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Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)

Q4 2011 Earnings Call

February 22, 2012 11:00 AM ET

Executives

Wade Walke – Director, IR

Arthur Sands – President and CEO

Brian Zambrowicz – EVP and Chief Scientific Officer

Pablo Lapuerta – SVP, Clinical Development and Chief Medical Officer

Jeff Wade – EVP, Corporate Development and CFO

Analysts

Philip Nadeau – Cowen & Company

Stephen Willey – Stifel Nicolaus

David Friedman – Morgan Stanley

Operator

Thank you for holding. Welcome to the Lexicon Pharmaceuticals Fourth Quarter and Year End 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 the Lexicon Pharmaceuticals fourth quarter and year end 2011 conference call. I’m 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 and Clinical Development and Chief Medical 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 2011. Dr. Zambrowicz will then give an update on our LX4211 programs Dr. Lapuerta will then review his status of our LX1032, LX1033, LX2931 and LX7101 programs and Mr. Wade will review our financial results for the fourth quarter and full year 2011 and discuss our financial guidance for 2012.

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 our 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 LX7101 in 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. Our dependence 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 Sands

Thank you Wade and welcome everyone to the call. As we looked at our pipeline today I think it’s clear 2011 was characterized by significant amount of effort placed and progressing and enhancing our pipeline as we move through Phase 2 development on number of programs that we’ll be talking about each of these today. We also initiated a new program so it’s our fifth program now in clinical development that is LX7101 in glaucoma and we’ll be providing a brief update on the status of that as well.

Also in 2011, we fortified Lexicon’s with respect to our financial position and of course this is key so that we are able to progress our pipeline independently and pursue our business model that is to seek partnerships in certain key areas of for large primary care indications so at the end of the call Jeff Wade will be discussing our financials for the year.

If you look at – looking forward to on the next slide to 2012, there is a significant amount of activity associated with such a broad pipeline of now five programs. And so I would like to take a moment to walk through those slides and draw your attention to some of the key milestones over the next 6 to 24 months. So, starting from where we stand now at the end here of Q1 and the bottom of this pipeline slide that this – pipeline slide you see the progression of each program with respect to initiations and launches. And at the top our key events we expect with respect to results and milestones for each program.

So, starting from the top left, of course the milestone that is perhaps most significant is for LX4211 in diabetes our Phase 2b results are expected at the end of Q2. And so that is coming up here that’s a study of as about 300 patients with type 2 diabetes and we’re on track to have those results.

In the similar timeframe we expect to have results from LX2931 in rheumatoid arthritis that’s a bridging study in the middle of Phase 2 where we’re exploring higher doses of LX2931. And then as they progress towards the end of the year we see results from LX7101 in its initial proof-of-concept trial in glaucoma and that should provide us really the first insight as to be that mechanism of action in patients.

And then looking to Q1 of 2013 so approximately 12 months from now we expect to see the results from our IBS trial with LX1033 that’s a very large Phase 2 trial some 360 patients with IBSD.

In a similar timeframe we would expect to see results from telotristat etiprate or LX1032 in ulcerative colitis that’s also a proof-of-concept trial and a new indication as we are progressing that program to explore that opportunity.

Along the bottom of this timeline then you can see all the launches that are involved and some of which of course are contingent on the results that we would achieve on the top part of the timeline. But I think most importantly in 2012 is the first Phase 3 launch which we’re currently actively planning and as for telotristat etiprate and carcinoid syndrome that of course driven by the results we’ve had in the past six months the proof-of-concept results in carcinoid syndrome which were very favorable and encouraging.

As we progress then on to the right depending on our results again we could anticipate LX2931 having an opportunity in RA if we establish safe and effective dose from the current study.

And then for LX4211 our potential Phase 3 launch in early 2013 in type 2 diabetes that of course would be a major effort we have already began at least strategizing about the potential design for our Phase 3 program this would be program we’d anticipate going into with the partner but it does require Lexicon achieve a significant amount of groundwork in order to prepare for that opportunity.

So within just the next 12 months you can see a number of I’d say a very important results coming from each of our five programs in development. And then associated with those results and driven by them key next steps for the programs at the bottom. So a very exciting 12 months and 2012 in front of us.

