Xenon Pharmaceuticals Inc. 10-K

Item 8. Financial Statements and Supplementary Data XENON PHARMACEUTICALS INC. Index to Consolidated Financial Statements Index Reports of Independent Registered Public Accounting Firm (PwC PCAOB ID 238) 84 Reports of Independent Registered Public Accounting Firm (KPMG PCAOB ID 85 ) 86 Consolidated Balance Sheets 87 Consolidated Statements of Operations and Comprehensive Loss 88 Consolidated Statements of Shareholders’ Equity 89 Consolidated Statements of Cash Flows 90 Notes to Consolidated Financial Statements 91 83 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Xenon Pharmaceuticals Inc.: Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheet of Xenon Pharmaceuticals Inc. and its subsidiary (the “Company”) as of December 31, 2025, and the related consolidated statements of operations and comprehensive loss, of shareholders’ equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 84 Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. External Research and Development Costs As described in Note 3 to the consolidated financial statements, research and development costs are expensed in the period incurred. Management recognizes research and development expenses using information and data provided by the vendors and third-party service providers. This process involves reviewing open contracts, communicating with applicable vendors and third-party service providers to identify services that have been performed, estimating the level of service performed, and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual costs. The Company’s research and development expense for the year ended December 31, 2025 was $300.9 million, a majority of which relates to external research and development costs. The principal consideration for our determination that performing procedures relating to external research and development costs is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s external research and development costs. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s research and development costs, including controls over external research and development costs. These procedures also included, among others testing external research and development costs on a sample basis by obtaining and inspecting source documents, such as the underlying contract research organization and contract manufacturing organization agreements, invoices received, and information received from vendors and third-party service providers, where applicable. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 26, 2026 We have served as the Company’s auditor since 2025. 85 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Xenon Pharmaceuticals Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Xenon Pharmaceuticals Inc. (the Company) as of December 31, 2024, the related consolidated statements of operations and comprehensive loss, shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP Chartered Professional Accountants We served as the Company’s auditor from 1999 to 2025. Vancouver, Canada February 27, 2025 86 XENON PHARMACEUTICALS INC. Consolidated Balance Sheets (Expressed in thousands of U.S. dollars except share amounts) December 31, December 31, 2025 2024 Assets Current assets: Cash and cash equivalents $ 199,163 $ 142,712 Marketable securities (note 5) 349,723 484,193 Other receivables 1,371 1,469 Prepaid expenses and other current assets 10,392 6,890 Total current assets 560,649 635,264 Marketable securities, long-term (note 5) 37,152 127,496 Operating lease right-of-use asset, net (note 7) 6,626 7,939 Property, plant and equipment, net (note 6) 8,721 10,278 Deferred tax assets (note 14) 12,864 9,666 Prepaid expenses, long-term 7,151 7,496 Total assets $ 633,163 $ 798,139 Liabilities and shareholders’ equity Current liabilities: Accounts payable and accrued liabilities (note 8) $ 40,260 $ 34,221 Operating lease liability (note 7) 1,532 1,369 Total current liabilities 41,792 35,590 Operating lease liability, long-term (note 7) 6,412 7,646 Other liabilities, long-term 3,199 — Total liabilities 51,403 43,236 Shareholders’ equity: Common shares, without par value; unlimited shares authorized; issued and outstanding: 80,010,790 (December 31, 2024 - 76,416,086 ) (note 9) $ 1,598,571 $ 1,456,836 Additional paid-in capital 228,234 199,149 Accumulated deficit ( 1,245,380 ) ( 899,470 ) Accumulated other comprehensive income (loss) 335 ( 1,612 ) Total shareholders' equity $ 581,760 $ 754,903 Total liabilities and shareholders’ equity $ 633,163 $ 798,139 Commitments and contingencies (note 12) Subsequent event (note 9) The accompanying notes are an integral part of these consolidated financial statements. 87 XENON PHARMACEUTICALS INC. Consolidated Statements of Operations and Comprehensive Loss (Expressed in thousands of U.S. dollars except share and per share amounts) Year Ended December 31, 2025 2024 2023 Collaboration revenue (note 10) $ 7,500 $ — $ — Operating expenses: Research and development 300,938 210,394 167,512 General and administrative 79,632 68,904 46,542 Total operating expenses 380,570 279,298 214,054 Loss from operations ( 373,070 ) ( 279,298 ) ( 214,054 ) Other income (expense): Interest income 26,828 41,943 27,620 Unrealized fair value gain on trading securities — — 3,550 Foreign exchange gain (loss) 1,348 ( 1,064 ) 199 Total other income 28,176 40,879 31,369 Loss before income taxes ( 344,894 ) ( 238,419 ) ( 182,685 ) Income tax recovery (expense) (note 14) ( 1,016 ) 4,089 292 Net loss $ ( 345,910 ) $ ( 234,330 ) $ ( 182,393 ) Other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities (note 5) $ 1,947 $ ( 1,535 ) $ 2,923 Comprehensive loss $ ( 343,963 ) $ ( 235,865 ) $ ( 179,470 ) Net loss per common share (note 11): Basic and diluted $ ( 4.36 ) $ ( 3.01 ) $ ( 2.73 ) Weighted average common shares outstanding (note 11): Basic and diluted 79,253,751 77,894,643 66,889,005 The accompanying notes are an integral part of these consolidated financial statements. 88 XENON pharmaceuticals INC . Consolidated Statements of Shareholders’ Equity (Expressed in thousands of U.S. dollars except share amounts) Common shares Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total shareholders' equity Shares Amount Balance as of December 31, 2022 62,587,701 $ 1,065,136 $ 142,108 $ ( 482,747 ) $ ( 3,000 ) 721,497 Net loss for the year — — — ( 182,393 ) — ( 182,393 ) Issuance of common shares and pre-funded warrants, net 10,701,842 330,010 23,477 — — 353,487 Exercise of pre-funded warrants 1,700,000 35,913 ( 35,913 ) — — — Stock-based compensation expense — — 32,372 — — 32,372 Issuance of common shares pursuant to equity incentive plans 381,434 5,315 ( 5,280 ) — — 35 Other comprehensive income — — — — 2,923 2,923 Balance as of December 31, 2023 75,370,977 $ 1,436,374 $ 156,764 $ ( 665,140 ) $ ( 77 ) 927,921 Net loss for the year — — — ( 234,330 ) — ( 234,330 ) Issuance of common shares, net 310,000 12,083 — — — 12,083 Stock-based compensation expense — — 50,717 — — 50,717 Issuance of common shares pursuant to equity incentive plans 735,109 8,379 ( 8,332 ) — — 47 Other comprehensive loss — — — — ( 1,535 ) ( 1,535 ) Balance as of December 31, 2024 76,416,086 $ 1,456,836 $ 199,149 $ ( 899,470 ) $ ( 1,612 ) 754,903 Net loss for the year — — — ( 345,910 ) — ( 345,910 ) Issuance of common shares, net 2,651,023 112,151 — — — 112,151 Exercise of warrant 30,792 291 ( 291 ) — — — Stock-based compensation expense — — 53,707 — — 53,707 Issuance of common shares pursuant to equity incentive plans 912,889 29,293 ( 24,331 ) — — 4,962 Other comprehensive income — — — — 1,947 1,947 Balance as of December 31, 2025 80,010,790 $ 1,598,571 $ 228,234 $ ( 1,245,380 ) $ 335 581,760 The accompanying notes are an integral part of these consolidated financial statements. 89 XENON PHARMACEUTICALS INC. Consolidated Statem ents of Cash Flows (Expressed in thousands of U.S. dollars) Year Ended December 31, 2025 2024 2023 Operating activities: Net loss $ ( 345,910 ) $ ( 234,330 ) $ ( 182,393 ) Adjustments to reconcile net loss to net cash used in operating activities: Interest receivable and accretion of discounts on marketable securities 7,369 816 ( 5,785 ) Depreciation of property, plant and equipment 2,543 2,560 2,061 Non-cash operating lease expense 1,313 1,254 1,213 Deferred income tax recovery ( 3,198 ) ( 8,864 ) ( 292 ) Stock-based compensation 53,707 50,717 32,372 Realized loss on marketable securities 625 — — Unrealized foreign exchange (gain) loss 73 745 ( 640 ) Unrealized fair value gain on trading securities — — ( 3,550 ) Changes in operating assets and liabilities: Other receivables 104 ( 614 ) 130 Prepaid expenses and other assets ( 3,157 ) ( 984 ) 1,574 Accounts payable and accrued liabilities 5,511 8,531 3,931 Operating lease liability ( 1,297 ) ( 1,220 ) 267 Other liabilities 3,199 — — Net cash used in operating activities ( 279,118 ) ( 181,389 ) ( 151,112 ) Investing activities: Purchases of property, plant and equipment ( 799 ) ( 3,075 ) ( 5,617 ) Purchase of marketable securities ( 355,657 ) ( 532,268 ) ( 793,907 ) Proceeds from marketable securities 574,454 700,343 688,139 Net cash provided by (used in) investing activities 217,998 165,000 ( 111,385 ) Financing activities: Proceeds from offerings, net 112,151 12,083 353,487 Proceeds from exercise of stock options 4,962 47 35 Net cash provided by financing activities 117,113 12,130 353,522 Effect of exchange rate changes on cash and cash equivalents 458 ( 1,672 ) 376 Increase (decrease) in cash and cash equivalents 56,451 ( 5,931 ) 91,401 Cash and cash equivalents, beginning of year 142,712 148,643 57,242 Cash and cash equivalents, end of year $ 199,163 $ 142,712 $ 148,643 Supplemental cash flow disclosure: Cash paid for operating lease $ 1,714 $ 1,672 $ 1,624 Cash received for lease incentives $ — $ — $ 1,489 Supplemental disclosure of non-cash transactions: Fair value of stock options and warrants exercised on a cashless basis $ 20,995 $ 8,305 $ 5,250 Fair value of warrant and pre-funded warrants exercised $ 291 $ — $ 35,913 The accompanying notes are an integral part of these consolidated financial statements. 90 XENON PHARMACEUTICALS INC. Notes to Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share and per share amounts) 1. Nature of the business: Xenon Pharmaceuticals Inc. (the “Company”), incorporated in 1996 under the predecessor to the Business Corporations Act (British Columbia) and continued federally in 2000 under the Canada Business Corporations Act, is a neuroscience-focused biopharmaceutical company dedicated to drug discovery, clinical development, and commercialization of life-changing therapeutics for patients in need. The Company has incurred significant operating losses since inception. As of December 31, 2025, the Company had an accumulated deficit of $ 1,245,380 and a net loss of $ 345,910 for the year ended December 31, 2025. Management expects to continue to incur significant expenses in excess of revenue and to incur operating losses for the foreseeable future. To date, the Company has financed its operations primarily through the sale of equity securities, funding received from collaboration and license agreements, and debt financings. Until such time as the Company can generate substantial product revenue, if ever, management expects to finance the Company’s cash needs through a combination of collaboration agreements, equity and debt financings. The continuation of research and development activities and the future commercialization of its products are dependent on the Company’s ability to successfully raise additional funds when needed. It is not possible to predict either the outcome of future research and development programs or the Company’s ability to continue to fund these programs in the future. As of December 31, 2025, the Company had cash, cash equivalents and marketable securities of $ 586,038 . Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects the cash, cash equivalents and marketable securities to be sufficient to fund current operations for at least the next 12 months from the issuance of the financial statements. 2. Basis of presentation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016 . All intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements are presented in U.S. dollars and have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Certain information has been reclassified to conform with the financial presentation adopted for the current year. 3. Significant accounting policies: (a) Use of estimates: 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. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable. On an ongoing basis, the Company evaluate its estimates, judgments and assumptions. All revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. (b) Cash and cash equivalents: 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, which approximates the fair value. (c) Marketable securities: Marketable securities are debt securities with original maturities exceeding three months and accrue interest based on a fixed interest rate for the term. The Company classifies its marketable securities as either trading securities or available-for-sale securities at the time of acquisition and evaluates the appropriateness of these classifications at each balance sheet date. Marketable securities are carried at fair value. Fair value gains and losses for marketable securities classified as trading securities are recorded through the consolidated statement of operations. These securities are classified as current assets as the Company has the intent and ability to convert these securities into cash without penalty within the next 12 months. 91 Unrealized fair value gains and losses for marketable securities classified as available-for-sale are recorded through other comprehensive income (loss) in shareholders' equity. When the fair value of an available-for-sale security falls below the amortized cost basis, it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss are recorded directly to the consolidated statement of operations with a corresponding allowance for credit losses, limited to the amount that the fair value is less than the amortized cost basis. If the credit quality subsequently improves the allowance is reversed up to a maximum of the previously recorded credit losses. When the Company intends to sell an impaired available-for-sale security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment will immediately be recognized in the consolidated statement of operations with no corresponding allowance for credit losses. Realized gains and losses and credit losses, if any, on available-for-sale securities are included in interest income, based on the specific identification method. Available-for-sale securities are also adjusted for amortization of premiums and accretion of discounts to maturity, with such amortization and accretion included within interest income. Available-for-sale securities with a remaining maturity date greater than one year are classified as non-current assets, unless they are expected to be liquidated within the next 12 months. (d) Intellectual property: The costs incurred in establishing and maintaining patents for intellectual property developed internally are expensed in the period incurred. (e) Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation and/or accumulated impairment losses, if any. 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: Asset Rate Research equipment 5 years Office furniture and equipment 5 years Computer equipment 3 years Leasehold improvements Over the lesser of lease term or estimated useful life (f) Impairment of long-lived assets: The Company monitors its long-lived assets for indicators of impairment. If such indicators are present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. 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. The Company did no t recognize any impairment charges through December 31, 2025 . 92 (g) Leases: 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. The lease term includes all periods covered by renewal and termination options where the Company is reasonably certain to exercise the renewal options or not to exercise the termination options. Corresponding right-of-use assets are recognized consisting of the lease liabilities, initial direct costs and any lease incentive payments. Lease liabilities are drawn down as lease payments are made and right-of-use assets are depreciated over the term of the lease. Operating lease expenses are recognized on a straight-line basis over the term of the lease, consisting of interest accrued on the lease liability and depreciation of the right-of-use asset, adjusted for changes in index-based variable lease payments in the period of change. Variable lease payments not based on an index or rate are expensed as incurred. Lease payments on short-term operating leases with lease terms t welve months or less are expensed on a straight-line basis over the lease term. The Company has elected to not separate non-lease elements embedded in its lease agreements. (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. The Company's investments are limited to investment-grade securities with strong credit ratings with the objective to preserve capital and maintain liquidity. Cash and cash equivalents were held at major financial institutions in Canada and the United States which may at times be in excess of federally insured limits. The Company does not believe that it is subject to credit risk beyond the standard credit risk associated with commercial banking relationships. (i) Financial instruments and fair value: The Company measures certain financial instruments and other items at fair value. To determine the fair value, the Company uses the fair value hierarchy for inputs used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority). • Level 1 - Unadjusted quoted prices in active markets for identical instruments. • Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). • Level 3 - Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The carrying amount of cash and cash equivalents, other receivables, accounts payable and accrued liabilities approximates fair value due to the nature and short-term of those instruments. (j) Revenue recognition: The Company recognizes the amount of revenue to which it expects to be entitled, for the transfer of promised goods or services to customers under a five-step model: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; 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. Under such collaboration agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research and development services, milestone payments, and royalties. 93 In contracts where the Company has more than one performance obligation to provide its customer with goods or services, each performance obligation is evaluated to determine whether it is distinct based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative standalone selling prices. The estimated standalone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was regularly sold on a standalone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if selling price on a standalone basis is not available. The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services. 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. (k) Research and development costs: Research and development costs are expensed in the period incurred. Research and development expenses consist of costs incurred in performing research and development activities, including personnel-related expenses, consisting of salaries, benefits and stock-based compensation for employees engaged in scientific research and development, external research and development costs, 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. The Company recognizes external research and development costs for research and development activities conducted by third-party service providers, 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 studies and potential commercial supply. When determining the research and development expenses, the Company uses information and data provided by the vendors and third-party service providers. This process involves reviewing open contracts, communicating with applicable vendors and third-party service providers to identify services that have been performed, estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual 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. Prepaid expenses are classified as current or non-current assets based on the expected timing of services. (l) Stock-based compensation: 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. 94 The Company grants stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) to certain employees, consultants, directors and officers pursuant to equity incentive plans described in note 9c. The fair value of stock options at the date of grant is estimated using the Black-Scholes option-pricing model. 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. RSUs are measured at the closing market price of the Company’s common shares on the date of grant. Stock-based compensation expense for RSUs is amortized on a straight-line basis over the requisite service period, which is generally the vesting period. 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: The functional and reporting currency of the Company and its subsidiary is the U.S. dollar. Monetary assets and liabilities denominated in a currency other than the U.S. dollar are re-measured into U.S. dollars at the exchange rate prevailing as of the balance sheet date. Non-monetary assets and liabilities acquired in a currency other than U.S. dollars are translated at the approximate historical exchange rates prevailing at each transaction date. Revenue and expense transactions ar e translated at the average exchange rate prevailing on the date of transaction. Exchange gains and losses on translation are included in the consolidated statements of operations and comprehensive income (loss) as foreign exchange gain (loss). (n) Income taxes: 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, net operating loss and tax 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 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. 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, RSUs, 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. (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, developing and delivering life-changing therapeutics for patients in need. (q) Recently adopted accounting pronouncements: (i) In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures , which requires public entities to disclose specific categories in the effective tax rate reconciliation, as well as expanded disclosures on income taxes paid by jurisdictions. The Company adopted this ASU in the fourth quarter of 2025, prospectively for the current year presented in the consolidated financial statements. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements. 95 (ii) In September 2025, the FASB issued ASU 2025‑07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share‑Based Noncash Consideration from a Customer in a Revenue Contract , which refines the scope of derivative accounting and clarifies the treatment of certain share‑based noncash consideration in revenue contracts. The Company adopted this ASU in the fourth quarter of 2025, prospectively. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements. (r) Accounting pronouncements not yet adopted: (i) In November 2024, the FASB issued ASU 2024‑03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220‑40) , which requires disclosure in the notes to financial statements about specific types of expenses included in the expense captions presented on the face of the statement of operations. This ASU is effective for public entities for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted, and can be applied either prospectively or retrospectively. The Company is currently evaluating the impact related to the adoption of this ASU on its financial statement disclosures. (ii) In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which updates the accounting for internal-use software costs by replacing prescriptive development-stage guidance with a principles-based capitalization model and incorporating website development guidance into Subtopic 350-40. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its financial statements and related disclosures. 4. Fair value of financial instruments: The following table summarizes the fair value hierarchy used to determine the fair va lues of the Company's cash and cash equivalents and marketable securities: December 31, 2025 December 31, 2024 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Cash and cash equivalents Cash, money market fund, mutual funds, commercial paper and U.S. treasuries $ 154,659 $ 44,504 $ — $ 199,163 $ 142,712 $ — $ — $ 142,712 Marketable securities Guaranteed investment certificates 14,737 — — 14,737 16,147 — — 16,147 U.S. treasuries 142,593 — — 142,593 130,948 — — 130,948 Commercial paper — 39,559 — 39,559 — 66,905 — 66,905 Corporate debt securities — 189,986 — 189,986 — 397,689 — 397,689 Total marketable securities 157,330 229,545 — 386,875 147,095 464,594 — 611,689 Total $ 311,989 $ 274,049 $ — $ 586,038 $ 289,807 $ 464,594 $ — $ 754,401 The fair values of the Company’s commercial paper and corporate debt securities are based on prices obtained from independent pricing sources. Securities with validated quotes from pricing services are reflected within Level 2, as they are primarily based on observable pricing for similar assets or other market observable inputs. 