Lexicon Pharmaceuticals (NASDAQ:LXRX) Q1 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by and welcome to Lexicon Pharmaceuticals' first quarter 2020 financial results and business update call. All lines have been placed on mute to prevent any background noise. Following management's prepared remarks, we will hold a question and answer session. As a reminder, this call is being recorded today, April 27, 2020. I will now turn the call over to Dr. Kimberly Lee, Head of Investor Relations and Corporate Strategy. Please go ahead.

0:39 Thank you. Good morning and welcome to the Lexicon Pharmaceuticals First Quarter 2020 Financial Results and Business Update Conference Call. Joining me on today's call are Lynelle Coates, 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 Tile, 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 first 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 a slide presentation will be accessible in the Investor Relations section of our website.

1:38 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 Zermelo, Zynquista, LX9211, and our other drug candidates. These statements may include characterizations of the commercial performance of Zermelo, the expected timing and results of clinical trials of telestroset ethyl, LX9211, and our other drug candidates, and the regulatory status and market opportunity for those programs. This column may also contain forward-looking statements relating to the 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.

2:34 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 success of our commercialization efforts for Zermelo, The timing and results of clinical trials and preclinical studies of teletraset ethyl, LX9211, and our other drug candidates Our dependence upon strategic alliances and other third-party relationships Our ability to obtain patent protection for discoveries Limitations imposed by patents owned or controlled by third parties And the requirements of substantial funding to conduct our research, development, and commercialization 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.

3:22 With that, I'd like to now turn the call over to our President and CEO, Lynell Coates.

3:29 Thank you, Kim. Good morning, everyone, and thanks for joining us on the call today. In the first quarter, we continued to grow Zimelo at double digits and made progress on our pipeline while effectively managing our resources and spending. I will elaborate on some of the key achievements and will then turn the call over to Pablo and Jeff for updates on our pipeline developments and financial results, respectively. Starting with Zamello, we achieved U.S. net sales of $7.9 million in the first quarter of 2020, up 17% from the corresponding period in 2019. We saw a continuous strong demand growth in dispenses and had stable inventory. For the year, we remain on track to see percentage growth in U.S. net sales year-over-year in the mid-teens.

4:15 We're making good progress on the Phase II telotrastate ethyl study in biliary tract cancer with the first efficacy cohort now fully enrolled. In addition, we are gearing up to initiate a proof-of-concept study for LX9211 in diabetic peripheral neuropathic pain. Dr. Leperta will be speaking about these programs shortly. We continue to believe that the benefit-risk profile of Sotagliflozin is positive for people with Type 1 diabetes. With this in mind, we are evaluating next steps for Sotagliflozin in pursuit of an approval in the United States. As announced last month, we are closing out the two Sotagliflozin outcome studies, SCORD and SOLOIS, in Type 2 diabetes, heart failure, and chronic kidney disease.

5:03 We continue to work closely with investigators to complete the near-term closeout Going forward, we will be in a better position to be able to prioritize and focus our investments on Zomelo and Carcinoid Syndrome Diarrhea and Bilearic Tract Cancer and LX9211 and Neuropathic Pain, as well as the advancement of our discovery pipeline. We ended the first quarter with approximately $249 million in cash and short-term investments. We will continue to prudently manage our balance sheet. We expect that our working capital should be sufficient to support our operating expenses through 2021. With that, I'll turn the call over to Pablo to review our pipeline.

5:48 Thanks, Lionel. We continue to make progress with our Zanella Lifecycle Management Program. We have recently published additional data on gastrointestinal benefits and carcinoid syndrome, and we have presented more data consistent with our vision of a potential anti-tumor effect. We are also exploring the potential for Zermelo to address fibrosis. The next slide covers our recent publications in carcinoid syndrome. We published data in the Journal of Gastrointestinal Cancer describing the time to reduction in bowel movement frequency in our two randomized, double-blind, placebo-controlled phase three trials of patients with carcinoid syndrome. Benefits developed over the course of about 12 weeks. These data can help physicians and patients appreciate that 12 weeks of Zermelo should be considered in order to see the full response to treatment.

6:36 We also published in the journal Pancreas observational data on the use of Zermelo in actual practice. Some patients receiving Zermelo do not have severe diarrhea, but they still have symptoms of carcinoid syndrome that deserve to be treated. In this study, patients with relatively few bowel movements per day reported to nurses significant reductions in urgency, abdominal pain, nausea, and flushing with significantly better stool consistency when they used Zermelo. The safety of Zermelo in this population supported its use, and that is relevant to safety for other patients with other cancer types, patients who do not have background diarrhea when enrolling in our studies. The next slide reviews our work with another cancer type, biliary trite cancer.

