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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from                            to                         

Commission File Number: 001-36687

 

XENON PHARMACEUTICALS INC.

(Exact name of Registrant as Specified in its Charter)

 

 

Canada

98-0661854

(State or other jurisdiction of

incorporation or organization)

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

200-3650 Gilmore Way

Burnaby, British Columbia, Canada

V5G 4W8

(Address of principal executive offices)

(Zip Code)

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

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Shares, without par value

 

XENE

 

The Nasdaq Stock Market LLC

(The Nasdaq Global Market)

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

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

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

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company            

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

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

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

As of May 6, 2022, the registrant had 53,105,718 common shares, without par value, outstanding.



 

 

XENON PHARMACEUTICALS INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

TABLE OF CONTENTS

 

 

Page

 

PART I. FINANCIAL INFORMATION

3

 

Item 1. Financial Statements

3

 

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

3

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

4

 

Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2022 and 2021

5

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

6

 

Notes to Consolidated Financial Statements

7

 

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

14

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

 

Item 4. Controls and Procedures

24

 

PART II. OTHER INFORMATION

25

 

Item 1. Legal Proceedings

25

 

Item 1A. Risk Factors

25

 

Item 6. Exhibits

66

 

SIGNATURES

67

 

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


 

-1-


 

Risk Factors Summary

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

We are at risk of securities class action litigation.

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

 

-2-


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

XENON PHARMACEUTICALS INC.

Consolidated Balance Sheets

(Unaudited)

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

116,541

 

 

$

175,688

 

Marketable securities

 

 

421,399

 

 

 

376,086

 

Accounts receivable

 

 

2,923

 

 

 

2,765

 

Prepaid expenses and other current assets

 

 

4,753

 

 

 

4,481

 

 

 

 

545,616

 

 

 

559,020

 

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

 

 

7,900

 

 

 

8,056

 

Property, plant and equipment, net

 

 

4,336

 

 

 

4,466

 

Deferred tax assets

 

 

207

 

 

 

465

 

Total assets

 

$

558,059

 

 

$

572,007

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses (note 6)

 

$

7,982

 

 

$

13,717

 

Operating lease liability (note 5)

 

 

 

 

 

605

 

 

 

 

7,982

 

 

 

14,322

 

Operating lease liability, long-term (note 5)

 

 

8,224

 

 

 

7,652

 

 

 

$

16,206

 

 

$

21,974

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

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

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

 

$

 

 

$

7,732

 

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

   outstanding: 53,059,049 (December 31, 2021 - 51,634,752) (note 7)

 

 

800,307

 

 

 

783,170

 

Additional paid-in capital

 

 

119,580

 

 

 

117,495

 

Accumulated deficit

 

 

(377,044

)

 

 

(357,374

)

Accumulated other comprehensive loss

 

 

(990

)

 

 

(990

)

 

 

$

541,853

 

 

$

550,033

 

Total liabilities and shareholders’ equity

 

$

558,059

 

 

$

572,007

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (note 9)

 

 

 

 

 

 

 

 

 

 

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

 

 

-3-


 

XENON PHARMACEUTICALS INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

2021

 

 

Revenue (note 8)

 

$

8,766

 

 

$

4,358

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

19,360

 

 

 

16,308

 

 

General and administrative

 

 

6,775

 

 

 

4,109

 

 

 

 

 

26,135

 

 

 

20,417

 

 

Loss from operations

 

 

(17,369

)

 

 

(16,059

)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

 

368

 

 

 

146

 

 

Unrealized fair value loss on marketable securities

 

 

(3,362

)

 

 

(74

)

 

Foreign exchange gain

 

 

299

 

 

 

155

 

 

Loss before income taxes

 

 

(20,064

)

 

 

(15,832

)

 

Income tax recovery

 

 

394

 

 

 

68

 

 

Net loss and comprehensive loss

 

 

(19,670

)

 

 

(15,764

)

 

Net loss attributable to preferred shareholders

 

 

(299

)

 

 

(423

)

 

