Earnings Call Transcript - LXRX Q4 2021

Operator, Operator

Good morning. My name is April, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Pharmaceuticals Inc. Fourth Quarter 2021 Earnings Call. Thank you. I will now turn the call over to Chas Schultz. Please go ahead, sir.

Chas Schultz, Chairman

Thank you, April. Good morning, and welcome to the Lexicon Pharmaceuticals’ fourth 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 this morning, Lexicon issued a press release announcing our financial results for the fourth 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 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 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 related to the timing and outcome of our planned NDA submission and resubmission 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, 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, Chas. Good morning everyone, and thank you for joining us on the call. I would first like to discuss what is likely on the top of all of your minds, and that is our decision to voluntarily withdraw and resubmit our NDA for sotagliflozin. This decision was necessary to ensure the completeness of our NDA submission. We recently identified a technical issue with our NDA submission, which was not related to the clinical results or the interpretation of the underlying clinical data. The company identified supportive documents related to site monitoring visits that were inadvertently not included in the submission. We promptly notified the FDA about the issue and have been in discussions with the agency to correct the submission. Unfortunately, the issue was discovered near the end of our 60-day filing review period, which did not allow a sufficient amount of time for us to correct the submission and for the FDA to complete its filing review. After consultation with the FDA, we determined that the withdrawal of the NDA in a subsequent resubmission would be the most appropriate action to provide a complete submission for review. I would like to reiterate that this technical issue does not involve the substance or the analysis of the clinical results and does not impact the conclusion from our SOLOIST nor SCORED Phase III outcome studies. We plan to correct this issue and promptly resubmit the NDA by early second quarter. Now, let me turn our attention to LX9211, which is a selective inhibitor of AAK1. Despite neuropathic pain affecting millions of people, there remains a high level of unmet need for those suffering from the condition. The current therapies are limited by lack of efficacy, compounded by debilitating side effects and, in the case of opioids, risk of potential abuse and addiction. We believe LX9211 has the potential to overcome many of the shortcomings of current therapies and could become a new wave of innovation for those suffering from neuropathic pain on a daily basis. We have made significant progress over the last few months in our two ongoing Phase 2 proof-of-concept studies and expect top-line results in the very near term. For RELIEF-DPN-1, our study in diabetic peripheral neuropathic pain, I’m very pleased to report that we are completing recruitment this week. We expect to report top-line results by the end of Q2 2022. For RELIEF-PHN-1, our study in post-herpetic neuralgia, which is a global study, we continue to enroll patients and expect to report top-line results in the third quarter of 2022. I would now like to invite Jeff to take us through the financial results for the fourth quarter of 2021.

Jeff Wade, CFO

Thank you, Lonnel. I will provide some key aspects of our fourth quarter 2021 financials. More financial details can be found in the press release that we issued earlier today and in our upcoming 10-K SEC filing. We ended the year with $86.7 million in cash and investments and no debt. While we will require additional capital as we approach the launch of sotagliflozin, we can manage our operations over the next 12 months within our existing capital resources. As indicated in our press release this morning, we had minimal revenues for the fourth quarters of both 2021 and 2020. Research and development expenses for the fourth quarter of 2021 increased to $16.5 million from $1 million for the corresponding period in 2020. The R&D expense in the fourth quarter of 2020 reflected a reduction in estimates for external clinical development costs primarily related to sotagliflozin R&D expenses. Selling, general, and administrative expenses for the fourth quarter of 2021 increased to $8.8 million from $6.4 million for the same period in 2020, primarily due to higher legal fees. In total, net loss for the fourth quarter of 2021 was $25.6 million or $0.17 per share compared to a net loss of $5.5 million or $0.04 per share in the corresponding period of 2020. Our net loss for the fourth quarter of 2021 and 2020 included non-cash stock-based compensation expense of $2.2 million and $2.7 million, respectively.

Lonnel Coats, CEO

Thanks, Jeff. Before taking any questions, let me close out by summarizing our key anticipated milestones and events. First, let me say the team has been working diligently since discovering the technical issue with our NDA submission and we are working closely with the FDA to correct the issue and promptly resubmit the NDA early in the second quarter. The resubmission of the NDA will likely result in our planned launch of sotagliflozin in heart failure, if approved, occurring in the first half of 2023. We are expecting top-line results from our RELIEF-DPN-1 study by the end of Q2 2022. Shortly thereafter, we anticipate the top-line results for RELIEF-PHN-1 in Q3 of 2022. The news today is certainly disappointing to us, but I want to be clear, this delay does not change the value proposition of sotagliflozin. We believe sotagliflozin’s unique dual mechanism of SGLT1 and SGLT2 inhibition provides important and differentiating benefits for patients with heart failure living with type 2 diabetes, especially those patients with recent and worsening heart failure. With that, I'll stop and open the floor for questions and turn it over to the operator.

Operator, Operator

And your first question is from Yigal Nochomovitz with Citi.

Unidentified Analyst, Analyst

Great. Good morning. This is on for Yigal. Thank you for taking our questions. We had one clarification question on the heart failure NDA. Can you just walk through what needs to be done in order to correct this technical issue and resubmit the NDA?

Lonnel Coats, CEO

Great question. We've been working with the FDA since notifying them of this matter, and we've already started the process of going back and putting all of the information that's required to make the application complete. So, we know exactly what the issues are, and now we’re starting the work to repair those issues and get this back to the FDA as soon as we can.

Unidentified Analyst, Analyst

Okay, great. And then where do you stand with ex-U.S. Partnership discussions for heart failure? Could you broadly characterize the level of interest you're receiving there?

Jeff Wade, CFO

Yes. We're continuing to have discussions regarding ex-U.S. It is something that I would say is not imminent, but we will continue to have dialogue. We do intend for outside of the U.S. to rely on partnerships and collaborations and do not have any ambition of commercializing on our own outside of the U.S.

Unidentified Analyst, Analyst

Okay. Got it. That's helpful. And then if I could just ask one more on the pain trials, we're curious if there's any reason mechanistically to believe that LX9211 would be more likely to show a therapeutic effect in PHN or DPNP?

Craig Granowitz, Chief Medical Officer

Certainly. Thank you. As we've shown in a number of publications and discussions, we believe that based on both the knockout mice and the biochemical data that's been done in the animal models that some of the liabilities seen in these prior studies of animal models and preclinical development differentiate potentially LX9211 from a risk-benefit standpoint. Certainly, the liability of addiction potential compared to some of the other liabilities related to gabapentin, oxalic acid, and tricyclics, we don’t seem to see those in similar animal models. Again, I'll hold on the human experience other than what's been published in the rising single and multiple doses, which showed good tolerability in those clinical studies that have been presented publicly.

Lonnel Coats, CEO

And then also, we have very good results in preclinical models for both diabetic peripheral neuropathic pain and post-herpetic neuralgia. There's more heterogeneity in the population with diabetic peripheral neuropathic pain, which is part of the reason why we did a larger study in that indication, but we have good reason to believe that both of these indications offer potential for LX9211.

Jeff Wade, CFO

And I'll speak broadly on the strategy here. The most important trial that we're working on with LX9211 is the diabetic peripheral neuropathic pain study. The rationale for certainly doing the PHN study, given that we did see activity there, is important because ultimately you want to get a broad label in the area of peripheral neuropathic pain. In order to do that, you're going to have to study multiple areas where there is neuropathic pain with some level of specificity. And so, DPN is going to be critical in terms of initial success. Then certainly PHN success will determine just how big the opportunity may be for us in terms of the market size.

Unidentified Analyst, Analyst

Perfect. Thank you so much.

Lonnel Coats, CEO

You bet.

Operator, Operator

Your next question is from Jessica Fye with JPMorgan.

Unidentified Analyst, Analyst

Good morning, everyone. This is for Jessica Fye. Thanks for taking our question. A couple of clarifying questions on the technical issue found in the NDA submission, were the site monitoring visits that were not included related to manufacturing, quality analysis, or some other sites?

Lonnel Coats, CEO

No, these were clinical sites.

Unidentified Analyst, Analyst

Okay. And was the visit completed by the FDA, but not recorded in the NDA, or was the visit not completed by the agency to begin with?

Lonnel Coats, CEO

No, these are visits that need to be completed by the sponsor.

Jeff Wade, CFO

And they exist. We have the source documents; they just didn't make it into the NDA.

Unidentified Analyst, Analyst

Got it. Okay. And was there a potential to correct the issue while the NDA was still in submission? Meaning would the FDA have considered correction of the technical issue as a major amendment? Was that the reason why it was pulled?

Lonnel Coats, CEO

No. You don't amend a filing. I mean, a submission. You can certainly do that on the other side of it, but you don't amend the submission. I think it was a timing issue. We were very, very close to the 60-day date that we had on record, and that just was not enough time for the FDA to complete this review nor for us to go back and do the inputs. So, the best answer was to pull it and get it done and get it back in.

Unidentified Analyst, Analyst

Okay. Got it.

Lonnel Coats, CEO

One of the things I will say, the conversations with the agency were very encouraging because they felt confident about, I've just characterized the conversations as one of confidence in that the company came forward and disclosed it and is working directly with them on it given that the file was under review for, excuse me, the submission was under review for filing. So, I think my hope is that certainly gained us some goodwill so we can keep moving with the speed that we intend to move with.

Unidentified Analyst, Analyst

Great. One last question on this issue. How did you detect this issue before the FDA?

Lonnel Coats, CEO

Great question. Prior to any – whenever you make a submission, you pull your team together and go through all of what you've submitted so you can get ready for FDA inspection, and you make sure there's no gaps in what you've done and you go through that again, and that's how we discovered it.

Unidentified Analyst, Analyst

Okay, got it. And a bigger picture, when we think about the shift in timeline for potential NDA resubmission to early Q2 and potential launch in the first half of 2023, what are some of the considerations to keep in mind regarding cash runway?

