Lexicon Pharmaceuticals, Inc. — Q1 2022 Form 10-Q
Business context and period: Biopharmaceutical company focused on developing sotagliflozin and LX9211, alongside earlier-stage programs. This unaudited report covers the three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021.
Key financial results
| Metric | Q1 2022 | Q1 2021 / prior balance-sheet date |
|---|---|---|
| Royalties and other revenue | $37,000 | $27,000 |
| Research and development expense | $14.9 million | $12.6 million |
| Selling, general and administrative expense | $8.5 million | $8.3 million |
| Total operating expenses | $23.4 million | $20.9 million |
| Net loss | $23.5 million; $0.16 per share | $21.0 million; $0.15 per share |
| Cash used in operating activities | $23.4 million | $25.2 million |
| Cash, cash equivalents and short-term investments | $86.5 million | $86.7 million at Dec. 31, 2021 |
| Long-term debt, net of issuance costs | $23.5 million | None reported at Dec. 31, 2021 |
| Total liabilities / stockholders’ equity | $43.5 million / $92.7 million | $23.3 million / $113.6 million at Dec. 31, 2021 |
Revenue remained immaterial relative to operating costs, so the filing does not present a meaningful operating margin. The company reported an accumulated deficit of $1.5 billion.
Material changes and cash position
- Net loss increased $2.5 million year over year, as operating expenses rose $2.6 million. R&D expense increased 18%, mainly from higher third-party and consulting costs for sotagliflozin heart-failure application preparations, and increased personnel costs. SG&A increased 3%.
- Operating cash use improved by $1.7 million versus Q1 2021. Investing activities used $4.4 million, principally for net purchases of investments; financing activities provided $23.3 million, primarily from Oxford loan proceeds, partly offset by share repurchases for tax withholding.
- Cash and investments decreased by $0.2 million from year-end. Management stated that available cash and investments and expected collaboration and other revenue would fund operations for at least 12 months; additional financing could be needed thereafter and may not be available on acceptable terms.
Debt and liquidity
In March 2022, Lexicon entered a secured loan agreement with Oxford Finance providing up to $150 million in four tranches, each with a March 2027 maturity. The first $25 million tranche was funded; net cash proceeds were $24.2 million, and the quarter-end carrying value was $23.5 million after discounts and issuance costs. Interest was floating at 30-day LIBOR plus 7.90%, subject to an 8.01% floor; the reported March 31 rate was 8.14%. Interest-only payments initially run for 36 months, with a possible extension to 48 months subject to conditions, including a sotagliflozin net-sales covenant. The debt is secured by a first lien on company and subsidiary assets. Lexicon reported covenant compliance at quarter-end.
The remaining tranches are subject to timing and regulatory conditions, and the fourth requires Oxford’s consent. The first tranche also resulted in a warrant for 420,673 shares at $2.08 per share. A 6% final payment exit fee applies at prepayment or maturity, potentially increasing to 7% if the interest-only period is extended.
Pipeline, outlook and risks
- Sotagliflozin: Lexicon was preparing to resubmit its U.S. heart-failure application after voluntarily withdrawing the initial submission to correct a technical issue. The FDA had issued a complete response letter for the type 1 diabetes application; a hearing process concerning possible denial was ongoing. The company said it was preparing for commercialization if approved.
- LX9211: Two Phase 2 trials were underway, for diabetic peripheral neuropathic pain and post-herpetic neuralgia. The FDA had granted Fast Track designation for development in diabetic peripheral neuropathic pain.
- European type 1 diabetes approval: The company’s withdrawal request was granted in March 2022 for business reasons. A potential $4.5 million royalty obligation tied to certain European pricing approvals was described; the filing does not clearly quantify any remaining payment obligation following withdrawal.
- Management expects continued substantial R&D and commercialization-preparation spending and does not expect quarter-to-quarter results to reliably indicate future performance. Key risks include regulatory outcomes and clinical results, commercialization and reimbursement, reliance on third parties, ongoing losses and future financing needs, and debt covenants. Ordinary-course legal proceedings were not expected by the company to have a material adverse effect.
Important facts for investors to verify
- Status and timing of the sotagliflozin heart-failure resubmission and FDA review, and developments in the type 1 diabetes hearing process.
- Clinical progress, safety and efficacy results from both LX9211 Phase 2 trials.
- Cash burn, collaboration receipts and whether management’s stated 12-month liquidity expectation remains supportable.
- Availability and conditions for additional Oxford tranches, interest-rate exposure, covenant compliance and potential warrant dilution.
- Any continuing liability associated with withdrawal of the European approval and the previously described potential royalty payments.