Delving Into The Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) Data

Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) gained considerably at the end of last week on the back of a data release from its ongoing type 1 diabetes trial, and the company is continuing higher on Monday as the buy volume remains in control of directional bias.

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More than 20 times average volume, and close to 20% gains on the data, could be just the beginning, however. The drug has a large potential, and the company is in bed with pharma giant Sanofi SA (ADR) (NYSE:SNY) in both the development and the commercialization aspects of the process. If things run forward as planned, we could see Lexicon hit the ground running on an FDA nod.

This is just the type 1 side of the equation, of course, and type 1 is a far smaller market than its type 2 counterpart. An approval in this indication, however, will serve as proof of concept for the drug in the second target, and speculation on this PoC will almost certainly drive market capitalization gains moving forward.

So, with this in mind, here’s what we know so far.

The drug in question is called sotagliflozin.

In our gastrointestinal tract, and in the kidneys, we’ve got what are called sodium-glucose cotransporter. There are two types – sodium-glucose cotransporter type 1, and sodium-glucose cotransporter type 2 (SGCT1 and SGCT2 respectively).

They are responsible for the vast majority of the glucose reabsorption in our body. Specifically, SGCT1 is responsible for reabsorption in the GI tract (and a little bit in the kidney, but not much) and SGCT2 is responsible for the absorption in the kidney alone.

Sotagliflozin inhibits these cotransporters, meaning the absorption and reabsorption doesn’t take place. Because it acts on both cotransporters, it has the potential to treat both types of diabetes (which is rare for a new generation treatment) and this expands the market potential for the drug considerably.

Type 1 diabetes only accounts for between 10-20% of diabetes cases in the US, so the latest data relates to the smaller market, but for the reasons detailed above, this isn’t overly important. The assumption is that if it works in one, it is highly likely to do so in the other.

So what did the data show? The primary endpoint of the trial was the reduction of what’s called HbA1c, or glycated hemoglobin. This is a type of hemoglobin that is used to measure the three-month average plasma glucose concentration, and is a pretty standard measurement when it comes to the efficacy of a diabetes treatment.

The study hit this endpoint, with an average reduction from baseline of 0.43% in the active arm of the trial versus a 0.08% reduction in the in the placebo arm. P value for the measurement came in at 0.001, which is overwhelmingly statistically significant.

Safety data was just as convincing. There were no adverse events reported outside those expected (and no real difference between the active arm and the placebo arm) and this is consistent with the data to date.

So what’s next?

Well, Sanofi is not known for waiting around on its submissions, so we should see an NDA submission with the FDA at some point across the next couple of quarters. There’s the potential for an end of year submission, but we’ll be conservative and say Q1. This paves the way for a Q2 acceptance, and a Q1 2018 approval, assuming the agency doesn’t drag its heels.

There are plenty of near term catalysts, in other words, and that’s not even taking into account the type 2 indication. Sanofi and Lexicon are aiming to get a pivotal underway before the year closes out, and with the positive phase III from the type 1 target under their belt, expectations will be high for a reiteration of the efficacy data.

What’s the bottom line on this one?

We like Lexicon. The company has plenty of cash, a robust, late stage pipeline and one of big pharma’s leading names behind, and in front of, a potentially multi billion-dollar product. At its current $1.2 billion valuation, there’s not much room for immediate upside, but if the company can pick up a green light from the FDA in either of its two current diabetes target indications, this room will widen considerably and Lexicon will become a multi-billion dollar pharma producer.

One to watch.

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