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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-01 · 138 added, 211 removed, 529 unchanged (40% of the section changed)

6 unchanged sentences

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Shareholders’

Equity for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021

Notes to Consolidated Financial Statements

Report of Independent Regist ered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

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We have audited the accompanying consolidated balance sheets of Xenon Pharmaceuticals Inc.

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, shareholders’

equity, and cash flows for each of the years in the three‑year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2022, in conformity with U.S.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 29, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there were no critical audit matters.

We determined that there are no critical audit matters.

Chartered Professional Accountants

We have served as the Company’s auditor since 1999.

Vancouver, Canada

March 1, 2023

February 29, 2024

Report of Independent Registered Public Accounting Firm

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Opinion on Internal Control Over Financial Reporting

We have audited Xenon Pharmaceuticals Inc.’s (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2023 expressed an unqualified opinion on those consolidated financial statements.

We have audited Xenon Pharmaceuticals Inc.’s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 29, 2024 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Vancouver, Canada

March 1, 2023

February 29, 2024

XENON PHARMACEUTICALS INC.

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Prepaid expenses, long-term

Liabilities and shareholders’

Liabilities and shareholders’ equity

Current liabilities:

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Total liabilities

Shareholders’

Preferred shares, without par value;

unlimited shares authorized;

nil (December 31, 2021 - 1,016,000 ) (note 12)

Shareholders’ equity:

Common shares, without par value;

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Total shareholders' equity

Total liabilities and shareholders’

Collaboration agreements (note 13)

Total liabilities and shareholders’ equity

Commitments and contingencies (note 12)

Subsequent event (note 14a)

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

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Interest income

Unrealized fair value (loss) gain on trading securities

Interest expense

Foreign exchange (loss) gain

Loss on repayment of term loan (note 11)

Unrealized fair value gain (loss) on trading securities

Foreign exchange gain (loss)

Loss before income taxes

Income tax (expense) recovery (note 15)

Income tax recovery (expense) (note 13)

Net loss attributable to preferred shareholders

Net loss attributable to common shareholders

Other comprehensive loss:

Unrealized loss on available-for-sale securities (note 7)

Other comprehensive income (loss):

Unrealized gain (loss) on available-for-sale securities (note 6)

Comprehensive loss

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XENON pharmaceuticals INC .

Consolidated Statement of Shareholders’

Consolidated Statements of Shareholders’ Equity

(Expressed in thousands of U.S.

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Net loss for the year

Issuance of common shares,

net of issuance costs (note 12a)

Issuance of common shares and

pre-funded warrants, net of

issuance costs (note 10a and note 10e)

Stock-based compensation

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issuance costs (note 10a and note 10e)

Conversion of preferred shares

to common shares (note 10d)

Stock-based compensation

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of stock options

Other comprehensive loss (note 6)

Balance as of

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issuance costs (note 10a and note 10e)

Conversion of preferred shares

to common shares (note 12d)

Conversion of pre-funded warrants

to common shares (note 10e)

Stock-based compensation

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of stock options

Other comprehensive loss (note 7)

Other comprehensive income (note 6)

Balance as of

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Items not involving cash:

Amortization of discount on term loan

Deferred income tax (recovery) expense

Stock-based compensation

Unrealized foreign exchange loss (gain)

Unrealized fair value loss (gain) on trading securities

Loss on repayment of term loan (note 11)

Unrealized foreign exchange (gain) loss

Unrealized fair value (gain) loss on trading securities

Changes in operating assets and liabilities:

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Financing activities:

Repayment of term loan and repayment fees (note 11)

Issuance of common shares and pre-funded warrants,

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Supplemental disclosures:

Interest paid

Interest received

Cash paid for operating lease

Cash received for lease incentives

Supplemental disclosures of non-cash transactions:

Fair value of stock options exercised on a cashless basis

Fair value of pre-funded warrants exercised

Purchases of property, plant and equipment included in accounts payable

and accrued expenses

Right-of-use asset obtained in exchange for new operating lease liability (note 9)

Right-of-use asset obtained in exchange for new operating

lease liability (note 8)

Increase in operating lease liability and accounts receivable related to

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Xenon Pharmaceuticals Inc.

(the “Company”), incorporated in 1996 under the predecessor to the Business Corporations Act (British Columbia) and continued federally in 2000 under the Canada Business Corporations Act, is a 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”), incorporated in 1996 under the predecessor to the Business Corporations Act (British Columbia) and continued federally in 2000 under the Canada Business Corporations Act, is a neuroscience-focused biopharmaceutical company committed to improving the lives of people living with neurological and psychiatric disorders.

