Lexicon Pharmaceuticals Inc (LXRX) 2014 Q3 法說會逐字稿

Good afternoon, my name is Alicia and I will be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Third Quarter 2014 Earnings Call. (Operator instructions) Thank you. Chas Schultz, Senior Director of Finance and Communications, sir, you may begin your conference.

Thank you, Alicia. Good afternoon, and welcome to the Lexicon Pharmaceuticals Third Quarter 2014 Conference Call. I'm 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 Northcott, Lexicon's Vice President of Marketing and Commercial Strategy, and operations.

We expect that you have seen a copy of our earnings press release that was distributed this afternoon. 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 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 clinical development of telotristat etiprate, or LX1032, and sotagliflozin, or LX4211. 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 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 related to the timing and results of clinical trials and pre-clinical studies of our drug candidates, our dependence upon strategic alliances and ability to enter into additional collaboration and license agreements, the success and productivity of our drug discovery efforts, our ability to obtain patent protection for our discoveries, 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 Mr. Coats.

Thank you Chas, and thank you to all those who have joined this call today. During Lexicon's second quarter earnings call, I made clear that we will work diligently to unlock value of Lexicon's assets. Today, we will provide you with our plans for doing so on both of our late-stage clinical programs. We will start with telotristat etiprate, for carcinoid syndrome. We will cover our Phase 3 progress. We will also provide insights into our commercial planning and our current best thinking on peak sales of this asset in the United States. Lastly, we will reiterate the terms of the deal with Ipsen for territories outside of North America and Japan.

Next, we will share with you the opportunity and strategy for our Type I program for sotagliflozin, also known as LX4211, and our intention to move into Phase 3 with this program.

We will give you a recap of our third quarter 2014 earnings, and we will make time available to take your questions.

Now, let's move into the heart of the presentation. I have asked our Head of Commercial Strategy and Operations, John Northcott, to walk you through the telotristat etiprate opportunity and strategy as this program is moving toward near-term commercialization in the United States. John, the floor is yours.

Great, thank you, Lonnel. This is John Northcott speaking. I'll take the next few minutes to provide an overview of the commercial opportunity that exists for telotristat etiprate, Lexicon's first commercial candidate which is in Phase 3 development for the treatment of carcinoid syndrome.

I'll focus my section on the following three topics, first being where telotristat etiprate fits in the market. Secondly I'll provide a description of the unmet medical need that telotristat etiprate is addressing. Thirdly, I'll speak about the size of the opportunity in terms of patients and sales as Lonnel indicated.

Firstly, a little bit about the condition. Carcinoid syndrome is a condition that occurs in people with a neuroendocrine tumor that metastasizes to a liver. When this metastasis occurs, it can often result in the overproduction of serotonin. This overproduction of serotonin is believed to be the trigger of carcinoid syndrome.

Carcinoid syndrome results in devastating consequences such as excessive life-altering diarrhea. Some patients can experience more than ten episodes per day. This has a significant impact on people's lives, as you can imagine. This can confine a person to their home because they need to be in very, very close proximity to a bathroom. In addition, people suffer from flushing which results in redness in the face, sweating, and tightening of the chest, and in some cases it can lead to carcinoid heart disease which can be fatal.

Telotristat etiprate is a novel oral agent designed to specifically reduce serotonin, which as previously stated is the predominant driver of carcinoid syndrome. Lastly on this slide, it is important to note that telotristat etiprate has received Fast Track and Orphan designation from the FDA, and Orphan designation from the EMA.

We'll now transition to the next slide, where I'd like to take a moment to clearly describe where we believe telotristat etiprate can fit into carcinoid syndrome market, and how big that opportunity is. As you can see, the top box, there are approximately 14,000 patients in the US with carcinoid syndrome. Almost all of them are treated with a somatostatin analog therapy, either octreotide or lanreotide. These therapies are the standard of care for newly-diagnosed carcinoid syndrome. They are given as chronic therapy for the duration of a patient's life.

However, market research that we've conducted with medical oncologists who treat these patients indicate that approximately 45% of all patients in the US with carcinoid syndrome on a somatostatin analog therapy are not adequately controlled. This is the population that we are focusing on with our clinical development efforts, and the population that we intend to seek a label for.

Being not adequately controlled means the patients can't get through a full month without having breakthrough symptoms while on the somatostatin analog therapy, and they need additional medical intervention to help gain control of the carcinoid syndrome. This is where few options are available and really no options approved.

Patients who become non-adequately controlled on SSA therapy suffer a major impact on their routine daily activities that most of us take for granted. This condition is extremely limiting for patients, because they must stay near their home, near a bathroom, as they are not able to control or time the outbreaks of their diarrhea.

The calculations from our commercial opportunity assessment we conducted with IMS Consulting Healthcare indicates that there are approximately 6,000 patients in the US today with not-adequately-controlled carcinoid syndrome. Given that our clinical development program is in the non-adequately-controlled population, we have the potential to quickly address a sizeable population that is looking for new and effective approved therapies that exist in the US population today.

Our estimated peak sales, as you can see in the box on the bottom right, exceeds $350 million in the US market. Again, exceeds $350 million in the US market. This takes into account a couple of variables -- one, the treatable patient population with carcinoid syndrome that is not adequately controlled, and we leverage the reference price of the existing SSA therapies.

Now we'll go to the next slide, this is just to take a moment to share with you a little bit about the timing by which patients become not adequately controlled. Our commercial opportunity assessment indicates that about 79% of patients with carcinoid syndrome eventually become not adequately controlled on first line somatostatin analog therapy, and this largely occurs within the first 36 months on treatment with an SSA.

The primary treatment options today for people who become not adequately controlled include getting super-therapeutic doses of long-acting SSA therapy beyond the label dose, which involves the addition of a painful injection in the absence of kind of Phase 3 clinical evidence, or the use of rescue therapy of short-acting SSA therapy that can involve multiple daily injections. Really, this is why we are excited about telotristat etiprate's opportunity for the carcinoid syndrome market, for people that are not adequately controlled. Telotristat etiprate has the potential to offer patients the oral therapy that is supported by substantial Phase 3 clinical evidence.

So with that, I will hand it over to Dr. Pablo Lapuerta, Lexicon's Chief Medical Officer, who will share with you the data we've observed in Phase 2 to date of telotristat etiprate, and also share with you where we are with our Phase 3 program.

Thank you, John. The Phase 2 results support our vision for the product profile of telotristat etiprate. The population that was treated was a population that had carcinoid syndrome, not adequately controlled with existing therapies. We studied about 15 patients and what we have here is a ranking of the reductions in bowel movement frequency [they follow] treatment. You see the most profound reduction in bowel movement frequency on the left, and then lesser reductions in bowel movement frequency on the right. So, the patients are ranked in terms of best to worst response.

These patients had an average of about 6 bowel movements per day coming into the study, and within 12 weeks on telotristat etiprate the majority of them had reductions of greater than 30% in bowel movement frequency. These reductions were associated with reductions in serotonin production and reports of adequate relief by the majority of patients. Next slide?

With that vision, we developed our Phase 3 program and the Phase 3 program is progressing well towards completion. We have one pivotal study, TELESTAR, and that is 80% enrolled. We are on track to complete enrollment either late in 2014 or early in 2015. TELESTAR is a Phase 3 randomized, placebo-controlled study. We are seeking approximately 120 to 130 patients with carcinoid syndrome treated with somatostatin analogs and inadequately controlled.

We are treating them in a double blind fashion for 12 weeks, after which they enter an open label extension period of 36 weeks. The primary endpoint will reflect bowel movement frequency. It will be the change from baseline in bowel movements over the 12-week double-blind portion. Secondary endpoints we look at are biomarker of serotonin production, which is urinary 5-HIAA, flushing episodes, abdominal pain and other measures.

With this I turn the call back to John.

Great, thank you, Pablo. Just a couple words on where we are with launch readiness. Telotristat etiprate in the carcinoid syndrome market, significant progress has been made to ensure the successful launch of telotristat etiprate in the carcinoid syndrome market. We strongly believe the carcinoid syndrome market is an excellent entry point for Lexicon in our pursuit of becoming a commercial biopharmaceutical company. Because the market is well-defined, the unmet need is significant, there is no direct competition, and the treating physician universe is relatively small. You could easily target it through leveraging IMS data of physicians that are currently prescribing SSA therapy for carcinoid syndrome.

And with this, we anticipate a relatively small commercial infrastructure will be required to support telotristat etiprate's launch and the ongoing commercialization effort.

Which will take me to my last slide regarding telotristat etiprate. I'd like to cover the recent announcement that we put out a couple of weeks ago with respect to the new collaboration that we have with Ipsen for the commercialization of telotristat etiprate in the ex-North America and ex-Japan markets. We are very pleased to be in collaboration with Ipsen. Ipsen is a leader for the treatment of carcinoid syndrome and neuroendocrine tumors, with its SSA drug Somatuline Depot. We believe strongly that Ipsen will really help accelerate the launch success of telotristat etiprate in Europe and other countries, given their established presence and record of success.

