Lexicon Pharmaceuticals Inc (LXRX) 2017 Q4 法說會逐字稿

Welcome to the Lexicon Pharmaceuticals Fourth Quarter and Full Year 2017 Financial Results and Business Update Conference Call. (Operator Instructions) As a reminder, this call is being recorded today, February 22, 2018.

I will now turn the call over to Dr. Kimberly Lee, Head of Investor Relations and Corporate Strategy. Please go ahead.

Thank you. Good morning, and welcome to Lexicon Pharmaceuticals Fourth Quarter and Full Year 2017 Financial Results and Business Update Conference Call. Joining me on today's call are Lonnel Coats, Lexicon's President and Chief Executive Officer; Alex Santini, Executive Vice President and Chief Commercial Officer; Dr. Pablo Lapuerta, Executive Vice President and Chief Medical Officer; Dr. Praveen Tyle, Executive Vice President of Research and Development; and Jeff Wade, Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer. After our formal remarks, we will open the call up for Q&A.

Earlier today, Lexicon issued a press release announcing our financial results for the fourth quarter and full year 2017, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast of this call, along with the slide presentation, will be accessible in the Investor Relations section of our website.

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.

Before we begin, let me remind you that we will be making forward-looking statements, including statements relating to the safety and efficacy and therapeutic and commercial potential of XERMELO, sotagliflozin and other drug candidates. These statements may include characterizations of the commercial performance of XERMELO, results of clinical trials of sotagliflozin and our other drug candidates and the market opportunity for those programs.

This call may also contain forward-looking statements relating to Lexicon's growth and future operation results, discovery and development of other drug candidates, 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 success of our commercial efforts for XERMELO; the timing and results of clinical trials and preclinical studies of sotagliflozin and other drug candidates; our dependence upon strategic alliances and other third-party relationships; 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 research, development and commercialization 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 would now like to turn the call over to our President and CEO, Lonnel Coats.

Thank you, Kim, and good morning to everyone, and thanks for joining us on the call today. 2017 marked -- was marked by a number of notable milestones for Lexicon and for the patients we serve. We took significant strides to achieve one of our goals of becoming a fully integrated commercial stage biopharmaceutical company with a robust pipeline and multiple value drivers for growth. We have a strong operational performance across most components of our business, which included both revenue generation and effective management of resources and spending.

In addition, we achieved numerous critical development milestones, which position us to start 2018 with significant momentum as we ready for global filings for regulatory approval for our second new chemical entity, sotagliflozin, in 2 years.

I'm excited to share these developments with you, starting with a brief summary of recent key events. I'll then turn the call over to Alex, Pablo and Jeff for updates on our XERMELO business, pipeline developments and financial results.

As you may recall, our strategic initiatives and priorities for 2017, including driving growth in our XERMELO franchise, while in parallel making significant progress towards advancing sotagliflozin to market and furthering our innovative pipeline. Our full year 2017 results were a strong indicator that our constant focus on operating excellence and innovation has us well positioned to achieve our 2018 objectives and to support our long-term outlook.

Starting with XERMELO. We achieved U.S. XERMELO net sales of $5.4 million in the fourth quarter of 2017 and $15.1 million since the launch in March of 2017. I will note that we did experience some headwinds in the fourth quarter, particularly in December, when we experienced 2 challenges that affected XERMELO net sales. There were fewer net new patient starts than we had expected as we approach year-end and a significant increase in patients participating in our patient assistance program.

We have seen some improvements so far this year, with achievement in January of the highest number of patient starts in the last 5 months. We expect XERMELO growth to strengthen over time as we continue to challenge and change long-standing practice and habits in treating carcinoid syndrome and as we build the case for XERMELO's benefits for carcinoid syndrome patients.

In the latter regard, we have been engaged in continuing research to demonstrate the benefits of XERMELO beyond carcinoid syndrome diarrhea per se and are preparing to launch a study focused on the neuroendocrine tumors that drive carcinoid syndrome as part of our planned life cycle management activities.

In addition, in the fourth quarter, we realigned our commercial resources to improve our effectiveness in educating physicians about XERMELO and its benefits in addressing the needs of patients. Alex will provide more detail shortly.

Finally, our collaborator, Ipsen, has already launched XERMELO in several European countries since EMA approval, providing the first access to patients in need outside of the U.S. with more to come. Our other priority last year was to ready type 1 diabetes program for regulatory filings, and I am pleased to announce that our collaborator, Sanofi, expects to file for regulatory approvals in the U.S. and in Europe this quarter. In fact, it'll be in a few short weeks.

Our teams have been working around the clock, and I'm extremely proud of what we've been able to accomplish. This was the most comprehensive filing package for type 1 diabetes and is the culmination of what is both the largest Phase III ever conducted for an oral antidiabetic agent in type 1 diabetes and also covers the broadest range of patients, covering 99% of adults with type 1 diabetes by A1c levels. This filing package will also include clinically meaningful continuous glucose monitoring, or CGM, data that was pulled from our inTandem1 and inTandem2 that have significant implications for the management of glycemic variability in patients with type 1 diabetes.

We're excited to offer what we believe will be a first and best-in-class oral therapy for patients with type 1 diabetes. This is a significant multibillion-dollar market, and sotagliflozin should be well positioned to address the entire type 1 diabetes market, and not just part of the market, as may be the case with other SGLT inhibitors, if, in fact, they file and if, in fact, they are approved for type 1 diabetes. Alex will speak more about this later.

In type 2 diabetes, Sanofi has initiated 10 Phase III studies, including 2 that are enrolling an aggregate of more than 1,000 patients with chronic kidney disease and a cardiovascular and renal outcomes trial that is enrolling 10,500 patients. We believe the sotagliflozin SGLT1 mechanism offers the opportunity for differentiation based on the ability to reach type 2 diabetic patients who have either stage 3 or stage 4 chronic disease for whom SGLT2 inhibitors provide the chronic efficacy or contraindicated.

Diabetic patients with moderate to severe chronic disease remain a significant segment that comprises between 15% and 18% and 1% to 2%, respectively, of the type 2 population. Most importantly, since declining renal function is a hallmark of type 2 diabetes, demonstrating benefit in this patient population could make sotagliflozin a preferred option for all type 2 patients. We look forward to seeing data from the most core studies -- U.S. studies -- excuse me, the most core studies in 2019 with a potential filing in Europe in the second half of 2019, followed by a U.S. filing in early 2020.

We continue to make disciplined investments in R&D, among them exploring the potential expansion of XERMELO, XERMELO's footprint through life cycle management and additional indications based on preclinical and other data, demonstrating the role of serotonin and tryptophan hydroxylase in neuroendocrine and other tumors.

As I mentioned previously, we are preparing to initiate a study focused on neuroendocrine tumors, which we hope will demonstrate the broader benefits of XERMELO for patients with carcinoid syndrome. At the same time, we are planning a study in another type of cancer, cholangiocarcinoma as a potential opportunity for label expansion. You will hear more about these studies at our upcoming R&D Day on April 10. We continue to make meaningful progress on our internal pipeline with LX2761, an SGLT1 inhibitor for diabetes, and LX9211, a novel compound for neuropathic pain, both of which are in Phase I development, and we anticipate data from both these studies this year.

