Lexicon Pharmaceuticals Inc (LXRX) 2013 Q3 法說會逐字稿

Welcome to the Lexicon Pharmaceuticals third quarter 2013 conference call.

(Operator Instructions)

Please be advised that this call is being recorded at Lexicon's request. At this time I would like to introduce your host for today's call, Alex Abuin, Vice President Communications and Alliance Management. Please go ahead, Dr. Abuin.

Good morning and welcome to the Lexicon Pharmaceuticals third quarter 2013 conference call. I am Alex Abuin, and with me today are Dr. Arthur Sands, Lexicon's President and Chief Executive Officer, Dr. Pablo Lapuerta, Lexicon's Executive Vice President and Chief Medical 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 will begin with Dr. Sands, followed by Dr. Lapuerta who will provide an update of our clinical programs, and by Mr. Wade who will review our financial results for the third quarter of 2013 and discuss our financial guidance. 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 LX4211, LX1033, telotristat etiprate, also known as LS1032, and other drug candidates. And the 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 and investments, discovery and development of products, strategic alliances and intellectual property.

Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward-looking statements, including -- uncertainties related to the timing and results of clinical trials and preclinical 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; 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 description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission. I would now turn the call over to Dr. Sands.

Thank you Alex, and I would like to welcome everyone to the call. We've made some significant progress in the third quarter and I think the most important event of the quarter was the results we obtained in our renal impairment -- from our renal impairment proof of concept study in type II diabetes. So we will spend some time on this call, Pablo will be discussing at a very top level the data and the importance of those findings.

We continue to expand the type I trial which is in its expansion phase, which is a placebo-controlled phase of the trial and enrollment is ongoing. And we've continued to advance our discussions regarding partnerships in diabetes as well.

With respect to telotristat etiprate program, that program has -- we've expanded the number of activated sites in the Phase 3 carcinoid trial, which is very important and enrollment is going well there. We also announced results of the proof of concept study of telotristat etiprate in ulcerative colitis. And we will be discussing those results briefly.

And then finally we completed enrollment of our LX1033 IBS-d trial and we now anticipate top line data release in the second half of November of this month. So we will follow this format for the call and we will proceed to discuss LX4211 with Pablo leading that. Pablo?

Thank you Arthur. Many of you are familiar with the profile of LX4211, our first in class dual SGLT1 SGLT2 inhibitor. SGLT2 inhibition enhances glucose excretion in the urine while SGLT1 inhibition reduces glucose absorption in the stomach.

SGLT1 inhibition is what differentiates LX4211 from selective SGLT2 inhibitors, and the clinical signature is a reduction in postprandial glucose that comes from reducing glucose absorption in the gastrointestinal tract accompanied by elevations in GLP-1 and TYY, which are indirect effects of that inhibition. With that profile we chose to explore LX4211 in patients with type 2 diabetes and renal impairment, as described on slide 4.

We just entered this area because it is an area of high unmet medical need with a large proportion of patients with type 2 diabetes suffering from kidney disease. Also in this area many medications are contraindicated impairment, Metformin, and most of the sulfonylureas cannot be used in patients with moderate to severe renal impairment.

The area is also appealing because here is where SGLT1 inhibition can be essentially meaningful, providing benefit by reducing the glucose absorption and elevating GLP-1. The opportunity was appealing to us because we want to position LX4211 in areas where it provides a lot of value to patients, but also we wanted to get a perspective on the clinical magnitude of the SGLT1 side of LX4211. And by studying LX4211 in a population without much kidney function, we felt the evidence of glycemic control could be primarily attributed to the SGLT1 inhibition. This is to differentiate LX4211 from the selective SGLT2 inhibitors which have shown very little benefit in patients with compromised renal function.

On slide 5 I will review the primary and secondary objectives of our study. We entered the area of moderate to severe renal impairment, and our primary objective which show a statistically significant and clinically meaningful effects of LX4211 on postprandial glucose. Secondary objectives included safety and tolerability. We wanted to make sure that we could go forward into Phase 3 with a 400 milligram dose.

We also intended to examine the pharmacodynamic effects of LX4211 on fasting plasma glucose and also GLP-1 to provide supportive evidence of SGLT1 inhibition. We also aimed to look at pharmacokinetic effects of LX4211 in order to support our dose selection for Phase 3.

Slide 6 contains the study schematic. Patient must go through a screening period and wash out any medications that need to be adjusted and stabilized for up to five weeks. They are admitted to the clinic where they can be studied in a well controlled setting. There they receive their first meal with LX4211 or a placebo and serial glucose measurements, and GLP-1 measurements are made after the meal.

Then there's several days of outpatient experience with close follow-up still returning to clinic, and then finally at the end of the week, a second admission where we can examine the change from baseline to end of week one, day seven and glucose and GLP-1. We randomized 30 patients with an estimated glomerular filtration rates less than 60 millimeters per minute. We randomized them one-to-one with 400 milligrams of LX4211 or placebo, treated them for seven days. And most importantly, we sought to have a good distribution of patients. We wanted to have a good enough selection of patients with EGFR even less 45 milliliters per minute to see whether or not we continued to have evidence of clinically meaningful SGLT1 inhibition in those with the most advanced renal impairment. It turns out that approximately 50% of patients had those lower EGFRs so we could do a meaningful analysis.

On slide 7 I summarize the safety. There were no serious adverse events. There were no early discontinuations due to any adverse event. The incidence of adverse events was consistent with what we expect in a one-week study, about a third of patients had an adverse event and the adverse events were distributed evenly between placebo and LX4211. All adverse events were either mild or moderate in severity as classified by the investigator, and further adverse event analyses are underway.

We've received top line data and the top line data shows a significant reduction of postprandial glucose. This was statistically significant, and we feel it was clinically meaningful. Most importantly, we looked at that group with the most advanced renal impairment, estimated glomerular filtration rates less than 45. And we found good evidence of glycemic control in this population with non-diminution of effect.

We also saw a pattern of GLP-1 elevation. And with the postprandial glucose reduction, the magnitude and the characteristic that we saw was consistent with the full SGLT1 effect in patients with moderate to severe renal impairment. We're encouraged by these results, they give us confidence in our opportunity to differentiate LX4211 and to moving forward into Phase 3 and getting a labeled indication that says that we provide glycemic efficacy in this patient population.

I would now like to describe our progress with telotristat etiprate on slide 9. Our Phase 3 program is ongoing in carcinoid syndrome. We have a single pivotal study that we have agreed to with regulatory agencies. It has 12 weeks of placebo-controlled treatment followed by 36 weeks of open label extension to provide safety data. Patients are being randomized to placebo, the 250 milligram dose and the 500 milligram dose of telotristat etiprate being taken three times daily.

We hope to recruit over 100 patients and to demonstrate a significant reduction in the number of bowel movements. Key secondary endpoints will include stool consistency, which we hope to improve, and urinary 5-HIAA our biomarker that establishes evidence of serotonin synthesis inhibition. At this time we have over 50 investigative sites that are participating in the study and that are up running in North America, Europe, and also in Australia. Enrollment is going according to our projected targets.

I also have on slide 10 an update of our telotristat etiprate study in ulcerative colitis. Our goal was to establish proof of concept and demonstrate safety in patients with ulcerative colitis. We did a study of [parsick], a Phase 2 assessment of the relationship between serotonin and efficacy in ulcerative colitis.

We looked at approximately 60 patients with mild to moderate ulcerative colitis, they were randomized to placebo with 500 milligram once daily dose of telotristat etiprate, and the 500 milligram three times daily dose of telotristat etiprate. They were treated for eight weeks on top of mesalamine, all patients had mesalamine and continued it during the study. Our primary endpoint was safety, but our efficacy measures include bowel movement frequency endoscopy Mayo score which integrates bowel movement frequency endoscopy, rectal bleeding and global assessment. We also looked at colonoscopy and fecal calprotectin.

