Back to GetFilings.com
================================================================================
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, 2004
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 | |
As of July 30, 2004, 63,418,122 shares of the registrant's common stock,
par value $0.001 per share, were outstanding.
================================================================================
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, 2004 (unaudited) and December 31, 2003....................... 3
Consolidated Statements of Operations (unaudited) - Three and Six Months Ended
June 30, 2004 and 2003......................................................................... 4
Consolidated Statements of Cash Flows (unaudited) - Six Months Ended
June 30, 2004 and 2003......................................................................... 5
Notes to Consolidated Financial Statements (unaudited).............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 19
Item 4. Controls and Procedures............................................................................. 20
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................................. 20
Item 6. Exhibits and Reports on Form 8-K.................................................................... 21
SIGNATURES................................................................................................... 22
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)
AS OF JUNE 30, AS OF DECEMBER 31,
2004 2003
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 67,092 $ 81,915
Restricted cash ..................................................... -- 56,963
Short-term investments, including restricted investments of
$430 and $551 in 2004 and 2003, respectively ..................... 37,218 22,123
Accounts receivable, net of allowance for doubtful accounts
of $109 for 2004 and 2003 ........................................ 2,178 6,571
Prepaid expenses and other current assets ........................... 3,565 3,933
--------- ---------
Total current assets ............................................. 110,053 171,505
Property and equipment, net of accumulated depreciation
of $37,103 and $31,941, respectively ................................ 81,810 83,676
Goodwill ................................................................ 25,798 25,798
Intangible assets, net of amortization of $3,560 and $2,960, respectively 2,440 3,040
Other assets ............................................................ 1,078 180
--------- ---------
Total assets ..................................................... $ 221,179 $ 284,199
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 3,739 $ 5,884
Accrued liabilities ................................................. 5,327 4,757
Current portion of deferred revenue ................................. 17,632 21,125
Current portion of long-term debt ................................... 663 --
--------- ---------
Total current liabilities ........................................ 27,361 31,766
Deferred revenue, net of current portion ................................ 19,146 26,567
Long-term debt .......................................................... 37,289 56,344
Other long-term liabilities ............................................. 1,082 3,306
--------- ---------
Total liabilities ................................................ 84,878 117,983
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;
63,411 and 62,827 shares issued and outstanding .................. 63 63
Additional paid-in capital .......................................... 382,487 380,995
Deferred stock compensation ......................................... (52) (899)
Accumulated deficit ................................................. (246,197) (213,943)
--------- ---------
Total stockholders' equity ....................................... 136,301 166,216
--------- ---------
Total liabilities and stockholders' equity ....................... $ 221,179 $ 284,199
========= =========
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)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues:
Subscription and license fees ................... $ 2,567 $ 4,310 $ 6,115 $ 7,412
Collaborative research .......................... 8,211 4,590 16,505 9,583
Compound libraries and other .................... -- 21 -- 32
-------- -------- -------- --------
Total revenues ................................ 10,778 8,921 22,620 17,027
Operating expenses:
Research and development, including stock-based
compensation of $0, $1,285, $416 and $2,555,
respectively .................................. 22,580 20,794 44,981 40,628
General and administrative, including stock-based
compensation of $0, $1,276, $411 and $2,552,
respectively .................................. 4,642 5,979 9,686 11,783
-------- -------- -------- --------
Total operating expenses .................... 27,222 26,773 54,667 52,411
-------- -------- -------- --------
Loss from operations ............................... (16,444) (17,852) (32,047) (35,384)
Interest and other income .......................... 361 316 789 784
Interest expense ................................... (705) (83) (996) (164)
-------- -------- -------- --------
Net loss ........................................... $(16,788) $(17,619) $(32,254) $(34,764)
======== ======== ======== ========
Net loss per common share, basic and diluted ....... $ (0.26) $ (0.34) $ (0.51) $ (0.66)
Shares used in computing net loss per common share,
basic and diluted ............................... 63,369 52,496 63,217 52,434
The accompanying notes are an integral part of these
consolidated financial statements.
