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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO 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, 2000
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)
4000 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES AND ZIP CODE)
(281) 364-0100
(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 25, 2000, 47,663,284 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
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 2000 and December 31, 1999 ..................................................3
Statements of Operations - Three and Six Months Ended June 30, 2000 and 1999............................4
Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999......................................5
Notes to Financial Statements...........................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................14
Item 2. Changes in Securities and Use of Proceeds..............................................................14
Item 6. Exhibits and Reports on Form 8-K.......................................................................15
SIGNATURES .....................................................................................................16
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXICON GENETICS INCORPORATED
BALANCE SHEETS
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AS OF JUNE 30, AS OF DECEMBER 31,
2000 1999
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ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents .................................................................... $ 49,632,521 $ 2,025,585
Marketable securities ......................................................................... 161,009,285 7,130,848
Accounts receivable ........................................................................... 1,484,082 3,391,648
Prepaid expenses and other .................................................................... 36,631 76,257
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Total current assets ........................................................................ 212,162,519 12,624,338
Property, plant and equipment ................................................................... 13,826,613 12,476,021
Accumulated depreciation ........................................................................ (4,239,758) (3,087,397)
------------ ------------
9,586,855 9,388,624
Other assets, net ............................................................................... 294,364 281,605
------------ ------------
Total assets ................................................................................ $222,043,738 $ 22,294,567
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE SERIES A PREFERRED STOCK, AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities ...................................................... $ 1,666,828 $ 1,192,276
Current portion of related party note payable ................................................. -- 200,004
Current portion of long-term debt ............................................................. 879,611 874,174
Current portion of capital lease obligations .................................................. 21,715 127,119
Deferred revenue .............................................................................. 6,985,612 8,209,574
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Total current liabilities ................................................................... 9,553,766 10,603,147
Capital lease obligations, net of current portion ............................................... -- 6,279
Related party note payable, net of current portion ............................................. -- 716,663
Long-term debt, net of current portion ......................................................... 2,420,455 2,854,365
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Total liabilities ........................................................................... 11,974,221 14,180,454
Commitments and contingencies
Redeemable convertible Series A preferred stock, $.01 par value, 10,000,000 shares
authorized; none and 4,244,664 shares issued and outstanding, respectively..................... -- 30,050,236
Stockholders' equity (deficit):
Common stock, $.001 par value, 120,000,000 shares authorized, 47,656,723 and
24,540,201 shares issued and outstanding, respectively ........................................ 47,657 24,540
Additional paid-in capital .................................................................... 302,117,175 7,863,392
Deferred stock compensation ................................................................... (46,251,879) (915,422)
Accumulated deficit ........................................................................... (45,843,436) (28,908,633)
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Total stockholders' equity (deficit) ........................................................ 210,069,517 (21,936,123)
------------ ------------
Total liabilities and stockholders' equity (deficit) ........................................ $222,043,738 $ 22,294,567
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</TABLE>
The accompanying notes are an integral part of these financial statement.
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LEXICON GENETICS INCORPORATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
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2000 1999 2000 1999
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Revenues:
Subscription and license fees ........................ $ 434,574 $ 249,063 $ 2,058,052 $ 536,303
Collaborative research ............................... 1,989,299 598,507 3,634,057 1,037,317
Reagents ............................................. 60,166 55,161 130,839 124,809
Grants ............................................... 98,581 190,024 98,581 190,024
-------------- -------------- --------------- ---------------
Total revenues ..................................... 2,582,620 1,092,755 5,921,529 1,888,453
Operating expenses:
Research and development ............................. 4,129,816 3,587,516 7,697,752 6,646,510
General and administrative ........................... 1,528,209 870,836 2,827,066 1,545,573
Stock based compensation ............................. 3,234,305 -- 15,142,613 --
-------------- -------------- --------------- ---------------
Total operating expenses ........................... 8,892,330 4,458,352 25,667,431 8,192,083
Loss from operations ................................... (6,309,710) (3,365,597) (19,745,902) (6,303,630)
Interest income ........................................ 2,922,316 145,546 3,050,158 371,661
Interest expense ....................................... 129,310 30,245 239,060 60,867
-------------- -------------- --------------- ---------------
Net loss ............................................... $ (3,516,704) $ (3,250,296) $ (16,934,804) $ (5,992,836)
Net loss per common share, basic and diluted ........... $ (0.08) $ (0.09) $ (0.40) $ (0.16)
Shares used in computing net loss per common
share, basic and diluted ............................. 46,796,126 37,265,946 42,071,565 37,261,159
</TABLE>
The accompanying notes are an integral part of these financial statements.
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LEXICON GENETICS INCORPORATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Six Months Ended June 30,
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2000 1999
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Cash flows from operating activities:
Net loss..................................................................... $ (16,934,804) $ (5,992,836)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation............................................................... 1,152,361 836,328
Amortization of deferred stock compensation................................ 15,142,613 --
Changes in operating assets and liabilities:
Decrease in accounts receivable.......................................... 1,907,566 381,876
(Increase) decrease in prepaid expenses.................................. 39,626 (166,572)
(Increase) decrease in other assets...................................... (12,758) 39,528
Increase (decrease) in accounts payable and accrued liabilities.......... 474,552 (541,549)
Decrease in deferred revenue............................................. (1,223,962) (613,033)
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Net cash provided by (used in) operating activities.................... 545,194 (6,056,258)
Cash flows from investing activities:
Purchases of property and equipment.......................................... (1,350,592) (3,245,608)
Purchase of marketable securities............................................ (214,940,362) (32,438,772)
Maturities of marketable securities.......................................... 61,061,925 48,836,000
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Net cash provided by (used in) investing activities.................... (155,229,029) 13,151,620
Cash flows from financing activities:
Principal payments of capital lease obligations.............................. (111,683) (80,745)
Proceeds from issuance of common stock....................................... 203,747,594 258,494
Proceeds from debt borrowings................................................ -- 2,549,088
Repayment of debt borrowings................................................. (1,345,140) --
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Net cash provided by (used in) financing activities.................... 202,290,771 2,726,837
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Net increase in cash and cash equivalents...................................... 47,606,936 9,822,199
Cash and cash equivalents at beginning of period .............................. 2,025,585 3,022,201
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Cash and cash equivalents at end of period .................................... $ 49,632,521 $ 12,844,400
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Supplemental disclosure of cash flow information:
Cash paid for interest......................................................... $ 239,060 $ 30,622
Supplemental disclosure of non-cash financing activities:
Conversion of redeemable convertible preferred stock into common stock......... $ 30,184,090 $ --
Conversion of related party note payable into common stock..................... $ 337,500 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
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LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month periods ended June
30, 2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000.
For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1999, included in Lexicon's
Registration Statement on Form S-1 (Registration No. 333-96469) as filed with
the SEC and the prospectus dated April 7, 2000 included therein.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Shares associated with stock options and
warrants are not included because they are antidilutive.
3. DEFERRED STOCK COMPENSATION
During January and February 2000, Lexicon issued options to purchase an
aggregate of 3,495,900 shares of common stock to certain employees and
consultants. Lexicon recorded deferred compensation totaling approximately $60.5
million for options granted in the first quarter of 2000. Deferred stock
compensation represents the difference between the exercise price of stock
options and the fair value of Lexicon's common stock at the date of grant.
Deferred stock compensation is amortized over the vesting periods of the
individual stock options for which it is recorded. For the six months ended June
30, 2000, Lexicon amortized $15.1 million of deferred stock compensation. If
employees and consultants continue to vest in accordance with their individual
stock options, Lexicon expects to record amortization expense for deferred stock
compensation as follows: $6.5 million during the last six months of 2000, $12.9
million during 2001, $12.9 million during 2002, $12.9 million during 2003 and
$1.1 million during 2004. The amount of stock based compensation expense to be
recorded in future periods may decrease if unvested options for which deferred
stock compensation expense has been recorded are subsequently canceled or
forfeited.
4. INITIAL PUBLIC OFFERING AND CONVERSION OF PREFERRED STOCK
In April 2000, Lexicon completed an initial public offering of
10,000,000 newly-issued shares of its common stock at a price of $22.00 per
share. Lexicon received $203.2 million in cash, net of underwriting discounts,
commissions and other offering costs.
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Simultaneously with the closing of the initial public offering, the
4,244,664 shares of Redeemable Convertible Series A Preferred Stock then
outstanding were automatically converted into 12,733,992 shares of common stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are a genomics company using gene trapping technology to discover
thousands of genes and to expand our OmniBank(R) library of tens of thousands of
knockout mouse clones for drug discovery. We derive substantially all of our
revenues from subscriptions to our databases, collaborations for the development
and analysis of knockout mice and from government grants. To date, we have
generated a substantial portion of our revenues from a limited number of
sources.
Since our inception, we have incurred significant losses and, as of
June 30, 2000, we had an accumulated deficit of $45.8 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 the closing of our initial public offering in April
2000. Research and development expenses consist primarily of salaries and
related personnel costs, material costs, legal expenses resulting from
intellectual property prosecution and other expenses related to the generation
of our Human Gene Trap(TM) database, OmniBank database and library and the
research, development and analysis of knockout mice. We expense our research and
development costs as they are incurred. 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 business development and general legal activities. In connection with
the expansion of our Human Gene Trap database, OmniBank database and library and
functional genomics 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. Deferred stock
compensation represents the difference between the exercise price of stock
options and the fair value of our common stock at the date of grant. Deferred
stock compensation is amortized over the vesting periods of the individual stock
options for which it is recorded.
Our quarterly operating results will depend upon many factors,
including expiration of research contracts with collaborators or government
research grants, the success rate of our discovery efforts leading to milestones
and royalties, the timing and willingness of collaborators to commercialize
products which would result in royalties, general and industry-specific economic
conditions which may affect research and development expenditures and the timing
and content of information released by the Human Genome Project. As a
consequence, our quarterly operating results have fluctuated in the past and are
likely to do so in the future.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 and 2000
Revenues. Total revenues increased 136% to $2.6 million in the three
months ended June 30, 2000 from $1.1 million in the corresponding period in
1999. Substantially all of the $1.5 million increase was derived from increased
revenues from collaborations for the development and analysis of knockout mice.
Research and Development Expenses. Research and development expenses
increased 15% to $4.1 million in the three months ended June 30, 2000 from $3.6
million in the corresponding period in 1999. The increase of $542,000 was
attributable to continued growth of research and development
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activities, primarily related to increased personnel costs to support the
generation of our Human Gene Trap database, OmniBank database and library and
the research, development and analysis of knockout mice.
General and Administrative Expenses. General and administrative
expenses increased 75% to $1.5 million in the three months ended June 30, 2000
from $871,000 in the corresponding period in 1999. The increase of $657,000 was
due primarily to additional personnel costs for business development and finance
and administration.
Stock Based Compensation Expense. For the three months ended June 30,
2000, we amortized $3.2 million of deferred compensation related to options
granted to employees and certain consultants. We did not record any stock based
compensation expense in the corresponding period in 1999.
Interest Income and Interest Expense. Interest income increased to $2.9
million in the three months ended June 30, 2000 from $146,000 in the
corresponding period in 1999. This increase resulted from an increased cash and
investment balance as a result of our initial public offering. Interest expense
increased 328% to $129,000 in the three months ended June 30, 2000 from $30,000
in the corresponding period in 1999. This increase resulted from higher debt
obligation balances in the three months ended June 30, 2000 as compared to the
corresponding period in 1999.
Net Loss and Net Loss Per Common Share. Net loss increased to $3.5
million in the three months ended June 30, 2000 from $3.3 million in the
corresponding period in 1999. Net loss per share decreased to $0.08 in the three
months ended June 30, 2000 from $0.09 in the corresponding period in 1999. The
net loss for the three months ended June 30, 2000, was primarily attributable to
stock based compensation expense. Excluding the stock based compensation
expense, the net loss and net loss per share would have been $282,000 and $0.01,
respectively, for the three months ended June 30, 2000.
Six Months Ended June 30, 1999 and 2000
Revenues. Total revenues increased 214% to $5.9 million in the six
months ended June 30, 2000 from $1.9 million in the corresponding period in
1999. Of the $4.0 million increase, $1.5 million was derived from increased
database subscription and license fees and $2.6 million was derived from
increased revenues from collaborations for the development and analysis of
knockout mice.
Research and Development Expenses. Research and development expenses
increased 16% to $7.7 million in the six months ended June 30, 2000 from $6.6
million in the corresponding period in 1999. The increase of $1.1 million was
attributable to continued growth of research and development activities,
primarily related to increased personnel costs to support the generation of our
Human Gene Trap database, OmniBank database and library and the research,
development and analysis of knockout mice.
General and Administrative Expenses. General and administrative
expenses increased 83% to $2.8 million in the six months ended June 30, 2000
from $1.5 million in the corresponding period in 1999. The increase of $1.3
million was due primarily to additional personnel costs for business development
and finance and administration.
Stock Based Compensation Expense. For the six months ended June 30,
2000, we amortized $15.1 million of deferred compensation related to options
granted to employees and certain consultants. We did not record any stock based
compensation expense in the corresponding period in 1999
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Interest Income and Interest Expense. Interest income increased 721% to
$3.1 million in the six months ended June 30, 2000 from $372,000 in the
corresponding period in 1999. This increase resulted from an increased cash and
investment balance as a result of our initial public offering. Interest expense
increased 293% to $239,000 in the six months ended June 30, 2000 from $61,000 in
the corresponding period in 1999. This increase resulted from higher debt
obligation balances in the six months ended June 30, 2000 as compared to the
corresponding period in 1999.
Net Loss and Net Loss Per Common Share. Net loss increased to $16.9
million in the six months ended June 30, 2000 from $6.0 million in the
corresponding period in 1999. Net loss per share increased to $0.40 in the six
months ended June 30, 2000 from $0.16 in the corresponding period in 1999. These
increases resulted primarily from a $15.1 million charge for stock based
compensation in the six months ended June 30, 2000. Excluding the stock based
compensation expense, the net loss and the net loss per share would have been
$1.8 million and $0.04, respectively, for the six months ended June 30, 2000.
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
database subscription and collaboration agreements and equipment financing
arrangements. As of June 30, 2000, we had received net proceeds of $240.4
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. In addition, from our inception through June 30, 2000, we received $19.7
million in cash payments from database subscription and license fees,
collaborations for the development and analysis of knockout mice, sales of
reagents and government grants, of which $14.2 million had been recognized as
revenues through June 30, 2000.
As of June 30, 2000, we had $210.6 million in cash, cash equivalents
and marketable securities, as compared to $9.2 million as of December 31, 1999.
We had $545,000 provided by operations in the six months ended June 30, 2000.
This consisted of the net loss for the period of $16.9 million offset by
non-cash charges of $15.1 million related to compensation expense, $1.2 million
related to depreciation expense and a net increase in other working capital
accounts of $1.2 million. We used $155.2 million in investing activities for the
six months ended June 30, 2000, principally as a result of the purchase of
marketable securities with the net proceeds of our initial public offering in
April 2000, and purchases of property and equipment, offset in part by
maturities of marketable securities.
In June 1999, we entered into a $5.0 million financing arrangement for
the purchase of property and equipment. As of June 30, 2000, we had drawn down
approximately $4.2 million and had $832,000 remaining available under this
arrangement. As of June 30, 2000, $3.3 million of this amount remained
outstanding under this arrangement and was secured by the equipment financed.
This facility accrues interest at a weighted-average rate of approximately 11.7%
and is due in monthly installments through 2003. In addition, as of June 30,
2000, we had $22,000 in capitalized lease obligations outstanding compared to
$133,000 at December 31, 1999.
Our capital requirements depend on numerous factors, including our
ability to obtain database subscription and collaboration agreements and
government grants, the amount and timing of payments under such agreements and
grants, 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. 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 cash balances, together with the net
proceeds of our initial public offering and revenues to be derived from
subscriptions to our databases, collaborations for the research, development and
analysis of knockout mice and government grants, will be sufficient to
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fund our operations for at least the next several years. During or after this
period, if cash generated by operations is insufficient to satisfy our liquidity
requirements, we may 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.
IMPACT OF INFLATION
The effect of inflation and changing prices on our operations was not
significant during the periods presented.
DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk is confined to our cash and cash
equivalents which have maturities of less than three months. We maintain an
investment portfolio which consists of U.S. Government debt obligations and
investment grade commercial paper that mature one to twelve months after
December 31, 1999, which we believe are subject to limited credit risk. We
currently do not hedge interest rate exposure. Because of the short-term
maturities of our investments, we do not believe that an increase in market
rates would have any negative impact on the realized value of our investment
portfolio.
We have operated primarily in the United States and all sales to date
have been made in U.S. dollars. Accordingly, we have not had any material
exposure to foreign currency rate fluctuations.
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words "anticipate," "believe," "expect," "estimate," "project" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the following:
Risks Related to Our 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 are an early-stage company with an unproven business strategy
o we may need additional capital in the future and, if it is not
available, we will have to curtail or cease operations
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 collaborators to develop and commercialize products
based on genes that we identify as promising candidates for
development as drug targets
o any cancellation by or conflicts with our collaborators could harm our
business
o we have no experience in developing and commercializing products on
our own
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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 we may encounter difficulties in managing our growth, which could
increase our losses
o because our entire OmniBank mouse clone library is located at a single
facility, the occurrence of a disaster could significantly disrupt our
business
o we can provide no assurance that we will prevail in our claims against
Deltagen, Inc. or that, if we prevail, any damages or equitable
remedies awarded will be commercially valuable
Risks Related to Our Industry
o our ability to patent our discoveries 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
o if other companies and institutions obtain patents claiming the
functional uses of genes and gene products based upon gene sequence
information and predictions of gene function, we may be unable to
obtain patents for our discoveries of biological function in knockout
mice
o if our potential products conflict with patents that competitors,
universities or others have obtained, then we may be unable to
commercialize those products
o issued patents may not fully protect our discoveries, and our
competitors may be able to commercialize products similar to those
covered by our issued patents
o our rights to the use of technologies licensed by third parties are
not within our control
o we may be unable to protect our trade secrets
o we and our collaborators are subject to extensive and uncertain
government regulatory requirements, which could increase our operating
costs or adversely affect our ability to obtain government approval of
products based on genes that we identify in a timely manner or at all
o security risks in electronic commerce or unfavorable internet
regulation may deter future use of our products and services
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
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Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, our actual results may vary materially
from those anticipated, believed, expected, estimated or projected. For
additional discussion of these risks, uncertainties and assumptions, see "Risk
Factors" included in the our initial public offering prospectus dated April 7,
2000 and contained in our Registration Statement on Form S-1 (Registration No.
333-96469) filed under the Securities Act of 1933, as amended.
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.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 24, 2000, we filed a complaint against Deltagen, Inc. in U.S.
District Court for the District of Delaware alleging that Deltagen is willfully
infringing the claims of United States Patent No. 5,789,215, under which we hold
an exclusive license from GenPharm International, Inc. In the complaint, we are
seeking unspecified damages from Deltagen, as well as injunctive relief.
Deltagen has counterclaimed for a declaratory judgment that the patent is
invalid, unenforceable and is not infringed by Deltagen. United States Patent
No. 5,789,215 covers methods of engineering the animal genome, including methods
for the production of knockout mice by homologous recombination, using isogenic
DNA technology.
While we believe that our complaint is meritorious, we can provide no
assurance that we will prevail in our claims against Deltagen or that, if we
prevail, any damages or equitable remedies awarded will be commercially
valuable. Furthermore, we are likely to incur substantial costs and expend
substantial personnel time in pursuing our claims against Deltagen.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The effective date of the Registration Statement on Form S-1
(Registration No. 333-96469) filed under the Securities Act of 1933, as amended,
relating to the initial public offering of our common stock was April 6, 2000.
On the same date, we signed an underwriting agreement with J.P. Morgan
Securities, Inc., Credit Suisse First Boston Corporation, CIBC World Markets
Corp. and Punk, Ziegel & Company, L.P., the managing underwriters for the
initial public offering and the representatives of the underwriters named in the
underwriting agreement, for the initial public offering of 10,000,000 shares of
our common stock at an initial public offering price of $22.00 per share. The
offering commenced on April 7, 2000 and was closed on April 12, 2000. The
initial public offering resulted in gross proceeds of $220.0 million. We
received net proceeds of $203.2 million after deducting underwriting discounts
of $15.4 million and estimated offering expenses of $1.4 million.
Concurrently with the closing of the initial public offering, the
4,244,664 outstanding shares of our Series A Preferred Stock were automatically
converted into 12,733,992 shares of common stock. As a result, we no longer have
any outstanding preferred stock.
From the time of receipt through June 30, 2000, the net proceeds of our
initial public offering were applied toward:
o purchases and installation of equipment and build-out of
facilities: $ 900,000
o repayment of indebtedness: $ 1,144,000
o working capital: $ 889,000
o short-term investments in U.S. Government debt obligations
and investment grade commercial paper: $200,267,000
Except for the repayment of $917,000 of indebtedness to a director, we
have made no payments to our directors or officers or their associates, holders
of 10% or more of any class of our equity securities or to our affiliates, other
than payments to officers for salaries in the ordinary course of business.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27.1 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities 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: November 2, 2000 By: /s/ ARTHUR T. SANDS
-------------------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
Date: November 2, 2000 By: /s/ JULIA P. GREGORY
-------------------------------------------
Julia P. Gregory
Executive Vice President and
Chief Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27.1 -- Financial Data Schedule.
</TABLE>
