Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019 Xenon Pharmaceuticals Inc Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Jodi Regts. Ma'am you may begin.

Thank you. Good afternoon. Thank you for joining us on our call and webcast to discuss our financial and operating results from the third quarter of 2019. Joining me on today's call are Dr. Simon Pimstone, Xenon's Chief Executive Officer; and Ian Mortimer, Xenon's President and Chief Financial Officer. Following this introduction, Simon will give an overview of Xenon's clinical programs, and then Ian will review our financial results. After that, we will open up the call to your questions. Please be advised that during this call, we will make a number of statements that are forward-looking, including statements about the sufficiency of our cash to fund operations into 2021; the timing of IND or IND-equivalent submissions with regulatory agencies; the initiation of future clinical trials; the efficacy of our clinical trial designs and anticipated data. Today's press release summarizing our third quarter 2019 results and the accompanying quarterly report on Form 10-Q will be made available under the Investors section of our website at www.xenon-pharma.com and filed with the SEC on SEDAR. I'd now like to turn the call over to Simon.

Thank you, Jodi, and good afternoon, everyone. Today I'll provide an update on each of our clinical stage programs including XEN496, XEN1101, XEN901 and XEN007. And I'll highlight some of the important milestone events anticipated this year. After Ian's financial commentary and a recap of our recent agreement reflection, we'll open the call for questions. So I'll start with XEN496, a Kv7 potassium channel modulator we're developing as a treatment for a rare pediatric neuro developmental disorder called KCNQ2 developmental and epileptic encephalopathy, otherwise known as KCNQ2-DEE, sometimes referred to as EIEE7. Ezogabine, which is the active ingredient in XEN496 was previously approved by the FDA as an adjuvant treatment for adult partial-onset seizures that was withdrawn from the market for commercial reasons in 2017. There's a strong genetic rationale to suggest that Ezogabine may be efficacious as a treatment for KCNQ2-DEE. This is further supported by non-controlled clinical studies, as well as anecdotal, parental and physician feedback, suggesting that XEN-496 may be well tolerated and reduce seizure burden with potential to improve developmental and cognition or development and cognition in this rare pediatric population. We recently conducted a survey of patients and caregivers in the KCNQ2-DEE community. And the feedback continues to support our rationale for developing XEN496 for this rare pediatric developmental epilepsy disorder. We'll be presenting details on our survey work at the upcoming annual meeting of the American Epilepsy Society or AES in early December. We obtained orphan drug designation from the FDA for XEN496 as a treatment for KCNQ2-DEE. In response to our pre-IND briefing package that included our proposal to study XEN496 in infants and children with KCNQ2-DEE, the FDA supported our proposed safety monitoring plans, including long-term follow up to monitor potential side effects and indicated that a single, small pivotal trial could…

Thanks, Simon and good afternoon. The specific details within our financial statements are covered in today's press release and our 10-Q filing. So I'll provide an overview and conclude with a summary of upcoming milestones. Before I get into the financial update, I'd like to briefly summarize a recent partnering activity this past quarter when we completed a transaction with Flexion Therapeutics, giving them the global rights to develop and commercialize XEN402 NAV 1.7 inhibitor. Flexion new preclinical program known as FX301 will consist of XEM402 formulated for extended release from a thermo sensitive hydro gel. The initial development of FX301 is intended to support administration as a peripheral nerve block for control of postoperative pain. And Flexion has indicated that it anticipates initiating FX301 clinical trials in 2021. We believe that FX301s extended release formulation from this thermo sensitive hydro gel could be well suited for control of post-operative pain based on the in vivo data generated with XEN402 today. And we look forward to its progression through clinical development. In addition to the $3 million upfront payment, we're also eligible for up to $9 million in milestone payments through the initiation of a Phase II proof of concept clinical trial. We may be entitled to future clinical development and global regulatory approval milestone payments of up to $40.75 million, commercialization milestone payments of up to $75 million, as well as future sales royalties ranging from mid-single to low double digit percentages. So now moving on to our financials, cash and cash equivalents and marketable securities as of September 30, 2019 were $94.6 million and this compares to $119.3 million as of December 31, 2018. As of September 30, 2019, there were approximately 25.8 million common shares outstanding and approximately 1 million Series 1 preferred shares outstanding and these…

Thank you. [Operator Instructions] And our first question comes from Paul Matisse with Stifel. You may proceed.

