REGISTRATION NO. 333-219725
This prospectus relates
to the offer and sale of up to 17,814,790 shares of common stock, par value $0.001, of iBio, Inc., a Delaware corporation, by Lincoln
Park Capital Fund, LLC, or Lincoln Park or the selling stockholder.
The shares of common
stock being offered by the selling stockholder have been or may be issued pursuant to the purchase agreement dated July 24, 2017
that we entered into with Lincoln Park. See “The Lincoln Park Transaction” for a description of that agreement and
“Selling Stockholder” for additional information regarding Lincoln Park. The prices at which Lincoln Park may sell
the shares will be determined by the prevailing market price for the shares or in negotiated transactions.
We are not selling
any securities under this prospectus and will not receive any of the proceeds from the sale of shares by the selling stockholder.
However, we have received gross proceeds of $1 million and may receive additional gross proceeds of up to $15.0 million from the
sale of our common stock to Lincoln Park, pursuant to a common stock purchase agreement entered into with Lincoln Park on July
24, 2017. See “The Lincoln Park Transaction” for a description of the purchase agreement and “Selling Stockholder”
for additional information regarding Lincoln Park.
The selling stockholder
may sell the shares of common stock described in this prospectus in a number of different ways and at varying prices. See “Plan
of Distribution” for more information about how the selling stockholder may sell the shares of common stock being registered
pursuant to this prospectus. The selling stockholder is an “underwriter” within the meaning of Section 2(a)(11) of
the Securities Act of 1933, as amended.
We will pay the expenses
incurred in registering the shares, including legal and accounting fees. See “Plan of Distribution”.
Our common stock is
listed on NYSE American under the symbol “IBIO”. On August 10, 2017, the last reported sale price of our common stock
on NYSE American was $0.31.
You should read this
prospectus and any prospectus supplement, together with additional information described under the heading “Where You Can
Find More Information,” carefully before you invest in any of our securities.
SUMMARY
PROSPECTUS
This summary highlights certain information
about us, this offering and selected information contained in the prospectus. This summary is not complete and does not contain
all of the information that you should consider before deciding whether to invest in our common stock. For a more complete understanding
of our company and this offering, we encourage you to read and consider the more detailed information in the prospectus, including
“Risk Factors” and the financial statements and related notes. Unless we specify otherwise, all references in this
prospectus to “iBio,” “we,” “our,” “us” and “our company” refer to
iBio Inc.
Our Company
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,
each of which we use as platforms to produce or enhance product candidates. 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 of 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 production and development 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. On February 23, 2017, the Company entered into an exchange
agreement with the Eastern Affiliate, pursuant to which the Company acquired substantially all of the interest held by the Eastern
Affiliate in iBio CMO and issued one share of the Company’s iBio CMO Preferred Tracking Stock, par value $0.001 per share.
After giving effect to the transaction, the Company owns 99.99% of iBio CMO.
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.
Our Corporate Information
We are a Delaware corporation. Our principal
executive/administrative offices are located at 600 Madison Avenue, Suite 1601, New York, NY 10022, and our telephone number is
(302) 355-0650. Our website address is http://www.ibioinc.com. Information on or accessed through our website is not incorporated
into this prospectus and is not a part of this prospectus. Our common stock is traded on NYSE American under the symbol “IBIO.”
The Offering
Common stock being offered by the selling stockholder
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17,814,790 shares, consisting of:
• 2,500,000 shares purchased by Lincoln Park in the initial
purchase under the Purchase Agreement for an aggregate purchase price of $1,000,000;
• 1,200,000 commitment shares issued to Lincoln Park upon
the execution of the Purchase Agreement; and
• 14,114,790 shares we may sell to Lincoln Park under the
Purchase Agreement;
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Common stock outstanding prior to this offering
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89,118,510 shares (not including the 2,500,000 Initial Purchase Shares and 1,200,000 Commitment Shares already issued to Lincoln Park).
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Common stock to be outstanding after giving effect to the issuance of 17,814,790 shares under the Purchase Agreement registered hereunder
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106,933,300 shares
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Use of proceeds
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We will receive no proceeds from the sale of shares of common stock by Lincoln Park in this offering. However, we have received gross proceeds of $1 million in connection with the initial purchase by Lincoln Park under the Purchase Agreement, and we may receive up to an additional $15 million aggregate gross proceeds under the Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus. Any proceeds that we receive from sales to Lincoln Park under the Purchase Agreement will be used for working capital and general corporate purposes. See “Use of Proceeds.”
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Risk Factors
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This investment involves a high degree of risk. See “Risk Factors” for a discussion of factors you should consider carefully before making an investment decision.
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Symbol on NYSE American
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“IBIO”
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Our Purchase Agreement with Lincoln
Park
On July 24, 2017, we entered into a purchase
agreement with Lincoln Park, which we refer to in this prospectus as the Purchase Agreement, pursuant to which Lincoln Park has
agreed to purchase from us up to an aggregate of $16,000,000 of our common stock (subject to certain limitations) from time to
time over the term of the Purchase Agreement, including 2,500,000 shares of common stock that we sold to Lincoln Park in an initial
purchase under the Purchase Agreement on July 24, 2017 for an aggregate gross purchase price of $1,000,000. Also on July 24, 2017,
we entered into a registration rights agreement with Lincoln Park, which we refer to in this prospectus as the Registration Rights
Agreement, pursuant to which we have filed with the SEC the registration statement that includes this prospectus to register for
resale under the Securities Act of 1933, as amended, or the Securities Act, the shares of common stock that have been or may be
issued to Lincoln Park under the Purchase Agreement.
Other than the 2,500,000 shares of our
common stock that we issued to Lincoln Park in the initial purchase on July 24, 2017, and 1,200,000 shares of our common stock
that we have already issued to Lincoln Park pursuant to the terms of the Purchase Agreement as consideration for its commitment
to purchase shares of our common stock under the Purchase Agreement, we do not have the right to commence any further sales to
Lincoln Park under the Purchase Agreement until certain conditions set forth in the Purchase Agreement, all of which are outside
of Lincoln Park’s control, have been satisfied, including that the SEC has declared effective the registration statement
that includes this prospectus. Thereafter, we may, from time to time and at our sole discretion, direct Lincoln Park to purchase
shares of our common stock in amounts up to 100,000 shares on any single business day, subject to a maximum of $1,000,000 per purchase,
plus other “accelerated amounts” and/or “additional amounts” under certain circumstances. There are no
trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales
of our common stock to Lincoln Park. The purchase price of the shares that may be sold to Lincoln Park under the Purchase Agreement
will be based on the market price of our common stock preceding the time of sale as computed under the Purchase Agreement. The
purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or
other similar transaction occurring during the business days used to compute such price. We may at any time in our sole discretion
terminate the Purchase Agreement without fee, penalty or cost upon one business day notice. There are no restrictions on future
financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration
Rights Agreement other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the Purchase
Agreement. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.
As of August 10, 2017, there were 92,818,510
shares of our common stock outstanding, of which 55,374,510 shares were held by non-affiliates, excluding the 2,500,000 initial
purchase shares and the 1,200,000 commitment shares that we have already issued to Lincoln Park under the Purchase Agreement. Although
the Purchase Agreement provides that we may sell up to an additional $15,000,000 of our common stock to Lincoln Park, only 17,814,790
shares of our common stock are being offered under this prospectus, which represents: (i) 2,500,000 shares purchased by Lincoln
Park in the initial purchase under the Purchase Agreement for an aggregate gross purchase price of $1,000,000, (ii) 1,200,000 shares
that we already issued to Lincoln Park as a commitment fee for making the commitment under the Purchase Agreement, and (iii) an
additional 14,114,790 shares which may be issued to Lincoln Park in the future under the Purchase Agreement, if and when we sell
shares to Lincoln Park under the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations under the
Purchase Agreement. If all of the 17,814,790 shares offered by Lincoln Park under this prospectus were issued and outstanding as
of the date hereof, such shares would represent 16.7% of the total number of shares of our common stock outstanding and 24.3% of
the total number of outstanding shares held by non-affiliates, in each case as of the date hereof. If we elect to issue and sell
more than the 17,814,790 shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation,
to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial
dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of
shares we sell to Lincoln Park under the Purchase Agreement.
Under the rules of NYSE American, in no
event may we issue or sell to Lincoln Park under the Purchase Agreement more than 19.99% of the shares of our common stock outstanding
immediately prior to the execution of the Purchase Agreement (which is approximately 17,814,790 shares based on 89,118,510 shares
outstanding immediately prior to the execution of the Purchase Agreement), which limitation we refer to as the Exchange Cap, unless
(i) we obtain stockholder approval to issue shares of common stock in excess of the Exchange Cap or (ii) all sales of our common
stock to Lincoln Park under the Purchase Agreement are deemed to be at a price equal to or in excess of the greater of book or
market value of our common stock, as calculated in accordance with the applicable rules of NYSE American, such that they qualify
for an exception to the Exchange Cap limitation under such rules. In any event, the Purchase Agreement specifically provides that
we may not issue or sell any shares of our common stock under the Purchase Agreement if such issuance or sale would breach any
applicable rules or regulations of NYSE American.
The Purchase Agreement also prohibits us
from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of our
common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having
beneficial ownership, at any single point in time, of more than 9.99% of the then total outstanding shares of our common stock,
as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Rule 13d-3
thereunder, which limitation we refer to as the Beneficial Ownership Cap.
Issuances of our common stock in this offering
will not affect the rights or privileges of our existing stockholders, except that the economic and voting interests of each of
our existing stockholders will be diluted as a result of any such issuance. Although the number of shares of common stock that
our existing stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage
of our total outstanding shares after any such issuance to Lincoln Park.
RISK FACTORS
Our business faces many risks. Past experience
may not be indicative of future performance, and as noted elsewhere in this prospectus, we have included forward-looking statements
about our business, plans and prospects that are subject to change. Forward-looking statements are particularly located in, but
not limited to, the sections “Business” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.” In addition to the other risks or uncertainties contained in this prospectus, the risks described
below may affect our operating results, financial condition and cash flows. If any of these risks occur, either alone or in combination
with other factors, our business, financial condition or operating results could be adversely affected and the trading price of
common stock may decline. Moreover, readers should note this is not an exhaustive list of the risks we face; some risks are unknown
or not quantifiable, and other risks that we currently perceive as immaterial may ultimately prove more significant than expected.
Statements about plans, predictions or expectations should not be construed to be assurances of performance or promises to take
a given course of action
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Risks Related
to Our Financial Position and Need for Additional Capital
We have incurred
significant losses since our inception. We expect to incur losses during our next fiscal year and may never achieve or maintain
profitability.
Since our 2008
spinoff from Integrated BioPharma, Inc., we have incurred operating losses and negative cash flows from operations. Our net loss
was approximately $10.7 million for the year ended June 30, 2016 and approximately $6.6 million for the year ended June 30, 2015.
As of March 31, 2017, we had an accumulated deficit of approximately $67.8 million.
To date, we have
financed our operations primarily through the sale of common stock and warrants. We have devoted substantially all of our efforts
to research and development, including the development and validation of our technology platforms and the development of a proprietary
therapeutic product against fibrosis based upon our platform. We have not completed development of or commercialized any vaccine
or therapeutic product candidates. We expect to continue to incur significant expenses and operating losses for at least the next
year. We anticipate that our expenses and losses may increase substantially if we:
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initiate clinical trials of our product candidates;
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continue the research and development of our product candidates;
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seek to discover additional product candidates; and
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add operational, financial and management information systems
and personnel, including personnel to support our product development efforts.
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To become and
remain profitable, we must succeed in commercializing our technology platforms or we, alone or with our licensees, must succeed
in developing and eventually commercializing products that generate significant revenue. In addition, our profitability will depend
on continuing to attract and maintain customers for the development, manufacturing and technology transfer services offered by
our subsidiary iBio CMO.
This will require
us, alone or with our licensees and collaborators, to be successful in a range of challenging activities, including completing
preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for these product candidates and
manufacturing, marketing and selling those products for which regulatory approval is obtained or establishing collaborations with
parties willing and able to provide necessary capital or other value. We may never succeed in these activities. Our profitability
also will depend on spending on iBio CMO’s services by its customers and potential customers. We may never generate revenues
that are significant or large enough to achieve profitability.
Even if we do
achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become
and remain profitable would diminish the value of our company and could impair our ability to raise capital, expand our business,
diversify our product offerings or continue our operations. A decline in the value of our company could also cause you to lose
all or part of your investment.
We will need
substantial additional funding to execute our business plan, which funding may not be available on commercially acceptable terms
or at all. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development
programs or commercialization efforts.
We have limited
financial resources and will need substantial additional funding in connection with our continuing operations. To the extent that
we initiate or continue clinical development without securing collaborator or licensee funding, our research and development expenses
could increase substantially. Additionally, to the extent that our efforts to outlicense our technology platforms and product candidates
are unsuccessful or we find that it is necessary to advance the development of product candidates further than contemplated by
our current business plans to secure favorable licensing terms, we would require substantial additional capital.
On July 24, 2017,
we entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to
which we have the option to require Lincoln Park to purchase up to an aggregate of $16.0 million of shares of our common stock
upon and subject to the terms of the agreement over the 36-month term of the agreement. The extent to which we utilize the purchase
agreement with Lincoln Park as a source of funding will depend on a number of factors, including the prevailing market price of
our common stock, the volume of trading in our common stock and the extent to which we are able to secure funds from other sources.
The number of shares that we may sell to Lincoln Park under the purchase agreement on any given day and during the term of the
agreement is limited. Additionally, we and Lincoln Park may not effect any sales of shares of our common stock under the purchase
agreement during the continuance of an event of default under the purchase agreement. Even if we are able to access the full $16.0
million under the purchase agreement, we may still need additional capital to fully implement our business, operating and development
plans.
On November 20,
2014, we filed with the Securities and Exchange Commission a Registration Statement on Form S-3 under the Securities Act, which
was declared effective by the Securities and Exchange Commission on December 2, 2014. This registration statement allows us, from
time to time, to offer and sell shares of common stock, shares of preferred stock, debt securities, units comprised of shares of
common stock, preferred stock, debt securities and warrants in any combination, and warrants to purchase common stock, preferred
stock, debt securities and/or units, up to a maximum aggregate amount of $100 million of such securities.
When we elect
to raise additional funds or additional funds are required, we may raise such funds from time to time through public or private
equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives, as well
as through sales of common stock to Lincoln Park under the purchase agreement. Additional equity or debt financing or corporate
collaboration and licensing arrangements may not be available on acceptable terms, if at all. If we are unable to raise capital
in sufficient amounts when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development
programs or commercialization efforts and our ability to generate revenues and achieve or sustain profitability will be substantially
harmed.
We expect that
our existing cash on hand as of March 31, 2017 in the amount of $12 million, together with funds we expect to develop from future
sales pursuant to the Lincoln Park agreement, will be sufficient to meet our projected operating requirements through fiscal year
ending June 30, 2018. We have based this projection on assumptions that may prove to be wrong, in which case we may deplete our
cash resources sooner than we currently anticipate. Our future capital requirements will depend on many factors, including:
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our ability to attract additional licensees or other third
parties willing to fund development, and if successful, commercialization of product candidates;
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the success and expansion of our existing collaboration
with Fiocruz and any new license agreements we may enter into;
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the costs, timing and regulatory review of our product
candidates;
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the costs of preparing, filing and prosecuting patent applications
and maintaining, enforcing and defending intellectual property-related claims; and
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the extent to which we acquire or invest in businesses,
products and technologies.
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Conducting preclinical
testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never
generate the data necessary to attract additional licensees and we and our current licensees may never generate the data required
for product candidates to obtain the regulatory approvals necessary for product sales. Even if approved, product candidates may
not achieve commercial success. Currently, we expect our commercial revenues, if any, to be product development fees, development
milestone payments, and other license proceeds, including royalties derived from sales of products that we do not expect to be
commercially available for several years, if at all. Accordingly, to achieve our business objectives we will need to continue to
rely on additional financing which may not be available to us on acceptable terms, or at all.
If we are unsuccessful in raising additional
capital or other alternative financing, we might have to defer or abandon our efforts to commercialize our intellectual property
and decrease or even cease operations.
Raising additional
capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies
or product candidates.
Until such time
as we can generate substantial license or product revenues, we expect to finance our cash needs through a combination of equity
offerings, collaborations, strategic alliances, licensing and other arrangements. Sources of funds may not be available or, if
available, may not be available on terms satisfactory to us.
If we raise additional
funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased
fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional
equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders.
If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish
valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms
that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively
expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely
affected and we may be unable to continue our operations.
To the extent
that we raise additional capital through a public or private offering and sale of equity securities, your ownership interest will
be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as
a stockholder. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties,
we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates
or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs
be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects
could be materially and adversely affected and we may be unable to continue our operations.
We have a limited operating history,
which may limit the ability of investors to make an informed investment decision.
We commenced independent operations in
2008, and our operations to date have included organizing and staffing our company, business planning, raising capital, acquiring
and developing our proprietary technology platforms, identifying potential product candidates and undertaking, through third parties,
preclinical trials and clinical trials of product candidates derived from our technologies. Certain iBioLaunch-derived vaccine
candidates have been evaluated in completed or ongoing Phase 1 clinical trials; however, all our other vaccine and therapeutic
protein product candidates are still in preclinical development. Neither we nor our collaborators have completed any other clinical
trials for any vaccine or therapeutic protein product candidate produced using iBio technology. As a result, we have not yet demonstrated
our ability to successfully complete any Phase 2 or pivotal clinical trials, obtain regulatory approvals, manufacture a commercial
scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful
product commercialization. Consequently, any conclusion you reach about our future success or viability may not be as predictive
as it might be if we had a longer operating history.
