2023-08-29 08:46:13 ET
Summary
- Esperion reported Q2 bempedoic acid revenue of $20.3M; we expect the bempedoic acid to surpass the 2023 consensus numbers.
- The ongoing Daiichi litigation poses a significant weight on Esperion's stock price and financials, but at this valuation, risk/reward is positive.
- Despite risks, Esperion is an attractive value investment with potential for extended financial runways and promising future for bempedoic acid.
- We initiate Esperion with a speculative buy rating.
Introduction
Esperion Therapeutics , Inc. (ESPR) is a US SMID cap commercial pharmaceutical company primarily focused on the development and commercialization of therapies to treat patients with elevated low-density lipoprotein cholesterol (LDL-C). Its lead candidate, bempedoic acid, is a first-in-class ATP Citrate Lyase ((ACL)) inhibitor that works by reducing the liver's cholesterol production and increasing the liver's uptake of LDL-C, thereby aiding in lowering blood cholesterol levels, which is a similar pathway to the blockbuster statins, and it is targeting 2nd line and 3rd line segment combined with ezetimibe (zetia) which is the current gold standard post statin therapy, especially in the ASCVD primary prevention segment.
Target segment (Company source) Product positioning (Company source) LDL reduction (Phase 3 trial)
Q2 2023 Earnings Summary
For Q2 2023 , ESPR reported a US bempedoic revenue of $20.3M and heading well into surpassing the 2023 FY consensus from several brokers (Below).
Bempedoic acid sales projection (BioMED consensus forecast)
While this is commendable, the revenue is slightly below the projected figures of $21-22M; we believe this may be due to the high gross-to-net discount that the company needs to pay payers and PBMs to place Bempedoic acid in a preferred formulary. Nonetheless, ESPR maintained its 2023 operating expense (OpEx) guidance, forecasting an OpEx range of $225-245M. There is an indication from the company's statements that by potentially reducing more R&D expenditure, the financial runway could be extended into the latter half of 2024. We believe this extended runway would allow ESPR sufficient cash runway buffer leading up to the April 2024 trial date set for the Daiichi milestone case, which currently poses a significant weight on ESPR's price action.
Current Status of the Daiichi Litigation
Esperion Therapeutics has initiated a lawsuit against its Nexletol partner, Daiichi Sankyo, seeking $300 million in milestone payments. This legal tussle is rooted in a 2019 arrangement where Esperion granted Daiichi exclusive rights to commercialize its drug, bempedoic acid (known as Nexletol in the U.S. and Nilemdo in Europe), in Europe and Switzerland. According to the agreement, Daiichi was to make regulatory milestone payments to Esperion based on specified outcomes, one of which is tied to the CLEAR outcomes study that examined Nexletol's efficacy in reducing cardiovascular risks.
The crux of the disagreement lies in the interpretation of trial endpoints. The agreement specifies a $300 million payment if the CLEARS outcomes study demonstrates a "cardiovascular risk reduction" of 15% or more. Esperion claims they've achieved this, as the drug demonstrated a 27% decrease in heart attack risk. However, Daiichi refers to another endpoint, the MACE-4 outcome, which indicated a 13% cardiovascular risk reduction compared to a placebo. Daiichi contends that this specific metric should exceed 15% for the payment to be triggered. Esperion, on the other hand, argues that Daiichi's interpretation is at odds with the clear terms of the agreement.
As of today, the case is currently in the discovery phase, set to conclude by March 2024. Post-discovery, both ESPR and Daiichi are expected to file motions for summary judgment. If the judge believes the case facts are undisputed, a summary judgment could be issued shortly after. Otherwise, a trial, either bench or jury, will commence. While the official trial date is set for April 2024 and is expected to be brief (lasting a few days to a week), it's prudent to acknowledge that potential delays could push this to June to July 2024.
Of note, the ongoing litigation, as revealed in an SEC filing on March 15, led to a sharp decline in Esperion's stock price, dropping from $3.99 to $1.38 (as of Aug 25th). The company's financials have already been impacted by the dispute and the consequent delay in payment, and this has led to investors selling out of the stock. At this valuation, we believe the risk-reward set-up is worth enough for us to consider putting an optioned size position in the company to play the potential scenario where the company wins the lawsuit and receives the anticipated milestone. We believe the company has enough cash runway and do not believe they will raise it anytime soon. Although the MACE reduction was underwhelming, we believe the drug will capture a decent niche position in the primary prevention segment, especially in the population where patients are statin intolerant .
Seeking alpha capital structure (Seeking alpha)
Risks for Investing in ESPR:
- Litigation Outcome: The Daiichi litigation's resolution remains uncertain. A verdict unfavorable to ESPR could significantly impact its financial standing and stock value.
- Reliance on Bempedoic Acid: ESPR's valuation is majorly hinged on bempedoic acid. Any regulatory, commercial, or safety setbacks could adversely affect the company.
- Financial Sustainability: Despite potential reductions in R&D spend, ESPR's financial health depends on achieving sales milestones and maintaining a manageable OpEx.
- Market Dynamics: ESPR operates in a competitive space, and new advancements or drugs from competitors could diminish bempedoic acid's market share.
Conclusion:
On the back of Esperion's promising Q2 2023 results, coupled with the potential of bempedoic acid (and better than expected ramp of the drug) in the statin-intolerant segment and a small portion of the secondary prevention segment for patient who do not need a large LDL-c reduction, render the company an attractive value investment. Therefore, we initiate the company with a speculative buy rating. However, the ongoing Daiichi litigation and its associated financial implications make it a stock to watch closely, which is stopping us from rating a "strong buy rating." The potential for extended financial runways through OpEx management, paired with EU sales and favorable feedback from doctors, offers a promising future for the drug moving forward. We expect the sales to at least meet consensus (even if the ramp does not accelerate much more) for 2023, which should provide a positive momentum going into YE 2023 and next year's catalyst (the result of the lawsuit).
For further details see:
Esperion Therapeutics: Speculative Buy, Playing The $300 Million Milestone Litigation