IBIO: Pharma Stock With Much Downside Risk And Low Upside Potential

| About: iBio, Inc. (IBIO)
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IBIO is a biotechnology company that develops vaccines and therapeutic proteins mainly through the use of plants. It has a technology which it calls its iBioLaunch platform which it uses to do research and sell patents to other biotech firms.

The problem with IBIO is that it burns through high levels of cash for its size, and doesn't make much revenues or have the potential to make much revenues.

For the year ending June 30, 2011, IBIO only made $520K in revenues, and over $10 million in operating expenses, which includes R&D. This is compared to no revenue in the previous year, and $4.6 million in operating expenses.

It has one partner-- a Brazilian biotech firm FhCMB-- which hired IBIO for research on December 2010. The contract is expected to be $6.5 million, paying around $1.2 million a year. IBIO will need to get 9 more of these partners to cover its current expenses. However, the more partners it gets, the more expenses IBIO incurs. Since working with FhCMB, IBIO has added to its tiny workforce, growing to 7 employees from only 3 at the beginning of the year.

To fund its huge losses, IBIO has issued shares like crazy, and will continue to do so. IBIO can't issue any debt because any investor for this company is a speculative one, and wouldn't be interested in interest payments. They're looking for the big gamble. Unfortunately, there are very few outcomes that would provide investors with the windfall they are hoping for.

Most of IBIO's drugs are in the preclinical stage as shown here. It only has two drugs in phase I trials. Phase I acceptance of its H1N1 influenza IND application was announced on Sep 20, 2010, and another H5n1 avian influenza IND application acceptance was announced on Dec 6, 2010. The H1N1 influenza had positive phase I interim results in June 2011, and is still ongoing. Results of the H5N1 phase I trial are expected to be released in December of this year, but that doesn't mean it will be concluded. It will take many years for these two drugs to finally reach FDA approval, if ever.

For all the risk IBIO investors are taking, there isn't much return to be expected from its iBioLaunch Platform. A company would have to pay IBIO to use its platform, but that company would have to do all the heavy lifting, including pushing its drug through the different phases and eventually marketing it. IBIO would only get paid a small amount because it wouldn't have any ownership of the drug. And so far, IBIO was only able to get one partner since the beginning of the year.

Investors were excited that IBIO has gotten funding from important donors like the Gates foundation. However, IBIO got nothing from donors in the past two fiscal years, as shown in its statement of cash flows in the latest 10-K here. It states that the Gates foundation have funded FhCMB for the H5N1 influenza. It doesn't say how much FhCMB is getting. That seems like a bad sign, as it might mean that other companies need some kind of donation in order to make it worth it to work with IBIO.

IBIO will run out of cash by January 2012, as stated in the latest 10-K, and will have to raise capital at that point. IBIO has 4,350,000 and 7,948,607 options and warrants outstanding as of June 30, 2011, which will also hold down the share price unless something significant happens. Eventually, the option to raise cash will no longer be available to IBIO, and it may have to shut down some of its operations, a risk mentioned in the 10-K.

Disclosure: I am short IBIO.