Business Context and Reporting Period
iBio, Inc. is a biotechnology company commercializing its plant-based iBioLaunch and iBioModulator protein-expression technologies and developing selected biopharmaceutical candidates, including IBIO-CFB03 for fibrotic diseases. The unaudited Form 10-Q covers the three months ended September 30, 2015, the first quarter of fiscal 2016, with comparison to the three months ended September 30, 2014. The company operated in one business segment; its wholly owned iBioDefense and iBio Peptide Therapeutics subsidiaries were dormant.
Financial Results and Key Metrics
Amounts below are in thousands, except per-share data.
| Metric | Q1 FY2016 | Q1 FY2015 | Change |
|---|---|---|---|
| Revenue | $160 | $819 | Down $659 |
| Research and development expense | $551 | $1,185 | Down $634 |
| General and administrative expense | $1,422 | $1,050 | Up $372 |
| Operating loss | $(1,813) | $(1,416) | Loss increased $397 |
| Net loss | $(1,805) | $(1,410) | Loss increased $395 |
| Loss per share | $(0.02) | $(0.02) | No stated change |
| Net cash used in operating activities | $(1,147) | $(570) | Cash use increased $577 |
- Gross margin was not meaningful because revenue represented technology services performed by Fraunhofer for FioCruz, with corresponding research and development expense and no profit recognized.
- Other income was $8,000, consisting of interest income of $2,000 and royalty income of $6,000.
- Cash and cash equivalents were $8.384 million at September 30, 2015, compared with $9.494 million at June 30, 2015.
- Total assets were $11.374 million and total liabilities were $1.565 million at September 30, 2015. Stockholders’ equity was $9.809 million.
- The company reported no debt in the condensed balance sheet. Current liabilities consisted primarily of accounts payable and accrued expenses.
- Investing activities used $18,000, while financing activities provided $63,000 from warrant exercises. Cash declined by $1.110 million during the quarter.
- Accumulated deficit was $49.632 million at September 30, 2015.
Material Changes Versus the Prior Comparable Period
- Revenue declined 80% to $160,000 because of changes in technology services performed under the FioCruz yellow-fever-vaccine program.
- Research and development expense declined 53.5%, primarily due to modified work plans and changes in laboratory work.
- General and administrative expense increased approximately 35%, primarily because of higher legal fees.
- Despite lower research and development expense, the operating and net losses increased because the revenue reduction exceeded the expense savings and general and administrative costs increased.
- Weighted-average shares outstanding increased to 77.307 million from 65.859 million, while period-end common shares outstanding were 77.325 million.
- The company issued 120,000 shares for warrant exercises and received approximately $63,000. An additional 500,000 warrants expired during the quarter, leaving 6.013 million warrants outstanding and exercisable.
- The company granted options to purchase 2.55 million shares at an exercise price of $1.72 per share. Share-based compensation expense increased to $329,000 from $253,000.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that the $8.4 million cash balance was expected to support company activities through September 30, 2016, but acknowledged that additional capital may be needed to fund operations and development plans beyond that date.
- Future funding is expected to come from cash on hand, additional equity or other securities, and license or collaboration arrangements. Management warned that financing may not be available on favorable terms or at all and that equity financing could materially dilute stockholders.
- Under the May 2015 Aspire Capital agreement, the company may sell up to $15 million of common stock over three years, subject to an exchange cap of approximately 15.343 million shares unless stockholder approval is obtained. No shares had been sold under the facility as of the filing date.
- The company’s financial statements were prepared on a going-concern basis. Failure to obtain funding could require delaying or discontinuing programs, accepting less favorable collaborations, relinquishing rights, or potentially ceasing operations.
- The company had a commitment to engage Fraunhofer for at least $3 million of work requested by December 31, 2015. As of September 30, 2015, total such engagement was approximately $2.9 million.
- The next diligence milestone under the University of Pittsburgh fibrosis license, filing a New Drug Application with the FDA, was due December 1, 2015.
- The company was pursuing litigation against Fraunhofer for alleged contractual breaches. Fraunhofer moved to dismiss, discovery was permitted to proceed, and the company could not predict the outcome.
- A securities class action had reached an agreement-in-principle to settle, subject to court approval. The company expected the settlement to be funded by its insurance carrier.
- Revenue recognition, intellectual-property valuation, legal and contractual contingencies, research and development costs, and share-based compensation were identified as critical accounting areas. The company was evaluating several new accounting standards, including revenue recognition guidance, but did not expect adoption to have a material impact based on the filing.
- No impairment charges were recorded for intangible assets during either comparable quarter. Intangible assets totaled $2.284 million at September 30, 2015.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2015, with no material changes in internal control over financial reporting during the quarter.
Investor Verification Checklist
- Verify the timing, amount, and conditions of any sales under the Aspire Capital equity facility and the resulting dilution.
- Monitor cash burn, available liquidity, and whether additional financing is required before or after September 30, 2016.
- Confirm progress toward the December 1, 2015 FDA New Drug Application milestone for the fibrosis technology.
- Assess the status and potential financial impact of the Fraunhofer litigation and the securities class-action settlement.
- Review the sustainability and economics of the FioCruz yellow-fever-vaccine program, given the sharp revenue decline and absence of recognized profit.
- Track clinical, regulatory, licensing, and partnering progress for iBioLaunch, iBioModulator, and IBIO-CFB03, none of which provides assurance of future commercial revenue in the filing.