The rollercoaster ride of Lexicon Pharmaceuticals (NASDAQ:LXRX) has surely left investors feeling as if they’ve just ridden through a tempestuous storm. Since the last analysis, where the shares dipped below $1, they have managed to reclaim lost ground and are now stuttering around break-even.

The central argument about this pharma company has remained static – despite its Inpefa demonstrating remarkable clinical outcomes in patients battling congestive heart failure (arguably surpassing rivals like AstraZeneca‘s Farxiga and Eli Lilly / Boehringer Ingelheim‘s Jardiance), the ultimate test lies in whether this late arrival in the market can claim significant market share and generate sufficient revenue to push the company towards profitability. Reaching a verdict based on prescription reports remains inconclusive, but the strides made in securing reimbursement and formulary inclusion are certainly noteworthy.

Consensus indicates that the prospect in heart failure could prop up a fair valuation of approximately $3 per share, with LX9211 adding another $1 per share to the tally. This projection towers over the prevailing price of around $1.80. However, I must caution investors that commercial failure is a distinct possibility. This is by no means a “money for nothing” scenario.

Securing Buy-In from Payors

As of the company’s presentation at a prominent sell-side conference in January, agreements with insurers covering 42% of lives in the United States are now in place, including the notable addition of Cigna Group‘s (CI) Express Scripts, the largest pharmacy benefits manager in the nation. The latter has incorporated Inpefa into both its basic and high-performance formularies for commercial insurance clients and endorsed it as the preferred product on its Medicare formularies, effectively resulting in reduced patient out-of-pocket costs.

It cannot be denied that there are few equivalent companies to Lexicon, making a fair comparison of this process a challenging task. Although I can cite instances of other commercial-stage biotechs witnessing faster coverage adoption, these primarily involved rare diseases with limited treatment alternatives. Nevertheless, the achievement of securing 40%+ coverage within roughly seven months of commercial availability is commendable if not outstanding.

The exact expense of inclusion on Express Scripts’ lists remains to be seen. An open secret is that Express Scripts (and other PBMs) typically demand a substantial discount from drug companies for preferential treatment, although the specifics of these agreements are kept under wraps. Discounts exceeding 50% are not uncommon, and given Lexicon’s gross margin of over 90%, and the imperative to capture market share and construct a revenue base to sustain ongoing marketing and pipeline development, this shouldn’t pose a significant hurdle. Even if Inpefa possesses superior attributes compared to its rivals, the reality is that these competitors boast sizeable market presence and have spent more time in the arena, underlining the critical importance of the “boost” from preferred status with insurers.

Data on Cost Efficiency Serves as a Boon

In mid-October, two studies delineating the cost efficiency of Inpefa versus the standard heart failure treatments were presented. As anticipated, the incorporation of Inpefa augmented the overall cost of care. However, with a 0.425 amelioration in Quality-Adjusted Life Years (QALY), the incremental cost of integrating Inpefa remained under $46,000. This falls comfortably within the customary threshold (often $100K to $150K) for the consideration of a cost-effective novel therapy.

Naturally, investors should ingest this information with a pinch of skepticism. An earlier study of Inpefa displayed a lower QALY of 0.39 and a higher cost of around $75,000, although this is still a commendable result. It’s worth noting that the QALYs associated with Inpefa are notably strong – other studies examining Jardiance and Farxiga reported QALYs ranging from 0.13 to 0.23, along with correspondingly higher (worse) values for incremental costs.

A large part of the benefit from Inpefa appears to stem from the reduced frequency of hospitalization, including emergency visits, which is understandable given the exorbitant costs associated with hospital care, particularly in an emergency department setting. If real-world data mirrors these early papers (and believe me, insurers scrutinize this data vigilantly), over time, the argument for Inpefa could become compelling enough for insurers to actively promote the use of this drug over its rivals.

Conversely, it’s prudent to bear in mind that Lexicon will witness some of these competing drugs lose patent protection in the coming years. The introduction of generic options will substantially alter the calculus regarding the comparative value. Similarly, the accelerated utilization of GLP-1 drugs could reshape the long-term landscape for heart failure care, given their observable benefits in this domain.

Diversified Avenues Beyond Inpefa In Heart Failure Hold Significance

While the commercial potential of Inpefa in heart failure undoubtedly forms the critical pillar of Lexicon’s worth, it’s not the solitary one.

Lexicon initiated enrollment of the first cohort into its Phase IIb PROGRESS study of LX9211 in diabetic peripheral neuropathic pain (DPNP) towards the end of November. This dosing study is expected to expedite a Phase III program. Although there are reservations about the placebo-adjusted reductions in Average Daily Pain Score (ADPS) not being overly impressive (0.67pts in the superior group compared to 0.8 to 1.2 pts in Lyrica and Cymbalta trials), comparisons across trials are intricate, and there is adequate evidence of efficacy to justify further clinical investigations. The successful fruition of this product could potentially command a value exceeding $600M.

Additionally, Lexicon management disclosed the suspension of actions against the FDA concerning its denial to approve sotagliflozin (the chemical identity of Inpefa) for

Inpefa’s Potential and the Future of Lexicon Pharmaceuticals

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