to market so that the manufacturer’s revenues (both gels and injectables) will be about $650 million at that time.

I think that QST from a pharmacokinetic stand point is overwhelmingly the best in class. I think that over time, it could capture 33% of the market or $215 million or more. Antares indicates that it will market directly to urologists and endocrinologists and seek a partner to sell to general practitioners. Of the $215 million, perhaps Antares with its own sales force might achieve sales on $75 million. It would then receive royalties on the $155 million of sales by its a partner.

Mylan’s Saga with EpiPen; Implications for Teva/Antares AB Rated Generic

It is very difficult for Mylan to rationalize to the public the price hikes it has taken on EpiPen whose list price has risen to $600 for two injectors (a backup is needed if one is used) from $100 in 2007. If I were CEO, I think I would have argued that in an absolute sense this is pretty cheap for a drug that saves lives. Then I would have hunkered down, remained silent and taken the pounding. Instead, the CEO took a route that led to a dressing down by a self-righteous congressional committee that enflamed the issue even more. So what will happen and how does this affect Teva/ Antares AB rated generic?

Seemingly, this whole brouhaha can only expedite the FDA review of the AB product, but there is no way of determining how much. Mylan has said that it will introduce its own generic. Interestingly, it came out of the Congressional hearing that Mylan can realize revenues of $300 on each twin pack when sold as a generic which is more than the $274 it is now receiving when sold as a brand name. Evidently, this is due to the reduction in payments to middle men. If this is the case, the current realized revenues on EpiPen of about $1.2 billion could actually increase with the introduction of Mylan’s generic.

I also do not expect a large number of generics to EpiPen coming to market. Other manufacturers can introduce a comparable product, but they cannot be substitutable for EpiPen unless they are shown to be identical to EpiPen. This is no easy task as we have seen with the struggle of Teva and Antares to accomplish this.

My best judgment is that if the AB rated generic from Teva/ Antares is approved in 2017 and that it will still be a two horse race. Neither Mylan nor Teva would be anxious to compete aggressively on price and destroy the market. I would guess that Teva might come in at a 25% price discount and could capture 35% of the market. This might lead to Teva recorded revenues of $300 million per year. I estimate that Antares will receive a royalty of about 8% of $300 million of sales or $24 million and that the gross profit contribution from sales on injectors to Teva would be 1% of $300 million or $3 million. All in, the pretax profit contribution would be $27 million. I think this might happen in 2018.