Lexicon Pharmaceuticals(LXRX) - 2019 Q2 - Quarterly Report

Part I – Financial Information Financial Statements This section presents the unaudited consolidated financial statements for the period ended June 30, 2019, providing a comprehensive overview of the company's financial position, performance, and cash flows Consolidated Balance Sheets The balance sheet as of June 30, 2019, shows a decrease in total assets to $233.1 million from $284.1 million at year-end 2018, primarily driven by a significant reduction in cash and cash equivalents Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $11,106 | $80,386 | | Total current assets | $122,459 | $173,324 | | Total assets | $233,143 | $284,136 | | Liabilities & Equity | | | | Total current liabilities | $22,469 | $36,751 | | Long-term debt, net | $243,953 | $243,887 | | Total liabilities | $298,029 | $310,541 | | Total deficit | $(64,886) | $(26,405) | Consolidated Statements of Comprehensive Loss For the second quarter of 2019, the company reported a net loss of $23.0 million, or $0.22 per share, an improvement from a net loss of $34.5 million, or $0.33 per share, in the same period of 2018 Financial Performance Summary (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $9,682 | $13,798 | $18,898 | $39,172 | | Research and development | $12,637 | $26,477 | $24,659 | $74,173 | | Loss from operations | $(18,545) | $(30,272) | $(36,014) | $(67,984) | | Net loss | $(23,018) | $(34,549) | $(44,815) | $(76,369) | | Net loss per share | $(0.22) | $(0.33) | $(0.42) | $(0.72) | Consolidated Statements of Stockholders' Equity (Deficit) The statement details the changes in stockholders' deficit, which increased from $(26.4) million at December 31, 2018, to $(64.9) million at June 30, 2019 - The total stockholders' deficit grew to $(64.9) million as of June 30, 2019, from $(26.4) million at the end of 2018, mainly due to the net loss incurred during the period[21] Consolidated Statements of Cash Flows For the six months ended June 30, 2019, net cash used in operating activities was $52.5 million, a significant improvement from $99.3 million in the prior-year period Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(52,520) | $(99,298) | | Net cash (used in) provided by investing activities | $(15,176) | $54,430 | | Net cash used in financing activities | $(1,584) | $(1,749) | | Net decrease in cash and cash equivalents | $(69,280) | $(46,617) | | Cash and cash equivalents at end of period | $11,106 | $15,044 | Notes to Consolidated Financial Statements The notes provide detailed explanations of significant accounting policies, debt obligations, and key collaboration agreements, including a material dispute with Sanofi - The company's revenue recognition policy involves a five-step model for collaborative agreements, assessing performance obligations and allocating transaction prices. Milestone payments are generally deemed constrained until achievement is probable[42][43] - As of June 30, 2019, the company had significant debt, including $87.5 million in 5.25% Convertible Senior Notes due 2021, a $150.0 million BioPharma Term Loan due 2022, and a mortgage loan[60][66][67] - On July 25, 2019, Sanofi issued a notice purporting to terminate the collaboration agreement for sotagliflozin. Lexicon considers this notice invalid and the agreement to be in full force, initiating dispute resolution procedures[78] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on key drug programs, analyzes the significant decrease in revenues and R&D expenses, and assesses liquidity, noting sufficient funds for the next 12 months despite decreased cash and investments - The company is focused on four key drug programs: commercializing XERMELO®, developing Zynquista™ (sotagliflozin), developing LX9211 for neuropathic pain, and developing LX2761 for diabetes[98][99] - As of June 30, 2019, the company had an accumulated deficit of $1.5 billion, with losses resulting primarily from R&D and SG&A costs[104] Results of Operations For Q2 2019, total revenues decreased 30% YoY to $9.7 million, driven by an 87% drop in collaborative agreement revenue, partially offset by a 19% increase in net product revenue from XERMELO Revenue Breakdown (in millions) | Revenue Source | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Net product revenue | $8.7 | $7.3 | +19% | | Collaborative agreements | $0.9 | $6.4 | -87% | | Total revenues | $9.7 | $13.8 | -30% | Operating Expense Breakdown (in millions) | Expense Category | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Research and development | $12.6 | $26.5 | -52% | | Selling, general and administrative | $14.3 | $16.8 | -15% | - The decrease in R&D expenses was primarily due to lower external clinical development costs related to sotagliflozin[113] Liquidity and Capital Resources As of June 30, 2019, the company had $106.0 million in cash, cash equivalents, and short-term investments, a significant decrease from $160.1 million at the end of 2018 - Cash, cash equivalents, and short-term investments decreased from $160.1 million at Dec 31, 2018 to $106.0 million at June 30, 2019[119] - Net cash used in operations for the first six months of 2019 was $52.5 million[119] - Management believes that current cash and expected revenues will be sufficient to fund operations for at least the next 12 months[125] Quantitative and Qualitative Disclosures About Market Risk The company reports limited exposure to market and credit risk, with its investment portfolio primarily in short-maturity cash equivalents and U.S. Treasury bills, and no material foreign currency exposure - The company's investment portfolio consists of cash equivalents, U.S. Treasury bills, and corporate debt securities with short maturities, which are believed to have limited market and credit risk[127] - The company does not hedge interest rate exposure or hold derivative financial instruments[127] - There has been no material exposure to foreign currency rate fluctuations as operations are primarily in the U.S.[129] Controls and Procedures Management concluded that disclosure controls and procedures were effective, and a previously identified material weakness in internal control over financial reporting was remediated - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of the end of the period[131] - A material weakness in internal control over financial reporting related to clinical trial expense accruals, identified in the 2018 audit, was remediated during the six months ended June 30, 2019[131] Part II – Other Information Legal Proceedings This section details a securities class action lawsuit and a significant ongoing dispute with Sanofi regarding the purported termination of their collaboration agreement for sotagliflozin - A securities class action lawsuit was filed against the company and certain officers, alleging violations of federal securities laws related to statements about sotagliflozin's Phase 3 clinical trials and FDA approval prospects[133] - On July 25, 2019, Sanofi provided written notice of its purported termination of the sotagliflozin collaboration agreement. Lexicon disputes Sanofi's right to terminate and considers the notice invalid and a breach of the agreement[134] - Lexicon has referred the disputes with Sanofi to senior officers for resolution through good faith negotiations, as required by the collaboration agreement before initiating binding arbitration[139] Risk Factors This section outlines key business and financial risks, including the ongoing dispute with Sanofi, heavy dependence on core drug programs, inherent clinical and regulatory uncertainties, and the need for future capital - A primary business risk is the inability to successfully and timely resolve disputes with Sanofi regarding the purported termination of the sotagliflozin collaboration agreement[143] - The company depends heavily on the commercial success of XERMELO and Zynquista (sotagliflozin), and faces significant risks related to clinical development and obtaining regulatory approvals[143] - Financial risks include a history of net losses, substantial indebtedness that may limit cash flow, and the need to raise additional capital in the future[144] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from principal officers and XBRL data files - The exhibits filed with this report include Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as well as XBRL data files[152]