What changed in this filing

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Item 1. Financial Statements

2021-08-11 compared with 2021-05-11 · 84 added, 42 removed, 302 unchanged (29% of the section changed)

30 unchanged sentences

Commitments and contingencies (note 12)

Subsequent event (note 13)

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

3 unchanged sentences

dollars except share and per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Revenue (note 10)

6 unchanged sentences

Interest expense

Foreign exchange gain (loss)

Foreign exchange gain

Loss on repayment of term loan (note 8)

Loss before income taxes

28 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

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

dollar reporting when the functional currency of the Company was the Canadian dollar.

The accompanying notes are an integral part of these financial statements

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, 2020

8 unchanged sentences

March 31, 2021

Net loss for the period

Stock-based compensation

Issued pursuant to exercise

of stock options

Balance as of

June 30, 2021

The 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

Unrealized foreign exchange (gain) loss

Unrealized (gain) loss on marketable securities

Unrealized foreign exchange loss

Unrealized loss (gain) on marketable securities

Loss on repayment of term loan (note 8)

Changes in operating assets and liabilities:

10 unchanged sentences

Financing activities:

Repayment of term loan and repayment fees (note 8)

Proceeds from issuance of common shares and pre-funded warrants,

12 unchanged sentences

Fair value of stock options exercised on a cashless basis

Increase in operating lease liability and accounts receivable related to lease

incentives claimed in the period

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

7 unchanged sentences

The Company has incurred significant operating losses since inception.

As of March 31, 2021, the Company had an accumulated deficit of $ 294,256 and a $ 15,764 net loss for the three months ended March 31, 2021.

As of June 30, 2021, the Company had an accumulated deficit of $ 316,365 and a $ 37,873 net loss for the six months ended June 30, 2021.

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, 2021, Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016 .

The Company has one wholly-owned subsidiary as of June 30, 2021 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.

4 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, 2021 and 2020 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 2020 Annual Report on Form 10-K for the year ended December 31, 2020, with the exception of the policies described in note 3 below.

The results of operations for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of results that can be expected for a full year.

Changes in significant accounting policies:

5 unchanged sentences

Net income (loss) per common share:

Basic net income (loss) per common share is calculated using the two-class method required for participating securities which includes 1,016,000 Series 1 Preferred Shares as a separate class for the three months ended March 31, 2021 (2020 – 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.

Accordingly, undistributed earnings (losses) are allocated to common shares and participating preferred shares based on the weighted-average shares of each class outstanding during the period.

The weighted average number of common shares used in the basic and diluted net income (loss) per common share calculations for the three months ended March 31, 2021 include the pre-funded warrants issued in connection with the Company’s March 2021 underwritten public offering (note 9c) as the pre-funded warrants are exercisable at any time for nominal cash consideration.

The weighted average number of common shares used in the basic and diluted net income (loss) per common share calculations for the three and six months ended June 30, 2021 include the pre-funded warrants issued in connection with the Company’s March 2021 underwritten public offering (note 9c) as the pre-funded warrants are exercisable at any time for nominal cash consideration.

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

3 unchanged sentences

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

For the three months ended March 31, 2021 and 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 and six months ended June 30, 2021 and 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.

Fair value of financial instruments:

13 unchanged sentences

The Company has one operating lease for research laboratories and office space in Burnaby, British Columbia.

In October 2020, the Company entered into a lease amendment for a 21–month committed term from October 1, 2020 to June 30, 2022 .

A renewal option for a portion of the facility for a 5 -year term that is reasonably certain of exercise has been included in the determination of the right-of-use asset and lease liability.

The cost components of the operating lease were as follows for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

In October 2020, the Company entered into a lease amendment for a 21–month committed term from October 1, 2020 to June 30, 2022 and a renewal option for a portion of the facility for a 5 -year term that was reasonably certain of exercise was included in the determination of the right-of-use asset and lease liability.

The cost components of the operating lease were as follows for the three and six months ended June 30, 2021 and 2020:

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, 2021 were as follows:

Future minimum lease payments as of June 30, 2021 were as follows:

Year ending December 31:

2 unchanged sentences

imputed interest

future lease incentives reasonably certain of use

Present value of lease liabilities

17 unchanged sentences

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

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

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

In January 2020, the Company entered into an underwriting agreement with Jefferies, Stifel and Guggenheim Securities, LLC, relating to an underwritten public offering of 3,750,000 common shares sold by the Company at a public offering price of $ 16.00 per common share, and granted the underwriters an option for a period of 30 days to purchase up to an additional 562,500 common shares.

The public offering was completed in January 2020, and the Company received net proceeds of $ 56,265 , net of underwriting discounts, commissions and offering expenses.

The public offering was completed in January 2020, and the Company received proceeds of $ 56,265 , net of underwriting discounts, commissions and offering expenses.

The underwriters exercised their option in full in February 2020 and the Company received additional proceeds of $ 8,395 , net of underwriting discounts, commissions and offering expenses.

In August 2020, the Company entered into an at-the-market equity offering sales agreement with Jefferies and Stifel to sell common shares of the Company having aggregate gross proceeds of up to $ 100,000 , from time to time, through an “at-the-market” equity offering program under which Jefferies and Stifel would act as sales agents.

As of March 31, 2021, 733,000 common shares have been sold under the sales agreement for proceeds of approximately $ 10,693 , net of commissions paid and transaction expenses.

As of June 30, 2021, 733,000 common shares have been sold under the sales agreement for proceeds of approximately $ 10,693 , net of commissions and transaction expenses.

In March 2021, the Company entered into an underwriting agreement with Jefferies and Stifel, relating to an underwritten public offering of 5,135,135 common shares, including 810,810 common shares sold upon the full exercise of the underwriters’ over-allotment option, at a public offering price of $ 18.50 per common share and pre-funded warrants to purchase 1,081,081 common shares (the “Pre-Funded Warrants”) at $ 18.4999 per Pre-Funded Warrant (note 9c).

15 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, 2021.

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, 2021.

Pre-Funded Warrants:

6 unchanged sentences

Upon exercise of the Pre-Funded Warrants, the historical costs recorded in additional paid-in capital along with the exercise price collected from holder will be recorded in common shares.

As of March 31, 2021, no Pre-Funded Warrants have been exercised.

Pre-funded warrants to purchase 1,081,081 common shares are not included in the number of issued and outstanding common shares as of March 31, 2021.

As of June 30, 2021, no Pre-Funded Warrants have been exercised.

Pre-funded warrants to purchase 1,081,081 common shares are not included in the number of issued and outstanding common shares as of June 30, 2021.

Stock-based compensation:

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, 2021, 46,296 (2020 – 1,972 ) stock options were exercised for the same number of common shares in exchange for cash.

In the same period, the Company issued 36,159 (2020 – 55,885 ) common shares for the cashless exercise of 76,107 (2020 – 96,354 ) stock options.

During the six months ended June 30, 2021, 58,179 (six months ended June 30, 2020 – 10,715 ) stock options were exercised for the same number of common shares in exchange for cash.

In the same period, the Company issued 179,129 (six months ended June 30, 2020 – 85,660 ) common shares for the cashless exercise of 286,555 (six months ended June 30, 2020 – 142,327 ) stock options.

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

Six Months Ended

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, 2021 and 2020 :

Three Months Ended March 31,

Revenue was as follows for the three and six months ended June 30, 2021 and 2020 :

Three Months Ended June 30,

Six Months Ended June 30,

Neurocrine Biosciences:

20 unchanged sentences

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 periods ended March 31, 2021 and 2020, the Company recognized $ 1,358 and $ 7,078 of revenue, respectively, which comprised of $nil and $ 5,761 , respectively, associated with (i) the exclusive license to XEN901 and (ii) the exclusive license to the DTCs;

$ 1,358 and $ 1,234 , respectively, for the research and development services under (iii) the Research Program and (iv) the Initial Development Program for XEN901;

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

As of March 31, 2021, there is $ 1,358 of accounts receivable and $ 3,642 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, 2021, the Company recognized $ 2,218 and $ 3,576 of revenue, respectively (three and six months ended June 30, 2020 – $ 13,384 and $ 20,462 respectively), which comprised of $ 1,601 and $ 2,959 , respectively (three and six months ended June 30, 2020 – $ 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 $ 617 and $ 617 , respectively (three and six months ended June 30, 2020 – $ 393 and $ 475 respectively), for (v) development services under the Initial Development Program for the DTCs.

During the three and six months ended June 30, 2020, the Company also recognized revenue of $ 11,523 and $ 17,285 , respectively, associated with (i) the exclusive license to XEN901 and (ii) the exclusive license to the DTCs.

As of June 30, 2021, there is $ 1,624 of accounts receivable and $ 3,025 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, 2021.

The Company has not exercised this option as of June 30, 2021.

Flexion definitive agreement:

1 unchanged sentence

(“Flexion”) pursuant to which Flexion acquired all rights with respect to XEN402, and a related compound (collectively “XEN402”), including certain regulatory documentation, intellectual property rights, reports, data and all quantities of XEN402, now known as FX301, owned or controlled by the Company.

During the three months ended March 31, 2021, the U.S.

Food and Drug Administration cleared the first investigational new drug application for FX301 and Flexion initiated a Phase 1b clinical trial, resulting in milestone payments of $ 1,000 and $ 2,000 due to the Company, respectively.

During the six months ended June 30, 2021, the U.S.

Pursuant to terms of the agreement, the Company will also be eligible for a development milestone payment of $ 5,000 upon initiation of a Phase 2 proof-of-concept clinical trial.

2 unchanged sentences

Income taxes:

Income tax recovery for the three months ended March 31, 2021 and 2020 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, 2021 and December 31, 2020 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.

Income tax recovery for the three and six months ended June 30, 2021 and 2020 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, 2021 and December 31, 2020 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.

2 unchanged sentences

In August 2015, the Company entered into a priority access agreement with Medpace for the provision of certain clinical development services, under which the Company has committed to using Medpace non-exclusively for clinical development services over the five-year term of the agreement which ended in August 2020.

The Company has committed to $ 7,000 of services over the term of the agreement of which $ 3,461 of services have been received and $ 3,539 remains committed as of March 31, 2021.

The Company has committed to $ 7,000 of services over the term of the agreement of which $ 3,595 of services have been received and $ 3,405 remains committed as of June 30, 2021.

As the Company did not meet the commitment to retain Medpace for $7,000 of services prior to August 2020, the Company is required to provide Medpace the exclusive right to perform all subsequent outsourced clinical development work until such $7,000 commitment has been satisfied, subject to the availability of appropriate Medpace resources and reasonable service rates.

1 unchanged sentence

The Company intends to continue to utilize Medpace for clinical development work where suitable in order to fulfill the remaining commitment;

therefore, no liability has been recognized as of March 31, 2021 with respect to the unsatisfied portion under the priority access agreement.

therefore, no liability has been recognized as of June 30, 2021 with respect to the unsatisfied portion under the priority access agreement.

License, manufacture and supply agreement:

20 unchanged sentences

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

Subsequent event:

On August 6, 2021, the Company and Genentech and its affiliate, F.

Hoffman-La Roche Ltd., entered into a termination agreement terminating by mutual agreement the collaborative research and license agreement dated December 22, 2011, as amended.

Pursuant to the terms of the termination agreement, Genentech has returned, licensed or assigned to the Company certain intellectual property, including certain patent rights and materials related to Nav1.7 and products incorporating such compounds for all uses.

Notwithstanding such termination, the Company remains subject to a low single-digit percentage, tiered royalty on the net sales of the Company’s Nav1.6 compounds, including XEN901, now known as NBI-921352, for a period of ten years from first commercial sale on a country-by-country basis.

In accordance with the license and collaboration agreement with Neurocrine Biosciences, the Company remains solely responsible for all payments to Genentech with respect to certain Nav1.6 compounds, including NBI-921352, licensed to Neurocrine Biosciences.

In addition, the Company and Genentech agreed to waive the Company's entitlement to receive future potential milestone payments of up to $ 1,500 under a separate agreement with Genentech for pain genetics dated March 19, 2014, which expired in March 2018, following the receipt of Genentech’s confirmation that Genentech has stopped all activities under that program.

Other than as described above, the Company has no further financial obligations to make potential payments to Genentech with respect to the termination agreement and no financial entitlement to receive future potential payments from Genentech with respect to either agreement.

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