XENE US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis together with our consolidated financial statements and notes included elsewhere in this Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption Part I, Item 1A — “Risk Factors.” Throughout this discussion, unless the context specifies or implies otherwise, the terms “Xenon,” “we,” “us,” and “our” refer to Xenon Pharmaceuticals Inc. and its subsidiary.

Overview

We are a neuroscience-focused biopharmaceutical company dedicated to discovering, developing, and delivering life-changing therapeutics. We are advancing an ion channel product portfolio to address areas of high unmet medical need, including epilepsy and depression.

Azetukalner Clinical Development

Azetukalner, a novel, potent Kv7 potassium channel opener, represents the most advanced, clinically-validated potassium channel modulator in late-stage clinical development for the treatment of multiple indications, including two in epilepsy – FOS and PGTCS – as well as neuropsychiatric disorders, including MDD and BPD.

Epilepsy Programs

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Topline data from the Phase 3 X-TOLE2 study of azetukalner in FOS is on track for the first half of March 2026.

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Phase 3 X-TOLE3 study of azetukalner in FOS continues to enroll and is intended to support regulatory submissions outside the United States. We have completed an ethnobridging study and shared results with Japan’s Pharmaceutical and Medical Devices Agency, or PMDA. We aligned with PMDA to enroll approximately 60 of the planned 360 X-TOLE3 participants in Japan to support a potential regulatory submission in Japan. X-TOLE3 enrollment outside of Japan is expected to complete in 2026.

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Phase 3 X-ACKT study of azetukalner in PGTCS continues to enroll and is intended to support regulatory submissions for an additional epilepsy indication.

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We presented 48-month data from the X-TOLE OLE study at the American Epilepsy Society, or AES, annual meeting, reinforcing the long-term efficacy and safety of azetukalner with more than 775 patient-years of exposure data in the OLE. Among participants treated for ≥48 months, reductions in monthly FOS frequency were over 90% from double-blind period baseline, with over 38% achieving at least 12 months of seizure freedom.

Depression Programs

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Enrollment is ongoing for the Phase 3 X-NOVA2 and X-NOVA3 studies evaluating azetukalner in patients with MDD, with topline data from X-NOVA2 expected in H1 2027.

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Phase 3 X-CEED study evaluating azetukalner in patients with BPD I or II is underway.

Early-Stage R&D

We continue to expand our portfolio of innovative potassium and sodium channel modulators. Nav1.7 and Kv7 are important targets for pain and have been developed using our strong heritage in human genetics, deep understanding of ion channel biology, and expertise in novel chemistries to design potent, selective ion channel modulators.

Pain

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Phase 1 SAD/MAD study in healthy adult participants is underway for XEN1701 targeting Nav1.7. Study completion is expected in 2026 to support initiating a Phase 2 proof-of-concept study in acute pain.

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Phase 1 SAD/MAD study in healthy adult participants is underway for XEN1120 targeting Kv7. Study completion is expected in 2026 to support initiating a Phase 2 proof-of-concept study in acute pain.

Epilepsy

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IND-enabling studies are ongoing for our Nav1.1 program. Pre-clinical data suggest that targeting Nav1.1 could potentially address the underlying cause and symptoms of Dravet Syndrome.

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Partnered Program

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In collaboration with Neurocrine Biosciences, a Phase 1 study is ongoing for NBI-921355, an investigational, selective inhibitor of voltage-gated sodium channels Nav1.2 and Nav1.6 in development for the potential treatment of certain types of epilepsy.

We have funded our operations primarily through the sale of equity securities, funding received from our licensees and collaborators, and debt financing. We recognized revenue from collaboration agreements of $7.5 million for the year ended December 31, 2025. We did not recognize any revenue in the years ended December 31, 2024 and 2023. 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 product candidates and fund operations for the foreseeable future. We have incurred net losses in each year since inception and expect to continue to incur net losses for the foreseeable future. Our net losses were $345.9 million, $234.3 million, and $182.4 million for the years ended December 31, 2025, 2024, and 2023, respectively. As of December 31, 2025, we had an accumulated deficit of $1,245.4 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We anticipate that our operating expenses will increase substantially, particularly as we:

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prepare for the potential commercial launch of azetukalner;

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invest significantly to further develop azetukalner for our current and future indications;

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advance additional product candidates into pre-clinical and clinical development;

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

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require the manufacture of larger quantities of our product candidates for clinical development and potential commercialization;

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hire additional commercial, clinical, scientific, management and administrative personnel;

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acquire or in-license other assets and technologies;

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maintain, protect and expand our intellectual property portfolio; and

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create additional infrastructure to support our operations and any future commercialization efforts.

Financial Operations Overview

Revenue

To date, our revenue has been primarily derived from collaboration and licensing agreements and we have not generated any revenue from product sales. If our development efforts for our product candidates are successful and 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 candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

We may also generate revenue in the future 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, described in “Business — Collaborations, Commercial and License Agreements” and “Note 10” of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 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.

In February 2025, NBI-921355, a Nav1.2 and Nav1.6 sodium channel inhibitor in development for the potential treatment for certain types of epilepsy, progressed into a Phase 1 clinical study in healthy adult participants, triggering a $7.5 million milestone, which was recognized as revenue.

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Operating Expenses

The following table summarizes our operating expenses for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Year Ended December 31,

Research and Development Expenses

Research and development expenses represent costs incurred to conduct development of our proprietary product candidates and our drug discovery efforts, including any acquired or in-licensed product candidates or technology, and costs to support any partnered product candidates.

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

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

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

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third-party expenses relating to formulation, process development and manufacture of drug substance and drug product for use in our pre-clinical testing, clinical studies and potential commercial supply;

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third-party acquisition, license and collaboration fees;

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laboratory consumables; and

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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 for 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 continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance into later stages of development and we continue to conduct clinical studies, advance our internal drug discovery programs into pre-clinical development and continue our early-stage research. Product candidates in 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 duration of later-stage clinical studies.

