Xenon Pharmaceuticals Inc. Q3 FY2022 Earnings Call

Good day, and thank you for standing by. Welcome to the Q3 2022 Xenon Pharmaceuticals, Inc. Earnings Conference Call. After the speakers presentation there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sherry Aulin, Chief Financial Officer. Please go ahead.

Thank you, and good afternoon, everyone. Thank you for joining us on our call and webcast to discuss Xenon's third quarter 2022 financial and operating results. Joining me are Ian Mortimer, Xenon's President and Chief Executive Officer; Dr. Chris Kenney, Xenon's Chief Medical Officer; and Dr. Chris Von Seggern, Xenon's Chief Commercial Officer. Ian and I will open today's call with a summary of progress across our pipeline. Chris Kenney will provide additional detail around our recently launched XEN1101 Phase 3 program, and I will summarize this quarter's financial results, progress within our partnered programs and our anticipated company milestone events. Chris Von Seggern will be available during our Q&A session to address questions around our commercialization strategies. Please be advised that during this call, we will make a number of statements that are forward-looking, including statements regarding our and our collaborators' development plans, anticipated regulatory interactions and submissions anticipated results and related timelines; the potential efficacy, safety profile, addressable market and commercial potential of our proprietary and partnered product candidates; the efficacy of our trial designs and anticipated enrollment; the potential receipt of milestone payments and royalties from our collaborators; our expectation of having sufficient cash to fund operations into 2026 and the timing of potential release of future clinical data. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today's call. We undertake no obligation to publicly update any forward-looking statements. Today's press release summarizing Xenon's third quarter 2022 financial results and the accompanying quarterly report on Form 10-Q will be made available under the Investors section of our website at www.xenon-pharma.com and filed with the SEC and on SEDAR. Now I would like to turn the call over to Ian.

Thanks, Sherry, and good afternoon, everyone. Thanks for joining the call. I'm truly excited to open today's call with confirmation that we have launched our XEN1101 Phase 3 program, thereby continuing to build upon our leadership position in the KD field and driving our mission to provide new therapies for patients with epilepsy. The Xenon team is focused on executing on our ambitious development plans for XEN1101, including our 2 Phase 3 clinical trials in focal onset seizures called X-TOLE2 and X-TOLE3 and a Phase 3 clinical trial in primary generalized tonic-clonic seizures called Exact. These comprehensive Phase 3 plans build upon the foundation of the compelling data generated with XEN1101 to date, including statistically significant reduction in every seizure reduction endpoint at all doses tested and even greater seizure reduction data in the open-label extension with greater periods of seizure freedom. The adverse event profile of XEN1101 is consistent with other ASMs that are active in the CNS. These positive data, along with feedback from KOLs and primary research findings, support our firm belief that XEN1101 could play a significant role in treating epilepsy. In addition, XEN1101's differentiated profile includes a number of desirable attributes such as a unique potassium channel mechanism and a dosing regimen of once a day with no titration while providing meaningful and statistically significant seizure reduction after only one week of dosing. Ultimately, our goal is to deliver a differentiated therapeutic option for the unmet needs within a broad population of epilepsy patients, and our progress over the past quarter has been significant. Turning now to our ongoing Phase 2 X-NOVA clinical trial. This study is examining XEN1101 in major depressive disorder, or MDD. In parallel with an investigator-led Phase 2 MDD study being conducted by our collaborators at Mount Sinai. Our decision to examine XEN1101 in MDD was based in part on promising clinical results with Ezogabine dose of 300 milligrams TID as a treatment for MDD and anhedonia as well as encouraging preclinical data with both Ezogabine and XEN1101. It is also important to note that depression is the most common comorbidity within the epilepsy patient population. We have further refined our guidance with the expectation that we will receive top line results from the X-NOVA study in the third quarter of 2023, as we've made good progress on site initiation and patient enrollment to date. In addition to the clinical development activities supporting our robust XEN1101 program, we continue to advance our ongoing XEN496 Phase 3 EPIC pediatric clinical trial evaluating XEN496 in patients with KCNQ2 developmental and epileptic encephalopathy, or KCNQ2-DEE. These are patients who are 1 month to less than 6 years old in the study. As with other clinical trials examining orphan or ultra-rare indications, taking a challenge to identify, screen and enroll eligible patients. And while there is significant interest among parents, caregivers and physicians to provide precision medicine to this important unmet medical need, this is also a young and fragile patient population, which sometimes makes travel to clinical sites difficult. Taking into account these challenges around enrollment rate to date, we've adjusted our expectations around the completion date of the study to 2024. Based on what we know about the KV7 mechanism of action and further supported by physician case studies with Ezogabine, we believe XEN496 has the potential to positively impact the lives of these young patients. Before turning the call over to Chris, I want to reiterate the immense amount of progress made across our pipeline in 2022, and I'm looking forward to additional clinical inflection points in 2023. I'll now ask Chris to provide some more detailed comments on our XEN1101 program and multiple Phase 3 clinical trials.

