Lexicon Pharmaceuticals, Inc. (LXRX) Q3 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Lexicon Pharmaceuticals Third Quarter Finance Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Chas Schultz, Director, Finance and Communications. You may begin.

Thank you, Victoria. Good morning, and welcome to the Lexicon Pharmaceuticals third quarter 2016 conference call. I'm Chas Schultz, and with me today are Lonnel Coats, Lexicon’s President and Chief Executive Officer; Dr. Pablo Lapuerta, Lexicon's Executive Vice President and Chief Medical Officer; Dr. Praveen Tyle, Lexicon's Executive Vice President of Research and Development; and Jeff Wade, Lexicon's Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer. We expect that you've 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. If you'd 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 clinical development of telotristat etiprate and sotagliflozin. These statements may include characterizations of the results of and projected timing of clinical trials of such compounds and the potential therapeutic and commercial potential of such compounds. This call may also contain forward-looking statements relating to Lexicon's growth and future operating results, discovery and development of products, strategic alliances and intellectual property, as well as other matters that are not historical facts or information. Various risks may cause Lexicon's actual results to differ materially from those expressed or implied in such forward-looking statements. These risk includes uncertainties related to the timing and results of clinical trials and preclinical studies of our drug candidates, our dependence upon strategic alliances and ability to enter into additional collaborations and license agreements, our ability to obtain patent protections for our discoveries, limitations imposed by patents owned or controlled by third parties, and the requirements of substantial funding to conduct our drug development and commercialization activities. For a list and a description of the risk 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 Mr. Coats.

Thank you, Chas, and good morning to everyone who has joined us this morning. As always we start our presentations off on behalf of all the extraordinary men and women here at lexicon, who continue to execute every day to translate our medicine into human use. So as you can see in the first slide here our focus is very much on translating our science into stakeholder benefits. I believe we have executed quite well on doing that. In the course of the day, we'll talk a little bit about telotristat etiprate or telotristat ethyl, which is now the name. The second thing we'll talk to you about is give you a little bit more detail on our dose strategy study and then lastly we'll give you an update on our financials. So, we’ll go to the next slide. For those who may not be familiar with the telotristat ethyl, it’s a peripherally active serotonin synthesis inhibitor. We know that serotonin is a key mediator of gastrointestinal motility, pain and inflammation and high serotonin is implicated in carcinoma heart disease, or cardiac valve damage and so forth. For telotristat ethyl, it’s fast tracked and had orphan drug status both here in the United States as well as in Europe. And as all of you may be aware that NDA was accepted with a prior review by FDA and we now have PDUFA date of February 28th. I'm pleased to tell you that our conversations with the agency has gone extremely well and our confidence remains extremely high that we have every opportunity to enter into the marketplace with this compound. Next Slide. The confidence also comes from the fact that our manuscript from TELESTAR, which was a Phase III data that was conducted – that we submitted to the FDA for NDA was published in the Journal of Clinical Oncology. So we're very, very pleased with that outcome as well. Next what I’d like to do is turn the call over to Dr. Pablo Lapuerta to start to walk you through sotagliflozin and he also walk you through the dose ranging study that we recently announced. Dr. Lapuerta?

