Xenon Pharmaceuticals Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited, prepared under U.S. GAAP, and presented in U.S. dollars. Xenon is a clinical-stage biopharmaceutical company focused on neurological disorders, particularly epilepsy; it has no approved products and generated no product-sale revenue.
Financial results and liquidity
Amounts below are in millions of U.S. dollars unless otherwise stated.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.0 | $0.1 | $0.0 | $9.4 |
| Research and development expense | $42.9 | $29.4 | $126.4 | $70.9 |
| General and administrative expense | $12.8 | $8.8 | $33.9 | $24.3 |
| Operating loss | $(55.7) | $(38.1) | $(160.4) | $(85.8) |
| Net loss | $(48.5) | $(37.2) | $(137.7) | $(88.0) |
| Basic and diluted loss per share | $(0.73) | $(0.57) | $(2.09) | $(1.49) |
| Interest income | $7.0 | $3.1 | $18.9 | $4.3 |
Margins are not meaningful because the company had no revenue in 2023 and has no product sales. Higher investment yields contributed to increased interest income and partially offset operating losses.
- Cash and investments: $639.1 million at September 30, 2023, comprising $99.6 million cash and cash equivalents and $539.5 million marketable securities. The securities portfolio included $499.7 million available-for-sale securities and $39.8 million trading securities.
- Cash flows, nine months: $109.9 million used in operations, versus $65.7 million used in 2022; $122.6 million provided by investing activities, versus $281.7 million used in 2022; and $29.5 million provided by financing, versus $278.5 million in 2022.
- Balance sheet: Total assets were $671.1 million, total liabilities $34.5 million, and shareholders’ equity $636.6 million. Current assets were $531.0 million and current liabilities $24.7 million.
- Debt and obligations: The filing reports no borrowings outstanding in the presented balance sheet. Lease liabilities totaled $11.0 million; accounts payable and accrued expenses were $23.5 million. Future potential regulatory milestone payments to 1st Order Pharmaceuticals for XEN1101 are up to $6.0 million.
- Equity financing: Xenon sold 855,685 shares through its at-the-market program in September for $29.5 million net proceeds. Shares outstanding were 65.0 million at quarter-end and 65.4 million on November 3, 2023.
Material changes versus prior comparable periods
- Nine-month revenue fell to zero from $9.4 million, primarily because the 2022 period included a $7.1 million Neurocrine milestone and $1.9 million of research and development services revenue. The collaboration’s research program ended in June 2022; no revenue was recognized from Neurocrine in 2023.
- Nine-month R&D expense rose $55.5 million, driven mainly by increased XEN1101 spending, higher personnel costs and stock-based compensation. Increased XEN1101 costs reflected site initiation and patient enrollment in Phase 3 epilepsy trials and the X-NOVA MDD trial. XEN496 spending declined after Xenon decided to discontinue its clinical development.
- Nine-month G&A expense increased $9.6 million, primarily from higher headcount, stock-based compensation and professional and consulting fees.
- Operating cash use increased by $44.2 million year over year, reflecting higher expenses and the absence of Neurocrine revenue, partly offset by higher interest income and working-capital changes. Investing cash flow turned positive as marketable-security redemptions exceeded purchases.
Outlook, programs and risks
- XEN1101: The company’s lead candidate is in two Phase 3 trials for focal onset seizures, X-TOLE2 and X-TOLE3, and a Phase 3 trial for primary generalized tonic-clonic seizures, X-ACKT. Management anticipated completing X-TOLE2 enrollment in the second half of 2024. The X-NOVA Phase 2 MDD trial had completed enrollment, with topline results anticipated in late November to mid-December 2023, as stated at filing.
- NBI-921352: Neurocrine Biosciences is developing the licensed candidate. Neurocrine had completed enrollment in a Phase 2 adult focal-onset-seizure trial, with data expected in November 2023; a pediatric SCN8A-DEE Phase 2 trial was ongoing. Xenon may receive future development, regulatory and sales milestones and royalties, but their timing and realization are uncertain. Xenon had not exercised its option to co-fund 50% of U.S. development costs in exchange for increased U.S. royalties.
- Funding outlook: Management stated that cash, cash equivalents and marketable securities as of the report date were expected to fund operating expenses and capital requirements for at least the next 12 months. The company expects significant expenses and operating losses for the foreseeable future and says additional capital will be required over time; future funding may not be available on acceptable terms.
- Key risks: Development and regulatory success—especially for XEN1101—are uncertain; trials may fail, be delayed or encounter enrollment, safety, manufacturing or regulatory challenges. Xenon relies on third parties for clinical work and manufacturing, and on Neurocrine for NBI-921352. Other risks include competition, intellectual-property protection, foreign-exchange exposure, interest-rate sensitivity, cybersecurity and the potential need for additional financing and dilution.
- Market exposures: Xenon does not hedge its Canadian-dollar exposure. Management said an immediate 10% exchange-rate change would not be expected to materially affect results. A 100-basis-point interest-rate increase would have reduced marketable-securities fair value by approximately $2.9 million. Management did not consider inflation material to results for the reported periods, but said costs could continue to rise.
- Other items: No material legal proceedings were reported. Management assessed disclosure controls as effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Upcoming XEN1101 trial updates, enrollment progress and final results, including the X-NOVA readout referenced as expected in late 2023.
- Neurocrine’s NBI-921352 trial results and subsequent development decisions, as well as the timing and terms of any milestone or royalty revenue.
- Actual operating cash use and investment balances relative to the stated minimum 12-month funding runway, including the impact of rising clinical-trial and staffing costs.
- Future share issuance, ATM utilization, option grants and pre-funded warrant exercises; 1.83 million pre-funded warrants remained outstanding at September 30, 2023.
- Any changes in trial enrollment, safety, manufacturing supply, regulatory requirements, collaboration status, or the company’s decision to discontinue or reprioritize programs.