Thanks a lot, Ian. Let me begin by thanking the Xenon team for all the hard work, which led to the successful initiation of our Phase 3 X-TOLE2 clinical trial last week, designed similarly to support the Phase 2b X-TOLE clinical trial results, X-TOLE2 will run in parallel with an identical study called X-TOLE3. Each study will enroll approximately 360 patients who will be randomized 1:1:1 for once daily dosing of either 15 or 25 milligrams of XEN1101 or placebo. Our dose selection for the Phase 3 studies was informed by the safety and efficacy data in X-TOLE as well as by PK/PD modeling, which we completed earlier this year. The primary efficacy endpoint is the median percent change or MPC and monthly seizure frequency from an 8-week baseline through the 12-week double-blind period with XEN1101 compared to placebo, using X-TOLE data to support our model with greater than 90% power for the primary endpoint at both doses. Based on the strong Phase 2b efficacy data as reviewed by Ian, we're including the secondary endpoint of week 1 median percent change in seizure frequency within the statistical hierarchy of the Phase 3 focal-onset seizure trials to build upon the differentiated profile of XEN1101. With our XEN1101 Phase 3 program now underway, we're also continuing to execute upon our plans to pursue an additional epilepsy indication. We expect our Phase 3 Exact clinical trial to enroll approximately 160 subjects with primary generalized tonic-clonic seizures or PGTCS. These subjects will be randomized 1:1 for once daily dosing of either 25 milligrams of XEN1101 or placebo. The primary efficacy endpoint is the NPC and monthly seizure frequency from an 8-week baseline through the 12-week double-blind period of the XEN1101 compared to placebo. We're excited by the opportunity to study XEN1101 in primary generalized tonic-clonic seizures in parallel with our trials focused on patients with focal onset seizures. Of note, XEN1101 shows antiseizure activity in both Maximum Electroshock Seizure, or MES, and pentylenetetrazole, preclinical models, both of which are known to predict efficacy for primary generalized seizures. Furthermore, other anti-seizure medications like levetiracetam, valproic acid, and lamotrigine suppressed photosensitivity in generalized epilepsy patients as did an earlier potassium channel modulator thereby potentially predicting efficacy in PGTCS with XEN1101. Additionally, in our Phase 2b X-TOLE clinical trial XEN1101 demonstrated broad impact across all focal seizure subtypes, including focal seizures that progress to generalized seizures. On the regulatory front, following the release of our compelling Phase 2b data, from our XEN1101 X-TOLE study, we aligned with the FDA during an end of Phase 2 meeting on key elements of our Phase 3 program to support a new drug application or NDA. To briefly summarize, we plan to submit an NDA upon successful completion of X-TOLE2, our first XEN1101 Phase 3 clinical trial along with the existing data package from the Phase 2b X-TOLE clinical trial and additional safety data from other clinical trials in order to meet regulatory requirements. We're also aligned with FDA on key elements of a single Phase 3 clinical trial to pursue an additional indication of primary generalized tonic-clonic seizures. The ongoing X-TOLE open-label extension, or OLE, continues to generate important long-term safety data for XEN1101 in focal onset seizures. At the request of study investigators and based on the potential to continue to provide significant benefit to patients, we're extending the original X-TOLE OLE from 3 years to 5 years. We expect to present additional OLE data at the American Epilepsy Society Meeting in December, and we look forward to connecting with all of you there. Our team is driven by our belief that there is a significant medical need for new therapeutics to treat epilepsy, and XEN1101 has the potential to significantly improve the lives of these patients. I'd now like to turn the call over to Sherry, who will summarize our financial position, partnered programs and upcoming milestones.

Thanks, Chris. Before I make a few comments on our third quarter financials, I'd like to turn briefly to our partnered program with Neurocrine. Currently, there are 2 separate Phase 2 clinical trials underway. One study is evaluating NBI-921352 in adult patients with focal onset seizures with data expected in 2023 and another study is examining its use in pediatric patients with SCN8A-related epilepsy. We're excited about the progress being made by Neurocrine, and we look forward to the clinical data expected next year. I'll touch on some highlights from this quarter's financial statements and would refer you to our news release and 10-Q report for further details. Cash and cash equivalents and marketable securities were $752.2 million as of September 30, 2022, compared to $551.8 million as of December 31, 2021. The increase was primarily the result of the completion of our public offering in June 2022. I'm proud of our prudent financial management and strong cash position, which allows us to fully support our XEN1101 Phase 3 program development as well as the rest of our planned clinical, preclinical and discovery efforts with sufficient cash to fund operations into 2026. Looking ahead, 2023 represents another key year for clinical inflection points within our pipeline, including expected data readouts from X-NOVA and our partner program with Neurocrine in adult focal seizures. Before concluding our prepared remarks, I'll briefly summarize some important milestone events ahead. With X-TOLE2, our first Phase 3 clinical trial in FOS now underway, we expect to initiate X-TOLE3 and the exact clinical trial in PGTCS in the near term. Our X-NOVA trial in MDD is ongoing, and we expect to have top line results in the third quarter of 2023, while in parallel, we are supporting the Mount Sinai IST and MDD. We continue to advance our EPIC Phase 3 clinical trial in pediatric patients with KCNQ2-DEE with study completion anticipated in 2024. Throughout this year, the momentum has continued to build across the Xenon business. Our team is highly engaged and excited to be part of Xenon's mission to deliver new neurology therapeutics to patients in need. For those of you attending AES this year, we look forward to connecting with you in Nashville. And on behalf of my colleagues on the call, we look forward to providing progress updates in the quarters ahead. I'll now ask the operator to open the line for any questions.

Our first call question comes from Paul Matteis at Stifel. Your line is open.

I wanted to ask you an epilepsy commercial demographic question in light of the IRA and kind of confusing sort of fallout of drug pricing legislation specifically, what do we know about epilepsy drugs and the proportion of sales that come in the Medicare population? There's some data out there that we've come across suggesting that patients who are enrolled, I guess, enrolled in Medicare have a higher rate of epilepsy than the general population. And I was just sort of curious when you think commercially where a drug like XEN1101, if it's successful, could fall on the radar in terms of IRA exposure.

Thanks, Paul. Chris Von Seggern is on the call, so he can address this. And I would say it's early days. We have done some work and can provide our perspective right now, and we can use them as a little bit of a proxy as well. But Chris, you can provide the details.

Yes, absolutely. That's a great question and something we've been considering since the legislation was passed. As Ian mentioned, it’s still early days, and much will unfold in the coming years. To directly answer your question, approximately one-third of the epilepsy population is covered by Medicare. Depending on your product profile, this could be slightly higher or lower based on certain attributes. We anticipate that XEN1101's profile will align with or hopefully exceed expectations in the elderly population, which may slightly enhance our position. This forecast then becomes a significant factor in sales as we work to grow the product's overall sales over its lifetime. At some point, we may enter what could be considered an at-risk category for price negotiations. However, if that happens, two key considerations come into play. First, we will have performed exceptionally well in sales throughout the product’s life. The risk typically arises later in the product lifecycle. We don't expect to reach a $1 billion exposure early on. Specifically regarding Medicare, we believe that as our product sales increase, we will likely remain competitive but not at risk until much later, assuming we are quite successful.

The next question comes from Andrew Tsai with Jefferies. Your line is open.

Congrats on the initiation of the Phase 3 program. So maybe my question this time will be about the competitive landscape. I would love to get your latest views. Another compound started Phase 1 recently. Would be curious to see why you think you are differentiated from that compound? And, in other words, how would you describe what the hurdle is for competing KV7 in focal epilepsy? And then second to that is, as you think about enrollment for X-TOLE2, 3, do you foresee any impacts whatsoever to enrollment? Or is it reasonable to expect some data in 2024, for instance?

I'll start, and then I know both Chris Kenney and Chris Von Seggern can jump in on some of their perspectives as well. So I think initially talking about the competitive landscape, we focus on a couple of different things. One, I think we need to focus on molecules that are at a certain advanced stage that are going through mid- to late-stage clinical development. And then obviously, on the market, the two programs, we know extremely well. It's our program and the Neurocrine program that I think are kind of in that mid and moving to late-stage clinical development. You asked specifically around KV; I think the XEN1101 data, which is the only program in development right now that has clinical efficacy data has derisked the overall field, and we're not surprised that competition is going to increase. But I think we're really comfortable just on where we are in the development of 1101 and the profile that's starting to emerge for that product as well, not just the compelling efficacy, and you and others know about some of the subgroup analysis we've done but also the other attributes of the drug in terms of no titration, the week 1 efficacy, I think there's some really desirable attributes specifically of XEN1101 that we've seen in the clinic that we haven't seen matched with another molecule. So as we think about the competitive space, often we're actually thinking about how this would fit in commercially. And maybe Chris can comment on the commercial market and the branded space because I think that's really how we should be thinking about where 1101 was set.

Absolutely. Thanks, Ian. So as we've said in the past, and we still strongly believe supported by our market research, the attributes of 1101 are quite compelling and likely will result in this being a product that will be very meaningfully used in the marketplace. We've talked about this before, but we often see 1 or 2 generic therapies used in advance of transitioning to a branded market. We think about 1101 as being the product of choice in that future branded opportunity now that Vimpat or lacosamide has lost exclusivity, really creating an opportunity for our product to fit into that environment. The attributes associated with 1101 are both interesting from a mechanistic standpoint. Obviously, KV7 adds a new mechanism into the armamentarium for this disease, but one can't overlook the unique components of 1101 that really separate it from all available therapies today. When we think about a rapid onset of efficacy, the lack of requirement for titration, QD dosing, all of these things are potentially unique to 1101. And while other KV7 may emerge, they'll have to compete with what is, from our perspective, a very compelling clinical profile that's likely to be used broadly once introduced into the marketplace.

Thank you, Chris. Andrew, you had a question regarding X-TOLE 2 and X-TOLE 3. As you know, we haven't provided formal guidance on when we might expect data. However, we can share the best information we have at this moment. We used the X-TOLE study as a reference, which took approximately 2.5 years to complete. Although the Phase 3 program involves slightly larger studies, they are still in the same range as the X-TOLE study. X-TOLE began before the pandemic and continued throughout it. We definitely noticed an impact during the early days of COVID in the spring and summer of 2020, which affected the screening of new patients and recruitment. Additionally, as Chris mentioned, the profile of 1101 is quite compelling. We believe we have a strong case to present to investigators and for them to discuss with their patients about taking part in the Phase 3 program.

Ian, can I just build on that? This is the other Chris? Just thinking about getting to an NDA, I mean, there's a few things that you need. You need 1,500 unique exposures and you need several hundred exposures for 6 months and at least 100 exposures for a year. You need at least a couple of studies to confirm efficacy. And so when you think about where we are right now, past Phase I, past dose finding, past end of Phase 2, one study that we're positioning is pivotal. We're really one study away from being able to have in addition to complementary safety data and NDA. So I think we're pretty close.

Our next question comes from Tessa Romero with JP Morgan. Tessa, your line is open.

So just a few questions from us as we think about X-NOVA here. So how are the 2 doses of 10 mg and 20 mg QD selected versus, say, 15 mg or 25 mg QD? And we also know this is a monotherapy study. So can you clarify what is the washout period for any prior antidepressant that the patient may have been taking? And any other clarity on why the severity score of greater than or equal to 20 was chosen for the scales in the HAMD-17?

Yes, Chris, can you start by sharing some background on how we arrived at the dose selection? I believe understanding the history is crucial. Additionally, do you have information on the washout period? If not, we can follow up later. We should also discuss the moderate to severe patient population we are enrolling. Regarding our MDD study, this is a three-arm study with two active doses and a placebo, with 50 subjects per arm at 10 and 20 milligrams. We began considering MDD even before the X-TOLE data came out a year ago, based on the background we’ve mentioned multiple times, including in today's prepared remarks. We designed the protocol, and when we unblinded it, the initial draft focused on the 20-milligram dose. We had the drug supply for that dose and were aware it was the mid-dose that was effective in transcranial magnetic stimulation, so we were ready to proceed. When we looked at the data, we found statistically significant seizure reduction at 10 milligrams. The 10-milligram dose resembled placebo in terms of its adverse event profile. Consequently, we modified the protocol to include the 10-milligram arm. It will be intriguing to observe the results from both the lower dose of 10 milligrams and the higher dose of 20 milligrams, considering the adverse event profile and the activity we’ve seen at these two doses in both X-TOLE and the epilepsy study. I would also mention the Ezogabine data, which they have generated for both epilepsy and depression. The depression study used a mid dose of 900 milligrams. We can utilize some of our modeling related to the dry exposure and the activity we might observe at the doses I've mentioned for 1101 in major depressive disorder. Chris, I’ll turn it over to you to add anything else regarding the dosing, the washout period, and the baseline scores of the patients.

So the easy question is about the washout period, which is that they have to be washed out for at least a couple of weeks for the drugs with a longer pharmacodynamic or pharmacokinetic elimination half-life. It's 4 weeks for fluoxetine or 5 half-lives. As far as the dose goes, I mean, one of the things I can make an argument that this drug should be better tolerated in patients in this population because they're not taking concomitant medications as is the case in the epilepsy, or you could say, well, maybe this population of patients is more prone to adverse events in epilepsy. So you could kind of argue both ways in terms of tolerability. Ultimately, we just need to complete the study, unblind the data, and see. I think that played into a little bit of the dose selection as well.

And then, Chris, the last question was just on the baseline greater than 20 on HAMD and indiscernible.

Right. So that was through conversations with key opinion leaders to basically define a population of patients that had moderate to severe depression. I will let you know that we are enriching for anhedonia in addition to depression. However, by virtue of the fact that you create an MDD population, there's already quite a bit of anhedonia as it is. That additional cut-off of making sure that there's a sufficient amount of anhedonia doesn't actually substantially change the population that much. It's largely enriched based upon the impression because there's already a fair amount of anhedonia in those patients.

So the next question comes from Jason Gerberry with Bank of America. Your line is open.

This is Dina on for Jason. Congrats on the progress this quarter. Our question is just on sort of the emerging pipeline of potassium channel activators. We get your view on the GABA receptor cell activity and tolerability index data from Biohaven's KV7 activator and potential benefits, and maybe if we could get your view on the competitive dynamics regarding product profile differentiation such as potency?

I'm happy to address those questions. Some of the answers we discussed previously relate to the unique attributes and differentiating features of 1101. However, you had specific questions, one being about potency. 1101 is approximately 15 to 20 times more potent on target compared to the first-generation molecule Ezogabine and is also more potent than the Biohaven molecule. This potency advantage can be managed through dosing, but in terms of the KV mechanism, 1101 is the most potent molecule currently in clinical development. Regarding GABA, we do not believe these drugs exert their effects through a GABA mechanism, whether it’s efficacy or safety. We also believe that 1101 shows no activity on GABA a at 10 micromolar, which is more than 50 times the plasma concentration observed in our human clinical trials. That assay, therefore, isn't conducted at a relevant concentration. We are confident that these drugs are KV drugs, and that’s the mechanism driving efficacy as well as the side effects, which include things like dizziness. We have received questions about somnolence as well. If you examine the somnolence rates in X-TOLE, they align well with other successful anti-seizure medications like Capra or Lamictal. Overall, we believe we have a very active drug in the CNS that is responsible for both its efficacy and its AE profile.

The next question comes from Brian Abrahams with RBC Capital Markets. Your line is open.

So on MDD, I know 1101 relative to Ezogabine is more potent in terms of target modulation, has better durability and better safety, which has led to comparable or better effects in epilepsy. But the complete mechanism by which KV7 channels regulate depression, I think, is not completely understood. So I guess I'm curious, are there any differences with regards to receptor subtype selectivity or biodistribution or binding properties that we should be thinking about that could impact how 1101 behaves in depression relative to Ezogabine? And are there any preclinical depression models, for instance, that you've looked at that might just have shown either comparable or even better activity for 1101?

I think it's a really interesting question. Let me discuss the profile briefly. Chris Kenney recently presented at a neuropsychiatry conference about the mechanism and the potential opportunity for 1101 in depression. Chris, since you just gave a great talk on the mechanisms related to both reward circuitry and the upregulation in these populations, you might want to share your insights regarding the preclinical data. The latest publication on ketamine and its potential link to KV is quite fascinating. To address your question, Brian, we've observed promising data with Ezogabine in both epilepsy and depression, and we also have the 1101 epilepsy data. The one area we are still exploring is the depression data for 1101, looking at how similar or different these treatments might be. Our assumption is that they are similar since Ezogabine and 1101 bind to the same site in the channel. We are confident about this based on everything we know about Ezogabine. In our preclinical studies, Ezogabine was tested in a chronic social defeat stress model, which helped clarify the potential mechanism of KV modulation in the brain. Although we haven't tested 1101 in that specific model, we've examined other reward and depression models preclinically, where 1101 showed strong performance. I'll let Chris elaborate further on the mechanism and share additional insights that we find exciting.

Yes. The only thing I'll add about the mechanism, I think you're asking a very difficult question because remember, the 7.2 and 7.3 proteins are combining together to form these tetramers, right? That's contributing to the current. It's very hard to tease that out. I'm not so sure anyone will ever be able to answer the question you just asked on a mechanistic level. What's reassuring to me as a clinician is that you have one drug that worked in focal onset seizures that's Ezogabine. Then our data, I think you said something along the lines of or better. I would argue that it's definitely stronger than the Ezogabine data. I know that it's difficult to compare one study to another, but we do it all the time. When I do that, the efficacy that we saw for those two highest doses was beyond what we expected based upon the Ezogabine data. Obviously, we don't know if that's going to translate into MDD. It's just very reassuring. The last thing, which is really kind of indirect to your question that Ian was alluding to was the story around targeting KV7 in depression just got more interesting this year as this study was being conducted. Specifically, what's been published is that it appears as though ketamine exerts at least some of its antidepressant effect through KV7 through that mechanism. The fact that we're tapping into, as you know, ketamine is a pretty potent antidepressant. The fact that we're tapping into that same mechanism without having any of the associated side effects, at least from the studies we've looked at so far is pretty compelling. So the mechanistic story is still unfolding, but seems to be getting more interesting as time goes by.

The next question comes from Marc Goodman with SVB Securities. Your line is open.

This is Madhu on for Mac. One question today is, could you just talk a little bit about your thoughts on the overall focal onset market given the latest trends that you're following and the Vimpat loss of exclusivity. Any new insights or patterns you're seeing there would be helpful?

Thanks. Chris, over to you.

Yes, I’m happy to address this. The most significant event in our marketplace over the past six months has been the loss of exclusivity for Vimpat and the changes occurring as we transition to a mainly generic environment for that substantial commercial product. So far, our usage of lacosamide has remained relatively stable, though it’s still early. We anticipate an increase in the use of generic lacosamide due to its value proposition, and we expect it to become the third most commonly used product in its category based on its efficacy and safety profile. This will likely develop over the next year. Additionally, we've observed a rise in the use of perbiact, which aligns with expectations since UCB has a strong presence in this commercial space, and many resources appear to have been redirected to support that product’s growth. X-TOLE OLE is continuing to be tracked. Its initial sales performance suggests a robust launch, which is positive for the market as other products aim to restore the branded sales potential that was diminished by the loss of Vimpat. There are still numerous opportunities for innovative mechanisms and potential new branded agents to revive the sales potential lost with Vimpat, based on our research and feedback from key opinion leaders in the field. Currently, there isn't much else happening in the area, and we are likely to be the next significant player. Our competitive research shows that 1101 is highly regarded due to its distinct mechanism and late-stage development. It is really the only late-stage therapeutic option that could be integrated into the treatment arsenal in the coming years.

The next question comes from Laura Chico with Wedbush. Your line is open.

One thing we've seen from a few other CNS clinical stage players has been a bit of constraint on recruiting for various studies as CRO staffing has gotten tighter. You were able to move X-TOLE through a quite turbulent time with COVID. So I'm wondering if you could comment on any steps you might be taking for X-TOLE 2 and 3 to facilitate recruitment, and obviously, you're just kicking things off, but any potential headwinds you might see on the horizon that you're trying to avoid as you're getting started?

Thanks, Laura. I appreciate it. I'll make a couple of comments, and then Chris Kenney, feel free to add your thoughts as well. We are focusing on a few key areas, particularly regarding X-TOLE 2 and X-TOLE 3, which Chris mentioned earlier. We aim to maintain consistency in the X-TOLE protocol and strive to replicate the success we have achieved with it. This approach also applies to the clinical sites and investigators we work with. One strategy is returning to sites where we have previously had success and where the staff is familiar with the product. Additionally, we have established relationships with these institutions, allowing us to leverage certain advantages that newer companies in the epilepsy field may not be able to access. We will continue to monitor this as we progress. Chris, do you have anything further to add regarding how we can accelerate this process?

I just want to build on what you said about trying to replicate X-TOLE. Internally, the folks who were successful who brought that study over the finish line are now still here with more financial and more people resources. So we've beefed up the folks who are already here. Beyond that, I would say the answer is relationships, not just internally, but with the relationship with the CRO is going really well and building on those relationships with the sites that were already in existence and then expanding them further.

The next question comes from Danielle Brill with Raymond James. Your line is open.

This is Alex on for Danielle. I'll continue the theme on depression. Just kind of curious, looking ahead what you're thinking about in terms of a go/no-go signal. Is there an efficacy threshold that you want to hit regardless of whether or not you've been on stat?

Yes. Thanks, Alex. Another good question. As we've talked about with many of you in the past, the X-NOVA study is designed as a proof-of-concept study. I think we have really good rationale based on everything we've talked about today in terms of the Ezogabine data. The Ezogabine data informed us about not only have we designed the study but also designed the stats for the study. Our expectations in terms of powering is that we don't need the same separation that is again saw in the published data from last year to show statistical significance. But my first comment, I think is important; this is a proof-of-concept study, it is to really inform us. We will finish the study, unblind the data and look at the totality of the data in terms of next steps.

The next question comes from Yatin Suneja with Guggenheim. Your line is open.

A quick one for me. In terms of the site mix, could you comment on the U.S. contribution that you are anticipating for the studies? If you can also comment on EMEA regulatory feedback that you might have received and how that has been incorporated in the planned studies. And then finally, on the financial front, if you can just comment on how should we ramp the expenses given that it's a broad program that you are undertaking?

I can start with the site and European feedback, and then Chris can add to that, followed by Sherry providing insight on future spending. Just as a reminder, with X-TOLE, the recruitment split was about 60-40 between Europe and the U.S. While it's hard to predict exactly now, I believe we will likely fall within that range for X-TOLE 2. As we mentioned previously, we prioritized our interaction with the FDA. We had our end of Phase 2 meeting and received the minutes in June, after which we submitted the Phase 3 protocol. Once that was completed, we initiated X-TOLE 2 by getting our first U.S. sites operational. We have also engaged with European regulators and received feedback, which we are considering as we prepare to onboard European sites. We're confident that we've incorporated the feedback from the major regulators in the U.S. and Europe, allowing us to move forward with sites in all jurisdictions. Chris, do you have any additional details to share?

Well, just targeting the makeup that worked for X-TOLE, which you've already said. That triggered what I wanted to say on the last question, which is that in order to move forward as efficiently as possible, there's an emphasis being placed on X-TOLE 2 from an operational standpoint and getting those sites up and running quickly to the question about trying to take on the headwinds. There are a number of activities that need to be done in parallel. You talked to FDA about the whole program, but there are a number of other activities where you can shift resources in favor of one direction or another. That’s what we're doing in order to bring X-TOLE 2 over the finish line as quickly as possible. Sherry?

Thanks, Chris. Yes, I will share some general comments regarding our operating expenses. We do anticipate an increase in our research and development spending now that the Phase 3 program has started. We expect higher expenditures related to this program throughout 2023 and 2024. As Ian pointed out earlier, our current best estimate for the duration of the Phase 3 program is similar to what we experienced with X-TOLE, which took about 2.5 years from beginning to end. The majority of these expenses will occur in fiscal year 2023 and 2024. It's important to note that the Phase 3 studies will lead into a three-year open-label extension, which will incur costs extending into 2025 and possibly beyond. We are also considering pre-commercial expenses as we approach 2025 and 2026. However, it's worth mentioning that we have a strong financial position with $750 million in cash at the end of the quarter, which we believe will sustain us through 2026.

The next question comes from David Hoang with SMBC Nikko Securities. Your line is open.

Congratulations on the progress this quarter. I have a question regarding the regulatory path for the PGTCS indication. Can you share your expectations about the timing of that data in relation to focal epilepsy? Are you considering this as a supplemental New Drug Application submission? Do you plan to have both product labels approved and available at launch, and does PGTCS assist you in achieving the label that has been beneficial for the focal epilepsy launch?

Thanks, David. That's a good question. I think several of us can contribute to this. I'll start, and then Chris and others can address the questions regarding labels, launches, and timing. Just to remind everyone, we've communicated with the FDA that we'll conduct a single study for primary generalized colonic seizures. Typically, many companies get their epilepsy drugs approved for focal onset seizures first, then follow up with a post-approval study for primary generalized seizures before filing a supplemental New Drug Application. Our approach is a bit different; we want to conduct parallel studies, and we've decided on one dose of 25 milligrams for the primary generalized study, which is a common strategy seen with other drugs. The timeline is important; we believe we can run the Exact study simultaneously, and if we get the results in time, we can include everything in the same package. If there's a delay, it might end up being part of a supplemental New Drug Application instead. It’s still early to predict the exact timing, but we're working to gather data on both focal epilepsy and primary generalized seizures within a similar timeframe. Chris Kenney, do you want to add anything, and perhaps Chris Von Seggern could provide insights on the local market and labeling based on what other companies have done in these areas?

Yes. This is Chris Kenney. Can I just be real brief on this? I think it's challenging to predict because as Ian just said, usually, it's done in series, right? You focus on FOS and you go to primary generalized. We're conducting these in parallel. As it pertains to recruitment rates that were seen in Phase I, relevant, should it be fast or should it be slower? There are so many variables there that I think it's really difficult to predict. Just to add a little more content to the unpredictable theme that Ian summarized nicely. Chris?

Yes. On the commercial side, we're really excited about the prospects of 1101 as a broad-spectrum agent being able to offer efficacy in both the FOS market and the PGTCS opportunity, the second largest segment of the overall epilepsy population. We're excited that we've decided to do what no one else has done, which is to run these in parallel. From a commercial standpoint, this gives us a unique opportunity to sell the broad-spectrum mechanism either at the time of approval or shortly thereafter, if they're in a staggered environment, well before any other competitive product. This offers a real differentiation because one can have the conversation with the clinicians on day 1 or near day 1 about the full spectrum of the patients that are under their care. It's one of the things that's going to be unique about 1101 near launch.

The last question comes from Tim Lugo from William Blair. Your line is open.

This is Lachlan on for Tim. I just wanted to touch on CMC. Can you remind us sort of where you're at in terms of what you'll need for an NDA maybe both for 1101 and 496? And what kind of supply you have secured with your current resources?

Thanks, Lachlan. Yes, the high-level comments on CMC is we're making sure that CMC is not on the critical path to a filing or approval and we're comfortable with that. We are continuing to work with CDMOs. By the time we're ready for an NDA, we'll have done all of the registration batches and validation and CMC work required as part of the NDA and the approval. I'm not sure there's a lot more detail to share right now. The critical path, as we've talked about previously is getting X-TOLE 2 completed to file the NDA in focal onset seizures.

At this time, I would like to turn it back to Sherry Aulin, Chief Financial Officer, for closing remarks.

Great. Thanks, everyone, for joining us today. Operator, we'll now end the call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.