SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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



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

Commission File Number: 000-30111

Lexicon Pharmaceuticals, Inc.



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

~~8800~~2445 Technology Forest ~~Place~~Blvd.

The Woodlands, Texas 77381

(Address of Principal Executive Offices and Zip Code)

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files).

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.

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. q☐

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

As of ~~November 6, 2017~~, ~~105,587,794~~August 1, 2023, 244,924.695 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

Lexicon Pharmaceuticals, Inc.

The Lexicon name and logo ~~and XERMELO®~~ 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, ~~2016,~~2022, 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)~~value and share amounts)


	As of June 30,		As of December 31,
	2023		2022
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	102,271	$	46,345
Short-term investments	154,468		92,012
Accounts receivable	685		28
Inventory	172		—
Prepaid expenses and other current assets	6,124		2,481
Total current assets	263,720		140,866
Property and equipment, net of accumulated depreciation and amortization of $4,240 and $3,984, respectively	2,202		2,071
Goodwill	44,543		44,543
Operating lease right-of-use-assets	6,259		6,819
Total assets	$	316,724	$	194,299
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,501	$	10,395
Accrued liabilities	15,608		12,777
Total current liabilities	26,109		23,172
Long-term debt, net	98,772		48,579
Long-term operating lease liabilities	5,482		5,424
Total liabilities	130,363		77,175
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.001 par value; 300,000,000 shares authorized; 245,792.668 and 189,213.948 shares issued, respectively	245		189
Additional paid-in capital	1,855,659		1,709,144
Accumulated deficit	(1,666,558)		(1,589,720)
Accumulated other comprehensive loss	(100)		(428)
Treasury stock, at cost, 867.973 and 488.205 shares, respectively	(2,885)		(2,061)
Total stockholders’ equity	186,361		117,124
Total liabilities and stockholders’ equity	$	316,724	$	194,299

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)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Net product revenue	$	291	$	—	$	291	$	—
Royalties and other revenue	26		35		49		72
Total revenues	317		35		340		72
Operating expenses:
Cost of sales	8		—		8		—
Research and development, including stock-based compensation of $1,302, $1,098, $2,505 and $2,130, respectively	14,541		13,356		26,567		28,282
Selling, general and administrative, including stock-based compensation of $2,513, $1,734, $4,725, and $3,474, respectively	30,008		10,686		49,147		19,177
Total operating expenses	44,557		24,042		75,722		47,459
Loss from operations	(44,240)		(24,007)		(75,382)		(47,387)
Interest expense	(1,960)		(703)		(3,781)		(813)
Interest and other income, net	1,296		123		2,325		137
Net loss	$	(44,904)	$	(24,587)	$	(76,838)	$	(48,063)
Net loss per common share, basic and diluted	$	(0.22)	$	(0.16)	$	(0.39)	$	(0.32)

Shares used in computing net loss per common share, basic and diluted	204,783		149,616		196,942		149,384

Other comprehensive loss:
Unrealized gain (loss) on investments	63		(113)		328		(140)
Comprehensive loss	$	(44,841)	$	(24,700)	$	(76,510)	$	(48,203)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues:
Net product revenue $ 5,830
$ —
$ 10,443
$ —
Collaborative agreements 21,112
27,686
46,781
60,181
Subscription and license fees —
31
64
119
Total revenues 26,942
27,717
57,288
60,300
Operating expenses:
Cost of sales (including finite-lived intangible asset amortization) 599
—
1,361
—
Research and development, including stock-based compensation of $1,345, $1,051, $3,698 and $3,013, respectively 39,137
52,533
109,653
137,751
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability —
(2,146 ) 2,101
(703 )
Selling, general and administrative, including stock-based compensation of $1,235, $879, $3,516 and $2,709, respectively 16,724
12,263
50,069
29,077
Total operating expenses 56,460
62,650
163,184
166,125
Loss from operations (29,518 ) (34,933 ) (105,896 ) (105,825 )
Interest expense (1,619 ) (1,646 ) (4,821 ) (4,933 )
Interest and other income, net 415
564
1,393
1,748
Net loss before taxes (30,722 ) (36,015 ) (109,324 ) (109,010 )
Income tax benefit —
—
8,652
—
Net loss $ (30,722 ) $ (36,015 ) $ (100,672 ) $ (109,010 )
Net loss per common share, basic and diluted $ (0.29 ) $ (0.35 ) $ (0.96 ) $ (1.05 )
Shares used in computing net loss per common share, basic and diluted 105,582
103,885
105,119
103,799

Other comprehensive loss:
Unrealized gain (loss) on investments 151
(258 ) 132
297
Comprehensive loss $ (30,571 ) $ (36,273 ) $ (100,540 ) $ (108,713 )

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

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Common Stock Additional Accumulated Other
Shares Par Value Paid-In Capital Accumulated Deficit Comprehensive Gain (Loss) Treasury Stock Total
Balance at December 31, 2015 103,860
$ 104
$ 1,397,646
$ (1,108,934 ) $ (219 ) $ (2,747 ) $ 285,850
Stock-based compensation —
—
5,722
—
—
—
5,722
Issuance of common stock under Equity Incentive Plans 463
—
2,943
—
—
—
2,943
Repurchase of common stock —
—
—
—
—
(621 ) (621 )
Net loss —
—
—
(109,010 ) —
—
(109,010 )
Unrealized gain on investments —
—
—
—
297
—
297
Balance at September 30, 2016 104,323
$ 104
$ 1,406,311
$ (1,217,944 ) $ 78
$ (3,368 ) $ 185,181

Balance at December 31, 2016 104,582
$ 105
$ 1,411,222
$ (1,250,363 ) $ (195 ) $ (3,368 ) $ 157,401
Cumulative effect of change in accounting principle —
—
1,991
(1,991 ) —
—
—
Issuance of common stock to designees of Symphony Icon Holdings LLC 660
—
10,499
—
—
—
10,499
Stock-based compensation —
—
7,214
—
—
—
7,214
Issuance of common stock under Equity Incentive Plans 468
1
5,480
—
—
—
5,481
Issuance of treasury stock —
—
(3,143 ) —
—
3,143
—
Repurchase of common stock —
—
—
—
—
(1,679 ) (1,679 )
Net loss —
—
—
(100,672 ) —
—
(100,672 )
Unrealized gain on investments —
—
—
—
132
—
132
Balance at September 30, 2017 105,710
$ 106
$ 1,433,263
$ (1,353,026 ) $ (63 ) $ (1,904 ) $ 78,376

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

Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(76,838)	$	(48,063)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	256		216
Stock-based compensation	7,230		5,604
Amortization of debt issuance costs	538		179
Changes in operating assets and liabilities:
Increase in accounts receivable	(657)		(20)
Increase in inventory	(172)		—
Increase in prepaid expenses and other current assets	(3,643)		(732)
Decrease in operating lease right-of-use-assets	561		420
Increase (decrease) in accounts payable and other liabilities	2,995		(5,447)
Net cash used in operating activities	(69,730)		(47,843)
Cash flows from investing activities:
Purchases of property and equipment	(387)		(76)
Purchases of investments	(150,998)		(40,171)
Maturities of investments	88,870		22,191
Net cash used in investing activities	(62,515)		(18,056)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of fees	139,034		—
Repurchase of common stock	(824)		(864)
Proceeds from debt borrowings, net of fees	49,961		24,148
Net cash provided by financing activities	188,171		23,284
Net increase (decrease) in cash and cash equivalents	55,926		(42,615)
Cash and cash equivalents at beginning of period	46,345		64,065
Cash and cash equivalents at end of period	$	102,271	$	21,450

Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,314	$	634

Supplemental disclosure of non-cash investing and financing activities:
Issuance of equity-classified warrants	307		698
Issuance of treasury stock	—		6,321

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (100,672 ) $ (109,010 )
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
Depreciation and amortization 2,475
1,548
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability 2,101
(703 )
Stock-based compensation 7,214
5,722
Amortization of debt issuance costs 412
389
Deferred tax benefit (8,652 ) —
Loss on disposal of property and equipment 2
12
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,105 ) 173
(Increase) in inventory (2,149 ) —
(Increase) decrease in prepaid expenses and other current assets (580 ) 7,694
(Increase) decrease in other assets 32
(25 )
Increase (decrease) in accounts payable and other liabilities (11,738 ) 18,705
Decrease in deferred revenue (37,023 ) (51,342 )
Net cash used in operating activities (151,683 ) (126,837 )
Cash flows from investing activities:
Purchases of property and equipment (224 ) (83 )
Purchases of investments (59,237 ) (336,649 )
Maturities of investments 245,749
298,525
Net cash provided by (used in) investing activities 186,288
(38,207 )
Cash flows from financing activities:
Proceeds from issuance of common stock 5,481
2,943
Repurchase of common stock (1,679 ) (621 )
Repayment of debt borrowings (1,714 ) (1,495 )
Net cash provided by financing activities 2,088
827
Net increase (decrease) in cash and cash equivalents 36,693
(164,217 )
Cash and cash equivalents at beginning of period 46,600
202,989
Cash and cash equivalents at end of period $ 83,293
$ 38,772

Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,272
$ 3,406

Supplemental disclosure of non-cash investing and financing activities:
Common stock issued in satisfaction of Symphony Icon payment obligation $ 10,499
$ —
Unrealized gain on investments $ 132
$ 297

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

Lexicon Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

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.

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~~six month period ended ~~September~~June 30, ~~2017~~2023 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2017.~~

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

2023. 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, ~~2016,~~2022, as filed with the SEC.

Use of ~~Estimates:~~Estimates: The preparation of financial statements in conformity with ~~U. S.~~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 ~~assets and~~ liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Cash, Cash Equivalents and Short-Term ~~Investments:~~Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. As of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, short-term investments ~~consist~~consisted of U.S. treasury bills and corporate debt securities. The Company’s short-term investments are available for use in current operations regardless of the stated maturity date of the security and are classified as available-for-sale ~~securities and~~securities. The short-term investments are carried at fair value, based on quoted market prices of the securities. The Company ~~views~~does not intend to sell any of its available-for-sale securities ~~as available for use in current operations regardless of the stated~~prior to their maturity ~~date of the security.~~dates. Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity. Net realized gains and losses, interest and dividends are included in interest income. The cost of securities sold is based on the specific identification method.

~~Accounts Receivable:~~ ~~Lexicon records trade accounts receivable~~Inventory: Inventory is comprised of the Company’s approved product that it is commercializing in the normal course of business related to the sale of products or services. The allowance for doubtful accounts takes into consideration such factors as historical write-offs, the economic climate and other factors that could affect collectibility. Write-offs are evaluated on a case by case basis.

~~Inventory:~~ United States, INPEFATM (sotagliflozin). Inventories are determined at the lower of cost or market value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods. The Company began capitalizing inventory during the nine months ended September 30, 2017 once the U.S. Food and Drug Administration (“FDA”) approved XERMELO® (telotristat ethyl) as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to approval of XERMELO were recorded as research and development expense in the consolidated statements of comprehensive loss. As a result, cost of sales for approximately the next two years will reflect a lower average per unit cost of materials. Inventory consisted of the ~~following as of September 30, 2017 (in thousands):~~following:


	As of June 30,		As of December 31,
	2023		2022
	(in thousands)
Raw materials	$	—	$	—
Work-in-progress	—		—
Finished goods	172		—
Inventory	$	172	$	—

Raw materials $ 734
Work-in-process 41
Finished goods 1,374
Total inventory $ 2,149

~~Concentration of Credit Risk:~~ Lexicon’s cash equivalents, investments and accounts receivable represent potential concentrations of credit risk. The Company attempts to minimize potential concentrations of risk in cash equivalents and investments by placing investments in high-quality financial instruments. The Company’s accounts receivable are unsecured and are concentrated in pharmaceutical and biotechnology companies located in Europe and the United States. The Company has not experienced any significant credit losses to date.

~~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~~Accrued liabilities: Accrued liabilities consisted 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, government grants and contracts, compound library sales and product sales.following:


	As of June 30,		As of December 31,
	2023		2022
	(in thousands)
Accrued research and development services	$	6,071	$	3,252
Accrued compensation and benefits	7,566		7,830
Short-term lease liability	1,291		1,291
Other	680		404
Total accrued liabilities	$	15,608	$	12,777

~~Property and Equipment:~~ Property and equipment that is held and used is carried at cost and depreciated using the straight-line method over the estimated useful life of the assets which ranges from three to 40 years. Maintenance, repairs and minor replacements are charged to expense as incurred. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term. Significant renewals and betterments are capitalized.Revenue Recognition:

~~Other Intangible Assets:~~ Other intangible assets, net consist of in-process research and development acquired in business combinations, which are reported at fair value, less accumulated amortization. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives. During the nine months ended September 30, 2017, intangible assets relating to XERMELO of $24.7 million were reclassified from indefinite-lived to finite-lived assets once the FDA approved XERMELO. The Company recorded $0.4 million and $1.0 million in amortization expense related to this asset, which is recorded as cost of sales in the accompanying consolidated statements of comprehensive loss for the three and nine months ended September 30, 2017, respectively.

During the nine months ended September 30, 2017, the Company’s valuation allowance for its deferred tax assets decreased by $8.7 million due to the reclassification of intangible assets relating to XERMELO from indefinite-lived to finite-lived assets, which resulted in the related deferred tax liability now being considered a source of taxable income. The Company recorded a $8.7 million deferred tax benefit with a corresponding reduction in its deferred tax liability in the nine months ended September 30, 2017 as a result of this reclassification.

~~Impairment of Long-Lived Assets:~~ Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There was no impairment of long-lived assets in the nine months ended September 30, 2017 and 2016.

Indefinite lived intangible assets are also tested annually for impairment and whenever indicators of impairment are present. When performing the impairment assessment, the Company first assesses qualitative factors to determine whether it is necessary to recalculate the fair value of its intangible assets. If management believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of the intangible assets is less than its carrying amount, the Company calculates the asset’s fair value. If the carrying value of the asset exceeds its fair value, then the intangible asset is written down to its fair value.

~~Goodwill Impairment:~~ Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level. The Company has determined that the reporting unit is the single operating segment disclosed in its current financial statements. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill. If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized. Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired. There was no impairment of goodwill in the nine months ended September 30, 2017 and 2016.

~~Revenue Recognition:~~ Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.

Product ~~Revenues~~

Revenues.Product revenues consist of U.S. sales of ~~XERMELO and sales of bulk tablets of telotristat ethyl to Ipsen Pharma SAS (“Ipsen”). Product revenues are recognized once the Company meets all four revenue recognition criteria described above.~~ INPEFA.In ~~March 2017,~~June 2023, Lexicon began shipping ~~XERMELO~~INPEFA to its customers in the U.S. These customers primarily include wholesalers and limited retail pharmacies. The Company ~~recognizes revenue for~~has also begun 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 ~~sales of XERMELO at~~utilization. Product revenues are recognized when control is transferred to the ~~time the product is received by its specialty pharmacy customers net of allowances for~~ customer ~~credits, including estimated rebates, chargebacks, discounts, returns, distribution service fees, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S.~~upon delivery. Product shipping and handling costs are considered a fulfillment activity when control transfers to the Company’s customers and such costs are included in cost of sales.

The Company recognizes product revenue net of applicable estimates of reserves for variable consideration using the most likely amount 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:~~Credits: The ~~specialty pharmacies~~Company’s customers are offered various forms of consideration, including allowances, service fees and prompt payment discounts. ~~Lexicon expects the specialty pharmacies will earn prompt payment discounts and, therefore, the~~The Company records allowances, deducts the full amount of ~~these~~prompt payment discounts, and deducts service fees from total product sales when revenues are earned and recognized. ~~Service fees are also deducted from product sales as they are earned.~~

~~Rebates:~~Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate ~~Program. Rebate amounts are based upon contractual agreements or legal requirements with public sector (e.g. Medicaid) benefit providers. Rebates are~~Program reflecting 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.~~participants. The ~~allowance~~Company’s estimates for rebates is based on statutory discount rates, ~~and expected utilization. The Company’s estimates for expected utilization of rebates are based in part on~~ third party market research data and data ~~received~~ from ~~the specialty pharmacies. Rebates~~sales to its customers. As rebates are generally invoiced and paid in arrears, ~~so that~~ the ~~accrual balance consists of~~Company accrues an estimate of ~~the amount expected to be incurred for~~rebates based on the current quarter’s activity, plus ~~an accrual balance for~~any known unpaid prior ~~quarter’s unpaid~~quarter rebates. If actual future rebates vary from estimates, the Company ~~may need~~records adjustments to ~~adjust prior period accruals, which would affect~~its net revenue estimates in the period ~~of adjustment.~~when actual rebates are known.

~~Chargebacks:~~Chargebacks: Chargebacks are discounts that occur when ~~contracted customers~~healthcare providers purchase directly from a ~~specialty pharmacy. Contracted customers, which currently consist primarily of Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via~~wholesaler. Generally, the ~~Federal Supply Schedule, generally~~healthcare providers purchase ~~the product~~INPEFA at a discounted price. The ~~specialty pharmacy,~~wholesaler, in turn, charges back to Lexicon the difference between the price ~~initially~~ paid by the ~~specialty pharmacy~~wholesaler and the discounted price ~~paid to~~that the ~~specialty pharmacy by the customer. The allowance~~wholesaler’s customer pays for ~~chargebacks is based on known sales to contracted customers.~~that product.

Medicare Part D Coverage ~~Gap:~~Gap: The Medicare Part D prescription drug benefit mandates manufacturers to fund ~~50%~~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 are based on sales data received from ~~the specialty pharmacies. Funding~~a third party and projections based on historical data. As funding of the coverage gap is generally invoiced and paid in arrears, ~~so that~~ the ~~accrual balance consists of~~Company accrues an estimate ~~of the amount expected to be incurred for~~based on the current quarter’s activity, plus ~~an accrual balance for~~any known unpaid prior ~~quarters.~~quarter estimates. If actual future ~~funding varies~~rebates vary from estimates, the Company ~~may need~~records adjustments to ~~adjust prior period accruals, which would affect~~its net revenue estimates in the period ~~of adjustment.~~when actual rebates are known.

Co-payment ~~assistance:~~assistance: Patients ~~who have~~with commercial insurance ~~and~~who meet certain eligibility requirements ~~may~~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~~

Agreements. Revenues under collaborative agreements include both license revenue and contract research revenue. ~~Activities under collaborative agreements are evaluated to determine if they represent~~For a multiple element revenue agreement. The Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. The Company accounts for those components as separate units of accounting if the following two criteria are met:

Factors considered in this determination include, among other things, whether any other vendors sell the items separately and if the licensee could use the delivered item for its intended purpose without the receipt of the remaining deliverables. If multiple deliverables included in an arrangement are separable into different units of accounting, the Company allocates the arrangement consideration to those units of accounting. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. Arrangement consideration is allocated at the inception of the arrangement to the identified units of accounting based on their relative estimated selling price. Revenue is recognized for each unit of accounting when the appropriate revenue recognition criteria are met.

Future milestone payments that are contingent upon the achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved. A milestone is substantive if:

Commercial milestones will be accounted for as royalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met. Subscription and license fees are recognized as revenue upon the grant of the technology license when performance is complete and there is no continuing involvement. Royalty revenues are recognized as earned in accordance with the contract terms at the time the royalty amount is fixed and determinable based on information received from the sublicensees and at the time collectibility is reasonably assured.

Cost of ~~Sales:~~ sales:Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of ~~XERMELO.~~INPEFA. The Company began capitalizing inventory ~~during the nine months ended September 30, 2017 once the FDA approved XERMELO~~in June 2023 following regulatory approval of INPEFA, as the related costs were expected to be ~~recoverable~~recovered through the commercialization of the product. Costs incurred prior to the approval of ~~XERMELO~~INPEFA have been recorded as research and development expense in the condensed consolidated statements of comprehensive loss. As a result, cost of sales for approximately the next two years will reflect a lower average per unit cost of materials. Product shipping and handling costs are included in cost of sales. Cost of sales also includes the amortization of the in-process research and development intangible asset for XERMELO using the straight-line method over the estimated useful life of 14 years.

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

Net Loss per Common Share: Net loss per common share is computed using the weighted average number of shares of common stock outstanding. Shares associated with stock warrants, stock options and restricted stock units are not included because they are antidilutive due to the Company’s net loss.

Recent Accounting Pronouncements. We do not expect that any recently issued accounting pronouncements will have a material impact on our financial statements

2. Cash and Cash Equivalents and Investments

The fair value of cash and cash equivalents and investments held at June 30, 2023 and December 31, 2022 are as follows:


	As of June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Cash and cash equivalents	$	102,270	$	1	$	—	$	102,271
Securities maturing within one year:
U.S. treasury securities	153,556		9		(108)		153,457
Corporate debt securities	1,013		—		(2)		1,011
Total short-term investments	$	154,569	$	9	$	(110)	$	154,468
Total cash and cash equivalents and investments	$	256,839	$	10	$	(110)	$	256,739

	As of December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	46,345	$	—	$	—	$	46,345
Securities maturing within one year:
U.S. treasury securities	74,022		—		(342)		73,680
Corporate debt securities	18,418		—		(86)		18,332
Total short-term investments	$	92,440	$	—	$	(428)	$	92,012
Total cash and cash equivalents and investments	$	138,785	$	—	$	(428)	$	138,357

There were no realized losses during either of the six month periods ended June 30, 2023 and 2022, respectively.

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 investments, 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

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 table provides 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 June 30, 2023 and December 31, 2022.


	Assets and Liabilities at Fair Value as of June 30, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	102,271	$	—	$	—	$	102,271
Short-term investments	153,457		1,011		—		154,468
Total cash and cash equivalents and investments	$	255,728	$	1,011	$	—	$	256,739


	Assets and Liabilities at Fair Value as of December 31, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	46,345	$	—	$	—	$	46,345
Short-term investments	73,680		18,332		—		92,012
Total cash and cash equivalents and investments	$	120,025	$	18,332	$	—	$	138,357

The fair value of the Oxford Term Loans (see Note 4) 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. There were no transfers between Level 1 and Level 2 during the periods presented.

Oxford Term Loans. 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 and June 2023. 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 on June 28, 2023. The fourth $25 million tranche is available for draw at Lexicon’s option between December 1 and December 31, 2023. 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 as described below. An unused fee will be due in the event Lexicon does not draw the full amount available under the fourth tranche.

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 $6.0 million as of June 30, 2023, in the aggregate for the three borrowed tranches, is recorded as a debt discount on the condensed consolidated balance sheet.

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 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. The warrants that have been issued in connection with the funding of each tranche reduced the carrying value of long-term debt and are separately classified as equity instruments on the condensed consolidated balance sheet.

As of June 30, 2023, the carrying value of the Oxford Term Loans on the condensed consolidated balance sheet was $98.8 million, reflecting as a discount of $7.2 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 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, which may be extended at Lexicon’s option to 48 months if Lexicon maintains compliance with financial covenants relating to (i) net sales of INPEFA following regulatory approval and, (ii) minimum cash balance requirements if Lexicon draws the fourth tranche and following its funding. The interest-only period will be followed by an amortization period extending through the maturity date. 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 June 30, 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. 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 7.00% for the third and fourth tranches. As of June 30, 2023, the weighted average interest rate was 12.7%. During the six months ended June 30, 2023, the Company recognized interest expense of $3.8 million, including $0.5 million in amortization of discount and related debt 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. 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.

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 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 June 30, 2023.

5. Commitments and Contingencies

Operating Lease Obligations: Lexicon’s operating leases include office space in The Woodlands, Texas and Bridgewater, New Jersey and will expire in August 2025 and January 2034, respectively. 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 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 record a right-of-use asset or associated liability for those leases with terms of twelve months or less.

As of June 30, 2023 and December 31, 2022, the right-of-use assets for the office space leases had a balance of $6.3 million and $6.8 million, respectively, which is included in operating lease right-of-use-assets in the condensed consolidated balance sheet. Current and long-term liabilities as of June 30, 2023, relating to the leases were $1.3 million and $5.5 million, respectively, which are included in accrued liabilities and long-term operating lease liabilities in the condensed consolidated balance sheet, respectively. Current and long-term liabilities as of December 31, 2022, relating to the leases were $1.3 million and $5.4 million, respectively, which are included in accrued liabilities and long-term operating lease liabilities in the condensed consolidated balance sheet, respectively. During the three and six months ended June 30, 2023 and 2022, the Company incurred lease expense of $0.4 million and $0.8 million and $0.3 million and $0.7 million, respectively.

During the six months ended June 30, 2023 and 2022, the Company made cash payments for lease liabilities of $0.3 million and $0.6 million, respectively. As of June 30, 2023 and December 31, 2022, the weighted-average remaining lease terms were 9.3 years and 9.5 years, respectively, with weighted-average discount rates of 9.6% and 9.6%, respectively.

The following table reconciles the undiscounted cash flows of the operating lease liability to the recorded lease liability at June 30, 2023:



	(in thousands)
2023	$	540
2024	1,378
2025	1,220
2026	865
2027	881
Thereafter	5,644
Total undiscounted operating lease liability	10,528
Less: amount of lease payments representing interest	(3,755)
Present value of future lease payments	6,773
Less: short-term operating lease liability	(1,291)
Long-term operating lease liability	$	5,482

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.

6.Equity Incentive Awards

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 ~~issued~~(RSUs) granted to employees, based on their fair values on the date of the grant, with the compensation expense recognized on a straight-line basis 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~~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 a change in the assumptions used for expected option ~~lives and forfeitures.~~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~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~2022:


	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
June 30, 2023
Employees	113	%	3.8	%	4	—	%
Officers and non-employee directors	99	%	3.9	%	6	—	%
June 30, 2022
Employees	106	%	2.1	%	4	—	%
Officers and non-employee directors	91	%	1.9	%	7	—	%

Expected Volatility Risk-free Interest Rate Expected Term
Dividend
Rate
September 30, 2017:
Employees 61 % 1.7 % 4 — %
Officers and non-employee directors 70 % 2.2 % 8 — %
September 30, 2016:
Employees 63 % 1.1 % 4 — %
Officers and non-employee directors 83 % 1.6 % 8 — %

The following is a summary of stock option activity under Lexicon’s stock-based compensation plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2023:


	Stock Options	Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2022	12,349	$	5.10
Granted	6,825	2.46

Expired	(152)	14.68
Forfeited	(522)	3.78
Outstanding at June 30, 2023	18,500	4.08
Exercisable at June 30, 2023	7,357	$	5.94

Options Weighted Average Exercise Price
(in thousands)
Outstanding at December 31, 2016 4,834
$ 11.24
Granted 847
14.51
Exercised (458 ) 11.98
Expired (149 ) 26.59
Forfeited (82 ) 13.55
Outstanding at September 30, 2017 4,992
11.23
Exercisable at September 30, 2017 2,896
$ 11.06

~~During the~~ ~~nine~~ ~~months ended September 30, 2017, Lexicon also granted its employees annual restricted stock units. These restricted stock units vest in four annual installments.~~ The following is a summary of restricted stock ~~units~~unit activity under Lexicon’s stock-based compensation plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2023:


	RSU’s	Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2022	2,748	$	3.78
Granted	4,199	2.41
Vested	(1,290)	3.80
Forfeited	(230)	2.70
Outstanding at June 30, 2023	5,427	$	2.76

Shares
Weighted Average Grant Date
Fair Value
(in thousands)
Outstanding at December 31, 2016 875
$ 8.13
Granted 418
14.44
Vested (286 ) 8.78
Forfeited (38 ) 10.98
Outstanding at September 30, 2017 969
$ 10.55
7.Other Capital Agreements

~~During the~~ ~~nine~~ months ended September 30, 2017, Lexicon granted its non-employee directors 10,248 shares of restricted stock awards. The restricted stock awards had a weighted average grant date fair value of $15.61 per share and vested immediately.

~~Net Loss per~~ Common ~~Share:~~ Net loss per common share is computed using the weighted average number of shares of common stock outstanding. Shares associated with convertible debt, stock options and restricted stock units are not included because they are antidilutive.

Stock: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, which amends FASB ASC Topic 606. ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. This standard contains principles for the determination2023, Lexicon sold an aggregate of the measurement of revenue and the timing of when such revenue is recognized. Revenue recognition will reflect the transfer of goods or services to customers at an amount that is expected to be earned in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers: Deferral of Effective Date”, which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual periods after December 15, 2017 including interim periods within that reporting period. Early application is permitted only for annual periods beginning after December 15, 2016, including interim periods within that reporting period. Management plans to adopt ASU 2014-09 using the modified retrospective method.

The Company does not expect that ASU 2014-09 will have a material impact on the recognition of revenue from product sales. Management is also currently evaluating the impact of the new standard on historical revenue recorded for its collaboration agreements. Specifically, the timing of recognition for certain contingent payments from the Company’s collaborators may be impacted by the adoption of the new revenue standard. ASU 2014-09 differs from the current accounting standard in many respects, such as in the accounting for variable consideration, including milestone payments or contingent payments, which are not dependent on the Company’s performance. Under the Company’s current accounting policy, Lexicon recognizes contingent or milestone payments as revenue in the period that the payment-triggering event occurs or is achieved. However, under the new revenue standard, it is possible to start to recognize contingent or milestone payments before the payment-triggering event is completely achieved, subject to management’s assessment of whether it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted. Management does not expect the adoption of this pronouncement to have a material impact on Lexicon’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” ASU 2016-02 requires companies that lease assets to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The pronouncement will also require additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. Management is currently evaluating the impact of this pronouncement on Lexicon’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Stock Compensation,” which is intended to simplify several aspects of the accounting for share-based payment award transactions. The Company adopted this pronouncement effective January 1, 2017. Upon adoption, the Company recognized approximately $6.1 million of accumulated excess tax benefits as deferred tax assets that under the previous guidance could not be recognized until the benefits were realized through a reduction in cash taxes paid. This part of the guidance is applied using a modified retrospective method with a cumulative-effect adjustment to the accumulated deficit for the excess tax benefits not previously recognized. However, given the full valuation allowance placed on the additional $6.1 million of deferred tax assets, the recognition of this provision of ASU 2016-09 had no impact to the Company’s accumulated deficit as of January 1, 2017. Additionally, the Company recorded an adjustment to accumulated deficit of $2.0 million as a result of making an entity-wide accounting policy election to account for forfeitures of share-based payment awards as they occur instead of estimating the number of awards that are expected to vest.

~~The fair value of cash and cash equivalents and investments held at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~are as follows:~~

As of September 30, 2017
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
(in thousands)
Cash and cash equivalents $ 83,293
$ —
$ —
$ 83,293
Securities maturing within one year:
U.S. treasury securities 90,533
—
(57 ) 90,476
Corporate debt securities 23,054
—
(6 ) 23,048
Total short-term investments $ 113,587
$ —
$ (63 ) $ 113,524
Total cash and cash equivalents and investments $ 196,880
$ —
$ (63 ) $ 196,817

As of December 31, 2016
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
(in thousands)
Cash and cash equivalents $ 46,600
$ —
$ —
$ 46,600
Securities maturing within one year:
U.S. treasury securities 227,911
1
(107 ) 227,805
Corporate debt securities 72,188
1
(90 ) 72,099
Total short-term investments $ 300,099
$ 2
$ (197 ) $ 299,904
Total cash and cash equivalents and investments $ 346,699
$ 2
$ (197 ) $ 346,504

~~There were $7,000 in realized losses for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017, and~~ no ~~realized gains or losses for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2016. The cost of securities sold is based on the specific identification method.~~

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. The following levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities:

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 table provides 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 described above as of September 30, 2017 and ~~December 31, 2016~~:

Assets and Liabilities at Fair Value as of September 30, 2017
Level 1 Level 2 Level 3 Total
(in thousands)
Assets
Cash and cash equivalents $ 83,293
$ —
$ —
$ 83,293
Short-term investments 90,476
23,048
—
113,524
Total cash and cash equivalents and investments $ 173,769
$ 23,048
$ —
$ 196,817

Assets and Liabilities at Fair Value as of December 31, 2016
Level 1 Level 2 Level 3 Total
(in thousands)
Assets
Cash and cash equivalents $ 45,093
$ 1,507
$ —
$ 46,600
Short-term investments 227,805
72,099
—
299,904
Total cash and cash equivalents and investments $ 272,898
$ 73,606
$ —
$ 346,504
Liabilities
Accrued liabilities $ —
$ —
$ 18,912
$ 18,912
Total liabilities $ —
$ —
$ 18,912
$ 18,912

The Company’s Level 3 liabilities, which consisted of the Symphony Icon purchase consideration liability, was estimated using a probability-based income approach utilizing an appropriate discount rate. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability were recorded as an increase or decrease in Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. The following table summarizes the change in consolidated balance sheet carrying value associated with Level 3 liabilities for the ~~nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~ ~~(in thousands):~~

Balance at December 31, 2016 $ 18,912
Change in valuation of purchase consideration payable to former Symphony Icon stockholders 2,101
Payment of contingent payment obligation with common stock and cash (21,013 )
Balance at September 30, 2017 $ —

Balance at December 31, 2015 $ 22,815
Change in valuation of purchase consideration payable to former Symphony Icon stockholders (703 )
Payment of contingent payment obligation with cash (3,200 )
Balance at September 30, 2016 $ 18,912

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include goodwill associated with the acquisitions of Coelacanth Corporation in 2001 and Symphony Icon in 2010 and intangible assets associated with the acquisition of Symphony Icon in 2010. See Note 6, Arrangements with Symphony Icon, Inc., for additional information. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired.

~~Convertible Debt.~~ In November 2014, Lexicon completed an offering of $87.5 million in aggregate principal amount of its 5.25% Convertible Senior Notes due 2021 (the “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 Notes are governed by an indenture (the “Indenture”), dated as of November 26, 2014, between the Company and Wells Fargo Bank, N.A., as trustee. The Notes bear interest at a rate of 5.25% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2015. The Notes mature on December 1, 2021. The Company may not redeem the Notes prior to the maturity date, and no sinking fund is provided for the Notes.

Holders of the Notes may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding the maturity date. Upon conversion, the Company will deliver for each $1,000 principal amount of converted Notes a number of55,288,460 shares of its common stock ~~equal to the conversion rate, as described~~at a price of $2.60 per share in ~~the Indenture. The conversion rate is initially 118.4553 shares of common stock per $1,000 principal amount of Notes (equivalent~~a public offering and concurrent private placement to an ~~initial conversion price~~affiliate of ~~$8.442 per share of common stock). The conversion rate is subject to adjustment~~Invus, L.P., resulting in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event in certain circumstances.

If the Company undergoes a fundamental change, holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In connection with the issuance of the Notes, the Company incurred $3.4 million of debt issuance costs, which offsets long-term debt on the consolidated balance sheets. The debt issuance costs are amortized as interest expense over the expected life of the Notes using the effective interest method. The Company determined the expected life of the debt was equal to the seven-year term of the Notes. As of September 30, 2017, the balance of unamortized debt issuance costs was $2.0 million.

The fair value of the Notes was $141.6 million as of September 30, 2017 and was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading levels of the Notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system.

~~Mortgage Loan.~~ ~~In April 2004, Lexicon obtained a~~ ~~$34.0 million~~ ~~mortgage on its facilities in The Woodlands, Texas. The mortgage loan originally had a ten-year term with a 20-year amortization and a fixed interest rate of~~ ~~8.23%~~. The mortgage was amended in September 2013 to extend the maturity date from April 2014 to April 2017, with the mortgage loan’s monthly payment amount and fixed interest rate each remaining unchanged. In April 2017, the mortgage was amended to extend the maturity date to April 2018, with the mortgage loan’s monthly payment amount and fixed interest rate each remaining unchanged. The mortgage had a principal balance outstanding of $14.7 million as of September 30, 2017. This entire balance is recorded as current portion of long-term debt in the accompanying consolidated balance sheet as of September 30, 2017 as there is a balloon payment due in April 2018. The buildings and land that serve as collateral for the mortgage loan are included in property and equipment at $59.2 million and $2.7 million, respectively, before accumulated depreciation, as of September 30, 2017. The fair value of Lexicon’s mortgage loan approximates its carrying value. The fair value of Lexicon’s mortgage loan was determined using Level 2 inputs using discounted cash flow analysis, based on the Company’s estimated current incremental borrowing rate.

On June 15, 2007, Lexicon entered into a series of related agreements providing for the financing of the clinical development of certain of its drug candidates, including XERMELO, along with any other pharmaceutical compositions modulating the same targets as those drug candidates (the “Programs”). The agreements included a Novated and Restated Technology License Agreement pursuant to which the Company licensed to Symphony Icon, a then wholly-owned subsidiary of Symphony Icon Holdings LLC (“Holdings”), the Company's intellectual property rights related to the Programs. Holdings contributed ~~$45 million~~ ~~to Symphony Icon in order to fund the clinical development of the Programs.~~

Under a Share Purchase Agreement, dated June 15, 2007, between the Company and Holdings, the Company issued and sold to Holdings 1,092,946 shares of its common stock on June 15, 2007 in exchange for $15 million and an exclusive purchase option (the “Purchase Option”) that gave the Company the right to acquire all of the equity of Symphony Icon, thereby allowing the Company to reacquire all of the Programs. On July 30, 2010, Lexicon entered into an Amended and Restated Purchase Option Agreement (the “Purchase Option Agreement”) with Symphony Icon and Holdings and simultaneously exercised the Purchase Option, thereby reacquiring the Programs. Pursuant to the amended terms of the Purchase Option, Lexicon paid Holdings $10 million on July 30, 2010 and issued 1,891,074 shares of common stock to designees of Holdings on July 30, 2012 in satisfaction of an additional $35 million base payment obligation.

Lexicon also agreed to make up to $45 million in additional contingent payments, which would consist of 50% of any consideration Lexicon receives pursuant to any licensing transaction (a “Licensing Transaction”) under which Lexicon grants a third party rights to commercialize XERMELO or other pharmaceutical compositions modulating the same target as XERMELO (the “LG103 Programs”), subject to certain exceptions. The contingent payments would be due if and when Lexicon receives such consideration from a Licensing Transaction. In the event Lexicon received regulatory approval in the United States for the marketing and sale of any product resulting from the LG103 Programs prior to entering into a Licensing Transaction for the commercialization of such product in the United States, in lieu of any contingent payment from such a Licensing Transaction, Lexicon would pay Holdings the sum of $15 million and the amount of certain expenses Lexicon incurred after its exercise of the Purchase Option which were attributable to the development of such product, reduced by up to 50% of such sum on account of any contingent payments paid prior to such United States regulatory approval attributable to any such Licensing Transaction outside of the United States with respect to such product. In the event Lexicon made any such payment upon United States regulatory approval, Lexicon would have no obligation to make subsequent contingent payments attributable to any such Licensing Transactions for the commercialization of such product outside the United States until thenet proceeds of ~~such Licensing Transactions exceed 50% of the payment made as a result of such United States regulatory approval. The contingent payments were payable in cash or a combination of cash~~approximately $139.0 million, after deducting underwriting discounts and ~~common stock, in Lexicon’s discretion, provided that no more than 50% of any contingent payment would be paid in common stock. In December 2014, Lexicon paid $5.8 million in cash~~commissions and issued 666,111 shares of common stock to designees of Holdings in satisfaction of a $11.5 million contingent payment obligation as a result of receiving an upfront payment pursuant to Lexicon’s license and collaboration agreement with Ipsen. In April 2015, Lexicon paid $0.75 million in cash to Holdings in satisfaction of its contingent payment obligation as a result of receiving an additional upfront payment from Ipsen in March 2015. In September 2016, Lexicon paid $3.2 million in cash to Holdings in satisfaction of its contingent payment obligation as a result of receiving a milestone payment from Ipsen in August 2016 (see Note 8, Collaboration and License Agreements).offering expenses.

In September 2016, Lexicon entered into an amendment (the “Amendment”) to the Purchase Option Agreement with Holdings and Symphony Icon pursuant to which Lexicon agreed to pay Holdings $21.0 million upon Lexicon’s receipt of regulatory approval in the United States for the marketing and sale of XERMELO, such buyout amount to be in lieu of any remaining payments which may be or become payable to Holdings under the Purchase Option Agreement. The buyout amount may be paid in cash or a combination of cash and common stock, in Lexicon’s discretion, provided that no more than 50% of any contingent payment will be paid in common stock. In March 2017, Lexicon paid $10.5 million in cash and issued 659,905 shares of common stock to designees of Holdings in satisfaction of its remaining contingent payment obligation as a result of receiving regulatory approval in the United States for the marketing and sale of XERMELO.

Lexicon accounted for the exercise of the Purchase Option and acquisition of Symphony Icon as a business combination. In connection with its acquisition of Symphony Icon, Lexicon paid $10.0 million in cash, and also agreed to pay Holdings additional base and contingent payments as discussed above. The fair value of the base and contingent consideration payments was $45.6 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. Key assumptions include: (1) a discount rate of 14% for the base payments; (2) a discount rate of 18% for the contingent payments; and (3) a probability adjusted contingency. No discount rate was used in the valuation of the contingent consideration liability as of December 31, 2016 as the expected buyout was short-term in nature. As programs progress, the probability adjusted contingency was adjusted as necessary. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability were recorded as increase or decrease in fair value of Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. The fair value of the Symphony Icon purchase consideration liability increased by $2.1 million during the nine months ended September 30, 2017 and decreased by $0.7 million during the nine months ended September 30, 2016.

~~7. Commitments and Contingencies~~

~~Operating Lease Obligations~~: A Lexicon subsidiary leases office space in Basking Ridge, New Jersey under an operating lease agreement, the term of which began in June 2015 and terminates in December 2022. Rent expense is recognized on a straight-line basis over the lease term. The maximum potential amount of future payments the Company could be required to make under this agreement is ~~$3.3 million~~ ~~as of~~ ~~September 30, 2017. Additionally, Lexicon leases certain equipment under operating leases.~~

~~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.


8.	~~Collaboration and License Agreements~~

Lexicon has derived substantially all of its revenues from drug discovery and development collaborations, 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.

~~Sanofi.~~ In November 2015, Lexicon entered into a Collaboration and License Agreement, which was subsequently amended in July 2017 (collectively, the “Sanofi Agreement”), with Sanofi for the worldwide development of Lexicon’s diabetes drug candidate sotagliflozin. In December 2016, Sanofi terminated its rights under the Sanofi Agreement with respect to Japan.

Under the Sanofi Agreement, Lexicon has granted Sanofi an exclusive, worldwide (excluding Japan), royalty-bearing right and license under its patent rights and know-how to develop, manufacture and commercialize sotagliflozin. Subject to specified exceptions, neither party may (a) perform clinical development activities relating to any other compound which inhibits sodium-glucose cotransporters type 1 or type 2 or (b) commercialize any such compounds in the United States, countries of the European Union and certain other specified countries, in each case during the royalty terms applicable in such countries. Among the specified exceptions is a right Lexicon retained to pursue the development of its LX2761 drug candidate, with respect to which Lexicon granted Sanofi certain rights of first negotiation specified in the Sanofi Agreement.

Under the Sanofi Agreement, Sanofi paid Lexicon an upfront payment of $300 million. In addition, Lexicon is eligible to receive from Sanofi (a) up to an aggregate of $110 million upon the achievement of four development milestones relating to the results of certain Phase 3 clinical trials of sotagliflozin in type 2 diabetes patients, (b) up to an aggregate of $220 million upon the achievement of four regulatory milestones relating to the first commercial sale following regulatory approval of sotagliflozin for type 1 and type 2 diabetes, respectively, in each of the United States and Europe, of which two milestones representing the substantial majority of such aggregate amount relate to type 2 diabetes and the remaining two milestones relate to type 1 diabetes, (c) $100 million upon the achievement of a milestone based on the results of either of two outcomes studies in type 2 diabetes patients, the completion of which would likely occur after initial regulatory approval of sotagliflozin in type 2 diabetes, and (d) up to an aggregate of $990 million upon the achievement of six commercial milestones that will be achieved upon reaching specified levels of sales. The Company believes that each of the development and regulatory milestones under the Sanofi Agreement is substantive. Due to the uncertainty surrounding the achievement of the future development and regulatory milestones, these payments will not be recognized as revenue unless and until they are earned, as the Company is not able to reasonably predict if and when the milestones will be achieved. Commercial milestones, which are not encompassed within the definition of milestones under generally accepted accounting principles, will be accounted for as royalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria were met. Lexicon is also entitled to tiered, escalating royalties ranging from low double digit percentages to forty percent of net sales of sotagliflozin, based on indication and territory, with royalties for the higher band of such range attributable to net sales for type 1 diabetes in the United States, and subject in each case to customary royalty reduction provisions.

Lexicon will continue to be responsible for all clinical development activities relating to type 1 diabetes and has exercised an exclusive option to co-promote and have a significant role, in collaboration with Sanofi, in the commercialization of sotagliflozin for the treatment of type 1 diabetes in the United States. Under the terms of its exercised co-promotion option, Lexicon will fund forty percent of the commercialization costs relating to such co-promotion activities. Sanofi will be responsible for all clinical development and commercialization of sotagliflozin for the treatment of type 2 diabetes worldwide and will be solely responsible for the commercialization of sotagliflozin for the treatment of type 1 diabetes outside the United States. Lexicon will share in the funding of a portion of the planned type 2 diabetes development costs over the next three years, up to an aggregate of $100 million. Sanofi will book sales worldwide in all indications.

The parties are responsible for using commercially reasonable efforts to perform their development and commercialization obligations pursuant to mutually approved development and commercialization plans.

The parties’ activities under the Sanofi Agreement are governed by a joint steering committee and certain other governance committees which reflect equal or other appropriate representation from both parties. If the applicable governance committee is not able to make a decision by consensus and the parties are not able to resolve the issue through escalation to specified senior executive officers of the parties, then Sanofi will have final decision-making authority, subject to limitations specified in the Sanofi Agreement.

The Sanofi Agreement will expire upon the expiration of all applicable royalty terms for all licensed products in all countries. The royalty term for each licensed product in each country is the period commencing on the effective date of the Sanofi Agreement and ending on the latest of expiration of specified patent coverage, expiration of specified regulatory exclusivity and 10 years following the first commercial sale in the applicable country. Either party may terminate the Sanofi Agreement in the event of an uncured material breach by the other party. Prior to completion of the core development activities for type 2 diabetes specified in the development plan, Sanofi may terminate the Sanofi Agreement on a country-by-country and licensed product-by-licensed product basis, in the event of (a) notification of a material safety issue relating to the licensed product or the class of sodium-glucose cotransporters type 1 or type 2 inhibitors resulting in a recommendation or requirement that Lexicon or Sanofi cease development, (b) failure to achieve positive results with respect to certain clinical trial results, (c) the occurrence of specified fundamental adverse events or (d) the exploitation of the licensed product infringing third party intellectual property rights in specified major markets and Sanofi is unable to obtain a license to such third party intellectual property rights.

~~The Company considered the following deliverables with respect to the revenue recognition of the $300 million upfront payment:~~

~~• The exclusive worldwide license granted to Sanofi to develop and commercialize sotagliflozin;~~

~~• The development services Lexicon is performing for sotagliflozin relating to type 1 diabetes; and~~

~~• The funding Lexicon will provide for development relating to type 2 diabetes.~~

The Company determined that the license had stand-alone value because it is an exclusive license that gives Sanofi the right to develop and commercialize sotagliflozin or to sublicense its rights. In addition, sotagliflozin is currently in development and it is possible that Sanofi or another third party could conduct clinical trials without assistance from Lexicon. As a result, the Company considers the license and the development services under the Sanofi Agreement to be separate units of accounting. The Company recognized the portion of the consideration allocated to the license immediately because Lexicon delivered the license and earned the revenue at the inception of the arrangement. The Company is recognizing as revenue the amount allocated to the development services for type 1 diabetes and the obligation to provide funding for development services for type 2 diabetes over the period of time Lexicon performs services or provides funding, currently expected to be through 2020.

The Company determined that the initial allocable arrangement consideration was the $300 million upfront payment because it was the only payment that was fixed and determinable at the inception of the arrangement. There was considerable uncertainty at the date of the agreement as to whether Lexicon would earn milestone payments or royalty payments. As such, the Company did not include those payments in the allocable consideration. The Company allocated the allocable consideration based on the relative best estimate of selling price of each unit of accounting. The Company estimated the selling price of the license deliverable by applying a probability-based income approach utilizing an appropriate discount rate. The significant inputs the Company used to determine the projected income of the license included: exercising the option to co-promote, estimated future product sales, estimated cost of goods sold, estimated operating expenses, income taxes, and an appropriate discount rate. The Company estimated the selling price of the development services for type 1 diabetes by using internal estimates of the cost to hire third parties to perform the services over the expected period to perform the development. The Company estimated the obligation to provide funding for type 2 diabetes by using internal estimates of the expected cash flows and timing for $100 million in funding.

As a result of the allocation, the Company recognized $126.8 million of the $300 million upfront payment for the license in 2015. The Company is recognizing the $113.8 million allocated to the development services deliverable and the $59.4 million allocated to the funding deliverable over the estimated period of performance as the development and funding occurs. Revenue recognized under the Sanofi Agreement was $39.5 million and $52.7 million for the nine months ended September 30, 2017 and 2016, respectively.

~~Ipsen Pharma SAS.~~ 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 telotristat ethyl outside of the United States and Japan (the “Licensed Territory”).

