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EX-32.1 - EX-32.1 - Xenon Pharmaceuticals Inc.xene-ex321_10.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number: 001-36687

 

XENON PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

 

 

Canada

 

98-0661854

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

200-3650 Gilmore Way

Burnaby, British Columbia V5G 4W8

Canada

(Address of principal executive offices)

(604) 484-3300

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):    

 

Large accelerated filer

¨

 

Accelerated filer

¨

 

 

 

 

 

Non-accelerated filer

x

(Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

The number of registrant’s common shares outstanding as of November 2, 2015 was 14,376,218

 

 

 

 


 

XENON PHARMACEUTICALS INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS

 

 

Page

 

PART I. FINANCIAL INFORMATION

2

 

Item 1. Financial Statements

2

 

Balance Sheets as of September 30, 2015 and December 31, 2014

2

 

Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014

3

 

Statement of Shareholders’ Equity (Deficit) for the nine months ended September 30, 2015

4

 

Statements of Cash Flows for the nine months ended September 30, 2015 and 2014

5

 

Notes to Financial Statements

6

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations

11

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

21

 

Item 4. Controls and Procedures

22

 

PART II. OTHER INFORMATION

23

 

Item 1. Legal Proceedings

23

 

Item 1A. Risk Factors

23

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

58

 

Item 6. Exhibits

59

 

SIGNATURES

60

 

EXHIBIT INDEX

61

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Xenon,” and “the Company” refer to Xenon Pharmaceuticals Inc. “Xenon,” the Xenon logo and “Extreme Genetics” are the property of Xenon Pharmaceuticals Inc. and are registered in the United States and used or registered in various other jurisdictions. This report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

-i-


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

XENON PHARMACEUTICALS INC.

Balance Sheets

(Unaudited)

(Expressed in thousands of U.S. dollars except share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,469

 

 

$

72,026

 

Marketable securities

 

 

 

 

 

12,015

 

Accounts receivable

 

 

274

 

 

 

215

 

Prepaid expenses and other current assets

 

 

371

 

 

 

686

 

 

 

 

66,114

 

 

 

84,942

 

Property, plant and equipment, net

 

 

2,130

 

 

 

2,476

 

Prepaid expenses, long term (note 7)

 

 

1,700

 

 

 

 

Total assets

 

$

69,944

 

 

$

87,418

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses (note 8)

 

 

2,823

 

 

 

2,664

 

Deferred revenue

 

 

2,513

 

 

 

11,622

 

 

 

 

5,336

 

 

 

14,286

 

Deferred revenue, less current portion

 

 

 

 

 

157

 

Deferred tenant inducements

 

 

149

 

 

 

196

 

 

 

$

5,485

 

 

$

14,639

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common shares, without par value; unlimited shares authorized; issued and

  outstanding: 14,344,267 (December 31, 2014 - 14,181,333)

 

 

148,359

 

 

 

147,157

 

Additional paid-in capital

 

 

32,844

 

 

 

30,346

 

Accumulated deficit

 

 

(115,754

)

 

 

(103,734

)

Accumulated other comprehensive loss

 

 

(990

)

 

 

(990

)

 

 

$

64,459

 

 

$

72,779

 

Total liabilities and shareholders’ equity

 

$

69,944

 

 

$

87,418

 

 

 

 

 

 

 

 

 

 

Collaboration agreements (note 10)

 

 

 

 

 

 

 

 

Commitments and contingencies (note 11)

 

 

 

 

 

 

 

 

 

 

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

 

 

-2-


 

XENON PHARMACEUTICALS INC.

Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(Expressed in thousands of U.S. dollars except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue (note 10)

 

$

4,293

 

 

$

13,192

 

 

$

12,347

 

 

$

23,489

 

Royalties

 

 

1

 

 

 

1

 

 

 

3

 

 

 

3

 

 

 

 

4,294

 

 

 

13,193

 

 

 

12,350

 

 

 

23,492

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,793

 

 

 

3,216

 

 

 

10,889

 

 

 

8,315

 

General and administrative

 

 

1,321

 

 

 

1,316

 

 

 

8,219

 

 

 

4,106

 

 

 

 

5,114

 

 

 

4,532

 

 

 

19,108

 

 

 

12,421

 

Income (loss) from operations

 

 

(820

)

 

 

8,661

 

 

 

(6,758

)

 

 

11,071

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

130

 

 

 

138

 

 

 

445

 

 

 

416

 

Foreign exchange gain (loss)

 

 

(3,137

)

 

 

392

 

 

 

(5,502

)

 

 

307

 

Net income (loss)

 

 

(3,827

)

 

 

9,191

 

 

 

(11,815

)

 

 

11,794

 

Net income attributable to participating securities

 

 

 

 

 

5,596

 

 

 

 

 

 

8,199

 

Net income (loss) attributable to common shareholders

 

$

(3,827

)

 

$

3,595

 

 

$

(11,815

)

 

$

3,595

 

Net income (loss) per common share (note 5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.27

)

 

$

2.67

 

 

$

(0.83

)

 

$

2.67

 

Diluted

 

$

(0.27

)

 

$

1.69

 

 

$

(0.83

)

 

$

1.71

 

Weighted-average shares outstanding (note 5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

14,298,612

 

 

 

1,348,417

 

 

 

14,251,006

 

 

 

1,346,989

 

Effects of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

763,949

 

 

 

 

 

 

749,967

 

Subscription rights

 

 

 

 

 

10,400

 

 

 

 

 

 

11,447

 

Diluted

 

 

14,298,612

 

 

 

2,122,766

 

 

 

14,251,006

 

 

 

2,108,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

(1,512

)

 

 

 

 

 

(1,502

)

Comprehensive income (loss)

 

$

(3,827

)

 

$

7,679

 

 

$

(11,815

)

 

$

10,292

 

 

 

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

 

 

-3-


 

XENON PHARMACEUTICALS INC.

Statement of Shareholders’ Equity (Deficit)

(Unaudited)

(Expressed in thousands of U.S. dollars except share data)

 

 

Series A convertible

preferred shares

 

 

Series B convertible

preferred shares

 

 

Series E convertible

preferred shares

 

 

Common shares

 

 

Additional

paid-in

capital

 

 

Accumulated deficit

 

 

Accumulated other

comprehensive

income (loss)

 

 

Total shareholder's

equity (deficit)

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of

   December 31, 2013

 

 

1,151,468

 

 

$

2,939

 

 

 

994,885

 

 

$

8,683

 

 

 

4,322,126

 

 

$

90,866

 

 

 

1,344,627

 

 

$

6,147

 

 

$

29,722

 

 

$

(116,752

)

 

$

2,511

 

 

$

(78,372

)

Net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,018

 

 

 

 

 

 

 

13,018

 

Conversion of Series A,

   B and E convertible

   preferred shares

 

 

(1,151,468

)

 

 

(2,939

)

 

 

(994,885

)

 

 

(8,683

)

 

 

(4,322,126

)

 

 

(90,866

)

 

 

7,725,924

 

 

 

102,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102,488

 

Issuance of common

   shares, net of issuance

   costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,095,000

 

 

 

38,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,373

 

Cumulative translation

   adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,501

)

 

 

(3,501

)

Stock option

   compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

760

 

 

 

 

 

 

 

 

 

 

 

760

 

Issuance of common

   shares on conversion of

   subscription rights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,365

 

 

 

124

 

 

 

(124

)

 

 

 

 

 

 

 

 

 

 

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,417

 

 

 

25

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

13

 

Balance as of

   December 31, 2014

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

14,181,333

 

 

$

147,157

 

 

$

30,346

 

 

$

(103,734

)

 

$

(990

)

 

$

72,779

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,815

)

 

 

 

 

 

 

(11,815

)

Stock option compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,603

 

 

 

 

 

 

 

 

 

 

 

1,603

 

Issued pursuant to exercise

   of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

162,934

 

 

 

1,202

 

 

 

(757

)

 

 

(205

)

 

 

 

 

 

 

240

 

Fair value adjustment upon reclassification of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,652

 

 

 

 

 

 

 

 

 

 

 

1,652

 

Balance as of September 30,

   2015

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

14,344,267

 

 

$

148,359

 

 

$

32,844

 

 

$

(115,754

)

 

$

(990

)

(1)

$

64,459

 

(1)

At September 30, 2015, our 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. See Note 3 – Changes in significant accounting policies.

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

 

 

-4-


 

 

 

XENON PHARMACEUTICALS INC.

Statements of Cash Flows

(Unaudited)

(Expressed in thousands of U.S. dollars)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(11,815

)

 

$

11,794

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

754

 

 

 

533

 

Stock-based compensation

 

 

3,255

 

 

 

561

 

Deferred tenant inducements

 

 

(47

)

 

 

(50

)

Unrealized foreign exchange loss

 

 

5,486

 

 

 

52

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(61

)

 

 

267

 

Prepaid expenses, and other current assets

 

 

315

 

 

 

(27

)

Prepaid expenses, long term

 

 

(1,700

)

 

 

 

Accounts payable and accrued expenses

 

 

223

 

 

 

614

 

Deferred revenue

 

 

(9,266

)

 

 

(10,527

)

Net cash provided by (used in) operating activities

 

 

(12,856

)

 

 

3,217

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(408

)

 

 

(753

)

Purchase of marketable securities

 

 

 

 

 

(15,334

)

Proceeds from marketable securities

 

 

10,745

 

 

 

11,803

 

Net cash provided by (used in) investing activities

 

 

10,337

 

 

 

(4,284

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Deferred financing fees

 

 

 

 

 

(1,305

)

Proceeds from issuance of common shares

 

 

240

 

 

 

10

 

Net cash provided by (used in) financing activities

 

 

240

 

 

 

(1,295

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(4,278

)

 

 

(1,857

)

Decrease in cash and cash equivalents

 

 

(6,557

)

 

 

(4,219

)

Cash and cash equivalents, beginning of period

 

 

72,026

 

 

 

37,950

 

Cash and cash equivalents, end of period

 

$

65,469

 

 

$

33,731

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Interest received

 

$

550

 

 

$

439

 

Supplemental disclosures of non-cash transactions:

 

 

 

 

 

 

 

 

Issuance of common shares on conversion of subscription rights

 

 

 

 

 

32

 

Fair value of options exercised on a cashless basis

 

 

544

 

 

 

 

 

 

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

 

 

 

-5-

 

 


 

 

 

XENON PHARMACEUTICALS INC.

Notes to Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except number of shares and per share amounts)

1.

Nature of the business:

Xenon Pharmaceuticals Inc. (the “Company”), incorporated in 1996 under the British Columbia Business Corporations Act and continued federally in 2000 under the Canada Business Corporation Act, is a clinical-stage biopharmaceutical company discovering and developing a pipeline of differentiated therapeutics for orphan indications that it intends to commercialize on its own, and for larger market indications that it intends to partner with global pharmaceutical companies.

2.

Basis of presentation:

These financial statements are presented in U.S. dollars.

The accompanying unaudited interim 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 financial statements do not include all of the information and footnotes required for complete financial statements and should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2014 and included in the Company’s 2014 Annual Report on Form 10-K filed with the SEC on March 12, 2015.

These unaudited interim 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, 2015 and 2014 are not necessarily indicative of results that can be expected for a full year. These unaudited interim financial statements follow the same significant accounting policies as those described in the notes to the audited financial statements of the Company included in the Company’s 2014 Annual Report on Form 10-K for the year ended December 31, 2014, with the exception of the policies described in note 3.

3.

Changes in significant accounting policies:

 

(a)

Functional Currency:

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company changed to U.S. dollars from Canadian dollars on January 1, 2015 based on management’s analysis of the changes in the primary economic environment in which the Company operates. The change in functional currency is accounted for prospectively from January 1, 2015 and prior year financial statements have not been restated for the change in functional currency. Past translation gains and losses from the application of the U.S. dollar as the reporting currency while the Canadian dollar was the functional currency are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.

For periods commencing January 1, 2015, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and nonmonetary assets and nonmonetary liabilities incurred after January 1, 2015 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction. Foreign exchange gains and losses are included in the statement of operations and comprehensive income (loss) as foreign exchange gain (loss).

 

(b)

Liability classified stock options:

The Company granted stock options with exercise prices denominated in Canadian dollars under its Amended and Restated Stock Option Plan to members of its board of directors and certain consultants prior to the Company’s initial public offering (“IPO”) in November 2014. Following the change in functional currency on January 1, 2015, described in note 3(a), the options denominated in Canadian dollars that were granted to members of the Company’s board of directors and certain consultants were subject to liability accounting with fair value calculated using the Black-Scholes option-pricing model.

 

-6-

 

 


 

 

 

During the three months ended September 30, 2015, the Company modified certain compensation arrangements to be denominated in Canadian dollars. Following this modification, the options denominated in Canadian dollars that were granted to members of the Company’s board of directors and certain consultants are again subject to equity accounting with fair value at the modification date calculated using the Black-Scholes option-pricing model and reclassified to additional paid-in capital. The modified awards will be accounted for as equity awards from the date of modification.

 

4.

Future changes in accounting policies:

In May 2014, the FASB issued amendments to clarify the principles of recognizing revenue and to develop a common revenue standard that would remove inconsistencies in revenue requirements, leading to improved comparability of revenue recognition practices across entities and industries. The amendments stipulate that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosure will also be required about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued an update deferring the effective date of the new revenue standard by one year. The new guidance will be effective for public entities for fiscal years beginning after December 15, 2017 instead of the originally contemplated effective date of December 15, 2016.  The Company is currently evaluating the new guidance to determine the impact it will have on the Company’s financial position, results of operations and cash flows.

In August 2014, the FASB issued amendments requiring management to assess an entity’s ability to continue as a going concern. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. These amendments will be effective for public entities for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of these amendments in fiscal 2017 is not expected to have a material impact on the Company’s financial statements.

5.

