Wade Walke - Senior Director of Communications and Investor Relations Arthur Sands - President and Chief Executive Officer Phil Brown - Senior Vice President of Clinical Development Jeff Wade - Executive Vice President of Corporate Development and Chief Financial Officer

Phil Nadeau - Cowen & Co Steven Willy - Stifel Nicolaus

Good morning. Welcome to Lexicon Pharmaceuticals second quarter 2010 conference call.

I am Wade Walke. With me today are; Dr.

Arthur Sands, Lexicon’s President and Chief Executive Officer; Dr. Philip Brown, Lexicon’s Senior Vice President of Clinical Development; and Jeff Wade, Lexicon’s Executive Vice President of Corporate Development and Chief Financial Officer.

We expect that you have seen a copy of our earnings press release was distributed this morning. During this call, we will review the information provided in the release, provide an update on our clinical program, and then is a reminder of our time to answer your questions.

The call will begin with Dr. Sands who will discuss our key accomplishment for the second quarter.

Dr. Brown will discuss the status of our drug development program.

Mr. Wade will review of financial results for the second quarter and discuss our financial guidance for 2010.

We will then open the call for your questions. If you would like to review the slides for today’s call, please access the lexicon’s website at www.lexpharma.com.

You will see link on the homepage for today’s webcast. Before we begin, I’d like to state that we’ll be making forward-looking statements, including statements relating to Lexicon’s research and development of LX1031, LX1032, LX1033, LX2931, and LX4211, and the potential therapeutic and commercial potential of those drug candidates.

This call may also contain forward-looking statements relating to Lexicon’s future operating results, financial arrangements, cash and investment, discovery and development of products, strategic alliances and intellectual property, various risks that may cause Lexicon’s actual results to differ materially from those expressed or implied in such forward-looking statements including uncertainties relating to the timing and results of clinical trails and preclinical studies of our drug candidate are dependent on strategic alliances and ability to enter into additional collaboration and license agreement. The success and productivity of our drug discovery efforts, our ability to obtain patent protection for our discovery, limitations imposed by patents owned or controlled by third-party and the requirements of substantial funding to protect our drug discovery and development activity.

For a list and description of the risks and uncertainties that we face, please see the report we have filed Securities and Exchange Commission. I’ll now turn the call over to Dr.

Sands.

Thank you, Wade, and good morning everyone. In keeping with Lexicon’s mission to discover breakthrough treatments for human disease, I’m happy to report we’ve made significant progress over the last quarter and the first half of the year with our four drug candidates that are in mid-stage in the clinical trail.

Our progress has further reinforced our first-in-class, best-in-class business strategy with respect differentiating our drug candidate and bringing them forward through development. So, let me start by highlighting a few of the significant milestone for the last quarter and we’ve move into a more detailed review of the more significant items.

So, first of all, with LX4211 we gained new data from this compound from our initial Phase 2a study which is further substantially the dual mechanism of action of inhibiting both SGLT2 and SGLT1. This important mechanistic data was presented at two international meetings, the Endocrinology meeting or Endo meeting where we had both an oral presentation and a poster presentation on the data, and then also the American Diabetes Association International Conference where we presented A poster on the subject.

So Dr. Phil Brown will spend some time reviewing this data and actually some elements of the actual presentations that were given at those two meetings, for those who may not have seen those.

For LX1031, we have made very good progress in the new formulation which is progressing and we look forward to, in 2011, testing that in human studies as that progresses. For LX1032, both trials in the United States and Europe have advanced with respect to enrolment and those are on track for readouts around year-end.

Similarly, for LX2931, where there we have completed our enrolment, it’s a fully enrolled trial now, the Phase 2a trial, greater than 200 patients. So, we are on track for obtaining results around year end as well.

So very important steady progress on the two lead programs as they move into their Phase 2 key development and then the next program to read out from the proof of concept studies. In addition on the business front, we achieved I think some rather significant progress.

First, the most recent one being successful reacquisition of all the Symphony programs and so and as Jeff Wade review that agreement again. Obviously, that was an agreement which took some in the second quarter to negotiate and we have brought it to completion shortly after the close of the second quarter.

When you combine that with our accomplishment in the first quarter of the new financing approximately $181 million in new capital that was active we have done I think a significant amount of work on the financial front to further solidify Lexicon's position. So, with that introduction, I will now turn the call over to Phil.

Great, thanks very much, Arthur. Well, as Arthur mentioned, we had a great reception of 4211 program at first ADA and then their meeting.

We truly believe that 4211 represents a first in class product relative to the other competing entities in this class. The reason for that is the dual inhibition that we achieved with SGLT2 which is the current state of the class, but 4211 also influencing SGLT1 as additional benefits to the program that I think we observed in our clinical data and we now have greater insight into the importance of this mechanism.

In the 2a study of course we achieved rapid and significant improvements in the glycemic parameters that we also saw these very nice trends emerge on a number of metabolic parameters. We will review those briefly today and then again considering the dual inhibition mechanism, we will spend a little bit more time on.

So, this next slide is a little bit detail in terms of data and if I may just orient you to it, SGLT2 of course is the transporter in the kidney that’s responsible for uptake in the glucose, reabsorption in the kidney of the glucose where the numerous agents now are targeting this particular enzyme. SGLT1 is the transporter in the small intestine which is responsible for absorbing glucose into the body.

In the chart below, what we have done is taken published data, the citation on the bottom there, of the representative agents in development and compared them to 4211. In the first row you will note that its inhibition against SGLT2 and I should say the lower the number the more potent the particular compound is to the transporter.

You see that each of these agents is highly potent for the SGLT to transporter and have a very similar magnitude of potency. Where 4211 really differentiate itself from the other agents and development are illustrated in the next row against SGLT1.

You will note that 4211 is very potent against SGLT1 whereas the other agents are much less potent towards this transporter. Looking at the third row there where we compare to relative potency and selectivity against the two transporters you see that the other agents have exclusively focused their activities on the SGLT2 transporter whereas this 4211 again shows a very nice degree of activity against those.

Moving into the study design again just refresh your memory this was a 28-day study, double-blind randomized placebo controlled evaluating two dose levels of 4211 in patients with Type 2 diet diabetes over a 28-day period. We followed a number of parameters that associated with diabetes those in the glycemic control and also the metabolic parameters.

In this next slide, we've shared these data with you on occasion before and it illustrates the fasting plasma glucose. You can see a baseline where we began the metformin washout on these patients.

They were not very well controlled. As we expected, when the metformin was removed, you see increase in the fasting plasma glucose.

The vertical line at day minus 5 indicates when patients were sequestered and we began diet standardization, and then on day zero we randomized. You see this rapid improvement in fasting plasma glucose begin to emerge for individuals randomized with 4211.

This maintained over the 28-day treatment period such that 50% of patients achieved a fasting plasma glucose less that 120 and a third those less than 105. It's also, I think, important to note that if you compare to baseline, you’ll see that the 4211 subjects actually showed improvements over where they where on metformin alone.

So, this is a very significant finding in study of course. More importantly, perhaps, is the hemoglobin A1c data which is, I’m sure everyone familiar with, we wouldn’t expect the a complete effect over only a four-week treatment period.

So, we saw again this very robust improvement haemoglobin A1c over this four-week treatment for patients randomized with 4211. With a 0.66% improvement in the low-dose arm and a 0.76% reduction or improvement related to placebo in the high-dose arm.

Half the patients randomized with 4211 actually achieved a haemoglobin A1c of less than 7. This is of course the regulatory endpoint for diabetes development as a key consideration for any compound in the study.

As mentioned, we also saw nice improvement in the number of metabolic parameters and today, I’ll just review briefly with you a couple of those. So, in this slide are the weight data.

We saw a weight reduction emerge over the course of the study in a dose dependent fashion. So, of course, the patients were sequestered on a standardized diet, so we saw a modest decline in weight people for placebo illustrated in green.

The data here on a weekly basis, so you can see the continued trend towards weight loss over four week treatment period. Importantly for the individual randomized 4211, the low dose are the blue bars and high dose subjects are in the orange or red bars, and you see a more significant weight loss over the four-week treatment period in a dose dependent fashion for each of these cohorts.

Similarly, in evaluating triglyceride and again same colored scheme for the cohorts. So, the green bar indicates those individuals randomized with placebo, blue is the low dose and the orange is the high dose.

You see a fairly significant improvement in triglyceride values emerging sort of by the day 7 time point, but by day 14 both those groups had virtually normalized on the triglyceride levels. That was maintained with continuing improvement begin observed over the next weeks, that’s the bias day 28, both those groups were below and within the normal range.

This was again a very important observation of the study and not fully anticipated when we initiated the study. So coming back to the importance of these dual inhibition mechanism, by absorbing less glucose from the gastro-intestinal track, that’s what occur when you block SGLT1, you keep increased glucose in the lumen of the gastro-intestinal track.

This of course results in less absorption of the glucose into the blood stream, so you see lower blood glucose, but more importantly, it may stimulate increase in signaling, high endogenous release of SGLT1 and another peptides such as PYY, glucagons etc. So we then, in a post trial analysis, looked at blood samples for total GLT1.

These data here are representative of the Day 1 samples, and your most of each dose group again starts with similar level of dose of one illustrated on the year-axis and the black bars indicate meal time. So, you see a following the breakfast, a very nice separation of individuals were dosed with 4211 evidenced by increased by SGLT1 level.

Again, the same color scheme applies with the green are placebo randomized subjects and blue in rather the 4211 randomized subjects. You see a nice improvement in total GLT1 levels following the breakfast meal.

Importantly, you will see over the full 24-hour time point that virtually every evaluation shows increased total GLT1 in the subjects randomized to 4211 relative to placebo. Again the black bars are indicating each of the meal times for these subjects and you see a nice peak begin to emerge following each of these meals.

If we then look at just the few hour time point for each individual patient, you see that each cohort shows this nice increase without significant outliers driving the data such that there is full increase in the population of subjects and within each of the dose in cohort. We believe a very significant observation to see increased total GLT1 through endogenous mechanisms and we believe that’s related to the SGLT1 mechanism.

So, in summary, we again see these data as very important in terms of positioning the compound's further development. We see significant improvement across virtually every glycemic parameter that we evaluated with these very significant and nice trends in a variety of metabolic parameters that we believe are important going forward for any agent in diabetes.

Most importantly, however, is this dual inhibition mechanism, we believe, differentiates 4211 from the competitors in this class and its activity is enhanced through increasing signaling. We have now completed the 13-week toxicology study and we are working on developing a solid oral dose formulation which we can move then into a bioequivalent study, a PK study in this quarter and positioning the compound for its Phase 2b activity which we would initiate in the early part of next year.

So, moving on to LX1031, of course, this compound showed very nice improvements in IBS in both the global assessments entered end point in IBS studies as well as improvement in dual consistency. We also showed a relationship between the decrease in urinary-5HIAA, which has been our biomarker that we have tracked since preclinical development all the way through to this particular study.

This reduction in 5HIAA correlated with improvements in multiple clinical assessments, and we believe this represents a very important handle for us in moving the compound forward and being able to prospectively identify patients who might respond to the therapy, as well as help guide us as to the appropriate degree of reduction that may correlate with improvements in activity going forward. So, at this point, we are continuing to work on the formulation to improve upon its characteristics.

As you might note in the study where we showed activity, it was a very unsophisticated form of the compound and we believe there is great opportunity in improving its formulation characteristics to reduce the amount of drug or the frequency at which its given to maintain the same degree of effects in the next series of studies. As we work on the formulation we anticipate doing to PKCD bridging study that will evaluate the new forms.

We are in the process of initiating 13-week toxicology studies and those are the activities we will roll into the design and initiation of the 2b study. Moving into LX1032, this is the peripherally acting inhibitor of serotonin synthesis which we've positioned in the setting carcinoid syndrome.

As you recall, this has both fast track status in the US, as well as orphan status in the EU, and we believe represents a unique in the setting of a very unmet medical need area of carcinoid syndrome. We currently have two studies ongoing in the US; it’s a placebo controlled that’s recruiting well and progressing appropriately at this point.

The European we initiated in the late spring timeframe. It's an open label construct and it also is progressing very well.

We have amended the US IND to allow for continued access to drug. There are a number of patients now which have completed the four-week double blind treatment period and importantly we need to maintain access compound for them in light of the fact that its safety and tolerability profile continues to perform well, and they perceived to be some benefits from that.

So, we’ve admitted the protocol to allow continued access for those stations, we wish continued access to it. As Arthur mentioned, we are anticipating initial results on these studies to occur in the second half of this year.

Finally, 2931, as Arthur mentioned, this is our compound directed towards rheumatoid arthritis. We have had a fairly large Phase 2a study ongoing in a number of countries and very important milestone having one that, we’ve completed enrollment in this study.

Slightly over 200 patients have been enrolled at present and we are just waiting for the study to wind down and we would anticipate having the study results towards the end of this year. So things have continued to progress very nicely across a number of fronts and I think very important findings continuing to emerge from our programs that we have reported out.

So, with that I hand it over to Jeff for an update on the financial results.

Thank you, Phil. I will provide a brief financial update.

As indicated in our press release today, we had revenues from the 2010 second quarter of $1.2 million, a decrease of 59% from $3 million for the prior year period. The decrease was primarily due to reduced revenues under our drug discovery alliances with N.V.

Organon and Bristol-Myers Squibb. For the six months ended June 30, 2010, our revenues decreased 60% to $2.9 million from $7.2 million for the prior year period.

Our research and development expenses for the 2010 second quarter were $20.2 million which is consistent with the prior year period and for the six months ended June 30, 2010, our R&D expenses decreased 4% from $41.3 million from $43.1 million for the prior year period. Our general and administrative expenses for the 2010 second quarter were $5.1 million, a decrease of 9% from $5.6 million for the prior year period.

The decrease was primarily attributable to lower patent related legal costs. For the six months ended June 30, 2010, our G&A expenses increased 2% to $10.6 million from $10.4 million for the prior year period.

Our net loss for the three months ended June 30, 2010 was $25.2 million of $0.07 per share compared to a net loss of $20.1 million or $0.15 per share in the prior year period. Net loss for the six months ended June 30, 2010 was $51.3 million or $0.19 per share, compared to a net loss of $41.6 million or $0.03 per share for the corresponding period in 2009.

For the three and six months ended June 30, 2010, our net loss included non-cash stock-based compensation expense of $1.3 million and $2.6 million respectively. For the three and six months ended June 30, 2009, net loss included non-cash of stock-based compensation expense of $1.4 million and $2.8 million respectively.

Let me turn to our cash and investments. As of June 30, 2010, we had $255.8 million in cash and investments net of our obligation under the credit lines secured by our auction rate securities.

That compared to $278.7 million as of March 31, 2010, and $125.1 million as of December 31, 2009. On June 30th, extracts our rights related to our auction rate securities in UBS AG, the investment bank consultant for the auction rates securities purchased our remaining $23.6 million of auction rate securities at per value on July 1, 2010.

Now, let’s turn to our forward looking financial guidance for 2010. We are on track to achieve our year end guidance.

Our contractual revenues from existing agreements for 2010 should continue to be in the range of $4 million to $5 million. As we have previously communicated while we are in conversations with pharmaceutical companies we enter into potential collaborations or alliances we have not included forecasted revenues from those potential arrangements in our guidance.

We do believe that our protected pipeline will provide Lexicon with attractive opportunities for alliances in the future. We continue to expect operating expenses for 2010 in the range of $100 million to $110 million, non-cash expenses will be approximately $10 million in that total and that includes $5 million in stock-based compensation and $5 million in depreciation and amortization.

I should note that these numbers do not reflect the accounting impact of the Symphony transaction which we are continuing to work through. Taking into account cash received under existing contractual relationships only, we expect our 2010 net cash yield operations to be in the range of $90 million to $95 million.

These numbers do not include the $10 million cash payment made in connection with the Symphony transaction. Returning to that transaction, finally, as we now announced last week, we exercised a restructured purchase option under our drug development financing collaboration with Symphony Icon Holdings and acquired all the equity of Symphony Icon, Inc., thereby reacquiring all rights to LX1031, 1032 and 1033 and the other programs that were subject to that collaboration.

We and Symphony agreed to revise terms under which we paid Symphony Icon Holdings a $10 million cash payment at closing and we agreed to make certain additional deferred and contingent payments. The deferred payments will be in an amount equal to $50 million less than 50% share of the expenses we incur after our exercise of the purchase option for the development of LX1031, LX1032, and LX1033 and other compounds against the same target subject to certain infections for studies that are currently in progress and up to an aggregate reduction of $15 million.

The deferred payments are payable at our discretion at any time before July 30, 2013. The contingent payments will consist of the 50% share of any consideration we receive under our licensing transactions, under which we grant third party rights to commercialize a drug candidate from the 103[ph] programs, subject to certain exceptions that to a maximum of $30 million plus the amount of any reduction in the deferred payments from our development expenses with the 103 program.

The contingent payments will be due if and when we receive that consideration from the licensing transaction. We will make an alternative contingent payment in lieu of the share of licensing consideration in the event that we receive regulatory approval in the United States where the marketing and sales of product resulted from one of these programs, before we enter into a licensing transaction for the commercialization of that program in the United States.

The total of that front and all deferred and contingent payments will not exceed $90 million purchase of the exercised price applicable under the terms of the purchase options that were in effect before the restructured agreements were signed. The deferred payments and the contingent payments may be paid in cash, common stock or in combination of cash and common stock in our discretion, provided that at least 50% of any payment made on or prior to July 30, 2012 will be paid in common stock and no more than 50% of any payment made after that day will be paid in common stock.

We are very pleased with this outcome for our Symphony collaboration an outcome that provides us with greater strategic and partnership flexibility around programs that we believe have demonstrated value. I will now turn the call back to Arthur.

Thank you, Jeff, and so we can now take questions.

First on the upcoming carcinoid data, can you remind us of the primary end points of the US and European studies, I believe that there is safety, but that you are also looking at some efficacy measures like bowel movements. Is there any more detail you can provide?

Sure, so as you mentioned first and foremost safety and tolerability is the key consideration for both of these studies. Importantly, based on the fact that they have the regulatory status they do, it’s unmet medical need we are, closely following a number of clinically meaningful end points that we believe would be important from a regulatory standpoint.

That includes a number of bowel movements as well as a number of flushing episodes that these patients are experiencing. We have also integrated into these studies a number of subjective symptom parameters such as global endpoints, similar to the way IBS studies are evaluated.

In addition to that, we are following the biomarkers of interest of course.

Second question actually on the financials. I know you said that you're still evaluating the impact of the Symphony on the accounting.

Can you give us some rough idea of what's going to happen to the R&D and SG&A line items following the close of this transaction? Are they likely to go up meaningfully or is it more likely to be a small movement in any direction?

So in terms of our spending on the programs, which I think it's the key element of this, we don’t expect there to be any significant difference for the balance of this year in our expenses. We will have to account for the acquisition itself and that’s what we are still looking in the accounting.

In terms of operations of the company and how much we expect to invest in these programs over the balance of the year, we don’t expect the acquisition to have a meaningful impact on that.

With respect to the amendment on the carcinoid trial so presumably now you do have patients that have gone through their four-week extension program post the dose escalation?

Yeah. It's a double-blind treatment by the way.

So, it’s a serial dose escalation in cohort. So, as cohorts finish we escalate to the next dose level.

We have now completed several of those cohorts and individuals have completed the four-week double-blind treatment period.

Then you will obviously urinary-5HIAA here again as a biomarker, considering you're offsetting DPH1. just wondering if you envision that having as much utility as it appears to have in IBS right now?

Again it’s a very different construct in the setting of carcinoid as well as IBS. IBS of course is a functional disorder where nobody fully understands the pathophysiology that’s creating the symptom.

So, the importance of the biomarker there is profound in terms of its essential utility. In carcinoid syndrome, urinary-5HIAA is the diagnostic marker that’s utilized in identifying these patients.

Going back to literature with pCPA, where they recorded a nice improvement symptom control but it didn’t normalization of 5HIAA. So, we're of course tracking that as a pharmacokinetic biomarker.

We believe that we will be impacting urinary-5HIAA but most importantly we need to control symptoms in this station. So, that’s the key to the study.

We will continue to of course follow the biomarkers and really as the symptoms begin to emerge as the most important parameter in carcinoid.

With respect to looking beyond the Phase 1, 2 data we're going to see here by year-end, where do you think the company, I guess, needs to be from both a clinical perspective and what kind of regulatory guidance do you think you are going to need in order to maybe to leverage this data into a Phase 2 program potentially in 2011?

Well, the way it is that we have met with the EMEA to obtain our orphan status as well as the FDA where we brought the compound into the clinic. We outlined at that point in time a projected development pathway for the compound.

I think it's going to be important as we get this data to revisit with both of these regulatory authorities in terms of obtaining guidance and then refreshing or updating them with the status of the program. As you may know, in the US while they want a first compound for this and it's not clear that there is a standard development pathway in place to impact symptom.

So, I think there is a great opportunity here as we get our data and show improvement with an oral agent that we should have a relatively straightforward pathway to further development of the compound but that’s going to require some dialog with the FDA, as well EMEA once we have the European study completed.

Thank you. So, if I could just review on one slide some of the upcoming milestones to look forward to over the next year.

I think bridge program LX4211 we're going to see progress on the bioequivalent study which should be completed in this next half of this year. That should provide the company with visibility with respect to the solid oral dose formulation to use in the 2b as well as then refine our plans to the 2b which we anticipate initiating in the first half of 2011.

So that bioequivalent study I think will be an interesting step forward for the program. Again that should be the upcoming half year.

For LX1031, we would like to see the same thing happen, see bioequivalent study performed on the new formulation. We've accumulated some data preclinically on that and that will enable us design the next step for that program as well having a handle on the results by the end of the year from the preclinical side.

Then the next two programs, as you've heard from Phil, there are at a very exciting because there are on deck to have proof of concept read out from both of these programs. I think for carcinoid syndrome around year-end, if we are fortunate enough to have both studies read out that would of course be tremendous but either study have the capacity to give us results that we would need to make future decisions.

LX2931, having completed the enrolment, that is a very significant step forward and a very large at this stage of development, 208 patients. Given that that enrolment is complete we can really, I think, definitively map out getting results at the end of the year.

So, that will be a very important event for us. Finally, on the business front, the Symphony transaction being renegotiated into the form that you've heard described by Jeff Wade is really an excellent event for the company, an accomplishment.

It has been an alliance that has been very productive for us. The Symphony team has been a significant positive in terms of working with the company in our development pathway not just for the financial dedication to the program but also the developmental expertise that they brought to bear.

We've enjoyed working Symphony. It's been a productive alliance, and I think now we are ready for the next phase of developmental programs with Lexicon having regained complete control of the program.

So, with that, I'd like to thank everyone for participating and we look forward to keeping you updated in the future, bye-bye.