We ended 2017 with a strong balance sheet that was shored up by the recent nondilutive debt financing. We believe this cash will provide us the runway to achieve positive cash flow based on the current progress of our late-stage assets. 2018 will be an important year for us as we execute on our strategy to position the company for future growth and to build long-term sustainable value for our shareholders. Our priorities remain growing our XERMELO franchise, reinforcing our leadership position in type 1 diabetes and advancing our clinical programs. And I am excited for what lies ahead this year.

With that, I'll turn the call over to Alex to discuss our commercial performance. Alex?

Thanks, Lonnel. Good morning, everyone. Total U.S. XERMELO net sales since launch in March 2017 were $15.1 million. We experienced a challenging fourth quarter with U.S. XERMELO net sales of $5.4 million. As Lonnel had mentioned, we have seen a significant increase in the number of patients requiring patient assistance. In addition, we saw a slowdown in enrollments and new patient starts during the month of December, with growth returning in January. In the fourth quarter, we realigned our commercial resources by doubling the number of clinical nurse educators, while correspondingly reducing the size of our field force, which maintained the overall cost of deployment. Now we have more nurses engaging patients, which we believe will help patients better understand XERMELO and stay on drug when beneficial to do so.

As Lonnel mentioned, we have seen some improvement so far this year, achieving in January the highest number of patient starts in 5 months. We believe the realignment of our field-based activities will have a positive impact on our business. The number of patients who have received a paid prescription since launch increased from 685 patients in the third quarter to 835 patients in the fourth quarter. We have seen some improvement in the abandonment rate, which continues to be an area of focus. In addition, we are hoping to see fewer discontinuations as clinical nurse educators engage directly with patients.

In 2018, we expect total U.S. XERMELO net sales to at least double from 2017. We will continue to activate a broader prescriber base at a higher rate, and as physicians gain more experience prescribing XERMELO, we anticipate continued adoption. Our field force will continue to emphasize the drug's differentiated clinical proposition. We will amplify and activate the patient voice and ensure that patients and health care providers gain access to XERMELO.

We continue to work on shifting key attitudes about the disease in physicians' and patients' minds, and as mentioned previously, we expect this will take some time. Our experienced team has generated a very competitive share of voice as we work to ensure that patients with carcinoid syndrome diarrhea have the opportunity to benefit from XERMELO. But there remains significant opportunity to increase demand. There remains a large number of oncologists who have yet to prescribe XERMELO and many others who are just getting started, underscoring this opportunity for future growth.

In short, we need to continue to increase the patient base, improve the abandonment rate, decrease the discontinuation rate and increase the prescriber base. We fully recognize that there is a meaningful opportunity to increase demand of XERMELO, and we are motivated to bring the benefit of XERMELO to every eligible patient.

On the reimbursement front, we have achieved very good access in reimbursement for XERMELO. Payers have almost universally been reimbursing for XERMELO, and since launch, plans that have made coverage decisions have placed XERMELO in a favorable formulary position. Incorporation of XERMELO into NCCN treatment algorithms has enhanced use and driven penetration. We have been very pleased with payer response to XERMELO and continue to have favorable reimbursement. The positive response includes both private and federal channels.

Other payers reimburse without review due to orphan drug status and rarity of the disease. Our specialty pharmacies report consistent adjudication of claims across payer types with minimal disruption to patients. We continue to partner with payer customers in improving their understanding of carcinoid syndrome diarrhea, the burden on patients and the cost associated with diagnosis and treatment.

Payer mix is increasingly weighted towards commercial payers, followed by Medicare, which together account for a very high percentage of the business. Medicaid and other government payers collectively account for a very small percentage. We also maintain a $0 co-pay program to assist commercial patients with access.

Turning to Europe. Our collaborator, Ipsen, launched XERMELO in the U.K. and Germany in October with private market and free pricing, respectively, and also launched in Austria in the fourth quarter. Ipsen is still early in the European launch, but as we've seen with many other European product launches, we anticipate that the trajectory of the XERMELO launch in Europe will be a gradual one as it may take up to a year and sometimes longer for reimbursement discussions, depending on the country. We expect other European countries and pricing approvals to come online throughout 2018.

We believe there remains a great opportunity for future growth. As seen on Slide 6, there are approximately 14,000 patients in the United States affected by carcinoid syndrome diarrhea. And almost -- and although most of these patients go on somatostatin analog, or SSA therapy, many will see their symptoms return. There remains a significant disconnect between physicians and patients with respect to the unmet need and the severity of the disease. To address this, we have deployed our clinical nurse educators to bridge that gap and have dialogue between nurses, patients and physicians.

In addition, we have redeployed our field organization with a greater emphasis on educating physicians on the significance of serotonin and the impact on disease burden. This mechanism involving serotonin is what makes the drug impactful and will allow us to explore additional indications to expand XERMELO's footprint.

I will now turn the call over to Pablo, who will discuss our life cycle management plans for XERMELO. Pablo?

Thanks, Alex. Turning to Slide 7. There's an important opportunity to explore XERMELO's potential outside of carcinoid syndrome diarrhea. Serotonin has a fundamental role in cell division and fibrosis. It's carried in platelets. And in response to endothelial injury, it is released to promote vasoconstriction, angiogenesis and fibrosis. These same mechanisms of cell regeneration have been implicated in the proliferation of cancer and fibrotic disease.

A cancer type with good potential for XERMELO is the neuroendocrine tumor. Somatostatin analogs have been shown to reduce tumor growth, and the benefits may relate to their inhibition of serotonin release. Other tumor types may also be relevant and there is specific preclinical data in cholangiocarcinoma. They show that serotonin stimulates tumor growth in vitro while inhibition of tryptophan hydroxylase suppresses tumor growth in vivo in rodents. We are still evaluating opportunities in fibrotic diseases and look forward to providing more detail on this strategy to expand telotristat's footprint. We'll provide an update on our progress and label expansion opportunities at our Research & Development day.

Now I'm happy to update you as well on the significant process (sic) [progress] the R&D organization made in 2017 to advance the rest of our pipeline. Let's start with our most advanced program, sotagliflozin in type 1 diabetes. As you can see, we have completed the largest Phase III program for an oral antidiabetic agent ever conducted in type 1 diabetes in the broadest range of patients resulting in the most comprehensive efficacy and safety database. These Phase III studies are complete, complete, complete. Results from our pragmatically designed inTandem3 Phase III trial were published in the prestigious New England Journal of Medicine.

We see that dual inhibition of SGLT1 and SGLT2 is key to differentiation. It supports robust reduction in A1c. Gastrointestinal SGLT1 inhibition reduces postprandial glucose which in type 1 diabetes may be important in avoiding hypoglycemia. It also puts a limit on urinary glucose secretion, and that may have favorable implications for safety. The observed weight loss is likely related to a balance of SGLT2 and SGLT2 effects rather than SGLT1 -- I should say rather than SGLT2 inhibition alone.

As both these SGLT1 and SGLT2 mechanisms are independent of insulin, there is a potential to show value in both type 1 and type 2 diabetes. The gastrointestinal benefit of SGLT1 may help patients even when the action of the renal mechanism SGLT2 is limited. This profile is consistent with the efficacy and safety profile that we have described for type 1 diabetes.

