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Item 7. Management’s Discussion and Analysis

2024-03-25 compared with 2023-03-03 · 98 added, 114 removed, 91 unchanged (70% of the section changed)

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We are a biopharmaceutical company with a mission of pioneering medicines that transform patients’ lives.

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

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

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

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

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

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

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

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

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

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

We are devoting most of our resources to the commercialization of our approved drug, INPEFA, for heart failure and the research and development of our most advanced drug candidates:

• We are commercializing INPEFA, an orally-delivered small molecule drug, in the United States to reduce the risk of cardiovascular death, hospitalization for heart failure, and urgent heart failure visits in adults with heart failure or type 2 diabetes mellitus, chronic kidney disease, or CKD, and other cardiovascular risk factors.

We are separately pursuing regulatory approval of sotagliflozin as a treatment for type 1 diabetes.

Food and Drug Administration, or FDA, issued a complete response letter regarding our New Drug Application, or NDA, for sotagliflozin in type 1 diabetes in March 2019, which we appealed.

Following FDA feedback from recent discussions, we are now preparing to resubmit our NDA for patients with type 1 diabetes and CKD.

We have reported positive results from three Phase 3 clinical trials of sotagliflozin in type 1 diabetes.

We are also developing sotagliflozin as a treatment for hypertrophic cardiomyopathy, or HCM, and are preparing to initiate a Phase 3 clinical trial of sotagliflozin in HCM.

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

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

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

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

We are conducting a Phase 2b clinical trial of LX9211 in diabetic peripheral neuropathic pain, or DPNP, and have received Fast Track designation from the FDA for development of LX9211 in that indication.

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

• We are conducting preclinical development of LX9851, an orally-delivered small molecule drug candidate, as a treatment for obesity and tool for weight management.

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

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

INPEFA, LX9851 and compounds from a number of additional drug programs originated from our own internal drug discovery efforts, and LX9211 originated from our collaborative neuroscience drug discovery efforts with Bristol-Myers Squibb.

Our efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets.

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

We are working both independently and through collaborations and strategic alliances with third parties to capitalize on our drug target discoveries and drug discovery and development programs.

We seek to retain exclusive or co-exclusive rights to the benefits of certain drug discovery and development programs by developing and commercializing drug candidates from those programs internally, particularly in the United States for indications treated by specialist physicians.

We seek to collaborate with other pharmaceutical and biotechnology companies with respect to drug discovery or the development and commercialization of certain of our drug candidates, particularly with respect to commercialization in territories outside the United States or commercialization in the United States for indications treated by primary care physicians, or when the collaboration may otherwise provide us with access to expertise and resources that we do not possess internally or are complementary to our own.

We have derived substantially all of our revenues from strategic collaborations and other research and development collaborations and technology licenses, as well as from commercial sales of our XERMELO product following its commercial launch in February 2017 until our sale of XERMELO and related assets to TerSera Therapeutics, LLC in September 2020.

We have worked both independently and through collaborations and strategic alliances with third parties to capitalize on our drug target discoveries and research and development programs.

We seek to retain exclusive or co-exclusive rights to the benefits of certain research and development programs by developing and commercializing drug candidates from those programs internally, particularly in the United States for indications treated by specialist physicians.

We seek to collaborate with other pharmaceutical and biotechnology companies with respect to the research, development and commercialization of certain of our drug candidates, particularly with respect to commercialization in territories outside the United States or commercialization in the United States for indications treated by primary care physicians, or when the collaboration may otherwise provide us with access to expertise and resources that we do not possess internally or are complementary to our own.

To date, we have generated a substantial portion of our revenues from a limited number of sources.

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

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

Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including the success of our commercialization of INPEFA in the United States and the amount of revenues generated from

sales of INPEFA;

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

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

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Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees, and to negotiate agreements that we believe are in our long-term best interests.

We may determine, as we have with certain of our drug candidates, that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues and increase expenses.

We may determine, as we have with INPEFA in heart failure, that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues and increase expenses.

Because of these and other factors, our operating results have fluctuated in the past and are likely to do so in the future, and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance.

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Our losses have resulted principally from costs incurred in research and development, selling, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock units granted to employees and consultants.

Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our nonclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs.

Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our preclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs.

Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, sales and marketing, and administrative personnel, professional fees and other corporate expenses, including information technology, facilities costs and general legal activities.

We expect to continue to incur significant research and development costs in connection with the continuing research and development of our drug candidates.

We expect to continue to incur significant research and development costs in connection with the continuing research and development of our drug candidates and significant selling, general and administrative expenses in connection with our commercialization of INPEFA.

As a result, we will need to generate significantly higher revenues to achieve profitability.

Critical Accounting Policies

Our Consolidated Financial Statements included in this Annual Report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), which require that we make numerous estimates and assumptions.

Our Consolidated Financial Statements included in this Annual Report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, which require that we make numerous estimates and assumptions.

Actual results could differ from those estimates and assumptions, thus impacting our reported results of operations and financial position.

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Technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred.

We are presently devoting most of our resources to the research and development of our most advanced drug candidates:

• Sotagliflozin, an orally-delivered small molecule drug candidate that we are developing as a treatment for heart failure and type 1 diabetes;

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

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

Those efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human

genes as potential drug targets.

We are presently devoting most of our resources to the commercialization of INPEFA for heart failure, preparations for the potential commercial launch of sotagliflozin for patients with type 1 diabetes and CKD and the continued research and development of sotagliflozin, LX9211, LX9851 and our other drug candidates.

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

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Phase 3 clinical trials 2-4 years

We expect research and development costs to remain substantial in the future as we continue to fund our nonclinical and clinical development efforts and advance new drug candidates into clinical development.

We expect research and development costs to remain substantial in the future as we continue to fund our research and development efforts and advance new drug candidates into clinical development.

Due to the variability in the length of time necessary for drug development, the uncertainties related to the cost of these activities and ultimate ability to obtain regulatory approval for commercialization, accurate and meaningful estimates of the ultimate costs to bring our drug candidates to market are not available.

We record significant accrued liabilities related to unbilled expenses for products or services that we have received from service providers, specifically related to ongoing nonclinical studies and clinical trials.

These costs primarily relate to clinical study management, monitoring, laboratory and analysis costs, drug supplies, toxicology studies and investigator grants.

We may have multiple drugs in concurrent nonclinical studies and clinical trials at clinical sites throughout the world.

In order to ensure that we have adequately provided for ongoing nonclinical and clinical development costs during the period in which we incur such costs, we maintain accruals to cover these expenses.

Substantial portions of our nonclinical studies and clinical trials are performed by third party laboratories, medical centers, contract research organizations and other vendors.

For nonclinical studies, we accrue 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.

We may have multiple drug candidates in concurrent preclinical studies and clinical trials at clinical sites throughout the world.

In order to ensure that we have adequately provided for ongoing preclinical and clinical development costs during the period in which we incur such costs, we maintain accruals to cover these expenses.

Substantial portions of our preclinical studies and clinical trials are performed by third party laboratories, medical centers, contract research organizations and other vendors.

For preclinical studies, we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining.

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

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

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Consequently, fully-loaded research and development cost summaries by project are not available.

Impairment of Long-Lived Assets

Our long-lived assets include property, plant and equipment, right-of-use assets for leases and goodwill.

We regularly review long-lived assets for impairment.

The recoverability of long-lived assets, other than goodwill, is measured by comparing the assets carrying amount to the expected undiscounted future cash flows that the asset is expected to generate.

Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any.

We use internal cash flow estimates, quoted market prices when available and independent appraisals as appropriate to determine fair value.

We derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate.

In 2020, we 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 significant impairments of long-lived assets in 2022 or 2021.

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

We have determined that the reporting unit is the single operating segment disclosed in our 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.

We determined that the market capitalization approach is the most appropriate method of measuring fair value of the reporting unit.

Under this approach, fair value is calculated as the average closing price of our common stock for the 30 days preceding the date that the annual impairment test is performed, multiplied by the number of outstanding shares on that date.

A control premium, which is representative of premiums paid in the marketplace to acquire a controlling interest in a company, is then added to the market capitalization to determine the fair value of the reporting unit.

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 we encounter 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 and 2020.

Recent Accounting Pronouncements

See Note 3, Recent Accounting Pronouncements, of the Notes to Consolidated Financial Statements, for a discussion of the impact of new accounting standards on our consolidated financial statements.

Results of Operations – Comparison of Years Ended December 31, 2022, 2021 and 2020

Recent Accounting Pronouncements Issued But Not Yet Adopted

See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, for a discussion of the impact of new accounting standards issued but not yet adopted on our consolidated financial statements.

Results of Operations

The following discussion and analysis should be read with “Results of Operations” and our financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2022.

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

In 2022, one company represented 100% of revenues.

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

Revenues for the year ended December 31, 2023 were approximately $1.2 million, primarily from product revenues recognized from sales of INPEFA following its regulatory approval in May 2023.

Cost of Sales

Cost of sales during the year ended December 31, 2023 consist of third-party manufacturing costs and freight associated with sales of INPEFA.

Prior to receiving regulatory approval on May 26, 2023, we had completed or begun the manufacturing of certain INPEFA raw materials.

These raw materials were either received at “zero-cost” to us in conjunction with a terminated agreement in 2019 or recorded as research and development expense.

Based on our expectations for future manufacturing costs, we estimate these amounts totaled approximately $39.0 million.

We began capitalizing inventory manufactured subsequent to regulatory approval of INPEFA as the related costs were expected to be recoverable through the commercialization of the product.

At December 31, 2023, substantially all of the “zero-cost” INPEFA raw materials remains available to us.

The “zero-cost” inventory is expected to be consumed over approximately the next three years, which will result in a lower average per unit cost of materials during that period;

however, the time period over which this inventory is consumed will depend on a number of factors, including the amount of future INPEFA sales, use of this inventory in clinical development or other research activities, production lead times, and/or the ability to utilize inventory prior to its expiration date.

We estimate our cost of goods sold as a percentage of net product revenue will be less than 10% subsequent to the utilization of all of the remaining “zero-cost” inventory.

Research and Development Expenses

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Total research and development expense $ 58.9 $ 52.8 $ 55.0

Dollar decrease $ (2.2) $ (98.6)

Percentage decrease (4) % (64) %

Research and development expenses consist primarily of third-party and other services principally related to nonclinical and clinical development activities, salaries and other personnel-related expenses, facility and equipment costs and stock-based compensation.

Dollar increase (decrease) $ 6.1 $ (2.2)

Percentage increase (decrease) 12 % (4) %

Research and development expenses consist primarily of third-party services principally related to preclinical and clinical development activities, salaries and other personnel-related expenses, facility and equipment costs, stock-based compensation, and other costs each of which are described below.

Years Ended December 31, 2023 and 2022

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

Third-party and other services relate principally to our clinical trial and related development activities, such as nonclinical and clinical studies and contract manufacturing.

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

• Third-party services – Third-party services relate principally to our clinical trial and related development activities, such as preclinical and clinical studies and contract manufacturing.

Overall, third-party services increased 16% in 2023 to $34.6 million, primarily related to increased manufacturing and external research and development costs.

These costs were partially offset by lower professional and consulting fees in 2023 when compared to costs incurred in 2022 related to preparations for the submission of our application for regulatory approval to market INPEFA for heart failure in the United States.

• Personnel – Personnel costs increased 6% in 2023 to $14.3 million from $13.5 million in 2022, due to increased headcount in 2023.

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

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

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

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

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

• Stock-based compensation – Stock-based compensation expense increased 21% in 2023 to $5.1 million as compared to 2022, partially due to increased headcount.

• Facilities, equipment, and other – Facilities, equipment, and other costs relate primarily to rent, insurance, travel and training, and software licensing costs.

Facilities, equipment, and other costs were $4.9 million and $5.2 million in 2023 and 2022, respectively.

Selling, General and Administrative Expenses

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Total selling, general and administrative expense $ 114.0 $ 48.1 $ 32.3

Dollar increase (decrease) $ 15.8 $ (14.9)

Percentage increase (decrease) 49 % (32) %

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

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

Dollar increase $ 65.9 $ 15.8

Percentage increase 137 % 49 %

Selling, general and administrative expenses consist primarily of personnel costs to support the commercialization of INPEFA and support of our research and development activities, professional and consulting fees, stock-based compensation expense, and facilities, equipment, and other costs each of which are described further below.

Years Ended December 31, 2023 and 2022

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

• Personnel – Personnel costs increased 181% in 2023 to $53.0 million, primarily due to higher employee salaries and benefit costs as a result of increased headcount during 2023 in conjunction with the June 2023 commercial launch of INPEFA.

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

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

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

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

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

Interest Expense and Interest and Other Income, Net

Interest Expense .

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

Interest and Other Income (Expense), Net.

Interest and other income, net was $1.6 million and $0.1 million in the years ended December 31, 2022 and 2021, respectively.

• Professional and consulting fees – Professional and consulting fees increased 137% in 2023 to $38.7 million, primarily due to higher marketing and professional fees in conjunction with the commercial launch of INPEFA.

• Stock-based compensation – Stock-based compensation expense increased 27% in 2023 to $9.2 million as compared to 2022, due to increasing headcount in the current year.

• Facilities, equipment, and other – Facilities, equipment, and other costs were $13.1 million and $5.6 million in 2023 and 2022, respectively.

The increase in these costs in 2023 was primarily due to travel, training, and software licensing in conjunction with the commercial launch of INPEFA.

Interest and Other Expense

Interest and Other Expense .

Interest and other expense increased to $13.1 million in 2023 from $2.8 million in 2022, primarily due to the Oxford debt financings of $25 million in December 2022 and $50 million in June 2023.

Interest Income and Other, Net

Interest Income and Other, Net.

Interest income and other, net was $7.7 million and $1.6 million in the years ended December 31, 2023 and 2022, respectively.

Net Loss and Net Loss per Common Share

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Liquidity and Capital Resources

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

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

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

We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments we received under our collaborations and strategic licenses, target validation, database subscription and technology license agreements, government grants and contracts, and financing under debt, lease and other project financing arrangements, as well as from commercial sales of our approved drug products.

In March 2022, we entered into a loan and security agreement with Oxford Finance LLC that provides up to $150 million in borrowing capacity, available in five tranches, under which $100 million has been funded under the first three tranches.

The loan and security agreement was subsequently amended in August 2022, May 2023, June 2023, December 2023 and March 2024.

The fourth $25 million tranche is available for draw at our option upon the achievement of specified INPEFA net sales and until April 25, 2025.

The fifth $25 million tranche is available for draw at our option, subject to Oxford’s consent, at any time prior to the expiration of the 36-month interest-only payment period.

The loan and security agreement includes a financial covenant relating to INPEFA net sales and a separate financial covenant which requires us to maintain a minimum cash and investments balance of $10 million until the achievement of specified INPEFA net sales.

Upon funding of the fourth tranche, the minimum cash and investments balance will increase to $25 million.

In December 2023, we entered into an Open Market Sale Agreement SM with Jefferies LLC pursuant to which we may offer and sell shares of our common stock having an aggregate sales price of up to $75 million from time to time through Jefferies as sales agent.

On March 11, 2024, we entered into an agreement with certain accredited investors in a private placement in which we agreed to sell 2,304,147 shares of Series A Convertible Preferred Stock of the Company, par value $0.01 per share, at a price of $108.50 per share.

We received net proceeds of approximately $242 million, after deducting placement agent fees and offering expenses from the private placement offering.

Each share of preferred stock will automatically convert into 50 shares of our common stock upon the filing and acceptance of an amendment to our certificate of incorporation by the Secretary of State of Delaware increasing the number of authorized shares of our common stock to 450,000,000 shares.

For additional information on the private placement offering, please refer to Note 13 of the Notes to Consolidated Financial Statements.

As of December 31, 2023, we had $170.0 million in cash, cash equivalents and short-term investments.

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

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

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

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

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

We used cash of $161.9 million in our operations in 2023 largely reflective of the net loss for the year of $177.1 million which included non-cash charges of $12.6 million primarily related to stock-based compensation expense.

Investing activities used cash of $49.9 million in 2023, primarily due to net purchases of investments.

Financing activities provided cash of $188.0 million, primarily from approximately $139.0 million in net proceeds from the sale of an aggregate of 55,288,460 shares of common stock at a price of $2.60 per share in a public offering and concurrent private placement to an affiliate of Invus, L.P.

and $50.0 million in net proceeds from the funding of the third tranche under the Oxford Term Loans.

Other commitments.

In January 2021, sotagliflozin was approved in the United Kingdom for use as an adjunct to insulin therapy to improve glycemic control in adults with type 1 diabetes and a body mass index ≥ 27 kg/m2, who could not achieve adequate glycemic control despite optimal insulin therapy.

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

Upon the regulatory approval of sotagliflozin for the treatment of type 1 diabetes in a major market, we will be required to make certain royalty payments, totaling $4.5 million, in three equal annual installments of $1.5 million.

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

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

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

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

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

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

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

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

For a further discussion of our commitments and contingencies see Note 10 of the Notes to Consolidated Financial Statements.

Our future capital requirements will be substantial and will depend on many factors, including the success of our commercialization of INPEFA in the United States;

the success of our commercial launch of sotagliflozin for patients with type 1 diabetes and CKD, if approved;

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

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

the amount and timing of our research, development and commercialization expenditures;

the resources we devote to developing and supporting our products and other factors.

the resources we devote to commercializing, developing and supporting our products and other factors.

Our capital requirements will also be affected by any expenditures we make in connection with license agreements and acquisitions of and investments in complementary technologies and businesses.

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

to successfully complete our nonclinical and clinical development efforts with respect to sotagliflozin, LX9211 and our other drug candidates;

and for other general corporate activities.

We expect to continue to devote substantial capital resources to the commercialization of INPEFA for heart failure, the commercial launch of sotagliflozin for patients with type 1 diabetes and CKD, if approved, the research and development of our drug candidates and for other general corporate activities.

We believe that our current unrestricted cash and investment balances and cash and revenues we expect to derive from strategic and other collaborations and other sources will be sufficient to fund our currently planned operations for at least the next 12 months from the date of this report.

During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirements, we will need to sell additional equity or debt securities or obtain additional credit arrangements.

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

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

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

5 unchanged sentences

We are exposed to limited market and credit risk on our cash equivalents which have maturities of three months or less at the time of purchase.

We had approximately $170.0 million in cash and cash equivalents and short-term investments as of December 31, 2023.

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

Treasury bills and corporate debt

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

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

We currently do not hedge interest rate exposure or hold any derivative financial instruments in our investment portfolio.

We had approximately $138.4 million in cash and cash equivalents and short-term investments as of December 31, 2022.

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

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

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

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

We are subject to interest rate sensitivity on our outstanding Oxford Term Loans which bear interest at a floating rate equal to the 1-month CME Term SOFR rate.

Interest on the Oxford Term Loans is payable in cash monthly and the term loans are fully matured by March 2027, unless earlier repaid in accordance with their terms.

We have operated primarily in the United States and substantially all sales to date have been made in U.S.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis