Lexicon Pharmaceuticals (LXRX)

Summary

Overview: $LXRX is a stock that appears to have found a comfortable support level at $0.66, with a maximum potential downside of $0.62. With expected upcoming catalysts related to the publication of Phase 2b topline data for the company's novel LX9211 drug, this offers the opportunity for an attractive safe investment with low downside and high potential upside.

Upcoming catalyst: Lexicon Pharmaceuticals began enrollment for their Phase 2b study of LX9211 on November 26th 2024. Given that topline data is typically published at least 12 weeks onwards, we can expect topline results to be published between the 18th February and mid-March 2025.

The market has shown a history of reacting positively to previous data readouts, meaning that we can expect the same for Phase 2b readout; although, possibly at a larger scale. This is because Phase 2 results tend to have a 4x greater impact than Phase 1 results.

Low immediate dilution risk: Lexicon Pharmaceuticals has $268,000,000 in total assets, providing them with an extended cash runway of just over a year based on a burn rate of around $200,000,000. Consequently, we believe that there is currently a relatively low risk of dilution.

Commercial licensing deal: $LXRX experienced a significant price depreciation in recent months, caused by an FDA ruling that the risks of their primary Sotagliflozin drug do not exceed the benefits. Despite this, the drug still continues to be marketed outside Europe, where revenues have increased year-on-year. Moreover, the drug continues to be used for those with heart failure under the brand-name"Inpefa" . Similarly, a $25,000,000 licensing deal was struck with distributor Viatris towards the end of 2024. Consequently, we believe that the depreciation caused by the FDA ruling was largely an overreaction, and news relating to the topline data readout should trigger a significant correction.

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RISK WARNING: Lexicon Pharmaceuticals has a relatively large float of 346,270,000, which may be too large for some investors interested in playing penny stocks. Whilst we usually target low-float stocks, in consideration of other factors, we do not view this as a major concern, especially given the large institutional ownership.

Abstract

This due-diligence report is a research project compiled by affiliates of Montgolfier Stocks. Our aim is to provide free and high quality, in-depth, and sourced analysis on potentially grossly undervalued stocks. We aim to be completely transparent in our activities and research, so feel free to ask any questions and pose any criticisms. We view peer review as essential.

This report serves as a hub of information on this potential play, which readers can use to inform their decision making. We strongly encourage all readers to conduct their own due-diligence before making an investment decision. This report is solely for educational purposes. We take no guarantee over accuracy.

1. Introduction

Lexicon Pharmaceuticals ($LXRX) presents a compelling investment opportunity with limited downside and significant upside potential. The stock has established a stable support level at $0.66, with a minimal downside risk to $0.62. Anticipation is building around the upcoming Phase 2b topline data for its novel drug, LX9211, expected between mid-February and mid-March 2025.

Given the market's historically positive reaction to previous data readouts and the higher impact of Phase 2 results, a strong catalyst-driven rally could be imminent. With a solid cash runway of over a year and a recent $25 million licensing deal with Viatris for its Sotagliflozin drug, $LXRX stands poised for a potential rebound, making it an attractive choice for investors seeking high reward with manageable risk.

2. Catalysts

2.1 LX9211 Overview & Market Potential

What is LX9211?

LX9211 is an investigational, non-opioid pain treatment developed by Lexicon Pharmaceuticals. It targets adaptor-associated kinase 1 (AAK1) to reduce neuropathic pain, particularly diabetic peripheral neuropathic pain (DPNP). This is a market with no known cure.

Why is LX9211 important?

• Provides a non-opioid alternative for chronic pain
• Demonstrated statistically significant pain reduction in a previous Phase I study
• Addresses diabetic neuropathy, which is a growing medical challenge

Market Size & Growth Potential

• The diabetic neuropathy market was $4.2B in 2023 and is projected to hit $8B by 2033 (CAGR 6.6%)
• The DPNP market alone was $2.9B in 2023, expected to reach $5.4B by 2034 (CAGR 5.74%)
• There is a large and expanding market with strong demand for new treatments like LX9211

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MARKET COMPARISONS: In December 2023, VRTX, a $100B+ market-cap company announced their Phase 2 results for a drug targeting a similar line of DPNP. Following the 8K, the share-price rose, adding billions of dollars in total market cap value. This contributes to our thesis that LX9211 is a very important investigational drug, and that the Phase 2 data readout will serve as a catalyst for an appreciation in the share-price.

2.2 LX9211 Phase 2b Topline Data

On November 26th 2024, Lexicon Pharmaceuticals announced the completion of enrollment for the Phase 2b study of its mainline LX9211 drug (to treat neuropathic pain) after exceeding enrollment targets by 20%. Similarly, they announced that they expect topline data to be published in Q1 2025.

According to Lexicon's corporate presentation on the LX9211 study, Phase 2b is planned to last a total of 14 weeks (2 weeks run-in, 8 week treatment, 4 week safety follow-up).

Consequently, we could expect publication as early as the 18th February 2025 (12 weeks on from November 26th). 14 weeks would suggest publication on March 4, 2025. The absolute latest date for topline data results publication would be the end of March (end of Q1 25), assuming no unexpected delay announcements from the Company.

2.3 Previous LX9211 Catalysts — Trend Data

2.4 Significance of Phase 2b Data

According to a report by IQVIA, Phase 2 results tend to have a "4x greater impact on stock price than Phase 1", and that "a positive Phase 2 result represents a major value inflection point as investors firm up their views on an asset's future prospects" .

If results significantly exceed expectations, larger market reactions are possible. As the share-price rose 40% upon Phase 1 topline data readout in 2019, we can now expect a proportionally larger reaction because:

• The company is commercially active, selling drugs as of Q4 2024
• The company will report Phase 2b topline data, which already shows promising results
• The share-price is currently severely depressed, meaning any positive news may cause a significant gap-up

3. Market Analysis

3.1 $LXRX 1-Year Chart Review

We believe that a stable wedge has been formed since early December 2024, as the share price has always closed above the 52 week low of $0.62. The retest of $0.66 on February 12th appears to confirm support level and may provide an attractive entry point. We believe the stock will ultimately hold above $0.62 ahead of the LX9211 catalyst.

The stock fell rapidly in November when the Company announced Sotagliflozin for diabetes patients did not receive FDA approval. HOWEVER, the same product rebranded as Inpefa did receive approval, and achieved a licensing agreement with a major distributor just a few months ago.

3.2 Analyst Coverage

There are 5 analysts covering $LXRX — 4 buy, 1 hold. The average price target is $5.07, representing a 624% upside potential.

3.3 Key Takeaways

We believe the stock has a solid base at or above $0.62. We believe that the sell-off in early Q4 2024 was an overreaction, making the current share-price attractive to build a position in, in advance of the major LX9211 topline-results catalyst. Analysts covering LXRX share similar sentiment, believing that there is strong upside potential share-price, with an average price target of $5.07.

4. Company Financials

4.1 Cash Position

Lexicon Pharmaceuticals shows strong financial strength, with $268,606,000 held in assets. This includes $25,000,000 received in a licensing agreement signed in Q4 2024 with Viatris for distribution of Lexicon'sSotagliflozin drug.

Notably, the book value of this stock is $0.49, and their net cash per share is $0.42. Given that companies tend to trade above these values, we believe this further confirms that the stock will hold at or above the current ~$0.62 trading range.

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RISK WARNING: This evaluation is speculative, and we cannot guarantee that the share price will continue trading above $0.62.

4.2 Burn Rate & Dilution

The total burn rate for the last 12 months was $207,000,000. This means that as of September 30th 2024, the company had a total cash runway of just over a year. Consequently, we view the risk of dilution in the short-term as unlikely, especially at the current trading price where the company will be less incentivized to raise money at.

Burn is expected to reduce in 2025, caused by the strategic repositioning explored in chapter 5, meaning that the cash runway is likely to be longer.

4.3 Revenue

Total revenue has increased dramatically over the past year. Whilst from year-to-date September 30 2024, there was only $438,000, revenues have since increased 916.21% to $4,527,000 in the same time period.

Moreover, revenues will likely have increased again, driven by growth from the Inpefa/"Sotagliflozin"licensing agreement. Consequently, Q4 earnings could also be a catalyst for a share-price appreciation, although our primary thesis is that the catalyst will be related to the clinical topline results of LX9211 Phase 2b — which is to be expected in the next few weeks.

5. Management Activity

5.1 New CEO, CFO, and Board Member

Chief Financial Officer Appointment: Effective January 2, 2025, Scott Coiante joined Lexicon as Senior Vice President and Chief Financial Officer. Mr. Coiante has over 35 years of experience in the life sciences and pharmaceutical industries, previously holding senior financial positions at Agile Therapeutics and Aprea Therapeutics.

Chief Executive Officer Appointment: In July 2024, Mike Exton, Ph.D., was appointed as the new Chief Executive Officer and Director, succeeding Lonnel Coats upon his retirement. Dr. Exton brings extensive experience from his tenure at Novartis, where he led the global cardiometabolic therapeutic area.

Board of Directors change: In November 2024, Ivan H. Cheung was elected to Lexicon's Board of Directors. Mr. Cheung is a biopharmaceutical executive with over 25 years of experience and currently serves as the CEO of NextPoint Therapeutics.

5.2 Strategic Restructuring

In November 2024, they reduced staff by 60%, and shifted company focus exclusively to its research pipeline (LX9211). We believe this means the Company is doubling down on both the validity and potential impact of their development-stage drugs. This move is expected to save $140M in 2025, further reducing concerns about immediate dilution.

5.3 Key Takeaways

The new management has a successful track record and particular experience in mergers and acquisitions. The new hires also demonstrate the strong strategic shift towards research & development. We believe that these two factors could indicate that Lexicon Pharmaceuticals may be positioning for a buyout, which could be another potential catalyst.

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ADDED RISK WARNING: This takeaway is very speculative, and like all other statements, is only our personal evaluation.

6. Report Summary

LX9211 Summary

Lexicon Pharmaceuticals' investigational drug, LX9211, represents a significant opportunity in the multi-billion-dollar diabetic peripheral neuropathic pain (DPNP) market. With no known cure for DPNP,LX9211's potential as a non-opioid pain treatment aligns with growing demand for alternative therapies. The diabetic neuropathy market is expected to grow from $4.2B in 2023 to $8B by 2033, reinforcing the commercial viability of LX9211.

Historically, Lexicon's share price has reacted strongly to positive clinical data releases, with prior catalysts leading to 40-50% stock price appreciation. The upcoming Phase 2b topline data, expected between February 18 and March 4, 2025, but no later than Q1 2025, represents a critical inflection point. According to IQVIA research, Phase 2 results tend to have four times the impact on stock valuation compared to Phase 1 data.

Market Analysis & Stock Performance

Technical indicators suggest a stable base above $0.62, with a recent retest of $0.68 confirming support. The stock suffered a sharp decline in Q4 2024 due to the FDA rejection of Lexicon's diabetes drug, Sotagliflozin. However, the drug continues to be sold under the brand name Inpefa and remains a commercial asset under a $25M licensing agreement with Viatris. Analysts covering Lexicon Pharmaceuticals remain bullish, with an average price target of $5.07, representing a 624% upside potential.

Financials & Growth Potential

Lexicon maintains a strong financial position, with $268.6M in assets and a net cash per share of $0.42. Thecompany's burn rate of $207M over the past 12 months implies a cash runway exceeding one year, reducing the likelihood of immediate dilution. Furthermore, revenue has surged 916% year-over-year, from $438K to $4.53M, largely driven by the Sotagliflozin licensing agreement.

Management & Strategic Direction

Lexicon's leadership underwent significant changes in 2024, with the appointment of CEO Mike Exton, CFO Scott Coiante, and board member Ivan H. Cheung. The company's strategic restructuring, which included a 60% workforce reduction, signals a focused commitment to LX9211's clinical development. This move is projected to save $140M in 2025, further extending the financial runway.

Conclusion & Potential Catalysts

Lexicon Pharmaceuticals is at a crucial turning point, with the upcoming Phase 2b topline data serving as the primary catalyst. If the results significantly exceed expectations, the stock could experience substantial appreciation, particularly given its currently depressed valuation. The potential for a buyout, given the newmanagement's strong background in M&A, adds another speculative layer to the investment thesis.

However, as with any clinical-stage biotech investment, inherent risks remain, and all evaluations presented in this report should be considered speculative in nature. This is not financial advice. You are to make your own decisions and should conduct your own research.

About Us

Montgolfier Stocks — Semper Sursum (Always Upward)

At Montgolfier Stocks, our mission is to uncover undervalued companies on the verge of transformative growth. Inspired by the pioneering spirit of the Montgolfier brothers—who soared when others stayed grounded—we conduct rigorous, in-depth research to spotlight hidden gems poised for major catalysts. By sharing our findings ahead of crucial market moments, we empower you with compelling information to explore new opportunities.