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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 September 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: 001-40880

XERIS BIOPHARMA HOLDINGS, INC.
(Exact name of the registrant as specified in its charter)
Delaware87-1082097
(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 October 31, 2021, the registrant had 124,708,935 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:

<
We may not be able to successfully integrate and combine the businesses of Xeris Pharma and Strongbridge following the completion of the Transactions and we may not realize the anticipated benefits from the Transactions.
<
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 Gvoke and Keveyis, we have not yet generated revenue from any of our current or future product candidates, including Recorlev, 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, Keveyis, Recorlev (if approved), 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, Keveyis, and Recorlev (if approved) or our product candidates could harm our ability to develop our product candidates or to commercialize Gvoke, Keveyis, Recorlev (if approved) 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, Keveyis, Recorlev (if approved) 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 FDA 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, Keveyis, Recorlev (if approved) 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 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.

2


XERIS BIOPHARMA HOLDINGS, INC.
FORM 10-Q

INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and
   December 31, 2020
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)
   for the three and nine months ended September 30, 2021 and 2020
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity (unaudited)
   for the three and nine months ended September 30, 2021 and 2020
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 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


Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q (this “Quarterly Report”) are referred to without the ® and ™ symbols, but absence of such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. The trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective owners.
3


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

XERIS PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and par value)
September 30, 2021December 31, 2020
(unaudited)
Assets
Current assets:
Cash and cash equivalents$59,492$37,598
Short-term investments33,49196,190
Trade accounts receivable, net13,5616,875
Inventory14,2418,353
Prepaid expenses and other current assets3,5823,196
Total current assets124,367152,212
Property and equipment, net6,6826,707
Other assets211232
Total assets$131,260$159,151
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable$4,290$3,117
Other accrued liabilities22,95715,895
Accrued trade discounts and rebates6,7825,984
Accrued returns reserve3,1612,889
Other current liabilities95322
Total current liabilities37,28528,207
Long-term debt, net of unamortized debt issuance costs87,71387,021
Deferred rent6,8266,629
Other liabilities1,8973,533
Total liabilities133,721125,390
Commitments and Contingencies (Note 9)


Stockholders’ (Deficit) Equity:
Preferred stock—par value $0.0001, 10,000,000 shares authorized and no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
Common stock—par value $0.0001, 150,000,000 shares authorized as of September 30, 2021 and December 31, 2020, respectively; 66,497,895 and 59,611,202 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
76
Additional paid in capital 406,878371,134
Accumulated deficit (409,320)(337,385)
Accumulated other comprehensive income (loss)(26)6
Total stockholders’ (deficit) equity(2,461)33,761
Total liabilities and stockholders’ (deficit) equity$131,260$159,151
The accompanying notes are an integral part of the condensed consolidated financial statements.
4


XERIS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data; unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Net sales$11,035 $9,404 $27,921 $13,066 
Grant and other income25 44 240 197 
Cost of goods sold3,220 2,832 8,429 5,921 
Gross profit7,840 6,616 19,732 7,342 
Operating expenses:
Research and development5,663 3,876 15,078 15,811 
Selling, general and administrative26,535 16,484 71,539 55,734 
Total operating expenses32,198 20,360 86,617 71,545 
Loss from operations (24,358)(13,744)(66,885)(64,203)
Other income (expense):
Interest and other income 66 232 243 943 
Interest expense (1,798)(2,328)(5,384)(6,069)
Change in fair value of warrants 81 (160)91 (64)
Total other income (expense)(1,651)(2,256)(5,050)(5,190)
Net loss before benefit from income taxes(26,009)(16,000)(71,935)(69,393)
Benefit from income taxes   110 
Net loss $(26,009)$(16,000)$(71,935)$(69,283)
Other comprehensive loss, net of tax:
Unrealized gains (losses) on investments(5)(125)(34)1 
Foreign currency translation adjustments(1)17 2 12 
Comprehensive loss $(26,015)$(16,108)$(71,967)$(69,270)
Net loss per common share - basic and diluted$(0.39)$(0.35)$(1.11)$(1.78)
Weighted average common shares outstanding - basic and diluted 66,497,593 46,145,116 64,722,552 38,995,707 

