Xenon Pharmaceuticals Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. All financial amounts below are in U.S. dollars unless stated otherwise.
Business context
Xenon is a clinical-stage biopharmaceutical company using its “Extreme Genetics” platform to identify drug targets from rare human diseases. It plans to independently develop selected orphan and niche-indication products and partner on larger markets. Its principal programs were partnered pain candidates TV-45070, GDC-0276 and GDC-0310; proprietary acne candidate XEN801; and preclinical Nav1.6 epilepsy research. Glybera, licensed to uniQure, was approved in the EU for lipoprotein lipase deficiency (LPLD); commercial treatment of the first patient was announced in November 2015. Xenon had no marketed products of its own.
Financial results and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Total revenue | $15.6 million | $28.4 million |
| Research and development expense | $15.2 million | $11.8 million |
| General and administrative expense | $9.8 million | $5.5 million |
| Operating income (loss) | $(9.4) million | $11.1 million |
| Net income (loss) | $(15.8) million | $13.0 million |
| Operating cash flow | $(18.1) million | $0.3 million |
Revenue was almost entirely collaboration revenue; royalties were only $4,000. Approximate operating and net margins were negative 60% and negative 101%, respectively, using total revenue as the denominator; gross margin is not meaningful for this development-stage business. The 2015 net loss included a $6.9 million foreign-exchange loss, primarily reflecting the weaker Canadian dollar and the translation of Canadian-dollar monetary assets.
At year-end, cash and cash equivalents were $58.7 million, with no marketable securities remaining and no debt. Working capital was $58.1 million; total assets were $63.9 million and shareholders’ equity was $61.0 million. Cash and cash equivalents fell from $72.0 million at the prior year-end. Management expected available cash, investments and collaboration research funding to cover operating and capital needs for at least 12–24 months, while cautioning that assumptions could prove wrong. The company reported an accumulated deficit of $119.7 million.
Fourth-quarter 2015 revenue was $3.2 million and net loss attributable to common shareholders was $3.9 million, compared with fourth-quarter 2014 revenue of $4.9 million and net income of $1.2 million.
Changes versus the prior year
- Revenue fell $12.8 million (about 45%), principally because the Genentech GDC-0276 clinical-trial application milestone recognized in 2014 did not recur, the Genentech upfront-payment recognition period ended, and collaborator funding declined.
- R&D expense rose $3.4 million (about 29%), mainly from Nav1.6 and other discovery work and XEN801’s move toward clinical development. Spending on Teva- and Genentech-partnered programs decreased.
- G&A expense rose $4.3 million (about 78%), reflecting public-company costs, personnel and professional fees, one-time severance and a $1.7 million stock-option fair-value adjustment.
- Results shifted from profit to loss, driven by lower collaboration revenue, higher operating expenses and the foreign-exchange loss. Operating cash flow also declined to an $18.1 million use, including the timing of collaboration receipts and payments and $3.2 million paid to Medpace, mainly for future clinical services.
Outlook, commentary and material risks
- Management expected significant expenses and operating losses to continue for the foreseeable future, including at least the next 12–24 months. Future revenue was expected to depend substantially on collaborations, milestones and research funding; timing and receipt of milestone or royalty payments were uncertain.
- Teva was conducting a Phase 2b TV-45070 trial in post-herpetic neuralgia (PHN), with results expected in the second half of 2016. TV-45070 failed to show statistically significant benefit versus placebo in knee osteoarthritis; no further OA development was planned.
- Genentech’s Phase 1 trials of GDC-0276 and GDC-0310 were ongoing; the partner intended to consider Phase 2 initiation in 2016 after assessing results. Xenon expected XEN801 Phase 2 topline results in the fourth quarter of 2016. It expected to select a Nav1.6 development candidate in 2016 and file an IND in the first half of 2017.
- Glybera sales had begun in the EU, but Xenon did not expect significant near-term revenue. uniQure said it would not pursue U.S. approval and would not provide further commercialization guidance. EU approval is subject to post-approval obligations and annual reassessment.
- Xenon relied on collaborators for key development and commercialization decisions and on third parties for manufacturing and clinical services. Clinical, regulatory, recruitment, safety, reimbursement, intellectual-property and funding risks could delay or prevent product development or commercialization.
- Currency exposure is material: approximately $40.8 million of year-end cash and marketable securities was Canadian-dollar denominated. A hypothetical 10% change in the Canadian dollar was estimated to affect earnings by about $4.1 million. The company did not hedge this exposure after purchasing currency for estimated expenses.
- The company committed to $7.0 million of Medpace services over five years; $3.0 million had been paid in 2015. Unused amounts paid may be forfeited, and failure to meet the commitment could trigger exclusivity for future outsourced clinical work or a payment for part of the unsatisfied commitment. Operating-lease obligations totaled $6.6 million.
KPMG issued an unqualified audit opinion. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2015. No material legal proceedings were reported.
Most important facts for investors to verify
- Cash burn, foreign-exchange sensitivity and whether management’s 12–24-month liquidity estimate remains supportable.
- PHN Phase 2b results for TV-45070 and the full safety and efficacy assessment of Genentech’s Nav1.7 candidates.
- XEN801 Phase 2 results and the timing and funding required for the Nav1.6 program and planned IND.
- Progress, reimbursement and revenue potential for EU Glybera commercialization, including required post-approval obligations.
- Collaboration milestone terms, partner priorities, and Medpace commitment/prepayment conditions.
- Potential dilution from financing needs and outstanding options; the filing reported 1.72 million options outstanding at year-end.