Q3 2019 Earnings Call
Welcome to the lexicon Pharmaceuticals third quarter 2019 financial results and business update.
At this time all participants are in a listen only mode.
Following management's prepared remarks, he will hold a brief question and answer session.
As a reminder, this call is being recorded today November seven 2019.
I'll now turn the call over to Dr., Kimberly Lee head of Investor Relations and corporate strategy. Please go ahead with Lee.
Thank you Carmen good morning, and welcome to the Lexicon Pharmaceuticals third quarter 2019 for an actual results and business update conference call. Joining me on today's call Island, LCOS Lexicons, President and Chief Executive Officer, Alex Santini, Executive Vice President and Chief Commercial Officer, Dr., Pablo Lapuerta Executive Vice President.
Chief Medical Officer, Dr., Praveen, Kyle Executive Vice President of research and development and Jeff Wade Executive Vice President corporate and administrative affairs and Chief Financial Officer. After formal remarks, we will open the call up for acuity.
Earlier today like the current issued a press release announcing our financial results for third quarter 2019, which is available on our website at www Dot lets pharma dotcom answers on FCC filings.
A webcast of this call along with a slide presentation will be acceptable in our Investor Relations section of our website.
During this call we will we view the information provided in the release provide an update on a clinical programs and they use the remainder of the time to answer your question.
Before we begin let me remind you that we won't be I'm, making forward looking statements, including statements relating to the safety and efficacy and the therapeutic and commercial potential after mellow inquisitor and our other drug candidate.
These statements May include characterizations of the commercial performance after mellow expected timing and outcome of regulatory review of applications for approval and it's been Christa current status of the transition of responsibility from sassy for ongoing clinical studies and other activities related to has increased at the current status of our strategic alliance discussions with.
With respect isn't plus stuff expected timing and results of clinical trials is critical frozen telotristat ethyl and the other drug candidate and the market opportunity for those programs.
This call May also contain forward looking statements relating to lexicons growth in future operating results discovery and development of other drug candidate strategic alliances and intellectual property as well as other matters that are not has still been fast or information various which may cause like the cause actual results could differ materially from those expressed or implied.
Hi in such forward looking statements these risks and uncertainties related to the success of our commercialization efforts frozen mellow the regulatory review of applications for the approval and surgical frozen the timing and results of clinical trials and preclinical studies of surgical frozen collectors that Apple and our other drug candidates are dependent upon strategic.
Alliances and other third party relationships, our ability to obtain patent protection for our discoveries limitations imposed by pads owned or controlled by third parties and their requirements are substantial funding to conduct a 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 , We're now coat.
Thank you Jim Good morning, everyone and thanks for joining us on call. This morning.
Third quarter was an event worn for us that include a good execution across various aspects of our business.
We made significant progress on small business, achieving $8.4 million and net sales up 33% from a corresponding period in 2018.
All remains on track for 20% or greater year over year growth and U.S. net sales.
Another [noise] GE third quarter highlights include achievement of encouraging preliminary top line results for the first three phase III.
Studies and type two diabetes, including statistically significant reductions in any one see compared to placebo and patients on that famine and then the overall population of patients with stage three chronic kidney disease or CKD.
We continue to believe that the capacity of the data points to a very compelling overall profile. So in closing and a CD CKD three m. CKD for population and that SG Ella Ji, one component, so well get mechanism offers opportunity for differentiation and patients which indeed.
Yes.
The sort of the flows in type two clinical development program is very robust was six remain core phase three glycemic control studies shown on slide three.
Nearly completed.
In addition, there are two ongoing outcome studies scored and so is that are examining cardiovascular and renal outcomes and a population renal impairment and outcomes and patients with type two diabetes and heart failure, respectively. The score study has reached this target of 10500 randomized.
Patients all with stage, three and stage for chronic kidney disease.
The Somo study continues to enroll patients would acute decompensated heart failure evidence continues to build the best Giotti inhibitors may become the treatment of choice for patients with type two diabetes, given the strong they want to see metabolic cardiovascular and renal benefits observed in the class as supported by the recent.
Probably we'll have another STL T. Two inhibitor for reduction of risk of hospitalization for heart failure and adults with type two diabetes and establish cardiovascular disease, we blame disapproval bodes well for the SG LTV drug class.
At the end of third quarter, we associate agreed to terminate our solid inflows in the Lions as part of that arrangement Saturday panels $208 million upfront and is obligated to pay and the additional $52 million within 12 months on the termination date. We expect these funds to cover the completion of core phase three clinical trial.
Files and type two diabetes, and the anticipated regulatory submissions and type two diabetes and the U.S. and in Europe , and the first half up 2025.
The funds from Sanofi will not be sufficient to take to outcome studies to full completion for which will require funding from a partnership which we are actively pursuing.
We're working closely with sassy in the transition responsibility for ongoing clinical studies and other activities and have been working diligently to complete the core phase three studies in type two diabetes.
We expect these core studies should read out by year end or into early next year, given slightly slight delays due to the transition.
And type one diabetes.
We filed a formal dispute resolution request with respect to the complete response letter previously issued by the FDA phase.
Metabolic Andrew can division and our engage in a dispute resolution process, we believe that our discussions with ft office of new drugs have been constructive and seeking a path forward and we will provide an update will receive a decision which is expected later this year.
Type one diabetes remains a priority for us.
Before I close let me touch on our cash position. We ended the third quarter would approximately $296 million in cash and short term investments, which includes the upfront payments up $208 million from Sandy.
We will continue to prudently manage our cash and expected our working capital will be sufficient to sustain operations and 2021.
With that I would turn the call over to Jeff who will provide financial highlights.
Thank you on Ellen.
This morning, I will discuss key aspects of our third quarter 2019 financials.
Our financial details can be found in our 10-Q, which will be filed shortly.
Now please refer to slide five of our presentation.
As indicated in our press release today.
Third quarter 2019 revenues.
$294.4 million.
$7 million from the prior year quarter.
Primarily due to an increase of collaborative revenues of $260 million from the termination of the alliance with Sanofi.
Selling general and administrative expenses for the third quarter of 2019 decreased $13.9 million.
From $15.6 million for the same period in 2018.
The lower marketing costs.
Yeah.
We recognized an impairment loss.
$8.6 million in third quarter relating to an indefinite lived intangible assets associated with Lexicons 2010 acquisition. This is.
Due to the decision to terminate research and development activities related to program for edible bowel syndrome that was among the assets required acquired.
An income tax benefit Ussix million dollars for the three months ended September Thirtyth 2019 was recognized in connection with the impairment loss, which resulted in a decrease 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 cents per diluted share as compared to net losses $27.4 million or losses leases for share and the corresponding prior year period.
For the third quarter of 2019 in 2018 net loss included noncash stock based compensation expense.
$8.6 million and $2.9 million perspective.
We ended the third quarter of 2019 was $296.3 million in cash and short term investments as compared to $160.1 million as at December 30, Onest 2018.
The cash position as of September Thirtyth 2019 includes proceeds of $208 million in connection.
Termination of the alliances.
We expect that are.
Our.
We expected our working capital will be sufficient defender operations and 2021.
We will continue to prudently managing our expenses.
See further opportunities to extend our cash runway, including proceeds partnership.
Yes.
Turning to our financial guidance.
For 2019, we continue to expect us to remember the net sales growth in the range of 20% or greater year over year.
We're now expecting operating expenses given region 200 $620 million 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 range.
Of $120 million to $130 million up to 56 up from $50 million to $60 million.
Operating expenses difference in the year also includes.
The 28.6 million dollar noncash impairment loss that we recorded in third quarter relating to an indefinite life intangible assets associated with less than 2010 acquisition of Symphony icon.
Decreased operating the increased R&D guidance includes the costs for nine four phase Court phase three studies and third party expenses for the outcome studies in type two diabetes in each case from an after September 10th 2019.
As we've discussed the core phase three studies are nearing completion.
And the costs associated with those studies will be when down as we prepare for an anda filing that we expect to be in a position to make in the first half 2020.
To provide some perspective on the cost the outcome studies, we estimate that the annual runway for run rate for expenses associated with the sport and so as studies combined is on the order a $100 million or seven.
As for SGN a expenses. This year, we are reiterating our guidance of $50 million to $60 million.
Noncash expenses or pricing.
To be approximately $48 million of our total operating expenses up from $19 million. This includes $14 million and stock based compensation and $5 million depreciation and amortization.
The revised noncash 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 fill on us.
Thank you Jeff I think at this point, we will turn the call over to the operator to start the county.
Thank you at this time I would like to remind everyone. If you wish to ask a question.
Chris Star one on your telephone.
Your first question will come from your goal knock on most of it with Citi.
Hi, This is the marathon phase all thanks very much for taking my question.
First could you share any additional details on the formal request or what is the nature of that as you can you walk us through the timeline on how these disputes are helpful.
Oh, great questions.
We filed the dispute and September it was granted we had our meeting in October .
The FDA the office of new drugs, So you 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 on the consideration, we hope to hear back from them very soon.
Are you in a position.
Just give broad outlines on what those recommendations are.
I will I won't get into that but I will say we are pursuing a pathway that does not include a new study.
Okay.
Can you provide any additional examples of other companies or drugs that are filed a formal dispute that we could use as a reference.
I would say to your best answer to best answer that question is wait a short while and most relevant.
It will be known relative to our dispute.
Got it thanks very much for taking my question.
And your next question comes from a line of Stephen Willey with Stifel [noise].
Hi, good morning, Thanks for taking the questions I guess.
Just a follow up on on the dispute so.
The resolution that was filed was with Cedar.
Is that correct.
No I was filed that was filed with the OXXO new drug Dr. Peter side.
Okay.
According sooner gets involved to your your question stake.
Okay and.
And I think that Theres, a mechanism by which.
If if if the office of new drugs doesn't agree with with with your stance that theres an opportunity to take this to an even higher level within the.
Within the agency is that correct that is correct.
And can you.
So the meeting was in October and I guess the clock is now taking what is the timeline with respect to when the agency needs to come back to you with.
With an answer.
So generally Steve.
If you if they have questions you get those questions turnaround pretty quickly will lease we give them turn around pretty quickly.
They have 30 days after you have.
We submitted your questions to come back to you.
We're now within that window.
Okay.
And then just with respect to.
Yes.
Your ongoing.
Partnership discussions.
Are those.
Are those active conversations that you are having right now with.
Potential strategics.
They are they are active conversations we've had active conversations from those from the start of the.
The.
The I should say from the start of the end of the termination alliance with Sanofi. So we've had quite a bit of interest and we are we're betting that process style.
Okay and then.
And maybe if you could just kind of commented a little bit on on I guess, what would maybe be perceived to be.
Obstacles for strategic at this point.
I guess the uncertainty around type one.
Not yet having data from the outcome studies.
And then I think Theres also actually Amanda that's been filed against.
APA, which I think we'll probably have some more clarity on at some point next year. So.
If you could maybe just kind of talk about each of those things and how.
How each of those variables maybe.
Represent an obstacle to your ability to.
Got it deal done in a timely manner.
So so let me see if I could answer to slightly different Steve first of all I have every confidence nicely.
Todd.
Selling and their case.
That's number one number two is from a perspective of.
What's uniquely here and available to US is we're going to get an answer to type one.
Very so.
And I think we've had very good conversation with the agency agenda today I can't give any gray certainty as to what the answer is going to be but I will tell you. They had been remarkably productive conversations with off some new drugs. So I'm, hoping that we will have an answer to a pathway to type one very so the second one is we are we have we have pretty much complete.
To be core phase three program for the type two studies right now we're doing if you recall, we said we're going to we analyze all the data came into us from Sanofi. We're in the process of doing that once we have data in hand, which I would tell you that will be here shortly within the next month or so.
Gives us the opportunity to see the weight of the evidence that I think that will allow a potential partner just to understand better about the pathway for fours and cuesta.
And the third when I was saying to you is the new data that certainly has come from Avi on heart failure has given a lot of interested people on our soloist trial, which is also enrolling for heart failure, but with a unique have yet to it and looking at decompensated patients and so those three things.
All of them are within the timeline of the next month or so that allows us to advance our conversation a little bit more expedient. So we're going to answer store and as result of that I think it will give us what level of of energy would have around getting a deal done.
All right.
Thanks, a lot of taking the questions you guys.
Your next question is from a line of Jessica Fye with JP Morgan.
Hey, guys. Good morning, Thanks for taking my questions just following up on one of the prior questions about the status of your efforts to find a new commercial partner for cynical frozen.
Sounds like that process is underway can you give us a framework for when we can expect share an update.
You know for us I would simply saying to that's.
It's hard to ever given an update because you're relying on another party and their timeline to some degree, but what I will say is the the information in hand about soda flows and will be known.
At the end of this year.
And that will determine the lift in the timing of when I think we'll get a partnership Doug.
To the point I made to Steve will no the answer to Taiwan.
We're going to know the answer to the overall profile of Silicon flows are for type two.
We're going to get a good answer to what our re analysis of CKD for data, which we promise you were going to do.
We will have that completed and so we're going to have a pretty good.
Idea of the uniqueness of so the flows and allow us to yield a greater benefit in any discussion with partnership.
We have to be careful that we don't move too fast the getting partner should get a partnership we got to get a partnership relative the strength of what we believe the value of the asset is going to be that requires us to be a little bit more patient, let the data mature make the argument that we need to make get the answer but I think where you. We hope that we get we will get in them.
In the near term here on type. One then I think thats, the best chance for us to negotiate a more appropriate.
Partnership.
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 I knew trial will or will not be required.
Yes, just good one of the wonderful things about how many asset back as we get to communicate.
How do we feel we need to communicate and from my perspective, just communicating to you now that we went through a dispute resolution.
As transparency that we'd like to get back to.
And so when we get an answer to that question.
It's going to be in my opinion.
We have to make decisions, yes, or no and we'll be very clear about that once we get the we get the answer.
And when you say, yes, or no is that you have to make a decision that in a hypothetical scenario, where new study is required you decide if you'll pursue that or not thats correct. If it's our view of the world is theres plenty of data.
This was the art art, our trial with some largest trial in type one there is plenty of data and that trial to make some decisions and that's that that's a 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 managed to decay rate I do think there's things we can do which we've now made an argument for that can continue to go further and reducing.
The risk of diabetic ketoacidosis, and we've been very very clear about that but relative to the benefit of this drop.
It is well known at this point.
Got it so if they don't require 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 on timelines would be.
So I would say that if they agreed to the position that we've taken that it would require us to do to be very clear it would require us to do every submission.
And.
We were resubmit under.
Under the provision that they give us and then they will give us a period of time by which they would decide if this is a taiwan and type two at a timeline there will be stems from there should should they agree it would put us on a path to be in market sometime in mid part of next year.
Okay, and maybe just the last one I think I missed the cash runway comment I would think it was at the very end of your prepared remarks. When did you say the current cash would take you to with it into 2021, yes, it would take us into 2021.
Okay. Thank you you bet.
Your next question is from a line of Alan Carr with Needham.
Hi, Thanks for taking my questions.
I mean, given this update on.
To mellow in your label expansion plans, there and Dan.
An update on on the rest of the pipeline Harris.
Slowed down a little bit in order to focus on non surgical flows. Thanks.
Yes, thanks for asking about smell.
Because I think its I've said this before things and metals phenomenal drug.
And I'm very proud of the commercial team that really gotten the they're starting to get some very good lift offers a model.
Which is Jeff is our reporting we had a very strong third quarter and I think we're off to a very strong fourth quarter. So I'm very proud as a model.
We're doing now is we're continuing to invest and the Butler attract cancer program I'll, let dr. lapuerta speak to where we are on that in the second part of that is the inbound interest and studying to mellow for for the bride fiberoptic process that that TPH, one 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 we learn more about it and most efficient way so I'll turn it over to Dr. purchase popular without those investments.
You asked me to speak to the BTC steady and where we are with that and.
And we've enrolled and initial safety cohort the protocol specifies that the first.
Six patients will have a formal evaluation of their safety and we're at the point of providing that in the next couple of weeks and so we expect some data this year and.
And we proceed to a second cohort that we expect expect to complete enrollment in in 2020, So things are progressing well and our initial safety experience has been reassuring.
Hello.
The other property, we have I wonder if you spoke to us or other parts of our portfolio that we did slowdown we certainly did slow down to one one so I'll turn it over to talk to talk.
Alan Bank to one one we are at the tail end of finishing.
Phase one program, we will complete back into the next two to three weeks. So by the end of this year, we should expect phase one could be completed and.
Lexicon is preparing now to stock phase two program. We have written the protocol for the first phase two study and we have identified the Seattle and we are hoping to enroll the plus patient suddenly next year.
Great. Thanks for taking my questions.
You bet.
Hey, once again, if you do have any questions. Please press star one on your telephone again that is star one.
Our next question is from a line of Kevin Kedra with GE Research. Please go ahead.
Hi, Thanks for taking the questions maybe first on the type one.
It's clearly class effect related teekays the issue as you've noted.
Which would mean that the conversations that you're having with the FDA seemed like we'd be.
Go along with some of your peers, who also have SDLP too so.
As you approach US do you have a sense at 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 Dk issue.
Yes, Kevin you make a very good point listen all of the at this point in time to there is a known increased risk.
Diabetic you'd asked doses for the class and the best way to manage this is not to not make the class available, but allow each of the the unique parties to to take on a campaign of education awareness and help patients best understand how to utilize these compounds we didn't get the.
Extraordinary benefits that come from.
And so extraordinary Bob about this class of compounds every dataset that comes out whatever wherever area. We tend to go tend to come up quite remarkable relative to the benefits to patients.
Relative managing risk I think.
The opportunity to have a label. It 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 any way that allows them get the benefit and reduce the chance risk. We think thats. The most responsible way to have to go forward versus not making them available and leaving them out there looking physicians out in the marketplace essentially.
To make calls in decisions our own and the absence of label in a pathway forward. So thats. The argument we have made.
I would assume to your point, Kevin others May have made some argument.
Great. Thanks for that clarity and then jumped a little late so I don't know fit this came up early in the call, but the remaining a phase three studies for sort of flows it in type two.
Any sense on the gates of what how we'd see those coming out but we see.
Multiple studies reported out at once like we saw a with the last batch with three studies coming out or.
Well, we see these kind of as the as you guys have worked through data.
We have six remaining studies in the core program I believe.
And can correct me on that.
I think what we're doing is trying to realize all of it based on lexicons method of analysis.
And therefore, you most likely you're going to see these get stat.
For us to to get them out.
Probably see some good communicated out towards the end of year and then the rest will will get into can 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 it's best to get it right and most likely you're going to see more of the stacking of the reporting done then.
Sequence of reporting.
Great. Thanks.
There are no further questions at this time I'll now turn the call back over to Mr. kids for any closing remarks.
Well. Thank you I appreciate everybody joining this morning. It has quite that's been a quite eventful third quarter. We're very pleased with the growth as Amello Im very proud the commercial team and adjustments that made this year.
To get the mellow in a place where is growing very nicely.
I'm also pleased with the investments, we're making into mellow formulary track cancer. That's also proceeding very nicely I am absolutely remarks by the number of inbound interest is coming on that compound right now.
Relative to development opportunities and then fourth forcing Christa.
While we would have preferred to certainly have have seen that alliance all the way through however, things happening you make adjustment to it I assure you management will make the necessary adjustments and getting some questions back it's exciting to our our employees in our our stakeholders to have this asset back and therefore, it gives us the opportunity put our own 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 to that Dee.
And.
We're going to continue to be aggressive on how we pursued this program as we have strong confidence and believe 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 a thank you for calling in this morning and look forward to talk to the next time.
Thank you for joining today's conference call you may now disconnect.