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, 2025 and 2024, the Company does not hold any securities classified as Level 3 and there were no securities transferred between Level 1 and 2. 96 5. Marketable securities: 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, 2025 December 31, 2024 Amortized Cost Unrealized Gain (Loss) Fair Value Amortized Cost Unrealized Gain (Loss) Fair Value Current: Guaranteed investment certificates $ 14,348 $ 389 $ 14,737 $ 17,122 $ ( 975 ) $ 16,147 U.S. treasuries 111,901 197 112,098 72,989 147 73,136 Commercial paper 39,555 4 39,559 66,808 97 66,905 Corporate debt securities 182,864 465 183,329 327,448 557 328,005 Non-current: U.S. treasuries 30,292 203 30,495 58,218 ( 406 ) 57,812 Corporate debt securities 6,590 67 6,657 69,726 ( 42 ) 69,684 Total $ 385,550 $ 1,325 $ 386,875 $ 612,311 $ ( 622 ) $ 611,689 Allowance for credit losses or impairment on these marketable securities have not been recognized as these securities are high credit quality, investment grade securities that the Company does not intend to sell and will not be required to sell prior to their anticipated recovery, and the decline in fair value is primarily due to changes in interest and foreign exchange rates. 6. Property, plant and equipment: Property, plant and equipment consisted of the following: December 31, 2025 2024 Research equipment $ 12,127 $ 11,631 Office furniture and equipment 1,298 1,285 Computer equipment 1,338 1,463 Leasehold improvements 9,407 9,363 Less: accumulated depreciation ( 15,449 ) ( 13,464 ) Net book value $ 8,721 $ 10,278 7. Leases: The Company has an operating lease for research laboratories and office space in Burnaby, British Columbia, which expires on June 30, 2032 , and two renewal options for 5 -years each which were not considered in the determination of the right-of-use asset and lease liability. The Company has an additional operating lease for office space in Needham, Massachusetts (“Needham Lease”), which commenced in October 2022. The Needham Lease is for a 62-month term and an option to terminate one year prior to the expiry date , which was not considered in the determination of the right-of-use asset and lease liability. 97 The cost components of the operating leases were as follows for the years ended December 31, 2025, 2024 and 2023: Year Ended December 31, 2025 2024 2023 Lease cost Operating lease expense $ 1,638 $ 1,646 $ 1,645 Variable lease expense (1) 831 826 787 Lease term and discount rate Weighted average remaining lease term (years) 5.7 6.4 7.3 Weighted average discount rate 3.7 % 3.8 % 3.9 % (1) Variable lease costs are payments that vary because of changes in facts or circumstances and include common area maintenance and property taxes related to the premises. Variable lease costs are excluded from the calculation of minimum lease payments. Future minimum lease payments as of December 31, 2025 were as follows: Year ending December 31: 2026 $ 1,801 2027 1,788 2028 1,087 2029 1,137 2030 1,176 2031 and thereafter 1,822 Total future minimum lease payments $ 8,811 Less: imputed interest ( 867 ) Present value of lease liabilities $ 7,944 8. Accounts payable a nd accrued liabilities: Accounts payable and accrued liabilities consisted of the following: December 31, 2025 2024 Accounts payable $ 3,885 $ 5,070 Accrued liabilities Employee compensation, benefits, and related accruals 14,460 9,928 Research and development 18,647 12,061 Income and other taxes 313 5,686 Professional fees 1,989 762 Other 966 714 Total $ 40,260 $ 34,221 98 9. Share capital: (a) Financing: In August 2020, the Company entered into an “at-the-market” equity offering sales agreement, amended as of March 2022, with Jefferies LLC 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, 2025, the Company had sold an aggregate of 2,651,023 common shares for proceeds of $ 112,151 , net of commissions and transaction expenses under the ATM Program (2024 – 310,000 common shares for net proceeds of $ 12,083 ) . As of February 23, 2026, we sold an additional 3,134,119 common shares for proceeds of $ 129,975 , net of commissions and transaction expenses. In November 2023, the Company completed an underwritten public offering of 9,846,157 common shares, including 1,384,615 shares sold upon the full exercise of the underwriters' over-allotment option, at a public offering price of $ 32.50 per common share and pre-funded warrants to purchase 769,230 common shares at $ 32.4999 per pre-funded warrant (note 9d), with each pre-funded warrant having an exercise price of $ 0.0001 . The public offering was completed in December 2023, and the Company received proceeds of $ 323,979 , net of underwriting discounts, commissions and offering expenses. (b) Authorized share capital: The Company’s authorized share capital consists of an unlimited number of common and preferred shares without par value. (c) Stock-based compensation: 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 2025 Inducement Equity Incentive Plan, which was amended and restated in November 2025 (the “Amended and Restated 2025 Inducement Plan”). 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, including the issuance of options, share appreciation rights, restricted shares, RSUs, 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 vesting conditions, vesting period and expiry terms of the RSUs and PSUs are determined by the board of directors. As of December 31, 2025, a total of 5,004,392 common shares remain available for issuance pursuant to the Amended and Restated 2014 Plan. O f this total, the aggregate number of common shares that can be issued through restricted share awards, RSU awards, or PSU awards is limited to 1,000,000 common shares, of which 431,556 common shares remain available as of December 31, 2025. The board of directors of the Company adopted Amended and Restated 2025 Inducement Plan amended in November 2025. Pursuant to the terms of the Amended and Restated 2025 Inducement Plan, the Company may grant nonstatutory stock options, stock appreciation rights, RSUs, restricted stock, and PSUs as an inducement material to individuals being hired, or rehired following a bona fide period of interruption of employment, as an employee of the Company or any of its subsidiaries, and its terms are substantially similar to the Company’s Amended and Restated 2014 Equity Incentive Plan, including with respect to treatment of equity awards in the event of a “merger” or “change of control” as defined under the 2025 Inducement Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award exception or to comply with the Nasdaq acquisition and merger exception. The Company has reserved 900,000 common shares for issuance under the Amended and Restated 2025 Inducement Plan. In accordance with Nasdaq Listing Rule 5635(c)(4), the Company did not seek approval of the Amended and Restated 2025 Inducement Plan by its shareholders. 99 The following table presents the components and classification of stock-based compensation expense for the years ended December 31, 2025, 2024 and 2023: Year Ended December 31, 2025 2024 2023 Stock-based compensation expense by award type: Stock options $ 50,347 $ 48,384 $ 32,372 RSUs 2,518 — — PSUs 842 2,333 — $ 53,707 $ 50,717 $ 32,372 Stock-based compensation expense in operating expenses: Research and development $ 26,479 $ 22,088 $ 13,067 General and administrative 27,228 28,629 19,305 $ 53,707 $ 50,717 $ 32,372 Stock options The following table presents the summary of stock option activity for the period: Number of Weighted Average Exercise Aggregate Options Price ($) (1) Intrinsic Value Outstanding, December 31, 2022 7,117,782 18.75 147,214 Granted 2,542,473 35.29 Exercised (1) ( 587,536 ) 13.58 14,526 Forfeited, cancelled or expired ( 178,217 ) 31.49 Outstanding, December 31, 2023 8,894,502 23.56 200,122 Granted 3,062,819 42.93 Exercised (1) ( 1,040,136 ) 12.43 30,416 Forfeited, cancelled or expired ( 207,896 ) 38.18 Outstanding, December 31, 2024 10,709,289 29.90 111,202 Granted 2,894,139 35.99 Exercised (1) ( 1,801,630 ) 20.56 28,436 Forfeited, cancelled or expired ( 727,078 ) 39.17 Outstanding, December 31, 2025 11,074,720 32.40 137,659 Exercisable, December 31, 2025 6,279,248 28.28 103,917 (1) During the year ended December 31, 2025, 318,813 (2024 – 5,144 and 2023 – 4,320 ) stock options were exercised for the same number of common shares in exchange for cash. In the same period, the Company issued 594,076 (2024 – 729,965 and 2023 – 377,114 ) common shares for the cashless exercise of 1,482,817 (2024 – 1,034,992 and 2023 – 583,216 ) stock options. At December 31, 2025 , stock options outstanding and exercisable had a weighted average remaining contractual life of 7.31 years and 6.18 years, respectively. 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. The risk-free interest rate of the options is based on the U.S. Treasury yield curve in effect at the date of grant for a term similar to the expected term of the option. The expected volatility is based on the historical volatility of the Company’s common shares calculated based on a period of time commensurate with the expected term assumption. Expected life assumptions are based on the Company’s historical data. The dividend yield is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Forfeitures are recognized as they occur. 100 The weighted average option pricing assumptions are as follows: Year Ended December 31, 2025 2024 2023 Average risk-free interest rate 4.01 % 4.05 % 3.93 % Expected volatility 61 % 66 % 69 % Average expected term (in years) 5.78 5.75 5.94 Expected dividend yield 0.00 % 0.00 % 0.00 % Weighted average fair value of stock options granted $ 21.11 $ 26.48 $ 22.52 A summary of the Company’s unvested stock option activity and related information for the year ended December 31, 2025 is as follows: Number of Options Weighted Average Grant Date Fair Value ($) Unvested, January 1, 2025 4,781,651 24.56 Granted 2,894,139 21.11 Vested ( 2,365,029 ) 24.09 Forfeited or cancelled ( 515,289 ) 25.39 Unvested, December 31, 2025 4,795,472 22.62 The aggregate fair value of options vested during the year ended December 31, 2025 was $ 56,967 ( 2024 – $ 43,375 and 2023 – $ 29,233 ). As of December 31, 2025 , the unrecognized stock-based compensation expense related to the unvested stock options was $ 97,452, which is expected to be recognized over a weighted average period of 2.60 years. Restricted share units RSUs generally vest annually over a one-year period for directors and a four-year period for employees and officers, subject to continued service on each vesting date. Upon vesting, each RSU entitles the holder to receive one common share. The following table presents the summary of RSU activity for the year ended December 31, 2025: Number of Weighted Average Grant Date Units Fair Value ($) Outstanding, December 31, 2024 — — Granted 358,932 35.90 Vested — — Forfeited ( 9,938 ) 35.48 Outstanding, December 31, 2025 348,994 35.91 As of December 31, 2025, the unrecognized stock-based compensation expense related to unvested RSUs was $ 10,014 , which is expected to be recognized over a weighted average period of 3.21 years. Performance share units 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. At the achievement of the vesting criteria, each PSU entitles the holder to receive one common share. 101 The following table presents the summary of PSU activity for the period: Number of Weighted Average Grant Date Units Fair Value ($) Outstanding, December 31, 2023 — — Granted 210,000 43.90 Vested — — Forfeited — — Outstanding, December 31, 2024 210,000 43.90 Granted 96,550 35.28 Vested — — Forfeited ( 49,100 ) 44.17 Outstanding, December 31, 2025 257,450 40.61 As of December 31, 2025 , the unrecognized stock-based compensation expense related to the unvested PSUs that is probable to be achieved was $ 361 . The recognition of this expense is subject to the achievement of the performance-based criteria, which are reassessed at each reporting date. There is $ 6,912 of unrecognized stock-based compensation expense related to the PSUs that is not probable to be achieved. (d) Pre-funded warrants: The following table summarizes the pre-funded warrants activity for the years ended December 31, 2025, 2024, and 2023: Number of Pre-funded warrants outstanding Outstanding, December 31, 2022 3,103,864 Issued 769,230 Exercised (1) ( 1,700,013 ) Outstanding, December 31, 2023 2,173,081 Issued — Exercised — Outstanding, December 31, 2024 and 2025 2,173,081 (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: (i) the aggregate number of common shares beneficially owned by such holder, together with its affiliates, to exceed 4.99% of the total number of common shares outstanding immediately after giving effect to the exercise; or (ii) the combined voting power of the Company’s securities beneficially owned by such holder, together with its affiliates, to exceed 4.99% of the combined voting power of all of the Company’s securities immediately outstanding after giving effect to the exercise, which percentage may be changed at the holder’s election to a higher or lower percentage not in excess of 19.99% upon at least 61 days’ notice to the Company. Since the pre-funded warrants meet the condition for equity classification, proceeds from issuances of the pre-funded warrants for the year ended December 31, 2023, of $ 23,477 , 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. Pre-funded warrants to purchase 2,173,081 ( 2024 – 2,173,081 and 2023 – 2,173,081 ) common shares are not included in the number of issued and outstanding common shares as of December 31, 2025. (e) Warrant: In August 2018, a warrant to purchase 40,000 common shares at a price per common share of $ 9.79 was issued. In October 2025, the Company issued 30,792 common shares upon the cashless exercise of the warrant. 102 10. Collaboration agreements: Neurocrine Biosciences license and collaboration agreement 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. 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. In addition, the Company is eligible to receive royalties on net sales in and outside the U.S., ranging from (a) for NBI-921352, a low double-digit percentage to a mid-teen percentage and a high-single digit percentage to low double-digit percentage, respectively; (b) for DTCs, a high-single digit percentage to a low double-digit percentage and a mid-single digit percentage to a high-single digit percentage, respectively; and (c) for Research Compounds, a mid-single digit percentage to a high-single digit percentage and a tiered mid-single digit percentage, respectively. Royalty rates are subject to customary reductions. The Company has an option to co-fund 50 % of the development costs of NBI-921352 or another product candidate in the U.S., exercisable upon achievement of certain milestones, in exchange for increased U.S. royalties. The Company has not exercised this option as of December 31, 2025. 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, progressed into a Phase 1 clinical study in healthy adult participants, triggering a $ 7,500 milestone payment to the Company, which was recognized as revenue for the year ended December 31, 2025 . 11. 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, 2025, 2024 and 2023: Year Ended December 31, 2025 2024 2023 Numerator: Net loss $ ( 345,910 ) $ ( 234,330 ) $ ( 182,393 ) Denominator: Common shares (weighted average) 77,080,670 75,721,562 64,739,678 Pre-funded warrants (weighted average) 2,173,081 2,173,081 2,149,327 Weighted average common shares outstanding – basic and diluted 79,253,751 77,894,643 66,889,005 Net loss per common share – basic and diluted $ ( 4.36 ) $ ( 3.01 ) $ ( 2.73 ) 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 9d). 103 The Company reported net losses for each of the years ended December 31, 2025, 2024 and 2023, 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. The following table summarizes these potentially dilutive securities: Year Ended December 31, 2025 2024 2023 Stock options 11,074,720 10,709,289 8,894,502 RSUs 348,994 — — PSUs 257,450 210,000 — Warrants — 40,000 40,000 Total 11,681,164 10,959,289 8,934,502 12. Commitments and contingencies: (a) Asset purchase agreement with 1st Order Pharmaceuticals, Inc. (“1st Order”): 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, 2025, the Company has paid $ 2,000 based on progress against these milestones. Future potential payments to 1st Order include up to $ 6,000 in regulatory milestones. There are no royalty obligations to 1st Order. (b) Legal contingencies: From time to time, the Company is subject to claims and legal proceedings arising in the ordinary course of business, and such claims, individually or in the aggregate, are not likely to have a material adverse effect on the Company’s consolidated financial statements. (c) Guarantees and indemnifications: The Company has entered into license and research agreements with third parties that include indemnification provisions that are customary in the industry. These indemnification provisions generally require the Company to compensate the other party for certain damages and costs incurred as a result of third-party claims or damages arising from these transactions. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds commercial and product liability insurance. This insurance limits the Company’s exposure and may enable it to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such agreements and the Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented. 13. Defined contribution benefit plan: The Company sponsors retirement savings plans for Canadian and United States employees, under which eligible employees may elect to contribute a percentage of their annual compensation to the plans, subject to statutory limitations. The Company matches 100 % of the employee's contributions, subject to a maximum of 5 % of eligible compensation. 