What changed in this filing

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Item 9A. Controls and Procedures

2024-03-25 compared with 2023-03-03 · 267 added, 363 removed, 506 unchanged (55% of the section changed)

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Based on such assessment using those criteria, management concluded that, as of December 31, 2023, 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.

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, 2023 that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

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

Other Information

Insider Trading Arrangements

During the three months ended December 31, 2023, none of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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

1.1 — Open Market Sale Agreement℠ , dated December 29, 2023, with Jefferies LLC (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K dated December 29, 2023 and incorporated by reference herein).

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

3.2 — Certificate of Designations , dated March 12, 2024 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8‑K dated March 12, 2024 and incorporated by reference herein).

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

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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).

*10.6 — Summary of Non-Employee Director Compensation

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 27, 2023 and incorporated by reference herein).

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†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).

10.16 — 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).

†10.17 — Loan and Security Agreement , dated March 17, 2022, with Oxford Finance, LLC and the lenders listed therein (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).

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

†10.19 — Second Amendment to Loan and Security Agreement , dated May 1, 2023, with Oxford Finance, LLC and the lenders listed therein (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated May 1, 2023 and incorporated by reference herein).

†10.20 — Third Amendment to Loan and Security Agreement , dated June 23, 2023, with Oxford Finance, LLC and the lenders listed therein (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated June 23, 2023 and incorporated by reference herein).

†10.21 — Fourth Amendment to Loan and Security Agreement , dated December 29, 2023, with Oxford Finance, LLC and the lenders listed therein (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated December 29, 2023 and incorporated by reference herein).

†10.22 — F ifth Amendment to Loan and Security Agreement , dated March 6, 2024, with Oxford Finance, LLC and the lenders listed therein (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated March 6, 2024 and incorporated by reference herein).

10.23 — Purchase Agreement , dated May 31, 2023, with Artal International S.C.A., Artal Group S.A., Artal International Management S.A., Invus Advisors, L.L.C., Invus Public Equities, L.P., Invus, L.P., Mr.

Amaury Wittouck, Stichting Administratiekantoor Westend and Westend S.A.

(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 31, 2023 and incorporated by reference herein).

10.24 — Preferred Stock Purchase Agreement , dated March 11, 2024, with the purchasers party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 6, 2024 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).

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*32.1 — Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .

*97.1 — Incentive-Based Compensation Clawback Policy

*101.INS — XBRL Instance Document.

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Lefkowitz, M.D.

NIES Director March 3, 2023

PALANTONI Director March 3, 2023

/s/ CHRISTOPHER J.

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Christopher J.

SULLIVAN Director March 25, 2024

/s/ JUDITH L.

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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

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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.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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.

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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.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

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.

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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.

Description of the Matter

As described in Note 2 and Note 5 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 expenses are accrued based upon milestones and the number of patients enrolled over the duration of the study.

The accrual for these third-party clinical trial research and development expenses includes estimates of services completed.

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 estimate of services completed related to the activities under the Company’s research and development agreements.

How We Addressed the Matter in Our Audit

Our audit procedures included, among others, testing the accuracy and completeness of the underlying inputs used in management’s analysis to determine costs incurred.

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

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

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

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

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Consolidated Balance Sheets

(In thousands, except par value)

(In thousands, except par value and share amounts)

As of December 31,

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Accounts receivable, net 1,010 28

Inventory 381 —

Prepaid expenses and other current assets 5,130 2,481

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Operating lease right-of-use-assets 5,524 6,407

Other assets 828 412

Total assets $ 229,429 $ 194,299

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Total current liabilities 31,546 23,172

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

Long-term debt, net 99,508 48,579

Long-term operating lease liabilities 5,265 5,424

Total liabilities 136,319 77,175

Commitments and contingencies

Commitments and contingencies (Note 10)

Stockholders' Equity:

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Accumulated deficit ( 1,766,839 ) ( 1,589,720 )

Accumulated other comprehensive loss ( 428 ) ( 10 )

Accumulated other comprehensive income (loss) 31 ( 428 )

Treasury stock, at cost, 867,973 and 488,205 shares, respectively

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Net product revenue $ 1,110 $ — $ —

