Lexicon Pharmaceuticals, Inc. (LXRX) Earnings Call Transcript

Good afternoon, ladies and gentlemen. Welcome again to the 41st Annual JPMorgan Healthcare Conference. My name is Edwin [ Zhang]. I'm a part of the JPMorgan health care team in the MS and banking side. Today, our presenting company is Lexicon Pharmaceuticals. Our presenter today is Lonnel Coats, who is the Chief Executive Officer for the company. Please join me and welcome him. And also on the panel, we have Jeffrey Wade, who is the Chief Financial Officer; and Craig Granowitz, who is the Chief Medical Officer.

Edwin, thank you so much for the introduction, and thank you to all of those who have tuned in the presentation about Lexicon's progress. As always, I make these presentations on behalf of the extraordinary men and women at Lexicon that work tirelessly every day to advance our innovations into the hand of patients. Now today, I will be making forward-looking statements. Some of those statements will contain risks. Our risks are outlined in our SEC filings and I encourage you to take a look. This is a remarkable year for Lexicon. This is truly a transformative year for Lexicon. We will be introducing upon successful approval of sotagliflozin for heart failure. We'll be introducing the first dual SGLT1 and SGLT2 in the marketplace for heart failure. We believe based on the conversations that we are having with the FDA, we will be on track for our PDUFA date in May of this year. We also believe, based on our data, which I'll talk to you a little bit about later, particularly our SOLOIST data and the unique population that's in that data, we expect to get a unique label. This is important because I've stood here for 3 years and talked about the market is going to explode and it will be driven by the SGLTs. Well, I think anybody who's paying very close attention, you can see that explosion happening. The market is growing quite rapidly and getting bigger every day. And so we will be launching into a rapidly growing expansive market, which there is plenty of room with a unique label to introduce sotagliflozin. The second thing that makes this such a remarkable year for us is that after many years of tolling, looking for new targets, particularly in the area of CNS, we just -- we brought forward LX9211. It was a theory number of years ago. Today, we've put it into the clinic. And I'm very pleased to say, which I'll share with you later, is that LX9211 has not shown strong activity in just 1 part of neuropathic pain, but 2 indications of neuropathic pain. And so we're in a very unique place today and rarefied air where we have shown success in the area of neuropathic pain, which is also a large and expanding market, particularly given the opioid crisis this country faces. So let's jump right in and talk about it. So this is a slide that if anyone who's followed Lexicon of semi put up for probably the last 3 years, and it wasn't what Lonnel said is what the global data shows is that in 2018, the market was somewhere around a little less than $4 billion. But it was projected that by 2028, the market was going to grow to somewhere around over $20 billion with our 19% CAGR. Well, here I am standing a number of years later, and this not -- these numbers are wrong. The market is growing even more rapidly and more expansive. What is correct that they predicted, this growth will take place because of the adoption of SGLTs, that has proven to be absolutely correct. Now the opportunity, as I said, is large and is growing in terms of heart failure. In terms of prevalence, there are 6.2 million people in the U.S. with heart failure. From an incidence point of view, there's about 1 million new heart failure cases annually. But what's interesting here is that the growth rate is about 46% increase and Americans living with high failure through 2030. That is a significant growth rate, which tells you that there is a remarkable need and will continue to be a remarkable need for innovative products like sotagliflozin. Now if we whittle this down and say a subset of that market is worsening heart failure. And this is when a patient shows up in a hospital and they can't breathe and they like their drowning. So there's an urgent event that happens here. Interestingly enough is the #1 cause of hospitalizations for American older than 65. And there are about 1 million hospitalizations for heart failure annually in the United States. And here's a staggering number. 25% of patients are readmitted to the hospital within 30 days of being discharged. And 65% of patients are readmitted to the hospital within 1 year. So again, what this tells us is there is a remarkable opportunity for innovation like sotagliflozin. It's not just Lonnel saying it, this -- the innovation that we have put forward was now put into publication concurrently in the New England Journal of Medicine. The first study is the SOLOIST study that was remarkably unique that looked at intervening with patients who are hemodynamically stable in the hospital and starting care in the hospital setting or immediately following the hospital, that's what makes the study so unique. The second study was looking at patients at risk, patients who had chronic kidney disease, and following those patients on a chronic basis. And these data were remarkably successful. However, today, I'm going to really focus on the SOLOIST. Now SOLOIST was presented at the American Heart Association Scientific session last year on November 6 by Bertrand Pitt, really looking at sotagliflozin as the first dual SGLT1 and SGLT2, and cardiovascular mortality and hospital readmission rates for heart failure. Go back to the slide I showed you earlier, the level of readmissions that happened in this space. Why is that important? It's important because when you look at this slide, what you see is that the patients who are on sotagliflozin and the SOLOIST program for total cardiovascular death, excuse me, hospitalization for heart failure and urgent heart failure, these patients, the vast majority were already on standard of care. That could be an ACE and ARB and ARNI, and in some cases, an [ mRNA ]. Even when those patients came in, they still had an event, at least one event over a 18-month period. When you put sotagliflozin into the mix, you see a hazard ratio of 0.67, a 33% reduction on top of standard of care. Equally important, the number needed to treat, meaning that the treatment patient years to avoid 1 event is 4. That is remarkable. Why is that remarkable? When you look at the data and break it apart a little bit and look at the first 30 days, you see a 50% reduction. And then you carry out 90 days later, that 50% reduction holds. Why is that important? If you want to avoid reemission, bring down cost of care and increase overall care for patients in this section, sotagliflozin could be the answer. And certainly, that's how we will advance it. The other thing that was going to be really remarkable for us is we'll be launching sotagliflozin into