In a move that Lexicon Pharmaceuticals Inc. chief Lonnel Coats said will focus the company on its phase II neuropathic pain program, The Woodlands, Texas-based venture has agreed to sell one of its two approved products, the carcinoid syndrome diarrhea therapy Xermelo (telotristat ethyl), to Tersera Therapeutics LLC for $159 million in cash. The transaction could be worth up to $224 million with milestones, plus royalties and will allow the company to significantly reduce its debt. The deal will help extend the company's runway through the now centrally important readout of phase II results in neuropathic pain toward the end of 2021. Lexicon's shares (NASDAQ:LXRX) rose 14.9% to $2 on July 30.

Sales of Xermelo, a medicine approved for use with somatostatin analogues (SSAs) when SSA therapy alone is inadequate, climbed to $9 million during the second quarter, up 21% vs. the prior-year period. Meanwhile, the company's R&D expenses climbed steeply to $57.3 million in the second quarter from a Q2 2019 total of $12.6 million. The change was primarily due to increases in external clinical development costs related to sotagliflozin subsequent to Sanofi SA's decision to terminate a diabetes alliance the pair had built around the product. Called a breach of contract by Lexicon at the time, a dispute about the decision eventually gave way to Sanofi paying Lexicon a $260 million settlement fee, the final $26 million of which is payable in September.

Lexicon was previously conducting a phase III development program for sotagliflozin in type 2 diabetes, heart failure and chronic kidney disease, but is now closing out those trials, it said in its latest regulatory filing. That work will lead to "meaningfully higher" R&D expenses in the third quarter, Jeff Wade, the company's executive vice president of corporate and administrative affairs and chief financial officer, said during Lexicon's July 30 earnings call.

Despite that decision "we are not giving up on type 1," said Coats, Lexicon's president and CEO. "So you can fully expect us to go back at it again, probably going into our fourth quarter, re-engaging the FDA on the type 1 program," he said.

Lexicon's second-quarter net loss of $69.1 million, or 65 cents per share, was nearly three times that of its year-ago second-quarter loss, which was $23 million, or 22 cents per share.

Amid what Coats called "unprecedented times of the COVID-19 pandemic," the Xermelo sale will bring the company fresh cash to add to its current treasury of about $202 million and provide further employment for at least 20 Lexicon employees currently dedicated to the product. Tersera has also agreed to assume the ongoing phase II trial of the drug in biliary tract cancer, called TELE-ABC.

The transaction, expected to close next quarter, will also enable Lexicon to fully repay its $150 million secured term loan.

Xermelo is approved in the U.S., EU and certain additional countries. Lexicon’s other product, (sotagliflozin), branded Zynquista, has been less evenly received. It's approved in the EU for use as an adjunct to insulin therapy to improve glycemic control in certain adults with type 1 diabetes who could not achieve adequate glycemic control despite optimal insulin therapy. The FDA, however, has rebuffed the company's attempts to secure U.S. approval, issuing a complete response letter and denying two appeals by the company.

Pain-free days ahead?

Lexicon's turning of the page brings it to a chapter focused on a candidate about which "we are extremely excited," Wade said. The drug, LX-9211, is an oral, small-molecule inhibitor of adaptor-protein-2-associated kinase, or AAK1, intended for the treatment of neuropathic pain, starting with diabetic peripheral neuropathic pain (DPNP), the focus of the company's phase II RELIEF-DPN-1 study. Screening is already underway for the randomized, placebo-controlled study, which is expected to enroll about 300 DPNP patients at 30 U.S. sites. Data from the program are expected toward the end of 2021.

There are four approved therapies for DPNP, including Cymbalta (duloxetine), pregabalin and a capsaicin dermal patch. But AAK1, a target Lexicon discovered and characterized as part of an alliance with Bristol Myers Squibb Co., could be the key to providing what Wade called "a novel opioid-independent mechanism of action, an excellent safety profile and ease of use with once-daily dosing." Lexicon holds exclusive development and commercialization rights for the candidate.

In addition to the many changes disclosed Thursday, Lexicon has plenty of other efforts underway. For one, its team is looking at other areas of neuropathic pain for further proof-of-concept studies. They also have "a whole line of products that are what we call a 103X project that we're looking in the areas of fibrosis and NASH, that we'll have much more to say about in the coming year," Coats said. Finally, "we have some early stage work that we're doing in the med-chem space, also in the metabolic area, where we think we have a very interesting and novel approach should we be successful with the med-chem."

As Coats put it, "there's a lot more we have to say."

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