10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2019

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

Yes þ No

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

Large accelerated filer     Accelerated filer þ Non-accelerated filer

Smaller reporting company Emerging growth company

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

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 April 29, 2019, 106,271,927 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 - March 31, 2019 (unaudited) and December 31, 2018	3
	Consolidated Statements of Comprehensive Loss (unaudited) - Three Months Ended March 31, 2019 and 2018	4
	Consolidated Statements of Stockholders’ Equity/(Deficit) (unaudited) - Three Months Ended March 31, 2019 and 2018	5
	Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 31, 2019 and 2018	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
Part II – Other Information		25
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 6.	Exhibits	30
	Signatures	31

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

——————

Factors Affecting Forward Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Part II, Item 1A. - Risk Factors” and in our annual report on Form 10-K for the year ended December 31, 2018, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements.

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

2

Part I – Financial Information

Item 1.                 Financial Statements

Lexicon Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except par value)

	As of March 31,			As of December 31,
	2019			2018
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	45,778		$	80,386
Short-term investments	87,367			79,666
Accounts receivable, net of allowances of $4	4,390			5,924
Inventory	4,606			4,680
Prepaid expenses and other current assets	4,686			2,668
Total current assets	146,827			173,324
Property and equipment, net of accumulated depreciation and amortization of $60,466 and $60,006, respectively	15,475			15,865
Goodwill	44,543			44,543
Other intangible assets, net of accumulated amortization of $3,678 and $3,237, respectively	49,678			50,119
Other assets	1,993			285
Total assets	$	258,516		$	284,136
Liabilities and Equity
Current liabilities:
Accounts payable	$	13,874		$	17,759
Accrued liabilities	10,800			14,482
Current portion of deferred revenue	2,432			3,395
Current portion of long-term debt, net of deferred issuance costs	1,115			1,115
Total current liabilities	28,221			36,751
Deferred revenue, net of current portion	24,623			23,651
Long-term debt, net of deferred issuance costs	243,912			243,887
Deferred tax liabilities	6,014			6,014
Other long-term liabilities	1,433			238
Total liabilities	304,203			310,541
Commitments and contingencies
Equity (Deficit):
Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $.001 par value; 225,000 shares authorized; 106,679 and 106,162 shares issued, respectively	106			106
Additional paid-in capital	1,451,365			1,447,954
Accumulated deficit	(1,493,374		)	(1,471,577		)
Accumulated other comprehensive income (loss)	33			(12		)
Treasury stock, at cost, 407 and 236 shares, respectively	(3,817		)	(2,876		)
Total deficit	(45,687		)	(26,405		)
Total liabilities and equity (deficit)	$	258,516		$	284,136

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

3

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Loss

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2019			2018
Revenues:
Net product revenue	$	6,740		$	5,460
Collaborative agreements	2,439			19,832
Royalties and other revenue	37			82
Total revenues	9,216			25,374
Operating expenses:
Cost of sales (including finite-lived intangible asset amortization)	553			533
Research and development, including stock-based compensation of $1,768 and $1,655, respectively	12,022			47,696
Selling, general and administrative, including stock-based compensation of $1,643 and $1,419, respectively	14,110			14,857
Total operating expenses	26,685			63,086
Loss from operations	(17,469		)	(37,712		)
Interest expense	(5,117		)	(5,113		)
Interest and other income, net	789			1,005
Net loss	$	(21,797	)	$	(41,820	)
Net loss per common share, basic and diluted	$	(0.21	)	$	(0.40	)
Shares used in computing net loss per common share, basic and diluted	106,054			105,668
Other comprehensive income (loss):
Unrealized gain (loss) on investments	45			(172		)
Comprehensive loss	$	(21,752	)	$	(41,992	)

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

4

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity (Deficit)

(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, 2017	105,711	$	106	$	1,435,526	$	(1,365,241	)	$	(222	)	$	(1,904	)	$	68,265
Cumulative effect of change in accounting principle	—	—		—		14,212			—			—			14,212
Stock-based compensation	—	—		3,074		—			—			—			3,074
Issuance of common stock under Equity Incentive Plans	337	—		25		—			—			—			25
Repurchase of common stock	—	—		—		—			—			(972		)	(972		)
Net loss	—	—		—		(41,820		)	—			—			(41,820		)
Unrealized loss on investments	—	—		—		—			(172		)	—			(172		)
Balance at March 31, 2018	106,048	$	106	$	1,438,625	$	(1,392,849	)	$	(394	)	$	(2,876	)	$	42,612
Balance at December 31, 2018	106,162	$	106	$	1,447,954	$	(1,471,577	)	$	(12	)	$	(2,876	)	$	(26,405	)
Stock-based compensation	—	—		3,411		—			—			—			3,411
Issuance of common stock under Equity Incentive Plans	517	—		—		—			—			—			—
Repurchase of common stock	—	—		—		—			—			(941		)	(941		)
Net loss	—	—		—		(21,797		)	—			—			(21,797		)
Unrealized gain on investments	—	—		—		—			45			—			45
Balance at March 31, 2019	106,679	$	106	$	1,451,365	$	(1,493,374	)	$	33		$	(3,817	)	$	(45,687	)

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

5

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(21,797	)	$	(41,820	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	901			925
Stock-based compensation	3,411			3,074
Amortization of debt issuance costs	346			307
Changes in operating assets and liabilities:
Decrease in accounts receivable	1,534			343
(Increase) decrease in inventory	74			(164		)
(Increase) decrease in prepaid expenses and other current assets	(2,018		)	150
(Increase) decrease in other assets	91			(3		)
Increase (decrease) in accounts payable and other liabilities	(8,171		)	9,382
Increase (decrease) in deferred revenue	9			(18,969		)
Net cash used in operating activities	(25,620		)	(46,775		)
Cash flows from investing activities:
Purchases of property and equipment	(70		)	(40		)
Purchases of investments	(87,256		)	(46,892		)
Maturities of investments	79,600			53,995
Net cash (used in) provided by investing activities	(7,726		)	7,063
Cash flows from financing activities:
Proceeds from issuance of common stock	—			25
Repurchase of common stock	(941		)	(972		)
Repayment of debt borrowings	(321		)	(581		)
Net cash used in financing activities	(1,262		)	(1,528		)
Net decrease in cash and cash equivalents	(34,608		)	(41,240		)
Cash and cash equivalents at beginning of period	80,386			61,661
Cash and cash equivalents at end of period	$	45,778		$	20,421
Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,698		$	774
Supplemental disclosure of non-cash activities:
Unrealized gain (loss) on investments	$	45		$	(172	)

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

6

Lexicon Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1.Summary of Significant Accounting Policies

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 three-month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019.

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, 2018, as filed with the SEC. 

Use of Estimates: The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  As of March 31, 2019 and December 31, 2018, short-term investments consist of U.S. treasury bills and corporate debt securities. The Company’s short-term investments are classified as available-for-sale securities and are carried at fair value, based on quoted market prices of the securities.  The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security.  Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity.  Net realized gains and losses, interest and dividends are included in interest income.  The cost of securities sold is based on the specific identification method.

Accounts Receivable:  Lexicon records trade accounts receivable in the normal course of business related to the sale of products or services.  Write-offs are evaluated on a case by case basis.

Inventory: Inventory is comprised of the Company’s approved product it is commercializing in the United States, XERMELO. Inventories are determined at the lower of cost or market value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods. Inventory consisted of the following:

	As of March 31,		As of December 31,
	2019		2018
	(in thousands)
Raw materials	$	3,571	$	3,564
Work-in-process	232		232
Finished goods	803		884
Total inventory	$	4,606	$	4,680

7

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

Segment Information and Significant Customers: Lexicon operates in one business segment, which primarily focuses on the discovery, development and commercialization of pharmaceutical products for the treatment of human disease. Substantially all of the Company’s revenues have been derived from drug discovery alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, technology licenses, subscriptions to its databases, product sales, government grants and contracts and compound library sales.

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

Other Intangible Assets: Other intangible assets, net consist of in-process research and development acquired in business combinations, which are reported at fair value, less accumulated amortization. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives. The Company recorded $0.4 million in amortization expense related to intangible assets for each of the three months ended March 31, 2019 and 2018, respectively.

Leases: Lexicon leases certain office space and equipment for use in operations. Lease expense is recognized on a straight-line basis over the lease term. Right-of-use assets and lease liabilities are recorded on the consolidated balance sheet for leases with a term greater than one year and are recognized based on the present value of the lease payments over the lease term.

Impairment of Long-Lived Assets:  Long-lived assets, right-of-use assets for leases and certain identifiable intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There was no impairment of long-lived assets in the three months ended March 31, 2019 and 2018.

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

Goodwill Impairment:  Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level.  The Company has determined that the reporting unit is the single operating segment disclosed in its current financial statements. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.  The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill.  If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized.  Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired.  There was no impairment of goodwill in the three months ended March 31, 2019 and 2018.

8

Revenue Recognition:

Product Revenues

Product revenues consist of commercial sales of XERMELO in the United States and sales of bulk tablets of XERMELO to Ipsen Pharma SAS (“Ipsen”). Product revenues are recognized when the customer obtains control of the Company’s product, which occurs upon delivery to the customer. The Company recognizes product revenue net of applicable reserves for variable consideration, including allowances for customer credits, estimated rebates, chargebacks, discounts, returns, distribution service fees, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. These estimates are based on the most likely amount method for relevant factors such as current contractual and statutory requirements, industry data and forecasted customer buying and payment patterns. The Company’s net product revenues reflect the Company’s best estimates of the amounts of consideration to which it is entitled based on the terms of the respective underlying contracts. Product shipping and handling costs are considered a fulfillment activity when control transfers to the Company’s customers and such costs are included in cost of sales.

Collaborative Agreements

Revenues under collaborative agreements include both license revenue and contract research revenue. The Company performs the following five steps in determining the amount of revenue to recognize as it fulfills its performance obligations under each of its agreements: (i) identify the contract(s) with a customer; (ii) identify the performance obligation in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company applies this five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company develops assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

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

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

For agreements that include sales-based royalties, including milestones based on a level of sales, the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

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

Cost of Sales: Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO. Product shipping and handling costs are included in cost of sales. Cost of sales also includes the amortization of the in-process research and development intangible asset for XERMELO using the straight-line method over the estimated useful life of 14 years.

9

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

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

The fair value of stock options is estimated at the date of grant using the Black-Scholes method.  The Black-Scholes option-pricing model requires the input of subjective assumptions.  Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.  For purposes of determining the fair value of stock options, the Company segregates its options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in a change in the assumptions used for expected option lives.  Historical data is used to estimate the expected option life for each group. Expected volatility is based on the historical volatility in the Company’s stock price.  The Company utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions for options granted in the three months ended March 31, 2019 and 2018:

	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
March 31, 2019:
Employees	63	%	2.5	%	4	—	%
Officers and non-employee directors	63	%	2.6	%	8	—	%
March 31, 2018:
Employees	60	%	2.5	%	4	—	%
Officers and non-employee directors	63	%	2.8	%	8	—	%

The following is a summary of option activity under Lexicon’s stock-based compensation plans for the three months ended March 31, 2019:

	Options		Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2018	6,152		$	10.68
Granted	2,132		5.18
Expired	(197	)	10.15
Forfeited	(56	)	10.63
Outstanding at March 31, 2019	8,031		9.24
Exercisable at March 31, 2019	3,886		$	10.64

10

During the three months ended March 31, 2019, Lexicon also granted its employees annual restricted stock units. Restricted stock units vest in three to four annual installments. The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the three months ended March 31, 2019:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2018	1,286		$	10.17
Granted	2,257		5.14
Vested	(517	)	9.60
Forfeited	(23	)	7.85
Outstanding at March 31, 2019	3,003		$	6.50

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

2. Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 requires companies that lease assets to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The pronouncement also requires additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. This ASU is required to be adopted using a modified retrospective approach. Management adopted ASU 2016-02 on January 1, 2019 and elected the practical expedient that allows entities to not apply the new guidance in the comparative periods they present in their financial statements in the year of adoption. Consequently, prior year financial information has not been updated and the disclosures required under the new standard has not been provided for periods prior to January 1, 2019. Upon adoption, the Company recognized $2.1 million for right-of-use assets and corresponding liabilities on the consolidated balance sheet, primarily related to lease of office space. The adoption of this ASU on January 1, 2019 did not have a material impact on Lexicon’s consolidated financial statements.

Pronouncements Not Yet Adopted. In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This targeted amendment to Topic 808 clarifies that certain transactions resulting from a collaborative agreement should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer for a good or service that is a distinct unit-of-account. This amendment is effective for fiscal years, and interim periods within years presented, beginning after December 15, 2019, and should be applied retrospectively to the date of initial application of Topic 606. The Company has applied the provisions of Topic 606 to account for its transactions for collaboration arrangements, including recognition, measurement, presentation and disclosure requirement, and does not expect adoption of this ASU to have a material impact on its consolidated financial statements.

