Edgar Filing: LEXICON GENETICS INC/TX

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-108855

5,000,000 SHARES

(LEXICON GENETICS INCORPORATED LOGO)

LEXICON GENETICS INCORPORATED

COMMON STOCK

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This prospectus relates to the offer and sale of previously issued shares
of our common stock by selling stockholders. The selling stockholders are
offering up to 5,000,000 shares of our common stock. See "Selling Stockholders"
beginning on page 16.

We will not receive any proceeds from the sale of the shares offered by the
selling stockholders.

The selling stockholders may offer the shares from time to time through
public or private transactions at prevailing market prices, at prices related to
prevailing market prices or at privately negotiated prices.

Our common stock is listed on The Nasdaq National Market under the symbol
"LEXG". The last reported sale price on October 24, 2003 was $5.31 per share.

INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The date of this prospectus is October 27, 2003.

TABLE OF CONTENTS

PAGE PAGE
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Lexicon Genetics Incorporated.............. 3 Plan of Distribution....................... 17
Risk Factors............................... 4 Legal Matters............................... 19
Special Note Regarding Forward-Looking Experts..................................... 19
Statements.............................. 16 Where You Can Find More Information......... 19
Use of Proceeds............................ 16 Documents Incorporated by Reference......... 19
Selling Stockholders....................... 16

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This prospectus is part of a registration statement that we have filed on
Form S-3 with the Securities and Exchange Commission using a "shelf"
registration process. This means that the securities described in this
prospectus may be offered and sold using this prospectus from time to time as
described in the "Plan of Distribution." As allowed by the SEC's rules, this
prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement. Please see
"Where You Can Find More Information" on page 19.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS AND
DOCUMENTS INCORPORATED INTO THIS PROSPECTUS BY REFERENCE. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS OR THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. THIS PROSPECTUS
MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION
CONTAINED IN THIS PROSPECTUS, THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND
ANY SUPPLEMENTS TO THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATES OF THEIR
RESPECTIVE COVERS OR EARLIER DATES AS SPECIFIED THEREIN, REGARDLESS OF THE TIME
OF DELIVERY OF THIS PROSPECTUS OR ANY SUPPLEMENT TO THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON STOCK.

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In this prospectus, "Lexicon," "Lexicon Genetics," "we," "us" and "our"
refer to Lexicon Genetics Incorporated and its subsidiary.

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

LEXICON GENETICS INCORPORATED

Lexicon Genetics is a biopharmaceutical company focused on the discovery of
breakthrough treatments for human disease. We use proprietary gene knockout
technology to systematically discover the physiological functions of genes in
mice and to identify which corresponding human genes encode potential targets
for therapeutic intervention, or drug targets. For those targets that we
consider to have high pharmaceutical value, we engage in programs for the
discovery and development of potential small molecule drugs, therapeutic
antibodies and therapeutic proteins. Our physiology-based approach to
understanding gene function and our use of mouse models in our drug discovery
efforts allow us to make highly-informed decisions throughout the drug discovery
and development process, which we believe will increase our likelihood of
success in discovering breakthrough therapeutics.

We are using our gene knockout technology to discover the physiological
functions of 5,000 genes from the human genome that belong to gene families that
we consider to be pharmaceutically important. Our state-of-the-art animal
facilities enable us to capitalize on our gene knockout and physiological
analysis technologies by generating knockout mice and analyzing the
physiological function of genes on a large scale. Using this physiological
information, we select targets for our drug discovery programs that, when
knocked out, exhibit favorable therapeutic profiles with potential for
addressing large medical markets. We focus our discovery efforts in five
therapeutic areas - metabolic disorders, cardiovascular disease, cancer, immune
system disorders and neurological disorders - and we have established
significant internal expertise in each of these areas.

We are working both independently and through strategic collaborations and
alliances to commercialize our technology and turn our discoveries into drugs.
We have established multiple collaborations with leading pharmaceutical and
biotechnology companies, as well as research institutes and academic
institutions. We are working with Genentech, Inc. to discover the functions of
secreted proteins and potential antibody targets identified through Genentech's
internal drug discovery research. We are working with Abgenix, Inc. to discover
and develop therapeutic antibodies for in vivo-validated drug targets identified
in our own research. We are also working with Incyte Corporation to discover and
develop therapeutic proteins. In addition, we have established collaborations
and license agreements with many other leading pharmaceutical and biotechnology
companies under which we receive fees and, in many cases, are eligible to
receive milestone and royalty payments, in return for granting access to some of
our technologies and discoveries for use in such companies' own drug discovery
efforts.

Lexicon Genetics was incorporated in Delaware in July 1995, and commenced
operations in September 1995. Our corporate headquarters are located at 8800
Technology Forest Place, The Woodlands, Texas 77381, and our telephone number is
(281) 863-3000.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are made
available free of charge on our corporate website located at
www.lexicon-genetics.com as soon as reasonably practicable after the filing of
those reports with the Securities and Exchange Commission. Information found on
our website should not be considered part of this prospectus.

RISK FACTORS

An investment in our common stock involves risks. You should carefully
consider the following risk factors, together with all of the other information
included in, or incorporated by reference into, this prospectus in evaluating an
investment in our common stock. If any of the following risks were to occur, our
business, financial condition or results of operations could be materially
adversely affected. In that case, the trading price of our common stock could
decline and you could lose all or part of your investment.

RISKS RELATED TO OUR COMPANY AND BUSINESS

WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR NET
LOSSES AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.

We have incurred net losses since our inception, including net losses of
$59.7 million for the year ended December 31, 2002 and $34.8 million for the six
months ended June 30, 2003. As of June 30, 2003, we had an accumulated deficit
of $184.5 million. We are unsure when we will become profitable, if ever. The
size of our net losses will depend, in part, on the rate of growth, if any, in
our revenues and on the level of our expenses.

We derive substantially all of our revenues from subscriptions to our
LexVision database and our OmniBank library, drug discovery alliances, target
validation collaborations for the development and, in some cases, analysis of
the physiological effects of genes altered in knockout mice and technology
licenses, and will continue to do so for the foreseeable future. Our future
revenues from database subscriptions, alliances and collaborations are uncertain
because our existing agreements have fixed terms or relate to specific projects
of limited duration. Our future revenues from technology licenses are uncertain
because they depend, in part, on securing new agreements. Our ability to secure
future revenue-generating agreements will depend upon our ability to address the
needs of our potential future subscribers, collaborators and licensees, and to
negotiate agreements that we believe are in our long-term best interests. We may
determine that our interests are better served by retaining rights to our
discoveries and advancing our therapeutic programs to a later stage, which could
limit our near-term revenues. Given the early-stage nature of our operations, we
do not currently derive any revenues from sales of pharmaceuticals.

A large portion of our expenses is fixed, including expenses related to
facilities, equipment and personnel. In addition, we expect to spend significant
amounts to fund research and development and to enhance our core technologies.
As a result, we expect that our operating expenses will continue to increase
significantly in the near term and, consequently, we will need to generate
significant additional revenues to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.

WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE AND, IF IT IS NOT AVAILABLE,
WE WILL HAVE TO CURTAIL OR CEASE OPERATIONS.

Our future capital requirements will be substantial and will depend on many
factors, including:

o our ability to obtain alliance, database subscription, collaboration and
technology license agreements;

o the amount and timing of payments under such agreements;

o the level and timing of our research and development expenditures;

o market acceptance of products that we successfully develop and
commercially launch; and

o the resources we devote to developing and supporting such products.

Our capital requirements will increase substantially to the extent we
advance potential therapeutics into preclinical and clinical development. Our
capital requirements will also be affected by any expenditures we make in
connection with license agreements and acquisitions of and investments in
complementary products and technologies.

We anticipate that our existing capital resources and the revenues we
expect to derive from drug discovery alliances, subscriptions to our databases,
target validation collaborations and technology licenses will enable us to

fund our currently planned operations for approximately the next 24 months.
However, we may generate less revenues than we expect, and changes may occur
that would consume available capital resources more rapidly than we expect. If
our capital resources are insufficient to meet future capital requirements, we
will have to raise additional funds to continue the development of our
technologies and complete the commercialization of products, if any, resulting
from our technologies. Any sale of additional equity securities may result in
additional dilution to our stockholders, and we cannot be certain that
additional financing, whether debt or equity, will be available in amounts or on
terms acceptable to us, if at all. In addition, any of such additional equity
securities may be senior to our common stock. We may be unable to raise
sufficient additional capital; if so, we will have to curtail or cease
operations.

WE ARE AN EARLY-STAGE COMPANY, AND WE HAVE NOT SUCCESSFULLY DEVELOPED OR
COMMERCIALIZED ANY THERAPEUTICS OR DRUG TARGETS THAT WE HAVE IDENTIFIED.

Our business strategy of using our technology platform and, specifically,
the discovery of the functions of genes using knockout mice to select promising
drug targets and developing and commercializing drugs based on our discoveries,
in significant part through collaborations and alliances, is unproven. Our
success will depend upon our ability to successfully develop potential
therapeutics for drug targets we consider to have pharmaceutical value, whether
on our own or through collaborations, and to select an appropriate
commercialization strategy for each potential therapeutic we choose to pursue.

Biotechnology and pharmaceutical companies have successfully developed and
commercialized only a limited number of genomics-derived pharmaceutical products
to date. We have not proven our ability to develop or commercialize therapeutics
or drug targets that we identify, nor have we advanced any drug candidates to
preclinical or clinical trials. We do not know that any pharmaceutical products
based on our drug target discoveries can be successfully commercialized. In
addition, we may experience unforeseen technical complications in the processes
we use to generate knockout mice, conduct in vivo analyses, generate compound
libraries, develop screening assays for drug targets or conduct screening of
compounds against those drug targets. These complications could materially delay
or limit the use of those resources, substantially increase the anticipated cost
of generating them or prevent us from implementing our processes at appropriate
quality and throughput levels. Finally, the information that we learn from
knockout mice may prove not to be useful in identifying
pharmaceutically-important drug targets or safe and effective therapies.

WE FACE SUBSTANTIAL COMPETITION IN THE DISCOVERY OF THE DNA SEQUENCES OF
GENES AND THEIR FUNCTIONS AND IN OUR DRUG DISCOVERY AND PRODUCT DEVELOPMENT
EFFORTS.

There are a finite number of genes in the human genome, and we believe that
the majority of such genes have been identified and that virtually all will be
identified within the next few years. We face substantial competition in our
efforts to discover and patent the sequence and other information derived from
such genes from entities using alternative, and in some cases higher volume and
larger scale, approaches for the same purpose.

We also face competition from other companies in our efforts to discover
the functions of genes. A large number of universities and other not-for-profit
institutions, many of which are funded by the United States and foreign
governments, are also conducting research to discover the functions of genes.
Competitors could discover and establish patents on genes or gene products that
we identify as promising drug targets, which might hinder or prevent our ability
to capitalize on such targets.

We may not be able to use our patent rights to prevent competition in the
creation and use of knockout mice to discover the function of genes. Patent
litigation is very expensive and time-consuming, and, therefore, it may not be
cost-effective or otherwise expedient to pursue litigation if another entity
infringes our patent rights relating to the creation and use of knockout mice.
Our patent rights generally do not extend outside of the United States. We
therefore are generally unable to prevent entities outside of the United States
from using our knockout mouse technology or, in certain circumstances, from
importing into the United States products developed using this technology.
Furthermore, other methods for conducting target validation research may
ultimately prove superior, in some or all respects, to the use of knockout mice.
In addition, technologies more advanced than or superior to our gene targeting
and gene trapping technologies may be developed, thereby rendering those
technologies obsolete.

We face significant competition from other companies, as well as from
universities and other not-for-profit institutions, in our drug discovery and
product development efforts. Many of our competitors have substantially

greater financial, scientific and human resources than we do. As a result, our
competitors may succeed in developing products earlier than we do, obtaining
regulatory approvals faster than we do and developing products that are more
effective or safer than any that we may develop.

WE RELY HEAVILY ON OUR COLLABORATORS TO DEVELOP AND COMMERCIALIZE
PHARMACEUTICAL PRODUCTS BASED ON GENES THAT WE IDENTIFY AS PROMISING
CANDIDATES FOR DEVELOPMENT AS DRUG TARGETS.

Since we do not currently possess the resources necessary to develop,
obtain approvals for or commercialize potential pharmaceutical products based on
all of the genes that we identify as promising candidates for development as
drug targets or therapeutic proteins, we must enter into collaborative
arrangements to develop and commercialize some of these products. We have
limited or no control over the resources that any collaborator may devote to
this effort. Any of our present or future collaborators may not perform their
obligations as expected. These collaborators may breach or terminate their
agreements with us or otherwise fail to conduct product discovery, development
or commercialization activities successfully or in a timely manner. Further, our
collaborators may elect not to develop pharmaceutical products arising out of
our collaborative arrangements or may not devote sufficient resources to the
development, approval, manufacture, marketing or sale of these products. If any
of these events occurs, we may not be able to develop or commercialize potential
pharmaceutical products.

Some of our existing collaboration agreements contain, and collaborations
that we enter into in the future may contain, exclusivity agreements by us or
other limitations on our activities. These agreements may have the effect of
limiting our flexibility and may cause us to forego attractive business
opportunities.

WE RELY ON SEVERAL KEY COLLABORATORS FOR A SIGNIFICANT PORTION OF OUR
REVENUES.

Most of our revenues in 2002 and the first two quarters of 2003 were
derived from a limited number of collaborators. For the fiscal year ended
December 31, 2002, Incyte accounted for approximately 28% of our revenues,
Bristol-Myers Squibb Company accounted for approximately 14% of our revenues and
Millennium Pharmaceuticals, Inc. accounted for approximately 11% of our
revenues. For the six months ended June 30, 2003, Incyte accounted for
approximately 30% of our revenues and Bristol-Myers Squibb accounted for
approximately 15% of our revenues. In general, we cannot predict with certainty
which, if any, of our major collaborators will continue to generate revenues for
us. The loss of any of these large collaborators would likely significantly
decrease our revenues and future prospects, which could materially and adversely
affect our business, financial condition and results of operations.

CANCELLATIONS BY OR CONFLICTS WITH OUR COLLABORATORS COULD HARM OUR
BUSINESS.

