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, stockmatusow (863 clicks)
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Recently, I listed 2 small cap bio-pharmas I felt were undervalued and have massive potential in the shorter end of a longer term range. In my article about Acadia Pharma (NASDAQ:ACAD), I felt the company's stock selling at $1.60 was far too low, and set a short term price target of $1.80, and a medium term target of $2.25. Turns out I was a little off, as ACAD rallied to an intra-day high of $2.06 a share. In the next article I wrote, I featured NuPathe Pharma (PATH) which I felt was undervalued at $3.40, and set a short term target of $4.00. I strongly feel NuPathe is still grossly undervalued after rallying to $4.80 in its last trading session.

I like NuPathe so much, that I almost sold my Antares Pharma (AIS) position to really load up on it. I did not sell Antares because I am committed to the stock for the long term, and the last thing I want is to be out of The Antares position, only to wake up and find out the company has been acquired.

However, I did manage to talk my father into buying a good amount of NuPathe shares a few days ago.

So why didn't I sell Antares to free up substantial capital to buy PATH?

I did not sell Antares because I am committed to the stock for the long term, and the last thing I want is to be out of The Antares position, only to wake up and find out the company has been acquired.

Also, I believe if Antares is not bought out, I will see a stock price north of $50 a share in 5 years. I am going to offer the reasons why I believe Antares will see this PPS range in this article. I want to advise readers that Antares is not the kind of stock they can expect to see a huge run like NuPathe and Acadia just had. What I can advise you on is that you will likely see a long term steady stock appreciation as Antares grows and brings home the revenues and earnings I believe it will in time, with far less risk than the 2 companies I just mentioned.

First off, if we valuate Antares on what the company earns now, the stock would appear to be over valued. Antares will likely bring in around $30 million dollars in revenue this year, with most of this revenue as profit. These revenues will primarily come from royalty deals the company has made in the last few years with larger pharmas such as Watson Pharma (WPI), Teva (NYSE:TEVA), and Pfizer (NYSE:PFE). Antares does not have much capital expenditures in these deals, so again, the company will see mostly profit from the $30 million number.

What excites me about Antares are the recent comments the company's CEO, Paul Wotton made at a Roth Capital investors conference in California. He flatly stated that Antares will not be engaging in anymore royalty deals. He went on to state that Antares is looking for partnerships along the lines of a 50/50 split, notwithstanding that the company plans to market and commercialize most of their top line products in the future.

You can find Wotton's remark concerning Antares no longer seeking royalty deals, but full partnerships at the 25:19 mark on the recording of The Roth Capital investor's conference linked above.

One such product Antares plans to "go-it alone" is VIBEX MTX, a self injector that will be pre-filled with doctor prescribed doses of Methotrexate. Clicking on the VIBEX MTX link will bring you to a prior article of mine where I lay out some revenue projections for VIBEX MTX.

In collaboration with a fellow Antares investor, our Vibex MTX U.S. market earnings formula is as follows:

  • 2 Million patients in U.S.+
  • 10-15% market share +
  • $50 per injection +
  • 52 weeks +
  • 52% margin +
  • May 2014 commercial launch (possibly earlier).

Our equation produced the following high/low MTX earnings projections for 2014 and 2015:

2014 - $203M ($1.70 eps)/$135M ($1.13 eps)
2015 - $405M ($3.24 eps)/$270M ($2.16 eps)

Now, when we look at the total projected revenue for all Antares product sales in 2015, we come up with the following numbers:

  • $12.5M HgH global royalties and margin from device and component sales
  • $8.1M EpiPen U.S. royalties and margin from device sales
  • $10M Vibex2 U.S. royalties and margin from device sales
  • $6M Pen1 royalties and margin from device sales (EU only in 2015)
  • $12.5M Pen2 U.S. & EU royalties and margin from device sales
  • $9M Gelnique/Anturol global royalties
  • $1.5M Elestrin royalties
  • $277M Vibex MTX U.S. sales and EU royalties and margin from device sales
  • $140M VIBEX QS1 U.S. sales and EU royalties and margin from device sales
  • Pfizer deal unknown, Guess is $7M
  • NestraGel, the wild card factor I will comment more on later in this article.

$476.6M ... Total Revenues 2015

Nearly $500M in revenues is what we believe Antares will bring to the table in 2015, placing the fair value low end estimate of Antares Stock at around $20 a share, in roughly 3 years from now.

Nestragel: The true wild card factor that deal for it this year can potentially double the Antares stock overnight. Paul Wotton can be heard commenting on Nestragel at the 23:20 mark of The Roth Capital California investor's conference.

As I remarked earlier, CEO Wotton has stated Antares is not interested in royalty deals anymore, but partnerships. Nestragel is rub-on Female contraception, which I project will be a massive money maker in 5 years, potentially bringing Antares up to $500M A year in revenues, if the deal involves a true partnership and not a royalty/licensing deal.

Wotton remarked that talks are ongoing for a partnership for Nestragel. Nestragel has been thru phase 1 and phase 2 clinical, and now is ready for Phase 3 clinical. My first article I wrote for Seeking Alpha covered Nestragel's market potential and various other factors involved in the female contraception market. Being my first article for Seeking Alpha, it reads a little bit like an infomercial, so it can be a little funky to read.

Many investors have been wondering why there has not been a deal yet for this product. I believe the answer for this is contained once again, in Paul Wotton's comments from Antares's last investor conference presentation. It is also my belief that Pfizer is the main suitor for Nestragel, and originally contacted Antares for it.

I believe this because the undisclosed deal with Pfizer appears to be for an insignificant product that Pfizer, according to Wotton's comments in the investor conference, " had this product in their inventory for some time." This indicates to me that Pfizer did not originally contact Antares for this undisclosed over the counter product that was shelved away in Pfizer's inventory.

Why would Pfizer seek out Antares for a small over the counter product that has been sitting on the shelf for some time?

Antares and Pfizer were talking about something else in my opinion, and I believe that something else was Nestragel. I also believe Pfizer may have interest in acquiring Antares at some point, and this undisclosed deal is a kind of 'feeler' Pfizer has laid out. When I consider this along with the new hiring of Jack Howarth, I start to sniff out a possible buy-out offer coming. Taking a look at Howarth's employment history shows a clear pattern to me:

  • Oct 2007 Alphapharma hires Howarth VP of Investor Relations
  • Nov 2008 King acquires Alphapharma
  • June 2009 King hires Howarth VP of Investor Relations
  • Oct 2010 Pfizer acquires King
  • Feb 2011 Antares hires Howarth VP of Investor Relations

Howarth was hired by Antares at the same time it made a deal with Pfizer for the undisclosed product I mentioned above. Coincidence, or something more? I do not believe the Howarth hire is a coincidence when factoring in what I mentioned above.

I strongly encourage fund managers reading this article to do hard due diligence on all of the factors I mention here in this article. I consider Antares to be the best long term small cap investment around because the risk is very low and the reward very high. Again, I want to point out, because the company carries less risk, do not expect an explosive move upwards overnight. However, a deal for Nestragel would likely double the stock price overnight, if the deal is a major one.

Good things come to those who wait, or so we are told. Antares Pharma is definitely a good thing, and buying it around its current price range now will yield a huge long term reward in my strong opinion. As of 3/15/12, Antares sells for $2.76 a share. If the company is not acquired, I believe the stock price on 3/15/15 will be north of $20.00 a share.

Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.

Source: Why Antares Pharma Should Be On Your List For Long-Term Investment