Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares in Esperion Therapeutics (NASDAQ:ESPR) tumbled by more than 15% today following a meteoric climb in the wake of positive results for its cholesterol-busting drug ETC-1002.
So What: Shares in Esperion Therapeutics have shot higher by 33% since reporting positive data from its mid stage trial for ETC-1002 on March 17th.
The surge since mid-month brought Esperion Therapeutics' year-to-date return to a market-trouncing 154%, so it's not too surprising to see investors booking profits as the broader biotech industry retreats -- especially given that Esperion Therapeutics just closed on a dilutive offering of more than 2 million shares.
Excitement surrounding Esperion Therapeutics stems from ETC-1002's potential for use alongside commonly-prescribed statins. During phase 2 trials, patients taking ETC-1002 and statins saw their bad cholesterol levels drop by an additional 17% to 24% compared to patients taking statins alone.
Those results are encouraging enough for Esperion Therapeutics to plan on initiating phase 3 trials; however, costs associated with expensive late stage trials prompted the company to offer up 2,012,500 common shares at a price of $100 each. The company also sold an additional 262,500 shares at that price as part of an over-allotment program. Overall, the offering resulted in $189.9 million in net proceeds to the company.
Now What: Since developing medicines is incredibly expensive, its probably not too surprising to see Esperion Therapeutics tapping equity market for funding, particularly given the recent run-up in its shares. Although the offering is dilutive, investors should recognize that it's far better long-term to raise money from investors than it is from lenders.
If ETC-1002 can continue to put up strong results in phase 3, Esperion Therapeutics could end up with a blockbuster on its hands. Admittedly, we'll have to wait a while before we know whether or not that happens, but risk-tolerant investors may want to consider buying this one for speculative portfolios on this drop.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.