Lexicon Pharmaceuticals Inc (LXRX) 2007 Q3 法說會逐字稿

Welcome to the Lexicon Pharmaceuticals third quarter 2007 conference call.

(OPERATOR INSTRUCTIONS)

At this time I would like to introduce your host for today's call, Mr. Chas Schultz. Please go ahead, sir.

Good afternoon, and welcome to the Lexicon Pharmaceuticals third quarter 2007 conference call. I'm Chas Schultz, and with me today are Dr. Arthur Sands, Lexicon's President and Chief Executive Officer; Dr. Philip Brown, Lexicon's Vice President of Clinical Development; and Julia Gregory, Lexicon's Executive Vice President and Chief Financial Officer.

We expect you have seen a copy of our earnings press release that was distributed this afternoon. 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 highlights of the third quarter. Dr. Brown will then discuss the status of our drug development program, and Ms. Gregory will review our financial results for the third quarter of 2007 and discuss our financial guidance. 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 related -- relating to, without limitation, Lexicon's research and development of LX6171, LX1031, LX1032, LX2931, LX2932, LX4211 and LX4212. This call will also contain forward-looking statements relating to Lexicon's growth and future operating results, financing arrangements, 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 relating -- 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 preclinical studies and clinical trials of our drug candidates, our ability to obtain patent protection for our discoveries, limitations opposed 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 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.

Well, thank you, Chas, and good afternoon, everyone.

We've truly had, I think, a remarkable quarter here in the third quarter, and in my introductory remarks I'd just like to highlight a few of the key events of the quarter. But in order to do so I actually have to start off by hearkening back to the founding of Lexicon in the late -- in 1995, and when we established for the first time our gene knockout technology platform as we embarked on target discovery at the time. And the reason I reflect that far back on my remarks today is because during this quarter here, in 2007, the Nobel Prize in Medicine was awarded in recognition of knockout mouse technology. And, of course, it was part of our foundation, and some of the key scientists recognized have been involved in one way or another with Lexicon for some time.

Dr. Oliver Smithies, one of the Nobel Laureates, has been an advisor to Lexicon for many years on the techniques of gene targeting and continues to be an advisor. Dr. Mario Capecchi, his fellow Laureate, was the author and originating inventor, prime inventor, of the positive-negative selection technology which is captured then in what has been known as the Capecchi patents, which have been part of our intellectual property base for some time. And Dr. Martin Evans, the third Laureate recognized for his seminal work in the embryonic stem cell technology, which, of course, [draw] directly into our large-scale gene knockout platform, as well. So we're very pleased with and would like to add our words of congratulation to those gentlemen for their accomplishments and, of course, the world recognition for winning the Nobel Prize is quite remarkable.

One more note on this topic is, of course, we were very pleased as well in 2001 when Barry Sharpless, our -- the founder of our chemistry operations, now in Princeton, New Jersey, won the Nobel Prize in Chemistry. So it's -- I think it's now quite unusual for us to enjoy the recognition as a company associated with the technologies that we've put into practice in an industrialized setting now in drug discovery and drug development.

And so with that recognition I'll move into the -- some of the fruits of using that technology, the discussion of this afternoon, which is all about our pipeline primarily, and then we'll go to Julia to discuss the financials. But I'll start out with the pipeline and the 10TO10 program, our program to move 10 clinical candidates into human drug development through 2010. Dr. Phil Brown will cover the front edge of that pipeline, the leading programs -- LX1031, LX6171, LX2931 and LX1032.

I would like to mention a few programs that are coming, that are new and progressing, that are -- have now entered formal preclinical development with the news this quarter that we have selected three new additional clinical candidates to go into the formal preclinical testing and development. Those candidates are LX2932, being developed for autoimmune disease; LX4211, for Type 2 diabetes; and LX4212, also for Type 2 diabetes. Each of these has now been chosen by the Company to go into development.

We have previously disclosed the target for two of these agents, the diabetes compounds, and that target is SGLT-2, which is a glucose transporter that operates primarily in the kidneys and is responsible for rescuing glucose from the urine. The excitement that we have for that mechanism was confirmed actually now many years ago through -- within the Genome5000 program, when we witnessed a very strong anti-diabetic phenotype associated with blocking that target by knocking it out. And the compounds we have moving forward very nicely recapitulate that phenotype and adjust downward blood glucose levels.

So those three new clinical candidates are now moving into development, and just I'll mention that there are three other programs that we often have shown on our 10TO10 pipeline slide that are still in the discovery phases, but we're very hopeful that they will continue to progress as well -- LG710 for glaucoma, LG842 for dyslipidemia and LG843 for dyslipidemia.

So with that I'll just mention a few highlights on the business front, also very significant for this quarter. I think first and foremost was the shareholder approval of the Invus transaction, which garnered more than a 98% approval vote in favor. Lexicon, as a result of closing of that transaction, received $205 million in August and has the potential to receive up to an additional $345 million over the next four years or so, which is designed to help fund Lexicon's transition into an integrated biopharmaceutical company.

In addition, we were very fortunate to have added four new members to our Board of Directors, and I'll just name them briefly -- Ray Debbane, who is President and Chief Executive Officer of Invus; Chris Sobecki, a managing director of Invus; and Philippe Amouyal, a managing director of Invus, as well. In addition, a new independent director, Dr. Judith Swain, who is executive director of the Singapore Institute for Clinical Sciences with the Singapore Agency for Science, Technology, and Research, and she is a noted professor of medicine and cardiology, as well, and we're very pleased that she has joined our board.

So with just those brief highlights, I will now turn the call over to Dr. Phil Brown to review our drug development programs.

Phil?

Great. Thank you very much, Arthur.

I'd like to start with LX6171, which is our program targeting cognitive disorders. There are, of course, a wide array of indications that could be considered for this agent, including Alzheimer's and vascular dementia as well as potentially -- this compound has potential utility in attention disorders such as ADHD, or even developmental disorders that would include autism or Fragile X.

By way of refreshing your memory, we have completed Phase I studies with this compound. All doses have been very well tolerated to date, including single doses up to 2,000 mg, and we were successful at a 750-mg daily dose over a seven-day exposure period without any evidence of dose-limiting toxicities. We have seen most commonly GI-related events that we believe were attributable at least in large part to the vehicle that was being utilized in those early-stage studies. And, importantly, we've obtained very good systemic exposure at all those levels studied to date.

I'm pleased to state today that we have filed a clinical trial authorization, or a CTA, which is the European regulatory submission, in order to support our Phase II activities. We're anticipating our principal clinical trial sites to be in the Netherlands, and we currently expect these trials to commence on schedule in the first part of 2008.

The Phase IIa study, or proof of concept study, with this compound will be conducted in age-associated memory impairment, and the design is a four-week randomized, double-blind, placebo-controlled design. And we're assessing both safety and tolerability as well as effects of cognition with this compound in that study.

Shifting gears to LX1031, our program directed towards irritable bowel syndrome and other functional GI disorders, this compound acts primarily at a local level in the intestinal tract in the enterochromaffin cell to inhibit an enzyme called tryptophan hydroxylase, which is the rate-limiting enzyme in serotonin biosynthesis. And the importance of that is that we can regulate serotonin activity in the periphery in a dose-dependent fashion, we believe.

Our initial human studies were conducted in 79 normal volunteers. We were successful at dosing up to 2,000 mg daily over a 14-day exposure period, and all dose levels were very well tolerated. This compound has behaved in a very predictable fashion. We've not seen significant exposure in the blood, which is by design, and the drug appears to be acting at a local level, as I've mentioned, in the enterochromaffin cells. We just released results at the American College of Gastroenterology meeting of these Phase I trials which showed a statistically significant reduction in the urinary metabolite of serotonin, which was observed at the highest dose level we studied.

