XBiotech Inc. - Quarter Report: 2017 November (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2017

or

Commission File Number 001-37437

XBIOTECH INC.

(Exact name of registrant as specified in charter)

8201 E. Riverside Drive, Bldg. 4, Suite 100

Austin, TX 78744

(Address of principal executive offices)(Zip Code)

Telephone Number (512) 386-2900

(Registrant’s telephone number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý      No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

As of November 9, 2017, there were 35,437,772 shares of the Registrant's common stock issued and outstanding.

XBIOTECH INC.

INDEX

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “could,” “expects,” “plans,” “contemplate,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “intends” or “continues” or the negative of such terms or other comparable terminology, although not all forward-looking statements contain these identifying words. Forward-looking statements are subject to inherent risks and uncertainties in predicting future results and conditions that could cause the actual results to differ materially from those projected in these forward-looking statements. These forward-looking statements include, but are not limited to statements about:

All forward looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those under the heading “Risk Factors” included in our annual report for the year ended December 31, 2016 filed with the SEC on March 16, 2017, and elsewhere in this Quarterly Report on Form 10-Q. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q.  Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain medical conditions, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

XBiotech Inc.

Consolidated Balance Sheets

(in thousands, except share data)

See accompanying notes.

XBiotech Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

See accompanying notes.

XBiotech Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

See accompanying notes.

XBiotech Inc.

Consolidated Statements of Cash Flows

(in thousands)

See accompanying notes.

XBiotech Inc.

Notes to Consolidated Financial Statements (Unaudited)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

XBiotech Inc. (“XBiotech” or the “Company) is a pre-market biopharmaceutical company engaged in discovering and developing True Human™ monoclonal antibodies for treating a variety of diseases. True Human™ monoclonal antibodies are those which occur naturally in human beings—as opposed to being derived from animal immunization or otherwise engineered. We believe that naturally occurring monoclonal antibodies have the potential to be safer and more effective than their non-naturally occurring counterparts. XBiotech is focused on developing its True Human™ pipeline and manufacturing system.

We have never been profitable and, as of September 30, 2017, we had an accumulated deficit of $209.3 million. We had net losses of $6.2 million and $25.9 million for the three months and nine months ended September 30, 2017, respectively, compared to $12.5 million and $36.4 million for the three months and nine months ended September 30, 2016, respectively. We expect to incur significant operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical testing and clinical trials and seek regulatory approval and eventual commercialization. In addition to these increasing research and development expenses, we expect general and administrative costs to increase as we continue to operate as a public company. We will need to generate significant revenues to achieve profitability, and we may never do so. As of September 30, 2017, we had 56 employees compared to 106 as of September 30, 2016. This decrease was due to a re-organization of the Company that occurred following the recent material events surrounding the Phase 3 oncology studies.

Recent Events:

The Company’s Phase III symptomatic colorectal cancer study has been completed and XBiotech proceeded with the submission of a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) in March 2016. In May 2017, the Company announced that it received a negative opinion from the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) for the MAA in Europe. XBiotech subsequently pursued the EMA’s re-examination procedure in which new Rapporteurs were assigned to reevaluate the initial opinion after receiving the Company’s grounds for re-examination. On September 14^th, the CHMP issued its opinion on the re-examination of the Company’s MAA and maintained its initial negative opinion issued in May 2017.

Based on the positive, top-line results announced earlier this year in two Phase II studies, one which evaluated MABp1 for the treatment of Hidradenitis Suppurativa and one using the Company’s proprietary 514G3 True Human antibody for the treatment of Staphylococcus aureus bloodstream infections, plans for advanced studies in these indications are on-going. We are currently seeking guidance from the FDA to help with clinical protocol development for both studies to enable better agreement on what will be sufficient data to seek product registration.

