Lexeo Therapeutics Proposes Terms For $126 Million IPO (LXEO)

A Quick Take On Lexeo Therapeutics

Lexeo Therapeutics, Inc. (LXEO) has filed proposed terms to raise $126 million from the sale of its common stock in an IPO, according to an amended SEC registration statement.

The company is developing treatments for various cardiovascular and Alzheimer’s conditions.

Given the firm’s early stage of development, legal risks and a difficult IPO performance environment for biopharma companies, my outlook on the Lexeo Therapeutics, Inc. IPO is to Sell [Avoid].

Lexeo Therapeutics Overview

New York, NY-based Lexeo Therapeutics, Inc. is developing drug treatment candidates for various cardiovascular and neurological diseases.

Management is headed by Chief Executive Officer R. Nolan Townsend, who has been with the firm since 2020 and was previously at Pfizer, where he was President, Pfizer Rare Disease for the North America region.

The firm’s lead candidate, LX2006, is currently in Phase 1/2 clinical trials for the treatment of Friedreich’s ataxia.

Friedreich’s ataxia is characterized by the progressive loss of coordination and balance (ataxia) from the degeneration of the spinal cord and related nerves.

The company expects to report interim data from the LX2006 trial in mid-2024.

Below is the current status of the company’s drug development pipeline:

Lexeo has booked fair market value investment of $189 million as of June 30, 2023, from investors, including D1, PBM LEX Holdings, Janus Henderson, Longitude Venture Partners, Lundbeckfond Invest, Eventide Healthcare & Life Sciences Fund, Omega Fund and Ronald G. Crystal, MD and affiliates.

Lexeo’s Market & Competition

According to a 2022 market research report by Coherent Market Insights, the global market for treatments for Freidreich’s ataxia was an estimated $777 million in 2022 and is forecast to reach $2.06 billion in 2030.

This represents an expected CAGR (Compound Annual Growth Rate) of CAGR of 13.0% from 2022 to 2030.

The major reasons driving this expected growth are the continued development of approved treatment options along with inorganic business collaborations and acquisitions.

Also, the North American region is expected to hold the largest demand for treatments during the forecast period through 2030.

The company is pursuing drug treatment activities for other multi-billion dollar size markets.

Major competitive vendors that provide or are developing related treatments include:

• Sanofi

• RegenexBio

• Sigilon Therapeutics

• Sangamo Therapeutics

• Reata Pharmaceuticals

• Minoryx Therapeutics

• Larimar Therapeutics

• Cyclerion Therapeutics

• Abliva

• Amylyx

• Eledon Pharmaceuticals

• Biogen

• Eli Lilly

• Others

The company is developing treatments for other cardiovascular conditions and for Alzheimer’s Disease.

Lexeo Therapeutics, Inc. Financial Status

The firm’s recent financial results are typical of a development-stage biopharma in that they feature minimal revenue and material R&D and G&A expenses associated with its pipeline program activities.

Below are the company’s financial results for the past two calendar years:

As of June 30, 2023, the company had $45.5 million in cash and $23.5 million in total liabilities.

Lexeo’s IPO Details

LXEO intends to sell nine million shares of common stock at a proposed midpoint price of $14.00 per share for gross proceeds of approximately $126.0 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest in purchasing shares at the IPO price.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriter options) would approximate $187 million.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 36.48%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

approximately $45.0 million to fund our ongoing and planned clinical development of LX2006 for the treatment of FA cardiomyopathy, including completion of the ongoing Phase 1/2 study and readiness for the registrational study start;

approximately $40.0 million to fund our ongoing and planned clinical development of LX2020 for the treatment of PKP2-ACM, including completion of the ongoing Phase 1/2 study;

approximately $10.0 million to fund our ongoing and planned clinical development of LX1001 for the treatment of Alzheimer’s disease in APOE4 homozygous patients, including completion of the ongoing Phase 1/2 study;

approximately $15.0 million to fund the continued development of our other programs and cardiac discovery efforts, including advancing LX2021 for the treatment of DSP cardiomyopathy; and

the remainder for working capital and other general corporate purposes.

Based on our current operational plans and assumptions, we expect our cash and cash equivalents as of September 30, 2023, together with the net proceeds from this offering, will be sufficient to fund our operations into the second quarter of 2026.

(Source – SEC.)

Management’s presentation of the company roadshow is available here until the IPO is completed.

Regarding legal proceedings, a lawsuit was filed on October 12, 2023, against Lexeo and two individuals by parties claiming “misappropriation of confidential information and trade secrets.”

Management intends to defend itself “vigorously” and does not expect the final outcome to affect the firm’s product development timelines but said that “litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, harm to our reputation and other factors.”

Listed bookrunners of the IPO are J.P. Morgan, Leerink Partners, Stifel, RBC Capital Markets and Chardan.

Commentary About Lexeo Therapeutics

LXEO is seeking public capital market investment to advance its pipeline of treatments for cardiovascular disease and Alzheimer’s Disease.

The firm’s lead candidate, LX2006, is currently in Phase 1/2 clinical trials for the treatment of Friedreich’s ataxia.

The company expects to report interim data from the LX2006 trial in mid-2024.

The market opportunity for the various conditions the company is targeting is substantial and expected to grow in the coming years.

Management hasn’t disclosed any major pharma firm collaborations but is collaborating with academic centers at Cornell University and the University of California, San Diego.

The company’s investor syndicate includes some notable life science venture capital firms.

Lexeo is pursuing high-risk treatment areas that have had limited success in the past.

Risks to the company’s outlook as a public company include the uncertain nature of the lawsuit filed against it and two defendants, one of whom is a current employee of the firm and the other a former employee.

As for valuation expectations, management is asking IPO investors to pay an Enterprise Value of $187 million, below the range for a typical biopharma company at IPO.

The firm is pursuing treatment candidates in medical areas that are either crowded with large competitors or difficult to treat.

So far in 2023, IPOs of biopharma firms have almost exclusively performed poorly post-IPO.

Given the firm’s early stage of development, legal risks and a difficult IPO performance environment for biopharma companies, my outlook on the Lexeo Therapeutics, Inc. IPO is to Sell [Avoid].

Expected IPO Pricing Date: Week ending November 3, 2023.