Lexicon Pharmaceuticals, Inc.
Q2 2019 Earnings Call Transcript

Published: 1 Aug 2019

[Operator:]

Welcome to the Lexicon Pharmaceuticals’ Second Quarter 2019 Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a brief question-and-answer session. As a reminder, this call is being recorded today, July 31, 2019.

[Kimberly Lee:]

Good morning and welcome to the Lexicon Pharmaceuticals second quarter 2019 financial results and business update conference call. Joining me on today's call are Lonnel Coats, Lexicon's President and Chief Executive Officer; Alex Santini, Executive Vice President and Chief Commercial Officer; Dr. Pablo Lapuerta, Executive Vice President and Chief Medical Officer; Dr. Praveen Tyle, Executive Vice President of Research and Development; and Jeff Wade, Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer. After our formal remarks, we will open the call up for Q&A. Earlier today, Lexicon issued a press release announcing our financial results for the second quarter of 2019, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast of this call along with a slide presentation will be accessible in the Investor Relations section of 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 and efficacy and the therapeutic and commercial potential of XERMELO, Zynquista and our other drug candidates. These statements may include characterizations of the current status of Lexicon's collaboration with Sanofi and the effect of such status on the Zynquista program and Lexicon's business. The commercial performance of XERMELO, expected timing and outcome of regulatory review of applications for approval Zynquista, the expected timing and results of clinical trials as sort of sotagliflozin, telotristat ethyl and our other drug candidates and a market opportunity for these program. This call may also contain forward-looking statement relating to Lexicon’s growth and future operating results, discovery and development of other drugs candidates, strategic alliance and intellectual properties as well as other matter that are non-historical fact or information. Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward looking statement. These risks include uncertainties related to Lexicon’s collaboration with Sanofi, the success of our commercialization efforts for XERMELO and regulatory review of applications for the approval of sotagliflozin.

[Lonnel Coats:]

Thank you, Kim and good morning, everyone, and thanks for joining us on the call today. Last two days the goal of outstanding has been very challenging for all Lexicon stakeholders. We appreciate your flexibility in joining the call, a day earlier than originally announced. On Monday morning, Lexicon's 8(k) was published disclosing the material circumstances relating to the dispute with Sanofi’s including termination rights and associated timing. We have been moving quickly to affirm our understanding of the state of this Zynquista Type 2 diabetes Phase III program led by Sanofi. What will be required to complete the program and who has the obligation to fund it, so that we maybe in a position to communicate with great specificity to our stakeholders. So let me jump in. On July 23rd we received from Sanofi’s a summary of preliminary top line results for the first three Phase III Zynquista studies in Type 2 diabetes. So the SOTA Metformin, SOTA chronic kidney disease Stage 3 and SOTA chronic kidney disease Stage 4. We characterize these results as preliminary as Sanofi has not yet provided us with a clinical data underlying its summary of our top-line results. That said we are pleased to see it as Zynquista succeeded in the Metformin study and in the overall population and CKD3 study. In patients with severe or Stage 4 chronic kidney disease Zynquista achieve a clinically meaningful effect of narrowing the statistical significance in A1c versus placebo. While we would need to make our own assessment once Sanofi provides us with the clinical data set, we are very encouraged by the overall profile of Zynquista and the benefits we believe the drug has shown in the originally renal impaired population. Shortly after presenting these preliminary results of Lexicon, Sanofi sent to us a notice of its decision to terminate the alliance. We were surprised and disappointed at this rapid term events not least because we believe that Sanofi has no right to terminate the agreement at this juncture.

[Dr. Pablo Lapuerta:]

Thanks Lonnel. I will be focusing much of the discussion on the Type 2 diabetes program. Sanofi has been running a robust Phase III clinical development program called the InSynchrony program, centered on the opportunity for differentiation in patients with renal impairment. Since declining renal function is a hallmark of Type 2 diabetes, demonstrating benefits in this patient population connect Zynquista an attractive option for a significant proportion of Type 2 diabetes patients. As Lonnel mentioned earlier, we announced preliminary top-line results from the first three studies in the InSynchrony program. A Metformin study called SOTA-MET and two renal studies so the SOTA-CKD3 and SOTA-CKD4 shown here on slide five. SOTA-MET is a randomized, double-blind, placebo-controlled, parallel group, multicenter, 26 lead Phase III study evaluating the efficacy and safety as Zynquista added to Metformin in 518 patients with Type 2 diabetes who have any adequate glycemic control on Metformin. The study meat the primary end point demonstrating superiority as Zynquista 400 mg versus placebo on A1c reduction in this population with statistical significance. Zynquista was well-tolerated. SOTA-CKD3 is a randomized double-blind, placebo-controlled, three arm parallel group multi center 52-week Phase III study evaluating the efficacy and safety of Zynquista and 780 patients with Type 2 diabetes and moderate chronic kidney disease.

