Lexicon Pharmaceuticals, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Lexicon is a clinical-stage biopharmaceutical company focused primarily on LX9211 for neuropathic pain and sotagliflozin for heart failure and type 1 diabetes.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $24.0 million | $322.1 million |
| Net income (loss) | $(58.6) million | $130.1 million |
| Operating cash flow | $(143.0) million | $113.8 million |
| Cash, cash equivalents and short-term investments at year-end | $152.3 million | $271.7 million |
| Total debt at year-end | $11.6 million carrying value | $245.2 million carrying value |
- Revenue fell 93%, primarily because 2019 included $289.2 million of collaboration revenue, including $260 million recognized in connection with the Sanofi termination settlement. 2020 revenue was mainly XERMELO product sales of $23.4 million; the company sold the product and related assets in September.
- 2020 included a $132.6 million gain on the XERMELO sale. Operating expenses were $204.4 million, including research and development expense of $153.6 million, up 67% year over year, and a $1.6 million building impairment. Net loss was $58.6 million, versus net income in 2019.
- Gross profit on reported product sales was approximately $21.5 million before other revenue; the filing does not present a consolidated gross-margin measure that is directly comparable across periods.
- Cash used in operations was $143.0 million. Investing activities provided $380.8 million, chiefly from investment maturities and XERMELO and property-sale proceeds; financing activities used $147.6 million, mainly for debt repayments, partly offset by equity proceeds.
- Lexicon repaid its $150 million BioPharma term loan in connection with the XERMELO sale and exchanged $75.8 million principal of convertible notes for cash and shares. Remaining convertible notes, including accrued interest, totaled approximately $12.3 million and were due in December 2021.
- Year-end current assets were $157.7 million and current liabilities $46.8 million. The company stated that available resources and expected collaboration and other receipts should fund planned operations for at least 12 months; it also warned that additional financing may be needed.
Material changes versus the prior period
- Lexicon sold XERMELO to TerSera for final consideration of $160 million, recognized a $132.6 million gain, and recorded $23.4 million of XERMELO revenue through the sale. TerSera assumed ongoing development; Lexicon may receive up to $65 million in milestones and mid-teens royalties for development and sales in biliary tract cancer.
- Following the sale, Lexicon reduced its workforce by approximately 50% and recorded about $5.5 million in severance charges. It also sold its Woodlands campus for $11.9 million and arranged a short-term leaseback.
- Research and development spending increased substantially as Lexicon assumed responsibility for sotagliflozin development after ending its Sanofi collaboration. Selling, general and administrative expense declined 17%, to $47.2 million, partly reflecting reduced headcount and lower marketing and legal costs.
- Equity issuance provided $70.0 million net in 2020, including a $63.0 million private placement and $7.0 million under an at-the-market program. A further $16.4 million was raised through the program in January 2021.
Outlook, development programs and risks
- Sotagliflozin—heart failure: The SCORED and SOLOIST Phase 3 trials met their modified primary endpoints for total cardiovascular-death, heart-failure hospitalization and urgent-visit events. In January 2021, the FDA indicated results could support an application for an indication in certain adults with type 2 diabetes and heart-failure risk or worsening heart failure. Lexicon was preparing an application and seeking a commercialization partner. Early study closeout and modified endpoints may raise regulatory questions, including with other regulators.
- Sotagliflozin—type 1 diabetes: The FDA issued a complete response letter in 2019 and denied two appeals. At Lexicon’s request, the FDA issued a public Notice of Opportunity for Hearing in March 2021. EU approval had been granted for a defined patient group, but the product had not been commercially launched there.
- LX9211: Two Phase 2 trials were underway in diabetic peripheral neuropathic pain and post-herpetic neuralgia. The FDA granted Fast Track designation for diabetic peripheral neuropathic pain. COVID-19 had delayed trial initiation and continued to affect enrollment.
- Management expects continued substantial research and development spending and stated that year-end resources were expected to cover planned operations for at least 12 months. No specific revenue or earnings guidance was provided.
- Principal risks include clinical and regulatory failure or delay, difficulty securing a sotagliflozin commercialization partner, ongoing cash burn and financing needs, competition, dependence on third-party manufacturers and research organizations, COVID-19 impacts, intellectual-property and product-liability exposure, and potential dilution from future equity issuance.
- Lexicon is pursuing arbitration against Sanofi over approximately $23.2 million withheld from a final settlement payment; Sanofi disputes Lexicon’s position and seeks a declaration regarding the disputed costs. A securities class action dismissed with prejudice was on appeal as of the filing date.
- Invus and affiliates held approximately 52.3% of outstanding common stock, giving them substantial voting influence. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether and when Lexicon files a heart-failure application for sotagliflozin, and the FDA’s response to the trial design, modified endpoints and early study closeout.
- Progress and enrollment in both LX9211 Phase 2 trials, including any continuing effects from COVID-19.
- Cash burn against the stated 12-month funding outlook, the amount of any additional financing, and dilution from equity issuance.
- Repayment, conversion or refinancing of the remaining convertible notes due December 2021.
- Outcome and timing of the Sanofi arbitration and securities-litigation appeal, and any resulting cash or legal exposure.
- Whether TerSera achieves XERMELO development and commercial milestones that could generate contingent payments to Lexicon.