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Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)

Q2 2012 Earnings Call

July 31, 2012, 11:00 a.m. ET

Executives

Alex Abuin – VP Communications and Alliance Management

Dr. Arthur Sands – President and CEO

Brian Zambrowicz, EVP, Chief Scientific Officer

Jeff Wade – EVP, Corporate Development and Chief Financial Officer

Analysts

Matt Lowe – JPMorgan

Liana Moussatos – Wedbush Securities

Alan Carr – Needham & Company

David Friedman – Morgan Stanley

Nicholas Bishop – Cowen and Company

Stephen Willey – Stifel Nicolaus

Operator

Thank you for holding. Welcome to the Lexicon Pharmaceuticals' Second Quarter 2012 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 recorded at Lexicon’s request.

At this time, I would like to introduce your host for today’s call, Alex Abuin, Vice President Communications and Alliance Management. Please go ahead Doctor Abuin.

Alex Abuin

Good morning and welcome to the Lexicon Pharmaceuticals' second quarter 2012 conference call. I am Alex Abuin, 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. Jeff Wade, Lexicon’s Senior Vice President of Clinical Development and Chief Medical 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 remainder of our time to answer your questions.

The call will begin with Dr. Sands, followed by Dr. Lapuerta who will give an update of our clinical programs; and Mr. Wade will review our financial results for the second quarter and discuss our financial guidance. We will then open the call to your questions. If you would like to view the slides for today’s call, please access the Lexicon website at www.lexpharma.com. You will see a link on the homepage for today’s webcast.

Before we begin, I would like to state that we will be making forward-looking statements, including statements relating to Lexicon’s research and development of LX4211, LX1033, LX1033, LX2931, LX7101, and Telotristat etiprate, also known as LX1032, and the therapeutic and commercial potential of those [inaudible]. This call may also contain forward-looking statements relating to Lexicon's future operating results, financing arrangements, cash and investments, discovery and development of products, strategic alliances, and intellectual property. Various risks may cause Lexicon’s actual results to differ materially from those expressed or implied in such forward-looking statements, including uncertainties related to the timing and result of clinical trials and preclinical studies of our drug candidates, our dependence upon strategic alliances and ability to enter into additional collaborations 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 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 Doctor Sands.

Arthur Sands

Thank you, Alex. We proceed to our pipeline slide, the first slide that’s here on the left half. As you can imagine, most of efforts at the end of last quarter were focused on the completion of the Phase 2b trial for LX4211 and type 2 diabetes, and the release of the top-line results, which we did accomplish in late June. And then many of you know we had a subsequent conference call where we went through the top-line results, I think in some detail.

So today, we will only have a very brief review of those results and a discussion, and after questions period after this presentation.

Also, we’ll discuss briefly with telotristat etiprate and its progress in carnitine syndrome. We spent most of last quarter, I think involved in the planning of the Phase 3 program, which has gone well and is on track for commencing in the next quarter. And then at the end, after Brian discusses LX4211 and telotristat, I will come back to discuss briefly the timeline associated with the other programs that you see on the slide, LX1033, LX2931, LX7101 and the events we expect to see in the next quarter.

So with that brief introduction I’ll turn it over to Brian for a brief review of LX4211.

Brian Zambrowicz

Thank you, Arthur. LX4211 is our first-in-class dual inhibitor of two sodium dependent glucose transporters, SGLT1 and SGLT2. The normal function of SGLT2 is to prevent glucose loss in the urine. And by inhibiting SGLT2 in the kidney, you elevate urinary glucose excretion.

The role of SGLT1 is it’s the key glucose transporter in the gastrointestinal tract, and when you have a meal, it’s the transporter responsible for taking up glucose. When you inhibit SGLT1, you inhibit the uptake of glucose from the gastrointestinal tract, and that ultimately also then triggers the release of beneficial gastrointestinal peptides, such as GLP-1 and PYY.

We go to our next slide. This again is the landscape of SGLT inhibitors currently in clinical development. If we focus on the SGLT1 and SGLT2 column, this indicates whether these agents inhibit SGLT1 and SGLT2. And LX4211 is again, unique in class in being the only dual inhibitor of SGLT1 and SGLT2, currently in clinical development.

Most of the agents are highly selective SGLT2 inhibitors, with the exception of the last compound in the table, which is a highly selective SGLT1 inhibitor, in that it’s just completed Phase I of clinical trial.