We showed robust efficacy even with a population that had a relatively low baseline A1c. There were reductions in postprandial glucose that we expected from the SGLT1 component. Consistent with this vision, we saw a reduction in hypoglycemia. At 52 weeks, there were fewer patients experiencing severe hypoglycemia on sotagliflozin 400 milligrams than placebo. The 52-week safety profile was acceptable in a setting of education and monitoring of DKA. This program was ambitious, and I'm extremely proud of our team. They worked tirelessly to get the program to this stage. What remains is for Sanofi to file for approval in the U.S. and in Europe, which as Lonnel mentioned, will happen in the next few weeks.

On Slide 12, we provide a perspective on how the sotagliflozin program in type 1 diabetes compares to the potential competition. Sotagliflozin is potentially the first to market with the most comprehensive data targeting the entire type 1 population. The program is complete with success in all Phase III studies, whereas dapagliflozin has released only interim data from a single study. The sotagliflozin program enrolls 3,000 people with type 1 diabetes, whereas the dapagliflozin program encompasses only half as many patients.

Sotagliflozin has data supporting benefit-risk in the entire adult type 1 diabetes population, while the dapagliflozin program excluded 43% of the patient population. The dapagliflozin program excluded those at highest risk for severe hypoglycemia.

The sotagliflozin pivotal studies were conducted after optimization of patients' insulin regimen, resulting in improvement in 0.6% from insulin optimization alone and a post optimization baseline of 7.6% to 7.7%. The dapagliflozin program achieved only a 0.25% improvement from insulin type standardization and a post titration baseline A1c at 8.5%. We believe that each of these elements should provide important advantages for sotagliflozin.

Alex, do you want to talk about the market opportunity in type 1 diabetes?

Sure, Pablo. Turning to Slide 13. As you can see, there are approximately 1.7 million people with type 1 diabetes and about 1.6 million adults with the disease in the United States, a population that has grown approximately 3.5% per year over the last 5 years. About 3/4 of the population has an A1c greater than the ADA target of 7%. We believe we and Sanofi will be able to target the entire adult type 1 population because we did study the broadest patient population in our studies and we have the most comprehensive efficacy and safety data. Given the size of the market and the fact that sotagliflozin has the potential to address the entire market, you can see that this is a significant opportunity for Sanofi and for Lexicon.

Now I'll turn it back to you, Pablo.

Thanks, Alex. As the type 1 diabetes program wraps up, we and Sanofi are excited to advance sotagliflozin in type 2 diabetes. As you can see, to date, Sanofi has initiated 10 Phase III studies in the type 2 setting scheduled to enroll over 15,000 patients. Dual SGLT1 and SGLT2 inhibition provides an opportunity for differentiation.

There is a large cardiovascular outcome study, it's done in patients with renal impairment. It is designed not simply to show safety but to show efficacy. It's designed to win with endpoints including cardiovascular death, myocardial infarction, stroke and hospitalization for congestive heart failure. This study has also renal endpoints that will examine whether sotagliflozin can reduce the progression of renal disease in patients at high risk. The Phase III program also has a study to establish A1c reduction and moderate renal impairment and another to examine efficacy and safety in severe renal impairment. There will be head-to-head data against empagliflozin as well.

This is a robust program developed around opportunities for differentiation. We expect initial data readouts for most of the Phase III studies in 2019, followed by a potential European filing -- I'm sorry, potential European filing in the second half of 2019, U.S. filing early 2020.

As Alex will discuss, the market opportunity for sotagliflozin in type 2 diabetes is significant. Alex?

Type 2 diabetes is a major global public health problem that isn't going away, as obesity and other factors continue to be drivers of the disease, as seen here on Slide 15. The type 2 diabetes population is currently more than 25 million people in the United States and more than 400 million worldwide and is expected to grow at a compound annual growth rate of 2% from now until 2040.

Many of these people cannot take the most commonly used existing type 2 oral antidiabetic drugs because of their renal impairment. This is where we believe sotagliflozin has the potential for differentiation. Approximately 15% to 18% of patients with type 2 diabetes have stage 3 chronic kidney disease, while about 1% to 2% of patients with type 2 diabetes have stage 4 disease. Importantly, since declining renal function is a hallmark of type 2 diabetes, demonstrating benefits in this patient population could make sotagliflozin a preferred option for all type 2 diabetes patients.

I'll now turn the call back to Pablo.

Thanks, Alex. Summarizing the discussion on sotagliflozin, we're very pleased with the totality of its data package for type 1 diabetes. We and Sanofi look forward to bringing this drug to market if approved. In type 2 diabetes, we're enthusiastic about the potential for differentiating relating to efficacy in the setting of renal impairment, and we're excited to advance this program.

Turning to the rest of our pipeline. LX2761 is an internally generated oral SGLT1 inhibitor for the treatment of diabetes, that's currently in Phase 1b clinical trials. In preclinical studies, 2761 delayed and reduced intestinal glucose absorption and it reduced postprandial glucose while increasing plasma levels of GLP-1. All this is consistent with inhibition of intestinal SGLT1. In addition, 2761 was minimally absorbed into the systemic circulation, indicating that its activity was limited to the gastrointestinal tract. It was not dependent on urinary glucose excretion. We believe this ability to optimize SGLT1 activity without urinary glucose excretion offers good opportunities for diabetes life cycle management and we look forward to data release in the first half of this year.

Lastly, we are developing LX9211, which is an orally administered inhibitor of AAK1, also known as adaptor-associated kinase 1. Mice who lack AAK1 are healthy, and they are relatively resistant to pain. AAK1 inhibition is not related to the opioid pathway, and given the current opioid epidemic, this is an important feature. AAK1 inhibition appears to work instead through the GABA pathway. Gamma-aminobutyric acid is a natural inhibitory neurotransmitter that works against pain.

Inhibition of AAK1 may be able to increase the number of GABA receptors on the postsynaptic neuron, enhancing the body's response to its own pain inhibition signal. The preclinical profile suggests that, if effective, LX9211 could provide relief for patients with neuropathic pain with less sedation than improved GABA agonist. I encourage you to read the manuscript by Walter Kostich and his colleagues on AAK1 inhibition as a novel therapeutic approach to treat neuropathic pain. We look forward to seeing the results of our Phase I study this year.

In short, we are committed to discovering, developing and commercializing therapies with the greatest value proposition for patients. We've made good progress this quarter and look forward to updating you in the future.

Now I'd like to turn the call over to Jeff, who will provide financial highlights.

Thank you, Pablo. This morning, I will discuss key aspects of our fourth quarter and full year 2017 financials and will introduce our financial guidance for 2018. More financial details can be found in our 10-K which will be filed shortly. Now please refer to Slide 19 of our presentation.

As indicated in our press release today, fourth quarter 2017 revenues totaled $33 million, which represented a 43% increase from the prior year period, primarily due to milestone payments under the Ipsen alliance for the first commercial sale of XERMELO in the U.K. and Germany and $5.4 million in net product revenues. Total revenues for the year ended December 31, 2017 were $90.3 million, which represented an 8% increase from the prior year, primarily due to net product sales of XERMELO, partially offset by lower revenues recognized from the collaboration and license agreement with Sanofi. Total net product revenues for the full year 2017 were $15.9 million.

Cost of sales related to sales of XERMELO was $0.5 million for the fourth quarter of 2017. Full year 2017 cost of sales was $1.9 million, of which $1.5 million consisted of amortization of intangible assets.

Research and development expenses for the fourth quarter of 2017 totaled $47.2 million compared to $40.4 million in the prior year period primarily due to professional and consulting fees related to sotagliflozin NDA preparation and higher clinical and preclinical external research and development expenses. Full year 2017 R&D expenses decreased 12% to $156.8 million primarily due to lower preclinical and preclinical external research and development costs.

Selling, general and administrative expenses for the fourth quarter of 2017 were $16.1 million compared to 14.1 -- $14 million for the same period in 2016. The increase was primarily due to higher legal expenses, professional and consulting expenses, salaries and benefits expense, charitable contributions and stock-based compensation. Full year SG&A expenses were $66.2 million for 2017 compared to $43 million for 2016. The increase in full year 2017 SG&A expenses was primarily due to increased salaries and benefits expense, travel and entertainment, charitable contributions, legal expenses and stock-based compensation.

During 2017, Lexicon's valuation allowance for its deferred tax assets decreased by $8.7 million due to the reclassification of intangible assets relating to XERMELO from indefinite-lived to finite-lived assets. This resulted in the related deferred tax liability now being considered a source of taxable income. Lexicon recorded a deferred tax benefit with a corresponding reduction in its deferred tax liability in connection with this reclassification.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted and reduced the U.S. federal corporate tax rate from 35% to 21%. As a result, the fourth quarter 2017 income tax benefit of $4 million represents the remeasurement of deferred tax benefit and related valuation allowance related to the newly enacted U.S. federal corporate tax rate.

Net loss for the fourth quarter of 2017 was $28.4 million or $0.27 per share compared to a net loss of $32.4 million or $0.31 per share in the prior year period. For the 3 months ended December 31, 2017 and 2016, our net loss included noncash stock-based compensation expense of $2.3 million and $1.7 million, respectively. Net loss for the full year 2017 was $129.1 million or $1.23 per share compared to a net loss of $141.4 million or $1.36 per share in the corresponding period in 2016. For the full year of 2017, net loss included noncash stock-based compensation expense of $9.5 million. And for the full year of 2016, net loss included noncash stock-based compensation expense of $7.5 million.

We ended 2017 with $310.8 million in cash and investments, which includes net proceeds of $145.9 million from the debt facility completed in 2017. And we foresee that our current cash position, together with expected revenues, will be sufficient to fund operations through the potential launch of sotagliflozin in type 1 diabetes and the cash flow positive based on the current progress of our late-stage assets.

Overall, our financial performance in 2017 reflected achievement of a series of key milestones relating to XERMELO, including approvals in commercial launches in both the U.S. and Europe and it incorporated successful completion of the Phase III program for sotagliflozin in type 1 diabetes and substantial progress in the type 2 diabetes program, positioning us for important future milestones and value generation and advancement of our earlier stage product pipeline, while at the same time effectively managing our resources and spending.

Now let's turn to our forward-looking financial guidance for 2018. Our revenues for 2018 will mostly consist of collaboration revenues and net sales of XERMELO in the United States with a smaller amount from royalties on XERMELO sales by Ipsen. We expect collaboration revenue to be in the range of $30 million to $40 million. As Alex mentioned earlier, we expect U.S. XERMELO net sales to at least double in 2018 from the $15.1 million we recorded in 2017.

We expect our operating expenses to be in the range of $205 million to $225 million. Our operating expenses include expected R&D expenses in the range of $125 million to $135 million and expected SG&A expenses in the range of $80 million to $90 million.

Noncash expenses are expected to be approximately $17 million of this total, including $12 million in stock-based compensation and $5 million in depreciation and amortization.

We expect our net cash used in operations to be in the range of $190 million to $205 million.

As we wrap up, I think it is important to consider how significant of a financial inflection point 2018 will be for Lexicon. The final costs of the type 1 diabetes registrational program will be reported in 2018 as will the full satisfaction of our cost-sharing obligations with respect to the type 2 diabetes program. As a result, even with meaningful R&D investments in XERMELO and our earlier stage pipeline assets, such as LX2761 and LX9211, our R&D expenses will moderate substantially in 2019.

At the same time, our investments in 2018 will position us to achieve very substantial milestone payments under the Sanofi alliance in 2019 and again in 2020. As a reminder, we are entitled to receive development and regulatory milestone payments of up to $430 million from Sanofi under the sotagliflozin alliance.

Of that total, as we have publicly disclosed, up to an aggregate of $110 million is payable upon the achievement of 4 development milestones relating to the results of certain Phase III clinical trials of sotagliflozin in type 2 diabetes patients and up to an aggregate of $220 million is payable upon the achievement of 4 regulatory milestones relating to the first commercial sale following regulatory approval of sotagliflozin for type 1 and type 2 diabetes, respectively, in each of the United States and Europe.

The $100 million balance relates to the achievement of a milestone based on the results of either of 2 outcome studies in type 2 diabetes patients, the completion of which would likely occur after the initial regulatory approval of sotagliflozin in type 2 diabetes.

Except for the outcome studies, all of these milestone payments relate to events potentially achievable in the reasonably near term, given the planned filings for U.S. and EU approval in type 1 diabetes this quarter, expected readouts of the core Phase III studies for type 2 diabetes in 2019 and potential filings for U.S. and EU approval for type 2 diabetes in early 2020 and the second half of 2019, respectively. You can appreciate how achieving these milestones, together with progression to breakeven and profitability of XERMELO, will potentially be financially transformative for Lexicon as we look past 2018. And that's without accounting for sotagliflozin royalties. So as I mentioned, 2018 truly represents a significant financial inflection point for the company.

I will now turn the call back to Lonnel.

Thank you, Jeff, and well done. Listen, we enter 2018 with a well-defined strategy to position this company for future growth and to build long-term sustainable value for our shareholders. Our main priorities remain centered around driving long-term value through continued execution on the XERMELO launch and filing for global approval for sotagliflozin in type 1 diabetes. XERMELO remains a significant franchise for us, and we are extremely excited to explore the use of telotristat ethyl in additional therapeutic indications where the role of serotonin inhibition, has shown preclinical promise and potentially increase the footprint of XERMELO. In parallel, we and Sanofi look forward to filing for regulatory approval in the U.S. and in Europe for sotagliflozin in type 1 diabetes in the upcoming weeks, which put us on track to have filed 2 drug applications in 2 years.

In type 2 diabetes, we anticipate initiation of Sanofi additional Phase III studies for sotagliflozin this year, with data available for a majority of the studies in 2019 followed by regulatory filings in Europe and the U.S. into the second half of 2019 and in early 2020, respectively. Lastly, we continue to advance our earlier stage product candidates in areas where we believe will create long-term value for the company. Underlying each of our development programs is a clear mission to create novel life-changing therapies fueled by innovative science, talent and our core expertise so that we can make a meaningful difference in patients' lives and create stakeholder value.

With that, I will stop there and turn the call over to the operator for Q&A.

(Operator Instructions) And your first question comes from the line of Yigal Nochomovitz from Citigroup.

Could you just give a little clarity with respect to the operational details on XERMELO? I think you mentioned that you were increasing the nurse educators but reducing the field force. I wasn't sure if that was actually what you were intending to say, if you could just clarify that. And then what was the -- what's the difference between the discontinuation rate and the abandonment rate? I wasn't clear on that.

Very good question, Yigal, I'm going to turn that over to -- up to Alex. First and foremost, I would just start off by saying as we looked at our business over the course of time, there is a great divide between where patients see their disease and how physicians see their disease, and that divide is where the unmet need is greatest. And so to be able to close that divide, you're not going to be able to do that with sales force alone. What we found was working extremely well was the deployment of clinical nurse educators who have the ability to engage with the physician office, to engage with the nurses who see some of the frontline care and they have the ability to engage with the patient to make sure expectations are properly aligned across all 3 stakeholders. That is where we were probably having our biggest impact. So the decision we made was to increase that group so that we can ensure that the understanding of how properly to start a patient on XERMELO that they then will fill their prescription versus abandon it.

And then secondly, when patients run into some challenges in the initial phases of using XERMELO to help them understand what those challenges look like and how to overcome them, so that you don't have a discontinuation rate, the way we saw it. So in the early part of the year, we saw double-digit discontinuation of XERMELO. That was very troubling. Now as we deploy these clinical nurse educators, I will tell you the effect of that is we're now starting to see single-digit discontinuation rate. So we then made the decision to then double the number of clinical nurse educators we had because they were having a bigger impact. The second part of that is that we had a better understanding of where the business was coming from, and it truly is coming from the larger institutions, which allows us to focus even more precisely with our sales force, which is a remarkably talented group of people, instead of having to deploy more resources across our community physicians, where we're really deploying against these large institutions, which does not require us to have as many sales reps. So we brought down the number of sales reps and brought up the corresponding number of clinical nurse educators, which made it a neutral cost position for us to deploy. So I will give you that into context. The second part of that, I'll let Alex take the question around the specifics.

So Lonnel, I think you've given him a pretty good explanation of what we've done. And just to reiterate, the discontinuation rates versus abandonment rates, abandonments are defined as scripts that come into the organization that never get filled for that first script. And discontinuations are patients that have been started on XERMELO and then discontinue at some point in time.

And to Lonnel's commentary, we have seen an improvement since redeploying our clinical nurse educators on both fronts. So we're seeing a reduction and an improvement in both our abandonment rate as well as our discontinuation rate, so we're quite pleased that we are heading in the right direction.

Okay, that's very helpful. And then I think you mentioned also there's more wood to chop as far as getting the message out to the broader set of oncologists that are in the prescriber base. Can you -- do you have any numerics on the number of oncologists that have prescribed relative to your target subscriber base at this point?

Great question, Yigal. Alex, do you want to take that?

Yes, so we showed you on the slide there that we have 6,000 -- a little over 6,000 clinicians that we are targeting. So we are reaching them. And we have a fair number of those that have written at least one script. But I will say that there's a fair number of them that have not written any scripts. So we look at that as the market opportunity. I think we have a fair ways to go in terms of activating a large percentage of those oncologists. But it is a very, very targeted group of clinicians, both in the academic center. About 2/3 of the opportunity we saw is in the academic centers and about 40% we saw in the community centers. We are targeting both of those. And it does require a certain reach and frequency approach. We do need to see these clinicians several times for the message to resonate with them.

Yes, I think one of the things, Yigal, that also will help us is we're stabilizing our medical field force, our medical science liaisons. We did a lot of great publications last year, but because we did not have the level of stability we would like to have had with our medical science liaisons, the message didn't necessarily penetrate out the way we would have wanted it to penetrate out. Coming into this year, the way we have structured ourselves is getting everybody in their seat where they necessarily need to be and then allows us to start to cascade that message out both medically as well as head to head from a sales perspective. But more importantly, medical education becomes a critical part of setting up the view for the drug today. But as we do this work for life cycle management, the medical pieces can become increasingly more important, and therefore, we increased our focus on bringing high talent medical science liaisons as we make that push forward.

And just to, I guess, just to give you one more piece, because you're probably looking for numbers. The 6,000 clinicians, we have over 800 prescribers that have written a XERMELO script.

Okay, that's helpful. And then one more on XERMELO, and then I've got one on sota. So you also mentioned, I think, that there was an uptick in the patient assistance program usage in the latter part of the quarter. Did you have a clarification on what's the driver for that and how that would abate in this year?

Yes, probably our biggest surprise, and to be frank, one of the biggest implications in the fourth quarter is that we saw a transition of Medicare patients who were paid patients that then went over to the patient assistance program, became unpaid patients. And I think that was directly related to Medicare patients get supported through nonprofit foundations. And when we looked into this and started to see this phenomenon, what we tracked it back to is that the foundation where they got support closed in August. And as a result, these paid patients went from being paid patients to becoming patient assistance patients. So that was probably the biggest surprise in the fourth quarter.

Now as we get into the first quarter here, that issue has not totally been abated because we don't control that issue. So we're watching that very, very carefully and very closely as we progress in this quarter. Now the good news is what we also saw is the number of new patient starts in January was quite significant or quite higher than what we saw in December, and as we said before, it was the highest level that we have seen in the last 5 months. What that tells us is the redeployment activity that we have now put in the market in the fourth quarter caused a little disruption, but in doing that, coming into January, we return to what I would consider to be the proper level of growth in new patients.

Thanks, Lonnel. And switching to diabetes, a big picture question for type 1. I don't know if you've commented on this in the past or in your prior slides but -- and in your discussions with Sanofi. But with respect to the 1.7 million type 1 diabetics in the U.S., have you got any preliminary estimates for the share that you think you could achieve? And I don't recall if you've ever discussed sort of the peak revenue opportunity for this product in type 1, but if you have some even ballpark thoughts on that, I'd be curious what you're thinking in connection with Sanofi.

Yes, it's a great question. It's one that I cannot give you because it is something that Sanofi would like to control and certainly put out themselves, as they will control the price point on the drug. What I will tell you is, you can expect the market share to be consistent with the first-in-market and the leadership role. We have every intent to be first. The fact that we are talking about filing this drug, we've gone from saying the first half to we're filing this drug in the next few weeks, is a remarkable accomplishment of a focused team between Sanofi and Lexicon to achieve this. We both understand the importance to be first in market.

The second thing that we also understand is having the robust data package allows us to set the pace with the regulators on how they ought to think about a new entry as an adjunct to insulin. That gives us a very powerful position to set up to be first. So the way you should think about this, if you had to look at other analogs, is you would expect us to be first and you would expect us to have the market-leading position in type 1 diabetes. The rest of it, I can't really give you any real direction to as Sanofi will -- as time passes, Sanofi will certainly have control over that conversation.

And one more. Just given that your filing is the first oral in type 1, do you have any sense as to what the -- if the FDA will be willing to give you a priority review? Or that's a Sanofi question?

I would say we're going to -- I would just say, in general, we have not let up on being aggressive. That's how I would answer that question. You see that now, our announcement today that we're pushing ahead with the filing much sooner than anybody anticipated. I think you should expect that we're going to be aggressive in that regard to regulators. What we have to balance that with, Yigal, is our belief is that more than likely we'll have an advisory committee. So if you push for a priority review and you have an advisory committee, more than likely you're still not going to have a real priority review. Because it just takes -- that you cannot truncate the time relative to the advisory committee. So we have to -- we're going through the pros and cons of how we want to approach that. But most importantly, I think, for sure, we're now going to be first in this effort and it allows us to set the pace for others who may attempt to follow.

Your next question comes from the line of Stephen Willey from Stifel.

