Is This Lexicon Pharmaceuticals' Year?

By Markets Fool.com

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Lexicon Pharmaceuticals (NASDAQ: LXRX)could have its first commercial drug on the market before the end of 2016, and based on recent study results, it may soon have a drug on the market that can help keep type 1 diabetes in check. Both events could mean that meaningful sales for this company are right around the corner, so let's take a closer look at what's going on.

Delivering an improvement

Last December, Lexicon Pharmaceuticalsannounced positive results from a second phase 3 trial of telotristat etiprate in patients suffering from carcinoid syndrome, a rare condition.

In patients experiencing symptoms, including diarrhea,caused by excess serotonin production in metastatic neuroendocrine tumors that have spread from the gastrointestinal tract, telotristat etriprate was statistically better than a placebo at reducing symptoms. Specifically, the telotristat etiprate cohorts showed a statistically significant reduction in daily bowel movement frequency over 12 weeks, suggesting this drug may offer a new alternative to patients who fail to respond to current standard of care.

Currently, patients with carcinoid syndrome are treated with somatostatin analog therapy, or SSA, but within 24 months of initiating this therapy, 56% of patients respond to treatmentinadequately.

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The FDA will issue its go/no-go decision on telotristat etiprate on Nov. 30, and if it awards the drug a green light, then Lexicon Pharmaceuticals could begin generating revenue from it next year. While Idon't think this drug will be a blockbuster, it could still move the needle because Lexicon Pharmaceuticals has retained rights to it in the U.S. and Japan.

A U.S. approval could also lead to approval in other markets, where the drug will be sold by Ipsen.Previously, Ipsen agreed to pay Lexicon Pharmaceuticals up to $127 million in milestones, plus royalties on net sales between low 20% and mid 30%.

Targeting a massive market

In addition to telotristat etiprate, Lexicon Pharmaceuticals recently delivered solid phase 3 study results for sotagliflozin, a drug that could improve diabetes treatment.

Sotagliflozin inhibits glucose transport proteins SGLT1 and SGLT2, and last week, the company reported that it successfully lowered HbA1c, a form of hemoglobin whose levels are related to blood glucose concentrations, in a 793-patient study of type 1 diabetes patients.

Sotagliflozin works by reducing reabsorption of glucose in the kidneys and the GI tract, and patients receiving a daily 200 mg dose alongside optimized insulin saw their HbA1c levels drop 0.43% versus baseline. That was statistically and significantly better than the 0.08% reduction witnessed in patients taking a placebo. Patients receiving a 400 mg dose experienced an average 0.49% reduction in HbA1c levels.

If these results are backed up by a second trial that's expected to deliver results by year-end, then sotagliflozin has a chance at being the first FDA-approved therapy that targets both SGLT1 and SGLT2. Currently, treatments that target SGLT2 that are on the market include Johnson & Johnson's Invokana, which generated $383 million in second-quarter sales, up 20.4% year over year.

Sotagliflozin's performance in type 1 diabetes patients is particularly intriguing because it could suggest it will be effective in type 2 patients, too. There are about 1.25 million Americans with type 1 diabetes and over 29 million Americans with type 2 diabetes.

The responsibility for researching sotagliflozin potential in type 2 diabetes rests on sotagliflozin's co-developer,Sanofi SA (NYSE: SNY). Sanofi secured global rights to the drug for use in type 2 diabetes patients last year, and it plans to initiate phase 3 trials for the treatment before year-end. Sanofi has also acquired ex-U.S. rights to sotagliflozin for use in type 1 diabetes patients, Overall, Sanofi paid Lexicon Pharmaceuticals$300 million up front, plus a potential $1.4 billion in milestones and double-digit royalties on net sales.

Looking ahead

There's no guarantee that the FDA will approvetelotristat etriprate or that sotagliflozin's second type 1 diabetes trial will pan out. There's also no guarantee that Sanofi's research for the drug's application in type 2 diabetes will bear fruit.

Nevertheless, Lexicon Pharmaceuticals' balance sheet boasts more than $425 million in cash, and that gives the company a lot of financial firepower to commercialize telotristat etriprate in the U.S. and to advance sotagliflozin to market. Since Lexicon Pharmaceuticals has strong partners in Ipsen and Sanofi SA, I think there's a good shot that both of these drugs could be successes someday.

Obviously, these drugs will need to get across the finish line first, but overall, I think this is an intriguing stock for risk-tolerant investors to consider owning -- especially given this year's catalysts.

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Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.

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