Xenon(XENE) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited Q1 2022 financials report $8.8 million revenue, a $19.7 million net loss, and $537.9 million cash and marketable securities, reflecting milestone revenue, higher R&D, and preferred share conversion Consolidated Balance Sheet Highlights (in thousands USD) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $116,541 | $175,688 | | Marketable securities | $421,399 | $376,086 | | Total Assets | $558,059 | $572,007 | | Liabilities & Equity | | | | Total Liabilities | $16,206 | $21,974 | | Total Shareholders' Equity | $541,853 | $550,033 | Consolidated Statements of Operations (in thousands USD) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Revenue | $8,766 | $4,358 | | Research and development | $19,360 | $16,308 | | General and administrative | $6,775 | $4,109 | | Loss from operations | ($17,369) | ($16,059) | | Net loss | ($19,670) | ($15,764) | | Net loss per common share | ($0.35) | ($0.42) | - In January 2022, the company received a $15.0 million milestone payment from Neurocrine Biosciences related to the IND acceptance for NBI-921352, consisting of $6.75 million in cash and an $8.25 million equity investment, with the resulting premium and cash payment recognized as revenue[47] - In March 2022, all 1,016,000 outstanding Series 1 Preferred Shares were converted and exchanged for an equal number of common shares[23][39] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial results, pipeline advancements, $8.8 million revenue from a milestone, higher expenses, and $537.9 million cash sufficient for 12 months - The company is advancing its proprietary pipeline: XEN1101 (Epilepsy) has an 'end-of-Phase 2' FDA meeting planned for Q2 2022 to support Phase 3 initiation in H2 2022; XEN1101 (MDD) Phase 2 X-NOVA trial is underway with topline results anticipated in 2023; XEN496 (KCNQ2-DEE) Phase 3 EPIK study is ongoing and expected to be completed in 2023[63][64][66] Revenue Comparison (in thousands USD) | Source | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Neurocrine Biosciences | $8,766 | $1,358 | | Pacira BioSciences | $0 | $3,000 | | Total Revenue | $8,766 | $4,358 | Research & Development Expenses by Program (in thousands USD) | Program | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | XEN1101 | $7,438 | $6,469 | | XEN496 | $5,552 | $5,677 | | NBI-921352 | $200 | $356 | | Pre-clinical & Other | $6,170 | $3,806 | | Total R&D | $19,360 | $16,308 | - As of March 31, 2022, the company had cash, cash equivalents, and marketable securities of $537.9 million, which management expects will be sufficient to fund operating expenses and capital requirements for at least the next 12 months[95][100] Quantitative and Qualitative Disclosures About Market Risk The company details market risks, including unhedged foreign currency exposure and interest rate sensitivity on its cash and marketable securities, with inflation not deemed material - The company is subject to foreign currency exchange risk due to transactions and cash holdings denominated in Canadian dollars, but does not currently hedge this exposure[109][110] - The company is exposed to interest rate risk on its $537.9 million of cash and marketable securities, where a 1% unfavorable change in interest rates would decrease the fair value of marketable securities by approximately $3.1 million[111] - Inflation is noted to increase labor and R&D costs, but management does not believe it has had a material effect on the business or financial condition during the quarter[112] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[113] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[114] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - As of the report date, the company is not a party to any legal proceedings that management believes would have a material adverse effect on the business[116] Risk Factors This section outlines key risks including a history of losses, future funding needs, uncertainties in clinical development, competition, reliance on third parties, and intellectual property challenges - The company has a history of significant losses, with a net loss of $19.7 million for Q1 2022 and an accumulated deficit of $377.0 million, and expects to incur significant losses for the foreseeable future[118] - The company will likely need to raise additional capital to complete clinical development and commercialization, which may not be available on acceptable terms[124][125] - Clinical drug development is a lengthy, expensive process with uncertain outcomes, where trials can be delayed or fail, and the COVID-19 pandemic has previously impacted patient enrollment and could do so again[186][187] - The company is dependent on collaborators like Neurocrine Biosciences and Pacira BioSciences for the development and commercialization of partnered product candidates, and has no control over the resources they devote[247] - The company relies on third-party manufacturers (CMOs) and contract research organizations (CROs), and any failure by these parties to comply with regulations or meet deadlines could substantially harm the business[257][261] - The company faces risks of intellectual property challenges, including being unable to obtain or maintain patent protection, having patents invalidated, or facing infringement lawsuits from third parties[268][274][283] Exhibits This section lists exhibits filed with the Form 10-Q, including an amendment to the At-the-Market Equity Offering Sales Agreement, a Share Purchase Agreement, and CEO/CFO certifications - Key exhibits filed with the report include: Amendment No. 1 to the At-the-Market Equity Offering Sales Agreement; Share Purchase Agreement with Neurocrine Biosciences, Inc. dated January 11, 2022; and Certifications by the Chief Executive Officer and Chief Financial Officer[326]