Lexicon Pharmaceuticals Inc (LXRX) 2009 Q4 法說會逐字稿

Welcome to the Lexicon Pharmaceuticals fourth-quarter and year-end 2009 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 this call is being taped at Lexicon's request. At this time, I would like to introduce your host for today's call, Wade Walke, director of communications. Please go ahead, Mr. Walke.

Good morning and welcome to the Lexicon Pharmaceuticals fourth-quarter and year-end 2009 conference call. I'm Wade Walke and with me are Dr. Arthur Sands, Lexicon's President and Chief Executive Officer; Dr. Brian Zambrowicz, Executive Vice President and Chief Scientific Officer; Dr. Phil Brown, Lexicon's Senior Vice President of clinical development; and Jim Tessmer, Lexicon's Vice President of finance and accounting. We expect that you have seen a copy of our earnings press release that was distribute this morning. During this call we will review the information provided in the release, provide an update on our clinical programs, then use the remainder of our time to answer your questions. The call will begin with Dr. Sands, who will discuss our key accomplishments for 2009. Dr. Zambrowicz and Dr. Brown will then discuss the status of our drug development programs and Mr. Tessmer will review our financial results for the fourth-quarter and full-year 2009 and discuss our financial guidance for 2010. We will open the call to your questions. If you would like to view the slides for today's call please access the Lexicon website at www.lexpharma.com. You will see a link on the home page for today's webcast.

Before we begin, I would like to state that we will be making forward-looking statements, including statements relating to Lexicon's research and development of LX1031, LX103 2, LX2931 and LX4211, and the potential therapeutic and commercial potential of those drug candidates. This call may contain forward-looking statements relating to Lexicon's future operating results, financial arrangements, cash and investments, discovery and development of product, 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 timing and results of clinical trials and preclinical studies of our drug candidates; our dependence on strategic alliance and the ability to enter into additional collaborations and license agreements; the success and productivity of our drug discovery efforts; our ability to obtain patent protection for our discoveries; limitations imposed by patents owned or controlled by third parties; and the requirements of substantial funding to conduct our drug discovery and development activities. For a list and a description of the risks and uncertainties 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, Wade. Well, 2009 was really a year in which we achieved a major milestone in our corporate history, and that is witnessing proof-of-concept in patients in actually two significant Phase 2 programs and we'll spend, I think, most of the time today discussing some of the results from those two programs. But in addition to that, throughout the year last year, we progressed our entire pipeline forward, all focused on novel mechanisms of action and, of course, ever true to our mission to discover breakthrough treatments for human disease. If I look at our pipeline on slide four, which is focusing just on the Phase 2 stage programs, we've seen most recently, really in the last quarter here, the progression of LX4211 in its achievement of human proof-of-concept in Type II diabetes patients. And those results, as you'll hear more today and as we have covered previously, really are remarkable, and I think further reaffirm our entire platform in terms of developing new therapeutics. LX1031, in the last quarter -- quarter four of, 2009 also achieved proof-of-concept in irritable bowel syndrome. And then on deck are the next two programs, which are also in Phase 2, LX1032 for carcinoid program -- carcinoid syndrome, and LX2931 for rheumatoid arthritis.

I think as you look at each of these programs you'll notice that they're in areas of really significant unmet medical need; some have major market potential, and they're all progressing well. So we're very excited about what we achieved in 2009 and I have to say 2010 is off to a very rapid start. As you can imagine now, the as we're learning more and more about each of these drug candidates our business opportunities are expanding and we see a very bright 2010 ahead.

So with that, we'll turn to discussion of the clinical programs, a full update. There's a lot to discuss and a lot to cover so we're going to divide it between Dr. Phil Brown, who will take the first two programs, and then Dr. Brian Zambrowicz on the second two, then we'll open it up for questions. So Phil?

Great. Thanks very much, Arthur. As Arthur mentioned we achieved several significant milestones over the past year and over the past quarter associated with continued advancement of our pipeline and I'd like to start this morning with an overview of the most-recent announcements on LX4211. LX4211, of course, is our oral dual inhibitor of the SGLT transporters and we recently completed a Phase 2a study in patients with Type II diabetes where we observed significant improvements in multiple parameters associated with this condition. And based on these emerging results we believe that LX4211 potentially represents a best-in-class compound in the setting of Type II diabetes and we'll cover several of the parameters that we believe helped differentiate this compound from other compounds in the class.

The approach we took in the Phase 2a study was a very traditional approach in which we randomize patients in a double-blind fashion to either LX4211 or placebo and these, of course, were patients with diagnosed underlying Type II diabetes and then we followed a number of parameters that were typical of studies at this stage of development. If approach was to evaluate LX4211 at either 150-milligrams given once daily, 300-milligrams given once daily, or they were randomized to a matching placebo in a one-to-one-to-one fashion. The demographics of the patient population that was recruited was very consistent with patients included in other trials and the screening parameter was such that we were able to wash out patients from their existing antidiabetic therapy. In this case we identified patients who were on existing metformin therapy, and we washed them out for a 14-day period of time prior to randomization to the study. Also, we were able to sequester these patients over the entire treatment period in a single center, and based on that we brought patients in five days prior to the randomization in order to stabilize the dietary regimen and get better ideas of their baseline parameters prior to randomization to therapy.

Now, turning to the effects we observed, with the -- regard to the fasting plasma glucose you'll note on this slide that patients were not well controlled despite being -- the bulk of these patients being on existing baseline metformin therapy. As we washed the patients out of metformin you see an expected rise in the fasting plasma glucose. And again, we sequestered the patients a day minus five in order to standardize their diet and stabilize the baseline characteristics and you'll note a clustering of the values at this time point. Now what's important here is with randomization to compound we see a very rapid onset of effect with divergence of patients randomized to 4211 from those randomized to placebo illustrated tin green line, such that by the first time point illustrated here, day seven, we see highly statistically-significant improvements relative to placebo and that effect continues over the remaining 28-day treatment period.

I'd like to draw your attention to the fact that by the completion of this 28-day study period the patients randomized to 4211 were achieving better results in this parameter relative to where they were at baseline. Again, I think that's an important finding based on the fact that they were on the standard-of-care prior to coming into the study. And fully, a third of these patients achieved fasting plasma glucose by the end of study less than 105, which is near normalization of their fasting plasma glucose. Again, a very important robust effect on this parameter and the rapidity with which we we saw the result begin to emerge is a significant finding of this study.

Now, we also looked, of course, at glucose tolerance testing. This is an evaluation of how patients respond to a glucose challenge. In this slide, we've graphed the area under the curve. so glucose tolerance tests assess a number of blood draws following a glucose challenge over a defined time point and we've calculated the area under the curve on this graphic. Again, you see a virtual super imposition of both treatment arms, of individuals randomized to 4211, and, again, a highly statistically-significant improvement relative to placebo. And again, I would like to point out that we observed this response here at day two, which underscores the robust effect and the rapidity of effect that we observed following randomization to compound. This observ -- this effect continues over the 28-da7 treatment period with continued improvement each of these time points being highly statistically significant relative to placebo.

Now moving to hemoglobin A1C this, of course, is an incredibly important parameter for compounds associated with management of diabetes. Hemoglobin AIC is a lagging indicator of overall glycemic control that reflects the overall glycemic control over extended period of time, and we didn't fully expect to see this type of robust effect over a four-week treatment period based on the fact that it's associated with longer-term outlook on glycemic control. Here what you'll note is that patients randomized to 4211 showed us a significant improvement in this parameter despite only four weeks of therapy -- these were statistically-significant improvements -- and the low dose achieved a -.66% improvement and the high dose a 0.76%. And I think it's important to note that we would expect only about a 50% effect of the compound on this parameter over a four-week treatment period, and that we would not expect to see a full effect of the compound until week 12. So we are encouraged by this observation and believe that we'll see a treater and even greater effect as we go into longer-term therapy with the compound. I'd also like to point out that 50% of the patients randomized to 4211 achieved hemoglobin A1C levels less thatn seven,which, again, has been an important milestone for therapies being developed in the treating of diabetes.