But this indicates that the SGLT1 alone is an interesting target for type 2 diabetes, and I think the LX4211 data has increased the interest in the SGLT1 mechanism of action.

We go to the next slide. We did release the top-line data from our Phase2b study earlier this month. It was a study in patients with type 2 diabetes inadequately controlled on stable dose metformin. They came in with a HbA1c between 7 and 10.5%. We enrolled 299 patients in five treatment arms that included four doses of LX4211 and Placebo, all again on top of stable dose metformin.

The doses tested were 75 milligrams, given once daily, 200 milligrams once daily, 200 milligrams given twice daily, and 400 milligrams once daily. With a 12 week treatment period and the primary end-point was to change from baseline and hit single of a A1c at week 12, with multiple secondary end-points, including the percentage of patients that’s shooting in a hemoglobin A1c of less than 7%, fasting plasma glucose and three hour glucose tolerance test, weight, blood pressure and triglycerides.

On the next slide, just to remind you of the top-line data as far as hemoglobin A1c, it shows the effect of LX4211 treatment through the course of the study on hemoglobin A1c. Relative to Placebo in green, where we observed minus 0.09% reduction hemoglobin A1c. We observed in gold that the low dose of minus .43% reduction, and blue at 200 milligrams once daily, a minus .52% reduction. In red, up to 200 milligrams BID dosing a minus .79% reduction, and in black, at the 400 milligram once daily dose a minus .95% reduction.

We were very pleased by this robust hemoglobin A1c effect. We saw very nice dose response in this study. And in addition, it was clear that the 400 milligram once daily dose in black, appeared superior to splitting that dose in to 200 milligram BID in red, confirming that 4211 is a once daily drug.

We did see a very strong effect as I mentioned on hemoglobin A1c that compares a very favorably with any agent that has gone through 12 week Phase 2b studies. And then particular, it compares favorably with selective SGLT2 inhibitors, which in 12 week dose ranging studies, has exhibited pretty much the same with each other at 0.7% Placebo subtracted reduction.

So that’s what we know can be achieved with SGLT2, and this dual inhibitor LX4211 is achieving better than that. In addition to the effect, we saw the [inaudible] glycemic control; we also saw significant reductions in body weight and improvements in systolic and diastolic blood pressure. And all this was achieved with a very favorable safety profile, with a high dose of LX4211 looking very similar to Placebo.

On the next slide, we have a couple other on-going or about to be initiated studies with LX4211. The first of the on-going renal impairment study. The rationale for this study is that up to 40% of patients with type 2 diabetes will eventually suffer from kidney failure.

In addition, many current medications are [inaudible] indicated in this population, including metformin and all but one of the [inaudible]. The SGLT2 selective inhibitors to date have demonstrated limited benefits in patients with compromised renal function, and that’s because that as you lose renal function, you lose the ability of SGLT2 inhibition to benefit.

Unlike SGLT2 however, these patients should benefit from the SGLT1 mechanism of action, and they should not lose that benefit as they lose renal function, because the SGLT1 benefit is happening through inhibition in the gastrointestinal tract.

The current study is 20 patients with type 2 diabetes and moderate to severe renal impairment. They have a glomerular filtration rate of less than 60 mills per minute per meter square. The treatment is with 400 milligrams of LX4211 versus Placebo for 7 days, and we expect the results in the first half of 2012.

In addition, we are about to initiate trial on type 1 diabetes, the rationale for that trial is that the majority of type 1 diabetics remain above their HbA1c goals. And LX4211, we believe in combination with insulin, could enhance their glycemic control, and in addition, reduce insulin needs.

And the reason for that is because of LX4211 dual mechanism of actions. It lowers blood glucose levels and insulin requirements, by reducing glucose absorption from the gastrointestinal tract, by enhancing glucose excretion by the kidney, and by elevating the release of beneficial GI peptides, such as GLP-1 and PYY.

All three of these effects are effects that benefit in the absence of insulin, so we believe that LX4211 could allow patients with type 1 diabetes to reach their HbA1c targets, with less hypoglycemia and to reduce the long-term consequences of hyperglycemia.

Just to remind you, in none of our studies, including our Phase 2b study have we seen any hypoglycemia with LX4211. We also believe that we can reduce the insulin doses required, particularly the [inaudible] or the mealtime doses of insulin, and avoid weight gain.

The current study will be 30 patients with type 1 diabetes, the treatment period with LX4211 will be for 28 days. The primarily endpoint will be reduction of total insulin usage and secondary endpoints will include improved glycemic control.

