Ladies and gentlemen, thank you for standing by, and welcome to the Xenon Pharmaceuticals 2019 Financial Results Earnings Call. [Operator Instructions]. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Jodi Regts. Please go ahead.

Thank you. Good afternoon. Thanks for joining us on our call and webcast to discuss our 2019 financial and operating results. 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 regarding the timing of and results from clinical trials and preclinical development activities, including those related to our proprietary products and partnered product candidates; the potential efficacy, safety profile, future development plans, addressable market, regulatory success and commercial potential of XEN496, XEN1101, XEN007 and other proprietary and partnered product candidates; the anticipated timing of IND or IND equivalent submissions and the initiation of future clinical trials for XEN496, XEN1101, XEN007 and other proprietary products and those related to NBI-921352, FX301 and other partnered candidates; the efficacy of our clinical trial designs; our ability to successfully develop and achieve milestones in the XEN496, XEN1101, XEN007 and other proprietary development programs; the timing and results of our interactions with regulators; the potential to advance certain of our product candidates directly into Phase II or later-stage clinical trials; anticipated enrollment in our clinical trials and the timing thereof; the progress and potential of our other ongoing development programs; the potential receipt of milestone payments and royalties from our collaborators; our expectation of having sufficient cash to fund operations into 2022; and the timing of potential publication or presentation of future clinical data. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call. We undertake no obligation to publicly update any forward-looking statements. Today's press release summarizing our 2019 year-end results and the accompanying annual report on Form 10-K will be made available under the Investors section of our website at www.xenon-pharma.com and filed with the SEC and on SEDAR. Now I'd like to turn the call over to Simon.

Thank you, Jodi, and good afternoon, everyone. 2019 was an exciting and transformative year for Xenon. We made significant progress within our clinical stage programs and entered into important collaborations. As a result, we have a strong balance sheet to support the development plans for our proprietary programs driving them towards critical data inflection points and resources devoted to furthering our preclinical innovative R&D efforts. Today, I'll provide an overview of each of our proprietary clinical stage programs, including XEN1101, 496 and 007 as well as our earlier-stage discovery work and partnered programs in order to highlight some of the important milestone events anticipated this year. Obviously, top of mind for businesses is the current uncertainty related to the potential impact of COVID-19. Depending upon the locations of outbreaks, recruitment in clinical trials, transportation of drug products, patients travel to sites, physicians participation in investigator meetings, medical meetings, and additional factors in our business could all be affected. It's too early to predict the scope or nature of the impact from COVID-19, but we will continue to monitor the issue closely, and we'll communicate any material changes in our business should these occur. I will start my update with XEN1101, which is a differentiated next-generation Kv7 potassium channel modulator being developed for the treatment of adult focal epilepsy and potentially other neurological disorders. Patient enrollment for our XEN1101 Phase IIb clinical trial is ongoing in the United States, Canada and Europe. The trial is a randomized, double-blind, placebo-controlled multicenter study to evaluate the clinical efficacy, safety and tolerability of XEN1101 administered as adjuvant therapy treatment in approximately 300 adult patients with focal epilepsy. The primary endpoint is the median percent change in monthly focal seizure frequency from baseline compared to treatment period of active versus placebo. The long-term 6- and…

Thanks, Simon, and good afternoon, everyone. The specific details within our financial statements are covered in today's press release and also in our 10-K filing. So I'll provide an overview and conclude with a summary of our upcoming milestones. In addition to the advancement of our clinical development programs, which Simon conveyed, 2019 marks an important year for us in the capital markets. The progress made within our proprietary programs as well as the upfront and deal terms from our partnership with Neurocrine, were extremely well received. This positive momentum carried through into early this year, when we raised over $100 million from an underwritten public offering and from sales under our at-the-market equity, or ATM offering. These efforts resulted in an extension of our cash runway and a strong balance sheet. Based on current assumptions, which include fully supporting the planned clinical development of XEN1101, 496 and 007 as well as providing support to our preclinical programs, we anticipate having sufficient cash to fund operations into 2022 excluding any revenue generated from existing partnerships or potential new partnering arrangements. On the call today, I'll briefly summarize our financial position. I'll refer to you to our news release and our 10-K filing for additional detail, especially on revenue and operating expenses. Cash and cash equivalents and marketable securities as of December 31, 2019, were $141.4 million, and this compares to $119.3 million as of December 31, 2018. As of December 31, 2019, there were approximately 28.1 million common shares outstanding and approximately 1 million Series 1 preferred shares outstanding, which are convertible into common shares on a one-for-one basis at the option of the holder, subject to certain limitations. As I noted, subsequent to December 31, 2019, we raised additional net proceeds of approximately $102.8 million, net of underwriting discounts…

[Operator Instructions]. Our first question comes from the line of Paul Matteis from Stifel.

Congratulations on all the progress. And I have a couple, one on 1101, and a couple of others on other programs. On 1101, what's this downside to conducting an interim analysis? You said you were thinking through whether or not you'll do that. Obviously, the upside is you get more information about the study and how to design it. Is there any downside? Like, are you spending any alpha or anything like that? And then I have other -- a couple of quick follow-ups.

Paul, Simon, here, and Ian may want to provide any additional color. Yes, I mean, look, there is a small alpha hit. If we were to do it, I don't think that it's going to be the driver of the decision. But that would really be some downside to the interim. As we've said, and we've talked about on today's call, we are seeing data on a blinded basis. And so reality is, the study is pretty well powered, close to 90%, to see a 15% difference. And if we meet that, we'll meet statistical significance. Obviously, with certain dropout assumptions modeled in and certain standard deviation assumptions modeled in. And if dropouts are substantially lower than what we've modeled, we just don't see a significant need to run that study. And it's not really so much a major positive -- a major downside, a liability. I'm just not sure we need to take any alpha hit if we don't need it. Ian, anything to that?

Right. Yes. I mean, the other just kind of practical part of this is to do a real interim analysis. You have to have essentially the database complete and have that kind of data. And so by the time you have those patients enrolled with all of the baseline maintenance and then follow-up, and then you actually make sure that you have clean data and you do that analysis, you're essentially complete enrollment in the study. Anyway. So there's just a practical consideration here. As Simon mentioned, if we go through the analysis and we believe this is a well-powered Phase II study, if there's not going to be a lot of benefit, we get to -- we likely get to top line data a little bit quicker if we don't do the interim analysis.

Okay. Is there a futility analysis as part of what you're considering?

No. I mean, we haven't formally model a futility into that. So no, it was really just a resizing to any of the additional dose or active arms, Paul.

Yes. I mean, all I'd add is, Simon's correct. This wasn't designed as futility. It was really more designed that would you reallocate and resize. If you look at the -- you'll know the details of the trial design on a 2:1 to 1:2 basis going from the 25-milligram, which will be 100 patients to 50 patients in the '20 and 10-milligram arms, and then 100 in placebo. So if tolerability wasn't good in your top dose, there -- the trial isn't designed that you dropped down during the study to a lower dose. And so you would want to increase some of those other arms, if that's a concern. So that's really why the interim analysis was identified a priority. That said, if we do go ahead with the interim analysis, and the study is futile, then obviously, we would have that feedback. We wouldn't want to expose patients to a drug that doesn't have a chance of working. But that's really not -- that wasn't the purpose going in.

Okay. Fair enough. And then one more clinical question and one quick financial question. On 496, in the past, Simon, you've talked about a pivotal study that because of the sample size, might not have a statistical hurdle at 0.05. Might even be more of a kind of numerical comparison or a certain seizure-reduction threshold for drug over placebo. I don't know how much you want to get ahead of the FDA meeting or FDA feedback, but I'd be curious where your head is out there. And then, if you don't mind, just quickly, we'd be curious how you guys are planning on accounting for different milestone payments in the Neurocrine agreement. It looks like the one that was received in 4Q wasn't recognized upfront and how that might work going forward with different things like IND filings would be helpful.

Yes. Paul, thanks. Simon. I'll tackle the first and Ian will tackle the second. Yes, look, I don't want to get too much ahead of, obviously, the FDA, given we do expect, as has been guided today, we expect feedback early in Q2, which isn't too far away. We do -- we will be looking and certainly have proposed a protocol that will have a p-value, meaning statistical significant endpoint and with the modeled assumptions both in, believe we can achieve this with a few dozen patients, Paul. A lot depends, obviously, on the endpoint being measured, the frequency of that endpoint. And so we clearly are orienting this more towards kids that have a higher frequency or burden of seizures to allow a meaningful reduction, both clinically as well as statistically in a reasonable period of time. So that is currently contemplated. Yes, we are expecting the FDA will likely want to see a p-value hit and we are expecting -- we would want to, as the community would want, to see a clinically meaningful difference in seizures met. Both of those are important, and we believe the model currently incorporates both of those elements satisfactorily. We have had extensive dialogue with a number of KOLs with the patient advocacy group in coming up with a final proposed protocol to the FDA. As I said, we expect to get feedback soon. And depending, obviously, on material of that feedback and we may or may not require a couple of rounds with the agency. We do expect to obviously communicate the -- what will be the accepted protocol once that is available. So -- but I hope that answers your question at a high level. Ian, the second was just regard accounting format.

