LEXICON PHARMACEUTICALS, INC. 10-Q

Item 1. Financial Statements Lexicon Pharmaceuticals, Inc. Condensed Consolidated Balance Sheets (In thousands, except par value and share amounts) As of September 30, As of December 31, 2024 2023 Assets (unaudited) Current assets: Cash and cash equivalents $ 34,551 $ 22,465 Short-term investments 223,818 147,561 Accounts receivable, net 2,895 1,010 Inventory 636 381 Prepaid expenses and other current assets 6,706 5,130 Total current assets 268,606 176,547 Property and equipment, net of accumulated depreciation and amortization of $ 1,961 and $ 4,538 , respectively 2,135 1,987 Goodwill 44,543 44,543 Operating lease right-of-use-assets 5,011 5,524 Other assets 828 828 Total assets $ 321,123 $ 229,429 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 14,201 $ 14,389 Accrued liabilities 21,845 17,157 Total current liabilities 36,046 31,546 Long-term debt, net 99,895 99,508 Other long-term liabilities 6,670 5,265 Total liabilities 142,611 136,319 Commitments and contingencies (Note 6) Stockholders’ Equity: Preferred stock, $ 0.01 par value; 5,000,000 shares authorized Series A Convertible preferred stock; 2,304,147 shares issued and none outstanding at September 30, 2024; no shares issued or outstanding at December 31, 2023 — — Common stock, $ 0.001 par value; 450,000,000 shares authorized; 363,020,303 and 245,792,668 shares issued, respectively 363 245 Additional paid-in capital 2,115,891 1,862,558 Accumulated deficit ( 1,933,476 ) ( 1,766,839 ) Accumulated other comprehensive income 349 31 Treasury stock, at cost, 1,528,008 and 867,973 shares, respectively ( 4,615 ) ( 2,885 ) Total stockholders’ equity 178,512 93,110 Total liabilities and stockholders’ equity $ 321,123 $ 229,429 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Lexicon Pharmaceuticals, Inc. Condensed Consolidated Statements of Comprehensive Loss (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues: Net product revenue $ 1,741 $ 148 $ 4,451 $ 438 Royalties and other revenue 9 14 76 64 Total revenues 1,750 162 4,527 502 Operating expenses: Cost of sales 71 7 268 15 Research and development, including stock-based compensation of $ 1,460 , $ 1,337 , $ 4,733 , and $ 3,842 , respectively 25,780 17,558 57,795 44,125 Selling, general and administrative, including stock-based compensation of $ 1,341 , $ 2,561 , $ 7,229 , and $ 7,286 , respectively 39,592 32,228 110,844 81,375 Total operating expenses 65,443 49,793 168,907 125,515 Loss from operations ( 63,693 ) ( 49,631 ) ( 164,380 ) ( 125,013 ) Interest and other expense ( 4,562 ) ( 3,899 ) ( 11,721 ) ( 7,680 ) Interest income and other, net 3,444 3,005 9,464 5,330 Net loss $ ( 64,811 ) $ ( 50,525 ) $ ( 166,637 ) $ ( 127,363 ) Net loss per common share, basic and diluted $ ( 0.18 ) $ ( 0.21 ) $ ( 0.54 ) $ ( 0.60 ) Weighted average common shares outstanding, basic and diluted 361,492 244,925 306,109 213,112 Other comprehensive loss: Unrealized gain (loss) on investments 542 ( 13 ) 318 315 Comprehensive loss $ ( 64,269 ) $ ( 50,538 ) $ ( 166,319 ) $ ( 127,048 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Lexicon Pharmaceuticals, Inc. Condensed Consolidated Statements of Stockholders’ Equity (In thousands) (Unaudited) Common Stock Preferred Stock Additional Accumulated Other Shares Par Value Shares Par Value Paid-In Capital Accumulated Deficit Comprehensive Gain (Loss) Treasury Stock Total Balance at December 31, 2022 189,214 $ 189 — $ — $ 1,709,144 $ ( 1,589,720 ) $ ( 428 ) $ ( 2,061 ) $ 117,124 Stock-based compensation — — — — 3,415 — — — 3,415 Issuance of common stock under Equity Incentive Plans 1,216 1 — — ( 1 ) — — — — Repurchase of common stock — — — — — — — ( 824 ) ( 824 ) Net loss — — — — — ( 31,934 ) — — ( 31,934 ) Unrealized gain (loss) on investments — — — — — — 265 — 265 Balance at March 31, 2023 190,430 $ 190 — $ — $ 1,712,558 $ ( 1,621,654 ) $ ( 163 ) $ ( 2,885 ) $ 88,046 Stock-based compensation — — — — 3,815 — — — 3,815 Issuance of equity-classified warrants — — — — 307 — — — 307 Issuance of common stock under Equity Incentive Plans 75 — — — — — — — — Issuance of common stock, net of fees 55,288 55 — — 138,979 — — — 139,034 Net loss — — — — — ( 44,904 ) — — ( 44,904 ) Unrealized gain (loss) on investments — — — — — — 63 — 63 Balance at June 30, 2023 245,793 $ 245 — $ — $ 1,855,659 $ ( 1,666,558 ) $ ( 100 ) $ ( 2,885 ) $ 186,361 Stock-based compensation — — — — 3,898 — — — 3,898 Net loss — — — — — ( 50,525 ) — — ( 50,525 ) Unrealized gain (loss) on investments — — — — — — ( 13 ) — ( 13 ) Other — — — — ( 211 ) — — — ( 211 ) Balance at September 30, 2023 245,793 $ 245 — $ — $ 1,859,346 $ ( 1,717,083 ) $ ( 113 ) $ ( 2,885 ) $ 139,510 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Lexicon Pharmaceuticals, Inc. Condensed Consolidated Statements of Stockholders’ Equity (In