Lexicon 1Q14 – Phase 3 for LX4211 in type 1 diabetes possible by late 2014, following FDA meeting in 2Q14 – May 8, 2014

Lexicon provided its 1Q14 update in a call earlier today led by CEO Dr. Arthur Sands. Although there were no major new data or updates provided during the presentation, the company made multiple exciting phase 2 data disclosures over the course of 1Q14 for its SGLT-1/2 dual inhibitor LX4211 in both type 1 and type 2 diabetes – read our JP Morgan 2014 Full Report for topline results from a phase 2 trial in type 2 diabetes patients with renal impairment (full results to be presented at ADA), as well as our report on positive topline results from a phase 2 proof-of-concept trial in type 1 diabetes patients. Management spent much of its presentation reviewing these results, especially the proof-of-concept type 1 diabetes data, which demonstrated simultaneous reductions in A1c and bolus insulin requirements. The company expects to meet with the FDA in 2Q14 regarding phase 3 development for LX4211 in type 1 diabetes, which (depending on the outcome of those discussions) could begin by the end of the year. Phase 3 for type 2 diabetes continues to be gated by the search for a partner, which is now in its second year. Although management has increasingly suggested that Lexicon could handle phase 3 development for type 1 diabetes without a partner, we imagine that some partners might be interested in type 1 as well as type 2 diabetes programs (in the event of a dual partnership, Lexicon would likely maintain greater control for type 1 diabetes).

LX4211’s closest competition in the SGLT-1/2 dual inhibitor field is Novartis’ phase 2 LIK066, which has been slowly catching up to LX4211 during Lexicon’s protracted partnership discussions. However, we learned recently that Novartis withdrew a phase 2 study for LIK066 (read our Novartis 1Q14 Report), although the product still appears on the company pipeline.

Read on below for our top five highlights from the call, followed by selected Q&A.

Top Five Highlights

1. LX4211’s potential as a therapy for type 1 diabetes was the single biggest focus of the call. We learned today that the company expects to meet soon (in 2Q14) with the FDA regarding phase 3 planning for type 1 diabetes, and that phase 3 trials for that indication could begin by the end of the year (depending on the outcome of FDA discussions) without a partner. Although Lexicon’s efforts to push its type 1 diabetes program for LX4211 forward without a partner continue to pick up momentum, a partnership that covers LX4211 for type 1 diabetes as well as type 2 diabetes may not be completely out of the picture; in such a case, Lexicon would likely retain greater control over the type 1 diabetes program. Management continues to see type 1 diabetes as an area of significant unmet need and potential for LX4211 given the lack of oral therapies (or, for that matter, any pharmacotherapy beyond insulin) available to this patient population. As background, the 28-day phase 2 study in type 1 diabetes demonstrated a ~26% placebo-adjusted reduction in bolus insulin, a 0.49% placebo-adjusted decrease in A1c, significantly improved time-in-zone as measured by CGM, and a ~2.2 kg (~5 lb) placebo-adjusted weight benefit after four weeks of testing (read our report). Interest in the use of selective SGLT-2 inhibitors in type 1 diabetes (still off-label) has been on the rise in previous months – read our Clinical Diabetes Technology Meeting 2014 Full Report for our coverage of Dr. Anne Peters (University of Southern California, Los Angeles, CA) discussing that topic. The commercial opportunity in type 1 diabetes is smaller than that in type 2 diabetes, and we applaud Lexicon for expressing so much enthusiasm for this smaller patient population with such great unmet need.

2. The company once again provided no significant updates on its search for a partner for LX4211’s phase 3 development for type 2 diabetes, a process that is now in its second year. LX4211 is phase-3-ready for type 2 diabetes, so we would anticipate that studies would begin very shortly after a partnership was ironed out. According to management during Q&A, differentiation vs. selective SGLT-2 inhibitors (an increasingly crowded marketplace) remains a major area of interest for potential partners; management feels that the drug’s efficacy in the general diabetes patient population, its preserved efficacy and safety in type 2 diabetes patients with renal impairment (see below), and applicability in type 1 diabetes are all powerful differentiating factors. During Q&A, management commented specifically on the recent phase 2 data on Theracos’ SGLT-2 inhibitor THR1442 (read our report), suggesting that the candidate will likely have a difficult time differentiating itself in phase 3.

