What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-11 · 391 added, 53 removed, 333 unchanged (57% of the section changed)

4 unchanged sentences

dollars except share amounts)

September 30,

Current assets:

30 unchanged sentences

dollars except share and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Revenue (note 10)

6 unchanged sentences

Interest expense

Foreign exchange gain

Foreign exchange gain (loss)

Loss on repayment of term loan (note 8)

35 unchanged sentences

June 30, 2020

Net loss for the period

Stock-based compensation

Issued pursuant to exercise

of stock options

Balance as of

September 30, 2020

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

28 unchanged sentences

June 30, 2021

Net loss for the period

Issuance of common shares, net of

issuance costs (note 9a)

Stock-based compensation

Issued pursuant to exercise

of stock options

Balance as of

September 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.

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities:

3 unchanged sentences

Stock-based compensation

Unrealized foreign exchange loss

Unrealized foreign exchange loss (gain)

Unrealized loss (gain) on marketable securities

38 unchanged sentences

The Company has incurred significant operating losses since inception.

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.

As of September 30, 2021, the Company had an accumulated deficit of $ 331,810 and a $ 53,318 net loss for the nine months ended September 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 June 30, 2021 Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016 .

The Company has one wholly-owned subsidiary as of September 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.

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

The results of operations for the three and nine month periods ended September 30, 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 policy described in note 3 below.

6 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 and six months ended June 30, 2021 (2020 – 1,016,000 ).

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 and nine months ended September 30, 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 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 weighted average number of common shares used in the basic and diluted net income (loss) per common share calculations for the three and nine months ended September 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 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.

For the three and nine months ended September 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:

14 unchanged sentences

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,

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

Three Months Ended September 30,

Nine Months Ended September 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 June 30, 2021 were as follows:

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

Year ending December 31:

5 unchanged sentences

Accounts payable and accrued expenses consisted of the following:

September 30,

Trade payables

13 unchanged sentences

In November 2019, the Company entered into an at-the-market equity offering sales agreement with Jefferies LLC (“Jefferies”) and Stifel, Nicolaus & Company, Incorporated (“Stifel”) to sell common shares of the Company having aggregate gross proceeds of up to $ 50,000 from time to time, through an “at-the-market” equity offering program under which Jefferies and Stifel would act as sales agents.

As of 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.

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

3 unchanged sentences

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 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.

As of September 30, 2021, 733,000 common shares have been sold under the sales agreement for proceeds of $ 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).

The public offering was completed in March 2021, and the Company received proceeds of $ 107,922 , net of underwriting discounts, commissions and offering expenses.

In September 2021, in connection with the License and Collaboration Agreement with Neurocrine Biosciences Inc.

(“Neurocrine Biosciences”) entered in December 2019 (the "Neurocrine Collaboration Agreement"), the Company executed a Share Purchase Agreement ("SPA") pursuant to which the Company issued 275,337 common shares for an aggregate purchase price of $ 5,500 , or $ 19.9755 per common share, which represents a premium of $ 770 when measured at fair value on the date of issuance.

These common shares are subject to lock-up restrictions and standstill agreement for a period of two years after the effective date of the Neurocrine Collaboration Agreement, or December 2, 2021.

The SPA contains certain other customary terms and conditions, including mutual representations, warranties and covenants.

For additional information regarding the Neurocrine Collaboration Agreement, refer to note 10a.

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

13 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 June 30, 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 September 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 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.

As of September 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 September 30, 2021.

Stock-based compensation:

The following table presents stock option activity for the period:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Outstanding, beginning of period

3 unchanged sentences

Exercisable, end of period

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.

During the nine months ended September 30, 2021, 61,072 stock options were exercised for the same number of common shares in exchange for cash (nine months ended September 30, 2020 – 10,715 ).

In the same period, the Company issued 196,206 common shares (nine months ended September 30, 2020 – 85,816 ) for the cashless exercise of 325,636 stock options (nine months ended September 30, 2020 – 142,702 ).

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

Six Months Ended

September 30,

Nine Months Ended

September 30,

Average risk-free interest rate

3 unchanged sentences

Weighted average fair value of stock options granted

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,

Revenue was as follows for the three and nine months ended September 30, 2021 and 2020 :

Three Months Ended September 30,

Nine Months Ended September 30,

Neurocrine Biosciences:

2 unchanged sentences

Milestone payments

Total collaboration revenue

Neurocrine Biosciences license and collaboration agreement :

In December 2019, the Company entered into a License and Collaboration Agreement with Neurocrine Biosciences Inc.

