Lexicon Pharmaceuticals Inc (LXRX) 2007 Q1 法說會逐字稿

Welcome to the Lexicon Pharmaceuticals first quarter 2007 Conference Call. (Operator Instructions). 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, Bobbie Faulkner, Manager of Investor Relations. Please go ahead, Ms. Faulkner.

Good morning and welcome to the Lexicon Pharmaceuticals first quarter 2007 conference call. I am Bobbie Faulkner, Manager of Investor Relations at Lexicon and with me today are Dr. Arthur Sands, Lexicon's President and Chief Executive Officer, Julia Gregory, Executive Vice President and Chief Financial Officer, and Dr. Philip Brown, Vice President of Clinical Development. We expect that 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, 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 first quarter of 2007. Ms. Gregory will review our financial results for the first quarter of 2007 and discuss our financial guidance for the second and full year. Dr. Brown will then discuss our drug development program. We will then open the call to your questions.

Before we begin 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, the timing and results of pre-clinical studies and clinical trials of LX6171, LX1031, LX1032, LX2931 and other potential drug candidates, our ability to obtain patent protection for our discoveries, limitations imposed by patents owned or controlled by third parties, our dependence upon strategic alliances and the requirements of substantial funding to conduct our research and development activities. For a list and a description of the risks and uncertainties that we face please see the reports that we have filed with the Securities and Exchange Commission.

I will now turn the call over to Dr. Sands.

Thank you very much and welcome to the call. We had a very big quarter. This quarter we announced our 10 to 10 program, which captured the initiative of moving 10 new drug candidates into human clinical trials by the end of 2010 and so much of our activities this quarter and during the year will be, of course, focused on the advancement of that pipeline. That pipeline we anticipate will not only consist of our internal drug discovery programs but also certain programs that are going to be resulting from our collaborations, our external collaborations, with Genentech, Bristol-Myers Squibb, Organon and Takeda.

Also this quarter, of course, we changed our name reflecting this advanced direction into the clinic. The name Lexicon Pharmaceuticals is also symbolized in our new stock symbol, LXRX, which we also think is appropriate reflecting our move into prescription drugs. We'll spend most of the call at the end with Dr. Brown reviewing our clinical programs. He'll review LX6171, our compound for cognition, which has advanced to phase I-b. He'll also review LX1031 for irritable bowel syndrome and as well we'll discuss briefly two new compounds coming forward, LX1032 and 2931 we can talk about, which we anticipate I&D filing by the fourth quarter of this year.

In addition, we have some major new I'd say very significant additions to our leadership team. First, Kathleen Wiltsey formerly of Amgen, was elected to the Company's Board of Directors and she brings a wealth of biotech experience and also experience with regard to the launching a new drug. She was responsible of the launch, the marketing launch of EPO. And then as part of the management team, Tamar Howson, formerly of BMS joined Lexicon as Executive Vice President of Business Development and so we look forward to Tamara's contributions on that front.

So I just wanted to give a very brief summary of some of the key accomplishments over the year. I will now turn the call over to Julia Gregory and then we'll return with Dr. Philip Brown to review the clinical programs.

We issued a Press Release this morning detailing our first quarter 2007 financial results, which you may find on our website if you have not already reviewed it. I am pleased that we exceeded revenue guidance in the first quarter of this year. Lexicon's revenues for the three months ended March 31, 2007 were $13.5 million, a decrease of 36% from $21 million for the corresponding period in 2006. The decrease was primarily attributable to a $5 million performance milestone under the hypertension drug discovery of [Lawrence Takeda] that was recognized in last year's first quarter.

In addition, the decrease also reflects our completion of revenue recognition at the end of 2006 for the upfront payment received in 2003 under Lexicon's alliance with Bristol-Myers Squibb. Our first quarter statement reflects this completion.

Recent and development expenses for the 2007 first quarter increased 2% to $27.3 million from $26.7 million for the corresponding period in 2006, primarily due to external clinical costs related to the advancement of Lexicon's drug development program. General and administrative expenses for the 2007 first quarter remain flat at $5.3 million with a corresponding period in 2006.

