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Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)

Q4 2010 Earnings Call

February 24, 2011 11:00 am ET

Executives

D. Wade Walke – Senior Director, Corporate Communications

Arthur T. Sands – President, Chief Executive Officer & Co-Founder

Brian P. Zambrowicz – Chief Scientific Officer, Executive Vice President & Co-Founder

Jeffrey L. Wade – Chief Financial Officer, Secretary, Executive Vice President, Development & General Counsel

Analysts

Cory Kasimov – JPMorgan

Philip Nadeau – Cowen and Company

David Friedman – Morgan Stanley

Operator

Thank you for holding. Welcome to the Lexicon Pharmaceuticals fourth quarter and year end 2010 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, Senior Director of Communications and Investor Relations. Please go ahead, Dr. Walke.

D. Wade Walke

Good morning and welcome to the Lexicon Pharmaceuticals fourth quarter and year end 2010 conference call. I am Wade Walke and with me today are Dr. Arthur Sands, Lexicon’s President and Chief Executive Officer; Dr. Brian Zambrowicz, Lexicon’s Executive Vice President and Chief Scientific Officer; and Jeff Wade, Lexicon’s Executive Vice President and Corporate Development and Chief Financial Officer.

We expect that you have seen a copy of our earnings Press Release that was distributed this morning. During this call, we will review the information provided in the release, provide an update on our clinical programs then use the remainder of our time to answer your questions.

The call will begin with Dr. Sands who will discuss our key accomplishment for 2010. Dr. Zambrowicz will then discuss the status of our drug development programs and Mr. Wade will review our financial results for the fourth quarter and full year 2010 and discuss our financial guidance for 2011. We will then open the call to your questions.

If you’d like to view the slide 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 state that we will be making forward-looking statements, including statements relating to Lexicon’s research and development of LX1031, LX1032, LX1033, 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 relating to the timing and results of clinical trials and preclinical studies of our drug candidates depended upon strategic alliances and ability to enter into additional collaboration and license agreements, the success on 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.

Arthur T. Sands

Thank you, Wade, and thank you everyone for joining us this morning to discuss 2010 and also really focus on 2011 and some of the key goals we have for ourselves. We’ll be referring to slides, if you have access of those throughout the talk and I am going to start on our first pipeline slide that pictures our four programs in Phase 2 development. And really our accomplishment for 2010 all centered on achieving proof-of-concept around these four programs.

And that is of course the key step in the progression of our new drug candidates that operates through novel mechanisms of action. And I think in each one of these programs we have accomplished significant steps forward in improving these mechanisms.

I think overall 2010 was clearly dominated by the results in our diabetes program LX4211, which really have I think throughout the year as we learn more and more about the drug candidate exceeded our expectations with regard to its mechanism of action and its effects in patients. And so I’d like to spend most of this call discussing that program as we go into the body of the call.

On the next slide I do want to highlight for each of the programs our 2011 objectives that are based on what we accomplished in 2010 and our logical steps forward for each of these. So the 2011 pipeline objective slide starting with LX4211, a key goal is to initiate the Phase 2b study in Q2 for this program. This will be approximately 300 patients trial in type II diabetes. And our goal is through the year to have enrollment be on track such that in the first half of 2012 we will be able to complete that study and have the result.

So in addition to this, I should say we’re conducting a number of non-clinical procedures on steps such that the program can be essentially Phase 3 ready as we look forward to getting the Phase 2b results in 2012. So there is a high degree of activity and focus on this program to prepare it as it moves least forward into later stage development.

In addition, a major effort is focused on expanding our understanding of the dual mechanism of actions of inhabiting both SGLT1 and SGLT2. This is critical because we are breaking new ground here and we believe what we can learn from this mechanism will speak directly to differentiating the product as we go forward in the late phase development and move to commercial. So product differentiation based on the mechanism and the advantages we think we’ll have will be conducting a number of experiments during 2011 to accentuate that.

Turning to LX1032 for carcinoid syndrome, our goal is to complete the Phase 2a studies in Q2 of 2011. And as you may have to surmise the moment has been slower in this project than we had hoped, we can address some of that later. However, very close to completing these studies than we think, having done a very thorough Phase 2a study in both the United States and in Europe two studies that if the data supports are moving forward. We should be in a position to plan a registration trial with be FDA after the study.

In addition to this some of this program, we have on previous occasions served other preclinical results to show activity of this compound and another indication inflammatory bowel disease that is also colitis and Crohn’s disease and preclinical models. And so we are in the process of planning and proof-of-concept trial on the second half of 2011 and the other indication, so significant amount of activity in LX1031 have stated here. And for 2931 we announced the results of 2931 Phase 2a trial in 2010, which was one of our goals last year and based on our preliminary signal of efficacy in that trial. This year we plan to initiate our dose-escalation study in RA patients. And that we anticipate being able to initiate in the third quarter of 2011.

Turning to LX1031 and LX1033, these are two compounds that we have drug candidates for irritable bowel syndrome. And our goal there is to select between these two compounds based on potency and dosing regimen. And I think by what significant here is for LX1033 we have – we are initiating the Phase 1 study this quarter to evaluate that. And if we see favorable results in – from that study, we would then be in a position by the third quarter to select between these two candidates. We have also done significant reformulation work for LX1031. So I think by the third quarter we should be able to achieve based on the biomarker results of our – affecting the serotonin pathway. And then move forward strictly to initiate proof-of-concept trial in the fourth quarter of 2011.

Now turning to the next slide there is another way of small molecule drug development candidate, which also have drug development goal through 2011. And there is – they are listed there the first half LX7101 for glaucoma. This is a new mechanism of action that we are exploring that reduces in our intraocular pressure by increasing flow of the aqueous humor through trabecular meshwork. We are in the process of this year completing the IND enabling studies. We have selected an eye drop formulation which was the significant amount of formulation work that had to be completed on this program. So we’ve chosen formulations. We are conducting the formal IND enabling studies. And our goal for 2011 is to file the IND and in the second half initiates our Phase 1/2 clinical trial in glaucoma patients where we would be getting biomarker readouts there with regard in our intraocular pressure.

The next program LX5061 for osteoporosis is a new drug candidate that has a very exciting novel anabolic mechanism of action that stimulates bone growth. So that’s a small molecule that would stimulate bone growth for osteoporosis. The goal with this program in 2011 is to complete the IND-enabling studies and file the IND, so in addition to our IND-enabling studies, we are monitoring biomarkers that should be indicative of the mechanism of action working in animals of course before we proceed in the human studies.

And then the third new drug candidate, LX2311, is a new small molecule mechanism that reduces inflammation by blocking lymphocyte activations and proinflammatory cytokine productions. We’ve seen very prominent effects in our pre-clinical models. Our goal for this year is to complete the IND-enabling studies and prepare for an IND filing in Q1, 2012. So we would have three new drug candidates then progressing into drug development stages. So taken together, it’s a significant number of programs and molecules progressing.

If you sum up a number of these milestones on the next slide and look at them in a time line fashion, you can see some of the expected events by quarter as we go through the year. So with turning here now in Q2, our two major events are the lift-off of the 2b study in type 2 diabetes, which should commence in Q2 and then reporting the Phase 2a results from carcinoid syndrome.

Q3, you can see a very busy quarter where we anticipate completion of the Phase 1 study and having data from LX1033 again being able to then select the candidate for IBS. And four, LX1032 actually initiating the 2a study for IBD, this new exploration of a new indication for that compound. Of course, we also hope to be in discussions with the FDA as well on the registrational study for carcinoid syndrome around that time. And then LX2931 we should be initiating in Q3. Our dose escalation trial in RA patients and we should be filing the IND for LX7101 for glaucoma. By Q4, the goal there is to have the IND for LX5061 for osteoporosis filed.

And then looking forward, if we roll forward into the first half of 2012 looking at some of the major goals 12 month out or so, we do believe that we’ll be having our report from our LX4211 Phase 2b trial in the first half; that of course will be a very significant milestone for the company. We should be reporting on the effects of the dose-ranging study in rheumatoid arthritis, and we should also be reporting on 2a study in IBD. So a number of I think important data being read out here in the first half of next year, and then of course filing a new IND for 2311 on autoimmune disease.

So looking forward over the next 12 months, a number of important milestones in the first – these are all significant with regard our drug discovery engine, the activity of our engine.

So with that I’d like to then turn over to in depth discussion of the some of the recent findings for LX4211 in diabetes, and I’ll turn it over to Brian.

Brian P. Zambrowicz

Thank you, Arthur. I’ll be giving an update on LX4211. This is the first in class dual inhibitor of two sodium-dependent glucose transporters, SGLT1 and SGLT2. It’s a once day oral drug candidate for type 2 diabetes, and in our Phase 2a clinical trials we saw large and rapid improvements in glycemic control that read out as a strong decrease in hemoglobin A1c over only four weeks of dose time.

In addition, we saw some favorable decreases in triglycerides, blood pressure and body weight. We do believe this compound has a potential for best in class or to be first in class, and that’s illustrated on the next slide, and the reason it’s unique is because of its dual inhibition of both SGLT1 and SGLT2.

SGLT1 is the major glucose/galactose transporter in the gastrointestinal tract. It’s the key transporter for uptake of these nutrients from the diet and as I’ll describe later inhibiting this target triggers secondary benefits that are really helping us in our in treatment of type 2 diabetics.

SGLT2 is better known, its major transporter for re-uptake of glucose in the kidney that would otherwise be lost in the urine. The uniqueness of our compound is further illustrated in the table on next slide, what we’ve done here is we’ve shown the SGLT inhibitor landscape, these are SGLT inhibitors in different phases of clinical development, and what I’d like you to focus on is the columns that show SGLT1 and SGLT2 in addition.

What you can see is most of the agents in development are selective SGLT2 inhibitors. Our compound is unique in that it’s a dual inhibitor of SGLT1 and SGLT2. What also stands out is that a compound at the bottom of the table, the GSK compound, which is quite unique in being a selective SGLT1 inhibitor, this lends additional support to the concept that SGLT1 is a viable target on its own for type 2 diabetes.

Moving on to the next slide, our Phase 2a study is – to remind you, was done at a single center, with clustered double blind placebo control done in 36 patients with type 2 diabetes. They were washed out with metformin for two weeks and then administered 4211 over 28 days, or placebo. The objectives of the study were to look at safety and tolerability, but also to measure a variety of parameters related to glycemic control and other cardiovascular and metabolic parameters. On the next slide we did see a favorable safety profile with adverse events generally mild and equally distributed across all those groups, including placebo.

If you move down to the next slide, the thing that really stood out about the Phase 2a study was the dramatic effect we had on hemoglobin A1c with only four weeks of dosing. And in our low-dose arm, we had a 0.66% drop; in the high-dose arm, a 0.76% drop relative to placebo.

(inaudible) strong effects on hemoglobin A1c with such short dosing period caused us to hypothesize that inhibiting SGLT1 might be giving us additional benefits besides just inhibiting or delaying glucose absorption in the gastrointestinal tract, and we hypothesized that it may be triggering the natural homeostatic mechanism of the gut to be able to sense nutrients and respond by releasing beneficial peptides such as GLP-1 and PYY. And based on that hypothesis we did go back to our blood samples from that study and were able to show on days 1 and 28 of dosing that we had trends of increases in GLP-1 in both those arms relative to placebo throughout the day. So we are very encouraged by that, but we want to build upon that mechanistic data.

On the next slide, most recently we reported early in the year on a new (inaudible) study, in order to prepare for the Phase 2b study, we needed to move from a liquid formulation to a solid oral dose formulation. And in order to do that we wanted to make sure that the new tablet formulation had equivalent effects at both SGLT1 and SGLT2.

And in addition we wanted to take advantage of this study to build on our mechanistic data that I just described to you. So for SGLT2, it was pretty straightforward. It’s a simple pharmacokinetic, pharmacodynamic relationship, where systemic exposure correlates with SGLT2 in addition in the kidney and glucose released in the urine. And as we compared the three dose formulations, 300 milligrams given either as the liquid formulation, or 200 – 150 milligram tablets or 650 milligram tablets, we saw that they all active very similarly as far as their effect on SGLT2. Perhaps more importantly, the unique part of our mechanism is the SGLT1 effect and we needed to sure we were having similar effects again with the liquid and solid formulation.

In order to measure the SGLT1 effect, we have to measure the secondary effects of the inhibition, which includes the GLP-1 release that I previously described to you. In this study we wanted to type 2 diabetic patients again, 12 of them, and the patients, very much like our Phase 2a study, were washed out of metformin for two weeks and then were dosed with single doses of each of the three formulations and it was a three-way crossover. So each patient received each of the three formulations and this minimize inter-patient variation.

So, if you move on to the next slide, the (inaudible) SGLT1 downstream effects. What we first look at is the total GLP-1. What we have here is in green, we have the base line control, in the brown we have the liquid formulation, and then in blue, we have the two 150 milligram tablet formulation. The three arrows at the bottom indicate the three meals of the day, breakfast, lunch and dinner. And we did see that at all three meals we had significant elevations in total GLP-1. So we moved from trends in our previous study to now seeing significant improvements and elevations in GLP-1.

On the next slide, we measured another peptide PYY for the first time and this is very important peptide because this will control appetite. And what you can see is again relative to the green baseline control, we did see significant elevations of PYY with both the solid and liquid formulations throughout the day. This provides further support that we’re having an effect on (inaudible) cells in the gastrointestinal tract because these cells are known to release both PYY and GLP-1. And our belief is that the natural homeostatic release of these peptides may optimize their benefits. It will be interesting as we move forward to see whether this translates into additional weight loss benefits, as well as the enhanced glycemic control that we observed in the Phase 2a study.

Moving on to the next slide, we also measured blood glucose levels throughout the course of the day and what we can see is that both baseline blood glucose level as well as blood glucose level after meals were reduced. The post-prandial effects were especially apparent at breakfast and lunch.

And moving on to the next slide, you can see that we measured plasma insulin levels as well and in spite of the lower glucose levels in plasma throughout the day, those glucose levels were achieved with lower insulin levels. So with the strong Phase 2a data in combination with the mechanistic data that provides the rationale for that strong Phase 2a data, we have great deal of confidence as we move forward with our Phase 2b study.

In addition, we believe we have the solid formulation for the Phase 2b study that performs at least as well, if not better, than the liquid formulations both on SGLT1 and SGLT2. Our next step is we’re just about to begin a drug-drug interaction study with metformin, which is key to being able to initiate our Phase 2b study which will be done on top of stable dose metformin. It will be a 12-week study which, as Arthur mentioned, will initiate in the second quarter.

Moving on to the next slide, LX1032. This is peripherally-acting serotonin synthesis inhibitor currently in Phase 2a clinical studies for carcinoid syndrome. Carcinoid syndrome is the result of neuroendocrine tumors that produce large amounts of serotonin. When they metastasize, that serotonin can be released and it act on the gastrointestinal tract to cause severe GI symptoms including diarrhea and GI cramping and discomfort.

LX1032 is an inhibitor with a rate-limiting enzyme for serotonin synthesis, tryptophan hydroxylase 1. So it decreases the production of serotonin. It is absorbed into the peripheral circulation where it can reach the tumor and inhibit the serotonin production by the tumor, but it does not cross the blood brain barrier. Since serotonin is a key mediator of – thought to be a key mediator of the gastrointestinal symptoms of carcinoid syndrome, we believe there’s a strong rationale for this agent in treating the symptoms of carcinoid syndrome.

We do have fast track status granted by the FDA for carcinoid syndrome. And orphan designation from the EMEA for carcinoid tumors. And as Arthur mentioned, we do have new pre-clinical data that supports the additional application for this compound in inflammatory bowel disease.

On the next slide, an update on the Phase 2a studies. Both ongoing in the U.S. study, that’s a randomized, double-blind, placebo-controlled ascending dose study, where we took four separate cohorts and we dose escalated each cohort, three of each cohort being on active and one being on placebo. And we escalated them through four doses, the 150, 250, 350 and 500 milligrams each given three times daily. And seven of those patients are in long-term – in a long-term extension protocol.

In addition, there’s an expansion phase for the trial, which is currently in the recruitment phase and that’s being done at the high dose, 500 milligrams, three times a day. It will eight patients total, six on active, two on placebo and we’ve begun dosing for five of those patients to-date. These study is an open-label, serial ascending dose study, where each patients is dose escalated through the same four dose escalations that were used in the U.S. study. But they’re dose escalated with dosing on each dose over two-week intervals and depending on their clinical benefits and lack of safety signals, they are then moved up with next dose level. The study is planned to enroll 16 patients and we have dosed four patients to-date.

On next slide, the additional indication in the inflammatory bowel disease, it is a significant unmet medical need, up to 50% of patients fail on the small molecule therapy such as 5-ASA as well as similar percentage failing on the biologics. There’s a real need, it would be a benefit if you could even decrease the steroid usage in these patients.

Currently, we’re planning a Phase 2a clinical study in patients with mild-to-moderate Crohn’s disease and ulcerative colitis. Our pre-clinical data supports the potential for this compound in both indications. In discussions with key opinion leaders, we’re in the process of designing potential studies with strictly efficacy end points under consideration. And we would anticipate initiating that study in the third quarter of 2011.

On the next slide, the IBS program, LX1031 and 1033. These are also serotonin synthesis inhibitors but unlike 1032 they are locally acting agents that act within the gastrointestinal tract to lower the production of serotonin by the gastrointestinal tract. They get low systemic exposure and that compound is – also does not cross the blood brain barrier. In our Phase 2a study for LX1031, we saw a very safe safety profile and we saw improvements in both the global assessments of adequate relief and stool consistencies in the high dose arm. That clinical response was correlated with a reduction in the 5-HIAA biomarker. 5-HIAA is a metabolite of serotonin.

LX1033 is approximately tenfold more potent than LX1031 in a biochemical assay against tryptophan hydroxylase and is also more potent in animal pharmacology models as far as reducing the 5-HIAA biomarker. As Arthur mentioned, we tested new formulations of LX1031 as well and the concept is between LX1033 being a more potent agent or better formulations of LX1031. We’d like to be able to find an agent that can move forward and also reduce the dose and frequency.

We filed our IND for 1033 in December of 2010 and the Phase 1 study is planned to begin in the first quarter of 2011. We believe that the 5-HIAA biomarker is very important for this program. It brings an objective measures, it’s a challenging indication and we really are interested in exploring how to use it efficiently in a Phase 2 study to maximize the signal and clinical benefit we can observe in IBS patients.

Moving to the next slide, the LX1031 Phase 1a biomarker study has been planned, we will be doing multiple extending doses as shown here 250, 500, and 750 milligrams each given three times a day. Think of those doses being taken with meals. As well as 1,000 milligrams given twice a day with those patients over three weeks and measure the urinary and plasma 5-HIAA biomarker. Using the biomarker in comparison with the biomarker effects we saw with 1031, we should be able to correlate the extent of biomarker reductions with that seen with 1031 and the clinical benefits observed at the high dose in that Phase 2a study allowing us I think to identify candidates that might not moving forward into further development.

The results from the Phase 1 study should be available on Q3 allowing us to initiate a potential Phase 2 study by year end.

Finally on that slide LX2931, our first in the process S1P lyase inhibitor for autoimmune disorders. This is a novel, oral acting agent, inhibitor of enzyme S1P lyase that breaks down an endogenous second messenger molecule, sphingosine 1-phosphate, and it showed reduced inflammatory response pretty – inflammatory response when dosed in animal pharmacology models, rheumatoid arthritis, multiple sclerosis and transplantation. In our Phase 2a study that we reported last year we saw a favorable safety profile, we did see a potential signal in the ACR20 in the high-dose arm at week 12.

However, given the fact that the lymphocyte count in the peripheral blood was unchanged in the high-dose arm, we believe we are at the lower end of the dose-response curve. But we’ve seen the same lymphocyte reductions in all species that we tested on 2931 and including mouse, rats and monkeys.

And so, we think between the safety profile and the fact that the lymphocyte biomarker suggests we’re on the low end of the dose response and that we need to go forward and explore higher doses in RA patients and that will be our next step, to identify doses that can produce sustained lymphocyte reductions in patients with active disease.

With that, I’d like to turn it over to Jeff Wade to go over our financial results.

Jeffrey L. Wade

I will provide a brief financial review. As indicated in our press release today, we have revenues for the 2010 fourth quarter of $1.3 million, which was a decrease of 11% from $1.4 million in the prior year period. For the year, revenues decreased 54% to $4.9 million from $10.7 million in 2009.

Our research and development expenses for the 2010 fourth quarter decreased 3% to $18.3 million from $18.8 million in the prior year period. And for the year our R&D expenses decreased 3% to $78.5 million from $81.2 million in 2009.

In connection with our acquisition of Symphony Icon, we made an initial estimate of the fair value of our liability, toward the base and contingent payments. Changes in that liability, which are based on the development of the programs and the time until the payments are expected to be made, are recorded in our consolidated statement of operations. The associated increase in fair value of Symphony Icon purchase liability was $1.6 million in the 2010 fourth quarter and $2.7 million for the year.

Our general and administrative expenses for the 2010 fourth quarter were $3.9 million, which is a decrease of 13% from $4.4 million in the prior year period. And that decrease was primarily attributable to lower patent fees. For the year our G&A expenses were $19.4 million, which was consistent with the prior year period.

Our net loss for the 2010 fourth quarter was $23 million or $0.07 per share compared to a net loss of $22 million or $0.13 per share in the prior year period. Our net loss for the year was $101.8 million or $0.34 per share, compared to a net loss of $82.8 million or $0.57 per share in 2009.

For the 2010 fourth quarter, our net loss included non-cash stock-based compensation expense of $1.5 million, compared to $1.2 million in the corresponding period in 2009. For the year, our net loss included non-cash stock-based compensation expense of $5.5 million compared to $5.3 million in 2009.

Let me now turn to our cash and investments. At the end of the year, we had $211.1 million in cash and investments that compares to $231 million as of September 30 and $125.1 million of net cash and investments as of the end of last year.

Now let’s turn to our forward-looking financial guidance for 2011. We expect contractual revenues from existing increments in 2011 of around $1 million. Consistent with our past practice, while we are in conversations with pharmaceutical companies about potential collaborations and alliances, we are not including forecasted revenue from those potential arrangements in our guidance. We believe that our productive pipeline will provide us with attractive opportunities for future alliances.

We expect operating expenses in 2011 to be in the range of $110 million to $120 million. Non-cash expenses are expected to be approximately $18 million of that total. That includes $8 million and an increase in fair value of Symphony Icon purchase liability, $5 million in stock-based compensation and $5 million in depreciation and amortization.

Our operating expense expectations for 2011 take into account recent head count cost reductions measures and early research, administrative and overhead areas as we continue devote a greater proposition of our R&D and overall spending towards development stage programs.

Taking into account cash received under existing contractual relationships only, we expect our 2011 net cash used in operations to be in the range of $92 million to $97 million.

I will now turn the call back over to Arthur.

Arthur T. Sands

Thank you, Jeff. So we can now open the call for questions.

Question-and-Answer Section

Operator

(Operator Instructions) Your first question comes from the line of Cory Kasimov of JPMorgan.

Cory Kasimov – JPMorgan

Hey good morning guys, thank you for taking the questions. I have a few of them for you. First one to start off with 4211. At this point what are the gating factors to starting that Phase 2b trial in the second quarter? Is it just a metformin interaction study? And then in terms of the design of the 2b, are you also – is the plan still to include an active control arm in addition to placebo?

Brian P. Zambrowicz

Hi, Cory, it’s Brian. Yes the only gating factor at this point for the 2b is a drug-drug interaction study. And whether or not to have an active comparator, we continue to discuss that with (inaudible). We have met with many. One of the issues in the Phase 2b study, the only thing you can obtain is non-inferiority. So it may not be the best setting in which to really compare two different drugs. But local drugs have been tested on behalf of metformin.

Cory Kasimov – JPMorgan

Okay. And then staying on 4211, Arthur, can you talk a little bit more – can you update us with your latest thinking regarding the potential partnering strategy for this? Is it something you’re interested in now before Phase 2b, after Phase 2b, et cetera?

Arthur T. Sands

Yes, and I’ll invite Jeff to join in this discussion. We have a lot of parties, very interested in the program. It is – so we have ongoing conversations. It ends up being a question of value and what kind of value we can generate from the next study versus doing a partnership early. So I think our default view is to go forward and complete the next study. We believe we’ll build significant value. However, if there are partners that may intervene in that process in a productive way, we’ll entertain it. Jeff, do you want to comment as well?

Jeffrey L. Wade

I think that pretty much sums it up. But I think we are pretty confident in this program. And we believe that there is significant value here and we are continuing to talk to you people as we lead up to the Phase 2b study. But we’re proceeding with the Phase 2b study on our – as sort of a baseline expectation.

Cory Kasimov – JPMorgan

Is it possible for you guys to broadly characterize how interest in this asset may or may not have changed since you came out with the additional data regarding GLP-1 and PYY?

Arthur T. Sands

Yeah, broadly stated it has increased, I’d say, significantly and I think it’s because there is another following of – now for the compound, of companies that have been seeking oral GLP-1 secretagogues as a potential competitor for the injectables. And so I think that that’s why as we go forward to 2011, we’re also – we intend to conduct additional mechanistic study to really accentuate that differentiating feature. So that could actually open up potentially a difference sort of competitive landscape for us and new partners that we have not talked to previously in this regard.

So that’s why I think it really does behoove us to go forward through the year with the study, and we’ll have more for you, Cory, on the actual study design, I think at the time of the next call, because by that point, we will have completed all of the logistical studies required to initiate and we’ll have the design nailed down.

Cory Kasimov – JPMorgan

Okay, sounds good. Thanks for taking my questions.

Arthur T. Sands

Thanks.

Operator

And your next question comes from the line of Phil Nadeau of Cowen and Company.

Philip Nadeau – Cowen and Company

Good morning and thanks for taking my question as well. First, a couple on 1032, in the slides it mentioned that you – in the European study, you have 16 patient planned enrollment and you’ve dosed four patients to date. So is it really possible that that study completes next quarter? It seems like you kind of got into a big hockey stick in patients being dosed?

Arthur T. Sands

I think we were referring to the U.S. study when we talked about completion in Q2, and not the European study.

Brian P. Zambrowicz

Our goal for the European study is to finish it by year end.

Philip Nadeau – Cowen and Company

Okay. And do you need the data from the EU study to sit down with the regulators to plan the next trial, is it possible that that based just on the U.S. study that you could design a pivotal study?

Arthur T. Sands

I think it’s possible just on the U.S. study. I mean that’s our current view.

Philip Nadeau – Cowen and Company

Okay, and can you remind us, in the U.S. trial and the EU trial, have the patients failed prior therapy before entering, can you remind us what line of therapy this is?

Arthur T. Sands

Well, that’s the way it’s written up is U.S. trials only contemplate patients that have failed on octreotide or a somatostatin analog. In the European trial, we do allow patients that are naïve to somatostatin analog. But I think in general, both type of patients are rare.

Philip Nadeau – Cowen and Company

Okay, great. Thanks for taking my questions.

Arthur T. Sands

Thank you.

Operator

And your next question comes from the line David Friedman from Morgan Stanley.

David Friedman – Morgan Stanley

Hi, thanks. Sorry about that echo. I was wondering if you could just talk a little bit about the inflammatory bowel disease program. Where you – if you could just discuss a little bit where your confidence comes from in starting that program. And maybe a little bit about just the mechanism that would allow the drug to have a meaningful benefit in that disease?

Brian P. Zambrowicz

Sure. There’s a couple of reasons. One, there was a publication from an external lab where they induced the IBD model in rodents that were either wild-type for our target TPH1 or knockouts for our target TPH1. And the knockouts were resistant to the IBD challenge. That gives genetic support for the concept that it could be a useful mechanism in this indication.

Secondly, they went on and did a pharmacology experiment where they treated wild-type animals, that where they’d induced the IBD model and then treated with either placebo or PCPA, which is an inhibitor of our target TPH1, and showed that with the PCPA, the TPH inhibitor, they reduced the inflammatory response in that model. So both genetic and pharmacology evidence supporting that.

And then we went on and both internally as well as with an external expert lab in this area, we’ve both (inaudible) data that fit very well with that published data and support utility of 1032 in the indication. And we’ve run models that are thought to more closely relate to ulcerative colitis, and we’ve run models that are thought to be more closely related to Crohn’s disease, and want you to – looks to reduce the inflammatory response in both models. The other thing I’d say is as we have used a positive control, which is still developing, at its maximum tolerated dose in mice. And 1032 looks clearly superior to that agent, which is currently used to treat IBD patients.

David Friedman – Morgan Stanley

Okay. Thank you.

Arthur T. Sands

Thank you.

Operator

(Operator Instructions) And there are no additional questions at this time.

Arthur T. Sands

All right. Well, listen, thank you for participating. If you turn to the last slide, obviously from this discussion, you can surmise that Lexicon continues with advancing our entire pipeline. We have four programs active in Phase 2. I think as we go forward in the year, we’ll be sharing more with you on our next wave of small molecule programs that are in IND-enabling studies, as well as updating you on the multiple clinical milestones that we expect throughout the year. Thank you for your participation. Bye-bye.

Operator

Ladies and gentlemen, this does conclude today’s conference. Thank you for your participation. You may now disconnect.

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