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Item 2. Management’s Discussion and Analysis

2020-10-30 compared with 2020-07-29 · 82 added, 78 removed, 91 unchanged (64% of the section changed)

1 unchanged sentence

We are a biopharmaceutical company with a mission of pioneering medicines that transform patients’ lives.

We are devoting most of our resources to the commercialization or development of our three most advanced drugs and drug candidates:

• We are commercializing XERMELO ® (telotristat ethyl), an orally-delivered small molecule drug, in the United States for the treatment of carcinoid syndrome diarrhea in combination with somatostatin analog, or SSA, therapy in adults inadequately controlled by SSA therapy.

We have granted Ipsen Pharma SAS, or Ipsen, an exclusive, royalty-bearing right to commercialize XERMELO outside of the United States and Japan.

Ipsen is commercializing XERMELO in the United Kingdom, Germany and multiple additional countries.

We are also developing telotristat ethyl as a treatment for biliary tract cancer and are conducting a Phase 2a clinical trial of telotristat ethyl in biliary tract cancer patients.

• We are developing Zynquista™ (sotagliflozin), an orally-delivered small molecule drug candidate, as a treatment for type 1 diabetes.

The FDA has issued a complete response letter regarding our application for regulatory approval to market sotagliflozin for type 1 diabetes in the United States and has confirmed that position in denying two appeals of the complete response letter.

Zynquista has been approved in the European Union for use as an adjunct to insulin therapy to improve glycemic control in adults with type 1 diabetes and a body mass index ≥ 27 kg/m 2 , who could not achieve adequate glycemic control despite optimal insulin therapy.

We were previously conducting a comprehensive Phase 3 development program for sotagliflozin in type 2 diabetes, heart failure and chronic kidney disease and are currently closing out the clinical trials included in such development program.

We are devoting most of our resources to the research and development of our most advanced drug candidates:

• We are developing LX9211, an orally-delivered small molecule drug candidate, as a treatment for neuropathic pain.

We have reported top-line results from two Phase 1 clinical trials of LX9211 and are preparing to initiate a Phase 2 clinical trial of LX9211.

Compounds from our most advanced drug programs, 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.

We identified the target of LX9211, adapter-associated kinase 1, or AAK1, in our target discovery efforts as a promising approach for the treatment of neuropathic pain, and identified LX9211 and another development candidate in a neuroscience drug discovery alliance with Bristol-Myers Squibb from which we hold exclusive development and commercialization rights.

In preclinical studies, LX9211 demonstrated central nervous system penetration and reduction in pain behavior in multiple models of neuropathic pain, and has been demonstrated not to affect opiate pathways.

We have reported top-line results from two Phase 1 clinical trials of LX9211, and are now conducting a Phase 2 clinical trial of LX9211 in diabetic peripheral neuropathic pain and preparing to initiate a second Phase 2 clinical trial of LX9211 in post-herpetic neuralgia.

• We are developing Zynquista™ (sotagliflozin), an orally-delivered small molecule drug candidate, as a treatment for type 1 diabetes, in support of which we completed a Phase 3 program involving approximately 3,000 patients with type 1 diabetes.

We have recently completed a Phase 3 development program for sotagliflozin in type 2 diabetes involving approximately 5,000 patients across nine studies (exclusive of outcomes studies), and are completing the close-out of two outcomes studies involving approximately 10,500 and 1,200 patients, respectively, with primary endpoints evaluating a composite of total cardiovascular death, hospitalizations for heart failure and urgent visits for heart failure.

• We are conducting preclinical research and development and preparing to conduct clinical development of compounds from a number of additional drug discovery and development programs.

In September 2020, we completed the sale of our XERMELO ® (telotristat ethyl) product and related assets to TerSera Therapeutics LLC, or TerSera.

We commercially launched XERMELO following regulatory approval in the United States in February 2017 for the treatment of carcinoid syndrome diarrhea in combination with SSA therapy in adults inadequately controlled by SSA therapy.

In connection with the sale, TerSera assumed responsibility for the continued development of XERMELO as a treatment for biliary tract cancer, currently in a Phase 2 clinical trial.

We are eligible to receive development, regulatory and sales milestone payments from TerSera of up to an aggregate of $65 million for the development and commercialization of XERMELO in patients with biliary tract cancer and mid-teens percentage royalty payments from TerSera on net sales of XERMELO in biliary tract cancer.

Sotagliflozin, XERMELO and compounds from a number of additional drug discovery and development programs originated from our own internal drug discovery efforts, and LX9211 and other compounds targeting AAK1 originated from our collaborative neuroscience drug discovery efforts with Bristol-Myers Squibb.

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.

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We seek to collaborate with other pharmaceutical and biotechnology companies with respect to drug discovery or the development and commercialization of certain of our drug candidates, particularly with respect to commercialization in territories outside the United States or commercialization in the United States for indications treated by primary care physicians, or when the collaboration may otherwise provide us with access to expertise and resources that we do not possess internally or are complementary to our own.

Prior to the launch of XERMELO, we derived substantially all of our revenues from strategic collaborations and other research and development collaborations and technology licenses.

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 ability to successfully commercialize XERMELO in the United States and the amount of revenues generated from such commercialization efforts;

Ipsen's ability to successfully commercialize XERMELO outside of the United States and Japan and our receipt of any milestone payments and royalties;

the success of our ongoing nonclinical and clinical development efforts and ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts;

our ability to effectively close out the Phase 3 development program for sotagliflozin in type 2 diabetes, heart failure and chronic

kidney disease in a timely manner;

Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including the success of our ongoing nonclinical and clinical development efforts and ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts;

our ability to effectively close out the Phase 3 development program for sotagliflozin in type 2 diabetes, heart failure and chronic kidney disease in a timely manner;

TerSera’s ability to successfully develop and commercialize XERMELO for biliary tract cancer and our receipt of milestone payments and royalties from such efforts;

our success in establishing new collaborations and licenses;

and general and industry-specific economic conditions which may affect research and development expenditures.

Future revenues from our commercialization of XERMELO are uncertain because they depend on a number of factors, including market acceptance of XERMELO, the success of our sales, marketing, distribution and other commercialization activities and the cost and availability of reimbursement for XERMELO.

Future revenues from our collaboration with Ipsen are uncertain because they depend, to a large degree, on the achievement of milestones and payment of royalties we earn from Ipsen’s commercialization of XERMELO.

Future revenues from our sale of XERMELO to TerSera are uncertain because they depend on the achievement of milestones and payment of royalties we earn from TerSera’s development and commercialization of XERMELO in biliary tract cancer.

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 drug candidates, including XERMELO in the United States and Japan, 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 and increase expenses.

We may determine, as we have with certain of our 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 and increase expenses.

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 June 30, 2020, we had an accumulated deficit of $1.5 billion.

Our losses have resulted principally from costs incurred in research and development, selling, 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.

Since our inception, we have incurred significant losses and, as of September 30, 2020, we had an accumulated deficit of $1.4 billion.

Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our nonclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs.

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Total revenues and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Percentage decrease (98) % (92) %

• Net product revenue – Net product revenue for the three months ended June 30, 2020 increased 21% to $9.0 million, and for the six months ended June 30, 2020 increased 19% to $16.9 million as compared to the corresponding periods in 2019 from revenues recognized from the sale of XERMELO in the United States.

Revenue from sales of bulk tablets of XERMELO to Ipsen were $1.3 million for the three and six months ended June 30, 2019.

• Net product revenue – Net product revenue recognized from the sale of XERMELO in the United States for the three months ended September 30, 2020 decreased 22% to $6.5 million as compared to the corresponding period in 2019, due to the Xermelo sale on September 8, 2020.

Net product revenue for the nine months ended September 30, 2020 increased 4% to $23.4 million as compared to the corresponding period in 2019.

Revenue from sales of bulk tablets of XERMELO to Ipsen were $1.3 million for the nine months ended September 30, 2019.

Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance.

Revenue recognition policies require estimates of the aforementioned sales allowances each period.

• Collaborative agreements – Revenue from collaborative agreements for the three and six months ended June 30, 2019 was $0.9 million and $3.3 million, primarily due to revenues recognized from clinical trial activities and a milestone for the first commercial sale in Canada under the collaboration and license agreement with Ipsen.

• Collaborative agreements – Revenue from collaborative agreements for the three and nine months ended September 30, 2019 was $285.9 million and $289.2 million.

Revenue from collaborative agreements for the three and nine months ended September 30, 2019 included $260 million from the Termination Agreement with Sanofi and recognition of amounts allocated to the performance obligation for development activities of sotagliflozin in the Sanofi Agreement.

Cost of Sales

Total cost of sales and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO.

Cost of sales for the three and six months ended June 30, 2019 included costs related to the bulk tablet sales to Ipsen.

The pre-commercialization inventory is expected to be sold over approximately the next nine months.

As a result, cost of sales for the next nine months will reflect a lower average per unit cost of materials.

Cost of sales for each of the three and six months ended June 30, 2020 and 2019 includes $0.4 million and $0.9 million, respectively, of amortization of intangible assets relating to XERMELO.

Cost of sales for the nine months ended September 30, 2019 included costs related to the bulk tablet sales to Ipsen.

Cost of sales for the three and nine months ended September 30, 2020 includes $0.3 million and $1.2 million, respectively, and for the three and nine months ended September 30, 2019 includes $0.4 million and $1.3 million, respectively, of amortization of intangible assets relating to XERMELO.

Research and Development Expenses

Research and development expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Research and development expenses consist primarily of third-party and other services principally related to nonclinical and clinical development activities, salaries and other personnel-related expenses, stock-based compensation expense, and facility and equipment costs.

• Third-party and other services – Third-party and other services for the three months ended June 30, 2020 increased to $48.9 million from $3.2 million, and for the six months ended June 30, 2020 increased to $94.2 million from $5.6 million as compared to the corresponding periods in 2019 primarily due to increases in external clinical development costs relating to sotagliflozin subsequent to the termination of our collaboration with Sanofi.

• Third-party and other services – Third-party and other services for the three months ended September 30, 2020 increased to $31.7 million from $18.5 million, and for the nine months ended September 30, 2020 increased to $125.9 million from $24.0 million as compared to the corresponding periods in 2019 primarily due to increases in external clinical development costs relating to sotagliflozin subsequent to the termination of our collaboration with Sanofi.

Third-party and other services relate principally to our clinical trial and related development activities, such as nonclinical and clinical studies and contract manufacturing.

• Personnel – Personnel costs for the three months ended June 30, 2020 decreased 16% to $4.5 million, and for the six months ended June 30, 2020 decreased 11% to $10.0 million as compared to the corresponding periods in 2019, primarily due to lower headcount.

• Personnel – Personnel costs for the three months ended September 30, 2020 increased 18% to $5.6 million as compared to the corresponding period in 2019, primarily due to the severance costs related to the reduction in force of our personnel in September 2020, partially offset by the lower costs related to employee salaries and management bonuses.

For the nine months ended September 30, 2020, personnel costs decreased 3% to $15.6 million as compared to the corresponding period in 2019, primarily due to lower headcount as a result of the reduction in force, partially offset by the severance costs.

Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Stock-based compensation – Stock-based compensation expense for each of the three months ended June 30, 2020 and 2019 was $1.9 million, and for the six months ended June 30, 2020 increased 12% to $4.1 million as compared to the corresponding period in 2019, primarily due to shorter vesting periods of the annual restricted stock unit awards granted in recent years.

• Facilities and equipment – Facilities and equipment costs for each of the three months ended June 30, 2020 and 2019 was $0.6 million, and for each of the six months ended June 30, 2020 and 2019 was $1.3 million.

• Other – Other costs for the three months ended June 30, 2020 decreased 12% to $1.3 million as compared to the corresponding period in 2019, primarily due to decreases in travel and continuing medical education grants, and for each of the six months ended June 30, 2020 and 2019 was $2.8 million.

• Stock-based compensation – Stock-based compensation expense for the three months ended September 30, 2020 decreased 39% to $1.0 million, and for the nine months ended September 30, 2020 decreased 4% to $5.2 million as compared to the corresponding periods in 2019, primarily due to cancellation of unvested share-based awards as a result of the reduction in force of our personnel in September 2020.

• Facilities and equipment – Facilities and equipment costs for each of the three months ended September 30, 2020 and 2019 was $0.7 million, and for each of the nine months ended September 30, 2020 and 2019 was $2.0 million.

• Other – Other costs for the three months ended September 30, 2020 increased 14% to $1.2 million, and for the nine months ended September 30, 2020 increased 4% to $4.0 million as compared to the corresponding periods in 2019, primarily due to increases in our insurance costs, partially offset by lower costs of travel.

Selling, General and Administrative Expenses

Selling, general and administrative expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Total selling, general and administrative expense $ 12.0 $ 13.9 $ 40.8 $ 42.3

Dollar increase (decrease) $ (0.2) $ 0.4

Percentage increase (decrease) (1) % 2 %

Dollar decrease $ (1.9) $ (1.5)

Percentage decrease (14) % (3) %

Selling, general and administrative expenses consist primarily of personnel costs to sell XERMELO and to support our research and development activities, professional and consulting fees, stock-based compensation expense, and facility and equipment costs.

• Personnel – Personnel costs for the three and six months ended June 30, 2020 decreased 4% to $6.8 million and $14.3 million, respectively, as compared to the corresponding periods in 2019, primarily due to lower headcount.

• Personnel – Personnel costs for the three months ended September 30, 2020 increased 17% to $7.7 million, and for the nine months ended September 30, 2020 increased 2% to $21.9 million as compared to the corresponding periods in 2019, primarily due to the severance costs related to the reduction in force of our personnel in September 2020, partially offset by the lower costs related to employee salaries and management bonuses.

Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Professional and consulting fees – Professional and consulting fees for the three months ended June 30, 2020 increased 11% to $3.2 million, and for the six months ended June 30, 2020 increased 10% to $6.1 million as compared to the corresponding periods in 2019, primarily due to higher legal fees.

• Stock-based compensation – Stock-based compensation expense for the three months ended June 30, 2020 increased 24% to $2.3 million, and for the six months ended June 30, 2020 increased 30% to $4.6 million as compared to the corresponding periods in 2019, primarily due to shorter vesting periods of the annual restricted stock unit awards granted in recent years.

• Facilities and equipment – Facilities and equipment costs for each of the three months ended June 30, 2020 and 2019 were $0.5 million and for each of the six months ended June 30, 2020 and 2019 were $0.9 million.

• Other – Other costs for the three months ended June 30, 2020 decreased 32% to $1.3 million, and for the six months ended June 30, 2020 decreased 17% to $3.0 million as compared to the corresponding periods in 2019, primarily due to decreases in travel expenses due to the COVID-19 pandemic.

• Professional and consulting fees – Professional and consulting fees for the three months ended September 30, 2020 decreased 38% to $2.0 million, and for the nine months ended September 30, 2020 decreased 8% to $8.1 million as compared to the corresponding periods in 2019, primarily due to lower marketing expenses and legal fees.

• Stock-based compensation – Stock-based compensation expense for the three months ended September 30, 2020 decreased 53% to $0.9 million as compared to the corresponding period in 2019, and for each of the nine months ended September 30, 2020 and 2019 was $5.4 million.

The decrease was due to cancellation of unvested share-based awards as a result of the reduction in force of our personnel in September 2020.

• Facilities and equipment – Facilities and equipment costs for each of the three months ended September 30, 2020 and 2019 were $0.5 million and for each of the nine months ended September 30, 2020 and 2019 were $1.4 million.

• Other – Other costs for the three months ended September 30, 2020 decreased 45% to $1.0 million, and for the nine months ended September 30, 2020 decreased 26% to $3.9 million as compared to the corresponding periods in 2019, primarily due to decreases in travel expenses due to the COVID-19 pandemic.

Gain on the sale of XERMELO

In September 2020, a gain of $132.8 million was recognized in connection with the sale of XERMELO and related assets to TerSera.

Impairment Loss on Buildings

In July 2020, our subsidiary, Lex-Gen Woodlands, L.P., entered into a real estate purchase and sale agreement to sell our facilities in the Woodlands, Texas.

In the second quarter of 2020, we began negotiations to sell our facilities in the Woodlands, Texas.

We recognized an impairment loss of $1.6 million as a result of writing down the buildings to the estimated net selling price.

Impairment Loss on Intangible Asset

In September 2019, an impairment loss of $28.6 million was recognized to an indefinite lived intangible asset associated with the 2010 acquisition of Symphony Icon, due to the decision to terminate research and development activities related to a program for irritable bowel syndrome that was among the assets acquired.

Loss on Debt Extinguishments, Net

Immediately following the closing of the sale of XERMELO and related assets to TerSera in September 2020, we repaid term borrowings of $150.0 million to BioPharma Credit PLC and BioPharma Credit Investments IV Sub LP.

A debt extinguishment loss of $8.6 million was recognized.

In September 2020, we entered into separate, privately negotiated exchange agreements to exchange $67.1 million aggregate principal amount of its 5.25% Convertible Senior Notes due 2021, or the Convertible Notes.

As a result, a debt extinguishment gain of $8.4 million was recognized.

Interest Expense and Interest and Other Income, Net

Interest Expense .

Interest expense for each of the three months ended June 30, 2020 and 2019 was $5.1 million, and for each of the six months ended June 30, 2020 and 2019 was $10.3 million.

Interest expense for the three months ended September 30, 2020 and 2019 was $4.1 million and $5.2 million, and for the nine months ended September 30, 2020 and 2019 was $14.4 million and $15.5 million.

Interest and Other Income, Net.

Interest and other income, net for the three months ended June 30, 2020 and 2019 was $0.6 million and $0.7 million, respectively, and for the six months ended June 30, 2020 and 2019 was $1.6 million and $1.5 million, respectively.

Net loss and Net loss per Common Share

Net loss and Net loss per Common Share.

Net loss increased to $69.1 million in the three months ended June 30, 2020 from $23.0 million in the corresponding period in 2019.

Net loss per common share increased to $0.65 in the three months ended June 30, 2020 from $0.22 in the corresponding period in 2019.

Net loss increased to $135.7 million in the six months ended June 30, 2020 from $44.8 million in the corresponding period in 2019.

Net loss per common share increased to $1.27 in the six months ended June 30, 2020 from $0.42 in the corresponding period in 2019.

Interest and other income, net for the three months ended September 30, 2020 and 2019 was $0.3 million and $0.6 million, respectively, and for the nine months ended September 30, 2020 and 2019 was $1.9 million and $2.1 million, respectively.

Net Income (Loss) and Net Income (Loss) per Common Share

Net income (loss) and Net income (loss) per Common Share.

Net income was $82.6 million, or $0.71 per diluted share, in the three months ended September 30, 2020 as compared to $226.1 million, or $1.95 per diluted share, in the

corresponding period in 2019.

Net loss was $53.1 million, or $0.50 per share, in the nine months ended September 30, 2020 as compared to net income of $181.3 million, or $1.59 per diluted share, in the corresponding period in 2019.

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 we received under our strategic and other collaborations, target validation, database subscription and technology license agreements, product sales, government grants and contracts, and financing under debt and lease arrangements.

We have also financed certain of our research and development activities under financing arrangements with Symphony Icon Holdings LLC.

As of June 30, 2020, we had $201.9 million in cash, cash equivalents and short-term investments.

As of September 30, 2020, we had $111.4 million in cash, cash equivalents and short-term investments.

As of December 31, 2019, we had $271.7 million in cash, cash equivalents and short-term investments.

We used cash of $68.4 million from operations in the six months ended June 30, 2020.

The net loss for the period of $135.7 million was partially offset by a net decrease in operating assets net of liabilities of $54.5 million, non-cash charges of $8.7 million related to stock-based compensation expense, $2.5 million related to depreciation and amortization expense, including amortization of debt issuance costs, and $1.6 million related to the impairment loss.

Investing activities provided cash of $120.9 million in the six months ended June 30, 2020, primarily due to net maturities of investments of $120.9 million.

Financing activities used cash of $1.7 million, primarily to repurchase $1.0 million of common stock and to repay $0.6 million of debt borrowings.

We used cash of $108.7 million from operations in the nine months ended September 30, 2020.

This consisted primarily of the net loss for the period of $53.1 million and gain from the sale of XERMELO and related assets to TerSera of $132.8 million, partially offset by a net decrease in operating assets net of liabilities of $61.1 million, non-cash charges of $10.6 million related to stock-based compensation expense, $3.6 million related to depreciation and amortization expense, including amortization of debt issuance costs, $1.6 million related to the impairment loss and $0.3 million related to the net loss of debt extinguishments.

Investing activities provided cash of $336.7 million in the nine months ended September 30, 2020, primarily due to $176.3 million of net maturities of investments and $160.4 million of proceeds from the sale of XERMELO.

Financing activities used cash of $211.8 million, primarily to repay $210.8 million of debt borrowings and to repurchase $1.0 million of common stock.

Other commitments.

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Upon the achievement of certain European regulatory pricing approvals, we will be required to make certain royalty payments, totaling $4.5 million, in three equal annual installments of $1.5 million.

In August 2018, our subsidiary, Lex-Gen Woodlands, L.P., entered into a term loan and security agreement, refinancing the previously existing mortgage on our facilities in The Woodlands, Texas.

The loan agreement provides for a $12.9 million mortgage on the property and has a two-year term with a 10-year amortization.

The mortgage loan bears interest at a rate per annum equal to the greater of (a) the 30-day LIBOR rate plus 5.5% and (b) 7.5% and provides for a balloon payment of $10.3 million due in August 2020.

In July 2020, Lex-Gen Woodlands, L.P.

In September 2020, we initiated a Phase 2 clinical trial of LX9211 in diabetic peripheral pain.

As a result of the commencement of the Phase 2 trial, we were required to make a royalty payment of $2.5 million, which was paid in October 2020.

In October 2020, Lex-Gen Woodlands, L.P.

entered into a real estate purchase and sale agreement under which we agreed to sell our facilities in The Woodlands, Texas for a purchase price of $11.9 million.

Such sale is subject to normal and customary closing conditions, including a study period, which extends until August 24, 2020, during which the purchaser may conduct inspections, analyses and other studies of the property and may terminate the agreement in its discretion.

Such sale is also subject to the negotiation and execution by the parties of a leaseback agreement for a period of nine months with respect to a portion of the property concurrently with closing.

Such sale is subject to normal and customary closing conditions, including a study period, which extends until November 20, 2020, during which the purchaser may conduct inspections, analyses and other studies of the property and may terminate the agreement in its discretion.

Such sale is also subject to the negotiation and execution by the parties of a month-to-month leaseback agreement for up to six months with respect to a portion of the property concurrently with closing.

In March 2015, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc.

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The term of the lease extends from June 1, 2015 through December 31, 2022, and provides for escalating yearly base rent payments starting at $482,000 and increasing to $646,000 in the final year of the lease.

Our future capital requirements will be substantial and will depend on many factors, including our ability to successfully commercialize XERMELO in the United States and the amount of revenues generated from such commercialization efforts;

Ipsen’s ability to successfully commercialize XERMELO outside of the United States and Japan and our receipt of any milestone payments and royalties;

Our future capital requirements will be substantial and will depend on many factors, including the success of our ongoing nonclinical and clinical development efforts and ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts;

our ability to effectively close out the Phase 3 development program for sotagliflozin in type 2 diabetes, heart failure and chronic kidney disease in a timely manner;

the success of our ongoing nonclinical and clinical development efforts and ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts;

TerSera’s ability to successfully develop and commercialize XERMELO for biliary tract cancer and our receipt of milestone payments and royalties from such efforts;

our success in establishing new collaborations and licenses;

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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 continue to devote substantial capital resources to continue commercializing XERMELO in the United States;

to successfully complete our nonclinical and clinical development efforts with respect to telotristat ethyl, sotagliflozin, LX9211 and our other drug candidates;

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 XERMELO product sales 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.

We expect to continue to devote substantial capital resources to successfully complete our nonclinical and clinical development efforts with respect to sotagliflozin, LX9211 and our other drug candidates 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 strategic and other collaborations 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.

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We currently do not hedge interest rate exposure or hold any derivative financial instruments in our investment portfolio.

We had approximately $201.9 million in cash and cash equivalents and short-term investments as of June 30, 2020.

We had approximately $111.4 million in cash and cash equivalents and short-term investments as of September 30, 2020.

We believe that the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

We are not subject to interest rate sensitivity on our outstanding Convertible Notes and our BioPharma Term Loan as each generally have a fixed rate of 5.25% and 9% per annum, respectively.

We are not subject to interest rate sensitivity on our outstanding Convertible Notes as they generally have a fixed rate of 5.25% per annum.

The Convertible Notes interest is payable in cash semi-annually in arrears and matures in December 2021, unless earlier converted or repurchased in accordance with their terms.

The BioPharma Term Loan bears interest payable quarterly in arrears, and provides for interest-only payments followed by payment of principal at maturity in December 2022.

We have operated primarily in the United States and substantially all sales to date have been made in U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis