Xenon Pharmaceuticals Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unless noted, amounts are in U.S. dollars; financial figures below are in millions. Xenon is a clinical-stage biopharmaceutical company developing neurology therapies, particularly for epilepsy. It has no marketed proprietary products.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $3.5 | $0 | $3.5 | $0 |
| Research and development expense | $9.8 | $6.2 | $27.1 | $17.2 |
| General and administrative expense | $2.7 | $1.9 | $7.6 | $6.4 |
| Operating loss | $(9.0) | $(14.2) | $(31.2) | $(29.6) |
| Net loss | $(8.9) | $(14.4) | $(30.2) | $(25.9) |
| Net loss per common share | $(0.33) | $(0.63) | $(1.13) | $(1.34) |
- Q3 2019 revenue comprised a $3.0 million upfront payment from Flexion for XEN402 rights and $0.5 million recognized for a milestone considered highly probable. Further potential payments depend on development and commercial milestones and royalties.
- For the nine months, operating cash use was $24.4 million, investing cash use $6.0 million, and financing cash provided $0.1 million. Cash and cash equivalents declined to $37.7 million from $67.8 million at December 31, 2018.
- At September 30, cash, cash equivalents and marketable securities totaled $94.6 million, versus $119.3 million at year-end 2018. Current assets were $96.5 million and current liabilities $11.7 million.
- Term-loan principal was $15.5 million, with a 9.06% effective interest rate; the balance-sheet carrying amount was approximately $15.4 million, including current and long-term portions. Principal payments are scheduled for 2020–2022. The company reported compliance with loan covenants.
- No product margins are reported; Xenon stated it does not expect product-sales revenue for at least several years, if ever. It expects significant expenses and operating losses for the foreseeable future.
Changes versus comparable periods
- R&D expense rose $3.5 million in Q3 and $9.9 million for the nine months, primarily due to increased development spending on XEN496, XEN901 and XEN1101.
- G&A expense increased $0.8 million in Q3 and $1.3 million year to date, with legal, recruitment, business-development and finance costs among the drivers.
- Q3 operating and net losses were lower than in 2018, partly because 2018 included a $6.0 million one-time XEN1101 milestone-and-royalty buyout. For the nine-month comparison, 2018 also included a $4.4 million gain from terminating the Teva collaboration; absent that gain, the 2019 net loss was higher.
- R&D growth and the absence of 2018 equity and loan proceeds contributed to substantially lower financing cash flow in 2019.
Outlook, developments and risks
- Management said existing cash and marketable securities were expected to fund operating and capital needs for at least 12 months from the report date, while cautioning that spending or development timing could change. In November 2019, the company entered an at-the-market agreement to sell up to $50 million of shares, which could dilute shareholders.
- XEN496: adult-volunteer pharmacokinetic study planned for completion by year-end; an IND filing and start of a proposed Phase 3 study in KCNQ2-DEE were anticipated in Q1 2020, subject to formulation stability and study data.
- XEN1101: Phase 2b focal-epilepsy trial enrollment was ongoing; top-line results were anticipated in the second half of 2020, depending on enrollment.
- XEN901: a pediatric-formulation pharmacokinetic study had dosed all healthy volunteers; an IND or equivalent submission for a proposed SCN8A-DEE trial was anticipated in Q1 2020, subject to supporting data.
- XEN007: an investigator-led Phase 2 study in treatment-resistant childhood absence epilepsy had begun, with results expected in 2020.
- Flexion acquired global XEN402 rights and planned FX301 development for post-operative pain; Flexion indicated clinical trials were anticipated to begin in 2021. Xenon may receive up to $9.0 million in near-term milestones, additional development and commercial milestones, and royalties, but timing and receipt are uncertain.
- Key risks include clinical, regulatory and patient-enrollment uncertainty; reliance on collaborators and third-party manufacturers; future financing needs and potential dilution; intellectual-property and competition risks; and foreign-exchange exposure. The company reported no legal proceedings expected by management to have a material adverse effect and no material changes to previously disclosed contractual commitments.
- ASC 842 lease adoption in 2019 resulted in recognition of a right-of-use asset and lease liability; management said it did not materially affect operations or cash flows. Disclosure controls were assessed as effective at the reasonable-assurance level.
Most important facts for investors to verify
- Cash burn and whether the stated 12-month-plus liquidity runway remains consistent with actual development spending and the timing of additional financing.
- Enrollment and data timing for the XEN1101 Phase 2b trial, and progress toward the planned XEN496 and XEN901 regulatory submissions.
- Whether Flexion achieves XEN402/FX301 development milestones and the conditions, timing and amounts of any resulting payments or royalties.
- Term-loan repayment obligations, covenant compliance and potential dilution from the $50 million ATM program, equity awards and convertible preferred shares.
- Potential milestone and royalty commitments under licensing agreements, and the clinical, regulatory, manufacturing and intellectual-property risks described in the filing.