What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-29 compared with 2020-04-27 · 54 added, 40 removed, 115 unchanged (45% of the section changed)

33 unchanged sentences

Because of these and other factors, our operating results have fluctuated in the past and are likely to do so in the future, and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance.

Since our inception, we have incurred significant losses and, as of March 31, 2020, we had an accumulated deficit of $1.4 billion.

Since our inception, we have incurred significant losses and, as of June 30, 2020, we had an accumulated deficit of $1.5 billion.

Our losses have resulted principally from costs incurred in research and development, selling, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants.

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Results of Operations

Total revenues and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended March 31,

Total revenues and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Total revenues $ 9.2 $ 9.7 $ 17.2 $ 18.9

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Percentage decrease (5) % (9) %

• Net product revenue – Net product revenue for the three months ended March 31, 2020 increased 17% to $7.9 million as compared to the corresponding period in 2019 from revenues recognized from the sale of XERMELO in the United States.

• Net product revenue – Net product revenue for the three months ended June 30, 2020 increased 21% to $9.0 million, and for the six months ended June 30, 2020 increased 19% to $16.9 million as compared to the corresponding periods in 2019 from revenues recognized from the sale of XERMELO in the United States.

Revenue from sales of bulk tablets of XERMELO to Ipsen were $1.3 million for the three and six months ended June 30, 2019.

Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance.

Revenue recognition policies require estimates of the aforementioned sales allowances each period.

• Collaborative agreements – Revenue from collaborative agreements for the three months ended March 31, 2019 was $2.4 million, primarily due to revenues recognized from a milestone for the first commercial sale in Canada under the collaboration and license agreement with Ipsen.

• Collaborative agreements – Revenue from collaborative agreements for the three and six months ended June 30, 2019 was $0.9 million and $3.3 million, primarily due to revenues recognized from clinical trial activities and a milestone for the first commercial sale in Canada under the collaboration and license agreement with Ipsen.

Cost of Sales

Cost of sales for each of the three months ended March 31, 2020 and 2019 was $0.6 million.

Total cost of sales and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Total cost of sales $ 0.7 $ 1.3 $ 1.3 $ 1.9

Dollar decrease $ (0.6) $ (0.6)

Percentage decrease (45) % (31) %

Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO.

The pre-commercialization inventory is expected to be sold over approximately the next twelve months.

As a result, cost of sales for the next twelve months will reflect a lower average per unit cost of materials.

Cost of sales for each of the three months ended March 31, 2020 and 2019 includes $0.4 million of amortization of intangible assets relating to XERMELO.

Cost of sales for the three and six months ended June 30, 2019 included costs related to the bulk tablet sales to Ipsen.

The pre-commercialization inventory is expected to be sold over approximately the next nine months.

As a result, cost of sales for the next nine months will reflect a lower average per unit cost of materials.

Cost of sales for each of the three and six months ended June 30, 2020 and 2019 includes $0.4 million and $0.9 million, respectively, of amortization of intangible assets relating to XERMELO.

Research and Development Expenses

Research and development expenses and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended March 31,

Research and development expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Total research and development expense $ 57.3 $ 12.6 $ 112.5 $ 24.7

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Research and development expenses consist primarily of third-party and other services principally related to nonclinical and clinical development activities, salaries and other personnel-related expenses, stock-based compensation expense, and facility and equipment costs.

• Third-party and other services – Third-party and other services for the three months ended March 31, 2020 increased to $45.3 million from $2.4 million in the corresponding period in 2019 primarily due to increases in external clinical development costs relating to sotagliflozin subsequent to the Termination Agreement with Sanofi.

• Third-party and other services – Third-party and other services for the three months ended June 30, 2020 increased to $48.9 million from $3.2 million, and for the six months ended June 30, 2020 increased to $94.2 million from $5.6 million as compared to the corresponding periods in 2019 primarily due to increases in external clinical development costs relating to sotagliflozin subsequent to the termination of our collaboration with Sanofi.

Third-party and other services relate principally to our clinical trial and related development activities, such as nonclinical and clinical studies and contract manufacturing.

• Personnel – Personnel costs for the three months ended March 31, 2020 decreased 7% to $5.5 million as compared to the corresponding period in 2019, primarily due to lower headcount.

• Personnel – Personnel costs for the three months ended June 30, 2020 decreased 16% to $4.5 million, and for the six months ended June 30, 2020 decreased 11% to $10.0 million as compared to the corresponding periods in 2019, primarily due to lower headcount.

Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Stock-based compensation – Stock-based compensation expense for the three months ended March 31, 2020 increased 23% to $2.2 million as compared to the corresponding period in 2019, primarily due to shorter vesting periods of the annual restricted stock unit awards granted in recent years.

• Facilities and equipment – Facilities and equipment costs for each of the three months ended March 31, 2020 and 2019 was $0.7 million.

• Other – Other costs for the three months ended March 31, 2020 increased 16% to $1.5 million as compared to the corresponding period in 2019, primarily due to an increase in insurance premiums related to the sotagliflozin clinical studies.

• Stock-based compensation – Stock-based compensation expense for each of the three months ended June 30, 2020 and 2019 was $1.9 million, and for the six months ended June 30, 2020 increased 12% to $4.1 million as compared to the corresponding period in 2019, primarily due to shorter vesting periods of the annual restricted stock unit awards granted in recent years.

• Facilities and equipment – Facilities and equipment costs for each of the three months ended June 30, 2020 and 2019 was $0.6 million, and for each of the six months ended June 30, 2020 and 2019 was $1.3 million.

• Other – Other costs for the three months ended June 30, 2020 decreased 12% to $1.3 million as compared to the corresponding period in 2019, primarily due to decreases in travel and continuing medical education grants, and for each of the six months ended June 30, 2020 and 2019 was $2.8 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended March 31,

Selling, general and administrative expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Total selling, general and administrative expense $ 14.1 $ 14.3 $ 28.8 $ 28.4

Dollar increase $ 0.6

Percentage increase 4 %

Dollar increase (decrease) $ (0.2) $ 0.4

Percentage increase (decrease) (1) % 2 %

Selling, general and administrative expenses consist primarily of personnel costs to sell XERMELO and to support our research and development activities, professional and consulting fees, stock-based compensation expense, and facility and equipment costs.

• Personnel – Personnel costs for the three months ended March 31, 2020 decreased 4% to $7.5 million as compared to the corresponding period in 2019, primarily due to lower headcount.

• Personnel – Personnel costs for the three and six months ended June 30, 2020 decreased 4% to $6.8 million and $14.3 million, respectively, as compared to the corresponding periods in 2019, primarily due to lower headcount.

Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Professional and consulting fees – Professional and consulting fees for the three months ended March 31, 2020 increased 10% to $2.8 million as compared to the corresponding period in 2019, primarily due to higher legal fees.

• Stock-based compensation – Stock-based compensation expense for the three months ended March 31, 2020 increased 37% to $2.3 million as compared to the corresponding period in 2019, primarily due to shorter vesting periods of the annual restricted stock unit awards granted in recent years.

• Facilities and equipment – Facilities and equipment costs for each of the three months ended March 31, 2020 and 2019 were $0.5 million.

• Other – Other costs for each the three months ended March 31, 2020 and 2019 were $1.6 million.

• Professional and consulting fees – Professional and consulting fees for the three months ended June 30, 2020 increased 11% to $3.2 million, and for the six months ended June 30, 2020 increased 10% to $6.1 million as compared to the corresponding periods in 2019, primarily due to higher legal fees.

• Stock-based compensation – Stock-based compensation expense for the three months ended June 30, 2020 increased 24% to $2.3 million, and for the six months ended June 30, 2020 increased 30% to $4.6 million as compared to the corresponding periods in 2019, primarily due to shorter vesting periods of the annual restricted stock unit awards granted in recent years.

• Facilities and equipment – Facilities and equipment costs for each of the three months ended June 30, 2020 and 2019 were $0.5 million and for each of the six months ended June 30, 2020 and 2019 were $0.9 million.

• Other – Other costs for the three months ended June 30, 2020 decreased 32% to $1.3 million, and for the six months ended June 30, 2020 decreased 17% to $3.0 million as compared to the corresponding periods in 2019, primarily due to decreases in travel expenses due to the COVID-19 pandemic.

Impairment Loss on Buildings

In July 2020, our subsidiary, Lex-Gen Woodlands, L.P., entered into a real estate purchase and sale agreement to sell our facilities in the Woodlands, Texas.

We recognized an impairment loss of $1.6 million as a result of writing down the buildings to the estimated net selling price.

Interest Expense and Interest and Other Income, Net

Interest Expense .

Interest expense for each of the three months ended March 31, 2020 and 2019 was $5.1 million.

Interest expense for each of the three months ended June 30, 2020 and 2019 was $5.1 million, and for each of the six months ended June 30, 2020 and 2019 was $10.3 million.

Interest and Other Income, Net.

Interest and other income, net for the three months ended March 31, 2020 and 2019 was $1.0 million and $0.8 million, respectively.

Interest and other income, net for the three months ended June 30, 2020 and 2019 was $0.6 million and $0.7 million, respectively, and for the six months ended June 30, 2020 and 2019 was $1.6 million and $1.5 million, respectively.

Net loss and Net loss per Common Share

Net loss and Net loss per Common Share.

Net loss increased to $66.6 million in the three months ended March 31, 2020 from $21.8 million in the corresponding period in 2019.

Net loss per common share increased to $0.63 in the three months ended March 31, 2020 from $0.21 in the corresponding period in 2019.

Net loss increased to $69.1 million in the three months ended June 30, 2020 from $23.0 million in the corresponding period in 2019.

Net loss per common share increased to $0.65 in the three months ended June 30, 2020 from $0.22 in the corresponding period in 2019.

Net loss increased to $135.7 million in the six months ended June 30, 2020 from $44.8 million in the corresponding period in 2019.

Net loss per common share increased to $1.27 in the six months ended June 30, 2020 from $0.42 in the corresponding period in 2019.

Our quarterly operating results have fluctuated in the past and are likely to do so in the future, and we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance.

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We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments we received under our strategic and other collaborations, target validation, database subscription and technology license agreements, product sales, government grants and contracts, and financing under debt and lease arrangements.

We have also financed certain of our research and development activities under our agreements with Symphony Icon, Inc.

As of March 31, 2020, we had $249.1 million in cash, cash equivalents and short-term investments.

We have also financed certain of our research and development activities under financing arrangements with Symphony Icon Holdings LLC.

As of June 30, 2020, we had $201.9 million in cash, cash equivalents and short-term investments.

As of December 31, 2019, we had $271.7 million in cash, cash equivalents and short-term investments.

We used cash of $22.1 million from operations in the three months ended March 31, 2020.

The net loss for the period of $66.6 million was partially offset by a net decrease in operating assets net of liabilities of $38.9 million, non-cash charges of $4.4 million related to stock-based compensation expense and $1.3 million related to depreciation and amortization expense, including amortization of debt issuance costs.

Investing activities provided cash of $42.8 million in the three months ended March 31, 2020, primarily due to net maturities of investments of $42.8 million.

We used cash of $68.4 million from operations in the six months ended June 30, 2020.

The net loss for the period of $135.7 million was partially offset by a net decrease in operating assets net of liabilities of $54.5 million, non-cash charges of $8.7 million related to stock-based compensation expense, $2.5 million related to depreciation and amortization expense, including amortization of debt issuance costs, and $1.6 million related to the impairment loss.

Investing activities provided cash of $120.9 million in the six months ended June 30, 2020, primarily due to net maturities of investments of $120.9 million.

Financing activities used cash of $1.7 million, primarily to repurchase $1.0 million of common stock and to repay $0.6 million of debt borrowings.

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Upon the achievement of certain European regulatory pricing approvals, we will be required to make certain royalty payments, totaling $4.5 million, in three equal annual installments of $1.5 million.

In August 2018, our subsidiary Lex-Gen Woodlands, L.P.

entered into a term loan and security agreement, refinancing the previously existing mortgage on our facilities in The Woodlands, Texas.

In August 2018, our subsidiary, Lex-Gen Woodlands, L.P., entered into a term loan and security agreement, refinancing the previously existing mortgage on our facilities in The Woodlands, Texas.

The loan agreement provides for a $12.9 million mortgage on the property and has a two-year term with a 10-year amortization.

The mortgage loan bears interest at a rate per annum equal to the greater of (a) the 30-day LIBOR rate plus 5.5% and (b) 7.5% and provides for a balloon payment of $10.3 million due in August 2020.

In January 2020, Lex-Gen Woodlands, L.P.

In July 2020, Lex-Gen Woodlands, L.P.

entered into a real estate purchase and sale agreement under which we agreed to sell our facilities in The Woodlands, Texas for a purchase price of $11.5 million.

Such sale is subject to normal and customary closing conditions, including a study period, which extends until June 8, 2020, during which the purchaser may conduct inspections, analyses and other studies of the property and may terminate the agreement in its discretion.

Such sale is also subject to the negotiation and execution by the parties of a leaseback agreement for a period of up to six months with respect to a portion of the property concurrently with closing.

Such sale is subject to normal and customary closing conditions, including a study period, which extends until August 24, 2020, during which the purchaser may conduct inspections, analyses and other studies of the property and may terminate the agreement in its discretion.

Such sale is also subject to the negotiation and execution by the parties of a leaseback agreement for a period of nine months with respect to a portion of the property concurrently with closing.

In March 2015, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc.

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We currently do not hedge interest rate exposure or hold any derivative financial instruments in our investment portfolio.

We had approximately $249.1 million in cash and cash equivalents and short-term investments as of March 31, 2020.

We had approximately $201.9 million in cash and cash equivalents and short-term investments as of June 30, 2020.

We believe that the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis