What changed in this filing

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Item 9A. Controls and Procedures

2023-03-03 compared with 2022-03-10 · 165 added, 198 removed, 704 unchanged (34% of the section changed)

18 unchanged sentences

Opinion on Internal Control Over Financial Reporting

We have audited Lexicon Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the COSO criteria).

We have audited Lexicon Pharmaceuticals, Inc.

internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Lexicon Pharmaceuticals, Inc.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 10, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated March 3, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Consolidated Balance Sheets

Consolidated Statements of Comprehensive Income (Loss )

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

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All other financial statement schedules are omitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto.

3.1 — Second Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 29, 2021 and incorporated by reference herein).

3.1 — Fifth Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8‑K dated May 20, 2022 and incorporated by reference herein).

3.2 — Second Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Current Report on Form 8‑K dated April 26, 2012 and incorporated by reference herein).

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(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 16, 2020 and incorporated by reference herein).

*4.8 — Description of Common Stock

4.8 — Description of Common Stock (filed as Exhibit 4.8 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2021 and incorporated by reference herein).

10.1 — Offer Letter , dated July 1, 2014, with Lonnel Coats, as amended (filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2018 and incorporated by reference herein).

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Granowitz, M.D., Ph.D.

(filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2021 and incorporated by reference herein).

10.4 — Employment Agreement , dated July 12, 2001, with Alan J.

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10.18 — Sublease Agreement , dated February 8, 2021, with Repsol Oil & Gas USA, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 8, 2021 and incorporated by reference herein).

*21.1 — Subsidiaries

10.19 Loan and Security Agreement , dated March 17, 2022, with Oxford Finance, LLC (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2022 and incorporated by reference herein).

10.20 First Amendment to Loan and Security Agreement , dated August 29, 2022, with Oxford Finance, LLC (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated August 29, 2022 and incorporated by reference herein).

21.1 — Subsidiaries (filed as Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2021 and incorporated by reference herein).

*23.1 — Consent of Independent Registered Public Accounting Firm .

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We have audited the accompanying consolidated balance sheets of Lexicon Pharmaceuticals, Inc.

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive loss , stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

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We inspected the terms and conditions of vendor contracts, change orders and trial budgets, and clerically tested the cost models to track progress against trial budgets.

We evaluated estimated services incurred by third parties by understanding the terms and timeline of significant projects, evaluating management’s estimate of work performed and costs incurred by meeting with members of the Company’s clinical operations team, and obtaining external confirmation of key terms and conditions and other key inputs to the accrual calculation, such as total approved trial budgets and amounts invoiced, and number and timing of patients enrolled in clinical studies.

We evaluated estimated services incurred by third parties by understanding the terms and timeline of significant projects, evaluating management’s estimate of work performed and costs incurred by meeting with members of the Company’s clinical operations team, and obtaining external confirmation of key inputs to the accrual calculation, such as total approved trial budgets and amounts invoiced, and number and timing of patients enrolled in clinical studies.

Further, we inspected invoices received from third parties during the year as well as after the balance sheet date and performed a lookback analysis to evaluate the completeness of accrued research and development expenses.

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Goodwill 44,543 44,543

Other assets 2,269 1,231

Operating lease right-of-use-assets 6,819 2,269

Total assets $ 194,299 $ 136,909

Liabilities and Equity

Liabilities and Stockholders’ Equity

Current liabilities:

1 unchanged sentence

Accrued liabilities 12,777 12,972

Current portion of long-term debt, net of deferred issuance costs — 11,646

Total current liabilities 23,172 22,124

Other long-term liabilities 1,190 611

Long-term debt, net of issuance costs 48,579 —

Long-term operating lease liabilities 5,424 1,190

Total liabilities 77,175 23,314

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Accumulated deficit ( 1,589,720 ) ( 1,487,776 )

Accumulated other comprehensive income (loss) ( 10 ) ( 6 )

Accumulated other comprehensive loss ( 428 ) ( 10 )

Treasury stock, at cost, 488 and 1,165 shares, respectively

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Total stockholders' equity 117,124 113,595

Total liabilities and equity $ 136,909 $ 203,788

Total liabilities and stockholders’ equity $ 194,299 $ 136,909

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

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Loss

(In thousands, except per share amounts)

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Cost of sales (including finite-lived intangible asset amortization)

— 1,929 3,231

Research and development, including stock-based compensation of $ 4,253 , $ 4,284 and $ 6,376 respectively

3 unchanged sentences

Impairment loss on buildings — — 1,600

Impairment loss on intangible asset — — 28,638

Total operating expenses 100,899 87,388 204,380

1 unchanged sentence

Gain on sale of XERMELO — — 132,585

Income (loss) from operations ( 87,090 ) ( 47,800 ) 141,445

Loss from operations ( 100,760 ) ( 87,090 ) ( 47,800 )

Gain on debt extinguishments, net — — 1,003

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Interest and other income, net 1,596 134 2,767

Net income (loss) before taxes ( 87,758 ) ( 58,574 ) 124,119

Income tax benefit — — 6,014

Net income (loss) $ ( 87,758 ) $ ( 58,574 ) $ 130,133

Net income (loss) per common share, basic

$ ( 0.60 ) $ ( 0.53 ) $ 1.23

Net income (loss) per common share, diluted

$ ( 0.60 ) $ ( 0.53 ) $ 1.16

Shares used in computing net income (loss) per common share, basic

145,652 110,841 106,218

Shares used in computing net income (loss) per common share, diluted

145,652 110,841 116,747

Other comprehensive income (loss):

Unrealized gain (loss) on investments

( 4 ) ( 90 ) 96

Comprehensive income (loss)

$ ( 87,762 ) $ ( 58,664 ) $ 130,229

Net loss $ ( 101,944 ) $ ( 87,758 ) $ ( 58,574 )

Net loss per common share, basic and diluted $ ( 0.62 ) $ ( 0.60 ) $ ( 0.53 )

Shares used in computing net loss per common share, basic and diluted 165,733 145,652 110,841

Other comprehensive loss:

Unrealized loss on investments ( 418 ) ( 4 ) ( 90 )

Comprehensive loss $ ( 102,362 ) $ ( 87,762 ) $ ( 58,664 )

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

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity

(In thousands)

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Stock-based compensation — — 13,274 — — — 13,274

Issuance of common stock under an Open Market Sale Agreement, net of issuance fees 3,709 4 6,959 — — — 6,963

Issuance of common stock upon private placement, net of issuance fees 20,313 20 62,987 — — — 63,007

Issuance of common stock in settlement of convertible notes, net of issuance fees 10,369 10 15,704 — — — 15,714

Issuance of common stock under Equity Incentive Plans

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Repurchase of common stock — — — — — ( 1,026 ) ( 1,026 )

Net income — — — 130,133 — — 130,133

Unrealized gain on investments

— — — — 96 — 96

Net loss — — — ( 58,574 ) — — ( 58,574 )

Unrealized loss on investments — — — — ( 90 ) — ( 90 )

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

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Issuance of common stock under an Open Market Sale Agreement, net of issuance fees 6,177 6 35,485 — — — 35,491

Issuance of common stock upon private placement, net of issuance fees 20,313 20 62,987 — — — 63,007

Issuance of common stock in settlement of convertible notes, net of issuance fees 10,369 10 15,704 — — — 15,714

Issuance of common stock under Equity Incentive Plans 1,616 2 1,591 — — — 1,593

1,219 2 — — — — 2

Repurchase of common stock — — — — — ( 2,675 ) ( 2,675 )

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Stock-based compensation — — 11,520 — — — 11,520

Issuance of common stock under an Open Market Sale Agreement, net of issuance fees 6,177 6 35,485 — — — 35,491

Issuance of common stock under Equity Incentive Plans 32 — — — — — —

Issuance of common stock, net of issuance fees 39,100 39 94,166 — — — 94,205

Issuance of equity classified warrants — — 1,030 — — — 1,030

Issuance of treasury stock — — ( 6,321 ) — — 6,321 —

Repurchase of common stock — — — — — ( 864 ) ( 864 )

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Cash flows from operating activities:

Net income (loss) $ ( 87,758 ) $ ( 58,574 ) $ 130,133

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Net loss $ ( 101,944 ) $ ( 87,758 ) $ ( 58,574 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 427 292 2,934

1 unchanged sentence

Amortization of debt issuance costs 741 54 1,013

Deferred tax benefit — — ( 6,014 )

Gain on sale of XERMELO — — ( 132,585 )

Impairment loss on building — — 1,600

Impairment loss on intangible asset — — 28,638

Gain on debt extinguishments, net — — ( 1,003 )

(Gain) loss on disposal of property and equipment 49 ( 707 ) —

Loss (gain) on disposal of property and equipment 3 49 ( 707 )

Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable 381 53,227 ( 50,608 )

(Increase) decrease in accounts receivable ( 14 ) 381 53,227

Decrease in inventory — — 345

Decrease (increase) in prepaid expenses and other current assets 2,885 ( 1,948 ) ( 2,652 )

(Increase) decrease in prepaid expenses and other current assets ( 316 ) 2,885 ( 1,948 )

Decrease in other assets 656 661 424

(Decrease) increase in accounts payable and other liabilities ( 14,158 ) ( 20,969 ) 20,097

Decrease in deferred revenue — — ( 25,990 )

Net cash (used in) provided by operating activities ( 87,017 ) ( 142,969 ) 113,807

Increase (decrease) in accounts payable and other liabilities 76 ( 14,158 ) ( 20,969 )

Net cash used in operating activities ( 88,851 ) ( 87,017 ) ( 142,969 )

Cash flows from investing activities:

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Maturities of investments 64,197 37,592 268,000

Net cash provided by (used in) investing activities 2,110 380,756 ( 155,855 )

Net cash (used in) provided by investing activities ( 71,078 ) 2,110 380,756

Cash flows from financing activities:

1 unchanged sentence

Repurchase of common stock ( 864 ) ( 2,675 ) ( 1,026 )

Repayment of debt borrowings ( 11,700 ) ( 216,580 ) ( 1,285 )

Proceeds (repayment) of debt borrowings 48,868 ( 11,700 ) ( 216,580 )

Net cash provided by (used in) financing activities 142,209 22,709 ( 147,636 )

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Supplemental disclosure of noncash investing and financing activities:

Right-of-use asset $ 1,704 $ — $ 1,799

Right-of-use assets obtained in exchange for lease obligations $ 5,206 $ 1,704 $ —

Issuance of equity classified warrants $ 1,030 $ — $ —

Issuance of treasury stock $ 6,321 $ — $ —

Recognition of exit fee liability related to debt borrowings $ 1,500 $ — $ —

Liabilities assumed by TerSera from the XERMELO sale $ — $ — $ 3,437

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Lexicon has financed its operations from inception primarily through sales of common and preferred stock, contract and milestone payments to it under strategic collaborations and other research and development collaborations, target validation, database subscription and technology license agreements, product sales, government grants and contracts and financing under debt and lease arrangements.

