Lexicon Pharmaceuticals' CEO Discusses Q3 2011 Results - Earnings Call Transcript

Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)

Q3 2011 Earnings Call

November 1, 2011 11:00 AM ET


Wade Walke – Senior Director, Communications and IR

Arthur Sands – President and CEO

Brian Zambrowicz – EVP and Chief Scientific Officer

Pablo Lapuerta – SVP, Clinical Development and Chief Medical Officer

Jeffrey Wade – EVP, Corporate Development and CFO


Liana Moussatos – Wedbush Securities

Matthew Lowe – JP Morgan

Alan Carr – Needham & Company

Nicholas Bishop – Cowen & Company


Thank you for holding. Welcome to Lexicon Pharmaceuticals Third quarter 2011 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.

Wade Walke

Good morning, and welcome to Lexicon Pharmaceuticals third quarter 2011 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, Dr. Pablo Lapuerta, Lexicon’s Senior Vice President of Clinical Development and Chief Medical Officer; and Jeff Wade, Lexicon’s Executive Vice President of 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, and then use the reminder of our time to answer your questions.

The call will begin with Dr. Sands who will discuss our key accomplishments for the third quarter. Dr. Zambrowicz will then give an update on our LX4211 program, Dr. Lapuerta will then review our LX1032 and LX1033 programs and Mr. Wade will review our financial results for the third quarter and discuss our financial guidance for 2011. We will then open the call for 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 our homepage for today’s webcast.

Before we begin, I would like to state that we would 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, financial 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.

Our dependence upon strategic alliances and ability to enter into additional collaboration and license agreements, the success and productivity of our drug discovery efforts, our ability to obtain patent protection for our discoveries, limitations imposed by patents owned or controlled by third parties, and the requirements of substantial funding to conduct our drug discovery and development activities.

For a list and a description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission.

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

Arthur Sands

Thank you, Wade, and welcome everyone. I will commence with our traditional pipeline slide as will be focusing as usual on this call on our four programs in Phase II development. All these of course, our small molecule programs developed by Lexicon’s research teams and all operate through novel mechanisms of action. Through this programs have achieved proof-of-concept already and before 2931 is – we believe on its way.

One of three two for carcinoid syndromes telotristat etiprate are also have fast track status with FDA, and Orphan status with the EMEA. I think – I’d also like to mention one of the points on the slide, you’ll note that LX1031, the program for irritable bowel syndrome, which includes the follow on compound LX1033 was slightly also the designation on 1031 indicate that we are now focusing our attention on 1033 and progressing it rapidly into Phase 2 development and will be giving you an outline of that study which we intend to commence in 2012.

I’ll also say that I guess it’s not captured on this slide, nor we’ll be able to cover in the call is a very significant amount of preclinical and non-clinical work that is proceeding on each of these programs as we’re focusing on making 4211 and 1032 Phase 3 ready programs and we believe also 1033 will be soon in that category.

Turning to the next slide on our clinical milestones and goals, I’d like to first focus on the Q3 2011 box in which you see the milestones that we’ve achieved in the past quarter and we’ll be discussing each of these on today’s call.

First LX4211, we’ve completed a very interesting mechanistic study in healthy volunteers and we’ll be sharing you – with you some topline data from that. These are new data that we’ll be discussing here that have reveled we think some interesting properties about LX4211.

I would also like to mention that we will be presenting in an upcoming conference in Boston that will be later this week, specifically our presentation on Friday, November 4th at 2:30 PM and that is at the Cambridge Healthtech Institute Conference which is focused on Type 2 diabetes and they have significant section on the SGLT2 inhibitors and we have a session there, discussing our dual inhibition of SGLT1 and 2 by LX4211. So we’ll showing, I think, from new preclinical data there regarding the mechanism of action.

I next then on this call will turn to LX1032. We have previously reported the topline Phase IIa result from telotristat etiprate and carcinoid Syndrome. But today we’re going to take some time to look in to some individual patient data that contributes to, of course, the aggregate data and we think provides important insights into the benefits this drug is providing the patients in this study. So I hope you will find that interesting.

Then we’ll briefly discuss our LX1033, where we have completed the Phase I program for that and show you some of the topline results there that contribute to our confidence in preceding into Phase – full Phase II program in early 2012. And update you briefly on our LX2931 where we successfully initiated our dose-escalation trial that’s underway and that so far have done well and is proceeding on track.

So that will be outline for the call. And then each of these as we coverage these programs we’ll mention some of the forward-looking milestones that we anticipate in Q4 and in 2012.

So with that introduction, I will – I’d like turn the call over to Dr. Brian Zambrowicz to start off with LX4211.

Brian Zambrowicz

Thank you, Arthur. I’ll be describing data from our recent study, LX4211 healthy subjects, as you go to the next slide please. This was mechanistic study that we undertook with two purposes in mind. The first was related to dose timing. Previously, on our Phase 2a study we dosed LX4211 two hours before breakfast and in this study we tested dosing regimens relative to meals to identify regimens that gave optimal effects due to SGLT1 inhibition in the gastrointestinal tract.

The second reason is that we’re very interested in looking at the effects of LX4211 on postprandial glucose levels in healthy subjects. The reason for our interest through the SGLT2 selected compounds currently in Phase 3 clinical trials have been tested in the healthy subjects and reported to produce no reductions in a blood glucose levels after either a morning meal or glucose challenge. So for the first time this allowed us to compare effects of LX4211 to these SGLT2 selective agent to determine whether dual Avastin produces more robust reduction in postprandial glucose levels.

So, in this study our primary endpoint work, if you look at the pharmacokinetics effects by LX4211 in healthy subject secondary objective was to evaluate safety and tolerability, and we measured a number of parameters including urinary glucose excretion, fasting and postprandial glucose levels and insulin. And as biomarkers for our SGLT1 in addition we are measuring both PYY as well as active and total GLP-1.

Looking at the next slide, this is the study design. It began with screen period and that’s minus to the subjects were structured. We were able to get a baseline measure for the fasting and post-prandial glucose as well as models good want to line, and then we have seven days of dosing and the purpose of those seven days of dosing was to get them to what would – we consider a second state level of LX4211 and during these seven days of dosing, more dose to one hour before breakfast each day.

Now starting with day one – starting with day eight, there were randomized as you can see in the table below, few one of five different dosing regimens. A, B and C were dosing one hour – 0.5 per hours or immediately before breakfast, 400 milligrams once a day. D, was sourcing 400 milligrams once a day immediately before lunch, and E was a split dose, we wanted the dose one hour before breakfast 200 milligrams, and the other 200 milligrams one hour before dinner to see if there was any further benefits of splitting that dose.

I want to mention that A, B and C dosing one hour, or half hour or immediately before breakfast gives pretty much the same exact result. There were no difference with respect to glucose, insulin or our GLP-1 on PYY measures. And for that reason, I’m going to focus on the immediately before breakfast dosing in the person with the split dosing.

I should say that we were very encouraged that timing of dosing before breakfast didn’t appear to matter, I think that will be very appealing as we move forward, as far as dose timing. Next slide.

First, I am showing you the effects of LX4211 dosing and the glucose levels drug today, particularly, focusing on the postprandial glucose levels. In black, what you can see are the baseline measures for postprandial glucose. And then the two dosing regimen shown here are in purple that immediately before breakfast dosing up till 100 milligrams and in goes the split dose, one hour before breakfast and one hour before dinner. And we are very pleased by this data, because we had pretty profound reductions in postprandial glucose levels, both at breakfast and lunch particularly obvious that breakfast where there were much greater excursion of the glucose in the blood after the meal.

This was very positive to us because it did suggest that, we dual addition of both SGLT1 and SGLT2 was acting very differently than what has been reported for the SGLT2 selective compounds. In our study, the healthy subjects on LX4211 were not getting excursion above 105 mix deciliter of glucose after their breakfast meal and that’s in contrast to no affects observed with the SGLT2 selected compound. There were significant reduction at breakfast, lunch and dinner for the spilt dose and at breakfast, lunch and throughout the day for the immediately before breakfast. Next slide.

These reductions and postprandial glucose levels were achieved with lower insulin level throughout the day. You can see that with both dosing regimens there were significant reductions in insulin levels at breakfast, lunch, dinner timeframes and throughout the day.

Next slide. We were also very interested in looking at all biomarkers of SGLT1 inhibition in the gastrointestinal track. This shows our effects on total GLP-1 levels. And what we observed in total with the single dose before – immediately before breakfast is nice elevations of total GLP-1 at breakfast and lunch without much effects at dinner. Those effects at breakfast and lunch and throughout the day were significant for the once a day dosing immediately before breakfast. We also observed similar elevations in active GLP-1 with these dosing regimens.

Next slide. In addition, we measured PYY levels and, again, what we observed is and coupled with the once a day dosing immediately before breakfast. We had elevations of PYY throughout the day, as well as, at each of the three meal times; breakfast, lunch and dinner. We observed similar although slightly disaffects with the fifth dosing regimen. And, again, this is very encouraging and that just immediately before breakfast dosing regimen appear to be giving us very strong effects on our SGLT-1 dependent biomarkers.

Next slide. And finally as far as the data from this study, we were very interested again in looking at the triglyceride effects. As you can remember in our Phase 2a study, we saw a very nice reductions in triglycerides about 30% in both our dose arms relative to placebo. This is very much unlike what has been observed with SGLT2 selective compounds and so we were interested in these healthy subjects whether we are again seeing reductions in triglyceride levels. And in blue, you can see that in spite of the fact that these subjects were beginning with relatively normal. Triglyceride levels they achieved roughly 37% reduction by day 13 of their dosing.

Next slide. I’m going to summarize this study. We observed no hyperglycemia, abdominal pain or diarrhea in healthy subjects treated with LX4211. Again, providing support for the GI safety of inhibiting SGLT1.

We would see GLT1 PYY secretion simulated by LX4211 inhibition of SGLT1 in the gastrointestinal tract providing further support for the GI mechanism of action of our drug. And then we saw a number of facts that further differentiate LX4211 from the SGLT2 selective compounds.

The first was the large decreases in postprandial glucose, excretions after breakfast and lunch and this was achieved in spite of the fact that we were achieving lower urinary glucose excretion in healthy subject than observed with SGLT2 selective compounds in healthy subjects. And finally, again we saw a large reduction in triglyceride levels.

Just to update you on ongoing Phase 2b study, enrollment is proceeding on target with expectation that topline data will be available by mid-2012.

With that I’m going to turn the call over to Dr. Pablo Lapuerta and he will be describing the LX1042 and LX1033 programs.

Pablo Lapuerta

Thank you, Brian. I’ll review some of the data we have for telotristat etiprate and carcinoid syndrome. On slide 15, is the summary of the top line results from our placebo-controlled study. In this study, we looked at responders in terms of specific cut-offs that we thought would not be seen on placebo but that could be seen with telotristat etiprate.

A clinical response we defined as at least the 30% reduction in bowel movements for at least two weeks. There were no responses on placebo. There were five on telotristat etiprate. Our biochemical response we defined as a 50% reduction or normalization in urinary 5-HIAA, which is a measure of serotonin synthesis and serotonin metabolic I should say.

And there were no responses on placebo, but nine on telotristat etiprate. And these patients with carcinoid syndrome and multiple gastrointestinal complaints, we has to about adequate relief at week four and there were no patients with adequate relief on placebo and yet there were six with telotristat etiprate. These top line results have held up and can be considered final. And what we even in the last few weeks is, to perform some additional analysis that support our understanding of efficacy.

On slide 16, we have the distribution of individual patient responses and our study of carcinoid syndrome. Patients entered with the base line number of bowel movements between five and eight in general, and they had significant reductions in bowel movements frequency with telotristat etiprate but not placebo. What you have on this slide is a ranking of all subjects, from best on the left to worst on the right. And if we look at the five best responses, they were all on to telotristat etiprate and they were the five patients who had a reduction in bowel movements greater than 30% for at least two weeks during the four-week study.

But if you look more broadly, there are 13 patients that have some decline in bowel movements during the study, 12 of them are on telotristat etiprate. And in contrast, if you look at the far right of the graph, you have seven patients who have some worsening and bowel movements during the study and four of the seven on placebo.

So, in addition to observing significant reductions above the cut offs, looking at the distribution of responses throughout this study, among all patients shows a clear separation between telotristat etiprate and placebo.

Other analysis that we did, explore the meaning of adequate relief that was being reported frequently by patients on telotristat etiprate. On the topline slide, I had showed you that no patients had adequate relief on placebo that that 50% of patients at week four had adequate relief on telotristat etiprate.

Here on slide 17, we see the results, not simply for week four, but for weeks one, two and three. And we see them across all doses of telotristat etiprate in this study. There were no responses reporting adequate relief on placebo at either this week one, two, three or four whereas across the four groups on telotristat etiprate and the four weeks of the study, 14 of 16 instances of dosing and week in the study showed responses on telotristat etiprate.

We looked further at these responses to look and how they related to bowel movement frequency and changes another gastrointestinal symptoms, use of arthritis and flushing in the study.

Several examples follow in the next two slides. Slide 18 is the example of subject 1002 who was on 150 milligrams (inaudible) telotristat etiprate. This patient had no adequate relief at baseline or week one, but had adequate relief reported at week two.

What we see in the blue is a stool frequency. The patient entered this study with a average of about 10 bowl movements per day, during a period of here 19 days of documented daily diary on bowl movement frequency.

There is a green arrow where the days changed from minus one to the positive numbers that’s what telotristat etiprate treatment was initiated. As soon as telotristat etiprate treatment was initiated, the bowl movement frequency began to decline and declines to the point whereby week three there are many days with about six bowl movements and the patient is reporting relief of symptoms.

What’s interesting to note from this slide as well is that the patient had flushing, this is in the red bars. Around two to three episodes per day throughout a good part of the baseline period and then by week two until telotristat etiprate had only one more episode of flushing between that’s between day seven and 28 only one episode.

So flushing that essentially stopped for this patient. In addition to having a reduction in bowl movement frequency, was further adventurist is with this patient there was now extension in place, but the patient was followed after drug for several days and after the drug, after the study completed. There was return in bowel movement frequency to baseline and return of flushing.

So this patient experienced a response in terms of reduced bowel movement frequency and reduced flushing and they were closely associated with initiation and discontinuation of treatment.

The next slide is the experience of subject 1010 on 500 milligrams TID at telotristat etiprate. This patient experienced adequate relief that was reported at weeks one and four. And this adequate relief was associated with the reduction in bowel movement frequency.

The baseline average was around eight. The average on drug came down to around six. But perhaps with some special interest here as like in the fire case there is an association with interruption of therapy. Here the interruption was actually during the study treatment. The patient had an episode of bronchitis, the physician felt that while the bronchitis was being treated it was best to stop to study drug.

And so from about days 17 to 22, the patient was off-drug. The episode of bronchitis resolved. The treatment was resumed. And the blower movement frequency came back down on drug again. So it came back – came down with therapy between days one and 17, went back up during days 18 to 21 or 22 off-drug and then came back down when the drug was initiated again.

Another thing that’s of interest with this patient is that the patient had multiple daily doses of immediate reacting octreotide injections. You see this on the listed numbers that’s start in black, beginning with 24234, this whole sequence. And that turns to red once the patient started Telotristat Etiprate treatment. You have two to four injections a day for this patient on many days during the base line phase and then once the patients starts on therapy there are many zeros, no more use of immediate reacting of Telotristat.

Perhaps the only exception is that period while the patient was off drug there were several injections again and they stopped once the patient came back on drug. So not only was there a reduction in bowel movement frequency, but there was a reduction in our Telotristat use, which has been used as sort of a rescue therapy with patient with advanced carcinoid syndrome.

Another example that was illustrative of the experience with Telotristat Etiprate was Glen 008 on 350 milligram TID on slide 20. This patient had a adequate relief reported at week four with a reduction in flushing and a reduction in frequency.

So the average number of bowel movements prior to treatment you see in those 28 days before treatment was started was around six, it came down to around five perhaps a little bit less. And the last two weeks of therapy where the patient reported adequate relief and there was a complete sensation – succession of flushing with therapy. This patient did not have a 30% reduction in bowel movements for two weeks during the study, but was reporting adequate relief with clear clinical benefit.

On slide 21, is the experience of patient 5001 on a 150 milligram TID Telotristat Etiprate. This patient also reported adequate relief at weeks one, two, three and four. These were associated with their reduction in frequency and urgency. The reduction in frequency was modest, about 30 bowel movements over the course of the study, from an average of 5.2 per day to 4.2 per day.

However, what you have here is a description of the patient’s reports of urgency which we collected on the same daily diary. Urgency, it’s presence is indicated by a red Y and its absence is indicated by a green end on this line below the graph and you see that during that period of the 28 days of running the patient had many Ys and once the patient started on telotristat etiprate treatment started to having many ends with less bowel movement urgency.

Slide 22 described some of the consistency that we are seeing among the efficacy measures. And the reductions from bowel movement frequency have been greater for patients with reductions in urinary 5-HIAA at week four and patient with adequate relief at week four. If you look at the change in bowel movement frequency at week four, it goes down about 30% in patients who have inhibition of serotonin synthesis, as indicated by greater than 50% reduction in urinary 5-HIAA. And it doesn’t go down for patients who do not have a reduction in urinary 5-HIAA.

The same thing with adequate relief, patients who are reporting adequate relief to us at week four are experiencing a 33% reduction in bowel movement. Patients who are not reporting adequate relief or having no reduction in bowel movement frequency.

So this consistency among the efficacy measures in our placebo controlled Phase 2 study is encouraging and it is consistent with some other results we are seeing in the European open-label study and I will describe and share some of the individual responses from that study as well.

Slide 23, is the design of our European open-label study. This is a bit different from the U.S. study and that there is no placebo control. It’s a longer period of treatment. It’s 12-weeks of treatments and the treatment goes through a serial dose escalation. So patients are titrated.

Slide 24, is the experience of patients 7001 with benefits across multiple parameters constituent with what we have seen in the U.S. study. The chart at the top is the patient’s bowl movement frequency. At baseline, the average was 4.7 and you can see that reflected to some extent with the zero milligram doses, and there is a bar that’s a green line that goes across the graph that is set out at that baseline, 4.7.

You could see a consistent experience with bowel movements below that baseline throughout the study and gradually reducing even more as the patient went up in dose. Finally, on 500 milligram the patient began to report adequate relief.

What’s interesting the patient 7001 that the benefit was not simply in reduction of bowl movement frequency. The patient had considerable amounts of flushing at baseline. The average was 3.0 and we have a bar on slide 25 that describes that baseline.

And you can see several days at three and several days above three during the baseline period perhaps a couple of days without a flushing during the baseline period as well. But then with treatment, a real reduction in flushing but with many days without any flushing at all.

The patient also reported nausea baseline this is also collected through the daily dairy that we have for Europe. And the patient had several episodes of nausea and then during the baseline phase and then during treatment very little nausea a little bit up to 200 and 250 milligram dose, but none at 350 and absolutely none at 500 milligram.

Finally, with the patient 7001 on slide 26, we have a measure it’s still consistency, but higher the number the worst consistency and the more liquid the stool. And so the patient had a baseline of 3.2 and as you can see through our most of the study, the numbers were better on telotristat etiprate and they improved as the patient reached to the 500 milligram dose.

Patient 7003 also was typical of the European experience with benefits across multiple parameters, the frequency, baseline. It was at 8.5 and with treatment the frequency gradually came down and came down most on the 500 milligram dose, which is at the point where the patient reported adequate relief of symptoms.

On the slide 28, this patient like others and the U.S. and Europe had flushing at baseline. The baseline meaning was three episodes per day and the incidence of flushing comes down as the patient reaches 250, 350 and then 500 milligram doses. And there is a good period of time without any flushing at all at the end of the treatment period in those last three weeks.

The stool consistency also gradually improves. This is a more moderate improvement but improved below baseline as the treatment dose increased to 500 milligrams. And the patient reported decreases in nausea.

On slide 29, the patient reported nausea on a multiple days with the baseline average score of around 2 and then as therapy was advanced there was some nausea at a 150 milligram still persisting from baseline but then once the patient reached 250 there was less 350, there was very little and the 500 milligrams was tolerated as well with much less nausea than baseline.

The patient also reported on the diary abdominal pain. It was graded on a scale from 0 to 3 and the patient had numerous assessments of 3 during baseline, had an average of 2 and then as the patient goes up to the 350 and 500 milligram doses the abdominal pain goes down a 1 for most of the time spent on therapy.

So overall, on slide 30 we can summarize the telotristat etiprate Phase 2 efficacy data saying that clinical response, biochemical response and adequate relief we are seeing with telotristat etiprate, but not with placebo and our placebo control trial and that the individual patient data providing us helpful insight into the aggregate results.

Perhaps one of the most compelling things that we’re finding in both the USA and we’ve seen this in Europe as well as is that the benefits are linked to initiation and resumption of therapy with telotristat etiprate. The patients interrupt the bowel movement frequency goes up, ones patient restarts the benefit returns.

The adequate relief that we saw frequently in the placebo control study was associated as should be expected with reduction in stool frequency and individual responses on other measures be varied according to the individual. We had an individual with a marked reduction and octreotide use more consistent among the data in both the U.S. and Europe where reductions in flushing, urgency and consistency. In Europe, we had systematic data on nausea and saw reductions in nausea with many patients on therapy and we saw reduction in abdominal pain as well.

We’re moving forward with telotristat etiprate, to do a proof-of-concept as well and another indication which is ulcerative colitis. Slide 31 summarizes the basic design of the study. We call it FACEP a Phase II study of the relationship between serotonin and efficacy and ulcerative colitis.

We plan to study 60 patients with moderate ulcerative colitis with patients randomized to placebo 500 milligram daily of telotristat etiprate or 500 milligram three times daily of telotristat etiprate. Patients will be treated for eight weeks. These are patients who will receive treatment on top of the standard of care which is methylamine and efficacy measures will include an aggregate assessment that includes the clinical response and colonoscopy. The colonoscopy itself histology and biomarker of inflammation in the store called faecal calprotectin. And we are in fact to initiate this study in December and we would expect topline data in the first quarter of 2013.

Let me share with you as well an update of where we are with LX1033 for irritable bowel syndrome. Slide 33 provides results from our Phase 1 study where we found that plasma 5-HIAA levels that will be correlated with urinary 5-HIAA levels are reduced with – I’m sorry with LX1033. Over a 14-day experience in Phase 1, we had approximately 30% reductions with our 500 milligram, 750 milligram and 1,000 milligram doses of LX1033. The results were highly significant compared to placebo. And these encourage us that we can use our plasma 5-HIAA measures as a promising new biomarker in this area, whereas previously we had relied on the urinary measures which are difficult to obtain.

On slide 34, we have some new data that we’ve done in a Phase 1 study as well, with an even lower dose of LX1033 and that’s 500 milligram BID dose. That appears to achieve a maximum reduction of plasma 5-HIAA. That same 30% reduction we saw on 500 milligram TID, we’re seeing with 500 milligram BID. So we are encouraged by our opportunity to examine a potent drug with lower doses than we previously exploit in Irritable Bowel Syndrome with our prior therapy LX1031.

In our Phase 1 experience, LX1033 was safe. Slide 35 is our summary. We had an excellent safety profile, significant reductions and 5-HIAA biomarker at lower and less frequent dosing that then we have seen at LX1031.

And these biomarker reductions on the ballpark of the magnitude that we have associated with clinical benefit in patients with Irritable Bowel Syndrome. So, this allows us to move forward with LX1033, and we’re encouraged that we can do that with fasting plasma 5-HIAA as with maybe a superior biomarker compared to 24-hour urine 5-HIAA with a real advantage and convenience of feasibility.

On slide 36, we’re moving forward with LX1033 from Phase 1 to Phase 2 in Irritable Bowel Syndrome patients. Our strategy is to assess efficacy in Irritable Bowel Syndrome for selection of the dose for Phase 3.

And we help in Phase 2 to have a large program that will be help us to define our Phase 3 biomarker strategy, to examine whether our biomarker life plasma 5-HIAA can be used to identify the response of patients to adjust dose of LX1033.

We plan the study 360 patients with Irritable Bowel Syndrome, diarrhea predominate to randomize the one-to-one-to-one-to-one on a placebo 500 milligrams twice daily, 500 milligrams three times daily and a 1,000 milligrams twice daily of LX1033. We will treat them for four weeks and we will look at a stool consistency as a primary efficacy endpoint. We will be looking at other endpoints as well that are consistent with irritable bowel syndrome programs. And our experience in this area is still consistency it was a very sensitive indicator of efficacy for LX1031 and that will help us in selecting a dose of LX1033. We are on track to begin enrollment in this trial in the first quarter of 2012.

I will now turn the call over to Jeff.

Jeffrey Wade

Thank you, Pablo. I will provide a brief financial update. As indicated in our press release today we had third quarter revenues of $0.4 million, a decrease of 55% from $0.8 million in the prior year period. Our revenues of $1.5 million for the nine months ended September 30, 2011 reflected a 59% decrease from $3.7 million for the prior year period.

Our research and development expenses for the 2011 third quarter were $19.7 million, an increase of 4% from $18.9 million in the prior year period. The increase was primarily attributable to an increase in external preclinical and clinical research and development costs, offset impart by a decrease in personnel costs. Our R&D expenses at $63.7 million for the nine months ended September 30, 2011 reflected a 6% increase from $60.3 million in the prior year period.

In connection with our acquisition of Symphony Icon, we made an initial estimate of the fair value of our liability for the base and contingent payments, changes in this liability based on the development of the programs and the time until such payments are expected to be made are recorded in our consolidated statements of operations. The associated increase in Fair Value of Symphony Icon Purchase Liability was $2.3 million in the third quarter and $5.2 million for the first nine months of 2011.

Our general and administrative expenses for the 2011 third quarter were $4.1 million, a decrease of 18% from $4.9 million in the prior year period. The decrease was primarily attributable to decreased personnel costs. Our G&A expenses of $13.3 million for the nine months ended September 30, 2011 reflected a 14% decrease from $15.5 million for the prior year period.

Our net loss for the 2011 third quarter was $26.1 million or $0.08 per share compared to a net loss of $27.5 million of $0.08 per share in the prior year period. Our net loss for the nine months ended September 30, 2011 was $82.4 million or $0.24 per share compared to a net loss of $78.8 million or $0.27 per share for the corresponding period in 2010.

For the three and nine months ended September 30, 2011 our net loss included non cash stock based compensation expense of $1.4 million and $4.4 million respectively. For the three and nine months ended September 30, 2011 net loss equated non cash stock based compensation expense of $1.3 million and $4 million respectively.

Let me now turn to our cash and investment. As of September 30, 2011, we had $144.2 million in cash and investments, as compared to $164.8 million as of June 30, 2011 and $211.1 million as of December 31, 2010.

Now, let’s turn to our forward-looking guidance for 2011. We expect contractual revenues from existing agreements in 2011 of between $1.5 million and $2 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 continue to expect operating expenses in 2011 to be in the range of $110 million to $120 million. Non-cash expenses were expected to comprise about $18 million of this total, including $7 million in increase in fair value of Symphony Icon Purchase Liability, $5 million in stock-based compensation and $6 million in depreciation and amortization.

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 $90 million to $95 million, which is down slightly from our previous guidance of $92 million to $97 million.

I will now turn the call back to Arthur.

Arthur Sands

Thank you, Jeff. As you are formulating your questions for us, I will just like to comment – you can see certainly has a very full clinical program and have a very good significant amount of data which is very encouraging and so we’ve taken some extra time to share that with you today.

Specifically, our data on LX1032 Telotristat Etiprate it’s been particularly well-received in our partnership discussions. And as you may have noticed in our press release that we issued this morning, I stated that we are in fact progressing with plans to partner LX1032 on the basis of – on the strength of that Phase 2 data. And we’re currently engaged in active discussion of a multiple partners about the program.

So, assuming a successful completion of those discussions, we would anticipate partnering this program in the near-term and as usual there usually have some questions on our partnering activity, so we can certainly take any in that regard as well. So we can now open it up to Q&A.

Question-and-Answer Session


(Operator Instruction) Your first question comes from the line of Liana Moussatos with Wedbush Securities.

Liana Moussatos – Wedbush Securities

Hi. Thank you for taking my question. For the European study for 1032 can you give us timing of that?

Arthur Sands

Pablo, would you like to answer that please.

Pablo Lapuerta

Yes. So, the European study recruited eight patients and we have a couple on training, so we will have a few more. Our original target for that European study was to have a total of 16 patients. But given the nature of the results that we have and what we feel our clear signals of efficacy, we will be terminating that study at the end of the year, because it met its scientific objectives. So the final number of patients may be something like 10 or 11 patients.

Liana Moussatos – Wedbush Securities

Okay. And for the RA program can you give us an update on timing of that?

Arthur Sands

Pablo, would you like to keep going.

Pablo Lapuerta

Yes. We initiated a study of 10 patients in rheumatoid arthritis, we’ve already recruited several of the patients and they’re going to do increasing doses of 2931. This study is going smoothly, and we would expect to have results in the first quarter of 2012.

Liana Moussatos – Wedbush Securities

Thank you very much.

Arthur Sands

Thank you, Liana.


Your next question comes from the line of Cory Kasimov with JP Morgan.

Matthew Lowe – JP Morgan

Hi, there. It’s actually Matt Lowe in for Cory. Just regarding an update on the Phase IIb trial for 4211 and the pace of getting sites up and running, did the DAPA Panel have any obvious impact on the PACE enrollment or could you just comment generally on how the enrollment really progressed in that study? Thanks.

Arthur Sands


Pablo Lapuerta

We’re very pleased with the enrollment and high participation in the study. We have enrolled 150 patients. So, we’re more than half way done with this study to-date and the pace of enrollment has picked up in the last couple of months. We don’t feel it was adversely impacted by the DAPA funds and advisory committee. The investigators seemed pleased with the protocol and with the patient experience and the sites that recruits a few patients they end up recruiting a few more. So the study is proceeding well and the investigators are supportive.

Matthew Lowe – JP Morgan

Okay. That’s great. Thank you.


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

Alan Carr – Needham & Company

Hi, thanks for taking my question. Want to come back to 1032 and commercial and partnering strategy, you mentioned that you’re making progress in partnership discussions, is that worldwide or just ex-U.S.? And then to continue on 1032, I wonder you can tell me how things are looking in terms of – on a regulatory front there in terms of what discussions with the FDA and Phase III design and that sort of thing?

Arthur Sands

So, we’re discussing, its different models for partnership that mostly world-wide partnership. And so we believe those discussions are progressing pretty well.

Pablo Lapuerta

With regard to the discussion with the FDA, it’s our plan to schedule meeting with the FDA and outline with them our registrational trial based on the data that we’ve accumulated today. And I think that also is provides a timing framework for us with regard to partnership. In terms we’ve anticipated that any partner coming on board will have obviously lots of interest in participating with us and planning that FDA meeting and of course the registrational trial. So that all of those fronts kind of come together with our overall plan to move into Phase 3 for that program as rapidly as possible.

Alan Carr – Needham & Company

If a partnership doesn’t emerging in the near term, do you plan to move forward with means – with the FDA or would you just postpone that until you have a partnership from Dove?

Arthur Sands

We are moving forward with the FDA meeting absolutely. And I think those will be instrumental for giving us real clarity as to what’s required for the Phase 3 program, the budge et cetera. So this is ongoing forward and we will be the – Lexicon will be driver of the scheduling of that.

Alan Carr – Needham & Company

Okay. And then you have three preclinical program 7101, 5061 and 2311, I don’t think you brought them up today. Do you still plan to move those into the clinic late this year or early next year or are you going to be focusing the vast majority of your efforts on the four Phase 2 programs?

Pablo Lapuerta

Certainly, we’re focusing the vast majority of our efforts on the four Phase 2 programs. As you know the other programs as they progress through IND enabling studies, it’s hard to predict on the consumer’s resources along the way. I’d like to ask Brian to talk briefly about each of those starting with our first anticipated IND filing, the first program in that list.

Brian Zambrowicz

Sure. LX7101 for glaucoma we have an upcoming meeting with the FDA to finalize our plans before we file our IND anticipating – anticipate filing that IND year end. The next one coming up would be LX2311 for autoimmune disease; we anticipate that we would file an IND for that program somewhere between mid-year to third quarter of 2012. And finally LX5061, we did encounter some unexpected toxicity that we haven’t seen before we monitored GLP studies and so we have stopped LX5061 and are working on a back of compound and move forward.

Alan Carr – Needham & Company

Okay. Thanks for the update.

Brian Zambrowicz

Thank you, Alan.


(Operator Instructions)

Your next question comes from the line of Nicholas Bishop with Cowen & Company.

Nicholas Bishop – Cowen & Company

Hi there, I have two questions. The first one is on LX1032 and you provided a lot of interesting detail on some of the outcomes benefits to the patients besides the reduction in bowel movement frequency and is still your expectation and that would be the primary end point of the phase III or could there be room for some of these other benefits to be in that outcome?

Brian Zambrowicz

Pablo, would you like to address that?

Pablo Lapuerta

Well, we feel that there is plenty of room for these other benefits to be in the label. They may not be in the primary end point, but they may still be in the label based on discussion with regulatory agencies. And so that’s one of the things we hope to map out in our strategy.

We feel that adequate relief is really telling us a lot about patients, but there is an attraction and robust data around bowel movement frequency. So the discussions with regulatory agencies will focus on how do we get a primary end point that’s objective and that satisfies the requirement. But how do we get the other information that completes the understanding of the clinical response of the subject in the label.

Nicholas Bishop – Cowen & Company

Okay. Thank you. And then just one quick financial one. Operating expenses have been – well R&D and SG&A have been declining over the last few quarters and I have two questions about that. One is based on your guidance should we expect an increase in either of those in the fourth quarter or is that trend likely to continue and also you mentioned some reduction in personnel expense. I was wondering if you could comment on or to make sure that?

Pablo Lapuerta

Sure. The reduction in personnel expense, I’ll answer the second part first. The reduction in personnel expense relates to reductions that we had earlier or the beginning of the year and that’s carried through each one of these quarters. We will expect to have a somewhat higher expense, R&D expense in the fourth quarter, and that relates to the timing of clinical and CMC activities. So that our fourth quarter, if we kind of look at what we expect so far and what we expect to spend in the fourth quarter the fourth quarter expense will be somewhat higher and it’s mostly related to the timing of clinical activities.

Nicholas Bishop – Cowen & Company

Okay. Thank you. That’s helpful.


At this time there are no further questions.

Arthur Sands

Well, thank you for participating in this call. We look forward to updating you at next quarter. Bye-bye.


Ladies and gentlemen, this does conclude today’s conference call. You may now disconnect.

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