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Why Is This Fast-Growing Biotech So Undervalued?

By Zhiyuan Sun – May 28, 2020 at 7:07AM

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Why is a fast-growing company making one of the best testosterone replacement therapies on the market so underappreciated by investors?

Antares Pharma (ATRS) is one of the fastest-growing biotech stocks in the sector, with multiple collaboration agreements with large-cap pharmaceutical companies to supply it with pressure-assisted injector devices.

The wheel of fortune, however, has not been kind to Antares, as its shares are now down 40% year to date despite the company's record levels of revenue growth. Just what exactly could be keeping this stock down?

Woman injecting Epipen into her leg.

Image Source: Getty Images.

Impressive growth figures

Antares's core business has been steaming as of late. For a start, it manufactures autoinjectors for Teva Pharmaceutical Industries' (TEVA -1.81%) generic version of the EpiPen, which has captured about 43% of the overall EpiPen market from Mylan (MYL).

Recently, the company lined up another commercialization agreement with Teva to supply pen injectors for a generic version of Forteo, which is used for the treatment of osteoporosis. Last year, Eli Lilly's (LLY -0.28%) branded variant of this drug generated $1.4 billion in sales, including $646 million in the U.S. alone.

The company's flagship product is Xyosted, an injectable testosterone replacement therapy (TRT) that is 90% effective in clinical studies at normalizing testosterone levels in men with a deficiency of the hormone. Efficacy aside, the drug is also very affordable, with a list price of $430 but an affordable copay for most commercially insured patients. Since its launch last year, about 5,300 physicians have written over 100,000 prescriptions of the drug for nearly 19,000 patients. The injectable TRT market was estimated at $408.4 million last year. 

Skeptics aren't impressed 

For all its rosy tales of growth and promise of fortune, the company does have its share of critics. One common grievance among long-term shareholders seems to be an unfavorable view of management. A scan through the company's financial statements from 1995 to 2019 shows that Antares never had a profitable year during this period in terms of GAAP net income.

Its margins do not stand well against competitors', either. While Antares's gross margin of 60% is comparable with the industry's 66%, its operating and net margins indicate the company is struggling to break even. However, it is worth noting that last year, the company recognized more than $990,000 in operating income from $99.7 million in revenue -- its best year ever. 

Furthermore, the company suspended its 2020 revenue guidance because of headwinds facing Xyosted. Although the product is effective, new patients must first proceed to a physician's office for a blood test before they can be administered  Xyosted because of the drug's side effect of increasing blood pressure. This is obviously difficult to do amid the current COVID-19 pandemic, and management forecasts the company's growth will be stunted for the time being. 

Should you give the company a chance?

Rest assured that there are signs of relief coming for Antares. With the launch of Xyosted and a generic epinephrine partnership, Antares's revenue shattered records in the most recent quarter, up 42% over last year. The company's debt situation is also manageable, with about $50.3 million in cash and investments to offset $40.5 million in long-term debt. 

All things considered, Xyosted and generic epinephrine are game-changers in Antares's path to attain profitability, and it shouldn't take long for the company to recognize profits once physician visits pick up again. I think Antares's price-to-sales ratio of 3.5 is a good price for investors looking to pick up a growth company enduring a temporary hit from the novel coronavirus.

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool recommends Mylan. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Antares Pharma, Inc. Stock Quote
Antares Pharma, Inc.
ATRS
Teva Pharmaceutical Industries Limited Stock Quote
Teva Pharmaceutical Industries Limited
TEVA
$8.67 (-1.81%) $0.16
Eli Lilly and Company Stock Quote
Eli Lilly and Company
LLY
$328.95 (-0.28%) $0.94
Viatris Inc. Stock Quote
Viatris Inc.
MYL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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