Xeris Biopharma Holdings, Inc. Q1 FY2023 Earnings Call

Hello all and welcome to the Xeris Biopharma Holding First Quarter 2023 Financial Results Call. My name is Elisa, and I will be your operator today. Now I would like to introduce your host, Allison Wey, Senior Vice President of Investor Relations and Corporate Communications. Allison, you may begin when you are ready.

Thank you, Elisa. Good morning and welcome to Xeris Biopharma first quarter 2023 financial results conference call and webcast. A press release with the company’s 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, CFO. Paul will provide opening remarks, Steve will provide details on our financial results, and after a few closing remarks by Paul we will open the call for Q&A. Before we begin, I would like to remind you that this call will contain forward-looking statements which may include but are not limited to statements concerning our business practices, future expectations, plans, prospects, clinical approvals, commercialization, corporate strategy, and performance which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements made during this call, as a result of various important factors, including our financial position and need for financing including to fund our product development programs or commercialization efforts. Whether our products will achieve and maintain market acceptance, our reliance on third party suppliers, including single source suppliers, our reliance on third parties to conduct clinical trials, the ability of our product candidates to complete successfully with existing and new drugs, adverse effects of macroeconomic conditions on our business operations and clinical activities and our ability to protect our intellectual property and proprietary technology as well as other risk factors set forth in our filings with the Securities and Exchange Commission. Any forward-looking statements in this call 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. Subject to obligations under applicable law, we disclaim any obligations to update such statements. I'll now turn the call over to Paul.

Thank you, Allison. You can take a breath. Good morning, everyone, and thank you for joining us today. Before I highlight our achievements for the first quarter, I think it's important that I reiterate what we're trying to build at Xeris. Every day, everyone at Xeris is intensely focused on building a substantial, patient-centric, commercially-focused, self-sustaining biopharma enterprise with multiple commercial products in multiple therapeutic areas, a highly targeted development pipeline that has significant long-term promise, and increasingly a significant value-added technology partnership business—a three-dimensional enterprise. What you'll hear today is that we are continuing to progress very successfully on that journey. We are executing on our vision, just as I said a few short weeks ago when we reported outstanding 2022 results. Our momentum from 2022 has set us up for a great 2023. First quarter 2023 delivered another record of quarterly revenue, strong underlying demand for Gvoke, Keveyis, and Recorlev. Another potentially very valuable XeriJect partnership and a continued healthy cash position. Here are the headlines. We have achieved first quarter total revenue of $33.2 million, representing 50% growth compared to the first quarter of '22. We ended the first quarter 2023 with $95.1 million in cash, cash equivalents, and short-term investments. We announced a research collaboration and option agreement with Regeneron for XeriJect formulations and we are reaffirming our 2023 guidance of total revenues of $135 million to $165 million, cash utilization from operating activities of between $57 million and $77 million, and year-end cash, cash equivalents, and short-term investments of between $45 million and $65 million. Steve will go into those in greater detail as we progress. Let's start with the commercial portion of our business, which generated $32 million in the quarter, representing a 47% increase over last year in the first quarter. First, Gvoke. Gvoke had another record quarter of net revenue and prescriptions just over $15 million in net revenue, and a 21% increase compared to the first quarter of '22. Total prescriptions for the first quarter were just shy of 46,000, growing 50% compared to the same period last year, and a 10% increase from the fourth quarter of '22, which is a very good sign, since the first quarter's market growth is historically flat to the fourth quarter of the prior year. Since the beginning of the year, market growth is back to double digits with Gvoke continuing to outpace all other products and driving that market growth. At the end of April, Gvoke's market share of new and total prescriptions in the glucagon market grew to approximately 30% and 29% respectively. Ready-to-use glucagon products now represent over 75% of the total new prescription market for glucagon. Gvoke is also off to a good start in the second quarter, having recently topped 4,000 prescriptions per week for the first time and for two consecutive weeks. I mentioned this on our fourth quarter call a few weeks ago, but due to its significance, I believe it bears repeating, especially since we're entering an important conference period. While more and more patients on insulin are getting ready to use glucagon such as Gvoke, there are still over 7 million people on insulin who remain at high risk and don't have a ready-to-use Gvoke available just in case. To address this critical situation and motivate healthcare professionals to do more, The American Diabetes Association, The Endocrine Society, The American Association of Clinical Endocrinology, and others have recently updated their guidelines and algorithms to include an important focus on the incorporation of ready-to-use glucagon into clinical practice. For example, the Endo Society expanded the definition of those at high risk for severe low blood sugar and strongly recommends that ready-to-use glucagon should be prescribed for all patients with diabetes who are on daily insulin or sulfonylureas, confirming what we've been saying all along. Onto Recorlev, Recorlev generated $4.5 billion in net revenue for the first quarter, an increase of approximately 18% from the fourth quarter of '22. We continue to see a steady increase in referrals, new patients on drug, and unique prescribers of Recorlev in the first quarter. For example, we saw an increase in the number of referrals to Recorlev in the first quarter of nearly 30% from the prior quarter. Interestingly, in the first quarter, more than 30% of patients were prescribed Recorlev as their first drug therapy. This means that healthcare professionals are valuing Recorlev as a first-line treatment for Cushing syndrome post-surgery. Overall, Recorlev is developing exactly as expected. Moving to Keveyis, first quarter revenue for Keveyis was approximately $13 million, which represents an increase of 37% compared to the first quarter of '22. Since the first generic was approved in late December, it has not had a material impact on Keveyis to date in 2023. In fact, our referral rates and patients on drug remain very steady. That isn't to say there won't be an impact. However, this is a challenging marketplace that requires significant work to identify, initiate, and maintain patients on therapy. So far, we have only seen glimpses of how generics may impact that process and the market as a whole. We'll see how it plays out over the course of the year. That said, given the historical market dynamics, we are continuing to invest in Keveyis, despite the entrance of a generic, and believe we can maintain a considerable portion of the business we've worked so hard to build, on behalf of the patient community, and we continue to monitor the landscape. Xeris is committed to ensuring everyone who needs access to Recorlev and Keveyis will receive it. Our dedicated Xeris care connections team, patient advocates, and mentors support patients and healthcare providers through the product initiation, reimbursement, and titration process, and we will continue that effort. Let's turn to our pipeline and partnered programs. As you know, we are focused on advancing our XeriSol Levothyroxine development program to eventual Xeris commercialization. We recently began recruiting patients in the Phase 2 study and hope to dose the first patient before the end of the second quarter. The primary objectives of this Phase 2 study are to determine a target dose conversion factor for oral Levothyroxine to our liquid ready-to-use subcutaneous Levothyroxine for once-weekly injection and to assess the safety and tolerability of our XeriSol Levothyroxine after once weekly subcutaneous injections in subjects with hypothyroidism. The study will also gather insight on each subject's thyroxine (T4) and thyroid-stimulating hormone (TSH) levels over the course of the study. Data from this Phase 2 study will help inform our proposal to the FDA for a pivotal Phase 3 program. Oral Levothyroxine has been the standard of care for treatment of hypothyroidism for many years, and it is one of the most prescribed medicines in the United States, generating more than 100 million prescriptions per year. However, 47% of patients have some GI issue or combined GI condition impacting oral absorption, 21% report taking concomitant medications that interfere with absorption, and 17% of patients admit to compliance issues with the daily oral regimen, many of whom may be the same patient. As a result, we believe that our once-weekly subcutaneous Levothyroxine, if approved, will compete in a potential $2 billion to $3 billion market segment. Now on to our growing Xeris partnership business; in March, we announced the XeriJect platform partnership with Regeneron to enable subcutaneous delivery of potentially several monoclonal antibodies. Under the terms of this collaboration and option agreement, Xeris will use our XeriJect formulation to develop ultra-highly concentrated ready-to-use small volume subcutaneous injections of two undisclosed monoclonal antibodies developed by Regeneron. Regeneron has the option to license clinical development and commercial rights to XeriJect for these molecules and to nominate additional molecules for formulation and potential development and commercialization. This is our third recently disclosed Xeris technology partnership following collaborations with Merck and Horizon, which highlights the unique value proposition of XeriJect, as well as the investment and progress Xeris has been making in advancing XeriJect into clinical GMP readiness. So, where are we with Merck and Horizon programs? For Merck, we have completed the XeriJect formulation stability assessment of the molecule, and at this point, Merck is evaluating the product for further clinical development and commercialization. With the Horizon partnership, we're currently in the initial stages of formulation of TEPEZZA in our XeriJect delivery system. Once we meet the agreed-upon product profile, we will receive the previously disclosed $6 million from Horizon. If they sign the licensing agreement, giving them exclusive rights in the category, Xeris would be entitled to future development, regulatory and sales-based milestones, as well as royalties on future sales. With a great first quarter behind us and from where we stand today, I want to reiterate that we are affirming our total revenue guidance of $135 to $165 million, cash utilization of $57 million to $75 million, a year-end cash position in the range of $45 to $65 million, and achieving cash flow breakeven in the fourth quarter without the need for additional capital to fund our operations. I will now turn the call over to Steve for additional details on our first quarter performance.

Thanks, Paul. Good morning everyone. I will focus my remarks on key financial results for the first quarter 2023, the details of which are in the press release issued this morning. Total revenue was a record $33.2 million, representing a 50% increase over the same quarter last year. Strong underlying patient demand across all three products coupled with revenue from our collaboration partnerships drove this growth in total revenue. Gvoke net revenue for the quarter was a record $15 million representing a 21% increase compared to the same period last year. Continued growth in Gvoke prescriptions and market share drove this increase. Gvoke prescriptions topped 45,000 for the first time, a 50% increase compared to the same period in 2022. Gvoke ended the quarter with total retail market share of approximately 28% compared to approximately 21% in March of 2022. The total glucagon prescription market grew 3% compared to the fourth quarter of '22. Notably, Gvoke's total prescriptions grew 10% in the same period, significantly outpacing the market more promising. We are seeing this momentum continue into the second quarter, as Paul mentioned with Gvoke, weekly prescriptions exceeding 4,000 prescriptions in consecutive weeks. Moving to Keveyis, Keveyis net revenue for the quarter was $12.8 million, representing a 37% increase compared to the same period last year. This revenue growth was driven by an increase in the number of patients on Keveyis. To date, we have not experienced any material negative impact on Keveyis from the launch of a generic. We continue to proactively monitor and defend Keveyis against generic competition while seeking patents to restore our exclusive rights. Moving to Recorlev, net revenue for the quarter was $4.5 million, which represents an 18% increase over the fourth quarter. This growth was primarily driven by increases in the number of patients on Recorlev. As Paul mentioned, we continue to see a steady increase in referrals with a 30% increase over the fourth quarter. Additionally, over 30% of our patients in the first quarter were prescribed Recorlev as their first drug therapy. We believe that healthcare professionals are valuing Recorlev as a first-line treatment for Cushing syndrome post-surgery. In addition to total product revenue of $32.3 million, we recognized $900,000 of revenue from collaborations and partnerships. Additionally, we were pleased to announce another partnership with Regeneron in March. Looking ahead for the full year 2023, we affirm our guidance of total revenue between $135 to $165 million. Moving down the P&L, cost of goods sold was $5.3 million, a $1 million decrease compared to the same quarter last year. The decrease was attributable to a one-time contract credit and favorable product mix offset by an increase in product sales. Research and development expenses were $4.3 million, a $1.4 million decrease compared to the same period last year. This decrease was driven by lower product development costs in the period. We continue to practice discipline prioritization and are focusing our 2023 R&D on funding the Levothyroxine program, the completion of the oral optics study, and continued development work of our proprietary formulation science. We expect these initiatives to drive modest year-over-year increases in R&D expenses. Selling general and administrative expenses were $33.6 million, a $2.3 million decrease compared to the same period last year. This decrease was primarily driven by no restructuring expense in 2023 when compared to 2022. As we discussed in March, we continue to expect total SG&A to be relatively flat in 2023 compared to 2022. From a cash perspective, as of March 31, 2023, we had total cash, cash equivalents, and short-term investments of approximately $95 million compared to $122 million at December 31, 2022. Consistent with our experience in prior years and reflected in our March commentary, cash utilization in the first quarter was higher due to changes in working capital. Reiterating our position from March, we expect cash utilization to moderate through the middle of 2023 until the fourth quarter when we expect to achieve cash flow breakeven. With that said, we are affirming our guidance of total cash, cash equivalents, and short-term investments to end the year in the range of $45 million to $65 million and cash utilized from operating activities to be between $57 and $77 million. Assuming we perform to our guidance, we project to reach cash-flow breakeven in the fourth quarter 2023. From that point on, we will be a self-sustaining enterprise. As we have discussed, we do not plan to raise capital to fund our operations as we become a self-sustaining enterprise.

