Earnings Call Transcript - LXRX Q3 2021

Operator, Operator

Good afternoon. My name is Natalia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Pharmaceuticals Inc. Third Quarter 2021 Financial Results Conference Call. Thank you. I would now like to turn the call over to Mr. Chas Schultz, Executive Director of Corporate Communications and Investor Relations. Please go ahead, sir.

Chas Schultz, Executive Director of Corporate Communications and Investor Relations

Thank you, Natalia. Good afternoon, and welcome to the Lexicon Pharmaceuticals third quarter 2021 financial results conference call. Joining me today are Lonnel Coats, Lexicon's Chief Executive Officer; Jeff Wade, Lexicon's President and Chief Financial Officer; and Dr. Craig Granowitz, Lexicon's Senior Vice President and Chief Medical Officer. Earlier today, Lexicon issued a press release announcing our financial results for the third quarter of 2021, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast of this call, along with the slide presentation, is available on our website. During this call, we will review the information provided in the release, provide a corporate update 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, efficacy and the therapeutic and commercial potential of sotagliflozin, LX9211 and other drug candidates. These statements may include characterizations of the expected timing and results of clinical trials of sotagliflozin, LX9211 and other drug candidates; and the regulatory status and market opportunity for those programs. This call may also contain forward-looking statements relating to our growth and future operating results, discovery and development of our drug candidates, launch and commercialization plans for any approved products, strategic alliances and intellectual property as well as other matters that are not historical facts or information. Various risks may cause our actual results to differ materially from those expressed or implied in such forward-looking statements. These risks include uncertainties relating to the timing and outcome of our planned NDA filing for sotagliflozin in heart failure and our discussions with the FDA regarding sotagliflozin relating to heart failure and type 1 diabetes, the success of our commercialization efforts with respect to any approved products, the timing and results of clinical trials and preclinical studies of sotagliflozin, LX9211 and other drug candidates; our dependence upon strategic alliances and other third-party relationships; our ability to obtain patent protections for our discoveries, limitations imposed by patents owned or controlled by third parties and the requirements of substantial funding to conduct our research and development 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. I would now like to turn the call over to Lonnel Coats.

Lonnel Coats, CEO

Thank you, Chas. Good afternoon, everyone, and thank you, as always, for joining the call. It was a very busy and very exciting third quarter for Lexicon. We continue enrolling patients in both of our Phase II studies for LX9211, and we remain very focused on obtaining top line results from those studies in the first half of 2022. Later in the call, we will remind you of the uniqueness of this program. However, we will spend most of our time this afternoon laying out the exciting opportunity with sotagliflozin in heart failure. Perhaps the most important scientific event in the quarter came from new heart failure guidelines established by the European Society of Cardiology or ESC. We believe a new market will open up for SGLT inhibitors in heart failure as a result of these new guidelines. SGLT inhibitors have traditionally been viewed as highly effective type 2 diabetes therapies. However, new evidence has emerged in the last couple of years, supporting the benefits of SGLT inhibitors for people suffering from various forms of heart failure. Clinical data from three therapies in the SGLT class, empagliflozin, dapagliflozin and our investigational drug, sotagliflozin, have been the primary drivers of an increasing body of evidence showing that heart failure patients can also benefit from these therapies. Many of these benefits are being observed in particularly challenging areas of heart failure, where there are currently no effective treatment options such as heart failure with preserved ejection fraction or referred to as HFpEF. During the quarter, the European Society of Cardiology, one of the most preeminent medical associations in heart failure, issued new guidelines for the diagnosis and treatment of acute and chronic heart failure, which clearly established SGLT inhibitors as part of the standard of care. We believe additional guideline changes from other respective medical associations will follow, also elevating SGLT inhibitors to part of the frontline treatment for heart failure. This was my prediction, and it's really pleasing to see it come to fruition. As you can see on the next slide, the heart failure market is projected to rapidly expand over the next several years. Global data estimates that the market will grow from $3.7 billion in overall gross sales in 2018 to over $22 billion in 2028, representing a compound annual growth rate of over 19.5%. This growth is expected to be driven primarily by the adoption of SGLT inhibitors as part of the standard of care. If approved, sotagliflozin will have an opportunity to play a major competitive role in this rising market. Much of our confidence lies in the differentiating advantages we believe are provided by sotagliflozin's dual SGLT1/2 inhibition, including unique benefits for worsening heart failure. Dr. Craig Granowitz will take you through some of the data that gives us this confidence in the SGLT class and the unique opportunity sotagliflozin may have to help the class grow in heart failure. Jeff Wade will then share how we are thinking about efficiently entering the market and leveraging the opportunity. Craig, I'll turn the call to you.

