Xeris Biopharma Holdings, Inc. Q2 FY2021 Earnings Call

Hello. Good morning, and welcome to the Xeris Pharmaceuticals Second Quarter Financial Results. My name is Gemma, and I will be the call operator today. I will now hand you over to our host, Allison Wey, Senior Vice President of Investor Relations.

Thank you, Gemma. Good morning. Welcome to Xeris Pharmaceuticals Second Quarter 2021 Financial Results and Corporate Update Conference Call. A press release with the company's second quarter financial 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 Steve Pieper, our new CFO. Paul will provide opening remarks, Steve will provide details of our financial results and then we will open the lines for Q&A. John Johnson and Rich Kollender from Strongbridge will also be available to answer select questions. We would like to remind you that the Strongbridge transaction is subject to the Irish Takeover rules, and as a result, we may be restricted from answering certain questions. Before we begin, I would like to remind you that this call will contain forward-looking statements concerning the impacts of COVID-19 on Xeris' business practice, Xeris' future expectations, plans, profit, 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 U.S. and global markets, Xeris' business financial conditions, operations, clinical trials and third-party suppliers and manufacturers and other risks, 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. I'd like to turn the call over to Paul.

Thanks, Allison. Good morning to everyone who's listening. We appreciate your interest in Xeris and our discussion this morning. Xeris had a very strong second quarter, especially with Gvoke, following a strong first quarter and maintaining momentum, which is clearly our #1 priority. We've shown steady and consistent progress in all leading indicators for the core business. We also announced a major move in the process of transitioning our business to a commercially focused rare disease and specialty pharma company as well as a number of other key achievements. I'll start with a few highlights. The major highlight of the second quarter was the continued strong demand for Gvoke, driven by the HypoPen sales, demonstrated by impressive increases in several key metrics that I'll share with you shortly. Equally important was the announcement of the proposed acquisition of Strongbridge Biopharma, a major step toward becoming a more commercially focused, rare disease and specialty pharma company, which we'll discuss in more detail in my follow-on remarks. We also found a great U.K. and EU partner in Tetris Pharma to prioritize the commercialization of Ogluo in that territory. We received FDA approval during the quarter for an extended shelf life of the Gvoke 1 milligram HypoPen and prefilled syringe, moving from 24 months to 30 months at room temperature. We renegotiated our Oxford-SVB venture debt facility to extend our cash runway. Based on FDA feedback, we determined it was best to terminate the mini-dose post-bariatric hypoglycemia prevention program and advance our micro-dose exercise-induced hypoglycemia prevention program with an interim Phase II study in a broader diabetes population, which we'll talk further about as we proceed. Let me start with Gvoke. Since the launch of the Gvoke HypoPen, a strong foundation has been built and our growth is beginning to accelerate. Although overall market growth is not yet back to pre-pandemic growth of 20% to 30% that we have seen, the market showed modest growth of 5% in the second quarter. However, our market share in the second quarter improved by 18% from the first quarter and is now approaching 16% of the new prescription market at the end of June, significantly outpacing the overall glucagon market. We do see modest signs of acceleration, driven by the innovative ready-to-use brands like Gvoke. Compared to the first quarter, Gvoke prescription volume was up 32% in the second quarter. Gvoke unit sales to wholesalers and direct customers were up 36% in the second quarter, and net sales were up 10% in the same quarter. We've also increased the number of unique prescribers of Gvoke by 30% in the quarter. The end result was a very strong performance at the gross sales level not fully reflected in our net sales number, primarily due to: one, continuation of the $0 co-pay, which we think is extremely important; and two, wholesaler and indirect returns of the PFS product that was sold prior to June 2020. We do not see returns as a recurring event, especially for the 1-milligram HypoPen, which, as I mentioned, now has a 30-month shelf life from manufacture. With our expanded sales force of approximately 135 customer-facing personnel, including our inside sales group, we are now able to target approximately 20,000 endocrinologists, pediatric endocrinologists and top primary care physicians. We're seeing momentum in our effort to expand ready-to-use glucagon prescribing to the more than 6 million insulin-taking individuals with diabetes who currently don't carry glucagon. We're developing and currently launching an integrated campaign to pediatric endocrinologists during the fast-approaching critical back-to-school season. These physicians drive the natural periodic third-quarter spike in glucagon prescriptions. Of course, this is assuming we have a more normal back-to-school this year. As we see COVID resurfacing again due to the Delta variant around the country, we're closely monitoring the nature of in-person school reopenings around the country, and we'll be anxiously awaiting children returning to school. We'll see what that looks like. Turning to Ogluo in our European glucagon brand, I want to remind everyone of our approach and process with Ogluo in the U.K. and the EU. Initially, we viewed this ex-U.S. territory as having very limited potential based on reimbursed pricing of the legacy Novo kits. In fact, we had analyzed and reported that it would be a losing proposition to launch anywhere in the region given the reimbursed prices of the legacy kits. Our initial assumption was that the only viable strategy would be to launch in a select few countries for the self-pay market only. Thus, we were not looking for a commercial partner, but rather contracted distributors in select markets. What changed in early 2021 was the success of the Lilly launch and the levels at which they're getting reimbursed pricing in many countries, as well as the higher-than-expected prices people are paying out of pocket in countries where Lilly is not even reimbursed. As a result, since Ogluo's approval in the EU in February 2021 and in the U.K. at the end of April 2021, we had several inbound inquiries and also started our own outbound partnering outreach. Our priority was getting a partner who would prioritize Ogluo and invest the necessary time and attention into making it successful in the territory. Essentially, for Ogluo to get the attention it deserves, it needed to be handled by a company for whom its success would be critical to their overall success. A few weeks ago, we announced that we found, in Tetris, a great partner. Tetris is a U.K.