I’d like to turn now to LX4211 and provide for you a little introductory context I know that we had talked quite a bit about LX4211 with other one in the past. And so, we’re all familiar with the fact that it’s the only dual inhibitor of SGLT1 and SGLT2 in clinical development. The competitive landscape here as you can see has really centered predominantly on SGLT2 for a number of reasons we described in the past where large pharmaceutical companies and other companies have pursued that as the first target on this pipeline.

We’ve been the only dual inhibitor have I think done an excellent job so far of describing the advantage of the SGLT1 and we’ll describe our most recent study in that regard today as well. But, recently in 2011 we did see results from our Phase 1 study presented by GSK so at the bottom of the slides you can see that they have presented results of SGLT1 selective compound in the clinic which has substantiated our findings and I think it’s been encouraging that in fact we do believe as they do that this represents a major new opportunity in diabetes.

So turning to our strategy slides in clinical development of 4211 then with such a competitive field and the mechanistic understanding of its pathway is still evolving. I wanted to describe our strategy with regard to all of the studies we’re conducting in diabetes. So first and foremost of the largest trials we conducted today the ongoing trial are focused on demonstration that the dual mechanism of action provides of the opportunity for superior glycemic control combined with metabolic controls.

So enhancing not control, but sugar but also very important parameters of metabolism that include not only body weight, but also cardiovascular parameters specifically blood pressure and triglycerides where we’ve seen – we’ve seen encouraging results of LX4211 today.

So we believe in the future to be competitive in the diabetes marketplace ultimately drugs are going to have to be able to address both glycemic control and metabolic control and all for those patients for patients benefits. So the study is compared to this part of our strategy listed below of course first we have completed study the Phase 2a study of 36 patients where we first saw this encouraging profile.

And then the ongoing 12 week study of the Phase 2b study again which results from which we expect later in June of this year and that’s being done on combination with metformin and patients with fully controlled diabetes who are on this one.

In addition to this we’ve initiated a proof-of-concept study and type 2 diabetes patients who have moderate to severe renal impairment. This is – fits with what we understand about the mechanism with LX4211 and that we believe that we can benefit these patients by virtue of our SGLT1 effect whereas the SGLT2 is part of the mechanism has not been shown to necessarily benefit this important population of diabetes. And this constitutes approximately 30% of patients with type 2 diabetes.

So we think this is an important proof-of-concept trial for an additional enhancement of our product profile for LX4211. If we turn to the next step in our clinical development strategy for LX4211 that is to really illustrate the – this mechanism of action, since we are pricing new ground here with SGLT1 and SGLT2. We’ve initiated and completed a number of studies that are designed to define the biomarkers that are driven by inhibiting SGLT1 focusing on that because that’s severely novel aspect of this.

And those biomarkers include GLT-1, which of course is more than just the biomarkers since it has distinct biologic and medical activity in type 2 diabetes. And then also PYY which is an appetite control hormone and other important GI hormones. And so in that regard the studies that we completed include studies that are not going to mice, which have really confirmed I think very elegantly the SGLT1 and SGLT1 actions well separately and together.

And then pharmacologic studies both in patients and also healthy volunteers where we’ve shown these mechanisms would be a play and we’ve had a consistent results with respect to GLP-1 and PYY.

The third part of our strategy involves demonstrating the value of combination therapy with LX4211 and other agents of course not only that we profiling or have we profiled LX4211 alone but we are now moving into areas where we’re combining this drug which is how drugs are prescribed actively in type 2 diabetes and be in the greatest portion of the type 2 diabetic population some 40% are on at least two oral therapies.

So studies in this category than our first day ongoing 12 weeks study which is in combination with Med-Pharm and then I think represents the largest share of the potential combination market currently.

And then most recently a study we’ve conducted with sitagliptin that is Januvia DPP-4 inhibitor as these agents are growing importance and given what we know about their action there should be almost a natural synergy with LX4211.

So with that overview of our strategy for LX4211 I’d like to now turn it over to Dr. Brian Zambrowicz to describe in some more detail this recent study with DPP-4 in addition.

Brian Zambrowicz

Thank you, Arthur. As Arthur mentioned, we are continuing to build the mechanistic story of the dual SGLT1 and inhibitor SGLT2 inhibition that we achieved with our LX4211.