Our alliance and collaboration agreements may not be renewed and may be
terminated in the event either party fails to fulfill its obligations under
these agreements. Failures to renew or cancellations by collaborators could mean
a significant loss of revenues and could adversely affect our reputation in the
business and scientific communities.

In addition, we may pursue opportunities in fields that could conflict with
those of our collaborators. Moreover, disagreements could arise with our
collaborators over rights to our intellectual property or our rights to share in
any of the future revenues of compounds or therapeutic approaches developed by
our collaborators. These kinds of disagreements could result in costly and time
consuming litigation. Conflicts with our collaborators could reduce our ability
to obtain future collaboration agreements and could have a negative impact on
our relationship with existing collaborators, adversely affecting our business
and revenues. Some of our collaborators are also potential competitors or may
become competitors in the future. Our collaborators could develop competing
products, preclude us from entering into collaborations with their competitors
or terminate their agreements with us prematurely. Any of these events could
harm our product development efforts.

WE HAVE NO EXPERIENCE IN DEVELOPING AND COMMERCIALIZING PHARMACEUTICAL
PRODUCTS ON OUR OWN.

Our ability to develop and commercialize pharmaceutical products on our own
will depend on our ability to internally develop preclinical, clinical,
regulatory and sales and marketing capabilities, or enter into arrangements with
third parties to provide these functions. It will be expensive and will require
significant time for us to develop these capabilities internally. We may not be
successful in developing these capabilities or entering into agreements with
third parties on favorable terms, or at all. Further, our reliance upon third
parties for these capabilities could reduce our control over such activities and
could make us dependent upon these parties. Our inability to develop or

contract for these capabilities would significantly impair our ability to
develop and commercialize pharmaceutical products.

WE LACK THE CAPABILITY TO MANUFACTURE COMPOUNDS FOR PRECLINICAL STUDIES,
CLINICAL TRIALS OR COMMERCIAL SALES AND WILL RELY ON THIRD PARTIES TO
MANUFACTURE OUR POTENTIAL PRODUCTS.

We currently do not have the manufacturing capabilities or experience
necessary to produce materials for preclinical studies, clinical trials or
commercial sales and intend to rely on collaborators and third-party contractors
to produce such materials. We will rely on selected manufacturers to deliver
materials on a timely basis and to comply with applicable regulatory
requirements, including the current Good Manufacturing Practices of the United
States Food and Drug Administration, or FDA, which relate to manufacturing and
quality control activities. These manufacturers may not be able to produce
material on a timely basis or manufacture material at the quality level or in
the quantity required to meet our development timelines and applicable
regulatory requirements. In addition, there are a limited number of
manufacturers that operate under the FDA's current Good Manufacturing Practices
and that are capable of producing such materials, and we may experience
difficulty finding manufacturers with adequate capacity for our needs. If we are
unable to contract for the production of sufficient quantity and quality of
materials on acceptable terms, our product development and commercialization
efforts may be delayed. Moreover, noncompliance with the FDA's current Good
Manufacturing Practices can result in, among other things, fines, injunctions,
civil and criminal penalties, product recalls or seizures, suspension of
production, failure to obtain marketing approval and withdrawal, suspension or
revocation of marketing approvals.

WE MAY ENGAGE IN FUTURE ACQUISITIONS, WHICH MAY BE EXPENSIVE AND TIME
CONSUMING AND FROM WHICH WE MAY NOT REALIZE ANTICIPATED BENEFITS.

We may acquire additional businesses, technologies and products if we
determine that these businesses, technologies and products complement our
existing technology or otherwise serve our strategic goals. We currently have no
commitments or agreements with respect to any acquisitions. If we do undertake
any transactions of this sort, the process of integrating an acquired business,
technology or product may result in operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of our business. Moreover, we may never realize the
anticipated benefits of any acquisition. Future acquisitions could result in
potentially dilutive issuances of our equity securities, the incurrence of debt
and contingent liabilities and amortization expenses related to intangible
assets, which could adversely affect our results of operations and financial
condition.

IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, WE MAY BE UNABLE TO PURSUE COLLABORATIONS OR DEVELOP OUR OWN
PRODUCTS.

We are highly dependent on Arthur T. Sands, M.D., Ph.D., our president and
chief executive officer, as well as other principal members of our management
and scientific staff. The loss of any of these personnel could have a material
adverse effect on our business, financial condition or results of operations and
could inhibit our product development and commercialization efforts. Although we
have entered into employment agreements with some of our key personnel,
including Dr. Sands, these employment agreements are all at-will. In addition,
not all key personnel have employment agreements.

Recruiting and retaining qualified scientific personnel to perform future
research and development work will be critical to our success. Competition for
experienced scientists is intense. Failure to recruit and retain scientific
personnel on acceptable terms could prevent us from achieving our business
objectives.

BECAUSE ALL OF OUR TARGET VALIDATION OPERATIONS ARE LOCATED AT A SINGLE
FACILITY, THE OCCURRENCE OF A DISASTER COULD SIGNIFICANTLY DISRUPT OUR
BUSINESS.

Our OmniBank mouse clone library and its backup are stored in liquid
nitrogen freezers located at our facility in The Woodlands, Texas, and our
knockout mouse research operations are carried out entirely at the same
facility. While we have developed redundant and emergency backup systems to
protect these resources and the facilities in which they are stored, they may be
insufficient in the event of a severe fire, flood, hurricane, tornado,
mechanical failure or similar disaster. If such a disaster significantly damages
or destroys the facility in which these resources are maintained, our business
could be disrupted until we could regenerate the affected resources and, as a
result, our

stock price could decline. Our business interruption insurance may not be
sufficient to compensate us in the event of a major interruption due to such a
disaster.

OUR QUARTERLY OPERATING RESULTS HAVE BEEN AND LIKELY WILL CONTINUE TO
FLUCTUATE, AND WE BELIEVE THAT QUARTER-TO-QUARTER COMPARISONS OF OUR
OPERATING RESULTS ARE NOT A GOOD INDICATION OF OUR FUTURE PERFORMANCE.

Our operating results and, in particular, our ability to generate
additional revenues are dependent on many factors, including:

o our ability to establish new database subscriptions, research
collaborations and technology licenses, and the timing of such
arrangements;

o the expiration or other termination of database subscriptions and
research collaborations with our collaborators, which may not be renewed
or replaced;

o the success rate of our discovery efforts leading to opportunities for
new research collaborations and licenses, as well as milestone payments
and royalties;

o the timing and willingness of our collaborators to commercialize
pharmaceutical products that would result in milestone payments and
royalties; and

o general and industry-specific economic conditions, which may affect our
and our collaborators' research and development expenditures.

Because of these and other factors, including the risks and uncertainties
described in this section, our quarterly operating results have fluctuated in
the past and are likely to do so in the future. Due to the likelihood of
fluctuations in our revenues and expenses, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance.

RISKS RELATED TO OUR INDUSTRY

OUR ABILITY TO PATENT OUR INVENTIONS IS UNCERTAIN BECAUSE PATENT LAWS AND
THEIR INTERPRETATION ARE HIGHLY UNCERTAIN AND SUBJECT TO CHANGE.

The patent positions of biotechnology firms generally are highly uncertain
and involve complex legal and factual questions that will determine who has the
right to develop or use a particular technology or product. No clear policy has
emerged regarding the scope of protection provided in biotechnology patents. The
biotechnology patent situation outside the United States is similarly uncertain.
Changes in, or different interpretations of, patent laws in the United States or
other countries might allow others to use our inventions or to develop and
commercialize any technologies or products that we may develop without any
compensation to us. We anticipate that these uncertainties will continue for a
significant period of time.

OUR PATENT APPLICATIONS MAY NOT RESULT IN PATENT RIGHTS.

Our disclosures in our patent applications may not be sufficient to meet
the statutory requirements for patentability. Our ability to obtain patent
protection based on genes or gene sequences will depend, in part, upon
identification of a use for the gene or gene sequences sufficient to meet the
statutory requirements that an invention have utility and that a patent
application enable one to make and use the invention. While the United States
Patent and Trademark Office has issued guidelines for the examination of patent
applications claiming gene sequences, their therapeutic uses and novel proteins
encoded by such genes, the impact of these guidelines is uncertain and may delay
or negatively affect our patent position. Furthermore, biologic data in addition
to that obtained by our current technologies may be required for issuance of
patents covering any potential human therapeutic products that we may develop.
If required, obtaining such biologic data could delay, add substantial costs to,
or affect our ability to obtain patent protection for such products. There can
be no assurance that the disclosures in our current or future patent
applications, including those we may file with our collaborators, will be
sufficient to meet these requirements. Even if patents are issued, there may be
current or future uncertainty as to the scope of the coverage or protection
provided by any such patents.

Some court decisions indicate that disclosure of a partial sequence may not
be sufficient to support the patentability of a full-length sequence. These
decisions have been confirmed by recent pronouncements of the United States
Patent and Trademark Office. We believe that these court decisions and the
uncertain position of the United States Patent and Trademark Office present a
significant risk that the United States Patent and Trademark Office will not
issue patents based on patent disclosures limited to partial gene sequences. In
addition, we are uncertain about the scope of the coverage, enforceability and
commercial protection provided by any patents issued primarily on the basis of
gene sequence information.

IF OTHER COMPANIES AND INSTITUTIONS OBTAIN PATENTS RELATING TO OUR DRUG
TARGET OR PRODUCT CANDIDATE DISCOVERIES, WE MAY BE UNABLE TO OBTAIN PATENTS
FOR OUR INVENTIONS BASED UPON THOSE DISCOVERIES AND MAY BE BLOCKED FROM
USING OR DEVELOPING SOME OF OUR TECHNOLOGIES AND PRODUCTS.

Many other entities have filed or may file patent applications on genes or
gene sequences, uses of those genes or gene sequences, gene products and drug
targets, assays for identifying potential therapeutic products, potential
therapeutic products and methods of treatment which are identical or similar to
some of our filings. Some of these applications attempt to assign biologic
function to the genes and proteins based on predictions of function based upon
similarity to other genes and proteins or patterns of gene expression. There is
the significant possibility that patents claiming the functional uses of such
genes and gene products will be issued to our competitors based on such
information. If any such patents are issued to other entities, we will be unable
to obtain patent protection for the same or similar discoveries that we make.
Moreover, we may be blocked from using or developing some of our existing or
proposed technologies and products, or may be required to obtain a license that
may not be available on reasonable terms, if at all.

Alternatively, the United States Patent and Trademark Office could decide
competing patent claims in an interference proceeding. Any such proceeding would
be costly, and we may not prevail. In this event, the prevailing party may
require us or our collaborators to stop using a particular technology or
pursuing a potential product or may require us to negotiate a license
arrangement to do so. We may not be able to obtain a license from the prevailing
party on acceptable terms, or at all.

The Human Genome Project, as well as many companies and institutions, have
identified genes and deposited partial gene sequences in public databases and
are continuing to do so. The entire human genome and the entire mouse genome are
now publicly known. These public disclosures might limit the scope of our claims
or make unpatentable subsequent patent applications on partial or full-length
genes or their uses.

ISSUED OR PENDING PATENTS MAY NOT FULLY PROTECT OUR DISCOVERIES, AND OUR
COMPETITORS MAY BE ABLE TO COMMERCIALIZE TECHNOLOGIES OR PRODUCTS SIMILAR
TO THOSE COVERED BY OUR ISSUED OR PENDING PATENTS.

Pending patent applications do not provide protection against competitors
because they are not enforceable until they issue as patents. Issued patents may
not provide commercially meaningful protection. If anyone infringes upon our or
our collaborators' patent rights, enforcing these rights may be difficult,
costly and time-consuming. Others may be able to design around these patents or
develop unique products providing effects similar to any products that we may
develop. Other companies or institutions may challenge our or our collaborators'
patents or independently develop similar products that could result in an
interference proceeding in the United States Patent and Trademark Office or a
legal action.

In addition, others may discover uses for genes, drug targets or
therapeutic products other than those covered in our issued or pending patents,
and these other uses may be separately patentable. Even if we have a patent
claim on a particular gene, drug target or therapeutic product, the holder of a
patent covering the use of that gene, drug target or therapeutic product could
exclude us from selling a product that is based on the same use of that product.

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.

Our discovery and development efforts as well as our potential products and
those of our collaborators may give rise to claims that they infringe the
patents of others. This risk will increase as the biotechnology industry expands
and as other companies and institutions obtain more patents covering the
sequences, functions and uses of genes and the drug targets they encode. We are
aware that other companies and institutions have conducted research on many

of the same targets that we have identified. These other companies and
institutions have filed and may in the future file patent applications
potentially covering many of the genes and encoded drug targets that are the
focus of our drug discovery programs, including each of the targets of our most
advanced drug discovery programs. In some cases, patents have issued from these
applications. In addition, many companies and institutions have well-established
patent portfolios directed to common techniques, methods and means of
developing, producing and manufacturing pharmaceutical products. Other companies
or institutions could bring legal actions against us or our collaborators for
damages or to stop us or our collaborators from engaging in certain discovery or
development activities or from manufacturing and marketing any resulting
therapeutic products. If any of these actions are successful, in addition to our
potential liability for damages, these entities would likely require us or our
collaborators to obtain a license in order to continue engaging in the
infringing activities or to manufacture or market the resulting therapeutic
products or may force us to terminate such activities or manufacturing and
marketing efforts. We may also determine to seek licenses from these entities in
order to avoid the cost and expense of litigation.

We may need to pursue litigation against others to enforce our patents and
intellectual property rights and may be the subject of litigation brought by
third parties to enforce their patent and intellectual property rights. In
addition, we may become involved in litigation based on intellectual property
indemnification undertakings that we have given to certain of our collaborators.
Patent litigation is expensive and requires substantial amounts of management
attention. The eventual outcome of any such litigation is uncertain and involves
substantial risks. For example, each time we sue for patent infringement we face
the risk that the patent will be held invalid or unenforceable. Such a
determination is binding on us for all future litigation involving that patent.

We believe that there will continue to be significant litigation in our
industry regarding patent and other intellectual property rights. We have
expended and many of our competitors have expended and are continuing to expend
significant amounts of time, money and management resources on intellectual
property litigation. If we become involved in future intellectual property
litigation, it could consume a substantial portion of our resources and could
negatively affect our results of operations.

In 2000, we filed lawsuits against Deltagen, Inc. relating to infringement
of a number of United States patents licensed to us. In September 2001, we and
Deltagen settled the litigation. Under the terms of the settlement, Deltagen
obtained a sublicense under the patents and we obtained a subscription to
Deltagen's DeltaBase product, including perpetual licenses to approximately
1,250 drug targets in DeltaBase at the time or expected to be added to DeltaBase
over the subsequent four years. In October 2002, we notified Deltagen of its
failure to perform under our agreements related to the settlement, and in April
2003, we asserted certain claims against Deltagen under those agreements. In
accordance with the dispute resolution provisions of those agreements,
arbitration proceedings have been initiated to resolve these matters.

In June 2003, Deltagen publicly asserted that we made our claims for
competitive reasons in an attempt to interfere with Deltagen's financing efforts
and with Deltagen's negotiations with current and prospective customers.
Deltagen has also stated that it will hold us fully responsible for the damage
allegedly done to Deltagen by our actions. On June 27, 2003, Deltagen filed for
Chapter 11 bankruptcy protection, and the arbitration proceedings were
automatically stayed. We believe that Deltagen's assertion regarding the reason
for our claims and Deltagen's statements of purported illegal conduct on our
part are without merit.

Furthermore, in light of recent United States Supreme Court precedent, our
ability to enforce our patents against state agencies, including state sponsored
universities and research laboratories, is limited by the Eleventh Amendment to
the United States Constitution. In addition, opposition by academicians and the
government may hamper our ability to enforce our patents against academic or
government research laboratories. Finally, enforcement of our patents may cause
our reputation in the academic community to be injured.

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 rely, in part, on licenses to use certain technologies that are
important to our business. We do not own the patents that underlie these
licenses. Our rights to use these technologies and practice the inventions
claimed in the licensed patents are subject to our abiding by the terms of those
licenses and the licensors not terminating them. In many cases, we do not
control the filing, prosecution or maintenance of the patent rights to which we
hold licenses

and rely upon our licensors to prosecute infringement of those rights. The scope
of our rights under our licenses may be subject to dispute by our licensors or
third parties.

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.

We have decided not to pursue patent protection with respect to some of our
inventions outside the United States, both because we do not believe it is
cost-effective and because of confidentiality concerns. Accordingly, our
international competitors could develop, and receive foreign patent protection
for, genes or gene sequences, uses of those genes or gene sequences, gene
products and drug targets, assays for identifying potential therapeutic
products, potential therapeutic products and methods of treatment for which we
are seeking United States patent protection. In addition, most of our gene
trapping patents and our licensed gene targeting patents cover only the United
States and do not apply to discovery activities conducted outside of the United
States or, in some circumstances, to importing into the United States products
developed using this technology.

WE MAY BE UNABLE TO PROTECT OUR TRADE SECRETS.

Significant aspects of our intellectual property are not protected by
patents. As a result, we seek to protect the proprietary nature of this
intellectual property as trade secrets through proprietary information
agreements and other measures. While we have entered into proprietary
information agreements with all of our employees, consultants, advisers and
collaborators, we may not be able to prevent the disclosure of our trade
secrets. In addition, other companies or institutions may independently develop
substantially equivalent information and techniques.

OUR EFFORTS TO DISCOVER, EVALUATE AND VALIDATE POTENTIAL TARGETS FOR
THERAPEUTIC INTERVENTION AND OUR DRUG DISCOVERY PROGRAMS ARE SUBJECT TO
EVOLVING DATA AND OTHER RISKS INHERENT IN THE DRUG DISCOVERY PROCESS.

We are employing our knockout technology and integrated drug discovery
platform to systematically discover, evaluate and validate potential targets for
therapeutic intervention and to develop drugs to address those targets. The drug
discovery and development process involves significant risks of delay or failure
due, in part, to evolving data and the uncertainties involved with the
applications of new technologies. As we refine and advance our efforts, it is
likely that the resulting data will cause us to change our targets from time to
time and, therefore, that the targets that we believe at any time to be
promising may prove not to be so. These developments can occur at any stage of
the drug discovery and development process.

WE ARE SUBJECT TO EXTENSIVE AND UNCERTAIN GOVERNMENT REGULATORY
REQUIREMENTS, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO OBTAIN, IN A
TIMELY MANNER OR AT ALL, GOVERNMENT APPROVAL OF PRODUCTS BASED ON GENES
THAT WE IDENTIFY, OR TO COMMERCIALIZE SUCH PRODUCTS.

We must obtain approval from the FDA in order to conduct clinical trials
and sell our future product candidates in the United States and from foreign
regulatory authorities in order to conduct clinical trials and sell our future
product candidates in other countries. In order to obtain regulatory approvals
for the commercial sale of any products that we may develop, we will be required
to complete extensive clinical trials in humans to demonstrate the safety and
efficacy of our drug candidates. We may not be able to obtain authority from the
FDA or other equivalent foreign regulatory agencies to initiate or complete any
clinical trials. In addition, we have limited internal resources for making
regulatory filings and dealing with regulatory authorities.

The results from preclinical testing of a drug candidate that is under
development may not be predictive of results that will be obtained in human
clinical trials. In addition, the results of early human clinical trials may not
be predictive of results that will be obtained in larger scale, advanced stage
clinical trials. A number of companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials, even after achieving
positive results in earlier trials. Negative or inconclusive results from a
preclinical study or a clinical trial could cause us, one of our collaborators
or the FDA to terminate a preclinical study or clinical trial or require that we
repeat it. Furthermore, we, one of our collaborators or a regulatory agency with
jurisdiction over the trials may suspend clinical trials at any time if the
subjects or patients participating in such trials are being exposed to
unacceptable health risks or for other reasons.

Any preclinical or clinical test may fail to produce results satisfactory
to the FDA or foreign regulatory authorities. Preclinical and clinical data can
be interpreted in different ways, which could delay, limit or prevent

regulatory approval. The FDA or institutional review boards at the medical
institutions and healthcare facilities where we sponsor clinical trials may
suspend any trial indefinitely if they find deficiencies in the conduct of these
trials. We must conduct clinical trials in accordance with the FDA's current
Good Clinical Practices. The FDA and these institutional review boards have
authority to oversee our clinical trials, and the FDA may require large numbers
of test subjects. In addition, we must manufacture, or contract for the
manufacture of, the product candidates that we use in our clinical trials under
the FDA's current Good Manufacturing Practices.

The rate of completion of clinical trials is dependent, in part, upon the
rate of enrollment of patients. Patient accrual is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study, the nature of the study,
the existence of competitive clinical trials and the availability of alternative
treatments. Delays in planned patient enrollment may result in increased costs
and prolonged clinical development, which in turn could allow our competitors to
bring products to market before we do and impair our ability to commercialize
our products or potential products.

We may not be able to successfully complete any clinical trial of a
potential product that we may initiate within any specified time period. In some
cases, we may not be able to complete the trial at all. Moreover, clinical
trials may not show our potential products to be both safe and effective. Thus,
the FDA and other regulatory authorities may not approve any products that we
develop for any indication or may limit the approved indications or impose other
conditions.

IF WE OBTAIN REGULATORY APPROVAL FOR OUR POTENTIAL PRODUCTS, WE WILL REMAIN
SUBJECT TO EXTENSIVE AND RIGOROUS ONGOING REGULATION.

If we obtain initial regulatory approvals from the FDA or foreign
regulatory authorities for any products that we may develop, we will be subject
to extensive and rigorous ongoing domestic and foreign government regulation of,
among other things, the research, development, testing, manufacture, labeling,
promotion, advertising, distribution and marketing of our products and product
candidates. Our failure to comply with these requirements or the identification
of safety problems during commercial marketing could lead to the need for
product marketing restrictions, product withdrawal or recall or other voluntary
or regulatory action, which could delay further marketing until the product is
brought into compliance. Our failure to comply with these requirements may also
subject us to stringent penalties.

Moreover, several of our product development areas involve relatively new
technology and have not been the subject of extensive product testing in humans.
The regulatory requirements governing these products and related clinical
procedures remain uncertain and the products themselves may be subject to
substantial review by foreign governmental regulatory authorities that could
prevent or delay approval in those countries. Regulatory requirements ultimately
imposed on any products that we may develop could limit our ability to test,
manufacture and, ultimately, commercialize such products.

THE UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT MAY DECREASE
THE COMMERCIAL POTENTIAL OF ANY PRODUCTS THAT WE OR OUR COLLABORATORS MAY
DEVELOP AND AFFECT OUR ABILITY TO RAISE CAPITAL.

Our ability and the ability of our collaborators to successfully
commercialize pharmaceutical products will depend, in part, on the extent to
which reimbursement for the cost of such products and related treatment will be
available from government health administration authorities, private health
coverage insurers and other organizations. The pricing, availability of
distribution channels and reimbursement status of newly approved pharmaceutical
products is highly uncertain. As a result, adequate third-party coverage may not
be available for us to maintain price levels sufficient for realization of an
appropriate return on our investment in product discovery and development.

In certain foreign markets, pricing or profitability of healthcare products
is subject to government control. In the United States, there have been, and we
expect that there will continue to be, a number of federal and state proposals
to implement similar governmental control. In addition, an increasing emphasis
on managed care in the United States has increased and will continue to increase
the pressure on pharmaceutical pricing. While we cannot predict the adoption of
any such legislative or regulatory proposals or the effect such proposals or
managed care efforts may have on our business, the announcement of such
proposals or efforts could harm our ability to raise capital, and the adoption
of such proposals or efforts could harm our results of operations. Further, to
the extent that such proposals or efforts harm other pharmaceutical companies
that are our prospective collaborators, our ability to

establish corporate collaborations would be impaired. In addition, third-party
payers are increasingly challenging the prices charged for medical products and
services. We do not know whether consumers, third-party payers and others will
consider any products that we or our collaborators develop to be cost-effective
or that reimbursement to the consumer will be available or will be sufficient to
allow us or our collaborators to sell such products on a profitable basis.

WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS; ANY DISPUTES RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL
OF THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY.

Our research and development processes involve the use of hazardous
materials, including chemicals and radioactive and biological materials. Our
operations also produce hazardous waste products. We cannot eliminate the risk
of accidental contamination or discharge or any resultant injury from these
materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of these materials. We could be
subject to civil damages in the event of an improper or unauthorized release of,
or exposure of individuals to, these hazardous materials. In addition, claimants
may sue us for injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our total assets.
Compliance with environmental laws and regulations may be expensive, and current
or future environmental regulations may impair our research, development or
production efforts.

WE MAY BE SUED FOR PRODUCT LIABILITY.

We or our collaborators may be held liable if any product that we or our
collaborators develop, or any product that is made with the use or incorporation
of any of our technologies, causes injury or is found otherwise unsuitable
during product testing, manufacturing, marketing or sale. Although we currently
have and intend to maintain product liability insurance, this insurance may
become prohibitively expensive or may not fully cover our potential liabilities.
Our inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claims could prevent or
inhibit the commercialization of products developed by us or our collaborators.
If we are sued for any injury caused by our or our collaborators' products, our
liability could exceed our total assets.

PUBLIC PERCEPTION OF ETHICAL AND SOCIAL ISSUES MAY LIMIT OR DISCOURAGE THE
USE OF OUR TECHNOLOGIES, WHICH COULD REDUCE OUR REVENUES.

Our success will depend, in part, upon our ability to develop products
discovered through our knockout mouse technologies. Governmental authorities
could, for ethical, social or other purposes, limit the use of genetic processes
or prohibit the practice of our knockout mouse technologies. Claims that
genetically engineered products are unsafe for consumption or pose a danger to
the environment may influence public perceptions. The subject of genetically
modified organisms, like knockout mice, has received negative publicity and
aroused public debate in some countries. Ethical and other concerns about our
technologies, particularly the use of genes from nature for commercial purposes
and the products resulting from this use, could adversely affect the market
acceptance of our technologies.

RISKS RELATED TO THIS OFFERING

OUR STOCK PRICE COULD BE EXTREMELY VOLATILE, AND YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE YOUR PURCHASE PRICE.

The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly life science
companies such as ours, have been highly volatile. Since January 1, 2001, the
market price of our common stock has ranged from a high of $17.25 on January 2,
2001 to a low of $2.97 on October 7, 2002. In addition, broad market and
industry fluctuations that are not within our control may adversely affect the
trading price of our common stock. As a result, you may not be able to resell
your shares at or above your purchase price.

CONCENTRATION OF OWNERSHIP AMONG OUR DIRECTORS AND EXECUTIVE OFFICERS
ENABLES THEM TO SIGNIFICANTLY INFLUENCE IMPORTANT CORPORATE DECISIONS.

Our directors and executive officers beneficially own, or have voting
rights with respect to, approximately 24.7% of our outstanding common stock.
These stockholders as a group will be able to exert significant influence on the
election of our directors and officers, the management and affairs of our
company and the outcome of most matters requiring the approval of our
stockholders, including any merger, consolidation or sale of all or
substantially all of our assets and any other significant corporate transaction.
This concentration of ownership may also prevent a change of control of our
company at a premium price if these stockholders oppose it.

PROVISIONS CONTAINED IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT
A TAKEOVER ATTEMPT, WHICH COULD REDUCE OR ELIMINATE THE LIKELIHOOD OF A
CHANGE OF CONTROL TRANSACTION AND, THEREFORE, THE ABILITY OF OUR
STOCKHOLDERS TO SELL THEIR SHARES FOR A PREMIUM.

Provisions in our corporate charter and bylaws and applicable provisions of
the Delaware General Corporation Law may make it more difficult for a third
party to acquire control of us without the approval of our board of directors.
These provisions include:

o a classified board of directors;

o limitations on the removal of directors;

o limitations on stockholder proposals at meetings of stockholders;

o the inability of stockholders to act by written consent or to call
special meetings; and

o the ability of our board of directors to designate the terms of and
issue new series of preferred stock without stockholder approval.

These provisions may discourage transactions that otherwise could involve the
payment of a premium over prevailing market prices of our common stock.

THE AVAILABILITY OF SHARES OF OUR COMMON STOCK FOR FUTURE SALE COULD
DEPRESS OUR STOCK PRICE.

We have outstanding an aggregate of 62,781,270 shares of common stock,
assuming no exercise of outstanding options or warrants. Of these shares,
52,717,879 shares are freely tradable or may be sold under this prospectus. The
holders of the remaining 10,063,391 shares have demand and piggyback
registration rights with respect to such shares.

Sales of a substantial number of shares of our common stock in the public
markets following this offering, or the perception that such sales might occur,
could have a material adverse effect on the price of our common stock or could
impair our future ability to obtain capital through offerings of our equity
securities.

OUR FORMER INDEPENDENT PUBLIC ACCOUNTANT, ARTHUR ANDERSEN LLP, HAS BEEN
FOUND GUILTY OF A FEDERAL OBSTRUCTION OF JUSTICE CHARGE, AND YOU MAY BE
UNABLE TO EXERCISE EFFECTIVE REMEDIES AGAINST IT IN ANY LEGAL ACTION.

Our former independent public accountant, Arthur Andersen LLP, provided us
with auditing services for prior fiscal periods through December 31, 2001,
including issuing an audit report with respect to our audited consolidated
financial statements as of and for the years ended December 31, 2000 and 2001
included in our Annual Report on Form 10-K for the year ended December 31, 2002
and incorporated by reference in this prospectus. On June 15, 2002, a jury in
Houston, Texas found Arthur Andersen LLP guilty of a federal obstruction of
justice charge arising from the federal government's investigation of Enron
Corp. On August 31, 2002, Arthur Andersen LLP ceased practicing before the
Securities and Exchange Commission, or the SEC.

We were unable to obtain Arthur Andersen LLP's consent to include its
report with respect to our audited consolidated financial statements as of and
for the years ended December 31, 2000 and 2001 in our Annual Report on Form 10-K
for the year ended December 31, 2002 or to incorporate by reference such report
in this prospectus. Rule 437a under the Securities Act of 1933, or the
Securities Act, permits us to dispense with the requirement to file

their consent. As a result, you may not have an effective remedy against Arthur
Andersen LLP in connection with a material misstatement or omission with respect
to our audited consolidated financial statements that are incorporated by
reference in this prospectus or any other filing we may make with the SEC,
including, with respect to this offering or any other offering registered under
the Securities Act, any claim under Section 11 of the Securities Act. In
addition, even if you were able to assert such a claim, as a result of its
conviction and other lawsuits, Arthur Andersen LLP may fail or otherwise have
insufficient assets to satisfy claims made by investors or by us that might
arise under federal securities laws or otherwise relating to any alleged
material misstatement or omission with respect to our audited consolidated
financial statements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated by reference into this
prospectus contain certain information regarding our financial projections,
plans and strategies that are forward-looking statements within the meaning of
Section 27A of the Securities Act and 21E of the Securities Exchange Act of
1934. We have attempted to identify forward-looking statements by terminology
including "anticipate," "believe," "can," "continue," "could," "estimate,"
"expect," "intend," "may," "plan," "potential," "predict," "should" or "will" or
the negative of these terms or other comparable terminology. These statements,
which are only predictions and involve known and unknown risks, uncertainties
and other important factors may include, among other things, statements which
address our strategy and operating performance, events or developments that we
expect or anticipate will occur in the future, such as projections of our future
results of operations or of our financial condition, the status of any
collaborative agreements, our research and development efforts and anticipated
trends in our business.

We have based these forward-looking statements on our current expectations
and projections about future events. However, there may be events in the future
that we are not able to predict accurately or which we do not fully control that
could cause actual results to differ materially from those expressed or implied
in our forward-looking statements. Many important factors could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including those discussed under "Risk Factors" in
this prospectus and other sections of the documents incorporated by reference
into this prospectus. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this prospectus.

USE OF PROCEEDS

All of the shares offered by this prospectus are being offered and sold by
the selling stockholders. We will not receive any proceeds from the sale of the
shares of common stock offered by the selling stockholders.

We will pay all expenses for the registration of the selling stockholders'
offer and sale of the shares of common stock covered by this prospectus,
including registration fees, the costs and expenses of our counsel and
independent public accountants and the reasonable fees of one counsel for the
selling stockholders. The selling stockholders will pay any underwriting
discounts and commissions, brokerage fees and other similar expenses which they
incur in selling shares of our common stock.

SELLING STOCKHOLDERS

We issued the shares of common stock covered by this prospectus in private
placements to Gordon A. Cain completed in the period from September 1995 to July
1997. Mr. Cain, who served as a member of our board of directors until his death
in October 2002, subsequently transferred some of the shares by gift to The
Gordon and Mary Cain Foundation. On July 10, 2003, RCM Financial Services, L.P.
and Cogene Biotech Ventures, L.P. purchased the shares offered by this
prospectus from the Estate of Gordon A. Cain and The Gordon and Mary Cain
Foundation in private placements that were exempt from registration under the
Securities Act of 1933.

The selling stockholders exercised their rights to cause us to register the
offer and sale of the shares of common stock described in this prospectus under
a registration rights agreement and letter agreement in which we agreed to use
commercially reasonable best efforts to keep the registration statement
effective for five years or until the distribution contemplated by the
registration statement is complete. All of the shares to be offered by the
selling stockholders using this prospectus were originally issued by us in
transactions exempt from the registration requirements of the Securities Act of
1933.

The selling stockholders, or their donees of 500 or fewer shares, may offer
the shares of common stock covered by this prospectus from time to time. Our
registration of the selling stockholders' offer and sale of such shares does not
necessarily mean that the selling stockholders will sell any or all of their
shares. We do not know when or in what amounts a selling stockholder may offer
shares for sale. Because the selling stockholders may offer all or some of the
shares pursuant to this offering, and because there are currently no agreements,
arrangements or understandings with respect to the sale of any of the shares, we
cannot estimate the number of the shares that will be held by the selling
stockholders after completion of the offering.

If a selling stockholder transfers more than 500 shares of common stock by
gift, pledge or other non-sale transfer after the effective date of the
registration statement of which this prospectus is a part, the donee, pledgee or
transferee may make no offer or sale under this prospectus unless and until a
supplement to this prospectus has been filed or an amendment to the related
registration statement has become effective.

The table below sets forth the beneficial ownership of all common stock of
each selling stockholder as of October 27, 2003, the number of such shares of
common stock offered by this prospectus and the beneficial ownership of all
common stock of each selling stockholder after completion of this offering,
assuming that all shares offered hereby are sold. Percentage of ownership is
based on 62,781,270 shares of common stock outstanding on October 27, 2003.

We prepared this table based on information supplied to us by the selling
stockholders named in the table, and we have not sought to independently verify
such information.

BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
------------------------- -------------------------
NUMBER OF NUMBER OF
SHARES SHARES SHARES
BENEFICIALLY PERCENTAGE OFFERED BENEFICIALLY PERCENTAGE
NAME OF SELLING STOCKHOLDER OWNED OWNERSHIP HEREBY OWNED OWNERSHIP
---------------------------------- ------------ ---------- --------- ------------ ----------

RCM Financial Services, L.P. 4,250,000 6.8% 4,000,000 250,000 *
Cogene Biotech Ventures, L.P. (1) 1,679,400 2.7% 1,000,000 679,400 1.1%

----------
* Represents beneficial ownership of less than 1%.

(1) The Chairman of our Board of Directors, C. Thomas Caskey, M.D., is
President and Chief Executive Officer of Cogene Biotech Ventures, L.P. and
is deemed to have beneficial ownership of the shares held by Cogene Biotech
Ventures, L.P. Dr. Caskey disclaims beneficial ownership of such shares.

PLAN OF DISTRIBUTION

The shares covered by this prospectus may be offered and sold from time to
time by the selling stockholders. The term "selling stockholder" includes donees
selling 500 or fewer shares received from a selling stockholder as a gift after
the effective date of the registration statement of which this prospectus is a
part. The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. Such sales may be made
on one or more exchanges or in the over-the-counter market or otherwise, at
prices and under terms then prevailing or at prices related to the then current
market price or in negotiated transactions. The selling stockholders have
advised us that they may offer and sell the shares of common stock offered by
this prospectus in one or more of, or a combination of, the following methods:

o purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;

o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;

o block trades in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;

o an over-the-counter distribution in accordance with the rules of the
Nasdaq National Market;

o through the Nasdaq National Market or any other securities exchange or
association that quotes the common stock;

o in privately negotiated transactions; and

o in options transactions.

In addition, the selling stockholders have advised us that they may sell
shares of common stock in compliance with Rule 144, if available, or pursuant to
other available exemptions from the registration requirements under the
Securities Act, rather than pursuant to this prospectus.

To the extent required, this prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution. In connection with
distributions of the shares or otherwise, the selling stockholders have advised
us that they may enter into hedging transactions with broker-dealers or other
financial institutions. In connection with such transactions, broker-dealers or
other financial institutions may engage in short sales of the common stock in
the course of hedging the positions they assume with a selling stockholder. The
selling stockholders have advised us that they may also sell the common stock
short and redeliver the shares to close out such short positions. The selling
stockholders have advised us that they may also enter into option or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction). The selling stockholders have advised us that they
may also pledge shares to a broker-dealer or other financial institution, and,
upon a default, such broker-dealer or other financial institution may effect
sales of the pledged shares pursuant to this prospectus (as supplemented or
amended to reflect such transaction).

In effecting sales, broker-dealers or agents engaged by a selling
stockholder may arrange for other broker-dealers to participate. Broker-dealers
or agents may receive commissions, discounts or concessions from the selling
stockholder in amounts to be negotiated immediately prior to the sale.

In offering the shares covered by this prospectus, a selling stockholder
and any broker-dealers who execute sales for such selling stockholder may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. Any profits realized by a selling stockholder and
the compensation of any broker-dealer may be deemed to be underwriting discounts
and commissions.

In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

The selling stockholders have advised us that they may sell their shares at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed prices and that the
transactions listed above may include cross or block transactions.

We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Securities Exchange Act of 1934 may apply to their
sales of common stock and to the activities of the selling stockholders and
their affiliates. In addition, we will make copies of this prospectus available
to the selling stockholders for the purpose of satisfying the prospectus
delivery requirements of the Securities Act of 1933. The selling stockholders
have advised us that they may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.

At the time a particular offer of shares is made, if required, a prospectus
supplement will be distributed that will set forth the number of shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.

We have agreed to indemnify the selling stockholders against certain
liabilities, including certain liabilities under the Securities Act.

All shares offered by this prospectus by the selling stockholders will be
sold subject to the terms and conditions of the registration rights agreement
and letter agreement described in the section entitled "Selling Stockholders."

LEGAL MATTERS

The validity of the common stock offered by this prospectus has been passed
upon for us by Vinson & Elkins L.L.P., Houston, Texas.

EXPERTS

The consolidated financial statements of Lexicon Genetics Incorporated
included in our annual report on Form 10-K for the year ended December 31, 2002
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon (which contains one explanatory paragraph describing the
audit procedures relating to certain revisions to the 2001 and 2000 financial
statements for reclassification adjustments and conforming disclosures that were
applied to revise the 2001 and 2000 financial statements described in Note 4 to
the consolidated financial statements; the 2001 and 2000 financial statements
were audited by other auditors who have ceased operations and for which Ernst &
Young LLP has expressed no opinion or other form of assurance on the 2001 and
2000 financial statements taken as a whole), included therein and incorporated
herein by reference. Such financial statements have been incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.

The financial statements as of December 31, 2000 and 2001 and for each of
the two years in the period ended December 31, 2001, incorporated by reference
in this prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing. Arthur Andersen LLP has not consented to the inclusion of their report
in this prospectus, and we have not obtained their consent to do so in reliance
upon Rule 437a of the Securities Act. Because Arthur Andersen LLP has not
consented to the inclusion of their report in this prospectus, you will not be
able to recover against Arthur Andersen LLP under Section 11(a) of the
Securities Act for any untrue statement of a material fact contained in the
financial statements audited by Arthur Andersen LLP or any omission to state a
material fact required to be stated therein.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933 regarding the offer and sale of shares of common stock by
the selling stockholders. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information contained in the
registration statement, some items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the SEC. For
further information about us and our common stock, please review the
registration statement and the exhibits filed as a part of it. Statements made
in this prospectus that describe documents may not necessarily be complete. We
recommend that you review the documents that we have filed with the registration
statement to obtain a more complete understanding of these documents. A copy of
the registration statement, including the exhibits filed as a part of it, may be
inspected without charge at the SEC's Public Reference Room, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the SEC upon the payment of fees prescribed by
it. You may obtain information on the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that file electronically with it.

We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and will file periodic reports, proxy statements
and other information with the SEC. You may inspect any of these documents as
described in the preceding paragraph. These reports, proxy statements and other
information may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.

DOCUMENTS INCORPORATED BY REFERENCE

The SEC allows us to "incorporate by reference" into this prospectus
information that we file with the SEC in other documents. This means that we can
disclose important information to you by referring to other documents that
contain that information. The information incorporated by reference is
considered to be part of this prospectus, except for information superseded by
information in this prospectus. We incorporate by reference the documents listed
below that we have previously filed with the SEC and any future filings we make
with the SEC under Sections

13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (other than
information furnished to the SEC under Items 9 or 12 of Form 8-K), prior to the
termination of the offering of the securities covered by this prospectus:

o our annual report on Form 10-K for the year ended December 31, 2002;

o our quarterly reports on Form 10-Q for the quarters ended March 31 and
June 30, 2003;

o our current reports on Form 8-K dated July 10 and July 23, 2003; and

o the description of our common stock contained in our registration
statement on Form 8-A filed with the Commission on March 27, 2000
pursuant to Section 12 of the Securities Exchange Act of 1934, including
any amendments and reports filed for the purpose of updating such
description.

Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this prospectus modifies
or supersedes that statement. Any statement that is modified or superseded will
not constitute a part of this prospectus, except as modified or superseded.

Upon your written or oral request, we will provide you at no cost a copy of
any or all of the documents incorporated by reference in this prospectus, other
than the exhibits to those documents, unless the exhibits are specifically
incorporated by reference into this prospectus. You may request a copy of these
documents by contacting:

Investor Relations
Lexicon Genetics Incorporated
8800 Technology Forest Place
The Woodlands, Texas 77381
Telephone: (281) 863-3000