Turning to our biomarker that we've utilized in both preclinical and even in our Phase 1 studies, which is urinary glucose excretion, you'll note here that individuals randomized to 4211 showed a very robust and acute effect showing increased urinary glucose with the onset of randomization, and this is highly statistically significant, as you might expect, relative to placebo. You'll note that as the therapy continues there is a decline in glucose excretion over the 28-day treatment period and this is reflecting the overall improvement in glycemic control that we achieve over the treatment period. Now, we also, because patients were sequestered, had the opportunity to follow a number of additional parameters outside the typical glycemic evaluation. In this slide we illustrate the change in weight loss that was observed over the treatment period. You'll note here that patients randomized to 4211 showed a more significant weight loss over the four-week treatment period relative to placebo. And similar to A1C we would not expect to see the full effects of 4211 on this parameter until a longer period of duration, such as approximately week ten or 12 of therapy. So we think that this is a very important observation at this stage of development and bodes well for future development.

Moving to the overall safety profile of the compound, LX4211 continues to perform very favorably. We've not seen any evidence of dose-limiting toxicity emerge, either in our Phase 1 studies or, importantly, as we've moved into patients over this 28-day treatment period. All the adverse events were generally mild and equally distributed across the treatment groups and that includes, of course, the placebo randomized subjects, as well. So in summary, we believe that 4211 represents a potential best -in-class compound in the setting of Type II diabetes, and we believe that this is based on the fact that it is hitting both SGLT1, as well as SGLT2, and we believe that this offers significant opportunities for differentiating the compound in the class and are eagerly awaiting progressing the compound into the next stage of development, which is progressing at present.

Now moving to LX1031, this is our tryptophan hydroxylate inhibitor, which reduces peripheral serotonin production that we've positioned in the setting of irritable bowel syndrome. The study design we undertook for this proof-of-concept, again, was a fairly typical design in which we focused on patients with either diarrhea predominant or mixed IBS based on (inaudible) criteria. We evaluated two dose levels of LX1031 against placebo over a 28-day treatment period and we also included a two-week running period to establish baseline conditions and a two-week follow-up period to see an offset of activity of the compound. The endpoints we studied in this trial were very consistent with what you would expect in the setting of IBS and we also had a sub study in which we evaluated biomarkers of interest, particularly urinary 5-HIAA , which has guided us both preclinically and in Phase 1 development.

Turning to the primary endpoint of the study, which was a global endpoint, this is a traditional endpoint that's been utilized for the approval of agents in this setting, and what you'll note here is that patients randomized to the high-dose LX1031 showed a statistically-significant improvement, as early as week one, with a durable effect over the four-week treatment period. Now you'll note in blue the low-dose arm of LX1031 where we see an improvement relative to placebo at week one, and we begin to lose think effect as we see encroachment of the placebo-randomized subjects over the treatment period. It's important to note that this magnitude of effect difference that we see between the high dose and the placebo is similar to the agent that's been approved in this indication, and we think these data represent a fairly significant finding over four weeks of treatment, and the data are fairly consistent with what has been observed in other agents relative to the effect and the reported -- reported in the placebo. I would also like to point out the -- with discontinuation of dosing at week four we see a fairly rapid offset of effect in this very meaningful parameter, which really underscores the pharmacologic activity of the compound in this setting.

We also saw an improvement in stool consistency in this study, which is an important confirmation of the pharmacologic activity of the compound. On this graph we've mapped the Bristol stool scale and you'll note, again, with high-dose randomized subjects here illustrated in red, we see a statistically-significant improvement in week one that's durable over the four-week treatment period relative to the placebo control. Again, following discontinuation of dosing at week four we see a return to baseline conditions, which, again, underscores the overall pharmacologic effect of 1031 on this parameter. As mentioned, we also had the opportunity to study the biomarkers of interest, urinary -- here illustrated in this graph is your 24-hour urinary 5-HIAA, which is the primary metabolizer of serotonin and reflects overall serotonin production. You'll note the high-dose and low-dose arm showed a reduction in urinary 5-HIAA over the 28-day treatment period. This is very consistent with what we've observed preclinically and in Phase 1 and confirms our pharmacologic activity of the compound from a mechanism-of-action standpoint.

So LX1031 was extremely well tolerated over the 28-day treatment period at both of these dose levels and \ I think this is an incredibly important finding for any compound beg considered in the development in IBS; it must be safe and well tolerated and LX1031 continues to perform very favorably in that regard. We did see statistically-significant improvements in the global assessment over the treatment period and there was also a significant improvement in stool consistency for the high-dose arms in both of those parameters. One of the most important findings for this study was a statistically-significant relationship that was observed between the reduction in urinary 5-HIAA and the -- its correlation with the global assessment. This was statistically significant and we believe that this is the first demonstration of a correlation between a pharmacologic modulation and a clinical response in IBS and for the first time illustrates an objective measurement associated with this indication. We believe this is a very important finding for further development of LX1031.

So in summary, with 1031 we believe IBS represents a significant and unmet medical need with very limited treatment options at present. Based on these observations for 1031 we are very encouraged by its effects and progressing it into the next stage of development. At present we're working on improving the overall formulation and the next step following that will be to progress it into an oral bioavailability study prior to moving into it the 2b dose ranging study.

And with that I will hand it over to

Thank you, Phil. I'll be describing the two programs for which we expect to obtain proof-of-concept data in the second half of the year. I will begin with LX1032. It's our small molecule tryptophan hydroxylate inhibitor for the treatment of carcinoid syndrome. Carcinoid syndrome is the result of a neuroendocrine tumor. Typically these tumors begin in the gastrointestinal tract and they contain cells that produce large amounts of serotonin and once they metastasize they can dump that serotonin into the circulation and that can then cause severe gastrointestinal symptoms, including diarrhea and abdominal cramping and pain. Although LX1032 is a tryptophan hydroxylate inhibitor it is a unique chemical entity from LX1031, and that was required because in order to get to the tumor we needed systemic exposure. However, like LX1032 does not cross the blood/brain barrier. We are currently our Phase 2a trial, it's ongoing, and this is a program that could move quite fast. It has fast-track status in the US and orphan designation in Europe.

We're very hopeful about this program because we believe the mechanism has been demonstrated to be effective for treating carcinoid syndrome based on an old study with a compound called (inaudible). This New England Journal of Medicine paper based on data from the 1960's describes the treatment of 16 patients with carcinoid syndrome and PCPA gave good to excellent control of the GI symptoms in 13 out of 16 of those patients. That included both controlled their diarrhea, as well as improvement in their abdominal cramping and pain. However, this compound crossed the blood/brain barrier and caused CNS side effects, including severe depression. What's very interesting is the data from their biomarker analysis, which is seen in the graph on the left, this is looking at one of those patients that was treated with PCPA and responded, and what you can see is the 5-HIAA measurement in the urine is reduced by about 50% to 60% after treatment with PCPA.

That encourages us because on this next slide we show our Phase 1b data. We were looking at our pharmacodynamic effect of our LX1032 compound as it related to 5-HIAA in the urine, and what we did dose and at day five, ten and 14 we measured urinary 5-HIAA, and if you focus just on the day 14 time point you can see that the top three doses are achieving approximately an equivalent drop in the 5-HIAA biomarker of about 50% to 60%. The nice thing about that is it's right in line with the effects that were associated with the clinical benefits with PCPA and that does give us lot of encouragement that we have a good chance of seeing a clinical benefit with (inaudible).

Phase 2 clinical trial is a double-blind randomized placebo controlled study in patients with symptomatic carcinoid syndrome. It will be conducted in the a number of centers in the US and we'll enroll up to 28 shall -- followed by cohort expansion at an optimal dose where we see a clinical benefit (inaudible) therapy. It'll be conducted in a number of centers in the US and will enroll up to 28 patients. It'll consist of serial dose escalations followed by covert expansion at an optimal dose where we see a clinical benefit, and there'll be 28 days of treatment for each dose level. The endpoints are straight forward. We'll be looking for changes in daily bowel movement, specifically a decrease, as well as affects on GI comfort and we'll be evaluating, of course, the safety and tolerability of LX1032.We'll also next month be initiating an open-label study in German, and we anticipate the results for one or both of these studies by the second half of 2010.

Summarizing then, we think LX103 is a really interesting compound, especially for a biotechnology company. Patients with carcinoid syndrome currently have only one therapy, that's Octreotide. It's not a direct inhibitor of the serotonin synthesis, rather it's an indirect inhibitor of its secretions, and because of that virtually all patients have GI symptom breakthroughs and (inaudible) into the direct inhibitor synthesis of that neurotransmitter, which is causing the GI symptom. In addition, most of these patients are treated at a small number of centers and we have this opportunity, again, to move very fast because of the designations we have both in the US and Europe. Down the road, there is data that indicates that there are anti-tumor effects of inhibiting serotonin synthesis. Although we are first looking at a release of GI symptoms in carcinoid syndrome ultimately we would like to see the effect of this inhibition on the tumor growth itself.

Moving on to the final program, LX2931, a small molecule orally bioavailable agent for autoimmune disease, and we're currently in Phase 2 trials in rheumatoid arthritis. The target of this compound is an enzyme that's within the cell called sphingosine-1-phosphate lyase, or S1P lyase. It inhibits the breakdown of an endogen in a second messenger called S1P. So when one inhibits this target one would expect S1P levels to be raised, both within the cell and external to the cell where it can interact with the S1P receptors. We believe both of these have anti-inflammatory benefit and when we do animal pharmacological studies we can see ten-fold increases in S1P levels within key lymphocytes. It's been demonstrated in the literature that increasing S1P levels decreases (inaudible) activity which then decreases inflammatory response [with] this intracellular benefit, which is on top of the benefit of the benefit of interacting with S1P1 receptor and affecting (inaudible) trafficking.

I'll point out this pathway has become of high interest because of synthetic receptor agonists, such as FTY720, which Novartis has demonstrated to be effective in treating patients with Multiple Sclerosis. We think that this point in the pathway is particularly appealing and could avoid some of the side effects of the synthetic receptor agonist. And that's demonstrated -- one of the reasons it's demonstrated on this slide, in this study we dosed rats for three days with LX2931and we removed a variety of organs and we looked that the effect on S1P levels and what was quite interesting is that -- the specificity of action of the lyase-inhibitor LX2931 in that we only saw large changes in S1P levels in organs that are important for immune functions. In the thymus we saw roughly 80-fold increase in S1P levels, 25-fold in the spleen and about 45-fold in the [desum]. However, in other organs we did not see significant change in S1P levels and that becomes particularly important when one looks at organs, such as the heart or the eye, where the receptor agonists are known to cause side affects, such as bradycardia and macular edema. We believe that the lyase inhibition causes a very specific effect and unlike the agonist [that affects] the receptors wherever they are in the body, and that's supported, then, by the fact that LX2931 does not cause bradycardia, and this is a specificity that appears to be conserved across species, as we have not seen bradycardia in mice, rats, dogs, monkeys and, most importantly, humans.

On the next slide I think one of the other intriguing aspects of hitting this point in S1P pathway is that in this model we're looking at collagen-induced arthritis in (inaudible) and on the lest we're looking at the inflammatory response based on change in ankle thickness, the swelling. And relative to placebo-treated animals (inaudible), you can see that LX2931 blocks the inflammatory response. However, that's in spite of the fact that there's a modest decrease in circulating periferal (inaudible) lymphocytes, as seen in the right bar graph. Only about 35% to 40% reduction. We think this is important because it does not cause the severe immune suppression observed with some of the receptor agonists, and we think the reason we're able to get this very strong anti-inflammatory effect is because we have this dual mechanism of raising S1P levels within the cells, as well as hitting S1P receptors external to the cell.

