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ATRS > SEC Filings for ATRS > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for ANTARES PHARMA, INC.

Form 10-Q for ANTARES PHARMA, INC.


7-Nov-2012

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Management's discussion and analysis of the significant changes in the consolidated results of operations, financial condition and cash flows of the Company is set forth below. Certain statements in this report may be considered to be "forward-looking statements" as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995, such as statements that include the words "expect," "estimate," "project," "anticipate," "should," "intend," "probability," "risk," "target," "objective" and other words and terms of similar meaning in connection with any discussion of, among other things, future operating or financial performance, strategic initiatives and business strategies, regulatory or competitive environments, our intellectual property and product development. In particular, these forward-looking statements include, among others, statements about:

• our expectations regarding commercialization of our oxybutynin gel 3% product by Watson;

• our expectations regarding product development of Vibex™ MTX;

• our expectations regarding product development of Vibex™ QST;

• our expectations regarding continued product development with Teva;

• our plans regarding potential manufacturing and marketing partners;

• our future cash flow;

• our expectations regarding the year ending December 31, 2012; and

• the impact of new accounting pronouncements.

The words "may," "will," "expect," "intend," "anticipate," "estimate," "believe," "continue," and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements involve known and unknown risks, uncertainties and achievements, and other factors that may cause our or our industry's actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. While we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and projections of the future about which we cannot be certain. Many factors may affect our ability to achieve our objectives, including:

• delays in product introduction and marketing or interruptions in supply;

• a decrease in business from our major customers and partners;

• our inability to compete successfully against new and existing competitors or to leverage our marketing capabilities and our research and development capabilities;

• our inability to obtain additional financing or generate funds when necessary;

• our inability to attract and retain key personnel;

• adverse economic and political conditions; and

• our inability to effectively market our services or obtain and maintain arrangements with our customers, partners and manufacturers.


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In addition, you should refer to the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of other factors that may cause our actual results to differ materially from those described by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements contained in this report will prove to be accurate and, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material.

We encourage readers of this report to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. Forward-looking statements speak only as of the date they are made. We do not intend to update publicly any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events except as required by law. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, if at all.

The following discussion and analysis, the purpose of which is to provide investors and others with information that we believe to be necessary for an understanding of our financial condition, changes in financial condition and results of operations, should be read in conjunction with the financial statements, notes and other information contained in this report.

Overview

Antares Pharma, Inc. is an emerging pharmaceutical company that focuses on self-injection pharmaceutical products and technologies and topical gel-based products. Our subcutaneous and intramuscular injection technology platforms include Vibex™ disposable pressure-assisted auto injectors, Vision™ reusable needle-free injectors, and disposable multi-use pen injectors.

In the injector area, we have licensed our reusable needle-free injection device for use with hGH to Teva, Ferring and JCR, with Teva and Ferring being our two primary customers. Teva uses our needle-free injection device with the Tjet®injector system to administer their 5mg Tev-Tropin® brand hGH marketed in the U.S. and Ferring uses our needle-free injection device with their 4mg and 10mg hGH formulations marketed as Zomajet® 2 Vision and Zomajet ® Vision X, respectively, in Europe and Asia. We have also licensed both disposable auto and pen injection devices to Teva for use in certain fields and territories and we are engaged in product development activities for Teva utilizing these devices. We are currently developing commercial tooling and automation equipment for Teva related to a fixed, single-dose, disposable injector product containing epinephrine using our Vibex™ auto injector platform. In addition to development of products with partners, in September 2012, we announced positive results from an Actual Human Use study for Vibex™ MTX methotrexate injection system being developed for the treatment of rheumatoid arthritis.

In the gel-based area, we announced with Watson on April 26, 2012, the launch of Gelnique 3%, our topical oxybutynin gel 3% product for the treatment of OAB, which was approved by the FDA in December 2011. In July 2011, we licensed our oxybutynin gel 3% product to Watson for commercialization in the U.S. and Canada and in January 2012, we licensed this product to Daewoong Pharmaceuticals under which Daewoong will commercialize our oxybutynin gel 3% product, once approved in South Korea. Our gel portfolio also includes Elestrin® (estradiol gel) currently marketed by Meda Pharma in the U.S. for the treatment of moderate-to-severe vasomotor symptoms associated with menopause.

We have two facilities in the U.S. Our Parenteral Products Group located in Minneapolis, Minnesota directs the manufacturing and marketing of our reusable needle-free injection devices and related disposables, and develops our disposable pressure-assisted auto injector and pen injector systems. Our corporate head office and Product Development Group are located in Ewing, New Jersey, where pharmaceutical products are developed utilizing both our transdermal systems and drug/device combination products.

We have reported a net loss of $6,415,705 for the nine months ended September 30, 2012. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.


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Results of Operations

Three and Nine Months Ended September 30, 2012 and 2011

Revenues

Total revenues for the three and nine-month periods ended September 30, 2012 were $5,685,917 and $17,074,401, respectively, compared to revenues for the same prior-year periods of $3,919,037 and $11,031,457, respectively.

Product sales were $2,052,398 and $7,758,463 in the three and nine-month periods ended September 30, 2012, respectively, compared to $2,197,029 and $5,820,691, in the three and nine-month periods ended September 30, 2011, respectively. Prior to 2012, our product sales primarily included sales of reusable needle-free injector devices and disposable components. In the first nine months of 2012, product sales also included the sale of our topical oxybutynin gel 3% product to Watson in connection with Watson's launch of Gelnique 3% in April 2012, which was the primary reason for the increase in product sales compared to the prior year, and included sales of pre-commercial auto injector and pen injector devices to Teva. Product sales to Watson will not continue after 2012 as Watson will assume all manufacturing of Gelnique 3% in 2013. Our sales of injector related products 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 uses our needle-free injector with the Tjet® injector system to administer their 5mg Tev-Tropin® brand hGH marketed in the U.S. Injector related product sales to both Ferring and Teva decreased in the three and nine-month periods ended September 30, 2012 compared to the same periods of 2011. Sales of the hGH drug product for both Ferring and Teva continue to grow, but we do not control our partners inventory levels of our hGH injectors or disposable components on a quarter to quarter basis which can cause significant fluctuations in product sales.

Development revenue was $2,606,482 and $6,329,967 in the three and nine-month periods ended September 30, 2012, respectively, compared to $952,557 and $2,725,275 in the same periods of the prior year. The revenue in the three months ended September 30, 2012 was primarily due to auto injector and pen injector development work for Teva, but also included $750,000 earned when Pfizer achieved a development milestone related to its undisclosed Consumer Healthcare product. The revenue in the first nine months of 2012 consisted primarily of revenue recognized in connection with our license agreement with Watson, and included auto injector and pen injector development work for Teva and the Pfizer development milestone. The revenue in the first nine months of 2011 was primarily due to auto injector and pen injector development work for Teva. In addition, as discussed in Note 6 to the consolidated financial statements, in the first nine months of 2011 we recognized $304,600 of previously deferred development revenue in connection with an amendment to a license, development and supply agreement with Teva originally entered into in December of 2007 under which we will develop and supply a disposable pen injector for use with two undisclosed patient-administered pharmaceutical products.

Licensing revenue was $77,284 and $812,196 in the three and nine-month periods ended September 30, 2012, respectively, compared to $123,419 and $608,445 in the same periods of 2011. The licensing revenue in the first nine months of 2012 was primarily due to an upfront license fee received in connection with our licensing agreement with Daewoong signed in January of this year, along with license revenue recognized in connection with our license agreement with Watson. The licensing revenue in the three and nine-month periods ended September 30, 2011 included recognition of revenue previously deferred in connection with license agreements with Teva, Ferring and BioSante, but in the nine-month period licensing revenue was primarily due to $316,666 of revenue previously deferred that was recognized as a result of the amended license, development and supply agreement with Teva for a disposable pen injector, as discussed in Note 6 to the consolidated financial statements.

Royalty revenue was $949,753 and $2,173,775 in the three and nine-month periods ended September 30, 2012, respectively, compared to $646,032 and $1,877,046 in the same prior-year periods. We receive royalties from Teva and Ferring related to needle-free injector device sales and/or hGH sales, and we receive royalties on sales of Elestrin® marketed by Meda Pharma. In addition, in the third quarter of 2012 we received our first royalty payment from Watson on sales of Gelnique 3%, which was the primary reason for the increase in royalties in the three and nine-month periods.


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Cost of Revenues and Gross Profit

For the three and nine-month periods ended September 30, 2012, cost of product sales was $1,673,849 and $5,071,007, respectively, compared to $1,028,376 and $2,741,783 for the same periods of the prior year. Product gross profit was $378,549 and $1,168,653 in three-month periods ended September 30, 2012 and 2011, respectively, and was $2,687,456 and $3,078,908 for the nine-month periods ended September 30, 2012 and 2011, respectively. The gross profit decreases were primarily due to sales of our topical oxybutynin gel 3% product to Watson at a lower gross profit than is realized on injector related product sales.

The cost of development revenue consists primarily of direct external costs, some of which may have been previously incurred and deferred. Cost of development revenue was $1,622,640 and $2,747,424 for the three and nine-month periods ended September 30, 2012, respectively, compared to $778,674 and $1,911,397 for the same prior-year periods. In the first nine months of 2012, the development costs were primarily related to auto injector and pen injector development work for Teva, and certain manufacturing readiness activities under the Watson license agreement. In the three-month period ended September 30, 2011, approximately half of the costs were related to development activities under the Watson license agreement. In the first nine months of 2011, $408,250 was recognized as a result of the amended license, development and supply agreement with Teva for a disposable pen injector, as discussed in Note 6 to the consolidated financial statements. The remaining development costs in the first nine months of 2011 were due to auto injector and pen injector development work for Teva.

Research and Development

The majority of research and development expenses consist of external costs for studies and analysis activities, design work and prototype development. Research and development expenses were $3,900,475 and $9,260,422 in the three and nine-month periods ended September 30, 2012, respectively, compared to $1,429,210 and $5,124,877 in the same periods of the prior year. The increases were primarily due to expenses related to development of our proprietary Vibex™ MTX auto injector for delivery of methotrexate for the treatment of rheumatoid arthritis, and to a lesser extent were due to development expenses related to Vibex™ QST for testosterone replacement therapy and an increase in personnel costs due to employee additions. Partially offsetting these increases was a decrease in expenses related to our topical oxybutynin gel 3% product for which we received FDA approval in December of 2011.

Sales, Marketing and Business Development

Sales, marketing and business development expenses totaled $457,020 and $1,312,614 for the three and nine-month periods ended September 30, 2012, respectively, compared to $390,260 and $1,202,127 in the same prior-year periods. The increase in the quarter was primarily due to an increase of approximately $73,000 in expenses related to Vibex™ MTX market research, and the increase in the nine-month period resulted primarily from an increase of approximately $150,000 in employee related expenses due to added personnel, partially offset by a reduction in expenses related to market research and legal fees.

General and Administrative

General and administrative expenses totaled $1,551,147 and $5,089,744 in the three and nine-month periods ended September 30, 2012, respectively, compared to $1,559,018 and $4,325,699 in the same periods of the prior year. The increase in the nine month period was primarily due to increases in employee and director compensation expenses, including noncash stock compensation expense, of approximately $470,000 and increases in professional fees and patent related expenses of approximately $235,000 and $77,000, respectively.

Other Income (Expense)

Other income (expense) was $(15,025) and $(8,895) in the three and nine-month periods ended September 30, 2012, respectively, compared to other income (expense) of $(32,758) and $40,437 in the same periods of the prior year. Other income (expense) consists primarily of interest income, foreign exchange gains and losses, and gains and losses from sales of assets. The 2011 nine-month period included a gain on sale of assets of $30,000.


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Liquidity and Capital Resources

At September 30, 2012, our cash and investments totaled $33,230,608, which consisted of cash and cash equivalents of $12,159,902, short-term investments of $18,051,669, and long-term investments of $3,019,037. All investments are U.S. Treasury bills or U.S. Treasury notes which we intend to hold to maturity. In October 2012, we received gross proceeds of $50,000,000 from the sale of shares of our common stock in a public offering. We sold a total of 12,500,000 shares of common stock at a price of $4.00 per share. Net proceeds from the offering are expected to be approximately $46.7 million, after deducting underwriting commissions and estimated offering expenses. In November 2012, we received gross proceeds of $7,039,472 from the sale of 1,759,868 shares of our common stock at $4.00 per share as a result of the partial exercise of the underwriters' over-allotment option. Net proceeds are expected to be approximately $6.6 million, after deducting underwriting commissions and estimated offering expenses. We believe that the combination of our current cash and investments balances and projected product sales, product development, license revenues, milestone payments and royalties will provide us with sufficient funds to support operations. We do not currently have any bank credit lines.

Cash Flows

Net Cash Used in Operating Activities

Operating cash inflows are generated primarily from product sales, license and development fees and royalties. Operating cash outflows consist principally of expenditures for manufacturing costs, general and administrative costs, research and development projects including clinical studies, and sales, marketing and business development activities. Net cash used in operating activities was $7,976,861 and $4,337,257 for the nine months ended September 30, 2012 and 2011, respectively. The increase in cash used in operating activities in the first nine months of 2012 compared to 2011 was primarily due to a higher net loss resulting mostly from increased research and development activity associated primarily with Vibex™ MTX, along with changes in operating assets and liabilities, comprised mainly of a decrease in deferred revenue.

Net Cash Used in Investing Activities

Net cash used in investing activities was $8,786,501 in the first nine months of 2012 compared to $15,405,394 in the first nine months of 2011. Cash used for purchases of equipment, molds, furniture and fixtures increased to $2,425,454 in 2012 compared to $227,763 in 2011, primarily related to Vibex™ MTX commercial molds and equipment. At September 30, 2012, costs of $358,828 related to Vibex™ MTX commercial molds and equipment were recorded in the consolidated balance sheet in equipment, molds, furniture and fixtures and in accounts payable. For purposes of the consolidated statement of cash flows these costs were treated as non-cash investing activities and therefore were not included in cash used in investing activities. Additions to patent rights were $283,871 in 2012 compared to $153,650 in 2011. In the first nine months of 2012 we used cash of $15,077,176 to purchase investment securities and received proceeds of $9,000,000 from the maturities of investment securities. In 2011, $15,053,981 of cash was used to purchase investment securities. The investment securities are U.S. Treasury bills or U.S. Treasury notes that are classified as held-to-maturity because we have the positive intent and ability to hold the securities to maturity.

Net Cash Provided by Financing Activities

Net cash provided by financing activities in the first nine months of 2012 and 2011 was $9,572,807 and $27,020,327, respectively. In the first nine months of 2012 we received proceeds of $9,601,723 from the exercise of 5,231,135 warrants resulting in proceeds of $8,962,270 and 1,034,636 options resulting in proceeds of $639,453. In the first nine months of 2011 we received proceeds of $5,972,900 from the exercise of 3,307,759 warrants resulting in proceeds of $4,994,450 and 713,736 options resulting in proceeds of $978,450. In May of 2011 we received net proceeds of $21,280,718 from the sale of 14,375,000 shares of our common stock at $1.60 per share in a public offering. In the first nine months of 2012 and 2011, total payments for employees' income and employment tax obligations related to net share settlement of equity awards was $28,916 and $233,291, respectively.

Research and Development Programs

Our current research and development activities are primarily related to VIBEX™ MTX and device development projects.


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VIBEX™ MTX. We are developing Vibex™ MTX auto injector for delivery of methotrexate for treatment of rheumatoid arthritis (RA). In September 2012, we announced positive results from an actual human use study in 101 RA patients. The results of this study showed that self-administration of MTX using the Vibex™ MTX is safe and well tolerated. Following standardized training by site personnel and review of written instructions, all 101 patients performed the self-administration successfully. In addition, the Vibex™ MTX functioned correctly and as intended for each and every administration thereby demonstrating reliability and robustness. Results of the Ease of Use Questionnaire indicated that 98% of patients found the Vibex™ MTX easy to use and 100% of patients found the instructions and training to be clear and easy to follow. In June 2012, we announced positive results from a human factors usability study for our proprietary Vibex™ MTX methotrexate injection system. Fifty individuals representing three user groups participated in this study, including 17 RA patients, 16 lay caregivers and 17 healthcare professionals. In August 2011, we announced positive results from a clinical PK study initiated in the first quarter of 2011 evaluating Vibex™ MTX. The clinical study evaluated several dose strengths of methotrexate delivered with our Vibex™ auto injector versus conventional needle and syringe administration by a healthcare professional. In 2010, we entered into an agreement with Uman Pharma under which both companies will invest jointly to develop and commercialize Vibex™ MTX. We will lead the clinical development program and FDA regulatory submissions, and will retain rights to commercialize the Vibex™ MTX product outside of Canada. Uman Pharma will perform formulation development and manufacturing activities to support the registration of Vibex™ MTX and supply methotrexate in prefilled syringes to us for the U.S. market. Uman Pharma received an exclusive license to commercialize the Vibex™ MTX product in Canada. As of September 30, 2012, we have incurred external costs of approximately $7,100,000 in connection with our Vibex™ MTX development program, of which approximately $4,600,000 was incurred in 2012. We have also incurred approximately $2,400,000 of capital equipment costs in 2012. We anticipate total spending on this program for development and capital equipment could approach $9,000,000 in 2012.

VIBEX™ QST. We have initiated development of Vibex™ QST for testosterone replacement therapy for men suffering from symptomatic testosterone deficiency and have recognized expense of approximately $320,000 in the first nine months of 2012 in connection with this program.

Device Development Projects. We are also engaged in other research and development activities related to our Vibex™ disposable pressure-assisted auto injectors and our disposable pen injectors. We have signed license agreements with Teva for our Vibex™ system for use with epinephrine and an undisclosed product and for our pen injector device for two undisclosed products. Our pressure-assisted auto injectors are designed to deliver drugs by injection from single-dose prefilled syringes. The auto injectors are in the advanced commercial stage of development. The disposable pen injector device is designed to deliver drugs by injection through needles from multi-dose cartridges. The disposable pen is in the stage of development where devices are being evaluated in user studies. Our development programs consist of the determination of the device design, development of prototype tooling, production of prototype devices for testing and clinical studies, performance of clinical studies, and development of commercial tooling and assembly.

As of September 30, 2012, we have incurred total external costs of approximately $11,200,000 in connection with research and development activities associated with our auto and pen injectors, of which approximately $2,900,000 was incurred in 2012. As of September 30, 2012, approximately $8,600,000 of the total costs of $11,200,000 was initially deferred, of which approximately $7,900,000 has been recognized as cost of sales and $700,000 remains deferred. This remaining deferred balance will be recognized as cost of sales over the same period as the related deferred revenue will be recognized.

The development timelines of the auto and pen injectors related to the Teva products are controlled by Teva. We expect development related to the Teva products to continue in 2012, but the timing and extent of near-term future development will be dependent on certain decisions made by Teva. Although development work payments and certain upfront and milestone payments have been received from Teva, there have been no commercial sales from the auto injector or pen injector programs, timelines have been extended and there can be no assurance that there ever will be commercial sales or future milestone payments under these agreements.

Other research and development costs. In addition to our Vibex™ MTX project, Vibex™ QST project and the Teva related device development projects, we incur direct costs in connection with other research and development projects related to our technologies and indirect costs that include salaries, administrative and other overhead costs of managing our research and development projects. Total other research and development costs were approximately $4,300,000 for the nine months ended September 30, 2012.


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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, including any arrangements with any structured finance, special purpose or variable interest entities.

Critical Accounting Policies

We have identified certain of our significant accounting policies that we consider particularly important to the portrayal of our results of operations and financial position and which may require the application of a higher level of judgment by management and, as a result, are subject to an inherent level of . . .

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