What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-11 compared with 2021-05-11 · 73 added, 59 removed, 224 unchanged (37% of the section changed)

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XEN1101 is a differentiated Kv7 potassium channel modulator being developed for the treatment of epilepsy and potentially other neurological disorders.

Designed as a randomized, double-blind, placebo-controlled, multicenter study, the “X-TOLE” study is an ongoing Phase 2b clinical trial to evaluate the clinical efficacy, safety, and tolerability of XEN1101 administered as adjunctive treatment in approximately 300 adult patients with focal epilepsy.

The primary endpoint is the median percent change in monthly focal seizure frequency from baseline compared to treatment period of active versus placebo.

Patient screening has now been completed with the final patients currently in the baseline period.

Patient randomization is expected to be complete in June, with topline data anticipated by the end of the third quarter of 2021.

Designed as a randomized, double-blind, placebo-controlled, multicenter study, our “X-TOLE” study is an ongoing Phase 2b clinical trial to evaluate the clinical efficacy, safety, and tolerability of XEN1101 administered as adjunctive treatment in approximately 300 adult patients with focal epilepsy.

The primary endpoint is the percent change in monthly focal seizure frequency from baseline compared to treatment period of active versus placebo.

Based on the completion in late June of the randomization of 326 patients, we anticipate topline results from the Phase 2b X-TOLE clinical trial in late September to mid-October 2021.

On July 12, 2021, we hosted a KOL webinar focused on XEN1101 and the adult focal epilepsy landscape.

As part of a strategy to continue to expand the intellectual property protecting XEN1101, we recently obtained allowance of a U.S.

patent application with claims directed to four distinct crystalline forms of XEN1101, pharmaceutical compositions comprising the same, and methods of preparing and using the same.

Any patent issuing from this allowed application is expected to expire in Q4 2040.

We also continue to evaluate opportunities to develop XEN1101 in neurological indications outside of epilepsy that could be well suited to its unique mechanism of action.

On March 8, 2021, we announced a collaboration with the Icahn School of Medicine at Mount Sinai to facilitate an investigator-sponsored Phase 2 proof-of-concept, randomized, parallel-arm, placebo-controlled clinical trial of XEN1101 for the treatment of major depressive disorder, or MDD, and anhedonia, which is expected to be initiated in the coming months.

We are collaborating with the Icahn School of Medicine at Mount Sinai to facilitate an investigator-sponsored Phase 2 proof-of-concept, randomized, parallel-arm, placebo-controlled clinical trial of XEN1101 for the treatment of major depressive disorder, or MDD, and anhedonia, which is expected to be initiated in the coming months.

In parallel, we are planning a company-sponsored clinical study in MDD supported by promising pre-clinical data with XEN1101 and clinical data generated from both an open-label study and a randomized, placebo-controlled clinical trial that explored the targeting of KCNQ channels as a treatment for MDD using ezogabine.

XEN496, a Kv7 potassium channel modulator, is a proprietary pediatric formulation of the active ingredient ezogabine being developed for the treatment of KCNQ2 developmental and epileptic encephalopathy , or KCNQ2-DEE.

We have received Fast Track designation and Orphan Drug Designation for XEN496 for the treatment of seizures associated with KCNQ2-DEE from the U.S.

We received Fast Track designation and Orphan Drug Designation , or ODD, for XEN496 for the treatment of seizures associated with KCNQ2-DEE from the U.S.

Food and Drug Administration , or FDA, as well as orphan medicinal product designation from the European Commission.

A Phase 3 randomized, double-blind, placebo-controlled, parallel group, multicenter clinical trial, called the “EPIK” study, is underway to evaluate the efficacy, safety, and tolerability of XEN496 administered as adjunctive treatment in approximately 40 pediatric patients aged one month to less than 6 years with KCNQ2-DEE .

XEN007 (active ingredient flunarizine) is a CNS-acting Cav2.1 and T-type calcium channel modulator that is being studied in treatment-resistant childhood absence epilepsy, or CAE, and potentially other neurological disorders.

An investigator-led Phase 2 proof-of-concept study is ongoing to examine the potential clinical efficacy, safety, and tolerability of XEN007 as an adjunctive treatment in pediatric patients diagnosed with treatment-resistant CAE.

XEN007 (active ingredient flunarizine) is a CNS-acting Cav2.1 and T-type calcium channel modulator that is being studied in treatment-resistant absence seizures and potentially other neurological disorders.

Recently, the FDA granted ODD and rare pediatric disease, or RPD, designation for the treatment of childhood absence epilepsy, or CAE, with XEN007.

The FDA grants the RPD designation for serious or life-threatening diseases that primarily affect children 18 years old or younger and affect fewer than 200,000 people nationwide.

A presentation of promising interim data collected from a small number of patients was presented at the virtual annual meeting of the American Epilepsy Society in December 2020.

We continue to work with the lead investigator to include additional sites and expects that topline results from a larger data set will be available in the second half of 2021, which will inform our decision anticipated this year regarding the future development of XEN007 in CAE.

The lead investigator has expanded the study to include an additional site, which is currently screening patients, and is also evaluating the addition of other sites.

Additional results from a larger data set are anticipated by the end of this year, which will inform our decision regarding the future development of XEN007.

Partnered Programs

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We have funded our operations primarily through the sale of equity securities, funding received from our licensees and collaborators, and debt financing.

For the three months ended March 31, 2021 and 2020, we recognized revenue of $4.4 million and $7.1 million, respectively, in connection with our agreements with Neurocrine Biosciences and Flexion.

We had a net loss of $15.8 million for the three months ended March 31, 2021 and an accumulated deficit of $294.3 million as of March 31, 2021, from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

For the six months ended June 30, 2021 and 2020, we recognized revenue of $6.6 million and $20.5 million, respectively, in connection with our agreements with Neurocrine Biosciences and Flexion.

We had a net loss of $37.9 million for the six months ended June 30, 2021 and an accumulated deficit of $316.4 million as of June 30, 2021, from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We do not generate any royalty revenue from product sales, and do not otherwise anticipate generating revenue from product sales for the foreseeable future, if ever .

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We do not generate any royalty revenue from product sales , and do not otherwise anticipate generating revenue from product sales for the foreseeable future, if ever.

The following table is a summary of revenue recognized from our current collaboration and licensing agreements for the three months ended March 31 , 202 1 and 20 20 (in thousands):

Three Months Ended March 31,

The following table is a summary of revenue recognized from our current collaboration and licensing agreements for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Neurocrine Biosciences:

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The allocation was based on the relative estimated standalone selling prices of each obligation under the agreement including:

(i) an exclusive license to XEN901 (now known as NBI-921352) with associated technology and know-how transfer, (ii) an exclusive license to pre-clinical compounds for development, XEN393, XPC’535 and XPC’391, collectively referred to as the development track candidates, or the DTCs, with associated know-how transfer, and (iii) development services under the initial development program for the DTCs.

In the three months ended March 31, 2021, we did not recognize into revenue any portion of the transaction price allocated to performance obligations (i), (ii) and (iii), compared to $5.8 million recognized for the three months ended March 31, 2020.

(i) an exclusive license to NBI-921352 with associated technology and know-how transfer, (ii) an exclusive license to pre-clinical compounds for development, XEN393, XPC’535 and XPC’391, collectively referred to as the development track candidates, or the DTCs, with associated know-how transfer, and (iii) development services under the initial development program for the DTCs.

In the three and six months ended June 30, 2021, we recognized $0.6 million and $0.6 million, respectively, of the transaction price allocated to performance obligations (i), (ii) and (iii), compared to $11.9 million and $17.8 million, respectively, for the three and six months ended June 30, 2020.

Performance obligations (i) and (ii) were completed as of December 31, 2020 .

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Research and development services are recognized into revenue at fair market value as the services are rendered.

In the three months ended March 31, 2021, we recognized revenue of $3.0 million in connection with our agreement with Flexion for the global rights to develop and commercialize FX301 which included a $1.0 million milestone for the clearance of an IND by the FDA and a $2.0 million milestone for the initiation of a Phase 1b clinical trial.

No revenue was recognized for the three months ended March 31, 2020 in connection with our agreement with Flexion.

