What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-21 · 93 added, 54 removed, 288 unchanged (34% of the section changed)

33 unchanged sentences

Commitments and contingencies (note 13)

Subsequent event (notes 9 and 14)

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

XENON PHARMACEUTICALS INC.

Consolidated S tatements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive Loss

(Expressed in thousands of U.S.

dollars except share and per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Revenue (note 11)

6 unchanged sentences

Interest expense

Foreign exchange gain (loss)

Foreign exchange gain

Loss on repayment of term loan (note 9)

Loss before income taxes

6 unchanged sentences

Weighted-average common shares outstanding (note 5):

Basic and diluted

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

18 unchanged sentences

March 31, 2019

Net loss for the period

Stock-based compensation

Issued pursuant to exercise

of stock options

Balance as of

June 30, 2019

XENON PHARMACEUTICALS INC.

Consolidated Statements of Shareholders’ Equity

(Expressed in thousands of U.S.

dollars except share amounts)

preferred shares

Common shares

Accumulated deficit

Accumulated other

comprehensive

Total shareholders'

Balance as of

December 31, 2019

7 unchanged sentences

March 31, 2020

Net loss for the period

Stock-based compensation

Issued pursuant to exercise

of stock options

Balance as of

June 30, 2020

Our accumulated other comprehensive loss is entirely related to historical cumulative translation adjustments from the application of U.S.

4 unchanged sentences

(Expressed in thousands of U.S.

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities:

1 unchanged sentence

Amortization of discount on term loan

Deferred income tax expense

Deferred income tax recovery

Stock-based compensation

1 unchanged sentence

Unrealized gain on marketable securities

Loss on repayment of term loan (note 9)

Changes in operating assets and liabilities:

10 unchanged sentences

Financing activities:

Repayment of term loan and repayment fees (note 9)

Issuance of common shares, net of issuance costs (note 10a)

21 unchanged sentences

The Company has incurred significant operating losses since inception.

As of March 31, 2020, the Company had an accumulated deficit of $257,139 and a $7,484 net loss for the three months ended March 31, 2020.

As of June 30, 2020, the Company had an accumulated deficit of $ 257,314 and a $ 7,659 net loss for the six months ended June 30, 2020.

Management expects to continue to incur significant expenses in excess of revenue and to incur operating losses for the foreseeable future.

5 unchanged sentences

These consolidated financial statements are presented in U.S.

The Company has one wholly-owned subsidiary as of March 31, 2020, Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016.

The Company has one wholly-owned subsidiary as of June 30, 2020, Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016 .

These unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.

5 unchanged sentences

These unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented.

The results of operations for the three months ended March 31, 2020 and 2019 are not necessarily indicative of results that can be expected for a full year.

The results of operations for the three and six month periods ended June 30, 2020 and 2019 are not necessarily indicative of results that can be expected for a full year.

These unaudited interim consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company included in the Company’s 2019 Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of the policies described in notes 3 and 4 below.

4 unchanged sentences

These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including but not limited to the potential impacts arising from the recent novel coronavirus (“COVID-19”) and public and private sector policies and initiatives aimed at reducing its transmission.

There was no material impact to the Company’s consolidated financial statements as of and for the three months ended March 31, 2020;

There was no material impact to the Company’s consolidated financial statements as of and for the three and six month periods ended June 30, 2020;

however, the full extent to which the COVID-19 pandemic may have a direct or indirect impact to our business, results of operations and financial condition, including revenue, expenses, research and clinical development plans and timelines, depends on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, as well as the economic impact on local, regional, national and global markets.

14 unchanged sentences

Net income (loss) per common share:

For the three months ended March 31, 2020, basic net income (loss) per common share is calculated using the two-class method required for participating securities which includes 1,016,000 Series 1 Preferred Shares as a separate class (2019 – 1,016,000).

For the three and six months ended June 30, 2020 and 2019, basic net income (loss) per common share are calculated using the two-class method required for participating securities which includes 1,016,000 Series 1 Preferred Shares as a separate class for the respective periods (three and six months ended June 30, 2019 – 1,016,000 ).

The convertible preferred shares entitle the holders to participate in dividends and in earnings and losses of the Company on an equivalent basis as common shares.

5 unchanged sentences

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

For the three months ended March 31, 2020 and 2019, all stock options, warrants and convertible preferred shares were anti-dilutive and were excluded from the diluted weighted average common shares outstanding for the period.

For the three and six months ended June 30, 2020, all stock options, warrants and convertible preferred shares were anti-dilutive and were excluded from the diluted weighted average common shares outstanding for the period.

For the three months ended June 30, 2019, 2,658,217 stock options and all warrants and convertible preferred shares were excluded from the calculation of diluted net loss per common share as their inclusion would be anti-dilutive.

For the six months ended June 30, 2019, all stock options, warrants and convertible preferred shares were anti-dilutive and were excluded from the diluted weighted average common shares outstanding for the period.

The following table sets out the computation of basic and diluted net loss per common share:

Three Months Ended June 30,

Six Months Ended June 30,

Allocation of loss attributed to

Adjustment for change in fair

value of liability classified

stock options

Weighted average number of shares:

Adjustment for dilutive effect

of stock options

Net loss attributable to shareholders per

share - basic

Net loss attributable to shareholders per

share - diluted

Fair value of financial instruments:

12 unchanged sentences

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

The Company’s term loan bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and, accordingly, the carrying value of the loan approximates fair value.

The Company has one operating lease for research laboratories and office space in Burnaby, British Columbia for a 120 -month term from April 1, 2012 to March 31, 2022 .

The cost components of the operating lease were as follows for the three months ended March 31, 2020 and 2019:

Three Months Ended

March 31, 2020

March 31, 2019

The cost components of the operating lease were as follows for the three and six month periods ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

Operating lease expense

5 unchanged sentences

Variable lease costs are excluded from the calculation of minimum lease payments.

Future minimum lease payments as of March 31, 2020 were as follows:

Future minimum lease payments as of June 30, 2020 were as follows:

Year ending December 31:

1 unchanged sentence

imputed interest

future lease incentives reasonably certain of use

Present value of lease liabilities

6 unchanged sentences

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

On May 20, 2020, the Company repaid the total outstanding term loan balance ahead of the maturity date.

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

In May 2020, the Company repaid the total outstanding term loan balance ahead of the maturity date.

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

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

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

Interest expense was $330 for the three months ended March 31, 2020 (2019 - $358).

Included within interest expense, are amortization of the debt discount and accretion of the final payment fee of $137 (2019 - $125).

The outstanding loan and unamortized debt discount balances as of March 31, 2020 and December 31, 2019 were as follows:

Accrued portion of final payment fee

unamortized discount on loan

current portion

Loan payable, long-term

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

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

Share capital:

5 unchanged sentences

The underwriters exercised their option in full in February 2020 and the Company received additional net proceeds of $ 8,460 , net of underwriting discounts and commissions, but before offering expenses.

Ex change agreement with certain funds affiliated with BVF Partners L.P.

Exchange agreement with certain funds affiliated with BVF Partners L.P.

(collectively, “BVF”):

12 unchanged sentences

During the year ended December 31, 2018, BVF converted 1,852,000 Series 1 Preferred Shares in exchange for an equal number of common shares of the Company.

BVF was a related party of the Company prior to the closing of the exchange agreement, and continues to be a related party as of March 31, 2020 and thereafter.

BVF was a related party of the Company prior to the closing of the exchange agreement, and continues to be a related party as of June 30, 2020 and thereafter.

Stock-based compensation:

In June 2020, the shareholders of the Company approved the Amended and Restated 2014 Equity Incentive Plan (the “Amended and Restated 2014 Plan”) amending certain provisions of the Company’s 2014 Equity Incentive Plan (the “2014 Plan”).

The annual automatic share increase provision of the 2014 Plan was eliminated and the number of common shares available for issuance was increased by 4,000,000 over the existing share reserve under the 2014 Plan.

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

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

In connection with the shareholder approval of the Amended and Restated 2014 Plan, the Company’s non-shareholder-approved 2019 Inducement Equity Incentive Plan (the “2019 Inducement Plan”) was terminated.

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

The following table presents stock option activity for the period:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Outstanding, beginning of period

3 unchanged sentences

Exercisable, end of period

During the three months ended March 31, 2020, 1,972 stock options were exercised for the same number of common shares for cash (2019 – 20,576).

In the same period, the Company issued 55,885 common shares (2019 – 657) for the cashless exercise of 96,354 stock options (2019 – 1,826).

During the six months ended June 30, 2020, 10,715 stock options were exercised for the same number of common shares for cash (six months ended June 30, 2019 – 23,472 ).

In the same period, the Company issued 85,660 common shares (six months ended June 30, 2019 – 863 ) for the cashless exercise of 142,327 stock options (six months ended June 30, 2019 – 2,391 ).

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Average risk-free interest rate

3 unchanged sentences

Weighted average fair value of stock options granted

Revenue was as follows for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

No stock options were granted during the three months ended June 30, 2019.

Revenue was as follows for the three and six month periods ended June 30, 2020 and 2019 :

Three Months Ended June 30,

Six Months Ended June 30,

Neurocrine Biosciences:

14 unchanged sentences

The Company allocated the transaction price as follows:

$28,807 to performance obligations (i) and (ii), which performance obligations are delivered concurrently and are being recognized as revenue over an approximate ten month period from the signing of the agreement, which is the expected period to complete the delivery of the licenses and transfer of the relevant technology and know-how, and $4,526 to performance obligation (v) which is being recognized as revenue over an approximate thirteen month period beginning March 2020 which is the expected period to complete the development services.

