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Lexicon Pharma's Never-Ending Diabetes Drug Partner Talks

THE WOODLANDS, Tex. (TheStreet) -- Lexicon Pharmaceuticals (LXRX) CEO Arthur Sands took the mic on Tuesday's quarterly conference call to promise shareholders that a partnership for the company's diabetes drug LX4211 would be consummated soon. Lexicon wants to start phase III studies of LX4211 before the end of the year, but won't do so without the expertise and financial support of a larger drug company partner.

Sands and other members of the Lexicon management team have been making this very same LX4211 partnership promise for almost two years.

Here's Sands in September 2011, answering a question about plans to seek a partner for LX4211, posed by an analyst during a Morgan Stanley investor conference:

...we're currently thinking that after our 2b results would be the optimal time to consider partnership, because at that point you have a very good product profile. You can really map out where you think your product fits, in which dimensions of diabetes care... So I think that's the optimal time. We have discussions ongoing. Obviously, it's a fairly narrow field as we progressed to Phase 3. There are not a lot of compounds in this class.

Sands sounded a very similar note about LX4211 on Tuesday's conference call:

... we continue to progress the overall Phase 3 preparations for the type 2 program which we continue to anticipate moving into Phase 3 with a corporate partner.

During the Q&A portion of Tuesday's call, an analyst asked about the company's confidence level in nailing down a partnership deal for LX4211 before the end of the year.

Lexicon's CFO Jeffrey Wade responded:

Sure. So we are continuing to make progress on the partnership discussions and our objective remains to move into Phase 3 with a partner this year for LX4211. So that's something that continues to go well.

CEOs and their minions love to pull out the "we're engaged in partnering discussions" line because it sounds impressive and is impossible to independently verify. The identity of these prospective partners is never identified, the seriousness of the discussions never explained. Licensing deals struck between smaller drug companies and their cash-rich Big Pharma cousins can be lucrative for the smaller partner both in terms of cash received and surging stock prices.

Dangle the prospect of a partnering deal in front of investors and they often bite hard.

Negotiating a partnership deal can take a long time, but at some point, management loses credibility when assurances of a deal imminent are repeated over and over again.

Has Lexicon reached the point where investors should be discounting Sands' partner talk? It's hard to say. Lexicon could announce a deal for LX4211 tomorrow, or it could continue to make unfulfilled promises for another two years. That's the beauty of the "we're engaged in partnership discussions" strategy. No one outside the company really knows anything.

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