Lexicon Pharmaceuticals Inc (LXRX) 2011 Q4 法說會逐字稿

Thank you for holding. Welcome to the Lexicon Pharmaceuticals' Fourth Quarter and Year End 2011 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' Fourth Quarter and Year End Conference Call. I'm 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; Dr. Pablo Lapuerta, Lexicon's Senior Vice President of Clinical Development and Chief Medical 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 will begin with Dr. Sands, who will discuss our key accomplishments in 2011. Dr. Zambrowicz will then give an update on our LX4211 program, Dr. Lapuerta will then review the status of our LX1032, 1033, 2931 and 7101 programs, and Mr. Wade will review our financial results for the fourth quarter and full year 2011 and discuss our financial guidance for 2012. 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 our homepage for today's web cast.

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, LX4211 and LX7101, 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 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 licensing 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 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. Welcome, everyone, to the call. As we look at our pipeline today, I think it is clear that 2011 was characterized by significant of effort in progressing and enhancing our pipeline as we move through Phase 2 development on a number of programs. We will be talking about each of these today. We also initiated a new program, so it is our fifth program now in clinical development, that is LX7101 in Glaucoma, and we will be providing a brief update on the status of that, as well.

Also in 2011, we fortified Lexicon with respect to our financial position. And of course, this is key so that we are able to progress our pipeline independently and pursue our business model, that is to seek partnerships in certain key areas of -- for large primary care indications. At the end of the call, Jeff Wade will be discussing our financials for the year.

If you look -- looking forward, though, on the next slide, to 2012, there is a significant amount of activity associated with such a broad pipeline of, now, five programs. I would like to take a moment to walk through this slide and draw your attention to some of the key milestones over the next six to 24 months. So starting from where we stand now at the end, here, of Q1, at the bottom of the pipeline slide -- this timeline slide, you see the progression of each program with respect to initiations and launches and at the top, are key events we expect -- with respect to results and milestones for each program.

So starting from the top left, of course, the milestone that is perhaps most significant is for LX4211 in Diabetes. Our Phase 2b results are expected at the end of Q2, and so that is coming up here. That's a study of approximately 300 patients with Type 2 Diabetes, and we are on track to have those results.

In a similar timeframe, we expect to have results from LX2931 in Rheumatoid Arthritis. That is a bridging study in the middle of Phase 2, where we are exploring higher doses of LX2931.

And then as we progress toward the end of the year, we see results from LX7101 and its initial proof of concept trial in Glaucoma. And that should provide us, really, the first insight as to the -- that mechanism of action in patients.

And then looking to Q1 of 2013, so approximately 12 months from now, we expect to see the results from our IBS trial with LX1033. That's a very large Phase 2 trial of some 360 patients with IBS-d.

In a similar timeframe, we would expect to see results from Telotristat Etiprate, or LX1032 in ulcerative colitis. That is also a proof-of-concept trial and a new indication, as we are progressing that program to explore that opportunity.

Along the bottom of this timeline, then, you can see all of the launches that are involved, and some of which, of course, are contingent on the results that we would achieve on the top part of the timeline. But I think most importantly in 2012, is the first Phase 3 launch, which we are currently actively planning, and that is for Telotristat Etiprate in Carcinoid syndrome. That is driven by the results we have had in the past six months -- proof-of-concept results in Carcinoid syndrome, which are very favorable and encouraging.

As you progress then to the right, depending on results again, we could anticipate LX2931 having an opportunity in RA, if we establish a safe and effective dose from the current study.

And then for LX4211, a potential Phase 3 launch in early 2013 in Type 2 Diabetes. That, of course, would be a major effort. We have already began at least strategizing about the potential design for a Phase 3 program. This would be a program we would anticipate going into with a partner, but it does require Lexicon achieve a significant amount of groundwork in order to prepare for that opportunity.

So within just the next 12 months, you can see a number of, I would say, very important results coming from each of our five programs in development. And then associated with those results and driven by them, key next steps for the programs at the bottom. A very exciting 12 months in 2012 in front of us.

I would like to turn now to LX4211 and provide for you a little introductory context. I know that we'd talked quite a bit about 4211 with everyone in the past. And so you are all familiar with the fact that it is the only dual inhibitor of SGLT1 and SGLT2 in clinical development. The competitive landscape here, as you can see, has really centered predominantly on SGLT2 for a number of reasons. We described in the past where large pharmaceutical companies and other companies have pursued that as the first target on this pathway. We being the only dual inhibitor have done an excellent job so far of describing the advantages of SGLT1 and will describe our most recent study in that regard today, as well.