Lonnel Coats, CEO

Jeff, I'll turn that one to you.

Jeff Wade, CFO

Well, in either of the scenarios we are going to need to be able to bring in additional cash as we get closer to launch. We have the ability to manage our operations to get through a year, but we will need additional capital from a cash runway perspective. Other than that, this is really a matter of a delay of a few months. That doesn't change any of the – as Lonnel said, it didn't change the value proposition, didn't change any of the opportunity for the product, it's just a delay.

Lonnel Coats, CEO

Yeah. I think when you do have a delay, unfortunately, you delay your spending, all of the work that we were doing that start to bring teams on board to get ready for the launch that August delay, which delays out us having to make the spend and therefore allows us to extend our cash runway.

Unidentified Analyst, Analyst

Got it. Thank you very much for taking our questions.

Lonnel Coats, CEO

You bet.

Operator, Operator

Your next question is from Joseph Stringer with Needham.

Joseph Stringer, Analyst

Hi, good morning. Thanks for taking our questions. Two quick ones from us. Just given the slight delay here in the sotagliflozin program, can you just put that into context given the competitor programs that are out there and what does that mean for overall strategy for Lexicon and heart failure, does anything change there? Secondly, on the pain program, would you need to see data from the Phase 2 PHN trial before deciding on next steps for that pain program or would the DPN trial give you, you know if that were positive, could you sort of proceed into next steps there? Thank you.

Lonnel Coats, CEO

It's a great question. Let me start with the second one first. The DPN study is the most critical study for us to make a decision moving forward. The PHN study is more of a complementary study in terms of our ability to show the drug can broaden into other areas in neuropathic pain, but we have to have a win on DPN. As for your first question, I'm going to turn it over to Jeff.

Jeff Wade, CFO

This doesn't really change the strategy for us. We anticipated that empagliflozin would get a broader label. We have data that has surpassed in the same category in terms of benefit that we saw in the study in heart failure with preserved ejection fraction really across the entire spectrum of left ventricular ejection fraction. One of the things that's unique in our program is that we have the SOLOIST study, and it's in recent and worsening heart failure, with hard outcomes in that recent and worsening heart failure study. That has been one of the areas of focus for our commercialization strategy and that's not going to change. There's really not anything out there that is comparable to that study. So, we anticipate that empagliflozin would get a broader label. It actually is probably a benefit to us because this is going to be the first time that a couple of different drugs, including sotagliflozin, will have the opportunity to be available for patients that have been underserved and not well-served by existing therapies, and that's going to be a growing market, and we're going to get to leverage that growing market.

Lonnel Coats, CEO

Yes, the other thing that I would just add… Go ahead, Craig. Sorry.

Craig Granowitz, Chief Medical Officer

Yes. One other comment I'd just like to add. I'm sure this is might be Lonnel’s comment as well as even in the FDA's own press release on empagliflozin, the head of the review division noted that this was not a solution for all heart failure. And I think that leaves certainly the door open for additional innovation, particularly as Jeff mentioned, what we believe is the incremental value of sotagliflozin across an even broader range of left ventricular ejection fraction, as well as particularly the group of highest risk, which was not specifically covered in the empagliflozin revised label of recent and worsening heart failure.

Lonnel Coats, CEO

Yes. I think we'll take this opportunity as we start to rework our resubmission and even strengthen our focus on what we believe should be prior review for our application, particularly in a recent and worsening heart failure, now that we see the empagliflozin data. We are more convinced that we have a differentiated compound. So, this could be an opportunity for us to make an even stronger argument. And hopefully, it leads to the outcome that we intend to have once approved, if it should be approved.

Joseph Stringer, Analyst

Great. Thanks for taking our questions.

Operator, Operator

Your next question is from Julian Harrison with BTIG.

Julian Harrison, Analyst

Hi, good morning. Thank you for taking my questions. You kind of just answered it there. I just wanted to confirm that this need to resubmit the sotagliflozin NDA does not affect potential eligibility for priority review upon acceptance?

Lonnel Coats, CEO

Yeah. We have to make the argument. Anytime you submit, you got to make the argument, and I’m sure you will be making the argument in an even stronger way once we resubmit.

Operator, Operator

And there are no further questions at this time.

Lonnel Coats, CEO

Well, I want to thank everyone for joining us on the call. There's no greater priority for the organization than to address the issue that we identified. We're working very quickly to resolve it. I think we've had very collaborative conversations, as I would characterize them, with the FDA. And I think if we are able to move with the speed and quality that we intend to move with, our objective is to keep moving as fast as we can. And doing that, we’ve outlined that the potential to resubmit will be in the early part of the second quarter. And then from there, I think to the point that was just made recently, it really is an opportunity as well for us to make a strong argument for why we think we should have a prior review, particularly for patients with recent and worsening heart failure. So, we're going to take this as a slight setback and a delay, but it also could be an opportunity for us to strengthen our application. So, with that being said, I want to thank you again for joining us and we look forward to updating you on our next call.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.