10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2012

or

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

For the Transition Period from _____________ to _____________

Commission File Number:  000-30111

Lexicon Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

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

8800 Technology Forest Place

The Woodlands, Texas 77381

(Address of Principal Executive Offices and Zip Code)

(281) 863-3000

(Registrant’s Telephone Number, Including Area Code)

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

Yes þ No

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).

Yes þ No

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

Large accelerated filer    Accelerated filer þ Non-accelerated filer    Smaller reporting company

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

Yes No þ

As of July 31, 2012, 494,336,148 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

Lexicon Pharmaceuticals, Inc.

Table of Contents

		Page
Factors Affecting Forward-Looking Statements		2
Part I – Financial Information		3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets – June 30, 2012 (unaudited) and December 31, 2011	3
	Consolidated Statements of Comprehensive Loss (unaudited) – Three and Six Months Ended June 30, 2012 and 2011	4
	Consolidated Statements of Stockholders’ Equity (unaudited) – Six Months Ended June 30, 2012 and 2011	5
	Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2012 and 2011	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	18
Part II – Other Information		19
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 6.	Exhibits	21
Signatures		22

The Lexicon name and logo, OmniBank^® and LexVision^® are registered trademarks and Genome5000^™ is a trademark 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,” 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, we cannot guarantee future results, levels of activity, performance or achievements. We are not under 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.

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Part I – Financial Information

Item 1.                 Financial Statements

Lexicon Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except par value)

	As of June 30,			As of December 31,
	2012			2011
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	33,779		$	186,309
Short-term investments, including restricted investments of $430	197,734			95,383
Accounts receivable, net of allowances of $35	182			350
Prepaid expenses and other current assets	6,582			3,748
Total current assets	238,277			285,790
Property and equipment, net of accumulated depreciation and amortization of $82,576 and $80,535, respectively	44,526			46,417
Goodwill	44,543			44,543
Other intangible assets	53,557			53,557
Other assets	157			205
Total assets	$	381,060		$	430,512
Liabilities and Equity
Current liabilities:
Accounts payable	$	4,579		$	6,042
Accrued liabilities	15,045			13,786
Current portion of deferred revenue	421			119
Current portion of long-term debt	1,510			1,443
Total current liabilities	21,555			21,390
Deferred revenue, net of current portion	13,910			14,212
Long-term debt	22,678			23,451
Deferred tax liabilities	18,745			18,745
Other long-term liabilities	59,276			55,146
Total liabilities	136,164			132,944
Commitments and contingencies
Equity:
Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $.001 par value; 900,000 shares authorized; 481,168 and 480,389 shares issued, respectively	481			480
Additional paid-in capital	1,090,485			1,087,033
Accumulated deficit	(845,420		)	(789,621		)
Accumulated other comprehensive gain (loss)	(20		)	21
Treasury stock, at cost, 380 and 218 shares, respectively	(630		)	(345		)
Total equity	244,896			297,568
Total liabilities and equity	$	381,060		$	430,512

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

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Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Loss

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues:
Collaborative research	$	199		$	461		$	351		$	977
Subscription and license fees	—			94			148			174
Total revenues	199			555			499			1,151
Operating expenses:
Research and development, including stock-based compensation of $915, $818, $1,952 and $1,657, respectively	19,355			20,145			42,392			44,066
Increase in fair value of Symphony Icon, Inc. purchase liability	2,162			1,804			4,243			2,862
General and administrative, including stock-based compensation of $680, $632, $1,361 and $1,265, respectively	4,162			4,532			8,727			9,285
Total operating expenses	25,679			26,481			55,362			56,213
Loss from operations	(25,480		)	(25,926		)	(54,863		)	(55,062		)
Interest income	58			68			114			155
Interest expense	(530		)	(810		)	(1,067		)	(1,417		)
Other income, net	21			30			17			57
Consolidated net loss	$	(25,931	)	$	(26,638	)	$	(55,799	)	$	(56,267	)
Consolidated net loss per common share, basic and diluted	$	(0.05	)	$	(0.08	)	$	(0.12	)	$	(0.17	)
Shares used in computing consolidated net loss per common share, basic and diluted	480,634			337,668			480,479			337,598
Other comprehensive loss:
Unrealized gain (loss) on investments	37			31			(41		)	66
Comprehensive loss	$	(25,894	)	$	(26,607	)	$	(55,840	)	$	(56,201	)

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

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Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

	Common Stock			Additional						Accumulated Other
	Shares	Par Value		Paid-In Capital			Accumulated Deficit			Comprehensive Gain (Loss)			Treasury Stock			Total
Balance at December 31, 2010	337,566	$	338	$	920,324		$	(673,406	)	$	5		$	(237	)	$	247,024
Stock-based compensation	—	—		2,922			—			—			—			2,922
Issuance of common stock under Equity Incentive Plans	329	—		551			—			—			—			551
Repurchase of common stock	—	—		—			—			—			(108		)	(108		)
Net loss	—	—		—			(56,267		)	—			—			(56,267		)
Unrealized gain on investments	—	—		—			—			66			—			66
Balance at June 30, 2011	337,895	$	338	$	923,797		$	(729,673	)	$	71		$	(345	)	$	194,188
Balance at December 31, 2011	480,389	$	480	$	1,087,033		$	(789,621	)	$	21		$	(345	)	$	297,568
Stock-based compensation	—	—		3,313			—			—			—			3,313
Issuance of common stock under Equity Incentive Plans	779	1		275			—			—			—			276
Other	—	—		(136		)	—			—			—			(136		)
Repurchase of common stock	—	—		—			—			—			(285		)	(285		)
Net loss	—	—		—			(55,799		)	—			—			(55,799		)
Unrealized loss on investments	—	—		—			—			(41		)	—			(41		)
Balance at June 30, 2012	481,168	$	481	$	1,090,485		$	(845,420	)	$	(20	)	$	(630	)	$	244,896

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

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Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Consolidated net loss	$	(55,799	)	$	(56,267	)
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
Depreciation	2,219			2,571
Impairment of fixed assets	—			785
Increase in fair value of Symphony Icon, Inc. purchase liability	4,243			2,862
Stock-based compensation	3,313			2,922
Changes in operating assets and liabilities:
Decrease in accounts receivable	168			239
Increase in prepaid expenses and other current assets	(2,834		)	(991		)
Decrease in other assets	48			366
Increase (decrease) in accounts payable and other liabilities	(317		)	2,360
Decrease in deferred revenue	—			(76		)
Net cash used in operating activities	(48,959		)	(45,229		)
Cash flows from investing activities:
Purchases of property and equipment	(329		)	(815		)
Proceeds from disposal of property and equipment	1			2,516
Purchases of investments	(151,776		)	(64,126		)
Maturities of investments	49,384			83,609
Net cash provided by (used in) investing activities	(102,720		)	21,184
Cash flows from financing activities:
Proceeds from issuance of common stock	276			188
Repurchase of common stock	(285		)	(108		)
Repayment of debt borrowings	(706		)	(2,915		)
Other financing activities	(136		)	—
Net cash used in financing activities	(851		)	(2,835		)
Net decrease in cash and cash equivalents	(152,530		)	(26,880		)
Cash and cash equivalents at beginning of period	186,309			47,208
Cash and cash equivalents at end of period	$	33,779		$	20,328
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,029		$	1,385
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain (loss) on investments	$	(41	)	$	66

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

6

Lexicon Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1.      Basis of Presentation

The accompanying unaudited consolidated financial statements of Lexicon Pharmaceuticals, Inc. (“Lexicon” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

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

For further information, refer to the financial statements and footnotes thereto included in Lexicon’s annual report on Form 10-K for the year ended December 31, 2011, as filed with the SEC.

