Lexicon Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; financial statements are unaudited. Dollar amounts below are in millions unless noted.
Business context
Lexicon is a biopharmaceutical company commercializing XERMELO in the U.S. and developing drug candidates. Its principal programs include sotagliflozin (Zynquista) and LX9211. Ipsen commercializes XERMELO outside the U.S. and Japan.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $8.0 | $9.2 | Down 13% |
| Net product revenue | $7.9 | $6.7 | Up 17% |
| Research and development expense | $55.2 | $12.0 | Up 359% |
| Selling, general and administrative expense | $14.7 | $14.1 | Up 4% |
| Operating loss | $(62.4) | $(17.5) | Loss widened |
| Net loss | $(66.6) | $(21.8) | Loss widened |
| Net loss per share | $(0.63) | $(0.21) | Loss per share increased |
| Cash used in operating activities | $(22.1) | $(25.6) | Use decreased |
Cash, cash equivalents and short-term investments totaled $249.1 at March 31, 2020, down from $271.7 at year-end 2019. Current assets were $291.6 and current liabilities were $80.3. Total debt carrying value was approximately $245.2, including $10.7 current debt; interest expense was $5.1. Stockholders’ equity fell to $54.8 from $117.1 at year-end. Cost of sales was $0.6; product revenue less cost of sales was approximately 92.8% of product revenue, including XERMELO intangible-asset amortization.
Material changes and management commentary
- R&D expense increased by $43.2, primarily because Lexicon assumed sotagliflozin development costs after the Sanofi agreement ended in September 2019. Third-party and other R&D services rose to $45.3 from $2.4.
- Product revenue growth from XERMELO was more than offset by lower collaboration revenue: Q1 2019 included a $2.4 Ipsen milestone, while Q1 2020 collaboration revenue was negligible.
- Lexicon announced plans to close out the Phase 3 sotagliflozin program in type 2 diabetes, heart failure and chronic kidney disease. The filing reports FDA complete response letters and unsuccessful appeals for U.S. approval in type 1 diabetes; the drug is approved in the EU for a defined adult population.
- Management said available cash and investments, together with expected product sales and other sources, should fund operations for at least 12 months. It expects continued substantial investment in commercialization and development; no specific earnings or revenue guidance was provided.
Debt, commitments and risks
- The 5.25% convertible notes mature in December 2021; the 9% BioPharma term loan matures in December 2022. The mortgage has a $10.3 balloon payment due in August 2020.
- Lexicon agreed to sell its Woodlands, Texas facilities for $15.0, subject to closing conditions and a leaseback arrangement of up to six months. The purchaser’s study period ran through June 8, 2020; completion was not assured in this filing.
- Under the Sanofi termination settlement, Lexicon received $26.0 in March 2020, net of certain asserted costs, and was due a further $26.0 within 12 months of the September 2019 settlement date.
- COVID-19 could restrict commercial and medical team interactions and delay clinical trial enrollment or planned trial starts. Other key risks include XERMELO’s commercial performance, clinical and regulatory uncertainty, reliance on collaborators and third parties, substantial losses and financing needs, and restrictive debt covenants.
- A purported securities class action alleges misleading statements concerning sotagliflozin Phase 3 data and U.S. approval prospects. The complaint seeks unspecified damages; the company had moved to dismiss.
Most important facts for investors to verify
- Whether the remaining Sanofi settlement payment was received, and the timing and net proceeds of the facility sale and related leaseback.
- How Lexicon addressed the August 2020 mortgage balloon and its broader debt and liquidity needs.
- Subsequent XERMELO sales trends and any COVID-related impact on commercial activity or reimbursement.
- The cost and timeline of closing out sotagliflozin studies, and the status of the FDA pathway and LX9211 Phase 2 plans.
- Developments in the securities litigation and any material change in management’s stated 12-month liquidity outlook.