Xeris Biopharma Holdings, Inc. Q4 FY2020 Earnings Call

Thank you for joining us today for Xeris Pharmaceuticals' Fourth Quarter Final Results Conference Call. All participants are currently in listen-only mode. Following the speakers' comments, we will have a question-and-answer session. I would now like to turn the call over to Allison Wey, Senior Vice President of Investor Relations. Please proceed.

Thank you, Mae. Good morning and welcome to Xeris' Pharmaceuticals fourth quarter and full year 2020 financial results and corporate update conference call. A press release with the company's fourth quarter and full year 2020 results was issued earlier this morning and can be found on our website. We are joined this morning by Paul Edick, Chairman and CEO; and Barry Deutsch, CFO. Paul will provide opening remarks, Barry will provide details on our financial results, and then we will open the line for Q&A. Before we begin, I'd like to remind you that this call will contain forward-looking statements concerning the impact of COVID-19 on Xeris' business practices, Xeris' future expectations, plans, prospects, clinical approvals, commercialization, corporate strategy and performance, which constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, including the effect of uncertainties related to the COVID-19 pandemic on the U.S. and global markets, Xeris' business, financial condition, operations, clinical trials and third-party suppliers and manufacturers, and other risk factors including those discussed in our filings with the SEC. In addition, any forward-looking statements represent our views only as of the date of this call and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statements. Now, I'll turn the call over to Paul.

Thank you, Allison, and thank you everyone for joining us today. I hope you and your loved ones are safe and healthy during these challenging times. My main message today about Xeris's performance in 2020, particularly in the fourth quarter, is that we achieved a lot and performed very well despite facing several challenges. I am extremely proud of the hard work from the entire Xeris team, which helped us make significant progress throughout 2020 and set us up for a strong 2021. This was accomplished even with the ongoing pandemic, which intensified in the fourth quarter and into the first quarter of 2021, along with civil unrest and cybersecurity issues. The consistent growth of Gvoke Pre-Filled Syringe and the efforts to secure extensive unrestricted payer coverage in the first half of 2020 positioned us nicely for a successful Gvoke HypoPen launch in July. We will continue to see growth in the early stages of this launch during the fourth quarter and into the first quarter of 2021. Let's highlight some key points from the fourth quarter and recent developments. We recorded an 11% increase in Gvoke prescriptions, while the overall glucagon market saw a decline due to typical seasonal patterns and the ongoing impact of the pandemic. We achieved $7.1 million in net sales in the fourth quarter, which contributed to over $20 million for the full year. Given the unique circumstances and the fully virtual nature of our sales efforts throughout the year, we consider this a strong start for our Gvoke brand. We received a positive opinion from the CHMP for Ogluo, the approved name for the ready-to-use HypoPen in the EU, and we recently received final approval in that region. Our licensing initiatives beyond the U.S. began with an exclusive agreement with a prominent Israeli pharmaceutical distributor to commercialize Gvoke in Israel and the Palestinian Authority. We've also received initial feedback ahead of discussions with the FDA on three pipeline programs: exercise-induced hyperglycemia, post-bariatric hyperglycemia, and our pramlintide-insulin combination product, which we believe could be a superior mealtime insulin. We successfully transitioned our R&D facility from San Diego to Chicago, allowing for better team integration, and we have reduced our debt significantly by converting a portion of our convertible bonds. Before diving deeper into our performance, I want to provide some context about COVID-19's overall effect on the pharmaceutical market. It's crucial to recognize the real and significant challenges impacting all companies. However, I want to highlight that our performance stands out positively compared to the broader pharmaceutical landscape. A recent report from IQVIA revealed that nearly 1 billion expected physician visits did not occur in 2020, with an additional 200 million visit shortfall expected through July of this year. These missed visits directly affect prescription utilization. IQVIA forecasts that about 3.5 billion prescriptions that would have been written will be lost because of the pandemic. This setback particularly impacts Xeris as we are in the early stages of launching the Gvoke HypoPen, with total prescriptions—especially for new brand prescriptions—significantly declining across all therapeutic categories in 2020. This decline was largely due to a 44% drop in visits to endocrinology offices compared to the previous year, affecting newer products more severely than established brands that benefit from prior recognition and prescriptions. Specifically regarding the effects of the pandemic on the glucagon market, it's important to note that in the first quarter of 2020, the glucagon market grew by 27% year-over-year before the full effects of the pandemic set in. This growth was attributed entirely to the introduction of new ready-to-use glucagon products like Gvoke and Baqsimi. Conversely, from the second to the fourth quarter, the market saw only a 6% increase compared to the previous year, primarily driven by the launch of Gvoke HypoPen, with growth mostly concentrated during the summer months as restrictions eased and we launched the product. Despite these challenges, both Gvoke Pre-Filled Syringe and Gvoke HypoPen launched successfully. Gvoke prescriptions increased by over 350% from the first to the fourth quarter of 2020, and total prescriptions rose by 11% in the fourth quarter during a traditionally slow period for glucagon. The number of prescribers for Gvoke grew by another 27% in the fourth quarter, and by the end of the year, we had more than 5,000 unique prescribers. Gvoke's market share expanded to nearly 12% by the end of 2020. How did we achieve these results amid the challenges of 2020? At the launch of Gvoke PFS, our commercial strategy focused on converting glucagon emergency kits to Gvoke, which generated momentum for the Gvoke brand. Combined, Gvoke and Baqsimi captured almost 45% of the expanded market, while traditional kits lost 16% market share since Gvoke's introduction. We effectively tapped into significant pent-up demand for Gvoke HypoPen when we launched it virtually in July, maintaining high engagement with the diabetes community through digital and social media and a large network of online influencers. We quickly invested in our team's capability to work and connect with healthcare providers virtually, allowing us to raise awareness of Gvoke despite clinic closures and restricted access. We quickly established excellent payer coverage for Gvoke and maintained it throughout 2020. Since the second quarter, around 80% of patients have had unrestricted access to Gvoke across all payer types. Additionally, we have implemented a zero-dollar copay program to support individuals with diabetes during these tough times. Looking ahead to 2021 and beyond, we will focus our promotional efforts on reinforcing the message to both prescribers and patients about the urgency of ensuring that all insulin-dependent patients at risk for severe hypoglycemia have a ready-to-use glucagon product, such as the Gvoke HypoPen, available for emergencies. To emphasize, there are about 6.8 million individuals with diabetes in the United States who use insulin, with more than six million of them lacking any form of glucagon. It’s essential to acknowledge that the primary side effect of insulin therapy is low blood sugar. Consequently, guidelines from the ADA recommend that anyone at risk of clinically significant hypoglycemia, defined as blood glucose below 54 milligrams per deciliter, should be prescribed glucagon. However, only 10% of insulin users at risk actually have glucagon readily available. Tragically, this results in approximately 270,000 hospitalizations and 27,000 deaths from severe hypoglycemia in the U.S. each year, costing over $1.8 billion. Our mission is to raise prescriber and patient awareness of Gvoke to lessen the impact of severe hypoglycemia on people's lives. We aim to educate healthcare providers that all their insulin-dependent patients are at risk and need access to a safe and effective glucagon option. Our message to prescribers is straightforward: every insulin prescription should include a prescription for a ready-to-use glucagon option, like Gvoke HypoPen. To support this effort, we have expanded our sales team to connect with more healthcare professionals by adding 40 fully virtual inside sales representatives. We also intend to amplify the voices of patients and caregivers who use Gvoke, ensuring that more of the insulin-using population without glucagon understands its importance. Now, regarding our financial performance for the fourth quarter, you may recall discussions from the last earnings call about the discrepancy between net sales and the total prescriptions reported by third-party vendors, particularly in the launch phase of new products like Gvoke HypoPen. Many questions have arisen about this, and I want to clarify as much as possible. This disconnect is likely due to the estimated nature of prescription volume and growth rather than actual prescriptions filled. We experienced a continuation of this disconnect in our fourth quarter. It's essential to remember that net sales reflect shipments to wholesalers, not the actual number of prescriptions filled. Two factors influenced the change in net sales from the third to the fourth quarter. First, wholesaler and retailer inventories were built up in anticipation of the Gvoke HypoPen launch, leading to lower than usual sales during the typically weaker fourth quarter, exacerbated by the historical decline in the glucagon market during this season. These factors will continue to shape the purchasing patterns of wholesalers. My goal here is to provide context regarding the variability we observe, which is largely related to the early stages of our launch and the absence of historical buying data. Over time, we expect this gap to narrow as wholesaler buying patterns stabilize and third-party data more accurately reflect Gvoke’s growth, although this may not happen immediately. However, the most recent February data is encouraging. Some promising indicators for momentum entering the second quarter include an increase in our glucagon market share to 16%. Recent weekly prescription data is on an upward trend, activity in our hub is increasing, and zero-dollar copay claims appear to be rising. Our field and virtual engagements with healthcare professionals are also trending positively. Moving on to Ogluo in the EU, we received a positive opinion in the fourth quarter, followed by final approval last month for the ready-to-use glucagon, making us approved in all 27 EU countries, along with Norway and Iceland. We are actively seeking a commercialization partner for the product launch in Europe, given its premium reimbursement pricing compared to traditional kits, which has sparked additional discussions with potential partners. In the event a partnership does not materialize, we are preparing to initiate a country-by-country launch starting in the fourth quarter. Regarding our pipeline, we held meetings with the FDA at the end of 2020 and early January concerning three of our programs: PBH, EIH, and pramlintide-insulin, to align on Phase 3 study designs for each. Due to the pandemic, these meetings were conducted over the phone or in writing, rather than in person. We have responded to initial FDA feedback for each program and expect to clarify the path forward for each in the second quarter of 2021. Based on this feedback, we may advance either EIH or PBH into Phase 3. Regarding pramlintide-insulin, we will seek a partner for development and commercialization once the Phase 3 plan is finalized. We also have an agreement with the FDA for the Phase 3 program for diazepam and are looking for a suitable partner to progress that program as well. In summary, 2020 was an impressive year for us despite the challenges we faced. Although these challenges persist into early 2021, we are optimistic about steadily growing demand for the Gvoke brand, aggressively pursuing partners for select pipeline programs, advancing ready-to-use glucagon for hyperglycemia prevention, preparing to partner or launch Ogluo in Europe in the fourth quarter, and enhancing our technology platforms in XeriSol and XeriJect through both internal development and external partnerships. Before I pass the call over to Barry, I want to express my gratitude to the Xeris employees. We've accomplished all this despite the pandemic, and without the talent we have, we wouldn’t be where we are today. I am proud of our team's commitment and our success during this challenging year. We prioritized the health and safety of our employees and the communities we serve while executing our strategy and preparing for a successful 2021. I will now turn it over to Barry Deutsch for our financial review.

Thanks, Paul. We commercially launched Gvoke prefilled syringe and Gvoke HypoPen, the treatment of severe hyperglycemia in people with diabetes in November 2019 and July 2020, respectively. Total net sales of Gvoke were $7.1 million and $1.6 million for the fourth quarters ended December 31, 2020, and 2019 respectively. Net sales for Gvoke were $20.2 million and $1.6 million for the years ended December 31, 2020, and 2019 respectively. Net sales represent gross product sales less estimated allowances for patient copay assistance programs such as the $0 copay program implemented during the COVID-19 pandemic, prompt payment and other discounts, air rebates, chargebacks, product returns, all of which are recorded at the time of sale – particular wholesaler or other customer. We apply significant judgments and estimates in determining some of these allowances. As Gvoke is the first product we have launched, we have limited history with regard to these allowances and will continually refine our estimates moving forward as more information becomes available. Cost of goods sold was $3.4 million for the quarter ended December 31, 2020, which included $0.7 million related to excess and obsolete inventory. For the quarter ended December 31, 2019, cost of goods sold was $1.6 million. Cost of goods sold was $9.3 million for the year ended December 31, 2020, which included $2.3 million related to excess and obsolete inventory and under absorb overhead costs of $1.5 million. For the year ended December 31, 2019, cost of goods sold was $1.6 million, which included under absorbed overhead costs of $0.6 million. Manufacturing costs for Gvoke incurred prior to approval and initial commercialization were expensed as incurred as research and development expense. Total operating expenses were $23.1 million and $94.7 million, respectively for the quarter and full year ended December 31, 2020, compared to $33.1 million and $123.5 million, respectively for the quarter and full year ended December 31, 2019. Quarter and full year ended December 31, 2020 were $5.1 million and $20.9 million, respectively, compared to $12.4 million and $60.4 million for the same period in 2019. The decrease of $7.3 million in R&D expenses in the fourth quarter of 2020 compared to the fourth quarter of 2019 was primarily driven by decreased expenses associated with our clinical trials and a reduction of manufacturing batches and supplies needed for preclinical and clinical trials. The full year decrease in R&D expenses of $39.5 million was primarily driven by expenses incurred in the prior year for the manufacturing of Gvoke prior to initial commercialization, decreased expenses associated with our clinical trials, a reduction of manufacturing batches and supplies needed for preclinical and clinical trials, and an increase in the allocation of certain personnel and facilities costs to cost of goods sold, partially offset by restructuring expenses in 2020 related to the relocation of our laboratory from San Diego to Chicago. 2020 clinical trial expenses decreased significantly for both the quarter and full year periods, as we concluded all ongoing clinical programs, and no new studies have been initiated as we finalize our discussions with the FDA and go forward development requirements. Selling, general, and administrative costs increased $10.7 million for the year ended December 31, 2020, when compared to the year ended December 31, 2019. The increase is primarily driven by an increase in compensation and related personnel costs, due to additional headcount to support commercialization efforts of Gvoke, and increased FDA registration fees, partially offset by decreases in marketing and selling expenses, due to both costs incurred in the prior year for the initial launch of Gvoke, and decreased expenses related to conferences and programs due to the COVID-19 pandemic. For the year ended December 31, 2020, interest expense increased $3.5 million in comparison to the year ended December 31, 2019, primarily due to a loss on conversion of convertible debt of $2.6 million, interest on the convertible notes issued in the June 2020 offering of $1.9 million, a loss on extinguishment of debt of $0.7 million, and increased borrowing levels under our senior debt facility, partially offset by a loss on extinguishment of debt of $2.3 million in the prior year. To date, $39.1 million in principal amount of convertible notes has converted into 13.2 million shares of the company's common stock. Approximately $30.7 million of the $39.1 million that has converted did so via agreements we entered into with some of the holders of the debt. In particular, on November 13, Xeris entered into separate privately negotiated exchange agreements with certain holders of the company's convertible notes. Pursuant to the exchange agreements, the company exchanged approximately $30.7 million in aggregate principal amount of the notes for approximately 10.4 million newly issued shares of the company's common stock. As of December 31, 2020, the outstanding balance of convertible notes was $47.2 million. In October, we entered into an amendment to our senior debt facility that provided for an additional $3.5 million term loan, which was drawn in November. As of December 31, 2020, the outstanding balance under the senior debt facility was $43.5 million. Net loss for the three months ended December 31, 2020 was $21.9 million or $0.41 per share compared to $33.1 million or $1.23 per share for the same period in 2019. For the full year 2020, the net loss was $91.1 million or $2.14 per share compared to $125.6 million or $4.81 per share for the full year. As of December 31, 2020, we held $133.8 million in cash, cash equivalents, and investments compared to $88.8 million as of December 31, 2019. The number of shares outstanding as of February 28, 2021 is approximately 59.8 million. We believe that our cash and cash equivalents and investments expected revenue from sales of Gvoke will enable us to fund our operating and capital expenditure requirements for at least the next 12 months. Revenue from Gvoke will determine when we will be cash flow breakeven. I will turn the call back to Paul.

Thanks Barry. In conclusion, we had an impressive year despite the challenges that 2020 presented to us. In 2021, we still expect to steadily grow demand for the Gvoke brand, as I said previously, continue to seek development and commercialization partners for our pipeline programs. As I said, advance ready-to-use glucagon for prevention of hypoglycemia, prepare to partner or launch in Europe, and continue to advance our technology platforms through external partnerships. We're looking forward to another year of progress and success in 2021. And I will now ask the operator to open it up for questions.

Your first question is from David Amsellem with Piper Sandler. Your line is open.

Thanks. I have a few questions. Regarding unrestricted access to Gvoke, can you elaborate on whether it's hassle-free and if there are any prior authorizations or utilization management involved? Additionally, could you provide details on the 40 new reps and the number of doctors they will target, as well as your vision for the expanded sales organization? Lastly, could you discuss the current inventory levels for Gvoke and whether we should expect any destocking pressure in the first quarter? Thank you.

Thanks, David. I'll address unrestricted access first. There are no restrictions like prior authorizations or step therapy that could hinder a patient's ability to obtain Gvoke. Achieving 80% or better coverage is among the highest standards in the industry for any therapeutic category, and rarely do we see over 90% unrestricted coverage. A few smaller plans may require prior authorizations, but overall, our coverage is quite strong. Regarding the additional representatives, they are exclusively focused on inside sales and operate 100% virtually. This approach is more cost-effective, utilizing phone calls, emails, FaceTime, Zoom, and Teams for communication. They either manage their own areas where we lack field representatives or collaborate with field reps to enhance coverage breadth and depth. With these additional personnel, we are increasing our target reach from approximately 11,000 to 12,000 to potentially 30,000 to 40,000 through phone and email outreach. As for wholesale inventories, we initially saw significant accumulation at the Gvoke HypoPen launch, which has decreased in the fourth quarter and is expected to normalize by the first quarter.

Okay, that's helpful. Thanks.

Your next question comes from Ami Fadia with SVB Leerink.

Hi. Can you hear me okay?

Yes.

Okay, great. Thank you. Maybe just a follow-up from the previous question. Can you just give us a sense of whether the inventory levels are more in line with where the demand is at, or do you simply think that there would be some destocking in the channel before we get to kind of a more steady state? And just separately with regard to the pipeline, it seems like the update that you gave with regards to the PBH and EIH, Exercise-Induced Hypoglycemia type of incremental updates that do you intend to initiate a study for at least one of the two? Do you think you have been implemented Bariatric from the FDA and what to do there?

Ami, you were breaking up a little bit, but let me try to answer the second part first. Our discussions with the FDA on Post-Bariatric Hypoglycemia and Exercise-Induced Hypoglycemia have gone quite well. We're in the final stages of trying to get alignment on what the Phase 3 program will look like for both. Our preference, as we've said before, is probably to take the Exercise-Induced Hypoglycemia program forward. It is potentially the most straightforward study that we could do. And we'll make that decision in the second quarter. As far as inventory, I wouldn't describe it as a large amount of inventory. It let us way through in the fourth quarter and a little bit into the first quarter. We should get back to them tracking pretty equally by the end of the quarter. As you know, IQVIA is still understating units anywhere from 20% to 50%. And until we have more history and more buying history, that gap is not going to narrow, but it will narrow over time.

Okay, great. Well, I have one more question. You obviously put in more insulin first on the marketing front and you've indicated that ultimately the growth, the significant potential in this market will come from overall market expansion. Can you talk about what you are doing to drive that as the economy sort of opens up and as physicians' visits start to come back?

Yeah. As we've said in the past, if you talk to endocrinologists during the pandemic, they're really focused on a small number of things. They're focused on making sure insulin patients are actually getting their insulin. That's the most important thing. They're focused on making sure that if they've got a CGM, they're paying attention to CGM. They're focused on the people with pumps. They're just not initiating a lot of new anything, as there is very much a maintenance mode, trying to take care of patients. And if you can imagine the person with diabetes, there are ten things at least that the physician has to talk to them about. And now they've got to do a lot of that virtually. If you go back in time to pre-pandemic, when Lily and us were out detailing actively face-to-face with physicians, you saw double-digit growth in the market. And it was almost 100% new to glucagon. So we fully expect that as we get back out into the field, hopefully late second quarter, early third quarter, that we'll be face to face with healthcare professionals again, and some of that market growth will continue. Right now, most of the change and most of our growth has been converting the legacy kits. That's been the easiest thing to do when you can't get physicians to do something new.

Got it. Thank you.

Your next question is from Randall Stanicky with RBC. Your line is open.

Great, thanks. Hey Paul, could you clarify whether you believe the market will return to its pre-pandemic state once the pandemic is over, or do you anticipate some recovery and further growth, especially ahead of the back-to-school season in late summer? Secondly, what are your thoughts on the pricing impact from the Amphastar Generic Glucagon Emergency Kit? Additionally, with Zealand's product expected to arrive later this month, you've mentioned before that having more players in the market is beneficial. Should we also consider a potential price dynamic in that situation? Thanks.

Thanks, Randall. In terms of the market, assuming that we and Lilly are both back out talking to physicians and helping them understand why, and it's been interesting both companies, our primary message has been, patients who are on insulin are at-risk for low blood sugar and severe low blood sugar, and new ready-to-use options are now available and patients should have it. As long as both companies, including Zealand, if that's our message, there are six million people who don't have glucagon handy. So we would fully expect the same kind of dynamic that we saw when - before the pandemic would reignite. Assuming that's the case, assuming we're all back out talking to doctors again, what you saw in late 2019 in the first couple of months of 2020 was a low double-digit growth turned into a mid-teens growth, turned into low 20% growth, and by March, it was at 27% and accelerating. So we would expect the same thing to happen post-pandemic. Including, as far as back-to-school is concerned, I think it's going to be really hard for schools not to reopen. So we're expecting that most schools are going to be open again, come August, September. We're anticipating that if that's the case, we'll have a more normal back-to-school period. So that's very encouraging. As far as the new generic, I guess the only way to answer that is, the kits have been generic forever. You've got Lilly, you've got Novo spending the same kit; it's always been the same price. I think if there's going to be an impact of the most recent generic, it's going to be on Lilly and Novo, it's not going to be, I don't think, it's going to have much effect on the new ready-to-use products. And yes, I do believe that if Zealand enters the market and is focused on positioning their products for patients and positioning their product for the six million patients who don't have glucagon, physicians will then have multiple options for ensuring that patients who are at risk for severe hypoglycemia have some form of glucagon, some form of ready-to-use glucagon. And in that situation, we believe that Gvoke HypoPen is the best option available.

Great. Thanks.

Your next question is from Difei Yang with Mizuho Group. Your line is open.

Good morning. Thanks for taking my question. Just on the phase 3 program for exercise-induced hyperglycemia, would you talk a bit about the anticipated duration of this phase 3?

Difei, I think the kind of trials we're looking at in phase 3 probably at least 18 months beginning to end, it depends on the final patient numbers, it depends on recruitment rates. So, I wouldn't see us finishing that program inside of two years.

Thank you. I have a separate question about the convertible debt. There are still convertible debts outstanding; do you have plans to convert them when the timing is appropriate?

So, we, there is still a big chunk of that out there, we have no plans at the moment to try to equitize them. The conversion date is still a couple of years away. So we've got plenty of time to decide what to do with those. And by the way, on your first question on the exercise study, if we get to a final with the FDA sometimes in the second quarter, we couldn't even get a study started before the fourth quarter, so it's going to take a little time.

Okay. Thank you, Paul for the clarification.

Our next question is from Jim at Capital. Your line is open.

Good morning. Thank you. Just following up on a prior call in regards to the convertible debt. What led you to equitize the initial fees of what precluded you from doing the remainder? It seems like the stock continues to be shorted against that convertible constantly on direct show list, would appreciate your comments on that?

There were several factors, Jim. The short position on our stock has been quite notable, especially after the convertible deal was completed, which caused our stock price to increase significantly. This resulted in a high borrowing cost for our stock. We had several bondholders who approached us with the idea of converting or equitizing on their own. Consequently, we reached out to some of the larger holders to see if they would be interested in equitizing early at rates that we considered favorable for the company. Many of them opted to proceed for that reason, given the high borrowing costs. In the end, those bondholders had a positive outcome, and those who are currently holding are benefiting as well. This situation wasn't something we actively pursued; it developed from the market dynamics. The high short position and borrowing costs were simply circumstances we faced.

Thank you.

We have no further questions. At this time, I turn the call back to Paul Edick for closing remarks.

Well, I'd like to say thank you to everyone for listening. We appreciate you paying attention. We appreciate your interest in the company and your investments in the company. And we look forward to discussions again in the future. Thank you very much.

This concludes today's conference call. You may now disconnect.