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What happened

After announcing phase 3 data from a type 1 diabetes trial, shares in Lexicon Pharmaceuticals (LXRX -4.60%) jumped 16.85% today.

So what

Lexicon Pharmaceuticals is studying the safety and efficacy of sotagliflozin, a novel therapy for diabetes that targets both SGLT1 and SGLT2 for the first time.

Drugs that target SGLT2 independently of SGLT1 are already available, and they're quickly becoming top sellers, but the FDA has not yet approved any drug that inhibits the activity of both pathways at once. SGLT2 inhibitors improve glycemic control by blocking glucose absorption in the kidneys, while SGLT1 inhibitors play a similar role in the gastrointestinal tract. 

In a phase 3 trial enrolling 793 type 1 diabetes patients, sotagliflozin:

  • Met its primary endpoint of statistically reducing HbA1c at week 24 on a background of optimized insulin.
  • Showed that patients treated with a daily dose of 200 mg of it experienced an average reduction in HbA1c from baseline of 0.43% versus a 0.08% reduction for placebo (p<0.001). Patients receiving 400 mg of sotagliflozin once daily experienced an average 0.49% reduction (p<0.001).

The phase 3 results are bullish not only for Lexicon Pharmaceuticals, but also for Sanofi SA (SNY -0.31%). In an attempt to help protect its diabetes market share from the loss of patent protection on its top-selling Lantus, Sanofi licensed ex-U.S. rights to sotagliflozin last year. Specifically, Lexicon Pharmaceuticals received an upfront payment of $300 million, and Sanofi agreed to pay up to $1.4 billion in milestones, plus double-digit royalties on net sales, to acquire ex-U.S. rights in type 1 patients and global rights in type 2 patients. 

Now what

The addressable patient population in type 1 diabetes is smaller than it is in type 2, but type 1 results may bode well for late-stage trials planned by Sanofi in type 2. A second type 1 study is expected to read out data soon, and if results back up today's findings, then this drug has a shot at becoming an important weapon in the battle against diabetes.

Lexicon Pharmaceuticals retained rights to co-promote sotagliflozin in the U.S. in type 1 diabetics, and Sanofi SA has the marketing clout to get this drug in patients' hands. Therefore, today's announcement is very intriguing.

On Nov. 30, Lexicon Pharmaceuticals expects an FDA decision on the approval of its first drug, telotristat etiprate, and if it's approved, this drug could begin generating meaningful revenue next year. In trials, it reduced symptoms, including diarrhea, caused by excess serotonin production by metastatic neuroendocrine tumors that have spread from the GI tract to organs. 

Overall, this stock is still risky because it's not generating product sales yet, but potential revenue from telotristat etiprate in 2017, a cash stockpile that's north of $425 million, and the potential to eventually launch a unique new drug for diabetes all make this stock worth considering.