Xeris Biopharma Holdings, Inc. Q4 FY2021 Earnings Call

Hello everyone. And welcome to the Xeris Biopharma Fourth Quarter 2021 Financial Results Conference Call and Webcast. My name is Seth and I will be the operator for your call today. I will now hand the floor over to, Allison Wey, to begin. Please go ahead.

Thank you. Good morning. And welcome to Xeris Biopharma's fourth quarter 2021 financial results and corporate update conference call and webcast. A press release with the company's fourth quarter and full year 2021 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 CFO. Paul will provide opening remarks, Steve will provide details on our financial results and then we will open up the call for Q&A. Before we begin, I would like to remind you that this call will contain forward-looking statements concerning Xeris' business practices, Xeris' future expectations, plans, prospects, clinical approvals, commercialization, corporate strategy, performance, and the impact of COVID-19 on Xeris' business practices, which contain 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 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'll now turn the call over to Paul Edick.

Good morning, everyone. Thanks for joining us today. This morning, I'll review our 2021 accomplishments and then focus my remarks on our 2022 plans and outlook. 2021 was a remarkable year for Xeris with many significant achievements. Most notable was the acquisition and integration of Strongbridge Biopharma that enabled Xeris to expand our portfolio of commercialized products, and to take an important step forward in creating the critical mass necessary to become a fully capable and profitable pharmaceutical company. Other key highlights include impressive total product sales of $79 million on a pro forma basis for Gvoke and Keveyis, which is a 56% increase over 2020. Gvoke prescriptions in the fourth quarter and full year 2021 grew by 85% and 144% respectively, compared to last year. The number of primary paralysis patients benefiting from Keveyis continued to grow throughout 2021 and net sales increased year-over-year reaching the top end of our $38 million to $40 million guidance. We also formed two important partnerships that could create significant value in the future with Tetris Pharma to commercialize Ogluo, which is our international trade name for Gvoke in the UK and Europe, and with Merck to access our XeriJect technology for an unspecified monoclonal antibody. We also received multiple FDA approvals in 2021, the first being for the room temperature shelf-life extension for our one milligram presentation of the Gvoke HypoPen and Prefilled Syringe from 24 months to 30 months of room temperature stability. Additionally, for our Gvoke Kit, which is a single-use vial and syringe presentation, providing patients with another ready-to-use Gvoke option. The kit will be available for sale next week. Very importantly, product Recorlev is a new treatment option for patients suffering from Cushing syndrome. We also made advancements in our development pipeline having submitted INDs and supported various programs, most recently for Exercise-induced Hypoglycemia. We ended the year in a very strong financial position with $102 million on the balance sheet, and added to that strength with a $30 million private placement at the start of 2022. When coupled with the debt restructuring with Hayfin that we announced this morning, Xeris' financial position is as strong as it has ever been since the company's inception. More specifically, we believe that we will end 2022 with $90 million to $110 million assuming achievement of our product revenue guidance, and we will reach cash flow breakeven by the end of 2023. Steve will go into more detail on our financial performance and outlook. Now I'd like to elaborate on our three commercial products starting with Gvoke. For Gvoke, our message to physicians and other healthcare providers is clear and simple: everyone on insulin is at increased risk of experiencing a severe low blood sugar event and therefore should have a ready-to-use glucagon product available for rescue. That message continues to resonate strongly in the medical community. In fact, the ready-to-use products have grown to over 60% of the total glucagon market in just over two years. Every week, new prescribers come on board, every week, prescribers add additional insulin patients in their practices that should have ready-to-use Gvoke HypoPen on hand, all of which are contributing to Gvoke's impressive and accelerating