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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2021
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 Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware76-0474169
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
2445 Technology Forest Blvd.
11th Floor
The Woodlands, Texas 77381
(Address of Principal Executive Offices and Zip Code)
(281) 863-3000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001LXRXThe Nasdaq Global Select Market
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 No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
Yes No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer              Accelerated filer  ☑       Non-accelerated filer          
Smaller reporting company           Emerging growth company          
If an emerging growth company, indicate by check mark if the registration has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

As of November 8, 2021, 148,895,707 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.



Lexicon Pharmaceuticals, Inc.
 
Table of Contents
 
  Page
Item 1.
 Condensed Consolidated Balance Sheets - September 30, 2021 (unaudited) and December 31, 2020
 Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Three and Nine Months Ended September 30, 2021 and 2020
 Condensed Consolidated Statements of Stockholders’ Equity (unaudited) - Three and Nine Months Ended September 30, 2021 and 2020
Condensed Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 2021 and 2020
 Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.

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

Factors Affecting Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Part II, Item 1A. - Risk Factors” and in our annual report on Form 10-K for the year ended December 31, 2020, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, future results, levels of activity, performance or achievements may vary materially from our expectations. We are not undertaking any duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual results, unless required by law.


2


Part I – Financial Information
 
Item 1.  Financial Statements
 
Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets
(In thousands, except par value)
 
 As of September 30,As of December 31,
 20212020
Assets(unaudited) 
Current assets:  
Cash and cash equivalents$92,118 $126,263 
Short-term investments28,800 26,012 
Accounts receivable23 395 
Prepaid expenses and other current assets3,064 5,049 
Total current assets124,005 157,719 
Property and equipment, net of accumulated depreciation and amortization of $4,849 and $5,815, respectively
1,311 295 
Goodwill44,543 44,543 
Other assets2,471 1,231 
Total assets$172,330 $203,788 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$8,345 $5,469 
Accrued liabilities14,208 29,691 
Current portion of long-term debt, net of deferred issuance costs11,693 11,646 
Total current liabilities34,246 46,806 
Other long-term liabilities1,481 611 
Total liabilities35,727 47,417 
Commitments and contingencies
Stockholders’ Equity:  
Preferred stock, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding
  
Common stock, $0.001 par value; 225,000 shares authorized; 149,987 and 142,289 shares issued, respectively
150 142 
Additional paid-in capital1,606,142 1,561,096 
Accumulated deficit(1,462,165)(1,400,018)
Accumulated other comprehensive loss(6)(6)
Treasury stock, at cost, 1,165 and 793 shares, respectively
(7,518)(4,843)
Total stockholders’ equity136,603 156,371 
Total liabilities and stockholders’ equity$172,330 $203,788 

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

3


Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Revenues:  
Net product revenue$ $6,542 $ $23,404 
Collaborative agreements   33 
Royalties and other revenue23 92 284 359 
Total revenues23 6,634 284 23,796 
Operating expenses:  
Cost of sales (including finite-lived intangible asset amortization) 633  1,929 
Research and development, including stock-based compensation of $1,138, $1,029, $3,608 and $5,154, respectively
15,682 40,147 38,548 152,629 
Selling, general and administrative, including stock-based compensation of $1,574, $875, $4,741 and $5,440, respectively
7,303 11,997 23,496 40,798 
Impairment loss on buildings   1,600 
Total operating expenses22,985 52,777 62,044 196,956 
Other operating income:
Gain on sale of XERMELO 132,818  132,818 
Income (loss) from operations(22,962)86,675 (61,760)(40,342)
Loss on debt extinguishments, net (255) (255)
Interest expense (171)(4,118)(507)(14,374)
Interest and other income, net11 301 120 1,892 
Net income (loss)$(23,122)$82,603 $(62,147)$(53,079)
Net income (loss) per common share, basic$(0.16)$0.77 $(0.43)$(0.50)
Net income (loss) per common share, diluted$(0.16)$0.71 $(0.43)$(0.50)
Shares used in computing net income (loss) per common share, basic145,820 107,309 144,558 106,974 
Shares used in computing net income (loss) per common share, diluted  145,820 117,552 144,558 106,974 
Other comprehensive income (loss):
Unrealized gain (loss) on investments (277)1 (49)
Comprehensive income (loss)$(23,122)$82,326 $(62,146)$(53,128)

