The tl;dr is that a bull case evaluation for XERS shows an upside of 217% with PT $14.21 and a bear case evaluation shows an upside of 42% with PT $6.38. Note that this does not factor in the possibility of a short squeeze which could increase the price past its fundamental value. Given the bull and bear case evaluations, XERS represents minimal risk with a lot of upside.
Their commercialized product is an improvement on existing glucagon kits for diabetics who take insulin. Glucagon is a life-saving emergency treatment that is required when diabetics get severe hypoglycemia (extremely low blood sugar). Existing legacy kits have to be mixed before being self-injected, which is difficult for people and leads to many kits being administered incorrectly. Gvoke (or Ogluo as marketed in EU/Britain) comes pre-mixed and is auto-injected. It represents a clear and obvious improvement over the legacy kits. Non-legacy competition to Gvoke includes Baqsimi (a nasal spray) and Zegalogue (a similar epipen-equivalent). Baqsimi has the advantage of not requiring an injection but the disadvantage of having more severe side effects. Zegalogue is a similar product with similar pricing.
6.8M diabetics in the U.S. take insulin, but only 641K glucagon prescriptions are filled annually. The glucagon market is growing rapidly now that it is becoming standard to prescribe it for anyone taking insulin. Given the standard price of $560 per prescription, the current market is $360M annually with a hypothetical total market opportunity at $3.8B. A conservative estimate would place the market opportunity at $1B by 2030, representing 11% CAGR.
Legacy kits are being phased out in favor of their newer and improved counterparts, as their market share decreased from 100% in 2018 to 63% in 2020 to less than 50% in May 2021. Gvoke has rapidly increased its market share leading to 15.3% in May 2021, and its increasing at a faster rate than Baqsimi. It’s unclear how much market share will be given to the newly-released Zegalogue, but it’s at a disadvantage due to the year-long head start that Gvoke received in marketing to doctors and establishing a realized market.
BULL CASE: $800M – I’ll use analyst projections for Gvoke sales for the next 3 years: $50M in 2021, $100M in 2022, and $150M in 2023. I’ll add 11% CAGR for each subsequent year until 2030, which assumes a sustained market share of 33.8%. I’ll estimate costs at 35% of sales and use 9% discount rate. Finally, I’ll add 10% additional cash flow for the EU/Britain market since it’s large but provides small profit margins.
BEAR CASE: $379M – I’ll use 80%, 65%, and 50% of the analyst projections for Gvoke sales for the next 3 years. I’ll add 9% CAGR for each subsequent year until 2030, which assumes a market share of 16.9% that is slowly decreasing. I’ll assume the same costs and discount rate but add only 5% additional cash flow for the EU/Britain market.
Pramlintide allows diabetics to better control their blood sugar, but it requires 3 daily injections before every meal. XERS’ product combines insulin and pramlintide, requiring fewer injections and reducing the amount of expensive insulin required by 30%. They completed a successful Phase 2 Trial and have a meeting scheduled in July with the FDA to discuss a Phase 3 Trial. They are looking for another company to partner with on the drug’s continued development.
BULL CASE: $121M – I’ll assume 3 years until commercialization at cash flow -$90M with 50% chance of development success. If successful, I’ll use 75% of the bull case domestic DCF from Gvoke.
BEAR CASE: $14M – Same assumptions except I’ll use 75% of the bear case domestic DCF from Gvoke.
Rest of Pipeline and Technology
There are other products in development, including glucagon kits for post-bariatric and exercise-induced hypoglycemia, and an epipen-equivalent for Diazepam. Their XeriSol and XeriJect technology can be used to improve administration on a wide variety of treatments outside of the ones currently in development. In particular, XeriJect is used on monoclonal antibodies, which is a hot area of research right now based on its potential to treat cancer and autoimmune diseases.
BULL CASE: $150M
BEAR CASE: $50M
Strongbridge BioPharma (SBBP) is being merged into XERS at the end of 2021. This will increase the number of shares in XERS from approximately 61.24M to 102.07M. SBBP’s commercialized product is Keveyis, which brings in about $30M annually. However, it may lose its preferential pricing in late 2022 which would significantly reduce its value. They have a number of products in development but the most exciting is Recorlev, a treatment for Cushing’s Syndrome which has a successful Phase 3 Trial. Its peak sales could end up being close to Gvoke.
BULL CASE: $379M – I’ll start at $30M revenue for Keveyis with -20% CAGR until 2030. I’ll estimate costs at 35% of sales and use 9% discount rate. For Recorlev, I’ll assume 1 year until commercialization at cash flow -$25M with 85% chance of approval. If approved, I’ll use 60% of the bull case domestic DCF from Gvoke.
BEAR CASE: $208M – Same assumptions except I’ll use 60% of the bear case domestic DCF from Gvoke for Recorlev.
BULL CASE: The combined value would be $1.45B over 102.07M shares for a PT of $14.21.
BEAR CASE: The combined value would be $651M over 102.07M shares for a PT of $6.38.