What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-10 · 174 added, 306 removed, 418 unchanged (53% of the section changed)

4 unchanged sentences

dollars except share amounts)

September 30,

Current assets:

5 unchanged sentences

Property, plant and equipment, net

Deferred tax assets (note 11)

Deferred tax assets

Liabilities and shareholders’ equity

1 unchanged sentence

Accounts payable and accrued expenses (note 6)

Deferred revenue (note 10)

Operating lease liability (note 5)

3 unchanged sentences

unlimited shares authorized;

1,016,000 (December 31, 2020 - 1,016,000 ) (note 9)

nil (December 31, 2021 - 1,016,000 ) (note 7)

Common shares, without par value;

6 unchanged sentences

Commitments and contingencies (note 9)

Subsequent event (note 13)

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

3 unchanged sentences

dollars except share and per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Revenue (note 8)

5 unchanged sentences

Interest income

Interest expense

Foreign exchange gain (loss)

Loss on repayment of term loan (note 8)

Unrealized fair value loss on marketable securities

Foreign exchange gain

Loss before income taxes

Income tax recovery (note 11)

Income tax recovery

Net loss and comprehensive loss

19 unchanged sentences

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

March 31, 2020

Net loss for the period

Stock-based compensation

Issued pursuant to exercise

of stock options

Balance as of

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.

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

The accompanying notes are an integral part of these financial statements

XENON PHARMACEUTICALS INC.

Consolidated Statements of Shareholders’ Equity

(Expressed in thousands of U.S.

dollars except share amounts)

preferred shares

Common shares

Accumulated deficit

Accumulated other

comprehensive

Total shareholders'

Balance as of

December 31, 2020

Net loss for the period

Issuance of common shares and

6 unchanged sentences

March 31, 2021

Net loss for the period

Stock-based compensation

Issued pursuant to exercise

of stock options

Balance as of

June 30, 2021

December 31, 2021

Net loss for the period

1 unchanged sentence

issuance costs (note 7a)

Conversion of preferred shares to

common shares (note 7b)

Stock-based compensation

2 unchanged sentences

Balance as of

September 30, 2021

March 31, 2022

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.

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities:

Items not involving cash:

Amortization of discount on term loan

Deferred income tax recovery

Stock-based compensation

Unrealized foreign exchange loss (gain)

Unrealized loss (gain) on marketable securities

Loss on repayment of term loan (note 8)

Unrealized foreign exchange gain

Unrealized fair value loss on marketable securities

Changes in operating assets and liabilities:

2 unchanged sentences

Accounts payable and accrued expenses

Deferred revenue

Net cash used in operating activities

5 unchanged sentences

Financing activities:

Repayment of term loan and repayment fees (note 8)

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

Issuance of common shares and pre-funded warrants,

net of issuance costs (note 7a)

2 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Increase in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

1 unchanged sentence

Supplemental disclosures:

Interest paid

Interest received

2 unchanged sentences

Fair value of stock options exercised on a cashless basis

Increase in operating lease liability and accounts receivable related to lease

incentives claimed in the period

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

7 unchanged sentences

The Company has incurred significant operating losses since inception.

As of 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.

As of March 31, 2022, the Company had an accumulated deficit of $ 377,044 and a $ 19,670 net loss for the three months ended March 31, 2022.

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 September 30, 2021 Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016 .

The Company has one wholly-owned subsidiary as of March 31, 2022, 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.

All intercompany transactions and balances have been eliminated on consolidation.

Certain information has been reclassified to conform with the financial presentation adopted for the current year.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S.

GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information.

Accordingly, these consolidated financial statements do not include all of the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2020 and included in the Company’s 2020 Annual Report on Form 10-K filed with the SEC and with the securities commissions in British Columbia, Alberta and Ontario on March 1, 2021.

Accordingly, these consolidated financial statements do not include all of the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2021 included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC and with the securities commissions in British Columbia, Alberta and Ontario on March 1, 2022.

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 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.

Changes in significant accounting policies:

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

These amendments simplify accounting for income taxes, change the accounting for certain income tax transactions and make certain improvements to the codification.

The Company has adopted this standard as of January 1, 2021 on a prospective basis.

The adoption of the standard had no impact on the Company’s consolidated balance sheets, consolidated statements of operations and comprehensive loss and consolidated statements of cash flows.

The results of operations for the three months ended March 31, 2022 and 2021 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 2021 Annual Report on Form 10-K for the year ended December 31, 2021.

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 nine months ended September 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 the Series 1 Preferred Shares as a separate class for the three months ended March 31, 2022 and 2021.

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 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.

In March 2022, the outstanding 1,016,000 preferred shares were converted and exchanged for an equal number of common shares of the Company (note 7b).

The weighted average number of common shares used in the basic and diluted net income (loss) per common share calculations includes the weighted-average pre-funded warrants outstanding during the period as they are exercisable at any time for nominal cash consideration .

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

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

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.

For the three months ended March 31, 2022 and 2021, 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:

Certain financial instruments and other items are measured at fair value.

The Company measures certain financial instruments and other items at fair value.

To determine the fair value, the Company uses the fair value hierarchy for inputs used to measure fair value of financial assets and liabilities.

12 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 nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

In November 2021, the Company entered into an agreement to extend the lease for an additional 10-year term to June 30, 2032 .

The cost components of the operating lease were as follows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Operating lease expense

5 unchanged sentences

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

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

Future minimum lease payments as of March 31, 2022 were as follows:

Year ending December 31:

2 unchanged sentences

imputed interest

future lease incentives reasonably certain of use (1)

Present value of lease liabilities

The future lease incentives are expected to be utilized within the next twelve months.

Accounts payable and accrued expenses:

Accounts payable and accrued expenses consisted of the following:

September 30,

Trade payables

2 unchanged sentences

Professional fees

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

The Term Loan accrued interest at a floating per annum rate of 0.5 % above the prime rate.

The Term Loan was interest-only until March 31, 2020 , followed by 30 equal monthly installments of principal plus interest, originally maturing on September 1, 2022 .

In addition, the Company was required to pay a final payment fee of 6.5 % of the Term Loan on the date on which the term loan was prepaid, paid or became due and payable in full.

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

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

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

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

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

Share capital:

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 $ 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.

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

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

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

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

As of 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).

In August 2020, the Company entered into an “at-the-market” equity offering sales agreement, amended as of March 2022, with Jefferies LLC (“Jefferies”) and Stifel, Nicolaus & Company, Incorporated (“Stifel”) pursuant to which the Company may sell common shares from time to time.

In January 2021, the Company sold an aggregate of 733,000 common shares for proceeds of $ 10,693 , net of commissions and transaction expenses pursuant to a prospectus supplement filed in August 2020 (“August 2020 ATM").

The Company may sell common shares having gross proceeds of up to $ 250,000 , from time to time, pursuant to a new prospectus supplement filed in March 2022 (“March 2022 ATM"), replacing the August 2020 ATM.

As of March 31, 2022, no common shares have been sold under the March 2022 ATM.

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 at $ 18.4999 per pre-funded warrant (note 7c), with each pre-funded warrant having an exercise price of $ 0.0001 .

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.

In January 2022, in connection with the License and Collaboration Agreement entered in December 2019 and amended in January 2021 (the "Neurocrine Collaboration Agreement"), the Company executed a Share Purchase Agreement ("SPA") pursuant to which the Company issued 258,986 common shares for an aggregate purchase price of $ 8,250 , or $ 31.855 per common share, which represents a premium of $ 374 when compared to the fair value of common shares on the date of issuance.

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

3 unchanged sentences

In March 2018, the Company and BVF entered into an exchange agreement pursuant to which the Company issued to BVF 2,868,000 Series 1 Preferred Shares in exchange for 2,868,000 common shares which were subsequently cancelled by the Company.

The Company filed articles of amendment creating an unlimited number of Series 1 Preferred Shares.

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 (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 the Company which will be effective 61 days after delivery of such notice.

Each Series 1 Preferred Share is also convertible into one common share at any time at the Company’s option without payment of additional consideration, provided that prior to any such conversion, the holder, together with its affiliates, beneficially owns less than 5.00 % of the total number of common shares issued and outstanding and such conversion will not result in the holder, together with its affiliates, beneficially holding more than 5.00 % of the total number of common shares issued and outstanding immediately after giving effect to such conversion.

In the event of a change of control, holders of Series 1 Preferred Shares shall be issued one common share for each outstanding Series 1 Preferred Share held immediately prior to the change of control (without regard to the Beneficial Ownership Limitation), and following such conversion, will be entitled to receive the same kind and amount of securities, cash or property that a holder of common shares is entitled to receive in connection with such change of control.

The Series 1 Preferred Shares rank equally to the common shares in the event of liquidation, dissolution or winding up or other distribution of the assets of the Company among its shareholders and 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.

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 of the Company.

Holders of Series 1 Preferred Shares are entitled to receive dividends (without regard to the Beneficial Ownership Limitation) on the same basis as the holders of common shares.

The Company may not redeem the Series 1 Preferred Shares.

The Company recorded the issuance of Series 1 Preferred Shares and corresponding cancellation of common shares at $ 7.61 per share, the estimated weighted average cost at which BVF acquired the common shares.

The Series 1 Preferred Shares are recorded wholly as equity under ASC 480, with no bifurcation of conversion feature from the host contract, given that the Series 1 Preferred Shares cannot be cash settled and have no redemption features.

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 September 30, 2021.

The Series 1 Preferred Shares were convertible into common shares on a one-for-one basis, subject to certain restrictions.

The Series 1 Preferred Shares ranked equally to the common shares in the event of liquidation, dissolution or winding up or other distribution of the assets of the Company among its shareholders and the holders of the Series 1 Preferred Shares were entitled to vote together with the common shares on an as-converted basis and as a single class, subject to certain restrictions.

The Series 1 Preferred Shares were recorded wholly as equity under ASC 480, with no bifurcation of conversion feature from the host contract, given that the Series 1 Preferred Shares cannot be cash settled and had no redemption features.

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.

In March 2022, the remaining outstanding 1,016,000 Series 1 Preferred Shares were exchanged for an equal number of common shares.

Pre-Funded Warrants:

In connection with an underwritten public offering completed in March 2021, the Company issued 1,081,081 Pre-Funded Warrants at a price of $ 18.4999 per Pre-Funded Warrant which grants the holder the right to purchase up to 1,081,081 common shares at an exercise price of $ 0.0001 per share.

In connection with the underwritten public offerings completed in March and October 2021, the Company issued 1,081,081 pre-funded warrants at a price of $ 18.4999 per pre-funded warrant which grants the holder the right to purchase up to 1,081,081 common shares at an exercise price of $ 0.0001 per share and 1,694,915 pre-funded warrants at a price of $ 29.4999 per pre-funded warrant which grants the holder the right to purchase up to 1,694,915 common shares at an exercise price of $ 0.0001 per share, respectively (together, the “Pre-Funded Warrants”).

The Pre-Funded Warrants are exercisable at the holder’s discretion from the date of issuance until the date the Pre-Funded Warrant is exercised in full.

2 unchanged sentences

or (ii) the combined voting power of the Company’s securities beneficially owned by such holder, together with its affiliates, to exceed 4.99% of the combined voting power of all of the Company’s securities immediately outstanding after giving effect to the exercise, which percentage may be changed at the holder’s election to a higher or lower percentage not in excess of 19.99% upon at least 61 days’ notice to the Company.

Since the Pre-Funded Warrants meet the condition for equity classification, proceeds from issuance of the Pre-Funded Warrants of $ 18,769 , net of underwriting discounts, commissions and offering expenses, are recorded in additional paid-in capital.

Since the Pre-Funded Warrants meet the condition for equity classification, net proceeds from issuances of the Pre-Funded Warrants are recorded in additional paid-in capital.

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

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.

As of March 31, 2022, no Pre-Funded Warrants have been exercised.

Pre-funded Warrants to purchase 2,775,996 (March 31, 2021 – 1,081,081 ) common shares are not included in the number of issued and outstanding common shares as of March 31, 2022.

Stock-based compensation:

The following table presents stock option activity for the period:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Outstanding, beginning of period

3 unchanged sentences

Exercisable, end of period

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 ).

During the three months ended March 31, 2022, no stock options were exercised for cash (2021 – 46,296 ).

In the same period, the Company issued 149,311 (2021 – 36,159 ) common shares for the cashless exercise of 219,107 (2021 – 76,107 ) stock options.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Average risk-free interest rate

3 unchanged sentences

Weighted average fair value of stock options granted

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,

Revenue was as follows for the three months ended March 31, 2022 and 2021 :

Three Months Ended March 31,

Neurocrine Biosciences:

2 unchanged sentences

Milestone payments

Pacira BioSciences:

Milestone payments

7 unchanged sentences

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 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 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.

The Company allocated the transaction price as follows:

$ 28,807 to performance obligations (i) and (ii), completed as of December 2020 , and $ 5,118 , which includes $ 592 of variable consideration, to performance obligation (v), which is expected to be completed by Q1 2022.

$ 28,807 to performance obligations (i) and (ii), completed as of December 2020 , and $ 5,025 , which includes $ 499 of variable consideration, to performance obligation (v ), which was complete d as of March 2022 .

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 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 .

In January 2022, based on the receipt of the U.S.

Food and Drug Administration’s (“FDA”) full IND acceptance for NBI-921352, the Company received an aggregate milestone payment of $ 15,000 in the form of $ 6,750 in cash and a $ 8,250 equity investment in the Company (note 7a) .

The equity investment was measured at fair value of $ 7,876 on the date of issuance and the resulting premium of $ 374 , with the cash payment of $ 6,750 , 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 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.

During the three months ended March 31, 2022 and 2021, the Company recognized $ 1,270 and $ 1,358 of revenue, respectively, for the research and development services under (iii) the Research Program and (iv) the Initial Development Program for NBI-921352.

As of March 31, 2022, there is $ 1,418 of accounts receivable outstanding from Neurocrine Biosciences.

The Company is eligible to receive pre-commercial and commercial milestone payments with respect to the licensed products totaling up to an additional $ 1,667,500 , comprised of up to $ 1,067,500 in additional development and regulatory milestone payments related to NBI-921352 and other licensed Nav1.6 or Nav1.2/1.6 inhibitor products, and up to $ 600,000 in additional sales-based milestone payments for multiple products.

In addition, the Company is eligible to receive royalties on net sales in and outside the U.S., ranging from (a) for NBI-921352, a low double-digit percentage to a mid-teen percentage and a high-single digit percentage to low double-digit percentage, respectively;

(b) for DTCs, a high-single digit percentage to a low double-digit percentage and a mid-single digit percentage to a high-single digit percentage, respectively;

and (c) for Research Compounds, a mid-single digit percentage to a high-single digit percentage and a tiered mid-single digit percentage, respectively.

Royalty rates are subject to customary reductions.

These additional amounts will be recognized as determinable.

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:

The Company has not exercised this option as of March 31, 2022.

Asset Purchase Agreement with Flexion Therapeutics, Inc., which was subsequently acquired by Pacira BioSciences, Inc.

In September 2019, the Company entered into an agreement with Flexion Therapeutics Inc.

(“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 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.

(“Flexion”), which was acquired by Pacira BioSciences, Inc.

(“Pacira BioSciences”) in November 2021, 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 PCRX301, owned or controlled by the Company.

During the three months ended March 31, 2021, the FDA cleared the first investigational new drug application for PCRX301 and Flexion initiated a Phase 1b clinical trial, resulting in milestone payments of $ 1,000 and $ 2,000 paid to the Company, respectively.

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

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These additional amounts will be recognized as determinable.

Income taxes:

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.

Commitments and contingencies:

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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 $ 3,677 of services have been received and $ 3,323 remains committed as of September 30, 2021.

The Company has committed to $ 7,000 of services over the term of the agreement of which $ 4,208 of services have been received and $ 2,792 remains committed as of March 31, 2022.

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.

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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 September 30, 2021 with respect to the unsatisfied portion under the priority access agreement.

License, manufacture and supply agreement:

In March 2017, the Company entered into a license, manufacture and supply agreement with a pharmaceutical contract manufacturing organization for the access and use of certain regulatory documents as well as for the manufacture and supply of clinical and commercial drug product to support the development of XEN007.

Under the terms of the agreement, the Company will be required to pay a low single-digit percentage royalty on net sales of any products developed and commercialized under the agreement.

therefore, no liability has been recognized as of March 31, 2022 with respect to the unsatisfied portion under the priority access agreement.

Asset purchase agreement with 1st Order Pharmaceuticals, Inc.

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There are no royalty obligations to 1st Order.

License agreement:

In July 2017, the Company entered into a license agreement with a pharmaceutical company for the access and use of certain regulatory documents to support the development of XEN007.

Future potential payments include $ 2,000 in clinical development milestones, up to $ 7,000 in regulatory milestones, plus a low-to-mid single-digit percentage royalty on net sales of any products developed and commercialized under the agreement.

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

Guarantees and indemnifications:

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

Subsequent event:

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

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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;

our ability to identify additional products or product candidates either from our internal research efforts or through 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;

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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;

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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 accuracy of our estimates of the size and characteristics of the markets that may be addressed by our products and product candidates;

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

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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;

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Proprietary Programs

XEN1101 for Epilepsy

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.

In October 2021, we announced positive results from our Phase 2b X-TOLE clinical trial, which evaluated the clinical efficacy, safety and tolerability of XEN1101 administered as an adjunctive treatment for adult patients with focal epilepsy.

The topline data showed all primary and secondary seizure reduction endpoints were statistically significant across all dose groups, including the primary endpoint of median reduction from baseline in monthly seizure frequency and in the key secondary endpoint of patients with at least a 50% reduction in monthly focal seizure frequency from baseline, with p-values of <0.001 for both the 20 mg and 25 mg dose groups.

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

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

The ongoing X-TOLE open-label extension also continues to generate important long-term data for XEN1101.

We are also evaluating other potential epilepsy indications for the future development of XEN1101.

XEN1101 for MDD

Based on promising pre-clinical data with XEN1101 and published 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, we are evaluating the efficacy, safety and tolerability of XEN1101 for the treatment of MDD in a Phase 2 randomized, double-blind, placebo-controlled, multicenter clinical study – called the “X-NOVA” clinical trial.

Following a 4-week screening period, approximately 150 subjects with MDD will be randomized (on a 1:1:1 basis) for once-daily dosing of XEN1101 (10 mg), XEN1101 (20 mg) or placebo for 6 weeks.

The primary objective is to assess the efficacy of 10 mg and 20 mg doses of XEN1101 compared to placebo on improvement of depressive symptoms in subjects diagnosed with moderate to severe MDD, using the Montgomery-Åsberg Depression Rating Scale, or MADRS, score change through week six.

Secondary endpoints include improvement of anhedonia symptoms assessed by the Snaith-Hamilton Pleasure Scale, or SHAPS, score change through week six, as well as improvement of anxiety symptoms measured by the Beck Anxiety Inventory, or BAI, score change through week six.

Topline results from the X-NOVA study are anticipated in 2023.

In addition, we are collaborating with the Icahn School of Medicine at Mount Sinai to conduct an ongoing investigator-sponsored Phase 2 proof-of-concept, randomized, parallel-arm, placebo-controlled multi-site study of XEN1101 for the treatment of MDD in approximately 60 subjects.

The primary objective of the study is to investigate the effect of XEN1101 on the brain reward circuit as measured by the change in bilateral ventral striatum activity as assessed by functional MRI, or fMRI.

The secondary objectives are to test the effect of XEN1101 compared to placebo on clinical measures of depression and anhedonia using the MADRS and SHAPS scales.

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.

A Phase 3 randomized, double-blind, placebo-controlled, parallel group, multicenter clinical trial, called the “EPIK” study, is ongoing 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 2023.

Partnered Programs

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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.

Neurocrine Biosciences is conducting a Phase 2 clinical trial evaluating NBI-921352 in adult patients with focal onset seizures, with data expected in 2023.

In addition, a Phase 2 clinical trial is underway evaluating NBI-921352 in patients aged between 2 and 21 years with SCN8A developmental and epileptic encephalopathy, or SCN8A-DEE.

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

PCRX301 (formerly FX301)

In November 2021, Pacira BioSciences, Inc., or Pacira BioSciences, completed its acquisition of Flexion Therapeutics, Inc., or Flexion, which included Flexion’s global rights to develop and commercialize XEN402, a Nav1.7 inhibitor also known as funapide.

XEN402 has been formulated for extended release from a thermosensitive hydrogel and is now known as PCRX301 (previously FX301).

A Phase 1b proof-of-concept trial is underway evaluating the safety and tolerability of PCRX301 administered as a single-dose, popliteal fossa block in patients undergoing bunionectomy.

Pursuant to the terms of the agreement, we have the potential 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 .

For the three months ended March 31, 2022 and 2021, we recognized revenue of $8.8 million and $4.4 million, respectively, in connection with our agreements with Neurocrine Biosciences and Pacira BioSciences.

We had a net loss of $19.7 million for the three months ended March 31, 2022 and an accumulated deficit of $377.0 million as of March 31, 2022, 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 revenue or 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.

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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,

We do not generate any revenue or 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, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Neurocrine Biosciences:

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Milestone payments

Pacira BioSciences:

Milestone payments

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(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.

In the three months ended March 31, 2022, we recognized $0.4 million of the transaction price allocated to performance obligation (iii) which was completed as of March 31, 2022.

In January 2022, based on the FDA’s approval to expand the SCN8A-DEE study population to include subjects aged between 2 and 11 years, we received an aggregate milestone payment of $15.0 million in the form of $6.75 million cash and a $8.25 million equity investment in our common shares.

The equity investment was measured at fair value of $7.9 million on the date of issuance and the resulting premium of $0.3 million, with the cash payment of $6.75 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, 2021 .

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.

In the three months ended March 31, 2021, we recognized revenue of $3.0 million in connection with our agreement with Pacira BioSciences for the global rights to develop and commercialize PCRX301 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 months ended March 31, 2022 in connection with our agreement with Pacira BioSciences.

As our 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.

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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 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,

The following table summarizes our operating expenses for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Research and development

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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.

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, recruitment 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.

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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.

Unrealized fair value gain (loss) on marketable securities.

Marketable securities are recorded at quoted prices in active markets, which approximate the fair value.

Unrealized fair value gain (loss) on marketable securities is related to changes in market pricing on the investments during the period.

We anticipate that unrealized fair value gain (loss) on marketable securities will continue to fluctuate depending on our investment balance and market yields.

Foreign Exchange Gain (Loss).

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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

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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 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.

There have been no material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2022, 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 2021 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, 2022.

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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)

Comparison of Three Months Ended March 31, 2022 and 2021

The following table summarizes the results of our operations for the three months ended March 31, 2022 and 2021 together with changes in those items (in thousands):

Three Months Ended March 31,

Increase/(Decrease)

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Interest income

Interest expense

Foreign exchange gain (loss)

Loss on repayment of term loan

Unrealized fair value loss on marketable securities

Foreign exchange gain

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.

Revenue increased by $4.4 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Revenue for the three months ended March 31, 2022 related to recognition of $7.1 million of milestone revenue as well as $1.6 million for research and development services under our license and collaboration agreement with Neurocrine Biosciences, as compared to recognition of $1.4 million for research and development services under our license and collaboration agreement in the three months ended March 31, 2021.

Revenue for the three months ended March 31, 2021 also included $3.0 million in milestone revenue recognized in connection with our agreement with Pacira BioSciences, whereas no revenue was recognized in connection with this agreement for the three months ended March 31, 2022.

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)

The following table summarizes research and development expenses for the three months ended March 31, 2022 and 2021 together with changes in those items (in thousands):

Three Months Ended March 31,

Increase/(Decrease)

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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.

Research and development expenses increased by $3.1 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The increase was primarily attributable to increased spending on our pre-clinical, discovery and other internal programs as well as increased spending on XEN1101.

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)

The following table summarizes general and administrative expenses for the three months ended March 31, 2022 and 2021 together with changes in those items (in thousands):

Three Months Ended March 31,

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 .

General and administrative expenses increased by $2.7 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

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, higher salaries and benefits due to increased headcount to support our expanding research and development activities, increased recruitment fees, 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)

The following table summarizes our other income (expense) for the three months ended March 31, 2022 and 2021 together with changes in those items (in thousands):

Three Months Ended March 31,

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.

Other income (expense) decreased by $2.9 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The decrease was primarily driven by an unrealized loss on the fair value of marketable securities of $3.4 million for the three months ended March 31, 2022 due to changes in market yields on investments.

This was partially offset by an increase in interest income of $0.2 million due to an increase in marketable securities.

Liquidity and Capital Resources

Sources of Liquidity

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.

As of March 31, 2022, we had cash and cash equivalents and marketable securities of $537.9 million.

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

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, we entered into an “at-the-market” equity offering sales agreement in August 2020, amended as of March 2022, wi th Jefferies LLC, or Jefferies, and Stifel, Nicolaus & Company, Incorporated, or Stifel, pursuant to which we may sell our common shares from time to time.

In January 2021 , we sold an aggregate of 733,000 common shares for proceeds of $10.7 million, net of commissions and transaction expenses pursuant to a prospectus supplement filed with the SEC on August 6, 2020, or August 2020 ATM .

We may sell common shares having gross proceeds of up to $250.0 million, from time to time, pursuant to a new prospectus supplement filed with the SEC on March 1, 2022, or March 2022 ATM, replacing the August 2020 ATM .

As of March 31, 2022, no common shares have been sold under the March 2022 ATM.

In January 2022, pursuant to the terms of our license and collaboration agreement w ith Neurocrine Biosciences, we received a cash payment of $6.75 million and we issued 258,986 common shares to Neurocrine Biosciences for an aggregate purchase price of $8.25 million.

In addition, in October 2021, we completed 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 $323.9 million, net of underwriting discounts and commissions and 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 N eurocrine 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 5,135,135 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.

Funding Requirements

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 had a $19.7 million net loss for the three months ended March 31, 2022 and an accumulated deficit of $377.0 million from inception through March 31, 2022.

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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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;

make milestone or other payments under our in-license or other agreements, including, without limitation, payments to 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;

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.

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:

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

Nine Months Ended September 30,

Further, inflation may affect our use of capital resources by increasing our cost of labor and research and development expenses.

Our long-term funding requirements will consist of operational, capital, and manufacturing expenditures, including those contractual commitments described below.

Because of the inherent risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of capital outflows and operating expenditures associated with our long-term anticipated preclinical studies and clinical trials.

The following table shows a summary of our cash flows for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Net cash used in operating activities

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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.

For the three months ended March 31, 2022, net cash used in operating activities totaled $18.4 million, compared to $20.7 million for the same period in 2021.

The decrease in cash used in operating activities was primarily related to $7.1 million in milestone revenue recognized in connection with our agreement with Neurocrine Biosciences in the three months ended March 31, 2022, and changes in operating assets and liabilities, partially offset by higher research and development and general and administrative expenses for the three months ended March 31, 2022 as compared to the same period in 2021.

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.

For the three months ended March 31, 2022, net cash used in investing activities totaled $48.9 million, compared to $55.1 million for the same period in 2021.

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.

For the three months ended March 31, 2022, net cash provided by financing activities totaled $7.9 million, compared to $118.7 million for the same period in 2021.

The decrease in cash provided by financing activities was primarily related to a decrease of net proceeds from the issuance of common shares and pre-funded warrants.

Contractual Obligations and Commitments

Our future significant contractual obligations as of December 31, 2021 were reported in our Annual Report on Form 10-K, filed with the SEC and the Canadian Securities Commissions on March 1, 2022.

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.

As of March 31, 2022, there have been no material changes from the contractual commitments previously disclosed in the Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

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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.

As of May 6, 2022, we had 53,105,718 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 7,038,375 common shares and an outstanding warrant to purchase an additional 40,000 common shares.

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