This one is speculative, outdoors of the broken-biotech basket, however I nonetheless suppose it may very well be fascinating in a small place measurement or LEAPs.

Esperion Therapeutics (ESPR) ($182MM market cap, ~$700MM EV assuming money is totally burned) is a pharmaceutical firm centered on creating 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 criticism and consequently, sufferers both do not take the required dosage quantity or falloff altogether (WSJ article discussing ESPR and different statin alternate 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 slender use case.  Following the success of their accomplished research (“CLEAR Final result”), Esperion is about to considerably broaden their addressable market by 8-10x with a brand new label for cardiovascular threat discount.  Nexletol/Nexlizet may very well be a “blockbuster drug” with the brand new label, which 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 companies, Esperion has burned by some huge cash to get this level.  To boost 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 Final result research outcomes, the two are in dispute over a $200-$300MM milestone cost tied to the vary of relative cardiovascular threat discount.  Clearly, it isn’t an incredible state of affairs to be in a dispute together with your largest industrial companion (jogs my memory a tiny little bit of RIDE/Foxconn) whenever you’re a money burning enterprise.

Beneath 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 definitely poorly written and obscure language.  Relative threat discount isn’t an outlined time period, a $200-$300MM cost left as much as interpretation appears to be like poorly on Esperion administration and their authorized counsel.  In the event that they meant any endpoint would set off the cost, they need to have included that clarification.

Anyway, the outcomes of the CLEAR Final result research are seen 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 demise, nonfatal coronary heart assaults, or nonfatal stroke)
• 13% discount in MACE-4 (a composite of cardiovascular demise, nonfatal coronary heart assaults, nonfatal stroke, or coronary revascularization)

Esperion argues that their drug reduces “cardiovascular threat” due to the primary two outcomes, Daiichi Sankyo is pointing to the final one, MACE-4 which is the broadest objective publish and misses the 15% minimal degree for a milestone cost 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 move optimistic assuming the brand new label is permitted just a few months earlier.  This milestone cost is essential to Esperion’s future, in any other case they might must do dilutive financing or public sale themselves off in a firesale.

The smoking gun is likely to be 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 any 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 cost 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 threat discount a selected requirement for Esperion to obtain the complete milestone cost 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 procure by bad-faith repudiation what it failed to realize on the negotiating desk.

12. DSE’s motive is evident. 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 cost, Esperion, a publicly traded firm on NASDAQ, can be required to publicly disclose DSE’s repudiation of its cost obligation to the investing public. On data 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 instant 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 will come out throughout the discovery part of the trial that’s set for April 2024, across the similar time Esperion expects to obtain approval for the expanded label.

I count on them to accept some low cost previous to the trial as it will elevate a giant 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 analogous $140MM milestone cost tied to their companion in Japan the place the labeling date is just a little farther out (1-2 years).

I do not actually have a worth goal for ESPR, however would anticipate a optimistic final result may very well be a multi-bagger from immediately’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