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 March 31, 2021 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 juris ...

Xenon Pharmaceuticals Inc. (NASDAQ:XENE) Q4 2020 Earnings Conference Call March 1, 2021 4:30 PM ET Company Representatives Simon Pimstone - Chief Executive Officer Ian Mortimer - President, Chief Financial Officer Sherry Aulin - Vice President, Finance Jodi Regts - Investor Relations Conference Call Participants Paul Matteis - Stifel Andrew Tsai - Jefferies Marc Goodman - SVB Leerink Kenneth Shields - Wedbush Eddie Hickman - Guggenheim Serge Belanger - Needham & Company Tim Lugo - William Blair Antonia Boro ...

PART I [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements involving future expectations, projections of operational or financial conditions, and other forward-looking information, based on management's beliefs and assumptions but subject to various risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements cover various aspects including identifying new products, R&D project progress, clinical trial success rates, patient recruitment capabilities, COVID-19 impact, profitability, financing, milestone payments, commercialization strategies, intellectual property protection, regulatory requirements, product efficacy and safety, market size estimates, market acceptance, partnerships, market risks, and future financial performance[11](index=11&type=chunk)[12](index=12&type=chunk) - The company explicitly states these forward-looking statements are subject to risks and uncertainties discussed in the 'Risk Factors' section, which may cause actual results to differ materially from expectations, and the company undertakes no obligation to update or revise these statements[13](index=13&type=chunk) [Risks Factor Summary](index=4&type=section&id=Risks%20Factor%20Summary) This section outlines the company's main risks, including sustained losses, financing needs, clinical development uncertainties, regulatory approval risks, commercialization challenges, reliance on partners, third-party manufacturing risks, intellectual property protection, information security incidents, pandemic impacts, and stock price volatility - The company has incurred **significant losses since inception** and expects to continue incurring losses, potentially requiring additional financing[17](index=17&type=chunk) - Clinical drug development is a lengthy and expensive process with uncertain outcomes, potentially leading to commercialization delays or failures; clinical trials may not adequately demonstrate the safety and efficacy of product candidates[17](index=17&type=chunk) - The regulatory approval process is lengthy and unpredictable, and failure to obtain timely approval would severely harm the company's business; the company relies on third parties for preclinical studies and clinical trials, and their failure to perform could harm the business[17](index=17&type=chunk)[20](index=20&type=chunk) - The company may not obtain or maintain adequate patent protection, and information security incidents (such as cyberattacks) or health epidemics (such as COVID-19) could have a material adverse effect on its business, financial condition, and results of operations[20](index=20&type=chunk) [Business](index=5&type=section&id=Item%201.%20Business) Xenon Pharmaceuticals Inc. is a clinical-stage biopharmaceutical company focused on developing innovative therapies for neurological disorders, particularly epilepsy, advancing proprietary and partnered programs to become a fully integrated and profitable biopharmaceutical company - The company is dedicated to developing innovative therapies for neurological disorders, particularly epilepsy, with a proprietary product pipeline and collaborations with Neurocrine Biosciences, Flexion Therapeutics, and Genentech[18](index=18&type=chunk) - The company's strategic goal is to build a fully integrated and profitable biopharmaceutical company by leveraging genomics, proprietary biology, and medicinal chemistry assets, advancing science-driven clinical development, and selectively forming partnerships to expand capabilities and market opportunities[19](index=19&type=chunk)[21](index=21&type=chunk) [Our Product Candidates](index=6&type=section&id=Our%20Product%20Candidates) The company is advancing three proprietary product candidates: XEN1101 (Kv7 potassium channel modulator for epilepsy), XEN496 (pediatric formulation of Kv7 modulator for KCNQ2-DEE), and XEN007 (CNS-acting calcium channel modulator for drug-resistant childhood absence epilepsy) - XEN1101, a Kv7 potassium channel modulator for epilepsy and other neurological disorders, has completed Phase I clinical trials and is currently in a Phase IIb X-TOLE clinical trial for focal epilepsy, with top-line data expected in the **third quarter of 2021**[22](index=22&type=chunk)[24](index=24&type=chunk)[26](index=26&type=chunk) - XEN496, a pediatric formulation of ezogabine for KCNQ2-DEE, has received FDA Fast Track and Orphan Drug designations and has initiated a Phase III EPIK clinical trial, enrolling approximately **40 pediatric patients aged 1 month to under 6 years**[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) - XEN007 (active ingredient flunarizine), a CNS-acting Cav2.1 and T-type calcium channel modulator, is undergoing a physician-initiated Phase II proof-of-concept study for drug-resistant childhood absence epilepsy (CAE), with top-line results from a larger dataset expected in the **second half of 2021**[33](index=33&type=chunk) [New Pipeline Opportunities](index=8&type=section&id=New%20Pipeline%20Opportunities) The company leverages its drug discovery expertise to identify ion channel targets for developing novel modulators for epilepsy and other CNS-related indications, expanding its pipeline through internal research, acquisitions, or external licensing - The company focuses on identifying ion channel targets to develop innovative modulators for epilepsy and other CNS-related indications[35](index=35&type=chunk) - Pipeline expansion will be achieved through internal research, acquisitions, or external licensing of product candidates[35](index=35&type=chunk) [Our Partnered Programs](index=8&type=section&id=Our%20Partnered%20Programs) The company partners with Neurocrine Biosciences for NBI-921352 (Nav1.6 sodium channel inhibitor for epilepsy), Flexion Therapeutics for FX301 (Nav1.7 inhibitor for post-operative pain), and Genentech for discovering Nav1.7 selective inhibitors for pain - NBI-921352 (formerly XEN901), a selective Nav1.6 sodium channel inhibitor developed by Neurocrine Biosciences, is for SCN8A developmental and epileptic encephalopathy (SCN8A-DEE) and adult focal epilepsy, with a Phase II clinical trial for SCN8A-DEE adolescent patients expected to start in the **third quarter of 2021**[36](index=36&type=chunk)[37](index=37&type=chunk) - FX301 (formerly XEN402), a Nav1.7 inhibitor developed by Flexion Therapeutics, is for post-operative pain control; the FDA has approved its IND, and Flexion expects to initiate a Phase Ib proof-of-concept clinical trial in the **first half of 2021**[38](index=38&type=chunk) - The company collaborates with Genentech to discover and develop Nav1.7 selective oral inhibitors for pain treatment, based on discoveries from congenital insensitivity to pain[39](index=39&type=chunk) [Collaborations, Commercial and License Agreements](index=9&type=section&id=Collaborations,%20Commercial%20and%20License%20Agreements) This section details the company's collaboration, commercial, and license agreements with Neurocrine Biosciences, Flexion Therapeutics, 1st Order Pharmaceuticals, and Genentech, covering licensing scope, financial terms, exclusivity, governance, and termination conditions - The collaboration agreement with Neurocrine Biosciences includes an exclusive license for XEN901 (NBI-921352), an exclusive license for preclinical compounds, and a multi-year research collaboration. Neurocrine Biosciences paid a **$50 million upfront payment** (**$30 million cash, $20 million equity investment**) and may pay up to **$325 million in development and regulatory milestones** and up to **$150 million in sales milestones**[40](index=40&type=chunk)[41](index=41&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - The asset purchase agreement with Flexion Therapeutics for XEN402 (FX301) involved a **$3 million upfront payment** and a **$0.5 million milestone payment**. The company is eligible for up to **$7 million in additional milestones** (up to Phase II clinical trial initiation), subsequent clinical development and global regulatory approval milestones up to **$40.75 million**, commercialization milestones up to **$75 million**, and mid-to-low double-digit percentage sales royalties[60](index=60&type=chunk)[61](index=61&type=chunk) - The agreement with 1st Order Pharmaceuticals for the acquisition of XEN1101 involved an upfront payment of approximately **$0.4 million** and **$0.7 million in clinical development milestone payments**. Future potential payments include up to **$1.2 million in clinical development milestones**, **$6 million in regulatory milestones**, and **$0.5 million in other milestones**, with no royalty obligations[63](index=63&type=chunk)[65](index=65&type=chunk) - The collaboration agreement with Genentech for the discovery and development of Nav1.7 inhibitors included a **$10 million upfront payment** and **$5 million and $8 million milestone payments**. The company is eligible for up to **$613 million in additional milestones** (including preclinical, clinical, regulatory, and sales milestones) and mid-to-low single-digit percentage sales royalties[66](index=66&type=chunk)[67](index=67&type=chunk) [Intellectual Property](index=14&type=section&id=Intellectual%20Property) The company protects its competitive position through patent applications, trade secrets, and know-how, holding 32 granted US patents, approximately 21 pending US patent applications, and 227 global pending and granted corresponding applications as of December 31, 2020 - The company develops, maintains, and protects its competitive position through patent applications, trade secrets, internal know-how, and third-party agreements[71](index=71&type=chunk) - Intellectual Property Overview as of December 31, 2020 | Type | Quantity | Description | Estimated Expiration (without extensions) | | :--- | :--- | :--- | :--- | | Granted US Patents | 32 | Covering drug targets, novel compounds, methods of preparation and use, therapeutic formulations | - | | Pending US Patent Applications | ~21 | Including provisional and non-provisional applications | - | | Global Pending and Granted Corresponding Applications | 227 | Including national validations of 20 European patents | - | | XEN1101 Related Patents | 2 (US granted) | Methods of preparation and use for XEN1101 and related compounds | 2028-2029 | | XEN496 Related Patents | 1 (US non-provisional pending) | XEN496 (ezogabine pediatric formulation) and related formulations and methods of use | 2040 | | XEN007 Related Patents | 1 (US provisional pending) | Methods of using XEN007 for treating certain pediatric epilepsy disorders | 2041 | | XEN901 (NBI-921352) Related Patents | 3 (US granted) | Methods of preparation and use for XEN901 and related compounds | 2037-2041 | | Nav1.6 and/or Nav1.2 Selective Inhibitor Related Patents | 2 (US granted) | Certain selective Nav1.6 and/or Nav1.2 inhibitors and their methods of preparation and use | 2037-2039 | | Nav1.7 Inhibitor Related Patents (Co-owned with Genentech) | 9 (US granted) | Nav1.7 inhibitors and their methods of preparation and use | 2034-2037 | [Competition](index=14&type=section&id=Competition) The biotechnology and pharmaceutical industry is highly competitive, with the company facing rivals from large pharmaceutical and biotech firms and academic institutions, competing on factors like product efficacy, safety, convenience, price, and reimbursement - The biotechnology and pharmaceutical industry is highly competitive, characterized by rapid technological advancements and a strong emphasis on proprietary products[79](index=79&type=chunk) - Key competitive factors include product efficacy, safety, convenience, price, the effectiveness of alternative products, the level of competition, and coverage and adequate reimbursement from government and other third-party payors[83](index=83&type=chunk) - Currently, there are no FDA-approved specific treatments for KCNQ2-DEE or SCN8A-DEE, but various anti-seizure medications (ASMs) are in clinical development and may compete with the company's products[84](index=84&type=chunk) [Government Regulation](index=15&type=section&id=Government%20Regulation) The company's small molecule product candidates are subject to stringent regulation by the FDA and other domestic and international agencies, covering testing, manufacturing, safety, efficacy, labeling, and marketing, alongside anti-corruption, healthcare fraud, and data privacy laws - Small molecule product candidates are subject to strict regulation by the FDA and other domestic and international regulatory agencies, covering testing, manufacturing, safety, efficacy, labeling, packaging, storage, record-keeping, distribution, import/export, reporting, advertising, and promotion[85](index=85&type=chunk) - The US drug development process typically includes non-clinical laboratory testing, IND application, three phases of clinical trials (Phase I for safety, Phase II for preliminary efficacy and safety, Phase III for confirmatory efficacy and safety), and post-marketing studies[86](index=86&type=chunk)[87](index=87&type=chunk) - The FDA offers programs like Fast Track and Orphan Drug Designation to expedite drug development and review for serious or life-threatening diseases; **XEN496 has received Orphan Drug Designation**[97](index=97&type=chunk)[98](index=98&type=chunk) - Post-market, drugs remain subject to strict GMP, adverse event reporting, and advertising and promotion requirements, with violations potentially leading to market restrictions, product recalls, or civil/criminal penalties[101](index=101&type=chunk)[103](index=103&type=chunk) - The company must also comply with global anti-corruption, data privacy, and healthcare laws and regulations, such as the US Foreign Corrupt Practices Act, Canada's Corruption of Foreign Public Officials Act, HIPAA, and GDPR, with violations potentially resulting in significant fines and reputational damage[109](index=109&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) [Environmental Matters](index=25&type=section&id=Environmental%20Matters) The company's operations involve hazardous materials, subjecting it to federal, provincial, and local environmental and safety regulations, potentially incurring liability for damages and fines due to environmental contamination or exposure to hazardous substances - The company's R&D activities involve the use of hazardous materials (including biological materials) and chemicals, subject to federal, provincial, and local environmental and safety laws and regulations[134](index=134&type=chunk) - The company may incur liability for damages and fines due to environmental contamination or personal exposure to hazardous substances and cannot predict the impact of legal changes on future operations or compliance costs[134](index=134&type=chunk) [Human Capital](index=25&type=section&id=Human%20Capital) As of December 31, 2020, the company had 129 employees, with 90 in R&D, attracting and retaining talent through competitive compensation, benefits, and development opportunities, while committing to diversity, equity, and inclusion (DEI) and adapting to COVID-19 with remote work options - As of December 31, 2020, the company had **129 employees**, with **122 full-time and part-time permanent employees**, **90 primarily engaged in R&D**, and **38 holding Ph.D. or M.D. degrees**[135](index=135&type=chunk) - The company attracts and retains highly qualified personnel by offering competitive compensation, benefits (including stock options and annual bonuses), and training and development opportunities[136](index=136&type=chunk)[137](index=137&type=chunk) - The company is committed to diversity, equity, and inclusion (DEI) and has established a DEI committee; in response to the COVID-19 pandemic, it offered remote work options, suspended non-essential business travel, and implemented additional safety and infection prevention measures[138](index=138&type=chunk)[139](index=139&type=chunk) [Manufacturing](index=26&type=section&id=Manufacturing) The company relies on third-party manufacturers and partners for preclinical and clinical supply of product candidates, with plans for future commercial production, believing all necessary materials are available from multiple sources and production processes are scalable - The company currently relies on third-party manufacturers and partners for the production of product candidates required for preclinical and clinical trials, and plans to do so for future commercial production, without developing internal manufacturing facilities or hiring related personnel[140](index=140&type=chunk) - The company believes all necessary materials for its product candidates are available from multiple third-party