What happened

After Lexicon Pharmaceuticals (NASDAQ:LXRX) announced yesterday the publication of phase 3 results for its lead diabetes drug, sotagliflozin, in the New England Journal of Medicine, its shares are losing 11% of their value at 11:45 a.m. EDT.

So what

Sotagliflozin is a novel diabetes drug that attempts to improve glycemic control by targeting both SGLT1 and SGLT2 for the first time.

A man holds his head in his hands in front of a chart showing a declining share price.

IMAGE SOURCE: GETTY IMAGES.

In June, Lexicon Pharmaceuticals reported positive phase 1 trial results for sotagliflozin in type 1 diabetes patients, and this week, it announced the publication of its trial data in the prestigious NEJM.

While sotagliflozin demonstrated that it helps more people achieve their blood glucose targets than placebo, concern over an increased rate of diabetic ketoacidosis (DKA) could be behind its falling share price today.

In its trial, sotagliflozin improved glycemic control, body weight, and blood pressure in hypertensive patients, however, the rate of DKA was 3% versus 0.6% in the placebo arm of the study. Other notable adverse events include a higher rate of diarrhea (4.1% versus 2.3%) and genital mycotic infection (6.4% versus 2.1%).

Now what

The DKA data isn't new news. The DKA incidence rate was reported when the original trial data was released in June, and at the time, management said the increased rate disappeared following trial randomization. It's unclear to me if that's changed, but if it hasn't, then this sell-off could be an overreaction.

There are already a handful of drugs targeting SGLT2, and SGLT2 drugs are already associated with a doubling in the risk of DKA versus other add-on therapies to metformin, a commonly used first-line diabetes drug, yet doctors continue to prescribe SGLT2 drugs because there's such a big unmet need for treatment that helps people achieve their diabetes targets.

According to Lexicon Pharmaceuticals and Sanofi (NYSE:SNY) -- Lexicon Pharmaceuticals' partner on sotagliflozin -- roughly 70% of type 1 patients don't hit their blood sugar goal. Clearly, patients could benefit from more treatment options.

Sanofi plans to file for Food and Drug Administration approval of sotagliflozin early next year, and assuming it hits that goal, then Lexicon Pharmaceuticals and Sanofi could begin seeing sales roll in either late in 2018 or early in 2019, if approved.

Since trials are ongoing that could expand this drug's use to type 2 diabetes, and Sanofi has the resources necessary to get this drug in front of doctors and patients, it might not be a bad bet to add this stock to a watch list. After all, if DKA worry is behind today's drop and that worry diminishes, then shares could march higher.  

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.