Craig Granowitz, Senior Vice President and Chief Medical Officer

Thank you, Lonnel, and good afternoon, everyone. I appreciate the opportunity to share some of these important new medical advances in the SGLT2 class for the treatment of heart failure. I would like to take another look at the treatment guideline slide. The European Society of Cardiology is one of the most important medical associations in the cardiology space with a global reach and impact that includes the United States. Its annual meeting was held at the end of August during which it issued the first major update to the heart failure treatment guidelines since 2017. Traditionally, there have been three pillars of therapy constituting the cornerstone of care in heart failure. These include the ACE, ARB, and ARNI class, beta blockers, and MRAs. Ideally, patients are prescribed drugs from each of these pillars of care. To give you a perspective on use, approximately 90% of heart failure patients are on a beta blocker and over 80% are on an ACE or ARB. As you can see in this graphic, SGLT inhibitors were added by ESC as a new pillar in its standard of care for heart failure. SGLT inhibitors were given its highest level of confidence with a 1A rating, which reflects the guideline committee's high confidence in the quality and rigor of the clinical data supporting their use in the treatment of heart failure. Essentially, overnight, the ESC guidelines catapulted SGLT inhibitors from not being included on the list for heart failure treatment to being established as part of the standard of care, along with these other treatment agents. Currently, SGLT inhibitors are used in only approximately 5% of heart failure patients, so we expect to see a tremendous growth opportunity for their utilization in this space. The impact of the ESC guidelines on the sequencing of treatment is quite striking. In a review published in the European Journal of Heart Failure shortly after the publication of the ESC guidelines, leading experts such as Dr. Milton Packer out of the United States and Professor John McMurray out of Europe, laid out the impact on the sequencing of care for new heart failure patients. Conventional sequencing of treatment for a new heart failure patient has called for initiating an ACE inhibitor, followed by a beta blocker, then an ARNI and finally, an SGLT inhibitor. As you can note at the bottom of the slide, this treatment paradigm generally takes six months or more for each step. ARNI's and step four are represented by the market-leading therapy, which had worldwide net sales of approximately $2.5 billion in 2020. Those sales should provide some perspective on the market potential for a new heart failure treatment. On the right, you can see the new sequencing of treatments that Dr. Packer and Dr. McMurray are proposing, given the new ESC guidelines and the growing body of clinical evidence for SGLT inhibitors. They are proposing a schedule that initiates a beta blocker and an SGLT inhibitor immediately upon a patient starting new treatment. We believe this paradigm shift in the treatment of heart failure will be transformative and provide the potential for substantial growth as SGLT inhibitors are established as the new standard of care. When you dig deeper into the new ESC guidelines, you will see their specific recommendations around the use of SGLT inhibitors in heart failure. At the base of the pyramid, they identified five SGLT inhibitors, including sotagliflozin, as showing benefit in reducing cardiovascular events in high-risk patients for future major cardiovascular events. Of the five drugs, sotagliflozin is the only one not currently approved or on the market. As you move up the pyramid, you'll see that three drugs, dapagliflozin, empagliflozin, and sotagliflozin, are recommended for the treatment of heart failure with reduced ejection fraction or HFrEF in patients with diabetes to reduce future heart failure-related events. At the top of the pyramid, you see only one drug, sotagliflozin, which was identified for the treatment of worsening heart failure. Worsening heart failure is when the heart failure patient experiences an acute event requiring urgent treatment or hospitalization. Our SOLOIST Phase III outcome study was conducted in this exact patient population, and sotagliflozin is the only SGLT to date with outcomes data in patients in this acute hospital setting. We believe this particular point in the heart failure patient journey represents a unique potential competitive advantage for sotagliflozin and will be the primary point of engagement if we receive regulatory approval and bring sotagliflozin to market. Our goal is very specific. When a patient enters the hospital with an acute event of worsening heart failure, we want sotagliflozin to be the preferred option for initiation before leaving the hospital. This update from the ESC guidelines recognizes the uniqueness of sotagliflozin. On this slide, it is important to understand the impact of heart failure on the patient. Unlike many areas of cardiovascular heart health and disease, such as elevated cholesterol, heart failure is not a silent disease. Patients truly feel this disease and readily appreciate the daily impact. Common complaints include shortness of breath associated with fluid buildup and the inability for the heart to effectively distribute oxygen-rich blood throughout the body. This affects their ability to focus and creates a tremendous physical burden for patients trying to accomplish normal activities. As you can see, the daily impact is tremendous. However, the biggest impact comes from acute events requiring hospitalization. Patients are subjected to chronic impacts of the disease that gradually erode their cardiac function over time. The body does its best to compensate for this decline and however, there are typically multiple acute events where patients suddenly and rapidly decline requiring hospitalization for treatment. By definition, their current treatment is not working. There is a high need and openness to change in the treatment regimen, both from patients and healthcare