Xeris Biopharma Holdings, Inc. (XERS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to today's Xeris Pharmaceuticals third quarter financial results. [Operator Instructions] I would now like to hand the conference over to your speaker today, Allison Wey, Senior Vice President of Investor Relations and Corporate Communication. Please go ahead.

Thank you, Michelle. Good morning, and welcome to Xeris' Third Quarter 2020 Financial Results and Corporate Update Conference Call. A press release with the company's third quarter and 9 months results was issued earlier this morning and can be found on our website. We are joined today by Paul Edick, Chairman and CEO; and Barry Deutsch, Chief Financial Officer. Paul will provide opening remarks, Barry will review the financial results, and then we'll open the line for questions. Before we begin, I would like to remind you that this call will contain forward-looking statements concerning the impact of COVID-19 on Xeris' business practices. Xeris' future expectations, plans, prospects, clinical approvals, commercialization, corporate strategy and performance, 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 U.S. and global markets. Xeris' business, financial conditions, operations, clinical trials and our third-party suppliers and manufacturers and other risk factors, including those discussed in our filings with the SEC. In addition, any forward-looking statements represent the 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 obligation to update such statements. I will now turn the call over to Paul.

Thank you, Allison, and thank you, everyone, for joining us today. We are very proud of our third quarter performance. As you will see, the successful launch of our Gvoke HypoPen was the main driver of significant growth in the quarter. Importantly, however, the work our teams did in the first half of the year with Gvoke Pre-Filled Syringe was a key contributor as well. We were able to grow our business consistently in the first half of 2020 in spite of having moved to 100% virtual selling model in the middle of the first quarter. We were also able to get both Gvoke Pre-Filled Syringe and Gvoke HypoPen on to payer formularies with unrestricted access for 80% of covered lives across all payer types, all of which set us up for a very successful initial quarter of the Gvoke HypoPen launch. And as I said, our teams were able to do that in spite of the continued challenges of working virtually during a pandemic, periodic civil unrest and various natural disasters that, for most of the year, have interfered significantly with patients' ability to be able to access their health care providers. During the third quarter, we recorded $9.4 million in net sales for Gvoke franchise, approximately 2.5x total net sales in the first 2 quarters of 2020 combined and more than quadrupling reported net sales for Q2. We grew total Gvoke prescriptions approximately 145% from the second quarter to the third quarter as captured in IQVIA, and our growth continues to outpace the market, enabling our glucagon market share to increase more than 8 points to above 14%. I'll come back to that shortly. We added another 2,000 unique Gvoke prescribers in the period, and we now have over 9,000 unique prescribers of Gvoke since launch. We prepared meeting requests for submission to the FDA for 3 clinical programs, all of which were submitted recently and meetings granted for various states in late December or early January. We were recently granted Fast Track designation for our diazepam formulation, and we're in a strong cash position that we believe gets us to cash flow positive. Let's take a closer look at the commercial strategies we employed and the market dynamics that facilitated the strong demand for Gvoke and led to the significant growth in Gvoke franchise in the third quarter. We believe there are several factors that contributed to the jump in prescription demand in the quarter. Obviously, there was pent-up demand for the highly anticipated launch of Gvoke HypoPen, which commenced in early July. Our teams have continued to get better at accessing health care providers virtually, and health care providers have increasingly embraced the management of their practices virtually, thus improving their willingness to engage with us virtually. As I stated earlier, approximately 80% of patients had unrestricted access to Gvoke HypoPen across all payer types at the time of launch, which I believe is unprecedented for any product launch in recent memory. We also continued our zero dollar co-pay program to help patients access Gvoke in these challenging times, with many patients facing incremental financial constraints. Gvoke HypoPen was able to leverage and build upon the strong brand preference initiated through the introduction of Gvoke Pre-Filled Syringe. And our initial focus on converting legacy emergency kits has been quite successful. We've seen a healthy combination of legacy kit conversion and new patients coming into the category, which is exactly what is needed in the category. New products now compromise nearly 45% share of the current market, and glucagon legacy kits have lost 10% market share since the introduction of Gvoke HypoPen. We do expect this dual trend to continue over time. By continued focus on improving our virtual excellence, Gvoke has dominated social media discussions since launch, driving awareness within the diabetic community. We maximized and simplified prescription fulfillment by leveraging the specialty pharmacy hub and mail order delivery of Gvoke directly to patients' homes. This is especially important for patients and health care professionals during periods of limited travel and health physician offices that have limited or no staff as a result of the pandemic. The third quarter has traditionally experienced a fairly significant back-to-school bump in prescriptions as well. This year, we had what I would call, more of a back to something. However, it was not nearly as dramatic as the annual back-to-school bump experienced in previous years due to the COVID-19 pandemic. Yet in spite of that, the initial quarter of Gvoke HypoPen was very positive. That said, as we move into the fourth quarter, we are already seeing the normal post back-to-school market slowdown as has been the case in previous years. Traditionally, glucagon and total prescriptions in the fourth quarter are less than total prescriptions in the third quarter. As the category grows and more new patients come into the category, these historic ups and downs may moderate, but at this point, the trends are clearly continuing. Recent data also show that in addition to the normal downturn after the traditional back-to-school bump, we could see a temporary leveling off of growth in prescriptions likely due to a couple of factors. Resurgence in COVID-19-related restrictions on people movement and travel is again causing health care professional offices to restrict patient access or close altogether. And we continue doing almost all of our sales activity virtually and will remain primarily virtual for at least the next several months. That said, with conversion of legacy kits gaining momentum, our focus going forward will be on the 5.6 million patients who are on insulin, who should have glucagon ready-to-use -- who should have glucagon -- ready-to-use glucagon like Gvoke HypoPen available for potential severe low blood sugar event. The biggest obstacle to dramatically changing the situation are physicians who largely fail to discuss the importance of glucagon with their patients. Our focus is changing that mentality. Our message to health care professionals is clear: every prescription written for insulin should be accompanied by a ready-to-use glucagon or Gvoke prescription, especially as the COVID-19 pandemic persists and intensifies, putting people with diabetes at ever-increasing risk. Before moving to our pipeline, I'd like to take a moment to discuss what we believe is a disconnect or underlying -- or under reporting of underlying demand for Gvoke from third-party databases such as IQVIA. IQVIA reported prescription growth from the second quarter to the third quarter to be approximately 140% to 150%. However, product shipments to wholesalers from the company and from wholesalers to retailers would suggest that these third-party databases may be underreporting through demand-based sales by as much as 20% to 50%. This is likely due to the estimated or projected nature of prescription volume and prescription growth reflected in these databases, particularly in the launch phase of new products such as Gvoke HypoPen. This is especially true since they do not capture all points of distribution, such as some mail order, long-term care, specialty pharmacy, systems or direct sales from our third-party logistics provider to some regional pharmacy systems. Over time, this reporting gap should narrow and this data-based information should more accurately reflect Gvoke's growth, but probably not in the near term and not necessarily completely over time as many of the alternate distribution channels will likely still not be captured. Now turning to our pipeline. Our regulatory team has been busy submitting meeting requests and preparing briefing materials for 3 important FDA meetings, Post-Bariatric Hypoglycemia or PDH, Exercise-Induced Hypoglycemia or EIH, and our Pramlintide-insulin co-formulation product. Based on FDA year-end scheduling, we now expect these meetings will take place in the early part of first quarter. During the COVID-19 pandemic, all these meetings are either phone or written responses only. After we have received feedback from the FDA on each of these programs, we will announce the next step for each program. Assuming agreement by the FDA with our proposed path forward for these programs, we plan to advance at least one ready-to-use glucagon program, either PDH or EIH, for the ultimate goal of getting a nonrescue mini or micro-dose indication to the market. As for our Pramlintide-insulin co-formulation program, also assuming positive FDA feedback, we will begin to look for a partner to fund or take over all further development and future commercialization activities. And we have been quite clear that we are searching for a development and commercialization partner for our diazepam formulation, which already has a defined path forward in Phase III and was recently granted Fast Track designation by the FDA. We have a lot to look forward to over the next several months and into 2021. Continued expansion of the glucagon market with Gvoke by continuing to increase awareness and drive incremental demand, a decision for our HypoPen products in Europe and FDA feedback on these 3 important clinical programs which should provide clarity on next steps for each. Now I would like to turn the call over to Barry to review our financial results.

Thanks, Paul. Total net sales of Gvoke were $9.4 million and $13.1 million for the 3 and 9 months ended September 30, 2020, respectively. These amounts include the sales from both presentations of Gvoke, that being PFS or the prefilled syringe and HypoPen, which we launched in July. Net sales represent gross product sales, less estimated allowances for patient co-pay assistance programs such as our zero dollar co-pay program to which Paul referred, prompt payment discounts, payer rebates, charge backs, service fees and product returns, all of which are recorded at the time of sale to pharmaceutical wholesalers. Cost of goods sold for the 3 months ended September 30, 2020, was $2.8 million. Cost of goods sold for the 9 months ended September 30, 2020, was $5.9 million, which included $1.6 million of E&O expense and under-absorbed overhead costs of $1.4 million. Total operating expenses were $20.4 million and $71.5 million for the third quarter of 2020 and first 9 months of 2020, respectively, compared to $30.4 million and $90.4 million for the third quarter of 2019 and the first 9 months of 2019, respectively. Research and development expenses decreased by $11.6 million for the 3 months ended September 30, 2020, in comparison to the 3 months ended September 30, 2019. The decrease was primarily driven by decreased expenses associated with our clinical trials of $5.2 million and decreased pharmaceutical process development costs of $5.1 million, resulting from expenses incurred in the prior year for the manufacturing of Gvoke prior to commercialization of $2.6 million and the reduction of manufacturing batches and supply as needed for preclinical and clinical trials of $2.5 million. Research and development expenses decreased by $32.2 million for the 9 months ended September 30, 2020, in comparison to the 9 months ended September 30, 2019. The decrease is primarily driven by 2 factors. The first factor was decreased pharmaceutical process development costs of $20 million, resulting from expenses incurred in the prior year for the manufacturing of Gvoke prior to commercialization of $13.2 million and a reduction of manufacturing batches and supplies needed for preclinical and clinical trials of $6.6 million. The second factor was decreased expenses associated with our clinical trials of $11 million. Clinical trial expenses decreased significantly for both the 3 and 9-month periods as we have concluded all ongoing clinical programs, and no new studies have been initiated as we await FDA feedback on go-forward development requirements. SG&A expenses increased by $1.6 million for the 3 months ended September 30, 2020, in comparison to the 3 months ended September 30, 2019. The increase was primarily driven by an increase in compensation and related personnel costs of $3.4 million due to additional headcount to support commercialization efforts of Gvoke, partially offset by decreases in marketing and selling expenses of $2.3 million due to the costs incurred in the prior year for the initial launch of Gvoke. SG&A expenses increased by $13.3 million for the 9 months ended September 30, 2020, in comparison to the 9 months ended September 30, 2019. The increase was primarily driven by an increase in compensation and related personnel costs of $10.8 million due to additional headcount to support commercialization efforts of Gvoke, increases in marketing and selling expenses of $1.2 million, and increased general and administrative costs of $1 million. Net loss for the 3 months ended September 30, 2020, was $16 million or $0.35 per share compared to $32.8 million or $1.22 per share for the same period in 2019. Net loss for the 9 months ended September 30, 2020, was $69.3 million or $1.78 per share compared to $92.5 million or $3.58 per share for the same period in 2019. As of September 30, 2020, we hold $141.7 million in total cash, cash equivalents and investments compared to $88.8 million at December 31, 2019. Total shares outstanding as of October 31, 2020, were approximately $49 million, including approximately 400,000 and 2.3 million shares issued in September and October, respectively, as a result of conversions of approximately $8.1 million principal amount of our convertible debt. I now will turn the call back to Paul.

Thanks, Barry. In summary, we're doing extremely well in all aspects of our business, despite the challenges of the ongoing and resurging pandemic. We had a tremendous quarter, growing net sales 370% over the previous quarter. Gvoke HypoPen is off to a great start. Despite the normal fourth quarter market softness in the COVID-19-related slowdown in patient visits that we're starting to see in the fourth quarter, we expect our progress to remain positive. We expect continued growth and expect our business to remain strong. We have several catalysts in the early part of next year. We have enough cash to get to cash flow positive. And I believe the fundamentals of our company are strong and get stronger and stronger with each quarter. With that, operator, if you would please open the line for questions.

[Operator Instructions] Your first question comes from Ami Fadia from SVB Leerink.

I've got three. Firstly, Paul, you mentioned that as we progress into the year-end and to beginning of the next year, we're likely to see a little bit more of a leveling off of the market. And is that primarily a function of the overall seasonality of the market as well as COVID? Or is there any other dynamic that we should be thinking about? And as we do that, how do we -- how do you expect the market share conversion from the older kits to the newer products to progress? I'll pause and then ask other questions later.

Yes, Ami. Good questions. What you see vary historically, almost every year, you could go back to 2016, even probably further, you see that spike in prescriptions in the third quarter and then you see a drop off, especially in October. It's just -- I don't know if I would call it seasonality, but it's just the regular course of events. And then it starts to come back as you go into the end of the year and the holidays. It happens every year. It's, to some degree, seasonal. I think it's accentuated a little bit this year because of COVID, you have a lot of offices closing again, people not going to the doctor's office as much as they would. So I think what you saw in the third quarter was not quite the same peak you would get for back-to-school. And what you're going to see in the fourth quarter is a little bit more of a slowdown because of the COVID effect. That being said, I think what we're seeing in the market with 2 companies with new products, talking to physicians about why patients should have glucagon if they're on insulin. You're starting to see a little bit more of a reduction or kind of conversion of the kits, and you're seeing a lot of new to glucagon patients in the marketplace. I think that dual trend is going to continue. And I think that's an important part of growing the overall market over time and moving it toward these new ready-to-use products.

Got it. Okay. Just beyond kind of the pipeline that you talked about, the PBH, EIH and then the other 2, can you talk about what you're doing with regards to exploring other applications of your technology and what might be the time? I know you're not ready to discuss those right now, but what might be the time frame when we might start to get more visibility into those?

Yes. We've stated publicly that our aim is to bring 1 or 2 new products out of our lab and into first-in-man every year. That's our stated goal. We continue on that process. We have a couple of products that we've got out of our lab and had first-in-man in 2020 -- 2019, 2020. Some of those products will continue forward, some will not, depending on how they do. We will be prepared to talk more about them when we have technical success beyond formulation and when we take them into Phase II. And we'll do that. We've got more in the lab this year. So that's as much as I want to say about it. We are applying our technology broadly across different therapeutic areas. We're applying it to different kinds of products that we can make that are more soluble, more stable and, as you know, the XeriJect formula technology, we are partnered with several companies on their pipeline products that they would like to make prefilled syringe instead of IV administration, most of which are with big pharma companies that we can't disclose.

Understood. Okay. And my last question is just with regards to the investment that will be applied to bring forward either PBH or EIH, depending upon how your conversations with the FDA go. Can you provide us with bookends of how much funding might be required and whether that would require you to raise any additional capital? So if you could provide any kind of broad bookends of what that might look like, that would be helpful.

I really don't -- I can't. We don't know yet because we haven't gotten any feedback from the FDA. We have made proposals on what we think the next steps should look like. We've made proposals to the FDA as to -- and then our briefing binders for those meetings will elaborate on proposals on what the size of the study should be, et cetera. But we won't have a clear understanding of what that really is going to be until we get feedback. And like I said, those meetings are now predominantly scheduled for early '21.

And your next question will come from Randall Stanicky from RBC.

Paul, how do you think about the magnitude of the back-to-school move that you saw this year, given that a lot of people were at home versus what it would have looked like in a more traditional or a more normal environment? And I understand, given the timing of the HypoPen launch here, it might be a little bit more difficult to read. But just trying to understand where that would have been relative to a more normal environment? And then second question for you. A little bit of a different question. There's a host of companies within diabetes looking to manage the condition digitally to create a closer and more regular relationship with the patient. Does that at all create an opportunity for Xeris to partner with any of the companies looking to do this, you bring a rescue option, they provide you with engaged patients. Is that something that you've at all thought about? And then lastly, just if you could just talk about units per script trends, that would be great.

I didn't quite catch the third piece.

Units per script. But what are you seeing in terms of trends?