Esperion(ESPR) - 2022 Q4 - Annual Report

Part I Item 1. Business Esperion Therapeutics develops and commercializes oral, non-statin medicines for elevated LDL-C, with key products NEXLETOL® and NEXLIZET® approved in 2020, and recently completed a successful cardiovascular outcomes trial for expanded indication submission Overview and Product Information Esperion specializes in oral, non-statin LDL-C lowering medicines, with NEXLETOL® and NEXLIZET® approved in 2020, and recently completed its CLEAR Outcomes trial, meeting its primary endpoint for a planned CV risk reduction indication submission - Esperion focuses on developing and commercializing oral, once-daily, non-statin medicines for patients with elevated low-density lipoprotein cholesterol (LDL-C)[24] - The company's main products are NEXLETOL® (bempedoic acid) and NEXLIZET® (bempedoic acid and ezetimibe), approved by the FDA in February 2020. They are also approved in Europe as NILEMDO® and NUSTENDI®[27][28][29] - The global cardiovascular outcomes trial (CVOT), CLEAR Outcomes, met its primary endpoint of reducing four-component MACE. The company plans to submit for a CV risk reduction indication in the U.S. and Europe in the first half of 2023[25] Market Opportunity and Competitive Landscape A significant market opportunity exists for LDL-C lowering therapies, with millions of U.S. patients needing additional treatment or being statin intolerant, amidst a competitive landscape of established and newer therapies - An estimated 8.7 million U.S. patients currently taking statins require additional LDL-C lowering[47] - Approximately 9.6 million U.S. patients are not on statins but need LDL-C lowering, with most considered statin intolerant[48] - Key competitors include generic statins, ezetimibe, injectable PCSK9 inhibitors like Praluent®, Repatha®, and Leqvio®, and triglyceride-lowering therapies like Vascepa®[50][54][58] Revenue, Expenses, and Collaborations Esperion generates revenue from U.S. product sales and ex-U.S. collaborations, with 2022 net product sales of $55.9 million and R&D expenses of $118.9 million, while relying on third-party manufacturing and key commercial partners Revenue Breakdown (Year Ended Dec 31) | Revenue Source | 2022 | 2021 | | :--- | :--- | :--- | | Net Product Sales | $55.9 million | $40.0 million | | Collaboration Revenue | $19.6 million | $38.4 million | - Research and development expenses for the year ended December 31, 2022, were $118.9 million, primarily related to the CLEAR Outcomes CVOT[70] - The company has exclusive commercialization agreements with Daiichi Sankyo Europe (DSE) for Europe, Otsuka for Japan, and Daiichi Sankyo Co. Ltd (DS) for South Korea, Taiwan, and other territories[77][78][80] Intellectual Property Esperion's intellectual property portfolio, crucial for its business, includes numerous U.S. and foreign patents, with the core bempedoic acid patent expiring in December 2025, and other patents extending to 2036 and 2040 - The primary U.S. patent for bempedoic acid (No. 7,335,799) is scheduled to expire in December 2025, with a potential five-year extension requested[85] - A patent covering methods of treating familial hypercholesterolemia with the bempedoic acid / ezetimibe combination tablet (U.S. Patent No. 10,912,751) is scheduled to expire in March 2036[87] - A patent family related to the manufacturing of high-purity bempedoic acid, including U.S. Patent No. 11,407,705, is scheduled to expire in June 2040[86] Regulatory Matters Esperion operates under extensive regulatory oversight, including lengthy drug approval processes, post-marketing requirements, and complex laws concerning pricing, reimbursement, healthcare fraud, and data privacy - The FDA drug approval process involves extensive preclinical testing, an Investigational New Drug (IND) application, and three phases of human clinical trials to establish safety and efficacy[100][106] - As a condition of NEXLETOL and NEXLIZET approval, the FDA required post-marketing studies, including a pediatric study, a pregnancy exposure study, a lactation study, and the completion of the CLEAR CVOT[116] - In the EU, innovative drugs can qualify for eight years of data exclusivity and an additional two years of market exclusivity, protecting them from generic competition[168] - The company is subject to numerous healthcare laws, including the federal Anti-Kickback Statute, the False Claims Act, and data privacy regulations like HIPAA in the U.S. and GDPR in Europe[149][151][158] Item 1A. Risk Factors Esperion faces significant risks including dependence on product commercial success, potential failure to secure expanded regulatory approvals, reliance on third-party manufacturing, intense competition, intellectual