Antares Pharma (ATRS) 10-Q2021 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ________ to ________

Commission File Number 1-32302

ANTARES PHARMA, INC.

Registrant’s telephone number, including area code: (609) 359-3020

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☐    No  ☐

As of April 30, 2021, the registrant had 168,798,266 shares of common stock, $0.01 par value per share, outstanding.

ANTARES PHARMA, INC.

INDEX

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PART I – FINANCIAL INFORMATION

ANTARES PHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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ANTARES PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

4

ANTARES PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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ANTARES PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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ANTARES PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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ANTARES PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

Antares Pharma, Inc. (“Antares,” “we,” “our,” “us” or the “Company”) is a specialty pharmaceutical company focused primarily on the development and commercialization of pharmaceutical products and technologies in targeted therapeutic areas. We develop, manufacture and commercialize, for ourselves or with partners, novel therapeutic products using our advanced drug delivery systems that are designed to provide commercial or functional advantages, such as improved safety and efficacy, convenience, improved tolerability, and enhanced patient comfort and adherence. We also seek product opportunities that complement and leverage our commercial platform. We have a portfolio of proprietary and partnered commercial products and ongoing product development programs in various stages of development. We have formed significant strategic alliances and partnership arrangements with industry leading pharmaceutical companies including Teva Pharmaceutical Industries, Ltd. (“Teva”), AMAG Pharmaceuticals, Inc. (“AMAG”), Pfizer Inc. (“Pfizer”) and Idorsia Pharmaceuticals Ltd (“Idorsia”).

Our marketed proprietary products include:

The Company is also party to various partnered product development and supply arrangements:

The Company is also developing two multi-dose pen injector products in collaboration with Teva, a combination drug device rescue pen in collaboration with Pfizer, a combination drug device product with Idorsia, and advancing other internal research and development programs.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of the Securities and Exchange Commission's Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.  Operating results

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ANTARES PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform with the current year presentation. Beginning as of and for the year ended December 31, 2020, the cost of product sales and the cost of development revenue are being classified under the heading Operating expenses in the accompanying consolidated statement of operations, and the corresponding prior period amounts have been reclassified to conform to this presentation. The reclassifications have no impact on the Company’s operating income (loss) or net income (loss) as previously reported.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits at commercial banks and highly liquid investments with an original maturity of three months or less. Cash equivalents, consisting of investments in money market funds, are remeasured and reported at fair value each reporting period, in accordance with ASC Topic 820, Fair Value Measurements (“ASC 820”) based on quoted market prices, which is a Level 1 input within the three-level valuation hierarchy for disclosure of fair value measurements, and totaled $36,137 and $36,133 as of March 31, 2021 and December 31, 2020, respectively.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Certain components of the Company’s products are provided by a limited number of vendors, and the Company’s production, assembly, warehousing and distribution operations are outsourced to third-parties where substantially all of the Company’s inventory is located.  Disruption of supply from key vendors or third-party suppliers may have a material adverse impact on the Company’s operations.

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives as follows:

Expenditures, including interest costs, for assets under construction that are not yet ready for their intended use are capitalized and will be depreciated based on the above guidelines when placed in service.

Revenue Recognition

The Company generates revenue from proprietary and partnered product sales, license and development activities and royalty arrangements.  Revenue is recognized when or as the Company transfers control of the promised goods or services to its customers at the transaction price, which is the amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services.

At inception of each contract, the Company identifies the goods and services that have been promised to the customer and each of those that represent a distinct performance obligation, determines the transaction price including any variable consideration, allocates the transaction price to the distinct performance obligations and determines whether control transfers to the customer at a point in time or over time. Variable consideration is included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company reassesses its reserves for variable consideration at each reporting date and makes adjustments if necessary, which may affect revenue and earnings in periods in which any such changes become known.

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ANTARES PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

The Company has elected to recognize the cost for freight and shipping activities as fulfilment cost. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of underlying goods are transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of product sales.

Proprietary Product Sales

The Company sells its proprietary commercial products primarily to wholesale and specialty distributors. Revenue is recognized when control has transferred to the customer, which is typically upon delivery, at the net selling price, which reflects the variable consideration for which reserves and sales allowances are established for estimated returns, wholesale distribution fees, prompt payment discounts, government rebates and chargebacks, plan rebate arrangements and patient discount and support programs.

The determination of certain of these reserves and sales allowances require management to make a number of judgements and estimates to reflect the Company’s best estimate of the transaction price and the amount of consideration to which it believes it is ultimately entitled to receive. The expected value is determined based on unit sales data, contractual terms with customers and third-party payers, historical and expected utilization rates, any new or anticipated changes in programs or regulations that would impact the amount of the actual rebates, customer purchasing patterns, product expiration dates and levels of inventory in the distribution channel. Reserves for prompt payment discounts are recorded as a reduction in accounts receivable. Reserves for returns, rebates and chargebacks, distributor fees and customer co-pay support programs are included within current liabilities in the consolidated balance sheets.

