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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
OR
[ ] 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 GENETICS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0474169
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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 X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act.
Yes X No
--- ---
As of July 26, 2005, 63,735,954 shares of the registrant's common
stock, par value $0.001 per share, were outstanding.
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LEXICON GENETICS INCORPORATED
TABLE OF CONTENTS
PAGE
----
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS................................................................. 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2005 (unaudited) and December 31, 2004....................... 3
Consolidated Statements of Operations (unaudited) - Three and Six Months Ended
June 30, 2005 and 2004......................................................................... 4
Consolidated Statements of Cash Flows (unaudited) - Six Months Ended
June 30, 2005 and 2004......................................................................... 5
Notes to Consolidated Financial Statements (unaudited).............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 20
Item 4. Controls and Procedures............................................................................. 20
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................................. 21
Item 6. Exhibits and Reports on Form 8-K.................................................................... 21
SIGNATURES................................................................................................... 23
The Lexicon name and logo, LexVision(R) and OmniBank(R) are registered
trademarks and Genome5000(TM) and e-Biology(TM) are trademarks of Lexicon
Genetics Incorporated.
------------
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 "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors," that
may cause our or our industry's actual results, levels of activity, performance
or achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by these
forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are not under any duty to
update any of the forward-looking statements after the date of this quarterly
report on Form 10-Q to conform these statements to actual results, unless
required by law.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXICON GENETICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<Table>
<Caption>
AS OF AS OF
JUNE 30, DECEMBER 31,
2005 2004
--------- ------------
ASSETS (UNAUDITED)
------
Current assets:
Cash and cash equivalents ........................................... $ 12,490 $ 14,612
Short-term investments, including restricted investments of $430 .... 60,302 72,946
Accounts receivable, net of allowance for doubtful accounts of $75 .. 1,789 5,345
Other receivables ................................................... -- 1,052
Prepaid expenses and other current assets ........................... 3,533 4,793
--------- ---------
Total current assets ............................................. 78,114 98,748
Property and equipment, net of accumulated depreciation
of $44,094 and $41,892, respectively ................................ 86,051 84,573
Goodwill ................................................................ 25,798 25,798
Intangible assets, net of amortization of $4,760 and $4,160, respectively 1,240 1,840
Other assets ............................................................ 946 1,021
--------- ---------
Total assets ..................................................... $ 192,149 $ 211,980
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 2,802 $ 7,574
Accrued liabilities ................................................. 7,295 6,945
Current portion of deferred revenue ................................. 23,818 19,500
Current portion of long-term debt ................................... 4,721 4,691
--------- ---------
Total current liabilities ........................................ 38,636 38,710
Deferred revenue, net of current portion ................................ 26,344 18,092
Long-term debt .......................................................... 32,568 32,940
Other long-term liabilities ............................................. 699 644
--------- ---------
Total liabilities ................................................ 98,247 90,386
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized;
no shares issued and outstanding ................................. -- --
Common stock, $.001 par value; 120,000 shares authorized;
63,730 and 63,491 shares issued and outstanding .................. 64 63
Additional paid-in capital .......................................... 383,087 382,666
Deferred stock compensation ......................................... (5) (20)
Accumulated deficit ................................................. (289,223) (261,115)
Accumulated other comprehensive loss ................................ (21) --
--------- ---------
Total stockholders' equity ....................................... 93,902 121,594
--------- ---------
Total liabilities and stockholders' equity ....................... $ 192,149 $ 211,980
========= =========
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
3
LEXICON GENETICS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenues:
Collaborative research .................. $ 13,771 $ 8,211 $ 22,654 $ 16,505
Subscription and license fees ........... 127 2,567 5,169 6,115
-------- -------- -------- --------
Total revenues ........................ 13,898 10,778 27,823 22,620
Operating expenses:
Research and development ................ 23,667 22,580 46,427 44,981
General and administrative .............. 4,750 4,642 9,182 9,686
-------- -------- -------- --------
Total operating expenses .............. 28,417 27,222 55,609 54,667
-------- -------- -------- --------
Loss from operations ....................... (14,519) (16,444) (27,786) (32,047)
Interest income ............................ 506 361 997 793
Interest expense ........................... (827) (705) (1,632) (996)
Other income, net .......................... (2) -- 313 (4)
-------- -------- -------- --------
Net loss ................................... $(14,842) $(16,788) $(28,108) $(32,254)
======== ======== ======== ========
Net loss per common share, basic and diluted $ (0.23) $ (0.26) $ (0.44) $ (0.51)
Shares used in computing net loss per
common share, basic and diluted ......... 63,636 63,369 63,581 63,217
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
4
LEXICON GENETICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
-------------------------
2005 2004
--------- ---------
Cash flows from operating activities:
Net loss ........................................................... $ (28,108) $ (32,254)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation ..................................................... 5,207 5,430
Amortization of intangible assets, other than goodwill ........... 600 600
Amortization of deferred stock compensation ...................... (20) 828
Loss on disposal of property and equipment ....................... 10 --
Changes in operating assets and liabilities:
Decrease in accounts receivable ................................ 4,608 4,393
Decrease in prepaid expenses and other current assets .......... 1,260 368
(Increase) decrease in other assets ............................ 75 (898)
Decrease in accounts payable and other liabilities ............. (4,367) (1,333)
Increase (decrease) in deferred revenue ........................ 12,570 (10,914)
--------- ---------
Net cash used in operating activities ........................ (8,165) (33,780)
Cash flows from investing activities:
Purchases of property and equipment ................................ (6,780) (3,579)
Proceeds from disposal of property and equipment ................... 85 15
Decrease in restricted cash ........................................ -- 14,372
Purchases of investments ........................................... (67,200) (118,354)
Maturities of investments .......................................... 79,823 138,434
--------- ---------
Net cash provided by investing activities ...................... 5,928 30,888
Cash flows from financing activities:
Proceeds from issuance of common stock ............................. 457 1,511
Proceeds from debt borrowings ...................................... -- 34,000
Repayment of debt borrowings ....................................... (342) (52,392)
Repayment of other long-term liabilities ........................... -- (2,466)
--------- ---------
Net cash provided by (used in) financing activities ............ 115 (19,347)
--------- ---------
Net decrease in cash and cash equivalents ............................. (2,122) (22,239)
Cash and cash equivalents at beginning of period ...................... 14,612 35,856
--------- ---------
Cash and cash equivalents at end of period ............................ $ 12,490 $ 13,617
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................. $ 1,395 $ 567
Supplemental disclosure of non-cash investing and financing activities:
Unrealized loss on investments ..................................... $ (21) $ --
Reversal of deferred stock compensation, in connection
with stock options ............................................... $ 35 $ 19
Retirement of property and equipment ............................... $ 3,100 $ 283
</Table>
The accompanying notes are an integral part of these
consolidated financial statements.
