Report
Karen Andersen
EUR 850.00 For Business Accounts Only

Morningstar | Maintaining Our Lexicon FVE Following Zynquista's Europe Approval and Modest 1Q Xermelo Growth

Lexicon's first-quarter results were roughly in line with our expectations, as strong cost control balanced continued slow uptake of carcinoid syndrome drug Xermelo, which grew 24% year over year to $6.7 million. We're lowering our Xermelo estimates, but we're maintaining our $5 per share fair value estimate, as this hit is countered by lower operating expenses and Zynquista's recent approval in type 1 diabetes in Europe. Given Xermelo's slow launch and very high uncertainty around Zynquista's safety issues and differentiation from competitors, we don't think the firm has built a sustainable competitive advantage, and we assign Lexicon a no-moat rating.

We're slightly lowering our estimates for selling, general, and administrative costs for 2019 based on lower guidance, which we believe incorporates not only a delayed Zynquista launch, but also operating efficiencies. Operating expenses have plummeted as Lexicon's obligations for Zynquista's development through the Sanofi collaborations have been completed, meaning that Lexicon's $133 million cash balance will support Lexicon for several quarters. However, we currently assume Lexicon will not see sustainable profitability until 2021. Therefore, Lexicon may be forced to raise cash to support development of new drug candidates, unless it achieves all potential near-term milestones in its agreement with Sanofi.

With the recent approval of Zynquista in type 1 diabetes in Europe, we've also removed the probability weighting on sales in this geography (previously 70%). However, given the complete response letter from the FDA in March and pending discussions with the FDA surrounding the drug's path forward in the U.S., we continue to assign a 40% probability of U.S. approval in 2021. Sanofi-sponsored trials of Zynquista in type 2 diabetes should read out beginning this quarter and through the rest of the year, and with filing likely in the first half of 2020, we still assume a 60% probability of approval in 2021.

We're not convinced that Zynquista will be differentiated from established SGLT2 inhibitors on the market, although dedicated chronic kidney disease studies and a head-to-head with Jardiance allow room for potential differentiation.
Underlying
Lexicon Pharmaceuticals Inc.

Lexicon Pharmaceuticals is a biopharmaceutical company. The company is commercializing XERMELO? (telotristat ethyl), an orally-delivered small molecule drug for the treatment of carcinoid syndrome diarrhea in combination with somatostatin analog (SSA) therapy in adults inadequately controlled by SSA therapy. The company is developing Zynquista? (sotagliflozin), an orally-delivered small molecule drug candidate, as a treatment for type 1 2 diabetes. The company is also developing sotagliflozin as a treatment for type 2 diabetes, heart failure and chronic kidney disease. The company is developing LX9211, an orally-delivered small molecule drug candidate, as a treatment for neuropathic pain.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Karen Andersen

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