Xeris Biopharma Holdings, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. The quarter and nine months ended September 30, 2021 report Xeris Pharmaceuticals, Inc. (Xeris Pharma) on a standalone, unaudited basis. Strongbridge Biopharma was acquired on October 5, 2021, after quarter-end, so its results are not included in the reported financial statements. Following the transaction, Xeris Pharma and Strongbridge became wholly owned subsidiaries of Xeris Biopharma Holdings; HoldCo began Nasdaq trading as XERS on October 6.
Key financial metrics
| Metric | Three months ended September 30, 2021 | Nine months ended September 30, 2021 | Comparable 2020 period |
|---|---|---|---|
| Net sales | $11.0 million | $27.9 million | $9.4 million; $13.1 million |
| Gross profit | $7.8 million | $19.7 million | $6.6 million; $7.3 million |
| Research and development | $5.7 million | $15.1 million | $3.9 million; $15.8 million |
| Selling, general and administrative | $26.5 million | $71.5 million | $16.5 million; $55.7 million |
| Net loss | $26.0 million | $71.9 million | $16.0 million; $69.3 million |
| Net loss per share, basic and diluted | $0.39 | $1.11 | $0.35; $1.78 |
Net sales were from Gvoke. Management attributed the increases to greater product demand. Gross profit as a share of net sales was approximately 71% in Q3 and 71% year to date, compared with approximately 70% and 56% in the respective 2020 periods.
Balance sheet and liquidity at September 30, 2021: Cash and cash equivalents were $59.5 million and short-term investments were $33.5 million, totaling $93.0 million. Current assets were $124.4 million and current liabilities were $37.3 million. Long-term debt, net of issuance costs, was $87.7 million; stated principal balances were $47.2 million of 5% convertible notes due 2025 and $43.5 million under the senior secured loan facility. Accumulated deficit was $409.3 million and stockholders’ deficit was $2.5 million.
Cash flow for the first nine months: Operating activities used $66.6 million, investing activities provided $61.4 million, and financing activities provided $27.1 million. Cash and cash equivalents increased by $21.9 million from year-end 2020. Management stated that existing working capital was expected to fund operations and capital expenditures for at least 12 months, while also expecting continued losses for at least the next 12 months.
Material changes and significant events
- Q3 net sales rose $1.6 million year over year; nine-month sales rose $14.9 million. Net loss widened by $10.0 million in Q3 and $2.7 million for the nine-month period.
- Q3 SG&A increased $10.1 million year over year, driven mainly by $6.5 million of higher personnel costs, $2.3 million of Strongbridge transaction costs, and $2.0 million of higher marketing and selling expense. Nine-month SG&A included $6.2 million in transaction costs.
- On October 5, 2021, the company completed the Strongbridge acquisition. Preliminary consideration was $169.1 million, including 58.1 million HoldCo shares valued at $137.7 million and contingent value rights valued at $22.5 million. Strongbridge added marketed product Keveyis and pipeline candidates Recorlev and veldoreotide. The preliminary purchase-price allocation included $121.0 million of in-process R&D, $11.0 million of other intangible assets, and $17.7 million of goodwill; valuations remained subject to finalization.
- Strongbridge shareholders received one contingent value right per share, with potential payments tied to Keveyis and Recorlev milestones. The filing reported approximately 74.1 million CVRs at closing; up to 10.5 million additional CVRs could be issued to holders of certain options and warrants.
- At September 30, Xeris Pharma had 66.5 million shares outstanding. HoldCo reported 124.7 million common shares outstanding as of October 31, 2021, reflecting the post-quarter transaction and other share changes.
Outlook, management commentary and risks
- Management’s priorities were commercializing Gvoke and Keveyis, integrating Strongbridge, and preparing for a potential Recorlev launch in Q1 2022, subject to FDA approval. Recorlev’s PDUFA target action date was January 1, 2022; approval and timing were not assured.
- The company reported no formal financial guidance. It anticipated continued significant expenses and losses, including integration costs, commercial investment, R&D, and potential Recorlev launch preparation. It may seek additional equity or debt financing; availability and terms are uncertain and equity issuance could dilute shareholders.
- Management expected to achieve the revenue milestones that extend interest-only payments on the secured loan. The loan carries a floating rate with a stated floor; it is secured by substantially all assets, subject to exceptions, and includes financial and operational covenants.
- COVID-19 had adversely affected customer access and demand, according to management. Supply was continuing at the filing date, but future disruption remained possible. The company also highlighted reliance on third-party and, for some products, single-source suppliers; reimbursement and pricing pressure; competition; regulatory and clinical-development uncertainty; and the risks of integrating Strongbridge and realizing expected synergies.
- The company discontinued plans to advance PBH development through the Phase 3 design proposed by FDA and decided not to proceed with a Phase 3 EIH study. It said it may file an IND and initiate a Phase 2 EIH study in 2022.
- Management reported disclosure controls and procedures were effective as of September 30, 2021 and no material changes in internal control over financial reporting during the quarter. The filing reported no material legal proceedings and no off-balance-sheet arrangements at quarter-end.
Most important facts for investors to verify
- Whether Recorlev received FDA approval by its January 1, 2022 target date and whether a launch occurred as anticipated.
- Post-acquisition revenue, cash use, debt and share counts, including any dilution from merger consideration, CVRs, options, warrants, or convertible notes.
- Actual integration costs and whether the expected Strongbridge cost savings and synergies were achieved.
- Product demand, net pricing and reimbursement for Gvoke and Keveyis, and any commercial progress or milestone payments under the Ogluo agreement.
- Cash runway and financing needs relative to management’s 12-month liquidity assessment, as well as compliance with secured-loan covenants and revenue milestones.
- Final acquisition accounting, including intangible-asset valuations, goodwill, and the ultimate fair value and payout of contingent value rights.