Lexicon Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts below are in millions of dollars unless stated otherwise.
Business context
Lexicon is a clinical-stage biopharmaceutical company focused primarily on developing sotagliflozin for heart failure and type 1 diabetes, and LX9211 for neuropathic pain. The company reported minimal revenue and continued to fund research, development, and preparations for a potential sotagliflozin launch.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.039 | $0.023 | $0.111 | $0.284 |
| Research and development expense | $10.6 | $15.7 | $38.8 | $38.5 |
| Selling, general and administrative expense | $12.6 | $7.3 | $31.8 | $23.5 |
| Operating loss | $23.1 | $23.0 | $70.5 | $61.8 |
| Net loss | $23.4 | $23.1 | $71.5 | $62.1 |
| Net loss per share | $0.13 | $0.16 | $0.45 | $0.43 |
- Revenue was immaterial; conventional revenue margins are not meaningful. Nine-month net loss increased year over year, while Q3 net loss was broadly flat. Quarterly loss per share improved, partly reflecting a higher weighted-average share count.
- Research and development spending fell 33% in Q3, primarily as external development and regulatory-preparation costs declined; nine-month spending was nearly unchanged. SG&A rose 72% in Q3 and 35% year to date, mainly due to increased staffing for potential commercialization and higher marketing and professional fees.
- Cash, cash equivalents, and short-term investments totaled $136.2 at September 30, 2022, compared with $86.7 at year-end 2021. Cash and cash equivalents alone were $18.8; short-term investments were $117.4.
- Operating activities used $67.3 in the first nine months; investing activities used $95.3, largely reflecting net purchases of investments. Financing provided $117.3, including $94.3 net equity proceeds and $23.9 net Oxford loan proceeds.
- Long-term debt, net of issuance costs, was $23.8. The Oxford facility’s first $25 tranche carries a floating rate of 10.45% at September 30, 2022, is secured by a first lien on company assets, and matures in March 2027. Lexicon reported covenant compliance.
- Total liabilities were $47.7 and stockholders’ equity was $144.0. The company recorded a $1.5 debt exit-fee discount and a $0.7 warrant-related debt discount. Accumulated deficit was $1.6 billion.
Material changes and developments
- In August, Lexicon sold 39.1 million shares at $2.50 per share in a public offering and concurrent private placement, generating approximately $94.3 net proceeds. This materially increased the share count and diluted existing holders.
- Under its Oxford agreement, Lexicon had access to up to $150 in four tranches. The second $25 tranche was available at Lexicon’s option during December 2022; the third $50 tranche was subject to timing and regulatory conditions, and the fourth $50 tranche required Oxford’s consent.
- Lexicon entered a long-term lease for a new Bridgewater, New Jersey office in July 2022, with a term of 10 years and 11 months from occupancy and base rent starting at $0.82 annually.
Outlook, risks, and contingencies
- Management said current unrestricted cash and investments and expected cash and revenue sources should fund operations for at least 12 months. Elsewhere, the market-risk discussion refers to working capital sufficient for at least 20 months; the filing gives differing runway statements that investors should reconcile.
- Lexicon was preparing for a potential U.S. sotagliflozin launch if approved. The FDA had accepted for filing an application covering specified heart-failure and cardiovascular-risk indications. The filing does not provide an approval outcome or commercial revenue forecast.
- The FDA had issued a complete response letter for sotagliflozin in type 1 diabetes; a hearing process following the company’s request for an opportunity for hearing was ongoing.
- Lexicon reported positive Phase 2 top-line results for LX9211 in painful diabetic neuropathy and expected top-line results from its post-herpetic neuralgia Phase 2 trial in Q4 2022. The company identified trial outcomes and regulatory approvals as major risks.
- The company expects continued significant R&D spending and losses and may need additional financing if operating cash is insufficient. Additional equity or debt financing may be unavailable or dilutive. Other key risks include commercial acceptance, reimbursement, manufacturing and third-party trial execution, competition, and Oxford debt covenants and floating-rate exposure.
- Lexicon withdrew its EU sotagliflozin approval for business reasons. It said $4.5 of potential royalty payments would have been due upon certain European pricing approvals; the filing does not state that those payments were triggered. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
Important facts for investors to verify
- FDA timing and outcome for the heart-failure application, and the status of the type 1 diabetes hearing process.
- Whether LX9211’s post-herpetic neuralgia trial delivered the anticipated Q4 2022 results and how the program will be funded or partnered.
- Cash-burn trajectory and the basis for management’s differing 12-month and 20-month liquidity statements.
- Potential use and conditions of the remaining Oxford loan tranches, including interest costs, covenants, and associated warrants.
- Impact of the 39.1 million-share financing on ownership and future dilution, and the costs and timing of the new office lease.