providers' perspectives. Patients are likely to face these acute events multiple times throughout their lives, with about one in four needing rehospitalization within 30 days following discharge. Two-thirds of these patients require rehospitalization within their first year. The circled events on this slide marked the exact point of engagement we studied in the SOLOIST clinical study, where we initiated treatment with sotagliflozin in the hospital setting or within three days after hospital discharge. Our data in this regard is unique to date amongst the SGLT class and provides specific insights on how sotagliflozin could benefit patients in a potential life-or-death situation. Moving forward, we believe that sotagliflozin has the potential to show meaningful differentiation in the treatment of heart failure and in other aspects of cardiovascular benefit amongst the SGLT class, given its unique dual SGLT1 and SGLT2 inhibition. Our data in heart failure was generated from two large Phase III clinical outcome studies, called SOLOIST and SCORED, both of which were published in two concurrent New England Journal of Medicine articles and included many groundbreaking firsts. Our SOLOIST study was conducted with over 1,000 patients with diabetes who had recently been hospitalized for an acute event of worsening heart failure. This was the first study in the class to show benefit in this particular point in the patient journey. SCORED was a longer-term outcome study conducted with more than 10,000 patients with diabetes, chronic renal disease, and other risk factors for cardiovascular disease, and shared the same primary endpoint as SOLOIST. A quick look back at the diagram for the heart failure patient journey demonstrates the benefits of sotagliflozin on heart failure. The SOLOIST study looked specifically at patients with type 2 diabetes who had been hospitalized due to an acute event of worsening heart failure. Patients were initiated on sotagliflozin or placebo, either before discharge from a hospital or within a few days after discharge. The SCORED study evaluated the benefits of sotagliflozin in patients with type 2 diabetes who are at risk of heart failure or a MACE event. This shows data from our SOLOIST study focusing on the primary endpoint of total CV death, hospitalization for heart failure, and urgent heart failure visits in patients with type 2 diabetes. There are three important points I'd like to note regarding this data. First is the extraordinarily high rate of these very expensive events. You will see that the placebo arm had 98 events for 100 patients over the 18-month study period. This means that, on average, each patient had approximately one event over 1.5 years. This speaks to the point we highlighted earlier that people suffering from chronic heart failure are expected to experience multiple acute events over their lives that require hospitalization. Second, when you look at the sotagliflozin treatment arm represented in orange, you'll see a very meaningful benefit of a 33% risk reduction or 28 fewer events over the 18-month study period in these very expensive hospitalizations. Third, the benefit is seen rapidly with a statistically significant separation established by day 28. This is important because once someone is hospitalized for heart failure, you want to keep them out of the hospital and hospitals are often evaluated based on short-term readmissions, with substantial potential penalties for readmissions within 30 days. We believe the magnitude of the benefit and the rapid onset of the benefit makes the data from SOLOIST especially compelling. Not only do patients feel better, they feel better quickly and return to the hospital less often, which patients, physicians, and hospitals want to avoid, while payers want to avoid paying for. On the next slide, you will see that the SCORED data mirrored the results seen in SOLOIST. In this study, we looked at patients with type 2 diabetes who are not hospitalized but have risk factors for cardiovascular disease. This is evaluating more of the chronic condition of heart failure as opposed to the acute condition evaluated in the SOLOIST study. These two studies shared the same primary endpoint and we again saw a quite significant reduction, a 26% relative risk reduction in total cardiovascular death, hospitalization for heart failure, and urgent heart failure visits. The results were statistically significant with substantial relative risk reductions in both studies. There is a growing body of evidence that the additional inhibition of SGLT1 provided by sotagliflozin may provide an extra level of cardiovascular benefit in addition to the benefits seen with SGLT2 inhibition alone. In our SCORED study, we saw a significant benefit in both myocardial infarction (MI) and stroke, which has not been seen before with the other SGLT-only inhibitors. In the SCORED study, there was a 32% reduction in fatal and nonfatal myocardial infarction and a 34% reduction in fatal and nonfatal stroke. Overall, there was a 23% reduction in MI and stroke with a significant p-value of 0.002. A significant differentiating finding has not been reported to date from studies on other members of the SGLT class. One of the most interesting findings from these two studies is shown in a pooled analysis of both trials, we looked at the hazard ratio across the entire spectrum of left ventricular ejection fraction in heart failure patients. There is a trend showing that as ejection fraction increases, the risk reduction remains significantly better than placebo. Most previous studies of other SGLT inhibitors struggle with waning efficacy as ejection fraction increases, especially above 60%. We believe this may be another point of differentiation with sotagliflozin. We are especially excited about the robust risk reduction observed in these studies across the entire spectrum of preserved ejection fractions in type 2 diabetes, who currently have limited treatment options. At this point, I'd like to turn the call over to Jeff to discuss how our SOLOIST and SCORED data may provide a unique competitive opportunity for Lexicon. Jeff?