Net loss attributable to common shareholders

 

$

(19,371

)

 

$

(15,341

)

 

Net loss per common share (note 3):

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.35

)

 

$

(0.42

)

 

Weighted-average common shares outstanding (note 3):

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

54,852,792

 

 

 

36,824,619

 

 

 

 

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

 

 

 

-4-


 

XENON PHARMACEUTICALS INC.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

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

 

 

 

Convertible

preferred shares

 

 

Common shares

 

 

Additional

paid-in

capital

 

 

Accumulated deficit

 

 

Accumulated other

comprehensive

loss (1)

 

 

Total shareholders'

equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2020

 

 

1,016,000

 

 

$

7,732

 

 

 

35,012,125

 

 

$

397,748

 

 

$

45,357

 

 

$

(278,492

)

 

$

(990

)

 

$

171,355

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,764

)

 

 

 

 

 

(15,764

)

Issuance of common shares and

   pre-funded warrants, net of

   issuance costs (note 7a and

   note 7c)

 

 

 

 

 

 

 

 

5,868,135

 

 

 

99,846

 

 

 

18,769

 

 

 

 

 

 

 

 

 

118,615

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,965

 

 

 

 

 

 

 

 

 

1,965

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

82,455

 

 

 

740

 

 

 

(634

)

 

 

 

 

 

 

 

 

106

 

Balance as of

   March 31, 2021

 

 

1,016,000

 

 

$

7,732

 

 

 

40,962,715

 

 

$

498,334

 

 

$

65,457

 

 

$

(294,256

)

 

$

(990

)

 

$

276,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2021

 

 

1,016,000

 

 

$

7,732

 

 

 

51,634,752

 

 

$

783,170

 

 

$

117,495

 

 

$

(357,374

)

 

$

(990

)

 

$

550,033

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,670

)

 

 

 

 

 

(19,670

)

Issuance of common shares, net of

   issuance costs (note 7a)

 

 

 

 

 

 

 

 

258,986

 

 

 

7,876

 

 

 

 

 

 

 

 

 

 

 

 

7,876

 

Conversion of preferred shares to

   common shares (note 7b)

 

 

(1,016,000

)

 

 

(7,732

)

 

 

1,016,000

 

 

 

7,732

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,614

 

 

 

 

 

 

 

 

 

3,614

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

149,311

 

 

 

1,529

 

 

 

(1,529

)

 

 

 

 

 

 

 

 

 

Balance as of

   March 31, 2022

 

 

 

 

$

 

 

 

53,059,049

 

 

$

800,307

 

 

$

119,580

 

 

$

(377,044

)

 

$

(990

)

 

$

541,853

 

(1)

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

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

 

 

-5-


 

 

XENON PHARMACEUTICALS INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Expressed in thousands of U.S. dollars)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(19,670

)

 

$

(15,764

)

Items not involving cash:

 

 

 

 

 

 

 

 

Depreciation

 

 

376

 

 

 

196

 

Deferred income tax recovery

 

 

258

 

 

 

9

 

Stock-based compensation

 

 

3,614

 

 

 

1,965

 

Unrealized foreign exchange gain

 

 

(142

)

 

 

(204

)

Unrealized fair value loss on marketable securities

 

 

3,362

 

 

 

74

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(155

)

 

 

(3,238

)

Prepaid expenses and other current assets

 

 

(272

)

 

 

(533

)

Accounts payable and accrued expenses

 

 

(5,799

)

 

 

(3,213

)

Net cash used in operating activities

 

 

(18,428

)

 

 

(20,708

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(212

)

 

 

(404

)

Purchases of marketable securities

 

 

(68,956

)

 

 

(100,655

)

Proceeds from marketable securities

 

 

20,280

 

 

 

45,955

 

Net cash used in investing activities

 

 

(48,888

)

 

 

(55,104

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Issuance of common shares and pre-funded warrants,

   net of issuance costs (note 7a)

 

 

7,876

 

 

 

118,615

 

Issuance of common shares pursuant to exercise of stock options

 

 

 

 

 

106

 

Net cash provided by financing activities

 

 

7,876

 

 

 

118,721

 

Effect of exchange rate changes on cash and cash equivalents

 

 

293

 

 

 

67

 

Increase (decrease) in cash and cash equivalents

 

 

(59,147

)

 

 

42,976

 

Cash and cash equivalents, beginning of period

 

 

175,688

 

 

 

45,009

 

Cash and cash equivalents, end of period

 

$

116,541

 

 

$

87,985

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Interest received

 

$

1,682

 

 

$

651

 

Cash paid for operating lease

 

 

203

 

 

 

202

 

Supplemental disclosures of non-cash transactions:

 

 

 

 

 

 

 

 

Fair value of stock options exercised on a cashless basis

 

 

1,529

 

 

 

448

 

 

 

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

 

 

-6-

 

 


 

 

XENON PHARMACEUTICALS INC

Notes to Consolidated Financial Statements

(Unaudited)

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

 

 

 

 

 

 

 

 

1.

Nature of the business:

Xenon Pharmaceuticals Inc. (the “Company”), incorporated in 1996 under the predecessor to the Business Corporations Act (British Columbia) and continued federally in 2000 under the Canada Business Corporations Act, is a clinical stage biopharmaceutical company focused on developing innovative therapeutics to improve the lives of patients with neurological disorders, with a focus on epilepsy.

The Company has incurred significant operating losses since inception. As of March 31, 2022, the Company had an accumulated deficit of $377,044 and a $19,670 net loss for the three months ended March 31, 2022. Management expects to continue to incur significant expenses in excess of revenue and to incur operating losses for the foreseeable future. To date, the Company has financed its operations primarily through funding received from collaboration and license agreements, private placements of common and preferred shares, public offerings of common shares and pre-funded warrants and debt financings.

Until such time as the Company can generate substantial product revenue, if ever, management expects to finance the Company’s cash needs through a combination of collaboration agreements, equity and debt financings. The continuation of research and development activities and the future commercialization of its products are dependent on the Company’s ability to successfully raise additional funds when needed. It is not possible to predict either the outcome of future research and development programs or the Company’s ability to continue to fund these programs in the future.

2.

Basis of presentation:

These consolidated financial statements are presented in U.S. dollars.

The Company has one wholly-owned subsidiary as of March 31, 2022, Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016.

These unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated on consolidation. Certain information has been reclassified to conform with the financial presentation adopted for the current year.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these consolidated financial statements do not include all of the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2021 included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC and with the securities commissions in British Columbia, Alberta and Ontario on March 1, 2022.

These unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three months ended March 31, 2022 and 2021 are not necessarily indicative of results that can be expected for a full year. These unaudited interim consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company included in the Company’s 2021 Annual Report on Form 10-K for the year ended December 31, 2021.

3.

Net income (loss) per common share:

Basic net income (loss) per common share is calculated using the two-class method required for participating securities which includes the Series 1 Preferred Shares as a separate class for the three months ended March 31, 2022 and 2021. The convertible preferred shares entitle the holders to participate in dividends and in earnings and losses of the Company on an equivalent basis as common shares. Accordingly, undistributed earnings (losses) are allocated to common shares and participating preferred shares based on the weighted-average shares of each class outstanding during the period. In March 2022, the outstanding 1,016,000 preferred shares were converted and exchanged for an equal number of common shares of the Company (note 7b).  

The weighted average number of common shares used in the basic and diluted net income (loss) per common share calculations includes the weighted-average pre-funded warrants outstanding during the period as they are exercisable at any time for nominal cash consideration.

 

-7-


 

The treasury stock method is used to compute the dilutive effect of the Company’s stock options and warrants. Under this method, the incremental number of common shares used in computing diluted net income (loss) per common share is the difference between the number of common shares assumed issued and purchased using assumed proceeds.

The if-converted method is used to compute the dilutive effect of the Company’s convertible preferred shares. Under the if-converted method, dividends on the preferred shares, if applicable, are added back to earnings attributable to common shareholders, and the preferred shares and paid-in kind dividends are assumed to have been converted at the share price applicable at the end of the period. The if-converted method is applied only if the effect is dilutive.

For the three months ended March 31, 2022 and 2021, all stock options, warrants and convertible preferred shares were anti-dilutive and were excluded from the diluted weighted average common shares outstanding for the period.

4.

Fair value of financial instruments:

The Company measures certain financial instruments and other items at fair value.

To determine the fair value, the Company uses the fair value hierarchy for inputs used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).

 

Level 1 - Unadjusted quoted prices in active markets for identical instruments.

 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

Level 3 - Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The Company’s Level 1 assets include cash and cash equivalents and marketable securities with quoted prices in active markets. The carrying amount of accounts receivables, accounts payable and accrued expenses approximates fair value due to the nature and short-term of those instruments.

5.

Leases:

The Company has one operating lease for research laboratories and office space in Burnaby, British Columbia. In October 2020, the Company entered into a lease amendment for a 21–month committed term from October 1, 2020 to June 30, 2022 and a renewal option for a portion of the facility for a 5-year term that was reasonably certain of exercise was included in the determination of the right-of-use asset and lease liability. In November 2021, the Company entered into an agreement to extend the lease for an additional 10-year term to June 30, 2032.      

 

-8-


 

The cost components of the operating lease were as follows for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Lease Cost

 

 

 

 

 

 

 

 

Operating lease expense

 

$

238

 

 

$

139

 

Variable lease expense(1)

 

 

192

 

 

 

184

 

Lease Term and Discount Rate

 

 

 

 

 

 

 

 

Remaining lease term (years)

 

 

10.25

 

 

6.25

 

Discount rate

 

 

3.42

%

 

 

2.45

%

 

 

(1)

Variable lease costs are payments that vary because of changes in facts or circumstances and include common area maintenance and property taxes related to the premises. Variable lease costs are excluded from the calculation of minimum lease payments.

Future minimum lease payments as of March 31, 2022 were as follows:

 

Year ending December 31:

 

2022

 

$

682

 

2023

 

 

942

 

2024

 

 

985

 

2025

 

 

1,040

 

2026

 

 

1,095

 

2027 and thereafter

 

 

6,868

 

Total future minimum lease payments

 

$

11,612

 

Less: imputed interest

 

 

(1,904

)

Less: future lease incentives reasonably certain of use(1)

 

 

(1,484

)

Present value of lease liabilities

 

$

8,224

 

 

 

(1)

The future lease incentives are expected to be utilized within the next twelve months.

6.

Accounts payable and accrued expenses:

Accounts payable and accrued expenses consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Trade payables

 

$

1,659

 

 

$

3,824

 

Employee compensation, benefits, and related accruals

 

 

2,106

 

 

 

5,940

 

Consulting and contracted research

 

 

3,780

 

 

 

3,550

 

Professional fees

 

 

155

 

 

 

285

 

Other

 

 

282

 

 

 

118

 

Total

 

$

7,982

 

 

$

13,717

 

 

7.

Share capital:

 

(a)

Financing:

In August 2020, the Company entered into an “at-the-market” equity offering sales agreement, amended as of March 2022, with Jefferies LLC (“Jefferies”) and Stifel, Nicolaus & Company, Incorporated (“Stifel”) pursuant to which the Company may sell common shares from time to time. In January 2021, the Company sold an aggregate of 733,000 common shares for proceeds of $10,693, net of commissions and transaction expenses pursuant to a prospectus supplement filed in August 2020 (“August 2020 ATM"). The Company may sell common shares having gross proceeds of up to $250,000, from time to time, pursuant to a new prospectus supplement filed in March 2022 (“March 2022 ATM"), replacing the August 2020 ATM. As of March 31, 2022, no common shares have been sold under the March 2022 ATM.   