2.      Net Loss Per Share

Net loss per share is computed using the weighted average number of shares of common stock outstanding during the applicable period and excludes shares underlying stock options and restricted stock units because they are antidilutive.  There are no differences between basic and diluted net loss per share for all periods presented.

3.      Stock-Based Compensation

The Company recorded $1.6 million and $1.5 million of stock-based compensation expense for the three months ended June 30, 2012 and 2011, respectively, and $3.3 million and $2.9 million of stock-based compensation expense for the six months ended June 30, 2012 and 2011, respectively.  The Company utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions for options granted in the six months ended June 30, 2012 and 2011:

	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
June 30, 2012:
Employees	92	%	0.8	%	5	—	%
Officers and non-employee directors	80	%	1.6	%	8	—	%
June 30, 2011:
Employees	88	%	2.2	%	5	—	%
Officers and non-employee directors	78	%	3.2	%	8	—	%

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The following is a summary of option activity under Lexicon’s stock-based compensation for the six months ended June 30, 2012:

	Options		Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2011	20,476		$	2.84
Granted	3,231		1.79
Exercised	(167	)	1.65
Expired	(855	)	7.87
Forfeited	(221	)	1.77
Outstanding at June 30, 2012	22,464		2.52
Exercisable at June 30, 2012	15,028		$	2.88

During the six months ended June 30, 2012, 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 activity under Lexicon’s stock-based compensation plans for the six months ended June 30, 2012:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2011	2,127		$	1.81
Granted	2,390		1.80
Vested	(518	)	1.81
Forfeited	(247	)	1.81
Nonvested at June 30, 2012	3,752		$	1.80

During 2010, Lexicon granted certain employees restricted stock units with a performance condition. The shares subject to the restricted stock units granted in 2010 vest upon the dosing of the first patient in a pivotal human clinical trial in any country, the results of which could be used to establish safety and efficacy of a pharmaceutical product discovered or developed by Lexicon as a basis for a New Drug Application. 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 following is a summary of performance-based restricted stock units activity under Lexicon's stock-based compensation plans for the six months ended June 30, 2012:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2011	350		$	1.90
Forfeited	(5	)	1.90
Nonvested at June 30, 2012	345		$	1.90

4.      Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-05, “Presentation of Comprehensive Income”, which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of stockholders' equity. The amendments in this standard require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under either method, adjustments must be displayed for items that are reclassified from OCI to net income, in both net income and OCI. The standard does not change the current option for presenting components of OCI gross or net of the effect of income taxes, provided that such tax effects are presented in the statement in which OCI is presented or disclosed in the notes to the financial statements. Additionally, the standard does not affect the calculation or reporting of earnings per share. This pronouncement should be applied retrospectively for fiscal years beginning after December 15, 2011, with early adoption permitted. Lexicon adopted this pronouncement in 2012 and there was no material impact to its consolidated results of operations and financial condition.

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In July 2012, the FASB issued ASU No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment", which amends FASB ASC Topic 350. ASU 2012-02 gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports the conclusion that it is more likely than not that the fair value of the asset exceeds its carrying amount, the entity would not need to perform the two-step quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. Management does not expect the adoption of this standard to have a material impact on Lexicon's consolidated financial statements.

5.      Cash and Cash Equivalents and Investments

The fair value of cash and cash equivalents and investments held at June 30, 2012 and December 31, 2011 are as follows:

	As of June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Cash and cash equivalents	$	33,779	$	—	$	—		$	33,779
Securities maturing within one year:
Certificates of deposit	548		—		—			548
U.S. treasury securities	197,206		6		(26		)	197,186
Total short-term investments	$	197,754	$	6	$	(26	)	$	197,734
Total cash and cash equivalents and investments	$	231,533	$	6	$	(26	)	$	231,513
	As of December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	186,309	$	—	$	—		$	186,309
Securities maturing within one year:
Certificates of deposit	548		—		—			548
U.S. treasury securities	94,814		24		(3		)	94,835
Total short-term investments	$	95,362	$	24	$	(3	)	$	95,383
Total cash and cash equivalents and investments	$	281,671	$	24	$	(3	)	$	281,692

There were no realized gains or losses for the six months ended June 30, 2012, and no realized gains or loss for the six months ended June 30, 2011. The cost of securities sold is based on the specific identification method.

6.      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 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

• Level 2 - other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

• Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments)

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

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liabilities that are measured at fair value on a recurring basis according to the fair value levels described above as of June 30, 2012 and December 31, 2011.

	Assets and Liabilities at Fair Value as of June 30, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	33,779	$	—	$	—	$	33,779
Short-term investments	197,734		—		—		197,734
Total cash and cash equivalents and investments	$	231,513	$	—	$	—	$	231,513
Liabilities
Other long-term liabilities	$	—	$	—	$	59,276	$	59,276
Total liabilities	$	—	$	—	$	59,276	$	59,276

	Assets and Liabilities at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	186,309	$	—	$	—	$	186,309
Short-term investments	95,383		—		—		95,383
Total cash and cash equivalents and investments	$	281,692	$	—	$	—	$	281,692
Liabilities
Other long-term liabilities	$	—	$	—	$	55,033	$	55,033
Total liabilities	$	—	$	—	$	55,033	$	55,033

The Company's Level 3 liabilities are 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 are 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 six months ended June 30, 2012 and 2011.

	Other Long-term Liabilities
	(in thousands)
Balance at December 31, 2011	$	55,033
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	4,243
Balance at June 30, 2012	$	59,276
Balance at December 31, 2010	$	48,267
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	2,862
Balance at June 30, 2011	$	51,129

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 on July 30, 2010 and intangible assets associated with the acquisition of Symphony Icon on July 30, 2010. 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.

7.      Debt Obligations

Mortgage Loan.  In April 2004, Lexicon obtained a $34.0 million mortgage on its facilities in The Woodlands, Texas.  The mortgage loan has a ten-year term with a 20-year amortization and bears interest at a fixed rate of 8.23%.  The mortgage had a principal balance outstanding of $24.2 million as of June 30, 2012. The fair value of Lexicon’s mortgage loan approximates its carrying value.  The fair value of Lexicon’s mortgage loan is estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rate.

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8.      Arrangements with Symphony Icon, Inc.

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 LX1032 and LX1033, 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 7,650,622 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 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 13,237,519 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 will 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 LX1032, LX1033 or other pharmaceutical compositions modulating the same target as those drug candidates (the “LG103 Programs”), subject to certain exceptions. The contingent payments will be due if and when Lexicon receives such consideration from a Licensing Transaction. In the event Lexicon receives 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 will pay Holdings the sum of $15 million and the amount of certain expenses Lexicon incurred after its exercise of the Purchase Option which are attributable to the development of such product, reduced by up to 50% of such sum for the amount 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 makes any such payment upon United States regulatory approval, Lexicon will 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 the proceeds of such Licensing Transactions exceed 50% of the payment made as a result of such United States regulatory approval.

The contingent payments 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.

