Lexicon Pharmaceuticals, Inc.
Q4 2020 Earnings Call Transcript

Published: 10 Mar 2021

[Operator:]

Good afternoon. My name is Chantal, and I'll be your conference operator today. At this time, I would like to welcome everyone to Lexicon Pharmaceuticals Fourth Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. . Please be advised that today's conference is being is recorded.

[Chas Schultz:]

Thank you, Chantal. Good morning and welcome to the Lexicon Pharmaceuticals fourth quarter 2020 financial conference call. Joining me today are Lonnel Coats, Lexicon's President and Chief Executive Officer; Dr. Praveen Tyle, Lexicon's Executive Vice President of Research and Development; and Jeff Wade, Lexicon's Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer. Earlier today Lexicon issued a press release, announcing our financial results for the fourth quarter of 2020, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast of this call, along with the slide presentation is available on our website. During this call, we will review the information provided in the release, provide an update on our clinical programs, and then use the remainder of our time to answer your questions. Before we begin, let me remind you that we will be making forward-looking statements, including statements relating to the safety, efficacy and the therapeutic and commercial potential of LX9211, sotagliflozin and other drug candidates. These statements may include characterizations of the expected timing and results of clinical trials of LX9211, sotagliflozin and other drug candidates and the regulatory status and market opportunity for those programs. This call may also contain forward-looking statements relating to our growth and future operating results, discovery and development of our drug candidates, strategic alliances and intellectual property as well as other matters that are not historical facts or information. Various risks may cause our actual results to differ materially from those expressed or implied in such forward-looking statements. These risks include uncertainties related to the timing and results of clinical trials and preclinical studies of LX9211, sotagliflozin, and our other drug candidates; our dependence upon strategic alliances and other third-party relationships; our ability to obtain patent protection for our discoveries, limitations imposed by patents owned or controlled by third parties and the requirements of substantial funding to conduct our research and development activities. For a list and a description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission.

[Lonnel Coats:]

Thank you, Chas. Good afternoon, everyone, and thank you for joining us on the call. We welcome the opportunity to discuss what was a very busy quarter for Lexicon in which we made significant advancements with our 2 lead compounds, LX9211 and sotagliflozin. During the fourth quarter, we commenced patient enrollment for RELIEF-PHN 1, a Phase 2 clinical study of LX9211 for the treatment of post-herpetic neuralgia. This is our second Phase 2 clinical study for LX9211, which we have initiated in neuropathic pain. Patient enrollment in our other Phase 2 clinical study, RELIEF-DPN-1 in diabetic peripheral neuropathic pain is ongoing. In December, we were very pleased to announce that we received Fast Track designation from the FDA for the development of LX9211 in diabetic peripheral neuropathic pain. This designation is indicative of a serious unmet medical need of this patient population. Also in the fourth quarter, the SOLOIST and SCORED Phase 3 outcome studies of sotagliflozin heart failure, both achieved their primary endpoints. The results of those studies were presented by Dr. Deepak Bhatt during the Late-Breaking Science Session of American Heart Association Scientific Session and were simultaneously published in 2 separate articles in the New England Journal of Medicine. Based on the strong results from these studies and our subsequent discussions with FDA, we made the decision to move expeditiously with a New Drug Application for an indication to reduce the risk of cardiovascular death, hospitalization for heart failure and urgent visits for heart failure in adult patients with Type 2 diabetes were either worsening heart failure or additional risk factors for heart failure. We expect the New Drug Application to be filed in the second half of the year. We also closed out the year by raising $70 million in net proceeds from sales of our common stock. Combined with our decision to strengthen our balance sheet by eliminating 95% of our debt, we entered into 2021 in a solid financial position with cash sufficient to fund our planned operations for 2 years. On the next slide. Looking ahead to 2021, we anticipate a number of events during the year. We expect both of our proof-of-concept studies for LX9211 to read out by the end of the year. We're very enthused by what we have seen from LX9211 in our preclinical and Phase 1 studies and are looking forward to obtaining the Phase 2 results. We plan to share more about the data from these earlier LX9211 studies in the upcoming publications.

