Xenon Pharmaceuticals Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Unless otherwise noted, amounts below are U.S. dollars; financial statement amounts are rounded to millions. Xenon is a clinical-stage biopharmaceutical company developing therapies, principally for neurological disorders, and has no marketed proprietary products.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0.015m | $0.413m | $0.031m | $1.014m |
| Research and development expense | $6.109m | $5.103m | $12.012m | $9.467m |
| General and administrative expense | $1.799m | $1.676m | $3.899m | $3.571m |
| Operating loss | $(7.893)m | $(6.366)m | $(15.880)m | $(12.024)m |
| Net loss | $(7.380)m | $(6.016)m | $(14.897)m | $(9.279)m |
| Basic loss per share | $(0.41) | $(0.42) | $(0.83) | $(0.64) |
| Net cash used in operating activities | — | $(13.262)m | $(10.373)m |
Revenue was immaterial relative to operating costs; conventional profit margins are not meaningful for this pre-commercial company. Q2 interest income was $0.109m and foreign-exchange gain was $0.404m. For the first half, these were $0.258m and $0.725m, respectively.
- At June 30, cash and cash equivalents were $23.090m and marketable securities were $28.606m, totaling $51.696m. Total assets were $54.226m; current liabilities were $3.774m; shareholders’ equity was $50.452m.
- Cash and cash equivalents increased $5.995m in the first half. Investing activities provided $18.580m, mainly reflecting proceeds from maturities of marketable securities net of purchases; financing provided $0.177m.
- The company reported no outstanding debt. Accumulated deficit was $157.581m. Common shares outstanding were 17,998,420 at June 30 and July 31, 2017; 2,276,897 stock options were outstanding as of July 31.
Changes versus comparable periods
- First-half revenue fell $0.983m year over year. The prior-year period included Genentech upfront-payment revenue and research funding; Genentech FTE funding had expired in 2017 as resources shifted toward proprietary programs.
- First-half R&D expense rose $2.545m, primarily from XEN1101, XEN901/Nav1.6 and internal discovery programs, partly offset by lower XEN801 and collaboration expenses. XEN801 is no longer being developed.
- First-half net loss widened $5.618m. Lower revenue and higher R&D costs contributed; foreign-exchange gains were also substantially lower than in the prior-year period ($0.725m versus $2.523m).
- Operating cash use increased $2.889m year over year. Marketable-security maturities and purchases explain the significant shift in investing cash flow.
Pipeline, outlook, risks and other notable items
- Pipeline and trial update: Xenon anticipated filing an IND or equivalent for XEN1101, a Kv7 potassium channel opener for epilepsy, in Q4 2017, with Phase 2 development anticipated by mid-2018. It also expected an IND or equivalent for XEN901, a Nav1.6 inhibitor for epilepsy, in Q4 2017. These were forward-looking plans, not reported completed milestones.
- TV-45070: A Teva-partnered Phase 2b post-herpetic neuralgia study did not meet its primary endpoint; secondary endpoints were also not met. No safety concerns were reported. Xenon and Teva planned further data analysis to determine next steps.
- GDC-0310: Genentech had completed Phase 1 and, subject to preclinical assessment, anticipated starting a pain Phase 2 trial in Q1 2018. In July 2017, Xenon and Genentech achieved a pain-genetics discovery milestone triggering a payment; the amount is not stated here.
- Glybera: Licensee uniQure said it would not renew the European marketing authorization, scheduled to expire October 25, 2017. Xenon expected its already insignificant related royalties to cease thereafter.
- Runway and funding: Management expected cash, cash equivalents, marketable securities and anticipated collaboration research funding to cover operating and capital needs for at least 12 months. This estimate depends on assumptions and could prove insufficient. The company expected significant expenses and operating losses for at least 12–24 months and did not expect sustained profitability in the foreseeable future; further capital may be needed.
- New commitments: The April XEN1101 acquisition included a $0.350m upfront payment, an additional $0.700m milestone expected in 2017, and potential future clinical, regulatory, sales and royalty payments. A July license agreement carried a $1.000m upfront fee, a further $1.000m regulatory payment expected in 2017, additional potential milestones, and royalties. In March, Xenon paid a CAD $0.500m upfront fee under a manufacturing and supply agreement, with royalties potentially due on commercial sales.
- Key risks: Drug development and regulatory outcomes are uncertain; clinical trials may be delayed or fail; the company relies on partners, contract manufacturers and CROs; future financing could dilute shareholders or require favorable rights to be granted to partners. Xenon held $21.3m in Canadian-dollar cash and securities; a hypothetical 10% Canadian-dollar move would change reported value by about $2.1m. It did not hedge that exposure. Management reported no material legal proceedings and effective disclosure controls; no material internal-control changes were reported.
Most important facts for investors to verify
- Whether XEN1101 and XEN901 achieved the planned IND filings and progressed into clinical testing, and whether timing or costs changed.
- Teva’s decision on TV-45070 after the failed Phase 2b endpoints and further analysis.
- Actual cash consumption, collaboration receipts, and whether the stated 12-month runway remains supported by current plans.
- Milestone timing and amounts under the XEN1101 and July 2017 license agreements, plus any associated royalty obligations.
- Glybera authorization expiry and the resulting cessation of royalties, and any material changes in foreign-exchange exposure or financing needs.