Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis together with our consolidated financial statements and notes included elsewhere in this Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption Part I, Item 1A — “Risk Factors.” Throughout this discussion, unless the context specifies or implies otherwise, the terms “Xenon,” “we,” “us,” and “our” refer to Xenon Pharmaceuticals Inc. and its subsidiary.
Overview
We are a neuroscience-focused biopharmaceutical company dedicated to discovering, developing, and delivering life-changing therapeutics. We are advancing an ion channel product portfolio to address areas of high unmet medical need, including epilepsy and depression.
Azetukalner Clinical Development
Azetukalner, a novel, highly potent, selective Kv7 potassium channel opener, represents the most advanced, clinically validated potassium channel modulator in late-stage clinical development for the treatment of multiple indications that include epilepsy, including focal onset seizures, or FOS, and primary generalized tonic-clonic seizures, or PGTCS, as well as neuropsychiatric disorders including major depressive disorder, or MDD and bipolar depression, or BPD .
Epilepsy Programs
• Phase 3 X-TOLE2/3 azetukalner clinical studies in FOS continue to advance, with the first topline data readout anticipated in the second half of 2025.
• Phase 3 X-ACKT clinical study continues to enroll patients and is intended to support potential regulatory submissions in an additional epilepsy indication of PGTCS.
• Building upon more than 700+ patient-years of data to date from the ongoing X-TOLE open-label extension, or OLE, study, we continue to generate long-term scientific evidence supporting azetukalner’s compelling efficacy and safety profile, with approximately one in three patients on drug for at least 36 months achieving seizure freedom for a period of one year or longer.
Neuropsychiatric Program
• X-NOVA2, the first of three planned Phase 3 clinical trials evaluating azetukalner in patients with MDD is currently enrolling patients, and X-NOVA3 is expected to initiate mid-year.
• We recently announced plans for a Phase 3 BPD program with initiation of the first of two azetukalner clinical studies in bipolar I and bipolar II depression expected by mid-year. Initiation of this program is based on a strong scientific rationale – supported by promising clinical data with azetukalner and the Kv7 mechanism in MDD and preclinical research examining the genetic links between BPD and Kv7 and evidence of Kv7 downregulation in BPD – as well as a large unmet medical need.
• Patient enrollment in the investigator-sponsored Phase 2 proof-of-concept study of azetukalner in MDD led by Icahn School of Medicine at Mount Sinai is complete, and topline results are anticipated in the first half of 2025.
Early-Stage Pipeline: Next Generation Ion Channel Modulators
We continue to expand our portfolio by leveraging our extensive expertise to discover and develop potassium and sodium channel therapeutics, with the goal of filing multiple INDs, or equivalent, in 2025.
• IND-enabling work is underway with multiple Kv7 development candidates. Kv7 may have utility in a broad range of therapeutic indications including seizures, pain, and neuropsychiatric disorders, such as MDD and BPD.
• IND-enabling work is underway with a lead Nav1.7 development candidate. Nav1.7 is an important pain-related target, based on strong human genetic validation, that may represent a new class of medicines without the limitations of opioids.
• We expect a lead candidate within our Nav1.1 program will enter IND-enabling studies in 2025. Pre-clinical data suggests that targeting Nav1.1 could potentially address the underlying cause and symptoms of Dravet Syndrome
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Partnered Program
• As part of our ongoing collaboration with Neurocrine Biosciences to develop treatments for epilepsy, 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 $7.5 million milestone payment to Xenon.
We have funded our operations primarily through the sale of equity securities, funding received from our licensees and collaborators, and debt financing. We did not recognize any revenue in the years ended December 31, 2024 and 2023, as compared to revenue from collaboration agreements of $9.4 million for the year ended December 31, 2022. To date, we have not had any products approved for sale and have not generated any revenue from product sales. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate, which we expect will take a number of years, if ever, and the outcome of which is subject to significant uncertainty.
We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We have incurred net losses in each year since inception and expect to continue to incur net losses for the foreseeable future. Our net losses were $234.3 million, $182.4 million, and $125.4 million for the years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024, we had an accumulated deficit of $899.5 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We anticipate that our operating expenses will increase substantially, particularly as we:
• prepare for the potential commercial launch of azetukalner;
• invest significantly to further develop azetukalner for our current and future indications;
• advance additional product candidates into pre-clinical and clinical development;
• seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical trials;
• require the manufacture of larger quantities of our product candidates for clinical development and potential commercialization;
• hire additional commercial, clinical, scientific, management and administrative personnel;
• acquire or in-license other assets and technologies;
• maintain, protect and expand our intellectual property portfolio; and
• create additional infrastructure to support our operations and any future commercialization efforts.
Financial Operations Overview
Revenue
To date, our revenue has been primarily derived from collaboration and licensing agreements and we have not generated any revenue from product sales. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
We may also generate revenue in the future from payments as a result of license or collaboration agreements for any of our product candidates or intellectual property, such as our license and collaboration agreement with Neurocrine Biosciences, or the Neurocrine Collaboration, described in “Business — Collaborations, Commercial and License Agreements” and “Note 10” of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We cannot provide assurance as to the timing of future milestone or royalty payments under the Neurocrine Collaboration, or that we will receive any of these payments at all.
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The following table is a summary of revenue recognized for the years ended December 31, 2024, 2023 and 2022 (in thousands):
Year Ended December 31,
2024
2023
2022
Recognition of the transaction price
$
—
$
—
$
372
Research and development services
—
—
1,938
Milestone payments
—
—
7,124
Total revenue
$
—
$
—
$
9,434
Pursuant to the terms of the Neurocrine Collaboration, we received an upfront cash payment of $30.0 million and a $20.0 million equity investment in our common shares in December 2019. The overall transaction price of the arrangement was measured and allocated to certain performance obligations and revenue was recognized as those performance obligations were completed. In January 2022, based on the U.S. Food and Drug Administration’s (“FDA”) approval to expand the SCN8A-DEE study population to include subjects aged between 2 and 11 years, we received an aggregate milestone payment of $15.0 million in the form of $6.75 million cash and $8.25 million equity investment in our common shares. The equity investment was measured at fair value on the date of issuance and the resulting premium with the cash payment, was recognized as revenue. Research and development services were recognized as revenue at fair market value as the services were rendered. The research collaboration was completed in June 2022.
Operating Expenses
The following table summarizes our operating expenses for the years ended December 31, 2024, 2023 and 2022 (in thousands):
Year Ended December 31,
2024
2023
2022
Research and development
$
210,394
$
167,512
$
105,767
General and administrative
68,904
46,542
32,810
Total operating expenses
$
279,298
$
214,054
$
138,577
Research and Development Expenses
Research and development expenses represent costs incurred to conduct development of our proprietary product candidates and our drug discovery efforts, including any acquired or in-licensed product candidates or technology, and costs to support any partnered product candidates.
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 our product candidates, including under agreements with CROs;
• third-party expenses relating to formulation, process development and manufacture of drug substance and drug product for use in our 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.
Project-specific expenses reflect costs directly attributable to our clinical development candidates for which we have incurred significant expenses. All remaining research and development expenses are reflected in pre-clinical, discovery and other program expenses. At any given time, we have several active early-stage research and drug discovery programs. Our personnel and infrastructure are typically deployed over multiple projects and are not directly linked to any individual internal early-stage research or drug discovery program. Therefore, we do not maintain financial information for our internal early-stage research and internal drug discovery programs on a project-specific basis.
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We expense all research and development costs as incurred. Payments we make for research and development services prior to the services being rendered are recorded as prepaid assets in our consolidated balance sheets and are expensed as the services are provided. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.
We expect that our research and development expenses will increase substantially in the future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance into later stages of development and we continue to conduct clinical trials, advance our internal drug discovery programs into pre-clinical development and continue our early-stage research. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size, scope and duration of later-stage clinical trials.
Clinical development timelines, likelihood of regulatory approval, and commercialization and associated costs are uncertain, difficult to estimate, and can vary significantly. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we cannot accurately estimate or know the nature, timing and costs that will be necessary to complete the pre-clinical and clinical development for any of our product candidates or when and to what extent we may generate revenue from the commercialization and sale of any of our product candidates or achieve profitability.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related expenses, consisting of salaries, benefits and stock-based compensation for our employees engaged in executive, finance, legal, business development, commercial and administrative functions, insurance costs, professional fees for auditing, tax and legal services, costs related to maintenance and filing of intellectual property, costs incurred as we prepare for commercialization, and allocated facility-related and information technology costs not otherwise included in research and development expenses.
We expect that general and administrative expenses will increase in the future as we expand our operating activities to support our continued research activities and development of our product candidates, and as we prepare for commercialization. We will also continue to incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Other Income (Expense)
Interest income. Interest income consists of income earned on our cash and investment balances. We anticipate that our interest income will continue to fluctuate depending on our cash and investment balances and interest rates.
Unrealized fair value gain (loss) on trading securities. Trading securities are recorded at fair value. Unrealized fair value gain (loss) on trading securities is related to changes in market pricing on the investments classified as trading securities during the period.
Foreign exchange gain (loss). Net foreign exchange gain (loss) consists of gains and losses from the impact of foreign exchange fluctuations on our monetary assets and liabilities that are denominated in currencies other than the U.S. dollar (principally the Canadian dollar). We will continue to incur substantial expenses in Canadian dollars and will remain subject to risks associated with foreign currency fluctuations.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States, or GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the revenue and expenses incurred during the reported periods. We base estimates on our historical experience, known trends and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The items in our financial statements requiring significant estimates and judgments are as follows:
Revenue recognition:
Revenue recognition is a critical accounting estimate due to the magnitude and nature of the revenues we receive.
Our primary sources of revenue are derived from non-refundable upfront payments, funding for research and development services, milestone payments, and royalties under license and collaboration agreements.
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In contracts where we have more than one performance obligation to provide our customer with goods or services, each performance obligation is evaluated to determine whether it is distinct. 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 our 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 our customer for the related goods or services. We generally recognize revenue from non-refundable upfront payments over the estimated term of the performance obligation or period in which the underlying benefit is transferred to our 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. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Consideration in exchange for research and development services performed by us 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, we re-evaluate the probability of achievement of such milestones, and if necessary, adjust the 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.
Research and development costs:
Research and development costs is a critical accounting policy due to the magnitude of the costs and the requirement to estimate the proportionate performance of vendors to calculate third-party accrued and prepaid research and development expenses.
We accrue for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials, and manufacturing activities. Third-party service providers generally provide estimates of proportionate performance to allow us to determine an appropriate accrual. When determining the adequacy of an accrual, we analyze progress based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. 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. Our historical prepaid and accrual estimates have not been materially different from the actual costs.
Stock-based compensation:
Stock-based compensation is a critical accounting estimate due to the magnitude of and the many assumptions that are required to calculate stock-based compensation expense.
We grant stock options to employees, consultants, directors and officers pursuant to our equity incentive plans. Compensation expense is recorded using the fair value method. We calculate the fair value of stock options using the Black-Scholes option-pricing model which requires that certain assumptions, including the expected life of the option and expected volatility of the stock, be estimated at the time that the options are granted. The expected volatility is based on the historical volatility of our common shares calculated based on a period of time commensurate with the expected term assumption. The expected term of our stock options has been determined utilizing our available historical data and we recognize forfeitures as they occur. We amortize the fair value of stock options using the straight-line method over the vesting period of the options.
We also grant performance share unit awards (“PSUs”) to certain employees and officers pursuant to our equity incentive plans. The grant date fair value of PSUs is determined based on the closing market price of our common shares. Compensation expense is recognized if the performance condition is considered probable of achievement using our best estimates and is amortized on a straight-line basis over the requisite service period of each separately vesting tranche of the award. Forfeitures are accounted for in the period they occur.
Changes in any of these assumptions may materially affect the fair value of awards granted and the amount of stock-based compensation expense recognized.
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Results of Operations
Comparison of Years Ended December 31, 2024, 2023 and 2022
The following table summarizes the results of our operations for the years ended December 31, 2024, 2023 and 2022 together with changes in those items (in thousands):
Year Ended December 31,
Change
2024 vs. 2023
Change
2023 vs. 2022
2024
2023
2022
Increase/(Decrease)
Increase/(Decrease)
Revenue
$
—
$
—
$
9,434
$
—
$
(9,434
)
Research and development expenses
210,394
167,512
105,767
42,882
61,745
General and administrative expenses
68,904
46,542
32,810
22,362
13,732
Other:
Interest income
41,943
27,620
8,713
14,323
18,907
Unrealized fair value gain (loss) on trading securities
—
3,550
(2,934
)
(3,550
)
6,484
Foreign exchange gain (loss)
(1,064
)
199
(1,891
)
(1,263
)
2,090
Loss before income taxes
$
(238,419
)
$
(182,685
)
$
(125,255
)
$
(55,734
)
$
(57,430
)
Revenue
We did not recognize any revenue in the years ended December 31, 2024 and 2023, as compared to revenue of $9.4 million for 2022. Revenue recognized in 2022 was related to the Neurocrine Collaboration, including $0.4 million of the overall transaction price, $1.9 million in research and development services, and a $7.1 million milestone.
Research and Development Expenses
The following table summarizes research and development expenses for the years ended December 31, 2024, 2023 and 2022 together with changes in those items (in thousands):
Year Ended December 31,
Change
2024 vs. 2023
Change
2023 vs. 2022
2024
2023
2022
Increase/(Decrease)
Increase/(Decrease)
Direct external costs:
Azetukalner
$
106,806
$
89,303
$
37,367
$
17,503
$
51,936
XEN496
—
5,152
14,765
(5,152
)
(9,613
)
Pre-clinical and discovery programs
21,546
15,552
12,711
5,994
2,841
Indirect costs:
Personnel-related (including stock-based
compensation)
70,810
47,945
33,650
22,865
14,295
Other unallocated expenses
11,232
9,560
7,274
1,672
2,286
Research and development expenses
$
210,394
$
167,512
$
105,767
$
42,882
$
61,745
Research and development expenses increased by $42.9 million for the year ended December 31, 2024 as compared to 2023. Direct external costs related to azetukalner increased by $17.5 million primarily due to our ongoing Phase 3 epilepsy clinical trials and the initiation of our first Phase 3 MDD clinical trial, manufacturing activities to support current and future clinical trials as well as our potential NDA submission, partially offset by a decrease in costs for our Phase 2 MDD clinical trial which completed in late 2023. The decrease in direct external costs related to XEN496 of $5.2 million is due to our decision in May 2023 to no longer pursue the clinical development of XEN496. Pre-clinical and discovery program costs increased by $6.0 million due to the advancement of multiple potential drug candidates targeting Kv7, Nav1.7 and Nav1.1. Personnel-related costs increased by $22.9 million driven by an increase in headcount to support late-stage development and an increase in stock-based compensation expense due to an increase in the number of options granted at a higher fair value.
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Research and development expenses increased by $61.7 million for the year ended December 31, 2023 as compared to 2022. Direct external costs related to azetukalner increased by $51.9 million primarily due to ongoing site initiation and patient enrollment in our Phase 3 epilepsy clinical trials, increase in manufacturing activities to support current and future clinical trials and a potential NDA submission, as well as the completion of our Phase 2 MDD clinical trial. The decrease in direct external costs related to XEN496 of $9.6 million is due to our decision in May 2023 to no longer pursue the clinical development of XEN496. Personnel-related costs increased by $14.3 million driven by an increase in headcount to support late-stage development and an increase in stock-based compensation expense due to an increase in the number of options granted at a higher fair value.
General and Administrative Expenses
The following table summarizes general and administrative expenses for the years ended December 31, 2024, 2023 and 2022 together with changes in those items (in thousands):
Year Ended December 31,
Change
2024 vs. 2023
Change
2023 vs. 2022
2024
2023
2022
Increase/(Decrease)
Increase/(Decrease)
Personnel-related (including stock-based
compensation)
$
48,247
$
32,166
$
22,814
$
16,081
$
9,352
Professional and consulting fees
14,127
8,760
5,189
5,367
3,571
Other
6,530
5,616
4,807
914
809
General and administrative expenses
$
68,904
$
46,542
$
32,810
$
22,362
$
13,732
General and administrative expenses increased by $22.4 million for the year ended December 31, 2024 as compared to 2023. Personnel-related costs increased by $16.1 million primarily due to higher headcount to support our expanding research and development activities and future potential commercialization as well as an increase in stock-based compensation expense due to an increase in the number of options granted at a higher fair value. Professional and consulting fees increased by $5.4 million primarily associated with legal services in support of our ongoing business operations and pre-commercial activities.
General and administrative expenses increased by $13.7 million for the year ended December 31, 2023 as compared to 2022. Personnel-related costs increased by $9.4 million primarily due to higher headcount to support our expanding research and development activities as well as an increase in stock-based compensation expense due to an increase in the number of options granted at a higher fair value. Professional and consulting fees increased by $3.6 million primarily associated with legal services in support of our ongoing business operations and market research activities.
Other Income
The following table summarizes our other income for the years ended December 31, 2024, 2023 and 2022 together with changes in those items (in thousands):
Year Ended December 31,
Change
2024 vs. 2023
Change
2023 vs. 2022
2024
2023
2022
Increase/(Decrease)
Increase/(Decrease)
Interest income
$
41,943
$
27,620
$
8,713
$
14,323
$
18,907
Unrealized fair value gain (loss) on trading securities
—
3,550
(2,934
)
(3,550
)
6,484
Foreign exchange gain (loss)
(1,064
)
199
(1,891
)
(1,263
)
2,090
Other income
$
40,879
$
31,369
$
3,888
$
9,510
$
27,481
Other income increased by $9.5 million for the year ended December 31, 2024 as compared to 2023. Interest income increased by $14.3 million driven by a higher average balance of marketable securities and higher average market yields on investments. The unrealized fair value gain on trading securities decreased by $3.6 million due to the fact that we did not hold any marketable securities classified as trading in 2024.
Other income increased by $27.5 million for the year ended December 31, 2023 as compared to 2022. Interest income increased by $18.9 million driven by a higher balance of marketable securities and an increase in market yields on investments. The unrealized fair value gain on trading securities increased by $6.5 million due to changes in market yields on trading securities, partially offset by a lower balance of trading securities.
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Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through the sale of equity securities, funding received from collaboration and license agreements, and debt financing. Since our initial public offering through December 31, 2024, we have raised aggregate net cash proceeds of more than $1.4 billion primarily from the issuance of equity securities. As of December 31, 2024, we had cash and cash equivalents and marketable securities of $754.4 million .
Except for any obligations of our collaborators to make milestone payments under our agreements with them, we do not have any committed external sources of capital. Until such time as we can generate substantial product revenue, if ever, we expect to finance our cash needs through a combination of collaboration agreements and equity or debt financings.
We entered into an “at-the-market” equity offering sales agreement in August 2020, amended as of March 2022, with Jefferies LLC and Stifel, Nicolaus & Company, Incorporated, or the ATM Program, and a new prospectus supplement was filed with the SEC on August 9, 2024, pursuant to which we refreshed the ATM Program and may sell common shares having gross proceeds of up to $350.0 million, from time to time. As of December 31, 2024, an aggregate of 310,000 common shares have been sold for proceeds of $12.1 million, net of commissions and transaction expenses.
Funding Requirements
We have incurred significant operating losses since inception. As of December 31, 2024, we had an accumulated deficit of $899.5 million. We expect to continue to incur significant expenses in excess of our revenue and expect to incur operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to incur significant expenses and increasing operating losses for the foreseeable future as we prepare for the potential commercial launch of azetukalner; invest significantly to further develop azetukalner for our current and future indications; advance additional product candidates into pre-clinical and clinical development; seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical studies; manufacture larger quantities of our product candidates of clinical development and potential commercialization; hire additional commercial, clinical, scientific, management and administrative personnel; acquire or in-license other product candidates and technologies; make milestone or other payments under our in-license or other agreements, including, without limitation, payments to 1st Order Pharmaceuticals, Inc and other third parties; maintain, protect and expand our intellectual property portfolio; establish a sales, marketing, distribution and other commercial infrastructure to commercialize any products for which we may obtain marketing approval; create additional infrastructure and incur additional costs to support our operations and our product development and planned future commercialization efforts; and experience any delays or encounter issues with any of the above.
Our future capital requirements are difficult to forecast and will depend on many factors, including:
• the scope, progress, results and costs of researching and developing our current product candidates, as well as other additional product candidates we may develop and pursue in the future;
• the timing of, and the costs involved in, obtaining marketing approvals for our product candidates and any other additional product candidates we may develop and pursue in the future;
• the number of future product candidates that we may pursue and their development requirements;
• if approved, the costs of commercialization activities for any product candidate that receives regulatory approval to the extent such costs are not the responsibility of an existing or future collaborator, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
• subject to the receipt of regulatory approval, revenue, if any, received from commercial sales of our product candidates and any other additional product candidates we may develop and pursue in the future;
• whether our existing collaborations generate substantial milestone payments and, ultimately, royalties on future approved products for us;
• our ability to maintain existing collaborations and to establish new collaborations, licensing or other arrangements and the financial terms of such agreements;
• our headcount growth and associated costs as we expand our research and development and initiate pre-commercial and commercial activities;
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• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such litigation; and
• the ongoing costs of operating as a public company.
Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash and cash equivalents and marketable securities as of the date of this report will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. However, our estimates and assumptions may prove to be wrong, and we cannot guarantee that our existing capital resources will be sufficient to conduct and complete all of our anticipated research and development efforts and future commercialization efforts. Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials remains uncertain. Further, inflation may affect our use of capital resources by increasing our cost of labor and research and development expenses. Our long-term funding requirements will consist of operational, capital, and manufacturing expenditures, including those contractual commitments described below. Because of the inherent risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of capital outflows and operating expenditures associated with our long-term anticipated pre-clinical studies and clinical trials.
Contractual Commitments
In April 2017, we acquired azetukalner from 1st Order Pharmaceuticals, Inc., or 1st Order, pursuant to an asset purchase agreement. In August 2020, we 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, we have paid $2.0 million based on progress against these milestones. Future potential payments to 1st Order include up to $6.0 million in regulatory milestones. There are no royalty obligations to 1st Order.
We have operating leases for research laboratories and office space in Burnaby, British Columbia and office space in Needham, Massachusetts. The terms of the leases expire in June 2032 and November 2027, respectively. Amounts related to future lease payments for operating lease obligations as of December 31, 2024 totaled $10.2 million, with $1.7 million expected to be paid within the next 12 months.
Cash Flows
The following table shows a summary of our cash flows for the years ended December 31, 2024, 2023 and 2022 (in thousands):
Year Ended December 31,
2024
2023 (1)
2022 (1)
Net cash used in operating activities
$
(181,389
)
$
(151,112
)
$
(101,028
)
Net cash provided by (used in) investing activities
165,000
(111,385
)
(293,405
)
Net cash provided by financing activities
12,130
353,522
278,471
(1) Amounts have been reclassified as described in Note 2 of our consolidated financial statements.
Operating Activities
For the year ended December 31, 2024, net cash used in operating activities totaled $181.4 million, compared to $151.1 million in 2023. The increase was primarily related to higher research and development and general and administrative expenses, as well as changes in operating assets and liabilities, partially offset by higher interest income.
For the year ended December 31, 2023, net cash used in operating activities totaled $151.1 million, compared to $101.0 million in 2022. The increase was primarily related to higher research and development and general and administrative expenses, and a decrease in revenue recognized, partially offset by higher interest income and changes in operating assets and liabilities.
Investing Activities
For the year ended December 31, 2024, net cash provided by investing activities totaled $165.0 million, compared to net cash used of $111.4 million in 2023. The change was driven primarily by an increase in the redemption of marketable securities, net of purchases. In addition, there was a decrease in the purchases of property, plant and equipment.
For the year ended December 31, 2023, net cash used in investing activities totaled $111.4 million, compared to $293.4 million in 2022. The change was driven primarily by an increase in the redemption of marketable securities, net of purchases. This was partially offset by an increase in the purchases of property, plant and equipment.
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Financing Activities
For the year ended December 31, 2024, net cash provided by financing activities totaled $12.1 million, compared to $353.5 million in 2023. The decrease was primarily related to net proceeds from the issuance of common shares of $12.1 million in 2024 as compared to net proceeds of $353.5 million in 2023 from the issuance of common shares and pre-funded warrants.
For the year ended December 31, 2023, net cash provided by financing activities totaled $353.5 million, compared to $278.5 million in 2022. The increase was primarily related to net proceeds of $353.5 million in 2023 as compared to net proceeds of $277.8 million in 2022 from the issuance of common shares and pre-funded warrants.
Related Party Transactions
For a description of our related party transactions, see “Certain Relationships and Related Transactions, and Director Independence.”
Outstanding Share Data
As of February 24, 2025, we had 76,542,811 common shares issued and outstanding, outstanding pre-funded warrants to purchase an additional 2,173,081 common shares, outstanding stock options to purchase an additional 10,364,025 common shares, outstanding performance share units convertible into 194,000 common shares and an outstanding warrant to purchase an additional 40,000 common shares.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk
We are exposed to various market risks, including changes in currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices.
Foreign currency risk
As of December 31, 2024, we had U.S. dollar denominated cash and cash equivalents and marketable securities of $685.7 million and Canadian dollar denominated cash and cash equivalents and marketable securities of CAD$98.7 million.
We are subject to foreign currency exchange rate risk in part, as a result of entering into transactions denominated in currencies other than U.S. dollars, particularly those denominated in Canadian dollars. We also hold Canadian dollar denominated cash and cash equivalents, accounts receivable and accounts payable.
Changes in foreign currency exchange rates can create significant foreign exchange gains or losses to us. We do not currently hedge our exposure and thus assume the risk of future gains or losses on the amounts of Canadian dollars held. While we have experienced increased foreign exchange fluctuations in recent periods, we do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to the Canadian dollar would have a material effect on our operating results.
Interest rate sensitivity
As of December 31, 2024, we had cash and cash equivalents and marketable securities of $754.4 million. Our interest rate sensitivity is primarily attributable to our cash and cash equivalents and marketable securities. A 100 basis point, or 1%, unfavorable change in interest rates would have resulted in approximately a $4.0 million decrease in the fair value of our marketable securities as of December 31, 2024. We do not enter into investments for speculative purposes and have not used any derivative financial instruments to manage interest rate exposure.
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