Lexicon Pharmaceuticals Inc (LXRX) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Lexicon Pharmaceuticals Third Quarter Finance 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) I would now like to turn the call over to Chas Schultz, Director, Finance and Communications.

Thank you, Victoria. Good morning and welcome to the Lexicon Pharmaceuticals Third Quarter 2016 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. Praveen Tyle, Lexicon's Executive Vice President of Research and Development; and Jeff Wade; Lexicon's Executive Vice President of Corporate and Administrative Affairs 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 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 ethyl and sotagliflozin. 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 actually 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; our ability to obtain patent protections for our discoveries; limitations imposed by patents owned or controller by third parties; and the requirements of substantial funding to conduct our drug development and commercialization activities. For a list and a description of the risks and uncertainties that we face, please 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 good morning to everyone who has joined us this morning. As always, we start our presentations off on behalf of all the extraordinary men and women here at Lexicon who continue to execute every day to translate our medicine into human use.

So as you can see on the first slide here, our focus is very much on translating our science into stakeholder benefits. I believe we have executed quite well in doing that. In the course of the day, we'll talk to you a little bit about telotristat etriprate or telotristat ethyl, which is now the name. The second things we'll talk to you about is give you a little bit more detail on our dose-ranging study, and then lastly we'll give you an update on our financials. So let me go to the next slide.

For those who may not be familiar with telotristat ethyl, it's a peripherally acting serotonin sensitive inhibitor. We know that serotonin is a key mediator of gastrointestinal motility pain and inflammation and high serotonin is implicated in carcinoid heart disease, cardiac valve damage and so forth. For telotristat ethyl it was fast-tracked and had orphan drug status both here in the United States as well as in Europe. And as all of you may be aware, the NDA was accepted with a prior review by the FDA, and we now have a PDUFA date of February 28th.

I am pleased to tell you that our conversations with the agency has gone extremely well, and our confidence remains extremely high that we have every opportunity to enter into the marketplace with this compound. Next slide.

That confidence also comes from the fact that our manuscript up to Telestar, which was the Phase 3 data that was conducted that we submitted to the FDA for our NDA, was published in a Journal of Clinical Oncology. So we're very, very pleased with that outcome as well.

Next what I'd like to do is turn the call over to Dr. Pablo Lapuerta to start to walk you sotagiflozin, and he'll also walk you through the dose-ranging study that we recently announced. Dr. Lapuerta?

Thank you very much, Lonnel. As you know, sotagiflozin is a dual inhibitor of SGLT1 and SGLT2 for the treatment of diabetes. SGLT2 is important and leading to the reabsorption of glucose in the kidney. By inhibiting SGLT2 inhibition causes urinary glucose excretion. What is unique about sotagiflozin it is the first SGLT1 inhibitor. By inhibiting SGLT1 in the gastrointestinal tract, it blocks absorption of glucose into the body, and that is a profile that we felt was very well suited for both type 2 diabetes and type 1 diabetes.

On the next slide we have sotagiflozin Phase 3 program in type 1 diabetes studies. InTandem1 has already been reported, inTandem2 and inTandem3 will be reporting in the months ahead, and we are very excited that an ambitious Phase 3 program for type 2 diabetes is being initiated by Sanofi in this quarter. Next slide.

This study is inTandem4. It's a Phase 2 study. It's a small-dose ranging study. The purpose was from a registrational standpoint to confirm that we had selected appropriate doses, 200 mg and 400 mg of sotagiflozin for our Phase 3 program inTandem1, inTandem2, and inTandem3 in type 1 diabetes.

Another purpose of this study was to get mechanistic data that's difficult to obtain in large Phase 3 programs. Mechanistic studies that could support the SGLT1 and SGLT2 actions of sotagiflozin. So secondary outcome measures in this study included 2-hour postprandial glucose in all patients following a standard meal. Body weight, which we have not yet reported from inTandem1, 2 or 3, and 24-hour urinary glucose excretion, which can be difficult to collect. We also included fasting plasma glucose.

Another measure that really interested us based on our type 2 diabetes experience was a change from baseline at 12 weeks in systolic blood pressure. On the next slide we have the outline of this study. As a dose-ranging study, we had placebo, 75 mg; 200 mg; and 400 mg of sotagiflozin all once daily. Another thing to note is that we had a placebo run-in period. The reason to do that is after screening, we wanted to ensure that patients could comply with the study requirements and take the drug appropriately. So we had both the placebo run-in period and then during the 12 weeks of treatment, a placebo arm.

Slide 9 has more about the trial design. This included 141 patients from sites in North America. The primary endpoint was a change from baseline in A1C. The intent was to see dose-related changes supporting the 200 mg and 400 mg doses. The 75 mg dose was also included as one of the study arms. This study did not have the insulin optimization program that we described previously for inTandem1. However, consistent with the needs of diabetic patients, insulin adjustments were allowed during the 12-week treatment period.

The study was double-blind. Patients had to have type 1 diabetes for at least one year. They could be either on a pump or multiple daily injections. They were adults with A1Cs between 7% to 10% with relatively normal renal function.

The next slide has the baseline characteristics of the patients. You can see that this was a small study with approximately 140 patients. That's 35 to 36 in each treatment arm. The age was in the mid-40s, the population consistent with the prevalence of type 1 diabetes, was mostly white. The population had endured type 1 diabetes for over 20 years and still had A1Cs between 7% and 10% being unable to overcome the limitations of insulin.

The blood pressures were normotensive in this population, by and large, however, we will present data in the subgroup of patients that had elevated systolic blood pressures. The baseline A1Cs were well-matched for a study of this size with an A1C of about 8 in each treatment arm.

The primary endpoint on slide 11 was matched. There were dose-related changes in A1C. On 75 mg they did not reach statistical significance, but 200 mg and 400 mg had statistically significant reductions compared to placebo and hemoglobin A1C at 12 weeks. This supported the selection of doses for the Phase 3 type 1 diabetes program.

Slide 12 has postprandial glucose. This is an important measure, and with the inhibition of SGLT1 in the gastrointestinal tract, we expected to see a good reduction in postprandial glucose. There was a dose-related reduction, the maximum being seen on the 400 mg dose, and we were encouraged by the magnitude of a 49 mg, almost 50 mg per deciliter reduction in postprandial glucose on 400 mg.

Slide 13 shows how that reduction was achieved. A challenge for our patients with type 1 diabetes is keeping postprandial glucose below 180. That's the target goal. And the reality is that many patients with type 1 diabetes have postprandial glucoses in the 200s. You can see that at baseline in all treatment groups -- values of 200 or more. However, at week 12, the mean unchanged on placebo was lower on sotagiflozin, meaningfully lower on the 400 mg dose, if you look at the medians on the 200 mg dose, at least 50% of patients were at goal keeping their postprandial capillary glucose below 180. And the mean was -- and medians were encouraging for the 400 mg dose with values of 160 and only 149 for the median.

Slide 14 has a body weight. This is the first time we've seen body weight at 12 weeks in type 1 diabetes with sotagiflozin, and there was an increase of 1 kilo in patients on placebo. That speaks to the difficulty of managing insulin, which induces body weight. There were reductions that were dose-related on sotagiflozin, the largest reductions being on the 200 mg and 400 mg dose reaching statistically significance and being relevant to patients at approximately five pounds in each of those treatment arms.

Slide 15 has urinary glucose excretion. It's difficult to obtain quality 24-hour urinary glucose excretion data. This was obtained in this study, and this is the first time we've reported it in type 1 diabetes. Our aim was to identify relatively modest urinary glucose excretion and by relatively modest, I mean that the 24-hour urinary glucose excretion we've seen reported with a selective SGLT2 inhibitor has been an increase of 115 g of glucose. Here we saw only 58 g and 70 g of glucose with a 200 mg and 400 mg dose. That's approximately 40% to 50% lower than what we've seen reported with a selective SGLT2 inhibitor.

Slide 16 has systolic blood pressure. We were encouraged by the systolic blood pressure results. Not many patients had systolic blood pressures above 130 at baseline in this population with type 1 diabetes and a mean age in the 40s. However, in the subgroup that we pre-specified and analyzed, there were dose-related changes in systolic blood pressure at Week 12, and they reached a maximum of a 15.8 mm reduction in systolic blood pressure with a 400 mg dose. Despite the sample size that achieved statistical significance with a p value of 0.01 compared to placebo. That's a placebo-subtracted difference of 14 mm/Hg. That's something we have not seen reported with any selective HGLT2 inhibitor. We believe it's possible that this magnitude of blood pressure reduction could relate to the SGLT1 mechanism of action, and we look forward to exploring this more in our Phase 3 program.

One final thing to note about the systolic blood pressure reduction is that this 14 mm difference compared to placebo is the same difference we saw in our type 2 program that we reported out in our type 2 dose-ranging study.

Slide 17 has the overall safety results. The incidence of adverse events was 50% of patients experiencing an adverse event on placebo and only 49/29, or 34% experiencing adverse events on sotagiflozin. The incidence of serious adverse events was identical in each of the treatment arms. There were few discontinuations being observed only on placebo and 75 mg due to adverse events, and there were no deaths in the study.

Slide 18 has the adverse events in special interest. Diarrhea was not an issue in this study; nausea was not an issue; genital mycotic infections were few, and none of these adverse events resulted in discontinuation of study drug. Another important safety event is diabetic ketoacidosis. Consistent with inTandem1, this small dose-ranging study had a low incidence of DKA.

There were no events on placebo during the 12 weeks on 75 mg or 200 mg. There was only one event on 400 mg consistent with the inTandem1 experience. Of note, the one patient with DKA was on an insulin pump. There were a couple of other incidences of DKA during the placebo run-in period that I described earlier. These two events of DKA during the placebo run-in period highlight that DKA is part of living with type 1 diabetes.

On slide 20 we have the incidences of documented and severe hypoglycemia. Documented hypoglycemia was based on a blood glucose value equal to or less than 70, and it was common, part of the reality of type 1 diabetes. However severe hypoglycemia was uncommon, and these low rates are consistent with the inTandem1 clinical trial experience. Only one subject discontinued due to hypoglycemia, and that was on the 75 mg dose.

Overall, this Phase 2 dose-ranging study showed that 200 mg and 400 mg of sotagiflozin provided statistically significant and clinically meaningful reductions in A1C. This confirms the dose selection that we made for the type 1 Phase 3 program in the studies inTandem1, inTandem2, and inTandem 3. Equally important, we see evidence in terms of the mechanism of action of sotagiflozin that supports its profile of dual inhibition of both SGLT1 in the gastrointestinal tract, and SGLT1 in the kidney. Evidence of SGLT1 inhibition in the gastrointestinal tract is suggesting by a large postprandial glucose reduction, in particular, with the 400 mg dose, just as we've seen in type 2 diabetes, relatively modest generic glucose excretion. Values between 58 and 70, which are much lower than what's been reported in the literature with selective SGLT2 compounds.

We see, for the first time, by encouraging reductions in body weight relating to the SGLT2 effect and an encouraging reduction in systolic blood pressure, in particular, on the 400 mg dose with a 14 mm reduction compared to placebo. The safety profile was favorable and supports what we reported earlier in the much larger study inTandem1.

Thank you very much, and I will now turn the call over to Jeff Wade.

Thank you, Pablo. I will provide a brief financial update. As indicated in our press release today, we had revenues for the 2016 third quarter of $27.7 million, an increase from $0.6 million in the prior-year period. The increase was primarily due to revenues recognized from our collaboration and license agreement with Sanofi. Our revenues of $60.3 million for the nine months ended September 30, 2016, increased from $2.7 million for the prior-year period.

Our research and development expenses for the 2016 third quarter decreased 127% to $52.5 million from $23.1 million in the prior-year period primarily due to increases in external clinical and non-clinical research and development costs. Our R&D expenses of $137.8 million from the nine months ended September 30, 2016, reflected the 113% increase from $64.7 million for 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 continued 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 in our consolidated statements of operations. The associated decrease in fair value of Symphony Icon purchase liability was $2.1 million in the third quarter and $0.7 million in the nine months ended September 30, 2016.

Our general and administrative expenses for the 2016 third quarter were $12.3 million, an increase of 128% from $5.4 million in the prior-year period. The increase was primarily due to increased costs in preparation for the commercialization of telotristat ethyl. Our G&A expenses of $29.1 million for the nine months ended September 30, 2016, reflected a 67% increase from $17.4 million for the prior-year period.

In 2014, we began to market our buildings and land in The Woodlands, Texas, for sale, and we recognized noncash impairment losses on our buildings of $2.3 million for the three and nine months ended September 30, 2015, as a result of writing down the buildings to the estimated net selling price.

Our net loss for the 2016 third quarter was $36 million, or $0.35 per share compared to a net loss of $35.3 million, or $0.34 per share in the prior-year period. Our net loss for the nine months ended September 30, 2016, was $109 million, or $1.05 per share compared to a net loss of $91.4 million, or $0.88 per share for the corresponding period in 2015. For the three and nine months ended September 30, 2016, our net loss included noncash stock-based compensation expense of $1.9 million and $5.7 million, respectively. For the three and nine months ended September 30, 2015, net loss included $1.7 million and $5.4 million, respectively.

Finally, as of September 30, 2016, we had $395.6 million in cash and investments as compared to $429.4 million as of June 30, 2016, and $521.4 million as of December 31, 2015.

On the next slide I will update our forward-looking financial guidance for 2016. We continue to expect contractual revenues from existing agreements in 2016 to be in the range of $70 million to $80 million. Our revenue expectations incorporate the achievement of a milestone for telotristat ethyl in carcinoid syndrome, progress in type 1 diabetes development program for sotagiflozin that we are leading under the Sanofi alliance, and progress in the type 2 diabetes program that Sanofi is leading under the alliance in our associated funding participation in those efforts.

We continue to expect that our operating expenses in 2016 will be in the range of $225 million to $240 million, with noncash expenses expected to be approximately $9 million of that total including $7 million in stock-based compensation and $2 million in depreciation and amortization.

We now expect our 2016 net cash used in operations to be in the range of $195 million to $210 million.

I will now turn the call back to Lonnel.

Thank you, Jeff, appreciate that very much. I'll close out by just simply saying I believe management remains extremely confident in our ability to execute on these two late-stage programs for telotristat ethyl for carcinoid syndrome. The NDA has been accepted. We've had robust conversations with the agency. Our confidence continues to grow that we believe we have a product that will get approved, and we shall be in market in the very near future.

Therefore, our US commercial preparations, we have not let up on those preparations. We are full-steam ahead and getting ready for launch. The EMA filing, I'm very pleased to say, remind everyone that was accepted and those conversations are going very well with our partner Ipsen and the collaboration in Europe with Ipsen and outside the United States continue to go very, very well.

In terms of sotagiflozin as we have outlined here today and previously, the Phase 3 program, the first call out, we were very pleased with those results and just recently our dose-ranging study, we have learned more about the drug that gives us even more confidence that how we have gone forward in our Phase 3 program, we should have very good results, as expected, and this was a good confirmation for us, as Dr. Lapuerta have walked you now through the 206 dose-ranging study.

In terms of what we look forward to in the near term, the JDRF study, which is a Phase 2 study, will report out in December. However, it will report out prior to the second inTandem study, which also we'll report out in December. But the JDRF study, again, will come first.

Also, I would point you to the clinicaltrials.gov site to confirm that Sanofi has started the Phase 3 program for type 2 diabetes, and we are extremely pleased by that. Therefore, we're very, very confident that we are executing well as we have planned on both these assets, and we hope to continue to provide you with guidance as we have more information to call out and be transparent about that information as we have it.

With that being said, I'll stop there and certainly open up for questions.

Victoria, are you there to take questions?

I am. (Operator Instructions) Yigal Nochomovitz, Citigroup.

Yes, hi, thanks very much. A question on the inTandem3 study. I don't know if you've talked about this before, but can you give us some sense as to how you're thinking about the powering assumptions for the responder analysis for patients that get below 7% A1C and that don't have severe hyperglycemia and don't have DKA. What is the delta there that you've powered for? Thanks.

Dr. Lapuerta, did you hear that question?

Yes, and I'm sorry, I don't have a specific delta for you. I can't recall if it was 10% or less. I think I could only offer 10% or so as a ballpark. What I can say is that in looking at results of inTandem1, it gives us confidence that we could achieve this difference in proportions with A1C less than 7 and no SH and no DKA that primary endpoint for inTandem3.