[Praveen Tyle:]

Thank you, Lonnel. LX9211 is a potent, orally delivered selective small molecule inhibitor of AAK1 which is a pathway we believe may have utility in reducing neuropathic pain, while avoiding the addictive downsides of the opioid fastness. LX9211 was discovered by scientists working within our drug discovery alliance with Bristol-Myers Squibb and we now wholly owned all the rights to LX9211, as well as any additional compounds packed into AAK1 that we may develop.

[Lonnel Coats:]

Thank you, Praveen. Concurrently, with our partnership discussions, we actually had to take a step back a bit and do a little work to build our own understanding of the overall heart failure market and where sotagliflozin might strategically fit in that market, some of which I'll share with you now. Now based on our market assessments, we feel that sotagliflozin may have a differentiated product profile with unique advantages in the treatment of heart failure. We believe that data from the SCORED and SOLOIST studies support a label for sotagliflozin to treat worsening heart failure or risk factors for heart failure in patients with Type 2 diabetes. We take a moment and say, the ENTRESTO just received a label expansion from the FDA to include a more general range of chronic heart failure with a preference for patients with a left ventricle ejection fraction below normal. We believe this approval represents or presents a significant opportunity for sotagliflozin. Since data from the SCORED and the SOLOIST studies have shown heart failure benefits across the full range of the left ventricle ejection fraction spectrum, we feel that data supports a broad label for the treatment of heart failure that does not distinguish on references to HFrEF and HFpEF. The heart failure market has seen consistent growth that has the potential to accelerate tremendously in the next few years as new innovations enter the market to treat the sizable population with a high burden of disease, especially in the larger HFpEF population. Now if we go to the next slide. We said there are nearly 1 million hospitalizations per year in United States, which is exactly -- for heart failure, which is exactly where our SOLOIST study looked to see the impact of sotagliflozin in this patient population. This was a big risk for the design of this study. There has been a lot of literature around the conversions of heart failure in Type 2 diabetes and in one 2016 publication looking at 160,000 hospital admissions across the United States for heart failure, they found that approximately 44% of the patients presented with Type 2 diabetes. When you look at the overall heart failure population, the proportion of the HFpEF patients in the hospitalized setting has been increasing over time. There has been a number of new entrants into the HFrEF arena but only sotagliflozin shown clear clinical benefit across the full range of more difficult-to-treat HFpEF population. Overall, we believe that the clinical data for sotagliflozin supports an indication to treat across the full spectrum of left ventricle ejection fraction and would be an especially welcome new entrant from the larger HFpEF population. Now on the next slide, the heart failure market is quite large and rapidly growing. According to global data, the current market for chronic heart failure is approximately $4.2 billion in the United States, and is expected to grow at 18% per year in the upcoming decade to reach $16.6 billion in 2028. As you can see, we feel that the overall market potential for sotagliflozin is very substantial and is a primary reason we have prioritized accelerating to file the NDA in heart failure in the second half of the year. There is a great value and an urgent need for a treatment like sotagliflozin, and we do not want to lose a day. Now with that, I'll turn this call over to Jeff to walk you through our financial results for the fourth quarter and then give some financial guidance for 2021. Jeff?

[Jeff Wade:]

Thank you, Lonnel. To begin, I will discuss key aspects of our fourth quarter financials. More financial details can be found in the press release that we issued earlier today and our upcoming 10-K SEC filing. As indicated in our press release, we had minimal revenues in the fourth quarter of 2020, primarily due to the elimination of product revenues as a result of our sale of XERMELO during the third quarter of 2020. Research and development expenses for the fourth quarter decreased to $1 million from $40.6 million for the corresponding period in 2019. This was primarily due to a reduction in external clinical development cost estimates related to sotagliflozin. This was a one-time adjustment and not indicative of our expected research and development expenses moving forward. Selling, general and administrative expenses for the fourth quarter decreased to $6.4 million from $14.6 million for the same period in 2019, primarily due to reductions in personnel and elimination of marketing expenses following the sale of XERMELO. In total, we had a net loss for the fourth quarter of $5.5 million or $0.04 per share as compared to a net loss of $51.1 million or $0.48 per share in the corresponding period of 2019. Our net loss for the fourth quarter of 2020 and 2019 included non-cash stock-based compensation expense of $2.7 million and $3.5 million, respectively. We ended 2020 with $152.3 million in cash and short-term investments as compared to $271.7 million as of December 31, 2019. We eliminated 95% of our debt during the year, reducing our overall indebtedness from $245.3 million at mid-year to $11.6 million at the end of the year-end December 31, 2020. Now I will turn to our financial guidance for 2021. We expect our 2021 operating expenses to be in the range of $85 million to $100 million, which is a sizable decrease from the $204.4 million in operating expenses we had in 2020. We expect non-cash expenses to be approximately $11 million of our total operating expenses. Research and development expenses are expected to be in the range of $60 million to $70 million. This estimate includes the expected spend for our ongoing two Phase 2 clinical studies of LX9211, the remaining closeout of our sotagliflozin studies and the expected cost to submit a New Drug Application for heart failure as well as investments in preclinical and discovery stage programs. We expect G&A expenses to be in the range of $25 million to $30 million. Overall, we expect that our current cash and investments will be sufficient to fund our operations through 2022 and into 2023. I will now turn the call back to Lonnel.

[Lonnel Coats:]

Jeff, thank you. I think let's open the line up for questions, and we'll go from there.

[Operator:]

Our first question comes from Yigal Nochomovitz with Citi.

[Carly Kenselaar:]

This is Carly on for Yigal. For LX9211, can you talk about the rationale for running a larger 3-arm study in diabetic neuropathic pain, where you're testing 2 different doses versus running a smaller study in post-neuropathic neuralgia, that's 2 doses? And then, I guess, the second part to the question, based on the mechanism of action, is there a reason to think that LX9211 should work better in one indication versus the other?

[Lonnel Coats:]

Thanks for the question. I'll turn that question over to Dr. Tyle.

[Praveen Tyle:]

Carly, the -- I think let me separate your question into 2 parts. The first part is why larger trial with DPNP compared to PHN? And what other indications or what indications potentially 9211 could work in, correct? Those are the 2 questions. So the first question is, when you look at the DPNP study, like I said in my remarks, the diabetic peripheral neuropathic pain is a heterogeneous disease and different patients present themselves with different etiologies. So we've figured that we better study 2 different doses because different patient population may need different doses, number one. And number two, because of the heterogeneous behavior of the disease, we wanted to make sure that we are not missing a positive signal by doing a very small study. Hence, the number of patients to be 300. Now compared to PHN, which is more or less a very homogeneous disease, and when you look at the preclinical data, we studied 30-milligram per kilogram dose, which more or less translates to where we are with 200/20 dosing, which we are studying in the clinical study. As for your second question, which is what other indications 9211 may work on? I think besides these 2 indications, we are also doing preclinical work in various other CNS diseases. And what we did not mention today because we have not finalized it yet is what other disease areas we may be studying in this compound. We believe this compound is very, very versatile and could be very useful in other neuropathic pain indications and other CNS diseases. Lonnel?

[Lonnel Coats:]

Thanks, Praveen.

[Carly Kenselaar:]

Great. That's really helpful. And then just switching over to sotagliflozin for heart failure. Can you broadly characterize the level of interest you're receiving from potential partners there? And maybe just talk a little bit about what you see as the characteristics of an ideal partner for the program?