a market that has now adopted SGLTs as a critical pillar of care in the standard of care for heart failure. This is when you really want to be coming into the market when there's an adoption of a therapeutic category that you don't have to fight that. So whether it's the AHA or ACC or HFSA, they all collectively have adopted SGLTs as a critical part of standard of care. Why do I talk about the hospital so much and the uniqueness of the SOLOIST study and sotagliflozin how it performed? Here's what we know. If you would intervene with treatment options in the hospital, when you look 60 to 90 days later, they're still on therapy. When you look 12 months later, if you intervene in a hospital with the appropriate care, a year later, the majority of patients are still on therapy. This is critically important because the only compound that have shown this in a population like this with the SOLOIST program is sotagliflozin. We also know that when we look at what happens when a patient goes in a hospital, who takes care of them, where are these hospitals, where are these institutions? Are they infused -- are they all over the place? The truth of the matter is they're fairly well concentrated. This is very, very important because we can deploy a sales organization, a commercial organization equal to the size of those competitors in the market today that are primarily focused on cardiovascular medicine. And so we don't have to have an army or primary care reps. What we really have to have is a very focused field force going out after where the business is and being competitive. Now with that being said, let me move on to the next big event for Lexicon. It's LX9211 for neuropathic pain. 8 years ago, when I started this company, Lexicon is so rich with targets. I almost got overwhelm with everything they were presenting to me, but I'd tell you what stood out is this compound LX9211 that was in a discovery alliance for 10 years with Bristol-Myers Squibb. My concern was given the focus of our partner at that time on immuno-oncology, this will get lost. With the help of the Board and the support of the Board, we negotiated and pulled this asset out and took full custody of it and advancing it forward. And I'll tell you why this is important? What we know is AAK1 is a novel target for neuropathic pain. It is APT or Associated Protein Kinase 1, a very unique target that certainly came out of the alliance. We know that AKI knockout mice were resistant to the development of neuropathic pain. So this drug was developed for neuropathic pain. It wasn't by serendipity. It was created for it. The mechanism of action we know it does not involve the opioid pathway. This is extremely important given the need for alternatives to opioids. We also know that it does not -- excuse me, that it does involve the adrenergic receptor pathway. And to the right, what you see is just one of the preclinical models that clearly show that LX9211 and the mice that were in this study had resistance to paying relative to the wild type, very potent, very powerful, and that's what gave us energy to move forward into clinical development. Now when we get into clinical development, we're very pleased to say that we're poised to now advance this compound to late-stage development because we didn't make the decision to just study it in one indication that makes up neuropathic pain, we chose to study it in 2. Now the first one is diabetic peripheral neuropathic pain, that is the lion's share opportunity in overall neuropathy pain. The second one, which is a totally different population, is post-hepatic neuralgia, very small population. But if we run a small study, we can get in an indication, can we expand the opportunity with this beyond just diabetic neuropathic pain and go after a broader neuropathic pain indication. That's what we had to understand in the Phase II work that we were doing. And should we be successful doing it? We have the potential to be the first major drug innovation in many, many years to introduce a new therapy in a large ploy-serve neuropathic pain market. So let's talk a little bit about the studies we ran. So for diabetic peripheral neuropathic pain, we had a 2-week screening period followed by a single-blind placebo run-in period. And certainly, later, Dr. Granowitz can explain why that was important. And then we had a 6-week double-blind treatment period, where patients would be randomized to either the high-dose, 200-milligram loading dose followed by 20-milligram daily dose or to the low dose, 100-milligram loading dose on day 1, followed by 10-milligram daily dosing or the placebo arm. After the treatment period, we then initiated a 5-week single-blinded safety follow-up period to assure ourselves that we have a safe compound. So the results, I am very pleased to say in a field litter with failure. Many have tolled and tried to find a way forward in neuropathic pain. Many have unfortunately failed. For the basis of being able to advance something that could be important to patients, I feel very proud to say we achieved the primary endpoint. Now if you look at this very carefully, you'll see that placebo, there was a placebo effect, 0.72, and that was met with a significant effect by the treatment -- the low-dose treatment arm of 1.39 points drop in the average daily pain score or ADPS. And the high dose dropped by 1.27. The statistical significance came from the low dose. So what did we learn? We learned that the high dose, the effect tapers off. And so therefore, you don't need the high dose to get the effect, but what you do learn also is that the high dose gives you a higher AE profile. That allows us then to focus on the low dose, and we now feel as though we have a dose we can take into the clinic further. Let's look at the data. What's so powerful about this data is the effect happens in the first week, and it doesn't wane. That effect is sustained every single week of the treatment period. Every single week of the treatment period. This is very, very important for patients who are living with diabetic peripheral neuropathic pain, and we're very pleased to be to show consistency of delivering an effect every single week that they run the treatment. Now when we pull out some of the aspects that are important to a patient who is living with diabetic peripheral neuropathic pain, one of the major issues they have is burning pain. So we looked at it. You can see that there was a drop 0.49 for patients on placebo, but look at the drop with patients who were on the treatment arm, particularly the low dose of 1.89, very, very powerful that you want to take a drug like this into market that can reduce burning pain. The other thing that's very, very important to patients living with peripheral diabetic neuropathy is sleep, sleep interruption. You see that there was a 0.48 drop patients on placebo and a 1.45 drop patients on the low dose. So clearly, this drug was doing something remarkable and improving the overall care of patients who are living with diabetic peripheral neuropathic pain. The other measure you want to look at is we allow there to be rescue medications for patients if they could hold up on their own with the therapies that was -- that they were on. What you see here, the top line is, in the blue is placebo. All throughout the therapy, there were higher use of rescue medications for placebo. Again, validating an active drug particularly the low-dose arm. Now let's talk about the second study. We ran a second small study to try to validate, do we see consistency in terms of LX9211 having the ability to be able to reduce pain. So very similar to the previous study, except this was a very small study of, I think, 79 patients. There was a 2-week screening period followed by a single-blind placebo run-in period and then instead of being randomized to 3 doses, we were pushing a dose to see what the high dose look like in a different population. And so they were only on the 200-milligram initial dose followed by the 20-milligram daily dose or they were randomized to placebo. And again, what was important to us is that was -- the treatment period was followed by a 5-week safety follow-up period to ensure we were collecting safety data. So what are the results? Well, the measurement was changed from baseline in ADPS at week 6, you can see there was a significantly bigger placebo effect in this population, but it was also a significantly bigger effect for patients who are in the treatment arm. For placebo, you had a 1.62 effect and certainly for LX9211, you had a 2.42 effect. Now at week 6, this was not statistically significant. However, what I will tell you, when you look at the separation, a 0.8 difference that you see here, let me move to the next slide. You see that 0.8 difference got carried forward in every single week. So there was not a waning of effect, and you lost a little bit of that on week 6. But if you average out over these 8 weeks, you will have a statistically significant drug. It tells you it's powerfully active. And that's what we were looking for in this proof-of-concept study, in this small proof-of-concept study. Now consistency. When you're doing all of this work, which you want to see when you're running 2 Phase II studies, you need to see some consistency. So what I've done here is I've taken the RELIEF-DPN study and the graph that you see here even with the arrow bars and I'll put it on top of the PHN data, it looks almost the same. The effect happens in week 1. That effect has carried out costs every single week. Now what did we learn? We also learned the 20-milligram dose leads to higher dropout rate and is not an appropriate dose. We learned that the 10-milligram dose is the dose that we should be looking at. Safety and tolerability, the adverse event profile was consistent across both programs. So again, consistency. The treatment emergent adverse events were generally mild to moderate. There were no drug-related serious adverse events. So we have a pretty clean drug. And I would tell you the #1 reason people dropped out. It was dizziness. And so we believe we can solve that problem by stepping away from that high dose and then doing the work around both the initial dose and the daily dose of the 10-milligram dose. So we think we have a way to go forward and go into Phase III for the opportunity. So conclusions. AAK1 inhibition is more than just a potential new mechanism of action, but it's a potential new therapy for multiple neuropathic pain conditions. And that allows us to think about development as compound more broadly than just for one area of neuropathic pain. We also believe that the data supports, as I said before, to advance the 10-milligram dose. It is a very effective dose, and it gives you that balance of safety and efficacy that you want to look for of anything you want to take into the market going forward. So the planning and preparations for Phase III development is underway, and we couldn't be more pleased. So let's talk about this market opportunity. Well, if you look at diabetic peripheral neuropathic pain, there's about a little over 12 million patients around the world with it. And when you look at post-hepatic neuralgia, there's a little over 590,000 patients. So it's a fairly small part of neuropathic pain but no less important. Then if you take it over to the United States, there's 5.7 million Americans with diabetic peripheral neuropathic pain. And there's over 0.25 million Americans with post-herpetic neuralgia. And we look to the right in these boxes, you'll see even today with the therapies today, there's still a substantial portion of the population out there that's getting no therapy. And so that is an opportunity, and there's an opportunity for those patients who may not be getting the best therapy. So my conclusion, one is that our financial balance sheet is strong in terms of our ability to fund was near term for us. When I just laid out to you, we have $136 million at the end of the third quarter. And we drew down, if you recall, we had a $125 million debt facility with Oxford Financial or finance, and we drew down $25 million of that in December. That means we have a $100 million facility remaining that should we choose when we go to launch sotagliflozin, we'll be in a good position to enter the market the way we need to enter the market. So let me end with the way I started. This is a remarkable year for the stakeholders of Lexicon. We have advanced sotagliflozin through many odds, many challenges to a place now we're pretty confident we're on our way to an approval. We're also confident through our negotiations, we have the chance to get a very unique label and a population that is remarkably underserved today. And if we intervene at the point in which patients are in the greatest need, which is in the hospital setting, and we're the only one that did the work to do -- to be able to say that with our clinical program and profile. And when those patients leave the hospitals, most likely they're going to stay on our therapy long term to get the benefit. It also, if we avoid reemission, it brings on cost to the health care system. So we're very proud. This market for heart failure will only grow. And in -- the need for innovation will grow with it. And we're very pleased that we will be one of those innovations that addresses the need. And then lastly, LX9211 and this great journey that we've been on in the last 8 years that I've been here, to see it achieve everything that we thought it could achieve going all the way back to preclinical looking at the data and what we thought it could do. The profile of this compound has been consistent all the way through, not just with one indication with neuropathic pain, but now 2. Now our job is to try to figure out how we're going to get this in the Phase III and keep moving forward. So a remarkable year for Lexicon and our stakeholders, and I certainly hope you feel that way, too. On that note, Ed, I'll stop there and turn it over to you.

