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☒ 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

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

As of ~~November 3, 2017,~~Augusts 4, 2023, the registrant had ~~17,998,420~~64,145,523 common shares, without par value, outstanding.

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Xenon,” and “the Company” refer to Xenon Pharmaceuticals Inc. and its subsidiary. ~~“Xenon,”~~“Xenon” and 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.

Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report captioned “Risk Factors.” The following is a summary of the principal risks we face:

Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.

September 30,

December 31,

2017

2016

Trade payables

$
809

$
1,463

Employee compensation, benefits, and related accruals

911

872

Consulting and contracted research

1,052

1,029

Professional fees

223

93

Other

63

129

Total

$
3,058

$
3,586

Share capital:

7.	~~Share Capital~~

(a)

Financing:

~~(a)~~

~~Financing:~~

~~On September 13, 2016,~~In August 2020, the Company ~~completed~~entered into an “at-the-market” equity offering sales agreement, amended as of March 2022, with Jefferies LLC ("Jefferies") and Stifel, Nicolaus & Company, Incorporated ("Stifel") and a new prospectus supplement was filed in March 2022 (“the March 2022 ATM") under which the Company may sell common shares having gross proceeds of up to $250,000, from time to time. As of June 30, 2023, no common shares have been sold under the March 2022 ATM.

In January 2022, in connection with the License and Collaboration Agreement with Neurocrine Biosciences Inc. (“Neurocrine Biosciences”) entered in December 2019 and amended in January 2021 (the "Neurocrine Collaboration Agreement"), the Company executed a Share Purchase Agreement ("SPA") pursuant to which the Company issued 258,986 common shares for an aggregate purchase price of $8,250, or $31.855 per common share, which represents a premium of $374 when compared to the fair value of common shares on the date of issuance. The SPA contains certain other customary terms and conditions, including mutual representations, warranties and covenants. For additional information regarding the Neurocrine Collaboration Agreement, refer to note 9.

In June 2022, the Company entered into an underwriting agreement with Jefferies, J.P. Morgan Securities LLC, Stifel and SVB Securities LLC, relating to an underwritten public offering of ~~3,450,000~~9,098,362 common shares, including 1,229,508 shares sold upon the full exercise of ~~its common shares~~the underwriters’ over-allotment option, at a public offering price of ~~$7.50~~$30.50 per common ~~share.~~share and pre-funded warrants to purchase 327,868 common shares at $30.4999 per pre-funded warrant (note 8c), with each pre-funded warrant having an exercise price of $0.0001. The public offering was completed in June 2022, and the Company received ~~approximately $24.3 million~~proceeds of ~~proceeds,~~$269,890, net of underwriting discounts, ~~and~~ commissions ~~but before~~and offering expenses.

~~(b)~~

~~Stock-based compensation:~~

(b)

Exchange agreement with certain funds affiliated with BVF Partners L.P. (collectively, “BVF”):

In March 2018, the Company and BVF entered into an exchange agreement pursuant to which the Company issued to BVF 2,868,000 Series 1 Preferred Shares in exchange for 2,868,000 common shares which were subsequently cancelled by the Company. The Series 1 Preferred Shares were convertible into common shares on a one-for-one basis, subject to certain restrictions.

The Series 1 Preferred Shares ranked equally to the common shares in the event of liquidation, dissolution or winding up or other distribution of the assets of the Company among its shareholders and the holders of the Series 1 Preferred Shares were entitled to vote together with the common shares on an as-converted basis and as a single class, subject to certain restrictions.

-11-

The Series 1 Preferred Shares were recorded wholly as equity under ASC 480, with no bifurcation of conversion feature from the host contract, given that the Series 1 Preferred Shares cannot be cash settled and have no redemption features.

During the year ended December 31, 2018, BVF converted 1,852,000 Series 1 Preferred Shares in exchange for an equal number of common shares. In March 2022, the remaining outstanding 1,016,000 Series 1 Preferred Shares were exchanged for an equal number of common shares.

(c)

Pre-funded warrants:

The following table summarizes the pre-funded warrants activity for the three and six months ended June 30, 2023 and 2022:


	Date of issuance
	March 2021			October 2021		June 2022		Total
Outstanding, December 31, 2021		1,081,081			1,694,915		—		2,775,996
Exercised		—			—		—		—
Outstanding, March 31, 2022		1,081,081			1,694,915		—		2,775,996
Issued		—			—		327,868		327,868
Exercised		—			—		—		—
Outstanding, June 30, 2022		1,081,081			1,694,915		327,868		3,103,864

Outstanding, December 31, 2022		1,081,081			1,694,915		327,868		3,103,864
Exercised		(425,003	)		—		—		(425,003	)
Outstanding, March 31, 2023		656,078			1,694,915		327,868		2,678,861
Exercised		(425,003	)		—		—		(425,003	)
Outstanding, June 30, 2023		231,075			1,694,915		327,868		2,253,858

In connection with underwritten public offerings completed in March 2021, October 2021 and June 2022, the Company issued pre-funded warrants to purchase the equivalent number of common shares at $18.4999, $29.4999 and $30.4999, per pre-funded warrant, respectively, with each pre-funded warrant having an exercise price of $0.0001.

The pre-funded warrants are exercisable at the holder’s discretion from the date of issuance until the date the pre-funded warrant is exercised in full. The Company may not affect the exercise of any pre-funded warrant, and a holder will not be entitled to exercise any portion of any pre-funded warrant that, upon giving effect to such exercise, would cause: (i) the aggregate number of common shares beneficially owned by such holder, together with its affiliates, to exceed 4.99% of the total number of common shares outstanding immediately after giving effect to the exercise; or (ii) the combined voting power of the Company’s securities beneficially owned by such holder, together with its affiliates, to exceed 4.99% of the combined voting power of all of the Company’s securities immediately outstanding after giving effect to the exercise, which percentage may be changed at the holder’s election to a higher or lower percentage not in excess of 19.99% upon at least 61 days’ notice to the Company.

Since the pre-funded warrants meet the condition for equity classification, net proceeds from issuances of the pre-funded warrants are recorded in additional paid-in capital. Upon exercise of the pre-funded warrants, the historical costs recorded in additional paid-in capital along with the exercise price collected from holder is recorded in common shares. During the three and six months ended June 30, 2023, the Company issued 425,000 and 850,000 common shares, respectively, upon the exercise of pre-funded warrants pursuant to a net exercise mechanism under the warrants. Pre-funded warrants to purchase 2,253,858 (June 30, 2022 – 3,103,864) common shares are not included in the number of issued and outstanding common shares as of June 30, 2023.

(d)

Stock-based compensation:

The following table presents stock option activity for the ~~period:~~three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Outstanding, beginning of period		8,797,253			7,075,073			7,117,782			5,638,232
Granted		227,425			318,000			2,093,973			1,977,845
Exercised(1)		(278,069	)		(130,031	)		(391,746	)		(349,138	)
Forfeited, cancelled or expired		(64,801	)		(28,582	)		(138,201	)		(32,479	)
Outstanding, end of period		8,681,808			7,234,460			8,681,808			7,234,460
Exercisable, end of period		4,316,058			3,464,081			4,316,058			3,464,081

(1)

During the six months ended June 30, 2023, the Company issued 280,649 (2022 – 234,783) common shares for the cashless exercise of 391,746 (2022 – 349,138) stock options.

-12-

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Outstanding, beginning of period

2,276,897

1,983,674

1,910,823

1,721,472

Granted

1,050

22,044

447,550

321,444

Exercised⁽¹⁾

—

(42,012
)

(71,006
)

(72,541
)
Forfeited and expired

(70,567
)

(4,753
)

(79,987
)

(11,422
)
Outstanding, end of period

2,207,380

1,958,953

2,207,380

1,958,953

Exercisable, end of period

1,417,660

1,200,614

1,417,660

1,200,614

⁽¹⁾

During the nine months ended September 30, 2017, 63,425 stock options were exercised for the same number of common shares for cash (nine months ended September 30, 2016 – 30,176). In the same period, the Company issued 4,405 common shares (nine months ended September 30, 2016 – 27,421) for the cashless exercise of 7,581 stock options (nine months ended September 30, 2016 – 42,365).

The fair value of each stock option granted ~~to employees and non-employees~~ is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Average risk-free interest rate		3.69	%		3.17	%		3.85	%		2.14	%
Expected volatility		69	%		70	%		69	%		70	%
Average expected term (in years)		6.14			5.87			6.13			6.21
Expected dividend yield		0	%		0	%		0	%		0	%
Weighted average fair value of stock options granted	$	25.42		$	19.60		$	22.54		$	19.29

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Average risk-free interest rate

1.99
%

1.33
%

2.41
%

1.58
%
Expected volatility

81
%

75
%

81
%

75
%
Average expected term (in years)

6.50

6.19

7.48

6.22

Expected dividend yield

0
%

0
%

0
%

0
%

Revenue:

~~The weighted-average fair value of options granted during the nine months ended September 30, 2017~~Revenue was ~~$6.10 (nine months ended September 30, 2016 – $4.93) per option~~.

~~-7-~~

8.	~~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 non-refundable 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 pre-specified 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.

~~The following table is a summary of the revenue recognized from the Company’s collaborations~~as follows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016:~~2022:

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Teva:

Research funding

$
14

$
29

$
44

$
87

Genentech:

Recognition of upfront payment

—

—

—

157

Research funding

—

383

—

1,149

Milestone payment

250

—

250

—

Total collaboration revenue

$
264

$
412

$
294

$
1,393


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Neurocrine Biosciences:
Recognition of the transaction price	$	—	$	—	$	—	$	372
Research and development services		—		536		—		1,806
Milestone payments		—		—		—		7,124
Total revenue	$	—	$	536	$	—	$	9,302

9.	~~Commitments and contingencies:~~

~~(a)~~

~~Priority access agreement with Medpace Inc. (“Medpace”):~~

In ~~August 2015,~~December 2019, the Company entered into the Neurocrine Collaboration Agreement with Neurocrine Biosciences. Pursuant to this agreement, the Company granted an exclusive license to XEN901, now known as NBI-921352, and an exclusive license to pre-clinical compounds for development, XEN393, XPC’535 and XPC’391 (collectively, the “DTCs”). The agreement also includes a ~~priority access agreement with Medpace~~two-year research collaboration to discover, identify and develop additional novel Nav1.6 and Nav1.2/1.6 inhibitors (“Research Compounds”). The Company and Neurocrine Biosciences are collaborating on the conduct of two collaboration programs: (a) a joint research collaboration to discover, identify and preclinically develop Research Compounds (the “Research Program”), which completed in June 2022, and (b) a collaborative development program for NBI-921352 and two DTCs selected by the ~~provision of certain clinical development services. Under the terms~~joint steering committee (the “Initial Development Program”).

At execution of the agreement, Neurocrine Biosciences paid the Company ~~has committed to using Medpace non-exclusively for clinical development services over~~an upfront cash payment of $30,000 and a $20,000 equity investment in the ~~five year term~~Company. The equity investment was measured at fair value of $16,667 on the date of issuance and the resulting premium of $3,333, together with the upfront cash payment totaling $33,333, was the transaction price of the arrangement for allocation to certain performance obligations under the agreement. ~~In consideration for priority access to Medpace resources~~None of the at-risk substantive performance milestones, including development, regulatory and ~~preferred service rates,~~sales-based milestones, were included in the ~~Company has committed to $7,000 of services over~~transaction price at the ~~term~~inception of the agreement, ~~$3,000~~as all milestone amounts are outside the control of ~~which~~the Company and contingent upon Neurocrine Biosciences’s efforts and success in future clinical trials. The overall transaction price of the arrangement was ~~paid~~measured and allocated to certain performance obligations and revenue was recognized as those performance obligations were performed; all such performance obligations were completed as of March 2022.

The Neurocrine Collaboration Agreement also includes research and development services for the Research Program and Initial Development Program to be performed on behalf of Neurocrine Biosciences. These services were excluded from the initial transaction price allocation because the consideration and performance were contingent upon Neurocrine Biosciences requesting performance of the services and these services were priced at an estimated fair value. During the three and six months ended June 30, 2022, the Company recognized $536 and $1,806 of revenue, respectively, for research and development services provided.

In January 2022, based on the receipt of the U.S. Food and Drug Administration’s full IND acceptance for NBI-921352, the Company received an aggregate milestone payment of $15,000 in the ~~year ended December 31, 2015. Of the amounts paid by~~form of $6,750 in cash and a $8,250 equity investment in the Company ~~in 2015 in connection~~(note 8a). The equity investment was measured at fair value of $7,876 on the date of issuance and the resulting premium of $374, with the ~~priority access agreement, an aggregate~~cash payment of ~~$2,714 has been recorded~~$6,750, was recognized as ~~expenses to date for services rendered, $68 has been classified~~revenue in the period as current prepaid expenses (December 31, 2016 – $392) and $218 has been classified as long-term prepaid expenses December 31, 2016 – $408) for the provision of future services as at September 30, 2017.

~~(b)~~

~~License, manufacture and supply agreement:~~

~~In March 2017,~~ the Company ~~entered into a license, manufacture and supply agreement with a pharmaceutical contract manufacturing organization for~~did not have any remaining performance obligations in relation to this milestone on the ~~access and use of certain regulatory documents as well as for the manufacture and supply of clinical~~date it was achieved.

-13-

The Company is eligible to receive pre-commercial and commercial ~~drug product~~milestone payments with respect to ~~support~~ the licensed products totaling up to an additional $1,667,500, comprised of up to $1,067,500 in additional development ~~of a potential product candidate. Under the terms of the agreement,~~and regulatory milestone payments related to NBI-921352 and other licensed Nav1.6 or Nav1.2/1.6 inhibitor products, and up to $600,000 in additional sales-based milestone payments for multiple products. In addition, the Company ~~paid an upfront fee of $500 CAD and will be required~~is eligible to ~~pay a low single-digit percentage royalty~~receive royalties on net sales in and outside the U.S., ranging from (a) for NBI-921352, a low double-digit percentage to a mid-teen percentage and a high-single digit percentage to low double-digit percentage, respectively; (b) for DTCs, a high-single digit percentage to a low double-digit percentage and a mid-single digit percentage to a high-single digit percentage, respectively; and (c) for Research Compounds, a mid-single digit percentage to a high-single digit percentage and a tiered mid-single digit percentage, respectively. Royalty rates are subject to customary reductions. These additional amounts will be recognized as determinable. The Company has an option to co-fund 50% of ~~any products developed~~the development costs of NBI-921352 or another product candidate in the U.S., exercisable upon achievement of certain milestones, in exchange for increased U.S. royalties. The Company has not exercised this option as of June 30, 2023.

10.

Commitments and ~~commercialized under the agreement.~~

contingencies:

~~(c)~~

~~Asset purchase agreement with 1st Order Pharmaceuticals, Inc. (“1st Order”):~~

(a)

Asset purchase agreement with 1st Order Pharmaceuticals, Inc. (“1st Order”):

In April 2017, the Company acquired XEN1101 (previously known as 1OP2198) from 1st Order pursuant to an asset purchase agreement. In August 2020, the Company and 1st Order ~~previously acquired 1OP2198 from an affiliate of Valeant Pharmaceuticals International, Inc. (“Valeant”),~~amended the asset purchase agreement to amend certain definitions in the agreement and to modify the payment schedule for certain milestones. Through June 30, 2023, the Company has ~~assumed certain financial responsibilities under that agreement. Under the terms of the agreement, the Company~~ paid ~~an upfront fee of $350, which we expensed as research and development, and expects to pay an additional $700 in milestones in 2017.~~$2,000 based on progress against these milestones. Future potential payments to ~~both~~ 1st Order ~~and Valeant~~related to the XEN1101 program include ~~$1,000 in clinical development milestones,~~ up to ~~$13,000~~$6,000 in regulatory ~~milestones,~~milestones. There are no royalty obligations to 1st Order.

(b)

Guarantees and up to approximately $33,600 in sales-based and other milestones, which includes a $1,500 milestone that may be payable pre-commercially, plus a mid-to-high single-digit percentage royalty on commercial sales.

~~-8-~~

~~(d)~~

~~License agreement~~

indemnifications:

In July 2017, the Company entered into a license agreement with a pharmaceutical company for the access and use of certain regulatory documents to support the development of a potential product candidate. Under the terms of the agreement, the Company paid an upfront fee of $1,000, which we expensed as research and development. Future potential payments include $2,000 in clinical development milestones, up to $7,000 in regulatory milestones, which includes $1,000 expected to be paid in late 2017 or early 2018, plus a low-to-mid single-digit percentage royalty on net sales of any products developed and commercialized under the agreement.

~~(e)~~

~~Guarantees and indemnifications:~~

The Company has entered into license and research agreements with third parties that include indemnification provisions that are customary in the industry. These indemnification provisions generally require the Company to compensate the other party for certain damages and costs incurred as a result of ~~third party~~third-party claims or damages arising from these transactions.

The maximum amount of potential future indemnification is unlimited; however, the Company currently holds commercial and product liability insurance. This insurance limits the Company’s exposure and may enable it to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such agreements and the Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented.

~~-9-~~-14-

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section should be read in conjunction with our unaudited interim consolidated financial statements and related notes included in Part I, Item 1 of this report and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, ~~2016~~2022 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March ~~8, 2017~~1, 2023 and with the securities commissions in British Columbia, Alberta and Ontario on March ~~8, 2017.~~1, 2023.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and Canadian securities laws. The words or phrases “would be,” “will allow,” “intends to,” “may,” “believe,” “plan,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to:

•

our ability to identify additional products or product candidates either from our internal research efforts or ~~though~~through acquiring or in-licensing other product candidates or technologies;

•

the initiation, timing, cost, progress and success of our research and development programs, pre-clinical studies, and clinical trials;

•

our ability to advance product candidates into, and successfully complete, clinical trials;

•

our ability to recruit sufficient numbers of patients for our current and future clinical ~~trials for orphan or more common indications;~~

trials;

•

~~our ability to achieve profitability;~~

our ability to obtain funding for our operations in sufficient amounts or on terms acceptable to us, including ~~research funding;~~

funding necessary to complete further development, approval and, if approved, commercialization of our product candidates;

•

our ability to ~~receive milestones, royalties and sublicensing fees under our collaborations, and the timing of such payments;~~

~~the timing and magnitude of potential milestone payments under our product acquisition and in-licensing agreements;~~

~~the implementation of our business model and strategic plans;~~

~~our ability to~~independently develop and commercialize product ~~candidates for orphan~~candidates;

•

developments relating to our competitors and ~~niche indications independently;~~

our industry, including the success of competing therapies that are or become available;

•

our pre-commercial, commercialization, marketing and manufacturing capabilities and strategy;

•

our ability to ~~find families to support our Extreme Genetics discovery platform;~~

~~our ability to discover genes~~obtain and ~~drug targets;~~

~~our ability to protect our~~maintain intellectual property protection for our product candidates and ~~operate our business without infringing upon~~ the ~~intellectual property rights~~duration of ~~others;~~

such protection;

•

~~our expectations regarding federal, state and foreign regulatory requirements;~~

the therapeutic benefits, effectiveness and safety of our product candidates;

•

the timing of, and our and our collaborators’ ability to obtain and maintain, regulatory approvals for our product candidates;

•

the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our products and product ~~candidates;~~

candidates and our ability to serve those markets, either alone or in partnership with others;

•

the rate and degree of market acceptance and clinical utility of any future products;

•

the ~~timing~~pricing and reimbursement of ~~and our and our collaborators’ ability to obtain and maintain, regulatory approvals for~~ our product ~~candidates;~~

candidates, if approved;

•

our expectations regarding federal, state and foreign regulatory requirements;

•

our ability to establish and maintain ~~and establish~~ collaborations;

•

our expectations regarding market risk, including interest rate changes and foreign currency fluctuations;

~~-10-~~

•

our ~~belief in the sufficiency of our cash flows to meet our~~estimates regarding expenses, future revenue, capital requirements and needs for ~~at least the next 12 months;~~

additional financing;

•

our ability to engage and retain the employees required to grow our business;

•

our future financial ~~performance~~performance; and ~~projected expenditures;~~

•

~~developments relating to~~the direct and indirect impact of pandemics, epidemics and other public health crises on our ~~competitors~~business and ~~our industry,~~operations, including ~~the success of competing therapies that are or become available;~~supply chain, manufacturing, research and

~~estimates of our expenses, future revenue, capital requirements~~ development costs, clinical trial conduct, clinical trial data and ~~our needs for additional financing.~~

employees.

-15-

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part I,II, Item 1A — “Risk Factors,” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by law. In this report, “we,” “our,” “us,” “Xenon,” and “the Company” refer to Xenon Pharmaceuticals Inc. and its subsidiary. Unless otherwise noted, all dollar amounts in this report are expressed in United States dollars.

~~Overview~~In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

Overview

We are a clinical stage biopharmaceutical company ~~focused on~~committed to developing innovative therapeutics to improve the lives of patients with neurological disorders. ~~Building upon our knowledge of human genetics and diseases caused by mutations in ion channels, known as channelopathies, we~~We are advancing a novel ~~neurology-focused~~ product pipeline of ~~ion channel modulators~~neurology-focused therapies to address ~~therapeutic~~ areas of high unmet medical need, ~~such~~with a focus on epilepsy.

XEN1101

XEN1101 is a differentiated Kv7 potassium channel opener being developed for the treatment of epilepsy and other neurological disorders, including major depressive disorder, or MDD.

XEN1101 for Epilepsy (Focal Onset Seizures)

Our XEN1101 Phase 3 epilepsy program includes two identical Phase 3 clinical trials, called X-TOLE2 and X-TOLE3, that are designed closely after the Phase 2b X-TOLE clinical trial. These multicenter, randomized, double-blind, placebo-controlled trials are evaluating the clinical efficacy, safety, and tolerability of XEN1101 administered as ~~pain~~adjunctive treatment in approximately 360 patients per study with focal onset seizures, or FOS. The primary efficacy endpoint is the median percent change, or MPC, in monthly seizure frequency from baseline through the double-blind period, or DBP, of XEN1101 compared to placebo.

XEN1101 for Epilepsy (Primary Generalized Tonic-Clonic Seizures)

Our Phase 3 X-ACKT clinical trial is intended to support potential regulatory submissions in an additional epilepsy indication of primary generalized tonic-clonic seizures, or PGTCS. This multicenter, randomized, double-blind, placebo-controlled study is evaluating the clinical efficacy, safety, and ~~epilepsy.~~tolerability of XEN1101 administered as adjunctive treatment in approximately 160 patients with PGTCS. The primary efficacy endpoint is the MPC in monthly PGTCS frequency from baseline through the DBP of XEN1101 compared to placebo.

~~Our pharmaceutical partners include Teva Pharmaceutical Industries, Ltd., or Teva (through its subsidiary, Ivax International GmbH), Genentech, a member~~Upon completion of the ~~Roche Group,~~DBP in X-TOLE2, X-TOLE3, or X-ACKT, eligible patients may enter an open-label extension, or OLE, study for up to three years. In addition, the ongoing X-TOLE Phase 2b OLE continues to generate important long-term data for XEN1101.

XEN1101 for Major Depressive Disorder

Based on promising pre-clinical data with XEN1101 and ~~Merck & Co., Inc. (through its affiliate, Essex Chemie AG). Our pharmaceutical collaborations~~published clinical data generated using ezogabine, we are evaluating the clinical efficacy, safety and tolerability of XEN1101 administered as monotherapy in patients with MDD in a Phase 2 clinical trial called X-NOVA. Designed as a randomized, double-blind, placebo-controlled, multicenter clinical study, the primary objective is to assess the efficacy of XEN1101 compared to placebo on improvement of depressive symptoms in subjects diagnosed with moderate to severe MDD, using the Montgomery-Åsberg Depression Rating Scale, or MADRS, score change through week six. Patient enrollment has been completed in the X-NOVA study, with topline results anticipated in late November to mid-December of this year.

In addition, we are collaborating with the Icahn School of Medicine at Mount Sinai to support an ongoing investigator-sponsored Phase 2 proof-of-concept, randomized, parallel-arm, placebo-controlled multi-site study of XEN1101 for the treatment of MDD in approximately 60 subjects.

-16-

NBI-921352

We have ~~generated~~an ongoing collaboration with Neurocrine Biosciences to develop treatments for epilepsy. Neurocrine Biosciences has an exclusive license to XEN901, now known as NBI-921352, a selective Nav1.6 sodium channel inhibitor. Neurocrine Biosciences has completed patient enrollment in ~~aggregate over $160.0 million~~a Phase 2 clinical trial evaluating NBI-921352 in ~~non-equity funding~~adult patients with focal onset seizures, with data expected in the fourth quarter of this year. In addition, a Phase 2 clinical trial is underway evaluating NBI-921352 in patients aged between 2 and 21 years with SCN8A developmental and epileptic encephalopathy, or SCN8A-DEE. Pursuant to ~~date with~~the terms of the agreement, we have the potential to ~~provide us with over $1.0 billion in future~~receive certain clinical, regulatory, and commercial milestone payments, as well as ~~royalties and co-promotion income on product sales.~~future sales royalties.

~~Our proprietary development pipeline and pharmaceutical partnerships include:~~

XEN1101 is a next-generation Kv7 potassium channel opener for the potential treatment of epilepsy. Pre-clinically, XEN1101 has demonstrated improved pharmacokinetics, selectivity, potency and efficacy over ezogabine, an earlier generation potassium channel modulator. In October 2017, we initiated a Phase 1 first-in-human clinical trial to evaluate the safety, tolerability and pharmacokinetics of both single ascending doses and multiple ascending doses of XEN1101 in healthy subjects. The XEN1101 Phase 1 clinical trial includes a pharmacodynamic read-out incorporating a transcranial magnetic stimulation, or TMS, model, which is designed to demonstrate delivery of XEN1101 into the central nervous system by observing a change in activity through an EEG (otherwise known as an electroencephalogram) or an EMG (otherwise known as an electromyogram) reading. Following completion of the Phase 1 clinical trial, and if supported by the data, a Phase 2 proof-of-concept trial evaluating XEN1101’s efficacy as a treatment for adult focal seizures is anticipated to begin in the third quarter of 2018, with a parallel plan to advance XEN1101 as soon as feasible thereafter into rare, pediatric forms of epilepsy, such as EIEE7, an early infantile epileptic encephalopathy associated with mutations in the KCNQ2 gene and loss-of-function in the Kv7.2 potassium channel;

XEN901 is a potent, selective Nav1.6 sodium channel inhibitor for the potential treatment of epilepsy, including adult focal seizures and rare, pediatric forms of epilepsy, such as EIEE13, an early infantile epileptic encephalopathy associated with mutations in the SCN8A gene and gain-of-function in the Nav1.6 sodium channel. XEN901 has demonstrated efficacy against seizures in an animal model of Nav1.6 gain-of-function epilepsy as well as animal models that support the treatment of adult focal seizures. We expect to file an investigational new drug equivalent application in the fourth quarter of 2017;

Our collaborator, Genentech, has completed a Phase 1 clinical trial for GDC-0310, which is an oral, selective Nav1.7 small-molecule inhibitor. Based on new data from ongoing pre-clinical toxicology studies, Genentech has indicated that GDC-0310 will not enter a Phase 2 clinical trial in the first quarter of 2018, as previously guided. Guidance around the future clinical development of GDC-0310 will be updated once these pre-clinical studies are completed and the final results are analyzed. Genentech and Xenon will continue their collaboration focused on developing novel inhibitors of Nav1.7 for the treatment of pain, as well as a second collaboration centered on pain genetics; and

~~-11-~~

Our collaborator, Teva, is responsible for the development of TV-45070, which is a topical sodium channel inhibitor for the treatment of neuropathic pain. In June 2017, we, along with Teva, announced topline results from a Phase 2b clinical trial that evaluated the efficacy and safety of TV-45070 in patients with post-herpetic neuralgia. TV-45070 did not meet the primary or secondary endpoints in the study. We and Teva are discussing next steps for TV-45070.

We have funded our operations primarily through the sale of equity securities, funding received from our licensees and collaborators, and ~~to a lesser extent, government funding.~~debt financing. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023 and 2022, we recognized revenue ~~consisting primarily~~ of ~~funding~~nil and $9.3 million, respectively, in connection with our agreement with Neurocrine Biosciences. To date, we have not had any products approved for sale and have not generated any revenue from product sales. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate, which we expect will take a number of years, if ever, and the outcome of which is subject to significant uncertainty.

We will continue to require additional capital to develop our ~~collaborators of approximately $0.3 million. This compares to $1.4 million~~product candidates and fund operations for the ~~nine months ended September 30, 2016.~~

foreseeable future. We have incurred net losses in each year since inception and expect to continue to incur net losses for the foreseeable future. We had a net loss of ~~$22.6~~$89.2 million and $50.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and 2022, respectively. As of June 30, 2023, we had an accumulated deficit of ~~$165.3 million as~~$571.9 million. Substantially all of ~~September 30, 2017,~~our net losses have resulted from ~~expenses~~costs incurred in connection with our research and development programs and from general and administrative costs associated with our ~~operations and we do not expect to have sustained profitability for the foreseeable future.~~

Other than royalties we were eligible to receive from sales of Glybera under our license to uniQure BioPharma B.V., or uniQure, which have not been significant to date and which ceased in October 2017 following expiration of Glybera’s marketing authorization, we have not generated any royalty revenue from product sales, and do not otherwise anticipate generating revenue from product sales for the foreseeable future, if ever. We expect that our revenue in the near term will be substantially dependent on our collaboration agreements. Given the uncertain nature of clinical development of our current and future product candidates and the commercialization of current and future products, we cannot predict when or whether we will receive further milestone payments under our current or future collaboration agreements or whether we will be able to report either revenue or net income in future years.

~~We expect to continue to incur significant expenses and operating losses for at least the next 12 to 24 months.~~operations. We anticipate that our operating expenses will increase substantially, particularly as we:

•

continue our research and pre-clinical and clinical development of our product ~~candidates either from our internal research efforts or through acquiring or in-licensing other product candidates or technologies;~~

candidates;

•

seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical trials;

•

~~make milestone and other payments under~~require the manufacture of larger quantities of our product ~~acquisition~~candidates for clinical development and ~~in-license agreements;~~

potential commercialization;

•

attract, hire and retain skilled personnel

•

acquire or in-license other assets and technologies;

•

maintain, protect and expand our intellectual property portfolio;

and

•

~~attract, hire and retain skilled personnel; and~~

create additional infrastructure to support our operations and ~~otherwise.~~

any future commercialization efforts.

Financial Operations Overview

Revenue

To date, our revenue has been primarily derived from collaboration and licensing agreements ~~as well as, to a lesser extent, government funding. In addition,~~and we ~~have received nominal royalties from a diagnostic license and from sales of Glybera. Other than royalties we were eligible to receive from sales of Glybera under our license to uniQure, which have~~do not ~~been significant to date and which ceased in October 2017 following expiration of Glybera’s marketing authorization, we have not generated~~generate any revenue or royalty revenue from product ~~sales,~~sales. If our development efforts for our product candidates are successful and ~~do not otherwise anticipate generating~~result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product ~~sales~~candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

We may also generate revenue in the ~~foreseeable~~ future ~~if ever.~~from payments as a result of license or collaboration agreements for any of our product candidates or intellectual property, such as our license and collaboration agreement with Neurocrine Biosciences, or the Neurocrine Collaboration. We cannot provide assurance as to the timing of future milestone or royalty payments under the Neurocrine Collaboration, or that we will receive any of these payments at all.

The following table is a summary of revenue recognized ~~from our current collaboration agreements~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022 (in thousands):

~~-12-~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Neurocrine Biosciences:
Recognition of the transaction price	$	—	$	—	$	—	$	372
Research and development services		—		536		—		1,806
Milestone payments		—		—		—		7,124
Total revenue	$	—	$	536	$	—	$	9,302

-17-

Pursuant to the terms of ~~our March 2014 genetics collaborative agreement with Genentech,~~the Neurocrine Collaboration, we received an upfront cash payment of ~~$1.5 million. We determined that~~$30.0 million and a $20.0 million equity investment in our common shares in December 2019. The overall transaction price of the ~~various deliverables under this agreement should be considered~~arrangement was measured and allocated to certain performance obligations and revenue was recognized as ~~a single unit~~those performance obligations were completed. In January 2022, based on the U.S. Food and Drug Administration’s approval to expand the SCN8A-DEE study population to include subjects aged between 2 and 11 years, we received an aggregate milestone payment of ~~accounting. As such,~~$15.0 million in the ~~$1.5~~form of $6.75 million ~~upfront~~cash and $8.25 million equity investment in our common shares. The equity investment was measured at fair value on the date of issuance and the resulting premium with the cash payment, was recognized as revenue. Research and development services were recognized as revenue ~~ratably over~~at fair market value as the ~~expected period of~~services were rendered. The research ~~performance, which~~collaboration was the two-year period from March 2014 to March 2016. In July 2017, we received a $0.25 million milestone payment for the identification of a second novel pain target under this agreement. We recognized the milestone payment upon achievementcompleted in ~~July 2017.~~June 2022.

As our other internal and partnered products are in various stages of clinical and pre-clinical development, we do not expect to generate any revenue from product sales for at least the next several years. We expect that revenue for the next several years will be derived from milestone payments under our current collaboration agreements and any additional collaboration agreements that we may enter into in the future. We cannot provide any assurance as to the extent or timing of future milestone payments or royalty payments or that we will receive any future payments at all.

We expect that any revenue we generate will fluctuate quarter to quarter as a function of the timing and amount of milestones and other payments from our existing collaborations and any future collaborations.

~~As of September 30, 2017, we have recognized all deferred revenue from upfront payments received under our existing collaboration and licensing agreements.~~

Operating Expenses

The following table summarizes our operating expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Research and development

$
7,164

$
5,965

$
19,176

$
15,432

General and administrative

1,744

1,779

5,643

5,350

Total operating expenses

$
8,908

$
7,744

$
24,819

$
20,782


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Research and development	$	44,040	$	22,146	$	83,556	$	41,506
General and administrative		11,584		8,705		21,119		15,480
Total operating expenses	$	55,624	$	30,851	$	104,675	$	56,986

Research and Development Expenses

Research and development expenses represent costs incurred to conduct ~~research and~~ development of our proprietary product candidates and our drug discovery efforts, including any acquired or in-licensed product candidates or technology, ~~as well as~~and costs to support ~~research and development of~~ our partnered product ~~candidates in collaboration with Teva and Genentech.~~candidates.

Research and development expenses consist of costs incurred in performing research and development activities, ~~including salary, related~~including:

•

personnel-related expenses, consisting of salaries, benefits and stock-based compensation for employees engaged in scientific research and development;

•

third-party expenses incurred in connection with the pre-clinical and clinical development of our product candidates, including under agreements with contract research organizations, or CROs;

•

third-party ~~contract costs~~expenses relating to ~~research,~~ formulation, ~~manufacturing,~~process development and manufacture of drug substance and drug product for use in our pre-clinical ~~studies~~testing and clinical ~~trial activities,~~ trials;

•

third-party acquisition, license and collaboration ~~fees,~~ fees;

•

laboratory ~~consumables~~consumables; and ~~allocated facility-related~~

•

certain indirect costs incurred in support of overall research and development activities, including facilities, depreciation and information technology costs.

Project-specific expenses reflect costs directly attributable to our clinical development candidates ~~and our pre-clinical candidates once nominated and selected~~ for ~~further development, including pre-clinical and discovery costs supporting a development candidate.~~which we have incurred significant expenses. All remaining research and development expenses are reflected in pre-clinical, discovery and other program expenses. At any given time, we have several active early-stage research and drug discovery programs. Our personnel and infrastructure are typically deployed over multiple projects and are not directly linked to any individual internal early-stage research or drug discovery program. Therefore, we do not maintain financial information for our internal early-stage research and internal drug discovery programs on a project-specific basis.

We expense all research and development costs as incurred. Payments we make for research and development services prior to the services being rendered are recorded as prepaid assets in our consolidated balance sheets and are expensed as the services are provided. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.

We expect that our research and development expenses will increase substantially in the future as we ~~advance~~continue to invest in research and development activities related to developing our ~~proprietary~~ product candidates, ~~through~~including investments in manufacturing, as our programs advance into later stages of development and we continue to conduct clinical ~~development,~~trials, advance our internal drug discovery programs into pre-clinical development and continue our early-stage research. ~~The increase~~Product candidates in ~~expense will likely include added personnel~~later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size, scope and ~~third-party contracts related to research, formulation, manufacturing, pre-clinical studies and~~duration of later-stage clinical ~~trial activities as well as third-party acquisition, license and collaboration fees and laboratory consumables.~~trials.

~~-13-~~-18-

Clinical development timelines, likelihood of regulatory approval, and commercialization and associated costs are uncertain, ~~and~~ difficult to estimate, and can vary significantly. ~~We anticipate determining which~~The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development ~~projects~~of our product candidates is highly uncertain. As a result, we cannot accurately estimate or know the nature, timing and costs that will be necessary to ~~pursue as well as~~complete the ~~level of funding available for each project based on the scientific research and~~ pre-clinical and clinical ~~results~~development for any of ~~each~~our product ~~candidate~~candidates or when and ~~related regulatory action. We expect~~to what extent we may generate revenue from the commercialization and sale of any of our ~~research and development expenses to continue to represent our largest category of operating expense for at least the next 12 to 24 months.~~product candidates or achieve profitability.

General and Administrative Expenses

General and administrative expenses consist primarily of ~~salary, related~~personnel-related expenses, consisting of salaries, benefits and stock-based compensation offor our employees engaged in executive, finance, legal, business development, commercial and administrative functions, ~~travel expenses,~~insurance costs, professional fees for auditing, tax and legal services, costs related to maintenance and filing of intellectual property, costs incurred as we prepare for commercialization, and allocated facility-related and information technology costs not otherwise included in research and development expenses, director compensation, director’s and officer’s insurance premiums, investor relations costs and professional fees for auditing, tax and legal services, including legal expenses for intellectual property protection. General and administrative expenses also include fair value adjustments of certain liability classified stock option awards.expenses.

We expect that general and administrative expenses will increase in the future as we expand our operating activities to support ~~increased~~our continued research activities and development ~~activities,~~of our product candidates, and ~~the potential build of commercial infrastructure~~as we prepare for ~~our option for co-promotion of TV-45070 in the U.S., if~~commercialization. We will also continue to incur increased accounting, audit, legal, regulatory, compliance and ~~when regulatory approval is received.~~director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Interest ~~Income.~~income. Interest income consists of income earned on our cash and investment ~~balances. Our interest income has not been significant due to the levels of cash and investment balances and low interest earned on such~~ balances. We anticipate that our interest income will continue to fluctuate depending on ~~timing of payments from collaborative partners,~~ our cash and investment balances and interest rates.

Unrealized fair value gain (loss) on trading securities. Trading securities are recorded at fair value. Unrealized fair value gain (loss) on trading securities is related to changes in market pricing on the investments during the period. We anticipate that unrealized fair value gain (loss) on trading securities will continue to fluctuate depending on our investment balance and market yields.

Foreign ~~Exchange Gain (Loss)~~exchange gain (loss). Net foreign exchange gains and losses ~~consist~~consisted of gains and losses from the impact of foreign exchange fluctuations on our monetary assets and liabilities that are denominated in currencies other than the U.S. dollar (principally the Canadian dollar). ~~See “Quantitative~~We will continue to incur substantial expenses in Canadian dollars and ~~Qualitative Disclosures About Market Risk – Foreign Currency Exchange Risk” below for additional information.~~will remain subject to risks associated with foreign currency fluctuations.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the U.S., or U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the revenue and expenses incurred during the reported periods. We base estimates on our historical experience, known trends and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies and significant judgments and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies and significant estimates include those related to:

•

revenue recognition;

•

research and development costs; and

•

stock-based compensation.

There have been no material changes in our critical accounting policies and significant ~~judgements~~judgments and estimates during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates” included in our ~~2016~~2022 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or SEC, and with the securities commissions in British Columbia, Alberta and Ontario, or the Canadian Securities Commissions, on March ~~8, 2017.~~1, 2023. We believe that the accounting policies discussed in the Annual Report are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

~~-14-~~-19-

Results of Operations

Comparison of Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~ 2022

The following table summarizes the results of our operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~ 2022 together with changes in those items (in thousands):

	Three Months Ended September 30,						Change 2017 vs. 2016			Nine Months Ended September 30,						Change 2017 vs. 2016
	2017			2016			Increase/(Decrease)			2017			2016			Increase/(Decrease)			Three Months Ended June 30,						Change 2023 vs. 2022			Six Months Ended June 30,						Change 2023 vs. 2022
Collaboration revenue	$	264		$	412		$	(148	)	$	294		$	1,393		$	(1,099	)
Royalties		—			1			(1	)		1			34			(33	)
																			2023			2022			Increase/(Decrease)			2023			2022			Increase/(Decrease)
Revenue																			$	—		$	536		$	(536	)	$	—		$	9,302		$	(9,302	)
Research and development expenses		7,164			5,965			1,199			19,176			15,432			3,744			44,040			22,146			21,894			83,556			41,506			42,050
General and administrative expenses		1,744			1,779			(35	)		5,643			5,350			293			11,584			8,705			2,879			21,119			15,480			5,639
Other:
Interest income		124			114			10			382			336			46			6,524			816			5,708			11,947			1,184			10,763
Unrealized fair value gain (loss) on trading securities																				1,036			(1,288	)		2,324			2,914			(4,650	)		7,564
Foreign exchange gain (loss)		778			(497	)		1,275			1,503			2,026			(523	)		383			(411	)		794			696			(112	)		808
Net loss	$	(7,742	)	$	(7,714	)	$	(28	)	$	(22,639	)	$	(16,993	)	$	(5,646	)
Loss before income taxes																			$	(47,681	)	$	(31,198	)	$	(16,483	)	$	(89,118	)	$	(51,262	)	$	(37,856	)

Revenue

~~Revenue~~

Revenue decreased by ~~$0.1 million and $1.1~~$0.5 million in the three ~~and nine~~ months ended ~~September~~June 30, 2017 as compared to the three and nine months ended September 30, 2016, respectively. In 2016, we recognized revenue related to the upfront payment from the March 2014 genetics collaborative agreement with Genentech, which was fully recognized by March 2016. The remaining decrease2023, as compared to the same ~~periods~~period in ~~2016~~2022. The decrease was ~~mainly~~ due to recognition of $0.5 million of research and development services revenue under the ~~expiration~~Neurocrine Collaboration in 2022, whereas no research and development services were provided in 2023 as the research component of ~~FTE funding from Genentech~~the collaboration ended in ~~2017~~June 2022.

Revenue decreased by $9.3 million in the six months ended June 30, 2023, as ~~we shifted resources from supporting our collaborations~~compared to ~~our proprietary programs, partially offset by~~the same period in 2022. The decrease was due to recognition of a ~~$0.25~~$7.1 million milestone ~~payment~~and $1.8 million of research and development services revenue under the Neurocrine Collaboration in 2022, whereas no milestones were recognized in ~~July 2017 under~~2023 and the ~~March 2014 genetics collaborative agreement with Genentech.~~research component of the collaboration ended in June 2022.

-20-

Research and Development Expenses

The following table summarizes research and development expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~ 2022 together with changes in those items (in thousands):

Three Months Ended September 30,

Change
2017 vs. 2016

Nine Months Ended September 30,

Change
2017 vs. 2016

2017

2016

Increase/(Decrease)

2017

2016

Increase/(Decrease)

Collaboration expenses

$
—

$
491

$
(491
)

$
121

$
1,122

$
(1,001
)
XEN801 expenses

13

2,497

(2,484
)

1,563

4,830

(3,267
)
XEN901 and Nav1.6 pre-clinical and discovery expenses

2,437

2,431

6

8,232

7,098

1,134

XEN1101 expenses

1,450

—

1,450

2,601

—

2,601

Pre-clinical, discovery and other program expenses

3,264

546

2,718

6,659

2,382

4,277

Total research and development expenses

$
7,164

$
5,965

$
1,199

$
19,176

$
15,432

$
3,744


	Three Months Ended June 30,				Change 2023 vs. 2022			Six Months Ended June 30,				Change 2023 vs. 2022
	2023		2022		Increase/(Decrease)			2023		2022		Increase/(Decrease)
Direct external costs:
XEN1101	$	23,389	$	5,609	$	17,780		$	44,489	$	9,841	$	34,648
XEN496		2,257		3,084		(827	)		4,780		6,560		(1,780	)
Pre-clinical, discovery and other programs		3,869		3,306		563			6,509		6,014		495
Indirect costs:
Personnel-related (including stock-based compensation)		11,411		7,896		3,515			22,144		14,964		7,180
Facilities and other unallocated research and development expenses		3,114		2,251		863			5,634		4,127		1,507
Total research and development expenses	$	44,040	$	22,146	$	21,894		$	83,556	$	41,506	$	42,050

Research and development expenses increased by ~~$1.2~~$21.9 million and ~~$3.7~~$42.1 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023, respectively, as compared to the ~~three and nine months ended September 30, 2016, respectively. These~~same periods in 2022. The increases were primarily attributable to ~~increased spending on our pre-clinical, discovery and other internal programs,~~ our XEN1101 ~~product candidate which was acquired~~program and personnel-related costs due to increased headcount to support late-stage development and stock-based compensation expense due to an increase in ~~April 2017, and our XEN901 product candidate. These increases were~~the number of options granted at a higher fair value, partially offset by a decrease in ~~XEN801 expenses,~~spend on XEN496. The increase in spend on XEN1101 includes increased external costs driven by site initiation and patient enrollment in our Phase 3 epilepsy clinical trials as well as our ongoing X-NOVA Phase 2 MDD clinical trial. The decrease in spend on XEN496 was attributed to decreased external costs to support the EPIK clinical trial and open label extension as a ~~product candidate which is~~result of our decision to no longer ~~being developed, and a decrease in collaboration expenses.~~pursue the clinical development of XEN496.

General and Administrative Expenses

The following table summarizes general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~ 2022 together with changes in those items (in thousands):

Three Months Ended September 30,

Change
2017 vs. 2016

Nine Months Ended September 30,

Change
2017 vs. 2016

2017

2016

Increase/(Decrease)

2017

2016

Increase/(Decrease)

General and administrative expenses

$
1,744

$
1,779

$
(35
)

$
5,643

$
5,350

$
293


	Three Months Ended June 30,				Change 2023 vs. 2022		Six Months Ended June 30,				Change 2023 vs. 2022
	2023		2022		Increase/(Decrease)		2023		2022		Increase/(Decrease)
Personnel-related (including stock-based compensation)	$	7,873	$	5,518	$	2,355	$	14,828	$	10,248	$	4,580
Professional and consulting fees		1,955		1,748		207		3,640		2,642		998
Other		1,756		1,439		317		2,651		2,590		61
General and administrative	$	11,584	$	8,705	$	2,879	$	21,119	$	15,480	$	5,639

~~-15-~~

~~For the three months ended September 30, 2017, general and administrative expenses did not change significantly as compared to the same period in 2016.~~ General and administrative expenses increased by ~~$0.3~~$2.9 million and $5.6 million in the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2023, respectively, as compared to the ~~nine months ended September 30, 2016. This increase was~~same periods in 2022. The increases were primarily attributable to personnel-related costs due to increased ~~costs for business~~headcount to support our expanding research and development activities and ~~salaries~~stock-based compensation expense due to an increase in the number of options granted at a higher fair value. General and ~~benefits.~~administrative expenses for the six months ended June 30, 2023 also included higher legal fees and market research costs.

-21-

Other Income (Expense)

The following table summarizes our other income (expense) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~ 2022 together with changes in those items (in thousands):

Three Months Ended September 30,

Change
2017 vs. 2016

Nine Months Ended September 30,

Change
2017 vs. 2016

2017

2016

Increase/(Decrease)

2017

2016

Increase/(Decrease)

Other income (expense):

$
902

$
(383
)

$
1,285

$
1,885

$
2,362

$
(477
)


	Three Months Ended June 30,					Change 2023 vs. 2022		Six Months Ended June 30,					Change 2023 vs. 2022
	2023		2022			Increase/(Decrease)		2023		2022			Increase/(Decrease)
Other income (expense)	$	7,943	$	(883	)	$	8,826	$	15,557	$	(3,578	)	$	19,135

Other income (expense) increased by ~~$1.3~~$8.8 million and ~~decreased by $0.5~~$19.1 million in the three and ~~nine months~~six month periods ended ~~September~~June 30, ~~2017~~2023, respectively, as compared to the same periods in 2022. The increases were primarily attributable to a $5.7 million and $10.8 million increase in interest income for the three and ~~nine months ended September 30, 2016, respectively.~~ The change in other income (expense) was primarily driven by the change in foreign exchange gains and losses arising largely from the translation of cash and cash equivalents and marketable securities denominated in Canadian dollars to U.S. dollars. We recorded a foreign exchange gain of $0.8 million as compared to a loss of $0.5 million during the three months ended September 30, 2017 and 2016 due to a 4% increase and 2% decrease in the value of the Canadian dollar, respectively. During the ninesix month periods ended ~~September~~June 30, ~~2017 and 2016, we recorded foreign exchange gains of $1.5 million and $2.0 million~~2023, respectively, due to an 8%increase in market yields on investments and 6%a higher balance of marketable securities. In addition, we recognized a $2.3 million and $7.6 million increase in the unrealized fair value gain on trading securities for the three and six month periods ended June 30, 2023, respectively, due to changes in market yields on trading securities, partially offset by a lower balance of ~~the Canadian dollar, respectively.~~trading securities.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have financed our operations primarily through the sale of equity securities, funding received from collaboration and license agreements, ~~private placements~~and debt financing. Since our initial public offering through June 30, 2023, we have raised aggregate net cash proceeds of ~~our common and preferred shares and public offerings~~more than $1.0 billion primarily from the issuance of ~~our common shares and, to a lesser extent, through the receipt of government funding.~~equity securities. As of ~~September~~June 30, ~~2017,~~2023, we had cash and cash equivalents and marketable securities of ~~$43.8~~$652.2 million. ~~In September 2016, we completed an underwritten public offering of 3,450,000~~

Except for any obligations of our collaborators to make milestone payments under our agreements with them, we do not have any committed external sources of capital. Until such time as we can generate substantial product revenue, if ever, we expect to finance our cash needs through a combination of collaboration agreements and equity or debt financings.

We entered into an “at-the-market” equity offering sales agreement in August 2020, amended as of March 2022, with Jefferies LLC and Stifel, Nicolaus & Company, Incorporated and a new prospectus supplement was filed with the SEC on March 1, 2022, or the March 2022 ATM, pursuant to which we may sell common shares ~~at a public offering price~~having gross proceeds of ~~$7.50 per~~up to $250.0 million, from time to time. As of June 30, 2023, no common ~~share. We received approximately $24.3 million of proceeds, net of underwriting discounts and commissions but before offering expenses.~~shares have been sold under the March 2022 ATM.

Funding Requirements

We have incurred significant operating losses since inception. WeAs of June 30, 2023, we had ~~a $22.6 million net loss for the nine months ended September 30, 2017 and~~ an accumulated deficit of ~~$165.3 million from inception through September 30, 2017.~~$571.9 million. We expect to continue to incur significant expenses in excess of our revenue and expect to incur operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to ~~continue to~~ incur significant expenses and increasing operating losses for the foreseeable future as we continue our research and pre-clinical and clinical development of our product candidates; expand the scope of our ~~current~~ studies for our current and prospective product candidates; initiate additional pre-clinical, clinical or other studies for our product ~~candidates, including under our collaboration agreements; change or add manufacturers or suppliers;~~candidates; manufacture drug supply and drug product for clinical trials and commercialization; seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical studies; hire and retain additional personnel; seek to identify, ~~evaluate~~ and validate additional product candidates; acquire or in-license other product candidates and technologies; make milestone or other payments under our ~~product acquisition and~~ in-license or other agreements, including, without limitation, ~~our agreements with the University of British Columbia, the Memorial University of Newfoundland,~~payments to 1st Order Pharmaceuticals, ~~Inc., or 1st Order, Valeant Pharmaceuticals International, Inc., or Valeant,~~Inc and other third parties; maintain, protect and expand our intellectual property portfolio; ~~attract and retain skilled personnel;~~ establish a sales, marketing, distribution and ~~distribution~~other commercial infrastructure to commercialize any products for which we ~~or one of our collaborators~~ may obtain marketing ~~approval, and maintain commercial rights;~~approval; create additional infrastructure and incur additional costs to support our operations and our product development and planned future commercialization efforts; and experience any delays or encounter issues with any of the above.

~~-16-~~-22-

Until such time as we can generate substantial product revenue, if ever, we expect to finance our cash needs through a combination of collaboration agreements and equity or debt financings. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone payments under our agreements with them, we do not have any committed external sources of capital. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common shareholders. If we raise additional funds through collaboration agreements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

•

~~the number and characteristics of the future product candidates we pursue either from our internal research efforts or through acquiring or in-licensing other product candidates or technologies;~~

the scope, progress, results and costs of ~~independently~~ researching and developing our current product candidates, as well as other additional product candidates we may develop and pursue in the future;

•

the timing of, and the costs involved in, obtaining marketing approvals for our product candidates and any other additional product candidates we may develop and pursue in the future;

•

the number of ~~our~~ future product candidates ~~including conducting pre-clinical research~~that we may pursue and ~~clinical trials;~~

their development requirements;

•

if approved, the costs of commercialization activities for any product candidate that receives regulatory approval to the extent such costs are not the responsibility of an existing or future collaborator, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

•

subject to the receipt of regulatory approval, revenue, if any, received from commercial sales of our product candidates and any other additional product candidates we may develop and pursue in the future;

•

whether our existing collaborations ~~continue to~~ generate substantial milestone payments and, ultimately, royalties on future approved products for us;

•

~~the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates we develop independently;~~

the cost of future commercialization activities, if any, including activities required pursuant to our option to co-promote TV-45070, if exercised by us, and the cost of commercializing any future products we develop independently that are approved for sale;

~~the cost of manufacturing our future product candidates and products, if any;~~

our ability to maintain existing collaborations and to establish new collaborations, licensing or other arrangements and the financial terms of such ~~arrangements;~~

agreements;

•

our headcount growth and associated costs as we expand our research and development and initiate pre-commercial and commercial activities;

•

the costs ofinvolved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such litigation; and

•

the ~~timing, receipt and amount~~ongoing costs of ~~sales of, or royalties on our collaborators’ product candidates, and our future products, if any.~~

operating as a public company.

Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash and cash equivalents and marketable securities as of the date of this report ~~and research funding that we expect to receive under our existing collaborations,~~ will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. ~~We have based this estimate on~~However, our estimates and assumptions ~~that~~ may prove to be wrong, and we ~~could use~~cannot guarantee that our existing capital resources ~~sooner than we expect.~~will be sufficient to conduct and complete all of our anticipated research and development efforts and future commercialization efforts. Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials remains uncertain. Further, inflation may affect our use of capital resources by increasing our cost of labor and research and development expenses. Our long-term funding requirements will consist of operational, capital, and manufacturing expenditures, including those contractual commitments described below. Because of the inherent risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of capital outflows and operating expenditures associated with our long-term anticipated pre-clinical studies and clinical trials.

Cash Flows

The following table shows a summary of our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022 (in thousands):


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2023			2022
Net cash used in operating activities	$	(21,888	)	$	(14,897	)	$	(67,632	)	$	(35,296	)
Net cash provided by (used in) investing activities		18,491			(15,616	)		74,524			(47,571	)
Net cash provided by financing activities		177			23,916			—			277,766

Operating Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, net cash used in operating activities totaled ~~$21.9~~$67.6 million, compared to ~~$14.9~~$35.3 million for the same period in ~~2016.~~2022. The ~~change~~increase in cash used in operating activities was primarily related to ~~a $3.7 million increase in~~higher research and development and general and administrative expenses, ~~a $1.1 million decrease~~and no revenue recognized in ~~revenue,~~connection with the Neurocrine Collaboration in 2023. This was partially offset by higher interest income and changes in ~~working capital.~~operating assets and liabilities.

~~-17-~~

Investing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, net cash provided by investing activities totaled ~~$18.5~~$74.5 million, compared to net cash used ~~in investing activities~~ of ~~$15.6~~$47.6 million for the same period in ~~2016.~~2022. The change was driven primarily by an increase in the ~~maturity~~redemption of marketable securities, net of ~~purchases~~purchases. This was partially offset by an increase in the ~~nine~~purchases of property, plant and equipment.

-23-

Financing Activities

For the six months ended ~~September~~June 30, ~~2017 as compared to the purchase of marketable securities in the same period in 2016.~~

~~Financing Activities~~

~~For the nine months ended September 30, 2017,~~2023, net cash provided by financing activities ~~totaled $0.2 million,~~was nil, compared to ~~$23.9~~$277.8 million for the same period in ~~2016.~~2022. The ~~change~~cash provided by financing activities during the six months ended June 30, 2022 was primarily related to ~~$23.8 million of~~ net proceeds from the issuance of ~~our~~ common shares ~~in an underwritten public offering completed in September 2016.~~and pre-funded warrants.

Contractual Obligations and Commitments

Our future significant contractual obligations as of December 31, ~~2016~~2022 were reported in our Annual Report on Form 10-K, filed with the SEC and the Canadian Securities Commissions on March ~~8, 2017.~~1, 2023.

As of ~~September~~June 30, ~~2017,~~2023, there have been no material changes from the contractual commitments previously disclosed in the Annual Report on Form ~~10-K~~ ~~other than the following:~~10-K.

~~In March 2017, we entered into~~ a license, manufacture and supply agreement with a pharmaceutical contract manufacturing organization for the access and use of certain regulatory documents as well as for the manufacture and supply of clinical and commercial drug product to support the development of a potential product candidate. Under the terms of the agreement, we paid an upfront fee of $0.5 million CAD and will be required to pay a low single-digit percentage royalty on net sales of any products developed and commercialized under the agreement.

In April 2017, we acquired XEN1101 (previously known as 1OP2198) from 1st Order pursuant to an asset purchase agreement. 1st Order previously acquired 1OP2198 from an affiliate of Valeant, and we have assumed certain financial responsibilities under that agreement. Under the terms of the agreement, we paid an upfront fee of $0.4 million, which we expensed as research and development, and expect to pay an additional $0.7 million in milestones in 2017. Future potential payments to both 1st Order and Valeant include $1.0 million in clinical development milestones, up to $13.0 million in regulatory milestones, and up to approximately $33.6 million in sales-based and other milestones, which includes a $1.5 million milestone that may be payable pre-commercially, plus a mid-to-high single-digit percentage royalty on commercial sales.

In July 2017, we entered into a license agreement with a pharmaceutical company for the access and use of certain regulatory documents to support the development of a potential product candidate. Under the terms of the agreement, we paid an upfront fee of $1.0 million, which we expensed as research and development. Future potential payments include $2.0 million in clinical development milestones, up to $7.0 million in regulatory milestones, which includes $1.0 million expected to be paid in late 2017 or early 2018, plus a low-to-mid single-digit percentage royalty on net sales of any products developed and commercialized under the agreement.

~~Inflation~~

~~We do not believe that inflation has had a material effect on our business, financial condition or results of operations in the last three fiscal years.~~

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purposes entities and other structured finance entities.

Outstanding Share Data

As of ~~November 3, 2017,~~August 4, 2023, we had ~~17,998,420~~64,145,523 common shares issued and outstanding, ~~and~~outstanding pre-funded warrants to purchase an additional 1,828,854 common shares, outstanding stock options to purchase an additional ~~2,378,220~~8,771,299 common shares and an outstanding warrant to purchase an additional 40,000 common shares.