7:22 The conduct of this open-label Phase II study has been supported by preclinical evidence, and safety to date has been satisfactory. We reached our goal of having 20 patients enrolled in the second quarter of 2020. This should allow us to report efficacy data for the initial efficacy cohort of this study, 20 patients, in this fourth quarter of 2020. On our last quarterly call, we described medical records data that were presented at ASCO GI. These data showed that patients with carcinoid syndrome on standard background therapies experienced a significant reduction in tumor size after receiving Zermelo. More recently, in March, at the European Neuroendocrine Tumor Society, or ENETS, we presented information on progression-free survival and other outcomes for these same patients.

8:13 Most patients had no tumor progression at 6, 12, and 18 months following initiation of Zermelin. The median time to tumor progression was 39.8 months. The majority of patients also experienced progression-free survival and the period following initiation of Zermella with a median PFS of 23.7 months. In addition, in a subset of 22 patients with reported biomarker data, mean serotonin levels decreased significantly in the period following initiation of Zermella. Patients improved on carcinoid syndrome symptoms and most were able to maintain or improve body weight and performance status. The next slide presents an overview of the numerous investigator, initiated studies of telotrastat ethyl. They will help inform further development of the drug.

9:10 Turning to LX9211, at the end of 2019, we announced positive top-line data from the Phase I Multiple Ascending Dose Study of LX9211 and Healthy Volunteers. The data demonstrated a favorable safety and pharmacokinetic profile supportive of once-a-daily dosing. We believe that AAK1 inhibition is a promising mechanism for treatment of neuropathic pain, and we expect to begin enrolling patients with diabetic peripheral neuropathic pain in a Phase II study mid-year, while continuing additional work in other areas of neuropathic pain. I will now turn the call over to Jeff to review our financials.

9:53 Thank you, Pablo. This morning, I will discuss key aspects of our 2020 First Quarter Financials. More financial details can be found in our Form 10-Q, which will be filed shortly. Now please refer to slide 11 of our presentation. As indicated in our press release today, revenues for the first quarter decreased to $8 million from $9.2 million for the corresponding period in 2019, primarily due to lower revenues recognized under collaboration and license agreements, partially offset by higher net product revenues. Net product revenues for the first quarter of 2020 were $7.9 million from net sales of Zermelo in the US, up 17% over the prior year quarter.

10:38 Cost of sales related to sales of Zermelo was $0.6 million during each of the first quarters of 2020 and 2019. Research and development expenses for the first quarter increased to $55.2 million from $12 million for the corresponding period in 2019, primarily due to increases in external clinical development costs relating to Sotagliflozin subsequent to Lexicon regaining the rights and responsibilities for development and commercialization of Sotagliflozin pursuant to the termination of the Sanofi Alliance. Selling general and administrative expenses for the first quarter were $14.7 million compared to $14.1 million for the same period in 2019. Net loss for the first quarter was $66.6 million, or 63 cents per share, as compared to net loss of $21.8 million, or 21 cents per share, in the corresponding period in 2019.

11:36 For the first quarter of 2020, net loss included non-cash, stock-based compensation expense of $4.4 million. For the first quarter of 2019, net loss included non-cash, stock-based compensation expense of $3.4 million. We ended the first quarter of 2020 with $249.1 million in cash and short-term investments as compared to $271.7 million as of December 31, 2019. We expect that our current working capital, together with revenues expected from Zermelo net product sales, will be sufficient to support operating expenses through 2021. We will continue to prudently manage our ballot sheet and will seek further opportunities to extend our cash runway.

12:26 Turning to our financial guidance for 2020, as Lionel mentioned earlier, we continue to expect percentage growth of U.S. Jermelo net sales in the mid-teens for the full year. We are revising our 2020 operating and R&D expense guidance that was previously set on our last earnings call in light of the early closeout of scored and solo list. We are reducing total operating expenses to be in the range of $235 to $255 million, down from $245 to $275 million. We expect R&D expenses to be in the range of $180 to $190 million, down from $190 to $210 million, with a heavier weighting in the second quarter relative to the third and fourth as a result of the scored and soloist closeout. We continue to expect SG&A expenses for the year to be in the range of $55 to $65 million.

13:22 As a reminder, our non-cash expenses are expected to be approximately $22 million of our total operating expenses, consisting of $17 million of stock-based compensation and $5 million of depreciation and amortization. As an additional reminder, under the terms of our settlement agreement, Sanpe committed to pay Lexicon $260 million. Of that total, the first installment in the amount of $208 million was paid in September of last year. The second installment in the amount of $26 million was paid in March of this year, and the final installment in the amount of $26 million is payable this September. The $52 million in payments due this year will not affect this year's revenues because the full revenue impact of the settlement was recorded in 2019, but they will obviously benefit our 2020 cash flow.

14:13 I will now ask the operator to begin our Q&A session. At this time, if you would like to ask a question, please press star 1 on your touch-tone phone. Your first question comes from the line of Yigal Nakomatsit from Citigroup.

14:34 Hi, good morning, guys. Thanks for taking the questions. Lonel, you mentioned next steps in terms of pursuing an approval for type 1 diabetes. I'd be curious to know if you could expand a little bit on what those next steps might look like. And then secondly, for Jeff, regarding SOLIST and SCORD, could you just give us a little bit more color on how much more you have to spend to wind down those two trials? Thanks.

15:04 How you going? Thanks for the questions. Let me first start by saying that we have the feedback, we've analyzed the feedback that the agency has given us, and we still do not agree from our perspective as to the risk-benefit of sotagliflozin for patients with type 1 diabetes.

15:22 There are a number of different steps that we can take.

15:25 We've decided to hold for now under the COVID-19 environment because we essentially do not believe we'll make great progress until this settles down with the priorities of the agency, which I believe are absolutely correct to focus on COVID-19. But as we get on the other side of this, then we will certainly inform our stakeholders as to what our next step of the process will be. But at this point, we still believe the risk-benefit swings to the favorability of soda-giflozin, and there are some additional steps that we can take inside of the agency to have our view heard on this matter, and we intend to take those steps but not at this moment until we can get on the other side of COVID-19. With that, Jeff, I'll turn it over to you.

16:20 Jeff, you may be on mute.

16:24 Sorry, I am on mute. Appreciate the reminder. You know, these are are very large studies with a large number of patients. And so there is a meaningful cost to wind these studies down appropriately. Most of that cost will be incurred in the second quarter. And that's why I mentioned that the weighting of our expenses is likely to be more heavily in the second quarter. But the total of that is going to be included in the amount that we have reflected in our overall R&D expenses this year. And we expect to be able to will incur most of the cost in the second quarter. There will still be some lingering cost in the third and fourth quarter as we wind down those studies and wind down the balance of the Type II program, which is mostly complete at this point.

17:17 Okay, thanks. And just one more for Pablo. Pablo, regarding the biliary study with the data expected at the end of this year, could you just give us some sense as to what your expectations are in terms of The types of data we'll see and what the bar might be for a go-no-go decision on taking that program forward. Thanks.

17:42 Yes, we hope to see good progression-free survival, and good would be over 50% of patients achieving progression-free survival at six months. We also will be reviewing safety, and one of the things that we're doing is we're comparing our safety profile to the safety profile that's been well-documented for GEMSYS as first-line treatment of biliary tract cancer to see if the addition of Zermelo improves the safety because that would be another indicator of success.

18:16 Great. Thanks so much. Your next question comes from the line of Ilana Musatos with Windbush. Thank you for taking my question.

18:31 Any impact of COVID on their mellow sales like new patients or enrollment of the Phase 2 BTC trial or even starting your peripheral neuropathic pain trial?

18:48 Thanks, Leanna. I think a great question.

18:52 We've been very fortunate.

18:53 We were able to get to the 20 patients that we had hoped to to get to by this point. And so we're very pleased and really thank all of the PIs and the institutions that are doing this work that prioritize making it happen. And so we're very pleased that it actually did happen. And so I think we have a way to go forward with the Billiard Track program. As for the commercial plan, I think we were a little concerned, to be frank, What we saw at the end of January, early February, but the drug rebounded quite nicely in February and had an extraordinary month in March.

19:40 And what we watch very carefully is that you don't start to see inventory build where the retailers or the pharmacies start to build inventory because people start stocking up. We haven't seen that, but we have seen quite remarkable sales in the second half of the first quarter, and we're very pleased with where that's going forward. With that, we remain somewhat conservative in our estimates that we get for the full year, just because we don't know how the second quarter is going to play out with COVID-19 and patients continuing to stay with the program and stay with the product. I will say one of the benefits that we have with Zomelo is that it's an oral, and that oral can be delivered to patients' front door, and that's turning out to be a remarkable benefit in this environment.

