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.

This doesn't stop us from speculating, however, so perhaps Lexicon's inability to land the promised partner has something to do with the crowded and competitive field surrounding LX4211.

LX4211 belongs to a class of diabetes drugs known as sodium-dependent glucose transporter (SGLT) inhibitors. These drugs work by blocking the re-absorption of glucose into the kidneys. Patients taking an SGLT inhibitor excrete glucose in their urine, instead.

SGLT inhibition is a popular target for companies involved in diabetes drug research and development. Almost every major drug company either has an SGLT inhibitor either approved or in clinical development, according to the drug development research service BioMedTracker.

Johnson & Johnson's ( JNJ) Invokana was approved in the U.S. last March. Bristol-Myers Squibb ( BMY) and Astrazeneca's ( AZN) Forxiga was approved in Europe last November although the drug's approval here has been delayed.

Eli Lilly ( LLY) and Boerhinger Ingelheim are partnered on an SGLT inhibitor known as empagliflozin, with an U.S. approval application submitted.

Astellas' SGLT inhibitor ipragliflozin is in phase III studies in Japan.

Merck ( MRK) and Pfizer ( PFE) are working together to develop ertugliflozin, currently in phase II studies.

Roche ( RHHBY) is partnered with Chugai on the development of togoliflozin.

Novartis ( NVS) is working alone on LIK066 and with Taisho on luseogliflozin, which is entering phase III studies.

Is there a major drug company which doesn't have an SGLT inhibitor already in clinical development and might want to hook up with Lexicon on LX4211? Diabetes giant Novo-Nordisk ( NVO) is available, although the company's focus has been more on insulins and GLP-1s. GlaxoSmithKline ( GSK) and Abbvie ( ABBV) are possibilities.

One of the companies already developing an SGLT inhibitor listed above might also decide expand its diabetes program and partner with Lexicon.

After two years of promises, it's time for Lexicon sign a deal or admit no partner is interested.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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