What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-06 · 82 added, 49 removed, 328 unchanged (29% of the section changed)

3 unchanged sentences

(In thousands, except par value)

As of March 31, As of December 31,

As of June 30, As of December 31,

Assets (unaudited)

2 unchanged sentences

Short-term investments 28,614 26,012

Accounts receivable, net 101 395

Accounts receivable 159 395

Prepaid expenses and other current assets 4,598 5,049

22 unchanged sentences

Accumulated deficit ( 1,439,043 ) ( 1,400,018 )

Accumulated other comprehensive income (loss) 5 ( 6 )

Accumulated other comprehensive loss ( 5 ) ( 6 )

Treasury stock, at cost, 1,165 and 793 shares, respectively

6 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended March 31,

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

2021 2020 2021 2020

Net product revenue $ — $ 8,985 $ — $ 16,862

7 unchanged sentences

Selling, general and administrative, including stock-based compensation of $ 1,602 , $ 2,309 , $ 3,167 and $ 4,565 , respectively

7,936 14,113 16,193 28,801

Impairment loss on buildings — 1,600 — 1,600

Total operating expenses 18,193 73,742 39,059 144,179

6 unchanged sentences

Other comprehensive loss:

Unrealized gain on investments 11 776

Unrealized gain (loss) on investments ( 10 ) ( 548 ) 1 228

Comprehensive loss $ ( 18,077 ) $ ( 69,619 ) $ ( 39,024 ) $ ( 135,454 )

3 unchanged sentences

(In thousands)

Common Stock Additional Accumulated Other

Shares Par Value Paid-In Capital Accumulated Deficit Comprehensive Gain (Loss) Treasury Stock Total

Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Gain (Loss) Treasury Stock

Shares Par Value Total

Balance at December 31, 2019 106,679 $ 106 $ 1,462,172 $ ( 1,341,444 ) $ 84 $ ( 3,817 ) $ 117,101

5 unchanged sentences

Balance at March 31, 2020 107,711 108 1,466,604 ( 1,408,055 ) 860 ( 4,740 ) 54,777

Common Stock Additional Accumulated Other

Shares Par Value Paid-In Capital Accumulated Deficit Comprehensive Gain (Loss) Treasury Stock Total

Stock-based compensation — — 4,258 — — — 4,258

Issuance of common stock under Equity Incentive Plans 187 — — — — — —

Repurchase of common stock — — — — — ( 103 ) ( 103 )

Net loss — — — ( 69,071 ) — — ( 69,071 )

Unrealized loss on investments — — — — ( 548 ) — ( 548 )

Balance at June 30, 2020 107,898 $ 108 $ 1,470,862 $ ( 1,477,126 ) $ 312 $ ( 4,843 ) $ ( 10,687 )

Balance at December 31, 2020 142,289 $ 142 $ 1,561,096 $ ( 1,400,018 ) $ ( 6 ) $ ( 4,843 ) $ 156,371

6 unchanged sentences

Balance at March 31, 2021 145,552 $ 145 $ 1,580,891 $ ( 1,420,976 ) $ 5 $ ( 7,518 ) $ 152,547

Stock-based compensation — — 2,786 — — — 2,786

Issuance of common stock under Equity Incentive Plans 88 1 7 — — — 8

Issuance fees related to Open Market Sale Agreement — — ( 31 ) — — — ( 31 )

Net loss — — — ( 18,067 ) — — ( 18,067 )

Unrealized loss on investments — — — — ( 10 ) — ( 10 )

Balance at June 30, 2021 145,640 146 1,583,653 ( 1,439,043 ) ( 5 ) ( 7,518 ) 137,233

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

2 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

4 unchanged sentences

Amortization of debt issuance costs 29 726

Impairment loss on buildings — 1,600

Changes in operating assets and liabilities:

1 unchanged sentence

Decrease in inventory — 254

(Increase) decrease in prepaid expenses and other current assets 1,095 ( 2,875 )

(Increase) decrease in other assets ( 74 ) 102

Increase (decrease) in accounts payable and other liabilities ( 8,418 ) 15,137

Decrease (increase) in prepaid expenses and other current assets 451 ( 4,141 )

Decrease in other assets 261 207

(Decrease) increase in accounts payable and other liabilities ( 14,707 ) 32,532

Net cash used in operating activities ( 47,039 ) ( 68,352 )

9 unchanged sentences

Net cash provided by (used in) financing activities 14,249 ( 1,669 )

Net increase (decrease) in cash and cash equivalents ( 28,611 ) 19,480

Net (decrease) increase in cash and cash equivalents ( 36,376 ) 50,831

Cash and cash equivalents at beginning of period 126,263 36,112

13 unchanged sentences

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, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.

Operating results for the six-month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.

The accompanying condensed consolidated financial statements include the accounts of Lexicon and its wholly-owned subsidiaries.

7 unchanged sentences

Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.

As of March 31, 2021, short-term investments consisted of U.S.

As of June 30, 2021, short-term investments consisted of U.S.

treasury bills and corporate debt securities.

7 unchanged sentences

Accrued liabilities consisted of the following:

As of March 31, As of December 31,

As of June 30, As of December 31,

(in thousands)

3 unchanged sentences

Other 1,155 976

Accrued liabilities $ 22,409 $ 29,691

Total accrued liabilities $ 12,595 $ 29,691

Lexicon determines if a contract is or contains a lease at inception or upon modification of the contract.

6 unchanged sentences

Product Revenues

Prior to the Company’s sale of XERMELO and related assets to TerSera in September 2020, product revenues consisted of commercial sales of XERMELO in the United States and sales of bulk tablets of XERMELO to Ipsen Pharma SAS (“Ipsen”).

Prior to the Company’s sale of XERMELO and related assets to TerSera Therapeutics LLC (“TerSera”) in September 2020, product revenues consisted of commercial sales of XERMELO in the United States and sales of bulk tablets of XERMELO to Ipsen Pharma SAS (“Ipsen”).

Product revenues were recognized when the customer obtained control of XERMELO, which occurred upon delivery to the customer.

50 unchanged sentences

Expected volatility is based on the historical volatility in the Company’s stock price.

The Company utilized the Black-Scholes valuation model for estimating the fair value of the stock option compensation granted, with the following weighted-average assumptions for stock options granted in the three months ended March 31, 2021 and 2020:

Expected Volatility Risk-free Interest Rate Expected Term Dividend

March 31, 2021:

June 30, 2021:

Employees 101 % 0.6 % 4 — %

Officers and non-employee directors 90 % 1.1 % 7 — %

March 31, 2020:

June 30, 2020:

Employees 90 % 1.3 % 4 — %

Officers and non-employee directors 78 % 1.4 % 8 — %

The following is a summary of stock option activity under Lexicon’s stock-based compensation plans for the three months ended March 31, 2021:

The following is a summary of stock option activity under Lexicon’s stock-based compensation plans for the six months ended June 30, 2021:

Options Weighted Average Exercise Price

5 unchanged sentences

Forfeited ( 56 ) 8.52

Outstanding at March 31, 2021 9,036 7.16

Exercisable at March 31, 2021 5,183 $ 8.63

During the three months ended March 31, 2021, Lexicon also granted its employees annual restricted stock units.

Outstanding at June 30, 2021 9,148 7.12

Exercisable at June 30, 2021 5,527 $ 8.36

During the six months ended June 30, 2021, Lexicon also granted its employees and non-employee directors annual restricted stock units.

Outstanding employee restricted stock units vest in three 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, 2021:

Outstanding non-employee director restricted stock units vest fully on the first anniversary of the grant.

The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the six months ended June 30, 2021:

Shares Weighted Average Grant Date

4 unchanged sentences

Forfeited ( 134 ) 5.16

Outstanding at March 31, 2021 2,213 $ 5.02

Outstanding at June 30, 2021 2,059 $ 5.13

Net Loss per Common Share:

9 unchanged sentences

Cash and Cash Equivalents and Investments

The fair value of cash and cash equivalents and investments held at March 31, 2021 and December 31, 2020 are as follows:

As of March 31, 2021

The fair value of cash and cash equivalents and investments held at June 30, 2021 and December 31, 2020 are as follows:

As of June 30, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

15 unchanged sentences

$ 152,281 $ 5 $ ( 11 ) $ 152,275

There were no realized losses during either of the three months ended March 31, 2021 and 2020, respectively.

There were no realized losses during either of the six months ended June 30, 2021 and 2020, respectively.

The cost of securities sold is based on the specific identification method.

8 unchanged sentences

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 that are measured at fair value on a recurring basis according to the fair value levels defined above as of March 31, 2021 and December 31, 2020.

Assets and Liabilities at Fair Value as of March 31, 2021

Assets and Liabilities at Fair Value as of June 30, 2021

Level 1 Level 2 Level 3 Total

9 unchanged sentences

Total cash and cash equivalents and investments $ 126,263 $ 26,012 $ — $ 152,275

The Company did not have any Level 3 assets or liabilities as of March 31, 2021 or December 31, 2020.

The Company did not have any Level 3 assets or liabilities as of June 30, 2021 or December 31, 2020.

Transfers between levels are recognized at the actual date of the circumstance that caused the transfer.

1 unchanged sentence

Refer to Note 6, Debt Obligations, for fair value measurements of debt obligations.

Property and Equipment

Property and equipment was comprised of the following:

Estimated Useful Lives As of

In Years June 30, 2021

December 31, 2020

(in thousands)

Computers and software 3 - 5

$ 3,176 $ 3,826

Furniture and fixtures 5 - 7

Leasehold improvements 3 - 7

Total property and equipment 5,947 6,110

Accumulated depreciation and amortization ( 4,746 ) ( 5,815 )

Net property and equipment $ 1,201 $ 295

During the three months ended June 30, 2021, the Company retired $ 1.1 million of computers and software and furniture and fixtures, which had been fully depreciated, and purchased $ 1.0 million of assets comprised of leasehold improvements, computers and software and furniture.

The leasehold improvements are being amortized over the lease term.

In 2020, the Company recorded an impairment loss of $ 1.6 million to reduce the carrying value of the assets comprising its campus in The Woodlands, Texas, which were sold in December 2020, to its estimated fair value, less estimated selling costs.

Concurrent with the sale, the Company entered into a leaseback agreement with the purchaser with respect to a portion of the facilities for a period of up to six months and in June 2021, the Company relocated its corporate offices to another facility.

Debt Obligations

2 unchanged sentences

The conversion feature did not meet the criteria for bifurcation as required by generally accepted accounting principles and the entire principal amount was recorded as long-term debt on the Company’s condensed consolidated balance sheets.

In 2020, the Company entered into separate, privately negotiated exchange agreements to exchange $ 75.8 million aggregate principal amount of the Convertible Notes for consideration valued at 85% of the principle amount of the Convertible Notes.

As of March 31, 2021, the carrying value of the remaining Convertible Notes was $ 11.7 million and are included in the current portion of long-term debt, net of deferred issuance costs in the accompanying condensed consolidated balance sheet.

As of June 30, 2021, the carrying value of the remaining Convertible Notes was $ 11.7 million and is included in the current portion of long-term debt, net of deferred issuance costs in the accompanying condensed consolidated balance sheet.

The remaining Convertible Notes are governed by an indenture (the “Indenture”), dated as of November 26, 2014, between the Company and Wells Fargo Bank, N.A., as trustee.

8 unchanged sentences

If the Company undergoes a fundamental change, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The fair value of the remaining Convertible Notes was $ 12.6 million as of March 31, 2021 and was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading levels of the Convertible Notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system.

The fair value of the remaining Convertible Notes was $ 12.1 million as of June 30, 2021 and was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading levels of the Convertible Notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system.

Commitments and Contingencies

Operating Lease Obligations :

Lexicon’s operating leases include office space in The Woodlands, Texas and Basking Ridge, New Jersey that will expire in August 2025 and December 2022, respectively.

Lexicon’s operating leases include office space in The Woodlands, Texas and Basking Ridge, New Jersey and will expire in August 2025 and December 2022, respectively.

Under its lease agreements, Lexicon is obligated to pay property taxes, insurance, and maintenance costs.

As of March 31, 2021, the right-of-use assets for the office space leases had a balance of $ 2.9 million, which is included in other assets in the condensed consolidated balance sheet, and current and non-current liabilities relating to the assets were $ 1.0 million and $ 1.7 million, respectively, which are included in accrued liabilities and other long-term liabilities in the condensed consolidated balance sheet, respectively.

The following table reconciles the undiscounted cash flows of the operating lease liability to the recorded lease liability at March 31, 2021:

As of June 30, 2021, the right-of-use assets for the office space leases had a balance of $ 2.7 million, which is included in other assets in the condensed consolidated balance sheet.

Current and non-current liabilities relating to the leases were $ 1.0 million and $ 1.6 million, respectively, which are included in accrued liabilities and other long-term liabilities in the condensed consolidated balance sheet, respectively.

The following table reconciles the undiscounted cash flows of the operating lease liability to the recorded lease liability at June 30, 2021:

(in thousands)

10 unchanged sentences

District Court for the Southern District of Texas, Houston Division.

Our motion to dismiss was granted and the action was dismissed with prejudice by the District Court on August 14, 2020.

The Company’s motion to dismiss was granted and the action was dismissed with prejudice by the District Court on August 14, 2020.

The lead plaintiffs filed a notice of appeal to the U.S.

Court of Appeals for the Fifth Circuit on September 11, 2020 and a brief in support of its appeal on December 17, 2020.

We filed a response brief on February 18, 2021 and the lead plaintiffs filed a reply brief on March 11, 2021.

The lawsuit purports to be a class action brought on behalf of purchasers of our securities during the period from March 11, 2016 through July 29, 2019.

The complaint alleges that the defendants violated federal securities laws by making materially false and misleading statements and/or omissions concerning data from our Phase 3 clinical trials of sotagliflozin in type 1 diabetes patients and the prospects of FDA approval of sotagliflozin for the treatment of type 1 diabetes.

The Company filed a response brief on February 18, 2021 and the lead plaintiffs filed a reply brief on March 11, 2021.

Oral arguments were held on June 9, 2021.

The lawsuit purports to be a class action brought on behalf of purchasers of the Company’s securities during the period from March 11, 2016 through July 29, 2019.

The complaint alleges that the defendants violated federal securities laws by making materially false and misleading statements and/or omissions concerning data from the Company’s Phase 3 clinical trials of sotagliflozin in type 1 diabetes patients and the prospects of FDA approval of sotagliflozin for the treatment of type 1 diabetes.

The complaint purports to assert claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

1 unchanged sentence

Sanofi Arbitration.

Agreement and Mutual Releases with Sanofi, dated September 9, 2019 (the “Termination Agreement”).

On October 16, 2020, the Company initiated arbitration proceedings against Sanofi-Aventis Deutschland GmbH (“Sanofi”) seeking to recover damages for breach of contract relating to the Termination and Settlement Agreement and Mutual Releases with Sanofi, dated September 9, 2019 (the “Termination Agreement”).

In September 2020, Sanofi withheld approximately $ 23.2 million from the final $ 26 million payment due to the Company under the Termination Agreement, offsetting certain third party costs and internal costs incurred by Sanofi and asserted by Sanofi to be payable by the Company under the terms of the Termination Agreement.

8 unchanged sentences

Prior to the XERMELO sale, Lexicon had earned certain milestone payments and royalties from Ipsen.

Revenue, including royalty revenue, recognized under the Ipsen Agreement was $ 0.1 million for the three months ended March 31, 2020.

In November 2015, Lexicon entered into a Collaboration and License Agreement, which was subsequently amended in July 2017 (collectively, the “Sanofi Agreement”), with Sanofi for the worldwide development of Lexicon’s diabetes drug candidate sotagliflozin.

Revenue, including royalty revenue, recognized under the Ipsen Agreement was $ 0.2 million for the six months ended June 30, 2020.

In December 2016, Sanofi terminated its rights under the Sanofi Agreement with respect to Japan.

1 unchanged sentence

Under the terms of the Termination Agreement, Lexicon regained all rights to sotagliflozin and assumed full responsibility for the worldwide development and commercialization of sotagliflozin in all indications.

Sanofi paid Lexicon $ 208 million in September 2019 and $ 26 million in each of March and September 2020 (less amounts withheld by Sanofi offsetting certain third party costs and internal costs incurred by Sanofi and asserted by Sanofi to be payable by Lexicon under the terms of the Termination Agreement), and neither party will owe any additional payments pursuant to the Sanofi Agreement.

Sanofi paid Lexicon $ 208 million in September 2019 and $ 26 million in each of March and September 2020 (less amounts withheld by Sanofi offsetting certain third party costs and internal costs incurred by Sanofi and asserted by Sanofi to be payable by Lexicon under the terms of the Termination Agreement), and neither party owes any additional payments pursuant to the Sanofi Agreement.

The parties have cooperated in the transition of responsibility for ongoing clinical studies and other activities, and each party is responsible for its own expenses associated with such transition, subject to certain exceptions.

10 unchanged sentences

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 1. Financial Statements