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

Good morning, everyone. I'm Colin Minicus. I'm an associate here at JPMorgan's Healthcare Group. It's my pleasure to welcome Lexicon to the 42nd Annual JPMorgan Healthcare Conference. [Operator Instructions] Now without further ado, please welcome CEO, Lonnel Coats.

Thank you, Colin, and thank all of you who have made time to be here live at the conference and for all of those who are on webcast. Today, I'll be making forward-looking statements. Some of those statements certainly may have risk. I encourage you all to look at our SEC filings where our risks are contained there. As always, I make these presentations on behalf of all the extraordinary men and women at Lexicon that work tirelessly every day to translate our mission into helping patients live better lives. With that being said, let me move to the first slide and say, for those of you who do not know much about Lexicon, let me take a couple of moments and give you a little bit of our rich history. Lexicon has been around a long time. We started off with being a major participant in looking at the foundational discoveries of the human genome. We started a project called Genome5000. It was a 10-year project, which was to systematically define the functions of approximately 5,000 genes in mammalian physiology and behavior. From that project, Lexicon identified over 100 targets that are currently in our library. From those targets, we've been able to build out a portfolio of compounds and ultimately a portfolio of drugs. For many of you who may not be aware, Lexicon has taken -- in the 10 years I've been here, Lexicon has taken 3 compounds all the way from its discovery labs, into development and now into market. The first, for those of you may not know what a compound called XERMELO. It was a compound used for neuroendocrine tumors for patients who have carcinoid diarrhea. That compound was taken all the way through to market, approved and entered the market in 2017, and we sold that compound to a company called Tessera in 2019. That allowed us to focus our resources from that sale on 2 additional compounds that have come out of the Lexicon's library as well. So let me talk to you about those 2. First, I would say that 2023 was indeed a remarkable year because the first compound is our SGLT1 with an SGLT2 called INPEFA that was approved by the FDA with a broad label for heart failure. As a result of that, we went forward to hire tremendous talent in the cardiovascular space to commercialize INPEFA here in the United States, and I'm pleased to share with you today some of the results that we are seeing as we're entering now into our third quarter of launching INPEFA. The third asset, or the second one in '24, but the third that's moving its way to market from our discovery labs is a compound called LX9211 in diabetic peripheral neuropathic pain. LX9211 is a potent, orally delivered selective small molecule inhibitor of adaptive associated kinase, better known as AAK1. And in preclinical studies for LX9211, it demonstrated a reduction in pain behavior in multiple models of neuropathic pain without affecting the opioid pathways, and we all know how extremely important that is today. What I'm going to be sharing with you today is continued development of LX9211 and the progress we're making with that. So let me jump in and talk to you about neuropathic pain. First, we know that there's an unmet medical need here, and then I'm going to share with you the proof of concept that we achieved, and then the advancement of the clinical program that's currently underway, but let me start with a significant commercial opportunity. Over 20 million Americans experienced neuropathic pain, and approximately 5 million of those have diabetic peripheral neuropathic pain; therefore, making it the largest segment of neuropathic pain. The current standard of care does not eliminate neuropathic pain for most patients and may experience undesirable side effects. LX9211 and the AAK1 target that we found that I'll talk to you about here shortly, is an inhibition that represents a novel non-opioid approach to treat neuropathic pain, with an opportunity to be the first drug with a new mechanism of action approved in neuropathic pain in over 2 decades. This potential to be first-to-market opportunity will be going into a large multibillion-dollar market that currently today is dominated by generics because there is no new innovation. So let's talk a little bit about LX9211 and how do we find this target AAK1. Going back to this extraordinary work we did with the Genome 5000, we went through all of that work and looked at many different targets, including Nav 1.3, Nav 1.7, Nav 1.8, Nav 1.9, and we chose