Lexicon Pharmaceuticals' CEO Presents at Morgan Stanley Global Healthcare Conference (Transcript)

Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX)

Morgan Stanley Global Healthcare Conference Call

September 11, 2012, 08:00 am ET

Executives

Arthur Sands - President & CEO

Brian Zambrowicz - EVP & Chief Scientific Officer

Analysts

David Friedman - Morgan Stanley

David Friedman - Morgan Stanley

Okay. Thanks everyone for joining us here today. I am David Friedman one of the biotech analysts. Up here we have the team from Lexicon; on the far side, Brian Zambrowicz, Executive Vice President and Chief Scientific Officer and then on the near side here Arthur Sands, President and CEO.

So thank you very much both of you for coming and we would love this to be as interactive as possible, so everyone please feel free to ask any questions; you can just raise your hand and we’ll get you a microphone.

So thank you all for coming. You guys have a lot going on as usual. So, may be if you want to give a couple of minute overview of the company for those who aren’t familiar and your unique approach to drug development.

Arthur Sands

Yeah, so we have five compounds in drug development, all derived from our genomic platform which I think is unique to Lexicon. That platform we developed and evolved over the last 15 years based on gene knockout technology, so all of the targets were identified starting with the human genome, but then again what’s unique and I think advantageous about our drug discovery system is that we model each of these targets in knockout before we embark on a drug discovery program.

So this is a very large scale genomic effort in the early days. We filtered through about a quarter of all protein encoding genes, the 5,000 genes to identify the novel mechanisms where we could see the most exquisite functions that would read on various categories of human disease. We also have developed then a small molecule platform to develop agents to those novel protein targets.

So our pipeline today is a small molecule pipeline, all new chemical entities discovered and developed at Lexicon with our research team and we're addressing – we’ll get into several therapeutics areas; this fall being the most exciting I think as we enter Phase III in our lead program, that’s my sort of general introduction background.

Brian Zambrowicz

Perfect. We obviously have initiated our first Phase III this quarter in carcinoid syndrome with telotristat etiprate. Then we have -- we're on track for initiating a Phase III in the first half of next year in Type II diabetes and later next year a Phase III in IBS-d.

David Friedman - Morgan Stanley

So maybe if we can start with the diabetes program that’s in the – where we’ve seen some of the newest data as of late, so if you can just talk about briefly the mechanism, the Phase II data and you know how you during the Phase II program have tried to differentiate this drug from other drugs with similar, but not the same mechanism?

Arthur Sands

Well, I'll just lead off to (inaudible) and then turn over most of that answer to Brain, but in terms of timing we just finished our Phase IIb trial. We released those results at the very end of June and in July; excellent results and now we’re in the Phase III planning stages. So Brian you want to address the mechanism?

Brian Zambrowicz

Sure. It’s LX4211; it’s a dual inhibitor of two sodium dependent glucose transporters SGLT1 and SGLT2. And SGLT2 people are pretty familiar with because of compound from BMS, AZ and J&J as well as others, dapagliflozin and canagliflozin. So we also hit SGLT2 but what’s unique is the SGLT1 in addition of our compound, and SGLT1 for those of you who are not familiar as the transporter responsible for the uptick of virtually all the glucose when you have a meal from gastrointestinal track.

And when you inhibit it then it has two effects; one is that it prevents some of the glucose uptake after a meal, so you have less glucose in the blood after a meal and the second thing then is that it allows that glucose to trigger mechanisms of the GI that caused the release of beneficial peptides like GLP-1, so galactose by like effect, but with a small molecule and we have been able to differentiate all on the way with that mechanism, but some of the ways we think we differentiate are first of all just straight up efficacy are placebo subtracted HbA1C effect that thought was 0.86% reduction and the SGLT2 selective compound, multiple have gone through Phase II, I think six now and they have all been right at 0.70 with the best I have seen being 0.71 placebo subtracted.

But in addition to that there is multiple other ways we can differentiate another way of safety; I think we have an opportunity to show a decreased rate of infections, generated urinary infections and it relates mechanistically to the fact that we have still have glucose in the urine, well less glucose in urine is the selective SGLT2 inhibitors.

And then other ways are we believe that we can differentiate in a large way in the renal impaired, that’s about 30% of Type II diabetic and as they loose filtration rate in the kidney, they can no longer benefit from SGLT2 inhibition. However, the SGLT1 mechanism of LX4211 should not be diminished. So we think we can differentiate there in a big way. And the other is with in combination with DPP-4 inhibitors like sitagliptin; we have a very unique synergy, because we trigger the release of GLP-1 from the gastrointestinal tract and the DDP-4 inhibitors prevent its inactivation.

Together with the DDP-4 inhibitor we have demonstrated in a small clinical trial that you have elevated active [group] one levels and has glycemic control because of that and that’s a synergy that can’t be achieved with SGLT-2 inhibition.

David Friedman - Morgan Stanley

So may be just one question on the infections and you guys and your data certainly have not seen a tremendous number. During your dose ranging work you had talked about sort of maxing out the SGLT-2 component and then at the higher doses attributing that to SGLT-1, so how is that sort of mechanistic rationale different than what the SGLT-2 exclusive drugs are dealing in terms of, are they not maxing it out, is there a different sort of mechanism for more ending up in the urine?

Brian Zambrowicz

Okay, a shot at that. So when you inhibit SGLT-2 in the kidney as you have increased dose you will increase your SGLT-2 inhibition and release some more glucose in the urine. However, SGLT-1 is actually having an opposing effect on urine glucose excretion and that’s why we really look different as far as UGE.

So as you increase SGLT-1 inhibition and take on less glucose from your diet and you have less elevated glucose after a meal you just have less glucose to filter in your kidney therefore less glucose excretion. And what was really clear in our data and very unique is that we dose [later] than Phase IIB at 200 milligrams once daily we maximized our inhibition of SGLT, are effective SGLT-2 as far as urine glucose excretion.

And as we push the dose we had no further effect on SGLT-2 as we push from 200 milligrams to 400 milligrams once daily but we had a dramatic increase in HbA1c effect an additional [0.43%] reduction which could not have been due to SGLT-2 was due to SGLT-1 which speaks for the strength of the SGLT-1 mechanism interaction. And it also those are posing effects on urine glucose excretion explains why we have less urine glucose excretion in the selective SGLT-2 inhibitors.

David Friedman - Morgan Stanley

So you guys have talked about partnering this growth maybe if you can just update us on your thoughts around partnership US versus rest of the world, is there some component of this that you want to either retain or participate in or co-participate and how are you sort of, if you have to construct your ideal partnership for this drug what it would have look like and where are you on the road to hopefully getting that?

Arthur Sands

First of all, clearly this is the largest market opportunity for the company. Type 2 diabetes is obviously a very significant market, it’s also a significant cost associated with a final stage of the development and so partnering definitely makes sense for us and if you look on the list of their competing companies in the space everyone of them even major companies have chosen partners in their variety of formats.

In terms of the largest sort of opportunity in United States is clearly is that and I think being able to split the economics in some way in the US along the line for the 50-50 sort of economics split however, that’s configured in terms of the actual structure I think its less important.

The way we would like having carried the program now to the threshold of phase III, we definitely like to participate on a very significant way economically in the United States. Having ex-US royalty based structure that might be simple and straight forward would be something that we’ve looked for.

In terms of what we would like to retain in addition to that, this drug has another opportunity in Type 1 diabetes because of its unique mechanism of going through all the strategy there right now but I think that’s an unique area and market segment the Lexicon might play a direct role in depending on how that evolves clinically, we are about to start the proven concept trial on Type 1 diabetes a very significant opportunity where (inaudible) Pharma really has not deployed a tremendous amount of resources in terms of small molecule development.

So that’s an area that we would be looking at. And so those are the basic parameters can’t really go into too much more right now we are in the midst of discussions with multiple parties. We think we will be successful in the partnership half way somewhere prior to our Phase III initiation.

David Friedman - Morgan Stanley

And do you have a timeline as to when you are going to plan a meeting with the FDA pre-Phase III?

Arthur Sands

We do. We got an October date for end of Phase II meeting. So in October we will be meeting with the FDA. We have a fairly I would say well developed Phase III plan which we brought in external consultants on; we have taken into consideration partnership discussions from Phase III planning. And so that will be a very productive meeting, and will outline our --- post to that will be the outlined I think what are Phase III plan will look like.

David Friedman - Morgan Stanley

Okay and then do you have any intention of starting Phase III on your own, is that something that you would be willing to do or is that unlikely to be a necessary or a reality?

Arthur Sands

Well of course starting Phase III is a large gradation getting to the actual first patient dose, right. So we are all ready initiating production of compound and doing all of the – we are actually sending out bids for [steroids] to get a full budgetary assessment of the Phase III landscape and we are already committing funds for pre-Phase III activities. But what I can say is our goal would be to have a partner in place before the initiation of size and trial and dosing and also to take into account, our selected partners, desires and goals in the Phase III program, right.

David Friedman - Morgan Stanley

Any questions on the diabetes program?

Question-and-Answer Session

David Friedman - Morgan Stanley

So may be if we can move to your -- what – to your lead program which is a Carcinoid program and again, as a unique mechanism here. So may be you can just explain briefly, the disease the mechanism, why the drug has activity in the disease?

Brian Zambrowicz

Okay, I'll start with the disease. So carcinoid syndrome is a result of a neuroendocrine tumor and as we know Steve Jobs died of a neuroendocrine tumor. His was pancreatic in origin. Carcinoid syndrome is typically from GI origin tumor and these tumors then contain cells that produce large amounts of serotonin and many people aren't aware, but GI produces about 95% of the body serotonin.

Anyway so when these tumor metastatize, they are producing large amounts of serotonin and they will dump that serotonin and it causes severe GI symptoms, diarrhea, abdominal pain, discomfort et cetera and that's clearly thought be to be mediated by serotonin. The other effect of serotonin is overtime it causes bowel defects and so again these are clearly serotonin mediated and our compound to (inaudible) is an inhibitor of the rate limiting enzyme for serotonin synthesis.

Tryptophan hydroxylase and of course you don't want to inhibit Tryptophan hydroxylase or decrease serotonin production in the brain and our compound does not cross the blood brain barrier and does not effect central serotonin level. But we are able to get in periphery directly inhibit the production of serotonin and in phase IIA while we've run two studies, a placebo controlled study and we were reported out on that study. Quite sometime ago we saw a very nice effect on the number of bowel movements per day, a very nice reduction.

As well as the reports of adequate relief that the patients felt like they were getting adequate relief of their GI symptoms and while we've reported out some of our data from an open label study and other Phase II study. The placebo controlled study was a four week study, the open label study was 12 weeks and that 4 weeks they looked pretty much the same as far the responder rate, but as we got up to 12 weeks of dosing, that responder rate shot up pretty dramatically from 30% roughly at four weeks to about 80% at 12 weeks and suggesting that as you dosed longer, you get an even better effect. So it gives you some feel for that.

David Friedman - Morgan Stanley

What would be a reason for that time slag and were you able to measure anything about serotonin levels or the by products and waste products of serotonin to give you a sense of what might have been going on and the patience from 4 to 12 weeks?

Brian Zambrowicz

Sure I mean we do have a biomarker that we can track. One of the breakdown products of serotonin is 5-HI and it is released in urine. So if you inhibit serotonin production, you will inhibit the metabolite and you can measure that and it should correlate with your efficacy and certainly you get a full biomarker reduction fairly early. So why would dosing longer give you a better effect. It would be speculation mainly but they may be sort of an inflamed or hypersensitive state because of their elevated serotonin and even when you bring it down it may take some additional time for them to normalize so to speak.

David Friedman - Morgan Stanley

And then in terms of you know you said that the drug does not cross the blood brain barrier and we haven’t seen any of those issues. Is there anything about the peripheral nervous system that involves serotonin that you need to watch out for here, is that been a question at all?

Brian Zambrowicz

Well, serotonin in the periphery is, it is really expressed in the GIs; I mentioned where it produces 95% of the body serotonin and outside of the GI itself, the nervous system, the entire nervous system that inebriates the GI also expresses it. But I see that as a bonus because that affects GI motility and so if you inhibit it, you will decrease motility and I think that relates to be effect not only preventing the excess production of serotonin by the tumor, but were down regulating the motility of the GI by hitting the entire nervous system. So I think it’s an added benefit and when we knocked out the target through (inaudible) in mice there were no other effects other than effects on GI motility.

David Friedman - Morgan Stanley

And so may be if you can just discuss the Phase III plans and timelines around I mean you talked about initiation, how long do you think the whole Phase III program may take?

Arthur Sands

So we have completed obviously our discussions with the FDA and entered actually the EMA, we have outlined a 12 week trial period, treatment period, so the 12 week period is distinct and I think advantageous for us. It’s an orphan indication, so enrollment with small patient numbers is critical. We are mapping out 18 months from kick off which should be this quarter; 18 months enrollment timeframe, add another six months or so there at the end and approximately a two year effort to complete the Phase III program.

The end points are symptomatic which are a great upon as Brian indicated it’s the resolution of GI symptom-otology and that we have a whole host of other endpoints related to the patient improvement of their condition in general. So that’s actually fairly straight forward and it’s a program of course that is you know it couldn't be more different that diabetes in terms of scope and ability for us to execute better in a timely fashion, so we are really looking forward to kicking that off and completing that trial as rapidly as possible.

Brian Zambrowicz

That is the embedded program that's orphan in fast track designation in the US to an orphan designation in the EU and I would emphasis the 12 week efficacy endpoint for that; we are really pleased, although we will dose longer for safety to build our safety data base. The 12 weeks its very well with our open label study whereas I mentioned we get a very excellent response rate at 12 weeks, so we think that fits very well with the data we've seen so far.

Arthur Sands

I should also mention we’re targeting about a 100 patients in the Phase III program. In the Phase II program, I think we've looked at almost 30 already we have up there, a bit of data on this drug. We have had several patients on the drug for over a year, so we are accumulating a good safety data base as we go.

Brian Zambrowicz

And we have 38 patients in all of our Phase II.

David Friedman - Morgan Stanley

And in terms of, is it a placebo controlled study?

Arthur Sands

Yeah, the Phase III will be obviously placebo controlled; we're testing two doses, 250 milligrams three times a day and 500 milligrams three times a day course or you take it with meal.

David Friedman - Morgan Stanley

And what are placebo patients going to be, are they truly getting placebo or is there a background therapy (inaudible)?

Arthur Sands

This is all on top of our [telotristat metastatic] analog that can dose out, so that's correct. So these are all refractory to that which is the only really standard of care agent and so there will be a placebo and then we’ll be able to convert over up to 12 weeks to be on therapy.

David Friedman - Morgan Stanley

And then just a question is in terms of commercialization, I know you guys have talked about being able to commercialize this in the US given the focused patient population and reasonably focused provider [set]. Europe is that a region that you think ultimately if the trials are positive that you like the partner or is there a way or an interest for you guys to market this drug in Europe?

Arthur Sands

Well, there is couple of things involving here. First off, we are also testing the drug in ulcerative colitis. It’s a proven concept trial which I mentioned 60 patient trial. We have excellent preclinical rationale for this mechanism in (inaudible) that was very different sort of commercial plan [pending] those results. So that’s one of things we would like to see in the first half of 2013 before we really verbalize more exactly the commercial plan. If we remain just focused on carcinoid, it is feasible for us to market this globally.

Now that may or not be the best thing or probably look at commercial partners realistically and just balance that off in terms of market penetration etcetera but it is feasible for us to do this globally. I think you see again would be a different sort of (inaudible) to look at.

David Friedman - Morgan Stanley

Any questions on this program? So may be if we can move on to a related one which is the IBS program. Similar mechanism but not exactly the same and so may be if you can just walk through the differences between the drug for IBS and versus this carcinoid drug as well as the similarities?

Brian Zambrowicz

Sure. So the compound for irritable bowel syndrome is for the diarrhea predominant form and of course many of you are familiar with IBS we has got approval for linaclotide that’s a complementary agent, it’s for IBS-C constipation predominant form.

So we are very pleased to see that I think it will bring additional attention to IBS indication. And the target of our 1033 is our code number for the compound and it has the same target as telotristat etiprate our carcinoid syndrome drug but they are two different compounds and they have very different properties so telotristat etiprate has to provide systemic exposure because it has to be able to get to the tumor in order to inhibit the tumor’s production or serotonin.

Now for IBS, we don’t need systemic exposure. So we have a largely locally acting agent 1033 stays in the GI and the cells that produce most of the serotonin in your body as I mentioned are in the GI, they are sitting at the (inaudible). And so it’s possible to inhibit with the locally acting agent and we wanted that to maximize the safety. And I think the serotonin pathway there is now little doubt that it plays a key role in IBS.

There has been a lot of genetic association studies now and there are multiple components of the serotonin pathway including end enzymes that produce and breakdown serotonin, there is multiple receptors that have all been implicated now by genetics to play a role in IBS in fact the target of our drug on a drug lists there are polymorphisms in that, that gene that are associated with IBS. So we think this is one of the key mechanisms for IBS and again we are hitting it carefully.

David Friedman - Morgan Stanley

And so when you are talking about this drug acting locally, is it get into the cells that produce serotonin for the GI tract but does not cross the basement membrane is that sort of the mechanism that is able to stay local?

Brian Zambrowicz

Yes. It’s a fairly compound and its properties are not minimal to crossing the basement membrane readily. So it has very low percentage to exposure less than 5% and so it’s largely standing GI but its must get into the cell enterochromaffin cells that produce serotonin.

Arthur Sands

I might just add that we noticed because we have with the biomarker we're measuring, very nice decreases in by 5-HIAA the breakdown product serotonin measured both in the urine and the serum and we're developing a companion diagnostic to go with that. So even though you are acting locally, you are actually getting this effect on serotonin levels which end up being measurable in the bloodstream because most of that is absorbed into the bloodstream that serotonin and that would otherwise either is not [watched] by the agent. So we have a very nice companion biomarker diagnostics along with it.

David Friedman - Morgan Stanley

And so you mentioned earlier that trials are going to be starting. So what are the next steps for this program and you know how do you view the progress of this program?

Arthur Sands

So the current trial of 4-way trial and 360 patients with our biomarker measures and all of our efficacy measures and I think everything we will need to really map out the Phase III program. The recent guidance on this topic from the FDA has spelled out an 8 week Phase III treatment period. So I think that again is very advantageous and the kinds of end points that they prioritize looks extremely good for our data on our previously two program that we had in this area. So I think after this we will get the results in the first half of 2013 and our goal would be to have a rapid progression to a Phase III start later that year.

Brian Zambrowicz

And just may be to mention in our Phase II study, proof of concept study for the mechanism which we published in gastroenterology, we saw a very strong effect on the still consistency and that is one of the key end points that the FDA is interested in and they are also interested in the pain end point and a combined still consistency pain end point. And so we feel pretty confident, in fact we did go back and reanalyze our data with the new dual endpoints that the FDA is interested in and it improves the data, the combined endpoint actually has little effect on the response to active drug, but it drops the placebo response rate dramatically from above 40% down to about 15%. So we really like the end point and we think we can hit it.

David Friedman - Morgan Stanley

And in terms of partnering this program, is this something that you would like to get good Phase II sort of solid data and then look for a partner is this something that you think you would want to bring into Phase III unpartnered?

Brian Zambrowicz

Well I think for the good solid Phase II data we would look for partner and of course there is no guarantees as to how productive that would be, but I think that’s a time to talk to partners. We always learn a lot, we get a lot of excellent feedback. Our model is generally to partner after Phase II and prior to Phase III in large primary care indications, this I think qualifying.

Although it’s a very manageable Phase III program, again compared to diabetes like this is actually very durable and a distinct treatment period then. So we will have a lot of options I think on the program.

David Friedman - Morgan Stanley

And then just one last thing on this. Was there were another companies that have recently tried to get IBSD drugs approved and a question of retreatment came up with one of the other ones that was later stage. So can you just briefly explain why retreatment is not a concept that really applies to your drug and why that should not be an issue assuming that (inaudible).

Brian Zambrowicz

The retreatment was for Rifaximin. It’s an antibiotic which requires two weeks of treatment and then you stop. And so the question became it was really I think related to safety as well as efficacy. If you are going to be giving an antibiotic and repeatedly is that really a good idea, if you get drug resistant bacteria and so the FDA did require them to go back and do a retreatment to address both if you could get efficacy upon retreatment and to get more safety data related to that. I think our mechanism is quite different, it’s not an antibiotic obviously and however I think we will we have a discussion with FDA on our end of Phase II meeting because we want to make sure we don't have to repeat this.

David Friedman - Morgan Stanley

Alright. Well that's then. I think we are at a time, so thank you both for coming and thanks everyone for joining us.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!