Welcome to Lexicon Pharmaceuticals First Quarter 2018 Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a brief question-and-answer session. As a reminder, this call is being recorded today, May 3, 2018. I will now turn the call over to Dr. Kimberly Lee, Head of Investor Relations and Corporate Strategy. Please go ahead.

Thank you. Good morning and welcome to the Lexicon Pharmaceuticals' first quarter 2018 financial results and business update conference call. Joining me on today's call are Lonnel Coats, Lexicon's President and Chief Executive Officer; Alex Santini, Executive Vice President and Chief Commercial Officer; Dr. Pablo Lapuerta, Executive Vice President and Chief Medical Officer; Dr. Praveen Tyle, Executive Vice President of Research and Development; and Jeff Wade, Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer. After our formal remarks, we will open the call up for Q&A. Earlier today Lexicon issued a press release announcing our financial results for the first quarter 2018, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast of this call along with a slide presentation will be accessible in the Investor Relations section of our website. 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. Before we begin, let me remind you that we will be making forward-looking statements, including statements relating to the safety and efficacy, and the therapeutic and commercial potential of XERMELO, sotagliflozin and our other drug candidates. These statements may include characterizations of the commercial performance of and lifecycle management plans for XERMELO, expected timing and outcome of regulatory review of applications for approval of sotagliflozin, and results of clinical trials of sotagliflozin and our other drug candidates, and the market opportunity for those programs. This call may also contain forward-looking statements relating to Lexicon's growth and future operating results, discovery and development of other 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 risks include uncertainties related to the success of our commercialization efforts and lifecycle management plans for XERMELO, the regulatory review of applications for the approval of sotagliflozin, the timing and results of clinical trials and preclinical studies of sotagliflozin and our other drug candidates, our dependence upon strategic alliances and other third-party relationships, 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 research, development and commercialization activities. For a list and 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 like to turn the call over to our President and CEO, Lonnel Coats.

Thank you, Kim, and good morning, everyone, and thanks for joining us on the call today. In the first quarter we achieved several key milestones which position us for significant momentum in the second half of this year. I'll share these developments with you, starting with a summary on recent key events and concluding with a business update. I'll then turn the call over to Pablo and Jeff, for updates on XERMELO lifecycle management program and financial results respectively. I'm very pleased to say that we reached several regulatory milestones in the first quarter that we believe will enable future growth and value creation. In March, in line with our prior guidance, our collaborator Sanofi submitted regulatory filings in the United States and in Europe for sotagliflozin in type 1 diabetes. The European Medicines Agency, or the EMA, validated the market authorization application in March. We anticipate feedback from the FDA regarding acceptance or following of our new drug application or NDA, approximately 60 days from our filing day. In the meantime, we and Sanofi are working closely with the agencies to make sotagliflozin available as soon as possible to people suffering from type 1 diabetes. As sotagliflozin is a new chemical entity and potentially the first ever oral treatment for type 1 diabetes, we fully anticipate an advisory committee meeting and are diligently preparing for this event. Moving to XERMELO, we achieved U.S. net XERMELO sales of $5.4 million in the first quarter. I will say we did experience some headwinds, as I talked a little bit about this at the end of last year, that affected XERMELO net sales, including a continued increase in the number of patients requiring patient assistance and receiving free drug under our Patient Assistance Program, as well as the realignment of our commercial…

Thanks, Lonnel. Turning to Slide 7, there's an important opportunity to explore XERMELO's potential outside of carcinoid syndrome diarrhea. XERMELO addresses the cause of carcinoid syndrome diarrhea, which is overproduction of serotonin, but there is good scientific rationale that XERMELO may slow the growth of the tumor and improve overall patient health and survival. Octreotide and lanreotide have shown benefits in tumor control. And these benefits may relate to their effects on serotonin. Scientific evidence also suggests that inhibition of serotonin production via tryptophan hydroxylase 1 could inhibit proliferation of cancer cells, in patients with cholangiocarcinoma. Serotonin is also linked to fibrosis. We have the opportunity with XERMELO for more fully the impact of serotonin on tumor growth and fibrosis. On Slide 8, we have the rationale recently presented by Dr. Renuka Iyer of the Roswell Park Cancer Institute at our Research & Development Day. If you weren't to be able to attend, you can find the slide presentation in the Investor Relations section of our website. Dr. Iyer, presented the slide, that show some of the potential for XERMELO to benefit the neuroendocrine tumor population beyond carcinoid syndrome diarrhea. In the left hand panel, there are data showing that production of serotonin by neuroendocrine tumors, significantly decreased survival. This can be seen in the blue survival curve for patients with elevated 5-HIAA, a metabolite of serotonin. The middle panel shows the extent to which XERMELO reduced 5-HIAA levels in our pivotal study TELESTAR. And the right hand panel shows how patients treated with everolimus had worsening survival if their tumors produced elevated amounts of 5-HIAA. In her presentation, Dr. Iyer commented on favorable data we have recently published on weight gain with XERMELO in the TELESTAR study. She asked whether it reflected stable disease. TELESTAR and their companion study…

Thank you, Pablo. This morning, I will discuss key aspects of our first quarter financials. More financial details can be found in our 10-Q, which will be filed shortly. Now please refer to Slide 12 of our presentation. As indicated in our press release today, revenues for the first quarter of 2018 increased 38% to $25.2 million from $18.3 million for the corresponding period in 2017, primarily due to an increase in net product revenues recognized from the sale of XERMELO in the U.S. to $5.4 million from $0.7 million, and increased revenue from collaborative agreements. Cost of sales related to sales of XERMELO for the first quarter of 2018 was $0.5 million, up from $0.2 million for the corresponding period in 2017. Research and development expenses increased 10% to $47.8 million for the first quarter of 2018 from $43.6 million for the corresponding period in 2017, primarily due to higher external clinical development expenses relating in substantial part to development of sotagliflozin in type 2 diabetes and professional and consulting fees related to sotagliflozin NDA preparation. Selling, general and administrative expenses for the first quarter of 2018 were flat year-over-year at $14.9 million. Net loss for the first quarter of 2018 was $42.1 million, or $0.40 per share, compared to a net loss of $34.9 million, or $0.33 per share, in the corresponding period in 2017. When comparing the prior year period, recall that in the first quarter of 2017 there was an $8.7 million income tax benefit due to Lexicon valuation allowance for its deferred tax assets, as a result of the reclassification of intangible assets relating to XERMELO from indefinite-lived to finite-lived assets. For the first quarter of 2018 and 2017, net loss included non-cash, stock-based compensation expense of $3.1 million and $2.2 million, respectively. We ended…

Thank you. [Operator Instructions] We will pause for just a moment to compile the Q&A roster. And your first question is from the line of Yigal Nochomovitz.

Thanks for taking the question. Lonnel, could you just help us understand a little bit better on the comment around the free drug. I think you said, about 20% of XERMELO dispensing was free drug this quarter. And then, you mentioned that it was going to level out. Do you mean that it's going to be level out at 20% on a go-forward basis or is that a leveling out just on an absolute volume basis for this quarter? Thanks.

Great question, Yigal. Now, we actually expect for it to grow a little bit more to be frank with you. I would probably say if I had to give you an indication, I will say that looking at our Medicare book of business, because that's where most of these patients come from. And when we do our projections based on what we're now seeing, this will level out in the mid-20% range. So I expect that leveling out to take place in the second quarter. And then from there, I think that's the number that we'll probably use going forward.

Okay, got it. And then with regards to the reiterated guidance of doubling the 2017 revenue, just a quick calculation suggests you need about 20% quarter on quarter growth from the $5.4 million this quarter to get there. So if you can just help us understand a little bit more - with a little bit more granularity what the ingredients are to support that 20% month on month growth - I mean, quarter on quarter growth? Thank you.

Yeah, great question. Two things, one of the things we shared with you is that we're very pleased that the discontinuation rate that we had talked about before, that is leveling off. And we think that means we'll be able to retain more of our patients than we have historically. The second piece is the efforts we're now making with the nurse educators. We have also seen the abandonment rate decline as well. So that should allow more flow-through of our prescriptions. And then thirdly, the realignment of our field force on the account based selling that we're approaching should drive greater enrollment. Those three things will be critical to that growth, along with the opportunity for - in our candidates, along with the opportunity for price appreciation.

Okay. And with respect to the comment on, I think you said half are on therapy after one year, is that - was that your expectation sort of going in with the profile of this product or is that something you're also trying to change?

Yeah, we will love to improve that. It was somewhat of our expectation, because that's what we saw in the clinical trial. Actually, it's very rare to see that that the drug is behaving very much like what we saw in the clinical trials in terms of our one year data, that's about the same percent. And what's even nicer is that when you get beyond this three months, when patients stay on the drug, you see the compliance rate is really wonderful and the - you don't see discontinuation. So once we get past getting people started and understanding how to use the drug, all the metrics thereafter are pretty darn good.

All right, got it. And then, switching over to the type 1 diabetes, you mentioned you're doing a lot of prep work with respect to the AdCom panel. I assume you don't have a date yet, because it hasn't - that finally hasn't been accepted, but just if you can just tell us when you expect the AdCom. And then more importantly, with regard to the issues that are likely to come up there obviously one which I think you've outlined in the past is the question of the dose 200 versus 400, which I understand maybe a review issue. What are the other key review issues or themes that you're making sure to address or have very good answers to in respect to the preparation for that panel? Thanks.

Yeah, thank you, you got a great question. I think you nailed it. One is that we certainly have to make the case for our dose. I think we're in a very good position to make that case. The second one is to make sure that we're in a great position to be able to show how we manage the DKA risk in our clinical program. And that management can translate into the community once the drug is approved. I think those are the two most important things that we will be preparing for. And I think the third piece, and I'll let Dr. Lapuerta speak to that is, we saw some really wondering data around our hypoglycemia data that we think we want to - we want to work very hard to make sure that becomes part of our package. You want to speak to that Dr. Lapuerta?

Yeah, in The New England Journal of Medicine article for inTandem3, we published the statistical significance of the reduction in hypoglycemic episodes, less than 55 milligrams per deciliter. And the decrease with sotagliflozin compared to placebo was highly statistically significant with the P value less than 0.001. And I think that's unusual, especially when you're improving A1C at the same time to actually reduce severe hypoglycemia. I'm sorry, that was overall hypoglycemia less than 55. So I think the FDA may have some questions about that finding, looking at inTandem1 and inTandem2 as well. And then the most important manifestation, severe hypoglycemia, we presented those data in our press releases, and at 52 weeks they're very favorable for sotagliflozin 400 milligrams. And so, that is a fair area for discussion.

Yeah, I agree. And the reason it's a fair area for discussion is because the way we designed our studies, we did not exclude people who would traditionally have risk for severe hypo, they were in the trial. And therefore, we have the opportunity to express that both the efficacy that could be expected as well as how do they turnout well to the safety data. So this is going to be a critical point and an important point that we need to make a very strong argument for during the review period.

All right, thanks very much.

You bet.

Your next question is from the line of Jessica Fye.

Hi, this is Sica [ph] on for Jessica. Thanks for taking our questions. You talked about an ambitious peak sales for XERMELO including the line extension possibilities in the past. Could you provide an update on what you think peak U.S. sales could be in the current indication? Thank you.

Yeah, we haven't - what our guidance has been is around peak sales for XERMELO in terms of its current indication in the area of NETs. And so the way we get there is both its current indication and the work that we're doing now for neuroendocrine tumors. We remain very confident we can get to the peak sales. Where the real upside opportunity for us beyond NETs, including carcinoid syndrome diarrhea, is really going to be in how well we are able to conduct our program for biliary tract cancers, because that is new. And if we're able to be successful there, then I think we have some upside to what our peak guidance has been.

Thank you.

You bet.

Your next question is from the line of Chris Shibutani.

Yes, good morning. Thank you for additional granularity on the XERMELO launch. You talked about patient restarts. Can you tell us what is driving the restarts? Is it the clinician nurse sales folks who are helping patients reset expectation? Is it restarts based upon some sort of financial support background, what are the dynamics there?

Chris, great question. I mean, this was - to be frank this is the most exciting piece of data we started capturing. It's something I said, I don't know maybe three quarters ago. We believe that possibly some of the discontinuation we saw, they will come back, because there are very few alternatives for these patients. And we're now starting to see that. I mean you're a year out, and these patients are now starting to come back. And so, I think that's exciting news for us. I think the dynamics has happened, because the way we are now deploying the resources, both with the nurse - the clinical nurse educators as well as some of the medical work that we're doing around medical fairs and the publications. Physicians are getting more comfortable with the position we've taken, and advocacy work that we certainly do, patients starting to understand more about what's the best expectation and right expectation for this drug. And as a result, we are definitely seeing a very good trend in the area of patients coming back to XERMELO.

Over in the Europe, we are familiar with how reimbursement is a lengthy process. And in particular, they're often sort of cost - health economics, risk/benefit type organizations in Germany, IQWiG for instance. Is there any insight into those types of processes and timelines for when we might learn what's going on over there? I realize you are not driving it, but just trying to understand how that progress is occurring?

Yeah. I'll just say this, because we certainly got up to Ipsen to talk about Europe with specificity. But I'm very proud of Ipsen. They've done a remarkable job in Germany, particularly in Germany. And they're doing a very nice job of making a case. But in Europe, in a lot of these agencies you can do subset analysis. Here in U.S. with the FDA, that's not allowed, but you can run a lot of subset analysis that allow us to make the case for XERMELO, particularly in unique patient populations. And I think that Ipsen's done a very good job of doing that with some of your health technology assessment groups. So we have a very high expectation that they're going to do well in Germany, UK, as - I think the only market they're working hard onto make inroads is in France, but everybody works hard to make inroads in France. But nonetheless, I think they're doing a pretty good job.

And quickly on sota, just to make sure, additional data that we have not seen perhaps yet in the type 1 setting, is there anything between now and, say, the AdCom that we should be aware of, that may be disclosed, whether it'd be at the ADA in June or in other formats?

Great question. We do - we will have a presence at ADA, so I'll let Dr. Lapuerta speak to that.

I think that one of the main things at ADA is it's an opportunity for us to discuss 52-week data in more depth and inTandem1 and inTandem2. And with that, you'll see an opportunity for us to go into a lot of the more specifics on DKA, which is limited, and we're pleased with that. And on severe hypoglycemia data, which have been encouraging.

So this is more incremental information that has not previously been presented?

Yes.

Great. Thank you.

Yeah, Chris, we - a lot of the 52-week data, we're going to - ADA is of 24 to more specific around that 52-week data, which I think is going to be very nice to do at ADA.

Great. We look forward to that. Thank you.

Okay.

Your next question is from the line of Stephen Willey.

Yeah, good morning. Thanks for taking the questions. I guess, just a couple on XERMELO and maybe one for Jeff. You took a price hike, I think January 31, just wondering what contribution of that occurred within 1Q specifically, should we expect any additional pull through perhaps into 2Q?

Yeah, we did take it in January as you said, and it is a contributing factor. But I can't say too much more beyond that. But I will say that we keep a very close eye on how the market sets. And then, we reset based on how the market sets. And I think as others in the market take actions, we'd watch that very carefully and closely and make what decisions we have to make in terms of the relative value of XERMELO, and follow suit thereafter.

Got it. And then just in the context of patients, I guess, your inadequate responders or perhaps aren't achieving the desired level of symptomatic control after initiating therapy. Are you seeing many patients being dose-escalated to the higher dose that was evaluated in the Phase 3 trial?

You mean up to the 500 milligram dose?

Correct.

Yeah, I'll speak to it anecdotally, and then turn it over to Dr. Lapuerta. Anecdotally, there are some cases of that, yes. But I don't believe it's of any substantial nature at this point. But what I will know is, as we start developing our clinical programs for biliary tract cancer as well as for NETs, then the dose that more than like that we will pursue will be the 500 milligram dose. We know that dose is a very important and highly efficacies dose. But for the cancer tumor setting, it may be the most appropriate way to approach it. So the 500 milligram dose will get a lot more attention going forward.

Got it. And then maybe just for Jeff with respect to the revised OpEx guidance. Does this reflects just a greater emphasis on peripheral cost reductions or are there certain activities and efforts, which are either being rationalized or pushed into 2019? Thanks.

It's mostly related to efforts that we made to, but prioritize what we spend our money on and to be sure that we are being efficient with the use of the funding. So it reflects attention on good use of our resources. But it doesn't really affect any of the things that we've been talking about in terms of our plans for our program. So it reflects continued investment in 2761, 9211, XERMELO lifecycle management. It doesn't affect any of those priorities.

Steve, I think one of the things that I'm very cautious about is we have so much good size [ph] inside this company. We just have to be very strongly focused on what we advance and when we advance it. And so to Jeff's point, we are trying to keep our eyes on the near-term things that we've laid out. But I'd tell you it's a challenge, because there is a lot of other things we will like to do. But at this moment, it's really about focus. And the more we focus then the efficiencies that Jeff just laid it out allow us to make sure that we're using our resources on the near-term priorities.

Understood, thanks for taking the questions.

[Operator Instructions] And there are no further questions. I will now turn the call over to Mr. Coats for closing remarks.

Well, thank you everyone. I appreciate you joining us this morning. I'll just close by saying I believe we have a very well-defined strategy to position the company for future growth, and to build long-term sustainable value for shareholders. Our main priorities remain centered around driving the long-term value through continued execution on the XERMELO launch; advancing the clinical development of XERMELO, as we are now really excited about the additional indications we can get in oncology for this compound; and obtaining regulatory approval for sotagliflozin in type 1 diabetes as well as working with our collaborator Sanofi; and ensuring we have the supportive evidence that truly differentiates sotagliflozin in type 2 diabetes. We're also doing a lot of work to advance our early stage pipeline with LX9211 and LX2761, which we think are very, very important programs. With that being said, we'd always be very, very precise on how we manage our resources to achieve value. And that is our assurance as we go forward quarter to quarter. With that, I'll stop there. And thank everybody again for attending this session.

Thank you for your participation. This concludes today's conference call. You may now disconnect.