Lexicon said it would cut 115 jobs, primarily positions in research and discovery to reduce costs.
"This transition increases Lexicon's financial strength and will enable the company to more effectively advance our key late-stage programs and to prepare for commercialization," CEO Arthur Sands said in a statement on Monday.
The company said it would focus mainly on its drugs to treat diabetes and carcinoid syndrome, a condition which affects some people with a rare cancerous tumor.
Lexicon said it expects to lower expenses by about $14 million, net of severance costs and some other charges, for the rest of 2014. It expects to save about $22 million annually.
The company had $151.2 million in cash and investments as of September 30 last year.
The company said Sands intends to develop a succession plan with the board to identify a new CEO, and will continue in his position until a successor is appointed.
The company is testing two other drugs in mid-stage trials to treat irritable bowel syndrome and rheumatoid arthritis. It also has a glaucoma drug in early-stage development.
Lexicon said last month its irritable bowel syndrome drug did not meet the main goal of a mid-stage study.
Lexicon shares, which lost about 15 percent of their value last year, closed at $2 on the Nasdaq on Friday.
(Reporting by Vrinda Manocha in Bangalore; Editing by Joyjeet Das)