And on the next slide, we’re moving to telotristat etiprate LX1032. The Phase 3 planning is continuing. We’ve had our [inaudible] Phase 2 meeting with the FDA, and the current Phase 3 plan is a single pivotal study of approximately 100 patients with a 12 week treatment period, then we know from discussions with the FDA that the efficacy endpoint will be 12 weeks. It will consist of three arms, two doses of telotristat etiprate, 250 milligrams given three times daily or 500 milligrams three times daily, and Placebo.

And the primary endpoint will be the reduction in number of bowel movements. We’re proceeding with our protocol assistance from the European agencies and we’re on track to initiate this study in the second half of this year.

And finally, with telotristat etiprate, we do have an on-going proof-of-concept study in ulcerative colitis. This study has been 60 patients with mild to moderate ulcerative colitis. There are three treatment arms. There are 10 patients on Placebo, and then 25 patients each on the two doses of telotristat etiprate, either 500 milligrams given once daily or 500 milligrams given three times daily. It’s a 8 week treatment period on top of [inaudible], and the efficacy measures are the [inaudible], colonoscopy, histology, and faecal calprotectin, and enrollment is progressing.

With that, I’ll turn it back over to Arthur.

Arthur Sands

Thank you, Brian. Before we turn to the financials, we’ll take a quick look at some of the upcoming [inaudible] milestones that we expect over the next 12 months. Looking at as we embark here on Q3, we have three data events that are likely to be overlapping in the third quarter. The LX2931 dose escalation results in RA, that event should be in mid-third quarter as well as LX7101 in glaucoma. And then we have, we expect the results from our open-level study telotristat etiprate in carcinite syndrome as well as in this quarter. That is a 12-week trial. I think that will give us some important indicators with respect to our Phase 3 trial, which as Brian summarized for you, will also be 12-week endpoints. I think the timeframe there will be important.

So those events, again, we think will occur in mid-Q3. They’re likely to be somewhat overlapping and we’ll keep you posted as we announce those results. We expect the fourth quarter then of the year to be largely occupied with our on-going efforts to plan and initiate the Phase 3 program in LX4211, and also the Phase 3 program for telotristat etiprate, there’s quite a bit of work involved in both those programs.

But regard to early next year, we expect to have results from LX1033 in IBS, in Q1. That is a trial of 360 patients in IBSb, and that of course will be an important event for us and will inform as to our future – of the future Phase 3 potential for that compound.

And then, in the first half, a little bit harder to target, we will look for the result of the ulcerative colitis trial. That trial, Brian summarized for you, is enrolling well. It tends to be a little bit slower type of indication to enroll, but it is going well. It’s taking place in both the United States and Eastern Europe, and we look forward to those results.

As indicated along the bottom of the timeline, our anticipated launch of telotristat etiprate carcinoid syndrome will be towards the end of Q3, and we are actively engaged in identifying sites, and contracting those sites currently. And that program is on track. And then you can see farther out in 2013, in the first half, our targeted launch for the Phase 3 program in diabetes LX4211.

Also, I should mention not on this timeline it would be in the first half of 2013, results from our type 1 diabetes trial with LX4211, and also we anticipate our proof-of-concept study in renal impairment to be in that first half in 2013. So we’ll probably be adding that to future renditions of that plot.

With that, I’ll turn it over to Jeff Wade, to discuss the financial results.

Jeff Wade

Thank you, Arthur. I’ll provide a brief financial update. As indicated in our press release today, we had revenues for the three months ended June 30, 2012 of $0.2 million, which was a decrease of 64% from $0.6 million in the prior year period.

The decrease was primarily attributable to reduced revenue from government contract and from [inaudible] contracts. Our revenues at $0.5 million for the first half of 2012 reflected a 57% decrease from $1.2 million in the prior year period.

Our research and development expenses for the 2012 second quarter decrease 4% to $19.4 million from $20.1 million in the prior year period. The decrease was primarily attributable to decreases in personnel, lab supply and facility cost, partially offset by an increase in external research, clinical research and development cost.

Our R&D expenses of $42.4 million for the first half of 2012 reflected a 4% decrease from $44.1 million for 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 continuant payments. Changes in this liability, based on the development of the programs and the time until the 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 $2.2 million in the second quarter and $4.2 million for the six months ended June 30, 2012.

Our general and administrative expenses for the 2012 second quarter were $4.2 million, a decrease of 8% from $4.5 million in the prior year period. The decrease was primarily attributable to decreases in personnel and patent related cost.

Our G&A expenses of $8.7 million for the first half of 2012, reflected a 6% decrease from $9.3 million for the prior year period.

Our net loss for the 2012 second quarter was $25.9 million or $0.05 per share, compared to a net loss of $26.6 million or $0.08 per-share in the prior year period. Our net loss for the first half of 2012 was $55.8 million or $0.12 per-share compared to a net loss of $56.3 million or $0.17 per-share for the corresponding period in 2011.

For the three and six months ended June 30, 2012, our net loss included non-cash stock based compensation expense of $1.6 million and $3.3 million respectively. For the three and six months ended June 30, 2011, net loss included non-cash stock-based compensation expense of $1.5 million and $2.9 million respectively.

Let me now turn to our cash and investments. As of June 30, 2012, we had $231.5 million in cash and investments compared to $253 million -- $253.7 million as of March 31, 2012, and $281.7 million as of December 31, 2011.

Now let’s turn to our forward looking guidance for 2012. We continue to expect contractual revenues from existing agreements in 2012 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 provides Lexicon with attractive opportunities for future alliances. We continue to expect operating expenses in 2012 to be in a range of 110 to $120 million. Non-cash expenses are expected to be approximately $21 million at this total, including $11 million in increase in fair value of Symphony Icon purchase liability, $6 million in stock-based compensation, and $4 million in depreciation and amortization.

Taking in to account cash received under existing contractual relationships only, we expect our 2012 net cash used in operations to be in the range of 93 million to $98 million, consistent with our previous guidance.

Finally, I wanted to bring to your attention that after the end of the quarter, we exercised our option to pay the full $35 million balance of the Symphony Icon based payment in shares of Lexicon stock. As you may recall, we had the obligation to pay this amount on or before July 30, 2013, and we had the rights to make the payment 100% in stock, through July 30, 2012. After that time, we would have been obligated to make at least half the payment in cash.

The stock price used to calculate the number of shares to be issued, $2.644, with the average of the closing prices of our stock of the 20 trading day period ending, immediately preceding the second trading day before the July 30 payment date.

Based on that stock price, we issued 13.2 million shares of stock and satisfaction of the $35 million balance of the Symphony Icon base payment. The only remaining payment obligations we have under Symphony Icon arrangements, are contingent on the achievement of success base milestones. Either receipt of partnership proceeds, in which they are eligible to receive a share, or on our receipt at the US Regulatory approval for products that were funded by the Symphony Icon partnership.

I will now turn the call back to Arthur.

Arthur Sands

Thank you, Jeff. And as you’re formulating your questions, I just like to also mention that since our day of release of LX4211, we have been very busy on the partnership front, engaged with a number of parties, initial of review of the top-line data, and our timing for that includes receiving the complete data within the next few weeks, which is a very essential event for the partnership process and progressing in our discussion with other parties.

So now we’ll open it up to questions.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the line of Cory Kasimov of JP Morgan.

Matt Lowe – JP Morgan

Hi there, it’s actually Matt Lowe in for Cory today. Just a couple of quick questions on 4211, first on being if you could just maybe outline the general response to the Phase 2B data from big pharma companies that have seen it so far from physicians. And then secondly, if you have any idea when that data might be presented? Thanks.

Arthur Sands

Sure, thank you, Matt. So the response has been generally very positive. As Brian indicated, the Hemoglobin A1c effects look to be basically superior at this stage of development, at any rate, to the competing compound. Now, that remains then to be described further in Phase 3, but it’s generally been reviewed as very positive, or resolved very robust effect when people got the A1c, and also combined with the reductions in blood pressure and body weight providing a very compelling metabolic picture.

Brian Zambrowicz

The other things that I think have stood out for pharma are the fact that we’re getting this – looks like superior of glycemic control, and it’s happening with apparently less glucose excretion in the urine. If you can remember, well I didn’t cover it today, but we maximized out glucose to creatine ratio at the 200 milligram dose, and as we push the dose we got no further elevation in that ration, and in sight of that we got a big bump in hemoglobin A1c effect. Really, [inaudible] until [inaudible]. So, that stood out for everyone. And then the other thing that’s really stood out is that we’re adding this [inaudible] benefit without any apparent difference in [inaudible] profiles. So we’re getting a strong SGLT1 effect, but no safety signal in the gastrointestinal track which had been a concern. So we’re adding this benefit without really changing the Apro file – in fact, our Apro file, if anything, suggests that it could be better than what’s been observed for SGLT2 select compound – so it’s been very well received.