Jeff Wade, President and CFO

Thank you, Craig, and good afternoon. As Craig mentioned, patients with heart failure often require hospitalization for acute events, frequently multiple hospitalizations over their lifetimes. These events are among the most important drivers for both the initiation of therapy and changes in the treatment regimen for heart failure. A hospitalization for heart failure may be the first time a patient is diagnosed, something that is particularly common among patients who have heart failure with preserved ejection fraction or HFpEF, and therefore, a driver for the initiation of therapy. For previously diagnosed patients, a worsening heart failure hospitalization has a tremendous impact on the desire of both patient and physician to change the patient's treatment regimen, not only to reduce the likelihood of requiring hospitalization but also to better address the patient's day-to-day burden of disease. Importantly, though, it is not just patients and physicians who are driven to act. Hospitals and payers are also highly motivated to reduce the recurrence of heart failure events requiring hospitalization. Reducing rehospitalizations within 30 days of discharge, for example, is especially important to hospitals, which face penalties for readmissions through reduced Medicare payments and lower ratings. From a payer perspective, hospitalizations for heart failure are extremely costly, requiring multiple overnight stays and resulting in one of the highest financial burdens to the healthcare system. Everyone involved—the patient, physician, hospital, and payer—is strongly motivated to reduce the recurrence of heart failure hospitalization. This alignment of interest tied to the urgency of action associated with symptomatic burden and the frequency at which these high-cost hospitalization events occur sets heart failure apart from many other cardiovascular indications managed with drug therapy. Overall, we believe hospitalization due to worsening heart failure is a key leverage point with potential as a prime competitive opportunity for sotagliflozin. As noted earlier, this situation sets an ideal point for the initiation or change of therapy that occurs very frequently. In fact, heart failure is the leading cause of hospitalization for Americans over the age of 65, with about 1 million hospitalizations annually. These hospitalizations involve substantial burdens not only for patients but also for the healthcare system, where there is a high level of interest in reducing and managing the associated costs, especially given the concentration among Medicare patients. Our studies were conducted in people with type 2 diabetes, which represent about 44% of hospitalized heart failure patients. This patient population has been growing over time, a trend that will likely continue as the overall population ages and rates of diabetes and cardiovascular disease increase. Cardiology specialists are the primary decision-makers regarding heart failure treatment. Among cardiologists, there's a concentrated group that account for most heart failure treatment decisions. Based on our analysis, approximately 8,000 cardiologists account for approximately 60% of the overall market opportunity. An audience that we believe we can effectively and efficiently engage with a field force of fewer than 100 people. Along with the concentrated prescriber base, there is also a geographical concentration of local and regional centers where heart failure patients are treated, enabling our efficient engagement with a modest-sized field force. We are currently building out the leadership of our launch readiness team and working through a spectrum of other activities in preparation for a potential launch next year. If approved, we are very much looking forward to bringing this potential new therapy to patients suffering from heart failure and living with type 2 diabetes. In summary, we believe sotagliflozin has differentiating advantages in a market that is poised for growth. We are poised to enter the market as SGLT inhibitors are being adopted in the standard of care in HFrEF, an opportunity, if approved, to be one of three participants indicated for the treatment of heart failure in a class that has the opportunity to grow from minimal to very substantial share aided by favorable data and now prioritization in treatment guidelines. We believe that if approved, sotagliflozin will also address the particular challenges of HFpEF, which has been almost entirely lacking in treatment options and represents more than half of all patients suffering from heart failure. SOLOIST Phase III outcomes data in worsening heart failure represent a unique potential competitive advantage for sotagliflozin at the most important leverage point for the initiation or change of therapy. Given the severity of the situation for patients and the costs involved for payers and hospitals, we believe this leverage point offers a prime competitive opportunity for sotagliflozin. In addition to sotagliflozin, we continue to advance a number of other innovative programs with the potential to drive long-term value. I wanted to spend a few moments to update you on the status of some of these programs. Lexicon has a history of bringing innovative discoveries from our own labs into development, regulatory approval, and market. If we are successful with sotagliflozin and heart failure, it will be the third time we have successfully received regulatory approval for one of our innovations. To date, we have brought one drug from our own labs through development, regulatory approval, and into market, XERMELO, which we sold last year to TerSera, and regarding which we have a continuing milestone and royalty interest, which I will describe in a moment. Noted on this pipeline chart, we received approval for sotagliflozin in treatment for type 1 diabetes in Europe. We're continuing to seek a potential path forward in the United States for type 1 diabetes, having previously received a complete response letter from the FDA for that indication. We believe sotagliflozin demonstrates a positive benefit-risk profile in the largest Phase III development program ever conducted in type 1 diabetes and has the potential to become an important new treatment option as an adjunct to insulin for type 1 diabetes patients, and we are currently pursuing an administrative pairing with the FDA on whether there are grounds for the previous denial of our NDA for type 1 diabetes. The administrative pairing process is currently on hold while we engage in productive discussions with the FDA and hope that, together, we can find a potential path forward in this indication. We will share more as these discussions continue. Other than sotagliflozin, LX9211 is our most advanced program in development, and we believe it has the potential to help millions of people suffering from neuropathic pain. LX9211 has completed Phase I successfully and is currently being evaluated in two Phase II clinical trials, both of which we expect to read out top line results in the first half of next year. In addition to the programs that we are developing directly, we also have interests in the form of potential milestones and royalties in other programs that have been developed or facilitated using our technology. We have a milestone and royalty interest in telotristat ethyl for biliary tract cancer. Telotristat ethyl was discovered, developed and commercialized as XERMELO, which I mentioned earlier. We sold the product to TerSera last year for a significant upfront payment and are eligible for up to $65 million in milestone payments and mid-teens royalties moving forward if they are successful in developing it for biliary tract cancer. We also have a milestone and royalty interest in UTTR1147A, which is currently in Phase II clinical development for immune system disorders. This program came out of our long-standing target discovery and biotherapeutic alliance with Genentech. As you can see, there is a deep development pipeline with multiple opportunities to build additional value in the future. Before getting into the Q3 financials, I wanted to spend a moment to talk in more detail about LX9211. Neuropathic pain affects a large portion of the population, with the worldwide market projected to grow at over 13% a year to $13.2 billion by 2026. There is an estimated prevalence of about 12 million people worldwide suffering from diabetic peripheral neuropathic pain and 600,000 people suffering from postherpetic neuralgia in 2026. Despite neuropathic pain affecting millions of people, there remains a high level of unmet need for those suffering from the condition. The current approved therapies are limited by a lack of efficacy, compounded by debilitating side effects. As a result, many people turn to opioids to experience some level of relief, which, of course, carry their own risks of potential abuse and addiction. We feel LX9211 may overcome many of the shortcomings of current therapies. LX9211 is a potent, orally delivered, selective small molecule inhibitor of AAK1, a pathway we believe may have utility in reducing neuropathic pain while avoiding the addictive downsides of the opioid pathway or the somnolence or difficulty concentrating seen with gabapentinoids. Late last year, LX9211 received fast track designation from the FDA for the treatment of diabetic peripheral neuropathic pain. To date, our preclinical data for LX9211 has demonstrated excellent CNS penetration and reductions in pain behavior in animal models of neuropathic pain without the motor impairment seen in such models with gabapentinoids. Very importantly, we have conducted several preclinical tests to confirm LX9211's independence from the opioid pathway, finding no concerns around addiction with LX9211. We have conducted single and multiple ascending dose Phase I studies in healthy volunteers to study the safety, tolerability, and pharmacokinetics of LX9211. These studies supported the preclinical profile, and LX9211 was well tolerated with dose proportional pharmacokinetics that support once-daily dosing. There were no drug-related serious adverse events, and the most common adverse events were headache and dizziness. We are currently conducting two Phase II proof-of-concept studies of LX9211: one in diabetic peripheral neuropathic pain and the other in postherpetic neuralgia. They are both double-blind placebo-controlled parallel group multicenter studies. The DPNP study is a three-arm study, while the PHN study is a two-arm study. They both share the same primary endpoint: change from baseline to week six in average daily pain score. Patient enrollment is ongoing in each of these Phase II clinical studies. We expect top line results from the studies in the first half of 2022. Turning to key aspects of our third quarter financials, you will see that we ended the quarter with $120.9 million in cash and investments. This puts us in a strong financial position to fund our prelaunch activities for sotagliflozin, our ongoing clinical activities for LX9211, and our planned discovery efforts. If approved, the commercial launch of sotagliflozin will require additional resources for which we will be looking at options that include a potential strategic partnership for the commercialization of sotagliflozin outside of the United States. As indicated in our press release this afternoon, we had minimal revenues during the quarter compared to $6.6 million from the third quarter last year due to the absence of product revenues in the current quarter, resulting from the sale of XERMELO during the third quarter of last year. Research and development expenses for the third quarter decreased to $15.7 million from $40.1 million for the corresponding period in 2020. This was primarily due to decreases in external clinical development costs related to sotagliflozin, resulting from the completion of clinical studies. Selling, general, and administrative expenses for the third quarter decreased to $7.3 million from $12 million for the same period in 2020, primarily due to lower salaries and benefit costs as a result of the reductions in personnel in September 2020 and lower marketing expenses, all associated with the sale of XERMELO. In total, we had a net loss for the second quarter of $23.1 million, or $0.16 per share, compared to net income of $82.6 million, or $0.71 per diluted share, in the corresponding period of 2020, which included a $132.8 million gain from the sale of XERMELO. Net loss for the third quarter of 2021 included non-cash stock-based compensation expense of $2.7 million and $1.9 million respectively. Overall, we are in a good position to continue advancing both sotagliflozin and LX9211. I would now like to turn the call back to Lonnel.

Lonnel Coats, CEO

Thank you, Jeff. I'd like to close out today's call by highlighting some key anticipated milestones and events that you can expect as we advance sotagliflozin and LX9211. We continue to work diligently to submit the NDA for sotagliflozin in heart failure around year-end. Our launch readiness teams are gearing up on both the commercial and medical sides as we prepare for a potential launch in the U.S. next year. As Jeff mentioned, we are actively seeking a strategic partner to commercialize sotagliflozin outside the United States. We plan to continue highlighting the data from our sotagliflozin studies at upcoming congresses and through peer-reviewed publications. On the LX9211 front, we're looking forward to top line data from our two Phase II studies reading out in the first half of next year. With that, I'd like to thank you for listening today, and thank you for your continued support of Lexicon, and I will welcome any questions you may have at this time. Operator, please open the line for questions.

Operator, Operator

[Operator Instructions] Your first question is from the line of Yigal Nochomovitz with Citigroup.

Yigal Nochomovitz, Analyst

Curious, what do you make of the effect that ESC included sotagliflozin in the heart failure guidelines in type 2 diabetes, even though sotagliflozin is the only one that has yet to be approved in this setting?

Lonnel Coats, CEO

Yigal, great question. We were very pleased to have that happen. I think what they look at is the preponderance of clinical evidence that has been published, and they make their decisions based on that overall evidence. We were very pleased that they accepted our evidence as it was in the absence of actually having it approved at this point. So it was a very significant win for us. We certainly look forward to leveraging that win going forward as we seek regulatory approval.

Yigal Nochomovitz, Analyst

And one for Jeff on the neuropathic pain program, Jeff, could you just talk a little bit about what you need to see on the efficacy side in the two Phase IIs that you believe would be the kind of profile that you would need to advance 9211 in the pivotal trials in both diabetic peripheral neuropathic pain and postherpetic neuralgia?

Jeff Wade, President and CFO

Sure. The first thing I would say is these are proof-of-concept studies. So what we're really looking for is a signal in neuropathic pain in these studies. Following that, we will decide whether we can proceed to some other Phase II/III setting or the like, but that will depend on the outcome of these studies.

Yigal Nochomovitz, Analyst

Advanced both in the Phase III, if both indications that is?

Jeff Wade, President and CFO

Diabetic peripheral neuropathic pain is obviously a much larger market opportunity than postherpetic neuralgia. We're going to look at the data from both of these studies. Preclinically, we have evidence of an effect in multiple different areas, in multiple different models of neuropathic pain. Our vision is to have an opportunity across multiple types of neuropathic pain, ultimately developing it across different types of neuropathic pain. As we think about how to develop this further, we'll consider that, and these first two concept studies will be a launch point for different elements of neuropathic pain.

Operator, Operator

Your next question is from the line of Yasmeen Rahimi with Piper Sandler.

Unidentified Analyst, Analyst

It's [indiscernible] on the line for Yas. I have a couple of questions here, so I'll just start out with one. Based on the efficacy data generated today from all the SGLT inhibitors and the recently updated ESC guidelines, I was just wondering if you could just opine on how you think sotagliflozin could be positioned if approved. What would be the critical point of care for this drug? I had an additional question after that.

Lonnel Coats, CEO

Well, I think it's a great question. I'm going to have Craig restate some of the things I keep carrying forward in the presentation. Craig, your thoughts.

Craig Granowitz, Senior Vice President and Chief Medical Officer

Yes. Thank you, Lonnel, and thank you for the question. We believe that the dataset we presented, particularly in the recent worsening heart failure, is differentiating at this point, and we will be the only one with that data. If we achieve the outcome with the FDA regarding the indication, we will have compelling data to support it. The breadth of the data, speed of onset, and magnitude of the benefit particularly across a range of ejection fractions and with additional MACE benefit are three key milestones that others studying other agents in the SGLT class do not have.

Unidentified Analyst, Analyst

And then my follow-up second question here. Do you think the initiation of sotagliflozin treatment in the hospital setting could resonate well with patients and lead to better adherence compared to patients in the outpatient setting with less severe heart failure?

Lonnel Coats, CEO

That's a really, really good question. I'm going to turn it back over to Craig.

Craig Granowitz, Senior Vice President and Chief Medical Officer

Yes, we agree. I've worked in the industry a long time. I've worked across products that were indicated shortly after discharge into the community cardiologists. What you have to remember in the group of patients with recent worsening heart failure, they are really teetering on the edge. They are playing this delicate dance between their kidney and their heart regarding the amount of fluid that is not too little that they go into heart failure due to insufficient volume or too much and they go into heart failure due to excess volume. This hospitalization is to get the treatment right. As you can see, there are many drugs these patients are on for their heart failure and many other medications besides. We believe that when patients get 'tuned up' in the hospital, they don't want to change that regimen. Nobody wants to change that regimen when the patient shortly leaves the hospital, not the patient, the provider, nor the payer. If the patient is stable when they leave the hospital and they spent a few days getting to that point, everyone is incentivized to give this new regimen a good trial. Thus, we believe that's the ideal time for sotagliflozin.

Operator, Operator

Your next question is from the line of Jessica Fye with JPMorgan.

Jessica Fye, Analyst

With this data for sotagliflozin, what's your latest thinking on an ex U.S. partner to help you maximize the potential of the product?

Lonnel Coats, CEO

Jessica, great question. Subsequent to the ESC guidelines, I would say that our interest has grown, and our confidence is increasing that we will most likely find a partner outside of the United States.

Jessica Fye, Analyst

Got it. Have you pursued breakthrough designation at all for sotagliflozin? I think I saw that EMPA got it for HFpEF, so I wonder if that's something you considered.

Lonnel Coats, CEO

We were very curious about it because breakthrough designation is generally assigned to Phase II products where you have more engagement with the FDA around the program going into Phase III. We're a bit surprised about that outcome. Once you seek breakthrough designation, it can sometimes delay your plans, so we opted to proceed as quickly as possible to get the NDA submitted. We're in a unique position because our product was already in the market, and we had to conduct two significant studies. So it takes a bit more effort on our part, but I'm pleased to see that others have received it. It emphasizes that the SGLT class is critically important for heart failure. We believe it is absolutely going to grow.

Jessica Fye, Analyst

Okay. Got it. Maybe shifting gears, is it possible to refine your timing expectations for the pain data?

Lonnel Coats, CEO

No, I think we're going to stick with the first half of next year. I have not shied away from the fact we've faced challenges with recruitment amidst COVID difficulties. We expanded the timeline to ensure robust patient enrollment because patient selection is critical in CNS studies to avoid high failure rates. We're committed to getting the signal we're looking for.

Operator, Operator

Your final question is from the line of Joseph Stringer with Needham & Company.

Unidentified Analyst, Analyst

Can you just summarize what the potential sotagliflozin label in heart failure would look like, in other words, how you see that positioning the drug?

Lonnel Coats, CEO

Great question. I'll let Craig respond to that.

Craig Granowitz, Senior Vice President and Chief Medical Officer

Thank you for the question. Our goal is to seek two populations as per the New England Journal of Medicine papers we presented today: both with the primary endpoints of cardiovascular death, hospitalization for heart failure, and urgent unscheduled visits in a high-risk group with diabetes and other risk factors for major cardiovascular events, and patients with recent and worsening heart failure or heart failure-related events. We believe we have the data to support these distinct populations as we endeavor to engage with the agency.

Unidentified Analyst, Analyst

Great. What would it take to commercialize and for heart failure on your own, and what would be the next steps regarding building commercial infrastructure?

Lonnel Coats, CEO

That's a great question. We've already started building out our commercial capabilities. With our engagement, as I mentioned in the last call, we expect to be on a pathway toward market entry sooner than later going into next year. So we need to accelerate that build-out. We've initiated that this year, and as we prepare for the submission of our NDA, we'll be uniquely positioned to move quickly.

Jeff Wade, President and CFO

We're building out our leadership team right now. We expect to have some people in place by the end of the year. We're also engaged in several activities with external collaborators and partners to prepare for the launch. A lot of our work will tie in with the NDA submission and acceptance, which is expected in the coming months. We're actively working to ensure we are prepared.

Unidentified Analyst, Analyst

Do you think there are any additional gating factors for the NDA submission?

Lonnel Coats, CEO

No. Get us submitted. That's our focus. Thank you for the question. I'll turn it back over to the operator for any other questions.

Operator, Operator

There are no further questions. Are there any closing comments?

Lonnel Coats, CEO

Let me take a moment just to thank everybody for joining us. It's an exciting time here at Lexicon. We're managing multiple priorities, and we're very fortunate as a fairly small company with multiple opportunities. The ESC guidelines have played out as we had hoped, and we believe that more guidance will follow from the American Heart Association in the future. We are confident that we have found a unique position for sotagliflozin, addressing a great need for change. I want to highlight that we are moving forward to build a talented team capable of making a big difference. We're closely monitoring the status of LX9211. I believe it could be something remarkable, and we will ensure we manage the clinical program well without rushing it in order to secure the signal we need. We have much more to discuss and will continue monitoring our engagement with the FDA regarding T1D for sotagliflozin. Lots of positive developments are happening, and we feel well-positioned as we enter 2022 to take advantage of these prospects. Thanks again for listening, and we look forward to the next call.

Operator, Operator

This concludes Lexicon Pharmaceuticals Third Quarter Financial Results Conference Call. Thank you for participating. You may now disconnect.