Private equity firms who have a significant stake must be disappointed along with institutions after Lexicon Pharmaceuticals, Inc.'s (NASDAQ:LXRX) market cap dropped by US$148m

Key Insights

• Lexicon Pharmaceuticals' significant private equity firms ownership suggests that the key decisions are influenced by shareholders from the larger public
• A total of 2 investors have a majority stake in the company with 63% ownership
• Institutions own 36% of Lexicon Pharmaceuticals

To get a sense of who is truly in control of Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX), it is important to understand the ownership structure of the business. With 48% stake, private equity firms possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

While the holdings of private equity firms took a hit after last week’s 58% price drop, institutions with their 36% holdings also suffered.

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

View our latest analysis for Lexicon Pharmaceuticals

What Does The Institutional Ownership Tell Us About Lexicon Pharmaceuticals?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

As you can see, institutional investors have a fair amount of stake in Lexicon Pharmaceuticals. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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.

Lexicon Pharmaceuticals is not owned by hedge funds. Looking at our data, we can see that the largest shareholder is Artal Group S.A. with 48% of shares outstanding. FMR LLC is the second largest shareholder owning 14% of common stock, and BlackRock, Inc. holds about 2.9% of the company stock.

After doing some more digging, we found that the top 2 shareholders collectively control more than half of the company's shares, implying that they have considerable power to influence the company's decisions.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Lexicon Pharmaceuticals

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Shareholders would probably be interested to learn that insiders own shares in Lexicon Pharmaceuticals, Inc.. As individuals, the insiders collectively own US$2.9m worth of the US$253m 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 14% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Lexicon Pharmaceuticals. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

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:

It's always worth thinking about the different groups who own shares in a company. But to understand Lexicon Pharmaceuticals better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Lexicon Pharmaceuticals (of which 3 shouldn't be ignored!) you should know about.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.

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.