We're currently anticipating the start of a proof of concept study with this compound in IBSD, or diarrhea-predominant irritable bowel syndrome, in the mid-2008 time frame. As we've seen no evidence of dose-limiting toxicity up to the 2-gram daily dose over the 2-week exposure period, and we've also seen this pharmacodynamic effect on the biomarker of serotonin synthesis, we're electing to do some additional dose escalation work, again in normal volunteers, prior to the initiation of our proof of concept study. The additional dose escalation study design will be conducted in identical fashion to the prior study. Cohorts of eight subjects will be randomized six to two active to placebo and will be given 14 days of the compound.

At present we're anticipating studying a 250-mg dose level given four times daily with meals, and then ascending through 500, 750 and 1,000 mg, all given over four times daily with meals, in order to assess the safety and tolerability of these additional dose levels and continue to evaluate these biomarkers that we're interested in, primarily urinary 5-HIAA and whole blood [serotonin]. Once we complete that study we're anticipating initiating this proof of concept study in diarrhea-predominant IBS patients in order to probe the utility of the agent in that setting.

In addition to these two programs, it is currently our goal to achieve two additional regulatory filings this year. LX2931 is a program we're initially directing towards rheumatoid arthritis, and then following that LX1032 is a very exciting program we're directing towards carcinoid syndrome. This is a very debilitating disorder, with very limited therapeutic alternatives at present, and we believe the compound may have significant utility in that setting.

In summary, as Arthur mentioned, we've had a very good quarter. We've filed a CTA on LX6171 in order to support our Phase II proof of concept activities in AAMI. We're advancing 1031 in anticipation of the proof of concept study in diarrhea-predominant IBS patients by mid-2008. It's our current goal to achieve these two additional regulatory filings by year end, LX2931 for rheumatoid arthritis and LX1032 for carcinoid syndrome. And, as Arthur mentioned, we have advanced three additional candidates into formal preclinical development -- LX4211 and LX4212 for diabetes -- this is the SGLT-2 inhibitors; and LX2932 for autoimmune conditions. We remain very enthusiastic about this rapidly expanding pipeline.

And I will now turn the call over to Julia to review our third quarter financial results.

Thank you, Phil.

We issued a press release this afternoon detailing our third quarter 2007 financial results which you may find on our website if you have not already reviewed it.

I'm very pleased we have closed the $205 million strategic investment with Invus this quarter. We believe the Invus transaction provides a strong financial foundation by which all shareholders can participate in supporting our exciting pipeline. Lexicon is well capitalized to execute on our 10TO10 corporate strategy.

Lexicon's revenues for the three months ended September 30, 2007 were $10.2 million, a decrease of 48% from $19.6 million for the corresponding period in 2006. The decrease was primarily attributable to revenue in the year-earlier period under a contract with the National Institutes of Health as well as reduced revenue under Lexicon's neuroscience alliance with Bristol-Myers Squibb resulting from the conclusion of the revenue recognition period for the upfront payment received under the alliance. For the nine months ended September 30, 2007, revenues decreased 36% to $36.3 million, from $56.7 million for the corresponding period in 2006.

Research and development expenses for the 2007 third quarter decreased 9%, to $24.5 million, from $27 million for the corresponding period in 2006, primarily due to the Company's early 2007 strategic realignment reallocating resources from genetics research efforts to drug development. Lexicon's realignment was made possible as we near completion of the Genome5000 program. This decrease was offset in part by higher external preclinical and clinical costs related to the advancement of Lexicon's drug development programs. For the nine months ended September 30, 2007, research and development expenses decreased 5%, to $77.4 million, from $81.1 million for the corresponding period in 2006.

General and administrative expenses for the 2007 third quarter decreased 4%, to $5.1 million, from $5.3 million for the corresponding period in 2006. For the nine months ended September 30, 2007, general and administrative expenses decreased 5%, to $15.4 million, from $16.3 million for the corresponding period in 2006.