Now we have the Q&A portion of the presentation. So if anyone in the audience would like to ask a question, please feel free to do so.

Yes, definitely exciting year ahead. I have one question about the indication for sotagliflozin. Is that going to be with heart failure with diabetes or heart failure with or without diabetes? I noticed SOLOIST was done in people who had diabetes.

We do expect that we will get a broad label within heart failure based on the work that we've done so far.

We have -- to your question, it wasn't just a push from us, but I do think the agency when I look at the data and they look at how the data performs in patients with diabetes is no different. Heart failure is heart failure. Diabetes is just one of the factors. But those factors also exist for patients who do not have diabetes. And if we make the argument that we think we can make, then to Jeff's point, we would expect a broad label.

I just had 1 or 2 other questions. Could you speak at all to any plans about sotagliflozin outside the U.S.?

So we do intend to -- we don't have any intention of commercializing outside the U.S. on our own. We don't have the intention of building that infrastructure. We will -- are thinking about going back and having some further dialogue with potential partners outside of the U.S. after we've established the approval in the U.S., and that was the strategy for ex U.S. on sotagliflozin.

And then my last question is, are there any updates with type 1 diabetes? Is that something Lexicon is still thinking about? Or what's happening there?

Yes. We're still thinking about it. We hope to be able to circle back to that at some point in the not-too-distant future. We do believe that sotagliflozin has potential to benefit people with type 1 diabetes. We do need to find a way -- a path forward with the regulatory agencies to make that happen. But I would say also that the fact that we're seeing the benefits with sotagliflozin in the broad population for cardiovascular disease is one of the reasons why we may be able to find the path forward because right now, people with type 1 diabetes are really going to be the only category that can't use agents like sotagliflozin. And that's something that we may be able to change going forward.