Xenon Pharmaceuticals Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. All financial amounts below are in U.S. dollars; financial statement amounts are in thousands unless otherwise noted.
Business context
Xenon is a clinical-stage biopharmaceutical company developing therapies for orphan and larger-market indications, using its “Extreme Genetics” discovery platform. It expects to commercialize selected orphan products itself and partner on larger markets. Its programs include XEN801 for acne, TV-45070 for pain with Teva, and GDC-0276 and GDC-0310 for pain with Genentech. The company reported that enrollment in the XEN801 Phase 2 trial was complete, with topline results expected in Q1 2017; Teva expected TV-45070 PHN Phase 2b topline results in the first half of 2017; and Genentech intended to initiate a Phase 2 trial in the first half of 2017. Xenon also expected to identify a Nav1.6 development candidate in 2016 and file an IND in mid-2017.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0.413 million | $4.294 million | $1.427 million | $12.350 million |
| Research and development expense | $5.965 million | $3.793 million | $15.432 million | $10.889 million |
| General and administrative expense | $1.779 million | $1.321 million | $5.350 million | $8.219 million |
| Operating loss | $7.331 million | $0.820 million | $19.355 million | $6.758 million |
| Net loss | $7.714 million | $3.827 million | $16.993 million | $11.815 million |
| Basic and diluted loss per share | $0.51 | $0.27 | $1.16 | $0.83 |
At September 30, 2016, cash and cash equivalents were $54.135 million and marketable securities were $15.356 million, totaling $69.491 million. Total assets were $73.371 million; total liabilities were $4.062 million, including $3.976 million of current liabilities. The company had no outstanding debt. Accumulated deficit was $136.704 million.
For the first nine months, operating cash use was $14.897 million, investing cash use was $15.616 million, and financing cash inflow was $23.916 million. Financing included $23.832 million in net proceeds from the September share offering, after issuance costs. Cash and cash equivalents declined $4.516 million, ending at $54.135 million. No material margin guidance is provided.
Changes versus the prior comparable period
- Nine-month revenue fell $10.954 million year over year, primarily because the Teva upfront payment had been fully recognized by December 2015 and the Genentech upfront payment by March 2016; Genentech research funding also declined as Xenon shifted resources toward proprietary programs.
- Nine-month R&D expense increased $4.543 million, mainly from preclinical and discovery work, particularly the Nav1.6 program, and XEN801’s entry into Phase 2.
- Nine-month G&A expense decreased $2.869 million, reflecting 2015 stock-option fair-value, severance, and consultant compensation items.
- Foreign exchange results improved by $7.528 million year over year for the nine-month period: a $2.026 million gain in 2016 versus a $5.502 million loss in 2015.
Outlook, commentary, and risks
Management expects significant expenses and operating losses for the foreseeable future, including at least the next 12 to 24 months, and does not expect sustained profitability in the near term. It estimated that cash, cash equivalents, marketable securities, and expected research funding under existing collaborations would fund operating and capital requirements for at least 12 to 24 months. The estimate depends on assumptions that could prove wrong. Xenon said current resources would not be sufficient to complete clinical development of its candidates and prepare for commercialization, and that additional financing may be needed.
On September 13, 2016, Xenon sold 3.45 million common shares at $7.50 per share. It received approximately $24.3 million after underwriting discounts and commissions but before offering expenses. Existing shareholders separately sold 1.15 million shares; those proceeds went to the selling shareholders, not Xenon.
- Development and collaboration risk: Candidates remain in clinical or earlier development, and success depends partly on partners’ execution. TV-45070 did not meet statistical significance versus placebo in a Phase 2b osteoarthritis study; development for PHN continued.
- Foreign exchange exposure: Xenon held $32.0 million of cash and marketable securities denominated in Canadian dollars. A hypothetical 10% Canadian-dollar movement would produce an estimated $3.2 million foreign exchange gain or loss.
- Commitments and contingencies: A five-year Medpace agreement includes a $7.0 million commitment for services; $3.0 million was paid in 2015. The filing reports no material change in previously disclosed contractual commitments. Indemnification exposure under certain agreements is potentially unlimited, though the company carries insurance and had recorded no related liability.
- Other disclosures: Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- Whether the stated XEN801, TV-45070, Genentech, and Nav1.6 development milestones were achieved on the expected timelines and what subsequent trial results showed.
- Whether collaboration research funding, milestones, royalties, and partner development plans support the projected 12-to-24-month runway.
- Actual cash burn, foreign-exchange exposure, and the timing or terms of any further financing.
- The status and commercial contribution of Glybera, which Xenon did not expect to generate significant near-term royalties.
- The terms and remaining service obligations under the Medpace commitment, and any changes in other contractual commitments or contingencies.