Why Lexicon Is Poised to Pull Back

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, biotech company Lexicon Pharmaceuticals (NASDAQ: LXRX  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Lexicon and see what CAPS investors are saying about the stock right now.

Lexicon facts

Headquarters (founded)

The Woodlands, Texas (1995)

Market Cap

$1.2 billion

Industry

Biotechnology

Trailing-12-Month Revenue

$1.1 million

Management

Co-Founder/CEO Arthur Sands
Co-Founder/Chief Technology Officer Brian Zambrowicz

Return on Equity (average, past 3 years)

(43.8%)

Cash/Debt

$222.8 million / $23.5 million

Competitors

Aptalis Pharma
Deltagen
TolerRx

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 21% of the 63 All-Star members who have rated Lexicon believe the stock will underperform the S&P 500 going forward.

Just yesterday, one of those Fools, All-Star zzlangerhans, touched on the stock's seemingly unsustainable valuation:

If there's one thing recent history has told us about Lexicon, it's that a market cap of over a billion for their highly speculative pipeline will not hold. Lexicon has assets, to be sure, and at a market cap of [$500M] or even [$600M] in this frothy market you wouldn't be hearing anything about them from me. But LX4211 doesn't have a clear place in the rapidly evolving field of glycemic control, and progression to phase III is on hold as a partnership is awaited. Telotristat is in the early stages of what undoubtedly will be a long phase III trial for the narrow indication of carcinoid. If the last year's pattern holds, the share price will be well under [$2 per share] again before any positive catalysts emerge from the pipeline.

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