Lexicon Pharmaceuticals Inc (LXRX) 2010 Q3 法說會逐字稿

Welcome to the Lexicon Pharmaceuticals third 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. Please go ahead, Dr. Walke.

Good morning and welcome to Lexicon Pharmaceuticals third quarter 2010 conference call. I am Wade Walke and with me today are Dr. Arthur Sands, Lexicon's President and Chief Executive Officer, Dr. Brian Zambrowicz, Lexicon's Executive Vice President and Chief Scientific Officer, 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 with begin with Dr. Sands, who will discuss our key accomplishments for the third quarter.

Dr. Zambrowicz will then discuss the status of our drug development programs and Mr Wade will review our financial results for the third quarter and discuss our financial guidance for 2010. We will then 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, 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, financing arrangements, cash investments, discovering and development of products, strategic alliances and intellectual property.

Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward-looking statements, including uncertainties relating 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 of our drug discovery efforts, our ability to obtain patent protection for our discoveries, limits imposed by patents owned or controlled by third parties, and our requirements of substantial funding to conduct our drug discovery and development activities. For a list and description of the risks and uncertainties that we face, please see the reports that we have filed with the Securities and Exchange Commission. I will now turn the call over to Dr. Sands.

Thank you, Wade and thank you everyone for joining us this morning. Over the past quarter we have continued to advance our strategy and our pipeline. Our strategy, of course, to discover and develop drugs that act through novel mechanisms of action. Looking at our pipeline, then, we will spend most of our time on the leading edge of our pipeline, the four programs, the first two of which, LX4211 for diabetes and LX1031 for irritable bowel syndrome, we have achieved, of course, proof of concept and they've entered a next stage of their development, a very important stage, where we are working to prepare for late stage development, working on form and formulation and other important studies that will preface the next steps for those two programs.So we will be discussing those. Also the next two programs that are up for proof of concept results, a very important Phase here, LX1032 for carcinoid syndrome and LX2931 for rheumatoid arthritis. So these being the next major events, I think major milestones for the Company, we'll start with those and review the data we expect and the timing for those milestones. So with that brief introduction, I will turn it over to Brian Zambrowicz to discuss first (inaudible) one.

Thank you, Arthur, I'm going to start with LX2931, because it is the program for which we will be obtaining our next major clinical readout.. LX2931 is a first in class sphingosine-1-phosphate lyase inhibitor for autoimmune disorders. It's part of a pathway that has become increased interest, especially with the recent approval of FDY720 or Gilenia from Novartis for multiple sclerosis. This Gilenia is was S1P receptor antagonist. I want to make it clear that we hit a different point in the pathway. We hit an intracellular target called S1P lyase, whose function is to irreversibly degrade the [indocumis] second messenger, S1P. The importance of hitting this point in the pathway is that those are preclinical and clinical data so far suggest that there is a lymphoid specificity when hitting the lyase that may provide a potential safety benefit. 2931 is an oral agent and we have preclinical data that there is potential for this agent, not only in arthritis, but also in other autoimmune disorders such as multiple sclerosis and transplantation. And in addition it is generally thought that if you can show a benefit in patients with rheumatoid arthritis, that suggests that there may be benefits in other autoimmune indications.

For 2931 one of the models, animal models that we really liked was rat arthritis model that we ran and we like the model because we think it is very similar to the Phase 2a trial we're running. The Phase 2a trial is going into patients who are failing on Methotrexate and in our arthritis model in rats, on the left you can see that with Methotrexate alone when we began treatment after the animals had reached a half maximal inflammatory response, Methotrexate alone was not able to block the further inflammatory response. However, on the right, when Methotrexate was given in combination with LX2931, it blocked the further progression of the disease model and this does give us support for the concept that these two agents together may be quite beneficial in a patient population failing on Methotrexate . So our Phase 2a study for LX2931 is double blind placebo controlled and we're, as I already mentioned, examining patients in combination with Methotrexate. You may recall that initially the size of the study was 120 patients. However, we did expand it to 208 patients and in spite of that expansion, we enrolled very rapidly. This is a large indication with many patients available.

We ran a study in 46 centers in both the United States and Eastern Europe, testing three doses of LX2931, 70, 110, and 150 mgs all given once per day. With a 12-weeks study treatment period, with a primary efficacy end point ACR 20 at week 12, very standard for an RA trial, and multiple secondary efficacy end points, including ACR 50s and 70, as well as [BAF 28], all measured at weeks four, eight and 12 with dosing. We do anticipate both receiving and reporting on the results of this study by year-end. Moving on to the carcinoid syndrome trial. LX1032, as you may recall, is a peripherally acting serotonin synthesis inhibitor. It does inhibit the rate-limiting enzyme for the production of serotonin And serotonin is known to be a key mediator of the GI5 ducts of carcinoid syndrome. So it drives [faulty] diarrhea and the GI cramping and discomfort that those patients feel.

In addition there is growing preclinical data that would suggest potential anti-tumor effects of blocking serotonin synthesis and these patients also suffer over time from (inaudible) sided cardiovascular issues that are also thought to be driven by serotonin. So there's potential then for not only affecting the symptoms of carcinoid syndrome, but also potentially the tumor and cardiovascular side-effects as well. We do have Fast Track status granted by the FDA and orphan designation by EMA. And with that, I want to move on to a description of the Phase 2a study. As you may recall, we have two Phase 2a studies running. One is in Europe. It's an open label study where with every patient we are dose escalating until we achieve a clinical benefit. I'll focus on the U.S. study, because we believe we'll be obtaining results for this study sooner. The Phase 2a study in the U.S. consists of two parts.

The first part is double blind placebo controlled dose escalation study. And during this portion of the study, we're looking at four separate cohorts of patients and each cohort is a cohort of four with three on active LX1032 and one patient on placebo. And we dose over 28 days and look for a benefit as far as affecting the GI symptoms of the carcinoid syndrome. And then we move on to a separate cohort and dose escalate. And we move through four cohorts, starting at 150 milligrams given three times a day and going up to a high dose of 500 milligrams given three times a day. After we complete that dose finding part of the study, we move on to an expansion cohort. That consists of eight patients with six on active LX1032 and one on placebo. Then to update you on the U.S. study. We have completed the enrollment of the dose escalation portion of the study and we are now in the process of moving on the expansion cohort and we expect to commence that portion during this quarter.

Now in the large indications like RA, as I already described, as well as in our previous IBS study for LX1031, enrollment has been very rapid and efficient. In carcinoid syndrome there is a low number of patients and that, in combination with the fact that there are multiple competing trials, has slowed our patient enrollment, but as I've described, we're moving into the final stages of this U.S. study. In addition, the EU study is continuing. And for both studies we're implementing a 24-week open label extension protocol. It will allow us to continue to collect safety and efficacy data for the LX1032 compound. And we do anticipate the results of the Phase 2a study in the first quarter of 2011. Moving on to the LX103 program. Again, to remind you, this is a locally acting serotonin synthesis inhibitor for IBS.

We have, as Arthur mentioned, previously achieved proof of concept in our Phase 2a study for LX1031 in patients with both diarrhea predominant and mixed IBS. And we are currently focusing on improving (inaudible) dose regimen, both lowering the dose and lowering the does frequency. And with that in mind, we have been testing a couple of alternative formulations of LX1031, including a new polymer formulation, as well as a nanoparticle formulation. In addition to that, we have been bringing forward a backup compound, LX1033, for which we anticipate filing an IND by -- in December. This is again a locally acting compound, very similar to LX1031. However, we think it may allow us to overcome some of the dosing issues that I've described, because of the fact that it's ten-fold greater in potency in a biochemical assay against (inaudible) target.

In addition, it has improved to the apparent solubility compared to LX1031 and we would anticipate beginning the Phase I study of that compound in the first quarter of 2011 and we do have the biomarker, Urinary 5-HIAA that can help guide us in determining whether we have made improvements in our dosing regimen. Final program I wanted to update you on is LX4211, our dual SGLT2, SGLT1 inhibitor for the treatment of type 2 diabetes. We do believe this is potential best in class agent. If not clearly a first in class agent because of its dual mechanism of action. It is a once daily oral agent and our Phase 2a trial results were very robust. We saw a large and rapid improvements in the control of blood glucose and that read out into impressive HbA1c reductions over only four weeks of treatment.

And in addition there were favorable trends in other metabolic and cardiovascular parameters, including weight loss and triglyceride reduction, as well as improvements in blood pressure. And unlike the SGLT2 selective compounds, our dual inhibitor triggers what we believe are additional mechanisms due to inhibition of SGLT1 and we have shown trends in one levels, and likely there's other beneficial peptides being released from the gastrointestinal track, which may explain our enhanced glycemic control and very strong hemoglobin A1c effects. Just to remind you a little bit on our Phase 2a results. I think the most significant observation was our effect on hemoglobin A1c. Of course the effects on hemoglobin A1c reduction are the primary end points for a type 2 diabetes trial and we did get a very robust effect at four weeks with a 0.76 % reduction in our high dose arm relative to placebo. We really are eager in our Phase II-B study to build upon this data.

A review of the historical data suggests that four weeks hemoglobin A1c reductions are approximately 50% of what you may expect at week 12. And as we move forward then, we do want to see in the more definitive 12-week study what our HbA1 the effects will be. In addition, I think very unique to our compound and one of the things that we think is triggered by the SGLT1 inhibition of our compound, we did see a trend of increase in one levels in both our dose arms relative to placebo. In this graph, we have on the Y axis, the total GLP-1 levels and on X axis is time and hours, with our red arrows indicating the meals, breakfast, lunch, dinner, and the bed time snack. And it's typical that after a meal you will get elevations in GLP-1 that are triggered by those meals. But what is quite apparent is that in both our dose arms we have further elevations in GLP-1 levels over those observed in the placebo arm. So with that -- with this data in mind, we really thought it was essential that we rethink our PK/PD bioequivalent study and the information we wanted to glean from it.

As you may recall, all of our studies to date have been done with a liquid formulation of LX4211 and in Phase 2B we are desirous to move to a solid oral dose form. And so with that in mind, in our PK/PD study, we're not only interested in looking at systemic exposure PK and resulting effects on SGLT2 based on a urinary glucose excretion, but we thought it was very important to modify the study to look at the mechanistic effects of what we think are due to SGLT1 inhibition. And with that in mind, we also decided to measure GLP-1 levels, as well as post prandial or post meal glucose levels in the blood and glucagon measures after each daily meal. We have completed the dosing portion of this study and we anticipate receiving the data from the study in December of this year with that data and the mechanistic results being reported in January of 2011. This information will guide us to identify the final tablet strength that we'll want to be using in our final Phase 2B study.

In addition, we've been doing further work on our Phase 2b (inaudible). What we anticipate is a very robust study. The doses that we had planned to investigate would include our two doses that we used in Phase 2A, so 150 and 300 milligrams of LX4211 each given once daily, but in addition to that, we want to explore a lower dose as well as a higher dose to make sure that we are maximizing the benefits of LX4211 compound. In addition, we have decided to incorporate an active comparator arm and for this active comparator we have chosen sitagliptin or Januvia, a DDP-4 inhibitor and there are really two reasons for having this as a comparator arm. First of all, it's the fastest growing second line agent that, for adding on to metformin therapy and in addition, it does act by prolonging the activity of GLP-1. This will be a 12-week study, very definitive study and, as I mentioned, it's a robust study.

We anticipate about 400 to 450 patients in the study and I think quite clearly having the 12-week HbA1c effect in this large number of patients, as well as the active comparator arm will little doubt of the magnitude of our HbA1c effects relative to known agents. To summary then, we do have several very important upcoming milestones for our programs. For the LX2931 program we do anticipate reporting on our Phase 2A results in rheumatoid arthritis by year-end. For LX1032 we will be moving on to the expansion Phase of the U.S. study and we anticipate our Phase 2A results in the first quarter of 2011. For LX1031, as I described, I'm completing our formulation work for LX1031 and at the same time we're moving along LX1033 and we'll be getting -- running our Phase 1 trial of that compound in the first half of 2011 using a biomarker information to define our best agent for moving forward in IBS. And, finally, for LX4211 we will be getting the results of our PK/PD mechanistic study by year end and will be reporting on that study in early 2011 with commencement of the Phase 2B study anticipated in the second quarter of 2011. With that update, I'll now turn it over to Jeff Wade.

Thank you, Brian. I will provide a brief financial update. As indicated in our press release today, we had revenues for the 2010 third quarter of $0.8 million, a decrease of 63% from the $2.1 million for the prior year period. That decrease was primarily due to reduced revenues under our alliances with Taconic Farms and Bristol-Myers Squibb. For the nine months ended September 30, 2010 our revenues decreased 61% to $3.7 million from $9.3 million for the prior year period. Our research and development expenses for the 2010 third quarter increased slightly by 4% to $20.1 million from $19.3 million for the prior year period. For the nine months ended September 30, 2010 our R&D expenses decreased slightly by 2% to $61.4 million from $62.4 million for the prior year period.

Our general and administrative expenses for the 2010 third quarter were $4.9 million, an increase of 8% from $4.6 million for the prior year period, primarily attributable to higher salaries and benefit. For the nine months ended September 30, 2010 our G&A expenses increased 4% to $15.5 million from $15 million for the prior year period. Our net loss for the three months ended September 30, 2010 was $27.5 million or $0.08 per share compared to a net loss of $19.1 million or $0.14 per share in the prior year period. Net loss for the nine months ended September 30, 2010 was $78.8 million or $0.27 per share compared to a net loss of $60.8 million or $0.44 per share for the prior year period. For the three and nine months ended September 30, 2010 net loss included non-cash stock-based compensation expense of $1.3 million and $4 million respectively.

For the three and nine months ended September 30, 2009 that net loss included non-cash stock-based compensation expense of $1.3 million and $4.1 million respectively. Let me now turn to our cash and investments. As of September 30, 2010 we had $231 million in cash and investments as compared to $255.8 million of net cash and investments as of June 30, 2010 and $125.1 million as of December 31, 2009. 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 be in the range of $4 million to $5 million, as we have previously discussed. As we have also previously communicated, while we are in conversations with pharmaceutical companies about potential collaborations and alliances, we have not included forecasted revenue from potential arrangements in our guidance.

We do believe that our productive pipeline will provide Lexicon with attractive opportunities for future alliances. We expect operating expenses for 2010 to be in the range of $100 million to $105 million, which has narrowed from our previous guidance of $100 million to $110 million. Non-cash expenses will be approximately $10 million of this total, including $5 million in stock-based compensation and $5 million in depreciation and amortization. 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 $85 million to $90 million, which is down from our previous guidance of $90 million to $95 million. Finally, as we discussed in our last earnings call, we exercised a restructured purchase option under our direct development financing collaboration with Symphony Icon Holdings and acquired all of the equity of Symphony Icon, Inc., thereby reacquiring all rights to LX1031, LX1032, LX1033 and the other drug programs subject to the collaboration.

As part of this arrangement, we and Symphony agreed to revise terms under which we paid Symphony Icon Holdings $10 million in cash upon closing and agreed to make certain additional deferred and contingent payments. We acquired the $4.4 million of cash held by Symphony Icon at the time of the acquisition, so our net cash outflow for the acquisition during the quarter was $5.6 million. The total of that front payment and all deferred and contingent payments will not exceed the $90 million exercised price applicable under the terms of the purchase option that were in effect before the restructured agreements were signed.

Importantly, this arrangement increases Lexicon's financial flexibility in that the deferred payments and the contingent payments may be paid in cash, common stock, or a combination of cash and common stock in 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 will be accounting for the Symphony Icon acquisition as business combination, which will involve recording the fair value of the assets acquired along with the fair value of the associated liabilities on our balance sheet. I will now turn the call back to Arthur.

Thank you, Jeff. We can now open the call for questions.

(Operator Instructions) Your first question comes from the line of Cory Kasimov with JPMorgan.

Hi, there, it's actually Matt Lowe in for Corey today. Just a couple of things. Firstly, just wondering if you could just update us on your thoughts on the potential timing of the partnership for 4211. Are you maybe thinking before the start of the Phase 2b trial, once the study is underway, or perhaps waiting until you have the Phase 2b data, and then I have a quick follow-up.

So while we are continuing to talk to potential partners on this program, we are proceeding with plans to initiate the Phase 2b study. And based on the unique dual mechanism, dual inhibition of SGLT1 and SGLT 2 and the additional mechanistic data, we have a great deal of confidence that we can build on that Phase 2a data, especially as it relates to HbA1c, which is the primary end point for diabetes trial. So we think, believes this program warrants that we do what is necessary to maximize the value for this program, which will involve progressing along with the planned program, as well as considering potential partnership discussions along the way.

Okay. And then my follow-up question is just for the bridging work for 4211, will you in January when we hear about the results of that study, will you be prepared to talk about the GLP-1 findings at that time or will we need to wait for them?

I think one of the things we're trying to do is continue to build on the differentiation in mechanism and so not only, as I mentioned, we're measuring GLP-1, but this time we'll be measuring both total and active GIP-1. And also one of the things we did during the study is we included a high glycemic index diet and we are tracking post prandial glucose control and glucagon, as well as insulin. So this can allow us to, again, obtain additional mechanistic data, because GLP-1 effect would be expected to improve post prandial or post meal glucose control.

So we are currently planning to report on that in January. Okay, that's great. Thank you.

Your next question comes from the line of Phil Nadeau with Cowan and Company.

Good morning, thanks for taking my questions. My first question is on LX1032. I'm sorry if you mentioned this in your prepared remarks, I missed it, but, after you get the data from both the U.S. and European Phase 2 studies, is the plan to still move right into a pivotal trial?

Yes, Phil, that is the plan. So that will require, of course, a discuss with the FDA and European authorities, but that was what we outlined in our pre R&D meeting with them and we're going to proceed along those lines. And I think that actually the discussion could take place really after we had the results of the U.S. trial, at least in the United States, so we're very enthusiastic about that opportunity. By the way, we had a good interaction with investigators at the recent North American Neuroendocrine Tumor Society meeting, or NANETS, in the United States and there we did highlight both trials for investigators and sensed, I'd say, good investigator enthusiasm for the mechanism and the compound.

And what has to happen between now and the beginning of enrollment of the expansion cohort? Is there anything that has to happen or is it just kind of we will just do details?

It's really logistical at this point. We have completed the enrollment on the dose escalation cohort, the last one, and then we -- and we've started aligning patients for the expansion Phase. Okay.

One of the nice things is that we have set ourselves up with long term talks, so that we're pretty well set up to be able to move into those types of studies.

Okay, great. Thanks for taking my questions.

Sure.

Your next question comes from the line of Stephen Willey with Stifel Nicolaus.

Hi, thanks for taking my question. Was just wondering if on the 1033 front, with respect to the follow-on on IBS, how much of that is related to excitement around this improved potency and how much of it is related to maybe some reformulation challenges on the current molecule side?

Well, I'll comment on that. I think we don't want to necessarily put all of our eggs in one basket, so to speak, so that in case our formulation changes are not sufficient, we think that 1033 gives us a clear additional potential compound based just on it's physical chemical properties and potency to give us the improvements that we're looking for.

Okay. And so thinking about maybe how this program moves forward with respect to business development perspective, is it safe to assume that probably 1033 and 1031 are attached at the hip now?

Yes, I think it's safe to say that both being locally acting agents in the gastrointestinal tract, that that's likely the case.

I think -- .

Go ahead.

I'm sorry, go ahead.

I was just going to say, I think we're really eager to identify the right candidate for moving forward, because there has been a high level of enthusiasm for the mechanism, as well as for the fact that we have this objective biomarker for the first time in the indication.

Any giving thought just to maybe how large a pivotal carcinoid trial may need to be. Then maybe just given some of the challenges around patient enrollment right now, how do you think about internally trying to drum up, I guess, some of the interest around the compound? You obviously said that you were at a medical conference recently, and then -- and kind of highlighting the program to investigators, but is that something that you plan to really focus on here in the coming year?

Yes, absolutely. It's -- there's a high interest level in the compound among investigators and it being really the first new small molecule to enter the scene that is directly on mechanism for this tumor type, both in terms of symptom control and potentially growth.

So, the first part of your question, until we have the conversation with the FDA, we really can't say, but our guess would be under a hundred, as a ballpark, so this is not a large study that would be required. Of course that, again, is dependent on discussions with the FDA and the ultimate determination of what kind of end points we ultimately go after, et cetera, and the timing.

I was just going to say the same thing as far as size. You can look at other pivotal trials for carcinoid syndrome agents, even studies on tumor progression have been as small as 89 patient . So I am not going to stand on exactly what the FDA or EMEA desire to see. One of the things that I would hope is if and when we get the results of our study, if they're positive, there will be a lot more incentive for patients to get into the trial, because they know they'll be gaining a benefit. The other thing I would say is that there may be even more clarity to the need to deal with some of the symptom issues based on the recent [Evra Loomis] data where Novartis demonstrated an anti-tumor benefit and if these patients are living longer, they're just going to continue to have to deal with the side effects. In addition, the cardiovascular problems are going to become even more exacerbated and that's directly where our agent hits.

And then just one more question on 2931. You talked about RA being a pretty good surrogate of efficacy in other autoimmune disorders. Can you maybe talk about what other indications you are contemplating now and whether or not you would choose to maybe keep those in house if you decided to out-license the RA program?

Well, so there's several. Inflammatory bowel disease and Crohn's disease the one we're looking at closely, number one. We have also discussed or psoriasis in the past, where that has typically been an indication that is seen as another important surrogate for other applications, later applications, which could also include transplantation. Now, that's sort of in order -- not necessarily in order of difficulty. Transplantation is probably the most difficult.

So, those are some that we have actually developed preliminary plans around. I think we're eager to see the results and then decide how to proceed. Another very rational approach based on results would be just go forward in RA and just totally focus on that. And, of course, this was, this is a program that has garnered high partnership interest as a small molecule in RA. So, we have -- I think we'll have a lot of options on the table. Of course that's all pending the results.

Great, thanks.

Thank you.

Once again, ladies and gentlemen, if you would like to ask a question, please press star then the number one on your telephone keypad. There are no further questions at this time.

All right. Well, I would like to thank everyone for participating. Given the number of important upcoming program milestones, which Brian summarized, I'm sure that we will be updating you on several of these between now and the next conference call. So, again, thank you for participating. Bye-bye.

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