Bhavneesh Sharma

Top 20 Ranking (28.2% Avg Return) --TipRanks

Xenon Pharmaceuticals: Top CNS Investment Idea From Jefferies Healthcare Investors Conference

Xenon Pharmaceuticals (XENE) is developing novel antiepileptic drugs targeting voltage-gated ion channels, which could be superior to the currently marketed antiepileptic drugs. Also, the company is targeting some orphan epilepsy syndromes using precision based approach (genetically targeted), which is novel in the field of epilepsy. Approx. 2.3 million adults and 750,000 children suffer from epilepsy. Global antiepileptic drug market size was estimated as approx. $4 billion in 2018.

The lead product candidate, XEN-496, is a Kv7 potassium channel modulator (active ingredient ezogabine) and could be the first precision medicine antiepileptic drug in the market to treat KNCQ2-EE pediatric epilepsy (approx.. 1,000-2,000 U.S. existing cases). It has Orphan Drug designation from FDA in this indication. It has already proven efficacy in clinical trials in adult focal seizures. Its proof of concept in this orphan disease (KCNQ2-EE) has been shown by published case reports of use of ezogabine in this orphan disease resulting in an improvement in often refractory seizures. Regulatory right of reference authorization has been obtained from Glaxosmithkline (GSK). The management has completed a pre-IND meeting with FDA. IND submission is expected in Q3 this year followed by a phase 1 clinical study in healthy volunteers. After discussions with FDA, the management believes that a single small clinical trial may be pivotal and enough for regulatory approval if it shows significant efficacy in infants/small children.

The company has partnered with Invitae (NVTA), leading genetic testing company for providing no-cost genetic testing for all children till 5 years of age and an unprovoked seizure. XEN-496 could be the first antiepileptic drug with a disease-modifying effect.

The next lead product candidate, XEN-1101 is a next generation Kv7 potassium channel modulator. In vitro and in vivo studies, it has shown higher potency and bioavailability than ezogabine. It also has once daily dosing and ths, has better tolerability. It also has shown higher reduction in cortical activity in the brain compared to currently available antiseizure drugs. Phase 1 clinical study has been completed where it was found to be safe with no serious side effects or EKG effects. A phase 2b study is ongoing with planned 300 patients in adult focal epilepsy. Data from this phase 2b study is expected in 2020.

XEN901 is a potent sodium channel blocker and has the potential to be the best in class of sodium channel inhibitors as antiepileptic drugs. The company is using a precision medicine approach (genetically targeted) to address early infantile epileptic encephalopathy. It has shown favorable pharmacokinetics and safety profile in a phase 1 study. It may also be useful in treating seizures due to Dravet’s syndrome. It has an advantage over currently available sodium channel class of antiepileptic drugs because it has a wider therapeutic index and thus, it is possible to give higher doses and have potentially better antiepileptic effect.

XEN007: It is a calcium channel blocker, planned for testing in a phase 2 trial in an orphan neurological indication (active ingredient= flunarizine). There is no other CNS-acting calcium channel inhibitor in the U.S. market. The drug also has Orphan drug designation and rare pediatric disease designation in alternating hemiplegia of childhood.

The management is very experienced in the industry and has held senior leadership positions at prominent big pharma/biotech companies. CEO Simon Pimstone is a trained physician with a PhD and holds the post of a consultant physician and Clinical Associate Professor at University of British Columbia Hospital as a cardiologist. He has a Ph.D. in cardiovascular genetics. Chief Medical Officer Ernesto Aycardi, M.D. served as Vice President and Head of Clinical Trial Operations, Biostatistics, Data sciences and Clinical Pharmacology at Teva Pharmaceutical (TEVA). Before that, he was the Director, Medical Research in Neurology at Biogen (BIBB). Executive VP, Strategy and Innovation Robin Sherrington worked as a neuroscientist at Pfizer (PFE). James Empfield, Ph.D. was the VP, Drug discovery and chemistry at Vertex Pharmaceuticals (VRTX).

The company has the ability to disrupt the $4 billion/year revenue size antiepileptic drug market, yet the stock is trading only at a market cap of $233 million. The company had approx. $110 million in cash reserves at the end of Q1 this year. Long term debt was $15 million. Operating cash use was only $8.6 million in Q1, so I don’t anticipate any need to raise capital for at least next 12 months.

Near-term catalysts:

- XEN496: IND filing in Q3 this year followed by start of a phase 1 trial. A pivotal trial is expected to start in 2020.

- XEN1101: Top line phase 2b data in the second half of 2020.

- XEN901: Initiation of a phase II/III trial in pediatric epilepsy indications.

Xenon Pharmaceuticals is one of my top CNS investment picks for next 2-3 years. I/we have a long position in XENE.

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Bhavneesh Sharma covers biotech as one of the original contributing analysts at FATRADER. A market expert with a medical degree and MBA, he is ranked among the top 15 financial bloggers and top 100 overall financial experts (including Wall Street analysts) on TipRanks.
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