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


5


XERIS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
(in thousands, except share data; unaudited)
 Common StockAdditional
Paid In
Capital
Accumulated Other Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
(Deficit) 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 offering10,299,769 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 equity offering7,400,000 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 
Net loss— — — — (16,000)(16,000)
Issuance of common stock upon equity offering1,110,000  2,890 — — 2,890 
Issuance of common stock upon conversion
   of convertible notes
367,317 — 1,060 — — 1,060 
Exercise and vesting of stock options35,854 — 59 — — 59 
Stock-based compensation— — 2,054 — — 2,054 
Other comprehensive loss— — — (108)— (108)
Balance, September 30, 202046,664,503 $5 $329,803 $56 $(315,528)$14,336 
 Common StockAdditional
Paid In
Capital
Accumulated Other Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
(Deficit)
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 loss— — — (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 loss— — — (10)— (10)
Balance, June 30, 202166,497,370 $7 $403,212 $(20)$(383,311)$19,888 
Net loss— — — — (26,009)(26,009)
Exercise and vesting of stock options525 — 1 — — 1 
Stock-based compensation— — 3,665 — — 3,665 
Other comprehensive loss— — — (6)— (6)
Balance, September 30, 202166,497,895 $7 $406,878 $(26)$(409,320)$(2,461)

The accompanying notes are an integral part of the condensed consolidated financial statements.
6


XERIS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands; unaudited)
Nine Months Ended September 30,
20212020
Cash flows from operating activities:
     Net loss $(71,935)$(69,283)
     Adjustments to reconcile net loss to net cash used in operating activities:
            Depreciation and amortization 980 1,021 
            Amortization of investments353 (53)
            Amortization of debt issuance costs 727 707 
            Stock-based compensation 8,638 6,133 
            Loss on extinguishment of debt  443 
            Change in fair value of warrants (91)64 
            Changes in operating assets and liabilities:
Trade accounts receivable
(6,686)(7,235)
Prepaid expenses and other current assets
(386)1,179 
Inventory
(5,144)(3,457)
Accounts payable
1,173 (909)
Other accrued liabilities
4,650 (6,485)
Accrued trade discounts and rebates
798 4,383 
Accrued returns reserve
272 1,214 
Other
62 2,589 
Net cash used in operating activities
(66,589)(69,689)
Cash flows from investing activities:
     Capital expenditures(954)(152)
     Purchases of investments(30,784)(91,408)
     Sales and maturities of investments93,100 56,906 
Net cash provided by (used in) investing activities 61,362 (34,654)
Cash flows from financing activities:
     Proceeds from equity offerings27,000 65,891 
     Payments of equity offering costs(54)(4,292)
     Proceeds from issuance of debt 91,339 
     Payments of debt (25,089)
     Payments of debt issuance costs (5,546)
     Proceeds from employee stock purchase plan374 385 
     Proceeds from exercise of stock awards 167 113 
     Repurchase of common stock withheld for taxes(365)(63)
Net cash provided by financing activities 27,122 122,738 
Effect of exchange rate changes on cash and cash equivalents
(1)(28)
Increase in cash and cash equivalents
21,894 18,367 
Cash and cash equivalents, beginning of period
37,598 19,519 
Cash and cash equivalents, end of period
$59,492 $37,886 
Supplemental schedule of cash flow information:
            Cash paid for interest
$5,350 $3,677 
Supplemental schedule of non-cash investing and financing activities:
            Issuance of stock for conversion of debt$ $1,060 
            Accrued debt issuance costs$ $299 
            Accrued equity offering costs$3 $38 

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


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




Note 1. Organization

Nature of business

As used herein, the “Company” or "Xeris" refers to Xeris Pharmaceuticals, Inc. ("Xeris Pharma") when referring to periods prior to the acquisition of Strongbridge Biopharma plc, an Irish public limited company (“Strongbridge”) (discussed below) on October 5, 2021 and to Xeris Biopharma Holdings, Inc. when referring to periods on or subsequent to October 5, 2021. As a result, Xeris Pharma became the predecessor to Xeris Biopharma Holdings, Inc. upon completion of the Merger (as described below) on October 5, 2021. The financial statements of Xeris Pharma for periods ended September 30, 2021 are considered to be the financial statements of Xeris Biopharma Holdings, Inc. as this periodic report is being filed subsequent to October 5, 2021.

Xeris Pharma was a specialty pharmaceutical company that was incorporated in Delaware in 2005. Xeris was 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. Through the acquisition of Strongbridge in October 2021 (discussed below), Xeris expanded its business to the development and commercialization of therapies for rare diseases with significant unmet needs and became a biopharmaceutical company developing and commercializing unique therapies for patient populations in endocrinology, neurology and gastroenterology.

Since the inception of Xeris, the Company has devoted the majority of its resources 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.

8


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



On May 24, 2021, the Company issued an announcement pursuant to Rule 2.5 of the Irish Takeover Panel Act 1997 (as amended), Takeover Rules, 2013, disclosing that the boards of directors of the Company and 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”). The Company, Strongbridge, Xeris Biopharma Holdings, Inc. ("HoldCo") and Wells MergerSub, Inc., a Delaware corporation (“MergerSub”), entered into a Transaction Agreement, dated as of May 24, 2021 (the “Transaction Agreement”).

On October 5, 2021 (the "acquisition closing date"), pursuant to the Transaction Agreement, the Company completed its acquisition of Strongbridge. Upon completion of the Acquisition, (a) the Company acquired Strongbridge by means of a scheme of arrangement (the “Scheme”) under Irish law pursuant to which HoldCo acquired 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 (b) MergerSub merged with and into Xeris Pharma, with Xeris Pharma, as the surviving corporation in the merger (the “Merger,” and the Merger together with the Acquisition, the “Transactions”).

Upon completion of the Merger, (a) each share of Xeris Pharma common stock was assumed by HoldCo and converted into the right to receive one HoldCo Share and any cash in lieu of fractional entitlements due to a Xeris Pharma shareholder and (b) each Xeris Pharma option, stock appreciation right, restricted share award and other Xeris Pharma share based award that was outstanding was assumed by HoldCo and converted into an equivalent equity award of HoldCo, which award was subject to the same number of shares and the same terms and conditions as were applicable to the Xeris Pharma award in respect of which it was issued.

At the effective time of the Scheme, Strongbridge’s outstanding equity awards will be treated as set forth in the Transaction Agreement, such that (i) each Strongbridge Share Award will be vested and settled for Strongbridge Shares immediately prior to the effective time of the Scheme (or such earlier time as Strongbridge considers administratively practical), (ii) each Strongbridge Option shall become fully vested and exercisable immediately prior to the effective time of the Scheme, (iii) each unexercised Strongbridge Option will be assumed by HoldCo and converted into an option to purchase HoldCo Shares (each, a “Strongbridge Rollover Option”), with the exercise price per HoldCo Share and the number of HoldCo Shares underlying the Strongbridge Rollover Option adjusted to reflect the conversion from Strongbridge Shares into HoldCo Shares, provided that each Strongbridge Rollover Option will continue to have, and be subject to, the same terms and conditions that applied to the corresponding Strongbridge Rollover Option (except for terms rendered inoperative by reason of the Acquisition or for immaterial administrative or ministerial changes that are not adverse to any holder other than in any de minimis respect), provided that the terms of each Strongbridge Rollover Option with an exercise price of $4.50 or less (prior to the adjustment described above) shall be amended to provide that it shall remain exercisable for a period of time following the effective time of the Scheme equal to the lesser of (A) the maximum remaining term of such corresponding Strongbridge Option and (B) the fourth anniversary of the effective date of the Merger, in each case regardless of whether the holder of such Strongbridge Rollover Option experiences a termination of employment or service on or following the effective time of the Scheme and (iv) HoldCo shall issue to each holder of a Strongbridge Rollover Option one CVR with respect to each Strongbridge Share subject to the applicable Strongbridge Option, provided that in no event shall such holder be entitled to any payments with respect to such CVR unless the corresponding Strongbridge Option has been exercised on or prior to any such payment.

Additionally, on completion of the Acquisition, (a) each outstanding and unexercised Strongbridge warrant (except private placement warrants) was assumed by HoldCo such that, upon exercise, the applicable holders will have the right to have delivered to them the reference property (as such term is defined in the Strongbridge assumed warrants) and (b) each outstanding and unexercised Strongbridge private placement warrant was assumed by HoldCo such that the applicable holders will have the right to subscribe for HoldCo Shares, in accordance with certain terms of the Strongbridge private placement warrants.

Immediately following the Transactions, both Xeris Pharma and Strongbridge became wholly owned subsidiaries of HoldCo. The common stock of Xeris Pharma and the ordinary shares of Strongbridge were de-registered after completion of the Transactions. On October 6, 2021, HoldCo’s common stock, par value $0.0001 per share, commenced trading on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “XERS”. See “Note 3 – Acquisition” for a more detailed description of the Acquisition.

9


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



Strongbridge was a global, commercial-stage biopharmaceutical company focused on the development and commercialization of therapies for rare diseases with significant unmet needs. The Acquisition has added Keveyis® (dichlorphenamide) to the Company's commercial product portfolio. Keveyis is the first and only treatment approved by the U.S. Food and Drug Administration (the “FDA”) for hyperkalemic, hypokalemic, and related variants of primary periodic paralysis ("PPP"), a group of rare hereditary disorders that cause episodes of muscle weakness or paralysis. In addition, the Company has added a clinical-stage product candidate for rare endocrine diseases, Recorlev®. Recorlev (levoketoconazole), the pure 2S,4R enantiomer of the enantiomeric pair comprising ketoconazole, is a next-generation steroidogenesis inhibitor being investigated as a chronic therapy for adults with endogenous Cushing’s syndrome. Veldoreotide is a next-generation somatostatin analog which was acquired as part of the Acquisition that has potential application in conditions amenable to somatostatin receptor activation. Levoketoconazole has received orphan designation from the FDA and the European Medicines Agency. On May 12, 2021, Strongbridge received the official Day 74 letter from the FDA for Recorlev. Within the Day 74 letter, the FDA set a Prescription Drug User Fee Act (PDUFA) target action date of January 1, 2022, which reflects a projected 10-month standard review period.

Liquidity and capital resources

The Company has incurred operating losses since inception and has an accumulated deficit of $409.3 million as of September 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 September 30, 2021, the Company believes its cash resources are sufficient to sustain operations and capital expenditure requirements for at least the next 12 months. If needed, the Company may elect to finance its operations through equity or debt financing along with revenues.

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.

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 $11.0 million and $9.4 million for the three months ended September 30, 2021 and 2020, respectively, and $27.9 million and $13.1 million for the nine months ended September 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
10


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



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.

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 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.
11


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




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.

Note 3. Acquisition

As disclosed in Note 1, on October 5, 2021, pursuant to the Transaction Agreement, the Company completed its acquisition of Strongbridge. The Acquisition will be accounted for as a business combination using the acquisition method of accounting under the provisions of ASC 805, “Business Combinations.” As the Acquisition was not consummated until October 5, 2021, the Acquisition is not reflected in the Company’s balance sheet as of September 30, 2021 and the operating results of Strongbridge are not reflected in the Company’s statement of operations for the three and nine months ended September 30, 2021.

The Acquisition will diversify and increase the Company’s revenue base into the specialized commercial platforms and expand its development pipeline. Additionally, the Company expects to achieve significant synergies by eliminating redundant processes and headcount, most notably within the commercial, executive and general and administrative functions.

Acquisition consideration

The acquisition-date fair value of the consideration transferred totaled $169.1 million, which consisted of the following:

Fair value of consideration transferred (in thousands, except share number)
Xeris Biopharma Holdings, Inc. common shares (58,082,606 shares)
$137,655 
Unexercised Strongbridge options assumed by Xeris Pharma and converted into options to purchase HoldCo shares
6,404 
Strongbridge warrants 2,467 
Contingent consideration (Contingent value rights)
22,531 
Total consideration$169,057 

The Company’s acquisition accounting is primarily pending final valuation and potential CVR fair value adjustments to the consideration. The fair value of the common stock issued was determined based on the closing market price of shares of the Company’s common stock on the acquisition date.

Upon completion of the Acquisition, each outstanding and unexercised Strongbridge warrant (except private placement warrants) was assumed by HoldCo such that, upon exercise, the applicable holders will have the right to have delivered to them the reference property (as such term is defined in the Strongbridge assumed warrants). The fair value of the assumed warrants was determined using the Black-Scholes valuation model which considers the expected terms of the assumed warrants from the acquisition closing date as well as the risk-free interest rate and expected volatility of both Xeris Pharma and Strongbridge's common stock.

Each outstanding and unexercised Strongbridge private placement warrant was assumed by HoldCo such that the applicable holders will have the right to subscribe for HoldCo Shares, in accordance with certain terms of the Strongbridge private placement warrants. The fair value of the private placement warrants was determined using the Black-Scholes valuation model which considers the expected terms of the private placement warrants from the acquisition closing date as well as the risk-free interest rate, current exercise price of $2.50 multiplied by (the average of Xeris Pharma closing prices for the 20-day period ending three trading days prior to acquisition closing date/the average of Strongbridge closing prices for the 20-day period ending three trading days prior to acquisition closing date) and a volatility of 50%.

12


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



The CVRs represent contingent additional consideration of up to $1.00 for each CVR, payable to CVR holders, to satisfy future performance milestones, settleable in cash, common stock, or a combination of cash and common stock, at the Company's sole election. The CVRs are conditioned upon the achievement of the following:
Keveyis Milestone: $0.25 per CVR, upon the earlier of the first listing of any patent in the FDA's Orange Book for Keveyis by the end of 2023 or the first achievement of at least $40 million in net sales of Keveyis in 2023;
2023 Recorlev Milestone: $0.25 per CVR, upon the first achievement of at least $40 million in net sales of Recorlev in 2023; and
2024 Recorlev Milestone: $0.50 per CVR, upon the first achievement of at least $80 million in net sales of Recorlev in 2024.

The fair value of the CVRs was calculated by using a discounted cash flow method for the Keveyis patent milestone and an option pricing method for the Recorlev and Keveyis sales milestones. In the case of Keveyis milestones, the Company applied a scenario-based method and weighted them based on the possible achievement of each milestone. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions used include the discount rate. The estimated value of the CVR consideration is preliminary only and is based upon available information and certain assumptions which Xeris management believes are reasonable under the circumstances. The ultimate payout under the CVRs may differ materially from the assumptions used in determining the fair value of the CVR consideration.

As of the acquisition closing date, there were approximately 74.1 million CVRs. There will be additional issuance of up to 10.5 million CVRs to holders of Strongbridge rollover options and assumed warrants upon exercise.

Preliminary purchase price allocation

In accordance with ASC 805, Xeris Pharma was determined to be the accounting acquirer in the Acquisition. The Company has applied the acquisition method of accounting that requires, among other things, that identifiable assets acquired and liabilities assumed generally be recognized on the balance sheet at fair value as of the acquisition date. In determining the fair value, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being fair valued. The estimation of fair value required significant judgment related to future net cash flows (including revenue, operating expenses, and working capital), discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Inputs were generally determined by taking into account historical data (supplemented by current and anticipated market conditions), trends and growth rates.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company is in the process of finalizing the valuations of certain intangible assets; thus, the provisional measurements of intangible assets and goodwill may be subject to change.

13


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



(in thousands)
Cash and cash equivalents$38,469 
Trade accounts receivable4,344 
Inventory1,862 
Prepaid expenses and other current assets4,683 
Property and equipment161 
IPR&D121,000 
Other intangible assets11,000 
Other assets860 
Total identifiable assets acquired182,379 
Accounts payable(279)
Other accrued liabilities(13,521)
Accrued trade discounts and rebates(4,844)
Supply agreement liability(12,000)
Other liabilities(413)
Total liabilities assumed(31,057)
Net identifiable assets acquired151,322 
Goodwill17,735 
Net assets acquired$169,057 


14


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







The following is a description of the methods used to determine the fair values of significant assets and liabilities.

In-process research and development ("IPR&D") and other intangible assets

The IPR&D intangible asset represents the recording of the acquired IPR&D indefinite-lived intangible asset related to Recorlev. The other intangible asset represents the marketed product in the form of Keveyis. The fair value for the IPR&D and other intangible assets were based on assumptions developed by management and other information compiled by management including, but not limited to, discounted future expected cash flows. The fair value of intangibles relies heavily on projected future net cash flows including, but not limited to, key assumptions for revenue and operating expenses. The discount rates used for intangible assets are based on current market rates and reflect the risk inherent in each cash flow stream. The estimated useful life of the intangible asset of Keveyis is five years which reflects the time period in which the Company expects to receive the benefits of the related cash flows.

Goodwill

The excess of the consideration transferred over the fair value of assets acquired and liabilities assumed was recognized as goodwill. The goodwill is generated from operational synergies and cost savings the Company expects to achieve from the combined operations and Strongbridge’s knowledgeable and experienced workforce. The majority of the goodwill is not expected to be deductible for tax purposes.

Transaction costs

In connection with the Transactions, the Company incurred significant expenses in the second and third quarter of 2021 such as transaction costs (e.g. bankers fees, legal fees, consultant fees, etc.). Total transaction costs recorded in the selling, general and administrative expenses totaled $2.3 million and $6.2 million for the three and nine months ended September 30, 2021, respectively .

15


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








Supplemental pro forma information

The following unaudited supplemental pro forma financial information assumes the companies were combined as of January 1, 2020. The pro forma financial information as presented below is for informational purposes only and is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information. This is not necessarily indicative of the results of operations that would have been achieved if the Acquisition had taken place on January 1, 2020, nor is it necessarily indicative of future results. Consequently, actual results could differ materially from the unaudited pro forma financial information presented below. The following table presents the pro forma operating results as if Strongbridge had been included in the Company's Condensed Consolidated Statements of Operations as of January 1, 2020 (unaudited, in thousands):

Three Months Ended
Nine Months Ended
September 30, 2021
September 30, 2020
September 30, 2021
September 30, 2020
Revenue
$22,556 $17,519 $58,081 $35,768 
Net loss attributable to Xeris Biopharma Holdings Inc.
$(23,965)$(17,931)$(82,183)$(99,630)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Xeris to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2020.

The unaudited supplemental pro forma information above does not include any cost saving synergies from operating efficiencies. There is no tax impact of the pro forma adjustments reflected as both companies are, and have been for some time, in net operating loss positions and have full valuation allowances against their net deferred tax assets on both a historical and a pro forma basis.

Note 4. Inventory

The components of inventories consisted of the following (in thousands):  
September 30, 2021December 31, 2020
Raw materials$5,184 $2,874 
Work in process5,943 4,247 
Finished goods3,114 1,232 
     Inventory$14,241 $8,353 


Inventory reserves were $2.4 million and $2.2 million at September 30, 2021 and December 31, 2020, respectively.


16


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



Note 5. Other accrued liabilities

Other accrued liabilities consisted of the following (in thousands):  
September 30, 2021December 31, 2020
Accrued employee costs
$11,467 $7,989 
Accrued supply chain costs615 1,702 
Accrued marketing and selling costs1,077 1,114 
Accrued research and development costs
2,042 678 
Accrued restructuring charges10 811 
Accrued interest expense813 1,527 
Accrued Strongbridge transaction costs2,668  
Accrued other costs
4,265 2,074 
Other accrued liabilities$22,957 $15,895 


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 dated June 30, 2020 (the “Base Indenture”), as supplemented by the first supplemental indenture thereto dated June 30, 2020 and the second supplemental indenture thereto dated October 5, 2021 ("the Supplemental Indentures" and together with the Base Indenture, the "Indenture"), each 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.

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
17


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



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.

As a result of the Transactions, and pursuant to the Second Supplemental Indenture, the Convertible Notes are no longer convertible into shares of common stock of Xeris Pharma common stock. Instead, subject to the terms and conditions of the Indenture, the Convertible Notes will be exchangeable into cash and shares of common stock of HoldCo in proportion to the transaction consideration payable pursuant to the Transaction Agreement, and the “Reference Property” provisions in the Indenture.
Pursuant to the Second Supplemental Indenture, HoldCo agreed to guarantee (a) the full and punctual payment when due of all monetary obligations of Xeris Pharma under the Indenture and (b) the full and punctual performance within applicable grace periods of all other obligations of Xeris Pharma under the Indenture.

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 (“Oxford”), as the collateral agent (in such capacity, the “Collateral Agent”) and a lender, 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”) the Paycheck Protection Program 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.

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.

18


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



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. 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.

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.

In connection with the completion of the Transactions, on October 5, 2021, HoldCo entered into that certain Joinder and Sixth Amendment to Amended and Restated Loan and Security Agreement (the “Sixth Amendment”) with Xeris Pharma, the Lenders and Strongbridge US, Inc. (“Strongbridge US”) (each of Strongbridge US and HoldCo, a “New Borrower”) to amend the Loan Agreement. The Sixth Amendment adds the New Borrowers as borrowers under the Loan Agreement and provides for the grant by the New Borrowers to the Collateral Agent, for the ratable benefits of the Lenders, a first priority security interest on substantially all of their assets, including intellectual property, subject to certain exceptions. The Sixth Amendment also updates certain negative covenants and definitions to among, other things, permit certain intercompany arrangements and restructuring activities, as well as modifies the revenue milestones to address both Gvoke and non-Gvoke revenues. The Company currently expects to achieve each revenue milestone and has therefore classified the amounts due under the Loan Agreement (as amended by that certain First Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Consent and Sixth Amendment, the “Amended Loan Agreement") as non-current on its balance sheet as of September 30, 2021.

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 (or, the LIBOR replacement rate as applicable). For the period from the funding date of the Term A Loan through and including September 30, 2021, the interest rate was 8.68%. The Company has incurred total debt issuance costs of $2.0 million related to the Original 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.

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
19


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



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):
September 30, 2021December 31, 2020
Convertible Notes
$47,175 $47,175 
Senior secured loan facility
43,500 43,500 
Less: unamortized debt issuance costs
(2,962)(3,654)
     Long-term debt, net of unamortized debt issuance costs
$87,713 $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 nine months ended September 30, 2021, the Company recognized interest expense of $1.8 million and $5.4 million, respectively, of which $0.2 million and $0.7 million, respectively, was related to the amortization of debt issuance costs. For the three and nine months ended September 30, 2020, the Company recognized interest expense of $2.3 million and $6.1 million, respectively, of which $0.3 million and $0.7 million, respectively, related to the amortization of debt issuance costs. In the nine months ended September 30, 2020, $0.7 million 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 September 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.

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
20


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



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 nine months ended September 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 nine months ended September 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 September 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. In connection with the Transactions and the Sixth Amendment, HoldCo assumed each outstanding warrant (the “Existing Warrants”) issued to a Lender by Xeris Pharma. On October 20, 2021, the Company entered into Amended and Restated Warrant to Purchase Stock agreements with each Lender amending, restating and replacing each Existing Warrant to reflect the assumption of the warrants by the Company and make certain other administrative updates.

