Lexicon Still Working Hard To Maximize The Value Of Sotagliflozin

Most readers will probably recall the “bring out your dead” scene from Monty Python and the Holy Grail, and I have to admit that Lexicon Pharmacueticals' (LXRX) sotagliflozin (“sota”) is more than a little like the man who didn’t want to go on the cart – certainly far from dead, and a lot more alive than I’d been willing to give it credit for in the past. I do still see some significant obstacles in place, but there is also still a fighting chance.

I applaud management’s decision to go forward with an NDA submission for sotagliflozin for heart failure; I believe future partners are likely waiting for the outcome of competitor studies, but there’s little to be gained by Lexicon in waiting around. Lexicon will be hard-pressed to market the drug effectively on their own, but that’s a problem for another day.

A lot of Lexicon’s prospective value now rests on what sort of label sotagliflozin will get, not to mention the labels that the competition gets, and what sort of partnership arrangement the company can strike. If the drug can get one-quarter of the market with a one-third split of the profits, a fair value of around $8.50 seems fair, but there are a lot of moving parts to the model.

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Lexicon Still Working Hard To Maximize The Value Of Sotagliflozin

Lexicon Buoyed By Renewed Enthusiasm For The Pipeline

It’s been an interesting 30 days for Lexicon Pharmaceuticals (LXRX), with positive data from the company’s cardio studies of sotagliflozin (“sota”) presented at the American Heart Association virtual meeting, a Fast Track designation for LX9211, and some renewed love from the sell-side. With that, the shares have shot up from a little over $1.00 at the time of my last piece to over $3.30 before recently settling back down around $3.00.

Positive clinical data are never a bad thing, but I continue to believe that Lexicon faces a sizable challenge in differentiating sota from other drugs in the SGLT-2 group and securing a partner who can help the company maximize the value of this drug. While the FT designation for LX9211 is certainly welcome, and should shave off about a year in the development timeline, we still have yet to see efficacy data in humans.

With the share price move, I believe Lexicon is fairly valued on the basis of its LX9211 pain asset. Whether sota has meaningful value is once again a key question; while I still believe that Lexicon faces a steep uphill climb with this drug, the size of the market opportunities are large enough that even a token chance of success can shift the valuation argument.

 

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Lexicon Buoyed By Renewed Enthusiasm For The Pipeline

Lexicon Has Cleaned Up Its Balance Sheet To Take Another Run At A Meaningful Commercial Product

In a relatively short period of time Lexicon Pharmaceuticals (NASDAQ:LXRX) management has restructured the company around what is effectively a single-asset development strategy. I won't call the LX9211 development program a "hail Mary" play, but pain drug development is notoriously difficult, and if LX9211 doesn't work, Lexicon won't have the resources to leverage whatever else may be on the shelf. Management also still believes they can find a path forward for sotagliflozin in Type 1 diabetes, but I consider that a long shot with even worse odds than pain drug development.

My risk-adjusted fair value for Lexicon works out to a fair value of $2.50 per share. While that is clearly well above today's price, investors need to remember that LX9211 drives all of that value and pain drug development has historically offered poor outcomes, with even the drugs that make it through clinical development often falling short of revenue expectations.

 

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Lexicon Has Cleaned Up Its Balance Sheet To Take Another Run At A Meaningful Commercial Product

Lexicon Needs More Than Incremental Positive Clinical Data

This has been a hard year for Lexicon Pharmaceuticals (LXRX), and I can understand why any good news would be welcome. Unfortunately, the three positive trial read-outs the company has offered in December don’t really change the value proposition and don’t really represent any positive change in the outlook.

As is, Lexicon still needs to find a partner for its lead drug sotagliflozin and figure out how to manage its cash needs. More significant data from the TELE-ABC study in 2020 could certainly help, and maybe the company will be able to produce proof-of-concept data on its chronic/neuropathic pain drug LX9211, but for now a partner for sotagliflozin is far and away at the top Lexicon’s Christmas list.

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Lexicon Needs More Than Incremental Positive Clinical Data

Lexicon Pharmaceuticals Languishing In The Dog House

Fool me once, shame on you. Fool me twice, shame on me. Disappoint investors over a period of decades? Well, then you’re Lexicon Pharmaceuticals (LXRX). Yes, that’s snarky and mean, and not everything that has happened to this company is the fault of management, but in terms of real world, on-the-ground results, just look at a 10-year chart next to one of the biotech indices like the IBB (IBB).

Lexicon once again posted disappointing results for its only commercial drug, and offered no additional clarity on the path forward for the Type 1 diabetes indication of Zynquista. Although the European approval is nice-to-have, Lexicon’s economics are best on the Type 1 U.S. indication, and that’s the needle-mover in my model. While Lexicon does have some early-stage clinical compounds worth following, it’s going to take time for this story to turn around.

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Lexicon Pharmaceuticals Languishing In The Dog House

Lexicon Likely Looking At Even More Competition In Type 1 Diabetes

As more and more competitor data accumulate, it’s looking like Lexicon (LXRX) is going to face significant competition in the market for SGLT inhibitors in Type 1 diabetes. Granted, it has long been my base-case assumption that Lexicon would see serious competition for its drug sotagliflozin (an SGLT-1/-2 dual inhibitor) in this large and underserved indication, but recently-presented data from Lilly (LLY) suggests that Jardiance (or empagliflozin) will be a meaningful potential threat in addition to AstraZeneca’s (AZN) Farxiga (dapagliflozin) and off-label use of SGLT-2 inhibitors already approved for Type 2 diabetes.

Lexicon could really use some good news, as the company has seen sentiment on sotagliflozin fade due to concerns about diabetic ketoacidosis (or DKA), a potentially serious side effect of SGLT inhibitor therapy, and has come up short of expectations multiple times already in the short commercial life of its only approved drug Xermelo. Although I believe Lexicon shares remain undervalued on the basis of just the potential value of sotagliflozin in Type 1 and Type 2 diabetes with partner Sanofi (SNY), shareholders could really use some positive clinical data on new compounds and a better sales trajectory for Xermelo.

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Lexicon Likely Looking At Even More Competition In Type 1 Diabetes

A Weak Xermelo Ramp Continues To Weigh On Lexicon

If Neurocrine’s (NBIX) launch of Ingrezza in tardive dyskinesia is a good example of an excellent new drug launch, Lexicon’s (LXRX) ongoing struggles with Xermelo reflect the other side of the coin, as the company continues to see lower-than-expected patient interest, compliance, and ability to pay. At the same time, while the data on the company’s lead diabetes drug sotagliflozin remain quite good and the company has the backing of a large player in diabetes (Sanofi (SNY)), the Street remains quite skeptical regarding the drug’s prospects for gaining meaningful share in the sizable Type 1 diabetes market, let alone the much larger Type 2 market.

Lexicon shares continue to look undervalued to me, but investors have to at least consider the risk that this is a “value trap” and that Xermelo and sotagliflozin will never live up to the commercial potentials.

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A Weak Xermelo Ramp Continues To Weigh On Lexicon

Lexicon Pharmaceuticals Still Has Much To Prove

FDA approval of a new drug is supposed to be the biotech equivalent of firing off a starting pistol, but that hasn't been the case for Lexicon Pharmaceuticals (LXRX). Due in part to the drug's mechanism of action and external economic factors outside of the company's control, the ramp of its approved drug Xermelo has been frustratingly weak. At the same time, there's still ample uncertainty and outright skepticism regarding the company's drug sotagliflozin ("sota") for diabetes.

Although I continue to believe that Lexicon shares are undervalued by the market, substantially in fact, it's going to take some meaningful positive news to break the company out of these doldrums. Accordingly, investors are really going to need to have some patience for this story to work out.

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Lexicon Pharmaceuticals Still Has Much To Prove

Lexicon Thumped Despite Favorable Data

Readers who used to play SimCity 3000 might remember the frustration of seeing “Lack of chocolate sprinkles” as an explanation for setbacks in the game, and I'm reminded of that today seeing Lexicon (NASDAQ:LXRX) shares down over 10% on otherwise positive full data from its Phase III inTandem3 study of sotagliflozin in Type 1 diabetes.

Sotagliflozin isn't a flawless drug and the results of inTandem3 weren't perfect, but I don't believe they were so far out of line with prior trial results to justify the move in the share price. While chatter around other issues pertaining to Type 1 diabetes coming out of the EASD meeting may be contributing to the anxiety, I think the reaction is exceedingly negative and that these shares remain undervalued compared to the potential of sotagliflozin in Type 1 diabetes and Xermelo in carcinoid syndrome.

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Lexicon Thumped Despite Favorable Data

Lexicon Continues To Build Its Case For Sotagliflozin In Type 1 Diabetes

Investing in biotechs can be an exercise in frustration, as Lexicon Pharmaceuticals (NASDAQ:LXRX) so amply demonstrates. While I believe the company has continued to build a solid case that its dual SGLT-1/2 inhibitor sotagliflozin can and should be approved for use in Type 1 diabetes, the shares are down about 20% from the time of my last update. Although the data package on sotagliflozin is not perfect, I believe it shows acceptable safety and worthwhile efficacy for a patient group with virtually no medical treatment options beyond insulin.


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Lexicon Continues To Build Its Case For Sotagliflozin In Type 1 Diabetes