SEC Filing | Xeris Biopharma Holdings, Inc.

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xers-20220630

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, 2022
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)

Delaware

87-1082097

(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

XERS

The 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 filer

Accelerated filer

Non-accelerated filer

☒

Smaller 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, 2022, 135,957,280 shares, par value $0.0001 per share, of common stock were 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:


			<						Our business may be adversely affected by the ongoing COVID-19 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 few years and may not be able to achieve or sustain revenues or profitability in the future.
			<						Although we generate revenue from Gvoke, Keveyis, and Recorlev, 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 commercial 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.
			<						If we are unable to establish or do not maintain sufficient marketing, sales and distribution capabilities or enter into agreements with third parties to market, sell and distribute our products on terms acceptable to us, we may not be able to generate product revenue and our business, results of operations, and financial condition will be materially adversely affected.
			<						Our reliance on third-party suppliers, including single-source suppliers, and a limited number of options for alternate sources for Gvoke, Keveyis, and Recorlev or our product candidates could harm our ability to develop our product candidates or to commercialize Gvoke, Keveyis, Recorlev or any product candidates that are approved.
			<						Reimbursement decisions by third-party payors and consolidation within the healthcare industry and among competitors more generally 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 and pricing pressure may impact our ability to sell our products at prices necessary to support our current business strategies.
			<						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.
			<						Gvoke, Keveyis, Recorlev 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.
			<						Our failure to successfully identify, develop and market additional product candidates, or acquire additional product candidates or enter into collaborations or other commercial agreements could impair our ability to grow.
			<						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.
			<						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.

XERIS BIOPHARMA HOLDINGS, INC.

Index to Quarterly Report on Form 10-Q


			Page



Part I. Financial Information

	Item 1. Financial Statements

		Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021	4

		Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2022 and 2021	5

		Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2022 and 2021	6

		Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2022 and 2021	7

		Notes to Condensed Consolidated Financial Statements	7

	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		30

	Item 3. Quantitative and Qualitative Disclosures About Market Risk		38

	Item 4. Controls and Procedures		38


Part II. Other Information







	Item 1. Legal Proceedings		39

	Item 1A. Risk Factors		40

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		75

	Item 3. Defaults Upon Senior Securities		75

	Item 4. Mine Safety Disclosures		75

	Item 5. Other Information		75

	Item 6. Exhibits		76

Signatures			77

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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

XERIS BIOPHARMA HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and par value)


	June 30, 2022		December 31, 2021
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	95,340	$	67,271
Short-term investments	16,213		35,162
Trade accounts receivable, net	25,756		17,456
Inventory	17,887		18,118
Prepaid expenses and other current assets	6,010		4,589
Total current assets	161,206		142,596
Property and equipment, net	6,170		6,627
Goodwill	22,859		22,859
Intangible assets, net	126,029		131,450
Other assets	2,352		829
Total assets	$	318,616	$	304,361
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,631	$	8,924
Other accrued liabilities	36,945		49,088
Accrued trade discounts and rebates	14,843		15,041
Accrued returns reserve	5,210		4,000

Other current liabilities	916		1,987
Total current liabilities	64,545		79,040
Long-term debt, net of unamortized debt issuance costs	138,068		88,067
Contingent value rights	30,218		22,531
Supply agreement liability, less current portion	—		5,991
Deferred rent	6,799		6,883
Deferred tax liabilities	4,195		4,942
Other liabilities	848		1,676
Total liabilities	244,673		209,130

Commitments and contingencies (Note 16)






Stockholders’ equity:
Preferred stock—par value $0.0001, 25,000,000 shares and 25,000,000 shares authorized and no shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	—		—
Common stock—par value $0.0001, 350,000,000 shares and 350,000,000 shares authorized as of June 30, 2022 and December 31, 2021, respectively; 135,920,743 and 124,873,316 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	14		13
Additional paid in capital	593,990		555,359
Accumulated deficit	(520,009)		(460,110)
Accumulated other comprehensive loss	(52)		(31)
Total stockholders’ equity	73,943		95,231
Total liabilities and stockholders’ equity	$	318,616	$	304,361

See accompanying notes to condensed consolidated financial statements.

XERIS BIOPHARMA HOLDINGS, 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,
	2022		2021		2022		2021
Product revenue, net	$	25,260	$	8,835	$	47,170	$	16,886
Royalty, contract and other revenue	46		71		209		215
Total revenue	25,306		8,906		47,379		17,101
Costs and expenses:
Cost of goods sold, excluding amortization of intangible assets	4,810		3,383		11,083		5,209
Research and development	3,718		5,383		9,968		9,415
Selling, general and administrative	32,984		25,927		68,897		45,004
Amortization of intangible assets	2,710		—		5,421		—
Total costs and expenses	44,222		34,693		95,369		59,628
Loss from operations	(18,916)		(25,787)		(47,990)		(42,527)
Other income (expense):
Interest and other income	195		77		263		177
Interest expense	(3,448)		(1,795)		(6,969)		(3,586)
Change in fair value of warrants	516		(10)		1,737		10
Change in fair value of contingent value rights	(4,871)		—		(7,687)		—
Total other expense	(7,608)		(1,728)		(12,656)		(3,399)
Net loss before benefit from income taxes	(26,524)		(27,515)		(60,646)		(45,926)
Benefit from income taxes	339		—		747		—
Net loss	$	(26,185)	$	(27,515)	$	(59,899)	$	(45,926)

Other comprehensive loss, net of tax:
Unrealized gains (losses) on investments	14		(12)		(21)		(29)
Foreign currency translation adjustments	—		2		—		3
Comprehensive loss	$	(26,171)	$	(27,525)	$	(59,920)	$	(45,952)

Net loss per common share - basic and diluted	$	(0.19)	$	(0.41)	$	(0.44)	$	(0.72)

Weighted average common shares outstanding - basic and diluted	135,529,968		66,367,125		135,282,749		63,820,321

See accompanying notes to condensed consolidated financial statements.

XERIS BIOPHARMA HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data; unaudited)


	Common Stock			Additional Paid In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance, December 31, 2020	59,611,202	$	6	$	371,134	$	6	$	(337,385)	$	33,761
Net loss	—	—		—		—		(18,411)		(18,411)
Issuance of common stock upon equity offering	6,553,398	1		26,924		—		—		26,925

Exercise of stock options	20,213	—		32		—		—		32
Vesting of restricted stock units (net of 71,782 shares withheld for tax)	148,643	—		(365)		—		—		(365)
Stock-based compensation	—	—		2,461		—		—		2,461

Other comprehensive loss	—	—		—		(16)		—		(16)
Balance, March 31, 2021	66,333,456	$	7	$	400,186	$	(10)	$	(355,796)	$	44,387
Net loss	—	—		—		—		(27,515)		(27,515)




Exercise of stock options	55,818	—		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, 2021	66,497,370	$	7	$	403,212	$	(20)	$	(383,311)	$	19,888


	Common Stock			Additional Paid In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance, December 31, 2021	124,873,316	$	13	$	555,359	$	(31)	$	(460,110)	$	95,231
Net loss	—	—		—		—		(33,714)		(33,714)
Issuance of common stock and warrants upon equity offering	10,238,908	1		29,999		—		—		30,000

Issuance of warrants related to loan agreement		—		2,080		—		—		2,080
Exercise of stock options	11,228	—		8		—		—		8
Vesting of restricted stock units (net of 197,257 shares withheld for tax)	404,743	—		(416)		—		—		(416)
Stock-based compensation				3,301		—		—		3,301

Other comprehensive loss	—	—		—		(35)		—		(35)
Balance, March 31, 2022	135,528,195	$	14	$	590,331	$	(66)	$	(493,824)	$	96,455
Net loss	—	—		—		—		(26,185)		(26,185)





Vesting of restricted stock units (net of 1,317 shares withheld for tax)	2,561	—		(3)		—		—		(3)
Stock-based compensation	—	—		3,152		—		—		3,152
Issuance of common stock through employee stock purchase plan	389,987	—		510		—		—		510
Other comprehensive loss	—	—		—		14		—		14
Balance, June 30, 2022	135,920,743	$	14	$	593,990	$	(52)	$	(520,009)	$	73,943

See accompanying notes to condensed consolidated financial statements.

XERIS BIOPHARMA HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands; unaudited)


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(59,899)	$	(45,926)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	673		657
Amortization of intangible assets	5,421		—
Amortization of investments	129		280
Amortization of debt issuance costs	673		492
Stock-based compensation	6,453		4,973

Loss on extinguishment of debt	1,223		—
Change in fair value of warrants	(1,737)		(10)
Change in fair value of contingent value rights	7,687		—

Changes in operating assets and liabilities:
Trade accounts receivable	(8,300)		(5,420)
Prepaid expenses and other current assets	(921)		942
Inventory	(305)		(3,886)
Accounts payable	(2,293)		2,068
Other accrued liabilities	(12,478)		582
Accrued trade discounts and rebates	(198)		815
Accrued returns reserve	1,210		412
Deferred rent	(84)		—
Supply agreement liabilities	(5,280)		—
Other	(992)		43
Net cash used in operating activities	(69,018)		(43,978)
Cash flows from investing activities:
Capital expenditures	(216)		(647)
Purchases of investments	—		(20,146)
Sales and maturities of investments	18,800		63,650

Net cash provided by investing activities	18,584		42,857
Cash flows from financing activities:
Proceeds from equity offerings	30,000		27,000
Payments of equity offering costs	—		(54)
Proceeds from issuance of debt	97,295		—
Repayment of debt	(43,496)		—
Payments of debt issuance costs	(4,657)		—
Payments for loss on extinguishment of debt	(737)		—

Proceeds from issuance of employee stock purchase plan shares	510		374
Proceeds from exercise of stock awards	8		166
Repurchase of common stock withheld for taxes	(419)		(365)
Net cash provided by financing activities	78,504		27,121
Effect of exchange rate changes on cash and cash equivalents	(1)		1
Increase in cash and cash equivalents	28,069		26,001
Cash and cash equivalents, beginning of period	67,271		37,598
Cash and cash equivalents, end of period	$	95,340	$	63,599
Supplemental schedule of cash flow information:
Cash paid for interest	$	4,767	$	3,205
Supplemental schedule of non-cash investing and financing activities:
Issuance of warrants related to loan agreement	$	2,080	$	—
Accrued debt issuance costs	$	160	$	—

See accompanying notes to condensed consolidated financial statements.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1. Organization and nature of the business

Nature of business

Xeris Biopharma Holdings, Inc. ("Xeris Biopharma" or the "Company") is a growth-oriented biopharmaceutical company committed to improving patient lives by developing and commercializing innovative products across a range of therapies. The Company currently has three commercially available products: Gvoke, a ready-to-use liquid glucagon for the treatment of severe hypoglycemia; Keveyis, the first and only U.S. Food and Drug Administration ("FDA") approved therapy for primary periodic paralysis ("PPP"); and Recorlev, approved by the FDA in December 2021 for the treatment of endogenous hypercortisolemia in adult patients with Cushing’s Syndrome. The Company also has a pipeline of development programs to bring new products forward using its proprietary formulation technology platforms, XeriSolTM and XeriJectTM.

On October 5, 2021, Xeris Pharmaceuticals, Inc. ("Xeris Pharma") acquired Strongbridge Biopharma plc ("Strongbridge"), a biopharmaceutical company commercializing therapies for rare diseases with significant unmet needs. Immediately following the acquisition and related transactions, both Xeris Pharma and Strongbridge became wholly owned subsidiaries of Xeris Biopharma. The common stock of Xeris Pharma and the ordinary shares of Strongbridge were de-registered after completion of the Transactions (as defined below in Note 4). On October 6, 2021, Xeris Biopharma’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 4 – Business combination" for a more detailed description of the Transactions.

As used herein, the "Company" or "Xeris" refers to Xeris Pharma when referring to periods prior to the acquisition of Strongbridge on October 5, 2021 and to Xeris Biopharma when referring to periods on or subsequent to October 5, 2021. Throughout this document, unless otherwise noted, references to Gvoke include Gvoke PFS, Gvoke HypoPen, Gvoke Kit and Ogluo (glucagon).

Liquidity and capital resources

The Company has incurred operating losses since inception and has an accumulated deficit of $520.0 million as of June 30, 2022. The Company expects to continue to incur net losses for at least the next 12 months beyond the issuance date of these consolidated financials. Based on the Company’s current operating plans, existing working capital at June 30, 2022, capital raised in the first quarter and access to the additional $50.0 million remaining from the Credit Agreement and Guaranty with Hayfin Services LLP, the Company believes the cash resources are sufficient to sustain operations and capital expenditure requirements for at least the next 12 months from the issuance date of these consolidated financial statements. If needed, the Company may elect to finance the operations through equity or debt financing along with revenues.

There can be no assurance that such funding may be available to the Company on acceptable terms, or at all, or that the Company will be able to successfully market and sell Gvoke, Keveyis and Recorlev. Market volatility resulting from the COVID-19 pandemic, and geopolitical instability resulting from the ongoing military conflict between Russia and Ukraine, rising interest rates, the tightening of lending standards or other factors could also adversely impact the Company's ability to access capital as and when needed. The issuance of equity securities may result in dilution to stockholders. If the Company raises additional funds through the issuance of additional debt, which may have rights, preferences and privileges senior to those of our common stockholders, the terms of the debt could impose significant restrictions on the operations. The failure to raise funds as and when needed could have a negative impact on the Company's financial condition and ability to pursue the business strategies. If additional funding is not secured when required, the Company may need to delay or curtail the operations until such funding is received, which would have a material adverse impact on the business prospects and results of operations.

Note 2. Basis of presentation and summary of significant accounting policies and estimates

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").

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, 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, 2021 included in the Company's Annual Report on Form 10-K filed with the SEC on March 11, 2022.

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").

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Basis of consolidation

These condensed consolidated financial statements include the financial statements of Xeris Biopharma Holdings, Inc. and subsidiaries. All intercompany transactions have been eliminated.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses included in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition

The Company applies the guidance in ASC 606, Revenue Recognition, to all contracts with customers within the scope of the standard.

The Company sells product primarily to wholesalers or a specialty pharmacy who subsequently resell to retail pharmacies or patients. The Company enters into arrangements with payors, group purchasing organizations, and healthcare providers that provide for government-mandated or privately-negotiated rebates, chargebacks and discounts related to the Company’s products. The Company currently sells Gvoke, Keveyis and Recorlev in the United States only and Ogluo (the brand name in the European Union and United Kingdom for the Company's ready-to-use liquid glucagon product) in the United Kingdom.

Revenue is recognized when the Company's customer (e.g., a wholesaler or specialty pharmacy) obtains control of promised goods or services, which is when the Company's obligations under the terms of the contract with the customer are satisfied, based on the consideration the Company expects to receive in exchange for those goods or services.

Revenues are recorded at the net product sales price, which includes 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, adjustments are made 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, 2021 for further discussion of the Company's accounting policies.

Concentration of credit risk

For the three months June 30, 2022 and June 30, 2021, four customers accounted for 98% and 94% of the Company’s gross product revenues, respectively. For the six months ended June 30, 2022 and June 30, 2021, the same four customers accounted for 96% and 94% of the Company’s gross product revenues, respectively. The same four customers accounted for 99% of the trade accounts receivable, net at both June 30, 2022 and December 31, 2021.

New accounting pronouncements

Adopted accounting standards

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 issuers' accounting for certain modifications or exchanges of freestanding equity-classified written call options. This standard is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this standard in first quarter 2022 and it did not have a material impact on the financial statements.

Pending accounting standards

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, to make incremental improvements to GAAP and address stakeholder suggestions, including, among other things, clarifying that the requirement to provide comparative information in the financial statements extends to the corresponding disclosures section. 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. Early adoption of this standard is permitted. The Company does not currently expect the adoption of this new standard to have a material impact on the financial statements.

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-

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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 is effective for the Company for fiscal years 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 the 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. This standard is effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not currently expect the adoption of this new standard to have a material impact on the 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 is effective for the Company for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption of this standard is permitted. The Company does not currently expect the adoption of this new standard to have a material impact on the financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. 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 requires 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 would have been effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. However, on November 15, 2019, the FASB delayed the effective date of FASB ASC Topic 326 for certain small public companies and other private companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. The Company is currently evaluating the impact the adoption of this new standard will have on the 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. This standard is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The FASB has extended the effective date of this standard for certain companies. As amended in ASU 2020-05, 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 the balance sheet.

Note 3. Disaggregated revenue

The Company’s revenue is comprised primarily of sales of products and royalty revenue. Depending on the type of contract, the method of accounting and timing of revenue recognition may differ. Below, descriptions have been provided that summarize the Company’s different types of contracts and how revenue is recognized for each.

•Product revenue - The Company sells product primarily to wholesalers or a specialty pharmacy who subsequently resell to retail pharmacies or patients. The Company enters into arrangements with payors, group purchasing organizations, and healthcare providers that provide for government-mandated or privately-negotiated rebates, chargebacks and discounts related to the Company’s products. Revenue is recognized at the point in time when the Company's customer (e.g., a wholesaler or specialty pharmacy) obtains control of promised goods or services, which is when the Company's obligations under the terms of the contract with the customer are satisfied, based on the consideration the Company expects to receive in exchange for those goods or services. There is no deferred revenue or remaining performance obligation recorded on the Company's balance sheet.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

•Royalty revenue - the Company recognizes the royalty revenue on net revenue of products with respect to which the Company has contractual royalty rights in the period in which the royalties are earned.

The disaggregated revenue by primary products is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Product revenue (in thousands):
Gvoke	$	11,479	$	8,835	$	23,932	$	16,886
Keveyis	12,812		—		22,136		—
Recorlev	969		—		1,102		—
Product revenue, net	25,260		8,835		47,170		16,886
Royalty, contract and other revenue	46		71		209		215
Total revenue	$	25,306	$	8,906	$	47,379	$	17,101

Note 4. Business combination

On October 5, 2021 (the "acquisition closing date"), pursuant to the Transaction Agreement, dated as of May 24, 2021 (the "Transaction Agreement"), among Xeris Pharma, Strongbridge, Xeris Biopharma and Wells MergerSub, Inc., Xeris Pharma completed the acquisition of Strongbridge (the "Acquisition"). 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 the Company acquired all of the outstanding ordinary shares of Strongbridge ("Strongbridge Shares") in exchange for (i) 0.7840 of a share of the Company’s common stock ("Company Shares") and cash in lieu of fractions of Company 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 Company Shares, or a combination of cash and additional Company Shares, at the Company’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 the Company and converted into the right to receive one Company 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 the Company and converted into an equivalent equity award of the Company, 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. On October 6, 2021, the Company’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 15 – Stock compensation plans" for a more detailed description of the equity award plans assumed in the Transactions. See "Note 12 – Warrants" for a more detailed description of the warrants assumed in the Transactions.

Acquisition was accounted for as a business combination using the acquisition method of accounting under the provisions of ASC 805, Business Combinations.

The Acquisition has and will continue to diversify and increase the Company’s revenue base into the specialized commercial platforms and expand the development pipeline. Additionally, the Company expects to achieve significant synergies by eliminating redundant processes and reducing 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 Company Shares	6,404
Strongbridge warrants	2,467
Contingent consideration (Contingent value rights)	22,531
Total consideration	$	169,057

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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. During the three and six months ended June 30, 2022, there were no changes to the purchase price allocation and the measurement period has closed.

The fair value of the equity accounting warrants which were assumed by the Company in connection with the Transactions, was determined using the Black-Scholes valuation model, which considers the expected terms of the warrants from the acquisition closing date as well as the risk-free interest rate, new exercise price after the 0.7840 conversion rate multiplied by and a volatility of 89.63% (a weighting of 60% of Xeris volatility and 40% of Strongbridge volatility is used).

The fair value of the private placement warrants which were assumed by the Company in connection with the Transactions, 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%.

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 revenue of Keveyis in 2023;

•2023 Recorlev Milestone: $0.25 per CVR, upon the first achievement of at least $40 million in net revenue of Recorlev in 2023; and

•2024 Recorlev Milestone: $0.50 per CVR, upon the first achievement of at least $80 million in net revenue of Recorlev in 2024.

Refer to "Note 13 - Fair Value Measurements", for information related to the fair value measurements on CVRs and valuation methods utilized.

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.

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.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The table below presents the estimated fair value that was allocated to Strongbridge’s assets and liabilities based upon fair values as determined by the Company (in thousands):


	Fair Value
Cash and cash equivalents	$	38,469
Trade accounts receivable	4,344
Inventory	1,862
Prepaid expenses and other current assets	4,683
Property and equipment	161
IPR&D	121,000
Other intangible asset	11,000
Other assets	860
Total identifiable assets acquired	182,379
Accounts payable	(279)
Other accrued liabilities	(13,703)
Accrued trade discounts and rebates	(4,844)
Supply agreement liability	(12,000)
Deferred tax liabilities	(4,942)
Other liabilities	(413)
Total liabilities assumed	(36,181)
Net identifiable assets acquired	146,198
Goodwill	22,859
Net assets acquired	$	169,057

During the three and six months ended June 30, 2022, there were no changes to the purchase price allocation and the measurement period has closed.

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 asset

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 commercial 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 2021, including transaction costs (e.g., bankers' fees, legal fees, consultant fees, etc.). Such transaction costs totaled $8.6 million and were recorded in the selling, general and administrative expenses in third quarter 2021 through second quarter 2022.

Supplemental pro forma information

The following unaudited supplemental pro forma financial information assumes the companies were combined as of January 1, 2021. 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

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

operations that would have been achieved if the Acquisition had taken place on January 1, 2021, 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, 2021 (unaudited, in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue	$	25,306	$	18,948	$	47,379	$	35,525
Net loss	$	(26,185)	$	(39,241)	$	(59,899)	$	(67,978)

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, 2021.

The unaudited supplemental pro forma information above does not include any cost saving synergies from operating efficiencies. There is a tax impact on the pro forma adjustments due to deferred tax liabilities being greater than the deferred tax assets in Ireland. For the other non-Irish entities, 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 pro forma basis.

Note 5. Short-term investments

The Company classifies 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, 2022, 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, 2022 had an average remaining maturity of 0.5 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 sheet. Refer to "Note 13 - 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, 2022 and December 31, 2021 (in thousands):


	June 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Total Fair Value

Investments:
Commercial paper	$	9,493	$	—	$	—	$	9,493
Corporate securities	5,435		—		(17)		5,418
Foreign government securities	1,312		—		(10)		1,302
Total available-for-sale investments	$	16,240	$	—	$	(27)	$	16,213

	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Total Fair Value

Investments:
Commercial paper	$	21,773	$	—	$	—	$	21,773
Corporate securities	12,072		2		(7)		12,067
Foreign government securities	1,324		—		(2)		1,322
Total available-for-sale investments	$	35,169	$	2	$	(9)	$	35,162

The Company reviews available-for-sale investments for other-than-temporary impairment loss periodically. The Company considers factors such as the duration, severity of and reason for the decline in value, the potential recovery period and our intent to sell. For

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

debt securities, the Company also consider whether (i) it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis and (ii) the amortized cost basis cannot be recovered as a result of credit losses. During the six months ended June 30, 2022 and 2021, the Company did not recognize any other-than-temporary impairment losses. All marketable securities with unrealized losses have been in a loss position for less than twelve months.

