Lexicon Pharmaceuticals, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Financial amounts are in U.S. dollars; statements are unaudited. Lexicon is a biopharmaceutical company commercializing XERMELO and developing or partnering on sotagliflozin, LX9211, and LX2761.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $9.2 million | $25.4 million; down 64% |
| Net product revenue | $6.7 million | $5.5 million; up 23% |
| Collaboration revenue | $2.4 million | $19.8 million; down 88% |
| Operating expenses | $26.7 million | $63.1 million |
| Operating loss | $17.5 million | $37.7 million |
| Interest expense | $5.1 million | $5.1 million |
| Net loss / diluted loss per share | $21.8 million / $0.21 | $41.8 million / $0.40 |
| Operating cash flow | $(25.6) million | $(46.8) million |
- XERMELO net product revenue less cost of sales was approximately $6.2 million, an indicative gross margin of about 92%; cost of sales includes intangible-asset amortization.
- Research and development expense fell 75% to $12.0 million, primarily reflecting lower external sotagliflozin development costs. Selling, general and administrative expense declined 5% to $14.1 million.
- Cash, cash equivalents, and short-term investments totaled $133.1 million at March 31, 2019, down from $160.1 million at year-end 2018. Cash and cash equivalents alone were $45.8 million.
- Current assets were $146.8 million and current liabilities $28.2 million. Total liabilities were $304.2 million; stockholders’ deficit was $45.7 million.
- Debt carrying value was approximately $245.0 million, including convertible notes, a BioPharma term loan, and mortgage debt. The BioPharma loan bears 9% interest and matures in December 2022; the mortgage has a $10.3 million balloon payment due August 2020. Interest paid in Q1 was $3.7 million.
Material changes and business developments
- Revenue fell principally because Q1 2018 included substantially higher Sanofi collaboration revenue associated with clinical-trial activities. Sanofi revenue was $0.1 million in Q1 2019 versus $19.3 million in Q1 2018.
- Ipsen revenue was $2.3 million versus $0.3 million, including a milestone recognized after Ipsen’s first commercial sale in Canada.
- On April 26, 2019, after quarter-end, the European Union approved Zynquista (sotagliflozin) for certain adults with type 1 diabetes. The approval triggers $4.5 million of JDRF royalty payments in three $1.5 million installments.
- The FDA had issued a complete response letter for the U.S. type 1 diabetes application; applications in certain other countries remained under review. Sanofi continued a Phase 3 program in type 2 diabetes.
- Lexicon adopted the new lease accounting standard on January 1, 2019, recording $2.1 million of right-of-use assets and corresponding liabilities, with no material financial-statement impact.
Outlook, risks, and contingencies
- Management said available unrestricted cash and investments, together with expected collaboration and other cash flows, should fund operations for at least the next 12 months. The company expects substantial ongoing development and commercialization spending and may need additional financing thereafter; availability and terms are uncertain.
- No specific revenue, earnings, or cash-flow guidance was provided. Management cautioned that quarterly results fluctuate and are not necessarily indicative of full-year results.
- Key business risks include XERMELO market uptake and reimbursement; regulatory and commercial outcomes for sotagliflozin; clinical-trial uncertainty; reliance on Sanofi, Ipsen, and third-party manufacturers and distributors; and substantial losses, debt, and future financing needs.
- A securities class action filed in January 2019 alleges misleading statements about sotagliflozin Phase 3 data and FDA approval prospects. The complaint seeks unspecified damages; the filing does not provide a clear estimate of potential loss.
- Lexicon reported that it had designed processes and controls to address a previously identified material weakness involving estimated pass-through clinical-trial costs. Investors should verify remediation and effectiveness over time.
- For a Texas Enterprise Fund job commitment, the company believes credits fully offset its obligation; maximum stated exposure is approximately $14.2 million before credits.
Important facts for investors to verify
- Progress toward U.S. regulatory resolution and commercialization of sotagliflozin, and Sanofi’s execution in the EU and type 2 diabetes program.
- Whether XERMELO sales growth and future collaboration, milestone, or royalty receipts can support operating needs.
- Cash burn, financing requirements, debt service and covenants, including the August 2020 mortgage balloon payment.
- Developments in the securities litigation and evidence that the previously identified internal-control weakness has been fully remediated.