Esperion Therapeutics, Inc.
Esperion Therapeutics, Inc. (Form: 10-Q, Received: 08/06/2015 18:26:57)

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10-Q

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

OR

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to

 

Commission file number: 001-35986

 

Esperion Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-1870780

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

3891 Ranchero Drive, Suite 150

Ann Arbor, MI 48108

(Address of principal executive office) (Zip Code)

 

Registrant’s telephone number, including area code:

(734) 887-3903

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

 

Accelerated filer  x

 

 

 

Non-accelerated filer  o

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

 

As of August 1, 2015, there were 22,488,736 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

 

 

 



Table of Contents

 

Esperion Therapeutics, Inc.

 

INDEX

 

 

Page

 

 

PART I — FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

 

 

Condensed Balance Sheets at June 30, 2015 and December 31, 2014

3

Condensed Statements of Operations and Comprehensive Loss for the three and six month periods ended June 30, 2015 and 2014

4

Condensed Statements of Cash Flows for the six month periods ended June 30, 2015 and 2014

5

Notes to Condensed Financial Statements

6

 

 

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

11

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

19

 

 

Item 4. Controls and Procedures

19

 

 

PART II — OTHER INFORMATION

 

 

Item 1A. Risk Factors

20

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

20

 

 

Item 6. Exhibits

21

 

 

Signatures

22

 

2



Table of Contents

 

Esperion Therapeutics, Inc.

 

Condensed Balance Sheets

(In thousands, except share and per share data)

 

 

 

June 30,
2015

 

December 31,
2014

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

129,787

 

$

85,038

 

Short-term investments

 

94,995

 

20,803

 

Prepaid clinical development costs

 

550

 

366

 

Other prepaid and current assets

 

381

 

492

 

Total current assets

 

225,713

 

106,699

 

 

 

 

 

 

 

Property and equipment, net

 

680

 

780

 

Intangible assets

 

56

 

56

 

Long-term investments

 

89,509

 

35,741

 

Total assets

 

$

315,958

 

$

143,276

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

3,305

 

$

2,040

 

Current portion of long-term debt

 

1,427

 

638

 

Accrued clinical development costs

 

1,015

 

1,978

 

Other accrued liabilities

 

1,282

 

835

 

Total current liabilities

 

7,029

 

5,491

 

Long-term debt, net of discount and issuance costs

 

3,473

 

4,231

 

Total liabilities

 

$

10,502

 

$

9,722

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized as of June 30, 2015 and December 31, 2014; no shares issued or outstanding at June 30, 2015 and December 31, 2014

 

 

 

Common stock, $0.001 par value; 120,000,000 shares authorized as of June 30, 2015 and December 31, 2014; 22,488,736 shares issued and 22,482,761 outstanding at June 30, 2015 and 20,352,876 shares issued and 20,343,325 outstanding at December 31, 2014

 

22

 

20

 

Additional paid-in capital

 

433,793

 

238,031

 

Accumulated other comprehensive loss

 

(60

)

(59

)

Accumulated deficit

 

(128,299

)

(104,438

)

Total stockholders’ equity

 

305,456

 

133,554

 

Total liabilities and stockholders’ equity

 

$

315,958

 

$

143,276

 

 

See accompanying notes to the condensed financial statements.

 

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Table of Contents

 

Esperion Therapeutics, Inc.

 

Condensed Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

$

7,209

 

$

6,528

 

$

14,599

 

$

11,928

 

General and administrative

 

5,253

 

2,726

 

9,288

 

5,216

 

Total operating expenses

 

12,462

 

9,254

 

23,887

 

17,144

 

Loss from operations

 

(12,462

)

(9,254

)

(23,887

)

(17,144

)

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(135

)

(1

)

(269

)

(1

)

Other income, net

 

202

 

17

 

295

 

33

 

Net loss

 

$

(12,395

)

$

(9,238

)

$

(23,861

)

$

(17,112

)

Net loss per common share (basic and diluted)

 

$

(0.55

)

$

(0.60

)

$

(1.11

)

$

(1.11

)

Weighted-average shares outstanding (basic and diluted)

 

22,465,175

 

15,399,018

 

21,531,509

 

15,385,009

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Unrealized loss on investments

 

$

(21

)

$

(8

)

$

(1

)

$

(5

)

Total comprehensive loss

 

$

(12,416

)

$

(9,246

)

$

(23,862

)

$

(17,117

)

 

See accompanying notes to the condensed financial statements.

 

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Esperion Therapeutics, Inc.

 

Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

Operating activities

 

 

 

 

 

Net loss

 

$

(23,861

)

$

(17,112

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation expense

 

115

 

53

 

Amortization of debt discount

 

15

 

 

Amortization of debt issuance costs

 

16

 

 

Amortization of premiums and discounts on investments

 

178

 

106

 

Stock-based compensation expense

 

4,970

 

1,676

 

Loss related to assets held for sale

 

 

29

 

Loss on sale of assets

 

 

1

 

Changes in assets and liabilities:

 

 

 

 

 

Prepaids and other assets

 

(73

)

(992

)

Accounts payable

 

1,265

 

1,789

 

Other accrued liabilities

 

(502

)

(732

)

Net cash used in operating activities

 

(17,877

)

(15,182

)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Purchases of investments

 

(168,134

)

(4,800

)

Proceeds from sales/maturities of investments

 

39,995

 

6,926

 

Proceeds from sale of assets

 

6

 

12

 

Purchase of property and equipment

 

(21

)

(638

)

Net cash (used in) provided by investing activities

 

(128,154

)

1,500

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

189,982

 

 

Proceeds from exercise of common stock options

 

798

 

142

 

Proceeds from warrant issuance

 

 

78

 

Proceeds from debt issuance, net of issuance costs

 

 

4,869

 

Net cash provided by financing activities

 

190,780

 

5,089

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

44,749

 

(8,593

)

Cash and cash equivalents at beginning of period

 

85,038

 

56,537

 

Cash and cash equivalents at end of period

 

$

129,787

 

$

47,944

 

 

See accompanying notes to the condensed financial statements.

 

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Table of Contents

 

Esperion Therapeutics, Inc.

Notes to the Condensed Financial Statements

(Unaudited)

 

1. The Company and Basis of Presentation

 

The Company is an emerging pharmaceutical company whose planned principal operations are focused on developing and commercializing first-in-class, oral, low-density lipoprotein cholesterol (“LDL-cholesterol”) lowering therapies for the treatment of patients with hypercholesterolemia and other cardiometabolic risk markers. ETC-1002, or bempedoic acid, the Company’s lead product candidate, is an inhibitor of ATP Citrate Lyase, a well-characterized enzyme on the cholesterol biosynthesis pathway; the same pathway that includes HMG-CoA reductase, the enzyme target of statins. ETC-1002 and statins have the same mechanism of action; inhibiting cholesterol biosynthesis, decreasing intracellular cholesterol, up-regulating LDL-receptors, and causing increased LDL-cholesterol clearance and reduced plasma levels of LDL-cholesterol. ETC-1002 is being developed for patients with hyperlipidemia and mixed dyslipidemia. The Company plans to hold an End-of-Phase 2 meeting with the Food and Drug Administration in August 2015, and expects to initiate its Phase 3 clinical program for ETC-1002 in the fourth quarter of 2015. The Company owns the exclusive worldwide rights to ETC-1002.

 

The Company’s primary activities since incorporation have been conducting research and development activities, including nonclinical, preclinical and clinical testing, performing business and financial planning, recruiting personnel and raising capital. Accordingly, the Company has not commenced principal operations and is subject to risks and uncertainties which include the need to research, develop and clinically test potential therapeutic products; obtain regulatory approvals for its products and commercialize them, if approved; expand its management and scientific staff; and finance its operations with an ultimate goal of achieving profitable operations.

 

The Company has sustained operating losses since inception and expects such losses to continue over the foreseeable future. Management plans to continue to fund operations through public or private equity or debt financings or through other sources, which may include collaborations with third parties. If adequate funds are not available, the Company may not be able to continue the development of its current or future product candidates, or to commercialize its current or future product candidates, if approved.

 

On March 24, 2015, the Company completed an underwritten public offering of 2,012,500 shares of common stock, including 262,500 shares sold pursuant to the full exercise of an over-allotment option granted to the underwriters. All the shares were offered by the Company at a price to the public of $100.00 per share. The aggregate net proceeds received by the Company from the offering were $190.0 million, net of underwriting discounts and commissions and expenses payable by the Company.

 

Basis of Presentation

 

The accompanying condensed financial statements are unaudited and were prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“GAAP”). In the opinion of management, the Company has made all adjustments, which include only normal recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2014, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the interim periods are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.

 

2. Summary of Significant Accounting Policies

 

In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-03 which simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as a deferred charge. The recognition and measurement guidance for debt issuance costs are not affected by the amendment. The Company early-adopted the amendment effective January 1, 2015, which resulted in a change in the balance sheet presentation of net debt; in prior period disclosures the debt issuance costs related to the Company’s debt liability were presented on the balance sheet as deferred charges within “Other prepaid and current assets”. Upon adoption of the amended guidance, the debt issuance costs associated with the Company’s debt liability are presented on the balance sheet as a direct deduction from the carrying amount of the debt liability. Within the June 30, 2015, and December 31, 2014, balance sheets, “Long-term debt, net of discount and issuance costs” includes $0.1 million and $0.1 million, respectively, of debt issuance costs.

 

There have been no other material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

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3. Debt

 

In June 2014, the Company entered into a loan and security agreement (the “Credit Facility”) with Oxford Finance LLC which provided for an initial borrowing of $5.0 million under the term loan (the “Term A Loan”) and additional borrowings of $15.0 million (the “Term B Loan”) at the Company’s option, for a maximum of $20.0 million. On June 30, 2014, the Company received proceeds of $5.0 million from the issuance of secured promissory notes under the Term A Loan. Upon achieving positive clinical development results in March 2015, the remaining $15.0 million under the Term B Loan became available to be drawn down, at the Company’s sole discretion, until March 31, 2015. The Company did not elect to draw down the Term B Loan as of March 31, 2015. The secured promissory notes issued under the Credit Facility are due on July 1, 2018, and are collateralized by substantially all of the Company’s personal property, other than its intellectual property.

 

The Company is obligated to make monthly, interest-only payments on the Term A Loan until July 1, 2015, and, thereafter, to pay 36 consecutive, equal monthly installments of principal and interest from August 1, 2015, through July 1, 2018. The Term A Loan bears interest at an annual rate of 6.40%. In addition, a final payment equal to 8.0% of the Term A Loan is due upon the earlier of the maturity date or prepayment of the term loan. The Company is recognizing the final payment as interest expense using the effective interest method over the life of the Credit Facility.

 

There are no financial covenants associated to the Credit Facility. However, so long as the Credit Facility is outstanding, there are negative covenants that limit or restrict the Company’s activities, which include limitations on incurring indebtedness, granting liens, mergers or acquisitions, dispositions of assets, making certain investments, entering into certain transactions with affiliates, paying dividends or distributions, encumbering or pledging interest in its intellectual property and certain other business transactions. Additionally, the Credit Facility also includes events of default, the occurrence and continuation of any of which provides the lenders the right to exercise remedies against the Company and the collateral securing the loans under the Credit Facility, which includes cash. These events of default include, among other things, non-payment of any amounts due under the Credit Facility, insolvency, the occurrence of a material adverse event, inaccuracy of representations and warranties, cross default to material indebtedness and a material judgment against the Company. Upon the occurrence of an event of default, all obligations under the Credit Facility shall accrue interest at a rate equal to the fixed annual rate plus five percentage points.

 

In connection with the borrowing of the Term A Loan, the Company issued a warrant to purchase 8,230 shares of common stock at an exercise price of $15.19 (see Note 4). The warrant resulted in a debt discount of $0.1 million which is amortized into interest expense using the effective interest method over the life of the Term A Loan. In addition, the Company incurred debt issuance costs of $0.1 million in connection with the borrowing of the Term A Loan. The debt issuance costs were capitalized and included in long-term debt on the condensed balance sheet at the inception of the Term A Loan, and are amortized to interest expense using the effective-interest method over the same term. As of June 30, 2015, the remaining unamortized discount and debt issuance costs associated with the debt were less than $0.1 million and $0.1 million, respectively.

 

Estimated future principal payments due under the Credit Facility are as follows:

 

Years Ending December 31,

 

(in thousands)

 

2015

 

638

 

2016

 

1,604

 

2017

 

1,709

 

2018

 

1,049

 

Total

 

$

5,000

 

 

During the three and six months ended June 30, 2015, the Company recognized $0.1 million and $0.3 million, respectively of interest expense and made cash interest payments of $0.1 million and $0.2 million, respectively related to the Credit Facility.

 

4. Warrants

 

In connection with the Credit Facility entered into in June 2014, the Company issued a warrant to purchase 8,230 shares of common stock at an exercise price of $15.19. The warrant will terminate on the earlier of June 30, 2019, and the closing of a merger or consolidation transaction in which the Company is not the surviving entity. The warrant was recorded at fair value of $0.1 million to additional-paid-in-capital in accordance with Accounting Standards Codification 815-10 based upon the allocation of the debt proceeds. The Company estimated the fair value of the warrant using a Black-Scholes option-pricing model, which is based, in part, upon subjective assumptions including but not limited to stock price volatility, the expected life of the warrant, the risk-free interest rate and the fair value of the common stock underlying the warrant. The Company estimates the volatility of its stock based on public company peer group historical volatility that is in line with the expected remaining life of the warrant. The risk-free interest rate is based on the U.S. Treasury zero-coupon bond for a maturity similar to the expected remaining life of the warrant. The expected remaining life of the warrant is assumed to be equivalent to its remaining contractual term.

 

Upon the closing of the Company’s initial public offering in July 2013, all warrants exercisable for 1,940,000 shares of Series A preferred stock, at an exercise price of $1.00 per share (unadjusted for stock splits), were automatically converted into

 

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warrants exercisable for 277,690 shares of common stock, at an exercise price of $6.99 per share. As a result, the Company concluded the warrants outstanding no longer met the criteria to be classified as liabilities and were reclassified to additional paid-in capital at fair value on the date of reclassification. During the six months ended June 30, 2015, 29,330 warrants were net exercised for 25,445 shares of the Company’s common stock. The remaining 248,360 warrants outstanding as of June 30, 2015, expire in February 2018.

 

As of June 30, 2015, the Company had warrants outstanding that were exercisable for a total of 256,590 shares of common stock at a weighted-average exercise price of $7.25 per share.

 

5. Investments

 

The following table summarizes the Company’s cash equivalents and investments:

 

 

 

June 30, 2015

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 

(in thousands)

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

50,357

 

$

 

$

 

$

50,357

 

U.S. government agency securities

 

3,125

 

 

 

3,125

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

7,935

 

1

 

 

7,936

 

U.S. treasury notes

 

2,000

 

 

 

2,000

 

U.S. government agency securities

 

85,079

 

2

 

(22

)

85,059

 

Long-term investments:

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

10,830

 

1

 

 

10,831

 

U.S. treasury notes

 

10,022

 

2

 

(1

)

10,023

 

U.S. government agency securities

 

68,698

 

5

 

(48

)

68,655

 

Total

 

$

238,046

 

$

11

 

$

(71

)

$

237,986

 

 

 

 

December 31, 2014

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 

(in thousands)

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

357

 

$

 

$

 

$

357

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

2,934

 

 

 

2,934

 

U.S treasury notes

 

9,020

 

4

 

 

9,024

 

U.S. government agency securities

 

8,853

 

 

(8

)

8,845

 

Long-term investments:

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

1,848

 

 

 

1,848

 

U.S. treasury notes

 

2,494

 

 

(5

)

2,489

 

U.S. government agency securities

 

31,454

 

 

(50

)

31,404

 

Total

 

$

56,960

 

$

4

 

$

(63

)

$

56,901

 

 

At June 30, 2015, and December 31, 2014, remaining contractual maturities of available-for-sale investments classified as current on the balance sheet were less than 12 months and remaining contractual maturities of available-for-sale investments classified as long-term were less than two years.

 

There were no unrealized gains or losses on investments reclassified from accumulated other comprehensive loss to other income in the Statements of Operations during the three and six months ended June 30, 2015, and June 30, 2014.

 

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6. Fair Value Measurements

 

The Company follows accounting guidance that emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements are defined on a three level hierarchy:

 

Level 1 inputs:

 

Quoted prices for identical assets or liabilities in active markets;

 

 

 

Level 2 inputs:

 

Observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities or other inputs that are observable or can be corroborated by market data; and

 

 

 

Level 3 inputs:

 

Unobservable inputs that are supported by little or no market activity and require the reporting entity to develop assumptions that market participants would use when pricing the asset or liability.

 

The following table presents the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis:

 

Description

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(in thousands)

 

June 30, 2015

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

50,357

 

$

50,357

 

$

 

$

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

18,767

 

18,767

 

 

 

U.S. treasury notes

 

12,023

 

12,023

 

 

 

U.S. government agency securities

 

156,839

 

 

156,839

 

 

Total assets at fair value

 

$

237,986

 

$

81,147

 

$

156,839

 

$

 

December 31, 2014

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

357

 

$

357

 

$

 

$

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

4,782

 

4,782

 

 

 

U.S. treasury notes

 

11,513

 

11,513

 

 

 

U.S. government agency securities

 

40,249

 

 

40,249

 

 

Total assets at fair value

 

$

56,901

 

$

16,652

 

$

40,249

 

$

 

 

There were no transfers between Levels 1, 2 or 3 during the three and six months ended June 30, 2015.

 

7. Stock Compensation

 

2013 Stock Option and Incentive Plan

 

In May 2015, the Company’s stockholders approved the amended and restated 2013 Stock Option and Incentive Plan (as amended, the “2013 Plan”) which, among other things, increased the number of shares of common stock reserved for issuance thereunder. The number of shares of common stock available for awards under the 2013 Plan was increased by 923,622 shares from 2,051,378 shares to 2,975,000 shares, plus (i) shares of common stock that are forfeited, cancelled, held back upon the exercise or settlement of an award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of common stock or otherwise terminated (other than by exercise) under the 2013 Plan and the Company’s 2008 Incentive Stock Option and Restricted Stock Plan are added back to the shares of common stock available for issuance under the 2013 Plan, and (ii) on January 1, 2016 and each January 1, thereafter, the number of shares of common stock reserved and available for issuance under the 2013 Plan will be cumulatively increased by 2.5% of the number of shares of common stock outstanding on the immediately preceding December 31, or such lesser number of shares of common stock determined by the compensation committee.

 

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The following table summarizes the activity relating to the Company’s options to purchase common stock for the six months ended June 30, 2015:

 

 

 

Number of
Options

 

Weighted-Average
Exercise
Price
Per Share

 

Weighted-Average
Remaining
Contractual
Term (Years)

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

(in thousands)

 

Outstanding at December 31, 2014

 

1,729,586

 

$

11.44

 

8.43

 

$

50,155

 

Granted

 

702,600

 

$

65.13

 

 

 

 

 

Forfeited or expired

 

(10,988

)

$

16.30

 

 

 

 

 

Exercised

 

(97,915

)

$

8.15

 

 

 

 

 

Outstanding at June 30, 2015

 

2,323,283

 

$

27.79

 

8.60

 

$

131,325

 

 

The following table summarizes information about the Company’s stock option plan as of June 30, 2015:

 

 

 

Number of
Options

 

Weighted-Average
Exercise
Price
Per Share

 

Weighted-Average
Remaining
Contractual
Term (Years)

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

(in thousands)

 

Vested and expected to vest at June 30, 2015

 

2,242,174

 

$

27.34

 

8.58

 

$

127,621

 

Exercisable at June 30, 2015

 

850,861

 

$

9.58

 

7.77

 

$

61,572

 

 

As of June 30, 2015, there was approximately $33.0 million of unrecognized compensation cost related to unvested options, adjusted for forfeitures, which will be recognized over a weighted-average period of approximately 3.1 years.

 

8. Income Taxes

 

There was no provision for income taxes for the three and six months ended June 30, 2015 and 2014 because the Company has incurred operating losses since inception. At June 30, 2015, the Company concluded that it is not more likely than not that the Company will realize the benefit of its deferred tax assets due to its history of losses. Accordingly, a full valuation allowance has been applied against the net deferred tax assets.

 

9. Net Loss Per Common Share

 

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, warrants for common stock, stock options and unvested restricted stock are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

 

The shares outstanding at the end of the respective periods presented below were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

 

 

 

June 30,
2015

 

December 31,
2014

 

 

 

 

 

 

 

Warrants for common stock

 

256,590

 

285,920

 

Common shares under option

 

2,323,283

 

1,729,586

 

Unvested restricted stock

 

5,975

 

9,551

 

Total potential dilutive shares

 

2,585,848

 

2,025,057

 

 

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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 annual report on Form 10-K dated December 31, 2014.

 

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 referred to or discussed in or incorporated by reference into 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 an emerging pharmaceutical company focused on developing and commercializing first-in-class, oral, low-density lipoprotein cholesterol (LDL-cholesterol) lowering therapies for the treatment of patients with hypercholesterolemia and other cardiometabolic risk markers. ETC-1002, or bempedoic acid, our lead product candidate, is an inhibitor of ATP Citrate Lyase (ACL), a well-characterized enzyme on the cholesterol biosynthesis pathway; the same pathway that includes HMG-CoA reductase, the enzyme target of statins. ETC-1002 and statins have the same mechanism of action; inhibiting cholesterol biosynthesis, decreasing intracellular cholesterol, up-regulating LDL-receptors, and causing increased LDL-cholesterol clearance and reduced plasma levels of LDL-cholesterol. ETC-1002 is being developed for patients with hyperlipidemia and mixed dyslipidemia. We plan to hold an End-of-Phase 2 meeting with the Food and Drug Administration (FDA) in August 2015, and expect to initiate our Phase 3 clinical program for ETC-1002 in the fourth quarter of 2015. We own the exclusive worldwide rights to ETC-1002.

 

We were incorporated in Delaware in January 2008, and commenced our operations in April 2008. Since our inception, we have focused substantially all of our efforts and financial resources on developing ETC-1002, which is currently finishing Phase 2 clinical studies. We have funded our operations to date primarily through proceeds from sales of preferred stock, convertible promissory notes and warrants, public offerings of common stock and the incurrence of indebtedness and we have incurred losses in each year since our inception.

 

On March 24, 2015, we completed an underwritten public offering of 2,012,500 shares of common stock, including 262,500 shares sold pursuant to the full exercise of an over-allotment option granted to the underwriters. All the shares were offered by us at a price to the public of $100.00 per share. The aggregate net proceeds received by us from the offering were $190.0 million, net of underwriting discounts and commissions and expenses payable by us.

 

We have not commenced principal operations and do not have any products approved for sale. To date, we have not generated any revenue. We have never been profitable and our net losses were $12.4 million and $9.2 million for the three months ended June 30, 2015 and 2014, and were $23.9 million and $17.1 million for the six months ended June 30, 2015 and 2014, 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 operations. 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:

 

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·         completing the clinical development of ETC-1002;

 

·         undertaking development activities on a fixed-dose combination of ETC-1002 and ezetimibe;

 

·         initiating a cardiovascular outcomes trial for high-risk patients who have had a cardiovascular event;

 

·         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, or bempedoic acid, the Company’s lead product candidate, is an inhibitor of ACL, a well-characterized enzyme on the cholesterol biosynthesis pathway; the same pathway that includes HMG-CoA reductase, the enzyme target of statins. ETC-1002 and statins have the same mechanism of action; inhibiting cholesterol biosynthesis, decreasing intracellular cholesterol, up-regulating LDL-receptors, and causing increased LDL-cholesterol clearance and reduced plasma levels of LDL-cholesterol. 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.

 

During the six months ended June 30, 2015, we incurred $9.2 million in expenses related to our Phase 2b clinical study in patients with hypercholesterolemia already receiving statin therapy (ETC-1002-009), our Phase 2 exploratory clinical safety study in patients with both hypercholesterolemia and hypertension (ETC-1002-014), and clinical pharmacology studies.

 

During the six months ended June 30, 2014, we incurred $7.5 million in expenses related to our Phase 2b clinical study in patients with hypercholesterolemia with or without statin intolerance (ETC-1002-008), our Phase 2b clinical study in patients with hypercholesterolemia already receiving statin therapy (ETC-1002-009), our Phase 2 exploratory clinical safety study in patients with both hypercholesterolemia and hypertension (ETC-1002-014), and clinical pharmacology studies.

 

We also have two other early-stage programs. We licensed one of these product candidates from the Cleveland Clinic Foundation (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 preclinical product candidate, ESP41091.

 

Program Developments

 

ETC-1002-014—Phase 2 exploratory clinical safety study in patients with both hypercholesterolemia and hypertension

 

On July 28, 2015, we announced top-line results for our Phase 2 ETC-1002-014 exploratory clinical safety study. ETC-1002-014 was a randomized, double-blind, multi-center, placebo-controlled, parallel group exploratory study that evaluated 180 mg of ETC-1002 versus placebo for six weeks in 144 patients with both hypercholesterolemia and hypertension. The primary endpoint of this clinical study was to assess the LDL-cholesterol lowering efficacy of ETC-1002 monotherapy versus placebo. Secondary endpoints were to characterize the safety and tolerability of ETC-1002 in patients with co-morbid hypertension; assess the effect of ETC-1002 on systolic blood pressure and diastolic blood pressure; assess the effect of ETC-1002 on additional lipid and cardiometabolic risk markers, including high-sensitivity C-reactive protein (hsCRP); and characterize the safety and tolerability of ETC-1002. A total of 143 patients with hypercholesterolemia and hypertension were washed out of any lipid-regulating and blood pressure therapies for up to six weeks prior to initiating therapy with ETC-1002 or placebo. Seventy one patients received ETC-1002 180 mg and 72 patients received placebo. While analyses of the complete safety and efficacy results from ETC-1002-014 are ongoing, the top-line results of this exploratory clinical safety study are summarized as follows:

 

·                   ETC-1002-treated patients achieved LDL-cholesterol lowering of 21% at six weeks (24% greater than placebo, p<0.0001).

·                   Levels of hsCRP were reduced by 25% with ETC-1002 (44% greater than placebo, p<0.0001).

·                   ETC-1002 was safe and well tolerated, with neutral effects on all blood pressure measures and no muscle-related AEs or ETC-1002-related SAEs.

 

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ETC-1002-009—Phase 2b clinical study in patients with hypercholesterolemia already receiving statin therapy

 

On March 17, 2015, we announced top-line results for our Phase 2b ETC-1002-009 clinical study. ETC-1002-009 was a randomized, double-blind, multi-center placebo-controlled Phase 2b clinical study that evaluated 180 mg and 120 mg of ETC-1002 versus placebo for 12 weeks in 134 patients already receiving stable statin therapy. The primary endpoint of this clinical study was to assess the LDL-cholesterol lowering efficacy of ETC-1002 in patients with hypercholesterolemia already on stable statin therapy. Secondary endpoints included assessment of the dose response of ETC-1002, assessment of the effect of ETC-1002 on additional lipid and cardiometabolic risk markers including hsCRP and characterization of safety, tolerability and rates of muscle-related AEs. While analyses of the complete efficacy and safety results from ETC-1002-009 are ongoing, the top-line results of this clinical study are summarized as follows:

 

LDL-cholesterol Percent Change from Baseline to Week 12 Endpoint

 

 

 

 

 

 

 

LDL-

 

Average Additional
Percent Change
from Baseline,

 

 

 

 

 

LDL-

 

cholesterol

 

Beyond Stable

 

 

 

 

 

cholesterol

 

Week 12

 

Statin Therapy

 

 

 

 

 

Baseline

 

Endpoint

 

Alone

 

Treatment Group 

 

Number of
Patients

 

Mean (SD)
mg/dL

 

Mean (SD)
mg/dL

 

LS Mean
(SE)

 

P Value vs.
placebo

 

ETC-1002 180 mg

 

43

 

143

(28)

104

(31)

–24

%(4)

<0.0001

 

ETC-1002 120 mg

 

41

 

134

(20)

112

(27)

–17

%(4)

0.0055

 

Placebo

 

43

 

132

(22)

128

(31)

–4

%(4)

 

 

LS = least squares; SD = standard deviation; SE = standard error; mITT population

 

hsCRP Nonparametric Analysis

 

 

 

 

 

 

 

Percent Change from Baseline

 

Treatment 

 

Number of
Patients

 

Baseline
Level (mg/L)

 

Median Change,
Beyond
Stable Statin
Therapy Alone

 

P Value vs.
placebo

 

ETC-1002 180 mg

 

38

 

1.95

 

–30

%

0.08

 

ETC-1002 120 mg

 

38

 

1.80

 

–22

%

0.26

 

Placebo

 

39

 

1.70

 

0

%

 

 

mITT population

 

·                   LDL-cholesterol levels after 12 weeks of treatment of ETC-1002, the primary endpoint of the study, were reduced by an additional 24% (p<0.0001) for patients dosed with ETC-1002 180 mg and 17% (p=0.0055) for patients dosed with ETC-1002 120 mg, beyond stable statin therapy alone, compared to an average reduction of 4% for patients who received placebo.

 

·                   hsCRP, a marker of inflammation in coronary disease, was reduced by an additional 30% (p=0.08) for patients dosed with ETC-1002 180 mg and 22% (p=0.26) for patients dosed with ETC-1002 120 mg, beyond stable statin therapy alone, after 12 weeks of therapy versus 0% reduction with placebo.

 

·                   Discontinuation rates for ETC-1002 were low, less than those seen with placebo and were not muscle-related.

 

Phase 3 Clinical Studies

 

The overall Phase 3 program will be based on agreed upon study designs/duration and size resulting from our End-of-Phase 2 meeting with the FDA, which we plan to hold in August 2015. We will conduct these Phase 3 clinical studies in a larger number of patients, approximately 4,000 to 4,500 in total, to further evaluate the safety and efficacy of ETC-1002.

 

The Phase 3 clinical program is expected to begin in the fourth quarter of 2015 and is planned to include several pivotal efficacy studies in patients with hypercholesterolemia and one long-term safety study. In addition, we intend to enroll patients who have completed the pivotal efficacy studies into an additional safety study. We expect that the dosing duration for our pivotal efficacy studies will be both 12 and 24 weeks. We expect that the dosing duration for our long-term safety study will be up to two years. Any such Phase 3 clinical studies would be intended to establish the overall risk/benefit ratio of ETC-1002 and to provide an adequate basis for worldwide regulatory approval of ETC-1002.

 

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FDA Action Related to Partial Clinical Holds

 

In 2009, upon submission of the original Investigational New Drug application for ETC-1002, the FDA had determined that ETC-1002 was a potential peroxisome proliferator activated receptor (PPAR) agonist and as a result was subject to a partial clinical hold. The partial clinical hold permitted clinical studies of up to six months in duration for ETC-1002, but required us to evaluate the drug candidate in two-year rat and mouse carcinogenicity studies before initiating clinical studies of longer than six months in duration. On January 12, 2015, we announced the submission to the FDA of a complete response to the PPAR partial clinical hold. On February 2, 2015, we announced that the FDA removed the PPAR partial clinical hold on ETC-1002. The removal of the PPAR partial clinical hold by the FDA will allow us to conduct clinical studies of longer than six months in duration, including the planned Phase 3 two-year safety study.

 

In 2012, the FDA limited our ability to dose ETC-1002 above 240 mg in our clinical studies with a partial clinical hold for doses above this level. On January 12, 2015, we announced the submission to the FDA of a response to the 240 mg partial clinical hold. On July 7, 2015, we announced that the FDA removed the 240 mg partial clinical hold on ETC-1002. The removal of the 240 mg partial clinical hold by the FDA will allow ETC-1002 to be used at doses above 240 mg in clinical studies. We expect to initiate our Phase 3 clinical program for ETC-1002 in the fourth quarter of 2015 using the already optimized 180 mg dose.

 

Financial Operations Overview

 

Revenue

 

To date, we have not generated any revenue. 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 and secure approval from regulatory authorities, 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 nonclinical, preclinical 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 (CROs) and investigative sites that conduct our preclinical 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 finish our Phase 2 clinical program and initiate our Phase 3 clinical program. 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.

 

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Table of Contents

 

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.

 

We anticipate that our general and administrative expenses will increase in the future in connection with the continued research and development and commercialization of ETC-1002, increases in our headcount, expansion of our information technology infrastructure, and increased expenses associated with being a public company and complying with exchange listing and Securities and Exchange Commission (SEC) requirements, including the additional complexities and related costs of our transition from an “emerging growth company” to a “large accelerated filer” under the rules of the SEC. These increases will likely include higher legal, compliance, accounting and investor and public relations expenses.

 

Interest Expense

 

Interest expense consists primarily of cash interest costs associated with our credit facility and non-cash interest costs associated with the amortization of the related debt discount, deferred issuance costs and final payment fee.

 

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. 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.

 

In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-03 which simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as a deferred charge. The recognition and measurement guidance for debt issuance costs are not affected by the amendment. We early-adopted the amendment effective January 1, 2015, which resulted in a change in the balance sheet presentation of net debt; in prior period disclosures the debt issuance costs related to our debt liability were presented on the balance sheet as deferred charges within “Other prepaid and current assets”. Upon adoption of the amended guidance, the debt issuance costs associated with our debt liability are presented on the balance sheet as a direct deduction from the carrying amount of the debt liability. Within the June 30, 2015, and December 31, 2014, balance sheets, “Long-term debt, net of discount and issuance costs” includes $0.1 million and $0.1 million, respectively, of debt issuance costs.

 

With the exception of the adoption of the accounting standard noted above, there have been no material changes to the significant accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

Results of Operations

 

Comparison of the Three Months Ended June 30, 2015 and 2014

 

The following table summarizes our results of operations for the three months ended June 30, 2015 and 2014:

 

 

 

Three Months Ended June 30,

 

 

 

 

 

2015

 

2014

 

Change

 

 

 

(Unaudited, in thousands)

 

Operating Expenses:

 

 

 

 

 

 

 

Research and development

 

$

7,209

 

$

6,528

 

$

681

 

General and administrative

 

5,253

 

2,726

 

2,527

 

Loss from operations

 

(12,462

)

(9,254

)

(3,208

)

Interest expense

 

(135

)

(1

)

(134

)

Other income, net

 

202

 

17

 

185

 

Net loss

 

$

(12,395

)

$

(9,238

)

$

(3,157

)

 

Research and development expenses

 

Research and development expenses for the three months ended June 30, 2015, were $7.2 million, compared to $6.5 million for the three months ended June 30, 2014, an increase of $0.7 million. The increase in research and development expenses is primarily related to the further clinical development of ETC-1002.

 

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General and administrative expenses

 

General and administrative expenses for the three months ended June 30, 2015, were $5.3 million, compared to $2.7 million for the three months ended June 30, 2014, an increase of approximately $2.6 million. The increase in general and administrative expenses was primarily attributable to costs to support public company operations, increases in our headcount, which includes increased stock-based compensation expense, and other costs to support our growing organization.

 

Interest expense

 

We incurred interest expense of $0.1 million for the three months ended June 30, 2015, compared to less than $0.1 million in interest expense for the three months ended June 30, 2014. The increase in interest expense was related to our credit facility.

 

Other income, net

 

Other income, net for the three months ended June 30, 2015, was $0.2 million, compared to less than $0.1 million for the three months ended June 30, 2014. This increase was primarily related to an increase in interest income earned on our cash, cash equivalents and investment securities.

 

Results of Operations

 

Comparison of the Six Months Ended June 30, 2015 and 2014

 

The following table summarizes our results of operations for the six months ended June 30, 2015 and 2014:

 

 

 

Six Months Ended June 30,

 

 

 

 

 

2015

 

2014

 

Change

 

 

 

(Unaudited, in thousands)

 

Operating Expenses:

 

 

 

 

 

 

 

Research and development

 

$

14,599

 

$

11,928

 

$

2,671

 

General and administrative

 

9,288

 

5,216

 

4,072

 

Loss from operations

 

(23,887

)

(17,144

)

(6,743

)

Interest expense

 

(269

)

(1

)

(268

)

Other income, net

 

295

 

33

 

262

 

Net loss

 

$

(23,861

)

$

(17,112

)

$

(6,749

)

 

Research and development expenses

 

Research and development expenses for the six months ended June 30, 2015, were $14.6 million, compared to $11.9 million for the six months ended June 30, 2014, an increase of $2.7 million. The increase in research and development expenses is primarily related to the further clinical development of ETC-1002.

 

General and administrative expenses

 

General and administrative expenses for the six months ended June 30, 2015, were $9.3 million, compared to $5.2 million for the six months ended June 30, 2014, an increase of $4.1 million. The increase in general and administrative expenses was primarily attributable to costs to support public company operations, increases in our headcount, which includes increased stock-based compensation expense, and other costs to support our growing organization.

 

Interest expense

 

We incurred interest expense of $0.3 million for the six months ended June 30, 2015, compared to less than $0.1 million in interest expense for the six months ended June 30, 2014. The increase in interest expense was related to our credit facility.

 

Other income, net

 

Other income, net for the six months ended June 30, 2015, was approximately $0.3 million, compared to less than $0.1 million for the six months ended June 30, 2014. This increase was primarily related to an increase in interest income earned on our cash, cash equivalents and investment securities.

 

Liquidity and Capital Resources

 

We have funded our operations to date primarily through proceeds from sales of preferred stock, convertible promissory notes and warrants, public offerings of common stock and the incurrence of indebtedness. In July 2013, we completed our initial public offering (IPO), whereby we sold 5,750,000 shares of common stock (including 750,000 shares of common stock sold by us pursuant to the underwriters’ exercise in full of their over-allotment option) at a price of $14.00 per share for net proceeds of $72.2 million. In June 2014, we entered into a loan and security agreement (the credit facility) with Oxford Finance LLC whereby we received net

 

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proceeds of $4.9 million from the issuance of secured promissory notes under a term loan as part of the facility. In October 2014, we sold 4,887,500 shares of common stock (including 637,500 shares of common stock sold by us pursuant to the underwriters’ exercise in full of their over-allotment option) at a price of $20.00 per share for net proceeds of $91.6 million. In March 2015, we sold 2,012,500 shares of common stock (including 262,500 shares of common stock sold by us pursuant to the underwriters’ exercise in full of their over-allotment option) at a price of $100.00 per share for net proceeds of $190.0 million. 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, 2015, our primary sources of liquidity were our cash and cash equivalents and available-for-sale investments, which totaled $129.8 million and $184.5 million, respectively. We invest our cash equivalents and investments in highly liquid, interest-bearing investment-grade and government securities to preserve principal.

 

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

 

 

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

 

 

(in thousands)

 

Cash used in operating activities

 

$

(17,877

)

$

(15,182

)

Cash (used in) provided by investing activities

 

(128,154

)

1,500

 

Cash provided by financing activities

 

190,780

 

5,089

 

Net increase (decrease) in cash and cash equivalents

 

$

44,749

 

$

(8,593

)

 

Operating Activities

 

We have incurred and expect to continue to incur, significant costs in the areas of research and development, regulatory and other clinical study costs, associated with the development of ETC-1002 and our operations.

 

Net cash used in operating activities totaled $17.9 million and $15.2 million for the six months ended June 30, 2015 and 2014, respectively. The primary use of our cash was to fund the development of ETC-1002, adjusted for non-cash expenses such as stock-based compensation expense, depreciation and amortization and changes in working capital.

 

Investing Activities

 

Net cash used in investing activities of $128.2 million for the six months ended June 30, 2015, consisted primarily of purchases of highly liquid, interest bearing investment-grade and government securities.

 

Financing Activities

 

Net cash provided by financing activities of $190.8 million for the six months ended June 30, 2015, related primarily to the proceeds from our underwritten public offering of common stock.

 

Plan of Operations and Funding Requirements

 

ETC-1002 is currently finishing Phase 2 clinical development and we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We expect that our existing cash and cash equivalents and available-for-sale investments will enable us to fund our operating expenses and capital expenditure requirements through at least the end of 2018 and that we will likely need to raise additional capital thereafter to continue to fund the further development and commercialization of ETC-1002 and our operations. We announced top-line results from our Phase 2b ETC-1002-008 and ETC-1002-009 clinical studies in October 2014, and March 2015, respectively, and from our Phase 2 ETC-1002-014 exploratory clinical safety study in July 2015. We plan to hold an End-of-Phase 2 meeting with the FDA in August 2015, and expect to initiate our Phase 3 clinical program for ETC-1002 in the fourth quarter of 2015. We have based these estimates on assumptions that may prove to be wrong and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of ETC-1002 and the extent to which we may enter into collaborations with pharmaceutical partners regarding the development and commercialization of ETC-1002, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development and commercialization of ETC-1002. Our future funding requirements will depend on many factors, including, but not limited to:

 

·         our ability to successfully develop and commercialize ETC-1002 and our other product candidates;

 

·         the costs, timing and outcomes of our ongoing and planned clinical studies of ETC-1002;

 

·         the time and cost necessary to obtain regulatory approvals for ETC-1002, if at all;

 

·         our ability to establish a sales, marketing and distribution infrastructure to commercialize ETC-1002 in the United States and abroad or our ability to establish any future collaboration or commercialization arrangements on favorable terms, if at all;

 

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·         the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and

 

·         the implementation of operational and financial information technology.

 

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to relinquish valuable rights to our technologies, future revenue streams or ETC-1002 or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or through collaborations, strategic alliances or licensing arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market ETC-1002 that we would otherwise prefer to develop and market ourselves.

 

Contractual Obligations and Commitments

 

We were originally party to a single lease that covered both office and laboratory space in Plymouth, Michigan. The Plymouth lease, as amended over time, was scheduled to expire in April 2014. In February 2014, we signed a new lease to move our principal executive offices to Ann Arbor, Michigan, while still maintaining our laboratory space in Plymouth. The Ann Arbor lease has a term of 63 months and provides for fixed monthly rent of approximately $7,900, with monthly rent increasing every 12 months, and also provides for certain rent adjustments to be paid as determined by the landlord. In May 2014, we amended the Plymouth lease to (i) extend the expiration date from April 2014 to April 2017, (ii) adjust the rentable space to 3,045 square feet, (iii) adjust our proportionate share of the landlord’s expenses and taxes to 7.40%, (iv) extend our option to renew for one term of three years through written notice to the landlord by February 2017 and (v) decrease the annual base rent to $37,000, subject to certain increase and adjustments.

 

We are also party to a license agreement pursuant to which we are obligated to make future minimum annual payments of $50,000 in years during which milestone payments are not triggered under the agreement. In addition, we are also contractually obligated to issue up to an aggregate of 11,451 shares of common stock upon various milestones set forth in the agreement.

 

In June 2014, we entered into a credit facility which provided for an initial borrowing of $5.0 million and additional borrowings of $15.0 million until March 2015. We received proceeds of $4.9 million, net of issuance costs, from the issuance of secured promissory notes under a term loan as part of the credit facility and we have not drawn upon any additional borrowings. Under the credit facility, we are obligated to make monthly, interest-only payments on the term loan funded until July 1, 2015, and, thereafter, to pay 36 consecutive, equal monthly installments of principal and interest from August 1, 2015, through July 1, 2018. The term loan outstanding under the credit facility bears interest at an annual rate of 6.40%. In addition, a final payment equal to 8.0% of the amount drawn upon under the credit facility is due upon the earlier of the maturity date or prepayment of the term loan.

 

There have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed above.

 

Off-Balance Sheet Arrangements

 

We do not currently have, nor did we have during the periods presented, any off-balance sheet arrangements as defined by Securities and Exchange Commission rules.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We had cash and cash equivalents and available-for-sale investments of approximately $129.8 million and $184.5 million at June 30, 2015, and $85.0 million and $56.5 million at December 31, 2014, respectively. The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Our primary exposure to market risk relates to fluctuations in interest rates which are affected by changes in the general level of U.S. interest rates. Given the short-term nature of our cash and cash equivalents, we believe that a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation. We do not have any foreign currency or other derivative financial instruments.

 

We do not believe that our cash and cash equivalents and available-for-sale investments have significant risk of default or illiquidity. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.

 

Inflation generally affects us by increasing our cost of labor and clinical study costs. We do not believe that inflation has had a material effect on our results of operations during the six months ended June 30, 2015.

 

Item 4.    Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our President and Chief Executive Officer, who is our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

 

As of June 30, 2015, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer has concluded based upon the evaluation described above that, as of June 30, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

Item 1A.  Risk Factors

 

You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Item 1A. (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Other than as set forth below, there have been no material changes from the factors disclosed in our 2014 Annual Report on Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

 

The results of our Phase 2b ETC-1002-008 and ETC-1002-009 clinical studies and our Phase 2 ETC-1002-014 exploratory clinical safety study may not be indicative of results that we may obtain in later studies, including our planned Phase 3 clinical studies for ETC-1002, or guarantee approval of ETC-1002 by the FDA.

 

There is a high failure rate for drugs proceeding through clinical studies. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical studies even after achieving promising results in earlier stage clinical studies. Data obtained from clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development. In particular, the results of our Phase 2b ETC-1002-008 and ETC-1002-009 clinical studies and our Phase 2 ETC-1002-014 exploratory clinical safety study may not be indicative of results that we may obtain in our planned Phase 3 clinical studies for ETC-1002, nor do they guarantee approval of ETC-1002 by the FDA in a timely manner or at all.

 

Commencing December 31, 2015, we will no longer be an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies will no longer apply to us .

 

We are currently an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. Because as of June 30, 2015, the market value of our common stock that was held by non-affiliates exceeded $700 million, we will no longer qualify for such status commencing December 31, 2015. As a large-accelerated filer, we will be subject to certain disclosure requirements that are applicable to other public companies that have not been applicable to us as an emerging growth company. These requirements include :

 

·

compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

 

·

compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

 

·

full disclosure obligations regarding executive compensation; and

 

 

·

compliance with the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

 

Use of Proceeds from Initial Public Offering of Common Stock

 

On July 1, 2013, we closed the sale of 5,000,000 shares of common stock to the public at an initial public offering price of $14.00 per share. On July 11, 2013, the underwriters exercised their over-allotment option in full, pursuant to which we sold an additional 750,000 shares of common stock at a price of $14.00 per share. The offer and sale of the shares in the IPO was registered under the Securities Act pursuant to registration statements on Form S-1 (File No. 333-188595), which was filed with the SEC on May 14, 2013, and amended subsequently and declared effective on June 25, 2013, and Form S-1MEF (File No. 333-189590), which was filed with the SEC on June 25, 2013, and declared effective on June 25, 2013. Following the sale of the shares in connection with the closing of our IPO, the offering terminated. The offering did not terminate before all the securities registered in the registration statements were sold. The underwriters of the offering were Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc., acting as joint book-running managers for the offering and as representatives of the underwriters. JMP Securities LLC and Stifel, Nicolaus & Company, Incorporated acting as co-managers for the offering.

 

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We raised approximately $72.2 million in net proceeds after deducting underwriting discounts and commissions of approximately $5.6 million and other offering expenses of approximately $2.7 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.

 

As of June 30, 2015, we have used approximately $44.4 million of the net offering proceeds primarily to fund the ETC-1002 Phase 2b clinical program. We invested a significant portion of the balance of the net proceeds from the offering in cash equivalents and other short-term investments in accordance with our investment policy. None of such payments were direct or indirect payments to any of our directors or officers (or their associates), to persons owning ten percent or more of our common stock or to any other affiliates. As described in our final prospectus filed with the SEC on June 26, 2013, pursuant to Rule 424(b) under the Securities Act, we expect to use the remaining net proceeds from our IPO to continue to fund the clinical development of ETC-1002 through the End-of-Phase 2 meeting with the FDA, as well as for working capital and general corporate purposes, including funding the costs of operating as a public company. We plan to hold our End-of-Phase 2 meeting with the FDA in August 2015.

 

Item 6.    Exhibits

 

The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.

 

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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

ESPERION THERAPEUTICS, INC.

 

 

 

 

 

 

August 6, 2015

By:

/s/ Tim M. Mayleben

 

 

Tim M. Mayleben

 

 

President and Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)

 

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Table of Contents

 

EXHIBIT INDEX

 

 

 

 

 

Incorporated by Reference to:

Exhibit
No.

 

Description

 

Form or
Schedule

 

Exhibit
No.

 

Filing
Date with
SEC

 

SEC File
Number

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of the Registrant.

 

S-1/A

 

3.1

 

6/12/2013

 

333-188595

 

 

 

 

 

 

 

 

 

 

 

3.2

 

Amended and Restated By-Laws of the Registrant.

 

S-1/A

 

3.2

 

6/12/2013

 

333-188595

 

 

 

 

 

 

 

 

 

 

 

4.1

 

Specimen Common Stock Certificate of the Registrant.

 

S-1/A

 

4.1

 

6/12/2013

 

333-188595

 

 

 

 

 

 

 

 

 

 

 

10.1

 

Employment Agreement, dated May 14, 2015, between the Registrant and Tim M. Mayleben.

 

8-K

 

10.1

 

5/20/2015

 

001-35986

 

 

 

 

 

 

 

 

 

 

 

10.2*

 

Employment Agreement, dated May 14, 2015, between the Registrant and Narendra D. Lalwani.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.3

 

Employment Agreement, effective June 15, 2015, between the Registrant and Mary P. McGowan.

 

8-K

 

10.1

 

6/15/2015

 

001-35986

 

 

 

 

 

 

 

 

 

 

 

10.4

 

Amended and Restated 2013 Stock Option and Incentive Plan and forms of agreements thereunder

 

14A, Appendix A

 

N/A

 

4/1/2015

 

001-35986

 

 

 

 

 

 

 

 

 

 

 

31.1*

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act rules 13a-14 or 15d-14.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1 +

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act rules 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS*

 

XBRL Instance Document.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Document.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Labels Linkbase Document.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Link Document.

 

 

 

 

 

 

 

 

 


*                  Filed herewith.

 

+                  The certification furnished in Exhibit 32.1 hereto is deemed to be furnished with this Quarterly Report on Form 10-Q and will not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

 

23


Exhibit 10.2

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”) is made as of the 14th day of May, 2015 by and between Esperion Therapeutics, Inc., a Delaware corporation (the “Company”), and Narendra Lalwani (the “Executive”).  Except with respect to the Restrictive Covenants (as defined below), this Agreement supersedes, amends and restates in all respects all prior agreements between the Executive and the Company regarding the subject matter herein, including without limitation the employment agreement between the Employee and the Employer date July 23, 2014 (the “Former Employment Agreement”).

 

1.                                       Employment Term .  The Company and the Executive desire to continue their employment relationship, pursuant to this Agreement commencing as of the date hereof and continuing in effect until terminated by either party in accordance with this Agreement (the “Term”).  The Executive’s employment with the Company will continue to be “at will,” meaning that the Executive’s employment may be terminated by the Company or the Executive at any time and for any reason subject to the terms of this Agreement. If the Executive’s employment with the Company is terminated for any reason during the Term, the Company shall pay or provide to the Executive (or to his authorized representative or estate) any earned but unpaid base salary, unpaid expense reimbursements, accrued but unused vacation and any vested benefits the Executive may have under any employee benefit plan of the Company (the “Accrued Benefit”).

 

2.                                       Position; Duties .  During the Term, the Executive will serve as Executive Vice President, Research and Development and Chief Operating Officer, and will have such powers and duties as may from time to time be prescribed by the Company’s Chief Executive Officer (“CEO”).  The Executive shall devote his full working time and efforts to the business and affairs of the Company.  Notwithstanding the foregoing, the Executive may serve on other boards of directors, with the approval of the CEO and/or engage in religious, charitable or other community activities as long as such services and activities are disclosed to and approved by the CEO and do not interfere with the Executive’s performance of his duties to the Company.

 

3.                                       Compensation and Related Matters .

 

(a)                      Base Salary .  During the Term, the Executive’s annual base salary will be $370,000, subject to redetermination by the Company’s Board of Directors (the “Board”) or the Compensation Committee of the Board (the “Compensation Committee”). The annual base salary in effect at any given time is referred to herein as “Base Salary.” The Base Salary will be payable in a manner that is consistent with the Company’s usual payroll practices for senior executives.

 

(b)                      Bonus .  During the Term, the Executive will be eligible to be considered for annual cash bonus as determined by the Board or the Compensation Committee.  The annual bonus will be targeted at 40% of the Executive’s Base Salary (the “Target Bonus”).  The actual bonus is discretionary and will be subject to the CEO’s assessment of the Executive’s performance as well as business conditions of the Company.  The Executive’s bonus, if any, will be paid by March 15 following the applicable bonus year.  To earn a bonus, the Executive must be employed by the Company on the day such bonus is paid.

 



 

(c)                       PTO :  During the Term, the Executive is eligible to earn up to four weeks of paid-time-off (“PTO”), to be accrued on a pro rata basis and subject to the terms and conditions of the Company’s policies and procedures relating to PTO.

 

(d)                      Other Benefits .  During the Term, the Executive will be entitled to continue to participate in the Company’s employee benefit plans, subject to the terms and the conditions of such plans and to the Company’s ability to amend and modify such plans.

 

(e)                       Equity .  The Executive’s equity compensation shall be governed by the terms and conditions of the Company’s Stock Option and Incentive Plan, as may be amended, and the applicable stock option and/or restricted stock agreements (collectively the “Equity Documents”).  Provided and notwithstanding anything to the contrary in the Equity Documents, Section 5 of this Agreement shall apply in the event of a Sale Event.

 

(f)                        Reimbursement of Business Expenses.   The Company shall reimburse the Executive for travel, entertainment, business development and other expenses reasonably and necessarily incurred by the Executive in connection with the Company’s business.  Expense reimbursement shall be subject to such policies the Company may adopt from time to time, including policies related to remote working arrangements and associated travel.

 

4.                                       Certain Definitions .

 

(a)                      Sale Event .  A Sale Event shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

 

(b)                      Terminating Event .  A “Terminating Event” shall mean (i) Termination by the Company other than for Cause at any time; or (ii) Termination by the Executive for Good Reason on or within the twelve (12) month period commencing with a Sale Event (such 12-month period, the “Sale Event Period”), both as set forth in this Section 4(b):

 

(i)                                      Termination by the Company Other Than For Cause .  Termination by the Company of the Executive’s employment for any reason other than for Cause, death or Disability.  For purposes of this Agreement, “Cause” shall mean, as determined by the Board:

 

(A)                                conviction (including a guilty or no contest plea) on a felony indictment or for any misdemeanor involving moral turpitude that adversely affects the Company;

 

2



 

(B)                                participation in a fraud or act of dishonesty against the Company;

 

(C)                                material breach of Executive’s duties to the Company, that has not been cured to the reasonable satisfaction of the Board, within thirty (30) days following written notice to Executive (provided that no such notice and cure period will be required if such a breach is not subject to cure);

 

(D)                                intentional and material damage to the Company’s property; or

 

(E)                                 material breach of this Agreement or other written agreement with the Company or written policy of the Company.

 

(ii)                                   Termination by the Executive for Good Reason within the Sale Event Period .  Termination by the Executive of the Executive’s employment with the Company for Good Reason within the Sale Event Period.  For purposes of this Agreement, “Good Reason” shall mean that the Executive has complied with the “Good Reason Process” (hereinafter defined) following, the occurrence of any of the following events:

 

(A)                                      a material diminution in the Executive’s position, responsibilities, authority or duties;

 

(B)                                      a material diminution in the Executive’s base salary except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior management employees of the Company; or

 

(C)                                      a material change in the geographic location at which the Executive is required to provides services to the Company, not including business travel and short-term assignments.

 

“Good Reason Process” shall mean that (i) the Executive reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good Reason condition within 60 days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Company’s efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive terminates his employment within 60 days after the end of the Cure Period.  If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

 

A Terminating Event shall not be deemed to have occurred pursuant to this Section 4(b)  as a result of:  (i) the ending of the Executive’s employment due to the Executive’s death or Disability, (ii) Executive’s resignation for any reason, other than for Good Reason within the Sale Event Period, (iii) the Company’s termination of the employment relationship for Cause; or

 

3



 

(iv) solely as a result of the Executive being or becoming an employee of any direct or indirect successor to the business or assets of the Company rather than continuing as an employee of the Company following a Sale Event.  For purposes hereof, the Executive will be considered “Disabled” if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from his duties to the Company on a full-time basis for 180 calendar days in the aggregate in any 12-month period.

 

5.                                       Sale Event; Accelerated Vesting; Severance During the Sale Event Period .  In the event of a Sale Event all stock options and other stock-based awards with time-based vesting held by the Executive shall immediately accelerate and become fully exercisable or nonforfeitable as of the date of the Sale Event.  In addition, in the event a Terminating Event occurs within the Sale Event Period, subject to the Executive signing and complying with a separation agreement in a form and manner satisfactory to the Company containing, among other provisions, a general release of claims in favor of the Company and related persons and entities, confidentiality, return of property and non-disparagement and reaffirmation of the Restrictive Covenants (the “Separation Agreement and Release”) and the Separation Agreement and Release becoming irrevocable, all within 60 days after the Date of Termination, the following shall occur:

 

(a)                      the Company shall pay to the Executive an amount equal to the sum of (i) 1 times the Executive’s Base Salary in effect immediately prior to the Terminating Event (or the Executive’s Base Salary in effect immediately prior to the Sale Event, if higher), and (ii) the Executive’s Target Bonus; and

 

(b)                      if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a lump sum cash payment in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company for twelve (12) months after the Date of Termination.

 

The amounts payable under Section 5(a) and (b), as applicable, shall be paid out in a lump sum within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the amounts shall be paid in the second calendar year no later than the last day of the 60-day period.

 

6.                                       Severance Outside the Sale Event Period .  In the event a Terminating Event occurs at any time other than during the Sale Event Period, subject to the Executive signing the Separation Agreement and Release and the Separation Agreement and Release becoming irrevocable, all within 60 days after the Date of Termination, the following shall occur:

 

(a)                      the Company shall pay to the Executive an amount equal to nine (9) months of the Executive’s annual Base Salary in effect immediately prior to the Terminating Event;

 

(b)                      if the Executive was participating in the Company’s group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the

 

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Company shall pay to the Executive a monthly cash payment for nine (9) months or the Executive’s COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company.

