Lexicon Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial amounts below are in U.S. dollars; millions unless otherwise stated.
Business context
Lexicon is a biopharmaceutical company commercializing XERMELO in the U.S. and developing drug candidates. Its programs include sotagliflozin (Zynquista) and LX9211. Ipsen holds commercialization rights to XERMELO outside the U.S. and Japan. In March 2020, Lexicon began closing out the Phase 3 sotagliflozin studies in type 2 diabetes, heart failure and chronic kidney disease after regaining worldwide rights from Sanofi.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $9.2 | $9.7 | $17.2 | $18.9 |
| Net product revenue | $9.0 | $8.7 | $16.9 | $15.4 |
| Research and development expense | $57.3 | $12.6 | $112.5 | $24.7 |
| Net loss | $69.1 | $23.0 | $135.7 | $44.8 |
| Net loss per share | $0.65 | $0.22 | $1.27 | $0.42 |
- Q2 total revenue declined 5% year over year; six-month revenue declined 9%. Product revenue grew 21% and 19%, respectively, primarily from U.S. XERMELO sales. Lower collaboration revenue, including the absence of prior-year Ipsen milestone and clinical-trial revenue, offset product growth.
- R&D expense rose sharply as Lexicon assumed sotagliflozin development costs after Sanofi’s termination; external services accounted for most of the increase. SG&A was broadly stable: $14.1 million in Q2 and $28.8 million for the first half.
- Operating cash use was $68.4 million in the first half, versus $52.5 million a year earlier. Investing activities provided $120.9 million, mainly from net maturities of investments; financing used $1.7 million. Cash and cash equivalents ended at $86.9 million.
- Cash, cash equivalents and short-term investments totaled $201.9 million at June 30, down from $271.7 million at December 31, 2019. Current assets were $246.2 million and current liabilities $97.6 million.
- Debt carrying value totaled approximately $245.3 million: $10.5 million of current mortgage debt and $234.8 million of long-term debt. The mortgage included a $10.3 million balloon payment due August 2020; the 5.25% convertible notes mature December 2021 and the 9% BioPharma term loan matures December 2022.
- Stockholders’ equity moved from $117.1 million at year-end 2019 to a $10.7 million deficit at June 30, 2020, primarily reflecting first-half losses. Accumulated deficit was $1.477 billion.
Material changes, outlook and risks
- Management said available cash and investments, together with expected XERMELO revenue and other sources, should fund operations for at least the next 12 months. It expects substantial continued spending on commercialization and drug development; further financing may be needed thereafter and may be unavailable on acceptable terms.
- In July 2020, Lexicon agreed to sell its Woodlands, Texas facilities for $11.5 million, subject to customary conditions, a buyer study period and a leaseback arrangement. It recorded a $1.6 million impairment in Q2 based on estimated selling value. The sale was not completed as of the filing, and the mortgage balloon remained due in August 2020.
- Sanofi paid $26 million in March 2020, less amounts withheld for costs asserted by Sanofi, and was obligated to pay another $26 million within 12 months of the September 2019 settlement date. Lexicon had assumed responsibility for sotagliflozin development and was closing out the specified Phase 3 trials.
- The FDA had issued a complete response letter for U.S. sotagliflozin approval in type 1 diabetes and denied two appeals. The drug had EU approval for a defined adult population. Lexicon was preparing to initiate a Phase 2 trial of LX9211; it also reported a Phase 2a telotristat ethyl trial in biliary tract cancer.
- COVID-19 could restrict commercial and medical team interactions, delay clinical-trial enrollment and planned trial starts, and disrupt operations. Other principal risks include dependence on XERMELO sales, regulatory and clinical uncertainty, reliance on collaborators and third-party manufacturers, substantial losses and indebtedness, and possible need for additional capital.
- A securities class action alleges misleading statements concerning sotagliflozin Phase 3 data and prospects for U.S. approval. The complaint seeks unspecified damages; the filing does not provide a clear estimate of potential loss.
Key facts for investors to verify
- Whether the Woodlands property sale and leaseback closed, and how proceeds and the August 2020 mortgage balloon were handled.
- Receipt and net amount of the remaining $26 million Sanofi settlement payment, and the costs of closing out the former Phase 3 program.
- XERMELO sales trajectory, including the effect of COVID-19, reimbursement and Ipsen’s international commercialization.
- Development plans, timelines and funding needs for sotagliflozin, LX9211 and other programs, including any regulatory developments.
- Cash burn, financing runway, debt covenant compliance and potential dilution from future financing or conversion of the 2021 notes.
- Progress and potential financial exposure from the securities class action.