Lexicon Pharmaceuticals, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed March 7, 2012. This is an annual report, not a standalone fourth-quarter filing. Lexicon is a clinical-stage biopharmaceutical company with no product sales; it relies mainly on collaborations, licenses and grants for revenue.
Financial performance and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $1.8 million | $4.9 million |
| Research and development expense | $91.8 million | $78.5 million |
| Total operating expenses | $115.9 million | $100.6 million |
| Operating loss | $114.1 million | $95.7 million |
| Net loss attributable to Lexicon | $116.2 million | $101.8 million |
| Net loss per share, basic and diluted | $0.34 | $0.34 |
| Cash used in operating activities | $87.9 million | $82.4 million |
- Revenue fell 62%, largely reflecting lower collaborative research and license revenue. The three largest customers represented 86% of FY2011 revenue.
- R&D expense rose 17%, chiefly from increased external clinical and preclinical development costs. Operating expenses also included a $6.8 million non-cash increase in the fair value of the Symphony Icon purchase liability.
- Cash, cash equivalents and investments were $281.7 million at year-end, versus $211.1 million a year earlier; working capital was $264.4 million. Financing provided $157.1 million, mainly from the rights offering, while investing provided $70.0 million, principally from investment maturities.
- Long-term debt was $24.9 million, primarily the fixed-rate 8.23% mortgage on the Texas facilities. The company reported no meaningful product gross margin; operating margins are not informative given minimal revenue and substantial development costs.
- Fourth-quarter 2011 revenue was $343,000 and net loss was $33.8 million, or $0.10 per share.
Material changes and business developments
- The company completed a December 2011 rights offering of 142.5 million shares at $1.13 per share, producing $160.6 million net proceeds. Invus and affiliates bought 115.0 million shares and owned approximately 58.3% of outstanding common stock after the offering.
- Clinical pipeline developments reported by the filing include: LX4211 in Phase 2b for type 2 diabetes; telotristat etiprate (LX1032) preparing for pivotal Phase 3 trials for carcinoid syndrome; LX1033 in Phase 2 for diarrhea-predominant irritable bowel syndrome; LX2931 in a dose-ranging study for rheumatoid arthritis; and LX7101 in Phase 1 for glaucoma. LX1032 and LX1033 trial initiations and LX4211 enrollment completion occurred in early 2012, after the fiscal year-end.
- The company sold an impaired building in June 2011 after recording an $0.8 million impairment loss. The filing reports no goodwill impairment for 2011.
- Revenue remains small and collaboration-dependent: it decreased from $10.7 million in 2009 to $4.9 million in 2010 and $1.8 million in 2011. The 2011 revenue decline followed the completion of earlier alliance research terms and reduced license income.
Outlook, risks and contingencies
- Management expected existing capital and anticipated collaboration and license receipts to fund currently planned operations for at least 12 months from the filing, while warning that spending could exceed expectations and future financing might be needed. No specific revenue, earnings or product-launch guidance is provided.
- Management expects continued net losses and higher R&D costs as programs advance; profitability timing is uncertain. The company has never generated pharmaceutical product sales.
- Clinical failure, trial delays or enrollment difficulties, regulatory approval uncertainty, competition, manufacturing dependence, intellectual-property disputes and reliance on third-party collaborators are significant risks. Revenue concentration increases exposure to individual customers and agreement milestones.
- Expected Symphony Icon base payments were $35.0 million in contractual obligations; the wider amended arrangement permits up to $80 million in additional base and contingent payments under specified terms. The filing also discloses potential Texas Enterprise Fund repayment exposure of up to approximately $14.2 million, subject to job-creation credits and obligations.
- Invus has substantial ownership and governance rights, including board-designation, preemptive and specified consent rights. The stock issuance materially increased shares outstanding and diluted other holders.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective.
Important facts for investors to verify
- Progress, efficacy and safety results from pivotal-planning and ongoing clinical trials, especially LX4211 and telotristat etiprate.
- Cash burn, investment availability and whether collaboration receipts support management’s stated 12-month funding outlook.
- Customer concentration and the likelihood and timing of collaboration milestones, royalties or new agreements.
- Actual timing and amount of Symphony Icon payments, plus Texas job-creation obligations and any applicable credits.
- Post-rights-offering share count, Invus ownership and governance rights, and potential further dilution.