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Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)

Q4 2009 Earnings Call

February 23, 2010 11:00 am ET

Executives

Wade Walke - Director of Communications

Dr. Arthur Sands - President & CEO

Dr. Brian Zambrowicz - EVP & CSO

Dr Phil Brown - SVP of Clinical Development

Jim Tessmer - VP of Finance and Accounting

Analysts

Operator

Welcome to the Lexicon Pharmaceuticals fourth quarter and year end 2009 conference call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised that this call is being taped at Lexicon's request.

At this time, I would like to introduce your host for today's call, Wade Walke, Director of Communications. Please go ahead, Mr. Walke.

Wade Walke

Good morning and welcome to the Lexicon Pharmaceuticals fourth quarter and year end 2009 earnings conference call. I am Wade Walke and with me today are; Dr. Arthur Sands, Lexicon's President and Chief Executive Officer; Dr. Brian Zambrowicz, Executive Vice President and Chief Scientific Officer, Dr Phil Brown, Lexicon’s Senior Vice President of Clinical Development; and Jim Tessmer, Lexicon's Vice President of Finance and Accounting.

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.

The call will begin with Dr. Sands, who will discuss our key accomplishments for 2009. Dr. Zambrowicz and Dr. Brown will then discuss the status of our drug development programs and Mr. Tessmer, will review our financial results for the fourth quarter and full year 2009 and discuss our financial guidance for 2010. We will then open the call to 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 research and development of LX1031, LX1032, LX2931 and LX4211. And the potential therapeutic and commercial potential of those drug candidates. This call may also contain forward-looking statements relating to Lexicon's future operating results, financing arrangements, cash and investments, discovery and development of products, strategic alliances and intellectual property.

Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward-looking statements, including uncertainties related to the timing and results of clinical trials and preclinical studies of our drug candidates, are dependence upon strategic alliances and ability to enter into additional collaboration and license agreements, the success and productivity of our drug discovery efforts, our ability to obtain patent protection for our discoveries, limitations imposed by patents owned or controlled by third parties and the requirements of substantial funding to conduct our drug discovery and development activities. For a list and a description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission.

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

Dr. Arthur Sands

Thank you, Wade. Well 2009 was really a year in which we achieved a major milestone in our corporate history and that is whether saying proof-of-concept in patients and as for two significant Phase 2 programs and will spend I think most of the time today discussing some of the results from those two programs, but in addition to that throughout the year, last year we progressed on higher pipeline forward all focused on a novel mechanism or actions and of course ever true to our mission to discover breakthrough treatments for a human disease.

If I look at our pipeline on slide four, which is focusing just on the Phase 2 stage program, we've seen our most recently and really in the last quarter here, the progression of LX4211 in its achievement of human proof-of-concept in type 2 diabetes patients. And those results are here more today and as we have covered previously really are remarkable and I think further reaffirm our entire platform in terms of developing new therapeutics. LX1031, in the last quarter, quarter four of 2009 also achieved proof-of-concept in irritable bowel syndrome and then on deck are the next two programs which are also in Phase 2, LX1032 for carcinoid program, carcinoid syndrome and LX2931 for rheumatoid arthritis.

I think if you look at each of these programs, you will notice that there are areas of really significant on unmet medical needs, some have major markets potential and they are all progressing well. So we're very excited about what we achieved in 2009 and I have to say 2010 is off to a very rapid start as you can imagine now as we are learning more and more about each of these drug candidates, our business opportunities are expanding and we see a very bright 2010 ahead. So, with that we'll turn to the discussion of the clinical programs a full update. There is a lot to discuss and a lot to cover, so we are kind of divide it between Dr. Phil Brown who'll take the first two programs and then Dr. Brian Zambrowicz on the second two and then we'll open it up for questions. So Phil?

Phil Brown

Thanks very much Arthur. Well as Arthur mentioned we achieved several significant milestones over the past year and over the past quarter associated with continued advancements of our pipeline and I'd like to start this morning with an overview of the most recent announcements on LX4211. LX4211 of course is our oral dual inhibitor of the SGLT transporters and we recently completed a phase 2A study in patients with Type 2 diabetes where we observed significant improvements and multiple parameters associated with this condition. And based on these emerging results we believe that LX4211 potentially represents the best in class compound in the setting of Type 2 diabetes and we'll cover several of the parameters that we believe help differentiate this compound from other compounds in the class.

The approach we took in the Phase 2A study was a very traditional approach in which we randomized patients in a double blind fashion to either LX4211 or placebo and these of course were patients with diagnosed underlying Type 2 diabetes and then we followed a number of parameters that were typical of studies at this stage of development. The approach was to evaluate LX4211 with either 150 milligrams given once daily 300 milligrams given once daily or they will randomize to a matching placebo in a 1 to 1 to 1 to 1 fashion.

The demographics of the patient population that was recruited was very consistent with patients included in other trials and the stream parameter was such that we were able to washout patients from the existing anti-diabetic therapy in this case we identified patients who were on existing metformin therapy. And we washed them out for a working period of time prior to randomization to the study.

Also we were able to sequester these patients over the entire treatment period in a single center and based on that we brought patients in five days prior to the randomization in order to stabilize the dietary regimen and getting better ideas of the baseline parameters prior to randomization to therapy.

Now turning to you [essentially] observed with regard to the fasting plasma glucose you'll note on this slide that patients were not well controlled despite the bulk of these patients being on existing base line metformin therapy. As we washed the patients out of metformin you'll see an expected rise in the Fasting plasma glucose and again we sequester the patients that the might as 5 in order to standardize their diet and stabilize the base line characteristic you'll note a clustering of the values at this time point.

You know what's important here is with randomization to compound we see a very rapid onset of a [fact] with divergence set of patients randomized to 4211 from those randomized placebo illustrated in the green line, first of all first time point illustrated here day 7 we see highly statically significant improvements relative to placebo and matter of fact it continues over the remaining 28 day treatment period.

I'd like to draw your attention to the fact that by the completion of this 28 day study period the patients randomized 4211 were achieving better results in this parameter, relative to where they were at baseline. Again I think that’s an important finding based on the fact that they were on the standard of care prior to coming end of the study and fully a third of these patients achieved Fasting plasma glucose as by the end of study less than a 105 which is near normalization of the Fasting plasma glucose. Again a very important robust effect on this parameter and the rapidity with which we saw this result began to allurge as a significant finding of this study.

Now we also like (inaudible) said glucose tolerance testing, this is in evaluation of how patients respond to a glucose challenge. In this slide we have graft the area under the curve so glucose tolerance test asses the number of blood following a glucose challenge over a defined time point and we have calculated the area under the curve on this graphic and again you see our virtual super imposition of both treatment arms of individuals randomized to 4211 and again a highly statically significant improvement relative to placebo. And again I would like to point out that we observe this response here at day 2 which underscores the robust effect and the repetitive of effect that we observe following randomization to compound. This effect continues over the 28 day treatment period with continued improvement each of these time point seeing highly statically, significant relative to placebo.

Now moving to hemoglobin A1c this of course is an incredibly important parameter for compounds associated with management of diabetes, hemoglobin A1c is lagging indicator of over overall glycemic control that reflects the overall glycemic control over a extended period of time and we didn’t fully expect to see this type of robust effect over a four-week treatment period based on the fact that it’s associated with longer-term outlook on glycemic control. And here what you will note is that patients randomized to 4211 showed a significant improvement in this parameter despite only four weeks of therapy due to a (inaudible) significant improvement and the low dose achieved a 0.66% improvement and the high dose of 0.76% improvement.

I think it’s important to note that we would expect only about a 50% effect of the compound on this parameter over a four-week treatment period and that we would not expect to see a full effect of the compound until week 12. So we are encouraged by this observation and believe that we will see an even greater effect as we go into longer-term therapy with the compound. I would also like to point out that 30% of the patients randomized to 4211 achieved hemoglobin A1c levels less than 7 which again has been an important milestone for therapies being developed in the setting of diabetes.

