With the stock trading up 86% in the last 12 months, Lexicon Pharmaceuticals (LXRX 1.48%) shareholders could be in for a treat, assuming they can handle just a touch of near-term volatility. As of May 26, regulators at the U.S. Food and Drug Administration (FDA) approved its medicine Inpefa to treat heart failure. Now the company just needs to actually commercialize the drug and get cardiologists to start prescribing the once-per-day pill to patients. But on June 1, Lexicon's stock price stumbled by 20% despite jumping by 13% during the prior day. What gives?
Let's figure it out and analyze whether Lexicon stock could be a good option for your portfolio along the way.
Cash must flow
Lexicon's stock took a tumble because management announced that the company planned to issue additional shares in a public offering that is projected to bring in around $62.2 million in proceeds. Lexicon is also going to raise $62.8 million via a sale of its stock to its largest shareholder, Invus LP, in a private placement at the same time. In total, the moves are expected to add $125 million in available cash. Management plans to use these proceeds to pay for the commercialization of Inpefa.
Management also signaled that there might be some cash left over to put toward research and development (R&D) efforts. In particular, it could help with programs in phase 2 trials for painful diabetic neuropathy (DPN) and post-herpetic neuralgia (PHN) that will likely be expensive to advance.
The market response wasn't all that surprising as shareholders aren't pleased when share value gets diluted by multiple (private and public) offerings. But the move was almost certainly necessary. Its most recent earnings report said Lexicon only had $26 million in cash and equivalents on hand, while its total operating expenses were $31.1 million. And, as the company plans to target at least 22,000 healthcare professionals across 1,800 institutions with its in-house salesforce, it'll need plenty of dosh to do so.
Don't get fooled by bumps in the road
Lexicon plans to have Inpefa available to prescribe by the end of June, which marks the end of the second quarter. That means investors will probably need to wait until after the third quarter closes to get any real sense of what the drug's initial sales will look like. And seeing a full normal quarter's worth of sales data may not come until 2024.
When that data rolls in, it's expected to be a mighty catalyst, seeing as how the biotech hasn't ever had meaningful revenue before. On average, Wall Street analysts anticipate the new drug will bring in around $21.7 million in sales this year, which won't be enough to make it profitable. But such a gain is forecast to send its stock soaring by as much as 118%.
In 2024, analysts estimate a haul of $75.4 million, which is closer to reaching profitability given Lexicon's trailing 12-month cash burn of $90.1 million. Investors might need to wait until 2025 to see the business regularly making more money than it spends.
Some added debt may be coming as well
Investors shouldn't be too surprised if Lexicon needs to take out some debt to roll out Inpefa, even if its stock offering and private placement generate plenty of funding. Lexicon's present long-term debt load totals $48.8 million, and it has the ability to take out $100 million in term loans per an existing agreement, due in March 2027. The catch is that $75 million of that sum can only be drawn on if it's done before the end of June, and within two months of regulators approving its drug, so expect management to tap those funds shortly.
Between its approval in hand, plenty of borrowing capacity, and its share issuance activity, Lexicon will probably navigate the challenges of commercializing its medicines as management has promised. The risk of it running out of money before 2025 is quite low. The biggest risk, for now, is that Inpefa's rollout will be slower than anticipated. But given that heart failure is a relatively common condition, with 64 million people experiencing it worldwide, the company has a big tailwind and a bright future ahead.
Open a position new to get full benefit
If you're usually a bit shy about investing in risky pre-revenue biotech stocks, know that Lexicon is currently a bit less risky than a competitor without an approved product. And if you're eager to capture some of its tremendous upside over the next few years, now's the time to start a position. While uncertainty about how it's going to fund the Inpefa launch will ebb quickly, answers about its growth trajectory will take a bit longer to clarify -- and those who can stomach that risk could see a significant return.
