Xenon Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2020; filed November 5, 2020. Unless noted, amounts are U.S. dollars in millions. Xenon is a clinical-stage biopharmaceutical company focused on neurological disorders, particularly epilepsy; it had no significant product-sales revenue.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $6.554 | $3.500 | $27.016 | $3.500 |
| Research and development expense | $13.045 | $9.751 | $35.556 | $27.093 |
| General and administrative expense | $3.208 | $2.700 | $9.838 | $7.628 |
| Loss from operations | $(9.699) | $(8.951) | $(18.378) | $(31.221) |
| Net loss | $(8.855) | $(8.871) | $(16.514) | $(30.219) |
| Basic and diluted loss per common share | $(0.25) | $(0.33) | $(0.47) | $(1.13) |
Revenue was principally collaboration revenue: Neurocrine Biosciences contributed $6.554 million in Q3 and $27.016 million year to date, including recognition of previously received consideration and research and development services. The prior-year comparable revenue came from Flexion. Revenue is not indicative of product sales, and recognized revenue from the Neurocrine arrangement reduced deferred revenue.
Operating expenses increased year over year, particularly research and development spending on XEN1101 and XEN496. The nine-month net loss narrowed substantially, largely alongside higher collaboration revenue; Q3 operating loss widened despite a similar net loss, with other income including foreign-exchange gains and lower interest expense.
At September 30, cash and cash equivalents were $15.1 million and marketable securities were $175.8 million, totaling $190.9 million, versus $141.4 million at December 31, 2019. Total assets were $199.1 million and shareholders’ equity was $182.0 million. The $15.5 million term loan was repaid in May 2020; no term-loan balance remained at quarter-end. Operating lease liabilities totaled $0.8 million.
For the first nine months, operating cash use was $35.0 million (versus $24.5 million), investing cash use was $60.0 million (primarily purchases of marketable securities), and financing provided $85.8 million. Financing included $102.5 million of net share issuance proceeds, partly offset by the $16.7 million loan repayment and fees. Management said existing cash, cash equivalents and marketable securities were expected to fund operating and capital needs for at least 12 months from the report date, based on assumptions that could prove incorrect.
Material changes and business developments
- Nine-month revenue rose to $27.0 million from $3.5 million, while R&D expense increased 31% to $35.6 million and G&A expense increased 29% to $9.8 million.
- Xenon raised capital through January 2020 share offerings and ATM sales. It also established a new ATM program of up to $100 million in August 2020; no shares had been sold under that program by September 30.
- XEN1101 Phase 2b X-TOLE enrollment was affected by COVID-19. Management anticipated completing randomization in the first half of 2021 and topline data in the third quarter of 2021, dependent on enrollment.
- Management expected to start the XEN496 Phase 3 EPIK trial before year-end 2020. The trial is planned for approximately 40 pediatric patients with KCNQ2-DEE.
- For partnered NBI-921352, the FDA requested additional nonclinical data supporting pediatric dose justification; Xenon and Neurocrine aimed to address the feedback and pursue a Phase 2 start in 2021. Neurocrine controls development and commercialization decisions under the collaboration.
Outlook, risks and unusual items
- No specific earnings or revenue guidance was provided. Management expected significant expenses and operating losses for at least the next 12 to 24 months and no product-sales revenue for the foreseeable future, if ever. Near-term revenue is expected to depend substantially on collaborations, milestones and research funding, which may fluctuate and are uncertain.
- COVID-19 had no material financial-statement impact reported for the period, but its future effects were uncertain. The filing identifies risks to clinical enrollment, trial timelines, suppliers, manufacturing, operations and access to financing.
- The company recorded a one-time $0.988 million loss on early repayment of its term loan. The repayment included principal, a final payment fee and a prepayment fee; the bank’s warrant for 40,000 shares at $9.79 remained outstanding through August 2028 unless exercised or expired.
- Potential contractual payments include up to $7.7 million of clinical, regulatory and other milestones to 1st Order for XEN1101, plus other development and regulatory milestones under separate agreements. The Medpace agreement also left $3.757 million of its service commitment unsatisfied; if Xenon does not retain Medpace for the services, it may satisfy the obligation by paying half of the unsatisfied amount.
- Xenon reported no legal proceedings expected by management to have a material adverse effect. Principal risks include continued losses and possible need for additional financing, clinical and regulatory failure or delay, collaborator dependence, competition, intellectual-property exposure, and dilution from future share issuance.
Important facts for investors to verify
- Whether XEN1101 enrollment and the expected 2021 data timeline remain on track, and how pandemic-related disruption affects the trial.
- Whether XEN496’s Phase 3 trial started as planned and whether enrollment, safety and efficacy support the program.
- Progress on Neurocrine’s requested additional nonclinical work, the NBI-921352 development timeline and any resulting milestone payments.
- Quarterly cash use, investment balances and the assumptions behind management’s at-least-12-month liquidity estimate, including any ATM share sales or other financing.
- The timing and recognition of remaining collaboration revenue, contingent milestones, and potential contractual or licensing payments.