Xenon Pharmaceuticals Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. All financial amounts below are U.S. dollars; financial statement amounts are in thousands unless otherwise stated. Xenon is a clinical-stage biopharmaceutical company developing neurology-focused therapies, including treatments for epilepsy and pain.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $264 | $413 | $295 | $1,427 |
| Research and development expense | $7,164 | $5,965 | $19,176 | $15,432 |
| General and administrative expense | $1,744 | $1,779 | $5,643 | $5,350 |
| Operating loss | $(8,644) | $(7,331) | $(24,524) | $(19,355) |
| Net loss | $(7,742) | $(7,714) | $(22,639) | $(16,993) |
| Basic loss per share | $(0.43) | $(0.51) | $(1.26) | $(1.16) |
- At September 30, 2017, cash and cash equivalents were $14.7 million and marketable securities were $29.1 million, totaling $43.8 million. Total assets were $46.4 million; current liabilities were $3.1 million. The company reported no outstanding debt.
- Operating cash used in the first nine months was $21.9 million, versus $14.9 million in the comparable 2016 period. Cash and cash equivalents declined by $2.4 million from year-end 2016; marketable securities declined by $18.0 million, largely reflecting maturities and purchases.
- No meaningful operating margin is reported; the company remains loss-making, with revenue primarily from collaborations rather than product sales.
- Accumulated deficit was $165.3 million. Common shares outstanding were 17,998,420 at September 30 and November 3, 2017.
Changes versus the prior comparable periods
- Nine-month revenue fell $1.1 million, chiefly because Genentech upfront-payment revenue had been fully recognized by March 2016 and Genentech research funding ended in 2017. A $250,000 Genentech milestone recognized in July 2017 partly offset the decline.
- Nine-month R&D expense increased $3.7 million, primarily due to greater spending on internal discovery programs, XEN1101 and XEN901. Lower spending on discontinued XEN801 and collaboration programs partially offset the increase.
- Nine-month net loss widened by $5.6 million. Q3 net loss was nearly unchanged year over year, despite a higher operating loss, partly due to a favorable foreign-exchange result.
- Financing cash inflow was only $177,000 in the first nine months of 2017, compared with $23.9 million in 2016, which included net proceeds from a public offering.
Outlook, pipeline, risks and unusual items
- Management expected existing cash, marketable securities and anticipated collaboration research funding to fund operating and capital requirements for at least the next 12 months from the report date. This estimate depends on assumptions and could prove insufficient; Xenon said it expects significant losses and expenses for the foreseeable future and does not expect sustained profitability.
- XEN1101: Phase 1 first-in-human trial began in October 2017. If Phase 1 data support progression, a Phase 2 proof-of-concept study in adult focal seizures was anticipated to begin in Q3 2018.
- XEN901: Xenon expected to file an investigational-new-drug-equivalent application in Q4 2017.
- GDC-0310: Genentech indicated that, based on ongoing preclinical toxicology work, the program would not enter Phase 2 in Q1 2018 as previously guided. Future development guidance was deferred pending analysis of those studies.
- TV-45070: A Phase 2b trial in post-herpetic neuralgia did not meet primary or secondary endpoints. Xenon and Teva were evaluating next steps. Glybera marketing authorization expired in October 2017, ending the related, previously immaterial royalties.
- Recent licensing and acquisition commitments include potential XEN1101 payments of up to approximately $47.6 million in clinical, regulatory, sales-based and other milestones, plus royalties; another license carries up to $9.0 million in clinical and regulatory milestones, including $1.0 million expected in late 2017 or early 2018, plus royalties. These are contingent potential payments, not current debt.
- Foreign exchange is a notable exposure: $18.8 million of cash and marketable securities was denominated in Canadian dollars. A hypothetical 10% Canadian-dollar movement would produce an estimated $1.9 million gain or loss. The company does not hedge this exposure after acquiring currencies for anticipated expenses.
- Principal risks include clinical and regulatory failure or delay, dependence on collaborators and third-party manufacturers, need for additional capital, uncertain milestone revenue, and foreign-exchange exposure. Management reported effective disclosure controls and no material change in internal control over financial reporting; no material adverse-effect legal proceedings were reported.
- Xenon planned to adopt ASC 606 on January 1, 2018 using the modified retrospective approach; the financial impact was still under evaluation. Lease accounting changes were also under evaluation.
Important facts for investors to verify
- Whether XEN1101 Phase 1 safety, pharmacokinetic and pharmacodynamic results support the stated Phase 2 timing, and whether XEN901’s anticipated filing occurred.
- Genentech’s eventual decision on GDC-0310 and Teva’s next steps following the failed TV-45070 Phase 2b endpoints.
- Actual cash burn and runway against management’s 12-month estimate, including the effect of trial expansion, milestone obligations and any need for new financing.
- The contingent milestone and royalty terms attached to recent licenses and the XEN1101 acquisition, and the expected impact of ASC 606 adoption on collaboration revenue.