EX-99.(A)(1)(I) 2 ex99-a1i.htm OFFER TO PURCHASE, DATED JANUARY 14, 2020 ex-a1i
 

XBiotech Inc. SC TO-I

Exhibit (a)(1)(i)

Offer to Purchase

by

XBiotech Inc.

Up to $420,000,000 in Value of its Common Shares
At a Cash Purchase Price Not Greater Than $
33.00 per Share Nor Less Than $30.00 Per Share

THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON
FEBRUARY 12, 2020, UNLESS THE OFFER IS EXTENDED
(SUCH DATE AND TIME, AS THEY MAY BE EXTENDED, THE “EXPIRATION DATE”).

XBiotech Inc., a British Columbia corporation (the “Company,” “XBiotech,” “we,” “us” or “our”), invites our shareholders to tender up to $420,000,000 in value of our common shares, no par value (the “Shares”), for purchase by us at a price not greater than $33.00 nor less than $30.00 per Share, to the seller in cash, less any applicable withholding taxes and without interest, upon the terms and subject to the conditions described in this Offer to Purchase and in the related Letter of Transmittal (the “Letter of Transmittal,” which together with this Offer to Purchase, as they may be amended or supplemented from time to time, constitute the “Offer”).

Upon the terms and subject to the conditions of the Offer, we will determine a single per Share price that we will pay for Shares properly tendered and not properly withdrawn from the Offer, taking into account the total number of Shares tendered and the prices specified, or deemed specified, by tendering shareholders. We will select the lowest single purchase price, not greater than $33.00 nor less than $30.00 per Share, that will allow us to purchase $420,000,000 in value of Shares, or a lower amount depending on the number of Shares properly tendered and not properly withdrawn (such purchase price, the “Final Purchase Price”). Upon the terms and subject to the conditions of the Offer, if, based on the Final Purchase Price, Shares having an aggregate value of less than or equal to $420,000,000 are properly tendered and not properly withdrawn, we will buy all Shares properly tendered and not properly withdrawn. All Shares acquired in the Offer will be acquired at the Final Purchase Price, including those Shares tendered at a price lower than the Final Purchase Price. Only Shares properly tendered at prices at or below the Final Purchase Price, and not properly withdrawn, will be purchased. We may not purchase all of the Shares tendered at or below the Final Purchase Price if, based on the Final Purchase Price, Shares having an aggregate value in excess of $420,000,000 are properly tendered and not properly withdrawn, because of proration, “Odd Lot” priority and conditional tender provisions described in this Offer to Purchase. Shares not purchased in the Offer will be returned to the tendering shareholders promptly after the Expiration Date. We reserve the right, in our sole discretion, to change the per Share purchase price range and to increase or decrease the value of Shares sought in the Offer, subject to applicable law. In accordance with the rules of the Securities and Exchange Commission (the “SEC”), we may increase the number of Shares accepted for payment in the Offer by no more than 2% of the outstanding Shares without extending the Offer. See Section 1.

At the maximum Final Purchase Price of $33.00 per Share, we could purchase 12,727,272 Shares if the Offer is fully subscribed, which would represent approximately 30.04% of our issued and outstanding Shares as of January 13, 2020. At the minimum Final Purchase Price of $30.00 per Share, we could purchase 14,000,000 Shares if the Offer is fully subscribed, which would represent approximately 33.05% of our issued and outstanding Shares as of January 13, 2020.

THE OFFER IS NOT CONDITIONED ON THE RECEIPT OF FINANCING OR ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7.

The Shares are listed and traded on the NASDAQ Global Select Market (“NASDAQ”) under the trading symbol “XBIT.” On January 13, 2020, the last full trading day prior to the commencement of the Offer, the last reported sale price of the Shares was $18.62 per Share. Shareholders are urged to obtain current market quotations for the Shares before deciding whether and at what purchase price or purchase prices to tender their Shares. See Section 8.

Our Board of Directors has delegated authority to consider the Offer to an Independent Committee of our Board of Directors, which consists solely of independent directors who do not have a material financial interest in the transactions described in this Offer to Purchase, and the Independent Committee has approved the Offer and authorized us to make the Offer. However, none of the Company, the members of our Board of Directors (including the Independent Committee), D.F. King & Co., Inc., the Information Agent for the Offer (the “Information Agent”), or American Stock Transfer & Trust Co., LLC, the Depositary for the Offer (the “Depositary”), makes any recommendation to you as to whether you should tender or refrain from tendering your Shares or as to the purchase price or purchase prices at which you may choose to tender your Shares. Neither we nor any member of our Board of Directors (including the Independent Committee), the Information Agent or the Depositary has authorized any person to make any recommendation with respect to the Offer. You must make your own decision as to whether to tender your Shares and, if so, how many Shares to tender and the purchase price or purchase prices at which you will tender them. We recommend that you consult your own financial and tax advisors, and read carefully and evaluate the information in this Offer to Purchase and in the related Letter of Transmittal, including our reasons for making the Offer, before taking any action with respect to the Offer. See Section 2.

Our directors and executive officers are entitled to participate in the Offer on the same basis as all other shareholders. John Simard, a director and our Chief Executive Officer; Sushma Shivaswamy, our Chief Scientific Officer; Queena Han, our Vice President, Finance and Human Resources and Secretary; and W. Thorpe McKenzie, a member of our Board of Directors (the “Affiliate Holders”), have advised us that, although no final decision has been made, they may tender up to 6,327,060, 47,538, 70,000 and 4,557,839 Shares, respectively, that they beneficially own in the Offer. The Affiliate Holders beneficially owned an aggregate of 16,295,181 Shares as of January 13, 2020, representing approximately 38.46% of our outstanding Shares as of January 13, 2020. Assuming that the Affiliate Holders tender the 11,002,437 Shares referred to above and all such Shares are purchased in the Offer, the Affiliate Holders will beneficially own an aggregate of 5,292,744 Shares immediately following the Offer. All of our other directors have advised us that they do not intend to tender any of their Shares in the Offer, and we are not aware of the intentions of our other 5% shareholders with respect to the Offer. There can be no assurance that the persons described above will in fact tender or sell the number of shares indicated, nor can there be any assurance that other directors or other affiliates of the Company will not decide to tender or sell shares. If the Affiliate Holders properly tender Shares in the Offer, the Affiliate Holders’ tenders could influence the price at which all of the Shares accepted for payment are purchased. See Section 12.

SHAREHOLDERS SHOULD NOTE THAT THE PURCHASE PRICE RANGE (NO GREATER THAN $33.00 PER SHARE NOR LESS THAN $30.00 PER SHARE) REPRESENTS A SUBSTANTIAL PREMIUM OVER THE CLOSING SALE PRICE OF THE SHARES ($18.62 PER SHARE) AS REPORTED ON THE NASDAQ GLOBAL SELECT MARKET ON JANUARY 13, 2020, THE DAY BEFORE ANNOUNCEMENT OF THE OFFER. THE MARKET PRICE OF THE SHARES FOLLOWING CONSUMMATION OF THE OFFER IS EXPECTED TO BE LOWER THAN THE FINAL PURCHASE PRICE AND MAY BE LOWER THAN THE MARKET PRICE OF THE SHARES ON THE DATE BEFORE ANNOUNCEMENT OF THE OFFER. ACCORDINGLY, ANY SHARES NOT TENDERED PURSUANT TO THE OFFER AND ANY TENDERED SHARES NOT ACCEPTED FOR PAYMENT BY REASON OF PRORATION OR OTHERWISE, ARE EXPECTED TO HAVE A MARKET PRICE FOLLOWING CONSUMMATION OF THE OFFER THAT IS LOWER THAN THE FINAL PURCHASE PRICE AND MAY BE LOWER THAN THE MARKET PRICE OF THE SHARES ON THE DATE BEFORE ANNOUNCEMENT OF THE OFFER. IF THE MARKET PRICE FOR SHARES FOLLOWING CONSUMMATION OF THE OFFER IS BELOW THE FINAL PURCHASE PRICE, AS EXPECTED, SHAREHOLDERS CAN BE ASSURED OF MAXIMIZING THE VALUE OF THEIR HOLDINGS AFTER GIVING EFFECT TO CONSUMMATION OF THE OFFER (THE SUM OF THE MARKET PRICE OF THEIR SHARES FOLLOWING THE OFFER PLUS THE AMOUNT RECEIVED IN THE OFFER) ONLY BY TENDERING 100% OF THEIR SHARES.

The equity ownership of our directors and executive officers who do not tender their Shares in the Offer will proportionally increase as a percentage of our outstanding Shares following the consummation of the Offer. Our directors and executive officers may also, in compliance with the Company’s Insider Trading Policy, Code of Business Conduct and Ethics and SEC rules, sell all or part of their Shares in open market transactions, at prices that may or may not be more favorable than the Final Purchase Price to be paid in the Offer. Our other employees, including officers who are not executive officers, are permitted to participate in the Offer on the same terms as other shareholders and may do so in their discretion, subject to the Company’s internal compliance requirements. Such employees may also sell all or part of their Shares in open market transactions, at prices that may or may not be more favorable than the Final Purchase Price to be paid in the Offer.

Shareholders should carefully consider the income tax consequences of tendering shares pursuant to the Offer. See Section 14, “Certain United States and Canadian Federal Income Tax Consequences.”

THE OFFER HAS NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE OFFER OR UPON THE ACCURACY OF THE INFORMATION CONTAINED IN THIS OFFER TO PURCHASE AND ANY RELATED DOCUMENTS, AND ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL AND MAY BE A CRIMINAL OFFENSE.

If you have questions or need assistance, you should contact the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. If you require additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or other related materials, you should contact the Information Agent.

 

The Information Agent for this offer is:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, New York 10005

Banks and Brokers

Call: (212) 269-5550

All Others Call: (866) 856-3065

Email: xbit@dfking.com

 

Offer to Purchase dated January 14, 2020.

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IMPORTANT

If you want to tender all or part of your Shares, you must do one of the following before the Offer expires at 5:00 p.m., New York City time, on Wednesday, February 12, 2020 (unless the Offer is extended):

if your Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, contact the nominee and request that the nominee tender your Shares for you. Beneficial owners should be aware that their broker, dealer, commercial bank, trust company or other nominee may establish its own earlier deadlines for participation in the Offer. Accordingly, beneficial owners wishing to participate in the Offer should contact their broker, dealer, commercial bank, trust company or other nominee as soon as possible in order to determine the times by which such beneficial owner must take action in order to participate in the Offer;

if you hold certificates registered in your own name, complete and sign a Letter of Transmittal according to its Instructions, and deliver the Letter of Transmittal, together with any required signature guarantees, the certificates for your Shares and any other documents required by the Letter of Transmittal, to the Depositary for the Offer;

if you are an institution participating in The Depository Trust Company, which we call the “Book-Entry Transfer Facility” in this Offer to Purchase, tender your Shares according to the procedure for book-entry transfer described in Section 3; and

if you are a holder of vested options, you may exercise your vested options and tender any of the Shares issued upon exercise. You must exercise your options sufficiently in advance of the Expiration Date to receive your Shares in order to tender them in the Offer. An exercise of an option cannot be revoked even if Shares received upon the exercise thereof and tendered in the Offer are not purchased in the Offer for any reason.

If you want to tender your Shares, but: (a) the certificates for your Shares are not immediately available or cannot be delivered to the Depositary by the Expiration Date; (b) you cannot comply with the procedure for book-entry transfer by the Expiration Date; or (c) your other required documents cannot be delivered to the Depositary by the Expiration Date, you can still tender your Shares if you comply with the guaranteed delivery procedures described in Section 3.

If you wish to maximize the chance that your Shares will be purchased in the Offer, you should check the box in the section of the Letter of Transmittal captioned “Shares Tendered At Price Determined Under The Offer.” If you agree to accept the purchase price determined in the Offer, your Shares will be deemed to be tendered at the minimum price of $30.00 per Share for purposes of determining the Final Purchase Price. You should understand that this election may lower the Final Purchase Price and could result in your Shares being purchased at the minimum price of $30.00 per Share, a price that could be below the last reported sale price of the Shares on the NASDAQ on the Expiration Date.

We are not making the Offer to, and will not accept any tendered Shares from, shareholders in any jurisdiction where it would be illegal to do so.

You may contact the Information Agent or your broker, dealer, commercial bank, trust company or other nominee for assistance. The contact information for the Information Agent is set forth on the back cover of this Offer to Purchase.

OUR BOARD OF DIRECTORS HAS DELEGATED AUTHORITY TO CONSIDER THE OFFER TO AN INDEPENDENT COMMITTEE OF OUR BOARD OF DIRECTORS, WHICH CONSISTS SOLELY OF INDEPENDENT DIRECTORS WHO DO NOT HAVE A MATERIAL FINANCIAL INTEREST IN THE TRANSACTIONS DESCRIBED IN THIS OFFER TO PURCHASE, AND THE INDEPENDENT COMMITTEE HAS APPROVED THE OFFER AND AUTHORIZED US TO MAKE THE OFFER. HOWEVER, NONE OF THE COMPANY, THE MEMBERS OF OUR BOARD OF DIRECTORS (INCLUDING THE INDEPENDENT COMMITTEE), THE INFORMATION AGENT OR THE DEPOSITARY HAS MADE ANY RECOMMENDATION AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR SHARES IN THE OFFER. NONE OF THE COMPANY, THE MEMBERS OF OUR BOARD OF DIRECTORS (INCLUDING THE INDEPENDENT COMMITTEE), THE INFORMATION AGENT OR THE DEPOSITARY HAS AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR SHARES IN THE OFFER. NONE OF THE COMPANY, THE MEMBERS OF OUR BOARD OF DIRECTORS (INCLUDING THE INDEPENDENT COMMITTEE), THE INFORMATION AGENT OR THE DEPOSITARY HAS AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE RELATED LETTER OF TRANSMITTAL. YOU SHOULD NOT RELY ON ANY RECOMMENDATION, OR ANY SUCH REPRESENTATION OR INFORMATION, AS HAVING BEEN AUTHORIZED BY US, ANY MEMBER OF OUR BOARD OF DIRECTORS (INCLUDING THE INDEPENDENT COMMITTEE), THE INFORMATION AGENT OR THE DEPOSITARY.

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SHAREHOLDERS SHOULD NOTE THAT THE PURCHASE PRICE RANGE (NO GREATER THAN $33.00 PER SHARE NOR LESS THAN $30.00 PER SHARE) REPRESENTS A SUBSTANTIAL PREMIUM OVER THE CLOSING SALE PRICE OF THE SHARES ($18.62 PER SHARE) AS REPORTED ON THE NASDAQ GLOBAL SELECT MARKET ON JANUARY 13, 2020, THE DAY BEFORE ANNOUNCEMENT OF THE OFFER. THE MARKET PRICE OF THE SHARES FOLLOWING CONSUMMATION OF THE OFFER IS EXPECTED TO BE LOWER THAN THE FINAL PURCHASE PRICE AND MAY BE LOWER THAN THE MARKET PRICE OF THE SHARES ON THE DATE BEFORE ANNOUNCEMENT OF THE OFFER. ACCORDINGLY, ANY SHARES NOT TENDERED PURSUANT TO THE OFFER AND ANY TENDERED SHARES NOT ACCEPTED FOR PAYMENT BY REASON OF PRORATION OR OTHERWISE, ARE EXPECTED TO HAVE A MARKET PRICE FOLLOWING CONSUMMATION OF THE OFFER THAT IS LOWER THAN THE FINAL PURCHASE PRICE AND MAY BE LOWER THAN THE MARKET PRICE OF THE SHARES ON THE DATE BEFORE ANNOUNCEMENT OF THE OFFER. IF THE MARKET PRICE FOR SHARES FOLLOWING CONSUMMATION OF THE OFFER IS BELOW THE FINAL PURCHASE PRICE, AS EXPECTED, SHAREHOLDERS CAN BE ASSURED OF MAXIMIZING THE VALUE OF THEIR HOLDINGS AFTER GIVING EFFECT TO CONSUMMATION OF THE OFFER (THE SUM OF THE MARKET PRICE OF THEIR SHARES FOLLOWING THE OFFER PLUS THE AMOUNT RECEIVED IN THE OFFER) ONLY BY TENDERING 100% OF THEIR SHARES.

The statements made in this Offer to Purchase are made as of the date on the cover page and the statements incorporated by reference are made as of the date of the documents incorporated by reference. The delivery of this Offer to Purchase and the related Letter of Transmittal shall not under any circumstances create any implication that the information contained herein or incorporated by reference is correct as of a later date or that there has not been any change in such information or in our affairs since such dates.

INFORMATION FOR UNITED STATES SHAREHOLDERS

The enforcement by investors of civil liabilities under U.S. federal securities laws may be adversely affected by the fact that XBiotech is incorporated under the laws of British Columbia. U.S. shareholders should be aware that the acceptance of the Offer will have certain tax consequences under United States and Canadian law, including in the event the Company is determined to be a “passive foreign investment company” under U.S. federal income tax law. See Section 14.

