Market Tough on ESPR CEO Change
The market did not give ESPR a break yesterday with a stock selloff on news of the CEO change. We would have thought the market would have seen this as a positive development given the U.S. product revenue challenges especially given SG&A spend. It is interesting at the quarterly call 2 weeks ago, Stifel's analyst Derek Archila congratulated EPSR on the "progress". Then he downgraded the stock the next day.
With today's CEO change announcement, we now know that successful international corporate development deals, were not enough for the ESPN Board. Very poor revenue in the U.S. was the death sentence for the prior CEO, Tim Mayleben, who was with ESPR for more than 11 years. Product revenue decreased from $8.2M (Q4 '20) to $6.4M (Q1 '21) (See our IQ cards for Nexletol and Nexlizet).
For a smid-cap biopharma company like ESPR, the early commercial stages of its first commercial product can be very challenging without a huge product differentiator meeting a clear unmet need. Seems to us that ESPR needs its long-term cardiovascular risk reduction clear outcomes trial to convince physicians of the value of Nexletol and Nexlizet unless ESPR can figure out a more convincing story under its new CEO. If the market believed in ESPR's value proposition for Nexletol and Nexlizet, we likely would have seen an acquisition by now. $61M SGA in Q1 underscores the possible key mistake of Mr. Mayleben, with a very large sales/marketing spend in a pandemic, and without cardiovascular outcomes data for over a year. Of course, the huge SG&A spend with little revenue is concerning despite a decent cash position. At the guided cash burn, ESPR has about 1 year of cash. They previously guided that they had cash to get to profitability. That looks more challenging now.
We continue to hold our shares of ESPR and even added some yesterday with a strategy of holding through the 2022 outcomes data. We are believers that LDL-C lowering will result in reduced long-term cardiovascular outcomes and ESPR seems to be a good value currently. However, it has been a painful ride these past few years as ESPR investors. Furthermore, PSK9's, especially Novartis' Inclisiran will pose a tough challenge for ESPR. However, Novartis faced its own setback despite European approval in December 2020, with a CRL from the FDA later that month. The company plans to resubmit its NDA later this year. Given the huge deals that Daiichi Sankyo has done with ESPR to get rights in Europe, Asia, and more, they must share our confidence in the ESPR clear outcomes trial.
#ESPR #nexletol #nexlizet #cardiovascular #LDLC