----

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|   | þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
|--------|--------|---------------------------------------------------------|

|   | q | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
|--------|---|----------------------------------------------------------|

| Delaware                                                      | 76-0474169                             |
|---------------------------------------------------------------|----------------------------------------|
| (State or Other Jurisdiction ofIncorporation or Organization) | (I.R.S. EmployerIdentification Number) |

| Yes | ü |   | No |   |
|-----|--------|--------|----|--------|

| Yes |   |   | No |   |
|-----|--------|--------|----|--------|

| Yes |   |   | No | ü |
|-----|--------|--------|----|--------|

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|                                         |                                                                                                                         | Page |
|----------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|------|
| Factors Affecting Forward-Looking Statements | 2                                                                                                                            |
| Part I – Financial Information         | 3                                                                                                                            |
| Item 1.                                      | Financial Statements                                                                                                         | 3    |
|                                         | Consolidated Balance Sheets – September 30, 2010 (unaudited) and December 31, 2009                                | 3    |
|                                         | Consolidated Statements of Operations (unaudited) – Three and Nine Months Ended September 30, 2010 and 2009       | 4    |
|                                         | Consolidated Statements of Stockholders’ Equity (unaudited) – Nine Months Ended September 30, 2010 and 2009 | 5    |
|                                         | Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 2010 and 2009                 | 6    |
|                                         | Notes to Consolidated Financial Statements (unaudited)                                                                       | 7    |
| Item 2.                                      | Management’s Discussion and Analysis of Financial Condition and Results of Operations                             | 18   |
| Item 3.                                      | Quantitative and Qualitative Disclosures About Market Risk                                                                   | 26   |
| Item 4.                                      | Controls and Procedures                                                                                                      | 26   |
| Part II – Other Information            | 27                                                                                                                           |
| Item 1.                                      | Legal Proceedings                                                                                                            | 27   |
| Item 1A.                                     | Risk Factors                                                                                                                 | 27   |
| Item 6.                                      | Exhibits                                                                                                                     | 29   |
| Signatures                                   |                                                                                                                         | 30   |

Factors 

----

Part I

Item 1.

Balance Sheets

|                                                                                                                  |   | As of September 30, |     |   | As of December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|---------------------|----------|--------|--------------------|--------|
|                                                                                                                  |   | 2010                |     |   | 2009               |   |
| Assets                                                                                                                |   | (unaudited)         |     |   |               |   |
| Current assets:                                                                                                       |   |                |     |   |               |   |
| Cash and cash equivalents                                                                                             |   | $                   | 211,988  |   |               | $      | 100,554 |   |
| Short-term investments, including restricted investments of $430                                                      |   |                | 19,030   |   |               |   | 56,542 |   |
| Short-term investments held by Symphony Icon, Inc. (Note 4)                                                           |   |                | —  |   |               |   | 5,417 |   |
| Accounts receivable, net of allowances of $35                                                                         |   |                | 1,340    |   |               |   | 815 |   |
| Prepaid expenses and other current assets                                                                             |   |                | 3,259    |   |               |   | 6,356 |   |
| Total current assets                                                                                                  |   |                | 235,617  |   |               |   | 169,684 |   |
| Property and equipment, net of accumulated depreciation and amortization of $78,403 and $75,795, respectively         |   |                | 55,404   |   |               |   | 58,754 |   |
| Goodwill                                                                                                              |   |                | 25,798   |   |               |   | 25,798 |   |
| Other intangible assets                                                                                               |   |                | 53,557   |   |               |   | — |   |
| Other assets                                                                                                          |   |                | 497      |   |               |   | 3,525 |   |
| Total assets                                                                                                          |   | $                   | 370,873  |   |               | $      | 257,761 |   |
|                                                                                                                  |   |                |     |   |               |   |   |   |
| Liabilities and Equity                                                                                                |   |                |     |   |               |   |   |   |
|                                                                                                                  |   |                |     |   |               |   |   |   |
| Current liabilities:                                                                                                  |   |                |     |   |               |   |   |   |
| Accounts payable                                                                                                      |   | $                   | 3,550    |   |               | $      | 5,919 |   |
| Accrued liabilities                                                                                                   |   |                | 7,437    |   |               |   | 5,611 |   |
| Current portion of deferred revenue                                                                                   |   |                | 847      |   |               |   | 942 |   |
| Current portion of long-term debt                                                                                     |   |                | 1,114    |   |               |   | 38,482 |   |
| Total current liabilities                                                                                             |   |                | 12,948   |   |               |   | 50,954 |   |
| Deferred revenue, net of current portion                                                                              |   |                | 14,212   |   |               |   | 14,212 |   |
| Long-term debt                                                                                                        |   |                | 27,640   |   |               |   | 28,482 |   |
| Other long-term liabilities                                                                                           |   |                | 47,219   |   |               |   | 616 |   |
| Total liabilities                                                                                                     |   |                | 102,019  |   |               |   | 94,264 |   |
|                                                                                                                  |   |                |     |   |               |   |   |   |
| Commitments and contingencies                                                                                         |   |                |     |   |               |   |   |   |
|                                                                                                                  |   |                |     |   |               |   |   |   |
| Equity:                                                                                                               |   |                |     |   |               |   |   |   |
| Lexicon Pharmaceuticals, Inc. stockholders’ equity:                                                             |   |                |     |   |               |   |   |   |
|   Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued and outstanding                |   |                | —  |   |               |   | — |   |
|   Common stock, $.001 par value; 900,000 shares authorized; 337,562 and 175,785 shares issued, respectively |   |                | 338      |   |               |   | 176 |   |
| Additional paid-in capital                                                                                            |   |                | 919,161  |   |               |   | 733,874 |   |
| Accumulated deficit                                                                                                   |   |                | (650,407 | )      |               |   | (570,175 | ) |
| Accumulated other comprehensive loss                                                                                  |   |                | (1       | )      |               |   | — |   |
| Treasury stock, at cost, 158 and 80 shares, respectively                                                              |   |                | (237     | )      |               |   | (88 | ) |
| Total Lexicon Pharmaceuticals, Inc. stockholders’ equity                                                        |   |                | 268,854  |   |               |   | 163,787 |   |
| Noncontrolling interest in Symphony Icon, Inc. (Note 4)                                                               |   |                | —  |   |               |   | (290 | ) |
| Total equity                                                                                                          |   |                | 268,854  |   |               |   | 163,497 |   |
| Total liabilities and equity                                                                                          |   | $                   | 370,873  |   |               | $      | 257,761 |   |

