Lexicon Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context and financial performance
Lexicon is a clinical-stage biopharmaceutical company focused on developing LX9211 for neuropathic pain and sotagliflozin for heart failure and type 1 diabetes. It sold XERMELO and related assets to TerSera in September 2020, leaving the company with minimal product revenue in 2021.
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Total revenue | $0.2 | $9.2 | $0.3 | $17.2 |
| Operating expenses | $18.2 | $73.7 | $39.1 | $144.2 |
| Operating loss | $18.0 | $64.6 | $38.8 | $127.0 |
| Net loss | $18.1 | $69.1 | $39.0 | $135.7 |
| Net loss per share | $0.13 | $0.65 | $0.27 | $1.27 |
| Operating cash used | Not stated by quarter | Not stated by quarter | $47.0 | $68.4 |
Revenue was almost entirely royalties and other revenue: $0.2 million for Q2 and $0.3 million for H1 2021. Product and collaboration revenue were zero in both 2021 periods. Reported gross margins are not meaningful given the absence of product revenue and cost of sales.
Liquidity, debt, and capital
- Cash, cash equivalents, and short-term investments were $118.5 million at June 30, 2021, down from $152.3 million at December 31, 2020. Cash and cash equivalents alone were $89.9 million.
- H1 investing activities used $3.6 million; financing activities provided $14.2 million, including $16.9 million net proceeds from an ATM stock sale, partly offset by $2.7 million of share repurchases.
- Net cash decreased $36.4 million during H1. Management said available cash, investments, and expected revenues would fund operations for at least the next 12 months; additional financing may be required thereafter and could dilute shareholders.
- The remaining convertible notes had a carrying value of $11.7 million, bore 5.25% interest, and matured December 1, 2021, unless converted or repurchased. The company had repaid its $150 million BioPharma term loan in September 2020 and exchanged $75.8 million principal of convertible notes in 2020.
- Total liabilities were $34.4 million and stockholders’ equity was $137.2 million at June 30, 2021. Accumulated deficit was $1.4 billion.
Material changes versus the prior period
- Revenue fell 97% in Q2 and 98% in H1 year over year, primarily reflecting the 2020 XERMELO sale and the resulting absence of product revenue.
- R&D expense fell 82% in Q2 and 80% in H1, mainly because sotagliflozin clinical activities were wound down beginning in March 2020 and staffing was reduced in September 2020.
- SG&A expense declined 44% in both Q2 and H1, primarily due to lower personnel costs and stock-based compensation after the workforce reduction.
- Interest expense declined substantially following the 2020 term-loan repayment and convertible-note exchange. Net losses narrowed, but the company continued to incur significant losses.
Outlook, risks, and contingencies
- Pipeline: Lexicon was conducting two Phase 2 trials of LX9211; the candidate had FDA Fast Track designation for diabetic peripheral neuropathic pain. The company was preparing a U.S. regulatory application for sotagliflozin in heart failure and contemplated a U.S. launch if approved. Sotagliflozin’s U.S. type 1 diabetes application had received an FDA complete response letter; the FDA had issued a public Notice of Opportunity for Hearing. The drug was approved in the EU for a specified type 1 diabetes population but had not launched commercially.
- Key risks: Clinical or regulatory setbacks, difficulty gaining regulatory alignment or approval for sotagliflozin, reliance on collaborators and third parties, limited revenue sources, financing needs, and potential delays or disruption from COVID-19. The company cautioned that results may fluctuate and that period-to-period comparisons are not necessarily indicative of future performance.
- Sanofi arbitration: Sanofi withheld approximately $23.2 million from a final $26 million payment, citing costs Lexicon disputes. Lexicon sought recovery of up to $23.2 million plus interest and fees; Sanofi sought a ruling that the costs were payable and additional damages. The filing does not provide a clear expected outcome or recovery value.
- Securities litigation: A class action dismissed with prejudice in 2020 was on appeal; oral arguments were held in June 2021. The complaint sought unspecified damages.
- EU pricing approvals for sotagliflozin could trigger $4.5 million in royalty payments, in three annual installments of $1.5 million.
Important facts for investors to verify
- Progress and regulatory path for LX9211 and sotagliflozin, including the heart-failure filing plan and the type 1 diabetes appeal process.
- Cash burn, the timing and settlement of the December 2021 convertible-note maturity, and the assumptions supporting management’s 12-month liquidity outlook.
- Outcome and potential financial impact of the Sanofi arbitration and the securities-litigation appeal.
- Potential future revenue from collaborations, royalties, and milestones, given the sharp decline in reported revenue after the XERMELO sale.
- Potential dilution from further equity financing and the company’s share-repurchase activity.