Purpose of this Proxy Statement

 

We have prepared this proxy statement to solicit proxies on behalf of our board of directors for use at our 2010 annual meeting of stockholders and any adjournment or postponement of such meeting.

 

Notice of Internet Availability of Proxy Materials

 

As permitted by rules adopted by the Securities and Exchange Commission, we are providing access to our proxy materials over the Internet.  Accordingly, on or about March 19, 2010, we are mailing to our stockholders a notice containing instructions on how to access our proxy materials, including our proxy statement and annual report, and vote electronically over the Internet.  The notice also provides instructions on how stockholders may request a paper copy of our proxy materials free of charge.  Our proxy materials may be accessed by stockholders at any time after the date of mailing of the notice.

 

Time and Place of Annual Meeting

 

The annual meeting will be held on Thursday, April 29, 2010 at 8:00 a.m., local time, at the offices of the company, 8800 Technology Forest Place, The Woodlands, Texas.

 

Matters to Be Considered at the Annual Meeting

 

At the annual meeting, our stockholders will be asked to consider and act upon the following matters:

 

·

the election of three Class I directors; and

 

·

a proposal to ratify and approve the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2010.

 

Our board of directors does not intend to bring any other matters before the annual meeting and has not been informed that any other matters are to be presented by others.  Our bylaws contain several requirements that must be satisfied in order for any of our stockholders to bring a proposal before one of our annual meetings, including a requirement of delivering proper advance notice to us.  Stockholders are advised to review our bylaws if they intend to present a proposal at any of our annual meetings.

 

Record Date for Determining Entitlement to Vote

 

You are entitled to vote at the annual meeting if you were the record owner of shares of our common stock as of the close of business on March 1, 2010, the record date for the annual meeting established by our board of directors.

 

How to Vote Your Shares

 

You may vote in person at the annual meeting or by proxy.  To ensure that your shares are represented at the annual meeting, we recommend you vote by proxy even if you plan to attend the annual meeting in person.  Even if you vote by proxy, if you wish, you can revoke your proxy and vote in person at the annual meeting.  If you want to vote at the annual meeting but your shares are held by an intermediary, such as a broker or bank, you will need to obtain from the intermediary either proof of your ownership of such shares as of March 1, 2010 or a proxy from such intermediary authorizing you to vote your shares at the meeting.

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You may receive more than one proxy depending on how you hold your shares.  If you hold your shares through an intermediary, such as a broker or bank, you may receive materials from them asking you how you want your shares to be voted at the annual meeting.

 

Voting by Proxy

 

By Internet or Telephone.  You may vote electronically on the Internet or by telephone by following the instructions contained on the notice of Internet availability of our proxy materials.  If you hold your shares through an intermediary, such as a broker or bank, please follow the voting instructions contained on the voting card used by the intermediary.

 

By Mail.  If you request a paper copy of our proxy materials, you may vote by mail by completing, dating and signing the proxy card provided and mailing it in the pre-addressed envelope enclosed with the paper copy of our proxy materials.

 

Quorum

 

We must have a quorum to conduct any business at the annual meeting. This means that at least a majority of our outstanding shares eligible to vote at the annual meeting must be represented at the annual meeting, either in person or by proxy.  Abstentions are counted for purposes of determining whether a quorum is present.  In addition, shares of our common stock held by intermediaries that are voted for at least one matter at the annual meeting will be counted as being present for purposes of determining a quorum for all matters, even if the beneficial owner’s discretion has been withheld for voting on some or all other matters (commonly referred to as a “broker non-vote”).

 

Outstanding Shares

 

On the record date, we had 175,633,988 shares of our common stock outstanding.  If you were the record owner of shares of our common stock on the record date, you will be entitled to one vote for each share of stock that you own on each matter that is called to vote at the annual meeting.

 

Vote Needed to Approve Proposals

 

Our Class I directors will be elected by a plurality vote.  As a result, if a quorum is present at the annual meeting, the three persons receiving the greatest number of votes will be elected to serve as our Class I directors. Withholding authority to vote for a director nominee will not affect the outcome of the election of directors.

 

The ratification and approval of the appointment of Ernst & Young LLP as our independent auditors for the year ending December 31, 2010 will require the affirmative vote of a majority of the votes cast with respect to such matter.  Any other business that may properly come before the annual meeting for a vote will require the affirmative vote of a majority of the votes cast with respect to such matter unless a greater vote is required by law or our charter or bylaws.  On any such matter, any abstention from voting or broker non-vote will not count as a vote for or against these proposals and will not be considered in calculating the number of votes necessary for their approval.

 

How Your Proxy Will Be Voted

 

Giving us your proxy means that you are authorizing us to vote your shares at the annual meeting in the manner you direct. You may vote for our nominees for election as Class I directors or withhold your vote for any one or more of those nominees.  You may vote for or against the proposal to ratify and approve the appointment of Ernst & Young LLP as our independent auditors for the year ending December 31, 2010 or abstain from voting on that proposal.

 

If you vote by proxy and do not withhold authority to vote for the election of our nominees for election as Class I directors, all of your shares will be voted for the election of those nominees.  If you withhold authority to vote for one or more of our nominees for election as Class I directors, none of your shares will be voted for those nominees.

 

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If any of our nominees for election as Class I directors become unavailable for any reason before the election, we may reduce the number of directors serving on our board of directors, or our board of directors may designate substitute nominees, as necessary.  We have no reason to believe that any of our nominees for election as Class I directors will be unavailable.  If our board of directors designates any substitute nominees, the persons receiving your proxy will vote your shares for such substitute(s) if they are instructed to do so by our board of directors or, in the absence of any such instructions, in accordance with their own best judgment.

 

If you vote by proxy but do not specify how you want your shares voted, your shares will be voted in favor of our nominees for election as Class I directors and in favor of the ratification and approval of the appointment of Ernst & Young LLP as our independent auditors for the year ending December 31, 2010.

 

If you vote by proxy and any additional business properly comes before the annual meeting, the persons receiving your proxy will vote your shares on those matters as instructed by our board of directors or, in the absence of any such instructions, in accordance with their own best judgment.  As of the date of this proxy statement, we are not aware of any other matter to be raised at the annual meeting.

 

How to Revoke Your Proxy

 

You may revoke your proxy at any time before your shares are voted by providing our corporate secretary with either a new proxy with a later date or a written notice of your desire to revoke your proxy at the following address:

 

Lexicon Pharmaceuticals, Inc.

8800 Technology Forest Place

The Woodlands, Texas 77381

Attention: Corporate Secretary

 

You may also revoke your proxy at any time prior to your shares having been voted by attending the annual meeting in person and notifying the inspector of election of your desire to revoke your proxy.  Your proxy will not automatically be revoked merely because you attend the annual meeting.

 

Inspector of Election

 

Broadridge Financial Solutions, Inc. will count votes and provide a representative who will serve as an inspector of election for the annual meeting.

 

List of Stockholders Entitled to Vote

 

A list of our stockholders entitled to vote at the annual meeting will be available for inspection at the annual meeting.  The stockholder list will also be available for inspection for ten days prior to the annual meeting at our corporate offices located at 8800 Technology Forest Place, The Woodlands, Texas.  Any inspection of this list at our offices will need to be conducted during ordinary business hours.  If you wish to conduct an inspection of the stockholder list, we request that you please contact our corporate secretary before coming to our offices.

 

Solicitation of Proxies and Expenses

 

We are asking for your proxy on behalf of our board of directors.  We will bear the entire cost of preparing, printing and soliciting proxies.  We will send notices of Internet availability of proxy materials and, if requested, paper copies of our proxy materials to all of our stockholders of record as of the record date and to all intermediaries, such as brokers and banks, that held any of our shares on that date on behalf of others.  These intermediaries will then forward the notices and, if requested, paper copies of our proxy materials to the beneficial owners of our shares, and we will reimburse them for their reasonable out-of-pocket expenses for forwarding such materials.  Our directors, officers and employees may solicit proxies by mail, in person or by telephone or other electronic communication.  Our directors, officers and employees will not receive additional compensation for their solicitation efforts, but they will be reimbursed for any out-of-pocket expenses they incur.

 

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Householding

 

As permitted by rules adopted by the Securities and Exchange Commission, we are delivering a single notice of Internet availability of proxy materials, annual report and proxy statement, as applicable, to any household at which two or more stockholders reside if we believe the stockholders are members of the same family, unless otherwise instructed by one or more of the stockholders.  We will promptly deliver separate copies of these documents upon the written or oral request of any stockholder at a shared address to which a single copy of the documents were delivered.

 

If your household received a single set of any of these documents, but you would prefer to receive your own copy, or if you share an address with another stockholder and together both of you would like to receive only a single set of these documents, please follow these instructions:

 

·

If your shares are registered in your own name, please contact our transfer agent, BNY Mellon Shareowner Services, and inform them of your request by calling them at (800) 635-9270 or writing them at 480 Washington Boulevard., Jersey City, New Jersey 07310.

 

·

If an intermediary, such as a broker or bank, holds your shares, please contact Broadridge and inform them of your request by calling them at (800) 542-1061 or writing them at Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Be sure to include your name, the name of your brokerage firm and your account number.

 

 

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PROPOSAL NUMBER 1:

ELECTION OF DIRECTORS

 

Our board of directors, which currently has nine members, is divided or “classified” into three classes.  Directors in each class are elected to hold office for a term ending on the date of the third annual meeting following the annual meeting at which they were elected.  The current term of our Class I directors will expire at this annual meeting.  The current terms of our Class II and Class III directors will expire at our 2011 and 2012 annual meetings of stockholders, respectively.

 

The board of directors has nominated and urges you to vote for the election of the individuals identified below, who have been nominated to serve as Class I directors until our 2013 annual meeting of stockholders or until their successors are duly elected and qualified.  Each of these individuals is a member of our present board of directors.  Your signed proxy will be voted for the nominees named below unless you specifically indicate on the proxy that you are withholding your vote.

 

Nominees for Class I Directors

 

The following individuals are nominated for election as Class I directors:

 

Name	Age	Position with the Company	Year First Became a Director
Raymond Debbane	55	Director (Class I)	2007
Robert J. Lefkowitz, M.D.	66	Director (Class I)	2001
Alan S. Nies, M.D.	72	Director (Class I)	2003

Raymond Debbane has been a director since August 2007.  Mr. Debbane is president and chief executive officer of The Invus Group, LLC, which he founded in New York in 1985 as the exclusive investment advisor of Benelux-based Artal Group S.A.  In 1999, Artal became the controlling shareholder of Weight Watchers International, Inc., for which Mr. Debbane serves as chairman of the board of directors.  He also serves as chairman or director of a number of private companies in which Invus and Artal Group S.A. have invested.  Before founding The Invus Group, Mr. Debbane was a manager in the Paris office of The Boston Consulting Group, Inc., where he did consulting work for a number of major European and international companies.  Mr. Debbane holds an M.B.A. from Stanford University, an M.S. in food science and technology from the University of California at Davis, and a B.S in agricultural sciences and agricultural engineering from American University of Beirut.

 

Mr. Debbane provides us with the benefit of his extensive financial markets and investment expertise gained in more than 20 years of leading the identification, selection, negotiation and oversight of a wide range of investments in his role as president and chief executive officer of The Invus Group, as well as his background in strategic consulting across a broad range of industries developed while with The Boston Consulting Group.  Mr. Debbane is a designee of Invus, L.P. pursuant to our stockholders’ agreement with Invus described under the heading “Transactions with Related Persons — Arrangements with Invus.”

 

Robert J. Lefkowitz, M.D. has been a director since February 2001 and a consultant to our company since March 2003.  Dr. Lefkowitz is the James B. Duke Professor of Medicine, professor of biochemistry and a Howard Hughes Medical Institute investigator at Duke University Medical Center, where he has served on the faculty since 1973. He is a member of the National Academy of Sciences. Dr. Lefkowitz received his B.A. from Columbia University and his M.D. from Columbia University College of Physicians and Surgeons.

 

Dr. Lefkowitz provides us with the benefit of his medical expertise and his extensive experience in biological and pharmaceutical research, particularly with respect to the identification of drug targets and preclinical evaluation of drug candidates, gained in more than 35 years as a member of the faculty at Duke University Medical Center.

 

Alan S. Nies, M.D. has been a director since November 2003 and chairman of our medical advisory board since March 2003.  From 1992 through September 2002, Dr. Nies served in a series of senior management positions at Merck & Co. Inc., most recently as senior vice president, clinical sciences from 1999 to 2002. Prior to joining Merck, Dr. Nies spent fifteen years as professor of medicine and pharmacology and head of the Division of Clinical Pharmacology at the University of Colorado Health Sciences Center.  Dr. Nies holds a B.S. from Stanford University and an M.D. from Harvard Medical School.

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Dr. Nies provides us with the benefit of his extensive clinical development experience, particularly with respect to the design, management and reporting of clinical trials, as well as his organizational and management skills developed while serving in his various leadership positions with Merck and the University of Colorado Health Sciences Center.

 

The Board of Directors recommends that stockholders vote “FOR” the foregoing nominees for election as Class I directors.

 

Current and Continuing Directors

 

The current directors of the Company are identified below:

 

Name	Age	Position with the Company
Arthur T. Sands, M.D., Ph.D.	48	President and Chief Executive Officer and Director (Class III)
Samuel L. Barker, Ph.D. (1)	67	Chairman of the Board of Directors (Class II)
Philippe J. Amouyal (2)	51	Director (Class III)
Raymond Debbane (3)	55	Director (Class I)
Robert J. Lefkowitz, M.D. (3)	66	Director (Class I)
Alan S. Nies, M.D. (2)	72	Director (Class I)
Frank P. Palantoni (1) (2)	52	Director (Class III)
Christopher J. Sobecki	51	Director (Class II)
Judith L. Swain, M.D. (1) (3)	61	Director (Class II)

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(1)

Member of the Audit Committee

(2)

Member of the Compensation Committee

(3)

Member of the Corporate Governance Committee

Information regarding the business experience of Mr. Debbane, Dr. Lefkowitz and Dr. Nies is set forth above under the heading  “— Nominees for Class I Directors.”

 

Arthur T. Sands, M.D., Ph.D. co-founded our company and has been our president and chief executive officer and a director since September 1995. At Lexicon, Dr. Sands pioneered the development of large-scale gene knockout technology for use in drug discovery.  Before founding Lexicon, Dr. Sands served as an American Cancer Society postdoctoral fellow in the Department of Human and Molecular Genetics at Baylor College of Medicine.  He received his B.A. in economics and political science from Yale University and his M.D. and Ph.D. from Baylor College of Medicine.

 

Dr. Sands provides us with the benefit of his experience as an entrepreneur and founder of our company, as well as the institutional knowledge and organizational and management skills he has developed as our president and chief executive officer.

 

Samuel L. Barker, Ph.D. has been a director since March 2000 and became chairman of our board of directors in March 2005. In March 2001, Dr. Barker co-founded Clearview Projects, Inc., a provider of partnering and transaction services to biopharmaceutical companies, and served as its president and chief executive officer from July 2003 until November 2004. Dr. Barker served in a series of leadership positions at Bristol-Myers Squibb Company until his retirement in 1999. His positions at Bristol-Myers Squibb included service as executive vice president, Worldwide Franchise Management and Strategy during 1998; president, United States Pharmaceuticals from 1992 to 1997; and president, Bristol-Myers Squibb Intercontinental Commercial Operations from 1990 to 1992.  Prior to 1990, Dr. Barker held executive positions in research and development, manufacturing, finance, business development and sales and marketing at Squibb Pharmaceuticals.  Dr. Barker currently serves as a director of Cadence Pharmaceuticals, Inc. and served as a director of AtheroGenics, Inc. from 2006 to 2009.  Dr. Barker received his B.S. from Henderson State College, his M.S. from the University of Arkansas and his Ph.D. from Purdue University.

 

Dr. Barker provides us with the benefit of his extensive experience in a wide variety of disciplines within the pharmaceutical industry, including the development and commercialization of pharmaceutical products, the identification, evaluation and negotiation of collaborative agreements, and the management of pharmaceutical marketing and sales efforts, as well as his organizational and management skills developed while serving in his various leadership positions at Bristol-Myers Squibb and Clearview Projects.

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Philippe J. Amouyal has been a director since August 2007 and is a managing director of The Invus Group, LLC, a position he has held since 1999.  Previously, Mr. Amouyal was a vice president and director of The Boston Consulting Group, Inc. in Boston, Massachusetts, where he coordinated the global technology and electronics practice through most of the 1990s.  Mr. Amouyal is a director of Weight Watchers International, Inc., as well as a number of private companies in which Invus has invested.  He holds an M.S. in engineering and a DEA in management from Ecole Centrale de Paris and was a research fellow at the Center for Policy Alternatives of the Massachusetts Institute of Technology.

 

Mr. Amouyal provides us with the benefit of his broad business and financial experience, as well as his expertise in compensation and performance management and the assessment and prioritization of research and development projects, gained in his active participation in the identification, selection, negotiation and oversight of investments by The Invus Group and his consulting experience with The Boston Consulting Group.  Mr. Amouyal is a designee of Invus, L.P. pursuant to our stockholders’ agreement with Invus described under the heading “Transactions with Related Persons — Arrangements with Invus.”

 

Frank P. Palantoni has been a director since November 2004. Mr. Palantoni is a partner at P3 Capital Management LLC, an early stage consumer products equity fund.  Mr. Palantoni served as chief executive officer of Prestige Brands Holding, Inc. from April to June 2006 and as a director from January to June 2006.  From 1998 to 2004, Mr. Palantoni held a variety of senior management positions with Novartis AG, most recently as president and chief executive officer, worldwide of its Gerber Products Company, Novartis Infant and Baby Division. Mr. Palantoni also served as president and chief executive officer for North American operations of Novartis Consumer Health Division from 2000 to 2001. Prior to joining Novartis, he held a series of senior management positions with The Danone Group. He holds a B.S. from Tufts University and an M.B.A. from Columbia University.

 

Mr. Palantoni provides us with the benefit of his extensive business operations experience, as well as his expertise in compensation and performance management and his broad business and management skills developed while serving in his various leadership positions in the consumer health products industry.

 

Christopher J. Sobecki has been a director since August 2007 and is a managing director of The Invus Group, LLC, which he joined in 1989.  Mr. Sobecki is currently a director of Weight Watchers International, Inc., as well as a number of private companies in which Invus has invested. Mr. Sobecki served as a director of NitroMed, Inc. from 2006 to 2009.  He holds a B.S. in industrial engineering from Purdue University and an M.B.A. from Harvard University.

 

Mr. Sobecki provides us with the benefit of his diversified business and financial experience, including a particular expertise in risk assessment and business strategy development, and relationships in the financial community gained in his active participation in the identification, selection, negotiation and oversight of investments by The Invus Group and his service as a director of public and private companies.  Mr. Sobecki is a designee of Invus, L.P. pursuant to our stockholders’ agreement with Invus described under the heading “Transactions with Related Persons — Arrangements with Invus.”

 

Judith L. Swain, M.D. has been a director since September 2007.  Dr. Swain is the executive director of the Singapore Institute for Clinical Sciences within A*STAR, and the Lien Chow Professor of Medicine at the National University of Singapore.  From 2005 to 2006, she was the dean for translational medicine at the University of California, San Diego, where she continues to maintain an appointment as an adjunct professor of medicine.  Dr. Swain served as chair of the Department of Medicine at Stanford University from 1997 to 2005, and previously served on the medical faculties of the University of Pennsylvania and Duke University.  Dr. Swain is currently a director of the Burroughs Wellcome Fund, a member of the Academic Research Council in Singapore.  She has served in a number of national and international leadership roles and as a director or member of the scientific advisory boards for a number of biomedical technology companies and is co-founder of Synecor, LLC.  Dr. Swain received her B.S. from the University of California, Los Angeles and her M.D. from the University of California, San Diego.

 

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Dr. Swain provides us with the benefit of her extensive medical and scientific research experience gained in her more than 30 years as a practicing physician and research scientist, as well as her organizational and management skills developed in her numerous leadership positions with a variety of prominent research and academic institutions.

 

 

PROPOSAL NUMBER 2:

RATIFICATION AND APPROVAL OF INDEPENDENT AUDITORS

 

The board of directors has appointed the firm of Ernst & Young LLP as our independent auditors to make an examination of our accounts for the fiscal year ending December 31, 2010, subject to ratification by our stockholders.  Representatives of Ernst & Young LLP, are expected to be present at the annual meeting, will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

 

The Board of Directors recommends that stockholders vote “FOR” ratification and approval of the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2010.

 

Compensation of Independent Auditors

 

The following table presents the estimated aggregate fees billed and to be billed by Ernst & Young LLP for services performed during our last two fiscal years.

 

			Years Ended December 31,
			2009				2008
Audit fees(1)			$	371,000			$	336,500
Audit-related fees(2)				24,000				24,000
Tax fees				—				—
All other fees				—				—
			$	395,000			$	360,500

 

(1)

“Audit fees” include professional services rendered for (i) the audit of our internal control over financial reporting, as required by the Sarbanes-Oxley Act of 2002, for the fiscal years ended December 31, 2008 and 2009, (ii) the audit of our annual financial statements for the fiscal years ended December 31, 2008 and 2009, (iii) the reviews of the financial statements included in our quarterly reports on Form 10-Q for such years and (iv) the issuance of consents and other matters relating to registration statements filed by us.

 

(2)

“Audit-related fees” include assurance or related services reasonably related to our audit for the fiscal years ended December 31, 2008 and 2009.  These fees related to the audit of the financial statements of our 401(k) plan and consultation concerning financial accounting and reporting standards.

 

The audit committee reviewed and approved all the fees described above.  As part of its duties, the audit committee has determined that the provision by Ernst & Young LLP of the non-audit services described above is compatible with maintaining the auditors’ independence.

 

Audit Committee Pre-Approval Policies and Procedures

 

The audit committee has adopted policies and procedures requiring the pre-approval of all audit and non-audit services rendered by our independent auditors, either as part of the audit committee’s approval of the scope of the engagement of the independent auditors or on a case-by-case basis before the independent auditors are engaged to provide each service.  The audit committee’s pre-approval authority may be delegated to one or more of its members, but any pre-approval decision must be reported to the full audit committee at its next regularly scheduled meeting.

 

Audit Committee Report

 

The role of the audit committee is to assist the board of directors in its oversight of our financial reporting process.  The audit committee reviews our internal accounting procedures and consults with, and reviews the services provided by, our independent auditors.

 

The management of our company is responsible for the preparation, presentation and integrity of our financial statements, our accounting and financial reporting principles and internal controls and procedures designed to assure compliance with the accounting standards and applicable laws and regulations.  Our independent auditors are responsible for auditing our financial statements and expressing an opinion as to their conformity with generally accepted accounting principles.

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In the performance of its oversight function, the audit committee has reviewed and discussed the audited financial statements with management.  The committee has also discussed with our independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as currently in effect.  Finally, the committee has received the written disclosures and the letter from our independent auditors required by the applicable requirements of the Public Company Accounting Oversight Board regarding our independent auditors’ communications with the audit committee concerning independence, as currently in effect, and has discussed with our independent auditors their independence.

 

Based upon the review and discussions described in this report, and subject to the limitations on the role and responsibilities of the audit committee referred to in the audit committee charter, the audit committee recommended to the board of directors that the audited financial statements be included in our annual report on Form 10-K for the year ended December 31, 2009.

 

Audit Committee

 

Samuel L. Barker, Ph.D. (Chairman)

Frank P. Palantoni

Judith L. Swain, M.D.

The foregoing audit committee report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this compensation committee report by reference, and shall not otherwise be deemed filed under such acts.

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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table presents information regarding the beneficial ownership of our common stock as of March 1, 2010 by:

 

·

each of the individuals listed in “Executive and Director Compensation — Summary Compensation Table for 2009”;

 

·

each of our directors;

 

·

each person, or group of affiliated persons, who is known by us to own beneficially five percent or more of our common stock; and

 

·

all current directors and executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission computing the number of shares beneficially owned by a person and the percentage ownership of that person.  Shares of common stock under options held by that person that are currently exercisable or exercisable within 60 days of March 1, 2010 are considered outstanding.  These shares, however, are not considered outstanding when computing the percentage ownership of each other person.

 

Except as indicated in the footnotes to this table and pursuant to state community property laws, each stockholder named in the table has sole voting and investment power for the shares shown as beneficially owned by them. Percentage of ownership is based on 175,633,988 shares of common stock outstanding on March 1, 2010.  Unless otherwise indicated in the footnotes, the address of each of the individuals named below is: c/o Lexicon Pharmaceuticals, Inc., 8800 Technology Forest Place, The Woodlands, Texas 77381.

 

		Beneficial Ownership
		Number of Shares Beneficially Owned				Shares Issuable Pursuant to Options Exercisable within 60 Days of March 1, 2010				Percentage Ownership
Invus, L.P., Invus Public Equities, L.P. and related parties (1)			70,840,291			─					40.3	%
T. Rowe Price Associates, Inc. (2)			8,956,000			─					5.1	%
Royce & Associates, LLC (3)			8,950,777			─					5.1	%
Arthur T. Sands, M.D., Ph.D. (4)			1,635,016				1,891,789				2.0	%
Alan J. Main, Ph.D.			31,562				816,332				*
Jeffrey L. Wade, J.D.			34,562				721,752				*
Brian P. Zambrowicz, Ph.D.			140,489				990,784				*
James F. Tessmer			18,679				162,368				*
Ajay Bansal		─				─					*
Samuel L. Barker, Ph.D.			66,000				154,000				*
Philippe J. Amouyal		─					36,000				*
Raymond Debbane (5)			70,840,291				36,000				40.3	%
Robert J. Lefkowitz, M.D.		─					98,000				*
Alan S. Nies, M.D.			5,000				88,500				*
Frank P. Palantoni		─					70,000				*
Christopher J. Sobecki			1,000				36,000				*
Judith L. Swain, M.D.		─					35,500				*
All directors and executive officers as a group (4)(5) (15 persons)			72,799,905				5,422,152				43.2	%

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* Represents beneficial ownership of less than 1 percent.

 

(1)

Based upon a Schedule 13D/A filed with the SEC on October 15, 2009, reflecting the beneficial ownership of our common stock by Invus, L.P., Invus Public Equities, L.P. and related parties.  Invus, L.P. and related parties may be deemed to have sole investment and voting power with respect to 66,949,183 of such shares and shared voting power with respect to 3,891,108 of such shares.  Invus Public Equities, L.P. and related parties may be deemed to have sole investment and shared voting power with respect to 3,891,108 of such shares.  All of such shares are subject to certain voting restrictions pursuant to our stockholders’ agreement with Invus, L.P. described under the heading “Transactions with Related Persons — Arrangements with Invus.”  The address for Invus, L.P., Invus Public Equities, L.P. and all related parties is 750 Lexington Avenue, 30th Floor, New York, New York 10022.

 

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(2)

Based upon a Schedule 13G filed with the SEC on February 11, 2010, reflecting the beneficial ownership of our common stock by T. Rowe Price Associates, Inc.  These securities are owned by various individual and institutional investors for which T. Rowe Price Associates, Inc. serves as investment adviser with sole investment power with respect to all such shares and sole voting power with respect to 2,139,300 of such shares.  T. Rowe Price Associates, Inc. disclaims beneficial ownership of these shares.  The address for T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.

 

(3)	Based upon a Schedule 13G/A filed with the SEC on January 25, 2010, reflecting the beneficial ownership of our common stock by Royce & Associates, LLC.  The address for Royce & Associates, LLC is 745 Fifth Avenue, New York, New York 10151.

 

(4)

The number of shares beneficially owned by Dr. Sands includes 60,000 shares held in the name of minor children and 817,500 shares owned by Sands Associates LP.  The general partners of Sands Associates LP are ATS Associates, L.L.C., owned by Dr. Sands, and MES Associates, L.L.C., owned by Dr. Sands’ wife.

 

(5)

Based upon a Schedule 13D/A filed with the SEC on October 15, 2009, reflecting the beneficial ownership by Mr. Debbane of the shares of our common stock beneficially owned by Invus, L.P., Invus Public Equities, L.P. and related parties.  Mr. Debbane disclaims beneficial ownership of these shares.  The address for Mr. Debbane is c/o Ulys, L.L.C., 750 Lexington Avenue, 30th Floor, New York, New York 10022.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common stock, to file initial reports of ownership and reports of changes in ownership of our common stock with the Securities and Exchange Commission.  Directors, executive officers and greater than 10% stockholders are required by Securities and Exchange Commission regulations to furnish us with copies of all such forms that they file.

 

To our knowledge, based solely on our review of the copies of such reports received by us and on written representations by certain reporting persons that no reports on Form 5 were required, we believe that during the fiscal year ended December 31, 2009, all Section 16(a) filing requirements applicable to our executive officers, directors and 10% stockholders were complied with in a timely manner.

 

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table presents aggregate summary information as of December 31, 2009 regarding the common stock that may be issued upon exercise of options, warrants and rights under all of our existing equity compensation plans, including our Equity Incentive Plan, Non-Employee Directors’ Stock Option Plan and Coelacanth Corporation 1999 Stock Option Plan.

 

		(a)				(b)				(c)
Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted average exercise price per share of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (1)			17,343,448			$	4.1561				14,005,665
Equity compensation plans not approved by security holders (2)			2,225				4.1692				—
Total			17,345,673			$	4.1561				14,005,665

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(1)	Consists of shares of our common stock issuable upon the exercise of outstanding options granted under our Equity Incentive Plan and Non-Employee Directors’ Stock Option Plan or remaining available for issuance under those plans.

 

(2)

Consists of shares of our common stock issuable upon the exercise of options granted under the Coelacanth Corporation 1999 Stock Option Plan, which we assumed in connection with our July 2001 acquisition of Coelacanth Corporation.  See the information appearing under the heading entitled “Coelacanth Corporation 1999 Stock Option Plan” in footnote 14 to our consolidated financial statements included as part of our Annual Report on Form 10-K for the year ended December 31, 2009.

 

 

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CORPORATE GOVERNANCE

 

Independence of the Board of Directors

 

After reviewing all relevant transactions and relationships involving each member of the board of directors (and his or her family), the board of directors has affirmatively determined that Samuel L. Barker, Ph.D., Philippe J. Amouyal, Raymond Debbane, Robert J. Lefkowitz, M.D., Alan S. Nies, M.D., Frank P. Palantoni, Christopher J. Sobecki and Judith L. Swain, M.D., which members constitute a majority of the board of directors, are “independent” in accordance with the applicable listing standards of The Nasdaq Stock Market, Inc.  The board of directors also determined that Kathleen M. Wiltsey, who resigned from our board of directors effective February 17, 2010, was “independent” in accordance with the applicable listing standards of The Nasdaq Stock Market, Inc. during her service as director.

 

In making such determinations, the board of directors considered our consulting agreements with Robert J. Lefkowitz, M.D., under which Dr. Lefkowitz serves as a consultant to us on matters relating to our drug discovery and development efforts, and with Alan S. Nies, M.D., under which Dr. Nies serves as chairman of our medical advisory board.

 

Board Committees

 

Audit Committee.  Our audit committee has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 and monitors the integrity of our financial statements, reviews our internal accounting procedures and oversees the qualifications, independence and performance of our independent auditors.  The audit committee operates pursuant to a charter that was last amended and restated by the board of directors on October 26, 2005, a copy of which appears on our website at www.lexpharma.com under the caption “Investors — Corporate Governance.”

 

The current members of our audit committee are Samuel L. Barker, Ph.D. (chair), Frank P. Palantoni and Judith L. Swain, M.D.  The board of directors, in its business judgment, has determined that Dr. Barker, Mr. Palantoni and Dr. Swain are “independent” in accordance with the applicable listing standards of The Nasdaq Stock Market, Inc.  The board of directors, in its business judgment, has also determined that Samuel L. Barker, Ph.D. is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.

 

Compensation Committee.  Our compensation committee evaluates the performance of management, determines the compensation of our executive officers and reviews general policy relating to compensation and benefits of our employees.  The compensation committee also administers the issuance of stock options and other awards under our Equity Incentive Plan.  The compensation committee operates pursuant to a charter that was approved by the board of directors on February 11, 2004, a copy of which appears on our website at www.lexpharma.com under the caption “Investors — Corporate Governance.”

 

The compensation committee may delegate any of its authority to subcommittees consisting of one or more compensation committee members, with all subcommittee decisions being presented to the full compensation committee at its next scheduled meeting.  The compensation committee did not delegate any such authority with respect to 2009 compensation matters.  The compensation committee may retain compensation consultants or other advisors to assist in its evaluation of executive compensation.  Although the compensation committee has engaged consultants to advise the committee on matters relating to executive compensation in prior years, the compensation committee did not engage any consultants with respect to 2009 compensation matters.

 

The compensation committee meets in connection with most regularly scheduled meetings of the board of directors, and on at least two occasions after the commencement of each year specifically devoted to making compensation decisions regarding the year just ended.  In preparation for such decisions, our president and chief executive officer reviews the performance of executive officers other than himself and, in consultation with the compensation committee and at its direction, makes certain recommendations to the compensation committee relating to their compensation.  The compensation committee reviews such recommendations and makes changes to such recommendations as it deems appropriate.  All executive compensation determinations are made by the compensation committee in the absence of management.

 

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The current members of our compensation committee are Mr. Palantoni (chair), Philippe J. Amouyal and Alan S. Nies, M.D.  The board of directors, in its business judgment, has determined that Mr. Palantoni, Mr. Amouyal and Dr. Nies are “independent” in accordance with the applicable listing standards of The Nasdaq Stock Market, Inc.  In making such determinations, the board of directors considered our consulting agreement with Dr. Nies described under the heading “Corporate Governance — Independence of the Board of Directors.”

 

Corporate Governance Committee.  Our corporate governance committee identifies individuals qualified to become members of our board of directors, selects candidates or nominees for director positions to be filled by the board of directors or our stockholders and develops appropriate corporate governance principles.  The corporate governance committee operates pursuant to a charter that was approved by the board of directors on February 11, 2004, a copy of which appears on our website at www.lexpharma.com under the caption “Investors — Corporate Governance.”

 

The corporate governance committee has not established any specific minimum qualifications for membership on our board of directors.  Rather, the committee will generally consider all relevant factors, which may include independence, experience, diversity, leadership qualities and strength of character.  As the corporate governance committee does not uniquely consider diversity relative to the other factors, the committee has not established a policy with regard to the consideration of diversity in identifying potential director candidates.  The corporate governance committee uses its available network of contacts when compiling a list of potential director candidates and may also engage outside consultants when appropriate.  The committee also considers potential director candidates recommended by stockholders and other parties and all potential director candidates are evaluated based on the above criteria.  Because the corporate governance committee makes no distinction in its evaluation of candidates based on whether such candidates are recommended by stockholders or other parties, no formal policy or procedure has been established for the consideration of director candidates recommended by stockholders.

 

Any stockholder wishing to propose a potential director candidate may submit a recommendation in writing within the time frame specified in our bylaws.  All such communications should be sent to 8800 Technology Forest Place, The Woodlands, Texas 77381, Attn:  Corporate Governance Committee.  Submissions should include the full name of the proposed candidate and a detailed description of the candidate’s qualifications, business experience and other relevant biographical information.

 

The current members of our corporate governance committee are Raymond Debbane (chair), Robert J. Lefkowitz, M.D. and Judith L. Swain, M.D.  The board of directors, in its business judgment, has determined that Mr. Debbane, Dr. Lefkowitz and Dr. Swain are “independent” in accordance with the applicable listing standards of The Nasdaq Stock Market, Inc.  In making such determinations, the board of directors considered our consulting agreement with Dr. Lefkowitz described under the heading “Corporate Governance — Independence of the Board of Directors.”

 

Board Leadership Structure and Role in Risk Oversight

 

The current leadership structure of our board of directors reflects a separation of the roles of chairman and principal executive officer.  This leadership structure is intended to provide our board of directors with an appropriate level of independence from management and encourage a high degree of autonomy within our board of directors.

 

Our board of directors administers its risk oversight responsibilities by evaluating the material risks, including operational risks and liquidity risks, facing our company or inherent in our corporate strategy.  This is accomplished through regular discussions with management and by reference to the independent understanding and knowledge of many such risks possessed by members of our board of directors.  Our board of directors regularly reviews the viability and prudence of our corporate strategy in light of the evolving nature of such risks and makes adjustments to that strategy when appropriate.  Our board of directors oversees management’s implementation of our corporate strategy, remains alert for excessive risk-taking in such implementation and provides timely input to management regarding any critical risk issues.  The efforts of our board of directors to oversee any risks relating to our financial reporting or internal accounting procedures are supplemented by the regular interactions of our audit committee with the individuals with day-to-day responsibilities for such functions.

 

Board and Committee Meetings and Attendance in 2009

 

The board of directors met eight times in 2009 and took certain additional actions by unanimous written consent. The audit committee and compensation committee each met five times in 2009 and took certain additional actions by unanimous written consent.  The corporate governance committee met one time in 2009.  During 2009, none of our directors attended fewer than 75 percent of the aggregate number of meetings of the board of directors and committees during the period served.

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It is our policy to encourage the members of our board of directors to attend all annual meetings of stockholders.  Seven members of our board of directors attended our 2009 annual meeting of stockholders.

 

Code of Business Conduct and Ethics

 

We have adopted a code of business conduct and ethics that applies to all of our directors, officers and employees, the text of which appears on our website at www.lexpharma.com under the caption “Investors — Corporate Governance.”  We intend to disclose on our website the nature of any amendment to or waiver from our code of business conduct and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions within four business days following the date of such amendment or waiver.  In the case of any such waiver, including an implicit waiver, we also intend to disclose the name of the person to whom the waiver was granted and the date of the waiver.  To date, we have not granted any waivers under our code of business conduct and ethics.

 

Corporate Governance Guidelines

 

We have adopted corporate governance guidelines, including, among other things, guidelines with respect to the structure of our board of directors, director selection and qualifications, and non-employee director compensation.  The text of our corporate governance guidelines appears on our website at www.lexpharma.com under the caption “Investors — Corporate Governance.”

 

Stockholder Communications with the Board of Directors

 

We believe that our stockholders are currently provided a reasonable means to communicate with our board of directors and individual directors.  As a result, our board of directors has not established a formal process for stockholders to send communications to the board of directors or individual directors.  However, the corporate governance committee will consider, from time to time, whether adoption of a formal process for such stockholder communications has become necessary or appropriate.  Stockholders may send communications to the board of directors or individual directors by mail at 8800 Technology Forest Place, The Woodlands, Texas 77381, Attn: Board of Directors or any individual director.

 

Compensation Committee Interlocks and Insider Participation

 

During 2009, Frank P. Palantoni, Philippe J. Amouyal and Alan S. Nies, M.D. served as members of the compensation committee of our board of directors.  Mr. Amouyal is a designee of Invus, L.P. pursuant to our stockholders’ agreement with Invus described under the heading “Transactions with Related Persons — Arrangements with Invus.”  During 2009, none of our executive officers served as a member of the board of directors or compensation committee of another entity, one of whose executive officers served as a member of our board of directors or compensation committee.

 

 

TRANSACTIONS WITH RELATED PERSONS

 

Arrangements with Invus

 

In June 2007, we entered into a securities purchase agreement with Invus, L.P., under which Invus made an initial investment of $205.4 million to purchase 50,824,986 shares of our common stock in August 2007.  Under the securities purchase agreement, as amended and supplemented, Invus has the right to require us to initiate up to two pro rata rights offerings to our stockholders, which would provide all stockholders with non-transferable rights to acquire shares of our common stock, in an aggregate amount of up to $344.5 million, less the net proceeds to us from our March 2010 public offering and concurrent private placement of our common stock, which we currently estimate to be approximately $165.0 million, and the proceeds of any “qualified offerings” that we may complete in the interim involving the sale of our common stock at prices above $4.50 per share.  We have not completed any such qualified offering.  Invus may exercise its right to require us to conduct the first rights offering by giving us notice within a period of fifteen months beginning on November 28, 2009 (which we refer to as the first rights offering trigger date).  Invus may exercise its right to require us to conduct a second rights offering by giving us notice within a period of one year beginning on the date that is 90 days after Invus’ exercise of its right to require us to conduct the first rights offering or, if Invus does not exercise its right to require us to conduct the first rights offering, within a period of one year beginning fifteen months after the first rights offering trigger date.  If Invus elects to exercise its right to require us to initiate a rights offering, Invus would be required to purchase its pro rata portion of the offering.

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Under the securities purchase agreement, until the later of the completion of the second rights offering or the expiration of the period following the second rights offering trigger date during which Invus may require us to initiate the second rights offering, we have agreed not to issue any of our common stock for a per share price of less than $4.50 without the prior written consent of Invus, except pursuant to an employee or director stock option, incentive compensation or similar plan or to persons involved in the pharmaceutical industry in connection with simultaneous strategic transactions involving such persons in the ordinary course.  In addition, if we notify Invus of a proposed public offering for an offering above $4.50 per share during the period in which Invus may initiate a rights offering, Invus will have a period of 10 business days in which to exercise its right to require us to conduct a rights offering, in which case we would be required to forego the proposed public offering and proceed with the rights offering.

 

Board of Directors.  Concurrently with the execution of the securities purchase agreement, we entered into a stockholders’ agreement with Invus under which Invus has the right to designate the greater of three members or 30% (or the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates, if less than 30%) of all members of our board of directors, rounded up to the nearest whole number of directors, and pursuant to which Invus has designated Philippe J. Amouyal, Raymond Debbane and Christopher J. Sobecki.  Mr. Debbane is president and chief executive officer of The Invus Group, LLC, an affiliate of Invus, and Mr. Amouyal and Mr. Sobecki are each managing directors of The Invus Group, LLC.

 

In the event that the number of shares of our common stock owned by Invus and its affiliates ever exceeds 50% of the total number of shares of our common stock then outstanding (not counting for such purpose any shares acquired by Invus from third parties in excess of 40% (or, if higher, its then pro rata amount) of the total number of outstanding shares of common stock, as permitted by the standstill provisions of the stockholders’ agreement), from and after that time, Invus will have the right to designate a number of directors equal to the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates (not counting for such purpose any shares acquired by Invus from third parties in excess of 40% (or, if higher, its then pro rata amount) of the total number of outstanding shares of common stock, as permitted by the standstill provisions of the stockholders’ agreement), rounded up to the nearest whole number of directors.  The directors appointed by Invus have proportionate representation on the compensation committee and corporate governance committee of our board of directors.

 

Invus’ rights with respect to the designation of members of our board of directors and its compensation and corporate governance committees will terminate if the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates falls below 10%.  Invus will also have the right to terminate these provisions at any time following the date on which the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates exceeds 50% (not counting for such purpose any shares acquired by Invus and its affiliates from third parties in excess of 40% (or, if higher, its then pro rata amount) of the total number of outstanding shares of our common stock, as permitted by the standstill provisions of the stockholders’ agreement).