And as well as continuing to build the differentiation story relative to other agents to treat diabetes as well as the SGLT2 selective agent. We thought we got a real opportunity by combining our LX4211 with the DPP-4 inhibitor, the reason for that is that we’ve now shown in multiple studies in both patients with type 2 diabetes as well as healthy subjects that LX4211 through its inhibition of SGLT1 triggers an elevated release of beneficial gastrointestinal peptides such as GLP-1 after meals. And since DPP-4 inhibitor is preventing an activation there was real rationale that together there could – these two agents could provide enhanced glycemic control and benefits for patients. We can go to the next slide.

We first studied the combination in single dose studies in mice and that’s shown here. What we did is, we dosed the animals and now we’re looking at the active GLP-1 levels on the Y axis two hours post dose and vehicles in green, blue is going to be LX4211 alone, orange is sitagliptin alone and red is the combination. And what you can see here is that two hours post dose LX4211 and sitagliptin are both having modest effects on active GLP-1, but the combination is providing more than a matter of the fact there is a synergy in elevating active GLP-1 with the combination therapy. And based on this data, we chose to go ahead and examine the combination indications with type 2 diabetes.

So, we again chose to a single dose study, these are in patients, ageing patients with type 2 diabetes with the blinded study triple crossover with wash out of metformin. And then on three separate occasions we gave either, single dose of LX4211 or single dose of sitagliptin or the combination. We did use sitagliptin of 100 mg its maximum prescribed dose, because we wanted to show that we could achieve a benefit above that maximum dose.

And our primary endpoint was active with one levels and totals with one level, secondary endpoint including – included post-prandial glucose insulin PYY and urinary glucose excretion.

Next slide. Moving on to the results of that study, first looking at active GLP-1 levels. So I remind you again in blue and all these slides will be LX4211 alone and orange will be sitagliptin alone and red will be the combination.

And as we’ve demonstrated in previous studies, clinical trial LX4211 alone dose elevate active GLP-1 levels. Sitagliptin in this study elevated them further, you can see that this is over the course of the whole day with the bumps in active GLP-1 occurring after meals as expected.

Importantly the combination produced more than an additives elevation of active GLP-1. So just like in the mild studies we see a synergistic elevation of active GLP-1 with a combination of sitagliptin and LX4211, as we had anticipated.

Next slide. We also look that PYY levels, as I already mentioned this is a satiety peptide, in blue LX4211 alone pretty dramatically elevates active GLP-1, PYY levels after a meal. In orange sitagliptin actually suppresses the normal GI PYY response after meals. And then the combination in red there is some rest few of the normal PYY response after meal.

Next slide. The most important aspect of the study was that we were pleased with the peptide are moving in the right directions that what are the overall effects on glycemic control that’s we’re looking at here, you can see that at breakfast in blue 4211 appears to perform better than sitagliptin alone in orange at lunch. They’re working very and at dinner sitagliptin appears to be a bit better than LX4211 alone. However, importantly the combination provides the best glycemia control drop the entire course of the day.

You can go to the next slide. Now we’re looking at amount of insulin required to achieve that glycemic control. In orange sitagliptin alone does require quite a bit of insulin that’s due to its mechanism of action enhancing glucose dependant insulin release. In blue LX4211 alone it’s achieving glycemic control but with very low insulin levels and that’s most likely due to its two insulin independent mechanisms of action, the first being enhanced urinary glucose excretion and the second being in addition of intestinal glucose absorption.

And importantly here now in the middle in red you can see that the combination which gave the greatest glycemic control achieved that while decreasing the amount of insulin required relative to sitagliptin monotherapy.

Next slide. So, as we had hypothesized the combination of LX4211 with DPP-4 inhibitor did give us synergistic elevation of active glucose 1 levels. And there was also improvements of other GI peptides total GLP-1 and PYY profiles were improved with a combination therapy relative to sitagliptin monotherapy. But importantly the combination therapy gave the greatest glycemic control and achieved it with lessons now acquired with sitagliptin monotherapy. So we think that this combination as a real opportunity to benefit patients with diabetes and this will play out as we do larger and longer term studies with this combination.

Next slide, now to remind you of our ongoing study this is a Phase 2b study in patients with Type II diabetes on stable dose metformin. You can see that we are testing four doses of LX4211 relative to placebo that’s 75 milligrams given once daily 200 milligrams given once daily, 400 milligrams given once daily and then 200 milligrams given twice daily BDI dosing measurement.

We are treating over 12 weeks with primary endpoint of hemoglobin A1c and multiple secondary endpoints including both – including the percentage of patients that achieving HbA1c less than or equal to 7%. Fasting plasma glucose and all glucose tolerance test and weight, blood pressure and triglycerides.