performance. In the fourth quarter, Gvoke prescriptions grew 7% from the third quarter. This is particularly strong performance considering the glucagon market declined 8% over the same period. You will recall from our previous reviews that the third quarter is the quarter in which glucagon prescriptions normally surge as part of a back-to-school phenomenon. So, the fourth quarter has historically declined in comparison. We continue to outpace the overall glucagon market due to strong demand for our product, with Gvoke's retail market share currently standing at approximately 20%. The Gvoke grew so strongly even in such a headwind reinforces our enthusiasm for continuing strong performance in the future. Moving on to Keveyis, Keveyis also had a strong 2021 achieving pro forma product sales at the top end of our $38 million to $40 million guidance. As we have previously discussed, periodic peripheral paralysis patients are extremely hard to identify. This strong performance is a testament to the collective expertise of the team and the close working relationship with the healthcare community. The smooth transition of the Keveyis commercial operations to Xeris also helped ensure continued strong performance. Now for Recorlev. We received an early FDA approval for Recorlev on December 30, 2021. Due to the incredible amount of work during integration by the teams, we were able to hold our virtual launch meeting and ship product to our specialty pharmacy partner within a few weeks of approval. As we've discussed, the key value driver of the Strongbridge acquisition was the market opportunity for Recorlev and its fit with our existing Gvoke commercial infrastructure. We remain very excited about the prospects of Recorlev. We estimate there are approximately 8,000 patients requiring pharmacologic treatment, 40% of whom are poorly controlled. The estimated total addressable market for this therapy is approximately $2 billion in the US. By leveraging Xeris's commercial infrastructure targeted at endocrinology and the legacy Strongbridge organization's experience in supporting people with rare diseases, we believe we are in a great position to help Cushing syndrome patients who are inadequately controlled achieve a more normal lifestyle. Since it's only been a few weeks since launch, we have already placed several patients on Recorlev and supported them through our Xeris CareConnection program. Xeris CareConnection provides support services throughout the entire treatment journey to patients and healthcare professionals with direct access to pharmacists, reimbursement specialists, and access managers. Just a couple of updates on some of our pipeline programs. As we previously announced, we initiated and continue to dose participants in a single ascending Phase 1 study of our novel formulation of levothyroxine to evaluate the potential for a once-weekly subcutaneous injection. We expect complete results from the Phase 1 study in the third quarter of 2022. We've recently submitted an IND for Exercise-induced Hypoglycemia and received FDA clearance in March. We expect to start additional Phase 2 work later this year. Moving on to our 2022 outlook. On our third quarter call, we committed to providing total company product revenue guidance for 2022. Our focus is obviously on driving the entire product portfolio. Therefore, I want to reemphasize that we will only provide outlook for the total company product revenue. We expect product sales of all three branded products to total between $105 million and $120 million in 2022. Assuming company performance consistent with our 2022 guidance and internal 2023 outlook, we expect to end 2022 with $90 million to $110 million in cash and achieve cash flow breakeven by year end 2023. Given our exceptionally strong cash position as a result of cash on hand, revenue generated from our three commercial products, the addition of cash from the recent private placement, and with our debt refinance, we do not anticipate needing to raise additional capital to fund our ongoing operations. A return to the capital markets would likely be for M&A purposes only. Our company has arrived at a very important strategic inflection point in our history, and we look ahead to 2022 and beyond. I couldn't be more pleased with what the future holds for our stakeholders, the patient communities we serve, our employees, our shareholders, and our healthcare professional partners. 2022 is a year of execution. With that, I'll turn it over to Steve to review the details of our financial performance.

