What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-27 compared with 2024-02-29 · 207 added, 201 removed, 466 unchanged (47% of the section changed)

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Critical Audit Matters

The critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

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

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Current liabilities:

Accounts payable and accrued expenses (note 9)

Accounts payable and accrued liabilities (note 8)

Operating lease liability (note 7)

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Commitments and contingencies (note 12)

Subsequent event (note 10)

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

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shareholders'

Balance as of

December 31, 2020

Balance as of December 31, 2021

Net loss for the year

Issuance of common shares and

pre-funded warrants, net of

issuance costs (note 10a and note 10e)

Stock-based compensation

expense (note 10c)

Issued pursuant to exercise

of stock options

Balance as of

December 31, 2021

Issuance of common shares and pre-funded

warrants, net (note 9a and note 9e)

Conversion of preferred shares (note 9d)

Stock-based compensation expense (note 9c)

Exercise of stock options

Other comprehensive loss

Balance as of December 31, 2022

Net loss for the year

Issuance of common shares and

pre-funded warrants, net of

issuance costs (note 10a and note 10e)

Conversion of preferred shares

to common shares (note 10d)

Stock-based compensation

expense (note 10c)

Issued pursuant to exercise

of stock options

Other comprehensive loss (note 6)

Balance as of

December 31, 2022

Issuance of common shares and pre-funded

warrants, net (note 9a and note 9e)

Conversion of pre-funded warrants (note 9e)

Stock-based compensation expense (note 9c)

Exercise of stock options

Other comprehensive income

Balance as of December 31, 2023

Net loss for the year

Issuance of common shares and

pre-funded warrants, net of

issuance costs (note 10a and note 10e)

Conversion of pre-funded warrants

to common shares (note 10e)

Stock-based compensation

expense (note 10c)

Issued pursuant to exercise

of stock options

Other comprehensive income (note 6)

Balance as of

December 31, 2023

Issuance of common shares, net (note 9a)

Stock-based compensation expense (note 9c)

Exercise of stock options

Other comprehensive loss

Balance as of December 31, 2024

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

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Operating activities:

Items not involving cash:

Deferred income tax (recovery) expense

Adjustments to reconcile net loss to net cash used in operating activities:

Interest receivable and accretion of discounts on marketable securities

Depreciation of property, plant and equipment

Non-cash operating lease expense

Deferred income tax recovery

Stock-based compensation

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Prepaid expenses and other current assets

Accounts payable and accrued expenses

Deferred revenue

Accounts payable and accrued liabilities

Operating lease liability

Net cash used in operating activities

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Proceeds from marketable securities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Financing activities:

Issuance of common shares and pre-funded warrants,

net of issuance costs (note 10a and note 10e)

Issuance of common shares pursuant to exercise of stock options

Proceeds from public offerings, net

Proceeds from exercise of stock options

Net cash provided by financing activities

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Fair value of pre-funded warrants exercised

Purchases of property, plant and equipment included in accounts payable

and accrued expenses

Purchases of property, plant and equipment included in

accounts payable and accrued liabilities

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

lease liability (note 8)

Increase in operating lease liability and accounts receivable related to

lease incentives claimed in the period (note 8)

Increase in operating lease right-of-use asset and operating lease liability

related to lease amendments (note 8)

lease liability

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

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Xenon Pharmaceuticals Inc.

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

(the “Company”), 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 dedicated to discovering, developing, and delivering life-changing ion channel therapeutics for patients in need.

The Company has incurred significant operating losses since inception.

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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.

dollars and have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP").

The Company has one wholly-owned subsidiary as of December 31, 2024 , Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016 .

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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.

Correction of prior period error

During the year ended December 31, 2024, the Company identified a presentation error related to the accretion of discounts on marketable securities, which was incorrectly presented within proceeds from marketable securities as part of net cash provided by (used in) investing activities in the consolidated statements of cash flows.

As a result, a correction was made to the prior periods to reclassify the amount of accretion of discounts on marketable securities within net cash used in operating activities, resulting in an increase in net cash used in operating activities and a corresponding decrease in net cash used in investing activities for the years ended December 31, 2023 and 2022 of $ 5,785 and $ 2,598 , respectively, from the previously reported amounts.

The Company evaluated the materiality of the presentation error, both quantitatively and qualitatively, and concluded it was not material to the consolidated financial statements for any prior period.

These presentation changes had no effect on the previously reported consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of shareholders’ equity.

Significant accounting policies:

(a) Use of estimates:

The preparation of the consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Significant areas of estimates include, but are not limited to, revenue recognition including estimated timing of completion of performance obligations and the determination of stock-based compensation.

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Cash equivalents are highly liquid investments that are readily convertible into cash with terms to maturity of three months or less when acquired.

Cash equivalents are recorded at cost plus accrued interest.

Cash equivalents are recorded at cost plus accrued interest, which approximates the fair value.

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Property, plant and equipment are stated at cost less accumulated depreciation and/or accumulated impairment losses, if any.

Repairs and maintenance costs are expensed in the period incurred.

Repairs and maintenance costs, which do not improve or extend the life of the respective asset, are expensed in the period incurred.

Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized as a component of income or loss for the period.

Property, plant and equipment are amortized over their estimated useful lives using the straight-line method based on the following rates:

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If such assets are found not to be recoverable, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets.

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

The Company did no t recognize any impairment charges through December 31, 2024 .

The Company determines if an arrangement contains a lease at the inception of a contract.

The lease classification is determined at lease commencement, which is the date the underlying asset is available for use by the Company.

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.

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The Company has elected to not separate non-lease elements embedded in its lease agreements.

(h) Concentration of credit risk and of significant customers:

(h) Concentration of credit risk:

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

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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.

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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Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

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 carrying amount of accounts receivable, accounts payable and accrued liabilities 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 4.

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and (v) recognize revenue when or as a performance obligation is satisfied.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

Collaboration agreements may require the Company to deliver various rights and/or services, including intellectual property rights or licenses and research and development services.

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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.

The Company generally recognizes revenue from non-refundable upfront payments over the estimated term of the performance obligation or period in which the underlying benefit is transferred to the customer.

If non-refundable license fees have value to the customer on a standalone basis, separate from the undelivered performance obligations, they are recognized upon delivery.

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

Consideration in exchange for research and development services performed by the Company on behalf of the licensee is recognized upon performance of such activities at rates consistent with prevailing market rates.

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.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones, and if necessary, adjusts its estimate of the overall transaction price.

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.

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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 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.

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, clinical trials and potential commercial supply, 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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Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.

Prepaid expenses are recorded as current or non-current assets based on the expected timing of services.

Prepaid expenses are classified as current or non-current assets based on the expected timing of services.

(l) Stock-based compensation:

The Company grants stock options to employees, consultants, directors and officers pursuant to stock option plans described in note 10c.

Employee stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense, net of actual forfeitures, over the requisite service period with a corresponding increase in additional paid-in capital.

Stock-based compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the vesting period of the award.

Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense, net of actual forfeitures, over the requisite service period with a corresponding increase in additional paid-in capital.

The Company grants stock options to employees, consultants, directors and officers pursuant to equity incentive plans described in note 9c.

Stock-based compensation expense for stock options is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the vesting period of the award.

Any consideration received on exercise of stock options is credited to share capital.

The Company grants performance share units (“PSUs”) to certain employees and officers pursuant to equity incentive plans described in note 9c.

PSUs vest upon the achievement of certain predefined company-specific performance-based criteria.

PSUs are measured at the c losing market price of the Company’s common shares on the date of grant.

Stock-based compensation expense for PSUs is amortized on a straight-line basis over the requisite service period of each separately vesting tranche of the award once it is probable that the performance condition will be achieved.

(m) Foreign currency translation:

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(n) Income taxes:

Deferred income taxes are recognized for the future tax consequences attributable to differences between the carrying amounts of assets and liabilities and their respective tax bases and net operating loss and credit carryforwards.

Deferred income tax assets and liabilities are measured at enacted rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled.

The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations and comprehensive income (loss) in the period that includes the enactment date.

The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in the consolidated statement of operations and comprehensive income (loss) in the period that includes the enactment date.

A valuation allowance is provided when realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition.

(o) Segment and geographic information:

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

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

(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:

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.

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 Series 1 Preferred Shares were converted and exchanged for an equal number of common shares of the Company (note 10d).

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.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position as well as consideration of the available facts and circumstances.

When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized.

The interest accrued related to unrecognized tax benefits and penalties is recognized as income tax expense.

(o) Net income (loss) per common share:

Basic net income (loss) per common share is calculated using the two-class method required for participating securities.

Undistributed earnings (losses) are allocated to common shares and participating securities based on the weighted average shares of each class outstanding during the period.

The treasury stock method is used to compute the dilutive effect of the Company’s stock options, PSUs 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.

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The if-converted method is applied only if the effect is dilutive.

For the years ended December 31, 2023, 2022 and 2021, diluted net loss per share attributable to common shareholders is the same as basic net loss per share attributable to common shareholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

(p) Segment and geographic information:

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance.

The Company views its operations and manages its business in one operating segment discovering and developing a portfolio of treatments in neurological and psychiatric disorders.

(q) Recently adopted accounting pronouncements:

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which enhances the disclosures required for operating segments on an interim and annual basis.

The Company adopted this ASU in the fourth quarter of 2024 retrospectively to all prior periods presented in the consolidated financial statements.

While the Company continues to operate as a single reportable segment, additional disclosures have been incorporated in note 14.

(r) Accounting pronouncements not yet adopted:

Accounting standards that have been issued by the Financial Accounting Standards Board or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.

Fair value of financial instruments:

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

As of December 31, 2024 and December 31, 2023, the Company does not hold any securities classified as Level 3 and there were no securities transferred between Level 1 and 2.

Marketable securities:

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:

As of December 31, 2024 , the Company had $ 611,689 of available-for-sale securities ( December 31, 2023 – trading securities of $ 13,867 and available-for-sale-securities of $ 768,364 , respectively).

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

December 31, 2024

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Contractual maturity of 1 to 3 years:

government securities

Corporate debt securities

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Present value of lease liabilities

Accounts payable and accrued expenses:

Accounts payable and accrued expenses consisted of the following:

Trade payables

Accounts payable a nd accrued liabilities:

Accounts payable and accrued liabilities consisted of the following:

Accounts payable

Accrued liabilities

Employee compensation, benefits, and related accruals

Consulting and contracted research

Research and development

Income and other taxes

Professional fees

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(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 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.

The SPAs contain certain other customary terms and conditions, including mutual representations, warranties and covenants.

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

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 August 2020, the Company entered into an “at-the-market” equity offering sales agreement, amended as of March 2022, with Jefferies LLC and Stifel, Nicolaus & Company, Incorporated pursuant to which the Company may sell common shares from time to time (the “ATM Program”).

In September 2023, pursuant to a prospectus supplement filed in March 2022 (“March 2022 Prospectus”), the Company sold an aggregate of 855,685 common shares for proceeds of $ 29,508 , net of commissions and transaction expenses.

In August 2024, a new prospectus supplement was filed replacing the March 2022 Prospectus, pursuant to which the Company refreshed the ATM Program and may sell common shares having gross proceeds of up to $ 350,000 , from time to time.

As of December 31, 2024, the Company has sold an aggregate of 310,000 common shares for proceeds of $ 12,083 , net of commissions and transaction expenses under the ATM Program.

In January 2022, 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 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 contain certain other customary terms and conditions, including mutual representations, warranties and covenants.

For additional information regarding the Neurocrine Collaboration Agreement, refer to note 10.

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 9e), with each pre-funded warrant having an exercise price of $ 0.0001 .

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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 Company has two equity incentive plans:

(i) the 2014 Equity Incentive Plan which was amended and restated in June 2020, June 2022 and June 2024 (the “Amended and Restated 2014 Plan”), and (ii) the 2019 Inducement Equity Incentive Plan (the “2019 Inducement 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.

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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.

Under the Amended and Restated 2014 Plan, options granted generally vest on a graduated basis over a four-year period or less.

The shareholders of the Company approved the Amended and Restated 2014 Plan amended in June 2020, June 2022 and June 2024, amending certain provisions of the Company’s 2014 Plan.

The Amended and Restated 2014 Plan permits 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 PSUs.

Under the Amended and Restated 2014 Plan, options granted generally vest on a graduated basis over a four-year periods.

The exercise price of the options is determined by the board of directors but must at least be equal to the fair market value of the common shares on the date of grant.

Options may be exercised over a maximum term of ten years .

The annual share increase provision of the 2014 Plan was eliminated and the number of common shares available for issuance was increased by 9,300,000 over the existing share reserve under the 2014 Plan.

The number of common shares that can be issued through restricted share awards, restricted share unit awards, or performance share awards was amended to be limited to 1,000,000 common shares, in the aggregate.

Other amendments were made to terms of the 2014 Plan with respect to repricing, change of control and payment of dividends and other distributions.

The vesting conditions, vesting period and expiry terms of the PSUs are determined by the board of directors.

As of December 31, 2024, a total of 5,882,842 common shares remain available for issuance pursuant to the Amended and Restated 2014 Plan.

Of this total, the number of common shares that can be issued through restricted share awards, restricted share unit awards, or performance share awards is limited to the aggregate of 1,000,000 common shares.

The following table presents the components and classification of stock-based compensation expense for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

Stock-based compensation expense by award type:

Stock options

Stock-based compensation expense in operating expenses:

Research and development

General and administrative

Stock options

The following table presents the summary of stock option activity for the period:

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Exercisable, December 31, 2024

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

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

(1) During the year ended December 31, 2024, 5,144 (2023 – 4,320 and 2022 – 68,930 ) stock options were exercised for the same number of common shares in exchange for cash.

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At December 31, 2024 , stock options outstanding and exercisable had a weighted average remaining contractual life of 7.28 years and 6.21 years, respectively.

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

Fair Value ($)

Non-vested, January 1, 2023

Forfeited or cancelled

Non-vested, December 31, 2023

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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Expected dividend yield

Weighted average fair value of options granted

Stock-based compensation expense is classified in the consolidated statements of operations and comprehensive income (loss) as follows:

Year Ended December 31,

Research and development expenses

General and administrative expenses

As of December 31, 2023 , the unrecognized stock-based compensation expense related to the non-vested stock options was $ 70,691 which is expected to be recognized over a weighted-average period of 2.61 years.

Weighted average fair value of stock options granted

A summary of the Company’s unvested stock option activity and related information for the year ended December 31, 2024 is as follows:

Weighted Average

Fair Value ($)

Unvested, January 1, 2024

Forfeited or cancelled

Unvested, December 31, 2024

The aggregate fair value of options vested during the year ended December 31, 2024 was $ 43,375 ( 2023 – $ 29,233 and 2022 – $ 13,752 ).

As of December 31, 2024 , the unrecognized stock-based compensation expense related to the unvested stock options was $ 99,779 which is expected to be recognized over a weighted average period of 2.64 years.

Performance share units

During the year ended December 31, 2024 , the Company granted 210,000 PSUs to officers and certain employees with a weighted average grant date fair value of $ 43.90 per unit.

PSUs vest upon the achievement of certain predefined company-specific performance-based criteria on or before December 31, 2027, subject to continued employment to each performance objective achievement date.

No PSUs vested during the year ended December 31, 2024.

As of December 31, 2024 , the unrecognized stock-based compensation expense related to the unvested PSUs that is probable to be achieved was $ 2,267 .

The recognition of this expense is subject to the achievement of the performance-based criteria, which are reassessed at each reporting date.

There is $ 4,609 of unrecognized stock-based compensation expense related to the PSUs that is not probable to be achieved.

(d) Exchange agreement with certain funds affiliated with BVF Partners L.P.

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The following table summarizes the pre-funded warrants activity for the years ended December 31, 2024, 2023, and 2022:

Date of issuance

December 2023

Number of Pre-funded

warrants outstanding

Outstanding, December 31, 2021

Outstanding, December 31, 2022

Exercised (1)

Outstanding, December 31, 2023

Outstanding, December 31, 2024

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.

(1) 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.

Each pre-funded warrant is exercisable for the purchase of a common share at the holder's discretion at an exercise price of $ 0.0001 , subject to certain post-exercise beneficial ownership limitations as provided under the terms of the pre-funded warrant.

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:

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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 $ 23,477 ( 2022 – $ 9,387 and 2021 - 65,716 ), net of underwriting discounts, commissions and offering expenses, are recorded in additional paid-in capital.

