Xenon Pharmaceuticals Inc. — Q2 2018 Form 10-Q
Business context and reporting period
Clinical-stage biopharmaceutical company focused on neurological disorders, including epilepsy and pain. This unaudited report covers the three and six months ended June 30, 2018; amounts below are U.S. dollars. Xenon reported no product-sales revenue and continued to fund research and development principally through equity, collaboration funding and debt.
Key financial results
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $15,000 | $0 | $31,000 |
| Research and development | $5.408m | $6.109m | $10.988m | $12.012m |
| General and administrative | $2.178m | $1.799m | $4.416m | $3.899m |
| Operating loss | $7.586m | $7.893m | $15.404m | $15.880m |
| Net loss | $7.801m | $7.380m | $11.556m | $14.897m |
| Net loss per common share, basic | $0.45 | $0.41 | $0.66 | $0.83 |
| Cash used in operations | Not separately presented | Not separately presented | $13.757m | $13.262m |
At June 30, cash and cash equivalents were $47.435m and marketable securities were $15.835m, totaling $63.270m. Total assets were $65.436m; accounts payable and accrued expenses were $3.094m. Term-loan principal outstanding was $12.0m, reported net of discount and accrued final fee as a $11.721m long-term liability; no principal was classified as current. Total shareholders’ equity was $50.621m. No meaningful operating margin comparison is available because revenue was negligible.
Six-month cash flows: operating activities used $13.757m; investing activities provided $6.917m; financing activities provided $34.128m, including $28.957m net proceeds from share issuance and $4.989m net proceeds from the loan tranche. Cash and cash equivalents increased $26.949m.
Material changes versus prior comparable periods
- Revenue fell to zero as Teva funding ended after 2017; the company said resources shifted toward proprietary programs.
- R&D expense declined $0.701m in Q2 and $1.024m for the six-month period, mainly due to lower preclinical and other program spending and the discontinuation of XEN801, partly offset by increased XEN1101 spending.
- G&A expense rose $0.379m in Q2 and $0.517m year to date, primarily due to stock-based compensation, legal and recruitment costs.
- Six-month net loss improved by $3.341m, including a one-time $4.398m gain from the Teva collaboration termination. Excluding that gain, the reported loss improvement would not have occurred. Q2 net loss increased $0.421m, reflecting foreign-exchange losses and interest expense.
- In Q2 the company raised approximately $29.2m net through its May at-the-market offering, issuing 3.44m common shares. In March, it exchanged 2.868m common shares held by BVF for an equal number of Series 1 Preferred Shares and cancelled the common shares.
Outlook, management commentary and risks
- Management expected significant expenses and operating losses for the foreseeable future, with expenses expected to increase as programs advance. It stated that cash, cash equivalents and marketable securities as of the report date were expected to fund operations and capital needs for at least 12 months; this estimate depends on assumptions and clinical-development timing.
- XEN1101: Phase 1 enrollment was complete; management planned to publish full Phase 1 results and initiate a Phase 2 trial for adult focal seizures in Q4 2018. Interim data presented in May indicated once-daily-consistent half-life and supported further development; the filing describes early clinical findings, not proof of efficacy.
- XEN901: Phase 1 was ongoing, with final results anticipated in Q4 2018 and a Phase 2 trial planned thereafter, subject to results and feasibility. XEN007 development strategy and potential partnerships were under evaluation. Genentech had completed Phase 1 for GDC-0310; its further development depended on ongoing preclinical work and analysis by Genentech.
- Subsequent to quarter-end, Xenon entered a new $15.5m term loan on August 3, 2018, intended partly to refinance the existing $12.0m borrowing and pay a $0.485m fee. The new facility has interest-only payments through March 31, 2020, then 30 monthly principal installments, and matures September 1, 2022. It carries a 6.5% final payment fee, prepayment fees, covenants and a security interest over substantially all assets except intellectual property, subject to exceptions.
- Also after quarter-end, the company began a new ATM program of up to $50m; by August 3 it had sold 1.6m shares for approximately $14.82m net. The filing identifies dilution and potential future financing needs as risks.
- Material risks include clinical-trial failure, delays or enrollment difficulties; reliance on collaborators and third-party manufacturers; need for additional capital; dilution and loan covenants; foreign-exchange exposure (no current hedging, with $7.7m of Canadian-dollar cash and securities at June 30); and uncertain regulatory approval and commercialization. Potential milestone, royalty and other contractual payments depend on future development or sales. Management reported no legal proceedings expected to have a material adverse effect and compliance with loan covenants at June 30.
Important facts for investors to verify
- Whether XEN1101 Phase 1/TMS findings and XEN901 Phase 1 results support the stated Phase 2 plans, and whether timelines have changed.
- Cash runway and spending assumptions, including the effect of clinical-trial costs and any additional financing.
- Actual borrowing, repayment, interest and fee obligations under the August 2018 loan, including covenant compliance and collateral terms.
- Share count and dilution from the May and July 2018 ATM sales, outstanding options, and the conversion and voting limitations on the 2.868m Series 1 Preferred Shares.
- Terms and conditions attached to potential product-acquisition milestones, royalties, Medpace commitments and the Teva-returned intellectual property; no future product sales or related royalties were reported.