Small-cap biotechnology company iBio (NYSEAMERICAN:IBIO) is a straightforward play. That’s because the case for IBIO stock, at least for now, revolves solely around the company’s ability to develop an effective vaccine for the novel coronavirus.
This is a movie investors are seeing plenty of this year. Smaller biotech and pharmaceuticals companies are going all in on developing therapies and vaccines aimed at treating Covid-19. Initially their efforts usually spark big rallies in their share prices. But their stocks fall when investors grow frustrated over their lack of progress or poor trial data.
iBio stock is a case study in the headline volatility of coronavirus stocks. The stock is 69% below its 52-week high, but it’s still jumped 334% year-to-date. All of this price action – positive and negative – is attributable to the company’s search for a coronavirus vaccine.
Even large-cap companies with deep pockets, such as Gilead Sciences (NASDAQ:GILD), are encountering turbulence as they seek to combat the virus. What that confirms is that developing an effective antidote for the respiratory illness is difficult and that doing so under the time constraints that investors are expecting is even harder.
Investors are willing to be patient with Gilead because it has a deep pipeline, so there are reasons to be involved with the stock beyond Covid-19. But companies like iBio aren’t getting the same courtesy.
Other Issues Facing iBio
Timing is everything when it comes to treating pandemics, and iBio probably doesn’t have the luxury of a long time frame to refine its coronavirus vaccine. Not when larger pharmaceuticals players, such as Johnson & Johnson (NYSE:JNJ), could show progress on their COVID-19 vaccines by the fall.
In late March, iBio said studies of its SARS-CoV-2 Virus-Like Particle (“VLP”) program are proceeding at the Texas A&M University. But a statement issued by the company and university didn’t say much about when it expected its potential vaccine, IBIO-200, to be launched.
VLPs are critical in studies and vaccine production efforts because they’re molecules with properties of a virus. But they lack the genetic material needed to make a virus infectious. So in the case of iBio and Texas A&M, the VLP in question resembles Covid-19 without the risk of infecting researchers or patients.
“We see strong potential for the IBIO-200 program given that we have both the glycosylated and non-glycosylated iBio VLPs as options for development,” said Dr. James Samuel, head of the Department of Microbial Pathogenesis and Immunology at Texas A&M University.
An issue for any drug company or vaccine maker, including iBio, is that a product aimed at treating a particular ailment or virus may not meet that objective.
For example, Gilead’s (NASDAQ:GILD) much-ballyhooed remdesivir was originally developed to treat Ebola, but proved ineffective on that front. Later, it was discovered that remedisivir is effective in fighting coronavirus infections like severe acute respiratory syndrome (SARS), Middle East respiratory syndrome (MERS), and Covid-19. But that wasn’t the original aim of the drug. In other words, iBio’s efforts may not pay off in the coronavirus battle.
The Bottom Line: Avoid the Seduction
With the combination of its efforts to develop a coronavirus vaccine and its low price tag, iBio is one of those stocks that’s potentially seductive to unwitting investors. But its stock trades at a low price for a reason. And iBio isn’t a value play. Its price-sales ratio of 15.6 proves that. By comparison, Gilead trades at just 4.8 times its sales.
Further muddying the outlook for iBio is its cash or lack thereof. While the company doesn’t carry any debt, it’s low on cash and generated just $1.7 million of operating revenue last year. Of course, a successful Covid-19 vaccine would dramatically alter that scenario for the better, but there’s no clarity on when that good news will arrive or if it ever will.
The reality of iBio stock today is that investors are buying into potential and a name that’s fraught with risk. The key questions are whether iBio has the financial flexibility and capabilities to match investors’ expectations. If the answers to both are “yes,” then this lottery ticket could turn into a big winner. If the answers to both are “no,” iBio could become a footnote in the history of coronavirus.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.