20:34 Patients do not have to go into institutions and so forth to get their meds, but those meds are delivered to their door. So that's turning out to be a very good benefit, and ultimately it's sustaining our sales as we make progress. As for LX9211, we have delayed going into clinic. We have seen signs that it wouldn't be prudent to do that at this point, but what we are doing is preparing all the site initiation work and all the other work that's necessary so when the environment does get to a point where we feel confident we can go into clinic and make good progress relative to the investments we're making, then we'll probably do that. Our best estimate, as Dr. LaPerche has said, we hope to be able to enter into the clinic in the second quarter here.

21:24 Thank you. You bet. Your next question comes from the line of Steven Willie with Stifel.

21:33 Hey, good morning. Thanks for taking the questions. Maybe just one for Pablo. In the phase two telotrustat trial in biliary, Are you conducting any kind of baseline genomic or expression analyses of patients' tumors? And I only ask the question just because I know that there's some increased evaluation of targeted therapy in biliary. I think there's a soon-to-start HER2 trial. I know that there's an FGFR inhibitor that was just approved. So just curious as to whether or not you're are collecting that information in these patients now?

22:20 We're trying to collect the information. It's not easy. The thing is that we're not requiring prospective new biopsies to be conducted as part of the trial. So what we can do is try to get archival tissue in patients, but that's not been easy right now during the coronavirus epidemic. So we'll continue working on that, and we'll see what we can do. One biomarker that we are collecting in everybody at baseline is plasma 5-HIA. And in patients with colon cancer, there's a study indicating that plasma 5-HIA is an indicator of prognosis. So that may be an interesting plasma biomarker. And we'll continue to work on seeing what we can do to get archival tissue in patients where it's available.

23:10 And then how do you think about what the next I know that we still need to see data but I guess presuming you're capable of making a go as opposed to a no decision based on the data that you get, how do you think about the next trial design? Would it be something adaptive? Do you think this would be Maybe something that can be upsized into registration, or do you just go right into a registrational trial if you surpass that internal efficacy threshold?

23:50 We're thinking what would be registrational. In terms of design, it all depends on biomarkers, as you've suggested. So it could be something where the patient population is a subset of all patients with BTC based on Plasma 5-HIA or TPH staining of tissue, or it could be a broader population with BTC. Okay.

24:17 Thanks for taking the questions. Your next question comes from the line of Kevin Kedra with G-Research.

24:28 Hi. Thanks for taking the questions. First, maybe start with... I just wanted to get a sense if there's kind of any change in the way you're thinking about having discussions with potential partners. I know COVID may be interrupting that now, but given the wind down of the outcome studies, does this change the way you think about having those discussions or you might have those discussions with in the U.S. and around the world, given that this is a drug that is approved for type 1 outside the U.S.?

25:04 Jeff, I'll turn that question over to you.

25:07 Sure. So we do, as you mentioned, we do have an approval for Zenquista in Europe and do intend to pursue a partnership there. As you predict, I think it is disruptive what's going on with the coronavirus. But it continues to be our intention to continue put together a partnership for Europe to be able to commercialize in Europe. In the U.S., as Lionel mentioned, we continue to believe there's an opportunity here, and we are continuing to evaluate what's the right path forward with FDA. I will say that by closing out the SCORD and SOLA studies, it does affect our partnership, how we would approach partnership. in that we are not pursuing the heart failure and chronic kidney disease endpoints that we would have pursued in those long-term studies. So there is more of an impact.

26:09 It's more focused on type 1 diabetes.

26:13 Great. Thanks for the call. And then I just wanted to ask on Zermelo, if you guys are seeing any, it's been consistent on kind of the level of patients maintaining therapy versus dropping off at new starts. I was trying to think about that given that New starts could be pressured with COVID. Thanks.

26:32 Great question. Alex, I'll turn it over to you.

26:36 Yes, as Linnell has indicated, fortunately for us, we continue to see new starts in the month of March on the second half when the COVID plan went into effect, which was around the 16th of March. So we saw a continuation of new patients coming on the drug. in that second half of the month as well as new clinicians prescribing the medication as well. And we'll keep a close eye on this going into the second quarter to see if the trend of new patients coming on the drug and the trend of new prescribers prescribing drug continues into the second quarter as well. Once again, if you would like to ask an audio question, please press star 1 on your touchtone phones.

27:26 Your next question comes from the line of Alan Carr with Needham & Company.

27:32 Thanks for taking my questions. With, I guess, shelving the Type 2 programs for now, are you revisiting the rest of the platform, the old transgenic platform? Are there some other drugs that might be Maybe you didn't have the resources to pursue, but now you might consider. And can you elaborate a bit on what you might be doing with Zermelo and fibrosis? Thanks.

28:11 So I'll hold the question on Zermelo and fibrosis for Dr. Tile to speak to. In terms of the discovery pipeline, you're absolutely correct, Alan. I think we This opens up, stopping those long-term trials frees up quite a bit of cash for Lexicon. It also gives us the opportunity to take that look back at other things that we think we can do from our platform, which we have a lot of targets and a lot of compounds. And so I think we were already in a very good position to evaluate what was next. We are finishing up that work. And when we are ready to share that, we will share that out. But you're absolutely correct.

28:59 We do have an opportunity to bring forward a couple of the other lexicon discovery programs and make that pretty much known to all stakeholders. So this gives us the opportunity, given that we have stopped the long-term programs, to do some work around that and begin to bring that forward. With that, I'll turn the second part of your question over to Dr. Tayo.

29:25 So, Alan, what we are doing is we are not only looking at Zermelo, but we are also looking at customs of Zermelo, which are in our discovery pipeline. You know, when we selected Zermelo as the lead candidate for studying Karsman syndrome diarrhea, we also had several other programs going on, and some of them may be more suited to study in whether it is IPF, you know, idiopathic pulmonary fibrosis, or NASH. So what we are doing is we are studying several compounds, including Zermelo, in preclinical models to figure out whether, number one, is it viable with this mechanism of action to see some fibrosis effect, or number two, whether there are other potent inhibitors besides Zermelo in our pipeline, in our discovery pipeline, which would be better suited to take them into the clinic.

30:22 So we should have, like Lynell said, some of these results by the end of the year, and then we can select, if warranted, based on preclinical data, to take them into clinic.

30:35 Okay, thank you. And then one last one. What are the plans with 2761 in light of what you're doing with sodicliflozin? Is 2761 on the shelf, or? and maybe some other development opportunities for that.

30:54 Yeah, Alan, we put 2761 on the shelf for diabetes because our only focus in diabetes at this point will be Type 1, and we believe Sotocoflozin is most appropriate to continue to pursue Type 1, not just in what we have in Europe with an approved indication, but also to get it here in the United States. So 2761 has been shelved for that purpose. But we are looking at other applications for 2761, and Dr. Todd was doing some preclinical work around that. But for diabetes, most likely not. Great. Thanks for taking my questions. Your last question comes from the line of Jessica Fry with J.P. Morgan.

31:40 Hey, guys. Good morning. Thanks for taking my question. I was just hoping you could elaborate a bit on how you're thinking about OPEX. You know, for later in 2020 and as we think about 2021, the question is driven by basically I think your previous runway guidance had been for cash taking you into 21, and now it's through 2021. So a nice increase in the runway with a relatively modest 10 or 20 million cut to 2020 OPEX guidance based on the closing out of the outcome studies. So just curious how that magnitude of an OPEX cut gets you through 21 and what continued pipeline advancement in 2021 that outlook reflects.

32:23 Great question, Jessica. I'll turn it over to Jeff.

32:28 So I think one of the key elements of this, Jess, is that not only are we having an impact on The overall outlook I think is we're confident that we're going to have cash that gets us gets us through 2021 as it relates to our operating expenses. We see continued growth in Dremelo along the lines that we have forecast for this year. And we are looking very closely at our operating expenses and our R&D expenses to be sure that we're being prudent about how we spend those dollars.

33:19 But I would say probably the biggest answer to your question is that the impact that we see is not only on this year, but also on next year in terms of the extension of our runway.

33:35 Okay. And is there anything you can say about what continued internal pipeline advancement that runway reflects?

33:43 Sure. So, you know, we've highlighted some of the most significant elements of that. One is the biliary track program, which we're continuing to forecast throughout this time period. Also, work around LX9211, executing and completing the first proof of concept study in diabetic neuropathic pain, but also doing additional proof of concept work with LX9211 during this timeframe and doing some work on our early discovery pipeline is all included within that forecast.

34:24 Super. Great. Thank you. Once again, to ask a question, please press star one. At this time, presenters, there are no further questions, and Mr. Coates, do you have any closing remarks for us?

34:45 Let me just thank everyone for joining us this morning. I hope everyone is remaining safe. These are very interesting times for sure under the COVID-19 environment, and we will continue to This concludes today's conference call. You may now disconnect.