Kimberly Lee - Head, IR and Corporate Strategy Lonnel Coats - President and Chief Executive Officer Alex Santini - EVP and Chief Commercial Officer Pablo Lapuerta - Executive Vice President and Chief Medical Officer Praveen Tyle - EVP, R&D Jeff Wade - EVP, Corporate and Administrative Affairs and Chief Financial Officer.

Yigal Nochomovitz - Citigroup Stephen Willey - Stifel Jessica Fye - JPMorgan Chris Shibutani - Cowen Alan Carr - Needham Robin Boldt - UBP.

Welcome to Lexicon Pharmaceuticals Fourth Quarter and Full Year 2017 Financial Results and Business Update Conference Call. At this time all participants are in a listen-only mode. Following managements prepared remarks, we will hold a brief question-and-answer session. As a reminder, this cal is being recorded today February 22, 2018.

I would 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 fourth quarter and full year 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. After our formal remarks, we will open up the call up for Q&A.

Earlier today Lexicon issued a press release announcing our financial results for the fourth quarter and full year 2017, which is available on our website at www.lexpharma.com and through our SEC filings. A webcast after 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 other drug candidates.

These statements may include characterizations of the commercial performance to XERMELO, results of clinical trials of sotagliflozin and other drug candidates and market opportunities 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 risk include uncertainties related to the success of our commercial efforts for XERMELO, the timing and results of clinical trials and preclinical studies of sotagliflozin and 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 research, 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 good morning to everyone and thanks for joining us on the call today. 2017 marked - was marked by a number of notable milestones for Lexicon and for the patients we serve.

We took significant strides to achieve one of our goals of becoming a fully integrated commercial stage biopharmaceutical company with a robust pipeline and multiple value drivers for growth.

We have a strong operational performance across most components of our business, which includes both revenue generation and effective management of resources and spending.

In addition, we achieved numerous critical development milestones which position us to start 2018 with significant momentum as we ready for global filings, for regulatory approval for our second new chemical entity sotagliflozin in two years.

I'm excited to share these developments with you starting with a brief summary of recent key events, I’ll then turn the call over to Alex Pablo and Jeff for updates on our XERMELO business, pipeline developments and financial results.

As you may recall, our strategic initiatives and priorities for 2017 including driving growth in our XERMELO franchise, while in parallel making significant progress towards advancing sotagliflozin to market and furthering our innovative pipeline.

Our full year 2017 results were strong indicator that our constant focus on operating excellence and innovation has as well positioned to achieve our 2018 objectives and to support our long-term outlook. Starting with XERMELO.

We achieved US XERMELO net sales of $5.4 million in the fourth quarter of 2017 and $15.1 million since the launch in March of 2017. I will note that we did experience some headwinds in the fourth quarter, particularly in December when we experienced two challenges that affected XERMELO net sales.

There were fewer net - new patient starts than we had expected as we approach year end and a significant increase in patients participating in our patient’s assistance program. We have seen some improvement so far this year with achievement in January of the highest number of patient starts in the last five months.

We expect XERMELO growth to strengthen over time, as we continue to challenge and change longstanding practice and habits in treating carcinoid syndrome. And as we build the case for the XERMELO benefits for carcinoid syndrome patients.

In the latter regard we have been engaged in continuing research to demonstrate the benefits of XERMELO beyond carcinoid syndrome diarrhea per se and are preparing to launch a study focused on neuroendocrine tumors that drive carcinoid syndrome, as part of our plan lifecycle management activities.

In addition, in the fourth quarter we realigned our commercial resources to improve our effectiveness and educating physicians about XERMELO and its benefits and addressing the needs of patients. Alex will provide more detail shortly.

Finally, our collaborator Ipsen has already launched XERMELO in several European countries since EMA approval providing the first access to patients in need outside of the US with more to come.

Our other priority last year was to ready type 1 diabetes program for regulatory filings and I am pleased to announce that our collaborator Sanofi expects to file for regulatory approval in the US and in Europe this quarter. In fact, it will be in a few short weeks.

Our teams have been working around the clock and I'm extremely proud of what we've been able to accomplish.

This was the most comprehensive following package for type 1 diabetes and is the combination what is both the largest Phase III ever conducted for or anti diabetic agent in type 1 diabetes and also covers the broadest range of patients, covering 99% of dots with type 1 diabetes by A1C levels.

This following package will also include clinically meaningful Continuous Glucose Monitoring or CGM, data that was pooled from our inTandem 1 inTandem 2 that have significant implications for the management of glycemic variability in patients with type 1 diabetes.

We are excited to offer what we believe will be a first investing class oral therapy for patients with type 1 diabetes.

This is a significant multibillion dollar market and sotagliflozin should be well positioned to address the entire Type 1 diabetes market and not just part of the market, as may be the case with other SGLT inhibitors if in fact, they file and if in fact they are approved for Type 1 diabetes. Alex will speak more about this later.

In Type 2 diabetes, Sanofi has initiated 10 Phase 3 studies, including two that are enrolling an aggregate more than 1000 patients with chronic kidney disease and a cardiovascular and renal outcomes trial that is enrolling 10,500 patients.

We believe the sotagliflozin SGLT1 mechanism offers the opportunity for differentiation based on the ability to reach Type 2 diabetic patients who have either stage 3 or stage 4 chronic disease for whom SGLT 2 inhibitors provide declining efficacy or contraindicated [ph] Diabetic patients with moderate to severe chronic disease remain a significant segment that comprises between 15% and 18% and 1% to 2% respectively of the type 2 population.

Most importantly, since declining renal function is a hallmark of Type 2 diabetes, demonstrating benefit in this patient population could make sotagliflozin a preferred option for all type 2 patients. We look forward to seeing data from the most course studies - U.S.

studies, excuse me SCORE [ph] studies in 2019 with a potential filing in Europe and in the second half of 2019 followed by a US falling in early 2020.

We continue to make disciplined investments in R&D, among them exploring the potential expansion of XERMELO, XERMELO’s footprint through lifecycle management and additional indications based on preclinical and other data demonstrating the role of serotonin and tryptophan hydroxylase and neuroendocrine and other tumors.

As I mentioned previously, we are preparing to initiate a study focused on neuroendocrine tumors which we hope will demonstrate the broader benefits of XERMELO for patients with carcinoid syndrome. At the same time, we are planning a study in another type of cancer, cholangiocarcinoma, as a potential opportunity for label expansion.

You will hear more about these studies at our upcoming R&D Day on April 10th. We continue to make meaningful progress on our internal pipeline with LX2761 and SGLT1 inhibitor for diabetes and LX9211, a novel compound for neuropathic pain both of which are in Phase 1 development and we anticipate data from both these studies this year.

We ended 2017 with a strong balance sheet that was shored up by the recent non-dilutive debt financing. We believe this cash will provide us the runway to achieve positive cash flow based on the current progress of our late stage assets.

2018 will be an important year for us as we execute on our strategy to position the company for future growth and to build long-term sustainable value for our shareholders.

Our priorities remain growing our XERMELO franchise, reinforcing our leadership position in Type 1 diabetes and advancing our clinical programs and I am excited for what lies ahead this year. With that, I'll turn the call over to Alex to discuss our commercial performance.

Alex?.

Thanks, Lonnel. Good morning, everyone. Total US XERMELO net sales since launch in March 2017 were $15.1 million. We experienced a challenging fourth quarter with US XERMELO net sales of $5.4 million. As Lonnel had mentioned, we have seen a significant increase in the number of patients requiring patient assistance.

In addition, we saw a slowdown in enrollments and new patient starts during the month of December with growth returning in January. In the fourth quarter, we realigned our commercial resources by doubling the number of clinical nurse educators, while correspondingly reducing the size of our field force which maintain the overall cost of deployment.

Now we have more nurses engaging patients which we believe will help patients better understand XERMELO and stay on drug when beneficial to do so. As Lonnel mentioned, we have seen some improvements so far this year achieving in January the highest number of patients starts in five months.

We believe the realignment of our field based activities will have a positive impact on our business. The number of patients received paid prescriptions since launch increased from 685 patients in the third quarter to 835 patients in the fourth quarter. We have seen some improvement in the abandonment rate, which continues to be an area of focus.

In addition, we are hoping to see fewer discontinuations, as clinical nurse educators engage directly with patients. In 2018, we expect total US XERMELO net sales to at least double from 2017.

We will continue to activate a broader prescriber base at a higher rate and as physicians gain more experience prescribing XERMELO we anticipate continued adoption.

Our field force will continue to emphasize the drugs differentiated clinical proposition, we will amplify and activate the patient voice and ensure that patients and healthcare providers gain access to XERMELO. We continue to work on shifting key attitudes about the disease in physicians and patients minds.

And as mentioned previously, we expect this will take some time.

Our experience team has generated a very competitive share of voice, as we work to ensure that patients with carcinoid syndrome diarrhea have the opportunity to benefit from XERMELO, but there remains significant opportunity to increase demand, there remains a large number of oncologists who have yet to prescribe XERMELO and many others who are just getting started, underscoring this opportunity for future growth.

In short, we need to continue to increase the patient base, improve the abandonment rate, decrease the discontinuation rate and increase the prescriber base. We fully recognize that there is a meaningful opportunity to increase demand of XERMELO and we are motivated to bring the benefit of XERMELO to every eligible patient.

On the reimbursement front, we have achieved very good access and reimbursement for XERMELO, payers have almost universally been reimbursing for XERMELO and since launch plans that have made coverage decisions have placed XERMELO in a favorable, formulary position.

Incorporation of XERMELO into NCC and treatment algorithms has enhanced the use and driven penetration. We have been very pleased with payer responses to XERMELO and continue to have favorable reimbursement. The positive response includes both private and federal channels.

Other payers reimbursed without review due to orphan drug status and rarity of the disease. Our specialty pharmacies report consistent adjudication of claims across payer types with minimal disruption to patients.

We continue to partner with payer customers in improving their understanding of carcinoid syndrome diarrhea, the burden on patients and the costs associated with diagnosis and treatment. Payer mix is increasingly weighted towards commercial payers followed by Medicare, which together account for a very high percentage of the business.

Medicaid and other government payers collectively account for a very small percentage. We also maintain a zero dollar copay program to assist commercial patients with access.

Turning to Europe, our collaborator Ipsen launched XERMELO in the UK and Germany in October with private market and free pricing respectively and also launched in Austria in the fourth quarter. Ipsen is still early in the European launch.

But as we've seen with many other European product launches, we anticipate that the trajectory of the XERMELO launch in Europe will be a gradual one, as it may take up to a year and sometimes longer for reimbursement discussions, depending on the country. We expect other European countries and pricing approvals to come online throughout 2018.

We believe there remains a great opportunity for future growth. As seen on Slide 6, there are approximately 14000 patients in the United States affected by carcinoid syndrome diarrhea and almost - and although most of these patients go on somatostatin analog or SSA therapy, many will see their symptoms return.

There remains a significant disconnect between physicians and patients with respect to the unmet need and the severity of the disease. To address this, we have deployed our clinical nurse educators to bridge that gap and have dialogue between nurses, patients and physicians.

In addition, we have redeployed our field organization with a greater emphasis on educating physicians on the significance of serotonin and the impact on disease burden. This mechanism involving serotonin is what makes the drug impactful and will allow us to explore additional indications to expand XERMELO’s footprint.

I will now turn the call over to Pablo, who will discuss our lifecycle management plans for XERMELO.

Pablo?.

Thanks, Alex. Turning to Slide 7. There's an important opportunity to explore XERMELO’s potential outside of carcinoid syndrome diarrhea. Serotonin has a fundamental role in cell division and fibrosis. It's carried in platelets and in response to endothelial injury, it is released to promote vasoconstriction angiogenesis and fibrosis.

The same mechanisms of cell regeneration have been implicated in the proliferation of cancer and fibrotic disease. And cancer type with good potential for XERMELO is the neuroendocrine tumor. Somatostatin analog has been shown to reduce tumour growth and the benefits may relate to their inhibition of serotonin release.

Other tumor types may also be relevant and their specific preclinical data in cholangiocarcinoma they show that serotonin stimulates tumour growth in vitro, while inhibition of tryptophan hydroxylase suppresses tumour growth in vivo and rodents.

We are still evaluating opportunities in fibrotic diseases and look forward to providing more detail on the strategy to expand telotristat’s footprint. We'll provide an update on our progress and label expansion opportunities at our Research & Development Day.

Now I'm happy to update you as well on the significant process the R&D organization made in 2017 to advance the rest of our pipeline. Let's start with our most advanced programs sotagliflozin in type 1 diabetes.

As you can see we have completed the largest Phase 3 program for an oral anti diabetic agent ever conducted in type 1 diabetes and the broadest range of patients resulting in the most comprehensive efficacy and safety data base. These Phase 3 studies are complete, complete, complete.

Results from our pragmatically design inTandem 3 Phase 3 trial were published in the prestigious New England Journal of Medicine. We've seen that dual inhibition of SGLT1 and SGLT2 is two [ph] differentiation, it supports robust reduction in A1C.

Gastrointestinal SGLT1 inhibition reduces postprandial glucose which in type 1 diabetes may be important in avoiding hypoglycemia. It also puts a limit on urinary glucose secretion and that may have favorable implications for safety.

The observed weight loss is likely related to a balance of SGLT2 to SGLT2 effects rather than SGLT1 - I should say rather than SGLT2 inhibition alone.

As both these SGLT1 and SGLT2 mechanisms are independent of insulin, there is a potential to show value in both Type 1 and Type 2 diabetes, the gastrointestinal benefit of SGLT1 may help patients even when the action of the renal mechanism SGLT2 is limited.

This profile is consistent with the efficacy and safety profile that we have described for Type 1 diabetes. We showed robust efficacy even with a population that had a relatively low baseline AIC. There were reductions in postprandial glucose that we expected from the SGLT1 component. Consistent with this vision, we saw a reduction in hypoglycemia.

At 52 weeks there were fewer patients experiencing severe hypoglycemia on sotagliflozin 400 milligrams than placebo. The 52 week safety profile was acceptable in a setting of education and monitoring of DKA. This program was ambitious and I'm extremely proud of our team. They work tirelessly to get the program to this stage.

What remains is for Sanofi to file for approval in the US and in Europe which as Lonnel mentioned will happen in the next few weeks. On Slide 12, we provided perspective on how the sotagliflozin program in Type 1 diabetes compares to the potential competition.

