Lexicon Pharmaceuticals Inc (LXRX) 2008 Q1 法說會逐字稿

Thank you for holding and welcome to the Lexicon Pharmaceuticals first quarter 2008 conference call. (Operator Instructions) Please be advised that this call is being taped at Lexicon's request.

At this time, I'd like to introduce your host for today's call, Bobby Faulkner, Manager of Investor and Public Relations. Please go ahead, Ms. Faulkner.

Good afternoon, and welcome to the Lexicon Pharmaceuticals first quarter 2008 conference call. I'm Bobbie Faulkner and with me today are Dr. Arthur Sands, Lexicon's President and Chief Executive Officer; Dr. Philip Brown, Lexicon's Senior Vice President of Clinical Development; and [Jim Tesmer], Vice President of Finance and Accounting.

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 key accomplishment for the first quarter. Dr. Brown will then discuss the status of our drug development programs and Mr. Tesmer will review our financial results for the first quarter and discuss our financial guidance for 2008. We will then open the call to your questions. For those who wish to view the slides to which we will refer please access the Lexicon website at www.lexpharma.com. You will see a link on the homepage under today's webcast.

Before we begin, I would like to state that we will be making forward-looking statements, including statements relating to, without limitation, Lexicon's research and development of LX6171, LX1031, LX1032, LX2931 and LX4211. This call will also contain forward-looking statements relating to Lexicon's growth and future operating results, financing arrangements, cash and investments, 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 preclinical studies and clinical trials of our 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 we have filed with the Securities and Exchange Commission.

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

Thank you very much, Bobbie, and welcome everyone to the call. For those of you who can participate on the web, I really love to start out with this slide on our pipeline, the 10 to 10 pipeline, where we are able to depict the advancement of our clinical and preclinical stage programs, all of which address of course new mechanisms of action that we have discovered at the Company. We believe that we have the opportunity here with this program and this pipeline to really develop one of the best potential pipelines in the industry and we are making substantial progress as we go forward. And this quarter has witnessed substantial progress in several programs and I'm going to highlight a few, but really Dr. Brown will provide the bulk of the detail on our clinical development programs.

One of the things, however, that's not captured here in this slide is really what happened in the first quarter regarding our preclinical discovery, drug discovery pipeline. I'll just a few comments on that because we had really I think one of the richest quarters in terms of witnessing for the first time pharmacology action within our animal model systems of compounds that are reproducing the knockout phenotype almost on a regular basis now. And we expect that those programs as they advance will provide us with, not only really the second half of the 10 to 10 program, and we're starting to be able to see that, but beyond that as well. So a very productive first quarter on both fronts of research and discovery.

So if we focus in on the programs in clinical development on the next slide, we have four programs and they're listed here. LX6171 for cognitive disorders of course is in Phase 2 clinical trials and that is proceeding according to plan. LX2931 for rheumatoid arthritis has completed the Phase 1A trial and this, of course, is a program which we recently shared with you the top-line data results in a presentation. For those of you who may have seen that, we had our initial results there, but today I won't steal Dr. Brown's thunder, but he's going to focus in on that and provide more color on the data we supplied recently and I think you'll see why we're very positive about this program and these results.

LX1031 for irritable bowel syndrome is proceeding now into a multi-dose escalation study in Phase 1 and Dr. Brown will give a very brief update on that. It's on track. And then LX1032 in its Phase 1A trial as well is on track to complete this trial. And I think this very unique program is another one to keep your eye on. So we're very enthusiastic about the opportunities in this important disease and this mechanism.

So with that very brief introduction, I will now turn the call over to Dr. Brown to discuss our clinical pipeline in greater detail. Phil?

Great. Thank you, very much, Arthur. It really has been a strong quarter for Lexicon, as we continue to report clinical results on our lead programs and we're moving additional drug candidates toward the clinic. Our compounds continue to behave remarkably well and I'm looking forward to advancing them to the next level. As Arthur's mentioned, we're currently advancing four compounds through the clinic and we have recently reported clinical results for two of these lead programs.

So with that, let me start with LX2931. LX2931 is being developed in the setting of autoimmune and inflammatory conditions such as rheumatoid arthritis. The compound inhibits an enzyme, which breaks down sphingosine-1-phosphate or S1P. When S1P levels increase lymphocytes become sequestered in the lymphoid tissues making them unavailable to contribute and participate in the inflammatory response. We believe this will be an important mechanism in managing symptoms associated with many inflammatory conditions, such as exist with autoimmune disorders such rheumatoid arthritis.