The Company continues to be subject to a number of risks common to companies in similar stages 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 clinical 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 $39.0 million at September 30, 2017 will enable the Company to achieve some key inflection points, including advanced clinical studies in certain indication(s), as well as on-going R&D efforts for the Company’s pre-clinical pipeline. Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our cash and cash equivalents as of September 30, 2017 will enable us to fund our operating expenses and capital expenditure requirements through 2018. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

Revenues

To date, we have not generated any revenue. Our ability to generate revenue and become profitable depends on our ability to successfully commercialize our lead product candidate, Xilonix™, or any other product candidate we may advance in the future.

Research and Development Expenses

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 operations as incurred.

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 September 30, 2017, we have recorded total research and development expenses, including share-based compensation, of $164.1 million. Our total research and development expenses for the three months and nine months ended September 30, 2017 were $4.9 million and $20.5 million, respectively, compared to $9.8 million and $28.8 million for the three months and nine months ended September 30, 2016, respectively. Share-based compensation was $0.2 million for the three months and nine months ended September 30, 2017, respectively, compared to $0.6 million and $1.7 million for the three months and nine months ended September 30, 2016, respectively.

Research and development expenses, as a percentage of total operating expenses for the three months and nine months ended September 30, 2017 were 75% and 77%, respectively, compared to 78% and 79% for the three months and nine months ended September 30, 2016, respectively. The percentages, excluding stock-based compensation, for the three months and nine months ended September 30, 2017 were 77% and 83%, respectively, compared to 81% and 84% for the three months and nine months ended September 30, 2016, respectively.

The clinical research and development costs may decrease going forward with the completion of all clinical studies to date. Although, expenses could increase due to the potential of pursuing advanced clinical studies in various indications.

Based on the results of our preclinical studies, we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to their preclinical and clinical success and commercial potential. For research and development candidates in early stages of development, it is premature to estimate when material net cash inflows from these projects might occur.

General and Administrative Expenses

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 and nine months ended September 30, 2017 were $1.7 million and $6.0 million, respectively, compared to $2.7 million and $7.5 million for the three months and nine months ended September 30, 2016, respectively. Share-based compensation accounted for $0.2 million and $1.8 million for the three months and nine months ended September 30, 2017, respectively, compared to $0.6 million and $2.3 million for the three months and nine months ended September 30, 2016, respectively.

General and administrative expenses, as a percentage of total operating expenses for the three months and nine months ended September 30, 2017 were 25% and 23%, respectively, compared to 22% and 21% for the three months and nine months ended September 30, 2016, respectively. The percentages, excluding stock-based compensation, for the three months and nine months ended September 30, 2017 were 23% and 17%, respectively, compared to 19% and 16% for the three months and nine months ended September 30, 2016, respectively.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We believe there have been no significant changes in our critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended December 31, 2016.

Results of Operations

Revenue

We did not record any revenue during the three months and nine months ended September 30, 2017 and 2016.

Expenses

Research and Development

Research and Development costs are summarized as follows (in thousands):

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.

Research and development expenses decreased by 50% to $4.9 million for the three months ended September 30, 2017 compared to $9.8 million for the three months ended September 30, 2016. Research and development expenses decreased by 29% to $20.5 million for the nine months ended September 30, 2017 compared to $28.8 million for the nine months ended September 30, 2016.

The three month decrease in research and development expenses was mainly due to a $1.9 million decrease in laboratory and manufacturing supplies expense, due to a reduction in clinical trial drug manufacturing. In addition, there was a decrease in clinical trials and sponsored research expense due to the completion of a global trial. Salary and related expenses also decreased due to the reduction of our research and development workforce from 95 to 49.

Compared to the nine months ended September 30, 2016, the research and development expense decrease in the nine months ended September 30, 2017 was primarily caused by the decrease in laboratory and manufacturing supplies expense. The clinical trials and sponsored research expense decrease was principally due to the reduced expense accrual and as a result of the the completion of a global trial. Stock-based compensation expenses also decreased due to the forfeiture of terminated employees’ stock options.

General and Administrative

General and administrative costs are summarized as follows (in thousands):

General and administrative expenses decreased by 38% to $1.7 million for the three months ended September 30, 2017 compared to $2.7 million for the three months ended September 30, 2016. General and administrative expenses decreased by 20% to $6.0 million for the nine months ended September 30, 2017 compared to $7.5 million for the nine months ended September 30, 2016.

The three months decrease was primarily related to a $0.6 million decrease in public relations fees and legal fees. Stock-based compensation also decreased due to the forfeiture of terminated employees’ stock options.

The nine months decrease was principally due to the reduction in public relations fees, the decrease of stock-based compensation expense and labor expense. The decrease in stock-based compensation is due to the grant of stock options to board members in the first quarter of 2016 that were immediately vested. Labor costs also decreased due to the reduction of our general and administrative workforce from 10 to 7.

Other income (loss)

The following table summarizes other income (loss) (in thousands):

The interest income for the three months and nine months ended September 30, 2017 is mainly from the interest generated from our Canadian bank account. Foreign exchange gain was mainly due to the fluctuation of the exchange rate between Euro and US dollar.

Liquidity and Capital Resources

Our cash requirements could change materially as a result of the progress of our research and development and clinical programs, licensing activities, acquisitions, divestitures or other corporate developments.

Since our inception on March 22, 2005 through September 30, 2017, we have funded our operations principally through public offerings and private placements of equity securities, which have provided aggregate cash proceeds of approximately $257.2 million. The following table summarizes our sources and uses of cash (in thousands):

During the nine months ended September 30, 2017 and 2016, our operating activities used net cash of $26.8 million and $33.2 million, respectively. The use of net cash in each of these periods primarily resulted from our net losses. The net loss from operations for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 decreased, but the prepayment for clinical trial and payment for bills related to previous period expenses increased the cash used.

During the nine months ended September 30, 2017 and 2016, our investing activities used net cash of $1.2 million and $11.9 million, respectively. The use of cash during the nine months ended September 30, 2017 was for research and development, and the purchase of new manufacturing equipment. We spent approximately $7.7 million on the construction of new facilities during the nine months ended September 30, 2016.

During the nine months ended September 30, 2017 and 2016, our financing activities provided net cash proceeds of $33.3 million and $0.9 million, respectively. During the nine months ended September 30, 2017, we entered into subscription agreements with accredited investors, and sold 2.4 million common shares at $13 per share for approximately $31.6 million in net proceeds. Also, we sold 87 thousand shares under a Common Stock Sales Agreement with H.C. Wainwright & Co. LLC for net proceeds of approximately $1.0 million. Employees exercised stock options to purchase a total of 289 thousand shares of common stock for a total of approximately $0.8 million in net proceeds. During the nine months ended September 30, 2016, employees exercised stock options to purchase a total of 165 thousand shares of common stock for a total of approximately $0.9 million in net proceeds.

We expect to continue to incur substantial operating losses in the future. We will not receive any product revenue until a drug candidate has been approved by the Food and Drug Administration or similar regulatory agencies in other countries and successfully commercialized. As of September 30, 2017, our principal sources of liquidity were our cash and cash equivalents, which totaled approximately $39.0 million.

Contractual Obligations and Commitments

On January 12, 2008, we entered a lease agreement to lease our office space in Austin, Texas. On September 15, 2010, we entered into a second lease agreement to lease additional space in Austin, Texas. On March 20, 2014, we extended the lease for an additional 21 months on the same terms and rental rates as the current lease. On February 28, 2016, we extended the lease for another 4 years. The future minimum lease payments are as follows as of September 30, 2017 (in thousands):

Rent expense was $186 thousand and $180 thousand for the three months ended September 30, 2017 and 2016, respectively.

Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet activities, including the use of structured finance, special purpose entities or variable interest entities.

