Earnings Labs

Lexicon Pharmaceuticals, Inc. (LXRX)

Q4 2009 Earnings Call· Tue, Feb 23, 2010

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Transcript

Operator

Operator

Welcome to the Lexicon Pharmaceuticals fourth quarter and year end 2009 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, Director of Communications. Please go ahead, Mr. Walke.

Wade Walke

Management

Good morning and welcome to the Lexicon Pharmaceuticals fourth quarter and year end 2009 earnings conference call. I am Wade Walke and with me today are; Dr. Arthur Sands, Lexicon's President and Chief Executive Officer; Dr. Brian Zambrowicz, Executive Vice President and Chief Scientific Officer, Dr Phil Brown, Lexicon’s Senior Vice President of Clinical Development; and Jim Tessmer, Lexicon's Vice President of Finance and Accounting. 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, who will discuss our key accomplishments for 2009. Dr. Zambrowicz and Dr. Brown will then discuss the status of our drug development programs and Mr. Tessmer, will review our financial results for the fourth quarter and full year 2009 and discuss our financial guidance for 2010. 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 home page 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 LX1031, LX1032, LX2931 and LX4211. And the potential therapeutic and commercial potential of those drug candidates. This call may also contain forward-looking statements relating to Lexicon's future operating results, 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 results of clinical trials and preclinical studies of our drug candidates, are dependence upon strategic alliances and ability to enter into additional collaboration and license agreements, the success and productivity of our drug discovery efforts, our ability to obtain patent protection for our discoveries, limitations imposed by patents owned or controlled by third parties and the requirements of substantial funding to conduct our drug discovery and development activities. For a list and a description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission. I will now turn the call over to Dr. Sands.

Dr. Arthur Sands

President

Thank you, Wade. Well 2009 was really a year in which we achieved a major milestone in our corporate history and that is whether saying proof-of-concept in patients and as for two significant Phase 2 programs and will spend I think most of the time today discussing some of the results from those two programs, but in addition to that throughout the year, last year we progressed on higher pipeline forward all focused on a novel mechanism or actions and of course ever true to our mission to discover breakthrough treatments for a human disease. If I look at our pipeline on slide four, which is focusing just on the Phase 2 stage program, we've seen our most recently and really in the last quarter here, the progression of LX4211 in its achievement of human proof-of-concept in type 2 diabetes patients. And those results are here more today and as we have covered previously really are remarkable and I think further reaffirm our entire platform in terms of developing new therapeutics. LX1031, in the last quarter, quarter four of 2009 also achieved proof-of-concept in irritable bowel syndrome and then on deck are the next two programs which are also in Phase 2, LX1032 for carcinoid program, carcinoid syndrome and LX2931 for rheumatoid arthritis. I think if you look at each of these programs, you will notice that there are areas of really significant on unmet medical needs, some have major markets potential and they are all progressing well. So we're very excited about what we achieved in 2009 and I have to say 2010 is off to a very rapid start as you can imagine now as we are learning more and more about each of these drug candidates, our business opportunities are expanding and we see a very bright 2010 ahead. So, with that we'll turn to the discussion of the clinical programs a full update. There is a lot to discuss and a lot to cover, so we are kind of divide it between Dr. Phil Brown who'll take the first two programs and then Dr. Brian Zambrowicz on the second two and then we'll open it up for questions. So Phil?

Phil Brown

Management

Thanks very much Arthur. Well as Arthur mentioned we achieved several significant milestones over the past year and over the past quarter associated with continued advancements of our pipeline and I'd like to start this morning with an overview of the most recent announcements on LX4211. LX4211 of course is our oral dual inhibitor of the SGLT transporters and we recently completed a phase 2A study in patients with Type 2 diabetes where we observed significant improvements and multiple parameters associated with this condition. And based on these emerging results we believe that LX4211 potentially represents the best in class compound in the setting of Type 2 diabetes and we'll cover several of the parameters that we believe help differentiate this compound from other compounds in the class. The approach we took in the Phase 2A study was a very traditional approach in which we randomized patients in a double blind fashion to either LX4211 or placebo and these of course were patients with diagnosed underlying Type 2 diabetes and then we followed a number of parameters that were typical of studies at this stage of development. The approach was to evaluate LX4211 with either 150 milligrams given once daily 300 milligrams given once daily or they will randomize to a matching placebo in a 1 to 1 to 1 to 1 fashion. The demographics of the patient population that was recruited was very consistent with patients included in other trials and the stream parameter was such that we were able to washout patients from the existing anti-diabetic therapy in this case we identified patients who were on existing metformin therapy. And we washed them out for a working period of time prior to randomization to the study. Also we were able to sequester these patients over the entire treatment…

Brian Zambrowicz

Management

Thank you Phil. I'll be describing the two programs where which we expect to paying proof of concept data in the second half of the year. I'll begin with LX1032, it's our tryptophan hydroxylase inhibitor for the treatment of carcinoid syndrome. Carcinoid syndrome is the result of neuroendocrine tumor. Typically these tumors begin on a gastrointestinal and they contain themselves, but produce large amounts of serotonin. And once they have [exercised], they can dump that serotonin into the circulation and that can then cause severe gastrointestinal symptoms including diarrhea and abdominal cramping and pain. Although LX1032 is a tryptophan hydroxylase inhibitor, it is a unique chemical entity from LX1031 and that was required because in order to get to the tumor, we needed systemic exposure. However, LX1031, LX1032 does not cross the blood line barrier. Are currently a phase IIA trial, its ongoing and this is a program that could move quite fast. It has fast track status in the US and often designation in Europe. We're very hopeful about this program because we believe the mechanism has been demonstrated to be effective for treating carcinoid syndrome based on an old study with a compound called (inaudible). This (inaudible) in general a medicine paper based on data from the 1960s, describes the treatment of 16 patients with carcinoid syndrome and PCPA gave good excellent control of the GI symptoms and 13 out of 16 of those patients. That included both control their diarrhea as well as improvement in their abdominal cramping and pain. However this compound crossed the blood line barrier and cause side effects including severe depression. What very next thing is the data from their biomarker analysis which is given on the graph on the left. This is looking at one of those patients that was treated with…

Jim Tessmer

Management

Thank you, Brian. Let me now provide you with a brief financial update. Lexicon revenues for the three months ended December 1st, 2009 were $1.4 million, a decrease of 78% from $6.4 million for the corresponding period in 2008. The decrease was primarily due to reduced revenues under our alliances with [Envy], Organon, Bristol-Myers Squibb, and Genentech, partially offset by increases in revenue under our collaboration with the chronic form. For the year ended December 31, 2009, revenues decreased 67% to $10.7 million, from $32.3 million in 2008. Research and Development expenses for the 2009 fourth quarter were $18.8 million, a decrease of 16% from $22.2 million for the corresponding period in 2008. The decrease was primarily due to lower external preclinical research and development expenses as well as lower salary and benefit costs partially offset by higher external clinical research and development costs. For the year, research and development expenses decreased 24% to $81.2 million from $107.2 million in 2008. General and administrative expenses for the 2009 fourth quarter were $4.4 million, a decrease of 9% from $4.9 million for the corresponding period in 2008. The decrease was primarily due to lower consulting and stock-based compensation expense. For the year general and administrative expenses decreased 10% to $19.4 million from $21.6 million in 2008. Lexicon’s net loss for the three months ended December 31, 2009 was $22 million or $0.13 per share compared to a net loss of $15.4 million or $0.11 per share in the corresponding period in 2008. Net loss for 2009 was $82.8 million or $0.57 per share compared to a net loss of $76.9 million or $0.56 per share in 2008. For the three months ended December 31, 2009, net loss included non-cash stock-based compensation expense of $1.2 million compared to $1.7 million in the…

Dr. Arthur Sands

Operator

Thank you, Jim and we can now open the call up for questions.

Operator

Operator

(Operator Instructions). Your first question is from Steven Willie with Thomas Weisel Partners.

Unidentified Analyst

Analyst · Thomas Weisel Partners

Just a quick housekeeping question before I jump into any of the clinical programs here. With the OpEx guidance the $100 million to $110 million was that inclusive of the stock comp and DNA?

Jim Tessmer

Management

Yes it was.

Unidentified Analyst

Analyst · Thomas Weisel Partners

Maybe you could just talk about the decision to move ahead with the expanded RA enrollment and was that decision driven by any of the partnership discussions you may or may not be having at the current moment?

Dr. Arthur Sands

Operator

No, it was not driven by an ongoing partnership discussions, really driven by the fact, number one that enrollment was ahead of schedule and when we initiated the study we were actually told and were concerned that it might actually be a challenging study to enroll because it is a competitive clinical trial stage, but when we witnessed the speed of enrollment, we then decided it was best to take the opportunity to expand the numbers so that we could enhance the potentiality of meaningful clinical signal overall. So it is really a judgment call based on being opportunistic. I would also say that however we are encouraged by the recent partnership activity and I think it does, it does tend to driven by achieving really meaningful results and improving concept trials.

Unidentified Analyst

Analyst · Thomas Weisel Partners

(inaudible) is the entry criteria for that trial as having CRP above the upper limit of normal?

Dr. Arthur Sands

Operator

Phil would you want to comment on that?

Phil Brown

Management

Yes, that is an enclosing criteria.

Unidentified Analyst

Analyst · Thomas Weisel Partners

And are those essentially read out?

Phil Brown

Management

Yes that’s correct.

Unidentified Analyst

Analyst · Thomas Weisel Partners

And I know Rachel tried to a little bit of work in those patients that had failed biologics, is that anything that you guys have on your horizons as well with respect to future development plan?

Dr. Arthur Sands

Operator

Phil or Brian?

Brian Zambrowicz

Management

I was just going to say that those patients tend to be very difficult to treat. So, I don’t know, it's something we would do early, perhaps later.

Unidentified Analyst

Analyst · Thomas Weisel Partners

And then maybe just jumping over to IBS for a moment. Can you just remind us maybe where you are with respect to reformulating that drug and what's the next milestone or catalyst or trial event that we should see related to that program.

Phil Brown

Management

Sure. So, as you may recall, we were for the proof of concept study working with a fairly unsophisticated formulations, basically just active ingredient in the capsule and based on these results, we believe that there is an opportunity to enhance this formulation and thereby reduce either the amount of drug or the number of dosings that we're giving out on daily basis and achieve the similar type of effect that was observed in this trial. So, we're aggressively working on improving the formulation to achieve that end and that is ongoing at present and parallel we would expect to be conducting longer-term (inaudible) studies that would allow us to move into a 12 week study which would be the next formal efficacy assessment of the compound. Now as we bring in another formulation into the mix, we will do a bio-availability study just to confirm the effect of the compound on urinary 5-HIAAwhich has been our biomarker guiding us in development. So, its difficult for me to put an exact timeframe on those first two parameters about the formulation improvement in the in the tox, but those are ongoing and then following the completion of those parameters, then will move into a confirmation in the clinic.

Unidentified Analyst

Analyst · Thomas Weisel Partners

Then as you start to think about those timelines and maybe how you start to see some incremental data emerging data from that longer 12 week trial, how much does the Symphony, the repurchase option expiration, they kind of play into higher thinking with respect to both timing and what you want to get out of a longer term trial.

Dr. Arthur Sands

Operator

Well, I would say still Steven that of course the goal of the whole Symphony relationship is to bail the progress these program through proof of concept and build a value over that in a very important milestone. So if you breakdown and what is that milestone mean? Part of that is to show that you've got a drug in a form that actually can go forward and ultimately be commercialized and so I think that's a key step as part of the whole plan. So, we're not really driven in a tactical way by the Symphony relationship, but I'd say strategically to prove that we've got a drug that's a viable compound for commercialization. Now we think we've got proof of concept in that already but we would like to see that those won't be a suitable GI form formulation, so I think that's the key step and I think here we could benefit from the biomarker proving to ourselves that in this bio equivalent study we are able to achieve reduction in the bio marker which we already know correlates with clinical benefit and to do so perhaps at a lower frequency of dosing and with a lower amount of drug. So I don’t know if that helps too much but I'd Symphony is really more of a strategic consideration rather than tactical.

Unidentified Analyst

Analyst · clinical benefit and to do so perhaps at a lower frequency of dosing and with a lower amount of drug

And I know that Dave kind of demonstrated the willingness to be pretty flexible in some of their other deals, so presumably we should not necessarily be looking at those expiration dates as kind of hard and fast deadlines.

Dr. Arthur Sands

Operator

I think they have been flexible and I think their goals are in line with ours to create the highest value in the program.

Unidentified Analyst

Analyst · Thomas Weisel Partners

And may be just lastly, can you just talk about some of time feedback that you guys have got in kind of shortly after the diabetes data. We’ve gotten some very good feedback on our end but just wondering kind of what you are hearing from potential partners you are talking to and may be even (inaudible) this space.

Dr. Arthur Sands

Operator

Yes I think the most common response from everyone has been how remarkable the hemoglobin A1c was and Phil mentioned this briefly but what I thought is that of the total HbA1c response you are going to get with a given drug, you get about 50% of it within the first four weeks of treatment and then from week four to week 12 you get another 40% and then after week 12 you get the final 10% that you are going to get. And so if we're at 0.76% at week four that bodes really well for where it could be at potentially at week 12 and everyone understands that perfectly well because the key battle in our area is who is going to yield to come in and dominate the market on after the (inaudible) isn’t controlling him any longer and you know the agents that are currently being brought at that step do not have the kind of magnitude of effect that would appear that our agent is likely to have.

Unidentified Analyst

Analyst · Thomas Weisel Partners

Do you think that there would be an opportunity here for kind of like what we've seen with the DPP-IV whether there would be some kind of co-formulation opportunity with (inaudible) as well.

Dr. Arthur Sands

Operator

Well I am excited, yes that’s possible but even based on what we think is going on there is a reason to believe that our agent may work quite well with agents like DPP-IV which I think is intriguing.

Unidentified Analyst

Analyst · Thomas Weisel Partners

Thanks for taking the questions and congrats on a pretty productive quarter.

Operator

Operator

(Operator Instructions). And you have no further audio questions.

Dr. Arthur Sands

Operator

All right, well I'd like to thank everyone for participating. We certainly had a very productive 2009 as we look forward to 2010; we're going to continue to update you on our forward drug candidates which are now in mid-stage clinical trials. Each of them are going to have evolving I'd say important milestones. We do have multiple partnership opportunities that are possible over this timeframe as well as you know, our business model is to conduct partnership discussions associated with proof of concept which has now been achieved for two of our programs and our income continues to be productivite. So 2010 again looks to be I think a very exciting year for us. Thank you for participating, bye, bye.

Operator

Operator

This concludes today's conference. You may now disconnect.