Antares Pharma: Building Momentum To 2018 Profitability

Summary

• Following the FDA approval of Makena subcutaneous February 14, the company is set to attain profitability in 2018.
• After receiving a CRL for its testosterone replacement drug, Xyosted, the stock plunged from a high of $4.09 to a low of $1.58 in November, now trending up.
• AB-rated generic EpiPen to be supplied by Teva has undergone FDA scrutiny for years, resulting in a drag on ATRS shares for an extended period of time.
• Article will recap and analyze potential outcomes during the 2018 time frame and beyond.

Antares Pharma (ATRS) investors have experienced a wild ride as the stock has been subject to both long and short speculation on the company's ability to execute its plan for FDA approvals. However, evidence is building to support a thesis that the stock may be transitioning from a pure speculative play to growth and value, which could temper downside pressure on ATRS shares. As three drug approvals in full-year 2018 have a reasonable chance of attainment in 2018 (with one of the three already booked), the company continues to report improved revenue and earnings with a 5-year sales growth rate of 26%. In the latest reported Q3, the company reported 12% overall revenue growth, with 18% growth in the proprietary Otrexup drug and 88% growth in the partnered (with Teva) Sumatriptan. While quarter-to-quarter revenue continues to be lumpy (due mainly to size), the trend is decidedly up.

Makena SC

With Antares stock currently trading near $2.20, it is apparent investors have shrugged off the February 14 approval of Makena SC as offering meaningful benefit to profitability. Accordingly, it can be argued that investor pessimism of Makena SC is justified since, according to Amag Pharmaceuticals (AMAG) management guidance, Makena will be subject to generic competition by the mid-2018.

While Amag reported 2017 full-year Makena revenue $387 million, a 2017 Analyst Day Presentation illustrated three guidance scenarios in an attempt to project Makena revenue by 2020 with high, middle, and low projections. The middle projection estimated 2020 Makena revenue at $200 million due to likely full ramp of generic competition. While some analysts are projecting Makena revenue will fall further due to generics, several key points favor Makena SC maintaining significant market share. First, Amag is pricing Makena SC identically to Makena IM (intramuscular), absorbing the cost of the Antares supplied auto-injector. Secondly, while it is apparent that patients may have access to Makena through Medicaid, reimbursement may not offer significant opportunity for generic suppliers to warrant meaningful participation. Third, Makena IM share of the preterm birth market stands near 50%, leaving half of at risk patients without the benefit of treatment. According to Amag research, a low level of utilization is due to reluctance in undergoing weekly IM injections which are painful and feared by many patients. Proper administration of the IM injection, which is highly viscous, necessitates an injection lasting one minute or longer, while SC utilizes a quick auto-injector at the back of the arm. It is administered once-weekly after week 16-20 of pregnancy.

As documented in a 2017 NCBI report , the effect of premature births in the U. S. is devastating to families and can be detrimental to the long-term health of premature babies. In addition, a March of Dimes report stated that the average cost of one preterm birth event was over $58000 for businesses and employees, about $12 billion annually in total. When considering births not covered by employer-sponsored plans, total costs in the U.S. exceed $26 billion. From the foregoing statistics it is not hard to see why healthcare payers will be amenable to Makena SC.

Backing up the foregoing, the graphic below presents data on treatments reported by doctors for at risk patents. At risk patients are defined as having a previous preterm birth event of 37 weeks or less. Fully 83% of doctors intend to prescribe Makena SC. It should also be pointed out that the data does not include at risk patients who are not receiving treatment, who may elect to receive treatment with SC.

Amag management has indicated that, while some providers will continue to administer Makena with the IM version, the company plans to work transitioning its clients to SC beyond those purposely choosing to remain with IM. In the latest quarterly results, Amag reported Makena revenue of $97.6 million, now at an annual run rate of about $400 million. Whatever Makena 2020 revenue looks like, it is obvious that Antares will reap significant rewards from the launch of Makena SC from which the company will receive reasonable margins on injector sales along with high single-digit to low double-digit royalties, plus potential sales milestone payments. Amag has been purchasing pre-launch quantities of Makena SC, which will now ramp up in the product launch. At the current run rate, and employing the assumption that Amag intends to transition Makena IM to SC, Antares could receive well over $5 million in quarterly royalty payments near term, which would largely flow to the bottom line. With a narrowing $5.5 million reported loss in Q3, it appears the company could transition to profitability soon. After the start of its business in 1978 and IPO in 2012, and years of unprofitable operations, the achievement of profitability represents a significant milestone for Antares. Further, Makena subcutaneous represents the first FDA approval of the Antares QuickShot device, which bodes well for the company not only in the launch of Makena SC, but also in the future expansion of the Antares product portfolio.

Beyond Makena, four additional drug combination products have the potential to be approved and launched in 2018: generic EpiPen, Exenatide, Tereparitide, and proprietary Xyosted. While the opportunities of the foregoing are well known in the market, updates to the likelihood and time of approvals are worth consideration.

Generic EpiPen

The path to launching an AB rated generic EpiPen for Mylan branded EpiPen has been an ongoing journey for years to investors and the public alike. Since Antares partner Teva (TEVA) received a CRL from the FDA in February 2016, after filing an ANDA in 2014, the approval process has extended well beyond investor expectations. Mylan has made several attempts to block approval of a generic EpiPen by filing Citizen's Petitions, a 180-day exclusivity period, and so called "expert advice" against approving a generic product not suitable for patients. Meanwhile, Teva continues to offer guidance that the generic EpiPen will be approved and launched in early 2018. Teva has not recently updated guidance, likely due in part to a huge restructuring that is currently occurring at the company and the fact that it has over 300 ANDA applications pending as of the end of Q3. In spite of the delay, there is little doubt that the Antares/Teva partnered drug will be approved, evidenced by several key factors. First, since Dr. Scott Gottlieb was appointed FDA commissioner in May of 2017, FDA generic drug approvals continued to grow in 2017 and have accelerated in fiscal 2018, as illustrated in the chart below. An interesting side note is the fact that CRLs have also accelerated (not shown) to 1112 YTD in fiscal 2018, reflecting to some degree the backlog of approvals delayed due to buying time at the FDA.

(Source: FDA data for fiscal years ending September 30. Fiscal 2018 data through January 31)

In addition, Dr. Gottlieb has stated that the agency plans to approve generics even faster in 2018. He has let it be well known that he is strongly against drug monopolies and that the FDA will work to drive down drug costs for Americans. Beyond the foregoing, in 2017 the FDA issued new guidelines for generic drug combinations that simplify the approval process, which further the case not only for the approval the generic EpiPen, but also future generic combinations supplied by Antares. The new guidelines all but assure generic EpiPen will be approved after being one of the most scorned by the media and public.

In a product comparison, the differences between Mylan's (MYL) EpiPen product and the Antares/Teva generic are miniscule, and only in packaging. Both auto-injectors contain a spring-activated needle, which require removing a cap and firmly pressing the injection end of the device firmly against the thigh.

Further, a search of Antares supplied injection devices revealed no history of product recalls. In contrast, Mylan and its EpiPen device supplier, Meridian, have experienced recalls, one which occurred in 2017. In addition, the FDA issued a warning letter to Mylan in 2017 concerning its India manufacturing plant which accelerated negativity for the company.

While the foregoing discussion oversimplifies actions in the drug approval process, which requires multiple sign offs in advance of drug approvals, there is no evidence of FDA objections to the approval of Teva generic EpiPen, affirming the case that AB generic EpiPen could happen at any time soon. While the launch of Makena SC should put Antares in the black in 2018, generic EpiPen should move the company well into the profit zone.

Exenatide

Exenatide, which is a generic form of the AstraZeneca Type 2 Diabetes drug Byetta, is currently awaiting FDA approval following Teva's settlement with AstraZeneca and Amylin to market the drug after October 15, 2017. As documented in an investor presentation, Antares believes Teva will have first-to-file status which grants 180-day exclusivity. Symphony reported 2016 retail sales at $284 million. Antares will supply devices at reasonable margins plus receive high single-digits to mid-teen royalties on Teva end sales. Approval of Exenatide, while not a huge opportunity, will only bolster revenues, profits, and cash flow. Again, with stepped up generic approvals at the FDA, generic Byetta could likely be launched in 2018.

Teriparatide

The Teva-partnered drug, Teriparatide offers a much bigger opportunity to Antares as a generic equivalent for Eli Lilly drug Forteo, prescribed for the treatment of Osteoporosis and low bone density. Lilly reported full-year 2017 Forteo revenue of $1.75 billion, split roughly 51-49% between the U. S. and Europe. According to a company presentation, a Teva ANDA was accepted by the FDA in February of 2016. Lilly sued Teva and was granted a 30-month stay, which expires in August 2018, and agreed not to sue Teva on the device patent. Antares management believes Teva may have first-to-file status in U.S., which would provide 180 day marketing exclusivity. In December 2016 Antares announced Teva had completed a decentralized registration process for Teriparatide in Europe. Applications to authorize marketing the drug in individual European countries are in process, which authorizations could be received at any time. Antares will receive reasonable margins on device sales plus worldwide royalties of high single-digit to mid-teens on Teva end sales. While it is doubtful Antares will attain any revenue for generic Forteo in the U. S. during 2018, Europe could offer a significant contribution. Applying the foregoing earnings profile for generic Forteo, with branded European sales of about $800 million illustrates the potential for Antares earnings which could accrue in 2018.

Xyosted

Of all the drugs in the Antares pipeline, no other has caused more investor angst and volatility than Xyosted but also the greatest opportunity. As has been well documented, Xyosted exhibited excellent Phase 3 study results for the testosterone drug, positioning it as a potential best-in-class TRT (testosterone replacement therapy) drug in a market populated with much less attractive choices. With approximately 500,000 monthly prescriptions (300,000 IM injections), the market for a top line TRT self-administered drug could exceed $1 billion at full development.

One of the most popular drugs currently on the market is Androgel supplied by AbbVie (ABBV). AbbVie reported full-year 2017 Androgel revenue of $577 million, representing a 14.5% decrease year-over-year. Androgel sales have been in a down trend for several reasons. First, efficacy is not the best due to variable levels of testosterone in the bloodstream compared to intramuscular IM injections. Secondly, there are transference issues since the gel is usually applied near the shoulder blades. Third, it has been reported that Androgel patients typically roll off the drug after 3-6 months due to the foregoing and compliance issues. Last, there have been numerous lawsuits against AbbVie which have claimed cardiovascular disease as a result of taking the drug. In fact, due to the high level of efficacy with Xyosted, AbbVie could potentially become an acquirer of the Xyosted from Antares, or the whole company. With $9.3 billion in cash as of Form 10K linked above, AbbVie will likely be in the market for potential acquisitions. As has been widely reported, M & A activity is predicted to ramp up, especially in the aftermath of tax reform and increased levels of corporate cash.

Following the receipt of a CRL for Xyosted in October, there has been a great deal of uncertainty and speculation concerning the future of the drug and Antares stock. The CRL cited FDA concerns with elevated blood pressure as well as concerns with possible depression and suicidality. Due to the fact that the Phase 3, 52-week study yielded near pristine results, especially when compared to alternatives already approved by the FDA, the chances of approval remain excellent. Since the Phase 3 study provided the most consistent levels of testosterone in the bloodstream, it follows that the effects cited by the FDA would be the least pronounced with Xyosted, which advances its case for approval. Furthermore, while concerns for depression and suicide were cited, there does not appear to be any justification to link Xyosted to them to any greater degree than other drugs. Since the study concluded that Xyosted elevated blood pressure slightly, it will likely be the key issue to confront.

Two other companies, Lipocine and Clarus, have been seeking approval of TRT therapy drugs which are taken orally. In January, two consecutive FDA ADCOM meetings were concluded during which both drugs were voted down by the committee (link to briefing document for Lipocine's Tlando). While ADCOM votes do not bind the FDA to a decision on approval, no-votes are a big negative. As noted in the briefing document, blood pressure and heart rate were cited as is a concern, as with most TRT prescribed drugs. So in retrospect it is understandable that, while it appeared the FDA was close to approving Xyosted before issuing the CRL, it was logical to withhold approval due to blood pressure concerns. In addition, as can be noted in the briefing, oral drugs present other issues since they travel through the digestive system.

So where does Antares stand on Xyosted approval? As announced in a company news release management was scheduled to meet with the FDA February 21, after which the company will update investors on the FDA response about 30 days after the meeting. In view of the foregoing discussion on blood pressure, two alternative outcomes now appear likely. First, the FDA could agree to move forward on approval and, at the same time, require Antares to perform further blood pressure testing with a Phase 4 study post approval. Second, the FDA could require further blood pressure testing in advance of approval. Both studies would involve ambulatory blood pressure monitoring (AMBP), in which blood pressure is monitored with an ambulatory or portable unit. Both methods would not require a great deal of expense to be incurred by Antares, however, the second option would result in further delay in the approval process. Another relevant consideration may be that, if Antares completes the blood pressure testing in advance, the company would not likely face an ADCOM.

In any event, eventual approval of Xyosted is likely, since it offers better efficacy and a safer alternative for patients.

Risk

While the author believes that Antares will be a profitable investment for many investors, inherent risks cannot be overly stated. Even though it appears that the potential FDA approvals discussed have merit, the FDA could render decisions to not approve any of the drugs discussed. The company has a history of losses. Even though financials are moderately good for its current level of business, Antares is a tiny company with limited financial resources. Without proven profitability, Antares should be considered a speculative investment. Investors should not invest in Antares based solely on the content of this article, and do so only after full consideration of risks outlined in Form 10K beginning on page 33.

Conclusion

The path to FDA approvals for multiple Antares proprietary and partnered drugs has been long-and frustrating for many long holders of the stock. However, it appears the time has arrived when multiple approvals and product launches are at hand. When the FDA is involved, experienced investors understand that it is nearly impossible to project when drug approvals may occur. That said, the following guesstimates will be provided:

1. Generic EpiPen - First half 2018.

2. Exenatide - Calendar year 2018.

3. Teraparitide - Some European countries in calendar 2018, U. S. 2019.

4. Xyosted - If FDA requires Phase 4 (post approval) ambulatory blood pressure study, Q4 2018. If ambulatory blood pressure study must be completed in advance of re-submission of application, Q1 2019. It is possible, especially after Robert Apple comments in a presentation this morning, that the company will issue more upbeat news on the prospects of Xyosted approval which would be greatly welcomed.

In addition the above, Robert Apple announced during the presentation linked about that the company will add to its pipeline in 2018, which will be announced in about six months.

While the market is not assigning much value to Makena SC, and it is hard to ascertain what revenue will be by 2020, it is apparent that the approval will provide a nice bounce to earnings and cash flow in the near term and provide a bridge to the future.

FDA generic drug approvals appear to be building momentum which is likely to continue in 2018. If the majority of the above approvals come to fruition, Antares is worth much more today than its current price near $2.20. The market is likely undervaluing the shares by at least 40% and, extrapolating to the end of 2018, much more.

Analyst’s Disclosure: I am/we are 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.