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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(MARK ONE)

  [X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

                                       OR

  [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM _____________ TO _____________

                        COMMISSION FILE NUMBER: 000-30111

                          LEXICON GENETICS INCORPORATED

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                                      76-0474169
     (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)

                          8800 TECHNOLOGY FOREST PLACE
                           THE WOODLANDS, TEXAS 77381
                         (ADDRESS OF PRINCIPAL EXECUTIVE
                              OFFICES AND ZIP CODE)
                                 (281) 863-3000
                         (REGISTRANT'S TELEPHONE NUMBER,
                              INCLUDING AREA CODE)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

         As of April 28, 2004, 63,337,622 shares of the registrant's common
stock, par value $0.001 per share, were outstanding.

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                          LEXICON GENETICS INCORPORATED

                                TABLE OF CONTENTS

                                                                                                               PAGE
                                                                                                               ----
                                                                                                            
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS.................................................................    2

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
         Consolidated Balance Sheets - March 31, 2004 (unaudited) and December 31, 2003......................    3
         Consolidated Statements of Operations (unaudited) - Three Months Ended
              March 31, 2004 and 2003........................................................................    4
         Consolidated Statements of Cash Flows (unaudited) - Three Months Ended
              March 31, 2004 and 2003........................................................................    5
         Notes to Consolidated Financial Statements (unaudited)..............................................    6
Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations...............................................................................    9
Item 3.  Quantitative and Qualitative Disclosures About Market Risk..........................................   17
Item 4.  Controls and Procedures.............................................................................   17
PART II - OTHER INFORMATION
Item 6.  Exhibits and Reports on Form 8-K....................................................................   17
SIGNATURES...................................................................................................   19

         The Lexicon name and logo, LexVision(R) and OmniBank(R) are registered
trademarks and Genome5000(TM) and e-Biology(TM) are trademarks of Lexicon
Genetics Incorporated.

                  FACTORS AFFECTING FORWARD LOOKING STATEMENTS

         This quarterly report on Form 10-Q contains forward-looking statements.
These statements relate to future events or our future financial performance. We
have attempted to identify forward-looking statements by terminology including
"anticipate," "believe," "can," "continue," "could," "estimate," "expect,"
"intend," "may," "plan," "potential," "predict," "should" or "will" or the
negative of these terms or other comparable terminology. These statements are
only predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors," that
may cause our or our industry's actual results, levels of activity, performance
or achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by these
forward-looking statements.

         Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are not under any duty to
update any of the forward-looking statements after the date of this quarterly
report on Form 10-Q to conform these statements to actual results, unless
required by law.

                                       2

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          LEXICON GENETICS INCORPORATED

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT PAR VALUE)

                                                                              AS OF MARCH 31,        AS OF DECEMBER 31,
                                                                                    2004                    2003
                                                                              ----------------       ------------------
                                                                                (UNAUDITED)
                                                                                               
                               ASSETS

Current assets:
    Cash and cash equivalents............................................     $         51,192        $          81,915
    Restricted cash......................................................               56,963                   56,963
    Short-term investments, including restricted investments of
       $551 in 2004 and 2003 ............................................               37,270                   22,123
    Accounts receivable, net of allowance for doubtful accounts
       of $109 for 2004 and 2003.........................................                3,181                    6,571
    Prepaid expenses and other current assets............................                3,444                    3,933
                                                                              ----------------        -----------------
       Total current assets..............................................              152,050                  171,505
Property and equipment, net of accumulated depreciation
    of $34,732 and $31,941, respectively.................................               82,146                   83,676
Goodwill.................................................................               25,798                   25,798
Intangible assets, net of amortization of $3,260 and $2,960, respectively                2,740                    3,040
Other assets.............................................................                  202                      180
                                                                              ----------------        -----------------
       Total assets......................................................     $        262,936        $         284,199
                                                                              ================        =================

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable.....................................................     $          3,820        $           5,884
    Accrued liabilities..................................................                3,811                    4,757
    Current portion of deferred revenue..................................               19,896                   21,125
                                                                              ----------------        -----------------
       Total current liabilities.........................................               27,527                   31,766
Deferred revenue, net of current portion.................................               22,857                   26,567
Long-term debt...........................................................               56,344                   56,344
Other long-term liabilities..............................................                3,426                    3,306
                                                                              ----------------        -----------------
       Total liabilities.................................................              110,154                  117,983

Commitments and contingencies

Stockholders' equity:
    Preferred stock, $.01 par value; 5,000 shares authorized;
       no shares issued and outstanding..................................                  --                       --
    Common stock, $.001 par value; 120,000 shares authorized;
       63,326 and 62,827 shares issued and outstanding...................                   63                       63
    Additional paid-in capital...........................................              382,189                  380,995
    Deferred stock compensation..........................................                  (61)                    (899)
    Accumulated deficit..................................................             (229,409)                (213,943)
                                                                              ----------------        -----------------
       Total stockholders' equity........................................              152,782                  166,216
                                                                              ----------------        -----------------
       Total liabilities and stockholders' equity........................     $        262,936        $         284,199
                                                                              ================        =================

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

                                       3

                          LEXICON GENETICS INCORPORATED

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

                                                                   THREE MONTHS ENDED MARCH 31,
                                                                 --------------------------------
                                                                     2004               2003
                                                                 -------------      -------------
                                                                              
Revenues:
   Subscription and license fees..............................   $       3,548      $       3,102
   Collaborative research.....................................           8,294              4,993
   Compound libraries and other...............................              --                 11
                                                                 -------------      -------------
     Total revenues...........................................          11,842              8,106
Operating expenses:
   Research and development, including stock-based
     compensation of $419 and $1,270, respectively............          22,401             19,834
   General and administrative, including stock-based
     compensation of $411 and $1,276, respectively............           5,044              5,804
                                                                 -------------      -------------
       Total operating expenses...............................          27,445             25,638
                                                                 -------------      -------------
Loss from operations..........................................         (15,603)           (17,532)
Interest and other income.....................................             428                468
Interest expense..............................................            (291)               (81)
                                                                 --------------     -------------
Net loss......................................................   $     (15,466)     $     (17,145)
                                                                 =============      =============
Net loss per common share, basic and diluted..................   $       (0.25)     $       (0.33)
Shares used in computing net loss per common share,
   basic and diluted..........................................          63,065             52,371

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

                                       4

                          LEXICON GENETICS INCORPORATED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

                                                                               THREE MONTHS ENDED MARCH 31,
                                                                            ---------------------------------
                                                                                 2004                2003
                                                                            -------------       -------------
                                                                                          
Cash flows from operating activities:
   Net loss..............................................................   $     (15,466)      $     (17,145)
   Adjustments to reconcile net loss to net cash used in operating
   activities:
     Depreciation........................................................           2,821               2,535
     Amortization of intangible assets, other than goodwill..............             300                 300
     Amortization of deferred stock compensation.........................             830               2,547
     Changes in operating assets and liabilities:
       Decrease in accounts receivable...................................           3,390               1,334
       Decrease in prepaid expenses and other current assets.............             489                 303
       (Increase) decrease in other assets...............................             (22)                513
       Decrease in accounts payable and other liabilities................          (2,890)             (2,217)
       Decrease in deferred revenue......................................          (4,939)             (3,007)
                                                                            -------------       -------------
         Net cash used in operating activities...........................         (15,487)            (14,837)
Cash flows from investing activities:
   Purchases of property and equipment...................................          (1,291)               (689)
   Increase in restricted cash...........................................             --              (15,344)
   Purchases of investments..............................................         (18,983)            (15,386)
   Maturities of investments.............................................           3,836              46,054
                                                                            -------------       -------------
       Net cash (used in) provided by investing activities...............         (16,438)             14,635
Cash flows from financing activities:
   Proceeds from issuance of common stock................................           1,202                  17
                                                                            -------------       -------------
       Net cash provided by financing activities.........................           1,202                  17
                                                                            -------------       -------------
Net decrease in cash and cash equivalents................................         (30,723)               (185)
Cash and cash equivalents at beginning of period.........................          81,915              39,362
                                                                            -------------       -------------
Cash and cash equivalents at end of period...............................   $      51,192       $      39,177
                                                                            =============       =============

Supplemental disclosure of cash flow information:
   Cash paid for interest................................................   $         206       $           1
Supplemental disclosure of non-cash investing and financing activities:
   Deferred stock compensation, net of reversals.........................   $           7       $          52
   Retirement of property and equipment..................................   $          30       $          --

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

                                       5

                          LEXICON GENETICS INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements of Lexicon
Genetics Incorporated (Lexicon or the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.

         In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 2004 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2004.

         The accompanying consolidated financial statements include the accounts
of Lexicon and its subsidiary. Intercompany transactions and balances are
eliminated in consolidation.

         For further information, refer to the financial statements and
footnotes thereto included in Lexicon's annual report on Form 10-K for the year
ended December 31, 2003, as filed with the SEC.

2.       RESTRICTED CASH AND INVESTMENTS

         Lexicon is required to maintain restricted cash or investments to
collateralize borrowings made under the synthetic lease agreement under which it
leases its office and laboratory facilities in The Woodlands, Texas (see Note
5), as well as to collateralize standby letters of credit for the leases on its
office and laboratory facilities in East Windsor and Hopewell, New Jersey (see
Note 6). As of March 31, 2004 and December 31, 2003, the Company maintained
restricted cash and investments of $57.5 million under these agreements. The
Company refinanced the synthetic lease in April 2004 (See Note 7).

3.       NET LOSS PER SHARE

         Net loss per share is computed using the weighted average number of
shares of common stock outstanding during the applicable period. Shares
associated with stock options and warrants are not included because they are
antidilutive. There are no differences between basic and diluted net loss per
share for all periods presented.

4.       STOCK-BASED COMPENSATION

         Lexicon's stock-based compensation plans are accounted for under the
recognition and measurement provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees, and Related
Interpretations." Under the intrinsic value method described in APB Opinion No.
25, no compensation expense is recognized if the exercise price of the employee
stock option equals the market price of the underlying stock on the date of
grant. Lexicon recognized $0.8 million and $2.5 million of stock-based
compensation during the three-month periods ended March 31, 2004 and 2003,
respectively, which was primarily related to option grants made prior to
Lexicon's April 2000 initial public offering. The following table illustrates
the effect on net loss and net loss per share if the

                                       6

fair value recognition provisions of Financial Accounting Standards Board (FASB)
No. 123 "Accounting for Stock Based Compensation," had been applied to all
outstanding and unvested awards in each period:

                                                                 THREE MONTHS ENDED MARCH 31,
                                                               ---------------------------------
                                                                   2004                 2003
                                                               -------------       -------------
                                                                             
Net loss, as reported.....................................     $     (15,466)      $     (17,145)
Add: Stock-based employee compensation
   expense included in reported net loss..................               830               2,546
Deduct: Total stock-based employee compensation
   expense determined under fair value based method
   for all awards.........................................            (4,882)             (6,443)
                                                              --------------       -------------
Pro forma net loss........................................    $      (19,518)      $     (21,042)
                                                              ==============       =============

Net loss per common share, basic and diluted
   As reported............................................    $        (0.25)      $       (0.33)
                                                              ==============       =============
   Pro forma..............................................    $        (0.31)      $       (0.40)
                                                              ==============       =============

5.       DEBT OBLIGATIONS

         Genentech Loan: On December 31, 2002, Lexicon borrowed $4.0 million
under a note agreement with Genentech, Inc. The proceeds of the loan are to be
used to fund research efforts under the alliance agreement with Genentech. The
note matures on December 31, 2005, but the Company may prepay it at any time.
The Company may repay the note, at its option, in cash, in shares of common
stock valued at the then-current market price, or in a combination of cash and
shares, subject to certain limitations. The note accrues interest at an annual
rate of 8%, compounded quarterly. The note is subordinated in right of payment
to borrowings made under Lexicon's synthetic lease, which is discussed below.

         Synthetic Lease Obligation: In October 2000, Lexicon entered into a
synthetic lease agreement under which the lessor purchased the Company's
existing laboratory and office buildings and animal facility in The Woodlands,
Texas and agreed to fund the construction of additional facilities. Including
the purchase price for the Company's existing facilities, the synthetic lease,
as amended, provided funding of $54.8 million in property and improvements. The
term of the agreement is six years, which includes the construction period and a
lease period. Lease payments for the new facilities began upon completion of
construction, which occurred at the end of the first quarter of 2002. Lease
payments are subject to fluctuation based on LIBOR rates. At the end of the
lease term, the lease may be extended for one-year terms, up to seven additional
terms, or the Company may purchase the properties for a price equal to the $54.8
million funded under the synthetic lease for property and improvements plus the
amount of any accrued but unpaid lease payments. If the Company elects not to
renew the lease or purchase the properties, it may arrange for the sale of the
properties to a third party or surrender the properties to the lessor. If the
Company elects to arrange for the sale of the properties or surrender the
properties to the lessor, it has guaranteed approximately 86% of the total
original cost as the residual fair value of the properties. The Company is
required to maintain restricted cash or investments to collateralize borrowings
made under the synthetic lease agreement. In addition, Lexicon has agreed to
maintain cash and investments of at least $12.0 million in excess of the
Company's restricted cash and investments. If the Company's cash and investments
fall below that level, the Company may be required to seek a waiver of that
agreement or to purchase the properties or arrange for their sale to a third
party. Because the Company's cost to purchase the properties would not
materially exceed the $54.8 million funded under the synthetic lease for
property and improvements and would likely be less than the amount of restricted
cash and investments it is required to maintain under the synthetic lease, the
Company believes that any requirement that it do so would not have a material
adverse effect on its financial condition. As of March 31, 2004 and December 31,
2003, the Company maintained restricted cash and

                                        7

investments of $57.0 million to collateralize funding for property and
improvements under the synthetic lease of $54.8 million. Lexicon adopted
Financial Accounting Standards Board Interpretation No. 46, or FIN 46,
"Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51"
on December 31, 2003. Lexicon determined that the lessor under the synthetic
lease is a variable interest entity as defined by FIN 46, and that the Company
absorbs a majority of the variable interest entity's expected losses.
Accordingly, the Company consolidated the variable interest entity. Subsequent
to March 31, 2004, Lexicon purchased the facilities subject to the synthetic
lease as discussed in Note 7.

6.       COMMITMENTS AND CONTINGENCIES

         Lexicon's subsidiary leases a 76,000 square-foot laboratory and office
space in Hopewell, New Jersey under an agreement which expires in June 2013. The
lease provides for an escalating yearly rent payment of $1.3 million in the
first year, $2.1 million in years two and three, $2.2 million in years four to
six, $2.3 million in years seven to nine and $2.4 million in years ten and
eleven. Lexicon is the guarantor of the obligations of its subsidiary under the
lease. Lexicon's subsidiary leased a facility in East Windsor, New Jersey. The
lease agreement expired in January 2004. The Company is required to maintain
restricted investments to collateralize these leases. As of March 31, 2004, the
Company had $551,000 in restricted investments to collateralize standby letters
of credit for these leases.

7.       SUBSEQUENT EVENT

         In April 2004, Lexicon purchased its facilities in The Woodlands from
the lessor under the synthetic lease. In connection with such purchase, Lexicon
repaid the $54.8 million funded under the synthetic lease with proceeds from a
$34.0 million third-party mortgage financing and $20.8 million in cash. The
mortgage has a ten-year term with a 20-year amortization and bears interest at a
fixed rate of 8.23%. As a result of the refinancing, all restrictions on the
cash and investments that had secured the obligations under the synthetic lease
were lifted, leaving a total of $551,000 in restricted investments.

                                       8

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

         We are a biopharmaceutical company focused on the discovery of
breakthrough treatments for human disease. We are using gene knockout technology
to systematically discover the physiological functions of genes in living
mammals, or in vivo. We generate our gene function discoveries using knockout
mice - mice whose DNA has been altered to disrupt, or "knock out," the function
of the altered gene. Our patented gene trapping and gene targeting technologies
enable us to rapidly generate these knockout mice by altering the DNA of genes
in a special variety of mouse cells, called embryonic stem cells, which can be
cloned and used to generate mice with the altered gene. We employ an integrated
platform of advanced medical technologies to systematically discover and
validate which genes, when knocked out, result in a favorable medical profile
with pharmaceutical utility. We then pursue those genes and the proteins they
encode as potential targets for therapeutic intervention in our drug discovery
programs.

         We employ internal resources and drug discovery alliances to discover
potential small molecule drugs, therapeutic antibodies and therapeutic proteins
for in vivo-validated drug targets that we consider to have high pharmaceutical
value. We use our own sophisticated libraries of drug-like chemical compounds
and an industrialized medicinal chemistry platform to identify small molecule
drug candidates for our in vivo-validated drug targets. We have established
alliances with Bristol-Myers Squibb Company to discover and develop novel small
molecule drugs in the neuroscience field; Genentech, Inc. for the discovery of
therapeutic proteins and antibody targets; with Abgenix, Inc. for the discovery
and development of therapeutic antibodies based on our drug target discoveries;
and with Incyte Corporation for the discovery and development of therapeutic
proteins. In addition, we have established collaborations and license agreements
with many other leading pharmaceutical and biotechnology companies under which
we receive fees and, in many cases, are eligible to receive milestone and
royalty payments, for access to some of our technologies and discoveries for use
in their own drug discovery efforts.

         We derive substantially all of our revenues from drug discovery
alliances, subscriptions to our databases, target validation collaborations for
the development and, in some cases, analysis of the physiological effects of
genes altered in knockout mice, technology licenses and compound library sales.
To date, we have generated a substantial portion of our revenues from a limited
number of sources.

         Our operating results and, in particular, our ability to generate
additional revenues are dependent on many factors, including our success in
establishing research collaborations and technology licenses, expirations of our
research collaborations and database subscriptions, the success rate of our
discovery efforts leading to opportunities for new research collaborations and
licenses, as well as milestone payments and royalties, the timing and
willingness of collaborators to commercialize products which may result in
royalties, and general and industry-specific economic conditions which may
affect research and development expenditures. Our future revenues from
collaborations, alliances and database subscriptions are uncertain because our
existing agreements have fixed terms or relate to specific projects of limited
duration. Our future revenues from technology licenses are uncertain because
they depend, in large part, on securing new agreements. Subject to limited
exceptions, we do not intend to offer subscriptions to our databases or continue
to make our compound libraries available for purchase in the future. Our ability
to secure future revenue-generating agreements will depend upon our ability to
address the needs of our potential future collaborators and licensees, and to
negotiate agreements that we believe are in our long-term best interests. We may
determine that our interests are better served by retaining rights to our
discoveries and advancing our therapeutic programs to a later stage, which could
limit our near-term

                                       9

revenues. Because of these and other factors, our quarterly operating results
have fluctuated in the past and are likely to do so in the future, and we do not
believe that quarter-to-quarter comparisons of our operating results are a good
indication of our future performance.

         Since our inception, we have incurred significant losses and, as of
March 31, 2004, we had an accumulated deficit of $229.4 million. Our losses have
resulted principally from costs incurred in research and development, general
and administrative costs associated with our operations, and non-cash
stock-based compensation expenses associated with stock options granted to
employees and consultants prior to our April 2000 initial public offering.
Research and development expenses consist primarily of salaries and related
personnel costs, material costs, facility costs, depreciation on property and
equipment, legal expenses resulting from intellectual property prosecution and
other expenses related to our drug discovery and LexVision programs, the
development and analysis of knockout mice and our other target validation
research efforts, and the development of compound libraries. General and
administrative expenses consist primarily of salaries and related expenses for
executive, finance and other administrative personnel, professional fees and
other corporate expenses including business development and general legal
activities. In connection with the expansion of our drug discovery programs and
our target validation research efforts, we expect to incur increasing research
and development costs. As a result, we will need to generate significantly
higher revenues to achieve profitability.

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

         We recognize revenues when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed
and determinable, and collectibility is reasonably assured. Payments received in
advance under these arrangements are recorded as deferred revenue until earned.

         Fees for access to our databases and other target validation resources
are recognized ratably over the subscription or access period. Payments received
under target validation collaborations are recognized as revenue as we perform
our obligations related to such research to the extent such fees are
non-refundable. Non-refundable upfront fees and annual research funding under
our drug discovery alliances are recognized as revenue on a straight-line basis
over the estimated period of service, generally the contractual research term.
Milestone-based fees are recognized upon completion of specified milestones
according to contract terms. Non-refundable technology license fees are
recognized as revenue upon the grant of the license, when performance is
complete and there is no continuing involvement.

         Revenues recognized from multiple element contracts are allocated to
each element of the arrangement based on the relative fair value of the
elements. The determination of fair value of each element is based on objective
evidence. When revenues for an element are specifically tied to a separate
earnings process, revenue is recognized when the specific performance obligation
associated with the element is completed. When revenues for an element are not
specifically tied to a separate earnings process, they are recognized ratably
over the term of the agreement.

         A change in our revenue recognition policy or changes in the terms of
contracts under which we recognize revenues could have an impact on the amount
and timing of our recognition of revenues.

Research and Development Expenses

         Research and development expenses consist of costs incurred for
company-sponsored as well as collaborative research and development activities.
These costs include direct and research-related

                                       10

overhead expenses and are expensed as incurred. Patent costs and technology
license fees for technologies that are utilized in research and development and
have no alternative future use are expensed when incurred.

         Prior to preclinical development work, we are unable to segregate the
costs related to research performed on drug candidates because the drug
candidate is often not specifically identified until the later stages of our
research. When we begin the formal preclinical process in preparation for filing
an IND, we intend to account on a program by program basis for the costs related
to the development of the identified candidate. To date, we have not advanced
any drug products into formal preclinical development.

Goodwill Impairment

         Goodwill is not amortized, but is tested at least annually for
impairment at the reporting unit level. We have determined that the reporting
unit is the single operating segment disclosed in our current financial
statements. Impairment is the condition that exists when the carrying amount of
goodwill exceeds its implied fair value. The first step in the impairment
process is to determine the fair value of the reporting unit and then compare it
to the carrying value, including goodwill. We determined that the market
capitalization approach is the most appropriate method of measuring fair value
of the reporting unit. Under this approach, fair value is calculated as the
average closing price of our common stock for the 30 days preceding the date
that the annual impairment test is performed, multiplied by the number of
outstanding shares on that date. A control premium, which is representative of
premiums paid in the marketplace to acquire a controlling interest in a company,
is then added to the market capitalization to determine the fair value of the
reporting unit. If the fair value exceeds the carrying value, no further action
is required and no impairment loss is recognized. Additional impairment
assessments may be performed on an interim basis if we encounter events or
changes in circumstances that would indicate that, more likely than not, the
carrying value of goodwill has been impaired.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2004 and 2003

         Revenues. Total revenues and dollar and percentage changes as compared
to the corresponding period in the prior year are as follows (dollar amounts are
presented in millions):

                                            THREE MONTHS ENDED MARCH 31
                                            ---------------------------
                                              2004                2003
                                            -------              ------
                                                           
Total revenues...........................   $  11.8              $  8.1
Dollar increase..........................   $   3.7
Percentage increase......................        46%

              -   Subscription and license fees - Revenue from subscriptions and
                  license fees increased 14% to $3.5 million due to increased
                  technology license fees.

              -   Collaborative research - Revenue from collaborative research
                  increased 66% to $8.3 million primarily due to increased
                  revenue under our neuroscience alliance with Bristol-Myers
                  Squibb Company, which was entered into in December 2003. This
                  was offset in part by a decrease in revenues from target
                  validation collaborations due to the scheduled conclusion of
                  many of these arrangements.

                                       11

         Research and Development Expenses. Research and development expenses
and dollar and percentage changes as compared to the corresponding period in the
prior year are as follows (dollar amounts are presented in millions):

                                            THREE MONTHS ENDED MARCH 31,
                                            ----------------------------
                                              2004                2003
                                            --------             -------
                                                           
Total research and development expense...   $   22.4             $  19.8
Dollar increase..........................   $    2.6
Percentage increase......................         13%

         Research and development expenses consist primarily of salaries and
other personnel-related expenses, stock-based compensation expenses, laboratory
supplies, facility and equipment costs, consulting and other services. The
change in 2004 as compared to 2003 resulted primarily from the following costs:

              -   Personnel - Personnel costs increased 23% to $10.4 million
                  primarily due to increased personnel to support the expansion
                  of our drug discovery programs, merit-based pay increases for
                  employees and increasing employee benefit costs. Salaries,
                  bonuses, employee benefits, payroll taxes, recruiting and
                  relocation costs are included in personnel costs.

              -   Stock-based compensation - Stock based compensation expense,
                  primarily relating to option grants made prior to our April
                  2000 initial public offering, decreased 67% to $0.4 million.
                  All deferred stock compensation relating to these options was
                  fully amortized as of January 31, 2004 when these options
                  became fully vested.

              -   Laboratory supplies - Laboratory supplies expense increased
                  36% to $3.5 million due primarily to increased purchases of
                  media and compounds related to our drug discovery activities.

              -   Facilities and equipment - Facilities and equipment costs
                  increased 5% to $5.1 million primarily due to depreciation
                  expense on our facilities in The Woodlands, Texas. On December
                  31, 2003, we consolidated the lessor under our synthetic lease
                  related to these facilities. Accordingly, depreciation expense
                  on those facilities is now included in our operating expenses.

              -   Consulting and other services - Consulting and other services
                  increased 7% to $1.8 million primarily due to third-party
                  research costs. Consulting and other services include
                  subscriptions to third-party databases, technology licenses,
                  legal and patent fees and third-party research.

              -   Other - Other costs increased by 17% to $1.2 million.

         General and Administrative Expenses. General and administrative
expenses and dollar and percentage changes as compared to the corresponding
period in the prior year are as follows (dollar amounts are presented in
millions):

                                            THREE MONTHS ENDED MARCH 31,
                                            ----------------------------
                                              2004                2003
                                            -------             -------
                                                          
Total general and administrative expense.   $   5.0             $   5.8
Dollar decrease..........................   $   0.8
Percentage decrease......................        13%

                                       12

         General and administrative expenses consist primarily of personnel
costs to support our research activities, stock-based compensation expense,
facility and equipment costs and professional fees, such as legal fees. The
change in 2004 as compared to 2003 resulted primarily from the following costs:

              -   Personnel - Personnel costs increased 3% to $2.9 million
                  primarily due to merit-based pay increases and increased
                  employee benefit costs. Salaries, bonuses, employee benefits,
                  payroll taxes, recruiting and relocation costs are included in
                  personnel costs.

              -   Stock-based compensation - Stock based compensation expense,
                  primarily relating to option grants made prior to our April
                  2000 initial public offering, decreased 68% to $0.4 million.
                  All deferred stock compensation relating to these options was
                  fully amortized as of January 31, 2004 when these options
                  became fully vested.

              -   Facilities and equipment - Facilities and equipment costs
                  decreased 13% to $0.8 million.

              -   Professional fees - Professional fees increased 31% to $0.3
                  million.

              -   Other - Other costs increased 12% to $0.6 million.

         Interest and Other Income. Interest and other income decreased to $0.4
million in the three months ended March 31, 2004 from $0.5 million in the
corresponding period in 2003.

         Net Loss and Net Loss Per Common Share. Net loss decreased to $15.5
million in the three months ended March 31, 2004 from $17.1 million in the
corresponding period in 2003. Net loss per common share decreased to $0.25 in
the three months ended March 31, 2004 from $0.33 in the corresponding period in
2003. Net loss includes stock-based compensation expense of $0.8 million and
$2.5 million in the three months ended March 31, 2004 and 2003, respectively.

         Our quarterly operating results have fluctuated in the past and are
likely to do so in the future, and we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance.

LIQUIDITY AND CAPITAL RESOURCES

         We have financed our operations from inception primarily through sales
of common and preferred stock, contract and milestone payments to us under our
collaboration, license and database subscription agreements, equipment financing
arrangements and leasing arrangements. From our inception through March 31,
2004, we had received net proceeds of $294.3 million from issuances of common
and preferred stock, including $203.2 million of net proceeds from the initial
public offering of our common stock in April 2000 and $50.1 million from our
July 2003 common stock offering. In addition, from our inception through March
31, 2004, we received $182.5 million in cash payments from database subscription
and technology license fees, drug discovery alliances, target validation
collaborations, sales of compound libraries and reagents, and government grants,
of which $143.2 million had been recognized as revenues through March 31, 2004.

         As of March 31, 2004, we had $145.4 million in cash, cash equivalents
and short-term investments (including $57.5 million of restricted cash and
investments), as compared to $161.0 million (including $57.5 million of
restricted cash and investments) as of December 31, 2003. We used cash of $15.5
million in operations in the three months ended March 31, 2004. This consisted
primarily of the net loss for the period of $15.5 million offset by non-cash
charges of $2.8 million related to depreciation expense, $0.8 million related to
stock-based compensation expense, and $0.3 million related to

                                       13

amortization of intangible assets other than goodwill; a $4.9 million decrease
in deferred revenue; and changes in other operating assets and liabilities of
$1.0 million. Investing activities used cash of $16.4 million in the three
months ended March 31, 2004, principally as a result of net purchases of
short-term investments. We received cash of $1.2 million in financing activities
consisting of proceeds from stock option exercises.

         In October 2000, we entered into a synthetic lease agreement under
which the lessor purchased our existing laboratory and office buildings and
animal facility in The Woodlands, Texas and agreed to fund the construction of
additional facilities. Including the purchase price for our existing facilities,
the synthetic lease, as amended, provided funding of $54.8 million in property
and improvements. We consolidated the lessor under our synthetic lease upon
adoption of Financial Accounting Standards Board Interpretation No. 46 on
December 31, 2003. In April 2004, we purchased our facilities in The Woodlands
from the lessor under the synthetic lease. In connection with such purchase, we
repaid the $54.8 million funded under the synthetic lease with proceeds from a
$34.0 million third-party mortgage financing and $20.8 million in cash. The
mortgage has a ten-year term with a 20-year amortization and bears interest at a
fixed rate of 8.23%. As a result of the refinancing, all restrictions on the
cash and investments that had secured our obligations under the synthetic lease
were eliminated, leaving a total of $551,000 in restricted investments related
to our New Jersey facilities.

         In May 2002, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc.
signed a ten-year lease for a 76,000 square-foot facility in Hopewell, New
Jersey. The term of the lease extends until June 30, 2013. The lease provides
for an escalating yearly base rent payment of $1.3 million in the first year,
$2.1 million in years two and three, $2.2 million in years four to six, $2.3
million in years seven to nine and $2.4 million in years ten and eleven. We are
the guarantor of the obligations of our subsidiary under the lease.

         In December 2002, we borrowed $4.0 million under a note agreement with
Genentech. The proceeds of the loan are to be used to fund research efforts
under our alliance with Genentech for the discovery of therapeutic proteins and
antibody targets. The note matures on or before December 31, 2005, but we may
prepay it at any time. We may repay the note, at our option, in cash, in shares
of our common stock valued at the then-current market value, or in a combination
of cash and shares, subject to certain limitations. The note accrues interest at
an annual rate of 8%, compounded quarterly.

         Our future capital requirements will be substantial and will depend on
many factors, including our ability to obtain alliance, collaboration and
technology license agreements, the amount and timing of payments under such
agreements, the level and timing of our research and development expenditures,
market acceptance of our products, the resources we devote to developing and
supporting our products and other factors. Our capital requirements will also be
affected by any expenditures we make in connection with license agreements and
acquisitions of and investments in complementary technologies and businesses. We
expect to devote substantial capital resources to continue our research and
development efforts, to expand our support and product development activities,
and for other general corporate activities. We believe that our current
unrestricted cash and investment balances and revenues we expect to derive from
drug discovery alliances, technology licenses and target validation
collaborations will be sufficient to fund our operations at least through the
next two years. During or after this period, if cash generated by operations is
insufficient to satisfy our liquidity requirements, we will need to sell
additional equity or debt securities or obtain additional credit arrangements.
Additional financing may not be available on terms acceptable to us or at all.
The sale of additional equity or convertible debt securities may result in
additional dilution to our stockholders.

                                       14

DISCLOSURE ABOUT MARKET RISK

         We are exposed to limited market and credit risk on our cash
equivalents, which have maturities of three months or less at the time of
purchase. We maintain a short-term investment portfolio which consists of U.S.
government agency debt obligations, investment grade commercial paper, corporate
debt securities and certificates of deposit that mature within twelve months,
which we believe are subject to limited market and credit risk. We currently do
not hedge interest rate exposure or hold any derivative financial instruments in
our investment portfolio.

         We have operated primarily in the United States and substantially all
sales to date have been made in U.S. dollars. Accordingly, we have not had any
material exposure to foreign currency rate fluctuations.

RISK FACTORS

         Our business is subject to certain risks and uncertainties, including
those referenced below:

Risks Related to Our Business

     -   we have a history of net losses, and we expect to continue to incur net
         losses and may not achieve or maintain profitability

     -   we will need additional capital in the future and, if it is not
         available, we will have to curtail or cease operations

     -   any sale of additional equity securities in the future may be dilutive
         to our stockholders

     -   we are an early-stage company, and we may not successfully develop or
         commercialize any therapeutics or drug targets that we have identified

     -   we face substantial competition in the discovery of the DNA sequences
         of genes and their functions and in our drug discovery and product
         development efforts

     -   we rely heavily on our collaborators to develop and commercialize
         pharmaceutical products based on genes that we identify as promising
         candidates for development as drug targets and our collaborators'
         efforts may fail to yield pharmaceutical products on a timely basis, if
         at all

     -   we rely on several key collaborators for a significant portion of our
         revenues, the loss of any of which would negatively impact our business
         to the extent such losses are not offset by additional collaborators

     -   cancellations by or conflicts with our collaborators could harm our
         business

     -   we may be unsuccessful in developing and commercializing pharmaceutical
         products on our own

     -   we lack the capability to manufacture compounds for preclinical
         studies, clinical trials or commercial sales and will rely on third
         parties to manufacture our potential products, which may harm or delay
         our product development and commercialization efforts

     -   we may engage in future acquisitions, which may be expensive and time
         consuming and from which we may not realize anticipated benefits

                                       15

     -   if we lose our key personnel or are unable to attract and retain
         additional personnel, we may be unable to pursue collaborations or
         develop our own products

     -   because all of our target validation operations are located at a single
         facility, the occurrence of a disaster could significantly disrupt our
         business

     -   our quarterly operating results have been and likely will continue to
         fluctuate, and we believe that quarter-to-quarter comparisons of our
         operating results are not a good indication of our future performance

Risks Related to Our Industry

     -   our ability to patent our inventions is uncertain because patent laws
         and their interpretation are highly uncertain and subject to change

     -   our patent applications may not result in enforceable patent rights
         and, as a result, the protection afforded to our scientific discoveries
         may be insufficient

     -   if other companies and institutions obtain patents relating to our drug
         target or product candidate discoveries, we may be unable to obtain
         patents for our inventions based upon those discoveries and may be
         blocked from using or developing some of our technologies and products

     -   issued or pending patents may not fully protect our discoveries, and
         our competitors may be able to commercialize technologies or products
         similar to those covered by our issued or pending patents

     -   we may be involved in patent litigation and other disputes regarding
         intellectual property rights and may require licenses from third
         parties for our discovery and development and planned commercialization
         activities, and we may not prevail in any such litigation or other
         dispute or be able to obtain required licenses

     -   we use intellectual property that we license from third parties, and if
         we do not comply with these licenses, we could lose our rights under
         them

     -   we have not sought patent protection outside of the United States for
         some of our inventions, and some of our licensed patents only provide
         coverage in the United States, and as a result, our international
         competitors could be granted foreign patent protection with respect to
         our discoveries

     -   we may be unable to protect our trade secrets

     -   our efforts to discover, evaluate and validate potential targets for
         drug intervention and our drug discovery programs are subject to
         evolving data and other risks inherent in the drug discovery process

     -   our industry is subject to extensive and uncertain government
         regulatory requirements, which could significantly hinder our ability,
         or the ability of our collaborators, to obtain, in a timely manner or
         at all, government approval of products based on genes that we
         identify, or to commercialize such products

     -   if our potential products receive regulatory approval, we or our
         collaborators will remain subject to extensive and rigorous ongoing
         regulation

                                       16

     -   the uncertainty of pharmaceutical pricing and reimbursement may
         decrease the commercial potential of any products that we or our
         collaborators may develop and affect our ability to raise capital

     -   we use hazardous chemicals and radioactive and biological materials in
         our business; any disputes relating to improper handling, storage or
         disposal of these materials could be time consuming and costly

     -   we may be sued for product liability

     -   public perception of ethical and social issues may limit or discourage
         the use of our technologies, which could reduce our revenues

         For additional discussion of the risks and uncertainties that affect
our business, see "Item 1. Business - Risk Factors" included in our annual
report on Form 10-K for the year ended December 31, 2003, as filed with the
Securities and Exchange Commission.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         See "Disclosure about Market Risk" under "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
quantitative and qualitative disclosures about market risk.

ITEM 4.  CONTROLS AND PROCEDURES

         Lexicon's chief executive officer and chief financial officer have
concluded that the Company's disclosure controls and procedures (as defined in
Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and
15d-15(e)) are sufficiently effective to ensure that the information required to
be disclosed by the Company in the reports it files under the Exchange Act is
gathered, analyzed and disclosed with adequate timeliness, accuracy and
completeness, based on an evaluation of such controls and procedures conducted
within 90 days prior to the date hereof.

         Subsequent to the Company's evaluation, there were no significant
changes in internal controls or other factors that could significantly affect
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

PART II  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

EXHIBIT NO.                                                 DESCRIPTION
- ----------      -------------------------------------------------------------------------------------
             
   10.1         -- Consulting Agreement with Alan S. Nies, M.D. dated February 19, 2003, as amended

   31.1         -- Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

   31.2         -- Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

   32.1         -- Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of
                   2002

                                       17

         (b)      Reports on Form 8-K:

                  On February 19, 2004, we filed a Current Report on Form 8-K
dated February 19, 2004 relating to our issuance of a press release reporting
our financial results for the quarter and year ended December 31, 2003, which
press release included our consolidated balance sheet data and consolidated
statements of operations data for the periods.

                                       18

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                             LEXICON GENETICS INCORPORATED

Date:   April 30, 2004       By:  /s/ ARTHUR T. SANDS
                                 -----------------------------------------------
                                 Arthur T. Sands, M.D., Ph.D.
                                 President and Chief Executive Officer

Date:   April 30, 2004       By:  /s/ JULIA P. GREGORY
                                 -----------------------------------------------
                                 Julia P. Gregory
                                 Executive Vice President, Corporate Development
                                 and Chief Financial Officer

                                       19

                                INDEX TO EXHIBITS

EXHIBIT NO.                                          DESCRIPTION
- -----------    ------------------------------------------------------------------------------------------
            
  10.1         -- Consulting Agreement with Alan S. Nies, M.D. dated February 19, 2003, as amended

  31.1         -- Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  31.2         -- Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  32.1         -- Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

                                                                    EXHIBIT 10.1

                          [LEXICON GENETICS LETTERHEAD]

                                February 19, 2003

Dr. Alan S. Nies

Dear Alan:

         We are pleased to invite you to become the Chairman of the Medical
Advisory Board of, and a special consultant to, Lexicon Genetics Incorporated
(which, together with its subsidiaries and affiliates, is referred to as the
"Company" or "Lexicon"). The purpose of this letter agreement (this "Agreement")
is to set forth our mutual understanding of the terms and conditions under which
you would provide consulting services in those capacities, as set forth below.

         1.       Consulting Services. As the Chairman of the Medical Advisory
Board of, and a special consultant to, Lexicon, you will provide such consulting
and advisory services as may be requested by Arthur T. Sands, M.D., Ph.D., the
Company's President and Chief Executive Officer, relating to: (i) evaluation of
the Company's drug discovery programs; (ii) establishment of strategies for
clinical development of potential products arising from such programs; (iii)
identification and, as appropriate, recruitment or engagement of key personnel,
consultants and service providers to oversee and conduct the Company's clinical
development efforts; (iv) evaluation of the clinical development potential of
in-licensing and acquisition candidates; (v) provision of assistance and advice
relating to the establishment of drug discovery collaborations and alliances;
and (vi) such other consulting and advisory services relating to the Company's
clinical development efforts as you and the Company may agree. You will devote
up to 24 days annually (approximately two days a month on average) to providing
such services to the Company under this Agreement, on a schedule and at times
reasonably agreed upon by you and Dr. Sands.

         2.       Compensation. As full consideration for your services as
Chairman of the Medical Advisory Board of, and a special consultant to, the
Company and your obligations under this Agreement, you will receive fees of
$75,000 per year, payable in 12 monthly installments. In addition, you will be
reimbursed for your reasonable, ordinary and necessary travel expenses incurred
by you at the Company's prior request in connection with your performance of
your services under this Agreement.

         3.       Stock Option. In further consideration for your services as
Chairman of the Medical Advisory Board of, and a special consultant to, the
Company and your obligations under this Agreement, the Company will grant you an
option under its 2000 Equity Incentive Plan (the "Plan") to purchase 2,500
shares of the Company's common stock at a purchase price per share equal to the
fair market value of the common stock, determined in accordance with the Plan,
on the date your service in such capacities commences, such options vesting at a
rate of one-fourth of the total amount for each year of service to the Company
hereunder. Such option grant shall be evidenced by a separate stock option
agreement and governed by the terms of such agreement and the Plan.

Dr. Alan S. Nies
February 19, 2003
Page 2

         4.       Confidential Information.

                  (a)      In the course of your service as Chairman of the
         Medical Advisory Board of, and a special consultant to, the Company,
         you may learn or be exposed, orally, visually, electronically or in
         writing, to inventions, discoveries, improvements, materials, data,
         technology, processes, formulas, know-how, trade secrets, ideas and
         other information which we consider proprietary or confidential
         ("Confidential Information"). You agree to hold any Confidential
         Information disclosed to you by the Company or learned by you from the
         Company in conjunction with your services under this Agreement in
         strict confidence and to take all reasonable precautions to protect
         such Confidential Information, not to disclose any such Confidential
         Information to any third party, and to use such Confidential
         Information only in furtherance of your services under this Agreement;
         provided that your nondisclosure obligation shall not apply to the
         extent such Confidential Information (i) is already in the public
         domain or hereafter enters the public domain other than through your
         acts or omissions in violation of this Agreement; (ii) is already known
         to you, as may be shown by competent written records; (iii) is
         hereafter received by you without restriction as to confidentiality or
         use from a third party lawfully entitled so to disclose same in such
         manner; or (iv) is hereafter generated by you, other than in
         performance of your services under this Agreement, without the use of
         any Confidential Information, facilities or personnel of the Company.
         Information shall not be deemed to be within the foregoing exceptions
         merely because such information is embraced by more general information
         in the public domain or in your possession. All Confidential
         Information (and any copies and notes thereof) shall remain the sole
         property of the Company.

                  (b)      You agree not to disclose or otherwise make available
         to the Company any information that you possess under an obligation of
         confidentiality to a third party. You may disclose to the Company any
         information made available generally to the scientific community at
         large through published reports or public presentations prior to
         disclosure to the Company.

         5.       Inventions and Discoveries.

                  (a)      You hereby assign and transfer to the Company all of
         your right, title and interest throughout the world in all inventions,
         discoveries, improvements, materials, data, works of authorship and
         other intellectual property, whether or not patentable or subject to
         copyright, which may be made, written or conceived by you in the course
         of, or arising as a result of, your performance of your services as
         Chairman of the Medical Advisory Board of, and a special consultant to,
         the Company, in whole or in part and whether alone or in conjunction
         with others (collectively, "Intellectual Property"). All such
         Intellectual Property shall be the sole property of the Company or its
         nominee.

                  (b)      You shall promptly disclose any Intellectual Property
         in writing to the Company in order to permit the Company to claim
         rights to which it may be entitled under this Agreement. The Company
         shall have full power and authority to file and prosecute patent
         applications and copyright registrations throughout the world with
         respect to all Intellectual Property, and to procure and maintain
         patents and copyrights with respect thereto. You agree, at the
         Company's reasonable request and expense, to

Dr. Alan S. Nies
February 19, 2003
Page 3

         sign, execute and acknowledge, or cause to be signed, executed and
         acknowledged, any applications, assignments, instruments and other
         documents, and to perform such other acts, as the Company may deem
         necessary, useful or convenient to confirm and vest in the Company or
         its nominee all right, title and interest throughout the world in and
         to any Intellectual Property and all patent, copyright and other
         intellectual property rights and protections therein, and to assist the
         Company in procuring, maintaining, enforcing and defending such patent,
         copyright and other intellectual property rights and protections
         throughout the world. You agree to treat all such Intellectual Property
         as Confidential Information under this Agreement.

         6.       Conflicting Engagements.

                  (a)      During your service as Chairman of the Medical
         Advisory Board of, and a special consultant to, the Company, you agree
         that you will not, without previously notifying the Company in writing,
         directly or indirectly, whether alone or in association with others, in
         the United States of America or in any foreign nation, state or
         jurisdiction, become associated with, render advisory, consulting or
         other services to, or become employed by any other person or entity
         (collectively referred to as "Third Party Competitors") engaging in
         clinical development of a drug in direct conflict or competition with a
         drug development program being conducted by the Company. You agree to
         disclose to the Company any proposed relationship with a Third Party
         Competitor (a "Proposed Relationship") at least 60 days prior to the
         establishment of a confidential relationship between you and such Third
         Party Competitor. Upon such disclosure, the Company may consent to the
         Proposed Relationship in writing, may proffer written consent subject
         to condition precedent regarding certain restrictions on the scope
         and/or field of the Proposed Relationship, or may terminate this
         Agreement.

                  (b)      Subject to your obligations with respect to
         Confidentiality and Intellectual Property under Sections 4 and 5 of
         this Agreement, nothing in this Agreement shall prohibit you from
         continuing your duties under any consulting or advisory agreement that
         predates this Agreement, and which has been disclosed to the Company in
         writing prior to the effective date of this Agreement.

         7.       Term and Termination. You will render your advisory and
consulting services to the Company and serve as Chairman of the Company's
Medical Advisory Board for an initial period of one year commencing upon the
date of your signature accepting the provisions of this Agreement on the
signature page. The term of this Agreement shall be automatically renewed for
additional one-year terms on each anniversary unless either party gives 30 days'
advance written notice of non-renewal. This Agreement may be terminated (i) at
any time by either party, with or without cause, upon 30 days' advance written
notice to the other party and (ii) by either party for breach of this Agreement
by the other party that, where curable, is not cured within 10 business days
after written notice of such breach is delivered to the breaching party.

         8.       Independent Contractor. For purposes of this Agreement, you
will be deemed an independent contractor and not an employee or agent of
Lexicon. In this connection, you will not be eligible for, nor entitled to, any
employee benefits that we normally extend to our employees, and we will not
withhold any taxes from the compensation paid to you, all of which shall be your
responsibility. The manner in which you render your services under this
Agreement will be

Dr. Alan S. Nies
February 19, 2003
Page 4

within your reasonable control and discretion. You have no express or implied
authority to incur any liability, or to make any decision or to create any
binding obligation, on our behalf.

         9.       Reference to Affiliation. The Company may reference your
service as Chairman of the Company's Medical Advisory Board, but will not
otherwise use your name without your prior written consent.

         10.      Compliance with Laws and Procedures. To the extent you provide
services under this Agreement on our premises, you agree to observe our business
hours, as well as our rules, policies and security procedures concerning conduct
and the health, safety and protection of persons and property. You will comply
with all applicable governmental laws, ordinances, rules and regulations
applicable to the performance of your services under this Agreement.

         11.      Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas as
they apply to contracts entered into and wholly to be performed in Texas.

         12.      Enforcement. You agree that a breach of any of the
restrictions set forth in the provisions of this Agreement would cause the
Company irreparable injury and damage, and that, in the event of any breach or
threatened breach, the Company, in addition to all other rights and remedies at
law or in equity, shall have the right to enforce the specific performance of
such restrictions and to apply for injunctive relief against their violation.

         13.      Survival of Terms. The provisions of Sections 4, 5 and 11
through 19 hereof shall survive termination of this Agreement.

         14.      Successors and Assigns. You may not assign this Agreement
without the written consent of the Company. This Agreement shall be binding on
your heirs, executors, administrators and legal representatives and the
Company's successors and assigns.

         15.      Severability. The invalidity or unenforceability of any
provision of this Agreement (or portion thereof) shall not affect the validity
or enforceability of any other provision of this Agreement, and if such
provision (or portion thereof) is so broad as to be unenforceable, it shall be
interpreted to be only as broad as is enforceable.

         16.      Entire Agreement. This Agreement constitutes the sole and
complete agreement of the parties with respect to the matters included herein,
and supersedes any previous oral or written agreement, if any, relating to the
subject matters included herein.

         17.      Amendment and Waiver. This Agreement may not be amended or
supplemented in any way, nor may the benefit of any provision hereof be waived,
except by a written agreement duly executed by both you and the Company.

         18.      No Conflict. You represent that the performance of your
obligations and duties under this Agreement does not conflict with any
obligations or duties, express or implied, that you may have to third parties.

Dr. Alan S. Nies
February 19, 2003
Page 5

         19.      Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement shall
not be construed or interpreted against any party on the basis that such party
drafted or authored a particular provision, parts of or the entirety of this
Agreement.

         If the foregoing correctly sets forth our mutual understanding, please
so indicate by signing this letter in the space provided below and return it to
the Company at the above address, whereupon this Agreement shall constitute a
binding contract between us and our legal representatives, successors, and
assigns.

                                       Very truly yours,

                                       LEXICON GENETICS INCORPORATED

                                       By:  /s/ Arthur T. Sands
                                           -------------------------------------
                                           Arthur T. Sands, M.D., Ph.D.
                                           President and Chief Executive Officer

ACCEPTED AND AGREED TO ON THE DATE SET FORTH BELOW:

By: /s/ Alan S. Nies
    --------------------------------
    Alan S. Nies, M.D.

Date: February 24, 2003

                          [LEXICON GENETICS LETTERHEAD]

                                  June 24, 2003

Dr. Alan S. Nies

Dear Alan:

         This letter serves as the consent of Lexicon Genetics Incorporated (the
"Company") to the assignment of your rights and obligations under that certain
letter agreement dated February 19, 2003 between you and Lexicon (the
"Agreement") to Nies Consulting LP (the "Partnership").

         As a condition to the foregoing assignment, you agree that you will
personally provide all consulting and advisory services on behalf of the
Partnership and that you remain individually bound by Sections 4
(Confidentiality), 5 (Inventions and Discoveries) and 6 (Conflicting
Engagements) of the Agreement.

         If the foregoing correctly sets forth our mutual understanding, please
so indicate by signing this letter in the space provided below and return it to
the Company at the above address.

                                     Very truly yours,

                                     LEXICON GENETICS INCORPORATED

                                     By:  /s/ Arthur T. Sands
                                         ---------------------------------------
                                         Arthur T. Sands, M.D., Ph.D.
                                         President and Chief Executive Officer

ACCEPTED AND AGREED TO ON THE DATE SET FORTH BELOW:

By: /s/ Alan S. Nies
    -------------------------
    Alan S. Nies, M.D.

Date: June 25, 2003

                                                                    EXHIBIT 31.1

                                 CERTIFICATIONS

I, Arthur T. Sands, certify that:

     1.  I have reviewed this Quarterly Report on Form 10-Q of Lexicon Genetics
         Incorporated;

     2.  Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

         a)   designed such disclosure controls and procedures, or caused such
              disclosure controls and procedures to be designed under our
              supervision, to ensure that material information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others within those entities, particularly during the
              period in which this quarterly report is being prepared;

         b)   evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

         c)   disclosed in this report any change in the registrant's internal
              control over financial reporting that occurred during the
              registrant's most recent fiscal quarter that has materially
              affected, or is reasonably likely to materially affect, the
              registrant's internal control over financial reporting;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         functions):

         a)   all significant deficiencies and material weaknesses in the design
              or operation of internal control over financial reporting which
              are reasonably likely to adversely affect the registrant's ability
              to record, process, summarize and report financial information;
              and

         b)   any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal control over financial reporting.

Date: April 30, 2004

                                                  /s/ Arthur T. Sands
                                        ----------------------------------------
                                             Arthur T. Sands, M.D., Ph.D.
                                         President and Chief Executive Officer

                                                                    EXHIBIT 31.2

                                 CERTIFICATIONS

I, Julia P. Gregory, certify that:

     1.  I have reviewed this Quarterly Report on Form 10-Q of Lexicon Genetics
         Incorporated;

     2.  Based on my knowledge, this report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

         a)   designed such disclosure controls and procedures, or caused such
              disclosure controls and procedures to be designed under our
              supervision, to ensure that material information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others within those entities, particularly during the
              period in which this quarterly report is being prepared;

         b)   evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

         c)   disclosed in this report any change in the registrant's internal
              control over financial reporting that occurred during the
              registrant's most recent fiscal quarter that has materially
              affected, or is reasonably likely to materially affect, the
              registrant's internal control over financial reporting;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting, to the registrant's auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         functions):

         a)   all significant deficiencies and material weaknesses in the design
              or operation of internal control over financial reporting which
              are reasonably likely to adversely affect the registrant's ability
              to record, process, summarize and report financial information;
              and

         b)   any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal control over financial reporting.

Date: April 30, 2004

                                           /s/ Julia P. Gregory
                             ---------------------------------------------------
                                             Julia P. Gregory
                              Executive Vice President, Corporate Development
                                        and Chief Financial Officer

                                                                    EXHIBIT 32.1

                                  CERTIFICATION

         Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350, as adopted), Arthur T. Sands, M.D., Ph.D., Chief Executive Officer of
Lexicon Genetics Incorporated ("Lexicon"), and Julia P. Gregory, Chief Financial
Officer of Lexicon, each hereby certify that:

         1.   Lexicon's Quarterly Report on Form 10-Q for the period ended March
              31, 2004, and to which this Certification is attached as Exhibit
              32.1 (the "Periodic Report"), fully complies with the requirements
              of section 13(a) or section 15(d) of the Securities Exchange Act
              of 1934, and

         2.   The information contained in the Periodic Report fairly presents,
              in all material respects, the financial condition and results of
              operations of Lexicon.

         IN WITNESS WHEREOF, the undersigned have set their hands hereto as of
the 30th day of April, 2004.

                                      By: /s/ ARTHUR T. SANDS
                                          --------------------------------------
                                          Arthur T. Sands, M.D., Ph.D.
                                          President and Chief Executive Officer

                                      By: /s/ JULIA P. GREGORY
                                          --------------------------------------
                                          Julia P. Gregory
                                          Executive Vice President,
                                          Corporate Development and
                                          Chief Financial Officer