5
LEXICON GENETICS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Lexicon
Genetics Incorporated (Lexicon or the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2005 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2005.
The accompanying consolidated financial statements include the accounts
of Lexicon and its 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, 2004, as filed with the SEC.
2. RECLASSIFICATION
As of June 30, 2004 and December 31, 2003, Lexicon reclassified auction
rate securities of $53.5 million and $46.1 million, respectively, from cash
equivalents to short-term investments and, as of December 31, 2003, Lexicon
reclassified $42.6 million from restricted cash to short-term investments. The
accompanying consolidated statement of cash flows for the six months ended June
30, 2004 has been adjusted to reflect these reclassifications.
3. COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and unrealized gains and
losses on short-term investments, which are considered available-for-sale
securities. Comprehensive loss for the three months ended June 30, 2005 was
$14.8 million, which includes a net loss of $14.8 million and a $12,000
unrealized gain on short-term investments. Comprehensive loss for the six months
ended June 30, 2005 was $28.1 million, which includes a net loss of $28.1
million and a $21,000 unrealized loss on short-term investments.
4. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding during the applicable period. Shares
associated with stock options and warrants are not included because they are
antidilutive. There are no differences between basic and diluted net loss per
share for all periods presented.
6
5. STOCK-BASED COMPENSATION
Lexicon's stock-based compensation plans are accounted for under the
recognition and measurement provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees, and Related
Interpretations." Under the intrinsic value method described in APB Opinion No.
25, no compensation expense is recognized if the exercise price of the employee
stock option equals the market price of the underlying stock on the date of
grant. Lexicon recognized stock-based compensation expense of $0.8 million for
the six months ended June 30, 2004, primarily relating to option grants made
prior to Lexicon's April 2000 initial public offering. All deferred stock
compensation relating to these options was fully amortized as of January 31,
2004 when these options became fully vested.
The following table illustrates the effect on net loss and net loss per
share if the fair value recognition provisions of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock Based Compensation," had been applied to all outstanding
and unvested awards in each period:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2005 2004 2005 2004
-------- -------- -------- --------
Net loss, as reported: ......................... $(14,842) $(16,788) $(28,108) $(32,254)
Add: Stock-based employee compensation
expense included in reported net loss ....... (9) -- (20) 827
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards ....................... (3,127) (3,866) (6,257) (8,748)
-------- -------- -------- --------
Pro forma net loss ............................. $(17,978) $(20,654) $(34,385) $(40,175)
======== ======== ======== ========
Net loss per common share, basic and diluted
As reported ................................. $ (0.23) $ (0.26) $ (0.44) $ (0.51)
======== ======== ======== ========
Pro forma ................................... $ (0.28) $ (0.33) $ (0.54) $ (0.64)
======== ======== ======== ========
</Table>
6. DEBT OBLIGATIONS
Genentech Loan: On December 31, 2002, Lexicon borrowed $4.0 million
under a note agreement with Genentech, Inc. The proceeds of the loan are to be
used to fund research efforts under the alliance agreement with Genentech. The
note matures on December 31, 2005, but the Company may prepay it at any time.
The Company may repay the note, at its option, in cash, in shares of common
stock valued at the then-current market price, or in a combination of cash and
shares, subject to certain limitations. The note accrues interest at an annual
rate of 8%, compounded quarterly.
Mortgage Loan: In April 2004, Lexicon purchased its facilities in The
Woodlands, Texas that were previously subject to a synthetic lease. The Company
repaid the $54.8 million funded under the synthetic lease with proceeds from a
$34.0 million third-party mortgage financing and $20.8 million in cash. The
mortgage loan has a ten-year term with a 20-year amortization and bears interest
at a fixed rate of 8.23%. As a result of the refinancing, all restrictions on
the cash and investments that had secured the obligations under the synthetic
lease were eliminated.