Our first question for today comes from Oren Livnat of H.C. Wainwright.

Congrats on a good quarter. I have a few. On guidance, you reiterated a solid growth year-over-year. And I'm just trying to get some help on the range of that. It's still quite wide and you haven't narrowed it one-third of the way through the year. So could you just remind us of the major pushes and pulls there? And also, I can't remember who mentioned this in the past, but at the top end, does that include revenue recognition potentially for the Horizon formulation? And I have a follow-up.

Oren, this is Paul. The answer to the second part of your question is yes, it does include that revenue. In terms of the breadth of the range, we said back in March when we established the range that as the year progresses and we see how Keveyis plays out and how the generic plays out, we'll know if we can tighten the range. But there's a lot of unknowns right now.

Okay. On Gvoke, you highlighted the share gains that you've been impressive, maybe even accelerating recently. And I'm just wondering, firstly, with the sale of vaccine, do you think that's going to have any impact on the competitive dynamics in the space, whether they'll get better, worse or stay the same? And like you highlighted, there was a pretty strong quarter-over-quarter into your seasonally toughest one. So can you comment, first of all, were gross to net better than expected in the first quarter? And actually, should we expect that to improve through the year as we've normally seen?

Yes, I can answer the second question, Oren. The gross to net, as we said kind of midway through last year, has leveled off. So no, that's not driving it. We don't expect that to improve over the course of 2023.

To the first part of your question on Gvoke, we need, and we have said all along that we want our voices in this marketplace in order to get more market growth. The value that really extracted for their product speaks to the potential for the category and having someone who is dedicated to endocrinology and to the category, I think, can only help. So we're anticipating another voice in the marketplace will increase the market growth, and that will benefit us in the long run.

Great. And on OpEx, they were both actually quite light. I was surprised to see SG&A down despite, I think it was the fourth quarter sales force expansion. Can you just talk about, I guess, how lumpy that is going forward? I know you gave sort of a full-year characterization. But did you actually trim some core costs across the board?

No, not at all. We're expecting SG&A for the full year to be relatively flat. There could be some lumpiness in terms of marketing promotional spend quarter-to-quarter. But by and large, from a full-year perspective, Oren, it's going to be relatively flat compared to 2022.

And R&D, it sounds like you said you're focusing on Levothyroxine. Is the current run rate until that Phase 2 really kicks in here pretty good to go on R&D?

Yes. On R&D, I would expect to see a slight uptick in Q2 and for the balance of the year when you’re looking at it from a quarter-over-quarter perspective, primarily in the second half of that Phase II Levothyroxine program really kicks in.

Our next question from today comes from Glen Santangelo of Jefferies.

Paul, I also want to follow-up on these reimbursement dynamics for Gvoke here in 1Q, right? Because if I look at your scripts, right, they were up 10%, and I think there was a price increase, so we can maybe flesh out the reimbursement dynamics a little bit more. But I would have thought with the scripts being as strong as they were, the revenues would have been a little bit better than flat versus sequentially versus 4Q. So if you could flesh that out a little bit, that would be great.

Glen, this is Steve. I'll take that question. So yes, what we saw in the first quarter, we're working pretty proactively with our wholesalers. I think there was a little bit of shift in channel inventory in the first quarter, and that happens from time to time. Our wholesalers will tighten up their inventory a bit. If they swing that one or two weeks within the quarter, it makes a difference, and that's what we saw really. But nothing unusual and nothing concerning about that. That just happens from time to time.

Okay. And then with respect to Keveyis, this is kind of four quarters in a row with revenues roughly about $13 million. And I think you said, Paul, in your prepared remarks, you’re not really seeing any evidence of any generic competition. So absent that generic competition, is this kind of roughly the right run rate for this product that we should be thinking about? Or based on sort of your marketing plans, do you see a bigger opportunity here? How should we think about the growth of that product going forward, sort of absent any incremental generic competition?

Yes, that's a good question. We're taking a wait and see on that. The potential for Keveyis, we think, is significantly higher. Without a generic or the threat of a generic, we would add resources and drive Keveyis even harder. Right now, we're driving Keveyis as hard as we can with the current resources that we have, generating good solid quarter-over-quarter consistently around $13 million. We need to see how the whole generic situation plays out relative to payers, discounting, and rebating, as well as whether a second generic enters the market. We also have to see if we are successful in our patent application and the appeal that we have going on in the middle of this year. So as things play out, we could substantially upsize our efforts and drive a lot more Keveyis over time. But that's just not in the cards right now.

Our next question today comes from Roanna Ruiz of SVB Securities.

So a quick question on Recorlev. I was curious if you could update us on, if you're seeing anything around how long the titration process has been for patients as physicians get more comfortable. Could that titration period possibly get shorter and you can get patients on drug more quickly?

Yes. Good question, Roanna. We are starting to see more titration; we're seeing the average dose start to creep up, and that's a very good sign. The other thing that we're seeing is that the maximum dose—we're not getting to the higher doses that we thought, which I think is also a good sign that the drug is working and physicians are starting to use it even for drug-naive patients. So all good signs, and we are starting to see the titration. Whether or not it’s going to happen faster versus slower over time, we don't have enough to understand that yet.

Got it. Okay. And then I wanted to ask a bit more about your new collaboration with Regeneron. Basically, could you give us a rundown of what makes you really excited about this program and the opportunity for possibly multiple products? And when might we get more clarity on future steps or milestones around these programs?

There's a lot we would love to talk about that we just can't discuss. But what excites us about the Regeneron deal is it's a platform deal. I mean, Regeneron is starting out with identification of two products or molecules that they want to put into our system. The status of which—we're just getting started. I mean, I think they just— we're just having kickoff meetings and things like that to start the formulation of the first molecule and then the second molecule to follow on soon. The really interesting part is they can nominate additional molecules down the road for formulation and continued development. So the degree to which it could become a platform of products in our formulation is very exciting. When you think about it, each one of those molecules, depending on if they take them forward into clinical development and eventual approval and commercialization, each one comes with its own set of milestones—both development, regulatory, and commercial milestones, as well as royalties. So the eventual value could be very significant.

Our next question today comes from David Amsellem of Piper Sandler.

First, I was wondering, can you talk about the kind of patients who were getting Recorlev? Are they mainly those with prior exposure who received ketoconazole? Can you just speak to the overall patient mix? And then also what your view is on the potential commercial impact on Recorlev of Corcept's next-generation cortisol modulator relacorilant, and if you see that as posing a challenge to Recorlev at all?

Good morning, Skylar, I will take the second half first. We don't expect the next-generation product any time soon. Corcept's product will probably just cannibalize the product that they have. We're not seeing that as a significant competitor in the marketplace. To your first question, in terms of patient mix, we're very excited about the patient mix because it's not just patients coming from ketoconazole. We're getting patients predominantly from two areas: One, other products that specifically include Korlym, because we have a product that is very effective at normalizing cortisol, and Korlym doesn't do that. We're getting patients from Isturisa and others. The really exciting piece is that about 30% of the patients we're getting have not been on any drug; we are their first drug therapy post-surgery. That shows that physicians are increasingly valuing Recorlev as a first-line therapy. That's very encouraging. Overall, we think the patient mix is surprisingly positive. We did anticipate getting more uncontrolled patients who have been through several products, but the mix we’re observing is quite favorable and bodes well for the future of the drug.

We have no further questions, so I would like to hand back to the management team for any closing remarks.

Thank you very much. Thanks all for joining us. What you heard today confirms once again that we have a durable business on its way to being self-sustaining. Through continued revenue growth, careful allocation of resources, and prudent expense management, we expect to cash flow breakeven in the fourth quarter. By achieving that milestone, we prove we can be a self-sustaining biopharmaceutical company. I would also like to take this time to thank all of our patients and caregivers for their support and also the Xeris team for the tireless work they have done over the last several years through just about every headwind you could imagine. We're very excited about our business and very excited about our future prospects. Thank you very much, and have a great day.

Thank you all for joining. That concludes today's Xeris Biopharma Holdings' first quarter 2023 financial results call. Have a great rest of your day, and you may now disconnect.