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Xeris Biopharma Holdings (NASDAQ:XERS) is an interesting biotech company that has made significant strides in developing and commercializing therapies across a range of fields.
I think XERS is a speculative buy with some really strong revenue growth trading at a reasonable valuation relative to sales and sales growth. It has dramatically shrunk its losses and appears to be close to breakeven.
However, as a small cap company (market cap is roughly $300 Million) that is not currently profitable, the usual caveats apply with regards to small cap investing. Additionally, as rates rose throughout 2022 and 2023, investors have become more discerning with investing in unprofitable companies.
Make sure that you position size this appropriately if you do decide to purchase it. I also think there’s a better way to approach a position in XERS (see below) that minimizes risk.
Xeris’s focus is on endocrinology, neurology, and gastroenterology with their proprietary formulation platforms called XeriSol and XeriJect. Both XeriSol and XeriJect address limitations of aqueous formulations for certain drugs. They’re intended to have high stability and solubility.
XeriSol and XeriJect
XeriSol: XeriSol is a non-aqueous formulation technology that enables the subcutaneous and intramuscular delivery of highly concentrated, ready-to-use formulations.
Subcutaneous delivery is delivery of drugs into the layer of fat that is between the muscle and the skin. This type of delivery is ideal for slow-release drugs into a person’s bloodstream. This is used for insulin for diabetics, human growth hormone and drugs for rheumatoid arthritis.
Intramuscular delivery is delivery of drugs directly into a muscle. This type of delivery is ideal for faster absorption and is used for flu and vaccine shots.
XeriSol aims to improve the shelf life and stability of drugs. Typically, aqueous drugs degrade fairly quickly so the challenge is improving their shelf life. XeriSol removes the water from the formulation, thereby making the drug have a longer shelf life.
XeriJect: XeriJect is another proprietary technology by XERS that focuses on the formulation of injectable drugs. It is designed to convert traditionally freeze-dried drugs into stable liquid forms. XeriJect helps in simplifying the drug preparation process, reducing the potential for dosing errors, and improving patient compliance.
Patients who benefit from XeriJect include those who rely on drugs that are typically available in freeze-dried forms and require mixing before injection. XeriJect uses a proprietary technique to transform these drugs into ready-to-use liquids. This is especially important for patients who self-administer their medications at home or have limited access to medical facilities because the administration of these drugs is much easier in liquid form.
What is “aqueous formulations”?
Aqueous formulations in drugs refers to where the primary solvent is water, which is common in the Pharma industry. They can include solutions, suspensions, and emulsions.
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Solutions: In an aqueous solution, the drug is completely dissolved in water. These are clear liquids where the active ingredient is distributed throughout the solution. Think: oral cough syrup containing a drug that is completely dissolved in water along with other ingredients like flavorings or sweeteners. These are commonly used for young kids or elderly because of their ease of administration.
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Suspensions: A suspension is a formulation where the drug particles are dispersed in water but not completely dissolved. These usually require shaking before use. An example is antibiotics. Amoxicillin isn’t fully dissolved in the water and requires shaking before administering to make sure the drug is distributed throughout the liquid. Flavorings are also added to these and they’re also preferable because they can be easier to swallow.
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Emulsions: An emulsion is a mixture of two liquids (like oil and water), where one is dispersed in the other in the form of tiny droplets. These drugs usually contain both oil and water phases and the drug is dissolved in either phase. An example is a topical cream like hydrocortisone. hydrocortisone is dispersed in a cream base which consists of water and oil.
Types of aqueous formulations (Types of aqueous formulations)
Source: Author
With that brief Science 101 class out of the way, let’s dive into what it is that Xeris does and see if it’s a worthy investment.
Commercially Approved Drugs
The company now has 3 commercially approved drugs – Gvoke, Keveyis and Recorlev – which combined to generate $42 Million in revenues in Q3 2023, up 41% year on year.
Gvoke is a ready to use glucagon product called Gvoke HypoPen and its revenues grew 30% year on year while prescriptions were up 52% in the same time period. The company believes it has only scratched the surface of the opportunity for this drug as they say that only 10% of people at risk for a severe hypoglycemia event even have a glucagon drug available on hand. They estimate this market to be as large as 15 million people (vs prescriptions of 58,000 in Q3 2023).
Recorlev revenues were up an astounding 221% in Q3 2023 to $8.1 Million. Recorlev suppresses cortisol production and is seen as a first-line treatment for Cushing’s syndrome post-surgery. Cushing’s is an endocrine disorder caused by prolonged exposure to high levels of the hormone cortisol. It often results from a benign tumor in the pituitary gland and is common amongst women. It is fatal if left untreated.
Keyevis revenues were up 19% year on year to $15.9 Million. Keyevis is a drug used to treat primary periodic paralysis. This condition affects muscle function, leading to episodes of muscle weakness or paralysis. The drug is administered orally in tablet form.
Pipeline
XeriSol levothyroxine, a potential once-weekly sub-Q injection, is in a phase 2 study for the treatment of hypothyroidism. Enrollment began in Q2 2023 and is about 80% enrolled. The company aims to complete the study in 1H 2024 with data available in mid year. That will inform them on moving to phase 3.
Partnerships
XERS has some noteworthy partners using the XeriJect platform, including Amgen (AMGN) and Regeneron (REGN). Here is a quote from their Q3 2023 conference call:
“We announced that we successfully formulated the prespecified target product profile of XeriJect TEPEZZA and as such, we see the associated $6 million success payment from Amgen, which was recently acquired by — which recently acquired Horizon. We are waiting on their decision whether they want to exercise their option for an exclusive license to XeriJect technology in the primary indication to further the development of XeriJect subcutaneous TEPEZZA. If the option is executed and Amgen continues clinical development and eventual commercialization of XeriJect sub-Q TEPEZZA, we may be entitled to receive development milestones, regulatory milestones, sales-based milestones and royalties based on future sales. As for the Regeneron collaboration, we are currently formulating the 2 molecules of the platform program and expect to deliver the prespecified XeriJect formulations for evaluation to Regeneron. Regeneron also has the option to nominate additional molecules for formulation development at any time or to execute a license for further clinical development and commercialization of any of the molecules in the platform. In addition, we continue to discuss additional XeriJect collaborations with numerous companies.”
Financial Performance
The company has seen explosive revenue growth from 2019. 2019 revenues were just 2.7 Million. Here is the growth in revenues since then:
2019: $2.7 Million
2020: $20.4 Million
2021: $49.6 Million
2022: $110.2 Million
2023 (estimated): $162.5 Million
XERS Revenues (Author) (XERS Revenues (Author))
Revenues have grown at a CAGR of 178%.
The company hasn’t yet turned a GAAP profit; however, operating profit margins have improved considerably. Here are the operating losses by year:
2019: -$122.4 Million
2020: -$83.5 Million
2021: -$115.2 Million
2022: -$81.9 Million
2023 (TTM): -$49.3 Million
In Q3 2023, the company reported a GAAP operating loss of just $4.9 Million on revenues of $48.3 Million. Operating margins went from negative 4,000% in 2019 to just negative 10% in Q3 2023.
The company is currently burning around $15 Million per quarter; however, cash burn has been coming down. They have about 4 quarters of cash left and have $190 Million in long term debt. I don’t love the balance sheet and do expect that they will have to do one more cap raise to fund operations until breakeven.
The company isn’t providing guidance yet for 2024:
We also continue to maintain a healthy cash position, which supports our ability to continue to be a self-sustaining enterprise. We are not providing 2024 financial guidance at this time. However, I want to share a quick high-level outlook. We expect total net revenue to grow from 2023 levels, operating expenses to remain flat, continuing to reduce our cash burn, and to again have enough cash at the end of the year to fund our company, meet our obligations and continue to invest in the growth of the enterprise.
Having said that, the company trades at a low price to sales of just 1.9X and if they can get to normalized profit margins of around +10%, the company trades at about 20X normalize profit margins on $162.5 Million in revenues. With revenue growth in the 40% range, this is a multiple that seems somewhat reasonable.
Conclusion
I like this company. The valuation seems reasonable, the company is growing very rapidly. However, I do think they will be forced to do one more capital raise to bridge the gap to profitability. If the stock rises, I hope they do a smaller raise and don’t dilute shareholders that much. I think a $30 to $50 Million capital raise seems reasonable at some point unless they improve cash burn substantially.
The chart looks good for a turnaround. The 200-day moving average has been rising since last spring, and the stock just recently cleared the 200-day moving average. I think you can buy some here and wait for Q4 2023 results to come out some time in early 2024 to either add to the stock or sell it. I currently have no position, but will be watching it closely.
XERS Stock Chart (XERS Stock Chart)
