Earnings Call Transcript - LXRX Q1 2022

Operator, Operator

Good morning. This is Jesse, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Pharmaceuticals, Inc’s First Quarter 2021 Earnings Conference Call. Please note all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. Thank you. I will now turn a call over to your host, Char Schultz, Executive Director, Corporate Communications and Investor Relations. Sir, you may now begin.

Charles Schultz, Executive Director, Corporate Communications and Investor Relations

Thank you, Jesse. Good morning and welcome to the Lexicon Pharmaceuticals first quarter 2022 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 this morning, Lexicon issued a press release announcing our financial results for the first quarter of 2022, 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, 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 the statements relating to the safety, efficacy, and the therapeutic and commercial potential of sotagliflozin, LX9211, and our other drug candidates. These statements may include characterizations of expected timing and results of clinical trials of sotagliflozin, LX9211, and our other drug candidates; and a regulatory status and market opportunity for those programs. The call may also contain forward-looking statements relating to our growth and future operating results, discovery and development of our drug candidates, launching 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 related to the timing and outcome of our planned NDAs resubmission for sotagliflozin and 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 our other drug candidates depend upon strategic alliances and our 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 planned 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. I would now like to turn the call over to Lonnel Coats.

Lonnel Coats, CEO

Thank you, Charles, and good morning, everyone for joining us on the call. Let me jump right to Slide 3. We expect that the second quarter of 2022 will be a pivotal quarter for Lexicon with major anticipated milestones for both our dual SGLT1/2 inhibitor, sotagliflozin, and our AAK1 inhibitor, LX9211. We plan to resubmit our new drug application for sotagliflozin for the treatment of heart failure this month. Our dialogue with the FDA regarding the resubmission has been ongoing, and we received confirmation from the FDA in late April that it is aligned with our resubmission plans. This alignment was a significant step, and we expect to have a relatively straightforward path to resubmit in the next few weeks. We believe the data from our SOLOIST Phase III trial provides compelling support for a unique label for sotagliflozin in recent and worsening heart failure, which would provide us with a strong entry point into the heart failure market. If approved, the overall heart failure market is already a very large multi-billion dollar market and is anticipated to further grow at nearly 20% per year for most of this decade, which we feel could enable peak blockbuster potential for sotagliflozin. Pending market approval from the FDA, we are planning to launch sotagliflozin in the first half of next year. Also, in this quarter, we expect to announce top-line results from our Phase II study of LX9211 in diabetic peripheral neuropathic pain. Neuropathic pain is a very large market that is extremely underserved and unsatisfied. We believe LX9211 has the potential to provide an innovative approach to treating neuropathic pain without the many treatment issues that we see with the current treatment options. Let me spend a quick moment on what we are now seeing play out in the heart failure market. These figures are from a 2019 report in which global data estimated that the heart failure market will grow to $22 billion in 2028, representing a compound annual growth rate of nearly 20%. Not only did they project that the market will grow at this tremendous rate over the next decade, but they also forecasted that growth would be largely driven by the adoption of SGLT inhibitors for the treatment of heart failure, which we are now seeing play out with major heart failure treatment guideline revisions, both in the United States and in Europe. Traditionally, there have been three pillars of therapy constituting the cornerstones of care in heart failure: ACE inhibitors, ARBs, and ARNIs, beta blockers, and MRAs. New guidelines issued by major medical associations in both the United States and Europe have now established SGLT inhibitors as a fourth pillar of therapy and the standard of care for heart failure. European guidelines were issued in August of 2021, and the United States guidelines were jointly issued by the three largest cardiology societies just last month. Ideally, patients are prescribed drugs from each of these pillars of care. To give you perspective on use, approximately 90% of heart failure patients are on a beta blocker, and over 80% are on an ACE inhibitor or ARB. SGLT inhibitors are currently only used in approximately 5% of heart failure patients. So we are currently at the very beginning of a tremendous growth opportunity for utilization in this space. In the most recent guidelines, SGLT2 inhibitors were elevated to first-line prevention and treatment of heart failure by the three largest U.S. cardiology societies. Specifically, SGLT2 inhibitors received the top endorsement for the prevention of heart failure in patients with a high cardiovascular risk. For the treatment of symptomatic heart failure, SGLT2 inhibitors were adopted as a standard of care for heart failure with reduced ejection fraction and received a stronger recommendation than any other class of therapy for heart failure with mildly reduced ejection fraction and heart failure with preserved ejection fraction. The United States guidelines also highlighted the need to improve optimization of medical therapies during heart failure hospitalizations, when changing therapy can have a long-term benefit to patients. This particular point of treatment intervention was the focus of our SOLOIST recent heart failure study, which was cited in the guidelines. I want to provide a quick update to LX9211 - LX9211, which is our selective inhibitor of AAK1. We believe that LX9211 has the potential to overcome many of the shortcomings of current therapies and could become a welcome new innovation for those suffering from neuropathic pain on a daily basis. We made significant progress over the last few months in our two ongoing Phase II proof-of-concept studies and expect top-line results in the near term. For RELIEF-DPN, our study in Diabetic Peripheral Neuropathic Pain, I’m pleased to report that we have completed enrollment and the final patients are now reaching the end of their treatment periods. I can also report that we exceeded our patient number goal for the study, and we expect to report top-line results by the end of June 2022. For RELIEF-PHN, our study in post-herpetic neuralgia, we continue to enroll patients and expect to report top-line results in the third quarter of 2022. With that, I would like to invite Jeff to take us through the financial results for the first quarter of 2022.

Jeffrey Wade, CFO

Thank you, Lonnel. I will provide some key aspects of the first quarter 2022 financial results. More financial details can be found in the press release that we issued earlier today and in our upcoming 10-Q SEC filing. We ended the quarter with $86.5 million in cash and investments. During the first quarter, we entered into a loan facility with Oxford Finance that provides us with up to $150 million in borrowing capacity, of which an initial $25 million trench was funded at closing. This loan facility provides us with access to a committed source of funding to support commercial preparations and the potential launch of sotagliflozin in heart failure, along with substantial financial flexibility as we approach the planned resubmission of our NDA for sotagliflozin in heart failure and expect the top-line results from the two Phase II proof-of-concept studies of LX9211 in neuropathic pain. With current capital and the flexibility to draw down from the loan facility upon FDA acceptance and approval of our planned sotagliflozin new drug application resubmission, we anticipate that we will have sufficient resources to manage our operations through the planned launch of sotagliflozin into the market. As indicated in our press release this morning, we had minimal revenues for the first quarters of both 2022 and 2021. Research and development expenses for the first quarter of 2022 increased to $14.9 million, from $12.6 million for the corresponding period in 2021, primarily due to increases in professional and consulting costs related to our new drug application for sotagliflozin. Selling, general and administrative expenses for the first quarter of 2022 increased to $8.5 million from $8.3 million for the same period in 2021, primarily due to increases in personnel and external expenses relating to preparations for the commercial launch of sotagliflozin. In total, the net loss for the first quarter of 2022 was $23.5 million or $0.16 per share, as compared to a net loss of $21 million or $0.15 per share in the corresponding period of 2021. Our net loss for the first quarter of 2022 and 2021 included non-cash stock-based compensation expense of $2.8 million and $2.9 million respectively. I would now like to turn the call back to Lonnel.

Lonnel Coats, CEO

Thanks, Jeff. Before taking your questions, I would like to close out by summarizing our key anticipated milestones and events. First, we plan to resubmit the new drug application for sotagliflozin in heart failure this month and plan to launch sotagliflozin in heart failure, if approved, in the first half of 2023. Next, we are expecting top-line results from our RELIEF-DPN study by the end of June. And we anticipate the top-line results from our RELIEF-PHN study in Q3. With that, I would like to pause now and ask the operator to open the call to take your questions.

Operator, Operator

Thank you, speakers. Participants, we will now begin the question and answer session. First question is from the line of Yigal Nochomovitz of Citi. Your line is now open.

Unidentified Analyst, Analyst

Hi this is Carli on for Yigal. I know we don't have too many details at this stage, but we wanted to get your thoughts on this morning's announcement that the DELIVER study for DAPA has worked. Does that impact at all how you are thinking about the marketing angle for sotagliflozin?

Lonnel Coats, CEO

Well Carli, that is a great question, and let me give some perspective and then I will turn it over to Craig, our Chief Medical Officer. We anticipated that they would have success here just like Jardiance has had success. I give perspective only to say, in order for this market to grow the way we believe it will, SGLTs across the board have to be consistent to some degree in how they deliver this data relative to this new category of half math and half path. We see that is happening and that is consistent. That is good news because it gives everyone confidence that the SGLTs truly can become the primary standard of care in this market. So that is the good news. However, we have always stood by the uniqueness of sotagliflozin, and its ability, when you add the SGLT1 into the mix, you do get some uniqueness, particularly in certain populations, such as how we define recent and worsening heart failure. With that, I’m going to turn over to Craig to give his perspective.

Craig Granowitz, Chief Medical Officer

Thank you, Lonnel. I just want to make sure you can hear me alright.

Lonnel Coats, CEO

Yes, we can hear you, Craig.

Craig Granowitz, Chief Medical Officer

Terrific. Well, Carli, I think there are three or four main points that I would like to cover. I think Lonnel did a good job framing it already. We believe that the top-line announcement from AstraZeneca this morning via press release reaffirms the importance of SGLT inhibitors as a foundation of care in the treatment of patients with heart failure. The second is that there were no surprises in our view from the deliver results, because we believe they are very similar to the emperor preserved population. As a reminder, that is a population of patients that have a history of heart failure but not necessarily recent heart failure. In fact, the results from DAPA on the DELIVER study are only about 10% of the patients had a recent hospitalization for heart failure defined as less than 30-days. We believe that it reaffirms the uniqueness of the SOLOIST population, where 100% of the patients had been hospitalized and 50% of them were started on sotagliflozin during their hospitalization, and the other 50% within three days of their release from the hospital after a heart failure hospitalization. The other important difference between SOLOIST and DELIVER, similarly between DELIVER and EMPEROR-Preserved, is that a very low or relatively low percentage of patients are on guideline-directed medical treatment when you think about the other pillars of care, being beta blockers, ACE inhibitors, ARBs, ARNI, and MRA. We believe that the DELIVER results reaffirm the benefits of the class, but also reinforce the uniqueness of the SOLOIST population. Frankly, it is the value proposition we believe of dual inhibition of both SGLT1 and SGLT2 with the benefits as we showed at ACC in reduction in stroke and heart attack in at-risk patients for heart failure, and the uniqueness and the benefit and rapid onset of benefits in those with a recent heart failure event.

Unidentified Analyst, Analyst

Great. That is really helpful. Yes. And I guess just one follow-up related to that. We also wanted to get your latest perspective on the EMPULSE data from Lilly, as it seems they now have data for EMPA in a pretty similar patient population to SOLOIST. So I guess, how do you plan to make the argument that SOTAG is the better choice when initiating therapy in the hospital or very soon after discharge?

Lonnel Coats, CEO

Great question, Carli, but I'm going to allow Craig to maybe dismiss some of the similarities you just listed. But Craig.

Craig Granowitz, Chief Medical Officer

Yes, thank you, Lonnel. Again, we believe this actually reinforces the value proposition of sotagliflozin. If you look at the EMPULSE study, they did not have hard clinical endpoints as their primary endpoint. It was what is called the wind ratio, which combines patient reported outcome benefits and the heart endpoint—the composite endpoint of cardiovascular death, hospitalization for heart failure, and unscheduled emergency heart failure visits. If you try to compare like versus like, which is just the hard endpoints—the three composite endpoints of cardiovascular death, heart failure hospitalization, and unscheduled emergency visits—if you look at the EMPULSE results at 30-days, they actually show a P value point estimate that is to the right. So actually, they do not show a reduction in those hard endpoints unlike sotagliflozin at 30-days. At 90-days, that endpoint still does not achieve significance. As we have shown repeatedly with SOLOIST, and I hope that other data throughout the year we will continue to reinforce, we see that benefit in reduction in early readmissions for heart failure-related events. We attribute that likely to the unique and added benefits of SGLT1 inhibition.

Unidentified Analyst, Analyst

Got it. And then just one last question, I guess, in terms of the NDA resubmission. Has there been any unexpected hurdles or issues in that process?

Lonnel Coats, CEO

Another great question, Carli. No. When we found the technical error that prompted us to initiate conversation with the FDA, and withdraw our application, we took the time and care to go through our entire application again to ensure that we captured everything we needed. We asked for a meeting with the FDA because as we planned to resubmit, we wanted to make sure that there was great alignment between us and the agency. They granted us that meeting, which was good for that to happen. Ultimately, we walked them through what we have done to ensure that we submitted a high-quality application. That meeting took place very recently, towards the end of April. Now, at this point, we have a pretty clear path to refiling the application in the next few weeks.

Unidentified Analyst, Analyst

Perfect. Thanks so much.

Lonnel Coats, CEO

You bet.

Operator, Operator

Your next questions from the line of Jessica Fye of JP Morgan. Your line is now open.

Jessica Fye, Analyst

Hey guys. Good morning. Thanks for taking my question. Wanted to ask on LX9211 heading into the Phase II data. What is the effect size or the delta that you want to see to have confidence that this will be a product that can drive a clinically meaningful benefit once you move into Phase III? Like, do you want to have some cushion in the Phase II result to kind of give you that increased confidence? And what is that number?

Lonnel Coats, CEO

Jessica, always great questions and we have not disclosed that number. What I will say is that this is the first time that we have put LX9211 into a Phase II trial like this, and what we are looking for is that translation of what we saw pre-clinically into human use. We have given ourselves a good chance of being able to see a strong signal. We powered our studies to see a signal but we haven't openly identified what that is. I will say that we will be very clear once we have the data in hand here very shortly. When we communicate, we will communicate exactly what that delta is. This is a very unique mechanism. AAK1 is a very different mechanism. We are running it in multiple studies because we want to validate whatever we find in one study across others. The neuropathic pain market is very large and comprises many different indications, and if we can show a signal across the board in this market, then it would inform how we prepare for the Phase III study. We will provide a lot more clarity once we present the data when we have it in-house.

Unidentified Analyst, Analyst

Great. Thanks a lot.

Lonnel Coats, CEO

You bet.

Operator, Operator

Next questions from Joseph Stringer of Needham & Company. Your line is now open.

Joseph Stringer, Analyst

Hi. Good morning. Thanks for taking our questions. Two quick ones from us. One, can you provide us with any updates on ex-U.S. partnership discussions and how those have been playing out? And then secondly, on the pain program, do you see the assuming positive signals from the DPN trial in June? Would the post-herpetic neuralgia results in Q3 2022 be gating in any way that sort of advancing the pain program? Thanks for taking our questions.

Lonnel Coats, CEO

Let me turn both those over to Jeff.

Jeffrey Wade, CFO

Yes. So your first question on ex-U.S. partnership. I'm assuming you are talking about sotagliflozin, and so sotagliflozin is a product that we as a company don't really have any ambition to commercialize outside of the U.S. Our intention is to try to find a partner. Our expectation is that going through the FDA process and getting approval in heart failure will bolster that effort. We are moving along activities on the partnering front in parallel with our work on the NDA. I wouldn't try to lead people to think that it is going to happen in the very near-term. The second is relating to LX9211 and the two different studies. I mean, both of these studies provide independent views from two different types of neuropathic pain. Diabetic peripheral neuropathic pain is a more heterogeneous indication, and it has more variability, which is one of the reasons why we did a larger study. We are also doing dose ranging in that study. Post-herpetic neuralgia tends to be more homogeneous, but that is a smaller study. Both of these have the ability to independently support the mechanism in neuropathic pain. Obviously, diabetic peripheral neuropathic pain is a more attractive indication, which is one of the reasons why we invested so much in that indication, but both studies will provide important insights into the mechanism. I would not say that the post-herpetic neuralgia study is gating in any way; it will provide us with additional information, but if we succeed in the diabetic peripheral neuropathic pain study, that will stand on its own and provide independent evidence of the value of the mechanism. Hopefully that provides a bit of perspective. If you have any other questions to follow-up, I’m happy to take those.

Craig Granowitz, Chief Medical Officer

Yes. I think if I would add is that what we have always said is once we have a good clear signal, it really indicates multiple areas that we can approach with this target and this compound all across neuropathic pain. As you know, when you start to produce or conduct work in this area for Phase III studies, you have to do multiple Phase III studies. Studying that signal and the level signal you get across two unique populations will help inform how we would develop further Phase III studies. It also will inform how we approach other indications that we may pursue with this mechanism. The field here is very broad, large, and very opportunistic; should we get a strong signal in either of these, it will set the pathway for Phase III development.

Joseph Stringer, Analyst

Great. Thank you.

Lonnel Coats, CEO

You bet.

Operator, Operator

Thank you, participants. I will now turn the call back over to CEO, Lonnel Coats for any closing remarks.

Lonnel Coats, CEO

Well, as always, thank you for joining us this morning. We appreciate it. Many people are working very hard here to advance our near-term milestones. I think we have a wonderful opportunity to continue to engage with the FDA, resubmit our application, and have further dialogue on the other side of resubmitting an application to ensure we have the chance to have an approved product in a very expansive and growing market. Everything we see today in terms of what DELIVER has just come out with is predictable. The benefit we see for sotagliflozin holds, and the value proposition we have always shared about going into hospitals and pushing out from hospitals with the SOLOIST data holds. The three large cardiology societies are coming on board at this point much faster than we thought. They are consistent with the ESC in Europe, and we continue to see a remarkably growing market and opportunity for sotagliflozin. As for LX9211, to the questions that were asked, should we get the strong signals that we are looking for in DPN, and that carry forward to PHN, it will inform us on further development of the compound and the investments we need to make to turn this into something remarkably special. This very unique target was discovered in our collaboration with BMS as a 10-year discovery collaboration. Lexicon has fully owned rights to that asset, and therefore, anything substantial that comes from that will create substantial new opportunities to advance a unique therapeutic option in neuropathic pain. We will keep communicating as we have more to say. Thank you very much again, and I will end the call here.

Operator, Operator

Thank you for the speaker. This concludes today's conference call. Thank you all for joining. You may now disconnect.