property litigation, and the need for additional capital amidst a history of losses - The company depends almost entirely on the success of its two products, bempedoic acid and the bempedoic acid / ezetimibe combination tablet, and there is no assurance commercialization will be successful or generate expected revenues[197] - While the CLEAR CVOT met its primary endpoint, regulatory authorities may not approve expanded indications, which could prevent the company from receiving significant milestone payments and generating additional revenue[12] - The company may need substantial additional capital in the future, and if it is not available, operations may have to be delayed, reduced, or ceased[299] - Servicing debt, including convertible notes and obligations under the Revenue Interest Purchase Agreement (RIPA), requires significant cash and may not be supported by cash flow from operations[304][310] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[382] Item 2. Properties The company's corporate headquarters are located in Ann Arbor, Michigan, where it leases approximately 19,400 square feet of office space, which will be reduced to approximately 11,500 square feet effective November 1, 2023 - Corporate headquarters are in Ann Arbor, Michigan, with leased office space of approximately 19,400 square feet[383] - Effective November 1, 2023, the leased office space will be reduced to approximately 11,500 square feet[383] Item 3. Legal Proceedings A 2016 securities class action lawsuit was settled in 2021, with the company and its insurers paying $18.25 million to the plaintiff class, and no other current legal matters are anticipated to have a material adverse impact - A 2016 securities class action lawsuit was settled in 2021, with the company and its insurers paying $18.25 million to the plaintiff class[185] - The company recorded a loss on settlement of $13.25 million in Q1 2021, representing the $18.25 million settlement offset by $5.0 million in insurance proceeds[185] Item 4. Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[386] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Esperion's common stock trades on NASDAQ under "ESPR", the company has never paid dividends, and it issued $280 million in convertible notes in 2020, partially exchanged in 2021 - The company's common stock trades on the NASDAQ Global Select Market under the symbol "ESPR"[389] - The company has never paid cash dividends and does not intend to in the foreseeable future[394] - In November 2020, the company issued $280 million in 4.00% Convertible Senior Subordinated Notes due 2025[396] - In October 2021, the company exchanged $15.0 million of its convertible notes for 1,094,848 shares of common stock[403] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Esperion's net loss decreased to $233.7 million in 2022, driven by reduced SG&A expenses, while net product sales increased to $55.9 million, and the company believes its $166.9 million cash position and future revenues are sufficient to fund operations Results of Operations Esperion's net loss improved to $233.7 million in 2022, primarily due to a $75.9 million decrease in SG&A expenses, despite increased R&D costs and a decline in collaboration revenue Results of Operations Comparison (Years Ended December 31) | (in thousands) | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Product sales, net | $55,863 | $40,047 | $15,816 | | Collaboration revenue | $19,612 | $38,400 | $(18,788) | | Cost of goods sold | $26,967 | $14,217 | $12,750 | | Research and development | $118,927 | $105,975 | $12,952 | | Selling, general and administrative | $109,082 | $184,985 | $(75,903) | | Loss from operations | $(179,501) | $(226,730) | $47,229 | | Net loss | $(233,659) | $(269,108) | $35,449 | - The $75.9 million decrease in SG&A expenses was primarily due to lower compensation costs from a Q4 2021 reduction in force and a $13.3 million one-time legal settlement charge in 2021[448] - R&D expenses increased by $12.9 million, mainly due to increased costs as the CVOT reached 100% MACE accumulations and entered close-out activities[447] Liquidity and Capital Resources As of December 31, 2022, Esperion held $166.9 million in cash and investments, with net cash used in operating activities decreasing to $174.8 million, supported by $90.8 million from its ATM program and partially offset by a $50 million RIPA payment - As of December 31, 2022, the company had $166.9 million in cash, cash equivalents, and available-for-sale investments[452] Summary of Cash Flows (Years Ended December 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(174,827) | $(263,809) | | Net cash provided by (used in) investing activities | $8,104 | $(50,484) | | Net cash