Welcome to the Lexicon Pharmaceuticals Fourth Quarter 2007 and Year-end 2007 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, Bobbie Faulkner, Manager of Investor and Public Relations. Please go ahead Ms. Faulkner.

Good afternoon and welcome to the Lexicon Pharmaceuticals Fourth Quarter 2007 and year-end 2007 conference call. I am Bobbie Faulkner and with me today are Dr. Arthur Sands, Lexicon's President and Chief Executive Officer; Dr. Philip Brown, Lexicon's Senior Vice President of Clinical Development; and Julia Gregory, Lexicon's Executive Vice President and Chief Financial Officer. We expect you have seen a copy of our earnings press release that was distributed this afternoon. During this call, we will review the information provided in the release, then use the remainder of our time to answer your questions. The call will begin with Dr. Sands, who will discuss our key accomplishments for 2007. Dr. Brown will then discuss the status of our drug development program, and Ms. Gregory will review our financial results for the fourth quarter and full year of 2007, and discuss our financial guidance for 2008. We will then open the call to your questions. For those who wish to view the slides to which we will refer, please access the Lexicon website at www.lexpharma.com. You will see a link on the homepage under today’s webcast. Before we begin, I would like to state that we will be making forward-looking statements, including statements relating to, without limitation, Lexicon's research and development of LX6171, LX1031, LX1032, LX2931, and LX4211. This call will also contain forward-looking statements relating to Lexicon's growth and 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 our ability to enter into additional collaborations, alliances and license agreements, the success and productivity of our drug discovery efforts, the timing and results of preclinical studies and clinical trials of our drug candidates, our ability to obtain patent protection for our discoveries, limitations imposed by patents owned or controlled by third parties, our dependence upon strategic alliances and the requirements of substantial funding to conduct our research 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.

Thank you very much Bobbie and I would like to thank everyone for joining us this afternoon. 2007 was truly a defining year for Lexicon and we're happy to be reviewing it with you today. I'd like to start off with just a few items by way of Lexicon's overall strategy and the advancement of our pipeline. So, for those of you who can see the slides, the first slide pictures are 10TO10 pipeline. And that of course is a program that we launched only at the beginning of 2007, and we already have several drug candidates that have proceeded in that program into human clinical trials. Now, during this call, Dr. Brown will review just five of these most advanced programs in the 10TO10 program. But let me just give you a few highlights. LX6171 for cognitive disorders is our most advanced program which moved into Phase 2 clinical studies in 2007 and is proceeding. LX1031 for irritable bowel syndrome is on track to complete the Phase 1 studies by mid-year. At the end of the year, we filed two new INDs for two new drug candidates. The first, LX1032 for carcinoid syndrome, which is in Phase 1 studies currently, and the second, LX2931 for rheumatoid arthritis, which is also now in Phase 1 studies. In addition, in 2007, we selected a new drug candidate for diabetes, LX4211, and that candidate is currently in IND-enabling studies. If we turn to the next slide which is entitled, Building The Next Generation Pharmaceutical Company, I would like to hit some of the high points of our strategy, as we implement the 10TO10 program, and we bring forward these drug development programs. First of all, we benefit from the discovery engine that has given us a very broad and diverse clinical pipeline…

Hey thanks very much Arthur. Before I actually start giving you an update on the clinical programs, I'd like to just touch on some key additions that we've made to the clinical staff recently. First Dr. Joel Fryman, who is a Board Certified Internist, joined us after extensive experience with the FDA. He has 12 years experience with the FDA, serving in both a role of an Epidemiology branch chief, as well as a medical reviewer in the Neuropharm division. He is a critical hire for us, as he will serve to establish drug safety as a service within Lexicon, as well as oversee the LX6171 program. We’ve also added another physician, Dr. Chris Pappas, and Dr. Papas is a Board Certified Hepatologist and Gastroenterologists. He has extensive experience in liver transplant and antiviral therapy. In addition to his extensive clinical experience, he has drug development expertise coming to us from having developed an antiviral therapy in Hepatitis C. So, he'll add significant depth to our development team and be specifically responsible for the 103 and the 293 programs. So now I'd like to discuss our lead development programs. LX6171 is our program directed towards cognitive disorders. This target is a membrane protein that's associated with glutamatergic pathways and expressed exclusively in the CNS at presynaptic terminals. The target of 6171 was of course identified through the Genome5000 program, and the small molecule that inhibits this gene target was developed by our medicinal chemistry division. We are currently engaged in Phase 2 activities, as Arthur mentioned. We've successfully completed the initial PK assessment in elderly subjects with our new suspension formulation, and we've initiated dosing in February of this year in subjects with age associated memory impairment. The study design of this particular program is two dose levels, over a…

Thank you, Phil. We achieved several financial goals in 2007. We effectively managed our operating expenses through cost control measures. Overall total operating expenses decreased 2% to $125 million from $128 million. As you recall at the beginning of 2007, I had announced that it was our goal to contain total operating costs in 2007 and fund the growth of our clinical development in 2007 from reallocation of resources from genetics resources. With development expenses doubling and total operating expenses decreasing you can see we achieved this goal. Secondly, we built a strong financial foundation for the company ending the year with $258.8 million in cash and investments including $36.7 million from Symphony Icon, our product development collaboration with Symphony Capital Partners and its co-investors. Third, we structured a multiple year strategic investment plan with Invus and possible future financings with Lexicon stockholders, including Invus. We issued a press release this afternoon detailing our fourth quarter and 2007 year-end financial results, which you many find on our website if you have not already reviewed it. Lexicon’s revenues for the three months ended December 31, 2007 were $13.8 million, a decrease of 14% from $16.1 million for the corresponding period in 2006. The decrease is primarily attributable to reduced revenue under Lexicon’s neuroscience alliance with Bristol-Myers Squibb resulting from the conclusion of the revenue recognition period for the upfront payment Lexicon received under the alliance and the biotherapeutics alliance with N.V. Organon offset in part by increased revenue recognized for the completion of the knockout mouse, embryonic stem cell library for the Texas Institute for Genomic Medicine. For the year ended December 31, 2007 revenues decreased 31% to $50.1 million from $72.8 million in 2006, reflecting our transition from drug discovery alliances to drug development activities. Research and development expenses for…

Thanks Julia, as you may be formulating your questions; I'd like to just make a few summary comments. 2008 as we look forward promises to be a very exciting year for Lexicon. The LX6171 studies as you heard the Phase 2 studies are ongoing in age-associated memory impairment and that trial is expected to conclude by year-end. LX1031 for IBS is scheduled to complete the multi dose Phase 1 studies in healthy volunteers in mid-year. LX1032 for carcinoid syndrome is on track to complete the initial Phase 1 studies in healthy volunteers mid-year also with the potential to go into carcinoid syndrome patients later in the year. And LX2931 for rheumatoid arthritis in autoimmune conditions is on track to complete its initial Phase 1 studies in mid-year as well. And in addition to all of that LX4211 for diabetes is currently proceeding through IND-enabling studies. So, now I will take any questions that you may have.

(Operator Instructions). And our first question comes from Sharon Seiler with Punk, Ziegel & Company. Sharon Seiler - Punk, Ziegel & Company: Its Sharon Seiler, how are you? Two questions, one is what do you think will be the next IND after the diabetes compound? And the second more strategic question, which is -- I know you've discussed in the past that probably proof of concept would be the ideal point to partner the programs that you are bringing forward yourself. But it seems to me that you must have more targets than you could hope to develop on your own. What is the strategy for monetizing some of these other assets that you don't plan to take forward yourself?

Well, thanks Sharon, good question. The next IND after the diabetes compound, I'll tell you there are several contenders for that slot. At this stage, I can't make a prediction as to which one it will be, but I can tell you that our glaucoma program LG710, which is on our 10to10 pipeline slide, continues to proceed and is quite promising. You may recall that the novel mechanism that blocks the outflow of aqueous humor from the eyes. So it would be a new way to treat glaucoma and we're of course going after a locally acting agent there. So I'd say that that is definitely a contender. Behind that we have several metabolism programs that are also proceeding. We have our advancing antibody programs which were, I'd say, put somewhere in a similar time zone and those are LG843, LG842. Then there are several after that, but I think the two I named are definitely ones to keep your eyes on. With regard to your strategic question on partnering, we are -- really coming up on several potential POC's or proof of concepts with our compounds and I do think that those are the preferred sort of partnerships at this stage for the company's development and have the highest value. Several of our programs demonstrates or can demonstrate proof of concept may do so, at least pharmacodynamically through some of the biomarkers that they modulate, and so in so far as those biomarkers read on disease mechanism we think that we'll have those opportunities. With respect to the other targets, we really would prefer to advance those targets now into drug development before considering target-based partnerships. However, we do continue to have interest for such partnerships and I think it is rational for us to consider, perhaps other mechanisms of addressing other moieties that might address certain targets in our portfolio, where we are not addressing them with either small molecular antibodies, so these might be things that include RNAi or other kinds of external protein therapeutics that we could look at. But any target based deal we would do, would be very directed and proximal to drug discovery and development. And again I think that’s where the highest value is. Sharon Seiler -- Punk, Ziegel & Company: Okay. Thanks, and with respect to the second IND, would you anticipate that that will also be filed sometime this year?

It's hard to predict, and I also did mention that we have some interesting backup molecules that have different properties for some of our targets that are already in development and those could proceed. So I think at this point, I'd refrain from making a prediction of the timing of the second IND, but I feel very confident about the earlier stage pipelines that will give us those IND's when they come. Sharon Seiler -- Punk, Ziegel & Company: Okay, thank you.

Thanks.

Moving on, we'll hear from Edward Tenthoff with Piper Jaffray.

Great, thank you very much. Two questions, firstly, the ongoing 6171 trial, Phase 2, when should we be getting data from that -- cognitive data from that study?

Phil do you want to go ahead and talk about 6171?

Sure, thanks Ed.

Hey Phil.

Hi, I appreciate the question. We're just in active accrual of this study at present and it's difficult to predict exact timing of that because we'll wait to see how the accrual goes but I would anticipate having those datas by the end of the year.

Okay, great, and maybe a quick housekeeping one for Julia. What do you classify as the long-term debt currently?

That's our -- the long-term debt that we currently have is our mortgage on our building.

And what's that amount sorry?

About $31 million – that’s total -- 31.

Great, thank you.

Thanks Ted.

We have three more questions in the queue at this time. Moving on we'll hear from Jason Kantor, RBC Capital Markets.

Thank you. Could you tell us what exactly you're going to be presenting in terms of data at this AAN meeting coming up?

Phil, you will be at that meeting, I believe, go ahead.

Right, thanks, Jason. I am very pleased with the acceptance to the fast tracks because it is the first time we will be able to describe the -- we are anticipating describing the target of 6171 as well as be able to review in much greater details some of the data that we have accrued to-date, both in humans as well as the pharmacologic rationale for this compound.

Okay. And in terms of these, on the Phase 1 trials in healthy volunteers, which of these studies do you think could provide the best view on potential efficacy because these are all in healthy volunteers but there are some biomarkers that you would be looking at.

Yeah. I will answer that, Jason. I think that both, as you mentioned, both LX1031 and 1032 have biomarkers associated with them and that specifically would be urinary 5-HIAA, which is a metabolite of serotonin and of course serotonin itself can also be measured but, that has been taken as being an important biomarker for the mechanism. So I think mechanistically, that could be an important marker for us as it has been in all of our pre-clinical research. Now, with regard to 2931, that biomarker is -- that we are utilizing at lymphocyte counts so it's very straightforward, preferable lymphocytes and that has been again directly related to modification of disease models in animals. So, that biomarker may be considered by some more proximal to the disease relevance that we are ultimately going after in terms of autoimmune disease. So while both of them, certainly the biomarker are going to provide important guidance in Phase I, I would say LX2931, you might consider to be more of a direct read on since the cellular biomarker is a potential diseased state. Does that answer your question Jason?

Yeah. And I know you're not forecasting it in the actual revenue guidance, but would you anticipate signing a deal this year?

So again I think we're not going to be making such forecasts about new deals. What we'll say and have said is that we are in active discussions, and as we anticipate achieving important proofs of concept even at the biomarker level as we just discussed. We consider those to be perhaps natural time clients for considering the right deal, if it's available.

Okay. And then in terms of the auction rate securities are you -- is there any plan to write down the value of these in anyway or are you just saying that you expect overtime, that you will get the value of those.

Well at the current time there is no requirement for us to write down or need for us to write down the auction rate securities, and where you constantly assess those and from an accounting point of view the fair value of the securities is a determinant of whether a write down will be required and would have to be deemed as more than a temporary decline in value or greater than temporary decline in value of those securities. They would have to be valued by a third party agency in order for such a write down to be taken. And we don't anticipate today that any write downs would be taken and today we've not had any write downs associated with any of our investment.

Thank you.

Thank you, Jason.

Moving on, we'll hear from Sapna Srivastava with Morgan Stanley.

Hi, it's actually Dave calling in for Sapna. Just two questions, the first is on 6171. Does the formulation change that you did affect permeability through the blood brain barrier at all, and is there anyway to measure some PK or PD at the actual site of action?

Phil, go ahead on that one.

Sure, obviously the formulation, our biggest concern is ensuring that we're getting adequate exposure to specific circulation of the compound. So the first part of the Phase 2 study was to ensure that we had a formulation that was giving us adequate exposure, consistent with what we had observed in our initial Phase 1 study. So, I was very pleased that the formulation is providing excellent exposure with the compound in a very predictable fashion, which is mimicking on what we had observed in our Phase 1. So the formulation is doing its job, I don't think that it would have any effect at all on the compound's ability to cross the blood-brain barrier. So, we're proceeding ahead and I’m very pleased with the formulations providing us an avenue to do that in a very positive fashion at present. With regard to the pharmacodynamic activity of the compound, I think that's a more challenging question for us. We don't have as you know I think a standard biomarker to use in this particular setting, so we're relying more on the symptomatology of the adverse event profile to compound or the subjective reports of patients. In addition to these more objective measurements that we’ve deployed as end-points in the study to evaluate cognition as well as a variety of other domains, such as attention and vigilance and these types of measures. So that's the purpose of the study, and we'll just have to wait for the results before we comment on that, I believe.

Okay. And then just a question on 1031, you are doing your additional dose ranging and you looked at daily, twice-daily, four times a day. Obviously four times a day is sort of the least convenient of those. What did you see that - was it just that you weren't giving levels at the lower frequencies or are those still an option, and is there a way to change the formulation to make it more likely that it could be a twice a day or once a day drug?

Phil, why don’t you keep going on this?

Sure. So the reason we were to four times a day, as I am sure you are aware of the real purpose of Phase 1 is not only to understand pharmacokinetics of the compound but ideally to probe up to a maximum tolerated dose, which helps guide as you move into patient-based studies. The interesting thing about the 1031 is, because we don't drive high degrees of systemic exposure, we have a very safe compound. So we have no evidence of intolerability even at these excesses of very high doses that we've been giving with the compound. We were to a four times a day basis of dosing based on the pharmacokinetics of the compound. So what I wanted to do is to drive exposure as high as I could in order to probe for intolerability. And as we've described that at 500 milligrams QID, we were seeing a very well tolerated compound at those dose levels. And as you may recall, at that dose levels also we're able to see about 30% reduction in urinary 5-HIAA over a 14 day period of time, 30% relative to baseline and those subjects randomized to the compound. So, I believe that’s a very important finding on the biomarker, and the goal at this stage is to really push the dosing in order to fully explore the limits of tolerability of the compound. This will allow us to take the maximal dose forward, the maximum tolerated dose forward in the proof-of-concept study in irritable bowel syndrome. With regard to the formulation aspect, clearly this is very early stage of development. We are hoping to and anticipating a much more sophisticated formulation evolving for this particular compound as we move it forward.

And if I could add a one thing to that Dave, I would say that predicting at this stage what frequency will be ideal for treating the condition of IBS I think is premature. I will say that my own thinking at this stage of the game though is that, this is clearly a locally acting GI drug and it may in fact be beneficial to administer this at meal time, and we've seen some evidence of enhanced exposure occurring because of food or food effect and it is logical to assume since symptomolgy might be related to food, that that might be an ideal time to administer and have dosing, but we don’t know that at this time.

Okay. And so when you are going to drive this to 1000 QID, are you going to take that total dose and re-split it among different variations in your next trial, or are you just going to keep going with, your sort of max at 4 times a day for now?

Phil?

Well, I think -- my view on this at present is, if we can dose or escalate up to a 1000 QID, that's probably as high as we would want to go. As how we deploy this into a proof-of-concept study, I think is yet to be determined because we don't have the results. We are interested in the biomarker effect, we are interested in the tolerability, and we may or may not elect to go in at this QID dose regimen versus a TID or BID dose regimen as we move into IBS. So that's a little bit premature for me to be able to answer that until we get the results of the next study.

Okay, thanks a lot.

Thank you.

(Operator Instructions). We do have two more questions in the queue. We now have a follow-up from Sharon Seiler with Punk Ziegel. Sharon Seiler - Punk, Ziegel & Company: Yes, with respect to the data that you're presenting at the Neurology Conference, is that going to be or you may ask that is this going to be a poster or on oral presentation and do you anticipate having some sort of - any gestures that you did when the data were presented at the gastroenterology Conference?

That's going to be a poster Sharon and at this time, we don't anticipate having an event associated with it. Sharon Seiler - Punk, Ziegel & Company: Okay, thank you.

And we do have one more question in the queue. This is a follow-up from Jason Kantor with RBC.

Hi, thanks for taking the follow-up. It's just a minor model question. What was the other expense that you had of about $700,000?

Julia?

The other expense item that we have in this is about $750,000 for the three-year period is a net effect, that’s including some stock options, non-cash stock option expense in that line item Jason.

That's non-cash, non-housing expense that couldn't be put under research or --.

That’s right. And then, let me explain that a little bit, Jason. It's a very small number as a net number, but let me explain that. In some of the, in November of 2007, we changed our software system for calculating forfeitures of stock options. And in so doing had the catch up on a minor amount of stock option expense and so, it went in to that category.

Got you.

And do you have anything further?

That’s it. Thank you.

At this time we have no further questions. Thank you, Mr. Sands, I'll turn it back over to you for any additional or closing remarks.

Well, I would like to thank everyone for participating. We are definitely hitting on all cylinders and we are looking forward to a very exciting 2008. Our development team is performing at a very high level and supporting our growing clinical pipeline. We are very pleased with having completed a landmark financing in 2007 that supports, further supports our discovery and development efforts, and there is no question in our minds as we are watching the results flow forward. We've established a very highly productive drug discovery engine, and it's fuelled by our unique insights into the human genome and the discoveries, and we plan to translate them into future treatments for human disease. So thank you all very much.

That does conclude today's call. Thank you for joining us, and have a great day.