(“Neurocrine Biosciences”) .

In December 2019, the Company entered into the Neurocrine Collaboration Agreement with Neurocrine Biosciences .

Pursuant to this agreement, the Company granted an exclusive license to XEN901, now known as NBI-921352, and an exclusive license to pre-clinical compounds for development, XEN393, XPC’535 and XPC’391 (collectively, 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”), with an option to extend for an additional year.

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”) which has been extended to June 2022.

The Company and Neurocrine Biosciences are collaborating on the conduct of two collaboration programs:

(a) a joint research collaboration to discover, identify and preclinically develop Research Compounds (the “Research Program”) and (b) a collaborative development program for XEN901 and two DTCs selected by the joint steering committee (the “Initial Development Program”).

(a) a joint research collaboration to discover, identify and preclinically develop Research Compounds (the “Research Program”) and (b) a collaborative development program for NBI-921352 and two DTCs selected by the joint steering committee (the “Initial Development Program”).

At execution of the agreement, Neurocrine Biosciences paid the Company an upfront cash payment of $ 30,000 and a $ 20,000 equity investment in the Company.

The equity investment was measured at fair value of $ 16,667 on the date of issuance and the resulting premium $ 3,333 , together with the upfront cash payment totaling $ 33,333 , was the transaction price of the arrangement for allocation to the performance obligations.

The equity investment was measured at fair value of $ 16,667 on the date of issuance and the resulting premium of $ 3,333 , together with the upfront cash payment totaling $ 33,333 , was the transaction price of the arrangement for allocation to the performance obligations.

The agreement includes the following performance obligations:

(i) an exclusive license to XEN901 with associated technology and know-how transfer, (ii) an exclusive license to the DTCs with associated know-how transfer, (iii) a license to Research Compounds and research services under the Research Program, (iv) development services under the Initial Development Program for XEN901, and (v) development services under the Initial Development Program for the DTCs.

(i) an exclusive license to NBI-921352 with associated technology and know-how transfer, (ii) an exclusive license to the DTCs with associated know-how transfer, (iii) a license to Research Compounds and research services under the Research Program, (iv) development services under the Initial Development Program for NBI-921352, and (v) development services under the Initial Development Program for the DTCs.

The total transaction price of $ 33,333 was allocated to performance obligation (v) based on its estimated standalone selling price determined based on internal development plans and budget, with the balance allocated to performance obligations (i) and (ii) by the residual approach.

2 unchanged sentences

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.

None of the at-risk substantive performance milestones, including development, regulatory and sales-based milestones, were included in the transaction price, as all milestone amounts are outside the control of the Company and contingent upon Neurocrine Biosciences’s efforts and success in future clinical trials.

None of the at-risk substantive performance milestones, including development, regulatory and sales-based milestones, were included in the transaction price at the inception of the agreement, as all milestone amounts are outside the control of the Company and contingent upon Neurocrine Biosciences’s efforts and success in future clinical trials.

In September 2021, based on the regulatory approval of a clinical trial application in Europe for NBI-921352 for focal-onset seizures in adults, the Company received an aggregate milestone payment of $ 10,000 in the form of $ 4,500 in cash and a $ 5,500 equity investment in the Company .

The equity investment was measured at fair value of $ 4,730 on the date of issuance and the resulting premium of $ 770 , with the cash payment of $ 4,500 , was recognized as revenue in the period as the Company did no t have any remaining performance obligations in relation to this milestone on the date it was achieved .

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 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 June 30, 2021.

During the three and nine month periods ended September 30, 2021, the Company recognized $ 2,854 and $ 6,430 of revenue, respectively (three and nine months ended September 30, 2020 – $ 6,554 and $ 27,016 respectively), which comprised of $ 2,031 and $ 4,990 , respectively (three and nine months ended September 30, 2020 – $ 1,308 and $ 4,010 respectively), for the research and development services under (iii) the Research Program and (iv) the Initial Development Program for NBI-921352;

and $ 823 and $ 1,440 , respectively (three and nine months ended September 30, 2020 – $ 348 and $ 824 respectively), for (v) development services under the Initial Development Program for the DTCs.

During the three and nine months ended September 30, 2020, the Company also recognized revenue of $ 4,898 and $ 22,182 , respectively, associated with (i) the exclusive license to NBI-921352 and (ii) the exclusive license to the DTCs.

As of September 30, 2021, there is $ 2,052 of accounts receivable and $ 2,202 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 NBI-921352 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 September 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 six months ended June 30, 2021, the U.S.

During the nine months ended September 30, 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 paid to the Company, respectively.

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Income taxes:

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.

Income tax recovery for the three and nine months ended September 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 September 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 $ 3,595 of services have been received and $ 3,405 remains committed as of June 30, 2021.

The Company has committed to $ 7,000 of services over the term of the agreement of which $ 3,677 of services have been received and $ 3,323 remains committed as of September 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 June 30, 2021 with respect to the unsatisfied portion under the priority access agreement.

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

License, manufacture and supply agreement:

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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.

On October 5, 2021, the Company entered into an underwriting agreement with Jefferies, SVB Leerink LLC and Stifel, relating to an underwritten public offering of 10,000,000 common shares, including 1,525,423 common shares sold upon the full exercise of the underwriters’ over-allotment option, at a public offering price of $ 29.50 per common share and pre-funded warrants to purchase 1,694,915 common shares at $ 29.4999 per pre-funded warrant, with each pre-funded warrant having an exercise price per share of $ 0.0001 .

The public offering was completed on October 8, 2021, and the Company received proceeds of $ 324,300 , net of underwriting discounts and commissions, but before offering expenses .

MANAGE MENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section should be read in conjunction with our unaudited interim consolidated financial statements and related notes included in Part I, Item 1 of this report and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the U.S.

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

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and Canadian securities laws.

The words or phrases “would be,” “will allow,” “intends to,” “may,” “believe,” “plan,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information.

These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements.

These forward-looking statements include, but are not limited to :

our ability to identify additional products or product candidates either from our internal research efforts or though acquiring or in-licensing other product candidates or technologies;

the initiation, timing, cost, progress and success of our research and development programs, pre-clinical studies, and clinical trials;

our ability to advance product candidates into, and successfully complete, clinical trials;

our ability to recruit sufficient numbers of patients for our current and future clinical trials for orphan or more common indications;

the direct and indirect impact of COVID-19 on our business and operations, including supply chain, manufacturing, research and development costs, clinical trial conduct, clinical trial data and employees;

our ability to achieve profitability;

our ability to obtain funding for our operations;

our ability to receive milestones, royalties and sublicensing fees under our collaborations, and the timing of such payments;

the timing and magnitude of potential milestone payments under our product acquisition and in-licensing agreements;

the implementation of our business model and strategic plans;

our ability to develop and commercialize product candidates for orphan and niche indications or more common indications independently;

our pre-commercial, commercialization, marketing, and manufacturing capabilities and strategy;

our ability to identify drug targets;

our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

our expectations regarding federal, state and foreign regulatory requirements;

the therapeutic benefits, effectiveness and safety of our product candidates;

the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our products and product candidates and our ability to obtain suitable pricing and receive reimbursements from health agencies;

the rate and degree of market acceptance and clinical utility of any future products;

the timing of, and our and our collaborators’ ability to obtain and maintain, regulatory approvals for our product candidates;

our ability to maintain and establish collaborations;

our expectations regarding market risk, including interest rate changes and foreign currency fluctuations;

our belief in the sufficiency of our cash, cash equivalents and marketable securities to meet our needs for at least the next 12 months;

our ability to engage and retain the employees required to grow our business;

our future financial performance and projected expenditures;

developments relating to our competitors and our industry, including the success of competing therapies that are or become available;

estimates of our expenses, future revenue, capital requirements and our needs for additional financing.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements.

Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” and elsewhere in this report.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management.

These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.

In this report, “we,” “our,” “us,” “Xenon,” and “the Company” refer to Xenon Pharmaceuticals Inc.

and its subsidiary.

Unless otherwise noted, all dollar amounts in this report are expressed in United States dollars.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information.

These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

We are a clinical stage biopharmaceutical company committed to developing innovative therapeutics to improve the lives of patients with neurological disorders.

We are advancing a novel product pipeline of neurology-focused therapies to address areas of high unmet medical need, with a focus on epilepsy .

Proprietary Programs

XEN1101 is a differentiated Kv7 potassium channel opener being developed for the treatment of epilepsy and major depressive disorder, or MDD.

On October 4, 2021, we announced positive topline data from the Phase 2b ‘X-TOLE’ clinical trial, which was designed as a randomized, double-blind, placebo-controlled, multicenter study to evaluate the clinical efficacy, safety and tolerability of XEN1101 administered as an adjunctive treatment for adult patients with focal epilepsy.

The trial met its primary efficacy endpoint with XEN1101 demonstrating a statistically significant and dose-dependent reduction from baseline in monthly (defined as 28 days) focal seizure frequency when compared to placebo (monotonic dose response;

Additional primary and secondary measures included a pairwise comparison of each active dose to placebo and a responder analysis with the proportion of patients who achieved a 50% or greater reduction in monthly focal seizure frequency from baseline.

These results are shown in the following table;

all p-values are 2-sided comparing the active dose to placebo:

XEN1101 25 mg

XEN1101 20 mg

XEN1101 10 mg

Median Reduction from Baseline in Monthly Focal Seizure Frequency

Patients with at least a 50% Reduction in Monthly Focal Seizure Frequency from Baseline

We anticipate participating in an “end-of-Phase 2” meeting with the U.S.

Food and Drug Administration, or FDA, in the second quarter of 2022 to support the initiation of its Phase 3 XEN1101 clinical program in adult patients with focal epilepsy, estimated in the second half of the year.

In addition, the X-TOLE open-label extension, which has been extended to three years, is expected to continue to generate important long-term data for XEN1101.

In parallel, based on the strength of the X-TOLE topline efficacy data, we are evaluating other potential epilepsy indications for the future development of XEN1101.

We continue to execute on our strategy to expand the intellectual property portfolio that protects XEN1101.

During the third quarter and subsequent to quarter-end, two U.S.

patents were issued to us with claims related to:

(1) four distinct crystalline forms of XEN1101 drug substance (including the forms used in current and future clinical development) along with methods for their preparation;

and (2) methods of enhancing the bioavailability of XEN1101 by administration with or close to a meal (consistent with the dosing of XEN1101 in our clinical studies).

patents are expected to expire in 2039 and 2040, respectively, absent any extensions of patent term.

Based on its differentiated Kv7 mechanism of action, we are expanding the development of XEN1101 to support proof-of-concept studies in MDD, which are supported by XEN1101 pre-clinical and clinical data, and previous ezogabine clinical data that explored the targeting of KCNQ channels as a treatment for MDD.

We are collaborating with the Icahn School of Medicine at Mount Sinai to conduct an investigator-sponsored Phase 2 proof-of-concept, multi-site, randomized, parallel-arm, placebo-controlled clinical trial of XEN1101 for the treatment of MDD, with patient enrollment underway.

Approximately 60 patients with MDD will be randomized in a 1:1 fashion to XEN1101 (N=30) or matching placebo (N=30), with subjects taking 20 mg once a day of either XEN1101 or placebo for 8 weeks.

The primary objective is to investigate the effect of XEN1101 on brain measures of reward using functional Magnetic Resonance Imaging, or fMRI.

Secondary endpoints include clinical measures of depression and anhedonia.

In addition, we are planning a larger company-sponsored clinical study in MDD with XEN1101, which is expected to be initiated in the first half of 2022.

XEN496, a Kv7 potassium channel opener, 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 received Fast Track designation and Orphan Drug Designation for XEN496 for the treatment of seizures associated with KCNQ2-DEE from the 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 six years with KCNQ2-DEE.

We anticipate that the EPIK study will be completed in the first half of 2023.

Other Updates

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.

To date, a total of eight subjects have been enrolled in an investigator-led Phase 2 proof-of-concept study examining the potential clinical efficacy, safety, and tolerability of XEN007 as an adjunctive treatment in pediatric patients diagnosed with treatment-resistant absence seizures, including childhood absence epilepsy and juvenile absence epilepsy.

Given the prioritized focus on the development plans for XEN1101 and XEN496, we are not planning any company-sponsored XEN007 development activities in 2022.

Partnered Programs

We have an ongoing collaboration with Neurocrine Biosciences Inc., or Neurocrine Biosciences, to develop treatments for epilepsy.

Neurocrine Biosciences has an exclusive license to XEN901, now known as NBI-921352, a selective Nav1.6 sodium channel inhibitor.

Neurocrine Biosciences is conducting a Phase 2 clinical trial evaluating NBI-921352 in adolescent patients (aged 12 years and older) with SCN8A developmental and epileptic encephalopathy, or SCN8A-DEE.

In addition, a second Phase 2 clinical trial has recently been initiated evaluating NBI-921352 in adult patients with focal-onset seizures.

We received an aggregate milestone payment of $10.0 million in the form of cash and an equity investment in September 2021 based on the regulatory approval of a clinical trial application in Europe for NBI-921352 for focal-onset seizures in adults.

Upon FDA acceptance of a protocol amendment for NBI-921352 in pediatric patients (aged 2-11 years) with SCN8A-DEE, we are eligible to receive an aggregate payment of $15.0 million in the form of 45% cash and a 55% equity investment in our common shares at a 15% premium to our 30-day trailing volume weighted average price at that time.

Flexion Therapeutics, Inc., or Flexion, acquired the global rights to develop and commercialize XEN402, a Nav1.7 inhibitor also known as funapide.

Flexion’s FX301 consists of XEN402 formulated for extended release from a thermosensitive hydrogel.

The initial development of FX301 is intended to support administration as a peripheral nerve block for control of post-operative pain.

Flexion is conducting a Phase 1b proof-of-concept trial evaluating the safety and tolerability of FX301 administered as a single-dose, popliteal fossa block (a commonly used nerve block in foot and ankle-related surgeries) in patients undergoing bunionectomy.

Following the decision to expand the study with an additional cohort, Flexion now anticipates having data available in the first quarter of 2022.

Pursuant to the terms of the agreement, we are eligible to receive certain clinical, regulatory, and commercial milestone payments, as well as future sales royalties.

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

For the nine months ended September 30, 2021 and 2020, we recognized revenue of $14.7 million and $27.0 million, respectively, in connection with our agreements with Neurocrine Biosciences and Flexion.

We had a net loss of $53.3 million for the nine months ended September 30, 2021 and an accumulated deficit of $331.8 million as of September 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 .

We expect that our revenue in the near term will be substantially dependent on our collaboration agreements.

Given the uncertain nature of clinical development of our current and future product candidates and the commercialization of current and future products, we cannot predict when or whether we will receive further milestone payments under our current or future collaboration agreements or whether we will be able to report either revenue or net income in future years.

We expect to continue to incur significant expenses and operating losses for the foreseeable future.

We anticipate that our expenses will increase as we:

continue our research and pre-clinical and clinical development of our product candidates either from our internal research efforts or through acquiring or in-licensing other product candidates or technologies;

seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical trials;

make milestone and other payments under our in-license or other agreements;

maintain, protect and expand our intellectual property portfolio;

attract, hire and retain skilled personnel;

create additional infrastructure to support our operations.

Financial Operations Overview

To date, our revenue has been primarily derived from collaboration and licensing agreements.

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 and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Neurocrine Biosciences:

Recognition of the transaction price

Research and development services

Milestone payments

Total collaboration revenue

Pursuant to the terms of our license and collaboration agreement with Neurocrine Biosciences, we received an upfront cash payment of $30.0 million and a $20.0 million equity investment in our common shares at the inception of the agreement in December 2019.

The equity investment was measured at fair value on the date of issuance and the resulting premium, together with the upfront cash payment and variable consideration which is probable that a significant reversal of the cumulative revenue recognized will not occur, is the transaction price of the arrangement at the inception of the agreement for allocation to the performance obligations.

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

(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 September 2021, based on the regulatory approval of a clinical trial application in Europe for NBI-921352 for focal-onset seizures in adults, we received an aggregate milestone payment of $10.0 million in the form of $4.5 million cash and a $5.5 million equity investment in our common shares.

The equity investment was measured at fair value of $4.7 million on the date of issuance and the resulting premium of $0.8 million, with the cash payment of $4.5 million, was recognized as revenue in the period.

In the three and nine months ended September 30, 2021, we also recognized $0.8 million and $1.4 million, respectively, of the transaction price allocated to performance obligations (i), (ii) and (iii), compared to $5.2 million and $23.0 million, respectively, for the three and nine months ended September 30, 2020.

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

Performance obligation (iii) is expected to be completed by Q1 2022.

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

In the nine months ended September 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 investigational new drug application 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 nine months ended September 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.

We expect that any revenue for the next several years will be derived from milestone payments and research and development funding under our current collaboration agreements and any additional collaboration agreements that we may enter into in the future.

