Lexicon Pharmaceuticals, Inc. (LXRX) Q2 2022 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen and welcome to the Lexicon Pharmaceuticals Inc. Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Today’s call is being recorded, Tuesday, August 2, 2022. And I would now like to turn the conference over to Mr. Mike Kelly. Please go ahead, sir.

Thank you, Michelle. Good afternoon and welcome to the Lexicon Pharmaceuticals second 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 afternoon, Lexicon issued a press release announcing our financial results for the second 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 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'll be making forward-looking statements, including statements relating to the safety, efficacy and 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 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, 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 our NDA 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 of results of clinical trials in preclinical studies of sotagliflozin, LX9211 and our other drug candidates; our dependence upon strategic alliances and other 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 planned research, development and commercialization activities. For a list and a description of the risks and uncertainties 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.

Thank you, Mike and good afternoon, everyone, for joining the call. If we go to the next slide. As expected, the second quarter of 2022 was a pivotal time for with major milestones achieved for both our dual SGLT1 and 2 inhibitor, sotagliflozin for heart failure and our AAK1 inhibitor, LX9211, for neuropathic pain. We resubmitted our new drug application for sotagliflozin for the treatment of heart failure in May. And as we announced last week, the filing was accepted by the FDA with a standard review and an anticipated PDUFA target date in May 2023. Our regulatory interactions have given us confidence in seeking a broad label in heart failure, including patients with and without type 2 diabetes, expanding on the potential opportunity for sotagliflozin. Importantly, we believe the unique data from our SOLOIST-WHF trial in recent and worsening heart failure may provide a point of differentiation and strong entry into the heart failure market, if approved. The overall heart failure market is already a very large multibillion-dollar market and is anticipated to further grow at nearly 20% per year for the most of this decade driven primarily by the SGLT inhibitor class and newly adopted guidelines for heart failure in the U.S. We believe that our unique mechanism of action, clinical data in a growing market offers an opportunity for sotagliflozin to achieve blockbuster potential. We look forward to continuing to work with FDA throughout the review period. And if approved for marketing, we are planning to launch sotagliflozin in the U.S. in the first half of next year. I’m pleased to speak about another major achievement this quarter. We announced positive top line results for our Phase II proof-of-concept study of LX9211 in painful diabetic neuropathy. By achieving a primary endpoint of the study, we accomplished our ambitious goal of translating a new mechanism of action for the treatment of neuropathic pain from research and discovery to human clinical results. This represents the culmination of over 15 years of biological research, medicinal chemistry and clinical science on a novel target that we, through our proprietary discovery platform, were the first to identify as a potential target for neuropathic pain. We have a second proof-of-concept study for LX9211 in post-hepatic neuralgia, with top line results anticipated to read out before the end of this year. The large multi-billion-dollar neuropathic pain market remains largely unsatisfied with today’s treatments. An innovative approach with a novel compound such as LX9211 could provide a significant opportunity to change the neuropathic pain treatment landscape for the benefit of millions of patients. I will now turn the call over to Jeff to discuss our opportunities and strategy for sotagliflozin in heart failure. Jeff?

Thank you, Lonnel. Heart failure is a condition characterized by chronic decline over time, punctuated by acute decompensated heart failure events that often require hospitalization. Our SCORED trial addressed patients experiencing this chronic decline, showing a benefit on heart failure endpoints that were consistent across the patient population that included patients with and without heart failure at baseline. Our SOLOIST-WHF study addressed patients who are hospitalized with a worsening heart failure event, initiating therapy in the hospital prior to discharge or promptly following discharge. Both studies achieved success on a common primary endpoint, a reduction of the risk of cardiovascular death, hospitalization for heart failure or urgent heart failure visits. We believe that the results of SOLOIST-WHF with its unique data supporting initiation of therapy at a critical point in patient care will be an important element distinguishing our proposed label. As Lonnel mentioned, the market for heart failure medications is expected to grow rapidly over coming years as a result of newly adopted guidelines recommending SGLT inhibitors as an element of the standard of care across a broad range of heart failure patients. The guidelines recently adopted by 3 major cardiology societies in the United States, the American Heart Association, the American College of Cardiology and the Heart Failure Society of America, adopt SGLT2 inhibitors as standard of care for heart failure with reduced ejection fraction, with a recommendation at the highest level of confidence and provide a similar recommendation notably with a higher level of confidence than for any other class of therapy for heart failure with mildly reduced ejection fraction and heart failure with preserved ejection fraction which collectively represents 60% of all heart failure patients. Importantly, the guidelines highlight the need to optimize medical therapies during heart failure hospitalizations and specifically cite the SOLOIST-WHF study. Based on the results of our SOLOIST-WHF and SCORED Phase III outcome studies, we are seeking a label that encompasses indications for reducing the risk of cardiovascular death, hospitalization for heart failure and urgent heart failure visits in adults with heart failure, with and without type 2 diabetes, including those with acute or worsening heart failure and reducing the risk of cardiovascular death, hospitalization for heart failure and urgent heart failure visit, nonfatal myocardial infarction and nonfatal stroke in adults with type 2 diabetes, chronic kidney disease and other cardiovascular risk factors. As previously indicated, we have an anticipated PDUFA target action date in May 2023 and expect to be in a position to launch promptly following anticipated approval in the first half of next year. Unlike other diseases within cardiovascular medicine, heart failure is very much a symptomatic disease in which patients endure a tremendous burden impacting daily life. When patients experience a worsening heart failure event, they are compelled to seek medical attention because they feel fatigued, unable to conduct their normal daily activities and experience significant shortness of breath, even at rest. Worsening heart failure episodes often lead to hospitalizations which are burdensome not only to the patient but also to the health care system. This is another area in which heart failure differs from many other cardiovascular diseases. There is an alignment among the interests of patient, provider and payer. The patient is highly motivated to seek better treatment to improve their symptoms and avoid a return visit to the hospital. Providers have an economic incentive to do the same, driven not only by a desire to deliver good patient care but also by quality care metrics and penalties. And payers face similar incentives with the desire to avoid the very expensive hospitalizations that are the biggest driver of heart failure costs. The transition of care following a heart failure event is important in another key respect. When these patients are initiated on new therapy within the hospital setting or at discharge, they are far more likely to receive and remain compliant with therapy, as seen with both the 60- to 90-day and 12-month follow-up statistics depicted in this slide. It is exactly at this point, the transition of care from hospital to outpatient setting that we intend to target our efforts with sotagliflozin and leverage the uniqueness of our data from the SOLOIST-WHF trial in this patient population. Finally, we believe that with our unique SOLOIST-WHF data, a strategy that is focused on heart failure and even more specifically on the transition of care for patients hospitalized for heart failure and the specialized and concentrated prescriber base that treats these patients, we can be highly competitive in our target market with a modestly sized field force of around 100 reps. I will now turn the call over to Craig Granowitz to discuss our second significant milestone this quarter, achievement of proof-of-concept for LX9211 and our Phase II RELIEF-DPN-1 proof-of-concept study in painful diabetic neuropathy.

Thank you, Jeff. LX9211 is a potent, highly selective, small molecule inhibitor of a novel target, adapter-associated kinase 1 or AAK1. This program and the study results we will discuss are backed by many years of scientific rigor and dedication from both Lexicon and Bristol-Myers Squibb with whom we are in a neuroscience drug discovery alliance when this neuropathic pain target was uncovered, leveraging Lexicon’s gene knockout technology. Lexicon was since able to reclaim the rights of AAK1 target and associated development candidates from the alliance and we hold exclusive development and commercialization rights with modest milestone and royalty financial obligations owed to BMS. In a number of clinically relevant animal models of neuropathic pain, LX9211 demonstrated consistent, significant reductions in pain scores, even when compared to positive controls such as gabapentin. LX9211 achieved high levels of drug in the CNS. And importantly, the mechanism of action of the LX9211 is independent of the opiate pathway. In Phase I studies, LX9211 was shown to be well tolerated with a pharmacokinetic profile supportive of 1 daily dosing. Lexicon has been granted fast track designation by the FDA for diabetic peripheral neuropathic pain. As a reminder, the RELIEF-DPN study was a randomized, double-blind, placebo-controlled, parallel group, multicenter Phase II study. There were a total of 3 arms in the trial randomized on a 1:1:1 basis, including a placebo group and 2 active groups, each consisting of a loading dose on day 1 only of 10x the maintenance dose and then once daily dosing for a total of 6 weeks. The 100- and 200-milligram loading doses were selected to achieve steady-state blood levels on day 1 of dosing in order to maximize the probability of achieving an early efficacy signal with this proof-of-concept study. Primary endpoint of the study was changed from baseline to week 6 in the average daily pain score, or ADPS and the study was conducted at approximately 40 clinical sites in the United States. Total of 319 patients was equally distributed amongst the 3 treatment arms. The mean age at baseline was 62 years with a gender distribution of approximately 60% male and 40% female and a mean BMI of 32. The median baseline pain score was approximately 6.6 on a scale of 0 to 10. Approximately 45% of all patients were on one background medication for their painful diabetic neuropathy with the vast majority of these being on gabapentin. The primary endpoint of the study was achieved with a statistically significant reduction in ADPS at week 6 compared to placebo in the low-dose arm. There was an absolute reduction in ADPS from baseline of 1.39 points with a p-value of 0.007 compared with placebo. The high-dose arm achieved a reduction from baseline of 1.27 points with a p-value of 0.03 compared to placebo which narrowly missed significant threshold of 0.028 but showing consistent effects. Interestingly, the use of a rescue medication, acetaminophen, was highest in the placebo arm and lower in the 2 dose groups. The therapeutic effect was seen early during treatment with separation from placebo being evident and statistically significant by week 1 in both dose arms and remaining throughout the treatment period. Importantly, the drug effect was remarkably consistent across a number of factors, including age, sex, background DPNP medication and baseline pain score. Equally important, the patient-reported outcomes which are a measure of the patient’s overall well-being or experienced during the study, showed greater improvement in those treated with LX9211 compared with placebo. Adverse events were more frequent in the LX9211 treatment arms and particularly at the higher dose, as expected based on our experience in Phase 1. The most common events observed were dizziness, headache and nausea, with nearly all reported as mild or moderate in nature. What we did not observe in the safety profile of LX9211 are some of the liabilities of current therapies for painful diabetic neuropathy such as peripheral edema, increased appetite, blurred vision or dry mouth. The adverse events tended to occur early in treatment, suggesting the possibility that they may be associated with the loading dose and given the rapid onset of effects on ADPS, offering potential for further optimizing dosing for both tolerability and efficacy. To summarize, we believe the results of the RELIEF-DPN-1 study support AAK1 inhibition as a potential new mechanism of action for neuropathic pain and for further advancing LX9211 in the development for the treatment of diabetic neuropathic pain. 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 are proceeding with our work to identify and optimize the proper dosing regimen to take into Phase III studies and we are committed to doing that work in a thoughtful but expeditious manner. You might imagine, this program has garnered a tremendous amount of external interest, particularly now that we have crossed that proof-of-concept threshold where most others have failed. For a variety of reasons, not the least of which is the potential size of this opportunity, we believe that this program would benefit from a partnership that offers the right strategic fit for our organization and stakeholders. Lastly, let me highlight that we will be outlining a series of publications and presentations throughout the remainder of this year for the LX9211 program. We have already received acceptances at medical meetings upcoming this fall for the design of the RELIEF-DPN study in September and a podium presentation for the full study results in November. With that, I would like to turn the call back to Jeff to take us through the financial results for the second quarter of 2022.