----

Consolidated Statements of Operations

|                                                                                                                                             |   | Three Months EndedSeptember 30, |          |   | Nine Months EndedSeptember 30, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------------|--------|-------------------------------------|--------|
|                                                                                                                                             |   | 2010                            |          |   | 2009                                |   |   | 2010 |   |   | 2009 |   |
| Revenues:                                                                                                                                        |   |                            |          |   |                                |   |   |   |   |   |   |   |
| Collaborative research                                                                                                                           |   | $                               | 632      |   |                                | $      | 1,650 |   |   | $ |   3,437 |   |   | $ | 8,042 |   |
| Subscription and license fees                                                                                                               |   |                            | 149      |   |                                |   | 481 |   |   |   | 218  |   |   |   | 1,246 |   |
| Total revenues                                                                                                                              |   |                            | 781      |   |                                |   | 2,131 |   |   |   | 3,655  |   |   |   | 9,288 |   |
| Operating expenses:                                                                                                                              |   |                            |          |   |                                |   |   |   |   |   |   |   |   |   |   |   |
|     Research and development, including stock-based compensation of $751, $733, $2,366 and $2,328, respectively              |   |                            | 20,086   |   |                                |   | 19,320 |   |   |   | 61,413  |   |   |   | 62,404 |   |
|     General and administrative, including stock-based compensation of $582, $547, $1,592 and $1,750,  respectively |   |                            | 4,948    |   |                                |   | 4,568 |   |   |   | 15,535  |   |   |   | 14,993 |   |
| Total operating expenses                                                                                                                         |   |                            | 25,034   |   |                                |   | 23,888 |   |   |   | 76,948  |   |   |   | 77,397 |   |
| Loss from operations                                                                                                                        |   |                            | (24,253  | )      |                                |   | (21,757 | ) |   |   | (73,293  | ) |   |   | (68,109 | ) |
| Gain on investments, net                                                                                                                         |   |                            | —  |   |                                |   | 185 |   |   |   | 141  |   |   |   | 1,008 |   |
| Interest income                                                                                                                             |   |                            | 51       |   |                                |   | 103 |   |   |   | 468  |   |   |   | 669 |   |
| Interest expense                                                                                                                            |   |                            | (637     | )      |                                |   | (785 | ) |   |   | (2,093  | ) |   |   | (2,180 | ) |
| Other expense, net                                                                                                                               |   |                            | (2,700   | )      |                                |   | (516 | ) |   |   | (4,025  | ) |   |   | (2,037 | ) |
| Consolidated net loss before taxes                                                                                                               |   |                            | (27,539  | )      |                                |   | (22,770 | ) |   |   | (78,802  | ) |   |   | (70,649 | ) |
| Income tax benefit                                                                                                                               |   |                            | 26       |   |                                |   | 102 |   |   |   | 26  |   |   |   | 102 |   |
| Consolidated net loss                                                                                                                            |   |                            | (27,513  | )      |                                |   | (22,668 | ) |   |   | (78,776  | ) |   |   | (70,547 | ) |
| Less: Net loss attributable to noncontrolling interest in Symphony Icon, Inc.  (Note 4)                                                |   |                            | —  |   |                                |   | 3,526 |   |   |   | —  |   |   |   | 9,772 |   |
| Net loss attributable to Lexicon Pharmaceuticals, Inc.                                                                                           |   | $                               | (27,513  | )      |                                | $      | (19,142 | ) |   | $ | (78,776  | ) |   | $ | (60,775 | ) |
|                                                                                                                                             |   |                            |          |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Net loss attributable to Lexicon Pharmaceuticals, Inc. per common share, basic and diluted                                                       |   | $                               | (0.08    | )      |                                | $      | (0.14 | ) |   | $ | (0.27  | ) |   | $ | (0.44 | ) |
| Shares used in computing net loss attributable to Lexicon Pharmaceuticals, Inc. per common share, basic and diluted                    |   |                            | 337,404  |   |                                |   | 137,313 |   |   |   | 291,196  |   |   |   | 137,240 |   |

