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ESPR > SEC Filings for ESPR > Form 10-Q on 12-Aug-2013All Recent SEC Filings

Show all filings for ESPERION THERAPEUTICS, INC.

Form 10-Q for ESPERION THERAPEUTICS, INC.


12-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act), with the Securities and Exchange Commission (the SEC) on June 26, 2013.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements are based on our management's belief and assumptions and on information currently available to management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events, including our clinical development plans, or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, including in relation to the clinical development of ETC-1002, to be materially different from any future results, performance or achievements, including in relation to the clinical development of ETC-1002, expressed or implied by these forward-looking statements.

Forward-looking statements are often identified by the use of words such as, but not limited to, "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other similar terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and that could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those discussed in the section titled "Risk Factors" included in Item 1A of Part II of this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.

The forward-looking statements in this report represent our views as of the date of this quarterly report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

Corporate Overview

We are a biopharmaceutical company focused on the research, development and commercialization of therapies for the treatment of patients with elevated levels of LDL-C and other cardiometabolic risk factors. ETC-1002, our lead product candidate, is a novel, first in class, orally available, once-daily LDL-C lowering small molecule therapy designed to target known lipid and carbohydrate metabolic pathways to lower levels of LDL-C and to avoid side effects associated with existing LDL-C lowering therapies. We own the exclusive worldwide rights to ETC-1002 and our other product candidates.

We were incorporated in Delaware in January 2008 and commenced our operations in April 2008. Since our inception, we have devoted substantially all of our resources to developing ETC-1002 and our other product candidates, business planning, raising capital and providing general and administrative support for these operations. We have funded our operations primarily through the issuance of preferred stock, convertible promissory notes and warrants to purchase shares of preferred stock. From inception through June 30, 2013, we raised $56.7 million from such transactions.

On July 1, 2013, we completed the initial public offering, or IPO, of our common stock pursuant to a registration statement on Form S-1. In the IPO, we sold an aggregate of 5,000,000 shares of common stock under the registration statement at a public offering price of $14.00 per share. Net proceeds from the IPO were approximately $62.7 million, after deducting underwriting discounts and commissions and offering expenses. Upon the closing of the IPO, all outstanding shares of our preferred stock were converted into 9,210,999 shares of common stock. Additionally, as part of the IPO, we granted the underwriters a 30-day option to purchase up to 750,000 additional shares of common stock at the IPO price to cover over-allotments, if any. On July 11, 2013, the underwriters exercised this option in full. As a result of this exercise, we received an additional $9.8 million in proceeds, net of underwriting discounts and commissions and offering expenses.

We are a development stage company and do not have any products approved for sale. To date, we have not generated any revenue. We have never been profitable and, from inception to June 30, 2013, our losses from operations have been $53.1 million. Our net losses were $6.9 million and $3.2 million for the three months ended June 30, 2013 and 2012, respectively, and $11.2 million and $5.6 million for the six months ended June 30, 2013 and 2012, respectively. Substantially all of our net losses resulted from costs incurred in connection with research and development programs, general and administrative costs associated with our


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operations and the mark-to-market of our liability classified warrants. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect our expenses to increase in connection with our ongoing activities, including, among others:

conducting additional clinical studies of ETC-1002 to complete its development;

seeking regulatory approval for ETC-1002;

commercializing ETC-1002; and

operating as a public company.

Accordingly, we will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity or debt financings or through other sources, which may include collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy or continue operations. We will need to generate significant revenues to achieve profitability, and we may never do so.

Product Overview

ETC-1002, our lead product candidate, is a novel, first in class, orally available, once-daily LDL-C lowering small molecule therapy designed to target known lipid and carbohydrate metabolic pathways to lower levels of LDL-C and to avoid side effects associated with existing LDL-C lowering therapies. We acquired the rights to ETC-1002 from Pfizer in 2008. We own the exclusive worldwide rights to ETC-1002 and we are not obligated to make any royalty or milestone payments to Pfizer.

In 2011, we incurred $4.6 million in expenses related to our Phase 1b Multiple Dose Tolerance clinical trial (ETC-1002-004), our Phase 2a Proof-of-Concept clinical study in Patients with Hypercholesterolemia (ETC-1002-003) which reported top-line results in March 2012, and our Phase 2a Proof-of-Concept clinical study in patients with Hypercholesterolemia and Type 2 Diabetes (ETC-1002-005) which reported top-line results in January 2013.

In 2012, we incurred $5.8 million in expenses related to our Phase 2a Proof-of-Concept clinical study in Patients with Hypercholesterolemia and Type 2 Diabetes (ETC-1002-005) and our Phase 2a Proof-of-Concept clinical study in Patients with Hypercholesterolemia and a History of Statin Intolerance (ETC-1002-006) which reported top-line results in June 2013, and our Phase 2a clinical study in Patients with Hypercholesterolemia taking 10 mg of atorvastatin ( ETC-1002-007).

During the six months ended June 30, 2013, we incurred $4.3 million in expenses related to our Phase 2a Proof-of-Concept clinical study in Patients with Hypercholesterolemia and Type 2 Diabetes (ETC-1002-005), our Phase 2a Proof-of-Concept clinical study in Patients with Hypercholesterolemia and a History of Statin Intolerance (ETC-1002-006) and our Phase 2a clinical study in Patients with Hypercholesterolemia taking 10 mg of atorvastatin (ETC-1002-007).

We also have two other early-stage programs in pre-clinical development. We licensed one of these candidates from The Cleveland Clinic Foundation, or CCF, and are obligated to make certain royalty and milestone payments (consisting of cash and common stock) to CCF, including a minimum annual cash payment of $50,000 during years when a milestone payment is not met. No milestone or royalty payments will be due to any third-party in connection with the development and commercialization of our other pre-clinical product candidate, ESP41091.

Clinical Developments

ETC-1002-007-Phase 2a Proof of Concept Clinical Study in Patients with Hypercholesterolemia taking 10 mg of Atorvastatin

ETC-1002-007 is an eight-week Phase 2a clinical study in 52 patients, who were dosed with ETC-1002, across six participating clinical recruitment sites in the United States. All patients for this clinical study have been recruited and completed randomization, dosing and their follow up visits. The primary objective of this clinical study was to evaluate the safety and tolerability of ETC-1002 when added to atorvastatin 10 mg/day in subjects with hypercholesterolemia, and to test the effects on the pharmacokinetics of atorvastatin and its active metabolites. After completing a lipid-lowering therapy wash out period of four weeks, patients were placed on atorvastatin calcium (10 mg) for four weeks to achieve steady state plasma levels of atorvastatin. Patients were then randomized in a 3:1 ratio of active ETC-1002 treatment to placebo for eight weeks. During this clinical study, patients were dosed up to eight weeks in a forced titration schema of 60 mg, 120 mg, 180 mg and 240 mg doses for two weeks each. We plan to assess overall safety, tolerability, pharmacokinetic levels of atorvastatin (and its active metabolites) and assess LDL-C lowering in accordance with the study protocol. We expect to report top-line results in the first half of September 2013.

ETC-1002-008 - Phase 2b Clinical Study in Patients with Hypercholesterolemia and a History of either Statin Intolerance or Statin Tolerance

We expect the ETC-1002-008 study to be a 12-week Phase 2b study for the treatment of elevated LDL-C levels in approximately 322 patients who are either statin intolerant or statin tolerant. The purpose of this clinical study will be to inform dosing for our pivotal Phase 3 clinical trial in a population of statin intolerant patients with hypercholesterolemia. We expect that patients enrolled in the ETC-1002-008 study will complete a four week placebo run-in period and then be randomized to one of four arms: 1) 120 mg dose of ETC-1002,
2) 180 mg dose of ETC-1002, 3) an active comparator, 10 mg dose of ezetimibe (a common treatment for statin intolerant patients), or 4) a combination of ETC-1002 and ezetimibe. This Phase 2b clinical study has a parallel group design and a 12-week duration. The primary objective will be to assess the LDL-C lowering efficacy of ETC-1002 monotherapy versus ezetimibe monotherapy in patients with elevated LDL-C levels and with or without statin intolerance. In addition, the study will assess the LDL-C lowering efficacy of ETC-1002 in combination with ezetimibe versus ezetimibe monotherapy. We expect to initiate ETC-1002-008 in October 2013 and complete the study by the end of 2014.


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Financial Operations Overview

Revenue

To date, we have not generated any revenue, other than grant income. In the future, we may generate revenue from the sale of ETC-1002 or our other product candidates. If we fail to complete the development of ETC-1002 or our other product candidates, our ability to generate future revenue, and our results of operations and financial position will be adversely affected.

Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities, including conducting pre-clinical studies and clinical studies. Our research and development expenses consist primarily of costs incurred in connection with the development of ETC-1002, which include:

expenses incurred under agreements with consultants, contract research organizations, or CROs, and investigative sites that conduct our pre-clinical and clinical studies;

the cost of acquiring, developing and manufacturing clinical study materials;

employee-related expenses, including salaries, benefits, stock-based compensation and travel expenses;

allocated expenses for rent and maintenance of facilities, insurance and other supplies; and

costs related to compliance with regulatory requirements.

We expense research and development costs as incurred. To date, substantially all of our research and development work has been related to ETC-1002. Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors. Our direct research and development expenses consist principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical studies. We do not allocate acquiring and manufacturing clinical study materials, salaries, stock-based compensation, employee benefits or other indirect costs related to our research and development function to specific programs.

Our research and development expenses are expected to increase in the foreseeable future. Costs associated with ETC-1002 will increase as we conduct our Phase 2b clinical studies and initiate our Phase 3 clinical studies. We cannot determine with certainty the duration and completion costs associated with the ongoing or future clinical studies of ETC-1002. Also, we cannot conclude with certainty if, or when, we will generate revenue from the commercialization and sale of ETC-1002 or our other product candidates for which we obtain regulatory approval, if ever. We may never succeed in obtaining regulatory approval for any of our product candidates, including ETC-1002. The duration, costs and timing associated with the development and commercialization of ETC-1002 and our other product candidates will depend on a variety of factors, including uncertainties associated with the results of our clinical studies and our ability to obtain regulatory approval. For example, if the FDA or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate will be required for the completion of clinical development or post-commercialization clinical studies of ETC-1002, or if we experience significant delays in enrollment in any of our clinical studies, we could be required to expend significant additional financial resources and time on the completion of clinical development or post-commercialization clinical studies of ETC-1002.

General and Administrative Expenses

General and administrative expenses primarily consist of salaries and related costs for personnel, including stock-based compensation and travel expenses, associated with our executive, accounting and finance, operational and other administrative functions. Other general and administrative expenses include facility related costs, communication expenses and professional fees for legal, patent prosecution, protection and review, consulting and accounting services.

Interest Expense

Interest expense consists primarily of non-cash interest costs associated with our convertible promissory notes.


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Stock-Based Compensation

We typically grant stock-based compensation to new employees in connection with their commencement of employment and to existing employees in connection with annual performance reviews. We account for all stock-based compensation payments issued to employees, consultants and directors using an option pricing model for estimating fair value. Accordingly, stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. Compensation expense is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line method. In accordance with authoritative guidance, the fair value of non-employee stock-based awards is re-measured as the awards vest, and the resulting value, if any, is recognized as expense during the period the related services are rendered.

Warrant Liability

Our previously outstanding warrants to purchase shares of preferred stock (which became exercisable for shares of common stock upon the closing of our IPO on July 1, 2013) have provisions by which the underlying issuance is contingently redeemable based on events outside of our control and as such are recorded as a liability in accordance with ASC 480-10. Warrants classified as derivative liabilities are recorded on our balance sheet at fair value on the date of issuance and are marked-to-market on each subsequent reporting period. Non-cash changes in the fair value at each reporting period are recognized in the statement of operations.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments on an ongoing basis, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, contractual milestones and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in more detail in Note 2 to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Results of Operations



Comparison of the Three Months Ended June 30, 2013 and 2012



The following table summarizes our results of operations for the three months
ended June 30, 2013 and 2012:



                                              Three Months Ended June 30,
                                                 2013              2012         Change
                                                     (in thousands)
Operating Expenses:
Research and development                    $        3,100    $        2,330   $    770
General and administrative                           1,172               534        638
Loss from operations                                (4,272 )          (2,864 )   (1,408 )
Other income (expense):
Interest expense                                      (108 )            (303 )      195
Change in fair value of warrant liability           (2,545 )               -     (2,545 )
Other income (expense), net                              4                 1          3
Net loss                                    $       (6,921 )  $       (3,166 ) $ (3,755 )


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Research and development expenses

Research and development expenses for the three months ended June 30, 2013 were $3.1 million, compared to $2.3 million for the three months ended June, 2012, an increase of $0.8 million. The increase in research and development expenses is primarily related to the further clinical development of ETC-1002 in our Phase 2 clinical program.

General and administrative expenses

General and administrative expenses for the three months ended June 30, 2013 were $1.2 million, compared to $0.5 million for the three months ended June 30, 2012, an increase of $0.7 million. The increase in general and administrative expenses was primarily attributable to an increase in professional services provided to us and increases in our headcount.

