Lexicon: Beaten Down Stock, High Risk-Reward Situation Ahead

May 31, 2022 11:00 AM ETLexicon Pharmaceuticals, Inc. (LXRX)AZN, AZNCF, LLY2 Likes

Summary

  • Lexicon has not been lucky with the FDA.
  • However, there are reasons, discussed below, which make me see a special situation here.
  • It may not be a bad idea to take the plunge.
  • Looking for more investing ideas like this one? Get them exclusively at The Total Pharma Tracker. Learn More »

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I covered Lexicon (NASDAQ:LXRX) in February last year. Sotagliflozin is its lead asset targeting the SGLT1/2 glucose transporters. It is the first dual SGLT1/SGLT2 inhibitor targeting diabetes. Jardiance from Eli Lilly (LLY) and Boehringer Ingelheim, and Farxiga from AstraZeneca (AZN), two SGLT2-only blockers, are blockbuster drugs, while Sotagliflozin has not found favor with the FDA despite good data generally. The molecule has one NDA pending resubmission in heart failure in certain patients with type 2 diabetes or T2DM, and another with a CRL in Type 1 diabetes with "ongoing regulatory engagement." Earlier this year, Jardiance got a label expansion to reduce the risk of cardiovascular death and hospitalization in adults with heart failure, making it the only such approved drug that is ejection fraction agnostic. Just this month, Farxiga also showed strong data in the DELIVER trial. However, Sotagliflozin is differentiated in so far it is a dual SGLT1/SGLT2 inhibitor.

In 2019, Sotagliflozin was rejected by the FDA citing diabetic ketoacidosis in type 1 diabetes patients. At that time, Lexicon was partnered with Sanofi in a multibillion-dollar deal. However, soon after the FDA rejection and some poor phase 3 data in T2DM, Sanofi (SNY) (OTCPK:SNYNF) parted ways - paying $260mn in severance fees.

The current status of the T1DM indication is ambiguous. Ordinarily, a CRL should have been dealt with by discussions with the FDA, amendments to the NDA and so on. However, Lexicon chose to appeal the decision - twice - and was rejected twice. The FDA based its decision on the CRL, which was justified by the FDA as follows:

The data demonstrated that the addition of sotagliflozin to insulin is associated with an increased risk of diabetic ketoacidosis (DKA), a serious and often life-threatening consequence of insulin insufficiency. Time-to-event analyses of the clinical trial data showed earlier development of DKA in sotagliflozin-treated patients than in patients assigned to placebo, without evidence that the risk stopped increasing over time.

Lexicon has sought a hearing with the FDA.

Two years after the CRL in T1DM, Lexicon got back to the FDA with some solid cardiovascular data in patients with type 2 diabetes or T2DM, however, in February, they withdrew the NDA voluntarily after detecting a "technical issue" with the application. Now they are "targeting a resubmission early in the second quarter of 2022."

In their February earnings call, the company provided the following details:

We recently identified a technical issue with our NDA submission, which was not related to the clinical results or the interpretation of the underlying clinical data. The company identifies supportive documents related to site monitoring visits that were inadvertently not included in the submission.

The company later clarified that these supporting documents exist but were not included with the NDA. Since the issue was identified at the end of the 60-day NDA review period, the company, in consultation with the FDA, determined the best course of action to be a resubmission rather than an amendment, which the company says cannot be done anyway:

You don't amend a filing. I mean, a submission. You can certainly do that on the other side of it, but you don't amend the submission. I think it was a timing issue. We were very, very close to the 60-day date that we had on record and that just was not enough time for the FDA to complete this review nor for us to go back and do the inputs. So, the best answer was to pull it and get it done and get it back in.

It should be noted that there has been very little DKA concern in the T2DM trials. (see comments to my earlier article).

Lexicon also has another asset called LX9211 targeting neuropathic pain, and this asset will produce results from two phase 2 proof-of-concept studies in the near term.

Earlier, sotagliflozin met the primary endpoint in two phase 3 trials, SOLOIST and SCORED, showing statistically significant reductions in cardiovascular deaths, hospitalizations for heart failure and urgent heart failure visits in patients treated with sotagliflozin as compared with placebo. These results led them to the NDA. Key data were:

  • 33% absolute risk reduction in the composite cardiovascular endpoint in type 2 diabetes (T2D) patients with acute decompensated heart failure (HF), with consistent results among patients with preserved ejection fraction (HFpEF) and reduced ejection fraction (HFrEF). Benefit was evident within one month.

  • 26% reduction in the composite cardiovascular endpoint in patients with T2D and chronic kidney disease. Benefit was evident within three months.

  • Reductions in HF-related events were more pronounced at the target once-daily dose of sotagliflozin 400 mg.

  • Reductions in both myocardial infarction and stroke were greater than reported in studies of selective SGLT2 inhibitors.

Sotagliflozin has fared differently across the two sides of the Atlantic. While in Europe it is approved in the EU as an adjunct to insulin therapy to improve glycemic control in adults with type 1 diabetes, it failed to get approval in the US in 2019 for the same indication, after a split 8-8 adcomm vote. Last year, the European Society of Cardiology added SGLT inhibitors as part of the standard of care for the prevention and treatment of heart failure (HF) with a Class IA recommendation, considered the strongest form of endorsement.

In a similar move, the US too issued new guidelines:

New guidelines for the management of heart failure were issued jointly by the American Heart Association, the American College of Cardiology and the Heart Failure Society of America, recommending the use of SGLT2 inhibitors in the prevention and treatment of heart failure with the highest-level recommendations among classes of therapy in each category.

Jardiance's approval and label expansion has put the spotlight on the CV risk angle for the glucose transporter inhibitor class of drugs. Lexicon has this to say about differentiation:

…What we believe is the incremental value of sotagliflozin across even a broader range of left ventricular ejection fraction, as well as particularly the group of highest risk, which was not specifically covered in the empa, even revised label of recent and worsening heart failure.

I need to quote a long extract from their May earnings call that highlights how sota is differentiated from Jardiance/Farxiga:

I think there are three or four main points that I would like to cover. And I think Lonnel did a good job framing it already is that we believe that the top-line announcement from AstraZeneca this morning via press release, reaffirms the importance of SGLT inhibitors as a foundation of care in the treatment of patients with heart failure.

The second is there were no surprises in our view from the Deliver results, because we believe they are very similar to the Emperor-preserved population. And as a reminder, that is a population of patients that have a history of heart failure, but not necessarily recent heart failure.

And in fact, the results from DAPA on the DELIVER study are only about 10% of the patients had a recent hospitalization for heart failure defined by less than 30-days. So we believe that it reaffirms the uniqueness of the SOLOIST population, where a hundred percent of the patients had been hospitalized and 50% of them were started on sotagliflozin during their hospitalization and the other 50% within three days of the relief from the hospital of those patients for a heart failure hospitalization.

The other important difference between SOLOIST and DELIVER, similarly between DELIVER and EMPEROR-Preserved is that a very low or relatively low percentage of patients are on guideline directed medical treatment when you think about the other pillars of care being beta blockers, ACE, ARBs, ARNI and MRA.

So we believe that the DELIVER results reaffirm the benefits of the class, but also reinforce the uniqueness of the SOLOIST population. And frankly, it is the value proposition we believe of the dual inhibition of both SGLT1 and SGLT2 with the benefits as we showed at ACC in reduction in stroke and heart attack in at risk patients for heart failure, and the uniqueness and the benefit and rapid onset of benefits in those with a recent heart failure event.

So what differentiates Farxiga with sota is the trial population of SOLOIST. In that regard, an analyst pointed out that Jardiance's EMPULSE study has a similar population to SOLOIST. However, Lexicon said that "they did not have hard clinical endpoints as their primary endpoint."

Financials

LXRX has a market cap of $240mn and a cash balance of $86.5mn. Research and development expenses for the first quarter of 2022 were $14.9 million, while selling, general and administrative expenses were $8.5 million. At that rate, they have about 3 quarters of cash, which is not going to be enough until approval.

However, Lexicon, in March, entered into a $150M loan facility with Oxford Finance to "provide commercial preparations and support the potential launch of sotagliflozin in heart failure." This loan will consist of three tranches of $25mn and the last one of $50mn. This non-dilutive financing should be enough to see them through approval.

Bottom Line

LXRX has been put through the grinder despite producing generally positive data, especially in the CV risk indication. The "technical issue" with the NDA may not amount to much, yet it has kept the stock stagnant. They plan to resubmit in May (2 days to go), and that should lead to a PDUFA sometime in the middle of 2023. That's lightyears away in biotech years (yes, yes, I know lightyear is a measure of distance, not time); however, given the current low prices, I am wondering if I should take the plunge.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in LXRX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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