Now turning to our biomarker that we have utilized in both preclinical and even in our Phase I studies which is urinary glucose excretion. You will note here that individuals randomized to 4211 showed a very robust and acute effect showing increased urinary glucose with the onset of randomization and this is highly statistically significant as you might expect relative to placebo. You will note that as the therapy continues there is a decline in glucose excretion over the 28-day treatment period and this is reflecting the overall improvement in glycemic control that we achieved over the treatment period. Now also because patients were sequestered, had the opportunity to follow a number of additional parameters outside the typical glycemic evaluation.

In this slide, we illustrate the change in weight loss that was absorbed over the treatment period. You will know here that patients randomized to 4211 showed a more significant weight loss over the four-week treatment period relative to placebo. And similar to A1c, we would not expect to see the full effects of 4211 on this parameter until a longer period of duration such as approximately week then or 12 of therapy. So we think that this is a very important observation at this stage of development and bodes well for future development.

Moving to the overall safety profile of the compound, LX4211 continues to perform very favorably. We've not seen any evidence of dose-limiting toxicity emerge either in our Phase 1 studies or importantly as we moved in the patients over this 28-day treatment period. The adverse events were generally mild and equally distributed across the treatment groups, and that includes of course the placebo randomized subjects as well.

So in summary, we believe that 4211 represents a potential best-in-class compound in the setting of type 2 diabetes, and we believe that this is based on the fact that it is hitting both SGLT1 as well as SGLT2 and we believe that this offers significant opportunities for differentiating the compound in the class and are eagerly awaiting, progressing the compound into the next stage of development, which is progressing at present.

Now moving to LX1031; this is our tryptophan hydroxylase inhibitor which reduces peripheral serotonin production that we’ve positioned in the setting of irritable bowel syndrome. The study design we undertook for this proof of concept again was a fairly typical design in which we focused on patients with either diarrhea predominant or mixed IBS based on Rome III Criteria.

We evaluated two dose levels of LX1031 against placebo over a 28-day treatment period and we also included a two-week run in period to establish baseline conditions and a two-week follow up period to see an offset of activity of the compound. The end points we studied in the trial were very consistent with what you would expect in the setting of IBS and we also had a sub study in which we evaluated biomarkers of interest particularly urinary 5-HIAA which has guided us both preclinically and in Phase 1 development.

Turning to the primary end point of the study which was a global endpoint. This is a traditional endpoint that’s been utilized for the approval of agents in the setting and what you will note here is that patients randomized to the high dose LX1031 showed a statistically significant improvement as early as week one with a durable effect over the four-week treatment performance.

Now you will note in blue, the low dose form of LX1031 where we see an improvement relative to placebo in week one and we began to lose that effect as we see encroachment of the placebo-randomized subjects over the treatment period. It’s important to note that this magnitude of effect difference that we see between the high dose in the placebo is similar to the agents that’s been approved in the syndication and we think this data represent a fairly significant finding over four weeks of treatment and the data are fairly consistent with what has been observed in other agents relative to the effect reported in the placebo. I would also like to point out with discontinuation of dosing week four we see a fairly rapid offset of effect in this very meaningful parameter which really underscores the pharmacologic activity of the compound in this setting.

Now we also saw an improvement in stool consistency in this study, which is an important confirmation of the pharmacologic activity at the compound. On this graph we've mapped the Bristol stool scale and you'll note again with high dose randomized subjects here illustrated in red, we see a statistically significant improvement at week one, that’s durable over the four week treatment period relative to the placebo control and again, following discontinuation of dosing at week four we see a return to baseline conditions which again underscores the overall pharmacologic effect of 1031 on this parameter.

Now as mentioned, we also had the opportunity to study the biomarkers of interest here illustrated in this graph is a 24 urinary 5-HIAA which is the primary metabolite of serotonin and reflects overall serotonin production. You'll note the high dose and low dose arm showed a reduction in urinary 5-HIAA over the 28 day treatment period. This is very consistent with what we consider as pre-clinically in Phase I and confirms our pharmacologic activity as a compound for the mechanism at actions standpoint.

So, LX1031 was extremely well tolerated over the 28 day treatment periods at both of these dose levels and I think this is incredibly important of finding for any compound being considered in development at IBS, it must be safe and well tolerated and LX1031 continues to perform very favorably in that regard. We did see statistically significant improvements in the global assessment over the treatment period and there was also a significant improvement of stool consistency for the high dose arms in both of those parameters.

Now one of the most important findings of this study was a statistically significant relationship that was observed between the reduction in urinary 5-HIAA and its correlation with the global assessment. This was statistically significant, and we believe that this is the first demonstration of a correlation between a pharmacologic modulation and a clinical response in IBS and for the first time, illustrates an objective measurement associated with this indication. We believe this is a very important finding for further development of LX1031.

So in summary, with 1031, we believe IBS represents a significant and unmet medical need with very limited treatment options at present and based on these observations for 1031, we are very encouraged by its effects and progressing it into the next stage of development. At present, we're working on improving the overall formulation and the next stop following that will be to progress it into an oral availability study prior to moving it in to the 2B dose range of study.

And with that, I'll hand it over to Brian.

Brian Zambrowicz

Thank you Phil. I'll be describing the two programs where which we expect to paying proof of concept data in the second half of the year. I'll begin with LX1032, it's our tryptophan hydroxylase inhibitor for the treatment of carcinoid syndrome. Carcinoid syndrome is the result of neuroendocrine tumor. Typically these tumors begin on a gastrointestinal and they contain themselves, but produce large amounts of serotonin. And once they have [exercised], they can dump that serotonin into the circulation and that can then cause severe gastrointestinal symptoms including diarrhea and abdominal cramping and pain.

Although LX1032 is a tryptophan hydroxylase inhibitor, it is a unique chemical entity from LX1031 and that was required because in order to get to the tumor, we needed systemic exposure. However, LX1031, LX1032 does not cross the blood line barrier. Are currently a phase IIA trial, its ongoing and this is a program that could move quite fast. It has fast track status in the US and often designation in Europe.

We're very hopeful about this program because we believe the mechanism has been demonstrated to be effective for treating carcinoid syndrome based on an old study with a compound called (inaudible). This (inaudible) in general a medicine paper based on data from the 1960s, describes the treatment of 16 patients with carcinoid syndrome and PCPA gave good excellent control of the GI symptoms and 13 out of 16 of those patients. That included both control their diarrhea as well as improvement in their abdominal cramping and pain. However this compound crossed the blood line barrier and cause side effects including severe depression.

What very next thing is the data from their biomarker analysis which is given on the graph on the left. This is looking at one of those patients that was treated with PCPIA and responded and what you can see is the 5-H1AA measurement in the urine has reduced by about 50% to 60% after treatment with PCPA. That encourages us because on this next slide, we show our Phase [1v] data. We're looking at our pharmacogenomic effect of LX1032 compound as it's related to 5-HIAA in the urine. And what we did is dose in at day 5, 10 and 14 we measured urinary 5-HIAA and if you focus just on the day 14 timeframe you can see that the top three doses are achieving approximately an equivalent drop in the 5-HIAA biomarker of about 50% to 60%. The nice thing about that is its right in line with the effect that were associated with the clinical benefit with pCPA and that does give us a lot of encouragement that we have a good chance of seeing a clinical benefit with LX1032.

So our Phase 2 clinical trial is a double blind for randomized placebo controlled study in patients with symptomatic carcinoid syndrome, refractory to (inaudible) therapy. It will be conducted in a number of centers in the U.S and will enroll up to 28 patients. It will consist of a serial dose escalation followed by cohort expansion and an optimal dose where we see a clinical benefit.

And there will be 28 days of treatment for each dose level. The end time and points that are straight forward we'll be looking for changes in daily bowel movement, they significantly have decreased as well as the specs on GI's comfort. And we will be evaluating across the safety and tolerability of LX1032. We will also in the next month be initiating an open label study in Germany and register the results for one or both of these studies by the second half of 2010.

Summarizing then, and we think this LX103 is a really interesting compound especially and for a biotechnology company patients with carcinoid syndrome currently have only one therapy that’s (inaudible) . It’s not a direct inhibitor of the serotonin synthesis rather its an indirect inhibitor with secretions and because of that virtually all patients have GI symptom breakthrough and our agent is a direct inhibitor, the synthesis of that neurotransmitter which is causing the GI symptom.

In addition most of these patients are treated at a small number of centers and we have this opportunity again to move very fast because of the designations we have both in the US and Europe. Down the road there is data that indicates that there are anti tumor effects of inhibiting serotonin synthesis although we are first looking at a relief of GI symptoms in carcinoid syndrome. Ultimately, we would like to see the effect of this inhibition on the tumor growth itself.

And moving on to the final program LX2931, a small molecule orally bioavailable agents for our main disease and we are currently in Phase 2 trials in rheumatoid arthritis. The part of this compound is an environment within the cell called sphingosine-1-phosphate lyase or S1P lyase. It inhibits the breakdown of the an endogenous second messenger called the S1P, the 11 inhibits the target one would expect S1P levels to be raised both within the cell and external for the cell where it can interact with the S1P receptor. We believe both of these have anti inflammatory benefits. When we do animal pharmacology studies we can see ten fold increases in S1P levels within T-lymphocytes. And it’s been demonstrated in the literature that increasing S1P levels decreases (inaudible) activity which then decreases inflammatory response.

So this intracellular benefit, we design half of the benefits are interacting with S1P1 receptor and effect earnings by processing's. A point out of this pathway is to become of high interest because our sythectic receptor agonist such as FTY-720 which Novartis' demonstrated to be effective in treating patients with multiple sclerosis. We think at this point in the past we have particularly appealing and could have avoid some of the side effects of the synthetic receptor agonist. And one of the reasons that’s demonstrated on this slide and the study we dealt (inaudible) for three days with LX2931 and we have removed a variety of organs and we look at the effect S1P levels. And what was quite interesting is that, it’s the specificity of actions of the lyase inhibitor LX2931 in that we only saw large changes in S1P levels in organs that are important for our main functions. In the five months we saw roughly 80 fold increase in S1P levels, 25 fold in the (inaudible) and about 45 fold called in the (inaudible). However, another organs we did not see significant changes in S1P levels, and that becomes particularly important when one looks like at organ such as the heart or the eye, where the receptor agonist are known to cause side effects such as bradycardia and Macular Edema. We believe that the lyase inhibition in part is a very specific effect unlike the agonist that hit the receptors wherever they are in the body and that’s supported them by the fact that LX2931 does not cause bradycardia and this is the best test study that appears to be conserved across species as we have not seen bradycardia in mice, rats dogs, monkeys and most importantly humans.

On the next slide I think one of the other intriguing aspects of hitting this point in S1C pathway is that in this model we are looking at collagen-induced arthritis in the mouse and on the left we are looking at inflammatory response based on change in [angle] fitness that is slowing. And relative to placebo-treated animals in green you can see that LX2931 locks the inflammatory response. However that’s inspite of the fact that there is only a modest decrease in circulating peripheral blood lymphocytes as seen in the right of our graph, only about 35% to 40% reductions. We think this is important because it does not cause the severe imminent depression observed with some of the receptor (inaudible), and we think the reason we are able to get this very strong anti-inflammatory effect is because we have this dual mechanism of raising S1P levels within the cells as well as hitting S1P receptor external to the cell.

Another model that we have run of arthritis is the rat (inaudible) model. We like this model a lot because we believe that mimics what are trying to do in our Phase 2a trial. What we have done in this experiment is we have allowed this (inaudible) arthritis model to reach half maximal inflammatory response before we began treatment. And what you see in the left side in black is methotrexate (inaudible) inflammatory response alone. LX2931 is well in the middle and gold is not alone in block inflammatory response, however in the red graph the combination of methotrexate and LX2931 effectively blocks further inflammatory response and we like it because in Phase 2a we are going into patients who are failing on methotrexate therapy. We have done an extensive Phase I trial with LX2931, looking at it in over helping normal volunteers, we felt that with the drug during our action study to show that the combination with methotrexate did not cause any interaction with [sales] and then we have been able to move on to our Phase 2a study.

I will show one result from our Phase 1 clinical trial and that’s the effect of LX2931 on circulating peripheral blood lymphocytes and what we can see is that a dose dependant reduction in circulating peripheral blood lymphocytes. And as it reached at 24 hours after a single oral dose and (inaudible) is about 50% reduction and it hit at about a 125 milligrams and even as one pushes the higher does, there appears to be a floor effect where you do not push down lymphocytes counts any further.

And importantly about three days after that (inaudible), the lymphocytes count in the peripheral blood returned to normal. This (inaudible) rate we think is especially important for our drug in this class because if one were to observe an infection you'd like to (inaudible), again some of the (inaudible) is going to have very extended recovery time.

So the phase 2 study is ongoing, randomized several bond of super control in patients with more kind of a credit in combination with methotrexate we have expanded our enrollments now with suction roll upto 200 patients and multiple countries and many highest states in eastern Europe, we had excellent enrollment ahead of schedule and because of that excellent enrollment and we decided that we really wanted to enhance our ability to see a clinically and meaningful signal until we chose to expand the size of that trial. We're examining three dose level of LX2931, the treatment period is 12 weeks with the primary end points in ACR20 as we drove. We are looking at multiple secondary endpoints and we do anticipate results by the end of the year.

At the end, I think it is a very exciting opportunity hitting an important pathway for a mean modulation at a point that we believe is differentiating both the space and potential for efficacy. There is a lot of interest now in small molecule drug to treat rheumatoid arthritis, and especially with the part of being able to come in after methotrexate on top of methotrexate and before the biologics. And I think that interest is pretty clear based on some of the deals that have been done, especially with respect to the tryptophan inhibitor and the (inaudible) inhibitor.

With that I'm going to turn it over to Jim Tessmer to cover our financial results.

Jim Tessmer

Thank you, Brian. Let me now provide you with a brief financial update. Lexicon revenues for the three months ended December 1st, 2009 were $1.4 million, a decrease of 78% from $6.4 million for the corresponding period in 2008. The decrease was primarily due to reduced revenues under our alliances with [Envy], Organon, Bristol-Myers Squibb, and Genentech, partially offset by increases in revenue under our collaboration with the chronic form.

For the year ended December 31, 2009, revenues decreased 67% to $10.7 million, from $32.3 million in 2008. Research and Development expenses for the 2009 fourth quarter were $18.8 million, a decrease of 16% from $22.2 million for the corresponding period in 2008. The decrease was primarily due to lower external preclinical research and development expenses as well as lower salary and benefit costs partially offset by higher external clinical research and development costs. For the year, research and development expenses decreased 24% to $81.2 million from $107.2 million in 2008.

General and administrative expenses for the 2009 fourth quarter were $4.4 million, a decrease of 9% from $4.9 million for the corresponding period in 2008. The decrease was primarily due to lower consulting and stock-based compensation expense. For the year general and administrative expenses decreased 10% to $19.4 million from $21.6 million in 2008.

Lexicon’s net loss for the three months ended December 31, 2009 was $22 million or $0.13 per share compared to a net loss of $15.4 million or $0.11 per share in the corresponding period in 2008. Net loss for 2009 was $82.8 million or $0.57 per share compared to a net loss of $76.9 million or $0.56 per share in 2008.

For the three months ended December 31, 2009, net loss included non-cash stock-based compensation expense of $1.2 million compared to $1.7 million in the corresponding period in 2008. For the year ended December 31, 2009 net loss included non-cash stock-based compensation expense of $5.3 million compared to $6.5 million in 2008.

Let me now turn to our cash and investments. As of December 31, 2009 Lexicon had $125.1 million in cash and investments, net of this obligations under the credit line secured by the auction-rate securities, including $5.4 million in cash and investments held by Symphony Icon as compared to $87.3 million as of September 30, 2009 and $158.8 million as of December 31, 2008.

During the fourth quarter we completed the public offering and sale of 38.3 million shares of our common stock resulting in net proceeds of $55.2 million. We believe that the working capital available to Lexicon, without taking into account funds held in the auction-rate securities will be sufficient to meet our cash needs for at least the next twelve months.

Now let’s turn to our forward-looking financial guidance for 2010. Our contractual revenues from existing agreement for 2010 should be in the range of $4 million to $5 million.

As we have previously made you aware, while we are in conversation with pharmaceutical companies to enter into potential alliances and collaboration, we have not included forecasted revenue from such potential arrangements in our guidance. We believe our productive pipeline will provide Lexicon with attractive opportunities for future alliances.

Operating expenses for 2010 are projected to range of $100 million to $110 million. Non-cash expenses will be approximately $10 million of this total, including $5 million in stock-based compensation and $5 million in depreciation and amortization expense. Taking into account, cash received under existing contractual relationships only, we expect our 2010 net cash use in operations to be in the range of $90 million to $95 million.

I’ll now turn the call back to Arthur.

Dr. Arthur Sands

Thank you, Jim and we can now open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question is from Steven Willie with Thomas Weisel Partners.

Unidentified Analyst

Just a quick housekeeping question before I jump into any of the clinical programs here. With the OpEx guidance the $100 million to $110 million was that inclusive of the stock comp and DNA?

Jim Tessmer

Yes it was.

Unidentified Analyst

Maybe you could just talk about the decision to move ahead with the expanded RA enrollment and was that decision driven by any of the partnership discussions you may or may not be having at the current moment?

Dr. Arthur Sands

No, it was not driven by an ongoing partnership discussions, really driven by the fact, number one that enrollment was ahead of schedule and when we initiated the study we were actually told and were concerned that it might actually be a challenging study to enroll because it is a competitive clinical trial stage, but when we witnessed the speed of enrollment, we then decided it was best to take the opportunity to expand the numbers so that we could enhance the potentiality of meaningful clinical signal overall. So it is really a judgment call based on being opportunistic. I would also say that however we are encouraged by the recent partnership activity and I think it does, it does tend to driven by achieving really meaningful results and improving concept trials.

Unidentified Analyst

(inaudible) is the entry criteria for that trial as having CRP above the upper limit of normal?

Dr. Arthur Sands

Phil would you want to comment on that?

Phil Brown

Yes, that is an enclosing criteria.

Unidentified Analyst

And are those essentially read out?

Phil Brown

Yes that’s correct.

Unidentified Analyst

And I know Rachel tried to a little bit of work in those patients that had failed biologics, is that anything that you guys have on your horizons as well with respect to future development plan?

Dr. Arthur Sands

Phil or Brian?

Brian Zambrowicz

I was just going to say that those patients tend to be very difficult to treat. So, I don’t know, it's something we would do early, perhaps later.

Unidentified Analyst

And then maybe just jumping over to IBS for a moment. Can you just remind us maybe where you are with respect to reformulating that drug and what's the next milestone or catalyst or trial event that we should see related to that program.

Phil Brown

Sure. So, as you may recall, we were for the proof of concept study working with a fairly unsophisticated formulations, basically just active ingredient in the capsule and based on these results, we believe that there is an opportunity to enhance this formulation and thereby reduce either the amount of drug or the number of dosings that we're giving out on daily basis and achieve the similar type of effect that was observed in this trial.

So, we're aggressively working on improving the formulation to achieve that end and that is ongoing at present and parallel we would expect to be conducting longer-term (inaudible) studies that would allow us to move into a 12 week study which would be the next formal efficacy assessment of the compound. Now as we bring in another formulation into the mix, we will do a bio-availability study just to confirm the effect of the compound on urinary 5-HIAAwhich has been our biomarker guiding us in development. So, its difficult for me to put an exact timeframe on those first two parameters about the formulation improvement in the in the tox, but those are ongoing and then following the completion of those parameters, then will move into a confirmation in the clinic.

Unidentified Analyst

Then as you start to think about those timelines and maybe how you start to see some incremental data emerging data from that longer 12 week trial, how much does the Symphony, the repurchase option expiration, they kind of play into higher thinking with respect to both timing and what you want to get out of a longer term trial.

Dr. Arthur Sands

Well, I would say still Steven that of course the goal of the whole Symphony relationship is to bail the progress these program through proof of concept and build a value over that in a very important milestone. So if you breakdown and what is that milestone mean? Part of that is to show that you've got a drug in a form that actually can go forward and ultimately be commercialized and so I think that's a key step as part of the whole plan.

So, we're not really driven in a tactical way by the Symphony relationship, but I'd say strategically to prove that we've got a drug that's a viable compound for commercialization. Now we think we've got proof of concept in that already but we would like to see that those won't be a suitable GI form formulation, so I think that's the key step and I think here we could benefit from the biomarker proving to ourselves that in this bio equivalent study we are able to achieve reduction in the bio marker which we already know correlates with clinical benefit and to do so perhaps at a lower frequency of dosing and with a lower amount of drug. So I don’t know if that helps too much but I'd Symphony is really more of a strategic consideration rather than tactical.

Unidentified Analyst

And I know that Dave kind of demonstrated the willingness to be pretty flexible in some of their other deals, so presumably we should not necessarily be looking at those expiration dates as kind of hard and fast deadlines.

Dr. Arthur Sands

I think they have been flexible and I think their goals are in line with ours to create the highest value in the program.

Unidentified Analyst

And may be just lastly, can you just talk about some of time feedback that you guys have got in kind of shortly after the diabetes data. We’ve gotten some very good feedback on our end but just wondering kind of what you are hearing from potential partners you are talking to and may be even (inaudible) this space.

Dr. Arthur Sands

Yes I think the most common response from everyone has been how remarkable the hemoglobin A1c was and Phil mentioned this briefly but what I thought is that of the total HbA1c response you are going to get with a given drug, you get about 50% of it within the first four weeks of treatment and then from week four to week 12 you get another 40% and then after week 12 you get the final 10% that you are going to get. And so if we're at 0.76% at week four that bodes really well for where it could be at potentially at week 12 and everyone understands that perfectly well because the key battle in our area is who is going to yield to come in and dominate the market on after the (inaudible) isn’t controlling him any longer and you know the agents that are currently being brought at that step do not have the kind of magnitude of effect that would appear that our agent is likely to have.

Unidentified Analyst

Do you think that there would be an opportunity here for kind of like what we've seen with the DPP-IV whether there would be some kind of co-formulation opportunity with (inaudible) as well.

Dr. Arthur Sands

Well I am excited, yes that’s possible but even based on what we think is going on there is a reason to believe that our agent may work quite well with agents like DPP-IV which I think is intriguing.

Unidentified Analyst

Thanks for taking the questions and congrats on a pretty productive quarter.

Operator

(Operator Instructions). And you have no further audio questions.

Dr. Arthur Sands

All right, well I'd like to thank everyone for participating. We certainly had a very productive 2009 as we look forward to 2010; we're going to continue to update you on our forward drug candidates which are now in mid-stage clinical trials. Each of them are going to have evolving I'd say important milestones. We do have multiple partnership opportunities that are possible over this timeframe as well as you know, our business model is to conduct partnership discussions associated with proof of concept which has now been achieved for two of our programs and our income continues to be productivite. So 2010 again looks to be I think a very exciting year for us. Thank you for participating, bye, bye.

Operator

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

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Source: Lexicon Pharmaceuticals, Inc. Q4 2009 Earnings Call Transcript

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