What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-08-06 · 118 added, 52 removed, 358 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands, except par value)

As of June 30, As of December 31,

As of September 30, As of December 31,

Assets (unaudited)

9 unchanged sentences

Total assets $ 172,330 $ 203,788

Liabilities and Equity

Liabilities and Stockholders’ Equity

Current liabilities:

19 unchanged sentences

Total stockholders’ equity 136,603 156,371

Total liabilities and equity $ 171,672 $ 203,788

Total liabilities and stockholders’ equity $ 172,330 $ 203,788

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

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

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

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

2021 2020 2021 2020

11 unchanged sentences

Total operating expenses 22,985 52,777 62,044 196,956

Loss from operations ( 17,959 ) ( 64,579 ) ( 38,798 ) ( 127,017 )

Other operating income:

Gain on sale of XERMELO — 132,818 — 132,818

Income (loss) from operations ( 22,962 ) 86,675 ( 61,760 ) ( 40,342 )

Loss on debt extinguishments, net — ( 255 ) — ( 255 )

Interest expense ( 171 ) ( 4,118 ) ( 507 ) ( 14,374 )

Interest and other income, net 11 301 120 1,892

Net loss $ ( 18,067 ) $ ( 69,071 ) $ ( 39,025 ) $ ( 135,682 )

Net loss per common share, basic and diluted $ ( 0.13 ) $ ( 0.65 ) $ ( 0.27 ) $ ( 1.27 )

Shares used in computing net loss per common share, basic and diluted 144,451 107,073 143,917 106,804

Other comprehensive loss:

Net income (loss) $ ( 23,122 ) $ 82,603 $ ( 62,147 ) $ ( 53,079 )

Net income (loss) per common share, basic $ ( 0.16 ) $ 0.77 $ ( 0.43 ) $ ( 0.50 )

Net income (loss) per common share, diluted $ ( 0.16 ) $ 0.71 $ ( 0.43 ) $ ( 0.50 )

Shares used in computing net income (loss) per common share, basic 145,820 107,309 144,558 106,974

Shares used in computing net income (loss) per common share, diluted 145,820 117,552 144,558 106,974

Other comprehensive income (loss):

Unrealized gain (loss) on investments — ( 277 ) 1 ( 49 )

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

Comprehensive income (loss) $ ( 23,122 ) $ 82,326 $ ( 62,146 ) $ ( 53,128 )

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

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Condensed Consolidated Statements of Stockholders’ Equity / (Deficit)

(In thousands)

14 unchanged sentences

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

Stock-based compensation — — 1,904 — — — 1,904

Issuance of common stock under Equity Incentive Plans 9,333 9 14,087 — — — 14,096

Net income — — — 82,603 — — 82,603

Unrealized loss on investments — — — — ( 277 ) — ( 277 )

Balance at September 30, 2020 117,231 $ 117 $ 1,486,853 $ ( 1,394,523 ) $ 35 $ ( 4,843 ) $ 87,639

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

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

Common Stock Additional Accumulated Other

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

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

12 unchanged sentences

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

Stock-based compensation — — 2,712 — — — 2,712

Issuance of common stock under Equity Incentive Plans 170 — 658 — — — 658

Issuance of common stock under an Open Market Sale Agreement, net of issuance fees 4,177 4 19,119 — — — 19,123

Net loss — — — ( 23,122 ) — — ( 23,122 )

Unrealized loss on investments — — — — ( 1 ) — ( 1 )

Balance at September 30, 2021 149,987 $ 150 $ 1,606,142 $ ( 1,462,165 ) $ ( 6 ) $ ( 7,518 ) $ 136,603

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

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

4 unchanged sentences

Amortization of debt issuance costs 46 995

Gain on sale of XERMELO assets — ( 132,818 )

Impairment loss on buildings — 1,600

Loss on debt extinguishments, net — 255

Changes in operating assets and liabilities:

7 unchanged sentences

Purchases of property and equipment ( 1,198 ) ( 33 )

Proceeds from XERMELO sale — 160,385

Purchases of investments ( 28,880 ) ( 53,197 )

13 unchanged sentences

Right-of-use asset $ 1,704 $ —

Liabilities assumed by TerSera from the XERMELO sale $ — $ 3,180

Common stock issued in satisfaction of convertible debt exchanges $ — $ 14,096

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

7 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 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.

Operating results for the nine-month period ended September 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 June 30, 2021, short-term investments consisted of U.S.

As of September 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 June 30, As of December 31,

As of September 30, As of December 31,

(in thousands)

8 unchanged sentences

Lexicon does not apply this accounting to those leases with terms of twelve (12) months or less.

Operating lease right-of-use assets and associated lease liabilities are recorded in the balance sheet at the lease commencement date based on the present value of future minimum lease payments to be made over the expected lease term.

