Highlights from Xeris/Strongbridge S-4 (part 1)
Source: S-4
Xeris management believes Xeris can expand product offers: *[page 58]*
“Xeris management identified that expanding Xeris’ product offerings to include a broader product portfolio would be a way to better position Xeris to execute on its economic value strategies.”
Other companies were interested in Strongbride: *[page 59]*
“From September 2020 through the first half of April 2021, as part of the continuing process of exploring potential strategic transactions involving Strongbridge, Strongbridge management entered into confidentiality agreements with five parties, Party B, Party C, Party D, Party E and Xeris, and continued discussions with Party A, Party F and Party G under existing confidentiality agreements.”
“In addition to Xeris and Parties A through G, Strongbridge also identified seven additional parties as potentially interested in a strategic transaction with Strongbridge, with which Strongbridge did not enter into any confidentiality agreement or exchange any non-public information (the “Other Parties”)”
One company made an offer: *[page 61]*
“On March 17, 2021, Strongbridge received a non-binding proposal from Party E to acquire Strongbridge for $3.50 per Strongbridge ordinary share in cash plus a contingent value right to receive $0.50 in cash payable upon Recorlev receiving FDA approval in the United States. The proposal was subject to further confirmatory due diligence, among other conditions. The closing price for Strongbridge’s ordinary shares on March 17, 2021 was $3.34.”
Another company wanted to see further regulatory developments for Recorlev: *[page 62]*
“Party E indicated that it would be interested in a strategic transaction with Strongbridge, but it would need to see further regulatory developments of the New Drug Application for Recorlev for the treatment of endogenous Cushing’s syndrome that Strongbridge submitted to the FDA on March 1, 2021, which developments would not occur under the timeline requested in the Bid Process Letter.”
Strongbridge received patent for Recorlev on April 23, 2021: *[page 63]*
“On April 23, 2021, Strongbridge received a notice of allowance from the U.S. Patent and Trademark Office relating to a patent application for Recorlev, potentially providing Recorlev with additional patent protection until 2040. On the same day, Mr. Johnson informed Mr. Edick of this development and Mr. Edick indicated that Xeris would revise its April 16 Proposal in light of this development and requested that Xeris have a few days to prepare a revised proposal.”
Independent Xeris Directors concluded that the Transaction is likely to result in significant strategic and financial benefits to Xeris and its stockholders, including: *[page 68]*
- Diversified and Increased Revenue Growth: The combined company is expected to have a stronger revenue base with two rapidly growing commercial assets in Gvoke and Keveyis, and a near-term product launch in Recorlev. Gvoke sells in a multi-billion dollar addressable market, as will Recorlev, if approved. With approval of Recorlev by the FDA, Xeris’ experienced, endocrinology-focused commercial infrastructure is expected to enable a rapid product launch for Recorlev into the endocrinology community. With Gvoke, Keveyis and Recorlev, the combined company will boast multiple, highly differentiated, growing, commercial assets that could have significant combined revenue potential, supported by a larger and more efficient commercial organization;
- Significant Potential Synergies: The combined company is expected to generate approximately $50 million inpre-tax synergies by the end of 2022 resulting from immediate savings, including redundant general, administrative and other public company costs, and from the avoidance of future costs, most notably within the commercial and medical affairs functions. Stockholders of the combined company are expected to benefit from significant cost avoidance and the potential for more rapid and achievable near-term growth by utilizing Xeris’ existing commercial infrastructure to launch Recorlev soon after product approval. Xeris’ management and the Independent Xeris Directors are committed to retaining and incentivizing the most talented individuals in their respective functions between the two companies to ensure continuity and ongoing success;
- Specialized Commercial Platform: The combined company will have a robust rare disease and endocrinology-focused commercial infrastructure, primed to bring the benefits of the company’s products to a wider range of patients with unmet needs. At closing, the organization will have approximately 110 field sales representatives, as well as 50 inside sales and support employees, and a fully operational patient and provider support team, enabling a rapid potential product launch for Recorlev in the first quarter of 2022, as well as enhanced sales across the entire portfolio; Expanded Development Pipeline: In addition to Recorlev, the combined company will have a robust pipeline of development programs to extend the current marketed products into important new indications and uses, and bring new products forward using its formulation technology platforms, supporting long-term product development and commercial success;
- Strengthened Strategic Profile: The Transaction will enable the combined company to have a scalable infrastructure for continued development of specialist oriented and rare disease products from its proprietary XeriSol™ and XeriJect™ formulation technologies, as well as consolidation of commercial and late development-stage products and companies focused on endocrinology and rare diseases; and Improved Access to Capital Markets: With enhanced scale, multiple revenue generating commercial assets and a high potential value near-term development pipeline, the combined company is expected to have a more attractive profile to investors and to benefit from greater access to the debt and equity markets at a lower cost of capital.
