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$AIS RunUp Valuation (PDUFA - 12/8/11)

publication date: Sep 8, 2011
author/source: Jeff Dos Santos

AIS Valuation

(Note: This run-up as compared to the many other run-up valuations we produce will be affected by BioSante Pharmaceuticals, Inc. (BPAX) Phase III Libigel efficacy results that are due at any time from September to December, which is between now and AIS’s PDUFA goal date, since BPAX established a collaborative agreement with AIS).

Antares Pharma, Inc. (NYSE Amex: AIS) today announced the New Drug Application (NDA) for Anturol(R) Gel in patients with overactive bladder (OAB) was accepted for filing for review by the U.S. Food and Drug Administration (FDA). Anturol is an oxybutynin gel incorporating Antares' ATD Gel technology. The FDA has assigned a Prescription Drug User Fee Act (PDUFA) date of December 8, 2011, ten months from the official NDA filing. The PDUFA date is the target date for the FDA to complete its review of the NDA.”

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Antares Pharma, Inc. (AIS) has a diverse pipeline attempting to cover several indications with several partners. This run-up valuation will focus solely on AIS’s main product candidates: Anturol Gel and Libigel. We have spent much time discussing on what Libigel can offer to both AIS and BPAX (seen on the BPAX valuation below) and shall include that potential value in our valuation section of this article, but let us discuss about the potential behind Anturol Gel.

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Overactive Bladder (OAB) occurs once the detrusor (a large muscle in the bladder) contracts more often than usual, which can cause overwhelming urges to urinate more often and urgent than usual. What we just described was a component of OAB, known as Urge incontinence. Stress incontinence may be a factor for those who have the symptoms of OAB, but is not necessarily a component of OAB. A sample study was taken years ago which stated that approximately 1 in 6 Americans suffered from OAB.

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(Note: Incontinence is not a disease, it is a symptom of something abnormal going on in the body)

Anturol is a type of oxybutynin. The idea behind Anturol Gel is that it is convenient, effective, and significantly reduces any possible common side effects as compared to oral medications for OAB such as dry mouth.

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Before determining the potential value of Anturol Gel mixed in with Libigel, let us analyze their current income statement and balance sheet (that is, for the three months ended June 30th, 2011)

Product sales were $2.219M, licensing and development revenue reached $835,000, and royalties summed up to $489,000 which sets total revenue to be $3.543M.

(Note: “Product sales” contain sales of reusable needle-free injector devices and disposables components, and repairs.
“Our product sales are generated primarily from sales to Ferring and Teva. Ferring uses our needle-free injector with their 4mg and 10mg hGH formulations marketed as Zomajet® 2 Vision and Zomajet® Vision X, respectively, in Europe and Asia. Teva launched our Tjet® needle-free device with their hGH Tev-Tropin® in the U.S. in August of 2009.”

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The cost of revenue totalled $1.393M which sets gross profit to be $2.15M (a gross margin of 60.68%).

R&D costs were $1.946M, sales, marketing and business development costs nearly doubled to $523,000, and G&A costs were $1.277M, which sets total operating expenses to be $3.746M. Given other income and expenses (+$42,000), AIS had a net loss of $1.554M (or an EPS loss of $0.02).

One thing to point out is that on a year-over-year analysis (scaled back to December 31st, 2008), net income has been steadily increasing without any major surprised apart from escalating total revenues.

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Cash and cash equivalents for the quarter totalled $33.327M, with Accounts Receivables set to $1.301M, Patent rights summing up to $943,000, Goodwill value of $1.095M, and other assets of $2.214M accumulating total assets to be $38.88M.

AIS’s balance sheet hold 2 liability components: Accounts payable and accrued expenses ($3.426M) and deferred revenue ($4.12M) which sets total liabilities to be $7.546M. Therefore, AIS’s equity value is equal to $31.334M (or a book value of $0.30 per share).

(Note: The large increase in cash value as compared to 2 quarters ago was primarily from financing activities such as sale of common stock (proceeds of) and exercised stock options and warrants totalling $26.8M (see “Pg. 5 for Cash Flow Statement” below)).

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Run-Up Valuation

(Note: This valuation will keep AIS’s Anturol Gel potential value separate from BPAX’s Libigel potential value, until the end of the valuation at which we add the 2 values where appropriate. Just like BPAX’s run-up valuation, there will be quite a bit of number crunching, so in order for us not to get confused of the 2 values, we shall label Bio-T-Gel as is, and highlight all information relating to Libigel in dark orange.)

(Note: To reduce cluttering, Libigel information already calculated in the BPAX valuation will not be re-calculated. One may re-read BPAX valuation shown below:
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(1) Overactive Bladder Market

The OAB drug market will increase from approximately $3 billion in 2009 to nearly $4 billion in 2019 in the United States, France, Germany, Italy, Spain, United Kingdom and Japan.”

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There are 6 drug categories for OAB: Darifenacin, Fesoterodine, Oxybutynin (recall, this is where Anturol Gel fits in), Solifenacin, Tolterodine, and Trospium. “Neither drug has proven to be more effective than the others in this set, although these drugs differ in cost and side effects. Side effects include dry mouth, constipation, and possibly blurred vision and dizziness.” These side effects, as AIS mentioned, were significantly reduced under their clinical trials using their ATD technology (AIS stated “to result in lower anticholinergic side effects”).

Let’s assume that AIS can capture 1/7th of the market, then the drug market is equal to the market share (0.1429) times the market drug ($3.3B: Let’s assume a flat CAGR up to 2012, the expected year at which Anturol Gel is to hit the markets if approved) which equals $471.43M.

(2) Sum of Shares

Let’s assume an annual dilution rate of 25%, then the current sum of shares (103.26M) times the dilution rate (1.25) is equal to the sum of shares in one year’s time: 129.08M.

(3) Gross Revenue Margins

"In July 2011, the Company entered into a licensing agreement with Watson Pharmaceuticals, Inc. (“Watson”) under which Watson will commercialize Anturol®, once approved."

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We do not know the details to this licensing agreement. What we do know is that licensing agreements usually consist of an upfront payment, milestones, and a royalty rate. AIS is known for collecting satisfactory upfront payments and milestones with relatively low royalty rates (as shown from the previous deals made by TEVA, BPAX, AZUR, & Ferring). Keeping our conservative approach in mind, let’s assume no upfront payments are to be made, only $100M in milestones can be achieved in one year’s time, and that a 10% royalty rate is in effect.

(Recall from the BPAX Valuation: While LibiGel is licensed by BPAX themselves, BPAX “license the technology underlying certain of our gel products, including LibiGel and Elestrin, from Antares Pharma, Inc. (Antares).  Our license agreement with Antares requires us to pay Antares certain development and regulatory milestone payments and royalties based on net sales of any products we or our licensees sell incorporating the licensed technology.  Specifically, we are obligated to pay Antares 25 percent of all upfront and milestone payments related to a license and a 4.5 percent royalty on net sales of product by us or a licensee.”

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Therefore, the gross revenue margin is equal to the assumed royalty rate offered by Watson (10%) times the OAB drug market made available to AIS ($471.43M), plus the royalty rate offered by BPAX (4.5%) times BPAX’s HSDD gross revenue margin ($326.29M: see the BPAX Valuation as to how this number was calculated) which equals $47.14M plus $14.68M.

(Note: Keep these two numbers separate, since Libigel is in Phase III status which will require further discounting.)

(4) Profit Attainable

Let’s assume that in one year’s time:
-Current Product Sales average to $7M
-Licensing and Development revenue average to $4M
-Current Royalty Payments Received average to $2M
-Research and Development Costs average to $10M
-General and Administrative Costs equal $8M
-Sales, Marketing and Business Development costs average to $5M
-Cost of Goods currently sold average to $6M

Then the annual profit attainable in one year’s time is equal to the sum of gross revenue margins ($14.68M plus $47.14M) plus the sum of current income flow components (-$16M) which equals $14.68M plus $31.14M.

(5) Potential Value of AIS

Let’s assume a price over earnings (P/E) ratio of 20. The value of AIS is then equal to the profit attainable in one year’s time ($14.68M plus $31.14M) times the P/E ratio (20), plus the amount received in milestones ($100M), which equals $293.6M plus $722.8M.

(6) Price per Share

The price per share in one year’s time is equal to the value of AIS ($293.6M plus $722.8M) divided by the sum of shares (129.08M) which therefore equals $2.28 plus $5.61

(7) Probability of Approval

Let’s assume that the probability of the FDA approving either Libigel of Anturol Gel is 50%. We’d then tweak the scale at which investors face by incorporating the PDUFA risk (-3.58%), a seasonality adjustment (-18.17%) and a market correction factor (+15%: to be decayed over a 6 week time interval after the intense market correction suffered throughout August) which therefore sets the scale at which investors face to be 43.25%

(8) Run-Up price to the PDUFA

The run-up price to the PDUFA date is equal to the price per share ($2.28 plus $5.61) times the scale at which investors face (43.25%) which would therefore equal $0.99 plus $2.43

(9) Adjusted Discounted Run-Up Price to Fall 2011.

(Note: The following adjustments will only affect Libigel’s potential value to be received by BPAX)

As stated in the BPAX valuation:
-The probability of trial success is 81%
-The discount rate we applied is 43.75%

Therefore, the adjusted discounted run-up price to Fall 2011 is the potential run-up price of Libigel ($0.45: The probability of trial success (81%) times the difference between the current run-up price of AIS’s portion of Libigel ($0.99) minus the discounted valued run-up price of AIS’s portion of Libigel ($0.43: calculated by $0.99 times the discount rate of 43.75%)) plus the potential run-up price of Anturol Gel ($2.43) will therefore give us a run-up price of $2.88: the run-up price to the Phase III results.

(Note: If Phase III results are successful, then the PDUFA date run-up price is equal to $2.99. This was calculated by releasing the probability of trial success (81%) from the discounted run-up price ($0.56))

(Note: If Phase III results are unsuccessful, then the PDUFA date run-up price is equal to $2.43)