Operating lease right-of-use assets and associated lease liabilities are recorded in the balance sheet at the lease commencement date based on the present value of future lease payments to be made over the expected lease term.

As the implicit rate is not determinable in its leases, Lexicon uses its incremental borrowing rate of 9 % at the commencement date in determining the present value of future payments.

54 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 six months ended June 30, 2021 and 2020:

Expected Volatility Risk-free Interest Rate Expected Term Dividend

June 30, 2021:

September 30, 2021:

Employees 102 % 0.6 % 4 — %

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

June 30, 2020:

September 30, 2020:

Employees 91 % 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 six months ended June 30, 2021:

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

Options Weighted Average Exercise Price

5 unchanged sentences

Forfeited ( 733 ) 8.92

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 at September 30, 2021 8,640 6.90

Exercisable at September 30, 2021 5,092 $ 8.16

During the nine months ended September 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.

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:

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

Shares Weighted Average Grant Date

4 unchanged sentences

Forfeited ( 217 ) 4.96

Outstanding at June 30, 2021 2,059 $ 5.13

Outstanding at September 30, 2021 1,976 $ 5.15

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 June 30, 2021 and December 31, 2020 are as follows:

As of June 30, 2021

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

As of September 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 six months ended June 30, 2021 and 2020, respectively.

There were no realized losses during either of the nine months ended September 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 June 30, 2021 and December 31, 2020.

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

Assets and Liabilities at Fair Value as of September 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 June 30, 2021 or December 31, 2020.

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

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

4 unchanged sentences

Estimated Useful Lives As of

In Years June 30, 2021

In Years September 30, 2021

December 31, 2020

7 unchanged sentences

Net property and equipment $ 1,311 $ 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.

During the nine months ended September 30, 2021, the Company retired $ 1.1 million of computers and software and furniture and fixtures, which had been fully depreciated.

During the nine months ended September 30, 2021, the Company purchased $ 1.2 million of assets comprised of leasehold improvements, computers and software and furniture.

The leasehold improvements are being amortized over the lease term.

5 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 principal amount of the Convertible Notes.

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.

In September 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 principal amount of the Convertible Notes.

In September 2020, the Company issued 9,332,471 shares of the Company’s common stock and paid $44.0 million in cash, which included $1.1 million of accrued interest, to exchange $67.1 million aggregate principal amount of such Convertible Notes.

The Company recorded the exchanges under the accounting requirements for debt extinguishment of convertible instruments.

As a result, a debt extinguishment gain of $8.4 million was recorded and is included in the accompanying condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020.

As of September 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 $ 12.1 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.

The fair value of the remaining Convertible Notes was $ 11.9 million as of September 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.

BioPharma Term Loan.

In December 2017, Lexicon entered into a loan agreement with BioPharma under which $150.0 million was funded in December 2017 (the “BioPharma Term Loan”).

The BioPharma Term Loan was scheduled to mature in December 2022, bore interest at 9% per year, subject to additional interest if an event of default occurred and was continuing, and was payable quarterly.

The BioPharma Term Loan was subject to mandatory prepayment provisions that required prepayment upon a change of control or receipt of proceeds from certain non-ordinary course transfers of assets.

The Company repaid the BioPharma Term Loan in whole, together with required prepayment and make-whole premiums, upon closing of the XERMELO sale in September 2020.

The Company recorded the repayment under the accounting requirements for debt extinguishment and as a result, a loss of $8.6 million was recognized and is included in the accompanying condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020.

Commitments and Contingencies

2 unchanged sentences

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

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.

As of September 30, 2021, the right-of-use assets for the office space leases had a balance of $ 2.5 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 $ 1.5 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:

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

(in thousands)

11 unchanged sentences

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.

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.

The complaint seeks, on behalf of the purported class, an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

The judgment of the District Court was affirmed by the U.S.

Court of Appeals for the Fifth Circuit on September 10, 2021.

The lawsuit purported 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 alleged 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 purported 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.

The complaint sought, on behalf of the purported class, an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

Sanofi Arbitration.

1 unchanged sentence

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.

The Company disputes that at least a significant portion of such costs are properly reimbursable by the Company under the terms of the Termination Agreement and asserts that, in any event, Sanofi was not permitted to withhold any of such costs under the terms of the Termination Agreement.

The Company is seeking payment of up to $ 23.2 million in such disputed costs, together with late interest and attorneys’ fees and costs.

Sanofi is seeking declaratory judgment that the Company is liable for all disputed costs previously withheld and damages for any additional costs properly reimburseable under the terms of the Termination Agreement in excess of those previously withheld, together with late interest and attorneys’ fees.

The Company disputed that at least a significant portion of such costs were properly reimbursable by the Company under the terms of the Termination Agreement and asserted that, in any event, Sanofi was not permitted to withhold any of such costs under the terms of the Termination Agreement.

The Company was seeking payment of $15.6 million in such disputed costs, together with late interest and attorneys’ fees and costs.

Sanofi was seeking declaratory judgment that the Company is liable for all disputed costs previously withheld and damages for any additional costs properly reimburseable under the terms of the Termination Agreement in excess of those previously withheld, together with late interest and attorneys’ fees.

On November 5, 2021, the arbitration panel issued a judgment in Sanofi’s favor.

The amount of Sanofi’s attorneys’ fees and costs subject to reimbursement cannot be reasonably estimated at this time.

In addition, 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.

4 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 $ 0.2 million for the six months ended June 30, 2020.

Revenue, including royalty revenue, recognized under the Ipsen Agreement was $ 0.3 million for the nine months ended September 30, 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 drug candidate sotagliflozin.

13 unchanged sentences

In January 2021, Lexicon sold 2,000,000 shares of its common stock at a price of $ 8.463 per share pursuant to the Sales Agreement, resulting in net proceeds of $ 16.4 million.

The net proceeds are reflected as issuance of common stock in the accompanying condensed consolidated financial statements.

In August and September 2021, Lexicon sold an aggregate of 4,176,953 shares of its common stock at a price of $ 4.732 per share pursuant to the Sales Agreement, resulting in net proceeds of $ 19.1 million.

The net proceeds are reflected as issuances of common stock in the accompanying condensed consolidated financial statements.

In September 2020, the Company completed the sale of XERMELO ® and related assets to TerSera.

The upfront consideration paid by TerSera, subject to a working capital adjustment as set forth in the Asset Purchase and Sale Agreement, was $ 160.4 million and the net gain recognized in connection with the XERMELO sale was $ 132.8 million.

The gain is reflected on the condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020.

The Company remains eligible to receive development, regulatory and sales milestone payments of up to an aggregate of $ 65 million for the development and commercialization of telotristat ethyl in patients with biliary tract cancer and mid-teens royalty payments on net sales of XERMELO in biliary tract cancer.

The Company has determined that these amounts are constrained until the achievement, if any, of specific events.

If or when the constraint is determined to be resolved, the Company will re-evaluate the overall gain in connection with the XERMELO sale and recognize an adjustment on a cumulative catch-up basis in the period that the determination is made.

The XERMELO sale did not meet the criteria for reporting discontinued operations as there was not a strategic shift that has (or will have) a major effect on the Company’s operations.

For the three and nine months ended September 30, 2020, the pretax net loss on the condensed consolidated statement of comprehensive income (loss) for the Company’s XERMELO operations is $ 2.1 million and $ 12.1 million, respectively.

As a result of the XERMELO sale, the Company implemented a reduction in force which reduced its workforce by approximately fifty percent.

The Company incurred and recognized severance charges of approximately $ 5.5 million through September 30, 2020.

Of this charge, $ 2.5 million was recorded in research and development expense and $ 3.0 million was recorded in selling, general and administrative expense in the accompanying condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020.

Earnings (Loss) Per Share

The following is a summary of Lexicon’s earnings (loss) per share calculations and reconciliations of the numerators and the denominators of the basic and diluted per share calculations.

(in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Net income (loss) $ ( 23,122 ) $ 82,603 $ ( 62,147 ) $ ( 53,079 )

Add interest on Convertible Notes — 1,258 — —

Adjusted net income (loss) $ ( 23,122 ) $ 83,861 $ ( 62,147 ) $ ( 53,079 )

Shares used in computing net income (loss) per common share, basic 145,820 107,309 144,558 106,974

Add effect of potential dilutive securities:

Share based compensation awards — 51 — —

Convertible Notes — 10,192 — —

Shares used in computing net income (loss) per common share, diluted 145,820 117,552 144,558 106,974

Net income (loss) per share - basic $ ( 0.16 ) $ 0.77 $ ( 0.43 ) $ ( 0.50 )

Net income (loss) per share - diluted $ ( 0.16 ) $ 0.71 $ ( 0.43 ) $ ( 0.50 )

For periods presented with a net loss, the weighted average number of shares outstanding are the same for both basic and diluted net loss per common share.

The average number of shares associated with stock options and restricted stock units that were excluded from diluted earnings per share that would potentially dilute earnings per share in the future was 10,615 and 11,773 , respectively, for the three months ended September 30, 2021 and 2020, and 10,615 and 11,859 , respectively, for the nine months ended September 30, 2021 and 2020.

For periods presented with a net loss, the shares associated with the Convertible Notes are not included in the computation of diluted earnings per share because they are antidilutive.

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