[Jeff Wade:]

Thank you, Pablo. This morning I will discuss the key aspects of our second quarter 2019 financials. More financial details can be found in our 10-Q which will be filed shortly. Now, please refer to Slide 8 of our presentation. As indicated in our press release today, second quarter of 2019 revenues totaled $9.7 million, down from $13.8 million from the prior year quarter, primarily due to lower revenues recognized from our collaboration and license agreement with Sanofi, partially offset by an increase in net product revenues. Net product revenues for the second quarter of 2019 consisted of $7.4 million from net sales of XERMELO in the U.S. and $1.3 million from the sales of both XERMELO tablets to Ipsen. Cost of sales related to sale of XERMELO was $1.3 million and $0.8 million, respectively, for the second quarter of 2019 and 2018. Research and development expenses for the second quarter of 2019 decreased to $12.6 million from $26.5 million for the corresponding period in 2018, primarily due to lower clinical developmental costs related to Zynquista. Selling, general and administrative expenses for the second quarter of 2019 decreased to $14.3 million from $16.8 million for the same period in 2018, primarily due to decreased marketing costs. Net loss for the second quarter of 2019 was $23 million or $0.22 per share, compared to a net loss of $34.5 million or $0.33 per share in the corresponding prior year period. For the second quarter 2019 and 2018, net loss included non-cash, stock-based compensation expense of $3.8 million and $2.9 million, respectively. We ended the second quarter of 2019 with $106 million in cash and short-term investments as compared to $160.1 million as of December 31, 2018. We expect our cash to be sufficient to fund our ongoing operations for at least the year. notwithstanding the Sanofi dispute. We will be reviewing our expenses, prioritizing programs and seeking further opportunities to extend our cash runway as we work through the issues associated with the Sanofi dispute. Turning to our financial guidance for 2019, we continue to expect U.S. XERMELO net sales growth in the range of 20% or greater year-over-year and in the second quarter, we had been carefully managing our expenses and even prior to dispute with Sanofi, we were tracking to operating expenses in the range of $100 million $120 million, down from our prior guidance of $115 million to $135 million. Operating expenses include the R&D expense which we now expect to be in the range of $50 million to $60 million and SG&A expenses also in the range of $50 million to $60 million. Non-cash expenses are expected to be approximately $19 million of the total, including $14 million in stock-based compensation and $5 million in depreciation and amortization. As Lonnel mentioned earlier, in the event of a valid termination of the alliance agreement with Sanofi , Sanofi has obligated to fund the cost of the clinical studies for 12-months after the effective date of termination. Sanofi’s obligation to find the Type 2 diabetes program through regulatory submission in the U.S. and Europe regardless of the timing of any termination. I will now turn the call back to Lonnel.

[Lonnel Coats:]

Thank you, Jeff. In summary, in our Type 2 diabetes business we are pleased the Zynquista demonstrate significant benefit in adults with Type 2 diabetes on Metformin and in the overall population of adults with moderate our Stage 3a chronic kidney disease and we look forward to results for the remainder of core Phase III studies with Zynquista this year, in the mean time we plan to work with Sanofi on a resolution to our dispute. With that I will turn the call back over to the operator for our Q&A session.

[Operator:]

Your first question comes from the line of Liana Moussatos with Wedbush.

[Liana Moussatos:]

Thank you for taking my questions. Is Sanofi obligated to pay any milestones between the termination and 12-months and did Sanofi give any indication why they want to terminate?

[Lonnel Coats:]

Thanks Liana. Two things one is that from the milestone prospective, we believe that we have achieved success on a couple of things that should have lead to that outcome. So that is going to part of our dispute. In terms of our rational, there rational was related specifically to the CKD study is what they share with us.

[Liana Moussatos:]

Okay. thank you very much.

[Operator:]

Your next question is from the line of Jessica Fye with JPMorgan.

[Jessica Fye:]

Hey guys, good morning. A couple of questions. Maybe first is Sanofi launched in Europe yet, do you expect them start?

[Lonnel Coats:]

Great question Jessica. We would have expected it and this is one of the points that we will be on the discussion with Sanofi on why that not happen thus far. But no, they have not launched it at this point and given what they have asserted or reported as the termination right, I would not expect that to occur.

