UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended June 30, 2016
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___ to ___
Commission file number 001-35023
iBio, Inc.
(Exact name of registrant as specified in its
charter)
Delaware
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26-2797813
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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600 Madison Avenue, Suite 1601, New York, NY
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10022-1737
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including
area code:
(302) 355-0650
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class
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Name of exchange on which registered
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Common Stock, $0.001 par value
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NYSE MKT
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Securities registered pursuant to Section 12(g)
of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
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Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act:
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant was approximately $30,100,00 as of December 31, 2015,
based upon the closing sale price on the NYSE MKT of $0.56 per share reported for such date.
There were 89,109,410 shares of the registrant’s
common stock issued and outstanding as of October 13, 2016.
iBio, Inc.
Annual Report on Form 10-K
Table of Contents
Unless the context requires otherwise, references
in this Annual Report on Form 10-K to “iBio,” the “Company,” “we,” “us,” “our”
and similar terms mean iBio, Inc.
Certain statements in this Annual Report on
Form 10-K may constitute forward-looking statements as defined in Section 27A of the Securities Act of 1933 (the “Securities
Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation
Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (the “SEC”),
all as may be amended from time to time. These cautionary statements are being made pursuant to the Securities Act, the Exchange
Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. All statements
contained in this Annual Report on Form 10-K, other than statements that are purely historical, are forward-looking statements.
Forward looking-statements can be identified by, among other things, the use of forward-looking language, such as the words “plans,”
“intends,” “believes,” “expects,” “anticipates,” “estimates,” “projects,”
“potential,” “may,” “will,” “would,” “could,” “should,”
“seeks,” or “scheduled to,” or other similar words, or the negative of these terms or other variations
of these terms or comparable language, or by discussion of strategy or intentions. Forward-looking statements are based upon management’s
present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future and are
subject to known and unknown risks and uncertainties that could cause actual results, events or developments to be materially
different from those indicated in such forward-looking statements, including the risks and uncertainties set forth in Item 1A
of this Annual Report on Form 10-K and in other securities filings by the Company. These risks and uncertainties should be considered
carefully, and readers are cautioned not to place undue reliance on such forward-looking statements. As such, no assurance can
be given that the future results covered by the forward-looking statements will be achieved. All information in this Annual Report
on Form 10-K is as of October 13, 2016, unless otherwise indicated. The Company does not intend to update this information to
reflect events after the date of this report.
We maintain a website at
www.ibioinc.com
to provide information to the general public and our stockholders on iBio and its management, financial results and press releases.
Copies of this Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and our other reports
filed with the SEC can be obtained free of charge as soon as reasonably practicable after such material is electronically filed
with, or furnished to, the SEC on our website at
www.ibioinc.com
or directly from the SEC’s website at
www.sec.gov
.
Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report
on Form 10-K.
PART I
Item 1. Business.
Overview
We are a biotechnology
company focused on commercializing our proprietary technologies and product candidates and providing product development and manufacturing
services to clients and collaborators. The Company’s technologies constitute a proprietary, transformative platform for development
and production of biologics in hydroponically grown green plants.
Stated simply, iBio’s
technologies harness the natural protein production capability that plants use to sustain their own growth, and direct it instead
to produce proteins for a range of applications including for vaccines and biopharmaceuticals. The Company’s technologies
can be used to produce a wide array of biologics and also to create and produce proprietary derivatives of preexisting products
with improved properties. The Company has used its technologies and its collaborative relationships to demonstrate the applicability
of its technologies to a diverse range of product candidates including products against fibrotic diseases, vaccines, enzyme replacements,
monoclonal antibodies, and recombinant versions of marketed products that are currently derived from human blood plasma.
In addition to the broad
array of biological products that can be produced with the Company’s technologies we believe our technologies offer other
advantages that are not available with conventional manufacturing systems. These anticipated advantages may include reduced production
time and lower operating costs. Further, we believe that the capital investment required to create facilities that will manufacture
proteins using the Company’s technologies will be substantially less than the capital investment which would be required
for the creation of similar capacity facilities utilizing conventional manufacturing methods dependent upon animal cells, bacterial
fermenters and chicken eggs. Additionally, operating costs in a manufacturing facility using iBio’s platform are expected
to be reduced significantly in comparison to conventional manufacturing processes due to the rapid nature of our production cycle
and the elimination of the expenses associated with the operation and maintenance of bioreactors, fermenters, sterile liquid handling
systems and other expensive equipment which is not required in connection with the use of the Company’s technologies.
Among the Company’s
proprietary technologies are the patented iBioLaunch technology
™,
the patented iBioModulator
™
technology, and additional newer and more advanced technologies. Bio-Manguinhos/Fiocruz, or Fiocruz, a unit of the Oswaldo Cruz
Foundation, a central agency of the Ministry of Health of Brazil, is sponsoring the development an iBioLaunch-produced yellow
fever vaccine to replace the vaccine it currently makes in chicken eggs for the populations of Brazil and more than 20 other nations.
These advances are occurring subsequent to the demonstration of safety of iBioLaunch-produced vaccine candidates against each
of the H1N1 “Swine” flu virus and the H5N1 avian flu virus in successfully completed Phase 1 clinical trials.
We developed our iBioModulator
technology based on the use of a modified form of the cellulose degrading enzyme lichenase, from Clostridium thermocellum, a thermophilic
and anaerobic bacterium. iBioModulator enables an adjuvant component to be fused directly to preferred recombinant antigens to
create a single protein for use in vaccine applications.
The iBioModulator platform
has been shown to be applicable to a range of vaccine proteins and can significantly modify the immune response to a vaccine in
two important ways. Animal efficacy studies have demonstrated that it can increase the strength of the initial immune response
to a vaccine antigen (as measured by antibody titer) and also extend the duration of the immune response. These results suggest
the possibility that use of the iBioModulator platform may lower vaccine antigen requirements and enable fewer doses to establish
prolonged protective immunity.
In addition to technology
developed for iBio pursuant to agreements with Fraunhofer U.S.A., Inc., iBio’s more recently developed technologies provide
the Company with higher expression yields of certain proteins and increased efficiency in adapting gene sequences to achieve specific
product objectives. In addition, iBio is developing improved, proprietary manufacturing processes that the Company expects to protect
as trade secrets.
Our near-term focus is
to realize two key objectives: (1) the establishment of additional business arrangements pursuant to which commercial, government
and not-for-profit licensees will utilize the Company’s technologies in connection with the development and manufacturing
of therapeutic proteins and vaccine products; and (2) the further development of select product candidates based upon or enhanced
by our technology platforms. These objectives are the core components of our strategy to commercialize the proprietary technologies
we have developed and validated.
Our strategy to engage
in partnering and out-licensing of our technologies seeks to preserve the opportunity for iBio to share in the successful development
and commercialization of product candidates by our licensees while enhancing our own capital and financial resources for development,
alone or through commercial alliances with others, of high-potential product candidates based upon our technologies. In addition
to financial resources we may receive in connection with the license of our technologies, we believe that successful development
by third party licensees of iBio technology-enhanced product candidates will further validate our technologies, increase awareness
of the advantages that may be realized by the use of such platforms and promote broader adoption of our technologies by additional
third parties.
The advancement of iBio
technology-enhanced product candidates is a key element of our strategy. We believe that selecting and developing products which
individually have substantial commercial value and are representative of classes of pharmaceuticals that can be successfully produced
using our technology platforms will allow us to maximize the near and longer term value of our technologies while exploiting individual
product opportunities. To realize this result, we are currently internally advancing through preclinical IND enabling studies a
proprietary recombinant protein we call IBIO-CFB03 for treatment of idiopathic pulmonary fibrosis, systemic sclerosis, and potentially
other fibrotic diseases. To the extent that we anticipate the opportunity to realize additional value, we may elect to further
the development of this or other product candidates through the early stages of clinical development before seeking to license
the product candidate to other industry participants for late stage clinical development and if successful, commercialization.
On December 16, 2015, we
formed iBio CMO LLC (“iBio CMO”), a Delaware limited liability corporation, to develop and manufacture plant-made pharmaceuticals.
As of December 31, 2015, we owned 100% of iBio CMO. On January 13, 2016, we entered into a contract manufacturing joint venture
with an affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the Company (the “Eastern Affiliate”).
The Eastern Affiliate contributed $15 million in cash for a 30% interest in iBio CMO. We retained a 70% interest in iBio CMO and
contributed a royalty bearing license which grants iBio CMO a non-exclusive license to use our proprietary technologies for research
purposes and an exclusive U.S. license for manufacturing purposes. We retained the exclusive right to grant product licenses to
those who wish to sell or distribute products made using our technology.
iBio CMO’s operations
take place in Bryan, Texas in a facility controlled by another affiliate of Eastern (the “Second Eastern Affiliate”)
as sublandlord. The facility is a Class A life sciences building on the campus of Texas A&M University, designed and equipped
for plant-made manufacture of biopharmaceuticals. The Second Affiliate granted iBio CMO a 34-year sublease for the facility. Commercial
operations commenced in January 2016. iBio CMO expects to operate on the basis of three parallel lines of business: (1) Development
and manufacturing of third party products; (2) Development and production of iBio’s proprietary product(s) for treatment
of fibrotic diseases; and (3) Commercial technology transfer services.
Proprietary iBio technologies
have been used to advance development of certain products that have been commercially infeasible to develop with conventional technologies
such as Chinese hamster ovary cell systems and microbial fermentation methods. They can be used to create and operate manufacturing
facilities at substantially lower capital and operating costs. These include development and manufacture of both vaccine and therapeutic
product candidates. iBio CMO is promoting commercial collaborations with third parties on the basis of these technology advantages
and plans to work with customers to achieve laboratory scale technical milestones that can form the basis of longer-term manufacturing
business arrangements. iBio itself is a client of iBio CMO for further IND advancement of its proprietary products beginning with
IBIO-CFB03 for the treatment of a range of fibrotic diseases. iBio will work with iBio CMO on the production of IBIO-CFB03 for
clinical trials and, with clinical success, for commercial launch.
Due to the lower capital
and operating cost requirements for pharmaceutical production via iBio technology versus legacy methods, certain corporations and
governments that have not already established manufacturing capacity for biologic products are client prospects for both development
and for commercial technology transfer services to enable autonomous manufacturing in the market being served. For example, in
Brazil, iBio has been collaborating with the Oswaldo Cruz Foundation (Fiocruz) to develop a recombinant yellow fever vaccine based
on iBio technology. iBio’s contract with Fiocruz provides for commercial technology transfer services as the product candidates
enters human clinical trials. Over time, iBio expects to work closely with iBio CMO to provide such technology transfer services
for a variety of both commercial and government clients.
Our Business
Our Technology Platforms – iBioLaunch,
iBioModulator, and iBio Advanced Technologies
iBioLaunch
iBioLaunch is the name
iBio uses to describe iBio’s proprietary, transformative platform comprising multiple technologies for the development and
production of therapeutic proteins and vaccines using transient gene expression in green plants. Based upon the results of successful
Phase 1 clinical trials demonstrating the safety of vaccine candidates against H1N1 influenza and H5N1 influenza, immunogenicity
data from in vivo preclinical studies in well-established highly predictive animal models and results from feasibility studies
and other discovery and development work we have performed, we believe that the iBioLaunch platform can produce therapeutic proteins
and vaccines more efficiently, as measured by time, cost and yield, than current conventional biologics manufacturing methods.
As awareness of these advantages increases, we expect broader adoption of the iBioLaunch platform by biologics market participants.
An additional advantage
of the iBioLaunch platform includes successful production of proteins that are difficult or impossible to produce on a commercially
practical basis with conventional systems. This unique capability has been demonstrated by production of antigens for vaccine candidates
for both hookworm and malaria, each of which requires production and purification of proteins that could not be feasibly made with
other systems. For companies developing proprietary product opportunities, challenges often include overcoming obstacles to efficient
production of complex or multiple proteins with simultaneous control of enzymes that modify the properties of the desired end product.
iBioLaunch technology offers the flexibility and sophistication necessary to enable practical development of such complex products.
With iBioLaunch, it is
possible to manufacture product candidates in less than a month from identifying the protein of interest. This rapid production
cycle makes iBioLaunch particularly well-suited for producing treatments and vaccines for pandemic diseases and for bioterror response.
The rapid production cycle is also advantageous to researchers and others seeking to develop new products as a greater number of
experiments can be conducted in any time period at a cost less than that associated with conventional expression systems.
Utilizing expression technology
which is transient, occurring over a period of four to seven days after introducing a foreign gene, iBioLaunch eliminates the initial
steps upon which other conventional expression technologies are dependent – namely the need to isolate a high producing cell
clone from millions of non-productive cells and then grow the clonal cells in a sterile fermenter to start the manufacturing process.
This saves the year of process development time commonly associated with mammalian cell systems and eliminates the need for expensive
fermenters and a sterile liquid-handling system to prevent bacterial, fungal, or viral contamination of the protein drug. In the
iBioLaunch system, no animal- or human-derived materials are used, eliminating the risk of contamination by human infectious agents.
In place of such materials, normal green plants, grown under clean and controlled conditions, provide the biomass for pharmaceutical
protein manufacturing. Because this entire process uses commonly available materials, we are not dependent on unique sources of
raw material, nor are we limited to purchasing from single suppliers.
The iBioLaunch process
begins with robotic seeding into an inert matrix for hydroponic growth, followed by automated infiltration of the young seedlings
for gene expression and protein production. The innovation of the iBioLaunch technology is typified by its proprietary vector technology.
The iBioLaunch vectors are designed to bring foreign DNA to the nucleus of cells in the leaves of plants by allowing a vector and
bacterial host to be introduced into the plant by “infiltrating” the bacterial vector host under a slight vacuum. The
bacterial vector “launches” the foreign DNA into the plant nucleus, where it is coded into instructions that direct
the plant’s own protein manufacturing apparatus to make foreign proteins. A clever arrangement of genes for plant viral enzymes
causes these protein production instructions to be copied hundreds of thousands of times in each plant cell. Our proprietary gene
transfer vectors combine the desirable features of the DNA mobilization plasmid of
Agrobacterium tumefaciens
with gene control
elements taken from single-stranded RNA plant viruses.
Subsequent to the incorporation
of the iBioLaunch vector in the plant tissues, the following steps lead to target protein synthesis:
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The
vector is transported to the nucleus of each cell, where RNA polymerase II transcribes viral-related sequences and the gene(s)
of interest into messenger RNA.
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The
viral-related messenger RNA moves to the plant cell cytoplasm, and is translated on ribosomes to make proteins representing the
viral replicase gene, movement protein, and our protein of interest.
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The
viral replicase protein causes the production of hundreds of additional messenger RNA molecules encoding the production of our
protein of interest, and these messengers dominate the plant protein production machinery.
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·
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Large
amounts of the protein of interest accumulate and await purification.
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The net effect of applying
the iBioLaunch system is that the natural plant protein production capability becomes devoted to the expression of the desired
gene, and the target protein rapidly accumulates to extremely high levels suitable for commercial use.
iBioModulator
In addition to iBioLaunch,
we have developed iBioModulator, a technology platform that is designed to improve the potency and duration of effect of both prophylactic
and therapeutic vaccines produced with any recombinant expression technology including iBioLaunch. We developed our iBioModulator
technology based on the use of a modified form of the cellulose degrading enzyme lichenase from
Clostridium thermocellum
,
a thermophilic and anaerobic bacterium.
iBioModulator technology
enables an adjuvant component to be fused directly to preferred recombinant antigens to create a single protein for use in vaccine
applications.
The iBioModulator platform
has been shown to be applicable to a range of vaccine proteins, and can significantly modify the immune response to a vaccine in
two important ways. Animal efficacy studies have demonstrated that it can increase the strength of the initial immune response
to a vaccine antigen (as measured by antibody titer) and also extend the duration of the immune response. These results suggest
the possibility that use of the iBioModulator platform may lower vaccine antigen requirements and enable fewer doses to establish
prolonged protective immunity. We believe that the ability to provide better immune response and longer-term protection with fewer
or zero booster inoculations would add significant value to a vaccine by reducing the overall costs and logistical difficulties
of its use.
iBio Advanced Technologies
iBio has developed and
acquired rights to additional proprietary technologies that are superior to our earlier technologies for certain applications and
that in some cases are associated with individual products such as our IBIO-CFB03 product candidate for fibrotic diseases. iBio
Advanced Technologies include rights to certain patented and unpatented technologies developed by Novici Biotech LLC, patents and
unpatented inventions licensed from the University of Pittsburgh, and novel manufacturing methods and processes developed by iBio
CMO LLC.
Application of iBio Technologies - Target
Markets and Product Candidates
Target Markets and Commercialization Activities
Based on the scientific
data that have been derived from the successful Phase 1 clinical trials of the iBioLaunch-derived influenza vaccine candidates
and the results of the feasibility and preclinical studies conducted to date evaluating iBioLaunch-produced and iBioModulator-enhanced
product candidates, we believe that we have demonstrated the suitability and applicability of these platform technologies to a
broad range of therapeutic protein classes and both prophylactic and therapeutic vaccines.
Currently, we are engaged
in efforts to commercialize our technology platforms. Our strategy is to enter important markets through license agreements, commercial
collaborations, and manufacturing contracts. Our current marketing efforts focus on those decision makers whom we expect will be
attracted to the cost and efficiency advantages that may be obtained through use of our platforms. We believe that the advantages
of our platforms will enable us to compete effectively against the providers of other manufacturing systems that may be slower,
more capital intensive and more costly to operate. We anticipate realizing revenues in connection with licenses we may grant and
technology transfer services we may provide.
In all geographic regions,
including the U.S. and Western Europe, the robust ability of our technology platforms to favorably produce a wide range of protein
types, including our ability to produce product candidates that are otherwise not feasible to commercially manufacture, offers
us the opportunity to obtain value through exclusive, individual product licenses which can be worldwide or geographically limited.
In other geographic regions, such as Brazil, India and China where the economies and middle classes are growing rapidly and decision-makers
are building domestic biologics infrastructures, we anticipate entering into and deriving revenues from licenses that may include
multiple product categories to which our technology applies.
Additionally, we believe
that governments and state corporations seeking to establish and maintain autonomous biodefense capabilities will also be attracted
to the advantages realizable with our platforms. The market for biodefense countermeasures reflects continued awareness of the
threat of global terror and biowarfare activity as well as the need to have capacities to quickly manufacture both vaccines and
therapeutics to a numerous and ever evolving list of biological agents that could be used to harm populations.
To enhance our
success in the commercialization of our multiple technologies, we are engaging in efforts to advance select iBio sponsored
product candidates. Our current internal efforts focus on the further development of a proprietary recombinant protein
product candidate, IBIO-CFB03, for the treatment of idiopathic pulmonary fibrosis, systemic sclerosis, and other fibrotic
diseases. We have selected this product candidate for further advancement on the basis of its individual commercial value and
its value as representative of a class of products in an attractive market that may be successfully derived from the iBio
platform. We believe that demonstration of successful utilization of technologies by each of us and our license partners will
enhance market awareness of the broad applicability and potential advantages realizable with the platforms and generate
increased opportunities for us to realize value from these assets.
Product Candidates
The table below summarizes
key information regarding examples of the categories and product classes and the status of product candidates generated from our
platforms:
Market
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Class
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Product
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Status /Other
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Therapeutic Protein
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Anti-fibrosis Protein
Plasma-Derived Proteins
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IBIO-CFB03
C1 Esterase Inhibitor
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Preclinical Orphan Designation
Feasibility Demonstrated
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Enzyme Replacement
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Alpha-Galactosidase
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Feasibility Demonstrated
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Monoclonal Antibodies
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Palivizumab
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Feasibility Demonstrated
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Vaccines
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Viral Disease Vaccines
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H1N1 Influenza
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Phase I – Completed
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H5N1 Influenza
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Phase I – Completed
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Yellow Fever
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Preclinical
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Parasitic Pathogen Vaccine
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Malaria
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Phase I
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Hookworm
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Phase I
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Therapeutic Vaccine
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Human Papillomavirus (HPV)
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Feasibility Demonstrated
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Biodefense
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Bacterial Disease Vaccine
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Anthrax
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Phase I
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Bacterial Disease Vaccine
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Anthrax/Plague
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Feasibility Demonstrated
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Monoclonal Antibody
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Anthrax
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Feasibility Demonstrated
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Therapeutic Protein Product Candidates
Using our proprietary technologies,
we have expressed and demonstrated the feasibility of production of many classes of therapeutic proteins. The proteins that we
have successfully produced range from large and complex monoclonal antibodies to smaller proteins such as interferons, growth factors,
and enzymes.
IBIO-CFB03, a Proprietary Product for Treatment
of Fibrosis
iBio has exclusively licensed
and is developing, on its iBioLaunch™ platform and with its more advanced technology, an innovative new product we have designated
“IBIO-CFB03” for treatment of idiopathic pulmonary fibrosis (IPF) and systemic sclerosis (SSc), both fatal and incurable
diseases. The total number of people affected by systemic sclerosis and IPF, while large in comparison to many biotechnology target
markets, is small enough for iBio’s drug to qualify for the regulatory and financial benefits available under U.S. and European
Orphan Drug incentives.
iBio’s candidate
product has demonstrated efficacy in both animal disease models and through the reversal of fibrosis in human skin organ culture.
Preclinical studies have established a strong safety profile for IBIO-CFB03 with no toxicity seen at concentrations well above
the predicted effective doses. The drug is readily diffusible into organs and tissues and can reach its target site via several
modes of administration. Systemic administration is effective at reducing skin and lung fibrosis. The anti-fibrotic effects of
IBIO-CFB03 are observed even after the onset of fibrosis, suggesting that it is capable of reversing fibrosis—an effect not
observed with any of the potential anti-fibrotic therapies that are currently in clinical use. Patients with existing fibrosis
enter the clinic long after the onset of their disease, and thus do not benefit significantly from a drug used to prevent fibrosis
rather than treat existing fibrosis.
Experimental drugs demonstrating
efficacy against life-threatening diseases in early clinical trials are given higher priority review for marketing approval by
regulatory agencies in the U.S. and Europe. In addition, both the U.S. and Europe offer financial and regulatory incentives for
the development of new drugs for the treatment of smaller patient populations (Orphan Drugs), and such drugs can be approved for
marketing faster and with less total investment than drugs that are intended to treat major diseases. iBio has obtained Orphan
Drug designation for its drug candidate for systemic sclerosis.
Recombinant forms of Plasma Derived Products
Using iBioLaunch, we have
successfully produced human C1 esterase inhibitor and human alpha 1-antitrypsin, each of which is an important therapeutic product
that has been traditionally derived from human blood plasma. The production via the iBioLaunch system of plasma-sparing recombinant
forms of these products offers an alternative process that may lessen reliance on human blood supplies and eliminate the safety
concerns that may be associated with use of animal and human cells or other tissue components.
Other Therapeutic Proteins
In addition to the recombinant
form of plasma derived products, using iBioLaunch, we have been able to express and demonstrate the feasibility of production of
substantially all other classes of therapeutic proteins. The therapeutic proteins that we have successfully produced range from
large and complex monoclonal antibodies to smaller proteins such as interferons, growth factors, and enzymes. All the candidate
therapeutic proteins manufactured using iBioLaunch have assembled correctly assembled and demonstrated full activity in relevant
bioassays. We are currently evaluating several potential proprietary iBioLaunch produced therapeutic protein candidates for further
development internally at iBio or together with collaborators.
Vaccine Candidates
We have used iBioLaunch
to successfully express and demonstrate the feasibility of production of a broad array of vaccine candidates, including vaccine
candidates that have to date been impossible to produce on a commercially practical basis using conventional manufacturing systems.
Additionally, we have used iBioModulator to improve the performance of therapeutic vaccine candidates.
The ability of the iBioLaunch
platform to manufacture proteins that are difficult or impossible to produce on a commercially practical basis with conventional
manufacturing systems has been demonstrated by the production of antigens for vaccine candidates for both hookworm and malaria.
These iBioLaunch-produced vaccine candidates are being developed by the Sabin Institute and the Bill and Melinda Gates Foundation,
respectively, and each is being advanced to Phase 1 clinical trials that are expected to commence in the next 12 months, subject
availability of funding at each respective organization and satisfaction of other conditions.
The safety of an iBioLaunch-produced
H1N1 influenza vaccine candidate and an iBioLaunch H5N1 influenza vaccine has been demonstrated in successfully completed Phase
1 human clinical trials and the efficacy of these iBioLaunch derived vaccine candidates has been demonstrated in well established,
highly predictive animal models. We have also demonstrated the efficiencies of our iBioLaunch technology at the laboratory level
by producing candidate influenza vaccines in weeks versus the months required for commercially used chicken egg methods. The rapid
production of an iBioLaunch derived vaccine candidate for the recently emerged new strain of influenza, H7N9, demonstrates the
flexibility and responsiveness of the platform. This speed of production is an advantage that we believe may be particularly attractive
to public health authorities seeking to protect citizens in the case of a pandemic outbreak.
Our collaborator, Fiocruz,
is advancing the development of an iBioLaunch-produced yellow fever vaccine candidate. In addition to furthering preclinical IND
enabling studies of this vaccine candidate, in April 2013, Fiocruz committed to the design of a new plant-based multipurpose manufacturing
facility in Brazil and anticipates construction of such facility in the next few years. This multipurpose facility is being designed
in manner that will enable the incorporation and utilization of our iBioLaunch platform.
Biodefense Countermeasures
Our technology platforms
have advantages that we believe are particularly well suited for the biodefense market. Speed of production and capability to produce
both vaccines and therapeutic proteins using the iBioLaunch platform and the potential to improve performance of vaccines through
the application of the iBioModulator platform are each key features of biologics manufacturing systems that may be sought by governments
and state corporations seeking to establish autonomous capabilities to protect their populations from bioterrorism threats. In
addition to our demonstration of the feasibility of iBioLaunch produced monoclonal antibody candidates for the treatment of anthrax,
next generation anthrax vaccine candidates derived from the iBioLaunch platform have been evaluated by our collaborator, Fraunhofer,
pursuant to a funding award granted to Fraunhofer in December 2012 by the National Institute of Allergy and Infectious Diseases.
With Fraunhofer, we are evaluating opportunities and seeking funding from additional sources to further demonstrate the applicability
and advantages of our platforms in connection with the development of biodefense countermeasures.
Strategic Alliances and Collaborations
A significant component
of our business plan is to enter into strategic alliances and collaborations with other for-profit entities, governments, foundations,
and others as appropriate to gain access to funding, capabilities, technical resources and intellectual property to further our
development efforts, commercialize our technology and to generate revenues.
Collaboration with Fraunhofer Center for
Molecular Biology (“Fraunhofer”)
In 2003, we engaged Fraunhofer
to perform research and development activities to develop the iBioLaunch platform and to create our first product candidate. Pursuant
to the Technology Transfer Agreement (“TTA”) between our company and Fraunhofer, effective in January 2004, we paid
$3.6 million to Fraunhofer to acquire the exclusive rights to intellectual property owned by Fraunhofer which, as subsequently
enhanced and improved, constitutes the iBioLaunch platform.
Following this initial
engagement, we expanded our relationship with Fraunhofer to include additional and continuing research and development activities
and we benefited from the establishment of numerous non-commercial arrangements among the Company, certain government entities,
a non-governmental organization (which we refer to as a “NGO”) and Fraunhofer which allowed us to further advance the
development of our technology platforms and select product candidates through indirect access to non-dilutive funding.
To evidence these expanded
activities, at various times, we entered into additional agreements with Fraunhofer and periodically amended the TTA, including
most recently a settlement agreement we entered into with Fraunhofer in September 2013 (the “Settlement Agreement”).
The amendments to the TTA include a commitment by Fraunhofer to further develop exclusively for and transfer to us rights to proprietary
technology and intellectual property rights in the fields defined in the agreements comprising principally plant-based human vaccines,
human antibodies, and human therapeutic proteins and veterinary applications of plant-based influenza vaccines. Additionally the
TTA provides that Fraunhofer will pay to us a royalty payment equal to 9% of all receipts, if any, realized by Fraunhofer from
sales, licensing or commercialization of the intellectual property licensed from us.
Prior to the effective
date of the Settlement Agreement, we were obligated to make non-refundable payments to Fraunhofer aggregating $10,000,000, in installments
of $2,000,000 per year over a five year period commencing in November 2009 and expiring in November 2014, and Fraunhofer was required
to expend an amount at least equal to the amounts payable by us for the purpose of engaging in services to further the development
of our technology. In addition to the annual research service payments, we were required to make royalty payments to Fraunhofer
equal to 1% of all receipts derived by us from sales of products utilizing our proprietary technology and 15% of all receipts derived
by us from licensing our propriety technology to third parties for a period of fifteen years. Additionally, beginning in 2010 and
continuing until 2024, the TTA provided that we remit minimum annual royalty payments to Fraunhofer in the amount of $200,000 (the
“Minimum Annual Payment”).
The Settlement Agreement, which was intended
to better align the mutual interests of iBio and Fraunhofer, has the following effects:
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Our
liabilities to Fraunhofer in the amount of approximately $2.9 million as of June 30, 2013 were released and terminated;
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Our
obligation under the TTA, prior to the Settlement Agreement, to make three $1 million payments to Fraunhofer in April 2013, November
2013, and April 2014 (“Guaranteed Annual Payments”) was terminated and replaced with an undertaking to engage Fraunhofer
for at least $3 million in work requested and directed by iBio before December 31, 2015. We believed that our right to select
and direct specific projects would improve the efficiency of our product development activities and that the extension of the
period over which this commitment must be fulfilled would enhance our ability to manage our cash outflow;
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We
terminated and released Fraunhofer from the obligation to make further financial contributions toward the enhancement, improvement
and expansion of our technology in an amount at least equal to the Guaranteed Annual Payments, because we believed our technology
development phase was completed and prospectively would be focusing on product development. In addition, we terminated and released
Fraunhofer from the obligation to further reimburse us for certain past and future patent-related expenses;
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Our
obligation to remit to Fraunhofer minimum annual royalty payments in the amount of $200,000 was terminated. Instead we will be
obligated to remit royalties to Fraunhofer only on technology license revenues that we actually receive and on revenues from actual
sales by us of products derived from our technology until the later of November 2023 or until such time as the aggregate royalty
payments total at least $4 million;
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The
rate at which we will be obligated to pay royalties to Fraunhofer on iBioLaunch and iBioModulator license revenues we receive
was reduced from 15% to 10%; and
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Any
and all other claims of each party to any other amounts due at June 30, 2013 were mutually released.
