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ATRS: Multiple New Launches Fire Up 2018

03/26/2018
By John Vandermosten, CFA

NASDAQ:ATRS

2017 Full Year Operational and Financial Results

Antares Pharma, Inc. (NASDAQ:ATRS) reported 2017 full-year results on March 13, 2018, posting 10% topline growth and a loss of ($0.11) per share.  Revenue growth fell short of our 11% forecast but earnings were a penny better.  Impressive increases in Otrexup sales, were offset by a slowdown in sumatriptan and development revenue.  Recent successes include the regulatory approval of Makena, progress on the sale of Zomajet and continued interaction with the FDA to get Xyosted across the finish line are positives we expect will drive performance as 2018 progresses.  

Total revenues for 2017 were $54.5 million, up from $49.5 million in 2016.  Otrexup was a standout in the year and the quarter rising 18.5% and 17.4% respectively and comprising a third of total sales.  Fourth quarter sales were $4.8 million, compared to $4.6 million in 3Q:17 and $4.1 million in 4Q:16.

Antares’ market share increase continued for sumatriptan, rising sequentially from 27% to 30%.  Despite this increase in share, total revenues declined year over year from $2.7 million in 4Q:16 to $1.2 million in 4Q:17 due to pricing and timing effects.  Pricing has weakened somewhat for the sumatriptan space and there has been a response with Endo withdrawing its Sumavel DosePro from the market in the first quarter.  We believe that Teva will be wise balancing price and market share in coming quarters.  

Needle-free Injector device sales declined 10% in 2017 to $4.9 million but rose in the fourth quarter by 4% to $1.2 million.  For the first time, Antares separated sumatriptan revenues from Auto/Pen Injector Devices in the income statement.  The Auto/Pen Injector category (now excluding sumatriptan in all periods) was down 50% for the year to $5.4 million while it rose 174% in the fourth quarter to $3.1 million.  Total product sales, which is the combination of Otrexup, sumatriptan, Needle Free Injector devices and Auto/Pen Injectors, rose 11% for the year and 57% for the quarter.  Development revenue was essentially flat for the year, but declined in the fourth quarter by 42% to $2.2 million on lower pen injector program revenue from Teva.  Annual licensing revenues increased substantially to $1.1 million due to the recognition of deferred revenues in the second quarter.  On a quarterly basis, licensing fell to half of its value last year at $19.  Royalties saw a solid increase of 10% for 2017, and also rose in the fourth quarter by 28% to $834,000.  

Gross profit for the year was $27.1 million which represents a margin of 49.6%, while fourth quarter levels were $6.9 million generating an associated margin of 49.4%.  Full year product sales margin was 46.5%, up sharply from 2016’s 36.4%.  Fourth quarter product sales margins were even stronger at 48.7%, compared the 4Q:16 levels at 25.2%.  Development revenue gross margins were down compared to the prior year, coming in at 49.0% for full year 2017 and are dependent on product mix.  Contributions from Otrexup and higher licensing revenues helped drive the increase over prior year levels.  R&D declined by 38% versus the prior year as efforts related to Xyosted and other programs tapered off and as the company lapped a $2 million NDA submission fee paid in 2016 that did not recur.  SG&A was up 15% for the full year and up 19% in the fourth quarter on a year over year basis reflecting the preparation Antares had done for the Xyosted approval.

As of December 31, 2018, Antares held $31.6 million in cash on its balance sheet.  We anticipate cash burn to be approximately $11 million in 2018, heavily weighted towards the earlier quarters in the year.  We have increased our R&D estimates to reflect the new development initiatives that Antares will pursue in urology and neurology raising our estimate to $20 million.  SG&A is expected to see a slight rise in 2018; however, when the Xyosted launch timing becomes clear, the model will need to be updated to reflect the timing of costs related to adding the sales force.

Makena Approval

On February 14, 2018 the FDA approved AMAG’s Makena, subcutaneous injection for pre-term birth.  Several benefits from the new method of administration are a faster injection with a less painful, concealed needle in the arm.  The previous generation of Makena required a multi-step process involving a 21-gauge, 1.5 inch needle and a 60 second plus injection duration in the gluteus maximus.  We expect that the simpler and less painful process for subcutaneous Makena, with no expected increase in price will result in a rapid switch over to the new product and limited resistance from payors.  First sales are anticipated later this month, with the rapid changeover expected to limit any losses to potential generic competitors.

Sale of Zomajet

On October 10, Antares announced the sale of Zomajet to Ferring Pharmaceuticals for up to $14.5 million. As discussed in the release, Antares should continue to collect revenues from this product until year end 2018, and two payments totaling $4.75 million have already been received.   This is a beneficial transaction for Antares as it divests a non-core business and provides capital to grow new products.  Two additional payments of $4.75 and $5.0 million respectively are expected in the second and fourth quarter of 2018, at which time the transaction will be completed.

Xyosted Receives CRL

The FDA delivered a complete response letter (CRL) to Antares on October 20 for Xyosted.  The FDA highlighted concerns that the injection could cause high blood pressure and be associated with depression and suicidality, adverse reactions listed on the label for other testosterone therapies.  According to the release there was no mention of Chemistry, Manufacturing and Controls (CMC) concerns, which suggests the remedies required can be accomplished in-house.  

During the Type A meeting on February 21, 2018 the company met with the FDA to discuss a resubmission plan in response to the CRL related to Xyosted.  Notes are expected to be available 30 days following the meeting and management will hold back from making any commentary until the minutes are received to ensure they properly understand the FDA’s input.  

CRL have become increasingly common with many faulting the increased workload and strict time constraints on the agency which forces them to employ unorthodox methods to gain additional review time.  The issuance of the CRL will cause a delay for Antares’ launch of Xyosted and may also require additional studies, such as bridging studies, a new design or a reassessment of the underlying data.  At this point, additional requirements are unclear as the path forward will be determined following an anticipated meeting with the FDA.

Based on background work performed in a previous report and our own experience with complete response letters, we estimate a 50/50 chance of eventual approval and a year delay in commercialization.

As a reminder, Antares submitted a 505(b)(2) NDA with the FDA in December 2016 for Quick Shot Testosterone (Xyosted).  This followed two Phase III studies (QST-13-003 and QST-15-005) which provided positive data on safety and efficacy on the underlying drug testosterone enanthate which has been used in numerous branded products for over 60 years.  The use of this product over many decades suggests that its safety should be well understood at this point suggesting that it will be approved when the FDA has its questions answered.

READ THE FULL RESEARCH REPORT HERE.

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