Lexicon Pharmaceuticals, Inc. — Q2 2011 Form 10-Q
Reporting period: Three and six months ended June 30, 2011; balance sheet compared with December 31, 2010. Dollar amounts below are in millions unless otherwise noted.
Business context
Lexicon is a biopharmaceutical company focused on drug discovery and development, with collaboration and technology-license revenues. It reported four drug programs with completed or ongoing Phase 2 trials, three additional candidates in preclinical development, and other programs in earlier research.
Financial results and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $0.6 | $1.2 | $1.2 | $2.9 |
| Operating expenses | $26.5 | $25.3 | $56.2 | $51.9 |
| Operating loss | $(25.9) | $(24.1) | $(55.1) | $(49.0) |
| Net loss | $(26.6) | $(25.2) | $(56.3) | $(51.3) |
| Net loss per share | $(0.08) | $(0.07) | $(0.17) | $(0.19) |
| Cash used in operations | — | — | $(45.2) | $(44.3) |
Revenue was primarily collaborative research and license/subscription fees. R&D expense was $44.1 million for the first half, up 7%; G&A was $9.3 million, down 12%. No profit margin is meaningful given the small revenue base and ongoing losses.
At June 30, cash and cash equivalents were $20.3 million and short-term investments were $144.5 million, for total cash and investments of $164.8 million, versus $211.1 million at year-end 2010. Total assets were $315.9 million; total liabilities were $121.7 million. Debt was approximately $25.6 million, principally the mortgage at a fixed 8.23% rate. The company reported a $729.7 million accumulated deficit.
First-half investing activities provided $21.2 million, mainly from net investment maturities and proceeds from selling a building. Financing activities used $2.8 million, primarily for debt repayment.
Material changes and unusual items
- First-half revenue fell 60% year over year, mainly because of reduced Taconic Farms collaboration revenue. Collaborative research revenue declined; subscription and license revenue increased from a low base.
- First-half net loss increased by $5.0 million year over year, while loss per share improved to $0.17 from $0.19, reflecting a higher weighted-average share count in 2010.
- A $2.9 million increase in the fair value of the Symphony Icon purchase liability was recorded as expense in the first half. Its reported fair value was $51.1 million at June 30.
- Lexicon recorded an $0.8 million building impairment in the first half and sold the building in June; sale proceeds were used to pay down $2.4 million of mortgage principal.
Outlook, risks and contingencies
Management stated that available unrestricted cash and investments, together with expected receipts, should fund operations for at least the next 12 months. It expects substantial R&D spending and continued losses; profitability will require significantly higher revenues. No revenue or earnings guidance was provided.
Future revenue depends on new collaborations and licenses, development milestones, and collaborators’ commercialization efforts. The company said additional financing may be needed if operating cash is insufficient, and financing may be unavailable or dilutive. Invus had rights, subject to the agreements’ terms, to require a pro rata rights offering of up to approximately $163 million; the company could not assure that Invus would exercise those rights. The Symphony Icon agreements provide for up to $80 million in additional base and contingent payments, subject to their terms.
Other disclosed risks include clinical-trial and regulatory uncertainty, dependence on collaborators and third-party manufacturers, intellectual-property risks, and potential volatility in operating results and share price. Lexicon said ordinary-course legal claims were not expected to have a material adverse effect. Management reported disclosure controls and procedures were effective and no significant change in internal controls.
Important facts for investors to verify
- Cash and investments of $164.8 million and first-half operating cash use of $45.2 million; monitor cash runway against development spending.
- The status and terms of any Invus rights offering, including applicable timing, pricing, and restrictions on equity issuance.
- Future fair-value changes and payment obligations relating to the $51.1 million Symphony Icon liability and the agreements’ potential additional payments.
- Progress and financing needs of the clinical programs, as well as any new collaboration, licensing, milestone, or royalty revenue.
- The basis for management’s expectation that available resources will fund operations for at least 12 months.