West Coast Editor

Lexicon Pharmaceuticals Inc.'s reach for the brass ring has grabbed a pair of deals worth $265 million this year and potentially much more in the years ahead, which means an extended ride for the firm's first three drug candidates - but the unrelated arrangements allow for "a full-court press for all of our drug programs at every stage," Arthur Sands, president and CEO of Lexicon, told BioWorld Today.

Invus Group LLC is investing $205 million this year, and could contribute as much as $345 million more during the next four years. A separate arrangement with Symphony Capital Partners LP focuses specifically on product development, and involves $45 million up front, along with $15 million of equity capital for Lexicon.

The firm's board has approved the deal with Invus, in which the latter got warrants to buy 16.5 million shares of Lexicon common stock for $3.09 each, the 10-day volume weighted average as of June 14. Lexicon's shares (NASDAQ:LXRX) closed Monday at $3.32, up 24 cents.

With the nod from stockholders (expected in August or September), Invus also will buy about 34.3 million additional shares at $4.50 each, a 46 percent premium over last Friday's closing price, giving the company 40 percent ownership of Lexicon.

New York-based Invus will put three members on Lexicon's board of directors, which will be expanded from eight to 11 seats. Invus can require Lexicon to initiate up to two rights offerings, which would provide all shareholders with pro rata rights to buy more stock worth up to $345 million. The first offering may be started 27 months from the closing of the first investment, and the second could start 12 months after the first, or 39 months from the initial investment if the first offering doesn't happen.

After 27 months, Sands explained, "we're going to be encouraged to raise additional capital, and the target amount is $172.5 million. If it doesn't happen, that triggers the rights-offering mechanism." Should Lexicon raise, for example, $100 million through a public offering during the period, the amount could be subtracted from the $172.5 million, he said. "We're incentivized to raise money above $4.50 per share."

The rights offering, more common in Europe than the U.S., "allows for long-term shareholders to assure they can maintain their ownership" and amounts to a fair deal all around, Sands said.

In the deal with Symphony, also of New York, $45 million has been put into Symphony Icon Inc., a new company established to hold the licenses for intellectual property behind Lexicon's first three product candidates, and $15 million more went directly to Lexicon for general corporate purposes.

The compounds, developed by way of Lexicon's gene knockout technology, are LX6171 for cognitive disorders, which is finishing Phase Ib trials; LX1031 for irritable bowel syndrome, also in Phase 1b; and LX1032 for gastrointestinal disorders, still at the preclinical stage. Symphony Icon has retained RRD International LLC, a regulatory and clinical development advisory group based in Rockville, Md., to serve as the management team, though The Woodlands, Texas-based Lexicon will continue to lead the development of the drugs.

LX6171 inhibits a novel membrane protein that is expressed only in the central nervous system, and could work in such conditions as Alzheimer's disease, schizophrenia and vascular dementia. LX1031 reduces peripheral serotonin, and LX1032 modulates the same target for gastrointestinal disorders.

"We have an option to buy back the Symphony program at predefined times for predefined amounts," Sands said. "That's our intent, because we believe they will be successful." Those buyback time points fall within the period of money raising through the deal with Invus, which has been a Lexicon shareholder for about two years.

In January, the firm changed its name from Lexicon Genetics Inc. and disclosed plans to get 10 drugs into the clinic by the end of 2010, laying off 133 employees, a move that left Lexicon with 592. (See BioWorld Today, Jan. 31, 2007.)

Lexicon said at the time that the Genome5000 program, which explores the physiological functions of 5,000 possible drug targets - working at a rate of about 1,000 genes annually - would be winding down.

Brian Zambrowicz, Lexicon's chief scientific officer, said the Genome5000 is on track. "It's still active," he told BioWorld Today. Functions of about 4,100 genes have been analyzed so far, and that number will reach 4,500 by the end of this year, Zambrowicz said.

Lexicon's partners include such names as Bristol-Myers Squibb Co., Genentech Inc., N.V. Organon and Takeda Pharmaceutical Co. Ltd., and partnering remains a major aspect of the business plan, Sands said.

"We're going to be moving downstream with our partnerships, looking at Phase I and Phase II data," he said, noting that the strength of the two deals will provide for a level playing field in negotiating. "The goal would be to emphasize drug development for our internal pipeline and in our partnerships, and we'll be de-emphasizing discovery-based partnerships, where we've been quite successful."

With new money coming in, Sands said, Lexicon is positioned to execute its plans through 2012.