Clinical development timelines, likelihood of regulatory approval, and commercialization and associated costs are uncertain, difficult to estimate, and can vary significantly. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development 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 complete the pre-clinical and clinical development for any of our product candidates or when and to what extent we may generate revenue from the commercialization and sale of any of our product candidates or achieve profitability.

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General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related expenses, consisting of salaries, benefits and stock-based compensation for our employees engaged in executive, finance, legal, business development, commercial and administrative functions, 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.

We expect that general and administrative expenses will increase in the future as we expand our operating activities to support our continued research activities and development of our product candidates, and as we prepare for commercialization. We will also continue to incur increased accounting, audit, legal, regulatory, compliance and 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. Interest income consists of income earned on our cash and investment balances. We anticipate that our interest income will continue to fluctuate depending on our cash and investment balances and interest rates.

Unrealized fair value gain on trading securities. Trading securities are recorded at fair value. Unrealized fair value gain on trading securities is related to changes in market pricing on the investments classified as trading securities during the period.

Foreign exchange gain (loss). Net foreign exchange gain (loss) consists 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). We will continue to incur substantial expenses in Canadian dollars and 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 United States, or 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.

The items in our financial statements requiring significant estimates and judgments are as follows:

Research and development costs:

Research and development costs is a critical accounting policy due to the magnitude of the costs and the requirement to estimate the proportionate performance of vendors to calculate third-party accrued and prepaid research and development expenses.

We recognize external research and development costs for research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical studies, and manufacturing activities. When determining the research and development expense, we use information and data provided by our vendors and third-party service providers. This process involves reviewing open contracts, communicating with applicable vendors and third-party service providers to identify services that have been performed, estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs.

Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered. Our historical prepaid and accrual estimates have not been materially different from the actual costs.

Stock-based compensation:

Stock-based compensation is a critical accounting estimate due to the magnitude of and the many assumptions that are required to calculate stock-based compensation expense. We grant stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) to certain employees, consultants, directors and officers pursuant to our equity incentive plans. Stock-based compensation expense is amortized on a straight-line basis over the requisite service period, and forfeitures are accounted for in the period they occur.

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Compensation expense is recorded using the fair value method. We calculate the fair value of stock options using the Black-Scholes option-pricing model, which requires that certain assumptions, including the expected life of the option and expected volatility of the stock, be estimated at the time that the options are granted. The expected volatility is based on the historical volatility of our common shares calculated based on a period of time commensurate with the expected term assumption. The expected term of our stock options has been determined utilizing our available historical data.

The grant date fair value of RSUs and PSUs is determined based on the closing market price of our common shares. Compensation expense for PSUs is recognized if the performance condition is considered probable of achievement using our best estimates.

Changes in any of these assumptions may materially affect the fair value of awards granted and the amount of stock-based compensation expense recognized.

Results of Operations

Comparison of Years Ended December 31, 2025, 2024 and 2023

The following table summarizes the results of our operations for the years ended December 31, 2025, 2024 and 2023 together with changes in those items (in thousands):

Collaboration revenue $ 7,500 $ — $ — $ 7,500 $ —

Other:

Unrealized fair value gain on trading securities — — 3,550 — (3,550 )

Revenue

Collaboration revenue of $7.5 million recognized for the year ended December 31, 2025 was related to a milestone payment in connection with the Neurocrine Collaboration. We did not recognize any revenue in the years ended December 31, 2024 and 2023.

Research and Development Expenses

The following table summarizes research and development expenses for the years ended December 31, 2025, 2024 and 2023 together with changes in those items (in thousands):

Direct external costs:

Indirect costs:

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Direct external costs related to azetukalner increased by $59.1 million for the year ended December 31, 2025, primarily due to our ongoing Phase 3 clinical studies in epilepsy, MDD and BPD. Preclinical, discovery and other program costs increased by $7.6 million due to the advancement of multiple potential drug candidates targeting Kv7, Nav1.7 and Nav1.1. Pain program costs increased by $2.7 million due to the advancement of XEN1120 and XEN1701. Personnel-related costs increased by $19.8 million due to higher headcount to support late-stage product candidate development and an increase in stock-based compensation expense.

Direct external costs related to azetukalner increased by $17.5 million for the year ended December 31, 2024, primarily due to our ongoing Phase 3 epilepsy clinical studies and the initiation of our first Phase 3 MDD clinical study, manufacturing activities to support current and future clinical studies as well as our potential NDA submission, partially offset by a decrease in costs for our Phase 2 MDD clinical study, which completed in late 2023. Pre-clinical, discovery and other program costs decreased by $4.0 million due to our decision in May 2023 to no longer pursue the clinical development of XEN496, partially offset by increase in costs due to the advancement of multiple potential drug candidates targeting Kv7, Nav1.7 and Nav1.1. Pain program costs increased by $4.8 million due to the advancement of XEN1120 and XEN1701. Personnel-related costs increased by $22.9 million driven by an increase in headcount to support late-stage development and an increase in stock-based compensation expense due to an increase in the number of options granted at a higher fair value.

General and Administrative Expenses

The following table summarizes general and administrative expenses for the years ended December 31, 2025, 2024 and 2023 together with changes in those items (in thousands):

Personnel-related costs increased by $4.6 million for the year ended December 31, 2025, primarily due to higher headcount to support our expanding research and development activities and future potential commercialization, partially offset by a decrease in stock-based compensation expense and recruitment costs. Professional and consulting fees increased by $4.3 million due to an increase in pre-commercial expenses, partially offset by lower legal costs associated with our ongoing business activities. Other general and administrative costs increased by $1.9 million primarily due to higher information technology costs to support our ongoing business activities.

Personnel-related costs increased by $16.1 million for the year ended December 31, 2024, primarily due to higher headcount to support our expanding research and development activities and future potential commercialization as well as an increase in stock-based compensation expense due to an increase in the number of options granted at a higher fair value. Professional and consulting fees increased by $5.4 million primarily associated with legal services in support of our ongoing business operations and pre-commercial activities.

Other Income

The following table summarizes our other income for the years ended December 31, 2025, 2024 and 2023 together with changes in those items (in thousands):

Unrealized fair value gain on trading securities — — 3,550 — (3,550 )

Interest income decreased by $15.1 million for the year ended December 31, 2025, driven by a lower average balance of marketable securities and lower average market yields on investments. The increase in foreign exchange gains of $2.4 million was due to fluctuations in the value of the Canadian dollar, partially offset by a lower balance of cash and cash equivalents and marketable securities denominated in Canadian dollars.

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Interest income increased by $14.3 million for the year ended December 31, 2024, driven by a higher average balance of marketable securities and higher average market yields on investments. The unrealized fair value gain on trading securities decreased by $3.6 million due to the fact that we did not hold any marketable securities classified as trading in 2024.

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, and debt financing. Since our initial public offering through December 31, 2025, we have raised aggregate net cash proceeds of more than $1.5 billion primarily from the issuance of equity securities. As of December 31, 2025, we had cash and cash equivalents and marketable securities of $586.0 million.

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, or the ATM Program, and a new prospectus supplement was filed with the SEC on August 9, 2024, pursuant to which we refreshed the ATM Program and may sell common shares having gross proceeds of up to $350.0 million, from time to time. As of December 31, 2025, an aggregate of 2,961,023 common shares have been sold for proceeds of $124.2 million, net of commissions and transaction expenses, of which $112.2 million, net of commissions and transaction expense. were raised during the three months ended December 31, 2025. As of February 23, 2026, we sold an additional 3,134,119 common shares for proceeds of $130.0 million, net of commissions and transaction expenses.

Funding Requirements

We have incurred significant operating losses since inception. As of December 31, 2025, we had an accumulated deficit of $1,245.4 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 incur significant expenses and increasing operating losses for the foreseeable future as we prepare for the potential commercial launch of azetukalner; invest significantly to further develop azetukalner for our current and future indications; advance additional product candidates into pre-clinical and clinical development; seek regulatory and marketing approvals for any of our product candidates that successfully complete clinical studies; manufacture larger quantities of our product candidates for clinical development and potential commercialization; hire additional commercial, clinical, scientific, management and administrative personnel; acquire or in-license other product candidates and technologies; make milestone or other payments under our in-license or other agreements, including, without limitation, payments to 1st Order Pharmaceuticals, Inc. and other third parties; maintain, protect and expand our intellectual property portfolio; establish a sales, marketing, distribution and other commercial infrastructure to commercialize any products for which we may obtain marketing 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.

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

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

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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;

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the number of future product candidates that we may pursue and their development requirements;

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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;

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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;

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

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

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

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

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the ongoing costs of 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 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. However, our estimates and assumptions may prove to be wrong, and we cannot guarantee that our existing capital resources 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 studies is costly, and the timing of progress in these studies 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 studies.

Contractual Commitments

In April 2017, we acquired azetukalner from 1st Order Pharmaceuticals, Inc., or 1st Order, pursuant to an asset purchase agreement. In August 2020, we 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 December 31, 2025, we have paid $2.0 million based on progress against these milestones. Future potential payments to 1st Order include up to $6.0 million in regulatory milestones. There are no royalty obligations to 1st Order.

We have operating leases for research laboratories and office space in Burnaby, British Columbia and office space in Needham, Massachusetts. The terms of the leases expire in June 2032 and November 2027, respectively. Amounts related to future lease payments for operating lease obligations as of December 31, 2025 totaled $8.8 million, with $1.8 million expected to be paid within the next 12 months.

Cash Flows

The following table shows a summary of our cash flows for the years ended December 31, 2025, 2024 and 2023 (in thousands):

Year Ended December 31,

Operating Activities

For the year ended December 31, 2025, net cash used in operating activities totaled $279.1 million, compared to $181.4 million in 2024. The increase was primarily related to higher research and development and general and administrative expenses, lower interest income as well as changes in operating assets and liabilities, partially offset by revenue recognized in connection with our collaboration agreement with Neurocrine Biosciences.

For the year ended December 31, 2024, net cash used in operating activities totaled $181.4 million, compared to $151.1 million in 2023. The increase was primarily related to higher research and development and general and administrative expenses, as well as changes in operating assets and liabilities, partially offset by higher interest income.

Investing Activities

For the year ended December 31, 2025, net cash provided by investing activities totaled $218.0 million, compared to $165.0 million in 2024. The change was driven primarily by a decrease in the purchase of marketable securities, net of redemptions, as well as a decrease in the purchases of property, plant and equipment.

For the year ended December 31, 2024, net cash provided by investing activities totaled $165.0 million, compared to net cash used of $111.4 million in 2023. The change was driven primarily by an increase in the redemption of marketable securities, net of purchases. In addition, there was a decrease in the purchases of property, plant and equipment.

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Financing Activities

For the year ended December 31, 2025, net cash provided by financing activities totaled $117.1 million, compared to $12.1 million in 2024. The increase was primarily related to net proceeds from the issuance of common shares of $112.2 million in 2025 as compared to net proceeds of $12.1 million in 2024 from the issuance of common shares. In addition, there was a $4.9 increase in proceeds from stock options exercises.

For the year ended December 31, 2024, net cash provided by financing activities totaled $12.1 million, compared to $353.5 million in 2023. The decrease was primarily related to net proceeds from the issuance of common shares of $12.1 million in 2024 as compared to net proceeds of $353.5 million in 2023 from the issuance of common shares and pre-funded warrants.

Related Party Transactions

For a description of our related party transactions, see “Certain Relationships and Related Transactions, and Director Independence.”

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Foreign currency risk

As of December 31, 2025, we had U.S. dollar denominated cash and cash equivalents and marketable securities of $528.1 million and Canadian dollar denominated cash and cash equivalents and marketable securities of CAD$79.9 million.

We are subject to foreign currency exchange rate 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 cash and cash equivalents, other receivables and accounts payable denominated in Canadian dollars.

Changes in foreign currency exchange rates can create significant foreign exchange gains or losses to us. We do not currently hedge our exposure and thus assume the risk of future gains or losses on the amounts of Canadian dollars held. While we have experienced increased foreign exchange fluctuations in recent periods, we do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to the Canadian dollar would have a material effect on our operating results.