Thank you very much, Lonnel. As you know sotagliflozin is a dual inhibitor of SGLT1 and SGLT2 for the treatment of diabetes. SGLT2 is important and leading to the reabsorption of glucose in the kidney, by inhibiting SGLT2 inhibition causes urinary glucose excretion. What is unique about sotagliflozin, it is the first SGLT 1 inhibitor. By inhibiting SGLT1 in the gastrointestinal tract at galactose absorption of glucose into the body and that is a profile that we felt is very well suited for both Type 2 diabetes and Type 1 diabetes. On the next slide, we have sotagliflozin Phase III program and type 1 diabetes studies. In tandem 1 has already been reported, in tandem 2 and in tandem 3 we will be reporting in the months ahead. And we’re very excited that an ambitious Phase 3 program for Type 2 diabetes is being initiated by Sanofi in this quarter. Next slide. This study is in tandem 4, it’s a Phase II study, but it’s a small dose ranging study. The purpose was from a registrational standpoint to confirm that we have selected appropriate doses 200 milligrams and 400 milligrams sotagliflozin for our Phase III gram in tandem 1, tandem 2 and in tandem 3 and Type 1 diabetes. Another purpose of this study was to get mechanistic data that’s difficult to obtain in large Phase 3 programs. Mechanistic studies that could support the SGLT1 and SGLT2 actions of sotagliflozin. So, secondary outcome measures in this study included two hour post-prandial glucose in all patients following a standard meal. Body weight which we have not yet reported from in inTandem1, 2, or 3, and 24 hour urinary glucose excretion, which can be difficult to collect. We also included fasting plasma glucose. Another measure that’s really interested us based on our Type 2 diabetes experience was a change from baseline at 12-weeks in systolic blood pressure. For the next slide, we have the outline of this study. As a dose ranging study, we had placebo 75 milligrams, 200 milligrams and 400 milligrams of sotagliflozin all once daily. Another thing to note is that we had placebo running period. The reason to do that is after screening we wanted to ensure that patients could comply with the study requirements and take the drug appropriately. So we had both placebo running period and then during the 12-weeks of treatment at placebo arm. Slide 9 has more about the trial design. This included 141 patients from sides in North America, the primary end point was a change from baseline in A1C, the intent was to see dose related changes, supporting the 200 and 400 milligram doses. The 75 milligram dose was also included, it’s one of the study on it. This study do not have the insulin optimization program that we described previously for our inTandem1. However, consistent with the needs of diabetic patients, insulin injections were allowed in during the 12 week treatment period. The study was double-blind. Patients had to have type 1 diabetes, for at least one year. They could be either no a pump or multiple daily injections. They were adults with A1Cs between seven to 10% with relatively normal renal function. The next slide has the baseline characteristics of the patients. You can see that this was a small study with approximately 140 patients that’s 35 to 36 in each treatment arm. The age was in the mid 40s, the population consistent with the prevalence of Type 1 diabetes that’s mostly white. The population had endured Type 1 diabetes for over 20 years and still had A1Cs between 7 and 10% being unable to overcome the limitations of insulin. The blood pressures were normotensive in this population by and large. However, we will present data in the sub-group of patients that had elevated systolic blood pressures. The baseline A1Cs were well matched for a study of this size with an A1C of about 8 in each treatment arm. The primary endpoint on Slide 11 was met. There were dose related changes in A1C on 75 milligrams that did not reach statistical significance, but 200 milligrams and 400 milligrams that’s statistically significant reductions compared to placebo and hemoglobin A1C at 12 weeks. This supported the selection of doses for the Phase 3 Type 1 diabetes program. Slide 12 has postprandial glucose. This is an important measure. And with the inhibition of SGLT1 in the gastrointestinal tract, we expected to see a good reduction in post-prandial glucose. There was a dose related reduction, the maximum being seen on the 400 milligram dose and we were encouraged by the magnitude of the 49 milligram, almost 50 milligram per deciliter reduction in post-prandial glucose on 400 milligrams. Slide 13 shows how that reduction was achieved. A challenge for patients with Type 1 diabetes is keeping post-prandial glucose below 180, that’s the target goal. And reality is that many patients with Type 1 diabetes have post-prandial glucoses in the 200s. You can see that at baseline in all treatment groups, values of 200 or more. However, at week-12 the main unchanged on placebo was lower on sotagiflozin and meaningfully lower on the 400 milligram dose. And four if you look at the medians, on the 200 milligram dose, at least 50% of patients were at goal keeping their post-prandial capillary glucose below 180. And the mean was – and medians were encouraging for the 400 milligram dose with values of 160 and only 149 for the Median. Slide 14 has the body weight. This is the first time we’ve seen body weight at 12 weeks in Type 1 diabetes with sotagliflozin. And there was an increase of one kilo in patients on placebo that speaks to the difficulty of managing insulin, which induces body weight. There were reductions that were dose related on sotagliflozin. The largest reductions being on the 200 milligram and 400 milligram dose, reaching statically significant. And being relevant to patients at approximately five pounds in each of those treatment arms. Slide 15 has urinary glucose excretion. It’s difficult to obtain quality 24-hour urinary glucose excretion data. This was obtained in this study and this is the first time we’ve reported it in Type 1 diabetes. Our aim is to identify relatively modest urinary glucose excretion. And by relatively modest, I mean that the 24-hour urinary glucose excretion we’ve seen reported within that selective SGLT2 inhibitor has been an increase of 115 grams of glucose. Here we saw only 58 grams and 70 grams of glucose with the 200 milligram and 400 milligram dose. That's approximately 40% to 50% lower than what we've seen reported with a selective SGLT2 inhibitor. Slide 16 has systolic blood pressure. We were encouraged by the systolic blood pressure results. Not many patients had systolic blood pressures above 130 at baseline in this population with Type 1 diabetes at a mean age in the 40s. However, in this subgroup that we prespecified and analyzed, there were dose related changes in systolic blood pressure at week 12 and they reached a maximum of 15.8 millimeter reduction in systolic blood pressure with the 400 milligram dose. Despite the sample size that achieved statistical significance with a P value of 0.01 compared to placebo. And that's a placebo subtracted difference of 14 millimeters of mercury, that's something we have not seen reported with any selective SGLT2 inhibitor. We believe it's possible that this magnitude of blood pressure reduction could relate to the SGLT1 mechanism of action and we look forward to exploring this more in our Phase III program. One final thing to note about the systolic blood pressure reduction is that this 14 millimeter difference compared to placebo is the same difference we saw in our Type 2 program, that we reported out in our Type 2 dose ranging study. Slide 17 has the overall safety results. The incidence of adverse events was 50% of patients experiencing an adverse event on placebo, and only 49%, 29%, or 34% experiencing adverse events on sotagliflozin. The incidence of serious adverse events was identical in each of the treatment arms. There were few discontinuations being observed only on placebo and 75 milligrams due to adverse events and there were no deaths in the study. Slide 18 has the adverse events of special interest. Diarrhea was not an issue in the study, nausea was not an issue, genital mycotic infection were few and none of these adverse events resulted in discontinuation of study drug. Another important safety event is diabetic ketoacidosis. Consistent with inTandem1, this small dose ranging study had a low incidence of DKA. There were no events on placebo during the 12 weeks on 75 milligrams or 200 milligrams. There was only one event on 400 milligrams consistent with the inTandem1 experience. Of note, the one patient with DKA was on an insulin pump. There were a couple of other incidences of DKA during the placebo running period that I described earlier. These two events of DKA during the placebo running period highlight that DKA is part of living with Type 1 diabetes. On Slide 20, we have the incidences of documented and severe hypoglycemia. Documented hypoglycemia was based on a blood glucose value equal to or less than 70 and it was common part of the reality of type 1 diabetes. However severe hypoglycemia was uncommon and these low rates are consistent with inTandem1 clinical trial experience, only one subject discontinued due to hypoglycemia and that was under 75 milligram dose. Overall, this Phase II dose ranging study showed that 200 milligram and 400 milligram of sotagliflozin provided statistically significant and clinically meaningful reductions in A1C. This confirms the dose selection that we made for the Type 1 Phase III program in the studies inTandem1, inTandem2 and inTandem3. Equally important, we see evidence in terms of the mechanism of action of sotagliflozin that supports its profile of dual inhibition of both SGLT1 in the gastrointestinal tract and SGLT2 in the kidney. Evidence of SGLT1 inhibition in the gastrointestinal tract is suggested by a large post-prandial glucose reduction in particular with the 400 milligram dose. Just as we've seen in Type 2 diabetes relatively modest urinary glucose excretion value of between 58 and 70, which are much lower than what's been reported in the literature with selective SGLT2 compounds. We see for the first time encouraging reductions in body weight relating to the SGLT2 effect and an encouraging reduction in systolic blood pressure, in particular in the 400 milligram dose with a 14 millimeter reduction compared to placebo. The safety profile was favorable and supports what we reported earlier in the much larger study inTandem1. Thank you very much and I'll now turn the call over to Jeff Wade.

Think you, Pablo. I will provide a brief financial update. As indicated in our press release today, we had revenues for the 2016 third quarter of $27.7 million, an increase from $0.6 million in the prior year period. The increase was primarily due to revenues recognized from our collaboration and license agreement with Sanofi. Our revenues of $60.3 million for the nine months ended September 30, 2016 increased from $2.7 million for the prior year period. Our research and development expenses for the 2016 third quarter increased 127% to $52.5 million from $23.1 million in the prior-year period, primarily due to increases in external clinical and nonclinical research and development costs. Our R&D expenses of 138 $7.8 million [ph] for the nine months ended September 30, 2016, reflected 113% increase from $64.7 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 contingent payments. Changes in this liability based on the development of the programs and the time until those 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 $2.1 million in the third quarter and $0.7 million in the nine months ended September 30, 2016. Our general and administrative expenses for the 2016 third quarter were $12.3 million, an increase of 128% from $5.4 million in the prior-year period. The increase was primarily due to increased costs in preparation for commercialization of telotristat ethyl. Our G&A expenses of $29.1 million for the nine months ended September 30, 2016 reflected a 67% increase from $17.4 million for the prior-year period. In 2014, we began to market our buildings and land in The Woodlands, Texas for sale. And we recognized non-cash impairment losses on our buildings of $2.3 million for the three and nine months ended September 30, 2015, as a result of writing down the buildings to the estimated net selling price. Our net loss for the 2016 third quarter was $36 million, or $0.35 per share, compared to a net loss of $35.3 million, or $0.34 per share, in the prior-year period. Our net loss for the nine months ended September 30, 2016 was $109 million, or $1.05 per share, compared to a net loss of $91.4 million, or $0.88 per share, for the corresponding period in 2015. For the three and nine months ended September 30, 2016, our net loss included non-cash stock-based compensation expense of $1.9 million and $5.7 million respectively. For the three and nine months ended September 30, 2015, net loss included $1.7 million and $5.4 million respectively. Finally, as of September 30, 2016 we had $395.6 million in cash and investments, as compared to $429.4 million as of June 30, 2016, and $521.4 million as of December 31, 2015. On the next slide, I will update our forward-looking financial guidance for 2016. We continue to expect contractual revenues from existing arrangements in 2016 to be in the range of $70 million to $80 million. Our revenue expectations incorporate the achievement of a milestone for telotristat etiprate in carcinoid syndrome, progress and the Type 1 diabetes development program for sotagliflozin that we are leading under the Sanofi alliance, and progress in the Type 2 diabetes program that Sanofi is leading under the alliance, and our associated funding participation in those efforts. We continue to expect that our operating expenses in 2016 will be in the range of $225 million to $240 million with non-cash expenses expected to be approximately $9 million of that total, including $7 million in stock-based compensation, and $2 million in depreciation and amortization. We now expect our 2016 net cash used in operations to be in the range of $195 million to $210 million. I will now turn the call back to Lonnel.

Thank you, Jeff. Appreciate that very much. I’ll close out by just simply saying, I believe management remains extremely confident in our ability to execute on these two late-stage programs for telotristat ethyl, for carcinoid syndrome that India has been accepted. We’ve had robust conversations with the agency, our conference continues to grow that we believe we have a product that will get approved. And we shall be in market in the very near future. Therefore our U.S. commercial preparations, we have not let up on those preparations. We are full steam ahead and getting ready for launch. The EMA filing, I’m very pleased to say remind everyone that that was accepted and those conversations are going very well with our partner Ipsen. And the collaboration in Europe with Ipsen and outside the United States continues to go very, very well. In terms of sotagliflozin, as we have outlined here today and previously, the Phase 3 program the first call out we were very pleased with those results. And just recently our dose-ranging study we have learned more about the drug that gives us even more confidence that how we’ve gone forward in our Phase 3 program, we should have very good results as expected. And this was a good confirmation for us as Dr. Lapuerta had walked you now through the 206 dose-ranging study. In terms of what we look forward in the near-term, the JDRF study, which is a Phase 2 study, we’ll report out in December. However, we’ll report out prior to the second inTandem study which also we’ll report out in December, but the JDRF study again will come first. Also I would point you to the clinicaltrials.gov site to confirm that Sanofi has started the Phase 3 program for Type 2 diabetes, and we are extremely pleased by that. Therefore we’re very, very confident that we’re executing well as we have planned on both these assets and we hope to continue to provide you with guidance as we have more information to callout and be transparent about that information as we have it. With that being said, I’ll stop there and certainly open up for questions.

Victoria, are you there to take questions?

I am. [Operator Instructions] Your first question comes from the line of Yigal Nochomovitz with Citi.

Yes, hi, thanks very much. Hi guys. I just had a question on the inTandem3 study. I don’t know if you talked about this before. But can you give us some sense as to how you are thinking about the powering assumptions for the responder analysis for patients that get below 7% A1C and that don’t have severe hyperglycaemia and don’t have DKA? What is the delta that you’ve powered for? Thanks.

Dr. Lapuerta did you heard that question.

Yes. And I’m sorry I don’t have a specific delta for you. I can’t recall if it was 10% or less. I think I could only offer 10% or so as a ballpark. What I can say is that and looking at results of inTandem1 it gives us confidence that we could achieve this difference and proportions with A1C less than seven and no SH, and no DKA that primary endpoint for inTandem3.

Okay and Dr. Lapuerta maybe I should just ask you a bit more regarding the dose-response data 200 milligram, 400 milligram that you’ve seen in this recent dose-ranging study, obviously you highlighted the postprandial and the blood pressure data to just in 400 milligram may look better. But then on A1C and urinary glucose, as well body weight it looks like there was more of plateau going from 200 milligram to 400 milligram. So I just I’d be curious as to your overall thoughts on which dose looks better, if you could say better or if both look, both have different advantages? Thanks.

I can’t say right now that one dose looks better. I do think we’re starting to see a different profile. This is just one piece of the puzzle. inTandem1, inTandem2 and inTandem3 will be important pieces of puzzle, and are very well powered for the comparison of doses. This dose-ranging study was not what so well powered for comparing individual doses. However, we did see the 400 milligram dose with better reductions in postprandial glucose and in systolic blood pressure. So if those results hold and are relevant, then I think 400 milligrams would be offering something to patients who need to control these measures. And it could be that 200 milligrams is a great anchor dose for all the patients and that 400 milligram dose would represent a good choice for patients who need additional control of postprandial glucose to their desired target below 180 or systolic blood pressure, to their systolic blood pressure targets.

Okay, great. And Lonnel, sort of one high-level question for you. Obviously, you've shown now the hypoglycemia and DKAs really aren't the issue that people thought they were even back in August of this year. In fact you compared to one of the largest trials for an SGLT2 agent type 1, which is the canagliflozin study that appears at least from our analysis that better on severe hypoglycemia and DKA versus [indiscernible] versus canagliflozin. I'm not of course – support from the dose-ranging study also looks very good. I guess I'm curious what else do you think you need to show the market to convince them on the safety sotagliflozin just seems as obviously a bit of disconnect between the facts and what peoples perceptions are, so I wanted to give you an opportunity to address that. Thanks.

Yes. It’s actually a very good question. I think because we do we are running one of the largest type 1 trials in this space for an oral antidiabetic agent. We will have tremendous amount of data that we will call through and try to understand more important and one thing we'll try to understand is DKA and the risk associated with DKA, because it is of our view that DKA should not be happening, and we'll learn as much as we need to learn both when they happen some placebo because I do believe it will continue to – we’ll see it in a trial both in placebo as with drug and how do we then better informed about the utility of sotagliflozin in the cases where we did see it happen, when it occurred. So that we give proper instruction to physicians in the community to how best use this drug when is in market. So I think we're in the best position to begin to inform in this space because of the size of our trials. And the information will begin to learn about this particular risk area. Once we have that and I think we're able to communicate. I think that will start to meliorate some of the concerns that stakeholders have about it.

All right. Thanks very much for taking the questions.

Thank you.

And your next question comes from the line of Liana Moussatos with Wedbush Securities.

Thank you for taking my questions and congratulations on your progress. October 5, you had a press release that you were buying out the obligation for Symphony Health. How was that going to show up and the P&L and when will it show up in the P&L. And then my second question is when Jeff Wade was talking about the revenue guidance, he mentioned receiving a milestone was that from Sanofi.

No, the milestone was for telotristat ethyl, which was received actually in this past – in this quarter. And this has been reflected in our revenues in this quarter. And on the Symphony arrangement, we've reached an agreement to buy out that remaining obligations, once we have approval, which would be buy out the full amount of the remaining obligations. We felt like unfavorable terms and as we have gone through this process, we have run through the income statement, cost associated with that the sort of expected costs as we incurred towards that approval and towards those milestones having to be paid. Now that we have this new buyout agreement where basically discounting that buyout amount back to account for the risk associated with it, and we will incur the rest of it when we get approval. However, that remaining amount is pretty small because of the fact that we have already incurred a lot of that. And actually in this current quarter, we reversed some of that amount because we had already accrued a pretty significant amount of – for the liability and run that through our expenses. Does that make sense?

Yes. And do you anticipate final approval in Q4?

We have the PDUFA date of February 28 and our expectation as things are going well. But I won't speculate us that reflect it might be that we get approval.

Great question and great try. Listen, as I said before, we were very pleased with our conversations. And from our perspective, our job is everything we can to surprise you before that PDUFA date. But nonetheless the agency has set that date and we are going to do everything we can to get them ahead of that schedule. But nonetheless, what we need to know here is our confidence in this program is very high, that’s the one of the reasons we felt we could take the opportunity to buy out the Symphony agreement, get that closed out, remove all future obligations to this assets. So the value can flow through for our stakeholders fully, once drug is approved and we're generating revenue.

Thank you very much.

Your next question comes from the line of Jessica Fye with JP Morgan.

Hey guys, good morning. Thanks for taking my questions. I have a question about the postprandial glucose data from this Phase II dose ranging. I guess, how sensitive is the magnitude of decline, to the baseline number. I think with A1C a higher baseline is up and associated with a greater percent A1C benefit in clinical studies. I'm just trying to think about what that PPG declines inTandem1 may look like compared to this recent data given the lower baseline A1C in that study. Basically trying to think about what it might mean for the magnitude of affect there.

Dr. Lapuerta, I turn the question over to you.

Well. In terms of your question is asking about sensitivity to baseline. And I think in working with these data in these studies, we seeing that both fasting glucose and postprandial glucose are just highly, highly variable. And so I think what that means for this study is that we only reached statistical significance for the 400 milligram dose, which was most robust with 25 patients providing postprandial glucose data with 200, we didn’t see that statistical significance. So I think the thing to look for is a Phase III opportunity will give you an opportunity to get a more precise measure and a chief statistical significance with the 200 milligram dose.

Okay. Do you expect the differentiation between the 200 milligram and 400 milligram on this measure to hold up in those larger studies?

No, it’s hard to say, because when we have with as few as 25 to 30 patients in each arm providing postprandial glucose data. It's an opportunity to see an overall dose relationship, comparing placebo and three other doses and it’s overall going in the right direction. But the extended variability we have, we can't say for sure that a reduction of 27 with 200 milligrams is statistically different from the reduction of 49 on the 400 milligrams. I think we do have a reasonable expectation that 400 milligrams will be better in type 1 diabetes, because it has been better in type 2 diabetes. I think that's the perspective I have in terms of understanding expectations. I think we have a good opportunity to see that.

Okay. And then also just trying to understand the side effect profile, I think it looks like the cases of severe hypoglycemia were about one per group. I think that’s consisted with the number of SAEs that you reported. It was that DKA case 400 with or not considered in SAE.

Beyond 400, it was SAE, what we have is that many times severe hypoglycemia even though it's severe and recognized as such is not reported by the investigator as a serious adverse event because investigators are often thinking of hospitalization when they're thinking as severe – I'm sorry of serious adverse events. So I think what you had is cases of severe hypoglycemia and I can’t confirm all the cases of severe hypoglycemia in the study were not deemed to be serious adverse events. Patients recovered perhaps with the assistance of someone else may require assistance and that met the definition of serious hyperglycemia that did not meet the definition of a serious adverse event.

Okay, got it. And then just lastly on the blood pressure measurements, did you do 24-hour Holter monitoring here. How did you kind of collect the blood pressure data?

We did not do a 24-hour Holter monitoring. We plan to do that in some studies in our type 2 program. The way we measured blood pressure, we based it on the experience that we had in the type 2 program. We used a validated automated blood pressure measurement device that was validated for use in clinical trials and that has been used previously in registrational programs for hypertension. We make sure every side had one and used it. We make sure that the blood pressure at every visit was an average of three blood pressure measures that were taken each of few minutes apart in the seated position. By doing this, we reduced the variability in systolic blood pressure to a level where we could detect statistically significant differences with the 400 milligram dose, compared to placebo.

Okay, got it. Thank you.

And your next question comes from the line of Alan Carr with Needham.

Hi, thanks for taking my questions. Why don’t you talk a bit about any differences in baseline disease in the two Phase 3 trials that you might expect? And then also with respect to, if all goes well with the rest of the Type 1 program, what your expectations are on submitting an NDA for that and if you could comment on the need for an outcomes trial when that might be settled also?

So Alan this is Lonnel. I didn’t get the first part of your question.

In the trial that you completed in the U.S., the Phase 3 trial, do you have any expectations for some baseline factors – differences between baseline criteria between the U.S. trial and the ex-U.S. trial in terms of A1C or other parameters? If you expect to be the same, curious there, too, but just wonder if you do expect it?

I think the main difference that we expect is that the proportion of pumps versus multiple daily injections will be different because pumps are used more widely in North America where the inTandem1 study was conducted than they are in Europe and the other countries where the inTandem2 study will be connected. And the inTandem3 study is a global study, so it will include patients from North America, and Europe and other countries. So that from what we really expect, that's probably going to be the biggest difference is that relative proportion. InTandem1 it was about 60%-40%, 60%-40%, 60% on pumps 40% on multiple daily injections. And in inTandem2 we would expect a much higher proportion to be on multiple daily injections.

Yes, so the second and third part of your question, Alan if, I’m not going to say if, I’m going to say when the second inTandem2 trial calls out should it mimic the results of inTandem1 it is our belief, we’re on our way to having a submittable drug. The inTandem3 is a broader study for exposure, as well as looking for the net benefit. So if we are successful – should we be a success as the way we believe it will be inTandem1, inTandem2, the net benefit should be called out on a global basis and mimicked in inTandem3. So our mindset will be really focused on what happens in inTandem2, should the results be very, very similar, then we're pretty confident we have something we could file. Now with that being said, it’s always our expectations to work with our partner Sanofi to have a conversation with the regulatory agency. There is a good chance they’re going to want to see the inTandem3 results to make sure and affirmed the overall exposure and safety is good. If that's the case, then certainly we'll be able to do that as we get into the end of the first half of next year. Nonetheless, we think inTandem1, supported now by the dose-ranging study, the incidence rates of safety is low, the A1C matched up against both your optimized insulin, as well as where you have some stable insulin and allowing patients to adjust their insulin. We continue to see a very strong A1C result. And then when we look at the secondary measures, we are now starting to see very strong secondary measures that support the quality of how that A1C is achieved. So we continue to see that, it is our confidence, for sure, that we have a drug that we can file. When we do that, that's going to come down to the discussions we have with the regulatory agencies with Sanofi and certainly what the regulatory agency may want to see in inTandem3 before a final decisions made on when we will file.

If you do not need to run an outcomes trial for Type 1 diabetes, is an NDA submission into 8/17 [ph] in that appropriate assumption?

NDA submission in 2017, well that’s your question?

Yes, yes.

No. I think more than likely we will be looking at 2018. Just because we’ll have the exposure trial, which is the inTandem3 that will call out towards the middle of next year. And then you have to, certainly, start to do your work to get ready for a filing. So it will be closer to the end or the beginning of 2018, end of 2017, beginning of 2018.

And I guess the last question is there's a couple of trials listed in clintrials.gov with Sanofi. Can you give us any other guidance on when other ones might begin or when an outcomes trial might begin?

I would love to give guidance on. However that program must be run by our partner Sanofi, so they certainly they control the guidance they give around their activities. What I will say is, that would be something that I would encourage all of you to ask them. But I will also say that this is a very aggressive program and we’re very pleased with how they are thinking about it and I think we’re fairly well align and how we achieve success. One of the key pieces that we’ve learned and has been supported in the dose-ranging study is this blood pressure data is extraordinary. And a question becomes how we leverage that in our Phase 3 trial in Type 2. And there will be some careful consideration, I think Sanofi will pay very close attention to when we finish up the additional trial work that will hopefully be called out when they’re ready.

Okay. Thanks for taking my question.

You bet.

Your next question comes from the line of Stephen Willey with Stifel.

Yes. Good morning thanks for taking the questions. So I guess just going back on the postprandial glucose data from inTandem4. I guess we haven't seen the glycemic variability endpoints that are being evaluated in the Phase 3 studies specifically inTandem1. But just wondering what your thoughts are with respect to using those reductions as a surrogate for those endpoints. And maybe you could make a commentary around what the error bars around those mean reductions might look like?

Dr. Lapuerta did you hear that question?

You know I didn’t hear it well, were you are talking about PPG or in other parameters?

No, PPG. So just kind of curious as to if you view those reductions in postprandial glucose that we're seeing as being applicable surrogates for some of the glycemic variability endpoints that are pre-specified in the Phase 3 program. And then, also, if you could maybe comment a little bit about how some of those – the standard error bars may look around some of those postprandial glucose means, i.e., are you seeing tighter less variability with increased postprandial glucose reduction?

So I can give you a perspective that, yes, I believe that we will in Phase 3 be well powered to see statistically significant differences and several of these glycemia parameters. I believe the reduction in postprandial glucose is reflecting an action of the drug to reduce the overall variability in glucose. And well I haven’t analyzed those data in detail for this study yet. We analyzed it in detail with our initial Phase 2 study that we announced two years ago in Type 1 diabetes. That’s exactly what we saw. There were reductions in postprandial glucose that were important and clinically relevant, consistent with what you’ve seen here. And they were accompanied by overall reductions and the variability of glucose. For postprandial glucose, for fasting plasma glucose, for timing range and for standard measures that are being used in Type 1 diabetes for glucose variability. So we do think that even though some of these measures, I said they have high standard deviations in our larger studies, especially with our continuous glucose monitoring sub studies, we will have ample opportunity to demonstrate what we believe the drug is doing, reducing glucose variability in a way that’s important for patients.

Understood. And then in the blood pressure analysis, I know you pre-specified patients with systolic greater than 130, I'm wondering if you can say anything about the systolic reductions you're seeing in patients that are more normotensive. I know some of the criticism of the selective SGLT2s is that is that really everyone gets blood pressure reductions due to the volume loss.

What we've seen in general in this study 206 and also in our type 2 experience is that the blood pressure reduction is predominantly and patients with elevated systolic blood pressures at baseline. Patients who have normal blood pressures at baseline have little to no reduction in either systolic blood pressure or diastolic blood pressure at trough with sotagliflozin. We saw that in type 2 and we're seeing that as well in type 1 diabetes.

Okay. Thanks for taking my questions and congrats on the JCL manuscript.

Thank you. Thank you, Stephen. Appreciate that very much.

Your next question comes from the line of Chris Shibutani with Cowen.

Yes, thank you. As we prepare for the results that will readout for inTandem2 the European population, can you put in context for us any differences in the baseline level of care or use of pumps or just any aspect of the patient profile when we compare perhaps with inTandem1, which is the U.S. study.

Okay. Pablo you want – Dr. Lapuerta you want to take that?

Yes, I'm happy to. I think the main difference is the difference that Jeff Wade mentioned that the use of pumps as much less frequent in Europe as in the United States. What that means I think a good – have an implication for the monitoring and management of DKA. What we've seen is DKA is more common in patients with pumps, and that’s we're recognized. If they have a problem with a pump malfunction, they can run into an issue with DKA much faster than if they had given themselves long-acting doses of basal insulin. So that’s a possibility. We'll just have to see how the data come out.

And then again follow-up with the JDRF study data, how should we think about that in terms of how it might fit into your filing or the label. Will that data be considered in any of those regulatory components?

Dr. Lapuerta?

Yes. What I can say is of course the data for the JDRF study will be relevant in terms of safety. Every study is important in terms of safety. And what the JDRF study will give us is a good example of patients with extremely high A1C, which have different safety issues. And so I think it will be relevant from that standpoint. In terms of the efficacy, it being a Phase 2 study is less likely to have efficacy data and the label. The label will predominantly depend on inTandem1, inTandem2 and inTandem3.

So to be clear, your use of the word relevant means that that data you are planning to include with your regulatory filing materials.

Yes. We planned include the results of our Phase 2 study in our regulatory filing material. We will have an integrated summary of safety and it won't contribute a lot of numbers, but it is an important population, because it's a young population with the difficulty achieving A1C control population as high unmet need. And so it will have a relevant part of the filing.

Thank you and congratulations on the progress.

Thank you, Chris.

Okay. It looks like there are currently no further questions.

Well, let me take a moment and say thanks to all who have joined with us this morning. Management here at Lexicon, we continue to execute on our plans on both of these late stage programs. I reiterate our confidence is very high on our telotristat program for carcinoid syndrome. We're very confident. We will have a product to be at market and start generating revenue in the near-term. As a sotagliflozin, our data I think is going from good to great and stay tuned for the inTandem2 results that we will announce in December. And we're also have the Phase 2 JDRF study results to Pablo's point of view or Dr. Lapuerta's point of view. It will give us some sense of how well this drug performs in at-risk population, and that will give us some more data and putting the puzzle together. Our confidence is high with our type 1 program. And now that Sanofi is starting the Phase 3 type 2 program. Our confidence remains high there as well. So management will continue to execute on our goals with these late sage assets and we will continue to be responsible with the shareholders' money. As Jeff Wade pointed out, we are operating with the cash to low end of the range this year now executing with the many, many, many, many, many, many priorities that we have to deliver, we're doing so on the low end of our cash requirements. So with that, we have expectation we'll continue to operate that way as we go forward. Once again thank you and look forward to the next call.

Again, thank you for your participation. This concludes today’s call. Participants, you may now disconnect.