Good morning. My name is Victoria and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Pharmaceuticals Fourth 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, Senior Director of Finance and Communications. You may begin.

Thank you, Victoria. Good morning, and welcome to the Lexicon Pharmaceuticals fourth quarter and year-end 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; Alex Santini, Lexicon’s Chief Commercial 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 have seen a copy of our earnings press release that was distributed this morning. During this call, 0we 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 the safety and efficacy and the therapeutic and commercial of XERMELO. These statements may include characterizations of the results of clinical trials of XERMELO and the market opportunities for XERMELO. This call may also contain forward-looking statements relating to Lexicon’s growth and future operating results, discovery and development of our drug candidates, 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 include uncertainties related to the success of our commercialization efforts for XERMELO, the timing and results of clinical trials and preclinical studies of our other drug candidates, our dependence upon strategic alliances and other third-party relationships, 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 all of you who have chosen to be with us this morning. As always, we make these presentations on behalf of extraordinary men and women here at Lexicon who work tirelessly every day to advance our science into the hands of patients. With that being said, we’re extremely pleased to once again remind everyone that XERMELO was approved as of Tuesday, February 28th as the first and only orally administered therapy for the treatment of carcinoid syndrome diarrhea in combination with somatostatin analog therapy in adults inadequately controlled by SSA therapy. As we all know, carcinoid syndrome is a rare and debilitating condition that affects people with metastatic neuroendocrine tumors and is characterized by frequent and debilitating diarrhea that often prevents patients from leading active, predictable lives. We are very, very pleased that it was Lexicon who has introduced the new therapy in this category where new modality has not been in this marketplace for almost 30 years; very, very pleased that we have started our activity with our sales force being in market today and the drug being available for patients at the pharmacy on Monday. Next slide. 2016 has been a just a remarkable year. It’s a year of tremendous execution of becoming a fully integrated pharmaceutical company. XERMELO, which was formerly known as telotristat etiprate for carcinoid syndrome, we filed it in the first quarter of 2016, we received the prior review. And throughout the year, we established our commercial presence in the U.S. in preparation for its launch. Sotagliflozin for type 1 diabetes, we completed and presented top line data from two Phase 2 studies scoring additional elements of the profile of the compound. Also, we’re very, very pleased we achieved the primary endpoint in both of our pivotal Phase 3 studies for type 1 diabetes and we are completing the work going into 2017. And for type 2 diabetes with sotagliflozin, we’re very pleased that Sanofi is now initiated and we’ve entered into Phase 3 for type 2 diabetes. We also introduced two new compounds into the clinic in 2016, LX2761, which is SGLT1 compound by itself, entered into Phase 1 development and LX9211 for neuropathic pain with a very novel target. We licensed the clinical and commercial rights from BMS, we completed all the IND-enabling studies, and we’re ready to initiate the clinical studies. Last but not least, we ended year with a very strong balance sheet. With that, I’m going to turn it over to Jeff Wade, our CFO, to walk you through.

Thank you, Lonnel. I will provide a brief financial update. As indicated in our press release today, we had revenues for the 2016 fourth quarter of $23 million, which was a decrease from $127 million in the prior year period. The decrease was primarily due to recognition of revenues from the upfront payment received under our collaboration and license agreement with Sanofi, which in the 2015 period included the portion of the upfront payment attributable to the value of the license and in 2016 reflected revenues associated with the performance of our obligations related to type 1 diabetes development activities and shared funding for type 2 diabetes development. Our revenues of $83.3 million for the year ended December 31, 2016, decreased from $130 million for the prior year period for the same reasons. Our research and development expenses for the 2016 fourth quarter increased 33% to $40.4 million from $30.4 million in the prior-year period, primarily due to increases in external clinical development costs related to sotagliflozin. Our R&D expenses of $178.2 million for the year ended December 31, 2016, reflected an 87% increase from $95.2 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 fair value of Symphony Icon purchase liability was reduced by $0.7 million in the year ended December 31, 2016, primarily as a result of our amendment of the payment terms announced in October and did not change in the fourth quarter. This compares to an increase in this liability of $0.8 million…

Thank you, Jeff. As Jeff said, we expect 2017 to be truly a transformative year as Lexicon has now moved into becoming a commercial stage company. We’re very excited to have introduced to the marketplace, XERMELO. We’re off to a remarkable start and very proud of our team. I think we have now initiated best-in-class preparation and start in being able to get in the market very quickly and have the product be available to patients within 72 hours. With that being said, I’ll open up floor for any questions.

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

Hi, guys. Thanks for taking the questions. Few on XERMELO and the market dynamics that you’re anticipating. Could you just run through some of these questions? Could you talk about the Medicare part D versus commercial split in the population for carcinoid? What you expect on medication adherence in this population of patient patients; and comments on gross to net? And finally, how you’re modeling or thinking about the peak share that you can get in the carcinoid patients that are controlled on SSAs. Thank you.

Thank you, Yigal. I’ll let Jeff speak to the gross to net, and then will turn it over to Alex for the other questions you have.

So, on gross to net, we -- most of what’s going to make the difference in gross to net is going to be co-pay assistance and other expenses associated with distribution of XERMELO. It’s hard to have any product that has gross to net of loss than 10% to 15%. So, that’s something to consider as we go forward. That’s assuming -- that’s once we sort of get to a steady state. Initially that will be probably a bigger strategy.

Alex, can you take the questions around Medicare and the distribution of our business?

So, the patient mix from a Medicare and commercial perspective, we have approximated about 50% of the patient volume will come from the Medicare sector and 45% of the patient volume will come from our commercial sector, and then the other 5% will be made up of our Medicaid, our VA system and other category.

Okay. And then, any thoughts on medication adherence.

So, as you’re aware, we have a very robust model in place with our specialty pharmacies. And what we have developed is a best-in-class compliance and adherence regimen that will be administered through our specialty pharmacy. As you can imagine, this is a chronic medication, 28 days cycle, 13 scripts on an annual basis. Our goal and our hope is that patients who are receiving symptomatic relief will stay on chronic for a long period of time, especially recognizing that the safety profile is quite good. And from a compliance adherence perspective, we’re certainly shooting for 13 out of 13 scripts on an annual basis. But we’ll have to make a determination after a few months in the marketplace to see how solid our adherence and compliance achievement levels are.

Okay, thanks. And then, just switching to diabetes, just a question on your -- what the label could look like in type 1. You’ve done the juvenile study with JDRF, obviously. And about a sixth of the patients in the United States that are type 1 are pediatric. So, is that how you’re going get to the pediatric population in the label through JDRF or is that going to come later, because obviously the Phase 3 you did were in the adults? Thanks.

The study that we did with JDRF actually was in young adults. So, initially, what we’re looking at is the population of adults that are type 1 diabetic that would be our initial target for sotagliflozin and type 1 diabetes. And there are approximately 1.1 million adults -- people with type 1diabetes in the U.S. And we will be doing pediatric studies with the objective of extending this to people who are younger than that, so particularly to adolescence. But that’s something that will take place after we complete the Phase 3 program in people with -- adults with type 1 diabetes consistent with the way that FDA would want us to proceed.

And to that point, Yigal, I think that we will keep our relationship with JDRF. And certainly as the product mix enrolls for adults with type 1 diabetes, it is an opportunity for us to continue to do work in collaboration with JDRF in designing and developing studies for pediatric use.

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

Hey, guys. Thanks for taking my questions. Maybe sticking with XERMELO, can you talk about what your expectations are for price in Europe? And also, the press release reminds us that the asset is unpartnered in Japan. What’s the status of partnerships talks there and timelines for approval? On sotagliflozin, when you meet with FDA in the first half of this year, do you expect to ask them how they are thinking about the two doses? Is there anything about whether they may want to see an inTandem3 like study at 200. And maybe one rattling off questions, does Sanofi have right of first refusal on the SGLT1 and what happened there that you’re developing it, it seems independently? Thanks.

Jessica, I will do my best to see, if I can recall.

I’ve got them written down here.

So, I’ll start with the partnership related questions. So, XERMELO, as you know is not partnered in Japan. Our thought with regard to Japan was that we would wait until we proceed with the second indication before considering partnership for that market. And that continues to be our intention. As it relates to -- also relating to partnership question, the pricing in Europe. So that’s something that is obviously something that is within Ipsen purview as our partner in Europe. I will only say that SSA pricing in Europe is lower than SSA pricing in the U.S.; it’s probably around 30% of that pricing the U.S. So that’s going to be something that they will have to negotiate as they proceed with the discussions around pricing there. I think the final partnership related question that you had was relating to LX2761, and the arrangement that we have with Sanofi is there is right of first negotiation. And we have a framework for us to consider adding LX2761 into partnership. But it is something that would require an agreement between us and Sanofi. And the hope would be that as we develop this asset that it is something that we add to the relationship that we have with them.

And then, Jessica, I think your question is around our meeting with the FDA. Certainly, we’re hoping to present to the FDA our pivotal program. As you know, we have completed that. And we hope to get feedback from the agency both on what they believe is remaining for us to do and preparation for our submission. Included in that certainly will be the 200 and 400 milligram dose as they both were contained in our pivotal program of Phase 3 program. So, we should have full context of information from them. And if there is something remaining for us to do, we’ll get in good position to try to get that done in preparation for our intent to file by first quarter of 2018.

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

Maybe just on XERMELO first, just wondering if you can maybe comment as to how long you think the reimbursement adjudication process will take at the specialty pharmacy level? And I guess if the company is going to be providing any kind of starter kit, just to ensure that no script goes unfilled?

Let me turn it over to our Chief Commercial Officer, Alex.

As you’re probably aware, payers will conduct their customary review of any new product that comes into the marketplace and then complete an assessment of formulary questioning. They’ll do a review of our efficacy profile and our safety profile. And based upon the feedback that we’ve heard from payers, we believe that we’ll have a favorable position. And the timing of that position will vary from payer-to-payer. On an interim basis right out at the gate, we’ll have a program that’s called the QuickStart program where we’ll offer XERMELO to patients that are either being delayed in terms of their benefit design or denied according to their benefit design. So, we do have a bridge program for getting patients started on our drug while the reviews are taking place at the payer organizations.

And then, just a follow-up. How long is that QuickStart process or that QuickStart product?

The QuickStart program -- the initial QuickStart program will be a two-week supply of product that will be made available to them and the SPs will be administering that program in accordance with the benefit design that payers will or will not have in place. And our goal is to have our account management team simultaneously providing that input to the payers on the clinical value of the drug. So, we’re hoping that we get rapid uptake and rapid approval by payer organizations and our QuickStart program will be there to support it. The program will remain in place at the moment indefinitely, until we have a very secure and favorable formulary program in place.

Maybe just a question on sotagliflozin and just wondering if we can maybe get a little bit more granularity around the remaining type 1 milestones? Should we think about the 52-week safety and efficacy data updates as separate readouts, and I am thinking about both, inTandem1 and inTandem2? And then, the secondary endpoint data that’s going to be emerging of these studies, I guess including the CGM data, is that going to be pooled or will that be presented as a pooled analysis or should we also expect to perhaps see separate readouts from each of the two pivotals?

I’m going to take both or three parts of your questions, and then I’m going to have Dr. Lapuerta start off. And then in terms of the pooled data and when we can expect that, I have Jeff take it from there.

So, your questions are about the 52-week analysis about the secondary endpoints and about the CGM being pooled. Now, if I could start with the 52 weeks. The 52 weeks are very important for safety, in particular. And one of the things I will be examining is the time course, the safety events. And so, I think these will be very important readouts. The secondary endpoints, in particular the blood pressure, we’ve talked about very large blood pressure reductions in the past and observed in three Phase 2 studies, 2 in type 2 diabetes and one in type 1 diabetes. And so, I think this will be a very important readout. Among the secondary endpoints, the CGM is very important because we believe from our first Phase 2 study in type diabetes, our sotagliflozin can significantly reduce glycemic variability and improve time and range. Patients value that. The CGM data will be very important and will be coming out and will be pooled in order to provide for a robust analysis from inTandem1 and inTandem2.

So, there will be differences in timing. So, will have the longer term data and the some of the secondary endpoint for inTandem1 a little bit before mid-year; we will have inTandem3 data kind of around the middle of the year; and then shortly after that, we will have intent inTandem2 data and the CGM pool data. So, all of that is coming sort of in the middle part of this year.

Okay. That’s helpful. And then, Jeff, maybe just a quick question on R&D spend and I guess maybe even collaborative revenue. I know that you have about $100 million of dedicated spend that goes to the Sanofi type 2 program. Can you maybe just comment as to where you are with respect to working through that?

Okay. Well, we’ve spent some of it, already in 2016. A big portion of that is going to be in 2017 actually, and is incorporated in the numbers that we gave you. And then, there will be some balance that will be remaining in 2018, but it will be smaller portion of that because the bulk of that cost will be incurred and in 2017. And that’s really one of the main reasons why our R&D expenses are remaining relatively steady, because we will be starting to wind down the type 1 diabetes program this year, towards the second half of the year. But because of the type 2 diabetes program that we’re co funding that will be -- a large portion of that cost will be incurred this year.

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

Congratulations on the XERMELO update. I did want to focus my questions on sotagliflozin, however. Just to clarify, so for inTandem3, is it correct that the duration of the study -- study would be complete at the 24-week endpoint that you are not going to have a 52-week endpoint? And this year the results at midyear that would be the final results? Secondly, could help us a little bit understand just sort of your secondary endpoint expectations? What kind of magnitude in weight change would we expect at the 52-week point and to what extent would other experience from GLT2s be a good proxy, i.e., how might the subtle difference in mechanism that is the case with sotagliflozin influence the secondary endpoints, bodyweight, blood pressure, and the timing range?

Thank you, Chris. I’ll give the first question to Jeff and then Pablo, if you can take the second question on the secondary measures?

Okay. So, yes. The answer to your first question is yes. We will have the data. It will be top-line data, but it will be data complete from the complete duration of the study around the middle of this year for inTandem3, because the duration is basically six months duration.

The secondary endpoints, Pablo?

Yes. Let me say first about weight change and the potential of magnitude. From what we’ve seen in our type 2 calculation and our first studies of type 1 diabetes at 24 weeks, the weight change observed with sotagliflozin has been significant and similar to that seen with other SGLT2 inhibitors in type 2 and type 1 studies. Sotagliflozin has relatively modest urinary glucose excretion and we think that’s an important part of its profile and may have important safety implications. With that modest urinary glucose excretion, we do not expect more caloric loss than with selective SGLT2 inhibitors. So, we have not projected a profile of superiority in weight gain, but we’ve seen has been similar so far. What we might have in the case of type 1 diabetes is that obesity is common. We’ve seen a mean biomass index of 29 to 30 and inTandem1. And patients are on the very high doses of insulin and have a lot of issues with severe hypoglycemia from those high doses of insulin. So, it could be that we have good weight change data in the sense that patients are looking for a way to manage their type 1 diabetes safely. Some patients will back off to some extent on bolus insulin and that may have impact on weight. If you look at SGLT2 experiences, some of the best weight gain data have been in studies in type 2 diabetes on top of insulin for that same season. So, overall, for weight gain, we’ve generally seen a similar profile. Although with 52-week data and patients on optimized insulin, we have the potential for some good results. In terms of blood pressure, we’ve seen in type 2 diabetes, among patients with hypertension, and that means patients whose baseline systolic blood pressure was…

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

Thanks for taking my questions. A couple of them, one of them, any updates on EMEA review timing and expectations for when that might be done? And then the other one is, you’re bringing this compound with -- or formerly with BMS forward. I am wondering if you could comment what that means bigger picture for Lexicon, where you intend to take the Company, some long-term strategy thoughts.

So, I’ll take the second question first. So, the compound that we -- it was out of an alliance that we had with Bristol-Myers Squibb that we jointly -- we discovered targets in the neuroscience alliance that we established some time ago. We worked together with them to develop compounds to address novel targets identified in that. And this is an extremely promising program that we’re really excited about. But, it is something that we also had a very significant part in creating. There is some interesting overlap between areas that this could be used in and areas that we’re already working in. So for example, one of the most significant areas in neuropathic pain is in diabetic neuropathy. So, it’s a program that we contributed to and we are very enthusiastic about. So, hopefully, that will provide some color, as to the way that we’re thinking about that program. I’m trying to remember, what…

EMEA.

EMEA. So, the filing was made with the EMEA this past summer. That continues to be in the review process with EMEA. And we’re expecting it to take the normal amount of time that that process takes which is on the order of year or so, and that continues to be moving along.

Okay. And then, coming back to I guess strategy, are there -- can we expect more compounds to move up behind the -- I forgot the number -- for the from developed with 9211? Are there more, within the Lexicon pipeline in discovery or preclinical stage that you might bring up behind that that would fit into the specialty organization that you are building? Thanks.

Great question, Alan. It’s something that Dr. Tyle was working on with our team to look at all of our science and do thorough review of it to figure out what has good chemistry put to it that we can continue to put into one of these two areas, either the neuroendocrine tumor area or certainly the diabetics space. To just point, with the remarkable success we have sotagliflozin, we certainly expect that we will have some success as well with LX2761 with SGLT1 component by itself where Sanofi only has the opt out opportunities to participate. And then the third leg of that stool now in getting a right to LX9211, we have the possibility exploring certainly, not just neuropathic pain in this general nature, but more specifically diabetic neuropathy, which fits into that category. So, we will continue to do our work. A lot of this is pressure testing, a lot of thesis and making sure that we have proper characterization before we certainly talk about it, beyond the work we’re doing at that company.

I guess, it might help set perspective here, how high a priority is it to add to the pipeline behind 9211 and 2761, or do you feel like you have enough to keep you busy as it is?

Yes. I think we have to be very cautions. It’s something that I try not to get myself to terribly excited everyday on filing new things, because for company of our size I think we have quite a few priorities already, but we’re a science based company. So, we do have a team that’s continuing to look at our early science and the applications that may have to be areas that we’re finding may be most important to us the metastatic end market as well as the diabetes market. So, we’re doing work, Alan, in the area, but it’s not our biggest priority. Our biggest priority is continue to move the assets we have forward for commercialization and get to revenue generation mode as we have done now with XERMELO.

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

Thank you for taking my questions. Congratulations on your progress with XERMELO and especially the rapid commercialization, right after approval. My question is actually on sotagliflozin in type 1. You previously mentioned a plan to meet informally with the FDA in the first half sometime or maybe Q1 with the idea to get an initial read with existing data on their thoughts about potentially reviewing an NDA for type 1, separately from type 2 in 2018. Presuming you are not able to publicly disclose this information after meeting with them, what kind of activities would change if the FDA tells you they are leaning toward a 2018 type 1 review?

Well, thank you for the question, Liana. For us, we are absolutely preparing for success. To be frank, we think we have a remarkably good data. We have overcome the biggest hurdle I think the agency had put in front of us, which was to show that you can provide a patient benefit more specifically on A1C above optimized insulin. We haven’t done that just once, but we have done it twice in two well controlled pivotal trials. So, we’re very confident of that data. I think the question we have to answer for the agency going forward is under what care instructions should we change relative to managing the PK risk that we have with the drug. And I think once we’re able to answer those questions, we remain very confident that we can file this drug in the first quarter of 2018. So, I don’t see much changing other than that preparation and putting together an aggregate package that we can get some feedback from the agency. If they ask us for some additional information, I think we have such a large program that we’ve committed to all the inTandem programs that we should be in a position to answer any question for the agency in a total breadth of that program. So it’s really to make sure that there is something that we’re missing and we don’t understand, we need clarification in that meeting. But from an aligned point of view, both our hours as well as Sanofi, it remains our intent to file the compound based on what we see in our data already in the first quarter of 2018.

You have a follow-up question from the line of Stephen Willey with Stifel.

Thanks for the follow-up. Just following up on the blood pressure discussion. Is there anything you can say about I guess the Sanofi proposed type 2 Phase 3 development program and whether or not they would actually intend to seek a blood pressure lowering label specifically, as part of the Phase 3 development program?

Thanks, Stephen. You know that’s a challenging question. I would say, they’re very excited as we are, as Dr. Lapuerta said. We’re always cautiously optimistic. I think what direction we go from once we have these data in a larger trial like inTandem1 and inTandem2 and be able to look at the blood pressure data, I think alliance holds open any options that we see that we may want to develop a compound to give us strategic advantage. I’ll answer the question that way. But never speaking directly on behalf of Sanofi. Is there anything to add?

It is one of the key areas that we and Sanofi both view that value of sotagliflozin is the expectation that this will provide a benefit in terms of cardiovascular arrest to patients with diabetes. And that’s been consistent as one of the key areas that we both think that sotagliflozin can provide value to patients.

Yes. And Stephen, I think that optimism is driven by how remarkable, to what Dr. Lapuerta said, we not only saw this as huge systolic drop using sotagliflozin for type 1 patients, we saw almost exact same drop with type 2 patients. And quite extraordinarily, which made us make sure that in our Phase 3 program, we pre-specified it as secondary endpoint, so that we can get clear on just exactly what does this mean. And once we have that clarity, I think it influenced us as to how we want to continue to develop this compound to ensure that we have all advantage that we think we can have as we come to market.

And just to clarify, those reductions in blood pressure were observed on the background of maximal anti-hypertension therapy?

I wouldn’t say maximal in the sense that we didn’t have a formal program to review everybody’s antihypertensive therapy. I would say, it was on top of standard of care. That’s the best description of our program. Standard of care, rather than maximum, per se.

And there are currently no further questions.

We look forward to having future conversation with you about XERMELO as well as progress we continue to make with sotagliflozin. I think we’ve executed extremely well in the course of 2016 that have put us in the position to be a commercial stage company in 2017. I fully expect us to continue to execute extremely well on the clinical programs of sotagliflozin. And to-date, I think everything that we have laid out as catalyst to all of our stakeholders, we have either achieved them or exceeded them. I expect that to be the continual nature of how we perform in the Company as we go forward. So, look forward to the next call, and enjoy the rest of your day.

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