Sotagliflozin flows is potentially the first to market with the most comprehensive data targeting the entire Type 1 population. The program is complete with success at all Phase 3 studies, whereas dapagliflozin has released only interim data from a single study.

The sotagliflozin program enrolled 3000 people with Type 1 diabetes, whereas the dapagliflozin program encompasses only half as many patients. Sotagliflozin has data supporting benefit risk in the entire adult type 1 diabetes population, while the dapagliflozin program excluded 43% of the patient population.

The dapagliflozin program excluded those at highest risk for severe hypoglycaemia. The sotagliflozin pivotal studies were conducted after optimisation of patients insulin regimen, resulting an improvement in 0.6% from insulin optimization alone, and a post optimization baseline of 7.6% to 7.7%.

The dapagliflozin program achieved only 0.25% improvement from insulin type standardization and a post titration baseline A1C at 8.5%. We believe that each of these elements should provide important advantages for sotagliflozin. Alex, do you want to talk about the market opportunity in Type 1 diabetes..

Sure, Pablo. Turning to Slide 13. As you can see there are approximately 1.7 million people with Type 1 diabetes and about 1.6 million adults with the disease in the United States, a population that has grown approximately 3.5% per year over the last five years. About three quarters of the population has an A1C greater than the ABE target of 7%.

We believe we and Sanofi will be able to target the entire adult type 1 population because we did study the broadest patient population in our studies and we have the most comprehensive efficacy and safety data.

Given the size of the market and the fact that sotagliflozin has the potential to address the entire market, you can see that this is a significant opportunity for Sanofi and for Lexicon. Now we'll turn it back to you Pablo..

Thanks, Alex. As the Type 1 diabetes program wraps up, we and Sanofi are excited to advance sotagliflozin in Type 2 diabetes. As you can see to date Sanofi has initiated 10 Phase 3 studies into type 2 setting schedule to enroll over 15000 patients. Dual SGLT1 and SGLT2 inhibition provides an opportunity for differentiation.

There is a large cardiovascular outcome study, its done in patients with renal impairment. It is designed not simply to show safety but to show efficacy. It's designed to win with endpoints including cardiovascular death, myocardial infarction stroke and hospitalization for congestive heart failure.

This study also has renal endpoints that will examine whether sotagliflozin can reduce the progression of renal disease and patients at high risk. The Phase 3 program also has a study to establish A1C reduction and moderate renal impairment and another to examine efficacy and safety in severe renal impairment.

There will be a head to head data against dapagliflozin [ph] as well. This is a robust program developed around opportunities for differentiation. We expect initial data readouts for most of the Phase 3 studies in 2019, followed by potential European filing - I'm sorry the potential European filing in the second half of 2019, US filing early 2020.

As Alex will discuss the market opportunity for sotagliflozin and Type 2 diabetes is significant.

Alex?.

Type 2 diabetes is a major global public health problem that isn't going away, as obesity and other factors continue to be drivers of the disease, as seen here on Slide 15.

The Type 2 diabetes population is currently more than 25 million people in the United States and more than 400 million worldwide and is expected to grow at a compound annual growth rate of 2% from now until 2040. Many of these people cannot take the most commonly used existing Type 2 oral anti diabetic drugs because of their renal impairment.

This is where we believe sotagliflozin has the potential for differentiation. Approximately 15% to 18% of patients with Type 2 diabetes have stage 3 chronic kidney disease, while about 1% to 2% of patients with Type 2 diabetes have stage 4 disease.

Importantly, since declining renal function is a hallmark of Type 2 diabetes, demonstrating benefits in this patient population could make sotagliflozin a preferred option for all Type 2 diabetes patients. I'll now turn the call back to Pablo..

Thanks, Alex. Summarizing the discussion on sotagliflozin, we're very pleased with the totality of its data package for Type 1 diabetes. We and Sanofi look forward to bringing this drug to market if approved.

In Type 2 diabetes we're enthusiastic about the potential for differentiating relative - relating to efficacy and the setting of renal impairment and we're excited to advance this program. Turning to the rest of our pipeline. LX2761 is an internally generally - generated oral SGLT1 inhibitor for the treatment of diabetes.

It's currently in Phase 1b clinical trials and preclinical studies 2761 delayed and reduced intestinal glucose absorption and it reduced post-prandial glucose, while increasing plasma. All this is consistent with inhibition of intestinal SGLT1.

In addition 2761 was minimally absorbed into the systemic circulation indicating that its activity was limited to the gastrointestinal tract. It was not dependent on urinary glucose excretion.

We believe this ability to optimize SGLT1 activity without urinary glucose excretion offers good opportunities for diabetes lifecycle management and we look forward to data release in the first half of this year. Lastly, we are developing LX9211, which is an orally administered inhibitor of AAK1, also known as adapter associated kinase 1.

Mice lack AAK1 are healthy and they are relatively resistant to pain. AAK1 inhibition is not related to the opioid pathway and given the current opioid epidemic this is an important feature. AAK1 inhibition appears to work instead through the GABA pathway, gamma amino butyric acid is a natural inhibitory neurotransmitter that works against pain.

Inhibition of AAK1 may be able to increase the number of GABA receptors on the post-synaptic neuron, enhancing the body's response to its own pain inhibition signal. A pre-clinical profile suggest that if effective LX9211 could provide relief for patients with neuropathic pain with less sedation then improved GABA agonists.

I encourage you to read the manuscript by Waltzer Kasich and his colleagues on AAK1 inhibition as a novel therapeutic approach to treat neuropathic pain. We look forward to seeing the results of our Phase 1 study this year.

In short, we're committed to discovering, developing and commercializing therapies with the greatest value proposition for patients. We've made good progress this quarter and look forward to updating you in the future. Now I'd like to turn the call over to Jeff, who will provide financial highlights..

Thank you, Pablo. This morning we'll discuss key aspects of our fourth quarter and full year 2017 financials and we'll introduce our financial guidance for 2018. More financial details could be found in our 10-K which will be filed shortly. Now please refer to slide 19 of our presentation.

As indicated in our press release today, fourth quarter 2017 revenues totaled $33 million, which represented a 43% increase from the prior year period, primarily due to milestone payments under the Ipsen alliance for the first commercial sale of XERMELO in the UK and Germany, and $5.4 million in net product revenues.

Total revenues for the year ended December 31, 2017 were $90.3 million, which represented an 8% increase from the prior year, primarily due to net product sales of XERMELO, partially offset by lower revenues recognized from the collaboration and license agreement with Sanofi. Total net product revenues for the full year 2017 were $15.1 million.

Cost of sales related to sales of XERMELO was $0.5 million for the fourth quarter of 2017. Full year 2017 cost of sales was $1.9 million, of which $1.5 million consisted of amortization of intangible assets.

Research and Development expenses for the fourth quarter of 2017 totaled $47.2 million compared to $40.4 million in the prior year period, primarily due to professional and consulting fees related to sotagliflozin NDA preparation and higher clinical and preclinical external research and development expenses.

Full-year 2017 R&D expenses decreased 12% to $156.8 million, primarily due to lower clinical and preclinical external research and development costs. Selling, general and administrative expenses for the fourth quarter of 2017 were $16.1 million compared to $14 million for the same period in 2016.

