What happened
Esperion Therapeutics (ESPR -5.03%) had a day to forget on Monday as its stock lost more than 11% on news that a fresh stack of shares would be coming to the market.
So what
Esperion announced Monday morning that it has entered into a private agreement with two holders of its convertible senior subordinated notes to convert those securities into common stock. In total, those investors hold notes with an aggregate principal value of $15 million.
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The number of shares those holders will receive in exchange for their notes "will be determined based upon the volume-weighted-average-price per share of Common Stock, subject to a floor of $5.62 per share, during the five trading-day averaging period, commencing on the trading day immediately following the date of the Exchange Agreement."
Investors might be concerned about the dilutive effect of the new stock being issued, as the company currently has a market capitalization of just under $209 million.
They might also be generally worried about Esperion's financial health. The biotech has been habitually loss-making, and while that's usually not a deal-breaker for investors in the sector, it also has considerable debt. For the second quarter, the company's interest expense was over $11 million, or almost 30% of the $40.7 million in revenue it booked for the period.
Now what
The bright-side view of Esperion's latest piece of financial engineering is that it will shave the company's interest costs, as the securities are being converted from what are essentially debt instruments into equity. But that might be cold comfort to shareholders hungry for more positive developments from the company.