4
LEXICON GENETICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net loss .................................................................. $(32,254) $(34,764)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation ............................................................ 5,430 5,049
Amortization of intangible assets, other than goodwill .................. 600 600
Amortization of deferred stock compensation ............................. 828 5,108
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................ 4,393 (3,919)
Decrease in prepaid expenses and other current assets ................. 368 250
(Increase) decrease in other assets ................................... (898) 1,025
Increase (decrease) in accounts payable and other liabilities ......... (1,333) 2,811
Decrease in deferred revenue .......................................... (10,914) (1,609)
-------- --------
Net cash used in operating activities ............................... (33,780) (25,449)
Cash flows from investing activities:
Purchases of property and equipment ....................................... (3,579) (2,087)
Proceeds from disposal of property and equipment .......................... 15 --
(Increase) decrease in restricted cash .................................... 56,963 (27,670)
Purchases of investments .................................................. (30,154) (15,386)
Maturities of investments ................................................. 15,059 65,049
-------- --------
Net cash provided by investing activities ............................. 38,304 19,906
Cash flows from financing activities:
Proceeds from issuance of common stock .................................... 1,511 76
Proceeds from debt borrowings ............................................. 34,000 --
Repayment of debt borrowings .............................................. (52,392) --
Repayment of other long-term liabilities .................................. (2,466) --
-------- --------
Net cash provided by (used in) financing activities ................... (19,347) 76
-------- --------
Net decrease in cash and cash equivalents .................................... (14,823) (5,467)
Cash and cash equivalents at beginning of period ............................. 81,915 39,362
-------- --------
Cash and cash equivalents at end of period ................................... $ 67,092 $ 33,895
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest .................................................... $ 567 $ 3
Supplemental disclosure of non-cash investing and financing activities:
Deferred stock compensation, net of reversals ............................. $ 19 $ 10
Retirement of property and equipment ...................................... $ 283 $ 199
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, 2004 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2004.
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, 2003, as filed with the SEC.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding during the applicable period. 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.
3. 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 no stock-based compensation expense during the
three-month period ended June 30, 2004, $2.6 million during the three-month
period ended June 30, 2003, and $0.8 million and $5.1 million during the
six-month periods ended June 30, 2004 and 2003, respectively, which expenses
were primarily related to option grants made prior to Lexicon's April 2000
initial public offering. 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) No. 123 "Accounting for Stock Based
Compensation," had been applied to all outstanding and unvested awards in each
period:
6
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net loss, as reported: ............................ $(16,788) $(17,619) $(32,254) $(34,764)
Add: Stock-based employee compensation
expense included in reported net loss .......... -- 2,561 827 5,107
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards ................................. (3,866) (6,603) (8,748) (13,046)
-------- -------- -------- --------
Pro forma net loss ................................ $(20,654) $(21,661) $(40,175) $(42,703)
======== ======== ======== ========
Net loss per common share, basic and diluted
As reported .................................... $ (0.26) $ (0.34) $ (0.51) $ (0.66)
======== ======== ======== ========
Pro forma ...................................... $ (0.33) $ (0.41) $ (0.64) $ (0.81)
======== ======== ======== ========
4. 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 October 2000, Lexicon entered into a synthetic lease
agreement under which the lessor purchased the Company's existing laboratory and
office buildings and animal facility in The Woodlands, Texas and agreed to fund
the construction of additional facilities. Including the purchase price for the
Company's existing facilities, the synthetic lease, as amended, provided funding
of $54.8 million in property and improvements and required that the Company
maintain restricted cash or investments to collateralize these borrowings.
Lexicon adopted Financial Accounting Standards Board Interpretation No. 46, or
FIN 46, "Consolidation of Variable Interest Entities - An Interpretation of ARB
No. 51" on December 31, 2003. Lexicon determined that the lessor under the
synthetic lease was a variable interest entity as defined by FIN 46, and that
the Company absorbed a majority of the variable interest entity's expected
losses. Accordingly, the Company consolidated the variable interest entity. In
April 2004, Lexicon purchased the facilities subject to the synthetic lease,
repaying 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 lifted.
5. 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, $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, 2004, the Company had $430,000 in restricted investments to collateralize a
standby letter of credit for this lease.
7
6. SUBSEQUENT EVENT
Lexicon established an alliance with Takeda Pharmaceutical Company Limited
(Takeda) in July 2004 to discover new drugs for the treatment of high blood
pressure. In the collaboration, Lexicon is using its gene knockout technology to
identify drug targets that control blood pressure. Takeda will be responsible
for the screening, medicinal chemistry, preclinical and clinical development and
commercialization of drugs directed against targets selected for the alliance,
and will bear all related costs. Lexicon will receive an upfront payment of $12
million from Takeda for the initial, three-year term of the agreement. Takeda
has the option to extend the discovery portion of the alliance for an additional
two years in exchange for further committed funding. Takeda will make research
milestone payments to Lexicon for each target selected for therapeutic
development. In addition, Takeda will make clinical development and product
launch milestone payments to Lexicon for each product commercialized from the
collaboration. Lexicon will also earn royalties on worldwide sales of drugs
commercialized by Takeda.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a biopharmaceutical company focused on the discovery of
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 drugs, therapeutic antibodies and therapeutic proteins
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; Genentech, Inc. for the discovery of
therapeutic proteins and antibody targets; with Abgenix, Inc. for the discovery
and development of therapeutic antibodies based on our drug target discoveries;
and with Takeda Pharmaceutical Company Limited for the discovery of 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 many 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,
subscriptions to our databases, 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 and database subscriptions, 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. We do not intend to offer subscriptions to our
databases 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 quarterly operating results have
fluctuated in the past and are likely to do so
9
in the future, and we do not believe that quarter-to-quarter 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, 2004, we had an accumulated deficit of $246.2 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 LexVision 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 personnel
costs for executive, finance and other administrative personnel, facility costs,
depreciation on property and equipment, professional fees and other corporate
expenses. In connection with the expansion of our drug discovery programs and
our target validation research efforts, we expect to incur increasing research
and development 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.
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 are recognized as revenue as we perform
our obligations related to such research to the extent such fees are
non-refundable. Non-refundable 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.
Milestone-based fees are recognized upon completion of specified milestones
according to contract terms. 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.
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
10
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. When we begin the formal preclinical process in preparation for filing
an IND, we intend to account on a program by program basis for the costs related
to the development of the identified candidate. To date, we have not advanced
any drug products into formal preclinical development.
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, 2004 and 2003
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):
THREE MONTHS ENDED JUNE 30,
----------------------------
2004 2003
------------- ------------
Total revenues........................... $ 10.8 $8.9
Dollar increase.......................... $ 1.9
Percentage increase...................... 21%
- Subscription and license fees - Revenue from subscriptions and
license fees decreased 40% to $2.6 million due to decreased
technology license fees.
- Collaborative research - Revenue from collaborative research
increased 79% to $8.2 million primarily due to increased revenue
under our neuroscience alliance with Bristol-Myers Squibb Company,
which was entered into in December 2003. This was offset in part by
a decrease in revenues from target validation collaborations due to
the scheduled conclusion of many of these arrangements.
11
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):
THREE MONTHS ENDED JUNE 30,
----------------------------
2004 2003
------------- ------------
Total research and development expense... $ 22.6 $20.8
Dollar increase.......................... $ 1.8
Percentage increase...................... 9%
Research and development expenses consist primarily of salaries and other
personnel-related expenses, stock-based compensation expenses, laboratory
supplies, facility and equipment costs, consulting and other services. The
change in the three months ended June 30, 2004 as compared to the corresponding
period in 2003 resulted primarily from the following costs:
- Personnel - Personnel costs increased 23% to $10.9 million primarily
due to increased personnel to support the expansion of our drug
discovery programs, merit-based pay increases for employees and
increasing employee benefit costs. Salaries, bonuses, employee
benefits, payroll taxes, recruiting and relocation costs are
included in personnel costs.
- Stock-based compensation - No stock-based compensation expense was
recorded in the three months ended June 30, 2004 as a result of the
completion, in January 2004, of the amortization of all deferred
stock compensation relating to option grants made prior to our April
2000 initial public offering.
- Laboratory supplies - Laboratory supplies expense increased 28% to
$3.4 million due primarily to increased purchases of consumables,
media and compounds related to our drug discovery activities.
- Facilities and equipment - Facilities and equipment costs increased
2% to $5.0 million primarily due to an increase in depreciation
expense on our facilities in The Woodlands, Texas offset, in part,
by a decrease in rent expense for those facilities and the January
2004 expiration of the lease for our former facilities in East
Windsor, New Jersey.
- Consulting and other services - Consulting and other services
increased 4% to $2.1 million primarily due to third-party research
costs. Consulting and other services include subscriptions to
third-party databases, technology licenses, legal and patent fees
and third-party research.
- Other - Other costs increased by 8% to $1.2 million.
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):
THREE MONTHS ENDED JUNE 30,
----------------------------
2004 2003
------------- ------------
Total general and administrative expense. $ 4.6 $6.0
Dollar decrease.......................... $ 1.4
Percentage decrease...................... 22%
12
General and administrative expenses consist primarily of personnel costs
to support our research activities, stock-based compensation expense, facility
and equipment costs and professional fees, such as legal fees. The change in the
three months ended June 30, 2004 as compared to the corresponding period in 2003
resulted primarily from the following costs:
- Personnel - Personnel costs were $2.7 million in both periods.
Salaries, bonuses, employee benefits, payroll taxes, recruiting and
relocation costs are included in personnel costs.
- Stock-based compensation - No stock-based compensation expense was
recorded in the three months ended June 30, 2004 as a result of the
completion, in January 2004, of the amortization of all deferred
stock compensation relating to option grants made prior to our April
2000 initial public offering.
- Facilities and equipment - Facilities and equipment costs decreased
18% to $0.7 million primarily due to decreased rent expense on our
facilities in The Woodlands, Texas and the January 2004 expiration
of the lease for our former facilities in East Windsor, New Jersey.
- Professional fees - Professional fees increased 21% to $0.6 million.
- Other - Other costs were $0.6 million in both periods.
Interest and Other Income. Interest and other income increased to $0.4
million in the three months ended June 30, 2004 from $0.3 million in the
corresponding period in 2003.
Interest Expense. Interest expense increased to $0.7 million in the three
months ended June 30, 2004 from $0.1 million in the corresponding period in
2003. This increase was attributable to the interest expense on the $54.8
million funded under the synthetic lease following our consolidation of the
lessor on December 31, 2003 and, following our purchase of the facilities funded
under the synthetic lease in April 2004, the interest expense on the $34.0
million mortgage loan used in financing such purchase.
Net Loss and Net Loss Per Common Share. Net loss decreased 5% to $16.8
million in the three months ended June 30, 2004 from $17.6 million in the
corresponding period in 2003. Net loss per common share decreased to $0.26 in
the three months ended June 30, 2004 from $0.34 in the corresponding period in
2003. Net loss includes stock-based compensation expense of $2.6 million in the
three months ended June 30, 2003.
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, 2004 and 2003
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):
13
SIX MONTHS ENDED JUNE 30,
----------------------------
2004 2003
------------- ------------
Total revenues........................... $ 22.6 $17.0
Dollar increase.......................... $ 5.6
Percentage increase...................... 33%
- Subscription and license fees - Revenue from subscriptions and
license fees decreased 17% to $6.1 million due to decreased
technology license fees.
- Collaborative research - Revenue from collaborative research
increased 72% to $16.5 million primarily due to increased revenue
under our neuroscience alliance with Bristol-Myers Squibb Company,
which was entered into in December 2003. This was offset in part by
a decrease in revenues from target validation collaborations due to
the scheduled conclusion of many of these arrangements.
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):
SIX MONTHS ENDED JUNE 30,
----------------------------
2004 2003
------------- ------------
Total research and development expense... $ 45.0 $40.6
Dollar increase.......................... $ 4.4
Percentage increase...................... 11%
Research and development expenses consist primarily of salaries and other
personnel-related expenses, stock-based compensation expenses, laboratory
supplies, facility and equipment costs, consulting and other services. The
change in 2004 as compared to 2003 resulted primarily from the following costs:
- Personnel - Personnel costs increased 23% to $21.4 million primarily
due to increased personnel to support the expansion of our drug
discovery programs, merit-based pay increases for employees and
increasing employee benefit costs. Salaries, bonuses, employee
benefits, payroll taxes, recruiting and relocation costs are
included in personnel costs.
- Stock-based compensation - Stock based compensation expense,
primarily relating to option grants made prior to our April 2000
initial public offering, decreased 84% to $0.4 million. All deferred
stock compensation relating to these options was fully amortized as
of January 31, 2004 when these options became fully vested.
- Laboratory supplies - Laboratory supplies expense increased 32% to
$6.9 million due primarily to increased purchases of consumables,
media and compounds related to our drug discovery activities.
- Facilities and equipment - Facilities and equipment costs increased
3% to $10.1 million primarily due to an increase in depreciation
expense on our facilities in The Woodlands, Texas offset, in part,
by a decrease in rent expense for those facilities and the January
2004 expiration of the lease for our former facilities in East
Windsor, New Jersey.
- Consulting and other services - Consulting and other services
increased 5% to $3.8 million primarily due to third-party research
costs. Consulting and other services
14
include subscriptions to third-party databases, technology licenses,
legal and patent fees and third-party research.
- Other - Other costs increased by 12% to $2.4 million.
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):
SIX MONTHS ENDED JUNE 30,
----------------------------
2004 2003
------------- ------------
Total general and administrative expense. $ 9.7 $11.8
Dollar decrease.......................... $ 2.1
Percentage decrease...................... 18%
General and administrative expenses consist primarily of personnel costs
to support our research activities, stock-based compensation expense, facility
and equipment costs and professional fees, such as legal fees. The change in
2004 as compared to 2003 resulted primarily from the following costs:
- Personnel - Personnel costs increased 2% to $5.6 million primarily
due to merit-based pay increases and increased employee benefit
costs offset by a decrease in personnel. Salaries, bonuses, employee
benefits, payroll taxes, recruiting and relocation costs are
included in personnel costs.
- Stock-based compensation - Stock based compensation expense,
primarily relating to option grants made prior to our April 2000
initial public offering, decreased 84% to $0.4 million. All deferred
stock compensation relating to these options was fully amortized as
of January 31, 2004 when these options became fully vested.
- Facilities and equipment - Facilities and equipment costs decreased
16% to $1.6 million primarily due to decreased rent expense on our
facilities in The Woodlands, Texas and the January 2004 expiration
of the lease for our former facilities in East Windsor, New Jersey.
- Professional fees - Professional fees increased 25% to $0.9 million.
- Other - Other costs increased 6% to $1.2 million.
Interest and Other Income. Interest and other income was $0.8 million in
the six months ended June 30, 2004 and 2003.
Interest Expense. Interest expense increased to $1.0 million in the six
months ended June 30, 2004 from $0.2 million in the corresponding period in
2003. This increase was attributable to the interest expense on the $54.8
million funded under the synthetic lease following our consolidation of the
lessor on December 31, 2003 and, following our purchase of the facilities funded
under the synthetic lease in April 2004, the interest expense on the $34.0
million mortgage loan used in financing such purchase.
Net Loss and Net Loss Per Common Share. Net loss decreased 7% to $32.3
million in the six months ended June 30, 2004 from $34.8 million in the
corresponding period in 2003. Net loss per common share decreased to $0.51 in
the six months ended June 30, 2004 from $0.66 in the corresponding period in
2003. Net loss includes stock-based compensation expense of $0.8 million and
$5.1 million in the six months ended June 30, 2004 and 2003, respectively.
15
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
collaboration, license and database subscription agreements, equipment financing
arrangements and leasing arrangements. From our inception through June 30, 2004,
we had received net proceeds of $294.6 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, 2004, we received $188.3 million in cash payments from database subscription
and technology license fees, drug discovery alliances, target validation
collaborations, sales of compound libraries and reagents, and government grants,
of which $153.9 million had been recognized as revenues through June 30, 2004.
As of June 30, 2004, we had $104.3 million in cash, cash equivalents and
short-term investments (including $0.4 million of restricted investments), as
compared to $161.0 million (including $57.5 million of restricted cash and
investments) as of December 31, 2003. We used cash of $33.8 million in
operations in the six months ended June 30, 2004. This consisted primarily of
the net loss for the period of $32.3 million offset by non-cash charges of $5.4
million related to depreciation expense, $0.8 million related to stock-based
compensation expense, and $0.6 million related to amortization of intangible
assets other than goodwill; a $10.9 million decrease in deferred revenue; and
changes in other operating assets and liabilities of $2.6 million. Investing
activities provided cash of $38.3 million in the six months ended June 30, 2004,
principally as a result of the April 2004 refinancing of our synthetic lease
with a conventional mortgage loan (discussed in the following paragraph), which
resulted in the lifting of all restrictions on the $57.0 million of restricted
cash that had secured our obligations under the synthetic lease. This was offset
by $15.1 million of net purchases of short-term investments. We used cash of
$19.3 million in financing activities. This consisted of the repayment of $54.8
million in obligations outstanding under the synthetic lease, offset by cash
proceeds of $34.0 million from the mortgage loan and $1.5 million from stock
option exercises.
In October 2000, we entered into a synthetic lease agreement under which
the lessor purchased our existing laboratory and office buildings and animal
facility in The Woodlands, Texas and agreed to fund the construction of
additional facilities. Including the purchase price for our existing facilities,
the synthetic lease, as amended, provided funding of $54.8 million in property
and improvements. We consolidated the lessor under our synthetic lease upon
adoption of Financial Accounting Standards Board Interpretation No. 46 on
December 31, 2003. In April 2004, we purchased these facilities from the lessor.
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, leaving a
total of $430,000 in restricted investments related to our New Jersey facility.
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, 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
16
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 July 2004, Lexicon established an alliance with Takeda Pharmaceutical
Company Limited (Takeda) to discover new drugs for the treatment of high blood
pressure. Lexicon will receive an upfront payment of $12 million from Takeda for
the initial, three-year term of the agreement. Takeda has the option to extend
the discovery portion of the alliance for an additional two years in exchange
for further committed funding. Takeda will make research milestone payments to
Lexicon for each target selected for therapeutic development. In addition,
Takeda will make clinical development and product launch milestone payments to
Lexicon for each product commercialized from the collaboration. Lexicon will
also earn royalties on worldwide sales of drugs commercialized by Takeda.
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, technology licenses and target validation
collaborations 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.
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, 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 Business
- we have a history of net losses, and we expect to continue to incur
net losses and may not achieve or maintain profitability
17
- we will need additional capital in the future and, if it is not
available, we will have to curtail or cease operations
- any sale of additional equity securities in the future may be
dilutive to our stockholders
- we are an early-stage company, and we may not successfully develop
or commercialize any therapeutics or drug targets that we have
identified
- 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
- 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
- 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
- cancellations by or conflicts with our collaborators could harm our
business
- we may be unsuccessful in developing and commercializing
pharmaceutical products on our own
- we lack the capability to manufacture compounds 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
- we may engage in future acquisitions, which may be expensive and
time consuming and from which we may not realize anticipated
benefits
- 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
- because all of our target validation operations are located at a
single facility, the occurrence of a disaster could significantly
disrupt our business
- our quarterly operating results have been and likely will continue
to fluctuate, and we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future
performance
Risks Related to Our Industry
- our ability to patent our inventions is uncertain because patent
laws and their interpretation are highly uncertain and subject to
change
- our patent applications may not result in enforceable patent rights
and, as a result, the protection afforded to our scientific
discoveries may be insufficient
- 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
18
- 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
- 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
- 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
- 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
- we may be unable to protect our trade secrets
- 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
- 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
- if our potential products receive regulatory approval, we or our
collaborators will remain subject to extensive and rigorous ongoing
regulation
- 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
- 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
- we may be sued for product liability
- 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, 2003, 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.
19
ITEM 4. CONTROLS AND PROCEDURES
Lexicon's chief executive officer and chief financial officer have
concluded that the Company's disclosure controls and procedures (as defined in
Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and
15d-15(e)) are sufficiently effective to ensure that the information required to
be disclosed by the Company in the reports it files 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 the Company's 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.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of stockholders was held on May 19, 2004 to consider
and vote on the following proposals:
(1) The following individuals were nominated and elected as Class I
directors, with the following numbers of shares voted for and
withheld for such directors:
NAME OF DIRECTOR FOR WITHHELD
---------------- --- --------
Robert J. Lefkowitz, M.D. 45,991,208 7,643,976
Alan S. Nies, M.D. 47,120,110 6,515,074
(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:
MATTER FOR AGAINST ABSTAIN
------ --- ------- -------
Ratification and approval of our existing 2000 Equity
Incentive Plan 31,231,734 8,762,230 15,862
Ratification and approval of the appointment of Ernst &
Young LLP as our independent auditors for the fiscal
year ending December 31, 2004 52,921,629 703,981 9,574
Arthur T. Sands, M.D., Ph.D., C. Thomas Caskey, M.D., Sam L. Barker, Ph.D.
and Patricia M. Cloherty all continued as members of our Board of Directors
after our annual meeting.
The proxy statement for our annual meeting noted that, after reviewing all
relevant transactions and relationships between each member of the Board of
Directors (and his or her family) and us, our senior management and our
independent auditors, our Board of Directors had affirmatively determined that
C. Thomas Caskey, M.D., Sam L. Barker, Ph.D., Patricia M. Cloherty and Robert J.
Lefkowitz, M.D. are "independent" in accordance with the applicable listing
standards of The Nasdaq Stock Market, Inc., subject, in the case of Dr. Caskey,
to confirmation that we had requested from The Nasdaq Stock Market as to our
proper interpretation and application of its rules relating to the form of past
compensation paid to Dr. Caskey for his service as the non-executive Chairman of
our Board of Directors. Following our annual meeting, we received confirmation
from The Nasdaq Stock Market that our Board of Directors was not precluded,
either by the form of such past compensation (through our employee payroll
system)
20
or by our related past characterization of Dr. Caskey, from determining that Dr.
Caskey was not an employee and is independent under the rules of The Nasdaq
Stock Market. In providing such confirmation, The Nasdaq Stock Market took note
of the specific circumstances surrounding Dr. Caskey's service, including our
compensation of Dr. Caskey solely in his capacity as non-executive Chairman of
our Board of Directors and Dr. Caskey's service as a full-time employee of
another company.
Effective July 30, 2004, our Board of Directors elected Clayton S. Rose as
the fifth independent member of our Board of Directors, as determined in
accordance with the applicable listing standards of The Nasdaq Stock Market,
Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
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
(b) Reports on Form 8-K:
On April 29, 2004, we filed a Current Report on Form 8-K dated April 29,
2004 relating to our refinancing of the $54.8 million synthetic lease of our
headquarters and research facility in The Woodlands, Texas with a $34.0 million
conventional mortgage loan used to repay the balance of our obligations under
the lease. Additionally, the Form 8-K related to our issuance of a press release
reporting our financial results for the quarter ended March 31, 2004, which
press release included our consolidated balance sheet data and consolidated
statements of operations data for the periods.
21
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: August 4, 2004 By: /s/ Arthur T. Sands
---------------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
Date: August 4, 2004 By: /s/ Julia P. Gregory
---------------------------------------
Julia P. Gregory
Executive Vice President, Corporate
Development and Chief Financial Officer
22
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
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