A Bull Case Valuation for $XERS

Written by https://twitter.com/ex_kuhlo.  The below is his opinion, not his advice.  

Xeris is a commercial stage small biotech company which recently announced the takeover of Strongbridge Biopharma ($SBBP).
Currently Xeris sells the Gvoke Hypopen for use with Hypoglycemia. Hypoglycemia is a serious, possibly deadly condition where blood glucose levels of diabetes patients are too low. Until recently only hard to use legacy kits by big pharma companies were available. The only current competition is Baqsimi, a nasal Glucagon which reviews show gives nasty headaches and nose itchings. Standard of care recommends having Glucagon ready if people are on insulin, of the >6.8M insulin treated patients in the U.S. currently only 10% patients have Glucagon prescriptions. This is mainly due to the cumbersome use of the old legacy kits which have been slowly but steady convertet into Baqsimi and Gvoke. The market for Glucagon grew 30% in 1Q 2020 until the pandemic and this growth is expected to return shortly as the most important “back to school” season begins where traditionally ~40% of all Glucagon is sold. Currently the development is still muted as doctors are only slowly getting out of the pandemic maintenance mode. Xeris and competitors expect the current $350M market to increase to >$1B by 2030 implying ~13% CAGR, with Xeris itself expecting a potential market size of ~$4B, implying a much higher CAGR. This only includes sales in the U.S., with a partnership in Israel already in place, EU and UK approval and a partnership imminent in the EU $XERS could get into another big market as well, that could in our opinion be worth an additional 25% in relation to U.S. U.S. Sales in 2023 for U.S. only are expected to be ~$160M, one analyst expects up to ~$240M. Adding another $30M in revenue after partnership sharing due to ramping up in EU this translates into a potential revenue of $270M. Applying a moderate 4x multiple this would imply a valuation of $1.08B or $8.1 pps for Gvoke alone.

With the acquisition of Strongbridge, Xeris acquires a drug already in sales, KEVEYIS treats Primary Periodic Paralysis — an ultra-rare neuromuscular disorder and has revenue 2021E of ~$35M, expected to increase to >$40M in the upcoming years. Additionally Strongbridge has submitted an NDA for RECORLEV to the FDA, a decision is expected in early 1Q. RECORLEV targets the Cushing´s syndrom market, a highly fragmented, mostly off-label drugs market (~80%) where the drug could find a good niche with a sales potential estimated by Strongbridge of up to $350M. The sales force for RECORLEV will be the same as for Gvoke as both have an overlapping group of physicians, mainly endocrinologist providing significant cost synergy potential from the acquisition.
Value: $1.2 pps for KEVEYIS and ~$5 pps for RECORLEV

Additionally Xeris has currently 4 drugs in the pipeline, Diazepam against epileptic seizures / dravet syndrom, Pramlintide which could enhance meal time insulin and increase glycemic control. For both drugs Xeris currently developed easier routes of administration and seeks partners to advance those programs. Diazepam could have a potential adressable market north of $250M, while Pramlintide could potentially be $500M+. At current stage, IB analyst described no value to them as they were unable to do so. We believe together they are currently worth $2 pps extra.
Additionaly a mini- and micro-dose Glucagon program for Exercised-induced-hypoglycemia and Post-bariatric-hypoglycemia are in development. Both are markets with extensive medical needs and high revenue potential and we describe a value of at least $2 pps.

The true value we believe is in the technology platform, Xeris is no drug developer per se but reformulates existing drugs into better versions that are easier to administer and provide cost savings for the health care system. XeriSol and XeriJect can make small and big molecules and peptides stable at room temperature and increase solubility of drugs without the need of water. This potentially translates in billions of saved costs as more and more drugs can be administered at home or via syringes instead of a long and costly infusion in the hospital. Xeris is working with 3 big pharma companies on mAbs, the hottest drugs as of today. As they haven’t disclosed any material information we can only speculate how much potential there is, but mAbs tend to bring in >$500M revenue per year after approval. This is a scalable asset as Xeris can apply this to a wide range of drugs without much costs beyond mAbs. Xeris patents show various groups of possible applications, the company stated additional uses for glucagon, a neuromuscular rare disease drug as well as another endocrinology drug.

To sum everything up, we believe the share price in a bull case scenario should be ~$20 based on current 2023E with limited downside and big upside potential in the next 24 month. Anything below $8 pps is not reflecting Xeris current potential, which is 108% above yesterdays close. Xeris has stated it wants to bring 1-2 drugs into clinical studies every year, providing a cushion if some of the drugs fail to get to market. Options in Xeris have a high implied volatility which makes them expensive as the stock has high daily fluctuations. There are heavy short seller activities underway, with currently up to 30% of shares sold short, while Institutionals earn >50% of the company. A recent retail survey showed that there is a big group of long term retail investors which own a few percent of the company. According to Fintel and our analysis there is a high potential of a short squeeze as short sellers arbitrage $XERS vs $SBBP shares as well as $XERS shares against a $XERS convertible note transaction.

The original tweet for this Bull Case Valuation can be found here: Tweet

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