Contraceptive Ring: Another Under-The-Radar Catalyst For Antares

May.15.13 | About: Antares Pharma (ATRS)

When Jack Howarth (VP of Antares Pharma (NASDAQ:ATRS)), reportedly said "2014 will be our break out year" he was probably referring to the revenue that is expected to gush in from Otrexup, i.e., Antares's transformational product which has a PDUFA date of October 14, 2013 with the expected launch in early 2014. Although I agree that Otrexup is the most significant catalyst for Antares this year, there are so many other catalysts that are buried deep in their pipeline of partnerships, some of which are serious contenders for true blockbuster potential. No matter how blockbuster the potential is, not all products are presented in the pipeline section of the official Antares investor presentation. It gives me the impression that due to the sheer size of the products that they are involved in, either directly or indirectly through their partners, a selective list is provided to the potential investors in their investor presentation. The most recent investor presentation, dated May-2013, is available on Antares's website, which lists 13 products in their pipeline, where 3 products are already marketed and 10 are at various stages of approval or clinical development. My readers would immediately notice that these 13 products are not exhaustive of all the products that Antares is involved. Examples include:

  • BioSante Pharmaceuticals (BPAX) announced new Phase 3 efficacy trials for Libigel, where Antares owns worldwide manufacturing rights as well as licensing rights for the rest of the world on top of milestone payments and royalties from the North American launch
  • Population Council is driving the development of male birth control gel, which uses Nestorone and testosterone in a formulation which is produced by Antares

Even then, some of the products mentioned in the investor presentation have to be presented with very little detail due to competitive reasons and partner-mandated disclosure restrictions. The disclosure restrictions imposed by partners are very strict since the drug-device combinations that are being worked on by Antares are geared towards highly competitive fields which are already dominated by big Pharma. This unique situation is arguably the most significant reason for ATRS shares to trade at extra-ordinarily cheap prices compared to its 1-3 year revenue potential. Indeed, Wall St. veteran Larry Smith projects ATRS 2015 share price to be only $11; just because he has to assign zero revenue to many significant revenue sources in his revenue model for Antares. He succinctly summarizes why $11 share price projection is too low for Antares when he says "You are probably scratching your heads as to why I have made no sales projections for six new products in the sales model…Antares has not identified the active pharmaceutical ingredient in these products. It is hard to make projections for unknown products aimed at unknown markets." When Wall St. analysts make zero revenue assumptions for disclosure-restricted or under-the-radar products, they end up issuing very conservative share price estimates for ATRS, e.g., Guggenheim initiated coverage on ATRS in Nov-2012 with a "Buy" rating and a 2013 price target of $6. At least all the 5 analysts who cover Antares either has a "Buy" or "Outperform" rating on the stock. The great news is that due to this unique situation, investors, who are willing to do extensive due diligence on Antares Pharma and its 1-3 year revenue growth prospects, are given the chance to buy the stock at extra-ordinarily cheap prices today.

The same enthusiasm is apparently shared by Antares corporate insiders, for example, Jack Howarth (VP of Antares) left Pfizer in 2012 and joined Antares in his current executive role of VP Corporate Affairs. Despite the very short time he has been at Antares, he bought 506,000 ATRS shares. The best part is that during my latest conversation with him last week, he confirmed buying all of that 506K shares with his own personal money, not through company grants or options exercises. Let me remind my readers that Mr. Howarth is not an insider according to the SEC guidelines. As a result of this, his massive purchases have not been reported to SEC, and none of the insider tracking websites lists his activity. One can also look at the overall trading activity of SEC-regulated insiders of Antares in an analytical way. For example, in a report published on May 10th, 2013, Thomson Reuters assigns 8 out of 10 as their insider trading score when they analytically evaluate the insider activity for Antares Pharma. This score is assigned on a scale of 1-10 with 10 being awarded to the strongest stocks based on short-term and long-term legal insider trading behavior. They look at buying, selling, and option exercise decisions of insiders relative to other stocks within the same business sector.

Before discussing yet another under-the-radar catalyst for Antares, let me briefly touch upon the most recent quarterly earnings results which were announced on May 8th, Wednesday. ATRS sold off more than 5% as it dropped from $3.86 to as low as $3.65. After listening to the conference call and reading through the quarterly report, I came to realize that the sell-off was unwarranted. Antares has been doing the right things and executing strongly against their stated goals of transforming the company from a royalty driven sales model to a specialty pharmaceutical company who controls its own destiny by developing drug-device combinations for very-well established and widely used drugs through their injectables and transdermal technology. At this critical juncture of the transformation, investing in Otrexup and QS-T is the right strategy for long-term value creation as opposed to turning couple of cents in profit. In fact, Antares would have been profitable in 2012 if they hadn't invested heavily in Otrexup and QS-T. The latest 10-K clearly shows that in 2012 Antares generated $22.6 million in revenue and spent $19.1 million including cost of revenue, sales, marketing, general and administrative expenses. Without the research and development costs of $14.9 million, Antares would have generated $3.5 million in pure profit. In other words, if Antares completely stops their research and development, and focus on selling whatever they already have, they would have been profitable in 2012 with increasing profitability onwards as they roll out Teva-sponsored products including 10Mg HgH, Sumatriptan, Vibex-Epinephrine, Pen1 and Pen2; Pfizer's undisclosed product; and already growing sales of its existing partnership products.

Last week's sell-off seems to be triggered by 2013-Q1 revenue coming in at $4.5 million which was lower than 2012-Q1 revenue of $6.9 million. Although 2012-Q1 revenue included about $3.0 million in connection with one-time milestone payments for 3% oxybutynin gel from Actavis and Daewoong Pharma, many financial news sources spinned Antares's quarterly numbers in a negative way, e.g., headlines published as "Antares Q1 results unimpressive…", "Antares whiffs on revenues" etc. Headlines missed the point that 2013 revenue number was a much better balance of reproducible revenues without the undue influence of one-time big milestone payments received from partners. During the conference call, Antares re-confirmed their product revenue guidance of 20-40% increase for 2013 even without the benefit of any new product launches.

Now, continuing along the same lines with my previous articles on Antares, I would like to present yet another under-the-radar catalyst which is the contraceptive vaginal ring that is collaborated with Population Council. If one looks at the latest investor presentation from Antares, the section where they present the pipeline of 13 products only lists "Nestragel" under the Population Council (PC) collaboration with no mention of a vaginal ring. Nestragel is hormonal contraceptive comprising a combination of the progestin Nestorone® and a form of estrogen, called 17ß-estradiol (E2) using Antares's advanced transdermal gel technology. Nestragel completed Phase 2 studies and they are looking for a partner to bring it through Phase 3. However, Antares and PC reportedly have been collaborating on a contraceptive vaginal ring which delivers Nestorone and ethinyl estradiol (EE). According to a database, which lists pharmaceutical partnering opportunities, Antares and PC are jointly looking for a partner for Nestorone/EE contraceptive vaginal ring. This project is listed as having completed Phase 3. This database also shows that the potential partner is sought for world-wide markets excluding North America, which means that there already is a partner for North America. Further research shows that Nestorone/EE vaginal ring has been licensed in North America by Watson Pharmaceuticals (now Actavis). According to a document from PC, Actavis is planning to submit NDA to the FDA in 2014. Another document from NICHD (National Institute of Child Health and Human Development), who supported the Phase 3 study of Nestorone/EE vaginal ring, shows that as of December 2012, the preparation for an NDA submission is already under way. A review of the "Actavis 2012 Annual Report" confirms that Phase 3 has been successfully completed and Actavis has now entered into regulatory pathway conversations with FDA for submission in the U.S. I am guessing that if NDA is submitted in 2014 then commercialization of the Nestorone/EE vaginal ring can take place as early as 2015. At this point, it is not clear how much financial benefit can Antares gain from a successful North American launch of the Nestorone/EE vaginal ring.

As I mentioned above, Antares investor presentation only lists Nestragel, which is a gel (not a vaginal ring) combining Nestorone and E2 (not EE). The interesting development is that PC noticed the bigger and better potential with E2 when it comes to vaginal ring contraceptives. Nestorone/E2 based vaginal ring is deemed to be better than the Nestorone/EE based vaginal ring due to several reasons:

  • Better safety profile. When delivered by the transdermal route, E2 has the advantage of being a much less potent estrogen than the commonly used contraceptives.
  • Since E2 is a much less potent estrogen, it has a lower risk of causing blood clots.
  • E2 prevents hypoestrogenism, or estrogen deficiency, the primary sex hormone for women.
  • Can be continuously used for better compliance.

In fact, Population Council (PC) researchers refer to the E2 based vaginal ring as "second generation." According to a document from PC, Nestorone/E2 based vaginal ring is currently under Phase 2a development, again with support from NICHD. Clinical Trials database shows that NICHD is sponsoring a Phase2 study on the Nestorone/E2 vaginal ring to find the optimum efficacious dose from 10, 20, and 40 micrograms of E2. The database lists the study completion date as May 2013. After the data is collected and analyzed, I am hoping to hear the results of this dose-finding study very soon. One has to wonder whether Antares is also behind this next generation E2-based vaginal ring like the one which used EE and already licensed by Actavis. Although I haven't found any definitive evidence of Antares's connection to the E2-based vaginal ring, I believe that it is highly likely, because Antares already developed the gel formulation of Nestorone/E2 as Nestragel and they are already behind the first generation of vaginal ring which used Nestorone/EE.

Before switching gears to the speculative part of my article, let me summarize what I discussed so far:

1. Established that Antares and Population Council (PC) have collaborated on first generation of contraceptive vaginal ring, which uses Nestorone/EE. This ring has already been licensed by Actavis for North America and is expected to be submitted for FDA approval in 2014.

2. Uncovered that PC is progressing on a second generation vaginal contraceptive ring which uses Nestorone/E2. This ring is currently under Phase 2a development. It is unclear whether Antares is also involved in this project.

3. Antares 10-K states that they are developing a female contraceptive gel containing Nestorone/E2 under their collaboration agreement with PC.

The market for female contraception is so vast that many mega Pharma companies are already heavily competing to get a slice of the pie. According to a 2012 report from Guttmacher Institute there are 62 million U.S. women in their childbearing years, and 43 million women of childbearing age are at risk of unintended pregnancy. The typical U.S. woman wants only two children. To achieve this goal, she must use contraceptives for roughly three decades. According to Global Industry Analysts the global market for contraceptives is expected to hit $17.2 billion in 2015. Within this vast market, contraceptive vaginal rings are currently gaining worldwide clinical acceptance both from prescribers and users. Reasons include the following:

· It improves compliance as no daily attention is required from the users since these vaginal rings last for one year.

· The ring can be inserted and removed without help from a medically trained person.

· Vagina can absorb readily various small-size molecules which helps a steady delivery rate avoiding the peaks and troughs often related to oral tablets.

· Bioavailability is increased from this route of delivery allowing for low dosages which reduces side effects.

· Vaginal rings avoid the gastrointestinal tract and all the side effects associated with that route of administration.

Despite its increasing popularity, there is only one combined vaginal ring that has reached world-wide markets, which is NuvaRing marketed by Merck. By licensing the Nestorone/EE vaginal ring, Actavis is already poised to enter this segment of the market as number two player. Indeed, Actavis identifies Nestorone/EE ring as a key pipeline project that would fuel its near-term and long-term prospects in its 2012 annual report. According to Bill & Melinda Gates Foundation, there is growing interest in this method as pharmaceutical manufacturers recognize its potential to deliver one or more drugs. Developing country health systems are also interested in vaginal rings as they place fewer demands on doctors or skilled providers. Bill & Melinda Gates Foundation recognizes Population Council as the only developer of several types of vaginal rings, which is a testament that their technology is far ahead of others when it comes to vaginal rings.

Having established the attractiveness of a contraceptive vaginal ring for mega Pharma and having showed that Population Council is at the fore-front of this particular technology along with its partners, the speculative question I have relates to which mega Pharma might be interested in the second generation of vaginal rings which uses Nestorone/E2 and currently undergoing Phase 2 clinical studies. I noticed some of the mega Pharma companies are already familiar with the concept:

  • Pfizer markets a estradiol vaginal ring used for the treatment of moderate-to-severe urogenital symptoms due to postmenopausal atrophy of the vagina (such as dryness, burning, pruritus, and dyspareunia) and/or the lower urinary tract (urinary urgency and dysuria).
  • On April 2013, Teva Pharmaceuticals presented data from Phase III clinical trial of a vaginal ring that is used for luteal phase support in women undergoing in vitro fertilization
  • European subsidiary of Merck just registered a clinical trial for a vaginal ring for the treatment of menstrual cramps.

Note that Teva, Pfizer, and Actavis are already partners with Antares, thus, familiar with what Antares pipeline includes. If Antares is also involved with the Nestorone/E2 based vaginal ring that may provide one additional piece of evidence to the buyout speculation of Antares by Pfizer, which is covered in separate articles by Scott Matusow and myself. I would like to conclude this article by reminding my readers that patience is the key when it comes to investing in Antares as we all wait to witness 2014 as the break-out year for Antares Pharma.

Acknowledgement: Part of the due diligence used in this article has been contributed by an avid reader (LD) of my Seeking Alpha articles.

Disclosure: I am long ATRS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities. No warranty of accuracy or reliability is given and no responsibility is accepted for errors and omissions. Reliance upon information presented here is at the sole discretion of the reader. Author's positions in the stocks mentioned in this article are subject to change at any time.