No. of Recommendations: 11
Hello there!
I enjoy finding stocks I feel are undervalued yet poised for growth. This could be a newer company or existing company branching into new markets or just a comeback story.
Examples of this in the past for me:
NVDA - no, not the recent AI craze. Back in 2015/2016 I was heavy into NVDA as they were moving somewhat under-the-radar into datacenters in a big way, pretty much in the same manner as for AI now. Back then it was more about "big data" and "data analytics". They were probably around 80% gaming revenue at the time and that was still growing a bit, too. I work in IT sales and I had an exec tell me they were "just a pc company play". Man - proofs execs aren't always smarter...they just networked better or were in the right place at the right time! Anyway, sold out in early 2017 after a 3x or so. I am often guilty of taking profits too soon, but I also tend to have exit prices in mind, and for me the investment ran its course. The promise of autonomous vehicles had stagnated and this was long before AI/GPT came on the scene, and many forget the stock fell 50% in late 2018 when crypto collapsed and all the folks using GPUs no longer needed them, flooding the market.
TTD - this was a big one for me. Got in around April 2017 and always understood the promise of CTV and tailored/digital advertising. The growth was consistent and eventually the market took notice. Sold in Jan 2020 for another nice multi-bagger gain. They since went thru an irrational stock climb post-covid but have basically been unable to get past 2021's nonsensical highs. They stay on my watchlist for any recession plummet, but in a crazy election year, they should be strong until 2025.
SPG - I made comment on SPG board here already, but it was a covid bounceback play. They are the elite higher-end mall company, immaculately run by competent long-time CEO with a fortress balance sheet, and had already shown the ability to bounce back from GFC collapse of stock price. Rode it from about $60 in mid-2020 to $165-170 in late 2021. They plummeted again in 2022 and I failed to jump on it again, and back to $150's now. They stay on the watchlist as a recession may provide another nice entry into a high-yield dividend stock that would have stock price upside if it ever gets close to or under $100 again.
So Esperion or ESPR. My current favorite toy.
More to come, but here is an outline.
1. Company makes bempedoic acid, sold under Nexletol and Nexlizet in US, and Nilemdo in Europe.
2. Bought by Pfizer almost 20 years ago and then buried, likely to stifle competition.
3. Bought back by interested parties years later and goes publicly traded.
4. in 2020 they are given approval by FDA in February.
5. Then CEO botches a product launch as the drugs had a very limited "label" aka "recommendations for physicians on what to use it for" and Covid was about to start.
6. Key studies are underway that will lead to CLEAR and MACE results
7. New CEO (still current CEO) comes in around 2022 and starts diluting the heck out of the company as they are bleeding cash due to high costs of R&D/studies and relatively low sales.
8. Partnerships are formed with Daiichi Sankyo's Europe arm or DSE for Europe, DS for Asis/South America, and Otsuka for Japan. Esperion holds on to US rights.
9. Stock price getting absolutely pummeled and will reach $0.70 in Fall 2023. (I bought first shares at $0.99)
10. Dec 2023; FDA updates the label
https://seekingalpha.com/news/4046165-fda-updates-...11. Esperion does their latest (and final?) dilutive stock offering.
12. March 25th 2024; FDA broadens the label further, which mgmt had been expecting and pushing for. This changed Esperion from being solely a "statin alternative" for those that could not handle statin side effects to being the only non-statin drug on the market approved for Primary Prevention. This is key and hugely increases their TAM.
https://seekingalpha.com/news/4046165-fda-updates-...13. June 28th 2024; Esperion monetizes the royalty revenue stream from DSE for $300m and subsequently pays off a horrendous revenue sharing agreement that was essentially a big debt overhang and restricting them financially.
14. June 2024; decent amount of the insurance payers start updating their UM aka improving their coverage and lowering cost to patients for Nexletol/Nexlizet.
Ok. That is the news stuff. Stock has been a roller coaster.
For simple math, just associate $2/share with approx $500m mkt cap, as I believe once warrants and final employee shares are issued, the total stock count should be around 240m vs the 194m it states right now. So if you believe the company is worth $2b to a Big Pharma (BP) then it should sell for about $8, as an example.
What else is going on?
1. September is expected to be another (final?) wave of insurance payers getting on board and updating their coverage and pricing. This can't be overstated, as patients are essentially consumers here and statins are cheap, so you need the price to be fair or it is a tough hill to climb.
2. DSE is growing rapidly, and this is prior to their May label expansion. Why are they growing faster than Esperion? Because they are a big-boy outfit with a much larger sales force and likely drug pricing more reasonable in Europe. In their latest ER, they did around $50m in USD for the most recent Q, and were growing about 130%. While Esperion has lost their royalty streams for the next $500m cumulative payments, eventually it reverts back to Esperion, which I calculate to be in 2028 at the latest.
3. Esperion still collects sales milestones worth approx $300m from DSE, but less clear when those are triggered, but potentially some of that will be in 2025.
