An Undeserved Valuation: Xeris Pharmaceuticals
Source: Fortune Team | Jan 23 | Updated: Jan 24 |
Blatantly undervalued and under-followed, Xeris has the potential to shine significantly in 2021, ascending as a true Fortune Alert( alerted initially in $2s). Take a look at our thoughts in a nutshell:
Overview
Xeris is a specialty pharmaceutical company that offers bold, innovative formulation technologies: XeriJect and XeriSol. Essentially, the technology creates the revolutionary potential to address the limitations of conventional medicines with low stability and low solubility. Many medicines require water, refrigeration, larger dosing and with an inconvenient delivery method(IV, rectal, etc). The Xeri-technology solves these problems.
The technology converts existing “unstable” formulations(vaccines, antibodies, proteins, peptides and small molecules) into stable non-aqueous easy to use injectables.
1. Management
The team heading Xeris Pharmaceuticals are industry veterans with a vast array of experience in BIG and specialty pharma. Most on the current team are insiders from the previous company, Durata Therapeutics, which they sold to Actavis. The two main people which we will be focusing on is CEO/Chairman Paul Edick and COO/President John Shannon.
Paul Edick has extensive experience in big pharma companies including lead positions as President of Asia Pacific and Latin America operations at Pharmacia(Acquired by Pfizer in 2002 for $60bn) and at Searle Pharma as President for Asia Pacific, Canada, and Latin American operations. He lead the global commercialization efforts of $3bn/yr Celebrex along with John Shannon. Then in 2006, Paul became CEO of MedPointe Healthcare, which he later sold to Meda of Sweden for roughly $820m, the deal closed in 2007. In 2008, Paul was chosen to lead Ganic Pharmaceuticals, a $1bn Warburg Pincus-backed Investment Search Vehicle, as CEO to acquire specialty pharma assets. During this time Paul acquired an asset coming out of Pfizer, an antibiotic called Dalbavancin, which he quickly turned around into a fully fledged company, taking it public as Durata Therapeutics (NASDAQ:DRTX) in 2010. After several years of commercialization of development, Paul sold Durata to Actavis(now Allergen) in 2014 for roughly $675m. After some time, Paul exited retirement for the third time at the request of his previous investors to potentially lead a variety of companies. After looking through over 30+ companies, Paul chose Xeris Pharmaceuticals, which he officially joined in 2017 as CEO and Chairman.
John Shannon, COO and now more recently President, served as the CEO of Catheter Connections for a couple years until it was finally sold to Merit Medical in 2016. John also served alongside Paul at Durata as CCO until its acquisition. Prior to these roles, John has a extensive history in big pharma, notably as VP at Baxter Healthcare, where he commercialized and drove sales for two drugs: GAMMAGARD and ADVATE ( $1bn/yr each).
While the numbers associated with each transaction are impressive, our main intention is to focus on their ability to lead and execute well, with the intention of driving shareholder value. We believe that the current team most definitely have the ability to execute well, reference the strategic actions taken during the COVID pandemic. While operating completely virtual during the peak of the pandemic, Xeris set up the commercial infrastructure and continuously beat analyst expectations for sales. The full year sales for 2020 is expected to be close to $23 million, when analysts originally expected less than half of that, which is largely due to the inaccuracies in IQVIA script data. Do keep in mind that their autoinjector was only recently launched in July 2020.
2. Products and Pipeline
Xeris currently has two commercialized product offerings(GVOKE) that address the underserved diabetes population regarding Severe Hypoglycemia. Severe Hypoglycemia is a potentially dangerous condition where the blood glucose levels fall below specified limits and must be treated immediately with emergency Glucagon. These situations should be treated very similarly to utilizing an Epi-Pen during an allergic reaction. Xeris employed the use of their XeriSol technology to convert the unstable, inconvenient, and risky conventional glucagon emergency kits into the first and only easy-to-use, non-aqueous pre-filled Syringe and autoinjector. The conventional GEKs have a multi step process, where someone must mix the powder and liquid in the syringe, shake, then administer, all while handling the tension in such an emergency(6%-30% chance of successful delivery vs the 99% from Gvoke ). Competitor Eli Lilly introduced a nasal spray glucagon along with their already existent GEK into the market in 2019, while less invasive the reviews indicate extreme discomfort. Additionally, studies indicate only 96% of people treated with the nasal spray recovered within 30 minutes. Concerns regarding adverse side effects and adequate dosing, especially with children, are of a concern with the nasal spray. The Gvoke autoinjector, introduced officially in July 2020, changed the playing field by creating a one-step Epi-Pen like injection with a 99% delivery success rate.
The current U.S glucagon market is not adequately addressed, with potential to be worth $2.2bn at peak as the current diabetes population is roughly 6.8 million Americans.
Low range estimates regarding the peak U.S sales point to roughly $250 million annually, with higher estimates north of $300 million. It is important to notice that Xeris has simultaneously filed for EMA approval for Gvoke(“Ogluo” in Euro), which is due in the near future. While glucagon pricing is severely undercut(roughly $40/kit) in Europe, the massive diabetes population of roughly 58 million people would still double peak sales estimates assuming that Xeris captures only 10% of the market, one that still heavily utilizes the conventional GEK. Furthermore, it is clear after direct communications between Xeris and the Fortune Team, Xeris aims to find a suitable commercial partner to address and market its product in Europe. Our team believe that their Glucagon franchise has the potential to reach peak global sales of $500 million annually. The commercial licensing opportunity is not alone, as Xeris has two other revolutionary drugs in its pipeline using their XeriSol technology ready for out-licensing as well.
Diazepam is a specialty medicine used to treat Acute Repetitive Seizures(ARS) and Dravet Syndrome and has a global market worth roughly $1bn. The current convention for treatment is Diastat which must be rectally delivered. Xeris utilized their technology once again and created Diazepen which is another non-aqueous autoinjector, the program has received fast track status and an orphan designation by the FDA allowing it to progress directly to Phase 3. Xeris is currently looking for a suitable commercial candidate, this agreement would entail non-dilutive upfront payments and a royalty stream.
Once again using their Xeri-Tech, Xeris was able to combine and co-formulate Insulin and Pramlintide into one easy-to-use, non-aqueous injection, something no company has been able to previously accomplish. This market is worth roughly $5bn in the U.S, and Paul Edick boldly stated in a recent conference that Xeris aims to capture $1bn/yr of that market. This program, at Phase 3, is also on track to become an out-license candidate. During January, Xeris was in discussions with the FDA regarding feedback for this program as well as two smaller glucagon indications(PBH&EIH). Xeris aims to communicate the next steps for these 3 programs within the first half of 2021.
Xeris recently added two additional pre-clinical programs to their pipeline, one utilizing their glucagon formulation and the other a novel application of their tech once again. Xeris has declined to disclose further comments on these two programs until further notice.
3. Opportunity
The main point to keep in mind, is the proven and revolutionary technology serving as the backbone for Xeris Pharmaceuticals with three drug offerings, one being already approved and marketed. We envision Xeris focusing their large cash position, one that made them publicly state of no additional capital raises required until positive cash flow, on their Glucagon line, which they will be selling directly and all other drugs being licensed out as royalty streams. Furthermore, it is important to note that Xeris aims to license their technology in collaborations with other pharmaceutical companies. The company currently has 3 active collaborations with BIG pharma companies using their Xeri-Ject Tech, which was finally made public by the CEO recently in a virtual conference. In prior years, older investor presentations indicated Regeneron and Asahi Kasei as collaboration partners. The Fortune Team confirmed that the Asahi Kasei collaboration is still active, with the Regeneron status being unknown.
At the end of the day, we believe Xeris pharmaceuticals is blatantly undervalued. Historically, pharmaceutical companies could arguably be valued through their pipeline at 3 times peak sales. Just using U.S Gvoke peak sales of $250 million, a $750 million bare minimum valuation can be assigned. This still discounts imminent EU expansion, Diazepam, Pramlintide, and their multiple technology collaborations with big pharma companies which presents further significant upside. Plenty more can be added in support of Xeris Pharmaceuticals, but in a nutshell this is it.
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Disclaimer: This is not financial advice, nor should be treated as such.
