2023-08-21 17:50:10 ET
Summary
- Lexicon Pharmaceuticals recently gained FDA approval for its heart failure and type 2 diabetes drug, Inpefa, and is marketing the drug aggressively.
- Lexicon's financials show mixed results, with rising expenses and net loss, but a strong cash position; its success hinges on effective Inpefa market penetration.
- My recommendation for investors is to "Hold" Lexicon's stock, awaiting clearer market traction before investing further.
Introduction
Lexicon Pharmaceuticals ( LXRX ) is a biopharmaceutical firm dedicated to creating transformative medicines. They've commercialized Inpefa, a drug targeting heart failure and type 2 diabetes. Although the FDA is reviewing its application for type 1 diabetes, Lexicon has shown success with LX9211, a treatment for diabetic neuropathic pain, which has FDA's Fast Track designation. Originating from internal research and partnerships like Bristol-Myers Squibb ( BMY ), Lexicon employs innovative gene technologies, pursuing both independent and collaborative ventures to maximize their discoveries.
Recent developments: In May, the FDA approved Lexicon's Inpefa for cardiovascular risk reduction. Availability was expected by the end of June.
The following article analyzes Lexicon's recent developments, financial health, and market prospects. With FDA-approved Inpefa for heart conditions, they face commercial challenges, given financial uncertainties and robust competitors like Eli Lilly.
Q2 2023 Earnings
Staring with Lexicon's most recent earnings : In Q2 2023, Lexicon's R&D expenses rose to $14.5 million, primarily due to Inpefa's upcoming launch and LX9211 expenses. SG&A expenses surged to $30.0 million, largely from Inpefa launch preparations. The net loss reached $44.9 million ($0.22/share), compared to $24.6 million ($0.16/share) in Q2 2022, with notable stock-based compensation costs. By June 30, 2023, cash and investments totaled $256.7 million, up from $138.4 million at 2022's end.
Liquidity & Cash Runway
Turning to Lexicon's balance sheet , the company has total cash and cash equivalents of $102.3M, short-term investments of $154.5M, with no long-term investments listed. These assets total $256.7M. The average monthly net cash used in operating activities over the first six months of 2023 was approximately $11.6M ($69.7M net cash used in operating activities divided by 6 months). The $256.7M of cash and investments provide an estimated cash runway of approximately 22 months based on the average monthly net cash burn. However, these estimates are my own and may differ from other analyses. Lexicon has long-term debt of $98.8M, which is a significant obligation but seems manageable given the company's current liquidity. Lexicon has been operating at a loss, as indicated by a net loss of $76.8M in the first half of 2023, which might necessitate additional financing in the future if it continues to burn cash at the current rate and if revenues do not improve.
Valuation, Growth, & Momentum
According to Seeking Alpha data: The capital structure of Lexicon shows a relatively small amount of debt relative to its market capitalization. However, it holds a significant amount of cash, which has helped to reduce its enterprise value to $255.38 million. In terms of valuation, the company has a P/E Non-GAAP that is not provided and a high EV/Sales ratio of 627.47. The company is experiencing robust growth, with revenue increasing by a staggering 273.39% YoY, though its 3-year revenue CAGR is down by 89.17%. For the upcoming years, earnings estimates indicate a gradual decrease in losses with an EPS of -0.56 by 2025 and significant revenue growth. Stock momentum has been poor, as indicated by the stock's performance relative to the S&P 500, with a decline of 42.56% over the last 3 months and 46.45% over the last year.
Lexicon Rolls Out Inpefa for Heart Failure
In their recent earnings call , Lexicon emphasized their rapid preparation for Inpefa's launch following its FDA approval. This included stakeholder engagement, training a cardiovascular sales team, establishing distribution agreements, and unveiling promotional tools like the Inpefa Together patient support program. Highlighting Inpefa's broad approval for heart failure, they pinpointed its potential for patients transitioning from hospital care, benefiting from its efficacy in reducing heart failure events. Early launch data revealed shipment of 1,200 bottles in one week and six new prescriptions in five days. Lexicon also discussed their ongoing insurance coverage negotiations and bid submissions to expand Inpefa's reach, anticipating more updates in their next call.
Lexicon's Inpefa Versus Eli Lilly's Jardiance: A Heart Failure Treatment Analysis
Based on the available data, sotagliflozin (Inpefa), developed by Lexicon, appears to have a stronger efficacy in reducing the risk of heart failure events, particularly among HFpEF (heart failure with preserved ejection fraction) patients, compared to Eli Lilly's ( LLY ) empagliflozin (Jardiance). In the EMPEROR-preserved trial, Jardiance demonstrated a reduction in the risk of heart failure hospitalization but did not show a distinct reduction in cardiovascular death. However, this trial had a significant limitation, as 33% of its participants had an LVEF less than 50% but greater than 40%, which technically does not fit the HFpEF definition . On the other hand, the SOLOIST-HF trial with Inpefa illustrated a pronounced reduction in cardiovascular death, hospitalization, or urgent visits for heart failure. Additionally, among HFpEF patients, Inpefa showcased a marked reduction in the primary outcome risk.
In terms of safety, Jardiance users have been observed to have a higher incidence of urinary tract and genital infections compared to Inpefa users. Inpefa's urinary tract infection rates are similar to that of the placebo, and there is no mention of increased genital infections. However, it is important to note that market dominance is not solely determined by efficacy and safety profiles. The term "apparent" advantages should be taken with caution, as it merely reflects observations and not definitive conclusions. Comparison of different drugs and their respective trials should be done with care.
In my view, both Jardiance and Inpefa will likely be perceived as equally safe and effective. However, factors such as branding, pricing, marketing strategies, and the reputation of the manufacturing company play crucial roles in determining a drug's market share. Eli Lilly, the company behind Jardiance, is a pharmaceutical giant with abundant resources, a strong market presence, and well-established relationships within the medical community. These factors present challenges for smaller companies like Lexicon, which produces Inpefa.
Established trust and familiarity with a specific drug can influence physician prescription choices, even when newer and potentially superior drugs are introduced. In order to secure a strong market position for Inpefa, Lexicon needs to engage in robust marketing campaigns, provide comprehensive educational outreach about the drug's benefits, and offer competitive pricing or support programs.
My Analysis & Recommendation
Lexicon Pharmaceuticals has made significant strides, with the FDA's recent approval of Inpefa highlighting its potential in the biopharmaceutical industry. The company's financials, post-Q2 earnings, depict a mixed bag of both challenges and opportunities. With a substantial cash position of $256.74M, Lexicon appears well-armed to market Inpefa, at least in the short run.
The efficacy and safety profile of Inpefa, when juxtaposed against Eli Lilly's Jardiance, seems promising, potentially giving Lexicon a competitive edge. However, with the towering presence of Eli Lilly and the importance of non-efficacy factors such as branding and marketing, the road to market dominance for Inpefa is far from straightforward.
Investors should closely monitor:
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Market Penetration: How well Lexicon can navigate the market, especially against established competitors like Eli Lilly. This involves tracking Inpefa's uptake rate among healthcare providers, patient feedback, and insurance coverage approvals.
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Financial Stability: With a predicted significant rise in operating expenses due to commercialization efforts and a notable increase in long-term debt, keeping a keen eye on Lexicon's financial health is imperative. If the company's current cash burn continues unabated and significant revenues remain elusive, further fundraising endeavors might be on the horizon.
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Ongoing Developments: Lexicon's efforts regarding stakeholder engagement, distribution agreements, and the progress of the Inpefa Together patient support program will be pivotal. The success of Inpefa's launch and subsequent uptake will be a litmus test of Lexicon's ability to rival industry giants.
From an investment perspective, Lexicon is in an interesting spot. Its groundbreaking developments and strong financial offerings hold promise, but fierce competition and the impending financial challenges posed by commercialization efforts temper enthusiasm. Given this balance of potential and risk, my recommendation would be to "Hold." While it's not the right time to divest, awaiting clearer signs of Lexicon's market traction before investing further would be prudent. Investors would do well to monitor the company's next steps meticulously.
For further details see:
Lexicon Rolls Out Inpefa For Heart Failure Amid Robust Competition