Item 1. Financial Statements.
iBio, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, except share and per share
amounts)
|
|
December 31, 2016
|
|
|
June 30, 2016
|
|
|
|
(Unaudited)
|
|
|
(See Note 2)
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16,329
|
|
|
$
|
23,014
|
|
Accounts receivable – trade
|
|
|
25
|
|
|
|
484
|
|
Accounts receivable – unbilled
|
|
|
75
|
|
|
|
122
|
|
Work in process
|
|
|
27
|
|
|
|
22
|
|
Prepaid expenses and other current assets
|
|
|
292
|
|
|
|
264
|
|
Total Current Assets
|
|
|
16,748
|
|
|
|
23,906
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation
|
|
|
25,453
|
|
|
|
25,574
|
|
Intangible assets, net of accumulated amortization
|
|
|
1,960
|
|
|
|
2,092
|
|
Security deposit
|
|
|
27
|
|
|
|
28
|
|
Total Assets
|
|
$
|
44,188
|
|
|
$
|
51,600
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable (related party of $158 and $200 as of December 31, 2016
|
|
|
|
|
|
|
|
|
and June 30, 2016, respectively)
|
|
$
|
731
|
|
|
$
|
1,177
|
|
Accrued expenses (related party of $635 and $623 as of December 31, 2016 and June 30, 2016, respectively)
|
|
|
905
|
|
|
|
920
|
|
Capital lease obligation - current portion
|
|
|
176
|
|
|
|
170
|
|
Deferred revenue
|
|
|
55
|
|
|
|
24
|
|
Total Current Liabilities
|
|
|
1,867
|
|
|
|
2,291
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation - net of current portion
|
|
|
25,175
|
|
|
|
25,265
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
27,042
|
|
|
|
27,556
|
|
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 shares issued and outstanding as of
|
|
|
|
|
|
|
|
|
December 31, 2016 and June 30, 2016
|
|
|
89
|
|
|
|
89
|
|
Additional paid-in capital
|
|
|
67,974
|
|
|
|
67,468
|
|
Accumulated other comprehensive loss
|
|
|
(29
|
)
|
|
|
(29
|
)
|
Accumulated deficit
|
|
|
(63,881
|
)
|
|
|
(57,591
|
)
|
Total iBio, Inc. Stockholders' Equity
|
|
|
4,153
|
|
|
|
9,937
|
|
Noncontrolling interest
|
|
|
12,993
|
|
|
|
14,107
|
|
Total Equity
|
|
|
17,146
|
|
|
|
24,044
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
44,188
|
|
|
$
|
51,600
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
iBio, Inc. and Subsidiaries
Condensed Consolidated Statements of
Operations and Comprehensive Loss
(Unaudited; In Thousands, except per share
amounts)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
75
|
|
|
$
|
134
|
|
|
$
|
210
|
|
|
$
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (related party of $206, $252, $445 and $478), net of grant income of $4, $0, $40 and $0)
|
|
|
1,049
|
|
|
|
704
|
|
|
|
1,869
|
|
|
|
1,255
|
|
General and administrative (related party of $187, $78, $362 and $78)
|
|
|
2,351
|
|
|
|
1,684
|
|
|
|
4,820
|
|
|
|
3,106
|
|
Total operating expenses
|
|
|
3,400
|
|
|
|
2,388
|
|
|
|
6,689
|
|
|
|
4,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,325
|
)
|
|
|
(2,254
|
)
|
|
|
(6,479
|
)
|
|
|
(4,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (related party of $483, $0, $966 and $0)
|
|
|
(483
|
)
|
|
|
-
|
|
|
|
(966
|
)
|
|
|
-
|
|
Interest income
|
|
|
12
|
|
|
|
2
|
|
|
|
25
|
|
|
|
4
|
|
Royalty income
|
|
|
4
|
|
|
|
6
|
|
|
|
16
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(467
|
)
|
|
|
8
|
|
|
|
(925
|
)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
|
(3,792
|
)
|
|
|
(2,246
|
)
|
|
|
(7,404
|
)
|
|
|
(4,051
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
563
|
|
|
|
-
|
|
|
|
1,114
|
|
|
|
-
|
|
Net loss attributable to iBio, Inc.
|
|
$
|
(3,229
|
)
|
|
$
|
(2,246
|
)
|
|
$
|
(6,290
|
)
|
|
$
|
(4,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(3,792
|
)
|
|
$
|
(2,246
|
)
|
|
$
|
(7,404
|
)
|
|
$
|
(4,051
|
)
|
Other comprehensive income (loss) - foreign currency translation adjustments
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(3,792
|
)
|
|
$
|
(2,245
|
)
|
|
$
|
(7,404
|
)
|
|
$
|
(4,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share attributable to iBio, Inc. stockholders - basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic and diluted
|
|
|
89,109
|
|
|
|
77,326
|
|
|
|
89,109
|
|
|
|
77,316
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
iBio, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders'
Equity
Six Months Ended December 31, 2016
(Unaudited; 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, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
89,110
|
|
|
$
|
89
|
|
|
$
|
67,468
|
|
|
$
|
(29
|
)
|
|
$
|
(57,591
|
)
|
|
$
|
14,107
|
|
|
$
|
24,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
506
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,290
|
)
|
|
|
(1,114
|
)
|
|
|
(7,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
September 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
89,110
|
|
|
$
|
89
|
|
|
$
|
67,974
|
|
|
$
|
(29
|
)
|
|
$
|
(63,881
|
)
|
|
$
|
12,993
|
|
|
$
|
17,146
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
iBio, Inc. and Subsidiaries
Condensed Consolidated Statements of
Cash Flows
(Unaudited; In Thousands)
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Consolidated net
loss
|
|
$
|
(7,404
|
)
|
|
$
|
(4,051
|
)
|
Adjustments to reconcile
consolidated net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
506
|
|
|
|
643
|
|
Amortization of intangible assets
|
|
|
176
|
|
|
|
182
|
|
Depreciation
|
|
|
650
|
|
|
|
2
|
|
Loss on abandonment of intangible assets
|
|
|
-
|
|
|
|
17
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable – trade
|
|
|
459
|
|
|
|
243
|
|
Accounts receivable – unbilled
|
|
|
47
|
|
|
|
(15
|
)
|
Work in process
|
|
|
(5
|
)
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
(28
|
)
|
|
|
(70
|
)
|
Security deposit
|
|
|
1
|
|
|
|
-
|
|
Accounts payable
|
|
|
(255
|
)
|
|
|
190
|
|
Accrued expenses
|
|
|
(15
|
)
|
|
|
29
|
|
Deferred revenue
|
|
|
31
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(5,837
|
)
|
|
|
(2,814
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to intangible assets
|
|
|
(226
|
)
|
|
|
-
|
|
Purchases of fixed assets
|
|
|
(539
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(765
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payment of capital lease obligation
|
|
|
(83
|
)
|
|
|
-
|
|
Proceeds from exercise of warrants
|
|
|
-
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(83
|
)
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(6,685
|
)
|
|
|
(2,762
|
)
|
Cash - beginning of period
|
|
|
23,014
|
|
|
|
9,494
|
|
Cash - end of period
|
|
$
|
16,329
|
|
|
$
|
6,732
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash activities:
|
|
|
|
|
|
|
|
|
Unpaid intangible assets included in accounts payable
|
|
$
|
197
|
|
|
$
|
40
|
|
Fixed assets included in accounts payable in FY 2016, paid in FY 2017
|
|
$
|
71
|
|
|
$
|
-
|
|
Unpaid fixed assets included in accounts payable
|
|
$
|
61
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
966
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
iBio, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
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 spin-off 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 7) 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 Eastern Affiliate granted iBio CMO a 34-year sublease for the facility
as well as certain equipment (see Note 8). 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.
Interim Financial Statements
The accompanying unaudited condensed consolidated
financial statements have been prepared from the books and records of the Company and include all normal and recurring adjustments
which, in the opinion of management, are necessary for a fair presentation in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”) for interim financial information and Rule 8-03 of Regulation S-X promulgated by
the U.S. Securities and Exchange Commission. Accordingly, these interim financial statements do not include all of the information
and footnotes required for complete annual financial statements. Interim results are not necessarily indicative of the results
that may be expected for the full year. Interim unaudited condensed consolidated financial statements should be read in conjunction
with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the
year ended June 30, 2016, from which the accompanying condensed consolidated balance sheet dated June 30, 2016 was derived.
Principles of Consolidation
The condensed consolidated financial statements
include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany balances and transactions
have been eliminated as part of the consolidation.
Foreign Currency
The Company accounts for
foreign currency translation pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“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.
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 December 31,
2016, the Company had $16.3 million in cash on hand which is expected to support the Company’s activities at least through
December 31, 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 December 31, 2016,
the Company’s accumulated deficit was $63.9 million and it had cash used in operating activities of $5.8 million for the
six months ended December 31, 2016. The Company has historically financed its activities through the sale of common stock and warrants.
Through December 31, 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 9 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 and the sale of the remaining 6,500,000 shares occurred on April
13, 2016. In addition, on January 25, 2016, Eastern exercised 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 9 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
|
The Company’s significant accounting
policies are described in Note 3 of the Notes to Financial Statements in the Annual Report on Form 10-K for the year ended June
30, 2016.
Use of Estimates
The preparation of financial statements
in conformity with 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.
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 FASB 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. In Fiscal 2017 and Fiscal 2016, 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. Grant income amounted to approximately $4,000 and $40,000 for the three and
six months ended December 31, 2016, respectively. No grant income was recognized in Fiscal 2016.
Work in Process
Work in process consists primarily of the
cost of labor and other overhead incurred on contracts that have not been completed. Work in process totaled approximately $27,000
and $22,000 at December 31, 2016 and June 30, 2016, respectively.
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 5).
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 in Fiscal 2017 and Fiscal 2016.
Recently Issued Accounting Pronouncements
In May 2014, Accounting Standards
Update (“ASU”) 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, and creates an ASC 606, “
Revenue
from Contracts with Customers
.”
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, 2015, 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 beginning after December 15, 2017 (quarter ended September 30, 2018 for the Company),
including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods
beginning after December 15, 2015, 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 but has not determined the impact as of the filing
of this report.
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 2014-12”). ASU 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 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. The adoption of ASU 2015-01 did not have a significant impact
on the Company’s consolidated financial statements.
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 (quarter ended March 31, 2017 for
the Company). 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 but the adoption
is not expected to have a significant impact as the Company continues to provide a full valuation allowance against its net deferred
tax assets.
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
(quarter ended September 30, 2018 for the Company), 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 (quarter ended September 30, 2019 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
but the adoption is not expected to have a significant impact as of the filing of this report.
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 (quarter ended September 30, 2017 for the Company), 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 (quarter ended September 30, 2018 for the Company). The Company is
currently evaluating the impact of ASU 2016-10 on its consolidated financial statements but has not determined the impact as of
the filing of this report.
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 the ASU 2014-09. The Company is currently
evaluating the impact of ASU 2016-12 on its consolidated financial statements but has not determined the impact as of the filing
of this report.
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 (year ended June 30,
2019 for the Company). 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 adoption on its consolidated financial statements but the adoption is not expected to
have a significant impact as of the filing of this report.
In October 2016, the FASB issued ASU 2016-16,
“
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”
(“ASU 2016-16”)
with the objective to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory.
The new standard will require entities to recognize the income tax consequences of an intra-entity transfer of non-inventory asset
when the transfer occurs. The guidance is effective for fiscal years beginning after December 15, 2017 (year ended June 30,
2019 for the Company), and early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2016-16
on its consolidated financial statements but the adoption is not expected to have a significant impact as of the filing of this
report.
In October 2016, the FASB issued ASU 2016-17,
“
Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control
” (“ASU
2016-17”). ASU 2016-17 amends the guidance issued with ASU 2015-02 in order to make it less likely that a single decision
maker would individually meet the characteristics to be the primary beneficiary of a Variable Interest Entity ("VIE").
When a decision maker or service provider considers indirect interests held through related parties under common control, they
perform two steps. The second step was amended with this guidance to say that the decision maker should consider interests held
by these related parties on a proportionate basis when determining the primary beneficiary of the VIE rather than in their entirety
as was called for in the previous guidance. This ASU will be effective for fiscal years beginning after December 15, 2016 (year
ended September 30, 2018 for the Company), and early adoption is not permitted. The Company is currently evaluating the effects
of adopting ASU 2016-17 on its consolidated financial statements but the adoption is not expected to have a significant impact
as of the filing of this report.
In January 2017, the FASB issued ASU 2017-01,
“
Business Combinations (Topic 805): Clarifying the Definition of a Business
” (“ASU 2017-01”). ASU
2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects
many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual
periods beginning after December 15, 2017 (quarter ended September 30, 2018 for the Company), including interim periods within
those periods. The Company is currently evaluating the impact of adopting ASU 2017-01 on its consolidated financial statements
but the adoption is not expected to have a significant impact as of the filing of this report.
Management does not believe that any other
recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying
financial statements.
4.
|
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 condensed consolidated
balance sheets approximated their fair values as of December 31, 2016 and June 30, 2016 due to their short-term nature. The carrying
value of the capital lease obligation approximated its fair value as of December 31, 2016 and 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 Eastern Affiliate under a 34-year sublease. See Note 8 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):
|
|
December 31,
2016
|
|
|
June 30,
2016
|
|
Facility under capital lease
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Equipment under capital lease
|
|
|
6,000
|
|
|
|
6,000
|
|
Facility improvements
|
|
|
165
|
|
|
|
42
|
|
Medical equipment
|
|
|
359
|
|
|
|
-
|
|
Office equipment and software
|
|
|
183
|
|
|
|
137
|
|
|
|
|
26,707
|
|
|
|
26,179
|
|
Accumulated depreciation – assets under capital lease
|
|
|
(1,193
|
)
|
|
|
(571
|
)
|
Accumulated depreciation – other
|
|
|
(61
|
)
|
|
|
(34
|
)
|
|
|
|
(1,254
|
)
|
|
|
(605
|
)
|
Net fixed assets
|
|
$
|
25,453
|
|
|
$
|
25,574
|
|
Depreciation expense
was approximately $326,000 and $1,100 for the three months ended December 31, 2016 and 2015, respectively, and for the six
months ended December 31, 2016 and 2015, depreciation expense was approximately $650,000 and $2,500, respectively.
Depreciation of the assets under the capital lease amounted to approximately $312,000 and $623,000 in for the three and six
months ended December 31, 2016 and 2015, respectively. There were no assets under capital leases for the three and six months
ended December 31, 2015.
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 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 during Fiscal 2017 and Fiscal 2016.
The following table summarizes by category
the gross carrying value and accumulated amortization of intangible assets (in thousands):
|
|
December 31,
2016
|
|
|
June 30,
2016
|
|
Intellectual property – gross carrying value
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
Patents – gross carrying value
|
|
|
2,309
|
|
|
|
2,265
|
|
|
|
|
5,409
|
|
|
|
5,365
|
|
Intellectual property – accumulated amortization
|
|
|
(2,010
|
)
|
|
|
(1,932
|
)
|
Patents – accumulated amortization
|
|
|
(1,439
|
)
|
|
|
(1,341
|
)
|
|
|
|
(3,449
|
)
|
|
|
(3,273
|
)
|
Net intangible assets
|
|
$
|
1,960
|
|
|
$
|
2,092
|
|
Amortization expense was approximately
$88,000 and $91,000 for the three months ended December 31, 2016 and 2015, respectively, and for the six months ended December
31, 2016 and 2015, amortization expense was $176,000 and $182,000, respectively. For both the three and six months ended December
31, 2016, the Company did not incur losses on the abandonment of patents. For both the three and six months ended December 31,
2015, the Company incurred losses on the abandonment of patents of approximately $17,000.
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 $0 and $341,000 as of December 31, 2016 and June 30, 2016, respectively, and accrued
expenses of $75,000 and $122,000 as of December 31, 2016 and June 30, 2016, respectively. See Note 14 – 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. Under the Amended Agreement, the Company recognized
revenue of $75,000 and $119,000 for the three months ended December 31, 2016 and 2015, respectively, and $137,000 and $279,000
for the six months ended December 31, 2016 and 2015, 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 14 - 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 14 - 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 $155,000 and $200,000 at December
31, 2016 and June 30, 2016, respectively. Research and development expenses related to Novici were approximately $206,000 and $252,000
for the three months ended December 31, 2016 and 2015, respectively, and approximately $445,000 and $478,000 for the six months
ended December 31, 2016 and 2015, respectively.
8.
|
Capital Lease Obligation
|
As discussed above, iBio CMO is leasing
its facility in Bryan, Texas as well as certain equipment from the Second Eastern 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 Eastern 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 Eastern 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 Eastern 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 approximately $29,000 and $45,000 for the three and six months ended
December 31, 2016, respectively. There was no percentage rent for 2015.
Interest expense incurred under the capital
lease obligation amounted to approximately $483,000 and $966,000 for the three and six months ended December 31, 2016, respectively.
There was no interest for 2015.
Future minimum payments under the capitalized
lease obligations are due as follows:
Fiscal period ending on December 31:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2017
|
|
$
|
176,339
|
|
|
$
|
1,923,661
|
|
|
$
|
2,100,000
|
|
2018
|
|
|
190,142
|
|
|
|
1,909,858
|
|
|
|
2,100,000
|
|
2019
|
|
|
205,025
|
|
|
|
1,894,975
|
|
|
|
2,100,000
|
|
2020
|
|
|
221,073
|
|
|
|
1,878,927
|
|
|
|
2,100,000
|
|
2021
|
|
|
238,377
|
|
|
|
1,861,623
|
|
|
|
2,100,000
|
|
Thereafter
|
|
|
24,320,243
|
|
|
|
35,004,757
|
|
|
|
59,325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
25,351,199
|
|
|
$
|
44,473,801
|
|
|
$
|
69,825,000
|
|
Less: current portion
|
|
|
(176,339
|
)
|
|
|
|
|
|
|
|
|
Long-term portion of minimum lease obligations
|
|
$
|
25,174,860
|
|
|
|
|
|
|
|
|
|
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 December 31, 2016 and June 30, 2016, there were no shares of preferred stock issued and outstanding.
Common Stock
As of December 31, 2016 and June 30, 2016,
the Company was authorized to issue up to 175 million shares of common stock. As of December 31, 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.
No shares of common stock were issued for
the period July 1, 2016 through the date of the filing of this report. Recent issuances of common stock include the following:
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 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 equity 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.
Warrants
The Company has historically financed its
operations through the sale of common stock and warrants, sold together as units. No warrants were outstanding as of December 31,
2016 and June 30, 2016.
10.
|
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 (loss) 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):
|
|
Three Months ended
December 31,
|
|
|
Six Months ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic and diluted numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to iBio, Inc. stockholders
|
|
$
|
(3,229
|
)
|
|
$
|
(2,246
|
)
|
|
$
|
(6,290
|
)
|
|
$
|
(4,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
89,109
|
|
|
|
77,326
|
|
|
|
89,109
|
|
|
|
77,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amount
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.05
|
)
|
In Fiscal 2017 and Fiscal 2016, the
Company incurred net losses which cannot be diluted; therefore, basic and diluted loss per common share are the same. As of
December 31, 2016, shares issuable which could potentially dilute future earnings included approximately 12.3 million stock
options. As of December 31, 2015, shares issuable which could potentially dilute future earnings included approximately 12.1
million stock options and 1.8 million warrants.
11.
|
Share-Based Compensation
|
The following table summarizes the components
of share-based compensation expense in the condensed consolidated statements of operations (in thousands):
|
|
Three Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
$
|
5
|
|
|
$
|
4
|
|
General and administrative
|
|
|
236
|
|
|
|
310
|
|
Totals
|
|
$
|
241
|
|
|
$
|
314
|
|
|
|
Six Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
$
|
11
|
|
|
$
|
9
|
|
General and administrative
|
|
|
495
|
|
|
|
634
|
|
Totals
|
|
$
|
506
|
|
|
$
|
643
|
|
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 Plan, as amended on December 18, 2013, provided that the Company may grant options to purchase stock and/or make
awards of restricted stock up to an aggregate amount of 15 million shares. As of December 31, 2016, there were approximately 2.7
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.
No stock options were issued during Fiscal
2017.
The following table summarizes all stock
option activity during Fiscal 2017:
|
|
Stock
Options
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding as of July 1, 2016
|
|
|
12,273,334
|
|
|
$
|
1.31
|
|
|
|
6.4
|
|
|
$
|
993
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2016
|
|
|
12,273,334
|
|
|
$
|
1.30
|
|
|
|
5.9
|
|
|
$
|
146
|
|
Vested and, as of December 31, 2016, expected to vest
|
|
|
12,241,807
|
|
|
$
|
1.30
|
|
|
|
5.9
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2016
|
|
|
9,420,029
|
|
|
$
|
1.30
|
|
|
|
5.2
|
|
|
$
|
146
|
|
As of December 31, 2016, there was approximately
$1.1 million of total unrecognized compensation cost related to non-vested stock options that the Company expects to recognize
over a weighted-average period of 1.5 years.
12.
|
Related Party Transactions
|
Novici Biotech, LLC
In January 2012, the Company entered into
an agreement with Novici in which iBio’s President is a minority stockholder. See Note 7.
Agreements with Eastern Capital Limited
and its Affiliates
As more fully discussed in Note 9, 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 iBio CMO. Specified material actions
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 December 31, 2016 and June 30, 2016 due to the Second Eastern Affiliate amounted to
$635,000 and $623,000, respectively. General and administrative expenses related to Second Eastern Affiliate were approximately
$180,000 and $78,000 for the three months ended December 31, 2016 and 2015, respectively, and approximately $347,000 and $78,000
for the six months ended December 31, 2016 and 2015, respectively. The terms of the sublease are described in Note 8.
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 equity 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 $7,500 and $6,900
for the three months ended December 31, 2016 and 2015, respectively, and $15,000 and $13,500 for the six months ended December
31, 2016 and 2015, respectively.
The Company recorded no income tax expense
for the six months ended December 31, 2016 and 2015 because the estimated annual effective tax rate was zero. As of December 31,
2016, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it
is more likely than not that its deferred tax assets will not be realized.
14.
|
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
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 7 - Significant
Vendor 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.
Lawsuits
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 has sought leave of Court to supplement and amend its current complaint to add additional state law claims against Fraunhofer.
Fraunhofer opposes this motion. The Court heard oral argument on February 3, 2017, on iBio’s motion to supplement and amend its
current complaint and Fraunhofer’s motion to dismiss iBio’s current complaint. The parties have also filed certain
motions relating to discovery. The Company is unable to predict the further outcome of this action at this time.
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 sought 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 parties entered a Stipulation of Settlement dated as of September 20, 2016. On October 11, 2016, the plaintiffs
filed a motion with the Court seeking an order granting preliminary approval of the settlement and providing for notice to iBio
shareholders of the proposed settlement. On January 20, 2017, the Court issued an order that provided for notice to iBio shareholders
of the proposed settlement, scheduled a final fairness hearing on April 24, 2017, and denied as moot the plaintiffs’ request
for preliminary approval of the settlement. The terms of the settlement are subject to final approval by the Court. The Company
expects that the settlement will be funded by the Company’s insurance carrier.
In accordance
with FASB ASC 280, “
Segment Reporting
,” the Company discloses financial and descriptive information about its
reportable segments. The Company operates in two segments, iBio, Inc. and iBio CMO. Commencing July 1, 2016, management determined
that the activity of iBio CMO should be segregated as a separate segment. In addition, management determined that the activity
of iBio Brazil was no longer material and will be included in the activity of iBio, Inc. As such, the segment information for the
three and six months ended December 31, 2015 was conformed to the current presentation. These segments are components of the Company
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.
Three Months Ended December 31, 2016 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CMO
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers
|
|
$
|
75
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
75
|
|
Revenues – intersegment
|
|
|
260
|
|
|
|
407
|
|
|
|
(667
|
)
|
|
|
-
|
|
Research and development
|
|
|
1,016
|
|
|
|
447
|
|
|
|
(414
|
)
|
|
|
1,049
|
|
General and administrative
|
|
|
1,241
|
|
|
|
1,363
|
|
|
|
(253
|
)
|
|
|
2,351
|
|
Operating loss
|
|
|
(1,922
|
)
|
|
|
(1,403
|
)
|
|
|
-
|
|
|
|
(3,325
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(483
|
)
|
|
|
-
|
|
|
|
(483
|
)
|
Interest and other income
|
|
|
9
|
|
|
|
7
|
|
|
|
-
|
|
|
|
16
|
|
Consolidated net loss
|
|
|
(1,913
|
)
|
|
|
(1,879
|
)
|
|
|
-
|
|
|
|
(3,792
|
)
|
Total assets
|
|
|
9,870
|
|
|
|
34,333
|
|
|
|
(15
|
)
|
|
|
44,188
|
|
Fixed assets, net
|
|
|
7
|
|
|
|
25,446
|
|
|
|
-
|
|
|
|
25,453
|
|
Intangible assets, net
|
|
|
1,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,960
|
|
Depreciation expense
|
|
|
1
|
|
|
|
325
|
|
|
|
-
|
|
|
|
326
|
|
Amortization of intangible assets
|
|
|
88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
Three Months Ended December 31, 2015 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CMO *
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers
|
|
$
|
134
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
134
|
|
Revenues – intersegment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Research and development
|
|
|
690
|
|
|
|
14
|
|
|
|
-
|
|
|
|
704
|
|
General and administrative
|
|
|
1,596
|
|
|
|
88
|
|
|
|
-
|
|
|
|
1,684
|
|
Operating loss
|
|
|
(2,152
|
)
|
|
|
(102
|
)
|
|
|
-
|
|
|
|
(2,254
|
)
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest and other income
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
Consolidated net loss
|
|
|
(2,144
|
)
|
|
|
(102
|
)
|
|
|
-
|
|
|
|
(2,246
|
)
|
Total assets
|
|
|
9,416
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,416
|
|
Fixed assets, net
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Intangible assets, net
|
|
|
2,201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,201
|
|
Depreciation expense
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Amortization of intangible assets
|
|
|
91
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91
|
|
Six Months Ended December 31, 2016 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CMO
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers
|
|
$
|
161
|
|
|
$
|
49
|
|
|
$
|
-
|
|
|
$
|
210
|
|
Revenues – intersegment
|
|
|
412
|
|
|
|
589
|
|
|
|
(1,001
|
)
|
|
|
-
|
|
Research and development
|
|
|
1,700
|
|
|
|
768
|
|
|
|
(599
|
)
|
|
|
1,869
|
|
General and administrative
|
|
|
2,588
|
|
|
|
2,634
|
|
|
|
(402
|
)
|
|
|
4,820
|
|
Operating loss
|
|
|
(3,715
|
)
|
|
|
(2,764
|
)
|
|
|
-
|
|
|
|
(6,479
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(966
|
)
|
|
|
-
|
|
|
|
(966
|
)
|
Interest and other income
|
|
|
27
|
|
|
|
14
|
|
|
|
-
|
|
|
|
41
|
|
Consolidated net loss
|
|
|
(3,688
|
)
|
|
|
(3,716
|
)
|
|
|
-
|
|
|
|
(7,404
|
)
|
Total assets
|
|
|
9,870
|
|
|
|
34,333
|
|
|
|
(15
|
)
|
|
|
44,188
|
|
Fixed assets, net
|
|
|
7
|
|
|
|
25,446
|
|
|
|
-
|
|
|
|
25,453
|
|
Intangible assets, net
|
|
|
1,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,960
|
|
Depreciation expense
|
|
|
2
|
|
|
|
648
|
|
|
|
-
|
|
|
|
650
|
|
Amortization of intangible assets
|
|
|
176
|
|
|
|
-
|
|
|
|
-
|
|
|
|
176
|
|
Six Months Ended December 31, 2015 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CMO *
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers
|
|
$
|
294
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
294
|
|
Revenues – intersegment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Research and development
|
|
|
1,241
|
|
|
|
14
|
|
|
|
-
|
|
|
|
1,255
|
|
General and administrative
|
|
|
3,018
|
|
|
|
88
|
|
|
|
-
|
|
|
|
3,106
|
|
Operating loss
|
|
|
(3,965
|
)
|
|
|
(102
|
)
|
|
|
-
|
|
|
|
(4,067
|
)
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest and other income
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Consolidated net loss
|
|
|
(3,949
|
)
|
|
|
(102
|
)
|
|
|
-
|
|
|
|
(4,051
|
)
|
Total assets
|
|
|
9,416
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,416
|
|
Fixed assets, net
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
Intangible assets, net
|
|
|
2,201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,201
|
|
Depreciation expense
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Amortization of intangible assets
|
|
|
182
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182
|
|
* iBio CMO commenced operations in December 2015
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
The following information should be read
together with the financial statements and the notes thereto and other information included elsewhere in this Quarterly Report
on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 30, 2016. Unless the context requires otherwise, references
in this Quarterly Report on Form 10-Q to “iBio,” the “Company,” “we,” “us,” or
“our” and similar terms mean iBio, Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains
“forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
For this purpose, any statements contained herein regarding our strategy, future operations, financial position, future revenues,
projected costs and expenses, prospects, plans and objectives of management, other than statements of historical facts, are forward-looking
statements. The words “anticipate”, “believe”, “estimate”, “may”, “plan”,
“will”, “would” and similar expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. Such statements reflect our current views with respect to future
events. Because these forward-looking statements involve known and unknown risks and uncertainties, actual results, performance
or achievements could differ materially from those expressed or implied by these forward-looking statements for a number of important
reasons, including those discussed in this “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and elsewhere in this Quarterly Report on Form 10-Q, as well as in the section titled “Risk Factors”
in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016. We cannot guarantee any future results, levels
of activity, performance or achievements. Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated,
believed, estimated or expected. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our estimates
as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated) and should not be relied upon as representing
our expectations as of any other date. While we may elect to update these forward-looking statements, we specifically disclaim
any obligation to do so.
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 Eastern 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
Comparison of Three Months ended
December 31, 2016 (“Fiscal 2017”) versus December 31, 2015 (“Fiscal 2016”)
Revenue
Gross revenue for Fiscal 2017 and Fiscal
2016 was approximately $75,000 and $134,000, respectively, a decrease of approximately $59,000.
Revenue has been 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 the agreed modifications to the 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 agreed modifications to the 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 Fiscal 2017, revenue was lower due to changes
in technology services performed pursuant to the agreement with FioCruz.
Research and development expenses
Research and development expenses for Fiscal
2017 and Fiscal 2016 were $1,049,000 and $704,000, respectively, an increase of approximately $345,000. The increase was primarily
related to the addition of iBio CMO operations net of the decrease in contracted research expenses with Fiocruz.
General and administrative expenses
General and administrative expenses for
Fiscal 2017 and Fiscal 2016 were approximately $2,351,000 and $1,684,000, respectively, an increase of approximately $667,000.
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 2016 of approximately
$1,110,000.
Other income
Other income (expense) for Fiscal 2017
and Fiscal 2016 was approximately ($467,000) and $8,000, 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 Fiscal
2017, other income (expense) included interest expense of $483,000 incurred under the capital lease and interest and royalty income
of $16,000. Other income in Fiscal 2016 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 in Fiscal 2017.
Comparison of Six Months ended December
31, 2016 (“Fiscal 2017”) versus December 31, 2015 (“Fiscal 2016”)
Revenue
Gross revenue for Fiscal 2017 and Fiscal
2016 was approximately $210,000 and $294,000, respectively, a decrease of approximately $84,000.
Revenue has been 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 the agreed modifications to the 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 agreed modifications to the 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 Fiscal 2017, revenue was lower due to changes
in technology services performed pursuant to the agreement with FioCruz.
Research and development expenses
Research and development expenses for Fiscal
2017 and Fiscal 2016 were $1,869,000 and $1,255,000, respectively, an increase of approximately $614,000. The increase was primarily
related to the addition of iBio CMO operations net of the decrease in contracted research expenses with Fiocruz.
General and administrative expenses
General and administrative expenses for
Fiscal 2017 and Fiscal 2016 were approximately $4,820,000 and $3,106,000, respectively, an increase of approximately $1,714,000.
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 2016 of approximately
$2,232,000.
Other income
Other income (expense) for Fiscal 2017
and Fiscal 2016 was approximately ($925,000) and $16,000, 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 Fiscal
2017, other income (expense) included interest expense of $966,000 incurred under the capital lease and interest and royalty income
of $41,000. Other income in Fiscal 2016 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 in Fiscal 2017.
Liquidity and Capital Resources
As of December 31, 2016, we had cash of
$16.3 million as compared to $23.0 million as of June 30, 2016. Cash at June 30, 2016 included the remaining proceeds received
from stock purchase agreements from Eastern and the contribution for the formation of iBio CMO of $15 million.
Net Cash Used in Operating Activities
Operating activities used $5.8 million
in cash for the six months ended Fiscal 2017.
Net Cash Used in Investing Activities
In Fiscal 2017, net cash used in investing
activities was approximately $765,000. Cash used in investing activities was attributable to additions to intangible assets of
$226,000 and fixed assets primarily for iBio CMO of $539,000.
Net Cash Provided by Financing Activities
In fiscal 2017, net cash used in financing
activities was $83,000, which represented payments of the capital lease obligation.
Funding Requirements
We have incurred significant losses and
negative cash flows from operations since our spin-off from Integrated BioPharma, Inc. in August 2008. As of December 31, 2016,
our accumulated deficit was approximately $63.9 million, and we used approximately $5.8 million of cash for operating activities
for Fiscal 2017. As of December 31, 2016, cash on hand of approximately $16.3 million is expected to support the Company’s
activities at least through December 31, 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 9 of the condensed
consolidated financial statements included in this report is incorporated into this Item 2 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, 2016, 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 9 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 December 31, 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 condensed consolidated financial statements
are presented in accordance with U.S. GAAP for interim financial information, and all applicable U.S. GAAP accounting standards
effective as of December 31, 2016 have been taken into consideration in preparing the condensed consolidated financial statements.
The preparation of condensed consolidated 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 condensed consolidated financial
statements:
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Valuation of intellectual property;
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Legal and contractual contingencies;
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Research and development expenses; and
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Share-based compensation expenses.
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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 on-going basis and make changes when necessary. Actual results could differ from our estimates.