Lexicon Pharmaceuticals, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Lexicon is a clinical-stage biopharmaceutical company with no material commercial product revenue; it relies primarily on collaborations, licenses, and financing to fund drug development.
Key financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $0.4 million | $0.7 million | $2.2 million | $1.0 million |
| Operating expenses | $27.1 million | $26.8 million | $55.4 million | $57.5 million |
| Net loss | $28.1 million | $26.0 million | $56.2 million | $56.9 million |
| Net loss per share | $0.27 | $0.35 | $0.54 | $0.77 |
| Cash used in operating activities | Not separately stated for the quarter | $55.7 million | $50.0 million |
Q2 revenue fell 44%, while first-half revenue rose 127%, primarily because of revenue recognized under the Ipsen collaboration. R&D expense declined 8% year over year for the first half, reflecting lower personnel and facilities costs, partly offset by a 35% increase in third-party clinical and development services. First-half G&A expense increased 11%, including higher consulting costs related to telotristat etiprate commercialization preparation. Interest expense rose to $3.4 million for the first half from $0.9 million, largely reflecting the convertible notes. The filing does not provide a meaningful operating margin given the company’s small revenue base and ongoing development spending.
Liquidity, debt, and balance sheet
- At June 30, cash and cash equivalents were $9.7 million and short-term investments were $272.7 million, for total cash, cash equivalents, and investments of $282.5 million, down from $339.3 million at December 31, 2014.
- Total assets were $416.0 million; current assets were $313.8 million and current liabilities were $43.6 million. Accumulated deficit was $1.16 billion.
- Debt totaled approximately $106.8 million: $87.5 million of 5.25% convertible senior notes due 2021 and a $19.3 million mortgage. The mortgage was classified as current because management intends to repay it upon sale of the collateralized facilities.
- For the first half, investing activities used $70.7 million, mainly for investment purchases; financing activities used $1.2 million. Total cash and cash equivalents decreased by $127.5 million, largely as cash was shifted into short-term investments.
- Management stated that available unrestricted cash and investments and expected cash and revenue sources should fund operations for at least 12 months. It cautioned that additional capital may be needed thereafter and may not be available on acceptable terms.
Programs, outlook, and notable items
- Lexicon’s main development programs were telotristat etiprate for carcinoid syndrome and sotagliflozin for type 1 and type 2 diabetes. The company was conducting Phase 3 development of sotagliflozin in type 1 diabetes and did not intend to continue type 2 diabetes development without a collaboration.
- After quarter-end, in August 2015, Lexicon reported that the pivotal TELESTAR Phase 3 trial of telotristat etiprate met its primary endpoint. The filing states that, if the result had been known at June 30, the Symphony Icon contingent purchase liability would have been $4.1 million higher.
- Under the Ipsen agreement for telotristat etiprate outside the United States and Japan, Ipsen had paid $24.5 million through June 30. Lexicon recognized $2.0 million of agreement revenue in the first half and may receive regulatory and sales milestones and tiered royalties; future milestone payments were not recognized because achievement was uncertain. Lexicon remains responsible for specified development costs.
- The Symphony Icon arrangement includes contingent payments of up to $45 million tied to licensing proceeds or specified U.S. regulatory approval. Its recorded purchase consideration liability was $18.6 million at June 30; fair value depends on significant unobservable assumptions.
- Buildings and land were classified as held for sale at an estimated net fair value of $23.8 million. The mortgage balance is expected to be repaid upon sale. Lexicon also guaranteed a New Jersey subsidiary lease with maximum potential future payments of $4.2 million.
- A Texas Enterprise Fund award carries job-creation obligations; the company disclosed maximum potential repayment exposure of approximately $14.2 million if it failed to create any required jobs, before applicable credits. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
- Lexicon completed a one-for-seven reverse stock split in May 2015. The filing reported 103.6 million common shares outstanding as of August 4, 2015.
No formal revenue, earnings, or cash-flow guidance was provided. The company expected substantial continued R&D spending and ongoing losses, and noted that results may fluctuate and depend on development outcomes, regulatory approval, collaboration milestones, and access to financing.
Most important facts for investors to verify
- Whether TELESTAR’s positive top-line result translates into regulatory approval, commercialization, and milestone or royalty revenue.
- Cash burn and the assumptions behind management’s stated minimum 12-month funding runway, including the effect of continued clinical spending.
- Timing and proceeds from the planned facility sale and repayment of the $19.3 million mortgage.
- Potential contingent payments to Symphony Icon and the sensitivity of the recorded liability to program progress and future licensing or approval events.
- Ability to secure future collaborations or financing, and exposure to the Texas job-creation obligations.