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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 001-38536

XERIS PHARMACEUTICALS, INC.
(Exact name of the registrant as specified in its charter)
Delaware20-3352427
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
180 N. LaSalle Street, Suite 1600
Chicago, Illinois
60601
(Address of principal executive offices)(Zip Code)
(844) 445-5704
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareXERSThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of July 31, 2021, the registrant had 66,497,370 shares of common stock, par value $0.0001 per share, outstanding.

Summary of the Material Risks Associated with Our Business




Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:
<
Regulatory approvals of the transactions related to the acquisition of Strongbridge Biopharma plc (the "Transaction") may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that cannot be met.
<The Transaction Agreement may be terminated in accordance with its terms and the Transaction may not be completed.
<
Failure to successfully integrate the businesses of Xeris and Strongbridge and/or achieve the anticipated revenue and synergies in the expected timeframe may adversely affect the combined company’s future results.
<
Whether or not the Transaction is completed, the announcement and pendency of the Transaction will divert significant management resources to complete the Transaction, which could have an adverse effect on their respective businesses, financial results, and/or market prices.
<
Our business may be adversely affected by the ongoing coronavirus pandemic.
<
As a company, we have a limited operating history and limited experience commercializing pharmaceutical products and have incurred significant losses since inception. We expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.
<
Although we generate revenue from our first product, Gvoke®, which is available in a pre-filled syringe ("Gvoke PFS") and an auto-injector ("Gvoke HypoPen®"), we have not yet generated revenue from any of our current or future product candidates and may never be profitable.
<We may require additional capital to sustain our business, and this capital may cause dilution to our stockholders and might not be available on terms favorable to us, or at all, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.
<
Our business depends entirely on the success of our products and product candidates. Even if approved, our product candidates may not be accepted in the marketplace and our business may be materially harmed.
<The market opportunity for Gvoke and our product candidates may be smaller than we estimate.
<
Our reliance on third-party suppliers, including single-source suppliers, and a limited number of options for alternate sources for Gvoke or our product candidates could harm our ability to develop our product candidates or to commercialize Gvoke or any product candidates that are approved.
<
Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement for our products, it is less likely that they will be widely used.
<If our third-party manufacturers of Gvoke or our product candidates are unable to increase the scale of their production of our products or our product candidates, or increase the product yield of manufacturing, then our costs to manufacture the product may increase and commercialization may be delayed or interrupted.
<
We expect to seek to establish collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.
 < 
Clinical failure may occur at any stage of clinical development, and the results of our clinical trials may not support our proposed indications for our product candidates. If our clinical trials fail to demonstrate efficacy and safety to the satisfaction of the U.S. Food & Drug Administration or other regulatory authorities, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such product candidate.
<
Delays in conducting clinical trials could result in increased costs to us and delay our ability to obtain regulatory approval for our product candidates.
<Gvoke and our product candidates may have undesirable side effects which may delay or prevent marketing approval or, if approval is received, require them to include safety warnings, require them to be taken off the market or otherwise limit their sales.
<
We operate in a competitive business environment and, if we are unable to compete successfully against our existing or potential competitors, our sales and operating results may be negatively affected and we may not successfully commercialize our products or product candidates, even if approved.
<
Our success depends on our ability to protect our intellectual property and proprietary technology as well as the ability of our collaborators to protect their intellectual property and proprietary technology.
<
It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection.
<
Our stock price has been and will likely continue to be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.

The summary risk factors described above should be read together with the text of the full risk factors below in the section entitled “Risk Factors” and the other information set forth in this Quarterly Report on Form 10-Q, including our condensed consolidated
2


financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations and future growth prospects.

3


XERIS PHARMACEUTICALS, INC.
FORM 10-Q

INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and
   December 31, 2020
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)
   for the three and six months ended June 30, 2021 and 2020
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
   for the three and six months ended June 30, 2021 and 2020
Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2021 and 2020
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
     and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
Signatures


4


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

XERIS PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and par value)
June 30, 2021December 31, 2020
(unaudited)
Assets
Current assets:
Cash and cash equivalents$63,599$37,598
Short-term investments52,38196,190
Trade accounts receivable, net12,2956,875
Inventory12,2998,353
Prepaid expenses and other current assets4,0143,196
Total current assets144,588152,212
Property and equipment, net6,6976,707
Other assets211232
Total assets$151,496$159,151
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$5,185$3,117
Other accrued liabilities19,96515,895
Accrued trade discounts and rebates6,7995,984
Accrued returns reserve3,3012,889
Other current liabilities214322
Total current liabilities35,46428,207
Long-term debt, net of unamortized debt issuance costs87,47887,021
Deferred rent6,7696,629
Other liabilities1,8973,533
Total liabilities131,608125,390
Commitments and Contingencies (Note 9)


Stockholders’ Equity:
Preferred stock—par value $0.0001, 10,000,000 shares authorized and no shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
Common stock—par value $0.0001, 150,000,000 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 66,497,370 and 59,611,202 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
76
Additional paid in capital 403,212371,134
Accumulated deficit (383,311)(337,385)
Accumulated other comprehensive income (loss)(20)6
Total stockholders’ equity19,88833,761
Total liabilities and stockholders’ equity$151,496$159,151
The accompanying notes are an integral part of the condensed consolidated financial statements.
5


XERIS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data; unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Net sales$8,835 $1,986 $16,886 $3,662 
Grant and other income71 41 215 153 
Cost of goods sold3,383 1,299 5,209 3,089 
Gross profit5,523 728 11,892 726 
Operating expenses:
Research and development5,383 5,289 9,415 11,935 
Selling, general and administrative25,927 17,644 45,004 39,250 
Total operating expenses31,310 22,933 54,419 51,185 
Loss from operations (25,787)(22,205)(42,527)(50,459)
Other income (expense):
Interest and other income 77 277 177 711 
Interest expense (1,795)(2,242)(3,586)(3,741)
Change in fair value of warrants (10)(39)10 96 
Total other income (expense)(1,728)(2,004)(3,399)(2,934)
Net loss before benefit from income taxes(27,515)(24,209)(45,926)(53,393)
Benefit from income taxes 110  110 
Net loss $(27,515)$(24,099)$(45,926)$(53,283)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investments(12)77 (29)126 
Foreign currency translation adjustments2 27 3 (5)
Comprehensive loss $(27,525)$(23,995)$(45,952)$(53,162)
Net loss per common share - basic and diluted$(0.41)$(0.63)$(0.72)$(1.51)
Weighted average common shares outstanding - basic and diluted 66,367,125 37,973,123 63,820,321 35,381,720 

The accompanying notes are an integral part of the condensed consolidated financial statements.


6


XERIS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data; unaudited)
 Common StockAdditional
Paid In
Capital
Accumulated Other Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
 SharesAmount
Balance, December 31, 201927,214,523 $3 $260,635 $43 $(246,245)$14,436 
Net loss— — — — (29,184)(29,184)
Issuance of common stock upon equity
   offering
10,299,769 1 39,844 — — 39,845 
Exercise and vesting of stock options5,296 — 10 — — 10 
Vesting of restricted stock units and related
   repurchases
21,449 — (63)— — (63)
Stock-based compensation— — 2,008 — — 2,008 
Other comprehensive income— — — 17 — 17 
Balance, March 31, 202037,541,037 $4 $302,434 $60 $(275,429)$27,069 
Net loss— — — — (24,099)(24,099)
Issuance of common stock upon public
   offering
7,400,000 1 18,778 — — 18,779 
Exercise and vesting of stock options40,094 — 72 — — 72 
Stock-based compensation— — 2,071 — — 2,071 
Issuance of common stock through
   employee stock purchase plan
170,201 — 385 — — 385 
Other comprehensive income— — — 104 — 104 
Balance, June 30, 202045,151,332 $5 $323,740 $164 $(299,528)$24,381 
 Common StockAdditional
Paid In
Capital
Accumulated Other Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
 SharesAmount
Balance, December 31, 202059,611,202 $6 $371,134 $6 $(337,385)$33,761 
Net loss— — — — (18,411)(18,411)
Issuance of common stock upon equity offering6,553,398 1 26,924 — — 26,925 
Exercise and vesting of stock options20,213 — 32 — — 32 
Vesting of restricted stock units and related
   repurchases
148,643 — (365)— — (365)
Stock-based compensation— — 2,461 — — 2,461 
Other comprehensive income— — — (16)— (16)
Balance, March 31, 202166,333,456 $7 $400,186 $(10)$(355,796)$44,387 
Net loss— — — — (27,515)(27,515)
Exercise and vesting of stock options55,818 — 140 — — 140 
Stock-based compensation— — 2,512 — — 2,512 
Issuance of common stock through
   employee stock purchase plan
108,096 — 374 — — 374 
Other comprehensive income— — — (10)— (10)
Balance, June 30, 202166,497,370 $7 $403,212 $(20)$(383,311)$19,888 

The accompanying notes are an integral part of the condensed consolidated financial statements.
7


XERIS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands; unaudited)
Six Months Ended June 30,
20212020
Cash flows from operating activities:
     Net loss $(45,926)$(53,283)
     Adjustments to reconcile net loss to net cash used in operating activities:
            Depreciation and amortization 657 638 
            Amortization of investments280 (97)
            Amortization of debt issuance costs 492 362 
            Stock-based compensation 4,973 4,079 
            Loss on extinguishment of debt  443 
            Change in fair value of warrants (10)(96)
            Changes in operating assets and liabilities:
Trade accounts receivable
(5,420)1,522 
Prepaid expenses and other current assets
942 2,386 
Inventory
(3,886)(2,648)
Accounts payable
2,068 (1,179)
Other accrued liabilities
582 (7,292)
Accrued trade discounts and rebates
815 1,037 
Accrued returns reserve
412 520 
Other
43 904 
Net cash used in operating activities
(43,978)(52,704)
Cash flows from investing activities:
     Capital expenditures(647)(172)
     Purchases of investments(20,146)(13,714)
     Sales and maturities of investments63,650 39,906 
Net cash provided by investing activities 42,857 26,020 
Cash flows from financing activities:
     Proceeds from equity offerings27,000 62,872 
     Payments of equity offering costs(54)(4,017)
     Proceeds from issuance of debt 80,090 
     Payments of debt (25,090)
     Payments of debt issuance costs (4,565)
     Proceeds from employee stock purchase plan374 385 
     Proceeds from exercise of stock awards 166 63 
     Repurchase of common stock withheld for taxes(365)(63)
Net cash provided by financing activities 27,121 109,675 
Effect of exchange rate changes on cash and cash equivalents
1 (45)
Increase in cash and cash equivalents
26,001 82,946 
Cash and cash equivalents, beginning of period
37,598 19,519 
Cash and cash equivalents, end of period
$63,599 $102,465 
Supplemental schedule of cash flow information:
            Cash paid for interest
$3,205 $2,795 
Supplemental schedule of non-cash investing and financing activities:
            Accrued debt issuance costs$ $668 

The accompanying notes are an integral part of the condensed consolidated financial statements.
8


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)




Note 1. Organization and Nature of the Business

Nature of business

Xeris Pharmaceuticals, Inc. ("Xeris" or the "Company") is a specialty pharmaceutical company that was incorporated in Delaware in 2005. Xeris is dedicated to the development of ready-to-use, room-temperature stable injectable and infusible drug formulations that offer distinct advantages over conventional product formulations, are intended to be easier to use by patients, caregivers and health practitioners, and help reduce costs for payors and the healthcare system.

Since its inception, the Company has devoted its resources primarily to conducting research and development, including preclinical studies of its product candidates and clinical trials of its most advanced product candidates, organizing and staffing the Company, raising capital and commercializing its first product, Gvoke®, which was approved by the FDA in September 2019. Gvoke delivers ready-to-use glucagon via a commercially available pre-filled syringe or auto-injector for the treatment of severe hypoglycemia, a potentially life-threatening condition. The Company commercially launched Gvoke pre-filled syringe ("Gvoke PFS") in November 2019 and auto-injector ("Gvoke HypoPen®") in July 2020. The Company has financed its operations primarily through the issuance of its common stock, convertible debt and convertible preferred stock, and debt financings.

The Company has incurred operating losses since inception and has an accumulated deficit of $383.3 million as of June 30, 2021. The Company expects to continue to incur net losses for at least the next 12 months. Based on the Company’s current operating plans and existing working capital at June 30, 2021, the Company believes its cash resources are sufficient to sustain operations and capital expenditure requirements for at least the next 12 months.

The Company is subject to a number of risks similar to other specialty pharmaceutical companies, including, but not limited to, successful commercialization and market acceptance of its products and any future products, if and when approved, successful development of its product candidates, the development of new technological innovations by its competitors, and protection of intellectual property.

The ongoing global outbreak of the novel coronavirus disease (“COVID-19”) has resulted in significant governmental measures being implemented to control the spread of the virus and has caused the Company to modify its business practices (including remote work for most of its employees). While the Company cannot predict their scope and severity, these developments and measures could materially and adversely affect its business, the Company’s results of operations and its financial condition. The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and is taking steps to minimize its impact on its business. However, the extent to which COVID-19 impacts the Company’s business, results of operations or financial condition will depend on the extent and severity of the continued spread of COVID-19 globally, the effectiveness of actions taken to contain the pandemic or treat its impact, and the resulting economic consequences, among others. Furthermore, if the Company or any of the third parties with whom it engages were to experience shutdowns or other business disruptions, the Company’s ability to conduct its business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on the Company’s business, results of operations and financial condition.

Basis of presentation

The condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), including those for interim financial information, and with the instructions for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (the "SEC"). Accordingly, such financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the Company’s financial position and its results of operations and cash flows for the periods presented. The results of operations for such periods are not necessarily indicative of the results that may be expected for any future period. The accompanying financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2020 included in the Company's Annual Report on Form 10-K filed with the SEC on March 9, 2021.

9


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).

Basis of Consolidation

These condensed consolidated financial statements include the financial statements of Xeris Pharmaceuticals, Inc. and its subsidiary, Xeris Pharmaceuticals Australia Pty Ltd. All intercompany transactions have been eliminated.


Note 2. Summary of Significant Accounting Policies

Net Sales

The Company commercially launched Gvoke PFS and Gvoke HypoPen for the treatment of severe hypoglycemia in people with diabetes in November 2019 and July 2020, respectively. Total net sales of Gvoke were $8.8 million and $2.0 million for the three months ended June 30, 2021 and 2020, respectively, and $16.9 million and $3.7 million for the six months ended June 30, 2021 and 2020, respectively. Net sales represent gross product sales less estimated allowances for patient copay assistance programs, prompt payment discounts, payor rebates, chargebacks, service fees, and product returns, all of which are recorded at the time of sale to the pharmaceutical wholesaler or other customer. The Company applies significant judgments and estimates in determining some of these allowances. If actual results differ from its estimates, the Company makes adjustments to these allowances in the period in which the actual results or updates to estimates become known. During the three months ended March 31, 2021, the Company made adjustments to rebate and patient assistance copay accruals which were recorded in prior years based on actual claims experience to date, which increased revenue by $0.9 million. During the three months ended June 30, 2021, the Company made adjustments to the accrued returns reserve related to prior years' sales based on actual returns experience, which decreased revenue by $0.9 million. For the six months ended June 30, 2021, these adjustments offset and together had no impact on net sales.

Refer to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion of the Company's accounting policies.

New accounting pronouncements

Recently issued accounting pronouncements

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This standard addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effects, if any, of the adoption of ASU 2021-04 guidance on its financial statements and disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This standard eliminates certain accounting models to simplify the accounting for convertible instruments, expands the disclosure requirements related to the terms and features of convertible instruments, and amends the guidance for the derivatives scope exception for contracts settled in an entity’s own equity. This standard enhances the consistency of earnings-per-share ("EPS") calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted EPS calculations and disclosures. This standard will be effective for the Company for annual and interim periods beginning after December 15, 2023. Early adoption is permitted but not earlier than periods beginning after December 15, 2020. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements and disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional expedients for application of GAAP, if certain criteria are met, to contracts and other transactions that reference London Inter-bank Offered Rate (“LIBOR”) or other reference rates that are expected to be discontinued because of reference rate reform. ASU 2020-04 was further amended in January 2021 by ASU 2021-01 to expand and clarify the scope of Topic 848 to include derivative instruments on discounting transactions. Both ASU 2020-04 and ASU 2021-01 are
10


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



currently effective prospectively for all entities through December 31, 2022 when the reference rate replacement activity is expected to have been completed. The guidance in ASU 2020-04 and ASU 2021-01 is optional and may be elected over time as reference rate reform activities occur. The Company does not currently expect the adoption of this new standard to have a material impact on its financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard eliminates certain exceptions in the current guidance related to the approach for intra-period tax allocation and the methodology for calculating income taxes in an interim period and amends other aspects of the guidance to help clarify and simplify U.S. GAAP. This standard will be effective for the Company for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company does not currently expect the adoption of this new standard to have a material impact on its financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as further updated by ASU 2018-19, 2019-04, 2019-05, 2019-10 and 2020-03. This standard requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report credit losses using an expected losses model rather than the incurred losses model that was previously used and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, the standard will require allowances to be recorded instead of reducing the amortized cost of the investment. This standard limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. This standard will be effective for the Company for annual and interim periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of their classification. Leases will be classified as either operating or finance leases under the new guidance. Operating leases will result in straight-line expense in the income statement, similar to current operating leases, and finance leases will result in more expense being recognized in the earlier years of the lease term, similar to current capital leases. The FASB has recently extended the effective date of this standard for certain companies. This standard will be effective for the Company for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of this new standard will have on the financial statements and related disclosures; however, since the Company is a lessee to certain leases for property whose terms exceed twelve months, it expects, once adopted, to report assets and liabilities related to these leases on its balance sheet.

11


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)








Note 3. Acquisitions

On May 24, 2021, the Company issued an announcement (the “Rule 2.5 Announcement”) pursuant to Rule 2.5 of the Irish Takeover Panel Act 1997 (as amended), Takeover Rules, 2013, as amended (the “Irish Takeover Rules”) disclosing that the boards of directors of the Company and Strongbridge Biopharma plc, an Irish public limited company (“Strongbridge”) (with the exception of Jeffrey W. Sherman, M.D., a director in common to both companies, who abstained from the voting), had reached agreement on the terms of a recommended acquisition of Strongbridge by the Company (the “Acquisition”). In connection with the Acquisition, (i) the Company, Strongbridge, Xeris Biopharma Holdings, Inc., a Delaware corporation (“HoldCo”), and Wells MergerSub, Inc., a Delaware corporation (“MergerSub”), entered into a Transaction Agreement, dated as of May 24, 2021 (the “Transaction Agreement”) and (ii) Xeris and Strongbridge entered into an Expenses Reimbursement Agreement, dated as of May 24, 2021 (the “ERA”).

Under the terms of the Transaction Agreement, (i) HoldCo will acquire Strongbridge by means of the Acquisition pursuant to a scheme of arrangement (the “Scheme”) under Irish law pursuant to which HoldCo will acquire all of the outstanding ordinary shares of Strongbridge (“Strongbridge Shares”) in exchange for (i) 0.7840 of a share of HoldCo’s common stock (“HoldCo Shares”) and cash in lieu of fractions of HoldCo Shares in exchange for each Strongbridge Share held by such Strongbridge Shareholders and (ii) one (1) non-tradeable contingent value right (“CVR”), worth up to a maximum of $1.00 per Strongbridge Share settleable in cash, additional HoldCo Shares, or a combination of cash and additional HoldCo Shares, at HoldCo’s sole election. and (ii) MergerSub will merge with and into the Company, with the Company as the surviving corporation in the merger (the “Merger,” and the Merger together with the Acquisition, the “Transactions”). As a result of the Transactions, both the Company and Strongbridge will become wholly owned subsidiaries of HoldCo. The Acquisition will be accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (ASC) 805, “Business Combinations.”

The Acquisition will be conditioned upon, among other things, the approval of the Scheme by the Strongbridge shareholders, the sanction of the Scheme by the Irish High Court (the “Court”) and the registration of the Court Order with the Registrar of Companies in Dublin, Ireland. The conditions to the Acquisition are set out in full in Appendix III to the Rule 2.5 Announcement (the “Conditions Appendix”). It is currently expected that, subject to the satisfaction or waiver of all relevant conditions, the Acquisition will be completed early in the fourth quarter of 2021.

The effectiveness of the Merger is conditioned only upon the effectiveness of the Scheme and the Acquisition and approval of the Company's shareholders.

Strongbridge is a global, commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs. Upon completion of the transaction, the Company expects that the Transactions will diversify and increase the Company’s revenue growth through specialized commercial platforms and expanded development pipeline, strengthen the Company's strategic and financial profile and potentially generate significant synergies.
12


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



Note 4. Inventory

The components of inventories consisted of the following (in thousands):  
June 30, 2021December 31, 2020
Raw materials$5,843 $2,874 
Work in process2,565 4,247 
Finished goods3,891 1,232 
     Inventory$12,299 $8,353 


Inventory reserves were $2.3 million and $2.2 million at June 30, 2021 and December 31, 2020, respectively.


Note 5. Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):  
June 30, 2021December 31, 2020
Accrued employee costs
$8,399 $7,989 
Accrued supply chain costs731 1,702 
Accrued marketing and selling costs1,360 1,114 
Accrued research and development costs
1,027 678 
Accrued restructuring charges22 811 
Accrued interest expense1,402 1,527 
Accrued transaction costs (1)
2,930  
Accrued other costs
4,094 2,074 
Other accrued liabilities$19,965 $15,895 

(1) Accrued transaction costs relate to the pending acquisition of Strongbridge (see Note 3).


Note 6. Long-term Debt

Convertible Senior Notes

In June 2020, the Company completed a public offering of $86.3 million aggregate principal amount of the Company's 5.00% Convertible Senior Notes due 2025 (the "Convertible Notes"), including $11.3 million pursuant to the underwriters' option to purchase additional notes which was exercised in full in July 2020. The Company incurred debt issuance costs of $5.1 million in connection with the issuance of the Convertible Notes. The Company used $20.0 million and $4.2 million of the net proceeds from the sale to prepay a portion of the principal amount on the Term A Loan (as defined below) and the remaining amount of borrowings outstanding under the PPP Loan (as defined below), respectively.

The Convertible Notes are governed by the terms of a base indenture for senior debt securities, as supplemented by the first supplemental indenture thereto, each dated as of June 30, 2020, by and between the Company and U.S. Bank National Association, as trustee. The Convertible Notes bear cash interest at the rate of 5.00% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2021, to holders of record at the close of business on the preceding January 1 and July 1, respectively. The Convertible Notes will mature on July 15, 2025, unless earlier converted or redeemed or repurchased by the Company.

13


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



At any time before the close of business on the second scheduled trading day immediately before the maturity date, holders of Convertible Notes may convert their Convertible Notes at their option into shares of the Company’s common stock, together, if applicable, with cash in lieu of any fractional share, at the then-applicable conversion rate. The conversion rate for the Convertible Notes will initially be 326.7974 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $3.06 per share of common stock, and is subject to adjustment under the terms of the Convertible Notes. In the event of certain circumstances, the Company will increase the conversion rate, provided that the conversion rate will not exceed 367.6470 shares of the Company's common stock per $1,000 principal amount of Convertible Notes.

In the second half of 2020, $8.4 million in principal amount of Convertible Notes were converted into 2,736,591 shares of the Company’s common stock at the conversion rate of 326.7974 shares per $1,000 principal amount of Convertible Notes. Additionally, in the fourth quarter of 2020, the Company entered into separate, privately negotiated exchange agreements with certain holders of Convertible Notes to exchange $30.7 million in principal amount of Convertible Notes for 10,435,200 shares of the Company’s common stock. The Company recognized a $2.6 million loss related to the convertible note exchange transactions.

The Convertible Notes are senior, unsecured obligations and are equal in right of payment with the Company's existing and future senior, unsecured indebtedness, senior in right of payment to its future indebtedness, if any, that is expressly subordinated to the Convertible Notes, and effectively subordinated to its existing and future secured indebtedness to the extent of the value of the collateral securing that indebtedness. The Convertible Notes are structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of its subsidiaries.

Senior Secured Loan Facility

In February 2018, the Company entered into the Loan and Security Agreement, dated as of February 28, 2018 (as amended, the “Original Loan Agreement”), with Oxford Finance LLC, as the collateral agent and a lender (“Oxford”), and Silicon Valley Bank, as a lender (“SVB”, and together with Oxford, the “Lenders”), which provided for a senior secured loan facility of up to an aggregate principal amount of $45.0 million. The first tranche of $20.0 million was drawn down in February 2018 (the "2018 Term A Loan"). The second tranche of $15.0 million was drawn down in September 2018 (the "2018 Term B Loan"). The Company also issued warrants to the Lenders to purchase common stock, which is further discussed in Note 8, "Warrants."

In September 2019, the Company entered into an Amended and Restated Loan and Security Agreement (the "Loan Agreement") with the Lenders which amended and restated the Original Loan Agreement in its entirety. The Loan Agreement provided for the Lenders to extend up to $85.0 million in term loans to the Company in three tranches. The initial tranche of $60.0 million (the “Term A Loan”) was drawn down in September 2019. Additional tranches of $15.0 million (the "Term B Loan") and $10.0 million (the “Term C Loan”) were contingent on achievement of certain revenue targets which were not achieved. In conjunction with the execution of the Loan Agreement, the 2018 Term A Loan and 2018 Term B Loan were repaid and the final payment fee of $2.3 million was paid.

Effective April 21, 2020, the Company entered into that certain First Amendment to Amended and Restated Loan and Security Agreement with the Lenders (the “First Amendment”) to amend the Loan Agreement to allow the Company to incur indebtedness under the U.S. Small Business Administration (the “SBA”) Paycheck Protection Program (the “PPP”) enabled by the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) in the amount of $5.1 million (the “PPP Loan”).

On June 30, 2020, the Company entered into that certain Second Amendment to Amended and Restated Loan and Security Agreement with the Lenders (the "Second Amendment") to amend the Loan Agreement to provide for the Lenders’ consent to and allow for the Company's underwritten public offering of the Company's 5.00% Convertible Senior Notes due 2025 and permit the Company to prepay its PPP Loan in full. The Second Amendment also provided for the extension of the interest-only payment period through December 31, 2021, after which the term loans would be payable in 30 equal monthly installments. However, if the Company achieved a certain revenue milestone prior to January 1, 2022, then the period for interest-only payments would be extended through September 30, 2022, after which the term loans would be payable in 21 equal monthly installments. In addition the Second Amendment further provided for an extension of the maturity date from June 1, 2023 to June 1, 2024. After repayment, no loans may be re-borrowed.

14


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



Pursuant to the Second Amendment, the Company prepaid a portion of the Term A Loan equal to the sum of (i) $20.0 million, plus all accrued and unpaid interest as of the date of the Second Amendment, (ii) the applicable final payment fee of $0.6 million, (iii) the applicable prepayment fee of $0.3 million and (iv) all outstanding Lenders’ expenses as of the date of the Second Amendment.

Additionally, the Company is required to maintain a minimum balance of $5.0 million in unrestricted cash at SVB at all times and to pay an amendment fee of up to $0.1 million at the earliest to occur of the maturity date, acceleration of any term loan, or prepayment of any term loan amount.

On August 5, 2020, the Company entered into that certain Third Amendment to Amended and Restated Loan and Security Agreement with the Lenders (the “Third Amendment) to amend the Loan Agreement to (i) amend the definition of “Permitted Indebtedness” to include a new standby letter of credit in an amount not to exceed $0.4 million issued to the landlord for the Company’s new leased laboratory space and (ii) permit the sale of certain equipment related to the relocation of the Company’s research and development laboratory from San Diego to Chicago.

On October 23, 2020, the Company entered into that certain Fourth Amendment to Amended and Restated Loan and Security Agreement with the Lenders (the "Fourth Amendment") to amend the Loan Agreement to provide an additional tranche of $3.5 million (the “Term D Loan”, and, together with the Term A Loan, Term B Loan, and Term C Loan, the "Term Loan"), available upon execution. The Term D Loan of $3.5 million was drawn in November 2020 and will be payable under the same payment terms as the term loans. After repayment, the loan may not be re-borrowed.

On May 3, 2021, the Company entered into that certain Fifth Amendment to Amended and Restated Loan and Security Agreement with the Lenders (the “Fifth Amendment”) to amend the Loan Agreement (as amended, supplemented or otherwise modified from time to time, including by that certain First Amendment, Second Amendment, Third Amendment, Fourth Amendment, and Fifth Amendment, collectively, the "Amended Loan Agreement"). The Fifth Amendment provides that if the Company achieves a certain revenue milestone prior to November 30, 2021, then the period for interest-only payments is extended six months to July 2022 and the Term Loan will be payable in 24 equal monthly installments. If the Company achieves another revenue milestone prior to May 31, 2022, the period for interest-only payments is further extended three months, to October 2022 and the Term Loan will be payable in 21 equal monthly installments. If the Company achieves a third revenue milestone by August 31, 2022, the period for interest-only payments is further extended three months, to January 2023 and the Term Loan will be payable in 18 equal monthly installments. The Company currently expects to achieve each revenue milestone and has therefore classified the amounts due under the Amended Loan Agreement as non-current on its balance sheet as of June 30, 2021.

On May 24, 2021, the Company entered into that certain Consent Under Amended and Restated Loan and Security Agreement (the “Consent”) with the Lenders to permit the Company to execute, deliver and perform (a) the Transaction Agreement with Strongbridge and (b) that certain Expenses Reimbursement Agreement dated as of May 24, 2021 by and between the Company and Strongbridge pursuant to which the Company and Strongbridge have agreed to certain reimbursement obligations related to the transactions contemplated by the Transaction Agreement.

Pursuant to the Amended Loan Agreement, the Company has provided a first priority security interest in substantially all of the Company’s assets, including intellectual property, subject to certain limited exceptions.

All of the loans incur interest at a floating per annum rate in an amount equal to the sum of 6.25% plus the greater of (a) 2.43% and (b) the thirty-day U.S. Dollar LIBOR rate. For the period from the funding date of the Term A Loan through and including June 30, 2021, the interest rate was 8.68%. The Company has incurred total debt issuance costs of $2.0 million related to the Loan Agreement and the Amended Loan Agreement, which are being amortized to interest expense over the life of the loan using the effective interest method. The remaining balance of unamortized debt issuance costs have been reflected as a direct reduction to the loan balance.

The Amended Loan Agreement allows the Company to voluntarily prepay the outstanding amounts thereunder, but not less than $2.0 million of the outstanding principal at any time. The Company is subject to a prepayment fee equal to 1.50% of the principal amount being prepaid. Also, a final payment fee of 3.0% multiplied by the amount to be repaid is due upon the earliest to occur of the maturity date of the Amended Loan Agreement, the acceleration of the amounts outstanding under the Amended Loan Agreement or prepayment of such borrowings and is recorded in other liabilities on the condensed consolidated balance sheets.

15


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



The Amended Loan Agreement contains customary representations and warranties, events of default (including an event of default upon a material adverse change of the Company) and affirmative and negative covenants, including, among others, covenants that limit or restrict the Company’s ability to incur additional indebtedness, grant liens, merge or consolidate, make acquisitions, pay dividends or other distributions or repurchase equity, make investments, dispose of assets and enter into certain transactions with affiliates, in each case subject to certain exceptions.

The components of debt are as follows (in thousands):
June 30, 2021December 31, 2020
Convertible Notes
$47,175 $47,175 
Senior secured loan facility
43,500 43,500 
Less: unamortized debt issuance costs
(3,197)(3,654)
     Long-term debt, net of unamortized debt issuance costs
$87,478 $87,021 

The following table sets forth the Company’s future minimum principal payments on the senior secured loan facility (which reflect the Fifth Amendment) and the Convertible Notes (in thousands):
2021$
2022 
202329,000 
202414,500 
202547,175
$90,675

For the three and six months ended June 30, 2021, the Company recognized interest expense of $1.8 million and $3.6 million, respectively, of which $0.2 million and $0.5 million, respectively, was related to the amortization of debt issuance costs. For the three and six months ended June 30, 2020, the Company recognized interest expense of $2.2 million and $3.7 million, respectively, of which $0.2 million and $0.4 million, respectively, was related to the amortization of debt issuance costs and $0.7 million in both periods was related to a loss on extinguishment of debt.

Note 7. Stockholders' Equity

The Company’s authorized shares of stock of 160.0 million are divided into 150.0 million shares of common stock, par value $0.0001 per share, and 10.0 million shares of preferred stock, par value $0.0001 per share. At June 30, 2021 none of the 10.0 million shares of preferred stock were outstanding, and the Company has no present plans to issue any shares of preferred stock. The Company’s board of directors has the authority, without action by the Company’s stockholders, to designate and issue the preferred stock in one or more series and to designate the rights, preferences, limitations and privileges of each series of preferred stock, which may be greater than the rights of the Company’s common stock.

The Company has not paid any cash dividends on its common stock during the periods presented.

In February 2020, the Company completed an equity offering of its common stock pursuant to a shelf registration statement on Form S-3, which was filed on August 6, 2019 and declared effective by the SEC on August 21, 2019. The Company sold an aggregate of 10,299,769 shares of common stock at a price of $4.15 per share, including 1,299,769 shares pursuant to the underwriters’ option to purchase additional shares of common stock. Net proceeds from the equity offering were approximately $39.9 million after deducting underwriting discounts and commissions as well as other public offering expenses.

In June 2020, the Company completed an equity offering of its common stock pursuant to the Shelf. The Company sold an aggregate of 8,510,000 shares of common stock at a price of $2.72 per share, including 1,110,000 shares pursuant to the underwriters' option to purchase additional shares which was fully exercised in July 2020. Net proceeds from the equity offering were approximately $21.6 million after deducting underwriting discounts and commissions as well as other public offering expenses.

16


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



In the second half of 2020, $8.4 million in principal amount of Convertible Notes were converted into 2,736,591 shares of the Company’s common stock at the conversion rate of 326.7974 shares per $1,000 principal amount of Convertible Notes. Additionally, in the fourth quarter of 2020, the Company entered into separate, privately negotiated exchange agreements with certain holders of Convertible Notes to exchange $30.7 million in principal amount of Convertible Notes for 10,435,200 shares of the Company’s common stock. The Company recognized a $2.6 million loss related to the convertible note exchange transactions.
In March 2021, the Company completed a registered direct offering of 6,553,398 shares of its common stock at a price of $4.12 per share. Net proceeds from the equity offering were approximately $26.9 million after deducting offering expenses.

Upon vesting and settlement of RSUs or exercise of stock options, at the election of the grantee, the Company does not collect withholding taxes in cash from employees. Instead, the Company withholds, upon settlement as RSUs vest or as stock options are exercised, the portion of those shares with a fair market value equal to the amount of the minimum statutory withholding taxes due. The withheld shares are accounted for as repurchases of common stock. The Company then pays the minimum statutory withholding taxes in cash. During the six months ended June 30, 2021, 220,425 RSUs vested for which 71,782 shares were withheld to cover the minimum statutory withholding taxes of $0.4 million. During the six months ended June 30, 2020, 31,250 RSUs vested for which 9,801 shares were withheld to cover the minimum statutory withholding taxes of $0.1 million.

Note 8. Warrants

In 2014, the Company issued 19,931 warrants (the “2014 Warrants”) to certain investors. The 2014 Warrants allow each holder to purchase one share of common stock for $5.912. Of the 2014 Warrants, 18,512 warrants were exercised and 1,419 warrants expired. There are no 2014 Warrants outstanding as of June 30, 2021.

As part of the Original Loan Agreement discussed in Note 6, "Long-term Debt," the Lenders received warrants concurrent with the borrowing. The warrants represent a right for the lender to purchase shares of the Company’s common stock at an exercise price of $11.169 per share. The Company issued 53,720 warrants (the "2018 Term A Warrants") upon the drawdown of the 2018 Term A Loan in February 2018, and the Company issued 40,292 warrants (the "2018 Term B Warrants") upon the drawdown of the 2018 Term B Loan in September 2018. There have been no exercises of 2018 Term A Warrants or 2018 Term B Warrants.

Because the warrants are a freestanding instrument, indexed to the Company's stock, they do not meet the criteria for equity classification. Therefore, the warrants are classified as liabilities and subject to remeasurement at each reporting period until they are exercised, expired, or otherwise settled.

The Company recognized losses of $5,000 and $5,000 upon the change in fair value of the 2018 Term A Warrants and the 2018 Term B Warrants, respectively, during the three months ended June 30, 2021. The Company recognized losses of $1,000, $22,000 and $16,000 upon the change in fair value of the 2014 Warrants, the 2018 Term A Warrants and the 2018 Term B Warrants, respectively, during the three months ended June 30, 2020. The Company recognized gains of $6,000 and $4,000 upon the change in fair value of the 2018 Term A Warrants and the 2018 Term B Warrants, respectively, during the six months ended June 30, 2021. The Company recognized gains of $3,000, $53,000 and $40,000 upon the change in fair value of the 2014 Warrants, the 2018 Term A Warrants and the 2018 Term B Warrants, respectively, during the six months ended June 30, 2020.

As of June 30, 2021, the following warrants were outstanding:
Outstanding Warrants
Exercise Price
per Warrant
Expiration
Date
2018 Term A Warrants
53,720$11.169
February 2025
2018 Term B Warrants
40,292$11.169
September 2025
94,012

17


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



Note 9. Commitments and Contingencies

Commitments

The Company has non-cancellable operating leases for office and laboratory space, which expire at various times through 2033. The non-cancellable lease agreements provide for monthly lease payments, which increase during the term of each lease agreement.

