Item 8. Financial Statements and Supplementary Data
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 726 )
43
Consolidated Balance Sheets
44
Consolidated Statements of Operations
45
Consolidated Statements of Comprehensive Loss
46
Consolidated Statements of Shareholders ’ Equity
47
Consolidated Statements of Cash Flows
48
Notes to Consolidated Financial Statements
49
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of XBiotech Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of XBiotech Inc. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Whitley Penn LLP
We have served as the Company's auditor since 2022.
Austin, Texas
March 18, 2025
43
XBiotech Inc.
Consolidated Balance Sheets
(in thousands, except share data)
December 31, 2024
December 31, 2023
Assets
Current assets:
Cash and cash equivalents
$
172,677
$
200,023
Accrued interest receivable
700
860
Income tax receivable
158
75
Prepaid expenses and other current assets
1,032
760
Total current assets
174,567
201,718
Property and equipment, net
24,526
24,897
Total assets
$
199,093
$
226,615
Liabilities and shareholders ’ equity
Current liabilities:
Accounts payable
$
2,223
$
2,516
Accrued expenses
2,632
3,501
Income tax payable
-
83
Convertible loan, related party
10,000
-
Convertible loan, third party
250
-
Total current liabilities
15,105
6,100
Long-term liabilities:
Income tax payable
1,720
1,669
Total liabilities
16,825
7,769
Shareholders ’ equity:
Preferred stock, no par value, unlimited shares authorized, no shares outstanding
-
-
Common stock, no par value, unlimited shares authorized, 30,487,731 and 30,436,964 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively
273,105
271,152
Accumulated deficit
( 90,837
)
( 52,306
)
Total shareholders’ equity
182,268
218,846
Total liabilities and shareholders ’ equity
$
199,093
$
226,615
See accompanying notes to consolidated financial statements .
44
XBiotech Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Year Ended December 31,
2024
2023
Operating expenses:
Research and development
$
37,757
$
32,848
General and administrative
4,714
4,662
Total operating expenses
42,471
37,510
Loss from operations
( 42,471
)
( 37,510
)
Other income (expense):
Interest income
9,812
10,421
Interest expense
( 807
)
-
Other income
432
883
Foreign exchange (loss) gain
( 5,529
)
1,893
Total other income
3,908
13,197
Loss before income taxes
( 38,563
)
( 24,313
)
Income tax benefit (expense)
32
( 244
)
Net loss
$
( 38,531
)
$
( 24,557
)
Net loss per share—basic and diluted
$
( 1.26
)
$
( 0.81
)
Shares used to compute basic and diluted net loss per share
30,460,980
30,438,459
See accompanying notes to consolidated financial statements.
45
XBiotech Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
Year Ended December 31,
2024
2023
Net loss
$
( 38,531
)
$
( 24,557
)
Foreign currency translation adjustment
-
( 252
)
Reclassification of deferred tax assets
-
( 574
)
Comprehensive loss
$
( 38,531
)
$
( 25,383
)
See accompanying notes to consolidated financial statements .
46
XBiotech Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Accumulated Other
Number of
Common Stock
Comprehensive
Shares
Amount
Income
Accumulated deficit
Total
Balance at December 31, 2022
30,439
$
267,325
$
826
$
( 27,749
)
$
240,402
Net loss
-
-
-
( 24,557
)
( 24,557
)
Tender offer
( 4
)
( 14
)
-
-
( 14
)
Foreign currency translation adjustment
-
-
( 252
)
-
( 252
)
Reclassification of deferred tax assets
-
574
( 574
)
-
-
Issuance of common stock under stock option plan
1
5
-
-
5
Share-based compensation expense
-
3,262
-
-
3,262
Balance at December 31, 2023
30,436
271,152
-
( 52,306
)
218,846
Net loss
-
-
-
( 38,531
)
( 38,531
)
Issuance of common stock under stock option plan
51
200
-
-
200
Share-based compensation expense
-
1,753
-
-
1,753
Balance at December 31, 2024
30,487
$
273,105
$
-
$
( 90,837
)
$
182,268
See accompanying notes to condensed financial statements.
47
XBiotech Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2024
2023
Operating activities
Net loss
$
( 38,531
)
$
( 24,557
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
1,745
1,744
Foreign exchange loss (gain)
5,529
( 1,893
)
Share-based compensation expense
1,753
3,262
Changes in operating assets and liabilities:
Income tax receivable
( 83
)
473
Accrued interest receivable
160
356
Prepaid expenses and other current assets
( 271
)
( 160
)
Accounts payable
( 364
)
91
Accrued expenses
( 877
)
1,895
Income tax payable
( 24
)
123
Deferred tax liability
-
( 59
)
Net cash used in operating activities
( 30,963
)
( 18,725
)
Investing activities
Purchase of property and equipment
( 1,304
)
( 362
)
Proceeds from maturity of interest bearing time deposits
-
61,859
Net cash (used in) provided by investing activities
( 1,304
)
61,497
Financing activities
Proceeds from convertible loan, related party
10,000
-
Proceeds from convertible loan, third party
250
-
Cash paid in tender offer
-
( 14
)
Issuance of common stock under stock option plan
200
5
Net cash provided by (used in) financing activities
10,450
( 9
)
Effect of foreign exchange rate on cash and cash equivalents
( 5,529
)
( 46
)
Net change in cash and cash equivalents
( 27,346
)
42,717
Cash and cash equivalents, beginning of year
200,023
157,306
Cash and cash equivalents, end of year
$
172,677
$
200,023
Supplemental Information:
Accrued purchases of property and equipment
$
70
$
19
Cash paid for interest
$
400
$
-
Cash paid for income taxes
$
85
$
141
See accompanying notes to consolidated financial statements.
48
XBiotech Inc.
Notes to Consolidated Financial Statements
1. Organization
XBiotech Inc. (“XBiotech” or the “Company”) was incorporated in Canada on March 22, 2005. The Company’s headquarters are located in Austin, Texas. XBiotech USA, Inc., a wholly-owned subsidiary of the Company, was incorporated in Delaware, United States in November 2007. XBiotech Germany GmbH, a wholly-owned subsidiary of the Company, was incorporated in Germany in January 2014. XBiotech Germany GmbH was dissolved in February 2023.
Since its inception, XBiotech has focused on advancing technology to rapidly identify and clone antibodies from individuals that have resistance to disease. At the heart of the Company is a proprietary technical knowhow to translate natural human immunity into therapeutic product candidates. The Company has in its pipeline both anti-infective and anti-inflammatory candidate therapeutics derived from this technology.
An area of medical focus for XBiotech are therapies that block a potent substance naturally produced by body, known as interleukin-1 alpha (IL-1a), that mediates tissue breakdown, angiogenesis, the formation of blood clots and inflammation. IL-1a is a protein that is on or in cells of the body and is involved in the body’s response to injury or trauma. In almost all chronic and in some acute injury scenarios (such as stroke or heart attack), IL-1a may mediate harmful disease-related activity.
At the end of 2019, XBiotech sold a True Human™ antibody that blocked IL-1a activity for $750 million in cash and up to $600 million in potential milestone payments (the “Janssen Transaction”). The potential milestone payments are contingent upon achieving the required commercialization authorization for a product intended for use in any non-dermatological indication by Janssen within twelve years. As of December 31, 2024, none of the milestone payments have been earned. As part of the Janssen Transaction, XBiotech maintained the right to develop new antibodies that block IL-1a and develop these therapeutics in all areas of medicine except dermatology. Moreover, Janssen agreed that they would assert all patents they acquired relating to IL-1a for the benefit of XBiotech to protect our future IL-1a-related therapies in all non-dermatological indications. XBiotech is using its True Human™ antibody discovery technology to identify and develop new IL-1a targeting product candidates and has already brought one such candidate into clinical studies in oncology and rheumatology; and another unique anti-IL-1a antibody into a Phase I study in neurology.
The Company is subject to a number of risks common to companies in clinical stage of development. Principal among these risks are the uncertainties of technological innovations, dependence on key individuals, development of the same or similar technological innovations by the Company’s competitors and protection of proprietary technology. The Company’s ability to fund its planned clinical operations, including completion of its planned trials, is expected to depend on the amount and timing of cash receipts from future collaboration or product sales and/or financing transactions. The Company believes that its cash and cash equivalents of $ 172.7 million at December 31, 2024, will enable the Company to achieve several major inflection points, including completion of clinical studies with lead product candidates. The Company expects to have sufficient cash through at least 12 months from the date of this report.
2. Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting only of normal recurring items) considered necessary to present fairly the Company’s financial position at December 31, 2024 and 2023, the results of its operations and comprehensive loss for the years ended December 31, 2024, and 2023, and the cash flows for the years ended December 31, 2024, and 2023.
49
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported values of amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
Research and Development Costs
All research and development costs are charged to expense as incurred. Research and development costs include salaries and personnel-related costs, consulting fees, fees paid for contract clinical trial research services, the costs of laboratory consumables, equipment and facilities, license fees and other external costs. Costs incurred to acquire licenses for intellectual property to be used in research and development activities with no alternative future use are expensed as incurred as research and development costs.
Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
Clinical Trial Accruals
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.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company measures deferred tax assets and liabilities using the enacted tax rates for the years and jurisdictions in which the temporary differences are expected to be recovered. A change to the tax rates used to measure the Company’s deferred taxes is recognized in income during the period in which the new rate(s) were enacted.
50
The Company recognizes deferred tax assets to the extent the Company’s assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including the future reversals of existing taxable temporary differences, projected future taxable income exclusive of reversing temporary differences and carryforwards, tax-planning strategies, taxable income in prior carryback years if permitted under tax law, and the results from prior years. If the Company determines it is more likely than not, that all or a portion of a deferred tax asset will not be realized a valuation allowance is recorded with a charge to income tax expense. Alternatively, if the Company determines that all or a portion of a deferred tax asset previously not meeting the more likely than not threshold will be realized, the Company reduces its valuation allowance and recognizes a benefit in income tax expense.
The Company recognizes and measures uncertain tax benefits in accordance with ASC 740 based on a two-step process in which (1) the Company determines whether it is more likely than not that the tax position will be sustained based on the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than fifty percent likely to be realized upon ultimate settlement with the related tax authority. The Company's policy is to recognize interest and penalties, if any, in income tax expense.
Share-Based Compensation
The Company accounts for its share-based compensation awards in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their grant date fair values. For stock options granted to employees and to members of the board of directors for their services on the board of directors, the Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates, and expected dividend yields of the common stock. To determine the fair value of its common stock, the Company uses the closing price of the Company’s common stock as reported by NASDAQ. For awards subject to service-based vesting conditions, the Company recognizes share-based compensation expense, equal to the grant date fair value of stock options, on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur rather than on an estimated basis.
Share-based compensation expense recognized for the years ended December 31, 2024, and 2023 was included in the following line items on the Consolidated Statements of Operations (in thousands).
Year Ended
December 31,
2024
2023
Research and development
$
1,127
$
2,797
General and administrative
626
465
Total share-based compensation expense
$
1,753
$
3,262
The fair value of each option is estimated on the date of grant using the Black-Scholes method with the following assumptions:
Year Ended
December 31,
2024
2023
Weighted-average grant date fair value per share
$
3.96
$
2.89
Expected volatility
79 %- 83
%
80 %- 82
%
Risk-free interest rate
3.6 %- 4.4
%
3.3 %- 4.6
%
Expected life (in years)
5.00 – 6.25
5.38 – 6.25
Dividend yield
-
-
51
Cash and Cash Equivalents
The Company considers highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents. Cash and cash equivalents consisted primarily of cash on deposit in U.S., German, and Canadian banks. Cash and cash equivalents are stated at cost which approximates fair value.
Interest Bearing Time Deposits
During 2023 the Company held guaranteed investment certificates with a financial institution. The guaranteed investment certificates had a 12 month term at origination with interest receivable at maturity. The guaranteed investment certificates matured in July 2023. There has been no related activity in 2024.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalents. The Company holds these investments in highly-rated financial institutions, and limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.
Fair Value Measurements
The consolidated financial statements include financial instruments for which the fair value of such instruments may differ from amounts reflected on a historical cost basis. Financial instruments of the Company consist of cash deposits, time deposits, accounts and other receivables, accounts payable, and certain accrued liabilities. These financial instruments are held at cost, which generally approximates fair value due to their short-term nature.
The Company follows ASC Topic 820, Fair Value Measurements and Disclosures , which establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market date (observable inputs) and the Company’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
•
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities.
•
Level 2—Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
•
Level 3—Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
At December 31, 2024 and 2023, the Company did not have any assets or liabilities that are measured at fair value on a recurring basis. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and debt approximate their fair values at December 31, 2024 and 2023.
52
Property and Equipment
Property and equipment, which consists of land, construction in process, furniture and fixtures, computers and office equipment, scientific equipment, vehicles, mobile facility and building are stated at cost and depreciated over the estimated useful lives of the assets, with the exception of land and construction in process which are not depreciated, using the straight line method. The useful lives are as follows:
•
Furniture and fixtures
7 years
•
Office equipment
5 years
•
Scientific equipment
5 years
•
Vehicles
5 years
•
Mobile facility
27.5 years
•
Building
39 years
Costs of major additions and betterments are capitalized; maintenance and repairs, which do not improve or extend the life of the respective assets, are charged to expense as incurred. Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized.
Impairment of Long-Lived Assets
The Company periodically evaluates its long-lived assets for potential impairment in accordance with ASC Topic 360, Property, Plant and Equipment . Potential impairment is assessed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. The recoverability of these assets is assessed based on undiscounted expected future cash flows from the assets, considering a number of factors, including past operating results, budgets and economic projections, market trends and product development cycles. If impairments are identified, assets are written down to their estimated fair value. The Company has not recognized any impairment through December 31, 2024.
53
Foreign Currency Transactions
Certain transactions are denominated in a currency other than the Company’s functional currency of the U.S. dollar, and the Company generates assets and liabilities that are fixed in terms of the amount of foreign currency that will be received or paid. At each balance sheet date, the Company adjusts the assets and liabilities to reflect the current exchange rate, resulting in a translation gain or loss. The only significant assets denominated in a foreign currency were certain cash accounts, which were remeasured into the functional currency (U.S. dollar) as of the end of the year, resulting in a foreign exchange loss of $ 5.5 million for the year ended by December 31, 2024 and a foreign exchange gain of $ 1.9 million for the year ended by December 31, 2023. The Transaction gains and losses are also realized upon a settlement of a foreign currency transaction in determining net loss for the period in which the transaction is settled.
Comprehensive Income (Loss)
ASC Topic 220, Comprehensive Income , requires that all components of comprehensive income (loss), including net income (loss), be reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments.
Segment and Geographic Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company and the chief operating decision maker view the Company’s operations and manage its business as one operating segment. Substantially all of the Company’s operations are in the U.S. geographic segment.
Net Loss per Share
Net income/loss per share (“EPS”) is computed by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income/loss by the weighted average number of common shares and common share equivalents outstanding (if dilutive) during each period. The number of common share equivalents, which include stock options, is computed using the treasury stock method. The Company does not include the potential impact of dilutive securities in diluted net loss per share, as the impact of these items is anti-dilutive. For the year ended December 31, 2024, all stock options were not included in the computation of diluted net loss per share, as the impact of these items was anti-dilutive. In addition, 1,921,828 shares of common stock issuable upon conversion of the related party convertible loan (which was the maximum convertible amount based on ownership restrictions) were excluded from the computation of diluted net loss per share as their impact is anti-dilutive. For the year ended December 31, 2023, all stock options were not included in the computation of diluted net loss per share, as the impact of these items was anti-dilutive.
Subsequent Events
The Company considered events or transactions occurring after the balance sheet date but prior to the date the consolidated financial statements were available to be issued for potential recognition or disclosure in its consolidated financial statements.
54
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which enhances the transparency and decision usefulness of income tax disclosures. Adjustments to the annual disclosure of income taxes include: (1) A tabular rate reconciliation comprised of eight specific categories, (2) Income taxes paid, disaggregated between significant national, state, and foreign jurisdictions, (3) Eliminates requirements to disclose the nature and estimate of reasonably possible changes to unrecognized tax benefits in the next 12 months or that an estimated range cannot be made, and (4) Adds a requirement to disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) from continuing operations disaggregated between domestic and foreign. The ASU is effective for public business entities for fiscal years beginning on or after December 15, 2024 with early adoption permitted. The amendments in ASU 2023-09 should be applied on a prospective basis and retrospective application is permitted. The Company is in process of evaluating the impact of adoption of ASU 2023-09 on the Company's consolidated financial statements and disclosures.
3. Property and Equipment and Building Construction in Progress
Property and equipment consisted of the following as of December 31, 2024 and 2023 (in thousands):
2024
2023
Computer and office equipment
$
290
$
279
Furniture and fixtures
133
129
Land
1,418
1,418
Scientific equipment
16,491
16,367
Vehicles
112
112
Building
24,173
24,173
Mobile facility
189
189
Construction in process
1,705
469
Accumulated depreciation
( 19,985
)
( 18,239
)
$
24,526
$
24,897
Depreciation expenses related to property and equipment amounted to approximately both $ 1.7 million for the years ended December 31, 2024, and 2023. Construction in process is related to research and development and manufacturing equipment. Depreciation expense is allocated between research and development and general and administrative expense line items on the consolidated statements of operations (in thousands).
4. Accrued Expenses
Accrued expenses consist of the following as of December 31, 2024, and 2023 (in thousands):
2024
2023
Accrued compensation and related expenses
$
611
$
562
Accrued professional fees
27
52
Accrued clinical trial expenses
1,502
2,826
Accrued convertible loan interest
404
-
Other
88
61
$
2,632
$
3,501
5. Convertible Loan, Related Party
On January 3, 2024, the Company entered into a Convertible Loan Agreement (the “Loan”) with John Simard, the Company’s Founder, President, Chief Executive Officer and Chairman. The Loan provided $ 10 million in immediate funding 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. The Loan was secured by the real estate and cash holdings of the Company, with interest to accrue at a simple rate equal to eight percent per year and interest-only payments to be made at six-month intervals. At Mr. Simard’s election, the balance could be converted to XBiotech stock at any time the Loan balance was outstanding at a fixed conversion price equal to $ 4.048 per share. The conversion feature was subject to a 19.9 % cap limiting the number of shares that could be converted under the Loan based on Mr. Simard’s total stock ownership in the Company at the time of conversion. The Loan included an acceleration feature, allowing Mr. Simard to declare immediate cash repayment or conversion under specific acceleration events, including certain financial and non-financial measures, such as payment defaults, breaches of covenants, drop in stock price below $ 3.00 per share or drop in cash position below $ 65,000,000 . The Loan also allowed Mr. Simard to obtain immediate cash repayment of the Loan balance at his election one year after the loan is funded or upon certain other conditions set forth in the Loan. The Loan had a contractual maturity date of January 3, 2029. The Loan was negotiated, evaluated, and approved on behalf of the Company by a committee of independent and disinterested directors. During 2024, the Company paid $ 400 thousand in interest and accrued $ 400 thousand in interest as of December 31, 2024. If the loan had been settled on December 31, 2024, the outstanding balance could have been converted into 1,930,983 shares of XBiotech stock at a fixed conversion price of $ 4.048 per share. The remaining balance of $ 2,183,380.82 is paid in cash. On January 31, 2025, the Loan was terminated upon full repayment by the Company. As a result, all conversion rights to XBiotech stock associated with the Loan were extinguished.
6. Common Stock
Pursuant to its Articles, the Company has an unlimited number of shares available for issuance with no par value.
During the year ended December 31, 2024, 50,767 shares of common stock were issued upon the exercise of stock options, at prices ranging from $ 3.38 to $ 5.62 per share, for total proceeds of $ 200 thousand.
55
On May 17, 2023, XBiotech announced that it had commenced a “modified Dutch auction” tender offer to purchase up to $ 80.0 million of its common shares, or such lesser number of common shares as are properly tendered and not properly withdrawn, at a price not less than $ 3.80 nor greater than $ 4.00 per common share, to the seller in cash. The tender offer expired on June 15, 2023.
On June 20, 2023, the Company announced the final results of its “modified Dutch Auction” tender offer. The Company accepted for purchase 3,561 shares of its common stock, at a price of $ 4.00 per share, for an aggregate cost of approximately $ 14 thousand, excluding fees and expenses related to the tender offer. These shares represented an immaterial percent of the shares outstanding. These repurchased shares were retired and have been classified to reduce common stock in the accompanying consolidated balance sheet as of December 31, 2023.
During the year ended December 31, 2023, 1,250 shares of common stock were issued upon the exercise of stock options at a price of $ 3.84 per share for total proceeds of $ 4,800 .
7. Common Stock Options
On November 11, 2005, the Board of Directors of the Company adopted the XBiotech Inc. 2005 Incentive Stock Option Plan (the “2005 Plan”), and on March 24, 2015, the Board of Directors of the Company adopted the XBiotech Inc. 2015 Equity Incentive Plan (the “2015 Plan” and, together with the 2005 Plan, the “Plans”) pursuant to which the Company may grant incentive stock and non-qualified stock options to directors, officers, employees or consultants of the Company or an affiliate or other persons as the Compensation Committee may approve.
All options under the Plans will be non-transferable and may be exercised only by the participant, or in the event of the death of the participant, a legal representative until the earlier of the options’ expiration date or the first anniversary of the participant’s death, or such other date as may be specified by the Compensation Committee.
The term of the options is at the discretion of the Compensation Committee, but may not exceed 10 years from the grant date. The options expire on the earlier of the expiration date or the date three months following the day on which the participant ceases to be an officer or employee of or consultant to the Company, or in the event of the termination of the participant with cause, the date of such termination. Options held by non-employee Directors have an exercise period coterminous with the term of the options.
The number of common shares reserved for issuance to any one person pursuant to the 2005 Plan shall not, in aggregate, exceed 5 % of the total number of outstanding common shares. The exercise price per common share under each option will be the fair market value of such shares at the time of the grant. Upon stock option exercise, the Company issues new shares of common stock.
A summary of changes in common stock options issued under the 2005 Plan and under the 2015 Plan is as follows:
Options
Exercise Price
Weighted-Average
Exercise Price
Options outstanding at December 31, 2022
4,558,902
$ 2.71 -$ 21.74
$
10.47
Granted
809,600
3.38 - 6.04
2.89
Exercised
( 1,250
)
3.84
3.84
Forfeitures
( 327,734
)
3.84 - 19.09
10.43
Options outstanding at December 31, 2023
5,039,518
$ 2.71 -$ 21.74
$
9.46
Granted
262,000
4.05 - 11.81
6.31
Exercised
( 50,767
)
3.38 - 5.62
3.92
Forfeitures
( 919,166
)
3.84 - 19.92
11.52
Options outstanding at December 31, 2024
4,331,585
$ 2.71 -$ 21.74
$
8.89
56
The weighted average fair value of the options issued to directors, employees and consultants during the fiscal years ended December 31, 2024, and 2023, was $ 3.96 and $ 2.89 , respectively. The total intrinsic value of options exercisable and total options outstanding at December 31, 2024, was approximately $ 50 thousand and $ 70 thousand. The total fair value of options vested during the years ended December 31, 2024, and 2023 was $ 1.6 million, and $ 3.5 million, respectively.
A summary of the activity in the Company’s nonvested shares is as follows:
Year Ended December 31,
2024
2023
Shares
Weighted Average Granted Date Fair Value
Shares
Weighted Average Granted Date Fair Value
Nonvested at January 1,
571,925
$
3.30
429,450
$
8.25
Granted during the period
262,000
3.96
809,600
2.89
Vested during the period
( 502,675
)
3.42
( 569,100
)
6.17
Forfeited during the period
( 73,750
)
4.42
( 98,025
)
5.14
Nonvested at end of period
257,500
$
3.35
571,925
$
3.30
As of December 31, 2024, there was approximately $ 0.4 million of unrecognized compensation cost, related to stock options granted under the Plan which will be amortized to stock compensation expense over the next 1.0 years.
The weighted-average remaining contractual term of outstanding options as of December 31, 2024 is 5.5 years. Total exercisable stock options as of December 31, 2024 is 4.1 million. The weighted-average exercise price of options exercisable as of December 31, 2024 is $ 9.15 per share and the weighted-average remaining contractual term is 5.3 years.
8. Net Loss Per Share
The following summarizes the computation of basic and diluted net income(loss) per share for the years ended December 31, 2024, and 2023 (in thousands, except share and per share data):
Year Ended December 31,
2024
2023
Net loss
$
( 38,531
)
$
( 24,557
)
Weighted-average number of common shares—basic
30,460,980
30,438,459
Net loss per share—basic
$
( 1.26
)
$
( 0.81
)
Weighted-average number of common shares—diluted
30,460,980
30,438,459
Net loss per share—diluted
$
( 1.26
)
$
( 0.81
)
9. Income Taxes
The components of income before income taxes are as follows (in thousands):
Years Ended December 31,
2024
2023
United States
$
( 26,313
)
$
( 27,144
)
Foreign
( 12,250
)
2,831
Total
$
( 38,563
)
$
( 24,313
)
57
The components of the provision for income taxes are as follows for the years ended December 31, 2024, and 2023 (in thousands):
Current
2024
2023
United States
$
( 49
)
$
130
Foreign
17
173
Total
( 32
)
303
Deferred
United States
-
-
Foreign
-
( 59
)
Total
-
( 59
)
Total income tax expense (benefit)
$
( 32
)
$
244
The provision for income taxes differs from the amount computed by applying the Canada statutory rate to pre-tax income as follows for the years ended December 31, 2024, and 2023:
2024
2023
Income tax benefit computed at federal tax rate
27.0
%
27.0
%
Foreign operations
( 3.4
)%
( 5.4
)%
Change in valuation allowance
( 22.8
)%
( 26.1
)%
Tax credits generated
7.0
%
8.6
%
Prior year adjustments
3.0
%
( 2.3
)%
Changes in uncertain tax positions
( 0.1
)%
( 0.4
)%
Foreign exchange gain and loss
( 3.9
)%
2.1
%
Stock compensation
( 1.1
)%
( 2.4
)%
Non-deductible compensation
( 5.8
)%
( 6.8
)%
Foreign Liquidation
0.0
%
4.5
%
Other
0.2
%
0.3
%
Total
0.1
%
( 1.0
) %
58
The effective tax rate for the periods ended December 31, 2024 and December 31, 2023 varied from the Canadian statutory rate primarily due to losses in jurisdictions for which a valuation allowance is recorded and a benefit may not be recognized.
The tax effect of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases that give rise to deferred tax assets and liabilities is as follows:
2024
2023
Net operating loss carryforwards
$
2,799
$
1,288
Research and other credits
9,150
5,851
Stock based compensation
1,760
2,530
Capitalized research expenses
12,654
7,800
Share issuance costs
-
39
Accrued liabilities
414
696
Deferred tax assets before valuation allowance
26,777
18,204
Valuation allowance
( 26,382
)
( 17,576
)
Deferred tax assets
395
628
Depreciation
323
535
Prepaid assets
72
93
Deferred tax liability
395
628
Net deferred tax asset (liability)
$
-
$
-
For the year ended December 31, 2024, the Company has a USA federal net operating loss carryforward of $ 3.2 M which will carryforward indefinitely. The Company has $ 9.4 million of USA federal research and development tax credits carryforwards which are presented in the financial statements net of $ 1.7 million of related uncertain tax positions, which will begin to expire in 2037. In addition, the Company has $ 1.8 million of Texas research and development tax credits carryforwards which are presented in the financial statements net of $ 0.4 M of related uncertain tax positions, which will begin to expire in 2042. The Company has a Canada net operating loss carryforward of $ 1.6 million, which will begin to expire in 2044. This amount excludes the $ 0.3 million expected to be carried back to the 2023 tax year. Also, after weighing all available and positive and negative evidence the Company determined a full valuation allowance for all jurisdictions was necessary.
For the year ended December 31, 2024, the Company has not recorded any outside basis difference deferreds given its intention to indefinitely reinvest earnings from its foreign operations. In addition, given the Company's estimated outside tax basis in its USA investment is in excess of book basis, therefore there is no unrecognized deferred tax liability.
The Company is subject to income tax in multiple jurisdictions, including Canada, USA, and the state of Texas. The Company has Canadian, USA, and Texas income tax returns that are open to examination for the 2021, 2021, and 2020 tax years, respectively. In addition, the utilization of tax carryforwards, from years prior to those previously mentioned may also be audited by the taxing authorities once utilized. As a result, the Company continuously monitors its current and prior filing positions in order to determine if any unrecognized tax positions need to be recorded. The analysis involves considerable judgement and is based on the best information available. A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 31, 2024 and 2023 are as follows (in thousands):
2024
2023
Balance as of January 1
$
2,973
$
2,864
Additions based on tax positions related to the current year
660
389
Additions for tax positions of prior years
106
260
Reductions for tax positions of prior years
-
( 4
)
Settlements & statute of limitations
( 305
)
( 536
)
Balance at December 31
$
3,434
$
2,973
59
The Company recognized interest and penalties related to unrecognized tax benefits of $ 98 thousand and $ 93 thousand as a component of income tax expense for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 and December 31, 2023, there are both $ 1.7 million, of unrecognized tax benefits that if recognized would affect the annual effective tax rate. In addition, it is reasonably possible that approximately $ 0.1 million of the unrecognized tax benefits may be recognized in the next 12 months as a result of a lapse of the statute of limitations. No other positions are expected to significantly decrease within the next 12 months.
10. Subsequent Event
On January 31, 2025, the Convertible Loan Agreement (the "Loan") dated as of January 3, 2024, between XBiotech Inc. and John Simard, the Company's Founder, President, Chief Executive Officer, and Chairman, was terminated upon full repayment of the Loan and the interest by the Company. As a result, all conversion rights to XBiotech stock at $ 4.048 per share associated with the Loan were extinguished.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
60