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Item 7. Management’s Discussion and Analysis

2023-03-03 compared with 2022-03-10 · 60 added, 127 removed, 145 unchanged (56% of the section changed)

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

• We are developing sotagliflozin, an orally-delivered small molecule drug candidate, as a treatment for heart failure and type 1 diabetes.

We have reported positive results from two Phase 3 clinical trials evaluating the effect of sotagliflozin on long-term outcomes related to cardiovascular death and heart failure in approximately 10,500 and 1,200 patients, respectively.

We are now preparing a resubmission of our application for regulatory approval to market sotagliflozin in the United States for heart failure after voluntarily withdrawing our initial application to correct a technical issue with the initial submission.

We have reported positive results from three Phase 3 clinical trials evaluating the effect of sotagliflozin on type 1 diabetes in approximately 800, 800 and 1,400 patients, respectively.

The FDA issued a complete response letter regarding our application for regulatory approval to market sotagliflozin for type 1 diabetes in the United States.

At our request, the FDA has issued a public Notice of Opportunity for Hearing on whether there are grounds for denying approval of our application and the hearing process is ongoing.

Sotagliflozin has been approved in the European Union for use as an adjunct to insulin therapy in the treatment of type 1 diabetes, but has not yet been commercially launched.

• We have a pending NDA for sotagliflozin, an orally-delivered small molecule drug candidate, as a treatment for heart failure.

The NDA is currently under review by the FDA and has been assigned a PDUFA target action date of May 27, 2023.

The NDA is supported by positive results from two Phase 3 clinical trials evaluating the effect of sotagliflozin on long-term outcomes related to cardiovascular death and heart failure in approximately 10,500 and 1,200 patients, respectively.

Under the NDA, we are seeking regulatory approval to market sotagliflozin to reduce the risk of cardiovascular death and hospitalization for heart failure in adults with heart failure and in adults with type 2 diabetes mellitus, chronic kidney disease and other cardiovascular risk factors.

We are now preparing for the anticipated commercial launch of sotagliflozin in the United States following approval.

We have also engaged in the development of sotagliflozin in type 1 diabetes, which was the subject of a separate NDA.

That NDA was supported by positive results from three Phase 3 clinical trials evaluating the effect of sotagliflozin on type 1 diabetes in approximately 800, 800 and 1,400 patients, respectively.

The FDA issued a complete response letter regarding our NDA for sotagliflozin in type 1 diabetes.

At our request, the FDA has issued a public Notice of Opportunity for Hearing on whether there are grounds for denying approval of our NDA and the hearing process is ongoing.

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

We have reported 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 a second Phase 2 clinical trial of LX9211 in post-herpetic neuralgia.

We have reported positive results from a Phase 2 clinical trial of LX9211 in diabetic peripheral neuropathic pain.

We have reported top-line results from a separate Phase 2 clinical trial of LX9211 in post-herpetic neuralgia which demonstrated clear evidence of effect.

LX9211 has received Fast Track designation from the FDA for development in diabetic peripheral neuropathic pain.

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

LX9211 originated from our collaborative neuroscience drug discovery efforts with Bristol-Myers Squibb, and sotagliflozin and compounds from a number of additional drug programs originated from our own internal drug discovery efforts.

Those 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.

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

Our 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 have identified and validated in living animals, or in vivo, more than 100 targets with promising profiles for drug discovery.

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

Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including the success of our planned commercial launch of sotagliflozin in the United States for heart failure, if approved;

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

our success in establishing new collaborations and licenses and our receipt of milestones, royalties and other payments under such arrangements;

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We describe our significant accounting policies more fully in Note 2, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

Revenue Recognition

Product Revenues

Prior to our 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.

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

We recognized product revenue net of applicable reserves for variable consideration, including allowances for customer credits, estimated rebates, chargebacks, discounts, returns, distribution service fees, and government rebates, such as Medicare Part D coverage gap reimbursements in the United States, as discussed below.

Our estimates were based on the most likely amount method for relevant factors such as current contractual and statutory requirements, industry data and forecasted customer buying and payment patterns.

Our net product revenues reflected our best estimates of the amounts of consideration to which we were entitled based on the terms of the respective underlying contracts.

Product shipping and handling costs were considered a fulfillment activity when control transferred to our customers and such costs were included in cost of sales.

Customer Credits:

Our customers were offered various forms of consideration, including allowances, service fees and prompt payment discounts.

We expected that our customers would earn prompt payment discounts.

As a result, we deducted the full amount of those discounts from total product sales when revenues were recognized.

Service fees were also deducted from product sales as they were earned.

Allowances for rebates included mandated discounts under the Medicaid Drug Rebate Program.

Rebate amounts were based upon contractual agreements or legal requirements with public sector (e.g., Medicaid) benefit providers.

Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector benefit providers.

The allowance for rebates was based on statutory discount rates and expected utilization.

Our estimates for expected utilization of rebates were based on third party market research data and data received from the specialty pharmacies dispensing XERMELO.

Rebates were generally invoiced and paid in arrears so that the accrual balance consisted of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known unpaid rebates from the prior quarter.

If actual rebates varied from estimates, we adjusted prior period accruals, which affected revenue in the period of adjustment.

Chargebacks are discounts that occur when contracted customers purchase directly from a specialty pharmacy or distributor, who acts as a retailer.

Contracted customers, which consisted primarily of Public Health Service Institutions, non-profit clinics, and federal government entities purchasing via the Federal Supply Schedule, generally purchased XERMELO at a discounted price.

The specialty pharmacy or distributor, in turn, charged back to us the difference between the price paid by the specialty pharmacy or distributor and the discounted price paid to the specialty pharmacy or distributor by the customer.

The allowance for chargeback was based on known sales to contracted customers.

Medicare Part D Coverage Gap:

The Medicare Part D prescription drug benefit mandates manufacturers to fund a portion of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients.

Our estimates for the expected Medicare Part D coverage gap were based on data received from the specialty pharmacies dispensing XERMELO and projections based on historical data.

Funding of the coverage gap was generally invoiced and paid in arrears so that the accrual balance consisted of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters.

If actual funding varied from estimates, we adjusted prior period accruals, which affected revenues in the period of adjustment.

Co-payment assistance:

Patients with commercial insurance who met certain eligibility requirements were eligible to may receive co-payment assistance.

We accrued a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Collaborative Agreements

Revenues under collaborative agreements include both license revenue and contract research revenue.

We perform the following five steps in determining the amount of revenue to recognize as we fulfill our performance obligations under each of our collaborative agreements:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligation in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligation in the contract, and (v) recognize revenue when (or as) we satisfy the performance obligation.

We apply this five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer to the customer.

At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

We develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

At contract inception, we evaluate whether development milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant revenue reversal will not occur, the associated development milestone value is included in the transaction price.

Development milestones that are not within our control or the control of our licensee, including those requiring regulatory approval, are not considered probable of being achieved until those approvals are received.

The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue when (or as) the performance obligation is satisfied.

At the end of each reporting period, we re-evaluate the probability of achievement of the development milestones and any related constraint, and if necessary, adjust our estimates of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues in the period of adjustment.

In agreements in which a license to our intellectual property is determined distinct from other performance obligations identified in the agreement, we recognize revenue when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

For agreements that include sales-based royalties, including milestones based on a level of sales, the license is deemed to be the predominant item to which the royalties relate and we recognize revenue at the later of (i) when the related sales occur

or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

We may receive payments from our licensees based on billing schedules established in each contract.

Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until we perform our obligations under these agreements.

Amounts are recorded as accounts receivable when our right to consideration is unconditional.

Research and Development Expenses

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genes as potential drug targets.

We have identified and validated in living animals, or in vivo, more than 100 targets with promising profiles for drug discovery.

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Our estimates depend on the timeliness and accuracy of the data provided by our vendors regarding the status of each program and total program spending.

periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive.

We periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive.

Although we use consistent milestones or subject or patient enrollment to drive expense recognition, the assessment of these costs is a subjective process that requires judgment.

Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements.

Our estimates of the clinical study costs and costs to transition activities from Sanofi for the development of sotagliflozin for type 2 diabetes, heart failure and chronic kidney disease, as well as the wind down of those activities, were based on estimates of the services to be received and efforts to be expended pursuant to contracts with multiple vendors and the contract research organization that conducted and managed the clinical studies on our behalf.

The financial terms of these agreements are subject to negotiation and vary from contract to contract.

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There were no significant impairments of long-lived assets in 2022 or 2021.

Indefinite-lived intangible assets, which was comprised primarily of in-process research and development, or IPR&D, projects acquired in business combinations which had not reached technological feasibility, is reviewed annually for impairment and whenever events or changes in circumstances indicated that the carrying amount may not have been recoverable.

In 2019, we terminated certain research and development activities related to a program for the treatment of irritable bowel syndrome and as a result, recognized $28.6 million of impairment to indefinite-lived intangible assets.

There were no impairments to indefinite-lived intangible assets in 2021 or 2020.

Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level.

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The following discussion and analysis should be read with “Results of Operations” and our financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2021.

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

Year Ended December 31,

2021 2020 2019

Total revenues $ 0.3 $ 24.0 $ 322.1

Dollar decrease $ (23.7) $ (298.1)

Percentage decrease (99) % (93) %

Years Ended December 31, 2021 and 2020

• Net product revenues – Net product revenue recognized from XERMELO sales were $23.4 million in 2020 prior to the sale of XERMELO and related assets to TerSera on September 8, 2020.

Product revenues were 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.

Royalties and other revenue – Revenues from royalties and other revenue decreased to $0.1 million in 2022 from $0.3 million in 2021.

In 2021, two companies, AC Biosciences Ltd.

and Taconic Farms, Inc.

represented 76% and 24% of revenues, respectively.

In 2020, two specialty pharmacies, Biologics, Inc.

and Diplomat Pharmacy, represented 65% and 22% of revenues, respectively.

Cost of Sales

Cost of sales was $1.9 million in 2020 prior to the sale of XERMELO in September 2020.

In 2022, one company represented 100% of revenues.

In 2021, two companies represented 76% and 24% of revenues, respectively.

Research and Development Expenses

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Total research and development expense $ 52.8 $ 55.0 $ 153.6

Dollar (decrease) increase $ (98.6) $ 61.7

Percentage (decrease) increase (64) % 67 %

Dollar decrease $ (2.2) $ (98.6)

Percentage decrease (4) % (64) %

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, facility and equipment costs and stock-based compensation.

Years Ended December 31, 2022 and 2021

• Third-party and other services – Third-party and other services decreased 71% in 2021 to $34.9 million, primarily due to decreases in external clinical development costs relating to sotagliflozin subsequent to the wind down of the activities beginning in March 2020.

• Third-party and other services – Third-party and other services decreased 14% in 2022 to $29.9 million, primarily due to decreases in professional and consulting fees relating to preparations for the submission of our application for regulatory approval to market sotagliflozin in the United States for heart failure.

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 decreased 41% in 2021 to $10.8 million, primarily due to lower headcount as a result of the reduction in force of our personnel in September 2020.

• Personnel – Personnel costs increased 25% in 2022 to $13.5 million, primarily due to higher employee salaries and benefit costs as a result of increasing headcount during 2022 in preparation for commercialization of sotagliflozin.

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

• Stock-based compensation – Stock-based compensation expense decreased 33% in 2021 to $4.3 million, 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 decreased to $1.5 million in 2021 from $2.5 million in 2020, primarily due to lower depreciation expense subsequent to the sale of our facilities in December 2020.

• Other – Other costs decreased to $3.5 million in 2021 from $5.1 million in 2020, primarily due to lower insurance and software license expenses.

• Stock-based compensation – Stock-based compensation expense was $4.3 million in 2022 and 2021.

• Facilities and equipment – Facilities and equipment costs was $1.6 million and $1.5 million in 2022 and 2021, respectively.

• Other – Other costs was $3.6 million and $3.5 million in 2022 and 2021, respectively.

Other costs primarily include travel, training, software licenses and insurance costs.

Selling, General and Administrative Expenses

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Total selling, general and administrative expense $ 48.1 $ 32.3 $ 47.2

Dollar decrease $ (14.9) $ (9.6)

Percentage decrease (32) % (17) %

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

Dollar increase (decrease) $ 15.8 $ (14.9)

Percentage increase (decrease) 49 % (32) %

Selling, general and administrative expenses consist primarily of personnel costs to support the commercialization of sotagliflozin and activities from research and development;

professional and consulting fees, stock-based compensation expense, and facility and equipment costs.

Years Ended December 31, 2022 and 2021

• Personnel – Personnel costs decreased 57% in 2021 to $10.8 million, primarily due to lower headcount as a result of the reduction in force of our personnel in September 2020.

• Personnel – Personnel costs increased 75% in 2022 to $18.8 million, primarily due to higher employee salaries and benefit costs as a result of increasing headcount during 2022 in preparation for commercialization of sotagliflozin.

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

• Professional and consulting fees – Professional and consulting fees increased 18% in 2021 to $10.8 million, primarily as a result of higher legal expenses, partially offset by lower marketing expenses.

• Stock-based compensation – Stock-based compensation expense decreased 9% in 2021 to $6.3 million, 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 decreased to $1.4 million in 2021 from $1.7 million in 2020, primarily due to lower property taxes and depreciation expense subsequent to the sale of our facilities in December 2020.

• Other – Other costs decreased to $3.1 million in 2021 from $4.6 million in 2020, primarily due to decreases in travel expenses due to the COVID-19 pandemic and lower software license expenses.

Impairment Losses

An impairment loss of $1.6 million in the year ended December 31, 2020 was recognized as a result of writing down the assets related to our campus in The Woodlands, Texas to the estimated selling price.

Gain on the sale of XERMELO

A gain of $132.6 million in the year ended December 31, 2020 was recognized in connection with the sale of XERMELO and related assets to TerSera.

• Professional and consulting fees – Professional and consulting fees increased 50% in 2022 to $16.3 million, primarily as a result of higher marketing and professional and consulting fees, partially offset by lower legal fees.

• Stock-based compensation – Stock-based compensation expense increased 15% in 2022 to $7.3 million, primarily due to increasing headcount in the current year.

• Facilities and equipment – Facilities and equipment costs was $1.4 million in 2022 and 2021.

• Other – Other costs increased 39% in 2022 to $4.3 million, primarily due to increases in travel, training and software license expenses in 2022.

Interest Expense and Interest and Other Income, Net

Interest Expense .

Interest expense decreased to $0.8 million in 2021 from $14.5 million in 2020, primarily due to the $150 million payoff of the BioPharma term loan in September 2020 and the $75.8 million exchange of convertible notes in September and October 2020.

Interest expense increased to $2.8 million in 2022 from $0.8 million in 2021, primarily due to the Oxford debt financings during March and December of 2022.

Interest and Other Income (Expense), Net.

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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 our agreements with Symphony Icon, Inc.

We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments we received under our collaborations and strategic licenses, target validation, database subscription and technology license agreements, product sales, government grants and contracts, and financing under debt, lease and other

project financing arrangements, as well as from commercial sales of our XERMELO product following its commercial launch in February 2017 until our sale of XERMELO and related assets to TerSera Therapeutics, LLC in September 2020.

In March 2022, we entered into a loan and security agreement with Oxford Finance LLC that provides up to $150 million in borrowing capacity, available in four tranches, under which $50 million has been funded.

As of December 31, 2022, we had $138.4 million in cash, cash equivalents and short-term investments.

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We used cash of $88.9 million in our operations in 2022.

This consisted primarily of the net loss for the year of $87.8 million, and a net decrease in operating liabilities net of assets of $10.2 million, partially offset by non-cash charges of $10.9 million primarily related to stock-based compensation expense.

Investing activities provided cash of $2.1 million in 2021, primarily due to net maturities of investments of $3.3 million partially offset by $1.2 million of asset purchases.

Financing activities provided cash of $22.7 million, primarily as a result of $37.1 million net proceeds from the sales of common stock during January, August and September of 2021 under our Open Market Agreement with Jefferies LLC which was partially offset by $11.7 million used to pay off the matured convertible notes and $2.7 million used to repurchase common stock.

This consisted primarily of the net loss for the year of $101.9 million, partially offset by a net decrease in operating assets net of liabilities of $0.4 million and non-cash charges of $12.7 million primarily related to stock-based compensation expense.

Investing activities used cash of $71.1 million in 2022, primarily due to $69.8 million net purchases of investments and $1.3 million of asset purchases.

Financing activities provided cash of $142.2 million, primarily as a result of $94.2 million net proceeds from the issuance of common stock and $48.9 million of net proceeds from the Oxford debt financing, which were partially offset by $0.9 million used to repurchase common stock by retaining shares in substitution of the tax withholding obligations of recipients of restricted stock units granted under our 2017 Equity Incentive Plan with respect to the vesting of such restricted stock units.

Other commitments.

In April 2019, sotagliflozin was 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.

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

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

In December 2020, our subsidiary, Lex-Gen Woodlands, L.P., sold our facilities in The Woodlands, Texas for $11.9 million.

Concurrent with such sale, we entered into a leaseback agreement with respect to 38,000 square feet of such facilities for a period of up to six months, with monthly gross rent payments of $101,000, which ended on June 15, 2021.

In February 2021, we leased a 25,000 square-foot office space in The Woodlands, Texas and in June 2021, we relocated our corporate offices.

In January 2021, sotagliflozin was approved in the United Kingdom 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/m2, who could not achieve adequate glycemic control despite optimal insulin therapy.

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

Under our drug discovery alliance with Bristol-Myers Squibb, we will be required to make a royalty payment of $5 million upon dosing of the first patient in a Phase 3 clinical trial of LX9211 .

In February 2021, we leased a 25,000 square-foot office space in The Woodlands, Texas.

The term of the sublease extends from March 1, 2021 through August 31, 2025, and provides for escalating yearly base rent payments starting at $506,000 and increasing to $557,000 in the final year of the lease.

In March 2015, our subsidiary, Lexicon Pharmaceuticals (New Jersey), Inc., leased a 25,000 square-foot office space in Basking Ridge, New Jersey.

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

In July 2022, our subsidiary, Lexicon Pharmaceuticals (New Jersey), Inc.

leased a 22,000 square-foot office space in Bridgewater, New Jersey.

The term of the lease extends from February 2023 through January 2034 and provides for escalating yearly base rent payments starting at $820,000 and increasing to $986,000 in the final year of the lease.

Our future capital requirements will be substantial and will depend on many factors, including the success of our planned commercial launch of sotagliflozin in heart failure, if approved,;

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

our success in establishing new collaborations and licenses and our receipt of milestones, royalties and other payments under such arrangements;

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We expect to continue to devote substantial capital resources to prepare for the commercialization of sotagliflozin, if approved;

successfully complete our nonclinical and clinical

development efforts with respect to sotagliflozin, LX9211 and our other drug candidates;

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.

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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.

If we are unable to obtain adequate financing when needed, we may have to delay or reduce the scope of one or more of our clinical trials, or research and development programs.

Additional financing may not be available on terms acceptable to us or at all.

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We maintain a short-term investment portfolio which consists of U.S.

Treasury bills and corporate debt securities that mature three to 12 months from the time of purchase, which we believe are subject to limited market and credit risk.

Treasury bills and corporate debt

securities 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.

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

We are subject to interest rate sensitivity on our outstanding Oxford Term Loans which bear interest at a floating rate equal to the 30-day U.S.

Dollar LIBOR plus 7.90%, but not less than 8.01%, subject to additional interest if an event of default occurs and is continuing.

As of December 31, 2022, the interest rate was 12.04%.

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-K

Item 7. Management’s Discussion and Analysis