Xenon Pharmaceuticals Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Xenon is a clinical-stage biopharmaceutical company focused on neurological disorders, particularly epilepsy. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2.2 million | $13.4 million | $6.6 million | $20.5 million |
| Research and development | $18.4 million | $10.7 million | $34.7 million | $22.5 million |
| General and administrative | $6.3 million | $3.3 million | $10.4 million | $6.6 million |
| Net loss | $22.1 million | $0.2 million | $37.9 million | $7.7 million |
| Net loss per common share, basic and diluted | $(0.51) | $(0.00) | $(0.94) | $(0.22) |
- At June 30, cash and cash equivalents were $82.9 million and marketable securities were $177.6 million, totaling $260.5 million. Management expected these resources to fund operating expenses and capital requirements for at least 12 months from the report date, based on assumptions that could prove inaccurate.
- Six-month operating cash use was $33.8 million, investing cash use was $46.9 million, and financing cash provided was $118.8 million. Financing included $118.6 million net proceeds from common shares and pre-funded warrants issued in March 2021.
- Total liabilities were $17.7 million, including $3.5 million of operating lease liabilities. The $15.5 million Silicon Valley Bank term loan had been repaid in May 2020; no term debt was outstanding at June 30, 2021.
- No product-sale revenue was reported. Revenue was collaboration-based; consequently, conventional gross or operating margins are not meaningful for assessing a commercial product business at this stage.
Changes versus the prior comparable periods
- Revenue fell $11.2 million in Q2 and $13.9 million for the first half, mainly because most revenue allocated to Neurocrine Biosciences’ upfront transaction price for completed license obligations had been recognized by the end of 2020. First-half 2021 revenue included $3.0 million in Flexion milestones; the prior-year period had none.
- Operating expenses increased: first-half R&D rose $12.2 million, principally for XEN1101 and XEN496 development and internal programs; G&A rose $3.8 million, including higher stock-based compensation, IP legal costs, salaries and benefits.
- First-half net loss increased to $37.9 million from $7.7 million. The 2020 comparison included a large amount of deferred collaboration revenue, while 2021 expenses were higher.
- Cash and marketable securities increased from $177.0 million at December 31, 2020 to $260.5 million at June 30, 2021, largely reflecting the March equity financing. Common shares outstanding increased from 35.0 million at year-end to 41.1 million at June 30.
Outlook, developments and risks
- XEN1101: The company completed randomization of 326 patients in its Phase 2b X-TOLE focal epilepsy trial in late June and anticipated topline results in late September to mid-October 2021. It was also preparing studies in major depressive disorder, including an investigator-sponsored Phase 2 study expected to begin in the coming months.
- XEN496: The Phase 3 EPIK study in pediatric KCNQ2-DEE was underway. COVID-19 had affected site initiation, and patient enrollment remained a risk.
- Partnered programs: Neurocrine expected to initiate Phase 2 studies of NBI-921352 in SCN8A-DEE and adult focal epilepsy in 2021, subject to regulatory and development conditions. Potential milestone payments were contingent on specified events. Flexion initiated a Phase 1b FX301 trial; data were anticipated in late 2021.
- Management expected significant expenses and operating losses for the foreseeable future, with R&D expected to remain the largest operating expense category for at least the next 12–24 months. Future revenue was expected to depend on collaborations and uncertain milestones; the company did not anticipate product-sale revenue for the foreseeable future.
- Key risks include clinical and regulatory failure or delay, patient recruitment, reliance on collaborators and third-party manufacturers and trial operators, intellectual-property protection, COVID-19 impacts, and the potential need for additional financing. Additional equity financing could dilute shareholders; collaboration financing could require granting valuable rights.
- Subsequent event: On August 6, 2021, Xenon and Genentech/Roche mutually terminated a 2011 collaboration. Genentech returned, licensed or assigned certain Nav1.7-related IP and materials, and restrictions on certain development activities were lifted. Xenon waived potential pain-genetics milestones of up to $1.5 million and remains responsible for a low-single-digit tiered royalty on specified Nav1.6 compounds, including NBI-921352, for ten years from first commercial sale in each country.
- The filing reported no legal proceedings expected by management to have a material adverse effect. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether X-TOLE results arrived on the anticipated schedule and met trial endpoints, and how they affect XEN1101’s development plans.
- Actual enrollment and timing in the XEN496 EPIK trial, including the continuing effects of COVID-19.
- Whether Neurocrine initiated the anticipated NBI-921352 trials and whether milestone conditions were met.
- Cash burn and collaboration receipts in subsequent filings, compared with management’s stated minimum 12-month runway estimate.
- Potential dilution from outstanding options, 1.08 million pre-funded warrants, preferred shares, and further equity offerings.
- The financial and intellectual-property effects of the Genentech/Roche termination, including continuing royalty obligations.