LEXICON PHARMACEUTICALS, INC. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2022 to ensure that the information required to be disclosed by us in the reports we file under the Securities Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework) . Based on such assessment using those criteria, management concluded that, as of December 31, 2022, our internal control over financial reporting was effective. Our independent registered public accounting firm, Ernst & Young LLP , Houston, Texas , PCAOB ID: 42 , has audited the financial statements included in this Annual Report and has issued a report on the effectiveness of our internal control over financial reporting. The report of Ernst & Young LLP is included below. 44 Changes in Internal Control Over Financial Reporting Subsequent to our evaluation described above, there were no significant changes in internal controls or other factors during the fiscal quarter ended December 31, 2022 that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 45 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Lexicon Pharmaceuticals, Inc. Opinion on Internal Control Over Financial Reporting 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, 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Houston, Texas March 3, 2023 46 Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 47 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item is hereby incorporated by reference from (a) the information appearing under the captions “Election of Directors,” “Stock Ownership of Certain Beneficial Owners and Management,” “Corporate Governance” and “Executive and Director Compensation” in our definitive proxy statement which involves the election of directors and is to be filed with the SEC pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2022 and (b) the information appearing under Item 1 in Part I of this report. Item 11. Executive Compensation The information required by this Item is hereby incorporated by reference from the information appearing under the captions “Corporate Governance” and “Executive and Director Compensation” in our definitive proxy statement which involves the election of directors and is to be filed with the Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2022. Notwithstanding the foregoing, in accordance with the instructions to Item 407(e)(5) of Regulation S-K, the information contained in our proxy statement under the sub-heading “Compensation Committee Report” shall not be deemed to be filed as part of or incorporated by reference into this annual report on Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is hereby incorporated by reference from the information appearing under the captions “Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our definitive proxy statement which involves the election of directors and is to be filed with the Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2022. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item is hereby incorporated by reference from the information appearing under the captions “Corporate Governance” and “Transactions with Related Persons” in our definitive proxy statement which involves the election of directors and is to be filed with the Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2022. Item 14. Principal Accountant Fees and Services The information required by this Item as to the fees we pay our principal accountant is hereby incorporated by reference from the information appearing under the caption “Ratification and Approval of Independent Auditors” in our definitive proxy statement which involves the election of directors and is to be filed with the Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2022. 48 PART IV Item 15. Exhibit and Financial Statement Schedules (a) Documents filed as a part of this report: 1. Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) F-1 Consolidated Balance Sheets F-3 Consolidated Statements of Comprehensive Loss F-4 Consolidated Statements of Stockholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 2. Financial Statement Schedules 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. Exhibits Exhibit No. Description 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). 4.1 — Securities Purchase Agreement , dated June 17, 2007, with Invus, L.P. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 17, 2007 and incorporated by reference herein). 4.2 — Amendment , dated October 7, 2009, to Securities Purchase Agreement, dated June 17, 2007, with Invus, L.P. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 7, 2009 and incorporated by reference herein). 4.3 — Registration Rights Agreement , dated June 17, 2007, with Invus, L.P. (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated June 17, 2007 and incorporated by reference herein). 4.4 — Stockholders’ Agreement , dated June 17, 2007, with Invus, L.P. (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K dated June 17, 2007 and incorporated by reference herein). 4.5 — Supplement to Transaction Agreements , dated March 15, 2010, with Invus, L.P. and Invus C.V. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 15, 2010 and incorporated by reference herein). 4.6 — Supplement No. 2 to Transaction Agreements , dated February 23, 2012, with Invus, L.P. and Invus C.V. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 23, 2012 and incorporated by reference herein). 4.7 Supplement No. 3 to the Transaction Agreements , dated December 16, 2020, with Invus, L.P. and Invus C.V. (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 (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). 10.2 — Employment Agreement , dated January 1, 1999, with Jeffrey L. Wade (filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (Registration No. 333-96469) and incorporated by reference herein). 10.3 — Offer Letter , dated July 27, 2021, with Craig B. 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. Main, Ph.D. (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2001 and incorporated by reference herein). 49 10.5 — Form of Indemnification Agreement with Officers and Directors (filed as Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (Registration No. 333-96469) and incorporated by reference herein). 10.6 — Summary of Non-Employee Director Compensation (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 and incorporated by reference herein). 10.7 — 2017 Equity Incentive Plan, as amended (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 23, 2020 and incorporated by reference herein). 10.8 — 2017 Non-Employee Directors’ Equity Incentive Plan , as amended (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated April 29, 2021 and incorporated by reference herein). 10.9 — Form of Stock Option Agreement with Officers under the 2017 Equity Incentive Plan (filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2017 and incorporated by reference herein). *10.10 — Form of Restricted Stock Unit Agreement with Officers under the 2017 Equity Incentive Plan 10.11 — Form of Notice of Stock Option Grant to Directors under the 2017 Non-Employee Directors’ Equity Incentive Plan (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 and incorporated by reference herein). 10.12 — Form of Notice of Restricted Stock Unit Grant to Directors under the 2017 Non-Employee Directors’ Equity Incentive Plan (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 and incorporated by reference herein). 10.13 — Collaboration and License Agreement , dated December 17, 2003, with Bristol-Myers Squibb Company (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2015 and incorporated by reference herein). 10.14 — First Amendment , dated May 30, 2006, to Collaboration and License Agreement, dated December 17, 2003, with Bristol-Myers Squibb Company (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2015 and incorporated by reference herein). †10.15 — Second Amendment, dated November 2, 2016, to Collaboration and License Agreement, dated December 17, 2003, with Bristol-Myers Squibb Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 2, 2016 and incorporated by reference herein). †10.16 — Second Amended and Restated Collaboration and License Agreement , dated November 30, 2005, with Genentech, Inc. (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005 and incorporated by reference herein). 10.17 — Amendment , dated June 8, 2009, to Second Amended and Restated Collaboration and License Agreement, dated November 30, 2005, with Genentech, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A dated June 8, 2009 and incorporated by reference herein). 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). 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 . *24.1 — Power of Attorney (contained in signature page). *31.1 — Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 . *31.2 — Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1 — Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 20 02 . *101.INS — XBRL Instance Document. *101.SCH — XBRL Taxonomy Extension Schema Document. *101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document. *101.DEF — XBRL Taxonomy Extension Definition Linkbase Document. 50 *101.LAB — XBRL Taxonomy Extension Label Linkbase Document. *101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document. ______________ * Filed herewith. † Confidential treatment has been requested for portions of this exhibit (indicated by “[**]”). The confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission. Item 16. Form 10-K Summary Not applicable. 51 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Lexicon Pharmaceuticals, Inc. Date: March 3, 2023 By: /s/ LONNEL COATS Lonnel Coats Chief Executive Officer Date: March 3, 2023 By: /s/ JEFFREY L. WADE Jeffrey L. Wade President and Chief Financial Officer Power of Attorney KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lonnel Coats and Jeffrey L. Wade, or either of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, here ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ LONNEL COATS Chief Executive Officer and Director (Principal Executive Officer) March 3, 2023 Lonnel Coats /s/ JEFFREY L. WADE President and Chief Financial Officer (Principal Financial Officer) March 3, 2023 Jeffrey L. Wade /s/ KRISTEN L. ALEXANDER Vice President, Finance and Accounting (Principal Accounting Officer) March 3, 2023 Kristen L. Alexander /s/ RAYMOND DEBBANE Chairman of the Board of Directors March 3, 2023 Raymond Debbane /s/ PHILIPPE J. AMOUYAL Director March 3, 2023 Philippe J. Amouyal /s/ SAMUEL L. BARKER Director March 3, 2023 Samuel L. Barker, Ph.D. /s/ ROBERT J. LEFKOWITZ Director March 3, 2023 Robert J. Lefkowitz, M.D. /s/ ALAN S. NIES Director March 3, 2023 Alan S. Nies, M.D. /s/ FRANK P. PALANTONI Director March 3, 2023 Frank P. Palantoni /s/ CHRISTOPHER J. SOBECKI Director March 3, 2023 Christopher J. Sobecki /s/ JUDITH L. SWAIN Director March 3, 2023 Judith L. Swain, M.D. 52 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Lexicon Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Lexicon Pharmaceuticals, Inc. (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. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s 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) and our report dated March 3, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-1 Accrued research and development expenses Description of the Matter As described in Note 2 to the consolidated financial statements, the Company records accruals for estimated costs of research and development activities that include contract services for clinical trials. Clinical trial activities performed by third parties are accrued and expensed based upon estimates of the proportion of work completed over the life of the individual clinical trial in accordance with agreements established with contract research organizations ("CROs"), clinical trial sites and other third parties. Estimates are determined by reviewing contracts, vendor agreements, purchase orders, change orders and trial budgets, as well as through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. Auditing management’s accounting for accrued third-party clinical trial research and development expenses is especially challenging because of the judgment applied by management to determine the progress or stage of completion of the activities under the Company’s research and development agreements and the cost and extent of work performed during the reporting period for services not yet billed by contracted third-party vendors. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for accrued research and development expenses process, including controls over management’s review of clinical trial activity progress in comparison to budgets and invoices received from third parties. Our audit procedures included, among others, testing the accuracy and completeness of the underlying inputs used in management’s analysis to determine costs incurred. We compared expenses incurred to budgeted amounts per executed vendor contracts and to expenses incurred in prior periods and obtained an understanding of the reasons for changes. 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 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. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002. Houston, Texas March 3, 2023 F-2 Lexicon Pharmaceuticals, Inc. Consolidated Balance Sheets (In thousands, except par value) As of December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 46,345 $ 64,065 Short-term investments 92,012 22,678 Accounts receivable, net 28 14 Prepaid expenses and other current assets 2,481 2,164 Total current assets 140,866 88,921 Property and equipment, net of accumulated depreciation and amortization of $ 3,984 and $ 4,853 , respectively 2,071 1,176 Goodwill 44,543 44,543 Operating lease right-of-use-assets 6,819 2,269 Total assets $ 194,299 $ 136,909 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 10,395 $ 9,152 Accrued liabilities 12,777 12,972 Total current liabilities 23,172 22,124 Long-term debt, net of issuance costs 48,579 — Long-term operating lease liabilities 5,424 1,190 Total liabilities 77,175 23,314 Commitments and contingencies Stockholders' Equity: Preferred stock, $ 0.01 par value; 5,000 shares authorized; no shares issued and outstanding — — Common stock, $ 0.001 par value; 300,000 shares authorized; 189,214 and 150,082 shares issued, respectively 189 150 Additional paid-in capital 1,709,144 1,608,749 Accumulated deficit ( 1,589,720 ) ( 1,487,776 ) Accumulated other comprehensive loss ( 428 ) ( 10 ) Treasury stock, at cost, 488 and 1,165 shares, respectively ( 2,061 ) ( 7,518 ) Total stockholders' equity 117,124 113,595 Total liabilities and stockholders’ equity $ 194,299 $ 136,909 The accompanying notes are an integral part of these consolidated financial statements. F-3 Lexicon Pharmaceuticals, Inc. Consolidated Statements of Comprehensive Loss (In thousands, except per share amounts) Year Ended December 31, 2022 2021 2020 Revenues: Net product revenue $ — $ — $ 23,404 Collaborative agreements — — 33 Royalties and other revenue 139 298 558 Total revenues 139 298 23,995 Operating expenses: Cost of sales (including finite-lived intangible asset amortization) — — 1,929 Research and development, including stock-based compensation of $ 4,253 , $ 4,284 and $ 6,376 respectively 52,816 55,046 153,621 Selling, general and administrative, including stock-based compensation of $ 7,267 , $ 6,293 and $ 6,898 , respectively 48,083 32,342 47,230 Impairment loss on buildings — — 1,600 Total operating expenses 100,899 87,388 204,380 Other operating income: Gain on sale of XERMELO — — 132,585 Loss from operations ( 100,760 ) ( 87,090 ) ( 47,800 ) Gain on debt extinguishments, net — — 1,003 Interest expense ( 2,780 ) ( 802 ) ( 14,544 ) Interest and other income, net 1,596 134 2,767 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. F-4 Lexicon Pharmaceuticals, Inc. Consolidated Statements of Stockholders’ Equity (In thousands) Accumulated Additional Other Common Stock Paid-In Accumulated Comprehensive Treasury Shares Par Value Capital Deficit Gain (Loss) Stock Total Balance at December 31, 2019 106,679 $ 106 $ 1,462,172 $ ( 1,341,444 ) $ 84 $ ( 3,817 ) $ 117,101 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 1,219 2 — — — — 2 Repurchase of common stock — — — — — ( 1,026 ) ( 1,026 ) 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 Stock-based compensation — — 10,577 — — — 10,577 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 1,616 2 1,591 — — — 1,593 Repurchase of common stock — — — — — ( 2,675 ) ( 2,675 ) Net loss — — — ( 87,758 ) — — ( 87,758 ) Unrealized loss on investments — — — — ( 4 ) — ( 4 ) Balance at December 31, 2021 150,082 $ 150 $ 1,608,749 $ ( 1,487,776 ) $ ( 10 ) $ ( 7,518 ) $ 113,595 Stock-based compensation — — 11,520 — — — 11,520 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 ) Net loss — — — ( 101,944 ) — — ( 101,944 ) Unrealized loss on investments — — — — ( 418 ) — ( 418 ) Balance at December 31, 2022 189,214 $ 189 $ 1,709,144 $ ( 1,589,720 ) $ ( 428 ) $ ( 2,061 ) $ 117,124 The accompanying notes are an integral part of these consolidated financial statements. F-5 Lexicon Pharmaceuticals, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 2020 Cash flows from 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 Stock-based compensation 11,520 10,577 13,274 Amortization of debt issuance costs 741 54 1,013 Gain on sale of XERMELO — — ( 132,585 ) Impairment loss on building — — 1,600 Gain on debt extinguishments, net — — ( 1,003 ) Loss (gain) on disposal of property and equipment 3 49 ( 707 ) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ( 14 ) 381 53,227 Decrease in inventory — — 345 (Increase) decrease in prepaid expenses and other current assets ( 316 ) 2,885 ( 1,948 ) Decrease in other assets 656 661 424 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: Purchases of property and equipment ( 1,326 ) ( 1,221 ) ( 87 ) Proceeds from XERMELO sale — — 160,385 Proceeds from disposal of property and equipment — — 11,013 Purchases of investments ( 133,949 ) ( 34,261 ) ( 58,555 ) Maturities of investments 64,197 37,592 268,000 Net cash (used in) provided by investing activities ( 71,078 ) 2,110 380,756 Cash flows from financing activities: Proceeds from