 

The amounts payable under Section 6(a) and (b), as applicable, shall be paid out in substantially equal installments in accordance with the Company’s payroll practice over nine (9)  months commencing within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the severance shall begin to be paid in the second calendar year by the last day of such 60-day period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the Date of Termination.  Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).

 

7.                                       Restrictive Covenants .   The terms of the Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement, dated July 31, 2014 (the “Restrictive Covenants”), appended as Exhibit A, continue to be in full force and effect and are incorporated by reference as material terms of this Agreement.  The Executive hereby reaffirms the Restrictive Covenants as material terms of this Agreement.

 

(a)                                  Third-Party Agreements and Rights .  The Executive hereby confirms that the Executive is not bound by the terms of any agreement with any previous employer or other party which restricts in any way the Executive’s use or disclosure of information or the Executive’s engagement in any business.  The Executive represents to the Company that the Executive’s execution of this Agreement, the Executive’s employment with the Company and the performance of the Executive’s proposed duties for the Company will not violate any obligations the Executive may have to any such previous employer or other party.  In the Executive’s work for the Company, the Executive will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.

 

(b)                                  Litigation and Regulatory Cooperation .  During and after the Executive’s employment, the Executive shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company.  The Executive’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times.  During and after the Executive’s employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company.  The Company shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executive’s performance of obligations pursuant to this Section 7(b).

 

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(c)                                   Relief .  The Executive agrees that it would be difficult to measure any damages caused to the Company which might result from any breach by the Executive of the promises set forth in this Section 7, and that in any event money damages would be an inadequate remedy for any such breach.  Accordingly, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company.  In addition, in the event the Executive breaches the Restrictive Covenants during a period when he is receiving Severance, the Company shall have the right to suspend or terminate the Severance.  Such suspension or termination shall not limit the Company’s other options with respect to relief for such breach and shall not relieve the Executive of his duties under this Agreement.

 

8.                                       Additional Limitation .

 

(a)                      Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Severance Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, the following provisions shall apply:

 

(i)                                      If the Severance Payments, reduced by the sum of (A) the Excise Tax and (B) the total of the federal, state, and local income and employment taxes payable by the Executive on the amount of the Severance Payments which are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, the Executive shall be entitled to the full amount of Severance Payments.

 

(ii)                                   If the Threshold Amount is less than (x) the Severance Payments, but greater than (y) the Severance Payments reduced by the sum of (A) the Excise Tax and (B) the total of the federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount, then the Severance Payments shall be reduced (but not below zero) to the extent necessary so that the sum of all Severance Payments shall not exceed the Threshold Amount.  In such event, the Severance Payments shall be reduced in the following order:  (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits.  To the extent any payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced in reverse chronological order.

 

(b)                      For the purposes of this Section 8, “Threshold Amount” shall mean three times the Executive’s “base amount” within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00); and “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, and any interest or penalties incurred by the Executive with respect to such excise tax.

 

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(c)                       The determination as to which of the alternative provisions of Section 8(a) above shall apply to the Executive shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive.  For purposes of determining which of the alternative provisions of Section 8(a) above shall apply, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.

 

9.                                       Section 409A .

 

(a)                      Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s “separation from service” within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death.

 

(b)                      The parties intend that this Agreement will be administered in accordance with Section 409A of the Code.  To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code.  The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

 

(c)                       All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred by the Executive during the time periods set forth in this Agreement.  All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred.  The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year.  Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

 

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(d)                      To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service.”  The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

 

(e)                       The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

 

10.                                Withholding .  All payments made by the Company to the Executive under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law.

 

11.                                Notice and Date of Termination .

 

(a)                      Notice of Termination .  The Executive’s employment with the Company may be terminated by the Company or the Executive at any time and for any reason.  During the Term, any purported termination of the Executive’s employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with this Section 11.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.

 

(b)                      Date of Termination .  “Date of Termination” shall mean:  (i) if the Executive’s employment is terminated by his death, the date of his death; (ii) if the Executive’s employment is terminated on account of Executive’s Disability or by the Company for Cause, the date on which Notice of Termination is given; (iii) if the Executive’s employment is terminated by the Company without Cause the date on which a Notice of Termination is given; (iv) if the Executive’s employment is terminated by the Executive for any reason except for Good Reason during a Sale Event Period, 30 days after the date on which a Notice of Termination is given, and (v) if the Executive’s employment is terminated by the Executive with Good Reason during a Sale Event Period, the date on which a Notice of Termination is given after the end of the Cure Period.  Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the Company for purposes of this Agreement.

 

12.                                No Mitigation .  The Company agrees that, if the Executive’s employment by the Company is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 5 or Section 6 hereof.  Further, the amount of any payment provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer.

 

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13.                                Consent to Jurisdiction .  The parties hereby consent to the jurisdiction of the Superior Court of the State of Michigan and the United States District Court in Michigan.  Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.

 

14.                                Integration .  This Agreement constitutes the entire agreement between the parties with respect to compensation, severance pay, benefits and accelerated vesting and supersedes in all respects all prior agreements between the parties concerning such subject matter, including without limitation the Former Employment Agreement and any offer letter or employment agreement relating to the Executive’s employment relationship with the Company.  Provided, and notwithstanding the foregoing, the Restrictive Covenants and any other agreement relating to confidentiality, noncompetition, nonsolicitation or assignment of inventions shall not be superseded by this Agreement and the Executive acknowledges and agrees that any such agreement shall remain in full force and effect.

 

15.                                Successor to the Executive .  This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees.  In the event of the Executive’s death after a Terminating Event but prior to the completion by the Company of all payments due him under this Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in writing to the Company prior to his death (or to his estate, if the Executive fails to make such designation).

 

16.                                Enforceability .  If any portion or provision of this Agreement (including, without limitation, any portion or provision of any Section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

 

17.                                Waiver .  No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

 

18.                                Notices .  Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight currier service of by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Company, or to the Company at its main office, attention of the Board of Directors.

 

19.                                Amendment .  This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company.

 

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20.                                Effect on Other Plans and Agreements .  An election by the Executive to resign for Good Reason under the provisions of this Agreement shall not be deemed a voluntary termination of employment by the Executive for the purpose of interpreting the provisions of any of the Company’s benefit plans, programs or policies.  Nothing in this Agreement shall be construed to limit the rights of the Executive under the Company’s benefit plans, programs or policies except as otherwise provided in Section 7 hereof, and except that the Executive shall have no rights to any severance benefits under any Company severance pay plan, offer letter or otherwise.  In the event that the Executive is party to an agreement with the Company providing for payments or benefits under such agreement and this Agreement, the terms of this Agreement shall govern and Executive may receive payment under this Agreement only and not both.  Further, Section 5 and Section 6 of this Agreement are mutually exclusive and in no event shall Executive be entitled to payments or benefits pursuant to Section 5 and Section 6 of this Agreement.

 

21.                                Governing Law .  This is a Michigan contract and shall be construed under and be governed in all respects by the laws of the State of Michigan, without giving effect to the conflict of laws principles.

 

22.                                Successor to Company .  The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken place.  Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.

 

23.                                Gender Neutral .  Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.

 

24.                                Counterparts .  This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written.

 

 

ESPERION THERAPEUTICS, INC.

 

 

 

 

 

By:

/s/ Tim Mayleben

 

Name:

Tim Mayleben

 

Title:

President & CEO

 

 

 

 

 

EXECUTIVE:

 

 

 

/s/ Narendra Lalwani

 

Narendra Lalwani

 

Executive Vice President, Research and Development and Chief Operating Officer

 

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Exhibit 31.1

 

Certification

 

I, Tim M. Mayleben certify that:

 

1.                       I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2015, of Esperion Therapeutics, Inc.;

 

2.                       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                       Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                       I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.                       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.                       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.                        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.                       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                       I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.                 All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.                 Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: August 6, 2015

/s/ Tim M. Mayleben

 

Tim M. Mayleben

 

President and Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)

 


Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report on Form 10-Q of Esperion Therapeutics, Inc. (the “Company”) for the period ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tim M. Mayleben, President and Chief Executive Officer of the Company, hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge as of the date hereof:

 

1)                       the Report which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

2)                       the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 6, 2015

/s/ Tim M. Mayleben

 

Tim M. Mayleben

 

President and Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)