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 has 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 at the date of acquisition 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. The discount rate assumptions have not changed through June 30, 2012, and as programs progress, the probability adjusted contingency is adjusted as necessary. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as an increase or decrease in fair value of Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. During the six months ended June 30, 2012 and 2011, the fair value of the Symphony Icon purchase consideration liability increased by $4.2 million and $2.9 million, respectively.

9.      Commitments and Contingencies

Operating Lease Obligations:  A Lexicon subsidiary leases laboratory and office space in Hopewell, New Jersey under an agreement which expires in June 2013.  Rent expense is recognized on a straight-line basis over the original lease term.  Lexicon is the guarantor of the obligations of its subsidiary under this lease.  The maximum potential amount of future payments the Company could be required to make under this agreement is $2.6 million. The Company is required to maintain restricted investments to collateralize a standby letter of credit for this lease.  The Company had $0.4 million and $0.4 million in restricted investments as collateral as of June 30, 2012 and December 31, 2011, respectively.  Additionally, Lexicon leases certain equipment under operating leases.

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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.

10.      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, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales. Revenues generated from third parties under collaborative arrangements are recorded on a gross basis on the consolidated statements of comprehensive loss as Lexicon is the principal participant for these transactions for the purpose of accounting for these arrangements.

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

Overview

We are a biopharmaceutical company focused on the discovery and development of breakthrough treatments for human disease. We have used gene knockout technologies and an integrated platform of advanced medical technologies to identify and validate, in vivo, more than 100 targets with promising profiles for drug discovery. For targets that we believe have high pharmaceutical value, we engage in programs for the discovery and development of potential new drugs. We have five drug programs in various stages of clinical development and have advanced small molecule compounds from a number of additional drug programs into various stages of preclinical development and research.

We are working both independently and through strategic collaborations and alliances to capitalize on our technology, drug target discoveries and drug discovery and development programs. Consistent with this approach, we seek to retain exclusive rights to the benefits of certain of our small molecule drug programs by developing drug candidates from those programs internally and to collaborate with third parties with respect to the discovery, development and commercialization of small molecule and biotherapeutic drug candidates for other targets, particularly when the collaboration provides us with access to expertise and resources that we do not possess internally or are complementary to our own. We have established drug discovery and development collaborations with leading pharmaceutical and biotechnology companies which generated near-term cash while offering us the potential to retain economic participation in products developed from the collaboration. In addition, we have established collaborations and license agreements with other leading pharmaceutical and biotechnology companies, research institutes and academic institutions under which we received fees and, in some cases, are eligible to receive milestone and royalty payments, in return for granting access to some of our technologies and discoveries.

We have derived substantially all of our revenues from drug discovery and development collaborations and other collaborations and technology licenses, and will continue to do so for the foreseeable future. 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 our success in establishing new collaborations and technology licenses, the success rate of our discovery and development efforts leading to opportunities for new collaborations and licenses, the timing and willingness of collaborators to commercialize products that would result in milestone payments and royalties and their success in such efforts, and general and industry-specific economic conditions which may affect research and development expenditures. Future revenues from our existing collaborations and technology licenses 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 collaboration. As a result, we depend, in part, on securing new collaborations and license agreements. 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 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. 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 June 30, 2012, we had an accumulated deficit of $845.4 million. Our losses have resulted principally from costs incurred in research and development, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants. Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our preclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs. General and administrative expenses consist primarily of salaries and related expenses for executive 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 our drug discovery and development programs. 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 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, 2011.

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Recent Accounting Pronouncements

See Note 4, Recent Accounting Pronouncements, of the Notes to Consolidated Financial Statements, for a discussion of the impact of the new accounting standards on our consolidated financial statements.

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 June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Total revenues	$	0.2		$	0.6	$	0.5		$	1.2
Dollar decrease	$	(0.4	)			$	(0.7	)
Percentage decrease	(64		)%			(57		)%

• Collaborative research – Revenue from collaborative research for the three months ended June 30, 2012 decreased 57% to $0.2 million, and for the six months ended June 30, 2012 decreased 64% to $0.4 million, as compared to the corresponding periods in 2011, primarily due to reduced revenues from the United States Army Medical Research Acquisition Activity and functional genomics contracts.

• Subscription and license fees – Revenue from subscriptions and license fees for the three months ended June 30, 2012 decreased 100%, and for the six months ended June 30, 2012 decreased 15%, as compared to the corresponding periods in 2011, primarily due to a decrease in technology license fees.

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,
	2012			2011		2012			2011
Total research and development expense	$	19.4		$	20.1	$	42.4		$	44.1
Dollar decrease	$	(0.8	)			$	(1.7	)
Percentage decrease	(4		)%			(4		)%

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

• Third-party and other services – Third-party and other services for the three months ended June 30, 2012 increased 22% to $7.2 million, and for the six months ended June 30, 2012 increased 20% to $16.1 million, as compared to the corresponding periods in 2011, primarily due to an increase in external preclinical and clinical research and development costs. Third-party and other services relate principally to our clinical trial and related development activities, such as preclinical and clinical studies and contract manufacturing.

• Personnel – Personnel costs for the three months ended June 30, 2012 decreased 18% to $6.2 million, and for the six months ended June 30, 2012 decreased 15% to $14.1 million, as compared to the corresponding periods in 2011, primarily due to reductions in our personnel in February 2011 and January 2012. Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Facilities and equipment – Facilities and equipment costs for the three months ended June 30, 2012 decreased 13% to $2.9 million, as compared to the corresponding period in 2011, primarily due to reduced maintenance costs. Facilities and equipment costs for the six months ended June 30, 2012 decreased 22% to $5.9 million, as compared to the corresponding period in 2011, primarily due to an impairment of buildings due to excess capacity in 2011 and reduced maintenance costs.

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• Stock-based compensation – Stock-based compensation expense for the three months ended June 30, 2012 increased 12% to $0.9 million, and for the six months ended June 30, 2012 increased 18% to $2.0 million, as compared to the corresponding periods in 2011.

• Laboratory supplies – Laboratory supplies expense for the three months ended June 30, 2012 decreased 35% to $0.9 million, and for the six months ended June 30, 2012 decreased 31% to $1.8 million, as compared to the corresponding periods in 2011, primarily due to reductions in early-stage research activities.

• Other – Other costs for the three months ended June 30, 2012 increased 5% to $1.2 million, and for the six months ended June 30, 2012 increased 13% to $2.5 million, as compared to the corresponding periods in 2011.

Increase in Fair Value of Symphony Icon Liability

The increase in fair value of the Symphony Icon purchase liability was $2.2 million and $1.8 million for the three months ended June 30, 2012 and 2011, respectively, and was $4.2 million and $2.9 million for the six months ended June 30, 2012 and 2011, respectively (see Note 8, Arrangements with Symphony Icon, Inc., of the Notes to Consolidated Financial Statements, for more information).

General and Administrative Expenses

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 June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
Total general and administrative expense	$	4.2		$	4.5	$	8.7		$	9.3
Dollar decrease	$	(0.4	)			$	(0.6	)
Percentage decrease	(8		)%			(6		)%

General and administrative expenses consist primarily of salaries and other personnel-related expenses, professional fees such as legal fees, facility and equipment costs, and stock-based compensation expenses.

• Personnel – Personnel costs for the three months ended June 30, 2012 decreased 8% to $2.0 million, and for the six months ended June 30, 2012 decreased 5% to $4.4 million, as compared to the corresponding periods in 2011, principally due to reductions in our personnel in February 2011 and January 2012. Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Stock-based compensation – Stock-based compensation expense for the three months ended June 30, 2012 increased 8% to $0.7 million, and for the six months ended June 30, 2012 increased 8% to $1.4 million, as compared to the corresponding periods in 2011.

• Professional fees – Professional fees for the three months ended June 30, 2012 decreased 19% to $0.6 million, and for the six months ended June 30, 2012 decreased 11% to $1.3 million, as compared to the corresponding periods in 2011, primarily due to decreased patent related costs.

• Facilities and equipment – Facilities and equipment costs for the three months ended June 30, 2012 decreased 17% to $0.5 million, and for the six months ended June 30, 2012 decreased 14% to $1.0 million, as compared to the corresponding periods in 2011.

• Other – Other costs for the three months ended June 30, 2012 were $0.4 million, consistent with the corresponding period in 2011. Other costs for the six months ended June 30, 2012 decreased 10% to $0.7 million, as compared to the corresponding period in 2011.

Interest Income and Interest Expense

Interest Income.  Interest income for the three months ended June 30, 2012 was $0.1 million, consistent with the corresponding period in 2011. Interest income for the six months ended June 30, 2012 decreased 26% to $0.1 million, as compared to the corresponding period in 2011.

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Interest Expense.  Interest expense for the three months ended June 30, 2012 decreased 35% to $0.5 million, and for the six months ended June 30, 2012 decreased 25% to $1.1 million, as compared to the corresponding periods in 2011.

Consolidated Net Loss and Consolidated Net Loss per Common Share

Consolidated Net Loss and Consolidated Net Loss per Common Share. Consolidated net loss decreased to $25.9 million in the three months ended June 30, 2012 from $26.6 million in the corresponding period in 2011. Consolidated net loss per common share decreased to $0.05 in the three months ended June 30, 2012 from $0.08 in the corresponding period in 2011. Consolidated net loss decreased to $55.8 million in the six months ended June 30, 2012 from $56.3 million in the corresponding period in 2011. Consolidated net loss per common share decreased to $0.12 in the six months ended June 30, 2012 from $0.17 in the corresponding period in 2011.

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 under our drug discovery and development collaborations, target validation, database subscription and technology license agreements, government grants and contracts, and financing obtained under debt and lease arrangements. We have also financed certain of our research and development activities under our agreements with Symphony Icon, Inc. From our inception through June 30, 2012, we had received net proceeds of $948.0 million from issuances of common and preferred stock. In addition, from our inception through June 30, 2012, we received $455.8 million in cash payments from drug discovery and development collaborations, target validation, database subscription and technology license agreements, sales of compound libraries and reagents, and government grants and contracts, of which $441.9 million had been recognized as revenues through June 30, 2012.

As of June 30, 2012, we had $231.5 million in cash, cash equivalents and investments. As of December 31, 2011, we had $281.7 million in cash, cash equivalents and investments. We used cash of $49.0 million in operations in the six months ended June 30, 2012. This consisted primarily of the consolidated net loss for the period of $55.8 million and a net increase in other operating assets net of liabilities of $2.9 million, partially offset by non-cash charges of $4.2 million related to the increase in fair value of the Symphony Icon purchase liability, $3.3 million related to stock-based compensation expense and $2.2 million related to depreciation expense. Investing activities used cash of $102.7 million in the six months ended June 30, 2012, primarily due to net purchases of investments of $102.4 million and purchases of property and equipment of $0.3 million. Financing activities used cash of $0.9 million primarily due to repayment of debt borrowings of $0.7 million and repurchase of common stock of $0.3 million, partially offset by proceeds of $0.3 million related to issuance of common stock.

Symphony Drug Development Financing Agreements. In June 2007, we entered into a series of related agreements providing for the financing of the clinical development of certain drug programs, including LX1032 and LX1033, along with any other pharmaceutical compositions modulating the same targets as those drug candidates. Under the financing arrangement, we licensed to Symphony Icon, Inc., a then wholly-owned subsidiary of Symphony Icon Holdings LLC, our intellectual property rights related to the programs and Holdings contributed $45 million to Symphony Icon in order to fund the clinical development of the programs. We also issued and sold to Holdings shares of our common stock in exchange for $15 million and received an exclusive option to acquire all of the equity of Symphony Icon, thereby allowing us to reacquire the programs.

Upon the recommendation of Symphony Icon's development committee, which was comprised of an equal number of representatives from us and Symphony Icon, Symphony Icon's board of directors had the right to require us to pay Symphony Icon up to $15 million for Symphony Icon's use in the development of the programs in accordance with the specified development plan and related development budget. Through July 2010, Symphony Icon's board of directors requested us to pay Symphony Icon $9.3 million under the agreement, all of which was paid prior to the exercise of the purchase option in July 2010.

In July 2010, we entered into an amended and restated purchase option agreement with Symphony Icon and Holdings and simultaneously exercised our purchase option. Pursuant to the amended terms of the purchase option, we paid Holdings $10 million in July 2010 and issued 13,237,519 shares of common stock to designees of Holdings in July 2012 in satisfaction of an additional $35 million base payment obligation.

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We also agreed to make up to $45 million in additional contingent payments, which will consist of 50% of any consideration we receive pursuant to any licensing transaction under which we grant a third party rights to commercialize LX1032, LX1033 or other pharmaceutical compositions modulating the same target as those drug candidates, which we refer to as the “LG103 programs,” subject to certain exceptions. The contingent payments will be due if and when we receive such consideration from such a licensing transaction. In the event we receive regulatory approval in the United States for the marketing and sale of any product resulting from the LG103 programs prior to entering into such a licensing transaction for the commercialization of such product in the United States, in lieu of any contingent payment from such a licensing transaction, we will pay Holdings the sum of $15 million and the amount of certain expenses we incurred after our exercise of the purchase option which are attributable to the development of such product, reduced by up to 50% of such sum for the amount 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 we make any such payment upon United States regulatory approval, we will 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 the proceeds of such licensing transactions exceed 50% of the payment made as a result of such United States regulatory approval.

The contingent payments may be paid in cash or a combination of cash and common stock, in our discretion, provided that no more than 50% of any contingent payment will be paid in common stock.

Facilities. In April 2004, we obtained a $34.0 million mortgage on our facilities in The Woodlands, Texas. The mortgage loan has a ten-year term with a 20-year amortization and bears interest at a fixed rate of 8.23%. The mortgage had a principal balance outstanding of $24.2 million as of June 30, 2012. In May 2002, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc. leased a 76,000 square-foot laboratory and office space in Hopewell, New Jersey. The term of the lease extends until June 30, 2013. The lease provides for an escalating yearly base rent payment of $1.3 million in the first year, $2.1 million in years two and three, $2.2 million in years four to six, $2.3 million in years seven to nine and $2.4 million in years ten and eleven. We are the guarantor of the obligations of our subsidiary under the lease.

Our future capital requirements will be substantial and will depend on many factors, including our ability to obtain drug discovery and development collaborations and other collaborations and technology license agreements, the amount and timing of payments under such agreements, the level and timing of our research and development expenditures, market acceptance of our products, the resources we devote to 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 devote substantial capital resources to continue our research and development efforts, to expand our support and product development activities, 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 drug discovery and development collaborations, other collaborations and technology licenses and other sources will be sufficient to fund our operations for at least the next 12 months. 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. 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.

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 maintain a short-term investment portfolio which consists of U.S. Treasury bills, money market accounts, and certificates of deposit 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 $231.5 million in cash and cash equivalents and short-term investments as of June 30, 2012. We believe that the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

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

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.

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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.

Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

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Part II -- Other Information 

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.   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 and Our Financial Results

• We will need additional capital in the future and, if it is unavailable, we will be forced to significantly curtail or cease our operations. If it is not available on reasonable terms, we will be forced to obtain funds 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.

Risks Related to Discovery and Development of Our Drug Candidates

• We have not proven our ability to successfully develop and commercialize drug candidates based on our drug target discoveries.

• 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.

Risks Related to Regulatory Approval of Our Drug Candidates

• 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 ability to commercialize products.

• If our potential products receive regulatory approval, we or our collaborators will remain subject to extensive and rigorous ongoing regulation.

Risks Related to Commercialization of Products

• The commercial success of any products that we may develop will depend upon the degree of market acceptance of our products among physicians, patients, health care payors, private health insurers and the medical community.

• If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug candidates, we may be unable to generate product revenues.

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

• Current and future healthcare laws and regulations may negatively affect our revenues and prospects for profitability.

• Our competitors may develop products that make our products obsolete.

• We may not be able to manufacture our drug candidates in commercial quantities, which would prevent us from commercializing our drug candidates.

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Risks Related to Our Relationships with Third Parties

• We are dependent in many ways upon our collaborations with major pharmaceutical companies. If milestones are not achieved under our collaborations or if our collaborators' efforts fail to yield pharmaceutical products on a timely basis, our opportunities to generate revenues and earn royalties will be reduced.

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

• We rely on third parties to carry out drug development activities.

• We lack the capability to manufacture materials for preclinical studies, clinical trials or commercial sales and rely on third parties to manufacture our drug candidates, which may harm or delay our product 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 discovery and development and planned commercialization activities. We may not prevail in any such litigation or other dispute or be able to obtain required licenses.

• We use intellectual property that we license from third parties. If we do not comply with these licenses, we could lose our rights under them.

• We have not sought patent protection outside of the United States for some of our inventions, 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 to our discoveries.

• 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 Employees, Advisors and Facilities Operations

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

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

• Because most of our operations are located at a single facility, the occurrence of a disaster could significantly disrupt our business.

Risks Related to Environmental and Product Liability

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

• We may be sued for product liability.

Risks Related to Our Common Stock

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

• Invus has additional rights under our stockholders' agreement with Invus, L.P. which provides Invus with substantial influence over certain significant corporate matters.

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• 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 sales of our common stock may depress our stock price.

• If we are unable to meet Nasdaq continued listing requirements, Nasdaq may take action to delist our common stock.

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, 2011 as filed with the Securities and Exchange Commission.

Item 6. Exhibits

Exhibit No.		Description
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

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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:	August 2, 2012	By:	/s/ Arthur T. Sands
			Arthur T. Sands, M.D., Ph.D.
			President and Chief Executive Officer

Date:	August 2, 2012	By:	/s/ Jeffrey L. Wade
			Jeffrey L. Wade
			Executive Vice President, Corporate Development and Chief Financial Officer

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Index to Exhibits

Exhibit No.		Description
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

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Arthur T. Sands, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Lexicon Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 2, 2012

/s/ Arthur T. Sands

Arthur T. Sands, M.D., Ph.D.

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Jeffrey L. Wade, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Lexicon Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 2, 2012

/s/ Jeffrey L. Wade

Jeffrey L. Wade

Executive Vice President, Corporate Development and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350, as adopted), Arthur T. Sands, M.D., Ph.D., Principal Executive Officer of Lexicon Pharmaceuticals, Inc. (“Lexicon”), and Jeffrey L. Wade, Principal Financial Officer of Lexicon, each hereby certify that:

1. Lexicon's Quarterly Report on Form 10-Q for the period ended June 30, 2012, and to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Lexicon.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 2nd day of August, 2012.

By:	/s/ Arthur T. Sands
	Arthur T. Sands, M.D., Ph.D.
	President and Chief Executive Officer

By:	/s/ Jeffrey L. Wade
	Jeffrey L. Wade
	Executive Vice President, Corporate Development and Chief Financial Officer

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Commitments and Contingencies (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Operating Leased Assets [Line Items]
Guarantor Obligations, Maximum Exposure, Undiscounted	$ 2,600,000
Restricted investments	$ 430,000	$ 430,000

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Stock-Based Compensation (Details 4) (Restricted Stock Units (RSUs) [Member], USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units	3,752	2,127
Restricted stock units, weighted-average grant date fair value	$ 1.80	$ 1.81
Restricted stock units granted	2,390
Restricted stock units granted, weighted-average grant date fair value	$ 1.80
Restricted stock units vested	(518)
Restricted stock units vested, weighted-average grant date fair value	$ 1.81
Restricted stock units forfeited	(247)
Restricted stock units forfeited, weighted-average grant date fair value	$ 1.81

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Net Loss Per Share

6 Months Ended

Jun. 30, 2012

Net Loss Per Share [Abstract]

Earnings Per Share [Text Block]

Net Loss Per Share

Net loss per share is computed using the weighted average number of shares of common stock outstanding during the applicable period and excludes shares underlying stock options and restricted stock units because they are antidilutive.  There are no differences between basic and diluted net loss per share for all periods presented.

Earnings Per Share, Policy

Net loss per share is computed using the weighted average number of shares of common stock outstanding during the applicable period and excludes shares underlying stock options and restricted stock units because they are antidilutive.

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Level 1
Fair Value
Cash and cash equivalents	$ 33,779	$ 186,309
Short-term investments	197,734	95,383
Total cash and cash equivalents and investments	231,513	281,692
Other long-term liabilities	0	0
Total liabilities	0	0
Fair Value, Level 2
Fair Value
Cash and cash equivalents	0	0
Short-term investments	0	0
Total cash and cash equivalents and investments	0	0
Other long-term liabilities	0	0
Total liabilities	0	0
Fair Value, Level 3
Fair Value
Cash and cash equivalents	0	0
Short-term investments	0	0
Total cash and cash equivalents and investments	0	0
Other long-term liabilities	59,276	55,033
Total liabilities	59,276	55,033
Fair Value, Total
Fair Value
Cash and cash equivalents	33,779	186,309
Short-term investments	197,734	95,383
Total cash and cash equivalents and investments	231,513	281,692
Other long-term liabilities	59,276	55,033
Total liabilities	$ 59,276	$ 55,033

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Cash and Cash Equivalents and Investments (Details 2) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Schedule of Investments [Line Items]
Realized Investment Gains (Losses)	$ 0	$ 0

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Fair Value Measurements (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 31, 2010
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Gain (Loss) Included in Earnings	$ 4,243	$ 2,862
Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value	$ 59,276	$ 51,129	$ 55,033	$ 48,267

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Debt Obligations (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Apr. 30, 2004	Jun. 30, 2012
Debt Instrument [Line Items]
Mortgage Loans on Real Estate, New Mortgage Loans	$ 34.0
Debt Instrument, Interest Rate, Stated Percentage		8.23%
Secured Debt		$ 24.2

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure

Basis of Presentation

The accompanying unaudited consolidated financial statements of Lexicon Pharmaceuticals, Inc. (“Lexicon” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

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

For further information, refer to the financial statements and footnotes thereto included in Lexicon’s annual report on Form 10-K for the year ended December 31, 2011, as filed with the SEC.

