Lexicon Pharmaceuticals, Inc. — Q3 2016 Form 10-Q
Business context and period. This biopharmaceutical company reported the quarter and nine months ended September 30, 2016. Its lead programs were telotristat ethyl for carcinoid syndrome and sotagliflozin for diabetes. The financial statements are unaudited.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $27.7 million | $0.6 million | $60.3 million | $2.7 million |
| Research and development expense | $52.5 million | $23.1 million | $137.8 million | $64.7 million |
| General and administrative expense | $12.3 million | $5.4 million | $29.1 million | $17.4 million |
| Operating loss | $34.9 million | $33.7 million | $105.8 million | $86.9 million |
| Net loss | $36.0 million | $35.3 million | $109.0 million | $91.4 million |
| Net loss per share | $0.35 | $0.34 | $1.05 | $0.88 |
- Revenue growth primarily reflected recognition of Sanofi collaboration consideration. Nine-month collaboration revenue included $52.7 million from Sanofi and $6.8 million from Ipsen.
- Operating expenses rose sharply as clinical development activity and external research costs increased; G&A also increased, mainly from commercialization preparation for telotristat ethyl. No conventional gross margin is reported.
- Operating cash use was $126.8 million for the first nine months, versus $81.1 million in 2015. Investing activities used $38.2 million; financing activities provided $0.8 million.
- At September 30, cash and cash equivalents were $38.8 million and short-term investments were $356.8 million, totaling $395.6 million, down from $521.4 million at December 31, 2015. Total assets were $516.9 million and equity was $185.2 million.
- Balance-sheet debt, net of issuance costs, was $101.8 million: $16.8 million current and $85.0 million long-term. The $87.5 million 5.25% convertible notes mature in 2021; the mortgage has a $16.8 million balloon due April 2017. Interest expense was $4.9 million for nine months.
Material changes, outlook, and risks
- Telotristat ethyl had positive Phase 3 results; Lexicon had submitted a U.S. marketing application and was preparing for a potential U.S. launch. Ipsen submitted an EU application, and its $6.4 million milestone payment following acceptance of the filing was recognized in Q3.
- Sotagliflozin had positive top-line results from the inTandem1 Phase 3 trial in type 1 diabetes. Further type 1 diabetes trials were underway, with Sanofi and Lexicon preparing for type 2 diabetes Phase 3 development.
- Management said existing unrestricted cash and expected collaboration cash and revenue should fund operations for at least 12 months. The filing provides no formal financial guidance. Future funding needs depend on development and commercialization spending and collaboration payments; additional financing may be required and may be unavailable on acceptable terms.
- Sanofi had paid $301.8 million through September 30, 2016, including the $300 million upfront payment and reimbursement. Lexicon remained eligible for up to $430 million in development and regulatory milestones, up to $990 million in sales milestones, and tiered royalties; these contingent amounts were not assured.
- A September amendment provides for a $21.0 million payment to Symphony Icon Holdings if telotristat ethyl receives U.S. approval, replacing remaining payments under prior terms. Either side may terminate the amendment if approval has not occurred by February 28, 2017, restoring the prior terms. Lexicon also paid $3.2 million to Holdings in September after the Ipsen milestone.
- The company intended to refinance the mortgage before its April 2017 balloon maturity. A proposed $21.2 million sale of its Texas facilities was terminated by the purchaser; the company was exploring alternatives, and the property remained held and used.
- Other risks include continuing losses, reliance on a small number of collaborations, clinical and regulatory uncertainty, commercialization and reimbursement risks, and substantial indebtedness. A Texas Enterprise Fund job-creation commitment could entail repayment; stated maximum exposure was approximately $14.2 million, including $6.4 million through 2016, before applicable credits. Routine legal proceedings were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Regulatory status and timing of U.S. telotristat ethyl approval, and the potential $21 million Symphony Icon payment and amendment deadline.
- Clinical progress, safety and efficacy outcomes, and development-cost obligations for telotristat ethyl and sotagliflozin.
- Cash consumption relative to the $395.6 million cash-and-investment balance and management’s 12-month liquidity assessment.
- Refinancing or repayment plans for the April 2017 mortgage balloon and any effect of convertible-note obligations.
- Milestone, royalty, and collaboration terms, including Sanofi’s development funding and the uncertainty of future contingent payments.