Lexicon Pharmaceuticals, Inc. (LXRX) Earnings Call Transcript & Summary

Great. Good morning, everyone. My name is Jess Fye. I'm one of the biotech analysts at JPMorgan, and we're continuing the 2020 healthcare conference today with Lexicon. We're going to host a Q&A session with the management team immediately after this presentation. It's going to be just down the hall in the Yorkshire Room, so come to that after if you want to hear more. But for the presentation, I'm going to turn it over to the company's CEO, Lonnel Coats.

Thank you, Jessica. And as always, I will make this presentation on behalf of all the extraordinary men and women at Lexicon who work tirelessly to bring our innovations forward to patients. Today, I'll be making forward-looking statements. In some of those statements, there will be risks. Our risks are identified in our SEC filings. So let me jump right in. Lexicon's scientific platform has produced 2 approved products and a pipeline of innovative drug candidates. Let me first start off with XERMELO. To remind everyone that XERMELO's approved here in the United States and has been approved since 2017 for carcinoid syndrome diarrhea, and we have a partnership in Europe and outside the United States with Ipsen who is bringing our innovation across the globe. We're also pursuing a second indication for biliary tract cancer, which we called out information on our first cohort of patients at the end of last year. Zynquista, our second innovative product that's approved in Europe for type 1 diabetes, the first dual SGLT1 and 2. We're very proud of that. And then in the United States, we're working diligently to find a pathway forward here for type 1 diabetes. As for the rest of the program for sotagliflozin in type 2 diabetes, heart failure and diabetic kidney disease, I'll walk you through that a little bit shortly. I also will talk to you a little bit about our -- one of our other candidates for neuropathic pain, LX9211, which is a very unique drug for neuropathic pain. So quite a bit of innovation here at Lexicon. Let me jump right into XERMELO. As most of you may know, it's a novel, oral tryptophan hydroxylase inhibitor. We're very pleased that XERMELO has grown quarter-over-quarter and year-over-year, and we'll give more color to XERMELO sales as we get into our quarterly earnings. Well, one of the great things about XERMELO is that the mechanism itself, where you have a reduction in overproduction of serotonin, it presents a remarkable opportunity in areas of GI, where it could be tumor effects as well as fibrotic effects. And so our next pursuit is in the area of biliary tract cancer, which we talked a little bit about in our press release on the first cohort of patients. So where did that come from? When we look at preclinical evidence, the inhibition of serotonin synthesis by a TPH inhibitor resulted in a decrease in cell proliferation in vivo. And therefore, we took this on in a clinic. We've called out the first 6 patients which was for safety, but we're very pleased to see that the first 2 patients that were enrolled have now gone more than 6 months of dosing. The primary endpoint is progression-free survival of 6 months. We will have additional data for efficacy where we will enroll 20 patients this year and be in a position to call out our efficacy data this year. Well, just to stop there, again, the mechanism, we think, can go across a multitude of areas from neuroendocrine tumors to carcinoid heart disease. And there are a lot of inbound interest in XERMELO for its mechanism in terms of investigator-initiated studies. What this slide shows here is some of the nonclinical studies that we have chosen to fund that have come in as inbound, and we will start to see publications around some of this work from 2019 -- from last year going forward. But also impressive as we get into 2021, we'll start to see a lot of the clinical work that will be coming from this kind of investment from many different areas. This is where we will get some clue as to what we can continue to pursue as additional work and indications for registration for XERMELO. Let me jump into Zynquista for type 1 diabetes. We're all very much familiar with the extraordinary class of compounds called SGLT2s. We think they are quite remarkable. This is the first dual SGLT1, SGLT2. The uniqueness of the SGLT1 mechanism is that it inhibits SGLT1 in the GI tract which slows the uptake of glucose. This is very important, particularly in type 1, and has very profound effect on postprandial glucose. But when you get into type 2, because you have a kidney-independent mechanism, it allows you to continue to have effect as patients may have a lower eGFR. That, too, will be a very distinguishing factor as we get into discussions about development. I'm very pleased to say that Zynquista is a distinguished product for type 1 diabetes in Europe. Our colleagues in Europe has approved Zynquista as well as one other SGLT in this category. And what I will say is the other SGLT reads as the following: the number of patients with severe hypoglycemia was balanced across treatment groups at week 24 with both the treatment arm as well as the placebo group. As for Zynquista, the incidence of severe hypoglycemia and rates of documented hypoglycemia, overall and nocturnal, were lower on sotagliflozin compared to insulin alone in 52-week studies. What that means is sotagliflozin is the only approved drug in type 1 diabetes that reduced the incidents and rates of hypoglycemia, so we're very pleased with this label in Europe. As for the United States, the FDA issued a complete response letter, said it was unable to approve the NDA in its present form. I think everyone is familiar that the class of compounds showed an imbalance of diabetic ketoacidosis in the studies. We believe very firmly that the benefits of this compound outweighs the risk. We also believe that diabetic ketoacidosis can be managed -- can be detected and properly managed. And last but not least, we believe that by informing, engaging and talking about how to manage the risk is where you have the best opportunity for patients to get the benefit and be aware of diabetic ketoacidosis. Not talking about it, quite frankly, we believe, is the more tenuous situation. We have elevated our dispute into the Center for Drug Evaluation and Research, and we now have a date that we will be meeting with them to make our case, and we will call out the decision from that here in the first quarter. As for the opportunity, when we assess it inside of Lexicon, we believe there is $1 billion opportunity here in type 1. When we think about the number of patients in the United States who are afflicted with type 1, there's 1.6 million Americans, and 90% of them are adults. 42% of them have high blood pressure, and 66% of type 1 patients over the age of 25 are either overweight or obese. The mechanism of how sotagliflozin work certainly can help patients across the board in each of these areas. We also know that 79% of all patients with type 1 diabetes struggle to get to the under 7%, and 50% of them carry an A1c greater than 8%. Equally important, 85% of patients with type 1 diabetes will have a confirmed hypoglycemic event, and 13% will have a severe hypoglycemic event. So the unique mechanism of sotagliflozin and the unique label that we got in Europe, we hope to achieve here in the United States because we think we can bring a benefit in the absence of the severe hypoglycemic risk. On the other side, there's 5% to 8% of patients who will have a DKA experience. And here is what we believe: having companies like ours out in the marketplace, talking about how do you identify, manage and engage in this risk could absolutely have an impact on bringing this risk down. And again, that is the argument we make. As for type 2 diabetes, I'm going to start off and talk -- or as for the rest of the program, I should say, which has 3 elements: type 2 diabetes, heart failure and diabetic kidney disease. Let me talk about the system first. We know the chronic kidney disease and heart failure involve escalating costs to the overall health care system. When we look at this Kaiser Permanente report that's in front of you here, the mean adjusted annualized health care impact of type 2 diabetes, when you look at chronic kidney disease and heart failure, you see a significant spike in cost. When you look at the mean adjusted annualized health care costs by resource and eGFR severity, the greater the severity of your eGFR, the cost of the health care system is quite enormous. When you think about heart failure, it represents a remarkably large market opportunity. 23 million people around the world have heart failure, 5.7 million here in the United States, 100 new patients diagnosed with heart failure every hour. It is the #1 cause of hospitalizations for Americans greater than 65. 50% of patients die within 5 years of a heart failure diagnosis. There is 1 million hospitalizations for heart failure annually in the U.S. I will argue vigorously, intervention is immediately necessary. Diabetes, we believe, is the leading cause, not just what we believe, but it is published that it's the leading cause of kidney failure. When you look at all other causes of kidney failure, diabetes outstrips everything else and has contained to outstrip everything else over a couple of decades. That takes me to diabetic kidney disease. It represents a large market opportunity. 37 million in the U.S. with chronic kidney disease. One in 10 U.S. adults will have chronic kidney disease. 40% of patients with type 2 diabetes have chronic kidney disease. I'll take you back to the mechanism of sotagliflozin. 44% of chronic kidney cases are caused by diabetes. There is a direct link between chronic kidney disease and diabetes. Why do I say that? Because you see guidelines are changing for this class of compound given the clinical results that are quite enormous and amazing. We see here from the ADA and EASD, the SGLT category is recommended to reduce the risk of major cardiovascular events and hospitalization for heart failure, quite a shift, quite a change. Why do I bring that up? Because Lexicon is investing enormously in 2 large outcome studies that I'd like to talk to you a little bit about here that we believe will be defining and differentiating. First is the SCORED study. It is designed to demonstrate benefits in chronic heart failure and diabetic kidney disease in type 2 patient population, approximately 10,500 patients to be randomized on sotagliflozin. Screening has been completed, except for in China. Why do I say this number? Because based on what our advisers have told us, this is the largest program ever in chronic kidney disease, period. All patients will have CKD3 or CKD4, stage 3 or stage 4. When we look at all other SGLT compounds in this class, this, quite frankly, will be the most unique program amongst them all. The SCORED program is adequately powered to show benefit in chronic heart failure, renal and MACE endpoints. It will indeed be the most unique program. That is attached to our second large outcomes program, which is the SOLOIST study. And it is designed to demonstrate benefits in acute decompensated heart failure in patients with and without type 2 diabetes. This is a trial. We'll have approximately 4,000 patients. We have subsequently, since having getting the rights back, we have now amended that trial, and we have added patients without type 2 diabetes into that program. Sotagliflozin is initiated in the acute setting and the continued long-term setting. This is very important. The primary endpoint combines hospitalization for chronic heart failure and cardiovascular mortality. All SOLOIST patients have acute decompensated heart failure. This is indeed unique from all other in the SGLT category. It is positioned to show benefit in reducing 30-day readmissions. These 2 programs, we believe, have the opportunity not just to be considered within a type 2 category, but also in a very large and continually expansive market in chronic kidney disease as well as chronic heart failure. Let me move on to one of the other innovations that Lexicon has advanced, that is LX9211 for neuropathic pain. It is a very innovative approach. This approach came out of a long-term research collaboration with Bristol-Myers Squibb. Lexicon has subsequently taken full control of the rights of this asset from that alliance. It is a very novel target with no association with the opioid pathway. The preclinical data demonstrated excellent CNS penetration, reduction in pain between the preclinical models of neuropathic pain. And we just completed all of our Phase Ia and b data and supports preclinical profile, favorable pharmacokinetics which supports once-daily dosing, is well tolerated, with headache and dizziness as the most common adverse events at higher-than-expected therapeutic doses. We're now moving fast and furious into Phase II, which is starting right now in this first half. We strongly believe that there is indeed a substantial need for new therapies for neuropathic pain without addictive potential, and here is why. It is an $8.5 billion worldwide market, but 33% of global opioid sales come for neuropathic pain. There is an amazing need at this moment to have alternatives to opioids in this field. We believe the potential for LX9211 could be something that satisfies that need. So let me move on to our financials. I'll give you a selected look at our balance sheet. Our cash and investments at the end of September was $296 million. Total assets were $444 million; total debt, $245 million. But I will like to update this and inform you, as of December 31, our cash and investment sits at $270 million. The guidance that we have given prior to now is that our cash will last us into 2021, and we stand by that guidance, and we'll give more guidance in detail as we get into our earnings. Milestones that you can look to see this year. As for XERMELO, there will be additional work that we'll complete around the biliary tract cancer program. As I said before, the first cohort of efficacy data will come in at the end of this year, so stay tuned for that. In terms of type 1 diabetes, we are vigorously engaged in discussions with the FDA to find a pathway forward for type 1 diabetes, and we should be able to call that out in the first quarter. As for the rest of the sotagliflozin program, we are accelerating every way we can to move forward with the SOLOIST program as well as to complete the events and the SCORED program. And together, we believe we have an opportunity to not only get an indication that most are looking forward to, perhaps, for type 2 diabetes, but we will be going vigorously after heart failure and chronic kidney disease. As for 9211, we are initiating the Phase II studies this quarter. And as we have more information on that, we will also update you at that time. And I will stop there. Thank you.