Arthur Sands

Yes, and your second part of your question, Matt, in respect to when will we be able to present this at a – in a peer review setting. I would expect that would likely be the next ADA meeting . There are a number of events between now and then where we will probably be reviewing the top line data set, but in terms of a detailed publication, that’s really the next major opportunity. There, as you know, there’s quite a long lead time with regard to submitting to these conferences and we have for the European meeting, we missed that date for submission, but we’ll just be reviewing data that we have to date up until the next ADA meeting.

Matt Lowe – JP Morgan

Okay, that’s great, thank you.

Arthur Sands

Thanks.

Operator

Your next question comes from the line of Liana Moussatos of Wedbush Securities.

Liana Moussatos – Wedbush Securities

Thank you for taking my question. You had mentioned partnership negotiation status for LX 4211, what about 1032?

Jeff Wade

So, 1032, we’re – again, we’re – I think we indicated previously, we’re planning to progress that ourselves into Phase 3, and at present we are proceeding with that plan. And I would – you know, I think we’ll not likely be doing anything further on the partnership front pending, you know, getting that launched, and that in probably seeing the ulcerative colitis data.

Liana Moussatos – Wedbush Securities

Okay, and what’s the status of the LX 2311 and autoimmune?

Arthur Sands

Well, it’s – I think you’re – 2311 is an up-and-coming program, I think you’re also referring to perhaps the 2931. 2931 will be having our results from our dose escalation trial in Q3, but we do have another program, 2311, which is a novel kinase that we discovered through our gene knockout program, and that is a very active program in our medicinal chemistry group; our goal being to identify clinical candidates to that program as well. It has a very interesting anti-inflammatory autoimmune phenotype.

Liana Moussatos – Wedbush Securities

So, that one is not going to enter the clinic this year and next year?

Arthur Sands

Our goal would to be have 2311 selected as a clinical candidate next year. So that timing would then require IND-enabling settings. So, it’s hard to forecast whether or not we would start clinical trials next year, it depends on the timing of identifying the clinical candidate and getting IND enabling studies underway.

Liana Moussatos – Wedbush Securities

Okay, and my final question is can you remind us the difference between the European and the U.S. data for 1032?

Brian Zambrowicz

Sure, the U.S. data was double blind placebo controlled study, and the efficacy endpoint was four weeks, whereas the European study is open label, every patient was dose escalated all the way up to the highest dose, and was 12 weeks of dosing. So I think it’s important, as Arthur mentioned, because the 12-weekend point in that European study will be very similar to the 12-week endpoint that we’ll have in Phase 3.

Liana Moussatos – Wedbush Securities

Thank you very much.

Arthur Sands

Thank you.

Operator

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

Alan Carr – Needham & Company

Hi, thanks for taking my question. Regarding the Phase 3 telotristat trial, is that – are you expecting that to be 18 to 24 month timeframe beginning to end?

Arthur Sands

Yes, that’s our goal – the enrollment goal of 18 months.

Alan Carr – Needham & Company

Okay, and you have data coming from a couple of programs coming up third quarter; 7101 and 2931. I wondered if you could tell us some bit about what we should be in trial design in 2931 in particular, and what we should be looking for there?

Arthur Sands

Right, so, 2931 is a dose escalation trial. It’s ten patients, over 12 weeks. It is – with intra-patient dose escalation stepping up over the 12-week period from 150 milligrams to 500 milligrams total daily dose. So it’s a proof-in-concept trial, I would say within a very small, obviously patient, group.

The 7101, the glaucoma trial, is also proof-in-concept, it’s one of the larger patient groups – actually quite a bit larger, it’s 60 patients overall. It is placebo controlled and double blinded. It is in glaucoma patients, and so will serve as a very important initial proof of concept. It’s our first in-patient trial – it’s actually our first in-human trial as well. Brian do you want to comment on that?

Brian Zambrowicz

Sure, for 7101 and glaucoma, there’s two things to be watching for; one is, number one, what is efficacy benefit, in other words, what is the effect on intraocular pressure. And two, what is the safety profile – how well is it tolerated as a topical agent on the eye. And those are very telling for any glaucoma agent, and indicates it’s – you know, potential benefit going forward.

Alan Carr – Needham & Company

Now, if that’s successful, how forward – how far forward do you think you would bring that in house?

Arthur Sands

Well, we’ve been very pleasantly surprised with how executable these trials are in glaucoma. They are very straightforward. There’s a trial enrolled ahead of schedule, and it’s actually fairly low cost. So we’ve learned quite a bit about this indication and it’s a fairly attractive indication. So I think, obviously, we’re going to evaluate the results, and determine then if we have a competitive profile. If we do, I think that, you know, we’ll be revisiting our pipeline priorities, and thinking about what kind of resources we can direct towards it and how.

Now, we do have partners also interested in the results, so that will be an option as well. So I can’t say at this point, although I can tell you that it’s very feasible from a logistical standpoint to bring this type of indication forward on our own. It is very feasible. But we’re going – I think when we get the results from these three studies this quarter, as you can imagine, it’s quite a bit of data, and I think it’s going to trigger for us, really, a pipeline review and prioritization sort of, exercise. So we – to determine then where we want to distribute our internal resources and which programs we want to partner.

Alan Carr – Needham & Company

Okay, thanks very much.

Arthur Sands

Thank you, Alan.

Operator

Your next question comes from the line of David Friedman, Morgan Stanley.

David Friedman – Morgan Stanley

Hi. Thanks for taking my question. It’s just regarding the IBS program and I just wanted to see if you could talk about what are the timing – I’m sorry if you mentioned it, for the Phase 2 data, and then what are plans for next steps with that program? Is that something that you think has to be partnered or is that something you could consider doing yourself?

Arthur Sands

Well, the timing is as – was indicated on the timeline slide, is for the first quarter of 2013. Our goal is to complete enrollment this year. It is a large study, it’s in over 50 centers, it’s all in the United States. And it’s gone well in terms of enrollment to date. The read off from that, I think will give us some answers as to whether or not, number one, it’s a competitive profile for Phase 3 and number two, whether or not at that state we want to start to discuss the program and the data with the partners. So our current plan would be to discuss it with partners, we had already partnership feedback on the mechanism and the fact that a four-week trial in this indication should be indicative of the likelihood of success for Phase 3, which is, I think critical for getting the highest value partnership.

I think in this indication, it would be very beneficial to obtain a partner, obviously certain companies have done very well in the IBSC space, such as Ironwood, you know, international and a U.S. partnership strategy.

Anyone to add anything?

Brian Zambrowicz

In the meantime we’ve taken the required steps so that we’ll be ready for Phase 3 initiation if the data is good for the second half of next year.

Arthur Sands

Anything more on the [inaudible]?

Brian Zambrowicz

I think at some point it’s more likely they’ll want to have a partner on this because it’s going to be a relatively broad commercialization effort. But when that happens will depend upon the data and what we look at in terms of our overall pipeline at that point.

David Friedman – Morgan Stanley

All right, thank you

Arthur Sands

Thanks.

Operator

Your next question comes from the line of Nicholas Bishop – Cowen and Company.

Nicholas Bishop – Cowen and Company

Good Morning, thanks for taking my question. I have a question on LX 1032 Phase 3 design. I wonder if you could give us a little more detail on discussion with the EMA have been so far, and kind of what’s left to get through there on the protocol assistance, discussions, and when do you think the Phase 3I will satisfy potential European regulatory requirements as designed?

Arthur Sands

Yes, we have gotten some feedback for the EMA to date, and we think again as with the FDA that the single Phase 3 study will be sufficient to get us to a filing with [inaudible].

Nicholas Bishop – Cowen and Company

Okay, can you remind us how many sites you’re expecting to have active in that trial, and what the geographies are?

Arthur Sands

Clearly about 50, and it will be worldwide. With many sites in Europe and the U.S.

Nicholas Bishop – Cowen and Company

So, greater than 50 sites for approximately 100 patients, or do I have that right?

Arthur Sands

That’s correct.

Brian Zambrowicz

We’re targeting 50 sites, so it may go over that slightly.

Nicholas Bishop – Cowen and Company

Okay, and then just one last one on 4211. Can you tell us what data you’re still waiting for to show to potential partners? Is this just a quality control of the existing data, or is there new efficacy or safety information still to come?

Arthur Sands

Sure, I think the key elements were present in the topline data. There are some additional elements that I think will be of high interest. One would be the 24 hour urinary glucose excretion. So the data we’ve reported to date has been the spot check of glucose to creatinine ratio that was done on all study participants. But we did have a sub-study which included 24-hour urine collection for the 24 hours UGE measures. In addition we’ll be getting the data for the oral glucose challenge, and some stats.

Our primary effective (inaudible) is the postprandial effect due to the inhibition of glucose uptake from the GI. That will be important. There’s not really a lot of other things, there’ll some other interesting things, we have some additional blood measures including things like;

C-peptide for beta cells ability to produce insulin, and measures like Dipentum crp. That will be of interest, but again, I think the lion share of the data was in the topline data we revealed today.

Nicholas Bishop – Cowen and Company

Okay, great, thanks very much.

Arthur Sands

Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Stephen Willey – Stifel Nicolaus.

Stephen Willey - Stifel Nicolaus

Hi, just a quick question on the glaucoma program first. Can you maybe just give us some kind

of indication as to what the kinetics of intraocular pressure reduction look like I guess, and

currently available drugs? I know this is going to be a 14-day trial, and I’m just wondering

if this is going to be long enough in order to see any kind of meaningful reduction there?

Arthur Sands

Sure all the agents that are currently on the market have a very rapid onset of action, and one of

the reasons that we went with – obviously we’re taking extensive measures at baseline, the first

day of dosing, day seven and day fourteen, and one of the reasons for that is that one of the

intriguing things about LX 7101 is that the baseline appears to move down for intraocular

pressure as you dose longer. And so you have greater effects if you dose longer. That’s a bit

unusual and very – I think it’s one of the positive things about LX 7101, but we think the seven

and fourteen day time (inaudible) will help us to see those elevated effects with increase

dosings.

Stephen Willey - Stifel Nicolaus

Was there a cutoff criteria that you used in terms of getting patients for selection in terms of having a baseline?

Arthur Sands

Yes, they had at 22 mils of mercury or above.

Stephen Willey - Stifel Nicolaus

Okay. And then quickly on the IBS program, can you maybe just remind us where you are with the respect to the companion diagnostic, whether or not you could have that phase II ready by the time, I guess, 1033 is presumably ready to maybe go into a Phase 3?

And then with respect to the parting discussions around the four week data and IBS, is that enough I guess, just given the fact that there tends to be a fairly high placebo response in the setting that doesn’t really kind of segregate itself out until sometime eight weeks. If that’s enough to potentially get a partner across the finish line? Thank.

Arthur Sands

Well first on the companion diagnostics for the IBS compound LX 1033. Yes, we’ve been progressing with two companion diagnostics. One is a lab test, which is an (MLC-MS) base test that we’ve used to date, but getting that up and running in that role we believe be ready for phase III study. And the other test is a blood test, which is going to be a test that can be run on pretty much any instrumentation that’s out there for blood test. That one will be an antibody based test, and that test, although we don’t believe it will be ready for the initiation of phase III, we do think it would be ready to validate and be ready during phase III, and be ready for filing with the drug.

Brian Zambrowicz

The second part Jeff, do you want to address the four-week endpoint and the partnership?

Jeff Wade

Yes. We’ll I think part of this is also relevant to what the new FDA guide from the MD way to analyze the data, I think limits the placebo effect considerably. We’ve analyze 1031 data using those measures and it continues to show significant benefit on the compound that reduces substantially the placebo effect. And so, if we employ that guidance on a go forward bases, you know, I think that we’ll see either larger separation than we had seen previously. So, I think that that’s one part that’s relevant to that endpoint, to answer that question.

The other is, that we do expect that even without that because the feedback that we’ve gotten is that we expect that four week endpoint to show based on the results we’ve seen with an earlier compound to show results that would be adequate in terms us testing that difference between drug and placebo, and potentially (inaudible) opportunity to have a partnership.

Brian Zambrowicz

I believe the current guidance if for an eight-week endpoint is not so different from a four week endpoint we’re seeing here. So I don’t think that will be that big of a difference.

Jeff Wade

Okay. We’re also powering, you said it very well. There’s 360-patient trial, so we should have a pretty strong data by then.

Arthur Sands

Other questions?

Operator

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

Arthur Sands

Well, all right, I would like to thank everyone for joining us, and we look forward to updating you and probably along the way in the third quarter with respect to our several data events that we anticipate. Thank you and Goodbye.

Operator

This conclude todays’ conference call. You may now disconnect.

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