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Additionally, we and Fraunhofer
entered into research and development service agreements with respect to two projects, specifically the further development of
the recombinant form of C1 esterase inhibitor and additional development services in connection with the transfer of our technology
related to facility design to Fiocruz. The technology transfer for facility design was completed for $97,767. The C-1 program was
suspended after payment of $544,687.
Alliance with GE Healthcare
In July 2012, we formed
a global alliance with GE Healthcare (“GEHC”) to commercialize our plant-based technologies for the manufacture of
biopharmaceuticals and vaccines. The alliance builds on the development and marketing agreement which we entered into with GEHC
in 2010 and seeks to combine the iBioLaunch platform with GEHC’s capabilities in start-to-finish technologies for biopharmaceutical
manufacturing. Under the terms of global alliance agreement, iBio will be the preferred provider of vaccine or therapeutic product
manufacturing technology incorporating a plant based protein expression system, while GEHC will be the preferred provider of engineering
services and bioprocess solutions, to any customers that may be interested in a bio-manufacturing facility incorporating a plant-based
expression system. The global alliance agreement further specifies allocation of responsibilities for product development, process
scale-up, facilities design and development, and technology transfer among iBio, Fraunhofer, and GEHC. Additionally, the global
alliance agreement also sets forth the terms of a non-exclusive commercial license to iBio’s technology that we have agreed
to offer to any customer referred to it by GEHC as a part of the global alliance.
In April 2013, together
with GEHC, we announced that Fiocruz had committed to build and had recently contracted with GEHC for the design of new plant-based
manufacturing facility that would use our iBioLaunch technology.
Although the Fiocruz project
is proceeding, and was the subject of a recent visit of the Fiocruz team to the iBio CMO facility and discussions with senior iBio
management, political and economic conditions in Brazil have affected the original schedule and may continue to affect the prospective
schedule for development and completion.
Fiocruz Collaboration and License
In January 2011, we entered
into collaboration and granted a commercial, royalty-bearing license to Fiocruz for the use of our proprietary technology in connection
with the development, manufacture and commercialization by Fiocruz of certain vaccine products. Fiocruz, a unit of the Oswaldo
Cruz Foundation, a central agency of the Ministry of Health of Brazil, is a leader in the production, development and commercialization
in Latin America of vaccines, reagents and biopharmaceuticals. Additionally, Fiocruz, a certified World Health Organization provider
to United Nations agencies, is a global leader in the manufacture of yellow fever vaccine. Fiocruz manufactures and exports yellow
fever vaccine to over 60 countries. The World Health Organization has estimated that 200,000 unvaccinated people contract yellow
fever each year, and approximately 30,000 die from the disease.
Pursuant to the terms of
the collaboration and license agreement among iBio, Fraunhofer and Fiocruz, Fiocruz has the right to develop and commercialize
yellow fever vaccine derived from the use of our iBioLaunch technology in Latin America, the Caribbean and Africa. Fiocruz will
fund development of this vaccine product and if successfully developed and commercialized, iBio will receive royalty payments from
the sales of the product in those territories. iBio has retained the right, which is sublicenseable, to commercialize the product
in all other territories subject to payment of a royalty back to Fiocruz. Additionally, Fiocruz has engaged iBio to perform certain
research and development activities associated with the yellow fever vaccine project. Based upon the expertise possessed by Fraunhofer,
we engaged Fraunhofer as a subcontractor to perform these research and development services.
In April 2013, Fiocruz
committed to the design of a new plant-based multipurpose manufacturing facility in Brazil and anticipates construction of such
facility in the next few years. This multipurpose facility is being designed in manner that will enable the incorporation and utilization
of our iBioLaunch platform.
On June 12, 2014, Fiocruz,
Fraunhofer and iBio executed an amendment to the Agreement (the “Amended Agreement”) which provides for revised research
and development, work plans, reporting, objectives, estimated budget, and project billing process. The effect of the amendment
resulted in a charge of approximately $1.007 million to general and administrative expenses for the noncollectibility of an accounts
receivable from Fiocruz for revenues recorded for the year ended June 30, 2013 and a credit of approximately $1.007 million to
research and development expenses and a corresponding adjustment to accounts payable relating to expenses accrued at June 30, 2013
owed to Fraunhofer.
For the year ended June
30, 2014, under the Amended Agreement, the Company recognized revenue of $205,000 for work performed for Fiocruz pursuant to the
Amended Agreement by the Company’s subcontractor, Fraunhofer, and recognized research and development expenses of the same
amount — $205,000 – due Fraunhofer for that work.
For the year ended June
30, 2015, under the Amended Agreement, the Company recognized revenue of $1,851,000 for work performed for Fiocruz pursuant to
the Amended Agreement by the Company’s subcontractor, Fraunhofer, and recognized research and development expenses of the
same amount — $1,851,000 - due Fraunhofer for that work.
For the year ended
June 30, 2016, under the Amended Agreement, the Company recognized revenue of $758,000 for work performed for Fiocruz pursuant
to the Amended Agreement by the Company’s subcontractor, Fraunhofer, and recognized research and development expenses of
the same amount — $758,000 – due Fraunhofer for that work.
License and Collaboration with Caliber Biotherapeutics
LLC
In February 2013, we entered
into a license with Caliber Biotherapeutics LLC, a for-profit biotechnology company that is focused on the development and commercialization
of therapeutic proteins. This license to Caliber is for use of the iBioLaunch platform in connection with the development of an
undisclosed monoclonal antibody-based therapeutic protein for an oncology indication. Caliber will conduct and fund the development
of the product candidate and if successfully developed and commercialized, iBio will receive royalties on the sale of such product
and other revenues. Although the license is still valid, product development and other activities by Caliber have been suspended
without a disclosed plan for resumption.
Research and Development
Our research and development
activities are directed and led by our President and by our Chief Scientific Officer. Excepting such direction and management,
we outsource all our research and development activities. Outsourcing our research and development work allows us to develop our
product candidates, and thereby promote the value of such product candidates and our technology platforms for licensing and product
development purposes, without bearing the full risk and expense of establishing and maintaining our own research and development
staff and facilities.
Fraunhofer was our principal
research and development contractor and provided research and development services to us and our predecessor company from 2003
through 2014. As a part of our collaboration with Fraunhofer, we established a business structure that allowed us to enlarge and
broaden the scope of applications of our platform technology and enhance the value of our retained commercial rights by leveraging
certain funding received by Fraunhofer from governmental entities, NGOs and other similar organizations.
We achieved this result
by granting licenses (a) to the government and NGO entities for not-for-profit applications of the intellectual property for which
they have provided funding, and (b) to Fraunhofer for research purposes and applications in fields other than those retained by
iBio or granted to the governmental entity or NGO. iBio retained ownership of the intellectual property and exclusive worldwide
commercial rights in the fields of human health and veterinary influenza applications of the intellectual property. At this time,
we are not pursuing development of such intellectual property in the field of veterinary influenza.
Through June 30, 2016,
Fraunhofer has been awarded a total of approximately $33 million in grants from the Bill & Melinda Gates Foundation for development
of product candidates based on the iBioLaunch platform and for research and development of vaccines against influenza, including
H5N1 avian influenza, malaria and African sleeping sickness (trypanosomiasis). To facilitate the grant and continuing support by
the Bill & Melinda Gates Foundation of the activities undertaken by Fraunhofer, we agreed to make our iBioLaunch platform available
to various programs to complete development and provide “Global Access” to vaccines against influenza, rabies virus,
malaria and trypanosomiasis, provided that if the Bill & Melinda Gates Foundation and Fraunhofer do not pursue such programs
to completion, the subject rights revert to us. The term “Global Access” means access for people most in need within
the developing world in low income and lower-middle-income countries, as identified by the World Bank. Because we have exclusive
commercial rights to the technology and these products for human health applications, this grant and any further similar grants
benefit us by enabling the enhancement of Fraunhofer to enhance our platform technology and expansion of the information about
the technical performance of product candidates derived from our technology. We may decide to commercially license such technology
to collaborators for advancement into human clinical evaluation and eventual commercial development.
DoD has also provided funding
to Fraunhofer for advanced development of our technology platform and for preclinical and clinical studies of an anthrax-plague
combination vaccine and for an H1N1 influenza vaccine project. Through June 30, 2015, Fraunhofer received funding and funding commitments
for these projects totaling approximately $34 million. This funding is similarly beneficial to us because we have retained the
commercial rights to any technology improvements resulting from those projects.
In December 2012, the National
Institute of Allergy and Infectious Diseases, a part of the National Institutes of Health, awarded a contract to Fraunhofer, for
the development of a new generation anthrax vaccine. Fraunhofer is developing this new generation vaccine using the iBioLaunch
platform and the funding it receives pursuant to the National Institute of Allergy and Infectious Diseases. We expect funded work
to advance our technology.
In summary, the advancement
of our technology has indirectly benefited from the funding and funding commitments of research and development activities at Fraunhofer
in recent years by U.S. government and non-governmental organizations in aggregate amounts exceeding $67 million.
Manufacturing
In addition to the platform
and product development engagements, in 2006, we engaged Fraunhofer to create a prototype production module for products made through
the use of the iBioLaunch platform. The purpose of this engagement was to attract grants for the improvement of the prototype to
become a pilot plant and to demonstrate the ease and economy with which iBioLaunch-derived products could be manufactured in order
to attract potential licensees and increase the value of our share of business arrangements entered into with entities. The prototype
design, which encompassed the entire production process from seeding, pre-infiltration plant growth, infiltration of plants with
agrobacteria, harvesting of plant tissue and purification of target proteins, was completed in May 2008. A pilot plant based upon
this prototype funded substantially by DARPA was subsequently constructed by Fraunhofer at its facility in Newark, Delaware. The
physical assets consisting of the pilot plant, and the equipment in it, are owned by Fraunhofer and have been validated for current
Good Manufacturing Practices (“cGMP”) production, but all the proprietary intellectual property pertaining to those
physical assets is property of iBio. We are not limited to the use of this facility and have also contracted with Caliber Biotherapeutics
LLC for certain manufacturing services. We also expect to contract with other third party providers for development, manufacturing,
fill and finish services.
In January 2016, we entered
into a contract manufacturing joint venture operated through our subsidiary iBio CMO, which is owned 70% by iBio and 30% by an
affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the Company. iBio CMO expects to operate on the
basis of three parallel lines of business: (1) Development and manufacturing of third party products; (2) Development and production
of iBio’s proprietary product(s) for treatment of fibrotic diseases; and (3) Commercial technology transfer services. We
contributed to iBio CMO a royalty bearing license which grants iBio CMO a non-exclusive license to use our proprietary technologies
for research purposes and an exclusive U.S. license for manufacturing purposes.
iBio CMO’s operations
take place in Bryan, Texas in a facility controlled by another affiliate of Eastern, as sublandlord. The facility is a Class A
life sciences building on the campus of Texas A&M University, designed and equipped for plant-made manufacture of biopharmaceuticals.
iBio CMO has been granted a 34-year sublease for the facility. Commercial operations commenced in January 2016.
Proprietary iBio technologies
have been used to advance development of certain products that have been commercially infeasible to develop with conventional technologies
such as Chinese hamster ovary cell systems and microbial fermentation methods. They can be used to create and operate manufacturing
facilities at substantially lower capital and operating costs. These include development and manufacture of both vaccine and therapeutic
product candidates. iBio CMO plans to promote commercial collaborations with third parties on the basis of these technology advantages
and to work with customers to achieve laboratory scale technical milestones that can form the basis of longer-term manufacturing
business arrangements. iBio itself will be a client of iBio CMO for further IND advancement of its proprietary products beginning
with IBIO-CFB03 for the treatment of a range of fibrotic diseases. iBio will work with iBio CMO on the production of IBIO-CFB03
for clinical trials and, with clinical success, for commercial launch.
Due to the lower capital
and operating cost requirements for pharmaceutical production via iBio technology versus legacy methods, certain corporations and
governments that have not already established manufacturing capacity for biologic products are client prospects for both development
and for commercial technology transfer services to enable autonomous manufacturing in the market being served. For example, in
Brazil, iBio has been collaborating with the Oswaldo Cruz Foundation (Fiocruz) to develop a recombinant yellow fever vaccine based
on iBio technology. iBio’s contract with Fiocruz provides for commercial technology transfer services as the product candidates
enters human clinical trials. Over time, iBio expects to work closely with iBio CMO to provide such technology transfer services
for a variety of both commercial and government clients.
Intellectual Property
We exclusively control
intellectual property developed at Fraunhofer for human health applications. We also exclusively control the veterinary field for
plant-made influenza vaccines. In addition, we have an exclusive worldwide license agreement with the University of Pittsburgh
covering U.S. and foreign patents and patent applications and related intellectual property owned by the University of Pittsburgh
pertinent to the use of endostatin peptides for the treatment of fibrosis. Our success will depend in part on our ability to obtain
and maintain patent protection for our technologies and products and to preserve our trade secrets. Our policy is to seek to protect
our proprietary rights, by among other methods, filing patent applications in the U.S. and foreign jurisdictions to cover certain
aspects of our technology.
We currently own 20 U.S.
patents and 47 international patents. We have an exclusive license to three U.S. patents and one application. Additionally, we
have one U.S. and one international patent application allowed, as well as four U.S. and 15 international applications pending.
International patents and applications include numerous foreign countries including Australia, Brazil, Canada, China, Hong Kong,
India, Korea, and several countries in Europe. We continue to prepare patent applications relating to our expanding technology
in the U.S. and abroad.
The technology and products
covered by our issued and pending patent applications is summarized below:
Technology and Product
Patents (U.S.)
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Virus-induced gene silencing in plants
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Transient expression of foreign genes in plants
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Production of foreign nucleic acids and polypeptides in
sprout systems
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Production of pharmaceutically active proteins in sprouted
seedlings
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Systems and method for clonal expression in plants
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Recombinant carrier molecule for expression, delivery and
purification of target polypeptides
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Influenza antigens, vaccine compositions, and related methods
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Plague antigens, vaccine compositions, and related methods
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Influenza therapeutic antibodies
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Trypanosomiasis vaccine
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Anthrax antigens, vaccine compositions, and related methods
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Use of endostatin peptides for the treatment of fibrosis
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Pending Technology
Patent Applications (U.S. and International)
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Virus-induced gene silencing in plants
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Activation of transgenes in plants by viral vectors
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Protein production in seedlings
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Agroinfiltration of plants with launch vector
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Transient expression of proteins in plants
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Thermostable carrier molecule
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Protein expression in clonal root cultures
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Production of proteins in plants with launch vector
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In vivo deglycosylation of recombinant proteins in plants
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Pending Product Patent
Applications (U.S. and International)
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Influenza therapeutic antibodies
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Trypanosomiasis vaccine
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Endostatin fragments and variants for use in treating fibrosis
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Competition
The biotechnology and pharmaceutical
industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.
We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions,
government agencies and private and public research institutions. Our commercial opportunities will be reduced or eliminated if
our competitors develop and commercialize products that are safer, more effective, have fewer side effects or are less expensive
than any products that we or our collaborators may develop based on the use of our platform technology.
While we believe that the
potential advantages of our technologies will enable us to compete effectively against other providers of technology for biologic
product manufacturing, many of our competitors have significantly greater financial resources and expertise in research and development,
manufacturing, preclinical testing, clinical trials, regulatory approvals and marketing approved products than we do. Smaller or
early stage companies may also prove to be significant competitors, particularly through arrangements with large and established
companies, and this may reduce the value of our platform technologies for the purposes of establishing license agreements. In addition,
these third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary
to our programs or advantageous to our business.
We expect to rely upon
licensees, collaborators or customers for support in advancing certain of our drug candidates and intend to rely on additional
work with our collaborators during our efforts to commercialize our product candidates. Our licensees, collaborators or customers
may be conducting multiple product development efforts within the same disease areas that are the subjects of their agreements
with us. Agreements with collaborators may not preclude them from pursuing development efforts using a different approach from
that which is the subject of our agreement with them. Any of our drug candidates, therefore, may be subject to competition with
a drug candidate under development by a customer.
There are currently approved
vaccines and therapies for many of the diseases and conditions addressed by the product candidates in our pipeline. There are also
a number of companies working to develop new drugs and other therapies for diseases of commercial interest to us that are undergoing
various stages of testing including clinical trials. The key competitive factors affecting the success of our platforms for commercial
product candidates are likely to be efficacy, safety profile, price, and convenience.
Government Regulation and Product Approval
Regulation by governmental
authorities in the U.S. and other countries is a significant factor in the development, manufacturing and marketing of pharmaceutical
drugs and vaccines. All of the vaccine and therapeutic products developed from our platform technologies will require regulatory
approval by governmental agencies prior to commercialization. In particular, pharmaceutical drugs and vaccines are subject to rigorous
preclinical testing and clinical trials and other pre-marketing approval requirements by the FDA and regulatory authorities in
other countries. In the U.S., various federal, and, in some cases, state statutes and regulations, also govern or impact the manufacturing,
safety, labeling, storage, record-keeping and marketing of vaccines and pharmaceutical products. The lengthy process of seeking
required approvals and the continuing need for compliance with applicable statutes and regulations requires the expenditure of
substantial resources. Regulatory approval, if and when obtained for any of our product candidates, may be limited in scope, which
may significantly limit the indicated uses for which our product candidates may be marketed. Further, approved vaccines and drugs
are subject to ongoing review and discovery of previously unknown problems that may result in restrictions on their manufacture,
sale or use or in their withdrawal from the market.
Before any product candidates
with potential immunization or therapeutic value may be tested in human subjects, we must satisfy stringent government requirements
for preclinical studies. Preclinical testing includes both
in vitro
and
in vivo
laboratory evaluation and characterization
of the safety and efficacy of the product candidate. “
In vitro
” refers to tests conducted with cells in culture
and “
in vivo
” refers to tests conducted in animals. Preclinical testing results obtained from studies in several
animal species, as well as data from
in vitro
studies, are submitted to the FDA as part of an IND and are reviewed by the
FDA prior to the commencement of human clinical trials. These preclinical data must provide an adequate basis for evaluating both
the safety and the scientific rationale for the initial clinical trials. In the case of vaccine candidates, animal immunogenicity
and immune protection tests must establish a sound scientific basis to believe that the product candidate may be beneficial when
administered to humans.
An IND becomes effective
automatically 30 days after receipt by the FDA, unless the FDA raises concern or questions about the conduct of the clinical trials
as outlined in the IND prior to that time. In such an event, the IND sponsor and the FDA must resolve any outstanding concerns
before clinical trials can proceed. For additional information on the most recent FDA regulations and guidance on vaccine and therapeutic
product testing and approval, visit its website at http://www.fda.gov.
Any products we or a licensee
manufactures or distributes under FDA approval are subject to continuing regulation by the FDA, including record-keeping requirements
and reporting of adverse experiences with the products. Drug manufacturers and their subcontractors are required to register with
the FDA and, where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies
for compliance with current cGMPs, which are the standards the FDA requires be met during the manufacturing of drugs and biologic
products, and which impose procedural and documentation requirements upon us and any third party manufacturers we utilize.
To the extent we conduct
vaccine or therapeutic product development activities outside the United States, we will also be subject to a wide variety of foreign
regulations governing the development, manufacture and marketing of our product candidates. Whether or not FDA approval has been
obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior to manufacturing
or marketing the product in those countries. The approval process varies from country to country and the time needed to secure
approval may be longer or shorter than that required for FDA approval. We cannot assure you that clinical trials conducted in one
country will be accepted by other countries or that approval in one country will result in approval in any other country. The product
testing and clinical trial requirements that must be met before a product candidate can be marketed are substantial, time-consuming,
and require investments of millions of dollars per product candidate.
Employees
As of October 13, 2016,
we had eight employees in iBio and eighteen employees in iBio CMO. Our employees are not represented by any union and are not the
subject of a collective bargaining agreement. We consider our relations with our employees to be good. Since our business strategy
is based on outsourcing some of our development and clinical trial work to third parties, we believe this staffing level will be
sufficient to meet our needs.
Item 1A. Risk Factors.
Our business faces many
risks. Past experience may not be indicative of future performance, and as noted elsewhere in this Annual Report on Form 10-K,
we have included forward-looking statements about our business, plans and prospects that are subject to change. Forward-looking
statements are particularly located in, but not limited to, the sections “Business” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.” In addition to the other risks or uncertainties contained
in this report, the risks described below may affect our operating results, financial condition and cash flows. If any of these
risks occur, either alone or in combination with other factors, our business, financial condition or operating results could be
adversely affected and the trading price of common stock may decline. Moreover, readers should note this is not an exhaustive list
of the risks we face; some risks are unknown or not quantifiable, and other risks that we currently perceive as immaterial may
ultimately prove more significant than expected. Statements about plans, predictions or expectations should not be construed to
be assurances of performance or promises to take a given course of action.
Risks Related to
Our Financial Position and Need for Additional Capital
We have incurred
significant losses since our inception. We expect to incur losses during our next fiscal year and may never achieve or maintain
profitability.
Since
our 2008 spinoff from Integrated BioPharma, Inc., we have incurred operating losses and negative cash flows from operations. Our
net loss was approximately $10.7 million for the year ended June 30, 2016 and approximately $6.6 million for the year ended June
30, 2015. As of June 30, 2016, we had an accumulated deficit of approximately $57.6 million.
To
date, we have financed our operations primarily through the sale of common stock and warrants. We have devoted substantially all
of our efforts to research and development, including the development and validation of our technology platforms and the development
of a proprietary therapeutic product against fibrosis based upon our platform. We have not completed development of or commercialized
any vaccine or therapeutic product candidates. We expect to continue to incur significant expenses and operating losses for at
least the next year. We anticipate that our expenses and losses will increase substantially if we:
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initiate clinical trials of our product candidates;
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continue the research and development of our product candidates;
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seek to discover additional product candidates; and
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add operational, financial and management information systems and personnel, including personnel
to support our product development efforts.
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To
become and remain profitable, we must succeed in commercializing our technology platforms or we, alone or with our licensees, must
succeed in developing and eventually commercializing products that generate significant revenue. This will require us, alone or
with our licensees and collaborators, to be successful in a range of challenging activities, including completing preclinical testing
and clinical trials of our product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing
and selling those products for which regulatory approval is obtained or establishing collaborations with parties willing and able
to provide necessary capital or other value. We may never succeed in these activities and may never generate revenues that are
significant or large enough to achieve profitability.
Even
if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure
to become and remain profitable would diminish the value of our company and could impair our ability to raise capital, expand our
business, diversify our product offerings or continue our operations. A decline in the value of our company could also cause you
to lose all or part of your investment.
We will need substantial
additional funding to execute our business plan, which funding may not be available on commercially acceptable terms or at all.
If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs
or commercialization efforts.
We
have limited financial resources and will need substantial additional funding in connection with our continuing operations. To
the extent that we initiate or continue clinical development without securing collaborator or licensee funding, our research and
development expenses could increase substantially. Additionally, to the extent that our efforts to outlicense our technology platforms
and product candidates are unsuccessful or we find that it is necessary to advance the development of product candidates further
than contemplated by our current business plans to secure favorable licensing terms, we would require substantial additional capital.
On
May 15, 2015, we entered into a common stock purchase agreement with Aspire Capital Fund, LLC (“Aspire Capital”), pursuant
to which we have the option to require Aspire Capital to purchase up to an aggregate of $15.0 million of shares of our common stock
upon and subject to the terms of the agreement over the 36-month term of the agreement. The agreement with Aspire Capital is more
fully described under
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources
. The extent to which we utilize the purchase agreement with Aspire Capital as a source of funding
will depend on a number of factors, including the prevailing market price of our common stock, the volume of trading in our common
stock and the extent to which we are able to secure funds from other sources. The number of shares that we may sell to Aspire Capital
under the purchase agreement on any given day and during the term of the agreement is limited. Additionally, we and Aspire Capital
may not effect any sales of shares of our common stock under the purchase agreement during the continuance of an event of default
under the purchase agreement. Even if we are able to access the full $15.0 million under the purchase agreement, we may still need
additional capital to fully implement our business, operating and development plans.
On
November 20, 2014, we filed with the Securities and Exchange Commission a Registration Statement on Form S-3 under the Securities
Act, which was declared effective by the Securities and Exchange Commission on December 2, 2014. This registration statement allows
us, from time to time, to offer and sell shares of common stock, shares of preferred stock, debt securities, units comprised of
shares of common stock, preferred stock, debt securities and warrants in any combination, and warrants to purchase common stock,
preferred stock, debt securities and/or units, up to a maximum aggregate amount of $100 million of such securities. On May 29,
2015, we filed a prospectus supplement to the Registration Statement registering $15.0 million of our common stock that we may
issue and sell to Aspire Capital from time to time pursuant to the purchase agreement described above, together with the 450,000
Commitment Shares issued to Aspire Capital in consideration for entering into the agreement. We currently have no other firm agreements
with any third parties for the sale of our securities pursuant to this registration statement.
When
we elect to raise additional funds or additional funds are required, we may raise such funds from time to time through public or
private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives,
as well as through sales of common stock to Aspire Capital under the purchase agreement. Additional equity or debt financing or
corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. If we are unable to raise
capital in sufficient amounts when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research
and development programs or commercialization efforts and our ability to generate revenues and achieve or sustain profitability
will be substantially harmed.
We
expect that our existing cash on hand as of June 30, 2016 in the amount of $23 million, together with funds we expect to
develop from future sales pursuant to the Aspire agreement, will be sufficient to meet our projected operating requirements
through fiscal year ending June 30, 2017. We have based this projection on assumptions that may prove to be wrong, in which
case we may deplete our cash resources sooner than we currently anticipate. Our future capital requirements will depend on
many factors, including:
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our
ability to attract additional licensees or other third parties willing to fund development, and if successful, commercialization
of product candidates;
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the
success and expansion of our existing collaboration with Fiocruz and any new license agreements we may enter into;
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the
costs, timing and regulatory review of our product candidates;
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the
costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related
claims; and
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the
extent to which we acquire or invest in businesses, products and technologies.
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Conducting
preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and
we may never generate the data necessary to attract additional licensees and we and our current licensees may never generate the
data required for product candidates to obtain the regulatory approvals necessary for product sales. Even if approved, product
candidates may not achieve commercial success. Currently, we expect our commercial revenues, if any, to be product development
fees, development milestone payments, and other license proceeds, including royalties derived from sales of products that we do
not expect to be commercially available for several years, if at all. Accordingly, to achieve our business objectives we will need
to continue to rely on additional financing which may not be available to us on acceptable terms, or at all.
If we are unsuccessful
in raising additional capital or other alternative financing, we might have to defer or abandon our efforts to commercialize our
intellectual property and decrease or even cease operations.
Raising additional
capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies
or product candidates.
Until
such time as we can generate substantial license or product revenues, we expect to finance our cash needs through a combination
of equity offerings, collaborations, strategic alliances, licensing and other arrangements. Sources of funds may not be available
or, if available, may not be available on terms satisfactory to us.
If
we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available,
would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our
ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt
financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable
to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it
may be necessary to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates
or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs
be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects
could be materially and adversely affected and we may be unable to continue our operations.
To
the extent that we raise additional capital through a public or private offering and sale of equity securities, your ownership
interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect
your rights as a stockholder. If we raise additional funds through collaborations, strategic alliances or licensing arrangements
with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or
product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our
working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial
condition and prospects could be materially and adversely affected and we may be unable to continue our operations.
We have a limited operating history, which
may limit the ability of investors to make an informed investment decision.
We commenced independent
operations in 2008, and our operations to date have included organizing and staffing our company, business planning, raising capital,
acquiring and developing our proprietary technology platforms, identifying potential product candidates and undertaking, through
third parties, preclinical trials and clinical trials of product candidates derived from our technologies. Certain iBioLaunch-derived
vaccine candidates have been evaluated in completed or ongoing Phase 1 clinical trials; however, all our other vaccine and therapeutic
protein product candidates are still in preclinical development. Neither we nor our collaborators have completed any other clinical
trials for any vaccine or therapeutic protein product candidate produced using iBio technology. As a result, we have not yet demonstrated
our ability to successfully complete any Phase 2 or pivotal clinical trials, obtain regulatory approvals, manufacture a commercial
scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful
product commercialization. Consequently, any conclusion you reach about our future success or viability may not be as predictive
as it might be if we had a longer operating history.
Risks Related to
the Development and Commercialization of Our Platform Technologies and Product Candidates
We may expend our
limited resources to pursue a particular technology or product candidate and fail to capitalize on technologies or product candidates
that may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and managerial resources, we focus on specific product candidates derived from or enhanced by our technologies.
As a result, we may forego or delay pursuit of opportunities with other technology platforms or product candidates that later prove
to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial
products or profitable market opportunities. Our spending may not yield any commercially viable products.
We
have based our research and development efforts on our technology platforms and product candidates derived from such platforms.
Notwithstanding our large investment to date and anticipated future expenditures in these platforms, we have not yet developed,
and may never successfully develop, any marketed products using these technologies. As a result of our exclusive use of our own
platforms, we may fail to address or develop product candidates based on other scientific approaches that may offer greater commercial
potential or for which there is a greater likelihood of success.
We
also may not be successful in our efforts to identify or discover additional product candidates using our technology platforms.
Research programs to identify new product candidates require substantial technical, financial and human resources. These research
programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical
development.
If
we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable
rights to that product candidate through collaboration, licensing or other royalty arrangements on terms less favorable to us than
possible.
We are very early
in our development efforts. If we or our collaborators are unable to successfully develop and commercialize product candidates
or experience significant delays in doing so, our business will be materially harmed.
Excepting
a limited number of vaccine candidates that have been evaluated in completed Phase 1 clinical trials, all our other vaccine and
therapeutic protein product candidates are still in preclinical development. Our ability to generate product sales revenues for
our own products, which we do not expect will occur for many years, will depend heavily on the successful development and eventual
commercialization of our product candidates. The success of our product candidates will depend on several factors, including the
following:
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completion
of preclinical studies and clinical trials with positive results;
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receipt
of marketing approvals from applicable regulatory authorities;
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obtaining
and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
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making
arrangements with third-party manufacturers for commercial manufacturing capabilities;
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launching
commercial sales of our products, if and when approved, whether alone or in collaboration with others;
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successfully
maintaining existing collaborations and entering into new ones throughout the development process as appropriate, from preclinical
studies through to commercialization;
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acceptance
of the products, if and when approved, by patients, the medical community and third-party payors;
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effectively
competing with other products;
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obtaining
and maintaining coverage and adequate reimbursement by third-party payors, including government payors, for any products we successfully
develop;
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protecting
our rights in our intellectual property portfolio; and
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maintaining
a continued acceptable safety profile of the products following approval.
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If
we or our collaborators do not achieve one or more of these factors in a timely manner or at all, we could experience significant
delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business.
We may not be successful
in our efforts to use iBioLaunch and iBioModulator to build a pipeline of product candidates and develop marketable products.
While
we believe that data we and our collaborators have obtained from preclinical studies and Phase 1 clinical trials of iBioLaunch-derived
and iBioModulator-enhanced product candidates has validated these technology platforms, our platforms have not yet, and may never
lead to, approvable or marketable products. Even if we are successful in further validating our platforms and continuing to build our
pipeline, the potential product candidates that we identify may not be suitable for clinical development for many possible reasons,
including harmful side effects, limited efficacy or other characteristics that indicate that such product candidates are unlikely
to be products that will receive marketing approval and achieve market acceptance. If we and our collaborators do not successfully
develop and commercialize product candidates based upon our technological approach, we will not obtain product or collaboration
revenues in future periods, which likely would result in significant harm to our financial position and adversely affect our stock
price.
Neither we nor our licensees will be able
to commercialize product candidates based on our platform technologies if preclinical studies do not produce successful results
or clinical trials do not demonstrate safety and efficacy in humans.
Preclinical and clinical
testing is expensive, difficult to design and implement, can take many years to complete and has an uncertain outcome. Success
in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results
of a clinical trial do not necessarily predict final results. We and our licensees may experience numerous unforeseen events during,
or as a result of, preclinical testing and the clinical trial process that could delay or prevent the commercialization of product
candidates based on our iBioLaunch and iBioModulator technologies, including the following:
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Preclinical
or clinical trials may produce negative or inconclusive results, which may require additional preclinical testing, additional
clinical trials or the abandonment of projects that we expect to be promising. For example, promising animal data may be obtained
about the anticipated efficacy of a therapeutic protein product candidate and then human tests may not result in such an effect.
In addition, unexpected safety concerns may be encountered that would require further testing even if the therapeutic protein
product candidate produced an otherwise favorable response in human subjects.
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Initial
clinical results may not be supported by further or more extensive clinical trials. For example, a licensee may obtain data that
suggest a desirable immune response from a vaccine candidate in a small human study, but when tests are conducted on larger numbers
of people, the same extent of immune response may not occur. If the immune response generated by a vaccine is too low or occurs
in too few treated individuals, then the vaccine will have no commercial value.
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Enrollment
in our or our licensee’s clinical trials may be slower than projected, resulting in significant delays. The cost of conducting
a clinical trial increases as the time required to enroll adequate numbers of human subjects to obtain meaningful results increases.
Enrollment in a clinical trial can be a slower-than-anticipated process because of competition from other clinical trials, because
the study is not of interest to qualified subjects, or because the stringency of requirements for enrollment limits the number
of people who are eligible to participate in the clinical trial.
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We
or our licensees might have to suspend or terminate clinical trials if the participating subjects are being exposed to unacceptable
health risks. Animal tests do not always adequately predict potential safety risks to human subjects. The risk of any candidate
product is unknown until it is tested in human subjects, and if subjects experience adverse events during the clinical trial,
the trial may have to be suspended and modified or terminated entirely.
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Regulators
or institutional review boards may suspend or terminate clinical research for various reasons, including safety concerns or noncompliance
with regulatory requirements.
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Any
regulatory approval ultimately obtained may be limited or subject to restrictions or post-approval commitments that render the
product not commercially viable.
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The
effects of iBioLaunch-derived or iBioModulator-enhanced product candidates may not be the desired effects or may include undesirable
side effects.
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Significant clinical trial
delays could allow our competitors to bring products to market before we or our licensees do and impair our ability to commercialize
our technology platform and product candidates based on our technology platform. Poor clinical trial results or delays may make
it impossible to license a product candidate or so reduce its attractiveness to prospective licensees that we will be unable to
successfully develop and commercialize such a product candidate.
If we are not able
to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product
candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired.
Our
product candidates and the activities associated with their development and commercialization, including their design, testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject
to comprehensive regulation by the FDA and by similar regulatory authorities outside the United States. Failure to obtain marketing
approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market
any of our product candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting
the applications necessary to gain marketing approvals and expect to rely on third parties to assist us in this process. Securing
marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory
authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing
approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing
facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may
prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing
approval or prevent or limit commercial use. If any of our product candidates receives marketing approval, the accompanying
label may limit the approved use in such a restrictive manner that it is not possible to obtain commercial viability for such product.
The
process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years. If additional
clinical trials are required for certain jurisdictions, these trials can vary substantially based upon a variety of factors, including
the type, complexity and novelty of the product candidates involved, and may ultimately be unsuccessful. Changes in marketing approval
policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory
review process for each submitted product application, may cause delays in the review and approval of an application. Regulatory
authorities have substantial discretion in the approval process and may refuse to accept a marketing application as deficient or
may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition,
varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval
of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval
commitments that render the approved product not commercially viable.
Although
the FDA and other regulatory authorities have approved plant-based therapeutics in the past, consistent with the oversight of all
products, the FDA is monitoring whether these plant-based therapeutics pose any health and human safety risks. While they have
not issued any regulations to date adverse to plant-based vaccines or therapeutics, it is possible that the FDA and other regulatory
authorities could issue regulations in the future that could adversely affect our product candidates.
If
we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects
for our product candidates may be harmed and our ability to generate revenues will be materially impaired.
Alternative technologies
may supersede our technologies or make them noncompetitive, which would harm our ability to generate future revenue.
The
manufacture of biologics and the methods of such manufacture are intensely competitive fields. Each of these fields is characterized
by extensive research efforts, which result in rapid technological progress that can render existing technologies obsolete or economically
noncompetitive. If our competitors succeed in developing more effective technologies or render our technologies obsolete or noncompetitive,
our business will suffer. Many universities, public agencies and established pharmaceutical, biotechnology, and other life sciences
companies with substantially greater resources than we have are developing and using technologies and are actively engaging in
the development of products similar to or competitive with our technologies and products. To remain competitive, we must continue
to invest in new technologies and improve existing technologies. To make such renewing investment we will need to obtain additional
financing. If we are unable to secure such financing, we will not have sufficient resources to continue such investment.
Our
competitors may devise methods and processes for protein expression that are faster, more efficient or less costly than that which
can be achieved using iBioLaunch. There has been and continues to be substantial academic and commercial research effort devoted
to the development of such methods and processes. If successful competitive methods are developed, it would undermine the commercial
basis for iBioLaunch and iBioModulator.
We have no experience in the sales, marketing
and distribution of pharmaceutical products.
If we fail to establish
commercial licenses for our iBioLaunch and iBioModulator platforms or fail to enter into arrangements with partners with respect
to the sales and marketing of any of our future potential product candidates, we might need to develop a sales and marketing organization
with supporting distribution capability in order to directly market product candidates we successfully develop. Significant additional
expenditures would be required for us to develop such an in-house sales and marketing organization.
Product liability
lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may
develop.
We
face the risk of product liability exposure in connection with the testing of our product candidates in human clinical trials and
will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves
against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit
or eventual outcome, liability claims may result in:
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decreased
demand for any product candidates or products that we may develop;
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injury
to our reputation and significant negative media attention;
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withdrawal
of clinical trial participants;
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significant
costs to defend the related litigation;
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substantial
monetary awards to trial participants or patients;
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reduced
resources of our management to pursue our business strategy; and
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the
inability to commercialize any products that we may develop.
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Prior to commencing human
clinical trials, we will seek to obtain product liability insurance coverage. Such insurance coverage is expensive and may not
be available in coverage amounts we seek or at all. If we obtain such coverage, we may in the future be unable to maintain such
coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to
Dependence on Third Parties
Establishing and
maintaining collaborations is a key component of our business strategy. If we are unable to establish new collaborations and maintain
both new and existing collaborations, or if these collaborations are not successful, our business could be adversely affected.
Our
current business plan contemplates that we will in the future derive significant revenues from collaborators and licensees that
successfully utilize iBioLaunch and iBioModulator in connection with the production, development and commercialization of vaccines
and therapeutic protein product candidates. Our realization of these revenues and dependence on existing collaborations, and any
future collaborations we enter into, is subject to a number of risks, including the following:
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Collaborators
may have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators
may not perform their obligations as expected;
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collaborators
may not pursue development and, if successful, commercialization of product candidates or may elect not to continue or renew development
or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available
funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
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collaborators
may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
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collaborators
could independently develop, or develop with third parties, products that compete directly or indirectly with our products or
product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can
be commercialized under terms that are more economically attractive than ours, which may cause collaborators to cease to devote
resources to the commercialization of our product candidates;
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collaborators
with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit
sufficient resources to the marketing and distribution of such product or products; or commercialization of product candidates,
might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration,
any of which would be time-consuming and expensive;
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collaborators
may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential
litigation;
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collaborators
may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
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collaborations
may be terminated for the convenience of the collaborator and, if terminated, we would potentially lose the right to pursue further
development or commercialization of the applicable product candidates;
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collaborators
may learn about our technology and use this knowledge to compete with us in the future;
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results
of collaborators’ preclinical or clinical studies could produce results that harm or impair other products using our technology;
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there
may be conflicts between different collaborators that could negatively affect those collaborations and potentially others; and
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the
number and type of our collaborations could adversely affect our attractiveness to future collaborators or acquirers.
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If
our collaborations do not result in the successful development and commercialization of products or if one or more of our collaborators
terminates its agreement with us, we may not receive any future research and development funding or milestone or royalty payments
under the collaboration. If we do not receive the funding we expect under these agreements, our continued development of our product
candidates could be delayed and we may need additional resources to develop additional product candidates. There can be no assurance
that our collaborations will produce positive results or successful products on a timely basis or at all.
We
seek to establish and collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization
of iBioLaunch-produced and iBioModulator-enhanced product candidates. We face significant competition in seeking appropriate collaborators.
Our ability to reach a definitive agreement for a collaboration depends, among other things, upon our assessment of the collaborator’s
resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation
of a number of factors. If we fail to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at
all, we may have to curtail the development of a product candidate, reduce or delay its development or the development of one or
more of our other product candidates, or increase our expenditures and undertake additional development or commercialization activities
at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain
additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter
into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization
activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product
platform and our business may be materially and adversely affected.
If third parties on whom we or our licensees
will rely for the conduct of preclinical studies and clinical trials do not perform as contractually required or as we expect,
we may not be able to obtain regulatory approval for or commercialize our product candidates and our business may suffer.
We
do not have the ability to independently conduct the preclinical studies and clinical trials required to obtain regulatory approval
for our product candidates. We have not yet contracted with any third parties to conduct clinical trials of product candidates
we develop independently of collaborators. We will depend on licensees or on independent clinical investigators, contract research
organizations and other third party service providers to conduct the clinical trials of our product candidates. We will rely heavily
on these parties for successful execution of our clinical trials but will not control many aspects of their activities. For example,
the investigators participating in our clinical trials will not be our employees. However, we will be responsible for ensuring
that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial.
Third parties may not complete activities on schedule, or may not conduct our clinical trials in accordance with regulatory requirements
or our stated protocols. The failure of these third parties to carry out their obligations could delay or prevent the development,
approval and commercialization of our product candidates.
Risks Related to
Intellectual Property
If we or our licensors
are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained
is not sufficiently broad, competitors could develop and commercialize technology and products similar or identical to ours, and
our ability to successfully commercialize our technology and products may be impaired.
Our
success depends in part on our ability to obtain and maintain patent and other intellectual property protection in the United States
and other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing
patent applications in the United States and abroad related to our novel technologies and product candidates.
The
patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable
patent applications at a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to
identify patentable aspects of our research and development output before it is too late to obtain patent protection.
The
patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual
questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect
our rights to the same extent as the laws of the United States and we may fail to seek or obtain patent protection in all major
markets. For example, European patent law restricts the patentability of methods of treatment of the human body more than United
States law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications
in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at
all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned patents or
pending patent applications, or that we were the first to file for patent protection of such inventions, nor can we know whether
those from whom we license patents were the first to make the inventions claimed or were the first to file. As a result, the issuance,
scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications
may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent
others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent
laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Patent
reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was
signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions
that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office,
or U.S. PTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the
substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became
effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation
of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material
adverse effect on our business and financial condition.
Moreover,
we may be subject to a third-party pre-issuance submission of prior art to the U.S. PTO, or become involved in opposition, derivation,
reexamination,
inter partes
review, post-grant review or interference proceedings challenging our patent rights or the patent
rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate,
our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment
to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition,
if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies
from collaborating with us to license, develop or commercialize current or future product candidates.
Even
if our pending or future patent applications issue as patents, they may not issue in a form that will provide us with any meaningful
protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors
may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner.
The
issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged
in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to
operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability
to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent
protection of our technology and products. Given the amount of time required for the development, testing and regulatory review
of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.
As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar
or identical to ours.
We may become involved
in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and ultimately
unsuccessful.
Competitors
may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required
to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could
provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in
a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe
the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our
patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents
at risk of being invalidated or interpreted narrowly, which could adversely affect us and our collaborators.
Third parties may
initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain
and could have a material adverse effect on the success of our business.
Our
commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our
product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable
intellectual property litigation in the biotechnology and pharmaceutical industries. While no such litigation has been brought
against us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot
guarantee that our technology, products or use of our products do not infringe third-party patents. It is also possible that we
have failed to identify relevant third-party patents or applications. For example, applications filed before November 29,
2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until
patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest
filing, which is referred to as the priority date. Therefore, patent applications covering our products or technology could have
been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to
certain limitations, be later amended in a manner that could cover our technologies, our products or the use of our products.
We may become party to, or threatened with,
future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology,
including interference or derivation proceedings before the U.S. PTO and similar bodies in other countries. Third parties may assert
infringement claims against us based on existing intellectual property rights and intellectual property rights that may be granted
in the future.
If
we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such
third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required
license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby
giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing
the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and
attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing
our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that
we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on
our business.
Intellectual property
litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even
if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur
significant expenses, and could distract our limited number of personnel from their normal responsibilities. In addition, there
could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common
stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for
development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other
resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such
litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from
the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
If we are unable
to protect our trade secrets, our business and competitive position would be harmed.
In
addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented
know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets,
in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees,
corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties.
We also seek to enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite
these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets,
and we may not be able to obtain adequate remedies for such breaches. Our trade secrets may also be obtained by third parties by
other means, such as breaches of our physical or computer security systems. Enforcing a claim that a party illegally disclosed
or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some
courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets
were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom
they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed
to or independently developed by a competitor, our competitive position would be harmed.
Risks Related to
iBio CMO’s Operations
If iBio CMO is
unable to provide quality and timely offerings to its customers, its business could suffer, which could have a material adverse
impact on our business and results of operations.
In January 2016, we
entered into a contract manufacturing joint venture operated through our subsidiary iBio CMO, which is owned 70% by iBio and 30%
by an affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the Company. iBio CMO operates on the basis
of three parallel lines of business: (1) Development and manufacturing of third party products; (2) Development and production
of iBio’s proprietary product(s) for treatment of fibrotic diseases; and (3) Commercial technology transfer services. iBio
CMO’s operations take place in Bryan, Texas in a facility controlled by another affiliate of Eastern, as sublandlord. The
facility is a Class A life sciences building on the campus of Texas A&M University, designed and equipped for plant-made manufacture
of biopharmaceuticals.
A
failure of quality control systems in iBio CMO’s facilities could cause problems to arise in connection with facility operations
or during preparation or provision of products, in both cases, for a variety of reasons, including equipment malfunction, failure
to follow specific protocols and procedures, problems with raw materials or environmental factors. Such problems could affect production
of a particular batch or series of batches, requiring the destruction of products, or could halt facility production altogether.
In addition, failure to meet required quality standards may result in failure to timely deliver products to customers. Any such
incident could, among other things, lead to increased costs, lost revenue, reimbursement to customers, damage to and possibly termination
of existing customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses
with respect to other batches or products. If problems are not discovered before a product is released to the market, we may be
subject to regulatory actions, including product recalls, product seizures, injunctions to halt manufacture and distribution, restrictions
on our operations, civil sanctions, including monetary sanctions, and criminal actions. In addition, such issues could subject
us to litigation, the cost of which could be significant.
A failure by iBio
CMO to attract and maintain customers and any reduction in spending or demand for iBio CMO’s manufacturing, development and
technology transfer services could have a material adverse effect on our business.
iBio
CMO’s operations will depend, in part, on its ability to attract and maintain customers for its development, manufacturing
and technology transfer services and on the amount of customer spending on such services. If iBio CMO fails to attract customers
or its customers’ and potential customers’ spending on iBio CMO’s services is reduced, this may have a material
adverse effect on our business, results of operations and financial condition.
iBio CMO’s
operations are subject to environmental, health and safety laws and regulations, which could increase costs and restrict operations
in the future.
iBio CMO’s operations
are subject to a variety of environmental, health and safety laws and regulations, including those of the Environmental Protection
Agency and equivalent local and state agencies. These laws and regulations govern, among other things, air emissions, wastewater
discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater contamination and employee
health and safety. Any failure to comply with environmental, health and safety requirements could result in the limitation or suspension
of production or monetary fines or civil or criminal sanctions, or other future liabilities. iBio CMO is also subject to laws and
regulations governing the destruction and disposal of raw materials and the handling and disposal of regulated material.
Risks Related to Business Operations
If we acquire companies, products or technologies,
we may face integration risks and costs associated with those acquisitions that could negatively impact our business, results from
operations and financial condition.
If we are presented with
appropriate opportunities, we may acquire or make investments in complementary companies, products or technologies. We may not
realize the anticipated benefit of any acquisition or investment. If we acquire companies or technologies, we will face risks,
uncertainties and disruptions associated with the integration process, including difficulties in the integration of the operations
of an acquired company, integration of acquired technology with our products, diversion of our management’s attention from
other business concerns, the potential loss of key employees or customers of the acquired business, and impairment charges if future
acquisitions are not as successful as we originally anticipate. In addition, our operating results may suffer because of acquisition-related
costs or amortization expenses or charges relating to acquired intangible assets. Any failure to successfully integrate other companies,
products or technologies that we may acquire may have a material adverse effect on our business and results of operations. Furthermore,
we may have to incur debt or issue equity securities to pay for any additional future acquisitions or investments, the issuance
of which could be dilutive to our existing stockholders.
Risks Relating to Our Common Stock
Our operating results may vary significantly
in the future, which may adversely affect the price of our common stock.
It is likely that our operating
results may vary significantly in the future and that period-to-period comparisons of our operating results are not necessarily
meaningful indicators of the future. You should not rely on the results of one quarter as an indication of our future performance.
It is also possible that in some future quarters our operating results will fall below our expectations or the expectations of
market analysts and investors. If we do not meet these expectations, the price of our common stock may decline significantly.
Provisions in our charter documents and
under Delaware law could discourage a takeover that stockholders may consider favorable.
Provisions of our certificate
of incorporation, bylaws and provisions of applicable Delaware law may discourage, delay or prevent a merger or other change in
control that a stockholder may consider favorable. Pursuant to our certificate of incorporation, our Board of Directors may issue
additional shares of common or preferred stock. Any additional issuance of common stock could have the effect of impeding or discouraging
the acquisition of control of us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which
our stockholders would receive a premium over the market price for their shares, and thereby protect the continuity of our management.
Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal
was not in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions
that might prevent or render more difficult or costly the completion of the takeover by:
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•
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Diluting
the voting or other rights of the proposed acquirer or insurgent stockholder group,
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•
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Putting
a substantial voting block in institutional or other hands that might undertake to support the incumbent Board of Directors, or
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•
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Effecting
an acquisition that might complicate or preclude the takeover.
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Our certificate of incorporation
also allows our Board of Directors to fix the number of directors in the by-laws. Cumulative voting in the election of directors
is specifically denied in our certificate of incorporation. The effect of these provisions may be to delay or prevent a tender
offer or takeover attempt that a stockholder may determine to be in his, her or its best interest, including attempts that might
result in a premium over the market price for the shares held by the stockholders.
We do not anticipate paying cash dividends
for the foreseeable future, and therefore investors should not buy our stock if they wish to receive cash dividends.
We have never declared
or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings to support
operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable
future.
The sale of our common stock through current
or future equity offerings may cause dilution and could cause the price of our common stock to decline.
We are entitled under our
certificate of incorporation to issue up to 175 million shares of common stock, par value $.001 per share, and 1 million shares
of preferred stock, with no par value. As of June 30, 2016, we had issued and outstanding approximately 89.1 million shares of
common stock, and 12.3 million options to purchase shares of common stock. Additionally, we had approximately 2.7 million shares
of common stock reserved for future issuance of additional option grants under our 2008 Omnibus Equity Incentive Plan and 14.9
million shares reserved under the 2015 Aspire Purchase Agreement. Accordingly, we will be able to issue up to approximately 56
million additional shares of common stock and 1 million shares of preferred stock. Sales of our common stock offered through
current or future equity offerings may result in substantial dilution to our stockholders. The sale of a substantial number of
shares of our common stock to investors, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise wish to effect sales.
The issuance of preferred stock or additional
shares of common stock could adversely affect the rights of the holders of shares of our common stock.
Our Board of
Directors is authorized to issue up to 1 million shares of preferred stock without any further action on the part of our
stockholders. Our Board of Directors has the authority to fix and determine the voting rights, rights of redemption and other
rights and preferences of preferred stock. Currently, we have no shares of preferred stock outstanding. Our Board of
Directors may, at any time, authorize the issuance of a series of preferred stock that would grant to holders the preferred
right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders
of common stock, and the right to the redemption of the shares, together with a premium, before the redemption of our common
stock, which may have a material adverse effect on the rights of the holders of our common stock. In addition, our Board of
Directors, without further stockholder approval, may, at any time, issue large blocks of preferred stock. In addition, the
ability of our Board of Directors to issue shares of preferred stock without any further action on the part of our
stockholders may impede a takeover of our company and may prevent a transaction that is favorable to our stockholders.
Risks Related to Our Agreement with Aspire
Capital
Sales of our common stock to Aspire Capital
may cause substantial dilution to our existing stockholders and the sale of the shares of our common stock acquired by Aspire Capital
could cause the price of our common stock to decline.
On May 29, 2015, we filed
a prospectus supplement to our Registration Statement on Form S-3 (Registration No. 333-200410) registering $15.0 million of our
common stock that we may issue and sell to Aspire Capital from time to time pursuant to the purchase agreement that we entered
into with Aspire Capital on May 15, 2015, which is described under
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources
, together with 450,000 commitment shares issued
to Aspire Capital in consideration for entering into the purchase agreement. It is anticipated that shares offered to Aspire Capital
will be sold over a period of up to 36 months from the date of the prospectus supplement. The number of shares ultimately offered
for sale to Aspire Capital is dependent upon the number of shares we elect to sell to Aspire Capital under the agreement. Depending
upon market liquidity at the time, sales of shares of our common stock under the agreement with Aspire Capital may cause the trading
price of our common stock to decline.
Aspire Capital may ultimately
purchase all, some or none of the $15.0 million of our common stock that we may sell under the agreement. After Aspire Capital
has acquired shares under the agreement, it may sell all, some or none of those shares. Sales to Aspire Capital by us pursuant
to the agreement may result in substantial dilution to the interests of other holders of our common stock. The sale of a substantial
number of shares of our common stock to Aspire Capital, or anticipation of such sales, could make it more difficult for us to sell
equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. However,
we have the right to control the timing and amount of any sales of our shares to Aspire Capital and the agreement with Aspire Capital
may be terminated by us at any time at our discretion without any cost to us.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Property.
Our corporate office is
located in subleased space, leased on a month-to-month basis, at 600 Madison Avenue, New York, New York, and includes shared use
of common facilities. In this space, we perform or maintain oversight of our administrative, clinical development, regulatory affairs
and business development functions.
iBio CMO’s operations
take place in Bryan, Texas in a facility controlled by an affiliate of Eastern Capital Limited, the largest stockholder of the
Company, as sublandlord. The facility is a 139,000 square foot Class A life sciences building on the campus of Texas A&M University,
designed and equipped for plant-made manufacture of biopharmaceuticals. iBio CMO has a 34-year sublease for the facility. Commercial
operations commenced in January 2016. iBio CMO operates on the basis of three parallel lines of business: (1) Development and manufacturing
of third party products; (2) Development and production of the Company’s proprietary product(s) for treatment of fibrotic
diseases; and (3) Commercial technology transfer services.
Item 3. Legal Proceedings.
The following information supplements and amends
our discussion set forth under Part II, Item 1 “Legal Proceedings” in the Company’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2016.
Lawsuits
On October 22, 2014, the
Company filed a Verified Complaint in the Court of Chancery of the State of Delaware against PlantForm Corporation (“PlantForm”)
and PlantForm’s president seeking equitable relief and damages based upon PlantForm’s interference with several contracts
between the Company and Fraunhofer USA, including its Center for Molecular Biotechnology unit, (“Fraunhofer”) and one
of the Company’s consultants and misappropriating the Company’s intellectual property including trade secrets and know-how.
On May 14, 2015, after mediation ordered and supervised by the Chancery Court, PlantForm represented and agreed that all drug development
and manufacturing activities of PlantForm with Fraunhofer had ceased and would not be renewed at least until after the termination
of the Company’s litigation regarding similar subject matter with Fraunhofer, and all of the accrued claims between the Company
and PlantForm and its President were voluntarily dismissed with prejudice.
On March 17, 2015, the
Company filed a Verified Complaint in the Court of Chancery of the State of Delaware against Fraunhofer and Vidadi Yusibov (“Yusibov”),
Fraunhofer’s Executive Director, seeking monetary damages and equitable relief based on Fraunhofer’s material and continuing
breaches of their contracts with the Company. On September 16, 2015, the Company voluntarily dismissed its action against Yusibov,
without prejudice, and thereafter on September 29, 2015, the Company filed a Verified Amended Complaint against Fraunhofer alleging
material breaches of its agreements with the Company and seeking monetary damages and equitable relief against Fraunhofer. Briefing
was completed on a motion to dismiss filed by Fraunhofer in lieu of filing an answer to the complaint. Fraunhofer also moved for
a protective order in connection with certain discovery served by iBio. The Court bifurcated the action to first resolve the threshold
question in the case – the scope of iBio’s ownership of the technology developed or held by Fraunhofer — before
proceeding with the rest of the case and the parties stipulated their agreement to that approach. After considering the parties’
written submissions and oral argument on this threshold issue on April 29, 2016, the Court resolved the threshold issue in favor
of iBio on July 29, 2016, holding that iBio owns all proprietary rights of any kind to all plant-based technology of Fraunhofer
developed or held as of December 31, 2014, including know-how, and is entitled to receive a transfer of the technology from Fraunhofer.
On September 19, 2016, Fraunhofer informed the Court that it does not intend to pursue its motion for protective order at this
time. iBio intends to seek leave of Court to supplement and amend its current complaint to add additional state law claims against
Fraunhofer. The Company is unable to predict the further outcome of this action at this time.
On October 24, 2014, a
putative class action captioned
Juan Pena, Individually and on Behalf of All Others Similarly Situated v. iBio, Inc. and Robert
B. Kay
was filed in the United States District Court for the District of Delaware. The action alleged that the Company and
its Chief Executive Officer made certain statements in violation of federal securities laws and sought an unspecified amount of
damages. On February 23, 2015, the Court issued an order appointing a new lead plaintiff. On April 6, 2015, the plaintiffs filed
an amended class action complaint in the same matter captioned Vamsi Andavarapu, Individually And On Behalf Of All Others Situated
v. iBio, Inc., Robert B. Kay, and Robert Erwin. The action alleged that the Company, its Chief Executive Officer, and its President
made certain statements in violation of federal securities laws and sought an unspecified amount of damages. On May 6, 2015, the
Company, Mr. Kay, and Mr. Erwin filed a motion to dismiss the amended class action complaint. On September 15, 2015, after voluntary
mediation, the Plaintiffs and the Company reached an agreement-in-principle to settle the action. On December 16, 2015, the Plaintiffs
and the Company entered a Stipulation and Agreement of Settlement that provides, among other things, for settlement payments totaling
$1,875,000 in exchange for the releases described therein. That stipulation was filed with the Court on December 18, 2015 and,
on April 21, 2016, the Court entered an Order and Final Judgment approving the settlement and dismissing the case. The settlement
has been funded by the Company’s insurance carrier.
On December 4, 2015, a
putative derivative action captioned
Savage, Derivatively on Behalf of iBio, Inc., Plaintiff, v. Robert B. Kay, Arthur Y. Elliott,
James T. Hill, Glenn Chang, Philip K. Russell, John D. McKey, and Seymour Flug, Defendants, and iBio, Inc., Nominal Defendant
was filed in the Supreme Court of the State of New York, County of New York. The action alleged that the Company and its management
made misstatements about the Company’s business resulting either from (i) a failure by iBio’s directors to establish
a system of controls over the Company’s disclosures, or (ii) the directors’ consciously ignoring “red flags”
relating to disclosures, and sought to recover an unspecified amount of damages. On January 15, 2016, the defendants filed a motion
to dismiss all claims against them. On March 16, 2016, the plaintiff filed a Verified Amended Complaint that added an additional
named plaintiff and alleged derivative claims generally along the same lines as the original complaint, together with purported
direct breach of fiduciary duty and unjust enrichment claims based on the same conduct. The Verified Amended Complaint seeks to
recover an unspecified amount of damages. On April 29, 2016, the defendants filed a motion to dismiss all claims against them.