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 gains of $46,000 and $35,000 upon the change in fair value of the 2018 Term A Warrants and the 2018 Term B Warrants, respectively, during the three months ended September 30, 2021. The Company recognized gains (losses) of $1,000, $(92,000) and $(69,000) 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 September 30, 2020. The Company recognized gains of $53,000 and $38,000 upon the change in fair value of the 2018 Term A Warrants and the 2018 Term B Warrants, respectively, during the nine months ended September 30, 2021. The Company recognized gains (losses) of $4,000, $(39,000) and $(29,000) upon the change in fair value of the 2014 Warrants, the 2018 Term A Warrants and the 2018 Term B Warrants, respectively, during the nine months ended September 30, 2020.

As of September 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

21


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



Note 9. Commitments and contingencies

Commitments

The Company has non-cancellable operating leases for office and laboratory space, which expire in 2031 and 2033. The non-cancellable lease agreements provide for monthly lease payments, which increase during the term of each lease agreement.

Future minimum lease payments under operating leases at September 30, 2021 are as follows (in thousands):
2021$323 
20221,813 
20232,031 
20241,981 
20251,931 
Thereafter13,723 
     Total minimum lease payments$21,802 

Total rent expense under these operating leases was approximately $0.6 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, and approximately $1.8 million and $1.7 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 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 September 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.

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 cumulative amount of restructuring costs incurred to date as of September 30, 2021 was $2.0 million related to the plan. Costs of $0.3 million were incurred in the nine months ended September 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 restructuring related to the relocation of the research and development laboratory to 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 nine months ended September 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(842)(234)(1,076)
Balance accrued at September 30, 2021
$10 $ $10 

This is not inclusive of restructuring costs related to the Transactions that were completed on October 5, 2021.
22


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



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 September 30, 2021, there were 1,475,486 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 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 September 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 September 30, 2021, there were 185,773 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
23


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



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

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:
Nine Months Ended September 30,
20212020
Expected term (years)
6.05.9
Risk-free interest rate
1.14%0.42%
Expected volatility
76.30%69.85%
Expected dividends
  
Stock option activity under the 2011 Plan, 2018 Plan and Inducement Plan for the nine months ended September 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
702,3135.00 
Exercised and vested
(76,556)2.26 
Forfeited
(363,277)6.26 
Expired
(202,861)12.15 
Outstanding - September 30, 2021
5,013,525$5.48 6.80
Exercisable - September 30, 2021
2,729,400$5.52 6.11
Vested and expected to vest as of September 30, 2021
4,847,191$5.49 6.76

The weighted average fair value of awards granted during the nine months ended September 30, 2021 was $3.31 per share. The total intrinsic value of options exercised during the nine months ended September 30, 2021 was $0.1 million. As of September 30, 2021, the aggregate intrinsic value of awards vested and expected to vest was $1.0 million.

24


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



At September 30, 2021, there was a total of $7.9 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 1.9 years.

Restricted share units (the "RSU")

The Company grants RSUs to employees. RSUs that are granted vest over either three or four years in equal annual installments beginning on the one-year anniversary of the date of grant, provided that the employee is employed by the Company on such vesting date. If and when the RSUs vest, the Company will issue one share of common stock for each whole RSU that has vested, subject to satisfaction of the employee’s tax withholding obligations. Stock-based compensation expense related to RSUs is recognized on a straight-line basis over the employee’s requisite service period.

A summary of outstanding RSU awards and the activity for the nine months ended September 30, 2021 was as follows:
UnitsWeighted Average Grant Date Fair Value
Unvested balance - January 1, 2021766,550$7.07 
Granted
1,613,3444.9 
Vested
(220,425)7.43 
Forfeited
(96,562)5.38 
Unvested balance - September 30, 2021
2,062,907$