Partnered Product Sales

The Company is party to several license, development, supply and distribution arrangements with pharmaceutical partners, under which the Company produces and is the exclusive supplier of certain products, devices and/or components. Revenue is recognized when or as control of the goods transfers to the customer as follows:

The Company is the exclusive supplier of the Makena^® subcutaneous auto injector product to AMAG. Because the product is custom manufactured for AMAG with no alternative use and the Company has a contractual right to payment for performance completed to date, control is continuously transferred to the customer as product is produced pursuant to firm purchase orders. Revenue is recognized over time using the output method based on the contractual selling price and number of units produced.  The amount of revenue recognized in excess of the amount shipped/billed to the customer, if any, is recorded as contract assets due to the short-term nature in which the amount is ultimately expected to be billed and collected from the customer.

All other partnered product sales are recognized at the point in time in which control is transferred to the customer, which is typically upon shipment. Sales terms and pricing are governed by the respective supply and distribution agreements, and there is generally no right of return. Revenue is recognized at the transaction price, which includes the contractual per unit selling price and estimated variable consideration, such as volume-based pricing arrangements or profit sharing arrangements, if any.  The Company recognizes revenue, including the estimated variable consideration it expects to receive for contract margin on future commercial sales, upon shipment of the goods to Teva.  The estimated variable consideration is recognized at an amount the Company believes is not subject to significant reversal based on historical experience, and is adjusted at each reporting period if the most likely amount of expected consideration changes or becomes fixed.

Licensing and Development Revenue

The Company has entered into several license, development and supply arrangements with pharmaceutical partners under which the Company grants a license to its device technology and know-how and provides research and development services that often involve multiple performance obligations and highly customized deliverables. For such arrangements, the Company identifies each of the promised goods and services within the contract and the distinct performance obligations at inception, and allocates consideration to each performance obligation based on relative standalone selling price, which is generally determined based on the expected cost plus margin.

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ANTARES PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

If the contract includes an enforceable right to payment for performance completed to date and performance obligations are satisfied over time, the Company recognizes revenue over the development period using either the input or output method depending on which is most appropriate given the nature of the distinct deliverable. For other contracts that do not contain an enforceable right to payment for performance completed to date, revenue is recognized when control is transferred to the customer. Factors that may indicate that the transfer of control has occurred include the transfer of legal title, transfer of physical possession, the customer has obtained the significant risks and rewards of ownership of the assets and the Company has a present right to payment.

The Company’s typical payment terms for development contracts may include an upfront payment equal to a percentage of the total contract value with the remaining portion to be billed upon completion and transfer of the individual deliverables or satisfaction of the individual performance obligations. The Company records a contract liability for cash received in advance of performance, which is presented within deferred revenue on the consolidated balance sheet and recognized as revenue when the associated performance obligations have been satisfied. The Company recognized $2,408 in licensing and development revenue in connection with contract liabilities that were outstanding as of December 31, 2020 and satisfied during the three months ended March 31, 2021.

License fees and milestones received in exchange for the grant of a license to the Company’s functional intellectual property such as patented technology and know-how in connection with a partnered development arrangement are generally recognized at inception of the arrangement, or over the development period depending on the facts and circumstances, as the license is not generally distinct from the non-licensed goods or services to be provided under the contract. Milestone payments that are contingent upon the occurrence of future events are evaluated and recorded at the most likely amount, and to the extent that it is probable that a significant reversal will not occur when the associated uncertainty is resolved.

Royalties

The Company earns royalties in connection with licenses granted under license and development arrangements with partners. Royalties are based upon a percentage of commercial sales of partnered products with rates ranging from mid-single digit to low double digit and are tiered based on levels of net sales. These sales-based royalties, for which the license was deemed the predominant element to which the royalties relate, are estimated and recognized in the period in which the partners’ commercial sales occur.  The royalties are generally reported and payable to the Company within 45 to 60 days of the end of the period in which the commercial sales are made.  The Company bases its estimates of royalties earned on actual sales information from its partners when available or estimated prescription sales from external sources and estimated net selling price. If actual royalties received are different than amounts estimated, the Company would adjust the royalty revenue in the period in which the adjustment becomes known.

Remaining Performance Obligations

Remaining performance obligations represents the allocation of transaction price of firm orders and development contract deliverables for which work has not been completed or orders fulfilled, and excludes potential purchase orders under ordering-type supply contracts with indefinite delivery or quantity.  As of March 31, 2021, the aggregate value of remaining performance obligations, excluding contracts with an original expected length of one year or less, was $14,748. The Company expects to recognize revenue on the remaining performance obligations over the next three years.

Inventories consisted of the following:

The Company provides a reserve for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales, which was $659 and $619 at March 31, 2021 and December 31, 2020, respectively.

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ANTARES PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

The Company’s property and equipment consisted of the following:

The Company has an Equity Compensation Plan (the “Plan”), which allows for grants in the form of incentive stock options, nonqualified stock options, stock units, stock awards, stock appreciation rights, and other stock-based awards. The Company also has a long-term incentive program (“LTIP”), pursuant to which the Company’s senior executives have been awarded stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”).

The following is a summary of stock option activity under the Plan as of and for the three months ended March 31, 2021:   

The following is a summary of PSU and RSU award activity under the Plan as of and for the three months ended March 31, 2021:   

The LTIP awards that vested during the three months ended March 31, 2021 and 2020 were net-share settled such that the Company withheld shares with a value equivalent to the employees’ tax obligations for applicable income and other employment taxes, and remitted cash to the appropriate taxing authorities. The Company withheld 348 and 170 shares during the three months ended March 31, 2021 and 2020, respectively, to satisfy tax obligations, which was determined based on the

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ANTARES PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

fair value of the shares on their vesting date equal to the Company’s closing stock price on such date. The Company paid $1,619 and $597 during the three months ended March 31, 2021 and 2020, respectively, to taxing authorities for the employees’ tax obligations, which is reflected as a cash outflow from financing activities within the consolidated statements of cash flows. Net-share settlements have the effect of share repurchases by the Company as they reduce the number of shares that would have otherwise been issued as a result of the vesting.

In connection with Plan awards, the Company recognized share-based compensation expense for the three months ended March 31, 2021 and 2020 as follows:

The following table presents the Company’s revenue on a disaggregated basis by types of goods and services and major product lines:

Revenues disaggregated by customer location are as follows: 

The following table identifies customers from which the Company derived 10% or more of its total revenue in any of the periods presented:

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ANTARES PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

The Company’s gross unrecognized tax benefits as of March 31, 2021 was $2,127 and there were no material changes during the quarter then ended.  There are 0 interest or penalties accrued in relation to unrecognized tax benefits. The Company will classify any future interest and penalties as a component of income tax expense.  The Company is subject to federal and state examinations for the years 2017 and thereafter.

Basic earnings or loss per common share is computed by dividing the net income or loss applicable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed in a similar manner, except that the weighted average number of shares outstanding is increased to reflect the potential dilution from the exercise or conversion of securities into common stock. Diluted earnings per share contemplate a complete conversion to common shares of all convertible instruments only if such instruments are dilutive in nature with respect to earnings per share. The following table sets forth the computation for basic and diluted net earnings (loss) per share for the three months ended March 31, 2021 and 2020:

Pending Litigation

From time to time, the Company may be involved in various legal matters generally incidental to its business. Although the results of litigation and claims cannot be predicted with certainty, after discussion with legal counsel, management is not aware of any matters for which the likelihood of a loss is probable and reasonably estimable and which could have a material impact on its consolidated financial condition, liquidity, or results of operations.

On October 23, 2017, Randy Smith filed a complaint in the District of New Jersey, captioned Randy Smith, Individually and on Behalf of All Others Similarly Situated v. Antares Pharma, Inc., Robert F. Apple and Fred M. Powell (“Smith”), Case No. 3:17-cv-08945-MAS-DEA, on behalf of a putative class of persons who purchased or otherwise acquired Antares securities between December 21, 2016 and October 12, 2017, inclusive, asserting claims for purported violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, against Antares, Robert F. Apple and Fred M. Powell.  The Smith complaint contends that defendants made false and/or misleading statements and/or failed to disclose that: (i) Antares had provided insufficient data to the FDA in connection with the NDA for XYOSTED^®; and (ii) accordingly, Antares had overstated the approval prospects for XYOSTED^®.  On July 27, 2018, the court entered an order appointing Serghei Lungu as lead plaintiff,

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ANTARES PHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share amounts)

Pomerantz LLP as lead counsel, and Lite DePalma Greenberg, LLC as liaison counsel for plaintiff.  On August 3, 2018, the parties submitted a stipulation and proposed order, setting forth an agreed-upon schedule for responding to the complaint, which the court granted. Pursuant to that order, plaintiff filed a Consolidated Amended Class Action Complaint on October 9, 2018. On November 26, 2018, defendants filed a motion to dismiss. Plaintiff filed an opposition to the motion on January 10, 2019 and defendants filed a reply in support of their motion on February 25, 2019. On July 2, 2019, the court dismissed the complaint in its entirety without prejudice. On July 29, 2019, plaintiff filed a Consolidated Second Amended Class Action Complaint against the same parties alleging substantially similar claims. On September 12, 2019, defendants filed a motion to dismiss the Consolidated Second Amended Class Action Complaint. Plaintiffs’ opposition was filed on October 28, 2019 and defendants’ reply in support of their motion was filed on November 27, 2019. On April 28, 2020, the court dismissed the Consolidated Second Amended Class Action Complaint in its entirety. The court further ordered that plaintiff may file an amended complaint by May 29, 2020 and provide the court with a form of the amended complaint that indicates in what respect(s) it differs from the complaint which it proposes to amend. On May 29, 2020, plaintiff filed a Consolidated Third Amended Class Action Complaint and defendants filed a motion to dismiss on July 10, 2020. Briefing on defendants’ motion was complete on August 25, 2020. On February 26, 2021, the court granted defendants’ motion to dismiss with prejudice, and on March 29, 2021 the plaintiff filed a notice of appeal. The Company believes that the claims in the Smith action lack merit and intends to continue to defend them vigorously.

On January 12, 2018, a stockholder of the Company filed a derivative civil action, captioned Chiru Mackert, derivatively on behalf of Antares Pharma, Inc., v. Robert F. Apple, et al., in the Superior Court of New Jersey Chancery Division, Mercer County (Case No. C-000011-18).  On January 17, 2018, another stockholder filed a derivative action in the same court, captioned Vikram Rao, Derivatively on Behalf of Antares Pharma, Inc. v. Robert F. Apple, et al. (Case No. C-000004-18). Both complaints name Robert F. Apple, Fred M. Powell, Thomas J. Garrity, Jacques Gonella, Anton Gueth, Leonard S. Jacob, Marvin Samson and Robert P. Roche, Jr. as defendants, and the Company as nominal defendant, and they assert claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets arising from the same facts underlying the Smith securities class action.  The plaintiffs seek damages, corporate governance and internal procedure reforms and improvements, restitution, reasonable attorneys’ fees, experts’ fees, costs, and expenses. The parties have filed a stipulation and order consolidating the two actions and staying the proceedings pending the court’s decision on defendants’ motion to dismiss the Smith action; the motion to dismiss in Smith was granted on February 26, 2021 and a notice of appeal was filed on March 29, 2021.

On January 17, 2018, a stockholder of the Company filed a derivative civil action, captioned Robert Clark, Derivatively on Behalf of Antares Pharma, Inc. v. Robert F. Apple, et al. (“Clark”) (Case No. 3:18-cv-00703-MAS-DEA), against Robert F. Apple, Thomas J. Garrity, Jacques Gonella, Leonard S. Jacob, Marvin Samson, Anton G. Gueth and Robert P. Roche, Jr. as defendants, and Company as a nominal defendant.  The action was filed in the U.S. District Court for the District of New Jersey and asserts claims for breach of fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and a violation of Section 14(a) of the Securities Exchange Act of 1934. This complaint relates to the same facts underlying the Smith securities class action and the other derivative actions.  The plaintiff in Clark seeks damages, corporate governance and internal procedure reforms and improvements, reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses. The parties have filed a stipulation and order staying the action pending the court’s decision on defendants’ motion to dismiss the Smith action; the motion to dismiss in Smith was granted on February 26, 2021 and a notice of appeal was filed on March 29, 2021. After the expiration of all appeals related to the Smith dismissal, the parties shall submit a proposed order regarding the derivative action.

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Forward-Looking Statements

Certain statements in this report, including statements in the management’s discussion and analysis section set forth below, may be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties.  Forward-looking statements can be identified by the words “expect,” “estimate,” “plan”, “project,” “anticipate,” “should,” “intend,” “may,” “will,” “believe,” “continue” or 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:

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These forward-looking statements are based on assumptions that we have made in light of our industry experience as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this report, you should understand that these statements are not guarantees of performance results. Forward-looking statements involve known and unknown risks, uncertainties and assumptions, 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:

In addition, you should refer to the “Risk Factors” section in our other filings with the Securities and Exchange Commission 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

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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 thereto and other information contained in this report.

Company Overview

Antares Pharma, Inc. (“Antares,” “we,” “our,” “us” or the “Company”) is a specialty pharmaceutical company focused primarily on the development and commercialization of pharmaceutical products and technologies that address unmet needs in targeted therapeutic areas. We develop, manufacture and commercialize, for ourselves or with partners, novel therapeutic products using our advanced drug delivery systems that are designed to provide commercial or functional advantages, such as improved safety and efficacy, convenience, improved tolerability, and enhanced patient comfort and adherence. We also seek product opportunities that complement and leverage our commercial platform. We have a portfolio of proprietary and partnered commercial products and ongoing product development programs in various stages of development. We have formed significant strategic alliances and partnership arrangements with industry leading pharmaceutical companies including Pfizer, Idorsia, Teva and AMAG.  

We market and sell in the U.S., our proprietary product XYOSTED^® (testosterone enanthate) injection, indicated for testosterone replacement therapy in adult males for conditions associated with a deficiency or absence of endogenous testosterone. XYOSTED^® is the only FDA approved subcutaneous testosterone enanthate product for once-weekly, at-home self-administration. XYOSTED^® was approved by the FDA and launched for commercial sale in late 2018. In August 2020, we entered into an exclusive distribution agreement with Lunatus to distribute and promote the sale of XYOSTED^® in Saudi Arabia and the United Arab Emirates. Lunatus is responsible for obtaining regulatory approval and, assuming approval, for the promotion and commercialization of the product in the territories.

We also market and sell our proprietary product OTREXUP^® (methotrexate) injection, which is a subcutaneous methotrexate injection for once weekly self-administration with an easy-to-use, single dose, disposable auto injector, indicated for adults with severe active rheumatoid arthritis, children with active polyarticular juvenile idiopathic arthritis and adults with severe recalcitrant psoriasis.

In October 2020, we entered into an exclusive license agreement (the “License Agreement”) with Ferring for the marketed product NOCDURNA^® (desmopressin acetate) in the United States, which is indicated for the treatment of nocturia due to nocturnal polyuria (NP) in adults who awaken at least two times per night to urinate. Under the terms of the License Agreement, the Company paid Ferring an upfront payment of $5.0 million upon execution and will pay an additional $2.5 million at one year from execution. Ferring is eligible for tiered royalties and additional commercial milestone payments potentially totaling up to $17.5 million based on the Company’s net sales of NOCDURNA^® in the United States. We began detailing NOCDURNA^® with a soft launch in the fourth quarter of 2020 and are currently executing a reintroduction of the product through a comprehensive re-launch strategy to increase awareness and demand.

In collaboration with Teva, we developed a version of our VIBEX^® auto injector for use in a generic epinephrine auto injector product that was approved by the FDA in August 2018 and launched in late fourth quarter of 2018.  Teva’s Epinephrine Injection USP is indicated for emergency treatment of severe allergic reactions including those that are life threatening (anaphylaxis) in adults and certain pediatric patients and was approved as a generic drug product with an AB rating, meaning that it is therapeutically equivalent to the branded products EpiPen^® and EpiPen Jr^® and therefore, subject to state law, substitutable at the pharmacy. We are the exclusive supplier of the device and Teva is responsible for commercialization and distribution of the finished product, for which we also receive royalties on Teva’s net sales.

Through our commercialization partner Teva, we sell Sumatriptan Injection USP indicated in the U.S. for the acute treatment of migraine and cluster headache in adults.

Under an exclusive license and development agreement with AMAG, we developed, manufacture and supply a variation of our VIBEX^® QuickShot^® subcutaneous auto injector for use with AMAG’s progestin hormone drug Makena^® (hydroxyprogesterone caproate injection), indicated to help reduce the risk of preterm birth in women pregnant with one baby and who spontaneously delivered one preterm baby in the past. The Makena^® (hydroxyprogesterone caproate injection) subcutaneous auto injector was approved by the FDA and commercialized in February 2018. We are the exclusive supplier of the devices and the final assembled and packaged commercial product and receive royalties on AMAG’s net sales of the product. In October 2019, AMAG announced that the FDA’s Bone, Reproductive and Urologic Drugs Advisory Committee met to better understand and interpret the PROLONG (Progestin’s Role in Optimizing Neonatal Gestation) confirmatory clinical trial for Makena^® (hydroxyprogesterone caproate)

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injection. Nine advisory committee members voted to recommend that the FDA pursue withdrawal of approval for Makena^® and seven committee members voted to leave the product on the market under accelerated approval and require a new confirmatory trial. In October 2020, AMAG received notice that the FDA is proposing to withdraw approval of Makena^® (hydroxyprogesterone caproate injection). AMAG has formally requested a public hearing in response to the FDA’s proposal to withdraw its approval and has stated that it remains committed to working with the FDA to maintain patient access to Makena^® as a treatment option to reduce pre-term birth.

We are also collaborating with Teva on a multi-dose pen for a generic form of Forteo^® (teriparatide [rDNA origin] injection) for the treatment of osteoporosis, and another multi-dose pen for a generic form of BYETTA^® (exenatide injection) for the treatment of type 2 diabetes. Teva continues to work through the U.S. regulatory process with the FDA for exenatide and teriparatide using the ANDA pathway. Teva recently launched Teriparatide Injection (“teriparatide”), the generic version of Eli Lilly’s branded product Forsteo^® featuring the Antares multi-dose pen platform in several countries outside the United States. Antares is responsible for the manufacturing and supply of the multi-dose pen utilized in Teva’s generic teriparatide product under an exclusive development, license and supply agreement with Teva, the scope of which is worldwide.

In August 2018, we entered into a development agreement with Pfizer to develop a combination drug device rescue pen. This rescue pen will utilize the Antares QuickShot^® auto injector and an undisclosed Pfizer drug. We are developing the product and Pfizer will be responsible for obtaining FDA approval of the combination product. We entered into a separate commercial supply agreement with Pfizer pursuant to which we will provide fully packaged commercial ready finished product to Pfizer and Pfizer will then be responsible for commercializing the product in the U.S., pending FDA approval, for which the Company will receive royalties on net sales.

In November 2019, we entered into a global agreement with Idorsia to develop a novel, drug-device product containing selatogrel. The new chemical entity selatogrel is being developed for the treatment of a suspected acute myocardial infarction (AMI) in adult patients with a history of AMI. Idorsia will pay for the development of the combination product and will be responsible for applying for and obtaining global regulatory approvals for the product. The parties intend to enter into a separate commercial license and supply agreement pursuant to which Antares will provide fully assembled and labelled product to Idorsia at cost plus margin. Idorsia will then be responsible for global commercialization of the product, pending FDA or foreign approval. Antares will be entitled to receive royalties on net sales of the commercial product.

We are committed to advancing our internal research and development programs and continue to invest in the development of our proprietary product pipeline. Our research and development efforts are focused primarily on leveraging our existing product and technology platforms by broadening their applications for use in other drug device combination products, as well as exploring new pharmaceutical products, technologies and drug delivery methods.

In 2019, we initiated development of a proprietary drug device combination product for the urology oncology market, identified as ATRS-1901. We have conducted formulation development work and non-clinical studies to help advance this program. In 2020, we received a response from the FDA regarding our pre-IND (Investigational New Drug) submission and believe we have determined our clinical and regulatory pathway forward.  We expect to file an IND for this program with the FDA in the second half of 2021.

In 2019, we identified a program to develop a proprietary drug device combination product for the endocrinology market, identified as ATRS-1902.  We conducted initial formulation work and developed a working prototype of a new device to support this program. We received a response from the FDA regarding our pre-IND submission and believe we have determined the regulatory and clinical path forward. We expect to file an IND for this program with the FDA in the first half of 2021.

COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) emerged in China, and has since spread worldwide, including every state in the United States. On March 11, 2020, the World Health Organization declared the outbreak a Pandemic and on March 13, 2020, the United States declared a national emergency with respect to the outbreak. The Pandemic has impacted global economic activity, and many countries and states have responded by instituting various quarantine, shelter-in-place or stay-at-home orders, mandating school and business closures for non-essential services and restricting travel and public gatherings.

We have taken several measures to help minimize the impact of the Pandemic on our business and have implemented safety measures and protocols to protect the health and safety of our employees and comply with governmental and public health regulations while working to ensure the sustainability of our business operations and continuity of product supply. We continue to monitor the situation and potential effects on our business, suppliers, partners and workforce.

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Many of our corporate and administrative functions continue to work remotely and we have limited the number of staff in our facilities to those necessary for essential functions such as research, development, manufacturing and supply. While our sales force has been subject to varying limitations on their ability to physically visit physicians, we have strategically shifted to virtual detailing and sales meetings, and are leveraging our social media presence to connect with our existing and potential customers and healthcare professionals. We believe we are well-positioned with these virtual capabilities to continue to reach healthcare professionals and patients as the ongoing Pandemic and related restrictions continue to evolve. Our sales force has resumed in-person office visits in most areas and continued virtually in other territories based on the varying restrictions, protocols and phased re-openings. However, the restrictions and closures during the Pandemic have limited or reduced patient access to physicians for non-essential services.  These limitations have had, and may continue to have, an impact on the rate of new prescriptions for our proprietary products. Our partners may also experience a decrease or fluctuation in demand for our partnered products due to the Pandemic or the related restrictions.

While we have taken measures to help minimize the potential impact of the Pandemic and various government orders, and believe any potential or significant disruption, when and if experienced, could be temporary, there is uncertainty around the timing and duration of a potential disruption, and the magnitude of any potential impact. As a result, we are unable to estimate the potential impact on our operations or cash flows as of the date of this filing. For more information on these risks, see “Part II — Item 1A. Risk Factors — We face uncertainty and risks related to the outbreak of the novel coronavirus disease, COVID-19, which could significantly disrupt our operations and may materially and adversely impact our business and financial conditions” in our most recent annual report on Form 10-K as filed with the Securities and Exchange Commission.

Results of Operations

We reported net income of $3.8 million for the three months ended March 31, 2021 as compared to a net loss of $2.4 million for the three months ended March 31, 2020. Our earnings per share was $0.02 for the three months ended March 31, 2021 as compared to a net loss per share of $0.01 for the three months ended March 31, 2020. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021. The following is an analysis and discussion of our operations for the three months ended March 31, 2021 as compared to the same periods in 2020.

Revenues

We generate revenue from proprietary and partnered product sales, license and development activities and royalty arrangements.  Total revenue for the three months ended March 31, 2021 and 2020 was $42.1 million and $33.1 million, respectively, representing an increase in total revenue of 27% on a comparative basis. The following table provides details about the components and drivers of our overall revenue growth (in thousands):

Product Revenue

Revenue from product sales was $29.1 million and $27.1 million for the three months ended March 31, 2021 and 2020, respectively, an increase of 8% on a period over period basis. The increase in product revenue was driven primarily by increased sales of our proprietary product XYOSTED^® and an increase in sales of epinephrine auto injectors to Teva, offset by a decrease in sales of other partnered products, as detailed below.

Sales of our proprietary products XYOSTED^®, OTREXUP^® and NOCDURNA^®, which are presented net of estimated product returns and sales allowances, generated revenue of $18.7 million and $12.6 million for the three months ended March 31, 2021 and 2020, respectively, representing a 49% increase on a comparative basis. The increase in proprietary product sales for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was principally attributable to continued growth in prescriptions and sales of XYOSTED^®, and to new sales of NOCDURNA^®, which we in-licensed and began detailing in the fourth quarter of 2020.

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We also manufacture and sell devices, components and fully assembled and packaged product to our partners. Partnered product sales were $10.4 million and $14.5 million for the three months ended March 31, 2021 and 2020, respectively, representing a decrease of 28% on a comparative basis. The net decrease in partnered product sales for the three months ended March 31, 2021 as compared to the same period in 2020 is primarily attributable to a decrease in production and sales of Makena product for AMAG and sales of sumatriptan product to Teva, offset by an increase in sales of epinephrine auto injectors to Teva.  

Licensing and development revenue

Licensing and development revenues include license fees received from partners for the right to use our intellectual property and amounts earned in joint development arrangements with partners under which we perform joint development activities or develop new products on their behalf. Licensing and development revenue was $5.0 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively. The increase in licensing and development revenue recognized for the three months ended March 31, 2021 as compared to the same period 2020 was primarily a result of incremental development and maintenance activities with Teva related to the epinephrine auto injector production line and an increase in development activities under the ongoing development projects with Idorsia, Pfizer and other recent partnered development projects.

Royalties

Royalty revenue was $8.0 million and $4.2 million for the three months ended March 31, 2021 and 2020, respectively. The net increase in royalty revenue was principally a result of an increase in royalties from Teva on its net sales of generic EpiPens^®.

Cost of Revenues

The following table summarizes our cost of product sales and development revenue (in thousands):

The decrease in our cost of product sales is a function of the product revenue mix for the three months ended March 31, 2021 as compared to three months ended March 31, 2020. Proprietary products generally have a lower cost of sales as a percentage of revenue than partnered product sales. Accordingly, as proprietary product sales increased and represented a proportionally higher amount of total product sales and partnered product sales decreased in the first quarter of 2021 as compared to 2020, the relative total cost of product sales decreased.

The increase in our cost of development revenue is attributable to, and consistent with, the significant growth in development revenue from partnered development activities for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, as shown in the revenue table above.

Research and Development Expenses

Research and development expenses consist of external costs for clinical studies and analysis activities, design work and prototype development, FDA application fees, personnel costs and other general operating expenses associated with our research and development activities. Research and development expenses were $2.6 million and $3.0 million for the three months ended March 31, 2021 and 2020, respectively. Research and development costs were attributable to our ongoing internal development programs including, but not limited to, ATRS-1901 and ATRS-1902, and fluctuate based on the respective phases of development and timing of clinical studies and external development costs incurred.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $17.6 million and $16.4 million for the three months ended March 31, 2021 and 2020, respectively. The increase in selling, general and administrative expenses for the three months ended March 31, 2021 compared to 2020 was due to an increase in sales and marketing costs in connection with our new proprietary product NOCDURNA^®, which we in-licensed and began detailing in the fourth quarter of 2020, and an increase in general and administrative expenses, primarily employee compensation and professional services, to support the continued growth of the business.  

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Income Taxes

We recorded income tax expense of $0.6 million for the quarter ended March 31, 2021, or 13.5% of earnings before income taxes. Income tax expense was $0 in the first quarter of 2020, or 0% of our net income (loss) before taxes, as a result of our full valuation allowance on our deferred taxes that was released in the fourth quarter of 2020.  The effective income tax rate for the three months ended March 31, 2021 reflected a net discrete income tax benefit related to share-based compensation expense in connection with stock option exercises and vesting of performance stock units during the first quarter of 2021, which favorably impacted the effective tax rate by 12.5%.

Liquidity and Capital Resources

At March 31, 2021, we had cash and cash equivalents of $55.7 million. Our principal liquidity needs are to fund our product manufacturing costs, research and development activities, sales and marketing and other general operating expenses, as well as capital expenditures and debt service. We believe that the combination of our current cash and cash equivalents, projected product sales, development revenue and royalties will provide us with sufficient funds to meet our obligations and support operations through at least the next twelve months from the date of this report.

Long-term Debt Financing

The Company is party to a loan and security agreement, as amended, with Hercules Capital, Inc., for a term loan of $40.0 million (the “Term Loan”). The amortizing Term Loan is secured by substantially all of the Company’s assets, excluding intellectual property, accrues interest at a prime-based variable rate with a maximum of 9.5%, which was 8.5% at March 31, 2021, provides for payments of interest-only until August 1, 2021 and matures on July 1, 2022, which may be extended to July 1, 2024 contingent upon satisfaction of a certain loan extension milestone.

The interest-only payment period of the Term Loan may also be extended to August 1, 2022 if the Company requests such extension and pays an extension fee equal to one half of one percent of the principal amount outstanding. The Company is required to pay an end of term fee equal to 4.25% of the first $25.0 million and 3.95% of all other borrowings under the loan, payable upon the earlier of July 1, 2022 or repayment of the loan.

Net Cash Flows from 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, personnel costs, general and administrative expenses, research and development activities, and sales and marketing costs. Fluctuations in cash from operating activities are primarily a result of the timing of cash receipts and disbursements. Net cash provided by operating activities was $2.0 million for the three months ended March 31, 2021 as compared $5.6 million for the three months ended March 31, 2020. The change in the net cash from operating activities was primarily a result of our net income of $3.8 million in 2021 as compared to a net loss of $2.4 million in 2020 and the changes in operating assets and liabilities due to timing of cash receipts and cash disbursements.  

Net Cash Flows from Investing Activities

Net cash used in investing activities was $1.2 million for the three months ended March 31, 2021 and was primarily for capital expenditures for our manufacturing facility. Cash provided by investing activities for the three months ended March 31, 2020 was $5.4 million and was comprised of $6.0 million in cash receipts from maturities of short-term investments offset by capital expenditures of $0.6 million.

Net Cash Flows from Financing Activities

The net cash flow from financing activities was $1.7 million for the three months ended March 31, 2021, and consisted of $3.3 million in proceeds from the exercise of stock options offset by $1.6 million paid to taxing authorities in connection with net-share settled stock-based awards for which we withheld shares equivalent to the value of the employees’ tax obligation for the applicable income and other employment taxes. Net cash used in financing activities for the three months ended March 31, 2020 was $0.3 million, which included $0.3 million in proceeds from the exercise of stock options offset by $0.6 million paid to taxing authorities in connection with net-share settled stock-based awards.  

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Critical Accounting Policies and Use of Estimates

The preceding discussion and analysis of our results of operations and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances.  Actual results could differ from our estimates, and significant variances could materially impact our financial condition and results of operations.

The accounting policies we believe to be most critical to understanding our results of operations and financial condition related to revenue recognition and valuation of deferred tax assets, which are fully described in our Annual Report on Form 10-K for the year ended December 31, 2020.

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.

We are exposed to foreign exchange rate fluctuations of the Swiss Franc to the U.S. dollar as the financial position and operating results of our subsidiaries in Switzerland are translated into U.S. dollars for consolidation. In addition, we have exposure to exchange rate fluctuations between the Euro and the U.S. dollar for some of our transactions. We do not currently use derivative financial instruments to hedge against exchange rate risk.  The effect of foreign exchange rate fluctuations on our financial results for the period ended March 31, 2021 was not material.

We may also be exposed to interest rate risk and interest rate fluctuations as a result of our long-term debt financing. Our loan, with a current outstanding principal balance of $40.0 million accrues interest at a calculated prime-based variable rate, which was 8.5% as of March 31, 2021, with a maximum interest rate of 9.50%. A hypothetical increase or decrease in the interest rate of 1.0% would result in additional or lower annual interest expense of $400,000.

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.  The evaluation was performed to determine whether the Company’s disclosure controls and procedures have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were effective.

Internal Control over Financial Reporting

There have not been any material changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II - OTHER INFORMATION

The information set forth under “Note 9—Commitments and Contingencies—Pending Litigation” to the consolidated financial statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and is incorporated herein by reference.

In addition to the information contained in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A.  Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition or future results.  The risks described in our Annual Report on Form 10-K are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

None.

None.

Not applicable.

None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.