7. COMMITMENTS AND CONTINGENCIES
In May 2002, Lexicon's subsidiary Lexicon Pharmaceuticals (New Jersey),
Inc. leased a 76,000 square-foot laboratory and office space in Hopewell, New
Jersey under an agreement which expires in June 2013. The lease provides for an
escalating yearly rent payment of $1.3 million in the first year,
7
$2.1 million in years two and three, $2.2 million in years four to six, $2.3
million in years seven to nine and $2.4 million in years ten and eleven. Lexicon
is the guarantor of the obligations of its subsidiary under the lease. The
Company is required to maintain restricted investments to collateralize the
Hopewell lease. As of June 30, 2005, the Company had $430,000 in restricted
investments to collateralize a standby letter of credit for this lease.
8. NEW COLLABORATION AGREEMENT
Lexicon formed a collaboration with N.V. Organon (Organon) in May 2005
to jointly discover, develop and commercialize novel biotherapeutics. In the
collaboration, Lexicon will create and analyze mouse knockouts for up to 300
genes selected by the parties that encode secreted proteins or potential
antibody targets, including two of Lexicon's existing drug discovery programs.
The parties will jointly select targets for further research and development and
will equally share costs and responsibility for research, preclinical and
clinical activities. The parties will jointly determine the manner in which
collaboration products will be commercialized and will equally benefit from
product revenue. If fewer than five development candidates are designated under
the collaboration, Lexicon's share of costs and product revenue will be
proportionally reduced. Lexicon will receive a milestone payment for each
development candidate in excess of five. Either party may decline to participate
in further research or development efforts with respect to a collaboration
product, in which case such party will receive royalty payments on sales of such
collaboration product rather than sharing in revenue. Organon will have
principal responsibility for manufacturing biotherapeutic products resulting
from the collaboration for use in clinical trials and for worldwide sales.
Lexicon received an upfront payment of $22.5 million from Organon in
exchange for access to Lexicon's drug target discovery capabilities and the
exclusive right to co-develop biotherapeutic products that modulate the 300
genes selected for the collaboration. This upfront payment will be recognized as
revenue over the four-year target function discovery portion of the alliance.
Organon will also provide Lexicon with annual research funding totaling up to
$50 million for its 50% share of the collaboration's costs during this same
period.
9. SUBSEQUENT EVENT
In July 2005, Lexicon was awarded $35 million from the Texas Enterprise
Fund for the creation of a knockout mouse embryonic stem cell library containing
350,000 cell lines using Lexicon's proprietary gene trapping technology. Lexicon
will create the library for the Texas Institute for Genomic Medicine (TIGM), a
newly formed non-profit institute whose founding members are Texas A&M
University, the Texas A&M University System Health Science Center and Lexicon.
TIGM researchers may also access specific cells from Lexicon's current gene trap
library of 270,000 mouse embryonic stem cell lines and will have certain rights
to utilize Lexicon's patented gene targeting technologies. In addition, Lexicon
will equip TIGM with the bioinformatics software required for the management and
analysis of data relating to the library. The Texas Enterprise Fund has also
awarded $15 million to the Texas A&M University System for the creation of
facilities and infrastructure to house the library.
Under the terms of the award, Lexicon is responsible for the creation
of a specified number of jobs, reaching an aggregate of 1,616 new jobs in Texas
by December 31, 2015. Lexicon will obtain credits based on funding received by
TIGM and certain related parties from sources other than the State of Texas that
it may offset against its potential liability for any job creation shortfalls.
Lexicon will also obtain credits against future jobs commitment liabilities for
any surplus jobs it creates. Subject to these credits, if Lexicon fails to
create the specified number of jobs, the state may require Lexicon to repay
$2,415 for each job Lexicon falls short. Lexicon's maximum aggregate exposure
for such payments, if Lexicon fails to create any new jobs, is approximately
$14.4 million, without giving effect to any credits
8
to which Lexicon may be entitled. The Texas A&M University System, together with
TIGM, has independent job creation obligations and is obligated for an
additional period to maintain an aggregate of 5,000 jobs, inclusive of those
Lexicon creates.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a biopharmaceutical company focused on discovering and
developing breakthrough treatments for human disease. We are using gene knockout
technology to systematically discover the physiological functions of genes in
living mammals, or in vivo. We generate our gene function discoveries using
knockout mice - mice whose DNA has been altered to disrupt, or "knock out," the
function of the altered gene. Our patented gene trapping and gene targeting
technologies enable us to rapidly generate these knockout mice by altering the
DNA of genes in a special variety of mouse cells, called embryonic stem cells,
which can be cloned and used to generate mice with the altered gene. We employ
an integrated platform of advanced medical technologies to systematically
discover and validate which genes, when knocked out, result in a favorable
medical profile with pharmaceutical utility. We then pursue those genes and the
proteins they encode as potential targets for therapeutic intervention in our
drug discovery programs.
We employ internal resources and drug discovery alliances to discover
potential small molecule, antibody and protein drugs for in vivo-validated drug
targets that we consider to have high pharmaceutical value. We use our own
sophisticated libraries of drug-like chemical compounds and an industrialized
medicinal chemistry platform to identify small molecule drug candidates for our
in vivo-validated drug targets. We have established alliances with Bristol-Myers
Squibb Company to discover and develop novel small molecule drugs in the
neuroscience field; with Genentech, Inc. to discover therapeutic proteins and
antibody targets; with N.V. Organon to discover, develop and commercialize novel
biotherapeutics; and with Takeda Pharmaceutical Company Limited to discover new
drugs for the treatment of high blood pressure. In addition, we have established
collaborations and license agreements with many other leading pharmaceutical and
biotechnology companies under which we receive fees and, in some cases, are
eligible to receive milestone and royalty payments, for access to some of our
technologies and discoveries for use in their own drug discovery efforts.
We derive substantially all of our revenues 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
and technology licenses. To date, we have generated a substantial portion of our
revenues from a limited number of sources.
Our operating results and, in particular, our ability to generate
additional revenues are dependent on many factors, including our success in
establishing research collaborations and technology licenses, expirations of our
research collaborations, the success rate of our discovery efforts leading to
opportunities for new research collaborations and licenses, as well as milestone
payments and royalties, the timing and willingness of collaborators to
commercialize products which may result in royalties, and general and
industry-specific economic conditions which may affect research and development
expenditures. Our future revenues from collaborations and alliances are
uncertain because our existing agreements have fixed terms or relate to specific
projects of limited duration. Our future revenues from technology licenses are
uncertain because they depend, in large part, on securing new agreements.
Subject to limited exceptions, we do not intend to offer subscriptions to our
databases or make our compound libraries available for purchase in the future.
Our ability to secure future revenue-generating agreements will depend upon our
ability to address the needs of our potential future collaborators and
licensees, and to negotiate agreements that we believe are in our long-term best
interests. We may determine that our interests are better served by retaining
rights to our discoveries and advancing our therapeutic programs to a later
stage, which could limit our near-term revenues. Because of these and other
factors, our operating results have fluctuated in the past and are likely to do
so in the future, and we
10
do not believe that period-to-period comparisons of our operating results are a
good indication of our future performance.
Since our inception, we have incurred significant losses and, as of
June 30, 2005, we had an accumulated deficit of $289.2 million. Our losses have
resulted principally from costs incurred in research and development, general
and administrative costs associated with our operations, and non-cash
stock-based compensation expenses associated with stock options granted to
employees and consultants prior to our April 2000 initial public offering.
Research and development expenses consist primarily of salaries and related
personnel costs, material costs, facility costs, depreciation on property and
equipment, legal expenses resulting from intellectual property prosecution and
other expenses related to our drug discovery and Genome5000 programs, the
development and analysis of knockout mice and our other target validation
research efforts, and the development of compound libraries. General and
administrative expenses consist primarily of salaries and related expenses for
executive, finance and other administrative personnel, professional fees and
other corporate expenses, including information technology, facilities costs and
general legal activities. In connection with the expansion of our drug discovery
programs and our target validation research efforts, we expect to incur
increasing research and development and general and administrative costs. As a
result, we will need to generate significantly higher revenues to achieve
profitability.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
We recognize revenues when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed
and determinable, and collectibility is reasonably assured. Payments received in
advance under these arrangements are recorded as deferred revenue until earned.
Upfront fees and annual research funding under our drug discovery
alliances are recognized as revenue on a straight-line basis over the estimated
period of service, generally the contractual research term, to the extent they
are non-refundable. Milestone-based fees are recognized upon completion of
specified milestones according to contract terms. Fees for access to our
databases and other target validation resources are recognized ratably over the
subscription or access period. Payments received under target validation
collaborations and government grants are recognized as revenue as we perform our
obligations related to such research to the extent such fees are non-refundable.
Non-refundable technology license fees are recognized as revenue upon the grant
of the license, when performance is complete and there is no continuing
involvement.
Revenues recognized from multiple element contracts are allocated to
each element of the arrangement based on the relative fair value of the
elements. The determination of fair value of each element is based on objective
evidence. When revenues for an element are specifically tied to a separate
earnings process, revenue is recognized when the specific performance obligation
associated with the element is completed. When revenues for an element are not
specifically tied to a separate earnings process, they are recognized ratably
over the term of the agreement.
A change in our revenue recognition policy or changes in the terms of
contracts under which we recognize revenues could have an impact on the amount
and timing of our recognition of revenues.
11
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. Patent costs and technology license fees for technologies
that are utilized in research and development and have no alternative future use
are expensed when incurred.
Prior to preclinical development work, we are unable to segregate the
costs related to research performed on drug candidates because the drug
candidate is often not specifically identified until the later stages of our
research. With the commencement of formal preclinical development in 2005, we
will account on a program-by-program basis for the costs related to the
development of the identified drug products.
Goodwill Impairment
Goodwill is not amortized, but is tested at least annually for
impairment at the reporting unit level. We have determined that the reporting
unit is the single operating segment disclosed in our 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. We determined that the market
capitalization approach is the most appropriate method of measuring fair value
of the reporting unit. Under this approach, fair value is calculated as the
average closing price of our common stock for the 30 days preceding the date
that the annual impairment test is performed, multiplied by the number of
outstanding shares on that date. A control premium, which is representative of
premiums paid in the marketplace to acquire a controlling interest in a company,
is then added to the market capitalization to determine the fair value of the
reporting unit. 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 we encounter events or
changes in circumstances that would indicate that, more likely than not, the
carrying value of goodwill has been impaired.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2005 and 2004
Revenues. Total revenues and dollar and percentage changes as compared
to the corresponding period in the prior year are as follows (dollar amounts are
presented in millions):
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30,
---------------------------------
2005 2004
-------------- -----------------
Total revenues........................... $ 13.9 $ 10.8
Dollar increase.......................... $ 3.1
Percentage increase...................... 29%
</Table>
o Collaborative research - Revenue from collaborative research
increased 68% to $13.8 million primarily due to our recognition
of revenues under our biotherapeutics collaboration with Organon,
which was entered into in May 2005, and our hypertension drug
discovery alliance with Takeda, which was entered into in July
2004. This was offset in part by a decrease in revenues from the
termination of our therapeutic protein discovery alliance with
Incyte Corporation in June 2004.
12
o Subscription and license fees - Revenue from subscriptions and
license fees decreased 95% to $0.1 million primarily as a result
of the termination in June 2004 and December 2004, respectively,
of our LexVision(R) database subscription programs with Incyte
and Bristol-Myers Squibb.
Research and Development Expenses. Research and development expenses
and dollar and percentage changes as compared to the corresponding period in the
prior year are as follows (dollar amounts are presented in millions):
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30,
--------------------------------
2005 2004
-------------- ----------------
Total research and development expense... $ 23.7 $ 22.6
Dollar increase.......................... $ 1.1
Percentage increase...................... 5%
</Table>
Research and development expenses consist primarily of salaries and
other personnel-related expenses, laboratory supplies, facility and equipment
costs, third-party and other services. The change in the three months ended June
30, 2005 as compared to the corresponding period in 2004 resulted primarily from
the following costs:
o Personnel - Personnel costs increased 8% to $11.8 million
primarily due to increased personnel to support the expansion of
our drug discovery programs and merit-based pay increases for
employees. Salaries, bonuses, employee benefits, payroll taxes,
and recruiting and relocation costs are included in personnel
costs.
o Laboratory supplies - Laboratory supplies expense decreased 6% to
$3.2 million due primarily to fewer purchases of specialty
reagents.
o Facilities and equipment - Facilities and equipment costs
increased 5% to $5.3 million due primarily to higher utility
costs.
o Third-party services - Costs associated with third-party services
decreased 3% to $2.0 million primarily due to the termination in
June 2004 of our LifeSeq(R) Gold database subscription, offset in
part by an increase in third-party contract research costs. Costs
associated with third-party services include third-party contract
research, subscriptions to third-party databases, technology
licenses, and legal and patent fees.
o Other - Other costs increased by 21% to $1.4 million primarily
related to increased information technology and insurance costs.
General and Administrative Expenses. General and administrative
expenses and dollar and percentage changes as compared to the corresponding
period in the prior year are as follows (dollar amounts are presented in
millions):
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30,
--------------------------------
2005 2004
------------- ----------------
Total general and administrative expense. $ 4.7 $ 4.6
Dollar increase.......................... $ 0.1
Percentage increase...................... 2%
</Table>
General and administrative expenses consist primarily of personnel
costs to support our research activities, facility and equipment costs and
professional fees, such as legal fees. The change in the three months ended June
30, 2005 as compared to the corresponding period in 2004 resulted primarily from
the following costs:
13
o Personnel - Personnel costs increased 3% to $2.8 million.
Salaries, bonuses, employee benefits, payroll taxes, recruiting
and relocation costs are included in personnel costs.
o Facilities and equipment - Facilities and equipment costs
decreased 2% to $0.7 million.
o Professional fees - Professional fees decreased 3% to $0.6
million.
o Other - Other costs increased 9% to $0.7 million.
Interest Income. Interest income increased 40% to $0.5 million in the
three months ended June 30, 2005 from $0.4 million in the corresponding period
in 2004 due to higher interest rates, offset in part by lower average cash and
investment balances.
Interest Expense. Interest expense increased 17% to $0.8 million in the
three months ended June 30, 2005 from $0.7 million in the corresponding period
in 2004. The increase was attributable to interest expense on the $34.0 million
mortgage loan on our facilities in The Woodlands, Texas, which was entered into
in April 2004.
Net Loss and Net Loss Per Common Share. Net loss decreased 12% to $14.8
million in the three months ended June 30, 2005 from $16.8 million in the
corresponding period in 2004. Net loss per common share decreased to $0.23 in
the three months ended June 30, 2005 from $0.26 in the corresponding period in
2004.
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.
Six Months Ended June 30, 2005 and 2004
Revenues. Total revenues and dollar and percentage changes as compared
to the corresponding period in the prior year are as follows (dollar amounts are
presented in millions):
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
---------------------------------
2005 2004
-------------- -----------------
Total revenues........................... $ 27.8 $ 22.6
Dollar increase.......................... $ 5.2
Percentage increase...................... 23%
</Table>
o Collaborative research - Revenue from collaborative research
increased 37% to $22.7 million primarily due to our recognition
of revenues under our biotherapeutics collaboration with Organon,
which was entered into in May 2005, and our hypertension drug
discovery alliance with Takeda, which was entered into in July
2004. This was offset in part by a decrease in revenues from the
termination of our therapeutic protein discovery alliance with
Incyte in June 2004.
o Subscription and license fees - Revenue from subscriptions and
license fees decreased 15% to $5.2 million primarily as a result
of the termination in June 2004 and December 2004, respectively,
of our LexVision(R) database subscription programs with Incyte
and Bristol-Myers Squibb. The reduction was offset in part by
technology license fees received from Deltagen, Inc. in
connection with the settlement of Lexicon's claim in Deltagen's
bankruptcy proceedings.
14
Research and Development Expenses. Research and development expenses
and dollar and percentage changes as compared to the corresponding period in the
prior year are as follows (dollar amounts are presented in millions):
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
--------------------------------
2005 2004
-------------- ----------------
Total research and development expense... $ 46.4 $ 45.0
Dollar increase.......................... $ 1.4
Percentage increase...................... 3%
</Table>
Research and development expenses consist primarily of salaries and
other personnel-related expenses, laboratory supplies, facility and equipment
costs, third-party and other services. The change in the six months ended June
30, 2005 as compared to the corresponding period in 2004 resulted primarily from
the following costs:
o Personnel - Personnel costs increased 10% to $23.5 million
primarily due to increased personnel to support the expansion of
our drug discovery programs and merit-based pay increases for
employees.
o Laboratory supplies - Laboratory supplies expense decreased 7% to
$6.4 million due primarily to the bulk purchase of certain
supplies in the prior year period.
o Facilities and equipment - Facilities and equipment costs
increased 3% to $10.4 million.
o Third-party services - Costs associated with third-party services
decreased 10% to $3.4 million primarily due to the termination in
June 2004 of our LifeSeq Gold database subscription, offset in
part by an increase in third-party contract research costs.
o Other - Other costs increased by 16% to $2.8 million primarily
related to increased information technology costs.
General and Administrative Expenses. General and administrative
expenses and dollar and percentage changes as compared to the corresponding
period in the prior year are as follows (dollar amounts are presented in
millions):
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
--------------------------------
2005 2004
------------- ----------------
Total general and administrative expense. $ 9.2 $ 9.7
Dollar decrease.......................... $ 0.5
Percentage decrease...................... 5%
</Table>
General and administrative expenses consist primarily of personnel
costs to support our research activities, facility and equipment costs and
professional fees, such as legal fees. The change in the six months ended June
30, 2005 as compared to the corresponding period in 2004 resulted primarily from
the following costs:
o Personnel - Personnel costs decreased 2% to $5.5 million.
o Facilities and equipment - Facilities and equipment costs
decreased 4% to $1.5 million.
o Professional fees - Professional fees increased 7% to $1.0
million primarily due to increased consulting fees.
15
o Other - Other costs remained unchanged at $1.2 million in both of
the six-month periods ended June 30, 2005 and 2004.
Interest Income. Interest income increased 26% to $1.0 million in the
six months ended June 30, 2005 from $0.8 million in the corresponding period in
2004 primarily due to higher interest rates, offset by lower average cash and
investment balances.
Interest Expense. Interest expense increased to $1.6 million in the six
months ended June 30, 2005 from $1.0 million in the corresponding period in
2004. The increase was attributable to interest expense on the $34.0 million
mortgage loan on our facilities in The Woodlands, Texas, which was entered into
in April 2004.
Net Loss and Net Loss Per Common Share. Net loss decreased 13% to $28.1
million in the six months ended June 30, 2005 from $32.3 million in the
corresponding period in 2004. Net loss per common share decreased to $0.44 in
the six months ended June 30, 2005 from $0.51 in the corresponding period in
2004. Net loss includes stock-based compensation expense of $0.8 million in the
six months ended June 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through sales
of common and preferred stock, contract and milestone payments to us under our
drug discovery alliance, target validation, database subscription and license
agreements, equipment financing arrangements and leasing arrangements. From our
inception through June 30, 2005, we had received net proceeds of $295.3 million
from issuances of common and preferred stock, including $203.2 million of net
proceeds from the initial public offering of our common stock in April 2000 and
$50.1 million from our July 2003 common stock offering. In addition, from our
inception through June 30, 2005, we received $269.0 million in cash payments
from drug discovery alliances, target validation collaborations, database
subscription and technology license fees, sales of compound libraries and
reagents, and government grants, of which $220.9 million had been recognized as
revenues through June 30, 2005.
As of June 30, 2005, we had $72.8 million in cash, cash equivalents and
short-term investments (including $0.4 million of restricted investments), as
compared to $87.6 million (including $0.4 million of restricted investments) as
of December 31, 2004. We used cash of $8.2 million in operations in the six
months ended June 30, 2005. This consisted primarily of the net loss for the
period of $28.1 million offset by non-cash charges of $5.2 million related to
depreciation expense and $0.6 million related to amortization of intangible
assets other than goodwill; a $12.6 million increase in deferred revenue; and
changes in other operating assets and liabilities of $1.5 million. Investing
activities provided cash of $5.9 million in the six months ended June 30, 2005,
primarily due to net maturities of short-term investments of $12.6 million. This
was offset by purchases of property and equipment of $6.8 million. Financing
activities provided cash of $0.1 million.
In April 2004, we purchased our facilities in The Woodlands, Texas from
the lessor under our previous synthetic lease agreement. In connection with such
purchase, we repaid the $54.8 million funded under the synthetic lease with
proceeds from a $34.0 million third-party mortgage financing and $20.8 million
in cash. The mortgage loan has a ten-year term with a 20-year amortization and
bears interest at a fixed rate of 8.23%. As a result of the refinancing, all
restrictions on the cash and investments that had secured our obligations under
the synthetic lease were eliminated.
In May 2002, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc.
signed a ten-year lease for a 76,000 square-foot facility in Hopewell, New
Jersey. The term of the lease extends until June 30,
16
2013. The lease provides for an escalating yearly base rent payment of $1.3
million in the first year, $2.1 million in years two and three, $2.2 million in
years four to six, $2.3 million in years seven to nine and $2.4 million in years
ten and eleven. We are the guarantor of the obligations of our subsidiary under
the lease.
In December 2002, we borrowed $4.0 million under a note agreement with
Genentech. The proceeds of the loan are to be used to fund research efforts
under our alliance with Genentech for the discovery of therapeutic proteins and
antibody targets. The note matures on or before December 31, 2005, but we may
prepay it at any time. We may repay the note, at our option, in cash, in shares
of our common stock valued at the then-current market value, or in a combination
of cash and shares, subject to certain limitations. The note accrues interest at
an annual rate of 8%, compounded quarterly.
In May 2005, we formed a collaboration with N.V. Organon to jointly
discover, develop and commercialize novel biotherapeutics. We and Organon will
equally share costs and responsibility for research, preclinical and clinical
activities and equally benefit from product revenue. If fewer than five
development candidates are designated under the collaboration, our share of
costs and product revenue will be proportionally reduced. We will receive a
milestone payment for each development candidate in excess of five. Either party
may decline to participate in further research or development efforts with
respect to a collaboration product, in which case such party will receive
royalty payments on sales of such collaboration product rather than sharing in
revenue. We received an upfront payment of $22.5 million and Organon will also
provide us with annual research funding totaling up to $50 million for its 50%
share of the collaboration's costs during the four-year target function
discovery portion of the alliance.
Subsequent to June 30, 2005, we were awarded $35 million from the Texas
Enterprise Fund for the creation of a knockout mouse embryonic stem cell library
containing 350,000 cell lines. We will create the library for the Texas
Institute for Genomic Medicine, a newly formed non-profit institute whose
founding members are Texas A&M University, the Texas A&M University System
Health Science Center and us. Under the terms of the award, we are responsible
for the creation of a specified number of jobs, reaching an aggregate of 1,616
new jobs in Texas by December 31, 2015. We will obtain credits based on funding
received by the institute and certain related parties from sources other than
the State of Texas that we may offset against our potential liability for any
job creation shortfalls. We will also obtain credits against future jobs
commitment liabilities for any surplus jobs we create. Subject to these credits,
if we fail to create the specified number of jobs, the state may require us to
repay $2,415 for each job we fall short. Our maximum aggregate exposure for such
payments, if we fail to create any new jobs, is approximately $14.4 million,
without giving effect to any credits to which we may be entitled.
Our future capital requirements will be substantial and will depend on
many factors, including our ability to obtain alliance, collaboration and
technology license agreements, the amount and timing of payments under such
agreements, the level and timing of our research and development expenditures,
market acceptance of our products, the resources we devote to developing and
supporting our products and other factors. Our capital requirements will also be
affected by any expenditures we make in connection with license agreements and
acquisitions of and investments in complementary technologies and businesses. We
expect to devote substantial capital resources to continue our research and
development efforts, to expand our support and product development activities,
and for other general corporate activities. We believe that our current
unrestricted cash and investment balances and revenues we expect to derive from
drug discovery alliances, target validation collaborations and technology
licenses will be sufficient to fund our operations at least through the next two
years. 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.
17
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.
government agency debt obligations, investment grade commercial paper, corporate
debt securities and certificates of deposit that mature within twelve months and
auction rate securities that mature greater than twelve 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 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.
RISK FACTORS
Our business is subject to certain risks and uncertainties, including
those referenced below:
Risks Related to Our Company and Business
o we have a history of net losses, and we expect to continue to incur
net losses and may not achieve or maintain profitability
o we will need additional capital in the future and, if it is not
available, we will have to curtail or cease operations
o any sale of additional equity securities in the future may be dilutive
to our stockholders
o we are an early-stage company, and we may not successfully develop or
commercialize any therapeutics or drug targets that we have identified
o we face substantial competition in the discovery of the DNA sequences
of genes and their functions and in our drug discovery and product
development efforts
o we rely heavily on our collaborators to develop and commercialize
pharmaceutical products based on genes that we identify as promising
candidates for development as drug targets, and our collaborators'
efforts may fail to yield pharmaceutical products on a timely basis,
if at all
o we rely on several key collaborators for a significant portion of our
revenues, the loss of any of which would negatively impact our
business to the extent such losses are not offset by additional
collaborators
o cancellations by or conflicts with our collaborators could harm our
business
o we may be unsuccessful in developing and commercializing
pharmaceutical products on our own
o we lack the capability to manufacture materials for preclinical
studies, clinical trials or commercial sales and will rely on third
parties to manufacture our potential products, which may harm or delay
our product development and commercialization efforts
o we may engage in future acquisitions, which may be expensive and time
consuming and from which we may not realize anticipated benefits
18
o if we lose our key personnel or are unable to attract and retain
additional personnel, we may be unable to pursue collaborations or
develop our own products
o any contamination among our knockout mouse population could negatively
affect the reliability of our scientific research or cause us to incur
significant remedial costs
o because all of our target validation operations are located at a
single facility, the occurrence of a disaster could significantly
disrupt our business
o our operating results have been and likely will continue to fluctuate,
and we believe that period-to-period comparisons of our operating
results are not a good indication of our future performance
Risks Related to Our Industry
o our ability to patent our inventions is uncertain because patent laws
and their interpretation are highly uncertain and subject to change
o our patent applications may not result in enforceable patent rights
and, as a result, the protection afforded to our scientific
discoveries may be insufficient
o if other companies and institutions obtain patents relating to our
drug target or product candidate discoveries, we may be unable to
obtain patents for our inventions based upon those discoveries and may
be blocked from using or developing some of our technologies and
products
o issued or pending patents may not fully protect our discoveries, and
our competitors may be able to commercialize technologies or products
similar to those covered by our issued or pending patents
o we may be involved in patent litigation and other disputes regarding
intellectual property rights and may require licenses from third
parties for our discovery and development and planned
commercialization activities, and we may not prevail in any such
litigation or other dispute or be able to obtain required licenses
o we use intellectual property that we license from third parties, and
if we do not comply with these licenses, we could lose our rights
under them
o we have not sought patent protection outside of the United States for
some of our inventions, and some of our licensed patents only provide
coverage in the United States, and as a result, our international
competitors could be granted foreign patent protection with respect to
our discoveries
o we may be unable to protect our trade secrets
o our efforts to discover, evaluate and validate potential targets for
drug intervention and our drug discovery programs are subject to
evolving data and other risks inherent in the drug discovery process
o our industry is subject to extensive and uncertain government
regulatory requirements, which could significantly hinder our ability,
or the ability of our collaborators, to obtain, in a timely manner or
at all, government approval of products based on genes that we
identify, or to commercialize such products
19
o if our potential products receive regulatory approval, we or our
collaborators will remain subject to extensive and rigorous ongoing
regulation
o the uncertainty of pharmaceutical pricing and reimbursement may
decrease the commercial potential of any products that we or our
collaborators may develop and affect our ability to raise capital
o we use hazardous chemicals and radioactive and biological materials in
our business; any disputes relating to improper handling, storage or
disposal of these materials could be time consuming and costly
o we may be sued for product liability
o public perception of ethical and social issues may limit or discourage
the use of our technologies, which could reduce our revenues
For additional discussion of the risks and uncertainties that affect
our business, see "Item 1. Business - Risk Factors" included in our annual
report on Form 10-K for the year ended December 31, 2004, as filed with the
Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Disclosure about Market Risk" under "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
quantitative and qualitative disclosures about market risk.
ITEM 4. CONTROLS AND PROCEDURES
Our chief executive officer and chief 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 (the "Exchange Act")) are
sufficiently effective to ensure that the information required to be disclosed
by us in the reports we file under the Exchange Act is gathered, analyzed and
disclosed with adequate timeliness, accuracy and completeness, based on an
evaluation of such controls and procedures as of the end of the period covered
by this report.
Subsequent to our evaluation, there were no significant changes in
internal controls or other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
20
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of stockholders was held on April 27, 2005 to
consider and vote on the following proposals:
(1) The following individuals were nominated and elected as Class
II directors, with the following numbers of shares voted for
and withheld for such directors:
<Table>
<Caption>
NAME OF DIRECTOR FOR WITHHELD
---------------- --- --------
Samuel L. Barker, Ph.D. 46,745,034 3,638,782
Patricia M. Cloherty 46,726,024 3,657,792
</Table>
(2) The following additional matters were considered and approved,
with the following numbers of shares voted for, voted against
and abstaining with respect to such matters:
<Table>
<Caption>
MATTER FOR AGAINST ABSTAIN
------ --- ------- -------
Ratification and approval of an amendment to our 2000
Non-Employee Directors' Stock Option Plan increasing the 25,965,492 11,723,453 118,392
number of shares of common stock underlying each
annual option grant from 6,000 shares to 10,000 shares
Ratification and approval of the appointment of Ernst & 47,979,031 2,337,460 67,325
Young LLP as our independent auditors for the fiscal
year ending December 31, 2005
</Table>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.1 -- Collaboration and License Agreement, dated May 16, 2005,
with N.V. Organon and (only with respect to Section 9.4 thereof) Intervet Inc.
31.1 -- Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 -- Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 -- Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</Table>
+ Confidential treatment has been requested for a portion of this
exhibit. The confidential portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission
(b) Reports on Form 8-K:
On April 1, 2005, we filed a Current Report on Form 8-K dated
March 28, 2005 related to our entry into a Consulting Agreement, dated March 28,
2005, with C. Thomas Caskey, M.D., a member of our board of directors.
21
On April 28, 2005, we filed a Current Report on Form 8-K dated
April 27, 2005 related to the ratification and approval by our stockholders of
an amendment to our 2000 Non-Employee Directors' Stock Option Plan.
Additionally, the Form 8-K related to our issuance of a press release reporting
our financial results for the quarter ended March 31, 2005, which press release
included our consolidated balance sheet data and consolidated statements of
operations data for the period.
On May 17, 2005, we filed a Current Report on Form 8-K dated
May 16, 2005 related to our entry into a Collaboration and License Agreement,
dated May 16, 2005, with N.V. Organon and (only with respect to Section 9.4
thereof) Intervet Inc.
22
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 GENETICS INCORPORATED
Date: July 29, 2005 By: /s/ Arthur T. Sands
----------------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
Date: July 29, 2005 By: /s/ Julia P. Gregory
----------------------------------------
Julia P. Gregory
Executive Vice President, Corporate
Development and Chief Financial Officer
23
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.1 -- Collaboration and License Agreement, dated May 16, 2005,
with N.V. Organon and (only with respect to Section 9.4 thereof) Intervet Inc.
31.1 -- Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 -- Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 -- Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</Table>
+ Confidential treatment has been requested for a portion of this
exhibit. The confidential portions of this exhibit have been omitted
and filed separately with the Securities and Exchange Commission