~~-18-~~-24-

~~Recent Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers (ASC 606) 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 standard, as subsequently amended, stipulates 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. The new guidance will be effective for public entities for fiscal years and interim periods within those years, beginning after December 15, 2017. ASC 606 may be adopted using one of two methods: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. We anticipate the adoption of the standard under the modified retrospective approach on January 1, 2018. We have begun our evaluation and identified two significant collaboration agreements with respect to revenue, the collaborative development and license agreements with ~~Teva~~ ~~and~~ ~~Genentech,~~ described in notes 9(a) and (b), respectively, to our audited consolidated financial statements included in our 2016 Annual Report on Form 10-K for the year ended December 31, 2016. We are continuing to evaluate the new guidance as it applies to revenue previously recognized, milestone payments we are eligible to receive in future periods under these agreements, as well as financial statement disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842): Recognition and Measurement of Financial Assets and Financial Liabilities. The update requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The new guidance retains a distinction between finance leases and operating leases, with cash payments from operating leases classified within operating activities in the statement of cash flows. These amendments will be effective for public entities for fiscal years and interim periods within those years, beginning after December 15, 2018. We are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, ~~in the ordinary course of our business,~~ including changes in ~~interest~~currency exchange rates and ~~currency exchange~~interest rates. Market risk is the potential loss arising from adverse changes in ~~interest~~market rates and ~~exchange rates.~~prices.

Foreign ~~Currency Exchange Risk~~currency risk

~~The principal market risk~~As of June 30, 2023, we ~~face is~~had U.S. dollar denominated cash and cash equivalents and marketable securities of $616.9 million and Canadian dollar denominated cash and cash equivalents of CAD$46.8 million.

We are subject to foreign currency exchange rate ~~risk. We face this~~ risk in part, as a result of entering into transactions denominated in currencies other than U.S. dollars, particularly those denominated in Canadian dollars. We also hold ~~non-U.S.~~Canadian dollar denominated cash and cash equivalents, ~~marketable securities,~~ accounts receivable and accounts ~~payable, which are denominated in Canadian dollars.~~payable.

Changes in foreign currency exchange rates can create significant foreign exchange gains or losses to us. Our current foreign currency risk is with the Canadian dollar, as a majority of our non-U.S. dollar denominated expenses are denominated in Canadian dollars and a significant portion of our cash and cash equivalents and marketable securities are held in Canadian dollars. To limit our exposure to volatility in currency markets, we estimate our anticipated expenses that will be denominated in Canadian and U.S. dollars and then purchase a corresponding amount of Canadian or U.S. dollars at the current spot rate. Once these estimated expense amounts are acquired, weWe do not currently hedge our exposure and thus assume the risk of future gains or losses on the amounts of Canadian dollars held. ~~At September 30, 2017,~~While we ~~held cash and cash equivalents and marketable securities of $18.8 million denominated~~have experienced increased foreign exchange fluctuations in ~~Canadian dollars. A hypothetical~~recent periods, we do not believe that an immediate 10% increase ~~(decrease)~~or decrease in the relative value of the U.S. dollar to the Canadian dollar would ~~result in~~have a ~~foreign exchange gain (loss)~~material effect on our operating results.

Interest rate sensitivity

As of ~~$1.9 million being recorded in the Statement of Operations on the translation of these Canadian dollar cash and cash equivalent balances into the U.S. dollar functional currency.~~

~~Interest Rate Risk~~

~~An additional market risk~~June 30, 2023, we ~~face is interest rate risk. We~~ had cash and cash equivalents and marketable securities of ~~$43.8~~$652.2 million. Our interest rate sensitivity is primarily attributable to our cash and cash equivalents and marketable securities. A 100 basis point, or 1%, unfavorable change in interest rates would have resulted in approximately a $3.0 million decrease in the fair value of our marketable securities as of ~~September~~June 30, ~~2017. The goals~~2023. Due to the short-term nature of our investment ~~policy are liquidity and capital preservation; we~~portfolio, a hypothetical 10% increase or decrease in interest rates or in investment returns would not have a material effect on our interest income. We do not enter into investments for ~~trading or~~ speculative purposes and have not used any derivative financial instruments to manage ~~our~~ interest rate exposure. We

Inflation risk

Inflation may generally affect us by increasing our cost of labor and research and development expenses.While we have experienced increased operating expenses in recent periods, which we believe ~~that~~are due in part to the recent growth in inflation, we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short term nature of our cash and cash equivalents and marketable securities. Declines in interest rates, however, would reduce future investment income. A 10% change in interest rates during any of the periods presented would not havebelieve that inflation has had a material ~~impact~~effect on our business, financial ~~statements. Such interest-earning instruments carry a degree~~condition or results of ~~interest rate risk. We had no outstanding debt as of September~~operations during the three and six months ended June 30, ~~2017.~~2023; however, operating expenses may continue to increase in future periods due to inflation.

~~-19-~~

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective, in design and operation, at the reasonable assurance level.

(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the period ended ~~September~~June 30, ~~2017~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control.

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

-25-

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

You should carefully consider the following risk factors, in addition to the other information contained in this report, including the section of this report captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.

Risks Related to Our Financial Condition and Capital Requirements

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

Investment in biopharmaceutical product development is highly speculative because it entails substantial capital expenditures and significant risk that a potential product candidate may fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We ~~are a clinical-stage biotechnology company~~have no products approved for commercial sale and have not generated any revenue from product sales to date, and we will continue to incur significant research and development and other ~~than the years ended December 31, 2014~~expenses related to our clinical development and ~~2013,~~ongoing operations. As a result, we are not profitable and have ~~recorded net~~incurred losses in each ~~annual reporting~~ period since our inception. Since our inception, ~~in 1996,~~we have devoted substantially all of our financial resources and weefforts to research and development, including pre-clinical studies, manufacturing of investigational drug and our clinical trials. Our financial condition and operating results, including net losses, may fluctuate significantly from quarter to quarter and year to year. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance. We do not expect to have sustained profitability for the foreseeable future. We had net losses of ~~$22.6~~$89.2 million and $50.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and 2022, respectively, and an accumulated deficit of ~~$165.3~~$571.9 million as of ~~September~~June 30, ~~2017,~~2023, which were driven by expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We ~~have devoted most of~~expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our ~~financial resources to~~ research and development ~~including our clinical~~of, and pre-clinical development activities. To date, we have financed our operations through the sale of equity securities, funding received from our licensees and collaborators and, to a lesser extent, government funding. Other than royalties we were eligible to receive from sales of Glybera under our license to uniQure Biopharma B.V., or uniQure, which have not been significant to date and which ceased in October 2017 following expiration of Glybera’s marketing authorization, we have not generated any royalty revenue from product sales andseek regulatory approvals for our product ~~candidates will require substantial additional investment before they will provide us with any product royalty revenue.~~candidates.

~~-20-~~

We expect to incur significant expenses and increasing operating losses for the foreseeable future as we:

•

continue our research and pre-clinical and clinical development of our product candidates;

•

~~expand the scope of our clinical studies for our current and prospective product candidates;~~

~~initiate~~conduct additional pre-clinical, clinical or other studies for our product ~~candidates, including under our collaboration agreements;~~

candidates;

•

~~change or add additional manufacturers or suppliers;~~

manufacture drug substance and drug product for clinical trials and commercialization;

•

seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical ~~studies;~~

trials;

•

hire and retain additional personnel, such as clinical, quality assurance, regulatory, scientific, commercial and administrative personnel;

•

seek to identify and validate additional product candidates;

•

acquire or in-license other product candidates and technologies;

•

make milestone or other payments under our in-license or other agreements, including, without limitation, ~~our agreements with the University of British Columbia, the Memorial University of Newfoundland,~~payments to 1st Order Pharmaceuticals, ~~Inc., an affiliate of Valeant Pharmaceuticals International,~~ Inc. and other third parties;

•

maintain, protect and expand our intellectual property portfolio;

•

establish a sales, marketing, distribution and ~~distribution~~other commercial infrastructure to commercialize any products for which we ~~or one of our collaborators~~ may obtain marketing ~~approval, and for which we have maintained commercial rights;~~

approval;

-26-

•

create additional infrastructure and incur additional costs to support our operations and our product development and planned future commercialization efforts; and

•

experience any delays or encounter issues with any of the above.

Our expenses could increase beyond expectations for a variety of reasons, including if we are required by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, or other regulatory ~~agencies, domestic or foreign,~~authorities to perform clinical and other studies including post-approval commitments in addition to those that we currently ~~anticipate.~~anticipate, or if there are any delays in establishing appropriate manufacturing arrangements to support our clinical trials, the development of any of our product candidates or commercialization. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our shareholders’ ~~equity.~~equity and working capital.

~~-21-~~

~~Other than royalties from sales of Glybera, we have~~We do not ~~generated~~generate any ~~royalty~~ revenue from product sales and may never become profitable ~~on a U.S. GAAP basis.~~.

Our ability to generate ~~meaningful~~ revenue and achieve profitability ~~on a U.S. GAAP basis~~ depends on our ability, alone or with ~~strategic~~ collaborators, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our product candidates. ~~Substantially all~~Successful commercialization will require achievement of many key milestones, including demonstrating safety and efficacy in clinical trials, obtaining regulatory, including marketing, approval for these product candidates, manufacturing, marketing and selling those products for which we, or any of our ~~revenue since inception has consisted~~existing or future collaborators, may obtain regulatory approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. Because of ~~upfront~~the uncertainties and ~~milestone payments~~risks associated with these activities, we are unable to accurately and precisely predict the timing and amount of revenues, the extent of any further losses or if or when we might achieve profitability. We and our ~~collaboration~~existing or future collaborators may never succeed in these activities and, ~~license agreements. Revenue from these agreements is dependent~~even if we do, or any existing or future collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on ~~successful~~a quarterly or annual basis. Additionally, our expenses could increase if we are required by the FDA, EMA or other regulatory authorities to perform clinical trials in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates by us or our collaborators. Other than royalties we were eligible to receive from sales of Glybera under our license to uniQure, which have not been significant to date and which ceased in October 2017 following expiration of Glybera’s marketing authorization, we have not generated any royalty revenue from product sales, and do not otherwise anticipate generating revenue from product sales for the foreseeable future, if ever. candidates.

If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our future products, if any, once approved, fail to achieve market acceptance or adequate market share, we may never become profitable. Although we were profitable for the years ended December 31, 2014 and 2013, we may not be able to sustain profitability in subsequent periods. Our ability to generate future revenue from product sales depends heavily on our success, and the success of our collaborators, in:

~~completing research, pre-clinical and clinical development of our product candidates;~~

~~seeking and obtaining regulatory and marketing approvals for product candidates for which we complete clinical studies;~~

commercializing products for which we obtain regulatory and marketing approval, either with a collaborator or, if launched independently, by establishing sales, marketing and distribution infrastructure;

~~negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;~~

~~obtaining market acceptance of products for which we obtain regulatory and marketing approval as therapies;~~

~~addressing any competing technological and market developments;~~

establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products and services to support clinical development and the market demand for any approved products in the future;

~~developing sustainable, scalable, reproducible, and transferable manufacturing processes for any of our products approved in the future;~~

~~maintaining, protecting, expanding and enforcing our portfolio of intellectual property rights, including patents, trade secrets and know-how;~~

~~implementing additional internal systems and infrastructure, as needed; and~~

~~attracting, hiring and retaining qualified personnel.~~

The scope of our future revenue will also depend upon the size of any markets in which our product candidates receive approval and the availability of insurance coverage and the availability and amount of reimbursement from third-party payers for future products, if any. If we are unable to achieve sufficient revenue to become profitable and remain so, our financial condition and operating results will be negatively impacted, and the market price of our common shares might be adversely impacted.

We will ~~likely~~ need to raise additional funding, which may not be available on acceptable terms, if at all. Failure to obtain ~~this~~ necessary capital when needed may force us to delay, limit or terminate our product discovery and development programs or commercialization efforts or other operations.

Since our inception, we have dedicated most of our resources to the discovery and development of our ~~proprietary~~ pre-clinical and clinical product ~~candidates, and we~~candidates. We expect to continue to ~~expend~~spend substantial amounts of resources ~~doing so for~~to continue the ~~foreseeable future. These expenditures will include costs associated with research~~pre-clinical and development, potential milestone payments to third parties, manufacturing of product candidates and products approved for sale, conducting pre-clinical experiments and clinical trials and obtaining and maintaining regulatory approvals, as well as commercializing any products later approved for sale. During the nine months ended September 30, 2017, we incurred approximately $19.2 million of costs associated with research and development, exclusive of costs incurred by our collaborators in developing our product candidates.

~~-22-~~

~~Our current cash and cash equivalents and marketable securities are not expected to be sufficient to complete~~ clinical development of ~~any~~our current and future programs. If we are able to gain marketing approval for product candidates that we develop, we will require significant additional amounts of capital in order to launch and commercialize such product candidates to the extent that such launch and commercialization are not the responsibility of a collaborator. In addition, other unanticipated costs may arise in the course of our ~~product candidates~~development efforts. Because the design and ~~prepare for commercializing~~outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate ~~which receives regulatory approval. Accordingly,~~ we ~~will likely require substantial additional capital to continue our clinical development and potential commercialization activities.~~ develop.

Our future capital requirements depend on many factors, including but not limited to:

•

~~the number and characteristics of the future product candidates we pursue either from our internal research efforts or through acquiring or in-licensing other product candidates or technologies;~~

•

the timing of, and the costs involved in, obtaining marketing approvals for our product candidates and any other additional product candidates we may develop and pursue in the future;

•

the number of ~~our~~ future product candidates ~~including conducting pre-clinical research~~that we may pursue and ~~clinical trials;~~

their development requirements;

•

-27-

•

whether our existing collaborations ~~continue to~~ generate substantial milestone payments and, ultimately, royalties on future approved products for us;

•

~~the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates we develop independently;~~

~~the timing and magnitude of potential milestone payments under our product acquisition and in-license agreements;~~

the cost of future commercialization activities, including activities required pursuant to our option to co-promote TV-45070, if exercised by us, and the cost of commercializing any future products we develop independently that are approved for sale;

~~the cost of manufacturing our future product candidates and products, if any;~~

our ability to maintain existing collaborations and to establish new collaborations, licensing or other arrangements and the financial terms of such agreements;

•

our headcount growth and associated costs as we expand our research and development efforts and initiate pre-commercial activities;

•

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such litigation; and

•

the ~~timing, receipt and amount~~ongoing costs of ~~sales of, or royalties on, our future products, if any.~~

operating as a public company.

~~We are unable to estimate the funds we will actually require to complete research and development of our product candidates or the funds required to commercialize any resulting product in the future.~~

Our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches.planned. Raising funds in the future may present additional challenges and future financing may not be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, reduce or terminate our product development programs or plans for commercialization.

We may allocate our limited resources to pursue a particular product candidate or indication and fail to capitalize on other product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and management resources, we focus on a limited number of research programs and product candidates. As a result, we may forgo or delay pursuit of opportunities with other product candidates or for our current product candidates in other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spend on current and future research and development programs and product candidates for specific indications may not yield any commercially viable drugs. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

We expect our expenses to increase in connection with our planned operations. Unless and until we can generate a substantial amount of revenue from any approved product candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings, royalty-based financing, collaborations, licensing arrangements or other sources, or any combination of the foregoing. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

The terms of any financing arrangements we enter into may adversely affect the holdings or the rights of our shareholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common shares to decline. The sale of additional equity or convertible securities also would dilute all of our shareholders. ~~For example, in September 2016,~~

Historically, we ~~sold 3,450,000~~have also financed our operations through the incurrence of ~~our common shares at a price to the public of $7.50 per common share pursuant to our existing shelf registration statement on Form S-3 and corresponding Canadian base shelf prospectus. The~~debt. Any future incurrence of indebtedness would result in increased fixed payment obligations and, potentially, the imposition of restrictive covenants. ~~Those~~Such covenants ~~may~~could include limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

We could also be required to seek funds through collaborations or marketing, distribution or licensing arrangements, or royalty-based financings with ~~collaborators or otherwise at an earlier stage than otherwise would be desirable resulting in the loss of~~third parties, and we may have to relinquish valuable rights to ~~some of~~ our technologies, future revenue streams or product candidates, or ~~other unfavorable~~grant licenses on terms ~~any of which~~that may ~~have a material adverse effect on~~not be favorable to us. If we are unable to raise additional capital when needed, we may be required to delay, reduce or terminate our ~~business, operating results~~product discovery and ~~prospects.~~development programs, commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. In addition, any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.

~~-23-~~-28-

~~Unstable market and economic conditions may have serious adverse consequences on our business and financial condition.~~

Global credit and financial markets experienced extreme disruptions at various points over the last decade, characterized by diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If another such disruption in credit and financial markets and deterioration of confidence in economic conditions occurs, our business may be adversely affected. If the equity and credit markets were to deteriorate significantly in the future, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and the market price of our common shares could require us to delay or abandon development or commercialization plans. In addition, there is a risk that one or more of our current collaborators, service providers, manufacturers and other partners would not survive or be able to meet their commitments to us under such circumstances, which could directly affect our ability to attain our operating goals on schedule and on budget.

We are subject to risks associated with currency fluctuations which could impact our results of ~~operations.~~operations.

As of ~~September~~June 30, ~~2017,~~2023, approximately ~~43%~~5% of our cash and cash equivalents and marketable securities ~~was~~were denominated in Canadian dollars. ~~Historically, the majority of our operating~~We incur significant expenses ~~have been denominated~~ in Canadian dollars ~~and the majority of~~in connection with our ~~revenue has been denominated~~operations in ~~U.S. dollars.~~

~~Prior to December 31, 2014,~~Canada. We do not currently engage in foreign currency hedging arrangements for our ~~functional currency was the Canadian dollar. On January 1, 2015, our functional currency changed from the~~ Canadian dollar ~~to the U.S. dollar based on our analysis of the changes in the primary economic environment in which we operate. As a result, changes in the exchange rate between the Canadian dollar~~expenditures, and, the U.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, to the extent that foreign currency-denominated (i.e., non-U.S. dollar) monetary assets do not equal the amount of our foreign currency denominated monetary liabilities, foreign currency gains or losses could arise and materially impact our financial statements. As a result of suchconsequently, foreign currency fluctuations ~~it could be more difficult to detect underlying trends~~may adversely affect our earnings; however, in ~~our business and results of operations. In addition, to~~ the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the market price of our common shares could be adversely affected.

~~From time to time,~~future, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. For example, we aim to maintain a natural currency hedge against fluctuations in the U.S./Canadian foreign exchange rate by matching the amount of U.S. dollar and Canadian dollar investments to the expected amount of future U.S. dollar and Canadian dollar obligations, respectively. Any hedging technique we implement may fail to be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on the market price of our common shares.

Risks Related to Our Business and Industry

~~We, or our collaborators, may fail to successfully develop our product candidates.~~

Our clinical product candidates, which include TV-45070, GDC-0310, and XEN1101, along with our pre-clinical compounds, including XEN901, are in varying stages of development and will require substantial clinical development, testing and regulatory approval prior to commercialization. It may be several more years before these product candidates or any of our other product candidates receive marketing approval, if ever. If any of our product candidates fail to become approved products, our business, growth prospects, operating results and financial condition may be adversely affected and a decline in the market price of our common shares could result. For example, in June 2017, we, along with Teva Pharmaceutical Industries Ltd., or Teva, announced topline results from a Phase 2b clinical trial designed to evaluate the efficacy and safety of TV-45070 for the treatment of post-herpetic neuralgia, or PHN. Results from this trial showed that TV-45070 did not meet the primary endpoint of a statistically significant change in pain from baseline to week four as assessed by the numeric rating scale. Secondary endpoints were also not met. We and Teva plan to further analyze the data from this study to determine the next steps for TV-45070.

We and our collaborators face substantial competition in the markets for our product candidates, which may result in others discovering, developing or commercializing products before us or doing so more successfully than we, or our collaborators, do.

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition in ~~target~~drug discovery and product development from many different approaches and sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, ~~and~~ governmental agencies, ~~and~~as well as public and private research institutions. Any product candidates that we, or our collaborators, successfully develop and commercialize will compete with existing products and any new products that may become available in the future.

~~-24-~~

The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety and/or tolerability, convenience and ~~price;~~ease of administration, price, the ~~effectiveness and safety~~potential advantages of alternative ~~products;~~products, the level of generic ~~competition;~~competition, and the availability of coverage and adequate reimbursement from government and other third-party payers.

With respect to target discovery activities, competitors and other third parties, including academic and clinical researchers, may access rare families and identify novel targets for drug development before we do.

Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we, or our collaborators, do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or ~~early stage~~early-stage companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies.

Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products or therapies that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other foreign regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected by decisions made by insurers or other ~~third party~~third-party payers.

If one or more of our proprietary or partnered products were approved for the treatment of epilepsy, we anticipate that they could potentially compete with other anti-seizure medications, or ASMs, or one another. These currently commonly prescribed ASMs, among others, include brivaracetam, carbamazepine, cenobamate, clobazam, eslicarbazepine acetate, ethosuximide, gabapentin, lacosamide, lamotrigine, levetiracetam, oxcarbazepine, perampanel, phenytoin, topiramate, and valproate. The FDA has not yet approved any drug products specifically for SCN8A-DEE. There are other ASMs in development that could potentially compete with our products, including products in development from Biohaven Ltd, Cerevel Therapeutics Holdings, Inc., Eliem Therapeutics, Inc., H. Lundbeck A/S, Janssen Pharmaceuticals, Inc., Neuro3 Therapeutics, Inc., Neurocrine Biosciences, Praxis Precision Medicines, Inc., SK Life Science Inc., Supernus Pharmaceuticals, Inc., and Zhimeng Biopharma, Inc. To the extent that we are unable to compete effectively against one or more of our competitors in these areas, our business will not grow and our financial condition, results of operations and the market price of our common shares may suffer.

Drug discovery and development for various pain applications is intensely competitive. There are a large number of approved products for neuropathic pain, inflammatory pain and other pain indications. These approved products include capsaicin, celecoxib, lidocaine, narcotic analgesics, gabapentin, and pregabalin. We are also aware of development programs at several pharmaceutical and biotechnology companies that are developing Nav1.7 inhibitors or other sodium channel inhibitors for the treatment of pain, including Amgen Inc., AstraZeneca PLC, Biogen Inc., Dainippon Sumitomo Co., Ltd., Eli Lilly and Company, Merck & Co., Inc., or Merck, NeuroQuest Inc., Vertex Pharmaceuticals Inc., Voyager Therapeutics, Inc. and Chromocell Corporation in collaboration with its partner Astellas Pharma Inc. Moreover, we are aware of various other product candidates in development that target other mechanisms of action to treat various pain indications, including calcium channel inhibitors, nerve growth factor inhibitors, and Nav1.8 inhibitors.

If XEN901 or XEN1101 were approved for the treatment of epilepsy, we anticipate that they could compete with other anti-epileptic drugs, or AEDs, which typically can be categorized into four classes by AED mechanism: modulation of voltage-gated ion channels, enhancement of GABA-mediated inhibitory neurotransmission, reduction of glutamate-mediated excitatory neurotransmission, and SV2A modulation. Commonly used AEDs to treat focal seizures include carbamazepine, lamotrigine, valproate, oxcarbazepine, gabapentin and topiramate. There are currently no FDA-approved treatments indicated for the early infantile epileptic encephalopathies EIEE7 or EIEE13. We are not aware of other companies that are developing selective Nav1.6 inhibitors for the treatment of epilepsy. There may be other potassium channel modulators in development that could potentially compete with XEN1101, including products in development from SciFluor Lifesciences, Inc., Knopp Biosciences LLC, and Upsher-Smith Laboratories, Inc.

~~-25-~~-29-

We have no marketed proprietary products and have not yet ~~advanced a product candidate~~completed clinical development beyond Phase 2 clinical trials, which makes it difficult to assess our ability to develop our future product candidates and commercialize any resulting products independently.

WeAs a company, we have no previous experience in completing a Phase 3 ~~and later stage~~ clinical ~~development,~~trial or in completing clinical trials in pediatric or orphan drug indications, and related regulatory requirements including a New Drug Application, or NDA, or equivalent submission, or the commercialization of products. ~~Teva is responsible for the clinical development of TV-45070;~~ ~~Genentech, a member of the Roche Group, is responsible for the clinical development of GDC-0310; and uniQure controls and has been responsible for the development and commercialization of Glybera. Accordingly, we~~We have not yet demonstrated our ability to independently and repeatedly conduct clinical development after Phase 2, obtain regulatory approval, manufacture drug product on a registrational and commercial scale or arrange for a third-party to do so on our behalf, and commercialize therapeutic products. We will need to develop such abilities if we are to execute on our business strategy to ~~selectively~~ develop and independently commercialize product ~~candidates for orphan and niche indications.~~candidates. To execute on our business plan for the development of independent programs, we will need to successfully:

•

reach agreement with multiple regulatory agencies on clinical and pre-clinical studies required for registration;

•

execute our clinical development and manufacturing plans for later-stage product candidates;

•

obtain required regulatory approvals in each jurisdiction in which we will seek to commercialize products;

•

build and maintain appropriate pre-commercialization capabilities as well as commercial sales, distribution and marketing capabilities;

•

build and implement effective market access strategy and gain market acceptance for our future products, if any; and

•

manage our spending as costs and expenses increase due to clinical trials, regulatory approvals and commercialization activities.

If we are unsuccessful in accomplishing these objectives, we ~~would~~will not be able to develop and commercialize any future ~~orphan and niche disease~~ product candidates independently and could fail to realize the potential advantages of doing so.

If we are not successful in discovering, ~~acquiring or in-licensing~~developing and commercializing additional product candidates, ~~in addition to TV-45070, GDC-0310, XEN1101 and XEN901,~~ our ability to expand our business and achieve our strategic objectives may be impaired.

We ~~use~~have built a product development pipeline by identifying product candidates either from our ~~discovery platform to identify validated drug targets and develop new~~internal research efforts or through acquiring or in-licensing other product ~~candidates.~~candidates or technologies. To date, our internal discovery ~~platform has~~efforts have yielded ~~one approved product, Glybera, and~~ multiple development candidates, including ~~TV-45070, GDC-0310~~XEN901, which we licensed to Neurocrine Biosciences and ~~XEN901. Use~~is now known as NBI-921352. Both our internal discovery efforts and our assessment of ~~our discovery platform requires~~potential acquisition or in-licensing opportunities require substantial technical, financial and human resources, regardless of whether we identify any ~~novel drug targets. Our discovery platform may initially show promise in identifying additional potential product candidates, yet fail to yield~~ viable product candidates for clinical development or commercialization. Such failure may occur for many reasons, including the following: any product candidate may, on further study, be shown to have serious or unexpected side effects or other characteristics that indicate it is unlikely to be safe or otherwise does not meet applicable regulatory criteria; and any product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all.candidates.

If we are unable to identify additional product candidates suitable for clinical development and commercialization either from our internal research efforts or ~~though~~through acquiring or in-licensing other product candidates or technologies, we may not be able to obtain product revenue in future periods, which likely would result in significant harm to our financial position and adversely impact the market price of our common shares.

~~Our approach to drug discovery is unproven, and we do not know whether we will be able to develop any products of commercial value.~~

Our discovery platform may not reproducibly or cost-effectively result in the discovery of product candidates and development of commercially viable products that safely and effectively treat human disease.

There are various challenges in utilizing our discovery platform to successfully identify novel drug targets, including locating families suffering from rare disorders and severe phenotypes, entering into agreements with foreign collaborators, complying with various domestic and foreign privacy laws, accessing required technologies in a timely manner and transporting DNA across national borders.

To date, only Glybera has been both developed using our discovery platform and approved for commercial sale. If the use of our discovery platform fails to identify novel targets for drug discovery, or such targets prove to be unsuitable for treating human disease, or we are unable to develop product candidates with specificity and selectivity for such targets, we will fail to develop viable products. If we fail to develop and commercialize viable products, we will not achieve commercial success.

~~-26-~~

If we fail to attract and retain ~~senior management~~our executive officers and key personnel, we may be unable to successfully develop our product candidates, perform our obligations under our collaboration agreements, conduct our clinical trials and commercialize our product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel.

~~We could experience difficulties attracting and retaining qualified employees as competition for qualified~~ Our industry has experienced a high rate of turnover of management personnel in recent years. Replacing executive officers or other key employees may be difficult and may take an extended period of time because of the ~~biotechnology~~limited number of individuals in our industry with the breadth of skills and ~~pharmaceutical field is intense.~~ experience required to develop, gain regulatory approval of and commercialize products successfully.

We are highly dependent upon our ~~senior management, particularly Dr. Simon Pimstone, our Chief Executive Officer and President, and~~executive officers, including Mr. Ian Mortimer, our ~~Chief Financial Officer~~President and Chief ~~Operating Officer, as well as other employees.~~Executive Officer. The loss of services of ~~any of these individuals or~~ one or more of our ~~other members of senior management~~executive officers could materially delay or even prevent the successful development of our product candidates.

In addition, we will need to hire additional personnel as we expand our clinical development activities and develop commercial capabilities, including a sales infrastructure to support our independent commercialization efforts. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. The inability to recruit or loss of the services of any executive or key employee may impede the progress of our research, development and commercialization objectives.

-30-

Our employees, collaborators and other personnel may engage in misconduct or other improper activities, including non-compliance with legal and regulatory standards and requirements, which could cause significant liability for us and ~~insider trading.~~harm our reputation.

We are exposed to the risk of fraud or other misconduct by our employees, collaborators, vendors, ~~principal investigators,~~investigational site staff, consultants, commercial partners and ~~commercial partners.~~other personnel. Misconduct by ~~these~~those parties could include intentional, ~~failures~~reckless and/or negligent conduct or disclosure of unauthorized activities to ~~comply with~~ us that violates:

•

the regulations of the FDA, EMA and other ~~non-U.S.~~foreign regulators, ~~provide~~including those laws requiring the reporting of true, complete and accurate information to ~~the FDA, EMA and other non-U.S. regulators, comply with~~ such authorities;

•

manufacturing standards;

•

insider trading laws;

•

data privacy, data protection and ~~security~~security;

•

federal and state healthcare fraud and abuse laws and regulations in the U.S. and ~~abroad, report~~abroad; and

•

laws that require the reporting of financial information or data ~~accurately or disclose unauthorized activities to us.~~ accurately.

In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. Additionally, ~~laws regarding~~we are subject to applicable foreign, federal and state data privacy and security ~~including the federal Health Insurance Portability~~laws. For additional information, see “Risk Factors-We are subject to evolving global laws and ~~Accountability Act of 1996,~~regulations relating to privacy, data protection and information security, which may require us to incur substantial compliance costs, and any failure or ~~HIPAA, as amended~~perceived failure by ~~the Health Information Technology for Economic~~us to comply with such laws and ~~Clinical Health Act of 2009, or HITECH, as well as comparable laws in non-U.S. jurisdictions,~~regulations may ~~impose obligations with respect to safeguarding the privacy, use, security~~harm our business and transmission of individually identifiable health information such as genetic material or information we obtain through our direct-to-patient web-based recruitment approach for identifying patients with rare or extreme phenotypes or patients identified for clinical trials.operations.”

Various laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Any misconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials or creating fraudulent data in our pre-clinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, officers, directors, agents and representatives, including consultants, but it is not always possible to identify and deter ~~employee~~ misconduct, and the precautions we take to detect and prevent ~~this activity~~misconduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or claims, demands, or lawsuits stemming from aan actual or alleged failure to comply with these laws and regulations. Additionally, we are subject to the risk that a person or ~~regulations.~~government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves, achieving a favorable settlement or otherwise asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, integrity oversight and reporting obligations, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations. Additionally, defending against any such actions can be costly, time-consuming and may require significant ~~fines or other sanctions.~~financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.

We may encounter difficulties in managing our growth, including headcount, and expanding our operations successfully.

Our business strategy involves continued development and, where development is successful, commercialization of select product ~~candidates for orphan and niche indications independently.~~candidates. In order to execute on this strategy, we will need to build out a regulatory, sales, manufacturing, ~~distribution~~supply chain and marketing infrastructure and expand our development capabilities or contract with third parties to provide these capabilities and infrastructure for us. To achieve this, we will need to identify, hire and integrate personnel, ~~who have not worked together as a group previously.~~

compensate our employees on adequate terms in an increasingly competitive, inflationary market and continue to implement and improve our managerial, operational and financial systems. As our operations expand, we expect that we will need to manage additional relationships with various strategic collaborators, suppliers and other third parties.

Drs. Simon Pimstone and Y. Paul Goldberg each devote a small amount of their time to clinical work outside of their duties at our company, conducting, generally, two to three outpatient clinics per month on average. -31-

Future growth will impose significant added responsibilities on members of management including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities.

~~-27-~~

We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our business, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity amongst remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of existing and additional product candidates. If we are unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and grow revenue could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

We are subject to evolving global laws and regulations relating to privacy, data protection and information security, which may require us to incur substantial compliance costs, and any failure or perceived failure by us to comply with such laws and regulations may harm our business and operations.

In the ordinary course of business, we process personal data and other sensitive information, including our proprietary and confidential business data, trade secrets, intellectual property, data about trial participants collected in connection with clinical trials, and other sensitive data. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations that govern the processing of personal data by us and on our behalf.

In the U.S., federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. For example, the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, imposes specific requirements relating to the privacy, security, and transmission of individually identifiable health information. At the state level, the California Consumer Privacy Act of 2018, or CCPA, as amended and supplemented by the California Privacy Rights Act, imposes obligations on businesses to which it applies. The CCPA allows for statutory fines for noncompliance. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA, to the extent applicable to our business and operations, may increase compliance costs and potential liability with respect to other personal information we maintain about California residents. Other states have also enacted data privacy laws. Additional data privacy and security laws have been proposed at the federal, state, and local levels in recent years, which could further complicate compliance efforts.

Outside the U.S., the European Union’s GDPR and the United Kingdom’s GDPR, or UK GDPR, impose strict requirements for processing the personal data of individuals. For example, under the EU GDPR, government regulators may impose temporary or definitive bans on data processing, as well as fines of up to 20 million euros or 4% of annual global revenue, whichever is greater. Further, individuals may initiate litigation related to our processing of their personal data. Certain foreign jurisdictions have enacted data localization laws and cross-border personal data transfer laws, which could make it more difficult to transfer information across jurisdictions, such as transferring or receiving personal data that originates in the EU.

Although we endeavor to comply with all applicable data privacy and security obligations, these obligations are quickly changing in an increasingly stringent fashion, creating some uncertainty as to how to comply, and potentially requiring us to modify our policies and practices, which may be costly and may divert the attention of management and technical personnel. Further, we may at times fail, or be perceived to have failed, to have complied and could face significant consequences. These consequences may include, but are not limited to, government enforcement actions, investigations and other proceedings; additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: interruptions or stoppages in our business operations, including our clinical trials; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.

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Our business and operations could suffer in the event of ~~system failures.~~

~~Computer system, network~~an actual or ~~telecommunications failures due to events~~perceived information security incident such as ~~damage from~~a cybersecurity breach, system failure, or other compromise of our systems or those of a third-party or other contractor or vendor.

We rely on both internal information technology systems and networks, and those of third parties and their vendors and contractors, to transmit, store and otherwise process information in connection with our business activities. We are increasingly dependent upon our technology systems to operate our business and our ability to effectively manage our business depends on the security, reliability and adequacy of our and our third-party or other contractors’ or vendors’ technology systems and data. Any cyberattack including phishing, business email compromise, social engineering, ransomware or other malware, or any security breach, security incident, or other destruction, loss, or unauthorized ~~access, terrorism, war,~~use or ~~natural disasters~~other processing of data maintained or otherwise processed by us or on our behalf could ~~interrupt~~result in a loss of intellectual property or misappropriation of trade secrets, disruptions to our ~~internal or partner operations. For example,~~business and operations, subject us to increased costs and require us to expend time and resources to address the matter, may subject us to claims, demands, and proceedings by private parties, regulatory investigations and other proceedings, and fines, penalties, and other liability and have a material adverse effect on our business. In addition, the loss, alteration or other damage to or other unavailability of pre-clinical ~~trial~~ data or clinical trial data from completed or ongoing clinical trials for our product candidates could result in delays in our development and regulatory ~~filings and development~~approval efforts and significantly increase our ~~costs. To~~costs to recover or reproduce the ~~extent that~~data. Any cyber-attack, security breach or incident, or other destruction, loss or unauthorized processing of data maintained or otherwise processed by us or on our behalf, or the perception any ~~disruption or cybersecurity breach were to~~such matter has occurred, could result in ~~a loss~~actual or alleged violations of applicable U.S. and international privacy, data protection, information security and other laws and regulations, harm our reputation and subject us to litigation and governmental investigations and proceedings by federal, state and local regulatory entities in the U.S. and by international regulatory entities, resulting in exposure to material civil and/or ~~damage~~criminal proceedings and liability. In addition, we may incur significant additional expense to implement further measures relating to privacy, data protection and information security, whether in response to an actual or perceived security breach or incident or otherwise.

To date, we have not experienced any material impact to our business, financial position or operations resulting from cyberattacks or other information security incidents; however, because of frequently changing attack techniques, along with the increased volume and sophistication of such attacks, our business, financial position or operations could be adversely impacted in the future. Moreover, the prevalent use of mobile devices that access confidential information, widespread use of cloud-based applications with remote data ~~or inappropriate disclosure~~centers, and ability to work remotely all increase the risk of ~~confidential or proprietary information, we could incur liability~~security breaches and incidents. These risks may be heightened due to the ~~development~~increasing number of our ~~product candidates could~~and our vendors’ and contractors’ personnel working remotely. As cyber threats continue to evolve, we may be ~~delayed.~~required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. While we have implemented security measures, ~~and, to date, have not detected a cybersecurity breach nor experienced a material system failure,~~ our ~~internal~~ computer systems and ~~those of~~the external systems and services used by our ~~contractors~~third-party contract manufacturers, or CMOs, and ~~consultants~~contract research organizations, or CROs, and their vendors and contractors remain potentially vulnerable to ~~damage from~~ these ~~events.~~events and there can be no assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects. Our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches. In addition, regulators are considering new cybersecurity regulations. For example, the SEC has proposed amendments to its disclosure rules regarding cybersecurity risk management, strategy, governance and incident reporting by public companies. These proposed regulations may impact the manner in which we operate.

A variety of risks associated with international operations could materially ~~adversely affect~~harm our business.

~~Our collaborator for TV-45070, Teva, is based~~We must dedicate additional resources to comply with numerous laws and regulations in ~~Israel~~each jurisdiction in which we operate and ~~a significant portion of~~plan to operate outside the ~~research and development activities under our collaboration with Teva~~U.S., including those countries outside the U.S. in which we are performed outside of North America. Glybera has been approved for commercial sale in the EU by the EMA, subject to uniQure’s compliance with certain post-approval reporting and monitoring obligations; however, uniQure announced in April 2017 that it would not pursue the renewal of marketing authorization in Europe, which marketing authorization expired in October 2017. Ifconducting clinical trials. As we ~~continue to~~ engage in significant cross-border and international activities, we will be subject to risks related to international operations, including:

•

different regulatory requirements for initiating clinical trials, registering and maintaining approval of drugs ~~and biologics~~ in foreign countries;

•

reduced protection for intellectual property rights in certain countries;

•

unexpected changes in tariffs, trade barriers and regulatory requirements;

•

economic weakness, including inflation, political instability or open conflict in particular foreign economies and markets;

•

differing and multiple payor reimbursement regimes, government payers or patient self-pay systems;

•

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

•

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations of doing business in another country;

•

workforce uncertainty in countries where labor unrest is more common than in North America;

•

different controlled substance legislation between countries and legislation in certain countries that may restrict, limit, or delay our ability to manufacture and/or transport our product candidates;

~~likelihood of~~ -33-

•

potential or actual violations of domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, or of U.S. and international import, export and re-export control and sanctions laws and regulations, the likelihood of which ~~likelihood~~ may increase with an increase of operations in foreign ~~jurisdictions;~~

jurisdictions, directly or indirectly through third parties (whose corrupt or other illegal conduct may subject us to liability), which may involve interactions with government agencies or government-affiliated hospitals, universities and other organizations, such as conducting clinical trials, selling our products, and obtaining necessary permits, licenses, patent registrations, and other regulatory approvals;

•

tighter restrictions on privacy and data protection, and more burdensome obligations associated with the collection, use and ~~use~~retention of data, including clinical data and genetic material, may apply in jurisdictions outside of North ~~America, where we find some of the families with individuals that exhibit the severe phenotypes that we study; and~~

America;

•

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

•

business interruptions resulting from geopolitical actions, including war, civil and political unrest (such as the ongoing conflict between Russia and Ukraine) and terrorism, or natural disasters including earthquakes, typhoons, floods and ~~fires.~~

fires; and

•

supply and other disruptions resulting from the impact of public health pandemics or epidemics on our strategic partners, third-party manufacturers, suppliers and other third parties upon which we rely.

If ~~any of~~we are unable to successfully manage these ~~issues were to occur,~~risks associated with cross-border and international activities, our business could be materially harmed.

Pandemics, epidemics and other public health crises, may materially and adversely affect our business, financial condition and results of operations.

Pandemics, epidemics and other public health crises, including a potential resurgence of COVID-19 cases, may materially and adversely affect our business, financial condition and results of operations in several ways. For example, because our supply chain for raw materials, drug substance and drug product is worldwide, it could be subject to significant disruptions. There may be related restrictions on the export, import or shipment of raw materials, drug substance or drug product that could materially delay our business or clinical trials. In addition, our ability to initiate clinical sites and enroll patients globally may be negatively impacted by pandemics, epidemics and other public health crises.

For example, with the emergence of additional COVID-19 variants, there is a risk that COVID-19 infections could affect a sizable number of employees at the same time, which could in turn significantly affect our operations. Additionally, if any of our critical vendors are impacted, our business could be affected if we become unable to timely procure essential equipment, clinical trial drug product, supplies or services.

While restrictions relating to the COVID-19 pandemic have, in large part, been eased or removed in many jurisdictions, a resurgence in COVID-19 cases or other pandemics, epidemics and other public health crises may negatively impact our business operations, financial position, operating results and liquidity, as well as the overall economy and such impacts may be material.

U.S. holders of our common shares may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

Generally, for any taxable year in which 75% or more of our gross income is passive income, or at least 50% of the average ~~quarterly value~~percentage of our assets ~~(which~~(as determined under applicable Treasury Regulations, which may be determined in part by the market value of our common shares, which is subject to change) are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Based on the price of our common shares and the composition of our gross income and gross assets, ~~and the nature of our business,~~ we do not believe ~~that~~ we were a PFIC for the taxable ~~years~~year ended December 31, ~~2016, 2015 and 2014, although~~2022 but we could be a PFIC ~~for the calendar year ending December 31, 2017 or~~ in subsequent years. Our status as a PFIC is a fact-intensive determination made on an annual basis, and we cannot provide any assurance regarding our PFIC status for the current taxable year ~~ending December 31, 2017~~ or ~~for~~ future taxable years.

~~-28-~~

If we are a PFIC for any ~~subsequent~~ year, U.S. holders of our common shares may suffer adverse tax consequences. Gains realized by non-corporate U.S. holders on the sale of our common shares would be taxed as ordinary income, rather than as capital gain, and the preferential tax rate applicable to dividends received on our common shares would be lost. Interest charges would also be added to taxes on gains and dividends realized by all U.S. holders. U.S. holders should consult their own tax advisors with respect to their particular circumstances.

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A U.S. holder may avoid these adverse tax consequences by timely making a qualified electing fund election. For each year that we would meet the PFIC gross income or asset test, an electing U.S. holder would be required to include in gross income its pro rata share of our net ordinary income and net capital gains, if any. A U.S. holder may make a qualified electing fund election only if we commit to provide U.S. holders with their pro rata share of our net ordinary income and net capital gains. ~~If we are a PFIC in the current or a future tax year, we~~We will provide, upon request, our U.S. holders with the information that is necessary in order for them to make a qualified electing fund election and to report their ~~common~~pro rata shares of ordinary earnings and net capital gains for each year ~~for which~~ we ~~are~~believe we were a PFIC. U.S. holders should consult their own tax advisors with respect to making this election and the related reporting requirements.

A U.S. holder may also mitigate the adverse tax consequences ~~if we are a PFIC~~ by timely making a mark-to-market election. Generally, for each year that we ~~would~~ meet the PFIC gross income or asset test, an electing U.S. holder would include in gross income the increase in the value of its common shares during each of its taxable years and deduct from gross income the decrease in the value of such shares during each of its taxable years. A mark-to-market election may be made and maintained only if our common shares are regularly traded on a qualified exchange, including ~~The NASDAQ~~the Nasdaq Global Market, or ~~NASDAQ.~~Nasdaq. Whether our common shares are regularly traded on a qualified exchange is an annual determination based on facts that, in part, are beyond our control. Accordingly, a U.S. holder might not be eligible to make a mark-to-market election to mitigate the adverse tax consequences if we are characterized as a PFIC. U.S. holders should consult their own tax advisors with respect to the possibility of making this election.

In addition, if we are or become a PFIC (or our PFIC status is uncertain), it may deter certain U.S. investors from purchasing our common shares, which could have an adverse impact on the market price of our common shares.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We have significant Canadian federal net operating loss carryforwards which are limited in life, Canadian federal investment tax credit carryforwards and provincial investment tax credit carryforwards which could expire unused and be unavailable to offset future income tax liabilities. The rules dealing with Canadian and U.S. federal, provincial, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Canadian Revenue Agency, Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws, or changes in interpretations of existing laws (which changes may have retroactive application), including with respect to net operating losses and tax credits, could adversely affect us or holders of our common shares. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations.

We may become subject to income tax in jurisdictions in which we are organized or operate, which would reduce our future ~~earnings.~~earnings.

There is a risk that we may become subject to income tax in jurisdictions outside of Canada and the ~~United States,~~U.S., if under the laws of any such jurisdiction, we are considered to be carrying on a trade or business there or earn income that is considered to be sourced there and we do not qualify for an exemption. In jurisdictions where we do not believe we are subject to tax, we can provide no certainty that tax authorities in those jurisdictions will not subject one or more tax years to examination. Tax examinations are often complex as tax authorities may disagree with the treatment of items reported by us, the result of which could have a material adverse effect on our operating results and financial condition.

Acquisitions or ~~joint ventures~~other strategic transactions could disrupt our business, cause dilution to our shareholders and otherwise harm our business.

We actively evaluate various strategic transactions on an ongoing basis, ~~and may acquire~~including the acquisition of other businesses, products or technologies as well as ~~pursue~~pursuing strategic alliances, ~~joint ventures~~licensing transactions or investments in complementary businesses. Any of these transactions could be material to our financial condition and operating results and expose us to many risks, including:

•

disruption in our relationships with collaborators or suppliers as a result of such a transaction;

•

unanticipated liabilities related to acquired companies;

•

difficulties integrating acquired personnel, technologies and operations into our existing business;

•

retention of key employees;

•

diversion of management time and focus from operating our business to ~~management of~~pursuing strategic transactions and managing any such strategic alliances, or joint ventures or acquisition integration challenges;

•

dilution to our shareholders if we issue equity in connection with such transactions;

•

increases in our expenses and reductions in our cash available for operations and other uses; and

•

possible write-offs or impairment charges relating to acquired businesses.

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Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.

Also, the anticipated benefit of any strategic alliance ~~joint venture~~ or acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of future ~~joint ventures or~~ acquisitions, or the effect that any such transactions might have on our operating results.

Our current and future operations in the U.S. and elsewhere will be subject, directly or indirectly, to applicable federal and state anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings.

~~-29-~~

~~Risks Related to Development, Clinical Testing~~Healthcare providers and ~~Regulatory Approval~~third-party payers in the U.S. and elsewhere play a primary role in the recommendation and prescription of ~~Our Product Candidates~~

The regulatory approval processes of the FDA, EMA and regulators in other jurisdictions are lengthy, time-consuming and inherently unpredictable. If we, or our collaborators, are unable to obtain timely regulatory approval for ourany product candidates for which we obtain marketing approval. Our current arrangements with health care providers and our future arrangements with third-party payers and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act and similar laws in foreign jurisdictions in which we conduct business, that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include the following:

•

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;

•

federal civil and criminal false claims laws, including the federal False Claims Act, which can be enforced through civil whistleblower, or qui tam actions, as well as civil monetary penalty laws can impose criminal and civil penalties, assessment, and exclusion from participation for various forms of fraud and abuse involving the federal health care programs, such as Medicare and Medicaid;

•

HIPAA, including its criminal and civil liability provisions and privacy and security obligations imposed on covered entities, and business associates;

•

the federal Physicians Payment Sunshine Act, also referred to as the CMS Open Payments, which requires applicable manufacturers of certain drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS, information related to: certain payments or other transfers of value made to physicians (defined to include doctors of medicine and osteopathy, dentists, podiatrists, optometrists and licensed chiropractors), certain non-physician healthcare professionals (such as physician assistants and nurse practitioners among others), and teaching hospitals as well as information regarding ownership or investment interests held by physicians and their immediate family members; and

•

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures; state and local laws requiring the registration of pharmaceutical sales representatives; and state and foreign laws governing the collection, export, privacy, use, protection and security of biological materials and health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

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Efforts to ensure that our business arrangements with third parties will ~~be substantially harmed.~~

~~The regulatory approval process is expensive~~comply with applicable healthcare and ~~the time required~~privacy and data protection laws and regulations may involve substantial costs and may require us to ~~obtain approval from the FDA, EMA~~undertake or implement additional policies or measures. We may face claims and proceedings by private parties, and claims, investigations and other proceedings by governmental authorities, relating to allegations that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other ~~regulatory authorities in other jurisdictions to sell any product is uncertain~~healthcare laws and ~~may take years. Whether regulatory approval will be granted is unpredictable~~regulations, and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Approval policies, regulations, or the type and amount of pre-clinical and clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. Other than for Glybera in the EU, neither we nor our collaborators have obtained regulatory approval for any of our product candidates. Itit is possible that ~~none of our existing product candidates~~courts or governmental authorities may conclude that we have not complied with them, or that we may find it necessary or appropriate to settle any ~~of our future product candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking~~ such ~~approval.~~

~~Our product candidates could fail to receive regulatory approval for many reasons, including the following:~~

~~the FDA, EMA~~claims or other ~~regulatory authorities may disagree with the design or implementation~~proceedings. If our operations are found to be in violation of ~~our or our collaborators’ clinical trials;~~

~~we or our collaborators may be unable to demonstrate to the satisfaction of the FDA, EMA or other regulatory authorities that a product candidate is safe and effective for its proposed indication;~~

~~the results of clinical trials may not meet the level of statistical significance required by the FDA, EMA or other regulatory authorities for approval;~~

~~we, or our collaborators, may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;~~

~~the FDA, EMA or other regulatory authorities may disagree with our or our collaborators’ interpretation of data from pre-clinical studies or clinical trials;~~

the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a New Drug Application, or NDA, or other submission or to obtain regulatory approval in the U.S. or elsewhere;

the FDA, EMA or other regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; and

the approval policies or regulations of the FDA, EMA or other regulatory authorities outside of the U.S. may significantly change in a manner rendering our or our collaborators’ clinical data insufficient for approval.

Even if we, or our collaborators, obtain approval for a particular product, regulatory authorities may grant approval contingent on the performance of costly post-approval clinical trials, or may approve a product with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product.

Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials are prolonged or delayed, we, or our collaborators, may be unable to commercialize our product candidates on a timely basis.

Clinical testing of product candidates is expensive and, depending on the stage of development, can take a substantial period of time to complete. Clinical trial outcomes are inherently uncertain, and failure can occur at any time during the clinical development process.

~~Clinical trials can be halted or delayed for a variety of reasons, including those related to:~~

~~side effects or adverse events in study participants presenting an unacceptable safety risk;~~

~~inability to reach agreement with prospective contract research organizations, or CROs, and clinical trial sites, or the breach of such agreements;~~

~~failure of third-party contractors, such as CROs, or investigators to comply with regulatory requirements;~~

delay or failure in obtaining the necessary approvals from regulators or institutional review boards, or IRBs, in order to commence a clinical trial at a prospective trial site, or their suspension or termination of a clinical trial once commenced;

~~-30-~~

~~a requirement to undertake and complete additional pre-clinical studies to generate data required to support the continued clinical development of a product candidate or submission of an NDA;~~

~~inability to enroll sufficient patients to complete a protocol, particularly in orphan diseases;~~

~~difficulty in having patients complete a trial or return for post-treatment follow-up;~~

~~clinical sites deviating from trial protocol or dropping out of a trial;~~

~~problems with drug product or drug substance storage and distribution;~~

~~adding new clinical trial sites;~~

~~our inability to manufacture, or obtain from third parties, adequate supply of drug substance or drug product sufficient to complete our pre-clinical studies and clinical trials; and~~

~~governmental or regulatory delays and changes in regulatory requirements, policy and guidelines.~~

The results of any Phase 3 or other pivotal clinical trial may not be adequate to support marketing approval. These clinical trials are lengthy and, with respect to non-orphan indications, usually involve many hundreds to thousands of patients. In addition, if the FDA, EMA or another applicable regulator disagrees with our or our collaborator’s choice of the key testing criterion, or primary endpoint, or the results for the primary endpoint are not robust or significant relative to the control group of patients not receiving the experimental therapy, such regulator may refuse to approve our product candidate in the region in which it has jurisdiction. The FDA, EMA or other applicable non-U.S. regulators also may require additional clinical trials as a condition for approving any of these ~~product candidates.~~

~~We could also encounter delays if a clinical trial is suspended~~laws or ~~terminated by us, by our collaborators, by the IRBs of the institutions in which such trial is being conducted, by~~ any ~~Data Safety Monitoring Board for such trial, or by the FDA, EMA or~~ other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA or other regulatory authorities resulting in the imposition of a clinical hold, product candidate manufacturing problems, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, and the curtailment or administrative actions or lack of adequate funding to continue the clinical trial. In addition, delays can occur due to safety concerns arising from trials or other clinical data regarding another company’s product candidate in the same compound class as one of ours.

~~If we or our collaborators experience delays in the completion of, or termination of, any clinical trial of one~~restructuring of our product candidates, the commercial prospects of the product candidate will be harmed, could shorten the patent protection period during which we may have the exclusive right to commercialize our products and our or our collaborators’ ability to commence product sales and generate product revenue from the product will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development and approval process. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

Our product candidates – including TV-45070 and GDC-0310 for the treatment of pain, as well as XEN1101 and XEN901 for the treatment of epilepsy – target novel molecular mechanisms. Regulatory authorities may require more extensive studies of the long-term effects of such product candidates for regulatory approval,operations, which could ~~delay development of our product candidates or our future product candidates based on novel mechanisms.~~

~~Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which could prevent or delay regulatory approval and commercialization.~~

Before obtaining regulatory approvals for the commercial sale of our products, we must demonstrate through lengthy, complex and expensive pre-clinical testing and clinical trials that the product candidate is both safe and effective for use in each target indication. Clinical trials often fail to demonstrate safety and efficacy of the product candidate studied for the target indication. Most product candidates that commence clinical trials are never approved as products. For example, in June 2017, we, along with Teva, announced topline results from a Phase 2b clinical trial designed to evaluate the efficacy and safety of TV-45070 in PHN. Results from this trial showed that TV-45070 did not meet the primary endpoint of a statistically significant change in pain from baseline to week four as assessed by the numeric rating scale. Secondary endpoints were also not met. We and Teva plan to further analyze the data from this study to determine the next steps for TV-45070.

~~-31-~~

In the case of some of our product candidates, we are seeking to develop treatments for diseases for which there is relatively limited clinical experience, and, in some cases our clinical trials use novel end points and measurement methodologies or subjective patient feedback, which adds a layer of complexity to our clinical trials and may delay regulatory approval. In addition, our focus on orphan and niche markets may cause us to select target indications that are in more challenging therapeutic areas. Clinical trials for pain, the indication for which TV-45070 and GDC-0310 are being developed, are inherently difficult to conduct. The primary measure of pain is based on subjective patient feedback, which can be influenced by factors outside of our control, and can vary widely from day to day for a particular patient, and from patient to patient and site to site within a clinical study. The placebo effect also tends to have a more significant impact on pain trials.

If our product candidates are not shown to be both safe and effective in clinical trials, we will not be able to obtain regulatory approval or commercialize these product candidates and products. In such case, we would need to develop other compounds and conduct associated pre-clinical testing and clinical trials, as well as potentially seek additional financing, all of which would have a material adverse effect on our business. If any of the physicians or other providers or entities with whom we expect to do business, ~~growth prospects, operating results, financial condition and results of operations.~~

Weincluding our collaborators, is found not to be in compliance with applicable laws, it may ~~find it difficult~~be subject to ~~enroll patients~~criminal, civil or administrative sanctions, including exclusions from participation in ~~our clinical studies, including for orphan or niche indications,~~government healthcare programs, which could ~~delay or prevent clinical studies of~~also materially affect our ~~product candidates.~~

We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study, to complete our clinical studies in a timely manner. Patient enrollment for clinical trials for orphan and niche indications and for more prevalent conditions is affected by factors including:

~~severity of the disease under investigation;~~

~~design of the study protocol;~~

~~size of the patient population;~~

~~eligibility criteria for the study in question;~~

~~perceived risks and benefits of the product candidate under study;~~

~~proximity and availability of clinical study sites for prospective patients;~~

~~availability of competing therapies and clinical studies;~~

~~efforts to facilitate timely enrollment in clinical studies; and~~

~~patient referral practices of physicians.~~

The limited patient populations in orphan and niche indications present significant recruitment challenges for clinical trials. As an example of a rare childhood epilepsy disorder, the prevalence of Dravet Syndrome is estimated to be 7,500 to 15,000 patients in the U.S. It is estimated that the populations of early infantile epileptic encephalopathies,business. Further, defending against any such as EIEE7 and EIEE13, represent even smaller subsets amongst rare, childhood epilepsies when compared to Dravet Syndrome; however a full understanding of the size of these populations is still relatively unknown. Many of these patients may not be suitable or available for clinical trials. This means that we or our collaborators generally will have to run multi-site and potentially multi-national trials, whichactions can be ~~expensive~~costly, time-consuming and may require ~~close coordination~~significant financial and ~~supervision. If~~personnel resources. Therefore, even if we ~~experience delays~~are successful in ~~completing~~defending against any such actions that may be brought against us, our clinical trials, such delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical studies altogether.business may be impaired.

If we fail to ~~obtain~~comply with environmental, health and safety laws and regulations, we could become subject to fines or ~~maintain orphan drug designation~~penalties or ~~other regulatory exclusivity for some~~incur costs that could have a material adverse effect on the success of our ~~product candidates, our competitive position would be harmed.~~business.

~~A product candidate that receives orphan drug designation can benefit from a streamlined regulatory process~~Our research and development activities involve the controlled use of potentially harmful biological materials as well as ~~potential commercial benefits following approval. Currently, this designation provides market exclusivity~~hazardous materials, chemicals, and various radioactive compounds typically employed in molecular and cellular biology. For example, we routinely use cells in culture and we employ small amounts of radioisotopes. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling, or disposal of these materials through our maintenance of up-to-date licensing and training programs. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our resources. We currently carry insurance covering certain claims arising from our use of these materials. However, if we are unable to maintain our insurance coverage at a reasonable cost and with adequate coverage, our insurance may not cover any liability that may arise. We are subject to Canadian federal, provincial, and local laws and regulations and may be subject to U.S. and/or foreign, laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Complying with regulations regarding the use of these materials could be costly, and if we fail to comply with these regulations, it could have a material adverse effect on our operations and profitability.

We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from serious disaster.

Our headquarters are located in Burnaby, British Columbia, Canada. We are vulnerable to natural disasters such as earthquakes that could disrupt our operations. If a natural disaster, power outage, fire or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our CMOs, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. Although we carry insurance for earthquakes and other natural disasters, we may not carry sufficient business interruption insurance to compensate us for all losses that may occur. The disaster recovery and business continuity plans we have in place may not be adequate in the ~~U.S.~~event of a serious disaster or similar event. We may incur substantial expenses as a result of a natural disaster or earthquake, which could have a material adverse effect on our business. In addition, we may lose samples or other valuable data. The occurrence of any of the foregoing could have a material adverse effect on our business.

Risks Related to the Discovery, Development and Commercialization of Our Product Candidates

Our business substantially depends upon the EUsuccessful development of XEN1101. If we are unable to obtain regulatory approval for, ~~seven years~~ and ~~ten years, respectively, if a product is the first such product~~successfully commercialize, XEN1101, our business may be materially harmed.

We currently have no products approved for ~~such orphan indication. This market exclusivity does not, however, pertain to indications other than those for which the drug was specifically designated~~commercial sale and are investing significant efforts and financial resources in the ~~approval, nor does it prevent other types~~development of drugs from receiving orphan designations or approvals in these same indications. Further, even after an orphan drug is approved, the FDA can subsequently approve a drug with similar chemical structure for the same condition if the FDA concludes that the new drug is clinically superior to the orphanour clinical-stage product ~~or a market shortage occurs.~~

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In the EU, orphan exclusivity may be reduced to six years if the drug no longer satisfies the original designation criteria or can be lost altogether if the marketing authorization holder consents to a second orphan drug application or cannot supply enough drug, or when a second applicant demonstrates its drug is “clinically superior” to the original orphan drug. TV-45070 has received both fast track and orphan drug designationscandidate, XEN1101 for the treatment of ~~erythromelalgia,~~epilepsy and other neurological disorders. Our future business success depends on the continued development and ultimate regulatory approval of XEN1101. We will need to successfully enroll and complete our XEN1101 Phase 3 program. The future regulatory and commercial success of XEN1101 is subject to a number of risks, including:

•

successful patient enrollment in clinical trials and ultimate completion of clinical trials;

•

successful efficacy data from our clinical programs that support acceptable risk-benefit profiles of XEN1101 in the intended patient populations;

•

receipt and maintenance of marketing approvals from applicable regulatory authorities;

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•

completing any post-marketing studies required by applicable regulatory authorities;

•

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for XEN1101;

•

making arrangements with third-party manufacturers for both clinical and commercial supplies of XEN1101;

•

establishing sales, marketing and distribution capabilities and commercial launch of XEN1101, if and when approved, whether alone or ~~EM, from~~in collaboration with others;

•

successful commercial launch of XEN1101, if and when approved;

•

acceptance of XEN1101, if and when approved, by patients, the medical community and third-party payors;

•

obtaining and maintaining acceptable pricing, third-party insurance coverage and adequate reimbursement;

•

maintaining a continued acceptable safety profile of XEN1101 following approval;

•

effectively competing with other therapies;

•

enforcing and defending intellectual property rights and claims; and

•

raising sufficient funds to support regulatory approval and commercialization activities.

Many of these risks are beyond our control, including the risks related to clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we or any collaborator are unable to develop, receive regulatory approval for, or successfully commercialize XEN1101 for our initial or potential additional indications, or if we experience delays as a result of any of these risks or otherwise, our business could be materially harmed.

In addition, of the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of an NDA to the FDA and ~~flunarizine, a drug we~~even fewer are ~~evaluating internally~~approved for the potential treatment of hemiplegic migraine, has received orphan drug designation from the FDA. If we seek orphan drug designations for other indications or in other jurisdictions, we may fail to receive such orphan drug designations and,commercialization. Furthermore, even if we ~~succeed,~~do receive regulatory approval for XEN1101 for any indication, any such ~~orphan~~approval may be subject to limitations on the indications or uses or patient populations for which we may market XEN1101. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, we cannot ensure that we will successfully develop or commercialize XEN1101 for any indication.

Our approach to drug ~~designations~~discovery is unproven, and we do not know whether we will be able to develop any products of commercial value.

Our approach to drug discovery may not reproducibly or cost-effectively result in the discovery of product candidates and development of commercially viable products that safely and effectively treat human disease.

Our drug discovery efforts may initially show promise in identifying additional potential product candidates yet fail to ~~result~~yield viable product candidates for clinical development or commercialization. Such failure may occur for many reasons, including that any product candidate may, on further study, be shown to have serious or unexpected side effects or other characteristics that indicate it is unlikely to be safe or otherwise does not meet applicable regulatory criteria and/or not be capable of being produced in commercial quantities at an acceptable cost, or ~~maintain orphan~~at all.

If our discovery activities fail to identify novel targets for drug ~~exclusivity upon approval, which would harm our competitive position.~~discovery, or such targets prove to be unsuitable for treating human disease, or if we are unable to develop product candidates with specificity and selectivity for such targets, we will fail to develop viable products. If we fail to develop and commercialize viable products, we will not achieve commercial success.

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Results of pre-clinical studies and/or earlier clinical trials may not be predictive of the results of later-stage clinical ~~trials.~~trials and the results of our clinical trials may not satisfy regulatory requirements and we may experience delays or unexpected difficulties in obtaining regulatory approval.

The results of pre-clinical studies, either generated by us, such as for XEN901 (licensed to Neurocrine Biosciences and is now known as NBI-921352), by our CROs or by other third parties from which we have in-licensed or acquired a product candidate, may not be predictive of results in clinical testing. Moreover, pre-clinical results can often be difficult to compare across different studies for a variety of reasons, including differences in experimental protocols and techniques, personnel, equipment and other factors, which may make the pre-clinical results less reliable and predictive of clinical trial results. In addition, published clinical data or case reports from third parties or early clinical ~~trials~~trial data of our product candidates may not be predictive of the results of later-stage clinical trials. Interpretation of results from early, usually smaller, studies that suggest a clinically meaningful response in some patients, requires caution. Results from later stages of clinical trials enrolling more patients may fail to show the desired safety and efficacy results or otherwise fail to be consistent with the results of earlier trials of the same product candidate. Later clinical trial results may not replicate earlier clinical trials for a variety of reasons, including differences in trial design, different trial endpoints (or lack of trial endpoints in exploratory studies), patient population, number of patients, patient selection criteria, trial duration, drug dosage and formulation and lack of statistical power in the earlier studies. These uncertainties are enhanced where the diseases or disorders under study lack established clinical endpoints, ~~and~~ validated measures of efficacy, as is often the case with orphan diseases or disorders for which no drugs have been developed ~~previously.~~previously and where the product candidates target novel mechanisms. For example, to our knowledge, NBI-921352 is the first selective Nav1.6 sodium channel inhibitor being developed for the treatment of epilepsy and therefore standard pre-clinical models may not be predictive of clinical efficacy due to its novel molecular mechanism.

Further, our product candidates may not be approved even if they achieve their primary endpoint in our Phase 3 clinical trials. The FDA, EMA or foreign regulatory authorities may disagree with our trial design and our interpretation of data from pre-clinical studies and clinical trials or require additional data. In addition, any of these regulatory authorities may change its requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal clinical trial that, if successful, would potentially form the basis for an application for approval by the FDA, EMA or another foreign regulatory authority. For example, the FDA may refuse to accept our planned NDA for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval. If the FDA does not approve our planned NDA, it may require that we conduct additional clinical, nonclinical or manufacturing studies before it will reconsider our application. Depending on the extent of these or any other studies required by FDA or another regulatory authority, approval of an NDA or equivalent filing may be significantly delayed or may require us to expend more resources than we have available. Furthermore, applicable regulatory authorities may also approve our product candidates for a narrower indication or population than we request or may grant approval contingent on the performance of costly post-marketing commitments.

Interim, initial, “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose preliminary or top-line data from our pre-clinical studies and clinical trials, which are based on preliminary analyses of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular pre-clinical study or clinical trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results that we report may differ from future results of the same studies or trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, top-line data should be viewed with caution until the final data are available.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and could have a material adverse effect on the success of our business. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. If the interim, topline or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, ~~two small exploratory~~and commercialize, our product candidates may be harmed, which could harm our business, results of operations, prospects or financial condition. Further, disclosure of interim, top-line or preliminary data by us or by our competitors could result in volatility in the price of our common shares.

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Clinical trials may fail to demonstrate adequately the safety and efficacy of our, or our collaborators’, product candidates at any stage of clinical development. Terminating the development of any of our, or our collaborators’, product candidates could materially harm our business and the market price of our common shares.

Our and our collaborators’ clinical product candidates, which include XEN1101 and NBI-921352 (being developed by our collaborator Neurocrine Biosciences), along with product candidates we expect to enter clinical development, which include our pre-clinical compounds, are in varying stages of development and will require substantial clinical development, testing and regulatory approval prior to commercialization.

Before obtaining regulatory approvals for the commercial sale of our product candidates, we, or our collaborators, must demonstrate through lengthy, complex and expensive pre-clinical testing and clinical trials that each product candidate is both safe and effective for use in each target indication. Failure can occur at any time during the clinical trial process. Clinical trials often fail to demonstrate safety and efficacy of the product candidate studied for the target indication. Most product candidates that commence clinical trials are never approved as products. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. In addition to the safety and efficacy trials of any product candidate, clinical trial failures may result from a multitude of factors including flaws in trial design, dose selection, statistical analysis plan, placebo effect, patient enrollment criteria, patient compliance and trial execution. Data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Failure of a clinical trial due to any of these reasons could materially harm our business and the market price of our common shares.

In the case of some of our and our collaborators’ product candidates, we and our collaborators are seeking to develop treatments for certain diseases or disorders for which there is relatively limited clinical experience, and clinical trials may use novel endpoints and measurement methodologies or subjective patient feedback, which adds a layer of complexity to these clinical trials and may delay regulatory approval. Negative or inconclusive results from our, or our collaborators’, clinical trials could lead to a decision or requirement to conduct additional pre-clinical testing or clinical trials or result in a decision to terminate the continued development of a product candidate. For example, in October 2021, we released topline data from our X-TOLE clinical trial of XEN1101 in adult patients with focal epilepsy. Even though the topline data from our X-TOLE clinical trial were positive, there can be no assurance that our ongoing XEN1101 Phase 3 program will demonstrate adequate efficacy and safety results and that we will be able to obtain regulatory approval of XEN1101. Any of the foregoing outcomes would materially and adversely impact our business, product candidate pipeline and future prospects.

If our, or our collaborators’, product candidates are not shown to be both safe and effective in clinical trials, such product candidates will be unable to obtain regulatory approval or be successfully commercialized. In addition, our, or our collaborators’, failure to demonstrate positive results in clinical trials in any indication for which we, or our collaborators, are developing clinical product candidates could adversely affect development efforts in other indications. In such case, we would need to develop other compounds and conduct associated pre-clinical testing and clinical trials, as well as potentially seek additional financing, all of which would have a material adverse effect on our business, growth prospects, operating results, financial condition and results of operations.

We, or our collaborators, may find it difficult to enroll patients in our clinical trials, including for ultra-orphan, orphan or niche indications,which could delay or prevent the successful completion of clinical trials of our product candidates.

We, or our collaborators, may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study, to complete clinical trials in a timely manner, or at all. Patient enrollment for clinical trials for ~~primary EM pain,~~ultra-orphan, orphan and niche indications and for more prevalent conditions is affected by factors including:

•

severity of the disease or disorder under investigation;

•

design of the study protocol;

•

size of the patient population and geographic dispersion;

•

identification of patients;

•

eligibility criteria for the study in question;

•

perceived risks and benefits of the product candidate under study;

•

our ability to recruit clinical trial investigators with the appropriate competencies and experience;

•

proximity and availability of clinical trial sites for prospective patients;

•

availability of competing therapies and clinical trials;

•

efforts to facilitate timely enrollment in clinical trials; and

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•

patient referral practices of physicians.

The limited patient populations in ultra-orphan, orphan and niche indications, such as SCN8A-DEE and other early infantile epileptic encephalopathies, present significant recruitment challenges for clinical trials and a full understanding of the size of these populations is still relatively unknown. Many of these patients may not be suitable or available to participate in clinical trials, and therefore require multi-site and potentially multi-national trials, which can be expensive and require close coordination and supervision.

Our and our collaborator’s clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one ~~using~~of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites.

Our and our collaborator’s inability to enroll a ~~topical formulation and the other an oral formulation~~sufficient number of ~~TV-45070, used novel measures of efficacy assessment. While these studies provided promising results, further larger~~patients for our clinical trials would result in significant delays or might require us to abandon one or more clinical trials altogether. Delays in patient enrollment may result in increased costs, affect the timing or outcome of the planned clinical trials, affect product candidate development and approval process and jeopardize our ability to seek and obtain the regulatory approval required to commence product sales and generate revenue, any of which could cause the value of our company to decline and limit our ability to obtain additional financing if needed.

Our success also depends on the collective performance, contributions, and expertise of the personnel who manage our clinical trial sites. There is significant competition for qualified personnel, particularly those with higher educational degrees, in the biopharmaceutical and related services industries. Increased personnel turnover and labor shortages facing the biopharmaceutical services industry could have a negative impact on the third parties we rely on to execute our clinical trials. While we seek to choose trial sites with adequate staffing support, we cannot be certain that personnel turnover or the broader labor market dynamics in this industry will not negatively impact our trial sites. If our sites are negatively impacted by these factors, our ability to enroll our clinical trials in a timely fashion may be hindered and might negatively affect our business, development timelines, and financial condition.

We, or our collaborators, may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our, or our collaborators’, product candidates.

To obtain the requisite regulatory approvals to commercialize any of our product candidates, we, or our collaborators, must demonstrate through extensive pre-clinical studies and clinical trials that our, or our collaborators’, product candidates are safe and effective in humans. We, or our collaborators, may experience delays in completing our, or our collaborators’, clinical trials or pre-clinical studies, and initiating or completing additional clinical trials or pre-clinical studies, including as a result of regulators not allowing or delay in allowing clinical trials to proceed under an IND, or not approving or delaying approval for any clinical trial grant or similar approval we need to initiate a clinical trial. We, or our collaborators, may also experience numerous unforeseen events during our clinical trials that could delay or prevent our, or our collaborators’, ability to complete development for a product candidate, or receive marketing approval or commercialize the product candidates we, or our collaborators, develop, including:

•

delay or failure in obtaining the necessary approvals from regulators or institutional review boards, or IRBs, in order to ~~confirm~~commence a clinical trial at a prospective trial site, or their suspension or termination of a clinical trial once commenced;

•

inability to reach agreement with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites, or the breach of such agreements;

•

we may experience challenges or delays in recruiting principal investigators or study sites to lead our clinical trials;

•

side effects or adverse events in study participants presenting an unacceptable safety risk;

•

failure of third-party contractors, such as CROs, or investigators to comply with regulatory requirements, including good clinical practices, or GCPs;

•

difficulty in having patients complete a trial, adhere to the trial protocol, or return for post-treatment follow-up;

•

the number of subjects or patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher rate than we anticipate;

•

clinical sites deviating from trial protocol or dropping out of a trial;

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•

we may have to amend clinical trial protocols submitted to regulatory authorities or conduct additional studies to reflect changes in regulatory requirements or guidance, which it may be required to resubmit to an IRB and regulatory authorities for re-examination;

•

challenges or delays with accessing certain species of animals to complete our pre-clinical studies;

•

problems with investigational medicinal product storage, stability and distribution; our inability to manufacture, or obtain from third parties, adequate supply of drug substance or drug product sufficient to complete our pre-clinical studies and clinical trials, including supply chain issues resulting from any events affecting raw material supply or manufacturing capabilities abroad;

•

a requirement to undertake and complete additional pre-clinical studies to generate data required to initiate clinical development or to support the continued clinical development of a product candidate or submission of an NDA or equivalent;

•

unforeseen disruptions, caused by man-made or natural disasters, public health pandemics or epidemics, civil unrest or military conflict, or other business interruptions; and

•

governmental or regulatory delays and changes in regulatory requirements, policy and guidelines.

These risks and uncertainties could impact any of our, or our collaborators’, clinical programs and any of the clinical, regulatory or operational events described above could change our, or our collaborators’, planned clinical and regulatory activities. For example, we previously experienced a significant reduction in the rate of new patient enrollment in our X-TOLE trial due to the COVID-19 pandemic. While we were able to complete recruitment for this trial, we cannot be certain that a resurgence in COVID-19 cases or other outbreaks will not negatively impact other trials in the future. Further challenges in enrolling and retaining patients in our clinical trials, including in our XEN1101 Phase 3 program, whether as a result of pandemics, geopolitical events, or for any other reasons, may further delay the trials or cause them to be discontinued.

The results of any Phase 3 or other pivotal clinical trials may not be adequate to support marketing approval. These clinical trials are lengthy and, with respect to non-orphan indications, usually involve many hundreds to thousands of patients. Clinical trials can also be lengthy due to the challenge of identifying patients. Even if patients are successfully identified, they may fail screening criteria including baseline seizure burden for epilepsy clinical trials and, as a result, not be enrolled in the trial. Any challenges associated with identifying, screening and/or enrolling patients in our trials may extend the time needed to complete our clinical trials or require additional sites to be initiated in order to achieve target enrollment numbers and to complete our clinical trials, which may increase the cost of our operations and/or delay the timing of our regulatory approval. In addition, if the FDA, EMA or another foreign regulator disagrees with our, or our collaborators’, choice of the key testing criterion, or primary endpoint, or if the results for the primary endpoint are not robust or significant relative to the control group of patients not receiving the experimental therapy, or our statistical analysis is inconclusive, such regulator may refuse to approve our product candidate in the region in which it has jurisdiction. The FDA, EMA or other foreign regulators also may require additional clinical trials as a condition for approving any of these ~~observations.~~product candidates.

We, or our collaborators, could also encounter delays if a clinical trial is suspended or terminated by us, by our collaborators, by the IRBs of the institutions in which such trial is being conducted, by any Data Safety Monitoring Board for such trial, or by the FDA, EMA or other foreign regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA or other foreign regulatory authorities resulting in the imposition of a clinical hold, product candidate manufacturing problems, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, delays can occur due to safety concerns arising from trials or other clinical data regarding another company’s product candidate in the same compound class as one of ours.

Additionally, changes in applicable regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes or to include additional objectives that could yield important scientific information critical to our overall development strategy. The protocol amendment process often requires review and approval by several review bodies, including regulatory agencies and scientific, regulatory and ethics boards and IRBs which may affect timely completion of a clinical trial. Further, these protocol amendments may not be accepted by the review bodies in the form submitted, or at all, which may impact costs, timing or successful completion of a clinical trial.

On May 11, 2023, the U.S. federal government ended the COVID-19 public health emergency, which ended a number of temporary changes made to federally funded programs while some continue to be in effect. For example, in 2020 and 2021, the FDA issued a number of COVID-19 related guidance documents for manufacturers and clinical trial sponsors, many of which have expired or were withdrawn with the termination of the COVID-19 public health emergency declaration in May 2023, although some COVID-19 related guidance documents continue in effect. The full impact of these policy changes and the wind-down of the public health emergency on the FDA and other regulatory policies and operations is unclear.

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If we, or our collaborators, experience delays in the completion of, or termination of, any clinical trial of one of our product candidates, the commercial prospects of the product candidate may be harmed, the period during which we may have the exclusive right to commercialize our products under patent protection could be shortened, and our, or our collaborators’, ability to commence product sales and generate product revenue from the product will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development and approval process and may ultimately lead to the termination of a clinical trial and development of a product candidate. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our, or our collaborators’, product candidates.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if obtained.

Undesirable side effects caused by any of our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA or comparable foreign regulatory authorities.

Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. For example, adverse events in our X-TOLE clinical trial were generally mild or moderate in severity, however, there can be no guarantee that we will observe a similar tolerability profile of XEN1101 in our ongoing Phase 3 or other clinical trials or in other future clinical trials. Many compounds that initially showed promise in clinical or earlier-stage testing are later found to cause undesirable or unexpected side effects that prevented further development of the compound.

If unacceptable side effects arise in the development of our product candidates, we, the FDA, EMA or comparable foreign regulatory authorities, the IRBs, or independent ethics committees at the institutions in which our trials are conducted, could suspend, limit or terminate our clinical trials, or the independent safety monitoring committee could recommend that we suspend, limit or terminate our trials, or the FDA, EMA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-emergent side effects that are deemed to be drug-related could delay recruitment of clinical trial subjects or may cause subjects that enroll in our clinical trials to discontinue participation in our clinical trials. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We may need to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in harm to patients that are administered our product candidates. Any of these occurrences may adversely affect our business, financial condition and prospects significantly.

Moreover, clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates are developed through pre-clinical to ~~late stage~~late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and ~~formulation,~~formulations, are altered along the way in an effort to optimize products, processes and ~~results. Such changes carry~~results, to extend patent protection and/or to target different populations. For example, we have developed a pediatric formulation for NBI-921352 that was included in the ~~risk that they will not achieve these intended objectives.~~license to Neurocrine Biosciences. Any of these changes could cause our product candidates to perform differently and not provide the same drug exposure profile in children and/or cause side effects different to those observed with the same formulation in adults or with other formulations. Unexpected changes in the performance of a new formulation may affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the conduct of additional bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs and/or delay or jeopardize approval of our product candidates and/or jeopardize our, or our collaborators’, ability to commence product sales and generate revenue.

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The regulatory approval processes of the FDA, EMA and regulators in other foreign jurisdictions are lengthy, time-consuming and inherently unpredictable. If we, or our collaborators, are unable to obtain regulatory approval for our product candidates in a timely manner, or at all, our business will be substantially harmed.

The regulatory approval process is expensive and the time required to obtain approval from the FDA, EMA or other foreign regulatory authorities in other jurisdictions to sell any product is uncertain and may take years. Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Approval policies, regulations, or the type and amount of pre-clinical and clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and even if the pre-clinical studies show promising results and clinical trials are successfully completed, we cannot guarantee that the FDA, EMA or other foreign regulatory authorities in other jurisdictions will interpret the results as we do, and more trials, manufacturing-related studies or non-clinical studies could be required before we submit our product candidates for approval. Many companies that have believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. To the extent that the results of our studies and trials are not satisfactory to the FDA, EMA or other foreign regulatory authorities in other jurisdictions for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. It is also possible that none of our existing product candidates or any of our future product candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking such approval.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

•

the FDA, EMA or other foreign regulatory authorities may disagree with the design or implementation of our, or our collaborators’, clinical trials;

•

we, or our collaborators, may be unable to demonstrate to the satisfaction of the FDA, EMA or foreign other regulatory authorities that a product candidate is safe and effective for its proposed indication;

•

the results of clinical trials may not meet the level of statistical significance required by the FDA, EMA or other foreign regulatory authorities for approval;

•

we, or our collaborators, may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

•

the FDA, EMA or other foreign regulatory authorities may disagree with our, or our collaborators’, interpretation of data from pre-clinical studies or clinical trials;

•

the FDA, EMA or other foreign regulatory authorities may fail to approve the manufacturing processes, controls or facilities of third-party manufacturers with which we, or our collaborators, contract for clinical and commercial supplies;

•

the pre-approval inspections of Xenon, manufacturing, clinical sites, pre-clinical or clinical service providers, conducted by regulatory authorities may identify errors or omissions that may result in the product candidate not being approved; and

•

the approval policies or regulations of the FDA, EMA or other foreign regulatory authorities may significantly change in a manner rendering our, or our collaborators’, clinical data insufficient for approval.

Even if we, or our collaborators, obtain approval for a particular product, regulatory authorities may grant approval contingent on the performance of costly post-approval commitments including clinical trials, or may approve a product with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product.

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In addition, the FDA, EMA or other foreign regulatory authorities’ policies with respect to clinical trials may change and additional government regulations may be enacted. For instance, the regulatory landscape related to clinical trials in the EU recently evolved. The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repealed the EU Clinical Trials Directive, became applicable on January 31, 2022. The implementation of the CTR also includes the implementation of the Clinical Trials Information System, or CTIS, a new clinical trial portal and database that will be maintained by the European Medicines Agency, or EMA, in collaboration with the European Commission and the EU Member States. The objectives of the CTR include consistent rules for conducting trials throughout the EU, consistent data standards and adverse events listing, and consistent information on the authorization status. Information on the conduct and results of each clinical trial carried out in the EU will be made publicly available. The CTR authorizes EU Member States to regulate certain aspects of clinical trials at the national level. To the extent an EU Member State where we plan to conduct any of our clinical trials is slow to adopt CTIS or implements other regulatory changes at the national level, our clinical trial may be delayed in such EU Member State, and our costs may be increased. The main legislation that applies to clinical trials in the UK is the UK Medicines for Human Use (Clinical Trials) Regulations 2004, which transposes the EU Clinical Trials Directive into domestic law. The UK has implemented the Integrated Research Application System, which allows a single application to be reviewed by both the Medicines and Healthcare products Regulatory Agency and a research ethics committee at the same time. Requirements and obligations that relate to the conduct of clinical trials in the UK remain largely aligned with the EU position. Complying with changes in regulatory requirements in different jurisdictions can result in additional costs, delay our clinical development plans, or expose us to greater liability if we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our development plans, including our XEN1101 Phase 3 development program, may be impacted.

Additionally, because there may be approved treatments for some of the diseases or disorders for which we may seek approval, in order to receive regulatory approval, we may need to demonstrate in clinical trials that the product candidates we develop to treat those diseases or disorders are not only safe and effective, but may need to be compared to existing products, which may make it more difficult for our product candidates to receive regulatory approval or adequate reimbursement.

Even if we obtain and maintain approval for our product candidates from one jurisdiction, we may never obtain approval for our product candidates in other jurisdictions, which would limit our market opportunities and adversely affect our business.

Sales of our approved products, ~~are, and~~if any, will be subject to ~~U.S. and foreign~~the regulatory requirements governing ~~clinical trials and~~ marketing approval in the countries in which we obtain regulatory approval, and we plan to seek, ourselves or with collaborators, regulatory approval to commercialize our product candidates in North America, the EU and in additional foreign countries. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. For example, approval in the U.S. by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by the FDA, EMA or regulatory authorities in other countries. Approval procedures vary among jurisdictions and can be lengthy and expensive, and involve requirements and administrative review periods different from, and potentially greater than, those in the U.S., including additional pre-clinical studies or clinical trials. Even if our product candidates are approved, regulatory approval for any product may be withdrawn by the regulatory authorities in a particular jurisdiction.

~~Even if a product is approved, the FDA~~ We do not have experience in obtaining regulatory approval in international markets. If we, or the EMA, as the case may be, may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. In many countries outside the U.S., a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intendour collaborators, fail to ~~charge for a product is also subject to approval.~~

~~Regulatory authorities in countries outside of the U.S. and the EU also have their own requirements for approval of product candidates~~comply with ~~which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with such foreign~~ regulatory requirements ~~could result in significant delays, difficulties~~or to obtain and ~~costs for us and could delay or prevent the introduction of our current and any future products, in certain countries.~~

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~~If we fail to receive applicable marketing~~maintain required approvals, ~~or comply with the regulatory requirements in international markets,~~ our target market will be reduced and our ability to realize the full market potential of our product candidates will be ~~harmed~~harmed.

Although orphan drug designation has been granted to NBI-921352 for the treatment of SCN8A-DEE, we may not be able to realize any value from such designations.

NBI-921352, being developed by our collaborator Neurocrine Biosciences, has received orphan drug designation from the FDA and orphan medicinal product designation was granted by the European Commission for the treatment of SCN8A-DEE. Currently, orphan drug designation provides market exclusivity in the U.S. and the EU for seven years and ten years, respectively, if a product is the first such product approved for such orphan indication. In the EU, for orphan medicines, a valid and completed Pediatric Investigation Plan, or PIP, could qualify the sponsor for a two-year marketing exclusivity extension to the ten-year marketing exclusivity which is granted at the time of review of the orphan medicinal designation. The orphan drug market exclusivity does not, however, pertain to indications other than those for which the drug was specifically designated in the approval, nor does it prevent other types of drugs from receiving orphan designations or approvals in these same indications. Further, even after an orphan drug is approved, the FDA can subsequently approve a drug with similar chemical structure for the same condition if the FDA concludes that the new drug is clinically superior to the orphan product or a market shortage occurs.

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In Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), the court disagreed with the FDA’s longstanding position that the orphan drug exclusivity only applies to the approved use or indication within an eligible disease. This decision created uncertainty in the application of the orphan drug exclusivity in the U.S.. On January 24, 2023, the FDA published a notice in the Federal Register to clarify that while the FDA complies with the court’s order in Catalyst, the FDA intends to continue to apply its longstanding interpretation of the regulations to matters outside of the scope of the Catalyst order – that is, the FDA will continue tying the scope of orphan-drug exclusivity to the uses or indications for which a drug is approved, which permits other sponsors to obtain approval of a drug for new uses or indications within the same orphan designated disease or condition that have not yet been approved. It is unclear how future litigation, legislation, agency decisions and administrative actions will impact the scope of the orphan drug exclusivity.

Although the FDA has granted rare pediatric disease, or RPD, designation to NBI-921352 for the treatment of SCN8A-DEE, we may not be able to realize any value from such designation.

NBI-921352, being developed by our collaborator Neurocrine Biosciences, has received RPD designation for the treatment of SCN8A-DEE. The FDA defines a “rare pediatric disease” as a disease that affects fewer than 200,000 individuals in the U.S. primarily under the age of 18 years old. Under the FDA’s RPD priority review voucher program, upon the approval of an NDA or a biologics license application, BLA, for the treatment of an RPD, the sponsor of such application would be eligible for a priority review voucher that can be used to obtain priority review for a subsequent NDA or BLA. There is no assurance Neurocrine Biosciences will receive a RPD priority review voucher or that use of the priority review voucher will result in a faster review or approval for a subsequent marketing application. It is possible that even if Neurocrine Biosciences obtains approval for NBI-921352 in SCN8A-DEE and qualifies for such a priority review voucher, the program may no longer be in effect at the time of approval of this product candidate. Also, although priority review vouchers may be freely sold or transferred to third parties, there is no guarantee that we will be able to realize any value if we or any of our collaborators were to sell a priority review voucher to a third-party. In addition, Congress extended FDA authorization to designate RPDs through September 30, 2024 and award RPD priority review vouchers through September 30, 2026. Neither orphan drug designation, nor RPD, designation gives the drug any advantage in the regulatory review or approval process other than potential fee reductions, and in the case of RPD, priority review vouchers, or increase the likelihood that it will receive marketing approval.

If product liability lawsuits are brought against us, we may incur substantial liabilities in excess of our limited product liability insurance coverage and may be required to limit commercialization of our current and any future products.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates, and we will face an even greater risk if we commercialize any product candidates. For example, we may be sued if any of our product candidates, including any that are developed in combination with other therapies, allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state or provincial consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. There is also risk that third parties we have agreed to indemnify could incur liability. Regardless of the merits or eventual outcome, liability claims may result in:

•

decreased demand for our product candidates or any resulting products;

•

injury to our reputation;

•

withdrawal of clinical trial participants;

•

costs to defend the related litigation;

•

a diversion of management’s time and our ~~business will~~resources;

•

substantial monetary awards to trial participants or patients;

•

product recalls, withdrawals or labeling, marketing or promotional restrictions;

•

loss of revenue;

•

the inability to commercialize our product candidates; and

•

a decline in the market price of our common shares.

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We currently carry product liability insurance with amounts of coverage that we believe are appropriate relative to our current clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may then be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause the market price of our common shares to decline and, if judgments exceed our insurance coverage, could adversely ~~affected.~~affect our future results of operations and business.

~~We work~~Patients with ~~outside scientists~~certain of the diseases, or disorders, targeted by our product candidates are often already in severe and ~~their institutions~~advanced stages of disease and have both known and unknown significant pre-existing and potentially life-threatening conditions. During the course of treatment, patients have in ~~executing~~the past and may in the future suffer adverse events, including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market those product candidates, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, ~~strategy~~financial condition or results of developing product candidates using our discovery platform. These scientists may have other commitments or conflicts of interest, which could limit our access to their expertise and harm our ability to leverage our discovery platform.operations.

We work with scientific advisors and collaborators at academic research institutions in connection with our discovery platform. These scientific advisors serve as our link to the various families with extreme phenotypes in that these advisors may:

~~identify families as potential candidates for study;~~

~~obtain their consent to participate in our research;~~

~~perform medical examinations and gather medical histories;~~

~~conduct the initial analysis of suitability of the families to participate in our research based on the foregoing; and~~

~~collect data and biological samples from the family members periodically in accordance with our study protocols.~~

These scientists and collaborators are not our employees, rather they serve as either independent contractors or the primary investigators under research collaboration agreements that we have with their sponsoring academic or research institution. Such scientists and collaborators may have other commitments that would limit their availability to us. Although our scientific advisors generally agree not to do competing work, if an actual or potential conflict of interest between their work for us and their work for another entity arises, we may lose their services. It is also possible that some of our valuable proprietary knowledge may become publicly known through these scientific advisors if they breach their confidentiality agreements with us, which would cause competitive harm to our business.

~~Risks Related to Commercialization~~

If, in the future, we are unable to establish our own sales, marketing and distribution capabilities or enter into ~~licensing or collaboration~~ agreements for these purposes, we may not be successful in independently commercializing any future products.

We do not have a sales or marketing infrastructure and, as a company, have no sales, marketing or distribution experience. Our strategy involves ~~in part,~~ building our own commercial infrastructure to selectively commercialize future products in ~~niche~~ certain commercial markets which will be expensive and time consuming. For certain products, including XEN1101, and/or ~~orphan indications. Where~~specific commercial markets, we ~~believe such involvement would advance our business,~~evaluate commercial partners from time to time. In some cases, we may seek to retain the right to participate in the future development and commercialization of such ~~products. For example,~~products if we ~~have a co-promotion option for TV-45070 with Teva~~believe such involvement would advance our business. We cannot be certain that we will be successful in ~~the U.S.~~consummating any such commercial partnerships or, if consummated, whether such partnerships will be successful.

To develop internal sales, distribution and marketing capabilities in the U.S., we will have to invest significant amounts of financial and management resources, some of which will need to be committed prior to any confirmation that any of our ~~proprietary~~ product candidates will be approved. We have no prior experience as a company in the marketing, sale and distribution of biopharmaceutical products and there are significant risks involved in building and managing a commercial organization. For any future products for which we decide to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:

•

the maintenance of existing or the establishment of new supply arrangements with third-party logistics providers and secondary packagers;

•

the maintenance of existing or the establishment of new scaled production arrangements with third-party manufacturers to obtain finished products that are appropriately packaged for sale;

•

a continued acceptable safety profile following any marketing approval;

•

our inability to recruit and retain adequate numbers of ~~effective~~qualified sales and marketing personnel or develop alternative sales channels;

•

the inability of ~~sales personnel~~our products to ~~obtain access to~~secure acceptance from physicians, ~~or persuade~~healthcare providers, patients, third-party payers and the medical community including identifying an adequate ~~numbers~~number of physicians ~~to prescribe any future products;~~

and patients, especially for ultra-orphan, orphan or niche indications;

•

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; ~~and~~

•

unforeseen costs and expenses associated with creating and maintaining an independent sales and marketing ~~organization.~~

organization; and

•

our ability to compete with other therapies.

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Where and when appropriate, we may elect to utilize contract sales forces, or distribution partners or collaborators that have sales, marketing and distribution capabilities to assist in the commercialization of or to independently commercialize our product candidates. If we enter into arrangements with third parties to perform sales, marketing and distribution services for a product, the resulting revenue or the profitability from this revenue to us is likely to be lower than if we had sold, marketed and distributed that product ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market, and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market, and distribute our current or any future products effectively.

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Even if we receive regulatory approval to commercialize any of ~~the~~our product candidates, ~~that we develop independently,~~ we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional ~~expense.~~expense and delays.

Any ~~regulatory approvals that we receive for~~of our product candidates for which we, ~~commercialize~~or any existing or future collaborators, obtain regulatory approval, as well as the manufacturing processes, post-approval studies, labeling, advertising and promotional activities for such product, among other things, will be subject to ~~limitations on~~ongoing requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. We and our contract manufacturers will also be subject to user fees and periodic inspection by the FDA and other regulatory authorities to monitor compliance with these requirements and the terms of any product approval we may obtain. In addition, our product candidates may receive schedule classifications under the Controlled Substances Act of 1970 (or scheduling classifications under similar legislation outside of the U.S.) which will result in additional complexity and may result in delays and restrictions with respect to manufacturing, supply chain, licensing, import/export and distribution.

Even if a product is approved, ~~indicated uses~~the FDA or another applicable regulatory authority, as the case may be, may limit the indications for which the product may be marketed, require extensive precautions and warnings on the product labeling or ~~subject to certain~~require expensive and time-consuming post-approval commitments including clinical trials or onerous risk management activities, including Risk Evaluation and Mitigation Strategies, or REMS, in the U.S. as conditions of approval ~~and may contain requirements for potentially costly post-approval trials, including Phase 4 clinical trials, and surveillance~~ to ~~monitor~~help ensure that the ~~safety and efficacy~~benefits of the ~~marketed product.~~drug outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug.

For any approved product, we, or our collaborators, will need to ensure continued compliance with extensive regulations and requirements regarding the manufacturing processes, labeling, packaging, serialization, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product. These requirements include submissions of safety and other post-approval information and reports, as well as continued compliance with current good manufacturing practices, or cGMP, good distribution practices, or GDP, and current good clinical practices, or cGCP, for any clinical trials that we, or our collaborators, are required to conduct post-approval. ~~Later~~

Post-approval discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or other problems with our product or with third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, ~~among~~amongst other ~~things:~~

things, restrictions on the labeling or marketing, withdrawals, consent decrees, clinical holds, post-approval requirements or ~~manufacturing of the product, withdrawal of the product from the market or voluntary or mandatory product recalls;~~

restrictions, recalls, fines, warning letters, injunctions, penalties, exclusions from federal health care programs, seizures and/or ~~holds on any post-approval clinical trials;~~

refusal by the FDA, EMA or another applicable regulatory authority to approve pending applications or supplements to approved applications filed by us or our collaborators, or suspension or revocation of product license approvals;

~~product seizure or detention, or refusal to permit the import or export of products;~~detentions, among other consequences and

~~injunctions or the imposition of civil or criminal penalties.~~

adverse actions. Occurrence of any of the foregoing could have a material and adverse effect on our business and results of operations.

IfIn addition, prescription drugs may be promoted only for the ~~market opportunities~~approved indications in accordance with the approved label. The FDA, EMA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label use may be subject to significant liability. However, physicians may, in their independent medical judgment, prescribe legally available products for off-label uses. The FDA does not regulate the behavior of physicians in their choice of treatments but the FDA, EMA and other foreign regulators do restrict manufacturer’s communications on the subject of off-label use of their products.

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To the extent we develop and commercialize product candidates that contain or are considered controlled substances, any ~~product that we~~failure by us or our ~~collaborators~~CROs, CMOs and other contractors to comply with controlled substance laws and regulations, may adversely affect the results of our business operations and our financial condition.

We may in the future develop product candidates that are ~~smaller than~~considered controlled substances in multiple jurisdictions, such as the U.S., Canada, and the EU, which will expose us to additional controlled substance regulatory requirements in each applicable jurisdiction where we ~~believe they~~engage in regulated activities, including storage, manufacture, research, clinical trials, import, and export, among other activities. For example, obtaining and maintaining the necessary registrations may result in delay of the importation, manufacturing or distribution of our controlled substance product candidates and may extend our anticipated timelines for clinical trials we run.

Controlled substances or scheduled substances are ~~our revenue~~regulated by the DEA under the CSA. The DEA regulates compounds as Schedule I, II, III, IV or V substances. Pharmaceutical products approved for use in the U.S. may be ~~adversely affected~~listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and ~~our business~~Schedule V substances the lowest relative risk of abuse among such substances.

Scheduling determinations by the DEA are dependent on FDA approval of a substance or a specific formulation of a substance. This scheduling determination will be dependent on FDA approval and the FDA’s recommendation as to the appropriate schedule, which may ~~suffer.~~

~~We intend to focus our independent product development on treatments for rare diseases. Our projections of both~~introduce a delay into the ~~number of people who have these diseases,~~approval and any potential rescheduling process. There can be no assurance that the DEA will make a favorable scheduling decision. Substances that are Schedule II, III, IV or V controlled substances at the federal level may also require scheduling determinations under state laws and regulations, as well as similar foreign controlled substances regulations, if applicable. If approved by the ~~subset~~FDA, a number of ~~people~~post-approval activities involving controlled substances will be subject to regulation by the DEA, including DEA regulations relating to registration and inspection of facilities, manufacturing, storage, distribution and physician prescription procedures, among others. Furthermore, failure of our contractors, such as our CROs and CMOs, to maintain compliance with ~~these diseases who~~the CSA during development and/or commercialization, as applicable, can result in a material adverse effect on our business, financial condition and results of operations.

Individual U.S. states and countries outside of the U.S. have also established controlled substance laws and regulations. Those laws and regulations, including state controlled substances laws that often but not necessarily mirror federal law, may separately schedule our product candidates. Complying with different controlled substances requirements across different jurisdictions can increase the ~~potential~~cost of our operations and expose us to ~~benefit from treatment with~~additional liabilities.

Even if we obtain marketing approval for our product candidates, ~~are based on estimates. Currently, most reported estimates~~the presence of ~~the prevalence of these diseases are based on studies of small subsets of the population in specific geographic areas, which are then extrapolated to estimate the prevalence of the diseases~~a controlled substance in the ~~U.S.~~product candidate may lead to adverse publicity or ~~elsewhere.~~ public perception regarding our current or future product candidates.

If ~~the prevalence of such diseases is smaller than we have projected, then, even if~~ our ~~products~~product candidates that are subject to controlled substances regulation are approved for commercial sale, adverse publicity or public perception of controlled substances in general or other controlled substances could negatively impact market acceptance or consumer perception of our product candidates. We may face limited adoption if clinicians or patients are unwilling to try a novel treatment that contains a controlled substance. Any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our or similar therapies distributed by other companies could have a material adverse impact on our business, prospects, financial condition and results of operations.

Future adverse events and research in controlled substances that are present in the product candidates could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our product candidates. Any increased scrutiny could delay or increase the costs of obtaining regulatory approval for our product candidates.

Any product candidates we develop may ~~not be able~~become subject to ~~successfully commercialize them.~~

~~Even if we or our collaborators receive approval to commercialize our products,~~ unfavorable ~~pricing regulations and challenging~~ third-party coverage and reimbursement practices, ~~could harm our business.~~as well as pricing regulations.

Our, or ~~any~~our collaborators’, ability to commercialize any products successfully will depend, in part, on the extent to which coverage and reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers, managed care plans, and other organizations. Government authorities and third-party payers, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry is cost containment. Government authorities and third-party payers have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payers are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for any product that we, or ~~any collaborator~~our collaborators, commercialize and, if reimbursement is available, the level of reimbursement. In addition, coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we or a collaborator obtains marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we, or our collaborators, may not be able to successfully commercialize any product candidate for which marketing approval is obtained.

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There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the U.S., for example, principal decisions about reimbursement for new products are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or HHS. CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare, and private third-party payors often follow CMS’s decisions regarding coverage and reimbursement to a substantial degree. However, one third-party payor’s determination to provide coverage for a product candidate does not assure that other payors will also provide coverage for the product candidate. As a result, the coverage determination process is often time-consuming and costly. Factors payors consider in determining reimbursement are based on whether the product is: (i) a covered benefit under its health plan; (ii) safe, effective and medically necessary; (iii) appropriate for the specific patient; (iv) cost-effective; and (v) neither experimental nor investigational. This process will require us to provide scientific and clinical support for the use of our products to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

As federal and state governments implement additional health care cost containment measures, including measures to lower prescription drug pricing, we cannot be sure that our products, if approved, will be covered by private or public payors, and if covered, whether the reimbursement will be adequate or competitive with other marketed products. Actions by federal and state governments and health plans may ~~be significant delays in obtaining~~put additional downward pressure on pharmaceutical pricing and health care costs, which could negatively impact coverage and reimbursement for ~~newly~~our products if approved, ~~drugs,~~our revenue, and ~~coverage may be more limited than~~our ability to compete with other marketed products and to recoup the ~~purposes for which the drug is approved by the FDA, EMA or other regulatory authorities. Moreover, eligibility for coverage~~costs of our research and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also be insufficient to cover our and any collaborator’s costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Netdevelopment.

Additionally, net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private ~~payers~~payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the U.S. ~~Third-party payers often rely upon Medicare coverage policy~~Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and ~~payment limitations~~are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement.

Outside the U.S., the commercialization of therapeutics is generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost containment initiatives in ~~setting~~Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of therapeutics such as our product candidates. In many countries, particularly the countries of the European Union, or the EU, medical product prices are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time after a product receives marketing approval. To obtain reimbursement or pricing approval in some countries, we, or our collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In general, product prices under such systems are substantially lower than in the U.S. Other countries allow companies to fix their own ~~reimbursement policies. Our~~prices for products but monitor and control company profits. Additional foreign price controls or ~~any collaborator’s inability to promptly obtain coverage and profitable payment rates from both government-funded and private payers for any approved products~~other changes in pricing regulation could restrict the amount that we, or our collaborators, ~~develop could have a material adverse effect on~~are able to charge for our ~~operating results,~~product candidates. Accordingly, in markets outside the U.S., the reimbursement for our ~~ability~~products may be reduced compared with the U.S. and may be insufficient to ~~raise capital needed to commercialize products~~generate commercially reasonable revenue and profits.

Some of our ~~overall financial condition.~~

~~Our~~or our collaborators' target patient populations may be in orphan ~~and~~or niche indications, ~~where we intend to selectively develop and commercialize products independently, are relatively small.~~such as SCN8A-DEE. In order for therapies that are designed to treat smaller patient populations to be commercially viable, the pricing, coverage and reimbursement for such therapies needs to be higher, on a relative basis, to account for the lack of volume. Accordingly, we ~~will~~or our collaborators may need to implement apricing, coverage and reimbursement ~~strategy~~strategies for any approved product that accounts for the smaller potential market size. If we or our collaborators are unable to establish or sustain coverage and adequate reimbursement for our or our collaborators’ current and any future products from ~~third party~~third-party payers or the government, the adoption of those products and sales revenue will be adversely affected, which, in turn, could adversely affect the ability to market or sell those products.

Recently enacted and future legislation may increase the difficulty and cost for us to commercialize any products that we, or our collaborators, develop and affect the prices we may obtain.

The U.S. and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell any of our products profitably, once such products are approved for sale. Among policy makers and payers in the U.S. and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the U.S., the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

~~The~~-50-

For example, in 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively, the PPACA, was enacted ~~in 2010~~ and includes measures that have significantly changed ~~or will significantly change,~~ the way healthcare is financed by both governmental and private insurers. ~~Among~~Since its enactment, there have been legislative and judicial challenges to the ~~provisions~~PPACA. In June 2021, the U.S. Supreme Court held that Texas and other challengers had no legal standing to challenge the PPACA, dismissing the case without specifically ruling on the constitutionality of the PPACA. Accordingly, the PPACA remains in effect in its current form. It is unclear how future litigation, and healthcare measures promulgated by the Biden administration will impact the implementation of the PPACA, our business, financial condition and results of ~~importance~~operations. Complying with any new legislation or changes in healthcare regulation could be time-intensive and expensive, resulting in a material adverse effect on our business.

In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several presidential executive orders, Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical ~~industry are the following:~~

an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, that began in 2011;

~~an increase in the rebates a manufacturer must pay~~products. For example, under the American Rescue Plan Act of 2021, effective January 1, 2024, the statutory cap on Medicaid Drug Rebate Program rebates that manufacturers pay to ~~23%~~state Medicaid programs will be eliminated. Elimination of this cap may require pharmaceutical manufacturers to pay more in rebates than they receive on the sale of products, which could have a material impact on our business. In July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at increasing competition for prescription drugs. In August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and ~~13% of~~Medicare beneficiaries, including allowing the ~~average manufacturer~~federal government to negotiate a maximum fair price for ~~branded~~certain high-priced single source Medicare drugs, imposing penalties and ~~generic~~excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, ~~respectively;~~

~~a new~~with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D ~~coverage gap discount program, in which manufacturers must agree~~ to ~~offer 50% point-of-sale discounts to negotiated prices~~reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. Various industry stakeholders, including pharmaceutical companies, the U.S. Chamber of ~~applicable brand drugs to eligible beneficiaries during their coverage gap period,~~Commerce, the National Infusion Center Association, the Global Colon Cancer Association, and the Pharmaceutical Research and Manufacturers of America, have initiated lawsuits against the federal government asserting that the price negotiation provisions of the Inflation Reduction Act are unconstitutional. The impact of these judicial challenges as well as any future healthcare measures and agency rules implemented by the government on us and the pharmaceutical industry as a whole is currently unknown. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Further, a number of states are considering or have recently enacted state drug price transparency and reporting laws that could substantially increase our compliance burdens and expose us to greater liability under such state laws once we begin commercialization. These and other health reform measures that are implemented may have a material adverse effect on our operations.

We are unable to predict the future course of federal or state healthcare legislation in the U.S. directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. These and any further changes in the law or regulatory framework could reduce our ability to generate revenue in the future or increase our costs, either of which could have a material and adverse effect on our business, financial condition ~~for~~and results of operations. The continuing efforts of the ~~manufacturer’s outpatient drugs to be covered under Medicare Part D;~~

~~extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid~~government, insurance companies, managed care ~~organizations;~~

~~expansion~~organizations, and other payors of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing manufacturers’ Medicaid rebate liability;

~~expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;~~

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~~new requirements under the federal Open Payments program, created under Section 6002 of the PPACA and its implementing regulations that manufacturers of drugs, devices, biologics~~healthcare services and medical ~~supplies for which payment is available under Medicare, Medicaid~~products to contain or the Children’s Health Insurance Program (with certain exceptions) report annually to the U.S. Department of Health and Human Services, or HHS, information related to “payments or other transfers of value” made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals and that applicable manufacturers and applicable group purchasing organizations report annually to the HHS ownership and investment interests held by physicians (as defined above) and their immediate family members, with data collection required beginning August 1, 2013 and reporting to the Centers for Medicare & Medicaid Services, or CMS, required by the 90th day of each subsequent calendar year, and disclosure of such information made on a publicly available website starting September 2014;

~~a requirement to annually report drug samples that manufacturers and distributors provide to physicians;~~

~~expansion~~reduce costs of healthcare ~~fraud~~and/or impose price controls may adversely affect the demand for our product candidates, if approved, and ~~abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;~~

~~a licensure framework for follow-on biologic products;~~

~~a new Patient-Centered Outcomes Research Institute~~our ability to ~~oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;~~achieve or maintain profitability.

creation of the Independent Payment Advisory Board which, beginning in 2014, has authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs and those recommendations could have the effect of law even if Congress does not act on the recommendations; and

establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending, that began, in 2011.

In the EU, similar political, economic and regulatory developments may affect our, or our collaborators’, ability to profitably commercialize our current or any future products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating costs. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. Our future products, if any, might not be considered medically reasonable and necessary for a specific indication or cost-effective by third-party payers. An adequate level of reimbursement might not be available for such products and third-party payers’ reimbursement policies might adversely affect our, or our collaborators’, ability to sell any future products profitably.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-approval testing and other requirements.

The Trump administration and Congress may also attempt broad sweeping changes to the current health care laws, including PPACA. The impact of any such changes on us and the pharmaceutical industry as a whole is currently unknown. Any changes to the PPACA are likely to have an impact on our results of operations, and may have a material adverse effect on our result of operations. -51-

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or ~~abroad.~~in other jurisdictions. If we, or our collaborators, are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we, or our collaborators, are not able to maintain regulatory compliance, our product candidates may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our ~~business.~~business.

~~Foreign governments tend to impose strict price controls, which may adversely affect our future profitability.~~

In most foreign countries, particularly those in the EU, prescription drug pricing and/or reimbursement is subject to governmental control. In those countries that impose price controls, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we or our collaborators may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.

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Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we or our collaborators might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue that is generated from the sale of the product in that country. If reimbursement of such products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, or if there is competition from lower priced cross-border sales, our profitability will be negatively affected.

Risks Related to Our Dependence on Third Parties

We depend on our collaborative relationship with Teva to further develop and commercialize TV-45070, and if our relationship is not successful or is terminated, we may not be able to effectively develop and/or commercialize TV-45070, which could have a material adverse effect on our business.

We depend on Teva to collaborate with us to develop and globally commercialize TV-45070. Under the agreement, Teva controls all decision-making with respect to the clinical development and commercialization for TV-45070.

As a result of our dependence on Teva, the eventual success or commercial viability of TV-45070 is largely beyond our control. The financial returns to us, if any, depend in large part on the achievement of development and commercialization milestones, plus a share of any revenue from sales. Therefore, our success, and any associated financial returns to us and our investors, will depend in large part on Teva’s performance under the agreement. We are subject to a number of additional specific risks associated with our dependence on our collaborative relationship with Teva, including:

~~adverse decisions by Teva or the Joint Development Committee regarding the development and commercialization of TV-45070;~~

~~possible disagreements as to the timing, nature and extent of development plans, including clinical trials or regulatory approval strategy;~~

~~loss of significant rights if we fail to meet our obligations under the agreement;~~

~~our limited control over clinical trials of TV-45070;~~

~~changes in key management personnel at Teva, including in members of the Joint Development Committee; and~~

~~possible disagreements with Teva regarding the agreement, for example, with regard to ownership of intellectual property rights.~~

If either we or Teva fail to perform our respective obligations, any clinical trial, regulatory approval or development progress could be significantly delayed or halted, could result in costly or time-consuming litigation or arbitration and could have a material adverse effect on our business.

Decisions by Teva to emphasize other drug candidates currently in its portfolio ahead of our product candidates, or to add competitive agents to its portfolio could result in a decision to terminate the agreement, in which event, among other things, we may be responsible for paying any remaining costs of all ongoing or future clinical trials.

In addition, Teva’s executive offices and a substantial percentage of their manufacturing capabilities are located in Israel. Teva’s Israeli operations are dependent upon materials imported from outside Israel, and Teva also exports significant amounts of products from Israel. Accordingly, our collaboration with Teva could be materially and adversely affected by acts of terrorism or if major hostilities were to occur in the Middle East or trade between Israel and its present trading partners were curtailed, including as a result of acts of terrorism in the U.S. or elsewhere.

Any of the above discussed scenarios could adversely affect the timing and extent of our development and commercialization activities, which could cause significant delays and funding shortfalls for those activities and seriously harm our business.

~~-38-~~

Our prospects for successful development and commercialization of our partnered products and product candidates are dependent upon the research, development and marketing efforts of our collaborators.

We have no control over the resources, time and effort that our collaborators may devote to our programs and limited access to information regarding or resulting from such programs. We are dependent on ~~Teva, Genentech, and Merck~~our collaborators, including Neurocrine Biosciences, to fund and conduct the research and any clinical development of product candidates under our ~~collaboration~~agreements with each of them, and for the successful regulatory approval, marketing and commercialization of one or more of such products or product candidates. Such success will be subject to significant uncertainty.

Our ability to recognize revenue from successful collaborations may be impaired by multiple factors including:

•

a collaborator may shift its priorities and resources away from our programs due to a change in business strategies, or a merger, acquisition, sale or downsizing of its company or business unit;

•

a collaborator may cease development in therapeutic areas which are the subject of our strategic alliances;

•

a collaborator may change the success criteria for a particular program or product candidate thereby delaying or ceasing development of such program or candidate;

•

a significant delay in initiation of certain development activities by a collaborator will also delay payment of milestones tied to such activities, thereby impacting our ability to fund our own activities;

•

a collaborator could develop a product that competes, either directly or indirectly, with our current or future products, if any;

•

a collaborator with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale of a product;

•

a collaborator with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand requirements;

•

a collaborator may exercise its rights under the agreement to terminate our collaboration;

•

a dispute may arise between us and a collaborator concerning the research or development of a product candidate, commercialization of a product or payment of royalties or milestone payments, any of which could result in a delay in milestones, royalty payments or termination of a program and possibly resulting in costly litigation or arbitration which may divert management attention and resources;

•

a collaborator may not adequately protect the intellectual property rights associated with a product or product candidate; ~~and~~

•

a collaborator may use our proprietary information or intellectual property in such a way as to invite litigation from a ~~third party.~~

third-party; and

•

disruptions caused by man-made or natural disasters or public health pandemics or epidemics or other business interruptions, including, for example, the COVID-19 pandemic.

If our collaborators do not perform in the manner we expect or fulfill their responsibilities in a timely manner, or at all, the clinical development, regulatory approval and commercialization efforts could be delayed, terminated or be commercially unsuccessful. Conflicts between us and our collaborators may arise. In the event of termination of one or more of our collaboration agreements, it may become necessary for us to assume the responsibility of any terminated product or product candidates at our own expense or seek new collaborators. In that event, we ~~would likely~~could be required to limit the size and scope of one or more of our independent programs or increase our expenditures and seek additional funding which may not be available on acceptable terms or at all, and our business ~~would~~could be materially and adversely affected.

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We depend on our collaborative relationship with Neurocrine Biosciences to further develop and commercialize NBI-921352, and if our relationship is not successful or is terminated, we may not be able to effectively develop and/or commercialize NBI-921352.

We depend on Neurocrine Biosciences to develop and commercialize NBI-921352. Under the agreement and subject to input from the joint steering committee, Neurocrine Biosciences controls all decision-making with respect to the clinical development and commercialization for NBI-921352.

As a result of our collaboration with Neurocrine Biosciences, the eventual success or commercial viability of NBI-921352 is largely beyond our control. The financial returns to us, if any, depend in large part on the achievement of development and commercialization milestones, plus a share of any revenue from sales. Therefore, our success, and any associated financial returns to us and our investors, will depend in part on Neurocrine Biosciences’ performance under the agreement. Even if Neurocrine Biosciences successfully develops and commercializes NBI-921352, if approved indications are for orphan or ultra-orphan diseases, like SCN8A-DEE, the potential target populations for such indications are very small and, as a result, we may never receive material payments from Neurocrine Biosciences pursuant to our agreement, even if Neurocrine Biosciences obtains significant market share in such indications.

We are subject to a number of additional specific risks associated with our dependence on our collaborative relationship with Neurocrine Biosciences, including:

•

adverse decisions by Neurocrine Biosciences regarding the development and commercialization of NBI-921352;

•

Neurocrine Biosciences’ failure to collect all data required by FDA or any other regulatory authority to address any deficiencies or compliance issues raised by FDA or any other regulatory authority, or comply with all regulatory requirements in order to advance clinical development of NBI-921352 to approval;

•

possible disagreements as to the timing, nature and extent of development plans, including clinical trials or regulatory strategy;

•

loss of significant rights if we fail to meet our obligations under the agreement;

•

changes in key management personnel at Neurocrine Biosciences, including in members of the joint steering committee; and

•

possible disagreements with Neurocrine Biosciences regarding the agreement, for example, with regard to ownership of intellectual property rights.

Although we have previously announced that Neurocrine Biosciences is conducting a Phase 2 clinical trial evaluating NBI-921352 in adult patients with focal onset seizures and a Phase 2 clinical trial evaluating NBI-921352 in pediatric patients (aged between 2 and 21 years) with SCN8A-DEE, we cannot be certain that Neurocrine Biosciences will continue to pursue these indications and we may not qualify for additional payments under our collaboration agreement.

If either we or Neurocrine Biosciences fail to perform our respective obligations, any clinical trial, regulatory approval or development progress could be significantly delayed or halted, could result in costly or time-consuming litigation or arbitration and could have a negative impact on our business.

Decisions by Neurocrine Biosciences to emphasize other drug candidates currently in its portfolio ahead of our product candidates, or to add competitive agents to its portfolio could result in a decision to terminate the agreement, in which event, among other things, we may be responsible for paying any remaining costs of all ongoing or future clinical trials, including expending additional time and resources needed to address any prior deficiencies or regulatory noncompliance issues that we may inherit from Neurocrine Biosciences upon any such termination.

Any of the above discussed scenarios could adversely affect the timing and extent of the development and commercialization activities related to NBI-921352, which could negatively impact our business.

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We may not be successful in establishing new collaborations or maintaining our existing alliances, which could adversely affect our ability to develop ~~future~~ product candidates and commercialize ~~future~~ products.

~~We may seek to enter into additional product collaborations in~~In the ~~future, including alliances~~ordinary course, we engage with other biotechnology orand pharmaceutical companies to ~~enhance~~discuss potential in-licensing, out-licensing, alliances and ~~accelerate~~other strategic transactions. The advancement of our product candidates and development programs and the ~~development~~potential commercialization of our current and future product candidates will require substantial additional cash to fund expenses. Additionally, there are certain jurisdictions where a collaborator may be able to realize the market potential of our product candidates better than us. For these or other reasons, we may decide to collaborate with additional pharmaceutical and ~~the commercialization of any resulting products.~~ biotechnology companies with respect to development and potential commercialization.

We face significant competition in seeking appropriate collaborators and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish other collaborations or other alternative arrangements for any current or future product candidates because our research and development pipeline may be insufficient, our current or future product candidates may be deemed to be at too early of a stage of development for collaboration effort and/or third parties may view our product candidates as lacking the requisite potential to demonstrate safety and efficacy. Even if we are successful in our efforts to establish collaborations, the terms that we agree upon may not be favorable to us and we may not be able to maintain such collaborations if, for example, development or approval of a product candidate is delayed or sales of an approved product are disappointing.

~~-39-~~

If any of our existing collaboration agreements isare terminated, or if we determine that entering into other product collaborations is in our best interest but we either fail to enter into, delay in entering into or fail to maintain such collaborations:

•

the development of certain of our current or future product candidates may be terminated or delayed;

•

our cash expenditures related to development or commercialization of ~~our~~any such product candidates would increase significantly and we may need to seek additional financing sooner than expected;

•

we may be required to hire additional employees or otherwise develop expertise, such as clinical, regulatory, sales and marketing expertise, some of which we do not currently have;

•

we may delay commercialization or reduce the scope of any sales or marketing activities;

•

we will bear all of the risk related to the development or commercialization of any such product candidates; and

•

the competitiveness of any product that is commercialized could be reduced.

Our reliance on third parties to manufacture our product candidates may increase the risk that we will not have sufficient quantities of our product candidates, raw materials, APIs or drug products when needed or at an acceptable cost.

We ~~intend~~do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates, and we lack the resources and the capabilities to do so. As a result, we currently rely on ~~third-party manufacturers to produce~~third parties for the manufacture and supply of the active pharmaceutical ingredients, or APIs, in our ~~clinical~~ product ~~candidate supplies. Any failure by a third-party manufacturer to produce acceptable supplies~~candidates and the final drug product formulation for ~~us may delay or impair~~all of our ~~ability to initiate or complete~~product candidates that are being used in our clinical trials ~~or commercialize approved products.~~and pre-clinical studies. Our current strategy is to outsource all manufacturing of our product candidates to third parties.

~~We do not currently own or operate any manufacturing facilities nor do~~In addition, we ~~have any in-house manufacturing experience or personnel. We~~ rely on our collaborators, either directly or through CMOs, to manufacture product candidates licensed to them or to work with ~~multiple third party contract manufacturers~~CMOs to produce sufficient quantities of materials required for the manufacture of our product candidates for pre-clinical testing and clinical trials and intend to do so for the commercial manufacture of our products. If we, or our collaborators, are unable to arrange for such third-party manufacturing sources, or fail to do so on commercially reasonable terms, we, or our collaborators, may not be able to successfully produce sufficient supply of a product candidate or we, or our collaborators, may be delayed in doing so. Such failure or substantial delay could delay our clinical trials and materially harm our business. The manufacture of biopharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. The process of manufacturing our product candidates is susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, contamination and inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the third-party manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Any adverse developments affecting manufacturing operations for our product candidates, if any are approved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.

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Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including reliance on ~~the~~these third ~~party~~parties for regulatory compliance and quality control and assurance, volume production, the possibility of breach of the manufacturing agreement by the ~~third party~~third-party because of factors beyond our control (including a failure to synthesize and manufacture our product candidates in accordance with our product specifications) and the possibility of termination or nonrenewal of the agreement by the ~~third party~~third-party at a time that is costly or damaging to us. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in identifying and qualifying any such replacement.

In addition, we typically order raw materials, API and drug product and services on a purchase order basis and do not enter into long-term dedicated capacity or minimum supply arrangements with any commercial manufacturer. There is no assurance that we will be able to timely secure needed supply arrangements on satisfactory terms, or at all. Our failure to secure these arrangements as needed could have a material adverse effect on our ability to complete the development of our product candidates or, to commercialize them, if approved. We may be unable to conclude agreements for commercial supply with third-party manufacturers or may be unable to do so on acceptable terms. There may be difficulties in scaling up to commercial quantities and formulation of our product candidates, and the costs of manufacturing could be prohibitive.

Further, the FDA, EMA and other foreign regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign standards. Pharmaceutical manufacturers and their subcontractors are required to register their facilities and/or products manufactured at the time of submission of the marketing application and then annually thereafter with the FDA, EMA and ~~certain state and~~other foreign regulatory agencies. They are also subject to pre-approval inspections and periodic unannounced inspections by the FDA, ~~state~~EMA and other foreign ~~authorities.~~regulatory agencies. Any subsequent discovery of problems with a product, or a manufacturing or laboratory facility used by us or our collaborators, may result in restrictions on the product or on the manufacturing or laboratory facility, including ~~marketed~~ product recall, suspension of manufacturing, importation bans, product seizure or a voluntary withdrawal of the drug from the market. Any failure by our, or our collaborators’, third-party manufacturers to comply with cGMP or ~~failure to scale up manufacturing processes, including~~ any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates.

In addition to third-party manufacturers, we rely on other third parties to store, monitor, label and transport bulk drug substance and drug product. If we are unable to arrange for such third-party sources, or fail to do so on commercially reasonable terms, we may not be able to successfully supply sufficient product candidate or we may be delayed in doing so. Such failure or substantial delay could materially harm our business.

If any third-party manufacturer of our product candidates is unable to increase the scale of its production of our product candidates, and/or increase the product yield of its manufacturing, then our costs to manufacture the product may increase and commercialization may be delayed.

In order to produce sufficient quantities to meet the demand for clinical trials and, if approved, subsequent commercialization of our product candidates, our third-party manufacturers will be required to increase their production and optimize their manufacturing processes while maintaining the quality of the product. The transition to larger scale production could prove difficult. In addition, if our third-party manufacturers are not able to optimize their manufacturing processes to increase the product yield for our product candidates, or if they are unable to produce increased amounts of our product candidates while maintaining the quality of the product, then we may not be able to meet the requirements for registration and validation and the demands of clinical trials or market demands, which could delay regulatory approvals and decrease our ability to generate profits and have a material adverse impact on our business and results of operation.

We rely on third parties to ~~monitor, support,~~ conduct ~~and/or oversee~~our pre-clinical studies and clinical trials of the product candidates that we are developing independently and, in some cases, to maintain regulatory files for those product candidates. We may not be able to obtain regulatory approval for our product candidates or commercialize any products that may result from our development efforts, if we are not able to maintain or secure agreements with such third parties on acceptable terms, iftrials. If these third parties do not ~~perform~~successfully carry out their ~~services as required,~~contractual duties including to comply with applicable laws and regulations or ~~if these third parties fail to timely transfer any regulatory information held by them to us.~~meet expected deadlines, our business could be substantially harmed.

We rely on entities outside of our control, which may include academic institutions, CROs, hospitals, clinics and other third-party collaborators, to monitor, support, conduct and/or oversee pre-clinical and clinical studies of our current and future product candidates. ~~We also rely on third parties to perform clinical trials on our current and future product candidates when they reach that stage.~~ As a result, we have less control over the timing and cost of these studies and the ability to recruit trial subjects than if we conducted these trials with our own personnel. For example, an investigator-sponsored Phase 2 proof-of-concept clinical trial examining XEN1101 in MDD and anhedonia is being conducted in partnership with academic collaborators at the Icahn School of Medicine at Mount Sinai.

~~-40-~~-55-

If we are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such engagement is terminated prematurely, we may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner we anticipate. In addition, there is no guarantee that these third parties will devote adequate time and resources to our studies or perform as required by our contract or in accordance with regulatory requirements, including maintenance of clinical trial information regarding our product candidates. If these third parties fail to meet expected deadlines, fail to transfer to us any regulatory information in a timely manner, fail to adhere to protocols or fail to act in accordance with regulatory requirements or our agreements with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the data they obtain, then clinical trials of our future product candidates may be extended or delayed with additional costs incurred, or our data may be rejected by the FDA, EMA or other foreign regulatory agencies.

Ultimately, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities.

We, ~~and~~ our CROs and CMOs are required to comply with current good laboratory practices, or cGLP, cGCP and cGMP regulations and guidelines enforced by the FDA, the competent authorities of the member states of the European Economic Area and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these ~~cGCP~~ regulations through periodic inspections of clinical trial sponsors, principal investigators, ~~and~~ clinical trial ~~sites.~~sites, manufacturing facilities, nonclinical testing facilities and other contractors. If we or any of our CROs or CMOs fail to comply with these applicable ~~cGCP~~ regulations, the clinical data generated in our non-clinical studies and clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or the FDA, EMA or another foreign regulatory authority may require us to perform additional clinical trials before approving our marketing applications. Upon inspection, the FDA, EMA or another foreign regulatory authority could determine that any of our clinical trials fail or have failed to comply with applicable cGCP regulations. In addition, our clinical trials must be conducted with product produced under the cGMP regulations enforced by the FDA, EMA and other foreign regulatory authorities, and our clinical trials may require a large number of test subjects. Our failure to comply with ~~these~~cGLP, cGCP and cGMP regulations may require us to repeat clinical trials or manufacture additional batches of drug which would delay the regulatory approval process and increase our costs. Moreover, our business may be implicated if any of our CROs or CMOs violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security ~~laws.~~laws, or if this is asserted or reported to have occurred.

If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. Further, if our relationship with any of our CROs or CMOs is terminated, we may be unable to enter into arrangements with alternative CROs or CMOs on commercially reasonable terms, or at all.

Switching or adding CROs, CMOs or other suppliers can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO, CMO or supplier commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. If we are required to seek alternative supply arrangements, the resulting delays and potential inability to find a suitable replacement could materially and adversely impact our business.

Risks Related to Intellectual Property

We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our products or product candidates.

Our commercial success will depend, in large part, on our ability to obtain and maintain patent, trademark and ~~other intellectual property~~trade secret protection ~~with respect to~~of our product ~~candidates.~~ candidates, their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending these patents against third-party challenges. We evaluate our global patent portfolio in the ordinary course of business to enhance patent protection in areas of our strategic focus and in key markets for our potential products and may abandon existing patents or patent applications related to terminated development programs, areas, or markets of low strategic importance.

Patents might not be issued or granted with respect to our patent applications that are currently pending, and issued or granted patents might later be found to be invalid or unenforceable, be interpreted in a manner that does not adequately protect our current product or any future products, or fail to otherwise provide us with any competitive advantage. The patent position of biotechnology and pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the U.S. Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology and pharmaceutical patents. Consequently, patents may not issue from our pending patent ~~applications.~~applications, or we may end up with patent claims of different scope in different jurisdictions. As such, we do not know the degree of future protection that we will have on our proprietary products and technology, if any, and a failure to obtain adequate intellectual property protection with respect to our product candidates and proprietary technology could have a material adverse impact on our ~~business.~~business and ability to achieve profitability.

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Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the patents and/or applications. The USPTO and various non-US governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application and maintenance process. We employ reputable law firms and other professionals to help us comply with respect to the patents and patent applications that we own, and we rely upon our licensors or our other collaborators to effect compliance with respect to the patents and patent applications that we license. In ~~many~~some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

Our intellectual property rights will not necessarily provide us with competitive advantages.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or may not permit us to maintain our competitive advantage.

The following examples are illustrative:

•

others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we, or our collaborators, own or have exclusively licensed;

•

others may independently develop similar or alternative technologies without infringing our intellectual property rights;

•

issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

•

we may obtain patents for certain compounds many years before we obtain marketing approval for products containing such compounds, and because patents have a limited life, which may begin to run out prior to the commercial sale of the related product, the commercial value of our patents may be limited;

•

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

•

we may fail to develop additional proprietary technologies that are patentable;

•

the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S., or we may fail to apply for or obtain adequate intellectual property protection in all the jurisdictions in which we operate; and

•

the patents of others may have an adverse effect on our business, for example by preventing us from marketing one or more of our product candidates for one or more indications.

Any of the aforementioned threats to our competitive advantage could have a material adverse effect on our business.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting, enforcing and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S., or from offering to sell, selling, using, making or importing products made using our inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. These products may compete with our current or future products, if any, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology and pharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Our patents covering one or more of our products or product candidates could be found invalid or unenforceable if challenged.

Any of our intellectual property rights could be challenged or invalidated despite measures we take to obtain patent and other intellectual property protection with respect to our product candidates and proprietary technology. For example, if we were to initiate legal proceedings against a ~~third party~~third-party to enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the U.S. and in some other jurisdictions, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness, broken priority, lack of written description, insufficient or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld material information from the USPTO or the applicable foreign counterpart, or made a misleading statement, during prosecution. A litigant or the USPTO itself could challenge our patents on this basis even if we believe that we have conducted our patent prosecution in accordance with the duty of candor and in good faith. The outcome following such a challenge is unpredictable.

With respect to challenges to the validity of our patents, for example, there might be invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on a product candidate. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability, our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. The cost of defending such a challenge, particularly in a foreign jurisdiction, and any resulting loss of patent protection could have a material adverse impact on one or more of our product candidates and our business.

Enforcing our intellectual property rights against third parties may also cause such third parties to file other counterclaims against us, which could be costly to defend, particularly in a foreign jurisdiction, and could require us to pay substantial damages, cease the sale of certain products or enter into a license agreement and pay royalties (which may not be possible on commercially reasonable terms, or at all). Any efforts to enforce our intellectual property rights are also likely to be costly and may divert the efforts of our scientific and management personnel.

Patent protection and patent prosecution for some of our product candidates is dependent on, and the ability to assert patents and defend them against claims of invalidity is maintained by, third parties.

There have been and may be times in the future when certain patents that relate to our product candidates or any approved products are controlled by our licensees, sublicensees, licensors or ~~licensors.~~other collaborators. Although we may, under such arrangements, have rights to consult with our collaborators on actions taken as well as back-up rights of prosecution and enforcement, we have in the past and may in the future relinquish rights to prosecute and maintain patents and patent applications within our portfolio as well as the ability to assert such patents against infringers. ~~Currently, some of these~~For example, currently the rights relating to the patent ~~portfolios~~portfolio for ~~TV-45070, GDC-0310, Glybera~~XEN901 (now known as NBI-921352), other selective Nav1.6 inhibitors and ~~some of our earlier stage product candidates~~dual Nav1.2/1.6 inhibitors are ~~held by our collaborators.~~exclusively licensed to Neurocrine Biosciences.

If any current or future licensee, sublicensee, licensor or ~~licensor~~other collaborators with rights to prosecute, assert or defend patents related to our product candidates fails to appropriately prosecute and maintain patent protection for patents covering any of our product candidates, or if patents covering any of our product candidates are asserted against infringers or defended against claims of invalidity or unenforceability in a manner which adversely affects such coverage, our ability to develop and commercialize any such product candidate may be adversely affected and we may not be able to prevent competitors from making, using, ~~and~~importing, offering for sale, and/or selling competing products.

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We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or one of our licensors is not valid or is unenforceable or may refuse to stop the other party in such infringement proceeding from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly, and could put any of our patent applications at risk of not yielding an issued patent.

Interference proceedings, derivation proceedings, entitlement proceedings, ex parte ~~reexamination, inter partes~~ reexamination, inter partes review, post-grant review, and opposition proceedings provoked by third parties or brought by the USPTO or any foreign patent authority may be used to challenge inventorship, ownership, claim scope, or validity of our patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees.

We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the U.S. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common shares.

In addition, we, or our licensors, may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we, or our licensors, may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our, or our licensors’, ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we, or our licensors, fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Claims that our product candidates or the sale, offer for sale, importation, manufacture, or use of our future products infringe the patent or other intellectual property rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.

Our commercial success depends upon our ability to develop product candidates and commercialize products that may be approved in the future, using our proprietary technology without infringing the intellectual property rights of others. Our product or product candidates or any uses of them may now and in the future infringe third-party patents or other intellectual property rights. Third parties might allege that we, or our collaborators, are infringing their patent rights or that we have misappropriated their trade secrets, or that we are otherwise violating their intellectual property rights, whether with respect to the manner in which we have conducted our research or to the composition, use or manufacture of the compounds we have developed or are developing with our collaborators. Such third parties might resort to litigation against us or other parties we have agreed to indemnify, which litigation could be based on either existing intellectual property or intellectual property that arises in the future.

It is possible that relevant patents or patent applications held by third parties will cover our product candidates at the time of launch and we may also fail to identify, relevant patents or patent applications held by third parties that cover our product candidates. For example, U.S. applications filed before November 29, 2000, and certain applications filed after that date that will not be filed outside the U.S. remain confidential until patents issue. Other patent applications in the U.S. and several other jurisdictions are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Furthermore, publication of discoveries in the scientific or patent literature often lags behind actual discoveries. Therefore, we cannot be certain that we, or our collaborators, were the first to invent, or the first to file patent applications on our product candidates or for their uses, or that our product candidates will not infringe patents that are currently issued or that ~~are~~will be issued in the future. In the event that a ~~third party~~third-party has also filed a patent application covering one of our product candidates or a similar invention, we may have to participate in an adversarial proceeding, known as an interference or derivation proceeding, declared by the USPTO or its foreign counterpart to determine priority of invention. Additionally, pending patent applications and patents which have been published can, subject to certain limitations, be later amended in a manner that could cover our current or future products, if any, or their use.

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Defending against claims of patent infringement, misappropriation of trade secrets or other violations of intellectual property rights could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. Claims that our product candidates or the ~~sale~~selling, using, making, offering to sell, or ~~use~~importing, of our future products infringe, misappropriate or otherwise violate third-party intellectual property rights could therefore have a material adverse impact on our business.

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Most of our competitors are larger than we are and have substantially greater financial resources. They are, therefore, likely to be able to sustain the costs of complex intellectual property litigation longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to conduct our clinical trials, continue our internal research programs, in-license needed technology, or enter into strategic collaborations that would help us bring our product candidates to market.

In addition, any future intellectual property litigation, interference or other administrative proceedings will result in additional expense and distraction of our personnel. An adverse outcome in such litigation or proceedings may expose us or any future strategic collaborators to loss of our proprietary position, expose us to significant liabilities, or require us to seek licenses that may not be available on commercially acceptable terms, if at all, each of which could have a material adverse effect on our business.

Unfavorable outcomes in intellectual property litigation could limit our research and development activities and/or our ability to commercialize certain products.

If third parties successfully assert their intellectual property rights against us, we might be barred from using certain aspects of our technology or barred from developing and commercializing certain products. Prohibitions against using certain technologies, or prohibitions against commercializing certain products, could be imposed by a court or by a settlement agreement between us and a plaintiff. In addition, if we are unsuccessful in defending against allegations that we have infringed, misappropriated or otherwise violated patent or other intellectual property rights of others, we may be forced to pay substantial damage awards to the plaintiff. There is inevitable uncertainty in intellectual property litigation, and we could lose, even if the case against us is weak or flawed. If litigation leads to an outcome unfavorable to us, we may be required to obtain a license from the intellectual property owner in order to continue our research and development programs or to market any resulting product. It is possible that the necessary license will not be available to us on commercially acceptable terms, or at all. Alternatively, we may be required to modify or redesign our current or future products, if any, in order to avoid infringing or otherwise violating third-party intellectual property rights. This may not be technically or commercially feasible, may render those products less competitive, or may delay or prevent the entry of those products to the market. Any of the foregoing could limit our research and development activities, our ability to commercialize one or more product candidates, or both.

In order to avoid or settle potential claims with respect to any patent or other intellectual property rights of third parties, we may choose or be required to seek a license from a ~~third party~~third-party and be required to pay license fees or royalties or both, which could be substantial. These licenses may not be available on acceptable terms, or at all. Even if we or any future collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced, by court order or otherwise, to cease some or all aspects of our business operations, if, as a result of actual or threatened patent or other intellectual property claims, we are unable to enter into licenses on acceptable terms. Further, we could be found liable for significant monetary damages as a result of claims of intellectual property infringement. In the future, we may receive offers to license and demands to license from third parties claiming that we are infringing their intellectual property or owe license fees and, even if such claims are without merit, we could fail to successfully avoid or settle such claims.

If ~~Teva, uniQure, Genentech~~Neurocrine Biosciences or ~~Merck~~other collaborators license or otherwise acquire rights to intellectual property controlled by a ~~third party~~third-party in various circumstances, for example, where a product could not be legally developed or commercialized in a country without the third-party intellectual property right or, where it is decided that it would be useful to acquire such third-party right to develop or commercialize the product, they are eligible under our collaboration agreements to decrease payments payable to us on a product-by-product basis and, in certain cases, on a country-by-country basis. Any of the foregoing events could harm our business significantly.

If we breach any of the agreements under which we license the use, development and commercialization rights to our product candidates or technology from third parties, we could lose license rights that are important to our business.

Under our existing license and other agreements, ~~including those associated with our XEN1101 program,~~ we are subject to various obligations, including diligence obligations such as development and commercialization obligations, as well as potential ~~royalty~~milestone payments and other obligations. If we fail to comply with any of these obligations or otherwise breach our license agreements, our licensing partners may have the right to terminate the applicable license in whole or in ~~part.~~part, or convert an exclusive license to a non-exclusive license. Generally, the loss of any one of our current licenses, or license exclusivity, or any other license we may acquire in the future, could materially harm our business, prospects, financial condition and results of operations.

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Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information, which would harm our competitive ~~position.~~position.

In addition to patents, we rely on trade secrets, technical know-how and proprietary information concerning our discovery platform, business strategy and product candidates in order to protect our competitive position, which are difficult to protect. In the course of our research and development activities and our business activities, we often rely on confidentiality agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to vendors of laboratory, manufacturing, pre-clinical development or clinical development goods or services or potential strategic collaborators. In addition, each of our employees and consultants is required to sign a confidentiality agreement and invention assignment agreement upon joining our company. Our employees, consultants, contractors, business partners or outside scientific collaborators might intentionally or inadvertently disclose our trade secret information in breach of these confidentiality agreements or our trade secrets may otherwise be misappropriated. Our collaborators might also have rights to publish data and we might fail to apply for patent protection prior to such publication. It is possible that a competitor will make use of such information, and that our competitive position will be compromised. In addition, to the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Enforcing a claim that a ~~third party~~third-party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the U.S. sometimes are less willing than U.S. courts to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. If we cannot maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information would be jeopardized, which would adversely affect our competitive position.

~~Recent court decisions~~Changes in U.S. patent law, or laws in other countries, could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued ~~patents.~~patents, thereby impairing our ability to protect our product candidates.

~~On June 13, 2013,~~Our success is heavily dependent on intellectual property, particularly patents. The patent positions of pharmaceutical and biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in patents in these fields has emerged to date in the U.S. or other countries. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to us. For example, there have been recent changes regarding how patent laws are interpreted, and both the USPTO and Congress have recently made significant changes to the patent system. There have been U.S. Supreme Court ~~decision~~decisions that now show a trend of the Supreme Court which is distinctly negative on some patents. The trend of these decisions along with resulting changes in ~~Association for Molecular Pathology v. Myriad Genetics, Inc., held that isolated DNA sequences are not patentable. In December 2014,~~patentability requirements being implemented by the USPTO ~~issued its Interim Guidance~~could make it increasingly difficult for us to obtain and maintain patents on ~~Patent Subject Matter Eligibility,~~our products. We cannot accurately predict future changes in ~~which it extended Myriad's "marked difference" standard for~~the interpretation of patent ~~subject matter eligibility to all potential natural products. This standard applies~~laws or changes to patent ~~claims that recite not only nucleic acids (such as DNA in Myriad), but also other subject matter that could~~laws which might be considered a natural product, such as peptides, proteins, extracts, organisms, antibodies, chemicals, and minerals. As a consequence of the Myriad decision and the USPTO’s Interim Guidance, if any ofenacted into law. Those changes may materially affect our ~~future product candidates utilize isolated DNA, peptides, proteins or the like, we will not be able~~patents, our ability to obtain patents, the costs to prosecute our patent applications and enforce our patents and/or the patents and applications of our collaborators. The patent situation in these fields outside the U.S. also has uncertainties. Changes in either the patent laws or in interpretations of patent laws in the U.S. ~~claiming~~and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in the patents we own or to which we have a license or third-party patents. As an example, beginning June 1, 2023, European patent applications and patents may be subjected to the jurisdiction of the Unified Patent Court, or UPC. Also, European patent applications will have the option, upon grant of a patent, of becoming a Unitary Patent, which will be subject to the jurisdiction of the UPC. The UPC and Unitary Patent are significant changes in European patent practice. As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation in the UPC. As a single court system can invalidate a European patent, we, where applicable, may opt out of the UPC and as such, ~~novel gene targets that we discover, which could limit our ability~~each European patent would need to ~~prevent third parties from developing drugs directed against such targets.~~be challenged in each individual country.

If we do not obtain protection under the Hatch-Waxman Act in the U.S. and similar legislation outside of the U.S. by extending the patent terms for our product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, if any, one or more U.S. patents may be eligible for limited patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during clinical testing of the product and the subsequent FDA regulatory review process. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than five years, or even less than we ~~request.~~request if that number is less than five years.

If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product ~~will~~may be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.

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We have not registered our corporate name as a trademark in all of our potential markets, and failure to secure those registrations could adversely affect our business.

Our corporate name, Xenon, has not been trademarked in each market where we operate and plan to operate. Our trademark applications for our corporate name or the name of our products may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections, which we may be unable to overcome in our responses. Third parties may also attempt to register trademarks utilizing the Xenon name on their products, and we may not be successful in preventing such usage. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.

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Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common shares to decline.

During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our existing products, programs or intellectual property could be diminished. Accordingly, the market price of our common shares may decline. Such announcements could also harm our reputation or the market for our future products, which could have a material adverse effect on our business.

Risks Related to ~~Our Industry~~

~~If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization~~Ownership of ~~our current and any future products.~~

We face an inherent risk of product liability as a result of the clinical testing of our product candidates, and we will face an even greater risk if we commercialize any product candidates. For example, we may be sued if any of our product candidates, including any that are developed in combination therapies, allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. There is also risk that third parties we have agreed to indemnify could incur liability. Regardless of the merits or eventual outcome, liability claims may result in:

~~decreased demand for our product candidates or any resulting products;~~

~~injury to our reputation;~~

~~withdrawal of clinical trial participants;~~

~~costs to defend the related litigation;~~

~~a diversion of management’s time and our resources;~~

~~substantial monetary awards to trial participants or patients;~~

~~product recalls, withdrawals or labeling, marketing or promotional restrictions;~~

~~loss of revenue;~~

~~the inability to commercialize our product candidates; and~~

~~a decline in the market price of our common shares.~~

We currently carry product liability insurance of $10,000,000 per occurrence and $10,000,000 aggregate limit. We believe our product liability insurance coverage is appropriate in light of our current clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may then be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause the market price of our common shares to decline and, if judgments exceed our insurance coverage, could adversely affect our future results of operations and business.

Patients with certain of the diseases targeted by our product candidates are often already in severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life-threatening conditions. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market those product candidates, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.

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Our current and future relationships with customers and third-party payers in the U.S. and elsewhere will be subject, directly or indirectly, to applicable federal and state anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings.

Healthcare providers, physicians and third-party payers in the U.S. and elsewhere play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payers and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include the following:

federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, or other third party payers claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

~~HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;~~

HIPAA, as amended by HITECH, and their respective implementing regulations, which impose obligations on covered healthcare providers, health plans, and healthcare clearinghouses, as well as their business associates that create, receive, maintain, or transmit individually identifiable health information for or on their behalf, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

~~the federal Open Payments program; and~~

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the collection, export, privacy, use and security of biological materials and health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other providers or entities with whom we expect to do business, including our collaborators, is found not to be in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially affect our business.

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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

Our research and development activities involve the controlled use of potentially harmful biological materials as well as hazardous materials, chemicals, and various radioactive compounds typically employed in molecular and cellular biology. For example, we routinely use cells in culture and we employ small amounts of radioisotopes. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling, or disposal of these materials through our maintenance of up-to-date licensing and training programs. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our resources. We currently carry insurance covering certain claims arising from our use of these materials. However, if we are unable to maintain our insurance coverage at a reasonable cost and with adequate coverage, our insurance may not cover any liability that may arise. We are subject to U.S. and Canadian federal, provincial, and local laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Complying with regulations regarding the use of these materials could be costly, and if we fail to comply with these regulations, it could have a material adverse effect on our operations and profitability.

Our headquarters are located in Burnaby, British Columbia, Canada. We are vulnerable to natural disasters such as earthquakes that could disrupt our operations. If a natural disaster, power outage, fire or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. Although we carry insurance for earthquakes and other natural disasters, we may not carry sufficient business interruption insurance to compensate us for all losses that may occur. The disaster recovery and business continuity plans we have in place currently are limited and may not be adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of a natural disaster or earthquake, which could have a material adverse effect on our business. In addition, we may lose samples or other valuable data. The occurrence of any of the forgoing could have a material adverse effect on our business.

~~Risks Related to~~ Our Common Shares

The market price of our common shares may be volatile, and purchasers of our common shares could incur substantial losses.

Our common shares are listed on Nasdaq under the trading symbol “XENE.” The market price of our common shares has fluctuated in the past and is likely to be volatile in the future. As a result of this volatility, investors may experience losses on their investment in our common shares. The market price for our common shares may be influenced by many factors, including the following:

•

~~actions by any of our collaborators regarding our product candidates they are developing, including announcements regarding clinical or regulatory decisions or developments or our collaboration;~~

announcements by us or our competitors of new products, product candidates or new uses for existing products, significant contracts, commercial relationships or capital commitments and the timing of these introductions or announcements;

•

actions by any of our collaborators regarding our product candidates they are developing, including announcements regarding clinical or regulatory decisions or developments of our collaboration;

•

unanticipated serious safety concerns related to the use of any of our products and product candidates;

•

negative or inconclusive results from clinical trials of our product candidates, leading to a decision or requirement to conduct additional pre-clinical testing or clinical trials or resulting in a decision to terminate the continued development of a product candidate;

•

delays of clinical trials of our product candidates;

•

failure to obtain or delays in obtaining or maintaining product approvals or clearances from regulatory authorities;

•

adverse regulatory or reimbursement announcements;

•

announcements by us or our competitors of significant acquisitions, strategic collaborations, licenses, joint ventures or capital commitments;

•

the results of our efforts to discover or develop additional product candidates;

•

our dependence on third parties, including our collaborators, CROs, clinical trial sponsors and clinical investigators;

•

regulatory or legal developments in Canada, the U.S. or other countries;

•

developments or disputes concerning patent applications, issued patents or other proprietary rights;

•

the recruitment or departure of key ~~scientific or management~~ personnel;

•

~~our ability to successfully commercialize our future product candidates we develop independently, if approved;~~

~~-49-~~

the level of expenses related to any of our product candidates or clinical development programs;

•

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

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•

actual or anticipated quarterly variations in our financial results or those of our competitors;

•

~~any change to the composition of the board of directors or key personnel;~~

sales of common shares by us, our insiders or our shareholders in the future, as well as the overall trading volume of our common shares;

•

changes in the structure of healthcare payment systems;

•

commencement of, or our involvement in, litigation;

•

the impact of pandemics, epidemics or other public health crises on our business and the macroeconomic environment;

•

general economic, industry and market conditions;

•

market conditions in the pharmaceutical and biotechnology sectors and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies; and

•

the other factors described in this “Risk Factors” section.

In addition, the stock market in general, and ~~NASDAQ~~Nasdaq and the biopharmaceutical industry in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. The COVID-19 pandemic and rising inflation and interest rates, for example, resulted in significant volatility. These broad market and industry fluctuations may adversely affect the market price of our common shares, regardless of our operating performance. In several recent situations where the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our shareholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

Future sales and issuances of our common shares ~~in the public market~~or securities convertible into or exchangeable for common shares would cause our shareholders to incur dilution and could cause the market price of our common shares to fall.

The market price of our common shares could decline as a result of sales of a large number of our common shares or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Pursuant to our equity incentive plans, our compensation committee (or a subset or delegate thereof) is authorized to grant equity-based incentive awards to our employees, directors and consultants. Future stock option grants and issuances of common shares under our share-based compensation plans will result in dilution to all shareholders and may have an adverse effect on the market price of our common shares.

In addition, in the future, we may issue additional common shares, preferred shares, or other equity or debt securities convertible into common shares in connection with a financing, collaboration agreement, acquisition, litigation settlement, employee arrangements or otherwise. We may also issue additional common shares upon the exercise of pre-funded warrants that we have issued from time to time. Any such issuance, including any issuances pursuant to our “at-the-market” equity offering program under our sales agreement with Jefferies and Stifel, could result in substantial dilution to our existing shareholders and could cause the market price of our common shares to decline.

~~Provisions~~We are governed by the corporate and securities laws of Canada which in ~~our~~some cases have a different effect on shareholders than the corporate ~~charter documents~~laws of Delaware and ~~Canadian law could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts~~U.S. securities laws.

We are governed by ~~our shareholders to replace or remove our current management and/or limit the market price of our common shares.~~

~~Provisions in our articles and our by-laws, as well as certain provisions under~~ the Canada Business Corporations Act, or CBCA, and ~~applicable Canadian securities~~other relevant laws, which may ~~discourage, delay~~affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our articles and by-laws, have the effect of delaying, deferring or ~~prevent a merger, acquisition or other change in~~discouraging another party from acquiring control of ~~us that shareholders~~our company by means of a tender offer, a proxy contest or otherwise, or may ~~consider favorable, including transactions in which they might otherwise receive a premium for their common shares. These provisions could also limit~~affect the price ~~that investors might~~an acquiring party would be willing to ~~pay~~offer in such an instance. The material differences between the ~~future~~CBCA and Delaware General Corporation Law, or DGCL, that may have the greatest such effect include, but are not limited to, the following: (i) for material corporate transactions (such as mergers and amalgamations, other extraordinary corporate transactions or amendments to our ~~common shares, thereby depressing~~articles) the ~~market price~~CBCA generally requires a two-thirds majority vote by shareholders, whereas DGCL generally only requires a majority vote; and (ii) under the CBCA holders of 5% or more of our ~~common shares.~~shares that carry the right to vote at a meeting of shareholders can requisition a special meeting of shareholders, whereas such right does not exist under the DGCL. In addition, ~~because~~ our board of directors is responsible for appointing the members of our management team ~~these~~and certain provisions of the CBCA and our articles and by-laws may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors. ~~Among other things,~~Certain of these provisions include the following:

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•

shareholders cannot amend our articles unless such amendment is approved by shareholders holding at least two-thirds of the shares entitled to vote on such approval;

•

~~our board of directors may, without shareholder approval, issue preferred shares having any terms, conditions, rights, preferences and privileges as the board of directors may determine; and~~

shareholders must give advance notice to nominate directors or to submit proposals for consideration at shareholders’ ~~meetings.~~

meetings; and

•

applicable Canadian corporate and securities laws generally require, subject to certain exceptions, a tender offer (also known as a take-over bid) to remain open for a minimum of 105 days and that more than 50% of the outstanding securities not owned by the offeror be tendered before the offeror may take up the securities.

Any provision in our articles, by-laws, under the CBCA or under any applicable Canadian securities law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their common shares, and could also affect the price that some investors are willing to pay for our common shares, thereby depressing the market price of our common shares.

~~-50-~~

U.S. civil liabilities may not be enforceable against us, our directors, or our officers.

We are governed by the CBCA and our principal place of business is in British Columbia, Canada. Many of our directors and officers reside outside of the U.S., and all or a substantial portion of their assets as well as all or a substantial portion of our assets are located outside the U.S. As a result, it may be difficult for investors to effect service of process within the U.S. upon us and certain of our directors and officers or to enforce judgments obtained against us or such persons, in U.S. courts, in any action, including actions predicated upon the civil liability provisions of U.S. federal securities laws or any other laws of the U.S. Additionally, rights predicated solely upon civil liability provisions of U.S. federal securities laws or any other laws of the U.S. may not be enforceable in original actions, or actions to enforce judgments obtained in U.S. courts, brought in Canadian courts, including courts in the Province of British Columbia.

~~We are governed by the corporate laws of Canada which in some cases have a different effect on shareholders than the corporate laws of Delaware, U.S.~~

We are governed by the CBCA and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, have the effect of delaying, deferring or discouraging another party from acquiring control of our company by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between the CBCA and Delaware General Corporation Law, or DGCL, that may have the greatest such effect include, but are not limited to, the following: (i) for material corporate transactions (such as mergers and amalgamations, other extraordinary corporate transactions or amendments to our articles) the CBCA generally requires a two-thirds majority vote by shareholders, whereas DGCL generally only requires a majority vote; and (ii) under the CBCA a holder of 5% or more of our common shares can requisition a special meeting of shareholders, whereas such right does not exist under the DGCL.

~~An active trading market for our common shares may not be maintained.~~

Our common shares are currently traded on NASDAQ, but we can provide no assurance that we will be able to maintain an active trading market on NASDAQ or any other exchange in the future. If an active market for our common shares is not maintained, it may be difficult for our shareholders to sell the common shares they have purchased without depressing the market price for the common shares or at all. Further, an inactive market may also impair our ability to raise capital by selling additional common shares and may impair our ability to enter into strategic collaborations or acquire companies or products by using our common shares as consideration.

Complying with the laws and regulations affecting public companies will increase our costs and the demands on management and could harm our operating results and our ability to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common shares.

As a public company, and particularly after we cease to be an “emerging growth company,” we will incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the related rules and regulations subsequently implemented by the Securities and Exchange Commission, or SEC, the applicable Canadian securities regulators and NASDAQ impose numerous requirements on public companies, including requiring changes in corporate governance practices. Also, the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. Our management and other personnel have and will continue to devote a substantial amount of time to compliance with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to make some activities more time-consuming and costly. For example, these rules and regulations make it difficult and expensive for us to maintain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.

~~-51-~~

The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. As an “emerging growth company” we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an “emerging growth company.” When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common shares could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our common shares. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm.

We are an “emerging growth company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common shares less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years following the completion of our initial public offering, although, if we have more than $1.0 billion in annual revenue, if the market value of our common shares held by non-affiliates exceeds $700 million as of June 30 of any year, or we issue more than $1.0 billion of non-convertible debt over a three-year period before the end of that five-year period, we would cease to be an “emerging growth company” as of the following December 31. Investors could find our common shares less attractive if we choose to rely on these exemptions. If some investors find our common shares less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common shares and the market price of our common shares may be more volatile.

As an “emerging growth company,” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. However, we previously decided to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the market price of our common shares.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the market price of our common shares.

~~-52-~~

We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. In addition, our management did not perform an evaluation of our internal control over financial reporting as of December 31, 2014 or December 31, 2013 and our independent registered public accounting firm did not perform an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. Had we and our independent registered public accounting firm performed such an evaluation, control deficiencies may have been identified by management or our independent registered public accounting firm, and those control deficiencies could have also represented one or more material weaknesses. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

Future sales and issuances of our common shares or rights to purchase common shares, including pursuant to our equity incentive plans, could cause you to incur dilution and could cause the market price of our common shares to fall.

As of September 30, 2017, options to purchase 2,207,380 of our common shares with a weighted-average exercise price of $7.74 per common share were outstanding. The exercise of any of these options would result in dilution to current shareholders. Further, because we will need to raise additional capital to fund our clinical development programs, we may in the future sell substantial amounts of common shares or securities convertible into or exchangeable for common shares. Pursuant to our equity incentive plans, our compensation committee (or a subset or delegate thereof) is authorized to grant equity-based incentive awards to our employees, directors and consultants. Future option grants and issuances of common shares under our share-based compensation plans may have an adverse effect on the market price of our common shares.

These future issuances of common shares or common share-related securities, together with the exercise of outstanding options and any additional common shares issued in connection with acquisitions, if any, may result in further dilution to our existing shareholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common shares.

We are at risk of securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology companies have experienced significant ~~stock~~share price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

~~NASDAQ~~ In addition, an increase in litigation against biotechnology companies may ~~delist our securities from its exchange, which could limit investors’ ability to~~ make ~~transactions in our securities~~it more difficult and ~~subject~~more expensive for us to ~~additional trading restrictions.~~obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

Our common shares are listed on NASDAQ under the trading symbol “XENE.” Our securities may fail to meet the continued listing requirements to be listed on NASDAQ. If NASDAQ delists our common shares from trading on its exchange, we could face significant material adverse consequences, including:

~~significant impairment of the liquidity for our common shares, which may substantially decrease the market price of our common shares;~~

~~a limited availability of market quotations for our securities;~~

a determination that our common shares qualify as a “penny stock” which will require brokers trading in our common shares to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common shares;

~~a limited amount of news and analyst coverage for our company; and~~

~~a decreased ability to issue additional securities or obtain additional financing in the future.~~

~~-53-~~

If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, the market price of our common shares and the trading volume of our common shares could decline.

The trading market for our common shares is influenced by the research and reports that securities or industry analysts publish about us or our business. If too few securities or industry analysts cover our company, the market price of our common shares would likely be negatively impacted. If securities and industry analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the market price of our common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause the market price of our common shares and the trading volume of our common shares to decline.

Our management ~~team~~ has broad discretion ~~as to~~over the use of ~~the net proceeds from~~ our ~~September 2016 public offering of our common shares~~cash and ~~the investment of these proceeds~~we may not ~~yield a favorable return. We may invest the proceeds in ways with~~use our cash effectively, which could adversely affect our ~~shareholders disagree.~~results of operations.

~~We have~~Our management has broad discretion in the application of ~~the net proceeds to us from~~ our ~~September 2016 public offering of our common shares. You~~cash resources. Shareholders may not agree with our decisions, and our use of ~~the proceeds and~~ our ~~existing~~ cash ~~and cash equivalents and marketable securities~~resources may not improve our results of operation or enhance the value of our common shares. The results and effectiveness of the use of proceeds are uncertain, and we could spend the proceeds in ways that you do not agree with or that do not improve our results of operations or enhance the value of our common shares. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the market price of our common shares to decline. In addition, ~~until the net proceeds are used,~~pending their use, they may be placed in investments that do not produce significant income or that may lose value.

We do not anticipate paying any cash dividends on our common shares in the foreseeable future.

We do not currently intend to pay any cash dividends on our common shares in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. ~~In addition, the terms of any future debt agreements may preclude us from paying dividends.~~ As a result, capital appreciation, if any, of our common shares may be investors’ sole source of gain for the foreseeable future.

Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our common shares.

The trading market for our common shares depends in part on the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us issues an adverse opinion about our company, our common share price would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common shares or trading volume to decline.

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There is no public market for our outstanding pre-funded warrants.

There is no public trading market for our outstanding pre-funded warrants and we do not expect a market to develop. In addition, we do not intend to list the outstanding pre-funded warrants on Nasdaq or any other national securities exchange or nationally recognized trading system. Without an active trading market, the liquidity of the outstanding pre-funded warrants will be limited.

General Risk Factors

Unstable market and economic conditions may have serious adverse consequences on our business and financial condition.

Global credit and financial markets have at times experienced extreme disruptions, including most recently in connection with the COVID-19 pandemic, characterized by increased market volatility, increased rates of inflation, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. Similarly, the current conflict between Ukraine and Russia and recent failures in the global banking sector have created volatility in the capital markets and are expected to have further global economic consequences. Limited liquidity, defaults, non-performance or other adverse developments affecting financial institutions or parties with which we do business, or perceptions regarding these or similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, in March 2023, Silicon Valley Bank, was closed and placed in receivership and, subsequently, additional financial institutions have been placed into receivership. There is no guarantee that the U.S. government or governments in other jurisdictions will intervene to provide access to uninsured funds in the future in the event of the failure of other financial institutions, or that the U.S. government or governments in other jurisdictions would do so in a timely fashion. If another such disruption in credit and financial markets and deterioration of confidence in economic conditions occurs, our business may be adversely affected. If the equity and credit markets were to deteriorate significantly in the future, including as a result of a resurgence of COVID-19, political unrest or war, or further instability of the global banking sector, it may make any necessary equity or debt financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and the market price of our common shares and could require us to delay or abandon development or commercialization plans. In addition, there is a risk that one or more of our current collaborators, service providers, manufacturers and other partners would not survive or be able to meet their commitments to us under such circumstances, which could directly affect our ability to attain our operating goals on schedule and on budget.

We have incurred, and expect to continue to incur, significant costs as a result of laws, regulations and investor-driven standards relating to corporate governance and other matters.

Laws and regulations affecting public companies, including provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Sarbanes-Oxley Act of 2002, the CBCA, applicable Canadian securities laws, and rules adopted or proposed by the SEC, Nasdaq, Corporations Canada and applicable Canadian securities regulators have resulted in, and will continue to result in, significant compliance costs to us as we evaluate the implications of these rules and respond to their requirements.

Compliance with the various reporting and other requirements applicable to public companies also requires considerable time and attention of management. In the future, if we are not able to issue an evaluation of our internal control over financial reporting, as required, or we or our independent registered public accounting firm determine that our internal control over financial reporting is not effective, this shortcoming could have an adverse effect on our business and financial results and the price of our common shares could be negatively affected. New rules could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the same or similar to our current coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors and board committees, and as our executive officers. We cannot predict or estimate the total amount of the costs we may incur or the timing of such costs to comply with these rules and regulations.

In addition, the SEC and applicable Canadian securities regulators recently have been pursuing various rulemaking efforts, including with respect to environmental, social and governance, or ESG, matters. A variety of organizations also measure the performance of companies on such ESG topics, and the results of these assessments are widely publicized. Investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions. If additional rules regarding ESG matters are adopted or if investors continue to increase their focus on ESG matters, we could incur substantially higher costs in our efforts to comply and cannot be certain that our efforts will be viewed as adequate.

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

On April 10, 2023, we issued an aggregate of 425,000 common shares, no par value per share (the “April Warrant Net Exercise Shares”), to pre-funded warrant holders upon the exercise of outstanding pre-funded warrants to purchase an aggregate of 425,003 common shares, no par value per share, pursuant to a net exercise mechanism under the warrants. Each pre-funded warrant had an exercise price of $0.0001 per share. The issuances of the April Warrant Net Exercise Shares were exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) thereof as an exchange with an existing security holder where no commission or other remuneration is paid or given for soliciting such exchange.

On July 7, 2023, we issued an aggregate of 425,000 common shares, no par value per share (the “July Warrant Net Exercise Shares”), to pre-funded warrant holders upon the exercise of outstanding pre-funded warrants to purchase an aggregate of 425,004 common shares, no par value per share, pursuant to a net exercise mechanism under the warrants. Each pre-funded warrant had an exercise price of $0.0001 per share. The issuances of the July Warrant Net Exercise Shares were exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) thereof as an exchange with an existing security holder where no commission or other remuneration is paid or given for soliciting such exchange.

Item 5. Other Information

Rule 10b5-1 Trading Plans

During our last fiscal quarter, no director or officer, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Item 408 of Regulation S-K.

-66-

Item 6. E~~xhibits~~Exhibits

(a) Exhibits.

Exhibit

Incorporated by Reference

Number

Description of Document

Form

File No.

Exhibit

Filing Date

3.1

Articles of the Company.

10-Q

001-36687

3.1

December 15, 2014

3.1A

Articles of Amendment to the Articles of the Company, creating the Series 1 Preferred Shares.

8-K

001-36687

3.1

March 28, 2018

3.2

Amended and Restated By-laws of the Company.

10-Q

001-36687

3.2

December 15, 2014

10.1

Consent to Alterations Agreement between Redstone Enterprises Ltd. and Xenon Pharmaceuticals Inc., effective March 27, 2023.

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a).

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a).

32.1*

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2*

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

~~Exhibit~~
~~Number~~		~~Description~~


~~31.1~~		~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a).~~

~~31.2~~		~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a).~~

32.1*		~~Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350.~~

32.2*		~~Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350.~~

~~101.INS~~		~~XBRL Instance Document~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

The Certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Xenon Pharmaceuticals Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

* The Certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Xenon Pharmaceuticals Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

~~-55-~~-67-

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~Date: November 7, 2017~~


~~XENON PHARMACEUTICALS INC.~~Date: August 9, 2023
		XENON PHARMACEUTICALS INC.
~~By:~~	~~/s/ Simon Pimstone~~
	~~Simon Pimstone~~By:		/s/ Ian Mortimer
			Ian Mortimer
			President and Chief Executive Officer
	~~(Principal Executive Officer)~~

~~Date: November 7, 2017~~

~~XENON PHARMACEUTICALS INC.~~

~~By:~~Date: August 9, 2023	~~/s/ Ian Mortimer~~
	~~Ian Mortimer~~By:	/s/ Sherry Aulin
	~~Chief Financial Officer, Chief Operating Officer and Corporate Secretary~~	Sherry Aulin
	~~(Principal~~	Chief Financial ~~and Accounting Officer)~~Officer

-68-

~~-56-~~


Canada	98-0661854
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
200-3650 Gilmore Way Burnaby, British Columbia, Canada	V5G 4W8
(Address of principal executive offices)	(Zip Code)


	September 30,			December 31,			June 30,			December 31,
	2017			2016			2023			2022
Assets
Current assets:
Cash and cash equivalents	$	14,688		$	17,095		$	64,552		$	57,242
Marketable securities		29,084			47,051
Marketable securities (note 5)								475,048			534,845
Accounts receivable		129			200			2,123			986
Prepaid expenses and other current assets		1,086			1,329			2,893			7,225
		44,987			65,675			544,616			600,298
Prepaid expenses, long term		218			408
Marketable securities, long-term (note 5)								112,592			128,682
Operating lease right-of-use asset, net (note 6)								9,799			10,406
Property, plant and equipment, net		1,154			1,404			9,563			6,500
Deferred tax assets								445			509
Prepaid expenses, long-term								7,884			7,751
Total assets	$	46,359		$	67,487		$	684,899		$	754,146

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued expenses (note 6)		3,058			3,586
Accounts payable and accrued expenses (note 7)							$	26,936		$	22,214
Operating lease liability (note 6)								1,223			488
	$	3,058		$	3,586			28,159			22,702
Operating lease liability, long-term (note 6)								10,283			9,947
Total liabilities							$	38,442		$	32,649

Shareholders’ equity:
Common shares, without par value; unlimited shares authorized; issued and outstanding: 17,998,420 (December 31, 2016 - 17,930,590) (note 7a)		173,841			173,246
Common shares, without par value; unlimited shares authorized; issued and outstanding: 63,718,350 (December 31, 2022 - 62,587,701) (note 8)							$	1,083,008		$	1,065,136
Additional paid-in capital		35,773			34,326			138,683			142,108
Accumulated deficit		(165,323	)		(142,681	)		(571,935	)		(482,747	)
Accumulated other comprehensive loss		(990	)		(990	)		(3,299	)		(3,000	)
	$	43,301		$	63,901
Total shareholders' equity							$	646,457		$	721,497
Total liabilities and shareholders’ equity	$	46,359		$	67,487		$	684,899		$	754,146

Collaboration agreements (note 8)
Commitments and contingencies (note 9)
Commitments and contingencies (note 10)

	Common shares				Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss ⁽¹⁾			Total shareholders' equity
	Shares		Amount
Balance as of December 31, 2015		14,385,336	$	148,634	$	33,083		$	(119,693	)	$	(990	)	$	61,034
Net loss for the year									(22,997	)					(22,997	)
Issuance of common shares, net of issuance costs		3,450,000		23,832											23,832
Stock-based compensation expense						2,186									2,186
Issued pursuant to exercise of stock options		95,254		780		(657	)		9						132
Fair value adjustment upon reclassification of stock options						(286	)								(286	)
Balance as of December 31, 2016		17,930,590	$	173,246	$	34,326		$	(142,681	)	$	(990	)	$	63,901
Net loss for the period									(22,639	)					(22,639	)
Stock-based compensation expense						1,862									1,862
Issued pursuant to exercise of stock options		67,830		595		(415	)		(3	)					177
Balance as of September 30, 2017		17,998,420	$	173,841	$	35,773		$	(165,323	)	$	(990	)	$	43,301

	Nine Months Ended September 30,
	2017			2016
Operating activities:
Net loss	$	(22,639	)	$	(16,993	)
Items not involving cash:
Depreciation and amortization		502			698
Stock-based compensation		1,643			1,642
Unrealized foreign exchange gain		(1,585	)		(2,011	)
Changes in operating assets and liabilities:
Accounts receivable		77			(272	)
Prepaid expenses, and other current assets		243			636
Prepaid expenses, long term		190			615
Accounts payable and accrued expenses		(319	)		945
Deferred revenue		—			(157	)
Net cash used in operating activities		(21,888	)		(14,897	)

Investing activities:
Purchases of property, plant and equipment		(252	)		(251	)
Purchase of marketable securities		(22,281	)		(15,365	)
Proceeds from marketable securities		41,024			—
Net cash provided by (used in) investing activities		18,491			(15,616	)

Financing activities:
Issuance of common shares pursuant to exercise of stock options		177			84
Issuance of common shares, net of issuance costs (note 7a)		—			23,832
Net cash provided by financing activities		177			23,916
Effect of exchange rate changes on cash and cash equivalents		813			2,081
Decrease in cash and cash equivalents		(2,407	)		(4,516	)
Cash and cash equivalents, beginning of period		17,095			58,651
Cash and cash equivalents, end of period	$	14,688		$	54,135

Supplemental disclosures:
Interest received	$	544		$	261
Supplemental disclosures of non-cash transactions:
Fair value of options exercised on a cashless basis		25			168


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


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


	Page
PART I. FINANCIAL INFORMATION	13
Item 1. Financial Statements	13
Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022	13
Consolidated Statements of Operations and Comprehensive Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	24
Consolidated ~~Statement~~Statements of Shareholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2023 and 2022	35
Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	47
Notes to Consolidated Financial Statements	58
Item 2. Management’s Discussion and Analysis of Financial Condition and Results Ofof Operations	1015
Item 3. Quantitative and Qualitative Disclosures About Market Risk	1925
Item 4. Controls and Procedures	2025
PART II. OTHER INFORMATION	2026
Item 1. Legal Proceedings	2026
Item 1A. Risk Factors	2026
Item ~~6. Exhibits~~2. Unregistered Sales of Equity Securities and Use of Proceeds	5566
~~SIGNATURES~~Item 5. Other Information	5666
Item 6. Exhibits	67
SIGNATURES	68


	Convertible preferred shares						Common shares				Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders' equity
	Shares			Amount			Shares		Amount
Balance as of December 31, 2021		1,016,000		$	7,732			51,634,752	$	783,170	$	117,495		$	(357,374	)	$	(990	)	$	550,033
Net loss for the period		—			—			—		—		—			(19,670	)		—			(19,670	)
Issuance of common shares, net of issuance costs (note 8a)		—			—			258,986		7,876		—			—			—			7,876
Conversion of preferred shares to common shares (note 8b)		(1,016,000	)		(7,732	)		1,016,000		7,732		—			—			—			—
Stock-based compensation expense		—			—			—		—		3,614			—			—			3,614
Issued pursuant to exercise of stock options		—			—			149,311		1,529		(1,529	)		—			—			—
Balance as of March 31, 2022		—		$	—			53,059,049	$	800,307	$	119,580		$	(377,044	)	$	(990	)	$	541,853
Net loss for the period		—			—			—		—		—			(31,158	)		—			(31,158	)
Issuance of common shares and pre-funded warrants, net of issuance costs (note 8a and note 8c)		—			—			9,098,362		260,503		9,387			—			—			269,890
Stock-based compensation expense		—			—			—		—		5,208			—			—			5,208
Issued pursuant to exercise of stock options		—			—			85,472		880		(880	)		—			—			—
Balance as of June 30, 2022		—		$	—			62,242,883	$	1,061,690	$	133,295		$	(408,202	)	$	(990	)	$	785,793


	June 30, 2023								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents
Cash and money market fund	$	64,552	$	—	$	—	$	64,552	$	57,242	$	—	$	—	$	57,242
Marketable securities
Guaranteed investment certificates		15,648		—		—		15,648		14,953		—		—		14,953
U.S. treasuries		299,069		—		—		299,069		322,851		—		—		322,851
U.S. government securities		—		102,357		—		102,357		—		32,479		—		32,479
Commercial paper		—		90,948		—		90,948		—		150,560		—		150,560
Corporate debt securities		—		79,618		—		79,618		—		142,684		—		142,684
Total	$	379,269	$	272,923	$	—	$	652,192	$	395,046	$	325,723	$	—	$	720,769


	June 30, 2023							December 31, 2022
	Amortized Cost		Unrealized Loss			Fair Value		Amortized Cost		Unrealized Loss			Fair Value
Contractual maturity of 0 to 1 years:
Guaranteed investment certificates	$	15,648	$	—		$	15,648	$	14,953	$	—		$	14,953
U.S. treasuries		202,358		(1,300	)		201,058		78,880		(837	)		78,043
U.S. government securities		50,207		(144	)		50,063		5,793		(20	)		5,773
Commercial paper		90,948		—			90,948		150,560		—			150,560
Corporate debt securities		23,607		(44	)		23,563		8,942		(68	)		8,874
Contractual maturity of 1 to 3 years:
U.S. treasuries		31,151		(220	)		30,931		60,354		(958	)		59,396
U.S. government securities		52,800		(506	)		52,294		26,741		(35	)		26,706
Corporate debt securities		29,462		(95	)		29,367		42,672		(92	)		42,580
Total	$	496,181	$	(2,309	)	$	493,872	$	388,895	$	(2,010	)	$	386,885


Year ending December 31:
2023	$	822
2024		1,699
2025		1,768
2026		1,837
2027		1,824
2028 and thereafter		5,410
Total future minimum lease payments	$	13,360
Less: imputed interest		(1,854	)
Present value of lease liabilities	$	11,506


1.	~~Nature of the business:~~

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ ~~(Do not check if a smaller reporting company)~~

Smaller reporting company

Emerging growth company