Yes. So not to go into a lot of detail right now on the call, and we can follow-up afterwards. So obviously, the accounting and revenue recognition with any collaborative agreement is quite complex. And we just posted it within the last half hour, our 10-K on the website. So I do encourage you to take a look at the notes of the financial statements that walks through the accounting for Neurocrine. Just at a high level, for the upfront payment, obviously, that's recognized, and this is often the case in collaborative agreements that, that upfront payment is recognized over a period of time. And there's a number of performance obligations under that and the details are in the financial statements, and then I can answer any more follow-up questions. Specifically, as it relates to your question around milestone payments. Again, it depends on the nature of the milestone payment. I'll make a very general comment. Often milestone payments are recognized in the period in which they're earned. But that is just a general comment, and we would have to look, under all of our collaborative agreements, any milestone payment in how it was achieved. And if there's any additional performance obligations under that milestone.

[Operator Instructions]. Our next question comes from the Tim Lugo from William Blair.

Hey, this is Lachlan on for Tim. First of all, I was just wondering, you said you're expecting feedback from the FDA early second quarter. If that is positive, and they're fine with what you've proposed, are there any other obligating factors to just getting that trial for 496 this year?

None at the moment. We believe that our drug substance and drug product supply is safe. But of course, that's always something depending on how supply chain is affected with COVID. But we have the drug available. We expect as, again, we've just updated to have the final PK data from the adult volunteer study this quarter, as we've previously guided we would. That is on track. That data is obviously important in helping to finalize the protocol in terms of dosages and titration phase. We're making certain assumptions based on the nonclinical in vitro and PK data we have in terms of the performance of the drug. So those are some of the issues we'll have to build in. But we don't see any other gating items per se. Sites that can participate that may be affected by COVID will obviously have to be understood and monitored, and we'd have to select sites accordingly. So as I'm sure you and others have heard on a number of these types of reports or updates. I think it's just a bit early to know what the impact might be on the full supply chain for our clinical studies. But no other gating items that we're aware of. We've -- previously, for example, asked the FDA on whether they believed any additional nonclinical tox work for 496 would be required. They said, no. So again, things may change at the FDA, but we're acting on the basis of previous guidance that we've been given. So nothing else that I can think of other than what I've outlined today.

Okay, great. And in terms of 1101 enrollment. Could you just talk through sort of how that's been trending? And if there have been any changes?

Yes. No, as we always say every quarter and with investors, we don't give guidance mid-study in any of our trials in terms of enrollment. We're expecting data by the second half of this year as we've continued to guide. We're on track for that currently. So again, what the future holds in terms of COVID, I can't speak to. But so far, guidance remains.

[Operator Instructions]. Our next question comes from the line of Yatin Suneja from Guggenheim Partners.

A couple of questions on 1101. With regard to the interim analysis, if that were to happen, like what would be the triggering factor? Like what are you waiting for to decide whether you take that look or not? And then how will you communicate to us? Will we just get a PR once it has happened? And at what level of enrollment will that be conducted.

So Yatin, it's Ian. The interim analysis initially was planned after about 60% of the trial had been enrolled. But as Simon mentioned previously, we see blinded safety data on an ongoing basis. So again, if we believe that, as we answered at the first question, if we believe that the trend is well within how the study was modeled upfront, then we can make that determination at any time. And for us, this is going to be in the near term. We'll make this decision. And once the decisions made -- yes, we've had a number of questions from investors and analysts on the interim analysis. And so once we make a definitive decision one way or another internally, then we would communicate that broadly.

Okay. That's good. And then maybe just talk about the placebo. What are your expectation for a placebo arm in that trial? Is there a change in how the placebo response has evolved over the last, let's say, 5 to 10 years in adult epilepsy? How should we think about that?

Yes. So two questions there. Maybe I'll answer the last part of your question first. Yes, I mean, I think as with a number of diseases, epilepsy is not immune. We've seen an increase in the placebo response rate, certainly for focal epilepsy in adults over the last decade or so. The ezogabine pivotal trials saw placebo rates in and around the mid-teens to high teens. We have modeled essentially blindly, the placebo response rate yet in the sense that the study is powered to detect a 15% difference between the active and the placebo frequency -- seizure frequency. So if active has a 40% reduction and placebo has a 25% reduction assuming your dropout numbers are fine and assuming your standard deviation is as modeled or better, you'll meet your p-value even with a 25% placebo. So we've set what we term are floating placebo because of that. I think probably, if you had to ask people today what would they typically model as a placebo rate. Today, for focal epilepsy, it's probably in and around 20%. Now it can be a bit higher, it can be a bit lower. It may depend on jurisdiction. But again, we're going to sites that are well-versed in these trials. We don't expect surprises. But the fact that we've modeled this difference with a floating rather than a fixed placebo rate, I think, helps us. And as I said, if we see that 15% difference with the numbers and standard deviations within what's assumed, we'll meet our p-value.

Got it. Very helpful. And just one final question for Ian. Could you maybe help us with the P&L, how should we model R&D and G&A going forward? Is it more going to be back-end-oriented? Or could be sort of incremental increase quarter-over-quarter?

Yes. So if you look at our OpEx for 2019, OpEx was about $50 million. That's a breakdown of $39 million -- in rough terms, $39 million in R&D and about $11 million in G&A. Although we don't give specific guidance on Opex, when you just look at the business, in terms of 1101, so obviously, that was a big line item of spend in 2019, that'll continue in 2020 and likely increases as more patients roll over into open-label extension because that's another part of that study. And so as we get all the patients enrolled and move over the [indiscernible], those expenses will continue to increase. And then obviously, the other big change in our business from 2019 to 2020 is moving 496 into the pivotal program. So overall, I do expect OpEx to increase in 2020 over 2019. But I still think the kind of key message is, when you look at our balance sheet and with that increase in OpEx, we comfortably have more than the two years of cash well into 2022.

[Operator Instructions]. Our next question comes from the line of Maurice Raycroft from Jefferies.

Congrats on the progress. For the 1101 Phase IIb, just wondering if you can comment on what you're seeing for safety and dropout rates and whether you're seeing anything different across the different doses? And then is it possible to start this -- to stop the study early if you succeed on efficacy at the interim?

Yes. Look, Maury, again, we don't typically comment mid-studies for this or any other trial. It has been our policy I mean, we're encouraged by what we're seeing, but we don't give any specifics around dropout rates, conversion to [indiscernible] safety tolerability. But we do remain very encouraged by what we are observing. Of course, it's all on a blinded basis. So I have no ability to make or infer any association with safety, tolerability or dropout or -- based on those groups. We have not made any decisions on stopping study -- the study early. We don't expect to the interim, as we had designed it, was really for resizing. Should we need to add numbers to some of the lower-dose arms based on tolerability, it really wasn't to perform a -- in the efficacy review today or when it's done. So I don't think you'll see us stopping the study early, no matter what, whether an interim is done, I don't think you'll see that happen. So that's really, I think, the best way I can answer this today.

Got it. No, that's helpful. And then for the 007 trial, just wondering if that study is posted online anywhere. And then if you can just remind generally what the design is for that one and provide any general update on how the study is going, if you've actually dosed anybody for that study yet.

So we are dosing. We have patients randomized for a few months already. The study is not posted. But as we have, I think, in our last quarter, we provided a bit more color on that, but we certainly will do that again. It really is -- these are -- it's open-label, so it's not controlled. These are not randomized to placebo. These are patients who have either failed current gold standards, which include sodium valproate and ethosuximidea as the current gold standard for absence epilepsy. So patients have either failed and remain refractory, having daily to weekly seizures or intolerant of one or both of those agents. So these are refractory patients and/or intolerant. They are started at a lower dose and titrated upper dose level based on tolerability. Maintenance, I believe, is for 12 weeks, and with a follow-up visit 1 month after. So again, we haven't guided on numbers and recruitment, but we expect top line to read out this year. So I think that's probably sufficient on the study design at this point.

And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jodi Regts for any further remarks.

Thanks, everyone, for joining us today. We look forward to keeping you updated on our progress. Operator, we will now end the call.

Thank you. And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.