Okay, and Dr. Lapuerta, maybe it's just asking you a bit more regarding the dose response data, 200 mg, 400 mg that you've seen in this recent dose-ranging study, obviously, you highlighted the postprandial and the blood pressure data suggesting 400 mg may look better, but then on A1C and urinary glucose as well as body weight, it looked like there was more of a plateau going from 200 mg to 400 mg. So I guess I'd be curious as to your overall thoughts on which dose looks better, if you could say better, or if both look -- both have different advantages. Thanks.

I can't say right now that one dose looks better. I do think we're starting to see a different profile, and this is just one piece of the puzzle. InTandem1, 2 and 3 will be important pieces of the puzzle, and they're very well powered for comparison of doses. This dose-ranging study was not so well powered for comparing individual doses. However, we did see the 400 mg dose with better reductions and postprandial glucose and in systolic blood pressure. So if those results hold and are relevant, then I think 400 mg would be offering something to patients who need to control these measures. And it could be that 200 mg is a great anchor dose for all patients and that 400 mg dose would represent a good choice for patients who need additional control of postprandial glucose to their desired target below 180, or systolic blood pressure -- to their systolic blood pressure targets.

Okay, great. And Lonnel, just sort of one high-level question for you. Obviously, you've shown now the hypoglycemia and DKAs really aren't the issue that people thought they were even back in August of this year. In fact, you compared to one of our largest trials for an SGLP2 agent in type 1, which is the sotagiflozin study. It appears, at least from our analysis, that you're better on severe hypoglycemia and DKA (inaudible) versus sotagiflozin.

And then, of course, the supportive data from the dose-ranging study also looks very good. I guess I'm curious, what else do you think you need to show the market to convince them on the safety of sotagiflozin? It just seems there's obviously a bit of a disconnect between the facts and what people's perceptions are. So I wanted to give you an opportunity to address that. Thanks.

Yes, that's a very good question. I think because we are running one of the largest type 1 trials in this space for an -- or antidiabetic agent, we will have a tremendous amount of data that we will call through and try to understand. More importantly, the one thing we'll try to understand is DKA and the risks associated with DKA because it is of our view that DKA should not be happening. And we'll learn as much as we need to learn both when it happens simple placebo because I do believe it will contain a -- we'll see it in the trial both in placebo as with drug. And how do we then better inform about the utility of sotagiflozin in the cases where we did see it happen, when in the curve so that we give proper instruction to physicians in the community to how best use this drug when it's in market.

So I think we're in the best position to begin to inform in this space because of the size of our trials and the information we'll begin to learn about this particular risk area. Once we have that, and I think we're able to communicate, I think that will start to ameliorate some of the concerns that stakeholders have about it.

Liana Moussatos, Wedbush Securities.

Thank you for taking my questions and congratulations on your progress. October 5th you had a press release that you were buying out the obligation for Symphony Health. How is that going to show up in the P&L and when will it show up in the P&L? And then my second question is when Jeff Wade was talking about the revenue guidance, he mentioned receiving a milestone. Was that from Sanofi?

No, the milestone was for telotristat ethyl, which was received, actually, in this quarter, and it's been reflected in our revenues in this quarter.

On the Symphony arrangement, we've reached an agreement to buy out the remaining obligations once we have approval, which would be buy out the full amount of the remaining obligations we felt like on favorable terms. And our -- as we have gone through this process, we have run through the income statement costs associated with that, the, sort of, expected costs as we [trade] towards that approval and towards those milestones having to be paid.

Now that we have this new buyout agreement, we are basically discounting that buyout amount back to account for the risk associated with it, and we will incur the rest of it when we get approval. However, that remaining amount is pretty small because of the fact that we have already accrued a lot of that. And, actually, in this current quarter, we reversed some of that amount because we had already accrued a pretty significant amount for that liability and run that through our expenses. Does that make sense?

Yes, and do you anticipate final approval in Q4?

We have a PDUFA date of February 28th, and our expectation is that things are going well, but I won't speculate as to what date might be that we get approval.

Great question and great try. Listen, as I said before, we're very pleased with our conversations and from our perspective our job is to do everything we can to surprise you before that PDUFA date. But nonetheless the agency has set that date, and we're going to do everything we can to get them ahead of that schedule. But nonetheless what we need to note here is our confidence in this program is very high. It's one of the reasons we felt we could take the opportunity to buy out the Symphony agreement, get that closed out, remove all future obligations to this asset so the value can flow through for our stakeholders fully once the drug is approved and we're generating revenue.

Jessica Fye, JP Morgan.

I have a question about the postprandial glucose data from this Phase 2 dose-ranging. I guess, how sensitive is the magnitude of decline to the baseline number? I think with A1C a higher baseline is up and associated with a greater percent A1C benefit in clinical studies. I'm just trying to think about what the PBG declines in inTandem1 might look like compared to this recent data given the lower baseline A1C in that study? Basically trying to think about what it might mean for the magnitude of effect there?

Dr. Lapuerta, I'll turn that question over to you.

Well, in terms of -- your question is asking about sensitivity to baseline. And I think in working with these data in these studies, we've seen that both fasting glucose and postprandial glucose are just highly, highly variable. And so I think what that means for this study is that we only reached statistical significance for the 400 mg dose, which was most robust with 25 patients providing postprandial glucose data with 200 mg. We didn't see that statistical significance.

So I think the thing to look for a Phase 3 opportunity. We'll give you an opportunity to get a more precise measure and achieve statistical significance with the 200 mg dose.

Okay, and do you expect the differentiation between the 200 mg and 400 mg on this measure to hold up in those larger studies?

It's hard to say because what we have with as few as 25 patient to 30 patients in each arm providing postprandial glucose data is an opportunity to see an overall dose relationship comparing placebo and three other doses and it's, overall, going in the right direction. But the extent of variability we have, we can't say for sure that a reduction of 27 with 200 mg is statistically different from a reduction of 49 on the 400 mg.

I think we do have a reasonable expectation that 400 mg will be better in type 1 diabetes because it has been better in type 2 diabetes, and I think that's the perspective I have in terms of understanding expectations. I think we have a good opportunity to see that.

Okay, and then also just trying to understand the side effect profile. I think it looks like the case of the severe hypoglycemia were about 1 per group. I think that's consistent with the number of SAEs that you reported. So is that DKA case at 400, was that not considered an SAE?

Beyond 400 it was a SAE. What we have is that many times severe hypoglycemia, even though it's severe and recognized as such, is not reported by the investigator as a serious adverse event because the investigators are often thinking of hospitalization when they're thinking of severe -- I'm sorry -- of serious adverse events.

So I think what you had is cases of severe hypoglycemia, and I can confirm all the cases of severe hypoglycemia in this study were not deemed to be serious adverse events. Patients recovered, perhaps with the assistance of someone else, they required assistance. And then met the definition of serious hypoglycemia but did not meet the definition of a serious adverse event.

Okay, got it. And then just lastly on the blood pressure measurements -- did you do 24-hour Holter monitoring here? How did you collect the blood pressure data?

We did not do 24-hour Holter monitoring. We plan to do that in sub-studies in our type 2 program. The way we measure blood pressure, we based it on experience that we had in the type 2 program. We used a validated automated blood pressure measurement device that was validated for use in clinical trials, and that has been used previously in registrational programs for hypertension. We made sure every site had one and used it. We made sure that the blood pressure at every visit was an average of three blood pressure measures that were taken each a few minutes apart in a seated position.

By doing this, we reduced the variability in systolic blood pressure to a level where we could detect statistically significant differences with the 400 mg dose compared to placebo.

Alan Carr, Needham.

Will you talk a bit about any differences in baseline disease in the two Phase 3 trials that you might expect? And then also with respect to, if all goes well with the rest of the type 1 program, what your expectations are on submitting an NDA for that and if you could comment on the need for an outcomes trial when that might be settled also?

So, Alan, this Lonnel. I didn't get the first part of your question.

In the trial that you completed in the US, the Phase 3 trial, do you have any expectations for some baseline factors -- differences between baseline criteria between the US trial and the ex-US trial in terms of A1C or other parameters? If you expect to be the same, curious there, too, but just wonder if you do expect it?

I think the main difference that we expect is that the proportion of pumps versus multiple daily injections will be different because pumps are used more widely in North America where the inTandem1 study was conducted than they are in Europe and the other countries where the inTandem2 study will be conducted. And the inTandem 3 study is a global study, so it will include patients from North America and Europe and other countries.

So that, from what we really expect, that's probably going to be the biggest difference is that relative proportion. InTandem1 it was about 60-40, 60% on pumps, 40% on multiple daily injections and then inTandem2 we would expect a much higher proportion to be on multiple daily injections.

Yes, so the second and third part of your question, Alan, if -- I'm not going to say "if" I'm going to say "when." The second inTandem2 trial calls out should it mimic the results of inTandem1, it is our belief we're on our way to having a submittable drug. The inTandem3 is a broader study for exposure as well as looking for the net benefit. So if we are successful, should we be a success as the way we believe it will be inTandem, inTandem2, the net benefit should be called out on a global basis and mimicked in inTandem3.

So our mindset will be really focused on what happens inTandem2. Should the results be very, very similar, then we're pretty confident we have something we could file. Now, with that being said, it's always our expectations to work with our partner, Sanofi, to have a conversation with the regulatory agency. There's a good chance they're going to want to see the inTandem3 results to make sure the overall exposure and safety is good. If that's the case, then certainly we'll be able to do that as we get into the first half of next year.

Nonetheless, we think inTandem1 supported now by the dose-ranging study, the incidence rates of safety is low. The A1C matches up against both your optimized insulin as well as where you have some stable insulin allowing patients to adjust their insulin. We continue to see very strong A1C result, and then when we look at the secondary measures, we are now starting to see very strong secondary measures that supports the quality of how that A1C is achieved.

Should we continue to see that, it is our confidence, for sure, that we have a drug that we can file. When we do that, that's going to come down to the discussions we have with the regulatory agencies with Sanofi and certainly what the regulatory agency may want to see inTandem3 before a final decision is made on when we will file.

If you do not need to run an outcomes trial for type 1 diabetes, is an NDA submission into [8/17] in that appropriate assumption?

NDA submission in 2017? Was that your question?

Yes.

No. I think more than likely we will be looking at 2018 just because we'll have the exposure trial, which is the inTandem3. That will call out toward the middle of next year. And then you have to, certainly, start to do your work to get ready for a filing. So it will be closer to the end or beginning of 2018 -- the end of 2017, beginning of 2018.

And I guess the last question is there's a couple of trials listed in clintrials.gov with Sanofi. Can you give us any other guidance on when other ones might begin or when an outcomes trial might begin?

I would love to give you guidance on it, however, that program is being run by our partner, Sanofi, so they control the guidance they give around their activities. What I will say is, you know, definitely be something that I would encourage all of you to ask them. But I will also say it's a very aggressive program, and we're very pleased with how they're thinking about it, and I think we're fairly well aligned of how we achieve success.

One of the key pieces that we've learned and has been supported in the dose-ranging study is this blood pressure data is extraordinary. And the question becomes how do we leverage that in our Phase 3 trials in type 2 and that will be some careful consideration I think Sanofi will pay very close attention to when we finish up the additional trial work that would hopefully be called out when they're ready.

Stephen Willey, Stifel.

So I guess just going back on the postprandial glucose data from inTandem4. I guess we haven't seen the glycemic variability endpoints that are being evaluated in the Phase 3 studies specifically inTandem1. But just wondering what your thoughts are with respect to using those reductions as a surrogate for those endpoints. And maybe you could make a commentary around what the [error] bars around those mean reductions might look like?

Dr. Lapuerta, did you hear that question?

I didn't hear it well. Were you talking about PPG or another parameter?

No, PPG. So just kind of curious as to if you view those reductions in postprandial glucose that we're seeing as being applicable surrogates for some of the glycemic variability endpoints that are pre-specified in the Phase 3 program. And then, also, if you could maybe comment a little bit about how some of those -- the standard error bars may look around some of those postprandial glucose means, i.e., are you seeing tighter, less variability, with increased postprandial glucose reduction?

So I can give you a perspective that, yes, I believe that we will, in Phase 3, be well-powered to see statistically significant differences in several of these glycemic parameters. I believe the reduction in postprandial glucose is reflecting an action of the drug to reduce the overall variability in glucose. And while I haven't analyzed those data in detail for this study yet, we analyzed it in detail with our initial Phase 2 study that we announced two years ago in type 1 diabetes. That's exactly what we saw.

There were reductions in postprandial glucose that were important and clinically relevant consistent with what you've seen here. And they were accompanied by overall reductions in the variability of glucose for postprandial glucose, for fasting plasma glucose, for time and range, and for standard measures that are being used in type 1 diabetes for glucose variability.

So we do think that even though some of these measures, I said they have high standard deviations in our larger studies, especially with our continuous glucose monitoring sub-studies. We will have ample opportunity to demonstrate what we believe the drug is doing -- reducing glucose variability in a way that's important for patients.

Understood. And then in the blood pressure analysis, I know you pre-specified patients with systolic greater than 130, I'm wondering if you can say anything about the systolic reductions you're seeing in patients that are more normotensive. I know some of the criticism of the selective SGLT2s is that -- is that really everyone gets blood pressure reductions due to the volume loss.

What we've seen in general in this study, 206, and also in our type 2 experience is that the blood pressure reduction is predominantly in patients with elevated systolic blood pressures at baseline. Patients who have normal blood pressures at baseline have little to no reduction in either systolic blood pressure or diastolic blood pressure at trough with sotagiflozin. We saw that in type 2, and we're seeing that, as well, in type 1 diabetes.

Okay. Thanks for taking the questions and congrats on the JCL manuscript.

Thank you, Stephen, appreciate that very much.

Chris Shibutani, Cowen.

As we prepare for the results that will read out for inTandem2, the European population. Can you put in context for us any differences in the baseline level of care or use of pumps or just any aspect of the patient profile when we compare, perhaps, with inTandem1, which is a US study?

Dr. Lapuerta, do you want to take that?

Yes, I'm happy to. I think the main difference is the difference that Jeff Wade mentioned -- that the use of pumps is much less frequent in Europe as in the United States. What that means, I think it could have an implication for the monitoring and management of DKA. What we've seen is DKA is more common in patients with pumps, and that's well recognized. If they have a problem with a pump malfunction, they can run into an issue with DKA much faster than if they have given themselves long-acting doses of basal insulin. So that's a possibility. We just have to see how the data come out.

And then in follow-up with the JDRF study data, how should we think about that in terms of how it might fit into your filing or the label? Will that data be considered in any of those regulatory components?

What I can say is, of course, the data for the JDRF study will be relevant in terms of safety. Every study is important in terms of safety. And what the JDRF study will give us is a good example of patients with extremely high A1Cs, which have different safety issues. And so I think it will be relevant from that standpoint.

In terms of efficacy, it being a Phase 2 study, is less likely to have efficacy data in the label. The label will predominantly depend on inTandem1, 2, and 3.

So to be clear, your use of the word "relevant" means that that data you are planning to include with your regulatory filing materials?

Yes, we plan to include the results of all Phase 2 studies in our regulatory filing material. We will have an integrated summary of safety, and it won't contribute a lot of numbers, but it is an important population because it's a young population with difficulty achieving A1C control. Population has a high unmet need and so it will have a relevant part of the filing.

Thank you, and congratulations on the progress.

Thank you, Chris.

Okay, it looks like there are currently no further questions.

Well, let me take a moment and say thanks to all who have joined with us this morning. Management here at Lexicon, we continue to execute on our plans on both of these late-stage programs. I reiterate our confidence is very high on our telotristat program for carcinoid syndrome. We are very confident we will have a product to be at a market and start generating revenue in the near term.

As to sotagiflozin, our data, I think, is going from good to great, and stay tuned for the inTandem2 results that we will announce in December. And we also have the Phase 2 JDRF study results to Pablo's point of view -- or Dr. Lapuerta's point of view. It will give us some sense of how well this drug performs in an at-risk population, and that will give us some more data in putting the puzzle together.

Our confidence is high with our type 1 program and now that Sanofi is starting the Phase 3 type 2 program our confidence remains high there as well. So (inaudible) will continue to execute on our goals with these late-stage assets, and we will continue to be responsible with the shareholders' money as Jeff Wade pointed out, we are operating with cash to the low end of the range this year in how we're executing with many, many, many priorities that we have to deliver. We're doing so on the low end of our cash requirements.

So, with that, we have expectation that we'll continue to operate that way as we go forward. Once again, thank you, and we look forward to the next call.

Again, thank you for your participation. This concludes today's call. Participants, you may now disconnect.