Shares of iBio (NYSEAMERICAN:IBIO) have been extremely volatile as of late. That’s as investors weigh the risk/reward of buying into a low-priced biotech company working on a possible coronavirus vaccine. iBio shares are up an eye-popping 336% so far in 2020, but still barely trade for more than $1 apiece.What’s up with this name?
The biotech industry is in a race — both against each other and time — to come up with some sort of solution for COVID-19. Whether that’s a vaccine or a cure right now, it doesn’t matter. Scientists, medical professionals, politicians and the public are leaning on the group to develop a remedy as soon as possible.
On Friday alone, Italy reported more than 900 news deaths. That’s as the U.S. took over as the most infected country, now with more than 100,000 cases.
It’s got companies of all sizes trying to help. That ranges from Eli Lilly (NYSE:LLY), Gilead Sciences (NASDAQ:GILD), and Regeneron (NASDAQ:REGN) down to mid-size players like Moderna (NASDAQ:MRNA). It’s also got much smaller companies like Applied Healthcare Products (NASDAQ:AHPI) and iBio on board.
Finding a Cure Is Hard
These companies are dumping all sorts of resources into finding a cure or vaccine for COVID-19, and it’s no easy task. Unfortunately, iBio stock is not in the same position as the companies above, at least from a financial perspective.
In its most recent quarter ending Dec. 31, iBio had just $3.6 million in cash on its balance sheet. That’s down from the $4.4 million it had at the end of its fiscal year ending in June 2019. However, the latter was down considerably from the $15.9 million (-72.3%) iBio had in cash at the end of its 2018 fiscal year.
Current assets totaled just $4 million in the most recent quarter, down from $4.8 million in the quarter ending in June and notably, less than the $4.7 million in current liabilities on the balance sheet. However, it most recently had $36.4 million in total assets, which is up from the $30.5 million it had in June 2019. It’s also about in-line with the $36.9 million in total liabilities.
The income statement doesn’t look much better, as R&D and SG&A costs sap away from what little revenue iBio drives. It has not been profitable or generated positive EBITDA or free cash flow in the past five years.
Developing vaccines is a costly business. iBio just does not have adequate resources to give investors a load of confidence. Although, the company did file a $100 million mixed shelf offering. Should it do so, the proceeds will be used for “operating costs, including working capital needs and for other general corporate purposes.”
Bottom Line on IBIO Stock
At the end of the day, this is not a company I would bet heavily on based on the fundamentals. Maybe it can find a cure or vaccine for the coronavirus. Anything is technically possible. But let’s be honest, there’s a reason it has a 52-week low of five cents.
If investors want to buy this stock, I would think of it as nothing more than a call option on a possible cure or vaccine. Or at least, the idea that one could be close for iBio.
I say call option because buying a $1 stock is essentially a small capital outlay much like a call option, where the underlying asset could be worthless, or see considerable upside in the face of good news. The main difference (aside from iBio stock not actually being a call option) is that it doesn’t have an expiration date.
In the end, this is a binary situation with a low probability of playing out. Rather than speculate on a binary situation in an obscure biotech stock, I would rather use the recent coronavirus selloff as a buying opportunity in high-quality balance sheet, growth and dividend stocks.