Lexicon Pharmaceuticals Inc (LXRX) 2005 Q1 法說會逐字稿

Please stand by, we are about to begin. Good day and welcome to this Lexicon Genetics first quarter 2005 conference call. At this time all participants are in a listen-only mode. There will be a question and answer session to follow. Please be advised that this call is being recorded. At this time I'd like to introduce your host for today's call, Ms. Carol Schafer, Vice President of Financial -- Finance and Communications. Please go ahead.

Good morning and welcome to the Lexicon Genetics First Quarter 2005 Conference Call. I'm Carol Schafer, Vice President of Finance and Communications at Lexicon. 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 have seen a copy of our earnings press release that was distributed this morning. During this call we'll review the information provided in the release and then use the remainder of our time to answer your questions. The call will begin with Dr. Sands who will discuss our key scientific and corporate development accomplishments during the first quarter of 2005. Ms Gregory will then review our financial results for the first quarter of 2005 and discuss our financial guidance for the second quarter and full year.

We 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, alliances and license agreements, the success and productivity of our drug discovery efforts, our ability to obtain patent protection for our discoveries, commercial limitations imposed by patents or their control by third parties, our dependence upon strategic alliances as we're 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 list 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 Carol and good morning everyone. As Carol said, I'll begin with a brief review of Lexicon's progress in the first quarter of 2005, and then we will turn to a discussion of our financial results.

During the past quarter, our drug discovery pipeline continued to grow and mature. We have now completed the analysis of more than 2,250 genes in our Genome 5000 program and are on track to fully analyze 1000 genes this year. To date, our analysis has yielded more than 60 programs that demonstrate potential new mechanisms for treating important diseases.

Our 2 recently announced clinical candidates are LX-1521 for cancer, and LX-5431 for thrombocytopenia. LX-1521 is a novel, small molecule compound that works by blocking the cell cycle prior to cell division, resulting in cancer cell death through apoptosis. In pre-clinical studies, LX-1521 demonstrates anti-tumor activity similar to tactile control, when administered by injection in certain models of human cancer with a favorable safety profile. It also demonstrates good oral bio-volubility (ph) in mouse and non-rodent species. We are currently exploring formulation methodology to optimize bio-volubility (ph) of LX-1521. We expect to commence formal pre-clinical safety studies in May. We continue to target I&D filing for this program, by the end of the year, assuming favorable results from ongoing pre-clinical research.

LX-5431 is a novel recombinant human protein with potential for treating thrombocytopenia, a disorder characterized by a reduction of platelets in the blood that can lead to severe bleeding. Lexicon demonstrated that LX-5431 can stimulate the production of platelet forming cells called megakaryocytes. We are currently working to produce the recombinant form of this protein with high specific activity and in quantities required for pre-clinical and early clinical development.

In addition to our lead programs, we have a growing pipeline of small molecules and bio-therapeutics that could advance to the stage of pre-clinical candidate (ph) within the balance of the year. We have 6 small molecule drug-discovery programs at or beyond the lead optimization phase of compound development. We also have several promising bio-therapeutic programs, for which we have developed antibodies, and we look forward to introducing those to you in the near term.

Our alliance has continued to be on track, both in terms of the achievement of upcoming milestone payments and our rate of scientific progress. The largest of these projected milestones relates to the identification of the physiologic functions of the remaining 250 proteins in our drug discovery alliance with Genentech. We expect to complete this work by the end of the year.

Lastly, we continue to demonstrate the strength of our intellectual property portfolio. We recently announced the $4 million payment from Deltagen as part of the settlement of our claim in Deltagen's bankruptcy proceedings. In addition to the upfront payment we will also receive payments based on Deltagen's future revenues for knockout mice.

I will now turn over the call to Julia Gregory to review our first quarter financial results and provide guidance for the second quarter and full year 2005.

Thank you Arthur. In the first quarter of 2005 Lexicon's performance relative to our financial guidance was very strong. I would like to review our financial results with you and discuss our guidance for the second quarter and full year of 2005.

Lexicon's revenue for the 3 months, ended March 31, 2005, increased 18% to 13.9 million from 11.8 million for the corresponding period in 2004, marking the strongest first quarter performance in the history of the company. The increase was primarily attributable to the $4 million payment we received from Deltagen. This payment which once again demonstrates our ability to generate revenues from our intellectual property enabled us to significantly exceed our original revenue guidance for the quarter of 9 million to $10 million.

Revenue recognized under Lexicons neuro science drug discovery alliance with Bristol-Myers Squibb was the largest contributor to revenues in the first quarter of both 2005 and 2004. Research and development expenses for the first quarter 2005 increased slightly to 22.8 million from 22.4 million for the corresponding period in 2004. The increase reflects the hiring of additional personnel to support the expansion and advancement of our drug discovery program and the cost of external research related to our pre-clinical activity. The absolute size of the increase was small because it was offset by the elimination of the financial obligations associated with the life seek (ph) goal database and the absence of any stock based compensation expense in the first quarter of 2005.

General and administrative expenses for the 3 months, ended March 31, 2005 decreased 12% to 4.4 million from $5 million for the corresponding period in 2004. This decrease is primarily attributable to the absence of any stock based compensation expense in the first quarter in 2005. In general, we are carefully controlling our expenses in personnel growth.

Lexicon's net loss decreased on a year/year basis for the fifth consecutive quarter. For the 3 months ended March 31, 2005, our net loss decreased to 13.3 million from a net loss of 15.5 million in the corresponding period in 2004. Net loss per share for the 3 months ended March 31, 2005 was 21 cents which compared to favorably to both our net loss of 25 cents for the corresponding period in 2004 and to our guidance of a net loss of 32 cents to 34 cents per share for the 2005 quarter. As of December 31, 2004 Lexicon had cashed in investments of 70.7 million as compared to 87.6 million as of December 31, 2004.

Now let's turn to our forward-looking guidance for Lexicon's financial outlook in the second quarter and remainder of 2005. Revenue for the second quarter 2005 should be in the range of 9 to 11 million. This revenue is primarily the result of our alliances with Bristol-Myers Squibb, Takeda and Genentech. Operating expenses for the second quarter are projected to range from 28 to 30 million this reflects among other things the cost of the I&D enabling studies underway for LX-1521 and the cost associated with the scale of approaching for LX-5431.

We are projecting a net loss for the quarter to range from 19 to 21 million or 30 cents to 33 cents per share. I should note that our quarterly operating results have fluctuated in the past 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.

We confirm our original revenue guidance for 2005 was 70 to 75 million. If we exclude contractually committed revenues of $48 million for 2005 from that range and subtract the revenue associated with Deltagen, you can see that we can expect to generate 18 to $23 million in revenue from new drug discovery collaboration, government initiatives and other contracts. However we cannot guarantee the signing of any of those contracts or predict their timing.

We are favorably adjusting our expenses in our net loss guidance for the year. Our original projections for research and development and general and administrative expenses in 2005 reflected approximately $5 million of non-cash charges related to (inaudible) in accordance with FAS 123R. Because we will not be required to expense these charges until January 1, 2006, we are appropriately adjusting our expense and net loss guidance.

We now expect our full year 2005 operating expenses to range from 120 million to 125 million. This reflects projected research and development expenses for 2005 to 100 to 103 million and in general and administrative expenses of 20 to 22 million. Overall, we are projecting our net loss for 2005 to range from 49 to 52 million or 77 cents per share to 82 cents per share. This compares favorably to our original net loss guidance for the year of 56 to 59 million or 88 cents to 93 cents per share. Our 2005 net loss is calculated based on weighted average shares outstanding of 63.9 million shares.

I'd like to reiterate that we expect our cash used in operations and for capital expenditures to range from 25 to $30 million for 2005. We expect that our current cash and investments coupled with anticipated revenue will be sufficient to fund our operations for at least the next 2 years.

Overall, I am very pleased with our financial performance for the first quarter of 2005 and particularly pleased with our continued success in translating our drug discovery programs and intellectual property assets into revenue growth.

Thank you and now Arthur and I will answer any questions you may have.

[Operator Instructions]. Our first question will come from Ted Tinthall (ph) with Piper Jaffrey.

Hi guys, nice quarter, how's everything going?

Good, thanks Ted.

Great, that was my question.

It's been a great -- it could have been a great quarter. It's a great year for us. We are really enthusiastic about the year.

Good. Very specifically, just with the Deltagen payment, congratulations on getting that from them. You'd mentioned that there could be payments in the future. I was a little confused how that might be if they are out of business.

Well ...

Are they still collecting revenues or --?

They have the opportunity since they are in bankruptcy proceedings, to come out of bankruptcy proceedings and continue with a streamlined business, as will be their plan. We're not really sure what their plan is going to be.

As you know we had settled a patent infringement litigation with them in 2001. And under the terms of that settlement, they were obligated to provide us with certain deliverables. And principally, we have added to the deliverables really to their library, of knockout mice and their phenotypic information. As you recall Ted.

I recall from being on the other side.

Right, and when they filed for bankruptcy in 2003, we filed a claim in the case relating to all those obligations that were not performed. So in reaching the settlement -- and under the new settlement, the $4 million as you see, they've paid us. But we also have the ability to receive royalties related to existing materials. Their existing materials that they have on hand at this time until we receive an additional $6 million. And in addition to that they will pay us royalties on any new materials made using our patented technology.

So there are opportunities for them. We imagine and if those opportunities do take place we have the ability to capture additional revenues.

Excellent and then just a quick follow-up. I know you are somewhat constrained with respect to what you can say regarding new partnerships. But can you give us an idea of what the environments' like out there with some of the changes that have been taking place at pharma and biotech and just sort of the general feel if you could?

Well, we just -- we just returned from a partnering meeting where our dance card was pretty full. But in terms of the current environment, what we're finding is that the marketplace is really very, very interested in novel targets. And there's been a real strong activity coming in our direction to exploring partnership opportunities to collaborate on the Lexicon programs.

The scientific reputation that we have has put our corporate development team in an excellent position to negotiate and work with some very, very strong collaborators out there in today's marketplace and the strong partners are the partners we're looking for, ones who can really bring to the table their expertise and multiple areas combined with our expertise to join us in our vision and sense of urgency to accelerate the development and commercialization of these programs.

Great, well keep on dancing.

Well, one thing, if I could just add to that.

Yes (inaudible).

Hi. It's the -- we're seeing tremendous movement on both the biologic front as well as the small molecule front. As you know I think one of the unique things about our program is that it does directly feed into both antibiotic discovery and therapeutic protein discovery, as well as the small molecule discovery. And we have both programs maturing here and we see a lot of activity on both fronts.

Excellent, well thank you so much.

Thanks.

Now moving to Annabel Samimy with UBS.

Thanks a lot for taking my call. Just if we think -- is there any way we can get a bit more of an update on some of your more advanced programs outside of 1521, 5431, just to get -- see more details on where you are on those and what might be the most interesting things coming up?

Right, OK, yes, I'd like to do that Annabel? We have -- I think, to me, one of the most fascinating programs that is moving forward in our pipeline is LG-617 for cognition. As you'll recall, perhaps from the -- our early disclosures of the target it -- this is a membrane protein expressed only in the brain. It is high homology, high similarity between mouse and human. And we have put that knockout through the analysis that led us to realize that by blocking the target, we have actually an increase in learning and memory associated with that target.

And so that had gone into our chemistry program in New Jersey to develop an antagonist of the target. We now have small molecular wave compounds that are orally bio-voluble, that penetrate the blood-brain barrier very well and that are in pre-clinical research and are demonstrating some early findings of enhancing learning and memory in our animal models.

So that is a program that is proceeding very nicely in pre-clinical research. And we hope to see that develop as we study now the safety profile in greater detail. But as you can imagine, that would certainly be in the category of breakthrough programs. There is really nothing out there directly addressing the function of cognition. There are other programs people are pursuing on the pathway of Alzheimer's disease formation. But we're talking about something that would not only include Alzheimer's as a potential (inaudible) for cognition, but could be much broader.

Basically any indication that resulted in cognizance dysfunction, one could imagine for this -- for this agent.

I'm sorry, this is the one that Bristol holds an option to if they choose?

(Inaudible).

Yes. If we choose to partner, then they -- we would bring it to Bristol first before we entered -- studied the man (ph). If we go forward ourselves into man, then there's no option for Bristol in the program.

But clearly they're such a good partner of ours at this point, we would want to show it to them. As long we're very excited about the potential for the program itself.

OK, great. Also just a quick question on the Takeda alliance. Can you give us an update on target selection -- where you are with that? Where they are with that, rather?

Yes, so the Takeda alliance has been focused on 1 primary target, which was LG-105 and that has been proceeding through their process of (inaudible) screening and now evaluation of their hit and lead (ph) molecules. And the way that alliance is engineered, they will be able to act, in terms of selecting that target, based on their findings with it in the near future. So it -- they also are examining other potential hypertension targets that come along, but I will say that 105 has shown incredible -- really shown some incredible results through the (inaudible) screening phases.

For each, then, target, Lexicon will receive up to 5.5 million for each target selected by Takeda. So the program is moving along very well. And there has been a number of new hypertension targets we've found under it.

OK you've already received a certain amount of 5.5 for LG-105 correct?

That's correct.

OK. And is that remaining of that 5.5 or 6 left or is that already part of your guidance or your committed revenues or is that something that's potentially for the uncommitted part?

No, I -- it's included.

OK. Great. Thank you very much.

Thanks.

And now hearing from Sharon Siegal (ph) (inaudible) Siegal (ph).

Two questions. One, just a follow-up on Ted's question. Could you perhaps, give us some idea of what you view as gating (ph) factors in your discussions with potential partners? And also, can you give us perhaps, a better timeline as to when you would expect to nominate additional pre-clinical candidates?

Well, in terms of gating (ph) factors, I think that at this point in time, it's just time, in getting things -- getting things done. That, more than anything else. I think that the opportunities have been pretty strong opportunities. And then it's always selecting the right partner with the same strategic interests. But, I just think it's time. And I really -- I'll continue to go out on a limb and say, I really hope to get things done before December 17th this year.

Well, Sharon, hello. On the second part of your question regarding clinical candidates ...

Right.

So, we hope in the second -- I'd say in the second half to have the kind of data that we require, which is pretty stringent, before we move forward on new clinical candidates. As you can imagine, we really look for in-viva proof of concept that fits the Lexicon paradigm.

And I do believe for a pre-clinical candidate that does need a higher standard in general. That is typical in the industry. And I believe that that higher standard will lead to a higher success rate when we do out of the clinic. But, that's about as much of a timing, I think I can give you at this point. It does depend on the experiments that are in progress.

OK. Do you still anticipate nominating for such candidates this year, which I think has been your guidance previously?

Yes. That continues to be our guidance.

OK. Thank you.

And now we'll take a question from Sapna (inaudible) Mortgage Gammon (ph).

Yes, hi. I just had a question I -- maybe -- I apologize if I missed it earlier. Is there any guidance on what kind of partnerships to expect for the remainder of the year?

Well, we haven't got it on a specific partnership, but we have multiple ways that we can partner. We can partner in therapeutic area alliance in one of the other 5 therapeutic areas that we have not partnered at this point. We could partner with a selected program or selected programs. We could partner a gene class, as we have before with Genentech. I think those types of partnerships are very doable.

Correct.

I mean, timing -- I mean Sharon asked a little earlier, Sapna, about timing and timing is always difficult to predict. But we are working pretty hard on a lot of different efforts at this point. We also have very serious opportunities in the government area. There are governments very interested in our technology and bio-defense has been an area of strong interest as you've seen. And we have a recent grant with (inaudible) to find life in resistance genes. So, that's been an active area for us as well.

Sapna, if I could add one thing in terms of the corporate partnerships, I think one of the goals in all of these discussions which cover, that's really indicated many different forms. One of the goals is for Lexicon to have an ever increasing share in the drug development process itself and ownership position in the drugs that result from partnerships, I think that will be perhaps a new dimension to some of the partnerships worth exploring now.

OK, thank you.

Thanks.

And with that, that's all the time we have for questions. I'll turn it back over to your speakers for closing remarks.

Well, thank you very much for participating and we look forward to keeping you updated. 'Bye, 'bye.

That will conclude today's program. We do thank you for your participation. Everyone may now disconnect. Have a wonderful day.