THE WOODLANDS, Texas, Nov. 6 /PRNewswire/ -- Lexicon Genetics Incorporated (Nasdaq: LEXG), a drug discovery company that uses gene knockout technology to define the function of genes, today reported financial results for the three- and nine-month periods ended September 30, 2001. The third quarter ended September 30, 2001 includes the financial results of Lexicon Pharmaceuticals (formerly Coelacanth Corporation) from July 12, 2001, the effective date of the merger.

Revenues: Lexicons revenues for the third quarter of 2001 were $13.5 million, an increase of 140 percent as compared to $5.6 million for the corresponding quarter of 2000. For the nine-month period ended September 30, 2001, total revenues increased by 76 percent to $20.3 million, from $11.5 million for the corresponding period in 2000. Revenues for the 2001 third quarter included:

    *  subscription and licenses fees of $8.6 million, consisting primarily of
       technology license fees from sublicensees of the Companys gene
       targeting technology under agreements with GlaxoSmithKline Plc, Merck &
       Co. and Pfizer Inc. and access fees from the Companys LexVision(TM)
       collaborations with Bristol-Myers Squibb Company and Incyte Genomics,
       Inc.;

    *  collaborative research revenues of $3.7 million, consisting primarily
       of revenues from Lexicons therapeutic protein collaboration with
       Incyte Genomics, Inc. and revenues from functional genomics
       collaborations with pharmaceutical and biotechnology companies; and

    *  revenues of $1.2 million from the sale of chemical compound libraries
       by Lexicon Pharmaceuticals to pharmaceutical and biotechnology
       companies for non-exclusive use in their internal drug discovery
       programs.

Research and Development Expenses: Research and development expenses for the three-month period ended September 30, 2001 increased to $15.0 million from $6.9 million for the corresponding quarter of 2000. Excluding stock-based compensation, research and development expenses for the three-month period ended September 30, 2001 were $13.7 million, compared to $5.5 million for the corresponding quarter of 2000. For the nine-month period ended September 30, 2001, research and development expenses were $35.6 million, compared to $22.8 million for the corresponding period in 2000. Excluding stock-based compensation, research and development expenses for the nine-month period ended September 30, 2001 were $31.4 million, compared to $13.2 million for the corresponding period in 2000. The increase in expenses in the third quarter of 2001 over those in the prior-year quarter primarily reflects increased investments toward the scale-up of the Companys gene knockout and functional analysis programs to determine the function of 5,000 genes over five years for the discovery of new drug targets, as well as the expenses of the Companys new Lexicon Pharmaceuticals division following the Coelacanth merger. Consistent with the Companys focus on these programs, through the third quarter of 2001, Lexicons total workforce grew to 467 people, including 379 scientific staff.

General and Administrative Expenses: General and administrative expenses for the three-month period ended September 30, 2001 increased to $6.4 million from $3.6 million for the corresponding quarter of 2000. Excluding stock-based compensation, general and administrative expenses for the three-month period ended September 30, 2001 increased to $5.1 million, compared to $1.9 million for the corresponding quarter of 2000. For the nine-month period ended September 30, 2001, general and administrative expenses were $15.8 million, compared to $13.4 million for the corresponding period in 2000. Excluding stock-based compensation, general and administrative expenses for the nine-month period ended September 30, 2001, were $11.8 million, compared to $4.8 million for the corresponding period in 2000. Approximately $1.2 million and $3.1 million of general and administrative expenses, respectively, in the three- and nine-month periods ended September 30, 2001, relate to the Companys patent infringement litigation against Deltagen, Inc., which was settled by the two parties on September 19, 2001.

Interest Income, Net: Interest income, net, decreased to $1.7 million in the three-month period ended September 30, 2001 from $3.4 million in the corresponding quarter of 2000 due to lower average cash balances and declining interest rates. For the nine-month period ended September 30, 2001, interest income, net, increased to $6.8 million from $6.2 million in the corresponding period in 2000.

Net Loss: Net loss, including non-cash stock-based compensation related to stock options granted before Lexicons initial public offering, was $6.2 million, or $0.12 per share, in the three-month period ended September 30, 2001, compared to a net loss of $1.5 million, or $0.03 per share, in the corresponding quarter of 2000. Excluding non-cash stock-based compensation charges, net loss for the three-month period ended September 30, 2001 was $3.6 million, or $0.07 per share, as compared to net income of $1.5 million, or $0.03 per share, for the corresponding quarter of 2000. For the nine months ended September 30, 2001, net loss, including non-cash stock- based compensation related to stock options, was $24.2 million, or $0.49 per share, compared to a net loss of $18.6 million, or $0.47 per share, in the corresponding period in 2000. Excluding non-cash stock-based compensation expenses, net loss for the nine months ended September 30, 2001 was $16.1 million, or $0.32 per share, compared to a pro forma net loss of $283,000, or $0.01 per share, for the corresponding period in 2000. The pro forma results assume the conversion of the redeemable convertible preferred stock into common stock upon the closing of our initial public offering as if such conversion occurred on the date of the original issuance.

Cash, Cash Equivalents and Marketable Securities: As of September 30, 2001, Lexicon had approximately $176.4 million in cash, cash equivalents and marketable securities, compared to $183.8 million as of June 30, 2001 and $202.7 million as of December 31, 2000.

"Our third quarter was extremely productive from both a business development and a financial standpoint and demonstrates how we are leveraging our strong internal platforms to achieve consistent growth," said Arthur T. Sands, M.D., Ph.D., President and Chief Executive Officer of Lexicon. "We announced the beginning of our drug discovery pipeline with the discovery and in vivo validation of a new target for the development of potential treatments for heart disease, diabetes, and obesity. We have knocked out more than half of the mouse genome in OmniBank(R), enabling future discoveries of new potential drug targets and therapeutic proteins. We reached a favorable settlement of our patent infringement litigation against Deltagen over our gene knockout technologies and licensed those technologies to three of the worlds leading pharmaceutical companies. We announced the leadership of our medicinal chemistry group and fulfilled our commitment in chemistry by selling our chemical compound libraries to major biotechnology and pharmaceutical companies, thus further validating the superior quality of our chemistry. We also signed a drug target validation agreement with Immunex Corporation. These outstanding achievements, coupled with our extremely strong revenue and cash position, clearly demonstrate Lexicons ability to execute its business strategy and solidify its position as a leader in drug discovery."

Third Quarter 2001 Highlights:

Discovery of gene target for potential treatment of heart disease: Lexicon announced the discovery and in vivo validation of a new target for the development of potential treatments for heart disease, obesity and related diseases, such as diabetes. The gene was uncovered through the Companys industrialized gene knockout program in which mice lacking specific genes are associated with desirable medical profiles. These knockout mice registered significantly lower triglyceride and cholesterol levels, as well as reduced body fat, with no change in diet. Blocking this target, an enzyme designated LG-314, could provide a powerful new avenue to develop therapies for cardiovascular disease and obesity. Lexicon expects to discover compounds that can inhibit the enzyme target within the next year.

Licensed gene targeting technology to GlaxoSmithKline, Merck and Pfizer: Lexicon granted GlaxoSmithKline Plc and Merck & Co., Inc. multi-year, non-exclusive sublicenses for the use of Lexicons patented gene targeting technologies in their internal research programs. Lexicon also granted a non-exclusive, internal research use license to Pfizer Inc under the patent covering the use of Lexicons isogenic DNA technology in gene targeting. Pfizer already held a non-exclusive license from Lexicon for internal research use of Lexicons patented positive-negative selection technology. Lexicon believes these licenses provide further affirmation that Lexicons patented gene targeting technologies are an integral resource to validate targets for drug discovery.

Settled patent infringement litigation against Deltagen: Lexicon and Deltagen, Inc. announced the settlement of Lexicons patent infringement litigation against Deltagen. Under the terms of the settlement, Deltagen obtained a commercial license under the patents covering Lexicons gene targeting technologies, Lexicon obtained access to Deltagens DeltaBase(TM) database of mammalian genes and their in vivo functions, and all of the claims and counterclaims in the litigation were dismissed with prejudice. Lexicons subscription to DeltaBase includes non-exclusive, perpetual licenses to the 250 drug targets currently represented in DeltaBase and the 1,000 additional drug targets that are to be added to DeltaBase over the next four years. Lexicon will have the opportunity to receive payments for Deltagens fee-for-service generation of knockout mice, and Deltagen will have the opportunity to receive milestone and royalty payments for potential therapeutic and diagnostic products developed from drug targets in DeltaBase. Neither party will pay subscription or license fees.

Non-exclusive agreement for chemical compounds with Pfizer Inc: Lexicon announced the sale of chemical compounds to Pfizer Inc for non-exclusive use in Pfizers internal drug discovery programs. Lexicon believes Pfizers acquisition of these libraries reflects the industrys favorable regard for Lexicon Pharmaceuticals high-quality, pharmaceutically-relevant compounds as well as its expertise in developing compounds with pharmaceutical-like attributes for small molecule drug discovery.

Drug target validation agreement with Immunex: Lexicon signed a two-year drug target validation agreement with Immunex Corporation. Under the terms of the agreement, Lexicon will use its patented gene targeting technologies to develop knockout mammalian models for high priority targets in Immunexs internal drug discovery program. In return, Lexicon will receive an up-front technology access fee and annual research funding, as well as milestone and royalty payments on certain products developed from the collaboration. Lexicon believes this collaboration demonstrates the high value of Lexicons target validation technology for the discovery and development of therapeutic products and will enable Immunex to determine the medical relevance of a number of key targets from its internal drug discovery programs. In January, Lexicon granted to Immunex a multi-year, non-exclusive sublicense for the use of its patented gene targeting technology in Immunexs internal research programs.

Progress under LexVision collaboration with Bristol-Myers Squibb: Lexicon delivered the fourth installment of gene function information for new protein targets to Bristol-Myers Squibb, triggering a payment under the related LexVision collaboration agreement. Lexicons five-year agreement with Bristol-Myers Squibb provides up to $25 million in cash payments to Lexicon, as well as future milestone and royalty payments based on products discovered using Lexicons technology.

Achieved greater than 50 percent coverage of mouse genome in OmniBank: In August, Lexicon announced that it had altered more than one-half of the genes in the mouse genome for use in human drug discovery, a major milestone in its OmniBank functional genomics operations. To determine the coverage, Lexicon evaluated DNA sequence from 177,000 knockout mouse embryonic stem cell lines in OmniBank against thousands of randomly chosen full-length mouse genes and achieved 51.3 percent coverage. Lexicons OmniBank library is the only embryonic stem cell library of its kind in the world, allowing medical and pharmaceutical research that cannot be conducted using human embryonic stem cell lines. OmniBanks coverage of more than one-half of the mouse genome provides enormous benefits to Lexicons Genome5000 project, in which the company is determining the function of 5,000 genes over five years for the discovery of new disease targets.

Key scientific leadership for medicinal chemistry: Lexicon hired S. David Kimball, Ph.D., as Senior Director of Medicinal Chemistry. In his new position at Lexicon Pharmaceuticals in Princeton, NJ, Dr. Kimball is ramping up the Companys industrialized medicinal chemistry program to optimize hits against Lexicons lead target candidates. Before joining Lexicon, Dr. Kimball spent 19 years at the Bristol-Myers Squibb Pharmaceutical Research Institute, most recently as Research Fellow in the Division of Medicinal Chemistry, Princeton, NJ. In addition, C. Alexander Turner, Jr., Ph.D., was named Senior Director of Pharmaceutical Discovery at Lexicon, with responsibility for assay development and high-throughput screening of small molecule compounds against Lexicons proprietary in vivo validated drug targets. Dr. Turner joined Lexicon in 1996. Additionally, Peter H. Cheung, Ph.D., was hired as Senior Scientist in Pharmaceutical Discovery. Dr. Cheungs extensive background in chemistry and pharmacology, as well as his experience leading high-throughput screening efforts as Senior Scientist, Growth Factor Team at R.W. Johnson Pharmaceutical Research Institute, are facilitating the rapid implementation of Lexicons high-throughput screening efforts.

Nobel Prize and Lasker Award winners contributed to Lexicons platform: In October, Lexicon extended congratulations to Dr. K. Barry Sharpless, winner of the 2001 Nobel Prize in Chemistry, and Drs. Mario Capecchi, Martin Evans and Oliver Smithies, recipients of the 2001 Albert Lasker Award for Basic Medical Research. Dr. Sharpless founded Coelacanth Corporation, the predecessor of Lexicon Pharmaceuticals. Drs. Capecchi, Evans and Smithies contributed to gene knockout research that provided a foundation for Lexicons drug discovery engine.

Lexicon Genetics Incorporated is a drug discovery company of the post-genome era, using gene knockout technology to define the functions of genes for the discovery of pharmaceutical products. Lexicon is using this technology to fuel drug discovery programs in cancer, cardiovascular disease, immune disorders, neurological disease, diabetes and obesity. Lexicon has established drug discovery alliances and functional genomics collaborations with leading pharmaceutical and biotechnology companies, research institutes and academic institutions throughout the world to commercialize its technology and further develop its discoveries. Additional information about the Company is available through Lexicons corporate website, www.lexicon-genetics.com .

This press release contains "forward-looking statements," including statements about Lexicons growth and future operating results, discovery and development of products, strategic alliances, and intellectual property, as well as other matters that are not historical facts or information. These forward-looking statements are based on managements current assumptions and expectations and involve risks, uncertainties and other important factors, specifically including those relating to Lexicons ability to achieve its operational objectives, obtain patent protection for its discoveries and establish strategic alliances, that may cause Lexicons actual results to be materially different from any future results expressed or implied by such forward-looking statements. Information identifying such important factors is contained under "Factors Affecting Forward-Looking Statements" and "Business - Risk Factors" in Lexicons annual report on Form 10-K for the year ended December 31, 2000, as filed with the Securities and Exchange Commission. Lexicon undertakes no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.