Our top line results have come for telotristat etiprate in ulcerative colitis and the study did show safety and tolerability. Results also showed a dose dependent statistically significant reduction in 5-HIAA, our biomarker of serotonin synthesis inhibition. There was a relationship between 5-HIAA reduction and certain measures of clinical benefit, in particular bowel movement frequency in the high dose group.

However we looked at overall clinical response rates and effects on endoscopy and did not see enough evidence of an effect on the underlying pathogenesis of ulcerative colitis. Given these results, we will focus resources on the outgoing Phase 3 program in carcinoid syndrome. Thank you and I will now turn the call over to Arthur.

Thank you Pablo. On slide 12 we have an update to our milestone slide that is looking forward through Q4 and Q1 of 2014. You can see that as I mentioned earlier, we are now expecting the 1033 IBS results in the second half of November and it appears to us that the type 1 proof of concept trial we should have results in Q1. We hope to complete enrollment during this year and then allow time for data collection and analysis. So that is our current view of the timeline. With that we can now move into the financials and Jeff.

Thank you Arthur. I will provide a brief financial update. As indicated in our press release today our revenues for the 2013 third quarter decreased to $0.2 million from $0.4 million in the prior-year period. For the nine months ended September 30, 2013 our revenues decreased to $0.8 million from $0.9 million in the prior year period.

Our research and development expenses for the 2013 third quarter increased 32% to $25.4 million from $19.2 million in the prior-year period. The increase was primarily attributable to increases in external clinical and preclinical research and development resulting from the advancement of our clinical pipeline. Our R&D expenses at $69.4 million for the nine months ended September 30, 2013 reflected a 13% increase from $61.6 million in the prior-year period.

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 and told those payments are expected to be made are recorded in our consolidated statements of operations. The associated increase in fair value of the Symphony Icon purchase liability was $1.3 million in the third quarter and $3.1 million for the nine months ended September 30, 2013.

Our general and administrative expenses for the 2013 third quarter were $4.7 million, an increase of 7% from $4.4 million in the prior-year period. The increase was primarily attributable to increases in consulting and personnel costs. Our G&A expenses at $13.7 million for the nine months ended September 30, 2013 reflected a 4% increase from $13.1 million for the prior-year period.

Our net loss for the 2013 third quarter was $31.7 million or $0.06 per share compared to a net loss of $29.5 million or $0.06 per share in the prior-year period. Our net loss for the nine months ended September 30, 2013 was $86.7 million or $0.17 per share compared to a net loss of $85.3 million or $0.18 per share in the corresponding period in 2012.

For the three and nine months ended September 30, 2013 our net loss included non-cash stock based compensation expense of $1.8 million and $5.7 million respectively. For the three and nine months ended September 30, 2012 net loss included non-cash stock based compensation expense of $1.6 million and $4.9 million respectively. Finally as of September 30, 2013 we had $151.2 million in cash and investments as compared to $175.4 million as of the June 30, 2013 and $223.2 million as of December 31, 2012.

Now let us turn to our forward-looking guidance for 2013. We expect contractual revenues from existing arrangements -- agreements in 2013 of around $1 million to $2 million. We are engaged in partnership discussions for LX4211, as you know, and are also in conversations about other potential collaborations and alliances. Consistent with our past practice however, we are not including forecasted revenue from potential new collaborations and alliances in our guidance. We continue to expect that our operating expenses in 2013 will be in the range of $110 million to $120 million.

Non-cash expenses are expected to be approximately $15 million at this total, including $7 million in stock-based compensation, $5 million in increase in fair value of Symphony Icon purchase liability, and $3 million in depreciation and amortization. Taking into account cash received under existing contractual relationships only, we continue to expect that our 2013 net cash used in operations will be in the range of $92 million to $97 million, consistent with the previous guidance. I will now turn the call back to Arthur.

Thank you Jeff. We can now open up for questions.

(Operator Instructions)

Cory Kasimov, JPMorgan.

Couple for you, first I wanted to ask about partnership discussions for 4211, obviously interested in what the latest is there, and at what point do you begin a Phase 3 program without a partner? And I have a follow-up to that too.

Thank you Cory. Jeff do you want to?

Sure. We're continuing to make progress in our partnership discussions and our objective remains to move into Phase 3 with a partner in the near-term. We do want to have a partner in place in particularly type 2 diabetes before launching that Phase 3 program. And that timing is going to depend upon getting that finalized.

Do you have a contingency plan in place to begin a Phase 3 without a partner if you cannot secure one?

We are continuing to look at a variety of different possible partnership options so there are different options that we are evaluating as part of that process.

Okay fair enough. And then one on 1033, just wondering if you can try to set expectations for us ahead of the upcoming IBS data. What are you hoping to show there and maybe what would be clinically meaningful? Thanks.

Pablo, do you want to lead off on that?

Yes, in terms of the primary endpoint, it's an improvement in stool consistency and we chose that primary endpoint based on our experience with LX1031, but in terms of clinically meaningful change we feel that it should be guided by a responder analysis. And that's something that the FDA has recommended where we combine the stool consistency response with the abdominal pain response, and there are several ways to look at a responder, but one way that we are looking at it is, a responder is someone who over more than half of the days in the trial has had good days. And a good day would be a day where you have a reduction in abdominal pain and good stool consistency at the same time.

Now, what should the responder rates be? We have a sense from our LX1031 what the opportunity may be in terms of responder rates for a study like this, and I believe at our previous earnings call I suggested somewhere between 25% to 50% responder rate on treatment and somewhere between 10% and 20% on placebo.

Brian, did you want to add something to that?

Sure. Another important component of the analysis will be the pre-specified correlation between our 5-HIAA biomarker reduction and those effects on stool consistency, pain and responder analysis.

Okay that is helpful. Thanks, guys and good luck with the partnership talks and the data.

Thank you, Cory.

Thomas Wei, Jefferies & Company

Just to follow-up on the last question about starting Phase 3 trials, are there particular studies that you could get underway and that you would have the funding to be able to complete as part of the 4211 program in the event that partnerships are delayed into 2014? (technical difficulties) if there were any adverse events that were deemed by investigators to be related to study drug, in particular if there are any renal related adverse events? And then what sort of A1c benefit do you think you would need to show in a renally impaired population to enable the label claim that you are seeking for in patients, especially with those with GFRs below 45? Thanks.

Okay, Thomas, I will answer the first part of that question and then I would like to ask you to repeat the second part because you were breaking up for some of that. But on the first of your question, there are many different ways to compose a Phase 3 program in type 2 diabetes. And many different opportunities in terms of sequencing different studies. Some of which can be done sooner and are more let us say straightforward or part of a core package for approval, and others of which are more focused on marketing and various combination therapies that need to be covered.

So we have developed different scenarios of those and some of these are also part of the whole discussion framework for interested parties and so there is a fair amount of judgment call made there and we're in that process, but there is a whole spectrum we are considering that could allow for different sequencing, let's put it that way, into the Phase 3 program. I think the funding arrangements would be partnership contingent, and so again, our primary goal is to complete one. And then the other part that I think we are also exploring and will continue to be of high interest to Lexicon in particular is the type 1 diabetes Phase 3 opportunity which is going to be more fully described when we see our proof of concept results from the ongoing trial.

So it is a fairly complicated set of considerations and we are trying to be very thorough in how we outline the Phase 3 start for the drug. So with that, perhaps Thomas, you could repeat the second part of the question regarding adverse events I think.

Sure, so in the renal impairment study I wanted to know if there were any renal related adverse events, particularly in the drug treatment arm, even though the numbers look balanced on overall AE's. Or any investigator deemed drug-related adverse events. And then the other question was just about what would you need to do in order to get a label claim in patients with a GFR less than 45, particularly A1c, and whatever the FDA told you, you would need to do for the Phase 3 development program.

Pablo do you want to take that question?

Yes, we only have top line data and overall safety for the renal impairment studies so I do not think I could really go into detail about specific renal related adverse effects. I can say we're comfortable what we've seen so far and all the evidence we have so far suggests that LX4211 and at a dose of 400 milligrams once daily would be proper for evaluation in Phase 3. And in Phase 3 we hope to show a significant reduction in hemoglobin A1c, and in terms of what magnitude of reduction, I would give you a ballpark of anywhere between an improvement of 0.4 to 0.7 in hemoglobin A1c would be achievable with LX4211 in this population and would be meaningful to patients with an area that has very few treatment options.

I'd go further and say I think a precedent has been set about what would be required by the FDA in the renal impaired population, that comes from canagliflozin they are only approved in patients with moderate renal impairment from estimated glomerular filtration rates of 45 to 60. They are only approved at their lower dose 100 milligrams, but we know from their Phase 3 data that 100 milligrams achieved a 0.3% reduction in hemoglobin A1C. I think certainly we think we can do better than that, but that is will be required and particularly as we move into the lower EGFR patients where canagliflozin is not approved.

Okay, thank you Thomas.

David Friedman, Morgan Stanley.

I was wondering, just in terms of the partnership discussions I was wondering if you could talk a little bit about what have been some of the major areas of debate given that they have been going on for north of a year now. And then the other is whether you are still developing your SGLT1 only or your SGLT1 selective drug, we didn't see it in the pipeline chart. Thanks.

Okay. Jeff, do you want to give some color and answer the first part of David's question?

Sure, the diligence, and this has really been focused on differentiating relative to SGLT2, the selective SGLT2 inhibitors and how to develop LX4211 in a way that best positions the product from a competitive standpoint relative to other diabetes agents. This helped, canagliflozin's approval helped clear away some of the lingering questions about SGLT2 class, so that was helpful. The recent results for our study in type 2 diabetics with renal impairment has also been helpful in defining the importance of SGLT1 mechanistically and reinforcing differentiation from selective SGLT2 inhibitors, and I think that the type 1 diabetes, early type 1 diabetes data has opened an avenue, but for a game changing therapy, but also highly meaningful area of differentiation. So, overall we think the discussions have been going well and it has really been focused on differentiation.

Then further Brian, on the second part?

Sure with respect to LX2761, our locally acting inhibitor that inhibits SGLT1 only in the gastrointestinal tract, that's moving forward. It's currently undergoing IND-enabling studies with projected initiation of Phase 1 somewhere around mid year next year.

Okay. Thank you David. Other questions?

(Operator Instructions)

Kevin Kedra, Gabelli & Co.

Just a first follow-up, on your last comments you mentioned that the type 1 indication was something that some partners have been looking at. Should we be looking at that as potentially a rate limiting study on doing a partnership or could you secure a partnership before we see that data?

It is not a rate limiting study for a partnership, and although I will say that some parties we are talking to are more focused on that than others, so there is a spectrum of interest level depending on the interpretation of their own clinical sort of priorities for their pipeline. But it is definitely not rate limiting. And so, did you have a second part of your question?

Yes, also on partnerships, have you seen any change in the way that potential partners are sort of looking at the diabetes space or their commitment to it or whether it is worth committing the dollars to the space? We've seen some companies talk about a weakness in the market for diabetes. I'm wondering if that is potentially giving anybody cold feet about getting, further investing in the space.

Right, well we have not seen that. I think that we have actually heard some positive impressions about the space given canagliflozin's launch and sales with ramp, which has been considered to be positive and impressive. So I think that has been another important data point with respect to the opportunity in diabetes with novel mechanisms.

I think part of the challenge for us has been that we are promoting not only obviously a partial SGLT2 affect, but a novel mechanism with SGLT1, and so that has carried a higher burden of proof with respect to differentiation. And I think we have achieved that with a number of studies, but it is not a trivial thing to bring forward a new mechanism of action in diabetes and then prove out the opportunity. I think people are positive about this space, I think the novel mechanisms offer that new opportunity, and so I think we're in a good position still. Thank you, any other questions?

(Operator Instructions)

At this time there are no additional questions.

I would like to thank everyone for participating and we look forward to keeping you updated in the near future. Thank you and goodbye.

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