----

Consolidated Statements of Stockholders’ Equity

|                                                                                |   | Lexicon Pharmaceuticals, Inc. Stockholders |    |   |      |   |    |                      |   |
|-------------------------------------------------------------------------------------|--------|--------------------------------------------|---------|--------|-----------|--------|---------|---------------------------|--------|
|                                                                                |   |                                       |    |   |      |   |    | Additional Paid-InCapital |   |   | Accumulated Deficit |   |   | Accumulated Other Comprehensive Loss |   |   | Treasury Stock |   |   | Total |   |   | Noncontrolling Interest(Note 4) |   |   | Total Equity |   |
|                                                                                |   | Common Stock                               |    |
|                                                                                |   | Shares                                     |    |   | Par Value |   |
| Balance at December 31, 2008                                                        |   |                                       | 136,797 |   |      | $      | 137     |                      |   | $ | 672,838 |   |   | $ | (487,395 | ) |   | $ | — |   |   | $ | — |   |   | $ | 185,580 |   |   | $ | 10,247 |   |   | $ | 195,827 |   |
| Stock-based compensation                                                            |   |                                       | — |   |      |   | — |                      |   |   | 4,443 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 4,443 |   |   |   | — |   |   |   | 4,443 |   |
| Grant of restricted stock                                                           |   |                                       | 534     |   |      |   | — |                      |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Exercise of common stock options                                                    |   |                                       | 121     |   |      |   | — |                      |   |   | 265 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 265 |   |   |   | — |   |   |   | 265 |   |
| Repurchase of common stock                                                          |   |                                       | — |   |      |   | — |                      |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (88 | ) |   |   | (88 | ) |   |   | — |   |   |   | (88 | ) |
| Net loss                                                                            |   |                                       | — |   |      |   | — |                      |   |   | — |   |   |   | (60,775 | ) |   |   | — |   |   |   | —  |   |   |   | (60,775 | ) |   |   | (9,772 | ) |   |   | (70,547 | ) |
| Unrealized loss on investments                                                      |   |                                       | — |   |      |   | — |                      |   |   | — |   |   |   | — |   |   |   | (1 | ) |   |   | —  |   |   |   | (1 | ) |   |   | — |   |   |   | (1 | ) |
| Comprehensive loss                                                                  |   |                                       |    |   |      |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (60,776 | ) |   |   |   |   |   |   | (70,548 | ) |
| Balance at September 30, 2009                                                       |   |                                       | 137,452 |   |      | $      | 137     |                      |   | $ | 677,546 |   |   | $ | (548,170 | ) |   | $ | (1 | ) |   | $ | (88 | ) |   | $ | 129,424 |   |   | $ | 475 |   |   | $ | 129,899 |   |
|                                                                                |   |                                       |    |   |      |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2009                                                        |   |                                       | 175,785 |   |      | $      | 176     |                      |   | $ | 733,874 |   |   | $ | (570,175 | ) |   | $ | — |   |   | $ | (88 | ) |   | $ | 163,787 |   |   | $ | (290 | ) |   | $ | 163,497 |   |
| Deconsolidation of Symphony Icon                                                    |   |                                       | — |   |      |   | — |                      |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 290 |   |   |   | 290 |   |
| Cumulative-effect adjustment for adoption of new accounting principle (Note 4) |   |                                       | — |   |      |   | — |                      |   |   | — |   |   |   | (1,456 | ) |   |   | — |   |   |   | — |   |   |   | (1,456 | ) |   |   | — |   |   |   | (1,456 | ) |
| Stock-based compensation                                                            |   |                                       | — |   |      |   | — |                      |   |   | 3,958 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 3,958 |   |   |   | — |   |   |   | 3,958 |   |
| Issuance of common stock, net of fees                                               |   |                                       | 161,770 |   |      |   | 162     |                      |   |   | 181,312 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 181,474 |   |   |   | — |   |   |   | 181,474 |   |
| Exercise of common stock options                                                    |   |                                       | 7       |   |      |   | — |                      |   |   | 17 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 17 |   |   |   | — |   |   |   | 17 |   |
| Repurchase of common stock                                                          |   |                                       | — |   |      |   | — |                      |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (149 | )  |   |   | (149 | ) |   |   | — |   |   |   | (149 | ) |
| Net loss                                                                            |   |                                       | — |   |      |   | — |                      |   |   | — |   |   |   | (78,776 | ) |   |   | — |   |   |   | — |   |   |   | (78,776 | ) |   |   | — |   |   |   | (78,776 | ) |
| Unrealized loss on investments                                                      |   |                                       | — |   |      |   | — |                      |   |   | — |   |   |   | — |   |   |   | (1 | ) |   |   | — |   |   |   | (1 | ) |   |   | — |   |   |   | (1 | ) |
| Comprehensive loss                                                                  |   |                                       |    |   |      |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (78,777 | ) |   |   |   |   |   |   | (78,777 | ) |
| Balance at  September 30, 2010                                            |   |                                       | 337,562 |   |      | $      | 338     |                      |   | $ | 919,161 |   |   | $ | (650,407 | ) |   | $ | (1 | ) |   | $ | (237 | )  |   | $ | 268,854 |   |   | $ | — |   |   | $ | 268,854 |   |
|                                                                                |   |                                       |    |   |      |   |    |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Consolidated Statements of Cash Flows

|                                                                                                                                |   | Nine Months Ended September 30, |    |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|
|                                                                                                                                |   | 2010                                 |    |   | 2009 |   |
| Cash flows from operating activities:                                                                                               |   |                                 |    |   |   |   |
| Consolidated net loss                                                                                                               |   | $                                    | (78,776 | ) |   | $ | (70,547 | ) |
|         Adjustments to reconcile consolidated net loss to net cash used in operating activities: |   |                                 |    |   |   |   |   |   |
| Depreciation                                                                                                                        |   |                                 | 4,082   |   |   |   | 4,760 |   |
| Impairment of fixed assets                                                                                                          |   |                                 | 50      |   |   |   | 445 |   |
| Amortization of Symphony Icon, Inc. purchase option                                                                                 |   |                                 | 3,957   |   |   |   | 1,606 |   |
| Change in fair value of Symphony Icon, Inc. purchase liability                                                                      |   |                                 | 1,145   |   |   |   | — |   |
| Stock-based compensation                                                                                                            |   |                                 | 3,958   |   |   |   | 4,078 |   |
| Gain on auction rate securities (“ARS”)                                                                                 |   |                                 | (9,866  | ) |   |   | (2,396 | ) |
| Loss on ARS Rights                                                                                                                  |   |                                 | 9,725   |   |   |   | 1,388 |   |
| (Gain) loss on disposal of property and equipment                                                                                   |   |                                 | 52      |   |   |   | (15 | ) |
| Changes in operating assets and liabilities:                                                                                        |   |                                 |    |   |   |   |   |   |
| Increase in accounts receivable                                                                                                     |   |                                 | (108    | ) |   |   | (779 | ) |
| (Increase) decrease in prepaid expenses and other current assets                                                                    |   |                                 | 6,328   |   |   |   | (1,730 | ) |
| (Increase) decrease in other assets                                                                                                 |   |                                 | (96     | ) |   |   | 78 |   |
| Decrease in accounts payable and other liabilities                                                                                  |   |                                 | (3,311  | ) |   |   | (4,062 | ) |
| Decrease in deferred revenue                                                                                                        |   |                                 | (95     | ) |   |   | (4,591 | ) |
| Net cash used in operating activities                                                                                               |   |                                 | (62,955 | ) |   |   | (71,765 | ) |
| Cash flows from investing activities:                                                                                               |   |                                 |    |   |   |   |   |   |
| Purchases of property and equipment                                                                                                 |   |                                 | (878    | ) |   |   | (303 | ) |
| Proceeds from disposal of property and equipment                                                                                    |   |                                 | 44      |   |   |   | 110 |   |
| Purchases of investments held by Symphony Icon, Inc.                                                                                |   |                                 | — |   |   |   | (1,500 | ) |
| Maturities of investments held by Symphony Icon, Inc. (Note 4)                                                                      |   |                                 | — |   |   |   | 12,427 |   |
| Acquisition of Symphony Icon, Inc., net of cash acquired                                                                            |   |                                 | (5,561  | ) |   |   | — |   |
| Purchases of investments                                                                                                       |   |                                 | (5,999  | ) |   |   | (59,955 | ) |
| Maturities of investments                                                                                                           |   |                                 | 43,651  |   |   |   | 60,550 |   |
| Net cash provided by investing activities                                                                                           |   |                                 | 31,257  |   |   |   | 11,329 |   |
| Cash flows from financing activities:                                                                                               |   |                                 |    |   |   |   |   |   |
| Proceeds from issuance of common stock                                                                                              |   |                                 | 181,491 |   |   |   | 265 |   |
| Repurchase of common stock                                                                                                          |   |                                 | (149    | ) |   |   | (88 | ) |
| Proceeds from debt borrowings                                                                                                       |   |                                 | 11,377  |   |   |   | 38,592 |   |
| Repayment of debt borrowings                                                                                                        |   |                                 | (49,587 | ) |   |   | (1,470 | ) |
| Net cash provided by financing activities                                                                                           |   |                                 | 143,132 |   |   |   | 37,299 |   |
| Net increase (decrease) in cash and cash equivalents                                                                                |   |                                 | 111,434 |   |   |   | (23,137 | ) |
| Cash and cash equivalents at beginning of period                                                                                    |   |                                 | 100,554 |   |   |   | 85,873 |   |
| Cash and cash equivalents at end of period                                                                                          |   | $                                    | 211,988 |   |   | $ | 62,736 |   |
|                                                                                                                                |   |                                 |    |   |   |   |   |   |
| Supplemental disclosure of cash flow information:                                                                                   |   |                                 |    |   |   |   |   |   |
| Cash paid for interest                                                                                                              |   | $                                    | 1,828   |   |   | $ | 1,897 |   |
|                                                                                                                                |   |                                 |    |   |   |   |   |   |
| Supplemental disclosure of non-cash investing and financing activities:                                                             |   |                                 |    |   |   |   |   |   |
| Unrealized loss on investments                                                                                                      |   | $                                    | (1      | ) |   | $ | (1 | ) |
| Intangible assets acquired with long-term liabilities                                                                               |   |                                 | (43,557 | ) |   |   | — |   |

----

Notes to Consolidated Financial Statements

----

|                                |   | Expected Volatility |   |   | Risk-free Interest Rate |   |   | Expected Term |   |   | DividendRate |   |
|-------------------------------------|--------|---------------------|--------|--------|-------------------------|--------|--------|---------------|--------|--------|--------------|--------|
| September 30, 2010:                 |   |                |   |   |                    |   |   |          |   |   |         |   |
| Employees                           |   |                | 86     | %      |                    |   | 2.3    | %             |   |   | 5            |   |   |   | 0 | % |
| Officers and non-employee directors |   |                | 80     | %      |                    |   | 3.3    | %             |   |   | 8            |   |   |   | 0 | % |
| September 30, 2009:                 |   |                |   |   |                    |   |   |          |   |   |         |   |   |   |   |   |
| Employees                           |   |                | 78     | %      |                    |   | 1.9    | %             |   |   | 5            |   |   |   | 0 | % |
| Officers and non-employee directors |   |                | 77     | %      |                    |   | 2.7    | %             |   |   | 8            |   |   |   | 0 | % |

