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Morningstar | Lowering Our FVE For Lexicon as Prospects for Near-Term U.S. Sotagliflozin Launch Fade. See Updated Analyst Note from 25 Mar 2019

We've lowered our fair value estimate for no-moat Lexicon Pharmaceuticals from $5.80 to $5 per share following a complete response letter from the FDA on March 22 regarding Sanofi and Lexicon's new drug application for sotagliflozin in type 1 diabetes. We had already lowered our probability of approval to 40% following a very mixed advisory committee meeting in January, when only half of the committee voted that the benefits of the drug outweighed its risks (primary diabetic ketoacidosis). We now split our type 1 diabetes forecast into U.S. and ex-U.S. forecasts, with a 40% probability remaining in the U.S. market but pushed back to a 2021 launch (assuming additional data is required). We've boosted our assumed probability of approval ex-U.S. to 70%, however, following a positive committee opinion in Europe in February, and we expect approval in the second quarter. We've also lowered our sales forecast for carcinoid syndrome drug Xermelo, as sales growth continues to underperform our expectations, and management's guidance for 20% or greater growth in 2019 pushed us to lower both our near- and long-term expectations, with peak revenue from Xermelo now coming in around $250 million. While Lexicon only has $160 million in cash as of the end of 2018, we do expect the firm could receive significant milestones from Sanofi in 2019 as type 2 diabetes data for sotagliflozin should flow through this year. We think the odds of approval in type 2 diabetes stand at 60%, and we assume launch in 2021.