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<DESCRIPTION>LEXICON GENETICS INCORPORATED - DATED 9/30/2005
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<PAGE>

================================================================================

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

                                    FORM 10-Q

(MARK ONE)

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

           FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

                                       OR

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

           FOR THE TRANSITION PERIOD FROM _____________ TO _____________

                        COMMISSION FILE NUMBER: 000-30111

                          LEXICON GENETICS INCORPORATED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

                          8800 TECHNOLOGY FOREST PLACE
                           THE WOODLANDS, TEXAS 77381
                         (ADDRESS OF PRINCIPAL EXECUTIVE
                              OFFICES AND ZIP CODE)

                                 (281) 863-3000
                         (REGISTRANT'S TELEPHONE NUMBER,
                              INCLUDING AREA CODE)

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

                                  Yes [X] No [ ]

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.

                                 Yes [X] No [ ]

      As of October 27, 2005, 64,537,089 shares of the registrant's common
stock, par value $0.001 per share, were outstanding.

================================================================================

<PAGE>

                          LEXICON GENETICS INCORPORATED

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  PAGE
                                                                                                  ----
<S>                                                                                               <C>
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS....................................................    2
PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
         Consolidated Balance Sheets - September 30, 2005 (unaudited) and December 31, 2004.....    3
         Consolidated Statements of Operations (unaudited) - Three and Nine Months Ended
              September 30, 2005 and 2004.......................................................    4
         Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended
              September 30, 2005 and 2004.......................................................    5
         Notes to Consolidated Financial Statements (unaudited).................................    6
Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations..................................................................    9
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.............................   19
Item 4.  Controls and Procedures................................................................   19
PART II - OTHER INFORMATION
Item 5.  Other Information......................................................................   20
Item 6.  Exhibits and Reports on Form 8-K.......................................................   20
SIGNATURES......................................................................................   21
</TABLE>

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

                  FACTORS AFFECTING FORWARD LOOKING STATEMENTS

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

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

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                          LEXICON GENETICS INCORPORATED

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
<CAPTION>
                                                                             AS OF SEPTEMBER 30,      AS OF DECEMBER 31,
                                                                                     2005                   2004
                                                                             -------------------      ------------------
                                   ASSETS                                        (UNAUDITED)
<S>                                                                          <C>                      <C>
Current assets:
    Cash and cash equivalents............................................     $         23,120        $          14,612
    Short-term investments, including restricted investments of $430.....               67,121                   72,946
    Accounts receivable, net of allowance for doubtful accounts of $75...                1,698                    5,345
    Other receivables....................................................                    -                    1,052
    Prepaid expenses and other current assets............................                3,433                    4,793
                                                                              ----------------        -----------------
       Total current assets..............................................               95,372                   98,748
Property and equipment, net of accumulated depreciation
    of $45,532 and $41,892, respectively.................................               85,996                   84,573
Goodwill.................................................................               25,798                   25,798
Intangible assets, net of amortization of $5,060 and $4,160,
    respectively.........................................................                  940                    1,840
Other assets.............................................................                  861                    1,021
                                                                              ----------------        -----------------
       Total assets......................................................     $        208,967        $         211,980
                                                                              ================        =================

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable.....................................................     $          3,751        $           7,574
    Accrued liabilities..................................................                8,032                    6,945
    Current portion of deferred revenue..................................               31,800                   19,500
    Current portion of long-term debt....................................                4,736                    4,691
                                                                              ----------------        -----------------
       Total current liabilities.........................................               48,319                   38,710
Deferred revenue, net of current portion.................................               47,695                   18,092
Long-term debt...........................................................               32,384                   32,940
Other long-term liabilities..............................................                  715                      644
                                                                              ----------------        -----------------
       Total liabilities.................................................              129,113                   90,386

Commitments and contingencies

Stockholders' equity:
    Preferred stock, $.01 par value; 5,000 shares authorized;
       no shares issued and outstanding..................................                    -                        -
    Common stock, $.001 par value; 120,000 shares authorized;
       64,537 and 63,491 shares issued and outstanding...................                   64                       63
    Additional paid-in capital...........................................              383,193                  382,666
    Deferred stock compensation..........................................                   (5)                     (20)
    Accumulated deficit..................................................             (303,344)                (261,115)
    Accumulated other comprehensive loss.................................                  (54)                      --
                                                                              ----------------        -----------------
       Total stockholders' equity........................................               79,854                  121,594
                                                                              ----------------        -----------------
       Total liabilities and stockholders' equity........................     $        208,967        $         211,980
                                                                              ================        =================
</TABLE>

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

                                       3
<PAGE>

                          LEXICON GENETICS INCORPORATED

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

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED SEPTEMBER 30,  NINE MONTHS ENDED SEPTEMBER 30,
                                                  ------------------------------    -------------------------------
                                                        2005             2004            2005             2004
                                                  --------------    -------------   --------------   -------------
<S>                                               <C>               <C>             <C>              <C>
Revenues:
   Collaborative research.......................   $      13,520    $      11,492    $      36,174   $      27,997
   Subscription and license fees................             443            1,617            5,612           7,732
                                                   -------------    -------------    -------------   -------------
     Total revenues.............................          13,963           13,109           41,786          35,729
Operating expenses:
   Research and development.....................          23,344           22,485           69,771          67,466
   General and administrative...................           4,674            4,573           13,856          14,259
                                                   -------------    -------------    -------------   -------------
     Total operating expenses...................          28,018           27,058           83,627          81,725
                                                   -------------    -------------    -------------   -------------
Loss from operations............................         (14,055)         (13,949)         (41,841)        (45,996)
Interest income.................................             767              405            1,764           1,198
Interest expense................................            (833)            (833)          (2,465)         (1,829)
Other income, net...............................               -                -              313              (4)
                                                   -------------    -------------    -------------   -------------
Net loss  ......................................   $     (14,121)   $     (14,377)   $     (42,229)  $     (46,631)
                                                   =============    =============    =============   =============
Net loss per common share, basic and diluted....   $       (0.22)   $       (0.23)   $       (0.66)  $       (0.74)
Shares used in computing net loss per
   common share, basic and diluted..............          64,134           63,422           63,767          63,286
</TABLE>

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

                                       4
<PAGE>

                          LEXICON GENETICS INCORPORATED

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

<TABLE>
<CAPTION>
                                                                              NINE MONTHS ENDED SEPTEMBER 30,
                                                                            ----------------------------------
                                                                                 2005                2004
                                                                            -------------       -------------
<S>                                                                         <C>                 <C>
Cash flows from operating activities:
   Net loss..............................................................   $     (42,229)      $     (46,631)
   Adjustments to reconcile net loss to net cash used in operating
     activities:
     Depreciation........................................................           7,835               7,976
     Amortization of intangible assets, other than goodwill..............             900                 900
     Amortization of deferred stock compensation.........................             (20)                827
     Loss on disposal of property and equipment..........................              10                   -
     Changes in operating assets and liabilities:
       Decrease in accounts receivable...................................           4,699               4,558
       (Increase) decrease in prepaid expenses and other current assets..           1,360                 (88)
       (Increase) decrease in other assets...............................             160                (870)
       Increase (decrease) in accounts payable and other liabilities.....          (2,665)                344
       Increase (decrease) in deferred revenue...........................          41,903              (4,172)
                                                                            -------------       -------------
       Net cash provided by (used in) operating activities...............          11,953             (37,156)
Cash flows from investing activities:
   Purchases of property and equipment...................................          (9,391)             (6,753)
   Proceeds from disposal of property and equipment......................             123                  15
   Decrease in restricted cash...........................................              --              14,372
   Purchases of investments..............................................        (116,120)           (147,103)
   Maturities of investments.............................................         121,891             173,720
                                                                            -------------       -------------
       Net cash provided by (used in) investing activities...............          (3,497)             34,251
Cash flows from financing activities:
   Proceeds from issuance of common stock................................             563               1,577
   Proceeds from debt borrowings.........................................              --              34,000
   Repayment of debt borrowings..........................................            (511)            (52,574)
   Repayment of other long-term liabilities..............................              --              (2,466)
                                                                            -------------       -------------
       Net cash provided by (used in) financing activities...............              52             (19,436)
                                                                            -------------       -------------
Net increase (decrease) in cash and cash equivalents.....................           8,508             (22,341)
Cash and cash equivalents at beginning of period.........................          14,612              35,856
                                                                            -------------       -------------
Cash and cash equivalents at end of period...............................   $      23,120       $      13,515
                                                                            =============       =============

Supplemental disclosure of cash flow information:
   Cash paid for interest................................................   $       2,095       $       1,281

Supplemental disclosure of non-cash investing and financing activities:
   Unrealized loss on investments........................................   $         (54)      $           -
   Reversal of deferred stock compensation, in connection
     with stock options..................................................   $          35       $          47
   Retirement of property and equipment..................................   $       4,327       $         298
</TABLE>

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

                                       5
<PAGE>

                          LEXICON GENETICS INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. BASIS OF PRESENTATION

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

      In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended September 30, 2005
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2005.

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

      For further information, refer to the financial statements and footnotes
thereto included in Lexicon's annual report on Form 10-K for the year ended
December 31, 2004, as filed with the SEC.

2. RECLASSIFICATION

      As of September 30, 2004 and December 31, 2003, Lexicon reclassified
auction rate securities of $53.6 million and $46.1 million, respectively, from
cash equivalents to short-term investments and, as of December 31, 2003, Lexicon
reclassified $42.6 million from restricted cash to short-term investments. The
accompanying consolidated statement of cash flows for the nine months ended
September 30, 2004 has been adjusted to reflect these reclassifications.

3. COMPREHENSIVE LOSS

      Comprehensive loss is comprised of net loss and unrealized gains and
losses on short-term investments, which are considered available-for-sale
securities. Comprehensive loss for the three months ended September 30, 2005 was
$14.2 million, which includes a net loss of $14.1 million and a $33,000
unrealized loss on short-term investments. Comprehensive loss for the nine
months ended September 30, 2005 was $42.3 million, which includes a net loss of
$42.2 million and a $54,000 unrealized loss on short-term investments.

4. NET LOSS PER SHARE

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

                                       6
<PAGE>

5. STOCK-BASED COMPENSATION

      Lexicon's stock-based compensation plans are accounted for under the
recognition and measurement provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees, and Related
Interpretations." Under the intrinsic value method described in APB Opinion No.
25, no compensation expense is recognized if the exercise price of the employee
stock option equals the market price of the underlying stock on the date of
grant. Lexicon recognized stock-based compensation expense of $0.8 million for
the nine months ended September 30, 2004, primarily relating to option grants
made prior to Lexicon's April 2000 initial public offering. All deferred stock
compensation relating to these options was fully amortized as of January 31,
2004 when these options became fully vested.

      The following table illustrates the effect on net loss and net loss per
share if the fair value recognition provisions of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock Based Compensation," had been applied to all outstanding
and unvested awards in each period:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                 SEPTEMBER 30,
                                                       ------------------------------  ---------------------------
                                                            2005            2004           2005          2004
                                                       --------------  --------------  ------------   ------------
<S>                                                    <C>             <C>             <C>            <C>
Net loss, as reported:..............................   $     (14,121)  $     (14,377)  $   (42,229)   $   (46,631)
Add: Stock-based employee compensation
   expense included in reported net loss............               -               -           (20)           827
Deduct: Total stock-based employee compensation
   expense determined under fair value based
   method for all awards............................          (2,679)         (3,842)       (8,936)       (12,590)
                                                       -------------   -------------   -----------    -----------
Pro forma net loss..................................   $     (16,800)  $     (18,219)  $   (51,185)   $   (58,394)
                                                       =============   =============   ===========    ===========
Net loss per common share, basic and diluted
   As reported......................................   $       (0.22)  $       (0.23)  $     (0.66)   $     (0.74)
                                                       =============   =============   ===========    ===========
   Pro forma........................................   $       (0.26)  $       (0.29)  $     (0.80)   $     (0.92)
                                                       =============   =============   ===========    ===========
</TABLE>

6. DEBT OBLIGATIONS

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

      Mortgage Loan: In April 2004, Lexicon purchased its facilities in The
Woodlands, Texas that were previously subject to a synthetic lease. The Company
repaid the $54.8 million funded under the synthetic lease with proceeds from a
$34.0 million third-party mortgage financing and $20.8 million in cash. The
mortgage loan has a ten-year term with a 20-year amortization and bears interest
at a fixed rate of 8.23%. As a result of the refinancing, all restrictions on
the cash and investments that had secured the obligations under the synthetic
lease were eliminated.

7. COMMITMENTS AND CONTINGENCIES

      In May 2002, Lexicon's subsidiary Lexicon Pharmaceuticals (New Jersey),
Inc. leased a 76,000 square-foot laboratory and office space in Hopewell, New
Jersey under an agreement which expires in June 2013. The lease provides for an
escalating yearly rent payment of $1.3 million in the first year,

                                       7
<PAGE>

$2.1 million in years two and three, $2.2 million in years four to six, $2.3
million in years seven to nine and $2.4 million in years ten and eleven. Lexicon
is the guarantor of the obligations of its subsidiary under the lease. The
Company is required to maintain restricted investments to collateralize the
Hopewell lease. As of September 30, 2005, the Company had $430,000 in restricted
investments to collateralize a standby letter of credit for this lease.

8. NEW AGREEMENT

      In July 2005, Lexicon was awarded $35 million from the Texas Enterprise
Fund for the creation of a knockout mouse embryonic stem cell library containing
350,000 cell lines using Lexicon's proprietary gene trapping technology. Lexicon
will create the library for the Texas Institute for Genomic Medicine (TIGM), a
newly formed non-profit institute whose founding members are Texas A&M
University, the Texas A&M University System Health Science Center and Lexicon.
TIGM researchers may also access specific cells from Lexicon's current gene trap
library of 270,000 mouse embryonic stem cell lines and will have certain rights
to utilize Lexicon's patented gene targeting technologies. In addition, Lexicon
will equip TIGM with the bioinformatics software required for the management and
analysis of data relating to the library. The Texas Enterprise Fund has also
awarded $15 million to the Texas A&M University System for the creation of
facilities and infrastructure to house the library.

      Under the terms of the award, Lexicon is responsible for the creation of a
specified number of jobs, reaching an aggregate of 1,616 new jobs in Texas by
December 31, 2015. Lexicon will obtain credits based on funding received by TIGM
and certain related parties from sources other than the State of Texas that it
may offset against its potential liability for any job creation shortfalls.
Lexicon will also obtain credits against future jobs commitment liabilities for
any surplus jobs it creates. Subject to these credits, if Lexicon fails to
create the specified number of jobs, the state may require Lexicon to repay
$2,415 for each job Lexicon falls short. Lexicon's maximum aggregate exposure
for such payments, if Lexicon fails to create any new jobs, is approximately
$14.4 million, without giving effect to any credits to which Lexicon may be
entitled. The Texas A&M University System, together with TIGM, has independent
job creation obligations and is obligated for an additional period to maintain
an aggregate of 5,000 jobs, inclusive of those Lexicon creates.

                                       8
<PAGE>

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

OVERVIEW

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

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

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

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

                                       9
<PAGE>

do not believe that period-to-period comparisons of our operating results are a
good indication of our future performance.

      Since our inception, we have incurred significant losses and, as of
September 30, 2005, we had an accumulated deficit of $303.3 million. Our losses
have resulted principally from costs incurred in research and development,
general and administrative costs associated with our operations, and non-cash
stock-based compensation expenses associated with stock options granted to
employees and consultants prior to our April 2000 initial public offering.
Research and development expenses consist primarily of salaries and related
personnel costs, material costs, facility costs, depreciation on property and
equipment, legal expenses resulting from intellectual property prosecution and
other expenses related to our drug discovery and Genome5000 programs, the
development and analysis of knockout mice and our other target validation
research efforts, and the development of compound libraries. General and
administrative expenses consist primarily of salaries and related expenses for
executive, finance and other administrative personnel, professional fees and
other corporate expenses, including information technology, facilities costs and
general legal activities. In connection with the expansion of our drug discovery
programs and our target validation research efforts, we expect to incur
increasing research and development and general and administrative costs. As a
result, we will need to generate significantly higher revenues to achieve
profitability.

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

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

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

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

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

                                       10
<PAGE>

Research and Development Expenses

      Research and development expenses consist of costs incurred for
company-sponsored as well as collaborative research and development activities.
These costs include direct and research-related overhead expenses and are
expensed as incurred. Patent costs and technology license fees for technologies
that are utilized in research and development and have no alternative future use
are expensed when incurred.

      Prior to preclinical development work, we are unable to segregate the
costs related to research performed on drug candidates because the drug
candidate is often not specifically identified until the later stages of our
research. With the commencement of formal preclinical development in 2005, we
will account on a program-by-program basis for the costs related to the
development of the identified drug products.

Goodwill Impairment

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

RESULTS OF OPERATIONS

Three Months Ended September 30, 2005 and 2004

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

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED SEPTEMBER 30,
                                            --------------------------------
                                              2005                     2004
                                            -------                   ------
<S>                                         <C>                       <C>
Total revenues...........................   $  14.0                   $ 13.1
Dollar increase..........................   $   0.9
Percentage increase......................         7%
</TABLE>

         -     Collaborative research - Revenue from collaborative research
               increased 18% to $13.5 million primarily due to our recognition
               of revenues under our biotherapeutics collaboration with Organon,
               which was entered into in May 2005, and our award from the Texas
               Enterprise Fund for the creation of a knockout mouse embryonic
               stem cell library, which was entered into in July 2005. This was
               offset in part by the recognition in the prior year period of a
               performance milestone under our therapeutic protein and antibody
               target discovery alliance with Genentech.

                                       11
<PAGE>

            -     Subscription and license fees - Revenue from subscriptions and
                  license fees decreased 73% to $0.4 million primarily as a
                  result of our termination in December 2004, of the
                  collaboration term under our LexVision(R) database
                  subscription program with Bristol-Myers Squibb.

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

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED SEPTEMBER 30,
                                           --------------------------------
                                                 2005            2004
                                               -------         -------
<S>                                            <C>             <C>
Total research and development expense...      $  23.3         $  22.5
Dollar increase..........................      $   0.8
Percentage increase......................            4%
</TABLE>

      Research and development expenses consist primarily of salaries and other
personnel-related expenses, laboratory supplies, facility and equipment costs,
third-party and other services. The change in the three months ended September
30, 2005 as compared to the corresponding period in 2004 resulted primarily from
the following costs:

            -     Personnel - Personnel costs increased 5% to $11.5 million
                  primarily due to increased personnel to support the expansion
                  of our drug discovery programs and merit-based pay increases
                  for employees. Salaries, bonuses, employee benefits, payroll
                  taxes, and recruiting and relocation costs are included in
                  personnel costs.

            -     Laboratory supplies - Laboratory supplies expense decreased
                  18% to $3.2 million due primarily to the bulk purchase of
                  certain supplies in the prior year period.

            -     Facilities and equipment - Facilities and equipment costs
                  increased 7% to $5.2 million due primarily to higher utility
                  costs.

            -     Third-party services - Costs associated with third-party
                  services increased 44% to $2.0 million primarily due to an
                  increase in third-party contract research costs. Costs
                  associated with third-party services include third-party
                  contract research, subscriptions to third-party databases,
                  technology licenses, and legal and patent fees.

            -     Other - Other costs increased by 4% to $1.4 million primarily
                  related to increased information technology costs.

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

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED SEPTEMBER 30,
                                             --------------------------------
                                                  2005             2004
                                                 -------          ------
<S>                                              <C>              <C>
Total general and administrative expense..       $   4.7          $  4.6
Dollar increase...........................       $   0.1
Percentage increase.......................             2%
</TABLE>

      General and administrative expenses consist primarily of personnel costs
to support our research activities, facility and equipment costs and
professional fees, such as legal fees. The change in the three months ended
September 30, 2005 as compared to the corresponding period in 2004 resulted
primarily from the following costs:

                                       12
<PAGE>

            -     Personnel - Personnel costs increased 10% to $2.9 million due
                  to increased personnel and merit-based pay increases for
                  employees. Salaries, bonuses, employee benefits, payroll
                  taxes, recruiting and relocation costs are included in
                  personnel costs.

            -     Facilities and equipment - Facilities and equipment costs
                  increased 7% to $0.8 million due primarily to higher utility
                  costs.

            -     Professional fees - Professional fees decreased 24% to $0.4
                  million primarily due to lower legal fees.

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

      Interest Income. Interest income increased 89% to $0.8 million in the
three months ended September 30, 2005 from $0.4 million in the corresponding
period in 2004 due to higher interest rates and higher average cash and
investment balances.

      Interest Expense. Interest expense remained unchanged at $0.8 million in
the three months ended September 30, 2005 and 2004.

      Net Loss and Net Loss Per Common Share. Net loss decreased 2% to $14.1
million in the three months ended September 30, 2005 from $14.4 million in the
corresponding period in 2004. Net loss per common share decreased to $0.22 in
the three months ended September 30, 2005 from $0.23 in the corresponding period
in 2004.

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

Nine Months Ended September 30, 2005 and 2004

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

<TABLE>
<CAPTION>
                                             NINE MONTHS ENDED SEPTEMBER 30,
                                             -------------------------------
                                                 2005              2004
                                                -------           ------
<S>                                             <C>               <C>
Total revenues...........................       $  41.8           $ 35.7
Dollar increase..........................       $   6.1
Percentage increase......................            17%
</TABLE>

            -     Collaborative research - Revenue from collaborative research
                  increased 29% to $36.2 million primarily due to our
                  recognition of revenues under our biotherapeutics
                  collaboration with Organon, which was entered into in May
                  2005, our hypertension drug discovery alliance with Takeda,
                  which was entered into in July 2004, and our award from the
                  Texas Enterprise Fund for the creation of a knockout mouse
                  embryonic stem cell library. This was offset in part by the
                  recognition in the prior year period of a performance
                  milestone under our therapeutic protein and antibody target
                  discovery alliance with Genentech and a decrease in revenues
                  from the termination of our therapeutic protein discovery
                  alliance with Incyte in June 2004.

            -     Subscription and license fees - Revenue from subscriptions and
                  license fees decreased 27% to $5.6 million primarily as a
                  result of the termination in June 2004 and December 2004,
                  respectively, of the collaboration term under our LexVision
                  database subscription programs with Incyte Corporation and
                  Bristol-Myers Squibb. The reduction was offset in

                                       13
<PAGE>

            part by technology license fees received from Deltagen, Inc. in
            connection with the settlement of Lexicon's claim in Deltagen's
            bankruptcy proceedings.

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

<TABLE>
<CAPTION>
                                            NINE MONTHS ENDED SEPTEMBER 30,
                                            -------------------------------
                                                 2005            2004
                                                -------         -------
<S>                                             <C>             <C>
Total research and development expense...       $  69.8         $  67.5
Dollar increase..........................       $   2.3
Percentage increase......................             3%
</TABLE>

      Research and development expenses consist primarily of salaries and other
personnel-related expenses, laboratory supplies, facility and equipment costs,
third-party and other services. The change in the nine months ended September
30, 2005 as compared to the corresponding period in 2004 resulted primarily from
the following costs:

            -     Personnel - Personnel costs increased 8% to $34.9 million
                  primarily due to increased personnel to support the expansion
                  of our drug discovery programs and merit-based pay increases
                  for employees.

            -     Laboratory supplies - Laboratory supplies expense decreased
                  11% to $9.6 million due primarily to the bulk purchase of
                  certain supplies in the prior year period.

            -     Facilities and equipment - Facilities and equipment costs
                  increased 4% to $15.6 million primarily due to higher utility
                  costs.

            -     Third-party services - Costs associated with third-party
                  services increased 4% to $5.4 million primarily due to an
                  increase in third-party contract research costs, offset in
                  part by the termination in June 2004 of our LifeSeq(R) Gold
                  database subscription.

            -     Other - Other costs increased by 12% to $4.1 million primarily
                  related to increased information technology costs.

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

<TABLE>
<CAPTION>
                                              NINE MONTHS ENDED SEPTEMBER 30,
                                              -------------------------------
                                                  2005             2004
                                                 -------          ------
<S>                                              <C>              <C>
Total general and administrative expense..       $  13.9          $ 14.3
Dollar decrease...........................       $   0.4
Percentage decrease.......................             3%
</TABLE>

      General and administrative expenses consist primarily of personnel costs
to support our research activities, facility and equipment costs and
professional fees, such as legal fees. The change in the nine months ended
September 30, 2005 as compared to the corresponding period in 2004 resulted
primarily from the following costs:

            -     Personnel - Personnel costs increased 2% to $8.3 million.

            -     Facilities and equipment - Facilities and equipment costs
                  remain unchanged at $2.3 million.

                                       14
<PAGE>

            -     Professional fees - Professional fees decreased 5% to $1.4
                  million primarily due to decreased legal fees.

            -     Other - Other costs decreased 4% to $1.8 million.

      Interest Income. Interest income increased 47% to $1.8 million in the nine
months ended September 30, 2005 from $1.2 million in the corresponding period in
2004 primarily due to higher interest rates and higher average cash and
investment balances.

      Interest Expense. Interest expense increased to $2.5 million in the nine
months ended September 30, 2005 from $1.8 million in the corresponding period in
2004. The increase was attributable to interest expense on the $34.0 million
mortgage loan on our facilities in The Woodlands, Texas, which was entered into
in April 2004.

      Net Loss and Net Loss Per Common Share. Net loss decreased 9% to $42.2
million in the nine months ended September 30, 2005 from $46.6 million in the
corresponding period in 2004. Net loss per common share decreased to $0.66 in
the nine months ended September 30, 2005 from $0.74 in the corresponding period
in 2004. Net loss includes stock-based compensation expense of $0.8 million in
the nine months ended September 30, 2004.

LIQUIDITY AND CAPITAL RESOURCES

      We have financed our operations from inception primarily through sales of
common and preferred stock, contract and milestone payments to us under our drug
discovery alliance, target validation, database subscription and license
agreements, equipment financing arrangements and leasing arrangements. From our
inception through September 30, 2005, we had received net proceeds of $295.4
million from issuances of common and preferred stock, including $203.2 million
of net proceeds from the initial public offering of our common stock in April
2000 and $50.1 million from our July 2003 common stock offering. In addition,
from our inception through September 30, 2005, we received $312.3 million in
cash payments from drug discovery alliances, target validation collaborations,
database subscription and technology license fees, sales of compound libraries
and reagents, and government grants, of which $234.9 million had been recognized
as revenues through September 30, 2005.

      As of September 30, 2005, we had $90.2 million in cash, cash equivalents
and short-term investments (including $0.4 million of restricted investments),
as compared to $87.6 million (including $0.4 million of restricted investments)
as of December 31, 2004. Cash provided by operating activities was $12.0 million
in the nine months ended September 30, 2005. This consisted primarily of the net
loss for the period of $42.2 million offset by non-cash charges of $7.8 million
related to depreciation expense and $0.9 million related to amortization of
intangible assets other than goodwill; a $41.9 million increase in deferred
revenue; and changes in other operating assets and liabilities of $3.6 million.
Cash used in investing activities was $3.5 million in the nine months ended
September 30, 2005, primarily due to purchases of property and equipment of $9.4
million offset by net maturities of short-term investments of $5.8 million.

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

                                       15
<PAGE>

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

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

      In July 2005, we were awarded $35 million from the Texas Enterprise Fund
for the creation of a knockout mouse embryonic stem cell library containing
350,000 cell lines. We will create the library for the Texas Institute for
Genomic Medicine, a newly formed non-profit institute whose founding members are
Texas A&M University, the Texas A&M University System Health Science Center and
us. Under the terms of the award, we are responsible for the creation of a
specified number of jobs, reaching an aggregate of 1,616 new jobs in Texas by
December 31, 2015. We will obtain credits based on funding received by the
institute and certain related parties from sources other than the State of Texas
that we may offset against our potential liability for any job creation
shortfalls. We will also obtain credits against future jobs commitment
liabilities for any surplus jobs we create. Subject to these credits, if we fail
to create the specified number of jobs, the state may require us to repay $2,415
for each job we fall short. Our maximum aggregate exposure for such payments, if
we fail to create any new jobs, is approximately $14.4 million, without giving
effect to any credits to which we may be entitled.

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

DISCLOSURE ABOUT MARKET RISK

      We are exposed to limited market and credit risk on our cash equivalents,
which have maturities of three months or less at the time of purchase. We
maintain a short-term investment portfolio which consists of U.S. government
agency debt obligations, investment grade commercial paper, corporate debt
securities and certificates of deposit that mature within twelve months and
auction rate securities that mature greater than twelve months from the time of
purchase, which we believe are subject to limited

                                       16
<PAGE>

market and credit risk. We currently do not hedge interest rate exposure or hold
any derivative financial instruments in our investment portfolio.

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

RISK FACTORS

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

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

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

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

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

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

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

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

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

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

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

   -  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

   -  any contamination among our knockout mouse population could negatively
      affect the reliability of our scientific research or cause us to incur
      significant remedial costs

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

                                       17
<PAGE>

   -  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

Risks Related to Our Industry

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

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

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

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

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

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

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

   -  we may be unable to protect our trade secrets

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

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

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

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

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

                                       18
<PAGE>

   -  we may be sued for product liability

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

         For additional discussion of the risks and uncertainties that affect
our business, see "Item 1. Business - Risk Factors" included in our annual
report on Form 10-K for the year ended December 31, 2004, as filed with the
Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

      Our chief executive officer and chief financial officer have concluded
that our disclosure controls and procedures (as defined in rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) are
sufficiently effective to ensure that the information required to be disclosed
by us in the reports we file under the Exchange Act is gathered, analyzed and
disclosed with adequate timeliness, accuracy and completeness, based on an
evaluation of such controls and procedures as of the end of the period covered
by this report.

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

                                       19
<PAGE>

PART II OTHER INFORMATION

ITEM 5. OTHER INFORMATION

      On October 26, 2005, the compensation committee of our Board of Directors
approved an additional annual retainer of $15,000 for service as non-executive
Chairman of our Board of Directors. All non-employee directors currently receive
an annual retainer of $15,000 for their service on the Board of Directors.

      On October 26, 2005, the compensation committee also approved an
additional annual option grant to the non-executive Chairman of our Board of
Directors under our 2000 Equity Incentive Plan to purchase 10,000 shares of
common stock at an exercise price equal to the fair market value of our common
stock on the date of grant. All non-employee directors who have served in such
capacity for six months currently receive an annual option to purchase 10,000
shares of common stock under our 2000 Non-Employee Directors' Stock Option Plan
at an exercise price equal to the fair market value of our common stock on the
date of grant.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO.                               DESCRIPTION
-----------  -------------------------------------------------------------------
<S>          <C>
    10.1     --  Economic Development Agreements dated July 15, 2005, with the
                 State of Texas and the Texas A&M University System

   +10.2     --  Collaboration and License Agreement, dated July 15, 2005, with
                 the Texas A&M University System and the Texas Institute for
                 Genomic Medicine

    10.3     --  Non-Employee Director Compensation

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

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

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

      +  Confidential treatment has been requested for a portion of this
         exhibit. The confidential portions of this exhibit have been omitted
         and filed separately with the Securities and Exchange Commission

      (b)   Reports on Form 8-K:

      On July 18, 2005, we filed a Current Report on Form 8-K dated July 15,
2005 related to our entry into an Economic Development Agreement, dated July 15,
2005 with the State of Texas and the Texas A&M University System and a
Collaboration and License Agreement, dated July 15, 2005, with the Texas A&M
University System and the Texas Institute for Genomic Medicine.

      On July 28, 2005, we filed a Current Report on Form 8-K dated July 28,
2005 related to our issuance of a press release reporting our financial results
for the quarter ended June 30, 2005, which press release included our
consolidated balance sheet data and consolidated statements of operations data
for the period.

                                       20
<PAGE>

                                   SIGNATURES

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

                              LEXICON GENETICS INCORPORATED

Date:  November 1, 2005       By:      /s/ Arthur T. Sands
                                 -----------------------------------------------
                                     Arthur T. Sands, M.D., Ph.D.
                                     President and Chief Executive Officer

Date:  November 1, 2005       By:      /s/ Julia P. Gregory
                                 -----------------------------------------------
                                     Julia P. Gregory

                                     Executive Vice President, Corporate
                                     Development and Chief Financial Officer

                                       21
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.                               DESCRIPTION
-----------  -------------------------------------------------------------------
<S>          <C>
    10.1     --  Economic Development Agreements dated July 15, 2005, with the
                 State of Texas and the Texas A&M University System

   +10.2     --  Collaboration and License Agreement, dated July 15, 2005, with
                 the Texas A&M University System and the Texas Institute for
                 Genomic Medicine

    10.3     --  Non-Employee Director Compensation

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

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

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

    +   Confidential treatment has been requested for a portion of this
        exhibit. The confidential portions of this exhibit have been omitted
        and filed separately with the Securities and Exchange Commission
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>h29775exv10w1.txt
<DESCRIPTION>ECONOMIC DEVELOPMENT AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.1

                         ECONOMIC DEVELOPMENT AGREEMENT

                                     BETWEEN

                               THE STATE OF TEXAS

                                       AND

                         THE TEXAS A&M UNIVERSITY SYSTEM

                                       AND

                          LEXICON GENETICS INCORPORATED

                                  JULY 15, 2005

THIS AGREEMENT ("Agreement") is by and among the State of Texas (the "State"),
acting by and through the Office of Economic Development and Tourism, a division
within the Office of the Governor ("OOGEDT"), Texas A&M University System
("TAMUS") and Lexicon Genetics Incorporated ("Lexicon"). The State, TAMUS, and
Lexicon are hereinafter referred to either individually as the "party," or
collectively as the "parties." The Effective Date of this Agreement is July 15,
2005.

                                    RECITALS

WHEREAS, Texas' low taxes, budgetary discipline, reasonable regulations and
educated workforce continue to make the state a top location for businesses
looking to expand or relocate; and

WHEREAS, the State desires to become a world leader in genomics and
biotechnology; and

WHEREAS, TAMUS and Lexicon are known for research and development expertise and
Lexicon is particularly known for its gene knockout technology and expertise;
and

WHEREAS, gene knockout technology provides a means to systematically identify
the physiological functions of genes, offering the promise of discovering new
and more-effective ways to prevent and treat human and veterinary disease; and

WHEREAS, Lexicon employs more than 600 people in the State and had annual
revenues in 2004 of approximately $62 million; and

WHEREAS, TAMUS is a Texas public institution of higher education; and

WHEREAS, TAMUS and Lexicon have proposed a unique public-private collaboration
for human and veterinary medical research that would be endowed with two (2)
complete copies of a library consisting of three hundred fifty thousand
(350,000) knockout mouse embryonic stem cell clones (the "OmniBank II Library")
housed at two facilities, one being located in Houston and one being located in
College Station; and

<PAGE>

WHEREAS, TAMUS and Lexicon have proposed that such collaboration be implemented
through the Texas Institute for Genomic Medicine ("TIGM"), a Texas non-profit
corporation formed for such purpose; and

WHEREAS, it is in the State's interest to expand and improve the research and
development capability of its public institutions of higher education, including
by facilitating the concentration of expertise in particular areas of scientific
research to enable the development of a platform for recruiting additional
researchers and to obtain related funding from other sources; and

WHEREAS, the new facilities and programs related to TIGM are estimated to create
at least 5,000 new full-time jobs for Texans, with an ultimate average annual
payroll of more than $450 million; and

WHEREAS, Article III, Section 52-A of the Texas Constitution expressly
authorizes the State to use public funds for the public purposes of development
and diversification of the economy of the State, the elimination of unemployment
or underemployment in the State, or the development of commerce in the State;
and

WHEREAS, SB 1771 of the 78th Texas Legislature established the Texas Enterprise
Fund ("TEF") to be used with the express written approval of the Governor,
Lieutenant Governor, and Speaker of the House of Representatives for economic
development, infrastructure development, community development, job training
programs, and business incentives, and HB 7 of the 78th Texas Legislature
appropriated $295 million from the Texas Economic Stabilization Fund to the TEF
for the 2004-2005 biennium; and

WHEREAS, the State values Lexicon as a distinguished and important corporate
citizen, and wishes to receive a commitment that Lexicon will expand its
presence and payroll in Texas and provide the intellectual property resources to
enable TAMUS and Lexicon to establish TIGM, and Lexicon wishes to provide such
commitment; and

WHEREAS, TAMUS is willing to undertake commitments related to constructing and
renovating facilities for TIGM and supporting the operations of TIGM to carry
out its planned research and development activities, as well as to the creation
of new jobs in the State; and

WHEREAS, the Governor, Lieutenant Governor, and Speaker have each approved a
grant from the TEF to TAMUS and Lexicon, as evidenced in the letter attached as
Exhibit A hereto; and

WHEREAS, to ensure that the benefits the State provides under this Agreement are
utilized in a manner consistent with Article III, Section 52-a of the Texas
Constitution, and other laws, TAMUS and Lexicon have agreed to comply with
certain conditions and deliver certain performance, including achieving
measurable job creation and retention commitments, in exchange for receiving
these benefits; and

WHEREAS, the parties desire to have such proposals set forth in a valid, binding
and enforceable agreement; and

WHEREAS, the State believes it is in the best public interest to enter into this
Agreement for the reasons set forth above;

                                      -2-

<PAGE>

                                   AGREEMENTS

NOW, THEREFORE, in consideration of the mutual promises herein, the parties
agree as follows:

1.    STATE OF TEXAS COMMITMENT

      a. GRANT OF FUNDS FROM THE TEXAS ENTERPRISE FUND TO TAMUS. The State shall
pay cash from the Texas Enterprise Fund to TAMUS in the amount of Fifteen
Million Dollars ($15,000,000) as soon as practicable following the execution of
this Agreement (but no later than thirty (30) days after the Effective Date
provided that all necessary documents for disbursement of the funds have been
provided to the State as required), of which (i) Ten Million Dollars
($10,000,000) shall be used by TAMUS to build a facility in College Station to
house one copy of the OmniBank II Library and (ii) Five Million Dollars
($5,000,000) shall be used by TAMUS to renovate existing space at the Institute
of Biosciences and Technology ("IBT") at the Health Science Center in Houston to
house the other copy of the OmniBank II Library, in each case in accordance with
this Agreement.

      b. GRANT OF FUNDS FROM THE TEXAS ENTERPRISE FUND TO LEXICON. The State
shall pay cash from the Texas Enterprise Fund to Lexicon in the amount of
Thirty-Five Million Dollars ($35,000,000) as soon as practicable following the
execution of this Agreement (but no later than thirty (30) days after the
Effective Date provided that all necessary documents for disbursement of the
funds have been provided to the State as required), including (i) Thirty Million
Dollars ($30,000,000) for the generation and delivery of the OmniBank II Library
and related intellectual property licenses and (ii) Five Million Dollars
($5,000,000) for the acquisition of bioinformatics software and related
intellectual property licenses, in each case in accordance with this Agreement.

2.    TAMUS AND LEXICON FUNDING CONDITIONS

TAMUS and Lexicon must meet all of the following "Funding Conditions" or will be
subject to liquidated damages and/or repayment in accordance with this
Agreement. The Funding Conditions are as follows:

      a. ESTABLISHMENT OF THE TEXAS INSTITUTE FOR GENOMIC MEDICINE. TAMUS and
Lexicon shall establish TIGM, the initial members of which shall be TAMUS
(participating through Texas A&M University and the Texas A&M Health Science
Center) and Lexicon. TAMUS and Lexicon shall provide the State with sufficient
evidence to confirm TIGM's formation.

      b. AGREEMENTS BETWEEN LEXICON AND TAMUS. TAMUS and Lexicon have entered
into, and shall perform their obligations under, agreements with respect to the
matters described in attached Exhibit B. TAMUS and Lexicon shall certify in
writing to the State that the Agreements have been entered into and materially
and substantially comply with the terms as set forth in Exhibit B.

            It is understood that this Agreement does not grant the State, apart
from TAMUS, any right to acquire intellectual property transferred to or
developed by TIGM.

      c. SECURITY. TAMUS shall provide the state with sufficient evidence that
the State has been provided security for its investment by a pledge of the lease
payments and other revenue from TIGM to TAMUS.

                                      -3-

<PAGE>

      d. JOB TARGETS. TAMUS and Lexicon shall be responsible to the State for
creating, in the aggregate, at least Five Thousand ("5,000") new Employment
Positions in Texas by December 31, 2015, and TAMUS shall be responsible to the
State for maintaining such new Employment Positions in Texas from December 31,
2015 to December 31, 2027. Each of TAMUS and Lexicon shall be responsible for
the respective portions of such aggregate commitment set forth below (such
portion representing the party's respective "Job Target") in accordance with the
following schedule:

            (1)   94 jobs by December 31, 2006 (TAMUS portion 45; Lexicon
                  portion 49),

            (2)   198 jobs by December 31, 2007 (TAMUS portion 73; Lexicon
                  portion 125),

            (3)   357 jobs by December 31, 2008 (TAMUS portion 148; Lexicon
                  portion 209),

            (4)   581 jobs by December 31, 2009 (TAMUS portion 280; Lexicon
                  portion 301),

            (5)   894 jobs by December 31, 2010 (TAMUS portion 492; Lexicon
                  portion 402),

            (6)   1,345 jobs by December 31, 2011 (TAMUS portion 832; Lexicon
                  portion 513),

            (7)   1,801 jobs by December 31, 2012 (TAMUS portion 1,166; Lexicon
                  portion 635),

            (8)   2,562 jobs by December 31, 2013 (TAMUS portion 1,657; Lexicon
                  portion 905),

            (9)   3,573 jobs by December 31, 2014 (TAMUS portion 2,345; Lexicon
                  portion 1,228), and

            (10)  5,000 jobs by December 31, 2015 (TAMUS portion 3,384; Lexicon
                  portion 1,616).

For the purposes of this Agreement, "Employment Positions" shall be defined as
jobs meeting all of the following criteria:

            (i)   New full-time or full-time equivalent employment positions in
                  Texas,

            (ii)  With an average annual gross compensation (not including
                  benefits) of at least $60,000, which shall be adjusted for
                  inflation but not to exceed 3% per year, such adjustment to
                  occur first for the compensation standard applicable to 2007,
                  and

            (iii) Which may include (A) in the case of Lexicon's portion of the
                  commitment, positions with Lexicon and its affiliates in which
                  Lexicon has a 50% or higher ownership interest, and (B) in the
                  case of TAMUS's portion of the commitment, positions with
                  TIGM, positions with TIGM members, positions with employers in
                  the biotechnology or pharmaceutical industries, and other
                  positions for which TIGM or TIGM members are significantly
                  responsible for creating through efforts specifically targeted
                  at attracting or creating biotechnology and pharmaceutical
                  industry-related positions to Texas, in each case without
                  duplication. For clarity, from and after December 31, 2015 (or
                  earlier, if Lexicon has already satisfied its Job Target
                  commitment in full), positions with Lexicon and its affiliates
                  in which Lexicon has a 50% or higher ownership interest shall
                  be included for purposes of TAMUS's commitment to the State to
                  create and maintain new Employment Positions over the
                  remaining term of the contract.

            e. ANNUAL COMPLIANCE VERIFICATION. By January 31 of each year during
the term of this Agreement, beginning in January 2007 and continuing every year
thereafter through January 2028, for TAMUS, and January 2016, for Lexicon, each
of TAMUS and Lexicon, as applicable, must deliver to OOGEDT a compliance
verification signed by a duly authorized representative of the reporting party
that shall certify the number of and generally describe the Employment Positions
existing as of December 31 of the year preceding (an "Annual Compliance
Verification"). There will be a total of twenty-two (22) Annual Compliance
Verifications due, covering jobs created and maintained in years 2006 through
2027. TAMUS and/or Lexicon may, at its option, deliver an Annual Compliance
Verification in January 2006 with respect to Surplus

                                      -4-

<PAGE>

Job Credits, if any, attributable to any new Employment Positions created in
2005. All Annual Compliance Verifications shall be in a form reasonably
satisfactory to OOGEDT and shall provide appropriate back-up data for the
Employment Position numbers provided.

3.    LIQUIDATED DAMAGES

      a. JOB TARGET. As set forth in Section 2.d above, annually during the term
of this Agreement, through January 2028, TAMUS and, through January 2015,
Lexicon must deliver to OOGEDT an Annual Compliance Verification demonstrating
that their respective Job Targets have been met for the year just ended. The
consequences to TAMUS or Lexicon of satisfying, failing to satisfy or exceeding
its respective Job Target are as follows:

            i. COMPLIANCE WITH JOB TARGET. If an Annual Compliance Verification
demonstrates that the applicable party's Job Target has been met for the year
just ended, then such party will be deemed to have met its obligations for such
preceding year and no damages shall be due.

            ii. FAILURE TO MEET JOB TARGET. If an Annual Compliance Verification
that demonstrates that such party's Job Target has not been met for the year
just ended, then OOGEDT may require the responsible party to pay liquidated
damages in the amount of Two Thousand Four Hundred Fifteen Dollars ($2,415) per
job for every Employment Position by which it is short that year. It is
understood that as a state agency, TAMUS may not, and does not, guarantee the
obligations of Lexicon. Nor does Lexicon guarantee the obligations of TAMUS.
Neither party shall have any obligation for any shortfalls in the Job Target
obligations of the other party, and each party shall be responsible solely for
its own payment obligations to the State.

            iii. EXCEEDING JOB TARGET. If an Annual Compliance Verification
demonstrates that such party's Job Target has been exceeded for the year just
ended, such party will be deemed to have exceeded its Job Target obligations and
will receive a "Surplus Job Credit" for each extra Employment Position generated
and maintained above its Job Target for that year. For purposes of the
foregoing, all Employment Positions created in 2005 will be considered Surplus
Job Credits. TAMUS and Lexicon may utilize their respective earned Surplus Job
Credits in any following year as follows:

                  A. such party may expend a Surplus Job Credit in lieu of
            paying liquidated damages in the amount of $2,415 per job (for
            example, if a party owes liquidated damages in the amount of
            $241,500 for 100 Employment Positions lacking in a particular year,
            it may discharge this amount by expending 100 Surplus Job Credits it
            has earned in prior years); or

                  B. such party may apply their respective Surplus Job Credits
            toward meeting their remaining Job Target for future years, such
            that if TAMUS and Lexicon accumulate enough Surplus Job Credits they
            will be deemed to have fulfilled all of its obligations under the
            Agreement, and will be released from the Agreement early (for
            example, if TAMUS and Lexicon accumulated at least 5,000 unused
            Surplus Job Credits by December 31, 2026, then TAMUS may apply these
            Surplus Job Credits forward to fulfill its Job Target for 2027, and
            may thereby fulfill its obligations and be released from the
            Agreement one year early).

                                      -5-

<PAGE>

      b. OFFSETS FOR EXTERNAL FUNDING. One of the State's primary objectives
under this Agreement is to support the development of TIGM as a national center
of excellence in genomic medicine, which will require TIGM to successfully
compete for available funding from sources other than the State. Generating such
funding directly benefits the State. In light of these benefits, and without
affecting TAMUS and Lexicon's expectation and intention of satisfying their
respective Job Target commitments set forth in Section 2.d. above, TAMUS and
Lexicon will be entitled to an offset against liabilities, if any, that they may
incur for liquidated damages under Section 3.a. above, calculated as set forth
below, on account of funds received by TIGM and, to the extent related to
research using materials obtained from TIGM, by TIGM members directly or
indirectly from funding sources other than the State, including, without
limitation, all such funds received under grants and contracts from the National
Institutes of Health, other federal government agencies, research institutes,
foundations, and companies in the biotechnology and pharmaceutical industries.

The parties will collectively be entitled to an offset equivalent to the
liquidated damages liability associated with the creation or maintenance of
5,000 jobs for one year for each $25 million of such funding. A maximum of $300
million of such external funding may be applied. The offset shall be allocated
between Lexicon and TAMUS as follows:

            i. One-half of such offset (e.g., for each $25 million in such
   funding, an amount equivalent to the liquidated damages liability associated
   with the creation or maintenance of 2,500 jobs for one year) will be applied
   to reduce the amount of TAMUS's potential liquidated damages liability for
   shortfalls in achieving or maintaining its portion of the Job Target
   commitment.

            ii. The other one-half of such offset will be applied to reduce the
   amount of Lexicon's potential liquidated damages liability for shortfalls in
   achieving or maintaining its portion of the Job Target commitment.

Lexicon and TAMUS will be entitled to proportional credit for funding amounts
less than those set forth above. In any event, TAMUS agrees to be responsible
for 5,000 jobs by December 31, 2016, and 5,000 jobs by December 31, 2017, and
maintaining them, both in accordance with the provisions of this Agreement.

The offset contemplated above will be applied as follows:

(1) Lexicon's portion of the offset will be applied first to Lexicon's potential
liquidated damages liability for shortfalls in achieving or maintaining its
portion of the Job Target commitment in the final year of such commitment (2015)
and thereafter to Lexicon's potential liquidated damages liability for each
preceding year, until the potential liquidated damages liability for such year
is fully accounted for by such offset.

(2) TAMUS's portion of the offset will be applied as follows: (A) eighty percent
(80%) will be applied first to TAMUS's potential liquidated damages liability
for shortfalls in maintaining the Job Target commitment in the final year of
such commitment (2027) and thereafter to TAMUS's potential liquidated damages
liability for each preceding year, until the potential liquidated damages
liability for such year is fully accounted for by such offset, and (B) the
remaining twenty percent (20%) of such offset may be applied to TAMUS's
repayment liability for shortfalls in achieving or maintaining its portion of
the Job Target commitment in such year(s) as TAMUS may designate.

     c. TRANSITION AFTER LEXICON DISCHARGE OF ITS OBLIGATIONS. At such time as
Lexicon has discharged its job related obligations as provided under this
Agreement, then

                                      -6-

<PAGE>

            i.    All unused Lexicon Surplus Job Credits shall transfer
                  automatically to TAMUS,

            ii.   All unused offset amounts allocated to Lexicon pursuant to
                  Section 3.b.ii shall automatically transfer to TAMUS, and

            iii.  Thereafter, all Employment Positions created or maintained by
                  Lexicon and its affiliates shall be counted as TIGM created or
                  maintained Employment Positions.

      d. ADJUSTMENT FOR SALES TAX RATE CHANGES. The $2,415 repayment penalty per
Employment Position shall be proportionately reduced for the remainder of the
contract in the event the State's sales tax rate is increased from the 6.25%
rate in effect at the Effective Date.

4.    TAMUS AND LEXICON ADDITIONAL COMMITMENTS

      a. OOGEDT AUDIT RIGHTS.

            (i) DUTY TO MAINTAIN RECORDS. Each of TAMUS and Lexicon shall
      maintain adequate records to support its charges, procedures and
      performances to OOGEDT for all work related to this Agreement. Each of
      TAMUS and Lexicon also shall maintain such records as are reasonably
      deemed necessary by the OOGEDT and auditors of the State of Texas or
      United States, or such other persons or entities designated by the OOGEDT,
      to ensure proper accounting for the expenditure of funds provided under
      this Agreement and for the performance by each of them under this
      Agreement.

            (ii) RECORDS RETENTION. Each of TAMUS and Lexicon shall maintain and
      retain for a period of four (4) years after the submission of the final
      expenditure report, or until full and final resolution of all audit or
      litigation matters which arise after the expiration of the four (4) year
      period after the submission of the final expenditure report, whichever
      time period is longer, the records described in Section 4(a)(i).

            (iii) AUDIT TRAILS. Appropriate audit trails shall be maintained by
      Lexicon to provide accountability for updates and changes to automated
      personnel and financial systems. Audit trails maintained by Lexicon will,
      at a minimum, identify the changes made, the individual making the change
      and the date the change was made. An adequate history of transactions
      shall be maintained by Lexicon to permit an audit of the system by tracing
      the activities of individuals through the system. Lexicon's automated
      systems must provide the means whereby authorized personnel have the
      ability to audit and establish individual accountability for any action
      that can potentially cause access to, generation of, or modification of
      information related to the performances of this Agreement. Lexicon agrees
      that Lexicon's failure to maintain adequate audit trails and corresponding
      documentation shall create a presumption that the performances were not
      performed. As an agency of the State, TAMUS shall comply with applicable
      State law and policies as regards its accounting and auditing processes
      and procedures.

            (iv) ACCESS. Each of TAMUS and Lexicon shall grant access to all
      paper and electronic records, books, documents, accounting procedures,
      practices or any other items relevant to the performance of this agreement
      to OOGEDT and auditors of the State of Texas, or such other persons or
      entities designated by OOGEDT for the purposes of

                                      -7-

<PAGE>

      inspecting and auditing such books and records. All records, books,
      documents, accounting procedures, practices or any other items relevant to
      the performance of this agreement shall be subject to examination or audit
      by the OOGEDT and auditors of the State of Texas, or such other persons or
      entities designated by the OOGEDT in accordance with all applicable state
      and federal laws, regulations or directives. Each of TAMUS and Lexicon
      will direct any subcontractor with whom it has established a contractual
      relationship to discharge TAMUS and Lexicon's obligations to likewise
      permit access to, inspection of, and reproduction of all books and records
      of TAMUS and Lexicon's subcontractor(s) which pertain to this agreement.
      Notwithstanding the foregoing, it is recognized that the purpose for which
      access is to be granted is to monitor compliance with the express
      obligations of TAMUS and Lexicon hereunder, and that it would severely
      adversely affect the very objectives of this Agreement if confidential,
      proprietary technical or business data were to be released or become
      available to the public as a result of any examination by or on behalf of
      the State. Accordingly, TAMUS and Lexicon may, require that the State and
      its representatives, to the extent permitted by law, follow protocols
      designed to protect such information.

            (v) LOCATION. Any such audit shall be conducted at TAMUS and
      Lexicon's principal place of business during TAMUS and Lexicon's normal
      business hours and at OOGEDT 's expense, provided all costs incurred by
      OOGEDT in conducting any such audit shall be reimbursed by TAMUS or
      Lexicon, as applicable, in the event such audit reveals a material
      discrepancy in the compliance with this Agreement, by TAMUS or Lexicon, as
      applicable.

            (vi) REIMBURSEMENT. If any audit or examination reveals that TAMUS
      or Lexicon's reports for the audited period are not accurate for such
      period and that additional amounts of liquidated damages were owed to
      OOGEDT above what was paid or discharged with credits, then the applicable
      party (TAMUS or Lexicon) shall, within 30 days, pay to OOGEDT, or apply
      additional credits to discharge, such additional amounts.

            (vii) CORRECTIVE ACTION PLAN. If any audit reveals any discrepancies
      or inadequacies which must be corrected to maintain compliance with this
      Agreement, the applicable party (TAMUS or Lexicon) agrees within thirty
      (30) calendar days after its receipt of the audit findings, to propose and
      submit to OOGEDT a corrective action plan to correct such discrepancies or
      inadequacies subject to the approval of the OOGEDT. Such party shall
      complete the corrective action approved by OOGEDT within thirty (30)
      calendar days after OOGEDT approves the corrective action plan, at the
      sole cost of the applicable party.

            (viii) REPORTS. Each of TAMUS and Lexicon shall provide to OOGEDT
      periodic status reports in accordance with OOGEDT's audit procedures
      regarding TAMUS and Lexicon's resolution of any audit-related compliance
      activity for which TAMUS and Lexicon is responsible.

      b. ANNUAL ECONOMIC IMPACT REPORTS; PERIODIC PROGRESS BRIEFINGS. By January
31 of each year during the term of this Agreement, beginning in January 2006 and
continuing every year thereafter through January 2028, in a manner consistent
with the need to protect privacy and the intellectual property of TAMUS, TAMUS
will provide to OOGEDT annual reports on the general activities at and progress
of TIGM (the "Annual Economic Impact Reports"). The Annual Economic Impact
Reports will include an economic impact analysis, highlighting the direct and

                                      -8-

<PAGE>

indirect business and job creation and other economic benefits of TIGM to the
State. Lexicon will provide to TAMUS a non-confidential summary to be used as an
addendum to each Annual Economic Impact Report that will describe generally the
activities of Lexicon in the State for the applicable year. TAMUS and Lexicon
will also provide to OOGEDT periodic briefings on the activities of TIGM and
Lexicon, respectively, in Texas (the "Periodic Progress Briefings") as
reasonably requested by OOGEDT.

      c. USE AND RETENTION OF TEXAS SUPPLIERS. Each of TAMUS and Lexicon will
use reasonable efforts to use qualified Texas-based suppliers to provide
products and services under this Agreement, provided however, TAMUS and Lexicon
may in its sole discretion select suppliers and contractors based on program
needs, scientific criteria, and industry standards.

      d. FINANCIAL INFORMATION. Lexicon will furnish to OOGEDT a copy of
Lexicon's year-end audited financial statements, which may be by reference to
public filings. The financial statements of TAMUS, as a state agency, are
available to OOGEDT.

      e. INDEMNITY AND HOLD HARMLESS. Each of TAMUS, but only to the extent
permitted by law, and Lexicon agrees to indemnify and hold the State, the maker
of this grant, and its agents, officers, and employees harmless for any and all
losses, claims, suits, actions, and liability, including any litigation costs,
that arise from any act or omission of TAMUS and Lexicon, respectively, or any
of it's officers, employees, agents, contractors, assignees, and affiliates
relating to the project for which this grant is made regardless of whether the
act or omission is related to job creation or other stated purpose of the grant.
Neither TAMUS nor Lexicon is responsible for the actions of the other or its
officers, employees, agents, contractors, assignees, and affiliates.

5.    DEFAULTS AND REMEDIES

Each of the following acts or omissions of TAMUS and Lexicon or occurrences
shall constitute an act of default under this agreement:

      a. FAILURE TO ESTABLISH TIGM. If TAMUS and Lexicon fail to establish TIGM
for the purposes and in accordance to the terms of this Agreement by December
31, 2005, all funds advanced pursuant to this Agreement will be subject to an
immediate refund to the State of Texas, plus interest at the rate of 4.2% per
year.

      b. FAILURE TO PAY LIQUIDATED DAMAGES FOR JOB CREATION. TAMUS or Lexicon,
as applicable, shall have sixty (60) days after receiving written notice from
the State demanding payment of outstanding damages owed by such party under
Section 3 in which to pay such outstanding damages; provided, that if such
damages are the subject of a good faith dispute, such period shall be extended
until thirty (30) days after such dispute is resolved. If the responsible party
does not pay after this period, all amounts that could potentially be claimed
under Section 3 for such party's failure to meet its future job obligations
shall become due and payable immediately on demand of the State of Texas.

      c. FAILURE TO PROVIDE VERIFICATION. If after the end of a calendar year
TAMUS or Lexicon fails to provide an Annual Compliance Verification by the later
of the deadline therefor or 60 days after demand from OOGEDT, OOGEDT may make a
good faith estimate, based on information available to OOGEDT, of the Employment
Positions at TAMUS or Lexicon , as applicable, as of December 31 of that year
and, if the estimated Employment Positions fall short of the Job Target, require
corresponding liquidated damages in accordance with Section 3.a.ii.

                                      -9-

<PAGE>

above. Neither TAMUS nor Lexicon will be eligible to earn Surplus Job Credits
for any such year for which it fails to provide an Annual Compliance
Verification by the later of the deadline therefor or 60 days after demand from
OOGEDT.

      d. FAILURE TO PROVIDE ANNUAL ECONOMIC IMPACT REPORTS. Neither TAMUS nor
Lexicon will be eligible to earn Surplus Job Credits for any year for which it
fails to provide its portion of an Annual Economic Impact Report by the later of
the deadline therefor or 60 days after demand from OOGEDT.

      e. INTEREST ON OVERDUE PAYMENTS. Each of TAMUS and Lexicon shall pay
interest on any overdue amounts owed by it to OOGEDT from the date due until
paid at a rate of 4.2% per year.

6.    GENERAL PROVISIONS

      a. AUTHORITY. Each party represents that it has obtained all necessary
authority to enter into this Agreement.

      b. RELATIONSHIP OF PARTIES AND DISCLAIMER OF LIABILITY. The parties will
perform their respective obligations under this Agreement as independent
contractors and not as agents, employees, partners, joint venturers, or
representatives of the other party. No party can make representations or
commitments that bind any other party. Lexicon is not a "governmental body" by
virtue of this Agreement or the use of TEF or other funding.

      c. LIMITATION OF LIABILITY. In no event will any party be liable to any
other party for any indirect, special, punitive, exemplary, incidental or
consequential damages. This limitation will apply regardless of whether or not
the other party has been advised of the possibility of such damages.

      d. TERM. The term of this Agreement commences on the Effective Date of the
Agreement and continues until January 31, 2028, unless terminated earlier
pursuant to the terms of this Agreement.

      e. TERMINATION FOR CAUSE. Either party may terminate this Agreement for
Cause upon thirty (30) days prior written notice to the other party. "Cause" is
any failure to perform a material obligation under this Agreement within the
specified time taking into consideration grace periods set forth herein;
including a material breach of a Funding Condition. This Agreement may not be
terminated if the alleged Cause is cured within the specified thirty-day period.
The sole remedy for any termination for Cause (and for the "cause" giving rise
to the termination) shall be that each party is relieved of its obligation to
perform hereunder, however, following termination by the State, TAMUS and
Lexicon will continue to be obligated to the State for liquidated damages and/or
repayment of funds in accordance with applicable provisions of this Agreement.

      f. DISPUTE RESOLUTION AND APPLICABLE LAW.

            (i) INFORMAL MEETINGS. The parties' representatives will meet as
needed to implement the terms of this Agreement and will make a good faith
attempt to informally resolve any disputes.

                                      -10-

<PAGE>

            (ii) NON-BINDING MEDIATION. Except to prevent irreparable harm for
which there is no adequate remedy at law, no party shall file suit to enforce
this Agreement without first submitting the dispute to confidential, non-binding
mediation before a mediator mutually agreed upon by the parties and conducted in
accordance with the rules of the American Arbitration Association ("AAA").

            (iii) APPLICABLE LAW AND VENUE. This Agreement is made and entered
into in the State of Texas, and this Agreement and all disputes arising out of
or relating thereto shall be governed by the laws of the state of Texas, without
regard to any otherwise applicable conflict of law rules or requirements that
would require or permit the application of the law of another jurisdiction.

      TAMUS and Lexicon agrees that any action, suit, litigation or other
proceeding (collectively "litigation") arising out of or in any way relating to
this Agreement, or the matters referred to therein, shall be commenced
exclusively in the Travis County District Court or the United States District
Court for the Western District of Texas, Austin Division, and hereby irrevocably
and unconditionally consent to the exclusive jurisdiction of those courts for
the purpose of prosecuting and/or defending such litigation. TAMUS and Lexicon
hereby waive and agree not to assert by way of motion, as a defense, or
otherwise, in any suit, action or proceeding, any claim that (a) TAMUS and
Lexicon is not personally subject to the jurisdiction of the above-named courts,
(b) the suit, action or proceeding is brought in an inconvenient forum or (c)
the venue of the suit, action or proceeding is improper.

      g. PUBLICITY. The parties agree to cooperate fully to coordinate with each
other in connection with all press releases and publications regarding this
Agreement.

      h. NO WAIVER OF SOVEREIGN IMMUNITY. Nothing in this agreement may be
construed to be a waiver of the sovereign immunity of the State to suit.

7.    MISCELLANEOUS PROVISIONS

      a. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in establishing proof of this Agreement to produce or account for
more than one such counterpart.

      b. MERGER. This document constitutes the final entire agreement between
the parties and supersedes any and all prior oral or written communication,
representation or agreement relating to the subject matter of this Agreement.

      c. SEVERABILITY. Any term in this Agreement prohibited by, or unlawful or
unenforceable under, any applicable law or jurisdiction is void without
invalidating the remaining terms of this said Agreement. However, where the
provisions of any such applicable law may be waived, they are hereby waived by a
party, as the case may be, to the fullest extent permitted by the law, and the
affected terms are enforceable in accordance with the parties' original intent.

      d. SURVIVAL OF PROMISES. Notwithstanding any expiration, termination or
cancellation of this Agreement, the rights and obligations pertaining to payment
or repayment of funds and/or liquidated damages, confidentiality, disclaimers
and limitation of liability, indemnification, and any other provision implying
survivability will remain in effect after this Agreement ends.

                                      -11-

<PAGE>

      e. BINDING EFFECT. This Agreement and all terms, provisions and
obligations set forth herein shall be binding upon and shall inure to the
benefit of the parties and their successors and assigns and shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and assigns and all other state agencies and any other agencies,
departments, divisions, governmental entities, public corporations and other
entities which shall be successors to each of the parties or which shall succeed
to or become obligated to perform or become bound by any of the covenants,
agreements or obligations hereunder of each of the parties hereto.

      f. SUCCESSORS AND ASSIGNS. TAMUS and Lexicon, or any legal successor
thereto or prior assignee thereof, may assign its rights and obligations under
this Agreement, including by merger or operation of law, to any legal successor
or any person or entity that acquires all or substantially all of its business
and operations. In addition, with the prior written consent of the State, which
consent shall not be unreasonably withheld or delayed, TAMUS and Lexicon, or any
legal successor company thereto or prior assignee thereof, may assign its rights
and obligations under this Agreement to any parent or wholly owned subsidiary
that it currently has in place or later establishes, if it is constituted as a
separate legally recognized business entity. Any such assignment will be made
without additional consideration being payable to the State. This Agreement
shall survive any sale, change of control or similar transaction involving TAMUS
and Lexicon, any successor thereto or prior assignee thereof and no such
transaction shall require the consent of the State.

      g. FORCE MAJEURE. Neither Lexicon nor TAMUS shall be required to perform
any obligation under this Agreement or be liable or responsible for any loss or
damage resulting from its failure to perform so long as performance is delayed
by force majeure or acts of God, including but not limited to strikes, lockouts
or labor shortages, embargo, riot, war, revolution, terrorism, rebellion,
insurrection, flood, natural disaster, or interruption of utilities from
external causes.

      h. NOTICE. All notices, requests, demands and other communications will be
in writing and will be deemed given and received (i) on the date of delivery
when delivered by hand, (ii) on the following business day when sent by
confirmed simultaneous telecopy, (iii) on the following business day when sent
by receipted overnight courier, or (iv) three (3) business days after deposit in
the United States Mail when mailed by registered or certified mail, return
receipt requested, first class postage prepaid, as follows:

      If to the State to:

            General Counsel
            Office of the Governor
            P.O. Box 12428
            Austin, Texas 78711
            Phone: 512-463-1788
            Fax: 512-463-1932

      If to TAMUS to:

            A&M System Building Suite 2043
            200 Technology Way
            College Station, TX  77845-3424

            Attention: Chancellor

                                      -12-

<PAGE>

            Telephone: (979) 458-6000
            Facsimile:  (979) 458-6044

            With a copy to:
            A&M System Building
            Suite 2043
            200 Technology Way
            College Station, TX  77845-3424

            Attention: General Counsel
            Telephone: (979) 458-6122
            Facsimile:  (979) 458-6150

      If to Lexicon to:

            Lexicon Genetics Incorporated
            8800 Technology Forest Place
            The Woodlands, Texas 77381
            Attn: Chief Executive Officer
            Copy to: General Counsel
            Phone: (281) 863-3000
            Fax: (281) 863-8010

                            {SIGNATURE PAGE FOLLOWS}

                                      -13-

<PAGE>

The parties have caused this Economic Development Agreement to be executed by
their duly authorized representatives as of the date first specified above.

THE STATE OF TEXAS

_____________________________
GOVERNOR RICK PERRY

TEXAS A&M UNIVERSITY SYSTEM

_____________________________
CHANCELLOR

LEXICON GENETICS INCORPORATED

_____________________________
PRESIDENT & CEO

                                      -14-

<PAGE>

                                    EXHIBIT A

    LETTER FROM GOVERNOR, LIEUTENANT GOVERNOR AND SPEAKER APPROVING GRANT TO
                TAMUS AND LEXICON FROM THE TEXAS ENTERPRISE FUND

                                      -15-

<PAGE>

                                    EXHIBIT B

                      AGREEMENTS BETWEEN LEXICON AND TAMUS.

TAMUS and Lexicon have entered into, and shall perform their obligations under,
agreements with respect to the following matters:

      a.    Lexicon's generation and delivery to TIGM of the OmniBank II
            Library. As among the State, TAMUS and TIGM, title to both copies of
            the library will be held in the name of TAMUS, and TAMUS will
            provide TIGM with access to the libraries pursuant to the
            arrangements described below.

      b.    Restrictions for a specified period on Lexicon's ability to make a
            new library of gene trapped knockout mouse embryonic stem cell
            clones in direct competition with the OmniBank II Library, or grant
            any license to a third party the right under the relevant gene
            trapping patent rights and know-how to make such a library for such
            purposes. For clarity, no restrictions whatsoever will be imposed
            with respect to Lexicon's existing OmniBank library.

      c.    Lexicon's licensing and delivery to TIGM of bioinformatics software
            for the management of data relating to the OmniBank II Library and
            the generation and phenotypic analysis of knockout mice.

      d.    Lexicon's provision of services necessary at each of the two TIGM
            locations (A) to install the bioinformatics software and to load the
            software databases with the OmniBank II Library gene sequence data
            and (B) to train TIGM staff in the use of the OmniBank II Library
            and the bioinformatics software, and the generation, genotyping and
            phenotyping of knockout mice.

      e.    Lexicon's grant to TIGM of (A) a non-exclusive license under the
            relevant gene trapping patent rights and know-how controlled by
            Lexicon to use the OmniBank II Library and to make, use and sell
            knockout mice derived therefrom, (B) a non-exclusive sublicense
            under specified gene targeting patent rights and know-how controlled
            by Lexicon to make (but not have made) and use gene targeted
            knockout mice, and (C) a non-exclusive license under the copyrights
            and know-how controlled by Lexicon to use the bioinformatics
            software delivered by Lexicon.

      f.    Until the two copies of the OmniBank II Library are fully
            established and operational, access under specified terms and
            conditions to knockout mouse ES cell clones from Lexicon's existing
            OmniBank library, at an agreed-upon cost.

      g.    TAMUS's lease to TIGM of the facilities constructed to house the
            OmniBank II Library.

      h.    TIGM's responsibility to TAMUS for satisfying TAMUS's Job Target
            obligations set forth in this Agreement, in each case subject to the
            applicable Funding Offsets and Surplus Job Credits described below.

      i.    TAMUS's furnishing to TIGM of the operating funds and/or in-kind
            services needed to fund TIGM's operations until it has established
            sufficient revenue to be self-sufficient,

                                      -16-

<PAGE>

            but in no event shall TAMUS be obligated to furnish more than $3
            million in cumulative funds and in-kind services.

      k.    TAMUS's right to receive the net assets of TIGM (including Lexicon
            licenses) upon its dissolution and to step in to protect the
            viability of the program if TIGM is failing to perform.

      l.    TIGM's obligation to comply with reasonable financial and operating
            covenants in favor of TAMUS so long as TAMUS is exposed to the
            refund risk to the State

      m.    Lexicon's and TAMUS's obligations to share information related to
            job creation and retention in advance of the due dates for the
            Annual Compliance Verifications (defined below) in order to
            determine and know in advance the content of their respective Annual
            Compliance Verifications; and including provisions for Lexicon to
            continue to report to TAMUS after Lexicon has satisfied its
            obligations to generate and maintain jobs the job activity of
            Lexicon and its affiliates that would allow TAMUS to prepare on a
            timely basis its Annual Compliance Verifications, with all
            appropriate credit for job creation and retention by Lexicon and its
            affiliates.

                                      -17-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>h29775exv10w2.txt
<DESCRIPTION>COLLABORATION AND LICENSE AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.2

Confidential materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

                       COLLABORATION AND LICENSE AGREEMENT

      THIS COLLABORATION AND LICENSE AGREEMENT (this "Agreement") is dated as of
July 15, 2005 (the "Effective Date") and is made by and among LEXICON GENETICS
INCORPORATED, a Delaware corporation ("Lexicon"), THE TEXAS A&M UNIVERSITY
SYSTEM ("TAMUS") for the benefit of TEXAS A&M UNIVERSITY ("TAMU") and the TEXAS
A&M HEALTH SCIENCE CENTER ("TAMHSC"), and the TEXAS INSTITUTE FOR GENOMIC
MEDICINE, a Texas non-profit corporation ("TIGM"). Lexicon, TAMUS and TIGM are
sometimes referred to herein individually as a "party" and collectively as the
"parties."

                                    RECITALS

      WHEREAS, Lexicon has technology for and expertise in the generation of
mouse embryonic stem cell clones containing gene trap mutations that can be used
in the production of knockout mice;

      WHEREAS, Lexicon and TAMUS are interested in collaborating in the start-up
and initial operations of TIGM, including the endowment of TIGM with a library
of such mouse embryonic stem cell clones containing gene trap mutations;

      WHEREAS, the State of Texas, acting by and through the Office of the
Governor, Economic Development and Tourism (the "State"), has committed to
provide fifty million dollars ($50,000,000) in funding for the foregoing under
an Economic Development Agreement, dated as of the Effective Date, among the
State, Lexicon and TAMUS (the "Economic Development Agreement");

      NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained, the parties hereto mutually agree as follows:

                             ARTICLE 1. DEFINITIONS

      For purposes of this Agreement, the terms defined in this Article 1 shall
have the respective meanings specified below:

      1.1 "Academic Institution" means any university or non-profit entity.

      1.2 "Affiliate" means any corporation, company, partnership, joint venture
or firm that controls, is controlled by or is under common control with a party
to this Agreement. For purposes hereof, "control" means (a) in the case of a
corporate entity, direct or indirect ownership of more than fifty percent (50%)
of the stock or shares entitled to vote for the election of directors; and (b)
in the case of a non-corporate entity, direct or indirect ownership of more than
fifty percent (50%) of the equity interests with the power to direct the
management and policies of such non-corporate entity. For clarity, TIGM, as a
non-profit corporation without stock, shares or equity interests, shall not be
deemed an Affiliate of Lexicon or TAMUS.

      1.3 "Bioinformatics Software" means the software described in Exhibit 1.3
for the management and analysis of data relating to the OmniBank II Library and
the production, genotyping and phenotypic analysis of knockout mice.

<PAGE>

      1.4 "Commercial Entity" means any person or entity other than an Academic
Institution or Government Agency.

      1.5 "Confidential Information" means any proprietary information and data
received by a party or its Affiliates (the "Receiving Party") from the other
party or its Affiliates (the "Disclosing Party") in connection with this
Agreement. Notwithstanding the foregoing, Confidential Information shall not
include any part of such information or data that:

                  (a) is or becomes part of the public domain other than by
            unauthorized acts of the Receiving Party or its Affiliates;

                  (b) can be shown by written documents to have been already in
            the possession of the Receiving Party or its Affiliates prior to
            disclosure under this Agreement, provided such Confidential
            Information was not obtained directly or indirectly from the
            Disclosing Party under an obligation of confidentiality;

                  (c) can be shown by written documents to have been disclosed
            to the Receiving Party or its Affiliates by a Third Party, provided
            such Confidential Information was not obtained directly or
            indirectly from the Disclosing Party under an obligation of
            confidentiality; or

                  (d) can be shown by written documents to have been
            independently developed by the Receiving Party or its Affiliates
            without use of, or access to, Confidential Information of the
            Disclosing Party.

Specific Confidential Information of a Disclosing Party shall not be deemed to
come under the foregoing exceptions merely because it is embraced by more
general information that is or becomes part of the public domain, or is known
by, disclosed to or independently developed by the Receiving Party.

      1.6 "Control" or "Controlled" means, with respect to any (a) material,
document, item of information, method, data or other know-how or (b) Patent
Right or other intellectual property right, the possession (whether by ownership
or license, other than by a license granted pursuant to this Agreement) by a
party or its Affiliates of the ability to grant to the other party access,
ownership, a license or a sublicense as provided herein under such item or right
without violating the terms of any agreement or other arrangement with any third
party as of the time such party would first be required hereunder to grant the
other party such access, ownership, license or sublicense.

      1.7 "Cover," "Covered" or "Covering" means, with respect to a Patent
Right, that, but for rights granted to a person or entity under such Patent
Right, the practice by such person or entity of an invention claimed in such
Patent Right would infringe a Valid Claim included in such Patent Right, or in
the case of a Patent Right that is a patent application, would infringe a Valid
Claim in such patent application if it were to issue as a patent.

      1.8 "Cre-Lox Patents" means the United States and foreign patents listed
in Exhibit 1.8, and any continuations, continuations-in-part, divisionals,
reissues, reexaminations or extensions of any of the foregoing. The terms "Cre"
and "lox" (also referred to as "loxP") have the meanings as described and
embodied by the Cre-Lox Patents.

      1.9 "Development Plan" means the plan described in Exhibit 1.9 for the
generation and delivery to TIGM of the OmniBank II Library.

                                        2
<PAGE>

      1.10 "Diligent Efforts" means the carrying out of obligations or tasks by
a party (or, as applicable, its Affiliates) in a sustained manner using good
faith commercially reasonable and diligent efforts, which efforts shall be
consistent with the exercise of prudent scientific and business judgment in
accordance with the efforts such party devotes to products or research,
development or marketing projects of similar scientific and commercial
potential. Diligent Efforts requires that the party or its applicable
Affiliates: (a) promptly assign responsibility for such obligations to specific
employees who are held accountable for progress and monitor such progress on an
on-going basis, (b) set and consistently seek to achieve specific and meaningful
objectives for carrying out such obligations, and (c) consistently make and
implement decisions and allocate resources designed to advance progress with
respect to such objectives.

      1.11 "Disclosing Party" has the meaning specified in Section 1.5 hereof.

      1.12 "Economic Development Agreement" has the meaning specified in the
recitals of this Agreement.

      1.13 "Effective Date" means the date specified in the initial paragraph of
this Agreement.

      1.14 "Event of Default" means an event described in Section 9.3.1 hereof.

      1.15 "Existing OmniBank(R) Library" means Lexicon's library of mouse
embryonic stem cell clones with Selected Mutations in existence as of the
Effective Date.

      1.16 "Facilities" means the facilities funded under the Economic
Development Agreement to house TIGM and the OmniBank II Library at TAMHSC's
Institute of Biosciences and Technology in Houston, Texas and at TAMU's Research
Park in College Station, Texas, as more fully described in Exhibit 1.16.

      1.17 "Gene Trapping Patents" means the United States and foreign patents
listed in Exhibit 1.17.

      1.18 "Government Agency" means any agency or unit of any federal,
national, state, provincial, county, city or other government, domestic or
foreign.

      1.19 "Joint Management Committee" has the meaning specified in Section
2.1.2 of this Agreement.

      1.20 "Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of any federal, national, state,
provincial, county, city or other political subdivision, domestic or foreign.

      1.21 "Lexicon" has the meaning specified in the initial paragraph of this
Agreement.

      1.22 "Library Technology" means any inventions, information, methods,
know-how, trade secrets or data, including, without limitation, the inventions
Covered by the Gene Trapping Patents, that (a) are Controlled by Lexicon and (b)
are utilized in the generation of the OmniBank II Library or Mutant Mice, but
only to the extent so utilized; provided that Library Technology excludes the
inventions Covered by the Cre-Lox Patents.

      1.23 "Lox Mice" has the meaning specified in Section 3.1.1.2 of this
Agreement.

                                        3
<PAGE>

      1.24 "Materials" means Mutant Mice, Progeny and cells, tissues and other
biological materials derived from any of the foregoing; provided that Materials
shall not include cells, tissues or other biological materials that do not
contain a Selected Mutation.

      1.25 "Materials Access Agreement" has the meaning specified in Section 3.2
of this Agreement.

      1.26 "Mutant Mouse" means mouse cell or mouse containing a Selected
Mutation that is delivered to TIGM under this Agreement, whether as part of the
OmniBank II Library or from the Existing OmniBank Library. A "line of Mutant
Mice" means Mutant Mice having the same Selected Mutation.

      1.27 "[**]" shall mean all payments and other consideration received by
TIGM and its Affiliates from Sublicensed Recipients [**] for the generation or
development of, or access to or licensing of, Materials (including, without
limitation, for the delivery of Materials or the grant of a license under any
intellectual property rights relating thereto), less any (a) freight, insurance
and other transportation costs, (b) taxes (excluding federal, state or local
taxes based on income), duties or other governmental charges imposed on the
production, sale, importation, exportation or use, in each case that are
actually paid by TIGM and its Affiliates with respect to the delivery of such
Materials, (c) trade, quantity and cash discounts, (d) refunds, rebates,
chargebacks, retroactive price adjustments and billing errors, and (e)
allowances or credits due to rejections or returns.

      1.28 "OmniBank II Library" has the meaning specified in Section 2.2.1.

      1.29 "Patent Rights" means all existing patents and patent applications
and all patent applications hereafter filed and patents hereafter issued,
including, without limitation, any continuations, continuations-in-part,
divisions, provisionals or any substitute applications, any patent issued with
respect to any such patent applications, any reissue, reexamination, renewal or
extension (including any supplemental protection certificate) of any such
patent, and any confirmation patent or registration patent or patent of addition
based on any such patent, and all foreign counterparts of any of the foregoing.

      1.30 "Progeny" means mice, including successive generations thereof, that
are produced, developed or derived by or on behalf of TIGM or Sublicensed
Recipients directly or indirectly from a Mutant Mouse progenitor, including,
without limitation, by breeding or rederivation; provided that Progeny shall not
include mice that do not contain a Selected Mutation.

      1.31 "Receiving Party" has the meaning specified in Section 1.5 hereof.

      1.32 "Selected Mutation" means a specific mutation in a particular portion
of a gene originally introduced by Lexicon in a mouse embryonic stem cell
through the use of gene trapping technology.

      1.33 "State" has the meaning specified in the recitals of this Agreement.

      1.34 "Sublicensed Recipient" means any Academic Institution, Commercial
Entity or Government Agency to which TIGM sells or licenses Materials under this
Agreement.

      1.35 "TAMHSC" has the meaning specified in the initial paragraph of this
Agreement.

      1.36 "TAMU" has the meaning specified in the initial paragraph of this
Agreement.

                                        4
<PAGE>

      1.37 "TAMUS" has the meaning specified in the initial paragraph of this
Agreement.

      1.38 "TIGM" has the meaning specified in the initial paragraph of this
Agreement.

      1.39 "Valid Claim" means either (a) a claim of an issued and unexpired
patent which has not been held permanently revoked, unenforceable or invalid by
a decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, or (b) a claim of
a pending patent application that has not been pending for more than seven (7)
years and that has not been abandoned or finally rejected without the
possibility of appeal or refiling.

                            ARTICLE 2. COLLABORATION

      2.1 General.

            2.1.1 Overview. The parties intend to collaborate in the start-up
      and initial operations of TIGM, as set forth in this Article 2. In support
      of the foregoing and as set forth in the present Agreement, (a) Lexicon
      will develop and deliver to TIGM the OmniBank II Library, install and
      support the Bioinformatics Software, and provide training to TIGM's staff
      in the use of the OmniBank II Library and the production, genotyping and
      phenotyping of knockout mice; (b) TAMUS will construct and make available
      to TIGM the Facilities and will furnish to TIGM the operating funds and/or
      in-kind services needed to fund TIGM's operations as provided herein until
      TIGM has established sufficient revenue to be self-sufficient unless
      earlier dissolved; and (c) TIGM will use Diligent Efforts to obtain
      research grants and contracts, expand its membership and promote, through
      the development of its research operations and collaborations with third
      parties, the expansion of the biotechnology and pharmaceutical industries
      and associated employment in the state of Texas; in each case, subject to
      and in accordance with the terms of this Agreement.

            2.1.2 Collaboration Management. Lexicon, TAMUS and TIGM shall
      establish a committee whose members shall be responsible for managing
      their respective efforts under this Agreement (the "Joint Management
      Committee"), including but not limited to the coordination (as between the
      parties) and management of the following matters:

            (a) planning and implementation of the parties' efforts under this
      Agreement; and

            (b) timely transfer of relevant information and progress reports in
      connection with the collaboration contemplated by this Agreement.

            Lexicon, TAMUS and TIGM shall each appoint one member of its senior
      management and one member of its senior technical staff to the Joint
      Management Committee. The members of the Joint Management Committee
      initially designated by the parties are set forth in Exhibit 2.1.2. In
      addition, subject to the approval of the other parties, which approval
      shall not be unreasonably withheld, Lexicon, TAMUS and TIGM shall each
      assign a project coordinator (a) to act as a conduit for timely transfer
      of relevant information and progress reports in connection with the
      collaboration and (b) to be responsible for managing its day-to-day
      efforts under the collaboration. Subject to the approval of the other
      parties, which approval shall not be unreasonably withheld, each party
      shall have the right to replace its representatives on the Joint
      Management Committee and its project coordinator by giving written notice
      to the other parties.

            2.1.3 Resources. The parties agree to commit to the collaboration
      the personnel and resources necessary to meet their respective
      responsibilities set forth in this Agreement.

                                        5
<PAGE>

            2.1.4 Reports. Each party shall submit quarterly reports to the
      Joint Management Committee detailing its activities under this Agreement.

            2.1.5 No Authority to Direct Actions of the Other Party. Although
      the parties acknowledge and agree that the coordination of their
      respective efforts under this Agreement is essential, each party shall
      retain the authority to direct, and the responsibility for, its own
      efforts under this Agreement. Nothing in this Article 2 shall be deemed to
      grant the Joint Management Committee the authority to direct the actions
      of Lexicon, TAMUS or TIGM or to modify the rights and obligations of the
      parties under this Agreement.

            2.1.6 Further Discussions. With respect to any dispute among the
      parties to the collaboration, the parties will periodically consult with
      one another regarding the collaboration and discuss in good faith whether
      modifications or amendments to the Economic Development Agreement,
      Development Plan or this Agreement are advisable in light of the purposes
      of the collaboration contemplated hereby and the respective interests of
      the parties. No such modification or amendment shall be effective unless
      agreed to by each party, in its sole discretion, in accordance with
      Section 10.7.

      2.2 Lexicon Obligations

            2.2.1 Development and Delivery of OmniBank II Library and Mutant
      Mice.

            2.2.1.1 Development of OmniBank II Library. Subject to the terms of
      this Agreement, Lexicon will generate and deliver to TIGM two (2) complete
      copies of a library consisting of three hundred fifty thousand (350,000)
      mouse embryonic stem cell clones with Selected Mutations, each identified
      by DNA sequence of its genomic integration site (the "OmniBank II
      Library"). Subject to the terms of this Agreement, Lexicon will use
      Diligent Efforts to generate and deliver the OmniBank II Library in
      accordance with the schedule set forth in the Development Plan. Lexicon
      will not purposefully exclude clones with Selected Mutations in any
      particular gene or genes from the OmniBank II Library.

            2.2.1.2 Requests for Clones from Existing OmniBank Library. Subject
      to the terms of this Agreement, until the generation and delivery of the
      OmniBank II Library has been completed, TIGM may request mouse embryonic
      stem cell clones with Selected Mutations from the Existing OmniBank
      Library, and shall be provided with reasonable access to the database and
      search tools of Lexicon as may be necessary for TIGM to make such
      requests. Promptly following any such request, Lexicon shall notify TIGM
      of its acceptance or rejection thereof; provided that Lexicon may reject
      such requests only in the event that it has obligations under any
      collaboration or license agreement with a third party or an active bona
      fide internal discovery program with respect to knockout mice with a
      mutation in the same gene in which the requested embryonic stem cell clone
      has a Selected Mutation, in which concrete, verifiable laboratory studies
      have been initiated by Lexicon prior to the time of such request. In the
      event of its acceptance of such a request, Lexicon shall use Diligent
      Efforts to process mouse embryonic stem cell clones with a Selected
      Mutation in the requested gene and, provided that such clones pass
      Lexicon's quality control tests, to deliver a vial of such clones to TIGM.

            2.2.1.3 Deliveries. Beginning no earlier than six (6) months
      following the Effective Date, Lexicon shall deliver notices to TIGM of the
      availability for shipment to

                                        6
<PAGE>

      TIGM of embryonic stem cell clones comprising part of the OmniBank II
      Library or requested by TIGM from the Existing OmniBank Library. Promptly
      following its receipt of such notice, TIGM shall notify Lexicon confirming
      that it is prepared to accept such shipment. Lexicon shall be responsible
      for making shipping arrangements for all such materials; provided that
      TIGM shall be responsible for (a) paying all shipment and delivery charges
      in connection therewith and (b) obtaining, if desired, and paying for any
      insurance relating to such shipment. TIGM shall also be responsible for
      complying with all customs, regulations, veterinary handling procedures
      and protocols, and obtaining any and all permits, forms or permissions
      that may be required for TIGM to accept such shipments. All such materials
      will be shipped F.O.B. Lexicon. If TIGM fails to provide confirmation that
      it is prepared to accept a shipment within thirty (30) days after
      Lexicon's notice that such materials are available for shipment, TIGM
      shall pay Lexicon a storage and maintenance charge of Five Thousand
      Dollars (U.S.$5,000) with respect to such shipment for each month or
      partial month thereafter until Lexicon receives such written confirmation.
      If TIGM fails to provide such written confirmation within three (3) months
      after Lexicon's delivery of such notice to TIGM, Lexicon shall be deemed
      to have delivered such materials and satisfied all of its obligations with
      respect thereto, and may dispose of such materials at its discretion.

            2.2.1.4 Title to Physical Materials. As between the State, TAMUS and
      TIGM, title to the physical materials comprising the OmniBank II Library
      will be held in the name of TAMUS, and TAMUS will provide TIGM with access
      to the OmniBank II Library pursuant to the arrangements described below.

            2.2.1.5 Restrictions on Creation of Competitive Library. For a
      period ending on the earliest to occur of (a) ten (10) years from the
      Effective Date, (b) the date on which Lexicon and TAMUS have accumulated
      funding offsets and surplus job credits sufficient to offset the full
      amount of the potential repayment penalty liability for shortfalls in
      achieving their collective job target commitments to the State under the
      Economic Development Agreement, and (c) the date that TIGM commences
      dissolution proceedings, but in no event earlier than the later of (i)
      five (5) years from the Effective Date and (ii) two (2) years following
      the satisfaction or earlier termination of Lexicon's obligations to
      generate and deliver to TIGM the OmniBank II Library, Lexicon will not
      make or commence making for a third party a new library of mouse embryonic
      stem cell clones with Selected Mutations under a license that would permit
      such party to use and sell such library in direct competition with the
      OmniBank II Library, or grant to a third party the right under the Gene
      Trapping Patents and related Library Technology to make such a library for
      such purposes. For purposes of the foregoing, the duplication of fifty
      percent (50%) or more of the clones represented in the Existing OmniBank
      Library for delivery to a third party under a license that would permit
      such party to use and sell such library in direct competition with the
      OmniBank II Library shall be deemed to constitute the making of a new
      library for such third party. For clarity, except as specifically provided
      in the foregoing sentence, no restrictions whatsoever will be imposed with
      respect to the Existing OmniBank Library.

            2.2.1.6 Technical Difficulties. TIGM and TAMUS recognize that the
      generation of mouse embryonic stem cell clones with Selected Mutations
      involves a number of technologically complex steps and that technical
      obstacles may, on occasion, delay or, in the case of clones requested from
      the Existing OmniBank Library, even prevent such clones from being made
      available for shipment to TIGM. Lexicon shall promptly notify TIGM of any
      such technical obstacle and its estimate of the delay, if any, in the
      timelines

                                        7
<PAGE>

      contemplated by the Development Plan and this Agreement for the delivery
      of mouse embryonic stem cell clones with Selected Mutations hereunder.
      Lexicon shall not be held liable or responsible to TIGM or TAMUS nor be
      deemed to have defaulted under or breached this Agreement for any such
      delay; provided, however, that (a) Lexicon shall use Diligent Efforts to
      limit any such delay and overcome the relevant technical obstacle as
      promptly as possible and (b), subject to Section 10.1, such delay does not
      extend the completion of the OmniBank II Library beyond the third
      anniversary of the Effective Date.

            2.2.1.7 Third Party Rights. Lexicon shall not be obligated to
      develop or deliver a Mutant Mouse where Lexicon reasonably believes, with
      the advice of its counsel and after consultation with TIGM, that such
      action would infringe any valid intellectual property or contractual
      rights of a third party.

      2.2.2 Installation and Support of Bioinformatics Software.

            2.2.2.1 Installation. Lexicon shall deliver the Bioinformatics
      Software to TIGM promptly following the Effective Date. Lexicon will
      provide services necessary to install the Bioinformatics Software on
      TIGM's computer systems at each of the two (2) locations housing a copy of
      the OmniBank II Library. TIGM shall be responsible for obtaining all
      necessary hardware and third party-software necessary to install and
      operate the Bioinformatics Software.

            2.2.2.2 Support Services. Promptly following the installation of the
      Bioinformatics Software at TIGM, Lexicon shall provide initial training
      for TIGM's staff, at each of the two (2) locations housing a copy of the
      OmniBank II Library, in the operation and use of the Bioinformatics
      Software. During the period ending one year after the satisfaction or
      earlier termination of Lexicon's obligations to generate and deliver to
      TIGM the OmniBank II Library, Lexicon shall provide, at no additional
      charge to TIGM, (a) such services as may be necessary to load the
      databases relating to the Bioinformatics Software with the gene sequence
      data identifying clones in the OmniBank II Library, (b) reasonable
      training at each of the two (2) locations housing a copy of the OmniBank
      II Library on the use of the Bioinformatics Software and the database
      containing data relating to the OmniBank II Library and (c) reasonable
      telephone support of the Bioinformatics Software during business hours.
      For a period of five years from the Effective Date, Lexicon shall provide,
      at no additional charge to TIGM, all error corrections to the
      Bioinformatics Software that Lexicon makes in the course of its business.

            2.2.2.3 Source Code Escrow Arrangements. At TAMUS or TIGM's request,
      Lexicon will make arrangements reasonably satisfactory to TAMUS and TIGM
      for an escrow of the source code, programmers notes and other materials
      that TIGM can access and use in the event that Lexicon becomes unable to
      perform the foregoing obligations.

      2.2.3 Provision of Training in the Production of Knockout Mice. Promptly
following the Effective Date, Lexicon shall provide reasonable training for
TIGM's staff, at each of the two (2) locations housing a copy of the OmniBank II
Library, in the production, genotyping and phenotyping of knockout mice.

                                        8
<PAGE>

      2.3 TAMUS Obligations

            2.3.1 Facilities. TAMUS shall make available to TIGM, on
      commercially reasonable terms, adequate facilities in Houston and College
      Station, Texas to house the OmniBank II Library and conduct its
      operations. In connection with the foregoing obligation, TAMUS shall use
      Diligent Efforts to complete the Facilities and lease the Facilities to
      TIGM on commercially reasonable terms, taking into account, in
      establishing such terms, the funding provided by the State to TAMUS under
      the Economic Development Agreement for TIGM's benefit.

            2.3.2 Access to OmniBank II Library. TAMUS shall furnish TIGM with
      the use of the OmniBank II Library, and unless and until TIGM commences
      dissolution proceedings, TAMUS shall access the OmniBank Library only as a
      Sublicensed Recipient through TIGM.

            2.3.3 Funding of TIGM Operations. TAMUS will furnish to TIGM the
      operating funds and/or in-kind services needed to fund TIGM's operations
      until it has established sufficient revenue to be self-sufficient, but in
      no event shall TAMUS be obligated to furnish more than three million
      dollars ($3,000,000) in net cumulative funds or in-kind services.

      2.4 TIGM Obligations

            2.4.1 Operations. TIGM shall use Diligent Efforts to (a) obtain
      research grants and contracts, on its own and in collaboration with its
      members; (b) expand its membership, particularly with respect to Academic
      Institutions within the State of Texas; and (c) promote, through the
      development of its research operations and collaborations with third
      parties, the expansion of the biotechnology and pharmaceutical industries
      and associated employment in the State of Texas.

            2.4.2 Reporting. Within ten (10) days after each calendar quarter,
      TIGM shall furnish to Lexicon and TAMUS a written quarterly report
      showing, in reasonable detail, funds received during the reporting period
      (and, to the extent not previously reported, during previous reporting
      periods) by TIGM and, to the extent related to research using materials
      obtained from TIGM, by TIGM members directly or indirectly from funding
      sources other than the State, including, without limitation, all such
      funds received under grants and contracts from the National Institutes of
      Health, other federal government agencies, research institutes,
      foundations, and companies in the biotechnology and pharmaceutical
      industries, together with evidence thereof (e.g., in the form of grant and
      contract documents or third party reports) that is sufficient to satisfy
      the standards of the Economic Development Agreement for purposes of
      establishing entitlement to funding offsets. Within ten (10) days after
      each calendar year, TIGM shall furnish to Lexicon and TAMUS a written
      annual report showing, in reasonable detail, "Employment Positions" (as
      defined in the Economic Development Agreement) for the year attributable
      to (a) TIGM, (b) TIGM members, (c) employers in the biotechnology or
      pharmaceutical industries, and (d) other positions for which TIGM or TIGM
      members are significantly responsible for creating through efforts
      specifically targeted at attracting or creating biotechnology and
      pharmaceutical industry-related positions to Texas, in each case without
      duplication, together with evidence thereof that is sufficient to satisfy
      the standards of the Economic Development Agreement for such purposes.
      TIGM shall keep complete and accurate records in sufficient detail to
      properly reflect its activities under this Agreement and to enable the
      preparation of the foregoing reports and supporting documentation, and
      shall require its members to provide it with periodic written reports and
      supporting information as may be reasonably necessary therefor. Each such
      report shall include a certification by TIGM as to the accuracy of the
      information contained therein.

                                       9
<PAGE>

            2.4.3 Clawback Payment Obligation. TIGM shall pay TAMUS any
      obligation it may have under its job target commitment guarantee prior to
      the due date for TAMUS's payment to the State under the Economic
      Development Agreement.

      2.5 Obtaining of TIGM Research Grants and Contracts. To effect the goals
of the collaboration contemplated by this Agreement, Lexicon and TAMUS shall
provide reasonable assistance to TIGM in its efforts to obtain research grants
and contracts involving use of the OmniBank II Library, including, in the case
of Lexicon, providing (a) scientific and technical information to support the
submission of any grant or contract request and (b) technical support in the
preparation of grant or contract requests. In furtherance of the foregoing,
Lexicon and TAMUS will notify TIGM of opportunities for obtaining research
grants and contacts from Government Agencies that either such party, in its
respective discretion, deems suitable for application by TIGM or for joint
application by TIGM, Lexicon and/or TAMUS. In addition, TIGM may request that
Lexicon and/or TAMUS participate in joint applications with TIGM for research
grants and contracts from Government Agencies in the event TIGM believes that
such participation will improve the award potential for any such grant or
contract; provided that neither Lexicon nor TAMUS shall have any obligation to
participate in such application. To the extent TIGM, Lexicon and/or TAMUS elect
to participate in any such joint application, each such participating party will
provide reasonable cooperation to, and will coordinate efforts with, the other
participating party or parties.

                          ARTICLE 3. GRANTS OF RIGHTS

      3.1 Grants of Licenses.

          3.1.1 OmniBank II Library and Mutant Mice.

                3.1.1.1 Library Technology. Subject to the terms of this
          Agreement, Lexicon hereby grants to TIGM a worldwide, non-exclusive
          right and license (without any right to grant sublicenses except to
          Sublicensed Recipients under the terms and subject to the conditions
          set forth in Section 3.2) under Lexicon's rights in the Library
          Technology, including, without limitation, any Patent Rights
          Controlled by Lexicon Covering the foregoing, (a) to use the OmniBank
          II Library and Mutant Mice obtained from the Existing OmniBank Library
          and (b) to make, use and sell Materials derived therefrom. TIGM's
          right under the foregoing license to sell Materials shall be subject
          to the conditions set forth in Section 3.2.

                3.1.1.2 Cre-Lox Patents. The following provisions shall apply to
          the extent that a Mutant Mouse or Progeny contains one or more lox
          sites in its genome:

                (a) Subject to the terms of this Agreement, Lexicon hereby
          grants to TIGM the non-transferable, non-exclusive right under
          Lexicon's rights in the Cre-Lox Patents to use, breed and cross-breed
          Mutant Mice and Progeny that contain one or more lox sites in their
          genome ("Lox Mice"), at the internal research facilities of TIGM,
          solely for research purposes; provided however, that TIGM shall not
          manipulate the genetic information at any lox site of a Lox Mouse by
          using the technology claimed by the Cre-Lox Patent Rights (including
          without limitation cross-breeding a Lox Mouse with a mouse containing
          DNA capable of expressing a Cre recombinase protein) or otherwise
          further practice under a Valid Claim of the Cre-Lox Patent Rights
          without first obtaining a license from DuPont Pharmaceutical Company
          or its successors.

                                       10
<PAGE>
                 (b) Upon TIGM's request, Lexicon will enter into agreement(s)
            with Sublicensed Recipients granting rights to such Sublicensed
            Recipients under Lexicon's rights in the Cre-Lox Patents
            substantially equivalent to those granted to TIGM in the foregoing
            subsection (a). TIGM shall not transfer any Lox Mice or any progeny
            or material in any way derived from such Lox Mice to any third
            party, except for such transfers as may be permitted pursuant to
            Section 3.2 to Sublicensed Recipients that have entered into such an
            agreement with Lexicon with respect thereto.

                 (c) No right is granted to TIGM to sell (or lease or otherwise
            transfer for consideration) or develop or manufacture for sale (or
            lease or other transfer for consideration) any product, the
            manufacture, use, sale or importation of which would infringe a
            Valid Claim of the Cre-Lox Patents, including but not limited to any
            product which is manufactured using a composition or method which
            would infringe a Valid Claim of the Cre-Lox Patents.

                 (d) Subject to the restricted non-exclusive license granted to
            TIGM, Lexicon (and its licensors as applicable) shall retain all
            rights under the Cre-Lox Patents with respect to the Lox Mice.

            3.1.2 Bioinformatics Software. Subject to the terms of this
      Agreement, Lexicon hereby grants to TIGM a worldwide, non-exclusive right
      and license (without any right to grant sublicenses) to use the
      Bioinformatics Software, under the copyrights and know-how Controlled by
      Lexicon with respect thereto. TIGM shall have the right under the
      foregoing license to custom configure the Bioinformatics Software for its
      internal use.

            3.1.3 Covenant Not to Sue. TIGM shall not assert or enforce, and
      shall obligate Sublicensed Recipients not to assert or enforce, against
      Lexicon, or any of Lexicon's licensees, any claim of an issued patent
      arising from the use by TIGM or a Sublicensed Recipient of Materials
      containing a Selected Mutation which claim would, absent a license, be
      infringed by, or otherwise prevent Lexicon or its licensees from, making,
      using, selling or importing transgenic or knockout mice having a mutation
      in the same gene as such Selected Mutation or cells, tissues and other
      biological materials derived therefrom.

      3.2 Conditions of Sale and Use of Materials. Any sale or license of
Materials by TIGM to a Sublicensed Recipient shall be made pursuant to an
agreement between TIGM and such Sublicensed Recipient (a "Materials Access
Agreement") that expressly (a) permits the use of Materials solely for the
research purposes of such Sublicensed Recipient and its Affiliates and (b)
prohibits the sale or transfer of Materials by such Sublicensed Recipient or its
Affiliates to any third party; provided that such Materials Access Agreement may
permit a Sublicensed Recipient or its Affiliates to transfer Materials, without
receiving any consideration therefor, to (i) an Academic Institution or
Government Agency subject to a material transfer agreement that contains terms
substantially equivalent to those required above with respect to Materials
Access Agreements or (ii) to a third party contractor for purposes of such
contractor's performance of fee-for-service contract research services for such
Sublicensed Recipient and its Affiliates, subject to a material transfer
agreement that (A) permits the use of Materials by such contractor solely for
the research purposes of such Sublicensed Recipient and its Affiliates, (B)
assigns exclusively to such Sublicensed Recipient or its Affiliates any and all
rights to all data and information generated or developed, and all discoveries
and inventions made (including, without limitation, all patent and other
intellectual property rights therein), by such contractor through use of such
Materials, (C) prohibits the sale or transfer of such Materials by such
contractor to any third party and (D) obligates such contractor to return or
destroy such Materials upon the completion of its services for such Sublicensed
Recipient or its Affiliates. TIGM and its Affiliates may use Materials
constituting, or produced, developed or derived

                                       11
<PAGE>

from, a line of Mutant Mice in providing services to or for the benefit of a
Sublicensed Recipient only if and to the extent that TIGM or its Affiliates have
first sold or licensed Materials constituting, or produced, developed or derived
from, the same line of Mutant Mice to such Sublicensed Recipient under a
Materials Access Agreement. Each Materials Access Agreement shall expressly
provide that Lexicon is an intended third-party beneficiary of such Materials
Access Agreement with the right to enforce the terms and conditions described
above. TIGM shall provide Lexicon with copies of any such Materials Access
Agreement within thirty (30) days after execution and delivery thereof.

      3.3 No Grant of Other Technology or Patent Rights. Except as otherwise
expressly provided in this Agreement, under no circumstances shall a party
hereto, as a result of this Agreement, obtain any ownership interest in or other
right to any technology, know-how, patents, patent applications, gene or genomic
sequence data or information, products, or biological materials of the other
party, including items owned, controlled or developed by, or licensed to, the
other party, or transferred by the other party to said party, at any time
pursuant to this Agreement.

                         ARTICLE 4. PAYMENT OBLIGATIONS

      4.1 Fees for Clones from Existing OmniBank Library. TIGM shall pay to
Lexicon the fees specified below for each line of Mutant Mice requested from the
Existing OmniBank Library (in the form of mouse embryonic stem cell clones)
under Section 2.2.1.2 of this Agreement, which fee shall be payable within
thirty (30) days after Lexicon's delivery of notice under Section 2.2.1.3 of the
availability for shipment to TIGM of embryonic stem cell clones for such line of
Mutant Mice.

<TABLE>
<CAPTION>
                      TIMING OF REQUEST                           FEE FOR EACH LINE OF MUTANT MICE REQUESTED
------------------------------------------------------------      ------------------------------------------
<S>                                                               <C>
From the Effective Date until eighteen (18) months after the                        $[**]
Effective Date

From eighteen months after of the Effective Date to thirty                          $[**]
(30) months after the Effective Date

After thirty (30) months from Effective Date                                        $[**]
</TABLE>

Notwithstanding the foregoing, in the event that Lexicon has failed to satisfy
its obligations with respect to the completion and delivery of the OmniBank II
Library by the third anniversary of the Effective Date, subject to Section 10.1,
TIGM shall have no obligation to pay the fee contemplated by this Section 4.1
with respect to requests made by TIGM under Section 2.2.1.2 of this Agreement
following such date until Lexicon's obligations with respect to the completion
and delivery of the OmniBank II Library are subsequently satisfied.

      4.2 Cre-Lox Royalties. During the term of this Agreement, until the
expiration or termination of the last to expire of any Valid Claim included in
the Cre-Lox Patents, TIGM shall pay Lexicon a royalty of one percent (1%) of the
gross invoice price to Sublicensed Recipients of Lox Mice, which royalty shall
be payable upon Lexicon's execution and delivery of the agreement contemplated
by Section 3.1.1.2(b) with such Sublicensed Recipient with respect to such Lox
Mice.

      4.3 Royalty on [**].

            4.3.1 Royalty Payment Obligations. During the term of this
      Agreement, TIGM shall pay Lexicon a royalty of ten percent (10%) of [**]
      (subject to a minimum royalty in the amount

                                       12
<PAGE>
      of ten thousand dollars ($10,000), on a Sublicensed Recipient-by-
      Sublicensed Recipient and line-by-line basis, with respect to the sale or
      licensing to each Sublicensed Recipient of Materials derived from a line
      of Mutant Mice), which royalty shall be payable within thirty (30) days
      after the end of the calendar quarter in which such [**] are received.
      Notwithstanding the foregoing, to the extent that TIGM is obligated to pay
      Lexicon a royalty on [**] with respect to such Materials under the
      Sublicense Agreement of even date herewith between Lexicon and TIGM (e.g.,
      in the event that the Materials consist of Progeny derived both from a
      line of Mutant Mice and from mice made under the Sublicense Agreement),
      subject to TIGM's payment of such royalty under the Sublicense Agreement,
      TIGM shall not be obligated to pay the royalty set forth in this Section
      4.3.1 with respect to the same [**].

            4.3.2 Reporting. Within thirty (30) days after each calendar
      quarter, TIGM shall furnish to Lexicon a written quarterly report showing,
      in reasonable detail: (a) [**] for the reporting period and (b) the
      calculation of royalties under Section 4.3.1, including the basis for each
      element thereof. TIGM shall keep complete and accurate records in
      sufficient detail to properly reflect its activities under this Agreement
      and to enable [**] and the royalties payable hereunder to be determined.

            4.3.3 Audit Rights. Upon the written request of Lexicon, TIGM shall
      permit an independent certified public accountant selected by Lexicon and
      acceptable to TIGM, which acceptance shall not be unreasonably withheld,
      to have access, at reasonable times and during normal business hours, to
      such records of TIGM and its Affiliates as may be reasonably necessary to
      verify the accuracy of the royalty reports described herein, in respect of
      any fiscal year ending not more than twenty-four (24) months prior to the
      date of such request. Lexicon and TIGM shall use commercially reasonable
      efforts to schedule all such verifications within forty-five (45) days
      after Lexicon makes its written request. All such verifications shall be
      conducted not more than once in, or with respect to, each calendar year.
      The report of Lexicon's independent certified public accountant shall be
      made available to both parties. In the event Lexicon's independent
      certified public accountant concludes that additional royalties were owed
      to Lexicon for such period, the additional royalties shall be paid by TIGM
      within thirty (30) days of the date Lexicon delivers to TIGM such
      independent certified public accountant's written report so concluding,
      unless such report contains manifest error. The fees charged by such
      independent certified public accountant shall be paid by Lexicon unless
      such audit discloses an underpayment of more than five percent (5%) of the
      amount due under this Agreement for the period in question, in which case
      TIGM will bear the full cost of such audit. Lexicon agrees that all
      information subject to review under this Section 4.3.3 is confidential and
      that Lexicon shall cause its independent certified public accountant to
      retain all such information in confidence.

      4.4 No Withholding Taxes. All payments due hereunder shall be paid in
full, without deduction of taxes or other fees that may be imposed by any
government.

      4.5 Interest on Late Payments. Any payments by TIGM to Lexicon that are
not paid when due under this Agreement shall bear interest, to the extent
permitted by applicable law, at one percent (1.0%) per month, calculated on the
total number of days payment is delinquent.

      4.6 Manner of Payment. Payments to be made by TIGM to Lexicon under this
Agreement shall be payable in United States dollars and shall be paid by bank
wire transfer in immediately available funds to such bank account in the State
of Texas as is designated in writing by Lexicon from time to time.

                                       13
<PAGE>

                        ARTICLE 5. INTELLECTUAL PROPERTY

      5.1 Ownership of Intellectual Property.

            5.1.1 Ownership by Lexicon of the Library Technology. Subject to the
      rights and licenses granted under this Agreement, Lexicon (and its
      licensors, as applicable) shall own and retain all rights to the Library
      Technology.

            5.1.2 Ownership of Other Technology and Inventions. Except as set
      forth in Section 5.1.1, as between the parties, (a) each party shall own
      all patentable inventions and discoveries conceived or reduced to practice
      during the course of the performance of activities pursuant to this
      Agreement solely by employees, agents, consultants or contractors of such
      party and its Affiliates; and (b) the relevant parties shall jointly own
      all patentable inventions and discoveries conceived or reduced to practice
      during the course of the performance of activities pursuant to this
      Agreement jointly by employees, agents, consultants or contractors of such
      parties and their respective Affiliates. For purposes of the foregoing,
      inventorship shall be determined in accordance with U.S. patent law.

      5.2 Prosecution and Enforcement of Patent Rights. Each party shall have
the sole right, but not the obligation, to file, prosecute and maintain Patent
Rights solely owned by such party, and to institute and direct legal proceedings
against any person or entity believed to be infringing such patent rights. The
relevant parties shall consult with each other regarding the filing, prosecuting
and maintaining of Patent Rights jointly owned by such parties and the
institution, prosecution and control of any action or proceeding with respect to
infringement of any of such Patent Rights.

                           ARTICLE 6. CONFIDENTIALITY

      6.1 Nondisclosure Obligations.

            6.1.1 General. Except as otherwise provided in this Article 6,
      during the term of this Agreement and for a period of five (5) years
      thereafter, each Receiving Party shall maintain the Confidential
      Information of each Disclosing Party in confidence and use it only for
      purposes specifically authorized under this Agreement.

            6.1.2 Limitations. To the extent it is reasonably necessary or
      appropriate to fulfill its obligations or exercise its rights under this
      Agreement and subject to advance written notification to the Disclosing
      Party, a party may disclose Confidential Information it is otherwise
      obligated not to disclose under this Section 6.1 to its Affiliates,
      (sub)licensees, consultants and outside contractors, on a strict
      need-to-know basis for the purposes contemplated by this Agreement and on
      condition that such entities or persons agree to keep the Confidential
      Information confidential for the same time periods and to the same extent
      as such party is required to keep the Confidential Information
      confidential hereunder. Furthermore, a Receiving Party may request
      permission from the Disclosing Party to disclose such Confidential
      Information to the extent that such disclosure is reasonably necessary to
      obtain patents which such Receiving Party is permitted to obtain
      hereunder, which permission shall not be unreasonably withheld or delayed.

            6.1.3 Required Disclosure. A Receiving Party may disclose
      Confidential Information pursuant to interrogatories, requests for
      information or documents, subpoena, civil investigative demand issued by a
      court or governmental agency or as otherwise required by law; provided,
      however, that the Receiving Party shall notify the Disclosing Party
      promptly upon receipt thereof,

                                       14
<PAGE>

      giving (where practicable) the Disclosing Party sufficient advance notice
      to permit it to oppose, limit or seek confidential treatment for such
      disclosure; and provided, further, that the Receiving Party shall furnish
      only that portion of the Confidential Information which it is advised by
      counsel is legally required whether or not a protective order or other
      similar order is obtained by the Disclosing Party.

      6.2 Injunctive Relief. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 6 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 6.

                   ARTICLE 7. REPRESENTATIONS AND WARRANTIES

      7.1 Representations, Warranties and Covenants of Lexicon. Lexicon
represents and warrants to and covenants with TIGM and TAMUS that:

            7.1.1 Lexicon is a corporation duly organized, validly existing and
      in corporate good standing under the laws of the State of Delaware;

            7.1.2 Lexicon has the corporate and legal right, authority and power
      to enter into this Agreement, and to extend the rights and licenses
      granted to TIGM and TAMUS in this Agreement;

            7.1.3 Lexicon has taken all necessary action to authorize the
      execution, delivery and performance of this Agreement;

            7.1.4 upon the execution and delivery of this Agreement, this
      Agreement shall constitute a valid and binding obligation of Lexicon,
      enforceable in accordance with its terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      or similar laws affecting creditors' and contracting parties' rights
      generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law); and

            7.1.5 the performance of Lexicon's obligations under this Agreement
      will not conflict with its charter documents or result in a breach of any
      agreements, contracts or other arrangements to which it is a party.

      7.2 Representations, Warranties and Covenants of TIGM. TIGM represents and
warrants to and covenants with Lexicon and TAMUS that:

            7.2.1 TIGM is a non-profit corporation duly organized, validly
      existing and in corporate good standing under the laws of the State of
      Texas;

            7.2.2 TIGM has the corporate and legal right, authority and power to
      enter into this Agreement, and to extend the rights and licenses granted
      to Lexicon and TAMUS in this Agreement;

            7.2.3 TIGM has taken all necessary action to authorize the
      execution, delivery and performance of this Agreement;

                                       15
<PAGE>

            7.2.4 upon the execution and delivery of this Agreement, this
      Agreement shall constitute a valid and binding obligation of TIGM
      enforceable in accordance with its terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      or similar laws affecting creditors' and contracting parties' rights
      generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law); and

            7.2.5 the performance of its obligations under this Agreement will
      not conflict with TIGM's charter documents or result in a breach of any
      agreements, contracts or other arrangements to which it is a party.

      7.3 Representations, Warranties and Covenants of TAMUS. TAMUS represents
and warrants to and covenants with Lexicon and TIGM that:

            7.3.1 TAMUS is a public educational institution duly organized,
      validly existing and in good standing under the laws of the State of
      Texas;

            7.3.2 TAMUS has the legal right, authority and power to enter into
      this Agreement, and to extend the rights and licenses granted to Lexicon
      and TIGM in this Agreement;

            7.3.3 TAMUS has taken all necessary action to authorize the
      execution, delivery and performance of this Agreement;

            7.3.4 upon the execution and delivery of this Agreement, this
      Agreement shall constitute a valid and binding obligation of TAMUS
      enforceable in accordance with its terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      or similar laws affecting creditors' and contracting parties' rights
      generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law); and

            7.3.5 the performance of its obligations under this Agreement will
      not conflict with TAMUS's charter documents or result in a breach of any
      agreements, contracts or other arrangements to which it is a party.

      7.4 Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY MUTANT MOUSE OR
PROGENY (INCLUDING THE MUTAGENICITY THEREOF), PATENT RIGHTS, GOODS, SERVICES,
BACKGROUND MATERIALS OR ANY OTHER SUBJECT MATTER OF THIS AGREEMENT, AND EACH
PARTY HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NON-INFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING. IN
ADDITION, THE PARTIES ACKNOWLEDGE THAT THE GENERATION OR USE OF BACKGROUND
MATERIALS MAY BE COVERED BY ONE OR MORE VALID PATENTS OF THIRD PARTIES. EACH
PARTY ACKNOWLEDGES THAT EXERCISE BY IT OF THE RIGHTS AND LICENSES GRANTED TO IT
PURSUANT TO ARTICLE 3 HEREOF MAY BE COVERED BY ONE OR MORE VALID PATENTS OF
THIRD PARTIES.

      7.5 Limited Liability. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT,
NONE OF THE PARTIES TO THIS AGREEMENT WILL BE LIABLE WITH RESPECT TO ANY MATTER
ARISING UNDER THIS AGREEMENT UNDER ANY CONTRACT,

                                       16
<PAGE>

NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY
PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS.

                              ARTICLE 8. INDEMNITY

      8.1 Breaches of Representations, Warranties and Covenants. Each party
shall indemnify, defend and hold harmless the other parties, their Affiliates
and their respective directors, officers, employees and agents from and against
any and all liabilities, obligations, fees, including attorneys' fees and costs,
expenses and losses resulting from any breach of any representation, warranty or
covenant on the part of the indemnifying party contained in this Agreement.

      8.2 Use of Materials. Each party hereto shall indemnify, defend and hold
harmless all other parties hereto, their Affiliates and their respective
directors, officers, employees and agents from and against any and all
liabilities, obligations, fees, including attorneys' fees and costs, expenses
and losses incurred in connection with a claim against the indemnified party by
a third party based on any action or omission of the indemnifying party, its
Affiliates or their respective agents or employees in connection with or
relating to the sale, use, handling or storage of Materials by any such
indemnifying party.

      8.3 Procedure. If a party or any of its Affiliates or their respective
directors, officers, employees or agents (collectively, the "Indemnitee")
intends to claim indemnification under this Article 8, the Indemnitee shall
promptly notify the other party (the "Indemnitor") of any loss, claim, damage,
liability or action in respect of which the Indemnitee intends to claim such
indemnification, and the Indemnitor shall assume the defense thereof with
counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee,
provided, however, that an Indemnitee shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Indemnitee, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceedings. The Indemnitor shall have the right to settle or compromise any
claims for which it is providing indemnification under this Article 8, provided
that the consent of the Indemnitee (which shall not be unreasonably withheld or
delayed) shall be required in the event any such settlement or compromise would
adversely affect the interests of the Indemnitee. The indemnity agreement in
this Article 8 shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Indemnitor. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to the
Indemnitor's ability to defend such action, shall relieve such Indemnitor of any
liability to the Indemnitee under this Article 8, but the omission so to deliver
notice to the Indemnitor will not relieve it of any liability that it may have
to any Indemnitee otherwise than under this Article 8. The Indemnitee under this
Article 8, its employees and agents, shall cooperate fully with the Indemnitor
and its legal representatives in the investigation of any action, claim or
liability covered by this indemnification.

      8.4 No Waiver of Sovereign Immunity. Notwithstanding the foregoing, the
authority of TAMUS to indemnify a third party for a claim is limited to those
claims for which sovereign immunity has been waived by the Texas legislature.
Nothing in this Agreement or the actions undertaken by TAMUS, or its officers or
employees, shall be construed as a waiver of sovereign immunity.

                     ARTICLE 9. EXPIRATION AND TERMINATION

      9.1 Term of Agreement. The term of this Agreement shall commence on the
Effective Date and shall continue until the later of (a) the expiration or
termination of the last to expire of any Valid Claim included in the Patent
Rights Controlled by Lexicon Covering the Library Technology or (b) fifteen (15)
years after the Effective Date

                                       17
<PAGE>

      9.2 Termination Option. Subject to Sections 2.2.1.6 and 10.1, if Lexicon
has not generated and delivered the notice contemplated by Section 2.2.1.3 with
respect to the following percentages of the clones scheduled under the
Development Plan to be delivered to TIGM by the relevant date set forth below,
TIGM shall have the right, by delivering notice to Lexicon within ten (10) days
of such date, to terminate the remaining obligations of Lexicon with respect to
the generation and delivery to TIGM of the OmniBank II Library and receive a
payment from Lexicon in the amount calculated as set forth herein.

<TABLE>
<CAPTION>
                                       PERCENTAGE OF AGGREGATE NUMBER OF CLONES
                                         SCHEDULED UNDER THE DEVELOPMENT PLAN
                                        TO BE DELIVERED BY SUCH DATE FOR WHICH              PERCENTAGE OF
                                           LEXICON HAS DELIVERED THE NOTICE              POTENTIAL RECAPTURE
               DATE                         CONTEMPLATED BY SECTION 2.2.13                     AMOUNT
------------------------------------  ------------------------------------------  ----------------------------------
<S>                                   <C>                                         <C>
First Anniversary of Effective Date   30%                                         66.7%
18 Months After Effective Date        50%                                         50.0%
Second Anniversary of Effective Date  70%                                         33.3%
30 Months After Effective Date        90%                                         16.7%
</TABLE>

The "Potential Recapture Amount" to which the relevant percentage set forth in
the table would be applied to determine the amount of such payment from Lexicon
shall be equal to (a) the thirty million dollar ($30,000,000) amount received by
Lexicon from the State under the Economic Development Agreement for the
generation and delivery to TIGM of the OmniBank II Library less (b) Lexicon's
aggregate maximum potential liability for repayment penalties under the Economic
Development Agreement with respect to shortfalls in satisfying its job target
obligations thereunder. In the event TIGM duly exercises the right set forth in
this Section 9.2, (i) TIGM shall be deemed to have elected such right to the
exclusion of any claims under Section 9.3 below or otherwise that Lexicon's
failure to deliver the number of clones contemplated by the Development Plan
constitutes an Event of Default and (ii) Lexicon shall make the required payment
within thirty (30) days of the notice thereof.

      9.3 Termination for Cause.

            9.3.1 Events of Default. An "Event of Default" by either party shall
      have occurred upon (a) the occurrence of a material breach of this
      Agreement if such party fails to remedy such breach within sixty (60) days
      after written notice thereof by the non-breaching party (thirty (30) days
      in the event of a party's failure to make a payment required hereunder)
      or, if remediation of such breach in sixty (60) days is not practicable,
      if such party fails to commence and diligently pursue such remediation
      during such 60-day period, or (b) the commencement of any proceeding in or
      for bankruptcy, insolvency, dissolution or winding up by or against such
      party that is not dismissed or otherwise disposed of within sixty (60)
      days thereafter.

            9.3.2 Effect of an Event of Default. In the event of an Event of
      Default, the non-defaulting party shall have the right, at its option
      exercisable in its sole discretion, in addition to any other rights or
      remedies available to it at law or in equity (including, without
      limitation, specific performance, injunctive relief and damages) and
      subject to the limitations set forth in Sections 7.5 and 10.6 hereof, to
      terminate this Agreement upon sixty (60) days notice thereof to the other
      party, in which case (a) the licenses granted to the defaulting party
      pursuant to Article 3 shall terminate and (b) the defaulting party shall
      return to the non-defaulting party or, upon the non-defaulting party's
      written instruction, destroy all information, materials or documentation
      provided by the non-defaulting party pursuant to this Agreement.

                                       18
<PAGE>

      9.4 Termination Without Cause. TIGM shall have the right to terminate this
Agreement without cause at any time upon thirty (30) days written notice thereof
to Lexicon. Upon any such termination, (a) the licenses granted to TIGM pursuant
to Article 3 shall terminate, (b) TIGM shall return to Lexicon, or upon
Lexicon's written instruction destroy, all information, materials or
documentation provided to TIGM by Lexicon pursuant to this Agreement, and (c)
Lexicon shall have no further obligation to TIGM or TAMUS under Article 2 or
Section 9.2 of this Agreement.

      9.5 Effect of Expiration or Termination of Agreement. The expiration or
termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination. The provisions of Articles 4,
5, 6 and 8, Sections 7.4 and 7.5, and Sections 10.2 through 10.6 hereof shall
survive the expiration or termination of this Agreement.

                           ARTICLE 10. MISCELLANEOUS

      10.1 Force Majeure. Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any obligation under this
Agreement when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority; provided, however, that the party so affected shall use
reasonable commercial efforts to avoid or remove such causes of nonperformance,
and shall continue performance hereunder with reasonable dispatch whenever such
causes are removed. Either party shall provide the other party with prompt
written notice of any delay or failure to perform that occurs by reason of force
majeure. The parties shall mutually seek a resolution of the delay or the
failure to perform as noted above.

      10.2 Assignment. This Agreement may not be assigned or otherwise
transferred, in whole or in part, by either party without the consent of the
other party; provided, however, that any party, without such consent, assign its
rights and obligations under this Agreement (a) to any Affiliate, (b) in
connection with a merger, consolidation or sale of such portion of a party's
assets that includes rights under this Agreement to an unrelated third party or
(c) in the case of TIGM, to TAMUS in connection with the dissolution of TIGM and
distribution of TIGM's assets to TAMUS; provided, further, that such party's
rights and obligations under this Agreement shall be assumed by its successor in
interest in any such transaction and shall not be transferred separate from all
or substantially all of its other business assets, including those business
assets that are the subject of this Agreement. Any purported assignment in
violation of the preceding sentence shall be void. Any permitted assignee shall
assume all obligations of its assignor under this Agreement, unless the parties
otherwise agree.

      10.3 Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions in lieu of such invalid provisions. In case
such valid provisions cannot be agreed upon, the invalidity of one or several
provisions of this Agreement shall not affect the validity of this Agreement as
a whole, unless the invalid provisions are of such essential importance to this
Agreement that it is to be reasonably assumed that the parties would not have
entered into this Agreement without the invalid provisions.

                                       19
<PAGE>

      10.4 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the notification parties hereto to
the other shall be in writing, delivered personally or by facsimile (and
promptly confirmed by telephone, personal delivery or courier) or courier,
postage prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.

      If to Lexicon:        Lexicon Genetics Incorporated
                            8800 Technology Forest Place
                            The Woodlands, Texas 77381
                            Attention: President and Chief Executive Officer
                            Telephone: (281) 863-3000
                            Facsimile: (281) 863-8095

      With a copy to:       Lexicon Genetics Incorporated
                            8800 Technology Forest Place
                            The Woodlands, Texas 77381
                            Attention: General Counsel
                            Telephone: (281) 863-3000
                            Facsimile: (281) 863-8010

      If to TAMUS:          A&M System Building
                            Suite 2043
                            200 Technology Way
                            College Station, Texas 77845-3424
                            Attention: Chancellor
                            Telephone: (979) 458-6000
                            Facsimile: (979) 458-6044

      With a copy to:       A&M System Building
                            Suite 2043
                            200 Technology Way
                            College Station, Texas 77845-3424
                            Attention: General Counsel
                            Telephone: (979) 458-6122
                            Facsimile: (979) 458-6150

      If to TIGM:           A&M System Building
                            Suite 2043
                            200 Technology Way
                            College Station, Texas 77845-3424
                            Attention: Executive Director
                            Telephone: (979) 458-6000
                            Facsimile: (979) 458-6044

All such communications shall be effective upon receipt.

      10.5 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to the
conflicts of law principles thereof.

                                       20
<PAGE>

      10.6 Dispute Resolution. The parties hereby agree that they will attempt
in good faith to resolve any controversy or claim arising out of or relating to
this Agreement promptly by negotiations. If a controversy or claim should arise
hereunder, the matter shall be referred to individuals designated for such
purpose, respectively, by the chief executive officer of Lexicon, the chancellor
of TAMUS and the president of TIGM. If the matter has not been resolved within
thirty (30) days of the first meeting of the representatives of the parties
(which period may be extended by mutual agreement) concerning such matter, the
parties shall be free to pursue all available recourse both at law and in
equity. Notwithstanding the foregoing provisions of this Section 10.6, with
respect to any claim by Lexicon or TIGM that TAMUS has breached this Agreement,
the following terms shall apply:

      (a)   The dispute resolution process provided for in Chapter 2260 of the
            Texas Government Code ("Government Code") shall be used by the
            parties to attempt to resolve any claim by Lexicon or TIGM that
            TAMUS has breached the Agreement;

      (b)   Any Lexicon or TIGM claim that TAMUS has breached this Agreement
            that the parties cannot resolve in the ordinary course of business
            shall be submitted to the negotiation process provided in Chapter
            2260, subchapter B, of the Government Code. To initiate the process,
            Lexicon or TIGM shall submit written notice, as required by
            subchapter B, to the Executive Vice Chancellor for Finance or a
            person with similar or equal authority. The notice shall
            specifically state that the provisions of Chapter 2260, subchapter B
            are being invoked. Compliance by Lexicon or TIGM with subchapter B
            is a condition precedent to the filing of a contested case
            proceeding under Chapter 2260, subchapter C, of the Government Code;

      (c)   The contested case process provided in Chapter 2260, subchapter C,
            of the Government Code is Lexicon's and TIGM's sole and exclusive
            process for seeking a remedy for any and all alleged breaches of
            contract by TAMUS if the parties are unable to resolve their
            disputes under the preceding paragraph; and

      (d)   Compliance with the contested case process provided in subchapter C
            is a condition precedent to seeking consent to sue from the
            Legislature under Chapter 107 of the Civil Practices and Remedies
            Code. Neither the execution of this contract by TAMUS nor any other
            conduct of any representative of TAMUS relating to the contract
            shall be considered a waiver of sovereign immunity to suit to the
            extent such immunity can be claimed by TIGM. The submission,
            processing and resolution of Lexicon's or TIGM's claim is governed
            by the published rules adopted by the attorney general pursuant to
            Chapter 2260, as currently effective, hereafter enacted or
            subsequently amended. Neither the occurrence of an event nor the
            pendency of a claim constitutes grounds for the suspension of
            performance by Lexicon or TIGM, in whole or in part. The designated
            individual responsible on behalf of TAMUS for examining any claim or
            counterclaim and conducting any negotiations related thereto as
            required under section 2260.052 of H.B. 826 of the 76th Texas
            Legislature shall be the Executive Vice Chancellor for Finance.

      10.7 Entire Agreement. This Agreement, together with the exhibits and
appendices hereto and any confidentiality agreement(s) executed in contemplation
of this Agreement, contains the entire understanding of the parties with respect
to the subject matter hereof. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both parties
hereto.

                                       21
<PAGE>

      10.8 Publicity. Subject to the Texas Public Information Act, the parties
each agree not to disclose any terms or conditions of this Agreement to any
third party without consulting the other party prior to such disclosure.
Notwithstanding the foregoing, prior to execution of this Agreement, the parties
shall agree upon the substance of information that can be used as a routine
reference in the usual course of business to describe the existence and general
nature of this transaction, and each party may disclose such information without
consulting the other parties. The parties may thereafter from time to time
mutually agree on revisions to material to be used as a routine reference, which
revisions shall be submitted by one party for the review and approval of the
other parties at least ten (10) days prior to the anticipated use or disclosure
of the revised material, such approval not to be unreasonably withheld. The
terms of this Agreement shall be treated as the Confidential Information of the
parties, and, except to the extent required by applicable law, shall not be
disclosed to anyone (except for the parties' respective employees, consultants,
agents and attorneys assisting in the review and negotiation of this Agreement
who have a need to know the terms of this Agreement) without the written
permission of the other parties. If any party desires to release a separate
announcement relating to this Agreement, it shall first allow the other parties
to approve in writing such proposed announcement; provided that such approval
shall not be unreasonably withheld or delayed.

      10.9 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.

      10.10 No Partnership. It is expressly agreed that the relationship between
Lexicon, TAMUS and TIGM shall not constitute a partnership, joint venture or
agency. No party shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on any other party, without the prior consent of such other party to
do so.

      10.11 Exports. The parties acknowledge that the export of technical data,
materials or products is subject to the exporting party receiving any necessary
export licenses and that the parties cannot be responsible for any delays
attributable to export controls which are beyond the reasonable control of
either party. TIGM agrees not to export or re-export, directly or indirectly,
any information, technical data, the direct product of such data, samples or
equipment received or generated under this Agreement in violation of any
applicable export control laws or governmental regulations. TIGM agrees to
obtain similar covenants from their licensees, (sub)licensees, or corporate
partners, as the case may be, and contractors with respect to the subject matter
of this Section 10.11.

      10.12 Waiver. The waiver by either party hereto of any right hereunder or
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.

      10.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                                       22
<PAGE>

      IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute and deliver this Agreement as of the Effective Date.

LEXICON GENETICS INCORPORATED

By: _________________________________________        Date: ____________________

Name: _______________________________________

Title: ______________________________________

THE TEXAS A&M UNIVERSITY SYSTEM

By: _________________________________________        Date: ____________________

Name: _______________________________________

Title: ______________________________________

THE TEXAS INSTITUTE OF GENOMIC MEDICINE

By: _________________________________________        Date: ____________________

Name: _______________________________________

Title: ______________________________________

                                       23
<PAGE>

                                   EXHIBIT 1.3

                             BIOINFORMATICS SOFTWARE

      The Bioinformatics Software is an online analytical and decision-support
system that catalogs the in vivo characterization of all mouse embryonic stem
cell clones contained in the OmniBank II Library. Users can assess and search a
wide range of phenotypic information at different levels, including raw data,
calculated graphs with annotated summaries, and statistical analysis for
selected diagnostic areas, by means of a standard web browser. Information can
be retrieved through an intuitive search interface by gene description and
sequence, disease indication, keywords, related publications and statistical
significance.

      The Bioinformatics Software is broken down into two components:
"Production" and "Analysis." The Production software is primarily a workflow
system used in the generation and breeding of knockout mice. It is used in the
production, gathering, and recording of all relevant data of the mice and tracks
their lifecycle through the various projects to which they are assigned. The
main processes of the Production software consist of microinjection and
breeding. These components are used to ensure that all active participants in
the breeding process know when an action needs to occur and when data is ready
to be uploaded into the Analysis software.

      The Analysis software is used to store data and analysis from phenotypic
assays. The Analysis software currently supports data upload and data validation
for a wide range of scientific equipment. It also provides tools for annotating
and summarizing the physiological observations of knockout phenotypes compared
to wild-type controls and background data.

      The technical requirements for the Bioinformatics Software consist of the
following:

      Hardware Environment

      Sun Enterprise 450
      Dual CPU UltraSPARC-II 400MHz
      Memory size: 2.0 Gb
      Two (2) 9 Gb Internal HDs

      Server Software Environment

      Sun Solaris 8 Generic sun4u SPARC SUNW, Ultra-4

      Server Software System

      Oracle Server 9i from 8.1.6, plus appropriate client support files

      Apache with SSL module (TLS 1.0, RC4 with 128 bit encryption (High);
         RSA with 1024 bit exchange)/tomcat
      MySQL 3.23.33
      Apache 1.3x
      PHP 4.0.5
      PHP 4.07
      Java 1.4

                                       24
<PAGE>

                                   EXHIBIT 1.8

                                 CRE-LOX PATENTS

<TABLE>
<CAPTION>
COUNTRY            APPLICATION SER. NO.      PATENT NO.      ISSUE DATE      EXPIRY DATE
-------------      --------------------      ----------      ----------      -----------
<S>                <C>                       <C>             <C>             <C>
USA                                          4,959,317       9/25/90         9/25/2007
Canada                                       1,293,460       12/24/91        12/24/2008
Ireland                                      60421           7/8/94          10/6/2006
Japan              86/236385
EPO                                          0 220 009       2/10/93         10/6/2006
Austria                                      E0085649        2/10/93         10/6/2006
Belgium                                      0 220 009       2/10/93         10/6/2006
France                                       0 220 009       2/10/93         10/6/2006
Great Britain                                0 220 009       2/10/93         10/6/2006
Germany                                      3687734         2/10/93         10/6/2006
Greece                                       3007809         2/10/93         10/6/2006
Italy                                        0 220 009       2/10/93         10/6/2006
Luxembourg                                   0 220 009       2/10/93         10/6/2006
Netherlands                                  0 220 009       2/10/93         10/6/2006
Sweden                                       0 220 009       2/10/93         10/6/2006
Switzerland                                  0 220 009       2/10/93         10/6/2006
</TABLE>

<PAGE>

                                   EXHIBIT 1.9

                                DEVELOPMENT PLAN

      Lexicon will use Diligent Efforts to generate the OmniBank II Library by
means of its gene trapping technology. This high-throughput method uses
genetically-engineered retroviruses to infect mouse embryonic stem cells in
vitro, integrate into the chromosome of the cell and deliver molecular traps for
genes. The gene trap construct disrupts the function of the gene into which it
integrates and enables determination of the genomic integration site and
identity of the disrupted gene.

      Lexicon will use Diligent Efforts to deliver to TIGM two (2) complete
copies of the OmniBank II Library, each consisting of three hundred fifty
thousand (350,000) mouse embryonic stem cell clones with Selected Mutations,
each identified by DNA sequence of its genomic integration site, in accordance
with the following schedule:

<TABLE>
<CAPTION>
                                                 AGGREGATE NUMBER OF CLONES SCHEDULED TO BE
              DATE                                  AVAILABLE FOR DELIVERY BY SUCH DATE
-----------------------------                    -------------------------------------------
<S>                                              <C>
6 Months After Effective Date                                       4,400

12 Months After Effective Date                                     73,520

18 Months After Effective Date                                    142,640

24 Months After Effective Date                                    211,760

30 Months After Effective Date                                    280,880

36 Months After Effective Date                                    350,000
</TABLE>

<PAGE>

                                  EXHIBIT 1.16

                                   FACILITIES

<PAGE>

                                  EXHIBIT 1.17

                              GENE TRAPPING PATENTS

<TABLE>
<CAPTION>
COUNTRY    APPLICATION/PUB. NO.    PATENT NO.    ISSUE DATE    EXPIRY DATE
-------    --------------------    ----------    ----------    -----------
<S>        <C>                     <C>           <C>           <C>
PCT        PCT/US97/17791
USA                                6,136,566     10/24/00      10/4/2016
USA                                6,207,371     3/27/01       10/4/2016
PCT        PCT/US98/16373
USA                                6,139,833     10/31/00      8/8/2017
PCT        PCT/US99/06474
USA                                6,080,576     6/27/00       4/8/2018
PCT        PCT/US99/27366
USA                                6,436,707     8/20/02       4/8/2018
USA                                6,776,988     8/17/04       7/26/2019
USA                                6,218,123     4/17/01       8/10/2019
USA                                6,855,545     2/15/05       2/27/2017
USA                                6,808,921     10/26/04      4/18/2018
</TABLE>

<PAGE>

                                  EXHIBIT 2.1.2

                           JOINT MANAGEMENT COMMITTEE
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>h29775exv10w3.txt
<DESCRIPTION>NON-EMPLOYEE DIRECTOR COMPENSATION
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.3

                       Non-Employee Director Compensation

      Each non-employee member of our Board of Directors currently receives the
following cash compensation:

         -  an annual retainer of $15,000 for service on the Board of Directors
            ($30,000 for service as non-executive Chairman of the Board of
            Directors), prorated for any partial year of service;

         -  an annual retainer of $15,000 for service on each committee of the
            Board of Directors of which he or she is a member ($5,000 for
            service as chairman of any such committee), prorated for any partial
            year of service;

         -  a fee of $2,500 for each meeting of the Board of Directors that he
            or she attends in person ($500 for each telephonic meeting of the
            Board of Directors in which he or she participates); and

         -  a fee of $1,000 for each committee meeting that he or she attends in
            person other than in connection with a meeting of the full Board of
            Directors ($500 for each telephonic committee meeting in which he or
            she participates).

      All directors are reimbursed for expenses in connection with attendance at
Board of Directors and committee meetings.

      Our 2000 Non-Employee Directors' Stock Option Plan provides for the grant
of options to purchase shares of common stock to our non-employee directors.
Non-employee directors first elected after the closing of our initial public
offering receive an initial option to purchase 30,000 shares of common stock. In
addition, all non-employee directors who have served in such capacity for six
months receive an annual option to purchase 10,000 shares of common stock. All
options granted under the non-employee directors' plan have an exercise price
equal to the fair market value of our common stock on the date of grant.

      The Chairman of our Board of Directors will receive an additional annual
option under our 2000 Equity Incentive Plan to purchase 10,000 shares of common
stock. All such options will have an exercise price equal to the fair market
value of our common stock on the date of grant.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>5
<FILENAME>h29775exv31w1.txt
<DESCRIPTION>CERTIFICATION OF CEO PURSUANT TO SECTION 302
<TEXT>
<PAGE>

                                                                    EXHIBIT 31.1
                                 CERTIFICATIONS

I, Arthur T. Sands, certify that:

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

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

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

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

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

            b)    designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

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

            d)    disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

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

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

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

Date: November 1, 2005

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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>6
<FILENAME>h29775exv31w2.txt
<DESCRIPTION>CERTIFICATION OF CFO PURSUANT TO SECTION 302
<TEXT>
<PAGE>

                                                                    EXHIBIT 31.2
                                 CERTIFICATIONS

I, Julia P. Gregory, certify that:

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

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

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

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

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

            b)    designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

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

            d)    disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

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

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

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

Date: November 1, 2005

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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>7
<FILENAME>h29775exv32w1.txt
<DESCRIPTION>CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906
<TEXT>
<PAGE>

                                                                    EXHIBIT 32.1

                                  CERTIFICATION

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

      1.    Lexicon's Quarterly Report on Form 10-Q for the period ended
            September 30, 2005, and to which this Certification is attached as
            Exhibit 32.1 (the "Periodic Report"), fully complies with the
            requirements of section 13(a) or section 15(d) of the Securities
            Exchange Act of 1934, and

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

      IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the
1st day of November, 2005.

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

                               By:      /s/ Julia P. Gregory
                                   ---------------------------------------------
                                        Julia P. Gregory
                                        Executive Vice President,
                                        Corporate Development and
                                        Chief Financial Officer
</TEXT>
</DOCUMENT>
</SUBMISSION>
