Earnings Call Transcript - LXRX Q1 2021

Operator, Operator

Good morning, good afternoon and good evening. My name is Donna and I will be your conference operator today. At this time I would like to welcome everyone to Lexicon Pharmaceuticals Incorporated First Quarter's 2021 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your first speaker for today, Chas Schultz, Executive Director of Corporate Communications and Investor Relations. Thank you. Please go ahead, sir.

Chas Schultz, Executive Director of Corporate Communications and Investor Relations

Thank you, Donna. Good afternoon and welcome to the Lexicon Pharmaceuticals first quarter 2021 financial results conference call. Joining me today are Lonnel Coats, Lexicon President and Chief Executive Officer and Jeff Wade, Lexicon's Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer. Earlier today, Lexicon issued a press release announcing our financial results for the first quarter of 2021, which is available on our website at lexpharma.com and through our SEC filings. A webcast for 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 an update on our clinical programs, and then use the remainder of our time to answer your questions. Before we begin, let me remind you that we will be making forward-looking statements including statements relating to the safety, efficacy, and the therapeutic and commercial potential of LX9211, sotagliflozin and other drug candidates. These statements may include characterizations of the expected timing and results of clinical trials of LX9211, sotagliflozin, and our 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, 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 these forward-looking statements. These risks include uncertainties related to the timing and the results of clinical trials and preclinical studies of LX9211, sotagliflozin and our other drug candidates, our dependence upon strategic alliances and third-party relationships, our ability to obtain patent protection 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, we ask that you refer to 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, President and CEO

Thank you, Chas. Good afternoon, everyone. And thank you for joining us on the call. We, of course, welcome the opportunity to provide you an update on the first quarter 2021 and the remainder of the year. Patient enrollment is ongoing in our two Phase 2 clinical studies of LX9211 and neuropathic pain. We continue to navigate the challenges associated with patient enrollment, given the current environment with the pandemic. To help mitigate those challenges, we have increased the number of clinical sites in our RELIEF-DPN-1 study. We're keeping a close eye on enrollment and continuing to adjust the challenges as they arise to ensure we stay on target. Late last year, our SOLOIST and SCORED Phase 3 outcome studies of sotagliflozin in heart failure both achieved their primary endpoints. Based on the strong results from these studies and our subsequent discussions with the FDA, we made the decision to move forward expeditiously with a new drug application for an indication to reduce the risk of cardiovascular death, hospitalization for heart failure, and urgent visits for heart failure in adult patients with type two diabetes with either worsening heart failure or additional risk factors for heart failure. On the next slide, there are a number of events to look forward to during the remainder of 2021. As mentioned, we are working hard to reach our goal to have both of our proof-of-concept studies for LX9211 read out by the end of the year. We're very enthused by what we've seen from LX9211 in our preclinical and Phase 1 studies and look forward to obtaining these Phase 2 results. We plan to share more about the data from these earlier LX9211 studies in upcoming publications. We're moving forward with an NDA filing for sotagliflozin in heart failure and expect to submit the NDA during the second half of the year. We're also looking to establish a strategic alliance for sotagliflozin in heart failure, and those business development discussions are ongoing in parallel with our NDA preparations. Lastly, I should note that there are more analyses ongoing from the SOLOIST and SCORED studies, which we expect to result in additional publications throughout the year. There will be a presentation on sotagliflozin at the upcoming American College of Cardiology on May 16, entitled sotagliflozin reduces total hospitalizations and increases days alive and out of hospital in a SOLOIST worsening heart failure trial. Stay tuned, and I hope you get a chance to join that meeting. On the type one diabetes front, we continue to believe that sotagliflozin demonstrates a positive benefit-risk profile in the largest Phase 3 development program ever conducted in type one diabetes, and that it has the potential to become an important new treatment option as an adjunct to insulin for type one diabetes patients. We requested an opportunity for an administrative hearing with the FDA on whether there are grounds for the previous denial of our NDA for type one diabetes. In March, the FDA issued a public notice of opportunity for a hearing and there was a period for the submission of public comments, which ended earlier this week. We were very encouraged to see that those public comments were overwhelmingly positive in their support for sotagliflozin in type one diabetes. Last week, we submitted a written response to the FDA position and look forward to maintaining these discussions with the FDA. I'd like to pause now and invite Jeff to take us through the financial results for the first quarter and our financial guidance for 2021.

