This one is speculative, outdoors of the broken-biotech basket, however I nonetheless assume it might be attention-grabbing in a small place measurement or LEAPs.
Esperion Therapeutics (ESPR) ($182MM market cap, ~$700MM EV assuming money is totally burned) is a pharmaceutical firm targeted on growing non-statin drugs for top ldl cholesterol. Statins (e.g., Lipitor, Crestor) are low cost and efficient, however many individuals are statin illiberal, muscle ache is the primary grievance and consequently, sufferers both do not take the mandatory dosage quantity or falloff altogether (WSJ article discussing ESPR and different statin options). Esperion has FDA permitted therapies using bempedoic acid below the model names Nexletol and Nexlizet which can be at the moment solely labeled for a slim use case. Following the success of their accomplished research (“CLEAR End result”), Esperion is ready to considerably broaden their addressable market by 8-10x with a brand new label for cardiovascular danger discount. Nexletol/Nexlizet might be a “blockbuster drug” with the brand new label, that means annual gross sales above $1B. In Q2, the corporate formally submitted their expanded label functions within the U.S. and Europe, Esperion expects to obtain approval in ~April 2024 (approval probability seems excessive, however open to pushback there).
Like many different biotech corporations, Esperion has burned by way of some huge cash to get this level. To lift money they’ve partnered with bigger pharmaceutical corporations that may market and distribute their medication outdoors america. As a part of these preparations, Esperion acquired upfront charges and negotiated milestone funds, whereas additionally retaining a royalty on gross sales. Daiichi Sankyo, the second-largest pharmaceutical firm in Japan, is the biggest of those companions, with agreements to distribute all through Europe and Asia ex-Japan. Following the discharge of the CLEAR End result research outcomes, the two are in dispute over a $200-$300MM milestone fee tied to the vary of relative cardiovascular danger discount. Clearly, it is not an amazing state of affairs to be in a dispute along with your largest business accomplice (jogs my memory a tiny little bit of RIDE/Foxconn) once you’re a money burning enterprise.
Under is the contract language on the coronary heart of the dispute:
I am not a lawyer, however I do stare at a good quantity of authorized agreements in my day job, that is actually poorly written and obscure language. Relative danger discount shouldn’t be an outlined time period, a $200-$300MM fee left as much as interpretation seems to be poorly on Esperion administration and their authorized counsel. In the event that they meant any endpoint would set off the fee, they need to have included that clarification.
Anyway, the outcomes of the CLEAR End result research are considered positively by the scientific neighborhood, Esperion’s drug reduces:
- 27% discount in non-fatal coronary heart assaults
- 23% discount within the composite of nonfatal and deadly coronary heart assaults
- 19% discount in coronary revascularization (sever blockage of the arteries)
- 15% discount in deadly and nonfatal strokes
- 15% discount in MACE-3 (a composite of cardiovascular dying, nonfatal coronary heart assaults, or nonfatal stroke)
- 13% discount in MACE-4 (a composite of cardiovascular dying, nonfatal coronary heart assaults, nonfatal stroke, or coronary revascularization)
Esperion argues that their drug reduces “cardiovascular danger” due to the primary two outcomes, Daiichi Sankyo is pointing to the final one, MACE-4 which is the broadest aim submit and misses the 15% minimal degree for a milestone fee altogether. Esperion is in a precarious monetary place, they at the moment have $138.5MM in money and securities, projected to get them to mid-2024, leaving a decent opening to show money circulate constructive assuming the brand new label is permitted a number of months earlier. This milestone fee is vital to Esperion’s future, in any other case they could must do dilutive financing or public sale themselves off in a firesale.
The smoking gun is perhaps Esperion’s declare that Daiichi Sankyo (“DSE” within the under) put MACE-4 in a draft of the doc however then agreed to take it out:
11. The Negotiating and Drafting Historical past of the Settlement. As a result of the language of Part 9.2 is unambiguous, there isn’t a must transcend the 4 corners of the Settlement. In any occasion, the extrinsic proof is deadly to DSE’s studying of the Settlement. Throughout the negotiation and drafting of the Settlement, DSE proposed making Esperion’s regulatory milestone fee contingent on a discount within the particular MACE-4 endpoint—the contract time period DSE now says was agreed to. However Esperion expressly rejected this proposed contractual time period and DSE agreed to take away it. In different phrases, the events particularly thought of including language to the Settlement to make MACE-4 danger discount a selected requirement for Esperion to obtain the total milestone fee and determined to not add this requirement. DSE’s place that MACE-4 is the contractual north star is a unadorned try to re-trade the events’ deal and acquire by way of bad-faith repudiation what it failed to attain on the negotiating desk.
12. DSE’s motive is obvious. On the time of DSE’s bad-faith repudiation, Esperion was on the eve of closing an providing to lift capital. DSE knew that given the materiality of the $300 million fee, Esperion, a publicly traded firm on NASDAQ, can be required to publicly disclose DSE’s repudiation of its fee obligation to the investing public. On info and perception, DSE timed its repudiation to place most monetary strain on Esperion, in a clear try to drive down Esperion’s inventory worth and strain it to re-negotiate the monetary phrases of the events’ license settlement.
13. DSE’s repudiation inflicted speedy and substantial hurt to Esperion. When DSE’s repudiation turned public, Esperion’s inventory plummeted, dropping 54% in a single day. The hurt to Esperion is ongoing and its inventory worth stays under $2 per share.
Assuming that is all true, which it seems to be as Esperion supplies screenshots of their response, it’s going to come out throughout the discovery part of the trial that’s set for April 2024, across the identical time Esperion expects to obtain approval for the expanded label.
I anticipate them to accept some low cost previous to the trial as it might raise an enormous cloud from Esperion and permit themselves to promote to a bigger pharma firm that is not beginning a gross sales and distribution operation from scratch like Esperion. Esperion does even have an identical $140MM milestone fee tied to their accomplice in Japan the place the labeling date is slightly farther out (1-2 years).
I do not actually have a worth goal for ESPR, however would anticipate a constructive end result might be a multi-bagger from right now’s costs. Open to any opinions on this case, particularly from these with extra expertise in biotech/pharma disputes or the science behind Esperion’s medication.
Disclosure: I personal shares of ESPR