Interest rate risk

As of December 31, 2025, we had cash and cash equivalents and marketable securities of $586.0 million. Interest rate risk relates to potential changes in interest income and the fair value of our investment portfolio. Cash and cash equivalents are short-term in nature and would not have a material impact from changes in interest rates. Marketable securities are primarily fixed-income securities and are subject to fair value changes as interest rates fluctuate. A 100 basis point, or 1%, unfavorable change in interest rates would have resulted in approximately a $1.9 million decrease in the fair value of our marketable securities as of December 31, 2025. We do not enter into investments for speculative purposes and have not used any derivative financial instruments to manage interest rate exposure.

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Item 8. Financial Statements and Supplementary Data

XENON PHARMACEUTICALS INC.

Index to Consolidated Financial Statements

Index

Reports of Independent Registered Public Accounting Firm (PwC PCAOB ID 238) 84

Reports of Independent Registered Public Accounting Firm (KPMG PCAOB ID 85) 86

Consolidated Balance Sheets 87

Consolidated Statements of Operations and Comprehensive Loss 88

Consolidated Statements of Shareholders’ Equity 89

Consolidated Statements of Cash Flows 90

Notes to Consolidated Financial Statements 91

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Xenon Pharmaceuticals Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Xenon Pharmaceuticals Inc. and its subsidiary (the “Company”) as of December 31, 2025, and the related consolidated statements of operations and comprehensive loss, of shareholders’ equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

External Research and Development Costs

As described in Note 3 to the consolidated financial statements, research and development costs are expensed in the period incurred. Management recognizes research and development expenses using information and data provided by the vendors and third-party service providers. This process involves reviewing open contracts, communicating with applicable vendors and third-party service providers to identify services that have been performed, estimating the level of service performed, and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual costs. The Company’s research and development expense for the year ended December 31, 2025 was $300.9 million, a majority of which relates to external research and development costs.

The principal consideration for our determination that performing procedures relating to external research and development costs is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s external research and development costs.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s research and development costs, including controls over external research and development costs. These procedures also included, among others testing external research and development costs on a sample basis by obtaining and inspecting source documents, such as the underlying contract research organization and contract manufacturing organization agreements, invoices received, and information received from vendors and third-party service providers, where applicable.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 26, 2026

We have served as the Company’s auditor since 2025.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Xenon Pharmaceuticals Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Xenon Pharmaceuticals Inc. (the Company) as of December 31, 2024, the related consolidated statements of operations and comprehensive loss, shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

Chartered Professional Accountants

We served as the Company’s auditor from 1999 to 2025.

Vancouver, Canada

February 27, 2025

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XENON PHARMACEUTICALS INC.

Consolidated Balance Sheets

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

December 31, December 31,

Assets

Current assets:

Prepaid expenses and other current assets 10,392 6,890

Operating lease right-of-use asset, net (note 7) 6,626 7,939

Property, plant and equipment, net (note 6) 8,721 10,278

Liabilities and shareholders’ equity

Current liabilities:

Accounts payable and accrued liabilities (note 8) $ 40,260 $ 34,221

Operating lease liability (note 7) 1,532 1,369

Operating lease liability, long-term (note 7) 6,412 7,646

Other liabilities, long-term 3,199 —

Shareholders’ equity:

Accumulated other comprehensive income (loss) 335 (1,612 )

Total liabilities and shareholders’ equity $ 633,163 $ 798,139

Commitments and contingencies (note 12)

Subsequent event (note 9)

The accompanying notes are an integral part of these consolidated financial statements.

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XENON PHARMACEUTICALS INC.

Consolidated Statements of Operations and Comprehensive Loss

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

Year Ended December 31,

Collaboration revenue (note 10) $ 7,500 $ — $ —

Operating expenses:

Other income (expense):

Unrealized fair value gain on trading securities — — 3,550

Other comprehensive income (loss):

Net loss per common share (note 11):

Basic and diluted $ (4.36 ) $ (3.01 ) $ (2.73 )

Weighted average common shares outstanding (note 11):

The accompanying notes are an integral part of these consolidated financial statements.

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XENON pharmaceuticals INC.

Consolidated Statements of Shareholders’ Equity

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

Shares Amount

Stock-based compensation expense — — 32,372 — — 32,372

Other comprehensive income — — — — 2,923 2,923

Stock-based compensation expense — — 50,717 — — 50,717

Other comprehensive loss — — — — (1,535 ) (1,535 )

Stock-based compensation expense — — 53,707 — — 53,707

Other comprehensive income — — — — 1,947 1,947

The accompanying notes are an integral part of these consolidated financial statements.

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XENON PHARMACEUTICALS INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

Year Ended December 31,

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation of property, plant and equipment 2,543 2,560 2,061

Realized loss on marketable securities 625 — —

Unrealized foreign exchange (gain) loss 73 745 (640 )

Unrealized fair value gain on trading securities — — (3,550 )

Changes in operating assets and liabilities:

Other liabilities 3,199 — —

Investing activities:

Purchases of property, plant and equipment (799 ) (3,075 ) (5,617 )

Financing activities:

Proceeds from exercise of stock options 4,962 47 35

Effect of exchange rate changes on cash and cash equivalents 458 (1,672 ) 376

Increase (decrease) in cash and cash equivalents 56,451 (5,931 ) 91,401

Supplemental cash flow disclosure:

Cash received for lease incentives $ — $ — $ 1,489

Supplemental disclosure of non-cash transactions:

Fair value of warrant and pre-funded warrants exercised $ 291 $ — $ 35,913

The accompanying notes are an integral part of these consolidated financial statements.

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XENON PHARMACEUTICALS INC.

Notes to Consolidated Financial Statements

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

1.

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 December 31, 2025, the Company had an accumulated deficit of $1,245,380 and a net loss of $345,910 for the year ended December 31, 2025. 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 December 31, 2025, the Company had cash, cash equivalents and marketable securities of $586,038. 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.

2.

Basis of presentation:

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Xenon Pharmaceuticals USA Inc., which was incorporated in Delaware on December 2, 2016. All intercompany transactions and balances have been eliminated in consolidation.

The consolidated financial statements are presented in U.S. dollars and have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). Certain information has been reclassified to conform with the financial presentation adopted for the current year.

3.

Significant accounting policies:

(a)

Use of estimates:

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable. On an ongoing basis, the Company evaluate its estimates, judgments and assumptions. All revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(b)

Cash and cash equivalents:

Cash equivalents are highly liquid investments that are readily convertible into cash with terms to maturity of three months or less when acquired. Cash equivalents are recorded at cost plus accrued interest, which approximates the fair value.

(c)

Marketable securities:

Marketable securities are debt securities with original maturities exceeding three months and accrue interest based on a fixed interest rate for the term. The Company classifies its marketable securities as either trading securities or available-for-sale securities at the time of acquisition and evaluates the appropriateness of these classifications at each balance sheet date. Marketable securities are carried at fair value.

Fair value gains and losses for marketable securities classified as trading securities are recorded through the consolidated statement of operations. These securities are classified as current assets as the Company has the intent and ability to convert these securities into cash without penalty within the next 12 months.

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Unrealized fair value gains and losses for marketable securities classified as available-for-sale are recorded through other comprehensive income (loss) in shareholders' equity. When the fair value of an available-for-sale security falls below the amortized cost basis, it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss are recorded directly to the consolidated statement of operations with a corresponding allowance for credit losses, limited to the amount that the fair value is less than the amortized cost basis. If the credit quality subsequently improves the allowance is reversed up to a maximum of the previously recorded credit losses. When the Company intends to sell an impaired available-for-sale security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment will immediately be recognized in the consolidated statement of operations with no corresponding allowance for credit losses. Realized gains and losses and credit losses, if any, on available-for-sale securities are included in interest income, based on the specific identification method. Available-for-sale securities are also adjusted for amortization of premiums and accretion of discounts to maturity, with such amortization and accretion included within interest income. Available-for-sale securities with a remaining maturity date greater than one year are classified as non-current assets, unless they are expected to be liquidated within the next 12 months.

(d)

Intellectual property:

The costs incurred in establishing and maintaining patents for intellectual property developed internally are expensed in the period incurred.

(e)

Property, plant and equipment:

Property, plant and equipment are stated at cost less accumulated depreciation and/or accumulated impairment losses, if any. Repairs and maintenance costs, which do not improve or extend the life of the respective asset, are expensed in the period incurred. Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized as a component of income or loss for the period.

Property, plant and equipment are amortized over their estimated useful lives using the straight-line method based on the following rates:

Asset Rate

Research equipment 5 years

Office furniture and equipment 5 years

Computer equipment 3 years

Leasehold improvements Over the lesser of lease term or estimated useful life

(f)

Impairment of long-lived assets:

The Company monitors its long-lived assets for indicators of impairment. If such indicators are present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets. The Company did not recognize any impairment charges through December 31, 2025.

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(g)

Leases:

The Company determines if an arrangement contains a lease at the inception of a contract. The lease classification is determined at lease commencement, which is the date the underlying asset is available for use by the Company. Leases classified as operating leases are recorded as lease liabilities based on the present value of minimum lease payments over the lease term, discounted using the lessor’s rate implicit in the lease or the Company’s incremental borrowing rate, if the lessor’s implicit rate is not readily determinable. The lease term includes all periods covered by renewal and termination options where the Company is reasonably certain to exercise the renewal options or not to exercise the termination options. Corresponding right-of-use assets are recognized consisting of the lease liabilities, initial direct costs and any lease incentive payments. Lease liabilities are drawn down as lease payments are made and right-of-use assets are depreciated over the term of the lease. Operating lease expenses are recognized on a straight-line basis over the term of the lease, consisting of interest accrued on the lease liability and depreciation of the right-of-use asset, adjusted for changes in index-based variable lease payments in the period of change. Variable lease payments not based on an index or rate are expensed as incurred. Lease payments on short-term operating leases with lease terms twelve months or less are expensed on a straight-line basis over the lease term. The Company has elected to not separate non-lease elements embedded in its lease agreements.

(h)

Concentration of credit risk:

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company's investments are limited to investment-grade securities with strong credit ratings with the objective to preserve capital and maintain liquidity. Cash and cash equivalents were held at major financial institutions in Canada and the United States which may at times be in excess of federally insured limits. The Company does not believe that it is subject to credit risk beyond the standard credit risk associated with commercial banking relationships.

(i)

Financial instruments and fair value:

The Company measures certain financial instruments and other items at fair value.

To determine the fair value, the Company uses the fair value hierarchy for inputs used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).

•

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).

•

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.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The carrying amount of cash and cash equivalents, other receivables, accounts payable and accrued liabilities approximates fair value due to the nature and short-term of those instruments.

(j)

Revenue recognition:

The Company recognizes the amount of revenue to which it expects to be entitled, for the transfer of promised goods or services to customers under a five-step model: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as a performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

Collaboration agreements may require the Company to deliver various rights and/or services, including intellectual property rights or licenses and research and development services. Under such collaboration agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research and development services, milestone payments, and royalties.

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In contracts where the Company has more than one performance obligation to provide its customer with goods or services, each performance obligation is evaluated to determine whether it is distinct based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative standalone selling prices. The estimated standalone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was regularly sold on a standalone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if selling price on a standalone basis is not available.

The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services. The Company generally recognizes revenue from non-refundable upfront payments over the estimated term of the performance obligation or period in which the underlying benefit is transferred to the customer. If non-refundable license fees have value to the customer on a standalone basis, separate from the undelivered performance obligations, they are recognized upon delivery. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Consideration in exchange for research and development services performed by the Company on behalf of the licensee is recognized upon performance of such activities at rates consistent with prevailing market rates. Consideration associated with at-risk substantive performance milestones, including sales-based 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. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones, and if necessary, adjusts its estimate of the overall transaction price. Sales-based royalties received in connection with licenses of intellectual property are subject to a specific exception in the revenue standards, whereby the consideration is not included in the transaction price and recognized in revenue until the customer’s subsequent sales or usages occur.

(k)

Research and development costs:

Research and development costs are expensed in the period incurred.

Research and development expenses consist of costs incurred in performing research and development activities, including personnel-related expenses, consisting of salaries, benefits and stock-based compensation for employees engaged in scientific research and development, external research and development costs, third-party acquisition, license and collaboration fees, laboratory consumables and certain indirect costs incurred in support of overall research and development activities, including facilities, depreciation and information technology costs. The amount of expenses recognized in a period related to service agreements is based on the work performed using the accrual basis of accounting. The Company recognizes external research and development costs for research and development activities conducted by third-party service providers, in connection with the pre-clinical and clinical development of product candidates including under agreements with clinical research organizations, third-party expenses relating to formulation, process development and manufacture of drug substance and drug product for use in pre-clinical testing, clinical studies and potential commercial supply. When determining the research and development expenses, the Company uses information and data provided by the vendors and third-party service providers. This process involves reviewing open contracts, communicating with applicable vendors and third-party service providers to identify services that have been performed, estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual costs. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered. Prepaid expenses are classified as current or non-current assets based on the expected timing of services.

(l)

Stock-based compensation:

Stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense, net of actual forfeitures, over the requisite service period with a corresponding increase in additional paid-in capital.

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The Company grants stock options, restricted share units (“RSUs”) and performance share units (“PSUs”) to certain employees, consultants, directors and officers pursuant to equity incentive plans described in note 9c. The fair value of stock options at the date of grant is estimated using the Black-Scholes option-pricing model. Stock-based compensation expense for stock options is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the vesting period of the award. Any consideration received on exercise of stock options is credited to share capital. RSUs are measured at the closing market price of the Company’s common shares on the date of grant. Stock-based compensation expense for RSUs is amortized on a straight-line basis over the requisite service period, which is generally the vesting period. PSUs vest upon the achievement of certain predefined company-specific performance-based criteria. PSUs are measured at the closing market price of the Company’s common shares on the date of grant. Stock-based compensation expense for PSUs is amortized on a straight-line basis over the requisite service period of each separately vesting tranche of the award once it is probable that the performance condition will be achieved.

(m)

Foreign currency translation:

The functional and reporting currency of the Company and its subsidiary is the U.S. dollar. Monetary assets and liabilities denominated in a currency other than the U.S. dollar are re-measured into U.S. dollars at the exchange rate prevailing as of the balance sheet date. Non-monetary assets and liabilities acquired in a currency other than U.S. dollars are translated at the approximate historical exchange rates prevailing at each transaction date.

Revenue and expense transactions are translated at the average exchange rate prevailing on the date of transaction. Exchange gains and losses on translation are included in the consolidated statements of operations and comprehensive income (loss) as foreign exchange gain (loss).

(n)

Income taxes:

Deferred income taxes are recognized for the future tax consequences attributable to differences between the carrying amounts of assets and liabilities and their respective tax bases, net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured at enacted rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized in the consolidated statement of operations and comprehensive income (loss) in the period that includes the enactment date. A valuation allowance is provided when realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position as well as consideration of the available facts and circumstances. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The interest accrued related to unrecognized tax benefits and penalties is recognized as income tax expense.

(o)

Net income (loss) per common share:

Basic net income (loss) per common share is calculated using the two-class method required for participating securities. Undistributed earnings (losses) are allocated to common shares and participating securities based on the weighted average shares of each class outstanding during the period.

The treasury stock method is used to compute the dilutive effect of the Company’s stock options, RSUs, PSUs and warrants. Under this method, the incremental number of common shares used in computing diluted net income (loss) per common share is the difference between the number of common shares assumed issued and purchased using assumed proceeds.

(p)

Segment and geographic information:

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment discovering, developing and delivering life-changing therapeutics for patients in need.

(q)

Recently adopted accounting pronouncements:

(i)

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures, which requires public entities to disclose specific categories in the effective tax rate reconciliation, as well as expanded disclosures on income taxes paid by jurisdictions. The Company adopted this ASU in the fourth quarter of 2025, prospectively for the current year presented in the consolidated financial statements. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements.

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(ii)

In September 2025, the FASB issued ASU 2025‐07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share‐Based Noncash Consideration from a Customer in a Revenue Contract, which refines the scope of derivative accounting and clarifies the treatment of certain share‐based noncash consideration in revenue contracts. The Company adopted this ASU in the fourth quarter of 2025, prospectively. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements.

(r)

Accounting pronouncements not yet adopted:

(i)

In November 2024, the FASB issued ASU 2024‐03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220‐40), which requires disclosure in the notes to financial statements about specific types of expenses included in the expense captions presented on the face of the statement of operations. This ASU is effective for public entities for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted, and can be applied either prospectively or retrospectively. The Company is currently evaluating the impact related to the adoption of this ASU on its financial statement disclosures.

(ii)

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which updates the accounting for internal-use software costs by replacing prescriptive development-stage guidance with a principles-based capitalization model and incorporating website development guidance into Subtopic 350-40. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its financial statements and related disclosures.

4.

Fair value of financial instruments:

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

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Cash and cash equivalents

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 December 31, 2025 and 2024, the Company does not hold any securities classified as Level 3 and there were no securities transferred between Level 1 and 2.

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5.

Marketable securities:

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

Current:

Non-current:

Allowance for credit losses or impairment on these marketable securities have 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, and the decline in fair value is primarily due to changes in interest and foreign exchange rates.

6.

Property, plant and equipment:

Property, plant and equipment consisted of the following:

December 31,

Office furniture and equipment 1,298 1,285

7.

Leases:

The Company has an operating lease for research laboratories and office space in Burnaby, British Columbia, which expires on June 30, 2032, and two renewal options for 5-years each which were not considered in the determination of the right-of-use asset and lease liability.The Company has an additional operating lease for office space in Needham, Massachusetts (“Needham Lease”), which commenced in October 2022. The Needham Lease is for a 62-month term and an option 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.

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The cost components of the operating leases were as follows for the years ended December 31, 2025, 2024 and 2023:

Year Ended December 31,

Lease cost

Lease term and discount rate

Weighted average remaining lease term (years) 5.7 6.4 7.3

Weighted average discount rate 3.7 % 3.8 % 3.9 %

(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 December 31, 2025 were as follows:

Year ending December 31:

Total future minimum lease payments $ 8,811

Less: imputed interest (867 )

Present value of lease liabilities $ 7,944

8.

Accounts payable and accrued liabilities:

Accounts payable and accrued liabilities consisted of the following:

December 31,

Accrued liabilities

Employee compensation, benefits, and related accruals 14,460 9,928

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9.

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”). In September 2023, pursuant to a prospectus supplement filed in March 2022 (“March 2022 Prospectus”), the Company sold an aggregate of 855,685 common shares for proceeds of $29,508, net of commissions and transaction expenses. In August 2024, a new prospectus supplement was filed replacing the March 2022 Prospectus, pursuant to which the Company refreshed the ATM Program and may sell common shares having gross proceeds of up to $350,000, from time to time. As of December 31, 2025, the Company had sold an aggregate of 2,651,023 common shares for proceeds of $112,151, net of commissions and transaction expenses under the ATM Program (2024 – 310,000 common shares for net proceeds of $12,083). As of February 23, 2026, we sold an additional 3,134,119 common shares for proceeds of $129,975, net of commissions and transaction expenses.

In November 2023, the Company completed an underwritten public offering of 9,846,157 common shares, including 1,384,615 shares sold upon the full exercise of the underwriters' over-allotment option, at a public offering price of $32.50 per common share and pre-funded warrants to purchase 769,230 common shares at $32.4999 per pre-funded warrant (note 9d), with each pre-funded warrant having an exercise price of $0.0001. The public offering was completed in December 2023, and the Company received proceeds of $323,979, net of underwriting discounts, commissions and offering expenses.

(b)

Authorized share capital:

The Company’s authorized share capital consists of an unlimited number of common and preferred shares without par value.

(c)

Stock-based compensation:

The Company has two equity incentive plans: (i) the 2014 Equity Incentive Plan, which was amended and restated in June 2020, June 2022 and June 2024 (the “Amended and Restated 2014 Plan”), and (ii) the 2025 Inducement Equity Incentive Plan, which was amended and restated in November 2025 (the “Amended and Restated 2025 Inducement Plan”).

The shareholders of the Company approved the Amended and Restated 2014 Plan amended in June 2020, June 2022 and June 2024, amending certain provisions of the Company’s 2014 Plan. The Amended and Restated 2014 Plan permits the grant of stock-based compensation awards to directors, officers, employees and consultants of the Company, including the issuance of options, share appreciation rights, restricted shares, RSUs, and PSUs. Under the Amended and Restated 2014 Plan, options granted generally vest on a graduated basis over a four-year periods. The exercise price of the options is determined by the board of directors but must at least be equal to the fair market value of the common shares on the date of grant. Options may be exercised over a maximum term of ten years. The vesting conditions, vesting period and expiry terms of the RSUs and PSUs are determined by the board of directors. As of December 31, 2025, a total of 5,004,392 common shares remain available for issuance pursuant to the Amended and Restated 2014 Plan. Of this total, the aggregate number of common shares that can be issued through restricted share awards, RSU awards, or PSU awards is limited to 1,000,000 common shares, of which 431,556 common shares remain available as of December 31, 2025.

The board of directors of the Company adopted Amended and Restated 2025 Inducement Plan amended in November 2025. Pursuant to the terms of the Amended and Restated 2025 Inducement Plan, the Company may grant nonstatutory stock options, stock appreciation rights, RSUs, restricted stock, and PSUs 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.

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The following table presents the components and classification of stock-based compensation expense for the years ended December 31, 2025, 2024 and 2023:

Year Ended December 31,

Stock-based compensation expense by award type:

Stock-based compensation expense in operating expenses:

Stock options

The following table presents the summary of stock option activity for the period:

Number of WeightedAverageExercise Aggregate

Options Price ($)(1) Intrinsic Value

(1)

During the year ended December 31, 2025, 318,813(2024 – 5,144 and 2023 – 4,320) stock options were exercised for the same number of common shares in exchange for cash. In the same period, the Company issued 594,076(2024 – 729,965 and 2023 – 377,114) common shares for the cashless exercise of 1,482,817(2024 – 1,034,992 and 2023 – 583,216) stock options.

At December 31, 2025, stock options outstanding and exercisable had a weighted average remaining contractual life of 7.31 years and 6.18 years, respectively.

The fair value of stock options at the date of grant is estimated using the Black-Scholes option-pricing model, which requires multiple subjective inputs. The risk-free interest rate of the options is based on the U.S. Treasury yield curve in effect at the date of grant for a term similar to the expected term of the option. The expected volatility is based on the historical volatility of the Company’s common shares calculated based on a period of time commensurate with the expected term assumption. Expected life assumptions are based on the Company’s historical data. The dividend yield is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Forfeitures are recognized as they occur.

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The weighted average option pricing assumptions are as follows:

Year Ended December 31,

Average risk-free interest rate 4.01 % 4.05 % 3.93 %

Expected volatility 61 % 66 % 69 %

Average expected term (in years) 5.78 5.75 5.94

Weighted average fair value of stock options granted $ 21.11 $ 26.48 $ 22.52

A summary of the Company’s unvested stock option activity and related information for the year ended December 31, 2025 is as follows:

Number ofOptions Weighted Average Grant DateFair Value ($)

The aggregate fair value of options vested during the year ended December 31, 2025 was $56,967 (2024 – $43,375 and 2023 – $29,233).

As of December 31, 2025, the unrecognized stock-based compensation expense related to the unvested stock options was $97,452, which is expected to be recognized over a weighted average period of 2.60 years.

Restricted share units

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. Upon vesting, each RSU entitles the holder to receive one common share.

The following table presents the summary of RSU activity for the year ended December 31, 2025:

Number of Weighted AverageGrant Date

Units Fair Value ($)

Outstanding, December 31, 2024 — —

Vested — —

As of December 31, 2025, the unrecognized stock-based compensation expense related to unvested RSUs was $10,014, which is expected to be recognized over a weighted average period of 3.21 years.

Performance share units

PSUs vest upon the achievement of certain predefined company-specific performance-based criteria on or before December 31, 2027, subject to continued employment to each performance objective achievement date. At the achievement of the vesting criteria, each PSU entitles the holder to receive one common share.

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The following table presents the summary of PSU activity for the period:

Number of Weighted AverageGrant Date

Units Fair Value ($)

Outstanding, December 31, 2023 — —

Vested — —

Forfeited — —

Vested — —

As of December 31, 2025, the unrecognized stock-based compensation expense related to the unvested PSUs that is probable to be achieved was $361. The recognition of this expense is subject to the achievement of the performance-based criteria, which are reassessed at each reporting date. There is $6,912 of unrecognized stock-based compensation expense related to the PSUs that is not probable to be achieved.

(d)

Pre-funded warrants:

The following table summarizes the pre-funded warrants activity for the years ended December 31, 2025, 2024, and 2023:

Number of Pre-funded

warrants outstanding

Issued —

Exercised —

(1)

During the year ended December 31, 2023, the Company issued 1,700,000 common shares upon the exercise of 1,700,013 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.

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, proceeds from issuances of the pre-funded warrants for the year ended December 31, 2023, of $23,477, net of underwriting discounts, commissions and offering expenses, 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 the holder are recorded in common shares. Pre-funded warrants to purchase 2,173,081 (2024 – 2,173,081 and 2023 – 2,173,081) common shares are not included in the number of issued and outstanding common shares as of December 31, 2025.

(e)

Warrant:

In August 2018, a warrant to purchase 40,000 common shares at a price per common share of $9.79 was issued. In October 2025, the Company issued 30,792 common shares upon the cashless exercise of the warrant.

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10.

Collaboration agreements:

Neurocrine Biosciences license and collaboration agreement

In December 2019, the Company entered into the Neurocrine Collaboration Agreement with Neurocrine Biosciences granting the Company an exclusive license to NBI-921352 (formerly XEN901) and certain pre-clinical compounds for development (the “DTCs”). The agreement also includes a 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 collaborated on the conduct of two collaboration programs: (a) a joint research collaboration to discover, identify and preclinically develop Research Compounds (the “Research Program”), which was completed in June 2022, and (b) a collaborative development program for NBI-921352 and two DTCs selected by the joint steering committee. Under the arrangement, the Company was entitled to funding for certain full-time equivalent and external costs incurred by the Company for the research and development services requested by Neurocrine Biosciences, and these services were priced at estimated fair value.

The Company is eligible to receive pre-commercial and commercial milestone payments with respect to the licensed products totaling up to an additional $1,667,500, comprised of up to $1,067,500 in additional development 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 is eligible to 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.

The Company has an option to co-fund 50% of 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 December 31, 2025.

In February 2025, NBI-921355, a Nav1.2 and Nav1.6 sodium channel inhibitor in development for the potential treatment for certain types of epilepsy, progressed into a Phase 1 clinical study in healthy adult participants, triggering a $7,500 milestone payment to the Company, which was recognized as revenue for the year ended December 31, 2025.

11.

Net loss per common share:

The following table presents the calculation of basic and diluted net loss per common share for the years ended December 31, 2025, 2024 and 2023:

Year Ended December 31,

Numerator:

Denominator:

Net loss per common share – basic and diluted $ (4.36 ) $ (3.01 ) $ (2.73 )

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 9d).

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The Company reported net losses for each of the years ended December 31, 2025, 2024 and 2023, and therefore excluded all potentially dilutive outstanding securities from the computation of diluted net loss per common share as their inclusion would have had an anti-dilutive effect. The following table summarizes these potentially dilutive securities:

Year Ended December 31,

12.

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 December 31, 2025, 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 are no 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 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.

13.

Defined contribution benefit plan:

The Company sponsors retirement savings plans for Canadian and United States employees, under which eligible employees may elect to contribute a percentage of their annual compensation to the plans, subject to statutory limitations. The Company matches 100% of the employee's contributions, subject to a maximum of 5% of eligible compensation.

14.

Income taxes:

Loss before income taxes for the years ended December 31, 2025, 2024 and 2023 was as follows:

Year Ended December 31,

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The income tax recovery (expense) is allocated as follows:

Year Ended December 31,

Current:

Canada $ — $ — $ —

Deferred:

Canada — — —

The Company’s wholly-owned subsidiary, Xenon Pharmaceuticals USA Inc., generates taxable income due to an intercompany service agreement with the Company.

A reconciliation of the expected Canadian statutory income tax rate to the effective income tax rate for the year ended December 31, 2025 is as follows:

Amount Percent

Canadian federal statutory tax rate $ (51,734 ) 15.0 %

Foreign tax effects

United States

Effects of cross-border tax laws

Foreign accrual property income 3,074 (0.9 %)

Change in valuation allowance 44,108 (12.8 %)

Non-taxable or non-deductible items

Stock-based compensation 4,156 (1.2 %)

Effective income tax rate $ 1,016 (0.3 %)

A reconciliation of the expected Canadian statutory income tax rate to the effective income tax rate for the years ended December 31, 2024 and 2023 is as follows:

Year Ended December 31,

Tax at statutory income tax rate 27.0 % 27.0 %

Change in valuation allowance (22.0 %) (24.0 %)

Research and development and other credits 1.3 % 1.6 %

Tax attributes expired/utilized (1.1 %) (0.8 %)

Stock-based compensation (3.4 %) (3.2 %)

Other non-deductible expenses (0.4 %) (0.3 %)

Effective income tax rate 1.7 % 0.2 %

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Deferred income tax assets and liabilities result from the temporary differences between the carrying amount of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the Company’s net deferred income tax assets are as follows:

December 31,

Deferred income tax assets:

Research and development tax credits $ 46,535 $ 42,830

Total deferred income tax assets, net of valuation allowance 14,578 11,763

Deferred tax liability: