Xeris Pharmaceuticals' (XERS) share price took a huge hit following the FDA decision to extend Gvoke’s PDUFA date by 90 days due to a major amendment to the NDA. I jumped on the opportunity to add to my speculative position. Since then, the share price has recovered and is holding just below $12 per share. Now, I am waiting for the volatility to pick up in order to add to my position for a long-term hold in XERS.
I believe the current market cap doesn’t reflect the company’s commercial prospects. I intend to review Gvoke and its market potential. In addition, go over the company’s platform technology and promising pipeline. Finally, I reveal my plans for my XERS position in the upcoming days and weeks.
Xeris is a pharmaceutical company that is developing innovative injectable drug formulations using its XeriSol and XeriJect platforms. These injectable formulations are to be administered via prefilled syringes, auto-injectors pens, infusion pumps, and multi-dose injectors pens. Both XeriSol and XeriJect based formulation will not entail reconstitution, which permits the product to be kept at room temperature and will decrease the injection volume due to the lack of BAC water. Xerisol formulations are shelf-stable suspensions, whereas XeriJect formulations are injectable pastes that are reconstituted once they interact with the body’s water.
The company's objective is to develop and commercialize products that are manageable for patients, caregivers, and healthcare professionals.
The Xeris pipeline (Figure 1) is deep and is full of injectable drug formulation programs. The bulk of the pipeline is devoted to glucagon and diabetes, which has essentially designated Xeris as a diabetes-centric company.
Figure 1: Xeris Pipeline (Source: XERS)
In addition to severe hypoglycemia, Xers is pushing glucagon in post-bariatric hypoglycemia “PBH,” hypoglycemia-associated autonomic failure “HAAF,” congenital hyperinsulinism “CHI,” and exercise-induced hypoglycemia. Another blood sugar program is the combination of pramlintide and insulin for Type1 and Type 2 diabetic blood sugar control. Outside diabetes, Xeris is looking to employ a ready-to-use liquid form of Diazepam in an auto-injector for acute repetitive seizures (ARS) and Dravet Syndrome.
Background on Severe Hypoglycemia and Glucagon
Severe hypoglycemia (blood glucose <54 mg/dL) is a dangerous condition that can give rise to seizure, coma, cardiovascular risks, and possibly death. These severe hypoglycemic traumas might occur several times a year and may necessitate the use of a glucagon emergency kit "GEK" and professional assistance to bring the patient’s blood sugar back to a safe level.
Glucagon is a hormone secreted by the pancreas that raises blood glucose levels by activating the liver to rapidly transform glycogen into glucose, which is then absorbed into the bloodstream. Glucagon is the standard-of-care for the treatment of severe hypoglycemia and is administered by injection or via nasal spray.
Gvoke’s first PDUFA date was scheduled for June 10th but, the FDA extended Gvoke’s PDUFA date by 90 days as a result of a major amendment to the NDA. The FDA has the authority to extend the PDUFA date when there is a "major amendment" to the NDA which is often as a result of the FDA asking for specific or additional information. Xeris management publicized that the FDA asked for supplementary information regarding the company’s CMC module of the NDA. Inappropriately, that communication occurred around Memorial Day, which would be last minute in the review cycle, so the FDA had to issue the extension.
In my previous Xeris article, I reviewed a few situations where the FDA issued an extension and the product was ultimately approved. Most notable was Eli Lilly’s (LLY) nasal glucagon product, which was delayed and was recently approved by the FDA. So, I have confidence that Gvoke will get approved after its extension.
Xeris CEO Paul Edick trusts the PDUFA extension will not postpone a potential launch for Gvoke, which is scheduled for Q4 of this year.
If approved, GVOKE would be one of a few players in the ready-to-use glucagon injection arena.
Xeris believes that its GVOKE HypoPen and PFS will be essential for patients and caregivers that should have an emergency glucagon device on hand. Approximately 75% of T1D patients and roughly 50% of T2D patients ought to have glucagon readily available. Sadly, the majority of patients do not have a glucagon rescue device on hand. Xeris has estimated that about $246M worth of glucagon rescue products were dispersed in 2017, but the potential U.S. market was estimated to be ~$2B. So, it looks as if the glucagon rescue device is an under-penetrated market.
Figure 2: Glucagon (Source: XERS)
Looking at figure 3, we can see the two primary types of prospective Gvoke users. Xeris wants to focus on that 75% of T1D patients who should have a glucagon rescue device. If they are successful, they would have a large percentage of that $2B market.
Figure 3: Glucagon Gap (Source: XERS)
Looking at figure 4, we can see how the two Gvoke products stack up against GEK. Out of all the comparisons, I would point out Gvoke’s success rate is nearly perfect at 99%; meanwhile, GEK’s is only 6-31% success rate.
Figure 4: GVOKE vs. GEK Attributes (Source: XERS)
GEK administration is an 8-Step procedure, while Gvoke only has 2-3 steps (Figure 5). Clearly, Gvoke has the edge in terms of simplicity and time to administration, both of which are critical when someone has extremely low blood sugar.
Figure 5: GVOKE Instructions (Source: XERS)
What is the market opportunity for GVOKE? The global glucagon market was projected to be ~$451M in 2018 with a CAGR of 6.3%, which may well create a $500M+ market size in 2020. North America makes up nearly 41% of the global market and Europe makes up 25%. Sadly, 9.5% of the United States population leads has diabetes, with 100M U.S. adults are diabetic or pre-diabetic. Considering these numbers, it appears there is a strong potential market for Gvoke HypoPen and PFS both in the U.S. and in Europe.
Xeris is looking to enter the diabetic and glucagon market which is consumed by Novo Nordisk (NVO) and Eli Lilly (LLY), who are the two juggernauts in this arena. Both of these companies have their own competitive products (GlucaGen and Glucagon kits) and will not step aside just because Xeris has a novel product. Xeris will have to be on-point to match up against these multibillion-dollar market cap companies that have a complete line of diabetes products already on the market.
What is more, Eli Lilly's nasal glucagon was recently approved and could provide few benefits over injectables, such as its ease of use and that it is non-invasive. However, I don’t see a needleless option to be a big deal for a diabetic who has to deal with needles on a daily basis. Nevertheless, it does show that big players are still willing to put time and resources into the glucagon arena.
Is XERS Still A Buy?
XERS market cap is about $318M and is formulating a move into a $2B potential market for glucagon. If Xeris was only able to capture 10% of that $2B market, it would still pull in ~$200M in annual revenue. The biotech sector's average price-to-sales ratio is about 5x, which would give XERS a $1B market valuation. The company still has a healthy balance sheet with about $124.51M in cash on hand at the end of Q2.
In addition, the company’s pipeline has several programs going into phase II and Phase III studies. The company's technology and platform are significantly discounted and could be used with other approved drugs/biologics that could benefit from the shelf-stable injectable formula.
When looking at the potential revenue, the Street expects Xeris to start recording rapid growth in the coming years (Figure 6).
Figure 6: XERS Annual Revenue Estimates (Source: Seeking Alpha)
What is more, this revenue growth will lead to the company becoming cash-flow positive in 2022 (Figure 7). Considering the company expects to start recording product revenue at the end of this year, I would say that is a quick transition from red to green.
Figure 7: XERS EPS Estimates (Source: Seeking Alpha)
In consideration of these fine points, I still find XERS to be worth a speculative buy that could turn into a lucrative long-term investment.
Xeris researches have been developing the XeriSol technology, which has resulted in the first room-temperature liquid stable glucagon. Before XeriSol technology, a ready-to-use glucagon formulation was a serious problem attributable to the glucagon peptide being unstable in water. Xeris has joined its ready-to-use glucagon with a two-step auto-injector or pre-filled syringe “PFS” to be implemented as a rescue injection for acute hypoglycemia. Xeris intends to market its Gvoke products to be an improvement over Eli Lilly’s eight-step GEK. It is this potential that has XERS investors looking forward to the FDA’s decision in the coming days. If approved, Xeris remains on course to evolve into a commercial-stage company and a potential leader in the diabetes therapeutics.
I have a very bullish long-term outlook for the company as a result of the company's injectable formula technology and ability to become a front-runner in shelf-stable formulations. Producing shelf-stable injectable formulations is something that is somewhat unique and could make Xeris a treasured company due to the success of its own products and the potential of licensing or partnerships. Therefore, I believe Xeris would be an acquisition target in the coming years.
Investors who are debating a long-term position in XERS should remain vigilant around future quarterly reports and should keep an eye on the company’s cash position. I anticipate the company's R&D and SG&A expenses to fluctuate over the next couple of years as the company works on a commercial launch, while still attempting to advance its pipeline. For that reason, I admit there is a strong possibility of a secondary offering at some point in 2020.
What is my plan? As I mentioned earlier, I expect the upcoming PDUFA date to provide an opportunity to add to my Xeris position. However, if we see a strong move above $13 prior to the PDUFA date, I will look to shave some of my profits. On the other hand, if the stock drops below $9 per share, I will likely add to my position once support has been established.
Figure 8: XERS Daily (Source: Trendspider)
If Xeris fails to gain approval, I will liquidate my position directly following the news release and will look to re-enter once the FDA provides a pathway to approval.
Disclosure: I am/we are long XERS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.