Hi, this is Alex on for Paul, thanks for taking the question, just a couple from us today. I was just curious if you could provide a little bit more detail on 901 development plans beyond SCN8A in the ways that you would think about studying other indications, some sort of multiple trials or a basket trial like that? And then additionally for 496 I'm curious if you could provide any more information on the Phase III design that you're thinking with your recent input from FDA? Thanks.

Okay, sure, it's Simon. Thanks, Alex. In terms of 901 the initial development plan for the pediatric indication won't be a basket study. The plan is to conduct this in a SCN8A-DEE cohort. These would be all mutation defined patients with gain of function variance in that channel. So the initial study from our standpoint, we'd like to have a focused study as focused as possible in the disease where the channel particularly is causal, based on the mechanism of 901 being a very potent inhibitor of that channel, we felt that was the right approach. Now, would we be interested in expanding and extending beyond that in time? Absolutely, but that's not the plan for the initial study. And so ideally, we would seek approval initially for an 8A indication with label expansion thereafter. As was mentioned in the updates of course, we are also managing plans internally, although we have not pulled the trigger on this yet around focal adult epilepsy for 901, but that's clearly an indication of great interest given that sodium channel inhibitors are the mainstay of treatments in focal epilepsy given the refractory population remains large. This is clearly an indication of great interest to us. The focus initially will be pediatric and we will update when we do decide to move into adults with updated guidance accordingly. In terms of the496 Phase III design, we have not made public disclosures around this yet and really, that's purely because we're busy finalizing what that design looks like. This has been, I would say a very, very interesting and educational six months as we've engaged really the world leading group in the space including experts from North America, Europe and outside on our steering committee. I think we're very close. I think what you can…

Yeah, I really appreciate the additional color. Thanks a lot.

Not at all.

Thank you. And our next question comes from Yatin Suneja with Guggenheim Securities. You may proceed.

Hey, yeah, it's Eddie on for Yatin. Thanks for the update today. A couple of questions, first for 496, looks like you're waiting on the adult PK data before moving into a pivotal study. Can you give us a sense of what you're looking for in this study and before you move it into the pediatric patients? And then in terms of the pivotal, I know you're not giving any details on the design, but can you give us a sense of what kind of benchmarks we should be looking for, should we look to those two case studies with ezogabine for sort of clues and just sort of what types of numbers you're looking for in terms of user adoption?

Two good questions, thanks Eddie, 496 in terms of the adult PK, essentially, I think we're looking to understand what the PK is like with this new granule formulation. The data generated to date both in vitro and animal in vivo PK strongly suggests this new formulation behaves like the prior tablet formulation that was the approved drug. And more importantly for us, was the drug that was then compounded and used and published in children with KCNQ. And so essentially the expectation is we'll see the granular perform in the adult similar to how the old Potiga tablets would perform. This isn't the head-to-head study; we would be comparing with historical literature reports. But that PK, obviously, if it's identical or very similar to it allows us to essentially replicate dosages that were used previously with the adults formulation when used off label in these children and that's published work with doses were used up to about 20, 21 milligrams per kilogram. Of course, if the PK is different, it's not a negative; it just allows us or ensures that we have to do dose adjustments on a milligram per kilogram basis to achieve the exposures that we're targeting. So look, an ideal result is it behaves exactly like or very, very close to the Potiga tablets did in adults, but equally a result that just shows good exposure will be helpful in allowing us to finalize the dosage. And again, one of the reasons we're hesitant to disclose the final study design including dosages, is because the outcome of this study could influence how long we touch rates, what we're trying to dose to, the duration of treatment, the ultimate milligram per kilogram, dose et cetera. So we'll have that data in hand, at least by the end…

Great, that's really helpful. And then really quickly if I may for 1101, would you plan on tightening your guidance at all on the readout for that as you get a better sense of how the enrollment speed is going?

Absolutely, we do plan on tightening the guidance, probably in 2020, not this year. And we recognize it's important to do that. We recognize right now guidance is a bit wide as H2. As you know, enrollment is sort of roller coaster in any studies that you need to have a certain duration trajectory, I think to be able to really have a good feel for tightening that guidance. We don't want to tighten guidance more than once if we can help it, so I think probably sometime early in 2020 we'll be in a better position to be able to shrink that guidance and provide maybe a more accurate quarter.

Great, thank you guys so much. Appreciate it.

Thanks.

And our next question comes from Maurice Raycroft with Jefferies. You may proceed.

Hi, this is Swapnil on for Maurice. Thanks for the updates today. And thank you for taking my questions. So I had a few questions, first is, we notice that the initial IND guidance for 496 was 4Q and now it is 1Q '20. So is there any additional work that needs to be done before the IND filing that is causing this delay?

No and we highlighted in the update. Really, we wanted to wait for the PK study to be complete. The initial thought was maybe not necessarily having to wait. The other issue was stability given the jurisdiction of preference for our IND submission in the US one needs a minimum of one month stability. Those are really the two gating items to the IND submission. As I mentioned earlier, it's not the protocol, we expect to have at least the Phase I completed this year. We expect that stability early in the New Year, early in 2020. And we would expect to submit the IND thereafter.

Okay, thanks. And then we see like you have a very strong presence at AES as well. So do you think it might have any PK data from my 901 or 496 and if you could, like provide a little bit of more guidance on what to focus at AES based on the new pipeline assets.

Yeah, good question. So answer is no. We're not going to have final study reports and I don't think with final Q8 tables and data sets by early December. So I think we need to just be cautious about presenting data. Once it's really complete and final, so the answer's no, we won't be presenting intermediate data sets on the PK studies for either 901 or 496. The focus of much of AES presentations will be around what we've learned from our surveys on these programs, particularly in the developmental epilepsies of relevance to our study designs. Secondly, we will present data on next generation compounds outside of 901, which could be really interesting sort of second generation leads. We expect to move into development in the near term. We also are going to be sharing some really interesting physiological studies or electro physiological studies looking at the effect of these compounds, selective compounds versus non-selective compounds in slice experiments in neurons, showing differences in how the drugs work compared to non-selective blocking drugs, in inhibitory into neurons in pyramidal excitatory neurons to show a very, very clear novel mechanism of action to our drugs. So those are sort of – those are the flavor of some of the posters. I'm just going to look at Jodi and Ian to see if I've missed anything major.

No, no, that's it.

Okay.

Okay, that's helpful. And one final question on 007. So have you actually like started dosing any patients in this trial and although you said like the patients that you're going to enroll are going to be failures of standard of care, but not just making sure that these kids would not be on any background therapy during the trial?

Right, so this is – so the answer is yes, we have started enrolling and yes, we have started dosing. Again, it's an open label study. So this is not a placebo controlled trial. We felt appropriate because these kids would be included with a certain burden of seizures having been refractory to existing standard of care. Existing standard of care consists primarily of two agents, valproates and ethosuximide. As I mentioned in my update, about 45% of kids are overtime recognized as treatment failures, either because they don't achieve sufficient control or because in many cases, it's a tolerability issue. So the way – these are kids that have quite significant seizure burden despite having tried two or more of valproic acid or ethosuximide or lamotrigine. These are kids despite that would have at least 10 seizures a week absence seizures. These are kids that would have EEG confirmation of the 3 Hertz spike wave activity as well. They must be on at least one anti-seizure medicine within one month baseline with a stable sees account. So we can't have – they can be on adjuvant treatment, these kids are not typically enrolled refractory on nothing, they're on a drug, but it has to be stable drug for a month prior to enrollment. And again, we've got a good power around 80% power, if we see a 50% seizure reduction, we've got in fact, about an 80 plus percent power with an alpha level of less than 0.005. If we see a 50% reduction in their absence seizure counts, there is a one month baseline, there is a two months treatment period, and then a one month follow up. And the primary endpoint is really the absence seizure frequency between your visits. It's visits three and four, which is…

Okay, very helpful. Thank you very much for taking the questions.

Pleasure.

[Operator Instructions] And our next question comes from Antonia Borovina with Bloom Burton. Please proceed.

Hi, thank you for taking my questions. Just related to XEN007, you mentioned that in addition to modulating calcium channels that also has an effect on dopamine, histamine and serotonin. So I was just wondering whether the efficacy you're seeing in animal models of CAE, whether you believe that mediated solely by the calcium channel effects, or whether the other pathways you believe [indiscernible] as well.

Yeah, Antonia, it's a good question. I don't think we know today the full extent of the poly pharmacology of the drug for each of these indications, so just very hard to tease that out. So I don't think we can completely rule out efficacy through other mechanisms. Irrespective of that the drug seems to work in the model. It seems to work better as monotherapy than ethosuximide or valproate, both of which do work in the model. And then when added as an adjunctive therapy in that same model, there is enhanced benefit of just one of those drugs alone. So I don't really have an answer for your question. I'm not sure at the end of the day, it matters all that much in the sense that will you see this drug is working or not in this proof of concept study in which case will we'll take some decisions on whether this looks like the ideal development strategy. The fact we advancing it in CAE now certainly doesn't preclude the molecule advancing in other indications as we've talked about before. We just felt this was firstly well, well within our strategy as an epilepsy focused pipeline, secondly, a much larger patient population than either alternating hemiplegia or hemiplegic migraine, at least larger accessible patient population with a reasonably sized refractory population within that. So as we think about orphan drug designation, as we think about orphan drug exclusivity for the product that could be a primary means of commercial exclusivity. We like the concept of an orphan indication that has a fairly large number of addressable patients, rather than a much more challenging ultra-orphan population, when pricing issues become obviously – probably more challenging as one thinks about the long-term commercialization strategy. So we like CAE, we think it meets a lot of the objectives for us. We think it provides probably a simpler development strategy long term and pricing strategy. But the ultra-orphan indications we've talked about before is certainly still on the table and under review.

Okay. And I know it's still early days, but assuming that your investigator study is positive, what could a possible clinical path look like in this indication?

Yeah, look, I mean, I think we haven't really gone that next step. That's obviously work will be mapping out over the coming months in anticipation of data. But our idea would be to look at childhood absence epilepsy as a development strategy for the product. They have been a number of studies, although randomized controlled study is fairly small, but about 445, 446 CAE subjects have been dosed with current standards of care, ethosuximide, valproate or lamotrigine and that's sort of the data right size in terms of failure rates has come out of that. So I think we could have again a larger study that Phase II that looks at and well controlled, that looks at adjuvant treatment versus current standard of care in refractory patients. Now, whether this is some kind of crossover or whether it's a parallel and the sizes – patient sample size we need, I can't give you those facts today. But I think we can see a parallel blinded study versus a standard of care refractory patients on stable meds, having X number of seizures per week or per month, very similar in a way to focal epilepsy study might be structured. But of course, this is a very different indication. Just to remind you, we do have the rights to this drug exclusively for development in the US all non-clinical and clinical rights. And now as I said today, earlier, we are announcing for the first time the initiation of the first Phase II study with the strike. This is a drug that is – that has some tremendous history. It's very well known outside of the US. The drug works extremely well in a number of indications. It's on label for chronic migraine prevention. It's on label for vertigo. It's used off label extensively in a number of neurological disorders. And what's really interesting and exciting to us is that there is not a single, centrally acting CNS acting calcium channel modulator on the market in the United States. So we think this could be a really attractive strategy. Tolerability of this drug has been good. We can go through that with you offline at any time, but it's one of the real attractive features of flunarizine has been the safety tolerability, particularly in the pediatric and adolescent population and lots and lots of case series and study data available for this drug. We have rights to a lot of the data from the originator of the drug as well as the non-clinical data. So that's the thinking and I'm sure it will unfold over the course of the coming months as we get closer to the top-line.

Great, thanks.

Yeah.

Ladies and gentlemen, this concludes our Q&A portion of today's call. I would now like to turn the call to Jodi Regts for closing remarks.

Thanks everyone for joining us today. Operator, we will now end the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.