By John Vandermosten

NASDAQ:LPCN

READ THE FULL LPCN RESEARCH REPORT

Up and Coming Milestones

Tlando PDUFA date August 28, 2020

Primary endpoint results for LiFT (LPCN 1144) 4Q:20

Patent Infringement trial February 2021

Complete Phase II LiFT (LPCN 1144) 2Q:21

Second Quarter 2020 Operational and Financial Results

On August 6, 2020 Lipocine (NASDAQ:LPCN) filed its second quarter 2020 10-Q and posted its earnings release for the three month period ending June 30, 2020. The company reported zero revenues and a net loss per share of ($0.13) compared to prior year revenues of zero and loss of ($0.14) per share. Activity during the second quarter revolved around several items including presentation at the American Urological Association (AUA) conference, demonstration of treatment potential for LPCN 1144, investigational new drug clearance for LPCN 1148, affirmation of the USPTO decision and the dismissal of a shareholder lawsuit. The companys shares also exceeded $1.00 in June, and have remained above this level, allowing Lipocine to regain compliance with NASDAQ minimum bid requirements. The most important item on the calendar is the FDAs response to Tlandos NDA submission, which is expected on or before August 28th.

We anticipate that upon approval, Lipocine will find a partner to commercialize Tlando and use associated upfront and milestone payments to further develop the existing portfolio, especially LPCN 1144 and LPCN 1148. Potential licensees are waiting until approval is granted before performing their due diligence. This suggests that a deal would be announced in the fourth quarter of 2020 rather than in the weeks following an assumed approval.

Operational expenses for 2Q:20 were $4.2 million, up 26% and net loss totaled ($6.4) million or ($0.13) per share. Research and development expenses totaled $2.5 million. The 16% rise over prior year amounts reflects increased costs related to the LiFT study and higher personnel expenditures offset by a decrease in amounts related to the ABPM study, lower spend on the Tlando XR program and a fall in manufacturing costs for LPCN 1107. General and administrative costs rose 41% over last years second quarter to $2.0 million on an expansion in legal expenditures related to the Clarus dispute and an increase in personnel costs offset by lower marketing expenses, administrative travel and other expenses. A rise in the share price increased the warrant liability and required the recognition of a $2.1 million non-cash loss in other income.

Cash and marketable securities balance was $18.2 million as of June 30, 2020. There is another $5 million of restricted1 cash which will remain on hold until Tlando is approved. Current and non-current debt is carried on the balance sheet at $6.3 million. Cash burn for 2Q:20 was approximately ($4.1) million and net cash provided by financing was $11.7 million representing a stock offering and warrant proceeds partially offset by a small amount of debt repayment.

Tlando

On November 11 of last year, Lipocine announced that it had received a complete response letter (CRL) for Tlando. The CRL identified one deficiency stating that the trial did not meet one of the three secondary endpoints for maximal testosterone concentrations (Cmax). No deficiencies related to chemistry, manufacturing and controls were noted. FDA guidelines call for 85% of subjects to achieve a Cmax below 1500 ng/dL and no more than 5% of subjects presenting a Cmax between 1800 ng/dL and 2500 ng/dL and 0% above 2500 ng/dL. In the most recent dosing validation (DV) study, 85% of subjects were below 1500 ng/dL and 7% were between 1800 ng/dL and 2500 ng/dL. Although there were small variations from the FDA guidelines in the original SOAR study for subjects above 2500 ng/dL, the FDA did not identify these as a deficiency during the original New Drug Application (NDA) submission.

Following the Post Action meeting with the FDA, Lipocine was advised to address the outstanding deficiencies with a reanalysis of existing data. This recommendation relieved Lipocine of the time and cost of an additional trial and also allowed the resubmission of the Tlando NDA in February. A target action date of August 28th was provided. While the resubmission is a positive, Tlando has faced significant hurdles gaining the favor of the FDA. We published a note on February 25th that discussed details regarding the resubmission.

LPCN 1144

Lipocine announced in August 2018 the pursuit of a new indication in nonalcoholic steatohepatitis (NASH). We discuss the indication and Lipocines efforts in an earlier piece that can be accessed here. Full enrollment of 36 subjects was achieved in November 2018.

In January 2019, Lipocine announced meaningful liver fat reduction in patients participating in its Liver Fat Study and informed investors that the company had filed an investigational new drug (IND) application to begin a Phase II study for NASH. Since LPCN 1144 is the same molecule as TLANDO, for which there were numerous safety studies completed, LPCN was allowed to perform a proof of concept (POC) clinical study under the original IND to assess liver fat changes. This 36-person study was conducted in hypogonadal men at risk of developing non-alcoholic steatohepatitis (NASH) and results were measured using the magnetic resonance imaging proton density fat fraction (MRI-PDFF) technique. Topline results were announced in 1Q:19 demonstrating a 4.0% to 8.2% percentage point reduction in liver fat depending on baseline liver fat category. We discussed the results in further detail in our NASH Topline article.

Lipocine launched its Phase II clinical study for LPCN 1144 and dosed its first patient last September. Prior to the start of the trial, Lipocine announced that the FDA would allow the Phase II LiFT trial to enroll eugonadal patients in addition to the NASH patients that were initially targeted. This expansion was based on research that we discussed in a July 29th note. The study is anticipated to last for 18 months and cost approximately $8 million.

LiFT, an acronym of Liver Fat intervention with oral Testosterone, is a paired biopsy Phase II study in NASH subjects. The study design will employ a three-arm, double-blind, placebo-controlled structure and enroll approximately 75 biopsy confirmed male NASH subjects with a NAS2 score of greater or equal to four. The primary endpoint for the study is 12-week MRI-PDFF liver fat reduction and the first patient was enrolled in 3Q:19. As for the anticipated timeline, Lipocine expects top line liver fat reduction data in 4Q:20 as measured by MRI-PDFF at 12 weeks. Biopsy data at 36 weeks is expected to be available in the second quarter of 2021.

Exhibit I LiFT Study Timeline3

NASH Environment

A lot has happened in the NASH space in 2020. Genfit (GNFT) announced that it will halt development of elafibranor after it failed to distinguish itself compared to placebo earlier this year. CymaBay (CBAY) announced that the FDA had lifted the hold on seladelpars Phase II study last month. No evidence was found for liver injury for the drug and the trial is expected to resume. Intercepts (ICPT) OCA received a complete response letter from the FDA in late June noting that the agency remains uncertain that the benefits of the drug outweigh the risks. Viking (VKTX) is conducting the Phase IIb VOYAGE trial for VK2809 which is still ongoing. A bright spot in the space has been results from Akeros (AKRO) Phase IIb trial for efruxifermin in NASH which were announced June 30. The study found that 48% of patients had fibrosis improvement of at least one stage with a 62% response rate. Fibrosis improved by at least two stages for 28% of the group with a 38% response rate and 48% experienced NASH resolution without worsening of fibrosis across all dose groups.

LPCN 1148

Lipocine is preparing to develop its testosterone molecule to treat NASH cirrhosis patients. While the target market is smaller than that of pre-cirrhotic NASH, there are no other FDA approved products available. The inverse relationship between testosterone and sarcopenia and the increased risks of advancing NASH cirrhosis validates this pursuit. Pending funding, Lipocine plans to initiate a proof of concept trial to evaluate the potential of this candidate. The companys Investigational New Drug (IND) application was cleared by the FDA in May 2020. We anticipate Lipocine will launch the Phase II trial after the start of commercialization of Tlando and upon availability of sufficient capital to fund it. Management has guided to a 4Q:20 or 1Q:21 start.

Exhibit II Lipocine Pipeline4

Markman Hearing

On March 26th, Lipocine announced the outcome of the Markman Hearing, also known as a claim construction hearing. This meeting is an important precursor to a patent infringement lawsuit and provides the definitions of terms critical for a jurys determination on whether or not a patent has value. A patent should not be too specific, as it provides insufficient protection to an invention, or too broad, in which case a court may rule it indefinite. In the hearing order5, Judge Bryson did not agree with most of Clarus claims and sided with Lipocine on the majority of definitions and clarifications. While the terms and definitions are subject to an evolving construction, the order is favorable to Lipocines dispute against Clarus. While this order could be appealed again, it is unlikely in the opinion of Lipocines counsel. Lipocine and Clarus are currently engaged in the fact discovery phase of the lawsuit and the jury trial is anticipated to take place in February 2021. Lipocine need only prevail on one claim to merit damages, which places them in a strong position to succeed in the trial or provide incentive for Clarus to settle.

USPTO Decision Affirmed

The US Court of Appeals affirmed the decision of the USPTO in April 2020 to grant Lipocines Priority Motion in the interference case that cancelled Clarus claims to the 428 patent in January 2019. The USPTO, through its Patent Trial and Appeal Board (PTAB), had granted Lipocines priority motion in the related interference case and entered adverse judgment against Clarus. As we have previously shared, this outcome was expected as it is rare for a federal court to overturn a USPTO ruling. As a reminder, in 2Q:19 Lipocinefiled suitagainst Clarus alleging that Jatenzo infringed on six of Lipocines patents. The injunction filing may slow down commercialization of Jatenzo and force Clarus to come to the table to negotiate a settlement. While the cost of pursuing such legal action could be high, we anticipate by the time the case works its way through the courts, cash flow from Tlando could be sufficient to support the legal efforts.

Publications and Abstracts

Results from Lipocines Liver Fat Study were published in Hepatology Communications in an article entitled LPCN 1144 Resolves Non-Alcoholic Fatty Liver Disease In Hypogonadal Males." The study served to identify the prevalence of non-alcoholic fatty liver disease (NAFLD) in hypogonadal males and quantify the beneficial impact of LPCN 1144 on hypogonadism. 36 hypogonadal males were evaluated using MRI-PDFF measurements for liver fat. 81% of those with baseline liver fat equal to or greater than 5% showed improvement in liver fat content and NAFLD resolved in one-third of the group at six weeks and 48% after 16 weeks. The paper concluded that treatment with LPCN 1144 resolved NAFLD in about half of affected patients without any safety signals.

Lipocine submitted several abstracts to the American Urological Association (AUA) Virtual Experience, which took place from May 15 to 17, 2020. Three titles were presented.

Impact of a new oral testosterone undecanoate on blood pressure and cardiovascular risk was presented by Dr. Mohit Khera which investigated the chronic use of testosterone replacement therapy (TRT) on cardiovascular risk. Jatenzo, Xyosted and Tlando were assessed in their impact on blood pressure and cardiovascular risk in hypogonadal men. Marginal increases in blood pressure were observed and no meaningful impact on cardiovascular risk was noted.

A novel oral testosterone therapy restores testosterone to eugonadal levels without dose titration was presented by Dr. Martin Miner and highlights the shortcomings of dose titration when prescribing TRT. The abstract concluded that fixed dose Tlando normalizes testosterone levels in hypogonadal patients while avoiding the potential problems associated with titrated TRT.

Effects of a new oral testosterone undecanoate (TLANDO) therapy on liver was presented by Dr. Irwin Goldstein and compares oral methyltestosterone (MT) with TRT in males deficient in endogenous testosterone. The study results suggested that unlike MT, Tlando has no adverse effects on liver and can be used for an extended period to potentially reduce liver fat.

Milestones

Tlando CRL November 9, 2019

Tlando FDA post action meeting January 2020

Resubmission of Tlando NDA February 2020

Investigational New Drug (IND) clearance for LPCN 1148 May 2020

Wajda v. Patel shareholder suit dismissed July 2020

Tlando PDUFA date August 28, 2020

Primary endpoint results for LiFT (LPCN 1144) 4Q:20

Patent Infringement trial February 2021

Complete Phase II LiFT (LPCN 1144) 2Q:21

Summary

Since our previous update, Lipocine has participated in scientific conferences, published an article in the journal Hepatology Communications and advanced several months towards the upcoming August 28 PDUFA date for Tlando. Assuming a favorable outcome for the application, Lipocine will seek a commercialization partner and should receive upfront and milestone proceeds in conjunction with a deal. The Phase II LiFT trial continues to be a bright spot for the company and is potentially able to address a large unmet need in NASH patients in contrast to other programs which have met with difficulty. Management has guided towards a year-end readout of LiFT trial results. Lipocine is also developing LPCN 1148 for cirrhosis patients which was recently given clearance to begin a Phase II study. While we do not see this program entering the clinic until sufficient capital is available, we do think it will advance if Phase II data for LPCN 1144 are positive.

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1. Tlando was not approved by the FDA by May 31, 2018, and therefore Lipocine is required to maintain $5.0 million of cash collateral at Silicon Valley Bank (the lender) until such time as it is approved by the FDA.

2. NAS: NAFLD (Non-alcoholic fatty liver disease) Activity Score. Discussion of the metric can be found here.

3. Source: Lipocine Corporate Presentation May 2020.

4. Source: Lipocine Corporate Presentation July 2020.

5. A link to the Markman Hearing Order can be found on this page: https://ir.lipocine.com/presentations

Link:
LPCN: Tlando: Target Action Date This Friday - Zacks Small Cap Research