Xeris Biopharma Holdings, Inc. Q1 FY2022 Earnings Call

Hello, and welcome to today’s Xeris Biopharma’s First Quarter 2022 Financial Results Conference Call and Webcast. My name is Bailey and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. I would now like to pass the conference over to Allison Wey, Senior Vice President of Investor Relations and Corporate Communications. Allison, please go ahead.

Thank you, Bailey. Good morning and welcome to Xeris Biopharma's first quarter 2022 financial results and corporate update conference call and webcast. A press release with the company's first quarter 2022 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 questions. 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 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 included 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.

Thanks, Allison. Good morning to everybody and thanks for joining us today. Our headline for this call is that we had another very good quarter in the first quarter of 2022. We generated approximately $22 million in net product revenue. We continued strong prescription and share growth for Gvoke. We continue to add more patients to all of our products including Gvoke, Recorlev, Keveyis and even overall in the UK and the Gvoke Kit, which became available at the end of the quarter. We also dramatically strengthened our cash position with the addition of a $30 million private investment and the debt refinancing we finalized with Hayfin, ending the quarter with over $132 million in cash, and we continue to advance the Phase 1 study of our levothyroxine product. This first quarter performance gives us great confidence that we are on track for the year. We are therefore affirming our previously announced guidance of $100 million to $120 million in total net product revenue for 2022, realizing $50 million in synergies from the Strongbridge acquisition by year-end 2022. Year-end 2022 cash balance of $90 million to $110 million and achieving cash flow breakeven by year-end 2023. I'll go into some specific highlights behind our performance, starting with Gvoke. We continue to see impressive Gvoke prescription growth. In the first quarter, Gvoke prescriptions grew 88% compared to the first quarter last year. On a sequential basis, Gvoke grew 5% quarter-over-quarter, while the overall glucagon market declined 1%. So again, there continues to be strong demand for Gvoke and we continue to outpace the market. For those watching prescriptions, April started off flat during the holiday period, but we finished the month strong with over 2,700 prescriptions in the last week of April and a 22% market share, which makes us feel really good about the balance of the second quarter. Overall, the glucagon market growth versus prior year has been improving, as offices have now opened, and reps have better access to those offices. While we are not quite back to pre-pandemic growth levels of over 20% to 30%, we are back to double-digit growth. Ready-to-use glucagon products now account for over 65% of new glucagon prescriptions, which is also very encouraging. We believe that when the market does return to those pre-pandemic growth levels, assuming Gvoke continues to outpace the overall market, we are very well positioned to capture a good portion of that growth. Since Tetris' final launch overall in late 2021 in the UK, they are beginning to see modest early uptake and growth in prescriptions as they get on regional health formularies, which is not remarkably different than getting on payer formularies in the U.S. Texas also continues to work toward launching Ogluo in additional countries in the EU in the balance of 2022. Moving on to Keveyis, we are very pleased with the steady increase in the number of primary paralysis patients benefiting from our product. Year-over-year, the number of patients on the drug is up 12%, and as we discussed previously, PPP patients are extremely hard to identify, so this strong performance is a testament to the collective expertise of the team and the close working relationship with the healthcare community. Onto Recorlev, as you know, we launched Recorlev in February. From the time of first referral and clearing reimbursement to starting on the drug and then properly titrating to one's optimum dose can take a patient several weeks to a couple of months. So demand-based sales will take a while to kick in. And with being only a few weeks into launch, it's too early to be a meaningful contribution on the revenue line. That said, receptivity with healthcare providers has been excellent. We are getting referrals. We're getting patients on the drug, and we're very excited about the prospects for Recorlev as another alternative for healthcare professionals' patients who struggle with Cushing syndrome. While it's only been a few weeks since launch, we are already supporting patients on Recorlev through the initiation, reimbursement, and titration process with our Xeris CareConnection team. We don't have much in terms of pipeline updates since our last call a few weeks ago. However, we did receive a positive response from the FDA on our proposed next Phase 2 exercise-induced hypoglycemia study, which we still aim to initiate later this year. Our Phase 1 pharmacokinetic study of levothyroxine to evaluate its potential as a once-weekly subcutaneous injection is still ongoing. We have completed two dose levels and will begin dosing the third, the next higher dose cohort later in the second quarter. We expect to complete this PK study and report out results from a range of doses and dose proportionality later in 2022. Before I turn the call over to Steve for details on our first quarter financial performance, I would like to reiterate that we had a great quarter. We feel very confident in our ability to hit our guidance for the year, especially with 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 our debt refinance. So now, I'll turn it over to Steve.

Thanks, Paul. Good morning, everyone. I will focus my remarks on a few of the key financial results, with details in the press release issued this morning. Total net product revenue was $21.9 million for the first quarter, representing a 33% increase over pro forma first quarter 2021 revenue. Net product revenue was driven by strong underlying patient demand for both Gvoke and Keveyis. While we did recognize some revenue from Recorlev in the first quarter, it was immaterial to the overall results as we had just launched Recorlev well into Q1. Gvoke continued its strong momentum in the first quarter, growing total prescriptions by more than 88% from Q1 of 2021 and topping 30,000 prescriptions in the first quarter. Gvoke quarter-over-quarter prescription growth was 5% despite the overall glucagon market total prescriptions declining by 1%, which aligns with historical trends in the first quarter relative to Q4. In Q1, Gvoke continued to capture a share of the glucagon market. At the end of March, Gvoke achieved approximately 22% new prescription share and the most recent weekly data ending April 29th suggests Gvoke has now achieved approximately 24% new prescription share. In the first quarter, we also made an adjustment to our returns reserve based on actual returns. As our Gvoke product is still in launch mode and we don't have a significant history of product returns, we estimate product returns based on various factors. We will continue to monitor and adjust our returns reserve as necessary. Keveyis also had a solid quarter from a patient on drug perspective, as we grew patients on drug by 12% relative to the first quarter of 2021. Just to wrap up my comments on revenue performance in the first quarter and looking ahead, we had a solid quarter and we continue to feel confident based on the underlying fundamentals driving the growth of the business, that we will finish within the range of $105 million to $120 million for full year 2022 net product revenue. Moving down to profit and loss, cost of goods sold was $6.3 million for the three months ended March 31, 2022, an increase of approximately $4.4 million compared to the same period in 2021. This increase was primarily driven by increased sales of our products. Research and development expenses increased by approximately $2.2 million in the first quarter to $6.3 million compared to the same period in 2021. These increases were primarily driven by higher pharmaceutical process development and clinical costs across multiple programs. Relative to the fourth quarter 2021, research and development expenses decreased by approximately $3.8 million. This decrease was driven by lower clinical service and pharmaceutical process development costs across key pipeline programs relative to the fourth quarter. Selling, general and administrative expenses increased by $16.8 million, or 88% for the three months ended March 31, 2022, compared to the same period in 2021. We incurred $11.5 million of increased commercial related costs, including an increase to our sales force and increased commercial support for Gvoke, Keveyis and the launch of Recorlev. In addition, approximately $2 million of the increase was related to the acquisition of Strongbridge, primarily restructuring and related employee costs. The remaining change was due to an increase in general expenses given the growth of the company. Let me provide some important context to these increases relative to first quarter 2021 as well as some context on sequential quarter-over-quarter changes. I had mentioned on our year-end earnings call in March that with the acquisition of Strongbridge, we would absorb the Keveyis commercial infrastructure and other key personnel, which prior to the fourth quarter of 2021 did not exist in Xeris’ financial results. In addition to Strongbridge related infrastructure, we had also expanded our endocrinology commercial team in mid-2021, and this expansion is also driving some of the increase relative to the first quarter of 2021. This is important context in terms of the increases to SG&A relative to first quarter 2021 expenses. On a quarter-over-quarter basis, SG&A expenses actually decreased by approximately $18 million in the first quarter relative to the fourth quarter. The fourth quarter included approximately $18 million of costs associated with the acquisition of Strongbridge, and in the first quarter, we incurred only about $2 million of expenses associated with the acquisition of Strongbridge. We had mentioned that Strongbridge acquisition costs would materially decrease in 2022. Therefore, we are seeing a net decline of SG&A expenses on a quarter-over-quarter basis, even though we incurred costs associated with the launch of Recorlev in the first quarter. As a reminder and consistent with previous guidance, we believe that we are on track to realize $50 million in Strongbridge acquisition related synergies approximately equally split between cost reductions and cost avoidance by the end of 2022. From a cash perspective, as of March 31, 2022, Xeris had total cash, cash equivalents and short-term investments of $132.1 million compared to $102.4 million at December 31, 2021. Our balance sheet was strengthened by both the $30 million private investment in January and the debt refinancing we finalized with Hayfin in March. Our net operating cash burn for the quarter was approximately $42 million, driven by our net loss in Q1, coupled with changes in working capital, primarily related to an increase in accounts receivable from higher sales and a decline in accrued liabilities from year-end 2021. You will also see in our quarterly filing that Xeris today entered into a sales agreement with Jefferies for a new at-the-market offering. You will recall that we had an ATM in place previously, but with the Strongbridge acquisition and the establishment of a new corporate parent, the ATM was effectively terminated. We do not have a need currently for additional equity financing but are doing this as a matter of good financial housekeeping should the need arise in the future. As we announced in March, 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. We drew $100 million on the closing date in March, and we repaid our previous debt facility of $43.5 million with Oxford Finance and Silicon Valley Bank. The net proceeds will provide additional working capital to fund our business plan, and an additional $50 million is available to Xeris at our election until March 2023. Based upon our current operating plan, we would expect we will draw the remaining $50 million by the end of this year. 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 towards cash flow breakeven by year-end 2023 and thereafter produce increasing operating cash flow. As a reminder from our last call in March, 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 private investment and the debt restructuring with Hayfin, we believe that we will finish 2022 with approximately $90 million to $110 million and furthermore can achieve cash flow breakeven by year-end 2023. To summarize, our commercial products are off to a strong start, and we are excited about the very early returns on Recorlev. We are affirming our full-year 2022 net product revenue range of $105 million to $120 million. We have integrated Strongbridge quickly into Xeris, and we 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. I will now turn the call back to Paul.

Thanks, Steve. As you just heard, we are off to a good start for 2022 in the first quarter and we can’t emphasize enough that we generated approximately $22 million in net product revenue. We continued strong prescription and share growth for Gvoke. We continue to add more patients to all of our products. We continue to advance our pipeline with the Phase 1 study of levothyroxine. As Steve mentioned, we dramatically strengthened our cash position with the private investment and debt refinance. 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 the refinance, we do not anticipate needing to raise additional capital in order to fund our ongoing operations. Our return to capital markets would be for M&A purposes only. Importantly, we are well positioned to achieve our 2022 guidance of net product revenues of $105 million to $120 million, $50 million in synergies from the Strongbridge acquisition, year-end cash balance of $90 million to $110 million, and cash flow breakeven focused on our guidance by year-end 2023. Operator, if you would please open the line for questions.

Thank you. Our first question today comes from David Amsellem from Piper Sandler. David, please go ahead. Your line is now open.

Hey, thanks. So just had a couple of questions. First, on Recorlev, I know it's early days, Paul, but can you just talk about patient uptake? Maybe if you're not in a position to provide patient-level metrics, just talk about the extent to which you're growing the patient footprint and also talk about access to the product? Are these patients who are getting Recorlev, have they been exposed to other agents or switched from other agents? I just wanted to get a sense of what adoption looks like in terms of patient-specific metrics to the extent you could provide them? That's number one. And then number two is, you mentioned not having to go back to the capital markets unless for M&A purposes. I'm wondering if you could just elaborate on how you're thinking about M&A, what kind of assets are you looking at? And would you take on any R&D risk in the context of a potential acquisition target? Thanks.

Good morning, David. Thank you for your questions. We are not in a position to provide many metrics on Recorlev patients. What I want to emphasize is that we are receiving patient referrals, and we already have patients on the medication. We are managing their journey through obtaining prior authorizations and getting insurance reimbursements. We believe that, based on our guidance, Recorlev is contributing positively to our goals, and we are on track with our plans. As for our return to the capital markets, I want to stress that we have sufficient funds to sustain our business until we reach cash flow breakeven, assuming we stay on plan. We have established an ATM for good financial management, but we prefer not to pursue acquisitions that would bring R&D risk or negatively affect our cash flow. Our focus is on achieving critical mass and reaching cash flow breakeven. However, if we were to find another opportunity similar to Strongbridge with a product like Keveyis that generates good revenue and another nearing approval like Recorlev, that would be an attractive option for us.

Okay. That's helpful. If I could, I would like to ask a follow-up regarding the product-specific sales disclosures. Can you provide specifics on net sales for Gvoke and Keveyis if possible? If you're unable to do that, could you explain why you're not sharing the product-specific sales figures? Thanks.

Yeah. So what we've committed to is guidance for the year on a total product basis. Gvoke is still in launch mode. Recorlev has just gotten out the door. We're not saying that we'll never provide product-level results, but it's just too early. If you're following Gvoke and you look at IQVIA, you can pretty much do the math, and the balance is Keveyis more or less. In the first quarter, Recorlev didn't contribute much.

Thank you, David. The next question today comes from Roanna Ruiz from SVB Securities. Roanna, please go ahead. Your line is now open.

Great. Good morning, everyone. So a follow-up question for Recorlev. I understand you're not able to give specifics, but I was curious on the physician front. Are you hearing anything anecdotally about real-world efficacy or safety about Recorlev and how is awareness growing for the product in your first quarter of launch?

Good morning, Roanna. The receptivity from physicians has been excellent. Regarding efficacy, we only have a few patients on it so far. We have had no concerns about efficacy, and the product is working. No safety concerns have been expressed. Awareness is quite high already. We're looking forward to the conference season with AACE and Endo coming up, and we've had great receptivity to the activities we're having at both AACE and Endo, and we're all participating. So far, in a few weeks, we’re feeling very positive.

Great. And quick questions for Gvoke. I'm curious, what do you think is driving the continued share growth? We did notice that BAQSIMI prescriptions seem to be stabilizing a bit, so I'm wondering what might be causing some of the slight differences and trends between Gvoke versus BAQSIMI.

Well, I think it's what we've said all along from the beginning. BAQSIMI had about a ten month plus head start. They also perform extremely well during the back-to-school season, which is when they launched the product, because they've got a very strong position with their insulin business. However, we've said from the beginning that we would trend upward at a faster rate, and we would begin to capture more and more of the market. To the point, we’re at some point, we see that we can likely split the market evenly. As I've said since day one, we really value Lilly’s voice in this market in terms of raising the level of urgency among patients and healthcare professionals that if you're on insulin, you should have a prescription for ready-to-use rescue glucagon. If that happens with 7 million people on insulin, we'll get our fair share and Lilly will get their fair share.

Yes. Understood. And one quick one for Keveyis. I was curious, if you have any updates on pursuit of additional patent life for the products as we approach the exclusivity end?

Yeah. We don't have an update. We continue to prosecute several patents. We're in the appeals process with one or two. We continue to work very hard to try to get patent protections across the finish line.

Thank you. The next question today comes from Vamil Divan from Mizuho Securities. Vamil, please go ahead. Your line is now open.

Great. Thanks for taking my question. Maybe following up on some earlier ones. So one on Keveyis, as you mentioned the IP in terms of securing more patents. Can you just give us a sense of your base case assumption at this point on potential generic competition there, if at all? And then, regarding Gvoke, you mentioned sort of doing the math to get to the product sales there. It looks like from our math that maybe Lilly is doing a little bit of discounting now or more than they were before with BAQSIMI. I'm just curious if you can share anything on the pricing side and sort of gross to net assumptions we should make, just trying to parse what the prescriptions actually mean in terms of net sales? Thank you.

Yeah. For Keveyis on the generic front, I think we've said historically, we didn't expect to see a generic. We haven't seen any evidence of a generic. If there is one, we wouldn't expect anything until 2023. We think we are in really good shape for 2022. Also, the way Keveyis operates, the way PPP patients are identified and put through the process, requires a great deal of work on the part of the company. We basically help physicians identify patients, so generics will have a tough time doing that amount of work. Recall that the product was originally launched by a generic company and didn't do terribly well, which is how Strongbridge ended up acquiring the product. Still, we're being very diligent, and we have all options open to us, including our own authorized generic. I think there's a way to protect a significant portion of this business. As far as Gvoke on the gross-to-net, Steve mentioned, the increase to the returns reserve, but you want to talk more on it?

Yeah. We added to our returns reserve, which you will see in our financials, totaling $1.4 million in the quarter. Again, we take various factors into account when estimating our returns reserve, primarily driven by actual returns. So I would say that was the impact. We don't comment specifically on gross to net percentage, but it aligns with industry averages for retail products.

And to your question on pricing, there has been no negative impact on pricing. We're still in pretty good shape.

Okay. And then maybe just one quick follow-up more on the financial side with SG&A. Steve, I caught your comments on the sequential decline. I guess we're trying to think about forecasting that forward. We were quite a bit higher than what you guys reported for the quarter, so would you expect expenses to stabilize at these levels or do you expect a little bit more of a decline into the second quarter as you think about the progression of your expenses here?

Yes, good question, Vamil. I would expect that to basically stabilize. What you would see, from an SG&A perspective, what happened in Q1 I think will likely carry through for the rest of the year.

Thank you very much.

Good morning. Can you expand on Tetris and the plan and the timing and perhaps even the order of looking to further commercialize it?

I didn't catch the second half, Robin. Welcome to the call, and good morning, but I didn't catch the second half of your question. Anyway, the Tetris launched in the UK. They're beginning to get on all the formularies and there are more formularies in the UK than there are payers in the U.S. It is a difficult and long process, but they are off to a pretty good start, operationally doing very well. They're getting patients. They're getting prescriptions and ordering products. I think they're still on track to launch in Germany and a couple of other countries in mid-year, and they're going to sequentially go through the rest of most of the larger countries like the Nordic, Scandinavian countries, Italy, France, and Spain all over the course of 2022 and into 2023. I don't believe that this business is going to be a huge contributor for us because the pricing they got is equivalent to about $100. We sell it to them at a transfer price, and they make whatever they can beyond that.

Thank you for expanding on that. One additional question is just around the number of units per patient for Gvoke. Are you seeing that change as your awareness and growth continue in terms of your revenue share?

Yeah. Interestingly, right now, it's stabilized at about two units per patient per prescription. It's one of those things where patients might be getting multiple prescriptions to get more units, but the average units per prescription have stabilized at about two. When we first launched, we did see the average units per prescription creep up to about three, but we're not seeing that now. What we're seeing more is that patients just get multiple prescriptions.

Thank you. Our next question today comes from Oren Livnat from H.C. Wainwright. Please go ahead. Your line is now open.

Thanks for taking my questions. I have a couple. On Recorlev, I understand it's really early and revenue is material at this point, but when we started thinking looking forward, I think on the last call a couple of months ago, you did mention having some patients on therapy and clearly, you've added more in the meantime. Can you talk about those earliest patients? Do you already have some or all of them through the reimbursement stages to the extent that, you've already got revenue-producing patients? Now even if they're still titrating up at lower revenue per patient than they'll eventually get to? And I have a follow-up. Thanks.

Yeah. The answer is yes. As you know, all these patients are going to require prior authorization until we actually get guidelines with the various payers. But we're clearing insurance. We have patients that are getting reimbursement, and we're adding patients every week.

Okay. At some point in the future, do we think we’ll provide besides revenue breakouts? Hopefully any more metrics around this product? Obviously, for orphan indications, we're talking about small numbers and small numbers make a big difference. Will we ever talk about patient volumes added into either the funnel or on active therapy?

Yeah. I don't think we'll actually be talking about patient volumes because they are such small numbers and they do vary pretty regularly. As we get more history with all of our products, we reassess every quarter on which metrics we can provide that are reliable in terms of the data that we're getting. As things grow and stabilize, we'll continue to look at whether we will provide product-level results. We've never ruled that out, but we haven't committed to it.

And I think I've asked you this before but I apologize. I can't remember the answer. Can you just remind us with your CareConnection process and onboarding process for Recorlev? Do patients who are referred or prescribed the product theoretically get on therapy before the prior authorization is adjudicated? Or does the prior authorization have to be approved before they can get it?

Yes, the best way for patients to get on therapy such as Recorlev or Keveyis is to have the physician, the CareConnection patient partner involved, and the specialty pharmacy involved where all of that is managed. Insurance is cleared. Patients are ready to go. Doctors are ready to go. A lot of physicians actually request the patients’ CareConnection patient partner be involved in the consultation when they initiate therapy. So by the time a patient is actually initiated on the drug, they are in the best position to succeed.

Apologies if I didn't fully understand the answer, but is the drug getting sent to a patients' house before it's necessarily cleared just to make this smooth, frictionless transaction as possible for doctors and patients, or does the prior authorization have to be approved before they can get it?

Prior authorization has to be cleared. Insurance has to be cleared then the drug is initiated.

Beautiful. Regarding Keveyis, I apologize for the many questions. You mentioned a 12% year-over-year growth in patients. Could you elaborate on what this might mean in terms of revenue growth without providing an exact figure? I believe there might also be some benefits from material price increases year-over-year. Additionally, does this figure represent total patients on therapy for the year, or is there some patient turnover included?

There is some churn in there, right? We do have churn. We do have turnover, right? Discontinuation in there. I would say that generally speaking, patient growth translates to revenue growth on a year-over-year basis. I think that's the safest option.

Okay. Thank you for the time.

Thanks, Oren.

Thank you. There are no additional questions waiting at this time. So I'd like to pass the conference over to Paul Edick for closing remarks.

Thanks again to everybody for joining the call and for your continued support as we execute on our strategy to create the critical mass necessary to become a fully capable and profitable pharmaceutical company. Everybody have a really good day.

That concludes the Xeris Biopharma first quarter 2022 financial results conference call and webcast. Thank you for your participation. You may now disconnect your lines.