Xeris Biopharma Holdings, Inc.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Xeris Pharmaceuticals First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Allison Wey, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.

[Allison Wey:]

Thank you, Laurie. Good morning. And welcome to Xeris Pharmaceuticals first quarter 2021 financial results and corporate update conference call. A press release with the company’s first quarter results was issued earlier this morning and can be found on our website.

[Paul Edick:]

Thank you, Allison, and good morning, and thanks to everyone for joining us today. I’m happy to report that we had a strong first quarter and we’re off to a good start for 2021. Our first quarter productivity puts us in an excellent position to have a very strong year. We’ve shown steady consistent growth in the first quarter, notwithstanding the fact that we face continued challenges created by the pandemic, with our commercial efforts for the first quarter having been remained predominantly virtual. I’ll start out by hitting some of the highlights for the quarter. Demand for Gvoke steadily increased throughout the first quarter from January through March. We observed steady increases in prescription volume, wholesaler purchases and Gvoke share of the group of glucagon market. We believe this is impressive when you consider we face the continued market that is yet to return to pre-pandemic levels in terms of absolute prescriptions order growth rates. We recorded $8.1 million in net sales in the quarter, a 14% increase over the fourth quarter and a 380% increase from first quarter 2020. Our first quarter net sales also benefited from an improvement in our gross-to-net, which Barry will discuss further in his remarks.

[Barry Deutsch:]

Thanks, Paul. I will focus on some of the key financial results, the details of which are in the press release issued this morning and our 10-Q that will be filed later today. As Paul mentioned, we started the year with strong financial performance, reporting Gvoke net sales of $8.1 million, which is up approximately 14% from the prior quarter and 380% from the first quarter of 2020. Net sales represent gross product sales less estimated gross-to-net allowances, all of which are recorded at the time of sale to the pharmaceutical customer or other wholesaler. During the first quarter, we made adjustments to rebate and patient assistance copay accruals, which were recorded in prior years, based on actual claims experience to-date. These adjustments increased revenue by $0.9 million for the quarter. Cost of goods sold for the first quarter 2021 was $1.8 million, which was unchanged from the same period in 2020, which included $1.2 million related to the establishment of a reserve for excess and obsolete inventory. Manufacturing costs for Gvoke incurred prior to approval and initial commercialization were previously expensed as R&D costs. Total operating expenses declined slightly in the first quarter of 2021 to $23.1 million, compared to $28.3 million for the same period in 2020. R&D expenses were $4 million in the first quarter of 2021 and $6.6 million in Q1 of 2020. The decrease of $2.6 million was primarily driven by a decline in expenses associated with our clinical trials. Selling, general and administrative expenses were $19.1 million for the quarter, a decrease of $2.5 million compared to Q1 2020. The decrease was primarily driven by a decrease in marketing and selling expenses of $4.9 million, part of which was due to the impact of the COVID-19 pandemic. This decrease was partially offset by an increase of $2 million in personnel related costs, which included an increase in our sales force. Interest expense increased by $0.3 million in comparison to the prior year first quarter, primarily due to interest on the convertible notes we issued in June 2020 of $0.6 million, partially offset by lower interest expense on our bank debt due to lower amounts on outstanding under our senior debt facility. At the end of the first quarter, we had debt totaling $90.7 million, consisting of $47.2 million of convertible debt and $43.5 million under our senior credit facility with Oxford and SVB. Last week, we announced that we amended the senior debt facility allowing for extensions of interest-only payments for up to 12 months to January 2023, subject to achievement of revenue milestones. The extensions allow us to delay principal payments of up to $17.4 million. We currently expect to achieve each revenue milestone and have therefore classified the amounts due as non-current on our balance sheet as of March 31, 2021. Net loss for the first quarter of 2021 was $18.4 million or $0.30 per share, compared to $29.2 million or $0.89 per share for the same period in 2020. As of March 31, 2021, we had $135.9 million in cash, cash equivalents and investments, compared to $133.8 million as of December 31, 2020. As you know, we completed a $27 million registered direct offering of 6 point -- of approximately 6.55 million shares of our common stock and appraise the $4.12 per share the funds managed by Deerfield, which are existing investors in our company. Based on our current operating plans and existing working capital at March 31, 2021, we believe our cash resources are sufficient to sustain operations and capital expenditure requirements for at least the next 12 months. Revenue from Gvoke will determine when we will be cash flow breakeven. I now will turn the call back to Paul.

[Paul Edick:]

Thanks, Barry. In closing, I’d like to reiterate that we had a very good first quarter and the momentum continues into the second quarter. We will be prepared as the country begins to open up and return to normal. We will have a significantly stronger commercial team in place heading into what we believe will be a much more normal back-to-school period. We remain committed to advancing and adding to our pipeline, especially in the minidose and microdose area, and importantly, glucagon mini and microdose. Importantly, we have very positive cash position. Thank you for joining us today and we’ll turn it over to the Operator for Q&A.

[Operator:]

Thank you. Our first question comes from the line of David Amsellem of Piper Sandler.

[Zach Sachar:]

Hey, everyone. This is Zach on for David. Thanks for taking my questions and congrats on the quarter. I was just hoping to get…

[Paul Edick:]

Could you just speak up a little it would be great.

[Zach Sachar:]

I was hoping just to get a little bit more color and if you could expand on the Xeris copay program? And to what extend do you expect the Gvoke program in place following normalization. And then on that front, how do you expect the easing of the pandemic to impact gross-to-net in the back half of 2021 and going forward? And then also if you could provide a little bit more color on the inventory buildup that you see now and if you expect some destocking over the next several quarters, that would be also helpful? Thank you.

[Paul Edick:]

Okay. Let me take those in reverse order. We don’t see any inventory buildup. So that’s -- we had some of that in the third quarter and fourth quarter of last year, based on no history of ordering patterns with the wholesalers, that’s pretty much cleared out. What we’re seeing right now and as I tried to say in my remarks, maybe it wasn’t clear enough. The movement of units from us to wholesalers and wholesalers to retailers is very reflective of demand. So very little -- we don’t -- we’re seeing very little if any inventory build. Gross-to-net is going to continue to be a little bit of a moving target until we have more history. We are reserving for potential return to the zero dollar copay, et cetera, and our reserves -- we take a pretty conservative approach to our reserves. And as we get actually, we can reverse some of that and take it as net income. So -- but that’ll start to normalize over time. And the zero dollar, we didn’t expect to continue it as long as we have. We didn’t expect a pandemic to last more than a year. We’re doing everything we possibly can to make sure that people with diabetes who are on insulin have access to glucagon. And as you all know, as we all know, even though things are starting to open up, people who are at higher risk are still staying home a lot. And the zero dollar copay makes it a little bit easier on financials and we’re trying to get, make things as easy for people to access as they possibly can. When we may or may not end that? We haven’t even -- that’s on decision. We’re going to keep it going as long as we think it’s critical to the business.

[Zach Sachar:]

All right. Thank you.

[Operator:]

Our next question comes from the line of Daniel Busby of RBC Capital Markets.

[Daniel Busby:]

Good morning. I have a couple questions. First, if we look at third-party prescription data, the legacy glucagon kits still account for nearly 60% of the market. Is that stickiness surprised you or is it in line with your expectations? How do you expect that number to trend over the next few years? You expect the next-generation products including Gvoke to keep steadily chipping away the legacy kits or there are other factors that could potentially accelerate that shift? Second, based on the latest feedback from FDA on EIH and PBH? When is the earliest you believe you can bring a ready-to-use glucagon product to market in the U.S.? Thanks.

[Paul Edick:]

Yeah. Dan, thanks for the questions. In terms of the legacy kits, the stickiness has been greater than we had anticipated without question. The pandemic has had a lot of -- a lot to do with that. And if you think about it, during my remarks, one of the things that we see in the marketplace for all pharmaceutical products is new-to-brand is just down and it’s been down significantly over the course of the last year and more. Because physicians are focused on maintenance, they’re focused on keeping people as steady as they possibly can, making sure they’ve got their pump making sure they’ve got their insulin. So changing practice has been a very low priority for physicians, especially when -- at one point close to 40% of them were not even open. As things open up, we’re seeing a more rapid change in the legacy -- the cannibalization of the legacy kits. We expect them to be down 30 to 50% over time. We’ve taken a chunk of that. So as things open up, we expect the legacy kits to really start to decline more. How fast that’s going to be? Who knows. But you will have three companies, Lily, Zealand, and us, all talking to endocrinologist and high prescribing primary care physicians about why people should have these new ready-to-use glucagon products if they’re taking insulin. So we would expect that to have a pretty significant impact on the stickiness of the legacy kits. And then in terms of EIH and PBH, like I said, EIH and PBH are potential regulatory pathways to getting a minidose or microdose capability into our label for patients who need it, okay? There’s a lot of different ways people could potentially minidose and microdose. EIH, we know what they want us to do in order to pursue a prevention claim. We were surprised that they even would allow a prevention claim. So that’s a very, very good movement on the part of the FDA. The actual pathway to get there is a pretty extensive, pretty expensive program that we just can’t afford at this time to do. So we’re looking at different alternatives and how we can either use exercise or some other minidose or microdose situation where we can go back to the FDA with alternatives. There’s different ways we can approach exercise, either from a prevention or even from a rescue perspective to go back to the FDA with a more manageable potential Phase 3 program. They’re working very hard with us to try to get us there. But we all have to remember, there’s never been a regulatory pathway for glucagon other than for rescue. So it’s new ground for them. It’s new ground for us. We’re very positive. We’re going to get to a clinical program that will work and we just need to pursue that continue the dialogue. PBH, similar situation, but we’re -- it’s in a better place. We’ve got relative agreement on a lot of the aspects of the program. There are some questions that they have that in written responses just hasn’t been working very well. So they’ve asked us to request the Type C meeting, which we have. So we can get on the phone with them and just have a dialogue and just say, okay, what about this? What about that and come to agreement. And when we’ve had an opportunity to do that in the past, it’s been very positive and work very well. And the FDA is -- has been very helpful in getting us what we need in order to continue to progress. So we’re optimistic. But like I said, it’s -- we’re covering new ground. Bottomline is the utility of a liquid glucagon is significant and we just need to keep at it until we and the FDA can get to a place where we can get something in the label for people on insulin who need to microdose or minidose. Hopefully -- that’s a long answer, but hopefully, that explains the situation.

[Daniel Busby:]

Yeah. That’s very helpful. Thanks, Paul.

[Paul Edick:]

The one thing I did make sure I pointed out in my remarks, even if we got agreement like next month on everything, getting studies up and running takes time, so we wouldn’t anticipate we’d be able to start before the end of this calendar year. And then any of these programs are 18 months to 24 month programs. So, you can kind of do the math on potential minidosing, microdosing indication in the label.

[Daniel Busby:]

Got it. Thanks.

[Operator:]

Our final question will come from the line of Difei Yang of Mizuho.

[Dan Clark:]

Hi. Good morning. This is Dan Clark on for Difei. Thanks for taking our questions. Can you just talk about your primary sales strategy in the pandemic environment, as your sales message primarily been focused on expanding the market or increasing your market share just given all that kind of puts and takes in the pandemic? And then do you have any plans to sort of change your sales message as the pandemic proceeds?

[Paul Edick:]

Yeah. So there are several aspects of how we’ve been approaching things during the pandemic, without question, it’s all been virtual, until recently. I mean, we’ve got people starting to get out, and like I said, we should be out almost 100% by the end of the quarter and seeing people mostly face-to-face. The -- our message, okay, is clearly, first and foremost, awareness of Gvoke, okay? Secondly, trying to expand the market. At the end of the day, the issue that exists, and I want to be very clear, patients who -- people who are diabetics, people with diabetes, who are on insulin therapy, are all at risk for a severe low at some point in time. And the real crux of the problem is, you don’t know when or how or under what circumstances that can happen. You can be on insulin for 10 years or 15 years and never have a severe low that makes you pass out or you have to go to the emergency room. But all of a sudden you do and we have -- there’s -- everybody has instances where they can relate a friend or family member that had been just fine for years and years and then all of a sudden they’re in the emergency room. So very much like an EpiPen, you should have glucagon handy. So our primary message to every one of the practicing physicians, healthcare practitioners, nurse practitioners, et cetera. If you’re prescribing insulin, you should be co-prescribing glucagon of some form, so that it’s available in case of an emergency. Obviously, we believe that Gvoke HypoPen is the easiest, fastest, simplest thing to use and it takes two steps, you pull the red cap off, you press the yellow cap down anywhere on your body, you wait for five seconds and within 10 minutes your symptoms begin to resolve. Having it available, staging it in your environment, in your nightstand, in your office, in your handbag, wherever, much like people do with EpiPens, we believe is critical and that’s been our primary message. If you’re prescribing insulin, you should be prescribing glucagon. And clearly, if they do, if doctors and healthcare professionals do that, it doesn’t matter at the end of the day, whether they prescribe the nasal or Zealand’s new product or our product. If instead of having 600,000 people with glucagon, if we can get 3 million or 4 million people out of the 6 million or 7 million people who are on insulin to have glucagon handy, we will all have done the right thing for patients. We will all have been successful with our products. So long winded answer, but it’s critical to our overall message.

[Dan Clark:]

Okay. Thank you. And then just one more from us, could you maybe talk about your expectations for this year’s back-to-school sort of seasonal bump relative to 2019 and 2020? And how do you think about the relationship between in-school attendance and glucagon demand?

[Paul Edick:]

Clarify the second half of your question. I didn’t quite understand the second half of the question in terms of in-school attendance.

[Dan Clark:]

Sure. So having more students going back into the classrooms as a catalyst for glucagon demand versus what we saw last year when demand…

[Paul Edick:]

Yeah. Yeah. Yeah.

[Dan Clark:]

…were down and schools are remote?

[Paul Edick:]

Yeah. So, first and foremost, as we all say, hope is not a strategy. But we hope and we’re beginning to see the signs of a more normal back-to-school, okay? And when you look at the marketplace, what you see, historically, is from the July through early September period that third -- that chunk of the third quarter is historically considerably higher than any other period of the year. And like you said, that is driven by kids going back to school and being in the classroom, okay? Last year, 2020, it just wasn’t there. I mean and kids didn’t go back to the classroom and it was a very muted third quarter. In spite of that, as you remember, we had a hell of a third quarter with the launch of the diazepam. The -- what you -- what we’re also working on. So bottomline is, we’re expecting a more normal back-to-school in 2021 than what we’ve saw in 2020, more reflective of what you might have seen in 2018 and 2019. And we’re beginning to see more school systems and school nurses, et cetera, who are requiring patients reg or parents register their kids, if they’re diabetics and that they have glucagon. So we’re seeing a little bit of momentum there. So at the end of the day, we’re hopeful that we’re going to have -- I mean, I think, every parent in the country is hopeful that we’re going to have a normal back-to-school. So, we’re hopeful that that’s the case, and if that’s the case, you would normally see an increase in the third quarter, so.

[Dan Clark:]

Okay. Great. Thank you.

[Operator:]

Thank you. That was our final question. I will now turn the call to Paul Edick for closing comments.

[Paul Edick:]

Thank you once again for everyone joining us today. Our headlines are, we had a good quarter. We’re off to a great start to the year. The second quarter is looking really good and we’re making progress on our clinical programs, working hard with the FDA. We have got a lot of cash. We think we’re in pretty good shape. So thank you for listening.

[Operator:]

Thank you. That does concludes the Xeris Pharmaceuticals first quarter financial results conference call. You may now disconnect your lines and have a wonderful day.