The increase was primarily due to higher legal expenses, professional and consulting expenses, salaries and benefits expense, charitable contributions and stock-based compensation. Full-year SG&A expenses were $66.2 million for 2017 compared to $43 million for 2016.

The increase in full-year 2017 SG&A expenses was primarily due to increased salaries and benefits expense, travel and entertainment, charitable contributions, legal expenses and stock-based compensation.

During 2017 Lexicons valuation allowance for its 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.

Lexicon recorded a deferred tax benefit with a corresponding reduction in its deferred tax liability in connection with this reclassification. On December 22, 2017, the Tax Cuts and Jobs Act was enacted and reduced the US federal corporate tax rate from 35% to 21%.

As a result, the fourth quarter of 2017 income tax benefit of $4 million represents the re-measurement of the deferred tax benefit and related valuation allowance related to the newly enacted U.S. federal corporate tax rate.

Net loss for the fourth quarter was $28.4 million, or $0.27 per share, compared to a net loss of $32.4 million, or $0.31 per share, in the period in 2016. For the three months ended December 31, 2017 – and 2016, our net loss included non-cash, stock-based compensation expense of $2.3 million and $1.7 million respectively.

Net loss for the full-year 2017 was $129.1 million, or $1.23 [ph] per share, compared to a net loss of $141.4 million, or $1.36 per share, in the corresponding period in 2016.

For the full-year 2017, net loss included non-cash, stock-based compensation expense of $9.5 million and for the full-year of 2016, net loss included non-cash, stock-based compensation expense of $7.5 million.

We ended 2017 with $310.8 million in cash and investments, which include net proceeds of $145.9 million from the debt facility completed in 2017 and we foresee that our current cash position together with expected revenues will be sufficient to fund operations through the potential launch of sotagliflozin and Type 2 - Type 1 diabetes and a cash flow positive based on the current process - progress of our late stage assets.

Overall our financial performance in 2017 reflected achievements with a series of key milestones relating to XERMELO, including approvals and commercial launches in both the US and Europe and incorporated successful completion of the Phase 3 program for sotagliflozin in Type 1 diabetes and substantial progress in the Type 2 diabetes program positioning us for important future milestones and value generation and advancement of our earlier stage product pipeline, while at the same time effectively managing our resources and spending.

Now let's turn to our forward-looking financial guidance for 2018. Our revenues for 2018 will mostly consist of collaboration revenues and net sales of XERMELO in the United States with a smaller amount from royalties on XERMELO’s sales by Ipsen. We expect the collaboration revenue to be in the range of $30 million to $40 million dollars.

As Alex mentioned earlier, we expect US XERMELO net sales to at least double in 2018 from the $15.1 million we recorded in 2017. We expect our operating expenses to be in the range of $205 million to $225 million.

Our operating expenses included expected R&D expenses in the range of $125 million to $135 million and expected SG&A expenses in the range of $80 million to $90 million. Non-cash expenses are expected to be approximately $17 million of this total, including $12 million in stock based compensation and $5 million in depreciation and amortization.

We expect our net cash used in operations to be in the range of $190 million to $205 million. As we wrap up, I think it is important to consider how significant of a financial inflection point 2018 will be for lexicon.

The final costs of the Type 1 diabetes registrational program will be reported in 2018, as will the full satisfaction of our cost sharing obligations with respect to the Type 2 diabetes program.

As a result even with meaningful R&D investments in XERMELO in our earlier stage pipeline assets such as LX2761 and LX9211, our R&D expenses will moderate substantially in 2019. At the same time, our investments in 2018 will position as to achieve very substantial milestone payments under the Sanofi alliance in 2019 and again in 2020.

As a reminder, we are entitled to receive development and regulatory milestone payments of up to $430 million from Sanofi under the sotagliflozin alliance.

Of that total, as we have publicly disclosed up to an aggregate of $110 million is payable upon the achievement of four development milestones relating to the results of certain Phase 3 clinical trials of sotagliflozin in type 2 diabetes patients and up to an aggregate of $220 million is payable upon the achievement of four regulatory milestones relating to the first commercial sale following regulatory approval of sotagliflozin for Type 1 and Type 2 diabetes respectively in each of the United States and Europe.

The $100 million balance relates to the achievement of a milestone based on the results of either of two outcomes studies in Type 2 diabetes patients, the completion of which would likely occur after the initial regulatory approval of sotagliflozin and type 1 - and Type 2 diabetes.

Except for the outcome studies, all of these milestone payments relate to events potentially achievable in the reasonably near term, given the planned filings for US and EU approval in Type 1 diabetes this quarter, expected read outs at the core Phase 3 studies for Type 2 diabetes in 2019 and potential filings for US and EU approval for Type 2 diabetes in early 2020 and the second half of 2019 respectively.

You can appreciate how achieving these milestones, together with progression to breakeven and profitability of XERMELO will potentially be financially transformative for Lexicon as we look past 2018, and that’s without accounting for sotagliflozin royalties.

So as I mentioned 2018 truly represents a significant financial inflection point for the company. I will now turn the call back to Lonnel..

Thank you, Jeff and well done. Listen we enter 2018 with a well-defined strategy to position this company for future growth and to build long-term sustainable value for our shareholders.

Our main priorities remain centered around driving long-term value through continued execution on the XERMELO launch and filing for global approval for sotagliflozin and Type 1 diabetes.

XERMELO remains a significant franchise for us and we are extremely excited to explore the use of [indiscernible] and additional therapeutic indications where the role of serotonin inhibition has shown preclinical promise and potentially increase the footprint of XERMELO.

In parallel, we and Sanofi look forward to filing a regulatory approval in the US and in Europe for sotagliflozin and a Type 1 diabetes in the upcoming weeks, which put us on track to have filed two drug applications in two years.

In Type 2 diabetes we anticipate initiation of Sanofi of additional Phase 3 studies for sotagliflozin this year with data available for a majority of the studies in 2019 followed by regulatory filings in Europe and the US and in the second half of 2019 and in early 2020 respectively.

Lastly, we continue to advance our early stage product candidates in areas where we believe will create long-term value for the company.

Underlying each of our development programs is a clear mission to create novel life changing therapies fueled by innovative science, talent and our core expertise, so that we can make a meaningful difference in patients lives and create stakeholder value. With that, I will stop there and turn the call over to the operator for Q&A..

[Operator Instructions] And your first question comes from the line of Yigal Nochomovitz from Citigroup. Go ahead please. Your line is open..

Hi. Thanks for taking the questions. Could you just give a little clarity with respect to the operational details on XERMELO, I think you mentioned that you are increasing the nurse educators, but reducing the field force. And also said - that was actually what you are intending to say, if you could just clarify that.

And then what was – what’s the difference between discontinuation rate and the abandonment rate. I wasn't clear on that? Thanks..

Very good questions, Yigal. I’m going to turn that over to Alex. First and foremost I would just start off by saying, as we looked at our business over the course of time, there's a great divide between where patients see their disease and how physicians see their disease. And that divide is where the unmet need is greatest.

And so we had to close that divide, you're not going to be able to do that with the sales force alone.

What we found was working extremely well were the deployment - was to deploy the clinical nurse educators who have the ability to engage with the physician office to engage with the nurses who see some of the frontline care and they have the ability to engage with the patient to make sure expectations are properly aligned across all three stakeholders.

That is where we were probably having our biggest impact. So the decision we made was to increase that group so that we can ensure that the understanding of how properly to start a patient on XERMELO that they then will fill their prescription versus abandon it.

And then secondly, when patients run into to some challenges in the initial phases of using XERMELO to help them understand what those challenges look like and how to overcome them, so that you don't have a discontinuation rate, the way we saw it.

So in the earlier part of the year we saw double-digit discontinuation of XERMELO, that was very troubling. Now as we deploy these clinical nurse educators, I would tell you the effect of that is we're now starting to see single digit discontinuation rate.

So we then made the decision to then double the number of clinical nurse educators we had because they were having a bigger impact.

The second part of that is that, we had a better understanding of where that business was coming from and it truly is coming from the larger institutions, which allows us to focus even more precisely what our sales force, which is a remarkably talented group of people, instead of having to deploy more resources across community physicians where we're really deploying against these large institutions, which does not require us to have as many sales reps.

So we brought down the number of sales reps and brought up the corresponding number of clinical nurse educators, which made it a neutral cost position for us to deploy. So I would keep that in the context. The second part of that. I'll let Alex take the question around the specifics..

So Lonnel, I mean, I think you've given them a pretty good explanation of what we've done.

And just to reiterate the discontinuation rates versus abandonment rates, abandonments are defined as scripts that come into the organization that never get filled for that first - for the first script and discontinuations are patients that have been started on XERMELO and then discontinue at some point in time.

And to Lonnel’s commentary, we have seen an improvement since redeploying our clinical nurse educators on both fronts, so we're seeing a reduction and an improved of our abandonment rate, as well as our discontinuation rate. So we're quite pleased that we're heading in the right direction..

Okay, that's very helpful. And then I think you mentioned also that there's more work to chop as far as getting the message out to the broader set of oncologists that are in the prescriber base.

Do you have any numerics on the number of oncologists that are prescribed relative to your target prescriber base at this point?.

Great question, Yigal. Alex, do you want to take that..

Yes. So we showed you on the slide, that we have 6000 you know, a little over 6000 clinician's that we are targeting. So we are reaching them and now we have a fair number of those that have written at least one script. But I will say that there's a fair number of them that have not written any scripts. So we look at that as the market opportunity.

You know, I think we have a fair a fair ways to go in terms of activating a large percentage of those oncologists. But it is a very, very targeted group of clinicians both in the academic center, about two thirds of the opportunity resides in the academic centers and about 40% reside in the community centers.

We're targeting both of those and it does require a certain reach and frequency approach. We do need to see the clinicians you know, several times for the message to resonate with them..

Yeah. I think one of the things you guided, that also will help us is we're stabilizing on medical field force, a medical science liaisons.

We did a lot of great publications last year, but because we did not have the level of stability which we would like to have with our medical science liaisons, the message didn't necessarily penetrate out the way we would wanted to – to have penetrated out.

Coming into this year, the way we have structured ourselves it's getting everybody in their seat where they necessarily need to be. And it allows us to start cascade that message out both medically, as well as head to head from a sales perspective.

But more importantly medical education becomes a critical part of setting up the view for the drug today. But as we do this work for life cycle management the medical pieces can become increasingly more important and therefore we increase our focus on bringing high talent medical science liaisons as we make that push forward..

And just - I guess just to give you one more piece because you're probably looking for numbers. You know, the six thousand clinicians we have over 800 prescribers that have written a XERMELO script..

Okay, that's helpful. Thank you. And then one more on XERMELO and then I've got one on sota. So you also mentioned I think that there was an uptick in the Patient Assistance Program usage in the last latter part of the quarter.

Did you have a – just clarification on what – what’s the driver for that and how that would abate in the end of this year?.

Yeah. Probably our biggest surprise and to be frank, one of the biggest implications of the fourth quarter is that we saw a transition of Medicare patients who were paid patients that then went over to the Patient Assistance Program became unpaid patients.

And I think that was directly related to Medicare patients get supported through non-profit foundations. And when we looked into this and started to see this phenomenon where we track it back to is that the foundation where they got support closed in August.

And as a result these paid patients went from being paid patients to becoming patient assistance patients. So that was probably the biggest surprise in the fourth quarter. Now as we get into the first quarter here that issue has not totally been abated because we don't control that issue.

So we're watching that very, very carefully and very closely as we progress in this quarter. Now the good news is what we also saw is the number of new patients starts in January was quite significant or quite higher than what we saw in December. And as we said before it was the highest level that we've seen in the last five months.

What that tells us is that the redeployment activity that we have now put in the market in the fourth quarter caused a little disruption, but in doing that coming into January we return to what I consider to be the profit level growth to new patients..

Okay. Thanks, Lonnel. And so it seems that diabetes a big picture question for Type 1, I don't know if you've commented on this in the past or in your prior - in your prior slide, and in your discussions with Sanofi.

But with respect to the 1.7 million Type 1 diabetics in the US, have you got any preliminary estimates for the share that you think you could achieve.

And I don't recall if you've ever discussed sort of the peak revenue opportunity for this product in Type 1, but if you have some even ballpark thoughts on that, I'd be curious what you're thinking in connection with Sanofi? Thanks..

Yeah, that's a great question. It's one that I cannot give you because it is something that Sanofi would like to control and certainly put out themselves as they will control the price point on the drug. But I will tell you is you could expect the market share to be consistent with the first end market and the leadership role.

We have every intent to be first. The fact that we are talking about filing this drug we've gone from saying the first half that we're filing this drug in the next few weeks is a remarkable accomplishment of a focused team between Sanofi and Lexicon to achieve this. We both understand the first end market.

The second thing that we also understand is having a robust data package allows us to set the pace with the regulators on how they opt to think about a new entry as an adjunct to insulin. That gives us a very powerful position to set up to be first.

So the way you should think about this if you have to look at other analogs is you would expect us to be first and you would expect us to have the market leading position in Type 1 diabetes. The rest of it I can't really give you any real direction to as Sanofi will - as time passes Sanofi will certainly have control over that conversation..

And one more, just given that your you know, your filing is the first oral in Type 1, do you have any sense as to what the FDA we will give you a priority review or that's a Sanofi question?.

I would say we're going to - you know, I will just say in general, we have not let up on being aggressive. That's how I would answer that question. You see that now the announcement today that we're pushing ahead with the filing much sooner than anybody anticipated.

I think you should expect that we are going to be aggressive in that regard to regulators. What we have to balance that with Yigal is our belief is that more than likely we'll have an advisory committee.

So if you push for a priority review and you will have advisory committee more than likely you're still not going to have a real prior review because it just takes - that you cannot truncate the time relative to the advisory committee.

So we have to - we're going through the pros and cons of how we want to approach that, but most importantly I think for sure we're now going to be first in this - in this effort and that allows us to set the pace for others who may attempt to follow..

All right. Great. Thanks so much..

You bet..

Your next question comes from the line of Stephen Willey from Stifel. Go ahead please. Your line is open. .

Good morning. Thanks for taking the questions.

Just wondering maybe for Alex if there's any kind of anecdotal color you have around just duration of XERMELO therapy that you're seeing, right now both with respect to responder's and non-responders and I guess just given the commentary around the patient assistance program, I wonder if you can maybe just provide us a little bit of directional visibility around across to that stands right now?.

I'll let Alex speak to your first part and I'll Jeff speak to your a second part soon. But just in general, it's always a challenge of talking about the length of time because as time goes on that that keeps changing. What I will say where patients are having response they are staying on it quite long which is great.

The work we have to do is for those patients in the first few months we have to make sure that we continue to make the case why they stay on because if they do, if they stay on beyond that period they tend to stay. And so that's where our work has to be in general. But I'll turn to Alex for any specific commentary..

Yeah, I would say that - that's consistent with our clinical nurse educator initiative as well is really informing not only the patients but also the nurses and the clinicians on the importance of the duration of therapy and managing the disease over time.

We have a subset of our patient population that are doing quite well and they are staying on drug and they're highly compliant and that's a fairly large number and then we have a smaller subset where we have some - use for the drop off and maybe come back again.

So our goal is just over time as Lonnel had mentioned continue to work with patients directly with our clinical nurse educators.

And we believe that duration of therapy just like most drugs when they first come into the marketplace will improve over time, as more and more users in the marketplace and patients themselves become more comfortable with the utility of the product..

And to answer your question on gross [ph] that really the patient assistance program doesn't affect to us at all because we record - there's no gross revenue, there's no revenue at all from patients who are in the patient's assistance program, they're basically getting free drugs. And so that sort of falls completely outside of that.

It affects our revenue number obviously because we're not recording revenues for these pretty substantial number of patients who are in that patient assistance program. The only place that really appears in our financial statements is in cost of sales.

So we do record the cost associated with providing the drug to the patient in our financial statements and for the cost of sales..

Understood. I guess I didn't really see a noticeable uptick in COGS sequentially relative to 3Q, so I was just….

It's not really - it's not really because most of our COGS right now are straight line amortization of intangible asset, I think because we had expensed most of the cost of the inventory that we're using now.

So its not inventory, it’s not running through cost of sales for - probably its first couple of years, it's mostly going to be this amortization of intangible assets.

So you wouldn't see very much of an uptick because that cost of sales right now doesn't - it doesn't - it's mostly the amortization of intangible assets which were flat lining over the life of the asset..

Understood. And then the question with respect to the XERMELO label extension studies, I would imagine something like cholangiocarcinoma would probably be something more proof-of-concept, so I was just kind of wondering on the neuroendocrine side is give what we know about serotonin in terms of the pathology of the disease.

Just wondering if there's any thought around potentially designing that trial in a way such that it may have some kind of registrational capacity.

And then also along the label expansion lines, do you have - do you have any expectation that this will encompass a cost sharing arrangement with Ipsen as you role these studies out?.

Yeah, Stephen, I think it's a good question. We're going to get into some real fine detail on all of this at the R&D Day on April 10th. We always work with our collaborators and we were fortunate we have two great collaborators, one is Ipsen for XERMELO and another side with Sanofi. We are continue to have conversations with them and making the case.

Now with - what you also I think would have to understand is that as we are collaborators in some cases we are also working on some of the same projects. So o it's one of those careful balances you have to walk with your collaborator. But nonetheless we are having good discussions with them about the potential to do that.

And in the case of cholangiocarcinoma we are seeking to expand the label in some way, and same thing with neuroendocrine tumors. We'll know more about how we want to do that or will show more about how we're going to do that on April 10th..

Okay. And maybe just one last quick one for Pablo, of the incremental Type 2 studies that's referenced to as I guess just a little pilot study in heart failure.

Just curious what you are hoping to extract of that 14 day valuation period and how - what you might see with respect with to data or certain end points might inform of these [indiscernible] Thanks..

Okay, Pablo?.

I don't want to go into too much detail on the heart failure study. I think that's something that's Sanofi could comment on. But I think with two weeks of experience I think what you can do is you can get some good safety information on the use of sotagliflozin and the tolerability of its doses in an acute setting.

And that's one thing that I think is an interesting opportunity because patients in acute setting right they are fully overloaded and they have a high need for treatment. There has been some encouraging data on heart failure for sotagliflozin [ph] but it's been about preventing hospitalization and not treating people in the acute setting.

So I think that's basically the framework for that pilot study that offers a lot of value..

Okay. Thanks for taking the questions..

Thank you, Stephen..

Your next question comes from the line of Jessica Fye from JPMorgan. Go ahead please. Your line is open..

Hey, guys. Thanks for taking my questions. I had a couple on XERMELO and a couple on sotagliflozin. First I just want to make sure I understand the comments earlier. Did you say that despite the December issues there were still significant increase in patients with paid scripts quarter-over0quarter.

And if so how do we reconcile that with the reported sales being essentially flat quarter-over-quarter? And second just you mentioned a charity that helps these patients with their copays closed down. What charity was that and have you identified other patients that has been charities that support carcinoid patients.

Also it's launching and care up can you comment on the average blended price you're expecting for XERMELO in Europe. And then for sotagliflozin I know you expect to be first here.

How many products are you ultimately expect to be approved in the SGLT2 class for Type 1 diabetes, is it just DAPA, should we think of EMPA as coming to market in Type 1? And lastly maybe for Dr.

Lapuerta, curious how you think about the oral [indiscernible] data and that product setting into Type 2 treatment paradigm is that more something that could affect the DB4 [ph] relative to the SGLT2, just curious for your insights on that? Thank you..

So thank you Jessica. Let me first give a point of clarification, the point I think we made is that we did see a decline in the fourth quarter in December particularly on new patients, not the dispenses [ph] that I spoke to, but new patients. What we saw in January was a return to growth on new patients.

So we had to watch very carefully as to make sure that that growth stays on track. Thus far we believe it is staying on track which is the good news.

The challenge for us in the fourth quarter relative to dispenses as you had a shift in your book of business for Medicare patients, a good percent of our Medicare patients who were paid patients converted over to non-pay patients into our Patients Assistance Program, as a result of the foundation that closed it.

I’ll let Alex speak to or I'll let Jeff speak to the foundation and where we found which foundation it closed and what the implications are there.

Jeff?.

Yeah there is a foundation called HealthWell that that supports patients across a variety of different diseases. One of their funds relates to patients who have neuroendocrine tumors. It covers a very wide group of different essential treatments. And that fund was the one that closed.

There are some other funds that support - that can be used to support people with carcinoid syndrome, but that's one that's really focused and then there are anti tumor space and so it's more - is more sort of attuned to what patients that have carcinoid syndrome diarrhea might tap into..

Yeah, I think to Jeff’s point that was what I call the fourth quarter of surprise. I don't think when we look back and look at when did that foundation close. It closed in I believe August and then we start to see our patient - we start to see patients. The good news is what I would say is the pace is stayed on the truck.

The bad news for us is they went from being paid patients to being non-paid patients and that was not a small group of patients, so that had a huge impact on us in the fourth quarter. As we get into this quarter, we as a company certainly support non-profit activity that will support patient support - support patients across the board.

And so that's work that we have to continue to do. But certainly we are not in control of foundations and how they administer things and when they close.

So it is a sum - it is something we'll have to watch not just this quarter but throughout the course of the year, because a good portion of our business is Medicare patients and how that distributes, how that's going to impact the allocation of our sales we’ll have to watch very closely.

The other question that you had which is the other foundations, I would simply say, there's not a whole lot more we can do around foundation support. The number of approvals I believe moving over to sotagliflozin, I would - Jessica I think you've heard me say this before us.

I always felt it was too early for people to declare victory from ESID on one interim analysis when we have completed an entire program and characterize sotagliflozin. And we do believe SGLT1 mechanism has contributed to the balance of this program.

So what I would only comment on is what our potential competitors have said, I think AZ [ph] has now brought in their 52 week data and they have chosen not to share that at this moment.

They have also acknowledge that they have to do more work around understanding the DK issue as a result of certainly bringing an - in-house 52 week data and they're going to wait for their other 52 week data to call out. So they have the full balance of information.

So I think before there's a declaration that people are coming for sure, we’ll have to pay very close attention to what that data is going to tell them. Will A1C benefit hold over time, we'll have to see. Will the DK rate holds over time, we'll have to see.

And then what is the implications on the other side of safety which is severe hypoglycaemia, we will have to see. And so there's a long way to go still in my opinion for what AZ has to say about their experience in Type 1. I think for Lilly, Lilly has talked about providing additional color for the Type 1 program.

But when I look at their forward-looking statements there's nowhere in there about filing this year for Type 1 program. So from my perspective the only company that can say resolutely that we're filing and we have the full characterization for safe and efficacy for Type 1, at this moment is Lexicon, that is a fact.

So the rest of it I think is speculation and everyone will have to wait to see as the data calls out, as time goes by. As to the number that we believe will be in market, you know, I can't say for sure, but I know for sure we will be in market and I'm trying to think there was a question I believe for you Dr. Lapuerta on a competing data..

Yeah, the question was about oral, I think it's really difficult to give you a lot of information. We don't have a lot of information on that yet.

There's a general feeling within the industry as I speak to colleagues that the development of oral formulations peptides has been difficult and that it may be difficult to achieve consistent absorption and that it may require a lot of material. And so we generally have a feeling that the development is a challenge and that the cost could be high.

It's hard to say anything more than that..

Listen, I think no one notices an outstanding company. There is no question about it. And their science is outstanding and their reputation is matched by that. But I think they probably have the biggest challenge that they're going to have near term to convert that peptide into an oral product.

But with that being said, I would not doubt their ability to do so. I would just simply say the time and the cost to do it is what's going to be the roadblocks for success..

Okay. Understood, appreciate the color.

The last one was just the average price you expect for XERMELO in Europe?.

Yes. So that is something that is really Ipsen’s - under Ipsen’s control. I can just tell you that you know, the relative reference price for the product in Europe if this can be related to somatostatin analog, somatostatin analog pricing in Europe varies by country, but it is considerably less than it is in the US. So on the order of 30% of U.S.

pricing. So the price ultimately will be determined as relates to negotiations that they have with payers. But I would expect that that negotiation would be anchored around with somatostatin analog pricing as in Europe and what somatostatin pricing is in U.S..

Okay. Got it. Thank you..

You bet..

[Operator Instructions] Your next question is from the line of Chris Shibutani from Cowen. Go ahead please. Your line is open..

Great. Thank you for the questions. For the Type 2 development program, I just wanted to ask about studied head to head, particularly looking at the newly impaired patients and your choice for choosing EMPA head to head.

Can you talk about what we should be thinking and you're looking for here, because we're talking about trying to differentiate, in particular what endpoints you may be focused on there and what kind of a result you think would be interpreted as being a competitive advantage commercially, potentially? Thanks..

Yeah. Chris I think it's a great question. And I'm going to ask my colleague to walk the tightrope because we're talking about Type 2 and really that is Sanofi, that’s really wants to and needs to address Type 2 general questions. But I’ll ask you to do Dr. Lapuerta to try to give you general statement that you can give some context..

Yeah, I don't want to give a formal description of endpoints and pairing assumptions and quantitative estimates. But what you're - what you're seeing from us is the profile of sotagliflozin and how it differentiates in Type 2 diabetes.

And I think the patients in renal impairment having robust efficacy there is one place and another thing that we have to think about is we do have some pretty intriguing and pretty exciting results in blood pressure and that's something that we're exploring further..

Chris the way I think for us to think strategically about the way the drug is being developed and I'll just give you a general view is the prevalence here in Type 2 we know or the issue in Type 2 is that you have patients that are going to unfortunately have renal impairment, it is just a hallmark of Type 2 diabetes and that number grows over time, whether its stage 2, that goes a stage 3, it goes to stage 4, if we're able to show a beachhead here, a remarkable success where others have not and it will be because of SGLT1 mechanism helping that along, achieving success at that stage certainly gives every physician the opportunity to think about, if you're going to use an SGLT2 which one can you use and stay with through the course of the patients journey knowing the fact that a number of them will become really impaired.

That allows us to address the entire market relative to having that indication. So I think that is probably the most aggressive approach that we're taking here strategically. Beyond that I will stop talking before I get myself in trouble with my colleagues.

But I do think they're being aggressive, I think it's the right design, I think it's the right effort and it's the right focus for us to win..

I appreciate that. On XERMELO in the past historically you framed overall long-term guidance in terms of thinking about peak sales potential 350 million.

Obviously the calculus to get there, I don’t think you specifically elucidated, but it includes things like number of patient duration of use et cetera, many the factors that you somewhat addressed, do you remain confident at peak sales potential outlook?.

Yeah. Let me see if I can address that in terms of how we're approaching XERMELO.

What I've always said to everyone here is that we're going to continue to look at XERMELO in the early days of going back and looking at the preclinical data to give us guidance because we thought there was other ways in which we can contain to support XERMELO, that then will give us every confidence we can get to that 350.

That hasn't changed because what we're laying out to you is should we be successful particularly in a neuroendocrine tumor area that we are now exploring, that expands the opportunity to carcinoid syndrome category for us. And then in addition to that the work we’re now doing with cholangiocarcinoma just adds value to it.

The carcinoid syndrome diarrhea what I will say because of the time it takes for that ramp up, because of the delta between where patients are and physicians are that will take longer, but to speed up the time to get there it will require us to contain and develop this compound specifically for tumor, neuroendocrine tumor.

And therefore a lot of our effort and what we're going to talk about April 10th is to accelerate that work on the development side because our confidence around the research we've done now says that we actually can pull it off.

So I wouldn't be adjusting our forecast, what we will try to adjust for you Chris over time is how we're going to get to it with all of the efforts that we're making around the XERMELO molecule itself..

Great. Thanks for the answer..

Your next question comes from the line of Alan Carr from Needham. Go ahead please. Your line is open..

Hi. Thanks for taking my questions. A couple of them, can you point to the reasons for abandonment, I assume it's cost for the patient then also I think in the past you've talked about a prescribers for XERMELO coming from different decile, it was I remember being fairly evenly distributed across physicians.

And I think you mentioned today though that it's concentrated in a few centers, I wondered if you could talk about that some more, if anything's changed over time? Thanks..

Alex, I’ll turn those the questions over to you..

Yeah. So we are seeing scripts coming from both our top decile physicians. What I said today was that 60% of our business is coming from the academic centers, the academic centers have both high decile clinicians, as well as low decile clinicians.

What we're seeing in some of those leading academic centers with those high decile doctors is significantly greater number of scripts being written by those clinicians than our lower decile clinicians.

So a greater percentage of our business is actually coming from those larger academic centers because there's more patient volume there and they're actually being activated at a higher frequency and that hasn't changed at all from the beginning of the launch..

Okay. Thanks. And then abandonment, just because patient doesn't like the cost when they go to fill it or….

Actually that - I mean that's one of the reasons. But it's - there's a number of reasons that somebody would have abandonment the script, they walk out of a physician's practice. They don't have a full appreciation for the utility of the drug and they decide not to move forward and fill that script.

There's cases where the patients have fair and you know their disease has progressed pretty dramatically. They may decide not to move forward with XERMELO at that point in time. So there is some clinical reasons that they - even though the physician wrote the script they choose not to move forward with it.

The financial reasons is actually not that large percentage. It's a smaller percentage of rationale for abandonment.

And we think - we feel very confidently that with our clinical nurse educators engaging these patients on the front end, if they have a deeper appreciation for the utility of XERMELO and the benefits of XERMELO there will be a lower tendency to decrease that abandonment rate. And we are absolutely seeing that.

We're seeing a decline in our abandonment rate months over a month since the launch. So we know that it's working. We just need to continuously improve upon that..

You gave us a general sense of the discontinuation rate being double-digit and now single digit.

What was the figures around that abandonment rate?.

They are also in the double-digits and now in the single digits..

Okay. Similar. Thanks very much..

Yeah, Alan, I think we share this with all of our stakeholders, they got to the second quarter we saw this phenomenon happen and we responded to it. One of the ways we responded to it were with these clinical nurse educators and it was quite impactful.

So with that we made the decision in the fourth quarter as we stated before to bring more of them on, on the frontline to try to avoid this going forward into the future. And so I'm kind of back to it. We were very happy what we saw in January particularly and our hope is that that carries forward the rest of the quarter.

I think the number one issue for us to keep an eye on is what we've already stated here is the implication of the non-profit foundations. Should they not open or are they close to early and things like that it could have an implication to patients getting assistance on the Medicare side..

I just want to give one point of clarity, just on the foundations themself. The foundation doesn't actually close. So the funds that are available to support various patients are no longer available. So the fund is still an active fund, it just – it closes for a particular disease category. And this is not unique on to XERMELO.

There are a number of drugs and categories that are impacted in a similar manner..

Thanks very much..

Thank you, Alan..

Your next question comes from the line of Robin Boldt from UBP. Go ahead please. Your line is open..

Thanks for taking my question.

I have a quick one on the potential to explore [indiscernible] Novartis seems to be extremely excited with their CO21 two component about the weight loss of this component, so that they have now initiated an obesity study, what you consider to on a similar study with your partner Sanofi? And then a quick follow on question, you referred to the differences in the inTandem trials and the [indiscernible] trial.

And I think it seems that Wall Street has less appreciation for the key differences between these trial designs. I'm interested what you feedback you receive from experts in the field. Are they are aware of these differences such as the much higher baseline and kind of the less conservative insulin optimization and the pre-randomization? Thanks..

So, thank you for the questions. I think those are two very good questions. I think the Novartis [ph] is right.

You know, from time I started with Lexicon here I always felt that there are properties of this drug that are metabolic in nature and something we should explore, but our focus has been on Type 1, Type 2 and now that we we're off to the races of about to file for Type 1 and certainly we're now well on our way in Type 2.

It only begs the question to the point you're making, what else can we do to sota. And so what I would just say to you in a general way without speaking on behalf of our partners, we are now engaged in discussions to answer that question. What else for sota.

As we as we move from perusing through all of our data and getting it ready for regulators we now have the opportunity to go to that data and look at the preclinical data that we also have and make a determination are there additional opportunities for sotagliflozin.

My personal belief is that there are, also my personal belief is I believe Novartis is correct in how they are thinking about things and we could be in a very strong position to continue to build additional indications for sotagliflozin and building continued value for sotagliflozin over time.

That is something that will be closely discussed and debated within the alliance on how we would go about doing that should we choose to do so. As to the second part of the question, I'm trying to remember, Dr. Lapuerta you want to handle depict..

The question was about are experts aware some of the key differences and how they’ve responded to it. And the experts who know our program has really responded very well. They saw the differences right away.

And you saw some of that and some of their responses at the European Association for the Study of diabetes meeting when depict results were released. They really appreciate this thing of having studied patients with an A1C as low as 5.6% and as high as 15.4% in our program and they see value particularly around this issue of severe hypoglycaemia.

The depict program was cautious and excluded patience with an A1C less than 7.5%. And the reason is that patience with A1C less than 7.5% are very high at risk for severe hypoglycaemia.

But with a balance mechanism of action that we have, we weren't concerned that we would have too much urinary glucose excretion that - and we thought that we would have a reduction in post-prandial glucose that I could actually avoid severe hypoglycaemia.

And as a result we saw results where at 52 weeks we had less severe hypoglycaemia with sotagliflozin 400 milligrams in placebo. We see excitement from physicians about these data.

We don't know if dapagliflozin can provide it, what physicians appreciate is that is that we went ahead and studied it and it gives them a level of confidence with different patient types that they face in Type 1 diabetes and different patient profiles that they know what they're going to get with sotagliflozin..

Yeah, I think the biggest - the biggest challenge we have is that everyone is very ready to ascribe the same across the entire category and that's just going to be a battle over time and evidence will determine whether or not this value of the same across the category holds or the belief that we have that it is not the same.

And so from our perspective we'll continue to tell our story. But I also recognize that it is an uphill battle to get people to see the uniqueness and the differences in design and off ultimately I believe there will be tactical differences, but we will have to wait because while we were done others still have to come this way and we'll see.

The other part of that is the Type 2 site, others have done and I think they've done a great job on SGLT2 site very well, but the way the studies are focused by Sanofi is to win where the mechanism gives us the greatest indication we can win and that is going after a subset of a population that if you win there it gives you entree into the entire population.

That is a very fine strategy that I believe ultimately the mechanism will tell the story..

Thank you..

And with that, I’ll now turn the call back over to Mr. Coats for his closing remarks. Well, thank you for everybody who joined us. As I said before, I said today very, very proud.

We've been on a long journey with sotagliflozin for Type 1 and we've had to work through lots of headwinds of disbelief as to whether or not we will even be here and we are now here. We've had conversations with regulators across the world. We're very confident in the conversation we've had with them.

We now have our program done completed and we are weeks away from filing it. So I'm very proud of the team and I want to say that publicly to be here I'm very proud of our partners. They have played a critical role in helping us get here.

As we turn to the rest of this year, we will continue to make the focus on XERMELO a critical part of the value creation that will have both in terms - of course, correcting some of the things I think that has shown to be a challenge in the fourth quarter.

But I have every confidence we can get that turn around and keep XERMELO growing and on schedule. As for developing XERMELO further, so we can get to our peak opportunity. We're going to talk a lot more about that April 10th. So we have every confidence that we will develop our way toward having XERMELO meet its full peak opportunity.

And last but not least, I just want to take that opportunity to thank all of our colleagues throughout 2017 who executed extremely well because as Jeff has said so eloquently 2018 is indeed a transformative year for Lexicon because we are ahead of schedule filing Type 1 that then sets us up to a significant milestone opportunities with Sanofi in 2019.

As we have success across the globe and following this compound and getting it approved. So thank you for your questions and thank you for your interest..

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