4. Otsuka starts selling in 2025. Japan has their own approval system and it is working thru that. Esperion will collect 30% royalties plus up to $600m in milestone payments over time.
5. Esperion actively looking to set up shop, likely via a partnership, for the markets of Canada, Australia, and Israel. Presumably they will net some upfront money for that, along with the usual royalties/milestones arrangement. Why not open market themselves? Too much expense and lack of infrastructure in those markets already. Easier to partner or sell the whole business to a BP.
6. The only remaining debt is $275m approx in Notes due Nov 2025, and mgmt seems unconcerned they will be able to take care of that. My guess is either refinanced as rates come down over the next year and/or they pay down some/all with future milestone payments they receive or upfront fees they receive on new territories.
7. US business; sales are trending up. 2023 was 17m, 20m, 20m, 20m. Apparently scripts kept increasing, but they leveraged discounting to drive the script growth which is why rev stayed flat. In 2024, they have been able to refrain from the discounting and still grow scripts and so far Q1 was $24m and Q2 was $28m. My projections are $33-35m for Q3 and $40m for Q4 (which would be 100% y/y growth). Keep in mind that the payer landscape didn't really start changing until June, which is why we should seen another bump up in Q3 and after September payer updates they should be riding solid momentum and tailwinds into Q4, from a payer coverage standpoint.
8. They finished Q2 at $189m in cash.
9. They burn about $60m/Q, however that should decrease in 2025 as part of their agreement with DSE is to offload the tablet manufacturing to DSE, which is a big part of their expense. They also no longer have the larger R&D expense as their studies have completed. Mgmt is touting being breakeven and then profitable fairly quickly. Just on the US business alone, they will probably be breakeven in 2025, as I expect their 2024 US rev at $125-130m and 2025 should be $225-250m, if they execute well. However, when you factor in other milestones, Otsuka royalties, royalties from DS in the non-Europe markets (smaller right now), and possibly new markets in Can/Aus/Israel, they should be easily profitable.
10. They just said goodbye to their Chief Medical Officer, Joanne Foody. With 12 months severance. Why? Thought is that any incoming buyer or partner will have their own CMO, so she is now redundant with her mission accomplished of getting Esperion thru the trials and expanded label, etc... So does it hint at incoming buyout? Maybe. Maybe she just wants to retire and they said "thanks" and gave her generous severance. Will probably know the answer only after it doesn't matter anymore.
What's the plan now?
1. Sell the company for $2-3b (my goals) or do a US partnership for a large upfront fee and royalty stream. I am ok with partnership, but I don't quite get the end game then, as they are largely a royalty-collecting company at that point. So I prefer a sale and a nice 3x-6x gain (from $2/share).
2. They have patents thru 2030/2031, but key is they are working on new indications that could extend another decade. My understanding is that DSE working on a triple combo drug and while that would be their patent it protects Esperion's money stream from DSE further out too.
3. Bempedoic Acid may be a somewhat low-key wonder drug. Remains to be seen. But if further indications are found around kidney/liver, cancer, or weight-loss, it all adds to the mix. But that is hard to define but company claims they will be talking up the new indications this year, so presumably Sept or Q4.
Downside?
1. some companies trying to make pill versions of the currently injectable-only PCKS9 family of drugs. many of which sold for billions to BP's, by the way, and none of which are cheap or approved for primary care like Esperion's drugs. Even if these turn out well, they are still a couple years behind Esperion as they would need the same long wait for label approvals/updates and then payer updates, etc etc... But many investors love the backup QB more than the guy actually on the field.
2. Mgmt lost a lot of trust with WS and retail with the dilution last couple years. But they have been executing since last Dec as far as I can see. With current cash, there is no need for more dilution. Mgmt also been setting themselves up with shares now, so all parties seem aligned.
3. negative side effects. These should have been caught in all the studies and bempedoic acid appears safe...so don't expect any issues. Just throwing it out there. You could say that about any drug, I suppose.
4. GLP-1 drugs taking over the world. This is sarcastic, as they are expensive injections...but every is losing their mind in the media, it seems, thinking no one will ever eat snacks again, eat candy again, eat at restaurants again, or ever need any medications again, because GLP-1 solves everything. Over-hyped, imo. With side effects, too. (muscle loss, etc) I am not concerned about this. In fact, kind of hoping that Esperion will play up any weight-loss indications bempedoic acid may provide, just to ride this public euphoria about weight-loss-related drugs.
Stock at $1.76 at moment. Is that the bottom? No idea.
Last dilution was $1.55, I believe.
Execs recently registered their shares at around $1.65, but have not executed/issued them yet.
So sort of feels like we are bottom-ish here.
I mostly have all the shares I want, but have some open orders in the $1.55-1.70 range to top off.
Then it is a waiting game until either news of a buyout, news of Australia/Canada/Israel partnership, or the next Q3 ER validates growth (or not) in November.
Final note: I am just some random guy on the internet. Be responsible for your own investing decisions. Good luck!
Dreamer
