Xeris Biopharma Holdings Stock Is A Hold With Robust Performance Into 2024 (NASDAQ:XERS)

Xeris Biopharma Holdings (NASDAQ:XERS) is up 88% (YoY) and the stock price is trading just 23.5% shy of the 52-week high of $3.07. It has been four years since the U.S. FDA approved Gvoke, the prefilled (ready-to-use) glucagon drug for the treatment of hypoglycemia in diabetes patients (from 2 years and above). Since then, and while considering the commercialization efforts of Keveyis and Recorlev; Xeris has been able to grow its revenue from $2.7 million in 2019 to $152.7 million in the 12 months trailing to September 2023.

Thesis

Xeris Biopharma continues to show great potential in balancing its commercialization efforts into 2024 while maintaining positive working capital management. Through solid partnerships, the company has been improving its proprietary technologies: XeriSol and XeriJect to help in the delivery of drugs to patients making them relatively attractive. Further, Xeris continues to harness the power of innovation with its new product candidate, Levothyroxine; which is already in its Phase 2 study.

Transformative Diabetic Drug development

I believe Xeris has heightened interest in the development of ready-to-use glucagon options that dethrone the need for reconstitution. We already have at least two other companies that have produced such a treatment in conjunction with XERS. Market leader, Eli Lilly and Company (LLY) developed Baqsimi which was approved by the FDA in 2019. In its Q3 2023, report, LLY stated that, out of the $1.42 billion revenue collected in the 9 months ending September 2023, it realized about $579 million from the sale of its “rights for Baqsimi to US firm, Amphastar Pharmaceuticals.” It is important to note that while LLY has multiple diabetes treatments, it recorded higher sales for Baqsimi outside the US (in the three months to September 2023) as compared to US sales. We must keep in mind that XERS’ Gvoke sales are predominantly in the US.

Novo Nordisk also developed Zegalogue- a glucagon analogue which like Gvoke, is available as an auto-injector (injection). In contrast, Baqsimi (unlike Zegalogue and Gvoke) is administered in the nasal area in the form of glucagon powder. LLY’s “glucagon emergency kit” and Novo Nordisk’s “GlucaGen HypoKit” are traditional hypoglycemia glucagon kits that were first approved in 1998 for use with no age limits. However, Xeris Biopharma’s Gvoke HypoPen and the pre-filled syringe (PFS) introduce what I would term the modern era of hypoglycemia treatment for diabetes patients. The HypoPen is administered using an auto-injector as a liquid-stable drug formulation (the first of its kind) with the same formulation present in the PFS. What’s unique with Gvoke (the modern hypoglycemia treatment) is that it removes the need for premixing- as the liquid formulation is already in a stable state. This feature allows easy self-administration.

In my estimation, global Gvoke sales will hit $400 million per year shortly, considering there are about 38.4 million affected by diabetes in the US alone. Alongside the PFS and HypoPen. XERS also has the Gvoke Kit and the Ogluo (glucagon) which was approved for sale and usage in the European Union by EMA and MHRA. The cost of 1 original Gvoke kit is about $373 per vial (which has 1ml of 1mg/0.2ml). The generic version costs less than $300 per vial.

XERS also has the proprietary XeriSol and XeriJect development technologies which in my view are revolutionary. The company attributes its capacity to create the rescue, “ready-to-use, stable and highly concentrated” formulations to these two technologies. They practically resolve the solubility/stability limitations that have plagued other drugs by providing convenient storage, and the overall subcutaneous administration. XERS stated that it owned about 174 global patents in regard to its “ready-to-use formulations eligible for expiry until 2036.

What about the management?

Xeris Biopharma has been on steady growth ever since Paul Edrick took over as CEO of the company in 2017. He took the company public in 2018 and has since raised about $253 million in equity financing having overseen multiple clinical and pre-clinical studies. However, the commercialization of its key drug candidates adds the icing to the cake proving the success of his sales background. In terms of decision-making, Paul is the right man to steer the company to growth in productivity and operational efficiency.

Xeris has reduced its annual net loss from $125.6 million in FY 2019 to $61.8 million in the 12-month trailing period ending September 2023. Additionally, in the 9 months ending September 30, 2023, Xeris’ management used $54.5 million in its operating activities, representing a 37.2% (YoY) decline from $86.8 million used in the same period in 2022. This reduction was attributed to the management’s lower usage of its working capital in 2023. The same decrease was witnessed in the CapEx with a~$5 million reduction. Paul and his team prioritized more short-term investments in the period that involved operational output as opposed to reinvestments. I expect the management to balance operations and CapEx heading into 2024 which will lower the strain on equity financing while growing commercial activities to boost sales.

It will come as no surprise if Xeris decides to follow LLY in the sale of its Gvoke rights. I make this presumption since XERS relies on third parties to sell and distribute all its drug products. At the moment, Gvoke is the most attractive drug product in terms of revenue generation. This commercialization procedure holds for Keveyis and Recorlev as well. XERS has recorded continuous revenue realization from 2022 to 2023 in its product sales. Keveyis was approved in 2015 as the first therapy treatment in the US for hyperkalemic and Primary Periodic Paralysis (PPP). It was the second-best-selling product for XERS after Gvoke raking in $15.9 million while Gvoke realized $17.7 million in the three months ending on September 30, 2023.

As seen above, XERS is growing its revenue away from product development through licensing, royalties, and other contracts. It grew this revenue category by 3,773% (YoY) in the three months ending on September 30, 2023.

New Developments into 2024

Xeris’ focus into 2024 will also be on XP-8121, an injection of levothyroxine used for the treatment of hypothyroidism. Various drugs have been approved by the US FDA for the treatment of thyroid gland problems. Among the drugs approved include Levoxyl originally produced by Jones Pharma which was acquired by King Pharmaceuticals (at a valuation of $3.6 billion). It was finally acquired by Pfizer as a fully-owned subsidiary in 2010. Statistics indicate that at least 20 million people are affected by thyroid gland diseases globally with the US registering more than 13 million patients who are “hormone replacement therapy.”

One unique feature of Levothyroxine-XP-8121 is that it is being developed as a once-weekly subcutaneous dose while other common hypothyroidism treatments are daily treatments in the form of tablets. For example, the Unithroid drug tablet, developed and marketed by Amneal Pharmaceuticals is an “oral single daily dose.” Tirosint developed by IBSA Pharma is also a daily dose that requires patients to refrain from meals before administration.

By September 2023, XERS had already begun its phase 2 dosage study to assess the patient’s reaction after receiving Levothyroxine. I am looking forward to its Phase 3 study by 2025 when it will engage with the FDA before commercialization.

Risks to the Business

High cash burn rate into 2024

In the 12 months trailing to September 2023, Xeris used up $82.3 million in both operating and investing activities.

This amount was used against the cash balance of $66 million recorded as of September 30, 2023. Calculations indicate that the cash runway for Xeris Biopharma is nine (9) months before the current cash balance runs out. Without considering any other financing option, XERS will have sufficient cash to run until June 2024 or H1 2024. The company will need additional financing for H2 2024.

Use of third-parties

As noted earlier, XERS relies on third parties to supply and sell its lead drug products whose delayed lead times may affect the company’s revenue realization. This aspect also means Xeris, on its own, has limited sales, supply, and other commercial logistics that would enable it to rapidly increase revenues in a short time.

High cumulative net loss over the years

Xeris’ accumulated deficit has increased 8.8% (YoY) to $603.6 million in the nine months to September 2023 from $554.8 million last year. While the company is looking towards a cash-flow positive situation, it is yet to break even in regard to expenses outweighing profits.

Valuation

For valuation, XERS’ forward price-to-sales ratio is 2.01 against the industry average of 4.17 (indicating a difference of -51.73%). This difference shows the stock is slightly undervalued with an upside potential above 50% into 2024. However, the 12-month trailing price-to-book ratio is 81.27 against the industry average of 2.27 (a difference of 3,475.56%). We may also see a downside especially if the company does not work to lower its accumulated deficits and minimize losses into 2024.

Bottom line

At the moment, XERS is a hold but, I will revise it to buy and grow my position once it lowers its accumulative deficit as well as the operational expenses. It will also be vital to see how it resolves its high cash burn by H2 2024 with strategic considerations before taking Levothyroxine to Phase 3. Nonetheless, XERS comes out as an attractive stock combining diabetes treatment, and paralysis/thyroid gland therapy in its production plays. The company’s management has worked towards the commercialization of its three leading drug products since 2017. Despite the high accumulated deficits over the years, XERS has steadily grown its revenues while exploring other new drug candidates such as Levothyroxine. It will be vital for the company to improve its operational efficiencies to lower expenses against profits to balance its cash flow into 2024. I have also considered the idea that the management may decide to sell its leading product to increase its cash flow into the future.