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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                            to                         

Commission File Number: 001-36687

 

XENON PHARMACEUTICALS INC.

(Exact name of Registrant as Specified in its Charter)

 

 

Canada

98-0661854

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

200-3650 Gilmore Way

Burnaby, British Columbia, Canada

V5G 4W8

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (604) 484-3300

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Shares, without par value

 

XENE

 

The Nasdaq Stock Market LLC

(The Nasdaq Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company            

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 5, 2022, the registrant had 62,263,463 common shares, without par value, outstanding.


 


 

 

 

XENON PHARMACEUTICALS INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS

 

 

Page

 

PART I. FINANCIAL INFORMATION

3

 

Item 1. Financial Statements

3

 

Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

3

 

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2022 and 2021

4

 

Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2022 and 2021

5

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

7

 

Notes to Consolidated Financial Statements

8

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

 

Item 4. Controls and Procedures

25

 

PART II. OTHER INFORMATION

25

 

Item 1. Legal Proceedings

25

 

Item 1A. Risk Factors

26

 

Item 6. Exhibits

68

 

SIGNATURES

69

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Xenon,” and “the Company” refer to Xenon Pharmaceuticals Inc. and its subsidiary. “Xenon” and the Xenon logo are the property of Xenon Pharmaceuticals Inc. and are registered in the United States and used or registered in various other jurisdictions. This report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.


 

-1-


 

 

Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report captioned “Risk Factors.” The following is a summary of the principal risks we face:

 

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future;

 

We will likely need to raise additional funding, which may not be available on acceptable terms, if at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations;

 

Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials are prolonged, delayed, not completed, unsuccessful or inconclusive, we could experience material harm to our business and the market price of our common shares. In addition, we, or our collaborators, may be unable to commercialize our product candidates on a timely basis or at all;

 

Clinical trials may fail to demonstrate adequately the safety and efficacy of our or our collaborators’ product candidates, at any stage of clinical development. Terminating the development of any of our or our collaborators’ product candidates could materially harm our business and the market price of our common shares;

 

We or our collaborators may find it difficult to enroll patients in our clinical trials, including for ultra-orphan, orphan or niche indications, which could delay or prevent clinical trials of our product candidates;

 

The regulatory approval processes of the FDA, EMA, Health Canada and regulators in other jurisdictions are lengthy, time-consuming and inherently unpredictable. If we, or our collaborators, are unable to obtain regulatory approval for our product candidates in a timely manner, or at all, our business will be substantially harmed;

 

If, in the future, we are unable to establish our own sales, marketing and distribution capabilities or enter into agreements for these purposes, we may not be successful in independently commercializing any future products;

 

Our prospects for successful development and commercialization of our partnered products and product candidates are dependent upon the research, development and marketing efforts of our collaborators;

 

We rely on third-party manufacturers to produce our product candidates and on other third parties to store, monitor and transport bulk drug substance and drug product. We and our third-party partners may encounter difficulties with respect to these activities that may delay or impair our ability to initiate or complete our clinical trials, gain regulatory approvals or commercialize approved products;

 

We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties including to comply with applicable laws and regulations or meet expected deadlines, our business could be substantially harmed;

 

We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our products or product candidates;

 

We may not be able to protect our intellectual property rights throughout the world;

 

Our business and operations could suffer in the event of an actual or perceived information security incident such as a cybersecurity breach, system failure, or other compromise of our systems or those of a contractor or vendor;

 

Health pandemics or epidemics, including the COVID-19 pandemic and other public health crises may materially and adversely affect our business, financial condition and results of operations;

 

We depend on our collaborative relationship with Neurocrine Biosciences Inc. to further develop and commercialize NBI-921352, and if our relationship is not successful or is terminated, we may not be able to effectively develop and/or commercialize NBI-921352;

 

The market price of our common shares may be volatile, and purchasers of our common shares could incur substantial losses;

 

Future sales and issuances of our common shares or securities convertible into or exchangeable for common shares would cause our shareholders to incur dilution and could cause the market price of our common shares to fall; and

 

We are at risk of securities class action litigation.

Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement such risks or conditions have not materialized, in whole or in part.

 

 

-2-


 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

XENON PHARMACEUTICALS INC.

Consolidated Balance Sheets

(Unaudited)

(Expressed in thousands of U.S. dollars except share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

369,987

 

 

$

175,688

 

Marketable securities

 

 

418,251

 

 

 

376,086

 

Accounts receivable

 

 

2,524

 

 

 

2,765

 

Prepaid expenses and other current assets

 

 

4,041

 

 

 

4,481

 

 

 

 

794,803

 

 

 

559,020

 

Operating lease right-of-use asset, net (note 5)

 

 

7,730

 

 

 

8,056

 

Property, plant and equipment, net

 

 

4,536

 

 

 

4,466

 

Deferred tax assets

 

 

311

 

 

 

465

 

Total assets

 

$

807,380

 

 

$

572,007

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses (note 6)

 

$

13,736

 

 

$

13,717

 

Operating lease liability (note 5)

 

 

 

 

 

605

 

 

 

 

13,736

 

 

 

14,322

 

Operating lease liability, long-term (note 5)

 

 

7,851

 

 

 

7,652

 

 

 

$

21,587

 

 

$

21,974

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred shares, without par value; unlimited shares authorized; issued and

   outstanding: nil (December 31, 2021 - 1,016,000) (note 7)

 

$

 

 

$

7,732

 

Common shares, without par value; unlimited shares authorized; issued and

   outstanding: 62,242,883 (December 31, 2021 - 51,634,752) (note 7)

 

 

1,061,690

 

 

 

783,170

 

Additional paid-in capital

 

 

133,295

 

 

 

117,495

 

Accumulated deficit

 

 

(408,202

)

 

 

(357,374

)

Accumulated other comprehensive loss

 

 

(990

)

 

 

(990

)

 

 

$

785,793

 

 

$

550,033

 

Total liabilities and shareholders’ equity

 

$

807,380

 

 

$

572,007

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (note 9)

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

-3-


 

 

XENON PHARMACEUTICALS INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Expressed in thousands of U.S. dollars except share and per share amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue (note 8)

 

$

536

 

 

$

2,218

 

 

$

9,302

 

 

$

6,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

22,146

 

 

 

18,377

 

 

 

41,506

 

 

 

34,685

 

General and administrative

 

 

8,705

 

 

 

6,339

 

 

 

15,480

 

 

 

10,448

 

 

 

 

30,851

 

 

 

24,716

 

 

 

56,986

 

 

 

45,133

 

Loss from operations

 

 

(30,315

)

 

 

(22,498

)

 

 

(47,684

)

 

 

(38,557

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

816

 

 

 

72

 

 

 

1,184

 

 

 

219

 

Unrealized fair value loss on marketable securities

 

 

(1,288

)

 

 

(17

)

 

 

(4,650

)

 

 

(92

)

Foreign exchange gain (loss)

 

 

(411

)

 

 

117

 

 

 

(112

)

 

 

272

 

Loss before income taxes

 

 

(31,198

)

 

 

(22,326

)

 

 

(51,262

)

 

 

(38,158

)

Income tax recovery

 

 

40

 

 

 

217

 

 

 

434

 

 

 

285

 

Net loss and comprehensive loss

 

 

(31,158

)

 

 

(22,109

)

 

 

(50,828

)

 

 

(37,873

)

Net loss attributable to preferred shareholders

 

 

 

 

 

(521

)

 

 

(385

)

 

 

(951

)

Net loss attributable to common shareholders

 

$

(31,158

)

 

$

(21,588

)

 

$

(50,443

)

 

$

(36,922

)

Net loss per common share (note 3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.55

)

 

$

(0.51

)

 

$

(0.91

)

 

$

(0.94

)

Weighted-average common shares outstanding (note 3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

56,192,922

 

 

 

42,090,207

 

 

 

55,522,857

 

 

 

39,457,413

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

 

-4-


 

 

XENON PHARMACEUTICALS INC.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(Expressed in thousands of U.S. dollars except share amounts)

 

 

 

Convertible

preferred shares

 

 

Common shares

 

 

Additional

paid-in

capital

 

 

Accumulated deficit

 

 

Accumulated other

comprehensive

loss (1)

 

 

Total shareholders'

equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2020

 

 

1,016,000

 

 

$

7,732

 

 

 

35,012,125

 

 

$

397,748

 

 

$

45,357

 

 

$

(278,492

)

 

$

(990

)

 

$

171,355

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,764

)

 

 

 

 

 

(15,764

)

Issuance of common shares and

   pre-funded warrants, net of

   issuance costs (note 7a and

   note 7c)

 

 

 

 

 

 

 

 

5,868,135

 

 

 

99,846

 

 

 

18,769

 

 

 

 

 

 

 

 

 

118,615

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,965

 

 

 

 

 

 

 

 

 

1,965

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

82,455

 

 

 

740

 

 

 

(634

)

 

 

 

 

 

 

 

 

106

 

Balance as of

   March 31, 2021

 

 

1,016,000

 

 

$

7,732

 

 

 

40,962,715

 

 

$

498,334

 

 

$

65,457

 

 

$

(294,256

)

 

$

(990

)

 

$

276,277

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,109

)

 

 

 

 

 

(22,109

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,704

 

 

 

 

 

 

 

 

 

2,704

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

154,853

 

 

 

1,017

 

 

 

(906

)

 

 

 

 

 

 

 

 

111

 

Balance as of

   June 30, 2021

 

 

1,016,000

 

 

$

7,732

 

 

 

41,117,568

 

 

$

499,351

 

 

$

67,255

 

 

$

(316,365

)

 

$

(990

)

 

$

256,983

 

(1)

The accumulated other comprehensive loss is entirely related to historical cumulative translation adjustments from the application of U.S. dollar reporting when the functional currency of the Company was the Canadian dollar.

The accompanying notes are an integral part of these financial statements.


 

-5-

 

 


 

 

XENON PHARMACEUTICALS INC.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(Expressed in thousands of U.S. dollars except share amounts)

 

 

 

Convertible

preferred shares

 

 

Common shares

 

 

Additional

paid-in

capital

 

 

Accumulated deficit

 

 

Accumulated other

comprehensive

loss (1)

 

 

Total shareholders'

equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2021

 

 

1,016,000

 

 

$

7,732

 

 

 

51,634,752

 

 

$

783,170

 

 

$

117,495

 

 

$

(357,374

)

 

$

(990

)

 

$

550,033

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,670

)

 

 

 

 

 

(19,670

)

Issuance of common shares, net of

   issuance costs (note 7a)

 

 

 

 

 

 

 

 

258,986

 

 

 

7,876

 

 

 

 

 

 

 

 

 

 

 

 

7,876

 

Conversion of preferred shares to

   common shares (note 7b)

 

 

(1,016,000

)

 

 

(7,732

)

 

 

1,016,000

 

 

 

7,732

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,614

 

 

 

 

 

 

 

 

 

3,614

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

149,311

 

 

 

1,529

 

 

 

(1,529

)

 

 

 

 

 

 

 

 

 

Balance as of

   March 31, 2022

 

 

 

 

$

 

 

 

53,059,049

 

 

$

800,307

 

 

$

119,580

 

 

$

(377,044

)

 

$

(990

)

 

$

541,853

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,158

)

 

 

 

 

 

(31,158

)

Issuance of common shares and

   pre-funded warrants, net of

   issuance costs (note 7a and

   note 7c)

 

 

 

 

 

 

 

 

9,098,362

 

 

 

260,503

 

 

 

9,387

 

 

 

 

 

 

 

 

 

269,890

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,208

 

 

 

 

 

 

 

 

 

5,208

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

85,472

 

 

 

880

 

 

 

(880

)

 

 

 

 

 

 

 

 

 

Balance as of

   June 30, 2022

 

 

 

 

$

 

 

 

62,242,883

 

 

$

1,061,690

 

 

$

133,295

 

 

$

(408,202

)

 

$

(990

)

 

$

785,793

 

(1)

The accumulated other comprehensive loss is entirely related to historical cumulative translation adjustments from the application of U.S. dollar reporting when the functional currency of the Company was the Canadian dollar.

The accompanying notes are an integral part of these financial statements.

 

 

-6-

 

 


 

 

XENON PHARMACEUTICALS INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Expressed in thousands of U.S. dollars)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(50,828

)

 

$

(37,873

)

Items not involving cash:

 

 

 

 

 

 

 

 

Depreciation

 

 

751

 

 

 

427

 

Deferred income tax expense (recovery)

 

 

154

 

 

 

(21

)

Stock-based compensation

 

 

8,822

 

 

 

4,669

 

Unrealized foreign exchange loss

 

 

492

 

 

 

11

 

Unrealized fair value loss on marketable securities

 

 

4,650

 

 

 

92

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

235

 

 

 

(608

)

Prepaid expenses and other current assets

 

 

439

 

 

 

(349

)

Accounts payable and accrued expenses

 

 

(11

)

 

 

484

 

Deferred revenue

 

 

 

 

 

(617

)

Net cash used in operating activities

 

 

(35,296

)

 

 

(33,785

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(756

)

 

 

(1,313

)

Purchases of marketable securities

 

 

(141,638

)

 

 

(122,279

)

Proceeds from marketable securities

 

 

94,823

 

 

 

76,680

 

Net cash used in investing activities

 

 

(47,571

)

 

 

(46,912

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Issuance of common shares and pre-funded warrants,

   net of issuance costs (note 7a and note 7c)

 

 

277,766

 

 

 

118,615

 

Issuance of common shares pursuant to exercise of stock options

 

 

 

 

 

217

 

Net cash provided by financing activities

 

 

277,766

 

 

 

118,832

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(600

)

 

 

(214

)

Increase in cash and cash equivalents

 

 

194,299

 

 

 

37,921

 

Cash and cash equivalents, beginning of period

 

 

175,688

 

 

 

45,009

 

Cash and cash equivalents, end of period

 

$

369,987

 

 

$

82,930

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Interest received

 

$

3,509

 

 

$

1,537

 

Cash paid for operating lease

 

 

410

 

 

 

412

 

Supplemental disclosures of non-cash transactions:

 

 

 

 

 

 

 

 

Fair value of stock options exercised on a cashless basis

 

 

2,409

 

 

 

1,324

 

Increase in operating lease liability and accounts receivable related to lease

   incentives claimed in the period

 

 

 

 

 

493

 

 

 

The accompanying notes are an integral part of these financial statements.

 

 

-7-

 

 


 

 

XENON PHARMACEUTICALS INC

Notes to Consolidated Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except share and per share amounts)

 

 

 

 

 

 

 

 

1.

Nature of the business: