Lexicon Pharmaceuticals Inc. (NASDAQ: LXRX) shares were absolutely crushed on Monday after it was announced that Sanofi would be ending its partnership with the firm. This decision comes after Lexicon received preliminary topline results for its three Phase 3 trials of Zynquista in adults with type 2 diabetes from the InSynchrony clinical program.

Despite the initial shock to investors, one analyst took a very positive stance on the stock, suggesting that this move may be incredibly overblown.

In terms of the results, SOTA-MET, Zynquista demonstrated a statistically significant reduction in blood sugar control (A1C).

In SOTA-CKD3, Zynquista 400 mg showed a statistically significant reduction in A1C in the entire population of patients with moderate (stage 3) chronic kidney disease (CKD) and in the subpopulation of patients with a glomerular filtration rate of 45-<60 mL/min/1.73m2. However, Zynquista demonstrated numerical improvement on A1C, a statistically significant reduction in A1C was not achieved in the subpopulation of patients with a glomerular filtration rate of 30-<45 mL/min/1.73m2.

Finally, SOTA-CKD4 achieved a clinically meaningful effect but narrowly missed statistical significance on A1C reduction versus placebo in patients with severe (stage 4) CKD.

As for the business update, Sanofi has delivered to Lexicon a notice to terminate the alliance. However, Lexicon contends that it considers the notice invalid and Sanofi to be in breach of contract.

Wedbush was quick to give an opinion on the situation with Sanofi. Overall the firm took an optimistic perspective with an Outperform rating and a $35 price target, implying an upside of 515% from Friday’s closing price of $5.69.

We understand that Sanofi is still on the hook to complete the ongoing core Phase 3 and cardiovascular outcomes trial then apparently plans to bail on manufacturing and commercialization. Although at first Sanofi’s departure looked dire to us, we realized that Lexicon will be left with a paid for completed type 2 diabetes (T2D) clinical program which so far to us looks potentially approvable. However, even though there was a positive trend, that statistical significance was not achieved for the primary endpoint (change in HbA1c at 26 weeks vs placebo) in the moderate-to-severe CKD patients (Stages 3b and 4), depending on KOL and FDA reactions to the results, the lack of statistical significance may impact our sales projections as T2D patients with CKD were expected to be the key differentiator for Zynquista versus the three SGLT2 inhibitors on the market. Consequently, until we have additional clarity on the data and our model, rating and price target are under review.

Also, Wedbush speculates that Sanofi bailed because of the perception that Zynquista was unable to achieve competitive differentiation in the T2D patients with moderate to severe CKD.

Shares of Lexicon Pharma were last seen down 74% at $1.47, in a 52-week range of $1.46 to $12.58. The consensus price target is $20.00.

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