UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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(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.
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).
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.
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Smaller reporting company |
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Emerging growth company |
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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 May 6, 2024, the registrant had
XENON PHARMACEUTICALS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2024
TABLE OF CONTENTS
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:
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)
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March 31, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities (note 6) |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Marketable securities, long-term (note 6) |
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Operating lease right-of-use asset, net (note 7) |
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Property, plant and equipment, net |
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Deferred tax assets |
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Prepaid expenses, long-term |
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Total assets |
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$ |
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$ |
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Liabilities and shareholders’ equity |
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Current liabilities: |
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Accounts payable and accrued expenses (note 8) |
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$ |
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$ |
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Operating lease liability (note 7) |
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Operating lease liability, long-term (note 7) |
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Total liabilities |
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$ |
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$ |
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Shareholders’ equity: |
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Common shares, par value; shares authorized; issued and |
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$ |
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$ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Accumulated other comprehensive loss |
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( |
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Total shareholders' equity |
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$ |
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$ |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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General and administrative |
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Loss from operations |
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( |
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( |
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Other income: |
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Interest income |
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Unrealized fair value gain on trading securities |
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— |
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Foreign exchange gain |
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Loss before income taxes |
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Income tax expense |
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( |
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( |
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Net loss |
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$ |
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$ |
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Other comprehensive income (loss): |
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Unrealized gain (loss) on available-for-sale |
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$ |
( |
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$ |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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Net loss per common share (note 4): |
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Basic and diluted |
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$ |
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$ |
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Weighted-average common shares outstanding (note 4): |
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Basic and diluted |
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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)
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Common shares |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Balance as of |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net loss for the period |
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— |
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— |
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— |
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( |
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— |
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( |
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Conversion of pre-funded |
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( |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Issued pursuant to exercise of |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Balance as of |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Balance as of |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net loss for the period |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Issued pursuant to exercise of |
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( |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these financial statements.
-5-
XENON PHARMACEUTICALS INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in thousands of U.S. dollars)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Items not involving cash: |
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Depreciation |
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Deferred income tax expense |
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Stock-based compensation |
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Unrealized foreign exchange (gain) loss |
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( |
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Unrealized fair value gain on trading securities |
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— |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other current assets |
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( |
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Accounts payable and accrued expenses |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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Investing activities: |
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Purchases of property, plant and equipment |
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( |
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( |
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Purchases of marketable securities |
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( |
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( |
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Proceeds from marketable securities |
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Net cash provided by (used in) investing activities |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental disclosure: |
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Cash paid for operating lease |
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$ |
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$ |
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Supplemental disclosures of non-cash transactions: |
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Fair value of stock options exercised on a cashless basis |
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Fair value of pre-funded warrants exercised |
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— |
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Increase in operating lease liability and accounts receivable related to |
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— |
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The accompanying notes are an integral part of these financial statements.
-6-
XENON PHARMACEUTICALS INC
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of U.S. dollars except share and per share amounts)
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Xenon Pharmaceuticals Inc. (the “Company”), incorporated in 1996 under the predecessor to the Business Corporations Act (British Columbia) and continued federally in 2000 under the Canada Business Corporations Act, is a neuroscience-focused biopharmaceutical company committed to improving the lives of people living with neurological and psychiatric disorders.
The Company has incurred significant operating losses since inception. As of March 31, 2024, the Company had an accumulated deficit of $
Until such time as the Company can generate substantial product revenue, if ever, management expects to finance the Company’s cash needs through a combination of collaboration agreements, equity and debt financings. The continuation of research and development activities and the future commercialization of its products are dependent on the Company’s ability to successfully raise additional funds when needed. It is not possible to predict either the outcome of future research and development programs or the Company’s ability to continue to fund these programs in the future.
These unaudited interim consolidated financial statements are presented in U.S. dollars and include the accounts of the Company and its wholly-owned subsidiary, Xenon Pharmaceuticals USA Inc., a Delaware corporation. All intercompany transactions and balances have been eliminated on consolidation.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these consolidated financial statements do not include all of the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2023 included in the Company’s 2023 Annual Report on Form 10-K filed with the SEC and with the securities commissions in British Columbia, Alberta and Ontario on February 29, 2024.
These unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three months ended March 31, 2024 and 2023 are not necessarily indicative of results that can be expected for a full year. These unaudited interim consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company included in the Company’s 2023 Annual Report on Form 10-K for the year ended December 31, 2023, with the exception of the policy described in note 3 below.
The Company grants performance share unit awards (“PSUs”) to certain employees and officers.
The weighted average number of common shares used in the basic and diluted net income (loss) per common share calculations includes the weighted-average pre-funded warrants outstanding during the period as they are exercisable at any time for nominal cash consideration.
-7-
The treasury stock method is used to compute the dilutive effect of the Company’s stock options, performance share units and warrants. Under this method, the incremental number of common shares used in computing diluted net income (loss) per common share is the difference between the number of common shares assumed issued and purchased using assumed proceeds.
For the three months ended March 31, 2024 and 2023, diluted net loss per share attributable to common shareholders is the same as basic net loss per share attributable to common shareholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
The fair value hierarchy consists of the following three levels:
The Company’s cash and cash equivalents and marketable securities are measured at fair value on a recurring basis.
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March 31, 2024 |
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December 31, 2023 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Cash and cash equivalents |
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Cash and money market fund |
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$ |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Marketable securities |
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Guaranteed investment certificates |
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— |
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— |
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— |
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— |
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U.S. treasuries |
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— |
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— |
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— |
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U.S. government securities |
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— |
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— |
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— |
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— |
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Commercial paper |
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— |
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— |
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— |
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— |
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Corporate debt securities |
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— |
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— |
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— |
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— |
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Total |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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The fair values of the Company’s U.S. government securities, commercial paper and corporate debt securities are based on prices obtained from independent pricing sources. Securities with validated quotes from pricing services are reflected within Level 2, as they are primarily based on observable pricing for similar assets or other market observable inputs. Typical inputs used by these pricing services include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers or estimates of cash flow, prepayment spreads and default rates.
As of March 31, 2024 and December 31, 2023, the Company does not hold any securities classified as Level 3.
-8-
As of March 31, 2024, the Company had $
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March 31, 2024 |
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December 31, 2023 |
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Amortized |
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Unrealized |
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Fair |
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Amortized |
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Unrealized |
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Fair |
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Contractual maturity of 0 to 1 years: |
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Guaranteed investment certificates |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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U.S. treasuries |
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( |
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( |
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U.S. government securities |
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( |
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( |
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Commercial paper |
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( |
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Corporate debt securities |
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Contractual maturity of 1 to 3 years: |
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U.S. treasuries |
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( |
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Corporate debt securities |
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( |
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Total |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
|
|
$ |
|
|||||
Allowance for credit losses or impairment on these marketable securities have not been recognized as these securities are high credit quality, investment grade securities that the Company does not intend to sell and will not be required to sell prior to their anticipated recovery, and the decline in fair value is primarily due to changes in interest rates.
The cost components of the operating leases were as follows for the three months ended March 31, 2024 and 2023:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Lease Cost |
|
|
|
|
|
|
||
Operating lease expense |
|
$ |
|
|
$ |
|
||
Variable lease expense(1) |
|
|
|
|
|
|
||
Lease Term and Discount Rate |
|
|
|
|
|
|
||
Weighted average remaining lease term (years) |
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
% |
|
|
% |
||
Future minimum lease payments as of March 31, 2024 were as follows:
Year ending December 31: |
|
|||
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 and thereafter |
|
|
|
|
Total future minimum lease payments |
|
$ |
|
|
Less: imputed interest |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
|
-9-
Accounts payable and accrued expenses consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Trade payables |
|
$ |
|
|
$ |
|
||
Employee compensation, benefits, and related accruals |
|
|
|
|
|
|
||
Consulting and contracted research |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
In August 2020, the Company entered into an “at-the-market” equity offering sales agreement, amended as of March 2022, with Jefferies LLC and Stifel, Nicolaus & Company, Incorporated pursuant to which the Company may sell common shares from time to time. In January 2021, the Company sold an aggregate of
The following table summarizes the pre-funded warrants activity for the three months ended March 31, 2024 and 2023:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Outstanding, beginning of period |
|
|
|
|
|
|
||
Exercised |
|
|
|
|
|
( |
) |
|
Outstanding, end of period |
|
|
|
|
|
|
||
Each pre-funded warrant is exercisable for the purchase of a common share at the holder's discretion at an exercise price of $
In January 2023, the Company issued
Stock Options
The following table presents stock option activity for the three months ended March 31, 2024 and 2023:
|
|
Three Months Ended March 31, |
|||||||||||||
|
|
2024 |
|
Weighted Average |
|
|
2023 |
|
Weighted Average |
|
|
||||
Outstanding, beginning of period |
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised(1) |
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
||
Forfeited, cancelled or expired |
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
||
Outstanding, end of period |
|
|
|
|
|
|
|
|
|
|
|
||||
Exercisable, end of period |
|
|
|
|
|
|
|
|
|
|
|
||||
-10-
The fair value of each stock option granted is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Average risk-free interest rate |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Average expected term (in years) |
|
|
|
|
|
|
||
Expected dividend yield |
|
|
% |
|
|
% |
||
Weighted average fair value of stock options granted |
|
$ |
|
|
$ |
|
||
Performance Share Units
In March 2024,
In April 2017, the Company acquired azetukalner (XEN1101) from 1st Order pursuant to an asset purchase agreement. In August 2020, the Company and 1st Order amended the asset purchase agreement to amend certain definitions in the agreement and to modify the payment schedule for certain milestones. Through March 31, 2024, the Company has paid $
The Company has entered into license and research agreements with third parties that include indemnification provisions that are customary in the industry. These indemnification provisions generally require the Company to compensate the other party for certain damages and costs incurred as a result of third-party claims or damages arising from these transactions.
The maximum amount of potential future indemnification is unlimited; however, the Company currently holds commercial and product liability insurance. This insurance limits the Company’s exposure and may enable it to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such agreements and the Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented.
-11-
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section should be read in conjunction with our unaudited interim consolidated financial statements and related notes included in Part I, Item 1 of this report and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on February 29, 2024 and with the securities commissions in British Columbia, Alberta and Ontario on February 29, 2024.
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and Canadian securities laws. The words or phrases “would be,” “will allow,” “intends to,” “may,” “believe,” “plan,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to:
-12-
These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law. In this report, “we,” “our,” “us,” “Xenon,” and “the Company” refer to Xenon Pharmaceuticals Inc. and its subsidiary. Unless otherwise noted, all dollar amounts in this report are expressed in United States dollars.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
Overview
We are a neuroscience-focused biopharmaceutical company committed to improving the lives of people living with neurological and psychiatric disorders. We are advancing a novel product pipeline to address areas of high unmet medical need, including epilepsy and depression.
Azetukalner (XEN1101) Clinical Development Programs
We announced that the United States Adopted Names Council and the World Health Organization International Nonproprietary Names expert committee have approved “azetukalner” as the nonproprietary, or generic, name for XEN1101. Azetukalner is a novel, potent Kv7 potassium channel opener being developed for the treatment of epilepsy, major depressive disorder, and potentially other neurological disorders.
Epilepsy (Focal Onset Seizures)
Our Phase 3 epilepsy program in focal onset seizures, or FOS, includes two identical Phase 3 clinical trials, X-TOLE2 and X-TOLE3, that are designed closely after the Phase 2b X-TOLE clinical trial. These multicenter, randomized, double-blind, placebo-controlled trials are evaluating the clinical efficacy, safety, and tolerability of 15 mg or 25 mg of azetukalner administered with food as adjunctive treatment in approximately 360 patients per study with FOS. We anticipate patient enrollment in X-TOLE2 will be completed in late 2024 to early 2025.
Epilepsy (Primary Generalized Tonic-Clonic Seizures)
Our Phase 3 X-ACKT clinical trial is intended to support potential regulatory submissions in an additional epilepsy indication of primary generalized tonic-clonic seizures, or PGTCS. This multicenter, randomized, double-blind, placebo-controlled trial is evaluating the clinical efficacy, safety, and tolerability of 25 mg of azetukalner administered with food as adjunctive treatment in approximately 160 patients with PGTCS.
Epilepsy (Open-Label Extension)
Upon completion of the double-blind period in X-TOLE2, X-TOLE3, or X-ACKT, eligible patients may enter an open-label extension, or OLE, study for up to three years. In addition, the ongoing X-TOLE Phase 2b OLE has been extended from five to seven years and continues to generate important long-term data for azetukalner.