Jeff Wade, CFO

Thank you, Lonnel. To begin, I will discuss key aspects of our first quarter financials. More financial details can be found in the press release that we issued earlier today and also in our 10-Q filed with the SEC. As indicated in our press release, we had minimal revenues in the first quarter of 2021, primarily due to the absence of product revenues as a result of the sale of XERMELO during the third quarter of 2020. Research and development expenses decreased to $12.6 million from $55.2 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 first quarter decreased to $8.3 million from $14.7 million for the same period in 2020, primarily due to lower salaries and benefit costs as a result of reductions in personnel in September 2020 and also lower marketing expenses. In total, we had a net loss for the first quarter of $21 million, or $0.15 per share, as compared to a net loss of $66.6 million, or $0.63 per share, in the corresponding period of 2020. Our net loss for the first quarter of 2021 and 2020 included non-cash, stock-based compensation expense of $2.9 million and $4.4 million, respectively. We ended the first quarter of 2021 with $141.4 million in cash and short-term investments as compared to $152.3 million as of December 31, 2020. Our financial guidance for 2021 has not changed from the guidance given on our March 2020 year-end financial results conference call. We continue to expect our 2021 operating expenses to be in the range of $85 million to $100 million, which is a sizable decrease from the $204.4 million in operating expenses that we had in 2020. We expect non-cash expenses to be approximately $11 million of our total operating expenses. Research and development expenses are expected to be in the range of $60 million to $70 million. This estimate includes the expected spend for our ongoing two Phase 2 clinical studies of LX9211, the remaining close-out of our sotagliflozin studies, and the expected cost to submit a new drug application for heart failure, as well as investment in preclinical and discovery stage programs. We expect the general and administrative expenses to be in the range of $25 million to $30 million. Overall, we expect that our current cash investments will be sufficient to fund our operations through 2022 and into 2023. I will now turn the call back to Lonnel.

Lonnel Coats, President and CEO

Thank you, Jeff. We are very much looking forward to our upcoming catalysts. And we're working hard to achieve it for the second half of the year with LX9211 and sotagliflozin, and we'll be sharing more as they play out. I'd like to at this point turn the call over to the operator for Q&A.

Operator, Operator

[Operator Instructions] Your first question comes from the line of Jessica Fye from JPMorgan. Your line is now open.

Luke Brennan, Analyst

Hey, guys. This is Luke Brennan, standing in for Jessica Fye. Thanks for taking our questions today. I guess just to start, you know, the news on the type one front. What's the timeline for sort of response from the FDA on this? And then what are the possible outcomes historically? Is there any precedent for them to go back on their original denial with the NDA?

Lonnel Coats, President and CEO

Luke, great question. Let me first start off with the timeline. We expect the FDA to come back in the next two to three months. However, I do believe they will publish and make public the briefing document that we submitted to them. I encourage everyone that has an interest to take a look at it when it becomes public. The second thing in terms of the hearing itself and what we requested, this is very unique and very rare. In terms of looking for whether the FDA ever overturns decisions, I don't think you're going to see much precedent either way because this is a very rare moment. Our objective certainly is to be able to work with the agency to come to a reasonable conclusion as to how we will make sotagliflozin available in the market for patients living with type one diabetes. I think this is one of the processes that we'll use to try to affect that opportunity. So, you know, stay tuned, I think we'll have a lot more opportunities to talk about this as the process plays out.

Luke Brennan, Analyst

Okay. And then just one real quick on 9211. I noticed in a press release that the clinical trial sites for the DPN trial were bumped up from 30 to 40. Has there been any struggle to enroll there? Is that what's driving the additional sites? What should we read into that?

Lonnel Coats, President and CEO

No, I think look, you're spot on. I think we're no different from many enrollment challenges. It was not meeting our expectations, given that people were reluctant to come out. We have several visits scheduled in our protocols. Therefore, we felt the only way to change the dynamics of what we were seeing was to increase the site. The other thing I think is encouraging is as vaccinations have increased dramatically and people's confidence in going out into the public and engaging again at these centers, it should help us tremendously. I think with the number of sites that we've added, along with the environment changing, we have a good chance of staying on schedule as planned.

Luke Brennan, Analyst

Okay, thank you very much.

Lonnel Coats, President and CEO

You bet.

Operator, Operator

[Operator Instructions] Your next question comes from the line of Joseph Stringer from Needham & Company. Your line is now open.

Joseph Stringer, Analyst

Hi, everyone. Thanks for taking our questions. Just wanted a couple on partnership discussions here, in terms of sotagliflozin. You had two competitor readouts in heart failure, which looks like they will come in the second half of this year. Just curious how that is playing into the partnership discussion? And second, on the pain programs. What are the possible paths forward or outcomes? Both trials look promising in terms of readouts. Would you prioritize one type of indication over the other or seek a partnership with one versus the other depending on how the results read out? Thanks.

Lonnel Coats, President and CEO

Yeah, both great questions. Your first question on partnering. Yes, you're correct. There are near-term data readouts that are coming from other SGLT2s in the category. While we believe our data is unique, we think our outcome is very unique, but it does play a role in the partnership discussions and how fast you can accelerate them. Ultimately, we believe that our data will remain somewhat unique. At this point, we should see some new data from these other competitors sometime very soon. From our perspective, it matters less because I believe that the heart failure market is growing substantially. You've heard me say this before: there's plenty of room for multiple competitors. Most importantly, our data at this point will set the standard for what other competitors will have to meet relative to once we get to market. So we remain very confident in our position. For the outcome of the two neuropathic pain studies, the most important study is the DPN study, which represents a broader, significantly underserved market. Therefore, that's the one that we will prioritize, and most likely, upon success, we will find our way quickly into a Phase 3 program.

Joseph Stringer, Analyst

Great, thanks for taking our questions.

Lonnel Coats, President and CEO

You bet.

Operator, Operator

Thank you. [Operator Instructions] Your next question comes from the line of [indiscernible] from Citi. Your line is now open.

Unidentified Analyst, Analyst

Hi, this is Carlyon for Ugal. Thank you for taking our questions. The first question we had was regarding the NDA filing for sotagliflozin and heart failure. Can you clarify if there are any additional pieces of feedback you're waiting on from the FDA at this point? At this stage, what aspects of the filing have been completed and what still needs to be completed before you file it in the second half of the year?

Lonnel Coats, President and CEO

No, I think we got the feedback that we needed and it was very encouraging. At this point, we are accelerating as fast as we can to get the NDA put together. You know, we've put it into the second half. For those who know us, we push hard within the second half to get it done. I think we're fortunate that we did file for type one, so the CMC work should be a little bit easier than if we had to start from scratch. There is a significant amount of work that we can do around some of the integrated safety assessments. We're in a very good position, it's a fairly large study, so it will take some time for us to finish the work, but we're in a very good position to get it done as soon as we can in the second half.

Unidentified Analyst, Analyst

Okay, great. And then we just had one follow-up on the LX9211 trial. Can you talk about the steps you're taking to mitigate risk related to missed visits, given the pandemic? How will any missed visits or missing values be accounted for in the primary endpoint analysis for those studies?

Lonnel Coats, President and CEO

Yeah, we are working through all of those dynamics. I won't get into a lot of specifics, but I think we had to ramp up our efforts. One is to help the sites do more to try to recruit patients through advertising, and we're working hard to do that and give them the necessary support. The second is increasing the number of sites. While we make other sites productive, this allows us to stay on track. Those are two strategies we have implemented to mitigate risks to our timeline. I talked about this on our last call. I believe in March, we were starting to see some risks around the timeline because of enrollment. We determined to increase the sites and make the current ones a bit more efficient. The most significant factor that will help our studies, as well as the industry, is the overall improvement in the environment due to vaccinations and people's willingness to return to the sites. I believe as the environment improves, all the studies will benefit.

Unidentified Analyst, Analyst

Okay, that's helpful. Thank you for taking the question.

Lonnel Coats, President and CEO

You bet.

Operator, Operator

Thank you. [Operator Instructions] There are no further questions at this time. I'll turn the call back to you, speakers.

Lonnel Coats, President and CEO

Well, thank you everybody for joining us. You know, we're working diligently over these next couple quarters to ensure we're able to deliver on what we see the second half—LX9211, you know, hitting the milestones we want to achieve, as well as advancing sotagliflozin to submission. I think I said it in March; the more we did work around sotagliflozin and its uniqueness, we made the decision to advance this to an NDA as quickly as we can. It is impressive indeed, and we think it is a remarkable opportunity. We look forward to continuing to keep you updated as we have more information to share with you. Hope everybody has a safe and wonderful rest of the week.

Operator, Operator

This concludes today's conference call. You may now disconnect.