Lexicon Pharmaceuticals Inc (LXRX) 2014 Q2 法說會逐字稿

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Pharmaceuticals second-quarter earnings conference call. (Operator Instructions) Thank you. I would now like to turn the call over Chas Schultz. Please go ahead.

Thank you, Bethany. Good morning, and welcome to the Lexicon Pharmaceuticals second-quarter 2014 conference call. I am Chas Schultz, and with me today are Lonnel Coats, 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; Jeff Wade, Lexicon's Executive Vice president of Corporate Development and Chief Financial Officer; and John Northcutt, Lexicon's Vice President of Commercial Strategy and Operations.

We expect that you have seen a copy of our earnings press release that was distributed this morning. During this call, we will review this 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'd 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 relating 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 some 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, 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 Mr. Coats.

Thank you, Chas. And thank you, everyone, for joining us on today's call. I know we have a lot of our investors and analysts on this call, and I'm looking forward to meeting with most of you over the next few months.

Let me start off by first saying it is a very exciting time at Lexicon. I joined Lexicon because of the extraordinary science of this Company, which has led to the hope and promise of two lead compounds, telotristat etiprate and LX4211. It is my belief that there are significant value in both of these programs, and I am absolutely committed to use every day forward to unlock such value for the benefit of all of Lexicon's stakeholders. While I anticipate there will be challenges, I'm confident we can use the collective strength of Lexicon's talents to overcome them.

So let me move forward by sharing with you our agenda for today. We will begin with the progress of telotristat etiprate. Let me first give my commentary, which is I'm very pleased to report that we have made very good progress in recruiting for this program for carcinoid syndrome. We have enrolled more than 70% of the patients needed for the trial and believe we can complete our enrollment by early 2015. This will be an enormous accomplishment for Lexicon, given the rare population and the difficult history that I know we all understand and recruiting and circumstances like this. This indeed speaks to Lexicon's ability to execute.

Next, we will turn our attention to LX4211. We will give you a recap of our Type 1 study results and our recently announced JDRF collaboration.

It is my belief that LX4211 has the potential to be a class-defining compound to the likes of a Lipitor. That is why I am here. It is my responsibility to skillfully navigate us towards this path.

We continue to engage in discussion with potential partners. And since I've come on board, I believe these discussions are both productive and are advancing well. However, I believe it is in the best interest of all Lexicon stakeholders that we seek to unlock the value of this compound today.

In our review of the clinical data on Type 1, our discussions with the FDA, our collaboration with the JDRF, and our engagement with Type 1 patients, we are compelled to move expeditiously into Phase 3 on our Type 1 program.

Next, Jeff will provide you with an overview of our second-quarter financials as well as give you an outlook for the remainder of 2014 before turning our call over to questions.

Let me conclude by saying that I'm very excited about this opportunity and the opportunities we have here at Lexicon. These opportunities indeed are not without risk or challenges, but my assessment thus far is that we are indeed up to the challenge. My job is simple: restore the trust and confidence in Lexicon stakeholders by unlocking the value of our near-term assets.

With that, I would like to turn the call over to Pablo and John to discuss telotristat etiprate and LX4211 in detail and our game plan moving forward.

Thank you very much, Lonnel. I am Pablo Lapuerta, Chief Medical Officer at Lexicon. And on slide 3, I'd like to review with you telotristat etiprate, our peripherally acting serotonin and synthesis inhibitor. Telotristat etiprate inhibits the production of serotonin, and that's important because serotonin is a mediator of gastrointestinal motility, pain, and inflammation. It's especially important in patients with carcinoid syndrome. There, a metastatic tumor leads to the production of large amounts of serotonin associated with diarrhea, flushing, pain, and valvular disease.

Telotristat etiprate for the treatment of carcinoid syndrome has therefore received fast-tracked orphan drug designation from the FDA, and it has also received orphan drug designation from the European Medicines Agency.

The paradigm in which we are developing telotristat etiprate is on slide 4. Most carcinoid syndrome patients are not adequately controlled on the standard of care and octreotide of somatostatin analog.

The drug is very effective. And yet in our interviews with physicians, they believe that the majority of patients, approximately 79%, are essentially non-adequately controlled. This lack of control occurs in a timeframe of approximately 36 months. There is no new therapeutic option for these patients. We will be evaluating whether telotristat etiprate can help them.

On slide 5, we've made significant process towards completion of enrollment of our Phase 3 program. Specifically, our pivotal Phase 3 study TELESTAR has enrolled over 70% of the patients needed. We are on target to complete enrollment sometime in late 2014 or in early 2015.

As you may know, TELESTAR is a single pivotal study for this program. It's randomized, placebo controlled, and double blinded. It'll have approximately 120 patients who are on a background of the somatostatin analog therapy but who are not adequately controlled in terms of their symptoms. They'll be treated in a double-blind fashion with telotristat etiprate or placebo for 12 weeks and then enter an open-label extension.

The objective of TELESTAR is to demonstrate a reduction in bowel movement frequency in these patients with inadequately controlled carcinoid syndrome. Secondary endpoints will include urinary 5HIA, which is our biomarker of serotonin synthesis, and other symptoms of carcinoid syndrome.

Let me now review with you LX4211. It's our first-in-class dual SGLT1 and SGLT2 inhibitor for the treatment of diabetes. You are familiar with SGLT2 inhibitions. It enhances urinary glucose excretion and therefore offers benefit to patients with diabetes.

LX4211 is unique in that it offers both SGLT1 and SGLT2 inhibition. SGLT1 is the primary transporter for the absorption of glucose in the gastrointestinal tract. Inhibiting SGLT1 reduces glucose absorption and the intestine's response by releasing GLP-1 and PYY, hormones that are beneficial in the treatment of diabetes and in the control of satiety.

On slide 7, we believe that this profile of dual SGLT1 and SGLT2 inhibition offers several differentiating advantages. First is selective SGLT2 inhibitors.

The clinical profile we see with LX4211, it is one of substantial postprandial glucose benefit that we believe is related to gastrointestinal SGLT1 inhibition. The glucose is delivered distally in the gastrointestinal tract. The body responds by releasing GLP-1 and PYY, and that allows us to see robust hemoglobin A1c effects and to see them with relatively less urinary glucose excretion than has been recorded with selective SGLT2 inhibitors. This has several potential advantages for the diabetes population.

In Type 1 diabetes, we believe the reduction in postprandial glucose offered by LX4211 is especially important to reducing hemoglobin A1c and in reducing the variability in glucose that is such a problem in managing Type 1 diabetes.

In Type 2 diabetes, many patients have renal impairment. And here, having a separate gastrointestinal mechanism which is not dependent on kidney function offers the potential to maintain efficacy in a population where the efficacy of selective SGLT2 inhibitors is lost.

Also, the enhancement of the GLP-1 release with LX4211 offers the potential for synergy with DPP-4 inhibitors. LX4211 causes an increase in GLP-1 levels, while DPP-4 inhibitors inhibit the breakdown in GLP-1. And we have previously shown in the mechanistic study, significant synergies between the two types of agents.

We also believe that LX4211 has the potential to demonstrate significant cardiovascular benefits. This is partly from the reduction in postprandial glucose, which is an important cardiovascular risk factor. But also throughout our program, we've seen reductions in weight and we've seen very profound reductions in blood pressure that we feel have the potential for reducing the incidence of cardiovascular disease.

We recently completed a type 1 diabetes proof-of-concept study, which I describe here on slide 8. We initiated the use of LX4211 in type 1 diabetes with an open-label pioneer group. We wanted to be very careful and insure that we could administer LX4211 safety and that we knew exactly how to adapt insulin doses in the second phase of the study.

(inaudible) consisted of an expansion group of approximately 30 subjects with type 1 diabetes on either continuous insulin infusions or multiple daily injections. They received LX4211 in 400 milligrams taken before breakfast, and they received it for 28 days, or a placebo.

Patients were enrolled depending on the following laboratory values, most important being the hemoglobin A1c which was between 7% and 9%.

On slide 9, the primary goal of this proof-of-concept study was to establish safety for LX4211 for patients with type 1 diabetes. We also wanted to look at the mechanism of action. This was our first co-administration of LX4211 in the type 1 diabetic population and on top of insulin.

Our primary endpoint was the total amount of bolus insulin required. Our focus was on bolus insulin because we knew from other studies that we were seeing profound reductions in postprandial glucose. The postprandial glucose coming after a meal had the implication for diabetic patients with type 1 diabetes that they would require less bolus insulin.

Secondary objectives included other parameters of glycemic control including hemoglobin A1c, other parameters of insulin use including basal and total insulin, and other pharmacodynamic and pharmacokinetic parameters.

The baseline characteristics on slide 10, they were similar between placebo and LX4211. Perhaps most importantly, the hemoglobin A1c was approximately 8, and this was in a population who had been treating the type 1 diabetes for approximately 20 years.

On slide 11, LX4211 met its primary endpoints with very significant reductions in bolus insulin use. The reduction in bolus insulin use was almost 1/3, whereas in placebo it was only 6%.

Slide 12 presents the hemoglobin A1c results. We were very encouraged to see that, despite receiving much less insulin, patients who received LX4211 were able to improve their hemoglobin A1cs with a significant reduction that was robust of 0.55% compared to placebo, which had only 0.06%.

Slide 13 shows how that happened. It happened by improving the amount of time that patients of LX4211 spent in the normal range of glucose control. You see that on these pie charts with placebo on the top and LX4211 on the bottom. Glucose within the normal range of -- or desirable range of 70 to 180 milligrams per deciliter is in green for both the placebo and LX4211 groups.

From baseline to treatment, the placebos stayed the same but the LX4211 group showed a very significant increase versus placebo from 56% time in the desired range to approximately 70% of time being spent in the desired range.

Perhaps what's most important about this is that it came by a reduction of time spent for glucose values above 180, and there was no increase in the time spent in the hypoglycemic range.

In addition to this benefit, on slide 14, patients saw a very significant weight loss of about 2 -- over 2 kilograms compared to placebo.

Most recently, we announced a collaboration with the Juvenile Diabetes Research Foundation for another study in type 1 diabetes. We are going to be conducting another Phase 2 clinical trial, this to look at a younger population of type 1 diabetes. It'll be a placebo-controlled, double-blind study with up to 84 individuals. These will be younger, all less than 30 years of age, and they will be representing a population of very high unmet need, a population of hemoglobin A1c levels greater than 9%. The treatment period will be longer. In our prior Phase 2 study, it was four weeks. (inaudible) patients will receive 12 weeks of treatment with LX4211 or a placebo.

This study will be powered to show a significant reduction in hemoglobin A1c, and secondary endpoints will be similar to what you're seeing -- regiments of variability in glucose levels and lower insulin requirements.

We're making progress on slide 16. This summer, we concluded an effective regulatory meeting with the FDA. And in the Phase 2 meeting, we also went through the European Medicines Agency scientific advice procedure and received feedback, and we had meetings with two different European national authorities. These interactions were very helpful and generally consistent among all the regulatory authorities.

The agencies prefer to see both type 1 and type 2 diabetes data and support an integrated program; we do too at Lexicon. It was important, however, for us to clarify that a standalone program in type 1 diabetes is possible from a regulatory standpoint. We are continuing our dialogue with agencies and addressing specifics of protocol design of execution. These leave us in a position where we can launch the Phase 3 program in type 1 diabetes at the beginning of 2015.

Thank you. And I will now turn the call over to John Northcott.

Great. Thank you, Pablo. This is John Northcott speaking; Vice President of Marketing, Commercial Strategy and Operations at Lexicon pharmaceuticals. It is a pleasure to be a part of today's call.

At Lexicon, as we advance our pipeline of products into late-stage clinical development, we conduct commercial opportunity assessments to better understand the commercial viability of our products within their respective therapeutic categories.

Specifically, we seek to establish what the unmet medical needs are and what expectations key stakeholders -- namely physicians, payers and patients -- have for a new product in a particular disease in order to support its future utilization once approved. And hopefully, support it in becoming an important part of the future standard of care.

Upon the positive results of our Phase 2 trial in type 1 diabetes, we worked with IMS Health care to assess the type 1 diabetes marketplace in order to better understand the clinical and commercial opportunity that exists for LX4211 specifically in type 1 diabetes. And I look forward to sharing some of those results with you during today's call.

So to start here on slide 17, the slide on your screen, a number of the key findings from our assessment are outlined. First, the size of the opportunity, the level of unmet medical need, and the great opportunity that exists for LX4211 in type 1 diabetes.

Bullet number one describes the size of the patient population: more than 1 million adults in America have type 1 diabetes. This is often referenced as 5% to 10% of the overall diabetes market. However, as a distinct and standalone disease with its own unique needs and challenges, it affects many patients and their families.

The American Diabetes Association has set a target for HbA1c levels in adult patients with type 1 diabetes, which is less than or equal to 7%.

Findings from a large database established by the T1D Exchange, the type 1 diabetes exchange, demonstrates that approximately 75% of adult type 1 diabetes patients have a 12-month HbA1c average above the American Diabetes Association guidelines. Being above the American Diabetes Association target levels makes patients more susceptible to long-term systemic consequences which we will review in a moment.

The standard of care for type 1 diabetes is insulin in its various forms. Insulin has been and will continue to be the cornerstone of care. However, more can be done to prevent long-term consequences and short-term consequences of having not adequately controlled glycemic levels. Long-term consequences being, for example, diabetic retinopathy, kidney disease, and heart disease. And short-term consequences, for example, being severe hypoglycemia; perhaps coma or seizures.

Pablo will go over this next point in more detail in a few minutes. However, the aim of LX4211 in type 1 diabetes is to significantly reduce HbA1c levels, helping more patients get in range of the American Diabetes Association target level without increasing severe hypoglycemia and provide additional meaningful benefits such as weight loss.

Our desired indication statements for type 1 diabetes is that LX4211 is intended as an adjunct to insulin therapy to improve glycemic control in patients with type 1 diabetes. Achieving the above will be a meaningful step forward for patients, their families, and their treating physicians.

To continue on this theme on slide 18, the development program for LX4211 is being designed to address significant unmet medical needs in patients with type 1 diabetes. I'd like to take a moment to list some of the areas of greatest need that we identified via our research.

Firstly, substantial majority of type 1 diabetes patients are not achieving their HbA1c targets. As previously stated, approximately 75% of adult type 1 diabetes patients have a 12-month HbA1c average above the ADA guidelines of less than or equal to 7%. And more than 50% of all type 1 patients have an HbA1c greater than 80%. HbA1c levels out of range are of significant concern for patients long-term.

Secondly, significant intraday glucose variability poses a risk to type 1 diabetes patients and it is challenging for them to manage, resulting in hyperglycemia and hypoglycemia, meaning more time out of the range established by the American Diabetes Association -- too high or too low.

Thirdly, a significant percentage of type 1 diabetes patients experienced severe hypoglycemic events, which can lead to seizures or comas. And there are reports in the literature in which between 4% to 10% of the deaths of patients with type 1 diabetes were attributed to hypoglycemia.

Lastly, weight control is an increasing challenge for type 1 diabetes patients. Contrary to conventional wisdom, type 1 diabetes patients are not all lean. Based on the type 1 diabetes exchange database, a quarter of all patients over the age of 26 are obese. This is something we hope LX4211 will help patients better manage.

Moving to slide 19. I'd like to take a brief moment to highlight the stakeholders involved in the management of type 1 diabetes and how patients are currently being managed. Adult type 1 diabetes patients can be diagnosed by either an emergency room physician, general practitioner, pediatric endocrinologist, or adult endocrinologist. However, the ongoing management of these patients is largely done by adult endocrinologists or select primary care physicians.

This is an important relevant for Lexicon. Given that the care for type 1 diabetes patients is largely concentrated around endocrinologists and select primary care physicians, it gives us great confidence in Lexicon. The type 1 diabetes is a disease end market that Lexicon Pharmaceuticals could commercialize with a reasonably sized commercial infrastructure.

Slide 20 is a continuation of slide 19. The key takeaway message from this slide is that HCP's anticipate using LX4211 in adult type 1 diabetes patients anytime after they've been diagnosed and learn how to self administer their insulin. LX4211 can be incorporated likely within the first few months post diagnosis.

Therefore, with an anticipated differentiated product profile of LX4211 and type 1 diabetes, we anticipate that LX4211 will have an opportunity to be added on to insulin regimen of many type 1 diabetes patients.

Shifting briefly on slide 2 for a moment from patients and physicians needs and expectations and type 1 diabetes to payer's view of the type 1 diabetes market. We have spoke to a number of the large health plans in the US. Their feedback was that the current insulin treatments do not address some of the key unmet needs in adult type 1 diabetes patients. And specific areas they noted were achieving optimal HbA1c targets, weight loss, and reduction of severe hypoglycemia -- all areas that we hope to address with LX4211 in our development program.

So in conclusion on slide 22, we believe that LX4211 has a significant opportunity in type 1 diabetes. It's a sizable patient population with more than 1 million adults with type 1 diabetes in the US. Significant unmet medical need; approximately 75% of all type I diabetics not achieving their ADA HbA1c targets.

Patients that are challenged in managing the variability of their glucose levels and weight control is an increasing problem for type 1 diabetics.

As we just discussed, there have been limited treatment options for patients with type 1 diabetics. Their insulin has been the standard of care in its various forms. We believe there's a great opportunity to add on to insulin to help improve patients' glycemic control.

We believe the LX4211 offers a potentially differentiated target product profile that addresses the need and expectations of stakeholders in type 1 diabetes. Again, namely patients, physicians, and payers.

And with that, I'll conclude by saying that as the commercial leader of Lexicon, it really is a privilege to work on a product that has a promise to make a real difference for diabetes patients, and I look forward to being a part of moving this important program forward.

And with that, I'll pass it back to Pablo to discuss what we are planning for Phase 3.

Thank you, John. Earlier I had mentioned that we held interactions with the FDA, EMEA, and two European national agencies. These supported a Phase 3 program for type 1 diabetes that consists of two pivotal Phase 3 studies. The two studies are very similar, and they both have the same primary objective demonstrating the reduction of hemoglobin A1c versus placebo in type 1 diabetes patients whose insulin has been optimized. LX4211 has the profile to potentially improve A1c without increasing severe hypoglycemia or increasing the incidence of diabetic ketoacidosis. Additional objectives for both studies will be to reduce the variability in blood glucose levels to examine insulin needs, patient-reported outcomes, and weight loss.

These two pivotal Phase 3 studies will be the same whether or not we have a standalone type 1 program or a joint type 1/type 2 clinical development program. If we do a standalone program, however, we would anticipate a third Phase 3 study to expand our safety numbers. We're moving forward with the plans and our regulatory interactions.

And with that, I would like to turn over the call to Lonnel Coats.

Thank you, Pablo. So let me try to be clear on what we have just talked about. Number one, on telotristat etiprate, we are moving forward with our carcinoid syndrome program. And we are very pleased that we are enrolling. We are 70% through our enrollment. We are feeling fairly confident that we can complete our enrollment of this program late 2014 or early 2015. And therefore our commercial preparations have begun, and we are on the way.

For LX4211, for diabetes, we have been ready and are continuing to get ready for a type 2 program because it is Lexicon's preference to have a full program for type 1 and type 2. So should we have a partner, we will be ready to move it immediately into the type 2 program.

However, it's also important to say we must unlock the value and potential of LX4211 by ensuring we are prepared to move into type 1 diabetes. And therefore, the planning has now started for LX4211 for type 1 diabetes. With that being said, let me turn the call over to Jeff.

Thank you, Lonnel. I will provide a brief financial update. As indicated in our press release today, we had revenues for the 2014 second quarter of $0.7 million, an increase from $0.2 million in the prior-year period. The increase was primarily due to revenues recognized from our collaboration with a non-profit research institute supporting the Phase 2 development of LX4211 in type 1 diabetes and increased revenues from functional genomics activities.

Our revenues of $1 million in the first half of 2014 reflect the 66% increase from $0.6 million for the prior-year period.

Our research and development expenses for the 2014 second quarter decreased 11% to $21.2 million from $23.7 million in the prior-year period. The decrease was primarily attributable to decreases in personnel costs as a result of the restructuring announced in January 2014 and decreases in lab supply costs as we focus our resources on late-stage drug development.

Our R&D expenses of $45.1 million for the first half of 2014 reflect the 3% increase from $34.0 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 base and contingent payments. Changes in this 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 is Symphony Icon purchase liability was $0.4 million in the second quarter and $1.6 million for the six months ended June 30, 2014.

Our general and administrative expenses for the 2014 second quarter were $5.2 million, an increase of 10% from $4.7 million in the prior-year period. The increase was primarily due to severance costs as a result of the restructuring announced in January. Our G&A expenses of $10.8 million for the first half of 2014 reflected a 20% increase from $9 million for the prior-year period.

Our net loss for the 2014 second quarter was $26 million, or $0.05 per share, compared to a net loss of $29.1 million, or $0.06 per share, from the prior-year period. Our net loss for the first half of 2014 was $56.9 million, or $0.11 per share, compared to a net loss of $55.1 million, or $0.11 per share, for the corresponding period in 2013.

For the three and six months ended June 30, 2014, our net loss included non-cash stock-based compensation expense of $1.8 million and $4.1 million, respectively. For the three and six months ended June 30, 2013, net loss included $1.9 million and $4 million, respectively.

Finally, as of June 30, 2014, we had $79 million in cash and investments as compared to $98.4 million as of March 31, 2014 and $129.1 million as of December 31, 2013.

Now let's look to our -- turn to our forward-looking financial guidance for 2014. We expect contractual revenue from existing arrangements in 2014 of around $1 million. We are engaged in partnership discussions for LX4211, as you know, and are also in conversations about other potential collaborations and alliances. But consistent with our past practices, we are not including forecasted revenues from potential new collaborations and alliances in our guidance.

We continue to expect that our operating expenses in 2014 will be in the range of $105 million to $110 million. Non-cash expenses are expected to be approximately $13 million of this total, including $7 million in stock-based compensation, $4 million in increased in fair value of Symphony Icon purchased liability, and $2 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-use expectations reflect cost of preparations we are making for Phase 3 development of LX4211 as well as certain supported but non-clinical activities, but do not reflect the full cost of full-scale Phase 3 clinical trials.

With the compelling results for LX4211 in type 1 diabetes, we are moving forward expeditiously with efforts to gear up for the Phase 3 development in that indication, with preparations to launch the Phase 3 program in early 2015. We have already made the significant preparations for Phase 3 development in type 2 diabetes, but we've not reflected the cost of full-scale Phase 3 clinical trials for that indication in our guidance given our expectation of the partnership around those activities.

I will now turn the call back to Lonnel.

Well, thank you, Jeff. And let me say thank you to all the analysts and investors who joined us today. It is a remarkably exciting time here at Lexicon. And we are now prepared to turn it back over to the operator to start to take your questions.

(Operator Instructions) Cory Kasimov, JP Morgan.

My question is on partnership progress for 4211 for type 2 diabetes. So it's been over two years now since the Phase 2b data was first announced, and there's obviously been a lot of positive regulatory validation for the SGLT2 pathway over that intervening period. You guys have been talking about making progress on the partnership front for some time now, going well into way back into 2013.

At what point do you need to turn the page to plan B and at what point do investors need to just look beyond the partnership and focus on type 1?

We are continuing those partnership discussions. And having that partnership around a full diabetes program is one of our priorities, but is not -- timing is not something that's totally within our control. Those partnership opportunities are continuing. But it is -- to answer your question, it is one of the things that we feel like we have to do to move forward in type 1 diabetes. And we're planning on doing that whether we have a partnership in place or not. And we feel very confident in the value of LX4211 in that indication and that this is something that we need to proceed with, partnership or no partnership.

All right, just to be clear, though, I'm not really concerned about moving forward with type 1. And I understand and realize the opportunity there and the Company can handle that on its own. It's just for -- going on roughly a year now, you guys have been talking about making very good progress on the partnership front and that you are close to a deal and you expect to have something in place. And it's still kind of the same message on every quarterly conference call. So at what point do we start to forget about that the partnership is just not realistic? Or are you still as confident as you've been?

May I choose to answer it? This is Lonnel. And I've been here, this is my fourth week. And I've been involved in this process, and I would simply say this: we should never give up on the opportunity to develop this compound for type 2 diabetes. Companies come in, companies go out, but at the end of the day, we know this compound has activity. We know there's extraordinary value that can be yielded for patients in the marketplace. Therefore, where we would use all of our efforts and energies to ensure that we find a way to advance this compound for type 2 diabetes as well, and more than likely that would be another partnership.

My confidence is growing every day as we have these discussions that the question will be less about if in the future, it will be more about when. And so the problem or challenge here is that we shouldn't wait for the partnership. We have a compound that has value. We know it has value for type 1 diabetes, and we need to start that work.

Secondarily to that, I do believe eventually a partner will come on board because I believe the opportunity is so great, and the number of opportunities that remain to participate in the type 2 diabetes marketplace are few and far between. So my confidence, just being here in a month, will simply say to you, we would ask you to continue to be patient. But ultimately we are not going to give the [hope] about this compound for type 2 diabetes.

Okay. Thank you for taking the question.

You bet.

Colin Bristow, Bank of America.

I guess a follow-on from Cory's question on partnership discussions. Just what is it that gives you confidence that the prior gating factors to finding a partner will be resolved going forward? Because surely as time passes by, the attractiveness of this asset and your bargaining power diminishes.

And then a couple on the type 1 program. What was the feedback from the FDA regarding CV requirements for approval in type 1? Sorry if I missed this.

And can you just clarify what you meant when you said the agency would prefer to see a program in type 1 and type 2 diabetes? Are you saying you've not yet had confirmation that Phase 3 program in type 1 would be sufficient for approval? Thanks.

Let me, if I can, take the second part of the question, and I'll ask Pablo to go back to the first part of your question which is dealing with the agency. So, what gives me the confidence in it? One is that this is a marketplace -- type 2 diabetes is a marketplace, for unfortunate reasons, will continue to grow. All you have to do is look at the growth rate in the obesity marketplace, which is feeding the type 2 diabetes marketplace. And, therefore, the number of assets where the mechanisms such as what we have, which is a different data position, are few and far between for many players who have assets in this marketplace that will lose exclusivity in the near term. And therefore, have every confidence that there are few opportunities, such as the one that exists for LX4211, that we will consummate a partnership.

Now, we have made some tweaks to how we are approaching the situation. But nonetheless, I believe those tweaks will yield value for the Company eventually in the future. That's my belief.

As for your first part of your question about the communication with the FDA, there's two pieces to that question. One is, what is the FDA's preference. The FDA's preference is our preference. The preference is to develop this compound in both type 1 and type 2 so you have the proper population exposure across the entire diabetes scope.

With that being the case, that does not preclude us from moving forward with a type 1 program for regulatory filing. That is my opinion. And I'll turn it over to Pablo if he wants to add something to that.

Yes, there were a couple of specifics that you mentioned in your question. One is do we have confirmation that a type 1 standalone program is possible. We believe that our meetings with the FDA and other agencies were sufficient to ensure that, from a regulatory standpoint, the type 1 standalone program achieves.

Also, you asked about whether or not for of that type 1 standalone program, the cardiovascular outcome study, is required. We do not believe that, at this time, a cardiovascular outcome study is required for approval of LX4211 exclusively in type 1 diabetes.

And just a follow-up on that last point, when will we get -- or when do you have that next discussion around that potential CV requirement? Thanks.

We are not currently planning a specific meeting on cardiovascular outcome studies in this area. We shared with the agency and others our plans for type 2 program, so we do feel that we have a general understanding of what is required for type 2 diabetes. We did mention in our program that if we do a standalone in addition to (technical difficulties) little studies, we will do a third study to enhance our safety exposure. So the opportunity for other regulatory actions will be at the time that we finalize those plans.

Great. Thank you.

Alan Carr, Needham & Co.

Wondering if you can tell us a bit more about scope and/or size and cost of the two if you go the standalone route in type 1 diabetes and give a sense, the scale of the cost of that.

And then the second one is for Lonnel. Since you've come on board, I'm kind of curious about what your thoughts are with respect to strategy and operations at Lexicon and what might change.

I'll punt the first part of your question over to Jeff, and then I'll take the second question after his answer.

So, Alan, we are continuing to work on developing the plan and will be able to provide a little bit more color once we have those plans more fully developed.

Obviously, a standalone program will end up being more expensive than a -- or would end up being more expensive than a program that's part of an integrated program as far as the type 1 diabetes studies are concerned.

In general, just from an order of magnitude perspective, the expectation would be that the cost of that Phase 3 program in type 1 diabetes -- if it's a standalone program, would be more than $100 million. And it would end up being less than that threshold if we are able to do it as part of an integrated program.

Now, so let me take the second part of your question. First of all, it's been a remarkable four weeks. I feel like I've been here forever, but it's been quite exciting to take a look at the clinical program and the science behind it. I am absolutely impressed by the rigor and the effort that's been put into advancing these programs.

I think what's needed now is, to your point, is we have to make a strategic decision and understand that development work waits for no one. And therefore, we have to continue to advance these programs with what's in our control.

So for telotristat, I'm very pleased to see in a population that is a -- for a rare disease, we have been able to get 70% of the way thus far. And based on what we know now, we think we can complete the enrollment of this program by early 2015. I think that's quite impressive relative to execution.

I think what we need to continue to do is continue to become operationally savvy in our overall clinical development efforts, and we are making those progresses every day.

And then last but not least, we have to start beginning to bring on the commercial capabilities that will allow Lexicon to participate in its own assets in the marketplace.

So those are the things that we're working on right now. But I will simply tell you that science is good, the development is progressing, and I think we have every way right to be bullish at this moment.

Okay. Thanks for taking my questions.

(Operator Instructions) Phil Nadeau, Cowen and Company.

I'm still a little uncertain what it is the FDA would object to in a type 1 diabetes pivotal program on your own, as you mentioned. And you'd said in the response to a previous question that you would prefer it, and it sounds like they prefer it, so that they get exposure of the drug in both type 1 and type 2 diabetics.

But what is specifically their concern? Is it that if 4211 is approved as a type 1 product it would maybe be used off label on type 2 patients, and therefore there's some risk? So what is their concern and what can you do to make the FDA feel better about a type 1 program on its own?

I think that's an excellent question that I don't mind answering myself. You're spot on. That's the question. It's not a question of whether the drug will work in type 1 versus type 2. If you do a full-blown diabetes program, then the characterization of drug will go across both. However, my feeling and sense is that's less of a review question and more of a labeling question relative to the indication that we are seeking for type 1 diabetes.

When we -- because I do believe ultimately we end up in a full development program across both type 1 and type 2, and we will achieve what the FDA ultimately wants. But in the absence of having that this moment, if we proceed alone with type 1, I think there is a clear regulatory pathway for us to do so.

And would it be possible to -- you mentioned doing a third Phase 2 study to increase the size of the database. What a potential strategy being do -- would it be to do a safety trial in which you have both type 1 and type 2 diabetic patients? So not maybe something where you look at HbA1c but something where you simply look at hypoglycemia rates to give you some comfort that it's -- the agent is actually safe in type 2 diabetics, if it's used there.

I think that's an interesting perspective, and I'll turn it over to Pablo.

I think you are correct that we're thinking that a third trial will really be for safety purposes to expand the size of our safety database. But in terms of the specifics of who is enrolled and the end points, that's something that we'll be determining in the weeks ahead.

Okay, great. Thanks for taking my question.

You bet.

(Operator Instructions) At this time, there are no additional questions in the queue.

Well, with that, I'd like to again thank all those who chose to join and also want to thank you for your continued interest in Lexicon. Thank you very much.

Thank you, this concludes today's conference call. You may now disconnect.