Xenon Pharmaceuticals Inc.

(Expressed in thousands of U.S. dollars except share and per share amounts)

Nature of the business:

Xenon Pharmaceuticals Inc. (the “Company”), incorporated in 1996 under the predecessor to the Business Corporations Act (British Columbia) and continued federally in 2000 under the Canada Business Corporations Act, is a neuroscience-focused biopharmaceutical company dedicated to drug discovery, clinical development, and commercialization of life-changing therapeutics for patients in need.

The Company has incurred significant operating losses since inception. As of March 31, 2026, the Company had an accumulated deficit of$1,347,682 and a net loss of $102,302 for the three months ended March 31, 2026. Management expects to continue to incur significant expenses in excess of revenue and to incur operating losses for the foreseeable future. To date, the Company has financed its operations primarily through the sale of equity securities, funding received from collaboration and license agreements, and debt financings.

Until such time as the Company can generate substantial product revenue, if ever, management expects to finance the Company’s cash needs through a combination of collaboration agreements, equity and debt financings. The continuation of research and development activities and the future commercialization of its products are dependent on the Company’s ability to successfully raise additional funds when needed. It is not possible to predict either the outcome of future research and development programs or the Company’s ability to continue to fund these programs in the future.

As of March 31, 2026, the Company had cash, cash equivalents and marketable securities of $1,339,621. Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects the cash, cash equivalents and marketable securities to be sufficient to fund current operations for at least the next 12 months from the issuance of the financial statements.

Basis of presentation:

These unaudited interim condensed consolidated financial statements are presented in U.S. dollars and include the accounts of the Company and its wholly-owned subsidiary, Xenon Pharmaceuticals USA Inc., a Delaware corporation. All intercompany transactions and balances have been eliminated on consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Certain information has been reclassified to conform with the financial presentation adopted for the current year. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2025 included in the Company’s 2025 Annual Report on Form 10-K filed with the SEC and with the securities commissions in British Columbia, Alberta and Ontario on February 26, 2026.

These unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three months ended March 31, 2026 and 2025 are not necessarily indicative of results that can be expected for a full year. These unaudited interim condensed consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company included in the Company’s 2025 Annual Report on Form 10-K for the year ended December 31, 2025.

Fair value of financial instruments:

The fair value hierarchy consists of the following three levels:

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Level 1 -Unadjusted quoted prices in active markets for identical instruments.

•

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

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•

Level 3 - Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.

The carrying amounts of cash and cash equivalents, other receivables, and accounts payable and accrued liabilities approximate their fair value due to the nature and short-term maturity of these instruments.

The following table summarizes the fair value hierarchy levels used to determine the fair values of the Company’s cash and cash equivalents and marketable securities:

The fair values of the Company’s commercial paper and corporate debt securities are based on prices obtained from independent pricing sources. Securities with validated quotes from pricing services are reflected within Level 2, as they are primarily based on observable pricing for similar assets or other market observable inputs. Typical inputs used by these pricing services include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers or estimates of cash flow, prepayment spreads and default rates.

As of March 31, 2026 and December 31, 2025, the Company did not hold any securities classified as Level 3 and there were no securities transferred between Level 1 and Level 2.

Marketable securities:

Amortized cost, unrealized gain (loss) recognized in accumulated other comprehensive income (loss) and fair value of available-for-sale securities consisted of the following:

Allowance for credit losses or impairment on these marketable securities has not been recognized as these securities are high credit quality, investment grade securities that the Company does not intend to sell and will not be required to sell prior to their anticipated recovery. The change in fair value is primarily due to changes in interest and foreign exchange rates.

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Leases:

The Company hasan operating lease for research laboratories and office space in Burnaby, British Columbia which expires on June 30, 2032, andtwo renewal options for 5-years each which were not considered in the determination of the right-of-use asset and lease liability. The Company hasan additional 65-month operating lease for office space in Needham, Massachusetts, which commenced in October 2022. There is anoption to terminate one year prior to the expiry date, which was not considered in the determination of the right-of-use asset and lease liability.

