Over the past three months, iBio (NYSEMKT:IBIO) stock showed some remarkable gains. Investors are hoping the biotechnology company can deliver a vaccine for the novel coronavirus.
Unfortunately, the company does not have a history of producing viable, commercially successful vaccines. Market speculation is driving the latest surge in share prices, and it’s the same with several other companies in the space. However, biotech companies that will sustain this momentum are those that can deliver a final product.
In addition, iBio also suffers from significant losses and negative cash flows. If you are looking for a company with a long history of success, pristine operating metrics, and robust liquidity, look elsewhere.
iBio Stock Is Benefiting From Covid-19 Hype
Companies all over the world are scrambling to come up with a vaccine for Covid-19. As a result, biotech firms across the globe have recorded substantial gains. However, the considerable rise in iBio shares seems strange, considering the company has never come up with a commercially viable vaccine in response to any virus.
Investors bet big that the company could come up with a cure for the swine flu and Ebola virus disease. But it did not deliver on either front. Considering its history, I do not believe it will come up with a cure for Covid-19, and that’s why the hype surrounding the stock is unfounded.
Financials Don’t Paint a Healthy Picture
Recent financials show a worrying pattern that will hurt iBio stockholders moving forward. Despite revenues falling at a sharp rate, operational costs have not decreased.
At the end of the latest quarter, revenue fell sequentially by 67.7%, while selling, general, & administrative expenses increased exponentially. There was also a noteworthy increase in research and development costs, highlighting the management’s lack of cost control, even while revenues are falling at an alarmingly high rate.
Things are not much better from a liquidity point of view, either, with free cash flows weakening by 7.5% in the latest quarter. Interestingly, the company does not have any long-term debt on its books. This underlines the fact that iBio prefers to use equity versus debt to finance its operations.
I am not saying loading up on debt is a good thing, but stock issues will only increase dilution and is expensive to boot. As of March 30, cash and cash equivalents stand at $10.04 million, a rise of 175.8% on a sequential basis. A major reason for that increase is stock issuances and that is unlikely to change in the foreseeable future.
In February, the company filed a $100 million mixed securities shelf. IBIO’s prospectus says that the company will use proceeds from the offerings for operating costs, working capital needs, and general corporate purposes.
This tells us that the company isn’t anticipating to funnel the funds towards any product lines. Another concerning sign.
Final Word On iBio stock
It’s tough to give an accurate prediction of a company that is so unique in terms of operations. However, I don’t believe we should foresee a breakthrough product from the company with respect to Covid-19.
It has launched two Covid-19 vaccine programs and shares popped as a result. But given its track record, I don’t foresee the company completing work on a vaccine.
As I highlighted earlier, the main issue with the company remains liquidity and streamlining operations. I don’t believe there is any forward movement regarding these areas in the last several quarters. Instead, the company has burned through cash and diluted its existing shareholder base.
IBIO’s reluctance to tap the bond markets for funds is strange and will hurtle its stock back to earth when the hype surrounding Covid-19 dies down. Earlier in June, iBio President Robert Erwin sold 96,124 shares after exercising his stock options. I believe that is a strong signal regarding where the company is heading.
iBio stock is a sell for me.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.
