Lexicon Pharmaceuticals, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing.
Business context
Lexicon is a clinical-stage biopharmaceutical company with no product-sales revenue. It funds discovery and development primarily through collaborations, licenses, equity financing and other sources. Its pipeline included LX4211 for diabetes, telotristat etiprate (LX1032) for carcinoid syndrome and ulcerative colitis, LX1033 for irritable bowel syndrome, LX2931 for rheumatoid arthritis, and LX7101 for glaucoma.
Financial results and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $1.1 million | $1.8 million |
| Research and development expense | $82.6 million | $91.8 million |
| Total operating expenses | $109.5 million | $115.9 million |
| Net loss | $110.2 million | $116.2 million |
| Net loss per share, basic and diluted | $0.23 | $0.34 |
| Cash used in operating activities | $94.5 million | $87.9 million |
- Revenue fell 41%, principally because collaborative research revenue declined; Taconic Farms and Deltagen accounted for 68% and 25% of 2012 revenue, respectively.
- At year-end, cash, cash equivalents and short-term investments totaled $223.2 million, down from $281.7 million. Working capital was $212.7 million.
- Debt was $23.5 million, including $1.6 million current and $21.9 million long-term. A $21.4 million mortgage balloon payment is due in April 2014; the mortgage bears fixed interest of 8.23%.
- The company reported no product-sales revenue and has accumulated losses of $899.8 million. No meaningful operating margin is presented.
- Fourth-quarter 2012 revenue was $218,000 and net loss was $24.9 million, compared with $343,000 revenue and $33.8 million net loss in fourth-quarter 2011.
Material changes and unusual items
- Net loss narrowed year over year, while operating cash use increased. R&D expense declined 10%, reflecting lower personnel, facilities, laboratory-supply and external preclinical costs, partly offset by higher external clinical costs.
- A $9.9 million noncash expense resulted from an increase in the fair value of the Symphony Icon purchase liability, versus $6.8 million in 2011. The liability was $29.9 million at year-end after Lexicon issued $35 million of common stock in July 2012 to satisfy a base payment obligation.
- Lexicon raised $37.1 million net in an October 2012 public offering. Shares outstanding increased during the year, including the 13.2 million shares issued for the Symphony Icon payment.
Pipeline, outlook and risks
- LX4211 showed statistically significant HbA1c reductions in a Phase 2b type 2 diabetes trial; Lexicon was preparing for Phase 3 and sought a development partner. Trials in type 1 diabetes and patients with renal impairment were also underway.
- Telotristat etiprate entered a pivotal Phase 3 carcinoid-syndrome trial. Lexicon believed one Phase 3 trial could support an application, but the FDA expected compelling evidence of clinically meaningful benefit and could require additional trials.
- Management said existing capital and expected collaboration and other revenue would fund currently planned operations for at least 12 months. It also warned that additional capital may be needed, particularly as programs advance, and financing may not be available on acceptable terms.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, dependence on collaborators and concentrated revenue sources, competition, lack of commercialization capability, and potential dilution from future financing. Invus and affiliates held approximately 55.2% of outstanding shares and had significant governance and equity-issuance rights.
- A Texas Enterprise Fund award carries job-creation obligations; potential repayment exposure is up to approximately $14.2 million before credits. Lexicon reported ordinary-course legal matters that it did not expect to materially affect its financial condition, results or liquidity.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Cash burn, investment balances and the assumptions behind management’s minimum 12-month liquidity estimate.
- Timing, funding and outcome expectations for LX4211 Phase 3 and the telotristat etiprate pivotal trial, including FDA feedback on the evidence required.
- The April 2014 mortgage balloon payment and the fair value and potential future payments associated with the Symphony Icon liability.
- Revenue concentration, Invus’s controlling ownership and rights, and progress toward Texas job commitments that could trigger repayment.