We have recently reported completion of our first in man study with LX2931. This is a very classic study design intended to evaluate the safety, the pharmacokinetics and importantly the pharmaco dynamics of the compound in normal healthy volunteers. The study design utilized a randomized, double-blind, single, ascending dose approach in which we explore dose levels from 10 to 180 milligrams. I think it's important to point out narrow dose range in which we focus this program in relation to our other programs, which have taken on fairly significant dose escalations as part of the initial process. And the reason we elected to focus on a more succinct or a narrower band of dose ranges was because of this fairly robust pharmaco dynamic response in lymphocyte counts that began to emerge very soon after we initiated the study.

This next slide will sort of walk you through the data in a more stepwise fashion and let me orient you to the slide momentarily. This slide is focused on the pharmaco dynamic response, specifically the lymphocyte counts, and the data are all normalized to baseline levels. The Y axis indicates a percent change in absolute lymphocyte counts from baseline and time is indicated along the X axis. The shaded portion indicates the normal clinical lymphocyte count ranges that we would expect. And doses are illustrated by color with the legend will be populated at the bottom of the slide as we begin to walk through in a sequential fashion.

You currently see pooled mean placebo data in the dark green line and this represents an N of 13 subjects that were included in the trial all randomized placebo, of course. Now we'll begin to populate the graph with increasing doses of LX2931 to illustrate the effect we observed on lymphocyte counts. Meaningful, but modest, reductions are observed with single doses between 10 and 50 milligrams. With a 75 milligram dose we begin to see a more profound affect with nadir at approximately 28 hours. About 75 milligrams these doses began to show a much more robust decline in lymphocyte counts with a nadir at approximately 24 hours and you'll note that there's seemingly a plateauing of effect occurring at the highest dose levels with an approximate 55% decline in lymphocyte counts.

On this next slide I'm zeroing in on a single cohort, which to better illustrate this fairly profound effect. Now, this is a stylized graph to the individual data points and again it represents mean data of six subjects who were randomized to active compound. Again, the nadir and lymphocyte counts is observed at approximately 24 hours post dose showing the rapid and profound impact that can be produced by inhibiting S1P lyase. Importantly, we see a relatively quick offset of effect with normalization of lymphocyte counts about 48 hours following this nadir. This rapid onset and offset of effect is very encouraging, particularly at this very early stage of development.

On the next slide this is again a graphical representation showing the dose dependent decrease in lymphocyte counts that's observed at each dose level and you again see this seemingly plateauing of effect occurring at doses of about 100 milligrams and above. Doses explored were well tolerated up to 180 milligrams. The dose limiting toxicity, which began to emerge in a single subject at the 180 milligram dose level, consisted primarily of abdominal pain, increase in liver function tests-- and I would specifically note those are transaminase levels-- and a slight increase in white blood cells. This is a picture consistent with a biliary colic like symptom cluster. We're continuing to analyze this to better understand the effects of the compound.

Below 180 milligrams adverse events were mild and evenly distributed across dose groups. Importantly, no significant changes in vital signs, heart rate or ECG were observed at any dose level. This is a significant differentiating characteristic from other compounds focused on this pathway I believe. We are aggressively moving this compound forward into a multi-dose tolerance study at present.

The next slide shifts gears to LX6171. This last quarter we reported our initial clinical results and disclosed the target of the compound at the American Academy Neurology Meeting. As we previously reported our Phase 2 trial is well under way and enrollment is on track with our original projections, as Arthur had mentioned. We look forward to providing you an update in the future as we complete the initial assessment of that compound in age associated memory impairment.

The next program, LX1031, is our compound directed towards irritable bowel syndrome. Again, TPH, or tryptophan hydroxylase, was identified as a target through the Genome 5000 program and our small molecule inhibitor was developed by our medicinal chemistry team. The serotonin pathways in the GI tract have been associated with symptoms and treatments associated with IBS and LX1031 we believe offers distinct advantages in that it's a primarily locally acting compound inhibiting TPH and thereby influencing serotonin levels. We anticipate initiating the next trial with this compound in the very near future.

Another compound in this series, LX1032, which has been designed by our medicinal chemist to gain greater systemic exposure relative to 1031 and as such is being directed towards indications where systemic serotonin or 5HT is elevated and contributes to some of the symptoms or the problems of the condition, such as carcinoid syndrome. We have completed the clinical portion of our first in man study with this compound and are eagerly awaiting our top-line results at present. I anticipate starting a multi-dose tolerance study with this compound in the very near future.

Coming back to our pipeline slide again, we have a lot of other ongoing development activities as our pipeline continues to progress. I would just mention one more of these, which is LX4211. This is our target that was discovered and selected from the Genome 5000 program and our small molecule inhibitor was developed again by the medicinal chemistry team here at Lexicon. This targets the renal sodium-glucose transporter 2 or SGLT2, which is important in regulating glucose excretion. We've observed reduced blood glucose in preclinical models of type 2 diabetes and our non GLP safety studies demonstrated a very nice safety profile of the compound. We are aggressively engaged in IND-enabling activities at present with this compound.

To summarize our important findings from the last quarter, we reported very encouraging Phase 1 results for LX2931 and are aggressively pursuing the next step of development with this compound in a multi-dose tolerance study. We've also disclosed the target for LX6171 as the CNS expressed high affinity l'proline transporter and of course are continuing to pursue each of our programs in the clinic.

I will now turn the call over to Jim Tesmer, our Vice President of Finance.

Thank you, Phil. We issued a Press Release this afternoon detailing our first quarter financial result, which you may find our website if you have not already reviewed it. We had a solid quarter for the first quarter of 2008. We continue to direct resources to our clinical programs as clinical and preclinical costs increased 66% while total operating costs increased only 2% over last year's first quarter.

Let me turn to the details. Lexicon's revenues for the three months ended March 31st, 2008 were $8.9 million, a decrease of 34% from $13.5 million for the corresponding period in 2007. The decrease resulted primarily from the 2007 completion of the project funded by our award from the Texas Enterprise Fund. Our progress towards completing the target discovery portion of the Organon Alliance in 2007, which resulted in reduced revenues recognized in the three months ended March 31st, 2008 and the completion in 2007 of the target discovery portion of our alliance with Takeda Pharmaceutical Company Limited.

First quarter revenues consisted primarily of our current activities with Bristol-Meyers Squibb, Organon and Genentech. Research and development expenses for the 2008 first quarter were $27.8 million, a slight increase of 2% from $27.3 million for the corresponding period in 2007. This increase was due to higher preclinical and clinical costs related to the advancements of Lexicon's drug development program as we continue to redirect resources from genetics research efforts to drug development.

General and administrative expenses for the 2008 first quarter were $5.5 million, an increase of 4% from 5.3 million for the corresponding period in 2007. Lexicon's net loss for the three months ended March 31st, 2008 was $18 million or $0.13 per share, compared to a net loss of $18.9 million or $0.24 per share in the corresponding period in 2007. The net loss for the three months ended March 31st, 2007 included non-cash stock based compensation expense of $1.8 million, compared to $1.6 million for the corresponding period in 2007.

Let me turn to our cash and investments. As of March 31st, 2008 Lexicon had $228.8 million in cash and investments including $33.4 million in cash in investments held by Symphony Icon, as compared to $258.8 million as of December 31st, 2007. We continue to make progress with our investment position in auction rate securities. Since the auctions relating to our securities began to fail in mid-February we've been able to sell $16.2 million in auction rate securities and ended the quarter with approximately $61.8 million in par value of auction rate securities. Based on our assessment of fair value as of the end of the quarter we determined there was an unrealized loss of $2.5 million on our auction rate securities resulting in reducing the value of these securities on our balance sheet to $59.3 million, which are now reflected as long-term investment.

As a reminder, our auction rate securities are AAA rated municipal securities consisting of bonds issued by various state and local municipal agencies for the purpose of financing student loads, public projects and other activities. We do not hold any collateralized mortgage backed securities, collateralized debt obligations or other such securities. We believe that the working capital available to Lexicon, excluding the funds held in auction rate securities, will be sufficient to meet our cash requirement for at least the next 12 months.

I would now like to turn to our forward looking financial guidance for 2008. We are on track to achieve our year-end guidance. Revenues from existing contractual agreements for 2008 should be in the range of 29 to $31 million consisting primarily of contractual revenues from our alliances with Bristol-Myers Squibb, Organon and Genentech. Operating expenses for 2008 should continue to be in the range of 145 to $155 million. The increase in spending from 2007 is almost exclusively the result of a significant increase in preclinical and clinical costs related to our drug development programs as we move multiple drug programs forward in human clinical trials.

Non-cash expenses will be approximately $14 million of this total including $6 million in stock based compensation and $8 million in depreciation and amortization. We will continue to manage our non-clinical expenses for cost saving opportunities. Taking into account cash received under existing contractual relationships only we expect our 2008 net cash used in operations to be in the range of 109 to $119 million and our 2008 capital expenditures to be approximately 3 to $4 million.

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

Thank you very much, Jim and Phil, and we will now take any questions you may have.

(Operator Instructions) And we'll take our first question [Sevna Threvoskeva] with Morgan Stanley

It's actually Dave calling in for Sevna. Just a question on 2931, exactly what types of lymphocytes are you seeing when you look at this reduction? Is it B cell, T cells or what and do they undergo apoptosis or what exactly happens to them when they become sort of non functional?

So you know there's two-- there's multiple exposed to your question. First off, we're not seeing apoptosis and I think the-- that one graph where you see this rapid decline following dosing with a prompt return to normalization reflects the overall trafficking, the influence on trafficking of the lymphocytes rather than killing the lymphocytes. I think that's a very important feature of the compound. Secondarily, we've not disclosed specific sub-populations that we're, of course, studying but I think it's fair to mention that we do see an effect on both T and B cells, which is a very important facet for this compound as we consider it in clinical development. But I am looking forward to being able to report those results in much more detail in the near future.