The Company has incurred significant operating losses since inception.

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To date, the Company has financed its operations primarily through the sale of equity securities, funding received from collaboration and license agreements, 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.

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.

Basis of presentation:

These consolidated financial statements are presented in U.S.

dollars and have been prepared in accordance with United States generally accepted accounting principles (“U.S.

GAAP”).

Certain information has been reclassified to conform with the financial statement presentation adopted for the current year.

dollars and have been prepared in accordance with United States generally accepted accounting principles (“U.S.

The Company has one wholly-owned subsidiary as of December 31, 2023 , Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016 .

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When the Company intends to sell an impaired available-for-sale security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment will immediately be recognized in the consolidated statement of operations with no corresponding allowance for credit losses.

Realized gains and losses and credit losses, if any, on available-for-sale securities are included in interest income (expense), based on the specific identification method.

Realized gains and losses and credit losses, if any, on available-for-sale securities are included in interest income, based on the specific identification method.

Available-for-sale securities are also adjusted for amortization of premiums and accretion of discounts to maturity, with such amortization and accretion included within interest income.

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No impairment of long-lived assets was noted during the years ended December 31, 2023, 2022 and 2021 .

Leases classified as operating leases are recorded as lease liabilities based on the present value of minimum lease payments over the lease term, discounted using the lessor’s rate implicit in the lease or the Company’s incremental borrowing rate, if the lessor’s implicit rate is not readily determinable.

The lease term includes all periods covered by renewal and termination options where the Company is reasonably certain to exercise the renewal options or not to exercise the termination options.

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Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities.

The Company's investments are limited to investment-grade securities with strong credit ratings with the objective of maintaining safety and liquidity.

Cash and cash equivalents were held at major financial institutions in Canada and the United States.

Such deposits may be in excess of insured limits in the event of non-performance by the institutions;

however, the Company does not anticipate non-performance.

The Company's investments are limited to investment-grade securities with strong credit ratings with the objective to preserve capital and maintain liquidity.

Cash and cash equivalents were held at major financial institutions in Canada and the United States which may at times be in excess of federally insured limits.

The Company does not believe that it is subject to credit risk beyond the standard credit risk associated with commercial banking relationships.

Neurocrine Biosciences, Inc.

("Neurocrine Biosciences") accounted for 100 % of revenue recognized for the year ended December 31, 2022 and December 31, 2020.

("Neurocrine Biosciences") accounted for 100 % of revenue recognized for the year ended December 31, 2022.

Neurocrine Biosciences and Pacira BioSciences, Inc.

(“Pacira BioSciences”) accounted for 84 % and 16 % of revenue recognized for the year ended December 31, 2021, respectively.

(i) Financial instruments and fair value:

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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.

• 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.

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The carrying amount of accounts receivable, accounts payable and accrued expenses approximates fair value due to the nature and short-term of those instruments.

The Company’s cash and cash equivalents and marketable securities are measured at fair value on a recurring basis and the level of fair value hierarchy utilized is described in note 6.

The Company’s cash and cash equivalents and marketable securities are measured at fair value on a recurring basis and the level of fair value hierarchy utilized is described in note 5.

(j) Revenue recognition:

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The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative standalone selling prices.

The estimated standalone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was regularly sold on a standalone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if selling price on a standalone basis is not available.

The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services.

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Consideration associated with at-risk substantive performance milestones, including sales-based milestones, is recognized as revenue using the most likely amount method when it is probable that a significant reversal of the cumulative revenue recognized will not occur.

Sales-based royalties received in connection with licenses of intellectual property are subject to a specific exception in the revenue standards, whereby the consideration is not included in the transaction price and recognized in revenue until the customer’s subsequent sales or usages occur.

(k) Research and development costs:

Research and development costs are expensed in the period incurred.

Research and development expenses consist of costs incurred in performing research and development activities, including personnel-related expenses, consisting of salaries, benefits and stock-based compensation for employees engaged in scientific research and development, third-party expenses incurred in connection with the pre-clinical and clinical development of product candidates, third-party expenses relating to formulation, process development and manufacture of drug substance and drug product for use in pre-clinical testing and clinical trials, third-party acquisition, license and collaboration fees, laboratory consumables and certain indirect costs incurred in support of overall research and development activities, including facilities, depreciation and information technology costs.

Research and development expenses consist of costs incurred in performing research and development activities, including personnel-related expenses, consisting of salaries, benefits and stock-based compensation for employees engaged in scientific research and development, third-party expenses incurred in connection with the pre-clinical and clinical development of product candidates including under agreements with clinical research organizations, third-party expenses relating to formulation, process development and manufacture of drug substance and drug product for use in pre-clinical testing and clinical trials, third-party acquisition, license and collaboration fees, laboratory consumables and certain indirect costs incurred in support of overall research and development activities, including facilities, depreciation and information technology costs.

The amount of expenses recognized in a period related to service agreements is based on the work performed using the accrual basis of accounting.

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dollars are translated at historical exchange rates prevailing at each transaction date.

Revenue and expense transactions are translated at the exchange rates prevailing at each transaction date.

Exchange gains and losses on translation are included in the consolidated statements of operations and comprehensive income (loss) as foreign exchange (loss) gain.

Revenue and expense transactions ar e translated at the approximate exchange rate prevailing on the date of transaction.

Exchange gains and losses on translation are included in the consolidated statements of operations and comprehensive income (loss) as foreign exchange gain (loss).

(n) Income taxes:

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The Company views its operations and manages its business in one operating segment.

Changes in significant accounting policies:

Effective July 1, 2022, the Company classifies its marketable securities as either trading securities or available-for-sale securities.

In addition, the Company elected to early adopt Accounting Standards Update ("ASU") 2016-13 , Financial Instruments –

Credit Losses (Topic 326) issued by the Financial Accounting Standards Board.

The standard adjusts the accounting for assets measured at amortized cost basis, including marketable securities accounted for as available-for-sale.

Investors are required to determine whether a decline in the fair value below the amortized cost basis of the investment is due to credit-related factors.

Credit-related impairment is recognized as an allowance for credit loss on the balance sheet with a corresponding adjustment to the consolidated statement of operations.

Credit losses are limited to the amount by which the investment’s amortized cost basis exceeds its fair value and may be subsequently reversed if conditions change.

Any impairment that is not credit related is recognized in other comprehensive income (loss), as applicable, net of applicable taxes.

The ASU is effective for public business entities for fiscal years beginning after December 15, 2019.

For all other entities, including smaller reporting companies as defined by the Securities and Exchange Commission, the standard is effective for fiscal years beginning after December 15, 2022.

As the Company was a smaller reporting company on the date of assessment per the ASU and related amendments, adoption of this standard can be deferred to fiscal years beginning after December 15, 2022;

however, the Company has elected to early adopt this ASU effective July 1, 2022 .

The adoption did not have a material impact on the Company’s consolidated financial statements.

(p) Recent accounting pronouncements:

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that the Company adopts as of the specified effective date.

The Company has evaluated recently issued accounting pronouncements and, based on preliminary assessment, does not believe any will have a material impact on the Company’s financial statements.

Net income (loss) per common share:

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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.

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.

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Corporate debt securities

The fair values of the Company’s U.S.

government securities, commercial paper and corporate debt securities are based on prices obtained from independent pricing sources.

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Typical inputs used by these pricing services include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers or estimates of cash flow, prepayment spreads and default rates.

As of December 31, 2022 and December 31, 2021, the Company does not hold any securities classified as Level 3, which are securities valued using unobservable inputs.

As of December 31, 2023 and December 31, 2022, the Company does not hold any securities classified as Level 3.

Marketable securities:

As of December 31, 2022, the Company had $ 276,642 of trading securities and $ 386,885 of available-for-sale securities (December 31, 2021 –

$ 376,086 and nil, respectively).

Amortized cost, unrealized losses recognized in accumulated other comprehensive loss and fair value of available-for-sale securities consisted of the following:

As of December 31, 2023 , the Company had $ 13,867 of trading securities and $ 768,364 of available-for-sale securities ( December 31, 2022 – $ 276,642 and $ 386,885 , respectively).

Amortized cost, unrealized gain (losses) recognized in accumulated other comprehensive income (loss) and fair value of available-for-sale securities consisted of the following:

December 31, 2023

December 31, 2022

Unrealized Gain (Loss)

Contractual maturity of 0 to 1 years:

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Net book value

The Company has an 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 .

In July 2022, the Company entered into an additional operating lease agreement for office space in Needham, Massachusetts, which commenced on October 1, 2022.

The lease is for a 62-month term and an option to terminate one year prior to the expiry date , which was not considered in the determination of the right-of-use asset and lease liability.

The Company has an operating lease for research laboratories and office space in Burnaby, British Columbia which expires on June 30, 2032 , and two renewal options for 5 -years each which were not considered in the determination of the right-of-use asset and lease liability .

The Company has an additional operating lease for office space in Needham, Massachusetts ("Needham Lease"), which commenced in October 2022.

The Needham Lease is for a 62-month term and an option to terminate one year prior to the expiry date , which was not considered in the determination of the right-of-use asset and lease liability.

The cost components of the operating leases were as follows for the years ended December 31, 2023, 2022 and 2021:

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imputed interest

future lease incentives reasonably certain of use (1)

Present value of lease liabilities

(1) Lease incentives are expected to be utilized within 12 months.

Accounts payable and accrued expenses:

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Professional fees

In August 2018 , the Company entered into an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) with Silicon Valley Bank (the “Bank”), pursuant to which the Bank agreed to extend a term loan to the Company with a principal amount of $ 15,500 (the “Term Loan”).

The Term Loan accrued interest at a floating per annum rate of 0.5 % above the prime rate.

The Term Loan was interest-only until March 31, 2020 , followed by 30 equal monthly installments of principal plus interest, originally maturing on September 1, 2022 .

In addition, the Company was required to pay a final payment fee of 6.5 % of the Term Loan on the date on which the term loan was prepaid, paid or became due and payable in full.

In May 2020, the Company repaid the total outstanding Term Loan balance ahead of the maturity date.

The repayment consisted of (i) the outstanding principal balance, (ii) a final payment fee of $ 1,008 , which was partially accrued up to the date of repayment, and (iii) a prepayment fee of $ 225 .

At the time of repayment, all liabilities and obligations under the Amended and Restated Loan Agreement terminated automatically.

The Company recorded a loss on repayment of the Term Loan of $ 988 , which represents the difference between the carrying value of the Term Loan on the repayment date and the amount paid to extinguish the Term Loan.

The repayment did not affect the Bank’s rights in connection with the warrant to the Bank to purchase 40,000 common shares at a price per common share of $ 9.79 which will remain outstanding until exercised or expired in August 2028.

Share capital:

(a) Financing:

In November 2019, the Company entered into an "at-the-market" equity offering sales agreement with Jefferies LLC (“Jefferies”) and Stifel, Nicolaus & Company, Incorporated (“Stifel”) to sell common shares of the Company having aggregate gross proceeds of up to $ 50,000 from time to time.

As of December 31, 2019, the Company had sold 805,643 common shares under the sales agreement for proceeds of $ 10,729 , net of commissions and transaction expenses.

In January 2020, the Company sold an additional 2,446,687 common shares for proceeds of $ 37,796 , net of commissions and transaction expenses.

In January 2020, the Company entered into an underwriting agreement with Jefferies, Stifel and Guggenheim Securities, LLC, relating to an underwritten public offering of 3,750,000 common shares, including 562,500 common shares sold upon the full exercise of the underwriters’

over-allotment option, at a public offering price of $ 16.00 per common share.

The public offering was completed in January 2020, and the underwriters exercised their option in full in February 2020.

The Company received proceeds of $ 64,660 , net of underwriting discounts, commissions and offering expenses.

In August 2020, the Company entered into an “at-the-market”

equity offering sales agreement, amended as of March 2022, with Jefferies and 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 December 31, 2022, no common shares have been sold under the March 2022 ATM.

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 12e) , with each pre-funded warrant having an exercise price of $ 0.0001 .

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.

As of December 31, 2023, the Company has sold an aggregate of 855,685 common shares for proceeds of $ 29,508 , net of commissions and transaction expenses under the March 2022 ATM.

In March 2021, the Company completed 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 10e) , 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 September 2021, in connection with the License and Collaboration Agreement with Neurocrine Biosciences 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 275,337 common shares for an aggregate purchase price of $ 5,500 , or $ 19.9755 per common share, which represents a premium of $ 770 when measured at fair value on the date of issuance.

In addition, in January 2022, the Company executed a 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.

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For additional information regarding the Neurocrine Collaboration Agreement, refer to note 11a.

In October 2021, the Company entered into an underwriting agreement with Jefferies, SVB Leerink LLC (“SVB”) and Stifel, relating to an underwritten public offering of 10,000,000 common shares, including 1,525,423 common shares sold upon the full exercise of the underwriters’

over-allotment option, at a public offering price of $ 29.50 per common share and pre-funded warrants to purchase 1,694,915 common shares at $ 29.4999 per pre-funded warrant (note 12e), with each pre-funded warrant having an exercise price of $ 0.0001 .

In October 2021, the Company completed an underwritten public offering of 10,000,000 common shares, including 1,525,423 common shares sold upon the full exercise of the underwriters’ over-allotment option, at a public offering price of $ 29.50 per common share and pre-funded warrants to purchase 1,694,915 common shares at $ 29.4999 per pre-funded warrant (note 10e), with each pre-funded warrant having an exercise price of $ 0.0001 .

The public offering was completed in October 2021, and the Company received proceeds of $ 323,938 , net of underwriting discounts, commissions and offering expenses.

In June 2022, the Company entered into an underwriting agreement with Jefferies, J.P.

Morgan Securities LLC, Stifel and SVB, relating to an underwritten public offering of 9,098,362 common shares, including 1,229,508 shares sold upon the full exercise of the underwriters’

over-allotment option, at a public offering price of $ 30.50 per common share and pre-funded warrants to purchase 327,868 common shares at $ 30.4999 per pre-funded warrant (note 12e), with each pre-funded warrant having an exercise price of $ 0.0001 .

In June 2022, the Company completed an underwritten public offering of 9,098,362 common shares, including 1,229,508 shares sold upon the full exercise of the underwriters’ over-allotment option, at a public offering price of $ 30.50 per common share and pre-funded warrants to purchase 327,868 common shares at $ 30.4999 per pre-funded warrant (note 10e), with each pre-funded warrant having an exercise price of $ 0.0001 .

The public offering was completed in June 2022, and the Company received proceeds of $ 269,890 , net of underwriting discounts, commissions and offering expenses.

In November 2023, the Company completed an underwritten public offering of 9,846,157 common shares, including 1,384,615 shares sold upon the full exercise of the underwriters' over-allotment option, at a public offering price of $ 32.50 per common share and pre-funded warrants to purchase 769,230 common shares at $ 32.4999 per pre-funded warrant (note 10e), with each pre-funded warrant having an exercise price of $ 0.0001 .

The public offering was completed in December 2023, and the Company received proceeds of $ 323,979 , net of underwriting discounts, commissions and offering expenses.

(b) Authorized share capital:

The Company’s authorized share capital consists of an unlimited number of common and preferred shares without par value.

The Company has three equity incentive plans:

(i) a pre-existing stock option plan (the “Amended and Restated Stock Option Plan”), (ii) the 2014 Equity Incentive Plan (the “2014 Plan”) which was amended and restated in June 2020 and June 2022, and (iii) the 2019 Inducement Equity Incentive Plan (the “2019 Inducement Plan”).

The Amended and Restated Stock Option Plan provided for the grant of stock options for the purchase of common shares to directors, officers, employees and consultants prior to the Company’s initial public offering.

The stock options granted under the Amended and Restated Stock Option Plan vest on a graduated basis over a four-year period or less and each option’s maximum term is ten years .

The 2014 Plan replaced the Amended and Restated Stock Option Plan.

No further options will be granted under the Company’s Amended and Restated Stock Option Plan.

The Amended and Restated Stock Option Plan will continue to govern the stock options granted thereunder.

In June 2014, the shareholders of the Company approved the 2014 Plan, which was amended and replaced in June 2020 and June 2022 by the Amended and Restated 2014 Equity Incentive Plan (the “Amended and Restated 2014 Plan”).

The Amended and Restated 2014 Plan governs all options granted under the 2014 Plan.

In September 2019, the board of directors of the Company adopted the 2019 Inducement Plan and, subject to the adjustment provisions of the 2019 Inducement Plan, reserved 400,000 of the Company’s common shares for issuance pursuant to equity awards granted under the 2019 Inducement Plan.

The 2019 Inducement Plan was adopted without shareholder approval in accordance with the applicable Nasdaq Listing Rules.

or “change of control”

as defined under the 2019 Inducement Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award exception or to comply with the Nasdaq acquisition and merger exception.

The 2019 Inducement Plan provided for the grant of equity-based awards, including share options, share appreciation rights, restricted share awards, restricted share unit awards and performance share awards, and its terms are substantially similar to the Company’s Amended and Restated 2014 Plan, including with respect to treatment of equity awards in the event of a “merger” or “change of control” as defined under the 2019 Inducement Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award exception or to comply with the Nasdaq acquisition and merger exception.

The 2019 Inducement Plan was terminated in June 2020.

