Xenon Cashed Up For Depression, Epilepsy, and Maybe More
Last month we published a note highlighting Xenon Pharmaceuticals (Nasdaq: XENE) and two impending Phase 2 data readouts that should be on investors’ radars. The first of these two data readouts came on November 9th when Xenon’s partner, Neurocrine Biosciences (Nasdaq: NBIX), announced that NBI-921352 (formerly known as XEN901) failed to show any meaningful anti-seizure benefit in a Phase 2 epilepsy study. The lack of anti-seizure efficacy with NBI-921352 raises serious doubt about the probability of success in the ongoing, Neurocrine-run, SCN8A pediatric epilepsy study with NBI-921352. Investors didn’t seem overly fussed by the NBI-921352 flop, and any collateral doubt about the drug’s future, with Xenon trading down only 10% in the days following the news.
The second and much more anticipated readout came on November 27th when the company announced top-line X-NOVA Phase 2 depression data for XEN1101. Although the primary endpoint (change in the MADRS depression rating scale) was not met in this proof-of-concept study, the totality of the data, including hitting several key secondary endpoints with statistical significance, demonstrating a clear dose-response, and good tolerability, appears to have achieved much of what Xenon management and investors hoped. As we wrote in our November note, “Positive data from this depression study has several benefits for Xenon, including; (1) another blockbuster indication to pursue with XEN1101 (2) a meaningful source of differentiation for XEN1101 as a commercial epilepsy asset given that depression is the most common psychiatric comorbidity experienced by people with epilepsy (3) and an increase in the pool of potential acquirers for Xenon, as there are far more companies focused on depression than epilepsy.”
Investors listening to the conference call immediately following the data release would have noted management’s non-committal tone when they were frequently asked whether these depression data were sufficient to advance XEN1101 into a pivotal depression program. However, any doubts about the company’s plans were put to rest when they announced a $300mm follow-on offering (likely to be $330mm with the greenshoe), a financing we assume was largely to fund Phase 3 development in depression. The unknown is how quickly Xenon proceeds into a Phase 3 depression program. The obvious next step is regulatory but assuming they can get alignment with FDA on a pivotal program, they could begin enrolling a Phase 3 depression study by mid-24. On the company’s recent Q3 call, Xenon management guided that completion of enrolment in the first epilepsy Phase 3 study (X-TOLE 2) will not occur until 2H24 and that topline data will be another 6-8 months from there. Based on this guidance the earliest investors will see topline epilepsy data would be 1Q25 but more likely 2Q25. Depression studies move faster than epilepsy studies, so it is conceivable if Xenon were to start a Phase 3 depression study in mid-24, investors could see topline data in depression first.
Investors shouldn’t forget that Mount Sinai is also running a Phase 2 depression study with XEN1101. According to Xenon management, data from this 60-patient investigator-sponsored study should be available in 2024. So, regardless of whether the Phase 3 depression study leapfrogs ahead of the epilepsy X-TOLE2 study, the Mount Sinai study would be the next “meaningful” data revealed by the company. The primary endpoint of this study is functional MRI, but secondaries include many of the same clinical endpoints, MADRS and SHAPS notably, as X-NOVA. At this stage, investors aren’t likely putting much weight on this study, but let’s not lose focus on the fact that Xenon only has X-NOVA, and its 150 patients of data (50 patients at the likely Phase 3 20mg dose), encouraging it to pursue Phase 3 development for XEN1101 in depression. The Mount Sinai study, although a smaller study, is only testing the 20mg dose of XEN1101 vs placebo (30 patients in each arm), so the meaningfulness of this study shouldn’t be overlooked in our opinion.
Our final comment on Xenon comes back to its treasury, which stands at over >$900mm after this recent raise. One investor we spoke with referred to Xenon as a “biotech bank” that also runs clinical trials. This got us thinking, could the use of proceeds from this most recent round be for something beyond the depression program? The company’s entire valuation is based on one drug – XEN1101. Granted the argument that XEN1101 can become a multi-billion dollar CNS franchise has never been stronger, but still, we wonder whether there aren’t some pipeline-filling dollars to be deployed. Certainly, they are working on next-gen Kv7 compounds but that is a long-term in-house R&D project. We are suggesting the possibility of a clinical-stage CNS asset acquisition to slot into the pipeline behind XEN1101. Many assets have never been cheaper and they certainly have the cash to go shopping.
Another Name We Are Following
Investors who have communicated with us over the years know that Fennec Pharmaceuticals (Nasdaq: FENC) is a company we follow closely. Fennec sells PEDMARK, the only FDA-approved drug for the prevention of hearing loss in kids with localized solid tumors treated with the chemotherapy cisplatin. The company launched the drug in the U.S. about a year ago and after a measured start appears to be on the cusp of cash-flow break-even after a solid Q3. As the base pediatric business experiences healthy growth, a new opportunity has arisen for PEDMARK in the adolescent and young adult (AYA) market (ages 15-39). Recently PEDMARK was endorsed in the National Comprehensive Cancer Network (NCCN) guidelines for use in the AYA population. Although the PEDMARK label is for pediatrics, its inclusion in the NCCN guidelines allows Fennec’s medical science liaisons to speak about the benefit of PEDMARK for the AYA population as well. Below is the language from the NCCN guidelines from their July 2023 update;
“Ototoxicity may occur following treatment with platinum-based chemotherapy agents.122 Although this side effect is not considered life-threatening, it can have a detrimental effect on an AYA patient’s quality of life. In 2022, the FDA approved the use of sodium thiosulfate (STS) for reducing the risk of ototoxicity associated with cisplatin in pediatric patients ≥1 month of age with localized, non-metastatic solid tumors.123” Source: https://www.nccn.org/patientresources/patient-resources
The size of the AYA population is multiples of the pediatric population, greatly expanding PEDMARK’s total addressable market. Furthermore, PEDMARK is sold in vials and the total dose is weight-based. AYA patients weigh more than kids, so the more the patient weighs, the more vials are needed, and the more Fennec sells. In the company’s recent quarterly call its CEO, Rosty Raykov, when discussing the AYA opportunity stated, “…we have just started our sales team focusing on this population and early results have been very encouraging.”
The other area of growth to watch for Fennec is Europe. PEDMARK was approved in Europe earlier in the year, but the launch has been delayed as the company switches to a European manufacturer. The company expects to be ready for a 2Q24 launch, the unknown is whether it will launch it themselves, through a partner, or in some combination of the two. With the product ready to launch within 6 months, investors should expect to hear something on this front shortly.
We highlight Fennec because of the appeal of an emerging cash-flow break-even pediatric business with the additional upside of the AYA and European markets. In the Q&A of their Q3 call, when asked where he sees the three parts of his business (pediatric, AYA, and Europe) a year from now, he answered, “…I think with all of these three things in place a year from now, I would imagine that we could speak to all three of them contributing substantial amounts.” Investors should like the sound of that.
Finally, for those wanting to learn more about Fennec, we would highlight an upcoming Capital One KOL call on December 7th. The call will be a conversation between Capital One’s analyst Naureen Quibria, PhD, and Noah Federman, MD, an oncologist at UCLA School of Medicine, who we understand is a strong advocate of PEDMARK.