Thank you, Craig. I will provide some key aspects of our second quarter 2022 financial results. More financial details can be found in the press release that we issued earlier today and our upcoming 10-Q SEC filing. We ended the quarter with $62 million in cash and investments. This amount does not take into account the recently announced $85 million public offering and concurrent private placement of our common stock which closed yesterday and from which we received approximate net proceeds of $82.2 million that will bolster our cash runway moving forward. Together with our existing capital resources, the proceeds from this recent round of financing provide us with funding to support continued commercial preparations and the potential launch of sotagliflozin in heart failure. Our loan facility with Oxford Finance which provides up to $125 million in additional borrowing capacity gives us substantial financial flexibility as we proceed with preparations for the launch of sotagliflozin, make appropriate investments in research and clinical development and move towards a potential LX9211 partnership. As a result, we expect that we will have sufficient resources to manage our operations through at least 1 year past the anticipated launch of sotagliflozin into the market without taking into account any proceeds of or costs assumed by a partner in any partnership that we may establish for LX9211. Now turning to our financial results for the second quarter. As indicated in our press release this afternoon, we had minimal revenues for the second quarters of both 2022 and 2021. Research and development expenses for the second quarter of 2022 increased to $13.4 million from $10.3 million for the corresponding period in 2021 primarily due to increases in salaries and benefits and higher professional and consulting costs related to the resubmission of our new drug application for sotagliflozin. Selling, general and administrative expenses for the second quarter of 2022 increased to $10.7 million from $7.9 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. And total net loss for the second quarter of 2022 was $24.6 million or $0.16 per share as compared to a net loss of $18.1 million or $0.13 per share in the corresponding period of 2021. Our net loss for the second quarters of 2022 and 2021 included noncash stock-based compensation expense of $2.8 million for both quarters. I would like to pause now and ask the operator to open up the call to take your questions.

[Operator Instructions] Your first question comes from Yigal Nochomovitz of Citigroup.

So I had one on LX9211. So as you know, in the approval trials for Lyrica and Cymbalta, they showed a placebo-corrected ADPS in the range of 0.8 to 1.2. But there was no background gabapentin that was permitted in those studies. You guys showed a 0.7 [ph] placebo-corrected ADPS but 45% of the patients were on the background pain medication. So getting to my question, do you think that in the future Phase III, you’re going to need to be in that 0.8 to 1.2 placebo-corrected range to be competitive? Or given that the expectation will be that you’re going to have patients that are already on background pain meds that a lower 0.7, say, placebo-corrected ADPS would be still very competitive commercially?

You got it. This is Lonnel. That's a very good question. My sense is and I'll let Craig answer the question more thoroughly. My sense is, what do we do in Phase III, we're probably going to have a background use of other payments. I think that's the best way to do it because it really shows the innovation above and beyond what's already out in the market. And that's what we've done in Phase II. And so we would probably expect the same. As a result, you cannot expect the same delta that you would if you had placebo basically being something less than the innovation in markets such as the gabapentinoids and other compounds that are currently treating. So that’s my sense. But I’ll turn it over to Craig for any further thoughts from him.

Thank you, Yigal. Thank you, Lonnel. You got a great question and that's one we've been thinking about quite a bit. I think mechanistically, there is every reason to believe that by looking at a different mechanism of action than the gabapentin-s that we could get additive activity. And I think we've been able to have a strong hint of that, even though the study was not designed or powered to look at that, that, that is a good and interesting hypothesis. So that is something that we are further going to explore for sure in Phase III. I think just to reiterate your question about the magnitude of the effect, I just wanted to stress and remind us all of a few points. The first that this was an intent-to-treat analysis of all treated patients. The second is that, as you know, looking at the approved label of many of the other drugs, doses and responses are all over the place and they vary quite a bit in terms of reduction from baseline ADPS. The third is, as you know that there was a run-in period in this study which also, in a sense, artificially elevates the response in all of the arms, including the placebo. So everybody was starting at a higher baseline point. So we think for all of those reasons as well as the fact that the patients in terms of their patient-reported outcomes also responded, in general, feeling better on LX9211 than placebo that we have a clinically meaningful and important clinical effect.

Okay, great. That's super, super helpful. And then switching gears to heart failure. So Lonnel and team, you guys have done a very nice job, in my opinion, in making the case for differentiation versus the competing SGLT2s in heart failure. And just to summarize the evidence, for the benefit of everyone listening, you showed a 37% relative risk reduction on total CV death, [indiscernible] heart failure in SCORED and SOLOIST versus the much lower 21% on that composite endpoint in the EMPEROR-Preserved trial. And then, you further demonstrated the benefit in patients hospitalized for acute decompensated heart failure. These were excluded from EMPEROR-Preserved. And finally, you demonstrated benefits on MI and stroke and scored with much lower hazard ratios than we're seeing with this selective SGLT2, as you know, in the CANVAS, DECLARE and EMPA-REG trials. So those are very compelling arguments versus your peers in SGLT2. So – but my question is I’m curious about ENTRESTO and what your claim for differentiation is versus ENTRESTO given that, I assume, that you also want to take share from ENTRESTO in addition to taking share from the SGLT2s?

Jeff is itching to give a point of view on this, so I'm going to let Jeff give his thoughts on it.

So, I wouldn't necessarily view ENTRESTO as a competitor for us. ENTRESTO is a drug that is in a different class of therapy. It's basically in the same class of therapy with ACE inhibitors and ARBs and is recommended in that class of therapy for treatment of heart failure. So we don't really need to take share from ENTRESTO to be successful. We are adding a separate class of therapy that has shown compelling results that is rated equally with ENTRESTO and about 40% of the market and ahead of ENTRESTO in about 60% of the market in terms of the guideline recommendations. So I think that we’ll be in a strong position. We can be used with ENTRESTO. We can be used with an ACE inhibitor or an ARB. We should have really – we have really compelling results and I think we can be differentiated from others within this class and really capitalize on the guidelines that are really – that are evidence-driven as to the benefit of SGLT inhibitors, including sotagliflozin.

Yes, you got -- I think all I would add is that the wonderful recitation you just made about our data, the SOLOIST data is so remarkable in that over 90%, I believe, of the patients in that study were on standard of care, whether it was ARNI or an ARB or ACE inhibitor, they were already on supportive care. And then when you added sotagliflozin into that mix, you saw that big delta, if you will, that 37%. So you're seeing the significant of adding sota into the mix on the current standard of care which is what Jeff is talking about. We don't have to take anything from them but sotagliflozin needs to be part of the mix if you want to get the overall benefit that we've reported out in the SOLOIST trial.

Got it. And then just one small question. I think in the press release the other day on the acceptance of the NDA, I didn’t see anything about FDA wanting a panel for sota and heart failure. Is that correct? Or is that still open for discussion?

Well, we'll never speak for the FDA on an advisory panel. But I would say that there is nothing here, in my opinion, that should initiate an advisory panel given that what we've seen with other reviews of other compounds within a class. The data is fairly straightforward. You don't have any safety issues in this program. The data is consistent across the patient groups. So my sense is it's highly unlikely we will have a panel but I would never say never.

Your next question comes from Joseph Stringer of Needham & Company.

Can you remind us again just the next steps for the pain program here? Is additional Phase II dose-ranging trial, is that something that you had planned to do to sort of explore the right dose, perhaps go lower dose than the previous Phase II and maybe optimize the loading dose? Or would you go straight into sort of a Phase III program here? And then more just on strategy around partnering LX9211. Would you look to secure a partner – or when would you look to secure a partner or would you need one to advance this program forward?

Great question, Joe. One is that, no, we don't need a partner to advance the program forward. We'd always plan to do additional work because we were pushing dose and we were trying to learn because it's a proof-of-concept study. And we are learning. We're learning the impact of what the loading dose may have done both in supporting the efficacy of the program as well as what it may have done certainly to create some degree of the AEs that we saw. And so, we’re – as we’re going through now and analyzing that data, it will help inform us of what we’re going to do in the next program that will allow us to accelerate our finding so we can accelerate in the Phase III. But it was always part of the planning to do more around dosing as we learn more. So I would say stay tuned on that but I’ll let Craig comment any further on the plan for the next stage.

Yes. Thank you, Lonnel and Joseph. I think, Joseph, when we looked at it, based on the results achieved in this pilot, you could make a strong argument that the dose, even though not optimized at all with the loading dose, you can take that into clinical trials on the basis of the fact that we had a significant magnitude of effect with a p-value of 0.007. The rapidity of the effect with the benefit seen in the first week that was maintained, the concurrence of the patient-reported outcomes, the benefit in the 110 dose and the fact that there were fewer rescue meds required in that dose and the high dose arm compared to placebo. But to the point that Lonnel was making, we think we can do better. We think that a Phase II tolerability optimization study that could result in better compliance and potentially lead to better efficacy would give us even better results and a better patient experience during treatment. And that really is the next study that we’re planning and we’re really working hard now getting the last of the PK results in and some other smaller bits of data from the DPN study to make a final determination of what kind of design we’d like to do going forward.

Yes. The only thing I would add, Joe, on the partnership side, the -- to your question. We don't need to wait for a partner to do that work. We're doing it now. What I would say is because the interest is fairly high, those conversations are starting underway as we speak.

Great. And just a follow-up on the post neurology [ph] trial readout, how would those results influence how you move forward with 9211?

Jeff, do you want to take that?

Yes. I mean, we basically have already established the key point which was to establish the translation of this target and the proof of concept in humans. And that was the important element. This is really going to add some additional information. It potentially adds another indication within neuropathic pain that we can pursue will be supportive information. It’s a lot smaller study, so it’s going to be – it’s got a lot – it’s less powered given the study size. But we think that it’s going to be complementary information that will help inform further development. But the key study that we wanted to get results – key outcome that we wanted to get was to establish proof-of-concept mechanism and that’s already been achieved.

Yes. I think what the PHN, to Jeff's point, could help you with, if you want to go for a broad neuropathic pain view, then you want to show signals in multiple areas, including the first one which is DPN. But if you want the biggest market, you've already achieved that signal. If you want a bigger opportunity to expand it out, then you want to get a signal in some other areas like PHN. But PHN by itself is a relatively small market. But you would like to get a good signal there that allows you to pursue a bigger, broader opportunity relative to neuropathic pain and that’s the value of it.

[Operator Instructions] There are no further questions from the phone lines. I'll turn the conference back to Mr. Coats for closing remarks.

Well, let me first say thank you to all of you for joining us on the call and the support that you show for Lexicon. I'll close out by summarizing our key milestones and events. First, we now have an accepted new drug application for sotagliflozin in heart failure with and without diabetes with a PDUFA date in May 2023. And we plan to launch sotagliflozin in heart failure, if approved, in the first half of 2023. Secondly, we achieved positive top line results for the RELIEF-DPN-1 study in June with full data to be presented at a medical conference this year. This is very important to us. We worked very hard for this and we will be providing full data at a conference where the data has now been accepted in November. So stay tuned for that, you'll get to see the full data set. We anticipate top line results from our RELIEF-PHN-1 study before the end of this year. Lastly and importantly, we have recently closed a round of financing that puts us in a very strong position and extends our ability to fund our operations well past the initial launch of sotagliflozin in heart failure if it's approved. So we're in a very good position to execute what's near term for us and create value and benefit for our stakeholders. So it has been a tremendous quarter. There will be many other study developments on the horizon. And then, we look forward to continue to update you and share our progress as we make it. Thank you very much for joining us.

Ladies and gentlemen, this concludes your conference call for this afternoon. We would like to thank everyone for participating and ask that you please disconnect your lines.