Note 6. Inventory

The components of inventories consisted of the following (in thousands):


	June 30, 2022		December 31, 2021

Raw materials	$	5,743	$	5,181
Work in process	5,938		7,442
Finished goods	6,206		5,495
Inventory	$	17,887	$	18,118

Inventory reserves were $1.1 million and $1.0 million at June 30, 2022 and December 31, 2021, respectively.

Note 7. Property and equipment

Property and equipment consisted of the following (in thousands):


	June 30, 2022		December 31, 2021

Lab equipment	$	3,946	$	3,739
Furniture and fixtures	1,355		1,355
Computer equipment	358		307
Office equipment	8		28
Software	307		307
Leasehold improvements	5,004		5,026
Total property and equipment	10,978		10,762
Less: accumulated depreciation and amortization	(4,808)		(4,135)
Property and equipment, net	$	6,170	$	6,627

Depreciation and amortization expense relating to property and equipment was $0.4 million and $0.4 million for the three months ended June 30, 2022 and June 30, 2021, respectively. Depreciation and amortization expense relating to property and equipment was $0.7 million and $0.7 million for the six months ended June 30, 2022 and June 30, 2021, respectively.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 8. Intangible assets

Identified intangible assets consisted of the following (in thousands):


		June 30, 2022
	Life (Years)	Gross assets		Accumulated amortization		Net
Definite-lived intangible asset - Keveyis	5	$	11,000	$	(1,650)	$	9,350
Definite-lived intangible asset - Recorlev	14	121,000		(4,321)		116,679
Total intangible assets		$	132,000	$	(5,971)	$	126,029

Keveyis is the developed product rights obtained from Strongbridge's acquisition of U.S. marketing rights to Keveyis (dichlorphenamide) from Taro Pharmaceuticals U.S.A., Inc. ("Taro").

Recorlev was acquired as a result of the Acquisition and was approved by the FDA on December 30, 2021. The IPR&D asset was reclassified as a definite-lived intangible asset in 2021 and began being amortized on a straight-line basis over an estimated useful life of 14 years assigned based on the economic life and remaining patent life.

As of June 30, 2022, expected amortization expense for intangible assets subject to amortization for the next five years is as follows (in thousands):


2022 remaining	$	5,422
2023	10,843
2024	10,843
2025	10,843
2026	10,293
Thereafter	77,785
Total	$	126,029

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 9. Other accrued liabilities

Other accrued liabilities consisted of the following (in thousands):


	June 30, 2022		December 31, 2021
Accrued employee costs	$	10,624	$	19,638
Supply agreement - current portion	6,720		6,009
Accrued supply chain costs	831		595
Accrued marketing and selling costs	2,786		3,237
Accrued research and development costs	1,562		1,998
Accrued restructuring charges	4,780		6,715
Accrued interest expense	3,615		1,413
Accrued Strongbridge transaction costs	—		1,839
Accrued other costs	6,027		7,644
Other accrued liabilities	$	36,945	$	49,088

Note 10. Restructuring costs

After the completion of the Acquisition on October 5, 2021, the Company undertook a strategic restructuring to streamline the organization and realize operating expense synergies. The costs associated with the restructuring include employee termination costs. The Company expects to incur total restructuring cost of approximately $11.1 million related to this plan, which has been fully recorded as of June 30, 2022. Costs of $1.4 million were incurred in the six months ended June 30, 2022, with the majority incurred in first quarter 2022. The majority of the restructuring costs are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company anticipates the restructuring related to the Strongbridge acquisition to be substantially complete by the fourth quarter of 2023. The restructuring reserve is included in other accrued liabilities and other liabilities in the condensed consolidated balance sheet.

The following table summarizes the initial restructuring reserve in connection with the Strongbridge acquisition and the payments made during the six months ended June 30, 2022 (in thousands):


	Restructuring Costs
Balance accrued at December 31, 2021	$	6,713
Restructuring costs	1,412
Payments	(2,529)
Balance accrued at June 30, 2022	$	5,596

Note 11. Long-term debt

Convertible Senior Notes

In June 2020, Xeris Pharma completed a public offering of $86.3 million aggregate principal amount of Xeris Pharma'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. Xeris Pharma incurred debt issuance costs of $5.1 million in connection with the issuance of the Convertible Notes. Xeris Pharma 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"), between Xeris Pharma and U.S. Bank National Association, as trustee, as supplemented by the first supplemental indenture thereto dated June 30, 2020, between U.S. Bank National Association, as trustee, and the second supplemental indenture thereto dated October 5, 2021 ("the Supplemental Indentures" and together with the Base Indenture, the "Indenture"), among the Company, Xeris Pharma 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.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(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 Xeris Pharma’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, Xeris Pharma 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 Xeris Pharma’s common stock. Xeris Pharma 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 Xeris Pharma'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 Xeris Pharma is not a holder thereof) preferred equity, if any, of the Company’s other direct and indirect 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 the Company 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, the Company 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.

Loan Agreement

In September 2019, Xeris Pharma entered into an Amended and Restated Loan and Security Agreement (the "Amended 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 "Prior Lenders"), which amended and restated that certain Loan and Security Agreement dated February 28, 2018 with the Prior Lenders, in its entirety. The Amended Loan Agreement provided for the Lenders to extend up to $85.0 million in term loans to Xeris Pharma in three tranches of which $60.0 million was drawn down in September 2019.

In March 2022, the Company, Xeris Pharma and certain subsidiary guarantors of the Company entered into a Credit Agreement and Guaranty (the "Hayfin Loan Agreement") with the lenders from time to time parties thereto (the "Lenders") and Hayfin Services LLP, as administrative agent for the Lenders, pursuant to which the Company and its subsidiaries party thereto granted a first priority security interest on substantially all of their assets, including intellectual property, subject to certain exceptions. The Hayfin Loan Agreement provided for the Lenders to extend $100.0 million in term loans (the "Initial Loan") to the Company on the closing date and up to an additional $50.0 million in delayed draw term loans during the one year period immediately following the closing date (the "Delayed Draw Term Loan" and, together with the Initial Loan, the "Loans") in no more than three drawings of no less than $10.0 million per drawing, subject to the Company being in pro forma compliance with the financial covenants and other conditions set forth therein. In conjunction with the execution of the Hayfin Loan Agreement, the Amended Loan Agreement balance of $43.5 million was repaid in full and fees of $2.1 million in connection with the loan repayment were paid. In addition to utilizing the proceeds to repay the obligations under the Amended Loan Agreement in full, the proceeds will otherwise be used for general corporate purposes. After repayment, the Loans may not be re-borrowed.

All of the Loans incur interest at a floating per annum rate in an amount equal to the sum of (i) 9.0% (or 8.0% per annum if the replacement rate in effect is the Wall Street Journal Prime Rate) plus (ii) the greater of (x) (1) CME Group Benchmark Administration Limited (CBA) Term SOFR (or the replacement rate, if applicable) if CBA Term SOFR is greater than 1.00% plus 0.26161% or (2) 1.00% if CME Term SOFR is less than 1.00% and (y) one percent (1.00%) per annum (or 2.0% per annum if the replacement rate in effect is the Wall Street Journal Prime Rate). The Company has incurred total debt issuance costs of approximately $3.5 million related to the Hayfin 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 effective interest rate, including the amortization of debt discount and debt issuance costs, amounts to 12.1%, maturing March 2027. The debt outstanding under the Hayfin Loan Agreement approximates fair value due to the variable interest rate on the debt.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Loans will mature on March 8, 2027; provided, however, that the Loans will mature on January 15, 2025 if the Convertible Notes are still outstanding as of such date and either (i) the maturity date thereof has not been extended to a date on or after September 4, 2027 or (ii) the Company has not received net cash proceeds from one or more permitted equity raises or permitted raises of convertible debt which, together with no more than $15.0 million of cash on hand, is sufficient to redeem and discharge the Convertible Notes in full.

The Hayfin Loan Agreement allows the Company to voluntarily prepay the outstanding amounts thereunder. The Company is subject to an early prepayment fee equal to (i) for any prepayment that occurs prior to the second anniversary of the closing date, the applicable make-whole amount, (ii) for any prepayment that occurs after the second anniversary of the closing date but on or prior to the fourth anniversary of the closing date: (x) the amount of any principal so prepaid, multiplied by (y) for any prepayment that occurs (A) after the second anniversary of the closing date and on or prior to the third anniversary of the closing date, five percent (5.0%), (B) after the third anniversary of the closing date and on or prior to the fourth anniversary of the closing date, three percent (3.0%), and (C) after the fourth anniversary of the closing date, zero percent (0.0%).

The Hayfin Loan Agreement contains customary representations and warranties, events of default 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. Associated with the Hayfin Loan Agreement, the Lenders also received warrants to purchase 1,315,789 shares of the common stock of the Company at a price of $2.28 per share. Refer to "Note 12 - Warrants" for further information on the warrants.

The components of debt are as follows (in thousands):


	June 30, 2022		December 31, 2021

Convertible Notes	$	47,175	$	47,175
Loan facility	95,977		43,500
Less: unamortized debt issuance costs	(5,084)		(2,608)
Long-term debt, net of unamortized debt issuance costs	$	138,068	$	88,067

The following table sets forth the Company’s future minimum principal payments on the Convertible Note and the loan facility (in thousands):


2022 remaining	$	—
2023	—
2024	—
2025	47,175
2026	—
Thereafter	100,000
	$	147,175

For the three and six months ended June 30, 2022, the Company recognized interest expense of $3.4 million and $7.0 million, respectively, of which $0.5 million and $0.7 million, respectively, related to the amortization of debt discount and issuance costs and a $1.2 million loss on extinguishment of debt in both periods related to the Amended Loan Agreement with the Prior Lenders which ceased in March 2022. 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, related to the amortization of debt issuance costs.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 12. Warrants

On completion of the Strongbridge Acquisition, (a) each outstanding and unexercised Strongbridge warrant (except private placement warrants) was assumed by the Company 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 the Company such that the applicable holders will have the right to subscribe for Company Shares, in accordance with certain terms of the Strongbridge private placement warrants. The assumed Strongbridge private placement warrants expired in June 2022.

Associated with the Armistice securities purchase agreement disclosed in "Note 14 - Stockholders' equity", the Company also issued warrants (the "Armistice Warrants") to purchase an aggregate of 5,119,454 shares of the Company's common stock at an exercise price of $3.223 per share. The warrants became exercisable immediately upon the closing of the transaction and have a term of five years from the earliest of the date (a) of effectiveness of the resale registration statement, which was February 7, 2022, (b) all of the shares of the Company’s common stock issued or issuable to Armistice under the securities purchase agreement and all shares of the Company's common stock issuable upon exercise of the warrants (the "Warrant Shares") have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions, (c) following the one-year anniversary of the date of closing provided that the holder of Shares or Warrant Shares is not an affiliate of the Company, or (d) all of the shares and Warrant Shares may be sold pursuant to an exemption from registration under Section 4(a)(1) of the Securities Act without volume or manner-of-sale restrictions.

Associated with the Hayfin Loan Agreement disclosed in "Note 11 - Long-term Debt", the Lenders also received warrants to purchase 1,315,789 shares of the common stock of the Company at a price of $2.28 per share. The warrants are (i) exercisable until the seventh (7th) anniversary of the closing date; (ii) freely transferable and detachable from the Loans; and (iii) subject to customary warrant holder rights and protections, including structural-based anti-dilution protection and adjustments for stock dividends, splits, combinations, reclassifications and the like.

The assumed Strongbridge private placement warrants described in "Note 4 - Business combination" expired in June 2022.

As of June 30, 2022, the following warrants were outstanding:


Warrants classified as liabilities:	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
Warrants classified as equities:


Warrants in connection with CRG loan agreement	309,122	$9.410	July 2024
Warrants in connection with CRG loan amendment in January 2018	978,628	$12.760	January 2025
Warrants in connection with Avenue Capital loan agreement	209,633	$2.390	May 2025
Warrants in connection with Avenue Capital loan agreement	209,633	$2.390	December 2025
Warrants in connection with Horizon and Oxford loan agreement	125,999	$3.130	December 2026
Warrants in connection with Armistice securities purchase agreement	5,119,454	$3.223	February 2027
Warrants in connection with Hayfin loan agreement	1,315,789	$2.280	March 2029
	8,268,258

The Company recognized gains of $23,000 and $18,000 upon the change in fair value of the warrants during the three months ended June 30, 2022 related to the 2018 Term A Warrants and the 2018 Term B Warrants, respectively. The Company recognized gains of $0.5 million related to the expiration of the assumed Strongbridge private placement warrants in June 2022. The Company recognized losses of $5,000 and $5,000 upon the change in fair value of the warrants during the three months ended June 30, 2021 related to the 2018 Term A Warrants and the 2018 Term B Warrants, respectively.

The Company recognized gains of $35,000 and $26,000 upon the change in fair value of the warrants during the six months ended June 30, 2022 related to the 2018 Term A Warrants and the 2018 Term B Warrants, respectively. The Company recognized gains of $1.7 million related to the change in fair value and the expiration of the assumed Strongbridge private placement warrants in June 2022. The Company recognized gains of $6,000 and $4,000 upon the change in fair value of the warrants during the six months ended June 30, 2021 related to the 2018 Term A Warrants and the 2018 Term B Warrants, respectively.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 13. 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 the 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.

XERIS BIOPHARMA HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following tables present the Company’s fair value hierarchy for those assets and liabilities measured at fair value as of June 30, 2022 and December 31, 2021 (in thousands):


	Total as of June 30, 2022		Level 1		Level 2	Level 3

Assets
Cash and cash equivalents:
Cash and money market funds	$	95,340	$	95,340	$