[Jessica Fye:]

Okay. Great, a couple of follow-up if possible. Have you received any feedbacks from the FDA at this point on whether additional clinical trial work would be needed to support a U.S approval in Type 1.

[Lonnel Coats:]

Jessica I would be very happy to have that conversation with you, should this product revert back to Lexicon, but due to still the Sanofi obligation we will not make comment on regulatory interaction.

[Jessica Fye:]

Okay. Assuming that you are able to get approval in Type 2 maybe a two part question here. First do you think that you could satisfy the FDA’s requirements for establishing cardio vascular safety prior study i.e. based on that analysis of your core Phase III program call it. Secondly do you see the possibility that Lexicon might be able to launch in Type 2 independently in the U.S.

[Lonnel Coats:]

Great question. Let me take the second question first and then I will turn the first question over to Dr. Lapuerta. Yes we are examining all options at this point. Should a valid reason for termination will actually be executed and product reverse back to Lexicon. We are currently at a point, today we are evaluating all of our options as to how we would advance this compound, not just in United States, but how does it compound get in hand of patients around the world. As we talked about earlier, China is a very important market and so we have to assess what may be the best opportunities for our stakeholders on what structured arrangement to the advance programs into market on approval. So, let me turn first question over to meta-analysis relative to risk to Dr. Lapuerta.

[Dr. Pablo Lapuerta:]

I can comment on our Type 1 data as an example, with a Type 1 data we had a cardiovascular safety analysis of all the Type 1 trials. The hazard ratio for cardiovascular events with sotagliflozin was 0.68, that is a 32% risk reduction. That is a small point estimate not based on a lot of events and it had a wide confidence interval. But it give us encouragement and consistent with non-profile of the SGLT inhibitors which we have seen in the literature. So in Type 2, we can see similar kind of vascular safety that is encouraging and meet the requirements for the FDA for Type 2 diabetes.

[Jessica Fye:]

Okay. Got it. And I know you guys need more feedback here, but I think folks are pretty focused on the cash runway as the company. Is there any way to estimate the cost to complete the clinical program for sotagliflozin in Type 2 after Sanofi's obligation has concluded?

[Lonnel Coats:]

It's a great question Jessica. I think that is all going to be part of our discussion with Sanofi. As we said before, they have a remarkably important funding obligation from this point forward, based on their assertion although based on our assertion, we think that the timeline which they will have a right to terminate will be much later than what they expect. If that is the case, this is why is important, if that timeline of where they would have if they have it right at all, is much longer than that gets you further through all the program being complete. So, this is not a small issue that we will be debating and discussing and so, it's going to be important on how we land on that outcome. So, we don't know what the total cost will be until we have those conversations.

[Jessica Fye:]

Okay. Fair enough. And products were monopolized in time here, but is there a timeline you can provide to investors within which we might be able to expect to get more clarity on that type of estimate.

[Lonnel Coats:]

I don't have a timeline, Jessica. But I will say that as things unfold and should it be a situation where we believe very confidently, it will come back to us in a right circumstances. We will be able to communicate with great precision to all of our stakeholders.

[Jessica Fye:]

Great. Thank you.

[Operator:]

Your next question is from Kevin Kedra with G. Research.

[Kevin Kedra:]

Good. Thanks for taking the questions. I know there is limited what you can say about the data that you really haven't seen it, but if we get to the point where sotagliflozin is approved with a label that looks a lot like the other SGLT2 inhibitors. So, really no differentiation on chronic kidney disease patients. How do you look at the market opportunity for that product, given that is a sizable market and the sizable need, but also late market entry. And how would you kind of seize the opportunity in that situation?

[Lonnel Coats:]

It’s a remarkably great question, but it’s a question I would love to answer for you in the near-term future should we get the right expected product. Right now all marketing and all marketing plans, strategies are still within the hand of Sanofi and therefore we won't make comment on it. But should the product revert back to us, I will be very happy to answer that question for you.

[Kevin Kedra:]

Okay understand and pivoting maybe to XERMELO, I believe comments before where that you potentially had the product on kind of a breakeven run rate by the end of the year, is that still something that you are targeting?

[Lonnel Coats:]

The answer to that is yes, and we are pretty much on schedule.

[Kevin Kedra:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Joseph Stringer with Needham.

[Joseph Stringer:]

Hi this is Joe on for Alan thanks for taking our questions here. A couple of quick ones, one on the potential milestone payments for T1D approval in Europe, do you still sort of expect to see that or when would you expect to potentially recognize that. And secondly when it comes to some of the prioritization of earlier stage programs in particular the 2761 compounds, I think that Sanofi had write the first negotiation for that and how does that work in terms of the current or the most recent events and maybe an update on LX9211 and neuropathic pain would you look to start a Phase II trial maybe this year. Thank you.

[Lonnel Coats:]

Great couple of question. First let me state that we intend to vigorously expand the rights of our stakeholders, and our shareholders of to Lexicon in the discussion with Sanofi. And so you can assume that what has or has not happen, Europe will part of that conversation. Secondly in terms of our pipeline, 2761 we had already put on hold until we had answer around the overall program and Type 2 diabetes, which would have given Sanofi a right. Of course at the current stage we are at this point, we can assume that right does not go forward. The third element of that is the most important program in development for us is neuropathic pain program which I will turn over to Dr - what is your name again Dr. Tyle to give us an update on LX9211.

[Dr. Praveen Tyle:]

So Joseph, we are continuing to plan for the Phase II proof of concept studies for LX9211 and the goal would be to finalize the protocol as we finish our Phase I study at the end of this year. So Phase I study Phase Ib to be specific is almost at the end of its cohort and we are in the final stages of lining up our CRO to conduct proof of concept study for LX9211. It’s actually aggressively moving forward.

[Lonnel Coats:]

Yes. So two of our priority programs that we will continue to aggressively move forward on this is LX9211 neuropathic pain to Dr. Tyle’s point. So we wouldn’t expect to do anything there. The other one is we are going to continue to advance to launch that EPO for BTC. That program is advancing relative to being able to show a benefit for biliary tract cancer. Those two will remain as our priorities. Some of their programs that we will hear down haven't even been publicly disclosed as we are doing a lot of preclinical work determining clinical candidates that we are going to advance forward. Much of that work would be put on hold until we get a better sense of what the future run way is going to be in our discussions with Sanofi.

[Joseph Stringer:]

Great. Thank you.

[Operator:]

. You next question comes from Yigal Nochomovitz with Citigroup.

[Yigal Nochomovitz:]

Hi. Thanks for taking the question. So, with respect to completion of the CBLT trial, assuming the time line is as such that you hallucinated Lonnel that the trigger point determination is towards the end of the year and then Sanofi has obligated to fund for another 12-months. Will you have sufficient funds if necessary to wrap those CBLT trials if they expend beyond that 12-months window?

[Lonnel Coats:]

Yigal, it’s a great question. Again the challenges in answering that question, we won’t know the answer unit sit down with Sanofi and get all their cost estimates and get the timelines right. Over the last couple of days we have been working vigorously to pull all those together. So, that we can communicate out as precisely as we can. We still have a lot of work to do to try to get an understanding of what that all going to be, but at this point, what I can tell you is a good portion of that program would have been funded and that is a good news. I also can say the submission, the program will be funded through submission both in U.S. and Europe and that is also a good news. So, the areas we have to figure out any additional cost should - the termination timeline be set as laid out, will be the China studies as well as the completion of the outcomes trials. And that is where we need great clarity, but those are all going to be under discussion with Sanofi, because as we said before, we believe this has caused damage to Lexicon. And so we will have further discussions with Sanofi about how that gets remedied.

[Yigal Nochomovitz:]

Okay. Got you. And then regarding the milestones again, I know the Type 1 approval is a bit complicated given that they haven't launched, and the milestones is associated to first commercial sale, so I understand that is a point of contention. With regard to CKD3 though in the Metformin study, those were clear wins. So is it fair to assume that you are expecting those milestones to be paid to you for those clinical success?

[Lonnel Coats:]

I think it’s fair to say that in those wins there is an expectation from Lexicon that our stakeholders to should be appropriately compensated for and that again will be part of the discussion.

[Yigal Nochomovitz:]

Okay. And then just one other question on the data, as you know and as Pablo knows, regarding a credence they didn't see a very pronounced HbA1c benefit. In face in the American Journal paper characterized that benefit is very modest and I believe it wasn't even specifically significant at the end of the 42 months. Given that, just curious to your thoughts as to how relevant it is that the CKD4 study narrowly missed on HbA1c given that reported outcomes in the renal compromised patients may not really be tied specifically to significant changes in HbA1c?

[Lonnel Coats:]

Oh, my god. You just asked a billion dollar question. So, I'm going to turn it over to Dr. Lapuerta, but you are absolutely spot on. Go ahead Pablo.