AAK1. And the reason we did that intentionally, as you look at almost any of the pain models that we use, AAK1 show significant impact on pain. To the left, if you look at the spinal nerve ligation model, you can clearly see in green LX9211 or AAK1 certainly is blunting the pain. If you go down to the right here on the lower one, looking at the Streptozotocin model, once again, LX9211 performs extremely well. Then you go to postherpetic neuralgia, once again, LX9211 performs consistently well. So we all know, we've been in this business long enough that rat models don't always translate into human results. Therefore, we took the risk and we went into Phase II and did a Phase II study to demonstrate whether this is going to pan out the way we did. We ran a Phase II study with 3 arms. We did 100-milligram loading dose because it's a long half-life, 7-day half-life, and we wanted to get the effect early. And then followed by 10-milligram dose thereafter. The second arm was 200-milligram dose, followed by a 20-milligram dose, and then the third arm was placebo. We truly believe a placebo is very, very important because we know, in pain, everybody gets better, and therefore, you need to be able to show the margin by which you are going to get better to see the real activity of a compound like this. The other thing about this design is that we wanted to maintain patients who are on a stable dose of diabetic peripheral neuropathic pain meds. They could be on gabapentin, they could be on pregabalin, they could be on duloxetine. It did not matter. They can stay on it as long as they were stable. We don't want to force patients off of these meds, although these meds may not be providing optimal pain, it may be providing some benefit. And in the real world, that's basically how it's going to work, and therefore, we needed real-world results. So what did the results say? Well, LX9211 achieved its primary endpoint, clinically and statistically, ensuring reductions in average daily pain score at week 6. What I love about these data that you're looking at is that the effect of the ADPS was consistent across age, sex and use of baseline diabetic peripheral neuropathic pain medications and baseline pain score. Ultimately, it didn't matter if you were on standard of care, you got a benefit. If you were de novo, you got a benefit. Now we know 2 things about patients living with diabetic neuropathic pain. One is that there's tremendous sleep interference; and two, they get this burning pain in their feet that disrupt their lives. And so we looked at it, and once again, what we show with LX9211 is for patients with burning pain, there was a significant and clinically meaningful benefit. And then when you look at the baseline for interference and sleep, once again, LX9211 was statistically significant. Well, okay. So you've got these great results. Well, because what did we learn? We learned that loading dose upfront may be in an overshoot that we start to see some tolerability. More specifically in the early days of that loading dose, we saw more dizziness than we'd like to see. And as a result, we saw a higher dropout rate than what we'd like to see. Why is that important? Because the higher dropout rate, the more your efficacy gets muted. And therefore, we decided that we want to optimize the dose before we go into Phase III, and that's what this PROGRESS trial is. It will be 4 arms. The 10-milligram arm, which has already shown to be an effective dose that we can take forward into Phase III, but we want to optimize it. It also would be a 20-milligram dose, and then the third arm, because one of the other things that we learned is that the effect of LX9211 came on board in the first week. If anyone knows anything about pain about the other drugs in this marketplace, it can take 3 to 4 weeks before you see an effect. We saw it the first week. We don't want to lose that so we're testing whether we can maintain that first week, by putting in this 20-milligram dose for 7 days and then 10-milligram thereafter. And once again, we believe it's important to have a placebo-controlled study. So in closing on LX9211, we have the potential to be the first-to-market opportunity with very few novel treatments. You can go try to find them. You're not going to find them. And the other thing you're not going to find is you're not going to find very many successful compounds that have shown these results in Phase II for diabetic peripheral neuropathic pain. We are truly in rarefied air. It represents the largest -- diabetic peripheral neuropathic pain, represents the largest growing neuropathic pain market in the United States. And the FDA feedback that we received in the second quarter of '23 is now put into the design of the study. The program has been optimized for probability of success, time and efficiency. And therefore, when we go into Phase III, we're increasing our probability of success in this design. We anticipate to have top line data in the second quarter of 2025. So let me move on to the next innovation that's come all the way from the Discovery Labs of Lexicon and now into market, and that's sotagliflozin for heart failure. Let me first say sotagliflozin is not just an SGLT2. Sotagliflozin is a combination of SGLT2 and SGLT1, and we're going to talk about why that's important in a moment. It received a broad label for heart failure across the full range of left ventricular ejection fraction, including HFpEF, HFrEF with or without diabetes. We saw a 33% risk reduction in the SOLOIST population for cardiovascular death, hospitalization for heart failure and urgent heart failure visits. And last, but not least, we're launching into a market where the guidelines fully have made SGLT inhibitors the very foundation of treatment for heart failure. So let's talk a little bit about this market. There's approximately 6.7 million heart failure prevalence based on 2019 in the U.S. That number is going to grow based on projections by 2030 to be more like 8.5 million. It's the #1 cause of admissions for hospitalizations for Americans older than 65, and there are about 1.3 million hospitalizations in the United States every year for heart failure. There's about 25% of these patients that get readmitted after 30 days. 65% of these patients will be readmitted to the hospital within a year. So you can see the cycle of what the toll that takes on patients and more importantly, the toll that takes on the health care system. When we look at this foundation of care of the SGLT since the guidelines have come out, you've seen a 70% growth of SGLTs year-over-year. Importantly, what you see is only 1 out of 10 patients who have heart failure actually get an SGLT. Given the strength of the data and the strength of the guidelines, you have a greenfield of opportunity for continued and sustainable growth. And given that INPEFA has a unique position in the marketplace, INPEFA will indeed take its rightful spot in that growth. And then when we project out to 2030, we're looking at an over $9 billion market. So let's get back to why INPEFA is so unique. INPEFA is not just an SGLT2, it's also an SGLT1. We know that SGLT2 is expressed in the kidney. And also, we know that SGLT1 is expressed in -- it's a cotransporter expressed in the absorption of glucose and galactose in the GI tract. So why is this important? When you inhibit both these targets, what you're hoping to have is more synergistic effect. We know that SGLT1 is not just in the kidneys. You see patients who have a reduction in SGLT1 in the variant, there is an improvement in heart failure, dilated cardiomyopathy, ischemic heart disease with or without type 2 diabetes and diabetic cardiomyopathy. So let's talk about the results we see that look so uniquely different. Sorry, this is a bill slide. So let's go back to INPEFA reduced cardiovascular death and heart failure branded by 50% over the first 30 and 90 days of discharge from the hospital. Why is this important? We have not seen this with any other SGLT2. This is important because it's important to the health care system. But what is most important to is patients don't have to be on this wagon wheel. Now we have a drug that's shown remarkable results. Now we've got to take that message out to the community. So we've built 150 cardiovascular specialists that are well trained and experienced in this area with a precision focus on the top prescribing cardiologists in the space. We're zeroing in on what we call this A segment, and we're penetrating out from that A segment to try to capture as many of these targets as we can. But the focus really is on where the primary business is, which is to targets A and B, which represents 60% of the total TRx volume. So we have the reps that are very much focused on the message and the benefit of INPEFA. We also know that we cannot be successful without getting access. And so the last quarter, you heard me say that we had about a 20% access. I'm very pleased to say we closed out the year with 43% excess. So we see an improvement in access, a very precise focus on targets. And then the question becomes, does that lead to demand? If you recall the last quarter, you can see what we did in demand, demand being matched to what we see in claims. If we just look at Q4, which represents only October and November, it's already outstripped the last 2 quarter periods, and we don't have the December data yet, but we will give you the full data at our next earnings call. So we're very