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Expert Financial Analysis and Reporting

Why Bother with Antares? (ATRS, Buy, $2.86)

Investment Perspective

Periodically, I get a comment from one subscriber regarding Antares to the effect of why are you bothering with this dog. Over the last five years, the stock hit a low of $0.95 on January 10, 2016 and a high of $4.89 on December 22, 2019. However, it mostly has traded in a range of $2.75 to $3.25. Since January 1, 2016, the S&P 500 is up 175%. To say that Antares has underperformed is an understatement, but I remain undaunted in my conviction that it will be a superior long term investment. Antares has been star crossed and seemingly, if anything could go wrong it did. This has created an image of a Company that is perpetually under achieving and disappointing.

To support my view, I thought it would be useful to go over all of the things that did go wrong.

  • In early 2016, I was looking for Otrexup to be a moderately successful product reaching sales of $30 to $35 million in 2020. Otrexup sales have plateaued over the last few years at $15 to $16 million. So, what went wrong? My opinion five years ago was that Otrexup could carve out a meaningful niche in the huge rheumatoid arthritis market. The orally administered, generic drug methotrexate is the gold standard treatment for rheumatoid arthritism, but efficacy fades over time. Weekly administered, sub cu Otrexup demonstrated that it could extend the time a patient could remain on methotrexate. This looked like a sure winner in that patients could remain longer on methotrexate before going on to the expensive biologics which carry side effect issues. It looked to have advantages on cost savings, safety and efficacy. Two things went wrong that I did not anticipate. The private company Medac launched a comparable product, Rasuvo, shortly after Otrexup and unexpectedly decided to compete on a price basis. More importantly, managed health care plans rely on drug discounts demanded from manufacturers for a meaningful part of their profits. The high priced biologics give huge price discounts. Managed care chose to focus on their own profits rather than the superior characteristics of Otrexup and emphasized the biologics in their formularies. I didn’t anticipate either of these factors. I still believe that Otrexup should play a significant role in the rheumatoid arthritis armamentarium based on its safety and efficacy profile.
  • Teva reached a settlement with Mylan/ Pfizer that allowed for the launch of an AB rated generic to EpiPen on June 15, 2015. At one point, I expected approval in late 2015 or early 2016. The FDA moved unbelievably slowly on the ANDA so that it was finally approved in August 2018. Teva has indicated that they could capture 40% or more of the market. They have achieved this already so this asset is living up to expectations, but the long delay did discourage investors.
  • Xyosted has emerged as the major driver of Antares’s proprietary products. Investors expected that Xyosted would be approved by the FDA on its October 20, 2017 PDUFA date, but on October 19, 2017 Antares received a Complete Response Letter from the FDA asking for additional information causing a sharp plunge in the stock. Subsequently, the product was approved on October 18, 2018 and has more than lived up to expectations, but the FDA caused delay again was a disappointment to investors.
  • Makena sub cu looked to be a big opportunity for Antares as AMAG was looking to this as a line extension that would defend the brand from pending generic entries. The IM form of Makena hit peak sales of $387 million and the sub cu offered advantages that promised that it would replace a good part of the IM usage. Approval was initially expected in 3Q, 2017, but again slow action by the FDA delayed introduction until February 2018 with the result that newly launched generics dampened the uptake of Makena sub cu. Then in March 2019 the post marketing PROLONG study surprisingly showed no difference in outcomes between Makena and placebo. This caused many investors to believe that Makena would be removed from the market by the FDA. With the passage of time. removal appears less likely, but Makena sub cu sales have leveled off at an annualized rate of about $80 million. Instead of being a major opportunity, it is now a minor profit contributor.
  • The AB rated generic to Forteo may have profit potential of the same magnitude as the AB rated generic to EpiPen. Investors expected an approval and launch in the US as early as late 2019, but the FDA again has dragged its approval feet. Teva is now guiding to a late 2020 approval.
  • In late 2019, it looked like it finally was all coming together. Xyosted was putting up impressive Rx numbers, the AB rated generic to EpiPen was doing extremely well and the AB Forteo launch looked to come about in early to mid 2020. Then in March 2020, the COVID pandemic struck. Sales of Xyosted were slowed, but it was able to show an impressive 11% increase in RXs for 2Q, 2020 over 1Q, 2020. The AB EpiPen was more affected but still showed a year over year gain. Net, net, Antares performed very well in 2Q relative to most drug companies and very well in regard to companies as a whole. However, the enthusiasm for the stock that was building has not returned.

Investment Thesis

I think some investors, including my afore mentioned nemesis, believe that Antares is a flawed company that has consistently disappointed in the past and will do so in the future. You can judge for yourself, but I think that Antares has had a string of bad luck that really can’t be blamed on management or its business model. The factor that initially attracted me to Antares was its sophisticated injectables technology that could increase the pharmacokinetics of many drugs. The technology  has been validated through major partnering deals with Pfizer, Indorsia and Teva. Antares also has a number of products in development for its own account to follow Otrexup and Xyosted. This ability to continually expand the pipeline through partnering and internal development is firmly established and is the major factor in my enthusiasm for the stock.

The added dimension to the Antares story is that it is now a successful commercial operation. Xyosted has been a highly successful launch and management and its sales force were impressive in growing Xyosted through the COVID pandemic in the second quarter. They have to be given substantial credit for this. Xyosted promises to be a major driver of sales through 2023 and beyond. The AB rated generic to EpiPen still has some meaningful growth, the AB rated generic to Forteo is on the horizon, partnering deals with Indorsia and Pfizer could result in substantial royalties on blockbuster drugs and internal development could produce one product for its own account every year or two.

As an analyst, you are right if the stock goes up and wrong if it goes down or does not perform. So I have been wrong on this stock for five years. However, the stock market doesn’t care much about history and only the future matters. Net, net, I am unwavering in my conviction that Antares has great upside potential. I am preparing reports projecting strong sales growth for Xyosted and that will go over the pipeline potential. I will also publish a detailed sales and earning model in a future report. Rather than putting all of these analyses in one huge report. I have decided to publish a number of smaller ones. So if you are interested in Antares, stay tuned.



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