[Dr. Pablo Lapuerta:]

Keep in mind that we only have 26 week data on A1c and the CKD4 study. But, we do have a totality of data that we are starting to look at and that totality is not just A1c it is also achieving not just A1c, it’s also precise achieving A1c in less than seven, its fasting plasma glucose, its changes in the albumin-creatinine ratio, stability of EGFR and we are already seeing some information on hospitalization for cardiovascular events in these renal disease studies. Overall it really supports the rationale and the value of the SCORED study and we believe that this SCORED is well positioned for success and the principle for CREDENCE that apart from glycemic endpoints that there is a rational for using SGLT inhibition in renal disease. I think it's even stronger with SGLT1 inhibition, because of the potential value we pointed out in the GENOMIC study. SGLT1 inhibition in patients with renal disease can provide significant benefit and this card is just correctly positioned to provide that data. It will provide data not just on A1c, it will provide data on cardiovascular events and it will provide data on renal events.

[Yigal Nochomovitz:]

And this SCORED study is designed to be superior am I correct?

[Dr. Pablo Lapuerta:]

Yes. Its designed for success.

[Lonnel Coats:]

Yes. That is why again I believe this was in my opinion a remarkably premature decision and point is you are hitting on, you go relative to whether win could or may take place, the data is staking up in a why in which we should be encouraged that we have every chance of opportunity to get there and so whatever it takes Lexicon is locked and loaded and ready to keep pushing forward and also to defend our rational behalf of our stake holders.

[Yigal Nochomovitz:]

Okay, thank you. And then just one final question sort of touched on for but in terms of launching further in Type 1 and Type 2. Is it your position or your position that assuming that Sanofi partnership terminates, which seems likely the other planning is subject to some discussions that you would strongly prefer to seek a new partner for this asset as opposed to investing in the commercialization independently which obviously would be relatively expensive endeavor.

[Lonnel Coats:]

Yes. I think it’s in the best interest of our stake holders for us to continue to look for a partnership who have a vision forward that share our vision, what the future should be. Two, have the foot print that allows us to move quickly and to establish the reputation that is necessary to have in marketplace and thirdly it allows us to get to cash flow positive within that arrangement. That is better achieved through a partnership than for us to try to go alone or across both of these indications. However, what I will say for Type 1 diabetes, we still believe very strongly, we have every possible chance of achieving success here and this will be our beach head, where we believe we can invest in the United States in Type 1 and we can make remarkable difference in Type 1. So whatever happens going forward, Lexicon will continue to be well placed and position ourselves to launch in Type 1. The rest of the world it will be better for us to try to figure out how we leverage other people's placement and their position in market to ensure we get value for our stake holders.

[Yigal Nochomovitz:]

Okay. Thank you.

[Lonnel Coats:]

You bet.

[Operator:]

Your next question is a follow-up from Kevin Kedra with G. Research.

[Kevin Kedra:]

Thanks very much for taking the follow-up. I’m not sure if you can answer these, but just two quick ones. First, just based on the timing of some of your other studies, any sense of Sanofi already has access to some of those data readouts that they may not have shared with you, but they at least had access to when they made this decision. And then secondly, any sense of timing of when we could see the data in the two CKS studies? Thanks.

[Lonnel Coats:]

First, no Sanofi does not, big studies haven't been un-blinded, so no, they do not have access to that data. And so it’s still too early for them to have had any access, any additional data than what they have been presented thus far. And I believe the second question was...

[Kevin Kedra:]

When could we see the actual data from these, timeline for when that will be presented?

[Lonnel Coats:]

Well, great question. It will be at a medical meeting, but don't know that yet until we reach a resolution with Sanofi on how we have to get that and we will very much love to get it out, because I think it’s important for people to see these data and the points that Dr. Lapuerta has made, that may be in these data. But it will be at a medical meeting which allows us to be able to disseminate the data appropriately. But that again is yet to be seen until we reach the appropriate agreement with Sanofi.

[Kevin Kedra:]

Okay. Thanks.

[Operator:]

At this time, there are no additional questions. I would like to turn the call back over to Mr. Coats for closing remarks.

[Lonnel Coats:]

Again, I will just close and thank everyone for joining us this morning. I appreciate everybody's flexibility as we are moving quickly to make sure we had a good understanding, so we can communicate effectively with our stakeholders, relative to understanding. I would just close by saying that I and my team will work vigorously to defend the rights we believe we have two ensure our reputation hold in the brand in which we represent is articulated appropriately and reputations hold as a they should in any arrangement that we have in this industry. So with that being said, when we have more to communicate, we will certainly get on the phone and get everyone together to communicate it. Thank you for your time and patience.

[Operator:]

Thank you. This concludes today's conference. You may now disconnect.