RENN 2.0

Esperion was a great opportunity but it is still good.

• It was going to be my best idea for 2024 before it ran.
• Here’s what’s happened so far.

Exclusively on Sifting the World

Posted Friday December 1, 2023,

This time the bad actors are in Japan, not China, but this rhymes with RENN: They owe us $300 million (literally the exact amount). Shenanigans ensue. Truth eventually outs. We get our money. I liked the original and hope the sequel is as good.

This idea is simple. ESPR had a calamitous year. A partner reneged on a $300 million contingent value right payment earlier this year. Esperion (ESPR) has an iron-clad contract suit. They have a court date in the spring by which time they should receive the delayed payment they were owed. This is a money burning pharma company that I wouldn’t otherwise invest in with no plans to return capital.

ESPR is worth over $2 per share if shareholders can encourage the board and management to return capital following any successful litigation outcome. Look for updates as litigation progresses. This is just an informal preview of coming attractions…

I recently bought ESPR and intend to participate further — either via litigation financing or via any future equity raise. Shares were crushed in March but should rebound if they can get a delayed payment.

Since then they settled their litigation and shares are up over 90% with more to go.

Net of litigation costs and delays, there was about a $240 million present value upside; they appear to have settled for around half that. I thought they had a strong case and about a 90% chance of winning. Did they just settle based on a perceived 50% chance of winning? No. They accepted a comprehensive settlement with a partner to get that partnership back on track. The litigation and low upfront cash is only part of it and the only part the market is focused on. I’d prefer more upfront cash. But they get a big improvement in terms of payments to third party manufacturers.

They expect a more than ten percent margin improvement that management calculates as a net present value in excess of the $300 million I expected from a legal win. None of that has been explained well to the market yet. I’m a skeptic (I’d prefer the money). But I’m far less skeptical than the market and far less skeptical than I expect the market will be as investors hear from management in the days ahead and see the financial net impact in the quarters ahead. I’m glad I bought these shares and I liked the litigation value; management thinks this is better.

We settled RENN’s $1 billion suit for $300 million (and I was the last holdout). ESPR’s settlement on a $300 million suit is less clear and the opacity is hurting its stock price today but it is for more than just 30% of the suit. Markets hate uncertainty and love clarity. The press release offered no clarity on why they’d take such a paltry up front figure. They are less bad in direct communication. My view is negative only relative to what I wanted to get out of this. I suspect an agency problem with management wanting to prioritize smoothing things over more than enriching shareholders.

Caveat

ESPR essentially offered free money under $2 per share. It is a good opportunity, but was great in the fall and early winter.

Conclusion

I was planning on making this my best idea for 2024 but it ran too quickly.

TL; DR

I own ESPR and you might want to too. You might also want to be the first to get my best ideas such as this one here.