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

4


Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity / (Deficit)
(In thousands)
(Unaudited)
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Gain (Loss)Treasury Stock
SharesPar ValueTotal
Balance at December 31, 2019106,679 $106 $1,462,172 $(1,341,444)$84 $(3,817)$117,101 
Stock-based compensation—  4,432    4,432 
Issuance of common stock under Equity Incentive Plans1,032 2     2 
Repurchase of common stock—     (923)(923)
Net loss—   (66,611)  (66,611)
Unrealized gain on investments—    776  776 
Balance at March 31, 2020107,711 108 1,466,604 (1,408,055)860 (4,740)54,777 
Stock-based compensation—  4,258    4,258 
Issuance of common stock under Equity Incentive Plans187       
Repurchase of common stock—     (103)(103)
Net loss—   (69,071)  (69,071)
Unrealized loss on investments—    (548) (548)
Balance at June 30, 2020107,898 108 1,470,862 (1,477,126)312 (4,843)(10,687)
Stock-based compensation—  1,904    1,904 
Issuance of common stock under Equity Incentive Plans9,333 9 14,087    14,096 
Net income—   82,603   82,603 
Unrealized loss on investments—    (277) (277)
Balance at September 30, 2020117,231 $117 $1,486,853 $(1,394,523)$35 $(4,843)$87,639 

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











5


Lexicon Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Common StockAdditionalAccumulated Other
SharesPar ValuePaid-In CapitalAccumulated DeficitComprehensive Gain (Loss)Treasury StockTotal
Balance at December 31, 2020142,289 $142 $1,561,096 $(1,400,018)$(6)$(4,843)$156,371 
Stock-based compensation—  2,851    2,851 
Issuance of common stock under Equity Incentive Plans1,263 1 547    548 
Issuance of common stock under an Open Market Sale Agreement, net of issuance fees2,000 2 16,397    16,399 
Repurchase of common stock—     (2,675)(2,675)
Net loss—   (20,958)  (20,958)
Unrealized gain on investments—    11  11 
Balance at March 31, 2021145,552 145 1,580,891 (1,420,976)5 (7,518)152,547 
Stock-based compensation—  2,786    2,786 
Issuance of common stock under Equity Incentive Plans88 1 7    8 
Issuance fees related to Open Market Sale Agreement—  (31)   (31)
Net loss—   (18,067)  (18,067)
Unrealized loss on investments—    (10) (10)
Balance at June 30, 2021145,640 146 1,583,653 (1,439,043)(5)(7,518)137,233 
Stock-based compensation—  2,712    2,712 
Issuance of common stock under Equity Incentive Plans170  658    658 
Issuance of common stock under an Open Market Sale Agreement, net of issuance fees4,177 4 19,119    19,123 
Net loss—   (23,122)  (23,122)
Unrealized loss on investments—    (1) (1)
Balance at September 30, 2021149,987 $150 $1,606,142 $(1,462,165)$(6)$(7,518)$136,603 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


Lexicon Pharmaceuticals, Inc.
 
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net loss$(62,147)$(53,079)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization180 2,590 
Stock-based compensation8,349 10,594 
Amortization of debt issuance costs46 995 
Gain on sale of XERMELO assets (132,818)
Impairment loss on buildings 1,600 
Loss on debt extinguishments, net 255 
Changes in operating assets and liabilities:
Decrease in accounts receivable372 52,201 
Decrease in inventory 345 
Decrease (increase) in prepaid expenses and other current assets1,985 (6,008)
Decrease in other assets459 314 
(Decrease) increase in accounts payable and other liabilities(13,433)14,281 
Net cash used in operating activities(64,189)(108,730)
Cash flows from investing activities:
Purchases of property and equipment(1,198)(33)
Proceeds from XERMELO sale 160,385 
Purchases of investments(28,880)(53,197)
Maturities of investments26,092 229,500 
Net cash (used in) provided by investing activities(3,986)336,655 
Cash flows from financing activities:
Proceeds from issuance of common stock, net of fees36,705  
Repurchase of common stock(2,675)(1,026)
Repayment of debt borrowings (210,760)
Net cash provided by (used in) financing activities34,030 (211,786)
Net (decrease) increase in cash and cash equivalents(34,145)16,139 
Cash and cash equivalents at beginning of period126,263 36,112 
Cash and cash equivalents at end of period$92,118 $52,251 
Supplemental disclosure of cash flow information:
Cash paid for interest$307 $16,892 
Supplemental disclosure of non-cash activities:
     Right-of-use asset$1,704 $ 
     Liabilities assumed by TerSera from the XERMELO sale$— $3,180 
     Common stock issued in satisfaction of convertible debt exchanges$— $14,096 

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

7


Lexicon Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
1.           Summary of Significant Accounting Policies
 
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of Lexicon Pharmaceuticals, Inc. (“Lexicon” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.

The accompanying condensed consolidated financial statements include the accounts of Lexicon and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.
For further information, refer to the financial statements and footnotes thereto included in Lexicon’s annual report on Form 10-K for the year ended December 31, 2020, as filed with the SEC. 
Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
 
Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  As of September 30, 2021, short-term investments consisted of U.S. treasury bills and corporate debt securities. As of December 31, 2020, short-term investments consisted of corporate debt securities. The Company’s short-term investments are classified as available-for-sale securities and are carried at fair value, based on quoted market prices of the securities.  The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security.  Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity.  Net realized gains and losses, interest and dividends are included in interest income.  The cost of securities sold is based on the specific identification method.
 
Accrued liabilities: Accrued liabilities consisted of the following:
As of September 30,As of December 31,
20212020
(in thousands)
Accrued research and development services$7,544 $21,962 
Accrued compensation and benefits4,172 6,200 
Short term lease liability1,027 553 
Other1,465 976 
Total accrued liabilities$14,208 $29,691 

Leases: Lexicon determines if a contract is or contains a lease at inception or upon modification of the contract. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. Lexicon does not apply this accounting to those leases with terms of twelve (12) months or less.


8


Operating lease right-of-use assets and associated lease liabilities are recorded in the balance sheet at the lease commencement date based on the present value of future lease payments to be made over the expected lease term. As the implicit rate is not determinable in its leases, Lexicon uses its incremental borrowing rate of 9% at the commencement date in determining the present value of future payments.

Revenue Recognition:

Product Revenues

Prior to the Company’s sale of XERMELO and related assets to TerSera Therapeutics LLC (“TerSera”) in September 2020, product revenues consisted of commercial sales of XERMELO in the United States and sales of bulk tablets of XERMELO to Ipsen Pharma SAS (“Ipsen”). Product revenues were recognized when the customer obtained control of XERMELO, which occurred upon delivery to the customer. The Company recognized product revenue net of applicable reserves for variable consideration, including allowances for customer credits, estimated rebates, chargebacks, discounts, returns, distribution service fees, and government rebates, such as Medicare Part D coverage gap reimbursements in the U.S. These estimates were based on the most likely amount method for relevant factors such as current contractual and statutory requirements, industry data and forecasted customer buying and payment patterns. The Company’s net product revenues reflected the Company’s best estimates of the amounts of consideration to which it was entitled based on the terms of the respective underlying contracts. Product shipping and handling costs were considered a fulfillment activity when control transferred to the Company’s customers and such costs were included in cost of sales.
  
Collaborative Agreements

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

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

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

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


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

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

Research and Development Expenses: Research and development expenses consist of costs incurred for company-sponsored as well as collaborative research and development activities. These costs include direct and research-related overhead expenses and are expensed as incurred.  Technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred. Substantial portions of the Company’s preclinical and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. The Company’s estimates of the clinical study costs and costs to transition activities from Sanofi for the development of sotagliflozin for type 2 diabetes and heart failure, as well as the wind down of those activities, were based on estimates of the services to be received and efforts to be expended pursuant to contracts with multiple vendors and the CRO that conducted and managed the clinical studies on its behalf. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the vendors and clinical site visits. The Company’s estimates depend on the timeliness and accuracy of the data provided by the vendors regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.
 
Stock-Based Compensation:  The Company recognizes compensation expense in its condensed consolidated statements of comprehensive loss for share-based payments, including stock options and restricted stock units granted to employees, based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award.  Stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis. Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met.  
 
The fair value of stock options is estimated at the date of grant using the Black-Scholes method.  The Black-Scholes option-pricing model requires the input of subjective assumptions.  Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.  For purposes of determining the fair value of stock options, the Company segregates its options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in a change in the assumptions used for expected option lives.  Historical data is used to estimate the expected option life for each group. Expected volatility is based on the historical volatility in the Company’s stock price.  
















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The Company utilized the Black-Scholes valuation model for estimating the fair value of the stock option compensation granted, with the following weighted-average assumptions for stock options granted in the nine months ended September 30, 2021 and 2020:
 Expected VolatilityRisk-free Interest RateExpected TermDividend
Rate
September 30, 2021:    
Employees102 %0.6 %4 %
Officers and non-employee directors90 %1.1 %7 %
September 30, 2020:
Employees91 %1.3 %4 %
Officers and non-employee directors78 %1.4 %8 %

The following is a summary of stock option activity under Lexicon’s stock-based compensation plans for the nine months ended September 30, 2021:
 