pleased with the progression of the demand. Matched up to the demand, if you recall, in the previous quarter, I talked about there were 400 -- a little over 400 prescribers. That number has almost tripled to over 1,200 prescribers finding reasons to believe with INPEFA. Now, INPEFA, I showed you again, this unique mechanism SGLT2 and 1, we asked ourselves selves, are there other opportunities where we mine our data to develop INPEFA? Well, the answer to that is yes. And the opportunity that we'll be going for next will be hypertrophic cardiomyopathy. There's a strong scientific rationale for us to do that. And there's a significant market opportunity with minimal therapies that exist today. It's estimated to be 1 million patients in the U.S. And we've gone to the FDA to get feedback on how best do we approach this, and then I'll talk to a little bit about how we're going to do it. So here's the rationale. When you go back and look at our data, when we pull our analysis, it didn't matter if you had HFpEF, HFrEF or HFpEF HFmEF, this drug worked. And more importantly is that when you get to the HFpEF section and look at the confidence intervals, you should be very confident you have a very powerful impact. When we look at these data, the question then became a HFpEF patient ultimately can look like an HCM patient. So we then looked at our score data of 10,000 patients, mined that data and then looked at a cohort of patients that share the same phenotypic and physiological traits of patients with HCM and may include undiagnosed cases of HCM. Now this is left ventricular hypertrophy without hypertension, and it offers us a unique perspective as to whether or not we could go in HCM. Well, here are the results. When you look at cardiovascular death and heart failure-related events, you have a hazard ratio of 0.4. When you look at 3-point MACE, you have a hazard ratio of 0.52. When you look at 3-point MACE, plus hospitalization for heart failure, you have a hazard ratio of 0.46. These are very powerful numbers that gave us great encouragement that we are on the right track to pursue HCM with INPEFA. But we can say whatever we want to say, but it means we got to go talk to KOLs, which we did, and we found they were absolutely enthused. That's great. And then we had to go talk to the FDA and sought feedback from the FDA. Well, that feedback gave us great encouragement that we can pursue HCM. The primary end point has to be the change from baseline in KCCQ, which is a clinical summary scale, and a proposed indication that we will be pursuing as INPEFA is indicated to improve symptoms and physical limitations in adults with symptomatic hypertrophic cardiomyopathy. It will be a 500-patient study, 250 in the sotagliflozin 400-milligram arm and 250 in the placebo arm. We're very pleased of the feedback that we receive. We're very confident in what we have now seen both in the data that we have mined, but we also know from our own KCCQ that we believe we could have a winner here. So what is the focus of Lexicon in 2024? We will further accelerate the launch of INPEFA for heart failure. We will advance LX9211 for diabetic peripheral neuropathic pain, and we will progress our opportunities for partnership, growth and expansion. So let me talk about that with some -- a little bit more color. Going back to what I said at the very beginning, this is a company with a deep scientific history of being able to bring products out of its own discovery labs all the way forward. What we are now building out is a portfolio of cardiometabolic assets and its complications that should put us in a position to partner and to grow. Starting with INPEFA, which we're now heading into our third quarter, and we're starting to see in leading indicators, we're getting a lift on INPEFA for heart failure, followed by LX9211, which will be a non-opioid target for diabetic peripheral neuropathic pain. But what is it? It's really a complications of patients living with type 2 diabetes, which is a metabolic issue. And then sotagliflozin, I'm happy to tell you, it's kind of back to the past is that we have now engaged with the FDA on looking for a pathway back for type 1 diabetes for sotagliflozin. And we've had a meeting with the agency, and there's receptivity, and we'll have a lot more to say about sotagliflozin for type 1 diabetes. And then certainly, as I've already outlined, we will begin our work to go into late development with sotagliflozin with a single study for HCM. And because, again, we are a company that's fully integrated with a discovery engine. Stay tuned because we'll be talking about a preclinical candidate that we found out of our library, which will be obesity target. With that, I'll stop there, and thank you.

Thank you, Lonnel. Now we'd like to turn it over for any Q&A.

Great. Well, maybe we'll go off of a few questions from our end. How do you see the neuropathic pain market subsequent to the Vertex data DPN disclosure?

Great question. First of all, I think anybody who's doing work in the CNS space, god bless you. It's a tough space to be in, and we're pleased that Vertex is staying in it because we need more players in this space. What I do think it has done is that it has brought more attention to this space that Lexicon being a small company may not be able to generate the attention. Just here at JPMorgan alone since Vertex has put its announcement out, we're getting a lot more attention around LX9211 than we may have gotten previously. So I think it's been very, very helpful. The other thing that's been very helpful is that when we look at how they are approaching this, particularly with their Nav 1.8, there're some things we know about it, there're some things we know about their design, and what we conclude is that we're pretty much well on our way to having the success we think we will, and we'll have a very differentiated position.

A couple of questions. How much market exclusivity do you have on the sotagliflozin?

INPEFA?

Yes.

INPEFA will run through -- Jeff, I'll let you answer that.

It's with patent term extension, it will be 23.3 on the composition of matter patent.

So we have some time.

10 years.

Okay. Great. And with this ability to block the transporter in the intestine, does that change sort of like postprandial glycemia? Is that one of the advantages? And is there a downside in terms of GI side effects to those unabsorbed -- sugars get absorbed just later in the small intestine, or do they actually end up in the colon and do people suffer from flatulence, diarrhea?

Great question. Craig, do you want to take that?

Yes. Thank you. I'm Craig Granowitz, I'm the Chief Medical Officer at Lexicon. Great question. As Lonnel went through in the slides, SGLT1 expression is much wider in the body, including the gut endothelium and myocardium. We believe that, that is directly related to why 1 plus 2 is greater than just SGLT2 alone. By blocking the uptake in the gut, we believe that gives us an inherent advantage in type 1 diabetes because you're both blocking -- blunting the uptake of glucose and you're treating it at the kidney because you get all the benefits of SGLT2. What you've seen in the clinical trials and that were labeled is that the side effects of sota are quite similar to other SGLT2 inhibitors. There's a slight increase in mild diarrhea, but is certainly not been either dose-limiting and is certainly not been an issue in the marketplace. Just as long as I have your comments there, that's why we're also very excited in some of the slides that new show. We show a reduction both in MACE, which is MI and stroke in that subgroup that Lonnel referenced in addition to the heart failure endpoints. SGLT2 inhibitors alone don't show a reduction in heart -- in stroke and MI. And again, there is SGLT1 expression on the endothelium and the platelet. One last area is if you look at the myocardium, there's also SGLT1 expression in the myocardium. So that has the benefits both in stroke and MI. The unprecedented results in the 50% reduction in 30-day readmission rates and a number needed to treat to avoid a cardiovascular death or heart failure event, and why we are increasingly confident that the data that Lonnel showed in our interest in HCM are well founded. So we do everything the SGLT2s do, but there are additional benefits that even if they were to develop their drugs, they probably couldn't touch both in type 1 diabetes, stroke and MI, a rapid onset of reduction in heart failure events and in HCM.

Is the goal to have a prescription -- have the patient start therapy during a heart failure admission? And how do you target those prescribers?

So the answer to that is yes, eventually. Right now, all of our prescriptions are out in the community because it takes time to get on hospital formularies. We're past the 6-month new-to-market block for those. And so we're starting to have the discussions before the P&T committees of the hospitals. Ideally, because of the unique profile that we have on hospitalized patients. We'd like to get patients started either while they're still in the hospital for a couple of days before they are discharged or upon discharge. And that's something that I think is really an upside opportunity for us because of the unique data that we have. But the drug itself is beneficial to anybody that has heart failure, including patients who may have had a recent worsening heart failure event, people who come in to a doctor's office or a clinic with worsening symptoms.

Have you looked at the effect of this drug on CKD progression in the animal model?

So we actually -- I'll let Craig answer this, but we presented some data on CKD at the American Society for Nephrology meeting that maybe, Craig, you can talk a little bit about.

Yes. Great question. Actually, ASN, the American Society of Nephrology, identified this as one of their most important abstracts in the 2023 meeting and actually put media around that. And what you see is a reduction in a number of the events related to renal outcomes, both in terms of uACR, eGFR slope and a number of other biomarkers that are all associated with preservation of renal function.