Lexicon Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013; filed November 12, 2013. Lexicon is a biopharmaceutical company focused on discovering and developing treatments, with programs at various preclinical and clinical stages. Revenue remains primarily collaboration- and license-based.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $0.238 million | $0.372 million | $0.812 million | $0.871 million |
| Research and development expense | $25.4 million | $19.2 million | $69.4 million | $61.6 million |
| General and administrative expense | $4.7 million | $4.4 million | $13.7 million | $13.1 million |
| Symphony Icon liability revaluation expense | $1.3 million | $5.8 million | $3.1 million | $10.1 million |
| Net loss | $31.7 million | $29.5 million | $86.7 million | $85.3 million |
| Net loss per share, basic and diluted | $0.06 | $0.06 | $0.17 | $0.18 |
Cash flow: Operating activities used $69.3 million in the first nine months of 2013, versus $74.0 million in the comparable 2012 period. Investing activities provided $59.8 million, mainly from net investment maturities; financing activities used $1.3 million. Cash and cash equivalents fell to $19.6 million from $30.4 million at year-end 2012.
Liquidity and balance sheet: Cash, cash equivalents and short-term investments totaled $151.2 million at September 30, 2013, down from $223.2 million at December 31, 2012. Total assets were $299.5 million; total liabilities were $113.7 million; equity was $185.7 million. The accumulated deficit was $986.5 million.
Debt: Balance-sheet current and long-term debt totaled approximately $22.3 million. The company amended its facility mortgage in September 2013, extending maturity from April 2014 to April 2017 while keeping monthly payments and the fixed 8.23% rate unchanged. Principal outstanding was $22.3 million.
Margins: The filing does not present a meaningful gross-margin measure; revenue was small relative to research and development and administrative expenses.
Material changes and management commentary
- Nine-month revenue declined 7% year over year. Collaborative research revenue increased 30% to $0.7 million, mainly from the Taconic Farms alliance; subscription and license revenue fell 74% to $0.1 million, primarily due to lower technology license fees.
- Nine-month R&D expense increased 13%, driven principally by a 39% rise in third-party research and development services to $32.1 million, reflecting increased external preclinical and clinical work. Management expects substantial ongoing R&D spending.
- Nine-month net loss increased modestly despite lower Symphony Icon liability revaluation expense. That expense is based on Level 3 valuation inputs and is non-cash in the period; the carrying value of the related liability was $33.0 million at September 30, 2013.
- Management said current unrestricted cash and investments, together with expected cash and revenues, should fund operations for at least the next 12 months. It cautioned that later funding may require additional equity, debt or credit, which may be unavailable or dilutive.
- Management warned that results fluctuate and period-to-period comparisons may not indicate future performance. Profitability depends on substantially higher revenue, new collaborations and licenses, development progress, and potential milestone and royalty receipts.
Outlook, risks and contingencies
- Lexicon has a history of significant losses and expects continued losses. Revenue is concentrated in a limited number of collaboration and license sources and depends on partners, development milestones, commercialization and royalty-generating products.
- Drug discovery and clinical development are uncertain; candidates may fail to demonstrate safety or efficacy, encounter regulatory delays, or fail commercially. The company also relies on third parties for development and manufacturing.
- Under the Symphony Icon arrangements, Lexicon may owe up to $45 million in contingent payments tied to qualifying licensing proceeds; specific U.S. approval scenarios can trigger a payment formula described in the filing.
- A Texas Enterprise Fund award carries job-creation obligations. Failure to meet them, after applicable credits, could require repayment; maximum aggregate exposure is approximately $14.2 million, including $302,000 in 2013, before credits.
- A New Jersey lease guarantee had maximum potential future payments of $4.9 million at quarter-end; $0.4 million of restricted investments collateralized a letter of credit. The company reported ordinary-course legal matters it did not believe would materially affect its financial position or liquidity.
- Other disclosed risks include intellectual-property disputes, collaborator dependence, regulatory and reimbursement uncertainty, product liability, stock-price volatility, and control of a substantial ownership interest by Invus and affiliates.
Key facts for investors to verify
- Whether cash burn and the $151.2 million cash-and-investment balance remain consistent with management’s stated minimum 12-month funding outlook.
- Progress and costs of clinical and preclinical programs, and whether development milestones, new collaborations, licenses or partner commercialization generate revenue.
- Future changes in the Symphony Icon purchase liability and the terms or potential timing of contingent payments.
- Compliance with Texas job-creation requirements and any resulting award repayment exposure.
- Whether the mortgage extension and lease obligations materially affect future cash requirements.