Lexicon Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Lexicon is a clinical-stage biopharmaceutical company focused on sotagliflozin, LX9211 and other drug candidates. Financial amounts below are in U.S. dollars; tables report thousands unless noted.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $35,000 | $234,000 | $72,000 | $261,000 |
| Research and development expense | $13.4 million | $10.3 million | $28.3 million | $22.9 million |
| Selling, general and administrative expense | $10.7 million | $7.9 million | $19.2 million | $16.2 million |
| Operating loss | $24.0 million | $18.0 million | $47.4 million | $38.8 million |
| Net loss | $24.6 million | $18.1 million | $48.1 million | $39.0 million |
| Net loss per share | $0.16 | $0.13 | $0.32 | $0.27 |
- Revenue remained minimal and fell year over year; Lexicon reported substantially all historical revenue from collaborations, licenses and, until its 2020 sale, XERMELO.
- Operating margins are not meaningful as a profitability measure given the very low revenue and ongoing development spending; the company reported operating and net losses.
- At June 30, cash and cash equivalents were $21.5 million and short-term investments were $40.5 million, totaling approximately $62.0 million, versus $86.7 million at year-end 2021. Current assets were $64.9 million and current liabilities $16.9 million.
- Six-month operating cash use was $47.8 million; investing cash use was $18.1 million, principally net purchases of investments; financing provided $23.3 million. Cash and cash equivalents declined $42.6 million to $21.5 million.
- Lexicon had $23.6 million of long-term debt, net, at June 30, versus none at December 31, 2021. The Oxford loan bears floating interest (9.02% at June 30), is secured by a first lien on company and subsidiary assets, and matures in March 2027. The company reported covenant compliance.
- Accumulated deficit was $1.536 billion; stockholders’ equity was $70.8 million. Interest expense for the first six months was $813,000, up from $336,000.
Changes versus prior year and management commentary
- Q2 R&D expense increased 30% and SG&A increased 35%; for the first six months, they increased 24% and 19%, respectively. Management attributed increases primarily to clinical and development work, regulatory-submission preparation, and hiring ahead of possible sotagliflozin commercialization.
- Net loss widened by $6.5 million in Q2 and $9.0 million for the six-month period. Management cautioned that quarterly results fluctuate and are not a reliable indication of future performance.
- In March, Lexicon entered an Oxford Finance agreement providing up to $150 million across four tranches; $25 million was funded at closing. Further tranches are subject to timing, regulatory and, for one tranche, lender-consent conditions.
- Management stated that available cash and investments and expected collaboration and other revenues would fund operations for at least the next 12 months. It also warned that additional capital may be needed thereafter and may not be available on acceptable terms.
Outlook, risks and unusual items
- The FDA accepted for filing Lexicon’s sotagliflozin application for specified heart-failure risk-reduction uses; the company was preparing for a U.S. launch if approved. Its separate type 1 diabetes application had received an FDA complete response letter, and a hearing process was ongoing.
- Lexicon expected top-line results from its Phase 2 LX9211 post-herpetic neuralgia trial in Q4 2022. No quantified financial guidance was provided.
- In August 2022, after quarter-end, the company sold 34 million shares at $2.50 per share in a public offering and concurrent private placement, receiving approximately $82.2 million net. This is a significant post-period financing and potential dilution event.
- Other notable items include a July 2022 agreement for a new New Jersey office lease, with a 10-year-11-month term expected to begin in December 2022, and the March loan’s warrant and exit-fee costs, which add to financing expense.
- Key risks include obtaining sotagliflozin regulatory approval and achieving commercial success; clinical and regulatory uncertainty for drug candidates; continued cash burn and financing needs; dependence on third parties for trials and manufacturing; and debt covenants and floating-rate exposure. The filing reported no legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- Regulatory status and timing for sotagliflozin in heart failure, and developments in the type 1 diabetes hearing process.
- Results and timing of the LX9211 post-herpetic neuralgia trial.
- Cash runway and future burn relative to the August financing, including the dilution and any additional Oxford loan draws.
- Oxford loan terms, covenant compliance, variable interest exposure and the conditions for accessing undrawn tranches.
- Whether increased commercial-preparation spending translates into regulatory approval, product launch and sustainable revenue.