issuance of common stock, net of fees 94,205 37,084 69,970 Repurchase of common stock ( 864 ) ( 2,675 ) ( 1,026 ) 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 ) Net (decrease) increase in cash and cash equivalents ( 17,720 ) ( 62,198 ) 90,151 Cash and cash equivalents at beginning of year 64,065 126,263 36,112 Cash and cash equivalents at end of year $ 46,345 $ 64,065 $ 126,263 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,289 $ 799 $ 17,353 Supplemental disclosure of noncash investing and financing activities: 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 Common stock issued in satisfaction of convertible debt exchanges $ — $ — $ 15,714 The accompanying notes are an integral part of these consolidated financial statements. F-6 Lexicon Pharmaceuticals, Inc. Notes to Consolidated Financial Statements December 31, 2022 1. Organization and Operations Lexicon Pharmaceuticals, Inc. (“Lexicon” or the “Company”) is a Delaware corporation incorporated on July 7, 1995. Lexicon was organized to discover the functions and pharmaceutical utility of genes and use those gene function discoveries in the discovery and development of pharmaceutical products for the treatment of human disease. 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 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; the amount and timing of research, development and commercialization expenditures; its resources devoted to developing and supporting its products; general and industry-specific economic conditions which may affect research, development and commercialization expenditures; and its ability to obtain and enforce patents and other proprietary rights in its discoveries, comply with federal and state regulations, and maintain sufficient capital to fund its activities. As a result of the aforementioned factors and the related uncertainties, there can be no assurance of the Company’s future success. 2. Summary of Significant Accounting Policies Basis of Presentation: The accompanying consolidated financial statements include the accounts of Lexicon and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with U. S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. As of December 31, 2022 and 2021, short-term investments consist of U.S. treasury bills and 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. Net realized gains and losses, interest and dividends are included in interest income. The cost of securities sold is based on the specific identification method. Accounts Receivable: Lexicon records trade accounts receivable in the normal course of business related to the sale of products or services, net of an allowance for expected credit losses. Concentration of Credit Risk: Lexicon’s cash equivalents, investments and accounts receivable represent potential concentrations of credit risk. The Company attempts to minimize potential concentrations of risk in cash equivalents and investments by placing investments in high-quality financial instruments. 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. At December 31, 2022, management believes that the Company has no significant concentrations of credit risk. Segment Information and Significant Customers: Lexicon operates in one business segment, which primarily focuses on the discovery, development and commercialization of pharmaceutical products for the treatment of human disease. F-7 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: Property and equipment that is held and used is carried at cost and depreciated using the straight-line method over the estimated useful life of the assets which ranges from three to 40 years. Maintenance, repairs and minor replacements are charged to expense as incurred. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term. Significant renewals and betterments are capitalized. Accrued liabilities: Accrued liabilities consisted of the following: As of December 31, 2022 2021 (in thousands) Accrued research and development services $ 3,252 $ 3,669 Accrued compensation and benefits 7,830 5,711 Short term lease liability 1,291 1,089 Other 404 2,503 Accrued liabilities $ 12,777 $ 12,972 Impairment of Long-Lived Assets: 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. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. 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, in 2022 or 2021. Goodwill Impairment: Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level. The Company has determined that the reporting unit is the single operating segment disclosed in its current financial statements. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill. If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized. Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired. There was no impairment of goodwill in 2022, 2021 or 2020. Leases: 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. F-8 Revenue Recognition: Product Revenues Prior to the Company’s sale of XERMELO and related assets to TerSera Therapeutics, LLC (“TerSera”) in September 2020, product revenues consisted of commercial sales of XERMELO in the United States and sales of bulk tablets of XERMELO to Ipsen. Product revenues were recognized when the customer obtained control of the Company’s product, which occured upon delivery to the customer. The Company 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. These 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. Product shipping and handling costs were considered a fulfillment activity when control transfers to the Company’s customers and such costs were included in cost of sales. Customer Credits: The Company’s customers were offered various forms of consideration, including allowances, service fees and prompt payment discounts. The Company expected that its customers would earn prompt payment discounts. As a result, the Company 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. Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program. Rebate amounts are 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 is based on statutory discount rates and expected utilization. The Company’s 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 future rebates varied from estimates, the Company adjusted prior period accruals, which affected revenue in the period of adjustment. Chargebacks: 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 Lexicon 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. The Company’s 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 future funding varied from estimates, the Company 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 receive co-payment assistance. The Company 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. The Company performs the following five steps in determining the amount of revenue to recognize as it fulfills its performance obligations under each of its 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) the Company satisfies the performance obligation. The Company applies this five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or F-9 service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company develops assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. At contract inception, the Company evaluates whether development milestones are considered probable of being reached and estimates 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 the control of the Company or the 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 the Company recognizes revenue when (or as) the performance obligation is satisfied. At the end of each reporting period, the Company re-evaluates the probability of achievement of the development milestones and any related constraint, and if necessary, adjusts its 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 the Company’s intellectual property is determined distinct from other performance obligations identified in the agreement, the Company recognizes 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 the Company recognizes 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). The Company may receive payments from its 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 the Company performs its obligations under these agreements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. Cost of Sales: Cost of sales consisted of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO. Product shipping and handling costs were included in cost of sales. Cost of sales also included the amortization of the intangible asset for XERMELO using the straight-line method over the estimated useful life of 14 years. Research and Development Expenses: Research and development expenses consist of costs incurred for company-sponsored as well as collaborative research and development activities. These costs include direct and research-related overhead expenses and are expensed as incurred. Technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred. Substantial portions of the Company’s preclinical and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. 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. The Company’s estimates depend on the timeliness and accuracy of the data provided by the vendors regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives. Stock-Based Compensation: 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, 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 F-10 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. Historical data is used to estimate the expected option life for each group. Expected volatility is based on the historical volatility in the Company’s stock price. The following weighted-average assumptions were used for stock options granted in the years ended December 31, 2022, 2021 and 2020, respectively: Expected Volatility Risk-free Interest Rate Expected Term Dividend Rate December 31, 2022: Employees 109 % 2.8 % 4 0 % Officers and non-employee directors 91 % 1.9 % 7 0 % December 31, 2021: Employees 104 % 0.7 % 4 0 % Officers and non-employee directors 90 % 1.0 % 6 0 % December 31, 2020: Employees 98 % 1.3 % 4 0 % Officers and non-employee directors 85 % 1.4 % 7 0 % Income Taxes: The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized differently in the financial statements and tax returns. The Company uses the liability method in accounting for income taxes. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of liabilities and assets using enacted tax rates and laws in effect in the years in which the differences are expected to reverse. Deferred tax assets are evaluated for realization based on a more-likely-than-not criteria in determining if a valuation allowance should be provided. The Company maintains a valuation allowance on net operating losses and other deferred tax assets. Accordingly, the Company has not reported any tax benefit relating to the remaining net operating loss carryforwards and income tax credit carryforwards that are available for utilization in future periods. On a periodic basis, the valuation allowance is reassessed on deferred income tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. In 2022, the Company reassessed the valuation allowance and considered negative evidence, including the cumulative losses over the three years ended December 31, 2022 and positive evidence including the projections of future income. After assessing both the negative and the positive evidence, the Company concluded that it should continue to maintain the valuation allowance on net operating losses and other deferred tax assets as of December 31, 2022 given the significance of the weight of the negative evidence. Based on recent financial performance and future projections, the Company could record a reversal of all, or a portion of the valuation allowance associated with U.S. deferred tax assets in future periods. However, any such change is subject to actual performance and other considerations that may present positive or negative evidence at the time of the assessment. The total gross deferred tax asset balance subject to the valuation allowance assessment was approximately $ 347.1 million at December 31, 2022. 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 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. 3. Recent Accounting Pronouncements 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. F-11 4. Cash, Cash Equivalents and Investments The fair value of cash and cash equivalents and investments held at December 31, 2022 and 2021 are as follows: As of December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) Cash and cash equivalents $ 46,345 $ — $ — $ 46,345 Securities maturing within one year: U.S. treasury securities 74,022 — ( 342 ) 73,680 Corporate debt securities 18,418 — ( 86 ) 18,332 Total short-term investments $ 92,440 $ — $ ( 428 ) $ 92,012 Total cash and cash equivalents and investments $ 138,785 $ — $ ( 428 ) $ 138,357 As of December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) Cash and cash equivalents $ 64,066 $ — $ ( 1 ) $ 64,065 Securities maturing within one year: Corporate debt securities 26,018 5 ( 11 ) 26,012 Total short-term investments $ 26,018 $ 5 $ ( 11 ) $ 26,012 Total cash and cash equivalents and investments $ 90,084 $ 5 $ ( 12 ) $ 90,077 There were no realized gains or losses for the years ended December 31, 2022, 2021, and 2020. 5. Fair Value Measurements The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. The following levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities: • Level 1 – quoted prices in active markets for identical assets, which include U.S. treasury securities • Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.), which include corporate debt securities • Level 3 – significant unobservable inputs The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities. The following tables provide the fair value measurements of applicable Company assets and liabilities that are measured at fair value on a recurring basis according to the fair value levels defined above as of December 31, 2022 and 2021. F-12 F-13 Assets and Liabilities at Fair Value As of December 31, 2022 Level 1 Level 2 Level 3 Total (in thousands) Assets Cash and cash equivalents $ 46,345 $ — $ — $ 46,345 Short-term investments 73,680 18,332 — 92,012 Total cash and cash equivalents and investments $ 120,025 $ 18,332 $ — $ 138,357 Assets and Liabilities at Fair Value As of December 31, 2021 Level 1 Level 2 Level 3 Total (in thousands) Assets Cash and cash equivalents $ 64,065 $ — $ — $ 64,065 Short-term investments 7,561 15,117 — 22,678 Total cash and cash equivalents and investments $ 71,626 $ 15,117 $ — $ 86,743 The Company did not have any Level 3 assets or liabilities at December 31, 2022 or 2021. Transfers between levels are recognized at the actual date of circumstance that caused the transfer. 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. 6. Property and Equipment Property and equipment at December 31, 2022 and 2021 are as follows: Estimated Useful Lives As of December 31, In Years 2022 2021 (in thousands) Computers and software 3 - 5 $ 2,209 $ 3,027 Furniture and fixtures 5 - 7 1,794 1,692 Leasehold improvements 3 - 7 2,052 1,310 Total property and equipment 6,055 6,029 Less: Accumulated depreciation and amortization ( 3,984 ) ( 4,853 ) Net property and equipment $ 2,071 $ 1,176 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. F-14 7. Income Taxes 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. 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. Lexicon recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized differently in the financial statements and tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of liabilities and assets using enacted tax rates and laws in effect in the years in which the differences are expected to reverse. Deferred tax assets are evaluated for realization based on a more-likely-than-not criteria in determining if a valuation allowance should be provided. The components of Lexicon’s deferred tax assets (liabilities) at December 31, 2022 and 2021 are as follows: As of December 31, 2022 2021 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 251,331 $ 229,427 Research and development tax credits 29,290 29,290 Orphan drug credits 24,524 24,524 Capitalized research and development 33,813 36,770 Stock-based compensation 5,445 5,163 Interest 398 148 Other 2,255 1,308 Total deferred tax assets 347,056 326,630 Deferred tax liabilities: Other ( 1,295 ) ( 412 ) Total deferred tax liabilities ( 1,295 ) ( 412 ) Less: valuation allowance ( 345,761 ) ( 326,218 ) Net deferred tax liabilities $ — $ — F-15 A reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2022, 2021 and 2020 consists of the following: Year Ended December 31, 2022 2021 2020 (in thousands) Expected income tax expense (benefit) at 21 % $ ( 21,408 ) $ ( 18,429 ) $ ( 12,300 ) State income taxes, net of federal benefit — — ( 269 ) Equity compensation 1,627 851 1,777 Write off of credit carryover due to 382 study — — 31,053 Change in valuation allowance 19,543 17,210 ( 20,418 ) Other (1) 238 368 157 Income tax benefit $ — $ — $ — (1) Other is primarily comprised of expiring Research and Development credits for the year ended December 31, 2020 and nondeductible expenses for the years ended December 31, 2022 and 2021. Section 382 of the Internal Revenue Code of 1986, contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss and tax credit carryovers and certain built-in losses recognized in years after the “ownership change.” An “ownership change” is generally defined as any change in ownership of more than 50% of a corporation’s stock over a rolling three-year period by stockholders that own (directly or indirectly) 5% or more of the stock of a corporation, or arising from a new issuance of stock by a corporation. If an ownership change occurs, Section 382 generally imposes an annual limitation on the use of pre-ownership change net operating loss carryovers to offset taxable income earned after the ownership change. The Company completed a Section 382 study and determined that historical ownership changes occurred. The Section 382 annual limitation related to historical ownership changes impacts our ability to utilize our tax attributes. In 2020, the federal deferred tax assets and valuation allowance decreased due to the write-off of attributes that will expire still subject to limitation. At December 31, 2022, Lexicon had both federal and state NOL carryforwards of approximately $ 1.2 billion and $ 86.9 million, respectively. In 2022, federal NOLs increased by $ 104.0 million related to a current year NOL. The Company had $ 446.3 million of U.S. federal NOL carryforwards as of December 31, 2022, which can be carried forward indefinitely. The remaining federal and state NOL carryforwards will begin to expire in 2022. Based on the federal tax law limits and the Company’s cumulative loss position, the Company concluded it was appropriate to establish a full valuation allowance for its net deferred tax assets until an appropriate level of profitability is sustained. During the year ended December 31, 2022, the valuation allowance increased $ 19.5 million, primarily due to NOLs generated partially offset by decreases in deferred tax assets associated with capitalized research and development expenses. As of December 31, 2022 and 2021, the Company did not have any unrecognized tax benefits. Any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense. The Company is primarily subject to U.S. federal and New Jersey and Texas state income taxes. The tax years 1999 to current remain open to examination by U.S. federal authorities and 2012 to current remain open to examination by state authorities. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2022 and 2021, the Company had no accruals for interest or penalties related to income tax matters. 8. Goodwill 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. The results of Lexicon Pharmaceuticals (New Jersey), Inc. are included in the Company’s results of operations for the period subsequent to the acquisition. 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. F-16 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. Goodwill is not subject to amortization, but is tested at least annually for impairment at the reporting unit level, which is the Company’s single operating segment. The Company performed an impairment test of goodwill on its annual impairment assessment date. This test did not result in an impairment of goodwill. 9. 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. 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 second 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. The debt F-17 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. In November 2014, Lexicon completed an offering of $ 87.5 million in aggregate principal amount of 5.25 % Convertible Senior Notes due 2021 (the “Convertible Notes”). The conversion feature did not meet the criteria for bifurcation as required by generally accepted accounting principles and the entire principal amount was recorded as long-term debt on the Company’s consolidated balance sheets. The Convertible Notes were governed by an indenture between the Company and Wells Fargo Bank, N.A., as trustee. 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 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 loss for the year ended December 31, 2020. In December 2021, the remaining balance of $ 11.6 million was repaid in cash. Mortgage Loan. In August 2018, a wholly owned subsidiary of Lexicon entered into a term loan and security agreement refinancing the previously existing mortgage on its facilities in The Woodlands, Texas (the “Property”). The Company recorded the refinancing as a debt extinguishment, with no recognition of gain or loss on the transaction. The loan agreement provided for a $ 12.9 million mortgage on the Property and had a two -year term with a 10 -year amortization. The mortgage loan bore interest at a rate per annum equal to the greater of (a) the 30-day LIBOR rate plus 5.5 % and (b) 7.5 % and provided for a balloon payment of $ 10.3 million, which was paid in full in August 2020. BioPharma Term Loan. In December 2017, Lexicon entered into a loan agreement with BioPharma Credit PLC and BioPharma Credit Investments IV Sub LP under which $ 150 million was funded in December 2017 (the “BioPharma Term Loan”). The BioPharma Term Loan was scheduled to mature in December 2022, bore interest at 9 % per year, subject to additional interest if an event of default occurred and was continuing, and was payable quarterly. The BioPharma Term Loan was subject to mandatory prepayment provisions that required prepayment upon a change of control or receipt of proceeds from certain non-ordinary course transfers of assets. The Company repaid the BioPharma Term Loan in whole, together with required prepayment and make-whole premiums, upon closing of the sale of XERMELO and related assets to TerSera Therapeutics LLC 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 loss for the year ended December 31, 2020. F-18 10. Commitments and Contingencies Operating Lease Obligations : 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, 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) 2023 $ 805 2024 1,378 2025 1,220 2026 865 2027 881 Thereafter 5,644 Total undiscounted operating lease liability $ 10,793 Less: amount of lease payments representing interest ( 4,078 ) Present value of future lease payments 6,715 Less: short-term operating lease liability ( 1,291 ) Long-term operating lease liability $ 5,424 Employment Arrangements: Lexicon has entered into employment arrangements with certain of its corporate officers. Under the arrangements, each officer receives a base salary, subject to adjustment, with an annual discretionary bonus based upon specific objectives to be determined by the compensation committee. The employment arrangements are at-will and some contain non-competition agreements. Some of the arrangements also provide for certain severance payments for either six or 12 months and, in some cases, payment of a specified portion of the officer’s bonus target for such year, in the event of a specified termination of the officer’s employment. Legal Proceedings: Lexicon is from time to time party to claims and legal proceedings that arise in the normal course of its business and that it believes will not have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity. F-19 11. Equity Incentive Awards Equity Incentive Plans 2017 Equity Incentive Plan: 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 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. Incentive and nonstatutory stock options have an exercise price of 100 % or more of the fair market value of the Company’s common stock on the date of grant. Most stock options granted under the Equity Incentive Plan become vested and exercisable over a period of four years ; however some have been granted with different vesting schedules. Stock options granted under the Equity Incentive Plan have 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 Equity Incentive Plan shall not exceed in the aggregate 30,000,000 shares at December 31, 2022. 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: In February 2000, Lexicon adopted the 2000 Non-Employee Directors’ Stock Option Plan, which was subsequently amended and renamed the 2017 Non-Employee Directors’ Equity Incentive Plan (the “Directors’ Plan”). Under the Directors’ Plan, non-employee directors may be granted awards under the plan with an aggregate grant date fair value of no more than $ 500,000 during any calendar year, taken together with any cash fees paid to such non-employee director in compensation for service on Lexicon’s board of directors during such calendar year. 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 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. Stock Option Activity: The following is a summary of stock option activity under Lexicon’s equity incentive plans: 2022 2021 2020 (in thousands, except exercise price data) Options Weighted Average Exercise Price Options Weighted Average Exercise Price Options Weighted Average Exercise Price Outstanding at beginning of year 8,367 $ 6.80 8,397 $ 7.12 7,695 $ 8.95 Granted 5,099 2.97 1,808 6.39 3,495 3.24 Exercised — — ( 376 ) 4.37 — — Expired ( 163 ) 12.50 ( 191 ) 12.50 ( 236 ) 12.91 Forfeited ( 954 ) 7.41 ( 1,271 ) 8.17 ( 2,557 ) 6.78 Outstanding at end of year 12,349 5.10 8,367 6.80 8,397 7.12 Exercisable at end of year 5,747 $ 7.00 5,032 $ 7.99 4,684 $ 9.48 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, 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, 2022, the intrinsic value of exercisable stock options was $ 0 . F-20 Stock Bonus and Restricted Stock Unit Activity: During the years ended December 31, 2022, 2021 and 2020, Lexicon granted its employees restricted stock units in lieu of or in addition to annual stock option awards. These restricted stock units vest in three annual installments. The total fair value of shares vested in 2022, 2021 and 2020 was $ 2.9 million, $ 8.7 million and $ 3.2 million, respectively. During the years ended December 31, 2022, 2021 and 2020, Lexicon granted its non-employee directors 74,416 , 32,192 and 85,104 restricted stock units, respectively. The restricted stock granted in 2022, 2021 and 2020 had weighted average grant date fair values of $ 1.77 , $ 5.04 and $ 1.86 per share, respectively. Vesting of restricted stock units occurs on the first anniversary of the grant date. The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the year ended December 31, 2022: Shares Weighted Average Grant Date Fair Value (in thousands) Outstanding at December 31, 2021 1,854 $ 5.16 Granted 2,185 3.15 Vested ( 1,012 ) 4.86 Forfeited ( 279 ) 4.03 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 As of December 31, 2022, an aggregate of 15,096,609 shares of common stock were reserved for issuance upon exercise of outstanding stock options and vesting of outstanding restricted stock units and 8,160,575 additional shares were available for future grants under Lexicon’s equity incentive plans. The Company has a policy of using either authorized and unissued shares or treasury shares, including shares acquired by purchase in the open market or in private transactions, to satisfy equity award exercises. 12. Benefit Plan Lexicon maintains a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan covers substantially all full-time employees. Participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. Beginning in 2000, the Company was required to match employee contributions according to a specified formula. The matching contributions totaled $ 0.7 million, $ 0.4 million and $ 0.9 million in the years ended December 31, 2022, 2021 and 2020, respectively. Company contributions are vested based on the employee’s years of service, with full vesting after four years of service. 13. Asset Sale 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 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. Of this F-21 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. 14. Collaboration and License Agreements Lexicon has derived substantially all of its revenues from drug discovery and development alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, product sales, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales. Ipsen. 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. 15. Other Capital Agreements Common Stock : In December 2020, Lexicon sold 20,312,500 shares of its common stock at a price of $ 3.20 per share in a registered direct offering pursuant to an existing shelf registration statement. 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 Invus, L.P., the Company’s largest stockholder, and BVF Partners L.P. and certain affiliates of BVF Partners L.P. All of the net proceeds of the registered direct offering are reflected as issuance of common stock in the accompanying financial statements. 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. 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. In January 2021, Lexicon sold 2,000,000 shares of its common stock at a price of $ 8.463 per share pursuant to the sales agreement, resulting in net proceeds of $ 16.4 million. In August and September 2021, Lexicon sold an aggregate of 4,176,953 shares of its common stock at a price of $ 4.732 per share pursuant to the sales agreement, resulting in net proceeds of $ 19.1 million. The net proceeds 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.