Lexicon Pharmaceuticals Inc (LXRX) 2014 Q1 法說會逐字稿

Good morning. My name is Lashonda and I will be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Pharmaceuticals first-quarter 2014 conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn today's call over to Mr. Chas Schultz. Please go ahead sir.

Good morning and welcome to the Lexicon Pharmaceuticals first-quarter 2014 conference call. I'm Chas Schultz, 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. 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 homepage for today's webcast.

Before we begin, I would like to state that we will be making forward-looking statements, including statements related to Lexicon's clinical development of LX4211, and telotristat etiprate, also referred to as LX1032. These statements may include characterizations of the results of and projected timing of clinical trials of such compounds, and the potential therapeutic and commercial potential of such compounds.

This call may also contain forward-looking statements relating to Lexicon's growth and future operating results, discovery and development of products, strategic alliances and intellectual property, as well as other matters that are not historical facts or information. Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward-looking statements. These risks include uncertainties relating 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 a description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission.

I will now turn the call over to Dr. Sands.

Thank you Chas, and I'd like to thank everyone for joining us this morning. We had an excellent quarter in progressing our business. And I thought what we could do today is focus on just a couple of our key programs in later-stage development.

Of course the highlight of the quarter was our recent announcement regarding our data in type I diabetes, and so I think we will spend most of the time on that. And we'll give a brief update. We'll start with a brief update on telotristat etiprate which is in Phase III for carcinoid syndrome. The update for that will be given by Pablo Lapuerta, our Chief Medical Officer, and then the update and overview of the type I data will be given by Brian Zambrowicz, our Chief Scientific Officer. And given the importance of that data, although we did just release that recently and go over that in the call, we thought it would be good to review that briefly. There are some very interesting data points associated with the results and complexity surrounding the development of that drug in type I diabetes, which are going to be great challenges for Lexicon because it is an exciting opportunity.

So let's start then with Pablo and a brief update on telotristat etiprate. Pablo?

Thank you, Arthur, and good morning. Telotristat etiprate is our peripherally acting serotonin synthesis inhibitor. It inhibits tryptophan hydroxylase and therefore reduces the production of serotonin. Telotristat etiprate is absorbed in the peripheral circulation without crossing the blood brain barrier.

The inhibition of serotonin is important because serotonin is a key mediator of gastrointestinal motility pain and inflammation, and is considered the cause of carcinoid syndrome, a debilitating condition from metastatic carcinoid tumors where patients suffer from diarrhea, flushing, pain, valvular disease and preliminary hypertension.

We are treating -- on the next slide, we are treating carcinoid syndrome in a pivotal study, TELESTAR, a single pivotal study for our program. It's in Phase III randomized and placebo-controlled. We plan to recruit a minimum of 105 subjects. They will be given double-blind treatment for 12 weeks and afterwards, there will be a long-term extension that will be open label.

TELESTAR aims to show that telotristat etiprate is effective in reducing the change from baseline in bowel movement frequency over the 12 week double-blind portion of the study. The study is going well. Our efforts have been on recruitment. We've been satisfied that their work has been productive and the TELESTAR study is on track to complete randomization in 2014.

I would now like to turn the call over to Brian.

Thanks Pablo. As Pablo mentioned, I will be reviewing some of the highlights from our most recent clinical trial that let out, making us enthusiastic about the opportunity for LX4211 in type I diabetes.

Of course, LX4211 is a dual inhibitor of SGLT1 and SGLT2, and what's allowed LX4211 to show differentiation in all the clinical studies we've done to date is its inhibition of SGLT1. SGLT1 is the major transporter in the gastrointestinal tract for uptake of glucose after a meal. And in addition, the SGLT1 results then reduced postprandial uptake of glucose from the gastrointestinal tract. And it also triggers the elevated release of beneficial peptides such as GLP-1 and PYY.

Next slide. So we did run a type I diabetes proof of concept study. Of course, it started with open-label Pioneer portion which covered three patients who were on insulin pump. And we did this because we wanted to really ensure safety as we first moved into type I diabetics with LX4211. And then we moved into an expansion group that consisted of 33 subjects and could be either on pump or multiple daily injections.

We ran a study at seven sites in the United States and the dose we used was 400 milligrams given once daily before breakfast. This is the same dose that provides the greatest effect over 12 weeks in type II diabetics, and we treated for 28 days.

If we go to the next slide, I'm not going to cover in detail the inclusion criteria, but the subjects were between 18 and 55 years old with type I diabetes. And I do want to point out that HbA1c values they had to have were above 7 but below 9. I point that out because of course we don't have patients with very high hemoglobin A1cs, and starting A1c, the lower it is, the less you can affect or lower HbA1c during treatment.

If we go to the next slide, we are of course interested in establishing safety and proof of concepts with LX4211 in type I diabetics, but our primary endpoint here was the effect of LX4211, the total amount of bolus or mealtime insulin required. And secondary endpoints, they were multiple, but they included parameters of glycemic control and effects on basal and total insulin use. And I will be covering some of those -- results of some of those endpoints.

If we go to the next slide, this is the baseline demographics. That Column PL, it stands for placebo and LX, the LX4211 treatment arm. We were pleased that the arms were quite well-balanced. I look at a few of the parameters. If you drop down, BMIs were pretty similar, 26.2 for placebo, 27.1 for the LX4211 group. There a similar ratio on multiple daily injections versus the pump. You can see the MDI versus the II, five out of 12 versus six out of 10 in the 4211 treatment arms. The total daily insulin units per kilogram were the same, 0.6 for both arms. The mean daily insulin bolus to total 0.44 for placebo, 0.43 for LX4211. Hemoglobin A1c at baseline the same, 7.9 for both arms, and you can see that their blood pressures at baseline were within the normal range.

If we go to the next slide then, we were pleased to see that we hit the primary endpoint of reducing bolus insulin use. LX4211 treatment resulted in a 32% decrease in bolus or mealtime insulin relative to a 6.4% reduction for placebo. The reduction with LX4211 was significant versus baseline and significant relative to placebo. So, that was very encouraging.

But perhaps most important, if we go to the next slide, I think this was a very important finding. We had a pretty dramatic effect on hemoglobin A1c. You can see that, with LX4211, we reduced hemoglobin A1c by 0.55%, whereas it was reduced by 0.06% in the placebo arm. The reduction of hemoglobin A1c with LX4211 was significant relative to baseline and significant relative to placebo. And I think this is a particularly impressive effect when considering that this is only four weeks of treatment, and standard trials looking at HbA1c reductions typically go up to 12 weeks at a minimum.

If we go to the next slide, we also did continuous glucose monitoring during the study. And this shows the results for both the placebo arm on the top and the LX4211 treatment arm on the bottom. The left pie charts are baseline, and the right pie charts are with treatment. And these pie charts are showing the percentage of time spent in different ranges of blood glucose. So red is in the range of hypoglycemia with blood glucose levels of less than 70 milligrams per deciliter. Green would be a U glycemic range of between 70 milligrams and 180 milligrams per deciliter, and the yellow is the hyperglycemic range above 180 milligrams per deciliter.

And what' seen -- if you look at placebo baseline versus treatment, is that the green, the time from between 70 and 180 stays pretty much the same, 55.9% at baseline, 54% with treatment. However, you do see an increase in yellow, the time spent above 180 going from 35.6% to 40.2%, and perhaps a slight decrease in the time spent in hyperglycemia at 8.5% to 5.8%.

What you see with LX4211 is a very different picture. The green is significantly increased for the time spent between 70 milligrams and 180 milligrams per deciliter. It goes from 56.4% at baseline to 68.2% with treatment. This is a significant increase in time spent in this range and significant relative to placebo.

You also see a significant reduction in the time spent in the hyperglycemic range, in yellow above 180 milligrams per deciliter going from 35.3% at baseline to 25% with treatment with LX4211. Again, a significant reduction here relative to baseline and a significant reduction relative to placebo with no apparent increase in this time in red spent in the hypoglycemic range less than 70 milligrams per deciliter.

So this continuous glucose monitoring data, along with the hemoglobin A1c effect I just showed you on the last slide, indicates that treatment with LX4211 results in an improvement in glycemic control in type I diabetics with no increase in risk for hypoglycemia, a very encouraging result at this point.

If we go to the next slide, we did also look at body weight, and as you can see here, we saw a significant reduction in body weight with LX4211 treatment of 1.72 kilograms reduction relative to a weight gain of 0.5 kilograms with placebo. Again, with LX4211, this was a significant reduction relative to baseline, but also a significant reduction in body weight relative to placebo.

To summarize then on the next slide, LX4211 didn't meet the primary endpoint by lowering the bolus or mealtime insulin by 32%. It improved glycemic control by multiple measures. We saw a significant reduction in hemoglobin A1c of 0.55%. Again, this was in only four weeks, so I think a really strong effect in that kind of timeframe. We saw less hyperglycemia decline greater than 180 milligrams per deciliter as measured by continuous glucose monitoring, more time from 70 to 180, and very importantly, with this improved glycemic control no increase in hyperglycemia.

We reported previously we also saw less glycemic variability by multiple measures, so we are, basically with LX4211, we are reducing the extremes, either the highs or lows in blood glucose, which we think is very important in the long term for reducing the long term effect of type I diabetes.

LX4211 also decreased body weight and was well tolerated. Lexicon is committed to progressing LX4211 into Phase III development in type I diabetes, and we are currently planning that Phase III clinical study.

With that, I'll go to the next slide. And just to summarize that telotristat etiprate for carcinoid syndrome, as Pablo mentioned, this TELESTAR or pivotal study Phase III study is enrolling well. We have initiated the TELECAST, the companion study, which allows us to increase our exposure for our safety database, and our commercial preparations are underway.

As I just showed you with LX4211, we are of course Phase III ready in type II diabetes and we have been planning for Phase III in type I diabetes with a meeting with the FDA pending. With that, I'm going to turn it over to Jeff Wade to cover the financials.

Thank you Brian. I'll provide a brief financial update.

As indicated in our press release today, we had revenues for the 2014 first quarter of $0.3 million, which was a decrease of 23% from $0.4 million in the prior-year period. The decrease was primarily due to lower revenues from our alliance with Taconic Farms.

Our research and development expenses for the 2014 first quarter increased 18% to $24 million from $20.3 million in the prior-year period. The increase was primarily attributable to increases in external clinical research and development costs as well as severance costs as a result of the restructuring that we announced in January as we focus our resources on late stage drug development.

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. And changes to that liability based on the development of the programs and the time until the 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 $1.1 million in the first quarter and $1.3 million for the prior-year period.

Our general and administrative expenses for the 2014 first quarter were $5.7 million, an increase of 31% from $4.3 million in the prior-year period. The increase was primarily due to severance costs as a result of the restructuring we announced in January.

Our net loss for the 2014 first quarter was $30.8 million, or $0.06 per share, compared to a net loss of $26 million or $0.05 per share in the prior-year period. For the 2014 first quarter, our net loss included non-cash stock-based compensation expense of $2.3 million compared to $2.1 million in the corresponding period in 2013. Finally, as of March 31, 2014, we had $98.4 million in cash and investments as compared to $129.1 million as of December 31, 2013.

Now let's turn to our forward-looking financial guidance for 2014. We continue to expect contractual revenues from existing agreements in 2014 of around $0.5 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 2014 will be in a range of $105 million to $110 million. Non-cash expenses are expected to be approximately $13 million of this total, including $6 million in stock-based compensation, $4 million 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 expect our 2014 net cash used in operations to be in the range of $87 million to $92 million. I should note that these operating expense and net cash used expectations reflect costs of preparations that we are making for the Phase III development of LX4211 as well as certain supportive nonclinical and clinical activities that do not reflect the cost of full-scale Phase III clinical trials.

With the compelling recent results for LX4211 in type I diabetes, we are moving forward expeditiously with efforts to gear up for Phase III development in that indication, which could begin this year subject to FDA feedback. We have already made significant preparations for Phase III development in type II diabetes, but we have not reflected the cost of full-scale Phase III clinical trials for that indication in our guidance, given our expectation of a partnership around those activities.

I will now turn the call back to Arthur.

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

(Operator Instructions). [Shonek Bepack], Jefferies.

Thanks for taking my question. I just wanted to start off. I was curious like if you had any update or feedback on partnership discussions at this stage.

Jeff?

Sure. I'll be happy to answer this. So let me preface this by saying that we are committed to taking LX4211 forward in Phase III development in type I diabetes subject to FDA feedback, which we expect shortly, around the development program in that indication. We are very enthusiastic about the opportunity for LX4211 in type I diabetes. This is an area with substantial unmet medical needs which we believe LX4211 is well-positioned to address. And it's also an area in which there have been very little in the way of truly innovative new therapeutic options. At present, insulin is the only real therapy.

As we've communicated, our view has been that we don't have the practical ability to finance a full-scale Phase III development program in type II diabetes except in the context of a partnership. And we want to have a partner in place before launching a Phase III program in that indication. That's not necessarily the case in type I diabetes.

And our objective in any partnership that encompasses type II diabetes is to enable the achievement of our strategic objectives in type I diabetes indication while also enabling progression with development in type II diabetes. So this is a long way of prefacing the answer, which is we are relatively far down the path in partnership discussions. We are at a stage at this point where we can't offer much additional comment.

And then just curious, in terms of like the timing and any interim FDA feedback on the time for the Phase III trial in type I, I was curious if you had any update on that. And also like are you still estimating the cost of the trial would be about $60 million to $100 million?

Pablo, do you want to comment to the extent you can?

Yes. We will have an interaction with the FDA scheduled for this quarter, so we are looking forward to that coming up soon. And in terms of the cost of the program, I think it's a little bit premature to say until we've met with the FDA and we've come to agreement on the complete scope of the program.

Okay, great. And then just one housekeeping question. I was curious if you've looked at like any sort of subgroup analysis pertaining to the difference between patients on insulin pumps versus those taking basal bolus insulin in the type I study, and if there are any differences in the outcomes dependent on like the actual patient disposition there.

I think it's a bit of a challenge since there were 16 and seven patients per arm, placebo and LX4211, to begin breaking up that study. But it's something we'll certainly be interested in exploring in Phase III when we have larger numbers.

Great. And then just finally, I was curious what we should expect to see at ADA this year. I know like wouldn't probably be expecting to see the type I data, and then like when we might actually expect to see that, thanks.

Pablo?

At ADA, we plan to present an abstract on our renal impairment data. We made an announcement that we had positive results for LX4211 in type II diabetes patients with renal impairment. That's an important opportunity for us. And we feel that effectively differentiates us from selective SGLT2 inhibitors. And we will be providing a lot of detail there at the American Diabetes Association.

As far as the type I data, the type I data came in after the deadline for abstract submissions to ADA 2014, and so it will likely be presented at a major meeting in 2015.

Thank you.

Cory Kasimov, Morgan Stanley.

Hi there. It's actually Matt Lowe in for Cory. Just wanting a bit more on the partnership talks, I guess could you share with us what have been some of the major areas of debate throughout the partnership discussions, given that talks have been going on for over a year now. I am just wondering if you've seen any change in how potential partners are looking at the diabetes space over that course of time. Thank you.

Thanks Matt. Jeff, do you want to handle this question?

Sure. I think one of the key areas has been differentiation in establishing that, and we've done a fair amount of work during the course of these discussions to establish that. And one of the key elements of that which Pablo was referring to that we're going to present at ADA is the data in renal impairment.

We've done a lot of additional work in the type II diabetes space, and that's been important because differentiation in type II diabetes is key to this product having the opportunity to be successful. And we believe that we have well-established that at this point.

We are also very excited about the type I diabetes data because that's something where we view as both being demonstrative of the particular value of the mechanism of this compound, but it's also something where we have a very significant opportunity, something that matches up very well with the unmet medical needs in the type I diabetes space. And so that's an exciting commercial opportunity, and it certainly has implications for our partnership discussions as well.

Thank you.

Colin Bristow, Bank of America Merrill Lynch.

Thanks for taking my questions, and congrats on the progress. On potential competition to 4211, a company called [Ceracose] recently reported Phase II data for its SGLT2 inhibitor, and they saw no increase in genital or urea infections relative to placebo. I was just wondering. Could you offer any comments on that? It would be appreciated, especially given that they now seem to be at a similar stage of development as you guys.

Number two, on the SGLT2 market, we have a decent amount of data now on (inaudible) counter launch as well as (inaudible) data. I was wondering if you could comment on how the market is growing relative to your own expectations. Thanks.

The first part of that, Brian, do you want to address, and the second part will be Jeff.

Yes, to be clear, the [Theracose] compound is, again, a selective SGLT2 inhibitor. We now have tremendous amounts of data on SGLT2 in addition. Yes, they have run some small studies, but we have data from very large Phase III studies of multiple selective SGLT2 inhibitors. I think we know pretty much from a safety standpoint and from a genitourinary infection standpoint what to anticipate there. And I think another selective SGLT2 inhibitor will have a very difficult time differentiating it any way.

Again, we are unique in being a dual inhibitor. It's the SGLT1 inhibition that allows us to differentiate in multiple ways, whether that's in renal impairment, in the general II population with the potential for both efficacy and safety benefits because of that dual inhibition. And in combination with DPP-4 inhibitors the synergy due to our GLP-1 effect, and finally and most recently, as we showed today, the very unique affect we have relative to what has been observed with selective SGLT2 inhibitors in type I diabetes. So, I don't think they have anything in their compound that would make us believe they could differentiate in any way.

Jeff, on the business front for the launches?

Sure. I think that one of the questions about the SGLT2 mechanism was how big of an obstacle the urogenital tract infections might be. And I think that the [embocana] launch helps answer the question that there is definitely a place for compounds in the SGLT2 class, and one of the key elements that we see with our compound is that we are achieving results with much less urinary glucose excretion, and so we expect to have a differentiated safety profile with very positive efficacy in this patient population. And that's the opportunity that we see with our compound. So we are very encouraged by what the market opportunity is for LX4211.

Thanks. And just finally, are you guys able to provide any further timelines around which we should expect a partnership update or you then switch tact and explore other options for the type II opportunity? Thanks.

Jeff?

We are not really prepared to provide a timeline, but we are working towards progressing in type I diabetes which is something that we can do on our own. And we are continuing with the partnership discussions that would enable us to progress in type II diabetes as well.

Great, thanks a lot.

Alan Carr, Needham and Company.

Hello? A couple things. One of them, Jeff, can you clarify whether or not your guidance for 2014 includes some spend on Phase III trials for type I diabetes? And then also are there any updates -- I'm sorry I missed the beginning of the call -- but are there any updates on your discussions with KOLs around 1033 or any plans for your SGLT1 inhibitor, or with 2931? Thanks.

Jeff?

So, we've included cost preparations for Phase III activities in our financial projections. We haven't included the cost of actually conducting the trials as of yet. That's something that we will look at once we have a little bit more regulatory clarity as to what that program looks like. There would be some incremental spend associated with that program in Phase III.

And then on the 1032, on telotristat etiprate KOL, Pablo, do you want to comment on the recent, relatively recent ENETS meeting that we've had, that conference in Europe?

Yes, telotristat etiprate, we had a good presentation at European Neuroendocrine Tumor Society meeting. A large audience of several hundred physicians. They saw our long-term experience in a case series of patients who had carcinoid heart disease and were impressed with the degree of reductions in serotonin synthesis that we were able to achieve long-term. The meeting went very well. And speaking to physicians in general about the program, those who are participating in our Phase III trial are very excited. They are motivated, and once they recruit two or three patients, they want to recruit more. So that's been a very good experience with telotristat etiprate.

Thanks, Pablo. And then the last part of the question about the earlier stage pipeline, Brian, do want to comment on those two compounds?

Sure. You asked about --

SGLT (multiple speakers) forgot the number for SGLT1 inhibitor, and then also I think you've been looking at other indications for 2931. I'm just wondering what you can give there.

So, I just want to emphasize again, as we said earlier in the year, we are focusing our resources on telotristat etiprate and LX4211. So, we aren't currently planning any other clinical studies right now for LX2931 or LX1033. We remain interested in the compounds we are exploring, other potential indications, particularly for 2931. But again, we are focusing all our resources telotristat and LX4211 currently. We are progressing LX2761, our local reacting SGLT1 inhibitor that acts and stays in the GI and produces very little systemic exposure for urine glucose excretion. We will finish our R&D enabling studies this year.

Okay, thanks very much.

Stephen Willey, Stifel.

Good morning guys. So first I guess maybe just to clarify, is your perceived Phase III type I and partnering type II kind of on two parallel tracks at this point? And what's the probability that those two paths merge at some point?

And then secondly, with respect to your pursuit of type I, obviously that's probably not an indication that would require any CD outcome study, but maybe just kind of any inclination you might have about FDA concerns regarding off-label use in type II that might influence either labeling or a regulatory process. I know it's something that we've kind of seen before in the respiratory space with respect to long-acting beta agonists in either COPD or in asthma. Thanks.

Jeff, the first part of that question on the partnership track?

Sure. So I'm not going to offer a handicap on that. But I'd say we are still in discussions with the partnership that would allow us to pursue both type II diabetes and type I diabetes. We don't feel that that kind of partnership would be necessary in type I diabetes. At this point, I wouldn't characterize them as separate tracks. We're looking at the different options here and progressing what we have the ability to progress under our control. So --

They're being pursued in parallel. And then Pablo, maybe just in a general sense you could address Steve's question about the off-label use, other indications, etc., in a general sense.

Yes. It's an interesting example. That is a long-acting beta agonists in asthma and COPD. What I would say is we need to clarify the situation with the FDA, so we are looking forward to our meeting coming up soon. And we feel that type I diabetes is an area of such high unmet need that we really believe in the profile of LX4211 and the value of developing it in type I diabetes.

Thank you.

David Friedman, Morgan Stanley.

Thanks for taking the question. I wanted to just see if you could comment on whether you think you'll need a cardiovascular outcome study or not, given the potential of the drug to theoretically be used in type II and I patients, and what you would expect a cost of an outcome study like that to be. Thanks.

A similar question to the last one. Pablo, do you want to answer that again?

Yes. I can't go into specifics so soon before an FDA meeting. I would say that's one of the reasons we are having our interaction and we look forward to it. And I could say that if you look at the guidance, the emphasis on cardiovascular outcomes data really is about type II diabetes. And in type I, we see a large unmet need, and we see a special opportunity to get the first pill potentially approved for that indication.

Thank you.

(Operator Instructions). There are no questions at this time.

Excellent. I'd like to thank everyone for participating this morning and we look forward to keeping you posted on our progress. Bye-bye.

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