Our bullish view on potential sales of the first drug of this development-stage biotech is balanced by the expected ramp-up in operating expenses in 2017.
By Karen Andersen, CFA | 03-06-17 | 01:28 PM | Email Article

We’re maintaining our $21 per share fair value estimate for  Lexicon  following full-year 2016 results, as our bullish view on potential sales of Lexicon’s first drug is balanced by the expected ramp-up in operating expenses in 2017. Lexicon’s first drug, Xermelo (telotristat ethyl) was approved in late February by the FDA as a first-in-class treatment for carcinoid syndrome, and we think U.S. market potential (among patients no longer responding to standard somatostatin therapy) could be above $400 million (pricing around $5,000 a month is in line with our estimates). We think this no-moat, development-stage biotech is on its way to building competitive advantages, and assign it a positive moat trend.

Karen Andersen, CFA, is a healthcare strategist for Morningstar.

Sotagliflozin is still the biggest value driver for the firm, however, and we expect detailed data from the first two phase 3 studies in Type 1 diabetes to be presented midyear and give us more of an indication of how differentiated the drug could be from its marketed SGLT2 inhibitor counterparts, particularly in areas like blood pressure lowering and side effects. We now expect sotagliflozin to be filed with regulators in early 2018 and reach the market in 2019, with U.S. sales potential of around $1.5 billion in Type 1 diabetes alone (Lexicon will receive a 30%-40% royalty from partner Sanofi). Sanofi also began phase 3 studies in Type 2 diabetes in late 2016.

Lexicon’s pipeline is also beginning to expand; a phase 1 study of SGLT1 inhibitor LX2761 in Type 2 diabetes began earlier this year, and the drug could bypass some of the side effects related to urinary glucose excretion (infections) seen with SGLT2 inhibitors. We expect Sanofi could choose to add this drug to their partnership if early data support a differentiated profile. Lexicon also plans to start a phase 1 trial for LX9211 in neuropathic pain this year; the drug was part of a partnership with Bristol, and Lexicon acquired full rights last fall.

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Karen Andersen, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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