Another model that we've run of arthritis is the (inaudible) arthritis model. We like t his model a lot because we believe it mimics what we're trying to do in our (inaudible). What we've done in this experiment is we've allowed this [adgatent] arthritis model to reach half maximal inflammatory response before we began treatment. And you can see on the left side in black that methotrexate cannot block the inflammatory of response alone. LX2931 is well in the middle in goals does not, alone, block the inflammatory response. However, in the right graph, in red, the combination of methotrexate and LX2931 effectively blocks further inflammatory response, and we like this because in Phase 2a we are going into patients who are failing on methotrexate therapy. So we've done an extensive Phase 1 trial with LX2931, looking at it in over a 90 healthy normal volunteers. We followed that with a drug (inaudible) interaction study to show that the combination with methotrexate did not cause any interaction and was safe, and then we've been able to move on to our Phase 2a study.

I will show one result from our Phase 1 clinical trial and that's the effect of LX2931 on circulating periferal blood lymphocytes, and what you can see is that there's a dose-dependent reduction in circulating periferal blood lymphocytes and [NADR] is reached at 24 hours after a single oral dose and that NADR is about 50% reduction. And it hit at about 125-milligrams and even as one pushes the higher doses there appears to be a floor affect where where you're going to push down lymphocyte counts any further. And importantly, about three days after that NADR, the lymphocyte counts in the periferal blood return to normal. This fast off rate we think is especially important for drug in this class because if one were to observe an infection you'd like a fast off rate. Again, some of the receptor agonists can have very extended recovery time.

So the Phase 2 study is ongoing, a randomized double-blind with people control in patients with rheumatoid arthritis in combination with methotrexate. We have expanded our enrollment now. We expect to enroll up to 200 parents at multiple centers in the United States and eastern Europe. We had excellent enrollment ahead of schedule, and because of that excellent enrollment, we decided that we really wanted to enhance our ability to see a clinically-meaningful signal, and so we chose to expand the size of that trial. We are examining three dose levels of LX2931. The treatment period is 12 weeks with the primary endpoint being the HDR 20 at week 12. We are looking at multiple secondary endpoints and we do anticipate results by the end of the year. Again, this is, I think, a very exciting opportunity, hitting an important pathway for immune modulation at a point that we believe is differentiating in its -- both at safety and its potential for efficacy. There's a lot of interest now in small molecule drugs to treat rheumatoid arthritis, especially with the thought of being able to come in after methotrexate, or on top of methotrexate and before the biologics. I think that interest is pretty clear, based on some of the deals that have been done, especially with respect to kinase inhibitor and the [jack] kinase inhibitor.

With that, I'm going to turn it over to Jim Tessmer to cover our financial results.

Thank you, Brian. Let me now provide you with a brief financial update. Lexicon's revenues for the three months ended December 31, 2009, were $1.4 million, a decrease of 78% from $6.4 million for the corresponding period in 2008. The decrease was primarily due to reduced revenues Lexicon€™s alliances with N.V. Organon, Bristol-Myers Squibb and Genentech, partially offset by increases in revenue under our collaboration with Lexicon€™s alliances with N.V. Organon, Bristol-Myers Squibb and Genentech, Inc., partially offset by our collaboration with Taconic Farms. For the year ended December 31, 2009, revenues decreased 67% to $10.7 million from $32.3 million in 2008. Research and development expenses for the 2009 fourth quarter were $18.8 million, a decrease of 16% from $22.2 million for the corresponding period in 2008. The decrease was primarily due to lower external preclinical research and development expenses, as well as lower salary and benefit costs, partially offset by higher external clinical research and development costs. For the year, research and development expenses decreased 24% to $81.2 million from $107.2 million in 2008.

General and administrative expenses for the 2009 fourth quarter were $4.4 million, a decrease of 9% from $4.9 million for the corresponding period in 2008. The decrease was primarily due to lower consulting and stock-based compensation expense. For the year, general and administrative expenses decreased 10% to $19.4 million from $21.6 million in 2008. Lexicon's net loss for the three months ended December 31, 2009, was $22 million, or $0.13 per share, compared to a net loss of $15.4 million, or $0.11 per share in the corresponding period in 2008. Net loss for 2009 was $82.8 million, or $0.57 per share, compared to a net loss or $76.9 million, $0.56 per share in 2008. For the three months ended December 31, 2009, net loss included noncash stock-based compensation expense of $1.2 million compared to $1.7 million in the corresponding period in 2008. For the year ended December 31, 2009, net loss included noncash stock-based compensation expense of $5.3 million compared to $6.5 million in 2008.

Let me now turn to our cash and investments. As of December 31, 2009, Lexicon had $125.1 million in cash and investments, net of its obligations under the credit line secured by its auction-rate securities. Including $5.4 million in cash and investments held by Symphony Icon, as compared to $87.3 million as of September 30, 2009, and $158.8 million as of December 31, 2008. During the fourth quarter we completed the public offering and sale of 38.3 million shares of our common stock, resulting in net proceeds of $55.2 million. We believe that the working capital available to Lexicon, without taking into account funds held in auction-rate securities, will be sufficient to meet our cash needs for at least the next 12 months.

Now let's turn to our forward-looking financial guidance for 2010. Our contractual revenues from existing agreements for 2010 should be in the range of $4 million to $5 million. As we have previously made you aware, while we are in conversations with pharmaceutical companies to enter into potential alliances or collaborations, we have not included forecasted revenues from such potential arrangements in our guidance. We believe our productive pipeline will provide Lexicon with attractive opportunities for future alliances. Operating expenses for 2010 are projected to range from $100 million to $110 million. Noncash expenses will be approximately $10 million of this total, including $5 million in stock-based compensation and $5 million in depreciation and amortization expense. Taking into account cash received under exiting contracts or relationships only, we expect our 2010 net cash used in operations to be in the range of $90 million to $95 million.

I will now turn the call back to Arthur.

Thank you, Jim, and we can now open the call up for questions.

(Operator Instructions). Your first question is from Stephen Willey with Thomas Weisel Partners.

Thanks for taking my question and congratulations on the progress. Just a quick housekeeping question before I jump into any of the clinical programs here. With the OpEx guidance, the $100 million to $110 million, was that inclusive of the stock comp and D&A?

Yes, it was.

Okay. And maybe you could just talk about the decision to move ahead with the expanded RA enrollment and was that decision driven by any of the partnership discussions you may or may not be having at that current moment?

So I'll answer that, Stephen. The -- no, it was not driven by ongoing partnership discussion. Really driven by the fact, number one, that enrollment was ahead of schedule, and when we initiated the study we were actually told and were concerned that it might actually be a challenging study to enroll because it is a competitive clinical trial space. But when we saw -- when we witnessed the speed of enrollment, we then decided that it was best to take the opportunity to expand the numbers so that we could enhance the potential to see a meaningful clinical signal overall, so it's really a judgment call based on being opportunistic. I would also say, though, however, we are encouraged by the recent partnership activity, and I think it does tend to be driven by achieving really meaningful results in a proof-of-concept trial.

Could you remind us if the entry criteria for that trial is having CRP above the upper limit of normal?

Phil, would you want to comment on that?

Yes, that is an inclusion criteria.

And are those centrally read out?

Yes, that's correct.

And I know, Raj, you'll try to do a little work in those patients that had failed biologics. That anything you guys have on your horizons, as well, with respect to future development plan?

Phil or Brian? Brian? Brian, you want ---

I was just going to say that those patients tend to be very difficult to treat, so I don't know that it's something we would do early, perhaps later.

Maybe just jumping over to IBS for a moment, can you just remind us maybe where you are with respect to reformulating that drug and what's the next milestone or catalyst or trial event that we should see related to that program?

Phil, would you like to take that?

Sure. As you may recall we were, for the proof-of-concept study, working with a fairly unsophisticated formulation, basically just active ingredient in a capsule, and based on these results we believe that there's an opportunity to enhance this formulation and thereby reduce the -- either the amount of drug or the number of dosings that we're giving on a daily basis and achieve the similar type of effect of that was observed in this trial. So we're aggressively working on the -- improving the formulation to achieve that end and that is ongoing at present. In parallel we would expect to be conducting longer-term tox studies that would allow us to move into a 12-week study, which would be the next formal efficacy assessment of the compound. Now as we bring another formulation into the mix we will do a bioavailability study just to confirm the effect of the compound on urinary 5-HA, which has been our biomarker guiding us in development. So it's difficult for me to put an exact timeframe on those first two parameters, both the formulation improvement and the tox, but those are ongoing. And then following the completion of the -- of those parameters then we'll move into the confirmation in the clinic.

Then as you start to think about those timelines and how you start to see some incremental data emerging from that longer 12-week trial, how much does the Symphony -- the repurchase option expiration date play into how you're thinking with respect to both timing and what you want to get out of a longer term trial?

Well -- so I'd say, Stephen, that the -- of course, the goal of the whole Symphony relationship is to be able to progress these programs through proof-of-concept and build their value over that very important -- that milestone. So that -- if you'd break down, then, what does that milestone mean, part of that is to show that you've got a drug in a form that actually can go forward and ultimately be commercialized and so I think that's a key step and is part of the whole plan. So we're not really driven in a tactical way by the Symphony relationship, but I'd say strategically to prove that we've got a drug that's a viable compound for commercialization. Now, we think we've got proof-of-concept in man already, but we would like to see the dose form be a suitable GI formulation, so I think that's a key step. And I think here we could benefit from the biomarker, proving to ourselves that in this bioequivalence study we're able to achieve reduction in the biomarker, which we already know correlates to clinical benefits, and to do so, perhaps at a lower frequency of dosing and with a lower amount of drug. So I don't know if that helps too much, but I'd say Symphony is really more of a strategic consideration rather than tactical.

Yes. No, that's helpful. I know that they've demonstrated a willingness to be pretty flexible in some of their other deals, so presumably we should not necessarily be looking at those expiration dates as hard and fast deadlines?

I think that they have been flexible, and I think their goals are aligned with ours to create their highest value in program.

And maybe just lastly, can you just talk about some of the feedback that you guys have gotten shortly after the diabetes data? We've gotten some very good feedback on our end, but just wondering what you're hearing from potential partners you're talking to and maybe even some KOLs in the space?

No, I think the most common response from everyone has been how remarkable the hemoglobin A1C was and Phil mentioned this briefly, but what's thought is that of the total HBA A1C you're going to get with a given drub, you get about 50% of it within the first four weeks of treatment, and then from week four to week 12 you get another 40%, and then after week 12 you get the final 10% that you're going to get. And so if we're at 0.76% at week four, that bodes really well for where we could be at potentially at week 12. And everyone understands that perfectly well because the key battle in RA is who's going to be able to come in and dominate the market on -- after the metformin isn't controlling them any longer. The agents that are currently brought -- being brought in that it step do not have the kind of magnitude of effect that it appears that our agent is likely to have.

Do tou think there'd be an opportunity here for like what we've seen with the DPP4s, where there'd be some kind of co-formulation opportunity with metformin, as well?

Well, I'm excited that -- yes, that's possible, but even based on what we think is going on, there's reason to believe that our agent may work quite well with other agents, like a DPC 4 inhibitor, which is, I think, intriguing.

Thanks for taking the questions, and congrats on a pretty productive quarter.

Thank you, Stephen.

(Operator Instructions). And you have no further audio questions.

All right. Well, I'd like to thank everyone for participating. We certainly had a very productive 2009. As we look forward to 2010 we're going to be continuing to update you on our four drug candidates, which are now in mid-stage trials. Each of them are going to have evolving important milestones. We do have multiple partnership opportunities that are possible over this timeframe, as well, but as you know, our business model is to conduct partnership discussions associated with proof-of-concepts, which has now been achieved for two of our programs, and our engine continues to be productive. So 2010, again, looks to be, I think, a very exciting year for us. Thank you for participating. Bye-bye.

This concludes today's conference. You may now disconnect.