Yuichiro Chino/Moment via Getty Images
Yuichiro Chino/Moment via Getty Images
The oak fought the wind and was broken, the willow bent when it must and survived."― Robert Jordan.
It has been almost a year and a half since we posted an article about a biopharma name called Xenon Pharmaceuticals Inc. (NASDAQ:XENE). Therefore, it seems to be a good time to revisit the company. An updated analysis follows below.
Seeking Alpha
This clinical-stage biopharmaceutical company is headquartered just outside of Vancouver in Canada. The company is focused on developing therapeutics to treat patients with neurological disorders. The stock currently trades around $47.00 a share and sports an approximate $3.6 billion market capitalization.
Company Website
Xenon's primary drug candidate is a compound called XEN1101 It is being developed for the treatment of epilepsy and other neurological disorders, including major depressive disorder, also known as MDD. XEN1101 is a differentiated Kv7 potassium channel opener.
The company has also licensed a selective Nav1.6 sodium channel inhibitor to Neurocrine Biosciences, Inc. (NBIX) for development. This asset "XEN901," now known as NBI-921352 at Neurocrine, was being evaluated in treating adult patients with focal onset seizures. There is also another pre-clinical drug that was part of this agreement. As part of the license deal, Xenon can receive development, regulatory, and commercial milestone payments. The company could also garner future sales royalties on any commercialized revenues that come from this product.
The company has had some recent trial setbacks. On November 9th, Neurocrine Biosciences reported that NBI-921352 failed to demonstrate a meaningful reduction in seizure frequency in patients with FOS. Neurocrine is curtailing the development work in the FOS area, but will continue to advance work on the pre-clinical drug within their license deal with Xenon.
Then, on November 27th, Xenon disclosed that a Phase 2 proof-of-concept study X-NOVA evaluating XEN1101 in nearly 170 individuals with moderate to severe MDD failed to meet its primary endpoint. However, as an article on Seeking Alpha at the time pointed out, data from X-NOVA is supportive that XEN1101 should be effective in treating forms of epilepsy. This is the key reason the stock has advanced more than 50% since that trial "setback."
Company Website
Xenon has recently initiated two identical Phase 3 clinical trials dubbed "X-TOLE2" and "X-TOLE3" to further evaluate XEN1101 to treat focal onset seizures or FOS and a study "X-ACKT" to evaluate XEN1101 in primary generalized tonic-clonic seizures or PGTCS. FOS is present in approximately 60% of individuals with epilepsy. Management anticipates enrollment in X-T0LE2 to be completed sometime in the second half of this year. A Phase 2B study X-TOLE produced positive top-line results.
Xenon Pharmaceuticals is currently universally loved in the analyst community. Since the company last posted quarterly results on November 8th, a dozen analyst firms including Goldman Sachs, Needham, and JPMorgan have reissued/assigned Buy/Outperform ratings on the stock. A recent secondary offering that raised approximately $300 million for Xenon at the end of November might have had a slight impact on their positive outlook. Price targets proffered range from $46 to $63 a share.
Citigroup reiterated a Buy rating and $62 price target on the stock in mid-January. Here is the commentary from that move:
We estimate topline results from X-TOLE2 around mid-'25. XENE intends to submit an NDA for FOS to the FDA using the results from the earlier Ph2b X-TOLE, while results from Ph3 X-TOLE3 (likely to report data in late '25) will be needed to submit an MAA to the European regulator. X-ACKT trial in PGTCS appears on track to report topline results after X-TOLE2, but before X-TOLE3. If this timeline holds true, we would anticipate XENE files an sNDA for PGTCS shortly after the initial NDA for FOS, with both applications ending up under concurrent FDA review. Patients who complete the double-blind period in X-TOLE2, X-TOLE3, or X-ACKT can roll over into an OLE study for up to 3 years. Meanwhile, the ongoing Ph2b X-TOLE OLE has been extended from 5 to 7 years, with continued interim updates expected periodically."
Just under four percent of the outstanding float in the shares is currently held short. Several insiders were somewhat frequent sellers of the stock last year. Collectively, they sold nearly $10 million worth of equity in 2023. There has been no insider activity in the stock so far in 2024.
The company ended the third quarter with just under $640 million of cash and marketable securities on its balance sheet. Management stated at the time that was sufficient to fund all planned activities into 2026. With the new capital raise, funding is in place for the foreseeable future. Xenon posted a net loss of $48.5 million in the quarter.
Despite recent trial "setbacks," the stock enjoys unanimous support on Wall Street. Management has also recently addressed all near- and medium-term funding needs for the company.
That said, with the recent large rally in the shares, the stock has surpassed the bottom end of "bullish" analyst price targets. With no major milestones on the horizon for the rest of 2024, Xenon Pharmaceuticals Inc. shares seem vulnerable to profit taking in my opinion. Therefore, I plan to wait for a pullback to the $40 level, before taking a small stake in XENE using covered call orders.
A good half of the art of living is resilience."― Alain de Botton.