14. Income taxes: Loss before income taxes for the years ended December 31, 2025, 2024 and 2023 was as follows: Year Ended December 31, 2025 2024 2023 Canada $ ( 351,065 ) $ ( 243,410 ) $ ( 174,491 ) United States 6,171 4,991 ( 8,194 ) Loss before income taxes $ ( 344,894 ) $ ( 238,419 ) $ ( 182,685 ) 104 The income tax recovery (expense) is allocated as follows: Year Ended December 31, 2025 2024 2023 Current: Canada $ — $ — $ — United States ( 4,214 ) ( 4,775 ) — ( 4,214 ) ( 4,775 ) — Deferred: Canada — — — United States 3,198 8,864 292 3,198 8,864 292 Income tax recovery (expense) $ ( 1,016 ) $ 4,089 $ 292 The Company’s wholly-owned subsidiary, Xenon Pharmaceuticals USA Inc., generates taxable income due to an intercompany service agreement with the Company. A reconciliation of the expected Canadian statutory income tax rate to the effective income tax rate for the year ended December 31, 2025 is as follows: Year Ended December 31, 2025 Amount Percent Canadian federal statutory tax rate $ ( 51,734 ) 15.0 % Foreign tax effects United States Other 90 ( 0.0 %) Effects of cross-border tax laws Foreign accrual property income 3,074 ( 0.9 %) Change in valuation allowance 44,108 ( 12.8 %) Non-taxable or non-deductible items Stock-based compensation 4,156 ( 1.2 %) Other 1,322 ( 0.4 %) Effective income tax rate $ 1,016 ( 0.3 %) A reconciliation of the expected Canadian statutory income tax rate to the effective income tax rate for the years ended December 31, 2024 and 2023 is as follows: Year Ended December 31, 2024 2023 Tax at statutory income tax rate 27.0 % 27.0 % Change in valuation allowance ( 22.0 %) ( 24.0 %) Research and development and other credits 1.3 % 1.6 % Tax attributes expired/utilized ( 1.1 %) ( 0.8 %) Stock-based compensation ( 3.4 %) ( 3.2 %) Other non-deductible expenses ( 0.4 %) ( 0.3 %) Other 0.3 % ( 0.1 %) Effective income tax rate 1.7 % 0.2 % 105 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: December 31, 2025 2024 Deferred income tax assets: Research and development tax credits $ 46,535 $ 42,830 Investment tax credits 30,770 29,818 Non-capital losses 251,701 173,352 Depreciable assets 13,665 13,269 Deferred financing fees 3,943 6,967 Stock-based compensation 10,836 8,380 Operating lease liability 2,018 2,299 Other 1,904 1,704 Total deferred income tax assets 361,372 278,619 Less - valuation allowance ( 346,794 ) ( 266,856 ) Total deferred income tax assets, net of valuation allowance 14,578 11,763 Deferred tax liability: Operating lease right-of-use asset ( 1,714 ) ( 2,097 ) Net deferred income tax assets $ 12,864 $ 9,666 At December 31, 2025, a valuation allowance of $ 346,794 (2024 – $ 266,856 ) has been recognized to offset deferred tax assets where realization of such assets is uncertain. The valuation allowance increased by $ 79,938 in 2025, which primarily relates to increases in Canadian non-capital loss carryforward deferred tax assets as of December 31, 2025. The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse. The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criteria changes, the valuation allowance is adjusted accordingly. A full valuation allowance continues to be applied against deferred income tax assets in Canada as the Company has assessed that the realization of such assets does not meet the “more likely than not” criteria. Deferred income tax assets recorded on the consolidated balance sheets as of December 31, 2025 and 2024, result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes, net of valuation allowance, related to the operations of Xenon Pharmaceuticals USA Inc. At December 31, 2025, the Company has unclaimed tax deductions for scientific research and experimental development expenditures of $ 172,351 with no expiry. At December 31, 2025 , the Company has $ 30,202 of investment tax credits available to offset federal taxes payable and $ 8,798 of investment tax credits available to offset provincial taxes payable in the future. At December 31, 2025 , the Company has gross non-capital losses, net of uncertain tax positions, carried forward for tax purposes, which are available to reduce taxable income of future years of approximately $ 932,225 . The investment tax credits and loss carry forwards expire over various years from 2026 to 2046 . Income taxes paid, net of refunds, for the year ended December 31, 2025 is as follows: Year Ended December 31, 2025 Canada $ — United States 8,423 Total $ 8,423 Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of uncertainties. Interest and penalties related to uncertain tax positions, if any, will be recognized as a component of income tax expense. 106 A reconciliation of unrecognized tax benefits is as follows: Outstanding, December 31, 2024 $ 10,850 Increase related to prior year tax positions 2,456 Increase related to current tax positions — Lapses of statute of limitations ( 5 ) Outstanding, December 31, 2025 $ 13,301 If recognized in future periods, $ 2,451 of the unrecognized tax benefits would affect the Company ’ s effective tax rate. As of December 31, 2025, the Company had accrued interest and penalties related to tax contingencies of $ 747 (2024 – $ 158 ). For the year ended December 31, 2025, the Company recognized interest and penalties, net of federal income tax benefit, of $ 588 (2024 – $ 158 ). The Company files income tax returns in Canada and the United States, the jurisdictions in which the Company believes that it is subject to tax. In jurisdictions in which the Company does not believe it is subject to tax and therefore does not file income tax returns, the Company can provide no certainty that tax authorities in those jurisdictions will not subject one or more tax years (since the inception of the Company) to examination. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company claims, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2005 to 2025 remain subject to examinations in Canada and from 2022 to 2025 remain subject to examinations in the United States. 15. Segment disclosure: The Company operates as a single reportable segment dedicated to discovering, developing, and delivering life-changing 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, 2025 2024 2023 Collaboration revenue $ 7,500 $ — $ — Less: Direct external research and development costs Azetukalner 165,950 106,806 89,303 Pain programs (XEN1701, XEN1120) 7,510 4,795 — Pre-clinical, discovery and other programs 24,387 16,751 20,704 Personnel-related expenses 89,703 68,340 47,739 Stock-based compensation 53,707 50,717 32,372 Other research and development costs 12,519 11,232 9,560 Other general and administrative costs 26,794 20,657 14,376 Interest income ( 26,828 ) ( 41,943 ) ( 27,620 ) Other segment items (1) ( 332 ) ( 3,025 ) ( 4,041 ) Net loss ( 345,910 ) ( 234,330 ) ( 182,393 ) (1) Other segment items include foreign exchange gain (loss), unrealized fair value gain on trading securities, and income tax recovery (expense). 107 Item 9. Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure None.