XBiotech has filed with the SEC an Issuer Tender Offer Statement on Schedule TO with respect to the Offer, pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 13e-4(c)(2) promulgated thereunder. See Section 1.

U.S. shareholders should be aware that the acceptance of the Offer will have certain tax consequences under United States and Canadian law. See Section 14, “Certain United States and Canadian Federal Income Tax Consequences”. Shareholders should consult their own tax advisors with respect to their particular circumstances and tax considerations applicable to them.

CURRENCY

All dollar references in the Offer to Purchase and the documents incorporated by reference herein are in United States dollars, except where otherwise indicated.

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Table of Contents

 

Page

Summary Term Sheet

1

Cautionary Statement Concerning Forward-Looking Statements

9

Introduction

10

The Offer

12

1 Number of Shares; Proration.

12

2. Background and Purpose of the Offer; Certain Effects of the Offer.

14

3. Procedures for Tendering Shares.

18

4. Withdrawal Rights.

22

5. Purchase of Shares and Payment of Purchase Price.

23

6. Conditional Tender of Shares.

24

7. Conditions of the Offer.

25

8. Price Range of Shares; Dividends.

27

9. Source and Amount of Funds.

27

10. Certain Financial Information.

28

11. Certain Information Concerning Us.

34

12. Interests of Directors, Executive Officers and Affiliates; Transactions and Arrangements Concerning the Shares.

35

13. Certain Legal Matters; Regulatory Approvals.

38

14. Certain United States and Canadian Federal Income Tax Consequences.

39

15. Extension of the Offer; Termination; Amendment.

46

16. Fees and Expenses.

47

17. Miscellaneous.

47

1

Summary Term Sheet

We are providing this summary term sheet for your convenience. This summary highlights certain material information in this Offer to Purchase, but it does not describe all of the details of the Offer to the same extent described elsewhere in this Offer to Purchase. To understand the Offer fully and for a more complete description of the terms of the Offer, we urge you to read carefully this entire Offer to Purchase, the Letter of Transmittal and the other documents that constitute part of the Offer. We have included references to the sections of this Offer to Purchase where you will find a more complete description of the topics in this summary.

Who is offering to purchase my Shares?

The issuer of the Shares, XBiotech Inc., a British Columbia corporation, is offering to purchase the Shares. See Section 1.

What is XBiotech offering to purchase?

We are offering to purchase up to $420,000,000 in value of Shares. See Section 1.

What is the purpose of the Offer?

We believe that the modified Dutch auction tender offer set forth in this Offer to Purchase represents an efficient mechanism to provide our shareholders with the opportunity to sell a significant portion of their Shares to the Company at a premium over current market prices and thereby receive a return of some or all of their investment in the Company if they so elect, while also permitting them the opportunity to retain a continuing equity interest in the Company. The Offer provides liquidity for our shareholders without their need to sell shares into the market, which could have detrimental effects on the share value/market capitalization. The Offer also provides our shareholders with an efficient way to sell their Shares without incurring brokerage fees or commissions associated with open market sales.

If we complete the Offer, shareholders who do not participate in the Offer will automatically experience an increase in their relative percentage ownership interest in the Company at no additional cost to them. See Section 2.

We believe the Offer is an attractive use of proceeds from the Janssen Transaction (as defined below), but which also allows us to maintain the financial flexibility and resources we need to continue to execute our business strategy.

How many Shares will we purchase in the Offer?

Upon the terms and subject to the conditions of the Offer, we will purchase up to $420,000,000 in value of Shares in the Offer or a lower amount depending on the number of Shares properly tendered and not properly withdrawn pursuant to the Offer. Because the Final Purchase Price will be determined after the Expiration Date, the exact number of Shares that will be purchased will not be known until after that time.

As of January 13, 2020, we had 42,365,250 issued and outstanding Shares. As of January 13, 2020, an aggregate of approximately 415,476 Shares remained available for future awards under our 2015 Equity Incentive Plan, as amended (the “2015 Plan”), further described in Section 12, and approximately 6,120,113 stock options were outstanding under the 2015 Plan and the Prior Plan (as defined below).

At the maximum Final Purchase Price of $33.00 per Share, we could purchase 12,727,272 Shares if the Offer is fully subscribed, which would represent approximately 30.04% of our issued and outstanding Shares as of January 13, 2020. At the minimum Final Purchase Price of $30.00 per Share, we could purchase 14,000,000 Shares if the Offer is fully subscribed, which would represent approximately 33.05% of our issued and outstanding Shares as of January 13, 2020. If, based on the Final Purchase Price, more than $420,000,000 in value of Shares are properly tendered and not properly withdrawn, we will purchase all Shares tendered at or below the Final Purchase Price on a pro rata basis.

If any of our shareholders who:

hold Shares in their own name as holders of record, or

are “registered holders” as participants in DTC’s system whose names appear on a security position listing,

tender their Shares in full and that tender is accepted in full, the number of our record holders would be reduced. See Section 2.

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We expressly reserve the right to purchase additional Shares in the Offer, subject to applicable law. See Section 1. The Offer is not conditioned on the receipt of financing or any minimum number of Shares being tendered but is subject to certain other conditions. See Section 7. In accordance with the rules of the SEC, we may increase the number of Shares accepted for payment in the Offer by no more than 2% of the outstanding Shares without extending the Offer. See Section 1.

What will be the purchase price for the Shares and what will be the form of payment?

We are conducting the Offer through a procedure commonly called a “modified Dutch auction.” This procedure allows you to select the price, within a price range specified by us, at which you are willing to tender your Shares. The price range for the Offer is $30.00 to $33.00 per Share. We will select the lowest single purchase price (in increments of $0.25), not greater than $33.00 nor less than $30.00 per Share, that will allow us to purchase up to $420,000,000 in value of Shares at such price, based on the number of Shares tendered, or, if fewer Shares are properly tendered, all Shares that are properly tendered and not properly withdrawn. We will purchase all Shares at the Final Purchase Price, even if you have selected a purchase price lower than the Final Purchase Price, but we will not purchase any Shares tendered at a price above the Final Purchase Price.

If you wish to maximize the chance that we will purchase your Shares, you should check the box in the section entitled “Shares Tendered At Price Determined Under The Offer” in the section of the Letter of Transmittal captioned “Price (In Dollars) Per Share At Which Shares Are Being Tendered,” indicating that you will accept the Final Purchase Price. If you agree to accept the purchase price determined in the Offer, your Shares will be deemed to be tendered at the minimum price of $30.00 per Share for purposes of determining the Final Purchase Price. You should understand that this election may have the effect of lowering the Final Purchase Price and could result in your Shares being purchased at the minimum price of $30.00 per Share, a price that could be below the last reported sale price of the Shares on the NASDAQ on the Expiration Date.

If we purchase your Shares in the Offer, we will pay you the Final Purchase Price in cash, less any applicable withholding taxes and without interest, promptly after the Expiration Date. Under no circumstances will we pay interest on the Final Purchase Price, even if there is a delay in making payment. See the Introduction, Section 1 and Section 3.

Shareholders are urged to obtain current market quotations for the Shares before deciding whether and at what price or prices to tender their Shares. See Section 8.

How will we pay for the Shares?

The maximum value of Shares purchased in the Offer will be $420,000,000. We expect that the maximum aggregate cost of this purchase, including all fees and expenses applicable to the Offer, will be approximately $600,000. We intend to pay for the Shares with cash proceeds received from the Asset Purchase Agreement and ancillary agreements we entered into on December 7, 2019 with Janssen Biotech, Inc. (the “Janssen Transaction”). The Offer is not subject to a financing condition. See Section 9.

In accordance with the rules of the SEC, we may increase the number of Shares accepted for payment in the Offer by no more than 2% of the outstanding Shares without extending the Offer. See Section 1.

How long do I have to tender my Shares?

You may tender your Shares until the Offer expires on the Expiration Date. The Offer will expire at 5:00 p.m., New York City time, on Wednesday, February 12, 2020, unless we extend the Offer. See Section 1. We may choose to extend the Offer at any time and for any reason.

We cannot assure you, however, that we will extend the Offer or, if we extend it, for how long. See Section 1 and Section 15. If a broker, dealer, commercial bank, trust company or other nominee holds your Shares, it may require you to meet an earlier deadline for accepting the Offer. We urge you to contact the broker, dealer, commercial bank, trust company or other nominee that holds your Shares to find out its deadline. See Section 3.

Beneficial owners holding their Shares through a broker, dealer, commercial bank, trust company or other nominee should be aware that their broker, dealer, commercial bank, trust company or other nominee may establish its own earlier deadlines for participation in the Offer. Accordingly, beneficial owners wishing to participate in the Offer should contact their broker, dealer, commercial bank, trust company or other nominee as soon as possible in order to determine the times by which such owner must take action in order to participate in the Offer.

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Can the Offer be extended, amended or terminated, and if so, under what circumstances?

Yes. We can extend or amend the Offer in our sole discretion at any time, subject to applicable laws. We may, however, decide not to extend the Expiration Date for the Offer. If we extend the Expiration Date for the Offer, we cannot indicate, at this time, the length of any extension that we may provide. In any event, if we extend the Expiration Date for the Offer, we will delay the acceptance of any Shares that have been tendered. See Section 15. We can also amend or terminate the Offer under certain circumstances and subject to applicable law. See Section 7.

How will I be notified if you extend the Offer or amend the terms of the Offer?

If we extend the Offer, we will issue a press release not later than 9:00 a.m., New York City time, on the first business day after the previously scheduled Expiration Date. If we extend the Offer, you may withdraw your Shares until the Expiration Date, as extended. We will announce any amendment to the Offer by making a public announcement of the amendment. In the event that the terms of the Offer are amended, we will file an amendment to our Offer on Schedule TO-I describing the amendment. See Section 15.

Are there any conditions to the Offer?

Yes. Our obligation to accept for payment and pay for your tendered Shares depends upon a number of conditions that must be satisfied in our reasonable judgment or waived on or prior to the Expiration Date, including, among others:

no general suspension of trading in, or general limitation on prices for, securities on any national securities exchange or in the over-the-counter markets in the United States or the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States shall have occurred;

no decrease of more than 10% in the market price of the Shares or in the general level of market prices for equity securities in the United States or the New York Stock Exchange Composite Index, the Dow Jones Industrial Average, the NASDAQ Global Market Composite Index or Standard & Poor’s Composite Index of 500 Industrial Companies measured from the close of trading on January 13, 2020, the last full trading day prior to the commencement of the Offer, shall have occurred;

no commencement of a war, armed hostilities or other similar national or international calamity, including, but not limited to, an act of terrorism, directly or indirectly involving the United States shall have occurred on or after January 14, 2020 nor shall any material escalation of any war or armed hostilities which had commenced prior to January 14, 2020 have occurred;

no legal action shall have been threatened, pending or taken that might, in our reasonable judgment, adversely affect the Offer;

no limitation, whether or not mandatory, by any governmental, regulatory or administrative agency or authority on, or any event that, in our reasonable judgment, could materially affect, the extension of credit by banks or other lending institutions in the United States;

no changes in the general political, market, economic or financial conditions, domestically or internationally, that are reasonably likely to materially and adversely affect our business or the trading in the Shares shall have occurred;

no entity, “group” (as that term is used in Section 13(d)(3) of the Exchange Act) or person shall have acquired or proposed to acquire beneficial ownership of more than 5% of the outstanding Shares, whether through the acquisition of stock, the formation of a group, the grant of any option or right, or otherwise (other than as and to the extent disclosed in a Schedule 13D or Schedule 13G filed with the SEC on or before January 13, 2020);

no entity, group or person who has filed a Schedule 13D or Schedule 13G with the SEC on or before January 13, 2020, shall have acquired or proposed to acquire, whether through the acquisition of stock, the formation of a group, the grant of any option or right, or otherwise (other than by virtue of the Offer made hereby), beneficial ownership of an additional 2% or more of the outstanding Shares;

no change in law or in the official interpretation or administration of law, or relevant position or policy of a governmental authority with respect to any laws, applicable to the Offer;

no person shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, reflecting an intent to acquire us or any of the Shares, or has made a public announcement reflecting an intent to acquire us or any of our subsidiaries or any of our or their respective assets or securities;

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no change in our business, condition (financial or otherwise), assets, income, operations or prospects shall have occurred during the Offer that we, in our reasonable judgment, has or could have a material adverse effect on us or any of our subsidiaries or affiliates or the benefits of the Offer to us;

any approval, permit, authorization, favorable review or consent of any governmental entity required to be obtained in connection with the Offer shall have been obtained on terms satisfactory to us in our reasonable discretion; and

we shall not have determined that as a result of the consummation of the Offer and the purchase of Shares that there will be a reasonable likelihood that the Shares either (1) will be held of record by fewer than 300 persons or (2) will be delisted from the NASDAQ or be eligible for deregistration under the Exchange Act.

If any of the conditions in Section 7 is not satisfied, we may:

terminate the Offer and return all tendered Shares to the tendering shareholders;

extend the Offer and, subject to withdrawal rights as set forth in Section 4, retain all of the Shares until the expiration of the Offer as so extended;

waive the condition and, subject to any requirement to extend the period of time during which the Offer is open, purchase all of the Shares properly tendered and not properly withdrawn prior to the Expiration Date; or

delay acceptance for payment or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer.

For a more detailed discussion of these and other conditions to the Offer, please see Section 7.

How do I tender my Shares?

If you want to tender all or part of your Shares, you must do one of the following by 5:00 p.m., New York City time, on Wednesday, February 12, 2020, or any later time and date to which the Offer may be extended:

if your Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, contact the nominee and request that the nominee tender your Shares for you. Beneficial owners should be aware that their broker, dealer, commercial bank, trust company or other nominee may establish its own earlier deadlines for participation in the Offer. Accordingly, beneficial owners wishing to participate in the Offer should contact their broker, dealer, commercial bank, trust company or other nominee as soon as possible in order to determine the times by which such owner must take action in order to participate in the Offer;

if you hold certificates registered in your own name, complete and sign a Letter of Transmittal according to its instructions, and deliver it, together with any required signature guarantees, the certificates for your Shares and any other documents required by the Letter of Transmittal, to the Depositary at the address appearing on the back cover page of this Offer to Purchase;

if you are an institution participating in Book-Entry Transfer Facility, tender your Shares according to the procedure for book-entry transfer described in Section 3; and

if you are a holder of vested options, you may exercise your vested options and tender any of the Shares issued upon exercise. You must exercise your options sufficiently in advance of the Expiration Date to receive your Shares in order to tender them in the Offer. An exercise of an option cannot be revoked even if Shares received upon the exercise thereof and tendered in the Offer are not purchased in the Offer for any reason.

If you want to tender your Shares, but: (a) the certificates for your Shares are not immediately available or cannot be delivered to the Depositary by the Expiration Date; (b) you cannot comply with the procedure for book-entry transfer by the Expiration Date; or (c) your other required documents cannot be delivered to the Depositary by the Expiration Date, you can still tender your Shares if you comply with the guaranteed delivery procedures described in Section 3.

We are not making the Offer to, and will not accept any tendered Shares from, shareholders in any jurisdiction where it would be illegal to do so. However, we may, at our discretion, take any actions necessary for us to make the Offer to shareholders in any such jurisdiction.

You may contact the Information Agent or your broker, dealer, commercial bank, trust company or other nominee for assistance. The contact information for the Information Agent is set forth on the back cover of this Offer to Purchase. See Section 3 and the Instructions to the Letter of Transmittal.

5

Once I have tendered Shares in the Offer, may I withdraw my tendered Shares?

Yes. You may withdraw any Shares you have tendered at any time prior to 5:00 p.m., New York City time, on day, February 12, 2020, or any later Expiration Date, if the Offer is extended. If after 5:00 p.m., New York City time, on March 12, 2020, we have not accepted for payment the Shares you have tendered to us, you may also withdraw your Shares at any time thereafter. See Section 4.

How do I withdraw Shares I previously tendered?

If you are a registered holder of shares, to properly withdraw Shares, you must deliver on a timely basis a written notice of your withdrawal to the Depositary at one of the addresses appearing on the back cover of this Offer to Purchase. Your notice of withdrawal must specify your name, the number of Shares to be withdrawn and the name of the registered holder of the Shares. Some additional requirements apply if the certificates for Shares to be withdrawn have been delivered to the Depositary or if your Shares have been tendered under the procedure for book-entry transfer set forth in Section 3.

If you hold Shares through a broker, dealer, commercial bank, trust company or similar institution, you should consult that institution on the procedures you must comply with and the time by which such procedures must be completed in order for that institution to provide a written notice of withdrawal. See Section 4.

