Xeris Biopharma Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited. Amounts below are in millions of dollars unless otherwise stated.
Business context
Xeris commercializes Gvoke (ready-to-use glucagon), Keveyis (for primary periodic paralysis) and Recorlev (for Cushing’s syndrome). Recorlev launched in January 2022; Keveyis and Recorlev were added through the October 2021 Strongbridge acquisition. The company also develops candidates using its XeriSol and XeriJect formulation platforms. Comparisons with 2021 are affected by the acquisition: prior-year reported product revenue primarily reflects Gvoke.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $29.7 | $11.1 | $77.1 | $28.2 |
| Operating loss | $(18.8) | $(24.4) | $(66.8) | $(66.9) |
| Net loss | $(21.8) | $(26.0) | $(81.7) | $(71.9) |
| Net loss per share | $(0.16) | $(0.39) | $(0.60) | $(1.11) |
- Revenue mix: Q3 product revenue was $29.6 million: Gvoke $13.7 million, Keveyis $13.4 million and Recorlev $2.5 million. Nine-month product revenue was $76.7 million: Gvoke $37.6 million, Keveyis $35.5 million and Recorlev $3.6 million.
- Costs and margins: Cost of goods sold, excluding intangible amortization, was $5.3 million in Q3 and $16.3 million for nine months. SG&A was $34.5 million and $103.4 million, respectively; R&D was $6.0 million and $16.0 million. Intangible amortization was $2.7 million and $8.1 million. The filing does not report a gross-margin percentage.
- Cash flow: Nine-month operating cash use was $86.8 million, compared with $66.6 million in 2021. Investing provided $25.3 million and financing provided $78.3 million. Cash and cash equivalents were $84.1 million at quarter-end.
- Liquidity: Short-term investments were $9.3 million; current assets were $148.9 million and current liabilities $68.6 million. Management said available resources, operating plans and access to the remaining $50 million under Hayfin were expected to fund operations and capital expenditures for at least 12 months from issuance of the financial statements. The company expected continued net losses.
- Debt: Long-term debt, net of issuance costs, was $138.5 million, versus $88.1 million at year-end 2021. Debt consisted of $47.2 million of 5% convertible notes due 2025 and $100 million of Hayfin term loans; the Hayfin balance sheet carrying amount was $96.1 million before unamortized costs. Hayfin loans carry a floating rate and generally mature in March 2027, but may mature January 2025 if specified convertible-note conditions are not met. Up to $50 million of delayed-draw debt remained available, subject to conditions.
Material changes and management commentary
- Q3 revenue increased 168.8% year over year, including the contribution of acquired Keveyis and Recorlev; Gvoke revenue rose 23.8%, while management said demand growth was partly offset by lower net pricing. Gvoke prescriptions grew 40.9% in Q3 and 59.2% for nine months.
- Nine-month net loss increased $9.8 million year over year, while Q3 net loss narrowed $4.2 million. Higher SG&A reflected personnel and commercial investment for Keveyis, Recorlev and an expanded endocrinology sales force; Recorlev launch marketing also increased. Interest expense more than doubled for the nine-month period, primarily due to Hayfin borrowing.
- Management’s strategy is to grow the three marketed products, pursue a path to profitability through commercial execution, advance selected pipeline programs and seek formulation partnerships. No quantitative revenue, earnings or profitability guidance is provided.
- XP-8121, a potential once-weekly levothyroxine injection, was in Phase 1; the company said it had requested FDA feedback and expected it by year-end 2022. Certain other programs were described as unfunded or inactive.
Risks, contingencies and unusual items
- The company has incurred recurring losses and had an accumulated deficit of $541.8 million. Management cautioned that future financing may be needed and could be unavailable or dilutive.
- Four customers represented 96% of gross product revenue for the first nine months of 2022 and 99% of net receivables at September 30. Reliance on third-party and some single-source manufacturers, longer supply lead times and COVID-related disruption are risks.
- Hayfin is secured by substantially all company assets, including intellectual property, subject to exceptions; its covenants restrict certain financing, asset and corporate actions. Floating-rate debt exposes the company to higher interest costs.
- The Strongbridge acquisition generated contingent value rights (CVRs), valued at $30.1 million at quarter-end. A $7.6 million nine-month fair-value loss increased reported net loss. Milestones include Keveyis and Recorlev revenue targets and a Keveyis patent milestone; settlement may be in cash, shares or both at the company’s election.
- The company reported an $8.0 million remaining Keveyis supply obligation to Taro. It also entered a long-term amended Chicago lease, with minimum future lease payments of $77.4 million. Management reported no material legal proceedings and stated disclosure controls were effective.
- Other highlighted risks include reimbursement and drug-pricing pressure, competition (including potential generic competition for Keveyis after orphan exclusivity expired in August 2022), product safety and regulatory risks, and possible dilution from convertible notes, warrants, equity issuance or CVR settlement.
Most important facts for investors to verify
- Whether sales growth in Gvoke, Keveyis and the early Recorlev launch can sustain net pricing and support a path to profitability.
- Cash burn, access conditions and remaining availability of Hayfin’s delayed-draw facility, and the company’s financing needs beyond management’s stated 12-month runway.
- Hayfin’s floating-rate burden, collateral and covenant terms, and the January 2025 conditional maturity interaction with the convertible notes.
- Customer concentration, manufacturer continuity and the Keveyis supply arrangement and remaining purchase obligation.
- Progress toward CVR milestones and the potential cash obligation or share dilution if milestones are achieved.
- XP-8121’s FDA feedback and development plan, and the funding status and timelines of other pipeline programs.