Income Taxes

12 Months Ended

Dec. 31, 2025

Income Tax Disclosure [Abstract]

Income Taxes

14.Income taxes:

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

	Year Ended December 31,
	2025			2024			2023
Canada	$	(351,065	)	$	(243,410	)	$	(174,491	)
United States		6,171			4,991			(8,194	)
Loss before income taxes	$	(344,894	)	$	(238,419	)	$	(182,685	)

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

	Year Ended December 31,
	2025			2024			2023
Current:
Canada	$	—		$	—		$	—
United States		(4,214	)		(4,775	)		—
		(4,214	)		(4,775	)		—
Deferred:
Canada		—			—			—
United States		3,198			8,864			292
		3,198			8,864			292
Income tax recovery (expense)	$	(1,016	)	$	4,089		$	292

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:

	Year Ended December 31, 2025
	Amount			Percent
Canadian federal statutory tax rate	$	(51,734	)		15.0	%
Foreign tax effects
United States
Other		90			(0.0	%)
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	%)
Other		1,322			(0.4	%)
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,
	2024			2023
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	%)
Other		0.3	%		(0.1	%)
Effective income tax rate		1.7	%		0.2	%

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,
	2025			2024
Deferred income tax assets:
Research and development tax credits	$	46,535		$	42,830
Investment tax credits		30,770			29,818
Non-capital losses		251,701			173,352
Depreciable assets		13,665			13,269
Deferred financing fees		3,943			6,967
Stock-based compensation		10,836			8,380
Operating lease liability		2,018			2,299
Other		1,904			1,704
Total deferred income tax assets		361,372			278,619
Less - valuation allowance		(346,794	)		(266,856	)
Total deferred income tax assets, net of valuation allowance		14,578			11,763
Deferred tax liability:
Operating lease right-of-use asset		(1,714	)		(2,097	)
Net deferred income tax assets	$	12,864		$	9,666

At December 31, 2025, a valuation allowance of $346,794 (2024 – $266,856) has been recognized to offset deferred tax assets where realization of such assets is uncertain. The valuation allowance increased by $79,938 in 2025, which primarily relates to increases in Canadian non-capital loss carryforward deferred tax assets as of December 31, 2025.

The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse. The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criteria changes, the valuation allowance is adjusted accordingly. A full valuation allowance continues to be applied against deferred income tax assets in Canada as the Company has assessed that the realization of such assets does not meet the “more likely than not” criteria. Deferred income tax assets recorded on the consolidated balance sheets as of December 31, 2025 and 2024, result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes, net of valuation allowance, related to the operations of Xenon Pharmaceuticals USA Inc.

At December 31, 2025, the Company has unclaimed tax deductions for scientific research and experimental development expenditures of $172,351 with no expiry.

At December 31, 2025, the Company has $30,202 of investment tax credits available to offset federal taxes payable and $8,798 of investment tax credits available to offset provincial taxes payable in the future.

At December 31, 2025, the Company has gross non-capital losses, net of uncertain tax positions, carried forward for tax purposes, which are available to reduce taxable income of future years of approximately $932,225.

The investment tax credits and loss carry forwards expire over various years from 2026 to 2046.

Income taxes paid, net of refunds, for the year ended December 31, 2025 is as follows:

	Year Ended December 31, 2025
Canada	$	—
United States		8,423
Total	$	8,423

Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of uncertainties. Interest and penalties related to uncertain tax positions, if any, will be recognized as a component of income tax expense.

A reconciliation of unrecognized tax benefits is as follows:

Outstanding, December 31, 2024	$	10,850
Increase related to prior year tax positions		2,456
Increase related to current tax positions		—
Lapses of statute of limitations		(5	)
Outstanding, December 31, 2025	$	13,301

If recognized in future periods, $2,451 of the unrecognized tax benefits would affect the Company’s effective tax rate. As of December 31, 2025, the Company had accrued interest and penalties related to tax contingencies of $747 (2024 – $158). For the year ended December 31, 2025, the Company recognized interest and penalties, net of federal income tax benefit, of $588 (2024 – $158).

The Company files income tax returns in Canada and the United States, the jurisdictions in which the Company believes that it is subject to tax. In jurisdictions in which the Company does not believe it is subject to tax and therefore does not file income tax returns, the Company can provide no certainty that tax authorities in those jurisdictions will not subject one or more tax years (since the inception of the Company) to examination. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company claims, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2005 to 2025 remain subject to examinations in Canada and from 2022 to 2025 remain subject to examinations in the United States.