iBio: Recent Lull Offers Opportunity to the Patient Investor

Jul.27.11 | About: iBio, Inc. (IBIO)

Upcoming events: H5N1 Phase 1 results Q3

iBio, Inc based in Newark, Del., engages in the development and commercialization of plant-based biotherapeutics (biosimilars, orphan biologics) and vaccines. Utilizing proprietary iBioLaunch technology the company aims to leverage its technology platform to provide these biotherapeutics in a safe, efficacious, reliable, and importantly, inexpensive manner. For more background on the company, see the FAQ section of the website, which is (surprisingly) detailed and informative. In the iBioLaunch platform, the DNA sequence to be produced (protein, antibody, vaccine, etc.) is inserted into the leaves via specially designed vectors and the new DNA expressed independently from the plant's own chromosomes (the plant is not transgenic). This ultimately leads to large quantities of biomass producing relatively large amounts of the desired protein (hundred milligram quantities of protein per 1 kg of biomass) that are subsequently purified by standard techniques to give the desired therapeutic.

Recently, IBIO’s volume has been dropping and the stock appears range-bound between $2.5 and $3. Perhaps some of this is seasonal. However, I believe the diminished interest likely correlated to the drop in volume in Protalix Biotherapeutics (NYSEMKT:PLX) as well, following the receipt of a CRL in February. Although fundamentally different (IBIO sports a transient expression system, while PLX utilizes transgenic carrot cells), both companies utilize plant cell machinery to express proteins (biologics), and the market has treated them in a similar fashion in the past. Now that PLX is likely nearing resubmission (my guess is class 1 [6 month approval goal] due to additional clinical data) of its plant based recombinant enzyme Uplyso for treatment of Gaucher’s disease, I expect both companies to receive renewed interest.

Now turning exclusively to IBIO, while investor interest has dropped off (along with the stock price unfortunately), the folks over at IBIO and their collaborators at the Fraunhofer USA Center for Molecular Biology (FhCMB) have been productive. A look at the graphic below from IBIO’s recent investor presentation reveals many positive developments in 2 major areas: vaccine development and biosimilars.

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Vaccine Development: The vaccine market has traditionally been viewed as a low-margin business, but IBIO’s platform has the potential to take significant market share due to its low cost (10%-15% of animal cell / virus cultures). Given that plant-based systems have seen success in similar clinical trials (Medicago), IBIO’s lead candidates are de-risked in my opinion, and I anticipate that IBIO will announce favorable results in the H5N1 trial later this year. Furthermore, IBIO’s agreement (pdf) with Fiocruz for the use of yellow fever vaccine was a positive development, and we expect additional partners to come on board and fund further trials. IBIO plans to bring on partners to further the influenza (H1N1, H5N1 if successful) programs (government funding is a likely source, BARDA etc.). In addition, IBIO has successfully produced Hookworm (pdf) vaccine antigen, and is collaborating with the Sabin Vaccine Institute on this project.

Biosimilars: As part of its Fabry program (pdf), which has Orphan Drug Designation, IBIO will be initiating clinical trials later this year or early 2012. Again, analogous to PLX with its treatment for Gaucher’s disease, IBIO’s therapeutic for Fabrys can be expected to have a slightly different glycosylation pattern (sugars on the surface of the protein, which usually do not have efficacy ramifications). In the comments section of my previous article a patient shared a fascinating story and put a human experience to all this, and this just demonstrates that given these differences in side effects and tolerability from patients, the term biosimilar is a more appropriate term than “generic” for these plant-based systems. From a financial standpoint, Fabrazyme (Genzyme) pulled in $430 MM in sales for 2009, and Shire, Plc’s (SHPGY) Replagal pulled in $176 MM in sales in 2009. IBIO has the potential to capture significant amounts of the market given its low-cost platform and potential differentiating factors (without the manufacturing infection issues). Furthermore, with the production of the human alpha 1-antitrypsin (AAT), IBIO is progressing toward developing a library of various proteins made on the platform. One needs to simply take a look at sales of additional proteins (including monoclonal antibodies) to get an idea of the potential of this platform.

Financials: According to the most recent SEC filings, the company’s balance sheet will need shoring up sometime in the near future. To quote the 10q: “We believe that our existing cash resources of $3.8 million as of March 31, 2011, and support from FhCMB collaborators will be sufficient to meet our projected operating requirements only through September 2011.” However, a 424b3 form from March stated that “We believe that our existing cash resources…will be sufficient to meet our projected operating requirements through the balance of calendar 2011.” Either way, the recent S3 (authorizing up to $100 MM in stock) presents the real risk of a secondary in the near future. Additional sources of cash include warrants (IBIO does not control the timing of the cash flow but given that slightly over $7 MM warrants remain outstanding with an average exercise price of $2.42, many are in the money and will be exercised) and licensing deals. Overall, IBIO supports a relatively lean cost structure (few employees and payments to FhCMB) and most of the clinical trial expenses will be picked up by the partners.

Conclusion and Future Directions: While it is challenging to assign a specific value to such an early stage biotechnology firm due to the uncertain timing of future clinical trials (and sponsors) and potential licensing agreements and terms, qualitative validation of the platform is extremely important. Toward this goal, IBIO is on the right path with the recent announcement of successful phase 1 trial for H1N1, showing the product is safe and efficacious in humans (a major de-risking). Many positive catalysts for the stock remain, even with the potential for a capital raise on the horizon. As shown in the presentation above, the release of H5N1 results from the phase 1 trial along with the inking of a commercial license are expected to materialize in the next 6 months, along with the disclosure of an additional protein application (the first one (pdf) was human alpha 1-antitrypsin [AAT]). Specifically, I believe that investors would react extremely favorably to upfront payments in licenses. Even though this will most likely result in lower royalty payments on the back end, it demonstrates that people are willing to pay now for the technology, rather than taking a “wait and see” approach, in addition to keeping the lights on. Bottom line, if you believe in IBIO’s science and potential as a platform technology, you might want to consider taking a closer look.

Disclosure: I am long IBIO, PLX. Covered call on PLX (November 7.5 strike)