When the race for a coronavirus vaccine ends, many investors are going to be disappointed. And some of those investors may well be shareholders in iBio (NYSEAMERICAN:IBIO) stock.
To be sure, even it’s that true — and bulls would argue it isn’t — that alone doesn’t make IBIO stock a sell. The nature of biotechnology stocks is that they are high-reward, high-risk propositions.
Even if (and these numbers are purely speculative), iBio has only a 20% chance of success, iBio stock can still be a buy. After all, a successful vaccine would lead the stock to soar. If IBIO rallies 10x (again, solely for argument’s sake) 20% of the time, it’s still worth buying.
Again, that’s the general nature of biotechnology stocks. And it’s a nature amplified by the high-speed race for a vaccine, which involves dozens of companies around the world. The winners (and there almost certainly will be more than one) will see enormous returns. The losers will see significant selloffs.
The problem for IBIO stock is that it simply seems very difficult to imagine the company being one of the winners.
A Questionable History
As I’ve detailed earlier this year, we’ve been here before with IBIO stock. In 2014, shares soared over 600% in two months.
The catalyst was hopes that the company could develop a vaccine for the Ebola virus, which had seen a recent outbreak in West Africa. But nothing came of those hopes. The word “Ebola” isn’t even mentioned in the company’s most recent annual reports.
Indeed, by the time the recent rally in IBIO arrived, the company was flirting with bankruptcy. The company closed calendar 2019 with just $3.6 million in cash after burning $6 million in the previous two quarters. Its 10-Q filing with the U.S. Securities and Exchange Commission included the same “going concern” warning that often (but not always) precedes a restructuring.
To be fair, iBio has changed its ways somewhat. A new chief executive officer raised capital and looked to re-focus the company as a CDMO (contract development and manufacturing organization). That effort looked to leverage the company’s so-called FastPharming technology, which uses tobacco plants as a bioreactor to allow for quickly scaled production.
Those assets have driven some of the optimism toward iBio’s role in the coronavirus vaccine race. Meanwhile, some investors have read the proverbial tea leaves (or tobacco leaves, as it were).
iBio has a long history with the U.S. government. Its manufacturing plant is at Texas A&M University, which is receiving substantial government aid. And it’s across the street from a unit of Fujifilm, whose North Carolina plant President Donald Trump toured last month and which owns three facilities on the A&M campus.
In other words, the bull case is that this simply is a “new” iBio.
The Vaccine Race
That may all be true (though some of the A&M/Fujifilm theories strike me, personally, as a stretch). But iBio still needs to develop a vaccine. More importantly, it has to do so relatively quickly.
After all, there are literally billions of dollars being invested behind vaccine development at the moment. Moderna (NASDAQ:MRNA) is making progress, and already has received substantial government aid. The likes of Novavax (NASDAQ:NVAX), Altimmune (NASDAQ:ALT), and Applied DNA Sciences (NASDAQ:APDN) all have delivered at least some kind of positive data. Larger firms, notably AstraZeneca (NYSE:AZN) and even Johnson & Johnson (NYSE:JNJ) have done the same.
iBio did disclose pre-clinical data last week showing some promise. But clearly investors weren’t convinced: IBIO stock has pulled back sharply of late. Many other vaccine plays (including MRNA) have done the same, but IBIO’s fall has been among the steepest.
At least at the moment, iBio seems to somewhat behind relative to other vaccine developers. And the problem is that it’s hard to see how the company can catch up.
A Key Problem for IBIO Stock
The issue is that even with a capital raise earlier this year, iBio still has a somewhat weak balance sheet. The company finished the calendar first quarter with just $10 million in cash. (The results for calendar Q2, fiscal Q4 for iBio, haven’t yet been released.)
On its own, iBio likely doesn’t have the financial muscle to keep up. In the first three months of the year, iBio spent about $1 million on research and development. Moderna spent $115 million, and then ramped the figure to $152 million in the second quarter.
This is why the hopes surrounding Texas A&M are so key to IBIO stock: the company needs a big infusion of cash to keep up in the race. We’ll see if the company discloses any such aid when its annual results are released (likely sometime soon).
Without that aid, IBIO stock is a thin bet indeed. But even with it, the company still has a lot of catching up to do.
So, anyone betting on the stock, even after the pullback, has to believe that the company’s intellectual property is significantly better than that of every other firm targeting a vaccine.
That seems a lot to ask, given the clout and abilities of the dominant firms in the space. But it’s what is required given the company’s financial disadvantage. Perhaps the government will fix that problem, but until then it’s hard to be too optimistic that iBio will be one of the winners of this hugely important race.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.
