Mohammed Haneefa Nizamudeen
It’s been an fascinating few months for Lexicon Prescribed drugs (NASDAQ:LXRX) since I final wrote about this small, commercialization-stage biotech. Whereas the share value fell beneath $1 on a number of events, elevated optimism across the firm’s efforts to get its lead drug Inpefa onto formularies and see significant development in prescriptions has helped the inventory achieve again sufficient floor to be roughly flat with the place it was on the time of that final article.
The controversy round Lexicon actually hasn’t modified – whereas Inpefa has demonstrated spectacular medical ends in sufferers with congestive coronary heart failure (arguably superior to rivals like AstraZeneca‘s (AZN) Farxiga and Eli Lilly (LLY) / Boehringer Ingelheim‘s Jardiance), it stays to be seen if this late entrant into the market can achieve significant share and construct a income base giant sufficient to drive the corporate to profitability. It’s just too quickly to say from a reported prescriptions foundation, although the corporate has undoubtedly made some high-profile progress on reimbursement/formulary inclusion.
I imagine the chance in coronary heart failure can help a good worth of round $3/share, whereas LX9211 is price one other $1/share or so. That’s considerably larger than at the moment’s value round $1.80, however I once more warning readers that business failure could be very a lot a attainable consequence and that is certainly not a “cash for nothing” form of proposition.
Bringing Payors On Board
As of the corporate’s presentation at a significant sell-side convention earlier in January, the corporate now has protection/reimbursement agreements in place with insurers representing 42% of lined lives in the US. Amongst these are Cigna Group‘s (CI) Specific Scripts, the biggest pharmacy advantages supervisor within the nation, which has listed Inpefa on each its fundamental and high-performance formularies for business insurance coverage purchasers and as a most popular product on its Medicare formularies (primarily which means decrease out-of-pocket prices for sufferers).
To be trustworthy, there are too few comparable corporations to Lexicon to pretty gauge this course of. I can identify another commercial-stage biotechs that noticed sooner protection adoption, however in lots of circumstances these had been rarer illnesses with fewer therapy choices. In any case, I might argue that 40%+plus protection in roughly seven months of economic availability is okay however not excellent.
It does stay to be seen what inclusion on Specific Scripts’ lists will value the corporate. It’s not precisely a secret that Specific Scripts (and different PBMs) provide a fairly easy deal to drug corporations – give us a significant low cost and also you’ll be our most popular decide – however the particulars of those agreements are stored extremely confidential. Reductions of greater than 50% aren’t extraordinary, and I wouldn’t be in any respect stunned if the quantity right here had been within the ballpark of 30%.
Nonetheless, given a 90%-plus gross margin and the necessity to achieve share and construct a income base that may help ongoing advertising efforts (and the event of the pipeline), I don’t suppose that is actually an issue. Whereas I do imagine that Inpefa is superior to its rivals in not less than some respects, the fact is that its rivals are far bigger and have had extra time in the marketplace, making the “increase” from most popular standing with insurers all of the extra necessary.
Price Efficacy Information Gained’t Harm
Again in mid-October, two research had been introduced concerning the associated fee efficacy of Inpefa versus the usual of care in coronary heart failure. As you may count on, the inclusion of Inpefa elevated the general value of care, however with a 0.425 enchancment in High quality-Adjusted Life Years (or QALY), the incremental value of together with Inpefa was below $46,000 – nicely throughout the threshold (typically $100K to $150K) of what’s normally thought-about an economical new remedy.
After all, traders ought to take this with not less than a number of grains of salt. An earlier research of Inpefa demonstrated a decrease QALY (0.39) and better value (round $75,000), however that’s nonetheless a strong consequence. I’d additionally be aware that the QALY’s seen with Inpefa are comparatively fairly good – different research I’ve seen that checked out Jardiance and Farxiga calculated QALYs of 0.13 ranging to 0.23 and accordingly larger (worse) values for the incremental value.
Lots of the profit to Inpefa appears to return from the lowered incidence of hospitalization (together with pressing visits), and that is smart – hospital care, significantly in an emergency division setting is notoriously costly. If real-world expertise tracks these early papers (and imagine me, insurers observe these information rigorously), over time the argument for Inpefa might change into compelling sufficient for insurers to extra aggressively push the usage of this drug over its rivals.
By the identical token, although, it’s nicely price remembering that Lexicon will see a few of these competing medicine lose patent safety within the coming years and the doorway of generic choices will change the maths on the comparative worth moderately considerably. Likewise, elevated use of GLP-1 medicine might alter the long-term panorama for coronary heart failure care, as these medicine do seem to have significant advantages right here as nicely.
Alternatives Exterior Of Inpefa In Coronary heart Failure Nonetheless Rely For One thing
Inpefa‘s business potential in coronary heart failure is way and away an important contributor to Lexicon’s worth, but it surely’s not the one one.
Lexicon enrolled its first sufferers into its Part IIb PROGRESS research of LX9211 in diabetic peripheral neuropathic ache (or DPNP) again in late November, and this dosing research ought to facilitate a Part III program. I do have some considerations that the placebo-adjusted reductions in Common Every day Ache Rating (or ADPS) weren’t all that spectacular (0.67pts in the very best group versus 0.8 to 1.2 pts in trials for Lyrica and Cymbalta), however cross-trial comparisons are difficult and I believe there’s sufficient proof of efficacy right here to make additional medical research worthwhile, particularly as a profitable product could possibly be price greater than $600M (and maybe meaningfully extra).
Lexicon administration additionally knowledgeable traders that it had paused proceedings towards the FDA associated to its refusal to approve sotagliflozin (the chemical identify of Inpefa) for Kind 1 diabetes in lieu of discussions (that are underway) a few potential path ahead. As a reminder, whereas sotagliflozin demonstrated good efficacy in glucose management for Kind 1 diabetics (for whom there are just about no pharmaceutical choices outdoors of insulin), the FDA flatly refused to approve sotagliflozin (or another drug within the class) attributable to considerations about diabetic ketoacidosis.
I felt then, and nonetheless really feel now, that these considerations had been overblown and could possibly be handled by way of affected person schooling and monitoring. Whether or not this truly results in approval is one other query, as I’d be stunned if the FDA relents with something lower than one other medical research. Advertising sotagliflozin to the Kind 1 affected person group shall be an costly endeavor (significantly because the Inpefa advertising effort focuses on hospitals and never GP’s/FP’s or endocrinologists), however that’s a bridge that may be crossed later.
The Outlook
I’ve made some changes to my mannequin to account for modestly totally different pricing assumptions for Inpefa, the timing of LX9211 medical growth, and Lexicon’s still-growing share depend. The web influence is a discount in my truthful worth estimate from $5 to a little bit greater than $4/share, however each 1% of added CHF market share provides about $0.30/share in incremental worth, and there’s nonetheless worth available if LX9211 succeeds and/or if the corporate ultimately wins approval to market sotagliflozin for Kind 1 diabetes.
At this level I nonetheless suppose Inpefa could possibly be a $500M to $600M a 12 months drug, however there’s clearly loads of work to do between the $0.2M logged in Q3’23, the $3.9M or so anticipated in This autumn’23 (sell-side common estimate), the $46M anticipated in 2024 (once more, common sell-side estimate), and so forth. I wish to see additional progress in getting the drug added to formularies, and I wish to see proof of not simply significant development in prescriptions, but in addition significant absolute numbers (100% development off a small quantity continues to be a small quantity).
The Backside Line
I nonetheless regard Lexicon as an organization and funding with lots to show. The observe file right here just isn’t significantly good – the business launch of Xermelo was mainly a failure and for my part administration has a observe file of overstating the progress and potential of the enterprise (long-term traders/followers might bear in mind the conversations had about potential companions for sotagliflozin and the way a partnership was seemingly at all times simply across the nook).
Nonetheless, Inpefa is an actual drug addressing an actual (and significant) market alternative. I can’t say that this inventory is appropriate for traders who can’t settle for nicely above-average dangers, however for these keen to take the danger, the cost-benefit calculus round Inpefa might but drive higher returns.