Interest expense

Non-cash interest expense for the three months ended June 30, 2013 was $0.1 million, compared to $0.3 million for the three months ended June 30, 2012, a $0.2 million decrease. The decrease in interest expense was primarily related the conversion of the Pfizer convertible promissory note on May 29, 2013.

Change in fair value of warrant liability

The outstanding warrants to purchase 1,940,000 shares of our Series A preferred stock require liability classification and mark-to-market accounting at each reporting period in accordance with ASC 480-10. The fair values of the warrants were determined using the Black Scholes valuation model and resulted in the recognition of a loss of approximately $2.5 million related to the change in fair values for the three months ended June 30, 2013.

Other income (expense), net

Other income (expense), net for the three months ended June 30, 2013 was income of approximately $4,000 compared to income of approximately $1,000 for the three months ended June 30, 2012, a $3,000 increase. This increase was primarily related an increase in interest income on our money market funds.

Comparison of the Six Months Ended June 30, 2013 and 2012



The following table summarizes our results of operations for the six months
ended June 30, 2013 and 2012:



                                               Six Months Ended June 30,
                                                 2013             2012         Change
                                                    (in thousands)
Operating Expenses:
Research and development                    $        5,193    $       3,887   $  1,306
General and administrative                           2,423            1,166      1,257
Loss from operations                                (7,616 )         (5,053 )   (2,563 )
Other income (expense):
Interest expense                                      (936 )           (564 )     (372 )
Change in fair value of warrant liability           (2,587 )              -     (2,587 )
Other income (expense), net                            (21 )              2        (23 )
Net loss                                    $      (11,160 )  $      (5,615 ) $ (5,545 )


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Research and development expenses

Research and development expenses for the six months ended June 30, 2013 were $5.2 million, compared to $3.9 million for the six months ended June 30, 2012, an increase of $1.3 million. The increase in research and development expenses primarily related to the further clinical development of ETC-1002 in our Phase 2 clinical program.

General and administrative expenses

General and administrative expenses for the six months ended June 30, 2013 were $2.4 million, compared to $1.2 million for the six months ended June 30, 2012, an increase of $1.2 million. The increase in general and administrative expenses was primarily attributable to an increase in professional services used and increases in our headcount.

Interest expense

Non-cash interest expense for the six months ended June 30, 2013 was $0.9 million, compared to $0.6 million for the six months ended June 30, 2012, a $0.3 million increase. The increase in interest expense was primarily related to our issuance of convertible promissory notes in January, September and November 2012, which had a 10% interest rate before being converted into an aggregate of 16,623,092 shares of Series A preferred stock in February 2013 as well as the accrued interest on the 8.931% convertible promissory note issued to Pfizer, which was subsequently converted into 6,750,000 shares of Series A-1 preferred stock on May 29, 2013.

Change in fair value of warrant liability

The outstanding warrants to purchase 1,940,000 shares of our Series A preferred stock require liability classification and mark-to-market accounting at each reporting period in accordance with ASC 480-10. The fair values of the warrants were determined using the Black Scholes valuation model and resulted in the recognition of a loss of approximately $2.6 million related to the change in fair values for the six months ended June 30, 2013.

Other income (expense), net

Other income (expense), net for the six months ended June 30, 2013 was an expense of approximately $21,000 compared to income of approximately $2,000 for the six months ended June 30, 2012, a $23,000 increase in expense. This increase was primarily related to an impairment in the value of our assets held for sale to adjust carrying values to fair value.

Liquidity and Capital Resources

We have funded our operations since inception through private placements of preferred stock, convertible promissory notes and warrants to purchase shares of preferred stock. To date, we have not generated any revenue, and we anticipate that we will continue to incur losses for the foreseeable future.

As of June 30, 2013, our primary sources of liquidity were our cash and cash equivalents, which totaled $16.6 million. We invest our cash equivalents and short-term investments in highly liquid, interest-bearing investment-grade and government securities to preserve principal.

In July 2013, we completed our IPO pursuant to a registration statement on Form S-1. In the IPO, we issued and sold an aggregate of 5,750,000 shares of common stock, including the underwriters' exercise in full of their over-allotment option, under the registration statement at a public offering price of $14.00 per share. Net proceeds were approximately $72.5 million, after deducting underwriting discounts and commissions and offering expenses.

The following table summarizes the primary sources and uses of cash for the periods presented below:


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                                                              Six Months Ended June 30,
                                                                2013             2012
                                                                    (in thousands)
Cash (used in) operating activities                         $      (5,806 )  $      (5,532 )
Cash provided by (used in) investing activities                        38               (6 )
. . .
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