 

-9-


 

In March 2021, the Company entered into an underwriting agreement with Jefferies and Stifel, relating to an underwritten public offering of 5,135,135 common shares, including 810,810 common shares sold upon the full exercise of the underwriters’ over-allotment option, at a public offering price of $18.50 per common share and pre-funded warrants to purchase 1,081,081 common shares at $18.4999 per pre-funded warrant (note 7c), with each pre-funded warrant having an exercise price of $0.0001. The public offering was completed in March 2021, and the Company received proceeds of $107,922, net of underwriting discounts, commissions and offering expenses.

In January 2022, in connection with the License and Collaboration Agreement entered in December 2019 and amended in January 2021 (the "Neurocrine Collaboration Agreement"), the Company executed a Share Purchase Agreement ("SPA") pursuant to which the Company issued 258,986 common shares for an aggregate purchase price of $8,250, or $31.855 per common share, which represents a premium of $374 when compared to the fair value of common shares on the date of issuance. The SPA contains certain other customary terms and conditions, including mutual representations, warranties and covenants. For additional information regarding the Neurocrine Collaboration Agreement, refer to note 8a.

 

(b)

Exchange agreement with certain funds affiliated with BVF Partners L.P. (collectively, “BVF”):

In March 2018, the Company and BVF entered into an exchange agreement pursuant to which the Company issued to BVF 2,868,000 Series 1 Preferred Shares in exchange for 2,868,000 common shares which were subsequently cancelled by the Company. The Series 1 Preferred Shares were convertible into common shares on a one-for-one basis, subject to certain restrictions.

The Series 1 Preferred Shares ranked equally to the common shares in the event of liquidation, dissolution or winding up or other distribution of the assets of the Company among its shareholders and the holders of the Series 1 Preferred Shares were entitled to vote together with the common shares on an as-converted basis and as a single class, subject to certain restrictions.

The Series 1 Preferred Shares were recorded wholly as equity under ASC 480, with no bifurcation of conversion feature from the host contract, given that the Series 1 Preferred Shares cannot be cash settled and had no redemption features.

During the year ended December 31, 2018, BVF converted 1,852,000 Series 1 Preferred Shares in exchange for an equal number of common shares. In March 2022, the remaining outstanding 1,016,000 Series 1 Preferred Shares were exchanged for an equal number of common shares.

 

(c)

Pre-Funded Warrants:

In connection with the underwritten public offerings completed in March and October 2021, the Company issued 1,081,081 pre-funded warrants at a price of $18.4999 per pre-funded warrant which grants the holder the right to purchase up to 1,081,081 common shares at an exercise price of $0.0001 per share and 1,694,915 pre-funded warrants at a price of $29.4999 per pre-funded warrant which grants the holder the right to purchase up to 1,694,915 common shares at an exercise price of $0.0001 per share, respectively (together, the “Pre-Funded Warrants”).

The Pre-Funded Warrants are exercisable at the holder’s discretion from the date of issuance until the date the Pre-Funded Warrant is exercised in full.  The Company may not affect the exercise of any Pre-Funded Warrant, and a holder will not be entitled to exercise any portion of any Pre-Funded Warrant that, upon giving effect to such exercise, would cause: (i) the aggregate number of common shares beneficially owned by such holder, together with its affiliates, to exceed 4.99% of the total number of common shares outstanding immediately after giving effect to the exercise; or (ii) the combined voting power of the Company’s securities beneficially owned by such holder, together with its affiliates, to exceed 4.99% of the combined voting power of all of the Company’s securities immediately outstanding after giving effect to the exercise, which percentage may be changed at the holder’s election to a higher or lower percentage not in excess of 19.99% upon at least 61 days’ notice to the Company.

Since the Pre-Funded Warrants meet the condition for equity classification, net proceeds from issuances of the Pre-Funded Warrants are recorded in additional paid-in capital. Upon exercise of the Pre-Funded Warrants, the historical costs recorded in additional paid-in capital along with the exercise price collected from holder will be recorded in common shares. As of March 31, 2022, no Pre-Funded Warrants have been exercised. Pre-funded Warrants to purchase 2,775,996 (March 31, 2021 1,081,081) common shares are not included in the number of issued and outstanding common shares as of March 31, 2022.   

 

-10-


 

 

(d)

Stock-based compensation:  

The following table presents stock option activity for the period:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Outstanding, beginning of period

 

 

5,638,232

 

 

 

4,758,997

 

Granted

 

 

1,659,845

 

 

 

1,111,950

 

Exercised(1)

 

 

(219,107

)

 

 

(122,403

)

Forfeited, cancelled or expired

 

 

(3,897

)

 

 

(5,936

)

Outstanding, end of period

 

 

7,075,073

 

 

 

5,742,608

 

Exercisable, end of period

 

 

3,231,657

 

 

 

2,769,438

 

 

(1)

During the three months ended March 31, 2022, no stock options were exercised for cash (2021 – 46,296). In the same period, the Company issued 149,311 (2021 – 36,159) common shares for the cashless exercise of 219,107  (2021 – 76,107) stock options.

The fair value of each stock option granted is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Average risk-free interest rate

 

 

1.94

%

 

 

1.15

%

Expected volatility

 

 

70

%

 

 

68

%

Average expected term (in years)

 

 

6.28

 

 

 

6.53

 

Expected dividend yield

 

 

0

%

 

 

0

%

Weighted average fair value of stock options granted

 

$

19.23

 

 

$

12.86

 

 

8.

Revenue:

Revenue was as follows for the three months ended March 31, 2022 and 2021:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Neurocrine Biosciences:

 

 

 

 

 

 

 

 

    Recognition of the transaction price

 

$

372

 

 

$

 

    Research and development services

 

 

1,270

 

 

 

1,358

 

    Milestone payments

 

 

7,124

 

 

 

 

Pacira BioSciences:

 

 

 

 

 

 

 

 

   Milestone payments

 

 

 

 

 

3,000

 

Total collaboration revenue

 

$

8,766

 

 

$

4,358

 

 

 

(a)

Neurocrine Biosciences license and collaboration agreement:

In December 2019, the Company entered into the Neurocrine Collaboration Agreement with Neurocrine Biosciences. Pursuant to this agreement, the Company granted an exclusive license to XEN901, now known as NBI-921352, and an exclusive license to pre-clinical compounds for development, XEN393, XPC’535 and XPC’391 (collectively, the “DTCs”). The agreement also includes a two-year research collaboration to discover, identify and develop additional novel Nav1.6 and Nav1.2/1.6 inhibitors (“Research Compounds”) which has been extended to June 2022. The Company and Neurocrine Biosciences are collaborating on the conduct of two collaboration programs: (a) a joint research collaboration to discover, identify and preclinically develop Research Compounds (the “Research Program”) and (b) a collaborative development program for NBI-921352 and two DTCs selected by the joint steering committee (the “Initial Development Program”). 

 

-11-


 

At execution of the agreement, Neurocrine Biosciences paid the Company an upfront cash payment of $30,000 and a $20,000 equity investment in the Company. The equity investment was measured at fair value of $16,667 on the date of issuance and the resulting premium of $3,333, together with the upfront cash payment totaling $33,333, was the transaction price of the arrangement for allocation to the performance obligations.  The agreement includes the following performance obligations: (i) an exclusive license to NBI-921352 with associated technology and know-how transfer, (ii) an exclusive license to the DTCs with associated know-how transfer, (iii) a license to Research Compounds and research services under the Research Program, (iv) development services under the Initial Development Program for NBI-921352, and (v) development services under the Initial Development Program for the DTCs. The total transaction price of $33,333 was allocated to performance obligation (v) based on its estimated standalone selling price determined based on internal development plans and budget, with the balance allocated to performance obligations (i) and (ii) by the residual approach. The Company allocated the transaction price as follows: $28,807 to performance obligations (i) and (ii), completed as of December 2020, and $5,025, which includes $499 of variable consideration, to performance obligation (v), which was completed as of March 2022.

The arrangement consideration related to the services under performance obligations (iii) and (iv) to be performed on behalf of Neurocrine Biosciences were excluded from the initial transaction price allocation because the consideration and performance are contingent upon Neurocrine Biosciences requesting performance of the services and these services are priced at an estimated fair value. None of the at-risk substantive performance milestones, including development, regulatory and sales-based milestones, were included in the transaction price at the inception of the agreement, as all milestone amounts are outside the control of the Company and contingent upon Neurocrine Biosciences’s efforts and success in future clinical trials.   

In January 2022, based on the receipt of the U.S. Food and Drug Administration’s (“FDA”) full IND acceptance for NBI-921352, the Company received an aggregate milestone payment of $15,000 in the form of $6,750 in cash and a $8,250 equity investment in the Company (note 7a) . The equity investment was measured at fair value of $7,876 on the date of issuance and the resulting premium of $374, with the cash payment of $6,750, was recognized as revenue in the period as the Company did not have any remaining performance obligations in relation to this milestone on the date it was achieved.

During the three months ended March 31, 2022 and 2021, the Company recognized $1,270 and $1,358 of revenue, respectively, for the research and development services under (iii) the Research Program and (iv) the Initial Development Program for NBI-921352. As of March 31, 2022, there is $1,418 of accounts receivable outstanding from Neurocrine Biosciences.

The Company is eligible to receive pre-commercial and commercial milestone payments with respect to the licensed products totaling up to an additional $1,667,500, comprised of up to $1,067,500 in additional development and regulatory milestone payments related to NBI-921352 and other licensed Nav1.6 or Nav1.2/1.6 inhibitor products, and up to $600,000 in additional sales-based milestone payments for multiple products. In addition, the Company is eligible to receive royalties on net sales in and outside the U.S., ranging from (a) for NBI-921352, a low double-digit percentage to a mid-teen percentage and a high-single digit percentage to low double-digit percentage, respectively; (b) for DTCs, a high-single digit percentage to a low double-digit percentage and a mid-single digit percentage to a high-single digit percentage, respectively; and (c) for Research Compounds, a mid-single digit percentage to a high-single digit percentage and a tiered mid-single digit percentage, respectively. Royalty rates are subject to customary reductions. These additional amounts will be recognized as determinable. The Company has an option to co-fund 50% of the development costs of NBI-921352 or another product candidate in the U.S., exercisable upon achievement of certain milestones, in exchange for increased U.S. royalties. The Company has not exercised this option as of March 31, 2022.     

 

(b)

Asset Purchase Agreement with Flexion Therapeutics, Inc., which was subsequently acquired by Pacira BioSciences, Inc.

In September 2019, the Company entered into an agreement with Flexion Therapeutics Inc. (“Flexion”), which was acquired by Pacira BioSciences, Inc. (“Pacira BioSciences”) in November 2021, pursuant to which Flexion acquired all rights with respect to XEN402, and a related compound (collectively “XEN402”), including certain regulatory documentation, intellectual property rights, reports, data and all quantities of XEN402, now known as PCRX301, owned or controlled by the Company. 

During the three months ended March 31, 2021, the FDA cleared the first investigational new drug application for PCRX301 and Flexion initiated a Phase 1b clinical trial, resulting in milestone payments of $1,000 and $2,000 paid to the Company, respectively. Pursuant to terms of the agreement, the Company will also be eligible for a development milestone payment of $5,000 upon initiation of a Phase 2 proof-of-concept clinical trial. Following successful proof-of-concept, the Company may be entitled to future clinical development and global regulatory approval milestone payments of up to $40,750, commercial milestone payments of up to $75,000, as well as future royalties ranging from mid-single to low-double digit percentages. These additional amounts will be recognized as determinable.

   

 

-12-


 

 

9.

Commitments and contingencies:

 

(a)

Priority access agreement with Medpace Inc. (“Medpace”):

In August 2015, the Company entered into a priority access agreement with Medpace for the provision of certain clinical development services, under which the Company has committed to using Me