iBio Inc. (NYSE:IBIO) saw a whopping 14% rise last Monday after the firm was added to the Russell 2000 and Russell 3000 indexes. Investors flooded IBIO stock and trading volume soared, which iBio CEO Tom Isett said was the result of “the significant progress [iBio has] made toward building shareholder value over the past few months.”
By the next afternoon, the firm had given up most of those gains, underscoring the market’s volatility.
Renewed outbreaks of the novel coronavirus have pushed biotech stocks like IBIO higher as investors regain focus on the need for a vaccine. While the earliest potential candidate won’t be ready until October, manufacturers like IBIO will be securing contracts to produce mass quantities of the vaccines over the next few months.
So is IBIO stock worth buying now or should investor’s hold off? Here’s a look at both sides of the story.
IBM Deal a Boon For IBIO Stock
Earlier this month, IBM (NYSE:IBM) announced that its Watson supercomputer’s health arm selected iBio to receive assistance from IBM Clinical Development (ICD) solution. That is a huge opportunity for iBio for a few reasons.
First, the Watson Health ICD solution has been offered to iBio free-of-charge for 18 months as part of IBM’s commitment to help support medical research amid the pandemic.
That means iBio has the benefit of IBM’s technology to speed up clinical trials for free. Considering IBIO doesn’t yet turn a profit and margins have been sliding considerably, that’s a huge bonus for the firm.
Secondly, it represents a powerful vote of confidence in iBio’s unique manufacturing technology. Many in the medical community applied for the use of Watson’s ICD solution.
The platform speeds up clinical trials by offering a streamlined, end-to-end data management solution. It could push iBio ahead of its competitors by leaps and bounds.
One of the biggest draws for iBio is the company’s “Fast Pharming” technology, which uses a plant-based manufacturing system that’s unique in the drug-making sector.
The process could also prove to be extremely valuable in the current environment as the ability to scale up production quickly will be necessary. In order to expand production under Fast Pharming, iBio simply needs to grow more plants— a process that’s relatively fast and cost-effective.
There’s been a lot of hype surrounding iBio’s manufacturing process, but so far not much action. While the IBM nod certainly adds to iBio’s credibility, the firm has yet to secure any drug-making partners that want to use its production capabilities for a Covid-19 vaccine.
Where the Risk Comes In
There’s still a lot of time for iBio to gain a partnership with one of the major coronavirus vaccine makers, but it’s also concerning that the firm has yet to announce even the hint of a potential deal.
Some big names like Moderna (NASDAQ:MRNA) have already started buddying up with potential vaccine producers, suggesting iBio could be left behind.
The lack of a partnership is one major concern for Ibio, but that’s not the only reason to be cautious with IBIO stock. The firm is also walking a financial tightrope right now— something that isn’t a problem if the firm emerges as a winner in the battle against coronavirus, but could become a problem for investors if the firm is boxed out, or worse, no viable drug is discovered.
Over the past five years, iBio has seen margins decline by around 10% on average. That’s a terrible sign because it suggests the firm’s operations are becoming costlier and costlier with little reward.
On top of that, the firm has struggled with declining revenue per share— meaning it hasn’t delivered to investors thus far.
The Bottom Line
Although the IBM partnership does improve the case for iBio stock somewhat, buying IBIO stock isn’t for the faint of heart. Coronavirus vaccine bets are risky because they’re speculative.
No one knows who will come out with the fastest, most effective drug. We aren’t even sure there’s going to be a drug. So buying a stock on its coronavirus potential is laden with risk.
But that’s even more true for iBio, whose shaky financials mean that without a coronavirus-enhanced deal, the firm is going to struggle big-time.
With that in mind, I’d hold off. Trying to pick a winner in the vaccine space is a tricky business and choosing a small, unprofitable company like iBio is even riskier.
Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not hold a position in any of the aforementioned securities.