Lexicon Pharmaceuticals Inc (LXRX) 2010 Q2 法說會逐字稿

Welcome to the Lexicon Pharmaceuticals second quarter 2010 conference call. At this time, all participants are in a listen-only mode.

There will be a question-and-answer session to follow. Please be advised that this call is being taped at Lexicon's request. At this time, I would like to introduce your host for today's call, Wade Walke, Senior Director of Communications and Investor Relations. Please go ahead, Dr. Walke.

Good morning and welcome to the Lexicon Pharmaceuticals second quarter 2010 conference call. I'm Wade Walke and with me today are Dr. Arthurs Sands, Lexicon's President and Chief Executive Officer; Dr. Philip Brown, Lexicon Senior Vice President of Clinical Development; and Jeff Wade, Lexicon's Executive Vice President of Corporate Development and Chief Financial Officer.

We expect that you have seen a copy of our earnings press release that was distributed this morning. During this call, we will review the information provided in the release, provide an update on our clinical programs and 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 the second quarter.

Dr. Brown will then discuss the status of our drug development programs and Mr. Wade will review our financial results for the second quarter and discuss our financial guidance for 2010. We will then open the call to your questions. If you'd like to view the slides for today's call, please access Lexicon's website at www.LexPharma.com. You will see a link on the homepage 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, LX1032, LX1033, LX2931 and LX4211 and the potential therapeutic and commercial potential of those drug candidates. This call may also contain forward-looking statements relating to Lexicon's future operating results, financial arrangements, cash and investments, discovery and development of products, strategic alliances and intellectual properties.

Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward-looking statements including uncertainties relating to the timing and results of clinical trials and pre-clinical studies of our drug candidates, our dependence upon strategic alliances and ability to enter into additional collaboration and license agreements, the success and productivity by 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 that we face, please see the reports we file with the Securities and Exchange Commission. I will now turn the call over to Dr. Sands.

Thank you, Wade, and good morning everyone. In keeping with Lexicon's mission to discover breakthrough treatments for human disease, I'm happy to report we've made significant progress over the last quarter and the first half of this year with our four drug candidates that are in mid-stage human clinical trials.

Our progress has further reinforced our first-in-class, best-in-class business strategy with respect to differentiating our drug candidates and bringing them forward through development. So let me start by highlighting a few of the significant milestones for the last quarter and then we will move into a more detailed review of the more significant items.

So first of all with LX4211, we gained new data from this compound and from our initial Phase 2a study which has further substantiated the dual mechanism of action of inhibiting both SGLT2 and SGLT1. This important mechanistic data was presented at two international meetings, the Endocrinology meeting or Endo meeting where we have both an oral presentation and a poster presentation on the data and then also at the American Diabetes Association International Conference where we presented a poster on the subject. So Dr. Phil Brown will spend some time reviewing this data and actually some elements of the actual presentation that were given at those two meetings for those of you who may not have seen those.

For LX1031, we have made very good progress in the new formulation which is progressing and we look forward to in 2011 testing that in human studies as that progresses. And for LX1032, both trials in the United States and Europe have advanced with respect to enrollment and those are on track for readouts around year end.

And similarly for LX 2931 where there we have completed our enrollment, it is a fully enrolled trials now, the Phase 2a trial, greater than 200 patients. And so we are on track for obtaining results around year-end as well. So very important study progress on the two lead programs as they move into their Phase 2b development and then the next program to their readouts from the proof-of concept studies.

In addition on the business front, we achieved I think some rather significant progress, of course the most recent one being the successful reacquisition of all the Symphony programs. And so I've asked Jeff Wade to review that agreement again. Obviously that was an agreement which took some time in the second quarter to negotiate and we brought it to completion shortly after the close of the second quarter.

When you combine that with our accomplishment in the first quarter of the new financing, approximately $181 million in new capital that was accessed, we've done I think a significant amount of work on the financial front to further solidify Lexicon's position. So with that introduction, I will now turn the call over to Phil.

Great, thanks very much, Arthur. Well as Arthur mentioned, we had a great reception to the 4211 program at both the ADA and Endo meetings. And we truly believe that 4211 represents a first-in-class product relative to the other competing entities in this class.

And the reason for that is this dual inhibition that we achieved with both the SGLT2 which is the current state of the class, but 4211 also, influencing SGLT1 as additional benefits of the program that I think we observed in our clinical data. And we now have greater insight into the importance of this mechanism.

In the 2a study of course, we achieved rapid and significant improvements in the glycemic parameters but we also saw these very nice trends emerge on a number of metabolic parameters and we will review those briefly today. And again, considering the dual inhibition mechanism, we will spend a little bit more time on.

So this next slide is a little bit detailed in terms of data and if I may just orient you to it, SGLT2 of course is the transporter in the kidney that's responsible for uptake of the glucose and reabsorption in the kidney of the glucose where the numerous agents now are targeting this particular enzyme. SGLT1 is the transporter in the small intestine which is responsible for absorbing glucose into the body.

And in the chart below, what we have done is taken published data, the citation on the bottom there, of the representative agents in development and compared them to 4211. And in the first row, you'll note that its inhibition against SGLT2 -- and I should say, the lower the number, the more potent the particular compound is to the transporter -- you see that each of these agents is highly potent for the SGLT2 transporter and of a very similar magnitude of potency.

And where 4211 really differentiates itself from the other agents in development are illustrated in the next row against SGLT1. And you'll note that 4211 is very potent against SGLT1 whereas the other agents are much less potent towards this transporter.

And looking at the third row there where we compare the relative potency and selectivity against the two transporters, you see that the other agents have exclusively focused their activities on the SGLT2 transporter whereas this 4211 again shows a very nice degree of activity against both.

So moving into the study design again, just to refresh your memory, this was a 28-day study, double blind, randomized placebo controlled evaluating two dose levels of 4211 in patients with Type II diabetes over a 28-day period. And we followed a number of parameters associated with diabetes both in the glycemic control but also the metabolic parameters.

In this next slide, we've shared this data with you on occasion before and it illustrates the fasting plasma glucose. And you can see at baseline where we began the metformin washout on these patients, they were not very well controlled.

And as expected, when the metformin was removed, you see an increase in the fasting plasma glucose. The vertical line at day minus five indicates when patients were sequestered and we began diet standardization.

And then on day zero, we randomized and you see this rapid improvement in fasting plasma glucose begin to emerge for individuals randomized to 4211 that's maintained over the 28-day treatment period, such that 50% of patients achieved a fasting plasma glucose less than one 120 and one-third of those less than 105. It's also I think important to note that if you compare to baseline, you'll see that the 4211 subjects actually showed improvements over where they were on metformin alone.

So this was a very significant finding of the study of course. More importantly perhaps is the hemoglobin A1C data, which as I'm sure everyone is familiar with, we wouldn't expect to see a complete effect over only a four-week treatment period.

But we saw again this very robust improvement in hemoglobin A1C over this four-week treatment for patients randomized to 4211 with a 0.66% improvement in the low dose arm and a 0.76% reduction or improvement relative to placebo in the high-dose arm. And half of patients randomized to 4211 actually achieved a hemoglobin A1C of less than 7. This is of course the regulatory endpoint for diabetes development and is a key consideration for any compound in the study.

As mentioned, we also saw a nice improvements in a number of metabolic parameters and today I'll just review briefly with you a couple of those. So in this slide are the weight data.

We saw a weight reduction emerge over the course of the study in a dose dependent fashion. So of course these patients were sequestered and on a standardized diet, so we saw a modest decline in weight even for placebo illustrated in green.

And the data here on a weekly basis, so you can see the continued trend towards weight loss over the four-week treatment period. And importantly for the individuals randomized to 4211, the low dose are the blue bars and the high-dose subjects are in the orange or red bars, and you see a more significant weight loss over the four-week treatment period in a dose dependent fashion for each of these cohorts.

Similarly, in evaluating triglycerides -- and again, same color scheme for the cohorts. So the green bar indicates those individuals randomized to placebo, blue is the low dose and orange is the high dose.

And you see a fairly significant improvement in triglyceride values emerging sort of by the day seven time point. But by day 14, both dose groups had virtually normalized on the triglyceride levels and that was maintained with continuing improvement being observed over the next two weeks such that by day 28, both dose groups were below and within the normal range.

This was again a very important observation of the study and not fully anticipated when we initiated the study. So coming back to the importance of this dual inhibition mechanism, by absorbing less glucose from the gastrointestinal tract as would occur when you block SGLT1, you keep increased glucose in the lumen of the gastrointestinal tract and this of course results in less absorption of the glucose into the bloodstream. So you see lower blood glucose. More importantly, it may stimulate in cretin signaling by endogenous release of GLP-1 and other peptides such as PYY, glucagon, etc.

So we then in a post-trial analysis looked at blood samples for total GLP-1 and these data here are representative of day one samples and you'll note that each dose group again starts at similar level of total GLP-1 illustrated on the Y-axis. The black bars indicate mealtimes.

So you see following the breakfast, a very nice separation of individuals that were dosed with 4211 evidence by increased total GLP-1. Again, the same color scheme applies with the green are placebo-randomized subjects and blue and red are the 4211-randomized subjects.

And you see a nice improvement in total GLP-1 levels following the breakfast meal. But importantly, you will see over the full 24-hour time points, virtually every evaluation shows increased total GLP-1 in subjects randomized to 4211 relative to placebo. And again, the black bars are indicating each of the mealtimes for these subjects and you see a nice peak again to emerge following each of these meals.

If we then look at just the two hour time point for each individual patient, you see that each cohort shows this nice increase without significant outliers driving the data such that there's full increase in the population of subjects within each of the dosing cohorts, we believe a very significant observation to see increased GLP-1, total GLP-1 through endogenous mechanisms and we believe that is related to the SGLT1 mechanism.

So in summary, we again see these data as very important in terms of positioning the compound for further development. We see significant improvements across virtually every glycemic parameter that we evaluated with these very significant nice trends in a variety of metabolic parameters that we believe are important going forward for any agent with diabetes.

Most importantly, however, is this dual inhibition mechanism we believe differentiates 4211 from the competitors in this class and its activity is enhanced through in cretin signaling. We have now completed the 13-week toxicology studies and we are working on evaluating or developing a solid oral dose formulation which we can move then into a bioequivalent study, a PK study this quarter in positioning the compound for its Phase 2b activities which we would initiate in the early part of next year.

So moving onto LX1031, of course this compound showed very nice improvements in IBS in both the global assessment standard endpoint and IBS studies as well as improvement in stool consistency. We also showed a relationship between a decrease in urinary 5-HIAA which has been our biomarker that we've tracked since pre-clinical development all the way through to this particular study.

And this reduction in 5-HIAA showed improvements correlated with improvements in multiple clinical assessments. And we believe this represents a very important handle for us in moving the compound forward and being able to potentially prospectively identify patients who might respond to the therapy as well as help guide us as to the appropriate degree of reduction that may correlate with improvements in activity going forward.

So at this point, we are continuing to work on the formulation to improve upon its characteristics. As you might note in this study where we showed activity, it was a very unsophisticated form of the compound and we believe there's great opportunity in improving its formulation characteristics to reduce either the amount of drug or the frequency at which it's given to maintain the same degree of effects in the next series of studies.

As we work on the formulation, we anticipate doing a PK-PD bridging study that will evaluate the new forms. We are in the process of initiating the 13-week toxicology studies and both of those activities will roll into the design initiation of the 2b study. Moving into LX1032, this is the peripherally acting inhibitor of serotonin synthesis which we have positioned in the setting of carcinoid syndrome.

As you recall, this has both fast-track status in the US as well as orphan status in the EU and we believe represents a unique opportunity in the setting of a very unmet medical need area of carcinoid syndrome. We currently have two studies ongoing in the US.

It's a placebo-controlled study that's accruing well and progressing appropriately at this point. The European study we initiated in the late spring timeframe. It's an open-label construct and it also is progressing very well.

We have amended the US IND to allow for continued access to drug. There are a number of patients now which have completed the four-week double-blind treatment period. And importantly, we need to maintain access to compound for them in light of the fact that its safety and tolerability profile continues to perform well and they perceive to be some benefit from that. So we have admitted a protocol to allow continued access to those patients who wish continued access to it. As Arthur mentioned, we are anticipating initial results on these studies to occur in the second half of this year.

And finally, 2931, as Arthur mentioned, this is our compound directed towards rheumatoid arthritis. We have had a fairly large Phase 2a study ongoing in a number of countries and a very important milestone having been met with completed enrollment in this study.

Slightly over at 200 patients have been enrolled at present. We're just waiting for the study to wind down and we would anticipate having the study results towards the end of this year.

So things have continued to progress very nicely across a number of fronts. I think very important findings continuing to emerge from our programs that have reported out. So with that, I'll hand it over to Jeff for an update on the financial results.

Thank you, Phil. I will provide a brief financial update. As indicated in our press release today, we had revenues for the 2010 second quarter of $1.2 million, a decrease of 59% from $3 million for the prior year period. The decrease was primarily due to reduced revenues under our drug discovery alliances with NV Organon and Bristol-Myers Squibb.

For the six months ended June 30, 2010 our revenues decreased 60% to $2.9 million from $7.2 million for the prior year period. Our research and development expenses for the 2010 second quarter were $20.2 million which is consistent with the prior year period. And for the six months ended June 30, 2010 our R&D expenses decreased 4% to $41.3 million from $43.1 million for the prior year period.

Our general and administrative expenses for the 2010 second quarter were $5.1 million, a decrease of 9% from $5.6 million for the prior year period. The decrease was primarily attributable to lower patent related legal costs.

For the six months ended June 30, 2010 our G&A expenses increased 2% to $10.6 million from $10.4 million for the prior year period. Our net loss for the three months ended June 30, 2010 was $25.2 million or $0.07 per share compared to a net loss of $20.1 million or $0.15 per share in the prior year period.

Net loss for the six months ended June 30, 2010 was $51.3 million or $0.19 per share compared to a net loss of $41.6 million or $0.30 per share for the corresponding period in 2009. For the three and six months ended June 30, 2010, our net loss included non-cash stock-based compensation expense of $1.3 million and $2.6 million, respectively. For the three and six months ended June 30, 2009 net loss included a non-cash stock-based compensation expense of $1.4 million and $2.8 million respectively.

Let me now turn to our cash and investments. As of June 30, 2010 we had $255.8 million in cash and investments net of our obligations under the credit line secured by our auction rate securities. That compared to $278.7 million as of March 31, 2010 and $125.1 million as of December 31, 2009.

On June 30 we exercised our rights related to our auction rate securities and UBS AG, the investment bank that sold us the auction rate securities purchased our remaining $23.6 million of auction rate securities at par value on July 1, 2010. Now let's turn to our forward-looking financial guidance for 2010.

We are on track to achieve our year-end guidance. Our contractual revenues from existing agreements for 2010 should continue to be in the range of $4 million to $5 million.

As we have previously communicated, while we were in conversations with pharmaceutical companies to enter into potential collaborations or alliances, we have not included forecasted revenues from those potential arrangements in our guidance. We do believe that our productive pipeline will provide Lexicon with attractive opportunities for alliances in the future.

We continue to expect operating expenses for 2010 in the range of $100 million to $110 million. Non-cash expenses will be approximately $10 million of that total and that includes $5 million in stock-based compensation and $5 million in depreciation and amortization.

I should note that these numbers do not reflect the accounting impact of the Symphony transaction which we are continuing to work through. Taking into account cash received under existing contractual relationships only, we expect our 2010 net cash used in operations to be in the range of $90 million to $95 million. These numbers do not include a $10 million cash payment made in connection with the Symphony transaction.

In turning to that transaction, finally, as we announced last week, we exercised a restructured purchase option under our drug development financing collaboration with Symphony Icon Holdings and acquired all the equity of Symphony Icon Inc. thereby requiring all rights to LX1031, 1032, 1033 and the other programs that were subject to that collaboration.

We and Symphony agreed to revise terms under which we paid Symphony Icon Holdings a $10 million cash payment at closing and we agreed to make certain additional deferred and contingent payments. The deferred payments will be in an amount equal to $50 million, less a 50% share of the expenses we incur after our exercise of the purchase option for the development of LX1031, 1032 and 1033 and other compounds against the same target. Subject to certain exceptions for studies that are currently in progress and up to an aggregate reduction of $15 million.

The deferred payments are payable at our discretion at any time before July 30, 2013. The contingent payments will consist of a 50% share of any consideration we receive under licensing transactions under which we grant third-party rights to commercialize a drug candidate from the 103 programs subject to certain exceptions up to a maximum of $30 million plus the amount of any reduction in the deferred payments from our development expenses for the 103 programs.

The contingent payments will be due if and when we receive that consideration from the licensing transaction. We will make an alternative contingent payment in lieu of the share of licensing consideration in the event that we receive regulatory approval in the United States for the marketing and sale of a product resulting from one of these programs before we enter into a licensing transaction for the commercialization of that program in the United States.

The total of that front and all deferred and contingent payments will not exceed the $90 million exercised price applicable under the terms of the purchase options that were in effect before the restructured agreements were signed. The deferred payments and the contingent payments may be paid in cash, common stock or a combination of cash and common stock at our discretion provided that at least 50% of any payment made on or prior to July 30, 2012 will be paid in common stock and no more than 50% of any payment made after that date will be paid in common stock.

We are very pleased with this outcome for our Symphony collaboration, an outcome that provides us with greater strategic and partnership flexibility around programs that we believe have demonstrated value. I will now turn the call back to Arthur.

Thank you, Jeff and Phil, and we can now take questions.

(Operator Instructions) Phil Nadeau, Cowen & Co.

First on the upcoming carcinoid data, can you remind us of the primary endpoints of the US and European studies? I believe that they're safety but you're also looking at some efficacy measures like bowel movements. Is there any more detail you can provide?

Sure, so as you mentioned, first and foremost, safety and tolerability is a key consideration for both of these studies. Importantly, based on the fact that they have the regulatory status they do, it's an unmet medical need, we are closely following a number of clinically meaningful endpoints that we believe would be important from a regulatory standpoint.

That includes the number of bowel movements as well as the number of flushing episodes that these patients are experiencing. We have also integrated into these studies a number of subjective symptom parameters such as global endpoint similar to the way IBS studies are evaluated. And in addition to that, we are following the biomarkers of interest of course.

Great, and then a second question actually on the financials. I know you said that you are still evaluating the impact of a Symphony transaction on the accounting, but can you give us some rough idea of what's going to happen to the R&D and SG&A line items following the close of this transaction? Are they likely to go up meaningfully or is it more likely to be a small movement in either direction?

So in terms of our spending on the programs which I think is the key element of this, we don't expect there to be a significant difference of the balance this year in our expenses. We will have to account for the acquisition itself and that's what we're still looking at the accounting for. But in terms of the operations of the company and how much we expect to invest in those programs over the balance of the year, we don't expect the acquisition to have a meaningful impact on that.

Stephen Wiley, Stifel Nicolaus.

With respect to the amendment on the carcinoid trial, so presumably now you do have patients that have gone through that four-week extension program post the dose escalation phase?

Yes, it's a double-blind treatment period, by the way. So it's a serial dose escalation in cohorts. So as cohorts finish, we escalate to the next dose level. And we have now completed several of those cohorts and individuals have completed the four-week double-blind treatment period.

And then you will obviously have urinary 5-HIAA here again as a biomarker considering you're also hitting TPH-1. Just wondering if you envision that having as much utility as it appears to have in IBS right now.

Well I think again, it's a very different construct in the setting of carcinoid relative to IBS. IBS of course is a functional disorder where nobody fully understands the pathophysiology that's creating the symptoms.

So the importance of a biomarker there is profound in terms of its potential utility. In carcinoid syndrome, urinary 5-HIAA is the diagnostic marker that is utilized in identifying these patients.

And going back to the literature with PCPA where they reported a nice improvement in symptom control, they didn't see normalization of 5-HIAA. So we are of course tracking it as our pharmacodynamic biomarker.

We believe that we will be impacting urinary 5-HIAA. But most importantly, we need to control symptoms in these patients and so that's key to the study. We will continue of course to follow the biomarkers but it really is the symptoms that begin to emerge as the most important parameter in carcinoid.

Then I guess with respect to looking beyond the Phase 1/2 data we're going to see here by year-end, where do you think the Company I guess needs to be from both a clinical perspective? And what kind of regulatory guidance do you think you are going to need in order to maybe leverage this data into a Phase 3 program potentially in 2011?

Well, I guess the way to answer that is we have met with both the EMEA to obtain our orphan status as well as the FDA where we brought the compound into the clinic. And we outlined at that point in time a projected development pathway for the compound. I think it's going to be important as we get these data to revisit with both of these regulatory authorities in terms of obtaining guidance and updating them with the status of the program.

As you may know, there is in the US only one approved compound for this and it's not clear that there is a standard development pathway in place to impact symptoms. So I think there's a great opportunity here as we get our data and show improvement with an oral agent that we should have a relatively straightforward pathway to further development of the compound. But that's going to be require some dialogue with the FDA as well as the EMEA once we have the European study completed.

At this time, there are no further questions.

Thank you. So if I could just review one slide from the upcoming milestones to look forward to over the next year, I think for each program, LX4211, we're going to see progress on the bioequivalence study which should be completed in the next half of this year.

That should provide the Company with visibility with respect to the solid oral dose formulation to use in the 2b as well as then refine our plans for the 2b study which we anticipate initiating in the first half of 2011. So that bioequivalent study I think will be an interesting step forward for the program.

Again, that should be the upcoming half here. For LX1031, we would like to see the same thing happen, see a bioequivalence study performed on new formulations. We have accumulated some data pre-clinically on that and that will enable us to design the next step for that program as well having obtained those results by the end of the year from the pre-clinical side.

Then the next two programs as you have heard from Phil, they're at a very exciting phase because they're on deck to have proof-of-concept readouts from both of these programs. And I think for carcinoid syndrome around year-end if we're fortunate enough to have both studies readout, that would of course be tremendous, but either study has the capacity to give us results that we would need to make future decisions.

And then LX2931 having completed enrollment, that is a very significant step forward and a very large study at this stage of development, 208 patients. And given that that is -- that enrollment is complete, we can really I think definitively map out getting results at the end of the year. So they'll be a very important event for us.

And then finally on the business front, the Symphony transaction being renegotiated into the form that you heard described by Jeff Wade is really an excellent event for the Company, an accomplishment. It has been an alliance that has been very productive for us.

The Symphony team has been a significant positive in terms of working with the Company in our development pathway, not just of course for the financial dedication to the programs, but also the developmental expertise they brought to bear. So we've enjoyed working with Symphony, it's been a productive alliance, and I think now we are ready for the next phase of development in those programs with Lexicon having regained control, complete control of the programs. So with that, I would like to thank everyone for participating and we look forward to keeping you updated in the future. Bye bye.

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