thousands) (Unaudited) Common Stock Preferred Stock Additional Accumulated Other Shares Par Value Shares Par Value Paid-In Capital Accumulated Deficit Comprehensive Gain (Loss) Treasury Stock Total Balance at December 31, 2023 245,793 $ 245 $ — $ — $ 1,862,558 $ ( 1,766,839 ) $ 31 $ ( 2,885 ) $ 93,110 Stock-based compensation — — — — 4,302 — — — 4,302 Issuance of preferred stock, net of fees — — 2,304 23 241,552 — — — 241,575 Issuance of common stock under Equity Incentive Plans 1,972 3 — — 85 — — — 88 Repurchase of common stock — — — — — — — ( 1,730 ) ( 1,730 ) Net loss — — — — — ( 48,397 ) — — ( 48,397 ) Unrealized gain (loss) on investments — — — — — — ( 81 ) — ( 81 ) Balance at March 31, 2024 247,765 $ 248 2,304 $ 23 $ 2,108,497 $ ( 1,815,236 ) $ ( 50 ) $ ( 4,615 ) $ 288,867 Stock-based compensation — — — — 4,859 — — — 4,859 Fees related to preferred stock — — — — ( 175 ) — — — ( 175 ) Issuance of common stock under Equity Incentive Plans 48 — — — 1 — — — 1 Conversion of preferred stock to common stock 115,207 115 ( 2,304 ) ( 23 ) ( 92 ) — — — — Net loss — — — — — ( 53,429 ) — — ( 53,429 ) Unrealized gain (loss) on investments — — — — — — ( 143 ) — ( 143 ) Balance at June 30, 2024 363,020 $ 363 — $ — $ 2,113,090 $ ( 1,868,665 ) $ ( 193 ) $ ( 4,615 ) $ 239,980 Stock-based compensation — — — — 2,801 — — — 2,801 Net loss — — — — — ( 64,811 ) — — ( 64,811 ) Unrealized gain (loss) on investments — — — — — — 542 — 542 Balance at September 30, 2024 363,020 $ 363 — $ — $ 2,115,891 $ ( 1,933,476 ) $ 349 $ ( 4,615 ) $ 178,512 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Lexicon Pharmaceuticals, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 166,637 ) $ ( 127,363 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 409 407 Stock-based compensation 11,962 11,128 Amortization of debt-related costs 1,444 1,156 Accretion of marketable securities purchased at a discount ( 7,418 ) ( 3,613 ) Other non-cash adjustments 481 — Changes in operating assets and liabilities: Increase in accounts receivable ( 1,885 ) ( 290 ) Increase in inventories ( 255 ) ( 336 ) Increase in prepaid expenses and other current assets ( 1,576 ) ( 1,935 ) Decrease in other long-term assets 513 389 Increase in accounts payable and other liabilities 5,673 9,108 Net cash used in operating activities ( 157,289 ) ( 111,349 ) Cash flows from investing activities: Purchases of property and equipment ( 557 ) ( 470 ) Purchases of investments ( 302,921 ) ( 223,241 ) Maturities of investments 234,400 121,870 Net cash used in investing activities ( 69,078 ) ( 101,841 ) Cash flows from financing activities: Proceeds from issuance of common stock for equity incentive plans 89 — Proceeds from issuance of common stock, net of fees — 138,823 Proceeds from issuance of preferred stock, net of fees 241,400 — Repurchase of common stock for equity incentive plans ( 1,730 ) ( 824 ) Proceeds from debt borrowings, net of fees — 49,962 Other debt financing fees ( 1,306 ) — Net cash provided by financing activities 238,453 187,961 Net increase (decrease) in cash and cash equivalents 12,086 ( 25,229 ) Cash and cash equivalents at beginning of period 22,465 46,345 Cash and cash equivalents at end of period $ 34,551 $ 21,116 Supplemental disclosure of cash flow information: Cash paid for interest $ 9,794 $ 6,767 Supplemental disclosure of non-cash investing and financing activities: Conversion of preferred stock to common stock 115 — Issuance of equity-classified warrants — 307 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Lexicon Pharmaceuticals, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Summary of Significant Accounting Policies Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Lexicon Pharmaceuticals, Inc. (“Lexicon” or the “Company”) include the accounts of Lexicon and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. We have 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. Operating results for the nine month period ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ended December 31, 2024. For further information, refer to the financial statements and footnotes thereto included in Lexicon’s annual report on Form 10-K for the year ended December 31, 2023, as filed with the SEC. Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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. Significant Accounting Policies. There have been no significant changes to our summary of significant policies discussed in our annual report on Form 10-K for the year ended December 31, 2023. 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 are evaluating the impact of these accounting pronouncements and do not currently expect them to have a material impact on our financial statements. 8 2. Cash and Cash Equivalents and Investments The fair value of cash and cash equivalents and investments held at September 30, 2024 and December 31, 2023 are as follows: As of September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) Cash and cash equivalents $ 34,551 $ — $ — $ 34,551 Securities maturing within one year: U.S. treasury securities 188,577 279 — 188,856 Corporate debt securities 34,892 77 ( 7 ) 34,962 Total short-term investments $ 223,469 $ 356 $ ( 7 ) $ 223,818 Total cash and cash equivalents and investments $ 258,020 $ 356 $ ( 7 ) $ 258,369 As of December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) Cash and cash equivalents $ 22,465 $ — $ — $ 22,465 Securities maturing within one year: U.S. treasury securities 141,577 31 ( 12 ) 141,596 Corporate debt securities 5,954 11 — 5,965 Total short-term investments $ 147,531 $ 42 $ ( 12 ) $ 147,561 Total cash and cash equivalents and investments $ 169,996 $ 42 $ ( 12 ) $ 170,026 As of September 30, 2024 and December 31, 2023, Lexicon’s investments in an unrealized loss position had an estimated fair value of $ 14.8 million and $ 58.5 million, respectively. There were no realized gains or losses during either of the nine month periods ended September 30, 2024 and 2023. 3. Fair Value Measurements The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. The following levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities: • Level 1 - quoted prices in active markets for identical assets, which include U.S. treasury securities • Level 2 - other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.), which includes corporate debt securities • Level 3 - significant unobservable inputs 9 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 that are measured at fair value on a recurring basis according to the fair value levels defined above as of September 30, 2024 and December 31, 2023. There were no transfers between Level 1 and Level 2 during the periods presented. Assets at Fair Value as of September 30, 2024 Level 1 Level 2 Level 3 Total (in thousands) Cash and cash equivalents $ 34,551 $ — $ — $ 34,551 Short-term investments 188,856 34,962 — 223,818 Total cash and cash equivalents and investments $ 223,407 $ 34,962 $ — $ 258,369 Assets at Fair Value as of December 31, 2023 Level 1 Level 2 Level 3 Total (in thousands) Cash and cash equivalents $ 22,465 $ — $ — $ 22,465 Short-term investments 141,596 5,965 — 147,561 Total cash and cash equivalents and investments $ 164,061 $ 5,965 $ — $ 170,026 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 5) 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. 4. Supplemental Financial Information The following tables show the Company’s additional balance sheet information as of September 30, 2024 and December 31, 2023: As of September 30, As of December 31, 2024 2023 (in thousands) Inventories: Raw materials $ 103 $ — Work-in-progress 83 100 Finished goods 450 281 Inventory $ 636 $ 381 10 Estimated Useful Lives As of September 30, As of December 31, In Years 2024 2023 (in thousands) Property and Equipment: Computers and software 3 - 5 $ 1,529 $ 2,408 Furniture and fixtures 5 - 7 389 1,939 Leasehold improvements 3 - 7 2,178 2,178 Total property and equipment 4,096 6,525 Less: Accumulated depreciation and amortization ( 1,961 ) ( 4,538 ) Net property and equipment $ 2,135 $ 1,987 During the nine months ended September 30, 2024, the Company retired $ 1.4 million of computers and software and $ 1.6 million of furniture and fixtures, all of which had been fully depreciated. As of September 30, As of December 31, 2024 2023 (in thousands) Accrued Liabilities: Accrued research and development services $ 7,878 $ 3,705 Accrued compensation and benefits 11,167 9,591 Short-term lease liability 1,301 1,291 Other 1,499 2,570 Total accrued liabilities $ 21,845 $ 17,157 During the nine months ended September 30, 2024, the Company incurred $ 3.4 million of severance costs reflected in selling, general, and administrative expenses of which $ 1.9 million was paid as of September 30, 2024. As of September 30, 2024, $ 1.5 million is reflected as accrued compensation and benefits within accrued liabilities on the condensed consolidated balance sheet as noted in the table above. 5. Debt Obligations Oxford Term Loans Overview. Lexicon and one of its subsidiaries entered into a loan and security agreement (the “Loan Agreement”) with Oxford Finance LLC and the lenders listed therein (“Oxford”) in March 2022 (as subsequently amended) that provides up to $ 150 million in borrowing capacity (the “Oxford Term Loans”). The Oxford Term Loans are available in five tranches, each maturing in March 2029. The first two $ 25 million tranches totaling $ 50 million were funded in 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 when 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 period in March 2027 as described below. As of September 30, 2024, the carrying value of the Oxford Term Loans on the condensed consolidated balance sheet was $ 99.9 million, reflecting an unamortized discount of $ 7.1 million to the face value of long-term debt related to debt issuance costs, the final payment exit fee, and the warrant fair value described below, which are being amortized into interest and other expense. A final payment exit fee of $ 7.0 million equal to 7 % of the amount funded under the Oxford Term Loans is due upon prepayment or maturity. Oxford Warrants. Concurrent with the funding of each 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 11 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. These warrants reduced the carrying value of long-term debt and are classified as equity instruments in additional paid-in capital on the condensed consolidated balance sheet. Interest and Principal Payments. Monthly interest-only payments are due during an initial 60-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 with monthly principal payments beginning May 1, 2027. Payments of $ 34.8 million, $ 52.2 million, and $ 20.0 million, including debt principal and final exit fee payments, will be due during the fiscal years ended December 31, 2027, December 31, 2028 and December 31, 2029, respectively, with respect to all borrowed loan tranches as of September 30, 2024. Any prepayment of the Oxford Term Loans is subject to prepayment fees of up to 3 % which decline over the three years following the funding date of each loan tranche. Following the June 2023 amendment to the Loan Agreement, the floating interest rate is currently 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 7.00 % for the third and fourth tranches. Prior to June 2023, 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 %. As of September 30, 2024, the weighted average interest rate of the Oxford Term Loans was 12.7 %. Restrictive Provisions/Covenants. If an event of default occurs and is continuing, Oxford may declare all amounts outstanding under the Loan Agreement to be immediately due and payable. Additionally, Lexicon may prepay the Oxford Term Loans in whole at its option at any time. 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 Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default applicable to Lexicon and its subsidiaries. The Loan Agreement includes a financial covenant which requires Lexicon to maintain a minimum unrestricted cash and investments balance of 50 % of the outstanding principal amount through June 30, 2026, tested monthly as of the last day of each month. In addition, Lexicon is separately required to maintain a quarterly minimum unrestricted cash and investments balance of $ 10 million until the achievement of specified INPEFA net sales (which will be satisfied by meeting the monthly minimum unrestricted cash and investments covenant noted above). Upon funding of the fourth tranche, the quarterly minimum unrestricted cash and investments balance requirement will increase to $ 25 million. The Loan Agreement also includes a separate financial covenant relating to net product revenue which will be effective as of the quarter ending June 30, 2026. 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 Company was in compliance with its debt covenants as of September 30, 2024. 6. Commitments and Contingencies Operating Lease Obligations. Lexicon’s operating leases include leases of office space in The Woodlands, Texas and Bridgewater, New Jersey that will expire in August 2025 and January 2034, respectively. In July 2024, Lexicon entered into a new lease agreement for its existing office space in The Woodlands, Texas beginning September 1, 2025 with a term of approximately five years and total undiscounted cash payments of $ 4.1 million. Operating lease right-of-use assets and associated lease liabilities are recorded in the condensed consolidated 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 uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. Lexicon does not apply this accounting to those leases with terms of twelve months or less. As of September 30, 2024 and December 31, 2023, the right-of-use assets for the office space leases of $ 5.0 million and $ 5.5 million, respectively, are separately included in operating lease right-of-use-assets in the condensed consolidated balance sheet. Current liabilities relating to the leases are included in accrued liabilities in the condensed consolidated balance sheet (as further described in Note 4) and long-term operating lease liabilities of approximately $ 4.7 million and $ 5.3 million, respectively, as of September 30, 2024 and December 31, 2023 are included in other long-term liabilities in the condensed consolidated balance sheet. 12 During each of the three and nine months ended September 30, 2024 and 2023, the Company incurred lease expense of $ 0.4 million and $ 1.2 million, respectively. During the nine months ended September 30, 2024 and 2023, the Company made cash payments for lease liabilities of $ 1.0 million and $ 0.5 million, respectively. As of September 30, 2024 and December 31, 2023, the weighted-average remaining lease terms were 8.7 years and 9 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 September 30, 2024: (in thousands) 2024 $ 345 2025 1,220 2026 865 2027 881 2028 898 Thereafter 4,746 Total undiscounted operating lease liability 8,955 Less: amount of lease payments representing interest ( 2,977 ) Present value of future lease payments 5,978 Less: short-term operating lease liability ( 1,301 ) Long-term operating lease liability $ 4,677 Legal Proceedings. Lexicon is from time to time party to claims and legal proceedings that arise in the normal course of its business and that it believes will not have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity. 7. Equity Incentive Awards Stock-Based Compensation. The Company has stockholder-approved equity incentive plans that permit the grant of stock options, restricted stock units, and other stock-based awards to employees, directors, and consultants of the Company. 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. Compensation expense for the three months ended September 30, 2024 and 2023 of $ 2.8 million and $ 3.9 million, respectively, and for the nine months ended September 30, 2024 and 2023 of $ 12.0 million and $ 11.1 million, respectively, is recorded separately in research and development expense and selling, general, and administrative expense as noted on the Company’s condensed consolidated statements of comprehensive loss. The fair value of stock options is estimated at the date of grant using the Black-Scholes method requiring 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 13 assumptions were used for stock options granted in the nine months ended September 30, 2024 and 2023: Expected Volatility Risk-free Interest Rate Expected Term Dividend Rate September 30, 2024 Employees 96 % 4.4 % 4 — % Officers and non-employee directors 104 % 4.2 % 6 — % September 30, 2023 Employees 93 % 3.9 % 4 — % Officers and non-employee directors 100 % 3.9 % 6 — % The following is a summary of stock option activity under Lexicon’s stock-based compensation plans for the nine months ended September 30, 2024: Stock Options Weighted Average Exercise Price (in thousands) Outstanding at December 31, 2023 18,705 $ 3.93 Granted 6,998 1.96 Exercised ( 51 ) 1.72 Expired ( 296 ) 11.79 Forfeited ( 4,163 ) 2.56 Outstanding at September 30, 2024 21,193 3.44 Exercisable at September 30, 2024 10,968 $ 4.63 The following is a summary of restricted stock unit activity under Lexicon’s stock-based compensation plans for the nine months ended September 30, 2024: RSU’s Weighted Average Grant Date Fair Value (in thousands) Outstanding at December 31, 2023 5,015 $ 2.78 Granted 8,527 2.14 Vested ( 1,970 ) 3.10 Forfeited ( 3,010 ) 2.25 Outstanding at September 30, 2024 8,562 $ 2.25 8. Other Capital Agreements 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 $ 241.4 million, after deducting placement agent fees and offering expenses from the private placement offering. 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”). On May 10, 2024, 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 was converted into 50 shares of common stock at par value, or 115,207,350 shares in the aggregate. 14 9. Subsequent Events On October 16, 2024, Lexicon entered into an exclusive license agreement (the “License Agreement”) with Viatris Inc. (“Viatris”) for the development and commercialization of sotagliflozin in all markets outside of the United States and Europe (the “Licensed Territory”). Under the License Agreement, Lexicon granted Viatris an exclusive, royalty-bearing right and license under its patent rights and know-how to develop and commercialize sotagliflozin in the Licensed Territory and received an upfront payment of $ 25 million. Lexicon is also eligible to receive (a) up to an aggregate of $ 12 million upon the achievement of specified regulatory milestones, (b) up to an aggregate of $ 185 million upon the achievement of specified sales milestones and (c) tiered royalties ranging from low double-digit to upper-teens percentages of annual net sales of sotagliflozin in the Licensed Territory. Viatris is responsible for all regulatory and commercialization activities for sotagliflozin in the Licensed Territory as well as conducting any additional clinical trials required to obtain such regulatory approvals. Lexicon and Viatris will enter into a manufacturing and supply agreement pursuant to which Lexicon will supply Viatris’s development and commercial requirements of sotagliflozin, and Viatris will pay an agreed upon transfer price for such supply. 15