We did believe we have an opportunity to differentiate based on multiple both primary and secondary endpoints.

Next slide, and we are pleased to announce today that we have completed enrollment and we have randomized 299 patients. Our safety review to-date is consistent with the non-tolerability profile of LX4211, we’ve had few discontinuations due to adverse events and no serious adverse events on concern and we’re on targets for our top-line data by midyear.

Next slide. We are in the process of initiating inhibition trial and this is again to further differentiate LX4211. This is the study in patients with modest to severe renal impairments. As Arthur mentioned this is not a small subset of diabetes patients as that represents approximately 30%.

And this is patient population that cannot achieve a benefit from SGLT2 inhibition alone because their glomerular filtration rate is too low.

We believe that SGLT1 mechanism of LX4211 should help benefit these patients as both the inhibition of the glucose absorption by the intestine as well as the triggering of beneficial GI peptides such as GLP-1 and PYY should be able to benefit them.

So there are few oral therapies available are currently for these patients with moderate to severe renal impairment and that’s common in most self injuries are contraindicated. So it is very limited. We’ll be randomizing 20 patients and we’ll be treating them relative placebo over seven days. Our primary end plan will be to demonstrate that we can improve post-prandial glucose over the four hours and after brunch.

With that I’m going to turn it over to Dr. Pablo Lapuerta to bring up to-date on the other programs in the clinical development.

Pablo Lapuerta

Thank you, Brian. The first program to discuss is LX1032 which is also known as telotristat etiprate which is being developed for carcinoid syndrome. Our goal for 2012 is to prepare for a Phase 3 program in carcinoid syndrome and that will include regulatory interactions with the Food and Drug Administration and the European Medicines Agency. Another thing we hope to accomplish in 2012 is to explore the use of telotristat etiprate in patients with ulcerative colitis.

And preparing for the Phase 3 program we shared the clinical trial results we had from Phase 2 in carcinoid syndrome which will positive and encouraging with several experts in the field. And the feedback has been supportive and it helped us develop a protocol synopsis and design for that we would accomplish during Phase 3. We hope to target a population similar to Phase 2 a population with carcinoid syndrome that is refractory to the standard of care and that standard of care right now is somatostatin analogues therapy.

We’re encouraged by Phase 2 results which showed a reduction in bowel movement frequency and hope to demonstrate a similar reduction in bowel movement frequency here over the course of 16 weeks a longer duration of time in a Phase 3 program. We’re also looking at multiple secondary end points that can address patient reported outcomes like relief of symptoms specifics around gastrointestinal symptoms that are associated with carcinoid syndrome and also changes in biomarker urinary 5-HIAA being an important marker of the inhibition of serotonin synthesis with telotristat etiprate. In doing this we’ve already submitted to the FDA a request for end of sales meeting to be held at possibly at of the first quarter of 2012 and in parallel we’re proceeding with our plan to acquire scientific advice also we’re seeing that request in this quarter.

And ulcerative colitis preclinical data has suggested that we have a good opportunity to benefit patients. And our goal for 2012 is to establish some basic proof-of-concept data with an appropriate safety profile that would allow us to go further into development for ulcerative colitis.

So we have initiated a study called PARSEC Phase 2 study of the relationship between serotonin and efficacy and ulcerative colitis. PARSEC well we have randomized 60 patients with mild-to-moderate ulcerative colitis, but will be randomized to placebo or two different doses of telotristat etiprate. And the premium period in PARSEC will be eight weeks, this will be on top in the (inaudible), which is a standard of care for the patients with ulcerative colitis.

There will be several efficacy measures including the male score, which is primarily a clinical assessment colonoscopy, histology that is biopsies will be found with the colonoscopies. And they are biomarker in the so called (inaudible) protecting, which is a marker information. We’ve already randomized several subjects into the study and its proceeding well.

For LX1033, we opened 2012 to advance our development in irritable bowel syndrome that irritable bowel syndrome that is diarrhea predominant. We hope to establish a proof-of-concept with an acceptable safety profile and patients with irritable bowel syndrome. Importantly we’ve shared prior results within early serotonin and synthesis inhibitor LX1031 that showed some encouraging data on efficacy and some encouraging data with respect to biomarkers.

We hope to correlate our clinical efficacy data in our proof of concept study with biomarkers being plasma 5-HIAA and potentially genetic markers with help of target the right population at the right dose.

In order to move forward into Phase II, we met with the FDA in the fourth quarter of 2011 and we were encouraged that we were able to clarify some key elements of patient reported outcome strategy which is an important area in irritable bowel syndrome and one that’s in evolving. And also our biomarker plan. So that we have a right pathway to develop our biomarker strategy and satisfaction of regulatory requirements. We have already started screening patients in the trial, we set up many sites and over the course of several months we hope to enroll 360 patients. Within a timeframe that will allow us to complete the study around year-end.

We provide some more specifics on the clinical trial design for this proof of concept study and irritable bowel syndrome. The patient population has irritable bowel syndrome which is predominant and the primary endpoint is change in still consistency. We have experienced with a first generation serotonin synthesis inhibitor LX1031. We are still consistency seem to be a sensitive marker of efficacy.

We haven’t announced this plan that’s oriented around biomarkers, which include plasma 5-HIAA, we feel that our genetic markers that are promising that we wish to explore and we will tie this to patient reported outcomes and the potential endpoints that we would use in the Phase III development program.

The study will have screening period of about 2 weeks, running period of two weeks and then 28 days of treatment of randomization with two weeks of follow up. The doses that we’ll be using of LX1033 are lower than higher experience that we had with our first generation compound LX1031. This is one of our goals to be able to develop administered serotonin synthesis inhibitor that could be administered at lower doses with a lower dose frequency. So we’re going as well as 500 milligrams with a frequency as low as twice a day.

The next update is about LX2931 for rheumatoid arthritis. We had previously done a Phase 2 study which showed some signs of efficacy at the highest dose and within that highest dose the patients with the highest exposure to study drug had the best results. And that led us to explore higher doses in order to be sure that we can get a high exposures with good consistency with robust efficacy and that has led us to a dose escalation churn.

So the strategy of the trial is to go from what had been our top dose previously 150 milligrams have been safe well tolerated with signs of efficacy, but to go much higher to be able to go to 500 milligrams and see if you could identify doses in this range that would be well tolerated and correlating with the blood levels of drug previously associated with efficacy.

Previously we had seen the greatest efficacy for subjects with sound drug concentrations greater than 60 mg/ml after 24 hours of dosing that’s what we’ll be looking for in this dose escalation trial. We have randomized nine out of 10 patients, so we will be completing randomization soon, patients have been randomized to LX2931 versus placebo. And our patients will go through this dose escalation where they start at a 150 milligrams and that goes to hard doses until they reach 500 milligrams and have advised 12-weeks total of treatment.

The primary endpoint will be safety compared to placebo, secondary endpoints we’ll look at the plasma drug concentrations that have to achieve consistently and that’s a minimum concentration 24 hours after dosing a 69 milligrams per ml at least.

We’ll also be looking at these dose levels over time by examining changes from dose side over time and we’ll be also looking at lymphocyte cancers as a biomarker. Other biomarkers we’ll include high-sensitivity C-reactive protein and erythrocyte sedimentation rate as indicators of inflammation. And we’ll be looking at clinical assessments including a Disease Activity Score 28 and American College of Rheumatology responses. We anticipate results around our midyear with only one patient left to be randomized in the study.

Our last update of these five programs is on LX7101 for glaucoma. We’re excited about the ability to move this into clinic and to get proof-of-concept data in 2012. We hope to establish proof-of-concept and to identify the safety profile in glaucoma patients.

In order to do this we met with the FDA and shared them our pre-clinical data and we were encouraged by the meeting and went ahead and submitted a IND in the fourth quarter of 2011, that has allowed us to move forward into a clinical trial that will randomize 60 patients with glaucoma they’ll be randomized to placebo and to two doses of LX7101 the first seven days they’ll receive treatment daily and then the last seven days they will receive treatment twice daily.

We will be looking at intraocular pressure measures at baseline on the first day of dosing after our first week that’s the completion of once daily dosing and completion of the second week which we’ll have in twice daily dosing. So, we’ve already initiated the sites for this study and we anticipate results in the fourth quarter of 2012.

That completes our update and I will now turn the call over to Jeff Wade.

Jeff Wade

Thank you, Pablo. I will provide a brief financial update. As indicated in our press release today we have revenues for the 2011 fourth quarter of $0.3 million which is a decrease of 73% from $1.3 million in the prior year period. For the year revenues decreased 62% to $1.8 million from $4.9 million in 2010.

Our research and development expenses for the 2011 fourth quarter increased 54% to $28.1 million from $18.3 million in the prior year period. The increase was primarily attributable to higher external clinical research and development and manufacturing costs.

For the year our R&D expenses increased to 17% to $91.8 million from $78.5 million in 2010. 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 all 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 $1.6 million in the fourth quarter and $6.8 million for the year. Our general and administrative expenses for the 2011 fourth quarter were $4 million, an increase of 4% from $3.9 million in the prior year period. For the year, our G&A expenses decreased 11% to $17.4 million to $19.4 million in 2010.

Our net loss for the 2011 fourth quarter was $33.8 million or $0.10 per share compared to a net loss of $23 million or $0.07 per share in the prior year period. Our net loss for the year was $116.2 million or $0.34 per share, compared to a net loss of $101.8 million or $0.34 per share in 2010.

For the 2011 fourth quarter, our net loss included non-cash stock-based compensation expense of $1.4 million, compared to $1.5 million in the corresponding period in 2010. For the year, our net loss included non-cash stock-based compensation expense of $5.7 million compared to $5.5 million in 2010.

Let me now turn to our cash and investments. At year end, we had $281.7 million in cash and investments as compared to $144.2 million as of September 30, 2011 and $211.1 million as of December 31, 2010.

Now let’s turn to our forward-looking financial guidance for 2012. 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. That said, we believe our productive pipeline will provide Lexicon with attractive opportunities for future alliances.

We expect operating expenses in 2012 to be in the range of $110 million to $120 million with non-cash expenses are expected to be approximately $19 million of this total including $9 million an increasing per value of Symphony Icon purchase liability $5 million and stock-based compensation and $4 million in the depreciation and amortization.

Our operating expense expectations for 2012 taken into account recent head count and cost reduction measures in research administration and overhead areas as we continue to devote a greater proportion of our R&D and overall spending toward development stage programs.

Taking into account cash received under existing contractual relationships only, we expect our 2012 net cash operations to be in the range of $93 million to $98 million. To recap, Lexicon strong financial position supports our business model.

Our cash and investments have more than $318 million as of December 31, 2011 reflect a successful completion of our rights offering which we raised approximately $161 million that allows us to pursue our strategy of commercializing products independently in collaboration with partners in a sustainable business model. With global licensing for large primary care indications and regional partnerships where independent commercialization for a select specialty indications.

I will now turn the call back to Arthur.

Arthur Sands

Thank you, Jeff. As you are formulating your questions I think you could see from our update that we are embarking on really the – one of the busiest years in the clinic the Lexicon ever have multiple trials of size across multiple therapeutic areas. So, we can now enter into the question-and-answer session.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Phil Nadeau with Cowen and Company.

Philip Nadeau – Cowen & Company

Good morning, thanks for taking my questions. Just a couple of short ones . On the new candidate LX7101, could you give us some idea of what changes in intraocular pressure would serve us proof-of-concept in the kind of study, what are you hoping to see?

Arthur Sands

Brian do you want to take that question?

Brian Zambrowicz

Yes, in this initial study roughly a 20% drop intraocular pressure would be very encouraging.

Philip Nadeau – Cowen & Company

Okay, fair enough. And then on LX1032 in carcinoid you mentioned in your prepared remarks, this is the year where you going to prepare for Phase 3 with meetings with the FDA and EMA. Can you talk a little bit more about the status of those meetings have you scheduled them have you submitted pre-meeting docs to the agencies?

Arthur Sands

Pablo would you like to go ahead on that?

Pablo Lapuerta

Yes, we’ve submitted a meeting request to the Food and Drug Administration. And so the – we’ve received a response, we don’t have the exact date yet, but that will be somewhere between the last week of March and first week of April. And then for the European Medicines Agency, we’ve planned to submit our intent this week, scientific advice at the next date for this, which is around now the middle of February.

Philip Nadeau – Cowen & Company

Okay. And is there – it seems like these meetings therefore could happen pretty earlier in the year, is there a chance that these pivotal trials actually start this year?

Arthur Sands

Yes we hope that we can start a Phase 3 program in this year. And in terms of our manufacturing and these regulatory interactions they all come to a fruition about the same time in terms of the time for initiating sites and finalizing protocols and having drugs if are available. And so we will be looking towards the end of the third quarter or early fourth quarter for initiation of the Phase 3 program as the regulatory interactions are supported.

Philip Nadeau – Cowen & Company

Great, thanks for taking my questions.

Arthur Sands

Thank you.

Operator

Your next question comes from Stephen Willey with Stifel Nicolaus.

Stephen Willey – Stifel Nicolaus

Hey hi thanks for taking the question. I was just wondering maybe if you could maybe just clarify the charges on a little bit on 2931 is that total treatment period across all the escalated doses 12 weeks?

Arthur Sands

Yeah Pablo, do you want to talk about the design.

Pablo Lapuerta

Yes the total treatment period across all doses is 12 weeks, so you start with 150 milligrams and go up to a sequential doses until you reach 500 milligrams and so I believe it’s about six weeks of the 500 milligram dose.

Stephen Willey – Stifel Nicolaus

Okay, so you’re pretty much cycling patients through the first three or four doses over the first six weeks and then they are kind of matched out at the 500 for remaining six?

Arthur Sands

Exactly.

Stephen Willey – Stifel Nicolaus

And is it lymphocyte reductions specifically that you guys are looking at in terms of making a decision to dose escalator or is it or is it more safety geared?

Arthur Sands

The safety is really the parameter for dose escalation.

Stephen Willey – Stifel Nicolaus

Okay. And in terms of the biomarker that you’re going to be implementing now in IBS, do you essentially view that as a means to gauge non responders or potential non responders from a pivotal strategy is that kind of how you’re looking at how this get to use longer term or by you may treat patients for a couple of weeks and then use the biomarker to kind of kick the non responders out.

Arthur Sands

While we suggested by our experience with LX1031. The – however LX1033 is a more important drug that can produce more or less to identify HIV reduction. So, one of the possibilities that we have to consider is that the biomarker would not really exclude a patient, but help guide the right dose, it could be that a patient does not respond at a lower dose and could benefit from a higher dose. So, I think those adjustments with discontinuing of a patient if the patient does not have evidence of uncondition of serotonin synthesis at the highest dose would be a potential use of a biomarker.

Stephen Willey – Stifel Nicolaus

And then just lastly on 4211, can you remind us where you guys are in terms of completing preclinical talks. And then I guess as a follow-up to that. In your conversations on the BD front do you get the sense that a potential partners mean obviously they’re waiting for the Phase 2b data, but are they also waiting for some of these other larger Phase 3 SGLT trial 3 maybe specifically the JJ trial to get an idea as to whether or not the oncology signal is replicated?

Arthur Sands

Brian, do you want to take the preclinical part and then start giving...

Brian Zambrowicz

Sure. We’re now in completion of our long-term red and (inaudible) and we anticipate that around midyear. We really have to step things up so that we have everything in place to be Phase 3 ready in order to initiate Phase 3 with a potential partner in the first half of next year.

Stephen Willey – Stifel Nicolaus

Is there any color you can provide on the talks today specifically on the GI front?

Arthur Sands

It’s been consistent in all pre-clinical and clinical studies to-date. There been no signal-that increase diarrhea I’d go further into say that six and nine months (inaudible) even at the highest doses there were no observatives of diarrhea. So it’s held up really well pharmacological inhibition of SGLT1 does not appeared to be associated at this client list in increased diarrhea.

Brian Zambrowicz

And then Stephen you had a request on the BD front, Johnson and others may want to count on potential dynamic.

Arthur Sands

Sure. So well I think the main thing that people are waiting to see or that Phase 2b result for our compound. I think that people that we’re talking to do view the mechanism is being different and because we got the two mechanisms so it’s not an apples-to-apples comparison obviously.

And I think I would I think it is relevant when the results are of the other parties but I would say that our compound is distinguished in this – it is being distinguished from the other compound in this scenario.

Stephen Willey – Stifel Nicolaus

Thank you for the color and congrats on the progress.

Arthur Sands

Thank you Stephen.

Operator

Your next question comes from David Friedman from Morgan Stanley.

David Friedman – Morgan Stanley

Hi thanks for taking my question. This Brigand calling in for Dave. So it seems like the new IBS trial improved criteria is slightly different from FDA guidelines and I’m just wondering if there is a specific reason why you didn’t file the guidelines and also assuming that the Phase III has to be run according to the guidelines, how do you get comfortable evaluating the drug in Phase II in a slightly different population. And you need to run the Phase III in?

Arthur Sands

Pablo, would you like to take that question?

Pablo Lapuerta

Yes, I think we got comfortable with our proposed entry criteria for Phase II and believe that we would use the same entry criteria Phase III by interacting with the Food and Drug Administration. And so the – there is a guidance but we have experience with serotonin synthesis inhibition, we are able to look at how the guidance, it’s a population that benefited from use of LX1031 and then come up with the reasonable proposal for LX1033. And we feel that although there is some minor differences our population is a little bit broader and a little bit more inclusive than the original FDA document that was – something a draft document and we’re well within the intent of that guidance.

So we feel more comfortable moving forward with our plan. It was one of the reasons for us to interact with the FDA and we think it’s important to work with them closely on this area of patient reported outcomes and how we define both the patient population and response to therapy.

Arthur Sands

I was just going to comment that as Pablo mentioned that was draft guidance and since that draft guidance came out meeting between – with the FDA and the opinion leaders in the IFB field and our entry criteria, we believe are quite consistent with the modified guidance that FDA has come to agreement with experts in this area. And as Pablo mentioned we did discuss this with the FDA.

David Friedman – Morgan Stanley

Okay, great. Thank you.

Arthur Sands

Thank you.

Operator

Your next question comes from Cory Asimov with JPMorgan.

Unidentified Analyst

Hi, there (inaudible) in for Cory today. Just a couple of questions. The first one is for 4041, just wondering for a Phase III program to start in the first half of 2013, I guess when is the latest you think you could have a partner on board to kind of meet that timeframe. And then for the Phase III program for carcinoid syndrome just wondering at this stage on the something you haven’t met with the FDA, what kind of in terms of the number of patients, thinking about in that program the treatment duration and the likely endpoint that would be great. Thank you.

Arthur Sands

Well, Pablo maybe you could take both of those questions.

Pablo Lapuerta

All right. Let me take the last part first because it’s a very specific around the protocol that we are considering. We are still awaiting feedback and we have – on the actual meeting date, once we have that with some of the briefing document but we do have a protocol synopsis and that envisions a four months of therapy which is consistent with some of the discussions we’ve had before with regulatory agencies. And the total sample size we think that for an orphan drug indication like this that we can get minimum safety and efficacy data on a ballpark of 100 patients.

That could be slightly more or slightly less that’s the type of area that we will be discussing with the FDA. And we do feel that reduction in (inaudible) frequency is a clinically relevant measure and an objective measure that it is easy to interpret. So that’s what we are considering for Phase III program and we feel there is a precedent for that as well.

So that describes what we’re thinking of in terms of a clinical program for the absorption of drug indication. Could you remind me about the first part of your question had to do...

Unidentified Analyst

The first one was just to do with 4211 in order to begin a Phase 3 program in the first half of 2013 when the latest you might need a partner on board for that to occur?

Jeff Wade

So there is two parts to that while first the logistics that we’re planning right now and then I think just to comment on the partnership timing issue, but maybe you could address the logistics in terms of what we’re doing to get ready.

Pablo Lapuerta

Did you mean that for Jeff or for me?

Jeff Wade

No that’s for you Pablo.

Pablo Lapuerta

Yeah so we’re already starting our interactions with contract research organizations. And we’re talking about the overall scope of the program, the number of studies and what it would take to be to initiate that program and what it would take to initiate it without missing a step because of partnering negotiations. So we think that there are opportunities to give a good start to our Phase 3 program if we have a – and a good arrangement with the contract research organization.

Jeff Wade

Yeah it’s also worth mentioning that we’ve been working hard at the design of what Phase 3 would like to maximize the probability for success that includes taking into account advice we received from potential partners. So I think what we’re designing would be very much in the line with what they would want to be achieving.

Arthur Sands

Yeah I think that the thus we are to trying to design something that will be in line with partner expectations. We’re also planning on doing the work to be able to start that without a delay. And so I think that our goal is to have partnership not be a gaining factor into preparation for Phase 3, maybe a preparation for a kicking off the biggest trials. But at least from a preparation stand point we’re making this preparations already.

Unidentified Analyst

Okay. Thank you.

Arthur Sands

Thank you.

Operator

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

Wade Walke

All right, well I’d like to thank everyone for participating today. And we look forward to keeping you updated in the future. Bye, bye.

Operator

Thank you ladies and gentlemen for participating in today’s conference call. You may now disconnect.

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