Antares Pharma: What The Market Is Missing

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About: Antares Pharma, Inc. (ATRS), Includes: LLY, LPCN, PFNX
by: Arthur Frentzel
Summary

Since the approval of Clarus' TRT drug Jatenzo on March 28, Antares shares have been under pressure, breaking an upward trend to the downside.

The attributes of Antares drug Xyosted and Jatenzo are strikingly different, which clearly will be differentiated by physicians and patients alike.

Antares shares remain undervalued, which might not be recognized until Xyosted revenue begins to spike.

As the chart below illustrates, Antares Pharma (ATRS) stock has been down and under pressure since the FDA approval of Clarus Therapeutics' TRT drug Jatenzo on March 28, which gives an indication of lower investor sentiment and expectations.

(Courtesy StockCharts.com)

After reaching an intraday high near $4 in early March, the stock has not been able to break through its 50-day or 200-day moving averages, evidencing lower expectations for Xyosted since Jatenzo was approved.

Xyosted - Best-In-Class

While the prospect of an oral TRT appears to be game-changing, the underlying attributes of oral therapy are significantly negative. As Figure 2 below illustrates, the pharmacokinetic (PK) attributes illustrate a key negative for Jatenzo. During just a 24-hour period, T-concentration with Jatenzo, testosterone levels swung from a high near 700 to below 200 ng/dL.

Also, during Phase 3 trials, 87% of patients taking Jatenzo achieved normal levels of testosterone, compared to 98% for Xyosted, a significant 11% difference. Considering that normal levels of testosterone in healthy men is between 300-to-1000 ng/dL, levels maintained by Jatenzo vary significantly and swing to below normal during the dosing interval, which also can result in some patients not feeling well. In Xyosted Phase 3 trials, patients achieved normal levels of testosterone during the first 24 hours, and maintained steady levels after 48 hours. Furthermore, in taking two Jatenzo capsules daily, and 60 over 30 days, there remains a greater risk of non-compliance that physicians could likely resist. Magnifying the problem further is the fact that, with a breakfast of just 15 g of fat, compared to 30 to 45 g, testosterone exposure was lower by 25%. In other words, patients should consume 30 g of fat for breakfast to obtain the results in Figure 2. The foregoing is expected in a population that is laser-focused on reducing fat and caloric intake. The foregoing gives strong evidence of why physicians and patients will opt for Xyosted as the best-in-class alternative.

In addition, oral TRT assumes that patients would prefer to take capsules as compared to once weekly subcutaneous injections. As pointed out in a recent investor presentation, 45% of new prescriptions for Xyosted were from new patients, while 45% came from conversions from intramuscular injections, giving evidence that even in the early stages of the Xyosted launch, acceptance of the product has been excellent. Further strengthening the choice of Xyosted, over 99% of patients indicated that they experience no pain with subcutaneous Xyosted. While at first glance the idea of taking testosterone capsules may appear to be appealing compared to IM injections, a more thorough consideration of alternatives will reveal that Xyosted has the highest degree of efficacy that is the easiest to administer of all alternatives.

As illustrated in the presentation, the market for TRT drugs grew 6% in 2018 to 7.2 million prescriptions. An annual growth rate of 5-6% will underpin the market for TRT, and especially Xyosted as a new, improved choice for patients. Extrapolating 7.2 million prescriptions yields a total addressable market of over $2 billion just in the U.S., which is huge when considering a small company the size of Antares with a current annual revenue run rate of $74.1 million. As shown in the presentation linked above, injectable prescriptions currently have a 68% market share with 408K monthly prescriptions. Since it was stated in the Jefferies presentation that Xyosted has been prescribed to about 5500 patients, over 400K of injectable prescriptions are painful intramuscular (IM) injections. Due to the fact that IM injections are administered every two weeks, concentration varies from peak to trough. Also, since IM is not self-administered, there is a convenience factor available to patients choosing Xyosted.

Since Xyosted is priced near generic IM drugs (and could be even less with copays), it is easy to see how it could achieve at least a 25% market share, which would represent $500 million in annual sales. Considering all of the foregoing, a superior product with greater convenience at a comparable cost should reasonably achieve a dominant market share over time.

While it is not known how oral drugs Clarus Jatenzo and possibly Lipocine (LPCN) Tlando (with a PDUFA date of November 9, 2019) will do in the market, a clear distinction can be made between them and Xyosted. While the oral versions will gain market share, the disadvantages of PK, calorie intake and twice-daily dosing are negatives that will ultimately have some effect on prescribing doctors and patients. Furthermore, Clarus and Lipocine continue to be involved in an ongoing patent dispute that, until settled, could adversely impact marketing plans for either drug. Since both companies operate with 9-10 employees each, they will undoubtedly seek partners to market their TRT drugs. Due to the ongoing patent dispute, it is unlikely that a partner would commit a high level of resources to market a product. In addition, partnership deals necessitate splitting profits, making ventures less profitable for either party, which has a tendency to reduce motivation and resources committed to launching products. Due to the foregoing, Antares maintains a significant advantage in being the sole marketer of proprietary Xyosted.

2019 and upcoming catalysts

2019 has already proven to be the most successful year in the history of Antares. For Q1 2019, the company reported an 83% increase in revenue over 2018. Also, with revenue guidance of $95-105 million for full-year 2019, the company will achieve a five-year revenue CAGR of 30.4% for the preceding five years. With revenue now accelerating, it is reasonable to assume that the company will surpass its historical growth rate in the foreseeable future. In spite of an excellent quarter driven largely by Makena Subq, the upcoming quarters should see significantly greater increases.

On November 29, 2018, Teva (TEVA) began the launch of generic Epipen with limited distribution, which was a timing issue specific to that company. On a Q1 2019 conference call, Teva CEO Kare Schultz stated, “We are ramping up the volumes and providing EpiPen to anybody who needs to buy one. We have the adult version on the shelves. We're distributing it to Anda. So any pharmacy who needs EpiPen can just call Anda and they will get it within 24 hours. And we're seeing a nice revenue coming in from that. We will have the junior pen ready for the school start in August. So we'll be able to supply EpiPen fully to the marketplace. Right now we are probably approaching some 20% share of the market that will be increasing. And of course we never know what competition will do it. But if there is no real change in the competitive situation, we could be approaching 50% share as we exit this year.”

The growth in Makena Subq and the near-term full launch of generic Epipen will underpin revenue growth for the remainder of 2019. More significantly, in addition to revenue growth, the company will book significant royalties going forward. Just in Q1 2019, Antares reported royalties of $4.1, a 768% increase over Q1 2018 royalties of $469K. Since royalties require little expense on the part of the company, gross margins will expand, along with significant cash flow. As stated by CEO Bob Apple during the Jefferies presentation linked above, the company expects to be cash flow-positive by the end of 2019. Furthermore, he stated that management is comfortable with its cash position and expects no additional capital raise to fund the launch of Xyosted. A potential capital raise was previously a major negative for investors in advance of the Xyosted launch, which has now been totally overcome.

Lastly, the impending FDA approval of generic Forteo could rocket ATRS shares for the remainder of 2019. Teva has stated repeatedly that the company expects to launch generic Forteo in the second half of 2019 and has been purchasing pre-launch quantities of injectors from Antares. Eli Lilly (LLY) reported 2018 Forteo revenue $1.576 billion globally. Teva is expecting competition on generic Forteo, and accordingly, Pfenex (PFNX) announced on December 10, 2018, that it had submitted an NDA seeking approval to market generic Forteo and could launch the generic as early as Q4 2019, partnering with privately held Avogen Labs.

While there no doubt will be competitors in the market for generic Forteo due to the size of the drug, Teva has a long history of leading in the generic space. On the Q1 conference call linked above, Teva CEO Kare Schultz stated “... we believe from our own intelligence that we will probably be first in market. How long we'll maintain that first in market position, I'm not quite sure, but it's not an easy - it's not an easy product. So it's one of the more difficult and challenging one. So hopefully we'll have a decent runway with it where we're either alone or with one maybe just two other entrants for a while.” Antares will earn a reasonable margin on device sales plus receive high-single digit to mid-teens royalties on Teva end sales of generic Forteo. While device sales will be less than with generic Epipen, royalties up to mid-teen percentages of sales will be significant.

Risks

As Antares continues through 2019, risks will lessen as it progresses from an unprofitable development company into full-scale commercial organization generating cash. Further, due to the diversification of the company’s portfolio into multiple approved drugs, both proprietary and partnered, risk has been reduced further. Reaching cash flow positive status by year-end will strengthen Antares’ financial position further. In spite of the foregoing, investors should understand that Antares remains a very small company and the stock price has a history of volatility. Any negatives to the above opportunities discussed could adversely impact the stock price. While the author believes that Antares stock will be profitable for many investors, readers should not invest in Antares based solely on the content of this article, but should do so only after a full considerations of risks outlined in Form 10-K, beginning on page 32.

Conclusion

Antares has come a long way in the progression from a development-stage company to a full-scale commercial organization with proven ability to develop combination drugs and bring them to market. The market may not have recognized the merits of the company's value in combination drugs; however, at least some pharma companies have, as evidenced in the company's success in inking partnership deals.

With a team of 83 sales representatives, in a company with about 170 total employees, Antares is proving its ability to successfully undertake a major product launch with Xyosted. Xyosted is positioned to lead the market in TRT, which exceeds $2 billion just in the U.S. and growing, which says nothing about ROW markets which will come. Due to superior efficacy and administration, it is a reasonable assumption that Antares will ultimately gain a minimum of 25% market share in TRT delivery. IM testosterone injections that currently dominate TRT, with an approximate 68% market share, are likely to be superceded by the much more efficacious, pain-free, and easy-to-administer Xyosted. Priced comparable to generic IM, Xyosted offers an alternative that is likely to gain momentum.

The company is likely to transition from revenue CAGR of 30% in the past five years to continued growth and profitability. When screening for growth stocks that continually grow over 30%, the universe of choices can be limited. They are available, but usually at high prices by all metrics. At near $2.80 per share, the market is missing one.

Good luck to all Antares investors.

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.