 OptionsWeighted Average Exercise Price
 (in thousands) 
Outstanding at December 31, 20208,397 $7.12 
Granted1,448 6.88 
Exercised(281)4.31 
Expired(191)12.50 
Forfeited(733)8.92 
Outstanding at September 30, 20218,640 6.90 
Exercisable at September 30, 20215,092 $8.16 


During the nine months ended September 30, 2021, Lexicon also granted its employees and non-employee directors annual restricted stock units. Outstanding employee restricted stock units vest in three annual installments. Outstanding non-employee director restricted stock units vest fully on the first anniversary of the grant. The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the nine months ended September 30, 2021:
 SharesWeighted Average Grant Date
Fair Value
 (in thousands) 
Outstanding at December 31, 20202,769 $4.35 
Granted663 8.22 
Vested(1,239)5.04 
Forfeited(217)4.96 
Outstanding at September 30, 20211,976 $5.15 
 
Net Loss per Common Share: Net loss per common share is computed using the weighted average number of shares of common stock outstanding. Shares associated with convertible debt, stock options and restricted stock units are not included because they are antidilutive.










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2.           Recent Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740) Simplifying Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The guidance amended certain disclosure requirements that had become redundant, outdated or superseded. Additionally, this guidance amends accounting for the interim period effects of changes in tax laws or rates, and simplifies aspects of the accounting for franchise taxes. The guidance is effective for annual periods beginning after December 15, 2020, including interim periods therein. The adoption of ASU 2019-12 in the first quarter of 2021 did not have a material impact on the Company’s condensed consolidated financial statements.

3.           Cash and Cash Equivalents and Investments
 
The fair value of cash and cash equivalents and investments held at September 30, 2021 and December 31, 2020 are as follows: 
 As of September 30, 2021
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
 (in thousands)
Cash and cash equivalents$92,118 $ $ $92,118 
Securities maturing within one year:    
U.S. treasury securities15,123 1  15,124 
Corporate debt securities13,683  (7)13,676 
Total short-term investments$28,806 $1 $(7)$28,800 
Total cash and cash equivalents and investments$120,924 $1 $(7)$120,918 
 As of December 31, 2020
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
  (in thousands) 
Cash and cash equivalents$126,263 $ $ $126,263 
Securities maturing within one year:    
Corporate debt securities26,018 5 (11)26,012 
Total short-term investments$26,018 $5 $(11)$26,012 
Total cash and cash equivalents and investments
$152,281 $5 $(11)$152,275 

There were no realized losses during either of the nine months ended September 30, 2021 and 2020, respectively. The cost of securities sold is based on the specific identification method.

4.            Fair Value Measurements
 
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. The following levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities:

Level 1 - quoted prices in active markets for identical investments, which include U.S. treasury securities
Level 2 - other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.), which includes corporate debt securities
Level 3 - significant unobservable inputs
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The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities. The following table provides the fair value measurements of applicable Company assets that are measured at fair value on a recurring basis according to the fair value levels defined above as of September 30, 2021 and December 31, 2020.
 Assets and Liabilities at Fair Value as of September 30, 2021
 Level 1Level 2Level 3Total
(in thousands)
Assets
Cash and cash equivalents$92,118 $ $ $92,118 
Short-term investments15,124 13,676  28,800 
Total cash and cash equivalents and investments$107,242 $13,676 $ $120,918 
 Assets and Liabilities at Fair Value as of December 31, 2020
 Level 1Level 2Level 3Total
 (in thousands)
Assets
Cash and cash equivalents$126,263 $ $ $126,263 
Short-term investments 26,012  26,012 
Total cash and cash equivalents and investments$126,263 $26,012 $ $152,275 

The Company did not have any Level 3 assets or liabilities as of September 30, 2021 or December 31, 2020. Transfers between levels are recognized at the actual date of the circumstance that caused the transfer. There were no transfers between Level 1 and Level 2 during the periods presented.
Refer to Note 6, Debt Obligations, for fair value measurements of debt obligations.
5.          Property and Equipment

Property and equipment was comprised of the following:

Estimated Useful LivesAs of
 In Years
September 30, 2021
December 31, 2020
 (in thousands)
Computers and software
3-5
$3,112 $3,826 
Furniture and fixtures
5-7
1,762 1,867 
Leasehold improvements
3-7
1,286 417 
Total property and equipment 6,160 6,110 
Less: Accumulated depreciation and amortization (4,849)(5,815)
Net property and equipment $1,311 $295 

During the nine months ended September 30, 2021, the Company retired $1.1 million of computers and software and furniture and fixtures, which had been fully depreciated. During the nine months ended September 30, 2021, the Company purchased $1.2 million of assets comprised of leasehold improvements, computers and software and furniture. The leasehold improvements are being amortized over the lease term.

In 2020, the Company recorded an impairment loss of $1.6 million to reduce the carrying value of the assets comprising its campus in The Woodlands, Texas, which were sold in December 2020, to its estimated fair value, less estimated selling costs. Concurrent with the sale, the Company entered into a leaseback agreement with the purchaser with respect to a portion of the facilities for a period of up to six months and in June 2021, the Company relocated its corporate offices to another facility.


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6.          Debt Obligations
Convertible Debt. In November 2014, Lexicon completed an offering of $87.5 million in aggregate principal amount of its 5.25% Convertible Senior Notes due 2021 (the “Convertible Notes”). The conversion feature did not meet the criteria for bifurcation as required by generally accepted accounting principles and the entire principal amount was recorded as long-term debt on the Company’s condensed consolidated balance sheets.
In September 2020, the Company entered into separate, privately negotiated exchange agreements to exchange $75.8 million aggregate principal amount of the Convertible Notes for consideration valued at 85% of the principal amount of the Convertible Notes. In September 2020, the Company issued 9,332,471 shares of the Company’s common stock and paid $44.0 million in cash, which included $1.1 million of accrued interest, to exchange $67.1 million aggregate principal amount of such Convertible Notes. The Company recorded the exchanges under the accounting requirements for debt extinguishment of convertible instruments. As a result, a debt extinguishment gain of $8.4 million was recorded and is included in the accompanying condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020. As of September 30, 2021, the carrying value of the remaining Convertible Notes was $11.7 million and is included in the current portion of long-term debt, net of deferred issuance costs in the accompanying condensed consolidated balance sheet.
The remaining Convertible Notes are governed by an indenture (the “Indenture”), dated as of November 26, 2014, between the Company and Wells Fargo Bank, N.A., as trustee. The Convertible Notes bear interest at a rate of 5.25% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2015. The Convertible Notes mature on December 1, 2021. The Company may not redeem the Convertible Notes prior to the maturity date, and no sinking fund is provided for the Convertible Notes.
Holders of the Convertible Notes may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding the maturity date. Upon conversion, the Company will deliver for each $1,000 principal amount of converted Convertible Notes a number of shares of its common stock equal to the conversion rate, as described in the Indenture. The conversion rate is initially 118.4553 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of $8.442 per share of common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event in certain circumstances.
If the Company undergoes a fundamental change, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The fair value of the remaining Convertible Notes was $11.9 million as of September 30, 2021 and was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading levels of the Convertible Notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system.
BioPharma Term Loan. In December 2017, Lexicon entered into a loan agreement with BioPharma under which $150.0 million was funded in December 2017 (the “BioPharma Term Loan”). The BioPharma Term Loan was scheduled to mature in December 2022, bore interest at 9% per year, subject to additional interest if an event of default occurred and was continuing, and was payable quarterly.
The BioPharma Term Loan was subject to mandatory prepayment provisions that required prepayment upon a change of control or receipt of proceeds from certain non-ordinary course transfers of assets. The Company repaid the BioPharma Term Loan in whole, together with required prepayment and make-whole premiums, upon closing of the XERMELO sale in September 2020. The Company recorded the repayment under the accounting requirements for debt extinguishment and as a result, a loss of $8.6 million was recognized and is included in the accompanying condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020.


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7.            Commitments and Contingencies
 
Operating Lease Obligations:  Lexicon’s operating leases include office space in The Woodlands, Texas and Basking Ridge, New Jersey and will expire in August 2025 and December 2022, respectively. Under its lease agreements, Lexicon is obligated to pay property taxes, insurance, and maintenance costs.

As of September 30, 2021, the right-of-use assets for the office space leases had a balance of $2.5 million, which is included in other assets in the condensed consolidated balance sheet. Current and non-current liabilities relating to the leases were $1.0 million and $1.5 million, respectively, which are included in accrued liabilities and other long-term liabilities in the condensed consolidated balance sheet, respectively.

The following table reconciles the undiscounted cash flows of the operating lease liability to the recorded lease liability at September 30, 2021:

 (in thousands)
2021$286 
20221,163 
2023531 
2024544 
2025370 
Thereafter— 
Total undiscounted operating lease liability2,894 
Less: amount of lease payments representing interest(386)
Present value of future lease payments2,508 
Less: short-term operating lease liability(1,027)
Long-term operating lease liability$1,481 


Legal Proceedings.  On January 28, 2019, a purported securities class action complaint captioned Daniel Manopla v. Lexicon Pharmaceuticals, Inc., Lonnel Coats, Jeffrey L. Wade and Pablo Lapuerta, M.D. was filed against the Company and certain of its officers in the U.S. District Court for the Southern District of Texas, Houston Division. The Company’s motion to dismiss was granted and the action was dismissed with prejudice by the District Court on August 14, 2020. The judgment of the District Court was affirmed by the U.S. Court of Appeals for the Fifth Circuit on September 10, 2021. The lawsuit purported to be a class action brought on behalf of purchasers of the Company’s securities during the period from March 11, 2016 through July 29, 2019. The complaint alleged that the defendants violated federal securities laws by making materially false and misleading statements and/or omissions concerning data from the Company’s Phase 3 clinical trials of sotagliflozin in type 1 diabetes patients and the prospects of FDA approval of sotagliflozin for the treatment of type 1 diabetes. The complaint purported to assert claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint sought, on behalf of the purported class, an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

Sanofi Arbitration. On October 16, 2020, the Company initiated arbitration proceedings against Sanofi-Aventis Deutschland GmbH (“Sanofi”) seeking to recover damages for breach of contract relating to the Termination and Settlement Agreement and Mutual Releases with Sanofi, dated September 9, 2019 (the “Termination Agreement”). In September 2020, Sanofi withheld approximately $23.2 million from the final $26 million payment due to the Company under the Termination Agreement, offsetting certain third party costs and internal costs incurred by Sanofi and asserted by Sanofi to be payable by the Company under the terms of the Termination Agreement. The Company disputed that at least a significant portion of such costs were properly reimbursable by the Company under the terms of the Termination Agreement and asserted that, in any event, Sanofi was not permitted to withhold any of such costs under the terms of the Termination Agreement. The Company was seeking payment of $15.6 million in such disputed costs, together with late interest and attorneys’ fees and costs. Sanofi was seeking declaratory judgment that the Company is liable for all disputed costs previously withheld and damages for any additional costs properly reimburseable under the terms of the Termination Agreement in excess of those previously withheld, together with late interest and attorneys’ fees. On November 5, 2021, the arbitration panel issued a judgment in Sanofi’s favor. The amount of Sanofi’s attorneys’ fees and costs subject to reimbursement cannot be reasonably estimated at this time.

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

8.           Collaboration and License Agreements
 
Lexicon has derived substantially all of its revenues from drug discovery and development alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, product sales, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales.
Ipsen. In October 2014, Lexicon entered into a License and Collaboration Agreement, which was subsequently amended in March 2015 (collectively, the “Ipsen Agreement”), with Ipsen for the development and commercialization of XERMELO outside of the United States and Japan (the “Licensed Territory”). The Ipsen Agreement was assigned to TerSera in September 2020 in connection with the XERMELO sale.
Prior to the XERMELO sale, Lexicon had earned certain milestone payments and royalties from Ipsen. Revenue, including royalty revenue, recognized under the Ipsen Agreement was $0.3 million for the nine months ended September 30, 2020.
Sanofi. In November 2015, Lexicon entered into a Collaboration and License Agreement, which was subsequently amended in July 2017 (collectively, the “Sanofi Agreement”), with Sanofi for the worldwide development of Lexicon’s drug candidate sotagliflozin. In December 2016, Sanofi terminated its rights under the Sanofi Agreement with respect to Japan.
Effective as of September 9, 2019 (the “Settlement Date”), Lexicon entered into the Termination Agreement with Sanofi, pursuant to which the Sanofi Agreement was terminated and certain associated disputes between Lexicon and Sanofi were settled.
Under the terms of the Termination Agreement, Lexicon regained all rights to sotagliflozin and assumed full responsibility for the worldwide development and commercialization of sotagliflozin in all indications. Sanofi paid Lexicon $208 million in September 2019 and $26 million in each of March and September 2020 (less amounts withheld by Sanofi offsetting certain third party costs and internal costs incurred by Sanofi and asserted by Sanofi to be payable by Lexicon under the terms of the Termination Agreement), and neither party owes any additional payments pursuant to the Sanofi Agreement. The parties have cooperated in the transition of responsibility for ongoing clinical studies and other activities, and each party is responsible for its own expenses associated with such transition, subject to certain exceptions. See Note 7, Commitments and Contingencies, for additional information. Beginning in March 2020, Lexicon closed out early the clinical studies related to the Phase 3 development program for sotagliflozin in type 2 diabetes, heart failure and chronic kidney disease. Subsequent to the Termination Agreement, Lexicon has no remaining performance obligations to Sanofi.

9.     Other Capital Agreements
 
Common Stock: In 2020, Lexicon entered into an Open Market Sale AgreementSM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) relating to the shares of its common stock. Lexicon may offer and sell common stock having an aggregate sales price of up to $50.0 million from time to time through Jefferies acting as its sales agent. In 2020, Lexicon sold 3,709,233 shares of its common stock at a price of $1.992 per share pursuant to the Sales Agreement, resulting in net proceeds of $7.0 million. In January 2021, Lexicon sold 2,000,000 shares of its common stock at a price of $8.463 per share pursuant to the Sales Agreement, resulting in net proceeds of $16.4 million. In August and September 2021, Lexicon sold an aggregate of 4,176,953 shares of its common stock at a price of $4.732 per share pursuant to the Sales Agreement, resulting in net proceeds of $19.1 million. The net proceeds are reflected as issuances of common stock in the accompanying condensed consolidated financial statements.


10.     Asset Sale
In September 2020, the Company completed the sale of XERMELO® and related assets to TerSera. The upfront consideration paid by TerSera, subject to a working capital adjustment as set forth in the Asset Purchase and Sale Agreement, was $160.4 million and the net gain recognized in connection with the XERMELO sale was $132.8 million. The gain is reflected on the condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020.

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The Company remains eligible to receive development, regulatory and sales milestone payments of up to an aggregate of $65 million for the development and commercialization of telotristat ethyl in patients with biliary tract cancer and mid-teens royalty payments on net sales of XERMELO in biliary tract cancer. The Company has determined that these amounts are constrained until the achievement, if any, of specific events. If or when the constraint is determined to be resolved, the Company will re-evaluate the overall gain in connection with the XERMELO sale and recognize an adjustment on a cumulative catch-up basis in the period that the determination is made.

The XERMELO sale did not meet the criteria for reporting discontinued operations as there was not a strategic shift that has (or will have) a major effect on the Company’s operations. For the three and nine months ended September 30, 2020, the pretax net loss on the condensed consolidated statement of comprehensive income (loss) for the Company’s XERMELO operations is $2.1 million and $12.1 million, respectively.
As a result of the XERMELO sale, the Company implemented a reduction in force which reduced its workforce by approximately fifty percent. The Company incurred and recognized severance charges of approximately $5.5 million through September 30, 2020. Of this charge, $2.5 million was recorded in research and development expense and $3.0 million was recorded in selling, general and administrative expense in the accompanying condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020.


11.    Earnings (Loss) Per Share

The following is a summary of Lexicon’s earnings (loss) per share calculations and reconciliations of the numerators and the denominators of the basic and diluted per share calculations.
(in thousands, except per share data)Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Numerator:
Net income (loss)$(23,122)$82,603 $(62,147)$(53,079)
  Add interest on Convertible Notes 1,258   
Adjusted net income (loss)$(23,122)$83,861 $(62,147)$(53,079)
Denominator:
Shares used in computing net income (loss) per common share, basic145,820 107,309 144,558 106,974 
Add effect of potential dilutive securities:
  Share based compensation awards 51   
  Convertible Notes 10,192   
Shares used in computing net income (loss) per common share, diluted145,820 117,552 144,558 106,974 
Net income (loss) per share - basic$(0.16)$0.77 $(0.43)$(0.50)
Net income (loss) per share - diluted$(0.16)$0.71 $(0.43)$(0.50)

For periods presented with a net loss, the weighted average number of shares outstanding are the same for both basic and diluted net loss per common share. The average number of shares associated with stock options and restricted stock units that were excluded from diluted earnings per share that would potentially dilute earnings per share in the future was 10,615 and 11,773, respectively, for the three months ended September 30, 2021 and 2020, and 10,615 and 11,859, respectively, for the nine months ended September 30, 2021 and 2020. For periods presented with a net loss, the shares associated with the Convertible Notes are not included in the computation of diluted earnings per share because they are antidilutive.
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
We are a biopharmaceutical company with a mission of pioneering medicines that transform patients’ lives. We are devoting most of our resources to the research and development of our most advanced drug candidates:

We are developing sotagliflozin, an orally-delivered small molecule drug candidate, as a treatment for heart failure and type 1 diabetes. We have reported positive results from two Phase 3 clinical trials evaluating the effect of sotagliflozin on long-term outcomes related to cardiovascular death and heart failure in approximately 10,500 and 1,200 patients, respectively. We are now preparing an application for regulatory approval to market sotagliflozin for heart failure in the United States and, if approved, for the commercial launch of sotagliflozin in the United States.
We have reported positive results from three Phase 3 clinical trials evaluating the effect of sotagliflozin on type 1 diabetes in approximately 800,800 and 1,400 patients, respectively. The FDA issued a complete response letter regarding our application for regulatory approval to market sotagliflozin for type 1 diabetes in the United States and, at our request, has issued a public Notice of Opportunity for Hearing on whether there are grounds for denying approval of our application. The Office of the FDA Commissioner has granted our joint request with the FDA’s Center for Drug Evaluation and Research to extend the previously granted abeyance of such proceedings until November 26, 2021 to allow for the continuation of good faith discussions between the parties. Sotagliflozin has been approved in the European Union for use as an adjunct to insulin therapy in the treatment of type 1 diabetes, but has not yet been commercially launched.

We are developing LX9211, an orally-delivered small molecule drug candidate, as a treatment for neuropathic pain. We have reported results from two Phase 1 clinical trials of LX9211 and are now conducting a Phase 2 clinical trial of LX9211 in diabetic peripheral neuropathic pain and a second Phase 2 clinical trial of LX9211 in post-herpetic neuralgia. LX9211 has received Fast Track designation from the FDA for development in diabetic peripheral neuropathic pain.
We are conducting preclinical research and development and preparing to conduct clinical development of compounds from a number of additional drug programs originating from our internal drug discovery efforts.
LX9211 originated from our collaborative neuroscience drug discovery efforts with Bristol-Myers Squibb, and sotagliflozin and compounds from a number of additional drug programs originated from our own internal drug discovery efforts. Those efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets. We have identified and validated in living animals, or in vivo, more than 100 targets with promising profiles for drug discovery.

We are working both independently and through collaborations and strategic alliances with third parties to capitalize on our drug target discoveries and drug discovery and development programs. We seek to retain exclusive or co-exclusive rights to the benefits of certain drug discovery and development programs by developing and commercializing drug candidates from those programs internally, particularly in the United States for indications treated by specialist physicians. We seek to collaborate with other pharmaceutical and biotechnology companies with respect to drug discovery or the development and commercialization of certain of our drug candidates, particularly with respect to commercialization in territories outside the United States or commercialization in the United States for indications treated by primary care physicians, or when the collaboration may otherwise provide us with access to expertise and resources that we do not possess internally or are complementary to our own. Our collaborations and strategic alliances include arrangements with TerSera Therapeutics LLC, under which we are eligible to receive milestone and royalty payments relating to XERMELO in biliary tract cancer, and with Genentech, Inc., under which we are eligible to receive milestone and royalty payments relating to its UTTR1147a (IL-22 Fc) biotherapeutic drug candidate.

We have derived substantially all of our revenues from strategic collaborations and other research and development collaborations and technology licenses, as well as from commercial sales of XERMELO following our commercial launch of the product in February 2017 until our sale of XERMELO and related assets to TerSera in September 2020. 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 the success of our ongoing nonclinical and clinical development efforts and ability to obtain necessary regulatory approvals of the drug candidates which are the subject of such efforts; the ability of our collaborators and licensees to successfully develop and commercialize products and our receipt of milestone payments and royalties from such efforts; our
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success in establishing new collaborations and licenses, particularly for the commercialization of sotagliflozin for heart failure; and general and industry-specific economic conditions which may affect research and development expenditures.

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

Since our inception, we have incurred significant losses and, as of September 30, 2021, we had an accumulated deficit of $1.5 billion. Our losses have resulted principally from costs incurred in research and development, selling, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock units granted to employees and consultants. Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our nonclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs. Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, sales and marketing, and administrative personnel, professional fees and other corporate expenses, including information technology, facilities costs and general legal activities. We expect to continue to incur significant research and development costs in connection with the continuing development of our drug candidates. As a result, we will need to generate significantly higher revenues to achieve profitability.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles requires us to make judgments, estimates and assumptions in the preparation of our condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.  We believe there have been no significant changes in our critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that could have a material impact to our condensed consolidated financial statements.

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Results of Operations
 
Revenues
 
Total revenues and dollar and percentage changes as compared to the corresponding periods in the prior year are as follows (dollar amounts are presented in millions):
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Total revenues$— $6.6 $0.3 $23.8 
Dollar decrease$(6.6)$(23.5) 
Percentage decrease(100)%(99)% 
 
Net product revenue – Net product revenue for the three months ended September 30, 2020 was $6.5 million, and for the nine months ended September 30, 2020 was $23.4 million. We sold XERMELO and related assets to TerSera on September 8, 2020. Product revenues were recorded net of estimated product returns, pricing discounts including rebates offered pursuant to mandatory federal and state government programs and chargebacks, prompt pay discounts and distribution fees and co-pay assistance. Revenue recognition policies require estimates of the aforementioned sales allowances each period.