manufacturers, and the drug substance chemical processes are readily scalable without requiring specialized equipment[141](index=141&type=chunk) [Corporate Information](index=26&type=section&id=Corporate%20Information) Xenon Pharmaceuticals Inc. was incorporated in British Columbia in 1996, later federally incorporated and renamed in 2000, with its headquarters in Burnaby, British Columbia, Canada, and its common shares traded on the Nasdaq Global Market under 'XENE' - The company was incorporated in British Columbia in **1996**, later federally incorporated and renamed Xenon Genetics Inc. in **2000**, and then Xenon Pharmaceuticals Inc. in **2004**[142](index=142&type=chunk) - The company's headquarters are located in Burnaby, British Columbia, Canada, and its common shares are traded on the Nasdaq Global Market under the ticker symbol **'XENE'**[142](index=142&type=chunk) [Where You Can Find Additional Information](index=26&type=section&id=Where%20You%20Can%20Find%20Additional%20Information) The company provides free access to its annual, quarterly, and current reports, proxy statements, and all amendments on its investor relations website, with these documents also available on the SEC and SEDAR websites - The company provides free access to its annual reports, quarterly reports, current reports, proxy statements, and all amendments on its investor relations website (http://investor.xenon-pharma.com)[143](index=143&type=chunk) - These reports are also available on the websites of the U.S. Securities and Exchange Commission (www.sec.gov) and SEDAR (www.sedar.com)[143](index=143&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks related to the company's financial condition, business operations, product development, commercialization, intellectual property, and common stock ownership, which could materially adversely affect its business, operating results, and financial condition - The company has incurred **significant losses since inception**, with a **net loss of $28.8 million** and an **accumulated deficit of $278.5 million** as of December 31, 2020, and expects to continue incurring losses and requiring additional financing[145](index=145&type=chunk) - The clinical drug development process is lengthy, expensive, and uncertain, potentially leading to clinical trial delays, failures, or terminations, which could harm the company's business and stock price[211](index=211&type=chunk) - The company relies on third-party manufacturers and partners for the production of product candidates and clinical trials, and any failure by these parties could delay or impair the company's development and commercialization capabilities[277](index=277&type=chunk)[279](index=279&type=chunk) - The company may not obtain or maintain adequate patent protection, and intellectual property infringement claims could lead to costly litigation or restrict the company's R&D and commercialization activities[286](index=286&type=chunk)[300](index=300&type=chunk) - The market price of the company's common shares may fluctuate significantly, future stock issuances could dilute existing shareholders' equity, and the company does not intend to pay cash dividends in the foreseeable future[315](index=315&type=chunk)[319](index=319&type=chunk)[333](index=333&type=chunk) [Risks Related to Our Financial Condition and Capital Requirements](index=27&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Capital%20Requirements) The company has incurred continuous losses since inception and expects to continue doing so, requiring substantial additional funding for R&D and commercialization, which may dilute existing shareholders or necessitate relinquishing rights to technology or product candidates, also facing currency fluctuation risks - Financial Loss Summary | Metric | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Net Loss | $28.8 million | $41.6 million | | Accumulated Deficit | $278.5 million | $249.7 million | - The company expects to continue incurring substantial expenses and operating losses to advance product candidate development, seek regulatory approvals, maintain intellectual property, and establish commercialization infrastructure[147](index=147&type=chunk) - The company will likely need to raise additional capital, which could result in **significant dilution to existing shareholders' equity** or require the company to relinquish rights to certain technologies or product candidates[150](index=150&type=chunk)[158](index=158&type=chunk) - The company faces risks related to currency fluctuations, particularly Canadian dollar expenditures, and currently does not hedge against foreign exchange risks[159](index=159&type=chunk) [Risks Related to Our Business and Industry](index=31&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) The company faces intense market competition, lacks experience in late-stage clinical development and commercialization, and risks from failing to attract key talent, employee misconduct, managing growth, information security incidents, international operations, and pandemic impacts - The biotechnology and pharmaceutical industry is highly competitive, with the company facing competition from large pharmaceutical, biotechnology companies, academic institutions, and other sources, where competitors may possess greater financial resources, R&D experience, and market expertise[163](index=163&type=chunk)[165](index=165&type=chunk) - The company has no proprietary products on the market and has not completed Phase III clinical trials, making it difficult to assess its ability to independently develop and commercialize product candidates[169](index=169&type=chunk) - Failure to attract and retain senior management and key personnel, as well as employee misconduct (including non-compliance with regulatory standards and insider trading), could harm the company's business[173](index=173&type=chunk)[176](index=176&type=chunk) - Information security incidents (such as cyberattacks, system failures) or public health epidemics (such as COVID-19) could disrupt company operations, leading to data loss, increased costs, and reputational damage[182](index=182&type=chunk)[186](index=186&type=chunk) [Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates](index=39&type=section&id=Risks%20Related%20to%20Development,%20Clinical%20Testing%20and%20Regulatory%20Approval%20of%20Our%20Product%20Candidates) The regulatory approval process for product candidates is lengthy, costly, and unpredictable, potentially leading to delays or failures, with clinical trial results not always proving safety or efficacy, and difficulties in patient recruitment, especially for rare indications, alongside risks of losing orphan drug designation - The approval process by the FDA, EMA, Health Canada, and other regulatory agencies is lengthy, time-consuming, and unpredictable, potentially leading to delays or complete failure in obtaining approval for the company's product candidates[207](index=207&type=chunk) - Clinical drug development is an expensive process with uncertain outcomes, and clinical trials may be suspended or delayed due to safety risks, difficulties in patient recruitment, non-compliance by third-party contractors, changes in regulatory requirements, or insufficient funding[211](index=211&type=chunk)[212](index=212&type=chunk) - Results from preclinical studies and early-stage clinical trials may not predict the results of later-stage clinical trials, and regulatory agencies may disagree with the company's interpretation of data or require additional clinical trials[231](index=231&type=chunk)[232](index=232&type=chunk) - The company may face difficulties recruiting sufficient patients for clinical studies, especially for ultra-rare, orphan, or niche indications, which could delay or prevent clinical studies of product candidates[225](index=225&type=chunk) - Failure to obtain or maintain orphan drug designation or other regulatory exclusivity would harm the company's competitive position, as this could lead to shorter market exclusivity periods or competitors obtaining approval for similar products[228](index=228&type=chunk)[229](index=229&type=chunk) [Risks Related to Commercialization](index=45&type=section&id=Risks%20Related%20to%20Commercialization) The company if unable to establish its own sales, marketing, and distribution capabilities or secure agreements, may fail to successfully commercialize future products independently, facing ongoing regulatory obligations, unfavorable pricing, and challenging third-party coverage and reimbursement policies even after approval - The company currently lacks sales or marketing infrastructure, and if it fails to establish or partner with third parties, it may not successfully commercialize future products independently, facing risks related to hiring, market acceptance, costs, and competition[241](index=241&type=chunk)[242](index=242&type=chunk) - Even if products receive regulatory approval, they will face ongoing regulatory obligations and scrutiny, including GMP compliance, adverse event reporting, advertising and promotion restrictions, and potentially expensive post-marketing trials[245](index=245&type=chunk)[246](index=246&type=chunk) - If the market opportunity for product candidates is smaller than anticipated, or if the company fails to successfully identify patients and gain significant market share, its revenue could be adversely affected[250](index=250&type=chunk)[251](index=251&type=chunk) - Unfavorable pricing regulations and challenging third-party coverage and reimbursement policies could harm the company's business, especially for orphan and niche indications requiring higher pricing to offset lower sales volumes[252](index=252&type=chunk)[254](index=254&type=chunk) - Recent and future healthcare legislation, such as the Affordable Care Act (PPACA) and its ongoing legal challenges, may increase the difficulty and cost of commercializing products and affect the pricing available to the company[255](index=255&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk) [Risks Related to Our Dependence on Third Parties](index=49&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third%20Parties) The successful development and commercialization of product candidates heavily rely on partners' R&D and marketing efforts, with limited company control over resources and decisions, and any failure by third-party manufacturers or CROs could lead to delays, increased costs, or unreliable data - The successful development and commercialization of the company's product candidates depend on the R&D and marketing efforts of partners (such as Neurocrine Biosciences, Flexion, and Genentech), with the company having limited control over their resource allocation and decisions[264](index=264&type=chunk) - The collaboration with Neurocrine Biosciences is critical, as it controls the development and commercialization of NBI-921352; if Neurocrine Biosciences underperforms, terminates the agreement, or changes priorities, it would have a material adverse effect on the company's business[267](index=267&type=chunk)[273](index=273&type=chunk) - The company relies on third-party manufacturers for clinical product candidates and commercial supply, and any failure by a manufacturer to provide compliant supply could delay or impair the company's ability to initiate or complete clinical trials, obtain regulatory approval, or commercialize approved products[277](index=277&type=chunk) - The company relies on third parties (including CROs) for preclinical studies and clinical trials; if these third parties fail to successfully perform their contractual obligations, comply with regulations, or meet expected timelines, the company's business could be severely harmed[279](index=279&type=chunk)[280](index=280&type=chunk) [Risks Related to Intellectual Property](index=53&type=section&id=Risks%20Related%20to%20Intellectual%20Property) The company's commercial success depends on patent and intellectual property protection, but it may fail to obtain or maintain adequate protection, granted patents could be invalidated, and global IP rights vary, potentially leading to costly litigation or inability to use certain technologies - The company's commercial success depends on obtaining and maintaining patent and other intellectual property protection for its product candidates, but patent applications may not be granted, and granted patents may be found invalid or unenforceable[286](index=286&type=chunk) - The company may not be able to protect its intellectual property globally, as laws in some countries (especially developing countries) offer less protection for patents, trade secrets, and other intellectual property[290](index=290&type=chunk) - The company may become involved in litigation to protect or enforce its patents, which could be time-consuming, expensive, and have uncertain outcomes, potentially leading to patents being found invalid, unenforceable, or narrowly construed[297](index=297&type=chunk) - Third parties may claim that the company's product candidates infringe their patents or other intellectual property rights, leading to costly litigation or requiring the company to pay license fees or royalties[300](index=300&type=chunk)[306](index=306&type=chunk) - Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information, thereby harming the company's competitive position[309](index=309&type=chunk) [Risks Related to Ownership of Our Common Shares](index=59&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Shares) The market price of the company's common shares may fluctuate significantly due to various factors, future stock sales could dilute equity, corporate charter and Canadian law provisions may hinder acquisition, and the company does not plan to pay cash dividends in the foreseeable future - The market price of the company's common shares may fluctuate significantly, influenced by factors such as product development progress, regulatory decisions, competition, financial performance, macroeconomic conditions, and securities analyst recommendations[315](index=315&type=chunk)[316](index=316&type=chunk) - Future sales and issuances of common shares, preferred shares, or convertible securities could result in **substantial dilution to existing shareholders' equity** and may cause the market price of common shares to decline[319](index=319&type=chunk)[330](index=330&type=chunk) - Provisions in the company's articles and Canadian law may make it more difficult for the company to be acquired and could prevent shareholders from replacing management or limit the market price of common shares[320](index=320&type=chunk)[321](index=321&type=chunk) - The company does not intend to pay any cash dividends in the foreseeable future, and investors' future returns will primarily depend on capital appreciation of common shares[333](index=333&type=chunk) [General Risk Factors](index=63&type=section&id=General%20Risk%20Factors) This section addresses general risks that could impact the company's business and financial condition, including unstable market and economic conditions, failure to maintain effective internal controls over financial reporting, the influence of environmental, social, and governance (ESG) matters, and the impact of analyst research reports - Unstable market and economic conditions (including the COVID-19 pandemic) could have a material adverse effect on the company's business and financial condition, making financing more difficult and expensive[335](index=335&type=chunk) - Failure to maintain effective internal control over financial reporting could lead to inaccurate financial reporting or inability to prevent fraud, thereby harming investor confidence and the company's stock price[336](index=336&type=chunk)[337](index=337&type=chunk) - Environmental, social, and governance (ESG) matters may affect the company's business and reputation, and failure to successfully manage these issues or meet expectations could have a material adverse effect on the company[338](index=338&type=chunk)[340](index=340&type=chunk) [Unresolved Staff Comments](index=64&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - The company has no unresolved staff comments[344](index=344&type=chunk) [Properties](index=64&type=section&id=Item%202.%20Properties) The company's headquarters in Burnaby, British Columbia, Canada, leases approximately 51,404 square feet of office and laboratory space until June 2022, deeming current facilities sufficient for near-term needs with future expansion available on commercially reasonable terms - The company's headquarters are located in Burnaby, British Columbia, Canada, leasing approximately **51,404 square feet** of office and laboratory space[345](index=345&type=chunk) - The lease term extends to **June 2022**, with monthly payments of approximately **$113,689** for basic rent, property taxes, common area maintenance, and management fees[345](index=345&type=chunk) - The company believes its existing facilities are sufficient for near-term business needs, and additional space can be obtained on commercially reasonable terms in the future[346](index=346&type=chunk) [Legal Proceedings](index=64&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business, financial condition, operating results, or cash flows, though it acknowledges potential costs and management distraction from litigation - The company is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business, financial condition, operating results, or cash flows[347](index=347&type=chunk) - Regardless of the outcome, litigation could adversely affect the company due to defense and settlement costs, and diversion of management resources[347](index=347&type=chunk) [Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable - Mine safety disclosures are not applicable[348](index=348&type=chunk) PART II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=65&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common shares trade on the Nasdaq Global Market under 'XENE', with approximately 142 registered holders as of February 26, 2021, and no cash dividends declared or paid, with future earnings to be reinvested in business growth - The company's common shares have been traded on the Nasdaq Global Market since **November 5, 2014**, under the ticker symbol **'XENE'**[350](index=350&type=chunk) - As of **February 26, 2021**, there were approximately **142 registered holders** of common shares[351](index=351&type=chunk) - The company has never declared or paid any cash dividends and currently expects to retain all available funds and future earnings for business operations and development for the foreseeable future[352](index=352&type=chunk) - Canadian non-resident common share holders will be subject to a **25% Canadian withholding tax** on dividends received, which may be reduced under a tax treaty[353](index=353&type=chunk) [Selected Financial Data](index=66&type=section&id=Item%206.%20Selected%20Financial%20Data) As a smaller reporting company, the company is not required to provide the selected financial data requested by this item - As a smaller reporting company, the company is not required to provide selected financial data[358](index=358&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=67&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's 2020 financial condition and operating results, highlighting its business overview, proprietary and partnered program progress, revenue sources, operating expenses, other income/expenses, key accounting policies, liquidity, capital resources, and cash flow, noting revenue growth but continued losses and significant future R&D investment - The company is a clinical-stage biopharmaceutical company focused on developing innovative therapies for neurological disorders, particularly epilepsy[360](index=360&type=chunk) - Key Financial Data for 2020 and 2019 (Thousands of US Dollars) | Metric | December 31, 2020 | December 31, 2019 | Change (2020 vs 2019) | | :--- | :--- | :--- | :--- | | Revenue | $32,166 | $6,829 | Increase $25,337 | | Research and Development Expenses | $50,523 | $38,845 | Increase $11,678 | | General and Administrative Expenses | $12,944 | $10,803 | Increase $2,141 | | Operating Loss | $(31,301) | $(42,819) | Decrease $11,518 | | Net Loss | $(28,837) | $(41,595) | Decrease $12,758 | | Accumulated Deficit | $(278,492) | $(249,655) | Increase $28,837 | | Cash, Cash Equivalents, and Marketable Securities | $177,000 | $141,358 | Increase $35,642 | - The company expects to continue incurring substantial expenses and operating losses over the next **12 to 24 months**, primarily to advance product candidate development, seek regulatory approvals, maintain intellectual property, and establish commercialization infrastructure[366](index=366&type=chunk)[367](index=367&type=chunk) [Overview](index=67&type=section&id=Overview) The company, a clinical-stage biopharmaceutical firm focused on neurological disorders, particularly epilepsy, outlines progress on proprietary (XEN1101, XEN496, XEN007) and partnered (NBI-921352, FX301) programs, summarizing 2020 financial performance with revenue growth but continued losses and anticipated substantial future R&D investment - The Phase IIb X-TOLE clinical trial for XEN1101 is expected to complete patient randomization in the **first half of 2021**, with top-line data anticipated in the **third quarter of 2021**. The Phase III EPIK clinical trial for XEN496 has been initiated, and the Phase II clinical trial for NBI-921352 is expected to start in the **third quarter of 2021**[362](index=362&type=chunk)[366](index=366&type=chunk) - Financial Overview for 2020 and 2019 (Thousands of US Dollars) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenue | $32,200 | $6,800 | | Net Loss | $28,800 | $41,600 | | Accumulated Deficit (as of December 31) | $278,500 | $249,700 | - The company expects to continue incurring substantial expenses and operating losses over the next **12 to 24 months**, primarily to advance product candidate development, seek regulatory approvals, maintain intellectual property, and establish commercialization infrastructure[366](index=366&type=chunk)[367](index=367&type=chunk) [Financial Operations Overview](index=69&type=section&id=Financial%20Operations%20Overview) The company's 2020 revenue significantly increased to $32.2 million, primarily from the Neurocrine Biosciences agreement, while R&D expenses rose to $50.5 million for XEN1101 and XEN496, and general and administrative expenses increased to $12.9 million due to equity compensation and personnel growth, with other income affected by foreign exchange gains and loan repayment losses - Collaboration Revenue for 2020 and 2019 (Thousands of US Dollars) | Collaborator | 2020 | 2019 | | :--- | :--- | :--- | | Neurocrine Biosciences (Transaction Price Recognition) | $26,810 | $2,881 | | Neurocrine Biosciences (R&D Services) | $5,356 | $448 | | Flexion (Transaction Price Recognition) | — | $3,000 | | Flexion (Milestone Payments) | — | $500 | | **Total Collaboration Revenue** | **$32,166** | **$6,829** | - Operating Expenses for 2020 and 2019 (Thousands of US Dollars) | Expense Type | 2020 | 2019 | | :--- | :--- | :--- | | Research and Development Expenses | $50,523 | $38,845 | | General and Administrative Expenses | $12,944 | $10,803 | | **Total Operating Expenses** | **$63,467** | **$49,648** | - R&D expenses increased by **$11.7 million**, primarily due to increased clinical development expenditures for XEN1101 and XEN496, partially offset by reduced expenditures for XEN901 (NBI-921352)[396](index=396&type=chunk) - General and administrative expenses increased by **$2.1 million**, primarily due to higher share-based compensation expense, increased salaries and benefits from higher headcount, and increased insurance premiums[397](index=397&type=chunk) - Other income increased by **$1.0 million**, driven by higher foreign exchange gains and reduced interest expense (due to term loan repayment in May 2020), partially offset by a one-time loss on term loan repayment[398](index=398&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=71&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) The company's financial statements, prepared under U.S. GAAP, involve significant management estimates and assumptions, with key accounting policies covering revenue recognition (five-step model, probability assessment for milestones), R&D costs (expensed as incurred, accrued based on vendor performance), and share-based compensation (Black-Scholes model), all potentially influenced by the COVID-19 pandemic - Key accounting estimates include revenue recognition, research and development costs, and share-based compensation[386](index=386&type=chunk) - Revenue recognition employs a five-step model, assessing and allocating multiple performance obligations in collaboration agreements, with milestone payments recognized when it is probable that a significant revenue reversal will not occur[388](index=388&type=chunk)[389](index=389&type=chunk) - Research and development costs are expensed as incurred and accrued or prepaid based on the proportion of services performed by vendors such as contract research organizations and contract development and manufacturing organizations[390](index=390&type=chunk)[391](index=391&type=chunk) - Share-based compensation is estimated using the Black-Scholes option pricing model to determine fair value, requiring estimates for assumptions such as expected life and expected volatility[392](index=392&type=chunk)[393](index=393&type=chunk) - The potential impact of the COVID-19 pandemic on business, operating results, and financial condition, including revenue, expenses, and R&D and clinical development plans and timelines, depends on highly uncertain future developments[440](index=440&type=chunk) [Results of Operations](index=72&type=section&id=Results%20of%20Operations) In 2020, revenue increased by $25.3 million from 2019, primarily due to the Neurocrine Biosciences agreement, while R&D expenses rose by $11.7 million for XEN1101 and XEN496, general and administrative expenses increased by $2.1 million due to equity compensation and personnel, and other income grew by $1.0 million from foreign exchange gains and reduced interest expense, partially offset by a loan repayment loss - Comparison of Operating Results for 2020 and 2019 (Thousands of US Dollars) | Metric | 2020 | 2019 | Change (Increase/(Decrease)) | | :--- | :--- | :--- | :--- | | Revenue | $32,166 | $6,829 | $25,337 | | Research and Development Expenses | $50,523 | $38,845 | $11,678 | | General and Administrative Expenses | $12,944 | $10,803 | $2,141 | | Interest Income | $2,283 | $2,353 | $(70) | | Interest Expense | $(484) | $(1,434) | $950 | | Foreign Exchange Gain | $1,396 | $282 | $1,114 | | Loss on Repayment of Term Loan | $(988) | — | $(988) | | Loss Before Income Taxes | $(29,094) | $(41,618) | $12,524 | - The increase in **2020 revenue** is primarily attributable to the recognition of deferred revenue and revenue from R&D services under the license and collaboration agreement with Neurocrine Biosciences[395](index=395&type=chunk) - The increase in **R&D expenses** is primarily due to increased clinical development expenditures for XEN1101 and XEN496, partially offset by reduced expenditures for XEN901 (NBI-921352)[396](index=396&type=chunk) - The increase in **general and administrative expenses** is primarily due to higher share-based compensation expense, increased salaries and benefits from higher headcount, and increased insurance premiums[397](index=397&type=chunk) - The increase in **other income** is driven by higher foreign exchange gains and reduced interest expense, partially offset by a one-time loss on term loan repayment[398](index=398&type=chunk) [Liquidity and Capital Resources](index=73&type=section&id=Liquidity%20and%20Capital%20Resources) The company primarily funds its cash needs through collaboration and license agreements, equity and debt financing, and government grants, holding $177 million in cash, cash equivalents, and marketable securities as of December 31, 2020, despite accumulated deficits of $278.5 million, expecting existing funds to support operations for at least 12 months, with future capital needs remaining uncertain - The company primarily meets its cash needs through collaboration and license agreements, equity and debt financing, and government grants[399](index=399&type=chunk) - Liquidity Overview (Thousands of US Dollars) | Metric | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and Cash Equivalents and Marketable Securities | $177,000 | $141,358 | | Net Loss | $(28,837) | $(41,595) | | Accumulated Deficit | $(278,492) | $(249,655) | - The company expects its existing cash, cash equivalents, and marketable securities to be sufficient to fund its operating expenses and capital expenditure requirements for at least the **next 12 months**[404](index=404&type=chunk) - Future capital requirements are difficult to predict and will depend on various factors, including the number and characteristics of product candidates, R&D progress and costs, whether existing collaborations generate milestone payments and royalties, the timing and cost of regulatory approvals, commercialization costs, manufacturing costs, intellectual property maintenance costs, and future product sales[403](index=403&type=chunk) [Cash Flows](index=75&type=section&id=Cash%20Flows) In 2020, net cash used in operating activities increased to $48.1 million, primarily due to 2019 upfront payments offsetting some expenditures and increased 2020 clinical development spending for proprietary product candidates. Net cash used in investing activities decreased to $16.8 million due to reduced marketable securities purchases. Net cash provided by financing activities increased to $85.8 million, mainly from common stock issuance proceeds, partially offset by term loan repayment - Cash Flow Summary for 2020 and 2019 (Thousands of US Dollars) | Activity Type | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(48,124) | $(4,714) | | Net Cash Used in Investing Activities | $(16,824) | $(66,209) | | Net Cash Provided by Financing Activities | $85,795 | $27,518 | | Cash and Cash Equivalents, End of Period | $45,009 | $24,755 | - Net cash used in operating activities increased, primarily due to upfront payments received from Neurocrine Biosciences and Flexion in **2019** partially offsetting expenditures in that year, and increased clinical development expenditures for proprietary product candidates in **2020**[406](index=406&type=chunk) - Net cash used in investing activities decreased, primarily driven by a reduction in net purchases of marketable securities[407](index=407&type=chunk) - Net cash provided by financing activities increased, primarily related to increased net proceeds from the issuance of common shares, partially offset by the repayment of a term loan[408](index=408&type=chunk) [Contractual Obligations](index=75&type=section&id=Contractual%20Obligations) As a smaller reporting company, the company is not required to provide contractual obligations information but discloses specific commitments including a $7 million priority access agreement with Medpace, low single-digit percentage net sales royalties for XEN007, potential future milestone payments up to $7.7 million for XEN1101, and tiered low single-digit percentage royalties to Genentech for certain Nav1.6 compounds - The company has a priority access agreement with Medpace Inc., committing to **$7 million** in clinical development services, with **$3.651 million** remaining as of December 31, 2020, after receiving **$3.349 million** in services[410](index=410&type=chunk) - The license, manufacturing, and supply agreement for XEN007 requires the company to pay **low single-digit percentage royalties** on net sales[411](index=411&type=chunk) - The asset purchase agreement for XEN1101 involves potential future milestone payments, including up to **$1.2 million in clinical development milestones**, **$6 million in regulatory milestones**, and **$0.5 million in other milestones**, with **$0.3 million** already paid[412](index=412&type=chunk) - The agreement with Genentech stipulates that the company must pay **tiered low single-digit percentage royalties** to Genentech on net sales of certain Nav1.6 compounds, including NBI-921352[414](index=414&type=chunk) [Inflation](index=76&type=section&id=Inflation) The company believes inflation has not materially impacted its business, financial condition, or results of operations over the past three fiscal years - The company believes inflation has not materially impacted its business, financial condition, or results of operations over the **past three fiscal years**[415](index=415&type=chunk) [Off-Balance Sheet Arrangements](index=76&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has not engaged in any off-balance sheet financing activities and does not hold any variable interest entities - The company has not engaged in any off-balance sheet financing activities and does not hold any variable interest entities[416](index=416&type=chunk) [Related Party Transactions](index=76&type=section&id=Related%20Party%20Transactions) Descriptions of related party transactions are provided in the “Certain Relationships and Related Transactions, and Director Independence” section - Descriptions of related party transactions are provided in the 'Certain Relationships and Related Transactions, and Director Independence' section[417](index=417&type=chunk) [Outstanding Share Data](index=76&type=section&id=Outstanding%20Share%20Data) As of February 26, 2021, the company had 35,809,247 common shares, 4,680,377 stock options, and 1,016,000 Series 1 preferred shares outstanding, with Series 1 preferred shares convertible to common shares on a one-to-one basis, subject to beneficial ownership limitations - Outstanding Share Data as of February 26, 2021 | Security Type | Quantity | | :--- | :--- | | Common Shares | 35,809,247 | | Stock Options | 4,680,377 | | Series 1 Preferred Shares | 1,016,000 | - Series 1 preferred shares are convertible to common shares on a one-to-one basis, subject to a limitation that the holder and its affiliates may not beneficially own more than **9.99%** of the total common shares outstanding after conversion[417](index=417&type=chunk) [Recent Accounting Pronouncements](index=77&type=section&id=Recent%20Accounting%20Pronouncements) The company has evaluated FASB-issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," and determined it will not materially impact its consolidated financial statements - The company has evaluated ASU 2019-12, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,' and determined it will not materially impact its consolidated financial statements[418](index=418&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=77&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk requested by this item - As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk[419](index=419&type=chunk) [Financial Statements and Supplementary Data](index=78&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's consolidated financial statements as of December 31, 2020, and 2019, including the independent registered public accounting firm's report, consolidated balance sheets, statements of operations and comprehensive loss, statements of shareholders' equity, statements of cash flows, and notes to consolidated financial statements - This section includes the company's consolidated financial statements as of December 31, 2020, and 2019, comprising the independent registered public accounting firm's report, consolidated balance sheets, statements of operations and comprehensive loss, statements of shareholders' equity, statements of cash flows, and notes to consolidated financial statements[421](index=421&type=chunk) [Reports of Independent Registered Public Accounting Firm](index=79&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP, as the independent registered public accounting firm, issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2020, and 2019, affirming fair presentation in all material respects according to U.S. GAAP, with no critical audit matters identified - KPMG LLP issued an **unqualified opinion** on the company's consolidated financial statements as of December 31, 2020, and 2019, affirming fair presentation in all material respects according to U.S. GAAP[423](index=423&type=chunk) - No critical audit matters were identified during the audit[427](index=427&type=chunk) [Consolidated Balance Sheets](index=80&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2020, the company's total assets increased to $189.2 million from $147.7 million in 2019, with cash, cash equivalents, and marketable securities totaling $177 million, while total liabilities significantly decreased to $17.8 million from $55.7 million, primarily due to term loan repayment and deferred revenue recognition, and shareholders' equity rose to $171.4 million - Consolidated Balance Sheets Summary (Thousands of US Dollars) | Metric | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and Cash Equivalents | $45,009 | $24,755 | | Marketable Securities | $131,988 | $116,603 | | Total Assets | $189,186 | $147,697 | | **Liabilities** | | | | Accounts Payable and Accrued Expenses | $10,874 | $8,818 | | Deferred Revenue | $3,642 | $29,743 | | Term Loan | — | $15,539 | | Total Liabilities | $17,831 | $55,720 | | **Shareholders' Equity** | | | | Total Shareholders' Equity | $171,355 | $91,977 | - Total liabilities significantly decreased from **$55.7 million in 2019** to **$17.8 million in 2020**, primarily due to the repayment of the term loan and the recognition of deferred revenue[429](index=429&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss](index=81&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) In 2020, the company's revenue was $32.17 million, a significant increase from $6.83 million in 2019, with total operating expenses of $63.47 million resulting in an operating loss of $31.30 million, and a net loss of $28.84 million, narrowed from $41.60 million in 2019, leading to a basic and diluted net loss per share of $0.81 - Consolidated Statements of Operations and Comprehensive Loss Summary (Thousands of US Dollars, except per share amounts) | Metric | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Revenue | $32,166 | $6,829 | | Research and Development Expenses | $50,523 | $38,845 | | General and Administrative Expenses | $12,944 | $10,803 | | Operating Loss | $(31,301) | $(42,819) | | Interest Income | $2,283 | $2,353 | | Interest Expense | $(484) | $(1,434) | | Foreign Exchange Gain | $1,396 | $282 | | Loss on Repayment of Term Loan | $(988) | — | | Loss Before Income Taxes | $(29,094) | $(41,618) | | Net Loss and Comprehensive Loss | $(28,837) | $(41,595) | | Basic and Diluted Net Loss Per Share | $(0.81) | $(1.54) | - The **net loss in 2020 narrowed** compared to 2019, primarily due to significant revenue growth and reduced interest expense, despite a one-time loss on term loan repayment[430](index=430&type=chunk) [Consolidated Statements of Shareholders' Equity](index=82&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) As of December 31, 2020, the company's total shareholders' equity significantly increased to $171.4 million from $91.98 million in 2019, driven by a $103.5 million increase in common stock from new issuances and a $4.71 million increase in additional paid-in capital from share-based compensation, while the accumulated deficit grew by $28.84 million to $278.5 million - Consolidated Statements of Shareholders' Equity Summary (Thousands of US Dollars, except share amounts) | Metric | December 31, 2019 | December 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Convertible Preferred Shares | $7,732 | $7,732 | $0 | | Common Shares | $294,244 | $397,748 | $103,504 | | Additional Paid-in Capital | $40,646 | $45,357 | $4,711 | | Accumulated Deficit | $(249,655) | $(278,492) | $(28,837) | | Accumulated Other Comprehensive Loss | $(990) | $(990) | $0 | | **Total Shareholders' Equity** | **$91,977** | **$171,355** | **$79,378** | - The **common stock amount increased by $102.5 million in 2020**, primarily from net proceeds from the issuance of common shares[432](index=432&type=chunk) - Additional paid-in capital increased by **$5.677 million**, primarily from share-based compensation expense[432](index=432&type=chunk) [Consolidated Statements of Cash Flows](index=83&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In 2020, net cash used in operating activities was $48.12 million, net cash used in investing activities was $16.82 million, and net cash provided by financing activities was $85.80 million, resulting in an increase in cash and cash equivalents to $45.01 million at year-end from $24.76 million at the end of 2019 - Consolidated Statements of Cash Flows Summary (Thousands of US Dollars) | Activity Type | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(48,124) | $(4,714) | | Net Cash Used in Investing Activities | $(16,824) | $(66,209) | | Net Cash Provided by Financing Activities | $85,795 | $27,518 | | Cash and Cash Equivalents, End of Period | $45,009 | $24,755 | - Net cash used in operating activities increased, primarily due to upfront payments received in **2019** partially offsetting expenditures, and increased clinical development expenditures for proprietary product candidates in **2020**[406](index=406&type=chunk) - Net cash used in investing activities decreased, primarily driven by a reduction in net purchases of marketable securities[407](index=407&type=chunk) - Net cash provided by financing activities increased, primarily related to increased net proceeds from the issuance of common shares, partially offset by the repayment of a term loan[408](index=408&type=chunk) [Notes to Consolidated Financial Statements](index=84&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to the consolidated financial statements, covering the company's business nature, basis of presentation, significant accounting policies (including revenue recognition, R&D costs, share-based compensation), accounting policy changes, future accounting pronouncements, net earnings (loss) per share calculation, property, plant and equipment, leases, accounts payable and accrued expenses, term loan, share capital, concentrations of market risk, collaboration agreements, commitments and contingencies, and income taxes - The company has incurred **continuous losses since inception**, with an **accumulated deficit of $278.5 million** as of December 31, 2020, and expects to continue incurring losses and requiring additional financing[436](index=436&type=chunk) - Revenue recognition employs a five-step model, with milestone payments recognized when it is probable that a significant revenue reversal will not occur. R&D costs are expensed as incurred. Share-based compensation is estimated using the Black-Scholes model to determine fair value[446](index=446&type=chunk)[449](index=449&type=chunk)[451](index=451&type=chunk) - In **May 2020**, the company repaid its **$15.5 million term loan** with Silicon Valley Bank early, recording a **$0.988 million loss** on repayment[467](index=467&type=chunk) - As of December 31, 2020, the company held **$45.01 million in cash and cash equivalents** and **$132 million in marketable securities**. The company faces Canadian dollar foreign exchange risk but currently does not hedge[485](index=485&type=chunk)[487](index=487&type=chunk) - As of December 31, 2020, the company had **$29.58 million in unclaimed scientific research and experimental development tax credits**, **$24.31 million in investment tax credits**, and **$35.80 million in non-capital loss carryforwards**[513](index=513&type=chunk)[514](index=514&type=chunk)[515](index=515&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=98&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in accountants or disagreements with accountants on accounting and financial disclosure - The company has no changes in accountants or disagreements with accountants on accounting and financial disclosure[518](index=518&type=chunk) [Controls and Procedures](index=98&type=section&id=Item%209A.%20Controls%20and%20Procedures) The company management (including the CEO and CFO) assessed the effectiveness of disclosure controls and procedures and internal control over financial reporting as of December 31, 2020, and concluded that these controls were effective in design and operation, with no material changes during the reporting period - Company management assessed the effectiveness of disclosure controls and procedures and internal control over financial reporting as of December 31, 2020[519](index=519&type=chunk)[521](index=521&type=chunk) - Management concluded that, as of December 31, 2020, the company's disclosure controls and procedures were effective at a reasonable assurance level[520](index=520&type=chunk) - No material changes occurred in internal control over financial reporting during the three months ended December 31, 2020[524](index=524&type=chunk) [Other Information](index=101&type=section&id=Item%209B.%20Other%20Information) The company has established a written code of conduct applicable to all directors, officers, and employees, available on its website and SEDAR - The company has established a written code of conduct applicable to all directors, officers, and employees[525](index=525&type=chunk) - The code of conduct is available on the company's investor relations website (http://www.xenon-pharma.com) and SEDAR (www.sedar.com)[525](index=525&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=102&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) The information

Xenon Pharmaceuticals Inc. (NASDAQ:XENE) Q3 2020 Earnings Conference Call November 5, 2020 4:30 PM ET Company Participants Jodi Regts - Investor Relations Simon Pimstone - President and Chief Executive Officer Ian Mortimer - President and Chief Financial Officer Conference Call Participants Andrew Tsai - Jefferies Eddie Hickman - Guggenheim Tim Lugo - William Blair Kenneth Shield - Wedbush Securities Marc Goodman - SVB Leerink Operator Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Canada 98-0661854 (State or other jurisdiction of incorporation or organization) 200-3650 Gilmore Way Burnaby, British Columbia, Canada V5G 4W8 (Address of principal executive offices) (Zip Code) 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, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE A ...

Xenon Pharmaceuticals, Inc. (NASDAQ:XENE) Q2 2020 Earnings Conference Call August 6, 2020 5:30 PM ET Company Participants Jodi Regts - VP, Corporate Affairs & IR Simon Pimstone - CEO & Director Ian Mortimer - President, CFO & Company Secretary Conference Call Participants Alex Thompson - Stifel Andrew Tsai - Jefferies Laura Chico - Wedbush Securities Eddie Hickman - Guggenheim Securities Antonia Borovina - Bloom Burton & Co. Operator Good day, ladies and gentlemen, and welcome to quarter 2 2020 Xenon Pharma ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the three and six months ended June 30, 2020, detailing increased cash, marketable securities, and reduced net loss driven by financing and collaboration revenue Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $44,199 | $24,755 | | Marketable securities | $158,555 | $116,603 | | **Total Assets** | **$210,676** | **$147,697** | | Deferred revenue (current) | $12,692 | $29,743 | | Term loan (current & long-term) | $0 | $15,539 | | **Total Liabilities** | **$21,378** | **$55,720** | | **Total Shareholders' Equity** | **$189,298** | **$91,977** | Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $13,384 | $0 | $20,462 | $0 | | Research and development | $10,720 | $8,205 | $22,511 | $17,342 | | General and administrative | $3,310 | $2,307 | $6,630 | $4,928 | | **Net Loss** | **($175)** | **($10,007)** | **($7,659)** | **($21,348)** | | Net Loss per common share | ($0.00) | ($0.37) | ($0.22) | ($0.80) | Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($23,856) | ($17,443) | | Net cash used in investing activities | ($41,991) | ($13,631) | | Net cash provided by financing activities | $85,750 | $69 | - In December 2019, the company entered into a License and Collaboration Agreement with Neurocrine Biosciences, receiving a **$30.0 million** upfront cash payment and a **$20.0 million** equity investment. For the six months ended June 30, 2020, the company recognized **$20.5 million** in revenue from this agreement[50](index=50&type=chunk)[51](index=51&type=chunk)[53](index=53&type=chunk) - In May 2020, the company fully repaid its **$15.5 million** term loan with Silicon Valley Bank ahead of maturity, resulting in a one-time loss on repayment of **$988,000**[40](index=40&type=chunk)[89](index=89&type=chunk) - The company raised significant capital through an at-the-market offering and an underwritten public offering in January and February 2020, receiving net proceeds of approximately **$102.5 million**[41](index=41&type=chunk)[42](index=42&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, noting **$20.5 million** in collaboration revenue, increased operating expenses for clinical programs, and strengthened liquidity from recent equity financings, sufficient to fund operations for at least 12 months despite COVID-19 impacts [Overview](index=17&type=section&id=Overview) Xenon, a clinical-stage biopharmaceutical company, focuses on neurological disorders, advancing proprietary and partnered programs, with COVID-19 impacting clinical trial timelines for XEN1101 and XEN007 - The Phase 2b X-TOLE study for XEN1101 in adult focal epilepsy is ongoing, with topline data anticipated in the first half of 2021, delayed due to COVID-19's impact on patient enrollment[67](index=67&type=chunk) - A Phase 3 trial for XEN496 in pediatric patients with KCNQ2-DEE is anticipated to begin in 2020, following FDA feedback on the protocol[67](index=67&type=chunk) - The physician-led Phase 2 study of XEN007 in childhood absence epilepsy has also been delayed by COVID-19, with results now expected in the first half of 2021[68](index=68&type=chunk) - Partner Neurocrine Biosciences anticipates filing an IND for NBI-921352 (formerly XEN901) and starting a Phase 2 trial in SCN8A-DEE patients in the second half of 2020. Xenon is eligible for a **$25.0 million** milestone upon IND acceptance[70](index=70&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Revenue for the three and six months ended June 30, 2020, was **$13.4 million** and **$20.5 million** respectively, from the Neurocrine collaboration, while R&D and G&A expenses increased due to clinical program advancement and higher compensation costs Change in Operating Results (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue | $20,462 | $0 | $20,462 | | R&D Expenses | $22,511 | $17,342 | $5,169 | | G&A Expenses | $6,630 | $4,928 | $1,702 | Research & Development Expense Breakdown (in thousands) | Program | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change | | :--- | :--- | :--- | :--- | | XEN1101 | $10,545 | $7,228 | $3,317 | | XEN496 | $4,556 | $1,572 | $2,984 | | XEN901 (NBI-921352) | $1,263 | $4,085 | ($2,822) | | Pre-clinical & Other | $6,147 | $4,457 | $1,690 | | **Total R&D** | **$22,511** | **$17,342** | **$5,169** | - The increase in R&D expenses was primarily due to advancing clinical development of XEN496 and XEN1101, partially offset by decreased spending on XEN901 as development costs are now borne by Neurocrine Biosciences[94](index=94&type=chunk) - The increase in G&A expenses was mainly due to higher stock-based compensation, salaries from increased headcount, and higher insurance premiums[95](index=95&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2020, the company held **$202.8 million** in