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Is Lexicon Pharmaceuticals a screaming buy or a basket case? It’s one or the other. Is Lexicon Pharmaceuticals a screaming buy or a basket case? It’s one or the other. Sanofi terminated the collaboration although drug data is sound and the product is approved in the EU. The Friday PM news announcement caused LXRX price to sink by 50% in after hour trading. Lexicon Pharmaceuticals (LXRX) shareholders were shocked with the news that broke Friday after the market closed stating Sanofi (SNY) had terminated their collaboration agreement to develop diabetes drug Zynquista (Sotagliflozin), a SGLT1 and SGLT 2 inhibitor. In the aftermarket the LXRX stock price declined by 50%. In the press release Lexicon reported: 1. Zynquista 400 mg demonstrated a statistically significant reduction in blood sugar control (A1C) compared to placebo at 26 weeks in patients on metformin. 2. Zynquista 400 mg showed a statistically significant reduction in A1C in the entire population of patients with moderate (stage 3) chronic kidney disease (CKD) and in the subpopulation of patients with a glomerular filtration rate of 45-<60 mL/min/1.73m2 (stage 3A CKD) compared to placebo at 26 weeks. 3. Zynquista demonstrated numerical improvement on A1C, a statistically significant reduction in A1C was not achieved in the subpopulation of patients with a glomerular filtration rate of 30-<45 mL/min/1.73m2 (stage 3B CKD). 4. Zynquista 400 mg achieved a clinically meaningful effect but narrowly missed statistical significance on A1C reduction versus placebo in patients with severe (stage 4) CKD at 26 weeks. Data reported so far indicates it worked well and met statistical significance on all subjects reported to date except the relatively tiny subset of Stage 3B CKD and Stage 4 CKD patients. It was not expected the drug would work in those patients because their kidneys were no longer functioning enough to be effective. So why would SNY, after investing several hundreds of millions of dollars and running 13 Phase III trials involving 20,244 patients, terminate the deal before a full data read out? I strongly doubt it could be based upon data reported to date. A shock of this magnitude would need to be a drug trial failure or a shift in tectonic plates. The data reported to date is certainly not a drug failure. In fact, Zynquista is already approved in the EU for Type I diabetes patients. Consider the following. On June 7, 2019 Sanofi hired Paul Hudson as the new CEO. Hudson was CEO of Novartis Pharmaceuticals. During Mr. Hudson’s tenure at Novartis, it became the company’s position that a SGLT2 inhibitor could soon become generic. Novartis filed an application with the FDA to market a generic copy of Farxiga a product which is currently owned and marketed by Bristol-Myers Squibb (BMY) and AstraZeneca (AZN). Earlier this month the FDA approved it subject to patent considerations. Although the generic is not identical to the Lexicon drug, it is a possible competitor in some diabetic indications. That could reduce the value of the Sanofi/Lexicon collaboration. If the soon to be incoming Sanofi CEO truly believes Novartis will be successful in achieving FDA final approval to market a generic SGLT2 inhibitor, would he want his new company Sanofi to pay imminent significant milestone payments to LXRX? It is entirely plausible that Sanofi would look for technicalities to allow them to terminate the collaboration with Lexicon. Only 49 days after Sanofi issued the press release announcing Hudson’s appointment as CEO, the Lexicon collaboration was terminated. I’m not saying there’s a connection, but if not, it’s very coincidental. There may be another reason for the termination, but, I can’t identify it and the companies are not talking. It would be a mistake to underestimate the vigor with which Bristol-Myers Squibb (BMY) and AstraZeneca (AZN) will defend their Farxiga patents. I suspect strictly based upon negative headlines, a knee jerk reaction will cause LXRX to sell off hard between the open on Monday and their conference call on Thursday morning. The magnitude of the selloff may be exaggerated due to the length of time between the news and the Lexicon conference call. This could present significant volatility and trading opportunities. There are many questions. If Lexicon does not respond with suitable answers, they will be punished. Disclosure: I am/we are long LXRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. |
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