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Item 2. Management’s Discussion and Analysis

2024-11-13 compared with 2024-08-02 · 42 added, 38 removed, 112 unchanged (42% of the section changed)

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We are devoting most of our resources to the commercialization of our approved drug and the research and development of our most advanced drug candidates:

• We are commercializing INPEFA ® (sotagliflozin), an orally-delivered small molecule drug, in the United States to reduce the risk of cardiovascular death, hospitalization for heart failure, and urgent heart failure visits in adults with heart failure or type 2 diabetes mellitus, chronic kidney disease (CKD), and other cardiovascular risk factors.

We are separately pursuing regulatory approval of sotagliflozin as a treatment for type 1 diabetes.

We have a pending New Drug Application, or NDA, for sotagliflozin as an adjunct to insulin therapy for glycemic control in adults with type 1 diabetes and CKD.

We are separately pursuing regulatory approval of ZYNQUISTA™ (sotagliflozin) as a treatment for type 1 diabetes.

We have a pending New Drug Application, or NDA, for ZYNQUISTA as an adjunct to insulin therapy for glycemic control in adults with type 1 diabetes and CKD.

The NDA is currently under review by the U.S.

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We have reported positive results from a Phase 2 clinical trial of LX9211 in DPNP and top-line results from a separate Phase 2 clinical trial of LX9211 in post-herpetic neuralgia which also demonstrated evidence of effect.

• We are conducting preclinical development of LX9851, an orally-delivered small molecule drug candidate, as a treatment for obesity and tool for weight management.

• We are conducting preclinical development of LX9851, an orally-delivered small molecule drug candidate, as a treatment for obesity and associated cardiometabolic disorders.

• We are conducting preclinical research and development and preparing to conduct clinical development of compounds from a number of additional drug programs originating from our internal drug discovery efforts.

INPEFA, LX9851 and compounds from a number of additional drug programs originated from our own internal drug discovery efforts, and LX9211 originated from our collaborative neuroscience drug discovery efforts with Bristol-Myers Squibb.

Sotagliflozin, LX9851 and compounds from a number of additional drug programs originated from our own internal drug discovery efforts, and LX9211 originated from our collaborative neuroscience drug discovery efforts with Bristol-Myers Squibb.

Our efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets.

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Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees, and to negotiate agreements that we believe are in our long-term best interests.

We may determine, as we have with INPEFA in heart failure, that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues and increase expenses.

We may determine, as we have with INPEFA in the United States, that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues and increase expenses.

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 June 30, 2024, we had an accumulated deficit of $1.9 billion.

Since our inception, we have incurred significant losses and, as of September 30, 2024, we had an accumulated deficit of $1.9 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 units granted to employees and consultants.

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Results of Operations

Revenues were approximately $1.6 million and $0.3 million, respectively, for the three months ended June 30, 2024 and 2023 and $2.8 million and $0.3 million, respectively, for the six months ended June 30, 2024 and 2023 primarily from product revenues recognized from sales of INPEFA following its regulatory approval in May 2023.

Revenues were approximately $1.8 million and $0.2 million, respectively, for the three months ended September 30, 2024 and 2023 and $4.5 million and $0.5 million, respectively, for the nine months ended September 30, 2024 and 2023 primarily from product revenues recognized from sales of INPEFA following its regulatory approval in May 2023.

Cost of Sales

Cost of sales during the three and six months ended June 30, 2024 consist of third-party manufacturing costs and freight associated with sales of INPEFA.

Cost of sales during the three and nine months ended September 30, 2024 consist of third-party manufacturing costs and freight associated with sales of INPEFA.

Prior to receiving regulatory approval on May 26, 2023, we had completed or begun the manufacturing of certain INPEFA raw materials.

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We began capitalizing inventory manufactured subsequent to regulatory approval of INPEFA as the related costs were expected to be recoverable through the commercialization of the product.

At June 30, 2024, substantially all of the “zero-cost” INPEFA raw materials remains available to us.

At September 30, 2024, substantially all of the “zero-cost” INPEFA raw materials remains available to us.