We cannot provide any assurance as to the extent or timing of future milestone payments or royalty payments or that we will receive any future payments at all .

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 September 30, 2021, there is $2.2 million remaining in deferred revenue from the upfront payment received under our license and collaboration agreement with Neurocrine Biosciences.

Operating Expenses

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

Three Months Ended September 30,

Nine Months Ended September 30,

Research and development

General and administrative

Total operating expenses

Research and Development Expenses

Research and development expenses represent costs incurred to conduct research and development of our proprietary product candidates, including any acquired or in-licensed product candidates or technology, and costs to support our partnered product candidates .

Research and development expenses consist of costs incurred in performing research and development activities, including salary, related benefits and stock-based compensation for employees engaged in scientific research and development, third-party contract costs relating to research, formulation, process development and manufacturing, pre-clinical studies and clinical trial activities, third-party acquisition, license and collaboration fees, laboratory consumables and allocated facility-related and information technology costs.

Project-specific expenses reflect costs directly attributable to our clinical development candidates for which we have incurred significant expenses.

All remaining research and development expenses are reflected in pre-clinical, discovery and other internal program expenses.

At any given time, we have several active early-stage research and drug discovery programs.

Our personnel and infrastructure are typically deployed over multiple projects and are not directly linked to any individual internal early-stage research or drug discovery program.

Therefore, we do not maintain financial information for our internal early-stage research and internal drug discovery programs on a project-specific basis.

We expense all research and development costs as incurred.

We expect that our research and development expenses will increase in the future as we advance our proprietary product candidates through clinical development, advance our internal drug discovery programs into pre-clinical development and continue our early-stage research.

The increase in expense will likely include added personnel and third-party contracts related to research, formulation, process development and manufacturing, pre-clinical studies and clinical trial activities as well as third-party acquisition, license and collaboration fees and laboratory consumables.

Clinical development timelines, likelihood of regulatory approval, and commercialization and associated costs are uncertain, difficult to estimate, and can vary significantly.

We anticipate determining which research and development projects to pursue as well as the level of funding available for each project based on the scientific research and pre-clinical and clinical results of each product candidate and related regulatory action.

We expect our research and development expenses to continue to represent our largest category of operating expenses for at least the next 12 to 24 months.

General and Administrative Expenses

General and administrative expenses consist primarily of salary, related benefits and stock-based compensation of our executive, finance, legal, business development, commercial and administrative functions, travel expenses, allocated facility-related and information technology costs not otherwise included in research and development expenses, director compensation, director’s and officer’s insurance premiums, investor relations costs and professional fees for auditing, tax and legal services, including legal expenses for intellectual property protection.

We expect that general and administrative expenses will increase in the future as we expand our operating activities to support increased research and development activities and the potential commercialization of our product candidates.

Other Income (Expense)

Interest Income.

Interest income consists of income earned on our cash and investment balances.

We anticipate that our interest income will continue to fluctuate depending on our cash and investment balances and interest rates.

Interest Expense.

Interest expense consists of accrual of the final payment fee, amortization of debt discounts, and interest charged on our borrowings with Silicon Valley Bank.

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

Foreign Exchange Gain (Loss).

Net foreign exchange gains and losses consisted of gains and losses from the impact of foreign exchange fluctuations on our monetary assets and liabilities that are denominated in currencies other than the U.S.

dollar (principally the Canadian dollar).

We will continue to incur substantial expenses in Canadian dollars and will remain subject to risks associated with foreign currency fluctuations.

Loss on repayment of term loan.

In May 2020, we repaid the total outstanding balance of our term loan with Silicon Valley Bank ahead of the maturity date.

We recorded a one-time loss of $1.0 million on the repayment of the term loan, inclusive of repayment fees.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the U.S., or U.S.

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the revenue and expenses incurred during the reported periods.

We base estimates on our historical experience, known trends and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies and significant judgments and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our critical accounting policies and significant estimates include those related to:

revenue recognition;

research and development costs;

stock-based compensation

There have been no material changes in our critical accounting policies and significant judgments and estimates during the nine months ended September 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.

We believe that the accounting policies discussed in the Annual Report are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2021 and 2020

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

Three Months Ended September 30,

Nine Months Ended September 30,

Increase/(Decrease)

Research and development expenses

General and administrative expenses

Interest income

Interest expense

Foreign exchange gain (loss)

Loss on repayment of term loan

Loss before income taxes

Revenue increased by $1.6 million and decreased by $12.3 million in the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020, respectively.

Revenue for the three and nine months ended September 30, 2021 related to recognition of $5.3 million of milestone revenue, $0.8 million and $1.4 million, respectively, of deferred revenue as well as $2.0 million and $5.0 million, respectively, for research and development services under our license and collaboration agreement with Neurocrine Biosciences, as compared to recognition of $5.2 million and $23.0 million, respectively, of deferred revenue and $1.3 million and $4.0 million, respectively, for research and development services in the comparative periods.

Revenue for the nine months ended September 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 nine months ended September 30, 2020.

Research and Development Expenses

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

Three Months Ended September 30,

Nine Months Ended September 30,

Increase/(Decrease)

Pre-clinical, discovery and other programs

Total research and development

Research and development expenses increased by $5.8 million and $18.0 million in the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020.

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

General and Administrative Expenses

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

Three Months Ended September 30,

Nine Months Ended September 30,

Increase/(Decrease)

General and administrative

General and administrative expenses increased by $1.6 million and $5.4 million in the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020.

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, higher salaries and benefits due to increased headcount to support our expanding research and development activities, increased legal fees for intellectual property protection , and increased market research costs .

Other Income (Expense)

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

Three Months Ended September 30,

Nine Months Ended September 30,

Increase/(Decrease)

Other income (expense)

Other income (expense) decreased by $0.7 million and $1.3 million in the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020.

We recorded a foreign exchange loss of $0.1 million for the three months ended September 30, 2021 as compared to a $0.5 million foreign exchange gain for the same period in 2020, largely due to a decrease in cash and cash equivalent and marketable securities denominated in Canadian dollars and 2% decrease as compared to a 2% increase in the value of the Canadian dollar, respectively.

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

This decrease 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.

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 September 30, 2021, we had cash and cash equivalents and marketable securities of $249.6 million.

We have incurred significant operating losses since inception.

We had a $53.3 million net loss for the nine months ended September 30, 2021 and an accumulated deficit of $331.8 million from inception through September 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.

Our net losses may fluctuate significantly from quarter to quarter and year to year.

We expect to incur significant expenses and increasing operating losses for the foreseeable future as we continue our research and pre-clinical and clinical development of our product candidates;

expand the scope of our studies for our current and prospective product candidates;

initiate additional pre-clinical, clinical or other studies for our product candidates;

change or add additional manufacturers or suppliers and manufacture drug supply and drug product for clinical trials and commercialization;

seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical studies;

seek to identify and validate additional product candidates;

acquire or in-license other product candidates and technologies;

make milestone or other payments under our in-license or other agreements, including, without limitation, payments to Memorial University of Newfoundland, 1st Order Pharmaceuticals, Inc.

and other third parties;

maintain, protect and expand our intellectual property portfolio;

establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

create additional infrastructure and incur additional costs to support our operations and our product development and planned future commercialization efforts;

and experience any delays or encounter issues with any of the above.

Until such time as we can generate substantial product revenue, if ever, we expect to finance our cash needs through a combination of collaboration agreements and equity or debt financings.

For example, in October 2021, we entered into an underwriting agreement with Jefferies LLC, or Jefferies, SVB Leerink LLC, or SVB Leerink, and Stifel, Nicolaus & Company, Incorporated, or Stifel, relating to an underwritten public offering of 10,000,000 common shares, including 1,525,423 common shares sold upon the full exercise of the underwriters’ over-allotment option, at a public offering price of $29.50 per common share, and pre-funded warrants to purchase 1,694,915 common shares at $29.4999 per pre-funded warrant, with each pre-funded warrant having an exercise price of $0.0001.

The public offering was completed on October 8, 2021, and we received proceeds of $324.3 million, net of underwriting discount and commissions, but before offering expenses .

In September 2021, pursuant to the terms of our license and collaboration agreement with Neurocrine Biosciences, we received a cash payment of $4.5 million and we issued 275,337 common shares to Neurocrine Biosciences for an aggregate purchase price of $5.5 million.

In March 2021, we entered into an underwriting agreement with Jefferies and Stifel relating to an underwritten public offering of 5,153,135 common shares, including 810,810 shares sold upon the full exercise of the underwriters’ option to purchase additional shares, and pre-funded warrants to purchase 1,081,081 common shares.

The common shares were offered at a public offering price of $18.50 per common share and the pre-funded warrants were offered at a price of $18.4999 per pre-funded warrant, for proceeds of $107.9 million, net of underwriting discounts, commissions and offering expenses.

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 September 30, 2021, we had sold an aggregate of 733,000 common shares for proceeds of $10.7 million, net of commissions 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.

The public offering was completed in January 2020 and the underwriters’ option was exercised in full in February 2020.

We issued an aggregate of 4,312,500 common shares and raised total proceeds of $64.7 million, net of underwriting discounts, commissions and offering expenses.

Further, in November 2019, 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 $50.0 million, from time to time, through an “at-the-market” equity offering program under which Jefferies and Stifel acted as sales agent.

As of January 2020, we had sold an aggregate of 3,252,330 common shares for proceeds of $48.5 million, net of commissions and transaction expenses.

Except for any obligations of our collaborators to make milestone payments a nd research and development funding under our agreements with them , we do not have any committed external sources of capital.

To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders.

If we raise additional funds through collaboration agreements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

the number and characteristics of the future product candidates we pursue either from our internal research efforts or through acquiring or in-licensing other product candidates or technologies;

the scope, progress, results and costs of independently researching and developing any of our future product candidates, including conducting pre-clinical research and clinical trials;

whether our existing collaborations continue to generate substantial milestone payments and, ultimately, royalties on future approved products for us;

the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates we develop independently;

the timing and magnitude of potential milestone payments and royalties under our product acquisition and in-license agreements;

the cost of pre-commercial activities in advance of product commercialization as well as commercializing any future products we develop independently that are approved for sale;

the cost of manufacturing our future product candidates and products, if any;

our ability to maintain existing collaborations and to establish new collaborations, licensing or other arrangements and the financial terms of such agreements;

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such litigation;

the timing, receipt and amount of sales of, or royalties on our future products, if any.

Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash and cash equivalents and marketable securities as of the date of this report will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months.

We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect.

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 nine months ended September 30, 2021 and 2020 (in thousands):

Nine Months Ended September 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Operating Activities

For the nine months ended September 30, 2021, net cash used in operating activities totaled $48.8 million, compared to $35.0 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 pre-clinical, discovery and other internal programs , higher general and administrative expenses and lower interest income for the nine months ended September 30, 2021 as compared to the same period in 2020, partially offset by $8.3 million in milestone revenue recognized in connection with our agreements with Neurocrine Biosciences and Flexion in the nine months ended September 30, 2021 and changes in operating assets and liabilities.

Investing Activities

For the nine months ended September 30, 2021, net cash used in investing activities totaled $31.3 million, compared to $60.0 million for the same period in 2020.

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

Financing Activities

For the nine months ended September 30, 2021, net cash provided by financing activities totaled $123.6 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 $123.3 million from the issuance of common shares and pre-funded warrants during the nine months ended September 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 September 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.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities.

We do not have any interest in entities referred to as variable interest entities, which include special purposes entities and other structured finance entities.

Outstanding Share Data

As of November 8, 2021, we had 51,589,279 common shares issued and outstanding, outstanding pre-funded warrants to purchase an additional 2,775,996 common shares, outstanding stock options to purchase an additional 5,677,702 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.

The Series 1 Preferred Shares are convertible into common shares on a one-for-one basis subject to the holder, together with its affiliates, beneficially owning no more than 9.99% of the total number of common shares issued and outstanding immediately after giving effect to such conversion, or the Beneficial Ownership Limitation.

The holder may reset the Beneficial Ownership Limitation to a higher or lower number, not to exceed 19.99% of the total number of common shares issued and outstanding immediately after giving effect to such conversion, upon providing written notice to us which will be effective 61 days after delivery of such notice.

The holders of the Series 1 Preferred Shares are entitled to vote together with the common shares on an as-converted basis and as a single class, subject in the case of each holder of the Series 1 Preferred Shares to the Beneficial Ownership Limitation.

The Series 1 Preferred Shares may be “restricted securities” as such term is defined under applicable Canadian securities laws, as any Series 1 Preferred Shares that are ineligible to be converted into common shares due to the Beneficial Ownership Limitation, measured as of a given record date that applies for a shareholder meeting or ability to act by written consent, shall be deemed to be non-voting securities.

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 1. Financial Statements