XBiotech Inc.

Previous wording

Following the Janssen Transaction in December 2019, the tender offer in February 2020, and the dividends paid in July 2021, retained accumulated deficit earnings as of December 31, 2023 was ($52.3) million. We had a net loss of $24.6 million for the year ended December 31, 2023, compared to a net loss of $32.9 million for the year ended December 31, 2022. During the fiscal year of 2024, we don’t expect to generate any revenues. In addition, we expect to incur significant and increasing operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical testing and clinical. In addition to these research and development expenses, we expect general and administrative costs to increase, particularly in consideration of current inflationary trends. We will need to generate significant revenues to achieve or sustain profitability, and we may never do so. As of December 31, 2023, we had 82 employees.

Current wording

Following the Janssen Transaction in December 2019, the tender offer in February 2020, and the dividends paid in July 2021, our accumulated deficit as of December 31, 2024 was ($90.8) million. We had a net loss of $38.5 million for the year ended December 31, 2024, compared to a net loss of $24.6 million for the year ended December 31, 2023. During the fiscal year of 2025, we don’t expect to generate any revenue. In addition, we expect to incur significant and increasing operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical testing and clinical. In addition to these research and development expenses, we expect general and administrative costs to increase, particularly in consideration of current inflationary trends. We will need to generate significant revenues to achieve or sustain profitability, and we may never do so. As of December 31, 2024, we had 92 employees.

Previous wording

Research and development expense consists of expenses incurred in connection with identifying and developing our drug candidates. These expenses consist primarily of salaries and related expenses, share-based compensation, the purchase of equipment, laboratory and manufacturing supplies, facility costs, costs for preclinical and clinical research, development of quality control systems, quality assurance programs and manufacturing processes. We charge all research and development expenses to operating expenses as incurred.

Current wording

Research and development expense consists of expenses incurred in connection with identifying and developing our drug candidates. These expenses consist primarily of salaries and related expenses, share-based compensation, laboratory and manufacturing supplies, facility costs, costs for preclinical and clinical research, development of quality control systems, quality assurance programs and manufacturing processes. We charge all research and development expenses to operating expenses as incurred.

Previous wording

Clinical development timelines, likelihood of success and total costs vary widely. We do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis. We use our research and development resources, including employees and our drug discovery technology, across multiple drug development programs. As a result, we cannot state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates. From inception through December 31, 2023, we have recorded total research and development expenses, including share-based compensation, of $311.9 million. Our total research and development expenses for the year ended December 31, 2023 was $32.8 million, compared to $31.5 million the year ended December 31, 2022. Share-based compensation accounted for $2.8 million for the year ended December 31, 2023 and $3.6 million for the year ended December 31, 2022.

Current wording

Clinical development timelines, likelihood of success and total costs vary widely. We do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis. We use our research and development resources, including employees and our drug discovery technology, across multiple drug development programs. As a result, we cannot state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates. From inception through December 31, 2024, we have recorded total research and development expenses, including share-based compensation, of $349.7 million. Our total research and development expenses for the year ended December 31, 2024 was $37.8 million, compared to $32.8 million the year ended December 31, 2023. Share-based compensation accounted for $1.1 million for the year ended December 31, 2024 and $2.8 million for the year ended December 31, 2023.

Previous wording

Research and development expenses as a percentage of total operating expenses was 88% for the year ended December 31, 2023, and 83% for the year ended December 31, 2022. The percentages, excluding share-based compensation, were 88% for the year ended December 31, 2023, and 85% for the year ended December 31, 2022.

Current wording

Research and development expenses as a percentage of total operating expenses was 89% for the year ended December 31, 2024, and 88% for the year ended December 31, 2023. The percentages, excluding share-based compensation, were 90% for the year ended December 31, 2024, and 88% for the year ended December 31, 2023.

Previous wording

General and administrative expense consists primarily of salaries and related expenses for personnel in administrative, finance, business development and human resource functions, as well as the legal costs of pursuing patent protection of our intellectual property and patent filing and maintenance expenses, share–based compensation, and professional fees for legal services. Our total general and administration expenses was $4.7 million for the year ended December 31, 2023, and $6.3 million for the year ended December 31, 2022. Share-based compensation accounted for $0.5 million for the year ended December 31, 2023, and $1.4 million for the year ended December 31, 2022.

Current wording

General and administrative expense consists primarily of salaries and related expenses for personnel in administrative, finance, business development and human resource functions, as well as the legal costs of pursuing patent protection of our intellectual property and patent filing and maintenance expenses, share–based compensation, and professional fees for legal services. Our total general and administration expenses was $4.7 million for both the year ended December 31, 2024, and December 31, 2023. Share-based compensation accounted for $0.6 million for the year ended December 31, 2024, and $0.5 million for the year ended December 31, 2023.

Previous wording

General and administrative expenses as a percentage of total operating expenses was 12% for the year ended December 31, 2023, and 17% for the year ended December 31, 2022. The percentages, excluding share-based compensation, were 12% for the year ended December 31, 2023, and 15% for the year ended December 31, 2022.

Current wording

General and administrative expenses as a percentage of total operating expenses was 11% for the year ended December 31, 2024, and 12% for the year ended December 31, 2023. The percentages, excluding share-based compensation, were 10% for the year ended December 31, 2024, and 12% for the year ended December 31, 2023.

Previous wording

With the exception of the dividend paid in 2021, we have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future. The risk-free interest rate assumption is based on observed interest rates for U.S. Treasury securities with maturities consistent with the expected life of our stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method when the stock option includes “plain vanilla” terms. Under the simplified method, the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term. We used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. For stock options that did not include “plain vanilla” terms, we used the contractual life of the stock option as the expected life. Such stock options consisted primarily of options issued to our board of directors that were immediately vested at issuance. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options. The Company accounts for forfeitures as they occur rather than on an estimated basis.

Current wording

With the exception of the dividend paid in 2021, we have not historically paid dividends. We have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future. The risk-free interest rate assumption is based on observed interest rates for U.S. Treasury securities with maturities consistent with the expected life of our stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method when the stock option includes “plain vanilla” terms. Under the simplified method, the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term. We used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. For stock options that did not include “plain vanilla” terms, we used the contractual life of the stock option as the expected life. Such stock options consisted primarily of options issued to our board of directors that were immediately vested at issuance. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options. The Company accounts for forfeitures as they occur rather than on an estimated basis.

Previous wording

We account for income taxes under the asset and liability method. We record deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We assess the likelihood that deferred tax assets will be realized, and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. To date, we have provided a valuation allowance against our deferred tax assets as we believe the objective and verifiable evidence of our historical pretax net losses outweighs any positive evidence of our forecasted future results. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment. We will continue to monitor the positive and negative evidence and will adjust the valuation allowance as sufficient objective positive evidence becomes available.

Current wording

We account for income taxes under the asset and liability method. We record deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We assess the likelihood that deferred tax assets will be realized, and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. To date, with the exception of certain Canada deferred tax assets that will reverse in a period in which they may be carried back, we have provided a valuation allowance against our deferred tax assets as we believe the objective and verifiable evidence of our historical pretax net losses outweighs any positive evidence of our forecasted future results. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment. We will continue to monitor the positive and negative evidence and will adjust the valuation allowance as sufficient objective positive evidence becomes available.

Previous wording

Expense accruals related to clinical trials are based on the Company’s estimates of services received and efforts expended pursuant to contracts with third party service providers conduct and manage clinical trials on the Company’s behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing costs, the Company estimates the period over which services will be performed and the level of effort to be expended in each period based upon patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Any estimates of the level of services performed or the costs of these services could differ from actual results.

Current wording

Expense accruals related to clinical trials are based on actual services received and efforts expended pursuant to contracts with third party service providers which conduct and manage clinical trials on the Company’s behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. The Company accrues costs based on the actual services rendered in the period over which services were performed and the level of effort expended in each period based upon patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Any estimates of the level of services performed or the costs of these services could differ from actual results.

Previous wording

Research and development expenses increased 4% to $32.8 million for the year ended December 31, 2023 compared to $31.5 million for the year ended December 31, 2022. The rise was mainly due to the increase in clinical trials activities, related to the new study being initiated in the second quarter of 2023. The increase of salaries and related expenses was mainly due to the $4.5 million bonus to the Chief Executive Officer in June 2023 compared to the $3.8 million bonus in June 2022, in which 85% was allocated to research and development expenses in 2023 compared to 60% in 2022. In addition, the decrease of laboratory and manufacturing supplies was primary caused by a reduction in raw material purchasing for clinical trial drug manufacturing.

Current wording

Research and development expenses increased 15% to $37.8 million for the year ended December 31, 2024 compared to $32.8 million for the year ended December 31, 2023. The rise was mainly due to the increase in salaries and related expenses, resulting from the company-wide bonuses distributed during the year and the growth in the number of R&D employees from 79 in 2023 to 89 in 2024. The increase in clinical trial and sponsored research was primarily due to a new study being initiated in the second quarter of 2023. In addition, there is a decrease in share-based compensation, which was due to the decreased stock option expense per share of new grants compared to the expense of fully amortized grants.

Previous wording

The interest income for the years ended December 31, 2023 and 2022 was mainly generated from the Company’s Canadian bank accounts and interest bearing time deposits. The other income during the year ended December 31, 2023 was primarily from American Stock Transfer & Trust Company, LLC in accordance with the terms outlined in the settlement agreement. Foreign exchange gain (loss) was due to the fluctuation between the US dollar and the Canadian dollar in the year ended December 31, 2023 compared to 2022.

Current wording

The interest income for the years ended December 31, 2024 and 2023 was mainly generated from the Company’s Canadian bank accounts and interest bearing time deposits. The interest expense for the years ended December 31, 2024 was the interest for the convertible loans. The other income during the year ended December 31, 2024 was mainly from the reversal of the previous clinical trial accrual associated with visits that occurred more than 3 years ago for which the Company has not received an invoice. In June 2023, the Company received a sum of $750 thousand from American Stock Transfer & Trust Company, LLC which was recorded as other income during 2023. Foreign exchange gain (loss) was due to the fluctuation between the US dollar and the Canadian dollar in the year ended December 31, 2024 compared to 2023.

Previous wording

The Company’s income tax expense for the tax period ended December 31, 2023 of $0.2 million, was primarily driven by adjustments related to prior periods and current year uncertain tax positions. The Company's income tax benefit for the tax period ended December 31, 2022 of $0.7 million, was primarily driven by the estimated 2022 Canadian loss carrybacks to 2019. The Company expects to maintain its full valuation allowance in all jurisdictions during 2024.

Current wording

The Company’s income tax benefit for the tax period ended December 31, 2024 of $0.03 million was primarily driven by uncertain tax position activity and the estimated 2024 Canadian loss carryback to 2023. The Company’s income tax expense for the tax period ended December 31, 2023 of $0.24 million was primarily driven by adjustments related to prior periods and current year uncertain tax positions. The Company expects to maintain its full valuation allowance on all jurisdictions during 2025.

Previous wording

Since our inception on March 22, 2005 through December 31, 2023, we have funded our operations principally through private placements and public offerings of equity securities, which have provided aggregate cash proceeds of approximately $118.2 million. We received $675 million in cash proceeds from the Janssen Transaction in the year ended December 31, 2019. In June 2021, we received the remaining $75 million in cash from the escrow receivable from the same transaction. In July 2021, we paid $75 million in dividends to shareholders. In July 2022, we purchased interest bearing time deposits in the amount of $59.5 million for a one-year term, and upon maturity in July 2023, both the principal amount and the accrued interest were returned. At December 31, 2023, we had cash and cash equivalents of $200.0 million as compared to cash and cash equivalents of $157.3 million at December 31, 2022. The following table summarizes our sources and uses of cash (in thousands):

Current wording

Since our inception on March 22, 2005 through December 31, 2024, we have funded our operations principally through private placements and public offerings of equity securities, which have provided aggregate cash proceeds of approximately $118.2 million. We received $675 million in cash proceeds from the Janssen Transaction in the year ended December 31, 2019. In June 2021, we received the remaining $75 million in cash from the escrow receivable from the same transaction. In July 2021, we paid $75 million in dividends to shareholders. In July 2022, we purchased interest bearing time deposits in the amount of $59.5 million for a one-year term, and upon maturity in July 2023, both the principal amount and the accrued interest were returned. At December 31, 2024, we had cash and cash equivalents of $172.7 million as compared to cash and cash equivalents of $200.0 million at December 31, 2023. The following table summarizes our sources and uses of cash (in thousands):

Previous wording

During the years ended December 31, 2023 and 2022 net cash used in operating activities was $(18.7) million and $(14.8) million, respectively. Net cash used in the years ended December 31, 2023 and 2022 primarily resulted from our net losses, whereas for the year ended December 31, 2022 the company received $4 million in revenue from the clinical manufacturing agreement with Janssen and the addendum.

Current wording

During the years ended December 31, 2024 and 2023 net cash used in operating activities was $31.0 million and $18.7 million, respectively. Net cash used in the years ended December 31, 2024 and 2023 primarily resulted from our net losses. The rise was mainly due to the increase in salaries and related expenses and clinical trial expenses.

Previous wording

During the years ended December 31, 2023 and 2022, our investing activities generated net cash of $61.5 million and used net cash of $63.9 million, respectively. In July 2022, we purchased interest bearing time deposits in the amount of $63.3 million. Upon maturity in July 2023, we obtained both the principal amount and the accrued interest.

Current wording

During the years ended December 31, 2024 and 2023, our investing activities used net cash of $1.3 million and generated net cash of $61.5 million, respectively. In July 2022, we purchased interest bearing time deposits in the amount of $63.3 million. Upon maturity in July 2023, we obtained both the principal amount and the accrued interest.

Previous wording

During the year ended December 31, 2023, our financing activities used net cash of $9 thousand. We purchased 3,561 shares of our common stock, at a price of $4.00 per share, for an aggregate cost of approximately $14 thousand. During the year ended December 31, 2023, employees exercised stock options to purchase 1,250 shares of our common stock for approximately $5 thousand in net proceeds.

Current wording

During the year ended December 31, 2024, our financing activities provided net cash of $10.5 million. On January 3, 2024, we entered into a Convertible Loan Agreement (the “Loan”) with John Simard, the Company’s Founder, President, Chief Executive Officer and Chairman, which provided $10 million net cash for the construction of a new facility. Additionally, during the year ended December 31, 2024, employees exercised stock options to purchase 50,767 shares of our common stock for approximately $200 thousand in net proceeds. During the year ended December 31, 2023, our financing activities used net cash of $9 thousand. On June 20, 2023, we used approximately $14 thousand to purchase 3,561 common shares at a price of $4.00 per share, relating to the tender offer completed in June 2023. During the year ended December 31, 2023, employees exercised stock options to purchase 1,250 shares of our common stock for approximately $5 thousand in net proceeds.

Previous wording

We expect to continue to incur operating losses in the future. We do not expect to receive any additional revenue under the clinical manufacturing agreement with Janssen. Further, we may not receive any product revenue until a drug candidate has been approved by the FDA, EMA or similar regulatory agencies in other countries and successfully commercialized. As of December 31, 2023, our principal sources of liquidity were our cash and cash equivalents, which totaled approximately $200.0 million.

Current wording

We expect to continue to incur operating losses in the future. We do not expect to receive any additional revenue under the clinical manufacturing agreement with Janssen, as the clinical manufacturing agreement terminated in November 2022. Further, we may not receive any product revenue until a drug candidate has been approved by the FDA, EMA or similar regulatory agencies in other countries and successfully commercialized. As of December 31, 2024, our principal sources of liquidity were our cash and cash equivalents, which totaled approximately $172.7 million.