Lexicon's net loss for the three months ended March 31, 2007 was $18.9 million or $0.24 per share compared to a net loss of $10.8 million or $0.17 per share in the corresponding period in 2006 including $1.6 million of non-cash stock based compensation expense. As of March 31, 2007 we had cash and investments of $59.5 million as compared to $80 million as of December 31, 2006.

Now let's turn to our forward-looking financial guidance for the second quarter and remainder of 2007. Revenues for the second quarter 2007 should be in the range of $10 million to $12 million. Projected second quarter revenue primarily consists of the revenue recognized under our alliances with Bristol-Myers Squibb, Organon and Genentech and our award from the Texas Enterprise Fund.

Operating expenses for the second quarter are projected to range from $31 million to $33 million. This reflects, among other things, the external pre-clinical and clinical costs related to our drug development programs and stock based compensation expense of approximately $2 million in the quarter. We are projecting our net loss for the second quarter, including stock based compensation expense to range from $20 million to $22 million or $0.26 to $0.28 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.

Our full-year guidance consists of projected revenues of $75 million to $78 million, total operating expenses to remain relatively flat compared to 2006 and range from $128 million to $133 million including $6 million to $8 million of non-cash charges related to stock based compensation expense, and a net loss of $55 million to $58 million or $0.71 to $0.74 per share based on weighted average shares outstanding of 78.3 million.

Capital expenditures are now projected to be approximately $2 million to $3 million for 2007 and cash to be used in operations and for capital expenditures in 2007 will now total approximately $25 million to $30 million.

At this time I'd like to turn the call over to Philip Brown to review our drug development program. Phil?

I'd like to just give you a brief update on the status of our development programs. We've continued to make progress on both fronts with our emerging development candidates. 6171, as you may recall, is our program directed towards cognitive enhancement. This particular gene target regulates learning and memory. 6171 is an orally by available small molecule where we had very robust and reproducible pharmacology models in learning and memory and an excellent pre-clinical safety profile. As you recall, we entered our first in man phase I-a study with this compound last Fall. We were successful at escalating to the highest dose level we wished to probe clinically, which was 2,000 milligrams of single doses. This was well tolerated. We achieved excellent systemic exposure with the compound. It's important that the blood levels we achieved through single dose studies exceeding those that were required to drive pharmacology in our animal models and the half life of the compound appears to support once daily dosing.

This quarter we've initiated our multi-dose tolerance study, our phase I-b with this compound, again in normal healthy volunteers. This is a very classical design, double blind randomized placebo controlled, multiple ascending dose tolerance study. Importantly, we integrated a cohort of elderly volunteers aged 65 to 80 in this particular study in order to probe the safety and pharmaco kinetics of the compound in anticipation of the patient population, which would be our primary focus for a proof of concept study. This particular study again focused on the safety and tolerability in pharmaco kinetics of the compound. We have integrated a cognitive assessment in this study as we did in our first in man study and we have completed dosing on this particular program so we've made good headway on that front. We are currently analyzing the data and we anticipate top line results from this study in the early summer time frame.

LX1031 is our program that's directed toward irritable bowel syndrome and other gastrointestinal disorders. IBS is a very common condition affecting up to 20% of the U.S. population by some estimates. It's a motility disorder but it's also characterized by subjective symptoms of abdominal pain and discomfort. We believe that LX1031 has the potential to influence both the subjective aspects of the disorder, the pain and discomfort that patients experience, but may influence the motility aspects of the disorder as well. In addition, we believe that the compound has potential utility in a variety of other functional gastrointestinal disorders suggesting a very nice life cycle management strategy should evolve over time with the compound.

This compound is orally delivered. It acts locally on the gastrointestinal tract and importantly we've seen little evidence of systemic exposure with the compound and that's important for us because it bodes well for the safety profile of the compound. We've also disclosed that serotonin is a biomarker of this being regulated by this particular compound and we've been able to utilize that biomarker through our pre-clinical pharmacology studies and we believe it's going to have utility as we move the compound into longer term clinical studies.

The first in man phase I-a study was completed this quarter. We were successful in escalating the doses up to a single dose of 2,000 milligrams. Again, this was the highest dose we wished to probe clinically. Importantly, this compound is behaving very consistently with what we saw in pre-clinical studies in that we are seeing little evidence of systemic exposure. We get very low systemic exposure with the compound. And again, the safety profile that's emerging from this initial study is very consistent with what we saw pre-clinically. There were no significant adverse events. There were no laboratory adverse events, clinical chemistry, CBC, urinalysis, any of the parameters that were being studied, all again suggesting we have a very well tolerated compound at the present.

We've recently announced the initiation of our I-b study. This, again, is a very standard study design using normal healthy volunteers. It's a double blind serial ascending multiple dose tolerance study. We are electing to dose out to 14 days in this particular study and this is important for us because serotonin turnover we believe we're not going to be able to detect a difference in that until we've dosed out an extended period of time and allowed for that turnover to occur and see the pharmaco dynamic effect of the drug so this particular study is going out for safety and tolerability purposes for 14 days but it's also important that we begin to get a feel for the biomarker, the effect of the drug on this biomarker of interest. That dosing was initiated. We announced this last week.

So with that, I'll turn the call back over to Arthur.

Well, obviously we're very pleased with the positive results from the I-a study as Phil characterized for 1031 and that is the first time we've discussed those publicly. We have other milestones we look forward to during 2007. I'll just remind you of a few. We did complete the I-b study as Phil indicated also. That was one of our major clinical milestones and we look forward to sharing those results with you a little later on in the summer.

And then also we're moving forward on two new compounds towards IND filing and these are LX1032. This remember is the follow-on drug candidate for 1031 that has different properties with regard to its absorption so unlike LX1031 LX1032 is absorbed into the periphery but, of course, does not cross the blood brain barrier so what this has done for us is open up other potential indications where serotonin is thought to play a role and these would include such non-GI indications as pulmonary arterial hypertension and carcinoid syndrome so we're looking forward to that moving forward towards IND.

And then LX2931, this is our new small molecule for rheumatoid arthritis and other autoimmune diseases and this, again, is the target that modulates lymphocyte migration. This has demonstrated some highly potent results in our pharmacology testing in animal models and we look forward to progressing that through formal pre-clinical development.

In addition, other milestones for the year, the selection of additional clinical candidates that would then be the next generation INDs for the Company and we will during the year be updating you on that front as well. We see programs in diabetes. We see programs in dyslipidemia progressing and programs in ophthalmology just to name a few so the pipeline is very rich and I want to definitely give you all a feeling for that. Ad also you'll notice it takes us into other areas of medicine so it expands our portfolio into these other areas quite significantly, which I think is quite important.

So this expanding portfolio, the last thing I'll close with with regard to the milestones to look forward to, our expanding portfolio really is going to translate into new business collaborations well and they will take different forms as we develop these compounds and we develop our drug discovery programs.

So with that, I will open the call to questions.

(Operator Instructions). We'll go first to Jason Kantor with RBC Capital Markets.

Could you give us a sense of how you think about feeling comfortable about the safety of the serotonin modulator when you're actually not yet having an effect on serotonin levels by doing it single dose study?

Yes I think we can start off with that. Philip, do you want to start or shall I?

Sure. I think-- thanks for the question, Jason. I think certainly the single dose study suggests again a very nice safety profile consistent with what we've seen pre-clinically. In other words, there were no significant AEs that we detected in a consistent fashion or in a dose related fashion. We'll know more, of course, as we go into multi-dose studies. However, I think my view of it is that by modulating peripheral serotonin, serotonin outside the brain, in more of a dimmer switch fashion, just turning this down or being able to tune it down into dose dependent fashion suggests that we should be able to modulate a variety of symptoms that are suffered by patients with IBS and other functional GI-tis orders without compromising safety or tolerability. And I guess to me there is evidence of this with SSRIs or antidepressants where you're modulating the serotonin axis and you see these very well tolerated by the majority of patients and we'll know more as we begin to get extended dosing with compound but all evidence in the pre-clinical study suggests that it's a safe axis and to modulate.

And what are-- what would be the expected TLT or tolerability issues as you escalate over 14 days and are you going to [hytrate] patients to their target dose or are you going to just hit people with an escalated dose?

So the way I approach early phase studies is to come in at a standard dose and dose for the period of time that you're proposing by the protocol. If that dose is tolerated you move up-- and it's proven to be safe-- you move up to the next cohort of the subjects at the next dose level. If you see those limiting tolerability emerge, then you either discontinue that particular cohort or you can go downward in your next cohort but I wouldn't be modulating the dose within a single subject. That's number one. Number two, in terms of anticipating what types of events I might expect, we haven't really seen much in the pre-clinical study suggesting a consistent pattern of an AE or adverse event profile so I could only begin to speculate at that and I'm hesitant to do that. That's the purpose of the trial and we'll escalate the doses as appropriate during the context of the trial.

And one last question, the for on the partnered program side, you made some announcements about Genentech's program that was I guess based on your work with CD program. Is that something that's moving forward or is that just scientifically interesting or is that really a drug developing candidate at this point?

Right, Jason, so the firm you're referring to was discussed at a conference in Montreal by Genentech's scientists, which was part of actually of a panel discussion led by Brian Zambrowicz, our CSO and those programs that were presented are very important as drug discovery programs, specifically the one that we I think drew the most attention to and the Genentech scientists did, is the dislipidemia program. This is 842 and 843, which are our first two picks under that alliance, and those are antibodies which result with after injection result and decrease in triglycerides and affect on cholesterol levels as well so we see these programs as moving forward. We're at the humanization phases with those antibodies for both of those programs and we're very excited about those. I think that those, if they continue to progress as we expect that those would be most likely our first generation antibody clinical candidates but we have to see them progress and get there this year.

[Sabna Srivastava] with Morgan Stanley.

It's actually Dave Friedman calling in for Sabna. Just two questions, the first is on LX2931. Is-- you mentioned and you've done this twice. Rheumatoid arthritis when you talk about this, is that going to be your first indication that you plan to go into with this?

So certainly our pre-clinical study suggests we have a very robust response in the [assays] directed toward rheumatoid arthritis and that's where we're initially focusing our efforts but as you might be familiar, I think there's a variety of clinical approaches with this type of candidate. We believe RA is a bell weather condition to appropriately explore the utility of this agent.

Okay and second just quickly in LX1032 is that compound going to go ahead into development totally kind of on a separate path from 1031 or are they going to be linked where 1032 only advances if 1031 doesn't? And I understand they're not exactly the same but--

Right so I'll answer that question. They're-- it will advance on its own pathway independent of 1031 because of its very different pharmaco kinetic profile, the fact that it does achieve this peripheral systemic exposure and, as I've indicated, it does open up different medical indications for us that are non GI. There may be overlap in the indications because certainly we can also pursue GI indications with the compound so we see actually some very nice synergies in the development path, some that are again perhaps complimentary and then others that are actually very much supplementary that is totally new indications for the Company.

And then I'm just finally sort of bookkeeping, I think I missed it. Could you just review your revenue guidance for 2Q?

2Q revenue guidance is $10 million to $12 million.

(Operator Instructions) Sharon Seiler with Punk, Ziegel & Company.

So one question on the LX1031, were you able to see modulation of the biomarker with the single dose study I guess is the first question and do you expect to see it over the 14 days? The second question would be you mentioned that you expect some of your partners to move collaboration compounds into clinical trials and I guess can you give us some sense of which partners those are and what kind of programs they might be? Third would be on the timing of this, the two INDs about which you spoke? And fourth, can you give us some sense of where you are in terms of your partnership discussions?

All right, well there's at least four questions there so we'll count on you to help us track each one of those and answer each one. Thank you. It's helpful. Start with Philip, the clinical question.

We didn't see an effect on the single dose study on the biomarker. We, of course, did track that because we want to begin to gain experience with that and I frankly didn't expect to see an impact on that after a single dose. We do believe that 14 days should be sufficient to be able to evaluate a pharmaco dynamic effect in that biomarker and that's the reason for the lengthy exposure in this I-b study.

And then I'll take the next piece of that, which was my reference in the introductory comments with regard to partners contributing to the 10 to 10 pipeline and that's what I mean. In that time frame of the 10 to 10 program we anticipate that some of our partnership programs will come forward. Those I'd look to would be the ones that are actually the most advanced and some of the most mature and original collaborations. Genentech, for example, we know that they are very happy with their progress of programs within the CD program. Their programs, however, we do not control the pace or timing of those programs but we do know that scientifically those are advancing nicely.

And then the next one I'd look to over this 10 to 10 program time frame would be Bristol-Myers Squibb because, of course, that is also one of our more mature collaborations that has born a lot of fruit in terms of novel neuro science targets. Now they, of course, are small molecule development programs at whereas Genentech is an antibody. So I'd say that those two are probably the ones that would fit within the 10 to 10 time frame although there are some programs within the Organon alliance that are leaping forward and I think that I wouldn't eliminate that as a possibility although I'm again referring to the 10 to 10 time frame and that is very much started as a discovery alliance so that was a first or number two of your questions.

I think the third one was the timing of the IND filing?

Right.

And we are with our predictions of the fourth quarter for both of them I'd say one probably at the early part of the fourth quarter and one towards the end. 2931 appears to be ahead in proceeding and was selected as a clinical candidate before 1032 was, so but they both appear on track. Then, the last part was on new collaborations, correct?

Correct.

And could you restate your question exactly there?

Well, I'd like to-- we've been discussing new collaborations for a long time and I'd like to know, and I'd like to have some sense of where do you think the discussions are most advanced in terms of either targets and compounds or therapeutic areas? Can you give us some sense of when you might be able to actually consummate such a partnership? And I guess with respect to the addition of Tamar Howson does that accelerate things or does that sort of slow things down at least initially while she reviews what you've done and gets up to speed with the ongoing discussions?

Right so as you indicate with Tamara joining certainly she is bringing in a whole new perspective on the this having been on the other side of the table essentially of big pharma. I see Tamara already energizing this process tremendously and I'd say moving them forward expeditiously. I don't think I want to characterize whether it would be slower or faster with her because some things are accelerating frankly and so I'm very happy about that. I see that as automatic energizing of that whole process for us and bringing it to much higher value. I think that it does take someone of Tamar's experience base and understanding of how the pharma industry works to get the right kind of value for these programs and so the two categories where we're focusing, and I see potential deals progressing basically in parallel in these categories. So one is, of course, our therapeutic area alliances, which capture drug discovery and drug development and these are of course multi-year alliances. They're broad based. They are complicated. We've been very successful though in implementing them and when you find the right partner there and you team up appropriately and the value is recognized these can be very productive for both parties so those are moving forward and discussions are in more than one therapeutic area as well so we see multiple opportunities there.

In parallel again, are now what we can characterize not just as compound based deals but drug candidate alliances because these are focused on drug candidates that are already in human clinical testing where now partners that are looking at diligence if they want to enter the diligence phase will be evaluating human data so it's a very new dimension in terms of deal making for the Company. And then we also have people that are very interested in our drug candidates that are in formal pre clinical development, those that are marching to IND so really we've got several tracks going here. Tamara's addition I think was very important for us because of the volume of work that this management team has been doing on this front and now having her to help move those forward is really catalyzing things for us.

So time frame, this year. We're working hard this year. I can't predict. We're going to do the right deals for this Company and they're going to reflect the value that we see in these programs and since we've got a pipeline to work with if we don't see the value we're going to just incubate them longer and take them through development. And I've said it before, ultimately our goal is to have some of our own drugs too so if we bring forward some of those and own 100% of them that's fine with us too.

I've got one follow-up and then I'll bet back in queue. Some of we've been talking about these alliances for a long time. What would you characterize as the sticking point?

Well, I'd say that we see the value and we are finding partners that must see that value too so I guess it comes down to the dollar amounts and the downstream amounts sitting. We're very focused on making sure if we do a deal for this Company on some of these compounds that Lexicon has long-term benefits from having discovered these drugs. We didn't go or come through all this this far to say oh, we're just going to do a deal to make sure that we get a deal done in a particular quarter. We must preserve the value for the investors that have made all this possible and for this Company and that's what we're going to do.

And there appear to be no further questions at this point. Dr. Sands, I'll turn the conference back to you for concluding remarks.

Well, thank you. It was a very busy first quarter. We are glad that you participated and we look forward to updating you next quarter. Bye bye.

That concludes today's conference. Have a pleasant day.