Lexicon Pharmaceuticals, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; financial statements are unaudited. Lexicon is a clinical-stage biopharmaceutical company focused primarily on telotristat etiprate and sotagliflozin.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $12.5 million | $1.8 million |
| Research and development expense | $37.0 million | $20.9 million |
| General and administrative expense | $8.4 million | $5.7 million |
| Operating loss | $33.9 million | $26.5 million |
| Net loss | $34.9 million | $28.1 million |
| Net loss per share | $0.34 | $0.27 |
| Net cash used in operating activities | $43.7 million | $23.5 million |
- Revenue increased 597%, mainly from the Sanofi collaboration. Sanofi contributed $12.0 million and Ipsen $0.1 million in the quarter.
- R&D expense rose 77%, primarily due to higher external clinical research and development costs. G&A rose 47%, mainly from consulting costs related to preparing for a potential telotristat launch.
- At March 31, cash and cash equivalents were $24.7 million and short-term investments were $452.5 million, totaling $477.1 million, versus $521.4 million at year-end 2015. Cash used in investing activities was $133.6 million, primarily reflecting net purchases of investments; this was largely a shift from cash into investments.
- Total assets were $611.3 million and total liabilities were $358.5 million. Long-term debt, including its current portion, had a carrying amount of approximately $102.6 million. Debt includes $87.5 million principal of 5.25% convertible notes due 2021 and a mortgage with $17.8 million principal outstanding, due April 2017.
- Accumulated deficit was $1.14 billion. The filing does not present a gross or operating margin percentage.
Business developments and material changes
- Telotristat etiprate (LX1032): Lexicon reported positive results from two Phase 3 trials in carcinoid syndrome, had submitted a U.S. marketing application, and was preparing for a potential U.S. launch, subject to approval. Ipsen holds commercialization rights outside the United States and Japan.
- Sotagliflozin (LX4211): Sanofi holds exclusive worldwide development and commercialization rights. Lexicon was conducting Phase 3 development for type 1 diabetes and preparing with Sanofi for Phase 3 development in type 2 diabetes.
- Sanofi paid a $300 million upfront amount in 2015. Lexicon recognized $12.0 million of Sanofi revenue in Q1 2016 as it performed development services and provided for development funding. The company may also receive development, regulatory, and sales milestones and royalties, but these are uncertain and are not recognized until earned.
- Compared with Q1 2015, net loss increased by $6.8 million despite higher collaboration revenue, as R&D and G&A spending rose substantially.
Outlook, risks and unusual items
- Management expected current unrestricted cash and investments, together with expected collaboration cash and revenue, to fund operations for at least the next 12 months. The filing provides no specific revenue, earnings, or cash-burn guidance.
- Lexicon expects substantial continued R&D and commercialization-related spending and continued losses; profitability requires significantly higher revenue. Future funding needs depend on development spending and collaboration payments. Additional financing may be unavailable or dilutive.
- Sanofi and Ipsen milestones and royalties depend on development, regulatory, and commercial outcomes. Lexicon also has collaboration-related development and funding obligations, including planned type 2 diabetes development funding of up to $100 million over three years under the Sanofi agreement.
- The fair value of the Symphony Icon purchase consideration liability increased by $1.0 million in Q1 2016, recorded as expense; the Level 3 liability was $23.8 million at quarter-end. Certain future payments are contingent on licensing proceeds or regulatory approval.
- A January 2016 agreement to sell Lexicon’s Texas facilities for $21.2 million was terminated by the purchaser in March because of real estate and financing market uncertainty. The facilities remained classified as held and used; Lexicon planned to explore alternatives, potentially including another sale with a leaseback.
- Lexicon disclosed potential Texas job-creation award repayment exposure of up to approximately $14.2 million if job obligations are unmet, before applicable credits. It also reported routine legal proceedings that management did not believe would have a material adverse effect.
- Key risks include clinical and regulatory failure, commercial acceptance and reimbursement, reliance on collaborators and third-party manufacturers, intellectual-property disputes, continued losses and financing needs, debt obligations, and stockholder control and dilution risks.
Important facts for investors to verify
- Status and timing of U.S. regulatory review and potential launch of telotristat etiprate.
- Progress, costs, and responsibility-sharing for sotagliflozin trials, and any changes to Sanofi or Ipsen collaboration economics.
- Cash burn, investment balances, debt service and the April 2017 mortgage maturity, alongside management’s 12-month liquidity assessment.
- Whether collaboration milestones, royalties, and potential Symphony Icon payments become payable or recognizable.
- Outcome of the Texas facilities strategy and progress toward the Texas job obligations.