Kim Lee – Head-Investor Relations and Corporate Strategy Lonnel Coats – President and Chief Executive Officer Alex Santini – Executive Vice President and Chief Commercial Officer Pablo Lapuerta – Executive Vice President and Chief Medical Officer Jeff Wade – Executive Vice President, Corporate and Administrative Affairs and Chief Financial Officer.

Yigal Nochomovitz – Citigroup Alan Carr – Needham Chris Shibutani – Cowen Jessica Fye – JP Morgan Stephen Willey – Stifel.

Presentation:.

Good evening. My name is Jason and I will be your conference operator today. At this time, I would like to welcome everyone to the Lexicon Pharmaceuticals First Quarter 2017 Financial Results Conference 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 our host Ms. Kim Lee, Executive Director, Investment Relations and Strategy. Ma’am, you may begin your conference..

Thank you, operator, and good morning, and welcome to the Lexicon Pharmaceuticals first quarter 2017 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.

Earlier today Lexicon issued a press release announcing our financial results for the first quarter 2017, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast of the call along with a slide presentation will be accessible in the Investor Relations section of our website.

During the 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. 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 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 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 like to turn the call over to our President and CEO, Lonnel Coats..

Thank you, Kim, and let me also take the opportunity and welcome Kim to Lexicon. She's a wonderful addition to our team. This is a very exciting time for those who have worked so hard and so long in the areas of discovery and development seeing the Lexicon now has its first approved commercial product in XERMELO.

The first and only oral treatment approved for carcinoid syndrome diarrhea in conjunction with somatostatin analog or SSA therapy in adults inadequately controlled by SSA therapy alone.

I've been very pleased with the progress of the launch and we’ll go so far SSA that it is indeed one of the best launches I've had the opportunity to be part of thus far. Just to give you some metrics. XERMELO was approved on February 28th in all XERMELO related websites launch within 30 minutes of the approval.

The drug was available the same day it was approved. In fact we received our first prescription within 24 hours of approval. The sales force was deployed, trained on the label and certified in the market and deployed within 72 hours and the drug was commercially available in especially pharmacies within 72 hours.

So this is truly a best-in-class readiness for market. We are one of the only companies that has put product in the channel in only a few hours and filled scripts in such a short amount of time.

Alex Santini, our Chief Commercial Officer, will provide you with some telling launch metrics shortly, but what I would say is the uptake and demand for XERMELO has exceeded our expectations.

We continue to receive early positive feedback from patients and physicians and are saying early adopters at leading institutions at even low decile physicians are ordering XERMELO at a pretty good clip. We believe these leading indicators are reasonably reflective of the speed and depth of XERMELO adoption.

We've previously disclosed that we believe payers will put XERMELO through their normal review processes and I can report that that indeed has been the case so far and we have received positive responses from payers. All this and we achieved net XERMELO sales of – over $700,000 after only 4-weeks in the marketplace.

That said we are early into this launch as we estimate peak sales for XERMELO at approximately $350 million. The remaining opportunity is significant and we will continue to drive forward, so there should be no let up.

One of our goals at Lexicon is to become a fully-integrated commercial stage company with a robust pipeline targeting areas of unmet medical need.

I'm extremely proud of our talented team and what we have been able to accomplish through a deeply rooted drug discovery program with a technology platform that has now been validated by XERMELO coming out from this platform and achieving commercial status.

We have demonstrated the power of this discovery program and XERMELO is just at the tip of the iceberg. We have created the pipeline of drug candidates beyond XERMELO with blockbuster potential targeting meaningful market opportunities. Sotagliflozin is a prime example of this.

As many of you know sotagliflozin was discovered within and developed by Lexicon and not only is it being studied in the largest and most comprehensive Phase III program ever for anti-diabetic agent and type 1 diabetes, but it is also studied by Sanofi in another significantly larger Phase III program and type 2 diabetes.

You will hear more about these programs from Dr. Pablo Lapuerta, our Chief Medical Officer, shortly. Now on Slide 4, you can see that 2017 is potentially a transformative year for sotagliflozin program with key efficacy data from secondary endpoints coming out this month from the U.S.

inTandem1 study and in the third quarter for European and Israeli inTandem2 study. These results should give us a good indication of the effects of the drug on body weight and blood pressure and hypertensive type 1 patients and will also include pooled results from both studies on time and range as measured by continuous glucose monitoring.

Last but not least inTandem3, we’ll readout by mid-year and we are optimistic that it will provide differentiating data on the effectiveness of sotagliflozin on lowering A1c to below 7% with no severe hypoglycemic effects or diabetic ketoacidosis. We have already seen early indications of efficacy from a 24-week dataset from inTandem1 and inTandem2.

Each of these studies demonstrated that sotagliflozin has statistically – significantly reduced A1c from baseline versus placebo at both 200 milligram and 400 milligram doses. So we remain confident in the studies outcome.

We have also introduced now into the clinic LX2761, which target SGLT1 and is now in Phase I development with data expected later this year. Our other compound on active development is LX9211. It is a novel pre-clinical compound for neuropathic pain that we expect will enter the clinic this year.

So we're building beyond XERMELO, our first commercially launched product with a fantastic pipeline coming out organically from Lexicon’s own labs. Now with that being said, I am going to turn the call over to Alex Santini to discuss our commercial business.

Alex?.

Thanks, Lonnel, and good evening everyone. I'm very excited to provide you with an update on the XERMELO launch. As Lonnel just mentioned, we achieved net XERMELO sales of $700,000 in the first quarter of launch, which really consisted of 21 selling days given the timing of the launch.

I am thrilled with the commercial team's efforts that have supported the increased education and awareness of carcinoid syndrome with patients, their caregivers, physicians and payers.

Now our strategic imperatives for XERMELO include continuing to drive awareness of the disease and its burden impact driving rapid adoption, amplifying the patient voice and ensuring that patients and healthcare providers can gain access through XERMELO.

Our team has built a solid plan towards our key customers and has executed extremely well against this objectives. As seen on Slide 6, our field force has reached more than 3,000 health care providers and of those providers nearly 270 are top-tier prescribers of which 90% have been detailed.

What's impressive is that approximately one third of all enrollments are being generated by the top prescribers. In addition, 19 of the top 20 high volume centers that prescribe SSA therapy have written in XERMELO scripts.

Lastly, we are effectively activating physicians and nurses in the lower deciles and they are also prescribing XERMELO at a high rate. We are capturing scripts from a multitude of institutions around the country. On the reimbursement side, we have a very positive formulary position.

Thirteen major payers have already been reimbursing for XERMELO even though a decision may not have been rendered yet. That being said, I am excited to announce that our first national formulary decision has been made by Express Scripts.

We now also have coverage from CVS, Caremark, OptumRx, Humana, Aetna and UnitedHealthcare where patient claims are being adjudicated and paid for. We expect this kind of success to continue in the future as we should receive decisions from all payers within the first six months of launch.

As far our payer mix, we have an accurate Medicare and commercial mix, which appears to align very well without pre-launch assumptions. To ensure access through XERMELO, we had launched the LexCares program, which is a patient centric platform that helps to appropriately remove any adherence hurdles that might be present.

Importantly, we want to ensure as Lonnel have mentioned a best-in-class patient experience.

Slide 7 depicts how LexCares seamlessly integrate these processes for accessing dispensing of XERMELO, coordinating insurance benefits and financial assistance options, assisting healthcare providers with process support and providing ongoing nursing support for our patients.

To date 100% of physicians and patients are using our system and they might say that it’s been extremely effective and we are seeing the positive results. We are getting early starts in large part because we have provided patients with the LexCares suite of tools that help appropriately remove barriers to access.

So we have characterized the current state of the XERMELO launch and the reimbursement and access situation, but let's not forget about our patients and their caregivers and the physicians. We continue to receive early positive feedback from all these stakeholders.

When we hear amazing success stories from patients and their health care providers that's truly what it's all about. That is why we are here. So what's next? We will continue to keep our finger on the pulse of the market.

We are understanding the effectiveness of our field force and we are capturing additional insights like the fact that health care providers, payers and patients are expressing excitement for XERMELO and these stakeholders seeing all drug as positive and that drug is viewed as a good option in patients with comorbidities like renal impairment as an example.

Turning to my last slide, Slide 8. You can see that carcinoid syndrome is a substantial market opportunity and patients are inadequately controlled by SSA therapy. While we are off to a great start, we have a lot more work to do. We look forward to updating you on our continued progress. I will now turn the call over to Dr.

Lapuerta, who will provide a pipeline update.

Pablo?.

Thank you, Alex. Today, I'm going to focus on our sotagliflozin program, which Lonnel mentioned is being studied in the largest and most comprehensive Phase III program ever for an oral agent in type 1 diabetes to fully understand why we believe sotagliflozin could be a best-in-class therapy for type 1 and type 2 diabetes.

It's important to understand unmet need. On Slide 10 you can see that about 75% of patients living with type 1 diabetes in the U.S. are not achieving the ADA target for A1C of 7%. Now half of them have A1C over 8%. These statistics reveal the challenges in managing glucose levels with insulin alone.

Patients make tradeoffs between effectively managing their blood glucose while trying to avoid complications like severe hypoglycemia, diabetic ketoacidosis, or DKA, and weight gain.

We believe that sotagliflozin’s effect could be far reaching by controlling blood glucose without these complications, but the proof will be in the putting and we expect to get those answers from our Phase III studies inTandem1, 2 and 3 relatively soon. Moving to Slide 11.

We are running two pivotal trials in inTandem1 and inTandem2, which are identical studies in terms of the primary endpoint looking at changing A1C on a background of optimized insulin. Most studies have already achieved their primary endpoint.

Demonstrating the drop in A1C was statistically significant for both 200 milligrams and 400 milligrams at 24 weeks. Sotagliflozin treated patients continued to show reductions in A1C and those reductions came on top of optimized insulin, which is a very important distinction.

On Slide 12, the 0.35% and 0.41% placebo subtracted improvement in A1C is an effect that cannot be obtained by insulin alone. That's a very high bar to overcome. But we are expecting later this month from inTandem1, these additional efficacy data around body weight and blood pressure in patients with type 1 diabetes and hypertension.

Later, we will have the same data from inTandem2 together with full continuous glucose monitoring data from both studies. Turning to Slide 13, what gives us confidence in sotagliflozin’s ability to lower blood pressure is the fact that we have conducted several studies already with encouraging data.

These data are from the dose ranging study in type 2 diabetes. But dose ranging studies in both type 1 and type 2 diabetes have shown that among patients with a baseline systolic blood pressure greater than 130, the blood pressure reduction seen with 400 milligrams of sotagliflozin or approximately 14 millimeters of mercury placebo-subtracted.

That is quite remarkable. So the inTandem1 data expected in May will provide important information on how differentiated sotagliflozin is. We are confident in this program and we expect to file for U.S. and EU approval in the first quarter of 2018. Moving to Slide 14.

For type one diabetes, inTandem3 will readout by mid-year and we are optimistic that it will provide differentiating data on the effectiveness of sotagliflozin on the proportionate patients who achieved A1C target below 7% with no server hypoglycemic episodes and no episodes of diabetic ketoacidosis or DKA. We view this as an important measure.

It integrates A1C control with the consequences of having either too much insulin or too little insulin. Importantly, we saw benefits in this end point in inTandem1 and 2 as well. So we remain confident about demonstrating these results and inTandem3.

One key thing to note about inTandem3 is that while we expect improvements in insulin use for all patients in the study including non-placebo, the study has a two week placebo running rather than the intensive six week optimization effort prior to randomization that was part of the design of inTandem1 and inTandem2.

In addition in inTandem3 all types of insulin were allowed. The bottom line is we will help to find this drug in the type 1 patient population by demonstrating efficacy and reducing blood glucose and A1C and the absence of severe hypoglycaemia and DKA, the risks that patient says all the time.

To achieve this with an oral agent would be an important advancement for the type 1 community, so look for that data mid year. Now, I would like to turn the call over to Jeff, who will provide financial guidelines..

Thank you, Pablo. I'm pleased to provide you with a brief financial update, more financial details can be found in our 10-Q, which will be filed in a few days. Now please refer to you Slide 17 in our presentation.

As indicated in our press release today, first quarter of 2017 revenues totaled $18.3 million, which represented a 46% increase from $12.5 million in the prior year period.

This increase was primarily due to recognition of revenues received under our collaboration and license agreement with Sanofi, which reflects revenues associated with the performance of our obligations related to type 1 diabetes development activities and in 2017 shared funding of type 2 diabetes development.

Revenue for the three months ended March 31, 2017 included approximately $700,000 of net revenues recognized from XERMELO sales in March. As Lonnel and Alex mentioned, we filled the first XERMELO script on March 3rd, so we experienced 21 selling days.

As we started recognizing revenues from XERMELO, we had cost of sales of $0.2 million for the first quarter of 2017, which included finite-lived intangible asset amortization. We began capitalizing inventory during the first quarter as we expected to recover related costs through the commercialization of the product.

The pre-commercialization inventory of XERMELO is expected to be sold over approximately the next two years. As a result, cost of sales of XERMELO for the next few years will reflect the lower average per unit cost of materials than would otherwise be expected.

During the three months ended March 31, 2017, intangible assets relating to XERMELO of $24.7 million were reclassified from indefinite-lived to finite-lived assets following FDA approval and we started to amortizing this asset using the straight line method over its estimated useful life.

So in addition to the cost of materials, cost of sales for the three months ended March 31, 2017 included about $100,000 of amortization of this intangible asset.

Research and development expenses for the first quarter of 2017 totaled $43.60 million, up 18% from $37 million in the prior year period primarily due to increases in external clinical development cost related to sotagliflozin.

In connection with our acquisition of Symphony Icon, we made an initial estimate of the fair value of our liability for the associated 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.

For the three months ended March 31, 2017 and 2016, the fair value of Symphony Icon purchase liability increased by $2.1 million and $1 million respectively. During the first quarter of 2017, we made the final payment in cash and common stock related to the Symphony Icon purchase liability.

Selling, general and administrative expenses for the first quarter of 2017 were $14.9 million, which represented a 77% increase from $8.4 million in the prior year period due primarily to increased costs associated with the commercial launch of XERMELO. Income tax benefit for the three months ended March 31, 2017 was $8.7 million.

Our valuation allowance of our deferred tax assets decreased by $8.7 million due to the reclassification of intangible assets relating to XERMELO from indefinite-lived to finite-lived assets. This resulted in the related deferred tax liability now being considered a source of taxable income.

We recorded an $8.7 million deferred tax benefit with a corresponding reduction in our deferred tax liability in the first quarter of 2017 as a result of this reclassification. Net loss for the first quarter of 2017 was $34.9 million or $0.33 per share compared to a net loss of $34.9 million or $0.34 per share in the prior year period.

For the three months ended March 31, 2017 and 2016, our net loss included non-cash stock based compensation expense of $2.2 million and $1.8 million respectively. As of March 31, 2017, we had $259.7 million in cash and investments compared to $346.5 million as of December 31, 2016.

Cash used included a final $10.5 million cash payment to Symphony Icon and significant funding for the sotagliflozin Phase III program and type 1 diabetes, which we expect will decrease as the year progresses.

Most notably we foresee that our current cash position together with expected revenues will be sufficient to fund operations at least through 2018. On our previous earnings call, we provided 2017 financial guidance. Today, we are reiterating that guidance on all line items.

We continue to expect contractual revenues from existing collaboration and license agreements in 2017 to be in the range of $65 million to $75 million. And due to the early nature of our XERMELO launch, our revenue guidance excludes revenues from sales of XERMELO.

That said we expect XERMELO’s sales to ramp up over the course of the year and as you would probably expect given the timing of the launch sales will be weighted towards the second half of the year. Turning to our operating expenses, we continue to expect that they will be in the range of $230 million to $260 million.

Non-cash expenses are expected to be approximately $12 million of which $8 million is stock-based compensation, $2 million is the increase in fair value of Symphony Icon purchase liability recorded in the first quarter and $2 million is depreciation and amortization.

We are reiterating our guidance for R&D expenses of $160 million to $180 million and SG&A expenses of $70 million to $80 million. Lastly, we continue to expect our 2017 net cash used in operations to be in the range of $210 million to $225 million. I will now turn the call back to Lonnel..

Thank you, Jeff. 2017 has the potential to be a game changer and changing the year for Lexicon with several defining moments.

We will continue to execute on our launch plan for XERMELO driving uptake momentum, optimizing and maximizing field activities, increasing awareness of the disease and the drugs differentiated profile and continuing the strong relationships we have with all of our stakeholders, patients, physicians, key advocacy groups and payers.

Another key priority that we believe will drive our long-term value is advancement of our pipeline.

As you can see on Slide 18, we have multiple near-term clinical readouts for sotagliflozin starting from May through third quarter of this year along with advancement of our earlier stage drug candidates later this year and as always, we will keep you apprised on the progress throughout the year.

At this time, I will stop here and ask the operator to begin the Q&A session..

[Operator Instructions] And your first question comes from Yigal Nochomovitz from Citigroup..

Yigal Nochomovitz:.

Lonnel Coats:.

Jeff Wade:.

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Yigal Nochomovitz:.

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Alex Santini:.

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Pablo Lapuerta:.

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Pablo Lapuerta:.

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And your next question comes from Alan Carr from Needham..

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Your next question comes from Chris Shibutani from Cowen..

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Thank you. Your next question comes from Liana Moussatos if Wedbush Securities..

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[Operator Instructions] And your next question comes from Jessica Fye of JP Morgan..

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[Operator Instructions] And your next question comes from Stephen Willey of Stifel..

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Lonnel Coats:.

Well with that I’ll just close it up by saying that I’m very proud of our team, pleased with our readiness and execution. Just totally excited to provide a much needed new first-in-line, first class, I should say first class therapy for carcinoid syndrome diarrhea patients.

We look forward to keeping you informed as we have make progress and have new developments. In the mean time we will be participating in the Bank of America Merrill Lynch Health Care Conference in Las Vegas, May 18. Hope to see many of you there. And we’ll engage more at that time. With that I’ll say thank you and have a good evening..

Ladies and gentlemen this does conclude today’s conference call. You may now disconnect..