• Of course, given the immense cost of phase 3 development (including cardiovascular outcomes trials) for type 2 diabetes, we are not surprised that the company sees partnership as an absolute prerequisite. Given the exciting potential of SGLT inhibitor/DPP-4 inhibitor fixed-dose combinations, we would imagine that DPP-4 inhibitor manufacturers might be particularly interested. Takeda has a DPP-4 inhibitor (Nesina [alogliptin]) but no SGLT inhibitor, so we imagine that it is a prospective partner. Most of the other DPP-4 inhibitor manufacturers (including AZ, Lilly/BI, Merck, and Novartis) have SGLT-2 inhibitors (or in Novartis’ case, SGLT-1/2 dual inhibitors) on the market or in development. Interestingly, we noticed recently that Novartis has withdrawn a phase 2 study on its SGLT-1/2 dual inhibitor LIK066, which is the closest dual SGLT-1/2 inhibitor competition to LX4211, although the compound still appears on Novartis’ drug pipeline (read our Novartis 1Q14 Report for more details).

3. Lexicon will present detailed results from a phase 2 study investigating LX4211 in patients with renal impairment at this year’s upcoming ADA. See our JP Morgan 2014 Report for the company’s topline data disclosure from that trial, which demonstrated a 50-60 mg*hr/dl mean reduction in postprandial glucose in patients with mild or moderate renal impairment that did not appear to be correlated with patients’ degree of renal impairment. Given that the selective SGLT-2 inhibitors on the market (AZ’s Farxiga [dapagliflozin] and J&J’s Invokana [canagliflozin]) are either contraindicated or require dose adjustment in patients with mild to moderate renal impairment, preserved efficacy (due to SGLT-1 inhibition that is not dependent on renal function) and safety in this patient population would be a valuable differentiating factor for LX4211 and would serve a patient population with high unmet need. The type 1 diabetes proof-of-concept data was not ready in time for submission to ADA, and management suggested that it would be shared at a scientific meeting in 2015 (we are disappointed by the wait, but can see why Lexicon would be looking to make as big a splash as possible with that data).

4. The company confirmed previous guidance that IND-enabling studies for the selective SGLT-1 inhibitor LX2761 should be completed later this year. However, the company did reiterate its update from earlier this year that it is narrowing its focus on the late-stage development and commercialization of LX4211 and telotristat etiprate (read our report on that announcement), so we are not sure what Lexicon’s plans for clinical testing might be. We wonder if Lexicon could use LX2761 to sweeten the pot during partnership discussions for LX4211 in type 2 diabetes, although selective SGLT-1 inhibition is associated with worries of GI side effects.

5. On the financial front, Lexicon’s R&D spend in 1Q14 totaled $24 million, up from $20 million in 4Q13. The company ended 1Q14 with $98 million in cash and investments, down from $129 million at the end of 4Q13.

Questions and Answers

Q: Do you have any updates or feedback on partnership discussions?

A: Let me preface this by saying that we’re committed to taking LX4211 forward into phase 3 for type 1 diabetes subject to FDA feedback, which we expect shortly. We’re very enthusiastic regarding the opportunity for LX4211 in type 1 diabetes; it is an area with substantial unmet medical need that we believe LX4211 is well positioned to address, and an area with very few innovative new therapeutic options beyond insulin. Our view has been that we don’t have the practical ability to finance a full phase 3 program for type 2 diabetes except in the context of a partnership. We want to have a partner in place before launching a phase 3 program in that indication, which is not necessarily the case for type 1 diabetes. Our objective for a partnership that encompasses type 2 diabetes is to enable the achievement of our strategic objectives for type 1 diabetes while also enabling the progression of development in type 2 diabetes. The short answer is that we’re relatively far along the path towards partnership, and we’re at a stage where we can’t offer much additional comment.

Q: On potential competition to LX4211, a company called Theracos recently reported phase 2 data on an SGLT-2 inhibitor that showed no increase in genitourinary infections relative to placebo. Could you offer any commentary on that, especially given that they appear to be at the same stage of development as you guys?

A: The Theracos compound is again a selective SGLT-2 inhibitor. We have tremendous amounts of data on SGLT-2 inhibition. They have run some small studies, but we have data from large phase 3 studies of selective SGLT-2 inhibitors. We know pretty well from a safety standpoint what to anticipate in terms of genitourinary infections. I think another selective SGLT-2 inhibitor will have a very difficult time differentiating itself in any way. We are unique in being a dual inhibitor. It’s the SGLT-1 inhibition that allows us to differentiate ourselves in many ways, including renal impairment, the efficacy and safety benefit in the general type 2 population, combination with DPP-4 inhibitors due to synergy with the GLP-1 effect, and most recently as we showed today the unique effect we show relative to SGLT-2 selective inhibitors in type 1 diabetes. I don’t think they have anything in their compound that would lead us to believe that they would be able to differentiate themselves in any way.

Q: Could you comment on whether you think you will need a cardiovascular outcomes study, given the potential of LX4211 to potentially be used in type 2 and type 1 diabetes? What would you expect the cost of an outcomes study to be?

A: I can’t go into specifics so soon before an FDA meeting. That is one of the reasons why we are having our meeting, and why we are looking forward to it. I could say that, if you look at the guidance, the emphasis on cardiovascular outcomes data is really for type 2 diabetes, and in type 1 we see a large unmet need and a special opportunity to get the first pill approved for that indication.

Q: What data should we expect to see at ADA this year?

A: At ADA we plan to present an abstract on our renal impairment data. We made an announcement that we had positive results for LX4211 in type 2 diabetes patients with renal impairment, which is an important opportunity for us that differentiates us from selective SGLT-2 inhibitors. As far as the type 1 diabetes data, that came in after deadline for ADA abstract submissions, so it will likely be presented at a major meeting in 2015.

Q: On the partnership talks, could you share what have been some of the major areas of debate, given that talks have been going on for over a year. Have you seen a change in the way potential partners are looking at the diabetes space over that course of time?

A: I think that one of the key areas has been differentiation, and we’ve done a fair amount of work during these discussions to establish that differentiation. One element of that is the data in renal impairment. That work has been important because differentiation in the type 2 diabetes space is key for this product to be successful, and we believe we’ve established that well at this point. We’re also excited about the type 1 diabetes data, which we believe is demonstrative of the particular value of this compound’s mechanism. It is also something that is a significant opportunity to meet unmet medical need. It is an exciting commercial opportunity that has an impact on our partnership discussions as well.

Q: On the SGLT-2 market, we have a decent amount of data on the launches of Invokana and Forxiga. How has the market been growing relative to your expectations?

A: One of the questions about the SGLT-2 mechanism was how big an obstacle the genitourinary infections would be. I think that the Invokana launch helped answer the question that there is definitely a place for compounds in the SGLT-2 class. One of the things we see with our compound is that we are achieving results with much less urinary glucose excretion, and so we expect to have a differentiated safety profile with very positive efficacy in this patient population. That is the opportunity we see with our compound. We are encouraged by the market opportunity for LX4211.

Q: In terms of timing and FDA feedback for the phase 3 program in type 1 diabetes, do you have any update on that? Also, are you still estimating the cost of that trial at around $60-100 million?

A: We’ll have an interaction with the FDA scheduled for this quarter. We’re looking forward to that coming up soon. In terms of the cost of the program, it’s a little premature to say until we’ve met with the FDA and discussed the scope of the program.

Q: Is your pursuit of phase 3 for type 1 diabetes and partnership for type 2 diabetes on two parallel tracks at this point? What is the probability that those two paths will merge?

A: We’re still in discussions for partnership that would allow us to pursue both type 2 diabetes and type 1 diabetes. We don’t feel like partnership would be necessary in type 1 diabetes. We wouldn’t characterize the process as proceeding in separate tracks. 

Q: In the type 1 diabetes study, have you compared results between patients who were on basal-bolus therapy versus those who were on insulin pumps?

A: It’s a bit of a challenge, since there were only 16 patients in one arm and 17 in the other, to begin breaking up that study, but its something we’ll be interested in exploring in phase 3 with larger numbers.

Q: Are there any progress updates on the selective SGLT-1 inhibitor LX2761?

A: As we announced earlier this year, we are focused on the development of LX4211 and telotristat etiprate […] We are progressing LX2761, our locally acting SGLT-1 inhibitor that acts selectively in the GI tract. We will finish IND-enabling studies this year.

--by Manu Venkat and Kelly Close