And so do you guys know where they go when they're not-- when they're sequestered? I mean, is it identifiable or are they just sort of spread out in small amounts all over the lymphoid tissue?

It's a fairly complex process and as the lymphocytes are sort of normally circulating through the body and connecting their surveillance by inhibiting this enzyme we believe they are becoming sequestered in the lymphoid tissues and organs, so as they move into the lymphoid sinuses they remain there for a period of time until the enzyme is able to come back on line and break down the substrate in which case they're allowed to traffic normally.

And then just sorry the last question is the liver tox that you saw, what exactly do you think is the mechanism? Is it additional lymphoid cells in the liver or is there some direct liver toxic effect that you think you saw here?

I think we're still trying to get a better understanding of that. As I mentioned, it's a fairly complex series of symptoms that began to emerge in this one subject that we're still trying to get a better understanding of. So it's not clear that there's a direct effect on the liver of the compound or there's a secondary effect of some sort. I think it is important to note that with agents that are targeting this pathway and there's a body of literature suggesting mild elevations in liver functions tests do occur and so it may be an on target effect of the compound but we don't know that yet and I guess lastly I would just add it's important to note that at dose levels where we were seeing a fairly profound reduction in lymphocytes we didn't observe significant effects or impact on liver, so it's clearly an area that we'll watch for in the future but I think we have a fairly nice dose range in which to work.

And sorry, just but did you say you saw transaminases and [bilis] in [outphos] up or just transaminases?

It's pretty-- it's just transaminases that we saw elevated.

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

With respect to LX2032 can you tell us are you still planning to do the multi-dose study in patients with carcinoid syndrome or is that also going to be in healthy volunteers?

Well, I'll address that, Sharon. I think we're at a stage now where we're just about to give the top line results and what I can tell you is we will evaluate everything and then assess our plans going forward. We have every intention based on everything we've seen to date to move forward into the next phase but exactly how that's structured etcetera I think we will wait until we do our top line results announcement and we can analyze everything. But, as I said, this compound is on track to move forward and so far so good with it.

Michael Yee with RBC.

On 6171 can you just kind of review again the phase 2 ongoing study in terms of time lines design and then its specific primary end points that you're looking at and then maybe comment on your thoughts about what you're hoping to see given I guess maybe sort of mixed results in the phase 1?

Sure, Phil, do you want to take that?

Yes thanks for the question. First, I would start with I don't actually see the results from phase 1 being mixed. I think they're very encouraging. We're getting excellent specific exposure to the compound and the fact that we haven't seen a decline in cognitive function under a fairly broad survey is an important first step for a compound at this stage of development. So getting to the specifics of your question, the phase 2 study design, of course the fundamental aspect of this remains safety at this stage of development but in parallel with that we're evaluating a variety of cognitive assessments first and foremost through the CDR battery, which is a computerized assessment that probes multiple domains associated with recall and memory and reaction time and attention.

We've also integrated some additional instruments which include both subjective assessments by the subject obviously in terms of their functionality and recall as well as objective members word recall specifically, word recall assessments. This is an age associated memory impairment. Again, it's not an indication we would pursue in formal development but rather provides us an opportunity to probe for what the effects of the compound might be in individuals who don't have overlying organic disease. We have-- we anticipate including 120 subjects. We're exploring two dose levels and it's randomized to placebo with a 4-week exposure period in which we're doing serial assessments on these memory domains on a weekly basis and then again at 4 weeks.

So you think we could get data by-- some sort of data by the end of the year?

I believe that's a reasonable assumption.

At this time we have no further questions. I'd like to turn the program back over to Dr. Sands for any additional or closing comments.

Yes thank you all very much. I'd just on my final slide with respect to looking at 2008 obviously this slide summarizes for you the presentation you've just heard. I'd just like to add a couple comments to the 2931 section of it, which maybe did not come out. These important reductions in lymphocytes, which we showed graphically, they did actually parallel the original knockout phenotype, of course, but also they came to levels in humans, similar lymphocyte levels, that we got to in animal models of rheumatoid arthritis and were able to show an abrogation of that disease model process, so that's one of the reasons we're encouraged because we're able to connect the dots between these lymphocyte levels we're seeing in humans and our animal model work in terms of blocking this disease process in the animals. So that's an important, I think, highlight for that.

And then the last thing I'd just close on is that overall it's really a remarkable illustration of our drug discovery strategy starting from a fundamental gene discovery observation in gene knock out mice all the way through now to a drug candidate, so from gene to drug candidate in a very short period of time.

So with that, we'll conclude our update for the quarter. Thank you very much for your participation and goodbye.

That does conclude today's call. You may disconnect your lines at this time.