In the third quarter of 2020, the Company signed a lease to occupy a research and development laboratory site in Chicago, Illinois in conjunction with the Company's relocation of such activities from the former San Diego site in the fourth quarter of 2020. The future minimum lease payments of the new lease are approximately $0 in 2021, $0.5 million in 2022, $0.7 million in 2023, $0.7 million in 2024, and $7.2 million in 2025 and thereafter. In conjunction with the new lease, the Company assigned its lease for the San Diego site to a third party.

Future minimum lease payments under operating leases at June 30, 2021 are as follows (in thousands):
2021$646 
20221,813 
20232,031 
20241,981 
20251,931 
Thereafter13,723 
     Total minimum lease payments$22,125 

Total rent expense under these operating leases was approximately $0.6 million and $0.6 million for the three months ended June 30, 2021 and 2020, respectively, and approximately $1.2 million and $1.1 million for the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, the Company had unused letters of credit of $1.4 million which were issued primarily to secure leases.

Litigation

From time to time, the Company may become involved in various legal actions arising in the ordinary course of business. As of June 30, 2021, management was not aware of any existing, pending or threatened legal actions that would have a material impact on the financial position or results of operations of the Company.


18


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



Note 10. Restructuring Costs

In the third quarter of 2020, the Company commenced a plan to relocate its research and development laboratory from San Diego to Chicago. The costs associated with the plan include employee termination and relocation costs and other facility exit costs. The Company expects to incur total restructuring costs of approximately $2.3 million related to the plan. Costs of $0.3 million were incurred in the six months ended June 30, 2021, all of which is included in research and development expenses in the condensed consolidated statements of operations and comprehensive loss. The Company anticipates that the restructuring will be substantially complete by the end of the fourth quarter of 2021. The restructuring reserve is included in other accrued liabilities in the condensed consolidated balance sheet.

The following table summarizes the initial restructuring reserve and the payments made during the six months ended June 30, 2021 (in thousands):
Employee Termination and Relocation CostsOtherTotal
Balance accrued at December 31, 2020$646 $165 $811 
   Restructuring costs, net of reversals206 69 275 
   Payments(830)(234)(1,064)
Balance accrued at June 30, 2021$22 $ $22 

Note 11. Stock Compensation Plan
In 2011, the Company adopted the 2011 Stock Option Issuance Plan (the “2011 Plan”) and subsequently amended it to authorize the Board of Directors to issue up to 4,714,982 incentive stock option and non-qualified stock option awards.

The 2018 Stock Option and Incentive Plan (the "2018 Plan") was adopted by the Board of Directors in April 2018 and approved by the Company's stockholders in June 2018 to award up to 1,822,000 shares of common stock. This plan became effective on the date immediately prior to the effectiveness of the Company's IPO registration statement. The 2018 Plan replaced the 2011 Plan as the Board of Directors decided not to make additional awards under the 2011 Plan following the closing of the IPO, which occurred in June 2018. The 2018 Plan allows the compensation committee to make equity-based and cash-based incentive awards to the Company's officers, employees, directors and other key persons (including consultants). No grants of stock options or other awards may be made under the 2018 Plan after the tenth anniversary of the effective date.

The 2018 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2019 and each January 1 thereafter, by 4% of the outstanding number of shares of our common stock on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change affecting the Company's common stock. On January 1, 2021 and 2020, the number of shares of common stock available for issuance under the 2018 Plan was automatically increased by 2,384,448 shares and 1,088,580 shares, respectively. As of June 30, 2021, there were 1,320,999 shares of common stock available for future issuance under the 2018 Plan.

The 2018 Employee Stock Purchase Plan (the "ESPP") was adopted by the Board of Directors in April 2018 and approved by the Company's stockholders in June 2018 to issue up to 193,000 shares of common stock to participating employees. Through the ESPP, eligible employees may authorize payroll deductions of up to 15% of their compensation to purchase up to the number of shares of common stock determined by dividing $25,000 by the closing market price of Xeris common stock on the offering date. The purchase price per share at each purchase date is equal to 85% of the lower of (i) the closing market price per share of Xeris common stock on the employee’s offering date or (ii) the closing market price per share of Xeris common stock on the purchase date. Each offering period has a six-month duration and purchase interval with a purchase date of the last business day of June and December each year. This plan became effective on the date immediately prior to the effectiveness of the Company's IPO registration statement. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2019 and each January 1 thereafter through January 1, 2028, by the least of (i) 1% of the outstanding number of shares of our common stock on the immediately preceding December 31; (ii) 386,000 shares or (iii) such lesser number of shares as determined by the ESPP administrator. On January 1, 2021 and 2020, the number of shares of common stock available for issuance under the
19


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



ESPP increased by 386,000 shares and 272,145 shares, respectively. The number of shares reserved under the ESPP is subject to adjustment in the event of a stock split, stock dividend or other change affecting the Company's common stock. The Company issued 108,096 shares at a price of $3.46 per share for the ESPP offering period which ended June 30, 2021. As of June 30, 2021, there were 585,570 shares available for issuance under the ESPP.

The Equity Inducement Plan (the "Inducement Plan") was adopted by the Board of Directors in February 2019. The Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The Inducement Plan allows the Company to make stock option or restricted stock unit awards to prospective employees of the Company as an inducement to such individuals to commence employment with the Company. The Company uses this Inducement Plan to help it attract and retain prospective employees who are necessary to support the commercial launch of Gvoke and the expansion of the Company generally. The Company initially reserved 750,000 shares of common stock for the issuance of awards under the Inducement Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change affecting the Company's common stock. As of June 30, 2021, there were 246,674 shares of common stock available for future issuance under the Inducement Plan.

On October 8, 2020, the Company's stockholders, upon recommendation of the Board of Directors, approved an amendment to the Company's 2011 Plan and 2018 Plan to allow the Company to permit certain employee option holders, subject to specified conditions, to exchange some or all of their outstanding options to purchase shares of the Company's common stock for a lesser number of new options to purchase shares of the Company’s common stock (the “Option Exchange”).

On November 10, 2020, the Company filed with the SEC a Tender Offer Statement on Schedule TO defining the terms and conditions of the Option Exchange. The total number of shares of common stock underlying a new option with respect to an exchanged eligible option was determined by dividing the number of shares of common stock underlying the exchanged eligible option by the applicable exchange ratio and rounding to the nearest whole number, subject to the terms and conditions described in the Exchange Offer. On December 10, 2020, the completion date of the Option Exchange, the Company canceled the options accepted for exchange and granted 832,907 new options to purchase shares of common stock in exchange for 1,127,906 options issued under the 2011 Plan and 2018 Plan. The exercise price per share of the options granted pursuant to the Exchange Offer was $4.09 per share, which was the closing price per share of common stock on The Nasdaq Global Select Market on the grant date of such new options. The new options will vest and become exercisable in two equal installments following the grant date, subject to an option holder's continuous service, and expire seven years from the grant date. On the grant date, the fair values of the options exchanged were similar to the fair values of the new options granted and, as such, the incremental compensation cost related to the Option Exchange was not material.

Stock options are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awards typically vest over either two, three or four years after the grant date and expire seven to ten years from the grant date.

The fair value of each option is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected term of options represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected stock price volatility assumption is based on the historical volatilities of a peer group of publicly traded companies as well as the historical volatility of the Company's common stock since the Company began trading subsequent to its IPO in June 2018 over the period corresponding to the expected life as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of the Company’s ordinary shares as of the grant date.

The fair value of stock options granted was estimated with the following weighted average assumptions:
Six Months Ended June 30,
20212020
Expected term (years)
6.06.0
Risk-free interest rate
1.14%0.45%
Expected volatility
76.30%66.75%
Expected dividends
  
20


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



Stock option activity under the 2011 Plan, 2018 Plan and Inducement Plan for the six months ended June 30, 2021 was as follows:
Options
Weighted
Average
Exercise Price  
Weighted
Average
Contractual
Life (Years)  
Outstanding - January 1, 20214,953,906$5.84 7.46
Granted
700,3135.00 
Exercised and vested
(76,031)2.26 
Forfeited
(335,728)6.32 
Expired
(142,034)11.84 
Outstanding - June 30, 20215,100,426$5.57 7.36
Exercisable - June 30, 20212,405,668$5.75 6.30
Vested and expected to vest as of June 30, 20214,886,558$5.58 7.31

The weighted average fair value of awards granted during the six months ended June 30, 2021 was $3.32 per share. The total intrinsic value of options exercised during the six months ended June 30, 2021 was $0.1 million. As of June 30, 2021, the aggregate intrinsic value of awards vested and expected to vest was $3.0 million.

At June 30, 2021, there was a total of $10.3 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 2.5 years.

A summary of outstanding RSU awards and the activity for the six months ended June 30, 2021 was as follows:
UnitsWeighted Average Grant Date Fair Value
Unvested balance - January 1, 2021766,550$7.07 
Granted
1,422,0945.07 
Vested
(220,425)7.43 
Forfeited
(88,707)5.38 
Unvested balance - June 30, 20211,879,512$5.59 

RSUs are measured based on the fair market value of the underlying stock on the date of grant and vest over either three or four years in equal annual installments beginning on the one-year anniversary of the date of grant. Stock-based compensation expense related to RSUs is recognized on a straight-line basis over the employee’s requisite service period. As of June 30, 2021, there was $8.8 million of unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over the weighted average remaining vesting period of 2.4 years.

The following table summarizes the reporting of total stock-based compensation expense resulting from stock options, RSUs and the ESPP (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Cost of goods sold
$31 $113 $47 $150 
Research and development
407 239 754 536 
Selling, general and administrative
2,074 1,719 4,172 3,393 
Total stock-based compensation expense
$2,512 $2,071 $4,973 $4,079 
21


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



Note 12. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified and disclosed in one of the following categories:

Level 1: Measured using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Measured using quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity).

Fair value measurements are classified based on the lowest level of input that is significant to the measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values stated below takes into account the market for its financial assets and liabilities, the associated credit risk and other factors as required. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

22


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of June 30, 2021 and December 31, 2020 (in thousands):
Total as of
June 30, 2021
Level 1Level 2Level 3
Assets
Cash and cash equivalents:
     Cash and money market funds$63,599 $63,599 $ $ 
Investments:
     U.S. government securities20,103 20,103   
     Corporate securities6,970  6,970  
     Commercial paper21,480  21,480  
Foreign government securities2,611  2,611  
Foreign corporate securities1,217  1,217  
        Total investments$52,381 $20,103 $32,278 $ 
Liabilities
Warrant liabilities$149 $ $ $149 

Total as of
December 31, 2020
Level 1Level 2Level 3
Assets
Cash and cash equivalents:
     Cash and money market funds$37,598 $37,598 $ $ 
Investments:
     U.S. government securities64,386 64,386   
     Corporate securities13,625  13,625  
     Commercial paper18,179  18,179  
        Total investments$96,190 $64,386 $31,804 $ 
Liabilities
Warrant liabilities$159 $ $ $159 

The fair value of the Company’s warrant liabilities is based on a Black-Scholes valuation which considers the expected term of the warrants as well as the risk-free interest rate and expected volatility of the Company's common stock.

The Company has determined that the warrant liabilities' fair values are Level 3 items within the fair value hierarchy. The following table presents the change in the warrant liabilities (in thousands):
Balance at December 31, 2020
$159 
Change in fair value of warrants
(10)
Balance at June 30, 2021
$149 

There were no transfers between any of the levels of the fair value hierarchy during the three and six months ended June 30, 2021.

23


XERIS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2021
(unaudited)



Note 13. Available-for-Sale Investments

The Company classifies its investments in debt securities as available-for-sale. Debt securities are comprised of highly liquid investments with minimum “A” rated securities and, as of June 30, 2021, consist of U.S. Treasury and agency bonds and corporate entity commercial paper and securities, all with maturities of more than three months but less than one year at the date of purchase. Debt securities as of June 30, 2021 had an average remaining maturity of 0.3 years. The debt securities are reported at fair value with unrealized gains or losses recorded in accumulated other comprehensive income (loss) in the condensed consolidated balance sheets. Refer to Note 12, "Fair Value Measurements," for information related to the fair value measurements and valuation methods utilized.

The following table represents the Company’s available-for-sale investments by major security type as of June 30, 2021 and December 31, 2020 (in thousands):
June 30, 2021
Amortized
Cost
Gross Unrealized GainsGross Unrealized LossesTotal
Fair Value
Investments:
     Commercial paper$21,480 $ $ $21,480 
     Corporate securities6,968 4 (2)6,970 
     U.S. government securities20,102 1  20,103 
Foreign government securities2,612  (1)2,611 
Foreign corporate securities1,217   1,217 
        Total available-for-sale investments$52,379 $5 $(3)$52,381 
December 31, 2020
Amortized
Cost
Gross Unrealized GainsGross Unrealized LossesTotal
Fair Value
Investments:
     Commercial paper$18,179 $ $ $18,179 
     Corporate securities13,597 29