$ 28,807 to performance obligations (i) and (ii), which performance obligations are delivered concurrently and are being recognized as revenue over an approximate eleven month period from the signing of the agreement, which is the expected period to complete the delivery of the licenses and transfer of the relevant technology and know-how, and $ 4,526 to performance obligation (v) which is being recognized as revenue over an approximate thirteen month period beginning March 2020 which is the expected period to complete the development services.

The arrangement consideration related to the services under performance obligations (iii) and (iv) to be performed on behalf of Neurocrine Biosciences were excluded from the initial transaction price allocation because the consideration and performance are contingent upon Neurocrine Biosciences requesting performance of the services and these services are priced at an estimated fair value.

1 unchanged sentence

The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

During the three months ended March 31, 2020, the Company recognized $7,078 of revenue which comprised of $5,761 associated with (i) the exclusive license to XEN901 and (ii) the exclusive license to the DTCs;

$1,234 for the research and development services under (iii) the Research Program and (iv) the Initial Development Program for XEN901;

and $83 for (v) development services under the Initial Development Program for the DTCs.

As of March 31, 2020, there is $1,234 of accounts receivable and $24,608 of deferred revenue related to the Neurocrine Collaboration Agreement, which is classified as current on the balance sheet based on the period the services are expected to be delivered.

During the three and six month periods ended June 30, 2020, the Company recognized $ 13,384 and $ 20,462 of revenue, respectively, which comprised of $ 11,523 and $ 17,285 , respectively, associated with (i) the exclusive license to XEN901 and (ii) the exclusive license to the DTCs;

$ 1,468 and $ 2,702 , respectively, for the research and development services under (iii) the Research Program and (iv) the Initial Development Program for XEN901;

and $ 393 and $ 475 , respectively, for (v) development services under the Initial Development Program for the DTCs.

As of June 30, 2020, there is $ 1,467 of accounts receivable and $ 12,692 of deferred revenue related to the Neurocrine Collaboration Agreement, which is classified as current on the balance sheet based on the period the services are expected to be delivered.

The Company has an option to co-fund 50 % of the development costs of XEN901 or another product candidate in the U.S., exercisable upon achievement of certain milestones, in exchange for increased U.S.

The Company has not exercised this option as of March 31, 2020 .

Neurocrine Biosciences was a related party as of December 31, 2019 but was not considered a related party as of March 31, 2020.

The Company has not exercised this option as of June 30, 2020.

Neurocrine Biosciences was a related party as of December 31, 2019 but was not considered a related party as of June 30, 2020.

Income taxes:

Income tax (expense) recovery for the three months ended March 31, 2020 and 2019 arose from the operations of Xenon Pharmaceuticals USA Inc., the Company’s wholly-owned subsidiary in the United States.

Deferred income tax assets recorded on the consolidated balance sheets as of March 31, 2020 and December 31, 2019 result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes related to the operations of Xenon Pharmaceuticals USA Inc.

Income tax (expense) recovery for the three and six months ended June 30, 2020 and 2019 arose from the operations of Xenon Pharmaceuticals USA Inc., the Company’s wholly-owned subsidiary in the United States.

Deferred income tax assets recorded on the consolidated balance sheets as of June 30, 2020 and December 31, 2019 resulted from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes related to the operations of Xenon Pharmaceuticals USA Inc.

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.

4 unchanged sentences

In consideration for priority access to Medpace resources and preferred service rates, the Company has committed to $ 7,000 of services over the term of the agreement ;

$3,092 of services have been received to date and $3,908 remains committed as of March 31, 2020 .

$ 3,159 of services have been received to date and $ 3,841 remains committed as of June 30, 2020.

License, manufacture and supply agreement:

4 unchanged sentences

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

Future potential payments to 1st Order related to the XEN1101 program include $500 in clinical development milestones, up to $6,000 in regulatory milestones, and $1,500 in other milestones, which may be payable pre-commercially.

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.

Future potential payments to 1st Order related to the XEN1101 program include up to $ 1,200 in clinical development milestones, up to $ 6,000 in regulatory milestones, and $ 500 in other milestones.

Upon execution of the amendment, a payment of $ 300 is payable;

this amount has been accrued as of June 30, 2020.

There are no royalty obligations to 1st Order.

No amounts have been accrued to date based on the progress against these milestones.

License agreement

10 unchanged sentences

Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented.

S ubsequent event :

Pursuant to an agreement entered in September 2019 with Flexion Therapeutics Inc.

(“Flexion”) to which Flexion acquired global rights to develop and commercialize XEN402, also known as funapide, the Company is eligible for various CMC, development and regulatory milestone payments of up to $9,000 through initiation of a Phase 2 proof-of-concept clinical trial, of which $500 related to the initiation of the first GLP toxicology study and was recognized into revenue during the year ended December 31, 2019 as the achievement of this milestone was considered highly probable.

In April 2020, Flexion initiated the first GLP toxicology study, triggering the payment of this milestone previously recognized into revenue.

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

What changed 10-Q

Item 1. Financial Statements