No further options will be granted under the 2019 Inducement Plan, and the 2019 Inducement Plan will continue to govern the options granted thereunder.

The shareholders of the Company approved the Amended and Restated 2014 Plan amended in June 2020 and June 2022, amending certain provisions of the Company’s 2014 Plan.

The Amended and Restated 2014 Plan continues to permit the grant of stock-based compensation awards to directors, officers, employees and consultants of the Company and the issuance of restricted shares, restricted share units, share appreciation rights and performance shares.

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(1) Canadian dollar denominated stock options have been translated into U.S.

dollars at a foreign exchange rate of 0.74 as of December 31, 2022.

(2) During the year ended December 31, 2022, 68,930 (2021 –

66,215 and 2020 –

26,513 ) stock options were exercised for the same number of common shares in exchange for cash.

In the same period, the Company issued 510,671 (2021 –

412,940 and 2020 –

87,197 ) common shares for the cashless exercise of 711,795 (2021 –

624,069 and 2020 –

145,299 ) stock options.

dollars at a foreign exchange rate of 0.76 (2022 – 0.74 and 2021 – 0.79 ) as of December 31, 2023.

(2) During the year ended December 31, 2023, 4,320 (2022 – 68,930 and 2021 – 66,215 ) stock options were exercised for the same number of common shares in exchange for cash.

In the same period, the Company issued 377,114 (2022 – 510,671 and 2021 – 412,940 ) common shares for the cashless exercise of 583,216 (2022 – 711,795 and 2021 – 624,069 ) stock options.

At December 31, 2023 , stock options outstanding and exercisable had a weighted average remaining contractual life of 7.4 years and 6.2 years, respectively.

A summary of the Company’s non-vested stock option activity and related information for the year ended December 31, 2022 is as follows:

A summary of the Company’s non-vested stock option activity and related information for the year ended December 31, 2023 is as follows:

Weighted Average

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Non-vested, December 31, 2023

The aggregate fair value of options vested during the year ended December 31, 2022 was $ 13,752 ( 2021 –

$ 8,271 and 2020 –

The aggregate fair value of options vested during the year ended December 31, 2023 was $ 29,233 ( 2022 – $ 13,752 and 2021 – $ 8,271 ).

The fair value of stock options at the date of grant is estimated using the Black-Scholes option-pricing model which requires multiple subjective inputs.

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Treasury yield curve in effect at the date of grant for a term similar to the expected term of the option.

The expected volatility is based on the historical volatility of the Company’s common shares calculated based on a period of time commensurate with the expected term assumption.

Expected life assumptions are based on the Company’s historical data.

The expected volatility is based on the historical volatility of the Company’s common shares calculated based on a period of time commensurate with the expected term assumption.

Expected life assumptions are based on the Company’s historical data.

The dividend yield is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.

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(d) 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.

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(e) Pre-funded warrants:

The following table summarizes the pre-funded warrants outstanding as of December 31, 2022:

The following table summarizes the pre-funded warrants activity for the years ended December 31, 2023, 2022, and 2021:

Date of issuance

Pre-Funded Warrants to Purchase Common Shares

Price per Pre-Funded Warrant

Exercise Price

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.

December 2023

Outstanding, December 31, 2020

Outstanding, December 31, 2021

Outstanding, December 31, 2022

Outstanding, December 31, 2023

In connection with underwritten public offerings completed in March 2021, October 2021, June 2022, and December 2023, the Company issued pre-funded warrants to purchase the equivalent number of common shares at $ 18.4999 , $ 29.4999 , $ 30.4999 and $ 32.4999 per pre-funded warrant, respectively, with each pre-funded warrant having an exercise price of $ 0.0001 .

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, proceeds from issuances of the pre-funded warrants of $ 75,103 , net of underwriting discounts, commissions and offering expenses, 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 the holder will be recorded in common shares.

As of December 31, 2022, no pre-funded warrants were exercised.

Pre-funded warrants to purchase 3,103,864 common shares (2021 –

2,775,996 ) are not included in the number of issued and outstanding common shares as of December 31, 2022.

Since the pre-funded warrants meet the condition for equity classification, proceeds from issuances of the pre-funded warrants of $ 23,477 ( 2022 – $ 9,387 and 2021 - 65,716 ), net of underwriting discounts, commissions and offering expenses, 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 the holder are recorded in common shares.

During the year ended December 31, 2023, the Company issued 1,700,000 common shares upon the exercise of 1,700,013 pre-funded warrants pursuant to a net exercise mechanism under the warrants.

Pre-funded warrants to purchase 2,173,081 common shares ( 2022 – 3,103,864 and 2021 - 2,775,996 ) common shares are not included in the number of issued and outstanding common shares as of December 31, 2023.

In August 2018, a warrant to purchase 40,000 ( 2022 - 40,000 ) common shares at a price per common share of $ 9.79 was issued.

The warrant is immediately exercisable, contains a cashless exercise provision and expires in August 2028.

Collaboration agreements:

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The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Research and development milestones in the Company’s collaboration agreements may include the following types of events:

• completion of pre-clinical research and development work leading to selection of product candidates;

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Regulatory milestone payments may include the following types of events:

filing of regulatory applications for marketing approval in the U.S., Europe or Asia, including investigational new drug applications (“IND”) and new drug applications;

• filing of regulatory applications for marketing approval in the U.S., Europe or Asia, including investigational new drug applications (“IND”) and new drug applications;

• marketing approval in a major market, such as the U.S., Europe or Asia.

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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 was extended to June 2022.

Pursuant to this agreement, the Company granted an exclusive license to XEN901, now known as NBI-921352, and an exclusive license to certain pre-clinical compounds for development (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”).

The Company and Neurocrine Biosciences collaborated on the conduct of two collaboration programs:

(a) a joint research collaboration to discover, identify and preclinically develop Research Compounds (the “Research Program”), which was completed in June 2022, and (b) a collaborative development program for NBI-921352 and two DTCs selected by the joint steering committee (the “Initial Development Program”).

At execution of the agreement, Neurocrine Biosciences paid the Company an upfront fee of $ 50,000 , which included a $ 30,000 payment in cash and a $ 20,000 equity investment in the Company.

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The Company has not exercised this option as of December 31, 2023.

The Company and Neurocrine Biosciences collaborated on the conduct of two collaboration programs:

During the term of the Research Program and Initial Development Program, Neurocrine Biosciences will fund the Company for certain full-time employees and out-of-pocket expenses incurred by the Company.

The agreement includes the following performance obligations:

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At execution of the agreement, the transaction price consisted of the $ 30,000 upfront consideration received in cash and a premium of $ 3,333 on the $ 20,000 equity investment in the Company measured at fair value on the date of issuance.

The Company also considered the following elements in determining the overall transaction price:

Under the arrangement, the Company was entitled to funding for certain full-time equivalent and external costs incurred by the Company under performance obligations (iii) and (iv).

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 were contingent upon Neurocrine Biosciences requesting performance of the services and these services were priced at estimated fair value.

None of the at-risk substantive performance milestones, including development, regulatory and sales-based milestones, were included in the transaction price, as all milestone amounts are outside the control of the Company and contingent upon Neurocrine Biosciences’

efforts and success in future clinical trials.

Any consideration related to sales-based royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to Neurocrine Biosciences and therefore were also excluded from the transaction price.

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.

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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 12a).

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 no t have any remaining performance obligations in relation to this milestone on the date it was achieved.

During the year ended December 31, 2022, the Company recognized $ 2,310 of revenue (2021 –

$ 10,167 and 2020 –

$ 32,166 ) which comprised of $ 1,938 (2021 –

$ 6,452 and 2020 –

$ 5,356 ) for the research and development services under (iii) the Research Program and (iv) the Initial Development Program for NBI-921352, and $ 372 (2021 –

$ 3,715 and 2020 –

$ 884 ) for (v) development services under the Initial Development Program for the DTCs.

For the year ended December 31, 2020, the Company also recognized $ 25,926 associated with (i) the exclusive license to NBI-921352 and (ii) the exclusive license to the DTCs.

During the years ended December 31, 2022 and 2021, the Company recognized revenue of $ 2,310 and $ 10,167 , respectively, which comprised of $ 1,938 and $ 6,452 , respectively, for the research and development services under (iii) the Research Program and (iv) the Initial Development Program for NBI-921352 and $ 372 and $ 3,715 , respectively, for (v) development services under the Initial Development Program for the DTCs.

(b) Asset Purchase Agreement with Flexion Therapeutics, Inc., subsequently acquired by Pacira BioSciences:

In September 2019, the Company entered into an agreement with Flexion Therapeutics Inc.

(“Flexion”), which was acquired by 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, known as PCRX-301, owned or controlled by the Company.

During the year ended December 31, 2021, the FDA cleared the first investigational new drug application for PCRX-301 and a Phase 1b clinical trial was initiated, resulting in milestone payments of $ 1,000 and $ 2,000 paid to the Company, respectively.

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(a) Asset purchase agreement with 1st Order Pharmaceuticals, Inc.

(“1st Order”):

In April 2017, the Company acquired XEN1101 (previously known as 1OP2198) from 1st Order pursuant to an asset purchase agreement.

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Through December 31, 2023, the Company has paid $ 2,000 based on progress against these milestones.

In February 2023, an additional $ 1,400 was paid for the achievement of clinical and other milestones.

Future potential payments to 1st Order related to the XEN1101 program include up to $ 6,000 in regulatory milestones.

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however, the Company currently holds commercial and product liability insurance.

This insurance limits the Company’s exposure and may enable it to recover a portion of any future amounts paid.

Historically, the Company has not made any indemnification payments under such agreements and the Company believes that the fair value of these indemnification obligations is minimal.

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Income taxes:

Income tax recovery varies from the amounts that would be computed by applying the expected Canadian federal and provincial statutory income tax rate of 27 % ( 2021 and 2020 –

27 %) to loss before income taxes as shown in the following table:

Income tax recovery varies from the amounts that would be computed by applying the expected Canadian federal and provincial statutory income tax rate of 27 % ( 2022 and 2021 – 27 %) to loss before income taxes as shown in the following table:

Year Ended December 31,

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Income tax expense (recovery)

Income tax expense (recovery) for the years ended December 31, 2022, 2021 and 2020 arose from the operations of Xenon Pharmaceuticals USA Inc., the Company’s wholly-owned subsidiary in the United States.

Income tax expense (recovery) for the years ended December 31, 2023, 2022 and 2021 arose from the operations of Xenon Pharmaceuticals USA Inc., the Company’s wholly-owned subsidiary in the United States.

Deferred income tax assets and liabilities result from the temporary differences between the amount of assets and liabilities recognized for financial statement and income tax purposes.

The significant components of the Company’s net deferred income tax assets are as follows:

Scientific research and experimental development pool

2 unchanged sentences

Deferred financing fees

Deferred revenue

Stock based compensation

2 unchanged sentences

The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse.

The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not”

criteria changes, the valuation allowance is adjusted accordingly.

A full valuation allowance continues to be applied against deferred income tax assets in Canada as the Company has assessed that the realization of such assets does not meet the “more likely than not”

The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criteria changes, the valuation allowance is adjusted accordingly.

Deferred income tax assets recorded on the consolidated balance sheets as of December 31, 2023 and 2022, result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes, net of valuation allowance, related to the operations of Xenon Pharmaceuticals USA Inc.

At December 31, 2022 , the Company has unclaimed tax deductions for scientific research and experimental development expenditures of $ 129,226 ( 2021 –

$ 120,388 ) with no expiry.

At December 31, 2022 , the Company has $ 27,323 ( 2021 –

$ 26,298 ) of investment tax credits available to offset federal taxes payable and $ 8,418 ( 2021 –

$ 8,168 ) of provincial tax credits available to offset provincial taxes payable in the future.

At December 31, 2022 , the Company has non-capital losses, net of uncertain tax positions, carried forward for tax purposes, which are available to reduce taxable income of future years of approximately $ 295,828 ( 2021 –

At December 31, 2023 , the Company has unclaimed tax deductions for scientific research and experimental development expenditures of $ 142,925 ( 2022 – $ 129,226 ) with no expiry.

At December 31, 2023 , the Company has $ 29,074 ( 2022 – $ 27,323 ) of investment tax credits available to offset federal taxes payable and $ 8,099 ( 2022 – $ 8,418 ) of provincial tax credits available to offset provincial taxes payable in the future.

At December 31, 2023 , the Company has non-capital losses, net of uncertain tax positions, carried forward for tax purposes, which are available to reduce taxable income of future years of approximately $ 422,822 ( 2022 – $ 295,828 ).

The investment tax credits and loss carry forwards expire over various years to 2043 .

At December 31, 2022 , the total amount of the Company’s unrecognized tax benefits of uncertain tax positions were $ 10,850 ( 2021 –

If recognized in future periods, the unrecognized tax benefits would not affect the Company’s effective tax rate.

At December 31, 2023 , the total amount of the Company’s unrecognized tax benefits of uncertain tax positions were $ 10,850 ( 2022 – $ 10,850 ).

If recognized in future periods, the unrecognized tax benefits would not affect the Company’s effective tax rate.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the income tax provision.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data