|                              |   | Options        |   |    | Weighted Average Exercise Price |
|-----------------------------------|--------|----------------|--------|---------|---------------------------------|
|                              |   | (in thousands) |   |    |                            |
| Outstanding at December 31, 2009  |   |           | 17,346 |    |                            | $ | 4.16 |
| Granted                           |   |           | 4,875  |    |                            |   | 1.87 |
| Exercised                         |   |           | (7     | )  |                            |   | 2.50 |
| Expired                           |   |           | (1,824 | )  |                            |   | 6.44 |
| Forfeited                         |   |           | (416   | )       |                            |   | 1.72 |
| Outstanding at September 30, 2010 |   |           | 19,974 |    |                            |   | 3.44 |
| Exercisable at September 30, 2010 |   |           | 11,351 |    |                            | $ | 4.67 |

|                             |   | Shares         |    |   | Weighted Average Grant DateFair Value |
|----------------------------------|--------|----------------|---------|--------|---------------------------------------|
|                             |   | (in thousands) |    |   |                                  |
| Outstanding at December 31, 2009 |   |           | 255     |   |                                  | $ | 1.45 |
| Vested                           |   |           | (255    | )      |                                  |   | 1.45 |
| Nonvested at September 30, 2010  |   |           | — |   |                                  |   $ | — |

|                             |   | Shares         |    |   | Weighted Average Grant DateFair Value |
|----------------------------------|--------|----------------|---------|--------|---------------------------------------|
|                             |   | (in thousands) |    |   |                                  |
| Outstanding at December 31, 2009 |   |           | — |   |                                  | $ | — |
| Granted                          |   |           | 387     |   |                                  |   | 1.90 |
| Nonvested at September 30, 2010  |   |           | 387     |   |                                  |   $ | 1.90 |

----

----

|                                                     |   | As of September 30, 2010 |           |
|----------------------------------------------------------|--------|--------------------------|----------------|
|                                                     |   | Amortized Cost           |           |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
|                                                     |   | (in thousands)           |           |
| Cash and cash equivalents                                |   | $                        |   211,988 |   |   | $ | — |   |   | $ | — |   |   | $ |   211,988 |   |
|                                                     |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities maturing within one year:                     |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Certificates of deposit                                  |   |                     |   545     |   |   |   | — |   |   |   | — |   |   |   | 545  |   |
| U.S. treasury securities                                 |   |                     | 18,486         |   |   |   | — |   |   |   | (1 | ) |   |   | 18,485 |   |
| Total short-term investments                             |   | $                        |   19,031  |   |   | $ | — |   |   | $ | (1 | ) |   | $ |   19,030 |   |
|                                                     |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total cash and cash equivalents and investments          |   | $                        |   231,019 |   |   | $ | — |   |   | $ | (1 | ) |   | $ |   231,018 |   |
|                                                     |   |                     |           |
|                                                     |   |                     |           |
|                                                     |   | As of December 31, 2009  |           |
|                                                     |   | Amortized Cost           |           |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
|                                                     |   |                     |           |   | (in thousands) |   |   |   |   |
| Cash and cash equivalents                                |   | $                        | 100,554        |   |   | $ | — |   |   | $ | — |   |   | $ | 100,554 |   |
|                                                     |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities maturing within one year:                     |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Certificates of deposit                                  |   |                     | 508            |   |   |   | — |   |   |   | — |   |   |   | 508 |   |
| ARS rights                                               |   |                     | —        |   |   |   | 9,725 |   |   |   | — |   |   |   | 9,725 |   |
| Securities maturing after ten years:                     |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Auction rate securities                                  |   |                     | 56,175         |   |   |   | — |   |   |   | (9,866 | ) |   |   | 46,309 |   |
| Total short-term investments                             |   | $                        | 56,683         |   |   | $ | 9,725 |   |   | $ | (9,866 | ) |   | $ | 56,542 |   |
| Short-term investments held by Symphony Icon, Inc.:      |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                |   |                     | 5,417          |   |   |   | — |   |   |   | — |   |   |   | 5,417 |   |
| Total short-term investments held by Symphony Icon, Inc. |   | $                        | 5,417          |   |   | $ | — |   |   | $ | — |   |   | $ | 5,417 |   |
|                                                     |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total cash and cash equivalents and investments          |   | $                        | 162,654        |   |   | $ | 9,725 |   |   | $ | (9,866 | ) |   | $ | 162,513 |   |
|                                                     |   |                     |           |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|   | · | Level 1 – quoted prices in active markets for identical investments |
|--------|--------|---------------------------------------------------------------------------|

|   | · | Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.) |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments) |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                            | Assets and Liabilities at Fair Valueas of September 30, 2010 |   |
|-------------------------------------------------|--------------------------------------------------------------|--------|
|                                            | Level 1                                                      |   | Level 2 |   | Level 3 |   |   | Total |   |
|                                            | (in thousands)                                               |   |
| Assets                                          |                                                         |   |
| Cash and cash equivalents                       |                                                         | $      | 211,988 |   |   | $ | — |   |   | $ | — |   |   | $ | 211,988 |   |
| Short-term investments                          |                                                         |   | 19,030 |   |   |   | — |   |   |   | — |   |   |   | 19,030 |   |
| Total cash and cash equivalents and investments |                                                         | $      | 231,018 |   |   | $ | — |   |   | $ | — |   |   | $ | 231,018 |   |
| Liabilities                                     |                                                         |   |
| Other long-term liabilities                     |                                                         | $      | — |   |   | $ | — |   |   | $ | 46,702 |   |   | $ | 46,702 |   |
| Total liabilities                               |                                                         | $      | — |   |   | $ | — |   |   | $ | 46,702 |   |   | $ | 46,702 |   |

|                                               | Assets at Fair Valueas of December 31, 2009 |   |
|----------------------------------------------------|---------------------------------------------|--------|
|                                               | Level 1                                     |   | Level 2 |   | Level 3 |   |   | Total |   |
|                                               | (in thousands)                              |   |
| Assets                                             |                                        |   |
| Cash and cash equivalents                          |                                        | $      | 100,554 |   |   | $ | — |   |   | $ | — |   |   | $ | 100,554 |   |
| Short-term investments                             |                                        |   | 508 |   |   |   | — |   |   |   | 56,034 |   |   |   | 56,542 |   |
| Short-term investments held by Symphony Icon, Inc. |                                        |   | 5,417 |   |   |   | — |   |   |   | — |   |   |   | 5,417 |   |
| Total cash and cash equivalents and investments    |                                        | $      | 106,479 |   |   | $ | — |   |   | $ | 56,034 |   |   | $ | 162,513 |   |

|                                                              |   | Short-term Investments |    |   | Long-term Investments |   |           | Total  |   |
|-------------------------------------------------------------------|--------|------------------------|---------|--------|-----------------------|--------|----------------|--------|--------|
|                                                              |   | (in thousands)         |    |
| Balance at December 31, 2009                                      |   | $                      | 56,034  |   |                  | $      |   — |   |   | $ | 56,034 |   |
| Unrealized gains included in earnings as gain on investments, net |   |                   | 141     |   |                  |   |   — |   |   |   | 141 |   |
| Net sales and settlements                                         |   |                   | (56,175 | )      |                  |   |   — |   |   |   | (56,175 | ) |
| Balance at September 30, 2010                                     |   | $                      | — |   |                  | $      | —        |   |   | $ | — |   |
|                                                              |   |                   |    |   |                  |   |           |   |   |   |   |   |
| Balance at December 31, 2008                                      |   | $                      | — |   |                  | $      |   55,686  |   |   | $ |  55,686 |   |
| Unrealized gains included in earnings as gain on investments, net |   |                   | 185     |   |                  |   |   823     |   |   |   | 1,008 |   |
| Net sales and settlements                                         |   |                   | (375    | )      |                  |   | (100           | )      |   |   | (475 | ) |
| Reclassification from long-term to short-term investments         |   |                   | 56,409  |   |                  |   | (56,409        | )      |   |   | — |   |
| Balance at September 30, 2009                                     |   | $                      | 56,219  |   |                  | $      | —        |   |   |   | 56,219 |   |

|                                                                                       |   | Other Long-term Liabilities |    |
|--------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                       |   | (in thousands)              |    |
| Balance at December 31, 2009                                                               |   | $                           | — |   |
| Purchase consideration liability resulting from the Symphony Icon acquisition              |   |                        | 45, 557 |   |
| Change in valuation of purchase consideration payable to former Symphony Icon stockholders |   |                        | 1,145   |   |
| Balance at September 30, 2010                                                              |   | $                           | 46,702  |   |

----

----

----

----

| Cash and cash equivalents                                     |   | $      | 4,439  |   |
|---------------------------------------------------------------|--------|--------|--------|--------|
| Prepaid expenses                                              |   |   | 545    |   |
| Intangible assets – in-process research and development |   |   | 53,557 |   |
| Total identifiable assets                                     |   |   | 58,541 |   |
| Accounts payable and accrued liabilities                      |   |   | (2,984 | )      |
| Total liabilities assumed                                     |   |   | (2,984 | )      |
| Net assets acquired                                           |   | $      | 55,557 |   |

----

----

Item 2. 

----

|                |   | Three Months Ended September 30, |   | Nine Months Ended September 30, |   |
|---------------------|--------|---------------------------------------|--------|---------------------------------|--------|
|                |   | 2010                                  |   | 2009                            |   | 2010 |   | 2009 |   |
| Total revenues      |   | $                                     | 0.8    |                            |   | $ | 2.1 |   | $ | 3.7 |   |   | $ | 9.3 |   |
| Dollar decrease     |   | $                                     | (1.4   | )                               |   |   |   |   | $ | (5.6 | ) |   |   |   |   |
| Percentage decrease |   |                                  | (63    | )%                              |   |   |   |   |   | (61 | )% |   |   |   |   |

|   | · | Collaborative research – Revenue from collaborative research for the three months ended September 30, 2010 decreased 62% to $0.6 million, and for the nine months ended September 30, 2010 decreased 57% to $3.4 million, as compared to the corresponding periods in 2009, primarily due to reduced revenues under our alliances with N.V. Organon and Bristol-Myers Squibb due to the completion in 2009 of the target discovery portion of these alliances and reduced revenues under our alliance with Taconic Farms in the three months ended September 30, 2010, as compared to the corresponding period in 2009. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Subscription and license fees – Revenue from subscriptions and license fees for the three months ended September 30, 2010 decreased 69% to $0.1 million, and for the nine months ended September 30, 2010 decreased 83% to $0.2 million, as compared to the corresponding periods in 2009, primarily due to decreases in technology license fees. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                   |   | Three Months Ended September 30, |   | Nine Months Ended September 30, |   |
|----------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                   |   | 2010                                  |   | 2009                                 |   | 2010 |   | 2009 |   |
| Total research and development expense |   | $                                     | 20.1   |                                 |   | $ | 19.3 |   | $ | 61.4 |   |   | $ | 62.4 |   |
| Dollar increase (decrease)             |   | $                                     | 0.8    |                                 |   |   |   |   | $ | (1.0 | ) |   |   |   |   |
| Percentage increase (decrease)         |   |                                  | 4      | %                                    |   |   |   |   |   | (2 | )% |   |   |   |   |

|   | · | Personnel – Personnel costs for the three months ended September 30, 2010 increased 8% to $7.7 million, as compared to the corresponding period in 2009, primarily due to an increase in medical insurance costs.  For the nine months ended September 30, 2010, personnel costs decreased 7% to $23.8 million, as compared to the corresponding period in 2009, primarily due to reductions in our personnel in January 2009 and associated severance costs.  Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Third-party and other services – Third-party and other services for the three months ended September 30, 2010 decreased 14% to $4.5 million, and for the nine months ended September 30, 2010 increased 5% to $15.9 million, as compared to the corresponding periods in 2009, primarily due to the timing of our external preclinical and clinical research and development costs. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Facilities and equipment – Facilities and equipment costs for the three months ended September 30, 2010 decreased 1% to $3.6 million, and for the nine months ended September 30, 2010 decreased 8% to $10.6 million, as compared to the corresponding periods in 2009, primarily due to a decrease in depreciation expense. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Laboratory supplies – Laboratory supplies expense for the three months ended September 30, 2010 decreased 3% to $1.5 million, and for the nine months ended September 30, 2010 decreased 5% to $4.6 million, as compared to the corresponding periods in 2009. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Change in fair value of Symphony Icon purchase liability– The change in fair value of the Symphony Icon purchase liability was $1.1 million for the three and nine months ended September 30, 2010 (see Note 8, Arrangements with Symphony Icon, Inc., of the Notes to Consolidated Financial Statements, for more information). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Stock-based compensation – Stock-based compensation expense for the three months ended September 30, 2010 increased 3% to $0.8 million, and for the nine months ended September 30, 2010 increased 2% to $2.4 million, as compared to the corresponding periods in 2009. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Other – Other costs for the three months ended September 30, 2010 decreased 13% to $0.9 million, and for the nine months ended September 30, 2010 increased 5% to $2.9 million, as compared to the corresponding periods in 2009. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                     |   | Three Months Ended September 30, |   | Nine Months Ended September 30, |   |
|------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                     |   | 2010                                  |   | 2009                                 |   | 2010 |   | 2009 |   |
| Total general and administrative expense |   | $                                     | 4.9    |                                 |   | $ | 4.6 |   | $ | 15.5 |   |   | $ | 15.0 |   |
| Dollar increase                          |   | $                                     | 0.4    |                                 |   |   |   |   | $ | 0.5 |   |   |   |   |   |
| Percentage increase                      |   |                                  | 8      | %                                    |   |   |   |   |   | 4 | % |   |   |   |   |

|   | · | Personnel – Personnel costs for the three months ended September 30, 2010 increased 14% to $2.5 million, as compared to the corresponding period in 2009, primarily due to increases in medical insurance and other benefit costs. For the nine months ended September 30, 2010, personnel costs increased 6% to $7.5 million, as compared to the corresponding period in 2009, primarily due to an increase in severance costs.  Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Professional fees – Professional fees for the three months ended September 30, 2010 increased 9% to $0.8 million, and for the nine months ended September 30, 2010 increased 8% to $3.1 million, as compared to the corresponding periods in 2009, primarily due to changes in patent-related legal costs. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Facilities and equipment – Facilities and equipment costs for the three months ended September 30, 2010 decreased 11% to $0.6 million, and for the nine months ended September 30, 2010 decreased 12% to $1.8 million, as compared to the corresponding periods in 2009. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Stock-based compensation – Stock-based compensation expense for the three months ended September 30, 2010 increased 6% to $0.6 million, and for the nine months ended September 30, 2010 decreased 9% to $1.6 million as compared to the corresponding periods in 2009. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Other – Other costs for the three months ended September 30, 2010 increased 13% to $0.5 million, and for the nine months ended September 30, 2010 increased 26% to $1.5 million, as compared to the corresponding periods in 2009. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|                                                                                                                                                                                                                                                                                                                                                                                             |   | Payments due by period (in millions) |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
| Contractual Obligations                                                                                                                                                                                                                                                                                                                                                                          |   | Total                                |   |   | Less than 1 year |   |   | 2-3 years |   |   | 4-5 years |   |   | More than 5 years |   |
| Debt                                                                                                                                                                                                                                                                                                                                                                                             |   | $                                    | 28.8   |   |   | $ | 1.1 |   |   | $ | 2.5 |   |   | $ | 25.2 |   |   | $ | — |   |
| Interest payment obligations                                                                                                                                                                                                                                                                                                                                                                     |   |                                 | 8.0    |   |   |   | 2.4 |   |   |   | 4.4 |   |   |   | 1.2 |   |   |   | — |   |
| Operating leases                                                                                                                                                                                                                                                                                                                                                                                 |   |                                 | 7.0    |   |   |   | 2.5 |   |   |   | 4.5 |   |   |   | — |   |   |   | — |   |
| Symphony Icon payment obligations1                                                                                                                                                                                                                                                                                                                                                               |   |                                 | 35.0   |   |   |   | — |   |   |   | 35.0 |   |   |   | — |   |   |   | — |   |
| Total                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                    | 78.8   |   |   | $ | 6.0 |   |   | $ | 46.4 |   |   | $ | 26.4 |   |   | $ | — |   |
|   1 Represents expected base payments under Symphony Icon purchase option, which may be paid in cash, common stock, or a combination of cash and common stock, in our discretion, provided that at least 50% of any payment made on or prior to July 30, 2012 will be paid in common stock and no more than 50% of any payment made after such date will be paid in common stock. |

----

Item 3. 

Item 4. 

----

| Part II | Other Information |
|---------|-------------------|

Item 1. 

Item 1A. 

|   | · | We will need additional capital in the future and, if it is unavailable, we will be forced to significantly curtail or cease our operations.  If it is not available on reasonable terms, we will be forced to obtain funds by entering into financing agreements on unattractive terms. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | Our operating results have been and likely will continue to fluctuate, and we believe that period-to-period comparisons of our operating results are not a good indication of our future performance. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We are an early-stage company, and have not proven our ability to successfully develop and commercialize drug candidates based on our drug target discoveries. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Clinical testing of our drug candidates in humans is an inherently risky and time-consuming process that may fail to demonstrate safety and efficacy, which could result in the delay, limitation or prevention of regulatory approval. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our drug candidates are subject to a lengthy and uncertain regulatory process that may not result in the necessary regulatory approvals, which could adversely affect our ability to commercialize products. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | The commercial success of any products that we may develop will depend upon the degree of market acceptance of our products among physicians, patients, health care payors, private health insurers and the medical community. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug candidates, we may be unable to generate product revenues. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | If we are unable to obtain adequate coverage and reimbursement from third-party payors for any products that we may develop, our revenues and prospects for profitability will suffer. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our competitors may develop products that make our products obsolete. |
|--------|--------|-----------------------------------------------------------------------|

|   | · | We may not be able to manufacture our drug candidates in commercial quantities, which would prevent us from commercializing our drug candidates. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We are dependent in many ways upon our collaborations with major pharmaceutical companies.  The revenues we receive under our existing collaborations have been decreasing in recent periods and are likely to continue to decrease in the future.  If we are unable to achieve milestones under our collaborations or if our collaborators’ efforts fail to yield pharmaceutical products on a timely basis, our opportunities to generate revenues and earn royalties will be reduced. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Conflicts with our collaborators could jeopardize the success of our collaborative agreements and harm our product development efforts. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We rely on third parties to carry out drug development activities. |
|--------|--------|--------------------------------------------------------------------|

|   | · | We lack the capability to manufacture materials for preclinical studies, clinical trials or commercial sales and rely on third parties to manufacture our drug candidates, which may harm or delay our product development and commercialization efforts. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | If we are unable to adequately protect our intellectual property, third parties may be able to use our technology, which could adversely affect our ability to compete in the market. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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.  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.  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.  As a result, our international competitors could be granted foreign patent protection with respect to our discoveries. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We may be subject to damages resulting from claims that we, our employees or independent contractors have wrongfully used or disclosed alleged trade secrets of their former employers. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The loss of key personnel or the inability to attract and retain additional personnel could impair our ability to expand our operations. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our collaborations with outside scientists may be subject to restriction and change. |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | Security breaches may disrupt our operations and harm our operating results. |
|--------|--------|------------------------------------------------------------------------------|

----

|   | · | Because most of our operations are located at a single facility, the occurrence of a disaster could significantly disrupt our business. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We use hazardous chemicals and radioactive and biological materials in our business.  Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We may be sued for product liability. |
|--------|--------|---------------------------------------|

|   | · | Our stock price may be extremely volatile. |
|--------|--------|--------------------------------------------|

|   | · | Invus’ ownership of our common stock and its other rights under our stockholders’ agreement we entered into in connection with Invus’ $205.4 million initial investment in our common stock provide Invus with substantial influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, as well as other corporate matters. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | · | Future sales of our common stock may depress our stock price. |
|--------|--------|---------------------------------------------------------------|

|   | · | If we are unable to meet Nasdaq continued listing requirements, Nasdaq may take action to delist our common stock. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

Item 6. 

| Exhibit No. |    | Description                                                                                                                     |
|-------------|---------|---------------------------------------------------------------------------------------------------------------------------------|
| 10.1        | — | Consulting Agreement with Alan S. Nies, M.D. dated February 19, 2003, as amended                                                |
| 31.1        | — | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                          |
| 31.2        | — | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                          |
| 32.1        | — | Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

----

Signatures

|                              | Lexicon Pharmaceuticals, Inc. |
|-----------------------------------|-------------------------------|
|                              |                          |   |
| Date:  November 8, 2010 | By:                           | /s/ Arthur T. Sands |
|                              |                          | Arthur T. Sands, M.D., Ph.D. |
|                              |                          | President and Chief Executive Officer |

| Date:  November 8, 2010 | By:    | /s/ Jeffrey L. Wade                                                        |
|-----------------------------------|--------|----------------------------------------------------------------------------|
|                              |   | Jeffrey L. Wade                                                            |
|                              |   | Executive Vice President, Corporate Developmentand Chief Financial Officer |

----

| Exhibit No. |    | Description                                                                                                                     |
|-------------|---------|---------------------------------------------------------------------------------------------------------------------------------|
| 10.1        | — | Consulting Agreement with Alan S. Nies, M.D. dated February 19, 2003, as amended                                                |
| 31.1        | — | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                          |
| 31.2        | — | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                          |
| 32.1        | — | Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |