Xenon Pharmaceuticals Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 7, 2018. Unless noted, amounts are U.S. dollars. This is an annual report, with fourth-quarter figures also disclosed. Xenon is a clinical-stage biopharmaceutical company developing neurological therapies, particularly for epilepsy and pain; it had no marketed proprietary products.
Financial performance and position
| Metric | FY2017 | FY2016 | Change / context |
|---|---|---|---|
| Revenue | $0.311 million | $1.803 million | Down 83%; primarily collaboration revenue, with only $2,000 in royalties in 2017. |
| Research and development expense | $25.573 million | $19.828 million | Up 29%, chiefly from XEN1101, XEN901 and discovery programs. |
| General and administrative expense | $7.313 million | $6.792 million | Up 8%. |
| Total operating expenses | $32.886 million | $26.620 million | Up 24%. |
| Operating loss | $32.575 million | $24.817 million | Loss widened. |
| Net loss | $30.704 million | $22.997 million | Loss widened by $7.707 million; basic loss per share was $1.71. |
| Cash, cash equivalents and marketable securities | $43.667 million | $64.146 million | Down $20.479 million. |
| Working capital | $40.738 million | $62.089 million | Down $21.351 million. |
| Loan payable | $6.804 million carrying value | None | $7.0 million initial principal tranche funded in December 2017. |
Net cash used in operating activities was $28.726 million, compared with $19.567 million in 2016. Investing activities provided $24.294 million, largely from net maturities of marketable securities; financing activities provided $7.070 million, mainly from the term loan. Gross profit and conventional operating margins are not meaningful indicators for this clinical-stage business, which reported no material product-sales revenue.
Fourth-quarter 2017 revenue was $16,000, operating loss was $8.051 million and net loss was $8.065 million, or $0.45 per basic share. The corresponding fourth-quarter 2016 figures were $376,000, $5.462 million and $6.004 million, or $0.34 per share.
Business developments and changes
- XEN1101, a Kv7 potassium-channel opener for epilepsy, was acquired in April 2017 and entered Phase 1 in October 2017. The company planned to report interim results in May 2018, complete Phase 1 results in the second half of 2018, and begin a Phase 2 adult focal-seizure study by year-end 2018.
- XEN901, a selective Nav1.6 inhibitor for epilepsy, entered Phase 1 in February 2018. Results were anticipated in the second half of 2018, followed by a planned Phase 2 study, subject to development progress.
- XEN007 (flunarizine), being evaluated for hemiplegic migraine, received FDA Orphan Drug Designation. Xenon was assessing development and partnership options, with a potential Phase 2 path dependent on securing regulatory files and manufacturing support.
- Genentech completed Phase 1 for GDC-0310, a Nav1.7 pain candidate; future development direction depended on Genentech’s review of ongoing preclinical work.
- Research and development spending rose while collaboration revenue declined, reflecting increased investment in proprietary programs and the winding down of certain collaboration funding and deferred upfront-payment recognition. XEN801 was no longer being developed.
Outlook, risks and unusual items
- Management expected significant expenses and operating losses for at least the next 12–24 months and did not anticipate sustained profitability in the foreseeable future. It stated that existing cash, cash equivalents and marketable securities were expected to fund operations and capital needs for at least 12 months from the filing date, while cautioning that plans and spending could change. Further capital is likely to be needed.
- The Silicon Valley Bank facility permits up to $15 million in three tranches. The additional $5 million and $3 million tranches depend on specified financing, clinical-stage and Phase 2 milestones. The loan bears interest at 0.5% above prime, includes a 6.5% final payment fee, is secured by substantially all assets except intellectual property, and contains restrictive covenants.
- On March 7, 2018, after year-end, Xenon and Teva agreed to terminate their collaboration after Teva elected not to further develop TV-45070. Subject to an Ontario Securities Commission order and other conditions, Teva agreed to transfer 1 million Xenon shares for cancellation and return or assign certain intellectual property and regulatory filings. Xenon would owe Teva a low-single-digit royalty on qualifying future product sales. The filing expected the agreement to become effective around March 22, 2018; it was not yet effective at filing.
- Key risks include clinical-trial failure or delay, uncertain regulatory approval and patient recruitment, dependence on collaborators and third-party manufacturers, future financing and dilution, foreign-exchange exposure, intellectual-property disputes, and uncertain future pricing and reimbursement.
- Approximately 36% of cash and marketable securities was denominated in Canadian dollars; the company recorded a $1.394 million foreign-exchange gain in 2017. A hypothetical 10% Canadian-dollar move was estimated to affect earnings by about $1.6 million on the reported Canadian-dollar cash and investment balance.
- The financial statements received an unqualified audit opinion from KPMG. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2017; the auditor was not engaged to provide an internal-control effectiveness opinion.
Most important facts for investors to verify
- Whether XEN1101 and XEN901 Phase 1 results supported the proposed Phase 2 plans, and whether subsequent trial timing or safety findings changed.
- Cash burn, available liquidity and the assumptions behind the stated 12-month runway, including the need and terms of any additional financing.
- Whether the Teva termination became effective, the share cancellation and asset transfers were completed, and what costs or development obligations followed.
- Whether Xenon met the clinical and financing milestones required to access the remaining loan tranches, and the continuing impact of loan covenants and fees.
- Progress and payment prospects under Genentech and Merck collaborations, given that future milestones and royalties depend on partner decisions and successful development.