Thanks, Paul. Good morning, everyone. I will focus my remarks on a few of the key financial results, the details of which are in the press release issued this morning and our 10-K that will be filed later today. Because we closed the Strongbridge acquisition in early October, the financial results I'm covering today, including fourth quarter and full year 2021 only include the fourth-quarter impact from the Strongbridge acquisition. However, I will also be commenting on the full year pro forma net product revenue results. As you heard Paul say, strong demand continued for Gvoke and Keveyis in 2021. On a pro forma basis, total net product revenue was $79 million for the full year, representing a 56% increase over pro forma 2020 revenues, finishing at the high end of the guidance we provided back in November. On a GAAP reported basis, fourth quarter total net product revenue was $21.4 million and for the full year was $49.3 million, reflecting only one quarter of Keveyis contribution. While we are not reporting net revenue by product, I will say that Keveyis did achieve the high end of our previous guidance range of $38 million to $40 million for the full year 2021. Gvoke continued its strong momentum in the fourth quarter, driving quarter-over-quarter prescription growth of 7% and topping 29,000 prescriptions, growing more than 85% from Q4 of 2020. For the full year 2021, Gvoke generated over 94,000 prescriptions representing a 144% increase over the full year 2020. As we move down the P&L cost of goods sold was $4.9 million for the three months ended December 31, 2021, an increase of approximately $1.5 million compared to the same period in 2020. Cost of goods sold was $13.3 million for the full year ended December 31, 2021, an increase of $4 million compared to the full year 2020, primarily due to increased product sales, partially offset by lower access and obsolete expenses. Turning our attention to expenses, research and development expenses increased by approximately $5 million in the fourth quarter 2021 to $10.1 million compared to the same period in 2020. On a full year basis, research and development expenses increased by approximately $4.2 million in 2021 to $25.2 million compared to the full year 2020. These increases were primarily driven by higher pharmaceutical process development and clinical costs across multiple programs. Selling, general and administrative expenses increased by approximately $36 million in the fourth quarter of 2021 to approximately $54 million, compared to the same period in 2020. On a full year basis, SG&A expenses increased by approximately $52 million in 2021 to approximately $126 million compared to the full year 2020. Let me provide important context to these increases relative to 2020. As I mentioned on our third quarter earnings call, given that the Strongbridge acquisition closed in early October, I communicated that we would incur a majority of the one-time costs associated with the transaction in the fourth quarter. I also mentioned that with the acquisition of Strongbridge, we would absorb the Keveyis commercial infrastructure which prior to the fourth quarter of 2021 did not exist in Xeris's financial results. This context is important when considering the increases to SG&A relative to both the fourth quarter and full year 2020 results. Looking at the fourth quarter and full year 2021 increases, approximately $18 million and $24 million of the respective increases are related to the acquisition of Strongbridge, including transaction costs, restructuring related employee costs and insurance costs. These Strongbridge acquisition related expenses in SG&A will not materially recur in 2022. Furthermore, these results do not include any impact from material cost savings synergies, most of which we expect to realize by year end 2022. Additional drivers of the SG&A increase in the fourth quarter and full year 2021 include the previously communicated expansion of our Gvoke salesforce in 2021, the inclusion of the Keveyis commercial team and related expenses in Q4 of '21, and other commercial related expenses, including preparation for Recorlev launch in Q1 2022. These expenses accounted for approximately $16 million and $17 million of the fourth quarter and full year 2021 increase respectively. To be clear, we believe that we are on track to realize $50 million in deal related synergies, approximately equally split between cost reductions and cost avoidance by the end of 2022. Additionally, our operating expenses going forward will include future costs for the launch of Recorlev, support for the continued growth of both Gvoke and Keveyis, R&D, and other administrative costs associated with running a public company. Turning to cash, as of December 31, 2021, Xeris had total cash, cash equivalents and short term investments of $102.4 million, compared to $133.8 million at December 31, 2020. We will continue to pay Strongbridge acquisition related costs in 2022, including severance and other accrued liabilities as of year end 2021. In regard to debt, as we announced earlier this morning, we entered into a senior secured term loan agreement with funds managed by Hayfin to provide us with up to a total of $150 million of capital. Under the terms of this debt facility, we drew $100 million on the closing date and repaid our previous debt facility consisting of $43.5 million with Oxford finance and Silicon Valley Bank. The net proceeds will provide additional working capital to fund our business plan. An additional $50 million is available to Xeris at our election during the next 12 months. Based on our current operating plan, we expect to draw the remaining $50 million by the end of this year. We are pleased to be partnering with Hayfin; this debt facility increases our financial strength and provides us substantial resources by securing access to non-dilutive capital on attractive terms without over-encumbering our balance sheet. Together with the recent equity financing, which closed in January, Xeris has now added approximately $80 million of cash to the over $102 million of cash, cash equivalents and short term investments already on our balance sheet at year end 2021. This capital base and the additional $50 million from the debt facility provides the company with significant operating flexibility to drive our rapidly growing commercial business toward cash flow breakeven by year end 2023 and thereafter to produce increasing operating cash flow. As we look ahead, we project the rate of cash burn to improve over the course of 2022 as our revenue base continues to grow, and we see a decline in obligations associated with the Strongbridge acquisition related costs. With the revenue growth from our three marketed products combined with our current cash position, the cash received from the recent equity financing and the debt restructuring with Hayfin, we believe we will finish 2022 with approximately $90 million to $110 million and achieve cash flow breakeven by year end 2023. To summarize, Gvoke and Keveyis had a great quarter and year in terms of net product sales. We have integrated Strongbridge quickly into Xeris and will achieve $50 million in synergies by the end of 2022. We are in a solid position from a cash perspective to drive growth of Gvoke, Keveyis and Recorlev and fund our R&D pipeline. Let me turn the call back to Paul.

