XBiotech Inc.

Previous wording

Following the Janssen Transaction in December 2019, the tender offer in February 2020, and the dividends paid in July 2021, accumulated deficit as of March 31, 2026 was ($141.9) million. We had net losses of $5.5 million and $10.9 million for the three months ended March 31, 2026 and 2025, respectively. We do not expect to generate any revenue in 2026. 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 increasing 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 March 31, 2026, we had 87 employees.

Current wording

Following the Janssen Transaction in December 2019, the tender offer in February 2020, and the dividends paid in July 2021, the accumulated deficit as of June 30, 2026 was ($148.6) million. We had net losses of $6.7 million and $12.2 million for the three months and six months ended June 30, 2026, respectively, compared to $1.8 million and $12.6 million for the three months and six months ended June 30, 2025, respectively. We do not expect to generate any revenue in 2026. 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 and clinical testing. In addition to these increasing 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 June 30, 2026, we had 87 employees. Subsequent to June 30, 2026, the Company implemented a workforce reduction. Management does not expect the related costs to be material to the Company's financial position, results of operations, or cash flows.

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, stock-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 expenses consist of expenses incurred in connection with identifying and developing our drug candidates. These expenses consist primarily of salaries and related expenses, stock-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.

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 March 31, 2026, we have recorded total research and development expenses, including share-based compensation, of $402.3 million. Our total research and development expenses for the three months ended March 31, 2026 and 2025 were $5.2 million and $11.6 million, respectively. Share-based compensation accounted for $8 thousand and $2.7 million for the three months ended March 31, 2026 and 2025, respectively.

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 June 30, 2026, we have recorded total research and development expenses, including share-based compensation, of $407.6 million. Our total research and development expenses for the three months and six months ended June 30, 2026 were $5.3 million and $10.5 million, respectively, compared to $5.3 million and $17.0 million for the three months and six months ended June 30, 2025, respectively. Share-based compensation accounted for $6 thousand and $14.5 thousand for the three months and six months ended June 30, 2026, respectively, compared to $19 thousand and $2.7 million for the three months and six months ended June 30, 2025, respectively, related to research and development.

Previous wording

Research and development expenses, as a percentage of total operating expenses for the three months ended March 31, 2026 and 2025 were 83% and 86%, respectively. The percentages, excluding stock-based compensation, for the three months ended March 31, 2026 and 2025, were 85% and 88%.

Current wording

Research and development expenses, as a percentage of total operating expenses for the three months and six months ended June 30, 2026 were 86% and 85%, respectively, compared to 84% and 85% for the three months and six months ended June 30, 2025, respectively. The percentages, excluding share-based compensation, for the three months and six months ended June 30, 2026 were 89% and 87%, respectively, compared to 85% and 87% for the three months and six months ended June 30, 2025.

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, stock–based compensation, and professional fees for legal services. Our total general and administration expenses for the three months ended March 31, 2026 and 2025 were $1.1 million and $1.9 million, respectively. Share-based compensation accounted for $164 thousand and $668 thousand for the three months ended March 31, 2026 and 2025, respectively.

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 for the three months and six months ended June 30, 2026 were $0.9 million and $1.9 million, respectively, compared to $1.0 million and $2.9 million for the three months and six months ended June 30, 2025, respectively. Share-based compensation accounted for $166 thousand and $330 thousand for the three months and six months ended June 30, 2026, respectively, and $88 thousand and $0.8 million for the three months and six months ended June 30, 2025, respectively, related to general and administrative expenses.

Previous wording

General and administrative expense, as a percentage of total operating expenses for the three months ended March 31, 2026 and 2025 were 17% and 14%, respectively. The percentages, excluding stock-based compensation, for the three months ended March 31, 2026 and 2025, were 15% and 12%.

Current wording

General and administrative expenses, as a percentage of total operating expenses for the three months and six months ended June 30, 2026 were 14% and 15%, respectively, compared to 16% and 15% for the three months and six months ended June 30, 2025, respectively. The percentages, excluding share-based compensation, for the three months and six months ended June 30, 2026 were 11% and 13%, respectively, compared to 15% and 13% for the three months and six months ended June 30, 2025.

Previous wording

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States (US GAAP). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and expenses incurred during the reported periods.

Current wording

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States (U.S. GAAP). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and expenses incurred during the reported periods.

Previous wording

While our significant accounting policies are more fully described in the notes to our financial statements appearing in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are the most critical to understanding and evaluating our reported financial results.

Current wording

While our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are the most critical to understanding and evaluating our reported financial results.

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, 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.

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. As of June 30, 2026 and December 31, 2025, 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

Research and development expenses decreased by $6.4 million to $5.2 million for the three months ended March 31, 2026, compared to $11.6 million for the three months ended March 31, 2025. The decrease of salaries and related expenses was mainly due to the $4.0 million bonus to the former Chief Executive Officer Mr. Simard in March 2025 in which 85%, or $3.4 million was allocated to research and development expenses. Stock-based compensation decreased due to the issuance of stock options with immediate vesting and grant date fair value at $3.0 million to the former Chief Executive Officer Mr. Simard in March 2025, with 85% or $2.5 million of the expense allocated to research and development.

Current wording

Research and development expenses decreased by $6.5 million to $10.5 million for the six months ended June 30, 2026, compared to $17.0 million for the six months ended June 30, 2025. The decrease of salaries and related expenses was mainly due to the $4.0 million bonus to the former Chief Executive Officer Mr. Simard in March 2025 in which 85%, or $3.4 million was allocated to research and development expenses. Stock-based compensation decreased due to the issuance of stock options with immediate vesting and grant date fair value of $3.0 million to the former Chief Executive Officer Mr. Simard in March 2025, with 85% or $2.5 million of the expense allocated to research and development.

Previous wording

General and administrative expenses decreased by $0.9 million to $1.1 million for the three months ended March 31, 2026, compared to $1.9 million for the three months ended March 31, 2025. The decrease in salaries and related expenses was primarily due to the $4.0 million bonus to the former Chief Executive Officer Mr. Simard in March 2025, in which 15% or $0.6 million was allocated to general and administrative expenses. Stock-based compensation decreased due to the issuance of $3.0 million in stock options to the former Chief Executive Officer Mr. Simard in March 2025, with 15% or $0.5 million of the expenses allocated to general and administrative department.

Current wording

Compared to the six months ended June 30, 2025, the decrease in the general and administrative expense in the six months ended June 30, 2026 was also primarily due to the decrease in salaries and related expenses and shared-based compensation. The decrease in salaries and related expenses was due to the $4.0 million bonus to the former Chief Executive Officer Mr. Simard in March 2025, in which 15% or $0.6 million was allocated to general and administrative expenses. Stock-based compensation decreased due to the issuance of $3.0 million in stock options to the former Chief Executive Officer Mr. Simard in March 2025, with 15% or $0.5 million of the expenses allocated to general and administrative department.

Previous wording

Interest income for the three months ended March 31, 2026 and 2025 was primarily generated from the Company’s Canadian bank accounts and decreased due to lower interest rates and a lower cash balance. The interest expenses for the three months ended March 31, 2025 was the interest for the convertible loans. The other income for the three month ended March 31, 2026 was primarily attributable to the receipt of the Employee Retention Credit from the Internal Revenue Service. The other income during the three months ended March 31, 2025 was the cancellation of a penalty by the Canada Revenue Agency for the 2020 tax year. Foreign exchange (loss) gain was due to the fluctuation between the US dollar and the Canadian dollar in the three months ended March 31, 2026 and March 31, 2025.

Current wording

The interest income for the three months and six months ended June 30, 2026 and 2025 was from the interest generated from the Company’s Canadian bank accounts. The interest expense for the six months ended June 30, 2025 was the interest for the convertible loans. The other income during the six months ended June 30, 2026 was primarily attributable to the receipt of an Employee Retention Credit from the Internal Revenue Service. The other income during the six months ended June 30, 2025 was the cancellation of a penalty by the Canada Revenue Agency for the 2020 tax year. Foreign exchange (loss) gain was mainly due to the fluctuation between the US dollar and the Canadian dollar in the three months and six months ended June 30, 2026 compared to 2025.

Previous wording

Since our inception on March 22, 2005 through March 31, 2026, we have funded our operations principally through private placements and public offerings of equity securities, which have provided aggregate cash proceeds of approximately $278.6 million, excluding the February 2020 tender offer cash payment. 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. As of March 31, 2026, we had cash and cash equivalents of $115.5 million as compared to cash and cash equivalents of $155.9 million at March 31, 2025. The following table summarizes our sources and uses of cash (in thousands):

Current wording

Since our inception on March 22, 2005 through June 30, 2025, we have funded our operations principally through private placements and public offerings of equity securities, which have provided aggregate cash proceeds of approximately $278.6 million, excluding the February 2020 tender offer cash payment. 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. At June 30, 2026, we had cash and cash equivalents of $109.5 million as compared to cash and cash equivalents of $152.9 million at June 30, 2025. The following table summarizes our sources and uses of cash (in thousands):

Previous wording

During the three months ended March 31, 2026 and 2025, our operating activities used net cash $9.0 million and $6.7 million, respectively. The use of net cash in each of these periods primarily resulted from our net losses. The increase in net cash used in operations for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 was mainly due to the $4.5 million payment for Mr. Simard’s 2025 annual bonus in January 2026.

Current wording

During the six months ended June 30, 2026 and 2025, our operating activities used net cash of $13.5 million and $12.7 million, respectively. The use of net cash in each of these periods primarily resulted from our net losses. The increase in net cash used in operations for the six months ended June 30, 2026 in comparison to the six months ended June, 2025 was mainly due to the $4.5 million payment for Mr. Simard’s 2025 annual bonus in January 2026.

Previous wording

During the three months ended March 31, 2026 and 2025, our investing activities received $9 thousand and used net cash of $94 thousand, respectively. The difference was due to a refund from City of Austin related to the new facility’s permit during the three months ended March 31, 2026.

Current wording

During the six months ended June 30, 2026 and 2025, our investing activities provided net cash of $5 thousand and used net cash of $145 thousand, respectively. The use of cash was for fixed asset purchases and the preparation for the construction of a new facility. We received a refund from City of Austin related to the new facility’s permit during the six months ended June 30, 2026.

Previous wording

During the three months ended March 31, 2025, the net cash from our financing activities was mainly related to the related party Convertible Loan. 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, who provided $10 million net cash for the construction of a new, state-of-the-art research and development facility at the Company's property at 5217 Winnebago Lane in Austin, Texas. On January 31, 2025, the Loan was terminated upon full repayment of the principal and the interest by the Company.

Current wording

During the six months ended June 30, 2025, the net cash used in our financing activities was mainly related to the related party Convertible Loan. 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, who provided $10 million net cash for the construction of a new, state-of-the-art research and development facility at the Company's property at 5217 Winnebago Lane in Austin, Texas. On January 31, 2025, the Loan was terminated upon full repayment of the principal and interest by the Company.

Previous wording

We expect to continue to incur operating losses in the future. 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 March 31, 2026, our principal sources of liquidity were our cash and cash equivalents, which totaled approximately $115.5 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. 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 June 30, 2026, our principal sources of liquidity were our cash and cash equivalents, which totaled approximately $109.5 million.