Expert Financial Analysis and Reporting

Investment Thesis

I initiated coverage of Antares (AIS) on December 8, 2011 with a buy rating. Important factors driving my recommendation were its broad based relationship with Teva for developing injectable pharmaceuticals and the recently approved Anturol, a gel based product for urinary incontinence. I also felt that LibiGel could be a meaningful, but not critical contributor to the investment thesis. The subsequent failure of LibiGel in its phase III trial was a disappointment, but did not meaningfully affect my rating.

I would be a buyer of Antares based just on these factors, but there is another element of the story that has the potential to dominate the investment thesis. The company is developing Vibex MTX for its own account; this is a sub-cutaneous formulation of methotrexate or MTX for rheumatoid arthritis and other auto-immune diseases. Antares has the lead in developing this type of product in the US and my work suggests that it could be the most effective of the disease modifying agents, more effective than oral MTX and the newer biologic agents such as Humira, Enbrel and Remicade.

I believe that Vibex MTX has a very important role to play in the treatment of rheumatoid arthritis. I am looking for a US introduction in early 2014 and project US sales of $15 million in 2014, $50 million in 2015, $75 million in 2016 and $90 million in 2017. For a company with a current market capitalization of only $260 million, this represents a blockbuster commercial opportunity.

My previous reports have pointed out that there are a lot of moving parts in the Antares story. I have been using the following table to give the reader an idea of how Antares' sales might develop over the next few years. There are numerous things that can change. For example, I am modeling generic launches by Teva of the epinephrine and sumatriptan injectors, but if Teva settles with the innovators or agrees to launch an authorized generic, these estimates could be very different. I also believe that Teva will be launching other products in the time frame through 2015 that are not yet in my model. The following table shows my sales estimates through 2015.

Sales Projections for Antares Pharmaceuticals 2011-2015
All numbers are in ($000)	2011	2012	2013	2014	2015
Proprietary products
Injectable methotrexate				15,000	50,000
Self-injection product sales
Human Growth Hormone
Injector and consumables sales
TevTropin	4,145	5,918	8,107	10,802	13,344
Ferring HGH product	3,595	3,865	4,154	4,466	4,689
JCR HGH product	381	410	440	473	497
Sub-total	8,121	10,193	12,701	15,742	18,530
Vibex epinephrine injector	0	0	10,000	10,200	10,404
Vibex sumatriptan injector	0	0	2,493	2,543	2,542
Pen injector (ANDA) product sales	0	0	0	0	0
Pen injector 505 (b) 2 product	0	0	0	0	0
Sub-total	8,121	10,193	25,195	28,485	31,476
Royalties from self-injection products
Human Growth Hormone
TevTropin	1,930	2,758	3,196	3,658	3,768
Ferring HGH product	174	178	181	185	189
JCR HGH product	23	24	26	28	30
Sub-total	2,127	2,960	3,404	3,871	3,986
Vibex epinephrine	0	0	1,800	1,836	1,873
Vibex sumatriptan	0	0	792	792	776
Pen Injector (ANDA product)	0	0	0	0	0
Pen injector 505 2 product	0	0	0	0	0
Sub-total	2,127	2,960	5,996	6,499	6,635
Royalties from gel technology
Elestrin	450	488	512	537	564
Anturol	0	2,000	4,000	5,500	7,500
Sub-total	450	2,488	4,512	6,037	8,064
Overall sales summary
Self-injection and gel formulations
Product sales	8,121	10,193	25,195	28,485	31,476
Royalties	2,577	5,448	10,508	12,536	14,700
Development revenue	3,626	3,500	3,500	3,500	3,500
Licensing revenue	8,728	1,000	1,000	1,000	1,000
Sub-total	23,051	20,141	40,202	45,521	50,676
Vibex MTX				15,000	50,000
Total Revenues	23,051	20,141	40,202	60,521	100,676

In valuing Antares, I would use a price to sales ratio to estimate the potential price in 2014 based on looking at anticipated 2015 sales. Companies with products having short product life cycles can sell at one or two times sales, while companies with products having long life cycles can sell at five to seven times sales and sometimes higher if there is a good new product outlook. I include Antares in the latter group and I am using a five multiplier on projected 2015 sales that results in a price target of roughly $5.00 for 2014. However, I would reemphasize that I am not including any estimates for new products other than those currently known and this hopefully introduces conservatism in my analysis.

Methotrexate Is a Very Important Drug

Methotrexate is considered to be the gold standard therapy for rheumatoid arthritis patients who need a disease modifying agent. It is the most important and valued drug in the rheumatologist's drug armamentarium. 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.

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 disease modifying agents that affect the cause of the disease and the first drug used is almost always methotrexate. If patients fail to respond to methotrexate, physicians turn to newer biologic agents such as Enbrel, Humira and Remicade. Methotrexate may be used alone or in combination with anti-inflammatories and biologics. In total, it is estimated that methotrexate is used in 70% of the 500,000 rheumatoid arthritis patients who need disease modifying agents. It is also used to treat psoriasis and other autoimmune diseases.

Methotrexate was first developed as an anti-cancer agent in the late 1940s. In cancer its mode of action causes the same effect as many chemotherapy drugs; it inhibits the synthesis of DNA in rapidly dividing cells. It has a different mode of action in autoimmune diseases like rheumatoid arthritis in which it blocks the proliferation of T-cells that play an active role in these diseases. This activity was ignored for many years, but beginning in the mid-80s, this effect became more broadly recognized and it began to be used widely for the treatment of autoimmune diseases.

Methotrexate for rheumatoid arthritis is most commonly given as oral tablets once a week. It is started at 7.5 mg/mm2/week and then titrated up to as much as 20 to 25 mg/mm2/week. The absorption of methotrexate can be erratic as the dosing is increased and this can be a problem getting patients titrated to the right dose.

A common side effect is nausea which is troublesome for somewhere between 20% and 50% of patients when initially treated and can prevent dosing to the appropriate level. In some patients the nausea from methotrexate disappears on its own or may be controlled by lowering the dose or spreading the dose out over the course of a day. Some patients take their dose on Saturday so that the nausea does not interfere with the work week.

The Potential for Vibex MTX

The key element of Vibex MTX is its efficacy. Studies like one by Schipper, et al concluded that the efficacy of oral MTX used as monotherapy is comparable to the new biologic agents. A controlled randomized study conducted by Braun et al concluded that subcutaneous MTX is more effective than oral MTX. Results from the Braun study are described in more detail later in this report. Based on these reports, one could conclude that injectable MTX is the most effective disease modifying agent for rheumatoid arthritis.

A possible reason for injectable MTX being more effective 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 receive the intended dose. Injectable MTX enters the blood stream before being metabolized and altered by the liver. It may also be the case that when patients are titrated to higher doses of oral MTX that they may not consume all of their pills due to side effects. With an injectable, it is virtually certain that the patient will get the intended dose.

The general opinion currently among rheumatologists is that injectable MTX causes less nausea than oral MTX. In Europe where a subcutaneous injectable MTX is approved, it is promoted as being more effective than oral MTX and causing less nausea. Antares believes that its injectable MTX causes less nausea and often cites this in their presentation.

I believe that in future clinical practice, physicians will continue to start with oral MTX because it is cheaper and more convenient. They will then turn to injectable MTX when patients don't respond well or can't tolerate the side effects. Currently, patients who fit this description are switched to a biologic agent or a biologic is added to the oral MTX regimen.

In addition to the therapeutic argument that can be made for switching patients who are performing poorly on oral MTX to injectable MTX before turning to a biologic, there is also a cost argument. Vibex MTX will cost about $2,500 per year versus $20,000 or more for the biologics. These factors could combine to introduce a very important new therapeutic step in treating rheumatoid arthritis patients either in reducing the role of biologics or at least delaying their implementation.

Antares obviously did not discover methotrexate as it is a generic drug. Also, in the US, there are already injectable versions of MTX available which are used in roughly 8% of treated MTX patients. The current versions require intramuscular injections which are deeper and more painful than Vibex MTX and require a weekly doctor visit for the injection. With Vibex MTX, the patient applies the device to the skin, pushes a button, counts to three and the dose is delivered with little pain. The needle in the device retracts so that a "needle-phobic" patient never sees it and the device is then thrown away.

There is a subcutaneous MTX product currently marketed in Europe and Canada, and its owners will be seeking and gaining approval in the U.S. However, Antares has first mover advantage and appears to have a development lead of one to three years. While Antares cannot patent methotrexate, it does have a patent on the injector that lasts until 2027. This means that any company developing a competitive product can't use the Antares injector. This should be a barrier to generic competition because the FDA requires that a generic challenger must show that both its drug and device are interchangeable with the innovator product.

Potential competitors will have to use different injector devices and this may prevent them from being deemed to be generic equivalents and prevent substitution by the pharmacist. If so, this means that Vibex MTX will be competing with innovator products judged to have different characteristics and are not interchangeable. This is a very different and more favorable competitive dynamic than is seen with generics and is important for extending the life cycle.

The Addressable Market for Vibex MTX

The best estimate that I have is that oral MTX is given to 350,000 rheumatoid arthritis patients each year. Based on weekly dosing, this represents a market of 18.2 million doses per year. Currently, it is estimated that injectable MTX (intramuscular) is used in about 8% of patients so that this current sub-market is about 1.5 million injections per year. The price in Europe for the subcutaneous MTX injector is about $50 per dose. Antares should be able to price at this level or higher in the US as Europe is invariably tougher on pricing. If Antares chooses to use the same pricing of $50 per dose as in Europe, this represents an addressable market of $75 million that should be quickly penetrated.

Based on its superior product characteristics, I think that Vibex MTX can expand the market. Antares believes that it can capture 15% of MTX doses which seems possible to me. This would enlarge the addressable market to $140 million. Usage may be further expanded by broadening use to other autoimmune diseases like psoriasis, Chrohn's disease and inflammatory bowel disease.

Vibex MTX can be marketed by Antares with a small sales force of about 30 reps to about 3000 rheumatologists. I think that the adoption of the product can be rapid as these physicians are intimately acquainted with oral and injectable methotrexate. Antares doesn't have to convince them of the effectiveness of the product and the superiority of the injection device is readily evident.

I am assuming that the product is introduced on January 1, 2014. It takes about six months to a year to go through the formularies and reimbursement process during which sales are restrained and I am looking for only $15 million of sales in 2014. I am then looking for a rapid ramp in 2015 to $50 million. Thereafter, I am looking for a slowing of sales as I expect a competitive product to enter the US market in 2015 and become a factor in 2016. Hence, my 2017 sales estimate is $75 million and 2018 is $90 million.

Experience with Sub-cutaneous Methotrexate in Europe

There is commercial proof of concept for a subcutaneous dosage form of methotrexate. In Europe and Canada, Medac International and its licensees market a prefilled syringe containing methotrexate. Antares' market research indicates that it has captured 20% of the unit market and 80% of sales for all methotrexate formulations in Europe.

I did an internet search to find out what was being said about subcutaneous methotrexate in Europe. In Spain, the product is marketed as Metoject by Gebro Pharma. Theirs is the only such approved product in Spain. It is available as 7.5, 10, 15, 20 and 25 mg syringes and is indicated in the treatment of rheumatoid arthritis, psoriasis, psoriatic arthritis and juvenile idiopathic arthritis.

They make the following promotional points on their website:

• According to the Spanish Society of Rheumatology, MTX is the first line disease-modifying anti-rheumatic drug (DMARD), addition,
• Metoject® provides more effective control of RA than oral methotrexate,
• MTX administered parenterally has fewer gastrointestinal side effects
• Metoject® allows the dose to be adjusted to meet SER (Spanish society of rheumatology) recommendations
• Metoject® is the ideal complement for anti-TNF therapy
• 
  

Antares's Clinical Development Program

Antares is developing Vibex MTX in the US using the 505 2 regulatory pathway that was followed with TevTropin. This requires Antares to show bioequivalence to intramuscularly administered methotrexate and importantly does not require large efficacy trials. Meetings with the FDA have given Antares reasonably clear direction for developing this drug.

Antares conducted animal studies of Vibex MTX pharmacokinetics and then preceded into human bioequivalence studies. In August 2011, Antares reported results from a bioequivalence study that evaluated four dosage strengths ranging from 10.0 mg/mm2/week to 25.0 mg/mm2/week. Antares indicated that the subcutaneous injections produced a similar pharmacokinetic profile to intramuscular dosage forms and Antares believes that it has shown bioequivalence.

The company has met with the FDA and states that it has determined a clear path forward to regulatory approval. An additional requirement that Antares will have to meet is doing a user study to make sure that the device can be safely self-administered by rheumatoid arthritics who suffer from joint inflammation and deformities that might interfere with self-injection. Antares states that it may be able to file an NDA in 2012 and potentially receive approval in 2013.

Antares has a strategic alliance with a privately held Canadian company, Uman Pharmaceuticals, to jointly develop Vibex MTX in the U.S. and Canada. Antares will be responsible for clinical development, regulatory submissions and manufacturing the injector while Uman will develop the formulation and provide prefilled syringes. Uman has rights for commercialization in Canada while Antares has U.S. and rest of the world rights.

The Braun Study Comparing Oral and Subcutaneous Methotrexate

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 reported 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 based on ACR scores.

The ACR or American College of Rheumatology scale is a composite of rheumatoid arthritis symptoms. ACR 20 indicates a 20% improvement in symptoms comprising this scale. ACR 20 is the lowest plateau for effectiveness while ACR 50 and ACR 70 are associated with more dramatic efficacy. In the Braun trial the ACR 20 response for subcutaneous MTX was 78% as compared to 70% for oral MTX; ACR 50 was 62%/59% and ACR 70 was 41%/33% respectively.

The authors said that their data indicated that subcutaneous administration is associated with a larger proportion of patients achieving an ACR response. They also said that the superior clinical efficacy of subcutaneous administration of MTX in this study was not accompanied by a significantly higher rate of adverse events.

The gastrointestinal adverse events were similar between the two routes of MTX administration. The authors said that this was a surprise since other studies have shown a reduction in side effects, particularly gastrointestinal. A possible explanation is that the physicians were able to titrate to a higher dose of injectable MTX than with oral MTX because of compliance issues. If so, the higher dose of injectable MTX might have produced the same side effects as a lower dose of oral MTX.

In conclusion, the authors stated that subcutaneous administration of MTX is significantly more effective than oral administration of MTX at the same dosage and does not lead to an increase in side effects. The most interesting quote from the study was, "The results of our study support the use of subcutaneous MTX as rheumatoid arthritis monotherapy in patients as being the best of the currently available monotherapy agents for this condition."

Tasocitinib and Fostamatinib, Two Promising New Disease Modifying Drugs

In thinking about Vibex MTX, investors need to consider the potential approval of two promising new oral disease modifying agents: Pfizer's (PFE) tasocitinib and fostamatinib which is being developed by Rigel Pharmaceuticals (RIGL) and Astra Zeneca (AZN).

Tasocitinib is an inhibitor of the protein kinase JAK-3, a key molecule in the intracellular activation cascade that occurs when various cytokines bind to T-cells. In large phase III trials in rheumatoid arthritis, it has shown efficacy comparable to that of Humira, Enbrel and Remicade. Side effects may be the result of tasocitinib not being 100% specific for JAK-3 as it also blocks JAK-2. This can lead to neutropenia, thrombocytopenia, and anemia. Other observed side-effects have been gastrointestinal symptoms and elevations of blood pressure and of serum lipids in some patients.

Fostamatinib is an inhibitor of the protein kinase SyK, which plays a similar role to that the JAK-3 target of tasocitinib. It is being developed by a partnership of Rigel Pharmaceuticals and Astra Zeneca (AZN). Phase II clinical trials have shown good efficacy with the major side effect concern being a mild increase in blood pressure. It is somewhat behind tasocitinib in clinical development as we are awaiting results of broad phase III trials.

I think that it will take a long time to determine how these drugs will fit into the drug treatment of rheumatoid arthritis. I do not see physicians even considering them as an alternative to methotrexate for several years. There is as yet not enough data to judge their efficacy relative to methotrexate and as I have pointed out this is a high hurdle to jump. Also rheumatologists are a very conservative bunch and I think that they will need to see a lot of clinical usage, time passage and data before they might consider them as alternatives to methotrexate. I think that in coming years, tasocitinib and fostamatinib will be competing primarily with the injectables biologics, where their oral administration might be an advantage.

Disclosure: The author of this article owned shares of Antares at the time this note was written. This should be taken into account as it may introduce bias into the conclusions and interpretations that are made. In reading this note, you acknowledge that you have not used it as the sole basis of your decision making and that all investment decisions are based on your own analysis. An investment in Antares carries substantial risk and investors could potentially lose much of their investment. The reader acknowledges that he/she has carefully read the Investment Approach, Terms/Conditions and Disclosures sections in the About Us section of the website. The reader acknowledges that he/she will not hold SmithOnStocks accountable for any investment loss that may be incurred if a decision is made to invest in Antares.

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