Identifying the Biggest Gem in Antares's Pipeline

Ali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Following the publication of my article on the blockbuster potential of Antares Pharma's (NASDAQ: ATRS) transformational product (Otrexup), I have been inundated with reader requests to conduct a valuation study on another drug-device combination currently being advanced into clinic by Antares, i.e., Vibex QS-T, which is targeting the testosterone replacement therapy (TRT) market. 

QS-T is being developed to administer testosterone using a subcutaneous (SC) injection route by patients themselves, essentially eliminating the need to receive intra-muscular (IM) injections at the doctor's office. So far QS-T has received negligible attention, mainly because its expected launch date is 2016.  This article intends to fill that gap by presenting how much peak sales QS-T is expected to generate as I review the demand drivers, competitive landscape, testosterone market size, and how Antares's QS-T differs from the existing treatment options, which are given next.

Testosterone gels  

Gels are the most expensive treatment option for TRT with the following disadvantages compared to QS-T: (1) The amount of testosterone that is absorbed into the bloodstream varies widely from patient to patient, (2) gels have a propensity to rub off on other people, e.g., from a father to a child, which caused FDA to require "black box" warnings be added to the labels for AndroGel, which is manufactured by Abbott Laboratories (NYSE: ABT) and Testim gel, which is manufactured by Auxilium Pharmaceuticals (NASDAQ: AUXL), (3) application of testosterone on human skin causes some of the testosterone to be converted into DHT (another male hormone), which results in many side effects such as hair loss, acne, prostate enlargement, elevated PSA levels, and cancer, and (4) gels cause skin irritation, redness, itching, and burning.

Abbott and Auxilium put boldfaced warnings on all their packaging and marketing material, and they had to produce new package inserts instructing patients to wash their hands thoroughly after applying their gels. I see Antares capturing significant market share from Abbott and Auxilium gels, as QS-T will directly address the variable and insufficient absorption problem.

Testosterone patches

Due to the limited ability of skin to absorb testosterone, patches contain permeation enhancers, which cause one third of the users to suffer from skin irritation. Remaining disadvantages of patches are the same as those that I discussed for gels. 

Testosterone tablets

Oral testosterone has been used in Europe for decades but was never approved in the US mainly due to concerns about liver safety. Oral forms of testosterone have been associated with drug induced liver damage.

Implantable testosterone

Pellets, each containing crystalline testosterone, are implanted subcutaneously to provide slow release over six months. Compared to QS-T, implantable testosterone have the following disadvantages: (1) They require a surgery to be implanted, (2) pellet extrusion is seen in 12% of the patients, (3) some patients suffer from bleeding and infection, and (4) most insurance carriers do not cover pellets.

Intra-muscular injections

Intra-muscular (IM) testosterone has been used for years due to its effectiveness and low cost. Although Antares's QS-T is also an injection, the route of administration will be different as the injection will be given subcutaneously. IM injection has the following disadvantages compared to QS-T: (1) They require a longer and larger needle, which results in deep painful injections and more inflammation, (2) they have to be given by medically trained professionals, which incurs costly office visits (average doctor office visit costs $125), (3) some patients may attempt self-administering an IM shot, but they risk death if the testosterone shot is given into the vein instead of the muscle, (4) the cost of an office visit can be minimized by giving higher doses at longer intervals, but, this practice produces wild fluctuations in circulating testosterone.

Peak sales expectation

According to CEO Wotton, there are 5.6 million testosterone prescriptions a year with 20% annual growth rate. Antares 10-K states that 70% of prescriptions are for gels and 30% are for IM injections. This gives us 1.68 million prescriptions for IM and 3.92 million prescriptions for gels. Translating the number of prescriptions into patients, I arrive at 0.14 million patients who receive IM testosterone injections and 0.327 million patients who use testosterone gels.

One needs to make an assumption on what portion of those patients will be switching to Antares's QS-T. Noting that similar products captured 20% of market share elsewhere (e.g., Medac's pre-filled MTX syringe in Europe), I project 0.093 million patients switching from existing products including Abbott's Androgel and Auxilium's Testim gel. After factoring in the 20% annual growth rate, one arrives at 0.193 million patients using Antares's QS-T in 2017. Noting that QS-T will be a once weekly application, Antares will be selling 10.04 million units of SC testosterone injection in 2017. 

How about the selling price of each injection? Noting that Antares is planning to price Otrexup around the cost of an office visit ($125) the selling price of QS-T should be around $125. Assuming 30% rebate to payers, Antares's net revenue per dose would be $87.50. Finally, we have all the pieces to calculate the peak QS-T sales. 10.04 million units each at $87.50 would generate $878 million in net revenue.

Before concluding my article, I would like to point out that there are many factors which may cause serious deviations in our sales model, such as (1) regulatory delays or rejection, (2) a competitor entering the US market with a similar concept, (3) commercial launch problems, (4) possible resistance by healthcare providers, payers, or patients in adopting QS-T.

Luckily, Antares is not one of the typical one trick pony biotechs. Their pipeline lists 13 drugs, 3 of which are already marketed, and the remaining 10 are under development with world-class partners including Pfizer, Teva, Actavis, and Ferring. Their Teva partnership alone is developing drug-device combination products for markets worth $3 billion in US sales.

Furthermore, Antares is heavily progressing their in-house drug-device combination products while  generating revenue that has been increasing year over year since 2008. In fact, the annual compounded rate of revenue increase is 49% since 2008. I am expecting Antares's revenue to increase parabolically higher starting 2014, mainly driven by Otrexup launch. Indeed, Jack Howarth (VP of Antares Pharma), reportedly said "2014 will be our break out year." As detailed in this article, I am further expecting this 2014 break-out to dramatically accelerate with QS-T hitting the market. 

Ali Yasar owns shares of Antares Pharma. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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