iBio, Inc. 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2019; filed February 13, 2020. iBio is a plant-based biologics contract development and manufacturing organization with proprietary FastPharming technology, CDMO services, technology-transfer activities, and an early-stage fibrosis product pipeline.
Financial Performance and Position
| Metric | Three months ended Dec. 31, 2019 | Three months ended Dec. 31, 2018 | Six months ended Dec. 31, 2019 | Six months ended Dec. 31, 2018 |
|---|---|---|---|---|
| Revenue | $314,000 | $651,000 | $422,000 | $696,000 |
| Operating loss | $(3.155) million | $(4.015) million | $(7.010) million | $(7.965) million |
| Consolidated net loss | $(3.764) million | $(4.470) million | $(8.228) million | $(8.869) million |
| Net loss attributable to iBio | $(3.762) million | $(4.469) million | $(8.225) million | $(8.867) million |
| Net loss available to common stockholders | $(25.387) million | $(4.534) million | $(29.916) million | $(8.998) million |
| Basic and diluted loss per share | $(0.69) | $(0.24) | $(1.02) | $(0.49) |
- Quarterly revenue declined 52% year over year, primarily because CC-Pharming revenue fell to approximately $25,000 from $626,000. Revenue from other third-party customers increased to approximately $289,000 from $25,000.
- Six-month revenue declined 39% year over year. CC-Pharming revenue was approximately $73,000 versus $626,000, partially offset by $45,000 from the Lung Biotechnology agreement and higher revenue from other customers.
- Research and development expense decreased 30% in the quarter and 22% for the six months. General and administrative expense decreased 24% in the quarter and 11% for the six months.
- Approximate operating margins were negative 1,005% for the quarter and negative 1,661% for the six months, reflecting revenue substantially below the company’s operating cost base.
- Interest expense was $615,000 for the quarter and $1.235 million for the six months, primarily related to the Bryan, Texas finance lease with a related party.
- Cash was $3.637 million at December 31, 2019, compared with $4.421 million at June 30, 2019. Net cash used in operating activities was $5.692 million for the six months.
- Financing activities provided $5.146 million, including $4.515 million of net proceeds from the October 2019 offering and $691,000 from warrant exercises.
- Total assets were $36.384 million and total liabilities were $36.904 million. Equity was deficient by approximately $520,000.
- The balance sheet includes $28.446 million of finance-lease right-of-use assets and $32.376 million of finance-lease obligations. The lease has approximately 30.18 years of weighted-average remaining term and a 7.608% weighted-average discount rate.
Material Changes and Unusual Items
- The October 2019 financing included 2.45 million common shares, 4,510 Series C preferred shares, and 25 million each of Series A and Series B warrants. Series A and Series B preferred conversion prices were reduced to $0.20, resulting in a non-cash deemed dividend of $21.560 million.
- From October 29 through December 31, 2019, 4,490 Series C preferred shares converted into approximately 22.45 million common shares. Common shares outstanding increased to 54.567 million at December 31, 2019 from 20.152 million at June 30, 2019.
- The company adopted ASC 842 on July 1, 2019, moving the facility and equipment lease onto the balance sheet. The adoption increased six-month operating expense by approximately $236,000 and other expense by approximately $291,000 compared with the prior lease accounting presentation.
- Contract liabilities increased to $3.033 million from $1.279 million at June 30, 2019, principally reflecting customer prepayments, including approximately $1.6 million from Lung Biotechnology. Only $25,000 of quarterly and $118,000 of six-month revenue recognized in the current year had been included in the prior-year contract-liability balance.
- The company reported no income tax expense because deferred tax assets remain fully offset by a valuation allowance.
Outlook, Liquidity, Risks and Contingencies
- Management states that cash on hand, offering proceeds, and warrant proceeds are expected to fund activities at least through June 1, 2020. The filing also states that substantial doubt exists regarding the company’s ability to continue as a going concern because of recurring losses, negative operating cash flow, limited liquidity, and dependence on additional financing.
- The company expects continuing operating losses and significant expenses because it has not commercialized a vaccine or therapeutic product. Future funding is expected from additional equity or other securities, CDMO operations, collaboration and licensing arrangements, and commercialization of technologies or products.
- Additional equity financing could materially dilute existing stockholders. If financing is unavailable, the company may delay or reduce development, seek less favorable collaborators, dispose of technology or product rights, or potentially cease operations.
- NYSE American notified the company that it did not meet multiple continued-listing standards related to stockholders’ equity and historical losses, and required a reverse split or sustained share-price improvement by June 9, 2020. On January 10, 2020, NYSE Regulation accepted the company’s compliance plan through December 9, 2020, subject to periodic review; failure to regain compliance could lead to delisting proceedings.
- The company’s 34-year related-party sublease requires base rent of approximately $2.1 million annually, adjusted for CPI, and includes minimum percentage-rent provisions. Total remaining minimum lease payments were $83.112 million, including $50.736 million of interest.
- iBio continues litigation against Fraunhofer USA concerning contractual breaches and intellectual-property rights. A January 2020 motion to initiate new litigation against Fraunhofer-Gesellschaft remained pending, and the company could not predict the outcome.
- Subsequent events included approximately $4.7 million of warrant proceeds through February 8, 2020 and a February 3, 2020 collaboration with Beijing CC-Pharming to develop and test a 2019-nCoV vaccine using FastPharming.
Investor Verification Points
- Verify the company’s ability to obtain financing beyond the stated June 1, 2020 liquidity horizon and its progress toward going-concern remediation.
- Assess recurring CDMO revenue, customer concentration, contract-liability conversion, and the commercial prospects of the Lung Biotechnology and CC-Pharming relationships.
- Review the fully diluted share count, remaining preferred-share conversion rights, outstanding warrants, and potential dilution from future equity financing.
- Monitor NYSE American compliance, any reverse-stock-split action, and the risk of delisting.
- Evaluate the economics and related-party terms of the long-term Bryan facility lease, including minimum rent and remaining obligations.
- Track the Fraunhofer litigation, the status of intellectual-property rights, and any potential financial or operational impact.