Xenon Pharmaceuticals Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise noted. Xenon is a clinical-stage biopharmaceutical company focused on neurological disorders, particularly epilepsy, and had no product-sale revenue.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.1 | $8.1 | $9.4 | $14.7 |
| Research and development expense | $29.4 | $18.9 | $70.9 | $53.6 |
| General and administrative expense | $8.8 | $4.8 | $24.3 | $15.3 |
| Net loss | $37.2 | $15.4 | $88.0 | $53.3 |
| Net loss per common share | $0.57 | $0.36 | $1.49 | $1.29 |
| Net cash used in operating activities | Not provided by quarter | $65.7 | $48.8 |
- At September 30, cash and cash equivalents were $103.5 million and marketable securities were $648.7 million, totaling $752.2 million. Total assets were $775.8 million; total liabilities were $22.7 million, primarily accounts payable, accruals and lease liabilities. The filing reports no material debt financing outstanding.
- Nine-month investing cash outflow was $281.7 million, mainly net purchases of marketable securities; financing cash inflow was $278.5 million, principally net proceeds from a June public offering. Cash and cash equivalents decreased $72.2 million during the period.
- Operating margins are not meaningful for assessing a company at this development stage: revenue is collaboration-based and there are no product sales.
Changes versus the prior comparable periods
- Q3 revenue fell $8.0 million year over year; nine-month revenue fell $5.3 million. The comparisons reflect prior-year milestone revenue, including a $5.3 million Neurocrine milestone in Q3 2021 and $3.0 million of Pacira milestones in the first nine months of 2021. Neurocrine research collaboration activity also ended in June 2022, reducing service revenue.
- Research and development expense increased $10.5 million in Q3 and $17.4 million year to date, driven mainly by XEN1101 Phase 3 start-up, X-NOVA MDD trial enrollment and higher investment in discovery programs. G&A rose $4.0 million in Q3 and $9.0 million year to date, including higher stock-based compensation, staffing, insurance and professional costs.
- Nine-month other expense included a $4.9 million unrealized loss on trading securities and a $2.5 million foreign-exchange loss, partly offset by $4.3 million of interest income. Adoption of the credit-loss accounting standard in July 2022 was not material; available-for-sale securities had $2.0 million of unrealized losses recorded in other comprehensive loss, attributed primarily to interest-rate changes.
- The June 2022 equity offering generated $269.9 million net proceeds. Common shares outstanding increased to 62.5 million at September 30; 3.1 million pre-funded warrants remained outstanding and unexercised.
Outlook, programs and risks
- Management expects significant expenses and operating losses for the foreseeable future. It stated that cash, cash equivalents and marketable securities were expected to fund operating expenses and capital requirements for at least 12 months from the report date, but said additional capital will be needed to support longer-term development and potential commercialization. Funding could include equity, debt or collaborations; availability and terms are uncertain.
- XEN1101 is the principal proprietary program. The company reported plans for two parallel Phase 3 focal-onset seizure trials, X-TOLE2 and X-TOLE3, and a planned Phase 3 PGTCS trial, X-ACKT. The filing says the XEN1101 Phase 3 program began in November 2022, after the quarter. Topline results from the Phase 2 X-NOVA MDD study were anticipated in Q3 2023.
- The Phase 3 EPIK trial of XEN496 in pediatric KCNQ2-DEE was ongoing; completion was anticipated in 2024 based on enrollment rates. Xenon also disclosed that it did not have sufficient drug supply to complete EPIK at that time and was relying on its contract manufacturer for additional supply.
- Neurocrine was conducting Phase 2 trials of partnered NBI-921352, with focal-onset seizure data expected in 2023. Xenon may receive future milestones and royalties, but timing and achievement depend substantially on Neurocrine’s development and commercialization decisions.
- After quarter-end, in November 2022, Pacira decided to discontinue clinical development of PCRX-301; Xenon said it did not expect further payments under that agreement.
- Key risks include clinical-trial failure or delay, recruitment and drug-supply constraints, regulatory uncertainty, dependence on collaborators and third-party manufacturers, foreign-exchange and interest-rate exposure, and the need for future financing and potential shareholder dilution. Xenon reported no legal proceedings expected by management to have a material adverse effect. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Progress, enrollment, safety and efficacy data for XEN1101 Phase 3 trials, X-NOVA and EPIK, including updated timelines and supply availability.
- Actual cash burn, investment liquidity and the assumptions supporting management’s stated 12-month funding outlook; future financing needs and terms.
- Neurocrine’s NBI-921352 trial progress, milestone eligibility and any changes in collaboration scope; the financial consequences of Pacira’s PCRX-301 discontinuation.
- Potential dilution from outstanding pre-funded warrants, stock options, the $250 million ATM program and any future equity financing.
- Marketable-security fair-value changes, foreign-exchange exposure and the impact of interest-rate movements on the investment portfolio.