Another legacy holding of mine is Lexicon Pharmaceuticals (LXRX). I first purchased this stock when I was still an intern at Morningstar, under the advice of one of the strategists there. I have since traded in and out of the stock as it has gone up and down.
LXRX is a biopharmaceutical company that uses its unique mouse genetic technology to discover drug targets, develop them, and bring them to market. The company uses Nobe-prize winning technology to isolate genes, then remove, or “knockout” those genes from an animal’s genetic structure. The genetically engineered animal can then be used to model the effects of a drug blocking that genes product. The company has an extensive collection of “knockout mouse”, since mice have a more similar genetic structure to humans. The company believes that by using their knockout mice to discover drug compounds that can then be extrapolated and adapted to be used on humans, the drug screening process can be sped up and also be made more effective.
Using this mouse knockout technology, the company has so far discovered several drug candidates and brought them to midstage development. Two of these are already in the late-stage pipeline – LX4211 in diabetes and LX1032 in carcinoid syndrome. Since I had earlier bought and sold the stock in 2011, the company has started to shift its strategy. Instead of finding drug targets, the company is now focusing on gaining approval for its drug candidates. Also, the founder was replaced as CEO in June 2014 with Lionel Coats, who has 18 years of experience at pharmaceutical company Eisai. He should be able to bring his experience at Eisai to help LXRX commercialize its drugs and form partnerships with bigger pharmaceutical companies.
I see this as a investment that is uncorrelated with the broader market and a low risk but potentially a very high reward, Unfortunately, it is also a low batting average investment. I see the company’s shift in strategy and new CEO as evidence that the company is progressing from an extremely early-stage drug development company with a novel technology, to one that is more established and has more credible technology. If LXRX is able to win FDA approval for any of its drugs, that would be evidence that the mouse knockout technology is effective and could potentially revolutionize the drug discover and development process.
I have an existing 1000 shares position in LXRX that I purchased on 24 March 2014 at $1.65. Now that the stock has come down further, a limit purchased order for another 1000 stocks were purchased at $1.30.
Morningstar FVE – $3
Uncertainty Rating – Very High
Economic Moat – None
Consider Buying – $1.50
I would look to sell the stock at $2.5-$3 and then look to buy the stock back again. One reason why the stock price hasn’t moved since I first purchased it in 2011 is because of the equity dilution as the company raises cash by selling stock. Thus, I do not see this stock as one to buy and hold, but one that has to be traded in and out of.