In the six months ended June 30, 2021, we recognized revenue of $3.0 million in connection with our agreement with Flexion for the global rights to develop and commercialize FX301 which included a $1.0 million milestone for the clearance of an IND by the FDA and a $2.0 million milestone for the initiation of a Phase 1b clinical trial.

No revenue was recognized for the three and six months ended June 30, 2020 in connection with our agreement with Flexion.

As our other internal and partnered products are in various stages of clinical and pre-clinical development, we do not expect to generate any revenue from product sales for at least the next several years.

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We expect that any revenue we generate will fluctuate quarter to quarter as a function of the timing and amount of milestones and other payments from our existing collaborations and any future collaborations.

As of March 31, 2021, there is $3.6 million remaining in deferred revenue from the upfront payments received under our license and collaboration agreement with Neurocrine Biosciences.

As of June 30, 2021 , there is $ 3.0 million remaining in deferred revenue from the upfront payments received under our license and collaboration agreement with Neurocrine Biosciences .

Operating Expenses

The following table summarizes our operating expenses for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

The following table summarizes our operating expenses for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

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stock-based compensation

There have been no material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2021, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates” included in our 2020 Annual Report on Form 10-K filed with the U.S.

There have been no material changes in our critical accounting policies and significant judgments and estimates during the six months ended June 30, 2021, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates” included in our 2020 Annual Report on Form 10-K filed with the U.S.

Securities and Exchange Commission, or SEC, and with the securities commissions in British Columbia, Alberta and Ontario, or the Canadian Securities Commissions, on March 1, 2021.

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Results of Operations

Comparison of three months ended March 31, 2021 and 2020

The following table summarizes the results of our operations for the three months ended March 31, 2021 and 2020 together with changes in those items (in thousands):

Three Months Ended March 31,

Comparison of Three and Six Months Ended June 30, 2021 and 2020

The following table summarizes the results of our operations for the three and six months ended June 30, 2021 and 2020 together with changes in those items (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Increase/(Decrease)

Research and development expenses

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Interest expense

Foreign exchange gain (loss)

Foreign exchange gain

Loss on repayment of term loan

Loss before income taxes

Revenue decreased by $2.7 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Revenue for the three months ended March 31, 2021 related to $1.4 million for research and development services under our license and collaboration agreement with Neurocrine Biosciences, compared to recognition of $5.8 million of deferred revenue and $1.2 million for research and development services for the three months ended March 31, 2020.

Revenue for the three months ended March 31, 2021 also included $3.0 million in milestone revenue recognized in connection with our agreement with Flexion, whereas no revenue was recognized in connection with this agreement for the three months ended March 31, 2020.

Revenue decreased by $11.2 million and $13.9 million in the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, respectively.

Revenue for the three and six months ended June 30, 2021 related to recognition of $0.6 million and $0.6 million, respectively, of deferred revenue as well as $1.6 million and $3.0 million, respectively, for research and development services under our license and collaboration agreement with Neurocrine Biosciences, as compared to recognition of $11.9 million and $17.8 million, respectively, of deferred revenue and $1.5 million and $2.7 million, respectively, for research and development services in the comparative period.

Revenue for the six months ended June 30, 2021 also included $3.0 million in milestone revenue recognized in connection with our agreement with Flexion, whereas no revenue was recognized in connection with this agreement for the six months ended June 30, 2020.

Research and Development Expenses

The following table summarizes research and development expenses for the three months ended March 31, 2021 and 2020 together with changes in those items (in thousands):

Three Months Ended March 31,

The following table summarizes research and development expenses for the three and six months ended June 30, 2021 and 2020 together with changes in those items (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Increase/(Decrease)

XEN901 (now known as NBI-921352)

Increase/(Decrease)

Pre-clinical, discovery and other programs

Total research and development

Research and development expenses increased by $4.5 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The increase was primarily attributable to increased spending on our clinical development product candidates XEN1101 and XEN496, and, to a lesser extent, increased spending on our pre-clinical, discovery and other internal programs.

This was partially offset by decreased spending on XEN901 (now known as NBI-921352) as clinical developments costs associated with the development of product candidates under the Neurocrine Biosciences collaboration including NBI-921352 are borne by Neurocrine Biosciences .

Certain costs related to NBI-921352 development activities have been incurred by us in the period;

Neurocrine Biosciences reimburses us for development services we incur at fair market value with the exception of certain near-term manufacturing costs which continue to be borne by us under the terms of the collaboration agreement.

Research and development expenses increased by $7.7 million and $12.2 million in the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, respectively.

The increases were primarily attributable to increased spending on our clinical development product candidates XEN1101 and XEN496, and, to a lesser extent, increased spending on our pre-clinical, discovery and other internal programs.

This was partially offset by decreased spending on NBI-921352 as we performed less clinical development activities on behalf of Neurocrine Biosciences in the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020;

c ertain costs related to NBI-921352 development activities have been incurred by us and Neurocrine Biosciences reimburses us for development services we incur at fair market value.

General and Administrative Expenses

The following table summarizes general and administrative expenses for the three months ended March 31, 2021 and 2020 together with changes in those items (in thousands):

Three Months Ended March 31,

The following table summarizes general and administrative expenses for the three and six months ended June 30, 2021 and 2020 together with changes in those items (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Increase/(Decrease)

General and administrative

General and administrative expenses increased by $0.8 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The increase was primarily attributable to increased stock-based compensation expense due to an increase in the number of options granted at a higher fair value and higher salaries and benefits due to increased headcount to support our expanding research and development activities , partially offset by a decrease in human resources costs due to timing of recruitment fees.

The following table summarizes our other income for the three months ended March 31, 2021 and 2020 together with changes in those items (in thousands):

Three Months Ended March 31,

General and administrative expenses increased by $3.0 million and $3.8 million in the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, respectively.

The increases were primarily attributable to increased stock-based compensation expense due to an increase in the number of options granted at a higher fair value, increased legal fees for intellectual property protection, and higher salaries and benefits due to increased headcount to support our expanding research and development activities .

The following table summarizes our other income for the three and six months ended June 30, 2021 and 2020 together with changes in those items (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Increase/(Decrease)

Other income decreased by $0.3 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The decrease was primarily attributable to lower interest income due to a decrease in market yields on investments.

This was partially offset by an increase in foreign exchange gains and a decrease in interest expense due to the repayment of our term loan in May 2020.

Increase/(Decrease)

Other income decreased by $0.3 million and $0.6 million in the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, respectively.

For the three months ended June 30, 2021, the decrease was primarily attributable to lower interest income due to a decrease in market yields on investments and lower foreign exchange gains due to a decrease in cash and cash equivalents and marketable securities denominated in Canadian dollars.

This was partially offset by a one-time loss on the repayment of our term loan with Silicon Valley Bank of $1.0 million in the same period in 2020.

For the six months ended June 30, 2021, the decrease was primarily attributable to lower interest income due to a decrease in market yields on investments, partially offset by decrease in interest expense and a one-time loss on the repayment of our term loan with Silicon Valley Bank of $1.0 million and in the same period in 2020.

Liquidity and Capital Resources

To date, we have financed our operations primarily through funding received from collaboration and license agreements, private placements of our common and preferred shares, public offerings of our common shares and pre-funded warrants, and debt financing.

As of March 31, 2021, we had cash and cash equivalents and marketable securities of $274.7 million.

As of June 30, 2021, we had cash and cash equivalents and marketable securities of $260.5 million.

We have incurred significant operating losses since inception.

We had a $ 15.8 million net loss for the three months ended March 31, 2021 and an accumulated deficit of $ 294.3 million from inception through March 31, 2021 .

We had a $37.9 million net loss for the six months ended June 30, 2021 and an accumulated deficit of $316.4 million from inception through June 30, 2021.

We expect to continue to incur significant expenses in excess of our revenue and expect to incur operating losses over the next several years.

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In August 2020, we entered into an at-the-market equity offering sales agreement with Jefferies and Stifel, to sell our common shares having aggregate sales proceeds of up to $100.0 million, from time to time, through an “at-the-market” equity offering program under which Jefferies and Stifel are acting as sales agents.

As of March 31, 2021, we had sold an aggregate of 733,000 common shares for proceeds of $10.7 million, net of commissions paid and transaction expenses.

As of June 30, 2021, we had sold an aggregate of 733,000 common shares for proceeds of $10.7 million, net of commissions paid and transaction expenses.

In addition, in January 2020, we entered into an underwriting agreement with Jefferies, Stifel, and Guggenheim Securities, LLC, relating to an underwritten public offering of 3,750,000 common shares 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.

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Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials remains uncertain.

The following table shows a summary of our cash flows for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

The following table shows a summary of our cash flows for the six months ended June 30, 2021 and 2020 (in thousands):

Six Months Ended June 30,

Net cash used in operating activities

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Operating Activities

For the three months ended March 31, 2021, net cash used in operating activities totaled $20.7 million, compared to $13.1 million for the same period in 2020.

The increase in cash used in operating activities was primarily related to higher expenditures for the clinical development of our proprietary product candidates, lower interest income for the three months ended March 31, 2021 as compared to the same period in 2020, and changes in operating assets and liabilities primarily attributable to the timing of payments for accrued clinical trial costs and accrued expenses in the normal course of business.

For the six months ended June 30, 2021, net cash used in operating activities totaled $33.8 million, compared to $23.9 million for the same period in 2020.

The increase in cash used in operating activities was primarily related to higher expenditures for the clinical development of our proprietary product candidates and lower interest income for the six months ended June 30, 2021 as compared to the same period in 2020, partially offset by $3.0 million in milestone revenue recognized in connection with our agreement with Flexion and changes in operating assets and liabilities primarily attributable to the timing of payments for accrued clinical trial costs and accrued expenses in the normal course of business.

Investing Activities

For the three months ended March 31, 2021, net cash used in investing activities totaled $55.1 million, compared to $52.9 million for the same period in 2020.

For the six months ended June 30, 2021, net cash used in investing activities totaled $46.9 million, compared to $42.0 million for the same period in 2020.

The change in cash used in investing activities was driven primarily by an increase in purchases of marketable securities, net of redemptions.

Financing Activities

For the three months ended March 31, 2021, net cash provided by financing activities totaled $118.7 million, compared to $102.5 million for the same period in 2020.

The increase in cash provided by financing activities was primarily related to net proceeds of $118.6 million from the issuance of common shares and pre-funded warrants during the three months ended March 31, 2021 as compared to $102.5 million from the issuance of common shares for the same period in 2020.

For the six months ended June 30, 2021, net cash provided by financing activities totaled $118.8 million, compared to $85.8 million for the same period in 2020.

The increase in cash provided by financing activities was primarily related to net proceeds of $118.6 million from the issuance of common shares and pre-funded warrants during the six months ended June 30, 2021 as compared to $102.5 million from the issuance of common shares, partially offset by repayment of the term loan, for the same period in 2020.

Contractual Obligations and Commitments

Our future significant contractual obligations as of December 31, 2020 were reported in our Annual Report on Form 10-K, filed with the SEC and the Canadian Securities Commissions on March 1, 2021.

As of March 31, 2021, there have been no material changes from the contractual commitments previously disclosed in the Annual Report on Form 10-K.

As of June 30, 2021, there have been no material changes from the contractual commitments previously disclosed in the Annual Report on Form 10-K.

We do not believe that inflation has had a material effect on our business, financial condition or results of operations in the last two fiscal years.

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Outstanding Share Data

As of May 7, 2021, we had 40,967,221 common shares issued and outstanding, outstanding pre-funded warrants to purchase an additional 1,081,081 common shares, outstanding stock options to purchase an additional 5,685,736 common shares and an outstanding warrant to purchase an additional 40,000 common shares.

As of August 9, 2021, we had 41,124,184 common shares issued and outstanding, outstanding pre-funded warrants to purchase an additional 1,081,081 common shares, outstanding stock options to purchase an additional 5,757,599 common shares and an outstanding warrant to purchase an additional 40,000 common shares.

In addition, we had 1,016,000 Series 1 Preferred Shares issued and outstanding.

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For additional information regarding our Series 1 Preferred Shares, see note 10b to our consolidated financial statements included in Part I, Item 1 of this report.

Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 305(e) of Regulation S-K.

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 2. Management’s Discussion and Analysis