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Arrangements with Symphony Icon Inc (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jul. 30, 2012	Jul. 30, 2010	Jun. 15, 2007
Loss Contingencies [Line Items]
Holdings contribution to Icon							$ 45,000,000
Lexicon sold shares to Holdings							7,650,622
Lexicon received cash from Holdings							15,000,000
Lexicon paid Holdings cash						10,000,000
Symphony base payment in shares					13,237,519
Symphony base payment obligation					35,000,000
Symphony contingent payment maximum						45,000,000
Symphony contingent payment percentage						50.00%
Symphony regulatory approval payment						15,000,000
Symphony regulatory approval reduction percentage						50.00%
Symphony regulatory approval percentage limit						50.00%
Symphony payment in stock limitation						50.00%
Symphony fair value of base and contingent payments						45,600,000
Symphony base payment discount rate						14.00%
Symphony contingent payment discount rate						18.00%
Increase in fair value of Symphony Icon, Inc. purchase liability	$ 2,162,000	$ 1,804,000	$ 4,243,000	$ 2,862,000

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 33,779	$ 186,309
Short-term investments, including restricted investments of $430	197,734	95,383
Accounts receivable, net of allowances of $35	182	350
Prepaid expenses and other current assets	6,582	3,748
Total current assets	238,277	285,790
Property and equipment, net of accumulated depreciation and amortization of $82,576 and $80,535, respectively	44,526	46,417
Goodwill	44,543	44,543
Other intangible assets	53,557	53,557
Other assets	157	205
Total assets	381,060	430,512
Current liabilities:
Accounts payable	4,579	6,042
Accrued liabilities	15,045	13,786
Current portion of deferred revenue	421	119
Current portion of long-term debt	1,510	1,443
Total current liabilities	21,555	21,390
Deferred revenue, net of current portion	13,910	14,212
Long-term debt	22,678	23,451
Deferred tax liabilities	18,745	18,745
Other long-term liabilities	59,276	55,146
Total liabilities	136,164	132,944
Commitments and contingencies
Equity:
Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued and outstanding	0	0
Common stock, $.001 par value; 900,000 shares authorized; 481,168 and 480,389 shares issued, respectively	481	480
Additional paid-in capital	1,090,485	1,087,033
Accumulated deficit	(845,420)	(789,621)
Accumulated other comprehensive gain (loss)	(20)	21
Treasury stock, at cost, 380 and 218 shares, respectively	(630)	(345)
Total equity	244,896	297,568
Total liabilities and equity	$ 381,060	$ 430,512

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Consolidated Statements of Stockholders' Equity (Unaudited) (USD $) In Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Gain (Loss)	Treasury Stock
Balance, value at Dec. 31, 2010	$ 247,024	$ 338	$ 920,324	$ (673,406)	$ 5	$ (237)
Balance, shares at Dec. 31, 2010		337,566
Stock-based compensation	2,922	0	2,922	0	0	0
Issuance of common stock under Equity Incentive Plans, shares		329
Issuance of common stock under Equity Incentive Plans, value	551	0	551	0	0	0
Other	0
Repurchase of common stock	(108)	0	0	0	0	(108)
Net loss	(56,267)	0	0	(56,267)	0	0
Unrealized gain (loss) on investments	66	0	0	0	66	0
Balance, value at Jun. 30, 2011	194,188	338	923,797	(729,673)	71	(345)
Balance, shares at Jun. 30, 2011		337,895
Balance, value at Dec. 31, 2011	297,568	480	1,087,033	(789,621)	21	(345)
Balance, shares at Dec. 31, 2011		480,389
Stock-based compensation	3,313	0	3,313	0	0	0
Issuance of common stock under Equity Incentive Plans, shares		779
Issuance of common stock under Equity Incentive Plans, value	276	1	275	0	0	0
Other	(136)	0	(136)	0	0	0
Repurchase of common stock	(285)	0	0	0	0	(285)
Net loss	(55,799)	0	0	(55,799)	0	0
Unrealized gain (loss) on investments	(41)	0	0	0	(41)	0
Balance, value at Jun. 30, 2012	$ 244,896	$ 481	$ 1,090,485	$ (845,420)	$ (20)	$ (630)
Balance, shares at Jun. 30, 2012		481,168

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Stock-Based Compensation (Details 1) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation	$ 1.6	$ 1.5	$ 3.3	$ 2.9

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Stock-Based Compensation (Details 3) (Stock Options [Member], USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options outstanding	20,476
Stock options outstanding, weighted-average exercise price	$ 2.84
Stock options granted	3,231
Stock options granted, weighted-average exercise price	$ 1.79
Stock options exercised	(167)
Stock options exercised, weighted-average exercise price	$ 1.65
Stock options expired	(855)
Stock options expired, weighted-average exercise price	$ 7.87
Stock options forfeited	(221)
Stock options forfeited, weighted-average exercise price	$ 1.77
Stock options outstanding	22,464
Stock options outstanding, weighted-average exercise price	$ 2.52
Stock options exercisable	15,028
Stock options exercisable, weighted-average exercise price	$ 2.88

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Consolidated net loss	$ (55,799)	$ (56,267)
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
Depreciation	2,219	2,571
Impairment of fixed assets	0	785
Increase in fair value of Symphony Icon, Inc. purchase liability	4,243	2,862
Share-based compensation	3,313	2,922
Changes in operating assets and liabilities:
Decrease in accounts receivable	168	239
Increase in prepaid expenses and other current assets	(2,834)	(991)
Decrease in other assets	48	366
Increase (decrease) in accounts payable and other liabilities	(317)	2,360
Decrease in deferred revenue	0	(76)
Net cash used in operating activities	(48,959)	(45,229)
Cash flows from investing activities:
Purchases of property and equipment	(329)	(815)
Proceeds from disposal of property and equipment	1	2,516
Purchases of investments	(151,776)	(64,126)
Maturities of investments	49,384	83,609
Net cash provided by (used in) investing activities	(102,720)	21,184
Cash flows from financing activities:
Proceeds from issuance of common stock	276	188
Repurchase of common stock	(285)	(108)
Repayment of debt borrowings	(706)	(2,915)
Other financing activities	(136)	0
Net cash used in financing activities	(851)	(2,835)
Net decrease in cash and cash equivalents	(152,530)	(26,880)
Cash and cash equivalents at beginning of period	186,309	47,208
Cash and cash equivalents at end of period	33,779	20,328
Supplemental disclosure of cash flow information:
Cash paid for interest	1,029	1,385
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain (loss) on investments	$ (41)	$ 66

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Balance Sheet Parenthetical (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Restricted investments	430	430
Allowances for accounts receivable	35	35
Accumulated depreciation and amortization, property and equipment	82,576	80,535
Preferred stock, par value per share	0.01	0.01
Preferred stock, shares authorized	5,000	5,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value per share	0.001	0.001
Common stock, shares authorized	900,000	900,000
Treasury stock, shares	380	218
Common Stock [Member]
Common stock, shares issued	481,168	480,389

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Collaboration and License Agreements

6 Months Ended

Jun. 30, 2012

Collaboration and License Agreements [Abstract]

Collaborative Arrangement Disclosure

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, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales. Revenues generated from third parties under collaborative arrangements are recorded on a gross basis on the consolidated statements of comprehensive loss as Lexicon is the principal participant for these transactions for the purpose of accounting for these arrangements.

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Document and Entity Information Document	6 Months Ended
	Jun. 30, 2012	Jul. 31, 2012
Document Information [Line Items]
Entity Registrant Name	LEXICON PHARMACEUTICALS, INC./DE
Entity Central Index Key	0001062822
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		494,336,148

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Net Loss Per Share Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Net Loss Per Share [Abstract]

Earnings Per Share, Policy

Net loss per share is computed using the weighted average number of shares of common stock outstanding during the applicable period and excludes shares underlying stock options and restricted stock units because they are antidilutive.

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Consolidated Statements of Comprehensive Loss (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenues:
Collaborative research	$ 199	$ 461	$ 351	$ 977
Subscription and license fees	0	94	148	174
Total revenues	199	555	499	1,151
Operating expenses:
Research and development, including stock-based compensation of $915, $818, $1,952 and $1,657, respectively	19,355	20,145	42,392	44,066
Increase in fair value of Symphony Icon, Inc. purchase liability	2,162	1,804	4,243	2,862
General and administrative, including stock-based compensation of $680, $632, $1,361 and $1,265, respectively	4,162	4,532	8,727	9,285
Total operating expenses	25,679	26,481	55,362	56,213
Loss from operations	(25,480)	(25,926)	(54,863)	(55,062)
Interest income	58	68	114	155
Interest expense	(530)	(810)	(1,067)	(1,417)
Other income, net	21	30	17	57
Consolidated net loss	(25,931)	(26,638)	(55,799)	(56,267)
Consolidated net loss per common share, basic and diluted	$ (0.05)	$ (0.08)	$ (0.12)	$ (0.17)
Shares used in computing consolidated net loss per common share, basic and diluted	480,634	337,668	480,479	337,598
Unrealized gain (loss) on investments	37	31	(41)	66
Comprehensive loss	$ (25,894)	$ (26,607)	$ (55,840)	$ (56,201)

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Cash and Cash Equivalents and Investments

6 Months Ended

Jun. 30, 2012

Cash and Cash Equivalents and Investments [Abstract]

Cash and Cash Equivalents Disclosure

Cash and Cash Equivalents and Investments

The fair value of cash and cash equivalents and investments held at June 30, 2012 and December 31, 2011 are as follows:

	As of June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Cash and cash equivalents	$	33,779	$	—	$	—		$	33,779
Securities maturing within one year:
Certificates of deposit	548		—		—			548
U.S. treasury securities	197,206		6		(26		)	197,186
Total short-term investments	$	197,754	$	6	$	(26	)	$	197,734
Total cash and cash equivalents and investments	$	231,533	$	6	$	(26	)	$	231,513
	As of December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	186,309	$	—	$	—		$	186,309
Securities maturing within one year:
Certificates of deposit	548		—		—			548
U.S. treasury securities	94,814		24		(3		)	94,835
Total short-term investments	$	95,362	$	24	$	(3	)	$	95,383
Total cash and cash equivalents and investments	$	281,671	$	24	$	(3	)	$	281,692

There were no realized gains or losses for the six months ended June 30, 2012, and no realized gains or loss for the six months ended June 30, 2011. The cost of securities sold is based on the specific identification method.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

Recent Accounting Pronouncements [Abstract]

Schedule of New Accounting Pronouncements and Changes in Accounting Principles

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-05, “Presentation of Comprehensive Income”, which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income ("OCI") by eliminating the option to present components of OCI as part of the statement of stockholders' equity. The amendments in this standard require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under either method, adjustments must be displayed for items that are reclassified from OCI to net income, in both net income and OCI. The standard does not change the current option for presenting components of OCI gross or net of the effect of income taxes, provided that such tax effects are presented in the statement in which OCI is presented or disclosed in the notes to the financial statements. Additionally, the standard does not affect the calculation or reporting of earnings per share. This pronouncement should be applied retrospectively for fiscal years beginning after December 15, 2011, with early adoption permitted. Lexicon adopted this pronouncement in 2012 and there was no material impact to its consolidated results of operations and financial condition.

In July 2012, the FASB issued ASU No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment", which amends FASB ASC Topic 350. ASU 2012-02 gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports the conclusion that it is more likely than not that the fair value of the asset exceeds its carrying amount, the entity would not need to perform the two-step quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. Management does not expect the adoption of this standard to have a material impact on Lexicon's consolidated financial statements.

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Stock-Based Compensation (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Stock-Based Compensation [Abstract]
Share-based compensation	$ 1.6	$ 1.5	$ 3.3	$ 2.9
Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility rate, employees			92.00%	88.00%
Expected volatility rate, officers and non-employee directors			80.00%	78.00%
Risk free interest rate, employees			0.80%	2.20%
Risk free interest rate, officers and non-employee directors			1.60%	3.20%
Expected term, employees			5 years	5 years
Expected term, officers and non-employee directors			8 years	8 years
Expected dividend rate, employees			0.00%	0.00%
Expected dividend rate, officers and non-employee directors			0.00%	0.00%

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
June 30, 2012:
Employees	92	%	0.8	%	5	—	%
Officers and non-employee directors	80	%	1.6	%	8	—	%
June 30, 2011:
Employees	88	%	2.2	%	5	—	%
Officers and non-employee directors	78	%	3.2	%	8	—	%

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Arrangements with Symphony Icon Inc

6 Months Ended

Jun. 30, 2012

Arrangements with Symphony Icon Inc [Abstract]

Arrangements with Symphony Icon Inc

Arrangements with Symphony Icon, Inc.

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 LX1032 and LX1033, 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 7,650,622 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 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 13,237,519 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 will 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 LX1032, LX1033 or other pharmaceutical compositions modulating the same target as those drug candidates (the “LG103 Programs”), subject to certain exceptions. The contingent payments will be due if and when Lexicon receives such consideration from a Licensing Transaction. In the event Lexicon receives 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 will pay Holdings the sum of $15 million and the amount of certain expenses Lexicon incurred after its exercise of the Purchase Option which are attributable to the development of such product, reduced by up to 50% of such sum for the amount 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 makes any such payment upon United States regulatory approval, Lexicon will 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 the proceeds of such Licensing Transactions exceed 50% of the payment made as a result of such United States regulatory approval.

The contingent payments 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.

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 has 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 at the date of acquisition 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. The discount rate assumptions have not changed through June 30, 2012, and as programs progress, the probability adjusted contingency is adjusted as necessary. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as an increase or decrease in fair value of Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. During the six months ended June 30, 2012 and 2011, the fair value of the Symphony Icon purchase consideration liability increased by $4.2 million and $2.9 million, respectively.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value, Measurement Inputs, Disclosure

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 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

• Level 2 - other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

• Level 3 - significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments)

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 June 30, 2012 and December 31, 2011.

	Assets and Liabilities at Fair Value as of June 30, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	33,779	$	—	$	—	$	33,779
Short-term investments	197,734		—		—		197,734
Total cash and cash equivalents and investments	$	231,513	$	—	$	—	$	231,513
Liabilities
Other long-term liabilities	$	—	$	—	$	59,276	$	59,276
Total liabilities	$	—	$	—	$	59,276	$	59,276

	Assets and Liabilities at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	186,309	$	—	$	—	$	186,309
Short-term investments	95,383		—		—		95,383
Total cash and cash equivalents and investments	$	281,692	$	—	$	—	$	281,692
Liabilities
Other long-term liabilities	$	—	$	—	$	55,033	$	55,033
Total liabilities	$	—	$	—	$	55,033	$	55,033

The Company's Level 3 liabilities are 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 are 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 six months ended June 30, 2012 and 2011.

	Other Long-term Liabilities
	(in thousands)
Balance at December 31, 2011	$	55,033
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	4,243
Balance at June 30, 2012	$	59,276
Balance at December 31, 2010	$	48,267
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	2,862
Balance at June 30, 2011	$	51,129

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 on July 30, 2010 and intangible assets associated with the acquisition of Symphony Icon on July 30, 2010. 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.

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Debt Obligations

6 Months Ended

Jun. 30, 2012

Debt Obligations [Abstract]

Debt Disclosure

Debt Obligations

Mortgage Loan.  In April 2004, Lexicon obtained a $34.0 million mortgage on its facilities in The Woodlands, Texas.  The mortgage loan has a ten-year term with a 20-year amortization and bears interest at a fixed rate of 8.23%.  The mortgage had a principal balance outstanding of $24.2 million as of June 30, 2012. The fair value of Lexicon’s mortgage loan approximates its carrying value.  The fair value of Lexicon’s mortgage loan is estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rate.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies Disclosure

Commitments and Contingencies

Operating Lease Obligations:  A Lexicon subsidiary leases laboratory and office space in Hopewell, New Jersey under an agreement which expires in June 2013.  Rent expense is recognized on a straight-line basis over the original lease term.  Lexicon is the guarantor of the obligations of its subsidiary under this lease.  The maximum potential amount of future payments the Company could be required to make under this agreement is $2.6 million. The Company is required to maintain restricted investments to collateralize a standby letter of credit for this lease.  The Company had $0.4 million and $0.4 million in restricted investments as collateral as of June 30, 2012 and December 31, 2011, respectively.  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.

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Assets and Liabilities at Fair Value as of June 30, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	33,779	$	—	$	—	$	33,779
Short-term investments	197,734		—		—		197,734
Total cash and cash equivalents and investments	$	231,513	$	—	$	—	$	231,513
Liabilities
Other long-term liabilities	$	—	$	—	$	59,276	$	59,276
Total liabilities	$	—	$	—	$	59,276	$	59,276

	Assets and Liabilities at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	186,309	$	—	$	—	$	186,309
Short-term investments	95,383		—		—		95,383
Total cash and cash equivalents and investments	$	281,692	$	—	$	—	$	281,692
Liabilities
Other long-term liabilities	$	—	$	—	$	55,033	$	55,033
Total liabilities	$	—	$	—	$	55,033	$	55,033

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	Other Long-term Liabilities
	(in thousands)
Balance at December 31, 2011	$	55,033
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	4,243
Balance at June 30, 2012	$	59,276
Balance at December 31, 2010	$	48,267
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	2,862
Balance at June 30, 2011	$	51,129

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Stock-Based Compensation (Details 5) (Performance Stock Units (PSUs) [Member], USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Performance Stock Units (PSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance stock units	345	350
Performance stock units, weighted-average grant date fair value	$ 1.90	$ 1.90
Performance stock units forfeited	(5)
Performance stock units forfeited, weighted-average grant date fair value	$ 1.90

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Statements of Comprehensive Loss Parenthetical (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Stock-based compensation expense associated with research and development expense	$ 915	$ 818	$ 1,952	$ 1,657
Stock-based compensation expense associated with general and administrative expense	$ 680	$ 632	$ 1,361	$ 1,265

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award

 Stock-Based Compensation

The Company recorded $1.6 million and $1.5 million of stock-based compensation expense for the three months ended June 30, 2012 and 2011, respectively, and $3.3 million and $2.9 million of stock-based compensation expense for the six months ended June 30, 2012 and 2011, respectively.  The Company utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions for options granted in the six months ended June 30, 2012 and 2011:

	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
June 30, 2012:
Employees	92	%	0.8	%	5	—	%
Officers and non-employee directors	80	%	1.6	%	8	—	%
June 30, 2011:
Employees	88	%	2.2	%	5	—	%
Officers and non-employee directors	78	%	3.2	%	8	—	%

The following is a summary of option activity under Lexicon’s stock-based compensation for the six months ended June 30, 2012:

	Options		Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2011	20,476		$	2.84
Granted	3,231		1.79
Exercised	(167	)	1.65
Expired	(855	)	7.87
Forfeited	(221	)	1.77
Outstanding at June 30, 2012	22,464		2.52
Exercisable at June 30, 2012	15,028		$	2.88

During the six months ended June 30, 2012, 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 activity under Lexicon’s stock-based compensation plans for the six months ended June 30, 2012:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2011	2,127		$	1.81
Granted	2,390		1.80
Vested	(518	)	1.81
Forfeited	(247	)	1.81
Nonvested at June 30, 2012	3,752		$	1.80

During 2010, Lexicon granted certain employees restricted stock units with a performance condition. The shares subject to the restricted stock units granted in 2010 vest upon the dosing of the first patient in a pivotal human clinical trial in any country, the results of which could be used to establish safety and efficacy of a pharmaceutical product discovered or developed by Lexicon as a basis for a New Drug Application. 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 following is a summary of performance-based restricted stock units activity under Lexicon's stock-based compensation plans for the six months ended June 30, 2012:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2011	350		$	1.90
Forfeited	(5	)	1.90
Nonvested at June 30, 2012	345		$	1.90

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Cash and Cash Equivalents and Investments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Cash and Cash Equivalents
Fair Value
Amortized Cost	$ 33,779	$ 186,309
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Value	33,779	186,309
Certificates of Deposit
Fair Value
Amortized Cost	548	548
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Value	548	548
U.S. Treasury Securities
Fair Value
Amortized Cost	197,206	94,814
Gross Unrealized Gains	6	24
Gross Unrealized Losses	(26)	(3)
Estimated Fair Value	197,186	94,835
Total Short-term Investments
Fair Value
Amortized Cost	197,754	95,362
Gross Unrealized Gains	6	24
Gross Unrealized Losses	(26)	(3)
Estimated Fair Value	197,734	95,383
Total Cash and Cash Equivalents and Investments
Fair Value
Amortized Cost	231,533	281,671
Gross Unrealized Gains	6	24
Gross Unrealized Losses	(26)	(3)
Estimated Fair Value	$ 231,513	$ 281,692

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Cash and Cash Equivalents and Investments (Tables)

6 Months Ended

Jun. 30, 2012

Cash and Cash Equivalents and Investments [Abstract]

Schedule of Cash, Cash Equivalents and Short-term Investments [Table Text Block]

	As of June 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Cash and cash equivalents	$	33,779	$	—	$	—		$	33,779
Securities maturing within one year:
Certificates of deposit	548		—		—			548
U.S. treasury securities	197,206		6		(26		)	197,186
Total short-term investments	$	197,754	$	6	$	(26	)	$	197,734
Total cash and cash equivalents and investments	$	231,533	$	6	$	(26	)	$	231,513
	As of December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	186,309	$	—	$	—		$	186,309
Securities maturing within one year:
Certificates of deposit	548		—		—			548
U.S. treasury securities	94,814		24		(3		)	94,835
Total short-term investments	$	95,362	$	24	$	(3	)	$	95,383
Total cash and cash equivalents and investments	$	281,671	$	24	$	(3	)	$	281,692