Under the Ipsen Agreement, Lexicon granted Ipsen an exclusive, royalty-bearing right and license under its patent rights and know-how to commercialize telotristat ethyl in the Licensed Territory. Ipsen is responsible for using diligent efforts to commercialize telotristat ethyl in the Licensed Territory pursuant to a mutually approved commercialization plan. Subject to certain exceptions, Lexicon will be responsible for conducting clinical trials required to obtain regulatory approval for telotristat ethyl for carcinoid syndrome in the European Union, including those contemplated by a mutually approved initial development plan, and will have the first right to conduct most other clinical trials of telotristat ethyl. Lexicon is responsible for the costs of all clinical trials contemplated by the initial development plan. The costs of additional clinical trials will be allocated between the parties based on the nature of such clinical trials. Under the Ipsen Agreement, Ipsen has paid Lexicon an aggregate of $30.9 million through September 30, 2017, consisting of $24.5 million in upfront payments and a $6.4 million milestone payment in August 2016 upon the acceptance of the filing submitted by Ipsen to the European Medicines Agency for telotristat ethyl as an adjunct to somatostatin analog therapy for the long-term treatment of carcinoid syndrome. In September 2017, Ipsen received approval from the European Commission for the marketing of telotristat ethyl in all member states of the European Union, Norway and Iceland, thereby Lexicon earning a milestone payment, which was received in October 2017. In addition, Lexicon is eligible to receive from Ipsen (a) up to an aggregate of approximately $21 million upon the achievement of specified regulatory and commercial launch milestones and (b) up to an aggregate of €72 million upon the achievement of specified sales milestones. Due to the uncertainty surrounding the achievement of the future regulatory and sales milestones, these payments will not be recognized as revenue unless and until they are earned as the Company is not able to reasonably predict if and when the milestones will be achieved. Lexicon is also entitled to tiered, escalating royalties ranging from low twenties to mid-thirties percentages of net sales of telotristat ethyl in the Licensed Territory, subject to a credit for amounts previously paid to Lexicon by Ipsen for the manufacture and supply of such units of telotristat ethyl. Lexicon and Ipsen have entered into a commercial supply agreement pursuant to which Lexicon will supply Ipsen’s commercial requirements of telotristat ethyl, and Ipsen will pay an agreed upon transfer price for such commercial supply.

~~The Company considered the following deliverables with respect to the revenue recognition of the $24.5 million upfront payments:~~

~~The exclusive license granted to Ipsen to develop and commercialize telotristat ethyl in the Licensed Territory;~~

•~~The development services Lexicon is performing for telotristat ethyl;~~

~~The obligation to participate in committees which govern the development of telotristat ethyl until commercialization; and~~

•~~The obligation to supply commercial supply of telotristat ethyl, under a commercial supply agreement.~~

The Company determined that the license had stand-alone value because it is an exclusive license that gives Ipsen the right to develop and commercialize telotristat ethyl or to sublicense its rights. In addition, telotristat ethyl is currently in development and it is possible that Ipsen or another third party could conduct clinical trials without assistance from Lexicon. As a result, the Company considers the license and the development services under the Ipsen Agreement to be separate units of accounting. The Company recognized the portion of the consideration allocated to the license immediately because Lexicon delivered the license and earned the revenue at the inception of the arrangement. The Company is recognizing as revenue the amount allocated to the development services and the obligation to participate in committees over the period of time Lexicon performs services, currently expected to be complete by mid-2018.

Due to the inherent uncertainty in obtaining regulatory approval, the applicability of the commercial supply agreement is outside the control of Lexicon and Ipsen. Accordingly, the Company has determined the commercial supply agreement is a contingent deliverable at the onset of the Ipsen Agreement. As a result, the Company has determined the commercial supply agreement does not meet the definition of a deliverable that needs to be accounted for at the inception of the arrangement. The Company has also determined that there is no significant and incremental discount related to the commercial supply agreement that should be accounted for at the inception of the arrangement.

The Company determined that the initial allocable arrangement consideration was the $24.5 million upfront payments because they were the only payments that were fixed and determinable at the inception of the arrangement. There was considerable uncertainty at the date of the agreement as to whether Lexicon would earn milestone payments, royalty payments or payments for finished drug product. As such, the Company did not include those payments in the allocable consideration. The Company allocated the allocable consideration based on the relative best estimate of selling price of each unit of accounting. The Company estimated the selling price of the license deliverable by applying a probability-based income approach utilizing an appropriate discount rate. The significant inputs the Company used to determine the projected income of

the license included: estimated future product sales, estimated cost of goods sold, estimated operating expenses, income taxes, and an appropriate discount rate. The Company estimated the selling price of the development services by using internal estimates of the cost to hire third parties to perform the services over the expected period to perform the development. The Company estimated the selling price of the obligation to participate in committees by using internal estimates of the number of internal hours and salary and benefits costs to perform these services.

As a result of the allocation, the Company recognized $21.2 million of the $24.5 million upfront payments for the license in 2014, and an additional $1.4 million in 2015 upon entering into the amendment. The Company is recognizing the $1.7 million allocated to the development services deliverable over the estimated period of performance as development occurs, and is recognizing the $0.1 million allocated to the committee participation deliverable ratably over the estimated period of performance. Milestone payments that are contingent upon the achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved. The Company recognized the $5.1 million milestone payment earned in 2017 in the three and nine months ended September 30, 2017, and recognized the $6.4 million milestone payment earned in 2016 in the three and nine months ended September 30, 2016. Revenue recognized under the Ipsen Agreement was $7.9 million and $6.8 million for the nine months ended September 30, 2017 and 2016, respectively. Revenue for the nine months ended September 30, 2017 includes $0.8 million from sales of bulk tablets of telotristat ethyl to Ipsen.


~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a biopharmaceutical company ~~focused on the development and commercialization~~with a mission of ~~breakthrough treatments for human disease.~~pioneering medicines that transform patients’ lives. We are ~~presently~~ devoting most of our resources to the research, development and preparation for commercialization ~~or development~~ of our ~~four~~ most advanced drug ~~programs:~~candidates:

•

~~We have obtained approval from the FDA to sell our first commercial product, XERMELO~~^® (telotristat ethyl), an orally-delivered small molecule drug for the treatment of carcinoid syndrome diarrhea in combination with somatostatin analog, or SSA, therapy in adults inadequately controlled by SSA therapy. We have commenced sales and marketing of XERMELO, and it is now commercially available to patients in the United States. We have granted Ipsen Pharma SAS an exclusive, royalty-bearing right to commercialize XERMELO outside of the United States and Japan, and Ipsen has obtained approval from the European Commission to market XERMELO in the member states of the European Union, Norway and Iceland.

•We are ~~developing sotagliflozin,~~commercializing INPEFATM (sotagliflozin), an orally-delivered small molecule drug, ~~candidate, as a treatment~~in the United States to reduce the risk of cardiovascular death, hospitalization for ~~type 1~~heart failure, and urgent heart failure visit in adults with heart failure or type 2 ~~diabetes.~~ diabetes mellitus, chronic kidney disease, and other cardiovascular risk factors.

We have ~~reported positive top-line data from two pivotal Phase 3 clinical trials and a third Phase 3 clinical trial~~also engaged in the development of sotagliflozin in type 1 diabetes, patients. We have granted Sanofi an exclusive, worldwide (excluding Japan), royalty-bearing right to develop, manufacture and commercialize sotagliflozin, and Sanofi is presently conducting Phase 3 developmentwhich was the subject of a separate NDA. The FDA issued a complete response letter regarding our NDA for sotagliflozin in type 21 diabetes. At our request, the FDA has issued a public Notice of Opportunity for Hearing on whether there are grounds for denying approval of our NDA and the hearing process is ongoing.

We are developing LX2761, an orally-delivered small molecule drug candidate, as a treatment for diabetes. We are presently conducting Phase 1 clinical development of LX2761. We have granted Sanofi certain rights of first negotiation with respect to the future development and commercialization of LX2761.

•We are developing LX9211, an orally-delivered small molecule drug candidate, as a treatment for diabetic peripheral neuropathic pain. We have reported positive results from a Phase 2 clinical trial of LX9211 in diabetic peripheral neuropathic pain and top-line results from a separate Phase 2 clinical trial of LX9211 in post-herpetic neuralgia which demonstrated clear evidence of effect. LX9211 has received Fast Track designation from the FDA for development in diabetic peripheral neuropathic pain.

•We are ~~presently~~ conducting ~~Phase 1~~preclinical research and development and preparing to conduct clinical development of ~~LX9211.~~

~~Compounds from our most advanced drug programs, as well as~~ compounds from a number of additional drug programs originating from our internal drug discovery efforts.

INPEFA and ~~development~~compounds from a number of additional drug programs ~~that we have advanced into various stages of clinical and preclinical development,~~ originated from our own internal drug discovery ~~efforts. These~~efforts, and LX9211 originated from our collaborative neuroscience drug discovery efforts with Bristol-Myers Squibb. Our efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets. We have identified and validated in living animals, or in vivo,, more than 100 targets with promising profiles for drug discovery.

We are working both independently and through ~~strategic~~ collaborations and strategic alliances with third parties to capitalize on our drug target discoveries and drug discovery and development programs. We seek to retain exclusive or co-exclusive rights to the benefits of certain drug discovery and development programs by developing and commercializing drug candidates from those programs internally, particularly in the United States for indications treated by specialist physicians. We seek to collaborate with other pharmaceutical and biotechnology companies ~~such as Ipsen and Sanofi,~~ with respect to drug discovery or the development and commercialization of certain of our drug candidates, particularly with respect to commercialization in territories outside the United States or commercialization in the United States for indications treated by primary care physicians, or when the collaboration may otherwise provide us with access to expertise and resources that we do not possess internally or are complementary to our own.

We commercially launched XERMELO following regulatory approval in February 2017 for the treatment of carcinoid syndrome diarrhea in combination with SSA therapy in adults inadequately controlled by SSA therapy in the United States. Prior to the launch of XERMELO, wehave derived substantially all of our revenues from strategic collaborations and other research and development collaborations and technology ~~licenses.~~licenses, as well as from commercial sales of our approved drug products. To date, we have generated a substantial portion of our revenues from a limited number of sources.

Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including the success of our ~~ability to successfully commercialize XERMELO~~commercial launch of INPEFA in the United States; the ~~amount and timing of payments, if any, under our existing collaboration agreements with Sanofi, Ipsen and other entities; the~~ success of our ongoing ~~preclinical~~nonclinical and clinical development efforts and the ability to obtain necessary regulatory ~~approvals;~~approvals of the drug candidates which are the subject of such efforts; our success in establishing new collaborations and ~~licenses; the timing~~licenses and ~~willingness~~our receipt of ~~such new collaborators to commercialize products that would result~~

~~in milestone payments and~~milestones, royalties and ~~their success in~~other payments under such ~~efforts;~~arrangements; and general and industry-specific economic conditions which may affect research, development and ~~development~~commercialization expenditures.

Future revenues from our commercialization of XERMELO are uncertain because they depend on a number of factors, including market acceptance of XERMELO, the success of our sales, marketing, medical affairs, distribution and other commercialization activities and the cost and availability of reimbursement for XERMELO.

Future revenues from our existing collaborations are uncertain because they depend, to a large degree, on the achievement of milestones and payment of royalties we earn from any future products developed under the collaborations. Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees, and to negotiate agreements that we believe are in our long-term best interests. We may determine, as we have with certain of our drug candidates, ~~including XERMELO in the United States and Japan,~~ that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues and increase expenses. Because of these and other factors, our operating results have fluctuated in the past and are likely to do so in the

future, and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance.

Since our inception, we have incurred significant losses and, as of ~~September~~June 30, ~~2017,~~2023, we had an accumulated deficit of ~~$1.4~~$1.7 billion. Our losses have resulted principally from costs incurred in research and development, selling, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock units granted to employees and consultants. Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our nonclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, sales and marketing, and administrative personnel, professional fees and other corporate expenses, including information technology, facilities costs and general legal activities. We expect to continue to incur significant research and development costs in connection with the continuing research and development of our drug candidates. As a result, we will need to generate significantly higher revenues to achieve profitability.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make judgments, estimates and assumptions in the preparation of our condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We believe there have been no significant changes in our critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2022.

~~Recent Accounting Pronouncements~~

See Note 2, Recent Accounting Pronouncements, of the Notes to Consolidated Financial Statements (unaudited), for a discussion of the impact of the new accounting standards on our consolidated financial statements (unaudited).

Results of Operations

Revenues

~~Total revenues and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Total revenues $ 26.9
$ 27.7
$ 57.3
$ 60.3
Dollar decrease $ (0.8 ) $ (3.0 )
Percentage decrease (3 )% (5 )%

~~Net product revenue~~ ~~– Net product revenue~~Revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 were approximately $0.3 million, of which over 85 percent was ~~$5.8 million and $10.4 million, respectively, due~~attributable to product revenues recognized from ~~the sale of XERMELO in the United States and~~ sales of ~~bulk tablets of telotristat ethyl~~INPEFA following its regulatory approval in May 2023, with remaining revenues attributable to ~~Ipsen. Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal~~royalties and ~~state government programs and chargebacks,~~

other sources.

~~prompt pay discounts and distribution fees and co-pay assistance. Revenue recognition policies require estimates of the aforementioned sales allowances each period.~~

~~Collaborative agreements~~ – Revenue from collaborative agreements for the three months ended September 30, 2017 decreased 24% to $21.1 million, and for the nine months ended September 30, 2017 decreased 22% to $46.8 million, primarily due to revenues recognized as a result of the timing of clinical trial activities under the collaboration and license agreement with Sanofi.

Cost of Sales

Cost of sales ~~for~~during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 was $0.6 million~~2023 consist of third-party manufacturing costs, freight and ~~$1.4 million, respectively.~~indirect overhead costs associated with sales of INPEFA. We began capitalizing inventory ~~during the nine months ended September 30, 2017 once the FDA approved XERMELO~~subsequent to regulatory approval of INPEFA as the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to FDA approval were recorded as research and development expenses in the consolidated statements of comprehensive loss. Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO. The pre-commercialization inventory is expected to be sold over approximately the next two years. As a result, cost of sales ~~for the next two years~~ will reflect a lower average per unit cost of materials. ~~Cost~~Costs incurred prior to regulatory approval were recorded as research and development expenses in the condensed consolidated statements of ~~sales for the three and nine months ended September 30, 2017 includes $0.4 million and $1.0 million, respectively, of amortization of intangible assets relating to XERMELO.~~comprehensive loss.

Research and Development Expenses

Research and development expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):


	Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022		2023			2022
Total research and development expense	$	14.5		$	13.4	$	26.6		$	28.3
Dollar increase (decrease)	$	1.1				$	(1.7)
Percentage increase (decrease)	9		%			(6)		%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Total research and development expense $ 39.1
$ 52.5
$ 109.7
$ 137.8
Dollar decrease $ (13.4 ) $ (28.1 )
Percentage decrease (26 )% (20 )%

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

•Third-party and other services – Third-party and other services for the three months ended September 30, 2017 decreased 31% to $30.5 million, and for the nine months ended September 30, 2017 decreased 28% to $81.9 million as compared to the corresponding periods in 2016, primarily due to decreases in external clinical development costs relating to sotagliflozin. Third-party and other services relate principally to our clinical trial and related development activities, such as nonclinical and clinical studies and contract manufacturing. Overall, third-party and other services for the three months ended June 30, 2023 increased 13% to $8.6 million, but decreased 18% to $14.0

million for the six months ended June 30, 2023, as compared to the corresponding periods in 2022. Manufacturing costs and external research development costs increased in both the quarter and six month periods ended June 30, 2023 compared to 2022 in preparation for the launch of sotagliflozin. However, lower professional and consulting fees in 2023 when compared to 2022 relating to preparing the submission of our application for regulatory approval to market INPEFA for heart failure in the United States partially offset the increase in manufacturing costs for the quarter ended June 30, 2023 and more than offset the increase in manufacturing costs for the six months ended June 30, 2023.

•Personnel – Personnel costs for the three months ended ~~September~~June 30, ~~2017~~2023 increased ~~10%~~ to ~~$5.1~~$3.6 million from $3.5 million, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased ~~24%~~ to ~~$17.2~~$7.5 million from $6.7 million, as compared to the corresponding periods in ~~2016, primarily due to increases in personnel.~~2022. Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

•Stock-based compensation – Stock-based compensation ~~expense~~expenses for the three months ended ~~September~~June 30, ~~2017~~2023 increased ~~28%~~19% to $1.3 million, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased ~~23%~~18% to ~~$3.7~~$2.5 million, as compared to the corresponding periods in ~~2016.~~

2022, partially due to increased headcount.

•Facilities and equipment – Facilities and equipment costs for each of the three months ended June 30, 2023 and 2022 were $0.3 million, respectively. Facilities and equipment costs for the ~~three~~six months ended ~~September~~June 30, ~~2017 decreased 11% to~~2023 and 2022 were $0.7 million and $0.6 million, respectively.

•Other – Other costs for each of the three and six month periods ended June 30, 2023 and 2022 were $0.8 million and ~~for the nine months ended September 30, 2017 decreased 8% to $2.3~~$1.8 million, ~~as compared to the corresponding periods in 2016.~~

respectively.

~~Other –~~ Other costs for the three months ended September 30, 2017 decreased 4% to $1.4 million, and for the nine months ended September 30, 2017 increased 20% to $4.5 million, as compared to the corresponding periods in 2016.

~~Increase (Decrease) in Fair Value of Symphony Icon Liability~~

The fair value of the Symphony Icon purchase liability increased by $2.1 million in the nine months ended September 30, 2017 and decreased by $2.1 million and $0.7 million in the three and nine months ended September 30, 2016, respectively (see Note 6, Arrangements with Symphony Icon, Inc., of the Notes to Consolidated Financial Statements (unaudited), for more information).

Selling, General and Administrative Expenses

Selling, general and administrative expenses and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Total selling, general and administrative expense $ 16.7
$ 12.3
$ 50.1
$ 29.1
Dollar increase $ 4.5
$ 21.0

Percentage increase 36 % 72 %


	Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022		2023			2022
Total selling, general and administrative expense	$	30.0		$	10.7	$	49.1		$	19.2
Dollar increase	$	19.3				$	29.9
Percentage increase	181		%			156		%

Selling, general and administrative expenses consist primarily of personnel costs ~~to sell XERMELO and~~ to support our research and development activities, professional and consulting fees, stock-based compensation expense, and facility and equipment costs.

•Personnel – Personnel costs for the three months ended ~~September~~June 30, ~~2017~~2023 increased ~~90%~~239% to ~~$7.1~~$14.3 million, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased ~~134%~~192% to ~~$22.9~~$22.0 million, as compared to the corresponding periods in ~~2016,~~2022, primarily due to ~~increases~~higher employee salaries and benefit costs as a result of increasing sales force headcount during 2023 in ~~personnel, including increases in sales and marketing personnel, in connection with commercialization~~preparation for the commercial launch of ~~XERMELO.~~INPEFA. Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

•Professional and consulting fees – Professional and consulting fees for the three months ended ~~September~~June 30, ~~2017 decreased 9%~~2023 increased 182% to ~~$5.8~~$9.8 million, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased ~~17%~~194% to ~~$15.7~~$16.9 million, as compared to the corresponding periods in ~~2016,~~2022, primarily due to ~~changes in~~higher marketing and ~~consulting costs in connection with commercialization of XERMELO.~~

professional fees.

•Stock-based compensation – Stock-based compensation ~~expense~~expenses for the three months ended ~~September~~June 30, ~~2017~~2023 increased ~~41%~~45% to ~~$1.2~~$2.5 million, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased ~~30%~~36% to ~~$3.5~~$4.7 million, as compared to the corresponding periods in ~~2016, primarily~~2022 due to ~~awards granted to sales and marketing personnel.~~

increasing headcount in the current period.

•Facilities and equipment – Facilities and equipment costs for the three months ended ~~September~~June 30, ~~2017 increased 26% to~~2023 and 2022 were $0.5 million and $0.3 million, respectively. Facilities and equipment costs for the ~~nine~~six months ended ~~September~~June 30, ~~2017 increased 37% to $1.6~~2023 and 2022 were $1.0 million ~~as compared to the corresponding periods in 2016.~~and $0.6 million, respectively.

•Other – Other costs for the three months ended ~~September~~June 30, ~~2017~~2023 increased ~~136%~~ to ~~$2.1~~$2.8 million from $1.0 million, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 increased ~~210%~~ to ~~$6.4~~$4.5 million ~~as compared to~~from $1.8 million in the corresponding periods in ~~2016,~~2022, primarily due to ~~increases~~travel, training and software licenses in ~~travel and contributions to a foundation supporting carcinoid syndrome patients.~~

preparation for commercialization of sotagliflozin.

Interest Expense and Interest and Other Income, Net

Interest ~~Expense~~. Expense. Interest expense ~~for each of~~was $2.0 million and $0.7 million during the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 was $1.6~~2022, and $3.8 million and ~~for~~$0.8 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 was $4.8 million~~2022, due to the Oxford debt financings during 2022 and ~~$4.9 million, respectively.~~2023.

Interest and Other Income (Expense), Net. Interest and other income, net ~~for~~increased to $1.3 million during the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016 was $0.4~~increased to $2.3 million ~~and $0.6 million, respectively, and for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~ ~~and~~ ~~2016~~ ~~was~~ ~~$1.4 million~~ ~~and~~ ~~$1.7 million, respectively.~~2023 from the corresponding periods in 2022.

~~Income Tax Benefit~~

The income tax benefit for the nine months ended September 30, 2017 was $8.7 million. During the nine months ended September 30, 2017, the Company’s valuation allowance for its deferred tax assets decreased by $8.7 million due to the reclassification of intangible assets relating to XERMELO from indefinite-lived to finite-lived assets, which resulted in the related deferred tax liability now being considered a source of taxable income. The Company recorded a $8.7 million deferred tax benefit with a corresponding reduction in its deferred tax liability in the nine months ended September 30, 2017 as a result of this reclassification.

~~Consolidated~~ Net Loss and ~~Consolidated~~ Net Loss per Common Share

~~Consolidated~~ Net ~~Loss~~loss and ~~Consolidated~~ Net ~~Loss~~loss per Common Share. ~~Consolidated net~~Net loss ~~decreased to $30.7~~was $44.9 million, or $0.22 per share, in the three months ended ~~September~~June 30, ~~2017 from $36.0~~2023 as compared to a net loss of $24.6 million, or $0.16 per share, in the corresponding period in ~~2016. Consolidated~~2022. Net loss was $76.8 million, or $0.39 per share, in the six months ended June 30, 2023 as compared to a net loss of $48.1 million, or $0.32 per ~~common~~ share, ~~decreased to $0.29 in the three months ended September 30, 2017 from $0.35~~ in the corresponding period in 2016. Consolidated net loss decreased to $100.7 million in the nine months ended September 30, 2017 from $109.0 million in the corresponding period in 2016. Consolidated net loss per common share decreased to $0.96 in the nine months ended September 30, 2017 from $1.05 in the corresponding period in 2016.2022.

Our quarterly operating results have fluctuated in the past and are likely to do so in the future, and we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance.

Liquidity and Capital Resources

We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments ~~to us~~we received under our collaborations and strategic ~~and other collaborations,~~licenses, target validation, database subscription and technology license agreements, product sales, government grants and contracts, and financing under debt and lease ~~arrangements. We have also financed certain~~arrangements, as well as from commercial sales of our ~~research~~approved drug products. Our loan and ~~development activities~~security agreement with Oxford provides up to $150 million in borrowing capacity, available in five tranches, under ~~our agreements with Symphony Icon, Inc.~~ ~~From our inception through~~ ~~September 30, 2017, we had received net proceeds of~~ ~~$1.4 billion~~ ~~from issuances of common and preferred stock and convertible debt. In addition, from our inception through~~ ~~September 30, 2017, we received~~ ~~$809.0~~which $100 million in cash payments from strategic and other collaborations, target validation, database subscription and technology license agreements, sales of compound libraries and reagents, product sales, and government grants and contracts, of which ~~$738.2 million~~ ~~had~~ has been ~~recognized as revenues through September 30, 2017.~~funded under the first three tranches.

As of ~~September~~June 30, ~~2017,~~2023, we had ~~$196.8~~$256.7 million in cash, cash equivalents and short-term investments. As of December 31, ~~2016,~~2022, we had ~~$346.5~~$138.4 million in cash, cash equivalents and short-term investments. We used cash of ~~$151.7~~$69.7 million infrom operations in the ~~nine~~six months ended ~~September~~June 30, ~~2017. This consisted primarily~~2023, largely reflective of the ~~consolidated~~ net loss for the period of ~~$100.7~~$76.8 million ~~a net decrease in other operating liabilities net of assets of $54.6 million and the deferred tax benefit of $8.7 million, partially offset by~~which included non-cash charges of $7.2 million related to stock-based compensation ~~expense, $2.5 million related to depreciation and amortization expense and $2.1 million related to the increase in fair value of the Symphony Icon purchase liability.~~expense. Investing activities ~~provided~~used cash of ~~$186.3~~$62.5 million in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, primarily due to net ~~maturities~~purchases of ~~investments of $186.5 million.~~investments. Financing activities provided cash of ~~$2.1~~$188.2 million, primarily from ~~issuance~~approximately $139.0 million in net proceeds from the sale of an aggregate of 55,288,460 shares of common stock at a price of ~~$5.5~~$2.60 per share in a public offering and concurrent private placement to an affiliate of Invus, L.P. and $50.0 million in net proceeds from the funding of the third tranche under the Oxford Term Loans, partially offset by ~~cash used~~$0.8 million to repurchase common stock in satisfaction of ~~$1.7 million and repay debt borrowings~~tax withholding obligations for vested restricted stock units.

Other commitments. Upon the regulatory approval of ~~$1.7 million.~~

~~Texas Institute for Genomic Medicine.~~ ~~In July 2005, we received an award from the Texas Enterprise Fund~~sotagliflozin for the ~~creation~~treatment of type 1 diabetes in a ~~knockout mouse embryonic stem cell library containing 350,000 cell lines for the Texas Institute for Genomic Medicine, or TIGM, using our proprietary gene trapping technology, which~~major market, we completed in 2007. We also equipped TIGM with the bioinformatics software required for the management and analysis of data relating to the library. The Texas Enterprise Fund made an additional award to the Texas A&M University System for the creation of facilities and infrastructure to house the library.

~~Under the terms of our award, we were responsible for the creation of a specified number of jobs beginning in 2012, reaching an aggregate of 1,616 new jobs in Texas by December 31, 2016. We may~~will be required to ~~repay the state~~make certain royalty payments, totaling $4.5 million, in three equal annual installments of $1.5 million.

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

Facilities. In February 2021, we fail to meet those job obligations.We will receive credits against those job obligations based on funding received by TIGM and certain related parties from sources other than the State of Texas. We will also receive credits against those jobs obligations for any surplus jobs we created. Subject to these credits, the State may require us to repay $2,415 for each job we fell short of the number of jobs to be created beginning in 2013. Our maximum aggregate exposure for such payments is approximately $14.2 million, including $10.3 million through 2017, without giving effect to any jobs created or credits to which we may be entitled.

~~Facilities.~~ In April 2004, we obtained a $34.0 million mortgage on our facilities in The Woodlands, Texas. The mortgage loan originally had a ten-year term with a 20-year amortization and a fixed interest rate of 8.23%. The mortgage was amended in September 2013 to extend the maturity date from April 2014 to April 2017, with the mortgage loan’s monthly payment amount and fixed interest rate each remaining unchanged. In April 2017, the mortgage was amended to extend the maturity date to April 2018, with the mortgage loan’s monthly payment amount and fixed interest rate each remaining unchanged. The mortgage had a principal balance outstanding of $14.7 million as of September 30, 2017. The entire principal balance is recorded as current portion of long-term debt in the accompanying consolidated balance sheet as of September 30, 2017 as there is a balloon payment due in April 2018.

~~In March 2015, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc.~~ leased a 25,000 square-foot office space in ~~Basking Ridge, New Jersey.~~The Woodlands, Texas. The term of the ~~lease~~sublease extends from ~~June~~March 1, ~~2015~~2021 through ~~December~~August 31, ~~2022,~~2025, and provides for escalating yearly base rent payments starting at ~~$482,000~~$506,000 and increasing to ~~$646,000~~$557,000 in the final year of the lease.

In July 2022, our subsidiary, Lexicon Pharmaceuticals (New Jersey), Inc., leased a 22,000 square-foot office space in Bridgewater, New Jersey. The term of the lease extends from February 2023 through January 2034 and provides for escalating yearly base rent payments starting at $820,000 and increasing to $986,000 in the final year of the lease.

Our future capital requirements will be substantial and will depend on many factors, including the ~~market acceptance and commercial~~ success of ~~XERMELO~~our commercial launch of INPEFA in the United ~~States~~States; the success of our ongoing nonclinical and clinical development efforts and the ~~revenues we generate from that approved product; Sanofi’s success in obtaining~~ability to obtain necessary regulatory approvals of ~~sotagliflozin~~the drug candidates which are the subject of such efforts; our success in ~~type 1 diabetes; the progress~~establishing new collaborations and ~~scope~~licenses and our receipt of Sanofi’s development activities with respect to sotagliflozin in type 2 diabetes patients; the timing, progress and results of clinical trials of our other drug candidates; the amount and timing of payments, if any, under our existing collaboration agreements with Sanofi, Ipsenmilestones, royalties and other ~~entities;~~payments under such arrangements; the amount and timing of our research, development and commercialization expenditures; the resources we devote to commercializing, developing and supporting our products and other factors. Our capital requirements will also be affected by any expenditures we make in connection with license agreements and acquisitions of and investments in complementary technologies and businesses. We expect to continue to devote substantial capital resources to ~~commercialize XERMELO;~~the commercialization of sotagliflozin; to ~~support Sanofi’s efforts to seek regulatory approval in the United States for sotagliflozin in type 1 diabetes; to~~successfully complete our planned nonclinical and clinical development efforts with respect to LX9211 and our other drug candidates; and for other general corporate activities. We believe that our current unrestricted cash and investment balances and cash and revenues we expect to derive from ~~sales of XERMELO,~~ strategic and other collaborations and other sources will be sufficient to fund our currently planned operations for at least the next 12 ~~months.~~months from the date of this report. During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirements, we will need to sell additional equity or debt securities or obtain additional credit arrangements. If we are unable to obtain adequate financing when needed, we may have to delay or reduce the scope of one or more of our clinical trials, or commercialization and research and development programs. Additional financing may not be available on terms acceptable to us or at all. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders.

From time to time, our board of directors may authorize us to repurchase shares of our common stock, repurchase, in cash or common stock, our outstanding Notes, or make a cash payment to holders of our Notes to induce a conversion of the notes pursuant to the terms of the Notes, in each case, in privately negotiated transactions, publicly announced programs or otherwise.stock. If and when our board of directors should determine to authorize any such action, it would be on terms and under market conditions that our board of directors determines are in the best interest of us and our stockholders. Any such actions could deplete significant amounts of our cash resources and/or result in additional dilution to our stockholders.

Disclosure about Market Risk

We are exposed to limited market and credit risk on our cash equivalents which have maturities of three months or less at the time of purchase. We had approximately $256.7 million in cash and cash equivalents and short-term investments as of June 30, 2023. We maintain a short-term investment portfolio which consists of U.S. Treasury bills and corporate debt securities that mature three to 12 months from the time of purchase, which we believe are subject to limited market and credit risk. We currently do not hedge interest rate exposure or hold any derivative financial instruments in our investment portfolio.

We ~~had approximately~~ ~~$196.8 million~~are subject to interest rate sensitivity on our outstanding Oxford Term Loans as they contain a floating rate tied to the 1-month CME Term SOFR rate. Interest on the Oxford Term Loans is payable in cash monthly and ~~cash equivalents and short-term investments as of~~ ~~September 30, 2017. We believe that~~ the ~~working capital available to us will be sufficient to fund our operations for at least the next 12 months.~~term loans mature in March 2027, unless earlier repaid in accordance with their terms.

We have operated primarily in the United States and substantially all sales to date have been made in U.S. dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations.


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See “Disclosure about Market Risk” under “Item 2. Management’s Discussion and Analysisof Financial Condition and Results of Operations” for quantitative and qualitative disclosures about market risk.


~~Item 4.~~	~~Controls and Procedures~~

Item 4. Controls and Procedures

Our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in the reports we file under the Securities Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures as of the end of the period covered by this report.

During the nine months ended September 30, 2017, we implemented processes and internal controls to record net product revenue, cost of sales, and inventory as a result of the FDA approval and commercial launch of XERMELO. The implementation of these processes resulted in changes to internal control over financial reporting, which we believe were material. There were no ~~other~~ changes in our internal control over financial reporting during the ~~nine~~three months ended ~~September~~June 30, ~~2017 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II -- Other Information


~~Item 1.~~	~~Legal Proceedings~~

Item 1. Legal Proceedings

We are from time to time party to claims and legal proceedings that arise in the normal course of our business and that we believe will not have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or liquidity.


~~Item 1A.~~	Item 1A. Risk Factors

The following risks and uncertainties are important factors that could cause actual results or events to differ materially from those indicated by forward-looking statements. The factors described below are not the only ones we face and additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Our ~~Need for Additional Financing~~Business and ~~Our Financial Results~~Industry

•We will need additional capital in the future and, if it is unavailable, we will be forced to delay, reduce or eliminate our commercialization efforts or product development programs. If additional capital is not available on reasonable terms, we will be forced to obtain funds, if at all, by entering into financing agreements on unattractive terms.

~~We have a history of net losses, and we expect to continue to incur net losses and may not achieve or maintain profitability.~~

~~Our operating results have been and likely will continue to fluctuate, and we believe that period-to-period comparisons of our operating results are not a good indication of our future performance.~~

~~We have substantial indebtedness that may limit cash flow available to invest in the ongoing needs of our business.~~

We may not have the ability to raise the funds necessary to repurchase the notes evidencing our existing indebtedness upon a fundamental change, and our future debt may contain limitations on our ability to repurchase the notes.

~~Risks Related to the Commercialization or Development of XERMELO and Our Drug Candidates~~

~~We will~~ depend heavily on the commercial success of ~~XERMELO~~INPEFA in ~~the United States.~~heart failure. If we do not achieve commercial success with ~~XERMELO,~~INPEFA, our business will suffer and our stock price will likely decline.

•We depend heavily on our ability to successfully complete late-stage development of LX9211 in diabetic peripheral neuropathic pain. If we fail to successfully complete such late-stage development, our business will suffer and our stock price will likely decline.

• Clinical testing of our drug candidates in humans is an inherently risky and time-consuming process that may fail to demonstrate safety and efficacy, which could result in the delay, limitation or prevention of regulatory approval.

• Our drug candidates are subject to a lengthy and uncertain regulatory process that may not result in the necessary regulatory approvals, which could adversely affect our and our collaborators’ ability to commercialize products.

•The commercial success of ~~XERMELO~~INPEFA and any other products that we or our collaborators may develop will depend upon the degree of market acceptance among physicians, patients, health care payers ~~private health insurers~~ and the medical ~~community.~~community.

•If ~~we are unable to implement and maintain an effective and specialized~~our sales force, marketing infrastructure and distribution capabilities are unsuccessful, we will not be able to successfully commercialize ~~XERMELO~~INPEFA and any other products that we or our ~~drug candidates successfully.~~collaborators may develop.

•If we are unable to obtain adequate coverage and reimbursement from third-party ~~payors~~payers for ~~XERMELO~~INPEFA and any other products that we or our collaborators may develop, our revenues and prospects for profitability will suffer.

•If we are unable to manufacture INPEFA and any other products that we or our collaborators may develop in commercial quantities, our ability to commercialize such products would be severely impaired.

•We and our collaborators are subject to extensive and rigorous ongoing regulation relating to ~~XERMELO and~~ any ~~other approved products.~~products that we or our collaborators may commercialize or develop.

•We are subject to certain healthcare laws, regulation and enforcement; our failure to comply with those laws could have a material adverse effect on our results of operations and financial condition.

•Current healthcare laws and regulations and future legislative or regulatory reforms to the healthcare system may negatively affect our revenues and prospects for profitability.

• Our competitors may develop products that ~~make XERMELO~~impair the value of any products that we or our ~~collaborators’ other products obsolete.~~collaborators may commercialize or develop.

• The outbreak of the novel coronavirus, or COVID-19, historically had an adverse impact on our business operations and clinical trials, and a future novel coronavirus could adversely affect our business in the future.

Risks Related to Our Capital Requirements and Financial Results

• We will need additional capital in the future and, if it is unavailable, we will be forced to delay, reduce or eliminate our research and development programs. If additional capital is not available on reasonable terms, we will be forced to obtain funds, if at all, by entering into financing agreements on unattractive terms.

• We have a history of net losses, and we expect to continue to incur net losses and may not achieve or maintain profitability.

•Our operating results have fluctuated and likely will continue to fluctuate, and we believe that period-to-period comparisons of our operating results are not a good indication of our future performance.

• We have substantial indebtedness that may limit cash flow available to invest in the ongoing needs of our business.

•If we do not effectively manage our affirmative and restrictive covenants under the Oxford Term Loans, our financial condition and results of operations could be ~~able to manufacture our drug candidates in commercial quantities, which would prevent us from commercializing our drug candidates.~~adversely affected.

Risks Related to Our Relationships with Third Parties

• We depend on ~~third-party manufacturers, including sole source suppliers,~~our ability to ~~manufacture commercial quantities of XERMELO. We may not be able to maintain these relationships and could experience supply disruptions outside of our control.~~

We rely on a single third-party logistics provider and two independent specialty pharmacies for distribution of XERMELO in the United States, and their failure to distribute XERMELO effectively would adversely affect sales of XERMELO.

~~We are significantly dependent upon our~~establish collaborations with ~~Ipsen, Sanofi and other~~ pharmaceutical and biotechnology ~~companies.~~companies for the development and commercialization of our drug candidates. If we are unable to establish such collaborations, or if pharmaceutical products are not successfully and timely developed and commercialized under ~~our~~such collaborations, our opportunities to generate revenues from ~~milestones and royalties~~our other drug candidates will be greatly reduced.

•Conflicts with our collaborators could jeopardize the success of our collaborative agreements and harm our product development ~~efforts.~~efforts.

•We rely on third parties to carry out ~~drug~~our nonclinical studies and clinical trials, which may harm or delay our research and development ~~activities.~~efforts.

•We lack the capability to manufacture materials for nonclinical studies and clinical trials orand commercial ~~sales~~supplies for INPEFA and ~~rely~~any other products which gain regulatory approval. Our reliance on third parties to manufacture our approved products and drug candidates ~~which~~ may harm or delay our ~~product~~research, development and commercialization efforts.

Risks Related to Our Intellectual Property

• If we are unable to adequately protect our intellectual property, third parties may be able to use our products and technologies, which could adversely affect our ability to compete in the market.

•We may be involved in patent litigation and other disputes regarding intellectual property rights and may require licenses from third parties for our planned nonclinical and clinical development and commercialization activities. We may not prevail in any such litigation or other dispute or be able to obtain required licenses.

~~We have not sought patent protection outside of the United States for some of~~•Data breaches and cyber-attacks could compromise our ~~inventions,~~intellectual property or other sensitive information and ~~some of our licensed patents only provide coverage in the United States. As a result, our international competitors could be granted foreign patent protection with respect~~cause significant damage to our ~~discoveries.~~business, reputational harm and financial loss.

•We may be subject to damages resulting from claims that we, our employees or independent contractors have wrongfully used or disclosed alleged trade secrets of their former employers.

Risks Related to Our Employees ~~Advisors~~ and Facilities ~~Operations~~

• If we are unable to manage our growth, our business, financial condition, results of operations and prospects may be adversely affected.

•The loss of key personnel or the inability to attract and retain additional personnel could impair our ability to operate and expand our operations.

~~Our collaborations with outside scientists may be subject to restriction and change.~~

~~Data breaches and cyber-attacks could compromise our intellectual property or other sensitive information and cause significant damage to our business and reputation.~~

~~Facility security breaches may disrupt our operations and harm our operating results.~~

•Our facilities are located near coastal zones, and the occurrence of a hurricane or other disaster could damage our facilities and equipment, which could harm our ~~operations.~~operations.

Risks Related to Environmental and Product Liability

• We have used hazardous chemicals and radioactive and biological ~~materials~~substances in our business. Any claims relating to improper handling, storage or disposal of these ~~materials~~substances could be time consuming and costly.

•Our business has a substantial risk of product liability and we face potential product liability exposure far in excess of our limited insurance coverage.

Risks Related to Our Common Stock

• Invus, L.P.~~, Invus C.V.~~ and ~~their~~its affiliates own a controlling interest in our outstanding common stock and may have interests which conflict with those of our other stockholders.

Conversion of the notes evidencing our current indebtedness may dilute the ownership interest of our existing stockholders, including holders who had previously converted their notes, or may otherwise depress the price of our common stock.

• Invus has additional rights under ~~our~~its stockholders’ agreement ~~with Invus, L.P.~~relating to the membership of our board of directors and under our certificate of incorporation relating to preemptive and consent rights, which ~~provides~~provide Invus with substantial influence over ~~certain~~ significant corporate matters.

•Our stock price may be extremely volatile.

~~We may engage in future acquisitions, which may be expensive and time consuming and from which we may not realize anticipated benefits.~~

•Future issuances or sales of our common stock, or the perception that such issuances or sales may occur, may depress our stock price.

•If ~~we are unable to meet Nasdaq continued listing requirements, Nasdaq may take action to delist~~securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our ~~common stock.~~business, our stock price and trading volume could decline.

For additional discussion of the risks and uncertainties that affect our business, see “Item 1A. Risk Factors” included in our annual report on Form 10-K for the year ended December 31, ~~2016~~2022 as filed with the Securities and Exchange Commission.

Item 6. Exhibits


~~Item 6.~~	~~Exhibits~~



Exhibit No.			Description
*†10.1		—	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).
10.2		—	2017 Non-Employee Directors’ Equity Incentive Plan, as amended (filed as Exhibit 10.2 to the Company’s Current Report on Form 8‑K dated April 27, 2023 and incorporated by reference herein).
†10.3		—	Third Amendment ~~No. 1~~ to ~~Collaboration~~Loan and ~~License~~Security Agreement, dated ~~July 1, 2017,~~June 23 , 2023, with ~~Sanofi-Aventis Deutschland GmbH~~Oxford Finance, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 23, 2023 and incorporated by reference herein).
*31.1		—	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2		—	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1		—	Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		—	XBRL Instance Document
101.SCH		—	XBRL Taxonomy Extension Schema Document
101.CAL		—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE		—	XBRL Taxonomy Extension Presentation Linkbase Document
104		—
	Cover Page Interactive Data File (embedded within the Inline XBRL document)

_____________________


*		Filed herewith.
†		In accordance with Item 601(b)(2)(ii) of Regulation S-K, certain information (indicated by “[**]”) has been excluded from this exhibit because it is both not material and would likely cause competitive harm to the Company if publicly disclosed.

*	~~Filed herewith.~~
†	Confidential treatment has been requested for a portion of this exhibit. The confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Lexicon Pharmaceuticals, Inc.

Date:	~~November 8, 2017~~August 4, 2023	By:	/s/ Lonnel Coats
			Lonnel Coats
			~~President and~~ Chief Executive Officer



Date:	~~November 8, 2017~~August 4, 2023	By:	/s/ Jeffrey L. Wade
			Jeffrey L. Wade
			~~Executive Vice~~ President ~~Corporate and Administrative Affairs~~ and Chief Financial Officer

~~Index to Exhibits~~



~~Exhibit No.~~		~~Description~~
*†10.1	—	~~Amendment No. 1 to Collaboration and License Agreement, dated July 1, 2017, with Sanofi-Aventis Deutschland GmbH~~
*31.1	—	~~Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
*31.2	—	~~Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
*32.1	—	~~Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~101.INS~~	—	~~XBRL Instance Document~~
~~101.SCH~~	—	~~XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~	—	~~XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF~~	—	~~XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB~~	—	~~XBRL Taxonomy Extension Label Linkbase Document~~
~~101.PRE~~	—	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~_____________________~~



*	~~Filed herewith.~~
†	Confidential treatment has been requested for a portion of this exhibit. The confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission.


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



	As of September 30,			As of December 31,
	2017			2016
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	83,293		$	46,600
Short-term investments	113,524			299,904
Accounts receivable, net of allowances of $4	10,597			7,492
Inventory	2,149			—
Prepaid expenses and other current assets	4,458			3,878
Total current assets	214,021			357,874
Property and equipment, net of accumulated depreciation and amortization of $58,794 and $59,875, respectively	18,167			19,390
Goodwill	44,543			44,543
Other intangible assets, net of accumulated amortization of $1,030 and $0, respectively	52,327			53,357
Other assets	429			461
Total assets	$	329,487		$	475,625
Liabilities and Equity
Current liabilities:
Accounts payable	$	52,628		$	52,877
Accrued liabilities	12,729			32,114
Current portion of deferred revenue	48,738			63,372
Current portion of long-term debt, net of deferred issuance costs	14,633			16,280
Total current liabilities	128,728			164,643
Deferred revenue, net of current portion	26,545			48,934
Long-term debt, net of deferred issuance costs	85,512			85,167
Deferred tax liabilities	10,023			18,675
Other long-term liabilities	303			805
Total liabilities	251,111			318,224
Commitments and contingencies
Equity:
Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $.001 par value; 225,000 shares authorized; 105,710 and 104,582 shares issued, respectively	106			105
Additional paid-in capital	1,433,263			1,411,222
Accumulated deficit	(1,353,026		)	(1,250,363		)
Accumulated other comprehensive loss	(63		)	(195		)
Treasury stock, at cost, 122 and 306 shares, respectively	(1,904		)	(3,368		)
Total equity	78,376			157,401
Total liabilities and equity	$	329,487		$	475,625



		Page
Factors Affecting Forward-Looking Statements		32
Part I – Financial Information		3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets - ~~September~~June 30, ~~2017~~2023 (unaudited) and December 31, ~~2016~~ 2022	3
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~ 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) - ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~ 2022	5
	Condensed Consolidated Statements of Cash Flows (unaudited) - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~ 2022	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2115
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2619
Item 4.	Controls and Procedures	2619
Part II – Other Information		2620
Item 1.	Legal Proceedings	2720
Item 1A.	Risk Factors	2720
~~Item 6.~~	~~Exhibits~~

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6.	Exhibits	23
	Signatures		24



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
Net product revenue	$	5,830		$	—		$	10,443		$	—
Collaborative agreements	21,112			27,686			46,781			60,181
Subscription and license fees	—			31			64			119
Total revenues	26,942			27,717			57,288			60,300
Operating expenses:
Cost of sales (including finite-lived intangible asset amortization)	599			—			1,361			—
Research and development, including stock-based compensation of $1,345, $1,051, $3,698 and $3,013, respectively	39,137			52,533			109,653			137,751
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability	—			(2,146		)	2,101			(703		)
Selling, general and administrative, including stock-based compensation of $1,235, $879, $3,516 and $2,709, respectively	16,724			12,263			50,069			29,077
Total operating expenses	56,460			62,650			163,184			166,125
Loss from operations	(29,518		)	(34,933		)	(105,896		)	(105,825		)
Interest expense	(1,619		)	(1,646		)	(4,821		)	(4,933		)
Interest and other income, net	415			564			1,393			1,748
Net loss before taxes	(30,722		)	(36,015		)	(109,324		)	(109,010		)
Income tax benefit	—			—			8,652			—
Net loss	$	(30,722	)	$	(36,015	)	$	(100,672	)	$	(109,010	)
Net loss per common share, basic and diluted	$	(0.29	)	$	(0.35	)	$	(0.96	)	$	(1.05	)
Shares used in computing net loss per common share, basic and diluted	105,582			103,885			105,119			103,799

Other comprehensive loss:
Unrealized gain (loss) on investments	151			(258		)	132			297
Comprehensive loss	$	(30,571	)	$	(36,273	)	$	(100,540	)	$	(108,713	)


	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 gain (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 gain (loss) on investments	—	—		—		—		(113)		—		(113)
Balance at June 30, 2022	150,114	$	150	$	1,608,730	$	(1,535,839)	$	(150)	$	(2,061)	$	70,830

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



Raw materials	$	734
Work-in-process	41
Finished goods	1,374
Total inventory	$	2,149



	Options		Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2016	4,834		$	11.24
Granted	847		14.51
Exercised	(458	)	11.98
Expired	(149	)	26.59
Forfeited	(82	)	13.55
Outstanding at September 30, 2017	4,992		11.23
Exercisable at September 30, 2017	2,896		$	11.06



	As of September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Cash and cash equivalents	$	83,293	$	—	$	—		$	83,293
Securities maturing within one year:
U.S. treasury securities	90,533		—		(57		)	90,476
Corporate debt securities	23,054		—		(6		)	23,048
Total short-term investments	$	113,587	$	—	$	(63	)	$	113,524
Total cash and cash equivalents and investments	$	196,880	$	—	$	(63	)	$	196,817

	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	46,600	$	—	$	—		$	46,600
Securities maturing within one year:
U.S. treasury securities	227,911		1		(107		)	227,805
Corporate debt securities	72,188		1		(90		)	72,099
Total short-term investments	$	300,099	$	2	$	(197	)	$	299,904
Total cash and cash equivalents and investments	$	346,699	$	2	$	(197	)	$	346,504



Balance at December 31, 2016	$	18,912
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	2,101
Payment of contingent payment obligation with common stock and cash	(21,013		)
Balance at September 30, 2017	$	—

Balance at December 31, 2015	$	22,815
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	(703		)
Payment of contingent payment obligation with cash	(3,200		)
Balance at September 30, 2016	$	18,912


4.	~~Fair Value Measurements~~


5.	~~Debt Obligations~~