Plaintiffs’ opposition to the motion was filed on before June 6, 2016. On June 22, 2016, the plaintiffs advised the Court
that the parties had reached a settlement in principle, and on July 1, 2016, the Court ordered that the defendants’ pending
motion to dismiss be withdrawn without prejudice. The terms of the settlement are subject to preliminary and final approval by
the Court. The Company expects that the settlement will be funded by the Company’s insurance carrier.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded on the NYSE MKT
under the trading symbol “IBIO.”
The following table sets forth the high and
low sale prices for our common stock during the years ended June 30, 2016 and 2015 as reported by the NYSE MKT. The quotations
shown represent inter-dealer prices without adjustment for retail markups, markdowns or commissions, and may not necessarily reflect
actual transactions.
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High
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Low
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Year ended June 30, 2016:
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First Quarter
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$
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0.95
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$
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0.62
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Second Quarter
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$
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0.71
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$
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0.55
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Third Quarter
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$
|
0.65
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$
|
0.45
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Fourth Quarter
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$
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0.74
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$
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0.56
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Year ended June 30, 2015:
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First Quarter
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$
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0.75
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$
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0.39
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Second Quarter
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$
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3.21
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$
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0.61
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Third Quarter
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$
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1.06
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$
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0.42
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Fourth Quarter
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$
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1.13
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$
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0.74
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Holders
As of October 13, 2016,
there were 194 holders of record of our common stock.
Dividends
We have never declared
or paid any cash dividends on our common stock.
Item 6. Selected Financial Data.
The information under this
Item is not required to be provided by smaller reporting companies.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
The following discussion
of our financial condition and results of operations should be read together with our financial statements and the notes thereto
and other information included elsewhere in this Annual Report on Form 10-K.
Forward-Looking Information and Factors That May Affect Future
Results
The following discussion
contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform
Act of 1995. All statements contained in the following discussion, other than statements that are purely historical, are forward-looking
statements. Forward-looking statements can be identified by the use of forward-looking terminology such as “believes,”
“expects,” “may,” “will,” “should,” “potential,” “anticipates,”
“plans,” or “intends” or the negative thereof, or other variations thereof, or comparable terminology,
or by discussions of strategy. Forward-looking statements are based upon management’s present expectations, objectives, anticipations,
plans, hopes, beliefs, intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties
that could cause actual results, events or developments to be materially different from those indicated in such forward-looking
statements, including the risks and uncertainties set forth in Item 1A - Risk Factors. These risks and uncertainties should be
considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. As such, no assurance
can be given that the future results covered by the forward-looking statements will be achieved.
Overview
We are a biotechnology
company focused on commercializing our proprietary technologies and product candidates and providing product development and manufacturing
services to clients and collaborators. The Company’s technologies constitute a proprietary, transformative platform for development
and production of biologics in hydroponically grown green plants.
Stated simply, iBio’s technologies harness
the natural protein production capability that plants use to sustain their own growth, and direct it instead to produce proteins
for a range of applications including for vaccines and biopharmaceuticals. The Company’s technologies can be used to produce
a wide array of biologics and also to create and produce proprietary derivatives of preexisting products with improved properties.
The Company has used its technologies and its collaborative relationships to demonstrate the applicability of its technologies
to a diverse range of product candidates including products against fibrotic diseases, vaccines, enzyme replacements, monoclonal
antibodies, and recombinant versions of marketed products that are currently derived from human blood plasma.
In addition to the broad
array of biological products that can be produced with the Company’s technologies we believe our technologies offer other
advantages that are not available with conventional manufacturing systems. These anticipated advantages may include reduced production
time and lower operating costs. Further, we believe that the capital investment required to create facilities that will manufacture
proteins using the Company’s technologies will be substantially less than the capital investment which would be required
for the creation of similar capacity facilities utilizing conventional manufacturing methods dependent upon animal cells, bacterial
fermenters and chicken eggs. Additionally, operating costs in a manufacturing facility using iBio’s platform are expected
to be reduced significantly in comparison to conventional manufacturing processes due to the rapid nature of our production cycle
and the elimination of the expenses associated with the operation and maintenance of bioreactors, fermenters, sterile liquid handling
systems and other expensive equipment which is not required in connection with the use of the Company’s technologies.
Among the Company’s proprietary technologies
are the patented iBioLaunch technology, the patented iBioModulator technology, and additional newer and more advanced technologies.
Bio-Manguinhos/Fiocruz, or Fiocruz, a unit of the Oswaldo Cruz Foundation, a central agency of the Ministry of Health of Brazil,
is sponsoring the development an iBioLaunch-produced yellow fever vaccine to replace the vaccine it currently makes in chicken
eggs for the populations of Brazil and more than 20 other nations. These advances are occurring subsequent to the demonstration
of safety of iBioLaunch-produced vaccine candidates against each of the H1N1 “Swine” flu virus and the H5N1 avian flu
virus in successfully completed Phase 1 clinical trials.
We developed our iBioModulator technology based
on the use of a modified form of the cellulose degrading enzyme lichenase from
Clostridium
thermocellum
, a thermophilic
and anaerobic bacterium. iBioModulator enables an adjuvant component to be fused directly to preferred recombinant antigens to
create a single protein for use in vaccine applications.
The iBioModulator platform has been shown to
be applicable to a range of vaccine proteins and can significantly modify the immune response to a vaccine in two important ways.
Animal efficacy studies have demonstrated that it can increase the strength of the initial immune response to a vaccine antigen
(as measured by antibody titer) and also extend the duration of the immune response. These results suggest the possibility that
use of the iBioModulator platform may lower vaccine antigen requirements and enable fewer doses to establish prolonged protective
immunity.
In addition to technology
developed for iBio pursuant to agreements with Fraunhofer U.S.A., Inc., iBio’s more recently developed technologies provide
us with higher expression yields of certain proteins and increased efficiency in adapting gene sequences to achieve specific product
objectives. In addition, we are developing improved, proprietary manufacturing processes that we expect to protect as trade secrets.
Our near-term focus is
to realize two key objectives: (1) the establishment of additional business arrangements pursuant to which commercial, government
and not-for-profit licensees will utilize the Company’s technologies in connection with the development and manufacturing
of therapeutic proteins and vaccine products; and (2) the further development of select product candidates based upon or enhanced
by our technology platforms. These objectives are the core components of our strategy to commercialize the proprietary technologies
we have developed and validated.
Our strategy to engage
in partnering and out-licensing of our technologies seeks to preserve the opportunity for iBio to share in the successful development
and commercialization of product candidates by our licensees while enhancing our own capital and financial resources for development,
alone or through commercial alliances with others, of high-potential product candidates based upon our technologies. In addition
to financial resources we may receive in connection with the license of our technologies, we believe that successful development
by third party licensees of iBio technology-enhanced product candidates will further validate our technologies, increase awareness
of the advantages that may be realized by the use of such platforms and promote broader adoption of our technologies by additional
third parties.
The advancement of iBio
technology-enhanced product candidates is a key element of our strategy. We believe that selecting and developing products which
individually have substantial commercial value and are representative of classes of pharmaceuticals that can be successfully produced
using our technology platforms will allow us to maximize the near and longer term value of our technologies while exploiting individual
product opportunities. To realize this result, we are currently internally advancing through preclinical IND enabling studies a
proprietary recombinant protein we call IBIO-CFB03 for treatment of idiopathic pulmonary fibrosis, systemic sclerosis, and potentially
other fibrotic diseases. To the extent that we anticipate the opportunity to realize additional value, we may elect to further
the development of this or other product candidates through the early stages of clinical development before seeking to license
the product candidate to other industry participants for late stage clinical development and if successful, commercialization.
On December 16, 2015, we
formed iBio CMO LLC (“iBio CMO”), a Delaware limited liability corporation, to develop and manufacture plant-made pharmaceuticals.
As of December 31, 2015, we owned 100% of iBio CMO. On January 13, 2016, we entered into a contract manufacturing joint venture
with an affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the Company (the “Eastern Affiliate”).
The Eastern Affiliate contributed $15 million in cash for a 30% interest in iBio CMO. We retained a 70% interest in iBio CMO and
contributed a royalty bearing license which grants iBio CMO a non-exclusive license to use our proprietary technologies for research
purposes and an exclusive U.S. license for manufacturing purposes. We retained the exclusive right to grant product licenses to
those who wish to sell or distribute products made using our technology.
iBio CMO’s operations take place in Bryan,
Texas in a facility controlled by another affiliate of Eastern (the “Second Eastern Affiliate”) as sublandlord. The
facility is a Class A life sciences building on the campus of Texas A&M University, designed and equipped for plant-made manufacture
of biopharmaceuticals. The Second Affiliate granted iBio CMO a 34-year sublease for the facility. Commercial operations commenced
in January 2016. iBio CMO operates on the basis of three parallel lines of business: (1) Development and manufacturing of third
party products; (2) Development and production of iBio’s proprietary product(s) for treatment of fibrotic diseases; and (3)
Commercial technology transfer services.
Proprietary iBio technologies
have been used to advance development of certain products that have been commercially infeasible to develop with conventional technologies
such as Chinese hamster ovary cell systems and microbial fermentation methods. They can be used to create and operate manufacturing
facilities at substantially lower capital and operating costs. These include development and manufacture of both vaccine and therapeutic
product candidates. iBio CMO plans to promote commercial collaborations with third parties on the basis of these technology advantages
and to work with customers to achieve laboratory scale technical milestones that can form the basis of longer-term manufacturing
business arrangements. iBio itself will be a client of iBio CMO for further IND advancement of its proprietary products beginning
with IBIO-CFB03 for the treatment of a range of fibrotic diseases. iBio will work with iBio CMO on the production of IBIO-CFB03
for clinical trials and, with clinical success, for commercial launch.
Due to the lower capital
and operating cost requirements for pharmaceutical production via iBio technology versus legacy methods, certain corporations and
governments that have not already established manufacturing capacity for biologic products are client prospects for both development
and for commercial technology transfer services to enable autonomous manufacturing in the market being served. For example, in
Brazil, iBio has been collaborating with the Oswaldo Cruz Foundation (Fiocruz) to develop a recombinant yellow fever vaccine based
on iBio technology. iBio’s contract with Fiocruz provides for commercial technology transfer services as the product candidates
enters human clinical trials. Over time, iBio expects to work closely with iBio CMO to provide such technology transfer services
for a variety of both commercial and government clients.
Results of Operations
Revenue
Gross revenue for 2016
and 2015 was approximately $.95 million and $1.85 million, respectively, a decrease of $.9 million.
Revenue has been primarily
attributable to technology services provided to Bio-Manguinhos/Fiocruz (“Fiocruz”) in connection with the development
by Fiocruz of a yellow fever vaccine using our iBioLaunch™ technology. To fulfill our obligations, we engaged Fraunhofer
USA Inc. (“Fraunhofer”) as a subcontractor to perform the services required. During 2013, the Company, Fiocruz and
Fraunhofer were awaiting approval by the Brazilian government of a contract amendment reflecting a new work plan. During this waiting
period, no revenues were recognized by the Company in connection with services provided to Fiocruz through the subcontract arrangement
with Fraunhofer. In June 2014, the Company, Fiocruz and Fraunhofer amended their Collaboration and License Agreement reflecting
the new work plan and work was resumed by Fraunhofer for the Company to continue development of a yellow fever vaccine using the
Company’s iBioLaunch™ technology. In 2016, revenue was lower due to laboratory tasks performed pursuant to the agreement
with Fiocruz nearing completion, in some cases being completed and, therefore, requiring less total work than previously necessary.
Research and Development Expenses
Research and development
expenses for 2016 and 2015 were approximately $3.2 million and $3.5 million, respectively, a decrease of $.3 million. Research
and development expenses in 2015 include a reconciliation for services rendered prior to October 1, 2014. In 2016, expenses were
increased to reflect the addition of iBio CMO operations and decreased due to changes in the laboratory work with Fiocruz for
a net decrease of $.3 million.
General and Administrative Expenses
General and administrative
expenses for 2016 and 2015 were approximately $7.7 million and $5.0 million, respectively, an increase of $2.7 million. General
and administrative expenses principally include officer and employee salaries and benefits, legal and accounting fees, insurance,
consulting services, investor and public relations services, and other costs associated with being a publicly traded company. The
increase was primarily due to the expenses related to iBio CMO operations which commenced in December 2015 of approximately $3.0
million.
Other Income (Expense)
Other income (expense)
for 2016 and 2015 was approximately ($764,000) and $41,000, respectively.
As discussed above,
iBio CMO’s operations take place in a facility in Bryan, Texas under a 34-year sublease. Such sublease is accounted for as
a capital lease. In 2016, other income (expense) included interest expense of $807,000 incurred under the capital lease and interest
and royalty income of $43,000. Other income in 2015 consisted of interest and royalty income.
Net loss attributable to noncontrolling
interest
This represents the
share of the loss in iBio CMO for the Eastern Affiliate for the year ended June 30, 2016.
Liquidity and Capital Resources
As of June 30, 2016,
we had cash of $23 million as compared to $9.5 million as of June 30, 2015. The increase in cash was primarily attributable to
proceeds received from stock purchase agreements from Eastern and a contribution for the formation of iBio CMO.
Net Cash Used in Operating Activities
Operating activities
used $8.1 million in cash in 2016 to fund the loss for the period.
Net Cash Used in Investing Activities
In 2016, net cash used
in investing activities was approximately $68,000 for additions to fixed assets.
Net Cash Provided by Financing Activities
In 2016, net cash
provided by financing activities was approximately $21.7 million. The Company received approximately $7.2 million from Eastern
from the sale of common stock and the exercise of warrants and $15 million from a capital contribution for the formation of iBio
CMO, offset by payments of $565,000 under the capital lease obligation.
Funding Requirements
We have incurred significant
losses and negative cash flows from operations since our spinoff from Integrated BioPharma, Inc. in August 2008. As of June 30,
2016, our accumulated deficit was approximately $57.6 million, and we used approximately $8.1 million of cash for operating activities
for the year ended June 30, 2016. As of June 30, 2016, cash on hand was approximately $23 million. The cash on hand is expected
to support the Company’s activities at least through June 30, 2017.
We have historically financed
our activities through the sale of common stock and warrants. We plan to fund our future business operations using cash on hand,
through proceeds from the sale of additional equity and other securities and through proceeds realized in connection with license
and collaboration arrangements and operation of the Company’s new subsidiary, iBio CMO.
On May 15, 2015, we entered
into a common stock purchase agreement (the “2015 Aspire Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois
limited liability company (referred to below as “Aspire Capital”) pursuant to which we have the option to require
Aspire Capital to purchase up to an aggregate of $15.0 million of shares of our common stock (the “Purchase Shares”)
upon and subject to the terms of the 2015 Aspire Purchase Agreement. The description of the 2015 Aspire Purchase Agreement and
other information included under the heading “Aspire Capital – 2015 Facility” set forth in Note 11 of the consolidated
financial statements included in this report is incorporated into this Item 7 by reference.
No
shares have been sold under the 2015 Aspire Purchase Agreement as of the date of the filing of this report
. Despite the
proceeds that we may receive pursuant to the 2015 Aspire Purchase Agreement, we may still need additional capital to fully implement
our business, operating and development plans for periods beyond June 30, 2017.
On November 20, 2014, we
filed with the Securities and Exchange Commission a Registration Statement on Form S-3 under the Securities Act, which was declared
effective by the Securities and Exchange Commission on December 2, 2014. This registration statement allows us, from time to time,
to offer and sell shares of common stock, shares of preferred stock, debt securities, units comprised of shares of common stock,
preferred stock, debt securities and warrants in any combination, and warrants to purchase common stock, preferred stock, debt
securities and/or units, up to a maximum aggregate amount of $100 million of such securities. On May 29, 2015, we filed a prospectus
supplement to the Registration Statement registering $15.0 million of our common stock that we may issue and sell to Aspire Capital
from time to time pursuant to the 2015 Aspire Purchase Agreement, together with the 450,000 Commitment Shares issued to Aspire
Capital in consideration for entering into the 2015 Aspire Purchase Agreement. We currently have no other firm agreements with
any third parties for the sale of our securities pursuant to this registration statement. We cannot be certain that funding will
be available on favorable terms or available at all. To the extent that we raise additional funds by issuing equity securities,
our stockholders may experience significant dilution. If we are unable to raise funds when required or on favorable terms, we may
have to: a) significantly delay, scale back, or discontinue the product application and/or commercialization of our proprietary
technologies; b) seek collaborators for our technology and product candidates on terms that are less favorable than might otherwise
be available; c) relinquish or otherwise dispose of rights to technologies, product candidates, or products that we would otherwise
seek to develop or commercialize; or d) possibly cease operations.
On January 13, 2016,
the Company entered into a contract manufacturing joint venture with an affiliate (the “Eastern Affiliate”) of
Eastern Capital Limited (“Eastern”), a stockholder of the Company. The Eastern Affiliate contributed $15 million
in cash for a 30% interest in the Company’s subsidiary iBio CMO LLC (“iBio CMO”). The Company retained a
70% interest in iBio CMO and contributed a royalty bearing license which grants iBio CMO a non-exclusive license to use the
Company’s proprietary technologies for research purposes and an exclusive U.S. license for manufacturing purposes. On
January 13, 2016, the Company also entered into share purchase agreements with Eastern pursuant to which Eastern agreed to
purchase 10 million shares of the Company’s common stock at $0.622 per share. The closing for the sale of 3,500,000 of
such shares occurred on January 25, 2016. The closing for the remaining 6,500,000 shares occurred in April 2016. In addition,
Eastern agreed to exercise warrants it previously acquired to purchase 1,784,000 shares of the Company’s common stock
at $0.53 per share. As of the date of the filing of this report, iBio CMO has received $15 million for the capitalization of
iBio CMO and the Company has received approximately $7.2 million from Eastern for the acquisition of 10 million shares of
common stock and the exercise of the warrants. Prior to the issuance of the shares of common stock pursuant to the purchase
agreements with Eastern, Eastern beneficially owned approximately 30% of the Company’s common stock, as reported in the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015, filed with the SEC on October 13, 2015,
calculated in accordance with the SEC’s beneficial ownership rules. As of the closing of the purchase agreements with
Eastern and the simultaneous exercise by Eastern of its warrants to purchase iBio common stock, Eastern beneficially owned
approximately 38% of the Company’s outstanding shares of common stock. See Note 11 in the consolidated financial
statements for a further description of the transactions.
Off-Balance Sheet Arrangements
As part of our ongoing
business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established
for the purpose of facilitating off-balance sheet arrangements or other contractually limited purposes. As of June 30, 2016, we
were not involved in any SPE transactions.
Critical Accounting Policies and Estimates
A critical accounting policy
is one that is both important to the portrayal of a company’s financial condition and results of operations and requires
management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain.
Our financial statements
are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
All applicable U.S. GAAP accounting standards effective as of June 30, 2016 have been taken into consideration in preparing the
financial statements. The preparation of financial statements requires estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, expenses and related disclosures. Some of those estimates are subjective and complex, and, consequently,
actual results could differ from those estimates. The following accounting policies and estimates have been highlighted as significant
because changes to certain judgments and assumptions inherent in these policies could affect our financial statements.
We base our estimates,
to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors
and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and
liabilities. We evaluate our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our
estimates.
Revenue Recognition
The Company recognizes
revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability
is reasonably assured. Deferred revenue represents billings to a customer to whom the services have not yet been provided.
The Company’s contract
revenue consists primarily of amounts earned under contracts with third-party customers and reimbursed expenses under such contracts.
The Company analyzes its agreements to determine whether the elements can be separated and accounted for individually or as a single
unit of accounting. Allocation of revenue to individual elements that qualify for separate accounting is based on the separate
selling prices determined for each component, and total contract consideration is then allocated pro rata across the components
of the arrangement. If separate selling prices are not available, the Company will use its best estimate of such selling prices,
consistent with the overall pricing strategy and after consideration of relevant market factors.
The Company generates (or
may generate in the future) contract revenue under the following types of contracts:
Fixed-Fee
Under a fixed-fee contract,
the Company charges a fixed agreed upon amount for a deliverable. Fixed-fee contracts have fixed deliverables upon completion of
the project. Typically, the Company recognizes revenue for fixed-fee contracts after projects are completed, delivery is made and
title transfers to the customer, and collection is reasonably assured.
Time and Materials
Under a time and materials
contract, the Company charges customers an hourly rate plus reimbursement for other project specific costs. The Company recognizes
revenue for time and material contracts based on the number of hours devoted to the project multiplied by the customer’s
billing rate plus other project specific costs incurred.
Grant Income
Grants are recognized as income when all conditions of such grants
are fulfilled or there is a reasonable assurance that they will be fulfilled. Grant income is classified as a reduction of research
and development expenses.
Fixed Assets
Fixed assets are stated
at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives
of the assets, generally three to five years.
Assets held under the
terms of capital leases are included in fixed assets and are depreciated on a straight-line basis over the shorter of terms of
the leases or the economic lives of the assets.
Intangible Assets
The Company accounts for
intangible assets at their historical cost and records amortization utilizing the straight-line method based upon their estimated
useful lives. Patents are amortized over a period of ten years and other intellectual property is amortized over a period from
16 to 23 years. The Company reviews the carrying value of its intangible assets for impairment whenever events or changes in business
circumstances indicate the carrying amount of such assets may not be fully recoverable. Evaluating for impairment requires judgment,
and recoverability is assessed by comparing the projected undiscounted net cash flows of the assets over the remaining useful life
to the carrying amount. Impairments, if any, are based on the excess of the carrying amount over the fair value of the assets.
Research and Development Costs
All research and development
costs are expensed as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research
and development costs are expensed when the contracted work has been performed or as milestone results have been achieved.
Share-based Compensation
The Company recognizes
the cost of all share-based payment transactions at fair value. Compensation cost, measured by the fair value of the equity instruments
issued, adjusted for estimated forfeitures, is recognized in the financial statements as the respective awards are earned over
the performance period. The Company uses historical data to estimate forfeiture rates.
The impact that share-based
payment awards will have on the Company’s results of operations is a function of the number of shares awarded, the trading
price of the Company’s stock at the date of grant or modification, and the vesting schedule. Furthermore, the application
of the Black-Scholes option pricing model employs weighted-average assumptions for expected volatility of the Company’s stock,
expected term until exercise of the options, the risk-free interest rate, and dividends, if any, to determine fair value. Expected
volatility is based on historical volatility of the Company’s common stock; the expected term until exercise represents the
weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and
the Company’s historical exercise patterns; and the risk-free interest rate is based on the U.S. Treasury yield curve in
effect at the time of grant for periods corresponding with the expected life of the option. The Company has not paid any dividends
since its inception and does not anticipate paying any dividends for the foreseeable future, so the dividend yield is assumed to
be zero.
Income Taxes
Income taxes are accounted
for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect of
a change in tax rates or laws on deferred tax assets and liabilities is recognized in operations in the period that includes the
enactment date of the rate change. A valuation allowance is established to reduce the deferred tax assets to the amounts that are
more likely than not to be realized from operations.
Tax benefits of uncertain
tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an
income tax return.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
The information under this
Item is not required to be provided by smaller reporting companies.
Item 8. Financial Statements and Supplementary
Data.
Financial statements
and notes thereto appear on pages F-1 to F-23 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation
of Disclosure Controls and Procedures
Our management, under the
direction of our Executive Chairman and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15 under the Exchange Act) as of June 30, 2016. Based on that evaluation, our Executive Chairman
and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2016.
(b) Changes
in Internal Control Over Financial Reporting
There were no changes in
our internal control over financial reporting, as such term is defined in Rules 13a-15(f) under the Exchange Act, during the quarter
ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
(c) Management’s
Report on Internal Control over Financial Reporting
It is the responsibility
of the management of iBio, Inc. to establish and maintain effective internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance to iBio’s
management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance
with generally accepted accounting principles.
iBio’s internal control
over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of iBio; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of iBio are being made only in accordance with authorizations of management
and directors of iBio; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition,
use or disposition of iBio’s assets that could have a material effect on the financial statements of iBio.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management has performed
an assessment of the effectiveness of iBio’s internal control over financial reporting as of June 30, 2016 based upon criteria
set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 COSO Framework). Based on this assessment, management has concluded that our internal control over financial reporting was
effective as of June 30, 2016.
/s/Robert B. Kay
|
|
/s/Mark Giannone
|
Robert B. Kay
|
|
Mark Giannone
|
Executive Chairman
|
|
Chief Financial Officer
|
(Principal Executive Officer)
|
|
(Principal Financial Officer and
|
|
|
Principal Accounting Officer)
|
|
|
|
October 13, 2016
|
|
October 13, 2016
|
(d) Report
of Independent Registered Public Accounting Firm
This Annual Report on Form
10-K does not include an attestation report by CohnReznick LLP, our independent registered public accounting firm, regarding internal
control over financial reporting. As a smaller reporting company, our internal control over financial reporting was not subject
to audit by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that
permit us to provide only management’s report.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
DIRECTORS
The name, age, years of service on our board of directors, principal
occupation and business experience and certain other information for each of our directors as of October 13, 2016 is set forth
below:
Name
|
|
Age
|
|
Years of Service on our Board of Directors
|
Robert B. Kay
|
|
76
|
|
Director since August 2008
|
Glenn Chang
|
|
68
|
|
Director since August 2008
|
Arthur Elliott, Ph.D.
|
|
80
|
|
Director since October 2010
|
Seymour Flug
|
|
81
|
|
Director since December 2012
|
General (Ret.) James T. Hill
|
|
70
|
|
Director since August 2008
|
John D. McKey, Jr.
|
|
73
|
|
Director since August 2008
|
Philip K. Russell, M.D.
|
|
84
|
|
Director since March 2010
|
The principal occupation, business experience
and certain other information for each our directors is set forth below.
Robert B. Kay
is our Executive
Chairman and Chief Executive Officer and has served in these capacities since we became a publicly traded company in August 2008.
Previously, Mr. Kay was a founder and senior partner of the New York law firm of Kay Collyer & Boose LLP, with a particular
focus on mergers and acquisitions and joint ventures. Mr. Kay received his B.A. from Cornell University’s College of Arts
& Sciences and his J.D. from New York University Law School. Mr. Kay oversees every aspect of our business in his role as executive
chairman and chief executive officer. Given his years with the company and his prior experience, we believe that Mr. Kay has an
excellent understanding of our business and the global markets in which we operate and those in which we anticipate operating in
the future.
Glenn Chang
Since February 2014,
Glenn Chang serves as Chief Financial Officer of Singer Vehicle Design, a private company in the business of automotive design
and restoration. Mr. Chang served as the Chief Financial Officer of Alma Bank, a New York headquartered bank with over $900 million
of assets and 13 branches in the New York City Metropolitan area from late 2012 to February 2014. Before joining Alma, from 1999
to 2012, Mr. Chang served as a founder, Director, Chief Financial Officer and consultant to First American International Bank which
is the largest locally owned Chinese American Bank. Prior to that he spent 20 years at Citibank, N.A as Vice President. Mr. Chang
is a retired Certified Public Accountant. Mr. Chang’s extensive executive and financial leadership in his current and former
positions and his training and experience as a Certified Public Accountant adds vital expertise to our board of directors and our
Audit Committee in the form of financial understanding, business perspective and audit expertise. Mr. Chang is qualified as an
Audit Committee Financial Expert as defined in Regulation S-K Item 407(d)(5)(ii).
Arthur Y. Elliott, Ph.D.
serves
as a member of the American Association for Advancement of Science, American Society for Microbiology, and American Tissue Culture
Association. Prior to retiring, Dr. Elliott spent 16 years with Merck & Co., serving ultimately as Executive Director of Biological
Operations, Merck Manufacturing Division, responsible for the bulk manufacture, testing, release and registration of all biological
products sold. Dr. Elliott also directed the manufacturing, process development, and other operations of North American Vaccine,
Inc. for six years, and most recently served as consultant to Aventis (Sanofi Pasteur) Pharmaceutical Corporation in its design
and implementation of new, highly automated manufacturing facilities for influenza vaccines. Dr. Elliott has served with the United
States Department of Health and Human Services (“HHS”) in the Avian Influenza Pandemic Preparedness Program in Washington,
D.C. as Senior Program Manager for the Antigen Sparing Project since 2006. The program involves the cooperation of three pharmaceutical
companies and four government groups (NIH, CDC, United States Food and Drug Administration, and HHS). While at Merck, he worked
closely with both Merck Research Laboratories and the Merck Vaccine Division to forecast the timely transfer of technology for
new and improved products from the research laboratories through the manufacturing area and into the marketing division for sales
introductions. He has served as a biological consultant to the World Health Organization, NIH, and The Bill & Melinda Gates
Foundation. Dr. Elliott holds a Ph.D. in Virology from Purdue University, and an M.S. in Microbiology and a B.A. in Biology from
North Texas State University. Dr. Elliot’s extensive experience and expertise with the manufacture of vaccines and therapeutics
is particularly relevant to our business and our efforts to manufacture such products which in a key component of our business.
Seymour Flug
prior to retiring
was Chairman of the Board and CEO of Diners Club International and a Managing Director of Citibank. Prior to joining Citibank,
Mr. Flug served as Senior Vice President of Hess Oil Company. Mr. Flug began his career as Certified Public Accountant
at Deloitte & Touche, a predecessor to the firm now known as Deloitte. Mr. Flug received his B.B.A from Baruch College.
Mr. Flug’s experience leading a multinational company and his experience as a certified public accountant allow him to offer
us unique perspectives on global business opportunities, best business practices and additional audit expertise. Mr. Flug
is qualified as an Audit Committee Financial Expert as defined in Regulation S-K Item 407(d)(5)(ii).