But recently in 2011, we did see results from a Phase 1 study presented by GFK. At the bottom of the slide, you can see that they have presented results of a SGLT1 selective compound in the clinic, which has substantiated our findings and I think has been encouraging. In fact, we do believe, as they do, that this represents a major new opportunity in Diabetes.

So turning to our strategy slides in clinical development, 4211 then -- with such a competitive field and the mechanistic understanding of these pathways still evolving, I want to describe our strategy with regard to all of the studies we are conducting in Diabetes. So first and foremost, of the largest trials we have conducted to date -- and indeed the ongoing trials are focused on demonstration that the dual mechanisms of action provides the opportunity for superior glycemic control combined with metabolic control. So enhancing not only controlled blood sugar, but also very important parameters of metabolism, that include not only body weight, but also cardiovascular parameters, specifically blood pressure and triglycerides, where we have seen encouraging results with LX4211 today.

We believe in the future to be competitive in the Diabetes marketplace, ultimately, drugs are going to have to be able to address both glycemic control and metabolic control and offer those to patients -- for patients' benefits. The studies that come under this part of our strategy listed below, of course, first, we have the completed study -- the Phase 2a study of 36 patients, where we first saw this encouraging profile. And then the ongoing 12-week study, the Phase 2b study, again, which results from which we expect later in June of this year. And that is being done in combination with Metformin in patients with poorly controlled diabetes who are on Metformin.

In addition to this, we've initiated a proof-of-concept study in Type 2 Diabetes patients who have moderate to severe renal impairment. This fits with what we understand about the mechanism with LX4211, in that we believe that we can benefit these patients by virtual of our SGLT1 effect, whereas the SGLT2 part of the mechanism has not been shown to necessarily benefit this important population of diabetics. This constitutes approximately 30% patients with Type 2 Diabetes. We think this is an important proof-of-concept trial for an additional enhancement of our product profile for LX4211.

If we turn to our next step in our clinical development strategy for LX4211, that is to really illustrate this mechanism of action. Since we are breaking new ground here with SGLT1 and SGLT2, we have initiated and completed a number of studies that are designed to define the bio markers that are driven by inhibiting SGLT1, focusing on that, because that is the really novel aspect of this. And those bio markers include GLP-1, which of course, is more than just a bio marker, since it has distinct biologic and medical activity in Type 2 Diabetes. And then also PYY, which is an appetite control hormone, and other important GI hormones.

And so in that regard, the studies that we have completed include studies in knock-out mice, which have really confirmed very elegantly the SGLT1 and the SGLT2 actions, both separately and together. And then pharmacologic studies, both in patients and also healthy volunteers, where we have shown these mechanisms to be at play and we have had consistent results with respect to GLP-1 and PYY.

The third part of our strategy involves demonstrating the value of combination therapy with LX4211 and other agents. Of course, not only are we profiling -- or have we profiled LX4211 alone, but we are now moving into areas where we are combining this drug, which is how drugs are prescribed actively in Type 2 Diabetes. It would be the greatest portion of the Type 2 Diabetic population, some 40% are on at least two oral therapies. So studies in this category then are, of course, the ongoing 12-week study, which is in combination with Metformin, and I think represents the largest share of the potential combination market, currently.

And then most recently, a study we've conducted with Sitagliptin, that is Januvia DPP-4 inhibitor, as these agents are of growing importance. And given what we know about their action, there should be almost a natural synergy with LX4211.

With that overview of our strategy for 4211, I would like to turn it over to Dr. Brian Zambrowicz to describe in some more detail this recent study with DPP-4 inhibition.

Thank you, Arthur. As Arthur mentioned, we are continuing to build the mechanistic story of the dual SGLT1 and SGLT2 inhibition that we achieved with LX4211, as well as continuing to build the differentiation story relative to other agents that treat diabetes, as well as SGLT2 selective agents. We thought we had a real opportunity by combining LX4211 with the DPP-4 inhibitor. The reason for that is that we have now shown in multiple studies, in both patients with Type 2 Diabetes as well as healthy subjects, that LX4211, through its inhibition of SGLT1 triggers an elevated release of beneficial gastrointestinal peptides, such as GLP-1, after meal. Since DPP-4 inhibitors prevent the inactivation, there was real rationale that together these two agents could provide enhanced glycemic control and benefits for patients.

You can go to the next slide. We first studied the combination in single dose studies in mice, and that is shown here. What we did is we dosed the animals, and now we are looking at the active GLP-1 levels, on the Y axis, two hours post dose. And vehicle in green, blue is going to be LX4211 alone, orange is Sitagliptin alone, and red is the combination. And what you can see here is that two hours post dose, LX4211 and Sitagliptin are both having modest effects on active GLP-1. But the combination is providing more than a additive effect. There is a synergy in elevating GLP-1 with the combination therapy.

And based on this data, we chose to go ahead and examine the combination in patients with Type 2 Diabetes. So we, again, chose a single dose study . These are in patients -- 18 patients with Type 2 Diabetes. It was a blind study, triple cross-over, with washout of Metformin. And on three separate occasions, we gave either single dose of LX4211, a single dose of Sitagliptin, or the combination. We did use Sitagliptin at 100 milligrams, its maximum prescribed dose, because we wanted to show that we can achieve a benefit above that maximum dose. And our primary endpoint was active GLP-1 levels and total GLIP-1 levels. Secondary endpoint included [plusperanial] glucose, insulin, PYY and urinary glucose (inaudible).

Next slide. Moving on to the results of that study, first looking at active GLP-1 levels -- to remind you again, in blue in all these slides will be LX4211 alone, in orange will be Sitagliptin alone, and red will be the combination. And as we have demonstrated in previous studies -- clinical trials LX4211 alone does elevate active GLP-1 levels. Sitagliptin, in this study, elevated them further. You can see this is over the course of the whole day, with the bumps in active GLP-1 occurring after meals, as expected. Importantly, the combination produced more than an additive elevation of active GLP-1. Just like in the mouse studies, we see a synergistic elevation of active GLP-1, with a combination of Sitagliptin and LX4211, as we had anticipated.

Next slide. We also looked at the PYY levels. As Arthur mentioned, this is a (inaudible) peptide. In blue, LX4211 alone pretty dramatically elevates active GLP-1 -- PYY levels after a meal. In orange, Sitagliptin actually suppresses the normal GI -- PYY response after meals. And then in the combination in red, there is some rescue of the normal PYY response after meals.

Next slide. The most important aspect of the study was that we were pleased that the peptides are moving in the right directions. But what are their overall effects on glycemic control? That's what we are looking at here. You can see that at breakfast, in blue, 4211 appears to perform better than Sitagliptin alone, in orange. At lunch, they are working very similarly. And at dinner, Sitagliptin appears to be a bit better than LX4211 alone. However, importantly, the combination provides the best glycemic control throughout the entire course of the day.

You can go to the next slide. Now we are looking at the amount of insulin required to achieve that glycemic control. In orange, Sitagliptin alone does require quite a bit of insulin. That's due to its mechanism of action of enhancing glucose dependent insulin released. In blue, LX4211 alone, it is achieving glycemic control, but with very low insulin levels. And that is most likely due to its two insulin independent mechanisms of action. The first being enhanced urinary glucose excretion, and the second being inhibition of intestinal glucose absorption. And importantly, in the middle, in red, you can see the combination which gave the greatest glycemic control, achieved at while decreasing the amount of insulin required, relative to Sitagliptin monotherapy.

Next slide. So as we had hypothesized, the combination of LX4211 with the DPP-4 inhibitor did give a synergistic elevation of active GLP-1 levels. And there was also improvements of other GI peptides, total GLP-1, and PYY profiles were improved with the combination therapy relative to Sitagliptin monotherapy. But importantly, the combination therapy gave the greatest glycemic control and achieved it with less insulin than required with Sitagliptin monotherapy. We think that this combination has a real opportunity to benefit patients with Diabetes. And this will play out as we do larger and longer term studies with this combination.

Next slide. To remind you of our ongoing study, this is a Phase 2b study in patients with Type 2 Diabetes on stable dose Metformin. You can see that we are testing four doses of LX4211 relative to placebo. That is 75 milligrams given once daily, 200 milligrams given once daily, 400 milligrams given once daily, and then 200 milligrams given twice daily, a BID dosing regimen. We are treating over 12 weeks, with a primary endpoint of hemoglobin A1c, and multiple secondary endpoints, including both -- the percentage of patients that have achieved an HbA1c of less than or equal to 7%, fasting plasma glucose and oral glucose tolerance tests, and weight, blood pressure and triglycerides. We do believe we have an opportunity to differentiate based on multiple -- both primary and secondary endpoints.

Next slide. And we are pleased to announce today that we have completed enrollment. We have randomized 299 patients. Our safety review to date is consistent with the known tolerability profile of LX4211. We have had few discontinuations due to adverse events and no serious adverse events of concern. And we are on target for our topline data by mid-year.

Next slide. We are in the process of initiating one additional trial, and this is again to further differentiate LX4211. This is a study in patients with moderate to severe renal impairment. As Arthur mentioned, this is not a small subset of diabetes patients, as it represents approximately 30%. This is patient population that cannot achieve a benefit from SGLT2 in addition alone, because their filtration rate is too low. We believe that SGLT1 mechanism of LX4211 could help benefit these patients, as both the inhibition of glucose absorption by the intestine, as well as the triggering of beneficial GI peptides, such as GLP-1 and PYY should be able to benefit them.

There are a few oral therapies available currently for these patients with moderate to severe renal impairment and Metformin and most sulfonylureas are contraindicated. It is very limited. We will be randomizing 20 patients. And we will be treating them relative placebo over seven days. Our primary endpoint will be to demonstrate that we can improve postprandial glucose over the four hours after breakfast.

With that, I am going to turn it over to Dr. Pablo Lapuerta to bring us up-to-date on the other programs in clinical development.

Thank you, Brian. The first program to discuss is LX1032, which is also known as Telotristat Etiprate, which is being developed for Carcinoid Syndrome. Our goal for 2012 is to prepare for a Phase 3 program in Carcinoid Syndrome, and that will include regulatory interactions with the Food and Drug Administration and the European Medicine Agency.

Another thing we hope to accomplish in 2012, is explore the use of Telotristat Etiprate in patients with Ulcerative Colitis. In preparing for he Phase 3 program, we have shared the clinical trial results we had from Phase 2 in Carcinoid Syndrome, which were positive and encouraging, with several experts in the field. The feedback has been supportive and had helped us develop a protocol synopsis and design for what we would accomplish during Phase 3. We hope to target a population similar to Phase 2; a population with Carcinoid Syndrome that is refractory to the standard of care, and that standard of care right now is Somatostatin Analog Therapy. We were encouraged by Phase 2 results, which showed a reduction in bowel movement and frequency, and hope to demonstrate a similar reduction in bowel movement frequency over the course of 16 weeks, a longer duration of time in a Phase 3 program.

We are also looking at multiple secondary endpoints that can address patient reported outcomes, like relief of symptoms, specifics around gastrointestinal symptoms that are associated with Carcinoid Syndrome, and also changes in biomarker Urinary 5HAI, being an important marker of the inhibition of Serotonin synthesis with Telotristat Etiprate. In doing this, we have already submitted to the FDA a request for an end of Phase 2 meeting to be held, if possible, at the end of the first quarter of 2012. And in parallel, we are proceeding with our plan to request scientific advice. Also we will submit that request in this quarter.

In Ulcerative Colitis, pre-clinical data has suggested that we have a good opportunity to benefit patients. And our goal for 2012 is to establish some basic proof-of-concept data with an appropriate safety profile that would allow us to go further into development for Ulcerative Colitis. So we have initiated a study called PARSEC, a Phase 2 study of the relationship between Serotonin and efficacy in Ulcerative Colitis.

PARSEC will randomize 60 patients with mild to moderate Ulcerative Colitis. They will be randomized to placebo or two different doses of Telotristat Etiprate and the treatment period in PARSEC will be eight weeks. This will be on top of Mesalamine, which is the standard of care for patients with Ulcerative Colitis. There will be several efficacy measures, including the MAYO score, which is primarily a clinical assessment, colonoscopy, histology, that is biopsies will be done with the colonoscopies, and a biomarker in the stool, called Fecal Calprotectin, which is a marker of inflammation. We have already randomized several subjects into the study and it is proceeding well.

For LX1033, we open 2012 to advance our development in Irritable Bowel Syndrome -- that is Irritable Bowel Syndrome that is diarrhea predominant. We hope to establish proof-of-concept with an acceptable safety profile in patients with Irritable Bowel Syndrome. Importantly, we have shared prior results with an earlier Serotonin synthesis inhibitor, LX1031, that showed some encouraging data on efficacy and some encouraging data with respect to biomarkers. We hope to correlate our clinical efficacy data in our proof-of-concept study with our bio markers, being Plasma 5-HIAA and, potentially, genetic markers to help those target the right population at the right dose.

In order to move forward into Phase 2, we met with the FDA in the fourth quarter of 2011 and we were encouraged that we were able to clarify some key elements of patient reported outcome strategy, which is an important area in Irritable Bowel Syndrome, and one that has been evolving, and our biomarker plan, so that we have the right pathway to develop biomarker strategy in satisfaction of regulatory requirements. We have already started screening patients in the trial and we have set up many sites. Over the course of several months, we hope to enroll 360 patients within a timeframe that will allow us to complete the study around year-end.

Let me provide some more specifics on the clinical trial design for this proof-of-concept study in Irritable Bowel Syndrome. The patient population has Irritable Bowel Syndrome, which is diarrhea predominant, and the primary endpoint is change in stool consistency. We have experience with a first generation Serotonin synthesis inhibitor, LX1031, where stool consistency seemed to be a sensitive marker of efficacy. We will have an analysis planned that is oriented around biomarkers, which include Plasma 5-HIAA. We feel that our genetic markers that are promising, that we wish to explore and will tie these to patient reported outcomes and the potential endpoints that we would use in a Phase 3 development program.

The study will have a screening period of about two weeks -- run-in period of about two weeks, and then 28 days of treatment after randomization, or two weeks of follow-up. The doses that we will be using of LX1033 are lower than prior experience we had with our first generation compound, LX1031. This is one of our goals; to be able to develop a more potent Serotonin synthesis inhibitor that can be administered at lower doses with a lower dose frequency. So we are going as low as 500 milligrams, with a frequency as low as twice a day.

The next update is about LX2931 for Rheumatoid Arthritis. We had previously done a Phase 2 study, which showed some signs of efficacy at the highest dose. Within that highest dose, the patients with the highest exposure to (inaudible) had the best results. That lead us to explore higher doses in order to be sure that we can get high exposures with good consistency with robust efficacy. And that has lead us to a dose escalation trial.

So the strategy of the trial is to go from what had been our top dose previously, 150 milligrams had been safe, well tolerated, with signs of efficacy. But to go much higher, to be able to go to 500 milligrams, and see if we could identify doses in this range that would be well tolerated and correlating with blood levels of drug associated with efficacy. Previously, we had seen the greatest efficacy for subjects with serum drug concentrations greater than 60 nanograms per mL after 24 hours of dosing. That's what we will be looking for in this dose escalation trial.

We've randomized 9 out of 10 patients. We will be completing randomization soon. Patients are being randomized to LX2931 versus placebo. All patients will go through his dose escalation, where they start at 150 milligrams and progress to higher doses, until they reach 500 milligrams and have about 12 weeks total of treatment. The primary endpoint will be safety compared to placebo.

Secondary endpoints will look at the plasma drug concentrations that we hope to achieve consistently, and that is a minimum concentration 24 hours after dosing of 60 nanograms per mL, at least. We will also be looking at these dose levels over time, by examining changes from baseline over time, and we will also be looking at lymphocyte counts as a biomarker. Other biomarkers will include high-sensitivity C reactive protein and (inaudible) sedimentation rate as indicators of inflammation. And we will be looking at clinical assessments, including a [disease activity scale of 28] and American College of Reumatology responses. We anticipate results around mid-year, with only one patient left to be randomized in the study.

Our last update of these five programs is on LX7101 for Glaucoma. We are excited about the ability to move this into clinic and get proof-of-concept data in 2012. We hope to establish proof-of-concepts and to identify the safety profile in Glaucoma patients. In order to do this, we met with the FDA and showed them our pre-clinical data and we were encouraged by the meeting and went ahead and submitted an IND in the fourth quarter of 2011. That has allowed us to move forward into a clinical trial that will randomize 60 patients with Glaucoma. They will be randomized to placebo and to two doses of LX7101. The first seven days, they will receive treatment daily, and the last seven days, they will receive treatment twice daily. We will be looking at intraocular pressure measures on baseline on the first day of dosing, after our first week, at the completion of once daily dosing, and completion of the second week, which will have the twice daily dosing. So we have already initiated the sites for the study and we anticipate results in the fourth quarter of 2012.

That completes our update and I will now turn the call over to Jeff Wade.

Thank you, Pablo. I will provide a brief financial update. As indicated in our press release today, we had revenues for the 2011 fourth quarter of $0.3 million, which is a decrease of 73% from $1.3 million in the prior year period. For the year, revenues decreased 62% to $1.8 million, from $4.9 million in 2010.

Our research and development expenses for the 2011 fourth quarter increased 54% to $28.1 million, from $18.3 million in the prior year period. The increase was primarily attributable to higher external clinical research and development and manufacturing costs. For the year, our R&D increased 17% to $91.8 million, from $78.5 million in 2010.

In connection with our acquisition of Symphony Icon, we made an initial estimate of the fair value of our liability for the base and contingent payments. Changes in this liability, based on the development of the programs and the time until all such payments are expected to be made, are recorded in our consolidated statements of operations. The associated increase in fair value of Symphony Icon purchase liability was $1.6 million in the fourth quarter and $6.8 million for the year.

Our general and administrative expenses for the 2011 fourth quarter were $4 million, an increase of 4% from $3.9 million in the prior year period. For the year, our G&A expenses decreased 11% to $17.4 million, from $19.4 million in 2010.

Our net loss for the 2011 fourth quarter was $33.8 million or $0.10 per share, compared to a net loss of $23 million or $0.07 per share in the prior year period. Our net loss for the year was $116.2 million or $0.34 per share, compared to a net loss of $101.8 million or $0.34 per share in 2010.

For the 2011 fourth quarter, our net loss included non-cash stock based compensation expense of $1.4 million, compared to $1.5 million in the corresponding period in 2010. For the year, our net loss included non-cash stock based compensation expense of $5.7 million, compared to $5.5 million in 2010.

Let me now turn to our cash and investments. At year end, we had $281.7 million in cash and investments, as compared to $144.2 million as of September 30th, 2011, and $211.1 million as of December 31st, 2010.

Now let's turn to our forward-looking financial guidance for 2012. We expect contractual revenue from existing agreements in 2012 of around $1 million. Consistent with our past practice, while we are in conversations with pharmaceutical companies about potential collaborations and alliances, we are not including forecasted revenue from those potential arrangements in our guidance. That said, we believe our productive pipeline will provide Lexicon with attractive opportunities for future alliances.

We expect operating expenses in 2012 to be in the range of $110 million to $120 million, with non-cash expenses are expected to be approximately $19 million of this total, including $9 million in increase fair value of Symphony Icon purchase liability, $5 million in stock-based compensation, and $4 million in the depreciation and amortization. Our operating expense expectations for 2012 take into account recent headcount and cost reduction measures in research, administration and overhead areas, as we continue to devote a greater proportion of our R&D and overall spending toward development stage programs.

Taking into account cash received under existing contractual relationships only, we expect our 2012 net cash used in operations to be in the range of $93 million to $98 million.

To recap, Lexicon's strong financial position supports our business model. Our cash and investments of more than $280 million as of December 31st , 2011 reflect a successful completion of our rights offering, which we raised $161 million. That allows us to pursue our strategy of commercializing products independently and in collaboration with partners in a sustainable business model, with global licensing for large primary care indications and regional partnerships or independent commercialization for select specialty indications.

I will now turn the call back to Arthur.

Thank you, Jeff. And as you are formulating your questions, I think you can see from our update, that we are embarking on one of the busiest years in the clinic that Lexicon has ever had, with multiple trials of size across multiple therapeutic areas. So we can now enter into the question-and-answer session.

(Operator Instructions). Your first question comes from Phil Nadeau with Cowen & Co.

Good morning. Thanks for taking my questions. Just a couple of short ones. On the LX7101, could you give us some idea what changes in intraocular pressure would serve as proof-of-concept in the study? What are you hoping to see?

Brian, do you want to take that question?

Yes. In this initial study, roughly a 20% drop in intraocular pressure would be very encouraging.

Fair enough. And on LX1032 in Carcinoid, you mentioned in your prepared remarks, this is the year where you will prepare for Phase 3 with meetings with the FDA and EMA. Can you talk a little more about the status of those meetings? Have you scheduled them? Have you submitted pre-meeting dossiers to the agencies ?

Pablo, would you like to go ahead on that?

Yes, we submitted a meeting request to the Food and Drug Administration. We have received a response. We don't have the exact date yet, but it will be somewhere between the last week of March and the first week of April. And then for the European Medicines Agency, we plan to submit our intent to seek scientific advice at their next date for this, which is around now, the middle of February.

And is there -- it seems like these meetings could happen pretty early in the year. Is there a chance that these pivotal trials actually start this year?

Yes, we hope that we can start a Phase 3 program this year. In terms of manufacturing and these regulatory interactions, it will all come to fruition about the same time, in terms of the time for initiating sites and finalizing protocols and having drug supply available. And so we will be looking towards the end of the third quarter or the early fourth quarter for initiation of the Phase 3 program, if the regulatory interactions are supportive.

Thanks for taking my questions.

Thank you.

Your next question comes from Stephen Willey with Stifel Nicolaus.

Thanks for taking the question. I was wondering if you could clarify the trial design a little bit, on 2931. Is the total treatment period, across all the escalated doses,12 weeks?

Pablo, do you want to talk about the design?

Yes, the title treatment period across all of those is 12 weeks. You start with 150 milligrams. You go up through sequential doses, until you reach 500 milligrams. I believe it is about six weeks at the 500 milligram dose.

You are pretty much cycling patients through the first three or four doses over the first six weeks, and then they are maxed out at 500 for the remaining six?

Exactly.

And it is lymphocyte reductions specifically that you guys are looking at, in terms of making a decision to dose escalate? Or is it more safety geared?

Safety is really the parameter for dose escalation.

And in terms of the biomaker that you are going to be implementing now in IBS, do you essentially view that as a means to gate non-responders or potential non-responders from a pivotal strategy? Is that how you are looking at how this gets used, longer term, whereby you may treat patients for a couple weeks and then use the biomarker to kick the non-responders out?

That was suggested by our experience with LX1031. However, LX1033 is a more potent drug that can produce (inaudible) 5-HIAA reductions. One of the possibilities we have to consider is that the biomarker would not really exclude a patient, but help guide the right dose. It could be that a patient does not respond at a lower dose and could benefit at a higher dose. Those adjustments with -- then the discontinuing of the patient if the patient does not have evidence of inhibition of Seratonin synthesis at the highest dose would be a potential use of the biomarker.

And lastly on 4211, can you remind us where you are, in terms of completing free clinical talks? As a follow-up to that, in your conversations on the BD front, do you get the sense that potential partners -- obviously, they are waiting for the Phase 2 data, but are they also waiting for these other, larger Phase 3 SGLT2 to read out, specifically the J&J trial, to get an idea as to whether or not the oncology signal is replicated?

Brian, do you want to take the pre-clinical part and then -- ?

Sure. We are nearing completion of our long-term [rat and dog tox] and we anticipate that around mid-year. We really have stepped things up so that we have everything in place to be Phase 3 ready, in order to initiate Phase 3 with a potential partner in the first half of next year.

Is there any color you can provide on the tox to date, specifically on the GI front?

It has been consistent in all pre-clinical and clinical studies to date. There have been no signals of increased diarrhea. I would go further to say that in our six and nine month rat and dog tox, even at the highest doses, there is no observances of diarrhea. So it has held up really well. Pharmacological inhibition of SGLT1 does not appear to be associated at this point with increased diarrhea.

Stephen, you had a question on the BD front, Jeff and others may want to comment. Jeff, you want to start out on the partnership dynamic?

Sure. I think the main thing that people are waiting to see are the Phase 2b results for our compound. I think that people that we are talking to do view the mechanism as being different because we have the two mechanisms, it is not an apples to apples comparison, obviously. I think it is relevant what the results are of the other parties. But I would say that our compound is distinguished and is viewed as being distinguished from the other compounds in this area.

Thank you for the color and congrats on the progress.

Thank you, Stephen. Your next question comes from David Friedman with Morgan Stanley.

Hi, thank you for taking my question. This is Brianne calling in for Dave. It seems like the new IBS trial entry criteria is slightly different from FDA guidelines, and I am just wondering if there is a specific reason why you didn't follow the guidelines? And also assuming that the Phase 3 has to be run according to the guidelines, how do you get comfortable evaluating the drug in Phase 2 in a slightly different population than you would need to run the Phase 3 in?

Pablo, would you like to take that question?

So I think -- we got comfortable with our proposed entry criteria for Phase 2 and believe that we would use the same entry criteria in Phase 3 by interacting with the Food and Drug Administration. And so there is guidance, but we had experience with Seratonin synthesis inhibition, we were able to look at how that guidance fits a population that benefited from our use of LX1031, and then come up with a reasonable proposal for LX1033. We feel that, although there is some minor differences, our population is a little bit broader and a little more inclusive than the original FDA draft document. That was simply a draft document. We are well within the intent of that guidance. We feel comfortable moving forward with our plan. It was one of the reasons for us to interact with the FDA. We think it is important to work with them closely on this area of patient reported outcomes and how we define both the patient population and response to therapy.

I was just going to comment that, as Pablo mentioned, that was draft guidance. Since that draft guidance first came out, there have been meetings with the FDA and key opinion leaders in the IBS field. And so our entry criteria, we believe, are quite consistent with the modified guidance that the FDA has come to an agreement with experts in this area. And as Pablo, mentioned we did discuss this with the FDA.

Great, thank you.

Your next question comes from Cory Kasimov with JPMorgan.

Hi there, this is Matt Lowe in for Cory today. Just a couple of questions. The first one is for 4211. Just wondering, for a Phase 3 program to start in the first half of 2013, when is the latest you think you could have a partner on board to kind of meet that timeframe?

And then for the Phase 3 program for Carcinoid Syndrome, just wondering, at this stage, I'm assuming you have not met with the FDA yet. What, in terms of the number of patients you are thinking about in that program, the treatment duration and the likely endpoint? That would be great. Thank you.

Pablo, maybe you could take both those questions.

Let me take the last part first, because it is very specific around the protocol that we are considering. We are still awaiting feedback and we have -- on the actual meeting date, once we have that, we will submit a briefing document. But we do have a protocol synopsis, and that envisions four months of therapy, which is consistent with some of the discussions we have had before with regulatory agencies. And the total sample size, we think that for an orphan drug indication like this, that we can get meaningful patient efficacy data with -- on the ballpark of 100 patients. It could be slightly more or slightly less. But that is the type of area that we will be discussing with the FDA. And we do feel that a reduction in bowel movement frequency is a clinically relevant measure and objective measure that's easy to interpret. And that is what we are considering for the Phase 3 program, and we feel there is precedence for that as well. So that describes what we are thinking of, in terms of a clinical program for the (inaudible) drug indication.

Could you remind me about the first part of your question?

The first one was just to do with 4211. In order to begin a Phase 3 program in the first half of 2013, when is the latest you might need a partner on board for that to occur?

There is two parts of that, Phil. First the logistics that we are planning right now. And then I think just a comment on the partnership timing issue. Maybe you could address the logistics, in terms of what we are doing to get ready.

Did you mean that for Jeff or for me, Arthur?

That is for you, Pablo.

We are already starting our interactions with contract research organizations. And we are talking about the overall scope of the program, the number of studies, and what it would take to initiate that program, and what it would take to initiate it without missing a step, because of our partner negotiations. So we think that there are opportunities to give a good start to a Phase 3 program, if we have a good arrangement with a contract research organization.

It is also worth mentioning that we have been working hard at the design of what Phase 3 would look like to maximize the probability for success. And that includes taking into account advice we have received from potential partners. So I think what we are designing would be very much in line with what they would want to be achieving.

I think that the -- we are trying to design something that will be in line with partner expectations. We are also planning on doing the work to be able to start that without a delay. And so I think that our goal is to have partnership not be a gating factor into preparation for Phase 3, maybe a preparation for kicking off the biggest trials. But at least from a preparation standpoint, we are making those preparations already.

Okay. Thank you.

Thank you.

(Operator Instructions). And there are no additional questions at this time.

All right. Well, I would like to thank everyone for participating today. And we look forward to keeping you updated in the future. Bye bye.

Thank you, ladies and gentlemen, for participating in today's conference call. You may now disconnect.