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Lexicon Pharmaceuticals Inc (LXRX 3.73%)
Q3 2019 Earnings Call
Nov 7, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Lexicon Pharmaceuticals' Third Quarter 2019 Financial Results and Business Update. [Operator Instructions]
I will now turn the call over to Dr. Kimberly Lee, Head of Investor Relations and Corporate Strategy. Please go ahead Ms. Lee.
Kimberly Lee -- Head of Investor Relations and Corporate Strategy
Thank you, Carmen [Phonetic]. Good morning and welcome to the Lexicon Pharmaceuticals third quarter 2019 financial results and business update conference call. Joining me on today's call are Lonnel Coats, Lexicon's President and Chief Executive Officer; Alex Santini, Executive Vice President and Chief Commercial Officer; Dr. Pablo Lapuerta, Executive Vice President and Chief Medical Officer, Dr. Praveen Tyle, Executive Vice President of Research and Development; and Jeff Wade, Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer. After our formal remarks, we will open the call up for Q&A.
Earlier today, Lexicon issued a press release announcing our financial results for the third quarter of 2019, 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 will be accessible in our Investor Relations section of our website.
During this call, we will review the information provided in the release, provide an update on our clinical programs and then use the remainder of the 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 and efficacy and the therapeutic and commercial potential of XERMELO, Zynquista and our other drug candidates. These statements may include characterizations of the commercial performance of XERMELO, expected timing and outcome of regulatory review of applications for approval of Zynquista. The current status of the transition of responsibility from Sanofi for ongoing clinical studies and other activities related to Zynquista. The current status of our strategic alliance discussions with respect of Zynquista, extended timing and results of clinical trials of sotagliflozin, telotristat ethyl and our other drug candidates and a market opportunity for those programs.
This call may also contain forward-looking statement relating to Lexicon's growth and future operating results, discovery and development of other drugs candidates, strategic alliances and intellectual property, as well as other matters that are non-historical fact or information.
Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward looking statements. These risks include uncertainties related to the success of our commercialization efforts for XERMELO and regulatory review of applications for the approval of sotagliflozin, the timing and results of clinical trials and preclinical studies of sotagliflozin, telotristat ethyl and our other drug candidates, our dependence upon strategic alliances and other third-party relationship, 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 research, development and commercialization activities.
For a list and 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 our President and CEO, Lonnel Coats.
Lonnel Coats -- President and Chief Executive Officer
Thank you, Kim, good morning, everyone, and thanks for joining us on the call this morning. The third quarter was an eventful one for us. That included good execution across various aspects of our business. We made significant progress on XERMELO business, achieving a $8.4 million in net US sales, up 33% from the corresponding period in 2018. XERMELO remains on track for 20% or greater year-over-year growth in US net sales.
Another key third quarter highlight included achievement of encouraging preliminary top-line results for the first three, Phase 3 sotagliflozin studies in type 2 diabetes, including statistically significant reductions in A1c compared to placebo and patients on metformin and in the overall population of patients with stage 3 chronic kidney disease or CKD. We continue to believe that the totality of the data points to a very compelling overall profile of sotagliflozin and CKD3 and CKD4 population and that SGLT1 component of sotagliflozin mechanism offers opportunity for differentiation in patients with kidney disease. The sotagliflozin type 2 clinical development program is very robust with six remaining core Phase 3 glycemic control studies shown on slide three, that are nearly completed.
In addition, there are two ongoing outcome studies SCORED and SOLOIST that are examining cardiovascular and renal outcomes in a population with renal impairment and outcomes and patients with type 2 diabetes and heart failure, respectively.
The SCORED study has reached its target of 10,500 randomized patients all with Stage 3 and Stage 4 chronic kidney disease. The SOLOIST study continues to enroll patients with acute decompensated heart failure. Evidence continues to build that SGLT inhibitors may become the treatment of choice for patients with type 2 diabetes, given the strong A1c metabolic, cardiovascular and renal benefits observed in the class and supported by the recent approval of another SGLT2 inhibitor for reduction of risk of hospitalization for heart failure and adults with type 2 diabetes and established cardiovascular disease. We believe this approval bodes well for the SGLT drug class.
At the end of the third quarter, we and Sanofi agree to terminate our sotagliflozin alliance. As part of that arrangement, Sanofi paid us $208 million upfront and is obligated to pay an additional $52 million within 12 months on the termination date. We expect these funds to cover the completion of the core Phase 3 clinical trials and type 2 diabetes and the anticipated regulatory submissions in type 2 diabetes in the US and in Europe in first half of 2020. The funds from Sanofi will not be sufficient to take two outcome studies to full completion for which we'll require funding from a partnership, which we are actively pursuing.
We are working closely with Sanofi in the transition of responsibility for ongoing clinical studies and other activities and have been working diligently to complete the core Phase 3 studies in type 2 diabetes. We expect that these core studies to read out by year end or into early next year, slight delays due to the transition.
In type 1 diabetes, we filed the formal dispute resolution request with respect to the complete response letter officially issued by the FDA's metabolic endocrine division, and are engaged in a dispute resolution process. We believe that our discussions with the FDA office on new drugs have been constructive and seeking a path forward, and we will provide an update when we receive a decision, which is expected later this year. Type 1 diabetes remains a priority for us.
Before [Technical Issues] let me touch on our cash position. We ended the third quarter with approximately $296 million in cash and short-term investments, which includes the upfront payments of $208 million from Sanofi. We will continue to prudently manage our cash and expect that our working capital will be sufficient to sustain operations in 2021.
With that I will turn the call over to Jeff who will provide financial highlights.
Jeffrey L. Wade -- Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer
Thank you, Lonnel. This morning I will discuss key aspects of our third quarter 2019 financials. More financial details can be found in our 10-Q, which will be filed shortly.
Now please go to Slide 5 of our presentation. As indicated in our press release today, third quarter 2019 revenues totaled $294.4 million adding on [Phonetic] $7 million from the prior year quarter, primarily due to an increase of the collaborative revenues of $260 million from the termination of the alliance with Sanofi.
Selling, general and administrative expenses for the third quarter of 2019 increased $13.9 million from $15.6 million for the same period in 2018 due to lower marketing costs. We recognized an impairment loss of $28.6 million in the third quarter relating to an indefinite lived intangible assets associated with Lexicon's 2010 acquisition of Symphony Icon, due to the decision to terminate research and development activities related to the program for irritable bowel syndrome that was among the assets acquired.
An income tax benefit of $6 million for the three months ended September 30th 2019 was recognized in connection with the impairment loss, which resulted in a decrease to the deferred tax liability and created an income tax benefit.
Net income for the third quarter of 2019 was $226.1 million or $1.95 per diluted share as compared to a net loss of $27.4 million for the loss of $0.26 per share in the corresponding prior year period. For the third quarter of 2019 and 2018, net loss included non-cash stock-based compensation expense of $3.6 million and $2.9 million respectively.
We ended the third quarter of 2019 of $296.3 million in cash and short-term investments as compared to $160.1 million as of December 31st 2018. The cash position as of September 30th 2019 includes proceeds of $208 million in connection with the termination of the alliance with Sanofi. We expect that our working capital will be sufficient to fund our operations in 2021. We will continue to prudently manage our expenses and see further opportunities to extend our cash runway including pursuing partnership for December closing.
Turning to our financial guidance; for 2019, we continue to expect US XERMELO net sales growth in the range of 20% or greater year-over-year. We are now expecting operating expenses in the range of $200 million to $220 million, up from our prior guidance of $100 million to $120 million. Operating expenses including -- included the R&D expenses, which we now expect to be in the range $120 million to $130 million up to 50 -- up from $50 million to $70 million.
The operating expense difference in the year also includes the $28.6 million non-cash impairment loss that we recorded in the third quarter relating to an indefinite lived intangible asset associated with Lexicon's 2010 acquisition of Symphony Icon.
The increased operating and the increased R&D guidance includes the cost for nine core Phase 3 studies and third party expenses for the outcome studies in type 2 diabetes. In each case from and after September 10th 2019. As we have discussed, the core Phase 3 studies are nearing completion, and the costs associated with those studies will be winding down as we prepare for an NDA filing that we expect to be in a position to make in the first half of 2020.
To provide some perspective on the cost of the outcome studies, we estimate that the annual run rate for expenses associated with the SCORED and SOLOIST studies combined is on the order of $100 million or so. As for SG&A expenses this year, we are reiterating our guidance of $50 million to $60 million. Non-cash expenses or prices are expected to be approximately $48 million of our total operating expenses, up from $19 million. This includes $14 million in stock-based compensation and $5 million in depreciation and amortization. A revised non-cash expense guidance also includes the impairment expense of $28.6 million that we recorded in the third quarter.
I will now turn the call back to Lonnel.
Lonnel Coats -- President and Chief Executive Officer
Thank you, Jeff. I think at this point, we will turn the call over to the operator to start the Q&A.
Questions and Answers:
Operator
[Operator Instructions] Your first question will come from Yigal Nochomovitz with Citi.
Samantha Semenkow -- Citigroup -- Analyst
Hi. This is Samantha on for Yigal. Thanks very much for taking the questions. First, could you share any additional details on the formal dispute request. What is the nature of the dispute, and can you walk us through the timeline on how these disputes are handled?
Lonnel Coats -- President and Chief Executive Officer
All great questions. We filed the dispute in September, it was granted, we had our meeting in October, the FDA -- the office of new drugs actually disputed too. They had a couple of questions. We have responded to those questions, and now the clock starts by which they will take all of our recommendations under consideration and we hope to hear back from them very soon.
Samantha Semenkow -- Citigroup -- Analyst
Are you in a position to just give broad outlines on what those recommendations are?
Lonnel Coats -- President and Chief Executive Officer
Well, I won't give them today, but I will say we are pursuing a pathway that does not include the new study.
Samantha Semenkow -- Citigroup -- Analyst
Okay. And can you provide any additional examples of other companies or drugs that have filed the formal dispute that we could use as a reference?
Lonnel Coats -- President and Chief Executive Officer
I would say your best answer to that question is wait a short while, and most relevant answer will be known related to our dispute.
Samantha Semenkow -- Citigroup -- Analyst
Got it. Thanks very much for taking the question.
Operator
And your next question comes from the line of Stephen Willey with Stifel.
Stephen Willey -- Stifel Nicolaus -- Analyst
Hey, good morning, thanks for taking the questions. I guess, just to follow up on the dispute. So the resolution that was filed was with CDER, is that correct?
Lonnel Coats -- President and Chief Executive Officer
No. That was filed with the office of the new drug, Dr. Peter Stein.
Stephen Willey -- Stifel Nicolaus -- Analyst
Okay.
Lonnel Coats -- President and Chief Executive Officer
CDER just involved at your question stage.
Stephen Willey -- Stifel Nicolaus -- Analyst
Okay. And I think that there is a mechanism by which if the office of new drugs doesn't agree with your stance that there is an opportunity to take this to an even higher level within the agency, is that correct?
Lonnel Coats -- President and Chief Executive Officer
That is correct.
Stephen Willey -- Stifel Nicolaus -- Analyst
And can you -- so the meeting was in October and I guess the clock is now ticking, what is the timeline with respect to when the agency needs to come back to you with an answer.
Lonnel Coats -- President and Chief Executive Officer
So generally, Steve, if you -- if they have questions you get those questions turn around pretty quickly, we'll, at least, we get them turn around pretty quickly. They have 30 days after you have about -- you have resubmitted your questions to come back to you. We're now within that window.
Stephen Willey -- Stifel Nicolaus -- Analyst
Okay. And then just with respect to, I guess your ongoing partnership discussions are those active conversations that you're having right now with potential strategics?
Lonnel Coats -- President and Chief Executive Officer
They are active conversations. We've had active conversations from this -- from the start of the -- I just said from the start of the -- end of the termination alliance with Sanofi. So we've had quite a bit of interest and we are betting that process down.
Stephen Willey -- Stifel Nicolaus -- Analyst
Okay. And maybe if you could just kind of comment a little bit on, I guess, what would maybe be perceived to be obstacles for -- are strategic at this point. I guess, the uncertainty around type 1 not yet having data from the outcome studies, and then I think there is also actually an ANDA that's been filed against DAPA [Phonetic], which I think we'll probably have some more clarity on it some point next year. So if you could maybe just kind of talk about each of those things and how each of those variables may represent an obstacle to your ability to get a deal done in a timely manner?
Lonnel Coats -- President and Chief Executive Officer
So let me see if I can answer them slightly different. First of all, I have every confidence in AZ prevailing in their capex, that's number one. Number two is, from a perspective of what's uniquely here and available to us is we're going to give an answer to type 1 very soon. And I think we've had very good conversations with the agency, again in the day I can't give any [Indecipherable] certainty as to what the answer is going to be, but I will tell you that they are remarkably productive conversations with the office of new drugs. So I am hoping that we will have answer to a pathway to type 1 very soon.
The second one is, we are, we have pretty much completed the core Phase 3 program for the type 2 studies. Right now, what we're doing, as you recall, we said, we're going to reanalyze all the data that came into us from Sanofi. We're in the process of doing that. Once we have that in hand, which I would tell you that will be here shortly, within the next month or so, that gives us the opportunity to see the way that they're are evidenced. But I think they will allow a potential partner to understand better about the pathway for Zynquista.
And the third one I would say to you is, the new data that certainly has come from AZ on heart failure, has given a lot of interest to people on our SOLOIST trial, which is also enrolling for heart failure, and for the unique caveat tumor and looking at decompensated patients. Then so those three things, all of them are within the timeline of the next month or so that allows us to advance our conversation with little bit more experience. So we want to know the answer soon, and as a result of that I think it will give us what level of energy we're having on getting the deal done.
Stephen Willey -- Stifel Nicolaus -- Analyst
All right. Thanks a lot for taking the questions.
Lonnel Coats -- President and Chief Executive Officer
You bet.
Operator
Your next question is from the line of Jessica Fye with JP Morgan.
Jessica Fye -- JP Morgan -- Analyst
Hey guys. Good morning. Thanks for taking my questions. I am Just following up on one of prior questions about the status of your efforts to find a new commercial partner for sotagliflozin, and it sounds like that process is under way. Can you give us a framework for when we can expect to hear an update?
Lonnel Coats -- President and Chief Executive Officer
For us, I would simply say that it's hard to ever give an update, because you're relying on another party and their timeline to some degree, but what I will say is the information in hand about sotagliflozin will be known by the end of this year, and that will determine the lift and the timing of what I think will get a partnership done. To the point I made to Steve, we'll know the answer to Type 1. We're going to have the answer to the overall profile of sotagliflozin for type 2. We're going to get a good answer to when our reanalysis of the CKD4 data, which we promised you, we're going to do. We will have that completed, and so we're going to have a pretty good idea of uniqueness of sotagliflozin that allow us to yield a greater benefit in any discussion with the partnership.
We have to be careful that we don't move too fast that getting partners to get a partnership. We have to get a partnership relative the strength of what we believe the value of the asset going to be. That requires us to be a little bit more patient, let the data mature, make the yard that we need to make. Get the answer, but I think we hope that we get -- we will get then in the near term here on type 1. Then, I think, that's the best chance for us to negotiate a more appropriate partnership.
Jessica Fye -- JP Morgan -- Analyst
Okay. And just kind of building on that type one comment. So when you hear back from the FDA, will you communicate clearly to the Street, if a new trial will or will not be required?
Lonnel Coats -- President and Chief Executive Officer
Yes. Jessica, one of the wonderful things about having asset back is we get to communicate. How we feel we need to communicate. And from my perspective just communicating to you now that we went through a dispute resolution, it is transparency that we like to get back to. And so when we get an answer to that question, its going to be, in my opinion, we have to make decision, yes or no. And we'll be very clear about that once we get the answer.
Jessica Fye -- JP Morgan -- Analyst
And when you say yes or no, is that you have to make a decision that in the hypothetical scenario where new study is required you decide if you'll pursue that or not?
Lonnel Coats -- President and Chief Executive Officer
That's correct. If it's -- our view of the world is there is plenty of data, this is a -- our trial was the large trial in type 1. There is plenty of data in that trial to make some decisions. And that's the very nature of our dispute. And therefore, there's other things that we can do. As you know, the issue always has been around being able to manage the decay rate. I do think there's things we can do, which we had now made an argument for it that can continue to go further in reducing the risk of tartaric acidosis [Phonetic] and we've been very, very clear about that. Relative to the benefit of this drop, it is well known at this point.
Jessica Fye -- JP Morgan -- Analyst
Got it. So if they don't require a new trial, can you talk us through what the next steps and timelines would be? And then if they do kind of what the potential next steps and timelines would be?
Lonnel Coats -- President and Chief Executive Officer
So I would say that if they agree to the position that we've taken it would require us to do -- to be very clear, it would require us to do a resubmission. And we would resubmit under the provision that they give us and then they will give us a period of time by which they would decide that this is a type 1 or type 2 and the timeline then will be started from there. Should they agree, it would put us on the path to be in market some time in the mid-part of next year.
Jessica Fye -- JP Morgan -- Analyst
Okay. And maybe just the last one, I think I missed the cash runway comment or I think it was at the very end of your prepared remarks. When did you say the current cash would take you to, is it into 2021?
Lonnel Coats -- President and Chief Executive Officer
Yes. It will take us into 2021.
Jessica Fye -- JP Morgan -- Analyst
Okay. Thank you.
Lonnel Coats -- President and Chief Executive Officer
You bet.
Operator
And your next question is from the line of Alan Carr with Needham.
Alan Carr -- Needham -- Analyst
Hi. Thanks for taking my questions. Can you give us any [Phonetic] update on XERMELO and your label expansion plans there and an update on the rest of the pipeline or you've slowed down a little bit in order to focus on sotagliflozin? Thanks.
Lonnel Coats -- President and Chief Executive Officer
Alan, thanks for asking about XERMELO. Because I think is, I've said this before, I think XERMELO is a phenomenal drug and I'm very proud of the commercial team, they've really gotten the -- they're starting to get some very good lift of XERMELO, which is Jeff has already reported, we had a very strong third quarter, and I think we're off to a very strong fourth quarter. So I am very proud of XERMELO.
What we're doing now is we're continuing to invest in the biliary tract cancer program. I'll let Dr. Lapuerta speak to where we are on that. And the second part of that is the inbound interest and studying XERMELO for the fibrotic process that TPH1 can be an important factor for carcinoid heart disease. We're getting a lot of inbound interest now that we have shifted budget over to funding. So that we learn more about it in most efficient way.
So I'll turn it over to Dr. Lapuerta to talk about those investments.
Pablo Lapuerta -- Executive Vice President and Chief Medical Officer
You asked me to speak to the BTC study and where we are with that and we've enrolled an initial safety cohort, the protocol specify that the first six patients will have a formula evaluation of their safety and we're at a point of providing that in the next couple of weeks and so we expect some data this year and then we proceed to a second cohort and we expect -- expect to complete enrollment in 2020. So things are progressing well and our initial safety experience has been reassuring.
Lonnel Coats -- President and Chief Executive Officer
Excellent. The other product we have, Alan, that you spoke is to other parts of our portfolio that we did slow down. We certainly did slow down 9211. So I'll turn it over to Dr. Tyle.
Praveen Tyle -- Executive Vice President of Research and Development
Alan, 9211, we are at the tail end of finishing Phase 1 program. We will complete that in the next two to three weeks. So by the end of this year, we should expect Phase 1 to be completed. And Lexicon is preparing now to start Phase 2 program. We have written the protocol for the first Phase 2 study. And we have identified the CRO. And we are hoping to enroll the first patient early next year.
Alan Carr -- Needham -- Analyst
Great. Thanks for taking my questions.
Lonnel Coats -- President and Chief Executive Officer
You bet.
Operator
[Operator Instructions] Your next question is from the line of Kevin Kedra with G. Research. Please go ahead.
Kevin Kedra -- G. Research -- Analyst
Hi. Thanks for taking the questions. Maybe first on the type 1, it's clearly a class effect related to DKA as the issue as you noted, which would mean that the conversations that you're having with the FDA seem to -- would likely be going on with some of your peers who will also have SGLT2. So as you approach this, do you have a sense of the FDA is looking at this with you as kind of a conversation with Lexicon or more as a conversation with the industry and how the entire group of peers can put together a program to address the DKA issue?
Lonnel Coats -- President and Chief Executive Officer
Kevin, you make a very good point. Listen, all of the -- at this point in time there is a non-increased risk diabetic ketoacidosis for the class. And the best way to manage this is not to -- not make it class available, but allow each of the unique parties to take on a campaign of education awareness and help patients best understand how to utilize these compounds, we can get the extraordinary benefits to come from. And so extraordinary about this class of compound, every dataset that comes out, whenever -- wherever area we tend to go, tend to come out quite remarkable relative to the benefits to patients. Relative managing risk, I think the opportunity to have a label that gives you the opportunity to put a pathway forward in a formal way that engages both physicians as well as patients on how best to use these compounds, anyway it allows them to get the benefit and reduce the chance of risk.
We think that's the most responsible way to go forward versus not making them available and leaving them out there, leaving positions out in the marketplace essentially to make all the decisions our own and the absence of the label in the pathway forward. So that's the argument we have made. I would assume, to your point, Kevin, others may have made some argument.
Kevin Kedra -- G. Research -- Analyst
Great. Thanks for that clarity. And then I jumped on late, I don't know if this came up earlier in the call, but the remaining Phase 3 studies for sotagliflozin in type 2, any sense on the cadence of how we'd see those coming out, but we see multiple studies reported out at once, like we saw with the last batch with 3 studies coming out or what we see these kind of as the -- as you guys work through the data?
Lonnel Coats -- President and Chief Executive Officer
We have six remaining studies in the core program, I believe, and team can correct me on that. I think what we're doing is trying to reanalyze all of it based on Lexicons method of analysis and therefore, most likely, you're going to see these get stacked in order for us to get them out, you probably see some get communicated out toward the end of the year and then the rest will get in -- get called out at the beginning of next year. So again, for us, it's important for us to validate this work ourselves. We're taking time to do that, its best to get it right and most likely, you're going to see more of the stacking in the reporting than a sequence of reporting.
Kevin Kedra -- G. Research -- Analyst
Great. Thanks.
Operator
And there are no further questions at this time. I will now turn the call back over to Mr. Coats for any closing remarks.
Lonnel Coats -- President and Chief Executive Officer
Well, thank you. I appreciate everybody joining this morning. It has quite -- it's been a quite eventful third quarter. We're very pleased with the growth as a model and very proud of the commercial team and adjustments that made this year to get XERMELO in the place where it is growing very nicely. I'm also pleased with the investments we're making in the XERMELO for biliary tract cancer, that's also proceeding very nicely. And as we remarked by the number of inbound interest that's coming on that compound right now relative to development opportunities.
And then for Zynquista, while we would have preferred to certainly have seen light all the way through. However, things happen and you make adjustments to it. I assure you, management will maintain necessary adjustments and getting Zynquista back. It's exciting to our employees and our stakeholders to have this asset back.
And therefore, it gives us the opportunity to put our all aggressive zeal to what we think we can do, which I think is very noted in the fact that we've just outlined to you that we have appealed the decision of the FDA. And we're going to continue to be aggressive and how we pursue this program as we have strong confidence and belief. Not only with this program have the legs for the future to be successful, but we also believe it will be highly differentiated at the conclusion of our program.
With that being said, thank you for calling in this morning and I look forward to talking to you all next time.
Operator
[Operator Closing Remarks]
Duration: 33 minutes
Call participants:
Kimberly Lee -- Head of Investor Relations and Corporate Strategy
Lonnel Coats -- President and Chief Executive Officer
Jeffrey L. Wade -- Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer
Pablo Lapuerta -- Executive Vice President and Chief Medical Officer
Praveen Tyle -- Executive Vice President of Research and Development
Samantha Semenkow -- Citigroup -- Analyst
Stephen Willey -- Stifel Nicolaus -- Analyst
Jessica Fye -- JP Morgan -- Analyst
Alan Carr -- Needham -- Analyst
Kevin Kedra -- G. Research -- Analyst