Summary of the Unadjusted Xeris Projections: *[page 77]*
| ($ in Millions) |
||||||||||||||||||||
| Q4 2021 |
Fiscal Year Ending December 31, | |||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | |||||||||||||||||
| Revenues |
$ | 12 | $ | 83 | $ | 153 | $ | 267 | $ | 407 | ||||||||||
| Cost of Goods Sold |
(3 | ) | (24 | ) | (42 | ) | (70 | ) | (102 | ) | ||||||||||
| Gross Profit |
9 | 59 | 111 | 197 | 304 | |||||||||||||||
| Operating Expenses |
(32 | ) | (162 | ) | (153 | ) | (157 | ) | (158 | ) | ||||||||||
| Operating Income |
($ | 23 | ) | ($ | 104 | ) | ($ | 42 | ) | $ | 40 | $ | 146 | |||||||
Summary of the Adjusted Xeris Projections: *[page 77]*
| ($ in Millions) |
||||||||||||||||||||
| Q4 2021 |
Fiscal Year Ending December 31, | |||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | |||||||||||||||||
| Revenues |
$ | 12 | $ | 83 | $ | 152 | $ | 259 | $ | 386 | ||||||||||
| Cost of Goods Sold |
(3 | ) | (24 | ) | (42 | ) | (68 | ) | (98 | ) | ||||||||||
| Gross Profit |
9 | 59 | 110 | 191 | 289 | |||||||||||||||
| Operating Expenses |
(32 | ) | (162 | ) | (148 | ) | (149 | ) | (152 | ) | ||||||||||
| Operating Income |
($ | 23 | ) | ($ | 103 | ) | ($ | 38 | ) | $ | 42 | $ | 137 | |||||||
Recorlev was given a 90% PTRS (Probability of Technical and Regulatory Success): *[page 78]*
“Xeris management’s assessment of the PTRS of Recorlev, which Xeris attributed a probability of 90%”
Summary of the Xeris Adjusted Strongbridge Management Base Plan Projections: *[page 78]*
| ($ in Millions) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q4 2021 |
Fiscal Year Ending December 31 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | ||||||||||||||||||||||||||||||||||||||||||||
| Revenues (Not PTRS adjusted) |
$ | 8 | $ | 50 | $ | 79 | $ | 112 | $ | 147 | $ | 171 | $ | 199 | $ | 250 | $ | 251 | $ | 251 | $ | 190 | $ | 99 | $ | 27 | $ | 18 | ||||||||||||||||||||||||||||
| Revenues (PTRS adjusted) |
8 | 49 | 74 | 103 | 133 | 154 | 179 | 225 | 226 | 226 | 172 | 89 | 25 | 17 | ||||||||||||||||||||||||||||||||||||||||||
| Cost of Goods Sold |
(2 | ) | (12 | ) | (8 | ) | (8 | ) | (9 | ) | (10 | ) | (11 | ) | (14 | ) | (14 | ) | (14 | ) | (11 | ) | (7 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||
| Gross Profit |
6 | 37 | 66 | 94 | 124 | 144 | 168 | 212 | 212 | 212 | 161 | 83 | 22 | 14 | ||||||||||||||||||||||||||||||||||||||||||
| Standalone Operating Expenses |
(20 | ) | (88 | ) | (80 | ) | (81 | ) | (76 | ) | (74 | ) | (75 | ) | (76 | ) | (77 | ) | (78 | ) | (49 | ) | (17 | ) | (13 | ) | (11 | ) | ||||||||||||||||||||||||||||
| Standalone EBITDA |
(14 | ) | (52 | ) | (14 | ) | 13 | 48 | 70 | 93 | 136 | 135 | 134 | 112 | 65 | 9 | 3 | |||||||||||||||||||||||||||||||||||||||
| One-Time Expenses |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of Intangibles |
(1 | ) | (5 | ) | (5 | ) | (5 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||
| Standalone Operating Income |
(15 | ) | (57 | ) | (19 | ) | 8 | 48 | 70 | 93 | 136 | 135 | 134 | 112 | 65 | 9 | 3 | |||||||||||||||||||||||||||||||||||||||
| As Operated by Xeris Operating Expenses |
(20 | ) | (37 | ) | (38 | ) | (38 | ) | (36 | ) | (35 | ) | (35 | ) | (35 | ) | (36 | ) | (36 | ) | (24 | ) | (7 | ) | (6 | ) | (5 | ) | ||||||||||||||||||||||||||||
| Pro Forma EBITDA |
(14 | ) | (1 | ) | 28 | 56 | 88 | 109 | 133 | 176 | 176 | 176 | 137 | 76 | 16 | 9 | ||||||||||||||||||||||||||||||||||||||||
| • One-Time Expenses |