Since the pre-funded warrants meet the condition for equity classification, proceeds from issuances of the pre-funded warrants for the year ended December 31, 2023 , of $ 23,477 (2022 – $ 9,387 ), 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.

Pre-funded warrants to purchase 2,173,081 ( 2023 – 2,173,081 and 2022 – 3,103,864 ) common shares are not included in the number of issued and outstanding common shares as of December 31, 2024.

In August 2018, a warrant to purchase 40,000 ( 2023 – 40,000 ) common shares at a price per common share of $ 9.79 was issued.

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Collaboration agreements:

The Company has assessed each collaboration agreement in accordance with ASC 606 under the five-step model as described in note 3j, including recognition of non-refundable upfront payments.

If non-refundable license fees have value to the customer on a standalone basis, separate from the undelivered performance obligations, they are recognized upon delivery.

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;

• initiation of Phase 1, Phase 2 or Phase 3 clinical trials;

• achievement of certain other scientific, clinical data or development events.

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;

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

Commercialization milestone payments may include payments triggered by annual product sales that achieve pre-specified thresholds.

The Company evaluates each arrangement that includes research and development and sales-based milestone payments to determine whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.

Milestone payments that are not within the control of the Company are not considered probable of being achieved.

If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.

The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones, and if necessary, adjusts its estimate of the overall transaction price.

Neurocrine Biosciences license and collaboration agreement

Revenue was as follows for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

Neurocrine Biosciences:

Recognition of the transaction price

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Milestone payments

Pacira BioSciences:

Milestone payments

Total revenue

(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 certain pre-clinical compounds for development (the “DTCs”).

In December 2019, the Company entered into the Neurocrine Collaboration Agreement with Neurocrine Biosciences granting the Company an exclusive license to NBI-921352 (formerly XEN901) and 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.

Under the arrangement, the Company was entitled to funding for certain full-time equivalent and external costs incurred by the Company for the research and development services requested by Neurocrine Biosciences, and these services were priced at estimated fair value.

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.

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The Company has not exercised this option as of December 31, 2024.

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 license to the Research Compounds and the research services under the Research Program were considered a single performance obligation as Neurocrine Biosciences cannot benefit from such a license on its own or from other resources commonly available in the industry, without the corresponding research services due to the unique and specialized expertise of the Company that is not readily available in the marketplace.

Given the early development phase of the Research Compounds, the performance obligation and related revenue was linked entirely to the performance of research services.

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.

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.

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 residual approach was used as standalone selling prices, including market data, for equivalent performance obligations were not available.

The allocation of the transaction price requires significant management judgment.

The Company allocated the transaction price as follows:

$ 28,807 to performance obligations (i) and (ii) which were delivered and transferred concurrently and 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 Company measured proportional performance over time using an input method based on cost incurred relative to the total estimated costs for each of the identified obligations at each reporting period.

Any changes to estimates were recognized in the period in which they changed as a cumulative catch up.

In September 2021, based on the regulatory approval of a clinical trial application in Europe for NBI-921352 for focal-onset seizures in adults, the Company received an aggregate milestone payment of $ 10,000 in the form of $ 4,500 in cash and a $ 5,500 equity investment in the Company (note 10a).

The equity investment was measured at fair value of $ 4,730 on the date of issuance and the resulting premium of $ 770 , with the cash payment of $ 4,500 , 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.

In January 2022, based on the receipt of the U.S.

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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 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.

In November 2022, Pacira BioSciences made the strategic decision to no longer pursue the clinical development of PCRX-301.

In February 2025, NBI-921355, a Nav1.2 and Nav1.6 sodium channel inhibitor in development for the potential treatment for certain types of epilepsy, has progressed into a Phase 1 clinical study in healthy adult participants, triggering an anticipated $ 7,500 milestone payment to the Company.

Net loss per common share :

The following table presents the calculation of basic and diluted net loss per common share for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

Net loss attributable to preferred shareholders

Net loss attributable to common shareholders

Common shares (weighted average)

Pre-funded warrants (weighted average)

Weighted average common shares

outstanding – basic and diluted

Net loss per common share – basic and diluted

The weighted average number of common shares used in the basic and diluted net 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 (note 9e).

The Company reported net losses for each of the years ended December 31, 2024, 2023 and 2022, and therefore excluded all potentially dilutive outstanding securities from the computation of diluted net loss per common share as their inclusion would have had an anti-dilutive effect.

Commitments and contingencies:

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(“1st Order”):

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

In April 2017, the Company acquired azetukalner from 1st Order pursuant to an asset purchase agreement.

In August 2020, the Company and 1st Order amended the asset purchase agreement to amend certain definitions in the agreement and to modify the payment schedule for certain milestones.

Through December 31, 2024, the Company has paid $ 2,000 based on progress against these milestones.

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

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

There are no royalty obligations to 1st Order.

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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 % ( 2022 and 2021 – 27 %) to loss before income taxes as shown in the following table:

Loss before income taxes for the years ended December 31, 2024, 2023 and 2022 was as follows:

Year Ended December 31,

Computed recoveries at Canadian federal and

provincial tax rates

United States

Loss before income taxes

The income tax recovery (expense) is allocated as follows:

Year Ended December 31,

United States

Income tax recovery (expense)

The Company’s wholly-owned subsidiary, Xenon Pharmaceuticals USA Inc., generates taxable income due to an intercompany service agreement with the Company.

All current tax expense and deferred income tax recovery recognized for the years ended December 31, 2024, 2023 and 2022 were attributable to the United States.

For the year ended December 31, 2024, the deferred income tax recovery recorded by Xenon Pharmaceuticals USA Inc.

is related to the re-assessment of the realizability of its deferred tax assets.

A reconciliation of the expected Canadian statutory income tax rate to the effective income tax rate is as follows:

Year Ended December 31,

Tax at statutory income tax rate

Change in valuation allowance

Tax credits earned

Research and development and other credits

Tax attributes expired/utilized

Non-deductible expenditures

Income tax expense (recovery)

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.

Stock-based compensation

Other non-deductible expenses

Effective income tax rate

Deferred income tax assets and liabilities result from the temporary differences between the carrying 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

Deferred income tax assets:

Research and development tax credits

Investment tax credits

Non-capital losses

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Stock-based compensation

Operating lease liability

Total deferred income tax assets

Deferred income tax liability:

Operating lease right-of-use asset

Less - valuation allowance

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

Interest and penalties have not been accrued at December 31, 2023 and 2022 as none would be owing on the unrecognized tax benefits due to the availability of non-capital losses to shelter any potential taxable income arising thereon.

Interest and penalties on the unrecognized tax benefits have not been accrued at December 31, 2024 and 2023 as none would be owing due to the availability of non-capital losses to shelter any potential taxable income arising thereon.

The Company does not currently expect any significant increases or decreases to these unrecognized tax benefits within 12 months of the reporting date.

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Tax years ranging from 2004 to 2023 remain subject to examinations in Canada and the United States.

Segment disclosure:

The Company operates as a single reportable segment dedicated to discovering, developing, and delivering life-changing ion channel therapeutics for patients in need.

The Company has no products approved for sale and has not generated any revenue from product sales.

The Company’s Chief Executive Officer acts as the CODM and manages the Company’s operations on a consolidated basis.

The accounting policies of the segment are the same as those described in the summary of significant accounting policies.

The CODM evaluates the Company’s performance and allocates resources to the operations of the Company on a total company basis.

Managing and allocating resources on a consolidated basis enables the CEO to assess the overall level of resources available and how to best deploy these resources across functions, therapeutic areas and research and development projects that are in line with the Company’s long-term company-wide strategic goals.

The CODM uses net loss to monitor budget versus actual results and to analyze cash flows in assessing performance of the segment and allocating resources.

The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets, with a majority of these assets located in the United States.

The following table presents information about reported segment revenues, significant segment expenses, and segment loss:

Year Ended December 31,

Direct external research and development costs

Pre-clinical, discovery and other programs

Personnel-related expenses

Stock-based compensation

Other research and development costs

Other general and administrative costs

Interest income

Other segment items (1)

(1) Other segment items include foreign exchange gain (loss), unrealized fair value gain (loss) on trading securities, and income tax recovery (expense).

Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure

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