A few other financial details worth noting. Lexicon retains all rights in the US, Canada and Japan markets for telotristat etiprate. Lexicon will potentially receive $145 million in up front and milestone payments during the course of collaboration, plus future royalties. The up-front payment is $23 million, and additional payments are contingent upon the treatment of clinical, regulatory and commercial milestones. In addition, Lexicon will receive royalties on net sales of telotristat etiprate in the license territory.

So, I'll now hand it over to Brian Zambrowicz, Lexicon's Chief Scientific Officer, to discuss sotagliflozin, previously referred to as LX4211, and going to describe our Phase 2 data to date for Type 1 diabetes and where we're headed with our Phase 3 program for Type 1 diabetes.

Thank you, John. Sotagliflozin is our first-in-class [new] SGLT1 and 2 inhibitor for diabetes. Sotagliflozin inhibits SGLT2 in the kidney, resulting in a release of glucose from the urine. What makes sotagliflozin unique is it's in addition to that SGLT1 transport in the gastrointestinal tract.

SGLT1 is a transporter primarily responsible for uptake of glucose after a meal, so an addition of this target results in a decreased absorption of glucose, decreased blood glucose excursions after a meal, and elevated GLP-1 release. We hypothesize that this SGLT1 in addition would be particularly beneficial for Type 1 diabetics by improving glycemic control and reducing real-time insulin needs. Next slide?

Type 1 diabetes is an area of very high unmet medical need, with no important new treatment options since the discovery of insulin nearly a century ago now. The need is pretty apparent as about three quarters of Type 1 diabetes patients have A1C levels above the ADA guideline of 7%, showing that they do not have good glycemic control.

Part of the reason for this is their fear of hypoglycemia, which can occur by over-shooting on insulin dose. This fear is understandable since several longitudinal studies indicate 4% to 10% of patients with Type 1 diabetes will die of hypoglycemia.

Insulin is also associated with weight gain, and this has become an important issue, as above 25% of Type 1 diabetes patients over the age of 25 are obese, and about half have metabolic syndrome.

Finally, there's a great deal of variability in blood glucose levels throughout the day, and the challenge of managing these blood glucose levels has a negative impact on the quality of life for these patients. Next slide.

Sotagliflozin has been studied extensively, now having been administered to over 600 people in 14 clinical trials. These include studies on healthy subjects, and patients with Type 1 and 2 diabetes. We have continued to do studies to differentiate sotagliflozin based on its dual SGLT1 and 2 inhibition, and some of the key studies have been our Phase 2 and Phase 2-b studies, in patients with Type 2 diabetes, our study in patients with Type 2 diabetes and moderate to severe renal impairment, and our most recent study in patients with Type 1 diabetes.

We've completed all studies required for the initiation of Phase 3. Next slide.

We have been focusing our attention and resources on the Type 1 diabetes opportunity, based on our very encouraging Phase 2 data. We studied sotagliflozin in a double-blind, placebo-controlled study in 33 patients with Type 1 diabetes, on either continuous subcutaneous insulin infusion pumps or multiple-dose injections. We used the 400mg dose once a day and treated for 28 days. Can we go to the next slide?

As we had expected, given the effect of SGLT1 inhibition on glucose excursions after a meal, sotagliflozin treatment did result in a reduction in bolus insulin dose of 32%, relative to a 6.4% decrease on placebo. This is a primary endpoint of the study.

If you go to the next slide, despite that reduced insulin requirement, patients treated with sotagliflozin had improved glycemic control based on multiple measures. Here, we show the 0.55% reduction in hemoglobin A1C for patients on sotagliflozin relative to a 0.06% reduction for patients on placebo. This is a robust A1C effect with only four weeks of treatment.

We go to the next slide, the improved glycemic control was also apparent when we looked at the results from the continuous glucose monitoring, which is shown in the pie charts on this slide. On the top is the placebo data at baseline, with treatment. On the bottom is the sotagliflozin data, at baseline and on treatment.

Relative to placebo, there was a significant increase in the time spent in the target range of 70mg to 180mg per deciliter as shown in green. On sotagliflozin it increased from 56.4% of the time at baseline, to 68.2% of the time on treatment, whereas this didn't change on placebo meaning 55.9% of baseline and 54% on treatment.

We also saw a significant decrease in the time spent in hyperglycemia, as shown in the gold. Time spent greater than 180mg per deciliter, on sotagliflozin it went from 35.7% of the time at baseline to 25% with treatment, whereas the time in the hyperglycemic range increased from 35.6% to 40.2% on placebo.

Very importantly, these improvements in glycemic control occurred in the absence of an increase in risk of hypoglycemia, as shown in the red, where we did not see any increase in hypoglycemia with sotagliflozin treatment.

If you go to the next slide, sotagliflozin also produced a significant reduction in body weight of 1.72kg relative to the gain of a half a kilogram on placebo. Next slide.

Our next planned study is being done in collaboration with JDRF. It will be done in a patient population with a high unmet medical need. It will be done with patients less than 30 years of age with Type 1 diabetes and an A1C of greater than 9.

This Phase 2, double-blind, placebo-controlled study will enroll up to 84 patients. The treatment period is 12 weeks. We will be once again exploring our 400mg once-daily dose, with a primary endpoint of a reduction in hemoglobin A1C at 12 weeks and secondary endpoint looking at glucose variability as well as insulin requirements. Next slide?

We continue to prepare sotagliflozin for Phase 3 in Type 1 diabetes. We have completed our end-of-Phase 2 meeting with FDA and have had scientific advice meetings with various European national authorities. Although they prefer an integrated Type 1 and 2 program, a Type 1 standalone program is possible and we've been preparing to launch that Phase 3 program in Type 1 diabetes for early 2015. We will require two pivotal studies to demonstrate efficacy. The primary objective in those studies is the reduction in hemoglobin A1C versus placebo on an optimized insulin treatment regimen, importantly with no increase in severe hypoglycemia or DKA.

Additional objectives will include reduced variability in blood glucose levels, lower insulin needs, weight loss, and patient reported outcome.

Assuming a standalone program, a third Phase 3 study will be required to meet the safety requirements. With that, I'll turn the call back over to John Northcott to cover the commercial opportunity for sotagliflozin.

Great, thank you, Brian. So, as Brian indicated in his opening slides, approximately 75% of all adult Type 1 diabetes patients have an elevated A1C and they're not achieving the target set by the American Diabetes Association. As many of us know having an elevated A1C can have serious long-term consequences, such as heart disease, kidney disease, and blindness. Sotagliflozin's target product profile is designed to address the key patient barriers and challenges that exist that prevent people from achieving the American Diabetes Association A1C target.

I'd like to spend a few moments to describe this slide, and describe some of the reasons why people are not achieving their A1C targets. So, focusing first under the title of 1A boxes, for half the patients our market research indicates the reason why they are not achieving their A1C targets is because they have a low level of engagement in managing their disease, and the reasons vary.

For some patients, it's because they're not well-informed, they do not appreciate the long-term consequences of an elevated A1C. For others, they are very well-informed, and it is a conscious decision for various reasons as to why they're consciously choosing not to achieve their A1C targets.

Some of the reasons are, one, they don't want to gain weight. This is often more common in younger females, as increasing the insulin can cause weight gain. Another group considers it to be too much work, and they do not want to be bothered testing and monitoring their glucose levels or taking frequent injections. And lastly, some patients have had a bad, severe hypoglycemic event from taking too much insulin, and now have decided to not be aggressive with their A1C management.

Moving over to 1B, which is people not achieving their A1C target but have high engagement. For this group, this is a completely different story. These patients work very, very hard to achieve their A1C targets, however, despite their best effort, they follow the appropriate diets, active glucose monitoring, and following their prescribed insulin doses, these patients are not successful. This is very difficult, as you can imagine, to be very compliant but still not achieving your goals. They recognize that more is needed beyond insulin to allow them to achieve their goals.

Sotagliflozin is designed to help more patients get to goal more consistently, easier, and reduce the fear of severe hypoglycemia. In addition, we believe that sotagliflozin's target product profile even has the potential to benefit patients currently achieving their A1C targets by reducing the burden of managing their disease, making this achievable more consistently, and reduce the fear of severe hypoglycemia.

We'll now go to the next slide. You're looking at the results from a commercial opportunity assessment that we conducted in the US with endocrinologists and general practitioners in the market of Type 1 diabetes. As you can see, when we shared with them our target product profile the response was very favorable. In fact, they suggested the projected adoption of sotagliflozin in patients, adult patients with Type 1 diabetes, was more than 50%. I think this speaks to the fact that physicians truly understand that insulin alone is not adequate in managing this challenging disease, and novel approaches like the addition of sotagliflozin are welcomed and needed and can play an important role of the future standard of care for Type 1 diabetes.

On the next slide, in addition to feedback we received from physicians, we also sought feedback from payers. This slide summarizes the feedback from ten large health plans in the United States that shared with us their view of some of the high unmet medical needs that they observed in Type 1 diabetes. Payers view achieving optimal A1C targets as a major issue, and something that is not currently being addressed by insulin alone.

In addition, they believe that weight loss and being able to reduce severe hypoglycemia [had] major gaps in the current standard of care. All three of these areas we believe can be addressed with sotagliflozin's target product profile, in our areas of key focus in our development plan for sotagliflozin.

Through interviewing 50 physicians and 10 payers, our US commercial opportunity assessment for the Type 1 diabetes market indicates that sotagliflozin's peak sales opportunity can exceed $1 billion because it addresses the key areas of unmet need in the Type 1 diabetes market, which is helping more patients achieve the American Diabetes Association A1C target without increasing their risk of severe hypoglycemia.

Take it to the last slide. Lastly, but importantly, through our assessments of the US Type 1 diabetes market, we believe that the Type 1 diabetes market is something that Lexicon can commercialize in alone, without a partner, because the opportunity is significant and the commercial footprint required to call on endocrinologists and a very select number of primary care physicians is quite reasonable, and it can be done with a modest investment relative to the sales potential.

So, in conclusion, both the carcinoid syndrome and Type 1 diabetes markets are outstanding opportunities for Lexicon. We look forward to completing our clinical development programs so that we can bring new and meaningful products to patients and drive significant value. I will now hand it over to Jeff Wade, Lexicon's Chief Financial Officer, to review our Q3 2014 financial results and our outlook moving forward.

Thank you, John. I will provide a brief financial update, and then wrap up. As indicated in our press release today, we had revenues for the 2014 third quarter of $0.4 million, an increase of $0.2 million in the prior year period. The increase was primarily due to increased technology license fees. Our revenues of $1.4 million for the nine months ended September 30, 2014 reflected a 69% increase from $0.8 million for the prior year period.

Our research and development expenses for the 2014 third quarter decreased 5% to $24.1 million from $25.4 million in the prior year period. The decrease was primarily attributable to decreasing some personnel costs as a result of the restructuring announced in January of 2014, and decreases in lab supply costs as we focus our resources on late-stage drug development. These reductions were partially offset by increases in external clinical and preclinical research development costs.

For the nine months ended September 30, 2014, our R&D expenses decreased to $69.2 million from $69.4 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 until those payments are expected to be made, are recorded on our consolidated statements of operations. The fair value of Symphony Icon purchase liability decreased by $1.1 million in the third quarter and increased by $0.5 million in the nine months ended September 30, 2014.

Our general and administrative expenses for the 2014 third quarter were $4.6 million, a slight decrease from $4.7 million in the prior year period. Our G&A expenses of $15.4 million for the nine months ended September 30, 2014, reflected the 13% increase from $13.7 million for the prior year period.

In September of 2014, we determined our buildings and land should be classified as assets held for sale. We recognize a non-cash impairment loss on our buildings of $13.1 million in the third quarter, as a result of writing down the buildings to the estimated net selling price. We are working towards the sale of these facilities in the near term, which will allow us to right-size our facilities [and rents] to fit our current, more-focused operations, and to reduce our associated operating expense by about $5 million annually from where we are today.

Our net loss for the 2014 third quarter was $40.5 million, or $0.08 per share, compared to the net loss of $31.7 million, or $0.06 per share, in the prior year period. Our net loss for the nine months ended September 30, 2014 was $97.4 million, or $0.19 per share, compared to a net loss of $86.7 million or $0.17 per share in the corresponding period of 2013.

For the three and nine months ended September 30, 2014, our net loss included non-cash stock-based compensation expense of $1.5 million and $5.6 million, respectively. For the three and nine months ended September 30, 2013, net loss included $1.8 million and $5.7 million, respectively.

Finally, as of September 30, 2014, we had $57.9 million in cash and investments as compared to $79.0 million as of June 30, 2014, and $129.1 million as of December [30], 2013. Subsequent to the end of the quarter, we signed our agreement with Ipsen for commercialization of telotristat etiprate in Europe, and other markets outside of North America and Japan, under which we will receive an up-front payment of $23 million so this will affect cash going forward. We share equally with Symphony up to a cap in partnership proceeds relating to telotristat etiprate so the net amount available to us from that up-front payment will reflect payments that we make to Symphony under that agreement -- payments that we can make in cash, or a mix of cash and stock, at our option.

Now, let's turn to our forward-looking financial guidance for 2014. We expect contractual revenues from existing agreements in 2014 of around $1.5 million without accounting for revenues related to the agreement with Ipsen. We will also record revenue in an amount to be determined relating to the $23 million up-front payment to be received from Ipsen.

We expect that our operating expense in 2014 will be in the range of $120 million to $125 million. That is up from our previous guidance of $105 million to $110 million, primarily due to the $13.1 million non-cash impairment loss on buildings recorded in the third quarter.

Non-cash expenses are expected to be approximately $24 million [at this] total, including the $13.1 million impairment loss on buildings, $7 million in stock-based compensation, $2 million in increase in fair value in Symphony Icon purchase liability, and $2 million in depreciation and amortization.

Taking into account the cash proceedings under existing contractual relationships, including the $23 million up-front payment under the Ipsen agreement, we expect our 2014 net cash used in operations to be in the range of $64 million to $69 million. As I mentioned, we will also be making a payment to Symphony relating to the upfront payment of the Ipsen agreement, with any cash portion of that payment being recorded in investing activities unless not in the net cash used in operations estimate.

I should note that these operating expense and net cash use expectations reflect cost of preparations we are making for Phase 3 development of sotagliflozin as well as certain supportive non-clinical and clinical activities, but do not reflect the full cost of Phase 3 clinical trials. With the compelling results for sotagliflozin and Type 1 diabetes, we are moving forward expeditiously with efforts to gear up for Phase 3 development in that indication, with preparations to launch the Phase 3 program in early 2015.

So, to sum up, moving to slide 27, we have two late-stage programs in our -- two programs in our late-stage development. Telotristat etiprate for carcinoid syndrome, for which our pivotal Phase 3 study TELESTAR is about 80% enrolled and completion of enrollment is expected in late 2014 or early 2015, and commercial preparations are under way for that program. We also have sotagliflozin for diabetes, with launch of the Phase 3 for Type 1 diabetes planned for early 2015.

Moving to slide 28, the opportunity for Lexicon is very promising, and we believe that this is promising in light of the full ownership that we have with US or worldwide commercial rights for both of our drug candidates. We have a strategically-valuable commercialization collaboration with Ipsen for telotristat etiprate in Europe and other markets outside of the US, Canada and Japan, and partnership potential for sotagliflozin in Type 1 diabetes and in Type 2 diabetes. Both of these drug candidates offer an opportunity for major advance in patient care and areas of high unmet need where there are few treatment options and not that much recent pharmaceutical innovation.

There is a substantial market opportunity for both of these drug candidates with US peak sales opportunity of about $350 million or more for telotristat etiprate in carcinoid syndrome, and over $1 billion for sotagliflozin in Type 1 diabetes. Each one of these drug candidates has the opportunity to drive significant corporate value for Lexicon.

I will now turn the call back to Lonnel.

Well thank you, Jeff. As we have now gone over both of our programs, our strategic intent to advance our first program telotristat etiprate toward market, and with sotagliflozin, our opportunity to move into Phase 3 quite rapidly, we think we have an opportunity to significantly [uncork] the value of our assets. With that being said, I'd like to thank you for taking the time to be on this call with us today, and open the floor up for additional questions.

(Operator instructions) Your first question comes from Phil Nadeau.

Good afternoon, thanks for taking my questions. My first is on telotristat. I think a couple times in the prepared remarks you mentioned that the Phase 3 trial is 80% enrolled, with that enrollment complete by the end of the year. [Too bad] we only have about seven weeks left in the year, that seems like a very rapid acceleration in enrollment over the prior patient [arc] to finish by the end of the year. Is that possible, or should we be really thinking about some time in Q1 enrollment completing?

This is Lonnel, you know, we have made significant progress over the last quarter itself with randomization, and I think our randomization process looks pretty good for the rest of the year, but we're not going to give up on that objective until we get to the end. But to your point, it is very likely, there's a great chance, that we will end up in January before we complete the program. But, we feel very good right now with the current level of randomization that we could get it done by the end of the year.

Okay. And what's your data disclosure strategy? Will we see data shortly after the 12-week blinded phase, or -- I guess just more generally, when should we expect to see data?

Our goal is to have the top line data available by the summer, and at that time we will definitely make that available to the public.

Okay, then my last question's on 4211. You mentioned in the Phase 3 trial the FDA wants to see better glycemic control with no increase in hypoglycemia, but it just seems mathematically, if you lower A1C in some patients you're probably going to see at least a small increase in hypoglycemia. Do you have a quantitative sense for what the FDA's tolerance is around hypoglycemia, like what percentage point increase in patients who have it will be acceptable for them, and above what increase do they really begin to get agitated?

Phil, that's a great question. Brian, let me turn that over to you.

Sure. We actually believe because of the mechanism of action of sotagliflozin to insulin-independent mechanisms of action, that you can improve glycemic control with no increased risk of hypoglycemia, and that was borne out in our Type 1 study to date. If you think of the two insulin-independent mechanisms of action, the sotagliflozin plus reducing real-time insulin, I think we can expect Phase 3 data that is consistent with that. Likewise, we've really not seen a hypoglycemia signal in Type 2 diabetes. It's just has not been an issue with this drug and its mechanisms of action.

That's very helpful, thanks for taking my questions.

Your next question comes from the line of Alan Carr.

Hi, thanks for taking my questions. A couple of them, one of them I'm going to come back to sotagliflozin, around the Phase 3 plans there. Can you give us a little better sense of the size of the three different trials here? You have the safety versus the two efficacy ones, and maybe on timing to finish? And then, the other one you added a few personnel here today that you mentioned in a separate press release. Can you talk about where things stand in terms of the infrastructure, and maybe can you give us a sense in 2015 how much more we can expect that to be built upon, and any sense in spending around that, too? Thanks.

Alan, those are two very good questions. Let me first pitch the question over to Brian relative to study design, then I'll come back and answer the question relative to personnel.

Sure. We know that the size of the two studies to show efficacy, the proof of concept studies for Type 1 diabetes, since we're going to be using two doses of sotagliflozin and placebo with about 250 per arm, we're up to 750 patient studies, and then the additional study to get our safety data would be -- I'm going to let maybe Pablo speak to the size of that one?

Yes, I believe it would be an additional 1,500. That's -- we're targeting to get safety exposure, sufficient for our filing, for Type 1 diabetes.

And the time -- how long of an exposure to drug for that safety study?

I believe that study will provide 12 months of safety exposure. In the package there will be some patients with 18 months of safety exposure.

Okay, thanks.

But to your question, Alan, to your point, it's 12 months. So, I think that's the design. Relative to the personnel, as I spoke to this the last time, there are two areas that I thought we could continue to evolve more greatly here at Lexicon. One was to strengthen our overall clinical operations, although I think the team has done a fairly good job of really advancing telotristat etiprate in the clinic, but as we move into Phase 3 and a much bigger population, clearly we'll need to get more efficiencies of how we run our operations, and get even better at being more cost-effective at how we do it.

So, the objective here is to synergize a lot of our operations so that we can reduce our costs and be much more efficient in how we run our Phase 3 programs.

As for on the commercial side, as John has laid out to you, if we have top-line data next year we are T minus less than two years from now to being in market. Therefore, we have to start the process of bringing in commercial talent to ready us for that opportunity. So, with Dr. Kiernan Seth joining us, I think he will be a significant addition to us achieving that objective, and Dr. Kenneth Kassler-Taub will be a great addition to us in helping us energize our clinical operations as we move into Phase 3 with a bigger program.

Great, thanks very much.

You bet.

And your next question comes from Colin Bristow.

Hi, this is Ellie in for Colin. Thanks for taking the questions. Just partnering LX4211, can you just give us some updates on the progress there?

Well, let me -- when I, as I stated from the last meeting, my objective from the time I came here is to start pivoting the Company toward a program that we can do on our own. The partnering discussions have ebbed and flowed, and therefore they were taking too much control of our destiny. So, what we've talked about here today is, how do we maintain our own control, and the best way to do that is to advance our own development and stay in control of our own development, and move this program into Phase 3 for Type 1 diabetes.

We know that we can do that by ourselves, we know we can commercialize by ourselves, we also know very clearly that in the Type 1 space there are fewer competitive new innovations in that space. It's a continual unmet medical need. There's a lower cost of clinical development and commercialization, and therefore we think with the opportunity to have a $1 billion-plus drug in peak sales, we think if there is going to be a partnership that partnership must add value beyond that opportunity.

So, the conversations have ebbed and flowed, that's less of my focus. More of my focus now, how to create value today, using the assets and resources of Lexicon.

Your next question comes from Steven Willey.

Yes, thanks for taking the question. I guess now that you've been able to kind of narrow in on some of these Phase 3 trial requirements, do you have a better estimation of what the overall cost of the Phase 3 Type 1 program is going to be?

I'll turn that one over to Jeff.

So Steven, the cost, I think as we've outlined previously, the cost of the clinical studies for the pivotal studies, the two pivotal studies, would be less than $100 million. It'll end up costing us more than $100 million if we end up pursuing the standalone approach with the additional safety studies. We're continuing to work to refine that, but that's sort of a ball park estimate of the costs.

So, less than 100 and that includes the safety study? Or does not include the safety study? I'm sorry.

If we include the safety study it will be more than $100 million for the clinical studies costs.

Okay, and I guess in seeking advice from both EMA and FDA, are the two agencies relatively consistent with respect to the preference for a more integrated development program? I know FDA has been obviously quite onerous in terms of CV requirements in the metabolic space.

Well, I think, Steven, to your question as we stated before, it is the preference of both agencies that they would like to see a fully-integrated program between Type 1 and Type 2. But that does not foreclose us to pursuing Type 1 as a standalone by itself. Relative to the CVOT requirement, as you know the CVOT requirement is specific to Type 2 patient population, and the only way we would do that, because simply, Lexicon cannot do that alone -- the only way we'd be able to do that is to go into Type 2 in a partnership arrangement. However, we feel very confident with the advice and the discussions we've had, that we have a clear pathway forward for Type 1 and we can move there alone, on a standalone basis and create value.

Understood, and with respect to the up-front Ipsen payment then, I'm presuming that I guess based on the arrangement with Symphony Icon that half of that goes to Symphony, and then I guess I think Jeff you had mentioned the remaining amount of the contingency payments can be made at some point on both a cash and/or stock basis?

Yes, half of that we'll end up having to pay to Symphony. It can be -- that can be paid either in cash or in cash and stock at our option, and that applies to the remaining contingency payments as well. And then at some point, we'll hit the cap, which we think may happen from pre-commercialization payments under this arrangement, so we are on our way to owning the full rights again.

Okay, and then just lastly, I know that there's been some development/excitement around SIP1 as a target, and I know that you guys had a SIP1 asset that was in development and then once you kind of went back and ran a bit of a exploratory dosing study, that seemed to be suggestive of some kind of efficacy, and I don't think we've really heard much since. I know you guys are obviously focused on telotristat and 4211, but I'm just wondering if there's been any kind of interest on the inbound side, and whether or not you think that asset or maybe any of the other earlier-stage assets (technical difficulty) that you guys have locked away in the freezer somewhere would be of any interest to any parties, thanks.

Steven, it might be -- this is Lonnel -- it might be, but to be frank with you, in the three-and-a-half months I've been here I've not focused on that very much at all. And the reason for it is, these late-stage assets, we have to figure out a best way to uncork value with them, and how do we advance them as quickly as we can and make sure we have the resources to be able to achieve the most significant value that's closest in front of us, and start to create opportunities to drive revenue.

But, at some point, to your point, we will look back and we will try to figure out the value of all of the assets that we have in our Phase 2 that are currently on hold, but I think that moment is several months ahead of us and not at this moment.

Okay, thanks.

Next question comes from Kevin Kedra.

Hi, I want to follow up on the question about partnership. Just wondering if you guys feel like you have enough data with the package that you have now, that you could be actively engaged in partnership discussions on Type 2? Or, do you feel that there's additional data that needed to be generated there?

And then secondly, on telotristat, just wondering if you've had any sort of preliminary discussions with payers, particularly around that sort of price point that you kind of implied in your peak sales of around $4,900 or so? I just want to know if you had any discussions on that point?

Let me handle the partnership question, and then I'll pitch it over to our Head of Commercial Strategy, John Northcott. So, I think LX4211 has been well-characterized to date for Type 2, and I think the best way for us to eventually, if we decide to do a full blown program, is to advance the Type 1 program into Phase 3, and make headway there. I don't believe there's any additional data that we can do today, other than going in Phase 3 on Type 1, that would attract a partner any more or less than what we've already done to date. And the best opportunity always to create value around a partnership, is containing your development. And I think we now have that pathway, it's very clear. Type 1 is where we can absolutely reign, we can control that pathway, we can get there. We can get there quicker because we have already created data in Phase 2, and so we have to take the bird that's in hand and then run with that, and that may create additional value and opportunities to partner in the future. But, that will be a decision that we will make because we will be in control of our own development.

One of the things we [can't] do is allow the ebb and flow process and discussions to really dictate the pace by which we pursue the development. So, at this point, all hands on deck to go it alone in Type 1, and hopefully as the future unfolds we may have the opportunity to partner on the Type 2 space.

With that being said, John, let me pitch it over to you for the second part of that question.

Great, thank you. So, the positioning of telotristat etiprate is in patients that are not adequately controlled on really 30mg of sandostatin alone. And one of the leading treatment interventions that occurs at that point, is really the doubling or tripling of sandostatin dosage, which then doubles and triples the cost of sandostatin LAR in the US space. And so therefore, we believe that there is certainly a great opportunity to price at parity or perhaps at premium to the SSA therapies existing in the market today. We have conducted market research, and we're going to continue to better understand the market access dynamics and the price points [which the] telotristat etiprate. For our modeling, we used a parity of SSA but we'll continue to assess that opportunity as we get closer to commercialization.

(Operator instructions) And there are no more further questions in the queue at this time.

Well, let me say thank you to everyone for participating in this call today, and we also always appreciate the interest that you have in Lexicon. Have a great evening.

This concludes today's conference call. Thank you for your participation. You may now disconnect.