(19 | ) | (11 | ) | (2 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||
| • Amortization of Intangibles |
(1 | ) | (5 | ) | (5 | ) | (5 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||
| Pro Forma Operating Income |
($ | 34 | ) | ($ | 17 | ) | $ | 22 | $ | 51 | $ | 88 | $ | 109 | $ | 133 | $ | 176 | $ | 176 | $ | 176 | $ | 137 | $ | 76 | $ | 16 | $ | 9 | ||||||||||||||||||||||||||
Summary of the Xeris Adjusted Strongbridge Management Upside Projections: *[page 79]*
| ($ in Millions) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q4 2021 |
Fiscal Year Ending December 31 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | ||||||||||||||||||||||||||||||||||||||||||||
| Revenues (Not PTRS adjusted) |
$ | 8 | $ | 50 | $ | 106 | $ | 163 | $ | 217 | $ | 216 | $ | 245 | $ | 290 | $ | 291 | $ | 287 | $ | 223 | $ | 115 | $ | 40 | $ | 24 | ||||||||||||||||||||||||||||
| Revenues (PTRS adjusted) |
8 | 49 | 100 | 152 | 201 | 197 | 221 | 262 | 263 | 259 | 201 | 104 | 36 | 22 | ||||||||||||||||||||||||||||||||||||||||||
| Cost of Goods Sold |
(2 | ) | (12 | ) | (16 | ) | (20 | ) | (25 | ) | (14 | ) | (13 | ) | (16 | ) | (16 | ) | (15 | ) | (12 | ) | (7 | ) | (4 | ) | (3 | ) | ||||||||||||||||||||||||||||
| Gross Profit |
6 | 37 | 84 | 131 | 176 | 183 | 208 | 246 | 247 | 244 | 189 | 97 | 32 | 19 | ||||||||||||||||||||||||||||||||||||||||||
| Standalone Operating Expenses |
(20 | ) | (88 | ) | (90 | ) | (91 | ) | (86 | ) | (74 | ) | (75 | ) | (76 | ) | (77 | ) | (78 | ) | (49 | ) | (17 | ) | (13 | ) | (11 | ) | ||||||||||||||||||||||||||||
| Standalone EBITDA |
(14 | ) | (51 | ) | (6 | ) | 41 | 90 | 108 | 133 | 170 | 170 | 166 | 140 | 80 | 20 | 8 | |||||||||||||||||||||||||||||||||||||||
| One-Time Expenses |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of Intangibles |
(1 | ) | (5 | ) | (5 | ) | (5 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||
| Standalone Operating Income |
(15 | ) | (56 | ) | (11 | ) | 36 | 90 | 108 | 133 | 170 | 170 | 166 | 140 | 80 | 20 | 8 | |||||||||||||||||||||||||||||||||||||||
| As Operated by Xeris Operating Expenses |
(20 | ) | (37 | ) | (38 | ) | (38 | ) | (36 | ) | (35 | ) | (35 | ) | (35 | ) | (36 | ) | (36 | ) | (24 | ) | (7 | ) | (6 | ) | (5 | ) | ||||||||||||||||||||||||||||
| Pro Forma EBITDA |
(14 | ) | (0 | ) | 46 | 93 | 140 | 148 | 173 | 211 | 211 | 208 | 165 | 90 | 27 | 14 | ||||||||||||||||||||||||||||||||||||||||
| • One-Time Expenses |
(17 | ) | (11 | ) | (2 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||
| • Amortization of Intangibles |
(1 | ) | (5 | ) | (5 | ) | (5 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||
| Pro Forma Operating Income |
($ | 32 | ) | ($ | 16 | ) | $ | 40 | $ | 88 | $ | 140 | $ | 148 | $ | 173 | $ | 211 | $ | 211 | $ | 208 | $ | 165 | $ | 90 | $ | 27 | $ | 14 | ||||||||||||||||||||||||||
Strongbridge Management Projections and UFCF – The Base Case: *[page 83]*
| 2021E | 2022E | 2023E | 2024E | 2025E | 2026E | 2027E | 2028E | 2029E | 2030E | 2031E | 2032E | 2033E | 2034E | 2035E | 2036E | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue |
$ | 37 | $ | 48 | $ | 63 | $ | 96 | $ | 143 | $ | 200 | $ | 250 | $ | 281 | $ | 302 | $ | 322 | $ | 135 | $ | 31 | $ | 19 | $ | 19 | $ | 19 | $ | 19 | ||||||||||||||||||||||||||||||||
| Gross Profit |
$ | 35 | $ | 43 | $ | 59 | $ | 91 | $ | 137 | $ | 192 | $ | 241 | $ | 271 | $ | 292 | $ | 312 | $ | 130 | $ | 29 | $ | 17 | $ | 17 | $ | 17 | $ | 16 | ||||||||||||||||||||||||||||||||
| Selling, General & Administrative |
(58 | ) | (62 | ) | (64 | ) | (66 | ) | (68 | ) | (72 | ) | (63 | ) | (53 | ) | (50 | ) | (39 | ) | (25 | ) | (25 | ) | (25 | ) | (25 | ) | (25 | ) | (25 | ) | ||||||||||||||||||||||||||||||||
| Research & Development |
(17 | ) | (11 | ) | (9 | ) | (7 | ) | (8 | ) | (8 | ) | (8 | ) | (8 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) |
($ | 46 | ) | ($ | 34 | ) | ($ | 18 | ) | $ | 13 | $ | 61 | $ | 112 | $ | 170 | $ | 210 | $ | 237 | $ | 267 | $ | 99 | ($ | 3 | ) | ($ | 15 | ) | ($ | 15 | ) | ($ | 15 | ) | ($ | 15 | ) | ||||||||||||||||||||||||
| Less: Income Taxes |
– | – | – | – | – | – | (31 | ) | (43 | ) | (48 | ) | (54 | ) | (21 | ) | (1 | ) | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Plus: Asset Amortization |
5 | 5 | 5 | 5 | – | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plus: Stock Compensation |
7 | 8 | 8 | 8 | 9 | 9 | 9 | 9 | 9 | 9 | 9 | 5 | 5 | 5 | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: D in NWC |
0 | (2 | ) | (4 | ) | (6 | ) | (8 | ) | (9 | ) | (6 | ) | (2 | ) | (1 | ) | (1 | ) | 37 | 5 | 1 | (0 | ) | 0 | 0 | ||||||||||||||||||||||||||||||||||||||
| Less: Taro Costs and Milestones |
(5 | ) | (8 | ) | (8 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | – | |||||||||||||||||||||||||||||||||||||||||||||
| Unlevered Free Cash Flow |
($ | 38 | ) | ($ | 31 | ) | ($ | 17 | ) | $ | 20 | $ | 61 | $ | 112 | $ | 142 | $ | 176 | $ | 197 | $ | 221 | $ | 125 | $ | 7 | ($ | 9 | ) | ($ | 10 | ) | ($ | 10 | ) | ($ | 10 | ) | |||||||||||||||||||||||||
Strongbridge Management Projections and UFCF – The Low Case: *[page 83]*
| 2021E | 2022E | 2023E | 2024E | 2025E | 2026E | 2027E | 2028E | 2029E | 2030E | 2031E | 2032E | 2033E | 2034E | 2035E | 2036E | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue |
$ | 37 | $ | 48 | $ | 63 | $ | 96 | $ | 143 | $ | 200 | $ | 250 | $ | 281 | $ | 119 | $ | 27 | $ | 17 | $ | 17 | $ | 17 | $ | 17 | $ | 17 | $ | 17 | ||||||||||||||||||||||||||||||||
| Gross Profit |
$ | 35 | $ | 43 | $ | 59 | $ | 91 | $ | 137 | $ | 192 | $ | 241 | $ | 271 | $ | 114 | $ | 25 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | $ | 15 | ||||||||||||||||||||||||||||||||
| Selling, General & Administrative |
(58 | ) | (62 | ) | (64 | ) | (66 | ) | (68 | ) | (72 | ) | (63 | ) | (53 | ) | (35 | ) | (24 | ) | (25 | ) | (25 | ) | (25 | ) | (25 | ) | (25 | ) | (25 | ) | ||||||||||||||||||||||||||||||||
| Research & Development |
(17 | ) | (11 | ) | (9 | ) | (7 | ) | (8 | ) | (8 | ) | (8 | ) | (8 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) |
($ | 46 | ) | ($ | 34 | ) | ($ | 18 | ) | $ | 13 | $ | 61 | $ | 112 | $ | 170 | $ | 210 | $ | 73 | ($ | 5 | ) | ($ | 16 | ) | ($ | 16 | ) | ($ | 16 | ) | ($ | 16 | ) | ($ | 16 | ) | ($ | 16 | ) | ||||||||||||||||||||||
| Less: Income Taxes |
– | – | – | – | – | – | (31 | ) | (43 | ) | (15 | ) | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||
| Plus: Asset Amortization |
5 | 5 | 5 | 5 | – | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plus: Stock Compensation |
7 | 8 | 8 | 8 | 9 | 9 | 9 | 9 | 9 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: D in NWC |
0 | (2 | ) | (4 | ) | (6 | ) | (8 | ) | (9 | ) | (6 | ) | (2 | ) | 32 | 5 | 1 | (0 | ) | (0 | ) | (0 | ) | 0 | 0 | ||||||||||||||||||||||||||||||||||||||
| Less: Taro Costs and Milestones |
(5 | ) | (8 | ) | (8 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | – | |||||||||||||||||||||||||||||||||||||||||||||
| Unlevered Free Cash Flow |
($ | 38 | ) | ($ | 31 | ) | ($ | 17 | ) | $ | 20 | $ | 61 | $ | 112 | $ | 142 | $ | 176 | $ | 100 | $ | 5 | ($ | 11 | ) | ($ | 11 | ) | ($ | 11 | ) | ($ | 11 | ) | ($ | 11 | ) | ($ | 11 | ) | |||||||||||||||||||||||
Strongbridge Management Projections and UFCF – The High Case: *[page 84]*
| 2021E | 2022E | 2023E | 2024E | 2025E | 2026E | 2027E | 2028E | 2029E | 2030E | 2031E | 2032E | 2033E | 2034E | 2035E | 2036E | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue |
$ | 37 | $ | 55 | $ | 94 | $ | 146 | $ | 205 | $ | 273 | $ | 334 | $ | 373 | $ | 368 | $ | 370 | $ | 179 | $ | 75 | $ | 62 | $ | 61 | $ | 60 | $ | 60 | ||||||||||||||||||||||||||||||||
| Gross Profit |
$ | 35 | $ | 50 | $ | 89 | $ | 139 | $ | 196 | $ | 262 | $ | 322 | $ | 359 | $ | 356 | $ | 358 | $ | 173 | $ | 71 | $ | 59 | $ | 58 | $ | 57 | $ | 57 | ||||||||||||||||||||||||||||||||
| Selling, General & Administrative |
(59 | ) | (78 | ) | (81 | ) | (85 | ) | (88 | ) | (92 | ) | (83 | ) | (71 | ) | (58 | ) | (46 | ) | (32 | ) | (32 | ) | (32 | ) | (32 | ) | (32 | ) | (32 | ) | ||||||||||||||||||||||||||||||||
| Research & Development |
(17 | ) | (11 | ) | (10 | ) | (8 | ) | (8 | ) | (8 | ) | (8 | ) | (8 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | (6 | ) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) |
($ | 47 | ) | ($ | 43 | ) | ($ | 7 | ) | $ | 42 | $ | 100 | $ | 162 | $ | 230 | $ | 280 | $ | 292 | $ | 305 | $ | 135 | $ | 33 | $ | 20 | $ | 19 | $ | 19 | $ | 19 | |||||||||||||||||||||||||||||
| Less: Income Taxes |
– | – | – | – | – | (21 | ) | (47 | ) | (57 | ) | (59 | ) | (62 | ) | (28 | ) | (8 | ) | (5 | ) | (5 | ) | (5 | ) | (5 | ) | |||||||||||||||||||||||||||||||||||||
| Plus: Asset Amortization |
5 | 5 | 5 | 5 | – | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plus: Stock Compensation |
8 | 10 | 11 | 11 | 11 | 11 | 12 | 12 | 12 | 12 | 12 | 5 | 5 | 5 | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: D in NWC |
0 | (2 | ) | (4 | ) | (6 | ) | (8 | ) | (9 | ) | (6 | ) | (2 | ) | 0 | 0 | 38 | 5 | 1 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||
| Less: Taro Costs and Milestones |
(5 | ) | (8 | ) | (8 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | – | |||||||||||||||||||||||||||||||||||||||||||||
| Unlevered Free Cash Flow |
($ | 38 | ) | ($ | 38 | ) | ($ | 3 | ) | $ | 51 | $ | 103 | $ | 144 | $ | 189 | $ | 233 | $ | 245 | $ | 255 | $ | 157 | $ | 35 | $ | 20 | $ | 19 | $ | 19 | $ | 19 | |||||||||||||||||||||||||||||
“Compared to preliminary financial information regarding discounted cash flow on the Strongbridge April 8 Xeris Projections, the implied equity value of Xeris in the discounted cash flow analyses performed by MTS Securities on the Strongbridge Adjusted Xeris Management Projections increased by approximately $222 million.” *[page 85]*
Strongbridge Adjusted Xeris Management Projections and UFCF: *[page 85]*
| 2021E | 2022E | 2023E | 2024E | 2025E | 2026E | 2027E | 2028E | 2029E | 2030E | 2031E | 2032E | 2033E | 2034E | 2035E | 2036E | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Revenue |
$ | 41 | $ | 83 | $ | 153 | $ | 267 | $ | 407 | $ | 441 | $ | 479 | $ | 519 | $ | 563 | $ | 611 | $ | 663 | $ | 720 | $ | 781 | $ | 847 | $ | 919 | $ | 997 | ||||||||||||||||||||||||||||||||
| Gross Profit |
$ | 29 | $ | 59 | $ | 111 | $ | 197 | $ | 304 | $ | 331 | $ | 359 | $ | 390 | $ | 423 | $ | 459 | $ | 498 | $ | 540 | $ | 586 | $ | 635 | $ | 689 | $ | 748 | ||||||||||||||||||||||||||||||||
| Selling, General & Administrative |
($ | 80 | ) | ($ | 95 | ) | ($ | 124 | ) | ($ | 168 | ) | ($ | 212 | ) | ($ | 210 | ) | ($ | 210 | ) | ($ | 209 | ) | ($ | 209 | ) | ($ | 208 | ) | ($ | 222 | ) | ($ | 238 | ) | ($ | 255 | ) | ($ | 274 | ) | ($ | 295 | ) | ($ | 318 | ) | ||||||||||||||||
| Research & Development |
(35 | ) | (41 | ) | (25 | ) | (15 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) |
($ | 86 | ) | ($ | 78 | ) | ($ | 38 | ) | $ | 14 | $ | 80 | $ | 108 | $ | 136 | $ | 168 | $ | 201 | $ | 238 | $ | 263 | $ | 289 | $ | 318 | $ | 349 | $ | 382 | $ | 417 | |||||||||||||||||||||||||||||
| Less: Income Taxes |
– | – | – | – | (3 | ) | (5 | ) | (6 | ) | (7 | ) | (18 | ) | (50 | ) | (55 | ) | (61 | ) | (67 | ) | (73 | ) | (80 | ) | (88 | ) | ||||||||||||||||||||||||||||||||||||
| Plus: Depreciation |
2 | 2 | 2 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plus: Stock Compensation |
9 | 10 | 10 | 10 | 10 | 11 | 12 | 13 | 14 | 15 | 17 | 18 | 20 | 21 | 23 | 25 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plus: Other Operating Activities |
4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: D in NWC |
(1 | ) | (2 | ) | (3 | ) | (5 | ) | (6 | ) | (1 | ) | (1 | ) | (2 | ) | (2 | ) | (2 | ) | (2 | ) | (2 | ) | (2 | ) | (3 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||
| Less: Capital Expenditures |
(1 | ) | (0 | ) | (1 | ) | (0 | ) | (0 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||
| Unlevered Free Cash Flow |
($ | 72 | ) | ($ | 64 | ) | ($ | 26 | ) | $ | 24 | $ | 86 | $ | 117 | $ | 145 | $ | 176 | $ | 200 | $ | 205 | $ | 226 | $ | 248 | $ | 272 | $ | 298 | $ | 326 | $ | 356 | |||||||||||||||||||||||||||||
Strongbridge Management Pro Forma Projections and UFCF – The Base Case: *[page 86]*
| 2021E | 2022E | 2023E | 2024E | 2025E | 2026E | 2027E | 2028E | 2029E | 2030E | 2031E | 2032E | 2033E | 2034E | 2035E | 2036E | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue |
$ | 78 | $ | 130 | $ | 216 | $ | 363 | $ | 550 | $ | 641 | $ | 729 | $ | 800 | $ | 866 | $ | 934 | $ | 799 | $ | 751 | $ | 800 | $ | 866 | $ | 938 | $ | 1,016 | ||||||||||||||||||||||||||||||||
| Gross Profit |
$ | 64 | $ | 102 | $ | 170 | $ | 288 | $ | 441 | $ | 522 | $ | 600 | $ | 661 | $ | 715 | $ | 770 | $ | 627 | $ | 569 | $ | 602 | $ | 652 | $ | 706 | $ | 765 | ||||||||||||||||||||||||||||||||
| Selling, General & Administrative |
(114 | ) | (125 | ) | (150 | ) | (196 | ) | (240 | ) | (239 | ) | (228 | ) | (228 | ) | (226 | ) | (225 | ) | (229 | ) | (245 | ) | (262 | ) | (281 | ) | (302 | ) | (325 | ) | ||||||||||||||||||||||||||||||||
| Research & Development |
(52 | ) | (52 | ) | (34 | ) | (22 | ) | (20 | ) | (20 | ) | (20 | ) | (20 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) |
($ | 107 | ) | ($ | 80 | ) | ($ | 19 | ) | $ | 65 | $ | 180 | $ | 263 | $ | 351 | $ | 412 | $ | 470 | $ | 526 | $ | 379 | $ | 305 | $ | 321 | $ | 352 | $ | 385 | $ | 421 | |||||||||||||||||||||||||||||
| Less: Income Taxes |
– | – | – | – | (8 | ) | (11 | ) | (47 | ) | (88 | ) | (100 | ) | (113 | ) | (82 | ) | (67 | ) | (70 | ) | (77 | ) | (84 | ) | (92 | ) | ||||||||||||||||||||||||||||||||||||
| Plus: Asset Amortization |
5 | 5 | 5 | 5 | – | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plus: Stock Compensation |
17 | 18 | 18 | 19 | 19 | 20 | 21 | 22 | 24 | 25 | 26 | 23 | 25 | 26 | 28 | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: D in NWC |
(1 | ) | (3 | ) | (6 | ) | (11 | ) | (14 | ) | (11 | ) | (8 | ) | (5 | ) | (5 | ) | (5 | ) | 25 | 0 | (5 | ) | (6 | ) | (6 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||
| Less: Taro Costs and Milestones |
(5 | ) | (8 | ) | (8 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | – | |||||||||||||||||||||||||||||||||||||||||||||
| Plus: Depreciation |
2 | 2 | 2 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Capital Expenditures |
(1 | ) | (0 | ) | (1 | ) | (0 | ) | (0 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||
| Unlevered Free Cash Flow |
($ | 89 | ) | ($ | 66 | ) | ($ | 9 | ) | $ | 79 | $ | 179 | $ | 261 | $ | 318 | $ | 342 | $ | 389 | $ | 434 | $ | 349 | $ | 262 | $ | 271 | $ | 295 | $ | 322 | $ | 352 | |||||||||||||||||||||||||||||
Strongbridge Management Pro Forma Projections and UFCF – The Low Case: *[page 86]*
| 2021E | 2022E | 2023E | 2024E | 2025E | 2026E | 2027E | 2028E | 2029E | 2030E | 2031E | 2032E | 2033E | 2034E | 2035E | 2036E | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue |
$ | 78 | $ | 130 | $ | 216 | $ | 363 | $ | 550 | $ | 641 | $ | 729 | $ | 800 | $ | 683 | $ | 639 | $ | 680 | $ | 736 | $ | 798 | $ | 864 | $ | 936 | $ | 1,014 | ||||||||||||||||||||||||||||||||
| Gross Profit |
$ | 64 | $ | 102 | $ | 170 | $ | 288 | $ | 441 | $ | 522 | $ | 600 | $ | 661 | $ | 537 | $ | 484 | $ | 512 | $ | 554 | $ | 601 | $ | 650 | $ | 704 | $ | 763 | ||||||||||||||||||||||||||||||||
| Selling, General & Administrative |
(114 | ) | (125 | ) | (150 | ) | (196 | ) | (240 | ) | (240 | ) | (229 | ) | (217 | ) | (216 | ) | (214 | ) | (229 | ) | (245 | ) | (262 | ) | (281 | ) | (302 | ) | (325 | ) | ||||||||||||||||||||||||||||||||
| Research & Development |
(52 | ) | (52 | ) | (34 | ) | (22 | ) | (20 | ) | (20 | ) | (20 | ) | (20 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) |
($ | 107 | ) | ($ | 80 | ) | ($ | 19 | ) | $ | 65 | $ | 180 | $ | 262 | $ | 350 | $ | 423 | $ | 302 | $ | 250 | $ | 264 | $ | 291 | $ | 319 | $ | 350 | $ | 383 | $ | 419 | |||||||||||||||||||||||||||||
| Less: Income Taxes |
– | – | – | – | (8 | ) | (11 | ) | (46 | ) | (90 | ) | (65 | ) | (54 | ) | (57 | ) | (63 | ) | (69 | ) | (76 | ) | (84 | ) | (91 | ) | ||||||||||||||||||||||||||||||||||||
| Plus: Asset Amortization |
5 | 5 | 5 | 5 | – | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plus: Stock Compensation |
17 | 18 | 18 | 19 | 19 | 20 | 21 | 22 | 24 | 20 | 22 | 23 | 25 | 26 | 28 | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: D in NWC |
(1 | ) | (3 | ) | (6 | ) | (11 | ) | (14 | ) | (11 | ) | (8 | ) | (5 | ) | 22 | 0 | (4 | ) | (5 | ) | (6 | ) | (6 | ) | (6 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||
| Less: Taro Costs and Milestones |
(5 | ) | (8 | ) | (8 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | – | |||||||||||||||||||||||||||||||||||||||||||||
| Plus: Depreciation |
2 | 2 | 2 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Capital Expenditures |
(1 | ) | (0 | ) | (1 | ) | (0 | ) | (0 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||
| Unlevered Free Cash Flow |
($ | 89 | ) | ($ | 66 | ) | ($ | 9 | ) | $ | 79 | $ | 179 | $ | 260 | $ | 317 | $ | 351 | $ | 283 | $ | 217 | $ | 224 | $ | 246 | $ | 269 | $ | 294 | $ | 322 | $ | 351 | |||||||||||||||||||||||||||||
Strongbridge Management Pro Forma Projections and UFCF – The High Case: *[page 87]*
| 2021E | 2022E | 2023E | 2024E | 2025E | 2026E | 2027E | 2028E | 2029E | 2030E | 2031E | 2032E | 2033E | 2034E | 2035E | 2036E | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue |
$ | 78 | $ | 137 | $ | 247 | $ | 412 | $ | 612 | $ | 714 | $ | 813 | $ | 892 | $ | 931 | $ | 981 | $ | 843 | $ | 795 | $ | 843 | $ | 908 | $ | 980 | $ | 1,058 | ||||||||||||||||||||||||||||||||
| Gross Profit |
$ | 64 | $ | 109 | $ | 200 | $ | 336 | $ | 500 | $ | 593 | $ | 681 | $ | 749 | $ | 778 | $ | 816 | $ | 670 | $ | 611 | $ | 644 | $ | 693 | $ | 747 | $ | 805 | ||||||||||||||||||||||||||||||||
| Selling, General & Administrative |
(115 | ) | (132 | ) | (161 | ) | (206 | ) | (251 | ) | (251 | ) | (241 | ) | (229 | ) | (219 | ) | (216 | ) | (231 | ) | (247 | ) | (264 | ) | (283 | ) | (304 | ) | (327 | ) | ||||||||||||||||||||||||||||||||
| Research & Development |
(52 | ) | (52 | ) | (35 | ) | (23 | ) | (21 | ) | (21 | ) | (21 | ) | (21 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | (19 | ) | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) |
($ | 108 | ) | ($ | 81 | ) | ($ | 1 | ) | $ | 102 | $ | 228 | $ | 320 | $ | 419 | $ | 499 | $ | 541 | $ | 581 | $ | 421 | $ | 346 | $ | 361 | $ | 391 | $ | 424 | $ | 459 | |||||||||||||||||||||||||||||
| Less: Income Taxes |
— | — | — | (4 | ) | (10 | ) | (14 | ) | (86 | ) | (106 | ) | (115 | ) | (124 | ) | (91 | ) | (76 | ) | (79 | ) | (86 | ) | (93 | ) | (101 | ) | |||||||||||||||||||||||||||||||||||
| Plus: Asset Amortization |
5 | 5 | 5 | 5 | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Plus: Stock Compensation |
17 | 20 | 21 | 21 | 21 | 22 | 24 | 25 | 26 | 27 | 29 | 23 | 25 | 26 | 28 | 30 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: D in NWC |
(1 | ) | (3 | ) | (7 | ) | (11 | ) | (14 | ) | (11 | ) | (8 | ) | (6 | ) | (4 | ) | (4 | ) | 26 | 0 | (5 | ) | (6 | ) | (6 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||
| Less: Taro Costs and Milestones |
(5 | ) | (8 | ) | (8 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | — | |||||||||||||||||||||||||||||||||||||||||||||
| Plus: Depreciation |
2 | 2 | 2 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Capital Expenditures |
(1 | ) | (0 | ) | (1 | ) | (0 | ) | (0 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||
| Unlevered Free Cash Flow |
($ | 90 | ) | ($ | 66 | ) | $ | 12 | $ | 114 | $ | 227 | $ | 319 | $ | 349 | $ | 412 | $ | 448 | $ | 480 | $ | 384 | $ | 293 | $ | 302 | $ | 326 | $ | 353 | $ | 382 | ||||||||||||||||||||||||||||||
SVB Leerink did not account for synergies, assumed conversion of all convertible notes, and eligible portion of Strongbridge loan agreement in their financial analysis: *[page 90]*
“For the purposes of its financial analyses, SVB Leerink assumed the conversion of all of the outstanding Xeris Convertible Notes and the eligible portion of the Strongbridge Loan Agreement into the underlying shares of Xeris or Strongbridge, as applicable. SVB Leerink did not incorporate the value of Xeris Management Estimated Synergies in the financial analyses supporting its opinion.”
October 1, 2021 (the estimated closing date of the Transaction) *[page 91]*
SVB estimated equity value between $4.70 to $9.55: *[page 92]*
“This analysis resulted in an implied per share equity value for the Xeris common stock of approximately $5.00 to $9.55 for the Unadjusted Xeris Projections and $4.70 to $9.00 for the Adjusted Xeris Projections as compared to the closing price of the Xeris common stock of $3.47 as of May 21, 2021.”
To be continued…