Just wondering, maybe for Alex, if there's any kind of anecdotal color you have around just duration of XERMELO therapy that you're seeing right now, both with respect to responders and nonresponders? And I guess, just given the commentary around the patient assistance program, I wonder if you can maybe just provide us with a little bit of directional visibility around where gross to net stands right now?

I will let Alex speak to your first part, and I'll let Jeff speak to your second part, Stephen. But just in general, it's always a challenge of talking about the length of time, because as time goes on, that keeps changing. What I will say, where patients are having response, they are staying on it quite long, which is great. The work we have to do is for those patients, in the first few months, we have to make sure that we continue to make the case while they stay on, because if they do, if they stay on beyond that period, they tend to stay. And so that's why work has to be in general. But I'll turn it over to Alex for any specific commentary.

Yes, I would say that, that's consistent with our clinical nurse educator initiative as well, is really informing not only the patients but also the nurses and the clinicians on the importance of the duration of therapy and managing the disease over time. We have a subset of our patient population that are doing quite well, and they are staying on drug and they're highly compliant, and that's a fairly large number. And then we have a smaller subset where we have some intermittent use, where it will drop off and maybe come back again. So our goal is just over time, as Lonnel had mentioned, to continue to work with patients directly with our clinical nurse educators. And we believe that duration of therapy, just like most drugs when they first come into the marketplace, will improve over time as more and more uses in the marketplace and patients themselves become more comfortable with the utility of the product.

Go ahead, Jeff.

To answer your question about gross to net, really the patient assistance program doesn't affect gross to net at all because we record -- there's no gross revenue -- there's no revenue at all from patients who are in the patient assistance program. They are basically getting free drug. And so that sort of falls completely outside of that. It affects our revenue number, obviously, because we're not recording revenues for these pretty substantial number of patients who are in that patient assistance program. The only place that it really appears in our financial statements is in cost of sales. So we do record the cost associated with providing the drug to the patient in our financial statements and for the cost of sales.

Understood. I guess I didn't really see a noticeable uptick in COGS sequentially relative to 3Q. So I was just...

It's not really, because most of our COGS right now are straight line amortization of intangible asset, and the -- and because we had expensed most of the cost of the inventory that we're using now. So it's not -- it's not inventory, it's not running through cost of sales for probably the first couple of years. It's mostly going to be this amortization of intangible asset. So you wouldn't see very much of an uptick because that cost of sales right now doesn't -- it's mostly the amortization of intangible assets which were flatlining over the life of the asset.

Understood. And then just a question with respect to the XERMELO label expansion studies. I would imagine something like cholangiocarcinoma would probably be something more proof of concept, but just kind of wondering on the neuroendocrine side, just given what we know about serotonin in terms of the pathology of the disease, just wondering if there's any thought around potentially designing that trial in a way such that it may have some kind of registrational capacity. And then also along the label expansion lines, do you have any expectation that this will encompass a cost-sharing arrangement with Ipsen as you roll these studies out?

Yes, Steve, I think that's a good question. We're going to get into some real fine detail on all of this at the R&D Day on April 10. We always work with our collaborators and we are very fortunate we have 2 great collaborators, one at Ipsen for XERMELO and then another, [sota] with Sanofi. We are continuing to have conversations with them and making the case.

What you also -- I think what you have to understand is that as we are collaborators in some cases, we're also working on some of the same projects. So it's one of those careful balances you have to walk with your collaborator. But nonetheless, we are having good discussions with them about the potential to do that. And in the case of cholangiocarcinoma, we are seeking to expand the label in some way and same thing with neuroendocrine tumors. We'll know more about how we want to do that or we'll show more about how we're going to do that on April 10.

Okay. And maybe just one last quick one for Pablo. One of the incremental type 2 studies that's referenced is, I guess, a little pilot study in heart failure. Just curious what you are hoping to extract out of that 14-day evaluation period and how -- what you might see with respect to data or certain endpoints might inform a Phase III program?

Okay. Pablo?

I don't want to go into too much detail on the heart failure study. I think that's something that Sanofi could comment on. But I think with the 2 weeks of experience, I think what you can do is you can get some good safety information on the use of sotagliflozin and the tolerability of its doses in an acute setting. And that's one thing that I think is an interesting opportunity. Because patients in acute setting, right, they are fluid overloaded and they have a high need for treatment. There's been some encouraging data on heart failure from empagliflozin but it's been about preventing hospitalization and not treating people in the acute setting. So I think that's basically the framework for that pilot study that offers a lot of value.

Your next question comes from the line of Jessica Fye from JPMorgan.

I had a couple on XERMELO and a couple on sotagliflozin. First, I just want to make sure I understand the comments earlier. Did you say that despite the December issues, there was still a significant increase in patients with paid scripts quarter-over-quarter? And if so, how do we reconcile that with the reported sales being essentially flat quarter-over-quarter? Second, just you mentioned that charity that helps these patients with their co-pays closed down. What charity was that? And have you identified other patient assistant charities that support carcinoid patients? Also, with Ipsen launching in Europe, can you comment on the average blended price you're expecting for XERMELO in Europe? And then for sotagliflozin, you expect to be first here. How many products do you ultimately expect to be approved in the SGLT2 class for type 1 diabetes? Is it just dapa? Should we think of empa as coming to market in type 1? And lastly, maybe for Dr. Lapuerta, curious how you think about the oral semaglutide data and that product setting into the type 2 treatment paradigm? Is that more something that could affect the DPP-4s relative to the SGLT2s, or just curious for your insights on that.

So thank you, Jessica. Let me first give a point of clarification. The point, I think, we made is that we did see a decline in the fourth quarter, in December particularly, on new patients. So not dispenses that I spoke to, but new patients. What we then saw in January was a return to growth on new patients. And so what we have to watch very carefully is to make sure that, that growth stays on track. Thus far, we believe it is staying on track, which is the good news. The challenge for us in the fourth quarter relative to dispenses is you had a shift in your book of business where Medicare patients, a good percent of our Medicare patients who were paid patients, converted over to nonpaid patients into our patient assistance program as a result of the foundation that closed. I'll let Alex speak to -- or I'll let Jeff speak to the foundation and where we found -- which foundation that closed and what the implications are of that. Jeff?

Yes, there is a foundation called HealthWell that supports patients across a variety of different diseases. One of their funds relates to patients who have neuroendocrine tumors. That covers a very wide group of different potential treatments. And that fund was the one that closed. There are some other funds that support -- that can be used to support people with carcinoid syndrome, but that's one that's really focused in the neuroendocrine tumor space and so is more sort of attuned to what patients that have carcinoid syndrome diarrhea might tap into, so...

Yes, I think, to Jeff's point, that was what I call the fourth quarter surprise. I don't think when we look back and look at when did that foundation close, it closed in, I believe, August. And then we start to see our patient -- we started to see patients, they stayed -- the good news is, what I will say is, the patient stayed on the drug. The bad news for us is they went from being paid patients to being nonpaid patients, and that was not a small group of patients. So that had a huge impact on us in the fourth quarter. As we get into this quarter, we, as a company, certainly support nonprofit activity that will support patients across the board. And so that's work that we have to continue to do. But certainly, we're not in control of foundations and how they administer things and when they close. So it is something we'll have to watch, not just this quarter, but throughout the course of the year, because a good portion of our business is Medicare patients. And how that distributes -- how that's going to impact the allocation of our sales, we'll have to watch very closely. The other question that you had, which is the other foundations, I will simply say, we -- there's not a whole lot more we can do around foundation support. The number of approvals, I believe, moving over to sotagliflozin, I would -- Jessica, I think you've heard me say this before, I always felt it was too early for people to declare victory from ESAD (sic) [EASD] on one interim analysis when we have completed an entire program and characterized sotagliflozin. And we do believe SGLT1 mechanism has contributed to the balance of this program. So what I will only comment on is what our potential competitors have said. I think AZ has now brought in their 52-week data, and they have chosen not to share that at this moment. They have also acknowledged that they have to do more work around understanding the DKA issue as a result of certainly bringing an in-house 52-week data. And they're going to wait for their other 52-week data to call out so they have the full balance of information. So I think before there's a declaration that people are coming for sure, we'll have paid very close attention to what that data is going to tell them. Will the A1c benefit hold over time? We'll have to see. Will the DKA rate hold over time? We'll have to see. And then what are the implications on the other side of safety, which is severe hypoglycemia? We will have to see. And so there's a long way to go still, in my opinion, for what AZ has to say about their experience in type 1. I think for Lilly, Lilly has talked about providing additional color for their type 1 program. But when I look at their forward-looking statements, there's nowhere in there about filing this year for type 1 program. So from my perspective, the only company that can say resolutely that we are filing and we have a full characterization for safety and efficacy for type 1 at this moment is Lexicon. That is a fact. So the rest of it, I think, is speculation, and they're going to have to wait and see as the data calls out as time goes by. As to the number that we believe will be in market, I can't say for sure, but I know for sure we will be in market. I'm trying to think there was a question, I believe, for you, Dr. Lapuerta, on a competing data.

Oral sema.

Yes, the question was about oral semaglutide. I think it's really difficult to give you a lot of information. We don't have a lot of information on that yet. There's a general feeling within the industry, as I state to colleagues, that the development of oral formulations, peptides, has been difficult, and that it may be difficult to achieve consistent absorption and that it may require a lot of material. And so we generally have a feeling that the development is a challenge and that the costs could be high. It's hard to say anything more than that.

Yes, listen, I think Novo Nordisk is an outstanding company. There's no question about it. And their science is outstanding and their reputation is matched by that. But I think they probably have the biggest challenge that they're going to have near term to convert that peptide into an oral product. But with that being said, I would not doubt their ability to do so. I would just simply say the time and the cost to do it is what's going to be the roadblocks for success.

Okay, understood. The last one, which is the average price you expect for XERMELO in Europe?

Yes, so that is something that is really Ipsen's -- under Ipsen's control. I can just tell you that the relative reference price for the product in Europe is going to be related to somatostatin analog pricing. Somatostatin analog pricing in Europe varies by country, but it is considerably less than it is in the U.S. So on the order of 30% of U.S. pricing. So the price ultimately will be determined as it relates to negotiations that they have with payers, but I would expect that negotiation to be anchored around what somatostatin analog pricing is in Europe and what somatostatin pricing is in the U.S.

(Operator Instructions) Your next question is from the line of Chris Shibutani from Cowen.

For the type 2 development program, I just wanted to ask about the study, the head-to-head, particularly looking at the renally-impaired patients and your choice for choosing empa head-to-head. Can you talk about what we should be thinking that you're looking for here, because we're talking -- we're interested in particular what endpoints you may be focused on there and what kind of a result you think would be interpreted as being a competitive advantage commercially potentially?

Chris, I think it's a great question, and I'm going to ask my colleague to walk the tightrope, because this -- we're talking about type 2, and really that is Sanofi that really wants to and needs to address type 2 general questions. But I ask you to do -- Dr. Lapuerta, try to give your general statement if you can give some context.

Yes, I don't want to give a formal description of endpoints and powering assumptions and quantitative estimates. But what you're seeing from us is the profile of sotagliflozin and how it differentiates in type 2 diabetes. And I think the patients in renal impairment having robust efficacy there is one place. And another thing that we have to think about is we do have some pretty intriguing and pretty exciting results in blood pressure, and that's something that we are exploring further.

Chris, the way I think for us to think strategically about the way the drug is being developed, and I'll just give you that general view, is the prevalence here in type 2 we know, or the issue in type 2, is that you have patients that are going to unfortunately have renal impairment. It's just a hallmark of type 2 diabetes, and that number grows over time, whether it's stage 2, it goes to stage 3, it goes to stage 4. If we're able to show a beachhead here of remarkable success where others have not, and it will be because of the SGLT1 mechanism helping that along. Achieving success at that stage certainly gives every physician the opportunity to think about, if you're going to use a SGLT2, which one can you use and stay with through the course of the patient's journey, knowing the fact that a number of them will become renally impaired. That allows us to address the entire market relative to having that indication. So I think that is probably the most aggressive approach that we're taking here strategically. Beyond that, I will stop talking before I get myself in trouble with my colleagues. But I do think they are being aggressive, I think it's the right design, I think it's the right effort and it's the right focus for us to win.

I appreciate that. On XERMELO, in the past, historically, you'd bring overall long-term guidance in terms of thinking about peak sales potential, $350 million. Obviously, the calculus to get there, I don't think you've specifically elucidated, but it includes things like number of patients, duration of use, et cetera, many of the factors that you've somewhat addressed. Do you remain confident in that peak sales potential outlook?

Yes, let me see if I can address that in terms of how we are approaching XERMELO. What I've always said to everyone here is that we are going to continue to look at XERMELO in the early days of going back and looking at the preclinical data to give us guidance because we thought there was other ways in which we can continue to support XERMELO. That then would give us every confidence that we can get to that $350 million. That hasn't changed. Because what we're laying out to you is, should we be successful particularly in the neuroendocrine tumor area that we are now exploring, that expands the opportunity in the carcinoid syndrome category for us. And then in addition to that, the work we're now doing in cholangiocarcinoma just adds value to it. Carcinoid syndrome diarrhea, what I will say, because of the time it takes for that ramp-up, because of the delta between where patients are and physicians are, that will take longer. But to speed up the time to get there, it will require us to contain and develop this compound specifically for tumor, neuroendocrine tumor. And therefore, a lot of our effort and what we're going to talk about on April 10 is to accelerate that work on the development side because our confidence around the research we've done now says that we actually can pull it off. So I wouldn't be adjusting our forecast. What we will try to adjust for you, Chris, over time, is how we're going to get to it with all the efforts that we are making around the XERMELO molecule itself.

Your next question comes from the line of Alan Carr from Needham.

A couple of them. Can you go into the reasons for abandonment? I assume it's cost for the patient. And also, I think in the past you've talked about the prescribers for XERMELO coming from different deciles. It was, I seem to remember, being fairly evenly distributed across physicians. But -- and I think you mentioned today though that it's concentrated in a few centers. I wonder if you could can talk about that some more, if anything's changed over time?

Okay. Alex, I'll turn those 2 questions over to you.

So we are seeing scripts coming from both our top decile positions. What I said today was that 60% of our business is coming from the academic centers. The academic centers have both high decile clinicians as well as low decile clinicians. What we're seeing in some of those leading academic centers, with those high decile doctors, is significantly greater number of scripts being written by those clinicians than our lower decile clinicians. So a greater percentage of our business is actually coming from those larger academic centers because there's more patient volume there and they're actually being activated at a higher frequency. And that hasn't changed at all from the beginning of the launch.

Okay. And then the abandonments, I take it just because a patient doesn't like the cost when they go to fill it, or...

Actually, I mean, that's one of the reasons. But there's a number of reasons that somebody would abandon a script. They walk out of a physician's practice, they don't have a full appreciation for the utility of the drug and they decide not to move forward and fill that script. There's cases where the patients, if they are in -- if their disease has progressed pretty dramatically, they may decide not to move forward with XERMELO at that point in time. So there's some clinical reasons that they -- even though the physician wrote the script, they choose not to move forward with it. Financial reasons is actually not that large of a percentage. It's a smaller percentage of rationale for abandonment. And we think -- we feel very confidently that with our clinical nurse educators engaging these patients on the front end, if they have a deeper appreciation for the utility of XERMELO and the benefits of XERMELO, there will be a lower -- a tendency to decrease that abandonment rate, and we are absolutely seeing that. We are seeing a decline in our abandonment rate month over month since the launch. So we know that it's working; we just need to continuously improve upon that.

You gave us a general sense of the discontinuation rate being double-digit and now single digit. What's the figures around the abandonment rates?

They were also in the double digits and now in the single digits. Similar.

Yes, Alan, I think we share this with all of our stakeholders. I think after the second quarter, we saw this phenomena happening and we responded to it. And one of the way responded to it were with these clinical nurse educators and it was quite impactful. So with that, we made the decision in the fourth quarter, as we stated before, to bring more of them on, and on the frontline, to try to avoid this going forward into the future. And so I'm kind of back to it. We were very happy with what we saw in January particularly. And our hope is that, that carries forward the rest of the quarter. I think the number one issue for us to keep an eye on is what we've already stated here, is the implication of the nonprofit foundations. Should they not open or if they close too early and things like that, it could have an implication to patients getting assistance on the Medicare side.

I just want to give one point of clarity, just on the foundations themselves. The foundation doesn't actually close. So the funds that are available to support various patients are no longer available. So the fund is still an active fund, it's just it closes for a particular disease category. And this is not unique to XERMELO. There are a number of drugs and categories that are impacted in a similar manner.

Your next question comes from the line of Robin Boldt from UBP.

I have a quick one on the potential to explore sota in other indications. Novartis seems to be extremely excited with their SGLT1/2 compound about the weight loss of this compound, so that they have now initiated an obesity study. Would you consider to run a similar study with your partner, Sanofi? And then a quick follow-on question. You refer to the differences in the inTandem trials and the DEPICT trial. And I think it seems that one should have less appreciation for the key differences between these trial designs and I'm interested what feedback you received from experts in the field. Are they aware of the disease differences such as the much higher baselines and the, kind of, the less conservative insulin optimization and the pre-randomization?

So thank you for the questions, I think those are 2 very good questions. I think Novartis is right. From the time I started with Lexicon, here I always felt that there were properties of this drug that are metabolic in nature and it's something we should explore. But our focus has been on type 1, type 2. And now that we're off to the races, about to file for type 1, and certainly we're now well on our way in type 2, it only begs the question to the point you're making, what else can we do with sota. And so what I would just say to you in a general way without speaking on behalf of our partners, we are now engaged in discussions to answer that question, "What else with sota?" As we move from perusing through all of our data and getting it ready for regulators, we now have the opportunity to go through that data and look at the preclinical data that we also have and make a determination, are there additional opportunities for sotagliflozin. My personal belief is that there are. Also, my personal belief is I believe Novartis is correct in how they are thinking about things. And we could be in a very strong position to continue to build additional indications for sotagliflozin and building continued value for sotagliflozin over time. But that is something that will be closely discussed and debated within the alliance on how we will go about doing it should we choose to do so. As to the second part of the question, I'm trying to remember. DEPICT. Dr. Lapuerta, do you want to handle DEPICT?

The question was about, are experts aware of some of the key differences and have they responded to it? And the experts who know our program have really responded very well. They saw the differences right away. And you saw some of that and some of the responses at the European Association for the Study of Diabetes meeting, when the DEPICT results were released. They really appreciate [this thing] of having studied patients with an A1c as low as 5.6% and as high as 15.4% in our program. And they see value, particularly around this issue of severe hypoglycemia. The DEPICT program was cautious and excluded patients with an A1c less than 7.5%. And the reason is that patients with an A1c less than 7.5% are very high risk for severe hypoglycemia. But with the balanced mechanism of action that we have, we weren't concerned that we would have too much urinary glucose excretion that -- and we thought that we would have a reduction in postprandial glucose, and it could actually avoid severe hypoglycemia. And as a result, we saw results where at 52 weeks, we had less severe hypoglycemia with sotagliflozin 400 milligrams than placebo. We see excitement from physicians about these data. We don't know if empagliflozin could provide it. What physicians appreciate is that we went ahead and studied it. And it gives them a level of confidence with different patient types that they face in type 1 diabetes and different patient profiles, that they know what they're going to get with sotagliflozin.

Yes, I think the biggest challenge we have is that everyone is very ready to ascribe the same across the entire category. And that's just going to be a battle over time, and evidence will determine whether or not this value of the same across a category holds or the belief that we have that it is not the same. And so from our perspective, we will continue to tell our story. But I also recognize it is an uphill battle to get people to see the uniqueness and the differences in design. And ultimately, I believe there will be technical differences, but we will have to wait because, while we are done, others still have to come this way and we'll see. The other part of it, on the type 2 side others have done it, and I think they've done a great job on the SGLT2 side very well, but the way these studies are focused by Sanofi is to win where the mechanism gives us the greatest indication we can win, and that is going after a subset of population that if you win there, it gives you entr�e into the entire population. That is a very fine strategy that I believe, ultimately, the mechanism will tell the story.

And with that, I will now turn the call back over to Mr. Coats for his closing remarks.

Well, thank you for everybody who joined us. As I said before, I sit today very, very proud. We've been on a long journey with sotagliflozin for type 1 and we've had to work through lots of headwinds of disbelief as to whether or not we would even be here, and we are now here. We've had conversations with regulators across the world. We're very confident in the conversations we've had with them. We now have our program done, completed, and we are weeks away from filing it. So I'm very proud of the team and I want to say that publicly, to be here. I'm very proud of our partners. They have played a critical role in helping us get here.

As we turn to the rest of this year, we will continue to make the focus on XERMELO a critical part of the value creation that we'll have both in terms of course correcting some of the things I think that have shown to be a challenge in the fourth quarter, but I have every confidence we can get that turned around and keep XERMELO growing and on schedule.

As for developing XERMELO further so we can get to our peak opportunity, we're going to talk a lot more about that April 10. So we have every confidence that we will develop our way toward having XERMELO meet its full peak opportunity.

And last but not least, I just want to take the opportunity to thank all of our colleagues throughout 2017 who executed extremely well. Because as Jeff has said so eloquently, 2018 is indeed a transformative year for Lexicon. Because we are ahead of schedule of filing type 1, that then sets us up to significant milestone opportunities with Sanofi in 2019 as we have success across the globe in filing this compound and getting it approved.

So thank you for your questions, and thank you for your interest.

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