provided by financing activities | $32,606 | $268,223 | - During 2022, the company raised approximately $90.8 million in net proceeds from its "at-the-market" (ATM) stock offering program[451][459] - In November 2022, the company made a one-time $50 million partial call payment from restricted cash to amend its Revenue Interest Purchase Agreement (RIPA) with Oberland[458][462] Item 7A. Quantitative and Qualitative Disclosures about Market Risk Esperion's primary market risk is interest rate fluctuations on its $166.9 million in short-term investments, considered immaterial, while also facing unhedged foreign currency risk from global contracts - The company's primary market risk is interest rate fluctuations on its $166.9 million in cash, cash equivalents, and investments, but this risk is considered immaterial due to the short-term nature of the investments[468] - The Convertible Notes have a fixed interest rate of 4.0%, so there is no direct financial statement risk from changes in interest rates[472] - The company is exposed to foreign currency fluctuations through its global contracts with CROs and investigational sites but does not hedge this risk[469] Item 9A. Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[476] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[479] Part III Items 10-14 Information required for Items 10 through 14, covering Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accounting Fees and Services, is incorporated by reference from the company's definitive Proxy Statement for the 2023 Annual Meeting of Shareholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's 2023 Proxy Statement[485][486][487] Part IV Item 15. Exhibits and Financial Statement Schedules This section provides an index of the financial statements and a comprehensive list of all exhibits filed as part of the Annual Report on Form 10-K, including corporate governance documents, material contracts, and certifications - This item lists the financial statements and schedules filed with the report[492] - An index of all exhibits, including material contracts and certifications, is provided and incorporated by reference[493][496] Financial Statements Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on Esperion's financial statements, identifying the valuation of the revenue interest liability as a critical audit matter due to complex future revenue projections - The auditor, Ernst & Young LLP, provided an unqualified opinion on the financial statements[511] - A Critical Audit Matter was identified related to the valuation of the revenue interest liability, due to the significant estimation uncertainty in forecasting future net sales to determine the effective interest rate[515][517] Financial Statements Data Esperion's total assets decreased to $247.9 million in 2022, while total liabilities remained stable, and the company reported a net loss of $233.7 million, with an accumulated deficit growing to $1.34 billion Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $124,775 | $208,892 | | Total current assets | $246,683 | $328,972 | | Total assets | $247,939 | $381,590 | | Total current liabilities | $92,308 | $73,352 | | Total liabilities | $571,717 | $578,534 | | Accumulated deficit | $(1,340,036) | $(1,106,377) | | Total stockholders' deficit | $(323,778) | $(196,944) | Statement of Operations Highlights (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenues | $75,475 | $78,447 | | Total operating expenses | $254,976 | $305,177 | | Loss from operations | $(179,501) | $(226,730) | | Net loss | $(233,659) | $(269,108) | | Net loss per common share | $(3.52) | $(9.31) | Notes to Financial Statements The notes detail accounting policies, including revenue recognition and revenue interest liability valuation, describe collaboration agreements, outline $265.0 million in convertible notes, and report $950.8 million in federal net operating loss carryforwards as of year-end 2022 - The company's collaboration agreements with DSE, Otsuka, and DS involve upfront payments, potential regulatory and sales milestones, and tiered royalties on net sales in their respective territories[580][586][590] - The Revenue Interest Purchase Agreement (RIPA) liability was $243.6 million as of Dec 31, 2022. The company made a $50 million partial call payment in Nov 2022, reducing the total cumulative purchaser payments required[621][623] - As of Dec 31, 2022, the company had $265.0 million in principal amount of convertible notes outstanding, with a net carrying amount of $259.9 million[643] - The company had federal Net Operating Loss (NOL) carryforwards of approximately $950.8 million as of Dec 31, 2022, though their use is subject to limitations due to past ownership changes[683][685]