Net income (loss) per common share:

Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share is computed by adjusting net income (loss) attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Prior to the Company’s IPO, net income (loss) per share was calculated under the two-class method as the Company had outstanding shares that met the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. All of the outstanding redeemable convertible preferred shares converted to common shares upon the consummation of the Company’s IPO.

As the Company reported a net loss attributable to common shareholders for the three and nine months ended September 30, 2015, all stock options were anti-dilutive and were excluded from the diluted weighted average shares outstanding for those periods. For the three and nine months ended September 30, 2014, common shares of 205,182 and 201,411, respectively, were excluded from the calculation of net income per common share because their inclusion would be anti-dilutive.

 

-7-

 

 


 

 

 

6.

Fair value of financial instruments: 

U.S. GAAP establishes a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).

 

·

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date.

 

·

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

·

Level 3 - Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

The Company’s Level 1 assets include cash and cash equivalents and marketable securities with quoted prices in active markets. The carrying amount of accounts receivables, accounts payable and accrued expenses approximates fair value due to the nature and short-term of those instruments.

7.

Long term prepaid expenses:

In August 2015, the Company entered into a priority access agreement with Medpace, Inc. (“Medpace”) for the provision of certain clinical development services. Upon signing of the agreement, the Company prepaid $1,700 for future services to be provided by Medpace (notes 11 and 12).

8.

Accounts payable and accrued expenses:

Accounts payable and accrued expenses consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Trade payables

 

$

817

 

 

$

553

 

Employee compensation, benefits, and related accruals

 

 

855

 

 

 

1,077

 

Consulting and contracted research

 

 

945

 

 

 

774

 

Professional fees

 

 

180

 

 

 

180

 

Other

 

 

26

 

 

 

80

 

Total

 

$

2,823

 

 

$

2,664

 

 

-8-

 

 


 

 

 

 

9.

Stock option plan:

The following table presents stock option activity for the period:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Outstanding, beginning of period

 

 

1,745,018

 

 

 

1,442,741

 

 

 

1,484,218

 

 

 

1,333,099

 

Granted

 

 

4,100

 

 

 

6,273

 

 

 

384,538

 

 

 

163,504

 

Exercised(1)

 

 

(110,039

)

 

 

(1,028

)

 

 

(209,850

)

 

 

(1,800

)

Forfeited and expired

 

 

(1,905

)

 

 

(4,411

)

 

 

(21,732

)

 

 

(51,228

)

Outstanding, end of period

 

 

1,637,174

 

 

 

1,443,575

 

 

 

1,637,174

 

 

 

1,443,575

 

Exercisable, end of period

 

 

1,052,955

 

 

 

1,078,009

 

 

 

1,052,955

 

 

 

1,078,009

 

 

 

(1)

During the nine months ended September 30, 2015, 62,469 stock options were exercised for the same number of common shares for cash. In the same period, the Company issued 100,465 common shares for the cashless exercise of 147,381 stock options.

The fair value of each option issued to employees and non-employees 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,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Average risk-free interest rate

 

 

1.74

%

 

 

1.95

%

 

 

1.71

%

 

 

1.97

%

Average expected term (in years)

 

 

6.25

 

 

 

6.25

 

 

 

6.23

 

 

 

6.20

 

Expected volatility

 

 

67

%

 

 

74

%

 

 

75

%

 

 

74

%

Expected dividend yield

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

Expected forfeiture rate

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

The weighted-average fair value of options granted during the nine months ended September 30, 2015 was $11.50 (nine months ended September 30, 2014 - $6.58) per option.

10.

Collaboration agreements:

The Company has entered into a number of collaboration agreements with multiple deliverables under which it may have received non-refundable upfront payments. The Company generally recognizes revenue from upfront payments ratably over the term of its estimated period of performance of research under its collaboration agreements in the event that such arrangements represent a single unit of accounting.

The collaborations may also include contractual milestone payments, which relate to the achievement of prespecified research, development, regulatory and commercialization events. The milestone events coincide with the progression of product candidates from research and development, to regulatory approval and through to commercialization. The process of successfully discovering a new product candidate, having it selected by the collaborator for development and having it approved and ultimately sold for a profit is highly uncertain. As such, the milestone payments that the Company may earn from its collaborators involve a significant degree of risk to achieve.

 

-9-

 

 


 

 

 

The following table is a summary of the revenue recognized from the Company’s collaborations for the three and nine months ended September 30, 2015 and 2014:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

uniQure:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Milestone payment

 

$

 

 

$

14

 

 

$

 

 

$

14

 

Teva:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront payment

 

 

2,940

 

 

 

3,132

 

 

 

8,724

 

 

 

9,252

 

Research funding

 

 

11

 

 

 

84

 

 

 

101

 

 

 

251

 

Genentech:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront payment

 

 

182

 

 

 

981

 

 

 

542

 

 

 

2,736

 

Research funding

 

 

910