Major Depressive Disorder
In November 2023, we reported topline results from the Phase 2 proof-of-concept X-NOVA clinical trial, which evaluated the clinical efficacy, safety, and tolerability of 10 mg and 20 mg of XEN1101 in 168 patients with moderate to severe MDD. We anticipate presenting the X-NOVA topline data at the annual meeting of the American Society of Clinical Psychopharmacology taking place May 28-31, 2024 in Miami, FL.
Based on “end-of-Phase 2” interactions with the U.S. Food and Drug Administration, we continue to anticipate that the first of three Phase 3 clinical trials will be initiated in the second half of 2024.
In addition, we are collaborating with the Icahn School of Medicine at Mount Sinai to support an ongoing investigator-sponsored Phase 2 proof-of-concept, randomized, parallel-arm, placebo-controlled multi-site study of azetukalner for the treatment of MDD in approximately 60 subjects.
-13-
Other Pipeline Opportunities
We continue to leverage its extensive ion channel expertise and drug discovery capabilities to identify validated drug targets and develop new product candidates. The near-term focus is on developing Kv7 channel openers, Nav1.7 inhibitors and Nav1.1 openers, with the goal of advancing multiple candidates into IND-enabling studies in 2024 and 2025.
Partnered Program: NBI-921352
We have an ongoing collaboration with Neurocrine Biosciences to develop treatments for epilepsy. Neurocrine Biosciences has an exclusive license to XEN901, now known as NBI-921352, a selective Nav1.6 sodium channel inhibitor. A Phase 2 clinical trial is ongoing evaluating NBI-921352 in patients aged between 2 and 21 years with SCN8A developmental and epileptic encephalopathy.
We have funded our operations primarily through the sale of equity securities, funding received from our licensees and collaborators, and debt financing. To date, we have not had any products approved for sale and have not generated any revenue from product sales. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate, which we expect will take a number of years, if ever, and the outcome of which is subject to significant uncertainty.
We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We have incurred net losses in each year since inception and expect to continue to incur net losses for the foreseeable future. We had a net loss of $47.9 million and $41.7 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $713.1 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We anticipate that our operating expenses will increase substantially, particularly as we:
Financial Operations Overview
Operating Expenses
The following table summarizes our operating expenses for the three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Research and development |
|
$ |
44,250 |
|
|
$ |
39,516 |
|
General and administrative |
|
|
14,791 |
|
|
|
9,535 |
|
Total operating expenses |
|
$ |
59,041 |
|
|
$ |
49,051 |
|
Research and Development Expenses
Research and development expenses represent costs incurred to conduct development of our proprietary product candidates and our drug discovery efforts, including any acquired or in-licensed product candidates or technology, and costs to support our partnered product candidates.
Research and development expenses consist of costs incurred in performing research and development activities, including:
-14-
Project-specific expenses reflect costs directly attributable to our clinical development candidates for which we have incurred significant expenses. All remaining research and development expenses are reflected in pre-clinical, discovery and other program expenses. At any given time, we have several active early-stage research and drug discovery programs. Our personnel and infrastructure are typically deployed over multiple projects and are not directly linked to any individual internal early-stage research or drug discovery program. Therefore, we do not maintain financial information for our internal early-stage research and internal drug discovery programs on a project-specific basis.
We expense all research and development costs as incurred. Payments we make for research and development services prior to the services being rendered are recorded as prepaid assets in our consolidated balance sheets and are expensed as the services are provided. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.
We expect that our research and development expenses will increase substantially in the future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance into later stages of development and we continue to conduct clinical trials, advance our internal drug discovery programs into pre-clinical development and continue our early-stage research. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size, scope and duration of later-stage clinical trials.
Clinical development timelines, likelihood of regulatory approval, and commercialization and associated costs are uncertain, difficult to estimate, and can vary significantly. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we cannot accurately estimate or know the nature, timing and costs that will be necessary to complete the pre-clinical and clinical development for any of our product candidates or when and to what extent we may generate revenue from the commercialization and sale of any of our product candidates or achieve profitability.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related expenses, consisting of salaries, benefits and stock-based compensation for our employees engaged in executive, finance, legal, business development, commercial and administrative functions, insurance costs, professional fees for auditing, tax and legal services, costs related to maintenance and filing of intellectual property, costs incurred as we prepare for commercialization, and allocated facility-related and information technology costs not otherwise included in research and development expenses.
We expect that general and administrative expenses will increase in the future as we expand our operating activities to support our continued research activities and development of our product candidates, and as we prepare for commercialization. We will also continue to incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Other Income (Expense)
Interest income. Interest income consists of income earned on our cash and investment balances. We anticipate that our interest income will continue to fluctuate depending on our cash and investment balances and interest rates.
Unrealized fair value gain (loss) on trading securities. Trading securities are recorded at fair value. Unrealized fair value gain (loss) on trading securities is related to changes in market pricing on the investments during the period.
Foreign exchange gain (loss). Net foreign exchange gain (loss) consists of gains and losses from the impact of foreign exchange fluctuations on our monetary assets and liabilities that are denominated in currencies other than the U.S. dollar (principally the Canadian dollar). We will continue to incur substantial expenses in Canadian dollars and will remain subject to risks associated with foreign currency fluctuations.
-15-
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the U.S., or U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the revenue and expenses incurred during the reported periods. We base estimates on our historical experience, known trends and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies and significant judgments and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and significant estimates include those related to revenue recognition, research and development costs and stock-based compensation.
There have been no material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2024, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates” included in our 2023 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or SEC, and with the securities commissions in British Columbia, Alberta and Ontario, or the Canadian Securities Commissions, on February 29, 2024. We believe that the accounting policies discussed in the Annual Report are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Results of Operations
Comparison of three months ended March 31, 2024 and 2023
The following table summarizes the results of our operations for the three months ended March 31, 2024 and 2023 together with changes in those items (in thousands):
|
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Increase/(Decrease) |
|
|||
Research and development expenses |
|
|
44,250 |
|
|
|
39,516 |
|
|
|
4,734 |
|
General and administrative expenses |
|
|
14,791 |
|
|
|
9,535 |
|
|
|
5,256 |
|
Other: |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
11,355 |
|
|
|
5,423 |
|
|
|
5,932 |
|
Unrealized fair value gain on trading securities |
|
|
— |
|
|
|
1,878 |
|
|
|
(1,878 |
) |
Foreign exchange gain |
|
|
167 |
|
|
|
313 |
|
|
|
(146 |
) |
Loss before income taxes |
|
$ |
(47,519 |
) |
|
$ |
(41,437 |
) |
|
$ |
(6,082 |
) |
Research and Development Expenses
The following table summarizes research and development expenses for the three months ended March 31, 2024 and 2023 together with changes in those items (in thousands):
|
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Increase/(Decrease) |
|
|||
Direct external costs: |
|
|
|
|
|
|
|
|
|
|||
Azetukalner |
|
$ |
23,213 |
|
|
$ |
21,100 |
|
|
$ |
2,113 |
|
XEN496 |
|
|
— |
|
|
|
2,523 |
|
|
|
(2,523 |
) |
Pre-clinical, discovery and other programs |
|
|
3,661 |
|
|
|
2,640 |
|
|
|
1,021 |
|
Indirect costs: |
|
|
|
|
|
|
|
|
|
|||
Personnel-related (including stock-based |
|
|
14,362 |
|
|
|
10,733 |
|
|
|
3,629 |
|
Facilities and other unallocated research and |
|
|
3,014 |
|
|
|
2,520 |
|
|
|
494 |
|
Research and development expenses |
|
$ |
44,250 |
|
|
$ |
39,516 |
|
|
$ |
4,734 |
|
-16-
Research and development expenses increased by $4.7 million in the three months ended March 31, 2024 as compared to the same period in 2023. The increase was primarily attributable to direct external costs related to our azetukalner program as well as personnel-related costs due to increased headcount to support late-stage development and stock-based compensation expense due to an increase in the number of options granted at a higher fair value, partially offset by a decrease in spend on XEN496. The increase for our azetukalner program is driven by an increase in manufacturing activities to support current and future clinical trials and a potential NDA submission, partially offset by a decrease in direct external costs related to our X-NOVA Phase 2 MDD clinical trial which completed in 2023. The decrease in XEN496 was attributed to decreased external costs to support the EPIK clinical trial and open label extension as a result of our decision in May 2023 to no longer pursue the clinical development of XEN496.
General and Administrative Expenses
The following table summarizes general and administrative expenses for the three months ended March 31, 2024 and 2023 together with changes in those items (in thousands):
|
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Increase/(Decrease) |
|
|||
Personnel-related (including stock-based compensation) |
|
$ |
9,892 |
|
|
$ |
6,954 |
|
|
$ |
2,938 |
|
Professional and consulting fees |
|
|
3,206 |
|
|
|
1,685 |
|
|
|
1,521 |
|
Other |
|
|
1,693 |
|
|
|
896 |
|
|
|
797 |
|
General and administrative expenses |
|
$ |
14,791 |
|
|
$ |
9,535 |
|
|
$ |
5,256 |
|
General and administrative expenses increased by $5.3 million in the three months ended March 31, 2024 as compared to the same period in 2023. The increase was primarily attributable to personnel-related costs due to increased headcount to support our expanding research and development activities and stock-based compensation expense due to an increase in the number of options granted at a higher fair value, higher professional and consulting fees, and information technology costs related to our ongoing business activities.
Other Income
The following table summarizes our other income for the three months ended March 31, 2024 and 2023 together with changes in those items (in thousands):
|
|
Three Months Ended |
|
|
Change |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Increase/(Decrease) |
|
|||
Interest income |
|
$ |
11,355 |
|
|
$ |
5,423 |
|
|
$ |
5,932 |
|
Unrealized fair value gain on trading securities |
|
|
— |
|
|
|
1,878 |
|
|
|
(1,878 |
) |
Foreign exchange gain |
|
|
167 |
|
|
|
313 |
|
|
|
(146 |
) |
Other income |
|
$ |
11,522 |
|
|
$ |
7,614 |
|
|
$ |
3,908 |
|
Other income increased by $3.9 million in the three months ended March 31, 2024 as compared to the same period in 2023. The increase was primarily attributable to an increase in interest income in 2024 driven by a higher balance of marketable securities and an increase in market yields on investments. This is partially offset by a decrease in the unrealized fair value gain on trading securities as we did not hold any marketable securities classified as trading securities as of March 31, 2024.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through the sale of equity securities, funding received from collaboration and license agreements, and debt financing. Since our initial public offering through March 31, 2024, we have raised aggregate net cash proceeds of more than $1.3 billion primarily from the issuance of equity securities. As of March 31, 2024, we had cash and cash equivalents and marketable securities of $885.4 million.
Except for any obligations of our collaborators to make milestone payments under our agreements with them, we do not have any committed external sources of capital. Until such time as we can generate substantial product revenue, if ever, we expect to finance our cash needs through a combination of collaboration agreements and equity or debt financings.
-17-
We entered into an “at-the-market” equity offering sales agreement in August 2020, amended as of March 2022, with Jefferies LLC and Stifel, Nicolaus & Company, Incorporated and a new prospectus supplement was filed with the SEC on March 1, 2022, or the March 2022 ATM, pursuant to which we may sell common shares having gross proceeds of up to $250.0 million, from time to time. As of March 31, 2024, an aggregate of 855,685 common shares have been sold for proceeds of $29.5 million, net of commissions and transaction expenses.
Funding Requirements
We have incurred significant operating losses since inception. As of March 31, 2024, we had an accumulated deficit of $713.1 million. We expect to continue to incur significant expenses in excess of our revenue and expect to incur operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to incur significant expenses and increasing operating losses for the foreseeable future as we continue our research and pre-clinical and clinical development of our product candidates; expand the scope of our studies for our current and prospective product candidates; initiate additional pre-clinical, clinical or other studies for our product candidates; manufacture drug supply and drug product for clinical trials and commercialization; seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical studies; hire and retain additional personnel; seek to identify, and validate additional product candidates; acquire or in-license other product candidates and technologies; make milestone or other payments under our in-license or other agreements, including, without limitation, payments to 1st Order Pharmaceuticals, Inc and other third parties; maintain, protect and expand our intellectual property portfolio; establish a sales, marketing, distribution and other commercial infrastructure to commercialize any products for which we may obtain marketing approval; create additional infrastructure and incur additional costs to support our operations and our product development and planned future commercialization efforts; and experience any delays or encounter issues with any of the above.
Our future capital requirements are difficult to forecast and will depend on many factors, including: