2023-11-12 22:45:00 ET
Summary
- Esperion Therapeutics reports strong Q3 earnings for bempedoic acid, with revenues of $20.3M and impressive growth in retail Rx and new-to-brand prescriptions.
- Anticipated label expansion in the US and EU in 2024 could significantly broaden bempedoic acid's market reach, with a potential addressable market of 70 million patients.
- An ongoing legal dispute with Daiichi presents a potential upside for Esperion, with the possibility of a favorable ruling that could de-risk a $300M milestone payment.
- We maintain a speculative buy rating on ESPR.
Introduction: Q3 earnings and thesis update
Esperion Therapeutics ( ESPR ) has been a topic of debate among investors, particularly due to the ongoing litigation with Daiichi around the $300m milestone receivable. This has led to a massive stock sell-off, and now the company is trading barely above ~$100M. In our previous initiation article, our key rationale for a buy rating revolved around improving Bempedoic acid sales (with the new CLEARs outcome study) and the company's potential of winning the lawsuit, which offers an attractive enough set-up for an optioned-sized position moving into Q4 2023 and 2024. In this update, we will update readers on the recently announced positive Q3 2023 earnings and also the upcoming catalysts, such as label expansion for primary CVD prevention with the recent CLEARs outcomes data and why we are optimistic about Bempedoic acid's US/EU performance moving forward.
Bempedoic acid beats consensus again
The Q3 performance of ESPR in the US market, specifically concerning bempedoic acid (bemp), showed revenues of $20.3M, a 45% increase from 3Q22 driven by retail Rx growth of ~33%, and new-to-brand prescription growth of 8% from 2Q23. We see this trend as impressive, considering that the ramp was initially lukewarm pre-CLEAR outcomes data that was published in early 2023. We believe the key reason for the uptake revolves around a better hazard ratio shown with longer follow-up and primary prevention patient segment, which can allow bempedoic acid to be positioned as a potential second-line agent after patients fail statins (and payors approving the drug more readily).
Furthermore, the company noted a higher-than-anticipated Gross-to-Net (G2N) deduction, which may have negatively impacted the net sales, but TRx trends clearly show the demand is robust.
The anticipated label expansion in the US by March 31, 2024, and in the EU in the first half of 2024 is a pivotal factor. The expansion, based on the Phase III CVOT results showing statistically significant benefits, could significantly broaden bempedoic acid's market reach. The potential addressable market, post-approval, of approximately 70 million patients underscores the immense growth opportunity for Esperion.
Legal Landscape and Potential Upsides
The ongoing legal dispute with Daiichi over milestone payments is a critical factor for ESPR. The possibility of a favorable Rule 12C decision as early as December 2023, prior to the April 2024 trial date, presents a significant potential upside for the stock. Although the outcome is uncertain and subject to appeal, a positive ruling could greatly de-risk the $300M milestone payment, providing a financial buffer for Esperion. This scenario, albeit with a level of risk, suggests a potential for considerable stock appreciation. Furthermore, we believe the market is not pricing in a probability that two companies somehow settle in between, which should still eliminate the overhang around the stock and perhaps allow the company to repay the credit structure with Oberland .
Financial Position
Esperion ended Q3 with a cash balance of $114.8 million; considering that the company burned ~$30M in Q3 2023, we believe that constitutes around <1 year of cash runway, or perhaps slightly longer depending on how fast the Bempedoic acid and its EU royalty stream ramps up. Importantly, if the ramp slows down or the trial gets delayed, we believe it can jeopardize the company's viability. On a positive note, during the Q3 earnings, the management indicated that they are steadfast in further reducing the OPEX to manage the cash runway issue. We believe there are multiple levers for the companies to pull to cut down the R&D spending, considering the company's large phase 3 CLEAR outcome study is now done, and the other pipeline candidates are early-stage candidates (that they can slow down the development on until the litigation ends to reserve capital for other areas of operation).
Valuation
The street consensus for Bempedoic acid is around $500M (using the mid-point above); using a conservative peak sales multiple of x3, we believe the company's enterprise value should be around $1.5Bn, almost x3 higher than the current level. We like the current risk/reward set-up.
Risk
While acknowledging the risks, potentially slowing down bempedoic acid's ramp, gross-to-net dynamic pressuring net sales, funding overhang, and legal uncertainties. Net-net, the company's strategic positioning, coupled with potential regulatory approvals and potential legal victories, paints a promising risk-reward set-up. Key detailed risk factors include:
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Regulatory Approval : Esperion's future success heavily depends on the FDA's decision on its Supplemental New Drug Applications (sNDAs) for NEXLETOL and NEXLIZET, with an action date set for March 31, 2024. Similarly, the European Medicines Agency ((EMA)) review for expanded indications for NILEMDO® and NUSTENDI® is crucial, with approvals anticipated in the first half of 2024??.
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Clinical Trial Results : The company presented additional analyses from the CLEAR Outcomes Total Events Analysis at ESC 2023, demonstrating the effectiveness of bempedoic acid in reducing major adverse cardiovascular events. These results are critical for its market acceptance and regulatory approvals??.
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Expansion in New Markets : Esperion's growth strategy includes expanding into new markets, as evidenced by Daiichi Sankyo Europe gaining approvals in the Netherlands, Slovakia, and Spain. The success of these expansions is a significant factor for future revenue growth??.
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Collaborations and Campaigns : The strategic collaboration with the American College of Cardiology and Amgen to launch a new campaign for LDL cholesterol screening could impact the company's market positioning and product adoption??.
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Financial Performance : Esperion's financial health is a key indicator of its risk profile. As of September 30, 2023, the company reported a significant increase in total revenue compared to the previous year, which reflects its current growth trajectory but also underscores the importance of maintaining this momentum??.
Conclusion
In conclusion, despite certain headwinds and uncertainties, we believe the sell-off is overdone. With positive Q3 2023 earnings print, strategic maneuvers to extend cash runway, and potential legal and regulatory upsides (label expansion and winning the litigation) in the near future justify maintaining a speculative 'buy' rating on ESPR.
For further details see:
Esperion: Navigating The 'Bemp' Of Success Amidst Market Waves And Legal Tides