Xenon Pharmaceuticals Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Clinical-stage biopharmaceutical company focused on neurological disorders, particularly epilepsy. This unaudited report covers the three months ended March 31, 2021; comparative figures are for Q1 2020. Amounts are in U.S. dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $4.4 million | $7.1 million |
| Research and development expense | $16.3 million | $11.8 million |
| General and administrative expense | $4.1 million | $3.3 million |
| Operating loss | $16.1 million | $8.0 million |
| Net loss | $15.8 million | $7.5 million |
| Net loss per common share, basic and diluted | $0.42 | $0.22 |
| Cash and cash equivalents | $88.0 million | $45.0 million at Dec. 31, 2020 |
| Marketable securities | $186.7 million | $132.0 million at Dec. 31, 2020 |
| Total liabilities | $14.4 million | $17.8 million at Dec. 31, 2020 |
Cash, cash equivalents and marketable securities totaled $274.7 million at quarter-end. Operating cash use was $20.7 million, investing cash use $55.1 million, and financing cash provided $118.7 million. Financing proceeds included $118.6 million, net, from common shares and pre-funded warrants. The company reported no outstanding term loan; its Silicon Valley Bank loan was repaid in May 2020. Lease liabilities totaled $3.2 million, including current and long-term portions.
No positive operating margin was reported: the company recorded an operating loss amid substantial R&D spending. It has no product-sales revenue and reported an accumulated deficit of $294.3 million.
Material changes versus Q1 2020
- Revenue fell $2.7 million, mainly because $5.8 million of Neurocrine collaboration transaction price was recognized in Q1 2020 and none in Q1 2021. Q1 2021 included $3.0 million of Flexion milestones and $1.4 million of Neurocrine research and development services.
- R&D expense rose $4.5 million, primarily from XEN1101 and XEN496 development spending. G&A increased $0.8 million, including higher stock-based compensation, salaries and benefits.
- Net loss more than doubled to $15.8 million. Operating cash use increased from $13.1 million to $20.7 million, attributed mainly to higher proprietary-program spending and working-capital timing.
- Cash and marketable securities increased materially, principally following the March 2021 equity and pre-funded warrant offering, while common shares outstanding also increased.
Outlook, programs and risks
- Management expects significant expenses and operating losses for the foreseeable future, with R&D expected to remain the largest operating expense for at least the next 12 to 24 months. Near-term revenue is expected to depend substantially on collaborations, milestones and research funding; timing and amounts are uncertain.
- Management stated that cash, cash equivalents and marketable securities were expected to fund operating expenses and capital requirements for at least the next 12 months, while cautioning that assumptions could prove wrong and funds could be used sooner.
- XEN1101: X-TOLE Phase 2b screening was complete, final patients were in baseline, randomization was expected to finish in June 2021, and topline results were anticipated by the end of Q3 2021. A Mount Sinai investigator-sponsored Phase 2 study in major depressive disorder and anhedonia was expected to begin in the coming months; a company-sponsored MDD study was also planned.
- XEN496: Phase 3 EPIK study in pediatric KCNQ2-DEE was underway. COVID-19 had affected clinical-site initiation and may affect enrollment.
- XEN007: investigator-led Phase 2 study in treatment-resistant childhood absence epilepsy continued; a larger topline data set was expected in the second half of 2021 to inform development decisions.
- Partnered NBI-921352: Neurocrine anticipated a Phase 2 SCN8A-DEE trial in adolescents in Q3 2021 and an adult focal epilepsy Phase 2 trial in 2021. Pediatric expansion depended on FDA review of additional nonclinical information. Potential milestones include $10 million for adult focal epilepsy IND acceptance and $15 million or $25 million tied to pediatric protocol acceptance, depending on sequencing; payments are partly cash and partly equity.
- Flexion’s FDA IND clearance and initiation of an FX301 Phase 1b trial triggered $3.0 million in milestones recognized in Q1. Flexion anticipated Phase 1b data in late 2021; further milestones and royalties remain contingent.
- Key risks include clinical and regulatory uncertainty, trial recruitment and COVID-19 disruption, reliance on collaborators and third-party manufacturers/CROs, intellectual-property protection, and the likely need for future financing. Additional equity financing may dilute shareholders. The company reported no material legal proceedings expected to materially affect it.
Important facts for investors to verify
- Progress and results for XEN1101’s X-TOLE trial, especially the expected Q3 2021 topline timing and clinical endpoints.
- XEN496 EPIK enrollment and site activation, including any continued pandemic-related delays.
- Neurocrine’s progress on NBI-921352 trials and the FDA-dependent pediatric protocol amendment and related milestone conditions.
- Whether the $274.7 million liquidity balance and management’s at-least-12-month runway estimate remain adequate as R&D spending and cash burn evolve.
- Potential dilution from outstanding pre-funded warrants, options, preferred shares and further capital raises; 1,081,081 pre-funded warrants were outstanding and none had been exercised at March 31, 2021.