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It is somewhat rare I come across enough circumstantial evidence that would support a view that a company is likely going to be bought out in the near to mid term. Antares Pharma (AIS) is one such company that I have listed the circumstantial evidence I have seen below to potentially support this view. It is up to the investment community to decide whether these views hold water or not.

I will list numbered speculation points for readers to do their own due diligence on to consider.

  • 1. The Pfizer (PFE) /King/Teva (TEVA) patent infringement trial was tried over a two-week period, with the parties asking for a delay to submit their post-trial briefs. Antares is partnered with Teva for its epipen injector, which has been called into question concerning a potential patent infringement.

The court agreed as a result of its understanding that the parties are close to settling. Therefore, it is my opinion we can expect a settlement by the end of May. Of course, there are several reasons to spend millions in legal fees and costs to take an IP case all the way through trial only to settle shortly before the court's ruling. The judge may have given strong hints to the parties about how he is leaning and has given them one more opportunity to settle before formally announcing his decision. Another alternative is Pfizer intends to buy Teva or Antares or both.

  • 2. Pfizer now has a major supplier of injectable methotrexate and it has a potential blockbuster in tofactinib. A Vibex MTX-tofactinb combination would make for a nice portfolio in the global RA therapy market and the other off-label markets.

As noted above, Pfizer has taken a very good look at AIS's IP through an intensive trial. It discovered pen device technology, and possibly the other injector technology, which is better than what PFE is using for its epipen. I'm certain Pfizer liked what it saw and has created a nice-sized list of drugs it can combine with Antares devices.

  • 3. The undisclosed Pfizer-Antares deal involving a drug that has been sitting on the shelf and which will provide milestone payments and royalties for only three years.

As I previously noted in another article, why would Pfizer approach a little company like Antares for some drug that has been sitting on the shelf for a few years, and only offering three years of royalties? This undisclosed product deal gave Pfizer an opportunity to look even deeper into Antares's castle in my strong opinion To me, this alone supports that something else is in the works, whether it's a NestraGel or VIBEX MTX partnership or an outright buyout.

  • 4. Pfizer now has over $26.8B in its treasure chest. As reported by The WSJ, Pfizer is close to selling its infant-nutrition business to Nestle SA (OTCPK:NSRGY) for at least $9 billion, people familiar with the matter said, in what would be one of the largest deals so far this year.
  • 5. Only Sanofi (SNY) has more cash. Pfizer will raise an additional $30B by 2013 after selling its animal health and nutrition divisions, thereby increasing its stockpile of cash to $57B by 2013. Glaxo Smith Kline (GSK) and Eli Lilly (LLY) each have about $9B, Teva has about $1B, and Watson (WPI) has less than $250M. Watson is partenered with Antares for its Bladder control Gel orginally named Anturol by Antares, renamed by Watson as Gelnique.
  • 6. The recent hire of Jack Howarth: Where has Howarth worked before, and what is his specialty?
  • 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

Looking at the above, it seems it typically takes about a year or more from the time Mr. Howarth steps in for a buyout to occur. But show me the rules that say a buyout under his watch could not occur in less than a year? Indeed, a couple things I believe we will see this time is a shorter period to the buyout announcement and a larger buyout premium. I seriously doubt that the Antares CEO Paul Wotton and his team will accept anything below $10 PPS, not with its long term potential to be worth a lot more than $1B dollars.

  • 7. Antares's current office lease has expired.

Antares has been on a month-to-month lease now for several months now. Antares has three months to vacate the office after its landlord finds a new tenant. So what's the hold up with finding new space? Are they holding out for a better lease rate or are they waiting to move into Pfizer's offices? (April 19 Update: Antares did find new office space last month, per it's March 10k. I had used the previous 10q.)

  • 8. The tone of the past two investor presentations has changed.

While CFO Bob Apple and Paul Wotton are not over-promising as some companies do, they have appeared a bit more bullish since Jack came on board. For example, Apple mentioned that the 30-50% revenue growth for 2012 excludes income from products that are not already generating revenue (i.e., Gelnique). He followed up this comment that AIS intends to announce a product approval for each of the next 5 years. Apple painted a very interesting picture for Vibex MTX insofar as if they can successfully insert MTX into the RA therapy process between oral methotrexate and a biologic. He estimated the top end of MTX peak revenues at $200M, which I believe is a low estimate.

Moreover, Apple and Wotton both agreed that VIBEX QS1 will be a better opportunity than VIBEX MTX. So, at a minimum we are looking at $400M in revenues just with those two products. Then VIBEX QS2 and VIBEX QS3 will be soon to follow. And by that time, I suspect the five Teva products, global Anturol, and the Pfizer product will be in full swing. Pfizer can use its treasure chest and vast resources and expertise to accelerate these programs and maximize each product's peak sales potential much better than a company with $34M in cash. No offense intended to Paul Wotton and his solid team.

  • 9. Speaking of Gelnique/Anturol, it's very interesting to me the company has signed up only one ROW partner for a drug that received FDA approval four months ago.

Same for not yet signing a European partner for MTX, especially considering that a significantly inferior methotrexate-syringe product has enjoyed much success across the pond. Of course, we still don't have that NestraGel partnership. What is Wotton and his team doing in their month-to-month offices all day?

Again, seeing the company is on a month to month office lease, it looks like a buy-out is coming to me. Does Pfizer want all of these rights and more? You can bet they do in my strong opinion. There is a reason Pfizer is seeking to raise excess cash, unless they just feel like having billions sitting around and/or invested in low yielding treasury notes. Many larger pharmas are behind the ball when it comes to biosimilars and biobetters, especially Pfizer.

  • 10. Everyone has a price. As others have noted, Wotton and his leadership team are young and looking to make a mark with this company.

But at some point, the price becomes too high and taking the cash overrules the desire to hit other more intangible objectives. The top ten insiders at Antares hold about 1,473,736 shares:

Wotton holds 482,620 shares, Apple holds 285,231 shares, and Sadowski holds 133,221 shares. Considering Antares's successes to date and its significant revenue potential, I believe Antares's bottom number is slightly above $1B. At about $10 pps, at least 5 Antares employees would walk away with over $1M in either cash or Pfizer stock, which, by the way, currently yields about a 4% dividend. Further considering all of Pfizer's billions in cash and their need for the IP and more revenue-generating products, I believe Pfizer would now pay Antares's bottom number.

So why buy now at such a higher-than-standard premium instead of waiting until Pfizers's leadership can demonstrate to its shareholders that the acquisition would be immediately accretive earnings? Does the average investor know more about Antares than Pfizer? Pfizer knows what VIBEX QS1-3 are, we do not. Would it not be a savvy business decision to pick up the company now for a little more than $1B instead of waiting to pay $2B or more in a couple years?

Would you rather buy AIS now or wait until it hits $10? Many smart investors have said AIS is the best small cap low risk/high reward opportunity they have in their portfolios. Many have loaded up to levels that exceed 50% or more of their common stock portfolios. Buying AIS now would be even less risky for Pfizer, as it would require only about 1.8% of its anticipated 2013 cash balance.

Many companies have their share of buy-out speculations. Another company that has recently had a good deal of buy-out speculation is Amarin (AMRN).

The main reason for this speculation is its lead product candidate AMR101, a prescription-only omega-3 fatty acid comprising icosapent ethyl, or ethyl-EPA for the treatment of patients with very high triglyceride levels and high triglyceride levels or hypertriglyceridemia. In other words, AMR-101 is a cholesterol lowering drug that has shown to have a significant edge of such other drugs as Pfizer's Lipitor, now being offered in generic form.

I do not buy into the Amarin buy-out rumors because the market space for these types of drugs seems to be rather crowded, and with Lipitor off of patent protection, these drugs can be offered for a much lower price than AMR-101 would likely be priced at. As I list above with Antares, any buy-out speculation would have to make solid monetary reward sense. A buy-out of Amarin just does not make much sense to me at this time.

Dendreon (DNDN) has been another company with buy-out talk surrounding it lately, mainly because its prostrate cancer drug Provenge is the first therapy in the U.S. designed to induce the body's own immune system to attack prostatic tumor cells. Its side-effects are less-toxic than traditional chemo-based treatments for advanced prostate cancer.

There currently exists an abundance of drugs for the treatment for metastatic, castrate-resistant prostate cancer, such as AstraZeneca Plc's (AZN) Zoladex, and Abbott's (ABT) popular Lupron injection treatment. Provenge doesn't focus on reducing testosterone levels , the male hormone fueling growth of tumor cells. In my opinion this makes Dendreon unique and brings potentially great value as a buy-out candidate, much stronger than Amarin's in my opinion.

Another speculative factor worth pointing out is that Jack Howarth is not listed as one of Antares's top ten insiders. The published top 10 insider with the fewest shares holds 27,500 shares.

If Jack Howarth thought Antares was good enough to pack up and leave big pharma, why didn't he load up on AIS stock? Indeed, per Yahoo Finance, the last insider transaction occurred on 2/1. Jack was hired on 2/27. Counting today, Antares is in one of the longest periods without an insider transaction in at least the past 52 weeks.

With everything that's happening and with all that has been reported in the 10K, the CC, and investor presentations, why has there been no insider buying since 2/1? Is it reasonable to speculate that Antares is in an extended blackout period that prevents them from buying or selling their shares? There are legal issues for insiders to contend with before they can purchase company stock. If it could be shown they knew a buy-out was imminent and bought stock, this could raise legal issues.

I encourage those reading this article to carefully consider all the speculation listed here and do some hard due diligence on what looks like a buy-out coming to me. Everything speculated here does not mean Antares is guaranteed to be bought out, and all the points listed here might just be a string of strange coincidence and circumstance. It is my strong opinion these are not coincidences. Time will tell if the speculation contained here proves to be correct or not.

Most of the speculation in this article has been contributed from a fellow Antares investor who goes by the nickname BSAV88ATTY on the stock boards in whom I respect and have had many conversations with about investing and trading. I consider him to be a very intelligent man and respect his opinions, even when I might disagree with him from time to time. He has given me full permission to share his views contained here in the article.

Source: The Top 10 Reasons Why Antares Pharma Will Be Bought Out Soon