Lexicon Pharmaceuticals Inc (LXRX) 2004 Q2 法說會逐字稿

Good morning everyone and thank you for holding. Welcome to the Lexicon Genetics second quarter 2004 earnings release conference call. At this time all participants are in a listen only mode. There will be a question and answer session to follow and instructions will be given at that time. Please be advised that this call is being taped at Lexicon's request. At this time I would like to introduce your host for today's call Julie Kim, Manager of corporate communications. Please go ahead Ms Kim.

Good morning and welcome to the Lexicon Genetics second quarter of 2004 conference call. I'm Julie Kim, Manager of Corporate Communications and with me today are Dr Arthur Sands, Lexicon's President and Chief Executive Officer and Julia Gregory, Executive Vice President of Corporate Development and Chief Financial Officer. We expect that each of you has seen a copy of the press release that was distributed this morning. During this call we will review the information provided in the release then use the remainder of our time to answer your questions. The call will begin with Dr. Sands who will discuss our key accomplishments during the second quarter. Ms. Gregory will review our financial results for the second quarter and discuss our financial guidance for the third quarter and full year 2004. Dr Sands will then open the call to your questions. Before I turn the call over to Dr Sands I would like to state that we will be making forward-looking statements including statements about our growth and future operating results, discovery and development of products, strategic alliances and intellectual property. Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward-looking statements including uncertainties related to our ability to enter into additional collaborations and alliances. The success and productivity of our drug discovery effort, our ability to obtain patent protection for our discoveries, commercial limitations imposed by patents owned or controlled by third parties, our dependence upon (inaudible) as we are developing commercialized products and services based on our work and the requirements of substantial funding to conduct research and development and to expand commercialization activities. For a listing and description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission. I will now turn the call over to Dr Sands.

Thank you Julie and good morning everyone. I'd like to start by discussing our new drug development collaboration with Takeda Pharmaceutical Company. As we announced yesterday, Takeda and Lexicon entered into an alliance to accelerate the development and commercialization of new drugs to treat high blood pressure. Takeda is a leading pharmaceutical company based in Japan with $9b dollars in worldwide pharmaceutical sales. Takeda's fastest growing drug is BLOPRESS for hypertension with $1.3b in sales. We believe this new alliance will produce novel drugs to treat hypertension and we are looking forward to working with Takeda. As you may know the potential market for new hypertension therapy is as significant. High blood pressure affects approximately 1/4 of US adults and is a major risk factor for stroke, heart attack, heart failure and kidney failure. Many existing therapies are inadequate and a large segment of people with high blood pressure are not taking medication for the disease. Our alliance is designed to provide Takeda with a strategic advantage in the field of hypertension by bringing novel therapeutic options to people with high blood pressure. The alliance will work as follows. In our Genome5000 program, Lexicon is knocking out and analyzing 5000 pharmaceutically relevant genes. Drug targets that regulate blood pressure through novel mechanisms will be put into our drug development alliance with Takeda. Takeda will have exclusive access to all of these drug targets, primarily for small molecule drugs available. Takeda is responsible for all of the activities and costs related to pre-clinical research, drug development and worldwide commercialization. Under the terms of our three year agreement Lexicon will receive an upfront payment of $12m from Takeda for access to the Genome5000 program for hypertension. Takeda can extend the discovery portion of the alliance for two years in exchange for additional committed funding. Lexicon will also receive milestone payments that fall in two categories, target selection and clinical development. For each target selected, Takeda will make research milestone payments to Lexicon of up to $5.5m. Lexicon is initiating the alliance by making one lead head hypertension target available to Takeda for potential selection. In addition, Takeda will pay Lexicon up to $29m in clinical development and product launched milestones for each product commercialized under the collaboration. Lexicon will also earn royalties on worldwide sales of drugs commercialized by Takeda. Strategic alliance's give us a tremendous amount of flexibility in managing our business and provide us with several avenues by which to accelerate the development of our drug discovery programs. We have the ability to enter into alliances for an entire therapeutic area such as in neuroscience with Bristol-Myers Squibb, a specific disease area like hypertension with Takeda or for specific drug discovery program. We have the flexibility productivity of our Genome5000 program. Under that program we have now completed the initial phenotypic analysis of more than 1700 of 5000 pharmaceutically relevant genes and we have another 1700 genes in active stages of knock out and phenotypic analysis prospects. We continue to make discoveries that supplied Lexicon with novel mechanisms of action for the development of new drugs. We're in the process of testing compounds Envivo for several of our leads small molecule drug development programs with promising results. Likewise we have several antibody programs for which we are in the process of demonstrating proof of (inaudible). We expect to identify clinical candidates for two of our lead programs in 2004 with the objective of filing I and D's in 2005. LG's 653 for obesity and diabetes and LG152 for oncology continue to be among our leading small molecule programs and we have several lead antibody programs. In summary we look forward to beginning our collaboration with Takeda and welcome them as a new alliance partner we believe our alliance with Takeda is the best way to accelerate the development and commercialization of our growth discoveries in the field of hypertension. Our established alliances with Bristol-Myers Squibb and Genentech are productive and on track and we continue to see significant interest in our other programs from potential partners. We will keep you updated on our alliances, our scientific achievements and the advances in our internal drug discovery programs. I would now like to turn the call over to Julia Gregory, our Executive Vice President corporate development and Chief Financial Officer to review our second quarter financial results and our financial guidance.

Thank you Arthur. I would like to summarize the second quarter financial results and discuss our guidance for the third quarter and full year of 2004. Lexicon's revenues for the 3 moths and 6 months ended June 30th 2004 increased 21% and 33% to $10.8m and $22.6m respectively from the corresponding period in 2003. The increases in both periods were primarily attributable to collaborative research revenues from Lexicon's neuroscience alliance with Bristol-Myers Squibb Company. Please note that our revenues have historically fluctuated from period to period and will likely fluctuate substantially in the future based upon the timings and terms of collaboration license agreements and the achievement of research milestones and other revenue triggering events. Research and development expenses for the three months ended June 30th, 2004 increased 9% to $22.6m, reflecting higher cost associated with the advancement of Lexicon's drug discovery program. We have completed the amortization of stock-based compensation related to option grants for our initial public offering. So there was no non-cash stock-based compensation expense in the three months ended June 30, 2004. For the 6 months ended June 30th, 2004, research and development expenses increased 11% to $45m. General and administrative expenses for the three months and 6 months ended June 30th, 2004 decreased 22% and 18% to $4.6m and $9.7m respectively. These decreases were primarily due to the fact that, there was no non-cash stock-based compensation expense in the three months ended June 30, 2004 and to prudent expense management. Lexicon's net loss for 3 months ended June 30th 2004 narrowed to $16.8m or 26 cents per share from a net loss of $17.6m or 34 cents per share In the corresponding period of 2003. Net loss for the 6 months ended June 30th 2004 decreased to $32.3m or 51 cents per share from a net loss of $34.8m or 66 cents per share in the corresponding period in 2003.. Cash and investments at June 30th 2004, were $104.3m including restricted cash and investment compared to $145.4m as of March 31, 2004 and $161m as of December 31, 2003. Notably however restricted cash and investments were only $400,000 on June30, 2004 as compared to $57.5mi on both March 31, 2004 and Dec 31, 2003. As a result our unrestricted cash and investments balances at June 30th were higher than they were at the end of the year. Of the cash used in the 3 months ended June 30, 2004, $22.4m was related to 2004 refinancing of the synthetic lease of Lexicon's headquarters and research facility in The Woodlands, Texas. In this transaction Lexicon refinanced a $54.8m under the synthetic lease with proceeds from a $34m conventional mortgage and repaid the balance of this obligation. This transaction benefits Lexicon in several ways. First it significantly improves our financial flexibility by eliminating all of the restrictions on the cash and investments that had secured our obligations under the synthetic lease. Second it extends our ability to fund our operations by approximately one year and it enables us to control our state of the art facility which is a critical component of Lexicon's strategic advantage for drug discovery. Pursuant to our Takeda alliance, Lexicon will receive a $12m cash payment in the next 30 days. This payment will be recognized as revenues over the three year term of the alliance. Now let's turn to our forward look at the third quarter and the remainder of 2004. We expect revenues for the third quarter of 2004 in a range of about $12-$14m. Operating expenses for the third quarter are projected to be approximately $29- $31m. We are projecting our net loss for the quarter to range from 15- $17m or 24 cents to 27 cents per share, based on average shares outstanding of $63.4m. I should note that our quarterly operating results have fluctuated and are likely to do so in the future and we believe that quarter to quarter comparisons of our operating results are not a good indication of our future performance. Our actual operating results may vary depending on, among other things, the timing of new agreements and research milestones. We confirm our original guidance for 2004. We continue to expect to achieve revenues of $59-$61m and a net loss of 84 cents to 89 cents for the full year. Our net loss per share projection is based on weighted average shares outstanding of $63.3m. We expect that cash used in operations and for capital expenditures in 2004 will be approximately $40m and we expect to end 2004 with cash and investments of slightly over $100m. Arthur discussed the different types of drug development alliances we are considering. Takeda is and example of an exclusive collaboration to develop drugs for a specific disease indication. Our business strategy anticipates forming additional exclusive alliances for therapeutic area, disease indication, more drug targets and we expect to enter into yet another alliance in (.....) while we cannot guarantee signing on collaborations, our ongoing business development efforts continue to be strong. Overall the second quarter was a good one for Lexicon as compared to the prior year, our revenue increased, our losses narrowed and we improved our financial flexibility. With the signing of our Takeda alliance we are now in position to launch a drug development effort in hypertension. Thank you and now I would like to turn the call back to Arthur.

Thank you Julia, it has indeed been a very strong quarter for Lexicon with some major new collaborations. We are now happy to answer any question you may have.

If you would like to ask a question during the segment please press star and the number one on you touchtone phone. Your questions will be answered in the order received.

Our first questions comes from Edward Tenthoff from Piper Jaffary.

Hello there, how is everyone doing?

Good Ed. How are you?

Very well, thank you. Just trying to survive earnings season you know. Couple real quick questions, just right off the bat, Arthur you had mentioned that under the Takeda lines that you just signed yesterday, congratulations on that. What was the amount that could be paid in clinical milestones?

$29m will cover development and all the clinical milestone and commercializations so we're providing that number of $29m

Great and those would be recognized that as well as selection milestone, at the point, not spread over a long time right?

Correct, that's correct.

Okay good. Well I think that answers part of my second question which was, with revenues give or take, less than half of your goal in the first half , I was wondering how you expect to get to, give or take $60m in guidance.

As you know Ted, we have multiple ways of generating revenues. Clearly collaboration revenues are significant for us, and as you know, we signed collaborations last year and the year before and, closer to the end of the year and while we can't guarantee doing that every year, we are actively in discussions right now, but that is not the only way that we generate revenues, we have target validation revenues as well, and some license revenues.

Great, and then just one last quick question, what the amount that you said you used in cash to pay the excess for the - in retiring the synthetic lease?

$22.4m

Thank you so much.

Thanks Ted

Our next question comes from Anna Zanay from UBS

Hi it is Anna Balconay-Mason actually, that was an interesting take on my name. Back on the revenue question, could you give us an idea of what revenues are committed to this, at this point and what is still expected.

Well, I think what I should say is that we entered into the year with $43m in committed revenue and we continue to believe that they are committed and we expect to see that this year.

Okay, so that Takeda alliance did not change that number at all.

The $23m is the base number. The guidance for the year is $59m to $61m, the Takeda alliance will be on top of the base number.

Okay, great, and in terms of the - can you give us an idea of what you expect in terms of discretion versus collaboration.

Well as you start to see the trend of collaboration to accelerate beyond subscription, clearly, I believe that that will continue although we do find that, going forward that we will have other opportunities more on the technology license fees than on the subscription fees.

The subscription fees are aligned to our LexVision collaboration and that LexVision collaboration goes to the end of this year.

okay, great and then I guess one other question for Arthur. We have just been on that Charles River conference call and they just mentioned that they had seen a slow down in trends in the use of their transgenics business. Have you seen any change in the demand for this at all the way they have?

Well, we have seen acceleration in our business, I think evidenced by the Takeda alliance and other alliances, so I think it is really how transgenic and knock out technologies are used for drug discovery that accelerates one's business. And so I think that that is the difference that you see, is that distinguishes Lexicon from other people that are attempting ton use transgenic technologies.

If I can just interject, if you look at our Genentech alliance, that was one of the largest knock out programs of its kind and that is going through our systems so nicely, so I think that there are those types of collaborators who are very interested in our drug discovery capabilities and clearly that's is where our knock outs a are playing an important role.

Okay great, thank you very much.

Our next question comes from Karen Vukovich from JP Morgan.

Hi. Can you comment on the progress in the Genentech collaboration, knocking out genes for secreted proteins and what is the outlook for milestones for 2004?

Yes Karen I will comment on that, so the Genentech agreement just to refresh everyone's memory is an agreement that covers 500 secreted proteins and potential antibody targets and it is an agreement that was initiated, now approaching a year and a half ago and we have made significant progress hitting the milestones we have expected to hit so far. We continue to expect to hit our milestones for 2004 under that agreement which would include the initiation of all 500 and the progression of several of the 500 through the knock out process of the analysis process.

So that agreement continues to be on track and as Julia mentioned in her reply to the last question, that I think is quite a remarkable alliance and agreement because it was in fact the largest single launch of the knock out program on the single genes family category, that being antibody target, secreted protein target under Genetech's Speedy program or secreted protein discovery.

So it continues to be on track and we are hitting our milestone under that agreement

Okay, and with the new Takeda agreement, how many targets is Takeda likely to pursue in the next year? How many are available and how many are they likely to produce?

Well we believe that they will pursue at least one a year.

Are there similar deals to the Takeda deal in the making and if so how close are they, and I am just curious as to how many potential drug targets are available, at least on average in some different therapeutic areas.

Well, I'll tell you, the last part of your question first, we are finding the therapeutic areas are rather evenly distributed in terms of the numbers of targets that fall into the major therapeutic categories. Now with regard to hypertension, that is a very specific disease indication and we are looking for a very particular type of mechanism there. By that I mean a target that when hit, lowers blood pressure in a therapeutic window. So that is I think what contributes to hypertension being a much more narrow and specific disease indication and I think relatively fewer targets that are safe and effective for lowering blood pressure in that kind of therapeutic window that is required to do that, safely in humans.

Our lead program in that area, LG105 which has moved forward quite nicely, is such a small module target that when blocked results in lower blood pressure, a very nice therapeutic finding. So if you look up broadly at the six therapeutic areas we see a generally a fairly even distribution of discovery among the six major therapeutic areas. Hypertension is a fraction of the therapeutic area of cardiology. That was the second part of your question, the first part could you restate that.

Are there other deals in the making on the specific indications and if so, how close are they to happening.

I guess Karen that what I could say about that, is that our system is so robust, that as I mentioned earlier there are multiple ways that we can partner. Clearly we have the ability to partner other specific programs and we are speaking about some specific programs currently, in terms of the timing of those collaborations, I think I will continue to guide everyone yet to another alliance this year, but as to the specifics of whether it will be a full therapeutic area alliance or one specific program, or not, I think that, that is hard for me to say which one it will be.

Okay, two more questions if I may, what is the status of the lead program in the BMS neurology collaboration, what is the latest on that?

Well are you referring to the cognition program?

yeah

Okay so that is as you know treated in a special fashion under that alliance and that Lexicon has retained that as our lead programs with BMS having an option to license it if we choose to before we enter (inaudible) so it is not strictly speaking already under that alliance treated in a special fashion, but that program is progressing on the chemistry front. It is at lead optimization phases, it is a small molecule program, we are developing small molecules that are able to cross the blood brand barrier, it is a target LG617 does express only in the brain, so it is necessary to get over that hurdle which we are doing and then we have - of course are working at the same time on potency and selectivity, so it is of the lead optimization phases and medicinal chemistry at this stage.

Okay thank you,

Sure

And my last question is for Julia, do you expect the license fees to increase in the third quarter and fourth quarter, I mean do you expect them to continue the subscription and license either to decline, stabilize or bounce around?

I think that is a very good question Karen, because it is very difficult to predict license fees based on the historical quarters. What we find is that the license fees make our quarters very lumpy and so they can bounce around as you said we can go from very different numbers as you said.

They are one-time fees in many cases not always and chances are they can make our quarters lumpy so we could have lumpy quarters, it is difficult to predict.

Just for -- the second half, do you think it will be similar to the first half as far as subscription an license fees? Or do you have an idea of the general?

Well for the first 6 months of - - to year, there were $6m in subscription and license fees. I think and once again - - I think we know exactly what - - what some of that will be is because it's less vision but it's hard to predict the rest of the quarters.

So, it's hard for me to guide specifically on that.

Okay, thank you very much.

Julia Gregory, Arthur Sands: Thank you.

Our next question comes from Jason Kantor from WR Hambrecht

Thanks for taking my call. With regards to the Takeda agreement, I didn't quite understand that. You get [Inaudible] when they select a target but were there any initial targets that were put into this collaboration apart from the 12 million fee or is (indiscernible) LG105 is in-house pay another 5.5m?

Right, so Jason you're absolutely correct there. If they choose LG105 they should pay up to 5.5 million.

How does that up to a portion of the 5.5 million work?

I think that they have the ability to - - well, how does the up to work?

Yes.

Well - -

I mean is it different for different targets or do they have pay some now and then pay more later?

For LG105, we're closer - - that one is a more developed target for us at Lexicon. It's a very exciting this novel mechanism of action. So, we have the ability to be at the upper end of the up too with the LG105.

I see and in your guidance are you assuming that they set at least one target this year and that you approach that immediately?

I have not included all of that in this year's guidance.

Okay. Is it reasonable for us to assume that? Or you know, what point do they have to make this selection and how much work are required to do to clinically - - you know, what's your motivation to move these things into late optimization that sort of stuff? Do you get reimbursed back for expenses you put in? When do they actually choose these targets?

That is a really good question Jason. Basically, we don't have to do very much more for LG105 to move into their analysis. And once they analyze this they can then determine whether they will select it or not.

So, I would - - in terms of guidance as to whether we put the 5.5 million in this year, the - - you know me I've been very conservative. I'm always very conservative and consequently, I think that while there is an opportunity for some of that revenue to go in this year, my preference is always to be more conservative. I would put it in next year.

Jason, I'm going to answer the work flow portion of your question. Takeda will be responsible for all the chemistry portion of the alliance. So, we are not working on these targets with regards to chemistry.

There are obligation and expense and then - - and they pick the molecules forward into the development as well.

Okay and then one other question in terms of the I&Ds that you are expecting. You have signaled that you have two I&Ds next year. And you said you had two small molecules programs and several Leeds Anti-body programs. You know, how possible is it that there is more than two I&Ds? And what do you think in terms of antibodies versus small molecules is it likely to be more antibodies coming into the clinic? And are these going to be partners or are these going to be around?

I think that we have a whole pipe line to choose for which one will be the I&D. I think I would focus on two I&Ds is a very excellent goal to achieve for 2005 and then a pipeline of future I&Ds after that.

The portfolio is balanced between small molecules and antibodies and I think that that reduces our risk and gives us a much greater likelihood of making our goals and our targets for I&D filings.

I think - - so, we have both and we have spent most of the time detailing the small molecule programs with regards to obesity and LD653 and Oncology. I think as we go forward we're going to be more descriptive about our antibody programs which have to-date not really disclosed much on.

Some of those programs will be under partnership and others will be internally developed by Lexicon. So, there are both varieties in that case. And again that actually reduces risk as well because partners -of course can be very helpful, especially those with a lot of expertise with antibody development. So I think we'll be telling you a lot more in the second half as to which programs will be the clinical candidate selection, that's our goal fro this year is to identify those for selection.

thanks

thanks.

Our next question comes from Sharon Seiler form Punk, Ziegel and Company

Well, good morning. A follow up on the question about the target selection and research payments, did those vary according to how valuable the target is perceived to be, according to how much work you've put into before Takeda selected or they - do they reflect how far forward Takeda takes it from the time that its selected.

No, they really are mostly the same, and once again the way we're - LG105 that is - one that they will analyze pretty quickly and we're very enthusiastic about that. The novel mechanisms of action that we will continue to find in the Genome are the - we will propose to them and they will have an opportunity to review that - those programs before they select it. So I think they're - they're - they differentiate only in - we have that one that is ready for them to analyze and others that will be coming in the future.

And is the payment at the time of selection and if so was that - be able to announce for any of the targets mounted for 105?

What I - yes I think we will be announce when they move forward on these Sharon, but I also think for planning purposes what we believe is that they will be selecting one per year.

Okay, and what happens with targets that Takeda does not want to take forward for one reason or another, I understand that they revert to you, do you have any obligations to them in terms of royalties and milestone payments.

The ones that they choose not to move forward we - they revert to us and so we will work on those novel mechanism of actions for hyper tension. If in fact they revert back to us at a later stage we have the opportunity also to work on compound. If in fact they return to us assets that have been further advanced with proprietary materials from them, then we will have an obligation to pay them some milestones and royalties as well, but at a reduced rate.

Okay thanks.

Our next question comes from Turek Hassume (ph) from CIBC World Market

Hi there, so congratulations on the Takeda agreement first of all.

Thanks

And also I wanted to get actually shift gears a little bit and talk a little bit about the 653 program, that's you know an area in obesity -obesity is an area (inaudible) of sales, and I wanted to get an idea from how this target is differentiated from other targets that have been explored previously and just get a bit more specific on where the program is as well.

Alright. Well the LG 653 target and mechanism of action is novel, completely novel for obesity so it has never been explored in the clinic it has been validated by us physiologically in our gene knock-out studies to cause a lean phenotype, a very desirable leanness, and that has been proven many ways by us and we've described it, I think in a number of talks. It is an enzyme target that when blocked results in this desirable lean trait. So it is a novel mechanism, it has no toxicity, the fundamental mechanism of action we can detect no toxicity and that is, I think, a very big positive - that is some of the other targets that have been explored previously in humans actually have mechanism based toxicity which means that on target type of problems could really never get away from or is extremely difficult to get away from with any similarly acting drug. So the first step to a clean - real breakthrough in obesity is a clean obesity target that when blocked will result in a lean body type, and that's what LG653 does for us.

So we're very enthusiastic about this program of being a novel safe approach to reduction of body fat, I think when one finds the right target, on can modulate certain primer of life body fat as we now have seen modulation of cholesterol levels and lipid levels in a safe fashion with safe targets. I believe the same thing will happen with body fat. So where is the program now, we are testing compounds in animal models of obesity, diet induced obesity specifically which is the major cause of obesity in the United States, its diet related obesity and we are achieving certain early (indiscernible) we'll be describing I think, that more in the second half as our pre-clinical research is proceeding. So we have several lead molecules, they're highly potent, they're orally bio available and they are currently in pre-clinical research.

And just a very quick follow up to that. Do you believe the compound, from what you know of it so far or perhaps the potential compounds will be acting centrally of peripherally?

Good question is expressed rather broadly, so its expressed really throughout the body, including the brain, so the gene expression profile here doesn't really give us a clue, we're exploring compounds that both do enter to the brain those do not and that should give us - shed some light on that subject. However I think it's a little bit early to tell at which location and which organs specifically does - this mechanism is operating.

What the knock out tells us is that with a global block we do find a reduction of body fat and that --- I should also mentioned that's a complete knock out on (indiscernible) but by blocking the enzyme 50% in the heterozygote stage we also see a reduction in body fats. So we know quantitatively at this point that even partial inhibition of the enzyme function does produce the desirable therapeutic results. I think our future studies will tell us where the distribution of the location of the action- might actually be taking place. But I think the more important think is that quantitatively we're in a very good position to block this enzyme and see a therapeutic result.

Very good thank you.

Thanks.

And we do have a follow up question from Sharon Seiler from Punk Ziegel and Company.

Hi I was hoping you could just up date us on some of the other programs I know we spoke about 653 and 152 and I guess 105 and 617. Can you tell us - that any other programs that you're looking at potential I&D candidate for next year?

Well in terms of potential I&D candidate for next year I think really the small molecule programs that we've highlighted are those that are at the advance stages that couldn't be part of that discussion. If you look at the antibodies programs there are -we do have some novel programs there that I do believe in the second half we'll describe more of. As you know Greg Landes just joined us our vice president of bio-therapeutics, his history at both Abgenix and Genzyme has been significant as he led their discovery programs. And he will really be taking the lead there and describing the portfolio I think in the second half.

But many of our antibody programs that are lead at this point could end up being interesting I&D candidate in the 2005 time frame. I think some of the other earlier programs that we've not discussed a lot about includes those in immunology and cancer that are follow up programs that are part of the pipe line behind LG152. And those programs are proceeding very well through our med cam program at this time. We have other programs in obesity and diabetes we've been focusing a lot on LG253 to lead but I should say there are 10 other programs in that therapeutic area of metabolism that are also proceeding and some of those and some very exciting phenotypes.

So there is a whole rope of pipe line behind these. Lately as you know we've been focusing most attention on the lead programs and moving those into the clinic. So we spent most of our time talking about those. The other programs in the pipe line are moving along as well.

Okay can you give us any sense of which therapeutic area are which of the remaining therapeutic areas and which therapeutic indications seem to be, are the focuses of most interest from potential partners?

Yes one of the hottest areas is metabolism and obesity and it has become now at the forum of many people's thinking in terms of one of the largest unmet medical needs. And you know you really can't pick up any paper today and not read something about it. It's on the, I think the top list for most of the major pharmaceutical companies as well who already have active programs and cholesterol management and other kinds of metabolic management programs. So I think that one is certainly one of the hottest areas.

And fortunate for Lexicon it turns out to be one of the most productive for us given our strain because all of the (indiscernible) zone 5000 genes are tested for their direct effect on body fat accumulation, blood sugar regulations, cholesterol levels and lipid levels and these are all very, very strong and reliable bio markers to test novel targets. So I think that's a very hot area. In terms of our strategy we do seek to partners out there that would require very large clinical trial, financial obligations, management and then ultimately even large commercialization efforts. Because that creates a real win win situation for Lexicon and the partner. And that's part of the general approach to partnership in the therapeutic area.

Okay thanks.

Thanks.

There is yet a follow up question from Jason Kantor from WR Hambrecht

Hi thanks for taking my follow up. Julia I just want to go back to this revenue guidance for the year because you know you're seeing -- but if you look at the first half how much revenue came in I really looking for a pretty big step up on the first half level to the second half about close to $14m more, if you're not including one of the 5.5 million mile stones. Even if you do a big deal near the end of the year you'll only get to recognize a small portion of that as revenue and the Takeda deal is 12 million over 3 years we've had 1 million per quarter. What am I missing out there, are there - are you just - how very visible big mile stone payment from other collaborators (indiscernible) or what are you assuming?

Well again as I mentioned we do believe that we have very strong opportunities for substantial collaborations, Jason. I also believe we have very strong possibility for license fee agreements as well and clearly that get to some of the comments that Karen was making. So I think that and I did say a little earlier that that will tend to make our quarters lumpy because we recognize those revenues at one time. So all those are included in our guidance for the year. And we feel very confident today that we have good ability to achieve those revenues.

Arthur Sands But even if another deal the size of the Bristol or even bigger if it came in the fourth quarter it clearly won't bring in that much in terms of revenue recognized.

The later they come in the quarter the harder it - the later they come in the quarter the less of the revenue portion can be recognized and clearly it depends on the size of the collaboration and how much revenue there is.

Sure, yes.

I think as you look at some of the analysis that we had - actually just look at the historical basis on some of the revenues that we have been able to obtain on a quarter to quarter basis you'll notice that the lumpiness of the quarter do seem to be derived from license fees. And we do believe we have potential for those as well. And they are also substantial. So I feel good about --- I feel good sitting here today. I feel very good about our revenue opportunities. And at this point in time seeing what I see on the horizons I think that we have an even better chance this year than we've had in any year before in meeting these goals.

Thank you.

And we do have one follow up question from Anna Balconay-Mason, UBS.

Hi (multiple speakers) it is me again. Just a quick question sorry if I missed this earlier but the I&Ds you expect for next year does that include the I&Ds that could potentially go in by your partners or just your own?

Those are our own internal programs, yes.

Okay great, thank you that's very helpful.

Sure.

There are no more questions in queue at this time, so I'd like to turn the call back over for closing remarks.

Alright well it's been a very strong quarter I'll like to thank every one for participating and we look forward to keeping you up dated thank you very much.

You may now disconnect.