Does Antares Pharma Miss the Grade?

• Report this Comment On September 17, 2011, at 1:11 PM, noamps wrote:

  From Tappy on SA:

  I appreciate your coverage of ANTARES PHARMA (AIS).

  I have been successfully investing in small/ micro cap stocks for many years and AIS is currently my largest position (one of my

  largest ever) and I belived I know the company extremely well.

  AIS offers the best risk/ reward opportunity I have seen in many years.

  I have prepared notes for interested investing friends, which I have

  previously posted on Seeking Alpha and repeat here now for

  anyone who may be interested.

  ANTARES PHARMA (AIS)

  NOTE: The following report was written in mid June 2011.

  Since then:

  1. The two largest institional holders (OrbiMed [I believe the

  smartest investor in small pharma in the world] and Deerfield

  Partners increased their positions by about 40%.

  2. September 12th (this week) - favorable LibiGel PK clinical

  trial results were released. This is important safety data for the NDA submission late next year.

  3. On Monday, July 11, 2011 ANTARES announced they licensed

  their Overactive Bladder drug ANTUROL (discussed below) to

  WATSON PHARMACEUTICALS.

  Immediately after the announcement two of the analysts covering

  AIS issued a new report to discuss the deal.

  Matt Kaplan of Ladenberg-Thalmann estimates that the peak annual

  royalties to AIS from this deal will be $15 million.

  Oppenheimer said ANTUROL sales could total $250 million annually

  and the high estimate for a royalty percentage paid to AIS could be

  22% - the math on this figures out to $55 million a year to ANTARES.

  My estimate (before the Watson deal) was than AIS would receive

  annual royalties from Anturol of around $10 million, with the possibility

  of going to $15 million. Should numbers come anywhere near Oppenheimer's

  projections this would be an very major home run for AIS.

  4. Additionally on July 28, 2011 - BioSante (AIS' licensee for LibiGel -

  the product and relationship described below) announced a secondary

  sale of stock by BioSante of 15 million shares @ $3 a share, for

  a total of $45 million. This is a direct investment in, and to the benefit

  of, LibiGel. Accordingly, AIS will receive its proportionate benefit from

  this offering without any dilution what-so-ever to AIS. A nice vote

  of confidence for both FDA approval and market success of LibiGel.

  To my AIS investing friends:

  A prominent friend, here in Sarasota, has developed an interest in

  Antares and asked me to send him my thoughts. I wrote this for

  him last evening. I have sent you all such reports in the past, and it

  won't tell you anything you don't already know- but for what ever

  it's worth- I am forwarding same to you--- BOB

  June 16, 2011

  Dear Mark and John:

  Thank you for your interest in ANTARES PHARMA (AIS).

  I anticipate writing a long summary (there are few things I

  enjoy discussing more than AIS) - but whatever I write here

  I am sure will only scratch the surface, and I am available until

  June 23 (when I leave for Phila. for most of the summer) to discuss

  this further in person; or after that on the phone, if you wish.

  I have been investing in micro/small cap with considerable success,

  for many years and AIS is about the largest investment I have ever

  made in a single stock.

  To begin in general:

  As an introduction:

  AIS has excellent institutional support and (Deerfield Partners)

  AIS' second largest institutional holder - very recently increased

  their position from about 3.5 million shares to just under 10 million

  shares and are now number one. OrbiMed (thought by many to be

  the smartest investor in small pharma) is now second largest

  institutional holder with almost 6.5 million shares.

  AIS has coverage from 3 respected analysts - all with buy ratings

  and targets 50- 100% higher than current share prices. I expect

  these targets to be raised significantly as near term catalysts

  add value.

  AIS management is excellent and can be reviewed on the AIS web

  site. I am particularly impressed by CEO - Dr. Paul Wotton, who

  I have met on several occasions. I attended a Roth Investor

  Conference about 18 months ago, around the time when Dr. Wotton

  was appointed CEO. The analyst (Edward Nash) said he had followed

  AIS for several years waiting for AIS to become a "compelling

  investment" and the time is now to begin to accumulate shares -

  He said of Dr. Wotton- "He get's it"; referring to his plan to

  shed costly distractions, monetize some assets and focus the

  company for both near term and sustained profit and disciplined

  pipeline advancement.

  (as a note- some years ago, Dr. Leonard Jacob, a highly respected

  Philadelphia physician and businessman invented a much

  improved colonoscopy prep and formed a company called InKine

  Pharma (to develop and market same); which he ran and sold to

  Salix Pharma and made many local investors a great deal of money.

  Len Jacob was Chairman of the Board of InKine and Robert Apple

  was CFO- they now hold the same respective positions at AIS).

  After very significant due diligence; I see AIS, at this point as

  risk-less (other than normal market fluctuations); and with the

  probability of a return of 5 X the investment within 12 -18

  months and (if it is not sooner acquired by TEVA; on a tax free

  exchange of stock) having AIS trade in the $20+ range within

  5 years.

  I will try and demonstrate, later in this review, how AIS, in the

  next approximately three years, will earn $100 million (or $1 a share)

  and with a 20 X multiple - discounted for time and risk, I think the

  stock today is worth $6-8. Also it is important to note that AIS

  currently has a very small burn and will be profitable this year.

  They have $35 million in cash, no debt and should report significant

  up-front and milestone payments from licensing fees, discussed later.

  NOT INCLUDED: In this share price or earnings estimate is probably

  the most transforming event in AIS history which is the recent

  announcement of development; shepherding thru clinical trials and

  approvals in 2012 and launch in 2013; of an "in house" product which

  is low risk (and relatively low cost) and high return (Methotrexate for

  Rheumatoid Arthritis) which will take AIS from a company merely

  earning (very lucrative) royalties and licensing fees - to one which

  markets their own products for a much more significant piece of the

  pie.

  AIS was first brought to me about 5 years ago; by a childhood

  friend and investing partner who is one of the leading cardiologists

  in the Phila. area (my home town).

  Back then (under a different CEO) AIS had very good science,

  (developed over a ten year+ period at a cost of over $100 million)

  and some very good relationships; but was a awkward company with

  little focus, a large burn, and not close to monetizing any of their

  assets.

  We were aware of these shortcomings and thought they would be

  remedied. They were, to our satisfaction - mainly thru a new and

  excellent CEO - Dr. Paul Wotton. It was the under-performance

  the past few years that enabled us to build a very large position

  in the stock; and, to date, share price has worked to our benefit.

  AIS now has two drug delivery platforms:

  Advance Transdermal Gel and Injectable.

  We initially bought the stock for the Gels- but now- while the Gels

  hold excellent profit potential (see below) the Injectable's have

  overtaken the Gels as what will be the prime mover for AIS.

  All that AIS does requires FDA approvals- but combining existing,

  already approved drugs, with AIS delivery (and at this time AIS

  has FDA approvals in both of their platforms (Gels and Injectable's) -

  The bar for approvals is very low and any regulatory risk is small.

  The Transdermal Gel technology often provides a far better side

  effect profile than oral medication with equal or better efficacy.

  It can be thought of as the second generation of "The Patch" which

  is has multi billion dollar sales, but often (due to humidity and

  temperature, etc.) can deliver irregular doses (too much or too

  little) and can cause significant skin irritation. The gels eliminate

  these problems.

  Also it is important to note- that while anyone familiar with Gels

  recognized their medical benefit; but some may think is it a "messy"

  delivery. To the contrary- AIS' transdermal gel is not smeared

  on as sun-screen is used- rather it is a small dab (measured dose),

  usually applied to the shoulder, upper arm, abdomen, etc. from

  an applicator.

  It is almost instantly absorbed and leaves no residue on the skin.

  It can not be accidentally rubbed or washed off. I have heard it

  described as an "elegant delivery".

  AIS has 4 active Gel opportunities (and one on the shelf).

  1. Is LIBI-GEL which will be the first U.S. approved drug to treat

  Female Sexual Dysfunction (a patient population, at least, equal to

  that of men with ED; and such a drug is often referred to as: Pink

  Viagra).

  LibiGel should be a "blockbuster" drug (which commonly means

  annual sales of $1+ billion).

  AIS owns, and has licensed LibiGel, to BioSante Pharma for sales in

  N. America and a few very minor markets. BioSante has stated they

  intend to sub-license LibiGel in 2011 or early 2012. (AIS will

  receive 25% of all up-front and milestones and a 5.5% royalty on

  sales. BioSante receives 75% of up-front and milestones- but when

  you net out BioSante's 75% [after deducting the $90 million cost of

  clinical trials] - against AIS' 25% -- the up-front money to each

  company should be about equal). BioSante's domestic royalty will be

  more than AIS' 5.5% but when you add AIS' international opportunities,

  royalty income could be near equal).

  BioSante has little more than LibiGel, but as a pure play speculative

  stock, their market cap is about $100 million more than that of AIS

  (indicating AIS is being given no value for LibiGel - I think a very good

  case could be made that, based on the market cap of BioSante- AIS

  stock should [today] be $3 higher than it is-- based on LibiGel alone).

  AIS has retained the rights to the rest of the world. BioSante is spending

  an estimated $90 million to conduct clinical trials; and they have

  completed enrollment in the phase 3 trial, and expect an NDA submission

  to the FDA in very early 2012 and approval later that year. I am confident

  LibiGel will receive FDA approval for the following reasons.

  1. They are operating under an FDA "special assessment protocol"

  which effectively means the end points are previously agreed upon

  and, if the drug meets these end points, it will be approved so

  much of the subjectivity removed. 2. The FDA has publicly stated

  that Female Sexual Dysfunction is an "unmet medical need". 3. The

  FDA division which rules on approval is the "Urological and

  Reproductive Division" of the FDA and they have previously approved

  "Elestrin" (which is an AIS female hormone replacement gel drug

  licensed to BioSante). 4. Trial results to date have been excellent as

  to both safety and efficacy. 5. LibiGel is low dose testosterone and

  there are currently over 4 million "off label" prescriptions written

  each year in the U.S. for this use; and an approval drug would give

  the FDA control over a product for which they now have little control.

  6. A Low Dose testosterone gel product developed by P & G "Intrinsa"

  to treat women's sexual dysfunction is approved and selling in Europe

  with good results and no adverse effects.

  AIS retains all rights to LibiGel outside of BioSante's area and

  AIS has the right to use BioSante date for international approval;

  with no cost to AIS.

  I will get into the economics of LibiGel later in my earnings paragraph.

  2. ELESTRIN: is an "approved and launched" AIS female hormone

  replacement gel drug; used to replace the natural depletion of estrogen,

  lost as a woman ages. Symptoms of this problem range from

  manageable to uncontrollable "hot flashes" and a greatly diminished

  quality of life. The problem affects a great majority of mature women.

  Elestrin was licensed to BioSante (who in error sub-licensed it to

  Bradley Pharmaceuticals, who was in a takeover battle, and never

  launched the product).

  BioSante re-acquired rights from Bradley and sub-licensed to Azur

  Pharma who successfully launched the product.

  About a year ago Azur offered AIS and BioSante approximately

  $4+ million (each) as an advanced/discounted royalty payment to

  buy out future royalty payment obligations. BioSante took the offer

  as they were funding expensive LibiGel trials. AIS refused, as they

  wanted the recurring and growing income stream. This has worked

  out well for AIS.

  Female hormone replacement is associated; in rare instances,

  with heart attacks, strokes and blood clots. This is because oral

  hormones are metabolized in the liver, which also plays a part in

  the blood clotting process. Elestrin passes the liver and these risk

  factors are eliminated. Also hormone replacement has been associated

  with breast cancer and Elestrin was FDA approved as the "lowest

  effective dose" and the lower the dose the less chance for breast

  cancer. Elestrin has been a reasonably successful product, that has

  the capability to really catch fire and be an excellent revenue producer.

  3. ANTUROL is an AIS gel drug to treat overactive bladder, which affects

  a great majority of older people (mostly women); and is characterized

  by urgent, frequent, or uncontrolled urination; causing accidents and/or

  runs to the bathroom - which is highly inconvenient and embarrassing.

  The market for OAB drugs in the U.S. is around $3+ billion and

  Oxybutynin is the gold standard treatment for OAB; but orally

  it causes dry eye, dry mouth and constipation. Anturol is an

  Oxybutynin gel and, in this form, the above side effects are eliminated.

  Clinical trials have been completed and there is an FDA decision

  due (on or before) December 12th. Clinical trial results were

  excellent and I believe approval is almost assured.

  AIS expects to license this drug this year; and the up-front

  payments should be several million dollars; with continuing royalties

  on product sales in the mid to high teens and could run to 20+ %.

  4. NESTERGEL: AIS owns, and is working with The Population Council

  on this novel Gel contraceptive product which has distinct advantages

  over other forms of birth control. They are now in phase 2 clinical

  trials with excellent results to date. AIS has stated that the Population

  Council expects to license NesterGel (to a third party drug company)

  in the near to mid term. The market opportunity is extremely large,

  but I don't have a real handle on anticipated up-front money or

  licensing revenue. So NesterGel is not included in my revenue

  estimates.

  5. Ripioirole is an AIS product for restless leg syndrome. It was

  licensed to Jazz Pharmaceuticals but due to problems at Jazz it

  was put on hold, where it remains.

  In order to concentrate on a greater opportunity in the Injectable

  side of their business, and to reduce a significant cash drain- AIS

  sold future gel development to their European partner - Ferring

  for a few million dollars and (perhaps) future milestone payments.

  AIS received a $1/2 million milestone about a year ago from Ferring

  in this matter. AIS retains all the benefits of their existing gel

  drugs (above) and has all rights in Europe, S. America and Asia;

  which are now uncommitted, and AIS expect will make a reasonable

  contribution to future earnings, but is not figured into my financial

  projections.

  Injectable Division:

  In this area AIS' products are compatible with drugs in the Bio-

  Equivalent and Bio-Better market which is dominated by generic drug

  companies and is current at $25 billion; slated to grow to $125 billion

  by 2015. TEVA is the dominant player in this field as the largest

  generic drug company in the world; and TEVA has four licensing deals

  with AIS covering five products.

  The first TEVA/ AIS licensing agreement is for HUMAN GROWTH

  HORMONE and the product is named Tev-Tropin. It is fully FDA "approved

  and launched". Teva recently paid AIS a $1/2 million milestone payment

  for Tev-Tropin meeting (or exceeding) sales projections.

  The second and third TEVA/ AIS product is for (2) Epinephrine for

  Anaphylaxis which is a severe systemic allergic reaction resulting from

  exposure to allergens that is rapid in onset and can cause death. The

  (3rd) is for a yet undisclosed product (widely thought to be Sumatriptan

  for treatment of migraine). Both products have NDA's pending before

  the FDA and approval and launch is expected this year.

  (note: TEVA/AIS epinephrine is currently in litigation for patent

  infringement claimed by King Pharmaceuticals. All of my sources advise

  the TEVA is the clear winner and to expect a settlement. If not

  TEVA should launch "at risk" and there should be no negative impact to

  AIS).

  TEVA/ AIS 4 and 5 are in mid stage clinical trials. The products

  have not been identified; but it has been publicly disclosed that the

  combined markets for these two products is $1.6 Billion and the

  Royalty percentage to be paid by TEVA to AIS in in the mid teens.

  This is not included in my revenue estimate; as it is some years away:

  (However to look at the projected numbers: TEVA targets. and almost

  always captures. at least 10% of a market. With a $1.6 Billion market;

  TEVA should develop sales of $160 million and a royalty revenue

  stream to AIS (at the low end of announced revenue percentages of

  15%) -- that would mean annual income to AIS of $24 million).

  Recent reassurance of the strength of the TEVA/ AIS relationship

  was receipt about 18 months ago of a $4 million payment from TEVA

  to AIS which was earmarked for "future product development". The

  $1/2 million milestone payment (mentioned above) for the success of

  Tev-Tropin. Dr. Leonard Jacob Chairman of the Board of AIS) and

  Wm. Marth (CEO of TEVA) were recently appointed to the board of

  the Institute for Scientific Research in Philadelphia. And in the last

  quarterly conference call Dr. Wotton (CEO of AIS) described the

  TEVA relationship as "Phenomenal" - which is of particular note; as

  Dr. Wotton is very understated.

  THIS IS HOW I EXPECT AIS TO REACH SALES OF $100 MILLION:

  (AND THIS IS ROYALTY INCOME WITH NO COST OF GOODS SOLD

  SO EXCEPT FOR SG & A - AND- R & D MOST OF THIS REVENUE

  WILL COME TO THE BOTTOM LINE) AND THIS INCOME IS BOTH

  RECURRING AND GROWING:

  How do we get to earn $100 million.

  1. LibiGel should easily be a $1 billion "blockbuster" drug-

  and our royalty is 5.5% or $55 million a year of recurring and

  growing income to AIS. That is on domestic sales: AIS owns all

  international rights to LibiGel and it is currently uncommitted.

  2. Anturol should be licensed this year for several million dollars

  up-front and a royalty of probably mid teens- On Anturol sales

  of $60 million AIS' royalty income would be nearly $10 million

  (and Anturol could easily produce $100 million in sales and generate

  $15+ Million to AIS). OAB is a multi-billion $ market and Anturol

  has one of the best side effect profiles of any existing drug.

  3. Elestrin should earn AIS $3 -5+ million a year.

  4. Tev-Tropin (first launched AIS/TEVA product) HGH is a $1.3

  Billion market - TEVA should easily capture 10%+ of the market

  or sales of $100+ million. AIS' royalty plus device sales should

  average 10%, or $10 million a year to AIS.

  5. TEVA/AIS Epinephrine: the market is $250 million - TEVA should

  capture 20% and AIS receives an 8% royalty or $4 million a year.

  6. TEVA/AIS # 3 product is undisclosed but thought to be Sumatriptan:

  Similar opportunity for AIS as with Epinephrine - $4 million a year to

  AIS.

  7. Current revenue for AIS - mostly from Ferring sales in Europe

  around $14 million a year

  THE ABOVE TOTAL $101 MILLION IN ROYALTY INCOME

  TO AIS: With 100 million shares outstanding this is (more

  of less) income of $1 a share..

  It does not take into consideration:

  1. TEVA 4 & 5 (which will sell into a $1.6 billion market - TEVA targets

  and traditionally captures at least 10% of any market they enter for

  sales of $160 million and AIS will receive a mid teens royalty (say 15%)

  for income of $24 million).

  2. Any monetizing of AIS' gel opportunities outside of N. America.

  3. Any up-front and milestone payments from licensing of LibiGel;

  Anturol and NesterGel which could easily be in the tens of millions of

  dollars.

  4. The very significant opportunity with Methotrexate.

  5. And any new licensing deals which I think are inevitable: and at

  least one new deal is projected this year by the Ladenburg-Thalmann

  analyst, Matthew Kaplan; who I think is the smartest, small Pharma

  analyst on Wall Street.

  AIS formerly had little, or no, Investor or Public Relations, as

  they felt the story was not ready to be told. Several months ago they

  engaged Westwicke Partners to represent AIS with IR/PR (mostly

  in dealing with institutional clients). They are first rate and I suggest

  you visit the Westwicke web site to see their qualifications.

  For me to write here about some of the technical aspects of the

  Injectable platform and/or to discuss financial's would be to merely

  parrot information that is readily available on the AIS web site:

  www.antarespharma.com . Plus as a company now successfully

  transitioning from an R & D company (not expected to generate much

  revenue and lose money): To one which is successfully commercializing

  their products - historical revenue data is of little use.

  The AIS web site, while not spectacular, contains good information.

  If you are interested, and if they are still archived, I suggest you

  listen to the most recent quarterly conference call and any web-

  casts from institutional health care conferences. Also, to learn

  more about LibiGel you might want to visit the BioSante web site

  and bring up any presentations made by them recently.

  Again, thanks for your interest and I wish you good luck if you decide

  to build a position in AIS stock.

• Report this Comment On September 17, 2011, at 1:19 PM, noamps wrote:

  Mr. Jayson

  Interesting comparison:

  You compare company with 13MM annual sales (and growing rapidly) and 250Million market cap, to companies with minimum 3.3 Billion market cap and over 3 Billion in sales.

  Can you please explain your thinking ?

• Report this Comment On September 18, 2011, at 11:44 AM, Toast2012 wrote:

  Mr. Jayson,

  I have seen many Fools articles concerning companies involved deeply in R&D with the reason to buy based on the upcoming products...which obviously are not in the previous 5 year numbers.

  I am curious as to why this article looks very much like other articles by Motley Fool which it appears the the only thing different is that the comanies have been changed out. I have actually even seen the same title you used for your article several, if not many, times before.

  My question is if you actually know what AIS does and who their competition is - especially given you are comparing them to their "partner" Watson.

  Find it all odd.

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