[Lonnel Coats:]

Yes. I mean, I think the #1 characteristic, you got to find someone who believes as you believe. We took a step back, and I alluded to this at the JPMorgan Conference, we need to step back a little bit to make sure that we can get the right kind of deal. It was important to do that because we hadn't done any market research. I mean, we got the data and interest started to show up. It's not a good idea to entertain that so dramatically before you have your own research done, before you have your own KOL engagement. So we took the time to do that. And I think as we did that, our enthusiasm about what we had in hand grew quite remarkably. And you can only imagine that then shifts conversations that you have in partnership discussions. I would say, overall, we've had fairly robust conversations with a number of parties, and we continue to have conversations with a number of parties. I think now that we have the data in hand of our own market research, our own KOL findings, I think that puts us in a better position to do 2 things. One is, to know for ourselves what value looks like; and two, how do we influence others to see the world as we see it. And that's what takes time sometimes. I think the challenge is, you have some players who will come in and just say there's another SGLT2, and the results are not similar. And we have to help people through that and help them through it not only with the science that we show them but we have to also help them understand it when we go out to market and test it. So I think the conversations remain robust, and we intend to do something with someone who believes as we believe that this is a remarkable opportunity and it needs to be approached as such and not approached as a me-too. And that takes a little bit more time. But nonetheless, I think that's the way I would characterize the discussions.

[Operator:]

Our next question comes from Stephen Willey with Stifel.

[Stephen Willey:]

So I guess, in showing kind of the combined effect in the half patient population between SOLOIST and SCORED. Then is it safe to assume that an NDA that you'll be filing will include data from patients with preserved ejection fraction from both trials?

[Praveen Tyle:]

Yes. The results we saw were consistent in both studies. It's just when you look at the spectrum of patients who had a history of heart failure, which is everybody in SOLOIST and the patients at SCORED, it's a very clear and really kind of a unique perspective across that entire ejection fraction, but the results were consistent in both of the studies.

[Lonnel Coats:]

Yes, Stephen. And I think the agency is going to want to see all of that data. And I think we're pretty confident at this point. When we look at -- I think where the confidence comes from, to some degree is, ENTRESTO had its AdCom, and we looked at the questions that came from at AdCom. We looked at where the FDA was relative to HFpEF, how to define it. We saw a lot of variability in how people perceive HFpEF or what they call HFmEF that something that sits between reduced and preserved. What I found about that -- found with that conversation they were having it because they were trying to figure out if you're going to label it, where was the real value. And the reason I said is a great opportunity for sotagliflozin, we don't need to have that conversation because whether you look at rEF, HFmEF or pEF, the overall rate of reduction was quite substantial and statistically significant. Even you start to look at the confidence intervals, you continue to see significance. And so you just have a very robust response across the entire spectrum. That's very different from anything, I think that was shared as into the AdComs at the end of the year that the FDA was considering. And the fact that they found ways to label ENTRESTO gives me great confidence there should be a way to label us across the entire spectrum.

[Stephen Willey:]

Understood. And I think you had previously suggested that a regulatory filing, an NDA would unlikely occur in the absence of having a partnership in hand. So is the partnership still a rate-limiting step to the regulatory filing? Or is that something that you guys feel that you can proceed with on your own as some of these partnering discussions continue to crystallize in the background?

[Lonnel Coats:]

Steve, I reserve the right to change my mind. And so let me just say I changed my mind. And part of that is because we went out and did the work. We went out and spoke to key opinion leaders. We went out and did the market research. The deeper we went, the more amazed we were with our data. And therefore, we learned very quickly, we shouldn't waste any time at this point waiting for a partnership to materialize before we make the decision to go forward because we now have the advantage. Others are going to have to show what we show. And the best way to set that stage is to get it in front of the regulatory agency and set the stage. And so we've made the decision not to wait for a partnership to materialize to create value. One of the best ways to create the most substantial value is to move this toward the NDA filing. And so we have prioritized it because I think our confidence has grown about what we have in hand.

[Operator:]

Our next question comes from Jessica Fye with JPMorgan.

[Yuko Oku:]

This is Yuko on for Jess. So just real quick, you guys -- what are you seeing as a potential read-through from upcoming data for Jardiance and Farxiga with them both expected to read out data for ejection fraction in terms of how that would possibly impact business development for sota?

[Lonnel Coats:]

Well, this goes back to the answer I just gave, that's why you don't waste a day on getting your NDA and setting the path for everybody else to follow. I think these are 2 smart companies and they know how to develop. I think there may be some degree of success that they're going to have. But I think it's going to be very interesting to get anybody to match the data of sotagliflozin. And the reason we believe that is that fundamentally, as we look at why do we see the results that we have seen is we believe that the SGLT1 is contributing, it is making a contribution to the outcome that we see. And as a result of that, given our unique mechanism, we think, ultimately, we will have uniqueness. Now that has to be seen when they call out their data. What we have to watch for is what we keep saying. Don't just look at cutoffs. Look at the entire spectrum, when you start to look at HFpEF is about 50% of the market. And if you start doing cutoffs below 60 or somewhere in the neighborhood of 50 and so forth and so on, you're cutting off a substantial part of the market because you're not able to show benefit. What we've been able to show, whether the cutoff is 40, 50, 60, 70, you still see a hazard ratio, and you see statistical significance. So that's what you should look for from these other trials. And if you don't see that, then the advantage will still be Lexicon.

[Yuko Oku:]

Okay. And now that you're saying, as you said, moving right away on filing the NDA on your own, is there any potential for that to impact the commercialization strategy? Or is it a partner still going to be gating to that?

[Lonnel Coats:]

The commercial part, that's where we need a partner. There's not a question about that, a well-positioned partner or a partner who has the resources to be well positioned. I would put it that way because we have had part -- folks who come in with interest that, quite frankly, see a substantial opportunity that may not be as positioned in heart failure today but want to be. And so therefore, we have taken those calls as well. So the key is that you got to have somebody who comes in and fundamentally see the world the same. We've come out of a significant alliance where we diverged on our opinions. And we feel confident that our opinion was right coming out of that alliance. The data now bears that to be true, but we lost a lot of time. So we can't do that again. We really have to find someone who lines up with us that is willing to make the necessary investment to compete, to compete. To compete with confidence and conviction in launching the product in the heart failure market. There are not a lot of drugs. And this is why I always remind folks when we talk to them. How many drugs are available today with an indication for HFpEF? Don't exist. I think ENTRESTO is the closer it comes. It's moved into HFpEF arena with a broadening of their label. But yet, the benefit was seen below 57 in the normal population. And so there's still a massive need for more compounds in HFpEF, and that is the fastest, most significant part of the market right now. And right now, we've shown it. And so we'll have to wait and see if anybody else to match that. But for now, we have shown it. And if we have a partner they want to come in and help us tell that story, and I think that’s where we’re going to sign up.

[Operator:]

Our next question comes from Kevin Kedra with GE Research.

[Kevin Kedra:]

In the past few weeks, there have been a few cases we've seen, where it seems like the FDA and some companies with drugs under review, you haven't really been on the same page. So in regards to sotagliflozin, can you speak to any dialogue you've had with the FDA since the update you gave in January? And I know you mentioned the ENTRESTO label, but anything else that kind of gives you confidence around your conversations with the agency and the filing pathway for heart failure?

[Lonnel Coats:]

No, great question. I would say we haven't had much more dialogue with the agency subsequent to the last dialogue we had with them. So what we have done is watch very carefully the advisory committees, they had 2. They had the 1 with ENTRESTO and the other 1 for...

[Praveen Tyle:]

Spinal lactone.

[Lonnel Coats:]

Spinal lactone. And I think it was very clear, the agency was looking for something that they can make available that had some benefit for patients in this market, given that there was no -- there aren't many options or choices. I also believe the panel was looking very deeply and hard looking for data and mining the data that was in front of them to find some hope that there will be a therapeutic option for patients in HFpEF arena. So we've gained a lot of insight from those 2 advisory committees in terms of what the FDA is looking for. And quite frankly, is very consistent with what we -- what our conversations had been and what we're planning to do relative to our filings. So our confidence is really coming from that more than anything else.

[Kevin Kedra:]

Great. Switching to 9211, I know maintaining the timeline of data from both studies by year end. But in terms of enrollment, have you seen any change in sort of the pacing of enrollment or getting sites up and running. Now that COVID is declining to some degree and we have vaccines ramping up. Has anything changed there to give you kind of a greater level of confidence in those time lines?

[Lonnel Coats:]

Well, I think what we've had to do is put risk mitigating strategies in place because we did start to see enrollment be impacted by the last wave of COVID. If you start to look at some states and how they were closing down and how they were trying to mitigate it, it did have some impact. So we saw that and we saw the potential of it, and we started putting risk mitigating strategies in place to try to stay on time but not compromise the study. So I will say that it did have impact, but I believe the risk mitigating plan that we put in place should keep us on track for the end of the year. We're very hopeful to the point you just made as people confidence grow about the vaccine and as states start to let up a little bit on some restrictions, I think people will get more comfortable coming out of their house. And particularly people who may have a chronic disease or chronic illness such as diabetic peripheral neuropathic pain. And when that happens, I think our mitigating strategy will allow us to accelerate even faster. But for right now, I will say that we did see risk to the study in terms of enrollment. We'll put that plan in place, and we're certainly hoping that the environment would allow us to stay on track.

[Operator:]

. Our next question comes from Joseph Stringer with Needham & Company.

[Joseph Stringer:]

I just want to follow-up on 9211, looking ahead to the data readout towards the end of this year. What are the sort of expectations around ADPS change and placebo response rates between the DPNP and also the PHN trials and just in terms of any type of rescue -- pain rescue med, is that included in the trial or not? Some additional color there would be helpful.

[Lonnel Coats:]

Yes. I appreciate the question, but I'm not answering any of them. A lot of the way we are designing and running this trial is to try to be as proprietary as we can so that we maintain somewhat of an advantage relative to how we're conducting them. So I think these are all very good questions, but we haven't disclosed how we're doing any of that. As we make more progress in the future, we may make a change in that stance. But right now, we're not getting very deep into those kind of details.

[Operator:]

There are no further questions at this time. I'll now turn the call back over to the presenters for closing remarks.

[Lonnel Coats:]

Well, thank you. I appreciate for all of those who join us today. I just want to say that 2021 is off to a pretty terrific start for Lexicon. I think we ended the year very strong. We recapitalized the company, dealt with our balance sheet, restructured our company to be very much focused on the assets at hand. I think the sotagliflozin data, as Steve asked a question about do we file it with a partner, without a partner, because we were able to capitalize the company, we're in a position we can file it regardless of when a partnership comes along because the value will only go up. And therefore, we've made the decision to prioritize following sotagliflozin. My confidence in this compound is only growing every day. And therefore, we need to make it a priority. With that being said, we have not taken our foot off the gas with LX9211. I believe this is the transformative brand that is going to be the future of Lexicon. And so we did see some issues that we needed to mitigate in terms of enrollment, given the environment we're operating in, I think we've put those plans in place to keep the program on track but we haven't done anything that would put our outcome at risk, and that's what's most important. And then lastly, I would say, we hope as we come later into the year to share some of the other extraordinary work that we're doing on some of our discovery programs. So we are -- return -- we have returned back to our R&D routes and we're now starting to move things forwards that we will start talking a little bit more about as we get toward the end of this year. With that being said, I hope that you all have a good evening. Thank you.

[Operator:]

This concludes today's conference call. You may now disconnect.