Antares Focusing On Top Line Growth Print
By Scott Matusow, Contributor   
Friday, 29 June 2012 09:35
icon_stockresearchAntares Pharma (NASDAQ:ATRS) focuses on self-injection pharmaceutical products and technologies and topical gel -based products. The company's subcutaneous injection technology platforms include the Vibex MTX and Vibex QS disposable pressure-assisted auto injectors, Vision reusable needle-free injectors, and disposable multi-use pen injectors.

While some reports have focused on the Antares Bladder Control gel, Anturol, which is now called GELNIQUE 3%, marketed and sold by Watson Pharmaceuticals, Inc.(NYSE:WPI), there has been some confusion about the product for which Antares receives a low double digit royalty. Antares is a growth based company-its plan is to reinvest its royalty revenue towards its top line growth. GELNIQUE 3% is not a significant fundamental reason to invest in Antares.

Antares also partners with Pfizer Inc. (NYSE:PFE) and Teva Pharmaceutical Industries Ltd (NYSE:TEVA) in various other royalty deals.

However, the Antares top line product growth is a reason to invest in the company, not its current bottom line number, because it is the top line success that will ultimately take Antares from a little over $3.50 a share, to in my opinion, $50 + a share in the next 5 years.

The VIBEX self-injector system: 

The VIBEX system is designed to economically provide highly reliable subcutaneous injections comfortably and conveniently in conjunction with the enhanced safety of an integrated shielded needle. VIBEX employs a proprietary coil-spring power source to rapidly deliver the prescribed medication. This spring is combined with a tiny hidden needle in a disposable, single-use injection system compatible with conventional syringes. After use, the device can be disposed of without the typical "sharps" disposal concerns. Antares and its development partners have successfully tested the device in patient preference and clinical bioavailability studies. Antares continues to explore product extensions including multiple dose and

variable dose applications as well as integrated reconstitution systems for lyophilized drugs.is designed to economically provide highly reliable subcutaneous injections comfortably and conveniently in conjunction with the enhanced safety of an integrated shielded needle. VIBEX employs a proprietary coil-spring power source to rapidly deliver the prescribed medication. This spring is combined with a tiny hidden needle in a disposable, single-use injection system compatible with conventional syringes. After use, the device can be disposed of without the typical "sharps" disposal concerns. Antares and its development partners have successfully tested the device in patient preference and clinical bioavailability studies. Antares continues to explore product extensions including multiple dose and variable dose applications as well as integrated reconstitution systems for lyophilized drugs.

Antares has 2 topline products, with the Vibex Mtx platform in late stage development.

VIBEX MTX: On Tue, Jun 26, 2012, Antares announced positive results from a human factors usability study for VIBEX MTX. The purpose of this study was to conduct a cumulative and

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summative round of simulated usability testing of the VIBEX MTX device in accordance with Food and
Drug Administration (FDA) draft guidances.

The new drug application (NDA) is expected to be filed early next year. However, Antares management has a history of under promising and over delivering, so I expect the NDA to be filed this year.

Used in an estimated 70% of patients alone and in combination with biological therapies, methotrexate (MTX) is a foundational disease-modifying anti-rheumatic drug for RA. Generally initiated orally at lower doses and titrated up, published studies have reported as many as 30% to 60% of patients experience gastrointestinal side effects with oral MTX. This can prevent further dose escalation or require discontinuation in some patients, which can be avoided by subcutaneous administration.

The extent of oral absorption of MTX varies considerably between patients and has been shown to decline with increasing doses. Studies have also reported that switching patients from oral to parenteral MTX improves absorption, providing superior therapeutic response, resulting in longer duration of use. The VIBEX MTX system is designed for rapid subcutaneous self-administration of MTX in three simple steps.

Market research to date shows MTX which can be self-injected is preferred by patients and caretakers. As a promising pre-biologic treatment, it is anticipated that the VIBEX MTX system could play an important role in lowering healthcare costs in RA by delaying the use of biologic agents and expanding the use of MTX. The availability of the VIBEX MTX system would give patients and physicians a new option before making the jump to expensive biologics, which are associated with serious and increased safety risks for RA patients.

This is a huge un-met need in the RA segment. So many patients can benefit from an easy to use self-injectable solution, rather than a standard needle that many RA patients just are not compliant with. Vibex MTX is certainly a product developed to meet this need.

Once Antares files the NDA for Vibex MTX, Vibex QS T should follow very quickly on its heels.

VIBEX QS T for Testosterone Replacement Therapy:

QS T is Potentially the first self-injectable testosterone product for men suffering from symptomatic testosterone deficiency (Low T). Most of this market currently is made up of gel treatments, which most men really do not like. I am sure many of you have seen the commercials on T.V advertising these testosterone gels.

Rx's for current treatment options equal two-thirds topical gel testosterone and one third intramuscular injections, and according to recent reports, U.S. sales of testosterone replacement therapies exceeded $1.6 billion* in 2011- 5.6 million Rx's. Studies have shown that gel patients do not achieve adequate absorption or therapeutic response, injection patients bear the cost and inconvenience of in-office injections every 2 to 4 weeks.

Physicians surveyed believe self-injection will improve patient compliance and deliver sufficient serum testosterone levels.

The New VIBEX QS is particularly well-suited for use with highly viscous drugs such as testosterone- Novel spring mechanism - up to a 1 ml capacity - highly compact device.

This combination drug/device product is in pre-clinical development, expected to go to market in 2015/2016.

Our projections on Antares Projected future earnings:

VIBEX MTX:

2 Million patients in U.S.+

10-15% market share +

$100 per injection +

52 weeks +

52% margin +

May 2014 commercial launch (possibly earlier).

The equation produced the following high/low MTX earnings projections for 2014 and 2015 assuming 120M shares outstanding in 2014 and 125M in 2015, the increase in shares based solely on share-based compensation. In my opinion, Antares will not need to conduct any significant additional share dilution based on its current cash position and estimated profitability in 2H 2012.

$203M-$406M ($1.70- $3.40 eps)/$135M-$270M ($1.13- $2.26 eps).
$405M-$810M ($3.24-$6.48 eps)/$270M -$540M ($2.16-$4.32 eps).

VIBEX QS T:

Assuming 15% market share, I believe Antares (and its domestic QST partner) will earn combined revenues of up to $374M in 2015 (mid-year launch) and $1.7B in 2016 for QST sales in the U.S. Here is the breakdown:

Based on the limited information available and my relatively conservative market and market capture estimates, I am assuming QS will capture 4% of the testosterone therapy market in 2015 (assuming mid-year launch) and 8% in 2016. Accordingly, here are my QST U.S. revenue estimates for 2015 and 2016:

2015: 1.85M patients X 4% X $2,500 (cost for 6 months of weekly QST injections) = $185M.

2016: 2.25M patients X 8% X $5,000 (cost for 12 months of weekly QST injections) = $900M. Considering the global market for LowT therapy in 2016 will be approximately $4B (half of which likely would be attributed to the U.S. market), I believe $900M in annual QST revenues is too high. Perhaps 4% U.S. market penetration is a more appropriate estimate for now. I'm willing to endorse $450M for now.

Also, assuming a 50/50 partnership with big pharma, 60% pre-tax profit margin, 30% effective corporate tax rate, and 120M total outstanding shares (due to exercise of remaining warrants and annual stock-based employee compensation), my earnings/eps projections related solely to sales of QST in the U.S. are as follows:

2015 -- $72.9M / $0.61 eps (PPS ~$9.15 with conservative PE of 15)
2016 -- $357M / $2.98 eps (PPS ~$44.70 with conservative PE of 15)

I recently worked on some ratio analysis to see how AIS stacks up against some of the best companies in its sector. The ratio's I looked at which are an interesting summary of cash and working capital management, have to do with the cash conversion cycle (CCC). This basically determines how fast you are turning your inventory into cash.

There are three "D" components to the cash conversion cycle; days sales outstanding (DSO), days of inventory (DOI), and days payable outstanding (DPO). I found an interesting article in Forbes Magazine that references what positive working capital management has produced for Amazon.com, Inc. (NASDAQ:AMZN) in relation to their competitors. Although the relationships are different in the pharmaceutical industry, the business thought still remains consistently the same, as Antares management demonstrates a similar DPO. Amazon does a masterful job with all 3 of the "D's."

The first component in the cash conversion cycle we will go through is average day’s sales outstanding. So, how fast are you getting the money in the door after making a sale? When a company collects their money fast it shows that their customers are getting a good product. It also shows you are in business with reputable companies and are doing a good job negotiating deals. If we look at Antares compared to some huge companies in the sector, there is a vast difference in numbers. All of these calculations are based on the most recent quarterly results.

Days Sales Outstanding

AIS

Antares Pharmaceuticals

(BCR)

C.R. Bard

(BSX)

Boston Scientific

(MDT)

Medtronic

Next, we have days of inventory (DOI). It is calculated by taking inventory/cost of sales*days in the period. Similar to DSO, it is pretty much how long your products are on the shelves before being turned into money. Again here, Antares has an excellent number compared to giants in the industry.

Days of Inventory

AIS

Antares Pharmaceuticals

BCR

C.R. Bard

BSX

Boston Scientific

MDT

Medtronic

Finally, we have days payable outstanding. In this scenario, the longer you can wait to pay on contracts or inventory the better.

Days Payable Outstanding

AIS

Antares Pharmaceuticals

MDT

Medtronic

BSX

Boston Scientific

BCR

C.R. Bard

So, if we combine all of the pieces of the puzzle, we can see AIS is in unique territory having a negative cash conversion cycle.

DSO+DOI-DPO

AIS

-54.5

BCR

141.9

BSX

149.7

MDT

185.9

They have a negative 54 days CCC, which means that their sales are converted in hard cash 54 days before AIS needs to pay for invoices to vendors.

What I see a lot of times looking at some pharmaceutical companies is management using cash like it is 'their money;' rather than being concerned with their share holders, many of these company's management teams take excessive salary and frankly live off their investors backs, with many companies to date executing little to nothing to increase share holder value.

Antares Cash Position:

As of March 31st 2012 cash and investments of $33.2 million withno debt

Growing Revenue Base:

2008 total revenues $4.6 million

2009 total revenues $8.3 million (47% over 2008)

2010 total revenues $12.8 million (54% over 2009)

2011 total revenues $16.5 million (28% over 2010)

Q112 total revenues $6.9 million

2012 revenue expected to grow 30% - 50%

My 2015 revenue projections and earnings:

12.5M....HgH global royalties and margin from device and component sales
$8.1M.....EpiPen U.S. royalties and margin from device sales
$10M......Vibex2 U.S. royalties and margin from device sales
$6M........Pen1 royalties and margin from device sales (EU only in 2015)
$12.5M....Pen2 U.S. & EU royalties and margin from device sales
$9M........Gelnique/Anturol global royalties
$1.5M......Elestrin royalties
$277M.....Vibex MTX U.S. sales and EU royalties and margin from device sales
$100M.....QS1 U.S. sales and EU royalties and margin from device sales
$0..........QS2
$0..........QS3
??...........Pfizer deal
$0?..........NestraGel

$476.6M...Total Revenues 2015.

Disclosure: Long ATRS

Additional disclosure: DISCLAIMER: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Always do you own complete due diligence before buying and selling any stock.




BiomedReports is not paid or compensated by newswires to disseminate or report news and developments about publicly traded companies, but may from time to time receive compensation for advertising, data, analytics and investor relation services from various entities and firms. Full disclosures should be read in the 'About Us Section'.

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