Xenon Pharmaceuticals Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Amounts are in U.S. dollars; financial statement figures below are converted from thousands to millions unless stated otherwise. Xenon is a clinical-stage biopharmaceutical company with proprietary and partnered research programs and no marketed products of its own.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Total revenue | $0.601 million | $4.010 million |
| Research and development expense | $4.364 million | $3.427 million |
| General and administrative expense | $1.895 million | $6.720 million |
| Operating loss | $5.658 million | $6.137 million |
| Net loss | $3.263 million | $9.156 million |
| Net loss per share, basic and diluted | $0.23 | $0.64 |
| Cash used in operating activities | $4.944 million | $5.547 million |
- Revenue comprised $0.569 million of collaboration revenue and $0.032 million of royalties. No gross margin is reported; revenue is primarily collaboration and licensing-related, not product sales.
- Cash and cash equivalents were $56.064 million at March 31, versus $58.651 million at December 31, 2015. The quarter’s cash decrease was $2.587 million; cash from operations was partly offset by a $2.396 million favorable exchange-rate effect.
- Total assets were $61.152 million and total liabilities were $2.989 million. Current assets were $58.268 million against current liabilities of $2.872 million. The company reported no debt.
- Accumulated deficit was $122.956 million. Shares outstanding were 14,401,582 at quarter-end and 14,403,866 on May 6, 2016.
Changes versus prior year and unusual items
- Revenue fell $3.409 million year over year, principally because Teva’s $41 million upfront payment had been fully recognized by December 2015; Genentech and Teva research funding was also lower.
- R&D expense increased $0.937 million, mainly from preclinical and discovery programs, including Nav1.6, and XEN801’s move into Phase 2. G&A expense declined $4.825 million because Q1 2015 included a $4.9 million stock-option fair-value expense associated with liability reclassification.
- Net loss improved year over year, aided by a $2.296 million foreign-exchange gain in 2016 versus a $3.171 million loss in 2015. The 2016 gain was largely unrealized and related to Canadian-dollar cash balances and currency appreciation; it is not an indication of operating improvement alone.
- R&D was 72% of operating expenses in Q1 2016, versus 34% in Q1 2015; operating expenses overall declined due largely to the prior-year option charge.
Programs, outlook, and risks
- Management expected cash, cash equivalents, marketable securities, and anticipated collaboration research funding to support operations and capital spending for at least 12–24 months from the report date. This estimate depends on assumptions and could prove shorter; management anticipated significant expenses and operating losses for the foreseeable future.
- XEN801 entered Phase 2 for moderate-to-severe facial acne in February 2016; topline results were anticipated in Q4 2016. Teva was conducting a Phase 2b trial of TV-45070 in post-herpetic neuralgia, with results expected in the first half of 2017. Genentech’s Phase 1 studies of GDC-0276 and GDC-0310 were ongoing, with a Phase 2 study intended in 2016 subject to assessment of results. Xenon expected a Nav1.6 development candidate in 2016 and an IND filing in the first half of 2017.
- TV-45070 did not show statistically significant benefit in a Phase 2b osteoarthritis knee-pain study; no further development for that indication was planned, while PHN development continued.
- In March 2016, Xenon amended its Genentech agreement to obtain a royalty-free, non-exclusive license to use certain collaboration compounds for internal research, and extended a separate pain-genetics research term through March 2017.
- Key risks include clinical-trial failure or delay, uncertain milestone and royalty receipts, dependence on collaborators for development and commercialization, need for future financing, and significant Canadian-dollar exposure. Approximately $39.2 million of cash was denominated in Canadian dollars; a hypothetical 10% currency move would change reported value by about $3.9 million. The company did not hedge this exposure.
- A five-year Medpace priority-access agreement commits Xenon to $7 million of services; $3 million was paid in 2015. Q1 2016 Medpace clinical-development fees were $0.373 million, and $2.150 million was prepaid for future services. A Medpace officer and director was also a Xenon beneficial owner of more than 5% of shares.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. Xenon reported no material pending legal proceedings and no material change in previously disclosed contractual commitments.
Important facts for investors to verify
- Whether the stated 12–24 month cash runway remains adequate as clinical and preclinical spending increases, and whether additional financing will be needed.
- Trial progress and results for XEN801, TV-45070 in PHN, and Genentech’s Nav1.7 programs, including whether anticipated milestones and timelines are met.
- Actual collaboration funding, milestone receipts, and Glybera royalties; management said near-term Glybera royalties were not expected to be significant.
- Canadian-dollar cash exposure and the effect of exchange-rate movements on reported earnings and cash balances.
- Medpace service utilization, remaining commitment, prepaid balances, and related-party oversight.