Antares Pharma (ATRS) is a long-term position for me, and I continue to believe the company is substantially undervalued due to its strong injector technology platform and increasing sales. In my view, the stock is largely de-risked, yet has good upside potential here. While Antares has rallied some since my last article was published, the news since then has been all good, meaning the stock continues to look like a bargain. In this article, I give a brief recap of my previous article, discuss how things have been going for Antares since, and provide an update to my valuation modeling.
Overview of My Prior Article
My prior article on Antares was published on April 3, 2020, just a few weeks into the COVID-19 pandemic for most of the country. At that time, I noted that Antares had become cash-flow positive in Q4 2019. This was largely due to increasing Xyosted sales, which were about $22 million in 2019, as well as Teva’s generic epinephrine autoinjector hitting the market.
I noted Makena’s uncertain status after an FDA advisory committee voted to recommend its withdrawal from the market, but that any lost revenue from Makena should be more than made up for by continued increases in Xyosted sales, as well as generic versions of Forteo and Byetta hopefully hitting the market soon. I also discussed how Antares’ additional two proprietary pipeline assets, as well as partnerships with Idorsia (OTCPK:IDRSF) and Pfizer (PFE) for injector-based products, are a productive use of the company’s increasing levels of cash flow.
About three quarters of the roughly $2 price of an Antares share was justified by the value of Xyosted and Otrexup alone, which, by my calculation, were worth at least $1.47 using very conservative assumptions. My combined estimate of Antares’ present value was $3.03 per share, again based on very conservative assumptions like Makena immediately being pulled from the market.
Antares has Maintained Momentum During the Pandemic
Since April, Antares has rallied in the neighborhood of 20%, now trading between $2.50 and $3.00 for the last month after briefly getting up as high as about $3.50.
Figure 1: Antares Stock Chart
The biggest change for Antares since early April is that it released its Q1 2020 financial results. I strongly assume that much of the March sell-off was over fears that the COVID-19 pandemic would greatly slow the Xyosted ramp-up. Thankfully, this does not seem to have been the case. Antares reported a 42% overall year-over-year revenue increase and just over $9 million in Xyosted sales in Q1. This number for Xyosted is up from just $703k in Q1 2019 and what I estimate to have been $7.7 million in sales based off of about 28k prescriptions sold in Q4 2019.
Figure 2: Xyosted Prescription Growth Chart
(Source: Corporate Presentation)
On top of growth in Q1, Xyosted uptake appears to have increased overall in Q2 even with headwinds from the pandemic. As you can see from Figure 2, prescription growth slowed in April and even contracted a bit in May, but June numbers should show a return to growth based on the prescription estimates I’ve seen. Despite the ups and downs, the 4-week moving average of prescriptions per week went from about 2,700 per week at the end of Q1 to about 2,900 per week at the end of Q2.
Antares booked about $274.31 in revenue per prescription of Xyosted in Q1 by my calculations. Based on prescription data for Q2, the company would be expected to have close to $10.3 million in Xyosted revenue off approximately 37,500 total prescriptions. If growth sticks to the roughly 1% week-over-week figure from the last few quarters, full-year Xyosted revenue would likely be around $42 million. I wouldn’t be shocked to see a number higher than that, but I’m not modeling anything higher for now given the persistent effects we could see from the ongoing pandemic.
Figure 3: Epinephrine Prescription Chart
(Source: Corporate Presentation)
Teva’s generic epi-pen growth is more than making up for drop-off in Makena. Market share for Teva’s epi-pen appears to have increased this year up to about 40-45% of the total epinephrine market. It’s also still unclear that Makena will even be pulled from the market given that there are no other potential options to address premature births, so there may not be much of a further drop-off from here in the near term at least. The FDA has been very slow to act, and several researchers and clinicians have spoken out in favor of keeping Makena on the market while further research continues.
In total, Antares reported about $20 million in partnered product sales, royalties, and licensing revenues for Q1, which annualizes to $80 million with no contribution from either generic Forteo or Byetta, which may be approved later this year. This also doesn’t factor in a potential pick-up in sales for Makena if some of the uncertainty clears later this year.
Antares Still Looks Strongly Undervalued
Antares is trading just under a $450 million market cap, which is roughly equivalent to the highest peak sales estimate for Xyosted I’ve seen and only about 2.25x a much more conservative $200 million peak sales estimate.
Figure 4: Antares Revenue and Earnings Estimates
(Source: Seeking Alpha)
As you can see from Figure 4, analysts still seem to be pricing in peak sales somewhere in between, with the highest revenue estimate for any year being $362 million in 2028. This seems like it could be conservative even with just currently approved products and generic Forteo/Byetta, but it certainly should prove conservative if either the Pfizer rescue pen or Idorsia’s selatogrel pen make it to market. Before updating my discounted cash flow model, I discounted these revenue and earnings estimates to get a sense of the general ballpark I would expect the present value to be in.
Figure 5: Antares Present Value Estimates
(Source: Revenue and sales estimates from Seeking Alpha and my calculations based on them)
As you can see from Figure 5, a rough estimate of present value using a 10% discount rate as applied to these conservative sales and earnings estimates produces a present value somewhere in range between high $4/share and mid-$5/share.
From there, I updated the discounted cash flow model I described in my prior article. The biggest differences were adjusting slightly downward my projected Xyosted sales for 2020-2024 given the additional information we now have on the pandemic’s impact and adjusting upward my estimates for partnered product sales and royalties given that it looks unlikely that Makena will be immediately removed from the market. Despite adjusting down my projected Xyosted sales, I left the eventual peak unchanged at $200 million in 2025.
Additionally, Antares’ cash pile actually increased in Q1, going from $45.7 million to $50.3 million, so I still don’t model in an additional cash raise as being necessary. The company’s long-term debt is only $45.7 million that doesn’t mature until 2022, and most of the cost of developing its pipeline is currently borne by its commercial partners.
As a reminder, my model is just for the next 10 years, and I don’t factor in any potential revenue impact from the Idorsia or Pfizer partnerships. I do factor in $10 million in additional revenue from Forteo/Byetta next year and $20 million per year starting in 2022. I discount the resulting yearly cash flows by 10% per year, and I subtract out estimated expenses based on Antares’ current annualized rate around $80 million. I don’t view expenses as a major issue for the company given that its nearest-term pipeline assets are being developed and commercialized by partners, leaving the biggest expense as just Xyosted commercialization.
Figure 6: Results of my Discounted Cash Flow Analysis
(Source: Antares’ Q1 report and my calculations based on it)
As you can see from Figure 6, my analysis shows a net present value of $4.79 per share, squarely within the range of what I generated from discounted analyst estimates above. Based on this, I still feel very confident in holding a full position in Antares for the long term.
My Antares position has started to bear fruit this quarter as the share price has recovered some from its March lows. Recent news from the company suggests continued upside to come as the Xyosted roll-out continues and more partnered products come to market. Antares offers a good risk/reward for both short- and long-term investors at present.
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.
Additional disclosure: I’m not a registered investment advisor. Despite that I strive to provide the most accurate information, I neither guarantee the accuracy nor the timeliness. Past performance does NOT guarantee future results. I reserve the right to make any investment decision for myself without notification. The thesis that I presented may change anytime due to the changing nature of information itself. Investment in stocks and options can result in a loss of capital. The information presented should NOT be construed as a recommendation to buy or sell any form of security. My articles are best utilized as educational and informational materials to assist investors in your own due diligence process. You are expected to perform your own due diligence and take responsibility for your actions. You should also consult with your own financial advisor for specific guidance, as financial circumstances are individualized.