Xenon: Heading Toward Phase III With Strong Momentum thumbnail

Xenon: Heading Toward Phase III With Strong Momentum

Posted on

Xenon Pharmaceuticals (NASDAQ:XENE) was having a pretty quiet 2021. For most of the year, XENE stock traded between $15 and $20 with minimal volatility. However, that changed in a hurry early in October.

rows of pills on a table representing pharmaceutical stocks

Source: Iryna Imago / Shutterstock.com

Xenon announced unexpectedly strong results from its mid-stage Phase II focal epilepsy study. XENE stock surged 80% in a single trading session. It wasn’t just a fleeting gain, either. The company was able to consolidate those gains, with shares holding around the $30 mark following the positive news. Here’s what happened and how things look going forward.

XEN1101 Delights Investors

Xenon is developing XEN1101. This drug is a differentiated Kv7 potassium channel modulator which targets focal epilepsy in adults. On October 4, Xenon published its results from its Phase 2b X-TOLE trial. The trial met its primary efficacy endpoint. XEN1101 showed a statistically significant improvement in focal seizure frequency as measured against a placebo.

Xenon’s drug demonstrated a roughly 50% reduction median reduction from baseline in monthly focal seizure frequency in higher-dose portions of the trial. A lower dose of XEN1101 led to a 33% reduction. Both of these scored well ahead of the placebo, which was under a 20% reduction.

This is encouraging on multiple fronts. For one, Xenon’s drug was clearly superior to the placebo at all dosages. For another, Xenon’s drug showed more efficacy as dosage increased, improving the odds that the drug is indeed having the intended impact. The Food and Drug Administration (FDA) will need to see more data to come to a final decision on the drug. However, this trial is a very strong indicator for Xenon as it heads down the road toward a potential regulatory decision.

Financial Position

XENE stock doubled virtually overnight on the positive XEN1101 results. That’s great. However, it could have quickly fizzled; oftentimes stocks sell right back off after such a big move.

However, management was able to lock-in the upside from that big jump. Xenon quickly took advantage of the surge to issue new stock to the public. Xenon issued 8,474,577 new shares of its equity at $29.50 per share. This, plus some warrants, added up to a $300 million fundraising score.

On a quarterly basis, Xenon loses about $15 million per quarter. That would amount to a $60 million or so annual burn rate. That may ramp up as Xenon’s trials pick up stream. Regardless, that $300 million should fund the company for at least several years, taking away any near-term funding concerns.

Additionally, the $29.50 mark serves as a sort of line in the sand. Xenon managed to raise a ton of capital at that price from institutions. That’s a reassuring sign for anyone else considering investing in the company in the $30 stock price range.

Risks To Consider

As is generally with the case with clinical-stage biotechs, there is elevated risk with Xenon. The company has not historically had a lot of success. It did get up to $28 million of revenues in 2014 based primarily on commercial partnerships with well-known firms such as Teva (NYSE:TEVA) and Genentech. However, that initial success quickly waned; Xenon’s revenues fell to essentially zero in 2017 and 2018.

The company generated meaningful revenues once again in 2020 and is back on a healthier track. Still, Xenon hasn’t had positive earnings for a fiscal year since 2014. And its future fortunes are still tied closely to upcoming clinical trials, which are always a high-risk high-reward sort of event.

XENE Stock Verdict

The usual disclaimers apply to Xenon that you’d see for any clinical-stage biotech company. Don’t invest more than you can afford to lose. And be prepared for a lot of volatility, both to the up and down side. It’s a tricky industry.

That said, Xenon has checked the right boxes this year. It delivered promising clinical results. And it used that momentum to raise capital on attractive terms and keep the company funded for a long time going forward. That gives it a solid foundation to keep pursuing its clinical pipeline. That should keep XENE stock on traders’ radars heading into 2022.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.