Lexicon Pharmaceuticals, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in millions of dollars unless otherwise noted. Lexicon is a clinical-stage biopharmaceutical company focused primarily on sotagliflozin and LX9211; it sold XERMELO in September 2020.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0.023 | $6.634 | $0.284 | $23.796 |
| Research and development | $15.682 | $40.147 | $38.548 | $152.629 |
| Selling, general and administrative | $7.303 | $11.997 | $23.496 | $40.798 |
| Operating income (loss) | $(22.962) | $86.675 | $(61.760) | $(40.342) |
| Net income (loss) | $(23.122) | $82.603 | $(62.147) | $(53.079) |
| Net income (loss) per share, diluted | $(0.16) | $0.71 | $(0.43) | $(0.50) |
- Revenue fell sharply because XERMELO product sales ended after its sale to TerSera in September 2020. Q3 2021 revenue was limited to $23,000 of royalties and other revenue; nine-month royalties and other revenue were $284,000.
- Prior-year 2020 results included a $132.8 million gain on the XERMELO sale. That one-time gain substantially affects the year-over-year profit comparison; Q3 2020 also included XERMELO revenue and costs.
- R&D expense declined mainly because Lexicon wound down external sotagliflozin development activities beginning in March 2020 and reduced its workforce in September 2020. SG&A also declined, primarily reflecting lower personnel costs.
- At September 30, 2021, cash and cash equivalents were $92.1 million and short-term investments were $28.8 million, totaling $120.9 million, down from $152.3 million at year-end 2020. Current assets were $124.0 million and current liabilities were $34.2 million.
- Operating cash use was $64.2 million for the first nine months of 2021; investing activities used $4.0 million and financing activities provided $34.0 million. Financing proceeds included $36.7 million net from common-stock sales, partly offset by $2.7 million of share repurchases.
- The remaining convertible notes had a carrying value of $11.7 million and mature December 1, 2021; they bear 5.25% interest. The $150 million BioPharma term loan was repaid in September 2020.
Business developments, outlook and risks
- Management was preparing a U.S. regulatory application for sotagliflozin in heart failure and, if approved, a U.S. commercial launch. The filing identifies regulatory alignment and approval as key uncertainties.
- For sotagliflozin in type 1 diabetes, the FDA had issued a complete response letter. At the company’s request, the FDA had issued a Notice of Opportunity for Hearing; proceedings were held in abeyance through November 26, 2021 to allow further discussions. The drug was approved in the EU for a limited type 1 diabetes population but had not launched commercially.
- Lexicon was conducting two Phase 2 trials of LX9211 for diabetic peripheral neuropathic pain and post-herpetic neuralgia. LX9211 had FDA Fast Track designation for diabetic peripheral neuropathic pain.
- Management said existing unrestricted cash and expected collaboration and other revenues were expected to fund operations for at least 12 months. It also warned that additional financing may be needed thereafter, may not be available on acceptable terms, and could dilute shareholders. No specific revenue, earnings or cash-burn guidance was provided.
- Lexicon reported an accumulated deficit of $1.5 billion and expected continued significant R&D costs and losses. Major risks include clinical-trial outcomes, regulatory approvals, commercialization and reimbursement, reliance on third parties and collaborators, and the need for future capital.
- Sanofi arbitration: On November 5, 2021, after quarter-end, the arbitration panel ruled in Sanofi’s favor in a dispute over costs withheld from a 2020 termination-agreement payment. The amount of Sanofi’s attorneys’ fees and costs that Lexicon may have to reimburse could not be reasonably estimated in the filing.
- The securities class action was dismissed with prejudice, and the dismissal was affirmed by the Fifth Circuit on September 10, 2021.
- Lexicon sold 6.2 million shares under its open-market sale agreement in 2021 for $36.7 million net proceeds, increasing the share count. Management also cited potential future equity or debt financing as a liquidity option.
Important facts for investors to verify
- Current status and expected timing of the sotagliflozin heart-failure regulatory submission, FDA discussions on type 1 diabetes, and the two LX9211 Phase 2 trials.
- Cash burn and available liquidity relative to management’s stated 12-month funding expectation, including any subsequent financing or share issuance.
- Settlement or payment obligations arising from the Sanofi arbitration, including attorneys’ fees and costs not quantified in the filing.
- Repayment or conversion of the $11.7 million convertible notes due December 1, 2021.
- Whether collaboration, milestone or royalty revenues develop enough to offset the loss of XERMELO product sales and ongoing R&D spending.