10-Q
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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 September 30, 2023

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 November 3, 2023, the registrant had 65,429,711 common shares, without par value, outstanding.

 

 

 


 

XENON PHARMACEUTICALS INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

 

Page

 

PART I. FINANCIAL INFORMATION

3

 

Item 1. Financial Statements

3

 

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

3

 

Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022

4

 

Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022

5

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

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

24

 

PART II. OTHER INFORMATION

25

 

Item 1. Legal Proceedings

25

 

Item 1A. Risk Factors

25

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

65

 

Item 5. Other Information

65

 

Item 6. Exhibits

66

 

SIGNATURES

67

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 need to raise additional funding, which may not be available on acceptable terms, if at all. Failure to obtain necessary capital when needed may force us to delay, limit or terminate our product discovery and development programs or commercialization efforts or other operations.
Our business substantially depends upon the successful development of XEN1101. If we are unable to obtain regulatory approval for, and successfully commercialize, XEN1101, our business may be materially harmed.
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 which could delay or prevent the successful completion of clinical trials of our product candidates.
We, or our collaborators, may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our, or our collaborators’, product candidates.
The regulatory approval processes of the FDA, EMA and regulators in other foreign 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 depend on our collaborative relationship with Neurocrine Biosciences Inc., or Neurocrine Biosciences, 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.
Our reliance on third parties to manufacture our product candidates may increase the risk that we will not have sufficient quantities of our product candidates, raw materials, APIs or drug products when needed or at an acceptable cost.
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 third-party or other contractor or vendor.
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.

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 that 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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

99,574

 

 

$

57,242

 

Marketable securities (note 5)

 

 

427,100

 

 

 

534,845

 

Accounts receivable

 

 

805

 

 

 

986

 

Prepaid expenses and other current assets

 

 

3,529

 

 

 

7,225

 

 

 

 

531,008

 

 

 

600,298

 

Marketable securities, long-term (note 5)

 

 

112,407

 

 

 

128,682

 

Operating lease right-of-use asset, net (note 6)

 

 

9,497

 

 

 

10,406

 

Property, plant and equipment, net

 

 

10,236

 

 

 

6,500

 

Deferred tax assets

 

 

601

 

 

 

509

 

Prepaid expenses, long-term

 

 

7,344

 

 

 

7,751

 

Total assets

 

$

671,093

 

 

$

754,146

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses (note 7)

 

$

23,498

 

 

$

22,214

 

Operating lease liability (note 6)

 

 

1,246

 

 

 

488

 

 

 

 

24,744

 

 

 

22,702

 

Operating lease liability, long-term (note 6)

 

 

9,757

 

 

 

9,947

 

Total liabilities

 

$

34,501

 

 

$

32,649

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Common shares, without par value; unlimited shares authorized; issued and
   outstanding:
65,002,249 (December 31, 2022 - 62,587,701) (note 8)

 

$

1,121,968

 

 

$

1,065,136

 

Additional paid-in capital

 

 

137,974

 

 

 

142,108

 

Accumulated deficit

 

 

(620,397

)

 

 

(482,747

)

Accumulated other comprehensive loss

 

 

(2,953

)

 

 

(3,000

)

Total shareholders' equity

 

$

636,592

 

 

$

721,497

 

Total liabilities and shareholders’ equity

 

$

671,093

 

 

$

754,146

 

 

 

 

 

 

 

 

Commitments and contingencies (note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue (note 9)

 

$

 

 

$

132

 

 

$

 

 

$

9,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

42,880

 

 

 

29,431

 

 

 

126,436

 

 

 

70,937

 

General and administrative

 

 

12,804

 

 

 

8,829

 

 

 

33,923

 

 

 

24,309

 

 

 

 

55,684

 

 

 

38,260

 

 

 

160,359

 

 

 

95,246

 

Loss from operations

 

 

(55,684

)

 

 

(38,128

)

 

 

(160,359

)

 

 

(85,812

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

6,982

 

 

 

3,066

 

 

 

18,929

 

 

 

4,250

 

Unrealized fair value gain (loss) on trading securities

 

 

490

 

 

 

(294

)

 

 

3,404

 

 

 

(4,944

)

Foreign exchange gain (loss)

 

 

(407

)

 

 

(2,381

)

 

 

289

 

 

 

(2,493

)

 

 

 

7,065

 

 

 

391

 

 

 

22,622

 

 

 

(3,187

)

Loss before income taxes

 

 

(48,619

)

 

 

(37,737

)

 

 

(137,737

)

 

 

(88,999

)

Income tax recovery

 

 

157

 

 

 

587

 

 

 

87

 

 

 

1,021

 

Net loss

 

 

(48,462

)

 

 

(37,150

)

 

 

(137,650

)

 

 

(87,978

)

Net loss attributable to preferred shareholders

 

 

 

 

 

 

 

 

 

 

 

(420

)

Net loss attributable to common shareholders

 

$

(48,462

)

 

$

(37,150

)

 

$

(137,650

)

 

$

(87,558

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale
   securities (note 5)

 

$

346

 

 

$

(1,965

)

 

$

47

 

 

$

(1,965

)

Comprehensive loss

 

$

(48,116

)

 

$

(39,115

)

 

$

(137,603

)

 

$

(89,943

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share (note 3):

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.73

)

 

$

(0.57

)

 

$

(2.09

)

 

$

(1.49

)

Weighted-average common shares outstanding (note 3):

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

66,002,163

 

 

 

65,465,069

 

 

 

65,862,661

 

 

 

58,836,928

 

 

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

 

 

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 8a)

 

 

 

 

 

 

 

 

258,986

 

 

 

7,876

 

 

 

 

 

 

 

 

 

 

 

 

7,876

 

Conversion of preferred shares
   to common shares (note 8b)

 

 

(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 8a and note 8c)

 

 

 

 

 

 

 

 

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

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,150

)

 

 

 

 

 

(37,150

)

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,742

 

 

 

 

 

 

 

 

 

5,742

 

Issued pursuant to exercise of
   stock options

 

 

 

 

 

 

 

 

299,659

 

 

 

3,008

 

 

 

(2,309

)

 

 

 

 

 

 

 

 

699

 

Other comprehensive loss
   (note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,965

)

 

 

(1,965

)

Balance as of
   September 30, 2022

 

 

 

 

$

 

 

 

62,542,542

 

 

$

1,064,698

 

 

$

136,728

 

 

$

(445,352

)

 

$

(2,955

)

 

$

753,119

 

 

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

 

 

Total
shareholders'
equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of
   December 31, 2022

 

 

 

 

$

 

 

 

62,587,701

 

 

$

1,065,136

 

 

$

142,108

 

 

$

(482,747

)

 

$

(3,000

)

 

$

721,497

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41,727

)

 

 

 

 

 

(41,727

)

Conversion of pre-funded
   warrants to common shares
   (note 8c)

 

 

 

 

 

 

 

 

425,000

 

 

 

7,379

 

 

 

(7,379

)

 

 

 

 

 

 

 

 

 

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,994

 

 

 

 

 

 

 

 

 

5,994

 

Issued pursuant to exercise of
   stock options

 

 

 

 

 

 

 

 

94,319

 

 

 

635

 

 

 

(635

)

 

 

 

 

 

 

 

 

 

Other comprehensive income
   (note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,180

 

 

 

1,180

 

Balance as of
   March 31, 2023

 

 

 

 

$

 

 

 

63,107,020

 

 

$

1,073,150

 

 

$

140,088

 

 

$

(524,474

)

 

$

(1,820

)

 

$

686,944

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,461

)

 

 

 

 

 

(47,461

)

Conversion of pre-funded
   warrants to common shares
   (note 8c)

 

 

 

 

 

 

 

 

425,000

 

 

 

7,379

 

 

 

(7,379

)

 

 

 

 

 

 

 

 

 

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,453

 

 

 

 

 

 

 

 

 

8,453

 

Issued pursuant to exercise of
   stock options

 

 

 

 

 

 

 

 

186,330

 

 

 

2,479

 

 

 

(2,479

)

 

 

 

 

 

 

 

 

 

Other comprehensive loss
   (note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,479

)

 

 

(1,479

)

Balance as of
   June 30, 2023

 

 

 

 

$

 

 

 

63,718,350

 

 

$

1,083,008

 

 

$

138,683

 

 

$

(571,935

)

 

$

(3,299

)

 

$

646,457

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48,462

)

 

 

 

 

 

(48,462

)

Issuance of common shares,
   net of issuance costs
   (note 8a)

 

 

 

 

 

 

 

 

855,685

 

 

 

29,508

 

 

 

 

 

 

 

 

 

 

 

 

29,508

 

Conversion of pre-funded
   warrants to common shares
   (note 8c)

 

 

 

 

 

 

 

 

425,000

 

 

 

9,383

 

 

 

(9,383

)

 

 

 

 

 

 

 

 

 

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,743

 

 

 

 

 

 

 

 

 

8,743

 

Issued pursuant to exercise of
   stock options

 

 

 

 

 

 

 

 

3,214

 

 

 

69

 

 

 

(69

)

 

 

 

 

 

 

 

 

 

Other comprehensive income
   (note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

346

 

 

 

346

 

Balance as of
   September 30, 2023

 

 

 

 

$

 

 

 

65,002,249

 

 

$

1,121,968

 

 

$

137,974

 

 

$

(620,397

)

 

$

(2,953

)

 

$

636,592

 

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(137,650

)

 

$

(87,978

)

Items not involving cash: