During the time of Ebola outbreak, there was one company whose stock price surged by 400%. The same company ended up paying $1.9 million in a false claim lawsuit, as investors accused the company of incorrect claims related to producing an experimental virus drug. Coming to the present, iBio (NYSEAMERICAN:IBIO) was trading at 31 cents toward the end of February 2020. In a matter of few trading days, IBIO stock surged by 642% to close at $2.45.
While a vaccination for COVID-19 could result in windfall profits, iBio is certainly not the company I would consider for exposure.
Looking back, the company was spun-off from Integrated BioPharma in August 2008. More than a decade later and the company has not completed the development nor commercialized any vaccine or therapeutic product. This does not infuse optimism and, at best, the stock is worth speculating with limited exposure.
The point I am making already seems to have been sensed by the markets. After closing at a high of $2.45 in early March, IBIO stock has started trending lower. The stock trades at $1.03 as the initial exuberance is followed by a reality check.
Cash Burn Will Accelerate for iBio
A key factor that makes me bearish on the company is the balance sheet and cash flow. Over the past few years, the company has been issuing new equity on a consistent basis. The reason is failure to commercialize any vaccine or therapeutic product.
As an example, the company received $23 million in the last two fiscal years from the issuance of equity and preferred stock. During the same period, the company spent $27 million in operating activities.
With a thin cash position of $3.6 million as of December 2019, it’s likely that further equity issuance is coming in FY2020. Dilution is likely to depress IBIO stock in the coming quarters.
The discussion on liquidity is also important because iBio claims to have entered the pre-clinical study for a COVID-19 vaccination. The entire process, starting from pre-clinical trial, phase one and phase two, will accelerate the cash burn.
Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, believes that the U.S. is still 12-18 months away from developing a vaccine. Considering this time-line, the company has several quarters of cash burn.
If a vaccine is developed, equity dilution factor will be more than offset by windfall profits. However, I would be cautious with a company that has failed to commercialize any vaccine in 12 years of operation.
Looking Beyond the COVID-19 Vaccine
Besides rushing into the COVID-19 vaccine program, iBio is also in a pre-clinical trial stage for IBIO-100. The drug is targeted for potential treatment of systemic scleroderma and pulmonary fibrosis.
The idiopathic pulmonary fibrosis market is likely to grow at a CAGR of 11.9% through 2023. This provides the company with growth visibility if the drug is developed.
Further, the company has developed a candidate vaccine (IBIO-400) for classical swine fever. The animal vaccine market is attractive if iBio can make progress related to the vaccine.
Again, the concern is that these are all potential revenue triggers, but the company’s track record has been dismal. Speculators can still consider some position in IBIO stock. However, long-term investors need to give this stock a pass.
Concluding Thoughts on IBIO Stock
The fact that IBIO stock has trended lower after an initial spurt is indicative of the point that markets are skeptical.
A poor track record, sustained cash burn and potential for more dilution are factors that are likely to keep the stock depressed.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock-specific articles with a focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.