Collaborative agreements — — 33

Royalties and other revenue 94 139 298

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Operating expenses:

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

Cost of sales 85 — —

Research and development, including stock-based compensation of $ 5,139 , $ 4,253 and $ 4,284 respectively

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113,982 48,083 32,342

Impairment loss on buildings — — 1,600

Total operating expenses 172,954 100,899 87,388

Other operating income:

Gain on sale of XERMELO — — 132,585

Loss from operations ( 171,750 ) ( 100,760 ) ( 87,090 )

Gain on debt extinguishments, net — — 1,003

Interest expense ( 2,780 ) ( 802 ) ( 14,544 )

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

Interest and other expense ( 13,101 ) ( 2,780 ) ( 802 )

Interest income and other, net 7,732 1,596 134

Net loss $ ( 177,119 ) $ ( 101,944 ) $ ( 87,758 )

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Other comprehensive loss:

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

Unrealized gain (loss) on investments 459 ( 418 ) ( 4 )

Comprehensive loss $ ( 176,660 ) $ ( 102,362 ) $ ( 87,762 )

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

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

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

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

1,219 2 — — — — 2

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

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

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

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

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

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

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

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

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Balance at December 31, 2022 189,214 $ 189 $ 1,709,144 $ ( 1,589,720 ) $ ( 428 ) $ ( 2,061 ) $ 117,124

Issuance of equity-classified warrants — — 307 — — — 307

Stock-based compensation — — 14,340 — — — 14,340

Issuance of common stock, net of fees 55,288 55 138,768 — — — 138,823

Issuance of common stock under Equity Incentive Plans 1,291 1 ( 1 ) — — — —

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 — — — — — ( 824 ) ( 824 )

Net loss — — — ( 177,119 ) — — ( 177,119 )

Unrealized loss on investments — — — — ( 418 ) — ( 418 )

Unrealized gain on investments — — — — 459 — 459

Balance at December 31, 2023 245,793 $ 245 $ 1,862,558 $ ( 1,766,839 ) $ 31 $ ( 2,885 ) $ 93,110

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Stock-based compensation 14,340 11,520 10,577

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 )

Amortization of debt-related costs 1,774 741 54

Loss on disposal of property and equipment — 3 49

Other non-cash adjustments ( 4,105 ) — —

Changes in operating assets and liabilities:

(Increase) decrease in accounts receivable ( 982 ) ( 14 ) 381

Decrease in inventory — — 345

Increase in inventories ( 381 ) — —

(Increase) decrease in prepaid expenses and other current assets ( 2,899 ) ( 316 ) 2,885

Decrease in other assets 656 661 424

Decrease in other long-term assets 467 656 661

Increase (decrease) in accounts payable and other liabilities 6,454 76 ( 14,158 )

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Purchases of property and equipment ( 470 ) ( 1,326 ) ( 1,221 )

Proceeds from XERMELO sale — — 160,385

Proceeds from disposal of property and equipment — — 11,013

Purchases of investments ( 223,343 ) ( 133,949 ) ( 34,261 )

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Repurchase of common stock ( 824 ) ( 864 ) ( 2,675 )

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

Proceeds (repayment) of debt borrowings, net of fees 49,961 48,868 ( 11,700 )

Net cash provided by financing activities 187,960 142,209 22,709

Net decrease in cash and cash equivalents ( 23,880 ) ( 17,720 ) ( 62,198 )

Cash and cash equivalents at beginning of year 46,345 64,065 126,263

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Supplemental disclosure of noncash investing and financing activities:

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

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

Issuance of equity-classified warrants $ 307 $ 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

Accrual of deferred financing costs $ 250 $ — $ —

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

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Notes to Consolidated Financial Statements

December 31, 2022

Organization and Operations

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

The Company’s future success is dependent upon many factors, including, but not limited to, the success of its 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;

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

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

its ongoing research and 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;

the resources devoted to developing and supporting its products;

general and industry-specific economic conditions which may affect research, development and commercialization expenditures;

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Intercompany transactions and balances are eliminated in consolidation.

Lexicon has made certain reclassification adjustments to conform prior-period amounts to the current presentation.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

Use of Estimates.

The preparation of financial statements in conformity with U.

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.

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 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.

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

As of December 31, 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.

As of December 31, 2023 and 2022, short-term investments consist primarily of U.S.

treasury bills as well as certain corporate and other debt securities.

The Company’s short-term investments are available for use in current operations regardless of the stated maturity date of the security.

These short-term investments are classified as available-for-sale securities as the Company has not historically or does not intend to sell any of its available-for-sale securities prior to their maturity dates.

Short-term investments are carried at fair value, based on quoted market prices of the securities.

The costs of securities sold is based on the specific identification method.

Any net realized gains and losses, interest and dividends, and amortization of premium or accretion of discount are included in interest and other income.

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.

The Company reviews its portfolio of available-for-sale debt securities in an unrealized loss position.

For those investments whose fair value is less than amortized cost, to the extent the Company decided to sell these investments prior to their maturity dates or was required to sell such investments, the Company would evaluate the expected cash flows to be received as compared to amortized cost and to determine if an expected credit loss has occurred.

Accounts Receivable.

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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’s accounts receivable are unsecured and are primarily

concentrated in large 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.

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.

In support of the commercial launch of INPEFA in 2023, the Company entered into distribution agreements with wholesalers and limited retail pharmacies.

The Company’s net product sales are generated from sales to these customers.

In 2023, 11 United States-based customers accounted for all of the Company’s net product revenue.

Three large wholesalers, each of which account for greater than 10% of total revenues and in the aggregate account for greater than 85 % of total revenues.

In 2022 and 2021, the Company’s revenues were solely derived from royalties and other revenues from one and two customers, respectively.

Property and Equipment.

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Significant renewals and betterments are capitalized.

Accrued liabilities:

Accrued liabilities consisted of the following:

As of December 31,

(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.

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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 2023, 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.

Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level which the Company has determined is the single operating segment disclosed in its current financial statements.

An impairment exists when the carrying amount of goodwill exceeds its implied fair value.

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.

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

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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.

As the implicit rate is not determinable in its leases, Lexicon uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments.

Inventory is comprised of INPEFA, the Company’s approved product that it is commercializing in the United States.

Inventories are determined at the lower of cost or market value, with cost determined under the specific identification method.

Revenue Recognition.

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:

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

(b) identify the performance obligation in the contract;

(d) allocate the transaction price to the performance obligation in the contract, and (e) 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 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.

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.

Product revenues consist of U.S.

sales of INPEFA, which Lexicon began shipping to its customers in the U.S.

in June 2023.

These customers primarily include wholesalers and limited retail pharmacies.

The Company is continuing to contract with certain managed care programs or pharmacy benefit managers (“PBMs”) and has legislatively mandated contracts with the federal and state governments under which rebates are provided based on product utilization.

Product revenues are recognized when control is transferred to the customer upon delivery.

The Company recognizes product revenue net of applicable estimates of reserves for variable consideration using the expected value method.

These estimates consider relevant factors such as current contractual and statutory requirements, industry data and forecasted customer buying and payment patterns.

Net product revenue includes variable consideration only to the extent that it is probable that a significant reversal in revenue recognized will not occur in a future period.

As necessary, these estimates will be adjusted in the period that such variances to actuals become known.

Listed below is a further discussion of these reserves and sales return allowances:

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.

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 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.

The Company records allowances, deducts the full amount of prompt payment discounts, and deducts service fees from total product sales when revenues are earned and recognized.

Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program reflecting amounts owed after final dispensing of the product to participants.

The Company’s estimates for rebates is based on statutory discount rates, third party market research data and data from sales to its customers.

As rebates are generally invoiced and paid in arrears, the Company accrues an estimate of rebates based on the current quarter’s activity, plus any known unpaid prior quarter rebates.

Chargebacks are discounts that occur when contracted healthcare providers purchase directly from a wholesaler.

Generally, the contracted healthcare providers purchase INPEFA at a discounted price.

The wholesaler, in turn, charges back to Lexicon the difference between the price paid by the wholesaler and the discounted price that the wholesaler’s customer pays for that product.

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.

The Company’s estimates for the expected Medicare Part D coverage gap are based on sales data received from a third party and projections based on historical data.

As funding of the coverage gap is generally invoiced and paid in arrears, the Company accrues an estimate based on the current quarter’s activity, plus any known unpaid prior quarter estimates.

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.

Patients with commercial insurance who meet certain eligibility requirements are eligible to receive co-payment assistance.

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

Sales returns.

The Company records allowances for product returns, if appropriate, as a reduction of revenue at the time product sales are recorded based on an assessment of market exclusivity of the product, the patient population, the customers’ return rights and the Company’s historical experience with returns.

Because approval is recent and there is a limited number of patients, most customers and retailers carry a limited inventory.

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.

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

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.

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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).

For 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 (a) when the related sales occur, or (b) 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.

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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.

Cost of sales consists of third-party manufacturing costs, product shipping and handling costs and freight associated with sales of INPEFA.

The Company began capitalizing inventory manufactured subsequent to regulatory approval of INPEFA in June 2023, as the related costs were expected to be recovered through the commercialization of the product.

Costs related to manufacturing inventory prior to the approval of INPEFA have been recorded as research and development expense in the consolidated statements of comprehensive loss.

Research and Development Expenses.

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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.

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

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

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Stock-Based Compensation.

The Company recognizes compensation expense in its statements of comprehensive 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

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

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 %

Compensation expense related to stock options and restricted stock units (“RSUs”) is determined based on the fair value of the award on the date of the grant and is recognized on a straight-line basis over the vesting period in which an employee is required to provide service.

Forfeitures of share-based payment awards are recognized in the period in which they occur.

Compensation expense is recorded in research and development expense and selling, general, and administrative expense as noted on the Company’s consolidated statements of comprehensive loss.

Income Taxes.

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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.

In evaluating our valuation allowances, we consider cumulative book losses, the reversal of existing temporary differences, tax planning strategies and estimates of future taxable income, the latter two of which involve the exercise of significant judgment.

Net Loss per Common Share.

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

Recent Accounting Pronouncements

In 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.

Recent Accounting Pronouncements Issued But Not Yet Adopted.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures , which is effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures , which is effective prospectively for annual periods beginning after December 15, 2024.

Early adoption is permitted for both standards.

We do not expect these accounting pronouncements to have a material impact on our financial statements.

Cash, Cash Equivalents and Investments

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Securities maturing within one year:

treasury securities 74,022 — ( 342 ) 73,680

Corporate debt securities 18,418 — ( 86 ) 18,332

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Total cash and cash equivalents and investments $ 138,785 $ — $ ( 428 ) $ 138,357

For the years ended December 31, 2023 and 2022, our investments in an unrealized loss position had an estimated fair value of $ 58.5 million and $ 89.0 million, respectively.

There were no realized gains or losses for the years ended December 31, 2023, 2022, and 2021.

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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.

Assets and Liabilities at Fair Value

The following tables provide the fair value measurements of applicable Company assets that are measured at fair value on a recurring basis according to the fair value levels defined above as of December 31, 2023 and 2022.

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

Assets at Fair Value

As of December 31, 2023

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Total cash and cash equivalents and investments $ 164,061 $ 5,965 $ — $ 170,026

Assets and Liabilities at Fair Value

Assets at Fair Value

As of December 31, 2022

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Total cash and cash equivalents and investments $ 120,025 $ 18,332 $ — $ 138,357

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.

The carrying amount of cash and cash equivalents, prepaid expenses and other assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments.

The fair value of the Oxford Term Loans (see Note 9) is determined under Level 2 in the fair value hierarchy and approximates carrying value as the loans bear interest at a rate that approximates prevailing market rates for instruments with similar characteristics.

Supplemental Financial Information

The following tables show the Company’s additional balance sheet information as of December 31, 2023 and 2022:

As of December 31,

(in thousands)

Raw materials $ — $ —

Work-in-progress 100 —

Finished goods 281 —

Inventory $ 381 $ —

As of December 31,

(in thousands)

Accrued Liabilities:

Accrued research and development services $ 3,705 $ 3,252

Accrued compensation and benefits 9,591 7,830

Short term lease liability 1,291 1,291

Other 2,570 404

Accrued liabilities $ 17,157 $ 12,777

Property and Equipment

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Net property and equipment $ 1,987 $ 2,071

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

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

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

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

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

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.

Effective Tax Rate Reconciliation.

A reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2023, 2022 and 2021 consists of the following:

Year Ended December 31,

2023 2022 2021

(in thousands)

Expected income tax expense (benefit) at 21%

$ ( 37,196 ) $ ( 21,408 ) $ ( 18,429 )

State income taxes, net of federal benefit ( 3,895 ) — —

Equity compensation 1,530 1,627 851

Research and development credit ( 712 ) — —

State income taxes, tax rate change ( 4,723 ) — —

Change in valuation allowance 44,410 19,543 17,210

Income tax benefit $ — $ — $ —

(1) Other is primarily comprised of expiring NOLs and nondeductible expenses for the year ended December 31, 2023 and nondeductible expenses for the years ended December 31, 2022 and 2021.

Deferred Tax Assets and Liabilities.

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, 2023 and 2022 are as follows:

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Net deferred tax liabilities $ — $ —

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 )

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.

Net Operating Losses/Valuation Allowance.

At December 31, 2023, Lexicon had both federal and state NOL carryforwards of approximately $ 1.3 billion and $ 169.6 million, respectively.

In 2022, federal NOLs increased by $ 104.0 million related to a current year NOL.

The Company had $ 606.5 million of U.S.

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The remaining federal and state NOL carryforwards will begin to expire in 2024.

The Company maintains a valuation allowance on net operating losses and other deferred tax assets.

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 2023, the Company reassessed the valuation allowance and considered negative evidence, including the cumulative losses over the three years ended December 31, 2023 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, 2023 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.

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.

During the year ended December 31, 2023, the valuation allowance increased $ 44.4 million, primarily due to NOLs generated, increases in deferred tax assets associated with capitalized research and development expense and deferred tax assets for state jurisdictions.

As of December 31, 2023 and 2022, the Company did no t have any unrecognized tax benefits and had no accruals for interest or penalties related to income tax matters.

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.

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.

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.

The Company is subject to U.S.

federal and state income taxes.

The tax years 2020 through 2022 remain open to examination by the Internal Revenue Service of the United Sates and the tax years 2019 through 2022 remain open to examination by various state tax authorities.

Lexicon recorded goodwill from previous acquisitions prior to 2011 of $ 44.5 million, representing the excess of purchase price over the fair value of the underlying net identifiable assets including the effects of deferred taxes.

Goodwill is not subject to amortization, but is tested at least annually on its assessment date for impairment at the reporting unit level, which is the Company’s single operating segment.

There was no impairment of goodwill in 2023, 2022 or 2021.

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.

In March 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”).

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

The Company incurred debt issuance costs of $ 0.3 million in connection with the December 2023 amendment which extended the fourth tranche period and modified the existing financial covenant relating to net sales of INPEFA and the minimum cash and investments balance requirement.

In March 2024, the Company entered into a fifth amendment further modifying the existing financial covenant relating to net sales of INPEFA.

The Oxford Term Loans are available in five tranches, each maturing in March 2027.

The first $ 25 million tranche was funded in March 2022, the second $ 25 million tranche was funded in December 2022 and the third $ 50 million tranche was funded in June 2023.

The fourth $ 25 million tranche will be available for draw at Lexicon’s option upon the achievement of specified INPEFA net sales and until April 15, 2025.

An unused fee will be due in the event Lexicon does not draw the full amount available under the fourth tranche.

The fifth $ 25 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 as described below.

A final payment exit fee equal to 6 % of the amount funded under the Oxford Term Loans is due upon prepayment or maturity.

The final payment exit fee of $ 6 million as of December 31, 2023, in the aggregate for the three borrowed tranches, is recorded as a debt discount on the consolidated balance sheet.

Concurrent with the funding of the first three tranches, Lexicon granted Oxford warrants to purchase 420,673 shares of Lexicon’s common stock at an exercise price of $ 2.08 per share, 224,128 shares of Lexicon’s common stock at an exercise price of $ 1.95 per share and 183,824 shares of Lexicon’s common stock at an exercise price of $ 2.38 per share, respectively.

Subject to and upon funding of the fourth tranche, Lexicon will grant Oxford a warrant to purchase shares of its common stock having a value equal to 1.75 % of such tranche, as determined by reference to a 10 -day average closing price of the shares, and having an exercise price equal to such average closing price.

All warrants are exercisable for five years from their respective grant dates and feature a net cashless exercise provision.

The Company allocated the proceeds from each term loan 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.

As of December 31, 2023, the carrying value of the Oxford Term Loans on the consolidated balance sheet was $ 99.5 million, reflecting an unamortized discount of $ 6.5 million to the face value of long-term debt for the final payment exit fee, the warrant fair value, and debt issuance costs, which are being amortized into interest and other expense throughout the life of the term loan using the effective interest rate method.

Monthly interest-only payments are due during an initial 36 -month period from the original March 2022 borrowing date.

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

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

The first $ 25 million tranche was funded at closing.

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

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

regulatory approval of sotagliflozin for heart failure.

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

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

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

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

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

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

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

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

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

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

The Oxford Term Loans bear interest at a floating rate equal to the 30-day U.S.

Payments of $ 34.8 million, $ 52.2 million, and $ 19.0 million, including debt principal and final exit fee payments, will be due during the fiscal years ended December 31, 2025, December 31, 2026 and December 31, 2027, respectively, with respect to all borrowed loan tranches as of December 31, 2023.

Prior to the June 2023 amendment to the loan and security agreement, the Oxford Term Loans bore 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 %.

Following such amendment, the floating interest rate is based on the sum of (a) the 1-month CME Term Secured Overnight Financing Rate (SOFR), (b) 0.10 %, and (c) 7.90 % for the first and second tranches and 7 % for the third and fourth tranches.

As of December 31, 2023, the weighted average interest rate of the Oxford Term Loans was 12.9 %.

During the year ended December 31, 2023, the Company recognized interest expense of $ 11.6 million, including $ 1.5 million in amortization of discount and related debt issuance costs.

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Convertible Notes.

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.

In addition to the financial covenants, 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 loan and security agreement includes a financial covenant which requires Lexicon 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.

The loan and security agreement includes a separate financial covenant relating to net sales of INPEFA as noted above.

The Company was in compliance with its debt covenants as of December 31, 2023, and has classified its debt as long-term based on its intent and ability to refinance with completed equity financing (see Note 13) if the Company is unable to meet these financial covenants within one year .

Commitments and Contingencies

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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.

The Texas lease provides for escalating yearly base rent payments which started at $ 506,000 and increase to $ 557,000 in the final year of the lease.

The New Jersey lease provides for escalating yearly base rent payments which started at $ 820,000 and increase 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.

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During the years ended December 31, 2023 and 2022, the Company made cash payments for lease liabilities of $ 0.8 million and $ 1.1 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.

As of December 31, 2023 and 2022, the weighted-average remaining lease terms were 9 years and 9.5 years, respectively, with weighted-average discount rates of 9.6 % for each year.

The following table reconciles the undiscounted cash flows of the operating lease liability to the recorded lease liability at December 31, 2023:

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Equity Incentive Awards

Equity Incentive Plans

The Company has stockholder-approved equity incentive plans further described below that permit the grant of stock options, restricted stock unit awards, and other stock-based awards to employees, directors, and consultants of the Company.

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 Company’s 2017 Equity Incentive Plan permits the grant of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants of the Company.

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

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Most stock options granted under the 2017 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

Stock options granted under the Equity Incentive Plan have a term of 10 years from the date of grant.

Vesting of restricted stock units issued under this plan generally vest in three annual installments.

2017 Non-Employee Directors’ Equity Incentive Plan (the “Directors’ Plan”).

Under the Company’s 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 10 years from the date of grant.

Vesting of restricted stock units granted under this plan occurs on the first anniversary of the grant date.

The total number of shares of common stock that may be issued pursuant to stock awards under the Equity Incentive Plan and the Directors’ Plan shall not exceed in the aggregate 55,000,000 and 2,000,000 shares at December 31, 2023, respectively.

Under the combined plans, as of December 31, 2023, an aggregate of 23,719,712 shares of common stock were reserved for issuance upon exercise of outstanding stock options and vesting of outstanding restricted stock units and 24,047,212 additional shares were available for future grants.

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.

As of December 31, 2023, options to purchase 18,705,022 shares and 5,014,690 restricted stock

units were outstanding, 2,285,702 shares had been issued upon the exercise of stock options, 6,730,226 shares had been issued pursuant to restricted stock units and 217,148 shares had been issued pursuant to stock bonus awards or restricted stock awards granted under the aggregate of both plans.

For the years ended December 2023, 2022, and 2021 stock-based compensation costs was $ 14.3 million, $ 11.5 million, and $ 10.6 million, respectively.

As of December 31, 2023, future stock-based compensation cost for all outstanding unvested stock options and restricted stock units was $ 26.8 million, which is expected to be recognized over a weighted-average period of 1.2 years.

Stock Options.

The following is a summary of stock option activity under Lexicon’s equity incentive plans for the year ended December 31, 2023:

As of December 31, 2023

(in thousands, except exercise price data) Options Weighted Average Exercise Price

Outstanding at beginning of year 12,349 $ 5.10

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The weighted average estimated grant date fair value of stock options granted during the years ended December 31, 2023, 2022 and 2021 were $ 1.78 , $ 2.30 and $ 4.85 , 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 7.5 and 5.6 years, respectively, as of December 31, 2023.

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At December 31, 2023, the intrinsic value of exercisable stock options was $ 0 .

Stock Bonus and Restricted Stock Unit Activity:

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

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, 2023, 2022 and 2021, respectively:

Expected Volatility Risk-free Interest Rate Expected Term Dividend

December 31, 2023:

Employees 110 % 3.9 % 4 0 %

Officers and non-employee directors 98 % 4.0 % 6 0 %

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 % 6 0 %

Restricted Stock Units.

During the years ended December 31, 2023, 2022 and 2021, 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 2023, 2022 and 2021 was $ 2.9 million, $ 2.9 million and $ 8.7 million, respectively.

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The restricted stock granted in 2023, 2022 and 2021 had weighted average grant date fair values of $ 2.36 , $ 1.77 and $ 5.04 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, 2023:

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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.

Lexicon maintains a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code.

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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 Company matches employee contributions according to a specified formula.

The matching contributions totaled $ 1.2 million, $ 0.7 million and $ 0.4 million in the years ended December 31, 2023, 2022 and 2021, respectively.

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

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.

charge, $ 2.5 million was recorded in research and development expense and $ 3.0 million was recorded in selling, general and administrative expense in the accompanying consolidated statement of comprehensive loss for the year ended December 31, 2020.

Collaboration and License Agreements

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.

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.

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 June 2023, Lexicon sold an aggregate of 55,288,460 shares of its 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., resulting in net proceeds of approximately $ 139 million, after deducting underwriting discounts and commissions and offering expenses.

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.

In January 2021, Lexicon sold 2,000,000 shares of its common stock at a price of $ 8.463 per share under a previous Open Market Sale Agreement ™ with Jefferies LLC, 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 under 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.

Convertible Preferred Stock.

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

The Company 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 is convertible into 50 shares of common stock.

An affiliate of Invus, L.P.

elected to participate on the same terms as each other purchaser on a pro rata basis and also agreed to vote at the Company’s 2024 annual meeting of stockholders in favor of the approval of an amendment to the Company’s certificate of incorporation increasing the total authorized common shares thereunder from 300,000,000 to 450,000,000 shares (the “New Charter”).

Following the approval of the New Charter by the Company’s shareholders, the adoption of the New Charter by the Company’s board of directors, and the filing and acceptance of the New Charter by the Secretary of State of Delaware, each share of preferred stock will automatically convert into 50 shares (subject to adjustments) of common stock.

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

What changed 10-K

Item 9A. Controls and Procedures