The Company’s future success is dependent upon many factors, including, but not limited to, the success of its ongoing nonclinical and clinical development efforts and its ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts;

The Company’s future success is dependent upon many factors, including, but not limited to, the success of its commercialization efforts for any approved products;

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

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

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

As of December 31, 2021, short-term investments consist of U.S.

As of December 31, 2022 and 2021, short-term investments consist of U.S.

treasury bills and corporate debt securities.

As of December 31, 2020, short-term investments consist of corporate debt securities.

The Company’s short-term investments are classified as available-for-sale securities and are carried at fair value, based on quoted market prices of the securities.

The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security.

The Company does not intend to sell any of its available-for-sale securities prior to their maturity dates.

Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity.

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The Company attempts to minimize potential concentrations of risk in cash equivalents and investments by placing investments in high-quality financial instruments.

The Company’s accounts receivable are unsecured and are concentrated in pharmaceutical and biotechnology companies located in Europe and the United States.

The Company has not experienced any realized losses on its cash equivalents or short-term investments.

The Company’s accounts receivable are unsecured and are concentrated in pharmaceutical and biotechnology companies located in the United States.

The Company has not experienced any significant credit losses to date.

In 2022, one customer in the United States represented 100 % of revenue.

In 2021, customers in Switzerland and the United States represented 76 % and 24 % of revenue, respectively.

In 2020, customers in the United States represented 98 % of revenue.

In 2019, customers in Germany and the United States represented 89 % and 10 % of revenues, respectively.

At December 31, 2022, management believes that the Company has no significant concentrations of credit risk.

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Lexicon operates in one business segment, which primarily focuses on the discovery, development and commercialization of pharmaceutical products for the treatment of human disease.

Substantially all of the Company’s revenues have been derived from drug discovery alliances, target validation collaborations

for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, technology licenses, subscriptions to its databases, product sales, government grants and contracts and compound library sales.

In 2021, AC Bioscience Ltd.

represented 76 % of revenues and Taconic Farms, Inc.

represented 24 % of revenues, respectively.

In 2020, two specialty pharmacies, Biologics, Inc.

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

In 2019, Sanofi represented 89 % of revenues and no individual XERMELO customer represented more than 10% of revenues.

Substantially all of the Company’s revenues have been derived from drug discovery alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, technology licenses, subscriptions to its databases, product sales, government grants and contracts and compound library sales.

In 2022, one customer represented 100 % of revenue.

In 2021, one customer represented 76 % of revenues and another customer represented 24 % of revenues, respectively.

In 2020, two customers represented 65 % and 22 % of revenues, respectively.

Property and Equipment:

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Impairment of Long-Lived Assets:

Long-lived assets, right-of-use assets for leases and finite-lived intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Long-lived assets and right-of-use assets for leases are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.

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

There were no impairments of long-lived assets, including finite-lived intangible assets, in 2021 or 2019.

Indefinite-lived intangible assets are also tested annually for impairment and whenever indicators of impairment are present.

When performing the impairment assessment, the Company first assesses qualitative factors to determine whether it is necessary to recalculate the fair value of its intangible assets.

If management believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of the intangible assets is less than the Company’s carrying amount, the Company calculates the asset’s fair value.

If the carrying value of the asset exceeds its fair value, then the intangible asset is written down to its fair value.

In 2019, Lexicon determined that a triggering event occurred upon execution of the Termination Agreement with Sanofi (as defined in Note 14) and Lexicon’s resulting decision to substantially reallocate resources from the development of certain programs, including LX1031 and LX1033 for irritable bowel syndrome, to the development of sotagliflozin.

In connection with such triggering event, Lexicon determined that its LX1031 and LX1033 programs for irritable bowel syndrome, collectively an intangible asset, were considered to be impaired and recorded an impairment charge of $ 28.6 million to IPR&D in 2019.

The impairment reduced the remaining book value to zero.

There was no impairment of indefinite lived intangible assets in 2020 or 2021.

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

Goodwill Impairment:

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There was no impairment of goodwill in 2022, 2021 or 2020.

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

A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration.

Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.

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 lease payments to be made over the expected lease term.

As the implicit rate is not determinable in its leases, Lexicon used a borrowing rate ranging between 9% and 9.7% at the commencement date in determining the present value of future payments.

Revenue Recognition:

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For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study.

The Company’s estimates of the clinical study costs and costs to transition activities from Sanofi for the development of sotagliflozin for type 2 diabetes and heart failure, 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 its behalf.

The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the vendors and clinical site visits.

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Stock-Based Compensation:

The Company recognizes compensation expense in its statements of comprehensive income (loss) for share-based payments, including stock options and restricted stock units issued to employees, based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award.

Stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis.

The Company recognizes compensation expense in its statements of comprehensive loss for share-based payments, including stock options and restricted stock units issued to employees, based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award.

Stock-based compensation expense for awards without performance conditions is recognized based on the terms of vesting, which is typically on a straight-line basis.

Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met.

As of December 31, 2021, stock-based compensation cost for all outstanding unvested stock options and restricted stock units was $ 15.9 million, which is expected to be recognized over a weighted-average period of 1.2 years.

As of December 31, 2022, future stock-based compensation cost for all outstanding unvested stock options and restricted stock units was $ 21.0 million, which is expected to be recognized over a weighted-average period of 1.3 years.

The fair value of stock options is estimated at the date of grant using the Black-Scholes method.

The Black-Scholes option-pricing model requires the input of subjective assumptions.

Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

Because the Company’s employee stock options have

characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of determining the fair value of stock options, the Company segregates its options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in different assumptions used for expected option lives.

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Significant judgment is required in making these assessments to maintain or reverse valuation allowances and, to the extent future expectations change the Company would have to assess the recoverability of these deferred tax assets at that time.

Net Income (Loss) per Common Share:

Net income (loss) per common share is computed using the weighted average number of shares of common stock outstanding.

Shares associated with convertible debt, stock options and restricted stock units that could potentially dilute earnings per share in the future are not included in the computation of diluted earnings per share because they are antidilutive.

Net Loss per Common Share:

Net loss per common share is computed using the weighted average number of shares of common stock outstanding.

Shares associated with warrants, stock options and restricted stock units that could potentially dilute earnings per share in the future are not included in the computation of diluted earnings per share because they are antidilutive.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2019-12, Income Taxes (Topic 740) Simplifying Accounting for Income Taxes, as part of its initiative to reduce

complexity in the accounting standards.

The guidance amended certain disclosure requirements that had become redundant, outdated or superseded.

Additionally, this guidance amends accounting for the interim period effects of changes in tax laws or rates, and simplifies aspects of the accounting for franchise taxes.

The guidance is effective for annual periods beginning after December 15, 2020, including interim periods therein.

The adoption of ASU 2019-12 in the first quarter of 2021 did not have a material impact on the Company’s condensed consolidated financial statements.

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606.

This targeted amendment to Topic 808 clarifies that certain transactions resulting from a collaborative agreement should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer for a good or service that is a distinct unit-of-account.

This amendment is effective for fiscal years, and interim periods within years presented, beginning after December 15, 2019, and should be applied retrospectively to the date of initial application of Topic 606.

The Company has applied the provisions of Topic 606 to account for its transactions for collaboration arrangements, including recognition, measurement, presentation and disclosure requirements, and adoption of this ASU did not have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles-Goodwill and Other, which is intended to simplify the subsequent measurement of goodwill.

The pronouncement allows an entity, during its annual or interim goodwill impairment evaluation, to compare the fair value of a reporting unit with its carrying amount.

An impairment charge is immediately recognized by which the carrying amount exceeds the fair value.

This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.

The adoption of this ASU during the first quarter of 2020 did not have a material impact on the consolidated financial statements.

In September 2020, the Company completed the sale of its XERMELO product and related assets (the “XERMELO sale”) to TerSera pursuant to an Asset Purchase and Sale Agreement entered into in July 2020.

The final consideration paid by TerSera was $ 160.0 million and the net gain recognized in connection with the XERMELO sale was $ 132.6 million.

The gain is reflected on the consolidated statement of comprehensive income (loss) for the year ended December 31, 2020.

The Company remains eligible to receive development, regulatory and sales milestone payments of up to an aggregate of $ 65.0 million for the development and commercialization of XERMELO 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.

Such adjustment would be included in Gain on sale of XERMELO in the consolidated statement of comprehensive income (loss).

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 years ended December 31, 2020 and 2019, the pretax net loss on the condensed consolidated statement of comprehensive income (loss) for the Company’s XERMELO operations is $ 12.2 million, and $ 15.4 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 approximate $ 5.5 million.

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 consolidated statement of comprehensive income (loss) for the year ended December 31, 2020.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which removes the separation models for convertible debt with cash conversion or beneficial conversion features.

ASU 2020-06 also requires the application of the if-converted method for calculating earnings per diluted share, as the treasury stock method will no longer be permitted for convertible instruments.

The adoption of ASU 2020-06 during the first quarter of 2022 did not have a material impact on the consolidated financial statements.

Cash, Cash Equivalents and Investments

45 unchanged sentences

There were no transfers between Level 1 and Level 2 during the periods presented.

Refer to Note 9, Debt Obligations, for fair value measurements of debt obligations.

Property and Equipment

10 unchanged sentences

Net property and equipment $ 2,071 $ 1,176

In December 2020, the Company’s subsidiary, Lex-Gen Woodlands, L.P., sold its facilities in The Woodlands, Texas for $ 11.9 million.

The land had a carrying value of $ 2.7 million and buildings and related assets sold had a net carrying value of $ 7.9 million.

Concurrent with the sale, the Company entered into a leaseback agreement with the purchaser with respect to a portion of such facilities for a period of up to six months.

In connection with the sale, the Company recorded an impairment loss of $ 1.6 million to reduce the carrying value of the assets to its estimated fair value, less estimated selling costs.

During the year ended December 31, 2021, the Company retired $ 1.3 million of computers and software and furniture and fixtures, which had been fully depreciated.

During the year ended December 31, 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.

During each of the years ended December 31, 2022 and 2021, the Company retired $ 1.3 million of computers and software and furniture and fixtures, which had been fully depreciated.

During each of the years ended December 31, 2022 and 2021, the Company purchased $ 1.3 million of assets comprised of leasehold improvements, computers and software and furniture.

The leasehold improvements are being amortized over the applicable lease term.

The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States to provide emergency assistance to individuals and businesses affected by the COVID-19 pandemic.

The CARES Act includes temporary changes to both income and non-income based tax laws.

For the year ended December 31, 2020, the impact of the CARES Act was immaterial to the Company’s tax provision.

Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact our tax provision in future periods.

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Change in valuation allowance 19,543 17,210 ( 20,418 )

368 157 1,064

Income tax benefit $ — $ — $ —

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As of December 31, 2022 and 2021, the Company had no accruals for interest or penalties related to income tax matters.

On July 12, 2001, Lexicon completed the acquisition of Coelacanth Corporation in a merger.

In July 2001, Lexicon completed the acquisition of Coelacanth Corporation in a merger.

Coelacanth, now Lexicon Pharmaceuticals (New Jersey), Inc., formed the core of the Company’s division responsible for small molecule compound discovery.

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Goodwill associated with the acquisition of $ 25.8 million, which represents the excess of the $ 36.0 million purchase price over the fair value of the underlying net identifiable assets, was assigned to the consolidated entity, Lexicon.

On July 30, 2010, Lexicon exercised its Purchase Option and completed the acquisition of Symphony Icon, Inc.

In June 2007, Lexicon entered into an arrangement providing for the financing of the clinical development of certain of its drug candidates.

Under the arrangement, Lexicon licensed to Symphony Icon, Inc.

its intellectual property rights relating to the drug candidates and obtained an exclusive purchase option that gave Lexicon the right to acquire all the equity of Symphony Icon.

In July 2010, Lexicon exercised its purchase option and completed the acquisition of Symphony Icon.

Goodwill associated with the acquisition of $ 18.7 million, which represents the assets recognized in connection with the deferred tax liability acquired and did not result from excess purchase price, was assigned to the consolidated entity, Lexicon.

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Debt Obligations

Oxford Term Loans.

On March 17, 2022, Lexicon and one of its subsidiaries entered into a loan and security agreement with Oxford Finance LLC (“Oxford”) that provides up to $ 150 million in borrowing capacity (the “Oxford Term Loans”) available in four tranches, each maturing in March 2027.

Monthly interest-only payments are due during an initial 36-month period, which may be extended at Lexicon’s option to 48 months if Lexicon maintains compliance with a financial covenant relating to net sales of sotagliflozin following regulatory approval.

The interest-only period will be followed by an amortization period extending through the maturity date.

On August 29, 2022, the Company entered into a first amendment to the loan and security agreement modifying the period during which the second $25 million tranche under the facility would be available for draw in exchange for $ 0.3 million of cash consideration.

The first $ 25 million tranche was funded at closing.

The second $ 25 million tranche was funded on December 30, 2022.

The third $ 50 million tranche is available for draw at Lexicon’s option prior to June 30, 2023, but within 60 days of U.S.

regulatory approval of sotagliflozin for heart failure.

The fourth $ 50 million tranche is available for draw at Lexicon’s option, subject to Oxford’s consent, at any time prior to the expiration of the interest-only payment period.

Principal payments of $ 8.7 million, $ 13.0 million, and $ 4.8 million will be due during the fiscal years ended December 31, 2025, December 31, 2026 and December 31, 2027, respectively, with respect to the first tranche.

The loan and security agreement provides that, upon funding of the first three tranches, Lexicon will grant Oxford a warrant to purchase shares of its common stock having a value equal to 3.50 %, 1.75 % and 0.875 %, respectively, of each such tranche, as determined by reference to a 10-day average closing price of the shares.

Each warrant will have an exercise price equal to such average closing price, be exercisable for a five-year period from the date of issuance and feature a net cashless exercise provision.

Concurrent with the funding of the first tranche, Lexicon granted Oxford a warrant to purchase 420,673 shares of Lexicon’s common stock at an exercise price of $ 2.08 per share.

Concurrent with the funding of the second tranche, Lexicon granted Oxford a warrant to purchase 224,128 shares of Lexicon’s common stock at an exercise price of $ 1.95 per share.

The warrants are exercisable for five years from their respective grant dates and are classified as equity instruments.

The Company allocated the proceeds from each tranche to the corresponding warrant using the relative fair value method and used the Black-Scholes model to calculate the fair value of the warrants.

The fair value of the first tranche warrant of $ 0.7 million was recognized as equity with a corresponding debt discount of $ 0.7 million.

The fair value of the second tranche warrant of $ 0.3 million was recognized as equity with a corresponding debt discount of $ 0.3 million.

The Oxford Term Loans 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 %.

If an event of default occurs and is continuing, Oxford may declare all amounts outstanding under the loan and security agreement to be immediately due and payable.

Lexicon may prepay the Oxford Term Loans in whole at its option at any time.

Any prepayment of the Oxford Term Loans is subject to prepayment fees for up to three years after the funding of each tranche of the loans.

A final payment exit fee equal to 6 % of the amount funded under the Oxford Term Loans is due upon prepayment or maturity, which final payment will be adjusted to 7 % of the amount funded upon extension of the interest-only payment period.

The final payment exit fee of $ 1.5 million was recorded once for each tranche as a debt discount on the funding date.

During March 2022, in connection with the first tranche of the loan and security agreement, the Company received cash proceeds of $ 24.15 million, net of debt issuance costs of $ 0.35 million and a facility fee of $ 0.50 million.

issuance costs and facility fee have been recorded as a debt discount on the consolidated balance sheet, which together with the final payment exit fee of $ 1.5 million and warrant fair value of $ 0.7 million are being amortized to interest expense throughout the life of the term loan using the effective interest rate method.

On December 30, 2022, in connection with the second tranche of the loan and security agreement, the Company received cash proceeds of $ 24.96 million, net of debt issuance costs of $ 0.04 million.

The debt issuance costs were recorded as a debt discount on the consolidated balance sheet, which together with the final payment exit fee of $ 1.5 million and warrant fair value of $ 0.3 million are being amortized to interest expense throughout the life of the term loan using the effective interest rate method.

As of December 31, 2022, the balance of the debt discount was $ 4.4 million.

During the year ended December 31, 2022, the Company recognized interest expense of $ 2.8 million.

As of December 31, 2022, the carrying value of the Oxford Term Loans was $ 48.6 million.

The carrying value of the Oxford Term Loans approximates its fair value, as the loans bear interest at a rate that approximates prevailing market rates for instruments with similar characteristics.

The fair value of the Oxford Term Loans is determined under Level 2 in the fair value hierarchy.

Lexicon’s obligations under the Oxford Term Loans are secured by a first lien security interest in all of the assets of the Company and its subsidiaries.

The loan and security agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default applicable to Lexicon and its subsidiaries.

In addition to the financial covenant, additional covenants include those restricting dispositions, fundamental changes to its business, mergers or acquisitions, indebtedness, encumbrances, distributions, investments, transactions with affiliates and subordinated debt.

The Company was in compliance with its debt covenants as of December 31, 2022.

Convertible Notes.

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The Convertible Notes bore interest at a rate of 5.25 % per year, which was payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2015.

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.

In 2020, the Company issued 10,368,956 shares of the Company’s common stock and paid $ 50.0 million in cash, which included $ 1.3 million of accrued interest, to exchange such Convertible Notes.

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 and October 2020, the Company issued 10,368,956 shares of the Company’s common stock and paid $ 50.0 million in cash, which included $ 1.3 million of accrued interest, to exchange 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 $ 9.6 million was recorded and is included in the accompanying consolidated statement of comprehensive income (loss) for the year ended December 31, 2020.

As of December 31, 2020, the carrying value of the remaining Convertible Notes was $ 11.6 million.

As a result, a debt extinguishment gain of $ 9.6 million was recorded and is included in the accompanying consolidated statement of comprehensive loss for the year ended December 31, 2020.

In December 2021, the remaining balance of $ 11.6 million was repaid in cash.

In connection with the issuance of the Convertible Notes, the Company incurred $ 3.4 million of debt issuance costs.

The debt issuance costs were amortized as interest expense over the expected life of the Convertible Notes using the effective interest method.

The Company determined the expected life of the debt was equal to the seven -year term of the Convertible Notes.

There are no debt issuance costs as of December 31, 2021.

Mortgage Loan.

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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 consolidated statement of comprehensive income (loss) for the year ended December 31, 2020.

In connection with the BioPharma Term Loan, the Company incurred $ 4.1 million of debt issuance costs.

The debt issuance costs were being amortized as interest expense over the expected life of the BioPharma Term Loan using the effective interest method.

The Company determined the expected life of the debt was equal to the five -year term of the BioPharma Term Loan.

There are no debt issuance costs as of December 31, 2021.

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

Commitments and Contingencies

Operating Lease Obligations :

Lexicon’s operating leases include leases of 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 leases of office space in The Woodlands, Texas and Bridgewater, New Jersey that will expire in August 2025 and January 2034, respectively.

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

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 July 2022, the Company’s subsidiary, Lexicon Pharmaceuticals (New Jersey), Inc.

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

The lease agreement will expire 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.

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

As of December 31, 2021, the right-of-use assets for the office space leases had a balance of $ 2.3 million, which is included in other assets in the consolidated balance sheet.

Current and non-current liabilities relating to the leases were $ 1.1 million and $ 1.2 million, respectively, which are included in accrued liabilities and other long-term liabilities in the consolidated balance sheet, respectively.

As of December 31, 2022 and 2021, the right-of-use assets for the office space leases had a balance of $ 6.8 million and $ 2.3 million, respectively, which are included in operating lease right-of-use-assets in the consolidated balance sheet.

Current and long-term liabilities as of December 31, 2022, relating to the leases were $ 1.3 million and $ 5.4 million, respectively, which are included in accrued liabilities and long-term operating lease liabilities in the consolidated balance sheet, respectively.

Current and long-term liabilities as of December 31, 2021, relating to the leases were $ 1.1 million and $ 1.2 million, respectively, which are included in accrued liabilities and long-term operating lease liabilities in the consolidated balance sheet, respectively.

During the years ended December 31, 2022 and 2021, the Company incurred lease expense of $ 1.8 million and $ 1.7 million, respectively.

During the years ended December 31, 2022 and 2021, the Company made cash payments for lease liabilities of $ 1.1 million and $ 0.8 million, respectively.

As of December 31, 2022 and 2021, the weighted-average remaining lease terms were 9.5 years and 2.9 years, respectively, with weighted-average discount rates of 9.6 % and 9.0 %, respectively.

The following table reconciles the undiscounted cash flows of the operating lease liability to the recorded lease liability at December 31, 2022:

(in thousands)

Thereafter 5,644

Total undiscounted operating lease liability $ 10,793

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In September 1995, Lexicon adopted the 1995 Stock Option Plan, which was subsequently amended and renamed the 2017 Equity Incentive Plan (the “Equity Incentive Plan”).

The Equity Incentive Plan provides for the grant of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants of the Company.

The Equity Incentive Plan permits the grant of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants of the Company.

The plan also permits the grant of stock bonus awards, restricted stock awards, restricted stock unit awards, stock appreciation rights and performance stock awards.

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The total number of shares of common stock that may be issued pursuant to stock awards under the Equity Incentive Plan shall not exceed in the aggregate 30,000,000 shares at December 31, 2022.

As of December 31, 2021, options to purchase

7,958,179 shares and 1,822,043 restricted stock units were outstanding, 2,285,702 shares had been issued upon the exercise of stock options, 4,314,948 shares had been issued pursuant to restricted stock units and 113,940 shares had been issued pursuant to stock bonus awards or restricted stock awards granted under the Equity Incentive Plan.

As of December 31, 2022, options to purchase 11,847,723 shares and 2,559,306 restricted stock units were outstanding, 2,285,702 shares had been issued upon the exercise of stock options, 5,294,942 shares had been issued pursuant to restricted stock units and 113,940 shares had been issued pursuant to stock bonus awards or restricted stock awards granted under the Equity Incentive Plan.

2017 Non-Employee Directors’ Equity Incentive Plan:

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Stock options granted under the Directors’ Plan have an exercise price equal to the fair market value of the Company’s common stock on the date of grant and a term of ten years from the date of grant.

The total number of shares of common stock that may be issued pursuant to stock awards under the Directors’ Plan shall not exceed in the aggregate 1,200,000 shares.

The total number of shares of common stock that may be issued pursuant to stock awards under the Directors’ Plan shall not exceed in the aggregate 1,200,000 shares at December 31, 2022.

As of December 31, 2022, stock options to purchase 501,224 shares were outstanding, none had been issued upon the exercise of stock options, 74,416 restricted stock units were outstanding and 248,232 shares had been issued pursuant to restricted stock and restricted stock unit awards granted under the Directors’ Plan.

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The weighted average estimated grant date fair value of stock options granted during the years ended December 31, 2022, 2021 and 2020 were $ 2.30 , $ 4.85 and $ 2.35 , respectively.

The total intrinsic value of stock options exercised during the year ended December 31, 2021 was $ 0.6 million.

The total intrinsic value of stock options exercised during the year ended December 31, 2022 was $ 0 .

The weighted average remaining contractual term of stock options outstanding and exercisable was 7.2 and 5.3 years, respectively, as of December 31, 2022.

At December 31, 2022, the aggregate intrinsic value of the outstanding stock options was $ 0.1 million.

At December 31, 2021, the intrinsic value of exercisable stock options was $ 0.7 million.

At December 31, 2022, the intrinsic value of exercisable stock options was $ 0 .

Stock Bonus and Restricted Stock Unit Activity:

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Outstanding at December 31, 2022 2,748 $ 3.78

During the year ended December 31, 2022, the Company issued $ 6.3 million of Treasury shares in lieu of issuing additional authorized common shares in order to satisfy the annual vesting of restricted stock units for its employees and officers.

Aggregate Shares Reserved for Issuance

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Company contributions are vested based on the employee’s years of service, with full vesting after four years of service.

The final consideration paid by TerSera was $ 160.0 million and the net gain recognized in connection with the XERMELO sale was $ 132.6 million.

The gain is reflected on the consolidated statement of comprehensive loss for the year ended December 31, 2020.

For the year ended December 31, 2020, the pretax net loss on the consolidated statement of comprehensive loss for the Company’s XERMELO operations was $ 12.2 million.

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 approximate $ 5.5 million.

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 consolidated statement of comprehensive loss for the year ended December 31, 2020.

Collaboration and License Agreements

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In October 2014, Lexicon entered into a License and Collaboration Agreement, which was subsequently amended in March 2015 (collectively, the “Ipsen Agreement”), with Ipsen for the development and commercialization of XERMELO outside of the United States and Japan (the “Licensed Territory”).

Revenue for the year ended December 31, 2020 included $ 0.3 million of royalties from Ipsen and $ 1.3 million from sales of bulk tablets of XERMELO to Ipsen.

The Ipsen Agreement was assigned to TerSera in September 2020 in connection with the XERMELO sale.

Under the Ipsen Agreement, Lexicon granted Ipsen an exclusive, royalty-bearing right and license under its patent rights and know-how to commercialize XERMELO in the Licensed Territory.

Ipsen was responsible for using diligent efforts to commercialize XERMELO in the Licensed Territory pursuant to a mutually approved commercialization plan.

Subject to certain exceptions, Lexicon was responsible for conducting clinical trials required to obtain regulatory approval for XERMELO for carcinoid syndrome in the European Union, including those contemplated by a mutually approved initial development plan, and had the first right to conduct most other clinical trials of XERMELO.

Lexicon was responsible for the costs of all clinical trials contemplated by the initial development plan.

The costs of additional clinical trials were to be allocated between the parties based on the nature of such clinical trials.

Under the Ipsen Agreement, Ipsen paid Lexicon an aggregate of $ 47.2 million through September 30, 2020.

Revenue recognized under the Agreement was $ 0.3 million and $ 4.9 million for the years ended December 31, 2020 and 2019, respectively.

Revenue for each of the years ended December 31, 2020 and 2019 included $ 0.3 million of royalties from Ipsen.

Revenue for the year ended December 31, 2019 included $ 1.3 million from sales of bulk tablets of XERMELO to Ipsen.

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 and commercialization of Lexicon’s diabetes drug candidate sotagliflozin.

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

Effective as of September 9, 2019 (the “Settlement Date”), Lexicon entered into a Termination and Settlement Agreement and Mutual Releases (the “Termination Agreement”) with Sanofi, pursuant to which the Sanofi Agreement was terminated and associated disputes between Lexicon and Sanofi were settled.

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, $ 12.1 million in March 2020 and $ 2.7 million in September 2020.

An arbitration panel issued a judgment in Sanofi’s favor in November 2021 with respect to a dispute regarding amounts withheld by Sanofi from its March and September 2020 payments offsetting certain third party costs and internal costs incurred by Sanofi and asserted by Sanofi to be payable under the terms of the Termination Agreement.

Such judgment obligates Lexicon to reimburse Sanofi for its attorneys’ fees and costs relating to the arbitration proceedings, which could require a payment up to $ 2.1 million.

Neither party will owe any additional payments pursuant to the Sanofi Agreement or Termination 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.

Beginning in March 2020, Lexicon closed out early the clinical studies related to the Phase 3 development program for sotagliflozin in type 2 diabetes and heart failure.

Under the Sanofi Agreement, Sanofi paid Lexicon an upfront payment of $ 300 million in December 2015.

The Company recognized $ 126.8 million of the $ 300 million upfront payment for the license in 2015.

The Company was recognizing the $ 113.8 million allocated to the development services performance obligation and the $ 59.4 million allocated to the funding performance obligation over the estimated period of performance as the development and funding occurred.

The Termination Agreement was accounted for as a modification under ASC 606.

Upon execution of the Termination Agreement in September 2019, the Company recognized the remaining $ 23.5 million allocated to its performance obligations as revenue and reduced its remaining deferred revenue balance accordingly.

In addition, the Company recognized revenue of $ 260 million, representing the full expected cash consideration from the Termination Agreement.

Subsequent to the Termination Agreement, the Company has no remaining performance obligations to Sanofi.

Revenue recognized under the collaboration agreements with Sanofi was $ 286 million for the year ended December 31, 2019.

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.

Year Ended December 31,

(In thousands, except per share amounts) 2021 2020 2019

Net income (loss) $ ( 87,758 ) $ ( 58,574 ) $ 130,133

Add interest expense on Convertible Notes — — 5,067

Adjusted net income (loss) $ ( 87,758 ) $ ( 58,574 ) $ 135,200

Shares used in computing net income (loss) per common share, basic 145,652 110,841 106,218

Add effect of potential dilutive securities

Share based awards — — 164

Convertible Notes — — 10,365

Shares used in computing net income (loss) per common share, diluted 145,652 110,841 116,747

Net income (loss) per share - basic $ ( 0.60 ) $ ( 0.53 ) $ 1.23

Net income (loss) per share - diluted $ ( 0.60 ) $ ( 0.53 ) $ 1.16

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 10,221,278 , 11,113,054 and 8,206,390 , respectively, for the years ended December 31, 2021, 2020 and 2019.

Prior to the extinguishment of the Convertible Notes, 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.

Other Capital Agreements

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Sale of the shares resulted in net proceeds of $ 63.0 million, after deducting underwriting discounts and commissions of $ 1.8 million and offering expenses of $ 0.2 million.

The investors in the offering were Artal International S.C.A., an affiliate of of Invus, L.P., the Company’s largest stockholder, and BVF Partners L.P.

The investors in the offering were Artal International S.C.A., an affiliate of Invus, L.P., the Company’s largest stockholder, and BVF Partners L.P.

and certain affiliates of BVF Partners L.P.

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In October 2020, Lexicon entered into an Open Market Sale Agreement SM (the “sales agreement”) with Jefferies LLC (“Jefferies”) relating to the shares of its common stock.

Lexicon may offer and sell common stock having an aggregate sales price of up to $ 50,000,000 from time to time through Jefferies acting as its sales agent.

Under the sales agreement, Lexicon was able to offer and sell common stock having an aggregate sales price of up to $ 50.0 million from time to time through Jefferies acting as its sales agent.

In November 2020, Lexicon sold 3,709,233 shares of its common stock at a price of $ 1.992 per share pursuant to the sales agreement, resulting in net proceeds of $ 7.0 million.

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The net proceeds from each of these sales are reflected as issuances of common stock in the accompanying financial statements.

In August 2022, Lexicon sold an aggregate of 39,100,000 shares of its common stock at a price of $ 2.50 per share in a public offering and concurrent private placement to two affiliates of Invus, L.P., resulting in net proceeds of $ 94.2 million, after deducting underwriting discounts and commissions and offering expenses.

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 9A. Controls and Procedures