Lexicon's net loss for the three months ended September 30, 2007 was $14.1 million, or $0.14 per share, compared to a net loss of $12.8 million, or $0.20 per share, for the corresponding period in 2006. Net loss for the nine months ended September 30, 2007 was $46.6 million, or $0.53 per share, compared to a net loss of $40.5 million, or $0.63 per share, for the corresponding period in 2006. The net loss for the three and nine months ended September 30, 2007 included a benefit of $3.9 million and $8.2 million, respectively, attributable to the consolidation of Symphony Icon in our financial statement, as well as noncash stock-based compensation expense of $1.6 million and $4.8 million, respectively.

As of September 30, 2007, Lexicon had $273.9 million in cash and investments, including $39.6 million in cash and investments held by Symphony Icon, as compared to $95.2 million as of June 30, 2007 and $80 million as of December 31, 2006.

Now let's turn to our forward-looking financial guidance. Our committed revenues from existing agreements for the fourth quarter of 2007 should be in the range of $8 million to $10 million, consisting primarily of contractual revenues from our alliances with Bristol-Myers Squibb, Organon and Genentech and our award from the Texas Enterprise Fund. Considering only this committed revenue, our full year 2007 revenue would be in the range of $44 million to $46 million.

While we are in conversations with potential pharmaceutical companies to enter into alliances or collaborations, we do not plan to include forecasted revenues from such arrangements in our guidance on a going-forward basis. Instead, we will update you as we enter into such alliances or agreements. We believe our robust discovery and development pipeline will provide Lexicon with attractive opportunities for alliances.

Operating expenses for the fourth quarter are projected to range from $31 million to $33 million. This reflects, among other things, the external preclinical and clinical costs related to our drug development program and approximately $3.9 million in noncash items, including stock-based compensation expense of approximately $1.7 million in the quarter, and depreciation and amortization of approximately $2.2 million.

For the full year 2007, operating expenses will be $124 million to $126 million, consistent with our guidance to maintain operating expenses in line with the level of operating expenses we incurred last year. Noncash expenses will be approximately $15.8 million of this total, including the $6.5 million in stock-based compensation and $9.3 million in depreciation and amortization. We will continue to forecast our operating expenses in order to apprise you of our spending plans.

We are focusing our efforts on executing our corporate strategy of the 10TO10 program, moving 10 drug candidates into clinical trials by the end of 2010, and plan to keep you up to date on our clinical progress.

Thank you, and now I will turn the call back to Arthur.

Thank you, Julia.

Well, in summary, it's been an excellent quarter. We've accomplished several major milestones.

And I'd like to turn it over and open the call for questions.

Thank you.

(OPERATOR INSTRUCTIONS)

We'll first go to Edward Tenthoff, from Piper Jaffray.

Great. Thank you very much. Two quick questions. I couldn't quite hear you that well on the call, Julia, but how much was the Symphony cash, and the OpEx guidance was 31 to 33, is that correct?

Right. The OpEx guidance was $31 million to $33 million. And what I said for the cash is that we ended the year -- ended the quarter with $273.9 million, including $39.6 million in cash and investments held by Symphony Icon.

Got you. So does that mean you have, give or take, $20 million that you could still draw down from Symphony?

Well, we have -- in this cash amount, the $39.6 million, we have that amount of cash. That's the cash that they have. So we can draw down that amount of cash.

I see. So does -- did you initially include the entire $60 million that was borrowed from Symphony?

Well, you know, it's not -- the $60 million included an equity issuance (inaudible). And so of the $273.9 million, that includes the -- that $15 million, as well, but that went into general corporate purposes and can be used for general corporate purposes. The $39.6 million is the actual cash and investments that go on the balance sheet, and that would've been the $45 million, less the amount that we -- that we incur for R&D and G&A (inaudible) the program.

Got you. Less the amount that has (inaudible).

And that's how much has been spent.

Okay. Great. That's really helpful. One other quick question, if you would. Could you characterize the long-term debt on the balance sheet at this point?

Certainly. The long-term debt that we have at this point is for the -- supports the mortgage for our entire building and facilities operations in The Woodlands, Texas.

Got you. And do you know how much that is off the top of your head?

That's about $30 million. It's about $31.5 million.

31.5

Yes.

Great. Thanks. I'll hop back in line.

We'll now to go William Sargent, from Banc of America Securities.

Hi. Thank you very much for taking my question. I was wondering if, first of all, just for the Phase IIa, for the age-associated Phase IIa trial for 6171, about how many patients are you anticipating enrolling in that?

We're anticipating 120.

And then in the dose escalation for 1031, are you also looking at the serotonin metabolite as the endpoint, in addition to safety and toxicity?

Absolutely. You know, Phase I is designed for safety and tolerability, and this drug has behaved in a very predictable fashion in terms of its safety profile. And its appropriate to dose escalate at this stage, and we'll be monitoring the biomarkers, which are an add-on benefit of this program, I believe.

Can you say what level of the serotonin metabolite you're looking to achieve with the new dosing regimen?

It's -- there's not a set predefined measure for that at present.

Okay. Great. Thank you very much for taking my questions.

Thanks.

We'll move on to Sapna Srivastava, from Morgan Stanley.

Hi, it's Dave calling in for Sapna. Just a question about 1031. Is the dosing going to be q.i.d. in subsequent trials, and also just about going up to 1 gram q.i.d., is there a reason why you're needing so much drug? And then any thoughts on that?

I think at present -- again, the goal of Phase I is to understand the safety and the pharmacokinetic profile. It's the one stage of development where you really can explore those facets of the compound. The reason we're moving -- the reason we moved to a q.i.d dosing regimen in the original multidose study was to push the exposure level of the compound in order to probe the safety profile. As we've seen this interesting effect on the biomarker, we're continuing to explore that on the basis of a q.i.d. dosing. But this is just the initial stages of development, and it's difficult for me to predict what we're actually going to need to do in the proof of concept study. I think the important thing I'd like to underscore is the safety of the compound is allowing us to go up to what I would consider very high levels of the drug at this stage of development, which is a positive for us.

And so if you had to guess, do you think you will be able to get away with less milligrams but still four times a day, or do you think there's a chance that this won't be a four times a day drug?

I think that's too difficult for me to project right now. I think we're still just understanding the behavior of the compound and what this -- how this biomarker might be affected by this dosing.

Okay. And earlier, when you were talking about 1031, you said there were no -- there was no significant exposure in the blood. Do you know, was there any measurable level, or was it below detection, or --

Yes, we do see measurable levels of the compound. But as I mentioned, it's behaving in a very predictable fashion. So this is what we anticipated. This was the way the compound was designed for us by the chemists.

Okay.

And this is also what we observed in preclinical studies. So it's very low level for systemic exposure.

Great. And just one question about the financials, just based on the deal that you've signed, in the next few years, I guess I'm not really looking for any specific numbers, but do you imagine that your spending trends are going to continue as they have over the past few years, or is there going to be any significant change with the Symphony deal, in specific? Either R&D or SG&A.

I think what you're really saying is what will be happening to R&D and G&A going forward, and as you saw this year, we started to replace our technology expenses with our development expenses, and we will continue to see that over the next couple of years and going forward, as we move our drugs, and more and more of our drugs, into development. So I think the R&D, or the development line, should start to expand commensurately with the number of programs we have in clinical development.

Okay. And SG&A probably not until much later, when you get nearer to --

That's correct.

Okay.

The focus is really going to be on the development (inaudible). And we did guidance that we would come in slightly about level with last year's operating expenses, and we're coming in right under that, so --

Perfect. Great. Thank you.

And from Sharon Seiler, with Punk, Ziegel & Co., we'll go to our next question.

Well, good afternoon. I had a question. So specifically with 2931 and 1032, do you anticipate Phase I trials as with the earlier products, just dose escalation in healthy volunteers initially?

Yes, we certainly see this as a very classical development plan, at least for the single dose. And we will evaluate the program thereafter to determine how aggressively we can move into patient population.

And can you give us some color on the difference between 2931 and 2932, and then between 4211 and 4212?

Yes, I'll do that, Sharon. So 4211 and 4212 have different -- slightly different properties with respect to target selectivity, potency and PK. And it is -- there are nuances that we'd like to understand more fully in formal preclinical development, and perhaps even into Phase I. So while ultimately we can't -- we don't anticipate necessarily taking both compounds forward all the way through development, we do want to see the behavior as they compare one to another and then make that decision. I wouldn't rule it out, either, because we do see this field as a very, very large field, where we believe there'll be multiple agents with different properties, perhaps subtle differences in dosing, that may be desirable in certain care settings, certain patient settings, with diabetes. So because of the size of the market opportunity, the novelty of the target and the fact that we have two compounds with different properties here, we think it's wise to bring both forward and to make our judgments along the way, then, in terms of their ultimate development pathway.

With respect to 2931 and 2932, it's somewhat of a similar story -- slightly different properties in the compounds. Of course, these are distinct chemical moieties, each one of them, but slightly different properties with regard to potency and pharmacokinetics and potentially pharmacodynamic effect, and similarly to the diabetes story, the autoimmune indication is so large, actually so many indications, we think that there may be, certainly are, opportunities for more than one agent, and independent agents might be directed towards different indications and potentially different modes of delivery. So while these two compounds are oral compounds, there are many indications where one could consider an IV delivery, as well, and that would require a totally different development path, and it's nice to have two compounds to pursue independently.

So I say in general, the unique attributes of each of the compounds, the size of the medical marketplace and the multiplicity of indications has encouraged us to bring forward these compounds directed to both targets.

It may be too early to say this, but, I mean, 2931 you've discussed in terms of probably rheumatoid arthritis as an initial indication. I mean, have you designed 2932 specifically to look at a different indication, or is that not really the case?

We're thinking along those things, yes. And what we've -- as a general clinical strategy, what we'd like to do is, number one, look at the large medical marketplace indication for development, but then, number two, look at a smaller indication and where potentially we could move more rapidly in development, progressing to rapid approval, potentially. And I think that -- we get that flexibility with two agents. So, now, similarly, you're seeing in 1031 and 1032, 1032 being selected for currently, first, carcinoid syndrome, which we see as a potentially fast path forward in clinical development. And, of course, it has its unique PK properties whereby it is absorbed into the bloodstream, unlike 1031. So that general strategy, we think, affords the Company the power to go rapidly forward on smaller indications but also develop a more broad larger potential indication essentially in parallel.

Okay, thanks. And one more question, if I may, for Julia. Can you tell us how many shares were outstanding at the end of the quarter and what's a good number to think about for a fully diluted share count?

For -- at the end of the quarter the shares outstanding were 136.8 million shares.

Okay. And --

And on a fully diluted basis, you could add another 16.5 million shares.

Okay. Thank you.

Thank you, Sharon.

Thanks a lot, Sharon.

We'll move now to Jason Kantor, RBC Capital Markets.

Hi, there. A lot of my questions have been answered, but maybe you can speak to why go four times a day with 1031? I mean, this is an enzyme inhibitor. It should have a cumulative effect in terms of the level of serotonin. I don't see why you would necessarily need to have it on board on -- to such an extent as four times a day.

Right. So, Jason, I'll take that one. So you have to keep in mind that this compound acts locally in the GI tract by design. And we think that therefore the pharmacokinetic/pharmacodynamic properties are going to be unique by that mode of delivery, which is, again, local. We also think that it is probably going to be advantageous, or could be, at least, to go with taking this agent with food. Of course, we're directing this to IBS, which is obviously an inappropriate reaction to digestion, and so we think there's a rationale there for maintaining the enzyme inhibitive during periods of feeding, and making sure that it's on board locally. So that's part of the rationale.

Now, that is a rationale at this stage. We don't know if that will be required, ultimately. It may turn out to be different than that and be less frequent than that. So I think it's very important to know we're using this study to explore the ranges we could achieve under this particular regimen. But we are going to reassess, then, as we enter Phase II. So there are certain unique attributes about this compound that have mitigated for this strategy.

I'd also say that we see the compound acting as a competitive inhibitor of the enzyme. You're right, it is an enzyme target. It's a competitive inhibitor, and what's the substrate? Tryptophan. So tryptophan is a very common and abundant amino acid which when acted on by the target is converted to serotonin. So again you've got to imagine the tryptophan in food. And in fact, you want to be there when your substrate is loaded in. Otherwise you won't get the effect. So again that's why it's the rationale of going with food to treat this digestive syndrome we think is potentially the way to go, but it is something to be discovered.

And in terms of the biomarker data that you showed at the GI meeting, you only showed it for the one dose. Did you have some sort of dose response there?

I'd say that with -- there was a trend for the other doses, but it was impossible -- it did not achieve statistical significance. And of course the ends are low. Where we saw the statistical significance was in the higher dose. And I'm not recalling the data from memory, but clearly the highest dose did demonstrate it, and it was a q.i.d. dose. We had other regimes. I believe we had a b.i.d. and we had a q.d. dose. Was it just q.d.? Was it b.i.d., too, Phil?

We had a very low dose of the b.i.d.

Okay. So we had -- the others were q.d. So one of the things we wanted to outline for this study was to go to the 250 mg q.i.d., which is lower, so that we would be a 1 gram total divided over four doses per day, to see if that timing, because of this competitive inhibition mechanism, is perhaps advantageous for us. Does that make sense?

It does. It does, but I was -- I'm just curious as to as you go higher in looking for dose response, it seems reasonably certain that you will get bigger effects as you dose higher, and then you may end up choosing the four times a day regimen. Don't you think it would be wise to also move a b.i.d. or t.i.d. dose, as well, in this dose escalation, so that you're not advancing into Phase II -- I mean, it sounds like you've basically made the decision that your Phase II dosing is going to be four times a day. I don't think you've determined that that's necessarily the best thing to do.

Well, I certainly wouldn't suggest that we've determined that's the right way to go in a proof of concept. And remember, you know, at this stage of development, the purpose is safety and tolerability and trying to understand what the compound does. We'll move into proof of concept with a regimen that we believe will appropriately probe the utility of this agent in IBS for proof of concept purposes. I think what you're getting to is specific dose ranging types of studies, which typically occur much later in development -- late Phase II, prior to going into registrational studies.

Okay. So you guys have not made a decision, then, that this is a q.i.d.-type drug?

Absolutely not. I think we're continuing to probe the utility of the compound from a safety and pharmacokinetic standpoint, and we'll continue to follow the biomarker and then we'll reevaluate the data. We've got a data set at q.d. We're going to add now a series of data points at a q.i.d., or four times daily dose, to try to get a better understanding of what we're doing to this serotonin (inaudible).

And one thing I'd like to point out, Jason, is that no one knows how much one needs to inhibit serotonin synthesis in order to affect the disease state of IBS. That's an unknown. And the -- especially locally, right? So what we're measuring is a more distal measure in the urine of essentially a downstream event associated with the local production of serotonin in the GI tract. And there are other factors that could intervene between those two measures. So we're very encouraged by the effect on the biomarker, and actually I think it's quite a significant effect. And how that translates ultimately into what amount is required to ameliorate the symptoms of IBS and treat the syndrome is unknown.

Okay. Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS)

It appears we have no questions at this time. I'd like to turn the call back to Dr. Sands for any closing remarks.

Okay. Well, thank you very much. We indeed have a very broad and expanding pipeline of new candidates going forward. Just to reiterate, the big method, big picture is that we have two lead programs on track for initiation of Phase II studies in 2008. We have two more drug candidates which are poised to move into clinical testing. And of course I mentioned that we've selected three additional clinical candidates to move into preclinical -- formal preclinical development. We also closed our landmark financing with the Invus Group, which supports the broad 10TO10 program and strategy and allows us to build what we believe will be a truly important biopharmaceutical company.

So that concludes our update for the third quarter. Thank you very much, and goodbye.

Again, that does conclude our conference for today. We thank you for joining us.