cash and marketable securities, with recent financings significantly strengthening its liquidity, which is expected to fund operations for at least the next 12 months despite ongoing losses - As of June 30, 2020, the company had cash, cash equivalents, and marketable securities of **$202.8 million**[99](index=99&type=chunk) - The company expects that its existing cash and marketable securities will be sufficient to fund operating expenses and capital expenditure requirements for at least the next 12 months[103](index=103&type=chunk)[131](index=131&type=chunk) - Net cash used in operating activities increased to **$23.9 million** for the first six months of 2020, up from **$17.4 million** in the same period of 2019, primarily due to increased R&D and G&A expenses[104](index=104&type=chunk)[105](index=105&type=chunk) - Net cash provided by financing activities was **$85.8 million** for the first six months of 2020, mainly from the issuance of common shares, compared to just **$0.1 million** in the prior-year period[104](index=104&type=chunk)[107](index=107&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company under SEC regulations - As a smaller reporting company, Xenon is not required to provide quantitative and qualitative disclosures about market risk pursuant to Item 305(e) of Regulation S-K[115](index=115&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2020, the CEO and CFO concluded the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[116](index=116&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[117](index=117&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business, financial condition, or operating results - The company is not presently a party to any legal proceedings that would be expected to have a material adverse effect on its business[119](index=119&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous risks, including financial losses, drug development uncertainty, reliance on collaborators, intense competition, intellectual property challenges, COVID-19 impacts, and stock market volatility [Risks Related to Financial Condition and Capital Requirements](index=27&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Capital%20Requirements) The company has a history of significant losses and anticipates continued losses, requiring substantial future capital that may be difficult to obtain, especially amidst unstable economic conditions like the COVID-19 pandemic - The company has incurred significant losses since inception, with an accumulated deficit of **$257.3 million** as of June 30, 2020, and anticipates continued losses for the foreseeable future[121](index=121&type=chunk) - The company will likely need to raise substantial additional capital to complete clinical development and commercialization, and failure to do so could force delays or termination of development efforts[128](index=128&type=chunk)[129](index=129&type=chunk) - Global economic disruptions, including the COVID-19 pandemic, could adversely affect the company's ability to secure necessary financing on favorable terms[135](index=135&type=chunk) [Risks Related to Business](index=31&type=section&id=Risks%20Related%20to%20Our%20Business) Business risks include potential product development failure, intense competition, lack of late-stage development and commercialization experience, COVID-19 disruptions, and adverse tax consequences from potential PFIC status - The company faces substantial competition from major pharmaceutical and biotechnology companies with greater financial resources and expertise[141](index=141&type=chunk)[143](index=143&type=chunk) - The COVID-19 pandemic may materially and adversely affect business, including supply chain disruptions and delays in clinical trials, with a significant reduction in new patient enrollment for its Phase 2b XEN1101 trial already experienced[167](index=167&type=chunk)[168](index=168&type=chunk) - The company has no experience in Phase 3 clinical development or commercialization, making it difficult to assess its ability to execute its strategy for independent product development[149](index=149&type=chunk) - There is a risk that the company could be characterized as a passive foreign investment company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. shareholders[172](index=172&type=chunk) [Risks Related to Development, Clinical Testing and Regulatory Approval](index=38&type=section&id=Risks%20Related%20to%20Development%2C%20Clinical%20Testing%20and%20Regulatory%20Approval%20of%20Our%20Product%20Candidates) Regulatory approval is lengthy and unpredictable, with clinical trials facing delays, enrollment challenges, and non-predictive early-stage results, alongside risks in obtaining and maintaining orphan drug designation - The regulatory approval process is lengthy, time-consuming, and inherently unpredictable, and there is no guarantee that any product candidates will receive approval[182](index=182&type=chunk) - Clinical trials can be delayed for many reasons, including inability to enroll sufficient patients, particularly for orphan diseases, with the COVID-19 pandemic already causing a significant reduction in enrollment for the XEN1101 trial[186](index=186&type=chunk)[196](index=196&type=chunk) - Results of pre-clinical studies and early clinical trials are not necessarily predictive of the results of later-stage trials[203](index=203&type=chunk) - The company may fail to obtain or maintain orphan drug designation for its product candidates, which would harm its competitive position by removing market exclusivity protections[200](index=200&type=chunk) [Risks Related to Commercialization](index=43&type=section&id=Risks%20Related%20to%20Commercialization) The company lacks commercialization infrastructure, facing challenges in sales, marketing, and distribution, along with ongoing regulatory obligations, pricing pressures, reimbursement hurdles, and potential negative impacts from healthcare legislation - The company has no sales, marketing, or distribution experience and would need to build this infrastructure or rely on partners to commercialize products, which carries significant risks and costs[211](index=211&type=chunk)[212](index=212&type=chunk) - The ability to successfully commercialize products depends on obtaining adequate coverage and reimbursement from government and third-party payers, which is uncertain and subject to cost-containment pressures[220](index=220&type=chunk) - Future legislation and regulatory proposals in the U.S. and other jurisdictions aimed at controlling healthcare costs could increase the difficulty and cost of commercialization and negatively affect product prices[224](index=224&type=chunk)[226](index=226&type=chunk) [Risks Related to Dependence on Third Parties](index=47&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third%20Parties) Xenon's success heavily depends on third-party collaborators for partnered asset development and commercialization, and on CMOs and CROs for manufacturing and clinical trials, posing risks to quality, compliance, and timelines - The company is dependent on collaborators like Neurocrine Biosciences to fund and conduct research, clinical development, and commercialization of partnered product candidates, and has no control over the resources they devote[232](index=232&type=chunk)[235](index=235&type=chunk) - The company relies on third-party manufacturers (CMOs) for clinical product supplies and does not own or operate manufacturing facilities, creating risks related to regulatory compliance (cGMP), quality control, and supply chain continuity[242](index=242&type=chunk)[243](index=243&type=chunk) - The company depends on third-party CROs to monitor and conduct clinical trials, and any failure by these CROs to perform as required could delay trials or compromise data integrity[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) [Risks Related to Intellectual Property](index=51&type=section&id=Risks%20Related%20to%20Intellectual%20Property) Commercial success depends on obtaining and maintaining patent protection, which is uncertain and subject to challenges, third-party infringement claims, and less extensive foreign protection, with collaborators controlling IP for partnered programs - The company's ability to obtain and maintain patent protection is uncertain and critical to its success; patents may not be issued or could be found invalid or unenforceable if challenged[252](index=252&type=chunk) - The company may face costly litigation if third parties claim that its products infringe their patent rights, which could result in substantial damages or prevent commercialization[268](index=268&type=chunk)[270](index=270&type=chunk) - For partnered products, the prosecution and enforcement of related patents are controlled by collaborators (e.g., Neurocrine Biosciences for NBI-921352), and their failure to protect this IP could adversely affect the company[263](index=263&type=chunk) - Protecting intellectual property rights in foreign jurisdictions can be difficult and less effective than in the U.S., potentially allowing competitors to use the company's technologies in those markets[257](index=257&type=chunk)[258](index=258&type=chunk) [Risks Related to Our Industry](index=56&type=section&id=Risks%20Related%20to%20Our%20Industry) The company faces inherent industry risks including product liability lawsuits, complex healthcare regulations with potential penalties for non-compliance, and environmental and safety compliance risks from hazardous materials in R&D - The company faces an inherent risk of product liability lawsuits from the clinical testing and potential commercialization of its product candidates, which could result in substantial liabilities[283](index=283&type=chunk) - Operations are subject to extensive federal and state healthcare laws, including anti-kickback and false claims statutes, and violations could lead to criminal sanctions, civil penalties, and exclusion from government healthcare programs[287](index=287&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) [Risks Related to the Securities Markets and Ownership of Our Common Shares](index=58&type=section&id=Risks%20Related%20to%20the%20Securities%20Markets%20and%20Ownership%20of%20Our%20Common%20Shares) Shareholders face risks including stock price volatility, dilution from future share sales, difficulties in potential acquisitions due to corporate provisions and Canadian law, challenges for U.S. investors to enforce civil liabilities, and considerations related to the company's reporting status - The market price of the company's common shares has been and is likely to be volatile, influenced by clinical trial results, regulatory decisions, and broad market fluctuations[293](index=293&type=chunk) - Future sales of common shares, including through its at-the-market equity program, could cause significant dilution to existing shareholders and cause the market price to fall[295](index=295&type=chunk)[296](index=296&type=chunk)[310](index=310&type=chunk) - As a Canadian corporation, it may be difficult for U.S. investors to enforce U.S. civil liability judgments against the company, its directors, or its officers[299](index=299&type=chunk) - The company does not anticipate paying any cash dividends in the foreseeable future, so capital appreciation may be the sole source of gain for investors[317](index=317&type=chunk) [Exhibits](index=64&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Amended and Restated 2014 Equity Incentive Plan, an amendment to an asset purchase agreement, and CEO/CFO certifications - Filed exhibits include the Amended and Restated 2014 Equity Incentive Plan, an amendment to the asset purchase agreement with 1st Order Pharmaceuticals, and required CEO/CFO certifications[320](index=320&type=chunk) [Signatures](index=65&type=section&id=SIGNATURES) The quarterly report was signed on August 6, 2020, by CEO Simon Pimstone and President & CFO Ian Mortimer on behalf of Xenon Pharmaceuticals Inc - The report was signed and authorized on August 6, 2020, by CEO Simon Pimstone and President & CFO Ian Mortimer[322](index=322&type=chunk)[324](index=324&type=chunk)

Xenon Pharmaceuticals Inc. (NASDAQ:XENE) Q1 2020 Earnings Conference Call May 21, 2020 4:30 PM ET Company Representatives Simon Pimstone - Chief Executive Officer Ian Mortimer - President, Chief Financial Officer Jodi Regts - VP, Corporate Affairs & IR Conference Call Participants Paul Matteis - Stifel Lachlan Hanbury-Brown - William Blair Eddie Hickman - Guggenheim Laura Chico - Wedbush Securities Maury Raycroft - Jefferies David Martin - Bloom Burton Operator Ladies and gentlemen, thank you for standing b ...

[EXPLANATORY NOTE](index=2&type=section&id=EXPLANATORY%20NOTE) Xenon Pharmaceuticals Inc. filed this Quarterly Report on Form 10-Q in reliance on an SEC Order, as the COVID-19 outbreak delayed the preparation and completion of financial statements due to remote work and limited interactions with advisors - Filing of Form 10-Q was delayed due to the COVID-19 outbreak, impacting financial reporting and legal departments' ability to interact with professional advisors[7](index=7&type=chunk) - The Form 10-Q was filed within the **45-day extension period** provided by the SEC Order issued on March 25, 2020[8](index=8&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and related notes, detailing the company's financial position and performance [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section provides the company's unaudited consolidated financial statements and comprehensive notes, highlighting key financial changes and capital activities [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, showing significant increases in cash, marketable securities, and shareholders' equity, alongside a rise in common shares outstanding Consolidated Balance Sheet Highlights (in thousands of U.S. dollars) | Metric | March 31, 2020 | December 31, 2019 | Change (Absolute) | | :-------------------------------- | :------------- | :---------------- | :---------------- | | Cash and cash equivalents | $60,508 | $24,755 | +$35,753 | | Marketable securities | $169,163 | $116,603 | +$52,560 | | Total assets | $237,043 | $147,697 | +$89,346 | | Total liabilities | $49,065 | $55,720 | -$6,655 | | Total shareholders' equity | $187,978 | $91,977 | +$96,001 | - Common shares outstanding increased to **34,956,272** as of March 31, 2020, from 28,139,228 as of December 31, 2019[13](index=13&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section details the company's financial performance, showing increased revenue from collaboration, higher operating expenses, and a reduced net loss for the period Consolidated Statements of Operations and Comprehensive Loss Highlights (Three Months Ended March 31, in thousands of U.S. dollars) | Metric | 2020 | 2019 | Change (Absolute) | | :----------------------------------- | :----- | :----- | :---------------- | | Revenue | $7,078 | $0 | +$7,078 | | Research and development expenses | $11,791 | $9,137 | +$2,654 | | General and administrative expenses | $3,320 | $2,621 | +$699 | | Loss from operations | $(8,033) | $(11,758) | +$3,725 | | Net loss and comprehensive loss | $(7,484) | $(11,341) | +$3,857 | | Net loss per common share (Basic and diluted) | $(0.22) | $(0.42) | +$0.20 | - Revenue for the three months ended March 31, 2020, was primarily derived from the Neurocrine Biosciences collaboration agreement[14](index=14&type=chunk)[51](index=51&type=chunk) [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section outlines changes in shareholders' equity, primarily driven by substantial increases from common share issuances and stock-based compensation expenses - Total shareholders' equity increased from **$91,977 thousand** as of December 31, 2019, to **$187,978 thousand** as of March 31, 2020[16](index=16&type=chunk) - Issuance of common shares, net of issuance costs, contributed **$102,456 thousand** to shareholders' equity during the three months ended March 31, 2020[16](index=16&type=chunk) - Stock-based compensation expense was **$1,015 thousand** for the three months ended March 31, 2020, compared to **$476 thousand** for the same period in 2019[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details cash flow activities, showing increased cash usage in operations and investing, offset by a substantial increase in cash from financing activities Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, in thousands of U.S. dollars) | Activity | 2020 | 2019 | Change (Absolute) | | :-------------------------------- | :--------- | :--------- | :---------------- | | Net cash used in operating activities | $(13,067) | $(8,696) | $(4,371) | | Net cash used in investing activities | $(52,925) | $(7,003) | $(45,922) | | Net cash provided by financing activities | $102,470 | $58 | +$102,412 | | Cash and cash equivalents, end of period | $60,508 | $52,180 | +$8,328 | - Net cash provided by financing activities significantly increased to **$102,470 thousand** in Q1 2020, primarily due to the issuance of common shares[18](index=18&type=chunk) - Purchases of marketable securities increased substantially to **$107,482 thousand** in Q1 2020 from **$34,325 thousand** in Q1 2019[18](index=18&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes to the consolidated financial statements, covering business nature, accounting policies, estimates, and specific financial instrument details [1. Nature of the business](index=8&type=section&id=1.%20Nature%20of%20the%20business) Xenon Pharmaceuticals Inc. is a clinical-stage biopharmaceutical company focused on developing innovative therapeutics for neurological disorders, particularly epilepsy, leveraging its expertise in human genetics and ion channels. The company has incurred significant operating losses since inception and expects this trend to continue, financing its operations primarily through collaboration agreements, equity, and debt financings - Xenon Pharmaceuticals Inc. is a clinical-stage biopharmaceutical company focused on developing therapies for neurological disorders, with a primary focus on epilepsy[20](index=20&type=chunk) - The company had an accumulated deficit of **$257,139 thousand** and a net loss of **$7,484 thousand** for the three months ended March 31, 2020, and expects to continue incurring operating losses[21](index=21&type=chunk) - Operations are financed primarily through collaboration and license agreements, private and public equity offerings, debt financing, and government funding[21](index=21&type=chunk)[22](index=22&type=chunk) [2. Basis of presentation](index=8&type=section&id=2.%20Basis%20of%20presentation) The consolidated financial statements are presented in U.S. dollars and include the accounts of Xenon Pharmaceuticals Inc. and its wholly-owned U.S. subsidiary. They are prepared in accordance with U.S. GAAP and SEC rules for interim financial information, reflecting normal recurring adjustments - Consolidated financial statements are presented in U.S. dollars and include Xenon Pharmaceuticals Inc. and its wholly-owned subsidiary, Xenon Pharmaceuticals USA Inc[23](index=23&type=chunk)[24](index=24&type=chunk) - Statements are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) and SEC rules for interim financial information[25](index=25&type=chunk) [3. Use of estimates](index=9&type=section&id=3.%20Use%20of%20estimates) The preparation of interim financial statements requires management to make estimates and assumptions, particularly concerning revenue recognition, stock-based compensation, and accrued liabilities. While the COVID-19 pandemic had no material impact as of March 31, 2020, its future effects on the business, operations, and financial condition remain highly uncertain - Significant areas of estimates include revenue recognition, stock-based compensation, and accrued liabilities[28](index=28&type=chunk) - No material impact from the COVID-19 pandemic on consolidated financial statements as of March 31, 2020; however, the full extent of future impacts is highly uncertain[29](index=29&type=chunk) [4. Changes in significant accounting policies](index=9&type=section&id=4.%20Changes%20in%20significant%20accounting%20policies) The company adopted ASU 2019-08, related to share-based consideration payable to a customer, retrospectively as of January 1, 2020. This adoption had no impact on the company's consolidated financial statements - Adopted ASU 2019-08, 'Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share-Based Consideration Payable to a Customer,' retrospectively as of January 1, 2020[30](index=30&type=chunk) - The adoption of this standard had no impact on the company's consolidated balance sheets, statements of operations and comprehensive loss, or statements of cash flows[30](index=30&type=chunk) [5. Net income (loss) per common share](index=9&type=section&id=5.%20Net%20income%20%28loss%29%20per%20common%20share) Net income (loss) per common share is calculated using the two-class method for participating securities, which includes Series 1 Preferred Shares. For the three months ended March 31, 2020 and 2019, all stock options, warrants, and convertible preferred shares were anti-dilutive and thus excluded from diluted weighted-average common shares outstanding - Basic net income (loss) per common share is calculated using the two-class method for participating securities, including Series 1 Preferred Shares[31](index=31&type=chunk) - For the three months ended March 31, 2020 and 2019, all stock options, warrants, and convertible preferred shares were anti-dilutive and excluded from diluted weighted-average common shares outstanding[34](index=34&type=chunk) [6. Fair value of financial instruments](index=10&type=section&id=6.%20Fair%20value%20of%20financial%20instruments) The company measures financial instruments at fair value using a three-level hierarchy. Level 1 assets include cash, cash equivalents, and marketable securities with quoted prices in active markets. Other instruments like accounts receivable, accounts payable, accrued expenses, and the term loan approximate fair value due to their short-term nature or prevailing market rates - The company uses a fair value hierarchy (Level 1, Level 2, and Level 3) to classify inputs used to measure the fair value of financial assets and liabilities[35](index=35&type=chunk) - Level 1 assets include cash and cash equivalents and marketable securities with quoted prices in active markets[37](index=37&type=chunk) - The carrying amounts of accounts receivables, accounts payable, accrued expenses, and the term loan approximate fair value[37](index=37&type=chunk) [7. Leases](index=10&type=section&id=7.%20Leases) The company has one operating lease for research laboratories and office space in Burnaby, British Columbia, with a remaining term of 2 years as of March 31, 2020. Total future minimum lease payments amount to $1,154 thousand - The company has one operating lease for research laboratories and office space in Burnaby, British Columbia[38](index=38&type=chunk) - The remaining lease term is **2 years** as of March 31, 2020, with a discount rate of **3.75%**[38](index=38&type=chunk) Future Minimum Lease Payments as of March 31, 2020 (in thousands of U.S. dollars) | Year ending December 31: | Amount | | :----------------------- | :----- | | 2020 | $451 | | 2021 | $567 | | 2022 | $136 | | **Total future minimum lease payments** | **$1,154** | [8. Accounts payable and accrued expenses](index=11&type=section&id=8.%20Accounts%20payable%20and%20accrued%20expenses) Accounts payable and accrued expenses decreased to $8,084 thousand as of March 31, 2020, from $8,818 thousand at December 31, 2019, primarily due to a reduction in employee compensation, benefits, and related accruals Accounts Payable and Accrued Expenses (in thousands of U.S. dollars) | Category | March 31, 2020 | December 31, 2019 | | :------------------------------------ | :------------- | :---------------- | | Trade payables | $3,217 | $2,473 | | Employee compensation, benefits, and related accruals | $976 | $2,892 | | Consulting and contracted research | $3,639 | $3,104 | | Professional fees | $237 | $154 | | Other | $15 | $195 | | **Total** | **$8,084** | **$8,818** | - The decrease in total accounts payable and accrued expenses was primarily driven by a reduction in employee compensation, benefits, and related accruals[39](index=39&type=chunk) [9. Term loan](index=11&type=section&id=9.%20Term%20loan) The company had a term loan of $15,500 thousand with Silicon Valley Bank. This loan was fully repaid on May 20, 2020, ahead of its maturity date, including a final payment fee of $1,008 thousand and a prepayment fee of $225 thousand. Interest expense for Q1 2020 was $330 thousand - The company had a term loan with a principal amount of **$15,500 thousand** from Silicon Valley Bank[40](index=40&type=chunk) - The total outstanding term loan balance was repaid on May 20, 2020, ahead of maturity, including a final payment fee of **$1,008 thousand** and a prepayment fee of **$225 thousand**[41](index=41&type=chunk) - Interest expense for the three months ended March 31, 2020, was **$330 thousand**, including amortization of debt discount and accretion of the final payment fee[42](index=42&type=chunk) [10. Share capital](index=11&type=section&id=10.%20Share%20capital) This section details the company's share capital activities, including significant equity financings in late 2019 and early 2020 that raised over $100 million in net proceeds. It also covers the exchange agreement with BVF for Series 1 Preferred Shares and stock option activity, which saw a substantial increase in options granted and a higher weighted-average fair value in Q1 2020 [(a) Financing](index=11&type=section&id=%28a%29%20Financing) This subsection details recent equity financings, including an at-the-market offering and a public offering, which collectively raised significant net proceeds - In January 2020, the company sold an additional **2,446,687** common shares under an at-the-market offering for net proceeds of approximately **$37,979 thousand**[43](index=43&type=chunk) - Completed an underwritten public offering of **3,750,000** common shares in January 2020, receiving net proceeds of **$56,700 thousand**[44](index=44&type=chunk) - Underwriters exercised their option in full in February 2020 for an additional **562,500** common shares, yielding **$8,460 thousand** in net proceeds[44](index=44&type=chunk) [(b) Exchange agreement with certain funds affiliated with BVF Partners L.P. (collectively, "BVF")](index=12&type=section&id=%28b%29%20Exchange%20agreement%20with%20certain%20funds%20affiliated%20with%20BVF%20Partners%20L.P.%20%28collectively%2C%20%22BVF%22%29) This subsection describes the exchange agreement with BVF, involving the issuance of Series 1 Preferred Shares convertible into common shares with beneficial ownership limitations - In March 2018, the company issued **2,868,000** Series 1 Preferred Shares to BVF in exchange for common shares, convertible one-for-one into common shares subject to a **9.99%** beneficial ownership limitation[45](index=45&type=chunk)[46](index=46&type=chunk) - Series 1 Preferred Shares rank equally to common shares in liquidation and are entitled to vote on an as-converted basis[47](index=47&type=chunk) - BVF converted **1,852,000** Series 1 Preferred Shares into common shares during the year ended December 31, 2018[49](index=49&type=chunk) [(c) Stock-based compensation](index=12&type=section&id=%28c%29%20Stock-based%20compensation) This subsection details stock option activity, including grants, exercises, and forfeitures, along with the weighted-average assumptions used for valuation Stock Option Activity (Three Months Ended March 31) | Metric | 2020 | 2019 | | :-------------------------- | :--------- | :--------- | | Outstanding, beginning of period | 3,534,236 | 2,671,906 | | Granted | 1,118,350 | 21,900 | | Exercised | (98,326) | (22,402) | | Forfeited, cancelled or expired | (26,268) | (3,955) | | Outstanding, end of period | 4,527,992 | 2,667,449 | Weighted-Average Assumptions for Stock Options Granted (Three Months Ended March 31) | Assumption | 2020 | 2019 | | :-------------------------- | :----- | :----- | | Average risk-free interest rate | 0.80% | 2.58% | | Expected volatility | 68% | 76% | | Average expected term (in years) | 6.73 | 6.27 | | Expected dividend yield | 0% | 0% | | Weighted average fair value of stock options granted | $7.41 | $5.34 | [11. Revenue](index=13&type=section&id=11.%20Revenue) For the three months ended March 31, 2020, the company recognized $7,078 thousand in collaboration revenue, primarily from its agreement with Neurocrine Biosciences. This revenue stemmed from an upfront cash payment and an equity investment, allocated across exclusive licenses for XEN901 and DTCs, and development services. As of March 31, 2020, $24,608 thousand of deferred revenue remained Revenue (Three Months Ended March 31, in thousands of U.S. dollars) | Source | 2020 | 2019 | | :-------------------------------- | :----- | :----- | | Neurocrine Biosciences: Recognition of the transaction price | $5,844 | $0 | | Neurocrine Biosciences: Research and development services | $1,234 | $0 | | **Total collaboration revenue** | **$7,078** | **$0** | - The Neurocrine Biosciences agreement included an upfront cash payment of **$30,000 thousand** and a **$20,000 thousand** equity investment[52](index=52&type=chunk) - As of March 31, 2020, there was **$24,608 thousand** of deferred revenue related to the Neurocrine Collaboration Agreement[54](index=54&type=chunk) [12. Income taxes](index=14&type=section&id=12.%20Income%20taxes) Income tax expense or recovery for the periods presented is attributable to the operations of Xenon Pharmaceuticals USA Inc. Deferred income tax assets are recognized based on temporary differences, with their realization contingent upon the generation of sufficient future taxable income - Income tax (expense) recovery arose from the operations of Xenon Pharmaceuticals USA Inc., the company's wholly-owned U.S. subsidiary[56](index=56&type=chunk) - Deferred income tax assets are recorded based on temporary differences, and their realization depends on generating sufficient taxable income in future periods[56](index=56&type=chunk) [13. Commitments and contingencies](index=14&type=section&id=13.%20Commitments%20and%20contingencies) The company has various commitments, including a priority access agreement with Medpace for $3,908 thousand in clinical development services remaining. Other agreements involve potential milestone payments and royalties for XEN007 and XEN1101 programs. The company also has customary indemnification provisions in its agreements, covered by commercial and product liability insurance - Committed to **$3,908 thousand** of clinical development services under a priority access agreement with Medpace Inc. as of March 31, 2020[57](index=57&type=chunk) - Potential future payments for the XEN1101 program include **$500 thousand** in clinical development milestones, up to **$6,000 thousand** in regulatory milestones, and **$1,500 thousand** in other pre-commercial milestones[57](index=57&type=chunk) - License agreements for XEN007 include potential payments of **$2,000 thousand** in clinical development milestones, up to **$7,000 thousand** in regulatory milestones, and low-to-mid single-digit percentage royalties on net sales[57](index=57&type=chunk) - Indemnification provisions in license and research agreements are customary, with potential future indemnification being unlimited but covered by commercial and product liability insurance[57](index=57&type=chunk)[58](index=58&type=chunk) [14. Subsequent event](index=15&type=section&id=14.%20Subsequent%20event) In April 2020, Flexion Therapeutics Inc. initiated the first GLP toxicology study for FX301 (XEN402), triggering a $500 thousand milestone payment to Xenon. This milestone payment had been previously recognized into revenue during the year ended December 31, 2019 - Flexion Therapeutics Inc. initiated the first GLP toxicology study for FX301 (XEN402) in April 2020[59](index=59&type=chunk) - This initiation triggered a **$500 thousand** milestone payment to Xenon, which was recognized into revenue during the year ended December 31, 2019[59](index=59&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=15&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition and operational results, covering program overviews, financial performance, liquidity, and the impact of COVID-19 [Forward-Looking Statements](index=15&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements regarding future expectations and operational projections, which are subject to various risks and uncertainties - This section contains forward-looking statements regarding future expectations, projections of operational results, and financial condition[61](index=61&type=chunk) - These statements are subject to certain risks and uncertainties that could cause actual results to differ materially, as discussed in Part II, Item 1A — 'Risk Factors'[63](index=63&type=chunk) [Overview](index=16&type=section&id=Overview) This overview introduces Xenon Pharmaceuticals as a clinical-stage biopharmaceutical company focused on neurology, detailing its proprietary and partnered programs, recent revenue, and financial losses - Xenon Pharmaceuticals is a clinical-stage biopharmaceutical company focused on developing neurology-focused therapies, with a primary emphasis on epilepsy[65](index=65&type=chunk) - Proprietary programs include XEN1101 (Phase 2b for focal epilepsy), XEN496 (Phase 3 for KCNQ2-DEE), and XEN007 (Phase 2 for childhood absence epilepsy)[67](index=67&type=chunk) - Partnered programs include NBI-921352 (Neurocrine Biosciences, for SCN8A-DEE) and FX301 (Flexion, for post-operative pain)[67](index=67&type=chunk)[68](index=68&type=chunk) - Recognized **$7.1 million** in revenue for the three months ended March 31, 2020, primarily from the Neurocrine Biosciences agreement[68](index=68&type=chunk) - Reported a net loss of **$7.5 million** for Q1 2020 and an accumulated deficit of **$257.1 million** as of March 31, 2020[68](index=68&type=chunk) [Proprietary Programs](index=17&type=section&id=Proprietary%20Programs) This section details the company's proprietary clinical programs, including XEN1101 for focal epilepsy, XEN496 for KCNQ2-DEE, and XEN007 for childhood absence epilepsy, noting their development stages and potential COVID-19 impacts - XEN1101 (Kv7 potassium channel modulator) is in an ongoing Phase 2b clinical trial (X-TOLE study) for focal epilepsy, showing good tolerability and low discontinuation rates[67](index=67&type=chunk) - Topline data for the XEN1101 X-TOLE study is anticipated in the first half of 2021, with patient enrollment rates potentially impacted by the COVID-19 pandemic[67](index=67&type=chunk) - XEN496 (pediatric formulation of ezogabine) has Orphan Drug Designation and Fast Track designation for KCNQ2-DEE, with a Phase 3 clinical trial expected to initiate in 2020 based on FDA feedback[67](index=67&type=chunk) - XEN007 (CNS-acting calcium channel modulator) is in a physician-led Phase 2 proof-of-concept study for treatment-resistant childhood absence epilepsy, with results expected in 2020, dependent on patient enrollment rates due to COVID-19[67](index=67&type=chunk) [Partnered Programs](index=17&type=section&id=Partnered%20Programs) This section details partnered programs, including NBI-921352 with Neurocrine Biosciences for SCN8A-DEE, and FX301 with Flexion Therapeutics for post-operative pain, outlining their development progress and milestone payments - Neurocrine Biosciences has an exclusive license to NBI-921352 (formerly XEN901), a selective Nav1.6 sodium channel inhibitor for SCN8A-DEE and other epilepsies[67](index=67&type=chunk) - Neurocrine Biosciences anticipates filing an IND application in mid-2020 and starting a Phase 2 clinical trial in SCN8A-DEE patients in the second half of 2020[67](index=67&type=chunk) - The company is eligible to receive up to **$25.0 million** upon FDA acceptance of an IND for NBI-921352[67](index=67&type=chunk) - Flexion Therapeutics, Inc. acquired global rights to XEN402 (now FX301), a Nav1.7 inhibitor for post-operative pain; a GLP toxicology study commenced in April 2020, triggering a **$0.5 million** milestone payment[68](index=68&type=chunk) [Financial Operations Overview](index=18&type=section&id=Financial%20Operations%20Overview) The company's revenue is primarily derived from collaboration and licensing agreements, with no significant product sales revenue expected in the near term. Operating expenses are projected to increase over the next 12-24 months due to advancing product candidates, seeking regulatory approvals, expanding intellectual property, and building infrastructure. Critical accounting policies remain consistent, focusing on revenue recognition, R&D costs, and stock-based compensation [Revenue](index=18&type=section&id=Revenue) Revenue is primarily from collaboration and licensing agreements, with **$7.1 million** recognized in Q1 2020 from the Neurocrine Biosciences agreement, and **$24.6 million** in deferred revenue remaining - Revenue is primarily derived from collaboration and licensing agreements, with no significant royalty revenue from product sales anticipated for the foreseeable future[69](index=69&type=chunk)[70](index=70&type=chunk) Collaboration Revenue (Three Months Ended March 31, in thousands of U.S. dollars) | Source | 2020 | 2019 | | :-------------------------------- | :----- | :----- | | Neurocrine Biosciences: Recognition of the transaction price | $5,844 | $0 | | Neurocrine Biosciences: Research and development services | $1,234 | $0 | | **Total collaboration revenue** | **$7,078** | **$0** | - The **$7.1 million** revenue in Q1 2020 was from the Neurocrine Biosciences agreement, which included an upfront cash payment of **$30.0 million** and a **$20.0 million** equity investment[72](index=72&type=chunk) - As of March 31, 2020, **$24.6 million** of deferred revenue was recorded from upfront payments under the Neurocrine Biosciences agreement[74](index=74&type=chunk) [Operating Expenses](index=19&type=section&id=Operating%20Expenses) Total operating expenses increased by **$3.353 million** in Q1 2020, driven by higher research and development and general and administrative costs, with further increases expected Operating Expenses (Three Months Ended March 31, in thousands of U.S. dollars) | Category | 2020 | 2019 | | :-------------------------- | :------- | :------- | | Research and development | $11,791 | $9,137 | | General and administrative | $3,320 | $2,621 | | **Total operating expenses** | **$15,111** | **$11,758** | - Total operating expenses increased by **$3.353 million (28.5%)** from Q1 2019 to Q1 2020[75](index=75&type=chunk) - Expects research and development expenses to increase in the future as proprietary product candidates advance through clinical development and internal drug discovery programs progress[79](index=79&type=chunk) [Research and Development Expenses](index=19&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses increased by **$2.7 million** in Q1 2020, primarily due to increased spending on XEN496 and XEN1101, partially offset by reduced XEN901 costs Research and Development Expenses by Program (Three Months Ended March 31, in thousands of U.S. dollars) | Program | 2020 | 2019 | Change (Absolute) | | :-------------------------------- | :------- | :------- | :---------------- | | XEN1101 expenses | $5,241 | $3,643 | +$1,598 | | XEN496 expenses | $2,667 | $650 | +$2,017 | | XEN901 expenses (now known as NBI-921352) | $714 | $2,742 | -$2,028 | | Pre-clinical, discovery and other program expenses | $3,169 | $2,102 | +$1,067 | | **Total research and development expenses** | **$11,791** | **$9,137** | **+$2,654** | - Research and development expenses increased by **$2.7 million (29.0%)** in Q1 2020 compared to Q1 2019[90](index=90&type=chunk) - The increase was primarily due to increased spending on XEN496 and XEN1101, partially offset by decreased spending on XEN901 as Neurocrine Biosciences now bears most development costs[90](index=90&type=chunk) [General and Administrative Expenses](index=20&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses increased by **$0.7 million** in Q1 2020, mainly due to higher stock-based compensation, salaries, benefits, and insurance premiums General and Administrative Expenses (Three Months Ended March 31, in thousands of U.S. dollars) | Category | 2020 | 2019 | Change (Absolute) | | :-------------------------------- | :------- | :------- | :---------------- | | General and administrative expenses | $3,320 | $2,621 | +$699 | - General and administrative expenses increased by **$0.7 million** in Q1 2020, primarily due to higher stock-based compensation, salaries and benefits, and insurance premiums, partially offset by lower legal fees[91](index=91&type=chunk) [Other Income (Expense)](index=20&type=section&id=Other%20Income%20%28Expense%29) Other income increased by **$0.1 million** in Q1 2020, driven by higher interest income, despite a foreign exchange loss due to Canadian dollar depreciation Other Income (Expense) (Three Months Ended March 31, in thousands of U.S. dollars) | Category | 2020 | 2019 | Change (Absolute) | | :-------------------- | :------- | :------- | :---------------- | | Interest income | $1,116 | $682 | +$434 | | Interest expense | $(330) | $(358) | +$28 | | Foreign exchange gain (loss) | $(238) | $130 | $(368) | | **Total Other Income** | **$548** | **$454** | **+$94** | - Interest income increased by **$0.4 million** due to higher average cash and investment balances[92](index=92&type=chunk) - A foreign exchange loss of **$0.2 million** was recorded in Q1 2020, compared to a **$0.1 million** gain in Q1 2019, largely due to an **8%** decrease in the value of the Canadian dollar[92](index=92&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=20&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This section identifies critical accounting policies and significant estimates, including revenue recognition and R&D costs, noting no material changes during the period - Critical accounting policies and significant estimates include revenue recognition, research and development costs, and stock-based compensation[86](index=86&type=chunk) - No material changes in critical accounting policies or significant judgments and estimates occurred during the three months ended March 31, 2020[87](index=87&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) This section summarizes the results of operations, highlighting a **$7.1 million** increase in revenue and a **$3.8 million** reduction in loss before income taxes for Q1 2020 Summary of Operations (Three Months Ended March 31, in thousands of U.S. dollars) | Metric | 2020 | 2019 | Change (Absolute) | | :-------------------------------- | :------- | :------- | :---------------- | | Revenue | $7,078 | $0 | +$7,078 | | Research and development expenses | $11,791 | $9,137 | +$2,654 | | General and administrative expenses | $3,320 | $2,621 | +$699 | | Interest income | $1,116 | $682 | +$434 | | Interest expense | $(330) | $(358) | +$28 | | Foreign exchange gain (loss) | $(238) | $130 | $(368) | | **Loss before income taxes** | **$(7,485)** | **$(11,304)** | **+$3,819** | - Revenue increased by **$7.1 million** in Q1 2020, primarily due to the Neurocrine Biosciences collaboration agreement[89](index=89&type=chunk) - Loss before income taxes decreased by **$3.8 million**, from **$(11,304) thousand** in Q1 2019 to **$(7,485) thousand** in Q1 2020[88](index=88&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's liquidity and capital resources, highlighting **$229.7 million** in cash and marketable securities, recent equity financings, and the repayment of its term loan, which are expected to fund operations for at least 12 months - As of March 31, 2020, the company had **$229.7 million** in cash, cash equivalents, and marketable securities[93](index=93&type=chunk) - The company had an accumulated deficit of **$257.1 million** as of March 31, 2020, and expects to continue incurring significant operating losses[93](index=93&type=chunk) - Existing cash and cash equivalents and marketable securities are expected to fund operating expenses and capital expenditure requirements for at least the next **12 months**[97](index=97&type=chunk) - Raised **$64.9 million** in net proceeds from an underwritten public offering in January/February 2020 and **$48.8 million** from an at-the-market offering as of January 14, 2020[95](index=95&type=chunk) - Received an upfront cash payment of **$30.0 million** and a **$20.0 million** equity investment from Neurocrine Biosciences in December 2019[95](index=95&type=chunk) - The **$15.5 million** term loan with Silicon Valley Bank was repaid in May 2020, ahead of its maturity date[95](index=95&type=chunk) [Cash Flows](index=24&type=section&id=Cash%20Flows) For the three months ended March 31, 2020, net cash used in operating activities increased to $13.1 million, and net cash used in investing activities increased to $52.9 million, primarily due to higher marketable securities purchases. Net cash provided by financing activities significantly increased to $102.5 million, driven by common share issuances Summary of Cash Flows (Three Months Ended March 31, in thousands of U.S. dollars) | Activity | 2020 | 2019 | | :-------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(13,067) | $(8,696) | | Net cash used in investing activities | $(52,925) | $(7,003) | | Net cash provided by financing activities | $102,470 | $58 | - The increase in cash used in operating activities was primarily related to higher research and development and general and administrative expenses and changes in working capital[99](index=99&type=chunk) - The increase in cash used in investing activities was driven by a significant increase in purchases of marketable securities, net of redemptions[100](index=100&type=chunk) - Net cash provided by financing activities increased substantially due to net proceeds from the issuance of common shares[101](index=101&type=chunk) [Contractual Obligations and Commitments](index=24&type=section&id=Contractual%20Obligations%20and%20Commitments) There have been no material changes to the company's contractual commitments since December 31, 2019, except for the full repayment of the $15.5 million term loan with Silicon Valley Bank on May 20, 2020, which included a final payment fee of $1.0 million and a prepayment fee of $0.2 million - No material changes to contractual commitments from those disclosed in the 2019 Annual Report on Form 10-K, as of March 31, 2020[102](index=102&type=chunk) - The **$15.5 million** term loan with Silicon Valley Bank was fully repaid on May 20, 2020, including a **$1.0 million** final payment fee and a **$0.2 million** prepayment fee[102](index=102&type=chunk) [Inflation](index=24&type=section&id=Inflation) The company does not believe that inflation has had a material effect on its business, financial condition, or results of operations over the past two fiscal years - Inflation has not had a material effect on the company's business, financial condition, or results of operations in the last two fiscal years[103](index=103&type=chunk) [Off-Balance Sheet Arrangements](index=24&type=section&id=Off-Balance%20Sheet%20Arrangements) The company does not engage in any off-balance sheet financing activities and has no interest in variable interest entities - The company does not engage in any off-balance sheet financing activities[104](index=104&type=chunk) - The company does not have any interest in variable interest entities[104](index=104&type=chunk) [Outstanding Share Data](index=25&type=section&id=Outstanding%20Share%20Data) As of May 18, 2020, the company had 34,974,119 common shares issued and outstanding. Additionally, there were 4,492,149 outstanding stock options, a warrant for 40,000 common shares, and 1,016,000 Series 1 Preferred Shares, which are convertible into common shares on a one-for-one basis, subject to a 9.99% beneficial ownership limitation - As of May 18, 2020, the company had **34,974,119** common shares issued and outstanding[105](index=105&type=chunk) - Outstanding stock options to purchase an additional **4,492,149** common shares and an outstanding warrant to purchase **40,000** common shares[105](index=105&type=chunk) - **1,016,000** Series 1 Preferred Shares were issued and outstanding, convertible into common shares on a one-for-one basis, subject to a **9.99%** beneficial ownership limitation[105](index=105&type=chunk) [2019 Inducement Equity Incentive Plan](index=25&type=section&id=2019%20Inducement%20Equity%20Incentive%20Plan) The 2019 Inducement Equity Incentive Plan, adopted in September 2019, reserved 400,000 common shares for equity awards to new employees or non-employee directors as an inducement. This plan, approved without shareholder approval per Nasdaq rules, will automatically terminate if the amended 2014 Equity Incentive Plan is approved by shareholders on June 1, 2020 - The 2019 Inducement Equity Incentive Plan was adopted in September 2019, reserving **400,000** common shares for issuance[106](index=106&type=chunk) - Awards under the plan are granted to individuals not previously serving as employees or non-employee directors, as an inducement to employment[108](index=108&type=chunk) - The plan will automatically terminate if the amendment and restatement of the 2014 Equity Incentive Plan is approved by shareholders on June 1, 2020[109](index=109&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Xenon Pharmaceuticals Inc. is exempt from providing quantitative and qualitative disclosures about market risk, as per Item 305(e) of Regulation S-K - As a smaller reporting company, Xenon Pharmaceuticals Inc. is not required to provide quantitative and qualitative disclosures about market risk[110](index=110&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the company's disclosure controls and procedures as of March 31, 2020, and concluded they were effective. There were no material changes in internal control over financial reporting during the period. The effectiveness of internal controls is subject to inherent limitations, providing reasonable, not absolute, assurances - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of March 31, 2020[111](index=111&type=chunk) - There were no material changes in internal control over financial reporting during the period ended March 31, 2020[112](index=112&type=chunk) - The effectiveness of any system of internal control over financial reporting is subject to inherent limitations and can only provide reasonable, not absolute, assurances[113](index=113&type=chunk) [PART II. OTHER INFORMATION](index=26&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, other disclosures, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business, financial condition, operating results, or cash flows. Litigation, if it occurs, could still negatively impact the company due to defense costs and diversion of management resources - The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, operating results, or cash flows[114](index=114&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section details various risks that could materially affect the company's business, financial condition, and operating results, encompassing financial, operational, developmental, commercial, and market-related factors [Risks Related to Our Financial Condition and Capital Requirements](index=26&type=section&id=Risks%20Related%20to%20Our%20Financial%20Condition%20and%20Capital%20Requirements) This section highlights financial risks, including ongoing losses, the need for additional capital, potential shareholder dilution, impacts of market conditions, currency fluctuations, and restrictive debt covenants - The company has incurred significant losses (**$7.5 million** net loss in Q1 2020, **$257.1 million** accumulated deficit) and anticipates continued losses, requiring substantial additional funding[116](index=116&type=chunk) - Failure to obtain necessary capital when needed may force delays, limitations, or termination of product development efforts or other operations[123](index=123&type=chunk) - Raising additional capital may cause dilution to existing shareholders, restrict operations, or require relinquishing rights to technologies or product candidates[130](index=130&type=chunk) - Unstable market and economic conditions, including the COVID-19 pandemic, may adversely affect the business and financial condition, making financing more difficult[131](index=131&type=chunk) - The company is subject to risks associated with currency fluctuations, particularly the Canadian dollar, which could impact results of operations[132](index=132&type=chunk) - Debt financing arrangements can contain operating and financial covenants that may restrict business and financing activities[133](index=133&type=chunk) [Risks Related to Our Business](index=30&type=section&id=Risks%20Related%20to%20Our%20Business) This section addresses business risks such as potential product development failures, intense industry competition, lack of commercialization experience, unproven drug discovery, COVID-19 impacts, and adverse tax consequences for U.S. shareholders - The company or its collaborators may fail to successfully develop product candidates, which are in varying stages of development and require substantial clinical testing and regulatory approval[135](index=135&type=chunk) - The biotechnology and pharmaceutical industries are intensely competitive, with many companies having significantly greater financial resources and expertise[136](index=136&type=chunk)[138](index=138&type=chunk) - The company has no experience in Phase 3 and later-stage clinical development or commercialization, making it difficult to assess its ability to independently develop and commercialize products[143](index=143&type=chunk) - The company's approach to drug discovery is unproven, and there is no guarantee it will result in commercially valuable products[147](index=147&type=chunk)[149](index=149&type=chunk) - The COVID-19 pandemic and other public health crises may materially and adversely affect the company's business, including supply chain disruptions, delays in clinical trials (e.g., XEN1101 enrollment), and impacts on employee productivity[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - U.S. holders of common shares may suffer adverse tax consequences if the company is characterized as a passive foreign investment company (PFIC)[166](index=166&type=chunk) [Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates](index=37&type=section&id=Risks%20Related%20to%20Development%2C%20Clinical%20Testing%20and%20Regulatory%20Approval%20of%20Our%20Product%20Candidates) This section details risks in product development, including lengthy and unpredictable regulatory approvals, uncertain clinical trial outcomes, potential manufacturing changes, and the impact of losing orphan drug designation or limited market opportunities - The regulatory approval processes are lengthy, expensive, and inherently unpredictable, with no guarantee of obtaining approval for product candidates[176](index=176&type=chunk) - Clinical drug development involves uncertain timelines and outcomes, with trials potentially halted or delayed due to safety risks, inability to enroll sufficient patients (especially for ultra-orphan indications), or regulatory non-compliance[179](index=179&type=chunk)[180](index=180&type=chunk)[189](index=189&type=chunk) - Results of pre-clinical studies or earlier clinical trials may not be predictive of later-stage clinical trials, and regulatory authorities may disagree with trial design or data interpretation[197](index=197&type=chunk)[198](index=198&type=chunk) - Changes in methods of product candidate manufacturing or formulation may result in additional costs or delays[199](index=199&type=chunk) - Failure to obtain or maintain orphan drug designation or other regulatory exclusivity for product candidates would harm the company's competitive position[193](index=193&type=chunk)[194](index=194&type=chunk) - Obtaining approval for product candidates in one jurisdiction does not ensure approval in other jurisdictions, limiting market opportunities[200](index=200&type=chunk) [Risks Related to Commercialization](index=42&type=section&id=Risks%20Related%20to%20Commercialization) This section outlines commercialization risks, including the lack of internal sales capabilities, ongoing regulatory burdens, potentially small market opportunities for rare diseases, unfavorable pricing, and the impact of healthcare reform measures - The company lacks its own sales, marketing, and distribution capabilities, and establishing them or relying on third parties carries significant risks and costs[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk) - Even if regulatory approval is received, ongoing regulatory obligations and continued review may result in significant additional expenses and potential sanctions[208](index=208&type=chunk)[209](index=209&type=chunk) - Market opportunities for product candidates targeting rare and ultra-rare diseases may be smaller than anticipated, requiring successful patient identification and significant market share for profitability[213](index=213&type=chunk) - Unfavorable pricing regulations and challenging third-party coverage and reimbursement practices could harm the business and limit product adoption and sales revenue[214](index=214&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) - Recently enacted and future legislation, including healthcare reform measures and drug price controls, may increase commercialization costs and affect product prices[218](index=218&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk) [Risks Related to Our Dependence on Third Parties](index=46&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third%20Parties) This section details risks associated with dependence on third parties, including collaborators for development and commercialization, contract manufacturers for supply, and contract research organizations for clinical trials - The successful development and commercialization of partnered products and product candidates are highly dependent on the research, development, and marketing efforts of collaborators (e.g., Neurocrine Biosciences, Flexion, Genentech, Merck)[226](index=226&type=chunk) - Non-performance, shifting priorities, or termination of collaboration agreements by third parties could significantly delay or terminate programs, requiring the company to assume responsibilities or seek new collaborators[227](index=227&type=chunk)[228](index=228&type=chunk) - The company relies on third-party manufacturers (CMOs) to produce clinical product candidate supplies, entailing risks related to regulatory compliance, quality control, and timely delivery[236](index=236&type=chunk)[237](index=237&type=chunk) - Reliance on third parties (CROs, academic institutions) to monitor, support, and conduct pre-clinical and clinical trials poses risks of delays, non-compliance with regulatory requirements (cGLP, cGCP, cGMP), and potential data rejection[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[242](index=242&type=chunk) [Risks Related to Intellectual Property](index=50&type=section&id=Risks%20Related%20to%20Intellectual%20Property) This section covers intellectual property risks, including the uncertainty of patent protection, potential invalidation of patents, infringement claims, challenges in maintaining trade secret confidentiality, and impacts from changes in patent laws - The company's commercial success depends on obtaining and maintaining adequate patent and other intellectual property protection, which is uncertain and may not provide competitive advantages[246](index=246&type=chunk)[248](index=248&type=chunk) - Patents covering product candidates could be found invalid or unenforceable if challenged, leading to loss of protection and competitive harm[253](index=253&type=chunk)[254](index=254&type=chunk) - Claims that product candidates infringe third-party patent or intellectual property rights could result in costly litigation, require substantial time and money to resolve, or necessitate obtaining licenses on unfavorable terms[262](index=262&type=chunk)[264](index=264&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk) - Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information[271](index=271&type=chunk) - Recent court decisions and changes in patent laws could increase uncertainties and costs surrounding patent prosecution and enforcement[272](index=272&type=chunk) - Failure to obtain patent term extension under the Hatch-Waxman Act could shorten the exclusive marketing period for product candidates[273](index=273&type=chunk)[274](index=274&type=chunk) [Risks Related to Our Industry](index=55&type=section&id=Risks%20Related%20to%20Our%20Industry) This section addresses industry-specific risks, including product liability lawsuits, compliance with anti-kickback and privacy laws, environmental regulations, and vulnerability to natural disasters - The company faces an inherent risk of product liability lawsuits from clinical testing and commercialization, which could result in substantial liabilities, decreased demand, and reputational harm[277](index=277&type=chunk)[278](index=278&type=chunk) - Current and future operations are subject to federal and state anti-kickback, fraud and abuse, false claims, transparency, and health information privacy and security laws, with non-compliance potentially leading to significant penalties[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) - Failure to comply with environmental, health, and safety laws and regulations could result in fines or penalties[284](index=284&type=chunk) - The company is vulnerable to natural disasters (e.g., earthquakes) and other disruptions, which could adversely affect operations and data[285](index=285&type=chunk) [Risks Related to the Securities Markets and Ownership of Our Common Shares](index=57&type=section&id=Risks%20Related%20to%20the%20Securities%20Markets%20and%20Ownership%20of%20Our%20Common%20Shares) This section covers risks related to common share ownership, including stock price volatility, potential future dilution, anti-takeover provisions, implications of 'smaller reporting company' status, and the absence of anticipated cash dividends - The market price of the company's common shares may be volatile, influenced by factors such as clinical trial results, regulatory announcements, and general market conditions, potentially leading to substantial losses for investors[286](index=286&type=chunk)[287](index=287&type=chunk) - Future sales and issuances of common shares, preferred shares, or other convertible securities could cause substantial dilution to existing shareholders and a decline in the market price of common shares[288](index=288&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) - Provisions in corporate charter documents and Canadian law could make an acquisition of the company more difficult and may prevent attempts by shareholders to replace management[290](index=290&type=chunk)[291](index=291&type=chunk)[293](index=293&type=chunk) - As a 'smaller reporting company,' the company may comply with reduced reporting and disclosure requirements, which could make its common shares less attractive to investors[295](index=295&type=chunk)[297](index=297&type=chunk) - The company's loss of 'emerging growth company' status may increase costs and demands on management, particularly regarding compliance with Section 404 of Sarbanes-Oxley[298](index=298&type=chunk)[299](index=299&type=chunk) - The company does not anticipate paying any cash dividends on its common shares in the foreseeable future, meaning capital appreciation would be the sole source of gain for investors[308](index=308&type=chunk) [Item 5. Other Information](index=62&type=section&id=Item%205.%20Other%20Information) On May 20, 2020, Xenon Pharmaceuticals Inc. terminated its amended and restated loan and security agreement with Silicon Valley Bank by prepaying approximately $15.7 million, which included the outstanding principal balance and associated fees - The company terminated its amended and restated loan and security agreement with Silicon Valley Bank on May 20, 2020[309](index=309&type=chunk) - Approximately **$15.7 million** was prepaid to cover outstanding borrowed amounts and fees related to the termination[309](index=309&type=chunk) [Item 6. Exhibits](index=63&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, as well as various XBRL (eXtensible Business Reporting Language) documents for financial data - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2)[312](index=312&type=chunk) - XBRL Instance Document and Taxonomy Extension Documents (Schema, Calculation, Definition, Label, Presentation) are included[312](index=312&type=chunk) - Certifications attached as Exhibits 32.1 and 32.2 are not deemed filed with the Securities and Exchange Commission[312](index=312&type=chunk) [SIGNATURES](index=64&type=section&id=SIGNATURES) The Quarterly Report on Form 10-Q was duly signed on May 21, 2020, by Simon Pimstone, Chief Executive Officer, and Ian Mortimer, President and Chief Financial Officer, on behalf of Xenon Pharmaceuticals Inc - The report was signed by Simon Pimstone, Chief Executive Officer, and Ian Mortimer, President and Chief Financial Officer[316](index=316&type=chunk) - The signing date for the report was May 21, 2020[316](index=316&type=chunk)

Financial Data and Key Metrics Changes - Cash and cash equivalents and marketable securities as of December 31, 2019, were $141.4 million, compared to $119.3 million as of December 31, 2018, indicating a year-over-year increase of approximately 18.5% [34] - The company raised over $100 million from an underwritten public offering and from sales under its at-the-market equity offering, resulting in a strong balance sheet to support operations into 2022 [31][35] Business Line Data and Key Metrics Changes - XEN1101 is in a Phase IIb clinical trial for adult focal epilepsy, with patient enrollment ongoing in the U.S., Canada, and Europe, and top-line results anticipated in the second half of 2020 [10][12] - XEN496, a treatment for KCNQ2 developmental and epileptic encephalopathy, has received orphan drug designation from the FDA, with a pivotal trial expected to start in 2020 following FDA feedback [15][19] - XEN007 is being developed for hemiplegic migraine and childhood absence epilepsy, with ongoing studies and positive preclinical data supporting its efficacy [20][22] Market Data and Key Metrics Changes - The incidence of KCNQ2-DEE is approximately 1 per 17,000 live births, highlighting a significant market opportunity for XEN496 [14] - The collaboration with Neurocrine Biosciences aims to address unmet medical needs in rare epilepsy disorders, with potential milestone payments of up to $25 million upon IND acceptance [27] Company Strategy and Development Direction - The company is focused on advancing its proprietary clinical programs and exploring additional indications for its products, particularly XEN1101 and XEN496 [8][13] - Strategic partnerships, such as with Neurocrine and Flexion Therapeutics, are aimed at maximizing the potential of its pipeline while ensuring investment in later-stage assets [26][28] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty related to COVID-19 and its potential impact on clinical trial recruitment and operations, committing to monitor the situation closely [9] - The company expects 2020 to be a data-rich year with several product candidates entering mid- to late-stage clinical trials or generating important clinical data [29][37] Other Important Information - The company has a robust pipeline of early-stage preclinical candidates targeting sodium and potassium channels, positioning it as a leader in small molecule ion channel drug discovery [24][25] Q&A Session Summary Question: What are the downsides to conducting an interim analysis for XEN1101? - Management indicated a small alpha hit could occur, but the study is well powered to detect a significant difference without the need for an interim analysis [40][41] Question: Is there a futility analysis as part of the interim consideration? - Management clarified that the interim analysis was not designed for futility but rather for potential resizing of treatment arms [43][44] Question: What are the expectations for the placebo response in the XEN1101 trial? - Management noted an increase in placebo response rates in adult focal epilepsy over the past decade, modeling a floating placebo rate for the trial [56][57] Question: How should R&D and G&A expenses be modeled going forward? - Management expects overall operating expenses to increase in 2020 due to ongoing clinical trials and the advancement of XEN496 into pivotal studies [58]