Lexicon Pharmaceuticals Inc said its chief executive would leave and it would cut its workforce by about 45 percent, as it moves its focus away from drug discovery to completing the studies of its drugs in late-stage development.
Lexicon shares, which have lost about 15 percent of their value last year, fell as much as 7.5 percent to $1.85 on the Nasdaq in early trading on Monday.
The company said Arthur Sands, CEO since 1995 and a co-founder, intends to develop a succession plan with the board. He will continue in his position until a successor is appointed.
Analysts said Sands might have been perceived as more of a scientist who would not be able to lead the company into a commercial launch of the late-stage drugs.
"I think Arthur Sands could have easily done the transition to commercial, but possibly the board felt they wanted someone with direct commercial experience", Wedbush analyst Liana Moussatos said.
Lexicon said it would cut 115 jobs, primarily positions in research and discovery, to reduce costs.
The company said it would focus mainly on its drugs to treat diabetes and carcinoid syndrome, a condition which affects some people with a rare cancerous tumor.
"Most of the value of the company is wrapped up in these late-stage drugs," Morningstar analyst Karen Andersen said. "It makes sense to focus on what investors are really looking at."
Lexicon said it expects to lower expenses by about $14 million, net of severance costs and some other charges, for the rest of 2014. It expects to save about $22 million annually.
"This could give them an extra two to three quarters of cash," Moussatos said.
The company had $151.2 million in cash and investments as of September 30 last year.
Andersen said Lexicon needed to conserve cash while it looked for a partner to fund the development of its diabetes drug.
"In order to do a comprehensive diabetes program, it takes hundreds of millions of dollars, which is more than Lexicon can afford right now," she said.
The company is testing two other drugs in mid-stage trials to treat irritable bowel syndrome and rheumatoid arthritis. It also has a glaucoma drug in early-stage development.
Moussatos said that Lexicon could license the development of the drugs to other pharmaceutical companies.
Lexicon has drug discovery agreements with Bristol-Myers Squibb Co, Roche Holding AG's unit Genentech and Takeda Pharmaceutical Co Ltd.
Lexicon shares, which once traded above $40, were down 4.5 percent at $1.91.