Xenon Pharmaceuticals Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Unless otherwise stated, amounts are in U.S. dollars; financial statement amounts are in thousands. Xenon is a clinical-stage biopharmaceutical company developing therapies focused on neurological disorders and ion-channel targets.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $16,000 | $601,000 |
| Research and development expense | $5.903 million | $4.364 million |
| General and administrative expense | $2.100 million | $1.895 million |
| Operating loss | $7.987 million | $5.658 million |
| Net loss | $7.517 million | $3.263 million |
| Basic / diluted loss per share | $0.42 / $0.43 | $0.23 / $0.23 |
| Cash used in operating activities | $6.460 million | $4.944 million |
| Cash and cash equivalents | $20.160 million | $17.095 million at Dec. 31, 2016 |
| Marketable securities | $37.867 million | $47.051 million at Dec. 31, 2016 |
Combined cash, cash equivalents and marketable securities were approximately $58.0 million at quarter-end. Total assets were $60.786 million; current liabilities, consisting of accounts payable and accrued expenses, were $3.591 million. The company reported no outstanding debt. No meaningful profit margin is reported because Xenon incurred operating and net losses.
Investing activities provided $9.247 million, primarily from marketable-security redemptions; financing activities provided $174,000, principally from option exercises. Cash and cash equivalents increased by $3.065 million during the quarter. Accumulated deficit was $150.201 million.
Changes versus the prior-year quarter
- Revenue fell by $585,000 to $16,000. Genentech upfront-payment recognition and research funding recorded in Q1 2016 did not recur; Genentech funding had ended as Xenon shifted resources toward proprietary programs.
- Operating expenses rose $1.744 million, led by a $1.539 million increase in R&D. R&D spending increased across internal discovery programs and XEN901; collaboration expenses declined. G&A increased $205,000.
- Net loss widened by $4.254 million. Foreign-exchange gain declined to $321,000 from $2.296 million in Q1 2016, partly offsetting $149,000 of interest income. The prior-year foreign-exchange gain was a significant contributor to the comparative net loss difference.
- Operating cash use increased $1.516 million, reflecting higher R&D spending and lower revenue, partly offset by working-capital changes.
Outlook, programs, risks and unusual items
- Liquidity outlook: Management expected existing cash, cash equivalents and marketable securities, together with anticipated research funding under current collaborations, to cover operating expenses and capital expenditures for at least 12 to 24 months. Management cautioned that assumptions could prove incorrect and resources could be used sooner. The company expects significant expenses and operating losses for the foreseeable future and may need additional financing.
- Pipeline milestones: Teva had completed enrollment in a Phase 2b trial of TV-45070 for post-herpetic neuralgia, with topline results expected in mid-2017. Genentech anticipated starting a Phase 2 trial of GDC-0310 in 2017, subject to assessment of Phase 1 results and ongoing studies. Xenon expected to file an IND or equivalent for XEN901 in Q4 2017.
- XEN1101 acquisition: In April 2017, after quarter-end, Xenon acquired worldwide development and commercialization rights from 1st Order. Approximately $1.1 million of upfront and milestone payments was expected in 2017. Potential future payments include $1 million in clinical milestones, up to $13 million in regulatory milestones and approximately $33.6 million in sales-based and other milestones, plus a mid-to-high single-digit royalty on commercial sales.
- Program discontinuation: March 2017 Phase 2 results for XEN801 did not show statistically significant improvement on the primary or key secondary efficacy endpoints; Xenon said it had no plans for further development.
- Glybera: uniQure announced in April 2017 that it would not seek renewal of Glybera’s European marketing authorization, due to expire October 25, 2017. Xenon expected its already-nominal related royalties to cease upon expiration.
- Other obligations: A March 2017 manufacturing and supply agreement required a CAD $500,000 upfront payment and provides for a low-single-digit royalty on net sales of products developed under the agreement. A five-year Medpace priority-access agreement includes a $7 million service commitment, of which $3 million had been paid in 2015; the filing reports prepaid balances for future services.
- Key risks: Clinical and regulatory failure or delay, patient recruitment, reliance on collaborators and third-party manufacturers, uncertain milestone and royalty receipts, need for additional capital, intellectual-property challenges, competition, and Canadian-dollar exposure. At quarter-end, $24.7 million of cash and cash equivalents and marketable securities was denominated in Canadian dollars; management estimated a hypothetical 10% currency move would produce an approximately $2.5 million foreign-exchange gain or loss.
- The company reported effective disclosure controls, no material change in internal control over financial reporting during the quarter, and no legal proceeding expected by management to have a material adverse effect. It had no off-balance-sheet financing arrangements.
Important facts for investors to verify
- Progress and actual timing of TV-45070, GDC-0310 and XEN901 clinical or regulatory milestones, and whether they generate collaboration payments.
- Actual cash burn and funding runway, particularly as proprietary development and XEN1101-related expenses increase.
- Final and contingent XEN1101 consideration, royalty terms and development obligations under the acquired rights.
- Impact of Glybera authorization expiration on royalty receipts and the company’s collaboration revenue outlook.
- Canadian-dollar exposure and the extent to which currency movements affect reported results and available liquidity.
- Potential effect of adoption of ASC 606 on collaboration revenue recognition; the company was still evaluating the standard.