Institutions profited after Lexicon Pharmaceuticals, Inc.'s (NASDAQ:LXRX) market cap rose US$54m last week but private equity firms profited the most

Key Insights

• Lexicon Pharmaceuticals' significant private equity firms ownership suggests that the key decisions are influenced by shareholders from the larger public
• The top 2 shareholders own 59% of the company
• Institutional ownership in Lexicon Pharmaceuticals is 31%

If you want to know who really controls Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), then you'll have to look at the makeup of its share registry. And the group that holds the biggest piece of the pie are private equity firms with 48% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Following a 8.4% increase in the stock price last week, private equity firms profited the most, but institutions who own 31% stock also stood to gain from the increase.

In the chart below, we zoom in on the different ownership groups of Lexicon Pharmaceuticals.

Check out our latest analysis for Lexicon Pharmaceuticals

What Does The Institutional Ownership Tell Us About Lexicon Pharmaceuticals?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

Lexicon Pharmaceuticals already has institutions on the share registry. Indeed, they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Lexicon Pharmaceuticals' historic earnings and revenue below, but keep in mind there's always more to the story.

We note that hedge funds don't have a meaningful investment in Lexicon Pharmaceuticals. The company's largest shareholder is Artal Group S.A., with ownership of 48%. Meanwhile, the second and third largest shareholders, hold 11% and 2.7%, of the shares outstanding, respectively.

A more detailed study of the shareholder registry showed us that 2 of the top shareholders have a considerable amount of ownership in the company, via their 59% stake.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Lexicon Pharmaceuticals

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Shareholders would probably be interested to learn that insiders own shares in Lexicon Pharmaceuticals, Inc.. As individuals, the insiders collectively own US$8.3m worth of the US$705m company. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.

General Public Ownership

With a 20% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Lexicon Pharmaceuticals. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Equity Ownership

With a stake of 48%, private equity firms could influence the Lexicon Pharmaceuticals board. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Take risks for example - Lexicon Pharmaceuticals has 4 warning signs we think you should be aware of.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.