The following table presents supplemental operating leases information:

(1)

Variable lease costs are payments that vary because of changes in facts or circumstances and include common area maintenance and property taxes related to the premises. Variable lease costs are excluded from the calculation of minimum lease payments.

Future minimum lease payments as of March 31, 2026 were as follows:

Accounts payable and accrued liabilities:

Accounts payable and accrued liabilities consisted of the following:

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Share capital:

(a)

Financing:

In August 2020, the Company entered into an “at-the-market” equity offering sales agreement, amended as of March 2022, with Jefferies LLC and Stifel, Nicolaus & Company, Incorporated, pursuant to which the Company may sell common shares from time to time (the “ATM Program”). Pursuant to a prior prospectus, the Company sold an aggregate of 3,134,119 common shares for proceeds of $129,975, net of commissions and transaction expenses, during the period from January 1, 2026 to February 26, 2026. On February 27, 2026, a new prospectus supplement was filed replacing the prior prospectus, pursuant to which the Company refreshed the ATM Program and may sell common shares having gross proceeds of up to $400,000, from time to time.

In March 2026, the Company entered into an underwriting agreement with J.P. Morgan Securities LLC, Jefferies LLC, TD Securities (USA) LLC, Stifel, Nicolaus & Company, Incorporated, RBC Capital Markets, LLC, and William Blair & Company, L.L.C., relating to an underwritten public offering of 12,236,843 common shares, including 1,710,526 shares sold upon the full exercise of the underwriters' over-allotment option, at a public offering price of $57.00 per common share and pre-funded warrants to purchase 877,194 common shares at $56.9999 per pre-funded warrant (note 7b), with each pre-funded warrant having an exercise price of $0.0001. The public offering was completed in March 2026, and the Company received proceeds of $707,551, net of underwriting discounts, commissions, and offering expenses.

(b)

Pre-funded warrants:

The following table presents pre-funded warrants activity:

(1)

During the three months ended March 31, 2026, the Company issued 118,980 common shares upon the exercise of 118,982 pre-funded warrants pursuant to a net exercise mechanism under the warrants.

Each pre-funded warrant is exercisable for the purchase of a common share at the holder’s discretion at an exercise price of $0.0001, subject to certain post-exercise beneficial ownership limitations as provided under the terms of the pre-funded warrant.

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 will be recorded in common shares. Pre-funded warrants to purchase 2,931,293 (2025 –2,173,081) common shares are not included in the number of issued and outstanding common shares as of March 31, 2026.

(c)

Amended and Restated 2025 Inducement Equity Incentive Plan:

In November 2025, the board of directors of the Company adopted Amended and Restated 2025 Inducement Equity Incentive Plan. Pursuant to the terms of the Amended and Restated 2025 Inducement Plan, the Company may grant nonstatutory stock options, stock appreciation rights, restricted share units, restricted stock, and performance share units as an inducement material to individuals being hired, or rehired following a bona fide period of interruption of employment, as an employee of the Company or any of its subsidiaries, and its terms are substantially similar to the Company’s Amended and Restated 2014 Equity Incentive Plan, including with respect to treatment of equity awards in the event of a “merger” or “change of control” as defined under the 2025 Inducement Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award exception or to comply with the Nasdaq acquisition and merger exception. The Company has reserved 900,000 common shares for issuance under the Amended and Restated 2025 Inducement Plan. In accordance with Nasdaq Listing Rule 5635(c)(4), the Company did not seek approval of the Amended and Restated 2025 Inducement Plan by its shareholders. On April 7, 2026, the Company amended and restated the Amended and Restated 2025 Inducement Equity Incentive Plan to increase the aggregate number of common shares reserved for issuance from 900,000 shares to 1,175,000 shares.

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(d)

Stock-based compensation:

The following table presents the components of stock-based compensation expense:

Stock Options

The following table presents stock option activity:

(1)

During the three months ended March 31, 2026,510,000 (2025–80,086) stock options were exercised for the same number of common shares in exchange for cash. In the same period, the Company issued 459,263 (2025 –90,187) common shares for the cashless exercise of 866,361 (2025 –179,729) stock options.

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

As of March 31, 2026, the unrecognized stock-based compensation expense related to unvested stock options was $137,568, which is expected to be recognized over 2.93 years.

RSUs

The following table presents RSU activity:

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RSUs generally vest annually over a one-year period for directors and a four-year period for employees and officers, subject to continued service on each vesting date. As of March 31, 2026, the unrecognized stock-based compensation expense related to unvested RSUs was $24,882, which is expected to be recognized over 3.50 years.

PSUs

The following table presents PSU activity:

PSUs vest upon the achievement of certain predefined company-specific performance-based criteria, subject to continued employment to each performance objective achievement date.

As of March 31, 2026, there wasno unrecognized stock-based compensation expense related to unvested PSUs that is probable to be achieved. There is $6,867 of unrecognized stock-compensation expense related to PSUs that is not considered probable to be achieved. The recognition of these expenses is subject to the achievement of the performance-based criteria, which are reassessed at each reporting date.

Collaboration revenue:

In December 2019, the Company entered into a license and collaboration agreement with Neurocrine Biosciences, Inc. to develop treatments for epilepsy, as described in the Company’s 2025 Annual Report on Form 10-K. The agreement also included a multi-year research collaboration to discover, identify and develop additional novel Nav1.6 and dual Nav1.2/1.6 inhibitors, which was completed in June 2022. As part of this ongoing collaboration, in February 2025, NBI-921355 progressed into a Phase 1 first-in-human study as a potential treatment for certain types of epilepsy and a $7,500 milestone was recognized in the three months ended March 31, 2025. Consideration associated with performance milestones is recognized as revenue using the most likely amount method when it is probable that a significant reversal of the cumulative revenue recognized will not occur.

Net loss per common share:

The following table presents the calculation of basic and diluted net loss per common share:

The weighted average number of common shares used in the basic and diluted net loss per common share calculations includes the weighted average pre-funded warrants outstanding during the period, as they are exercisable at any time for nominal cash consideration (note 7b).

The Company reported net losses for the three months ended March 31, 2026 and 2025, and therefore excluded the potentially dilutive outstanding securities from the computation of diluted net loss per common share as their inclusion would have had an anti-dilutive effect.

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The following table summarizes potentially dilutive securities:

Commitments and contingencies:

(a)

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

In April 2017, the Company acquired azetukalner from 1st Order pursuant to an asset purchase agreement. In August 2020, the Company and 1st Order amended the asset purchase agreement to amend certain definitions in the agreement and to modify the payment schedule for certain milestones. Through March 31, 2026, the Company has paid $2,000 based on progress against these milestones. Future potential payments to 1st Order include up to $6,000 in regulatory milestones. There areno royalty obligations to 1st Order.

(b)

Legal contingencies:

From time to time, the Company is subject to claims and legal proceedings arising in the ordinary course of business, and such claims, individually or in the aggregate, are not likely to have a material adverse effect on the Company’s condensed consolidated financial statements.

(c)

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 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.

Segment disclosure:

The Company operates as asingle reportable segment dedicated to drug discovery, clinical development, and commercialization of life-changing therapeutics for patients in need. The Company has no products approved for sale and has not generated any revenue from product sales. The Company’s Chief Executive Officer acts as the chief operating decision maker and manages the Company’s operations on a consolidated basis, using net loss to assess performance and allocate resources. The accounting policies for the operating segment are the same as those disclosed in the Company’s 2025 Annual Report on Form 10-K. The measure of segment assets is reported on the condensed consolidated balance sheet as total consolidated assets, with a majority of these assets located in the United States.

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The following table presents information about reported segment revenues, significant segment expenses, and segment loss:

(1)

Other segment items include foreign exchange gain and income tax (recovery) expense.

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