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[LEXICON
PHARMACEUTICALS, INC. LETTERHEAD]
December
23, 2009
Securities
and Exchange Commission
Division
of Corporate Finance
100 F
Street, N.E.
Washington,
D.C. 20549
Attention: Ms.
Nandini Acharya
Re: Lexicon
Pharmaceuticals, Inc.
Form 10-K for the year ended December
31, 2008
Filed March 6, 2009
File No. 000-30111
DEF 14A
Filed March 13, 2009
File No. 000-30111
Dear Ms.
Acharya:
On behalf
of Lexicon Pharmaceuticals, Inc., we submit the following responses to the
comments received on November 30, 2009 from the Securities and Exchange
Commission’s staff with respect to Lexicon’s annual report on Form 10-K for the
year ended December 31, 2008 and definitive proxy statement for Lexicon’s 2009
annual meeting. Your comments and our responses to those comments are
set forth below.
Form
10-K
Item 1.
Business
Drug Discovery and
Development Collaborations, page 5
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1.
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With
respect to each drug discovery and collaboration agreement referenced in
this section, please disclose the upfront payments and research funding
received to date, the aggregate potential milestone payments and the
potential range of royalty payments (for example, “low-teens” or
“high-teens”). We note that you have included some information
regarding the upfront payments and research funding amounts with respect
to these agreements in the notes to the financial statements but this is
material information which should be consolidated in the Business
section.
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Response:
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In
future filings beginning in the Form 10-K for the year ended December 31,
2010, we propose to disclose in the Business section under the subheading
“Drug Discovery and Development Collaborations” the following information
regarding upfront payments and research funding received to date and
aggregate potential milestone
payments:
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Bristol-Myers Squibb
Corporation. We have received $86 million in upfront payments
and research funding under the agreement. In addition, we are
entitled to receive clinical and regulatory milestone payments ranging,
depending on the timing and extent of our efforts in the alliance, up to $76
million for each drug developed by Bristol-Myers Squibb under the
alliance. We will also earn royalties on sales of drugs
commercialized by Bristol-Myers Squibb under the alliance.
Genentech, Inc. We
have received $58 million in upfront payments, research funding and research
milestone payments under the agreement. In addition, we are entitled
to receive clinical and regulatory milestone payments ranging, depending on the
extent of our efforts in the alliance, up to $25 million for each drug target
for which Genentech develops a biotherapeutic drug under the
alliance. We will also earn royalties on sales of biotherapeutic
drugs commercialized by Genentech under the alliance.
N.V. Organon. We
have received $52.5 million in upfront payments and research funding under the
agreement.
Takeda Pharmaceutical Company
Limited. We have received $18.5 million in upfront payments
and research milestone payments under the agreement. In addition, we
are entitled to receive clinical development and product launch milestone
payments of up to $29 million for each drug developed by Takeda under the
alliance. We will also earn royalties on sales of drugs
commercialized by Takeda under the alliance.
We
believe that the potential ranges of royalty payments under each of these
agreements are not material to investors due to the uncertain and remote nature
of any such payments. Each of the drug discovery and development
programs being pursued under each of these alliances remain in early-stage
research, with none having yet entered human clinical trials and no assurance of
ever reaching that stage. Even after a drug candidate enters clinical
development, human clinical trials are inherently risky and time-consuming, with
a high degree of uncertainty as to the safety and efficacy of a potential drug
product and the ultimate approval of such drug product by regulatory
authorities. As a result, any royalties payable under these
agreements are highly uncertain in nature and will only occur, if at all, many
years in the future.
In this
regard, we also note that we are engaged in drug discovery and development
programs outside of these alliances that are at a substantially more advanced
stage of development, with four drug candidates presently in Phase 2 clinical
development and other drug candidates in preclinical development in preparation
for making regulatory filings to permit the initiation of human clinical
trials.
Finally,
consistent with our requests for confidential treatment of royalty rate
information in each of the agreements in question (all of which requests have
been granted by the staff), we believe that any value to investors from the
disclosure of potential ranges of royalty payments is significantly outweighed
by the competitive disadvantage we and our collaborators would suffer as a
result. Among other things, the disclosure of potential ranges of
royalty payments would place us at a disadvantage in negotiating with potential
future collaborators and could negatively affect our relationships and good will
with existing collaborators.
At your
request, we are submitting the royalty rates applicable to each of these
agreements under separate cover pursuant to Rule 83 under the Freedom of
Information Act.
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Patents and Proprietary
Rights, page 9
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2.
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Please
revise your disclosure to include a discussion of all material patents or
groups of patents and indicate whether such patents are held directly by
you or licensed from a third party. For each material patent,
the disclosure should include a discussion of the technologies that relate
to such patent, the jurisdiction in which the patent is granted and the
expiration date.
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Response:
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In
future filings beginning in the Form 10-K for the year ended December 31,
2010, we propose to disclose in the Business section under the subheading
“Patents and Proprietary Rights” the following information regarding
presently issued and pending patents relating to our development-stage
drug candidates:
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We own
patent applications, and in some cases issued patents, covering each of our drug
candidates in clinical and preclinical development, including:
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§
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patent
applications pending worldwide that claim LX1031 and associated
crystalline forms, pharmaceutical compositions, and methods of manufacture
and use, which we have exclusively licensed to Symphony Icon pursuant to
our product development collaboration with Symphony
Icon.
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patent
applications pending worldwide that claim LX1032 and associated
crystalline forms, pharmaceutical compositions, and methods of manufacture
and use, from which one U.S. patent has issued to date, which we have
exclusively licensed to Symphony Icon pursuant to our product development
collaboration with Symphony Icon.
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§
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patent
applications pending worldwide that claim LX2931 and associated
crystalline forms, pharmaceutical compositions, and methods of manufacture
and use, from which one U.S. patent has issued to
date.
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§
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patent
applications pending worldwide that claim LX4211 and associated
crystalline forms, pharmaceutical compositions, and methods of manufacture
and use.
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§
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patent
applications pending worldwide that claim LX7101 and associated
pharmaceutical compositions, and methods of manufacture and
use.
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Patents
extend for varying periods according to the date of patent filing or grant and
the legal term of patents in the various countries where patent protection is
obtained. The actual protection afforded by a patent, which can vary from
country to country, depends on the type of patent, the scope of its coverage and
the availability of legal remedies in the country. We have filed
patent applications and, in some cases, hold issued patents covering each of our
drug candidates in clinical and preclinical development. While the
patents issued under such applications have or will have a variety of expiration
dates, depending on, among other things, the date of filing and possible patent
term extension, no U.S. patent that has issued or may issue based on a patent
application we have filed relating to one of our drug candidates in clinical or
preclinical development has a normal expiration date earlier than
2026.
3
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3.
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We
note that you license your principal gene targeting technologies from
GenPharm International, Inc. We further note the disclosure on
page 28 of your filing indicating that there is a dispute with the
University of Utah Research Foundation regarding your payment of royalties
under this agreement. Please revise your disclosure to include
the material terms of the licensing agreement with GenPharm International,
Inc. and file the agreement as an exhibit or provide us with an analysis
setting forth your determination that this agreement is not material to
your business.
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Response:
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We
determined that our license agreement with GenPharm is not material to our
business based on, among other considerations, the facts that (a) we have
alternative technologies that enable the generation of knockout mice
(e.g., our proprietary gene trapping technologies) that do not require use
of the patented technology and (b) our financial obligations under the
agreement are not material. The gene targeting technologies licensed from
GenPharm have minimal application relative to our current drug discovery
activities, and no implications for any of our drug candidates in clinical
or preclinical development. We are no longer using the
technologies that originated with the University of Utah Research
Foundation and were the subject of the referenced dispute. The
dispute itself was settled in September
2009.
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DEF 14A
Executive and Director
Compensation
Compensation Discussion and
Analysis, page 24
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4.
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We
note your disclosure that payment of cash bonuses is determined by taking
into account both pre-determined corporate and individual
goals. While you have disclosed the corporate goals, whether or
not those goals were achieved and how the achievement was tied to the
level of bonus paid, you have not provided similar disclosure with respect
to individual goals. Accordingly, please provide us with sample
disclosure for inclusion in your next annual report or proxy statement
which sets forth the individual goals for each executive officer, whether
such goals were achieved and how the achievement of such goals was tied to
the amount of bonus paid.
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Response:
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In
our next annual report or proxy statement, we propose to include the
following additional disclosure with respect to individual
goals:
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For
executive officers other than Dr. Sands, our president and chief executive
officer, the compensation committee also took into account individual goals,
which consisted principally of the expected individual contributions of each
executive officer towards the achievement of the year’s corporate goals,
together with Dr. Sands’ and the committee’s independent assessment of each
executive officer’s overall performance and contributions to the company during
the year. Dr. Sands had no individual goals in [2009] apart from the
corporate goals.
The
committee’s determinations for Dr. Sands were based entirely upon its
determination of achievement of the year’s corporate goals. For other executive
officers, the compensation committee based its determinations principally upon
its determination of achievement of the year’s corporate goals, but also took
into account, to a lesser extent, each executive officer’s individual
contributions towards the achievement of such corporate goals, together with Dr.
Sands’ and the committee’s independent assessment of each executive officer’s
overall performance and contributions to the company during the
year.
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As
requested by the staff, we are providing the following
acknowledgements:
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we
are responsible for the adequacy and accuracy of the disclosure in the
foregoing filings;
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staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to such
filings; and
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we
may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under federal securities laws of the United
States.
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Please do
not hesitate to contact the undersigned at (281) 863-3321 with any comments or
questions concerning this letter or the above-referenced filings.
Very
truly yours,
/s/
Jeffrey L. Wade
Jeffrey
L. Wade
Executive
Vice President and
General
Counsel
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