The “zero-cost” inventory is expected to be consumed over approximately the next three years, which will result in a lower average per unit cost of materials during that period;

however, the time period over which this inventory is consumed will depend on a number of factors, including the amount of future INPEFA sales, use of this inventory in clinical development or other research activities, production lead times, and/or the ability to utilize inventory prior to its expiration date.

however, the time period over which this inventory is consumed will depend on a number of factors, including the amount of future INPEFA sales, use of this inventory in clinical development or other research activities, production lead times, collaboration agreements, and/or the ability to utilize inventory prior to its expiration date.

We estimate our cost of goods sold as a percentage of net product revenue will be less than 10% subsequent to the utilization of all of the remaining “zero-cost” inventory.

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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,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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

Overall, third-party services for the three months ended June 30, 2024 increased 20% to $10.2 million and for the six months ended June 30, 2024 increased 24% to $17.4 million, as compared to the corresponding periods in 2023 primarily related to increased external research and development costs.

• Personnel – Personnel costs for the three months ended June 30, 2024 increased to $4.3 million from $3.6 million, and for the six months ended June 30, 2024 increased to $8.6 million from $7.5 million as compared to the corresponding periods in 2023.

Overall, third-party services for the three months ended September 30, 2024 increased 66% to $18.7 million and for the nine months ended September 30, 2024 increased 43% to $36.2 million, as compared to the corresponding periods in 2023 primarily driven by higher clinical external research expense associated with our current drug candidates.

• Personnel – Personnel costs for the three months ended September 30, 2024 increased to $4.2 million from $3.6 million, and for the nine months ended September 30, 2024 increased to $12.8 million from $11.1 million as compared to the corresponding periods in 2023.

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

• Stock-based compensation – Stock-based compensation expenses for the three months ended June 30, 2024 increased 29% to $1.7 million, and for the six months ended June 30, 2024 increased 31% to $3.3 million, as compared to the corresponding periods in 2023, due to increased headcount.

• Stock-based compensation – Stock-based compensation expenses for the three months ended September 30, 2024 increased 9% to $1.5 million, and for the nine months ended September 30, 2024 increased 23% to $4.7 million, as compared to the corresponding periods in 2023, due to increased headcount.

• Facilities, equipment, and other – Facilities, equipment, and other costs relate primarily to rent, insurance, travel and training, and software licensing costs.

Facilities, equipment, and other costs for the three months ended June 30, 2024 and 2023 were $1.4 million and $1.1 million, respectively.

For the six months ended June 30, 2024 and 2023 these costs were $2.7 million and $2.5 million, respectively.

Facilities, equipment, and other costs for the three months ended September 30, 2024 and 2023 were $1.4 million and $1.3 million, respectively.

For the nine months ended September 30, 2024 and 2023 these costs were $4.1 million and $3.8 million, respectively.

Selling, General and Administrative Expenses

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,

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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Selling, general and administrative expenses consist primarily of personnel costs to support the commercialization of INPEFA and support of our research and development activities, professional and consulting fees, stock-based compensation expense, and facilities, equipment and other costs, each of which are described further below.

• Personnel – Personnel costs for the three months ended June 30, 2024 increased 20% to $17.2 million, and for the six months ended June 30, 2024 increased 52% to $33.6 million, as compared to the corresponding periods in 2023, primarily due to higher employee salaries and benefit costs as a result of increased headcount in conjunction with the commercialization of INPEFA.

• Personnel – Personnel costs for the three months ended September 30, 2024 increased 18% to $19.0 million, and for the nine months ended September 30, 2024 increased 38% to $52.6 million, as compared to the corresponding periods in 2023.

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 June 30, 2024 increased 48% to $14.6 million, and for the six months ended June 30, 2024 increased 44% to $24.3 million, as

compared to the corresponding periods in 2023, primarily due to higher marketing and professional fees in conjunction with the commercialization of INPEFA.

• Stock-based compensation – Stock-based compensation expenses for the three months ended June 30, 2024 increased 27% to $3.2 million, and for the six months ended June 30, 2024 increased 25% to $5.9 million, as compared to the corresponding periods in 2023 due to increased headcount.

• Facilities, equipment, and other – Facilities, equipment, and other costs for the three months ended June 30, 2024 and 2023 were $4.2 million and $3.3 million, and for the six months ended June 30, 2024 and 2023 were $7.5 million and $5.5 million, respectively.

The increase is driven by higher employee salaries and benefit costs, including $3.4 million in severance costs primarily reflecting the partial reduction in the field force in September 2024.

• Professional and consulting fees – Professional and consulting fees for the three months ended September 30, 2024 increased 57% to $15.9 million, and for the nine months ended September 30, 2024 increased 49% to $40.1 million, as compared to the corresponding periods in 2023, primarily due to higher marketing and professional fees in conjunction with the commercialization of INPEFA.

• Stock-based compensation – Stock-based compensation expenses for the three months ended September 30, 2024 decreased 48% to $1.3 million, and for the nine months ended September 30, 2024 decreased 1% to $7.2 million, as compared to the corresponding periods in 2023 reflecting forfeitures of unvested awards due to decreased headcount, including the partial reduction in the field force in September 2024.

• Facilities, equipment, and other – Facilities, equipment, and other costs for the three months ended September 30, 2024 and 2023 were $3.4 million and $3.5 million, and for the nine months ended September 30, 2024 and 2023 were $10.9 million and $8.9 million, respectively.

The increase was primarily due to travel in conjunction with the commercialization of INPEFA.

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Interest and Other Expense.

Interest and other expense was $2.2 million and $2.0 million, respectively, during the three months ended June 30, 2024 and 2023, and $7.2 million and $3.8 million, respectively, during the six months ended June 30, 2024 and 2023 reflecting the additional $50 million of Oxford debt borrowed in June 2023.

Interest and other expense was $4.6 million and $3.9 million, respectively, during the three months ended September 30, 2024 and 2023, and $11.7 million and $7.7 million, respectively, during the nine months ended September 30, 2024 and 2023, reflecting the additional $50 million borrowed under the Oxford Term Loans in June 2023.

Interest Income and Other, Net

Interest Income and Other, Net.

Interest income and other, net increased to $4.1 million from $1.3 million during the three months ended June 30, 2024 and increased to $6.0 million from $2.3 million during the six months ended June 30, 2024 from the corresponding periods in 2023 reflecting the increase in cash and investments due to net proceeds received from the March 2024 preferred stock issuance.

Interest income and other, net increased to $3.4 million from $3.0 million during the three months ended September 30, 2024 and increased to $9.5 million from $5.3 million during the nine months ended September 30, 2024 from the corresponding periods in 2023, reflecting the increase in cash and investments due to net proceeds received from the March 2024 convertible preferred stock issuance.

Net Loss and Net Loss per Common Share

Net loss and Net loss per Common Share.

Net loss was $53.4 million, or $0.17 per share, in the three months ended June 30, 2024 as compared to a net loss of $44.9 million, or $0.22 per share, in the corresponding period in 2023.

Net loss was $101.8 million, or $0.37 per share, in the six months ended June 30, 2024 as compared to a net loss of $76.8 million, or $0.39 per share, in the corresponding period in 2023.

Net loss was $64.8 million, or $0.18 net loss per share, in the three months ended September 30, 2024 as compared to a net loss of $50.5 million, or $0.21 net loss per share, in the corresponding period in 2023.

Net loss was $166.6 million, or $0.54 net loss per share, in the nine months ended September 30, 2024 as compared to a net loss of $127.4 million, or $0.60 net loss per share, in the corresponding period in 2023.

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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The fourth $25 million tranche is available for draw at our option upon the achievement of specified INPEFA net sales and until April 25, 2025.

The fifth $25 million tranche is available for draw at our option, subject to Oxford’s consent, at any time prior to the expiration of the 60-month interest-only payment period.

On June 28, 2024, we entered into a sixth amendment to our Loan Agreement extending the interest-only period with an amortization date of May 1, 2027, extending the maturity date to March 1, 2029, and modifying the exit fee provision and existing financial covenants.

The fifth $25 million tranche is available for draw at our option, subject to Oxford’s consent, at any time prior to the expiration of the 60-month interest-only payment period with an amortization date of May 1, 2027.

Payments of $34.8 million, $52.2 million, and $20.0 million, including debt principal and final exit fee payments, will be due during the fiscal years ended December 31, 2027, December 31, 2028 and December 31, 2029, respectively, with respect to all borrowed loan tranches as of September 30, 2024.

The loan and security agreement includes a financial covenant relating to net product revenue, which will be effective as of the quarter ending June 30, 2026, and a separate financial covenant which requires us to maintain a minimum unrestricted cash and investments balance of 50% of the outstanding principal amount through June 30, 2026, tested monthly as of the last day of each month.

In addition, we are separately required to maintain a quarterly minimum unrestricted cash and investments balance of $10 million until the achievement of specified INPEFA net sales (which will be satisfied by meeting the monthly minimum unrestricted cash and investments covenant noted above).

Upon funding of the fourth tranche, the quarterly minimum unrestricted cash and investments balance requirement will increase to $25 million.

Upon funding of the fourth tranche, the quarterly minimum

unrestricted cash and investments balance requirement will increase to $25 million.

For additional information, please refer to Note 5 of the Notes to the Condensed Consolidated Financial Statements.

In December 2023, we entered into an Open Market Sale Agreement SM with Jefferies LLC pursuant to which we may offer and sell shares of our common stock having an aggregate sales price of up to $75 million from time to time through Jefferies as sales agent.

As of June 30, 2024, the full amount is still available for issuance under this agreement.

As of September 30, 2024, the full amount is still available for issuance under the agreement.

On March 11, 2024, we entered into an agreement with certain accredited investors pursuant to which we agreed to sell 2,304,147 shares of our Series A Convertible Preferred Stock, at a price of $108.50 per share.

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For additional information on the private placement offering, please refer to Note 8 of the Notes to the Condensed Consolidated Financial Statements.

As of June 30, 2024 and December 31, 2023, we had $310.0 million and $170.0 million in cash, cash equivalents and short-term investments, respectively.

We used cash of $103.7 million from operations in the six months ended June 30, 2024, largely reflective of the net loss for the period of $101.8 million which included non-cash charges of $5.4 million primarily related to stock-based compensation expense.

Investing activities used cash of $122.5 million in the six months ended June 30, 2024, primarily due to net purchases of investments.

Financing activities provided cash of $239.4 million, primarily from the issuance of sale of 2,304,147 shares of our Series A Convertible Preferred Stock in a private placement at a price of $108.50 per share.

On October 16, 2024, we entered into an exclusive license agreement with Viatris for the development and commercialization of sotagliflozin in all markets outside of the United States and Europe pursuant to which we received an upfront payment of $25 million.

For additional information on the exclusive license agreement, please refer to Note 9 of the Notes to the Condensed Consolidated Financial Statements.

As of September 30, 2024 and December 31, 2023, we had $258.4 million and $170.0 million in cash, cash equivalents and short-term investments, respectively.

We used cash of $157.3 million from operations in the nine months ended September 30, 2024, largely reflective of the net loss for the period of $166.6 million which included non-cash charges of $6.9 million primarily related to stock-based compensation expense.

Investing activities used cash of $69.1 million in the nine months ended September 30, 2024, primarily due to net purchases of investments.

Financing activities provided cash of $238.5 million, primarily from the issuance of sale of 2,304,147 shares of our Series A Convertible Preferred Stock in a private placement in March 2024 at a price of $108.50 per share.

The preferred shares were converted into an aggregate of 115,207,350 common shares in May 2024.

Other commitments.

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Our future capital requirements will be substantial and will depend on many factors, including the success of our commercialization of INPEFA in the United States;

the success of our commercial launch of sotagliflozin for patients with type 1 diabetes and CKD, if approved;

the success of our commercial launch of ZYNQUISTA for patients with type 1 diabetes and CKD, if approved;

the success of our ongoing research and development efforts and the ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts;

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We expect to continue to devote substantial capital resources to the commercialization of INPEFA for heart failure;

the commercial launch of sotagliflozin for patients with type 1 diabetes and CKD, if approved;

the commercial launch of ZYNQUISTA for patients with type 1 diabetes and CKD, if approved;

the research and development of our drug candidates;

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We are exposed to limited market and credit risk on our cash equivalents which have maturities of three months or less at the time of purchase.

We had approximately $310.0 million in cash and cash equivalents and short-term investments as of June 30, 2024.

We had approximately $258.4 million in cash and cash equivalents and short-term investments as of September 30, 2024.

We maintain a short-term investment portfolio which consists of U.S.

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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