General (Ret.) James T. Hill
was the Commander of the 4-Star United States Southern Command, reporting directly to the President and Secretary of Defense at
the time of his retirement from active duty. As such he led all U.S. military forces and operations in Central America, South America
and the Caribbean, worked directly with U.S. Ambassadors, foreign heads of state, key Washington decision-makers, foreign senior
military and civilian leaders, developing and executing United States policy. His responsibilities included management, development
and execution of plans and policy within the organization including programming, communications, manpower, operations, logistics
and intelligence. General Hill’s experience implementing plans and policies within diverse geographic regions and his insights
regarding the conduct of business affairs in Central and South America is a key resource for us.
John D. McKey, Jr
. serves since
2003 as of counsel at McCarthy, Summers, Bobko, Wood, Sawyer & Perry, P.A. in Stuart, Florida, and previously was a partner
from 1987 through 2003. From 1977 to 1987, Mr. McKey was a partner at Gunster Yoakley in Palm Beach, Florida. Mr. McKey received
his B.B.A at the University of Georgia and his J.D. from the University Of Florida College Of Law. Mr. McKey’s extensive
experience representing private and public companies operating in varied business sectors brings our board insights and acumen
to best corporate practices and implementation of strategic and financial plans.
Philip K. Russell, M.D.
served
in the U.S. Army Medical Corps from 1959 to 1990, pursuing a career in infectious disease and tropical medicine research. Following
his military service, Dr. Russell joined the faculty of Johns Hopkins University’s School of Hygiene and Public Health and
worked closely with the World Health Organization as special advisor to the Children’s Vaccine Initiative. He was founding
board member of the International AIDS Vaccine Initiative, and is an advisor to the Bill & Melinda Gates Foundation. He has
served on numerous advisory boards of national and international agencies, including the Centers for Disease Control (“CDC”),
the National Institutes of Health (“NIH”) and the Institute of Medicine. Dr. Russell is a past Chairman of the Albert
B. Sabin Vaccine Institute. Dr. Russell’s extensive experience and expertise in the field of infectious diseases and his
association with leading governmental and not-for-profit entities engaged in pioneering work throughout the world provides us with
invaluable insights into priorities for these entities and business development opportunities for us.
EXECUTIVE OFFICERS
The following table sets forth the names,
ages and biographical information of our executive officers as of October 13, 2016:
Name
|
|
Age
|
|
Position Held With Us
|
Robert B. Kay
|
|
76
|
|
Executive Chairman and Chief Executive Officer
|
Robert L. Erwin
|
|
63
|
|
President
|
Mark Giannone
|
|
59
|
|
Chief Financial Officer
|
Terence Ryan, Ph.D.
|
|
61
|
|
Chief Scientific Officer
|
The following are brief biographies of each
executive officer:
Robert B. Kay
has been our executive
chairman and chief executive officer since we became a publicly traded company in August 2008. Mr. Kay was a founder and senior
partner of the New York law firm of Kay Collyer & Boose LLP, with a particular focus on mergers and acquisitions and joint
ventures. Mr. Kay received his B.A. from Cornell University’s College of Arts & Sciences and his J.D. from New York University
Law School.
Robert L. Erwin
has been our President
since we became a publicly traded company in August 2008. Mr. Erwin led Large Scale Biology Corporation from its founding in 1988
through 2003, including a successful initial public offering in 2000, and continued as non-executive Chairman until 2006. He served
as Chairman of Icon Genetics AG from 1999 until its acquisition by a subsidiary of Bayer AG in 2006. Mr. Erwin recently served
as Managing Director of Bio-Strategic Directors LLC, providing consulting services to the life sciences industry. He is currently
Chairman of Novici Biotech, a private biotechnology company and a Director of Oryn Therapeutics. Mr. Erwin’s non-profit work
focuses on applying scientific advances to clinical medicine, especially in the field of oncology. He is co-founder, President
and Director of the Marti Nelson Cancer Foundation, Oncology. Mr. Erwin received his BS degree with Honors in Zoology and an MS
degree in Genetics from Louisiana State University.
Mark Giannone
has served as our Chief
Financial Officer since December 2013. Mr. Giannone has been a member of the accounting firm of Bosco Giannone LLC since its formation
in 1999. His prior experience included employment as a senior accountant at Kenneth Leventhal & Co. (acquired by Ernst &Young
LLP) and as a tax manager at BDO Seidman, a lecturer in various continuing education programs for the New York State Society of
Certified Public Accountants and New York University.
Terence E. Ryan
, Ph.D., has been our
chief scientific officer since March 2012, and prior to that served as senior vice president since joining the Company in July
2010. Dr. Ryan previously served as assistant vice president, Systems Biology at Wyeth Pharmaceuticals (later Pfizer, Inc.) from
2007 to 2010, and director of Integrative Biology at GlaxoSmithKline from 2003 to 2007. He has also been director, Cell Biology
at Celera Genomics from 2000 to 2003 and associate director of Cell Technologies and Protein Sciences at Regeneron Pharmaceuticals,
Inc. Dr. Ryan received his A.B. in Biology from Princeton University, his M.S. and Ph.D. in Microbiology from Rutgers University
and was a post-doctoral fellow in Molecular Virology at the University of Wisconsin.
CORPORATE GOVERNANCE
Board Committees
Our board of directors has the authority to
appoint committees to perform certain management and administrative functions. Our board of directors has constituted audit, compensation
and nominating committees.
Nominating Committee and Nomination Process
The Nominating Committee was formed to address
general governance and policy oversight; succession planning; to identify qualified individuals to become prospective board members
and make recommendations regarding nominations for our board of directors; to advise the board with respect to appropriate composition
of board committees; to advise the board about and develop and recommend to the board appropriate corporate governance documents
and assist the board in implementing guidelines; to oversee the annual evaluation of the board and our chief executive officer,
and to perform such other functions as the board may assign to the committee from time to time. The Nominating Committee has a
charter which is available on our website at www.ibioinc.com. The Nominating Committee consists of three independent directors:
Arthur Y. Elliott, Ph.D., (Nominating Committee Chairman), Glenn Chang and General James T. Hill.
Our directors take a critical role in guiding
our strategic direction and oversee the management of our company. Board candidates are considered based upon various criteria,
such as their broad-based business and professional skills and experiences, a global business and social perspective, concern for
the long-term interests of our stockholders and personal integrity and judgment. In addition, directors must have time available
to devote to board activities and to enhance their knowledge of the life sciences industry. Accordingly, we seek to attract and
retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities.
Our board of directors believes given the diverse
skills and experience required to grow our company that the input of all members of the Nominating Committee is important for considering
the qualifications of individuals to serve as directors but does not have a diversity policy. Further, the Nominating Committee
believes that the minimum qualifications for serving as our director are that a nominee demonstrate, by significant accomplishment
in his or her field, an ability to make a meaningful contribution to the board’s oversight of our business and affairs of
and have an impeccable record and reputation for honest and ethical conduct in both his or her professional and personal activities.
Whenever a new seat or a vacated seat on the board is being filled, candidates that appear to best fit the needs of the board and
our company are identified and unless such individuals are well known to the board, they are interviewed and further evaluated
by the Nominating Committee. Candidates selected by the Nominating Committee are then recommended to the full board for their nomination
to stockholders. The Nominating Committee recommends a slate of directors for election at the annual meeting. In accordance with
NYSE MKT LLC rules, the slate of nominees is approved by a majority of the independent directors.
In carrying out its responsibilities, our board
will consider candidates suggested by stockholders. If a stockholder wishes to formally place a candidate’s name in nomination,
however, he or she must do so in accordance with the provisions of our First Amended and Restated Bylaws. Suggestions for candidates
to be evaluated by the Nominating Committee must be sent to Secretary, iBio, Inc., 600 Madison Avenue, Suite 1601, New York, NY
10022-1737.
Audit Committee
The Audit Committee of the board of directors
makes recommendations regarding the retention of the independent registered public accounting firm, reviews the scope of the annual
audit undertaken by our independent registered public accounting firm and the progress and results of their work, reviews our financial
statements, and oversees the internal controls over financial reporting and corporate programs to ensure compliance with applicable
laws and regulations. The Audit Committee reviews all services performed for us by the independent registered public accounting
firm and determines whether they are compatible with maintaining the registered public accounting firm's independence. The Audit
Committee has a charter, which is reviewed annually and as may be required due to changes in industry accounting practices or the
promulgation of new rules or guidance documents. The Audit Committee charter is available on our website at www.ibioinc.com. The
Audit Committee consists of two independent directors as determined by NYSE MKT LLC listing standards: Glenn Chang (Audit Committee
Chairman) and Seymour Flug. Mr. Chang and Mr. Flug are each qualified as an Audit Committee Financial Expert as defined in Regulation
S-K Item 407(d)(5)(ii).
Compensation Committee
The Compensation Committee of the Board of
Directors reviews and approves executive compensation policies and practices, reviews salaries and bonuses for our senior executive
officers, administers our equity incentive plan and other benefit plans, and considers other matters as may, from time to time,
be referred to them by our board of directors. The Compensation Committee has a charter which is available on our website at www.ibioinc.com.
The members of the Compensation Committee are General James T. Hill (Compensation Committee Chairman), Arthur Y. Elliott, Ph.D.
and Philip K. Russell, M.D.
Board Leadership Structure and Role in Risk
Oversight
Our chief executive officer also serves as
the executive chairman of our board of directors. We do not have a lead independent director. Our executive chairman, when present,
presides over all meetings of our board. We believe this leadership structure is appropriate for our Company at this time because
(1) of our size, (2) of the size of our board, (3) our chief executive officer is responsible for our day-to-day operation and
implementing our strategy, and (4) discussion of developments in our business and financial condition and results of operations
are important parts of the discussion at meetings of our board of directors and it makes sense for our chief executive officer
to chair those discussions.
Our board of directors oversees our risk management.
This oversight is administered primarily through the following:
|
·
|
Our board’s review and approval of our business strategy, including the projected opportunities
and challenges facing our business;
|
|
·
|
At least quarterly review of our business developments and financial results;
|
|
·
|
Our Audit Committee’s oversight of our internal controls over financial reporting and its
discussions with management and the independent registered public accountants regarding the quality and adequacy of our internal
controls and financial reporting; and
|
|
·
|
Our board’s review and recommendations regarding our executive officer compensation and its
relationship to our business objectives and goals.
|
Meetings of the Board of Directors and Committees
During the fiscal year ended June 30, 2016,
the board of directors held two meetings in person or by telephone and acted by unanimous written consent on one occasion and the
Audit Committee held four meetings in person or by telephone. No meetings in person or by telephone were held and no actions were
taken by either the Nominating Committee or Compensation Committee as matters addressable by such committees were considered and
approved by the full board. Between meetings, members of the board of the directors are provided with information regarding our
operations and are consulted on an informal basis with respect to pending business. Each director attended at least 75% of the
aggregate of the total number of meetings of the board and the total number of meetings of the committees on which such director
serves. All of our directors attended our 2015 Annual Meeting of Stockholders.
Although we do not have a policy with regard
to board members’ attendance at our annual meetings of stockholders, all of the directors are encouraged to attend such meetings.
Stockholder Communications with the Board
of Directors
Interested parties may communicate with the
board or specific members of the board, including the independent directors and the members of the Audit Committee, by submitting
correspondence addressed to the Board of Directors of iBio, Inc. c/o any specified individual director or directors at 600 Madison
Avenue, Suite 1601, New York, New York 10022-1737. Any such correspondence will be forwarded to the indicated directors.
Code of Ethics
We have adopted a written code of ethics within
the meaning of Item 406 of SEC Regulation S-K, which applies to all of our employees, including our principal executive officer
and our chief financial officer, a copy of which can be found on our website at www.ibioinc.com. If we make any waivers or substantive
amendments to the code of ethics that are applicable to our principal executive officer or our chief financial officer, we will
disclose the nature of such waiver or amendment in a Current Report on Form 8-K in a timely manner. No waivers from any provision
of our policy have been granted.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the 1934 Exchange Act requires
our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities,
to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities.
Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section
16(a) forms they file.
To our knowledge, based solely on a review
of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal
year ended June 30, 2016, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent
beneficial owners were complied with.
Item 11. Executive Compensation
Summary Compensation Table
The table below summarizes the total compensation
paid or earned by our principal executive officer, principal financial officer and our two other most highly compensated executive
officers who were serving as executive officers at June 30, 2016, the end of our last completed fiscal year. We refer to the executive
officers identified in this table as our “named executive officers.
Name and
Principal Position
|
|
Fiscal
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards (1)
|
|
|
Total
|
|
Robert B. Kay
|
|
2016
|
|
$
|
310,732
|
|
|
$
|
0
|
|
|
$
|
470,495
|
|
|
$
|
781,227
|
|
Executive Chairman
|
|
2015
|
|
|
309,735
|
|
|
|
0
|
|
|
|
238,961
|
|
|
|
548,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Giannone
|
|
2016
|
|
|
99,000
|
|
|
|
0
|
|
|
|
94,099
|
|
|
|
193,099
|
|
Chief Financial Officer
|
|
2015
|
|
|
48,000
|
|
|
|
0
|
|
|
|
21,263
|
|
|
|
69,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Erwin
|
|
2016
|
|
|
230,000
|
|
|
|
0
|
|
|
|
470,495
|
|
|
|
700,495
|
|
President
|
|
2015
|
|
|
230,000
|
|
|
|
0
|
|
|
|
238,261
|
|
|
|
468,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terence E. Ryan, Ph.D.
|
|
2016
|
|
|
200,000
|
|
|
|
0
|
|
|
|
62,733
|
|
|
|
262,733
|
|
Chief Scientific Officer
|
|
2015
|
|
|
200,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
200,000
|
|
|
(1)
|
Reflects (1) Reflects the aggregate grant date fair value
computed in accordance with FASB ASC 718.
|
Outstanding Equity Awards at Fiscal Year-Ending June 30, 2016
The following table shows information regarding
unexercised stock options held by our named executive officers as of June 30, 2016.
Name
|
|
Unexercised
Options
|
|
|
Exercise
Price
|
|
|
Expiration
Date
|
|
Market
Value (1)
|
|
Robert Kay (2)
|
|
|
250,000
|
|
|
$
|
0.20
|
|
|
2/13/19
|
|
$
|
130,000
|
|
Robert Kay (2)
|
|
|
250,000
|
|
|
$
|
0.66
|
|
|
8/10/19
|
|
$
|
15,000
|
|
Robert Kay (2)
|
|
|
300,000
|
|
|
$
|
1.73
|
|
|
8/16/20
|
|
$
|
-
|
|
Robert Kay (3)
|
|
|
500,000
|
|
|
$
|
3.07
|
|
|
12/30/20
|
|
$
|
-
|
|
Robert Kay (3)
|
|
|
500,000
|
|
|
$
|
3.07
|
|
|
12/30/20
|
|
$
|
-
|
|
Robert Kay (4)
|
|
|
300,000
|
|
|
$
|
1.96
|
|
|
10/21/21
|
|
$
|
-
|
|
Robert Kay (4)
|
|
|
300,000
|
|
|
$
|
1.10
|
|
|
7/24/22
|
|
$
|
-
|
|
Robert Kay (4)
|
|
|
300,000
|
|
|
$
|
0.50
|
|
|
7/16/23
|
|
$
|
66,000
|
|
Robert Kay (5)
|
|
|
600,000
|
|
|
$
|
1.00
|
|
|
9/5/24
|
|
$
|
-
|
|
Robert Kay (5)
|
|
|
750,000
|
|
|
$
|
1.72
|
|
|
9/4/25
|
|
$
|
-
|
|
Robert Erwin (2)
|
|
|
250,000
|
|
|
$
|
0.20
|
|
|
2/13/19
|
|
$
|
130,000
|
|
Robert Erwin (2)
|
|
|
250,000
|
|
|
$
|
0.66
|
|
|
8/10/19
|
|
$
|
15,000
|
|
Robert Erwin (2)
|
|
|
300,000
|
|
|
$
|
1.73
|
|
|
8/16/20
|
|
$
|
-
|
|
Robert Erwin (4)
|
|
|
300,000
|
|
|
$
|
1.96
|
|
|
10/21/21
|
|
$
|
-
|
|
Robert Erwin (4)
|
|
|
300,000
|
|
|
$
|
1.10
|
|
|
7/24/22
|
|
$
|
-
|
|
Robert Erwin (4)
|
|
|
300,000
|
|
|
$
|
0.50
|
|
|
7/16/23
|
|
$
|
66,000
|
|
Robert Erwin (5)
|
|
|
600,000
|
|
|
$
|
1.00
|
|
|
9/5/24
|
|
$
|
-
|
|
Robert Erwin (5)
|
|
|
750,000
|
|
|
$
|
1.72
|
|
|
9/4/25
|
|
$
|
-
|
|
Terence Ryan (6)
|
|
|
100,000
|
|
|
$
|
1.38
|
|
|
7/14/20
|
|
$
|
-
|
|
Terence Ryan (6)
|
|
|
100,000
|
|
|
$
|
1.96
|
|
|
10/21/21
|
|
$
|
-
|
|
Terence Ryan (5)
|
|
|
100,000
|
|
|
$
|
1.72
|
|
|
9/4/25
|
|
$
|
-
|
|
Mark Giannone (5)
|
|
|
100,000
|
|
|
$
|
0.58
|
|
|
1/24/24
|
|
$
|
14,000
|
|
Mark Giannone (5)
|
|
|
50,000
|
|
|
$
|
0.49
|
|
|
9/5/24
|
|
$
|
11,500
|
|
Mark Giannone (5)
|
|
|
150,000
|
|
|
$
|
1.72
|
|
|
9/4/25
|
|
$
|
-
|
|
|
(1)
|
The market value for each award is based upon the closing stock price of $0.72 per share of common
stock on June 30, 2016, less the exercise price of the option.
|
|
(2)
|
Options vested in five equal annual installments on the anniversary date of grant. Options
fully vested as of June 30, 2016.
|
|
(3)
|
Options vested on the vesting commencement date of the grant. Options fully vested as of June 30,
2016.
|
|
(4)
|
Options vest in five equal annual installments on the anniversary date of grant.
|
|
(5)
|
Options vest in three equal annual installments on the anniversary date of grant.
|
|
(6)
|
Options vested in three equal annual installments on the anniversary date of grant. Options fully
vested as of June 30, 2016.
|
Employment Agreements
As of June 30, 2016, we did not have any employment
contracts or other similar agreements or arrangements with any of our named executive officers.
Equity Incentive Plan
On August 12, 2008, the Company adopted the
iBioPharma 2008 Omnibus Equity Incentive Plan (the “Plan”) for employees, officers, directors and external service
providers. In December 2013 our stockholders approved an amendment to the Plan to increase the number of shares of our common stock
authorized for issuance thereunder from 10 million shares to 15 million shares. Under the provisions of the Plan, the Company may
grant options to purchase stock and/or make awards of restricted stock up to an aggregate amount of 15 million shares. Stock options
granted under the Plan may be either incentive stock options (as defined by Section 422 of the internal Revenue Code of 1986, as
amended) or non-qualified stock options at the discretion of the board of directors. Vesting of awards occurs ratably on the anniversary
of the grant date over the service period as determined at the time of grant.
Director Compensation
Compensation for our non-employee directors
has historically consisted of a grant of stock options vesting over a three-year period and additional cash compensation. We do
not have a fixed policy with respect to this compensation, but the compensation is generally equal for each non-employee director
except in cases where a director assumes additional responsibilities above and beyond standard board service. Directors who are
also our employees receive no additional compensation for their services as directors.
Director Compensation Table
The following table sets forth summary information
concerning the total compensation paid to our non-employee directors for services to the Company during the fiscal year ended June
30, 2016:
Director Compensation
|
|
Fees
Earned
or Paid
in Cash
|
|
|
Option
Awards
(1)(2)
|
|
|
Total
|
|
General James T. Hill
|
|
$
|
25,000
|
|
|
$
|
62,733
|
|
|
$
|
87,733
|
|
Glenn Chang
|
|
|
10,000
|
|
|
|
62,733
|
|
|
|
72,733
|
|
John D. McKey
|
|
|
10,000
|
|
|
|
62,733
|
|
|
|
72,733
|
|
Philip K. Russell
|
|
|
10,000
|
|
|
|
62,733
|
|
|
|
72,733
|
|
Arthur Elliot
|
|
|
10,000
|
|
|
|
62,733
|
|
|
|
72,733
|
|
Seymour Flug
|
|
|
10,000
|
|
|
|
62,733
|
|
|
|
72,733
|
|
|
|
$
|
75,000
|
|
|
$
|
376,398
|
|
|
$
|
451,398
|
|
|
(1)
|
Reflects the aggregate grant date fair value computed in accordance with FASB ASC 718.
|
|
(2)
|
The aggregate number of stock options outstanding for each non-employee director was as follows: Gen. Hill 490,000, Mr.
Chang 490,000, Mr. McKey 590,000, Dr. Russell 400,000, Dr. Elliott 400,000, and Mr. Flug 280,000.
|
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The following table sets forth information
with respect to the beneficial ownership of our outstanding common stock as of October 13, 2016:
|
·
|
each
person who is known by us to be the beneficial owner of 5% or more of our outstanding common stock;
|
|
·
|
each
of our directors including our chief executive officer;
|
|
·
|
each
of our other named executive officers; and
|
|
·
|
all
of our current executive officers and directors as a group.
|
Except as otherwise noted in the footnotes
below, to our knowledge, each of the persons named in this table has sole voting and investment power with respect to the securities
indicated as beneficially owned.
|
|
Number of
|
|
|
Percent of
|
|
|
|
Shares
|
|
|
Shares
|
|
Name and Address of Beneficial Owner (1)
|
|
Beneficially
|
|
|
Beneficially
|
|
5% Stockholders
|
|
Owned (2)
|
|
|
Owned (2)
|
|
|
|
|
|
|
|
|
Eastern Capital Limited
|
|
|
33,744,000
|
(3)
|
|
|
37.9
|
%
|
E. Gerald Kay
|
|
|
5,945,695
|
(4)
|
|
|
6.7
|
%
|
Carl DeSantis
|
|
|
5,014,873
|
(5)
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert B. Kay
|
|
|
4,200,962
|
(6)
|
|
|
4.6
|
%
|
Glenn Chang
|
|
|
415,483
|
(7)
|
|
|
0.5
|
%
|
Arthur Y. Elliott, Ph.D.
|
|
|
313,333
|
(8)
|
|
|
0.4
|
%
|
John McKey, Jr.
|
|
|
989,891
|
(9)
|
|
|
1.1
|
%
|
Seymour Flug
|
|
|
193,333
|
(8)
|
|
|
0.2
|
%
|
General James T. Hill
|
|
|
418,333
|
(10)
|
|
|
0.5
|
%
|
Philip K. Russell, M.D.
|
|
|
313,333
|
(8)
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
Other Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert L. Erwin
|
|
|
2,170,000
|
(8)
|
|
|
2.4
|
%
|
Terence E. Ryan, Ph.D.
|
|
|
233,333
|
(8)
|
|
|
0.3
|
%
|
Mark Giannone
|
|
|
172,834
|
(11)
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
All current directors and executive officers as a group (10 persons)
|
|
|
9,420,835
|
(12)
|
|
|
9.7
|
%
|
|
(1)
|
The address of Eastern Capital Limited (“Eastern”) is Box 31363, Grand Cayman, E9 KY1 1206. The address of E. Gerald
Kay is c/o Integrated BioPharma, Inc., 225 Long Avenue, Box 278, Hillside, New Jersey 07205. The address of Carl DeSantis is c/o
CDS International Holdings, Inc., 3299 NW 2nd Avenue, Boca Raton, FL 33431. The address of each of our directors and executive
officers is c/o iBio, Inc., 600 Madison Avenue, Suite 1601, New York, New York 10022-1737.
|
|
(2)
|
Beneficial ownership is determined in accordance with
the rules of the SEC and includes voting or investment power with respect to shares of our common stock. On October 13, 2016,
there were 89,109,410 shares of common stock outstanding. Shares of common stock issuable under stock options that are exercisable
within 60 days after October 13, 2016 are deemed outstanding and are included for purposes of computing the number of shares
owned and percentage ownership of the person holding the option but are not deemed outstanding for computing the percentage ownership
of any other person.
|
|
(3)
|
Consists of 33,744,000 shares of common stock. This information is based solely on information set forth in a Schedule 13D/A
Amendment No. 7 filed with the SEC on April 11, 2016 by Eastern, Portfolio Services Ltd. and Kenneth B. Dart.
|
|
(4)
|
Consists of 5,945,695 shares of common stock. This information is based solely on information set for forth in a Schedule 13D
filed with the SEC on June 13, 2013 by E. Gerald Kay and EGK, LLC. The number of shares of common stock beneficially owned by these
entities may have changed since the filing of the Schedule 13D.
|
|
(5)
|
Consists of 5,014,873 shares of common stock. This information is based solely on information set forth in a Schedule 13D/A
Amendment No. 3 filed with the SEC on November 18, 2014 by Carl DeSantis, the DeSantis Revocable Trust, and CD Financial LLC.
|
|
(6)
|
Includes (i) 211,333 shares of common stock, (ii) 819,629 shares of common stock held by EVJ LLC, of which Mr. Kay is the manager,
and (iii) 3,170,000 shares of common stock underlying vested stock options held by Mr. Kay.
|
|
(7)
|
Includes (i) 12,150 shares of common stock and (ii) 403,333 shares of common stock underlying vested stock options.
|
|
(8)
|
All shares listed are shares of common stock underlying vested stock options.
|
|
(9)
|
Includes (i) 486,558 shares of common stock and (ii) 503,333 shares of common stock underlying vested stock options.
|
|
(10)
|
Includes (i) 15,000 shares of common stock and (ii) 403,333 shares of common stock underlying vested stock options.
|
|
(11)
|
Includes (i) 22,834 shares of common stock and (ii) 150,000 shares of common stock underlying vested stock options.
|
|
(12)
|
Includes 7,853,331 shares of common stock underlying vested stock options.
|
Equity Compensation Plans
The following table provides information regarding
the status of the Plan at June 30, 2016:
|
|
Number of
Shares of
Common
Stock to be Issued
Upon Exercise of
Outstanding
Options
|
|
|
Weighted-Average
Exercise Price of
Outstanding
Options
|
|
|
Number of Options
Available for
Future Issuance
Under
Equity
Compensation
Plans
(excluding
securities
reflected in the
previous columns)
|
|
Equity compensation plan approved by stockholders
|
|
|
12,273,334
|
|
|
$
|
1.31
|
|
|
|
2,726,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by stockholders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,273,334
|
|
|
$
|
1.31
|
|
|
|
2,726,666
|
|
Item 13. Certain Relationships and Related Transactions and Director
Independence.
Director Independence
Our board of directors has determined that
Messrs. Chang, Flug and McKey, Drs. Elliott and Russell and General Hill are each “independent directors” as such term
is defined in Section 803 of the New York Stock Exchange MKT Company Guide.
Policies and Procedures for Related Person
Transactions
The policy our board of directors is to review
with management and our independent registered public accounting firm any related party transactions brought to the board’s
attention which could reasonably be expected to have a material impact on our financial statements. The Company’s practice
is for management to present to the board of directors each proposed related party transaction, including all relevant facts and
circumstances relating thereto, and to update the board of directors as to any material changes to any approved related party transaction.
In connection with this requirement, each of the transactions or relationships disclosed below were disclosed to and approved by
our board of directors. In addition, transactions involving our directors and their affiliated entities were disclosed and reviewed
by our board of directors in its assessment of our directors’ independence requirements.
Research and Development Services Vendor
In January 2012, the Company entered into
an agreement with Novici Biotech, LLC (“Novici”) in which iBio’s President is a minority stockholder. Novici
performs platform technology development services for iBio, including laboratory feasibility analyses of gene expression, protein
purification and preparation of research samples. The transaction has been conducted on an arm’s length basis at market terms.
The accounts payable balance includes amounts due to Novici of approximately $200,000 and $153,000 at June 30, 2016 and 2015, respectively.
Research and development expenses related to Novici were approximately $1,036,000 and $995,000 for the years ended June 30, 2016
and 2015, respectively
Capital Lease with Largest Stockholder
As discussed in Item 2 above, iBio CMO is leasing
its facility in Bryan, Texas as well as certain equipment from an affiliate of Eastern (the “Affiliate”) under a 34-year
sublease. iBio CMO began operations at the facility on December 22, 2015 pursuant to agreements between iBio CMO and the Affiliate
granting iBio CMO temporary rights to access the facility. These temporary agreements were superseded by the Sublease Agreement,
dated January 13, 2016, between iBio CMO and the Affiliate (the “Sublease”). The 34-year term of the Sublease may be
extended by iBio CMO for a ten-year period, so long as iBio CMO is not in default under the Sublease. Under the Sublease, iBio
CMO is required to pay base rent at an annual rate of $2,100,000, paid in equal quarterly installments on the first day of each
February, May, August and November. The base rent is subject to increase annually in accordance with increases in the Consumer
Price Index. The base rent under the Affiliate’s ground lease for the property is subject to adjustment, based on an appraisal
of the property, in 2030 and upon any extension of the ground lease. The base rent under the Sublease will be increased by any
increase in the base rent under the ground lease as a result of such adjustments. In addition to the base rent, iBio CMO is required
to pay, for each calendar year during the term, a portion of the total gross sales for products manufactured or processed at the
facility, equal to 7% of the first $5,000,000 of gross sales, 6% of gross sales between $5,000,001 and $25,000,000, 5% of gross
sales between $25,000,001 and $50,000,000, 4% of gross sales between $50,000,001 and $100,000,000, and 3% of gross sales between
$100,000,001 and $500,000,000. However, if for any calendar year period from January 1, 2018 through December 31, 2019, iBio CMO’s
applicable gross sales are less than $5,000,000, or for any calendar year period from and after January 1, 2020, its applicable
gross sales are less than $10,000,000, then iBio CMO is required to pay the amount that would have been payable if it had achieved
such minimum gross sales and shall pay no less than the applicable percentage for the minimum gross sales for each subsequent calendar
year. iBio CMO is responsible for all costs and expenses in connection with the ownership, management, operation, replacement,
maintenance and repair of the property under the Sublease.
General and administrative expenses related
to the Affiliate were approximately $565,000 in 2016. Interest expense incurred under the capital lease obligation amounted to
$807,000 in 2016.
Operating Lease with Minority Stockholder
Effective January 1, 2015, the Company is leasing
office space on a month-to-month basis from an entity owned by a minority stockholder of the Company for approximately $2,000 per
month.
Limitation of Liability of Officers and Directors and Indemnification
Our certificate of incorporation, as amended,
provides for indemnification of our officers and directors to the extent permitted by Delaware law, which generally permits indemnification
for actions taken by officers or directors as our representatives if the officer or director acted in good faith and in a manner
he or she reasonably believed to be in the best interest of the corporation.
As permitted under Delaware law, the By-laws
contain a provision indemnifying directors against expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with an action, suit or proceeding if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best interests of our Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful.
Historical Relationship with Integrated
BioPharma, Inc.
We were a subsidiary of Integrated BioPharma,
Inc. (“Integrated BioPharma”) from February 21, 2003 until August 18, 2008. On that date, Integrated BioPharma spun
off iBio in a transaction that was intended to be a tax free distribution to Integrated BioPharma and its U.S. stockholders. As
part of that transaction, we entered into a number of agreements with Integrated BioPharma including an indemnification and insurance
matters agreement and a tax responsibility allocation agreement. Messrs. E. Gerald Kay and Carl DeSantis, affiliates of Integrated
BioPharma, were in 2008 and continue to remain beneficial holders of more than 5% of our common stock. The agreements are described
below.
Indemnification.
In general, under the
indemnification and insurance matters agreement, we agreed to indemnify Integrated BioPharma, its affiliates and each of its and
their respective directors, officers, employees, agents and representatives from all liabilities that arise from:
|
·
|
any
breach by us of the separation and distribution agreement or any ancillary agreement;
|
|
·
|
any
of our liabilities reflected on our consolidated balance sheets included in the information statement relating to the spin-off;
|
|
·
|
our
assets or businesses;
|
|
·
|
the
management or conduct of our assets or businesses;
|
|
·
|
the
liabilities allocated to or assumed by us under the separation and distribution agreement, the indemnification and insurance matters
agreement or any of the other ancillary agreements;
|
|
·
|
various
on-going litigation matters in which we are named defendant, including any new claims asserted in connection with those litigations,
and any other past or future actions or claims based on similar claims, facts, circumstances or events, whether involving the
same parties or similar parties, subject to specific exceptions;
|
|
·
|
claims
that are based on any violations or alleged violations of U.S. or foreign securities laws in connection with transactions arising
after the distribution relating to our securities and the disclosure of financial and other information and data by us or the
disclosure by Integrated BioPharma as part of the distribution of our financial information or our confidential information; or
|
|
·
|
any
actions or claims based on violations or alleged violations of securities or other laws by us or our directors, officers, employees,
agents or representatives, or breaches or alleged breaches of fiduciary duty by our board of directors, any committee of our board
or any of its members, or any of our officers or employees.
|
Integrated BioPharma agreed to indemnify us
and our affiliates and our directors, officers, employees, agents and representatives from all liabilities that arise from:
|
·
|
any
breach by Integrated BioPharma of the separation and distribution agreement or any ancillary agreement;
|
|
·
|
any
liabilities allocated to or to be retained or assumed by Integrated BioPharma under the separation and distribution agreement,
the indemnification and insurance matters agreement or any other ancillary agreement;
|
|
·
|
liabilities
incurred by Integrated BioPharma in connection with the management or conduct of Integrated BioPharma’s businesses; and
|
|
·
|
various
ongoing litigation matters to which we are not a party.
|
Integrated BioPharma is not obligated to indemnify
us against any liability for which we are also obligated to indemnify Integrated BioPharma. Recoveries by Integrated BioPharma
under insurance policies will reduce the amount of indemnification due from us to Integrated BioPharma only if the recoveries are
under insurance policies Integrated BioPharma maintains for our benefit. Recoveries by us will in all cases reduce the amount of
any indemnification due from Integrated BioPharma to us.
Under the indemnification and insurance matters
agreement, a party has the right to control the defense of third-party claims for which it is obligated to provide indemnification,
except that Integrated BioPharma has the right to control the defense of any third-party claim or series of related third- party
claims in which it is named as a party whether or not it is obligated to provide indemnification in connection with the claim and
any third-party claim for which Integrated BioPharma and we may both be obligated to provide indemnification. We may not assume
the control of the defense of any claim unless we acknowledge that if the claim is adversely determined, we will indemnify Integrated
BioPharma in respect of all liabilities relating to that claim. The indemnification and insurance matters agreement does not apply
to taxes covered by the tax responsibility allocation agreement.
Offset.
Integrated BioPharma is permitted
to reduce amounts it owes us under any of our agreements with Integrated BioPharma, by amounts we may owe to Integrated BioPharma
under those agreements.
Assignment.
We may not assign or transfer
any part of the indemnification and insurance agreement without Integrated BioPharma’s prior written consent. Nothing contained
in the agreement restricts the transfer of the agreement by Integrated BioPharma.
Tax Responsibility Allocation Agreement
In order to allocate our responsibilities for
taxes and certain other tax matters, we and Integrated BioPharma entered into a tax responsibility allocation agreement prior to
the date of the distribution. Under the terms of the agreement, with respect to consolidated federal income taxes, and consolidated,
combined and unitary state income taxes, Integrated BioPharma will be responsible for, and will indemnify and hold us harmless
from, any liability for income taxes with respect to taxable periods or portions of periods ending prior to the date of distribution
to the extent these amounts exceed the amounts we have paid to Integrated BioPharma prior to the distribution or in connection
with the filing of relevant tax returns. Integrated BioPharma is also responsible for, and will indemnify and hold us harmless
from, any liability for income taxes of Integrated BioPharma or any member of the Integrated BioPharma group (other than us) by
reason of our being severally liable for those taxes under U.S. Treasury regulations or analogous state or local provisions. Under
the terms of the agreement, with respect to consolidated federal income taxes, and consolidated, combined and unitary state income
taxes, we are responsible for, and will indemnify and hold Integrated BioPharma harmless from, any liability for our income taxes
for all taxable periods, whether before or after the distribution date. With respect to separate state income taxes, we are also
responsible for, and will indemnify and hold Integrated BioPharma harmless from, any liability for income taxes with respect to
taxable periods or portions of periods beginning on or after the distribution date. We are also responsible for, and will indemnify
and hold Integrated BioPharma harmless from, any liability for our non-income taxes and our breach of any obligation or covenant
under the terms of the tax responsibility allocation agreement, and in certain other circumstances as provided therein. In addition
to the allocation of liability for our taxes, the terms of the agreement also provide for other tax matters, including tax refunds,
returns and audits.
Item 14. Principal Accountant Fees and Services.
The following table represents aggregate fees
billed to us by CohnReznick LLP:
|
|
For the Year Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Audit Fees
|
|
$
|
138,969
|
|
|
$
|
88,357
|
|
Audit-related Fees
|
|
|
—
|
|
|
|
—
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
Other Fees
|
|
|
—
|
|
|
|
—
|
|
Total Fees
|
|
$
|
138,969
|
|
|
$
|
88,357
|
|
In the above table, in accordance with the
SEC’s definitions and rules, “audit fees” are fees we paid CohnReznick LLP for professional services for the
audit of our financial statements included in our Annual Reports on Form 10-K, review of our financial statements included in our
Quarterly Reports on Form 10-Q and services normally provided in connection with statutory and regulatory filings or engagements,
consents and assistance with and review of our documents filed with the Securities and Exchange Commission.
Pre-Approval Policies and Procedures
The Audit Committee’s policy is to pre-approve
all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may
include audit services, audit-related services, tax services and other services. Pre-approval is generally detailed as to the particular
service or category of services and is generally subject to a specific budget. The independent registered public accounting firm
and management are required to periodically report to the audit committee regarding the extent of services provided by the independent
registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis. The Audit Committee has determined that the rendering
of the services other than audit services by CohnReznick LLP is compatible with maintaining the principal accountant’s independence.
PART IV
Item 15. Exhibits and Financial Statement
Schedules.
|
(1)
|
A list of the financial statements filed as part of this report is set forth in the index to financial statements at page F-1
and is incorporated herein by reference.
|
|
(2)
|
An index of exhibits incorporated by reference or filed with this Report is provided below:
|
Exhibit No.
|
|
Description
|
3.1
|
|
Certificate of Incorporation of the Company (1)
|
3.2
|
|
Certificate of Amendment of the Certificate of Incorporation of the Company (1)
|
3.3
|
|
First Amended and Restated Bylaws of the Company (2)
|
4.1
|
|
Form of Common Stock Certificate (3)
|
4.4
|
|
Form of Common Stock Purchase Warrant (2013) (4)
|
4.6
|
|
Registration Rights Agreement, dated August 25, 2014, between the Company and Aspire Capital Fund, LLC (5)
|
4.7
|
|
Registration Rights Agreement, dated May 15, 2015, between the Company and Aspire Capital Fund LLC (6)
|
10.1
|
|
Technology Transfer Agreement, dated as of January 1, 2004, between the Company and Fraunhofer USA Center for Molecular Biotechnology, Inc. as amended (7)
|
10.2
|
|
Ratification dated September 6, 2013 of Terms of Settlement by and between the Company and Fraunhofer USA Center for Molecular Biotechnology, Inc. (8)+
|
10.3
|
|
Common Stock Purchase Agreement, dated August 25, 2014 between the Company and Aspire Capital Fund, LLC (5)
|
10.4
|
|
Common Stock Purchase Agreement, dated May 15, 2015 between the Company and Aspire Capital Fund, LLC (6)
|
10.5
|
|
Share Purchase Agreement, dated January 13, 2016, between iBio, Inc. and Eastern Capital Limited, for the purchase of 3,500,000 shares of common stock (9)
|
10.6
|
|
Share Purchase Agreement, dated January 13, 2016, between iBio, Inc. and Eastern Capital Limited, for the purchase of 6,500,000 shares of common stock (9)
|
10.7
|
|
Amended and Restated Limited Liability Company Operating Agreement of iBio CMO LLC, dated January 13, 2016, between the Company, Bryan Capital Investors LLC and iBio CMO LLC (10)
|
10.8
|
|
License Agreement, dated January 13, 2016, between the Company and iBio CMO LLC (10)
|
10.9
|
|
Sublease Agreement, dated January 13, 2016, between College Station Investors LLC and IBIO CMO LLC (10)
|
21
|
|
Subsidiaries of Registrant *
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm *
|
31.1
|
|
Certification of Periodic Report by Chief Executive Officer Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
31.2
|
|
Certification of Periodic Report by Chief Financial Officer Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
32.1
|
|
Certification of Periodic Report by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
|
32.2
|
|
Certification of Periodic Report by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
|
101.INS
|
|
XBRL Instance*
|
101.SCH
|
|
XBRL Taxonomy Extension Schema*
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation*
|
101.DEF
|
|
XBRL Taxonomy Extension Definition*
|
101.LAB
|
|
XBRL Taxonomy Extension Labeled*
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation*
|
|
(1)
|
Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2014 (Commission
File No. 001-35023).
|
|
(2)
|
Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 14, 2009 (Commission
File No. 000-53125).
|
|
(3)
|
Incorporated herein by reference to the Company’s Form 10-12G filed with the SEC on July 11, 2008 (Commission File No.
000-53125).
|
|
(4)
|
Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 23,
2013 (Commission File No. 001-35023).
|
|
(5)
|
Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 26, 2014 (Commission
File No. 001-35023).
|
|
(6)
|
Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2015 (Commission
File No. 001-35023).
|
|
(7)
|
Incorporated herein by reference to the Company’s Form 10-12G filed with the SEC on June 18, 2008 Commission File No.
000-53125).
|
|
(8)
|
Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013,
filed with the SEC on September 30, 2013 (Commission File No. 001-35023).
|
|
(9)
|
Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 14, 2016 (Commission
File No. 000-35023).
|
|
(10)
|
Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on February 22, 2016
(Commission File No. 001-35023).
|
|
+
|
Confidential treatment requested as to certain portions, which portions have been separately filed with the Securities and
Exchange Commission.
|
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
iBio, Inc.
|
|
|
(Registrant)
|
|
|
|
Dated: October 13, 2016
|
|
/s/Robert B. Kay
|
|
|
Robert B. Kay
|
|
|
Executive Chairman
|
|
|
(Principal Executive Officer)
|
|
|
|
Dated: October 13, 2016
|
|
/s/Mark Giannone
|
|
|
Mark Giannone
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer and
|
|
|
Principal Accounting Officer)
|
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated:
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/Robert
B. Kay
|
|
Executive Chairman
|
|
October 13, 2016
|
Robert B. Kay
|
|
(Principal Executive
Officer)
|
|
|
|
|
|
|
|
/s/Mark
Giannone
|
|
Chief Financial Officer
|
|
October 13, 2016
|
Mark Giannone
|
|
(Principal Financial
Officer and
|
|
|
|
|
Principal Accounting
Officer)
|
|
|
|
|
|
|
|
/s/Glenn
Chang
|
|
Director
|
|
October 13, 2016
|
Glenn Chang
|
|
|
|
|
|
|
|
|
|
/s/Arthur
Y. Elliott
|
|
Director
|
|
October 13, 2016
|
Arthur Y. Elliott,
Ph.D.
|
|
|
|
|
|
|
|
|
|
/s/Seymour
Flug
|
|
Director
|
|
October 13, 2016
|
Seymour Flug
|
|
|
|
|
|
|
|
|
|
/s/James
T. Hill
|
|
Director
|
|
October 13, 2016
|
General James T. Hill,
USA (Retired)
|
|
|
|
|
|
|
|
|
|
/s/John
D. McKey, Jr.
|
|
Director
|
|
October 13, 2016
|
John D. McKey, Jr.
|
|
|
|
|
|
|
|
|
|
/s/Philip
K. Russell
|
|
Director
|
|
October 13, 2016
|
Philip K. Russell,
M.D.
|
|
|
|
|
[This page intentionally left blank.]
iBio, Inc.
Financial Statement Index
Report of Independent Registered Public Accounting
Firm
The Board of Directors and
Stockholders of iBio, Inc.
We have audited the accompanying consolidated
balance sheets of iBio, Inc. and Subsidiaries (the “Company”) as of June 30, 2016 and 2015, and the related consolidated
statements of operations and comprehensive loss, stockholders’ equity and cash flows for the years then ended. The Company’s
management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of iBio, Inc. and Subsidiaries as
of June 30, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ CohnReznick LLP
Roseland, New Jersey
October 13, 2016
iBio, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, except share and per share amounts)
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
23,014
|
|
|
$
|
9,494
|
|
Accounts receivable - trade
|
|
|
484
|
|
|
|
445
|
|
Accounts receivable - unbilled
|
|
|
122
|
|
|
|
-
|
|
Work in process
|
|
|
22
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
264
|
|
|
|
182
|
|
Total current assets
|
|
|
23,906
|
|
|
|
10,121
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation
|
|
|
25,574
|
|
|
|
13
|
|
Intangible assets, net of accumulated amortization
|
|
|
2,092
|
|
|
|
2,360
|
|
Security deposit
|
|
|
28
|
|
|
|
-
|
|
Total Assets
|
|
$
|
51,600
|
|
|
$
|
12,494
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable (related party of $200 and $153 as of June 30, 2016 and 2015, respectively)
|
|
$
|
1,177
|
|
|
$
|
1,104
|
|
Accrued expenses (related party of $623 and $0 as of June 30, 2016 and 2015, respectively)
|
|
|
920
|
|
|
|
159
|
|
Capital lease obligation - current portion
|
|
|
170
|
|
|
|
-
|
|
Deferred revenue
|
|
|
24
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
2,291
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation - net of current portion
|
|
|
25,265
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
27,556
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
iBio, Inc. Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock - no par value; 1,000,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.001 par value; 175,000,000 shares authorized; 89,109,410 and 77,205,410 shares issued and outstanding as of June 30, 2016 and 2015, respectively
|
|
|
89
|
|
|
|
77
|
|
Additional paid-in capital
|
|
|
67,468
|
|
|
|
59,006
|
|
Accumulated other comprehensive loss
|
|
|
(29
|
)
|
|
|
(25
|
)
|
Accumulated deficit
|
|
|
(57,591
|
)
|
|
|
(47,827
|
)
|
Total iBio, Inc. Stockholders’ Equity
|
|
|
9,937
|
|
|
|
11,231
|
|
Noncontrolling interest
|
|
|
14,107
|
|
|
|
-
|
|
Total Equity
|
|
|
24,044
|
|
|
|
11,231
|
|
Total Liabilities and Equity
|
|
$
|
51,600
|
|
|
$
|
12,494
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Operations and
Comprehensive Loss
(In Thousands, except per share amounts)
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
948
|
|
|
$
|
1,851
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development (related party of $1,036 and $995), net of $65 in grant income
|
|
|
3,156
|
|
|
|
3,495
|
|
General and administrative (related party of $565 and $0)
|
|
|
7,685
|
|
|
|
5,022
|
|
Total operating expenses
|
|
|
10,841
|
|
|
|
8,517
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(9,893
|
)
|
|
|
(6,666
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense (related party of $807 and $0)
|
|
|
(807
|
)
|
|
|
-
|
|
Interest income
|
|
|
22
|
|
|
|
9
|
|
Royalty income
|
|
|
21
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(764
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
|
(10,657
|
)
|
|
|
(6,625
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
893
|
|
|
|
-
|
|
Net loss attributable to iBio, Inc.
|
|
$
|
(9,764
|
)
|
|
$
|
(6,625
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(10,657
|
)
|
|
$
|
(6,625
|
)
|
Other comprehensive loss - foreign currency translation adjustments
|
|
|
(4
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(10,661
|
)
|
|
$
|
(6,650
|
)
|
|
|
|
|
|
|
|
|
|
Loss per common share attributable to iBio, Inc. stockholders - basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic and diluted
|
|
|
80,973
|
|
|
|
71,495
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Stockholders’
Equity
Years Ended June 30, 2016 and 2015
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
65,642
|
|
|
$
|
66
|
|
|
$
|
47,235
|
|
|
$
|
-
|
|
|
$
|
(41,202
|
)
|
|
$
|
-
|
|
|
$
|
6,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
8,769
|
|
|
|
9
|
|
|
|
9,991
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment fee
|
|
|
-
|
|
|
|
-
|
|
|
|
1,132
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1,663
|
|
|
|
1
|
|
|
|
866
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,625
|
)
|
|
|
-
|
|
|
|
(6,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
77,206
|
|
|
$
|
77
|
|
|
$
|
59,006
|
|
|
$
|
(25
|
)
|
|
$
|
(47,827
|
)
|
|
$
|
-
|
|
|
$
|
11,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
77,206
|
|
|
$
|
77
|
|
|
$
|
59,006
|
|
|
$
|
(25
|
)
|
|
$
|
(47,827
|
)
|
|
$
|
-
|
|
|
$
|
11,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution - noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
10
|
|
|
|
6,210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1,904
|
|
|
|
2
|
|
|
|
1,007
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,245
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,764
|
)
|
|
|
(893
|
)
|
|
|
(10,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
89,110
|
|
|
$
|
89
|
|
|
$
|
67,468
|
|
|
$
|
(29
|
)
|
|
$
|
(57,591
|
)
|
|
$
|
14,107
|
|
|
$
|
24,044
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,657
|
)
|
|
$
|
(6,625
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
1,245
|
|
|
|
914
|
|
Amortization of intangible assets
|
|
|
363
|
|
|
|
358
|
|
Depreciation
|
|
|
577
|
|
|
|
5
|
|
Loss on abandonment of intangible assets
|
|
|
33
|
|
|
|
48
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable – trade
|
|
|
(39
|
)
|
|
|
(240
|
)
|
Accounts receivable – unbilled
|
|
|
(122
|
)
|
|
|
-
|
|
Work in process
|
|
|
(22
|
)
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
(82
|
)
|
|
|
(64
|
)
|
Security deposit
|
|
|
(28
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
(125
|
)
|
|
|
806
|
|
Accrued expenses
|
|
|
761
|
|
|
|
73
|
|
Deferred revenue
|
|
|
24
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,072
|
)
|
|
|
(4,725
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to intangible assets
|
|
|
-
|
|
|
|
(202
|
)
|
Purchases of fixed assets
|
|
|
(68
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(68
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
6,220
|
|
|
|
10,000
|
|
Proceeds from exercise of warrants
|
|
|
1,009
|
|
|
|
867
|
|
Capital contribution – noncontrolling interest
|
|
|
15,000
|
|
|
|
-
|
|
Payment of capital lease obligation
|
|
|
(565
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
21,664
|
|
|
|
10,867
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
(4
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
13,520
|
|
|
|
5,904
|
|
Cash - beginning of year
|
|
|
9,494
|
|
|
|
3,590
|
|
Cash - end of year
|
|
$
|
23,014
|
|
|
$
|
9,494
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash activities:
|
|
|
|
|
|
|
|
|
Purchases of fixed assets financed by capital lease
|
|
$
|
26,000
|
|
|
$
|
-
|
|
Unpaid intangible assets included in accounts payable – net
|
|
$
|
129
|
|
|
$
|
-
|
|
Unpaid intangible assets included in accrued expenses – net
|
|
$
|
-
|
|
|
$
|
(12
|
)
|
Unpaid fixed assets included in accounts payable
|
|
$
|
71
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
485
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
iBio, Inc. and Subsidiaries (“iBio”
or the “Company”) is a biotechnology company focused on the commercialization of its proprietary plant-based protein
expression technologies for vaccines and therapeutic proteins and on developing and commercializing select biopharmaceutical product
candidates. The advantages of iBio’s technology include reduced production time, capital and operating costs for biopharmaceuticals
and the ability to manufacture therapeutic proteins that are difficult or commercially infeasible to produce with conventional
methods.
iBio was established as a public company in
August 2008 as the result of a spinoff from Integrated BioPharma, Inc. The Company operates in one business segment under the direction
of its Executive Chairman. The Company’s wholly-owned and majority-owned subsidiaries are as follows:
iBioDefense Biologics LLC (“iBioDefense”)
– iBioDefense, a wholly-owned subsidiary, is a Delaware limited liability company formed in July 2013 to explore development
and commercialization of defense-specific applications of the Company’s proprietary technology. iBioDefense did not commence
any business activities and was dissolved on June 10, 2016.
iBio Peptide Therapeutics LLC (“iBio
Peptide”) – iBio Peptide, a wholly-owned subsidiary, is a Delaware limited liability company formed in November 2013.
iBio Peptide did not commence any business activities and was dissolved on June 9, 2016.
iBIO DO BRASIL BIOFARMACÊUTICA LTDA.
(“iBio Brazil”) – iBio Brazil is a subsidiary organized in Brazil in which the Company has a 99% interest. iBio
Brazil was formed to manage and expand the Company’s business activities in Brazil. The activities of iBio Brazil are intended
to include coordination and expansion of the Company’s existing relationship with Fundacao Oswaldo Cruz/Fiocruz (“Fiocruz”)
beyond the current Yellow Fever Vaccine program (see Note 8) and development of additional products with private sector participants
for the Brazilian market. iBio Brazil commenced operations during the first quarter of the fiscal year ended June 30, 2015.
iBio Manufacturing LLC (“iBio Manufacturing”)
– iBio Manufacturing, a wholly-owned subsidiary, is a Delaware limited liability company formed in November 2015. iBio Manufacturing
has not commenced any activities to date.
iBio CMO LLC (“iBio CMO”) –
iBio CMO is a Delaware limited liability company formed on December 16, 2015 to develop and manufacture plant-made pharmaceuticals.
As of December 31, 2015, the Company owned 100% of iBio CMO. On January 13, 2016, the Company entered into a contract manufacturing
joint venture with an affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the Company (the “Eastern
Affiliate”). The Eastern Affiliate contributed $15 million in cash for a 30% interest in iBio CMO. The Company retained a
70% interest in iBio CMO and contributed a royalty bearing license which grants iBio CMO a non-exclusive license to use the Company’s
proprietary technologies for research purposes and an exclusive U.S. license for manufacturing purposes. The Company retained the
exclusive right to grant product licenses to those who wish to sell or distribute products made using the Company’s technologies.
iBio CMO’s operations take place in Bryan,
Texas in a facility controlled by another affiliate of Eastern (the “Second Eastern Affiliate”) as sublandlord. The
facility is a 139,000 square foot Class A life sciences building on the campus of Texas A&M University, designed and equipped
for plant-made manufacture of biopharmaceuticals. The Second Affiliate granted iBio CMO a 34-year sublease for the facility as
well as certain equipment (see Note 10). Commercial operations commenced in January 2016. iBio CMO expects to operate on the basis
of three parallel lines of business: (1) Development and manufacturing of third party products; (2) Development and production
of iBio’s proprietary product(s) for treatment of fibrotic diseases; and (3) Commercial technology transfer services.
Liquidity
The Company’s primary sources of liquidity
are cash on hand and cash available from the sale of common stock of the Company. At this time, cash flows from operating activities
represent net outflows for operating expenses and expenses for technology and product development. As of June 30, 2016, the Company
had $23.0 million in cash on hand which is expected to support the Company’s activities through June 30, 2017.
Since its spin-off from Integrated BioPharma,
Inc. in August 2008, the Company has incurred significant losses and negative cash flows from operations. As of June 30, 2016,
the Company’s accumulated deficit was $57.6 million, and it had cash used in operating activities of $8.1 million and $4.7
million for the years ended June 30, 2016 and 2015, respectively. The Company has historically financed its activities through
the sale of common stock and warrants. Through June 30, 2016, the Company has dedicated most of its financial resources to investing
in its iBioLaunch™ and iBioModulator™ platforms, its proprietary candidates for treatment of fibrotic diseases, advancing
its intellectual property, and general and administrative activities.
On May 15, 2015, the Company entered into a
common stock purchase agreement with Aspire Capital Fund, LLC (“Aspire Capital”) pursuant to which the Company has
the option to require Aspire Capital, upon and subject to the terms of the agreement, to purchase up to $15 million of its common
stock, over a three-year term.
No shares have been sold under the 2015 Facility as of the date of
the filing of this report. See Note 11 for a further description of the agreement.
Coincident with the entry into the iBio CMO
joint venture, Eastern agreed to acquire 10 million shares of the Company's common stock at $0.622 per share. The closing for the
sale of 3,500,000 of such shares occurred on January 25, 2016. The sale of the remaining 6,500,000 shares occurred on April 13,
2016. In addition, Eastern agreed to, and on January 25, 2016 did, exercise warrants it previously acquired to purchase 1,784,000
shares of the Company's common stock at $0.53 per share. As of the date of the filing of this report, the Company has received
$15 million for the capitalization of iBio CMO and approximately $7.2 million from Eastern for the acquisition of 10 million shares
of common stock and the exercise of the warrants. See Note 11 for a further description of the transactions.
The Company plans to fund its future business
operations using cash on hand, through proceeds from the sale of additional equity or other securities, including sales of common
stock to Aspire Capital pursuant to the common stock purchase agreement entered into on May 15, 2015, and through proceeds realized
in connection with license and collaboration arrangements. The Company cannot be certain that such funding will be available on
favorable terms or available at all. To the extent that the Company raises additional funds by issuing equity securities, its stockholders
may experience significant dilution.
The Company's financial statements were prepared
under the assumption that the Company will continue as a going concern. If the Company is unable to raise funds when required or
on favorable terms, this assumption may no longer be operative, and the Company may have to: a) significantly delay, scale back,
or discontinue the product application and/or commercialization of its proprietary technologies; b) seek collaborators for its
technology and product candidates on terms that are less favorable than might otherwise be available; c) relinquish or otherwise
dispose of rights to technologies, product candidates, or products that it would otherwise seek to develop or commercialize; or
d) possibly cease operations.
|
3.
|
Summary of Significant Accounting Policies
|
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated as part of the
consolidation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management
to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
These estimates include the valuation of intellectual property, legal and contractual contingencies and share-based compensation.
Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable
under the circumstances, actual results could differ from these estimates.
Accounts Receivable
Accounts receivable are reported at their outstanding
unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables
based on management's estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate.
The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible.
At June 30, 2016 and 2015, the Company determined that an allowance for doubtful accounts was not needed.
Revenue Recognition
The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured.
Deferred revenue represents billings to a customer to whom the services have not yet been provided.
The Company’s contract revenue consists
primarily of amounts earned under contracts with third-party customers and reimbursed expenses under such contracts. The Company
analyzes its agreements to determine whether the elements can be separated and accounted for individually or as a single unit of
accounting in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
605-25, “
Revenue Arrangements with Multiple Deliverables
,” and Staff Accounting Bulletin 104, “
Revenue
Recognition
.” Allocation of revenue to individual elements that qualify for separate accounting is based on the separate
selling prices determined for each component, and total contract consideration is then allocated pro rata across the components
of the arrangement. If separate selling prices are not available, the Company will use its best estimate of such selling prices,
consistent with the overall pricing strategy and after consideration of relevant market factors. For the years ended June 30, 2016
and 2015, the Company did not have any revenue arrangements with multiple deliverables.
The Company generates (or may generate in the
future) contract revenue under the following types of contracts:
Fixed-Fee
Under a fixed-fee contract, the Company charges
a fixed agreed upon amount for a deliverable. Fixed-fee contracts have fixed deliverables upon completion of the project. Typically,
the Company recognizes revenue for fixed-fee contracts after projects are completed, delivery is made and title transfers to the
customer, and collection is reasonably assured.
Time and Materials
Under a time and materials contract, the Company
charges customers an hourly rate plus reimbursement for other project specific costs. The Company recognizes revenue for time and
material contracts based on the number of hours devoted to the project multiplied by the customer’s billing rate plus other
project specific costs incurred.
Grant Income
Grants are recognized as income when all conditions
of such grants are fulfilled or there is a reasonable assurance that they will be fulfilled. Grant income is classified as a reduction
of research and development expenses. In 2016, grant income amounted to approximately $65,000. No grant income was recognized in
2015.
Work in Process
Work in process consists primarily of the cost
of labor and other overhead incurred on contracts that have not been completed as of June 30, 2016.
Research and Development
The Company accounts for research and development
costs in accordance with the FASB ASC 730-10, “
Research and Development
” (“ASC 730-10”). Under
ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development
costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed
or as milestone results have been achieved.
Fixed Assets
Fixed assets are stated at cost net of accumulated
depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from
three to fifteen years.
Assets held under the terms of capital leases
are included in fixed assets and are depreciated on a straight-line basis over the terms of the leases or the economic lives of
the assets. Obligations for future lease payments under capital leases are shown within liabilities and are analyzed between amounts
falling due within and after one year (see Note 10).
Intangible Assets
The Company accounts for intangible assets
at their historical cost and records amortization utilizing the straight-line method based upon their estimated useful lives. Patents
are amortized over a period of ten years and other intellectual property is amortized over a period from 16 to 23 years. The Company
reviews the carrying value of its intangible assets for impairment whenever events or changes in business circumstances indicate
the carrying amount of such assets may not be fully recoverable. Evaluating for impairment requires judgment, and recoverability
is assessed by comparing the projected undiscounted net cash flows of the assets over the remaining useful life to the carrying
amount. Impairments, if any, are based on the excess of the carrying amount over the fair value of the assets. There were no impairment
charges for the years ended June 30, 2016 and 2015.
Derivative Instruments
The Company does not use derivative instruments
in its ordinary course of business.
In connection with the issuances of debt and/or
equity instruments, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options
or warrants may be classified as liabilities rather than as equity. In addition, the debt and/or equity instrument may contain
embedded derivative instruments, such as conversion options or anti-dilution features, which in certain circumstances may be required
to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company
accounts for derivative liability instruments under the provisions of FASB ASC 815, “
Derivatives and Hedging
.”
There are no options or warrants of the Company
presently outstanding that require accounting as a derivative liability.
Foreign Currency
The Company accounts for foreign currency
translation pursuant to FASB ASC 830, “
Foreign Currency Matters.
” The functional currency of iBio Brazil is
the Brazilian Real. Under FASB ASC 830, all assets and liabilities are translated into United States dollars using the current
exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing
throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated
in Reals are reflected in the statement of operations as appropriate. Translation adjustments are included in accumulated other
comprehensive loss.
Share-based Compensation
The Company recognizes the cost of all share-based
payment transactions at fair value. Compensation cost, measured by the fair value of the equity instruments issued, adjusted for
estimated forfeitures, is recognized in the financial statements as the respective awards are earned over the performance period.
The Company uses historical data to estimate forfeiture rates.
The impact that share-based payment awards
will have on the Company’s results of operations is a function of the number of shares awarded, the trading price of the
Company’s stock at the date of grant or modification, and the vesting schedule. Furthermore, the application of the Black-Scholes
option pricing model employs weighted-average assumptions for expected volatility of the Company’s stock, expected term until
exercise of the options, the risk-free interest rate, and dividends, if any, to determine fair value. Expected volatility is based
on historical volatility of the Company’s common stock; the expected term until exercise represents the weighted-average
period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s
historical exercise patterns; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
grant for periods corresponding with the expected life of the option. The Company has not paid any dividends since its inception
and does not anticipate paying any dividends for the foreseeable future, so the dividend yield is assumed to be zero.
Income Taxes
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect of a change
in tax rates or laws on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment
date of the rate change. A valuation allowance is established to reduce the deferred tax assets to the amounts that are more likely
than not to be realized from operations.
Tax benefits of uncertain tax positions are
recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return.
The Company has no liability for uncertain tax positions as of June 30, 2016 and 2015. Interest and penalties, if any, related
to unrecognized tax benefits would be recognized as income tax expense. The Company does not have any accrued interest or penalties
associated with unrecognized tax benefits, nor was any significant interest expense recognized during the years ended June 30,
2016 and 2015.
|
4.
|
New Accounting Pronouncements
|
In May 2014, ASU No. 2014-09, “
Revenue
from Contracts with Customers
” (“ASU 2014-09”) was issued. The amendments in ASU 2014-09 affect any entity
that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial
assets unless contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede
the revenue recognition requirements in ASC 605, “
Revenue Recognition
,” and most industry-specific guidance.
The core principle of the guidance is that
an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle,
an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations
in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the
performance obligations in the contract.
Step 5: Recognize revenue when (or as) the
entity satisfies a performance obligation.
ASU 2014-09 was scheduled to be effective for
annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application
is not permitted. In August 2015, the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers (Topic 606): Deferral
of Effective Date”
(“ASU 2015-14”) which defers the effective date of ASU 2014-09 by one year. ASU 2014-09
is now effective for annual reporting periods after December 15, 2017 including interim periods within that reporting period.
Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting
periods within that reporting period. The Company is currently evaluating the effects of adopting ASU 2014-09 on its consolidated
financial statements.
Effective January 1, 2016, the Company adopted
ASU 2014-12, “
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be
Achieved after the Requisite Service Period
” (“ASU No. 2014-12”). ASU No. 2014-12 requires that
a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance
condition. An entity should recognize compensation cost in the period in which it becomes probable that the performance target
will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already
been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the
remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total
amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are
expected to vest and should be adjusted to reflect those awards that ultimately vest. ASU 2014-12 became effective for interim
and annual periods beginning on or after December 15, 2015. The adoption of ASU 2014-12 did not have a significant impact on the
Company’s consolidated financial statements.
In June 2014, ASU
2014-15, “
Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern
” (“ASU No. 2014-15”) was issued. Before the
issuance of ASU 2014-15, there was no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is
substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. This
guidance is expected to reduce the diversity in the timing and content of footnote disclosures. ASU 2014-15 requires management
to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that
are currently in U.S. auditing standards as specified in the guidance. ASU 2014-15 becomes effective for the annual period ending
after December 15, 2016 (year ended June 30, 2017 for the Company) and for annual and interim periods thereafter. Early adoption
is permitted. The Company is currently evaluating the effects of adopting ASU 2014-15 on its consolidated financial statements
but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.
Effective January 1, 2016, the Company adopted
ASU 2015-01, “
Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation
by Eliminating the Concept of Extraordinary Items”
(“ASU 2015-01”). ASU 2015-01 eliminates the concept of
an extraordinary item from accounting principles generally accepted in the United States of America. As a result, an entity will
no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary
item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share
data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items
that are unusual in nature and occur infrequently. ASU 2015-01 became effective for interim and annual periods beginning on or
after December 15, 2015. The adoption of ASU 2015-01 did not have a significant impact on the Company’s consolidated financial
statements.
In April 2015, the FASB issued ASU 2015-03,
“
Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
”
(“ASU 2015-03”) as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative).
The FASB received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount
and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different
from the guidance in International Financial Reporting Standards, which requires that transaction costs be deducted from the carrying
value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance
costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, “
Elements of Financial Statements
,”
which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing
the effective interest rate. FASB Concepts Statement No. 6 further states that debt issuance costs cannot be an asset because they
provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in this update require that
debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs
are not affected by the amendments in this update. For public business entities, the amendments in this update are effective for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.
The Company will evaluate the effects of adopting ASU 2015-03 if and when it is deemed to be applicable.
In November 2015, the FASB issued ASU 2015-17,
“
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
” (“ASU 2015-17”). ASU
2015-17 requires deferred tax assets and liabilities to be classified as noncurrent in the consolidated balance sheet. ASU 2015-17
becomes effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted.
A reporting entity should apply the amendment prospectively or retrospectively. The Company is currently evaluating the effects
of adopting ASU 2015-17 on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
“
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities
” (“ASU 2016-01”). The amendments require all equity investments to be measured at fair value
with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting
or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit
risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial
instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured
at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost
on the balance sheet for public business entities. This guidance is effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The Company will evaluate the effects of adopting ASU 2016-01 if and when
it is deemed to be applicable.
In February 2016, the FASB issued ASU 2016-02,
“
Leases (Topic 842)
” (“ASU 2016-02”) which supersedes existing guidance on accounting for leases
in “
Leases (Topic 840)
.” The standard requires lessees to recognize the assets and liabilities that arise
from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease payments (the
lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new
guidance is effective for annual reporting periods beginning after December 15, 2018 (fiscal year ended June 30, 2020 for the Company)
and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period presented
using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting
period. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “
Improvements
to Employee Share-Based Payment Accounting
” (“ASU 2016-09”). ASU 2016-09 affects entities that issue share-based
payment awards to their employees. ASU 2016-09 is designed to simplify several aspects of accounting for share-based payment award
transactions which include – the income tax consequences, classification of awards as either equity or liabilities, classification
on the statement of cash flows and forfeiture rate calculations. This guidance is effective for annual periods beginning after
December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-09
on its consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10,
“
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
” (“ASU
2016-10”) related to identifying performance obligations and licensing. ASU 2016-10 is meant to clarify the guidance in FASB
ASU 2014- 09, “
Revenue from Contracts with Customers
.” Specifically, ASU 2016-10 addresses an entity’s
identification of its performance obligations in a contract, as well as an entity’s evaluation of the nature of its promise
to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. The
pronouncement has the same effective date as the new revenue standard, which is effective for fiscal years, and for interim periods
within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the impact of ASU 2016-10 on
its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12,
"
Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients
" ("ASU
2016-12"). The amendments in ASU 2016-12 affect the guidance in ASU 2014-09 by clarifying certain specific aspects of the
guidance, including assessment of collectability, treatment of sales taxes and contract modifications, and providing certain technical
corrections. ASU 2016-12 will have the same effective date and transition requirements as ASU 2014-09. The Company is currently
evaluating the impact of ASU 2016-12 on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
“
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
” (“ASU
2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified
in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard
will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply
the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact
of ASU 2016-15 on its consolidated financial statements.
Management does not believe that any other
recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying
consolidated financial statements.
|
5.
|
Financial Instruments and Fair Value Measurement
|
The carrying values of cash, accounts receivable,
prepaid expenses and other current assets, accounts payable and accrued expenses in the Company's consolidated balance sheets approximated
their fair values as of June 30, 2016 and 2015 due to their short-term nature. The carrying value of the capital lease obligation
approximated its fair value at June 30, 2016 as the interest rate used to discount the lease payments approximated market.
iBio CMO is leasing its facility in Bryan,
Texas as well as certain equipment from the Second Affiliate under a 34-year sublease. See Note 10 for more details of the terms
of the sublease.
The economic substance of the sublease
is that the Company is financing the acquisition of the facility and equipment and, accordingly, the facility and equipment are
recorded as assets and the lease is recorded as a liability. As the sublease involves real estate and equipment, the Company separated
the equipment component and accounted for the facility and equipment as if each was leased separately.
The following table summarizes by category
the gross carrying value and accumulated depreciation of fixed assets (in thousands):
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Facility under capital lease
|
|
$
|
20,000
|
|
|
$
|
-
|
|
Equipment under capital lease
|
|
|
6,000
|
|
|
|
-
|
|
Facility improvements
|
|
|
42
|
|
|
|
-
|
|
Office equipment and software
|
|
|
137
|
|
|
|
40
|
|
|
|
|
26,179
|
|
|
|
40
|
|
Accumulated depreciation – assets under capital lease
|
|
|
(571
|
)
|
|
|
-
|
|
Accumulated depreciation – other
|
|
|
(34
|
)
|
|
|
(27
|
)
|
|
|
|
(605
|
)
|
|
|
(27
|
)
|
Net fixed assets
|
|
$
|
25,574
|
|
|
$
|
13
|
|
Depreciation expense was approximately $577,000
and $4,600 in 2016 and 2015, respectively. Depreciation of the assets under the capital lease amounted to approximately $571,000
in 2016.
The Company has two categories of intangible
assets – intellectual property and patents. Intellectual property consists of all technology, know-how, data, and protocols
for producing targeted proteins in plants and related to any products and product formulations for pharmaceutical uses and for
other applications. Intellectual property includes, but is not limited to, certain technology for the development and manufacture
of novel vaccines and therapeutics for humans and certain veterinary applications acquired in December 2003 from Fraunhofer USA
Inc., acting through its Center for Molecular Biotechnology (“Fraunhofer”), pursuant to a Technology Transfer Agreement,
as amended (the “TTA”). The Company designates such technology acquired from Fraunhofer as iBioLaunch technology or
as iBioModulator technology. The value attributed to Patents owned or controlled by the Company is based on payments for services
and fees related to the further development and protection of the Company’s patent portfolio.
In January 2014, the Company entered into a
license agreement with a U.S. university whereby iBio acquired exclusive worldwide rights to certain issued and pending patents
covering specific candidate products for the treatment of fibrosis (the “Licensed Technology”). The license agreement
provides for payment by the Company of a license issue fee, annual license maintenance fees, reimbursement of prior patent costs
incurred by the university, payment of a milestone payment upon regulatory approval for sale of a first product, and annual royalties
on product sales. In addition, the Company has agreed to meet certain diligence milestones related to product development benchmarks.
As part of its commitment to the diligence milestones, the Company successfully commenced production of a plant-made peptide comprising
the Licensed Technology before March 31, 2014. The next milestone – filing a New Drug Application with the FDA or foreign
equivalent covering the Licensed Technology (“IND”) – became due on December 1, 2015. A six-month extension was
automatically granted until June 1, 2016 under the license agreement. On August 11, 2016, the agreement was amended and replaced
the original milestone schedule to provide that the IND filing be accomplished by June 30, 2017.
The following table summarizes by category
the gross carrying value and accumulated amortization of intangible assets (in thousands):
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Intellectual property – gross carrying value
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
Patents – gross carrying value
|
|
|
2,265
|
|
|
|
2,181
|
|
|
|
|
5,365
|
|
|
|
5,281
|
|
Intellectual property – accumulated amortization
|
|
|
(1,932
|
)
|
|
|
(1,776
|
)
|
Patents – accumulated amortization
|
|
|
(1,341
|
)
|
|
|
(1,145
|
)
|
|
|
|
(3,273
|
)
|
|
|
(2,921
|
)
|
Net intangible assets
|
|
$
|
2,092
|
|
|
$
|
2,360
|
|
Amortization expense, included in general and
administrative expenses, was approximately $363,000 and $358,000 for 2016 and 2015. In addition, in 2016 and 2015, the Company
incurred losses on the abandonment of patents of approximately $33,000 and $48,000, respectively. The weighted-average remaining
life for intellectual property and patents at June 30, 2016 was approximately 7.5 years and 6.6 years, respectively. The estimated
annual amortization expense for the next five years and thereafter is as follows (in thousands):
For the Year Ending
June 30,
|
|
|
|
2017
|
|
$
|
345
|
|
2018
|
|
|
327
|
|
2019
|
|
|
297
|
|
2020
|
|
|
265
|
|
2021
|
|
|
244
|
|
Thereafter
|
|
|
614
|
|
Total
|
|
$
|
2,092
|
|
Fraunhofer
Fraunhofer was the Company’s most
significant vendor solely on the basis of the three-party Yellow Fever vaccine development program among Fiocruz/Bio-Manguinhos,
the Company, and Fraunhofer (described in greater detail below). The accounts payable balance under this three-party agreement
includes amounts due Fraunhofer of approximately $341,000 and $445,000 as of June 30, 2016 and 2015, respectively, and accrued
expenses of $122,000 and $0 as of June 30, 2016 and 2015, respectively. See Note 16 – Commitments and Contingencies.
On January 4, 2011, the Company entered
into the Collaboration and License Agreement (the “CLA”) which is a three party agreement involving the Company, Fraunhofer
and Fiocruz, a public entity, member of the Indirect Federal Public Administration and linked to the Health Ministry of Brazil,
acting through its unit Bio-Manguinhos. The CLA provides for the development of a Yellow Fever vaccine to be manufactured and distributed
within Latin America and Africa by Fiocruz. The CLA was supplemented by a bilateral agreement between iBio and Fraunhofer dated
December 27, 2010 in which the Company engaged Fraunhofer as a contractor to provide the research and development services (both,
together, the “Agreement”). The services are billed to Fiocruz at Fraunhofer’s cost, so the Company’s revenue
is equivalent to expense and there is no profit.
On June 12, 2014, Fiocruz, Fraunhofer and iBio
executed an amendment to the CLA (the “Amended Agreement”) which provides for revised research and development, work
plans, reporting, objectives, estimated budget, and project billing process. In 2016 and 2015, under the Amended Agreement, the
Company recognized revenue of $758,000 and $1,851,000, respectively, for work performed for Fiocruz pursuant to the Amended Agreement
by the Company’s subcontractor, Fraunhofer, and recognized research and development expenses of the same amount due Fraunhofer
for that work.
In September 2013,
the Company and Fraunhofer completed the Terms of Settlement for the TTA Seventh Amendment (the “Settlement Agreement”).
Under the terms of the Settlement Agreement various contractual obligations existing at June 30, 2013 were released, terminated
or modified. See Note 16 - Commitments and Contingencies for significant modifications.
On March 17, 2015, the Company filed a
Verified Complaint in the Court of Chancery of the State of Delaware against Fraunhofer and Vidadi Yusibov, Fraunhofer's Executive
Director. See Note 16 - Lawsuits for additional information.
Novici Biotech, LLC
In January 2012, the Company entered into an
agreement with Novici Biotech, LLC (“Novici”) in which iBio’s President is a minority stockholder. Novici performs
laboratory feasibility analyses of gene expression, protein purification and preparation of research samples. In addition, the
Company and Novici collaborate on the development of new technologies and product candidates for exclusive worldwide commercial
use by the Company. The accounts payable balance includes amounts due to Novici of approximately $200,000 and $153,000 at June
30, 2016 and 2015, respectively. Research and development expenses related to Novici were approximately $1,036,000 and $995,000
in 2016 and 2015, respectively.
Accrued expenses consist of the following (in
thousands):
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Interest – related party (see Note 14)
|
|
$
|
323
|
|
|
$
|
-
|
|
Rent and real estate taxes – related party (see Note 14)
|
|
|
300
|
|
|
|
-
|
|
Research and development
|
|
|
122
|
|
|
|
-
|
|
Salaries and benefits
|
|
|
55
|
|
|
|
39
|
|
Facility expenses
|
|
|
53
|
|
|
|
-
|
|
Stock exchange fees
|
|
|
-
|
|
|
|
65
|
|
Other accrued expenses
|
|
|
67
|
|
|
|
55
|
|
Total accrued expenses
|
|
$
|
920
|
|
|
$
|
159
|
|
|
10.
|
Capital Lease Obligation
|
As discussed above, iBio CMO is leasing its
facility in Bryan, Texas as well as certain equipment from the Second Affiliate under a 34-year sublease. iBio CMO began operations
at the facility on December 22, 2015 pursuant to agreements between iBio CMO and the Second Affiliate granting iBio CMO temporary
rights to access the facility. These temporary agreements were superseded by the Sublease Agreement, dated January 13, 2016, between
iBio CMO and the Second Affiliate (the “sublease”). The 34-year term of the sublease may be extended by iBio CMO for
a ten-year period, so long as iBio CMO is not in default under the sublease. Under the sublease, iBio CMO is required to pay base
rent at an annual rate of $2,100,000, paid in equal quarterly installments on the first day of each February, May, August and November.
The base rent is subject to increase annually in accordance with increases in the Consumer Price Index. The base rent under the
Second Affiliate’s ground lease for the property is subject to adjustment, based on an appraisal of the property, in 2030
and upon any extension of the ground lease. The base rent under the sublease will be increased by any increase in the base rent
under the ground lease as a result of such adjustments. iBio CMO is also responsible for all costs and expenses in connection with
the ownership, management, operation, replacement, maintenance and repair of the property under the sublease.
In addition to the base rent, iBio CMO is required
to pay, for each calendar year during the term, a portion of the total gross sales for products manufactured or processed at the
facility, equal to 7% of the first $5,000,000 of gross sales, 6% of gross sales between $5,000,001 and $25,000,000, 5% of gross
sales between $25,000,001 and $50,000,000, 4% of gross sales between $50,000,001 and $100,000,000, and 3% of gross sales between
$100,000,001 and $500,000,000. However, if for any calendar year period from January 1, 2018 through December 31, 2019, iBio CMO’s
applicable gross sales are less than $5,000,000, or for any calendar year period from and after January 1, 2020, its applicable
gross sales are less than $10,000,000, then iBio CMO is required to pay the amount that would have been payable if it had achieved
such minimum gross sales and shall pay no less than the applicable percentage for the minimum gross sales for each subsequent calendar
year. Percentage rent amounted to $27,000 in 2016.
Interest expense incurred under the capital
lease obligation amounted to $807,000 and $0 in 2016 and 2015, respectively.
Future minimum payments under the capitalized
lease obligations are due as follows:
Year Ending:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2017
|
|
$
|
169,818
|
|
|
$
|
1,930,182
|
|
|
$
|
2,100,000
|
|
2018
|
|
|
183,110
|
|
|
|
1,916,890
|
|
|
|
2,100,000
|
|
2019
|
|
|
197,443
|
|
|
|
1,902,557
|
|
|
|
2,100,000
|
|
2020
|
|
|
212,898
|
|
|
|
1,887,102
|
|
|
|
2,100,000
|
|
2021
|
|
|
229,562
|
|
|
|
1,870,438
|
|
|
|
2,100,000
|
|
Thereafter
|
|
|
24,441,676
|
|
|
|
35,933,324
|
|
|
|
60,375,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
25,434,507
|
|
|
$
|
45,440,493
|
|
|
$
|
70,875,000
|
|
Less: current portion
|
|
|
(169,818
|
)
|
|
|
|
|
|
|
|
|
Long-term portion of minimum lease obligations
|
|
$
|
25,264,689
|
|
|
|
|
|
|
|
|
|
Preferred Stock
The Company’s Board of Directors is authorized
to issue, at any time, without further stockholder approval, up to 1 million shares of preferred stock. The Board of Directors
has the authority to fix and determine the voting rights, rights of redemption and other rights and preferences of preferred stock.
As of June 30, 2016 and 2015, there were no shares of preferred stock issued and outstanding.
Common Stock
As of June 30, 2016 and 2015, the Company was
authorized to issue up to 175 million shares of common stock. As of June 30, 2016, the Company had reserved up to 15 million
shares of common stock for incentive compensation (stock options and restricted stock). No shares are reserved for the exercise
of warrants.
Issuances of common stock were as follows:
Aspire Capital – 2014 Facility
On August 25, 2014, the Company entered into
a common stock purchase agreement with Aspire Capital Fund, which provided that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital was committed to purchase up to an aggregate of $10.0 million of shares of the Company’s
common stock over the approximately 24-month term of the purchase agreement. As of April 28, 2015, Aspire Capital fulfilled its
commitment to purchase $10.0 million of the Company’s common stock under the agreement.
In consideration for entering into the purchase
agreement, following the approval of the issuance of the shares by NYSE MKT, Aspire Capital received a commitment fee of $300,000
– 3% of the $10 million commitment – payable in 681,818 shares of the Company’s common stock priced at $0.44
per share, the closing price on the day preceding execution of the agreement. In addition, on September 19, 2014 following approval
of the issuance of the shares by NYSE MKT, Aspire Capital purchased 1,136,354 shares of common stock at $0.44 per share for $500,000
pursuant to the terms of the purchase agreement.
Concurrently with entering into the purchase
agreement, the Company also entered into a registration rights agreement with Aspire Capital, in which the Company agreed to file
one or more registration statements as permissible and necessary to register under the Securities Act of 1933, as amended, the
sale of shares of the Company’s common stock under the purchase agreement.
After the Securities and Exchange Commission
declared effective the registration statement, on any trading day on which the closing sale price of the Company’s common
stock exceeded the “Floor Price” of $0.44 (the closing sale price of the Company’s shares on the business day
before the Company entered into the purchase agreement with Aspire Capital), the Company had the right, in its sole discretion,
to present Aspire Capital with a purchase notice, directing Aspire Capital (as principal) to purchase up to 150,000 shares of common
stock per trading day, provided that the aggregate price of such purchase did not exceed $500,000 per trading day, up to an additional
$9.5 million of common stock in the aggregate at a per share price equal to the lesser of the lowest sale price of common stock
on the purchase date, or the arithmetic average of the three lowest closing sale prices of common stock during the ten consecutive
trading days ending on the trading day immediately preceding the purchase date.
In addition, on any date on which the Company
submitted a purchase notice to Aspire Capital in an amount equal to 150,000 shares of common stock and the closing sale price of
common stock was equal to or greater than the Floor Price of $0.44, the Company also had the right, in its sole discretion, to
present Aspire Capital with a volume-weighted average price (“VWAP”) purchase notice directing Aspire Capital to purchase
an amount of stock equal to up to 30% of the aggregate shares of the Company’s common stock traded on the NYSE MTK on the
next trading day, subject to a maximum number of shares determined by the Company, and a minimum trading price equal to the greater
of (a) 80% of the closing price of common stock on the business day immediately preceding the date of the VWAP purchase, or (b)
such higher price as set forth by the Company in the notice for the VWAP purchase. The purchase price per share pursuant to such
VWAP purchase notice was the lower of (i) the closing sale price on the date of sale and (ii) 97% of the volume-weighted average
price for common stock traded on the NYSE MKT on (i) the date of the VWAP purchase if the aggregate stock to be purchased on that
date did not exceed the volume maximum stated in the Company’s notice for the VWAP purchase, or (ii) the portion of such
business day until such time as aggregate stock to be purchased equaled the volume maximum stated in the Company’s notice
or the time at which the sale of the stock fell below the minimum trading price described above.
The purchase agreement provided that the Company
and Aspire Capital could not effect any sales under the purchase agreement on any purchase date where the closing sale price of
common stock is less than $0.44 (the closing sale price of shares on the business day before the Company entered into the purchase
agreement referred to as the “Floor Price”). A lower Floor Price of $0.20 per share of Common Stock applied, if the
Company’s stockholders approved the transaction contemplated by the Purchase Agreement. The Company was under no obligation
to request our stockholders to approve the transaction contemplated by the Purchase Agreement. However, the purchase price for
any purchases of shares under the purchase agreement could not be less than $0.44 per share, unless stockholder approval was obtained.
There were no trading volume requirements or restrictions under the purchase agreement with Aspire Capital, and the Company controlled
the timing and amount of any sales of our common stock to Aspire Capital. Aspire Capital had no right to require any sales by the
Company, but was obligated to make purchases from the Company as directed in accordance with the purchase agreement. There were
no limitations on use of proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation
rights, penalties or liquidated damages in the purchase agreement.
Aspire Capital purchased 8,768,806
shares of common stock for $10,000,000 pursuant to the terms of the purchase agreement, fulfilling its commitment to purchase $10.0
million of the Company’s common stock under the agreement.
Aspire Capital – 2015 Facility
On May 15, 2015,
the Company entered into a common stock purchase agreement (the “2015 Aspire Purchase Agreement”) with Aspire Capital,
pursuant to which the Company has the option to require Aspire Capital to purchase up to an aggregate of $15.0 million of shares
of the Company’s common stock (the “Purchase Shares”) upon and subject to the terms of the 2015 Aspire Purchase
Agreement.
In consideration for entering into the purchase agreement, Aspire Capital received a commitment fee of
450,000 shares
(the “Commitment Shares”)
.
On any business day after the
Commencement Date (as defined below) and over the 36-month term of the 2015 Aspire Purchase Agreement, the Company has the right,
in its sole discretion, to present Aspire Capital with a purchase notice (each, a “Purchase Notice”) directing Aspire
Capital to purchase up to 200,000 Purchase Shares per business day; however, no sale pursuant to such a Purchase Notice may exceed
five hundred thousand dollars ($500,000) per business day, unless the Company and Aspire Capital mutually agree. The Company and
Aspire Capital also may mutually agree to increase the number of shares that may be sold to as much as an additional 2,000,000
Purchase Shares per business day. The purchase price per Purchase Share pursuant to such Purchase Notice (the “Purchase Price”)
is the lower of (i) the lowest sale price for the Company’s common stock on the date of sale or (ii) the average of the three
lowest closing sale prices for the Company’s common stock during the 10 consecutive business days ending on the business
day immediately preceding the purchase date. The applicable Purchase Price will be determined prior to delivery of any Purchase
Notice.
In addition,
on any date on which the Company submits a Purchase Notice to Aspire Capital for at least 150,000 Purchase Shares and the closing
sale price of the Company’s common stock is higher than $0.40, the Company also has the right, in its sole discretion, to
present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing
Aspire Capital to purchase an amount of the Company’s common stock equal to up to 35% of the aggregate shares of common
stock traded on the next business day (the “VWAP Purchase Date”), subject to a maximum number of shares determined
by the Company (the “VWAP Purchase Share Volume Maximum”). The purchase price per Purchase Share pursuant to such
VWAP Purchase Notice (the “VWAP Purchase Price”) shall be the lesser of the closing sale price of the Company’s
common stock on the VWAP Purchase Date or 97% of the volume weighted average price for the Company’s common stock traded
on the VWAP Purchase Date if the aggregate shares to be purchased on that date does not exceed the VWAP Purchase Share Volume
Maximum, or the portion of such business day until such time as the sooner to occur of (1) the time at which the aggregate shares
traded has exceeded the VWAP Purchase Share Volume Maximum, or (2) the time at which the sale price of the Company’s common
stock falls below the VWAP Minimum Price Threshold (to be appropriately adjusted for any reorganization, recapitalization, non-cash
dividend, stock split, reverse stock split or other similar transaction). The VWAP Minimum Price Threshold is the greater of (i)
80% of the closing sale price of the Company’s common stock on the business day immediately preceding the VWAP Purchase
Date or (ii) such higher price as set forth by the Company in the VWAP Purchase Notice
.
The number of Purchase Shares
covered by and timing of each Purchase Notice or VWAP Purchase Notice are determined at the Company’s discretion. The aggregate
number of shares that the Company can sell to Aspire Capital under the 2015 Aspire Purchase Agreement may in no case exceed 15,343,406
shares of our common stock (which is equal to approximately 19.99% of the common stock outstanding on the date of the 2015 Aspire
Purchase Agreement, including the 450,000 Commitment Shares issued to Aspire Capital in consideration for entering into the 2015
Aspire Purchase Agreement) (the “Exchange Cap”), unless (i) shareholder approval is obtained to issue more, in which
case the Exchange Cap will not apply; provided that at no time shall Aspire Capital (together with its affiliates) beneficially
own more than 19.99% of the Company’s common stock.
The 2015 Aspire Purchase Agreement
contains customary representations, warranties, covenants, closing conditions and indemnification and termination provisions. Sales
under the 2015 Aspire Purchase Agreement could commence only after certain conditions were satisfied (the date on which all requisite
conditions have been satisfied being referred to as the “Commencement Date”), which conditions included the delivery
to Aspire Capital of a prospectus supplement covering the Commitment Shares and the Purchase Shares, approval for listing on NYSE
MKT of the Purchase Shares and the Commitment Shares, the issuance of the Commitment Shares to Aspire Capital, and the receipt
by Aspire Capital of a customary opinion of counsel and other certificates and closing documents. Either party had the option to
terminate the 2015 Aspire Purchase Agreement in the event the Commencement Date had not occurred by July 1, 2015. The 2015 Aspire
Purchase Agreement may be terminated by the Company at any time, at its discretion, without any cost or penalty.
The Company’s net proceeds
will depend on the Purchase Price, the VWAP Purchase Price and the frequency of the Company’s sales of Purchase Shares to
Aspire Capital; subject to the maximum $15.0 million available amount. The Company’s delivery of Purchase Notices and VWAP
Purchase Notices will be made subject to market conditions, in light of the Company’s capital needs from time to time. The
Company expects to use proceeds from sales of Purchase Shares for general corporate purposes and working capital requirements.
In connection with the 2015
Aspire Purchase Agreement, the Company also entered into a Registration Rights Agreement (the “Registration Rights Agreement”)
with Aspire Capital, dated May 15, 2015. The Registration Rights Agreement provides, among other things, a requirement to register
the sale of the Commitment Shares and the Purchase Shares to Aspire Capital pursuant to the Company’s existing shelf registration
statement (the “Registration Statement”). The Company further agreed to keep the Registration Statement effective and
to indemnify Aspire Capital for certain liabilities in connection with the sale of the Securities under the terms of the Registration
Rights Agreement. On May 29, 2015, the Company filed a prospectus supplement to the Company’s existing Registration Statement
on Form S-3, registering $15.0 million of the Company’s common stock that it may issue and sell to Aspire Capital from time
to time pursuant to the 2015 Aspire Purchase Agreement, together with the 450,000 Commitment Shares issued to Aspire Capital in
consideration for entering into the 2015 Aspire Purchase Agreement.
No shares have been sold under
the 2015 Facility as of the date of the filing of this report.
Eastern – Share Purchase Agreements
On January 13, 2016, the Company entered into
a share purchase agreement with Eastern pursuant to which Eastern agreed to purchase 3,500,000 shares of the Company’s common
stock at a price of $0.622 per share. The Company received proceeds of $2,177,000 and the shares were issued on January 25, 2016.
In addition, Eastern agreed to exercise warrants it had previously acquired to purchase 1,784,000 shares of the Company’s
common stock at an exercise price of $0.53 per share. The Company received proceeds of approximately $945,000 from the exercise
of the warrants and the shares were issued on January 25, 2016.
On January 13, 2016, the Company entered into
a separate share purchase agreement with Eastern pursuant to which Eastern agreed to purchase 6,500,000 shares of the Company’s
common stock at a price of $0.622 per share, subject to the approval of the Company’s stockholders. The Company’s stockholders
approved the issuance of the 6,500,000 shares to Eastern at the Company’s annual meeting on April 7, 2016. On April 13, 2016,
the Company issued the 6,500,000 shares and received proceeds of $4,043,000. These shares are subject to a three-year standstill
agreement which will restrict additional acquisitions of the Company’s common stock by Eastern and its controlled affiliates
to limit its beneficial ownership of the Company’s outstanding shares of common stock to a maximum of 38%, absent the approval
by a majority of the Company’s board of directors.
Exercises of Warrants
In 2015, t
he Company
issued 1,636,000 shares of common stock for the exercise of warrants and received proceeds of approximately $867,000. In addition,
the Company issued 26,691 shares of common stock for the cashless exercise of 75,000 warrants
.
In 2016, in addition to the exercise of warrants
by Eastern discussed above, t
he Company issued 120,000 shares of common stock for the exercise of
warrants and received proceeds of approximately $64,000.
Warrants
The Company has historically financed its operations
through the sale of common stock and warrants, sold together as units.
The following table summarizes all warrant
activity for 2016 and 2015:
|
|
Warrants
|
|
|
Weighted-
average
Exercise
Price
|
|
Outstanding as of July 1, 2014
|
|
|
8,769,911
|
|
|
$
|
1.38
|
|
Exercised
|
|
|
(1,711,000
|
)
|
|
$
|
0.51
|
|
Expired
|
|
|
(425,587
|
)
|
|
$
|
0.66
|
|
Outstanding as of June 30, 2015
|
|
|
6,633,324
|
|
|
$
|
1.63
|
|
Exercised
|
|
|
(1,904,000
|
)
|
|
$
|
0.53
|
|
Expired
|
|
|
(4,729,324
|
)
|
|
$
|
2.08
|
|
Outstanding as of June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
12.
|
Earnings
(Loss) Per Common Share
|
Basic earnings (loss) per common share is computed
by dividing the net income (loss) allocated to common stockholders by the weighted-average number of shares of common stock outstanding
during the period. For purposes of calculating diluted earnings per common share, the denominator includes both the weighted-average
number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such
common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and warrants using the
treasury stock method. The following table summarizes the components of the earnings (loss) per common share calculation (in thousands,
except per share amounts):
|
|
Years ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Basic and diluted numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to iBio, Inc. stockholders
|
|
$
|
(9,764
|
)
|
|
$
|
(6,625
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
80,973
|
|
|
|
71,495
|
|
|
|
|
|
|
|
|
|
|
Per share amount
|
|
$
|
(0.12
|
)
|
|
$
|
(0.09
|
)
|
In 2016 and 2015, the Company incurred net
losses which cannot be diluted; therefore, basic and diluted loss per common share is the same. As of June 30, 2016, shares issuable
which could potentially dilute future earnings included approximately 12.3 million stock options. As of June 30, 2015, shares
issuable which could potentially dilute future earnings included approximately 9.5 million stock options and 6.6 million warrants.
|
13.
|
Share-Based Compensation
|
The following table summarizes the components of share-based compensation expense in the Consolidated
Statements of Operations (in thousands):
|
|
Year Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
$
|
20
|
|
|
$
|
-
|
|
General and administrative
|
|
|
1,245
|
|
|
|
914
|
|
Totals
|
|
$
|
1,265
|
|
|
$
|
914
|
|
Stock Options
On August 12, 2008, the Company adopted the
iBioPharma 2008 Omnibus Equity Incentive Plan (the “Plan”) for employees, officers, directors and external service
providers. The original Plan provided that the Company may grant options to purchase stock and/or make awards of restricted stock
up to an aggregate amount of 10 million shares. On December 18, 2013, the Plan was amended to increase the number of shares reserved
for awards under the Plan from 10 million to 15 million. As of June 30, 2016, there were approximately 2.9 million shares of common
stock reserved for future issuance under the Plan. Stock options granted under the Plan may be either incentive stock options (as
defined by Section 422 of the Internal Revenue Code of 1986, as amended) or non-qualified stock options at the discretion of the
Board of Directors. Vesting of service awards occurs ratably on the anniversary of the grant date over the service period, generally
three or five years, as determined at the time of grant. Vesting of performance awards occurs when the performance criteria have
been satisfied. The Company uses historical data to estimate forfeiture rates.
Issuances of stock options during 2015 were as follows:
On September 4, 2014, the Company
granted stock options to members of the Board of Directors, officers and employees to purchase 1.64 million shares of common stock.
These options vest ratably on the anniversary of the date of grant over a three year service period, expire ten years from the
date of grant, and have an exercise price of $0.49 per share.
Issuances of stock options during 2016 were
as follows:
On September 4, 2015 and March 1, 2016, the Company granted stock
options to members of the Board of Directors, officers and employees to purchase 2.75 million shares of common stock. These options
vest ratably over a three to five year service period, expire ten years from the date of grant, and have a weighted average exercise
price of $1.64 per share.
Issuances of stock options during 2015 were as follows:
On September 5, 2014, the Company granted stock
options to members of the Board of Directors, officers and employees to purchase 1.64 million shares of common stock. These options
vest ratably on the anniversary of the date of grant over a three year service period, expire ten years from the date of grant,
and have a weighted-average exercise price of $0.86 per share.
On November 20, 2014, the Company granted stock
options to a consultant to purchase 100,000 shares of common stock. These options vest over a three year service period, expire
four years from the date of grant, and have an exercise price of $1.15 per share.
On October 17,
2014, a consulting agreement dated March 1, 2012 with a former employee was terminated for cause. As a result, 500,000 options
with an exercise price of $0.87 were cancelled
.
The following table summarizes all stock option activity during the years
ended June 30, 2016 and 2015:
|
|
Stock
Options
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding as of July 1, 2014
|
|
|
8,483,334
|
|
|
$
|
1.25
|
|
|
|
7.0
|
|
|
$
|
179
|
|
Granted
|
|
|
1,740,000
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(700,000
|
)
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2015
|
|
|
9,523,334
|
|
|
$
|
1.22
|
|
|
|
6.6
|
|
|
$
|
1,848
|
|
Granted
|
|
|
2,750,000
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2016
|
|
|
12,273,334
|
|
|
$
|
1.31
|
|
|
|
6.4
|
|
|
$
|
993
|
|
As of June 30, 2016 vested and expected to vest
|
|
|
12,225,441
|
|
|
$
|
1.31
|
|
|
|
6.4
|
|
|
$
|
991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2016
|
|
|
7,583,357
|
|
|
$
|
1.31
|
|
|
|
5.1
|
|
|
$
|
773
|
|
The total fair value of stock options that
vested during 2016 and 2015 was approximately $800,000 and $1.1 million, respectively. As of June 30, 2016, there was approximately
$1.6 million of total unrecognized compensation cost related to non-vested stock options that the Company expects to recognize
over a weighted-average period of 1.9 years.
The weighted-average grant date fair value
of stock options granted during 2016 and 2015 was $0.62 and $0.43 per share, respectively. The Company estimated the fair
value of options granted using the Black-Scholes option pricing model with the following assumptions:
|
|
2016
|
|
|
2015
|
|
Risk-free interest rate
|
|
|
1.83% - 2.13%
|
|
|
|
1.3% - 2.3%
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
Volatility
|
|
|
109.49% - 112.17%
|
|
|
|
96.7% - 113.9%
|
|
Expected term (in years)
|
|
|
9
|
|
|
|
4 - 9
|
|
|
14.
|
Related Party Transactions
|
Novici Biotech, LLC
In January 2012, the Company entered into an
agreement with Novici Biotech, LLC (“Novici”) in which iBio’s President is a minority stockholder. Novici performs
laboratory feasibility analyses of gene expression, protein purification and preparation of research samples. In addition, the
Company and Novici collaborate on the development of new technologies and product candidates for exclusive worldwide commercial
use by the Company. The accounts payable balance includes amounts due to Novici of approximately $200,000 and $153,000 at June
30, 2016 and 2015, respectively. Research and development expenses related to Novici were approximately $1,036,000 and $995,000
in 2016 and 2015, respectively.
Agreements with Eastern Capital Limited
and its Affiliates.
As more fully discussed in Note 11, the Company
entered into two share purchase agreements with Eastern and sold 10 million shares of common stock at a price of $0.622 per share.
The Company received proceeds of $6,220,000. In addition, Eastern agreed to exercise warrants it had previously acquired to purchase
1,784,000 shares of the Company’s common stock at an exercise price of $0.53 per share. The Company received proceeds of
approximately $945,000 from the exercise of the warrants.
Concurrently with the execution of the Purchase
Agreements, iBio entered into a contract manufacturing joint venture with an affiliate of Eastern to develop and manufacture plant-made
pharmaceuticals through iBio’s recently formed subsidiary, iBio CMO. The Eastern Affiliate contributed $15.0 million in cash
to iBio CMO, for a 30% interest in iBio CMO. iBio retained a 70% equity interest in iBio CMO. As the majority equity holder, iBio
has the right to appoint a majority of the members of the Board of Managers that manages the iBio CMO joint venture. Specified
material actions by the joint venture require the consent of iBio and the Eastern Affiliate. iBio contributed to the capital of
iBio CMO a royalty bearing license, which grants iBio CMO a non-exclusive license to use the iBio’s proprietary technologies,
including the iBioLaunch technology and additional iBio technologies, for research purposes and an exclusive U.S. license for manufacturing
purposes. iBio retains all other rights in its intellectual property, including the right for itself to commercialize products
based on its proprietary technologies or to grant licenses to others to do so.
In connection with the joint venture, the
Second Eastern Affiliate, which controls the subject property as sublandlord, granted iBio CMO a 34-year sublease of a Class A
life sciences building in Bryan, Texas, on the campus of Texas A&M University, designed and equipped for plant-made manufacture
of biopharmaceuticals. Accrued expenses at June 30, 2016 due to the Second Eastern Affiliate is $623,000. General and administrative
expenses related to Second Eastern Affiliate were approximately $565,000 in 2016. Interest expense related to the Second Eastern
Affiliate was approximately $807,000 in 2016. The terms of the sublease are described in Note 10.
A three-year standstill agreement (the
“Standstill Agreement”) that took effect upon the issuance of the Eastern Shares pursuant to the 6,500,000 Purchase
Agreement restricts additional acquisitions of iBio common stock by Eastern and its controlled affiliates to limit its beneficial
ownership of the Company’s outstanding shares of common stock to a maximum of 38%, absent approval by a majority of the Company’s
Board of Directors.
Operating Lease with Minority Stockholder
Effective January 1, 2015, the Company is leasing
office space on a month-to-month basis from an entity owned by a minority stockholder of the Company. Rent was $2,200 per month
through November 2015 and increased to $2,500 per month effective December 2015. Rent expense totaled $28,500 and $13,200 in 2016
and 2015, respectively.
The components of net loss consist of the following
(in thousands):
|
|
For the Years Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
(10,635
|
)
|
|
$
|
(6,532
|
)
|
Brazil
|
|
|
(22
|
)
|
|
|
(93
|
)
|
Total
|
|
$
|
(10,657
|
)
|
|
$
|
(6,625
|
)
|
The components of the provision (benefit) for
income taxes consist of the following (in thousands):
|
|
For the Years Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Current – Federal, state and foreign
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred – Federal
|
|
|
(260
|
)
|
|
|
(2,299
|
)
|
Deferred – State
|
|
|
(9
|
)
|
|
|
(377
|
)
|
Deferred – Foreign
|
|
|
(1
|
)
|
|
|
(12
|
)
|
Total
|
|
|
(270
|
)
|
|
|
(2,688
|
)
|
Change in valuation allowance
|
|
|
270
|
|
|
|
2,688
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has deferred income taxes due to
income tax credits, net operating loss carryforwards, and the effect of temporary differences between the carrying values of certain
assets and liabilities for financial reporting and income tax purposes.
The components of the Company’s deferred
tax assets and liabilities are as follows (in thousands):
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
17,172
|
|
|
$
|
14,213
|
|
Share-based compensation
|
|
|
726
|
|
|
|
3,992
|
|
Research and development tax credits
|
|
|
1,097
|
|
|
|
890
|
|
Suspended losses in iBio CMO
|
|
|
255
|
|
|
|
-
|
|
Basis in iBio CMO
|
|
|
145
|
|
|
|
-
|
|
Intangible assets
|
|
|
(219
|
)
|
|
|
(188
|
)
|
Vacation accrual and other
|
|
|
17
|
|
|
|
16
|
|
Valuation allowance
|
|
|
(19,193
|
)
|
|
|
(18,923
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has a valuation allowance against
the full amount of its net deferred tax assets due to the uncertainty of realization of the deferred tax assets due to operating
loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it is more likely
than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or
eliminated based on future earnings and future estimates of taxable income.
Federal net operating losses of approximately
$5.5 million were used by the Former Parent prior to June 30, 2008 and are not available to the Company. The Former Parent allocated
the use of the Federal net operating losses available for use on its consolidated Federal tax return on a pro rata basis based
on all of the available net operating losses from all the entities included in its control group.
U.S. Federal and state net operating losses
of approximately $44.7 million and $33.5 million, respectively, are available to the Company as of June 30, 2016 and will expire
at various dates through 2036. These carryforwards could be subject to certain limitations in the event there is a change in control
of the Company pursuant to Internal Revenue Code Section 382, though the Company has not performed a study to determine if the
loss carryforwards are subject to these Section 382 limitations. The Company has a research and development credit carryforward
of approximately $1.1 million at June 30, 2016. In addition, the Company has foreign net operating losses totaling approximately
$89,000 with no expiration date.
A reconciliation of the statutory tax rate
to the effective tax rate is as follows:
|
|
Years Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Statutory federal income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State (net of federal benefit)
|
|
|
6
|
%
|
|
|
6
|
%
|
Research and development tax credit
|
|
|
1
|
%
|
|
|
1
|
%
|
Permanent differences
|
|
|
(7
|
)%
|
|
|
-
|
%
|
Expiration of stock options and warrants
|
|
|
(31
|
)%
|
|
|
-
|
%
|
Change in valuation allowance
|
|
|
(3
|
)%
|
|
|
(41
|
)%
|
Effective income tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The Company has not been audited in connection
with income taxes. iBio files U.S. Federal and state income tax returns subject to varying statutes of limitations. The 2011 through
2015 tax returns generally remain open to examination by U.S. Federal and state tax authorities. In addition, the 2014 and 2015
Brazilian federal tax return remains open to examination by Brazil federal tax authorities.
|
16.
|
Commitments and Contingencies
|
Agreements
In September 2013,
the Company and Fraunhofer completed the Terms of Settlement for the TTA Seventh Amendment (the “Settlement Agreement”).
Under the terms of the Settlement Agreement various contractual obligations existing at June 30, 2013 were released, terminated
or modified. The significant modifications post June 30, 2013 are of follows:
The Company’s obligation under the TTA,
prior to the Settlement Agreement, to make three $1 million payments to Fraunhofer in April 2013, November 2013, and April 2014
(the “Guaranteed Annual Payments”) was terminated and replaced with an undertaking to engage Fraunhofer to perform
for at least $3 million in work requested and as directed by iBio before December 31, 2015. For the year ended June 30, 2015, $2.7
million in research and development services were performed by Fraunhofer. As of December 31, 2015, the total engagement of Fraunhofer
for work requested by iBio is $3.0 million. In addition to the foregoing, the Company sought to engage Fraunhofer for substantial
additional other work, but Fraunhofer did not respond to the Company’s requests for proposals for such work.
The Company’s obligation to remit
to Fraunhofer minimum annual royalty payments in the amount of $200,000 was terminated. Instead under the terms of the TTA and
for a period of 15 years, the Company shall pay Fraunhofer one percent (1%) of all receipts derived by the Company from sales of
products produced utilizing the iBioLaunch or iBioModulator technology and ten percent (10%) of all receipts derived by the Company
from licensing either of those technologies to third parties. The Company will be obligated to remit royalties to Fraunhofer only
on technology license revenues that iBio actually receives and on revenues from actual sales by iBio of products derived from the
technology developed under the TTA until the later of November 2023 or until such time as the aggregate royalty payments total
at least $4 million. All new intellectual property invented by Fraunhofer during the period of the TTA is owned by and is required
to be transferred to iBio. The Company has no financial obligations to Fraunhofer with respect to the Company’s use of technologies
developed independently of Fraunhofer.
On June 12, 2014, Fiocruz, Fraunhofer
and iBio executed an amendment to the CLA (the “Amended Agreement”) to create a new research and development plan
for the development of a recombinant Yellow Fever vaccine providing revised reporting, objectives, estimated budget, and project
billing process. Under the CLA and bilateral agreement between iBio and Fraunhofer dated December 27, 2010, Fraunhofer, which
has been engaged to act as the Company’s subcontractor for performance of research and development services for the new
research and development plan, will bill Fiocruz directly on behalf of the Company at the rates, amounts and times provided in
the Amended Agreement, and the proceeds of such billings and only the proceeds will be paid to Fraunhofer for its services so
the Company’s expense is equal to its revenue and no profit is recognized for these activities under the Amended Agreement.
For the year ended June 30, 2015, $2.1 million in research and development services were performed by Fraunhofer for the Company
pursuant to the amended CLA. As of December 31, 2015, the total engagement of Fraunhofer for work requested by iBio is $3.0 million.
See Note 8 - Significant Vendors for additional information. In addition to the foregoing, the Company sought to engage Fraunhofer
for substantial additional other work, but Fraunhofer did not respond to the Company’s requests for proposals for such work.
On January 14, 2014 (the “Effective Date”),
the Company entered into an exclusive worldwide License Agreement (“LA”) with the University of Pittsburgh (“UP”)
covering all of the U.S. and foreign patents and patent applications and related intellectual property owned by UP pertinent to
the use of endostatin peptides for the treatment of fibrosis. The Company paid an initial license fee of $20,000 and is required
to pay all of UP’s patent prosecution costs that were incurred prior to, totaling $30,627, and subsequent to the Effective
Date. On each anniversary date the Company is to pay license fees ranging from $25,000 to $150,000 for the first five years and
$150,000 on each subsequent anniversary date until the first commercial sale of the licensed technology. Beginning with commercial
sales of the technology or approval by the FDA or foreign equivalent, the Company will be required to pay milestone payments, royalties
and a percentage of any non-royalty sublicense income to UP.
On December 30, 2013, the Company entered into
a Project Agreement with the Medical University of South Carolina (“MUSC”) providing for the performance of research
and development services by MUSC related to peptides for the treatment of fibrosis. The agreement requires the Company to make
payments totaling $78,000 through December 1, 2014 and provides the Company with certain intellectual property rights. Effective
September 1, 2014, the Company and MUSC executed an Amendment to the agreement. The Amendment extended the term of the agreement
to December 31, 2015 and increased the total payments due MUSC from the Company by $161,754.
New Lease
As discussed above, iBio CMO is leasing its
facility in Bryan, Texas from the Second Affiliate under a 34-year sublease. See Note 10 for more details of the sublease.
Lawsuits
On October 22, 2014, the Company filed a Verified
Complaint in the Court of Chancery of the State of Delaware against PlantForm Corporation (“PlantForm”) and PlantForm’s
president seeking equitable relief and damages based upon PlantForm’s interference with several contracts between the Company
and Fraunhofer USA, including its Center for Molecular Biotechnology unit, (“Fraunhofer”) and one of the Company’s
consultants and misappropriating the Company’s intellectual property including trade secrets and know-how. On May 14,
2015, after mediation ordered and supervised by the Chancery Court, PlantForm represented and agreed that all drug development
and manufacturing activities of PlantForm with Fraunhofer had ceased and would not be renewed at least until after the termination
of the Company’s litigation regarding similar subject matter with Fraunhofer, and all of the accrued claims between the Company
and PlantForm and its President were voluntarily dismissed with prejudice.
On March 17, 2015, the Company filed a Verified
Complaint in the Court of Chancery of the State of Delaware against Fraunhofer and Vidadi Yusibov (“Yusibov”), Fraunhofer’s
Executive Director, seeking monetary damages and equitable relief based on Fraunhofer’s material and continuing breaches
of their contracts with the Company. On September 16, 2015, the Company voluntarily dismissed its action against Yusibov, without
prejudice, and thereafter on September 29, 2015, the Company filed a Verified Amended Complaint against Fraunhofer alleging material
breaches of its agreements with the Company and seeking monetary damages and equitable relief against Fraunhofer. Briefing was
completed on a motion to dismiss filed by Fraunhofer in lieu of filing an answer to the complaint. Fraunhofer also moved for a
protective order in connection with certain discovery served by iBio. The Court bifurcated the action to first resolve the threshold
question in the case – the scope of iBio’s ownership of the technology developed or held by Fraunhofer — before
proceeding with the rest of the case and the parties stipulated their agreement to that approach. After considering the parties’
written submissions and oral argument on this threshold issue on April 29, 2016, the Court resolved the threshold issue in favor
of iBio on July 29, 2016, holding that iBio owns all proprietary rights of any kind to all plant-based technology of Fraunhofer
developed or held as of December 31, 2014, including know-how, and is entitled to receive a transfer of the technology from Fraunhofer.
On September 19, 2016, Fraunhofer informed the Court that it does not intend to pursue its motion for protective order at this
time. iBio intends to seek leave of Court to supplement and amend its current complaint to add additional state law claims against
Fraunhofer. The Company is unable to predict the further outcome of this action at this time.
On October 24, 2014, a putative class action
captioned
Juan Pena, Individually and on Behalf of All Others Similarly Situated v. iBio, Inc. and Robert B. Kay
was filed
in the United States District Court for the District of Delaware. The action alleged that the Company and its Chief Executive Officer
made certain statements in violation of federal securities laws and sought an unspecified amount of damages. On February 23, 2015,
the Court issued an order appointing a new lead plaintiff. On April 6, 2015, the plaintiffs filed an amended class action complaint
in the same matter captioned Vamsi Andavarapu, Individually And On Behalf Of All Others Situated v. iBio, Inc., Robert B. Kay,
and Robert Erwin. The action alleged that the Company, its Chief Executive Officer, and its President made certain statements in
violation of federal securities laws and sought an unspecified amount of damages. On May 6, 2015, the Company, Mr. Kay, and Mr.
Erwin filed a motion to dismiss the amended class action complaint. On September 15, 2015, after voluntary mediation, the Plaintiffs
and the Company reached an agreement-in-principle to settle the action. On December 16, 2015, the Plaintiffs and the Company entered
a Stipulation and Agreement of Settlement that provides, among other things, for settlement payments totaling $1,875,000 in exchange
for the releases described therein. That stipulation was filed with the Court on December 18, 2015 and, on April 21, 2016, the
Court entered an Order and Final Judgment approving the settlement and dismissing the case. The settlement has been funded by the
Company’s insurance carrier.
On December 4, 2015, a putative derivative
action captioned
Savage, Derivatively on Behalf of iBio, Inc., Plaintiff, v. Robert B. Kay, Arthur Y. Elliott, James T. Hill,
Glenn Chang, Philip K. Russell, John D. McKey, and Seymour Flug, Defendants, and iBio, Inc., Nominal Defendant
was filed in
the Supreme Court of the State of New York, County of New York. The action alleged that the Company and its management made misstatements
about the Company’s business resulting either from (i) a failure by iBio’s directors to establish a system of controls
over the Company’s disclosures, or (ii) the directors’ consciously ignoring “red flags” relating to disclosures,
and sought to recover an unspecified amount of damages. On January 15, 2016, the defendants filed a motion to dismiss all claims
against them. On March 16, 2016, the plaintiff filed a Verified Amended Complaint that added an additional named plaintiff and
alleged derivative claims generally along the same lines as the original complaint, together with purported direct breach of fiduciary
duty and unjust enrichment claims based on the same conduct. The Verified Amended Complaint seeks to recover an unspecified amount
of damages. On April 29, 2016, the defendants filed a motion to dismiss all claims against them. Plaintiffs’ opposition
to the motion was filed on June 6, 2016. On June 22, 2016, the plaintiffs advised the Court that the parties had reached a settlement
in principle, and on July 1, 2016, the Court ordered that the defendants’ pending motion to dismiss be withdrawn without
prejudice. The terms of the settlement are subject to preliminary and final approval by the Court. The Company expects that the
settlement will be funded by the Company’s insurance carrier.
As discussed above, iBio Brazil began operations
in the first quarter of fiscal 2015. In accordance with FASB ASC 280, “
Segment Reporting
,” the Company discloses
financial and descriptive information about its reportable geographic segments. Geographic segments are components of an enterprise
about which separate financial information is available and regularly evaluated by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
Year ended June 30, 2016
|
|
United States
|
|
|
Brazil
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
948
|
|
|
$
|
-
|
|
|
$
|
948
|
|
Research and development expenses
|
|
|
3,156
|
|
|
|
-
|
|
|
|
3,156
|
|
General and administrative expenses
|
|
|
7,663
|
|
|
|
22
|
|
|
|
7,685
|
|
Operating loss
|
|
|
(9,871
|
)
|
|
|
(22
|
)
|
|
|
(9,893
|
)
|
Interest expense
|
|
|
(807
|
)
|
|
|
-
|
|
|
|
(807
|
)
|
Interest and other income
|
|
|
43
|
|
|
|
-
|
|
|
|
43
|
|
Consolidated net loss
|
|
|
(10,635
|
)
|
|
|
(22
|
)
|
|
|
(10,657
|
)
|
Total assets
|
|
|
51,580
|
|
|
|
20
|
|
|
|
51,600
|
|
Fixed assets, net
|
|
|
25,574
|
|
|
|
-
|
|
|
|
25,574
|
|
Intangible assets, net
|
|
|
2,092
|
|
|
|
-
|
|
|
|
2,092
|
|
Depreciation expense
|
|
|
575
|
|
|
|
2
|
|
|
|
577
|
|
Amortization of intangible assets
|
|
|
363
|
|
|
|
-
|
|
|
|
363
|
|
Year ended June 30, 2015
|
|
United States
|
|
|
Brazil
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,851
|
|
|
$
|
-
|
|
|
$
|
1,851
|
|
Research and development expenses
|
|
|
3,495
|
|
|
|
-
|
|
|
|
3,495
|
|
General and administrative expenses
|
|
|
4,929
|
|
|
|
93
|
|
|
|
5,022
|
|
Operating loss
|
|
|
(6,573
|
)
|
|
|
(93
|
)
|
|
|
(6,666
|
)
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest and other income
|
|
|
41
|
|
|
|
-
|
|
|
|
41
|
|
Consolidated net loss
|
|
|
(6,532
|
)
|
|
|
(93
|
)
|
|
|
(6,625
|
)
|
Total assets
|
|
|
12,448
|
|
|
|
46
|
|
|
|
12,494
|
|
Fixed assets, net
|
|
|
3
|
|
|
|
10
|
|
|
|
13
|
|
Intangible assets, net
|
|
|
2,360
|
|
|
|
-
|
|
|
|
2,360
|
|
Depreciation expense
|
|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
Amortization of intangible assets
|
|
|
358
|
|
|
|
-
|
|
|
|
358
|
|
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