11

3. Cash and Cash Equivalents and Investments

The fair value of cash and cash equivalents and investments held at March 31, 2019 and December 31, 2018 are as follows:

	As of March 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Cash and cash equivalents	$	45,778	$	—	$	—		$	45,778
Securities maturing within one year:
U.S. treasury securities	87,334		35		(2		)	87,367
Corporate debt securities	—		—		—			—
Total short-term investments	$	87,334	$	35	$	(2	)	$	87,367
Total cash and cash equivalents and investments	$	133,112	$	35	$	(2	)	$	133,145
	As of December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	80,386	$	—	$	—		$	80,386
Securities maturing within one year:
U.S. treasury securities	73,983		—		(9		)	73,974
Corporate debt securities	5,695		—		(3		)	5,692
Total short-term investments	$	79,678	$	—	$	(12	)	$	79,666
Total cash and cash equivalents and investments	$	160,064	$	—	$	(12	)	$	160,052

There were no realized losses during either of the three months ended March 31, 2019 and 2018, respectively. The cost of securities sold is based on the specific identification method.

4. 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, which include U.S. treasury securities

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

• Level 3 - significant unobservable inputs

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The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities. The following table provides the fair value measurements of applicable Company assets that are measured at fair value on a recurring basis according to the fair value levels described above as of March 31, 2019 and December 31, 2018:

	Assets and Liabilities at Fair Value as of March 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	45,778	$	—	$	—	$	45,778
Short-term investments	87,367				—		87,367
Total cash and cash equivalents and investments	$	133,145	$	—	$	—	$	133,145

	Assets and Liabilities at Fair Value as of December 31, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	80,386	$	—	$	—	$	80,386
Short-term investments	73,974		5,692		—		79,666
Total cash and cash equivalents and investments	$	154,360	$	5,692	$	—	$	160,052

The Company did not have any Level 3 assets or liabilities as of March 31, 2019 or December 31, 2018.

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include goodwill associated with the acquisitions of Coelacanth Corporation in 2001 and Symphony Icon in 2010, and intangible assets associated with the acquisition of Symphony Icon in 2010. 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.

5. Debt Obligations

Convertible Debt. In November 2014, Lexicon completed an offering of $87.5 million in aggregate principal amount of its 5.25% Convertible Senior Notes due 2021 (the “Convertible Notes”). The conversion feature did not meet the criteria for bifurcation as required by generally accepted accounting principles and the entire principal amount was recorded as long-term debt on the Company’s consolidated balance sheets.

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

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

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

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In connection with the issuance of the Convertible Notes, the Company incurred $3.4 million of debt issuance costs. The debt issuance costs are amortized as interest expense over the expected life of the Convertible Notes using the effective interest method. The Company determined the expected life of the debt was equal to the seven-year term of the Convertible Notes. As of March 31, 2019, the balance of unamortized debt issuance costs was $1.3 million, which offsets long-term debt on the consolidated balance sheets.

The fair value of the Convertible Notes was $90.7 million as of March 31, 2019 and was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading levels of the Convertible Notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system.

Mortgage Loan.  In August 2018, a wholly owned subsidiary of Lexicon entered into a term loan and security agreement, refinancing the previously existing mortgage on its facilities in The Woodlands, Texas (the “Property”). The Company recorded the refinancing as a debt extinguishment, with no recognition of gain or loss on the transaction. The loan agreement provides for a $12.9 million mortgage on the Property and has a two-year term with a 10-year amortization. The mortgage loan bears interest at a rate per annum equal to the greater of (a) the 30-day LIBOR rate plus 5.5% and (b) 7.5% and provides for a balloon payment of $10.3 million due in August 2020. Lexicon incurred $0.4 million of debt issuance costs in connection with the mortgage loan, which offsets long-term debt on the consolidated balance sheets and will be amortized as interest expense over the two-year term of the loan agreement. As of March 31, 2019, the balance of unamortized debt issuance costs was $0.3 million. The consolidated balance sheet includes mortgage debt of $11.8 million as of March 31, 2019. The buildings and land that serve as collateral for the mortgage loan are included in property and equipment at $59.2 million and $2.7 million, respectively, before accumulated depreciation, as of March 31, 2019. The fair value of the loan agreement approximates its carrying value.  The fair value of the loan agreement was determined using Level 2 inputs using discounted cash flow analysis, based on the Company’s estimated current incremental borrowing rate.

BioPharma Term Loan.  In December 2017, Lexicon entered into a loan agreement with BioPharma Credit PLC and BioPharma Credit Investments IV Sub LP under which $150.0 million was funded in December 2017 (the “BioPharma Term Loan”). The BioPharma Term Loan matures in December 2022, bears interest at 9% per year, subject to additional interest if an event of default occurs and is continuing, and is payable quarterly.

The BioPharma Term Loan is subject to mandatory prepayment provisions that require prepayment upon a change of control or receipt of proceeds from certain non-ordinary course transfers of assets. The Company may prepay the BioPharma Term Loan in whole at its option at any time. Any prepayment of the BioPharma Term Loan is subject to customary make-whole premiums and prepayment premiums.

The Company’s obligations under the BioPharma Term Loan are secured by a first lien security interest in substantially all of the assets of the Company and certain of its subsidiaries, other than its facilities in The Woodlands, Texas. The loan agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default applicable to the Company and certain of its subsidiaries, including among other things, covenants restricting dispositions, fundamental changes in the business, mergers or acquisitions, indebtedness, encumbrances, distributions, investments, transactions with affiliates and subordinated debt. If an event of default occurs and is continuing, all amounts outstanding under the BioPharma Term Loan may be declared immediately due and payable.

In connection with the BioPharma Term Loan, the Company incurred $4.1 million of debt issuance costs. The debt issuance costs are amortized as interest expense over the expected life of the BioPharma Term Loan using the effective interest method. The Company determined the expected life of the debt was equal to the five-year term of the BioPharma Term Loan. As of March 31, 2019, the balance of unamortized debt issuance costs was $3.0 million, which offsets long-term debt on the consolidated balance sheets.

The fair value of the BioPharma Term Loan approximates its carrying value. The fair value of the BioPharma Term Loan was determined using Level 2 inputs using discounted cash flow analysis, based on the Company’s estimated current incremental borrowing rate.

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6.      Commitments and Contingencies

Operating Lease Obligations:  A Lexicon subsidiary leases office space in Basking Ridge, New Jersey under an operating lease agreement, the term of which began in June 2015 and terminates in December 2022. As disclosed in Note 2, the Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019. As of March 31, 2019, the office space lease right-of-use (ROU) asset had a balance of $2.0 million, which is included in other non-current assets in the consolidated balance sheet, and current and non-current liabilities relating to the ROU asset were $0.6 million and $1.4 million, respectively, which are included in accrued liabilities and other non-current liabilities in the consolidated balance sheet, respectively. The discount rate used to record the office space lease was the Company’s estimated borrowing rate of 9%. Additionally, Lexicon leases certain office equipment under operating leases. The Company elected to apply the short-term lease exception to all leases one year or less.

The following table reconciles the undiscounted cash flows of the operating lease liability to the recorded lease liability at March 31, 2019:

	(in thousands)
2019	$	456
2020	620
2021	632
2022	645
2023	—
Total undiscounted operating lease liability	2,352
Less: amount of lease payments representing interest	(366		)
Present value of future lease payments	1,986
Less: short-term operating lease liability	(553		)
Long-term operating lease liability	$	1,433

Legal Proceedings.  On January 28, 2019, a purported securities class action complaint captioned Daniel Manopla v. Lexicon Pharmaceuticals, Inc., Lonnel Coats and Jeffrey L. Wade was filed against the Company, and certain of its officers in the U.S. District Court for the Southern District of Texas, Houston Division. The lawsuit purports to be a class action brought on behalf of purchasers of the Company’s securities during the period from March 11, 2016 through January 17, 2019. The complaint alleges that the defendants violated federal securities laws by making materially false and misleading statements and/or omissions concerning data from its Phase 3 clinical trials of sotagliflozin in type 1 diabetes patients and the prospects of FDA approval of sotagliflozin for the treatment of type 1 diabetes. The complaint purports to assert claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The compliant seeks, on behalf of the purported class, an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

In addition, Lexicon is from time to time party to claims and legal proceedings that arise in the normal course of its business and that it believes will not have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity. 

7. Collaboration and License Agreements

Lexicon has derived substantially all of its revenues from drug discovery and development alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, product sales, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales.

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

Under the Sanofi Agreement, Lexicon has granted Sanofi an exclusive, worldwide (excluding Japan), royalty-bearing right and license under its patent rights and know-how to develop, manufacture and commercialize sotagliflozin. Subject to specified exceptions, neither party may (a) perform clinical development activities relating to any other compound which

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inhibits sodium-glucose cotransporters type 1 or type 2 or (b) commercialize any such compounds in the United States, countries of the European Union and certain other specified countries, in each case during the royalty terms applicable in such countries. Among the specified exceptions is a right Lexicon retained to pursue the development of LX2761, with respect to which Lexicon granted Sanofi certain rights of first negotiation specified in the Sanofi Agreement.

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

Lexicon will continue to be responsible for all clinical development activities relating to type 1 diabetes and has exercised an exclusive option to co-promote and have a significant role, in collaboration with Sanofi, in the commercialization of sotagliflozin for the treatment of type 1 diabetes in the United States. Under the terms of its co-promotion option, Lexicon will fund forty percent of the commercialization costs relating to such co-promotion activities. Sanofi will be responsible for all clinical development and commercialization of sotagliflozin for the treatment of type 2 diabetes worldwide and will be solely responsible for the commercialization of sotagliflozin for the treatment of type 1 diabetes outside the United States. Lexicon shared in the funding of a portion of the planned type 2 diabetes development costs over the first three years of the collaboration, up to an aggregate of $100 million, which was satisfied in 2018. Sanofi will book sales worldwide in all indications.

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

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

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

The Company considered the following as its performance obligations with respect to the revenue recognition of the $300 million upfront payment:

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

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

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

The Company determined that the license had stand-alone value because it is an exclusive license that gives Sanofi the right to develop and commercialize sotagliflozin or to sublicense its rights. In addition, sotagliflozin is currently in development and it is possible that Sanofi or another third party could conduct clinical trials without assistance from Lexicon. As a result, the Company considers the license and the development services under the Sanofi Agreement to be separate performance obligations. The Company recognized the portion of the transaction price allocated to the license immediately because Lexicon delivered the license and earned the revenue at the inception of the arrangement. The Company is recognizing as revenue the amount allocated to the development services for type 1 diabetes over the period of time Lexicon performs services, currently expected to be through 2020, and recognized as revenue the obligation to provide funding for development services for type 2 diabetes over the period of time Lexicon provided the funding, which was completed in 2018.

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

As a result of the allocation, the Company recognized $126.8 million of the $300 million upfront payment for the license in 2015. The Company is recognizing the $113.8 million allocated to the development services performance obligation and the $59.4 million allocated to the funding performance obligation over the estimated period of performance as the development and funding occurs. Milestone payments that are contingent upon the achievement of a substantive milestone are deemed constrained. If or when the constraint is determined to be resolved, the Company will re-evaluate the overall transaction price and recognize an adjustment on a cumulative catch-up basis in the period that the adjustment was evaluated. During the three months ended March 31, 2019, there has not been an adjustment to the transaction price. Revenue recognized under the Sanofi Agreement was $0.1 million and $19.3 million for the three months ended March 31, 2019 and 2018, respectively.

Ipsen. In October 2014, Lexicon entered into a License and Collaboration Agreement, which was subsequently amended in March 2015 (collectively, the “Ipsen Agreement”), with Ipsen for the development and commercialization of XERMELO outside of the United States and Japan (the “Licensed Territory”).

Under the Ipsen Agreement, Lexicon granted Ipsen an exclusive, royalty-bearing right and license under its patent rights and know-how to commercialize XERMELO in the Licensed Territory. Ipsen is responsible for using diligent efforts to commercialize XERMELO in the Licensed Territory pursuant to a mutually approved commercialization plan. Subject to certain exceptions, Lexicon was responsible for conducting clinical trials required to obtain regulatory approval for XERMELO for carcinoid syndrome in the European Union, including those contemplated by a mutually approved initial development plan, and has the first right to conduct most other clinical trials of XERMELO. Lexicon was responsible for the costs of all clinical trials contemplated by the initial development plan. The costs of additional clinical trials will be allocated between the parties based on the nature of such clinical trials. Under the Ipsen Agreement, Ipsen has paid Lexicon an aggregate of $47.2 million through March 31, 2019, consisting of $24.5 million in upfront payments and a $6.4 million milestone payment upon the acceptance of the filing submitted by Ipsen to the European Medicines Agency for XERMELO as an adjunct to somatostatin analog therapy for the long-term treatment of carcinoid syndrome, a $5.1 million milestone upon Ipsen’s receipt of approval from the European Commission for the marketing of XERMELO in all member states of the European Union, Norway and Iceland, a $3.84 million milestone upon Ipsen’s first commercial sale in Germany, a $3.84 million milestone upon Ipsen’s first commercial sale in the United Kingdom, a $1.25 million million milestone upon Ipsen’s receipt of approval from Health Canada and a $2.25 million milestone upon Ipsen’s first commercial sale in Canada. In addition, Lexicon is eligible to receive from Ipsen (a) up to an aggregate of approximately $9.6 million upon the achievement of specified regulatory and commercial launch milestones and (b) up to an aggregate of €72 million upon the achievement of specified sales milestones. Milestone payments that are contingent upon the achievement of a substantive milestone are deemed constrained. Lexicon is also entitled to tiered, escalating royalties ranging from low twenties to mid-thirties percentages of net sales of XERMELO in the Licensed Territory, subject to a credit for amounts previously paid to Lexicon by Ipsen for the manufacture and supply of such units of

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XERMELO. Lexicon and Ipsen have entered into a commercial supply agreement pursuant to which Lexicon will supply Ipsen’s commercial requirements of XERMELO, and Ipsen pays an agreed upon transfer price for such commercial supply.

The Company considered the following as its performance obligations with respect to the revenue recognition of the $24.5 million upfront payments:

• The exclusive license granted to Ipsen to develop and commercialize XERMELO in the Licensed Territory;

•The development services Lexicon is performing for XERMELO;

• The obligation to participate in committees which govern the development of XERMELO until commercialization; and

•The obligation to supply commercial supply of XERMELO, under a commercial supply agreement.

The Company determined that the license had stand-alone value because it is an exclusive license that gives Ipsen the right to develop and commercialize XERMELO or to sublicense its rights. In addition, at the time of the agreement, it would have been possible for Ipsen or another third party to conduct clinical trials without assistance from Lexicon. As a result, the Company considers the license and the development services under the Ipsen Agreement to be separate performance obligations. The Company recognized the portion of the transaction price allocated to the license immediately because Lexicon delivered the license and earned the revenue at the inception of the arrangement. The Company recognized as revenue the amount allocated to the development services and the obligation to participate in committees over the period of time Lexicon performed the services, which was completed in 2018.

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

The Company determined that the initial transaction price was the $24.5 million upfront payments because they were the only payments that were fixed and determinable at the inception of the arrangement. There was considerable uncertainty at the date of the agreement as to whether Lexicon would earn milestone payments, royalty payments or payments for finished drug product. As such, the Company did not include those payments in the transaction price. The Company allocated the transaction price based on the relative best estimate of selling price of each performance obligation. The Company estimated the selling price of the license deliverable by applying a probability-based income approach utilizing an appropriate discount rate. The significant inputs the Company used to determine the projected income of the license included: estimated future product sales, estimated cost of goods sold, estimated operating expenses, income taxes, and an appropriate discount rate. The Company estimated the selling price of the development services by using internal estimates of the cost to hire third parties to perform the services over the expected period to perform the development. The Company estimated the selling price of the obligation to participate in committees by using internal estimates of the number of internal hours and salary and benefits costs to perform these services.

As a result of the allocation, the Company recognized $21.2 million of the $24.5 million upfront payments for the license in 2014, and an additional $1.4 million in 2015 upon entering into the amendment. The Company recognized the $1.7 million allocated to the development services performance obligation over the period of performance as development occurred, and recognized the $0.1 million allocated to the committee participation performance obligation ratably over the period of performance. Milestone payments that are contingent upon the achievement of a substantive milestone are deemed constrained. If or when the constraint is determined to be resolved, the Company will re-evaluate the overall transaction price and recognize an adjustment on a cumulative catch-up basis in the period that the adjustment was evaluated. During the three months ended March 31, 2019, the milestone earned when Ipsen made its first commercial sale in Canada was determined to be a distinct performance obligation relating to the development activities and accordingly, was recognized as revenue without further allocation to the remaining performance obligations. Revenue recognized under the Agreement was $2.3 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively.

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8.      Subsequent Event

On April 26, 2019, Zynquista™ (sotagliflozin) was approved in the European Union for use as an adjunct to

insulin therapy to improve glycemic control in adults with type 1 diabetes and a body mass index 27 kg/m2, who

could not achieve adequate glycemic control despite optimal insulin therapy. Upon this approval, the Company is required to make certain royalty payments to JDRF, totaling $4.5 million, which become payable in three equal installments of $1.5 million each, following approval and the first and second anniversaries of such approval. The royalty payments represent consideration for JDRF’s past funding provided to the company for sotagliflozin’s development in type 1 diabetes.     

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

Overview

We are a biopharmaceutical company with a mission of pioneering medicines that transform patients’ lives. We are devoting most of our resources to the commercialization or development of our four most advanced drug programs:

• We are commercializing XERMELO^® (telotristat ethyl), an orally-delivered small molecule drug, in the United States for the treatment of carcinoid syndrome diarrhea in combination with somatostatin analog, or SSA, therapy in adults inadequately controlled by SSA therapy. We have granted Ipsen Pharma SAS an exclusive, royalty-bearing right to commercialize XERMELO outside of the United States and Japan. Ipsen is commercializing XERMELO in multiple countries, including the United Kingdom and Germany, and is preparing to commercialize XERMELO in certain additional countries. We are also developing telotristat ethyl as a treatment for biliary tract cancer and are conducting a Phase 2a clinical trial of telotristat ethyl in biliary tract cancer patients.

• We are developing sotagliflozin, an orally-delivered small molecule drug candidate, as a treatment for type 1 and type 2 diabetes. We have granted Sanofi an exclusive, worldwide (excluding Japan), royalty-bearing right to develop, manufacture and commercialize sotagliflozin. Zynquista™ (sotagliflozin) has been approved in the European Union for use as an adjunct to insulin therapy to improve glycemic control in adults with type 1 diabetes and a body mass index ≥ 27 kg/m², who could not achieve adequate glycemic control despite optimal insulin therapy. The U.S. Food and Drug Administration has issued a complete response letter regarding the application for regulatory approval to market sotagliflozin for type 1 diabetes in the United States. Applications for regulatory approval to market sotagliflozin for type 1 diabetes in certain additional countries remain under regulatory review. Sanofi is also conducting a comprehensive Phase 3 development program for sotagliflozin in type 2 diabetes.

• We are developing LX9211, an orally-delivered small molecule drug candidate, as a treatment for neuropathic pain. We have reported positive top-line data from an initial Phase 1a clinical trial of LX9211 and are conducting a Phase 1b clinical trial of LX9211.

• We are developing LX2761, an orally-delivered small molecule drug candidate, as a treatment for diabetes. We have reported top-line data from two Phase 1 clinical trials of LX2761 and are presently evaluating the further clinical development of LX2761. We have granted Sanofi certain rights of first negotiation with respect to the future development and commercialization of LX2761.

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

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

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

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Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including our ability to successfully commercialize XERMELO in the United States and the amount of revenues generated from such commercialization efforts; our and Sanofi’s ability to obtain regulatory approval for the marketing and sale of sotagliflozin for type 1 and type 2 diabetes; the amount and timing of payments, if any, under our existing collaboration agreements with Sanofi, Ipsen and other entities; the success of our ongoing nonclinical and clinical development efforts and ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts; our success in establishing new collaborations and licenses; the timing and willingness of such new 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 commercialization of XERMELO are uncertain because they depend on a number of factors, including market acceptance of XERMELO, the success of our sales, marketing, distribution and other commercialization activities and the cost and availability of reimbursement for XERMELO.

Future revenues from our existing collaborations are uncertain because they depend, to a large degree, on the achievement of milestones and payment of royalties we earn from any future products developed under the collaborations. Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees, and to negotiate agreements that we believe are in our long-term best interests.  We may determine, as we have with certain of our drug candidates, including XERMELO in the United States and Japan, that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues and increase expenses.  Because of these and other factors, our operating results have fluctuated in the past and are likely to do so in the future, and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance.

Since our inception, we have incurred significant losses and, as of March 31, 2019, we had an accumulated deficit of $1.5 billion. Our losses have resulted principally from costs incurred in research and development, selling, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants. Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our nonclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, sales and marketing, and administrative personnel, professional fees and other corporate expenses, including information technology, facilities costs and general legal activities. We expect to continue to incur significant research and development costs in connection with the continuing development of our drug candidates. As a result, we will need to generate significantly higher revenues to achieve profitability.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make judgments, estimates and assumptions in the preparation of our 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, 2018.

Recent Accounting Pronouncements

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

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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 March 31,
	2019			2018
Total revenues	$	9.2		$	25.4
Dollar decrease	$	16.2
Percentage decrease	64		%

• Net product revenue – Net product revenue for the three months ended March 31, 2019increased23% to $6.7 million as compared to the corresponding period in 2018 from revenues recognized from the sale of XERMELO in the United States. Product revenues are recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance. Revenue recognition policies require estimates of the aforementioned sales allowances each period.

• Collaborative agreements – Revenue from collaborative agreements for the three months ended March 31, 2019decreased88% to $2.4 million as compared to the corresponding period in 2018, primarily due to revenues recognized in the prior year as a result of clinical trial activities under the collaboration and license agreement with Sanofi.

Cost of Sales

Cost of sales for the three months ended March 31, 2019 and 2018 was $0.6 million and $0.5 million, respectively. Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO. The pre-commercialization inventory is expected to be sold over approximately the next eighteen months. As a result, cost of sales for the next eighteen months will reflect a lower average per unit cost of materials. Cost of sales for each of the three months ended March 31, 2019 and 2018 includes $0.4 million of amortization of intangible assets relating to XERMELO.

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 March 31,
	2019			2018
Total research and development expense	$	12.0		$	47.7
Dollar decrease	$	35.7
Percentage decrease	75		%

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

• Personnel – Personnel costs were $6.0 million for each of the three months ended March 31, 2019 and 2018, respectively. Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Third-party and other services – Third-party and other services for the three months ended March 31, 2019decreased94% to $2.4 million as compared to the corresponding period in 2018 primarily due to decreases in external clinical development costs relating to sotagliflozin. Third-party and other services relate principally to our clinical trial and related development activities, such as nonclinical and clinical studies and contract manufacturing.

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• Stock-based compensation – Stock-based compensation expense for the three months ended March 31, 2019increased7% to $1.8 million as compared to the corresponding period in 2018, primarily due to a shorter vesting period of the annual restricted stock unit awards granted in 2018 and 2019 compared to prior years.

• Facilities and equipment – Facilities and equipment costs were $0.7 million for each of the three months ended March 31, 2019 and 2018, respectively.

• Other – Other costs for the three months ended March 31, 2019decreased16% to $1.2 million as compared to the corresponding period in 2018, primarily due to lower funding of continuing medical education grants.

Selling, General and Administrative Expenses

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

	Three Months Ended March 31,
	2019			2018
Total selling, general and administrative expense	$	14.1		$	14.9
Dollar decrease	$	0.7
Percentage decrease	5		%

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

• Personnel – Personnel costs for the three months ended March 31, 2019increased9% to $7.8 million as compared to the corresponding period in 2018, primarily due to an increase in headcount. Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Professional and consulting fees – Professional and consulting fees for the three months ended March 31, 2019decreased27% to $2.6 million as compared to the corresponding period in 2018, primarily due to changes in marketing costs.

• Stock-based compensation – Stock-based compensation expense for the three months ended March 31, 2019increased16% to $1.6 million as compared to the corresponding period in 2018, primarily due to a shorter vesting period of the annual restricted stock unit awards granted in 2018 and 2019.

• Facilities and equipment – Facilities and equipment costs were $0.5 million for each of the three months ended March 31, 2019 and 2018.

• Other – Other costs for the three months ended March 31, 2019decreased27% to $1.6 million as compared to the corresponding period in 2018, primarily due to a decrease in contributions to charitable foundations.

Interest Expense and Interest and Other Income, Net

Interest Expense.  Interest expense was $5.1 million for each of the three months ended March 31, 2019 and 2018, respectively.

Interest and Other Income, Net. Interest and other income, net for the three months ended March 31, 2019 and 2018 was $0.8 million and $1.0 million, respectively.

Net Loss and Net Loss per Common Share

Net Loss and Net Loss per Common Share. Net loss decreased to $21.8 million in the three months ended March 31, 2019 from $41.8 million in the corresponding period in 2018. Net loss per common share decreased to $0.21 in the three months ended March 31, 2019 from $0.40 in the corresponding period in 2018.

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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 we received under our strategic and other collaborations, target validation, database subscription and technology license agreements, product sales, government grants and contracts, and financing under debt and lease arrangements. We have also financed certain of our research and development activities under our agreements with Symphony Icon, Inc. From our inception through March 31, 2019, we had received net proceeds of $1.5 billion from issuances of common and preferred stock and convertible and term debt. In addition, from our inception through March 31, 2019, we received $878.1 million in cash payments from strategic and other collaborations, target validation, database subscription and technology license agreements, product sales, sales of compound libraries and reagents, and government grants and contracts, of which $841.0 million had been recognized as revenues through March 31, 2019.

As of March 31, 2019, we had $133.1 million in cash, cash equivalents and short-term investments. As of December 31, 2018, we had $160.1 million in cash, cash equivalents and investments. We used cash of $25.6 million in operations in the three months ended March 31, 2019. This consisted primarily of the net loss for the period of $21.8 million and a net decrease in operating liabilities net of assets of $8.5 million, partially offset by non-cash charges of $3.4 million related to stock-based compensation expense and $1.2 million related to depreciation and amortization expense, including amortization of debt issuance costs. Investing activities used cash of $7.7 million in the three months ended March 31, 2019, primarily due to net purchases of investments of $7.7 million. Financing activities used cash of $1.3 million, primarily to repurchase $0.9 million of common stock and to repay $0.3 million of debt borrowings.

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

Under the terms of our award, we were responsible for the creation of a specified number of jobs. We receive credits against this job obligation based on funding received by TIGM and certain related parties from sources other than the State of Texas. Subject to these credits, the State may require us to repay $2,415 for each job we fall short. We have evaluated our performance obligation and have concluded that such credits are sufficient to fully offset our job obligation; however, our maximum aggregate exposure for such payments is approximately $14.2 million, without giving effect to any credits to which we may be entitled.

Facilities. In August 2018, our subsidiary Lex-Gen Woodlands, L.P. entered into a term loan and security agreement, refinancing the previously existing mortgage on our facilities in The Woodlands, Texas. The loan agreement provides for a $12.9 million mortgage on the property and has a two-year term with a 10-year amortization. The mortgage loan bears interest at a rate per annum equal to the greater of (a) the 30-day LIBOR rate plus 5.5% and (b) 7.5% and provides for a balloon payment of $10.3 million due in August 2020.

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

Our future capital requirements will be substantial and will depend on many factors, including the success of our sales, marketing, distribution and other commercialization activities for XERMELO in the United States and the revenues we generate from that approved product; the success of Ipsen’s sales, marketing, distribution and other commercialization activities for XERMELO outside of the United States and Japan; our and Sanofi’s ability to obtain regulatory approval for the marketing and sales of sotagliflozin for type 1 and type 2 diabetes in countries where such regulatory approval has not yet been obtained; our and Sanofi’s ability to successfully commercialize sotagliflozin for type 1 diabetes in the United States, if approved; Sanofi’s ability to successfully commercialize Zynquista for type 1 diabetes in the European Union and any other countries outside of the United States for which regulatory approval is obtained; the progress and scope of Sanofi’s development activities with respect to sotagliflozin in type 2 diabetes patients and Sanofi’s ability to successfully commercialize sotagliflozin for type 2 diabetes, if approved; the timing, progress and results of clinical trials of telotristat ethyl, sotagliflozin, LX9211 and LX2761; the amount and timing of payments, if any, under our existing collaboration agreements with Sanofi, Ipsen and other entities; the amount and timing of our research, development and commercialization expenditures; the

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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 continue to devote substantial capital resources to commercialize XERMELO; to seek regulatory approval in the United States for sotagliflozin in type 1 diabetes; to commercialize sotagliflozin for type 1 diabetes in the United States, if approved; to our nonclinical and clinical development efforts with respect to telotristat ethyl, sotagliflozin, LX9211, LX2761 and our other drug candidates; and for other general corporate activities.  We believe that our current unrestricted cash and investment balances and cash and revenues we expect to derive from strategic and other collaborations 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.

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

Disclosure about Market Risk

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

We had approximately $133.1 million in cash and cash equivalents and short-term investments as of March 31, 2019. 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.

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. In connection with the audit of our consolidated financial statements for the year ended December 31, 2018, we identified a material weakness in our internal control over financial reporting related to the design of controls to prevent overstatement of estimated pass-through costs recorded in our clinical trial expense accruals. During the three months ended March 31, 2019, we designed processes and internal controls to prevent such overstatement. There were no other changes in our internal control over financial reporting during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II -- Other Information 

Item 1. Legal Proceedings

On January 28, 2019, a purported securities class action complaint captioned Daniel Manopla v. Lexicon Pharmaceuticals, Inc., Lonnel Coats and Jeffrey L. Wade was filed against us, and certain of our officers in the U.S. District Court for the Southern District of Texas, Houston Division. The lawsuit purports to be a class action brought on behalf of purchasers of our securities during the period from March 11, 2016 through January 17, 2019. The complaint alleges that the defendants violated federal securities laws by making materially false and misleading statements and/or omissions concerning data from our Phase 3 clinical trials of sotagliflozin in type 1 diabetes patients and the prospects of FDA approval of sotagliflozin for the treatment of type 1 diabetes. The complaint purports to assert claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint seeks, on behalf of the purported class, an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

In addition, 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 Business and Industry

• We depend heavily on the commercial success of XERMELO. If we do not achieve commercial success with XERMELO, our business will suffer and our stock price will likely decline.

• We depend heavily on Sanofi’s ability to successfully commercialize Zynquista in the European Union for type 1 diabetes. If Sanofi fails to successfully commercialize Zynquista for type 1 diabetes in the European Union, our business will suffer and our stock price will likely decline.

• We depend heavily on our and Sanofi’s ability to obtain regulatory approval in the United States for sotagliflozin in type 1 diabetes. If we and Sanofi fail to obtain such regulatory approval or fail to successfully commercialize sotagliflozin for type 1 diabetes in the United States upon regulatory approval, our business will suffer and our stock price will likely decline.

• We depend heavily on Sanofi’s ability to successfully complete Phase 3 clinical development and obtain regulatory approvals for sotagliflozin in type 2 diabetes. If Sanofi fails to successfully complete such Phase 3 clinical development and obtain such regulatory approvals, or fails to successfully commercialize sotagliflozin for type 2 diabetes upon such regulatory approvals, our business will suffer and our stock price will likely decline. 

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

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

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

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

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

• We may not be able to manufacture XERMELO and any other products that we or our collaborators may develop in commercial quantities, which would impair our ability to commercialize such products.

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

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

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

• Pricing for pharmaceutical products has come under increasing scrutiny by governments, legislative bodies and enforcement agencies. These activities may result in actions that have the effect of reducing our revenue or harming our business or reputation.

• Our competitors may develop products that impair the value of XERMELO or any other products that we or our collaborators may develop.

Risks Related to Our Capital Requirements and Financial Results

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

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

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

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

• If we do not effectively manage our affirmative and restrictive covenants under the BioPharma Term Loan, our financial condition and results of operations could be negatively affected.

Risks Related to Our Relationships with Third Parties

• We are significantly dependent upon our collaborations with Ipsen, Sanofi and other pharmaceutical and biotechnology companies. If pharmaceutical products are not successfully and timely developed and commercialized under our collaborations, our opportunities to generate revenues from milestones and royalties will be greatly reduced.

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

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

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

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

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• We lack the capability to manufacture materials for nonclinical 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 planned nonclinical and clinical development and commercialization activities. We may not prevail in any such litigation or other dispute or be able to obtain required licenses.

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

• 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 and Facilities Operations

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

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

• Facility security breaches may disrupt our operations, subject us to liability and harm our operating results.

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

Risks Related to Environmental and Product Liability

• We have used 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.

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

Risks Related to Our Common Stock

• Invus, L.P., Invus C.V. and their 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. relating to the membership of our board of directors, which provides Invus with substantial influence over significant corporate matters.

• Our stock price may be extremely volatile.

• We are subject to securities litigation, which is expensive and could divert management attention.

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

• Conversion of our 5.25% Convertible Senior Notes due 2021 may dilute the ownership interest of our existing stockholders, including holders who had previously converted their notes, or may otherwise depress the price of our common stock.

• If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

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

• We previously identified a material weakness in our internal control over financial reporting that, if not properly remediated, could result in us being unable to provide required financial information in a timely and reliable manner.

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, 2018 as filed with the Securities and Exchange Commission.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about our purchases of shares of our common stock during the three months ended March 31, 2019:

Period	Total Number of Shares Purchased		Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs(3)
January 1-31, 2019	—		$	—		—	—
February 1-28, 2019	170,806	(1)	$	5.51	(2)	—	—
March 1-31, 2019	—		$	—		—	—

(1) Represents shares retained by us in satisfaction of the tax withholding obligations of recipients of restricted stock units granted in February 2015, February 2016, February 2017 and February 2018 under our 2017 Equity Incentive Plan with respect to the vesting of such restricted stock units.

(2) Represents the market price of our common stock on the date of vesting of such restricted stock units, calculated in accordance with the process for determination of fair market value under our 2017 Equity Incentive Plan.

(3) In the future, we may grant additional equity securities under our 2017 Equity Incentive Plan for which the recipient's tax withholding obligations with respect to the grant or vesting of such securities may be satisfied by our retention of a portion of such securities. Further, for any such equity securities which are subject to vesting conditions, the number of equity securities which we may retain in satisfaction of the recipient's tax withholding obligations may be dependent on the continued employment of such recipient or other performance-based conditions. Accordingly, we cannot predict with any certainty either the total amount of equity securities or the approximate dollar value of such securities that we may purchase in future years.

Item 6. Exhibits

Exhibit No.		Description
*10.1	—	Summary of Non-Employee Director Compensation
*10.2	—	Form of Notice of Stock Option Grant to Directors under the 2017 Non-Employee Directors’ Equity Incentive Plan
*10.3	—	Form of Notice of Restricted Stock Unit Grant to Directors under the 2017 Non-Employee Directors’ Equity Incentive Plan
*31.1	—	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	—	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	—	Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	—	XBRL Instance Document
101.SCH	—	XBRL Taxonomy Extension Schema Document
101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document

_____________________

* Filed herewith.

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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:	May 1, 2019	By:	/s/ Lonnel Coats
			Lonnel Coats
			President and Chief Executive Officer

Date:	May 1, 2019	By:	/s/ Jeffrey L. Wade
			Jeffrey L. Wade
			Executive Vice President, Corporate and Administrative Affairs and Chief Financial Officer

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Index to Exhibits

Exhibit No.		Description
*10.1	—	Summary of Non-Employee Director Compensation
*10.2	—	Form of Notice of Stock Option Grant to Directors under the 2017 Non-Employee Directors’ Equity Incentive Plan
*10.3	—	Form of Notice of Restricted Stock Unit Grant to Directors under the 2017 Non-Employee Directors’ Equity Incentive Plan
*31.1	—	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	—	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	—	Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	—	XBRL Instance Document
101.SCH	—	XBRL Taxonomy Extension Schema Document
101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document

_____________________

* Filed herewith.

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EX-10.1

Exhibit 10.1

Summary of Non-Employee Director Compensation

Each non-employee member of our Board of Directors shall receive the following cash compensation:

• an annual retainer of $45,000 for service on the Board of Directors ($75,000 for service as non-executive Chairman of the Board of Directors), prorated for any partial year of service;

• an annual retainer of $10,000 for service on the audit committee of the Board of Directors ($20,000 for service as chair of the audit committee), prorated for any partial year of service;

• an annual retainer of $7,500 for service on the compensation committee of the Board of Directors ($15,000 for service as chair of the compensation committee), prorated for any partial year of service; and

• an annual retainer of $5,000 for service on the corporate governance committee of the Board of Directors ($10,000 for service as chair of the corporate governance committee), prorated for any partial year of service.

All non-employee directors are reimbursed for expenses in connection with attendance at Board of Directors and committee meetings.

Non-employee directors may also be granted stock options, restricted stock awards or restricted stock unit awards under our 2017 Non-Employee Directors’ Equity Incentive Plan. Our Board of Directors determines the provision of each award granted under the plan, including the type of award, the number of shares subject to such award and any relevant vesting schedule. All stock options granted under the plan have an exercise price equal to the fair market value of our common stock on the date of grant. Non-employee directors may not be granted awards under the plan with an aggregate grant date fair value of more than $500,000 during any calendar year, taken together with any cash fees paid to such non-employee director in compensation for service on our Board of Directors during such calendar year.

EX-10.2

Exhibit 10.2

NOTICE OF STOCK OPTION GRANT

(Non-Employee Director Stock Option)

To carry out the purposes of the Lexicon Pharmaceuticals, Inc. 2017 Non-Employee Directors’ Equity Incentive Plan (the “Plan”), by providing ______________ (“Director”) the opportunity to purchase shares of Common Stock, par value $0.001 per share (“Stock”), of LEXICON PHARMACEUTICALS, INC. (the “Company”) in accordance with the Plan, the Company hereby provides notice to Director as follows:

1.    Grant of Option. Effective as of ______________ (the “Grant Date”), the Company has granted Director the right and option (the “Option”) to purchase all or any part of an aggregate of ________ shares of Stock, on the terms and conditions set forth in this Notice and in the Plan. The Option shall be treated as a non-statutory stock option and not as an “incentive stock option” within the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”).

1.Exercise Price. The price at which Director may purchase Stock upon exercise of the Option (the “Exercise Price”) shall be $______ per share, which has been determined to be the Fair Market Value (as defined in the Plan) of the Stock on the Grant Date. The Exercise Price is subject to adjustment under certain circumstances as provided in the Plan.

2.Term. The Option shall expire on the 10th anniversary of the Grant Date, subject to earlier termination under the circumstances specified in Section 8 of this Notice.

3.Exercisability and Vesting. Subject to the terms and conditions set forth in this Notice and the Plan, the Option may be exercised, in whole or in part, at any time and from time to time during the term of the Option, to purchase the number of shares of Stock that have vested and become exercisable in accordance with this Notice. The Option shall vest and become exercisable with respect to [1/12 of the total number of shares of Stock subject to the Option each month after grant for 12 months after the Grant Date] [one third of the total number of shares of Stock subject to the Option on each of the first three anniversaries of the Grant Date]; provided that, such vesting schedule may be accelerated upon a change in control of the Company pursuant to the provisions of the Plan and; provided further, that, upon the termination of Director’s Continuous Service (as defined in the Plan), the Option shall cease to vest and shall terminate with respect to all shares of Stock that have not vested and become exercisable prior to such time.

4.Procedures for Exercise. Subject to the terms and conditions set forth in this Notice and the Plan, the Option may be exercised by delivery to the Company at its principal executive office of (i) written notice addressed to the Secretary of the Company specifying the number of shares of Stock as to which the Option is being exercised and (ii) payment in full of the Exercise Price for such shares. The Exercise Price shall be paid in cash or in such other manner as may be authorized by the administrator of the Plan in accordance with the terms of the Plan. If the offering, sale and delivery of the shares of Stock issuable upon exercise of the Option have not been registered under the Securities Act of 1933 (the “Securities Act”), the Company may require Director, as a condition to Director’s exercise of the Option, to enter into a stock purchase agreement containing such representations and warranties as the Company may deem necessary to permit the issuance of the Stock purchased upon exercise of the Option in compliance with the Securities Act and applicable state securities laws.

5.No Rights of Ownership in Stock Before Issuance. No person shall be entitled to the rights and privileges of stock ownership with respect to any shares of Stock issuable upon exercise of the Option until such shares have been issued in accordance with the terms of this Notice and the Plan.

6.Non-Transferability. The Option may not be transferred by Director otherwise than (i) by will or the laws of descent and distribution, by instrument to an inter vivos or testamentary trust or by gift to a member of Director’s immediate family, in each case in accordance with the terms of the Plan, or (ii) pursuant to a qualified domestic relations order (as defined in Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder).

7.Termination of Option. If Director’s Continuous Service is terminated for any reason other than the Disability (as defined in the Plan) or death of Director, the Option shall remain exercisable, with respect to the shares of Stock that had vested under the terms of this Notice before the date of such termination, for a period of six months after the date of such termination (subject to extension as provided in the Plan, but in no event later than the expiration date of the Option specified in Section 3 of this Notice), following which six-month period this Notice and Director’s right to exercise the Option shall terminate. If Director’s Continuous Service is terminated because of Disability of Director, the Option shall remain exercisable, with respect to the shares of Stock that had vested under the terms of this Notice before the date of such termination, for a period of 12 months after the date of such termination (but in no event later than the expiration date of the Option specified in Section 3 of this Notice), following which 12-month period this Notice and Director’s right to exercise the Option shall terminate. If (i) Director’s Continuous Service is terminated because of death of Director or (ii) Director dies within the three-month period after the termination of Director’s Continuous Service for a reason other than death, the Option shall remain exercisable, with respect to the shares of Stock that had vested under the terms of this Notice before the date of death, for a period of 18 months after the date of such termination (but in no event later than the expiration date of the Option specified in Section 3 of this Notice), following which 18-month period this Notice and the right to exercise the Option shall terminate. Notwithstanding the foregoing, if the Director is removed from the Company’s Board of Directors for cause in accordance with the Company’s Bylaws, this Notice and Director’s right to exercise any portion of the Option, whether or not vested, shall terminate at the commencement of business on the date of such removal.

8.Withholding of Tax. To the extent that the Company is required under applicable federal or state income tax laws to withhold any amount on account of any present or future tax imposed as a result of the exercise of the Option, Director shall pay the Company, at the time of such exercise, funds in an amount sufficient to permit the Company to satisfy such withholding obligations in full. If Director fails to pay such amount, the Company shall be authorized (i) to withhold from any cash remuneration then or thereafter payable to Director any tax required to be withheld or (ii) to refuse to issue or transfer any shares otherwise required to be issued pursuant to the terms of this Notice.

9.Status of Stock. (a) Unless the offering, sale and delivery of the shares of Stock issuable upon exercise of the Option have been registered under the Securities Act, Director agrees that any shares of Stock purchased upon exercise of the Option shall be acquired for investment without a view to distribution, within the meaning of the Securities Act, and shall not be sold, transferred, assigned, pledged or hypothecated in the absence of an effective registration statement under the Securities Act and applicable state securities laws or an applicable exemption from the registration requirements of the Act and any applicable state securities laws. Director further agrees that the shares of Stock which Director may acquire by exercising the Option will not be sold or disposed of in any manner which would constitute a violation of any other applicable federal or state securities laws. In addition, Director agrees (i) that the certificates representing the shares of Stock issued under this Notice may bear such legend or legends as the administrator of the Plan deems appropriate in order to assure compliance with applicable securities laws, and (ii) that the Company may give instruction to its transfer agent, if any, to stop transfer of the shares of Stock issued under this Notice on the stock transfer records of the Company, if such proposed transfer would, in the opinion of counsel to the Company, constitute a violation of any applicable securities law or any such agreements.

(b)    Director further agrees that the Option granted herein shall be subject to the requirement that if at any time the administrator of the Plan shall determine, in its discretion, that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or market or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the purchase or issuance of shares of Stock hereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the administrator of the Plan.

10.2017 Non-Employee Directors’ Equity Incentive Plan. The Plan, a copy of which is available for inspection by Director or other persons entitled to exercise this Option at the Company’s principal executive office during business hours, is incorporated by reference in this Notice. The Option is subject to, and the Company and Director agree to be bound by, all of the terms and conditions of the Plan. In the event of a conflict between this Notice and the Plan, the terms of the Plan shall control. Subject to the terms of the Plan, the administrator of the Plan shall have authority to construe the terms of this Notice, and the determinations of the administrator of the Plan shall be final and binding on Director and the Company. This Notice shall constitute a Stock Award Agreement (as defined in the Plan) evidencing the terms and conditions of the Option grant for all purposes under the Plan.

1

EX-10.3

Exhibit 10.3

NOTICE OF RESTRICTED STOCK UNIT GRANT

(Non-Employee Director Restricted Stock Unit Award)

To carry out the purposes of the Lexicon Pharmaceuticals, Inc. 2017 Non-Employee Directors’ Equity Incentive Plan (the “Plan”), by providing ___________ (“Director”) the right to receive shares of Common Stock, par value $0.001 per share (the “Stock”) of LEXICON PHARMACEUTICALS, INC. (the “Company”) in accordance with the Plan, the Company hereby provides notice to Director as follows:

1.    Grant of Restricted Stock Unit Award. Effective as of ___________ (the “Grant Date”), the Company has granted Director a Restricted Stock Unit Award (as defined in the Plan) consisting of the right to receive an aggregate of __________ shares of Stock (the “Shares”), on the terms and conditions set forth in this Notice and in the Plan.

1.Vesting. Subject to the terms and conditions set forth in this Notice and the Plan, the Restricted Stock Unit Award shall vest with respect to the total number of Shares on the first anniversary of the Grant Date; provided, that such vesting schedule may be accelerated upon a change in control of the Company pursuant to the provisions of the Plan.

2.Forfeiture upon Termination of Service. Simultaneously with the termination of Director’s Continuous Service (as defined in the Plan) prior to the vesting of Director’s rights to receive the Shares in accordance with Section 2 of this Notice, Director shall automatically forfeit all rights to receive the Shares, unless and except to the extent otherwise determined by the Board (as defined in the Plan).

3.Issuance of Shares upon Vesting. Subject to the other provisions of this Notice, upon vesting of the Shares in accordance with Section 2 of this Notice, the Company shall provide Director with prompt notice of such vesting event and issue the Shares to Director for no additional consideration.

4.No Rights of Ownership in Shares Before Issuance. No person shall be entitled to the rights and privileges of stock ownership with respect to any of the Shares issuable upon vesting of the Restricted Stock Unit Award until such Shares have been issued in accordance with the terms of this Notice and the Plan.

5.Non-Transferability. Director’s rights under the Restricted Stock Unit Award may not be transferred by Director otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order (as defined in Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.

6.Withholding of Tax. Director shall be liable for any and all federal, state or local taxes, including withholding taxes, arising out of the grant or vesting of Shares hereunder. To the extent that the Company is required under applicable federal or state income tax laws to withhold any amount on account of any present or future tax imposed as a result of the grant or vesting of the Shares hereunder, Director shall pay the Company, at the time of such grant or vesting of Shares, funds in an amount sufficient to permit the Company to satisfy such withholding obligations in full. If Director fails to pay such amount, the Company shall be authorized (i) to withhold from any cash remuneration then or thereafter payable to Director any tax required to be withheld or (ii) to refuse to issue or transfer any Shares otherwise required to be issued pursuant to the terms of this Notice.

7.2017 Non-Employee Directors’ Equity Incentive Plan. The Plan, a copy of which is available for inspection by Director at the Company’s principal executive office during business hours, is incorporated by reference in this Notice. This Notice is subject to, and the Company and Director agree to be bound by, all of the terms and conditions of the Plan. In the event of a conflict between this Notice and the Plan, the terms of the Plan shall control. Subject to the terms of the Plan, the administrator of the Plan shall have authority to construe the terms of this Notice, and the determinations of the administrator of the Plan shall be final and binding on Director and the Company. This Notice shall constitute a Stock Award Agreement (as defined in the Plan) evidencing the terms and conditions of the Restricted Stock Unit Award for all purposes under the Plan.

1

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Lonnel Coats, 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: May 1, 2019

/s/ Lonnel Coats

Lonnel Coats

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: May 1, 2019

/s/ Jeffrey L. Wade

Jeffrey L. Wade

Executive Vice President, Corporate and Administrative Affairs 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), Lonnel Coats, 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 March 31, 2019, 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 1st day of May, 2019.

By:	/s/ Lonnel Coats
	Lonnel Coats
	President and Chief Executive Officer

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

XML

Document and Entity Information Document - shares	3 Months Ended
	Mar. 31, 2019	Apr. 29, 2019
Document Information [Line Items]
Entity Registrant Name	LEXICON PHARMACEUTICALS, INC./DE
Entity Central Index Key	0001062822
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Entity Emerging Growth Company	false
Entity Small Business	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		106,271,927

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 45,778	$ 80,386
Short-term investments	87,367	79,666
Accounts receivable, net of allowances of $4	4,390	5,924
Inventory	4,606	4,680
Prepaid expenses and other current assets	4,686	2,668
Total current assets	146,827	173,324
Property and equipment, net of accumulated depreciation and amortization of $60,466 and $60,006, respectively	15,475	15,865
Goodwill	44,543	44,543
Other intangible assets, net of accumulated amortization of $3,678 and $3,237, respectively	49,678	50,119
Other assets	1,993	285
Total assets	258,516	284,136
Current liabilities:
Accounts payable	13,874	17,759
Accrued liabilities	10,800	14,482
Current portion of deferred revenue	2,432	3,395
Current portion of long-term debt, net of deferred issuance costs	1,115	1,115
Total current liabilities	28,221	36,751
Deferred revenue, net of current portion	24,623	23,651
Long-term debt, net of deferred issuance costs	243,912	243,887
Deferred tax liabilities	6,014	6,014
Other long-term liabilities	1,433	238
Total liabilities	304,203	310,541
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; 225,000 shares authorized; 106,679 and 106,162 shares issued, respectively	106	106
Additional paid-in capital	1,451,365	1,447,954
Accumulated deficit	(1,493,374)	(1,471,577)
Accumulated other comprehensive loss	33	(12)
Treasury stock, at cost, 407 and 236 shares, respectively	(3,817)	(2,876)
Total equity	(45,687)	(26,405)
Total liabilities and equity	$ 258,516	$ 284,136

XML

Balance Sheet Parenthetical (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Allowances for accounts receivable	$ 4	$ 4
Accumulated depreciation and amortization, property and equipment	60,466	60,006
Accumulated intangible assets amortization	$ 3,678	$ 3,237
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	225,000	225,000
Treasury stock, shares	407	236
Common Stock
Common stock, shares issued	106,679	106,162

XML

Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenues:
Net product revenue	$ 6,740	$ 5,460
Revenue from Contract with Customer, Excluding Assessed Tax	2,439	19,832
Royalties and other revenue	37	82
Total revenues	9,216	25,374
Operating expenses:
Cost of sales (including finite-lived intangible asset amortization)	553	533
Research and development, including stock-based compensation of $1,768 and $1,655, respectively	12,022	47,696
Selling, general and administrative expenses, included stock-based compensation of $1,643 and $1,419, respectively	14,110	14,857
Total operating expenses	26,685	63,086
Loss from operations	(17,469)	(37,712)
Interest expense	(5,117)	(5,113)
Interest and other income, net	789	1,005
Net loss	$ (21,797)	$ (41,820)
Net loss per common share, basic and diluted	$ (0.21)	$ (0.40)
Shares used in computing net loss per common share, basic and diluted	106,054	105,668
Unrealized gain on investments	$ 45	$ (172)
Comprehensive loss	$ (21,752)	$ (41,992)

XML

Statements of Comprehensive Loss Parenthetical (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Stock-based compensation expense associated with research and development expense	$ 1,768	$ 1,655
Stock-based compensation expense associated with selling, general and administrative expense	$ 1,643	$ 1,419

XML

Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Gain (Loss)	Treasury Stock
Balance, shares at Dec. 31, 2017		105,711
Balance, value at Dec. 31, 2017	$ 68,265	$ 106	$ 1,435,526	$ (1,365,241)	$ (222)	$ (1,904)
Cumulative effect from accounting change	14,212		0	14,212	0	0
Stock-based compensation	3,074	$ 0	3,074	0	0	0
Issuance of common stock under Equity Incentive Plans, shares		337
Issuance of common stock under Equity Incentive Plans, value	25	$ 0	25	0	0	0
Repurchase of common stock	(972)	0	0	0	0	(972)
Net loss	(41,820)	0	0	(41,820)	0	0
Unrealized gain on investments	(172)	$ 0	0	0	(172)	0
Balance, shares at Mar. 31, 2018		106,048
Balance, value at Mar. 31, 2018	42,612	$ 106	1,438,625	(1,392,849)	(394)	(2,876)
Balance, shares at Dec. 31, 2018		106,162
Balance, value at Dec. 31, 2018	(26,405)	$ 106	1,447,954	(1,471,577)	(12)	(2,876)
Stock-based compensation	3,411	$ 0	3,411	0	0	0
Issuance of common stock under Equity Incentive Plans, shares		517
Issuance of common stock under Equity Incentive Plans, value	0	$ 0	0	0	0	0
Repurchase of common stock	(941)	0	0	0	0	(941)
Net loss	(21,797)	0	0	(21,797)	0	0
Unrealized gain on investments	45	$ 0	0	0	45	0
Balance, shares at Mar. 31, 2019		106,679
Balance, value at Mar. 31, 2019	$ (45,687)	$ 106	$ 1,451,365	$ (1,493,374)	$ 33	$ (3,817)

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net loss	$ (21,797)	$ (41,820)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	901	925
Stock-based compensation	3,411	3,074
Amortization of debt issuance costs	346	307
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	1,534	343
Increase in inventory	74	(164)
(Increase) decrease in prepaid expenses and other current assets	(2,018)	150
Decrease in other assets	91	(3)
Decrease in accounts payable and other liabilities	(8,171)	9,382
Decrease in deferred revenue	9	(18,969)
Net cash used in operating activities	(25,620)	(46,775)
Cash flows from investing activities:
Purchases of property and equipment	(70)	(40)
Purchases of investments	(87,256)	(46,892)
Maturities of investments	79,600	53,995
Net cash provided by investing activities	(7,726)	7,063
Cash flows from financing activities:
Proceeds from issuance of common stock	0	25
Repurchase of common stock	(941)	(972)
Repayment of debt borrowings, net of fees	(321)	(581)
Net cash (used in) provided by financing activities	(1,262)	(1,528)
Net increase (decrease) in cash and cash equivalents	(34,608)	(41,240)
Cash and cash equivalents at beginning of period	80,386	61,661
Cash and cash equivalents at end of period	45,778	20,421
Supplemental disclosure of cash flow information:
Cash paid for interest	3,698	774
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain on investments	$ 45	$ (172)

XML

Summary of Significant Accounting Policies (Notes)

3 Months Ended

Mar. 31, 2019

Summary of Significant Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

Summary of Significant Accounting Policies

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 three-month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019.

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, 2018, as filed with the SEC. 

Use of Estimates: The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  As of March 31, 2019 and December 31, 2018, short-term investments consist of U.S. treasury bills and corporate debt securities. The Company’s short-term investments are classified as available-for-sale securities and are carried at fair value, based on quoted market prices of the securities.  The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security.  Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity.  Net realized gains and losses, interest and dividends are included in interest income.  The cost of securities sold is based on the specific identification method.

Accounts Receivable:  Lexicon records trade accounts receivable in the normal course of business related to the sale of products or services.  Write-offs are evaluated on a case by case basis.

Inventory: Inventory is comprised of the Company’s approved product it is commercializing in the United States, XERMELO. Inventories are determined at the lower of cost or market value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods. Inventory consisted of the following:

	As of March 31,		As of December 31,
	2019		2018
	(in thousands)
Raw materials	$	3,571	$	3,564
Work-in-process	232		232
Finished goods	803		884
Total inventory	$	4,606	$	4,680

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

Segment Information and Significant Customers: Lexicon operates in one business segment, which primarily focuses on the discovery, development and commercialization of pharmaceutical products for the treatment of human disease. Substantially all of the Company’s revenues have been derived from drug discovery alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, technology licenses, subscriptions to its databases, product sales, government grants and contracts and compound library sales.

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

Other Intangible Assets: Other intangible assets, net consist of in-process research and development acquired in business combinations, which are reported at fair value, less accumulated amortization. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives. The Company recorded $0.4 million in amortization expense related to intangible assets for each of the three months ended March 31, 2019 and 2018, respectively.

Leases: Lexicon leases certain office space and equipment for use in operations. Lease expense is recognized on a straight-line basis over the lease term. Right-of-use assets and lease liabilities are recorded on the consolidated balance sheet for leases with a term greater than one year and are recognized based on the present value of the lease payments over the lease term.

Impairment of Long-Lived Assets:  Long-lived assets, right-of-use assets for leases and certain identifiable intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There was no impairment of long-lived assets in the three months ended March 31, 2019 and 2018.

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

Goodwill Impairment:  Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level.  The Company has determined that the reporting unit is the single operating segment disclosed in its current financial statements. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.  The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill.  If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized.  Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired.  There was no impairment of goodwill in the three months ended March 31, 2019 and 2018.

Revenue Recognition:

Product Revenues

Product revenues consist of commercial sales of XERMELO in the United States and sales of bulk tablets of XERMELO to Ipsen Pharma SAS (“Ipsen”). Product revenues are recognized when the customer obtains control of the Company’s product, which occurs upon delivery to the customer. The Company recognizes product revenue net of applicable reserves for variable consideration, including allowances for customer credits, estimated rebates, chargebacks, discounts, returns, distribution service fees, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. These estimates are based on the most likely amount method for relevant factors such as current contractual and statutory requirements, industry data and forecasted customer buying and payment patterns. The Company’s net product revenues reflect the Company’s best estimates of the amounts of consideration to which it is entitled based on the terms of the respective underlying contracts. Product shipping and handling costs are considered a fulfillment activity when control transfers to the Company’s customers and such costs are included in cost of sales.

Collaborative Agreements

Revenues under collaborative agreements include both license revenue and contract research revenue. The Company performs the following five steps in determining the amount of revenue to recognize as it fulfills its performance obligations under each of its agreements: (i) identify the contract(s) with a customer; (ii) identify the performance obligation in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company applies this five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company develops assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

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

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

For agreements that include sales-based royalties, including milestones based on a level of sales, the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

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

Cost of Sales: Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO. Product shipping and handling costs are included in cost of sales. Cost of sales also includes the amortization of the in-process research and development intangible asset for XERMELO using the straight-line method over the estimated useful life of 14 years.

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

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

The fair value of stock options is estimated at the date of grant using the Black-Scholes method.  The Black-Scholes option-pricing model requires the input of subjective assumptions.  Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.  For purposes of determining the fair value of stock options, the Company segregates its options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in a change in the assumptions used for expected option lives.  Historical data is used to estimate the expected option life for each group. Expected volatility is based on the historical volatility in the Company’s stock price.  The Company utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions for options granted in the three months ended March 31, 2019 and 2018:

	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
March 31, 2019:
Employees	63	%	2.5	%	4	—	%
Officers and non-employee directors	63	%	2.6	%	8	—	%
March 31, 2018:
Employees	60	%	2.5	%	4	—	%
Officers and non-employee directors	63	%	2.8	%	8	—	%

The following is a summary of option activity under Lexicon’s stock-based compensation plans for the three months ended March 31, 2019:

	Options		Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2018	6,152		$	10.68
Granted	2,132		5.18
Expired	(197	)	10.15
Forfeited	(56	)	10.63
Outstanding at March 31, 2019	8,031		9.24
Exercisable at March 31, 2019	3,886		$	10.64

During the three months ended March 31, 2019, Lexicon also granted its employees annual restricted stock units. Restricted stock units vest in three to four annual installments. The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the three months ended March 31, 2019:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2018	1,286		$	10.17
Granted	2,257		5.14
Vested	(517	)	9.60
Forfeited	(23	)	7.85
Outstanding at March 31, 2019	3,003		$	6.50

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

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Recent Accounting Pronouncements Level 1 (Notes)

3 Months Ended

Mar. 31, 2019

Recent Accounting Pronouncements [Abstract]

New Accounting Pronouncements, Policy

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 requires companies that lease assets to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The pronouncement also requires additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. This ASU is required to be adopted using a modified retrospective approach. Management adopted ASU 2016-02 on January 1, 2019 and elected the practical expedient that allows entities to not apply the new guidance in the comparative periods they present in their financial statements in the year of adoption. Consequently, prior year financial information has not been updated and the disclosures required under the new standard has not been provided for periods prior to January 1, 2019. Upon adoption, the Company recognized $2.1 million for right-of-use assets and corresponding liabilities on the consolidated balance sheet, primarily related to lease of office space. The adoption of this ASU on January 1, 2019 did not have a material impact on Lexicon’s consolidated financial statements.

Pronouncements Not Yet Adopted. In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This targeted amendment to Topic 808 clarifies that certain transactions resulting from a collaborative agreement should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer for a good or service that is a distinct unit-of-account. This amendment is effective for fiscal years, and interim periods within years presented, beginning after December 15, 2019, and should be applied retrospectively to the date of initial application of Topic 606. The Company has applied the provisions of Topic 606 to account for its transactions for collaboration arrangements, including recognition, measurement, presentation and disclosure requirement, and does not expect adoption of this ASU to have a material impact on its consolidated financial statements.

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Cash and Cash Equivalents and Investments

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018 are as follows:

	As of March 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Cash and cash equivalents	$	45,778	$	—	$	—		$	45,778
Securities maturing within one year:
U.S. treasury securities	87,334		35		(2		)	87,367
Corporate debt securities	—		—		—			—
Total short-term investments	$	87,334	$	35	$	(2	)	$	87,367
Total cash and cash equivalents and investments	$	133,112	$	35	$	(2	)	$	133,145
	As of December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	80,386	$	—	$	—		$	80,386
Securities maturing within one year:
U.S. treasury securities	73,983		—		(9		)	73,974
Corporate debt securities	5,695		—		(3		)	5,692
Total short-term investments	$	79,678	$	—	$	(12	)	$	79,666
Total cash and cash equivalents and investments	$	160,064	$	—	$	(12	)	$	160,052

There were no realized losses during either of the three months ended March 31, 2019 and 2018, respectively. The cost of securities sold is based on the specific identification method.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2019

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, which include U.S. treasury securities

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

• Level 3 - significant unobservable inputs

The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities. The following table provides the fair value measurements of applicable Company assets that are measured at fair value on a recurring basis according to the fair value levels described above as of March 31, 2019 and December 31, 2018:

	Assets and Liabilities at Fair Value as of March 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	45,778	$	—	$	—	$	45,778
Short-term investments	87,367				—		87,367
Total cash and cash equivalents and investments	$	133,145	$	—	$	—	$	133,145

	Assets and Liabilities at Fair Value as of December 31, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	80,386	$	—	$	—	$	80,386
Short-term investments	73,974		5,692		—		79,666
Total cash and cash equivalents and investments	$	154,360	$	5,692	$	—	$	160,052

The Company did not have any Level 3 assets or liabilities as of March 31, 2019 or December 31, 2018.

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include goodwill associated with the acquisitions of Coelacanth Corporation in 2001 and Symphony Icon in 2010, and intangible assets associated with the acquisition of Symphony Icon in 2010. 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

3 Months Ended

Mar. 31, 2019

Debt Obligations [Abstract]

Debt Disclosure

Debt Obligations

Convertible Debt. In November 2014, Lexicon completed an offering of $87.5 million in aggregate principal amount of its 5.25% Convertible Senior Notes due 2021 (the “Convertible Notes”). The conversion feature did not meet the criteria for bifurcation as required by generally accepted accounting principles and the entire principal amount was recorded as long-term debt on the Company’s consolidated balance sheets.

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

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

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

In connection with the issuance of the Convertible Notes, the Company incurred $3.4 million of debt issuance costs. The debt issuance costs are amortized as interest expense over the expected life of the Convertible Notes using the effective interest method. The Company determined the expected life of the debt was equal to the seven-year term of the Convertible Notes. As of March 31, 2019, the balance of unamortized debt issuance costs was $1.3 million, which offsets long-term debt on the consolidated balance sheets.

The fair value of the Convertible Notes was $90.7 million as of March 31, 2019 and was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading levels of the Convertible Notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system.

Mortgage Loan.  In August 2018, a wholly owned subsidiary of Lexicon entered into a term loan and security agreement, refinancing the previously existing mortgage on its facilities in The Woodlands, Texas (the “Property”). The Company recorded the refinancing as a debt extinguishment, with no recognition of gain or loss on the transaction. The loan agreement provides for a $12.9 million mortgage on the Property and has a two-year term with a 10-year amortization. The mortgage loan bears interest at a rate per annum equal to the greater of (a) the 30-day LIBOR rate plus 5.5% and (b) 7.5% and provides for a balloon payment of $10.3 million due in August 2020. Lexicon incurred $0.4 million of debt issuance costs in connection with the mortgage loan, which offsets long-term debt on the consolidated balance sheets and will be amortized as interest expense over the two-year term of the loan agreement. As of March 31, 2019, the balance of unamortized debt issuance costs was $0.3 million. The consolidated balance sheet includes mortgage debt of $11.8 million as of March 31, 2019. The buildings and land that serve as collateral for the mortgage loan are included in property and equipment at $59.2 million and $2.7 million, respectively, before accumulated depreciation, as of March 31, 2019. The fair value of the loan agreement approximates its carrying value.  The fair value of the loan agreement was determined using Level 2 inputs using discounted cash flow analysis, based on the Company’s estimated current incremental borrowing rate.

BioPharma Term Loan.  In December 2017, Lexicon entered into a loan agreement with BioPharma Credit PLC and BioPharma Credit Investments IV Sub LP under which $150.0 million was funded in December 2017 (the “BioPharma Term Loan”). The BioPharma Term Loan matures in December 2022, bears interest at 9% per year, subject to additional interest if an event of default occurs and is continuing, and is payable quarterly.

The BioPharma Term Loan is subject to mandatory prepayment provisions that require prepayment upon a change of control or receipt of proceeds from certain non-ordinary course transfers of assets. The Company may prepay the BioPharma Term Loan in whole at its option at any time. Any prepayment of the BioPharma Term Loan is subject to customary make-whole premiums and prepayment premiums.

The Company’s obligations under the BioPharma Term Loan are secured by a first lien security interest in substantially all of the assets of the Company and certain of its subsidiaries, other than its facilities in The Woodlands, Texas. The loan agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default applicable to the Company and certain of its subsidiaries, including among other things, covenants restricting dispositions, fundamental changes in the business, mergers or acquisitions, indebtedness, encumbrances, distributions, investments, transactions with affiliates and subordinated debt. If an event of default occurs and is continuing, all amounts outstanding under the BioPharma Term Loan may be declared immediately due and payable.

In connection with the BioPharma Term Loan, the Company incurred $4.1 million of debt issuance costs. The debt issuance costs are amortized as interest expense over the expected life of the BioPharma Term Loan using the effective interest method. The Company determined the expected life of the debt was equal to the five-year term of the BioPharma Term Loan. As of March 31, 2019, the balance of unamortized debt issuance costs was $3.0 million, which offsets long-term debt on the consolidated balance sheets.

The fair value of the BioPharma Term Loan approximates its carrying value. The fair value of the BioPharma Term Loan was determined using Level 2 inputs using discounted cash flow analysis, based on the Company’s estimated current incremental borrowing rate.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies [Abstract]

Commitments and Contingencies Disclosure

Commitments and Contingencies

Operating Lease Obligations:  A Lexicon subsidiary leases office space in Basking Ridge, New Jersey under an operating lease agreement, the term of which began in June 2015 and terminates in December 2022. As disclosed in Note 2, the Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019. As of March 31, 2019, the office space lease right-of-use (ROU) asset had a balance of $2.0 million, which is included in other non-current assets in the consolidated balance sheet, and current and non-current liabilities relating to the ROU asset were $0.6 million and $1.4 million, respectively, which are included in accrued liabilities and other non-current liabilities in the consolidated balance sheet, respectively. The discount rate used to record the office space lease was the Company’s estimated borrowing rate of 9%. Additionally, Lexicon leases certain office equipment under operating leases. The Company elected to apply the short-term lease exception to all leases one year or less.

The following table reconciles the undiscounted cash flows of the operating lease liability to the recorded lease liability at March 31, 2019:

	(in thousands)
2019	$	456
2020	620
2021	632
2022	645
2023	—
Total undiscounted operating lease liability	2,352
Less: amount of lease payments representing interest	(366		)
Present value of future lease payments	1,986
Less: short-term operating lease liability	(553		)
Long-term operating lease liability	$	1,433

Legal Proceedings.  On January 28, 2019, a purported securities class action complaint captioned Daniel Manopla v. Lexicon Pharmaceuticals, Inc., Lonnel Coats and Jeffrey L. Wade was filed against the Company, and certain of its officers in the U.S. District Court for the Southern District of Texas, Houston Division. The lawsuit purports to be a class action brought on behalf of purchasers of the Company’s securities during the period from March 11, 2016 through January 17, 2019. The complaint alleges that the defendants violated federal securities laws by making materially false and misleading statements and/or omissions concerning data from its Phase 3 clinical trials of sotagliflozin in type 1 diabetes patients and the prospects of FDA approval of sotagliflozin for the treatment of type 1 diabetes. The complaint purports to assert claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The compliant seeks, on behalf of the purported class, an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

In addition, 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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Collaboration and License Agreements

3 Months Ended

Mar. 31, 2019

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 alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, product sales, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales.

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

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

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

Lexicon will continue to be responsible for all clinical development activities relating to type 1 diabetes and has exercised an exclusive option to co-promote and have a significant role, in collaboration with Sanofi, in the commercialization of sotagliflozin for the treatment of type 1 diabetes in the United States. Under the terms of its co-promotion option, Lexicon will fund forty percent of the commercialization costs relating to such co-promotion activities. Sanofi will be responsible for all clinical development and commercialization of sotagliflozin for the treatment of type 2 diabetes worldwide and will be solely responsible for the commercialization of sotagliflozin for the treatment of type 1 diabetes outside the United States. Lexicon shared in the funding of a portion of the planned type 2 diabetes development costs over the first three years of the collaboration, up to an aggregate of $100 million, which was satisfied in 2018. Sanofi will book sales worldwide in all indications.

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

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

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

The Company considered the following as its performance obligations with respect to the revenue recognition of the $300 million upfront payment:

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

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

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

The Company determined that the license had stand-alone value because it is an exclusive license that gives Sanofi the right to develop and commercialize sotagliflozin or to sublicense its rights. In addition, sotagliflozin is currently in development and it is possible that Sanofi or another third party could conduct clinical trials without assistance from Lexicon. As a result, the Company considers the license and the development services under the Sanofi Agreement to be separate performance obligations. The Company recognized the portion of the transaction price allocated to the license immediately because Lexicon delivered the license and earned the revenue at the inception of the arrangement. The Company is recognizing as revenue the amount allocated to the development services for type 1 diabetes over the period of time Lexicon performs services, currently expected to be through 2020, and recognized as revenue the obligation to provide funding for development services for type 2 diabetes over the period of time Lexicon provided the funding, which was completed in 2018.

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

As a result of the allocation, the Company recognized $126.8 million of the $300 million upfront payment for the license in 2015. The Company is recognizing the $113.8 million allocated to the development services performance obligation and the $59.4 million allocated to the funding performance obligation over the estimated period of performance as the development and funding occurs. Milestone payments that are contingent upon the achievement of a substantive milestone are deemed constrained. If or when the constraint is determined to be resolved, the Company will re-evaluate the overall transaction price and recognize an adjustment on a cumulative catch-up basis in the period that the adjustment was evaluated. During the three months ended March 31, 2019, there has not been an adjustment to the transaction price. Revenue recognized under the Sanofi Agreement was $0.1 million and $19.3 million for the three months ended March 31, 2019 and 2018, respectively.

Ipsen. In October 2014, Lexicon entered into a License and Collaboration Agreement, which was subsequently amended in March 2015 (collectively, the “Ipsen Agreement”), with Ipsen for the development and commercialization of XERMELO outside of the United States and Japan (the “Licensed Territory”).

Under the Ipsen Agreement, Lexicon granted Ipsen an exclusive, royalty-bearing right and license under its patent rights and know-how to commercialize XERMELO in the Licensed Territory. Ipsen is responsible for using diligent efforts to commercialize XERMELO in the Licensed Territory pursuant to a mutually approved commercialization plan. Subject to certain exceptions, Lexicon was responsible for conducting clinical trials required to obtain regulatory approval for XERMELO for carcinoid syndrome in the European Union, including those contemplated by a mutually approved initial development plan, and has the first right to conduct most other clinical trials of XERMELO. Lexicon was responsible for the costs of all clinical trials contemplated by the initial development plan. The costs of additional clinical trials will be allocated between the parties based on the nature of such clinical trials. Under the Ipsen Agreement, Ipsen has paid Lexicon an aggregate of $47.2 million through March 31, 2019, consisting of $24.5 million in upfront payments and a $6.4 million milestone payment upon the acceptance of the filing submitted by Ipsen to the European Medicines Agency for XERMELO as an adjunct to somatostatin analog therapy for the long-term treatment of carcinoid syndrome, a $5.1 million milestone upon Ipsen’s receipt of approval from the European Commission for the marketing of XERMELO in all member states of the European Union, Norway and Iceland, a $3.84 million milestone upon Ipsen’s first commercial sale in Germany, a $3.84 million milestone upon Ipsen’s first commercial sale in the United Kingdom, a $1.25 million million milestone upon Ipsen’s receipt of approval from Health Canada and a $2.25 million milestone upon Ipsen’s first commercial sale in Canada. In addition, Lexicon is eligible to receive from Ipsen (a) up to an aggregate of approximately $9.6 million upon the achievement of specified regulatory and commercial launch milestones and (b) up to an aggregate of €72 million upon the achievement of specified sales milestones. Milestone payments that are contingent upon the achievement of a substantive milestone are deemed constrained. Lexicon is also entitled to tiered, escalating royalties ranging from low twenties to mid-thirties percentages of net sales of XERMELO in the Licensed Territory, subject to a credit for amounts previously paid to Lexicon by Ipsen for the manufacture and supply of such units of XERMELO. Lexicon and Ipsen have entered into a commercial supply agreement pursuant to which Lexicon will supply Ipsen’s commercial requirements of XERMELO, and Ipsen pays an agreed upon transfer price for such commercial supply.

The Company considered the following as its performance obligations with respect to the revenue recognition of the $24.5 million upfront payments:

• The exclusive license granted to Ipsen to develop and commercialize XERMELO in the Licensed Territory;

•The development services Lexicon is performing for XERMELO;

• The obligation to participate in committees which govern the development of XERMELO until commercialization; and

•The obligation to supply commercial supply of XERMELO, under a commercial supply agreement.

The Company determined that the license had stand-alone value because it is an exclusive license that gives Ipsen the right to develop and commercialize XERMELO or to sublicense its rights. In addition, at the time of the agreement, it would have been possible for Ipsen or another third party to conduct clinical trials without assistance from Lexicon. As a result, the Company considers the license and the development services under the Ipsen Agreement to be separate performance obligations. The Company recognized the portion of the transaction price allocated to the license immediately because Lexicon delivered the license and earned the revenue at the inception of the arrangement. The Company recognized as revenue the amount allocated to the development services and the obligation to participate in committees over the period of time Lexicon performed the services, which was completed in 2018.

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

The Company determined that the initial transaction price was the $24.5 million upfront payments because they were the only payments that were fixed and determinable at the inception of the arrangement. There was considerable uncertainty at the date of the agreement as to whether Lexicon would earn milestone payments, royalty payments or payments for finished drug product. As such, the Company did not include those payments in the transaction price. The Company allocated the transaction price based on the relative best estimate of selling price of each performance obligation. The Company estimated the selling price of the license deliverable by applying a probability-based income approach utilizing an appropriate discount rate. The significant inputs the Company used to determine the projected income of the license included: estimated future product sales, estimated cost of goods sold, estimated operating expenses, income taxes, and an appropriate discount rate. The Company estimated the selling price of the development services by using internal estimates of the cost to hire third parties to perform the services over the expected period to perform the development. The Company estimated the selling price of the obligation to participate in committees by using internal estimates of the number of internal hours and salary and benefits costs to perform these services.

As a result of the allocation, the Company recognized $21.2 million of the $24.5 million upfront payments for the license in 2014, and an additional $1.4 million in 2015 upon entering into the amendment. The Company recognized the $1.7 million allocated to the development services performance obligation over the period of performance as development occurred, and recognized the $0.1 million allocated to the committee participation performance obligation ratably over the period of performance. Milestone payments that are contingent upon the achievement of a substantive milestone are deemed constrained. If or when the constraint is determined to be resolved, the Company will re-evaluate the overall transaction price and recognize an adjustment on a cumulative catch-up basis in the period that the adjustment was evaluated. During the three months ended March 31, 2019, the milestone earned when Ipsen made its first commercial sale in Canada was determined to be a distinct performance obligation relating to the development activities and accordingly, was recognized as revenue without further allocation to the remaining performance obligations. Revenue recognized under the Agreement was $2.3 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively.

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Subsequent Event (Notes)

3 Months Ended

Mar. 31, 2019

Subsequent Event [Line Items]

Subsequent Events [Text Block]

8.      Subsequent Event

On April 26, 2019, Zynquista™ (sotagliflozin) was approved in the European Union for use as an adjunct to

insulin therapy to improve glycemic control in adults with type 1 diabetes and a body mass index 27 kg/m2, who

could not achieve adequate glycemic control despite optimal insulin therapy. Upon this approval, the Company is required to make certain royalty payments to JDRF, totaling $4.5 million, which become payable in three equal installments of $1.5 million each, following approval and the first and second anniversaries of such approval. The royalty payments represent consideration for JDRF’s past funding provided to the company for sotagliflozin’s development in type 1 diabetes.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Summary of Significant Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

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

Use of Estimates, Policy [Policy Text Block]

Use of Estimates: The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  As of March 31, 2019 and December 31, 2018, short-term investments consist of U.S. treasury bills and corporate debt securities. The Company’s short-term investments are classified as available-for-sale securities and are carried at fair value, based on quoted market prices of the securities.  The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security.  Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity.  Net realized gains and losses, interest and dividends are included in interest income.  The cost of securities sold is based on the specific identification method.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts Receivable:  Lexicon records trade accounts receivable in the normal course of business related to the sale of products or services.  Write-offs are evaluated on a case by case basis.

Inventory, Policy [Policy Text Block]

Inventory: Inventory is comprised of the Company’s approved product it is commercializing in the United States, XERMELO. Inventories are determined at the lower of cost or market value with cost determined under the specific identification method and may consist of raw materials, work in process and finished goods.

Concentration Risk Disclosure [Text Block]

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

Segment Reporting, Policy [Policy Text Block]

Segment Information and Significant Customers: Lexicon operates in one business segment, which primarily focuses on the discovery, development and commercialization of pharmaceutical products for the treatment of human disease. Substantially all of the Company’s revenues have been derived from drug discovery alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, technology licenses, subscriptions to its databases, product sales, government grants and contracts and compound library sales.

Property, Plant and Equipment, Policy [Policy Text Block]

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

Lessee, Leases [Policy Text Block]

Leases: Lexicon leases certain office space and equipment for use in operations. Lease expense is recognized on a straight-line basis over the lease term. Right-of-use assets and lease liabilities are recorded on the consolidated balance sheet for leases with a term greater than one year and are recognized based on the present value of the lease payments over the lease term.

Goodwill and Intangible Assets, Intangible Assets, Indefinite-Lived, Policy [Policy Text Block]

Other Intangible Assets: Other intangible assets, net consist of in-process research and development acquired in business combinations, which are reported at fair value, less accumulated amortization. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-Lived Assets:  Long-lived assets, right-of-use assets for leases and certain identifiable intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

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

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

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition:

Product Revenues

Product revenues consist of commercial sales of XERMELO in the United States and sales of bulk tablets of XERMELO to Ipsen Pharma SAS (“Ipsen”). Product revenues are recognized when the customer obtains control of the Company’s product, which occurs upon delivery to the customer. The Company recognizes product revenue net of applicable reserves for variable consideration, including allowances for customer credits, estimated rebates, chargebacks, discounts, returns, distribution service fees, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. These estimates are based on the most likely amount method for relevant factors such as current contractual and statutory requirements, industry data and forecasted customer buying and payment patterns. The Company’s net product revenues reflect the Company’s best estimates of the amounts of consideration to which it is entitled based on the terms of the respective underlying contracts. Product shipping and handling costs are considered a fulfillment activity when control transfers to the Company’s customers and such costs are included in cost of sales.

Collaborative Agreements

Revenues under collaborative agreements include both license revenue and contract research revenue. The Company performs the following five steps in determining the amount of revenue to recognize as it fulfills its performance obligations under each of its agreements: (i) identify the contract(s) with a customer; (ii) identify the performance obligation in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company applies this five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company develops assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

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

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

For agreements that include sales-based royalties, including milestones based on a level of sales, the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

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

Cost of Sales, Policy [Policy Text Block]

Cost of Sales: Cost of sales consists of third-party manufacturing costs, freight and indirect overhead costs associated with sales of XERMELO. Product shipping and handling costs are included in cost of sales. Cost of sales also includes the amortization of the in-process research and development intangible asset for XERMELO using the straight-line method over the estimated useful life of 14 years.

Research and Development Expense, Policy [Policy Text Block]

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

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

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

The fair value of stock options is estimated at the date of grant using the Black-Scholes method.  The Black-Scholes option-pricing model requires the input of subjective assumptions.  Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.  For purposes of determining the fair value of stock options, the Company segregates its options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in a change in the assumptions used for expected option lives.  Historical data is used to estimate the expected option life for each group. Expected volatility is based on the historical volatility in the Company’s stock price.

Earnings Per Share, Policy [Policy Text Block]

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

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2019

Summary of Significant Accounting Policies [Abstract]

Inventory, Major Classes, Policy [Policy Text Block]

	As of March 31,		As of December 31,
	2019		2018
	(in thousands)
Raw materials	$	3,571	$	3,564
Work-in-process	232		232
Finished goods	803		884
Total inventory	$	4,606	$	4,680

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Summary of Significant Accounting Policies Equity Incentive Awards (Tables)

3 Months Ended

Mar. 31, 2019

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Abstract]

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

	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
March 31, 2019:
Employees	63	%	2.5	%	4	—	%
Officers and non-employee directors	63	%	2.6	%	8	—	%
March 31, 2018:
Employees	60	%	2.5	%	4	—	%
Officers and non-employee directors	63	%	2.8	%	8	—	%

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Options		Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2018	6,152		$	10.68
Granted	2,132		5.18
Expired	(197	)	10.15
Forfeited	(56	)	10.63
Outstanding at March 31, 2019	8,031		9.24
Exercisable at March 31, 2019	3,886		$	10.64

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2018	1,286		$	10.17
Granted	2,257		5.14
Vested	(517	)	9.60
Forfeited	(23	)	7.85
Outstanding at March 31, 2019	3,003		$	6.50

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Cash and Cash Equivalents and Investments (Tables)

3 Months Ended

Mar. 31, 2019

Cash and Cash Equivalents and Investments [Abstract]

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

	As of March 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Cash and cash equivalents	$	45,778	$	—	$	—		$	45,778
Securities maturing within one year:
U.S. treasury securities	87,334		35		(2		)	87,367
Corporate debt securities	—		—		—			—
Total short-term investments	$	87,334	$	35	$	(2	)	$	87,367
Total cash and cash equivalents and investments	$	133,112	$	35	$	(2	)	$	133,145
	As of December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	80,386	$	—	$	—		$	80,386
Securities maturing within one year:
U.S. treasury securities	73,983		—		(9		)	73,974
Corporate debt securities	5,695		—		(3		)	5,692
Total short-term investments	$	79,678	$	—	$	(12	)	$	79,666
Total cash and cash equivalents and investments	$	160,064	$	—	$	(12	)	$	160,052

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value Measurements [Abstract]

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

	Assets and Liabilities at Fair Value as of March 31, 2019
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	45,778	$	—	$	—	$	45,778
Short-term investments	87,367				—		87,367
Total cash and cash equivalents and investments	$	133,145	$	—	$	—	$	133,145

	Assets and Liabilities at Fair Value as of December 31, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	80,386	$	—	$	—	$	80,386
Short-term investments	73,974		5,692		—		79,666
Total cash and cash equivalents and investments	$	154,360	$	5,692	$	—	$	160,052

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Summary of Significant Accounting Policies Inventory (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Inventory [Line Items]
Inventory, Raw Materials, Gross	$ 3,571,000	$ 3,564,000
Inventory, Work in Process, Gross	232,000	232,000
Inventory, Finished Goods, Gross	803,000	884,000
Inventory, Gross	$ 4,606,000	$ 4,680,000

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Summary of Significant Accounting Policies Other Intangible Assets (Details) $ in Millions	3 Months Ended
	Mar. 31, 2019 USD ($)
Summary of Significant Accounting Policies [Abstract]
Amortization of Intangible Assets	$ 0.4

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Summary of Significant Accounting Policies Impairment of Long-lived Assets (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Summary of Significant Accounting Policies [Abstract]
Asset Impairment Charges	$ 0	$ 0

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Summary of Significant Accounting Policies Goodwill (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Summary of Significant Accounting Policies [Abstract]
Goodwill, Impairment Loss	$ 0	$ 0

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Summary of Significant Accounting Policies Stock-based Compensation Valuation (Details) - Equity Option [Member]	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, ExpectedVolatilityRate, Employees	63.00%	60.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Employee	2.50%	2.50%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term, Employees	4 years	4 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate, Employees	0.00%	0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Officers and Non-employee Directors	63.00%	63.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Officers and Non-employee Directors	2.60%	2.80%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term, Officers and Non-employee Directors	8 years	8 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate, Officers and Non-employee Directors	0.00%	0.00%

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Summary of Significant Accounting Policies Stock-based Compensation Summary (Details 1) - $ / shares shares in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	8,031	6,152
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 9.24	$ 10.68
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures	2,132
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 5.18
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period	197
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price	$ 10.15
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period	56
Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price	$ 10.63
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	3,886
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 10.64
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	3,003	1,286
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 6.50	$ 10.17
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	2,257
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 5.14
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	517
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value	$ 9.60
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	23
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value	$ 7.85

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Recent Accounting Pronouncements (Details) - USD ($) $ in Millions	Mar. 31, 2019	Jan. 01, 2019
Recent Accounting Pronouncements [Abstract]
Operating Lease, Right-of-Use Asset	$ 2.0	$ 2.1

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Cash and Cash Equivalents and Investments (Details 1) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Cash and Cash Equivalents
Fair Value
Amortized Cost	$ 45,778	$ 80,386
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Value	45,778	80,386
U.S. Treasury Securities
Fair Value
Amortized Cost	87,334	73,983
Gross Unrealized Gains	35	0
Gross Unrealized Losses	(2)	(9)
Estimated Fair Value	87,367	73,974
Corporate Debt Securities
Fair Value
Amortized Cost	0	5,695
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	(3)
Estimated Fair Value	0	5,692
Total Short-term Investments
Fair Value
Amortized Cost	87,334	79,678
Gross Unrealized Gains	35	0
Gross Unrealized Losses	(2)	(12)
Estimated Fair Value	87,367	79,666
Total Cash and Cash Equivalents and Investments
Fair Value
Amortized Cost	133,112	160,064
Gross Unrealized Gains	35	0
Gross Unrealized Losses	(2)	(12)
Estimated Fair Value	$ 133,145	$ 160,052

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Cash and Cash Equivalents and Investments (Details 2)	3 Months Ended
	Mar. 31, 2019 USD ($)
Schedule of Investments [Line Items]
Realized Investment Gains (Losses)	$ 0

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Fair Value Measurements (Details 1) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value
Cash and Cash Equivalents	$ 45,778	$ 80,386
Short-term Investments	87,367	79,666
Total Cash and Cash Equivalents and Investments	133,145	160,052
Fair Value, Level 1
Fair Value
Cash and Cash Equivalents	45,778	80,386
Short-term Investments	87,367	73,974
Total Cash and Cash Equivalents and Investments	133,145	154,360
Fair Value, Level 2
Fair Value
Cash and Cash Equivalents	0	0
Short-term Investments		5,692
Total Cash and Cash Equivalents and Investments	0	5,692
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

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Debt Obligations (Details) $ / shares in Units, $ in Millions	1 Months Ended
	Nov. 30, 2014 USD ($)	Mar. 31, 2019 USD ($)	Aug. 30, 2018 USD ($)	Dec. 18, 2017 USD ($)	Nov. 20, 2014 $ / shares
Debt Instrument [Line Items]
Debt Issuance Costs, Gross				$ 4.1
Debt Instrument, Unamortized Discount (Premium) and Debt Issuance Costs, Net		$ 3.0
Proceeds from Convertible Debt	$ 87.5
Conv Debt Instrument Interest Rate Stated Percentage					5.25%
Debt Instrument, Convertible, Conversion Ratio	118.4553
Debt Instrument, Convertible, Conversion Price | $ / shares					$ 8.442
Debt Issuance Cost	$ 3.4
Unamortized Debt Issuance Expense		1.3
Debt Instrument, Fair Value Disclosure		90.7
Mortgage Debt Instrument_Revere_LXRX		11.8	$ 12.9
Mortgage Debt Interest Rate_Base_Revere_LXRX			5.50%
Mortgage Debt Interest Rate BasePlus_Revere_LXRX			7.50%
Mortgage Debt Balloon Payment_LXRX			$ 10.3
Mortgage Debt Issue Costs_Revere_LXRX		0.3	$ 0.4
Buildings Collateral		59.2
Land Collateral		$ 2.7
Debt Instrument, Interest Rate, Stated Percentage		9.00%
Debt Instrument, Face Amount				$ 150.0

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Commitments and Contingencies (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019
Operating Leased Assets [Line Items]
Operating Lease, Right-of-Use Asset	$ 2,000	$ 2,100
Operating Lease, Liability, Current	553
Operating Lease, Liability, Noncurrent	$ 1,433
Lessee, Operating Lease, Discount Rate		9.00%

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Commitments and Contingencies Details 2 (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Leasee, Lease, Description [Abstract]
Lessee, Operating Lease, Liability, Payments, Due Next Twelve Months	$ 456
Lessee, Operating Lease, Liability, Payments, Due Year Two	620
Lessee, Operating Lease, Liability, Payments, Due Year Three	632
Lessee, Operating Lease, Liability, Payments, Due Year Four	645
Lessee, Operating Lease, Liability, Payments, Due after Year Five	0
Lessee, Operating Lease, Liability, Payments, Due	2,352
Operating Lease, Liability	1,986
Lessee, Operating Lease, Liability, Undiscounted Excess Amount	(366)
Operating Lease, Liability, Current	(553)
Operating Lease, Liability, Noncurrent	$ 1,433

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Collaboration and License Agreements (Details) $ in Thousands, € in Millions	1 Months Ended							3 Months Ended				9 Months Ended	12 Months Ended
	Feb. 28, 2019 USD ($)	Nov. 30, 2017 USD ($)	Oct. 31, 2017 USD ($)	Nov. 30, 2015 USD ($)	Mar. 31, 2015 USD ($)	Oct. 31, 2014 USD ($)	Oct. 31, 2014 EUR (€)	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Mar. 31, 2018 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Collaboration and License Agreements [Abstract]
Sanofi Upfront Payment				$ 300,000
Sanofi Development Milestones				110,000
Sanofi Regulatory Milestones				220,000
Sanofi Outcomes Study Milestone				100,000
Sanofi Sales Milestone Payments				990,000
Sanofi Commercialization Costs Funded by Lexicon Maximum Amount				100,000
Sanofi Revenue Allocated to License Deliverable				126,800
Sanofi Revenue Allocated to Development Deliverable				113,800
Sanofi Revenue Allocated to Funding Deliverable				$ 59,400
Sanofi Revenue Recognized								$ 100		$ 19,300
Ipsen Total Payments								47,200
Ipsen Maximum Regulatory And Commercial Milestones								9,600
Ipsen Maximum Sales Milestones | €							€ 72
Ipsen Total Upfront Payments					$ 24,500
Ipsen Milestone Payment										5,100	$ 6,400	$ 6,400
Ipsen Milestone Payment Received	$ 2,250	$ 3,840	$ 3,840						$ 1,250	5,100
Ipsen Revenue Allocated to License Deliverable													$ 1,400	$ 21,200
Ipsen Revenue Allocated to Development Deliverable						$ 1,700
Ipsen Revenue Allocated to Committee Deliverable						$ 100
Ipsen Revenue Recognized								$ 2,300		$ 300

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Subsequent Event (Details) $ in Millions	Apr. 26, 2019 USD ($)
Subsequent Events [Abstract]
Royalty Expense	$ 4.5
lxrx_royalty expense_approval of sotagliflozin	$ 1.5