In what order will you purchase the tendered Shares?

We will purchase Shares on the following basis:

first, we will purchase all Odd Lots (as defined in Section 1) of less than 100 Shares at the Final Purchase Price from shareholders who properly tender all of their Shares at or below the Final Purchase Price and who do not properly withdraw them before the Expiration Date (tenders of less than all of the Shares owned, beneficially or of record, by such Odd Lot Holder (as defined in Section 1) will not qualify for this preference);

second, after purchasing all the Odd Lots that were properly tendered at or below the Final Purchase Price, subject to the conditional tender provisions described in Section 6 (whereby a holder may specify a minimum number of such holder’s Shares that must be purchased if any such Shares are purchased), we will purchase all Shares properly tendered at or below the Final Purchase Price on a pro rata basis with appropriate adjustment to avoid purchases of fractional Shares; and

third, only if necessary to permit us to purchase $420,000,000 in value of Shares (or such greater amount as we may elect to pay, subject to applicable law), we will purchase Shares conditionally tendered (for which the condition was not initially satisfied) at or below the Final Purchase Price, by random lot, to the extent feasible. To be eligible for purchase by random lot, shareholders whose Shares are conditionally tendered must have tendered all of their Shares.

Therefore, we may not purchase all of the Shares that you tender even if you tender them at or below the Final Purchase Price. See Section 1 and Section 6.

If I own fewer than 100 Shares and I tender all of my Shares, will I be subject to proration?

If you own, beneficially or of record, fewer than 100 Shares in the aggregate, you properly tender all of these Shares at or below the Final Purchase Price and do not properly withdraw them before the Expiration Date, and you complete the section entitled “Odd Lots” in the Letter of Transmittal (if you are a registered holder) and, if applicable, in the Notice of Guaranteed Delivery, we will purchase all of your Shares without subjecting them to the proration procedure. See Section 1.

Has the Company or its Board of Directors adopted a position on the Offer?

Our Board of Directors has delegated authority to consider the Offer to an Independent Committee of our Board of Directors, which consists solely of independent directors who do not have a material financial interest in the transactions described in this Offer to Purchase, and the Independent Committee has approved the Offer and authorized us to make the Offer. However, none of the Company(including the Independent Committee) , the members of our Board of Directors, the Depositary or the Information Agent makes any recommendation to you as to whether you should tender or refrain from tendering your Shares or as to the purchase price or purchase prices at which you may choose to tender your Shares. We cannot predict how our stock will trade after the Expiration Date, and it is possible that our stock price will trade above or below the Final Purchase Price after the Expiration Date. You must make your own decision as to whether to tender your Shares and, if so, how many Shares to tender and the purchase price or purchase prices at which you will tender them. We recommend that you read carefully the information in this Offer to Purchase and in the related Letter of Transmittal, including our reasons for making the Offer, before taking any action with respect to the Offer. See Section 2. You should discuss whether to tender your Shares with your broker and other financial and tax advisors.

6

Shareholders should note that the purchase price range (no greater than $33.00 per Share nor less than $30.00 per Share) represents a substantial premium over the closing sale price of the Shares ($18.62 per Share) as reported on the NASDAQ Global Select Market on January 13, 2020, the day before announcement of the Offer. The market price of the Shares following consummation of the Offer is expected to be lower than the Final Purchase Price and may be lower than the market price of the Shares on the date before announcement of the Offer. Accordingly, any Shares not tendered pursuant to the Offer and any tendered Shares not accepted for payment by reason of proration or otherwise, are expected to have a market price following consummation of the Offer that is lower than the Final Purchase Price and may be lower than the market price of the Shares on the date before announcement of the Offer. If the market price for Shares following consummation of the Offer is below the Final Purchase Price, as expected, shareholders can be assured of maximizing the value of their holdings after giving effect to consummation of the Offer (the sum of the market price of their Shares following the Offer plus the amount received in the Offer) only by tendering 100% of their Shares.

Will the Company’s directors and executive officers tender Shares in the Offer?

Our directors and executive officers are entitled to participate in the Offer on the same basis as all other shareholders. The Affiliate Holders, who consist of John Simard, a director and our Chief Executive Officer; Sushma Shivaswamy, our Chief Scientific Officer; Queena Han, our Vice President, Finance and Human Resources and Secretary; and W. Thorpe McKenzie, a member of our Board of Directors, have advised us that, although no final decision has been made, they may tender up to 6,327,060, 47,538, 70,000 and 4,557,839 Shares, respectively, that they beneficially own in the Offer. The Affiliate Holders beneficially owned an aggregate of 16,295,181 Shares as of January 13, 2020, representing approximately 38.46% of our outstanding Shares as of January 13, 2020 (for beneficial ownership disclaimed by the Affiliate Holders, see Section 12). Assuming that the Affiliate Holders tender the 11,002,437 Shares referred to above and all such Shares are purchased in the Offer, the Affiliate Holders will beneficially own an aggregate of 5,292,744 Shares immediately following the Offer. All of our other directors have advised us that they do not intend to tender any of their Shares in the Offer, and we are not aware of the intentions of other our 5% shareholders with respect to the Offer. There can be no assurance that the persons described above will in fact tender or sell the number of shares indicated, nor can there be any assurance that other directors or other affiliates of the Company will not decide to tender or sell shares. If the Affiliate Holders properly tender Shares in the Offer, the Affiliate Holders’ tenders could influence the price at which all of the Shares accepted for payment are purchased. It is anticipated that as a result of the expected high level of participation and the resulting proration, the proportional beneficial ownership of the Company will not change significantly as a result of the Offer.

Our directors, executive officers and affiliates (including the Affiliate Holders) may, subject to applicable law and applicable policies of the Company, sell their Shares from time to time in open-market and/or other transactions at prices that may be more or less favorable than the purchase price to be paid to our shareholders pursuant to the Offer. If no such transactions by our directors, executive officers and affiliates occur, and if they do not tender any of their Shares in the Offer, the beneficial ownership of our directors, executive officers and affiliates will increase as a percentage of our outstanding Shares following the consummation of the Offer, except for the Affiliate Holders, whose relative beneficial ownership may decrease if they participate in the Offer. See Section 12.

If I decide not to tender, how will the Offer affect my Shares?

If we complete the Offer, shareholders who decide not to tender will own a greater percentage interest in the outstanding Shares following the consummation of the Offer. See Section 2.

If the Offer is completed, it may also present some potential risks and disadvantages to us and our continuing shareholders (in addition to the uncertainties regarding future Share trading prices discussed above), including the following:

as a result of the Offer, our liquidity will be reduced by the cash paid out;

the Offer will reduce our “public float” (the number of Shares owned by non-affiliate shareholders and available for trading in the securities markets). There can be no assurance that this reduction in our public float will not result in lower prices for our Shares or reduced liquidity in the trading market for our Shares following completion of the Offer;

shareholders with significant holdings of Shares that do not tender into the Offer in circumstances where other shareholders do participate in the Offer will see their proportionate holding in the Company increased, with a corresponding increase in the voting power of the Shares held by such shareholders. Such holders of significant holdings of Shares could exercise their voting rights in a manner that is not aligned with the interests of other shareholders. In addition, a decision to sell the Shares by such a significant shareholder could have a materially greater adverse effect on the price for Shares (due to greater proportionate supply) following the completion of the Offer.

Shareholders may be able to sell non-tendered Shares in the future, on the NASDAQ or otherwise, at a price higher or lower than the Final Purchase Price. We can give no assurance, however, as to the price at which a shareholder may be able to sell such Shares in the future.

7

What is the accounting treatment of the Offer?

The accounting for the purchase of Shares pursuant to the Offer will result in a reduction in shareholders’ equity, which based on pro forma calculations for the quarterly period ended December 31, 2019, would change from approximately $738 million to approximately $318 million. See Section 5.

Following the Offer, will you continue as a public company?

Yes. We believe that the Shares will continue to be authorized for quotation on the NASDAQ and that we will continue to be subject to the periodic reporting requirements of the Exchange Act. See Section 2.

When and how will you pay me for the Shares I tender?

We will pay the Final Purchase Price to the seller, in cash, less applicable withholding taxes and without interest, for the Shares we purchase in the Offer promptly after the Expiration Date. We will announce the preliminary results of the Offer, including price and preliminary information about any expected proration, on the business day following the Expiration Date. We do not expect, however, to announce the final results of any proration or the Final Purchase Price and begin paying for tendered Shares until after the Expiration Date. We will pay for the Shares accepted for purchase by depositing the aggregate purchase price with the Depositary, promptly after the Expiration Date. The Depositary will act as your agent and will transmit to you the payment for all of your Shares accepted for payment. See Section 1 and Section 5.

If I am a holder of vested stock options, how do I participate in the Offer?

We are not offering to purchase any outstanding stock options as part of the Offer and any tenders of stock options will not be accepted. If you are a holder of vested options, you may exercise your vested options and tender any Shares issued upon such exercise. You must exercise your options sufficiently in advance of the Expiration Date to receive your Shares in order to tender. An exercise of an option cannot be revoked even if Shares received upon the exercise thereof and tendered in the Offer are not purchased in the Offer for any reason. See Section 3.

What is the recent market price of my Shares?

On January 13, 2020, the last full trading day before the commencement of the Offer, the last reported sale price of the Shares on the NASDAQ was $18.62 per Share. You are urged to obtain current market quotations for the Shares before deciding whether and at what purchase price or purchase prices to tender your Shares. See Section 8.

Will I have to pay brokerage commissions if I tender my Shares?

If you are a registered shareholder and you tender your Shares directly to the Depositary, you will not incur any brokerage commissions. If you hold Shares through a broker, dealer, commercial bank, trust company or other nominee, we urge you to consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any transaction costs are applicable. See the Introduction and Section 3.

Will I have to pay stock transfer tax if I tender my Shares?

No, British Columbia law does not impose any stock transfer tax.

I am a United States shareholder. What are the United States federal income tax consequences if I tender my Shares?

Generally, if you are a U.S. Holder (as defined in Section 14), your receipt of cash from us in exchange for the Shares you tender will be a taxable transaction for United States federal income tax purposes. The cash you receive for your tendered Shares will generally be treated for United States federal income tax purposes as consideration received either as a sale or exchange of the Shares or as a distribution in respect of the Shares, depending on your circumstances. Because we have been classified as a “passive foreign investment” company, or “PFIC”, for U.S. federal income tax purposes, any gain or dividend income recognized may be subject to special rules. See Section 14 for a more detailed discussion of the tax treatment of the Offer. We urge you to consult your own tax advisor as to the particular tax consequences to you of the Offer, including the applicability of any state, local, or non-U.S. tax laws.

8

I am a United States shareholder. What are the Canadian income tax consequences if I tender my Shares?

Generally, holders of Shares who are non-residents of Canada for Canadian income tax purposes will be deemed to receive a dividend in an amount equal to the excess, if any, of the amount paid by the Company for the Shares over the paid-up capital of such Shares. Any such deemed dividend will generally be subject to Canadian non-resident withholding tax at a rate of 25% unless the recipient is eligible for a reduced rate of withholding tax pursuant to the terms of an applicable income tax treaty. In order to benefit from a treaty-reduced withholding tax rate, holders of Shares who are non-residents of Canada will need to comply with the certification process set out in the Letter of Transmittal. We urge you to consult your own tax advisor as to the particular tax consequences to you of the Offer, including the applicability of any Canadian or other tax laws. See Section 14.

Who should I contact with questions about the Offer?

The Information Agent can help answer your questions. The Information Agent is D.F. King & Co., Inc. Their contact information is set forth below.

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor
New York, New York 10005
Banks and Brokers
Call:
(212) 269-5550
All Others Call: (866) 856-3065
Email:
xbit@dfking.com

9

Cautionary Statement Concerning Forward-Looking Statements

In addition to historical information, this Offer to Purchase and the information incorporated or deemed to be incorporated herein by reference contains forward-looking statements within the meaning of the Exchange Act and the Securities Act of 1933, as amended (the “Securities Act”). You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “could,” “expects,” “plans,” “contemplate,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “intend” or “continue” or the negative of such terms or other comparable terminology, although not all forward-looking statements in this Offer to Purchase and the information incorporated or deemed to be incorporated herein by reference contain these identifying words. Forward-looking statements are subject to inherent risks and uncertainties in predicting future results and conditions, and actual results may differ materially from those referred to in the forward-looking statements for various reasons, including the factors described under “Risk Factors” in this Offer to Purchase, and in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 14, 2019, as amended by Amendment No. 1 filed with the SEC on March 15, 2019, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which are incorporated herein by reference. The following factors, among others, could cause our actual results to differ materially from those described in the forward-looking statements:

our ability to complete the Offer;

our ability to recognize all of the anticipated benefits from the Janssen Transaction;

the initiation, timing, cost, progress and success of our research and development programs, preclinical studies and clinical trials for our product candidates;;

our ability to identify and advance next generation anti-IL-1a product candidates into clinical trials;

our ability to advance product candidates into, and successfully complete, clinical trials;

our ability to achieve profitability;

our ability to obtain further funding for our operations, including research funding;

our ability to identify additional new products using our True Human™ antibody discovery platform;

our ability to implement our business model and strategic plans;

our ability to continue to manufacture;

our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

our ability to meet expectations regarding federal, state and foreign regulatory requirements;

uncertainty regarding therapeutic benefits, effectiveness and safety of our product candidates;

the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our products and product candidates;

the rate and degree of market acceptance and clinical utility of antibody and future products, if any;

our expectations regarding market risk, including interest rate changes and foreign currency fluctuations;

our belief in the sufficiency of our cash flows to meet our needs for at least the next four to five years;

our expectations regarding the timing during which we will be an emerging growth company under the JOBS Act;

our ability to engage and retain the employees required to grow our business;

our future financial performance, projected expenditures and anticipated revenues;

developments relating to our competitors and our industry, including the success of competing therapies that are or become available; and

estimates of our expenses, future revenue, capital requirements and our needs for additional financing.

Except as required by law, we undertake no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Offer to Purchase. However, readers should carefully review the reports and documents we file or furnish from time to time with the SEC, particularly our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. For information about how to obtain a copy of these reports or other documents that we file with the SEC, see Section 11 in this Offer to Purchase.

10

Introduction

To the holders of our Shares:

We invite our shareholders to tender up to $420,000,000 in value of Shares for purchase by us at a price not greater than $33.00 nor less than $30.00 per Share, to the seller in cash, less any applicable withholding taxes and without interest, upon the terms and subject to the conditions described in this Offer to Purchase and in the related Letter of Transmittal, which together, as they may be amended or supplemented from time- to time, constitute the “Offer.”

Upon the terms and subject to the conditions of the Offer, we will determine a single per Share price that we will pay for Shares properly tendered and not properly withdrawn from the Offer, taking into account the total number of Shares tendered and the prices specified, or deemed specified, by tendering shareholders. We will select the lowest single purchase price, not greater than $33.00 nor less than $30.00 per Share, that will allow us to purchase $420,000,000 in value of Shares, or a lower amount depending on the number of Shares properly tendered and not properly withdrawn. We refer to the price we will select as the “Final Purchase Price.” We will acquire Shares in the Offer at the Final Purchase Price, on the terms and subject to the conditions of the Offer, including proration provisions.

We will only purchase Shares properly tendered at prices at or below the Final Purchase Price and not properly withdrawn. We may not purchase all of the Shares tendered at or below the Final Purchase Price because of proration (because Shares having an aggregate value greater than the value we seek are properly tendered), “Odd Lot” priority and conditional tender provisions described in this Offer to Purchase. Upon the terms and subject to the conditions of the Offer, if, based on the Final Purchase Price, Shares having an aggregate value of less than or equal to $420,000,000 are properly tendered and not properly withdrawn, we will buy all Shares properly tendered and not properly withdrawn. Shares not purchased in the Offer, including Shares tendered at prices in excess of the Final Purchase Price and Shares not purchased because of proration or conditional tender, will be returned to the tendering shareholders promptly after the Expiration Date. See Section 1.

We expressly reserve the right, in our sole discretion, to change the per Share purchase price range and to increase or decrease the value of Shares sought in the Offer, subject to applicable law. We may increase the value of Shares sought in the Offer to an amount greater than $420,000,000, subject to applicable law. See Section 1.

If you are a holder of vested options, you may exercise your vested options and tender any of the Shares issued upon exercise. You must exercise your options sufficiently in advance of the Expiration Date to receive your Shares in order to tender. An exercise of an option cannot be revoked even if Shares received upon the exercise thereof and tendered in the Offer are not purchased in the Offer for any reason.

THE OFFER IS NOT CONDITIONED ON THE RECEIPT OF FINANCING OR ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7.

OUR BOARD OF DIRECTORS HAS DELEGATED AUTHORITY TO CONSIDER THE OFFER TO AN INDEPENDENT COMMITTEE OF OUR BOARD OF DIRECTORS, WHICH CONSISTS SOLELY OF INDEPENDENT DIRECTORS WHO DO NOT HAVE A MATERIAL FINANCIAL INTEREST IN THE TRANSACTIONS DESCRIBED IN THIS OFFER TO PURCHASE, AND THE INDEPENDENT COMMITTEE HAS APPROVED THE OFFER AND AUTHORIZED US TO MAKE THE OFFER. HOWEVER, NONE OF THE COMPANY, THE MEMBERS OF OUR BOARD OF DIRECTORS (INCLUDING THE INDEPENDENT COMMITTEE), THE INFORMATION AGENT OR THE DEPOSITARY, MAKES ANY RECOMMENDATION TO YOU AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR SHARES OR AS TO THE PURCHASE PRICE OR PURCHASE PRICES AT WHICH YOU MAY CHOOSE TO TENDER YOUR SHARES. NEITHER WE NOR ANY MEMBER OF OUR BOARD OF DIRECTORS(INCLUDING THE INDEPENDENT COMMITTEE), THE INFORMATION AGENT OR THE DEPOSITARY HAS AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION WITH RESPECT TO THE OFFER. YOU MUST MAKE YOUR OWN DECISION AS TO WHETHER TO TENDER YOUR SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PURCHASE PRICE OR PURCHASE PRICES AT WHICH YOU WILL TENDER THEM. IN DOING SO, YOU SHOULD CONSULT YOUR OWN FINANCIAL AND TAX ADVISORS, AND READ CAREFULLY AND EVALUATE THE INFORMATION IN THIS OFFER TO PURCHASE AND IN THE RELATED LETTER OF TRANSMITTAL, INCLUDING OUR REASONS FOR MAKING THE OFFER.

11

SHAREHOLDERS SHOULD NOTE THAT THE PURCHASE PRICE RANGE (NO GREATER THAN $33.00 PER SHARE NOR LESS THAN $30.00 PER SHARE) REPRESENTS A SUBSTANTIAL PREMIUM OVER THE CLOSING SALE PRICE OF THE SHARES ($18.62 PER SHARE) AS REPORTED ON THE NASDAQ GLOBAL SELECT MARKET ON JANUARY 13, 2020, THE DAY BEFORE ANNOUNCEMENT OF THE OFFER. THE MARKET PRICE OF THE SHARES FOLLOWING CONSUMMATION OF THE OFFER IS EXPECTED TO BE LOWER THAN THE FINAL PURCHASE PRICE AND MAY BE LOWER THAN THE MARKET PRICE OF THE SHARES ON THE DATE BEFORE ANNOUNCEMENT OF THE OFFER. ACCORDINGLY, ANY SHARES NOT TENDERED PURSUANT TO THE OFFER AND ANY TENDERED SHARES NOT ACCEPTED FOR PAYMENT BY REASON OF PRORATION OR OTHERWISE, ARE EXPECTED TO HAVE A MARKET PRICE FOLLOWING CONSUMMATION OF THE OFFER THAT IS LOWER THAN THE FINAL PURCHASE PRICE AND MAY BE LOWER THAN THE MARKET PRICE OF THE SHARES ON THE DATE BEFORE ANNOUNCEMENT OF THE OFFER. IF THE MARKET PRICE FOR SHARES FOLLOWING CONSUMMATION OF THE OFFER IS BELOW THE FINAL PURCHASE PRICE, AS EXPECTED, SHAREHOLDERS CAN BE ASSURED OF MAXIMIZING THE VALUE OF THEIR HOLDINGS AFTER GIVING EFFECT TO CONSUMMATION OF THE OFFER (THE SUM OF THE MARKET PRICE OF THEIR SHARES FOLLOWING THE OFFER PLUS THE AMOUNT RECEIVED IN THE OFFER) ONLY BY TENDERING 100% OF THEIR SHARES.

We will pay all reasonable out-of-pocket fees and expenses incurred in connection with the Offer by the Information Agent and the Depositary. See Section 16.

As of January 13, 2020, we had 42,365,250 issued and outstanding Shares. As of January 13, 2020, an aggregate of approximately 415,476 Shares remained available for future awards under the 2015 Plan, further described in Section 12, and approximately 6,120,113 stock options were outstanding under the 2015 Plan and the Prior Plan (as defined below).

At the maximum Final Purchase Price of $33.00 per Share, we could purchase 12,727,272 Shares if the Offer is fully subscribed, which would represent approximately 30.04% of our issued and outstanding Shares as of January 13, 2020. At the minimum Final Purchase Price of $30.00 per Share, we could purchase 14,000,000 Shares if the Offer is fully subscribed, which would represent approximately 33.05% of our issued and outstanding Shares as of January 13, 2020. The Shares are listed and traded on the NASDAQ Global Select Market under the symbol “XBIT.” On January 13, 2020, the last full trading day prior to the commencement of the Offer, the last reported sale price of the Shares was $18.62 per Share. Shareholders are urged to obtain current market quotations for the Shares before deciding whether and at what purchase price or purchase prices to tender their Shares. See Section 8 and Section 12.

Our principal executive offices are located at 5217 Winnebago Lane, Austin, Texas 78744 and our phone number is (512) 386-2900.

12

The Offer

1. Number of Shares; Proration.

Upon the terms and subject to the conditions of the Offer, we will purchase up to $420,000,000 in value of Shares, or a lower amount depending on the number of Shares properly tendered and not properly withdrawn in accordance with Section 4 before the Expiration Date at a price not greater than $33.00 nor less than $30.00 per Share, to the seller in cash, less any applicable withholding taxes and without interest (such purchase price, as finally determined by us in accordance with the terms of the Offer, the “Final Purchase Price”). Upon the terms and subject to the conditions of the Offer, if, based on the Final Purchase Price, Shares having an aggregate value of less than or equal to $420,000,000 are properly tendered and not properly withdrawn, we will buy all Shares properly tendered and not properly withdrawn.

The term “Expiration Date” means 5:00 p.m., New York City time, on Wednesday, February 12, 2020, unless and until we, in our sole discretion, shall have extended the period of time during which the Offer will remain open, in which event the term “Expiration Date” shall refer to the latest time and date at which the Offer, as so extended by us, shall expire. See Section 15 for a description of our right to extend, delay, terminate or amend the Offer.

In accordance with Instruction 5 of the Letter of Transmittal, shareholders desiring to tender Shares must either (1) specify that they are willing to sell their Shares to us at the Final Purchase Price (which could result in the tendering shareholder receiving a purchase price per Share as low as $30.00) or (2) specify the price or prices, not greater than $33.00 nor less than $30.00 per Share, at which they are willing to sell their Shares to us under the Offer. Prices may be specified in multiples of $0.25. Promptly following the Expiration Date, we will determine the Final Purchase Price that we will pay for Shares properly tendered and not properly withdrawn, taking into account the number of Shares tendered and the prices specified, or deemed specified, by tendering shareholders. We will select the single lowest purchase price, not greater than $33.00 nor less than $30.00 per Share, that will allow us to purchase $420,000,000 in value of Shares, or a lower amount depending on the number of Shares properly tendered and not properly withdrawn. We will pay the Final Purchase Price for all Shares purchased in the Offer (less any applicable withholding taxes and without interest), but we will not purchase any Shares tendered at prices in excess of the Final Purchase Price.

If you specify that you are willing to sell your Shares to us at the Final Purchase Price (which could result in you receiving a purchase price per Share as low as $30.00), your Shares will be deemed to be tendered at the minimum price of $30.00 per Share for purposes of determining the Final Purchase Price. You should understand that this election may have the effect of lowering the Final Purchase Price and could result in your Shares being purchased at the minimum price of $30.00 per Share, a price that could be below the last reported sale price of the Shares on the NASDAQ on the Expiration Date.

We will announce the preliminary results of the Offer, including price and preliminary information about any expected proration, on the business day following the Expiration Date.

We will announce the Final Purchase Price by press release as promptly as practicable after such determination has been made. We do not expect, however, to announce the final results of any proration or the Final Purchase Price and begin paying for tendered Shares until after the Expiration Date. We will only purchase Shares properly tendered at prices at or below the Final Purchase Price and not properly withdrawn. We may not purchase all of the Shares tendered at or below the Final Purchase Price if, based on the Final Purchase Price, Shares representing more than $420,000,000 (or such greater number of Shares as we may choose to purchase without extending the Offer) are properly tendered and not properly withdrawn, because of proration, the “Odd Lot” priority and conditional tender provisions of the Offer. We will return all Shares tendered and not purchased pursuant to the Offer, including Shares tendered at prices in excess of the Final Purchase Price and Shares not purchased because of proration or conditional tenders, to the tendering shareholders at our expense, promptly following the Expiration Date.

By following the Instructions to the Letter of Transmittal, shareholders can specify different minimum prices for specified portions of their Shares, but a separate Letter of Transmittal must be submitted for Shares tendered at each price. Shareholders can also specify the order in which the specified portions will be purchased in the event that, as a result of proration or otherwise, some but not all of the tendered Shares are purchased pursuant to the Offer. In the event a shareholder does not designate such order and fewer than all Shares are purchased due to proration, the Depositary will select the order of Shares purchased.

We expressly reserve the right, in our sole discretion, to change the per Share purchase price range and to increase or decrease the value of Shares sought in the Offer, subject to applicable law. We may increase the value of Shares sought in the Offer to an amount greater than $420,000,000, subject to applicable law. In accordance with the rules of the SEC, we may increase the number of Shares accepted for payment in the Offer by no more than 2% of the outstanding Shares without extending the Offer. However, if we seek to purchase an additional number of Shares in excess of 2% of the outstanding Shares, we will amend and extend the Offer to the extent required by applicable law. See Section 15.

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In the event of an over-subscription of the Offer as described below, Shares tendered at or below the Final Purchase Price prior to the Expiration Date will be subject to proration, except for Odd Lots as described below. The proration period and withdrawal rights also expire on the Expiration Date.

THE OFFER IS NOT CONDITIONED ON THE RECEIPT OF FINANCING OR ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7.

Priority of Purchases. On the terms and subject to the conditions of the Offer, if, based on the Final Purchase Price, Shares having an aggregate value in excess of $420,000,000, (or such greater amount as we may elect to pay, subject to applicable law), have been properly tendered at prices at or below the Final Purchase Price and not properly withdrawn before the Expiration Date, we will purchase properly tendered Shares on the basis set forth below:

first, we will purchase all Odd Lots of less than 100 Shares at the Final Purchase Price from shareholders who properly tender all of their Shares at or below the Final Purchase Price and who do not properly withdraw them before the Expiration Date (tenders of less than all of the Shares owned, beneficially or of record, by such Odd Lot Holders will not qualify for this preference);

second, after purchasing all the Odd Lots that were properly tendered at or below the Final Purchase Price, subject to the conditional tender provisions described in Section 6, we will purchase all Shares properly tendered at or below the Final Purchase Price on a pro rata basis with appropriate adjustment to avoid purchases of fractional Shares; and

third, only if necessary to permit us to purchase $420,000,000, in value of Shares (or such greater amount as we may elect to pay, subject to applicable law), we will purchase Shares conditionally tendered (as described in Section 6) (for which the condition was not initially satisfied) at or below the Final Purchase Price, by random lot, to the extent feasible. To be eligible for purchase by random lot, shareholders whose Shares are conditionally tendered must have tendered all of their Shares.

As a result of the foregoing priorities applicable to the purchase of Shares tendered, it is possible that fewer than all Shares tendered by a shareholder will be purchased or that, if a tender is conditioned upon the purchase of a specified number of Shares, none of those Shares will be purchased even though those Shares were tendered at prices at or below the Final Purchase Price.

As we noted above, we may elect to purchase more than $420,000,000, in value of Shares in the Offer, subject to applicable law. If we do so, the preceding provisions will apply to the greater value.

Odd Lots. The term “Odd Lots” means all Shares tendered by any person (an “Odd Lot Holder”) who owned beneficially or of record an aggregate of fewer than 100 Shares and so certifies in the appropriate place on the Letter of Transmittal (if that person is a registered holder) and, if applicable, the Notice of Guaranteed Delivery. This preference is not available to partial tenders or beneficial or record holders of 100 or more Shares, even if such holders have separate accounts or certificates representing fewer than 100 Shares. Odd Lots will be accepted for payment at the same time as other tendered Shares.

Proration. If proration of tendered Shares is required, we will determine the proration factor promptly following the Expiration Date. Proration for each shareholder tendering Shares (excluding Odd Lot Holders) will be based on the ratio of the number of Shares properly tendered and not properly withdrawn by such shareholder to the total number of Shares properly tendered and not properly withdrawn by all shareholders (excluding Odd Lot Holders) at or below the Final Purchase Price, subject to the provisions governing conditional tenders described in Section 6 and adjustment to avoid the purchase of fractional Shares. Because of the time required to accurately determine the number of Shares properly tendered and not withdrawn, the conditional tender procedure described in Section 6 and the guaranteed delivery procedure described in Section 3, we expect that we will not be able to announce the final proration factor or commence payment for any Shares purchased pursuant to the Offer until after the Expiration Date. The preliminary results of any proration will be announced by press release as promptly as practicable after the Expiration Date. After the Expiration Date, shareholders may obtain preliminary proration information from the Information Agent and also may be able to obtain such information from their brokers.

As described in Section 14, the number of Shares that we will purchase from a shareholder pursuant to the Offer may affect the United States federal income tax consequences to the shareholder of the purchase and, therefore, may be relevant to a shareholder’s decision whether to tender Shares. The Letter of Transmittal affords each shareholder who tenders Shares registered in such shareholder’s name directly to the Depositary the opportunity to designate the order of priority in which Shares tendered are to be purchased in the event of proration as well as the ability to condition such tender on a minimum number of Shares being purchased.

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This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of the Shares and will be furnished to brokers, dealers, commercial banks, trust companies and other nominees and similar persons whose names, or the names of whose nominees, appear on our shareholder list or, if applicable, who are listed as participants in a clearing agency’s security position listing for subsequent transmittal to beneficial owners of Shares.

2. Background and Purpose of the Offer; Certain Effects of the Offer.

Background and Purpose of the Offer. The purpose of the Offer is to allow all shareholders an opportunity to sell a portion of their investment in XBiotech at a premium over recent stock prices and thereby receive a return of some or all of their investment in the Company if they so elect, while also permitting them the opportunity to retain a continuing equity interest in the Company.

The Offer also provides our shareholders with an efficient way to sell their Shares without incurring brokerage fees or commissions associated with open market sales, subject to the terms and conditions of the Offer, including proration (shareholders who hold Shares through nominees are urged to consult their nominees to determine whether transaction costs may apply if shareholders tender Shares through the nominees and not directly to the Depositary).

Conversely, the Offer affords shareholders the option not to participate and, thereby, to increase their relative percentage ownership interest in the Company and our future operations at no additional cost to them, if the Offer is completed. There can be no assurance that the Company will not issue additional shares and other equity securities in the future. Non-tendering shareholders will own a greater interest in a company with greater pro forma earnings per share than would otherwise have been the case, although XBiotech cannot assure you that it will achieve that earnings per share growth.

Furthermore, Odd Lot Holders who hold Shares registered in their names and tender their Shares directly to the Depositary and whose Shares are purchased in the Offer will avoid not only the payment of brokerage commissions but also any applicable Odd Lot discounts that might be payable on sales of their Shares in transactions on the NASDAQ.

The decision to pursue a tender offer came after review by the Board of Directors (the “Board”) of the Company’s strategic investment alternatives following the signing of the Janssen Transaction and an assessment by management of our cash requirements and its recommendation that the Board consider the possibility of returning excess cash to shareholders. See Section 9. The Board subsequently requested that an independent committee of the Board (the “Independent Committee”) advise the Board as to the most appropriate means for realizing its goals of returning value to shareholders at a premium and enhancing long-term value to shareholders.

After careful consideration, the Independent Committee concluded that a significant share repurchase would be the most appropriate use for excess cash from the Janssen Transaction, taking into account the interests of all the stakeholders of the Company. The Committee concluded that such a repurchase would demonstrate to the Company’s shareholders the Company’s confidence in its business, and would be the optimum way to distribute cash to those shareholders who wanted to receive cash for a portion of their Shares. The Independent Committee considered paying a special dividend on the Shares, a fixed price tender offer, and entering the market to repurchase the Company’s Shares as a means to return cash to shareholders. The Independent Committee, following its review of the alternatives, determined that a self-tender offer would be a more effective means for returning cash to the Company’s shareholders for a number of reasons, including that a tender structure could in the future result in an accretion in earnings per share for the remaining outstanding Shares after the tender relative to a special dividend. Furthermore, relative to a special dividend, the tender structure would allow any common shareholder who chose not to tender, but to retain his or her entire holding of Shares, and own a greater interest in the Company going forward. Therefore, the Independent Committee approved a self-tender offer for up to $420,000,000 in value of Shares at a cash purchase price not greater than $33.00 per Share or less than $30.00 per Share through the use of excess cash on hand.

In determining its recommendation as to the number of Shares to purchase in the Offer and the appropriate price range per share, the Independent Committee considered a broad range of factors. These include, but are not limited to, the following:

the amount of available cash and anticipated future cash needs for future operations, including additional drug discovery efforts and other research & development activities and other general corporate purposes following completion of the Offer;

attracting and retaining requisite scientific expertise and investor interest;

the excess cash held by the Company above its projected requirements for the next several years;

the potentially adverse tax consequences of retaining inactive cash resources above the Company’s projected requirements;

the extent of anticipated participation in the Offer by significant shareholders;

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trading volume in the Company’s Shares prior to the Offer and trading liquidity of the Company’s Shares following the Offer;

recent trading prices of the Company’s Shares, which ranged from a low of $4.78 to a high of $22.95 for the period from January 1, 2019, through January 13, 2020;

recent reports and analyses of a brokerage analyst concerning the price target for the Shares;

historical trading prices of the Company’s Shares over a twelve month period, which ranged from a low of $4.78 to a high of $11.74 for the first quarter of the fiscal year ended December 31, 2019, from a low of $6.76 to a high of $11.60 for the second quarter of the fiscal year ending December 31, 2019, from a low of $6.84 to a high of $10.70 for the third quarter for the fiscal year ending December 31, 2019; and from a low of $8.18 to a high of $22.95 for the fourth quarter for the fiscal year ending December 31, 2019;

recent trading activity;

the Company’s desire for future financial flexibility; and

the attractiveness of the Offer to XBiotech’s shareholders.

The Independent Committee also considered certain risks and uncertainties. These include, but are not limited to the following:

The accounting for the purchase of Shares pursuant to the Offer will result in a reduction in shareholders’ equity, which based on pro forma calculations for the quarterly period ended December 31, 2019, would change from approximately $738 million to approximately $318 million;

the possibility of lower stock prices and reduced liquidity in the trading of the Company’s Shares following completion of the Offer due to the reduction of our “public float” (the number of Shares owned by nonaffiliate shareholders and available for trading in the securities markets) or otherwise;

the reduction in our liquidity due to the cash paid out in the Offer;

the possibility that shareholders that do not tender into the Offer and thereby increase their proportionate holdings in the Company significantly may exercise their voting rights in a manner that is not aligned with the interests of other shareholders, or may have a materially greater adverse effect on the price for Shares if they decide to sell Shares following the completion of the Offer; and

potential unanticipated cash needs.

Following its review, the Independent Committee concluded that the interests of the Company and its shareholders, employees and other stakeholders are best served at this time by balancing the goals of returning excess capital to shareholders while preserving the Company’s ability to make the necessary investments in research and development, facilities, technology and people and develop its drug discovery, manufacturing and commercial capabilities that have the potential to expand its business and increase its market value. Accordingly, the Independent Committee approved the Offer on the terms reflected in this Offer to Purchase. Before the opening of business on January 14, 2020, the Company announced its intention to commence the Offer.

While the Company believes that the Offer is consistent with its corporate goal of increasing long-term shareholder value, actual experience may differ significantly from its expectations. Future events, such as the condition of the healthcare and pharmaceutical markets, regulatory developments, adverse research and development results, adverse effects on operations, or levels of capital and other expenditures, could have the effect of reducing the Company’s ability to meet its product development and business objectives, which could adversely affect revenue expectations, available cash or ability to maintain operations as anticipated. In addition, the Company is subject to certain risks described in its annual report on Form 10-K for the period ended December 31, 2018 filed with the SEC on March 14, 2019, as amended on March 15, 2019, and in its other reports filed with the SEC, which XBiotech encourages you to read.

Shareholders may be able to sell Shares which are not tendered, or tendered and not purchased in the Offer, in the future on the NASDAQ or otherwise, at a net price higher than the purchase price in the Offer. XBiotech can give no assurance, however, as to the price at which a shareholder may be able to sell his or her Shares in the future, which may be higher or lower than the purchase price paid by the Company in the Offer.

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Shares that XBiotech acquires in the Offer will immediately be canceled and restored to the status of authorized but unissued Shares and will be available for the Company to issue without further shareholder action (except as required by applicable law or stock exchange rules) for all purposes including, but not limited to, acquiring other businesses, raising additional capital and satisfying obligations under existing or future employee compensation plans. XBiotech has no current plans for the reissuance of Shares repurchased pursuant to the Offer, except pursuant to the 2015 Plan.

We believe that the Offer is an appropriate and prudent use of our financial resources and an efficient way to provide for shareholder return. Following the completion or termination of the Offer, we expressly reserve the absolute right, in our sole discretion from time to time in the future, to purchase Shares, whether or not any Shares are purchased pursuant to the Offer, through open market purchases, privately negotiated transactions, accelerated stock repurchases, tender offers, exchange offers or otherwise, upon the same terms or on terms that are more or less favorable to the selling shareholders in those transactions than the terms of the Offer. However, Rule 13e-4 under the Exchange Act generally prohibits us and our affiliates from purchasing any Shares, other than through the Offer, until at least ten business days after the expiration or termination of the Offer, except pursuant to certain limited exceptions provided in Rule 14e-5. Any possible future purchases by us will depend on many factors, including the market price of the Shares, the results of the Offer, our business and financial position and general economic and market conditions. We cannot assure you as to which, if any, of these alternatives, or combinations thereof, we might pursue.

The Offer will reduce our “public float” (the number of shares of our Shares owned by non-affiliated shareholders and available for trading in the securities markets), and is likely to reduce the number of our shareholders. These reductions may reduce the volume of trading in our shares and may result in lower stock prices and reduced liquidity in the trading of our shares following completion of the Offer.

As of January 13, 2020, there were 42,365,250 Shares issued and outstanding. Since the Final Purchase Price will only be determined after the Expiration Date, the number of Shares that will be purchased will not be known until after that time. At the maximum Final Purchase Price of $33.00 per Share, we could purchase 12,727,272 Shares if the Offer is fully subscribed, which would represent approximately 30.04% of our issued and outstanding Shares as of January 13, 2020. At the minimum Final Purchase Price of $30.00 per Share, we could purchase 14,000,000 Shares if the Offer is fully subscribed, which would represent approximately 33.05% of our issued and outstanding Shares as of January 13, 2020.

Certain Effects of the Offer. If we complete the Offer, shareholders who do not participate in the Offer will automatically increase their relative percentage ownership interest in us and our future operations. These shareholders will also continue to bear the risks associated with owning the Shares. Shareholders may be able to sell non-tendered Shares in the future on the NASDAQ or otherwise, at a net price significantly higher or lower than the Final Purchase Price in the Offer. We can give no assurance, however, as to the price at which a shareholder may be able to sell his or her Shares in the future.

Our Shares are currently “margin securities” under the rules of the Federal Reserve Board. This has the effect, among other things, of allowing brokers to extend credit to their customers using such shares as collateral. We believe that, following the purchase of shares pursuant to the Offer, our Shares will continue to be “margin securities” for purposes of the Federal Reserve Board’s margin rules and regulations.

The Offer is conditioned upon, among other things, our having determined that the consummation of the Offer will not cause our Shares to be delisted from the NASDAQ or be eligible for deregistration under the Exchange Act. See Section 7.

We anticipate that there will be a sufficient number of Shares outstanding and publicly traded following completion of the Offer to ensure a continued trading market for the Shares. Based upon published guidelines of the NASDAQ and the conditions of the Offer, we do not believe that our purchase of Shares under the Offer will cause our remaining outstanding Shares to be delisted from the NASDAQ. The Shares are registered under the Exchange Act, which requires, among other things, that we furnish certain information to our shareholders and comply with proxy rules in connection with meetings of our shareholders. We believe that our purchase of Shares under the Offer will not result in the Shares becoming eligible for deregistration under the Exchange Act.

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Our directors and executive officers are entitled to participate in the Offer on the same basis as all other shareholders. The Affiliate Holders, who include consist of John Simard, a director and our Chief Executive Officer; Sushma Shivaswamy, our Chief Scientific Officer; Queena Han, our Vice President, Finance and Human Resources and Secretary; and W. Thorpe McKenzie, a member of our Board of Directors, have advised us that, although no final decision has been made, they may tender up to 6,327,060, 47,538, 70,000 and 4,557,839 Shares, respectively, that they beneficially own in the Offer. The Affiliate Holders beneficially owned an aggregate of 16,295,181 Shares as of January 13, 2020, representing approximately 38.46% of our outstanding Shares as of January 13, 2020 (for beneficial ownership disclaimed by the Affiliate Holders, see Section 12). Assuming that the Affiliate Holders tender the 11,002,437 Shares referred to above and all such Shares are purchased in the Offer, the Affiliate Holders will beneficially own an aggregate of 5,292,744 Shares immediately following the Offer. All of our other directors have advised us that they do not intend to tender any of their Shares in the Offer, and we are not aware of the intentions of our other 5% shareholders with respect to the Offer. There can be no assurance that the persons described above will in fact tender or sell the number of shares indicated, nor can there be any assurance that other directors or other affiliates of the Company will not decide to tender or sell shares. If the Affiliate Holders properly tender Shares in the Offer, the Affiliate Holders’ tenders could influence the price at which all of the Shares accepted for payment are purchased. It is anticipated that as a result of the expected high level of participation and the resulting proration, the proportional beneficial ownership of the Company will not change significantly as a result of the Offer.

OUR BOARD OF DIRECTORS HAS DELEGATED AUTHORITY TO CONSIDER THE OFFER TO AN INDEPENDENT COMMITTEE OF OUR BOARD OF DIRECTORS, WHICH CONSISTS SOLELY OF INDEPENDENT DIRECTORS WHO DO NOT HAVE A MATERIAL FINANCIAL INTEREST IN THE TRANSACTIONS DESCRIBED IN THIS OFFER TO PURCHASE, AND THE INDEPENDENT COMMITTEE HAS APPROVED THE OFFER AND AUTHORIZED US TO MAKE THE OFFER. HOWEVER, NONE OF THE COMPANY, THE MEMBERS OF OUR BOARD OF DIRECTORS (INCLUDING THE INDEPENDENT COMMITTEE), THE INFORMATION AGENT OR THE DEPOSITARY, MAKES ANY RECOMMENDATION TO YOU AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR SHARES OR AS TO THE PURCHASE PRICE OR PURCHASE PRICES AT WHICH YOU MAY CHOOSE TO TENDER YOUR SHARES. NEITHER WE NOR ANY MEMBER OF OUR BOARD OF DIRECTORS (INCLUDING THE INDEPENDENT COMMITTEE), THE INFORMATION AGENT OR THE DEPOSITARY HAS AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION WITH RESPECT TO THE OFFER. YOU MUST MAKE YOUR OWN DECISION AS TO WHETHER TO TENDER YOUR SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PURCHASE PRICE OR PURCHASE PRICES AT WHICH YOU WILL TENDER THEM. IN DOING SO, YOU SHOULD CONSULT YOUR OWN FINANCIAL AND TAX ADVISORS, AND READ CAREFULLY AND EVALUATE THE INFORMATION IN THIS OFFER TO PURCHASE AND IN THE RELATED LETTER OF TRANSMITTAL, INCLUDING OUR REASONS FOR MAKING THE OFFER.

SHAREHOLDERS SHOULD NOTE THAT THE PURCHASE PRICE RANGE (NO GREATER THAN $33.00 PER SHARE NOR LESS THAN $30.00 PER SHARE) REPRESENTS A SUBSTANTIAL PREMIUM OVER THE CLOSING SALE PRICE OF THE SHARES ($18.62 PER SHARE) AS REPORTED ON THE NASDAQ GLOBAL SELECT MARKET ON JANUARY 13, 2020, THE DAY BEFORE ANNOUNCEMENT OF THE OFFER. THE MARKET PRICE OF THE SHARES FOLLOWING CONSUMMATION OF THE OFFER IS EXPECTED TO BE LOWER THAN THE FINAL PURCHASE PRICE AND MAY BE LOWER THAN THE MARKET PRICE OF THE SHARES ON THE DATE BEFORE ANNOUNCEMENT OF THE OFFER. ACCORDINGLY, ANY SHARES NOT TENDERED PURSUANT TO THE OFFER AND ANY TENDERED SHARES NOT ACCEPTED FOR PAYMENT BY REASON OF PRORATION OR OTHERWISE, ARE EXPECTED TO HAVE A MARKET PRICE FOLLOWING CONSUMMATION OF THE OFFER THAT IS LOWER THAN THE FINAL PURCHASE PRICE AND MAY BE LOWER THAN THE MARKET PRICE OF THE SHARES ON THE DATE BEFORE ANNOUNCEMENT OF THE OFFER. IF THE MARKET PRICE FOR SHARES FOLLOWING CONSUMMATION OF THE OFFER IS BELOW THE FINAL PURCHASE PRICE, AS EXPECTED, SHAREHOLDERS CAN BE ASSURED OF MAXIMIZING THE VALUE OF THEIR HOLDINGS AFTER GIVING EFFECT TO CONSUMMATION OF THE OFFER (THE SUM OF THE MARKET PRICE OF THEIR SHARES FOLLOWING THE OFFER PLUS THE AMOUNT RECEIVED IN THE OFFER) ONLY BY TENDERING 100% OF THEIR SHARES.

We intend to cancel the Shares we acquire pursuant to the Offer. Such Shares will return to the status of authorized and unissued shares and will be available to us to issue without further shareholder action for all purposes except as required by applicable law or the rules of the NASDAQ.

The accounting for the purchase of Shares pursuant to the Offer will result in a reduction in shareholders’ equity, which based on pro forma calculations for the quarterly period ended December 31, 2019, would change from approximately $738 million to approximately $318 million. See Section 5.

Plans and Proposals. Except as disclosed or incorporated by reference in this Offer to Purchase, we have no current plans, proposals or negotiations that relate to or would result in:

any extraordinary transaction, such as a merger, reorganization or liquidation, involving us or any of our subsidiaries (other than internal reorganization transactions with respect to our subsidiaries);

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any purchase, sale or transfer of an amount of our assets or any of our subsidiaries’ assets which is material to us and our subsidiaries, taken as a whole;

any material change in our present dividend policy, our indebtedness or capitalization;

any change in our present Board of Directors or management or any plans or proposals to change the number or the terms of directors (although we may fill vacancies arising on the Board of Directors) or to change any material term of the employment contract of any executive officer;

any material change in our corporate structure or business;

any class of our equity securities becoming delisted from the NASDAQ, or ceasing to be authorized to be quoted on the NASDAQ;

any class of our equity securities becoming eligible for termination of registration under Section 12(g)(4) of the Exchange Act;

the termination or suspension of our obligation to file reports under 15(d) of the Exchange Act;

the acquisition or disposition by any person of our securities, other than the grant of stock options to directors, officers and employees in the ordinary course of business, the issuance of Shares upon the vesting or exercise thereof and the retention of our securities by the Company from employees or directors to satisfy tax withholding obligations upon vesting or exercise of any such equity awards; or

any changes in our charter, bylaws or other governing instruments or other actions that could impede the acquisition of control of us.

Nothing in the Offer will preclude us from considering any of the foregoing events or pursuing, developing or engaging in future plans, proposals or negotiations that relate to or would result in one or more of the foregoing events, subject to applicable law, and we reserve the right to do so. Although we may not have any current plans, other than as disclosed or incorporated by reference in this Offer to Purchase, that relate to or would result in any of the events discussed above, we consider from time to time, and may undertake or plan actions that relate to or could result in, one or more of these events. Shareholders tendering Shares in the Offer may run the risk of foregoing the benefit of any appreciation in the market price of the Shares resulting from such potential future events.

3. Procedures for Tendering Shares.

Proper Tender of Shares. For Shares to be properly tendered pursuant to the Offer, the certificates for such Shares (or confirmation of receipt of such Shares pursuant to the procedure for book-entry transfer set forth below), together with a properly completed and duly executed Letter of Transmittal, including any required signature guarantees, or an “Agent’s Message” (as defined below), and any other documents required by the Letter of Transmittal, must be received before 5:00 p.m., New York City time, on Wednesday, February 12, 2020, by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Beneficial owners should be aware that their broker, dealer, commercial bank, trust company or other nominee may establish its own earlier deadlines for participation in the Offer. Accordingly, beneficial owners wishing to participate in the Offer should contact their broker, dealer, commercial bank, trust company or other nominee as soon as possible in order to determine the times by which such owner must take action in order to participate in the Offer.

In the alternative, the tendering shareholder must, before the Expiration Date, comply with the guaranteed delivery procedure described below.

In accordance with Instruction 5 of the Letter of Transmittal, each shareholder desiring to tender Shares under the Offer must complete the section captioned “Price (In Dollars) Per Share At Which Shares Are Being Tendered” by either (1) checking the box in the section entitled “Shares Tendered At Price Determined Under The Offer” or (2) checking one of the boxes in the section entitled “Shares Tendered At Price Determined By Shareholder,” indicating the price at which Shares are being tendered.

Shareholders who desire to tender Shares at more than one price must complete a separate Letter of Transmittal for each price at which Shares are tendered, provided that the same Shares cannot be tendered (unless properly withdrawn previously in accordance with Section 4) at more than one price. To tender Shares properly, one and only one box must be checked in the section captioned “Price (In Dollars) Per Share At Which Shares Are Being Tendered” in the Letter of Transmittal.

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If tendering shareholders wish to maximize the chance that we will purchase their Shares, they should check the box in the section entitled “Shares Tendered At Price Determined Under The Offer” in the Letter of Transmittal under the section captioned “Price (In Dollars) Per Share At Which Shares Are Being Tendered.” If you agree to accept the purchase price determined in the Offer, your Shares will be deemed to be tendered at the minimum price of $30.00 per Share for purposes of determining the Final Purchase Price. Note that this election may have the effect of lowering the Final Purchase Price and could result in the tendered Shares being purchased at the minimum price of $30.00 per Share. If tendering shareholders wish to indicate a specific price (in multiples of $0.25) at which their Shares are being tendered, they must check the appropriate box in the section entitled “Shares Tendered At Price Determined By Shareholder” in the section captioned “Price (In Dollars) Per Share At Which Shares Are Being Tendered” in the Letter of Transmittal. Tendering shareholders should be aware that this election could mean that none of their Shares will be purchased if they check a box other than the box representing the price at or below the Final Purchase Price.

Shareholders holding their Shares through a broker, dealer, commercial bank, trust company or other nominee must contact the nominee in order to tender their Shares. Shareholders who hold Shares through nominees are urged to consult their nominees to determine whether transaction costs may apply if shareholders tender Shares through the nominees and not directly to the Depositary.

Shareholders may tender Shares subject to the condition that all, or a specified minimum number of Shares, be purchased. Any shareholder desiring to make such a conditional tender should so indicate in the box entitled “Conditional Tender” in the Letter of Transmittal. See Section 6. It is the tendering shareholder’s responsibility to determine the minimum number of Shares to be purchased. Shareholders should consult their own financial and tax advisors with respect to the effect of proration of the Offer and the advisability of making a conditional tender. See Section 6 and Section 14.

Signature Guarantees and Method of Delivery. No signature guarantee is required if:

the Letter of Transmittal is signed by the registered holder of the Shares (which term, for purposes of this Section 3, will include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of the Shares) tendered and such holder has not completed either the section entitled “Special Payment Instructions” or the section entitled “Special Delivery Instructions” in the Letter of Transmittal; or

Shares are tendered for the account of a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or an “eligible guarantor institution,” as the term is defined in Exchange Act Rule 17Ad-15, each of the foregoing constituting an “Eligible Institution.” See Instruction 1 of the Letter of Transmittal.

If a certificate for Shares is registered in the name of a person other than the person executing the Letter of Transmittal, or if payment is to be made, or new certificates for Shares not purchased or tendered are to be issued, to a person other than the registered holder, then the certificate must be endorsed or accompanied by an appropriate stock power, signed in either case exactly as the name of the registered holder appears on the certificate, with the signature guaranteed by an Eligible Institution.

Payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of:

one of (a) certificates for the Shares or (b) a timely confirmation of the book-entry transfer of the Shares into the Depositary’s account at the Book-Entry Transfer Facility as described below;

one of (a) a properly completed and duly executed Letter of Transmittal, including any required signature guarantees or (b) an Agent’s Message (as defined below) in the case of a book-entry transfer; and

any other documents required by the Letter of Transmittal.

Odd Lot Holders who tender all of their Shares must also complete the section captioned “Odd Lots” in the Letter of Transmittal (if that person is a registered holder) and, if applicable, in the Notice of Guaranteed Delivery, to qualify for the priority treatment available to Odd Lot Holders as set forth in Section 1.

The method of delivery of all documents, including certificates for Shares, the Letter of Transmittal and any other required documents, is at the sole election and risk of the tendering shareholder. If delivery is by mail, then registered mail with return receipt requested, properly insured, is recommended. Shares will be deemed delivered only when actually received by the Depositary (including, in the case of a book-entry transfer, by book-entry confirmation). In all cases, sufficient time should be allowed to ensure timely delivery.

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All deliveries in connection with the Offer, including a Letter of Transmittal and certificates for Shares, must be made to the Depositary and not to us, the Information Agent or the Book-Entry Transfer Facility. ANY DOCUMENTS DELIVERED TO US, THE INFORMATION AGENT OR THE BOOK-ENTRY TRANSFER FACILITY WILL NOT BE FORWARDED TO THE DEPOSITARY AND WILL NOT BE DEEMED TO BE PROPERLY TENDERED.

Book-Entry Delivery. The Depositary will establish an account with respect to the Shares for purposes of the Offer at the Book-Entry Transfer Facility within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the Book-Entry Transfer Facility’s system may make book-entry delivery of the Shares by means of a book-entry transfer by causing the Book-Entry Transfer Facility to transfer Shares into the Depositary’s account in accordance with the Book-Entry Transfer Facility’s procedures for transfer. Although delivery of Shares may be effected through a book-entry transfer into the Depositary’s account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal, including any required signature guarantees, or an Agent’s Message, and any other required documents must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase before the Expiration Date, or the tendering shareholder must comply with the guaranteed delivery procedure described below. Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary.

The term “Agent’s Message” means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that we may enforce such agreement against the participant.

Guaranteed Delivery. If you wish to tender Shares in the Offer and your certificates for Shares are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, your tender may be effected if all the following conditions are met:

your tender is made by or through an Eligible Institution;

a properly completed and duly executed Notice of Guaranteed Delivery in the form we have provided is received by the Depositary, as provided below, prior to the Expiration Date; and

the Depositary receives at the address listed on the back cover of this Offer to Purchase and within the period of two NASDAQ trading days after the date of execution of that Notice of Guaranteed Delivery, either: (i) the certificates representing the Shares being tendered, in the proper form for transfer, together with all other required documents and a Letter of Transmittal, which has been properly completed and duly executed and includes all signature guarantees required; or (ii) confirmation of book-entry transfer of the Shares into the Depositary’s account at the Book-Entry Transfer Facility, together with all other required documents and either a Letter of Transmittal, which has been properly completed and duly executed and includes all signature guarantees required, or an Agent’s Message.

A Notice of Guaranteed Delivery must be delivered to the Depositary by overnight courier, or mail before the Expiration Date and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery.

The Notice of Guaranteed Delivery form is filed as an exhibit to the Schedule TO. Copies of the form may also be obtained from the Information Agent, who may be contacted at any of its telephone numbers listed on the back cover of this Offer to Purchase.

If you hold Shares through a broker, dealer, commercial bank, trust company or similar institution, that institution must tender your Shares on your behalf. The Book-Entry Transfer Facility is expected to remain open until 5:00 p.m., New York City time, on the Expiration Date and institutions may be able to process tenders for our Shares through the Book-Entry Transfer Facility during that time (although there is no assurance that this will be the case). If you hold Shares through a broker, dealer, commercial bank, trust company or similar institution, that institution must submit any Notice of Guaranteed Delivery on your behalf. It will generally not be possible to direct such an institution to submit a Notice of Guaranteed Delivery once that institution has closed for the day. You should consult with such institution on the procedures that must be complied with and the time by which such procedures must be completed to ensure that the institution has ample time to submit a Notice of Guaranteed Delivery on your behalf prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, any such institution, if it is not an eligible institution, will need to obtain a Medallion guarantee from an eligible institution in the form set forth in the applicable Notice of Guaranteed Delivery in connection with the delivery of those Shares.

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As described above, once the Notice of Guaranteed Delivery is delivered, which must occur prior to 5:00 p.m., New York City time, on the Expiration Date, you or your institution will have two (2) NASDAQ trading days following such delivery to meet the conditions described above in order to effect the tender of your Shares. Therefore, the earliest your tender could be effected is at 8:00 a.m., New York City time, on the next NASDAQ trading day when the Book-Entry Transfer Facility reopens, assuming all such conditions have been met. The form of Notice of Guaranteed Delivery can be obtained from the Information Agent at the address or telephone number set forth on the back cover of this Offer to Purchase.

Procedures for Stock Options. We are not offering, as part of the Offer, to purchase any outstanding stock options, and tenders of stock options will not be accepted. Holders of vested stock options may exercise options and tender the Shares received upon exercise into the Offer. Options must be exercised sufficiently in advance of the Expiration Date in order to have time for the exercise to settle before the Shares received upon exercise of the options may be tendered. An exercise of an option cannot be revoked even if Shares received upon the exercise thereof and tendered in the Offer are not purchased in the Offer for any reason.

If you are a holder of vested but unexercised options, you should evaluate this Offer to Purchase carefully to determine if participation would be advantageous to you, based on the exercise prices of your stock options, the date of your stock option grants, the remaining term in which you may exercise your options and the provisions for prorated purchases described in Section 1.

Return of Unpurchased Shares. If any properly tendered Shares are not purchased under the Offer or are properly withdrawn before the Expiration Date, or if less than all Shares evidenced by a shareholder’s certificate(s) are tendered, we will credit the certificates to book-entry for unpurchased Shares promptly after the expiration or termination of the Offer or, in the case of Shares tendered by book-entry transfer at the Book-Entry Transfer Facility, the Shares will be credited to the appropriate account maintained by the tendering shareholder at the Book-Entry Transfer Facility, in each case without expense to the shareholder.

Determination of Validity; Rejection of Shares; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the number of Shares to be accepted, the Final Purchase Price to be paid for Shares to be accepted and the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by us, in our sole discretion, and our determination will be final and binding on all parties absent a finding to the contrary by a court of competent jurisdiction. We reserve the absolute right to reject any or all tenders of any Shares that we determine are not in proper form or the acceptance for payment of or payment for which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any of the conditions of the Offer on or prior to the Expiration Date, or any defect or irregularity in any tender with respect to any particular Shares or any particular shareholder (whether or not we waive similar defects or irregularities in the case of other shareholders), and our interpretation of the terms of the Offer will be final and binding on all parties absent a finding to the contrary by a court of competent jurisdiction. In the event a condition of the Offer is waived with respect to any particular shareholder, the same condition will be waived with respect to all shareholders. No tender of Shares will be deemed to have been properly made until all defects or irregularities have been cured by the tendering shareholder or waived by us. We will not be liable for failure to waive any condition of the Offer, or any defect or irregularity in any tender of Shares. None of the Company, nor the Depositary, the Information Agent or any other person will be obligated to give notice of any defects or irregularities in tenders, nor will any of the foregoing incur any liability for failure to give such notification.

Tendering Shareholder’s Representation and Warranty; Our Acceptance Constitutes an Agreement. It is a violation of Exchange Act Rule 14e-4 for a person, directly or indirectly, to tender Shares for that person’s own account unless, at the time of tender and at the end of the proration period or period during which Shares are accepted by lot (including any extensions of such period), the person so tendering (1) has a “net long position” equal to or greater than the amount of Shares tendered in (a) Shares or (b) other securities convertible into or exchangeable or exercisable for Shares and, upon acceptance of the tender, will acquire the Shares by conversion, exchange or exercise and (2) will deliver or cause to be delivered the Shares in accordance with the terms of the Offer. Rule 14e-4 also provides a similar restriction applicable to a tender on behalf of another person.

A tender of Shares in accordance with any of the procedures described above will constitute the tendering shareholder’s acceptance of the terms and conditions of the Offer, as well as the tendering shareholder’s representation and warranty to us that (1) the shareholder has a “net long position,” within the meaning of Rule 14e-4 promulgated under the Exchange Act, in the Shares or equivalent securities at least equal to the Shares being tendered, and (2) the tender of Shares complies with Rule 14e-4. Our acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering shareholder and us on the terms and subject to the conditions of the Offer, which agreement will be governed by, and construed in accordance with, the laws of the State of New York.

A tender of Shares made pursuant to any method of delivery set forth herein will also constitute a representation and warranty to us that the tendering shareholder has full power and authority to tender, sell, assign and transfer the Shares tendered, and that, when the same are accepted for purchase by us, we will acquire good, marketable and unencumbered title thereto, free and clear of all security interests, liens, restrictions, claims, encumbrances and other obligations relating to the sale or transfer of the Shares, and the same will not be subject to any adverse claim or right.

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Any such tendering shareholder will, on request by the Depositary or us, execute and deliver any additional documents deemed by the Depositary or us to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered, all in accordance with the terms of the Offer.

All authority conferred or agreed to be conferred by delivery of the Letter of Transmittal shall be binding on the successors, assigns, heirs, personal representatives, executors, administrators and other legal representatives of the tendering shareholder and shall not be affected by, and shall survive, the death or incapacity of such tendering shareholder.

Lost or Destroyed Certificates. Shareholders whose certificates for part or all of their Shares have been lost, destroyed or stolen may contact American Stock Transfer & Trust Co., LLC, the Depositary and transfer agent for the Shares, at the toll-free number (877) 248-6417 or at the address set forth on the back cover of this Offer to Purchase for instructions to obtain a replacement certificate. That certificate will then be required to be submitted together with the Letter of Transmittal in order to receive payment for Shares that are tendered and accepted for payment. A bond may be required to be posted by the shareholder to secure against the risk that the certificates may be subsequently recirculated. The Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. Shareholders are requested to contact the Depositary immediately in order to permit timely processing of this documentation. Certificates for Shares, together with a properly completed Letter of Transmittal (including required tax certifications) and any other documents required by the Letter of Transmittal, must be delivered to the Depositary and not to us or the Information Agent. Any certificates delivered to us or the Information Agent will not be forwarded to the Depositary and will not be deemed to be properly tendered.

Information Reporting and Backup Withholding. Payments made to shareholders in the Offer may be reported to the IRS. In addition, under the United States federal income tax laws, backup withholding at the statutory rate (currently 24%) may apply to the amount paid to certain shareholders (who are not “exempt” recipients) pursuant to the Offer. To prevent such backup United States federal income tax withholding, each non-corporate shareholder who is a U.S. Holder (as defined in Section 14) and who does not otherwise establish an exemption from backup withholding must notify the Depositary or other applicable withholding agent of the shareholder’s taxpayer identification number (employer identification number or social security number) and provide certain other information by completing, under penalties of perjury, an IRS Form W-9, a copy of which is included in the Letter of Transmittal. Failure to timely provide the correct taxpayer identification number on the IRS Form W-9 may subject the shareholder to a $50 penalty imposed by the IRS.

Certain “exempt” recipients (including, among others, generally all corporations and certain non-U.S. Holders (as defined in Section 14)) are not subject to these backup withholding requirements. For a non-U.S. Holder to qualify for such exemption, such non-U.S. Holder must submit a statement (generally, an IRS Form W-8BEN or W-8BEN-E or other applicable Form W-8), signed under penalties of perjury, attesting to such non-U.S. Holder’s exempt status. A copy of the appropriate IRS Form W-8 may be obtained from the Depositary or from the IRS website (www.irs.gov). A disregarded domestic entity that has a regarded foreign owner must use the appropriate IRS Form W-8, and not the IRS Form W-9. See Instruction 10 to the Letter of Transmittal.

Backup withholding is not an additional tax. Taxpayers may use amounts withheld as a credit against their United States federal income tax liability or may claim a refund of such amounts if they timely provide certain required information to the IRS.

Shareholders should consult their own tax advisors regarding the application of backup withholding to their particular circumstances and the availability of, and procedure for obtaining, an exemption from backup withholding.

4. Withdrawal Rights.

Except as otherwise provided in this Section 4, tenders of Shares pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time before the Expiration Date. Shares that have not previously been accepted by us for payment may be withdrawn at any time after 5:00 p.m., New York City time, on March 12, 2020.

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If you are a registered holder of Shares, for a withdrawal to be effective, a notice of withdrawal must be in written form and must be received in a timely manner by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the tendering shareholder; the number of Shares to be withdrawn; and the name of the registered holder of the Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, before the release of the certificates, the tendering shareholder must also submit the serial numbers shown on the particular certificates for Shares to be withdrawn and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (except in the case of Shares tendered for the account of an Eligible Institution). If Shares have been tendered pursuant to the procedure for book-entry transfer described in Section 3, the notice of withdrawal also must specify the name and the number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and must otherwise comply with the Book-Entry Transfer Facility’s procedures. If a shareholder has used more than one Letter of Transmittal or has otherwise tendered Shares in more than one group of Shares, the shareholder may withdraw Shares using either separate notices of withdrawal or a combined notice of withdrawal, so long as the information specified above is included.

If you hold Shares through a broker, dealer, commercial bank, trust company or similar institution, you should consult that institution on the procedures you must comply with and the time by which such procedures must be completed in order for that institution to provide a written notice of withdrawal.

We will determine all questions as to the form and validity, including the time of receipt, of any notice of withdrawal, in our sole discretion, which determination will be final and binding on all parties absent a finding to the contrary by a court of competent jurisdiction. Neither we nor the Depositary, the Information Agent or any other person will be obligated to give notice of any defects or irregularities in any notice of withdrawal, nor will any of the foregoing incur liability for failure to give any such notification. Withdrawals may not be rescinded, and any Shares properly withdrawn will be deemed not properly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered before the Expiration Date by again following one of the procedures described in Section 3.

If we extend the Offer, are delayed in our purchase of Shares or are unable to purchase Shares pursuant to the Offer for any reason, then, without prejudice to our rights under the Offer, the Depositary may, subject to applicable law, retain tendered Shares on our behalf, and the Shares may not be withdrawn except to the extent tendering shareholders are entitled to withdrawal rights as described in this Section 4. Our reservation of the right to delay payment for Shares that we have accepted for payment is limited by Exchange Act Rule 13e-4(f)(5), which requires that we must pay the consideration offered or return the Shares tendered promptly after termination or withdrawal of the Offer.

If you hold Shares through a broker, dealer, commercial bank, trust company or similar institution, any notice of withdrawal must be delivered by that institution on your behalf. The Book-Entry Transfer Facility is expected to remain open until 5:00 p.m., New York City time, on the Expiration Date and institutions may be able to process withdrawals of Shares through the Book-Entry Transfer Facility during that time (although there can be no assurance that this will be the case). It will generally not be possible to direct such an institution to submit a written notice of withdrawal once that institution has closed for the day. You should consult with such institution on the procedures that must be complied with and the time by which such procedures must be completed to ensure that the institution has ample time to submit a written notice of withdrawal on your behalf prior to 5:00 p.m., New York City time, on the Expiration Date. Such notice of withdrawal must be in the form of the Book-Entry Transfer Facility’s notice of withdrawal, must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and must otherwise comply with the Book-Entry Transfer Facility’s procedures. Shares can be properly withdrawn only if the Depositary receives a written notice of withdrawal directly from the relevant institution that tendered the Shares through the Book-Entry Transfer Facility.

5. Purchase of Shares and Payment of Purchase Price.

Upon the terms and subject to the conditions of the Offer, promptly following the Expiration Date, we will:

determine the Final Purchase Price, taking into account the number of Shares so tendered and the prices specified, or deemed specified, by tendering shareholders; and

accept for payment and pay for (and thereby purchase) Shares properly tendered at prices at or below the Final Purchase Price and not properly withdrawn. We intend to purchase Shares having an aggregate value of up to $420,000,000 and may increase the number of Shares accepted for payment in the Offer by no more than 2% of the outstanding Shares without extending the Offer.

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For purposes of the Offer, we will be deemed to have accepted for payment (and therefore purchased), subject to proration, “Odd Lot” priority and conditional tender provisions of the Offer, Shares that are properly tendered at or below the Final Purchase Price and not properly withdrawn only when, as and if we give oral or written notice to the Depositary of our acceptance of the Shares for payment pursuant to the Offer.

Upon the terms and subject to the conditions of the Offer, promptly after the Expiration Date, we will accept for payment and pay a single per Share purchase price for all of the Shares accepted for payment in accordance with the Offer. In all cases, payment for Shares tendered and accepted for payment in accordance with the Offer will be made promptly, subject to possible delay due to proration, but only after timely receipt by the Depositary of:

certificates for Shares or a timely confirmation of a book-entry transfer of Shares into the Depositary’s account at the Book-Entry Transfer Facility;

a properly completed and duly executed Letter of Transmittal or an Agent’s Message in the case of book-entry transfer; and

any other documents required.

We will pay for Shares purchased pursuant to the Offer by depositing the aggregate purchase price for the Shares with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payment from us and transmitting payment to the tendering shareholders. In the event of proration, the Depositary will determine the proration factor and pay for those tendered Shares accepted for payment promptly after the Expiration Date. Certificates for all Shares tendered and not purchased, including all Shares tendered at prices in excess of the Final Purchase Price and Shares not purchased due to proration or conditional tenders, will be credited to book-entry with the Depositary, and, in the case of Shares tendered by book-entry transfer, will be credited to the account maintained with the Book-Entry Transfer Facility by the participant who delivered the Shares, to the tendering shareholder promptly after the expiration or termination of the Offer at our expense.

Under no circumstances will interest be paid on the Final Purchase Price for the Shares, regardless of any delay in making payment. In addition, if certain events occur, we may not be obligated to purchase Shares pursuant to the Offer. See Section 7.

There will be no stock transfer taxes payable on the transfer to us of Shares purchased pursuant to the Offer, as British Columbia law does not impose any such taxes. See Instruction 7 of the Letter of Transmittal.

Other Terms

We will publicly announce the “specified amount” in respect of each Share for the purposes of subsection 191(4) of the Income Tax Act (Canada) by press release when we announce the Final Purchase Price pursuant to the Offer. For greater certainty, the announcement of such “specified amount” will be incorporated into and form part of the Offer.

6. Conditional Tender of Shares.

In the event of an over-subscription of the Offer, Shares tendered at or below the Final Purchase Price prior to the Expiration Date will be subject to proration (subject to the exception for Odd Lot Holders). See Section 1. As discussed in Section 14, the number of Shares to be purchased from a particular shareholder may affect the tax treatment of the purchase to the shareholder and the shareholder’s decision whether to tender. Accordingly, a shareholder may tender Shares subject to the condition that a specified minimum number of the shareholder’s Shares tendered pursuant to a Letter of Transmittal must be purchased if any Shares tendered are purchased. Any shareholder desiring to make a conditional tender must so indicate in the box entitled “Conditional Tender” in the Letter of Transmittal, and, if applicable, in the Notice of Guaranteed Delivery. We urge each shareholder to consult with his or her own financial and tax advisors with respect to the advisability of making a conditional tender.

Any tendering shareholder wishing to make a conditional tender must calculate and appropriately indicate the minimum number of Shares that must be purchased from that shareholder if any are to be purchased. After the Offer expires, if, based on the Final Purchase Price determined in the Offer, Shares representing more than $420,000,000 (or such greater number of Shares as we may choose to purchase without extending the Offer) are properly tendered and not properly withdrawn, so that we must prorate our acceptance of and payment for tendered Shares, we will calculate a preliminary proration percentage based upon all Shares properly tendered, conditionally or unconditionally (including Shares of Odd Lot Holders). If the effect of this preliminary proration would be to reduce the number of Shares to be purchased from any shareholder below the minimum number specified, the conditional tender will automatically be regarded as withdrawn (except as provided in the next paragraph). All Shares tendered by a shareholder subject to a conditional tender pursuant to the Letter of Transmittal and regarded as withdrawn as a result of proration will be returned promptly after the Expiration Date.

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After giving effect to these withdrawals, we will accept the remaining Shares properly tendered, conditionally or unconditionally, at or below the Final Purchase Price on a pro rata basis, if necessary. If conditional tenders would otherwise be regarded as withdrawn and would cause the total number of Shares to be purchased to fall below an aggregate value of $420,000,000 (or such greater amount as we may elect to pay, subject to applicable law) then, to the extent feasible, we will select enough of the conditional tenders that would otherwise have been deemed withdrawn to permit us to purchase $420,000,000 in value of Shares (or such greater amount as we may elect to pay, subject to applicable law).

7. Conditions of the Offer.

The Offer is not conditioned on the receipt of financing or any minimum number of Shares being tendered. Notwithstanding any other provision of the Offer, we will not be required to accept for payment, purchase or pay for any Shares tendered, and may terminate or amend the Offer or may postpone the acceptance for payment of or the payment for Shares tendered, subject to Exchange Act Rule 13e-4(f)(5), which requires that we must pay the consideration offered or return the Shares tendered promptly after termination or withdrawal of the Offer, if at any time on or after the commencement of the Offer and prior to the Expiration Date any of the following events have occurred (or are determined by us to have occurred) that, in our reasonable judgment and regardless of the circumstances giving rise to the event or events (including any action or inaction by us), makes it inadvisable to proceed with the Offer or with acceptance for payment or payment for the Shares in the Offer:

there has occurred any of the following:

any general suspension of trading in, or limitation on prices for, securities on any United States national securities exchange or in the over-the-counter market;

the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, whether or not mandatory;

a material change in United States or any other currency exchange rates or a suspension of or limitation on the markets therefor;

a decrease of more than 10% in the market price of the Shares or in the general level of market prices for equity securities in the United States of the New York Stock Exchange Composite Index, the Dow Jones Industrial Average, the NASDAQ Global Market Composite Index or Standard & Poor’s Composite Index of 500 Industrial Companies, in each case measured from the close of trading on January 13, 2020 the last trading day prior to the commencement of the Offer;

the commencement of a war, armed hostilities or other similar national or international calamity, including, but not limited to, an act of terrorism, directly or indirectly involving the United States, on or after January 14, 2020;

any material escalation of any war or armed hostilities which had commenced prior to January 14, 2020;

any limitation, whether or not mandatory, by any governmental, regulatory or administrative agency or authority on, or any event that, in our reasonable judgment, could materially affect, the extension of credit by banks or other lending institutions in the United States;

any change in the general political, market, economic or financial conditions, domestically or internationally, that is reasonably likely to materially and adversely affect our business or the trading in the Shares; or

in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof;

there has been any action threatened, pending or taken, including any settlement, or any approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, invoked, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or us or any of our subsidiaries, including any settlement, by any court, government or governmental, regulatory or administrative authority, agency or tribunal, domestic, foreign or supranational, that, in our reasonable judgment, seeks to or might directly or indirectly:

make illegal, or delay or otherwise directly or indirectly restrain, prohibit or otherwise affect the consummation of the Offer, the acquisition of some or all of the Shares pursuant to the Offer or otherwise relates in any manner to the Offer;

make the acceptance for payment of, or payment for, some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer;

delay or restrict our ability, or render us unable, to accept for payment or pay for some or all of the Shares to be purchased pursuant to the Offer;

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materially and adversely affect our or our subsidiaries’ or our affiliates’ business, condition (financial or otherwise), income, operations or prospects, taken as a whole, or otherwise materially impair the contemplated future conduct of our business or our ability to purchase some or all of the Shares pursuant to the Offer;

our acceptance for payment, purchase or payment for any shares tendered in the Offer shall violate or conflict with, or otherwise be contrary to, any applicable law, statute, rule, regulation, decree or order; or

the completion of the Offer resulting in Company being unable to pay its debts as they become due in the ordinary course of its business or the directors of the Company, in their absolute discretion, otherwise determining the completion of the Offer could reasonably be expected to render the Company insolvent;

a tender or exchange offer for any or all of the Shares (other than the Offer), or any merger, acquisition, business combination or other similar transaction with or involving us or any subsidiary, has been proposed, announced or made by any person or has been publicly disclosed;

we learn that after the date of this Offer to Purchase:

any entity, “group” (as that term is used in Section 13(d)(3) of the Exchange Act) or person has acquired or proposes to acquire beneficial ownership of more than 5% of the outstanding Shares, whether through the acquisition of stock, the formation of a group, the grant of any option or right, or otherwise (other than as and to the extent disclosed in a Schedule 13D or Schedule 13G filed with the SEC on or before January 13, 2020);

any entity, group or person who has filed a Schedule 13D or Schedule 13G with the SEC on or before January 13, 2020, has acquired or proposes to acquire, whether through the acquisition of stock, the formation of a group, the grant of any option or right, or otherwise (other than by virtue of the Offer made hereby), beneficial ownership of an additional 2% or more of the outstanding Shares;

there has been any change in law or in the official interpretation or administration of law, or relevant position or policy of a governmental authority with respect to any laws, applicable to the Offer;

any person, entity or group has filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, reflecting an intent to acquire us or any of the Shares, or has made a public announcement reflecting an intent to acquire us or any of our subsidiaries or any of our or their respective assets or securities; or

any change or changes have occurred or are threatened in our or our subsidiaries’ or affiliates’ business, condition (financial or otherwise), properties, assets, income, operations or prospects that, in our reasonable judgment, has or could have a material adverse effect on us or any of our subsidiaries or affiliates or the benefits of the Offer to us;

any approval, permit, authorization, favorable review or consent of any governmental entity required to be obtained in connection with the Offer shall not have been obtained on terms satisfactory to us in our reasonable discretion; or

we determine that the consummation of the Offer and the purchase of the Shares may (1) cause the Shares to be held of record by fewer than 300 persons, or (2) cause the Shares to be delisted from the NASDAQ or to be eligible for deregistration under the Exchange Act.

If any of the conditions referred to above is not satisfied, we may:

terminate the Offer and return all tendered Shares to the tendering shareholders;

extend the Offer and, subject to withdrawal rights as set forth in Section 4, retain all of the tendered Shares until the expiration of the Offer as so extended;

waive the condition and, subject to any requirement to extend the period of time during which the Offer is open, purchase all of the Shares properly tendered and not properly withdrawn prior to the Expiration Date; or

delay acceptance for payment or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer.

The conditions referred to above are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition, and may be waived by us, in whole or in part, at any time and from time to time in our reasonable discretion on or prior to the Expiration Date. Our failure at any time to exercise any of the foregoing rights will not be deemed a waiver of any right, and each such right will be deemed an ongoing right that may be asserted at any time and from time to time. In certain circumstances, if we waive any of the conditions described above, we may be required to extend the Expiration Date. Any determination by us concerning the events described above will be final and binding on all parties. See Section 15.

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8. Price Range of Shares; Dividends.

The Shares are listed and traded on the NASDAQ under the trading symbol “XBIT.” The following table sets forth, for the fiscal quarters indicated, the high and low sales prices of the Shares on the NASDAQ:

High

Low

2017

First Quarter

$19.20

$9.44

Second Quarter

$17.17

$3.20

Third Quarter

$5.58

$4.14

Fourth Quarter

$4.66

$3.90

 

2018

First Quarter

$5.35

$3.92

Second Quarter

$5.13

$4.04

Third Quarter

$4.69

$2.31

Fourth Quarter

$6.27

$3.22

 

2019

First Quarter

$11.74

$4.78

Second Quarter

$11.60

$6.76

Third Quarter

$10.70

$6.84

Fourth Quarter

$22.95

$8.18

 

2020

First Quarter (through January 13, 2020)

$19.64

$17.88

On January 13, 2020, the last full trading day before the commencement of the Offer, the last closing sale price of the Shares on the NASDAQ was $18.62 per Share. Shareholders are urged to obtain current market quotations for the Shares.

We have never paid or declared any cash dividends on our Shares. We currently intend to retain any earnings for future growth and, therefore, do not expect to pay cash dividends in the foreseeable future.

9. Source and Amount of Funds.

Assuming that the Offer is fully subscribed, the value of Shares purchased in the Offer will be $420,000,000. We expect that the maximum aggregate cost of these purchases, including all fees and expenses applicable to the Offer, will be approximately $600,000.

We intend to pay for the Shares with existing cash resources, representing a portion of the proceeds we received from the sale of one of our businesses pursuant to the Asset Purchase Agreement dated as of December 7, 2019, with Janssen Biotech, Inc. (“Janssen”), which we refer to as the “Janssen Transaction.” In the Janssen Transaction, Janssen acquired all rights to the Company’s True Human Antibody bermekimab to target interleukin-1 alpha (IL-1) for dermatological indications. The Company retained its True Human Antibody discovery program targeting IL-1 to treat all non-dermatological diseases. At the closing on December 30, 2019, the Company received $750 million in cash from Janssen, $75 million of which is being held in an escrow account for 18 months to satisfy any indemnity claims. In addition, the Company will be eligible to receive up to four milestone payments of $150 million each, i.e. a maximum of $600 million, if Janssen develops pharmaceutical products that contain bermekimab and that are for non-dermatological indications, subject to the conditions set forth in the Asset Purchase Agreement, which include Janssen’s receipt of certain required commercial authorizations for such products within a specified timeframe. At the closing, the following ancillary agreements were entered into:

The Company and Janssen entered into an IP Non-Assertion and License Agreement, pursuant to which the Company has granted Janssen a non-exclusive license to certain patents and intellectual property of the Company. Janssen has agreed not to assert against the Company certain claims from the patents acquired from the Company in the transaction in connection with the Company’s new antibodies targeting IL-1, as described in the Purchase Agreement, to treat non-dermatological diseases.

XBiotech USA, Inc., a subsidiary of the Company (“XBiotech USA”), and Janssen Research & Development, LLC (“JRD”) entered into a Clinical Manufacturing Agreement, pursuant to which XBiotech USA has agreed to manufacture bermekimab for use by Janssen in clinical trials, in exchange for payments, paid in quarterly installments.

XBiotech USA and JRD entered into a Transition Services Agreement, pursuant to which XBiotech USA has agreed to continue operational management, on a fee-for-service basis, of certain ongoing clinical trials related to bermekimab.

28

10. Certain Financial Information.

Historical Financial Information. We incorporate by reference the consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. In addition, we incorporate by reference the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of our Quarterly Report filed on Form 10-Q for the quarterly period ended September 30, 2019. You should refer to Section 11 for instructions on how you can obtain copies of our SEC filings, including filings that contain our financial statements.

Summary Historical Consolidated Financial Data. The following tables set forth our summary historical consolidated balance sheet data as of September 30, 2019 and our summary historical consolidated financial data for the fiscal years ended December 31, 2018 and December 31, 2017 and the three and nine months ended September 30, 2019 and 2018. This financial data has been derived from, and should be read in conjunction with, the audited consolidated financial statements and the related notes filed as part of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and the unaudited condensed consolidated financial statements and the related notes filed as part of our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019. Financial data for the three- and nine-month periods ended September 30, 2019 and 2018 are unaudited but, in the opinion of our management, include all adjustments necessary for a fair presentation of the data. Historical results are not necessarily indicative of the results to be expected for future periods, and interim results may not be indicative of results for the full year.

29

XBiotech Inc.
Consolidated Balance Sheets
(in thousands, except share data)

September 30, 2019
(unaudited)

 

December 31, 2018

 

December 31, 2017

Assets

Current assets:

Cash and cash equivalents

$40,338

$15,823

$31,768

Prepaid expenses and other current assets

573

 

1,193

 

1,564

Total current assets

40,911

17,016

33,332

Property and equipment, net

25,732

 

27,329

 

29,640

Total assets

$66,643

 

$44,345

 

$62,972

 

Liabilities and shareholders’ equity

Current liabilities:

Accounts payable

$1,061

$1,653

$1,730

Accrued expenses

960

 

1,291

 

1,062

Total current liabilities

2,021

2,944

2,792

Long-term liabilities:

Other liabilities

 

3

 

18

Total liabilities

2,021

 

2,947

 

2,810

 

Shareholders’ equity:

Preferred stock, no par value, unlimited shares authorized, no shares outstanding

Common stock, no par value, unlimited shares authorized, 41,066,467, 35,899,772 and 35,439,272 shares outstanding at September 30, 2019, December 31, 2018, and December 31, 2017 respectively

320,130

279,353

277,492

Accumulated other comprehensive income (loss)

58

(255)

(768)

Accumulated deficit

(255,566)

 

(237,700)

 

(216,562)

Total shareholders’ equity

64,622

 

41,398

 

60,162

 

Total liabilities and shareholders’ equity

$66,643

 

$44,345

 

$62,972

30

XBiotech Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2019

2018

2019

2018

(unaudited)

 

(unaudited) 

 

(unaudited)

 

 (unaudited)

Operating expenses:

Research and development

$4,533

$3,940

$13,753

$10,882

General and administrative

1,578

 

1,175

 

4,169

 

4,004

Total operating expenses

6,111

 

5,115

 

17,922

 

14,886

Loss from operations

(6,111)

(5,115)

(17,922)

(14,886)

 

Other income (loss):

Interest income

250

100

379

270

Other income

10

Foreign exchange (loss)

(289)

 

(36)

 

(333)

 

(411)

Total other income (loss)

(39)

 

64

 

56

 

(141)

Net loss

$(6,150)

 

$(5,051)

 

$ (17,866)

  

$(15,027)

Net loss per share—basic and diluted

$(0.15)

$(0.14)

$(0.47)

$(0.42)

Shares used to compute basic and diluted net loss per share

41,019,230

35,819,772

38,190,584

35,795,881

Net loss

$(6,150)

$ (5,051)

$ (17,866)

$(15,027)

Foreign currency translation adjustment

274

 

28

 

313

 

415

Comprehensive loss

$(5,876)

 

$(5,023)

 

$ (17,553)

 

$(14,612)

Summary Unaudited Pro Forma Consolidated Financial Data. The following unaudited pro forma consolidated financial information of the Company gives effect to:

the disposition of certain rights in bermekimab pursuant to the Asset Purchase Agreement dated December 7, 2019, with Janssen;

the clinical manufacturing and transition services agreements entered into with JRD; and

assumed repurchases of Shares in the aggregate amount of $420,000,000 pursuant to the Offer.

The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements and related notes of the Company. The unaudited pro forma condensed consolidated financial information is provided for informational purposes only and is not necessarily indicative of the results that would have occurred if the disposition of certain rights in bermekimab rights had occurred on the date indicated or the expected financial position or results of operations in the future. The information includes pro forma adjustments which reflect the bermekimab transaction.

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2019 was prepared assuming the bermekimab transaction occurred as of January 1, 2019.

The unaudited pro forma condensed consolidated statement of operations for the nine month period ended September 30, 2019 has been presented assuming the bermekimab transaction occurred as of January 1, 2019.

31

The unaudited pro forma condensed consolidated statement of operations for the fiscal year ended December 31, 2018, has been presented assuming the bermekimab transaction occurred as of January 1, 2018.

XBiotech Inc.

Consolidated Balance Sheet

As of September 30,2019

As Reported

 

Pro Forma

 

Adjustment

 

(unaudited)

(unaudited)

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$40,338

$243,668

$284,006

Account receivable

4,500

4,500

Prepaid expenses and other current assets

573

 

 

573

Total current assets

40,911

248,168

289,079

Property and equipment, net

25,732

 

 

 

25,732

Total assets

$66,643

 

$248,168

 

$314,811

 

Liabilities and shareholders’ equity

Current liabilities:

Accounts payable

$1,061

$2,686

$3,747

Accrued expenses

960

 

(960)

 

0

Total current liabilities

2,021

 

1,726

 

3,747

Long-term liabilities:

Other liabilities

 

 

 

Total liabilities

2,021

 

1,726

 

3,747

 

Shareholders’ equity:

Repurchase of shares

(420,000)

(420,000)

Common stock, no par value, unlimited shares authorized,
27
,066,467 shares outstanding at September 30, 2019

320,130

320,130

Accumulated other comprehensive income (loss)

58

58

Accumulated (income) deficit

(255,566)

 

666,442

 

410,876

Total shareholders’ equity

64,622

 

246,442

 

311,064

Total liabilities and shareholders’ equity

$66,643

 

$248,168

 

$314,811

Book value per share

$1.69

 

$7.94

 

$9.63

Explanation of adjustments for Pro Forma Consolidated Balance Sheet

243,668 adjustment –
To reflect cash received from the sale of Bermekimab IP plus anticipated cash to be received under the manufacturing and clinical service arrangements through 2021 , net of $75 million which will be held in a 18 month cash escrow, less cash outlay for repurchase
of shares.

4,500 adjustment –
Based on manufacturing revenue receivable of $4.5 million per the terms of the clinical supply
manufacturing agreement.

420,000 adjustment –
Based on the $420 million repurchase
of shares.

666,442 adjustment –
Net result from nine month ended September 30, 2019 pro forma consolidated statement of
operations adjustment.

Book value per share –
Represents shareholders' equity divided by the actual number of
outstanding shares

32

XBiotech Inc.

Consolidated Statements of Operations

 

 

Nine Months Ended September 30, 2019

As Reported

 

Pro Forma

 

Adjustment

 

(unaudited)

(unaudited)

(unaudited)

Revenues:

Clinical trial drug manufacturing revenue

$

$13,500

$13,500

Clinical trial service revenue

 

33,821

 

33,821

Total revenues

 

47,321

 

47,321

 

Cost of sales:

Cost of drug manufacturing

10,255

10,255

Clinical trial cost

 

26,016

 

26,016

Total Cost of sales

 

36,271

 

36,271

 

Operating expenses:

Research and development

13,753

(11,050)

2,703

General and administrative

4,169

 

(353)

 

3,816

Total operating expenses

17,922

 

(11,403)

 

6,519

Gain on sale of Bermekimab IP

 

 

674,566

674,566

Income (loss) from operations

(17,922)

 

697,019

 

679,097

 

Other income (loss):

Interest income

379

379

Other income

10

10

Foreign exchange (loss)

(333)

 

 

(333)

Total other income (loss)

56

 

 

56

Income before income tax

(17,866)

697,019

679,153

Income tax

 

 

30,577

 

30,577

Net Income (loss)

$(17,866)

 

$666,442

 

$648,576

Net Income (loss) per share—basic and diluted

$(0.47)

$20.07

Shares used to compute basic and fully diluted net income (loss) per share

38,190,584

(5,880,253)

32,310,331

33

XBiotech Inc.

Consolidated Statements of Operations

Year Ended December 31, 2018

As Reported

 

Pro Forma

 

Adjustment

 

(unaudited)

(unaudited)

(unaudited)

Revenues:

Clinical trial drug manufacturing revenue

18,000

18,000

Clinical trial service revenue

 

45,094

 

45,094

Total revenues

 

63,094

 

63,094

 

Cost of sales

Cost of drug manufacturing

13,673

13,673

Clinical trial cost

 

34,688

 

34,688

Total Cost of sales

 

48,361

 

48,361

 

Operating expenses:

Research and development

15,725

(11,868)

3,857

General and administrative

5,269

 

(470)

 

4,799

Total operating expenses

20,994

 

(12,338)

 

8,656

Gain on sale of Bermekimab IP

 

674,566

 

674,566

Income (loss) from operations

(20,994)

 

701,637

 

680,643

 

Other income (loss):

Interest income

400

400

Other income

4

 

 

4

Foreign exchange gain (loss)

(548)

 

 

(548)

Total other income (loss)

(144)

(144)

Net Income (loss) before income tax

(21,138)

 

701,637

 

680,499

Income tax

 

 

$30,859

 

$30,859

Net Income (loss) After Tax

$(21,138)

$670,778

$649,640

Net Income (loss) per share—basic and diluted

$(0.59)

$20.30

Shares used to compute basic and fully diluted net income (loss) per share

35,804,304

(3,797,918)

32,006,386

Explanation of adjustments for Pro Forma Consolidated Statement of Operations for Year Ended December 31, 2018

Adjustment for 18,000 –
Per the terms of the clinical supply manufacturing agreement Janssen will pay XBiotech $4.5M per fiscal quarter which would result in $18,000,000
per year.

Adjustment for 45,094 –
This amount is based on an estimated pass through expense of $34 million based on forecasts and agreements in place related to the ongoing studies. Per the terms of the clinical services agreement, Janssen will pay XBiotech all pass through costs of the clinical studies plus a 30% markup, therefore resulting in $45 million included in the
pro forma.

Adjustment for 13,673 –
This amount is based on forecasted drug production costs
for XBiotech.

Adjustment for 34,688 –
This amount is calculated on an estimated pass through expense of $34 million based on forecasts and agreements in place related to the
ongoing studies.

Adjustment for (11,868) and (470) –
These amounts are based on adjustments made for manufacturing and clinical
costs, respectively.

Adjustment for 674,566 –
This is the net amount received from $750M payment from Janssen, less the costs associated with
the transaction.

34

Explanation of adjustments for Pro Forma Consolidated Statement of Operations for Nine Months Ended September 30, 2019

Amounts included for revenue and cost of goods sold were calculated using fiscal year totals then adjusting for nine months. Adjustment for R&D are based on nine months of manufacturing costs for 2019. Adjustment for clinical trials are based on nine months of clinical costs for 2019.

11. Certain Information Concerning Us.

General. We are 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. We are focused on developing our True Human™ pipeline and manufacturing system.

The majority of our efforts to date have been concentrated on developing our lead product candidate, bermekimab (also known as MABp1, Xilonix™, CA-18C3, CV-18C3, RA-18C3, and T2-18C3), a therapeutic antibody which specifically neutralizes interleukin-1 alpha (IL-1a). IL-1a is a pro-inflammatory protein produced by leukocytes and other cells, where it plays a key role in inflammation. When unchecked, inflammation can contribute to the development and progression of a variety of different diseases, such as cancer, vascular disease, inflammatory skin disease, and diabetes. Clinical studies conducted to date have shown that blocking IL-1a with our lead product candidate may have a beneficial effect on several diseases.

Our Shares are listed on the NASDAQ Global Select Market under the symbol “XBIT.” Our principal executive offices are located at 5217 Winnebago Lane, Austin, Texas. 78744, and our telephone number is (512) 386-2900. Our website address is www.xbiotech.com. Our website and the information contained on our website are not incorporated by reference into this Offer to Purchase.

Availability of Reports and Other Information. We are subject to the informational filing requirements of the Exchange Act which obligates us to file reports, statements and other information with the SEC relating to our business, financial condition and other matters. Information, as of particular dates, concerning our directors and officers, their remuneration, options granted to them, the principal holders of our securities and any material interest of these persons in transactions with us is required to be disclosed in proxy statements distributed to our shareholders and filed with the SEC. As required by Exchange Act Rule 13e-4(c)(2), we have also filed with the SEC the Schedule TO, which includes additional information relating to the Offer.

These reports, statements and other information, including the Schedule TO and documents incorporated by reference, are available to the public on the SEC’s site at https://www.sec.gov. This website address is not intended to function as a hyperlink, and the information contained on the SEC’s website is not incorporated by reference in this Offer to Purchase and it should not be considered to be a part of this Offer to Purchase.

Incorporation by Reference. The rules of the SEC allow us to “incorporate by reference” information into this document, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The following documents (File No. 001-37347) contain important information about us and we incorporate them by reference (excluding any portions of such documents that have been furnished but not filed for purposes of the Exchange Act):

our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 14, 2019, as amended by that certain Form 10-K/A, filed with the SEC on March 15, 2019;

our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2019, filed with the SEC on May 9, 2019; the quarter ended June 30, 2019, filed with the SEC on August 9, 2019; and for the quarter ended September 30, 2019, filed with the SEC on November 12, 2019;

our Current Reports on Forms 8-K filed with the SEC on April 3, 2019, May 1, 2019, May 30, 2019 (two filings), June 3, 2019, June 20, 2019, July 16, 2019, December 9, 2019 and December 30, 2019;

the portions of our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 30, 2019, that are incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended December 31, 2018; and

the description of our Shares contained in our registration statement on Form 8-A filed with the SEC on April 14, 2015 (File No. 001-37347), including any amendment or report filed for purposes of updating such description.

35

We, or the Information Agent, will provide to each person, including any beneficial owner of a Share, to whom an Offer to Purchase is delivered, upon written or oral request and without charge, a copy of the documents referred to above that we have incorporated in this Offer to Purchase. The Information Agent may be contacted at the address set forth on the back cover of this Offer to Purchase. You can request copies of such documents if you call or write us at the following address or telephone number: XBiotech Inc., attention Investor Relations, 5217 Winnebago Lane, Austin, Texas 78744, telephone: (512) 386-2900, or you may visit our website at www.xbiotech.com for copies of any such documents. The information contained on, or accessible through, our website is not deemed to be incorporated by reference in this Offer to Purchase.

This Offer to Purchase and the information incorporated by reference herein contain summaries of certain agreements that we have filed as exhibits to various SEC filings. The descriptions of these agreements contained in this Offer to Purchase or the information incorporated by reference herein do not purport to be complete and are subject to, or qualified in their entirety by reference to, the definitive agreements. Copies of the definitive agreements will be made available without charge to you by making a written or oral request to us.

Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein will be deemed to be modified or superseded for purposes of this Offer to Purchase to the extent that a statement contained herein, in any other subsequently filed document that also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded will not be deemed, except as so modified and superseded, to constitute a part of this Offer to Purchase.

12. Interests of Directors, Executive Officers and Affiliates; Transactions and Arrangements Concerning the Shares.

A list of our directors and executive officers as of January 13, 2020, is attached to this Offer to Purchase as Schedule I.

Beneficial Ownership. As of January 13, 2020, we had 42,365,250 issued and outstanding Shares. We are offering to purchase up to $420,000,000 in value of Shares. At the maximum Final Purchase Price of $33.00 per Share, we could purchase 12,727,272 Shares if the Offer is fully subscribed, which would represent approximately 30.04% of our issued and outstanding Shares as of January 13, 2020. At the minimum Final Purchase Price of $30.00 per Share, we could purchase 14,000,000 Shares if the Offer is fully subscribed, which would represent approximately 33.05% of our issued and outstanding Shares as of January 13, 2020.

As of January 13, 2020, our directors and executive officers as a group (7 persons) beneficially owned, as defined in accordance with the rules of the SEC, an aggregate of approximately 13,299,482 Sha