Why Has Antares Pharma Fallen So Rapidly?

| About: Antares Pharma (ATRS)

Let's just cut to the chase. Since my first article came out on Antares Pharma (NASDAQ:ATRS) when the stock price was $4.35, Antares has done nothing but fall. The price action on 9/17/2013 and 9/18/2013 was perplexing to say the least. I believe all Antares shareholders share the same frustration, disappointment, and confusion that I'm feeling as I'm writing. However, as a good investor and trader, it's imperative to realize that frustration, disappointment and confusion are all emotions. Times like these are difficult but those who are able to still think logically using sound rationale over emotional reactions will still be rewarded in the end. In this article, I will address the various rumors I've heard regarding the Antares freefall and give an objective view of each.

Rumor #1: News has leaked out from the FDA about a Complete Response Letter

This is completely false. If something like this were to happen, the options market would indicate odd behavior. However, nothing on the options market on 9/18/2013 exhibited any odd behavior. The October 19, 2013 $5 Calls took a -25% hit in value but on 108 contracts traded. Open interest for the October 2013 $5 Calls is 3,462. Open interest for October 2013 $2.50 puts is still only 208.

The November options chain shows that nothing has changed. The November 2013 $5 calls were unchanged at $0.30 showing that the options market is still implying confidence in Antares. Open interest for the November 2013 $5 calls is 10,143. The November 2013 $5 puts had volume of 10 contracts traded on 9/18/2013 and open interest is small at 847. November 2013 $2.50 puts have an open interest of 828. If negative news had leaked out from the FDA, I would have expected very high volumes of contracts to be traded for the October $2.50 and $5 puts as well as the November $2.50 and $5 puts. That was clearly not the case on 9/18/2013. There was no unusual activity for both the October 2013 and November 2013 options markets.

I am still a firm believer that Otrexup will be given FDA approval before 10/14/2013. Here is why the FDA will approve Otrexup -

- - Otrexup is simply a subcutaneous methotrextate (NYSE:MTX) delivery device.

- - MTX the drug itself is already approved and being used in RA therapy. Otrexup is simply teaching an established drug new tricks.

- - The Human use and human usability studies produced positive results

- - The Human Factors Usability Study for Otrexup showed that Otrexup is safe and effective for RA patients with moderate to severe hand function impairment.

- - Self administration of subcutaneous MTX with Otrexup is safe and virtually painless

- - Antares completed an Otrexup Systemic availability study where Antares showed that Otrexup proportionally increased the bioavailability of MTX at every 5, 10, 20, and 25 mg dosages compared to taking MTX orally in a head to head comparison. There was a positive linear correlation between Otrexup MTX prescribed and bioavailability of MTX in patients. Oral MTX plateaus at over 15mg.

- - Commercial team participated in the prestigious European Union League Against Rheumatism (EULAR) this past June. Dr. Mike Shiff, the lead investigator, showed that subcutaneous self administered methotrexate with Otrexup demonstrated significantly greater bioavailability over current oral MTX.

- - Otrexup's mid-cycle and mid-site review between CEO Paul Wotton and the FDA went extremely well and also established the fact that Otrexup can be used for Psoriasis. Questions that Antares received from the FDA during the meeting were extremely easy and manageable to answer.

- - CEO Paul Wotton has stated numerous times in conference calls and investor presentations (2013 Jefferies Healthcare Conference and 2013 Deutsche Bank Conference) that he expects the FDA to approve Otrexup

- - There are already five regional Otrexup managers and a sales force of 25-30 currently being hired as of the May 2013 DB Healthcare Conference.

- - Antares has a very good working relationship with the FDA as it already has FDA approved products being sold by Actavis and Teva

- -Antares had a very good mid cycle review with the FDA and they continue to have very positive interactions with the agency.

Antares is always one step ahead of the game. CEO Paul Wotton has gone to great lengths to ensure that Otrexup will have great commercialization success even before the product is approved. Normally in biotech stocks, the management team has no plans to commercialize the product until the product is given FDA approval which leads to significant delay and a falling stock price from the "bio run ups". CEO Paul Wotton started planning a successful commercialization of the product way before FDA approval.

- - 6 national account managers have been in arrangements with Quintiles, the world's largest provider of commercial outsourcing services. Quintiles has played a major role in developing or commercializing the top 50 selling drugs.

- - 8 person commercialization team led by Leroux Jooste, who oversaw the successful launches of Enbrel and Prozac along with Marvin Samson, former Group Vice President of Worldwide injectables at Teva and Robert Roche, key industry advisor for commercialization efforts, has over 100 years of big pharma commercialization experience in launching, marketing and sales as well as dealing with managed care markets and third party payers.

Why would CEO Paul Wotton feign such confidence in an Otrexup approval? Why would he have started planning Otrexup commercialization efforts 10 months before FDA approval?

Rumor #2: There will be an Antares secondary offering

This is false as well. All one needs to do is look at the 10K for 12/31/2012 and 10Q's for 3/31/2013 and 6/30/2013. On 12/31/2012, Antares had cash of $52M and highly liquid short term investments of $21M. On 3/31/2013, Antares had cash of $38M and highly liquid short term investments of $30M. The 3/31/2013 Statement of Cash flows shows a $9.1M cash outflow for purchase of investment securities. On 6/30/2013, Antares had cash of $36M and highly liquid short term investments of $33M. The 6/30/2013 Statement of Cash Flows shows a $9.1M cash outflow for purchase of investment securities. Antares management is doing a great job of managing its cash position and burn rate. At this current burn rate, Antares will be able to fund itself for another 15-20 quarters. There is also zero debt which gives Antares a fortress like balance sheet with zero need for more financing.

Rumor #3: There is a large fund liquidating their position in Antares

This may be true but it shouldn't come as a surprise. For the past two quarters, Vanguard has been unwinding their position in Antares. Their 3/30/2013 and 6/30/2013 13F filing show decreases in Antares. Once a fund shows that type of outflow of a position, it most likely means they are trying to exit out of their position entirely. I would suspect that Vanguard may be the large fund which is trying to exit their entire position before the 10/14/2013 PDUFA date.

Rumor #4: Deerfield Capital is exiting their position because of their SEC penalty

This is false but there may be more to this story. Deerfield agreed to pay a $1.9M fine. To a $1.6B hedge fund, this is nothing so there is no need for Deerfield to sell Antares to pay the fine. What does this mean for Deerfield? Nothing. Instead of ordering seamless for breakfast, lunch and having Jean Georges dinner five times a week, they may trim back a little to three times a week.

However, the fine was for illegal short selling. The SEC charged 23 firms for violating a rule that prohibits firms from shorting a stock within a five day window of a public offering and then buying the same security through the offering. Deerfield was involved with the Antares offering in October 2012 so it is possible that this could have had a negative impact if at all.

The Antares Holding Pattern

There is no way to sugarcoat the disappointing past 12 months for Antares Pharma. Fundamentally, Antares is a much better company at $4 today than it was at $4.40 last year. The only problem is that the street and investing public do not think so. I am not smart enough to say who is right and who is wrong. However, it's important to take a step back and be aware of other biotech stocks that have been in range bound trading for 12-15 months before ultimately breaking out.

Jazz Pharmaceuticals PLC (NASDAQ:JAZZ)

JAZZ was trading in the $9-10 range from September 2009 - September 2010. 5 year performance - 1600% +

Santarus (NASDAQ:SNTS)

SNTS traded in the $3-4 range from July 2009 - January 2012. 5 year performance - 1000%

Pharmacyclis (NASDAQ:PCYC)

PCYC traded in the $5-6 range from March 2010 - May 2011. 5 year performance - 6000%

Questcor Pharmaceuticals (QCOR)

QCOR traded in the $5-6 range from June 2008 - February 2010. 5 year performance - 800%

Spectrum Pharmaceuticals (NASDAQ:SPPI)

SPPI traded in the $1-2 range from July 2008 - April 2009. 5 year performance - 450%

Will Antares Pharma end up like JAZZ, SNTS, PCYC, QCOR, or SPPI? I am not a fortune teller so I don't know. What I do know is that those JAZZ, SNTS, PCYC, QCOR, and SPPI shareholders who held onto their shares during those year long holding patterns must have at some point felt the same frustration, disappointment, and confusion that all Antares shareholders feel right now. Patience in Antares will be rewarded just like those long term holders were rewarded in JAZZ, SNTS, PCYC, QCOR and SPPI. I wrote this article to serve as a reminder to be patient to not only Seeking Alpha readers and investors but to myself as well.

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.