Xenon Pharmaceuticals Inc. (XENE) Earnings Call Transcript & Summary

Welcome, everyone, to the 43rd Annual JPMorgan Healthcare Conference. My name is Tessa Romero. I'm one of the senior biotech analysts here at JPMorgan. We're pleased to welcome to the stage our next company, Xenon. And presenting on behalf of the company, we have CEO, Ian Mortimer. Ian, over to you.

Great. Thanks, Tess. Good morning, everyone. Always great to see everyone on Monday morning at JPMorgan, and a really big year in 2025 for Xenon. So excited to bring you up to date on our progress last year and some of the key and critical milestones for the upcoming year. So thanks to JPMorgan for hosting us. I am joined by some of my Xenon colleagues today in the front row and Sherry Aulin, our Chief Financial Officer; and Chris Kenney, our Chief Medical Officer, will join for the Q&A period after the presentation. I will be making some forward-looking statements, so I do refer you to all of our risk factor disclosure that is filed with the SEC. So as I mentioned, it's a really important time at Xenon. We've been executing really well over the last couple of years, and we're coming into this year with our first Phase III clinical readout for azetukalner. So there's kind of 3 key parts to the presentation this morning. I'm going to focus on azetukalner in epilepsy. We have really important Phase II data. We're in a large Phase III program with, as I mentioned, Phase III data later this year. We've been broadening azetukalner into psychiatric indications, including major depressive disorder, and we're excited to announce this morning that the first Phase III clinical trial in MDD has now been initiated. That was initiated last month. And then the third kind of key part to the business is really a nice maturing of our discovery portfolio in pipeline. So we've been working on drug and ion channels in the CNS for many years, and that has matured nicely. You're going to see multiple IND or equivalents and Phase I initiations in 2025. So I'll touch upon some of that as well. We're really excited about azetukalner because this is the most advanced potassium channel modulator in development, and the only one with really validating and derisking data in both epilepsy as well as in MDD. So we'll touch upon that throughout the presentation this morning. Really good balance sheet as well supporting the company with cash runway into 2027. If we just look at a graphic of the pipeline, as I mentioned, a huge amount of focus at Xenon is on our lead program, azetukalner. This is a potassium channel or a Kv7 modulator. As you can see at the top of the slide, we have 3 Phase III clinical trials ongoing in epilepsy, 2 in focal onset seizures, and one in primary generalized tonic-clonic seizures. And as I mentioned, we have broadened this out into psychiatric indications as well, including our first Phase III clinical trial called X-NOVA2, which is now up and running in MDD. I'm not going to touch upon it in today's presentation, but you will see kind of in the middle of the slide, we have an ongoing IST with Mount Sinai, and we're going to see data from that study in the first half of this year. So some additional clinical data on azetukalner in MDD with our collaborators at Mount Sinai and at Baylor. And then at the bottom of the slide, as I said, a really nice maturity of our discovery portfolio and pipeline, and I'm going to touch upon a few of those things later in the presentation. So let's start with azetukalner in epilepsy. This is our X-TOLE program as well as our X-ACKT clinical trial in PGTCS. Just to set a little bit of context before we get into it. There's a significant unmet need in epilepsy. On this slide, we show all of the key markets and the epidemiology of epilepsy. If we just focus in the U.S. there's about 3 million Americans that are diagnosed with epilepsy, that's about 1 in 26 have a lifetime risk of developing epilepsy. The vast majority of those, about 60%, have FOS or focal onset seizures. And the other significant category are those with generalized seizures. This impacts both hemispheres of the brain and the most common form of generalized epilepsy is primary generalized tonic-clonic seizures. The reason I mentioned that is because if you look at our Phase III program, we're addressing all of the big markets in epilepsy, FOS in PGTCS. The other important thing to mention on this slide is the significant psychiatric comorbidities of these patients. So many epilepsy patients have psychiatric comorbidities, one of the common being depression. So there's really an intersection in the mechanism between seizure disorders and reducing seizures, and I'm going to show you some data, but also the opportunity to develop a medicine for major depressive disorder, and also those patients that are suffering from the psychiatric comorbidity, those epilepsy patients that have depression and anxiety as well. Actually, interesting in our Phase III program, on an exploratory basis, we are looking at some of those end points in terms of depression and anxiety in the Phase III epilepsy program. The reason that gives us a significant amount of excitement and confidence in the X-TOLE program is on the basis of our Phase IIb data. So these data were first disclosed a few years ago. So this was a large Phase IIb study, 3 active doses of the drug and placebo. And I'm going to walk through a little bit of data, not only the double-blind data, but we've been continuing to follow these patients in open-label extension now up to 7 years. So every year at the American Epilepsy Society meeting in December, we're able to mature these data by a year, which we did last month, and I'm going to walk you through some of those data. So both the baseline data -- or sorry, the double-blind data as well as the data that we're generating in open-label extension. But these data were absolutely clear, as you can see on this next slide, on the left was the key primary endpoint of the Phase IIb study. So this is what we call the MPC. So we're looking at a reduction in seizures of these patients. On the right, we're looking at a responder analysis. So this was a key secondary endpoint in the study. So this is the percentage of patients that have at least a 50% reduction in their seizure burden. Obviously, we expected these data to track left and right and they do. The reason that I show both of them on this slide is because on the left, this is the key primary endpoint for U.S. regulators and on the right is the key endpoint for European regulators. If we look at the data on the left at the high dose, we had a 52.8% reduction in seizures. If we subtract that from the placebo group, this is the best placebo-adjusted efficacy ever seen in a focal onset seizure study when we look at the literature, and it's important to note this was in the most severe or refractory patient population that's ever been trialed based on our analysis of the literature. And we measure that in 3 different ways. One is the number of anti-seizure medicines that these patients failed before coming on study, the number of con-meds they were on during study, as well as their background or baseline seizure burden and it was quite significant for these patients. So these data within those contexts, I think, are extremely impressive and really formed the basis of our Phase III program. As I mentioned, we continue to look at these patients in open-label extension. We now have patients that have been dosed 5 years on drug. We have over 600 patient years of exposure. So we have a huge amount of safety data on the drug, and I'm going to come back to some comments on safety in a minute, but this is the efficacy data in open-label extension. What you can see is the patients on the left there in the double blind, this is a combination of all of the different arms of the study. So some of those patients are on placebo, some of them on 10, 20 or 25 milligrams of drug as they transition into open-label extension, you see the population has a significant reduction in their seizure burden, and it looks like that's continuing to come down over time. The population has about an 85% reduction in seizures, which again, based on those background characteristics of these patients is extremely impressive. On this next slide, we actually look at seizure freedom. So this is 100% reduction in seizures. So if we look at the data out 3 years, so these were the data that we were able to present to the epilepsy community last month. So the entire population from the Phase II study has had the opportunity to be on the drug for 3 years. If we look at that subgroup that has hit 36 months, so the N is 147, so quite a robust data set. If you look on the far left, about 1 in 3 patients are having seizure freedom for 12 months or more, having been on the drug for 36 months. And I'd like to just put those data into context and into perspective. When I said that they had quite severe disease coming into the study, they had, on average, the median patient had failed 6 drugs already. They were on 3 background medications, and they still had 13.5 seizures per month. So if you think about 13.5 per month for 28 days, that's approximately a seizure every other day, and now we're getting 1 in 3 that are going a year with no seizures at all. I think this is actually quite remarkable data, and it's data that we're getting extremely positive feedback from the epilepsy community, and a clear differentiator when we compare us to other drugs that are both in development as well as on the market. As I mentioned in terms of safety and tolerability, we have a huge amount of safety data on the drug now. We'll see -- what we see in open-label extension, so these patients that have been on the drug for many, many years now, the adverse event profile is consistent with what we see in the double-blind period. This is a very active drug in the CNS and we see dose-dependent adverse events, the most common which is dizziness. The vast majority of these patients, mild or moderate. Usually, you see a lot of these CNS adverse events show up early in dosing, and then we see fewer of them as we move on. We also see a certain amount of somnolence and fatigue as well as we compare to the placebo group. But it's an adverse event profile in epilepsy that we're very comfortable with and very comfortable when we talk to the epilepsy community. All anti-seizure medicines that are active in the CNS have CNS adverse events associated with them. So let's move to the Phase III program. As I mentioned, we've got 2 Phase III clinical trials ongoing in focal onset seizures. We call this X-TOLE2 and X-TOLE3. These are identical studies and we're really trying to mirror the Phase II. We had such good success in Phase II that these studies are essentially the same as the Phase II. So all of the inclusion/exclusion criteria are the same. A few more patients in terms of sample size per arm. So these are 360 subjects, 120 subjects per arm in placebo in the 15-milligram arm and 25-milligram arm and then patients have the opportunity to go into open label extension. And as I mentioned, the first Phase III readout for this program will be in the second half of this year. As I mentioned, we're also expanding the opportunity outside of FLS into PGTCS and we have, this is very common in epilepsy, usually you focus on the focal onset seizure population first and then you expand into PGTCS, usually with a single Phase III clinical trial at the highest dose. And that's what we're doing in this program. So this is very common in epilepsy drug development for adult patients. So we're using a single dose of 25 milligrams of azetukalner versus placebo. This clinical trial is ongoing. We haven't given guidance yet, but we expect that these data would form the basis of an sNDA after the NDA in FOS. So that's a summary of the epilepsy program, really nice progress over the last couple of years. On the cusp now of Phase III data in the second half of this year and the open-label data from our Phase II program is maturing very nicely, and we've had the opportunity to continue to provide those updates at the American Epilepsy Society meeting every year. So let's move into kind of the second key message for today, which is really the expansion of azetukalner in major depressive disorder. So this was based -- we ran a smaller Phase II study in MDD that read out just over a year ago. It's called the X-NOVA study. We tested 2 doses of azetukalner, 10 and 20 milligrams versus placebo. Key endpoint was a clinical scale of depression called MADRS. There's really 2 scales that the regulators look at. You can choose either of them based on the guidance. One is called MADRS, the other is called HAM-D17. We did look at both of these in the study. We did choose MADRS as the primary, and we had HAMD-17 as one of the secondary endpoints. I think that's important because based on the data, we're actually going to move to HAMD-17 as the Phase III endpoint. I'll come back to that in a second. Based on the mechanism of the drug in terms of modulating potassium channels, especially in the reward circuitry of the brain, we're also looking at a key secondary endpoint called the SHAPS scale. And the SHAPS scale measures anhedonia, which is a key comorbidity in patients with moderate to severe depression. So we're continuing to monitor that in the Phase III and I'll show you some data from the Phase II program as well. So I'm going to go through a couple of data slides on MDD from the X-NOVA study. As I mentioned, this was a smaller Phase II proof-of-concept study, just over 150 subjects, so just over 50 subjects per arm. This was the primary endpoint on MADRS at week 6. So a couple of things from this. You can see a clear separation and dose response from placebo to 10 milligrams to 20 milligrams. And we had a clinically meaningful separation of just over 3 points between active, the high dose of 20 milligrams, and placebo at week 6. If we look at HAM-D17, we also had about a 3-point separation, but the p-value for HAM-D17 was less than 0.05. And that's because we saw less variability, and this is supported from the literature as well. We saw less variability in the endpoint of HAM-D17 versus MADRS, and so we will be using HAM-D17. We've done our end of Phase II meeting with FDA. And as I mentioned, we've just initiated our Phase III program in MDD with the first Phase III trial initiated last month using HAM-D17 as the primary endpoint. As I mentioned for these patients, a key comorbidity and a key differentiator when we look at the SSRIs and SNRIs and the drugs that are currently used to treat these patients is the comorbidity of anhedonia. So often the existing drugs can help treat the underlying depression, but the patients aren't feeling better on scales of anhedonia and so we did measure this. It's called the SHAPS scale. Again, you see a clear dose response between placebo, 10 milligrams and 20 milligrams and a p-value less than 0.05. In terms of safety and tolerability, what was interesting is we actually see that the drug is better tolerated in the MDD study than in the epilepsy setting. Obviously, this has the caveat of a cross-trial comparison. And in depression, this is monotherapy, where it's polypharmacy in the epilepsy setting. But going into this, we actually weren't sure how an MDD patient would tolerate the drug. A couple of key messages here. One, we're seeing the same types of adverse events in depression that we saw in the epilepsy program and that we saw in all of our clinical pharmacology and healthy volunteer studies, we're just seeing them at a lower level in the depression study. So we think this drug is being very well tolerated in the MDD setting, which I think is important for this patient population as well. So it is the totality of all of these data that put us into the Phase III program that I mentioned has just been initiated. We're going to run 3 Phase III clinical trials in major depressive disorder. Essentially in parallel, they will be a little bit staggered in terms of them getting up and running. The first one, our guidance was to get up and running at the end of last year, which we've achieved. This is a one-to-one randomization. We think that will help manage the placebo rate. We've chosen 20 milligrams versus placebo, significantly larger studies, obviously, in the Phase III versus the Phase II proof-of-concept about 225 subjects per arm. Primary endpoint, the change at week 6 in the Hamilton Scale or HAM-D17. Key endpoints, including at week 1 and SHAPS, and a number of other endpoints that you would expect in a depression study. So overall, if we kind of summarize azetukalner, both in epilepsy and MDD, I think we have robust clinical efficacy in multiple indications. As I mentioned, the placebo-adjusted efficacy in epilepsy is the best that's ever been seen based on our review of the literature. One of the things I haven't mentioned yet this morning, but I will mention it on this slide is that we're also seeing a rapidity of onset. So the nice thing about azetukalner, it has quite a long half-life, the drug doesn't need to be titrated. Most CNS drugs, you start low and go slow. This drug, you're on your active dose on day 1, and how that translates in the clinic is we see statistically significant efficacy at week 1. We've seen that both in the epilepsy setting as well as in the MDD setting, and I think that's, again, a key differentiator. So we have a novel mechanism. There are no potassium channel modulators on the market today to treat epilepsy or depression. We have very compelling efficacy. We have rapidity of onset and we have a number of other ease-of-use attributes. This is one pill once a day with no titration. So either from the physician's perspective or from the patient's perspective, this is an easy drug to add to some of the other therapies that they're on. And I think the safety profile is now clearly differentiated from the other drugs in development, given that we now have patients that have been dosed more than 5 years on therapy, and we have over 600 patient years of exposure. So let's move in the last few minutes to our pipeline programs. And as I said, we started highlighting actually for the first time a year ago at this conference, some of the work that we were doing in our early-stage pipeline, and it's matured very nicely. We really believe we are experts in drug and ion channels in the CNS, and we've got ongoing programs in both targeting potassium channels. So these are continued molecules on the same target, which is Kv7 of azetukalner. This is an opportunity to go even broader than epilepsy and psychiatry, also to have continued life cycle management and other molecules following behind azetukalner. I think some of the new information that we're getting much more attention from is actually on the right-hand side at the bottom, which is our sodium channel program. So there's 2 key channels that we're targeting. One is NAV1.1, and the other is NAV1.7. 1.1 is critical in an epilepsy, a DEE, developmental and epileptic encephalopathy called Dravet syndrome, and we had some really impressive preclinical data in our NAV1.1 program at the AES meeting last month that I think had some really strong attention. And then I would say we're spending most of our time with investors on our NAV1.7 program. I think we have some really exciting chemistries that are going to move into human clinical development this year. So from our entire discovery portfolio, you're going to see multiple INDs in 2025 as these molecules transition from drug discovery and preclinical development into human clinical development, and we're really excited about these maturing over the next couple of years. So just in summary, before we get into some Q&A, as I mentioned, I think it's an incredibly exciting time for Xenon in terms of where we are in our maturation as a company. As we've talked to many of you about, our objective and our strategy is to forward, integrate and to launch azetukalner ourselves in the U.S. And we're on the cusp of Phase III data in our epilepsy program, which will be followed by an NDA and commercial launch. So we can look forward to over the next couple of years, significant clinical data in both epilepsy and MDD from azetukalner. And then as I mentioned, a really nice maturing of our discovery portfolio over the next couple of years as well. And at the beginning, I said we have a strong balance sheet with cash runway into 2027 to support all of these programs. So thanks very much and Tess, maybe we can invite Sherry and Chris up and we can get into Q&A.

So a little bit of a housekeeping question for me to start. Did the Phase III X-TOLE2 trial complete enrollment?

So great question. Obviously, we're going to get, I think, a lot of questions this week on just where we are in the Phase III program. Today, we're comfortable with our guidance and confident in our guidance, which we're going to have Phase III data for -- in FOS in the second half of the year. We haven't provided any more detail on that in terms of the completion of patient screening or patient randomization or even narrowing the guidance within the second half of the year, that will come as the year unfolds.

How are you thinking about what is a win in that data set versus a home run in terms of safety, tolerability and also efficacy? And really, what attributes of those data do you think drive more or less adoption of the product?

Sure. I'm happy to start, and then Chris and Sherry can add to my comments. One of the things that I think we're in a very fortunate position is just the X-TOLE data, right? I don't think we can lose sight that we've completed one of what we believe is going to be the first study to file on, which is X-TOLE program. I walked you through the data this morning, on a placebo-adjusted basis, we think it's the best efficacy that we've ever seen when we review the literature in a very severe and refractory population. So that doesn't change. I mean we have those data which we're really excited about. The nice thing about epilepsy is you do get high reproducibility and consistency across studies. So our expectation is that the drug is going to perform well in Phase III. But I don't think we're too concerned with what the very specific data are going to be. I think the data in the package in totality is going to be really important for the epilepsy community. In terms of safety and tolerability, as I mentioned, we have a huge amount of comfort with the molecule now just given that we have patients over 5 years of exposure as well as 600 patient years of exposure. So again, I think on the safety and tolerability side, we would expect consistency in the data set from Phase III with what we've already seen. Chris?

Yes. I would just add, so just to take a step back. So X-TOLE, Ian just showed you the X-TOLE data, the Phase IIb study, which we view as incredibly robust. We're positioning that as our first pivotal trial in focal onset seizures, so that should be Study 1 in the label, and now the second study that will come along will be Study 2. So in order to get to the point where we can submit that NDA, we need this next study. And ultimately, what we really need is a positive study. So stat sig, that's what I would call a win, stat sig on that study. Now in terms of trying to be able to repeat that robust data set, what we did is we tried to change as little as we could, going from X-TOLE to X-TOLE2. So I mean, there was a change in dose. There was a little bit of a change in the double-blind period, which could potentially work in our favor. But in general, the studies are very similar, geographically and in terms of study design. So hopefully, that will parlay into favorable results. I mean if you look, there are no 2 studies that are exactly the same. So I would expect some degree of difference, but to what degree it should be minimal based upon the consistency of how epilepsy studies perform going from Phase II to Phase III.

And Sherry, do you want to talk about the commercial opportunity?

Yes, absolutely. I mean, as a starting point, I think Ian went through some of the epi data. I mean this is a significant population of individuals who have epilepsy, 3 million adults in the U.S. In addition to that, there's about 0.5 million children who have epilepsy, and we're targeting the 2 largest segments of that population being FOS and PGTCS. I mean what we think about from a commercial perspective, obviously, a lot of the questions we get are often on sort of expectations for sales curve and trajectory as well as peak. It's important to think about the treatment paradigm for these patients. So oftentimes, when a patient is first diagnosed, they'll be put on a generic agent. So most often, we'll see levetiracetam, which is generic Keppra or lamotrigine generic Lamictal are often early choices. And then from there, second line would generally be a monotherapy, but trying a different agent because patients either don't have good seizure control or they're not tolerating the drug well. From there, we would see in third line is where you would have patients start to move towards polypharmacy and the introduction of branded agents. So patients will generally have to go through 1 or 2 generics before they will be eligible for a branded product. As we look at the epilepsy space, I mean, obviously, there's a lot of antiseizure medications out there. And there have -- there has really been a bifurcation of drugs that have performed extremely well in the space, multi-blockbuster and those that have not done so well, and it really comes down to the very specific attributes of each drug. There have been very successful drugs, as I mentioned, Vimpat, which is a very easy to prescribe medication. Keppra, which was a novel agent when it was first introduced into the marketplace, and then drugs that haven't performed as well because of some serious adverse events or challenges with respect to titration and management from both the physician as well as the patient's perspective. When we look and Ian went through all of the elements of azetukalner. As we look across all of the attributes, we feel that azetukalner, based on the data that we've generated thus far as, we look at the efficacy, the safety tolerability profile, the fact that it's a novel mechanism, we have seen to date rapidity of onset as well as potential mood benefit. All of those attributes really lead us to believe that azetukalner should be, as we think about the branded space, the first drug of choice. And we expect that if and when we do launch azetukalner that the only other branded agent at that time will be a drug called XCOPRI, which does come with some challenges around prescribing, it does have a long titration period, and it is not a novel mechanism. So for that reason, we're optimistic and feeling confident about the commercial opportunity here, and we really do think that azetukalner stands out.

You talked a little bit about this already here, but I think just to put a little bit of a finer point on it, what are you hearing really from the patients in terms of what they're looking for in a new treatment option? And does that deviate at all from what prescribers might be looking for?

Yes. So we've spent a lot of time talking to health care providers and reaching out to the patient community. I mean one of the -- cenobamate has lifted the bar in terms of what level of efficacy is expected and it's gone from like, well, how many patients improved by 50% to how many patients are seizure-free. And so that's what we hear a lot from like a peer seizure perspective, they don't want to have any more seizures. They want to be able to navigate their life without the fear that they could have a seizure at any given moment and put them in a difficult predicament or an unsafe predicament. So we're hearing a lot about seizure freedom. And so if you -- that's why that data that Ian presented in the long term with 1 in 3 patients being seizure-free despite having pretty severe seizures at baseline is really, I think, in keeping with the message that we're hearing from patients. And then the other thing that clearly is a major issue with them is mood, both depression and anxiety as a common comorbidity of epilepsy. And so right now, there are antiseizure medications that are mood neutral, and there are some that can actually make it worse. But being able to check both of those boxes, we see as a really major opportunity for the patients and potentially something that this drug can bring forward. And then from the prescriber perspective, I would say that we're hearing the same, those 2 themes. I just think that within the prescriber, the patient cares about their mood period. I think some neurologists are more in tune with mood as an issue in epilepsy than others. And so I see a huge educational opportunity within the health care providers to educate on this and hopefully bring forward a therapy that can help out with both.

Yes. Maybe just to add to that, if for those. And I know, Tess, you were at the American Epilepsy Society meeting, for those that didn't have the opportunity to attend. I mean, Chris' point on just this kind of underdiagnosis of the mood-related disorders in epilepsy, I think is really something that needs to change in that education. And you really saw Xenon lean in at the AES meeting in terms of trying to raise the profile of the mood disorders and the psychiatric comorbidities in epilepsy and we'll continue to do so.

Yes. And I think, like a follow-up for me on this is just, as you think about zooming ahead to the product being available, like where do you think physicians are in terms of the awareness of the product today, the class overall? Where do you think that needs to ultimately get to by the time you're ready to launch?

Sure. I can start and Chris and Sherry can add their perspective as well. I mean we do measure it. We do measure on kind of terms of the awareness of Xenon and the awareness of azetukalner, and that's increasing every year that goes by. This was a really important American Epilepsy Society meeting for us. We had a huge presence last month in Los Angeles to raise the profile, and I think we really did stand out as an important partner in the epilepsy community moving forward. So yes, well, as a newer entrant into the field, we're going to continue to have to raise the profile of Xenon and azetukalner, but we're well into that. We have been investing in a small commercial organization in terms of some key hires there, and also in MSL and field force in 2024 to continue to raise the awareness of Xenon and azetukalner. So we're well -- we believe we're in really good shape as we think about the time line right now before we get to commercial launch. But we've been thinking a lot not just about the clinical development of azetukalner, but also raising the profile and ensuring that when we're ready to launch this drug that there's good awareness.