lxrx-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____________ to _____________

Commission File Number: 000-30111

Lexicon Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware			76-0474169
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)

2445 Technology Forest Blvd.

11th Floor

The Woodlands, Texas 77381

(Address of Principal Executive Offices and Zip Code)

(281) 863-3000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001	LXRX	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes

☑

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)

Yes

☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer ☑

Smaller reporting company ☑ Emerging growth company

If an emerging growth company, indicate by check mark if the registration has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☑

As of November 7, 2022, 188,725,743 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

Lexicon Pharmaceuticals, Inc.

Table of Contents


		Page
Factors Affecting Forward-Looking Statements		2
Part I – Financial Information		3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets - September 30, 2022 (unaudited) and December 31, 2021	3
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) - Three and Nine Months Ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) - Three and Nine Months Ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
Part II – Other Information		22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22


Item 6.	Exhibits	25
	Signatures	26

The Lexicon name and logo are registered trademarks of Lexicon Pharmaceuticals, Inc.

——————

Factors Affecting Forward Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Part II, Item 1A. - Risk Factors” and in our annual report on Form 10-K for the year ended December 31, 2021, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, future results, levels of activity, performance or achievements may vary materially from our expectations. We are not undertaking any duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual results, unless required by law.

Part I – Financial Information

Item 1. Financial Statements

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value)


	As of September 30,		As of December 31,
	2022		2021
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	18,834	$	64,065
Short-term investments	117,369		22,678
Accounts receivable	39		14
Prepaid expenses and other current assets	2,821		2,164
Total current assets	139,063		88,921
Property and equipment, net of accumulated depreciation and amortization of $5,177 and $4,853, respectively	932		1,176
Goodwill	44,543		44,543
Other assets	7,147		2,269
Total assets	$	191,685	$	136,909
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	9,427	$	9,152
Accrued liabilities	9,018		12,972
Total current liabilities	18,445		22,124
Long-term debt, net of issuance costs	23,784		—
Other long-term liabilities	5,438		1,190
Total liabilities	47,667		23,314
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.001 par value; 300,000 shares authorized; 189,214 and 150,082 shares issued, respectively	189		150
Additional paid-in capital	1,705,607		1,608,749
Accumulated deficit	(1,559,226)		(1,487,776)
Accumulated other comprehensive loss	(491)		(10)
Treasury stock, at cost, 488 and 1,165 shares, respectively	(2,061)		(7,518)
Total stockholders’ equity	144,018		113,595
Total liabilities and stockholders’ equity	$	191,685	$	136,909

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

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,
	2022		2021		2022		2021
Revenues:
Royalties and other revenue	$	39	$	23	$	111	$	284

Operating expenses:
Research and development, including stock-based compensation of $939, $1,138, $3,069 and $3,608 respectively	10,557		15,682		38,839		38,548
Selling, general and administrative, including stock-based compensation of $1,709, $1,574, $5,183 and $4,741 respectively	12,577		7,303		31,754		23,496
Total operating expenses	23,134		22,985		70,593		62,044
Loss from operations	(23,095)		(22,962)		(70,482)		(61,760)
Interest expense	(864)		(171)		(1,677)		(507)
Interest and other income, net	572		11		709		120
Net loss	$	(23,387)	$	(23,122)	$	(71,450)	$	(62,147)
Net loss per common share, basic and diluted	$	(0.13)	$	(0.16)	$	(0.45)	$	(0.43)

Shares used in computing net loss per common share, basic and diluted	174,904		145,820		157,984		144,558

Other comprehensive loss:
Unrealized (loss) gain on investments	(341)		—		(481)		1
Comprehensive loss	$	(23,728)	$	(23,122)	$	(71,931)	$	(62,146)

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

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Gain (Loss)		Treasury Stock
	Shares	Par Value										Total
Balance at December 31, 2020	142,289	$	142	$	1,561,096	$	(1,400,018)	$	(6)	$	(4,843)	$	156,371
Stock-based compensation	—	—		2,851		—		—		—		2,851
Issuance of common stock under Equity Incentive Plans	1,263	1		547		—		—		—		548
Issuance of common stock under an Open Market Sale Agreement, net of issuance fees	2,000	2		16,397		—		—		—		16,399
Repurchase of common stock	—	—		—		—		—		(2,675)		(2,675)
Net loss	—	—		—		(20,958)		—		—		(20,958)
Unrealized gain on investments	—	—		—		—		11		—		11
Balance at March 31, 2021	145,552	145		1,580,891		(1,420,976)		5		(7,518)		152,547
Stock-based compensation	—	—		2,786		—		—		—		2,786
Issuance of common stock under Equity Incentive Plans	88	1		7		—		—		—		8
Issuance fees related to Open Market Sale Agreement	—	—		(31)		—		—		—		(31)
Net loss	—	—		—		(18,067)		—		—		(18,067)
Unrealized loss on investments	—	—		—		—		(10)		—		(10)
Balance at June 30, 2021	145,640	146		1,583,653		(1,439,043)		(5)		(7,518)		137,233
Stock-based compensation	—	—		2,712		—		—		—		2,712
Issuance of common stock under Equity Incentive Plans	170	—		658		—		—		—		658
Issuance of common stock under an Open Market Sale Agreement, net of issuance fees	4,177	4		19,119		—		—		—		19,123
Net loss	—	—		—		(23,122)		—		—		(23,122)
Unrealized loss on investments	—	—		—		—		(1)		—		(1)
Balance at September 30, 2021	149,987	$	150	$	1,606,142	$	(1,462,165)	$	(6)	$	(7,518)	$	136,603

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

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


	Common Stock			Additional				Accumulated Other
	Shares	Par Value		Paid-In Capital		Accumulated Deficit		Comprehensive Gain (Loss)		Treasury Stock		Total
Balance at December 31, 2021	150,082	$	150	$	1,608,749	$	(1,487,776)	$	(10)	$	(7,518)	$	113,595
Stock-based compensation	—	—		2,772		—		—		—		2,772
Issuance of equity classified warrants	—	—		698		—		—		—		698
Issuance of treasury stock	—	—		(6,321)		—		—		6,321		—
Repurchase of common stock	—	—		—		—		—		(864)		(864)
Net loss	—	—		—		(23,476)		—		—		(23,476)
Unrealized loss on investments	—	—		—		—		(27)		—		(27)
Balance at March 31, 2022	150,082	150		1,605,898		(1,511,252)		(37)		(2,061)		92,698
Issuance of common stock under Equity Incentive Plans	32	—		—		—		—		—		—
Stock-based compensation	—	—		2,832		—		—		—		2,832
Net loss	—	—		—		(24,587)		—		—		(24,587)
Unrealized loss on investments	—	—		—		—		(113)		—		(113)
Balance at June 30, 2022	150,114	$	150	$	1,608,730	$	(1,535,839)	$	(150)	$	(2,061)	$	70,830
Stock-based compensation	—	—		2,648		—		—		—		2,648
Issuance of common stock, net of issuance fees	39,100	39		94,229		—		—		—		94,268
Net loss	—	—		—		(23,387)		—		—		(23,387)
Unrealized loss on investments	—	—		—		—		(341)		—		(341)
Balance at September 30, 2022	189,214	$	189	$	1,705,607	$	(1,559,226)	$	(491)	$	(2,061)	$	144,018

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

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(71,450)	$	(62,147)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	324		180
Stock-based compensation	8,252		8,349
Amortization of debt issuance costs	396		46
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(26)		372
(Increase) decrease in prepaid expenses and other current assets	(470)		1,985
Decrease in other assets	329		459
Decrease in accounts payable and other liabilities	(4,637)		(13,433)
Net cash used in operating activities	(67,282)		(64,189)
Cash flows from investing activities:
Purchases of property and equipment	(80)		(1,198)
Purchases of investments	(133,363)		(28,880)
Maturities of investments	38,191		26,092
Net cash used in investing activities	(95,252)		(3,986)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of fees	94,268		36,705
Repurchase of common stock	(864)		(2,675)
Proceeds from debt borrowings, net of fees	23,899		—
Net cash provided by financing activities	117,303		34,030
Net decrease in cash and cash equivalents	(45,231)		(34,145)
Cash and cash equivalents at beginning of period	64,065		126,263
Cash and cash equivalents at end of period	$	18,834	$	92,118

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,281	$	307

Supplemental disclosure of non-cash activities:
Right-of-use asset	$	5,206	$	1,704
Issuance of equity classified warrants	$	698	$	—
Issuance of treasury stock	$	6,321	$	—
Recognition of exit fee liability related to debt borrowings	$	1,500	$	—

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

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”) 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.

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, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022.

The accompanying condensed consolidated financial statements include the accounts of Lexicon and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.

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, 2021, as filed with the SEC.

Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.

Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. As of September 30, 2022 and December 31, 2021, short-term investments consisted 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 as they all contain maturities of less than one year. 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.

Accrued liabilities: Accrued liabilities consisted of the following:


	As of September 30,		As of December 31,
	2022		2021
	(in thousands)
Accrued research and development services	$	1,184	$	3,669
Accrued compensation and benefits	5,709		5,711
Short term lease liability	1,406		1,089
Other	719		2,503
Total accrued liabilities	$	9,018	$	12,972

Leases: Lexicon determines if a contract is or contains a lease at inception or upon modification of the contract. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. Lexicon does not apply this accounting to those leases with terms of twelve (12) months or less.

Operating lease right-of-use assets and associated lease liabilities are recorded in the balance sheet at the lease commencement date based on the present value of future lease payments to be made over the expected lease term. As the implicit rate is not determinable in its leases, Lexicon used a borrowing rate ranging between 9% and 9.7% at the commencement date in determining the present value of future payments.

Revenue Recognition:

The Company performs the following five steps in determining the amount of revenue to recognize as its performance obligations under each of its contracts with customers: (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) we satisfy the performance obligation. At contract inception, the Company evaluates whether development milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal will not occur, the associated development milestone value is included in the transaction price. Development milestones that are not within the control of the Company or the licensee, including those requiring regulatory approval, are not considered probable of being achieved until those milestones are achieved. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue when (or as) the performance obligation is satisfied. At the end of each reporting period, the Company re-evaluates the probability of achievement of the development milestones and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues in the period of adjustment.

In agreements in which a license to the Company’s intellectual property is determined distinct from other performance obligations identified in the agreement, the Company recognizes revenue when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

The Company may receive payments from its licensees based on billing schedules established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under the relevant agreement. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Research and Development Expenses: Research and development expenses consist of costs incurred for company-sponsored as well as collaborative research and development activities. These costs include direct and research-related overhead expenses and are expensed as incurred. Technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred. Substantial portions of the Company’s preclinical and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the vendors and clinical site visits. The Company’s estimates depend on the timeliness and accuracy of the data provided by the vendors regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.

Stock-Based Compensation: The Company recognizes compensation expense in its condensed consolidated statements of comprehensive loss for share-based payments, including stock options and restricted stock units granted to employees, based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award. Stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis. 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.

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 a change in the 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 Company utilized the Black-Scholes valuation model for estimating the fair value of the stock option compensation granted, with the following weighted-average assumptions for stock options granted in the nine months ended September 30, 2022 and 2021:


	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
September 30, 2022:
Employees	107	%	2.4	%	4	—	%
Officers and non-employee directors	91	%

SEC Form 10-Q filed by Lexicon Pharmaceuticals Inc.