-based company founded by a leadership team of highly experienced individuals from U.K. and international pharmaceutical companies. They're scaling up in the U.K. for launch and expanding across the EU. We're excited about their entrepreneurial approach to their organization. Starting in 2022 and over several subsequent years, Tetris could potentially receive up to $71 million in payments tied to the first commercial sale and other launch and sales-related milestones, along with collecting a mid-single-digit royalty on net sales. Tetris anticipates that Ogluo will be available in the U.K. later this year and launched subsequently in additional countries as individual country pricing and reimbursement is secured. Now let me provide an update on our mini- and micro-dose, ready-to-use glucagon programs. As we've reported, we've spent the past several months in dialogue with the FDA trying to find a reasonable clinical pathway to advance our ready-to-use mini- and micro-dose glucagon programs. As you recall, this is for the prevention of post-bariatric hypoglycemia and prevention of exercise-induced hypoglycemia, both into Phase III. We've received the feedback we need and have made decisions on both programs. The new FDA requirements for these programs to enter full Phase III development are far too costly and complex for us to contemplate any Phase III work at this point on either program. For PBH, we have discontinued further clinical development. For EIH, based on FDA feedback and specific underlying data requirements, we will develop and execute an additional Phase II study in prevention of exercise-induced hypoglycemia to examine the efficacy and safety of long-term use among a broader range of type 1 and type 2 patients who exercise at least twice a week. We anticipate initiating the study in early 2022. Now on to the rest of the pipeline. With our intensified focus on the commercial business, especially with the anticipated close of the Strongbridge Biopharma acquisition, we are reprioritizing our approach to our pipeline and will focus our development efforts going forward solely on products for our own potential commercialization. Now what do I mean by that? First, like our liquid stable diazepam and pramlintide-insulin combination, we did not intend to advance these products beyond Phase II in-house. The intent was to develop these products to demonstrate that our XeriSol technology was applicable beyond glucagon and to out-license them for further development to other companies. We've clearly proven that our technology is broadly applicable. However, the competitive landscape has changed rapidly, making out-licensing more challenging. That said, we will continue to seek development and commercialization partners to advance both our XeriSol pramlintide-insulin co-formulation program and our diazepam program. Our goal is to find suitable partners. However, we will not spend additional resources on advancing these assets. We will continue to advance our two undisclosed programs in endocrinology and gastroenterology, as they have high potential for development and commercialization in our primary area of current commercial focus and an adjacent therapy area where we have a development program underway. We will also continue to look for partners and/or out-license our unique technologies to companies for whom our formulation science may create a competitive advantage. We currently have three such programs that continue to advance in proof-of-concept discussions with the top ten pharma companies, and we are in discussions regarding additional potential projects as we speak. Now I'd like to spend some time discussing the Strongbridge Biopharma acquisition and revisiting why this is the perfect combination in our view for Xeris. By bringing Xeris and Strongbridge together, we are creating a scalable and diversified biopharmaceutical company increasingly oriented toward more specialty and rare disease products. We will have a stronger revenue base with two rapidly growing assets, Gvoke and KEVEYIS. We will also have the opportunity for a near-term launch of RECORLEV. Subject to FDA approval, we will be well positioned to leverage Xeris' experienced, endocrinology-focused commercial infrastructure to bring RECORLEV to market. Our commercial footprint in endocrinology is larger than what Strongbridge had envisioned for the launch of RECORLEV, which enables a greater potential reach at launch. We will have an overall more robust rare disease and endocrinology-focused commercial infrastructure into which we can add additional products that benefit a broader range of patients. We also expect that new products will be brought forward in these therapeutic areas utilizing our unique formulation technology platforms to integrate into our larger and scalable infrastructure for continued development of specialty-oriented and rare disease products from XeriSol and XeriJect. Additionally, with a stronger financial and strategic foundation, we see the potential to participate in the consolidation of commercial and late-stage products and companies focused on endocrinology, neurology, gastroenterology and rare diseases. We also have the potential to achieve significant synergies and substantial cost avoidance. Importantly, we believe this combination will provide significant benefits to all of our stakeholders and will position us to drive enhanced value for shareholders. Now transitioning to the financial specifics of our quarter, I want to talk just briefly about the change in our CFO. In April of 2018, we were preparing for our IPO, and it was critical that we have a finance leader who could build the team we would need as a new public company and guide our financing, debt, and reporting efforts as a development-stage company. Barry Deutsch stepped into that role and has built a superb team that steered our finances for the last three years, culminating in the pending close of the Strongbridge acquisition. Barry and I believe the next stage for Xeris, as an increasingly commercially focused, larger and more complicated company, requires the appropriate leader from our finance team for that stage. Barry has been mentoring Steve Pieper for several years, and Steve has a significant background in commercial finance. We believe Steve is what Xeris needs for the next stage of our development and has recently been assigned to succeed Barry as our CFO. I want to thank Barry for everything he's done for the company and welcome Steve to the role. And now I'll turn it over to Steve to review the highlights of our financial performance.

Thanks, Paul. Good morning, everyone. I'm pleased to meet you all virtually today, and I look forward to future opportunities to engage with everyone. Being the CFO of Xeris is an exciting opportunity for me personally, and I look forward to sharing the positive developments at our company both today and in future updates. My remarks this morning will focus on a few key financial results, the details of which are in the press release issued earlier this morning and our 10-Q that will be filed later today. As Paul stated, we had another strong quarter from a Gvoke revenue perspective, reporting $8.8 million in Gvoke net sales in the second quarter, which is up approximately 10% from the first quarter of 2021 and up approximately 345% from the second quarter of 2020. The $8.8 million of Gvoke net sales was driven by strong demand from our wholesalers and other direct customers, with Gvoke unit sales up 36% from the first quarter of 2021. As Paul mentioned in his opening remarks, the second quarter Gvoke net sales of $8.8 million included adjustments to the accrued returns reserve related to prior year sales, accounting for a revenue decrease of approximately $900,000. Gvoke net sales on a year-to-date basis through June 30 was $16.9 million, indicating a 360% increase versus the six months ending June 30, 2020. Turning to our cost of goods sold, for the second quarter of 2021, it totaled $3.4 million, which included primarily standard costs for products sold. This is an increase from $1.3 million from the same period in 2020, driven primarily by higher unit sales. In terms of expenses, total operating expenses increased by approximately $8.4 million in the second quarter to $31.3 million compared to $22.9 million for the same period in 2020. This increase was primarily driven by higher selling, general and administrative expenses, totaling $8.3 million. R&D expenses for the three months ended June 30, 2021, were $5.4 million compared to $5.3 million for the same period in 2020. This slight increase was largely attributable to higher pharmaceutical process development costs of $1.1 million, partially offset by lower personnel-related costs of $0.8 million due to a lower headcount. Additionally, selling, general and administrative expenses grew by $8.3 million for the three months ended June 30, 2021, compared to the same period in 2020, driven by several noteworthy items, including transaction-related expenses of $3.9 million related to the pending acquisition of Strongbridge Biopharma, an increase of $1.8 million in personnel-related costs primarily due to an expanded sales force, and an increase in marketing and selling expenses of $1.2 million. We anticipate that we will continue to incur expected transaction-related expenses up through and beyond the potential close of the Strongbridge Biopharma acquisition in early Q4. As of the end of the second quarter, our total debt amounted to $90.7 million, consisting of $47.2 million of convertible debt and $43.5 million under our senior credit facility with Oxford and SVB. As announced in May, we amended the senior debt facility to allow extensions of interest-only payments for up to 12 months to January 2023, subject to achieving revenue milestones. These extensions allow us to delay principal repayments of up to $17.4 million. We currently expect to meet each revenue milestone and have therefore classified the amounts due as noncurrent on our balance sheet as of June 30, 2021. Our net loss for the second quarter of 2021 was $27.5 million, or $0.41 per share, compared to a net loss of $24.1 million, or $0.63 per share for the same period in 2020. Regarding cash, as of June 30, 2021, we held total cash, cash equivalents, and investments amounting to $116 million, a decrease from $133.8 million at December 31, 2020. Based on our current operating plans and existing working capital at June 30, we believe our cash resources are adequate to sustain our operations and capital expenditure requirements for at least the next 12 months. Revenue from our currently marketed and potential future marketed products will determine when we reach cash flow breakeven. To summarize, we had another very strong quarter of Gvoke revenue. We continue to maintain a healthy balance sheet with a recently renegotiated debt facility that positions Xeris well to fund the commercial infrastructure necessary to drive continued Gvoke adoption, support our R&D pipeline, and ultimately manage our corporate infrastructure effectively as a public company. We are excited about our partnership with Tetris in bringing Ogluo to patients in Europe and the potential revenue and cash flow this arrangement represents for Xeris in 2022 and beyond. We anticipate that we will continue to incur transaction-related expenses associated with the potential acquisition of Strongbridge Biopharma, and we look forward to closing on the acquisition in early Q4. I now will turn the call back over to Paul.

Thanks, Steve, and welcome to the role. Before we open up for Q&A, owing to our sizable retail investor segment, we thought it would be helpful to address a few of the frequently asked questions that we regularly receive. Number one, why pursue the Strongbridge acquisition? At the end of the day, a better question would be, why not? Analysts and investors frequently ask what we are planning to add to our portfolio to complement Gvoke. The acquisition of Strongbridge Biopharma should be viewed as the perfect answer to that question, and I believe it is ideal for Xeris. The resulting pro forma company will boast two growing revenue-generating products in two therapy areas. We are shifting into rare disease and specialty. We have a potential product launch in our core endocrinology franchise on the horizon. The launch organization will be significantly larger than what Strongbridge could have assembled independently. We will have a stronger balance sheet and may realize potentially over $50 million in synergies. This acquisition is perfect for our company. Second question we're asked frequently in the last year or two is: why do you believe the COVID-19 pandemic is still affecting your business? There is no question the pandemic has significantly impacted our business in general and on Gvoke's launch specifically. We're all witnessing stores and restaurants full of people, but that is not the case in doctors' offices as of yet. The rate of reopening endocrinology offices, access to physicians in those open offices, and the time spent with prescribers remain below pre-pandemic levels. I cannot emphasize enough that office open patient visits, diagnoses and prescriptions written in the second quarter were still not back to pre-pandemic levels. We've been conducting all interactions virtually since March 2020. In fact, for the first time in 17 months, we had 100 percent of our field reps back into the field, predominantly face-to-face, in July. I would like to commend our commercial organization for their extraordinary performance over the last 18 months, handling responsibilities virtually. Everyone is thrilled to be back out calling on doctors in person, and we hope that continues well into the second quarter. We hope the Delta variant does not hinder us again, causing office closures. But ultimately, who knows? We are looking forward to a strong second half and hope the COVID-19 experience is somewhat behind us. The third question we receive regularly is: why did you take so long to acquire an EU partner? This was actually a relatively brief process, by any standards. As I explained in my prepared remarks, following Ogluo's approval at the end of the first quarter this year, we adjusted our strategy to seek a commercial partner and were able to announce a partnership just 3 months later. We are very pleased with Tetris; we think they will do an excellent job. Another common question is: why will it take until year-end to launch in the U.K. and well into 2022 to launch in other countries? The first launch will take five to six months from the deal signing. It's important to understand that the process in the U.K. and the EU differs significantly from the U.S. In these territories, reimbursement necessitates government pricing approval and reimbursement authorization in each country, which takes several months. Additionally, we have yet to invest in translating patient materials into various languages that our partner will need to do before product manufacturing for distribution can begin. As an example, Lilly is a very large commercial organization in the EU. We received approval in December 2019, and their first commercial launch in Germany was about three to four months later, with subsequent launches in other countries over the course of 2020. It is a fairly standard procedure in the U.K. and EU to bring a drug to market. Another frequently asked question is: why have we waited so long to progress mini- and micro-dose glucagon programs? We have addressed that in our remarks. Without explicit agreement with the FDA on clinical trial design, the size, timing, complexity, and feasibility of clinical trials cannot be determined. We finally received what we needed from the FDA in July, and we will analyze and announce our plans moving forward. Lastly, many are curious: when can we expect to see a partner for diazepam and pram-insulin? As I mentioned, these products were never intended for our further development but rather for partnering. We have repeatedly stated the primary goal of these programs is to validate our technology beyond glucagon. We will continue outreach on both programs and see over the coming months if we can secure a partner. In the meantime, we will not invest additional resources into those assets. I hope that answers some of the frequent questions we receive. We appreciate all Xeris stockholders, and are happy to address as many of their questions as possible. With all that said, our near-term focus remains on promoting Gvoke during this pivotal back-to-school season, finalizing the Strongbridge Biopharma transaction, effectively integrating the organization and its products, planning for the potential approval and launch of RECORLEV in early 2022, and reprioritizing our pipeline as we position the company for long-term product development and commercial success. Thank you all for listening this morning. I want to remind everyone that John Johnson and Rich will be available from Strongbridge to answer questions.

Our first question comes in from Difei Yang of Mizuho Group.

So Paul, I was wondering if you could comment on the $0 co-pay card, the usage trends over the past several quarters. And how should we think about the co-pay card, the $0 co-pay card, moving forward? It seems to be a central component of your commercial strategy.

Thanks, Difei. I appreciate the question. The $0 co-pay was initially a launch incentive and has become a key part of our ongoing commercial process with Gvoke. Usage has remained fairly steady over time, and we continue to see its effectiveness. Unfortunately, the pandemic has significantly impacted many in this community, and we believe it’s important to ensure easy access to Gvoke. There are over six million individuals with diabetes on insulin, and every one of them should have a prescription for glucagon. Obviously, we hope it’s Gvoke. We continue striving to make it accessible and affordable. We reevaluate the $0 co-pay on a quarterly basis, and at some point, we may decide to discontinue it. But for now, it is a core element of our strategy.

Our next question comes from David Amsellem of Piper Sandler.

I have just a few questions. First, you mentioned the Delta COVID variant. Are you hearing anything anecdotally in the field about more restrictions? Is there anything you think could negatively impact your Gvoke business? Overall, what are your thoughts on the back-to-school season and how should we think about quarterly cadence for the second half of the year? Also, I'd like your general thoughts on the impact of the Zealand product, Zegalogue. How do you think that product fits into the market? And lastly, with Strongbridge coming on board, how do you plan to approach your delivery technology and the introduction of more proprietary products into the clinic?

Thanks, David. I appreciate it. You raised several excellent points. Let me start with restrictions. I believe we are witnessing healthcare systems nationwide starting to mandate vaccinations for access. Many have mandated masking, which I expect will continue. Our company is currently about 90% vaccinated, though there are always individuals with health issues who cannot get vaccinated immediately. Additionally, access to endocrinology offices has not yet returned to pre-pandemic levels; therefore, there remains some struggle. But the bright side is we have our reps back out into the field, fostering face-to-face meetings which are refreshing and encouraging. We hope the Delta variant does not hinder this progress again. Regarding the upcoming back-to-school season, anecdotes suggest children will likely return to in-person schooling. However, with the resurgence of the Delta variant, it’s uncertain how things will unfold. I believe this third quarter will mirror last year—moderated growth rather than the spikes of previous years. As for the quarterly cadence, typically, the third quarter is the strongest, while we see a drop in the fourth quarter, just as we did last year and historically. The trends for Gvoke show strong leading indicators. However, we await that significant spike usually seen in August. So while I'm optimistic about improvement, I cannot quantify that yet. You mentioned Zealand. Competitors like Lilly, Zealand, and us are all on the same message: over six million individuals on insulin need ready-to-use glucagon in some form. This unified messaging is beneficial for market growth. In terms of product attributes, I would argue the Gvoke HypoPen is the superior option due to its portability and extended 30-month shelf life, unlike some alternatives. Finally, regarding the Strongbridge acquisition, once we integrate both companies, we will strategically focus on enhancing our delivery technology and expanding our pipeline in endocrinology, rare diseases, and possibly gastroenterology moving forward.

Yes, very helpful.

We have no further questions. I will hand it back to Paul Edick for closing remarks.

Thank you to those who asked questions. Hopefully, our prepared remarks addressed the inquiries many have. We appreciate everyone listening. I wish you all well. Good day.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.