Thanks, Steve. As you just heard, we're off to a great start in 2022 due to the great work done by the entire team in 2021. We believe that with the continued growth of our three commercial products, Gvoke, Keveyis, and now Recorlev, we can achieve full year 2022 net sales in the range of $105 million to $120 million. In 2022, we also expect Tetris to launch Ogluo in several additional European countries. The availability of the Gvoke Kit next week, data from our Phase 1 study of levothyroxine in the third quarter, and the initiation of an Exercise-induced hyperglycemia Phase 2 program later in the year. Due to our cash on hand, cash-generating products, and the capital from Hayfin, we expect to end 2022 with a very healthy cash position as Steve mentioned. As we've stated several times, we anticipate achieving cash flow breakeven by the end of 2023. Operator, I'll turn it over to you to open the lines for questions.

The first question today comes from Roanna Ruiz from SVB Leerink. Please go ahead.

Hi, good morning, everyone. So two questions for me. First, I wanted to ask about your financial guidance for 2022. I'm curious what's driving your $120 million net product revenue range? And I wanted to ask about Recorlev. Could you talk a little bit about the first patients that have been prescribed Recorlev? Have they cycled through other products previously? Are they more switched patients from other Cushing's drugs? Just to help us think about what they look like as the early adopters of Recorlev.

Hey Roanna. Good morning. Thank you. I'll take the second one first. We don't yet have a complete handle on the patients prescribed so far; we don't have that level of specific information on a per patient basis. As we get more patients, the specialty pharmacy will begin to aggregate where the patients are coming from, on a percentage basis. So, for example, if we had 10 patients, we aim to determine what percentage of those 10 came from other products that they cycled through. We'll know more as we gather more data. And regarding your first question about what's driving our confidence: I think in our prepared remarks we shared that we had a great fourth quarter. When you compare it to what the market did, that's incredibly encouraging. If you look at script data so far at the beginning of the year, we're off to a solid start. Keveyis is holding strong, and we are only a few weeks into Recorlev, but we're feeling very positive.

Our next question comes from Vamil Divan from Mizuho Securities. Please go ahead.

Yes, great. Thanks for taking my question. So maybe a couple more on Recorlev for guidance and commentary. So one just on Recorlev. Can you talk a little bit about the payer environment there regarding patient access and what you expect going forward through any requirements for patients who have gone through other therapies? What is your anticipation for adoption rates?

Hey Vamil, thank you very much. I appreciate the question. On Recorlev, we have only a few patients so far. All of these patients generally require prior authorization. We're going through that process. The branded products in this category are being reimbursed at the price levels we've established. So we're not worried about it; it is a process. Each patient is treated individually and takes some time to go through their history before they get approved. But we don't foresee any roadblocks there; we believe we will compete with other products and achieve reimbursement. So that should not be a significant obstacle. In terms of the $90 million to $110 million year-end cash guidance, yes, it does include the drawdown from the additional $50 million expected late in the year. Regarding cash flow breakeven expenses, we expect to have a stable state once we get beyond the first quarter with the seasonal one-time costs. The rest of 2022 and 2023 should remain consistent.

Our next question comes from David Amsellem from Piper Sandler. Please go ahead.

Thanks. A couple of questions. First, Paul, you commented about potentially accessing equity capital for further M&A activities. I want to understand the types of assets you're interested in. How much of a priority will M&A be going forward? Secondly, I'd like your thoughts about Gvoke. In terms of progressing beyond the pandemic, how do you perceive the readiness of endocrinologists to adopt ready-to-use products more widely? How has that changed? In connection, what proportion of your sales calls are in-person these days?

Okay, David, thank you for joining us this morning. I'll address them in the order you provided. Regarding access to capital markets, the key point is that we believe we can reach cash flow breakeven through organic business growth along with our current cash and revenue generation. If we access capital markets, likely for M&A, we want to maintain our focus on organic growth and achieving profitability, which requires reaching critical mass. M&A plays a role in that, and the kind of assets we would consider would overlap with our current business, like the Strongbridge acquisition, allowing us to advance our goal significantly. As for Gvoke, we are already observing late in Q4 and into Q1 some return to double-digit growth. Physicians generally agree patients on insulin should have a ready-to-use glucagon product available. It is about fostering this behavior as awareness increases every day. In-person interactions with physicians are nearing 100%, although not all reps are in the field. We still have a virtual inside group, but access is improving. For Recorlev, we expect to capture patients from various other products; there’s quite a churn in this market.

We have no further questions waiting on the call. I will hand it back to Paul for closing remarks.

Thank you for your questions and thanks, everybody, for listening. Congratulations to the team on a great year and a great fourth quarter. We're looking forward to another successful year in 2022. Thank you very much.

This concludes today's conference call. Thank you very much for joining. You may now disconnect your lines.