LEXICON PHARMACEUTICALS, INC. - FORM 10-Q - May 8, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 (Mark One)
 
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2014

or

q
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____________ to _____________
 
Commission File Number:  000-30111
 
Lexicon Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
76-0474169
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)

8800 Technology Forest Place
The Woodlands, Texas 77381
(Address of Principal Executive Offices and Zip Code)

(281) 863-3000
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes
þ
 
No
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
þ
 
No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer             Accelerated filer    þ     Non-accelerated filer             Smaller reporting company          
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes
 
 
No
þ
 
As of May 6, 2014, 514,942,165 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.


Lexicon Pharmaceuticals, Inc.
 
Table of Contents
 
 
 
Page
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2
Item 6.
 

The Lexicon name and logo are registered trademarks and Genome5000™ is a trademark of Lexicon Pharmaceuticals, Inc.
 
——————

Factors Affecting Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Part II, Item 1A. - Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are not under any duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual results, unless required by law.


2

Part I – Financial Information
 
Item 1.                 Financial Statements
 
Lexicon Pharmaceuticals, Inc.

Consolidated Balance Sheets
(In thousands, except par value)
 
 
 
As of March 31,
 
As of December 31,
 
 
2014
 
2013
Assets
 
(unaudited)
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
46,517

 
$
37,499

Short-term investments, including restricted investments of $430
 
51,850

 
91,629

Accounts receivable, net of allowances of $35
 
471

 
790

Prepaid expenses and other current assets
 
6,570

 
4,636

Total current assets
 
105,408

 
134,554

Property and equipment, net of accumulated depreciation and amortization of $80,747 and $81,945, respectively
 
39,959

 
41,362

Goodwill
 
44,543

 
44,543

Other intangible assets
 
53,557

 
53,557

Other assets
 
133

 
144

Total assets
 
$
243,600

 
$
274,160

Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
7,072

 
$
9,715

Accrued liabilities
 
7,952

 
7,674

Current portion of deferred revenue
 
903

 
195

Current portion of long-term debt
 
1,746

 
1,710

Total current liabilities
 
17,673

 
19,294

Deferred revenue, net of current portion
 
12,679

 
13,405

Long-term debt
 
19,711

 
20,167

Deferred tax liabilities
 
18,745

 
18,745

Other long-term liabilities
 
34,017

 
32,386

Total liabilities
 
102,825

 
103,997

Commitments and contingencies
 

 

Equity:
 
 
 
 
Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued and outstanding
 
—

 
—

Common stock, $.001 par value; 900,000 shares authorized; 515,784 and 514,349 shares issued, respectively
 
516

 
514

Additional paid-in capital
 
1,177,432

 
1,175,108

Accumulated deficit
 
(1,034,793
)
 
(1,003,958
)
Accumulated other comprehensive gain
 
10

 
2

Treasury stock, at cost, 1,281 and 814 shares, respectively
 
(2,390
)
 
(1,503
)
Total equity
 
140,775

 
170,163

Total liabilities and equity
 
$
243,600

 
$
274,160


The accompanying notes are an integral part of these consolidated financial statements. 


3

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Revenues:
 
 
 
 
Collaborative research
 
$
172

 
$
284

Subscription and license fees 
 
105

 
76

Total revenues 
 
277

 
360

Operating expenses:
 
 
 
 
Research and development, including stock-based compensation of $1,458 and $1,330, respectively
 
23,953

 
20,327

Increase in fair value of Symphony Icon, Inc. purchase liability
 
1,142

 
1,264

General and administrative, including stock-based compensation of $792 and $779, respectively
 
5,654

 
4,324

Total operating expenses
 
30,749

 
25,915

Loss from operations 
 
(30,472
)
 
(25,555
)
Interest income 
 
8

 
53

Interest expense 
 
(457
)
 
(506
)
Other income, net
 
86

 
34

Consolidated net loss
 
$
(30,835
)
 
$
(25,974
)
Consolidated net loss per common share, basic and diluted
 
$
(0.06
)
 
$
(0.05
)
Shares used in computing consolidated net loss per common share, basic and diluted  
 
513,955

 
512,428

 
 
 
 
 
Other comprehensive loss:
 
 
 
 
Unrealized gain on investments
 
8

 
19

Comprehensive loss
 
$
(30,827
)
 
$
(25,955
)


The accompanying notes are an integral part of these consolidated financial statements.


4

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)


 
 
Common Stock
 
Additional
 
 
 
Accumulated Other
 
 
 
 
 
 
Shares
 
Par Value
 
Paid-In Capital
 
Accumulated Deficit
 
Comprehensive Gain
 
Treasury Stock
 
Total
Balance at December 31, 2012
 
512,375

 
$
512

 
$
1,166,605

 
$
(899,832
)
 
$
23

 
$
(630
)
 
$
266,678

Stock-based compensation
 
—

 
—

 
2,109

 
—

 
—

 
—

 
2,109

Issuance of common stock under Equity Incentive Plans
 
1,460

 
2

 
247

 
—

 
—

 
—

 
249

Repurchase of common stock
 
—

 
—

 
—

 
—

 
—

 
(873
)
 
(873
)
Net loss
 
—

 
—

 
—

 
(25,974
)
 
—

 
—

 
(25,974
)
Unrealized gain on investments
 
—

 
—

 
—

 
—

 
19

 
—

 
19

Balance at March 31, 2013
 
513,835

 
$
514

 
$
1,168,961

 
$
(925,806
)
 
$
42

 
$
(1,503
)
 
$
242,208

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
514,349

 
$
514

 
$
1,175,108

 
$
(1,003,958
)
 
$
2

 
$
(1,503
)
 
$
170,163

Stock-based compensation
 
—

 
—

 
2,250

 
—

 
—

 
—

 
2,250

Issuance of common stock under Equity Incentive Plans
 
1,435

 
2

 
74

 
—

 
—

 
—

 
76

Repurchase of common stock
 
—

 
—

 
—

 
—

 
—

 
(887
)
 
(887
)
Net loss
 
—

 
—

 
—

 
(30,835
)
 
—

 
—

 
(30,835
)
Unrealized gain on investments
 
—

 
—

 
—

 
—

 
8

 
—

 
8

Balance at March 31, 2014
 
515,784

 
$
516

 
$
1,177,432

 
$
(1,034,793
)
 
$
10

 
$
(2,390
)
 
$
140,775



The accompanying notes are an integral part of these consolidated financial statements.


5

Lexicon Pharmaceuticals, Inc.
 
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Consolidated net loss
 
$
(30,835
)
 
$
(25,974
)
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
 
 
 
 
Depreciation
 
644

 
793

Impairment of fixed assets
 
242

 
—

Increase in fair value of Symphony Icon, Inc. purchase liability
 
1,142

 
1,264

Stock-based compensation
 
2,250

 
2,109

Gain on disposal of property and equipment
 
(264
)
 
—

Changes in operating assets and liabilities:
 
 
 
 
Decrease in accounts receivable
 
319

 
515

Increase in prepaid expenses and other current assets
 
(1,934
)
 
(2,089
)
Decrease in other assets
 
11

 
21

Decrease in accounts payable and other liabilities
 
(1,876
)
 
(905
)
Decrease in deferred revenue
 
(18
)
 
(5
)
Net cash used in operating activities
 
(30,319
)
 
(24,271
)
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(28
)
 
(839
)
Proceeds from disposal of property and equipment
 
809

 
57

Purchases of investments
 
(20,651
)
 
(80,954
)
Maturities of investments
 
60,438

 
110,843

Net cash provided by investing activities
 
40,568

 
29,107

Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of common stock
 
76

 
249

Repurchase of common stock
 
(887
)
 
(873
)
Repayment of debt borrowings
 
(420
)
 
(387
)
Net cash used in financing activities
 
(1,231
)
 
(1,011
)
Net increase in cash and cash equivalents
 
9,018

 
3,825

Cash and cash equivalents at beginning of period
 
37,499

 
30,423

Cash and cash equivalents at end of period
 
$
46,517

 
$
34,248

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
$
447

 
$
480

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
Unrealized gain on investments
 
$
8

 
$
19


The accompanying notes are an integral part of these consolidated financial statements.


6

Lexicon Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements
(Unaudited)
 
1.      Basis of Presentation
 
The accompanying unaudited consolidated financial statements of Lexicon Pharmaceuticals, Inc. (“Lexicon” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
 
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.
 
The accompanying consolidated financial statements include the accounts of Lexicon and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.
For further information, refer to the financial statements and footnotes thereto included in Lexicon’s annual report on Form 10-K for the year ended December 31, 2013, as filed with the SEC.
 
2.      Net Loss Per Share
 
Net loss per share is computed using the weighted average number of shares of common stock outstanding during the applicable period and excludes shares underlying stock options and restricted stock units because they are antidilutive.  There are no differences between basic and diluted net loss per share for all periods presented.
 
3.      Stock-Based Compensation
 
The Company recorded $2.3 million and $2.1 million of stock-based compensation expense for the three months ended March 31, 2014 and 2013, respectively.  The Company utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions for options granted in the three months ended March 31, 2014 and 2013:
 
 
Expected Volatility
 
Risk-free Interest Rate
 
Expected Term
 
Dividend
Rate
March 31, 2014:
 
 
 
 
 
 
 
 
Employees
 
66
%
 
1.1
%
 
4
 
—
%
Officers and non-employee directors
 
80
%
 
2.3
%
 
8
 
—
%
March 31, 2013:
 
 
 
 
 
 
 
 
Employees
 
91
%
 
0.8
%
 
5
 
—
%
Officers and non-employee directors
 
81
%
 
1.6
%
 
8
 
—
%


7

The following is a summary of option activity under Lexicon’s stock-based compensation plans for the three months ended March 31, 2014:
 
 
 
Options
 
Weighted Average Exercise Price
 
 
(in thousands)
 
 
Outstanding at December 31, 2013
 
23,306

 
$
2.42

Granted
 
3,151

 
1.72

Exercised
 
(51
)
 
1.49

Expired
 
(665
)
 
7.10

Forfeited
 
(203
)
 
2.08

Outstanding at March 31, 2014
 
25,538

 
2.21

Exercisable at March 31, 2014
 
18,014

 
$
2.35


During the three months ended March 31, 2014, Lexicon also granted its employees annual restricted stock units. These restricted stock units vest in four annual installments. The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the three months ended March 31, 2014:
 
 
Shares
 
Weighted Average Grant Date
Fair Value
 
 
(in thousands)
 
 
Outstanding at December 31, 2013
 
4,242

 
$
1.93

Granted
 
1,596

 
1.72

Vested
 
(1,384
)
 
1.90

Forfeited
 
(771
)
 
1.94

Nonvested at March 31, 2014
 
3,683

 
$
1.85

    


8

4.      Cash and Cash Equivalents and Investments
 
The fair value of cash and cash equivalents and investments held at March 31, 2014 and December 31, 2013 are as follows: 
 
 
As of March 31, 2014
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
 
(in thousands)
Cash and cash equivalents
 
$
46,517

 
$
—

 
$
—

 
$
46,517

Securities maturing within one year:
 
 
 
 
 
 
 
 
Certificates of deposit
 
552

 
—

 
—

 
552

U.S. treasury securities
 
51,288

 
10

 
—

 
51,298

Total short-term investments
 
$
51,840

 
$
10

 
$
—

 
$
51,850

Total cash and cash equivalents and investments
 
$
98,357

 
$
10

 
$
—

 
$
98,367

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
 
 
 
(in thousands)
 
 
Cash and cash equivalents
 
$
37,499

 
$
—

 
$
—

 
$
37,499

Securities maturing within one year:
 
 
 
 
 
 
 
 
Certificates of deposit
 
552

 
—

 
—

 
552

U.S. treasury securities
 
91,075

 
3

 
(1
)
 
91,077

Total short-term investments
 
$
91,627

 
$
3

 
$
(1
)
 
$
91,629

Total cash and cash equivalents and investments
 
$
129,126

 
$
3

 
$
(1
)
 
$
129,128


There were no realized gains or losses for the three months ended March 31, 2014, and no realized gains or losses for the three months ended March 31, 2013. The cost of securities sold is based on the specific identification method.

5.      Fair Value Measurements
 
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. The following levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities:

•
Level 1 - quoted prices in active markets for identical investments, which include U.S. treasury securities

•
Level 2 - other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

•
Level 3 - significant unobservable inputs (including the Company’s own assumptions in determining the fair value of the Symphony Icon purchase consideration liability)


9

The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities. The following table provides the fair value measurements of applicable Company assets and liabilities that are measured at fair value on a recurring basis according to the fair value levels described above as of March 31, 2014 and December 31, 2013.

 
 
Assets and Liabilities at Fair Value as of March 31, 2014
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in thousands)
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
46,517

 
$
—

 
$
—

 
$
46,517

Short-term investments
 
51,298

 
552

 
—

 
51,850

Total cash and cash equivalents and investments
 
$
97,815

 
$
552

 
$
—

 
$
98,367

Liabilities
 
 
 
 
 
 
 
 
Other long-term liabilities
 
$
—

 
$
—

 
$
28,852

 
$
28,852

Total liabilities
 
$
—

 
$
—

 
$
28,852

 
$
28,852

 
 
Assets and Liabilities at Fair Value as of December 31, 2013
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in thousands)
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
37,499

 
$
—

 
$
—

 
$
37,499

Short-term investments
 
91,077

 
552

 
—

 
91,629

Total cash and cash equivalents and investments
 
$
128,576

 
$
552

 
$
—

 
$
129,128

Liabilities
 
 
 
 
 
 
 
 
Other long-term liabilities
 
$
—

 
$
—

 
$
27,710

 
$
27,710

Total liabilities
 
$
—

 
$
—

 
$
27,710

 
$
27,710


The Company’s Level 3 liabilities are estimated using a probability-based income approach utilizing an appropriate discount rate. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as an increase or decrease in Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. The following table summarizes the change in consolidated balance sheet carrying value associated with Level 3 liabilities for the three months ended March 31, 2014 and 2013.
 
 
Other Long-term Liabilities
 
 
(in thousands)
Balance at December 31, 2013
 
$
27,710

Change in valuation of purchase consideration payable to former Symphony Icon stockholders
 
1,142

Balance at March 31, 2014
 
$
28,852

 
 
 
Balance at December 31, 2012
 
$
29,920

Change in valuation of purchase consideration payable to former Symphony Icon stockholders
 
1,264

Balance at March 31, 2013
 
$
31,184

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include goodwill associated with the acquisitions of Coelacanth Corporation in 2001 and Symphony Icon in 2010 and intangible assets associated with the acquisition of Symphony Icon in 2010. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired.

6.      Debt Obligations
 
Mortgage Loan.  In April 2004, Lexicon obtained a $34.0 million mortgage on its facilities in The Woodlands, Texas.  The mortgage loan originally had a ten-year term with a 20-year amortization and a fixed interest rate of 8.23%. The

10

mortgage was amended in September 2013 to extend the maturity date from April 2014 to April 2017, with the mortgage loan’s monthly payment amount and fixed interest rate each remaining unchanged.  The mortgage had a principal balance outstanding of $21.5 million as of March 31, 2014. The fair value of Lexicon’s mortgage loan approximates its carrying value.  The fair value of Lexicon’s mortgage loan is estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rate.

7.      Arrangements with Symphony Icon, Inc.
     
On June 15, 2007, Lexicon entered into a series of related agreements providing for the financing of the clinical development of certain of its drug candidates, including LX1032 and LX1033, along with any other pharmaceutical compositions modulating the same targets as those drug candidates (the “Programs”). The agreements included a Novated and Restated Technology License Agreement pursuant to which the Company licensed to Symphony Icon, a then wholly-owned subsidiary of Holdings, the Company's intellectual property rights related to the Programs. Holdings contributed $45 million to Symphony Icon in order to fund the clinical development of the Programs.

Under a Share Purchase Agreement, dated June 15, 2007, between the Company and Holdings, the Company issued and sold to Holdings 7,650,622 shares of its common stock on June 15, 2007 in exchange for $15 million and an exclusive purchase option (the “Purchase Option”) that gave the Company the right to acquire all of the equity of Symphony Icon, thereby allowing the Company to reacquire all of the Programs. On July 30, 2010, Lexicon entered into an Amended and Restated Purchase Option Agreement with Symphony Icon and Holdings and simultaneously exercised the Purchase Option, thereby reacquiring the Programs. Pursuant to the amended terms of the Purchase Option, Lexicon paid Holdings $10 million on July 30, 2010 and issued 13,237,519 shares of common stock to designees of Holdings on July 30, 2012 in satisfaction of an additional $35 million base payment obligation.

Lexicon also agreed to make up to $45 million in additional contingent payments, which will consist of 50% of any consideration Lexicon receives pursuant to any licensing transaction (a “Licensing Transaction”) under which Lexicon grants a third party rights to commercialize LX1032, LX1033 or other pharmaceutical compositions modulating the same target as those drug candidates (the “LG103 Programs”), subject to certain exceptions. The contingent payments will be due if and when Lexicon receives such consideration from a Licensing Transaction. In the event Lexicon receives regulatory approval in the United States for the marketing and sale of any product resulting from the LG103 Programs prior to entering into a Licensing Transaction for the commercialization of such product in the United States, in lieu of any contingent payment from such a Licensing Transaction, Lexicon will pay Holdings the sum of $15 million and the amount of certain expenses Lexicon incurred after its exercise of the Purchase Option which are attributable to the development of such product, reduced by up to 50% of such sum on account of any contingent payments paid prior to such United States regulatory approval attributable to any such Licensing Transaction outside of the United States with respect to such product. In the event Lexicon makes any such payment upon United States regulatory approval, Lexicon will have no obligation to make subsequent contingent payments attributable to any such Licensing Transactions for the commercialization of such product outside the United States until the proceeds of such Licensing Transactions exceed 50% of the payment made as a result of such United States regulatory approval. The contingent payments may be paid in cash or a combination of cash and common stock, in Lexicon’s discretion, provided that no more than 50% of any contingent payment will be paid in common stock.

Lexicon accounted for the exercise of the Purchase Option and acquisition of Symphony Icon as a business combination. In connection with its acquisition of Symphony Icon, Lexicon paid $10.0 million in cash, and also agreed to pay Holdings additional base and contingent payments as discussed above. The fair value of the base and contingent consideration payments was $45.6 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. Key assumptions include: (1) a discount rate of 14% for the base payments; (2) a discount rate of 18% for the contingent payments; and (3) a probability adjusted contingency. The discount rate assumptions have not changed through March 31, 2014, and as programs progress, the probability adjusted contingency is adjusted as necessary. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as increase or decrease in fair value of Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. During the three months ended March 31, 2014 and 2013, the fair value of the Symphony Icon purchase consideration liability increased by $1.1 million and $1.3 million, respectively.

11


8.      Commitments and Contingencies
 
Operating Lease Obligations:  A Lexicon subsidiary leases laboratory and office space in Hopewell, New Jersey under an agreement which expires in June 2018.  Rent expense is recognized on a straight-line basis over the lease term.  Lexicon is the guarantor of the obligations of its subsidiary under this lease.  The maximum potential amount of future payments the Company could be required to make under this agreement is $4.1 million as of March 31, 2014. The Company is required to maintain restricted investments to collateralize a standby letter of credit for this lease.  The Company had $0.4 million and $0.4 million in restricted investments as collateral as of March 31, 2014 and December 31, 2013, respectively. Additionally, Lexicon leases certain equipment under operating leases.
 
Legal Proceedings.  Lexicon is from time to time party to claims and legal proceedings that arise in the normal course of its business and that it believes will not have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity.
 
9.      Collaboration and License Agreements
 
Lexicon has derived substantially all of its revenues from drug discovery and development collaborations, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales. Revenues generated from third parties under collaborative arrangements are recorded on a gross basis on the consolidated statements of comprehensive loss as Lexicon is the principal participant for these transactions for the purpose of accounting for these arrangements.
10. Restructuring Charges

In January 2014, Lexicon’s board of directors committed to narrow its strategic initiatives and focus resources on its late-stage drug development programs, principally LX4211 for diabetes and telotristat etiprate (LX1032) for carcinoid syndrome, in preparation for the transition to commercialization. The decision will result in a workforce reduction of approximately 125 employees, primarily in research, discovery and support positions, representing approximately 50% of the Company’s total workforce. The Company expects to complete the majority of the workforce reduction by the end of the second quarter of 2014.

The Company currently expects that the total charges associated with the restructuring that will result in cash expenditures will be approximately $5.8 million to $6.3 million (which includes charges for severance of approximately $5.3 million and other restructuring costs of approximately $0.5 million to $1.0 million), of which $4.0 million was incurred through March 31, 2014. Of this charge, $3.6 million was recorded in research and development expense and $0.4 million was recorded in general and administrative expense in the accompany consolidated statement of comprehensive loss for the three months ended March 31, 2014. In addition, the Company recorded stock-based compensation expense on the acceleration of vesting relating to the restructuring of $0.1 million in the three months ended March 31, 2014. Future payments of restructuring charges, which have been recorded in accrued liabilities in the accompanying consolidated balance sheet, was $1.1 million as of March 31, 2014.

12


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
We are a biopharmaceutical company focused on the development of breakthrough treatments for human disease. We have advanced multiple drug candidates into clinical development. We are presently devoting most of our resources to the
development of our two most advanced drug candidates, LX4211 for diabetes and telotristat etiprate for carcinoid syndrome.
Our most advanced drug candidates, as well as compounds from a number of additional drug discovery and development
programs that we have advanced into various stages of clinical and preclinical development, originated from our own internal
drug discovery efforts. These efforts were driven by a systematic, target biology-driven approach in which we used gene
knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological
and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding
human genes as potential drug targets. We identified and validated in living animals, or in vivo, more than 100 targets with
promising profiles for drug discovery.

We are working both independently and through strategic collaborations and alliances with third parties to capitalize
on our drug target discoveries, and we intend to pursue the same strategy for our drug candidates in clinical development.
Consistent with this approach, we seek to retain exclusive rights to the benefits of certain drug discovery and development
programs by developing and commercializing drug candidates from those programs internally and to collaborate with other
pharmaceutical and biotechnology companies with respect to the development and commercialization of drug candidates from
other programs, particularly when the collaboration may provide us with access to expertise and resources that we do not
possess internally or are complementary to our own. We also seek to collaborate with other pharmaceutical and biotechnology
companies, research institutes and academic institutions to capitalize on our drug target discoveries.

We have derived substantially all of our revenues from drug discovery and development collaborations, research collaborations and technology licenses, and will continue to do so for the foreseeable future. To date, we have generated a substantial portion of our revenues from a limited number of sources.    
    
Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors,
including our success in establishing new collaborations and licenses, the success rate of our development efforts leading to
opportunities for new collaborations and licenses, the timing and willingness of collaborators to commercialize products that
would result in milestone payments and royalties and their success in such efforts, and general and industry-specific economic
conditions which may affect research and development expenditures. Future revenues from our existing collaborations are
uncertain because they depend, to a large degree, on the achievement of milestones and payment of royalties we earn from any
future products developed under the collaboration. As a result, we depend, in part, on securing new collaborations and license
agreements. Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of
our potential future collaborators and licensees, and to negotiate agreements that we believe are in our long-term best
interests. We may determine, as we have with certain of our clinical drug candidates, that our interests are better served by
retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term
revenues. Because of these and other factors, our operating results have fluctuated in the past and are likely to do so in the
future, and we do not believe that period-to-period comparisons of our operating results are a good indication of our future
performance.

Since our inception, we have incurred significant losses and, as of March 31, 2014, we had an accumulated deficit of $1.0 billion. Our losses have resulted principally from costs incurred in research and development, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants. Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our preclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs. General and administrative expenses consist primarily of salaries and related expenses for executive and administrative personnel, professional fees and other corporate expenses, including information technology, facilities costs and general legal activities. We expect to continue to incur significant research and development costs in connection with the continuing development of our drug candidates. As a result, we will need to generate significantly higher revenues to achieve profitability.
Critical Accounting Policies
 
The preparation of financial statements in conformity with generally accepted accounting principles requires us to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying

13

notes.  Actual results could differ from those estimates.  We believe there have been no significant changes in our critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended December 31, 2013.
 
Recent Accounting Pronouncements
 
There are no recent accounting pronouncements that have a material impact on our consolidated financial statements.
 
Results of Operations
 
Revenues
 
Total revenues and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions):
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Total revenues
 
$
0.3

 
$
0.4

Dollar decrease
 
$
(0.1
)
 
 
Percentage decrease
 
(23
)%
 
 
 
•
Collaborative research – Revenue from collaborative research for the three months ended March 31, 2014 decreased from $0.3 million to $0.2 million primarily due to decreased revenues under our alliance with Taconic Farms.

•
Subscription and license fees – Revenue from subscriptions and license fees for the three months ended March 31, 2014 was $0.1 million, consistent with the corresponding period in 2013.
 
Research and Development Expenses
 
Research and development expenses and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions): 
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Total research and development expense
 
$
24.0

 
$
20.3

Dollar increase
 
$
3.6

 
 
Percentage increase
 
18
%
 
 
Research and development expenses consist primarily of salaries and other personnel-related expenses, third-party and other services principally related to preclinical and clinical development activities, facility and equipment costs, stock-based compensation expense, and laboratory supplies costs.
  
•
Personnel – Personnel costs for the three months ended March 31, 2014 increased 33% to $9.6 million, as compared to the corresponding period in 2013, primarily due to increased severance costs as a result of reductions in personnel in 2014 (see Note 10, Restructuring Charges, of the Notes to Consolidated Financial Statements, for more information). Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

•
Third-party and other services – Third-party and other services for the three months ended March 31, 2014 increased 32% to $9.5 million, as compared to the corresponding period in 2013, primarily due to increases in external clinical research and development costs. Third-party and other services relate principally to our clinical trial and related development activities, such as preclinical and clinical studies and contract manufacturing.

•
Facilities and equipment – Facilities and equipment costs for the three months ended March 31, 2014 was
$2.2 million, consistent with the corresponding period in 2013.

•
Stock-based compensation – Stock-based compensation expense for the three months ended March 31, 2014 increased 10% to $1.5 million, as compared to the corresponding period in 2013.


14

•
Laboratory supplies – Laboratory supplies expense for the three months ended March 31, 2014 decreased 82% to
$0.2 million, as compared to the corresponding period in 2013, primarily due to reductions in research activities.
 
•
Other – Other costs for the three months ended March 31, 2014 decreased 25% to $1.1 million, as compared to the corresponding period in 2013.
 
Increase in Fair Value of Symphony Icon Liability

The increase in fair value of the Symphony Icon purchase liability was $1.1 million and $1.3 million for the three months ended March 31, 2014 and 2013, respectively (see Note 7, Arrangements with Symphony Icon, Inc., of the Notes to Consolidated Financial Statements, for more information).

General and Administrative Expenses
 
General and administrative expenses and dollar and percentage changes as compared to the corresponding period in the prior year are as follows (dollar amounts are presented in millions):
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Total general and administrative expense
 
$
5.7

 
$
4.3

Dollar increase
 
$
1.3

 
 
Percentage increase
 
31
%
 
 
General and administrative expenses consist primarily of salaries and other personnel-related expenses, professional fees such as legal and consulting fees, stock-based compensation expenses, and facility and equipment costs.
 
•
Personnel – Personnel costs for the three months ended March 31, 2014 increased 44% to $3.1 million, as compared to the corresponding period in 2013, primarily due to increased severance costs as a result of reductions in personnel in 2014 (see Note 10, Restructuring Charges, of the Notes to Consolidated Financial Statements, for more information). Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

•
Professional fees – Professional fees for the three months ended March 31, 2014 increased 58% to $1.1 million, as compared to the corresponding period in 2013, primarily due to increased consulting costs in preparation for commercialization.

•
Stock-based compensation – Stock-based compensation expense for the three months ended March 31, 2014 was
$0.8 million, consistent with the corresponding period in 2013.

•
Facilities and equipment – Facilities and equipment costs for the three months ended March 31, 2014 was
$0.4 million, consistent with the corresponding period in 2013.
 
•
Other – Other costs for the three months ended March 31, 2014 was $0.3 million, consistent with the corresponding period in 2013.
 
Interest Income and Interest Expense
 
Interest Income.  Interest income for the three months ended March 31, 2014 and 2013 was $8,000 and $53,000, respectively.
 
Interest Expense.  Interest expense for the three months ended March 31, 2014 was $0.5 million, consistent with the corresponding period in 2013.
 
Consolidated Net Loss and Consolidated Net Loss per Common Share

Consolidated Net Loss and Consolidated Net Loss per Common Share. Consolidated net loss increased to $30.8 million in the three months ended March 31, 2014 from $26.0 million in the corresponding period in 2013. Consolidated

15

net loss per common share increased to $0.06 in the three months ended March 31, 2014 from $0.05 in the corresponding period in 2013.

Our quarterly operating results have fluctuated in the past and are likely to do so in the future, and we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance.

Liquidity and Capital Resources
 
We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments to us under our drug discovery and development collaborations, target validation, database subscription and technology license agreements, government grants and contracts, and financing obtained under debt and lease arrangements. We have also financed certain of our research and development activities under our agreements with Symphony Icon, Inc. From our inception through March 31, 2014, we had received net proceeds of $987.0 million from issuances of common and preferred stock. In addition, from our inception through March 31, 2014, we received $458.0 million in cash payments from drug discovery and development collaborations, target validation, database subscription and technology license agreements, sales of compound libraries and reagents, and government grants and contracts, of which $445.0 million had been recognized as revenues through March 31, 2014.
As of March 31, 2014, we had $98.4 million in cash, cash equivalents and investments. As of December 31, 2013, we had $129.1 million in cash, cash equivalents and investments. We used cash of $30.3 million in operations in the three months ended March 31, 2014. This consisted primarily of the consolidated net loss for the period of $30.8 million and a net increase in other operating assets net of liabilities of $3.5 million, partially offset by non-cash charges of $2.3 million related to stock-based compensation expense, $1.1 million related to the increase in fair value of the Symphony Icon purchase liability and $0.6 million related to depreciation expense. Investing activities provided cash of $40.6 million in the three months ended March 31, 2014, primarily due to net maturities of investments of $39.8 million and proceeds from disposal of property and equipment of $0.8 million. Financing activities used cash of $1.2 million primarily due to repurchase of common stock of $0.9 million and repayment of debt borrowings of $0.4 million.
Symphony Drug Development Financing Agreements. In June 2007, we entered into a series of related agreements providing for the financing of the clinical development of certain drug programs, including LX1032 and LX1033, along with any other pharmaceutical compositions modulating the same targets as those drug candidates. Under the financing arrangement, we licensed to Symphony Icon, Inc., a then wholly-owned subsidiary of Symphony Icon Holdings LLC, our intellectual property rights related to the programs and Holdings contributed $45 million to Symphony Icon in order to fund the clinical development of the programs. We also issued and sold to Holdings shares of our common stock in exchange for $15 million and received an exclusive option to acquire all of the equity of Symphony Icon, thereby allowing us to reacquire the programs.
Upon the recommendation of Symphony Icon’s development committee, which was comprised of an equal number of representatives from us and Symphony Icon, Symphony Icon’s board of directors had the right to require us to pay Symphony Icon up to $15 million for Symphony Icon’s use in the development of the programs in accordance with the specified development plan and related development budget. Through July 2010, Symphony Icon’s board of directors requested us to pay Symphony Icon $9.3 million under the agreement, all of which was paid prior to the exercise of the purchase option in July 2010.
In July 2010, we entered into an amended and restated purchase option agreement with Symphony Icon and Holdings and simultaneously exercised our purchase option. Pursuant to the amended terms of the purchase option, we paid Holdings $10 million in July 2010 and issued 13,237,519 shares of common stock to designees of Holdings in July 2012 in satisfaction of an additional $35 million base payment obligation.
We also agreed to make up to $45 million in additional contingent payments, which will consist of 50% of any consideration we receive pursuant to any licensing transaction under which we grant a third party rights to commercialize LX1032, LX1033 or other pharmaceutical compositions modulating the same target as those drug candidates, which we refer to as the “LG103 programs,” subject to certain exceptions. The contingent payments will be due if and when we receive such consideration from such a licensing transaction. In the event we receive regulatory approval in the United States for the marketing and sale of any product resulting from the LG103 programs prior to entering into such a licensing transaction for the commercialization of such product in the United States, in lieu of any contingent payment from such a licensing transaction, we will pay Holdings the sum of $15 million and the amount of certain expenses we incurred after our exercise of the purchase option which are attributable to the development of such product, reduced by up to 50% of such sum for the amount of any contingent payments paid prior to such United States regulatory approval attributable to any such licensing transaction outside of the United States with respect to such product. In the event we make any such payment upon United States regulatory

16

approval, we will have no obligation to make subsequent contingent payments attributable to any such licensing transactions for the commercialization of such product outside the United States until the proceeds of such licensing transactions exceed 50% of the payment made as a result of such United States regulatory approval.

The contingent payments may be paid in cash or a combination of cash and common stock, in our discretion, provided that no more than 50% of any contingent payment will be paid in common stock.
Texas Institute for Genomic Medicine. In July 2005, we received an award from the Texas Enterprise Fund for the
creation of a knockout mouse embryonic stem cell library containing 350,000 cell lines for the Texas Institute for Genomic
Medicine, or TIGM, using our proprietary gene trapping technology, which we completed in 2007. We also equipped TIGM
with the bioinformatics software required for the management and analysis of data relating to the library. The Texas Enterprise Fund made an additional award to the Texas A&M University System for the creation of facilities and infrastructure to house
the library.

Under the terms of our award, we are responsible for the creation of a specified number of jobs beginning in 2012,
reaching an aggregate of 1,616 new jobs in Texas by December 31, 2016. We will receive credits against those job obligations
based on funding received by TIGM and certain related parties from sources other than the State of Texas. We will also receive
credits against those jobs obligations for any surplus jobs we create. We may be required to repay the state a portion of the
award if we fail to meet those job obligations. Subject to these credits, if we fail to create the specified number of jobs, the
State may require us to repay $2,415 for each job we fall short beginning in 2013. Our maximum aggregate exposure for such
payments, if we fail to create any new jobs, is approximately $14.2 million, including $1.5 million through 2014, without giving effect to any credits to which we may be entitled.

Facilities. In April 2004, we obtained a $34.0 million mortgage on our facilities in The Woodlands, Texas. The mortgage loan originally had a ten-year term with a 20-year amortization and a fixed interest rate of 8.23%. The mortgage was amended in September 2013 to extend the maturity date from April 2014 to April 2017, with the mortgage loan’s monthly payment amount and fixed interest rate each remaining unchanged.  The mortgage had a principal balance outstanding of $21.5 million as of March 31, 2014.
In May 2002, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc. leased a 76,000 square-foot laboratory and office space in Hopewell, New Jersey. Effective December 31, 2012, this lease was amended to decrease the space to approximately 42,000 square feet. The term of the amended lease extends until June 30, 2018. The amended lease provides for escalating yearly base rent payments starting at $836,000 and increasing to $941,000 in the final year of the lease. We are the guarantor of the obligations of our subsidiary under the lease.
Our future capital requirements will be substantial and will depend on many factors, including our ability to obtain drug discovery and development collaborations and other collaborations and technology license agreements, the amount and timing of payments under such agreements, the level and timing of our research and development expenditures, market acceptance of our products, the resources we devote to developing and supporting our products and other factors. Our capital requirements will also be affected by any expenditures we make in connection with license agreements and acquisitions of and investments in complementary technologies and businesses. We expect to devote substantial capital resources to continue our development efforts, to expand our support and product development activities, and for other general corporate activities. We believe that our current unrestricted cash and investment balances and cash and revenues we expect to derive from drug discovery and development collaborations, other collaborations and technology licenses and other sources will be sufficient to fund our operations for at least the next 12 months. During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirements, we will need to sell additional equity or debt securities or obtain additional credit arrangements. Additional financing may not be available on terms acceptable to us or at all. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders.
Disclosure about Market Risk
 
We are exposed to limited market and credit risk on our cash equivalents which have maturities of three months or less
at the time of purchase. We maintain a short-term investment portfolio which consists of U.S. Treasury bills, money market accounts, and certificates of deposit that mature three to 12 months from the time of purchase, which we believe are subject to limited market and credit risk. We currently do not hedge interest rate exposure or hold any derivative financial instruments in our investment portfolio.

We had approximately $98.4 million in cash and cash equivalents and short-term investments as of March 31, 2014. We believe that the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

17

We have operated primarily in the United States and substantially all sales to date have been made in U.S. dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations.
Item 3.                 Quantitative and Qualitative Disclosures About Market Risk
See “Disclosure about Market Risk” under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for quantitative and qualitative disclosures about market risk.

 
Item 4.                 Controls and Procedures
Our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in the reports we file under the Securities Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures as of the end of the period covered by this report.
Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

18

Part II -- Other Information 

Item 1.
Legal Proceedings
 
We are from time to time party to claims and legal proceedings that arise in the normal course of our business and that we believe will not have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or liquidity.
 
Item 1A.  
Risk Factors
 
The following risks and uncertainties are important factors that could cause actual results or events to differ materially from those indicated by forward-looking statements. The factors described below are not the only ones we face and additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Risks Related to Our Need for Additional Financing and Our Financial Results
•
We will need additional capital in the future and, if it is unavailable, we will be forced to significantly curtail or cease our operations. If it is not available on reasonable terms, we will be forced to obtain funds by entering into financing agreements on unattractive terms.

•
We have a history of net losses, and we expect to continue to incur net losses and may not achieve or maintain profitability.

•
Our operating results have been and likely will continue to fluctuate, and we believe that period-to-period comparisons of our operating results are not a good indication of our future performance.

Risks Related to Development of Our Drug Candidates
•
We have not proven our ability to successfully develop and commercialize our drug candidates.

•
Clinical testing of our drug candidates in humans is an inherently risky and time-consuming process that may fail to demonstrate safety and efficacy, which could result in the delay, limitation or prevention of regulatory approval.

Risks Related to Regulatory Approval of Our Drug Candidates
•
Our drug candidates are subject to a lengthy and uncertain regulatory process that may not result in the necessary regulatory approvals, which could adversely affect our ability to commercialize products.

•
If our potential products receive regulatory approval, we or our collaborators will remain subject to extensive and rigorous ongoing regulation.

Risks Related to Commercialization of Products
•
The commercial success of any products that we may develop will depend upon the degree of market acceptance of our products among physicians, patients, health care payors, private health insurers and the medical community.

•
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug candidates, we may be unable to generate product revenues.

•
If we are unable to obtain adequate coverage and reimbursement from third-party payors for any products that we may develop, our revenues and prospects for profitability will suffer.

•
Current and future healthcare laws and regulations may negatively affect our revenues and prospects for profitability.

•
Our competitors may develop products that make our products obsolete.

•
We may not be able to manufacture our drug candidates in commercial quantities, which would prevent us from commercializing our drug candidates.


19

Risks Related to Our Relationships with Third Parties
•
We are dependent in many ways upon our collaborations with major pharmaceutical companies. If we are unable to establish new collaborations, if milestones are not achieved under our collaborations or if our collaborators’ efforts fail to yield pharmaceutical products on a timely basis, our opportunities to generate revenues and earn royalties will be reduced.

•
Conflicts with our collaborators could jeopardize the success of our collaborative agreements and harm our product development efforts.

•
We rely on third parties to carry out drug development activities.

•
We lack the capability to manufacture materials for preclinical studies, clinical trials or commercial sales and rely on third parties to manufacture our drug candidates, which may harm or delay our product development and commercialization efforts.

Risks Related to Our Intellectual Property
•
If we are unable to adequately protect our intellectual property, third parties may be able to use our products and technologies, which could adversely affect our ability to compete in the market.

•
We may be involved in patent litigation and other disputes regarding intellectual property rights and may require licenses from third parties for our planned preclinical and clinical development and commercialization activities. We may not prevail in any such litigation or other dispute or be able to obtain required licenses.

•
We have not sought patent protection outside of the United States for some of our inventions, and some of our licensed patents only provide coverage in the United States. As a result, our international competitors could be granted foreign patent protection with respect to our discoveries.

•
We may be subject to damages resulting from claims that we, our employees or independent contractors have wrongfully used or disclosed alleged trade secrets of their former employers.

Risks Related to Employees, Advisors and Facilities Operations
•
The loss of key personnel or the inability to attract and retain additional personnel could impair our ability to expand our operations.

•
Our collaborations with outside scientists may be subject to restriction and change.

•
Security breaches may disrupt our operations and harm our operating results.

•
Because most of our operations are located at a limited number of facilities, the occurrence of a disaster could significantly disrupt our business.

Risks Related to Environmental and Product Liability
•
We use hazardous chemicals and radioactive and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

•
We face potential product liability exposure in excess of our insurance coverage.

Risks Related to Our Common Stock
•
Invus, L.P., Invus C.V. and their affiliates own a controlling interest in our outstanding common stock and may have interests which conflict with those of our other stockholders.

•
Invus has additional rights under our stockholders’ agreement with Invus, L.P. which provides Invus with substantial influence over certain significant corporate matters.

•
Our stock price may be extremely volatile.

20


•
We may engage in future acquisitions, which may be expensive and time consuming and from which we may not realize anticipated benefits.

•
Future sales of our common stock may depress our stock price.

•
If we are unable to meet Nasdaq continued listing requirements, Nasdaq may take action to delist our common stock.

For additional discussion of the risks and uncertainties that affect our business, see “Item 1A. Risk Factors” included in our annual report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission.
The following table provides information about our purchases of shares of our common stock during the three months ended March 31, 2014:
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (3)
January 1-31, 2014
 
115,705

(1) 
$
1.83

(2) 
—

 
—

February 1-28, 2014
 
351,455

(1) 
$
1.92

(2) 
—

 
—

March 1-31, 2014
 
—

 
$
—

 
—

 
—


(1)
Represents shares retained by us in satisfaction of the tax withholding obligations of recipients of restricted stock units granted in February 2011, February 2012 and February 2013 under our Equity Incentive Plan with respect to the vesting of such restricted stock units.
(2)
Represents the market price of our common stock on the date of vesting of such restricted stock units, calculated in accordance with the process for determination of fair market value under our Equity Incentive Plan.
(3)
In the future, we may grant additional equity securities under our Equity Incentive Plan for which the recipient's tax withholding obligations with respect to the grant or vesting of such securities may be satisfied by our retention of a portion of such securities. Further, for any such equity securities which are subject to vesting conditions, the number of equity securities which we may retain in satisfaction of the recipient's tax withholding obligations may be dependent on the continued employment of such recipient or other performance-based conditions. Accordingly, we cannot predict with any certainty either the total amount of equity securities or the approximate dollar value of such securities that we may purchase in future years.

Item 6.
Exhibits
 
Exhibit No.
 
Description
31.1
—
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
—
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
—
Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
—
XBRL Instance Document
101.SCH
—
XBRL Taxonomy Extension Schema Document
101.CAL
—
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
—
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
—
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
—
XBRL Taxonomy Extension Presentation Linkbase Document


21

Signatures
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
Lexicon Pharmaceuticals, Inc.
 
 
 
 
Date:
May 8, 2014
By:
/s/ Arthur T. Sands
 
 
 
Arthur T. Sands, M.D., Ph.D.
 
 
 
President and Chief Executive Officer

Date:
May 8, 2014
By:
/s/ Jeffrey L. Wade
 
 
 
Jeffrey L. Wade
 
 
 
Executive Vice President, Corporate Development and Chief Financial Officer


22


Index to Exhibits
 
Exhibit No.
 
Description
31.1
—
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
—
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
—
Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
—
XBRL Instance Document
101.SCH
—
XBRL Taxonomy Extension Schema Document
101.CAL
—
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
—
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
—
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
—
XBRL Taxonomy Extension Presentation Linkbase Document


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LEXICON PHARMACEUTICALS, INC. Reports