iBio, Inc. Form 10-Q Summary
Business Context and Reporting Period
iBio, Inc. is a plant-based biologics contract development and manufacturing organization (CDMO) using its FastPharming platform for biologics development, manufacturing, analytical services, aseptic fill/finish, regulatory support, facility design and technology transfer. The company also develops proprietary therapeutic candidates, including IBIO-CFB03 for fibrotic diseases.
This unaudited filing covers the three months ended September 30, 2019, the first quarter of fiscal 2020, compared with the three months ended September 30, 2018.
Key Financial Metrics
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Revenue | $108,000 | $45,000 |
| Operating loss | $3.855 million | $3.950 million |
| Consolidated net loss | $4.464 million | $4.399 million |
| Net loss available to iBio common stockholders | $4.529 million | $4.464 million |
| Loss per common share | $0.21 | $0.25 |
| Research and development expense | $977,000 | $1.124 million |
| General and administrative expense | $2.986 million | $2.871 million |
| Net cash used in operating activities | $2.287 million | $778,000 |
| Cash at period end | $2.103 million | $8.164 million |
Revenue increased approximately 140% year over year, but remained limited relative to operating costs. A meaningful gross margin is not clearly provided in the filing. The company reported a cash operating burn of approximately $2.3 million for the quarter.
At September 30, 2019, total assets were $35.164 million, total liabilities were $37.104 million and total equity was a deficiency of $1.940 million. Finance lease obligations totaled $32.374 million, including $139,000 current and $32.235 million non-current. The lease relates primarily to the Bryan, Texas facility and equipment and has a 34-year term, with stated minimum payments totaling approximately $83.725 million including interest.
Material Changes Versus the Prior Comparable Period
- Revenue increased by $63,000, primarily from $46,000 of Lung Biotechnology revenue and $47,000 of CC-Pharming revenue, partly offset by lower revenue from other customers.
- Research and development expense decreased $147,000, primarily due to lower third-party development costs, partly offset by higher CDMO personnel costs.
- General and administrative expense increased $115,000, primarily due to the adoption of ASC 842 and related amortization expense.
- Interest and other expense increased to $609,000 from $449,000, primarily because of higher finance lease-related interest expense.
- Operating loss improved modestly, but net loss increased because of higher interest and lease-related expense.
- Cash declined by $2.318 million during the quarter, from $4.421 million to $2.103 million.
- Contract liabilities increased to $2.894 million from $1.279 million, including approximately $1.6 million prepaid by Lung Biotechnology. Only approximately $46,000 of the Lung Biotechnology prepayment and $47,000 of the CC-Pharming balance were recognized as revenue during the quarter.
- Effective July 1, 2019, ASC 842 resulted in recognition of a $28.862 million net finance lease right-of-use asset and corresponding finance lease liabilities. The adoption had no stated retained earnings impact but increased reported assets and liabilities.
- Common shares outstanding increased to 24.152 million at September 30, 2019 from 20.152 million at June 30, 2019, primarily from preferred-stock conversions.
Guidance, Outlook, Risks and Unusual Items
Management expects continued significant expenses and operating losses because the company has not commercialized a vaccine or therapeutic product candidate. Management’s strategy depends on expanding CDMO services, collaboration and licensing arrangements, technology transfer activities and eventual commercialization of proprietary products.
The filing states that substantial doubt exists regarding the company’s ability to continue as a going concern. As of September 30, 2019, the company had an accumulated deficit of $110.3 million, negative operating cash flow and $2.1 million of cash. A public offering closed on October 29, 2019, generating approximately $4.515 million of net proceeds. Management expected the September 30 cash plus offering proceeds to fund activities at least through January 31, 2020, but stated that additional financing would likely be required.
The October offering consisted of 2.45 million common shares, 4,510 Series C convertible preferred shares, 25 million Series A warrants and 25 million Series B warrants. The warrants have a $0.22 exercise price; Series A warrants expire after two years and Series B warrants after seven years. The offering and subsequent preferred-stock conversions create substantial potential dilution.
NYSE American notified the company that it was below the continued-listing equity standard under Section 1003(a)(iii), based on stockholders’ equity of $2.46 million at June 30, 2019 and losses in the five most recent fiscal years. The company was required to submit a compliance plan by November 15, 2019 and regain compliance by October 16, 2020. Failure to obtain or satisfy an accepted plan could result in delisting proceedings.
Material risks include recurring losses, limited liquidity, dependence on additional equity financing, possible dilution, uncertain CDMO customer demand, execution and commercialization risk, the long-term finance lease obligation, related-party relationships with Eastern affiliates, and ongoing litigation with Fraunhofer. The company cannot predict the outcome of the Fraunhofer litigation.
The filing also discloses a $150,000 quarter-to-date consulting expense under an agreement with a company owned by a director. Related-party interest expense associated with the Eastern affiliate was approximately $620,000 for the quarter.
Important Facts for Investors to Verify
- Whether the October 29, 2019 financing and subsequent preferred-stock conversions provide sufficient liquidity beyond the company’s stated January 31, 2020 runway.
- The company’s ability to regain compliance with NYSE American listing standards and the status of its compliance plan.
- The timing, collectability and revenue-recognition schedule for the Lung Biotechnology and CC-Pharming contract liabilities.
- Expected cash obligations under the 34-year Bryan facility finance lease, including minimum rent, percentage rent and related-party payments.
- Potential dilution from Series A, Series B and Series C preferred stock, 50 million warrants, stock options and the Lincoln Park equity facility.
- Progress toward commercial CDMO contracts, positive operating cash flow and advancement of IBIO-CFB03 toward an IND.
- Developments and potential financial consequences of the Fraunhofer litigation and related intellectual-property claims.