Xenon Pharmaceuticals Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Amounts are in U.S. dollars; financial statement figures are in thousands unless stated otherwise. Xenon is a clinical-stage biopharmaceutical company developing neurological therapies, including epilepsy and pain programs.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $0 | $16 |
| Operating expenses | $7,818 | $8,003 |
| Research and development | $5,580 | $5,903 |
| General and administrative | $2,238 | $2,100 |
| Loss from operations | $(7,818) | $(7,987) |
| Net loss | $(3,755) | $(7,517) |
| Net loss per common share, basic | $(0.21) | $(0.42) |
| Cash used in operating activities | $(8,219) | $(6,460) |
| Cash and cash equivalents | $17,200 | $20,486 at Dec. 31, 2017 |
| Marketable securities | $17,878 | $23,181 at Dec. 31, 2017 |
| Total assets | $37,762 | $46,121 at Dec. 31, 2017 |
| Term loan principal outstanding | $7,000 | $7,000 at Dec. 31, 2017 |
Cash, cash equivalents and marketable securities totaled $35.1 million at quarter-end. The company reported an accumulated deficit of $177.1 million. Gross margin is not meaningful because Xenon reported no revenue.
Changes and unusual items
- Net loss improved by $3.8 million year over year, principally because of a one-time $4.4 million gain from terminating the Teva collaboration. The gain was recorded net of direct costs and related to cancellation of 1.0 million Teva-held common shares; it was not recurring operating revenue.
- Operating expenses declined $185,000. Lower XEN801 and other preclinical/discovery spending was partly offset by increased investment in XEN1101 and XEN901/Nav1.6.
- Cash used in operations increased $1.8 million year over year, which management attributed primarily to working-capital changes.
- In March, BVF exchanged 2,868,000 common shares for the same number of Series 1 Preferred Shares; the exchanged common shares were cancelled. The preferred shares are convertible one-for-one subject to ownership limits and carry voting and dividend rights as described in the filing.
- The Teva agreement ended by mutual agreement. Teva agreed to return, license or assign certain intellectual property and transfer TV-45070 regulatory filings. Xenon may owe Teva a low-single-digit royalty on net sales of qualifying products, if any.
Liquidity, outlook and risks
- Xenon expects significant expenses and operating losses for the foreseeable future, including at least the next 12–24 months, and does not anticipate sustained profitability in the near term. Revenue is expected to depend largely on collaboration milestones; product sales are not expected for several years, if ever.
- Management stated that quarter-end cash and marketable securities were expected to fund operating and capital requirements for at least 12 months from the report date, while cautioning that assumptions could prove wrong and funds could be used sooner.
- In May 2018, after quarter-end, Xenon entered an at-the-market sales agreement allowing up to $30 million of common shares to be sold through Stifel. The filing does not report proceeds from this agreement. Additional SVB loan tranches may be available subject to clinical and financial milestones; no other committed external capital was reported.
- The $7 million SVB loan bears a floating rate of 0.5 percentage points above prime, with a reported effective rate of 9.48%. Scheduled principal payments are $700,000 in 2018, $2.8 million in 2019, $2.8 million in 2020 and $700,000 in 2021; a $455,000 final payment fee is additional. Xenon reported compliance with loan covenants at March 31.
- Program outlook: Xenon expected to initiate a Phase 2 XEN1101 trial for adult focal seizures by year-end 2018 and anticipated complete Phase 1 results in the second half of 2018. XEN901 Phase 1 results were also anticipated in the second half of 2018, followed by a planned Phase 2 trial. XEN007 development strategy and potential partnerships were under evaluation. Genentech had completed Phase 1 for GDC-0310; its future development guidance depended on analysis of ongoing preclinical work.
- Principal risks include clinical or regulatory setbacks, uncertain patient enrollment and development timelines, reliance on collaborators and contract manufacturers, need for additional financing and potential shareholder dilution, debt covenants, and Canadian-dollar exposure. A 10% Canadian-dollar move was estimated to affect reported results by about $1.1 million based on Canadian-dollar cash and securities at quarter-end.
- No material legal proceedings were reported. Management concluded disclosure controls and procedures were effective at the reasonable-assurance level; no materially affecting change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether XEN1101 and XEN901 Phase 1 results and anticipated Phase 2 timelines were achieved, and whether results support further development.
- Actual cash burn, remaining cash runway, and any subsequent ATM share sales or additional borrowing.
- The terms and status of Teva’s intellectual-property and regulatory-file transfers, and any future royalty obligations tied to TV-45070.
- Potential dilution and voting effects from Series 1 Preferred Shares, outstanding options, and the ATM program.
- Loan repayment requirements, floating-rate exposure and continued covenant compliance.