The Company is not currently exposed to material market risk arising from financial instruments, changes in interest rates or commodity prices, or fluctuations in foreign currencies. The Company has no need to hedge against any of the foregoing risks and therefore currently engages in no hedging activities.

Management's Evaluation of our Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and Principal Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on such evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports the Company files or furnishes under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and are operating in an effective manner.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the third quarter of the year ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On December 1, 2015, a purported securities class action complaint captioned Yogina Rezko v. XBiotech Inc., John Simard, Queena Han and WR Hambrecht & Co., LLC was filed against us, certain of our officers and directors and the underwriter for our initial public offering in the Superior Court for the State of California, Los Angeles County.  On December 2, 2015, a purported securities class action complaint captioned Linh Tran v. XBiotech Inc., John Simard and Queena Han was filed against us and certain of our officers and directors in U.S. District Court for the Western District of Texas. The lawsuits are based on substantially similar factual allegations and purport to be class actions brought on behalf of purchasers of the Company's securities during the period from April 15, 2015 through November 23, 2015. The complaint filed in California state court alleges that the defendants violated the Securities Act of 1933, as amended (the "Securities Act"), and the complaint filed in federal court alleges that the defendants violated the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each case by making materially false and misleading statements concerning the Company's Phase III clinical trial conducted in Europe to assess Xilonix™ as a treatment for colorectal cancer. The California complaint purports to assert claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act, and the federal complaint purports to assert claims for violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.  Both complaints seek, on behalf of the purported class, an unspecified amount of monetary damages, interest, fees and expenses of attorneys and experts, and other relief.

In September 2016, a stay was granted at the Superior Court for the State of California, Los Angeles County, in Yogina Rezko v. XBiotech Inc., John Simard, Queena Han and WR Hambrecht & Co., LLC, in light of the ongoing case, Linh Tran v. XBiotech Inc., John Simard and Queena Han, in the U.S. District Court for the Western District of Texas, leaving plaintiffs with an opportunity re-file a complaint in Texas. In October 2016, the Texas securities class action lawsuit was dismissed with prejudice. At the June 7, 2017 hearing at the Superior Court for the State of California, Los Angeles County, we were granted a motion on the grounds of forum non conveniens. The judge ruled that the case belonged in Texas, not in California. The case is nevertheless stayed, due to California procedural rules, and not dismissed. A status conference is tentatively scheduled for January 2018.

On July 6, 2017, plaintiffs proceeded to re-file in Travis County district court (located in Austin, Texas). A hearing date has yet to be scheduled. Subsequently, XBiotech won on its motion to remove the case from state court to federal court at the U.S. District Court for the Western District of Texas, Austin Division. Counsel further argued for a motion to stay the case, which was granted on October 6, 2017, taking into account the upcoming hearings at the U.S. Supreme Court for Cyan, Inc. v. Beaver County Employees Retirement Fund. At issue in this is case is whether state courts lack subject matter jurisdiction over covered class actions that allege only Securities Act of 1933 claims. Arguments before the Supreme Court are scheduled for November 28, 2017. A decision from the Court is expected in Spring 2018, at which time we will learn more about its impact on whether plaintiffs may return to litigate Rezko v. XBiotech in state court. We are unable to estimate the outcome of the Texas state court matter or the resulting financial impact to us, if any. 

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2016, including the discussion in Part I, “Item 1A. Risk Factors,” and this Quarterly Report on Form 10-Q describe risks that could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of shares of our common stock. Additional risks not currently known or currently material to us may also harm our business. Other than as supplemented below, there have been no material changes in the risk factors reported in our last Annual Report on Form 10-K.

We submitted a Marketing Authorization Application to the EMA for our lead product candidate after completing a Phase III clinical trial in Europe. The EMA did not approve our Marketing Authorization Application, and we discontinued our FDA Phase III global clinical trial for our lead product candidate. As a result, we are in the process of assessing next steps in our Research and Development pipeline and our future clinical programs.

In March 2016, we submitted a Marketing Authorization Application, or MAA, to the EMA Committee for Human Medicinal Products, or CHMP, for the Phase III clinical trial of our lead product candidate completed in Europe during Q4 2015. On April 20, 2017, we participated in an Oral Explanation Meeting at the EMA after which the CHMP delivered a negative trend vote, indicating that our lead product candidate would not be approved for marketing in the EU. After the formal decision of the CHMP was rendered, we moved forward with an appeal to the EMA to reexamine the MAA. We received notification on September 14, 2017, that the EMA CHMP maintained its original decision to not approve our lead product candidate for marketing in the EU. Also, this year, on June 9, 2017, we announced that we were discontinuing our FDA Phase III global clinical trial, also involving our lead product candidate.

No further EMA procedures are available to us for the present MAA in Europe. We also have no plans to continue the FDA Phase III global clinical trial, although data analysis is ongoing. Meanwhile, the Company continues pursuit of its oncology program with potential involvement in investigator initiated study(ies) evaluating MABp1’s potential for treatment in different oncology settings. We are actively working to further develop our clinical and pre-clinical pipeline and are looking into next steps with regulatory authorities and potential corporate, academic and government collaborations or partnerships for research and/or clinical programs.

In our pursuit of clinical programs or new product candidates from our Research and Development pipeline, we may meet a number of potential obstacles including but not limited to:

These obstacles could delay or further inhibit our ability to proceed with a viable product line for potential future regulatory approval and commercialization.

We will need to expand our operations and grow the size of our organization, and we may experience difficulties in managing this growth.

As of September 30, 2017, we had 56 employees. As our development and commercialization plans and strategies develop, or as a result of any future acquisitions, we will need additional managerial, operational, sales, marketing, scientific, and financial headcount and other resources. Our management, personnel and systems currently in place may not be adequate to support this future growth. Future growth would impose significant added responsibilities on members of management, including:

Our failure to accomplish any of these tasks could prevent us from successfully growing our Company.

We depend on key personnel to operate our business. If we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

In addition to the continued services of Mr. Simard, we believe that our future success is highly dependent on the contributions of our significant employees, as well as our ability to attract and retain highly skilled and experienced sales, research and development and other personnel in the United States and abroad. Some of our significant employees include our Medical Director, our Senior Vice President of Corporate Strategy and Finance, our Vice President of Research and Development, our Vice President of Quality Control, and our Vice President of Finance and Human Resources. Changes in our management team may be disruptive to our business.

All of our employees, including our Chief Executive Officer, are free to terminate their employment relationship with us at any time, subject to any applicable notice requirements, and their knowledge of our business and industry may be difficult to replace. If one or more of our executive officers or significant employees leaves, we may not be able to fully integrate new personnel or replicate the prior working relationships, and our operations could suffer. Qualified individuals with the breadth of skills and experience in the pharmaceutical industry that we require are in high demand, and we may incur significant costs to attract them. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Our failure to attract and retain key personnel could impede the achievement of our research, development and commercialization objectives.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

Not Applicable.

Item 3. Defaults upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information.

On November 8^th, 2017 Fabrizio Bonanni resigned from the Board of Directors of XBiotech Inc. effective immediately. On November 8th, 2017, the Company promptly notified the NASDAQ Listing Qualifications Department (“NLQD”) of this event. On November 9th, 2017, the Company received a letter from the NLQD which noted the Company’s non-compliance with NASDAQ’s audit committee requirements as set forth in Listing Rule 5605. However, consistent with Listing Rule 5605(c)(4), NASDAQ will provide the Company a cure period in order to regain compliance until the earlier of the Company’s next annual shareholders’ meeting or November 8, 2018 or if the next annual shareholders’ meeting is held before May 7, 2018, then the Company must evidence compliance no later than May 7, 2018. The Company plans to fill the vacancy and regain compliance within the cure period provided by NASDAQ. 

Item 6. Exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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