Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Pharmaceuticals Inc. Second Quarter 2021 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Mr. Chas Schultz. Please go ahead, sir.

Thank you, Lisa. Good morning, and welcome to the Lexicon Pharmaceuticals Second Quarter 2021 Financial Results Conference Call. Joining me today are Lonnel Coats, Lexicon's President and Chief Executive Officer; and Jeff Wade, Lexicon's Executive Vice President of Corporate and Administrative Affairs and Chief Financial Officer. Earlier today, Lexicon issued a press release announcing our financial results for the second quarter of 2021, 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 is available on 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, efficacy and the therapeutic and commercial potential of LX9211, sotagliflozin and other drug candidates. These statements may include characterizations of the expected timing and results of clinical trials of LX9211, sotagliflozin and other drug candidates; and the regulatory status and market opportunity for those programs. This call may also contain forward-looking statements relating to our 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 our actual results to differ materially from those expressed or implied in such forward-looking statements. These risks include uncertainties related to the timing and outcome of our planned NDA filing for sotagliflozin in heart failure and our discussions with the FDA regarding sotagliflozin relating to heart failure and type 1 diabetes. The timing and results of clinical trials and preclinical studies of LX9211, sotagliflozin and 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 and development activities. For a list and a description of the risks and uncertainties that we face, please see the reports we have filed with the Securities and Exchange Commission. I would now like to turn the call over to Lonnel Coats.

Thank you, Chas. Good morning, everyone, and thank you for joining us on the call. As we noted in our press release this morning, we remain on track to submit our new drug application for sotagliflozin in heart failure late this year. With rising confidence in our opportunity to deliver unique value in an area of high unmet need. Our confidence is supported by the data from our SOLOIST study in patients who had recently been hospitalized for worsening heart failure and results from both our SOLOIST and SCORED studies that demonstrated a reduced risk of cardiovascular death, hospitalization for heart failure and urgent visits for heart failure that was consistent across the full spectrum of left ventricular ejection fraction. The results of these studies address the areas of greatest unmet needed heart failure. Better treatment options for patients hospitalized for worsening heart failure and effective treatment options for the large population of patients with normal or preserved left ventricular ejection fraction for whom there are essentially no approved therapies. A series of recent developments since our last quarterly call have further reinforced our confidence in the value of sotagliflozin and validated important areas of differentiation in ways that we believe will translate into benefits for millions of people with heart failure and type 2 diabetes. Importantly as well, we have completed the work we have described on previous calls to more fully evaluate the intended market for sotagliflozin. It has become clear that this is a market with a concentrated prescriber base 1 that we believe can be efficiently addressed with a focused and modestly sized sales force. Slide 4. Let's get into some of the metrics of the market opportunity. Now there are nearly 1 million hospitalizations per year in the United States for heart failure. Heart failure…

Thank you, Lonnel. To begin, I will discuss key aspects of our second quarter financials. More financial details can be found in the press release that we issued earlier today and in our upcoming 10-Q SEC filing. As indicated in our press release, we had revenue of $0.2 million in the second quarter. The reduction from $9.2 million for the corresponding period in 2020 was primarily due to the absence of product revenues in the 2021 second quarter as a result of our sale of telotristat ethyl during the third quarter of 2020. Research and development expenses for the second quarter decreased to $10.3 million from $57.3 million for the corresponding period in 2020. This was primarily due to decreases in external clinical development costs related to sotagliflozin resulting from the completion of clinical studies. Selling, general and administrative expenses for the second quarter decreased to $7.9 million from $14.1 million for the same period in 2020, primarily due to lower salaries and benefit costs as a result of reductions in personnel in September 2020 and lower marketing expenses. In total, we had a net loss for the second quarter of $18.1 million or $0.13 per share as compared to a net loss of $69.1 million or $0.65 per share in the corresponding period of 2020. Our net loss for the second quarter of 2021 and 2020 included noncash stock-based compensation expense of $2.8 million and $4.3 million, respectively. We ended the second quarter of 2021 with $118.5 million in cash and short-term investments as compared to $152.3 million as of December 31, 2020. Financial guidance for 2021 has not changed from the guidance given on our first quarter 2021 financial results conference call. We continue to expect our 2021 operating expenses to be in the range of $85 million to $100 million, which is a sizable decrease from the $204.4 million in operating expenses we had in 2020. We expect noncash expenses to be approximately $11 million of our total operating expenses. Research and development expenses are expected to continue to be in the range of $60 million to $70 million. This estimate includes the expected spend for our ongoing 2 Phase II clinical studies of LX9211, the remaining closeout of our sotagliflozin studies and the expected cost to submit a new drug application for sotagliflozin in heart failure. It also includes investment in medical affairs activities and in preclinical and discovery stage programs. We also continue to expect G&A expenses, including pre-commercial launch activities for sotagliflozin in heart failure to be in the range of $25 million to $30 million. I will now turn the call back to Lonnel.

Thank you, Jeff. I want to thank everyone for joining us this morning. We will open the line up now for any questions.

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

So now that EMPA-REG preserve has read out, it obviously becomes harder for you to make the argument that sota is the only SGLT2 that has demonstrated positive data on the composite of CV death, HHF and urgent heart failure visits in HFpEF based on the pooled analysis of SOLOIST and SCORE. So with that being said, can you help us understand where you see SOLOIST differentiation in the heart failure space in light of this recent EMPA-REG preserve data?

So at this point, we don't actually know what the EMPA-REG preserve data are other than they met the endpoint. So we're looking forward to seeing those data on August 27 at the AACE. We will also be presenting some data at ESC and look forward to giving you the opportunity to review some additional data from Lexicon. We do continue to believe that sotagliflozin will be differentiated -- and I think that the opportunity is both in worsening heart failure as we discussed, and in heart failure with preserved ejection fraction. But as we also mentioned, I think it's important to realize that the portion of patient population with heart failure with preserved ejection fraction has been very underserved. And one of the opportunities here is that if there are competitors, this is likely to be a more rapidly growing market than if not. And we think that we're going to have some unique advantages based on our differentiated mechanism and that's going to be something that provides us with long-term value across both worsening heart failure, where we have really unique data and in the HFpEF space where there is such a tremendous unmet need.

Got it. And...

Yigal, I would just add that I think everyone should wait before they make judgment about where everybody is going to land in this area. So what we know today, for sure, to Jeff's point, there would have been an assumption that the current market leader would have won in worsening heart failure and they didn't. And we are very clearly positioned in worsening heart failure today, regardless of what's going to happen with others because others did not conduct the same type of trial design. So as we seek the indication, I think that will have a uniqueness. The second one is, to Jeff's point, the preserved population is growing at a fairly nice rate, there are no therapies. And if there are going to be competition, then I think it will be good because it will help grow the market much faster and increase our opportunity to participate relative to our uniqueness. I also would just lastly say is that we look forward to seeing what the data is going to look like from others. But today, there is no 1 else who was presented the same data that we have presented to date. So we'll have to wait and see what others say later.

Okay. Makes sense. And so it sounds based on your comments that you've done more work on the heart failure space and how you think you could potentially launch independently. Could you just give us a sense as to what size of the sales force you might envision for launching in the United States?

Yes, it's a great question. I said this before when we got started in the beginning of the year, initially, we were going to wait and see how partnerships went before we decided to advance to the NDA, and we did some preliminary work on reliance that probably wasn't smart. We need to advance the NDA ourselves. So we started advancing the NDA fairly quickly, which we're glad we did, particularly since we've had the pre-NDA feedback. The second thing is we started to do more work coming into the second quarter and analyzing the market ourselves, particularly as we saw some of the weakness that was coming out in data from others where we thought we had a strength. And so we took that to market, and we challenged ourselves to get a better understanding from KOLs from payers, from folks in the pricing marketplace. And I have to tell you when we got the results back on where we place ourselves and we could play sotagliflozin in the market, regardless of what others are going to call out in the future, it was quite remarkable. And I also believe the reason it was remarkable is because you have a significantly unmet need in the marketplace that is not addressed by current therapies and is growing at a pretty nice clip. And so as a result of that, we feel as though we can go after a concentrated base of cardiologists. This is a cardiology drug and we will go after cardiologists. I won't get into the numbers today, but I would tell you, you should be thinking in the size more of the 100 or so range at best.

Got it. And Jeff, just on the cash situation. So you have about $120 million. How far does that get you in terms of the runway? And when do you believe you can need to take steps to finance the company again in order to prepare to independently launch SOLOIST and heart failure?

So the activities that we have planned for this year fit within our previously announced guidance for this year. Obviously, we launch. It will require some more resources, and we'll address that when we need to. But for the near term, I think we're in good shape, and we'll be marshaling our resources to do what we need to do between now and the NDA filing time period.

Yes. And Yigal, I think 1 of the first things that we've done 1 of the first things were important. So we didn't just wake up and decide to do this. The hiring of Dr. Craig Granowitz was carefully planned because we believe in order to differentiate and highlight the differentiation of our product because we do expect to have competition in this market, you need folks who understand that and how best to do that scientifically. And so the first step for us in the investment is to bring him in and I think he will start to assemble his medical team to begin to do the work scientifically to start the engagement with KOLs and creating the value proposition that we'll take to payers.

Got it. And if I could just squeeze 1 last question in. Just remind us what is the reason why relief DPN is about 4x larger than relief PHN on enrollment target? Is that just because of the size of the indication? Or is there some other strategic reason why the trials are so differently sized?

Yes.There are 2 reasons. One is that this is a more heterogeneous population. The people with PHN have a little bit more consistency in their condition than with people with DPN have, it's more heterogeneous in terms of their background and the experience that they have with diabetic neuropathic pain. The other is that diabetic neuropathic pain tends to have a larger placebo effect and more variability. And as a result of that, we felt it was important to have a larger sample size because we want to give ourselves the best opportunity to be successful in the study. So those are really the 2 reasons. I guess there's 1 other is that the DPN study is a 3-arm study. So 1 placebo arm and 2 dose arms, whereas the PHN study is a 2-arm study.

Yes. What I would add to that, which adds to some degree of the time it takes to do this work is that the #1 reason drugs fail in this category and CNS, particularly in pain is small sample size. And so we've tried to avoid that. The second one is that you have to put some inclusion -- exclusionary criteria to make sure you get the right patients. When you do that, you're generally going to run into a higher screen failure rate. And so we're pleased with what we're saying because we're starting to feel that we are getting the right patients in. So it's important for us to take the time to engineer a successful trial versus a speedy trial. So the way this is designed is to give ourselves an increased chance of success in reducing the placebo effect as well as having the proper sample size to overcome it.

[Operator Instructions] Your next question comes from the line of Joseph Stringer with Needham & Company.

So you've taken some initial steps here in terms of SOLOIST for heart failure in terms of commercializing on your own. I guess I'm just curious, would there be any scenario in which you would still consider a partnership for this? And would you still be open to that is first question. Second question is around the same trial. Just curious if the -- I know that you've previously opened some more sites for some of these to help speed along the enrollment. So just curious how that's played out given COVID-related headwinds there? Is that -- would you ever consider opening additional sites or maybe give us some additional color there.

Joey, great questions. Let me first start with the partnership piece. We haven't end of discussions, and there are interested parties. What I will say is that as we did the work, our confidence just got greater and greater, we can do this ourselves. What we understand better today is what is the value of this asset. We clearly have a better understanding of that today than we ever did at any point in time, particularly since others have turned over their cards, and we see what's happening with the market leader, and the opportunity to differentiate against the market leader as well as feedback we received from KOLs on our profile as well as what we've seen from payers. So today, we have a better sense of what we could do on our own and that then says any partner who wants to discuss this with us going forward has to discuss what they can do for us greater than us doing on our own. We now have that work. And I think that's only beneficial to all our stakeholders that we have done that. One of the things I would say about partnership discussions, they tend to like to do a slow dance. Here, we breakdance. And so I believe the market and the regulatory discussions we're having are moving at an accelerated pace where we cannot be slow dancing this. And if we're going to create value, then the best way to do it is to control the rate, the speed and the strategy that creates that value. So we're not for close to a partner, but the rate and the timing in which we do that will be distinctly based on what value they bring above and beyond what we do on our own. The second 1 in terms of increasing the sites for 9211. Yes, we saw early on, and we've said this in previous calls, we started to see the effect of the COVID-19 patient on our patient enrollment. And we tried to start to mitigate that coming out of the first quarter by adding additional sites. It takes a long time to add additional sites. But what we are seeing is a much better environment since vaccinations have occurred, the environment is improving. The mitigation plans that we put in place and adding new sites is adding value, it's just not enough essentially to be able to have the top line results by the end of this year. So we felt it better to make sure we have good sites that are giving us the right patients and keep working those and nurturing those and extending the time line to ensure ourselves that we get a good sample size and a good sense of have drugs working with good sites. And so we moved the time line as a result.

At this time, there are no further questions. Are there any closing remarks?

Yes. Let me just thank everyone for joining us this morning. I'm extremely excited. We've done the work. We truly believe sotagliflozin is going to be a remarkably important product introduced in the market next year for heart failure, particularly those patients living with type 2 diabetes. We think we will be unique. We'll have to wait and see what others are going to say and do. But at the end of the day, it is a growing market that is facilitated by good science, and we can see what the SGLT2s are doing in HFrEF. And I think it's early days in terms of what you're seeing, the impact of SGLT2s in heart failure, particularly HFrEF and is remarkably early days in the area HFpEF. And I think you're going to see just an expanding market and expanding our opportunity more specifically for sotagliflozin, and we're really looking forward to getting that work started as we build on our team. The second thing is I'm just thrilled with our engagements that we've had with the FDA recently, not just in the area of heart failure, which is encouraging us to accelerate this program forward in this indication. And the recent developments that we've had in our conversations with them to sit down and have more conversations about the path forward for type 1 diabetes. So I couldn't be more excited relative to those engagements. Last but not least, very encouraged by LX9211. Our goal is to engineer a successful trial, not to speed through it, but to engineer it, so we have every chance of success. I think we're on path to do that. So I remain remarkably bullish on our near-term catalysts that we are creating here at Lexicon. With that, I would say thank you for joining us, and we look forward to the next conference call.

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