We may require additional financing
to sustain our operations and without it we may not be able to continue operations.
As of March 31, 2017, our accumulated deficit
was approximately $67.8 million. We do not currently have sufficient financial resources to fund our operations or those of our
subsidiaries. Therefore, we need additional funds to continue these operations.
We sold 2,500,000 shares of common stock
to Lincoln Park in an initial purchase under the Purchase Agreement on July 24, 2017 for an aggregate gross purchase price of $1,000,000.
We may direct Lincoln Park to purchase up to an additional $15,000,000 worth of shares of our common stock (excluding the initial
purchase) under our agreement over a 36-month period generally in amounts up to 100,000 shares of our common stock, which may be
increased to up to 600,000 shares of our common stock depending on the market price of our common stock at the time of sale and
subject to a maximum limit of $1,000,000 per purchase, on any such business day. Assuming a purchase price of $0.31 per share (the
closing sale price of the common stock on August 10, 2017) and the purchase by Lincoln Park of an additional 14,114,790 purchase
shares, gross proceeds to us would only be $5,375,585 (including the $1,000,000 of gross proceeds from initial purchase of 2,500,000
shares under the Purchase Agreement).
The extent we rely on Lincoln Park as a
source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent
to which we are able to secure working capital from other sources. If obtaining sufficient funding from Lincoln Park were to prove
unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital
needs. Even if we sell all $16,000,000 under the Purchase Agreement to Lincoln Park, we may still need additional capital to fully
implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be
unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business,
operating results, financial condition and prospects.
Risks Related
to the Development and Commercialization of Our Platform Technologies and Product Candidates
We may expend
our limited resources to pursue a particular technology or product candidate and fail to capitalize on technologies or product
candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have
limited financial and managerial resources, we focus on specific product candidates derived from or enhanced by our technologies.
As a result, we may forego or delay pursuit of opportunities with other technology platforms or product candidates that later prove
to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial
products or profitable market opportunities. Our spending may not yield any commercially viable products.
We have based
our research and development efforts on our technology platforms and product candidates derived from such platforms. Notwithstanding
our large investment to date and anticipated future expenditures in these platforms, we have not yet developed, and may never successfully
develop, any marketed products using these technologies.
We also may not
be successful in our efforts to identify or discover additional product candidates using our technology platforms. Research programs
to identify new product candidates require substantial technical, financial and human resources. These research programs may initially
show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development.
If we do not accurately
evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that
product candidate through collaboration, licensing or other royalty arrangements on terms less favorable to us than possible.
We are very
early in our development efforts. If we or our collaborators are unable to successfully develop and commercialize product candidates
or experience significant delays in doing so, our business will be materially harmed.
Excepting a limited
number of vaccine candidates that have been evaluated in completed Phase 1 clinical trials, all our other vaccine and therapeutic
protein product candidates are still in preclinical development. Our ability to generate product sales revenues for our own products,
which we do not expect will occur for many years, will depend heavily on the successful development and eventual commercialization
of our product candidates. The success of our product candidates will depend on several factors, including the following:
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completion of preclinical studies and clinical trials with
positive results;
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receipt of marketing approvals from applicable regulatory
authorities;
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obtaining and maintaining patent and trade secret protection
and regulatory exclusivity for our product candidates;
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making arrangements with third-party manufacturers for
commercial manufacturing capabilities;
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launching commercial sales of our products, if and when
approved, whether alone or in collaboration with others;
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successfully maintaining existing collaborations and entering
into new ones throughout the development process as appropriate, from preclinical studies through to commercialization;
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acceptance of the products, if and when approved, by patients,
the medical community and third-party payors;
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effectively competing with other products;
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obtaining and maintaining coverage and adequate reimbursement
by third-party payors, including government payors, for any products we successfully develop;
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protecting our rights in our intellectual property portfolio;
and
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maintaining a continued acceptable safety profile of the
products following approval.
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If
we or our collaborators do not achieve one or more of these factors in a timely manner or at all, we could experience significant
delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business.
We may not
be successful in our efforts to use iBioLaunch and iBioModulator to build a pipeline of product candidates and develop marketable
products.
While we believe
that data we and our collaborators have obtained from preclinical studies and Phase 1 clinical trials of iBioLaunch-derived and
iBioModulator-enhanced product candidates has validated these technology platforms, our platforms have not yet, and may never lead
to, approvable or marketable products. Even if we are successful in further validating our platforms and continuing to build our
pipeline, the potential product candidates that we identify may not be suitable for clinical development for many possible reasons,
including harmful side effects, limited efficacy or other characteristics that indicate that such product candidates are unlikely
to be products that will receive marketing approval and achieve market acceptance. If we and our collaborators do not successfully
develop and commercialize product candidates based upon our technological approach, we will not obtain product or collaboration
revenues in future periods, which likely would result in significant harm to our financial position and adversely affect our stock
price.
Neither we nor our licensees will be
able to commercialize product candidates based on our platform technologies if preclinical studies do not produce successful results
or clinical trials do not demonstrate safety and efficacy in humans.
Preclinical and clinical testing is expensive,
difficult to design and implement, can take many years to complete and has an uncertain outcome. Success in preclinical testing
and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial
do not necessarily predict final results. We and our licensees may experience numerous unforeseen events during, or as a result
of, preclinical testing and the clinical trial process that could delay or prevent the commercialization of product candidates
based on our iBioLaunch and iBioModulator technologies, including the following:
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Preclinical or clinical trials may produce negative or
inconclusive results, which may require additional preclinical testing, additional clinical trials or the abandonment of projects
that we expect to be promising. For example, promising animal data may be obtained about the anticipated efficacy of a therapeutic
protein product candidate and then human tests may not result in such an effect. In addition, unexpected safety concerns may be
encountered that would require further testing even if the therapeutic protein product candidate produced an otherwise favorable
response in human subjects.
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Initial clinical results may not be supported by further
or more extensive clinical trials. For example, a licensee may obtain data that suggest a desirable immune response from a vaccine
candidate in a small human study, but when tests are conducted on larger numbers of people, the same extent of immune response
may not occur. If the immune response generated by a vaccine is too low or occurs in too few treated individuals, then the vaccine
will have no commercial value.
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Enrollment in our or our licensee’s clinical trials
may be slower than projected, resulting in significant delays. The cost of conducting a clinical trial increases as the time required
to enroll adequate numbers of human subjects to obtain meaningful results increases. Enrollment in a clinical trial can be a slower-than-anticipated
process because of competition from other clinical trials, because the study is not of interest to qualified subjects, or because
the stringency of requirements for enrollment limits the number of people who are eligible to participate in the clinical trial.
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We or our licensees might have to suspend or terminate
clinical trials if the participating subjects are being exposed to unacceptable health risks. Animal tests do not always adequately
predict potential safety risks to human subjects. The risk of any candidate product is unknown until it is tested in human subjects,
and if subjects experience adverse events during the clinical trial, the trial may have to be suspended and modified or terminated
entirely.
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Regulators or institutional review boards may suspend or
terminate clinical research for various reasons, including safety concerns or noncompliance with regulatory requirements.
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Any regulatory approval ultimately obtained may be limited
or subject to restrictions or post-approval commitments that render the product not commercially viable.
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The effects of iBioLaunch-derived or iBioModulator-enhanced
product candidates may not be the desired effects or may include undesirable side effects.
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Significant clinical trial delays could
allow our competitors to bring products to market before we or our licensees do and impair our ability to commercialize our technology
platform and product candidates based on our technology platform. Poor clinical trial results or delays may make it impossible
to license a product candidate or so reduce its attractiveness to prospective licensees that we will be unable to successfully
develop and commercialize such a product candidate.
If we are not
able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product
candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired.
Our product candidates
and the activities associated with their development and commercialization, including their design, testing, manufacture, safety,
efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive
regulation by the FDA and by similar regulatory authorities outside the United States. Failure to obtain marketing approval for
a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any of
our product candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting
the applications necessary to gain marketing approvals and expect to rely on third parties to assist us in this process. Securing
marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory
authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing
approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing
facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may
prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing
approval or prevent or limit commercial use. If any of our product candidates receives marketing approval, the accompanying
label may limit the approved use in such a restrictive manner that it is not possible to obtain commercial viability for such product.
The process of
obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years. If additional clinical
trials are required for certain jurisdictions, these trials can vary substantially based upon a variety of factors, including the
type, complexity and novelty of the product candidates involved, and may ultimately be unsuccessful. Changes in marketing approval
policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory
review process for each submitted product application, may cause delays in the review and approval of an application. Regulatory
authorities have substantial discretion in the approval process and may refuse to accept a marketing application as deficient or
may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition,
varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval
of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval
commitments that render the approved product not commercially viable.
Although the FDA
and other regulatory authorities have approved plant-based therapeutics in the past, consistent with the oversight of all products,
the FDA is monitoring whether these plant-based therapeutics pose any health and human safety risks. While they have not issued
any regulations to date adverse to plant-based vaccines or therapeutics, it is possible that the FDA and other regulatory authorities
could issue regulations in the future that could adversely affect our product candidates.
If we experience
delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product
candidates may be harmed and our ability to generate revenues will be materially impaired.
Alternative
technologies may supersede our technologies or make them noncompetitive, which would harm our ability to generate future revenue.
The manufacture
of biologics and the methods of such manufacture are intensely competitive fields. Each of these fields is characterized by extensive
research efforts, which result in rapid technological progress that can render existing technologies obsolete or economically noncompetitive.
If our competitors succeed in developing more effective technologies or render our technologies obsolete or noncompetitive, our
business will suffer. Many universities, public agencies and established pharmaceutical, biotechnology, and other life sciences
companies with substantially greater resources than we have are developing and using technologies and are actively engaging in
the development of products similar to or competitive with our technologies and products. To remain competitive, we must continue
to invest in new technologies and improve existing technologies. To make such renewing investment we will need to obtain additional
financing. If we are unable to secure such financing, we will not have sufficient resources to continue such investment.
Our competitors
may devise methods and processes for protein expression that are faster, more efficient or less costly than that which can be achieved
using iBioLaunch. There has been and continues to be substantial academic and commercial research effort devoted to the development
of such methods and processes. If successful competitive methods are developed, it would undermine the commercial basis for iBioLaunch
and iBioModulator.
We have no experience in the sales,
marketing and distribution of pharmaceutical products.
If we fail to establish commercial licenses
for our iBioLaunch and iBioModulator platforms or fail to enter into arrangements with partners with respect to the sales and marketing
of any of our future potential product candidates, we might need to develop a sales and marketing organization with supporting
distribution capability in order to directly market product candidates we successfully develop. Significant additional expenditures
would be required for us to develop such an in-house sales and marketing organization.
Product liability
lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may
develop.
We face the risk
of product liability exposure in connection with the testing of our product candidates in human clinical trials and will face an
even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against
claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual
outcome, liability claims may result in:
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decreased demand for any product candidates or products
that we may develop;
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injury to our reputation and significant negative media
attention;
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withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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reduced resources of our management to pursue our business
strategy; and
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the inability to commercialize any products that we may
develop.
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Prior to commencing
human clinical trials, we will seek to obtain product liability insurance coverage. Such insurance coverage is expensive and may
not be available in coverage amounts we seek or at all. If we obtain such coverage, we may in the future be unable to maintain
such coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related
to Dependence on Third Parties
Establishing
and maintaining collaborations is a key component of our business strategy. If we are unable to establish new collaborations and
maintain both new and existing collaborations, or if these collaborations are not successful, our business could be adversely affected.
Our
current business plan contemplates that we will in the future derive significant revenues from collaborators and licensees that
successfully utilize iBioLaunch and iBioModulator in connection with the production, development and commercialization of vaccines
and therapeutic protein product candidates. Our realization of these revenues and dependence on existing collaborations, and any
future collaborations we enter into, is subject to a number of risks, including the following:
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Collaborators may have significant discretion in determining
the efforts and resources that they will apply to these collaborations;
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collaborators may not perform their obligations as expected;
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collaborators may not pursue development and, if successful,
commercialization of product candidates or may elect not to continue or renew development or commercialization programs based
on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such
as an acquisition, that divert resources or create competing priorities;
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collaborators may delay clinical trials, provide insufficient
funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials
or require a new formulation of a product candidate for clinical testing;
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collaborators could independently develop, or develop with
third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe
that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically
attractive than ours, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;
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collaborators with marketing and distribution rights to
one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and
distribution of such product or products; or commercialization of product candidates, might lead to additional responsibilities
for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming
and expensive;
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collaborators may not properly maintain or defend our intellectual
property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate
our intellectual property or proprietary information or expose us to potential litigation;
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collaborators may infringe the intellectual property rights
of third parties, which may expose us to litigation and potential liability;
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collaborations may be terminated for the convenience of
the collaborator and, if terminated, we would potentially lose the right to pursue further development or commercialization of
the applicable product candidates;
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collaborators may learn about our technology and use this
knowledge to compete with us in the future;
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results of collaborators’ preclinical or clinical
studies could produce results that harm or impair other products using our technology;
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there may be conflicts between different collaborators
that could negatively affect those collaborations and potentially others; and
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the number and type of our collaborations could adversely
affect our attractiveness to future collaborators or acquirers.
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If our collaborations
do not result in the successful development and commercialization of products or if one or more of our collaborators terminates
its agreement with us, we may not receive any future research and development funding or milestone or royalty payments under the
collaboration. If we do not receive the funding we expect under these agreements, our continued development of our product candidates
could be delayed and we may need additional resources to develop additional product candidates. There can be no assurance that
our collaborations will produce positive results or successful products on a timely basis or at all.
We seek to establish
and collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization of iBioLaunch-produced
and iBioModulator-enhanced product candidates. We face significant competition in seeking appropriate collaborators. Our ability
to reach a definitive agreement for a collaboration depends, among other things, upon our assessment of the collaborator’s
resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation
of a number of factors. If we fail to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at
all, we may have to curtail the development of a product candidate, reduce or delay its development or the development of one or
more of our other product candidates, or increase our expenditures and undertake additional development or commercialization activities
at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain
additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter
into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization
activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product
platform and our business may be materially and adversely affected.
If third parties on whom we or our licensees
will rely for the conduct of preclinical studies and clinical trials do not perform as contractually required or as we expect,
we may not be able to obtain regulatory approval for or commercialize our product candidates and our business may suffer.
We do not have
the ability to independently conduct the preclinical studies and clinical trials required to obtain regulatory approval for our
product candidates. We have not yet contracted with any third parties to conduct clinical trials of product candidates we develop
independently of collaborators. We will depend on licensees or on independent clinical investigators, contract research organizations
and other third party service providers to conduct the clinical trials of our product candidates. We will rely heavily on these
parties for successful execution of our clinical trials but will not control many aspects of their activities. For example, the
investigators participating in our clinical trials will not be our employees. However, we will be responsible for ensuring that
each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Third
parties may not complete activities on schedule, or may not conduct our clinical trials in accordance with regulatory requirements
or our stated protocols. The failure of these third parties to carry out their obligations could delay or prevent the development,
approval and commercialization of our product candidates.
Risks Related
to Intellectual Property
If we or our
licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection
obtained is not sufficiently broad, competitors could develop and commercialize technology and products similar or identical to
ours, and our ability to successfully commercialize our technology and products may be impaired.
Our success depends
in part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other
countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent
applications in the United States and abroad related to our novel technologies and product candidates.
The patent prosecution
process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications
at a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify patentable
aspects of our research and development output before it is too late to obtain patent protection.
The patent position
of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has
in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the
same extent as the laws of the United States and we may fail to seek or obtain patent protection in all major markets. For example,
European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Publications
of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States
and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot
know with certainty whether we were the first to make the inventions claimed in our owned patents or pending patent applications,
or that we were the first to file for patent protection of such inventions, nor can we know whether those from whom we license
patents were the first to make the inventions claimed or were the first to file. As a result, the issuance, scope, validity, enforceability
and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents
being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing
competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States
and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Patent reform
legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was
signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions
that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office,
or U.S. PTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the
substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became
effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation
of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material
adverse effect on our business and financial condition.
Moreover, we may
be subject to a third-party pre-issuance submission of prior art to the U.S. PTO, or become involved in opposition, derivation,
reexamination,
inter partes
review, post-grant review or interference proceedings challenging our patent rights
or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope
of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with
us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent
rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it
could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
Even if our pending
or future patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection,
prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able
to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of
a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the
courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate
or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop
others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection
of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product
candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result,
our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical
to ours.
We may become
involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming
and ultimately unsuccessful.
Competitors may
infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to
file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke
these parties to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent
infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the
patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents
do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at
risk of being invalidated or interpreted narrowly, which could adversely affect us and our collaborators.
Third parties
may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be
uncertain and could have a material adverse effect on the success of our business.
Our commercial
success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates
and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual
property litigation in the biotechnology and pharmaceutical industries. While no such litigation has been brought against us and
we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that
our technology, products or use of our products do not infringe third-party patents. It is also possible that we have failed to
identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and certain
applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent
applications in the United States and elsewhere are published approximately 18 months after the earliest filing, which is referred
to as the priority date. Therefore, patent applications covering our products or technology could have been filed by others without
our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later
amended in a manner that could cover our technologies, our products or the use of our products.
We may become party to, or threatened with,
future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology,
including interference or derivation proceedings before the U.S. PTO and similar bodies in other countries. Third parties may assert
infringement claims against us based on existing intellectual property rights and intellectual property rights that may be granted
in the future.
If we are found
to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party
to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on
commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing
the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and
attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing
our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that
we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on
our business.
Intellectual
property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved
in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant
expenses, and could distract our limited number of personnel from their normal responsibilities. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors
perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation
or proceedings could substantially increase our operating losses and reduce the resources available for development activities
or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such
litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
If we are unable
to protect our trade secrets, our business and competitive position would be harmed.
In addition to
seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how,
technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in
part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees,
corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties.
We also seek to enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite
these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets,
and we may not be able to obtain adequate remedies for such breaches. Our trade secrets may also be obtained by third parties by
other means, such as breaches of our physical or computer security systems. Enforcing a claim that a party illegally disclosed
or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some
courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets
were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom
they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed
to or independently developed by a competitor, our competitive position would be harmed.
Risks Related
to iBio CMO’s Operations
If iBio CMO
is unable to provide quality and timely offerings to its customers, its business could suffer, which could have a material adverse
impact on our business and results of operations.
In January 2016,
we entered into a contract manufacturing joint venture operated through our subsidiary iBio CMO. iBio CMO operates on the basis
of three parallel lines of business: (1) Development and manufacturing of third party products; (2) Development and production
of iBio’s proprietary product(s) for treatment of fibrotic diseases; and (3) Commercial technology transfer services. iBio
CMO’s operations take place in Bryan, Texas in a facility controlled by another affiliate of Eastern Capital Limited (“Eastern”),
a stockholder of the Company, as sublandlord. The facility is a Class A life sciences building on the campus of Texas A&M University,
designed and equipped for plant-made manufacture of biopharmaceuticals.
A failure of quality
control systems in iBio CMO’s facilities could cause problems to arise in connection with facility operations or during preparation
or provision of products, in both cases, for a variety of reasons, including equipment malfunction, failure to follow specific
protocols and procedures, problems with raw materials or environmental factors. Such problems could affect production of a particular
batch or series of batches, requiring the destruction of products, or could halt facility production altogether. In addition, failure
to meet required quality standards may result in failure to timely deliver products to customers. Any such incident could, among
other things, lead to increased costs, lost revenue, reimbursement to customers, damage to and possibly termination of existing
customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses with respect
to other batches or products. If problems are not discovered before a product is released to the market, we may be subject to regulatory
actions, including product recalls, product seizures, injunctions to halt manufacture and distribution, restrictions on our operations,
civil sanctions, including monetary sanctions, and criminal actions. In addition, such issues could subject us to litigation, the
cost of which could be significant.
A failure by
iBio CMO to attract and maintain customers and any reduction in spending or demand for iBio CMO’s manufacturing, development
and technology transfer services could have a material adverse effect on our business.
iBio CMO’s
operations will depend, in part, on its ability to attract and maintain customers for its development, manufacturing and technology
transfer services and on the amount of customer spending on such services. If iBio CMO fails to attract customers or its customers’
and potential customers’ spending on iBio CMO’s services is reduced, this may have a material adverse effect on our
business, results of operations and financial condition.
iBio CMO’s
operations are subject to environmental, health and safety laws and regulations, which could increase costs and restrict operations
in the future.
iBio CMO’s
operations are subject to a variety of environmental, health and safety laws and regulations, including those of the Environmental
Protection Agency and equivalent local and state agencies. These laws and regulations govern, among other things, air emissions,
wastewater discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater contamination and
employee health and safety. Any failure to comply with environmental, health and safety requirements could result in the limitation
or suspension of production or monetary fines or civil or criminal sanctions, or other future liabilities. iBio CMO is also subject
to laws and regulations governing the destruction and disposal of raw materials and the handling and disposal of regulated material.
Risks Related to Business Operations
If we acquire companies, products or
technologies, we may face integration risks and costs associated with those acquisitions that could negatively impact our business,
results from operations and financial condition.
If we are presented with appropriate opportunities,
we may acquire or make investments in complementary companies, products or technologies. We may not realize the anticipated benefit
of any acquisition or investment. If we acquire companies or technologies, we will face risks, uncertainties and disruptions associated
with the integration process, including difficulties in the integration of the operations of an acquired company, integration of
acquired technology with our products, diversion of our management’s attention from other business concerns, the potential
loss of key employees or customers of the acquired business, and impairment charges if future acquisitions are not as successful
as we originally anticipate. In addition, our operating results may suffer because of acquisition-related costs or amortization
expenses or charges relating to acquired intangible assets. Any failure to successfully integrate other companies, products or
technologies that we may acquire may have a material adverse effect on our business and results of operations. Furthermore, we
may have to incur debt or issue equity securities to pay for any additional future acquisitions or investments, the issuance of
which could be dilutive to our existing stockholders.
Risks Relating to Our Common Stock
Our operating results may vary significantly
in the future, which may adversely affect the price of our common stock.
It is likely that our operating results
may vary significantly in the future and that period-to-period comparisons of our operating results are not necessarily meaningful
indicators of the future. You should not rely on the results of one quarter as an indication of our future performance. It is also
possible that in some future quarters our operating results will fall below our expectations or the expectations of market analysts
and investors. If we do not meet these expectations, the price of our common stock may decline significantly.
Provisions in our charter documents
and under Delaware law could discourage a takeover that stockholders may consider favorable.
Provisions of our certificate of incorporation,
bylaws and provisions of applicable Delaware law may discourage, delay or prevent a merger or other change in control that a stockholder
may consider favorable. Pursuant to our certificate of incorporation, our Board of Directors may issue additional shares of common
or preferred stock. Any additional issuance of common stock could have the effect of impeding or discouraging the acquisition of
control of us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders
would receive a premium over the market price for their shares, and thereby protect the continuity of our management. Specifically,
if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal was not
in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions
that might prevent or render more difficult or costly the completion of the takeover by:
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Diluting the voting or other rights of the proposed acquirer
or insurgent stockholder group,
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Putting a substantial voting block in institutional or
other hands that might undertake to support the incumbent Board of Directors, or
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Effecting an acquisition that might complicate or preclude
the takeover.
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Our certificate of incorporation also allows
our Board of Directors to fix the number of directors in the by-laws. Cumulative voting in the election of directors is specifically
denied in our certificate of incorporation. The effect of these provisions may be to delay or prevent a tender offer or takeover
attempt that a stockholder may determine to be in his, her or its best interest, including attempts that might result in a premium
over the market price for the shares held by the stockholders.
We do not anticipate paying cash dividends
for the foreseeable future, and therefore investors should not buy our stock if they wish to receive cash dividends.
We have never declared or paid any cash
dividends or distributions on our capital stock. We currently intend to retain our future earnings to support operations and to
finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
The sale of our common stock through
current or future equity offerings may cause dilution and could cause the price of our common stock to decline.
We are entitled
under our certificate of incorporation to issue up to 175 million shares of common stock, par value $.001 per share, and 1 million
shares of preferred stock, with no par value,
one of which is designated as iBio CMO Preferred Tracking Stock, par value,
$0.001
. As of June 30, 2017, we had issued and outstanding approximately 89.1 million shares of common
stock and
one share of iBio CMO Preferred Tracking Stock. No other shares of preferred stock are outstanding. In addition,
as of June 30, 2017,
12.3 million options to purchase shares of common stock were outstanding and we
had approximately 2.7 million shares of common stock reserved for future issuance of additional option grants under our 2008 Omnibus
Equity Incentive Plan. Accordingly, we will be able to issue up to approximately 56 million additional shares of common stock (which
includes common stock issuable under this prospectus) and 999,999 shares of preferred stock. Sales of our common stock offered
through current or future equity offerings may result in substantial dilution to our stockholders. The sale of a substantial number
of shares of our common stock to investors, or anticipation of such sales, could make it more difficult for us to sell equity or
equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
The issuance of preferred stock or additional
shares of common stock could adversely affect the rights of the holders of shares of our common stock.
Our Board of Directors is authorized to
issue up to 999,999 shares of preferred stock without any further action on the part of our stockholders. Our Board of Directors
has the authority to fix and determine the voting rights, rights of redemption and other rights and preferences of preferred stock.
Currently, we have one share of preferred stock outstanding. Our Board of Directors may, at any time, authorize the issuance of
a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive
dividend payments before dividends are distributed to the holders of common stock, and the right to the redemption of the shares,
together with a premium, before the redemption of our common stock, which may have a material adverse effect on the rights of the
holders of our common stock. In addition, our Board of Directors, without further stockholder approval, may, at any time, issue
large blocks of preferred stock. In addition, the ability of our Board of Directors to issue shares of preferred stock without
any further action on the part of our stockholders may impede a takeover of our company and may prevent a transaction that is favorable
to our stockholders.
Risks Related to this Offering
The sale or issuance of our common stock
to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that
such sales may occur, could cause the price of our common stock to fall.
On July 24, 2017, we entered into the Purchase
Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $16,000,000 of our common stock. Concurrently
with the execution of the Purchase Agreement, we sold 2,500,000 shares of common stock to Lincoln Park in an initial purchase under
the Purchase Agreement for an aggregate gross purchase price of $1,000,000, and we issued 1,200,000 shares of our common stock
to Lincoln Park as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement. The remaining
purchase shares that may be sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time
to time over a 36-month period commencing after the satisfaction of certain conditions set forth in the Purchase Agreement, including
that the SEC has declared effective the registration statement that includes this prospectus. The purchase price for the shares
that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our common stock. Depending
on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
We generally have the right to control
the timing and amount of any future sales of our shares to Lincoln Park. Additional sales of our common stock, if any, to Lincoln
Park will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park
all, some or none of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement.
If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or
none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in
substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares
of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise wish to effect sales.
Our management will have broad discretion
over the amounts, timing and use of the net proceeds that we may receive pursuant to the Purchase Agreement, you may not agree
with how we use the proceeds, and the proceeds may not be invested successfully.
Our management will have broad discretion
in the timing and application of any net proceeds that we may receive from any future sales of common stock to Lincoln Park pursuant
to the Purchase Agreement. Management could use these proceeds for purposes other than those contemplated at the time of this prospectus.
Accordingly, you will be relying on the judgment of our management with regard to the timing and use of these net proceeds, and
you will not have the opportunity as part of your investment decision to assess whether the proceeds are being used appropriately.
It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for our company.
We may not be able to access the full
amounts available under the Purchase Agreement, which could prevent us from accessing the capital we need to continue our operations,
which could have an adverse effect on our business.
Other than the Initial Purchase Amount,
all funds available under the Purchase Agreement are only available if our common stock per share value is $0.25 or higher at the
time we seek to sell stock, and the volume of any such stock sales under the Purchase Agreement may vary with our common stock
per share price. Changes in our stock price may limit the net proceeds we may receive under the Purchase Agreement.
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking
statements that involve risks and uncertainties. These forward-looking statements are not historical facts but rather are plans
and predictions based on current expectations, estimates and projections about our industry, our beliefs and assumptions. We use
words such as “anticipate,” “expect,” “intend,” “plan,” “believe,”
“seek,” “estimate” and variations of these words and similar expressions to identify forward-looking statements.
These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some
of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements. These risks and uncertainties include those described in the section above entitled
“Risk Factors.” You should not place undue reliance on these forward-looking statements, which reflect our view only
as of the date of this prospectus.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and sold from time to time by
Lincoln Park. We will receive no proceeds from the sale of shares of common stock by Lincoln Park in this offering. However, we
have received gross proceeds of $1 million in connection with the initial purchase by Lincoln Park under the Purchase Agreement,
and we may receive up to an additional $15 million aggregate gross proceeds under the Purchase Agreement from any sales we make
to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus.
We expect to use any proceeds that we receive
under the Purchase Agreement for working capital and general corporate purposes. This anticipated use of net proceeds from the
sale of our common stock to Lincoln Park under the Purchase Agreement represents our intentions based upon our current plans and
business conditions.
The Lincoln
Park transaction
General
On July 24, 2017, we entered into the Purchase
Agreement and the Registration Rights Agreement with Lincoln Park. Pursuant to the terms of the Purchase Agreement, Lincoln Park
has agreed to purchase from us up to $16,000,000 of our common stock (subject to certain limitations) from time to time during
the term of the Purchase Agreement, including 2,500,000 shares of common stock that we sold to Lincoln Park in an initial purchase
under the Purchase Agreement on July 24, 2017 for an aggregate gross purchase price of $1,000,000. Pursuant to the terms of the
Registration Rights Agreement, we have filed with the SEC the registration statement that includes this prospectus to register
for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement.
Concurrently with the execution of the
Purchase Agreement on July 24, 2017, we issued to Lincoln Park 1,200,000 shares of our common stock as a fee for its commitment
to purchase shares of our common stock under the Purchase Agreement.
We do not have the right to commence any
further sales to Lincoln Park under the Purchase Agreement until certain conditions set forth in the Purchase Agreement, all of
which are outside of Lincoln Park’s control, have been satisfied, including the registration statement that includes this
prospectus being declared effective by the SEC. Thereafter, we may, from time to time and at our sole discretion, direct Lincoln
Park to purchase shares of our common stock in amounts up to 100,000 shares on any single business day, which amounts may be increased
to up to 600,000 shares of our common stock depending on the market price of our common stock at the time of sale but in no event
greater than $1,000,000 per such purchase. The purchase price per share is based on the market price of our common stock immediately
preceding the time of sale as computed under the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations
under the Purchase Agreement.
Under the rules
of NYSE American, in no event may we issue or sell to Lincoln Park under the Purchase Agreement more than 19.99% of the shares
of our common stock outstanding immediately prior to the execution of the Purchase Agreement (which is approximately 17,814,790
shares based on 89,118,510 shares outstanding immediately prior to the execution of the Purchase Agreement), unless (i) we obtain
stockholder approval to issue shares of common stock in excess of the Exchange Cap or (ii) all
sales of our common
stock to Lincoln Park under the Purchase Agreement are deemed to be at a price equal to or in excess of the greater of book or
market value of our common stock, as calculated in accordance with the applicable rules of NYSE American, such that they qualify
for an exception to the Exchange Cap limitation under such rules. In any event, the Purchase Agreement specifically provides that
w
e may not issue or sell any shares of our common stock under the Purchase Agreement if such issuance
or sale would breach any applicable rules or regulations of NYSE American.
The Purchase Agreement also prohibits us
from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of our
common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates exceeding
the Beneficial Ownership Cap.
Purchase of Shares Under the Purchase
Agreement
Under the Purchase Agreement, on any business
day selected by us, we may direct Lincoln Park to purchase up to 100,000 shares of our common stock on any such business day, which
we refer to as a Regular Purchase, provided, however, that (i) the Regular Purchase may be increased to up to 150,000 shares, provided
that the closing sale price is not below $0.50 on the purchase date, subject to adjustment as provided in the Purchase Agreement,
(ii) the Regular Purchase may be increased to up to 200,000 shares, provided that the closing sale price is not below $0.60 on
the purchase date, subject to adjustment as provided in the Purchase Agreement, (iii) the Regular Purchase may be increased to
up to 300,000 shares, provided that the closing sale price is not below $0.70 on the purchase date, subject to adjustment as provided
in the Purchase Agreement, (iv) the Regular Purchase may be increased to up to 400,000 shares, provided that the closing sale price
is not below $0.80 on the purchase date, subject to adjustment as provided in the Purchase Agreement, (v) the Regular Purchase
may be increased to up to 500,000 shares, provided that the closing sale price is not below $0.90 on the purchase date, subject
to adjustment as provided in the Purchase Agreement, and (vi) the Regular Purchase may be increased to up to 600,000 shares, provided
that the closing sale price is not below $1.00 on the purchase date, subject to adjustment as provided in the Purchase Agreement.
In each case, the maximum amount of any single Regular Purchase may not exceed $1,000,000 per purchase. The purchase price per
share for each such Regular Purchase will be equal to the lower of:
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the lowest sale price for our common stock on the purchase date of such shares; or
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the arithmetic average of the three lowest closing sale prices for our common stock during the
10 consecutive business days ending on the business day immediately preceding the purchase date of such shares.
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In addition to Regular Purchases described
above, we may also direct Lincoln Park, on any business day on which we have properly submitted a Regular Purchase notice and the
closing price of our common stock is not below $0.50 per share, subject to adjustment as provided in the Purchase Agreement, to
purchase an additional amount of our common stock, which we refer to as an Accelerated Purchase, not to exceed the lesser of:
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30% of the aggregate shares of our common stock traded during normal trading hours on the purchase
date; and
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five times the number of purchase shares purchased pursuant to the corresponding Regular Purchase.
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The purchase price per share for each such
Accelerated Purchase will be equal to the lower of:
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96% of the volume weighted average price during (i) the entire trading day on the purchase date,
if the volume of shares of our common stock traded on the purchase date has not exceeded a volume maximum calculated in accordance
with the Purchase Agreement, or (ii) the portion of the trading day of the purchase date (calculated starting at the beginning
of normal trading hours) until such time at which the volume of shares of our common stock traded has exceeded such volume maximum;
or
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the closing sale price of our common stock on the accelerated purchase date.
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In addition to the Regular Purchases and
Accelerated Purchases described above, we may also direct Lincoln Park, on any business day that the closing price of our common
stock is not below $0.50, subject to adjustment as provided in the Purchase Agreement, to purchase additional amounts of our common
stock, which we refer to as an Additional Purchase, provided, however, that (i) we may direct Lincoln Park to purchase shares in
an Additional Purchase only if at least 30 business days have passed since the most recent Additional Purchase, as applicable,
was completed, (ii) Lincoln Park’s committed obligation under any single Additional Purchase shall not exceed $1,000,000,
and (iii) Lincoln Park’s committed obligation under all Additional Purchases shall not exceed $3,000,000 in the aggregate.
The purchase price for each such Additional
Purchase shall be equal to the lower of:
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96% of the purchase price under a Regular Purchase on the date we give notice for the related Additional
Purchase; or
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In the case of the Regular Purchases, Accelerated
Purchases and Additional Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization,
non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute
the purchase price.
Other than as described above, there are
no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales
of our common stock to Lincoln Park.
Minimum Share Price
Under the Purchase Agreement, we and Lincoln
Park may not effect any sales of shares of our common stock under the Purchase Agreement on any purchase date that the closing
sale price of our common stock is less than the floor price of $0.25 per share of common stock, subject to adjustment as provided
in the Purchase Agreement.
Events of Default
Events of default under the Purchase Agreement
include the following:
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the effectiveness of the registration statement of which this prospectus forms a part lapses for
any reason (including, without limitation, the issuance of a stop order), or any required prospectus supplement and accompanying
prospectus are unavailable for the resale by Lincoln Park of our common stock offered hereby, and such lapse or unavailability
continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period;
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suspension by our principal market of our common stock from trading for a period of one business
day;
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the de-listing of our common stock from NYSE American, our principal market, provided our common
stock is not immediately thereafter trading on the New York Stock Exchange, The NASDAQ Capital Market, The NASDAQ Global Market,
The NASDAQ Global Select Market, the NYSE Arca, the OTC Bulletin Board or OTC Markets (or nationally recognized successor to any
of the foregoing);
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the failure of our transfer agent to issue to Lincoln Park shares of our common stock within three
business days after the applicable date on which Lincoln Park is entitled to receive such shares;
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any breach of the representations or warranties or covenants contained in the Purchase Agreement
or Registration Rights Agreement that has or could have a material adverse effect on us and, in the case of a breach of a covenant
that is reasonably curable, that is not cured within five business days;
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if at any time the Exchange Cap is reached, to the extent applicable;
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any voluntary or involuntary participation or threatened participation in insolvency or bankruptcy
proceedings by or against us; or
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if at any time we are not eligible to transfer our common stock electronically.
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Lincoln Park does not have the right to
terminate the Purchase Agreement upon any of the events of default set forth above. During an event of default, all of which are
outside of Lincoln Park’s control, we may not direct Lincoln Park to purchase any shares of our common stock under the Purchase
Agreement.
Our Termination Rights
We have the unconditional right, at any
time, for any reason and without any payment or liability to us, to give notice to Lincoln Park to terminate the Purchase Agreement.
In the event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically terminate without action of
any party.
No Short-Selling or Hedging by Lincoln
Park
Lincoln Park has agreed that neither it
nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior
to the termination of the Purchase Agreement.
Prohibitions on Variable Rate Transactions
There are no restrictions on future financings,
rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights
Agreement other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement.
Effect of Performance of the Purchase
Agreement on Our Stockholders
All 17,814,790 shares registered in this
offering which have been or may be issued or sold by us to Lincoln Park under the Purchase Agreement are expected to be freely
tradable. It is anticipated that shares registered in this offering will be sold over a period of up to 36-months commencing on
the date that the registration statement including this prospectus becomes effective. The sale by Lincoln Park of a significant
amount of shares registered in this offering at any given time could cause the market price of our common stock to decline and
to be highly volatile. Sales of our common stock to Lincoln Park other than those shares we already sold in the initial purchase,
if any, will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln
Park all, some or none of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase
Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all,
some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us under the
Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock. In addition, if we
sell a substantial number of shares to Lincoln Park under the Purchase Agreement, or if investors expect that we will do so, the
actual sales of shares or the mere existence of our arrangement with Lincoln Park may make it more difficult for us to sell equity
or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. However,
we have the right to control the timing and amount of any additional sales of our shares to Lincoln Park and the Purchase Agreement
may be terminated by us at any time at our discretion without any cost to us.
Pursuant to the terms of the Purchase Agreement,
we have the right, but not the obligation, to direct Lincoln Park to purchase up to an additional $15,000,000 of our common stock,
exclusive of 2,500,000 shares already purchased by Lincoln Park in the initial purchase on July 24, 2017 and the 1,200,000 shares
issued to Lincoln Park on such date as a commitment fee. Depending on the price per share at which we sell our common stock to
Lincoln Park, we may be authorized to issue and sell to Lincoln Park under the Purchase Agreement more shares of our common stock
than are offered under this prospectus. If we choose to do so, we must first register for resale under the Securities Act any such
additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered
for resale by Lincoln Park under this prospectus is dependent upon the number of shares we direct Lincoln Park to purchase under
the Purchase Agreement.
The Purchase
Agreement prohibits us from issuing or selling to Lincoln Park under the Purchase Agreement (i) shares of our common stock in excess
of the Exchange Cap, unless we obtain stockholder approval to issue shares in excess of the Exchange Cap or all
sales
of our common stock to Lincoln Park under the Purchase Agreement are deemed to be at a price equal to or in excess of the greater
of book or market value of our common stock, as calculated in accordance with the applicable rules of NYSE American, such that
they qualify for an exception to the Exchange Cap limitation under such rules and (ii) any shares of our common stock if those
shares, when aggregated with all other shares of our common stock then beneficially owned by Lincoln Park and its affiliates, would
result in Lincoln Park and its affiliates exceeding the Beneficial Ownership Cap.
The following table sets forth the amount
of gross proceeds we would receive from Lincoln Park from our sale of shares to Lincoln Park under the Purchase Agreement at varying
purchase prices:
Assumed
Average
Purchase Price
Per Share
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Number of Registered
Shares to be Issued if
Full Purchase of
Remaining Shares (1)
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Percentage of Outstanding
Shares After Giving Effect to
the Issuance to Lincoln Park
(2)
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Proceeds from the Sale of
Shares to Lincoln Park Under
the Purchase Agreement
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$
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0.25
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14,114,790
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13.20
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%
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$
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3,528,698
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$
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0.31
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(3)
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14,114,790
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13.20
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%
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$
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4,375,585
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$
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0.75
|
|
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14,114,790
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13.20
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%
|
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$
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10,586,093
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$
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1.50
|
|
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10,000,000
|
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9.73
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%
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$
|
15,000,000
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$
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3.00
|
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5,000,000
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5.11
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%
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$
|
15,000,000
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(1)
|
Although the Purchase Agreement provides that we may sell up to $16,000,000 of our common stock
to Lincoln Park (including an initial purchase by Lincoln Park of 2,500,000 shares for $1,000,000 on July 24, 2017 under the Purchase
Agreement), we are only registering 17,814,790 shares under this prospectus, which may or may not cover all the shares we ultimately
sell to Lincoln Park under the Purchase Agreement, depending on the purchase price per share. As a result, we have included in
this column only the shares that we are registering in this offering, excluding the 2,500,000 shares purchased by Lincoln Park
in the initial purchase under the Purchase Agreement for an aggregate purchase price of $1,000,000 and 1,200,000 commitment shares
issued to Lincoln Park upon the execution of the Purchase Agreement. If we seek to issue shares of our common stock, including
shares from other transactions that may be aggregated with the transactions contemplated by the Purchase Agreement under the applicable
rules of NYSE American, in excess of 17,814,790 shares, or 19.99% of the total common stock outstanding immediately prior to the
execution of the Purchase Agreement, we may be required to seek stockholder approval in order to be in compliance with the rules
of NYSE American.
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(2)
|
The denominator is based on 92,818,510 shares outstanding as of August 10, 2017, adjusted to include
the issuance of (i) 2,500,000 shares previously issued to Lincoln Park in the initial purchase for an aggregate gross purchase
price of $1,000,000 and (ii) 1,200,000 commitment shares previously issued to Lincoln Park upon the execution of the Purchase Agreement,
and (iii) the number of shares set forth in the adjacent column which we would have sold to Lincoln Park, assuming the purchase
price in the adjacent column. The numerator is based on the number of shares issuable under the Purchase Agreement at the corresponding
assumed purchase price set forth in the adjacent column.
|
|
(3)
|
The closing sale price of our shares on August 10, 2017.
|
dilution
The sale of our common stock to Lincoln
Park pursuant to the Purchase Agreement will have a dilutive impact on our stockholders. As a result, our net income per share,
if any, would decrease in future periods and the market price of our common stock could decline. In addition, the lower our stock
price is at the time we exercise our right to sell shares to Lincoln Park, the more shares of our common stock we will have to
issue to Lincoln Park pursuant to the Purchase Agreement and our existing stockholders would experience greater dilution.
After giving effect to the sale in this
offering of 17,814,790 shares of common stock at an assumed average sale price of $0.31 per share (based on the closing sale price
of our common stock on of August 10, 2017), our pro forma as adjusted net tangible book value as of June 30, 2016 would have been
approximately $(13,367,585), or $(0.13) per share of common stock. This represents an immediate increase in pro forma as adjusted
net tangible book value of $0.06 per share to our existing stockholders and an immediate dilution of $0.19 per share to our new
stockholders.
SELLING
STOCKHOLDER
This prospectus relates
to the possible resale by the selling stockholder, Lincoln Park, of shares of common stock that have been or may be issued to Lincoln
Park pursuant to the Purchase Agreement. We are filing the registration statement of which this prospectus forms a part pursuant
to the provisions of the Registration Rights Agreement, which we entered into with Lincoln Park on July 24, 2017 concurrently with
our execution of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by Lincoln
Park of the shares of our common stock that have been or may be issued to Lincoln Park under the Purchase Agreement.
Lincoln Park, as the
selling stockholder, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we have sold
or may sell to Lincoln Park under the Purchase Agreement. The selling stockholder may sell some, all or none of its shares. We
do not know how long the selling stockholder will hold the shares before selling them, and we currently have no agreements, arrangements
or understandings with the selling stockholder regarding the sale of any of the shares.
The following table presents information
regarding the selling stockholder and the shares that it may offer and sell from time to time under this prospectus. The table
is prepared based on information supplied to us by the selling stockholder, and reflects its holdings as of August 10, 2017. Neither
Lincoln Park nor any of its affiliates has held a position or office, or had any other material relationship, with us or any of
our predecessors or affiliates. Beneficial ownership is determined in accordance with Section 13(d) of the Exchange Act and Rule
13d-3 thereunder. The percentage of shares beneficially owned prior to the offering is based on based on 92,818,510 shares of common
stock outstanding as of August 10, 2017.
Selling Stockholder
|
|
Shares Beneficially
Owned Before this
Offering
|
|
|
Percentage of
Outstanding
Shares
Beneficially
Owned Before
this Offering
|
|
|
Shares to be Sold in this
Offering Assuming The
Company issues the
Maximum Number of
Shares Under the
Purchase Agreement
|
|
|
Percentage of
Outstanding
Shares
Beneficially
Owned After
this Offering(4)
|
|
Lincoln Park Capital Fund, LLC (1)
|
|
|
3,700,000
|
(2)
|
|
|
3.98
|
%(3)
|
|
|
17,814,790
|
|
|
|
0
|
|
|
(1)
|
Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed
to be beneficial owners of all of the shares of common stock owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld
have shared voting and investment power over the shares being offered under the prospectus filed with the SEC in connection with
the transactions contemplated under the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate
of a licensed broker dealer.
|
|
(2)
|
Represents (i) 2,500,000 shares purchased by Lincoln Park in the initial purchase on July 24, 2017
for an aggregate gross purchase price of $1,000,000 and (ii) 1,200,000 shares of our common stock issued to Lincoln Park on July
24, 2017 as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement, all of which shares are
covered by the registration statement that includes this prospectus. In accordance with Rule 13d-3(d) under the Exchange Act, we
have excluded from the number of shares beneficially owned prior to the offering all of the additional shares of common stock that
Lincoln Park may be required to purchase pursuant to the Purchase Agreement because the issuance of such shares is solely at our
discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control,
including the registration statement of which this prospectus is a part becoming and remaining effective. Furthermore, under the
terms of the Purchase Agreement, issuances and sales of shares of our common stock to Lincoln Park are subject to certain limitations
on the amounts we may sell to Lincoln Park at any time, including the Exchange Cap and the Beneficial Ownership Cap. See the description
under the heading “The Lincoln Park Transaction” for more information about the Purchase Agreement.
|
|
(3)
|
Based on 92,818,510 outstanding shares of our common stock as of August 10, 2017, which includes
(i) 2,500,000 shares purchased by Lincoln Park in the initial purchase on July 24, 2017 for an aggregate gross purchase price of
$1,000,000 and (ii) 1,200,000 shares of our common stock issued to Lincoln Park on July 24, 2017 as a fee for its commitment to
purchase shares of our common stock under the Purchase Agreement.
|
|
(4)
|
Assumes the sale of all shares of common stock registered pursuant to this prospectus, although
the selling stockholder is under no obligation to sell any shares of common stock at this time.
|
business
Overview
We are a biotechnology company focused
on commercializing our proprietary technologies and product candidates and providing product development and manufacturing services
to clients and collaborators. The Company’s technologies constitute a proprietary, transformative platform for development
and production of biologics in hydroponically grown green plants.
Stated simply, iBio’s technologies
harness the natural protein production capability that plants use to sustain their own growth, and direct it instead to produce
proteins for a range of applications including for vaccines and biopharmaceuticals. The Company’s technologies can be used
to produce a wide array of biologics and also to create and produce proprietary derivatives of preexisting products with improved
properties. The Company has used its technologies and its collaborative relationships to demonstrate the applicability of its technologies
to a diverse range of product candidates including products against fibrotic diseases, vaccines, enzyme replacements, monoclonal
antibodies, and recombinant versions of marketed products that are currently derived from human blood plasma.
In addition to the broad array of biological
products that can be produced with the Company’s technologies we believe our technologies offer other advantages that are
not available with conventional manufacturing systems. These anticipated advantages may include reduced production time and lower
operating costs. Further, we believe that the capital investment required to create facilities that will manufacture proteins using
the Company’s technologies will be substantially less than the capital investment which would be required for the creation
of similar capacity facilities utilizing conventional manufacturing methods dependent upon animal cells, bacterial fermenters and
chicken eggs. Additionally, operating costs in a manufacturing facility using iBio’s platform are expected to be reduced
significantly in comparison to conventional manufacturing processes due to the rapid nature of our production cycle and the elimination
of the expenses associated with the operation and maintenance of bioreactors, fermenters, sterile liquid handling systems and other
expensive equipment which is not required in connection with the use of the Company’s technologies.
Among the Company’s proprietary technologies
are the patented iBioLaunch technology
™,
the patented iBioModulator
™
technology, and
additional newer and more advanced technologies. Bio-Manguinhos/Fiocruz, or Fiocruz, a unit of the Oswaldo Cruz Foundation, a central
agency of the Ministry of Health of Brazil, is sponsoring the development an iBioLaunch-produced yellow fever vaccine to replace
the vaccine it currently makes in chicken eggs for the populations of Brazil and more than 20 other nations. These advances are
occurring subsequent to the demonstration of safety of iBioLaunch-produced vaccine candidates against each of the H1N1 “Swine”
flu virus and the H5N1 avian flu virus in successfully completed Phase 1 clinical trials.
We developed our iBioModulator technology
based on the use of a modified form of the cellulose degrading enzyme lichenase, from
Clostridium thermocellum
, a thermophilic
and anaerobic bacterium. iBioModulator enables an adjuvant component to be fused directly to preferred recombinant antigens to
create a single protein for use in vaccine applications.
The iBioModulator platform has been shown
to be applicable to a range of vaccine proteins and can significantly modify the immune response to a vaccine in two important
ways. Animal efficacy studies have demonstrated that it can increase the strength of the initial immune response to a vaccine antigen
(as measured by antibody titer) and also extend the duration of the immune response. These results suggest the possibility that
use of the iBioModulator platform may lower vaccine antigen requirements and enable fewer doses to establish prolonged protective
immunity.
We engaged in a strategic alliance with
Fraunhofer U.S.A., Inc. to perform research and development activities to develop the iBioLaunch platform and to create our first
product candidate (see Strategic Alliances and Collaborations-
Collaboration with Fraunhofer Center for Molecular Biology (“Fraunhofer”
below). In addition to technology developed for iBio pursuant to agreements with Fraunhofer U.S.A., Inc., iBio’s more recently
developed technologies provide the Company with higher expression yields of certain proteins and increased efficiency in adapting
gene sequences to achieve specific product objectives. In addition, iBio is developing improved, proprietary manufacturing processes
that the Company expects to protect as trade secrets.
Our near-term focus is to realize two key
objectives: (1) the establishment of additional business arrangements pursuant to which commercial, government and not-for-profit
licensees will utilize the Company’s technologies in connection with the development and manufacturing of therapeutic proteins
and vaccine products; and (2) the further development of select product candidates based upon or enhanced by our technology platforms.
These objectives are the core components of our strategy to commercialize the proprietary technologies we have developed and validated.
Our strategy to engage in partnering and
out-licensing of our technologies seeks to preserve the opportunity for iBio to share in the successful development and commercialization
of product candidates by our licensees while enhancing our own capital and financial resources for development, alone or through
commercial alliances with others, of high-potential product candidates based upon our technologies. In addition to financial resources
we may receive in connection with the license of our technologies, we believe that successful development by third party licensees
of iBio technology-enhanced product candidates will further validate our technologies, increase awareness of the advantages that
may be realized by the use of such platforms and promote broader adoption of our technologies by additional third parties.
The advancement of iBio technology-enhanced
product candidates is a key element of our strategy. We believe that selecting and developing products which individually have
substantial commercial value and are representative of classes of pharmaceuticals that can be successfully produced using our technology
platforms will allow us to maximize the near and longer term value of our technologies while exploiting individual product opportunities.
To realize this result, we are currently internally advancing through preclinical IND enabling studies a proprietary recombinant
protein we call IBIO-CFB03 for treatment of idiopathic pulmonary fibrosis, systemic sclerosis, and potentially other fibrotic diseases.
To the extent that we anticipate the opportunity to realize additional value, we may elect to further the development of this or
other product candidates through the early stages of clinical development before seeking to license the product candidate to other
industry participants for late stage clinical development and if successful, commercialization.
On December 16, 2015, we formed iBio CMO
LLC (“iBio CMO”), a Delaware limited liability corporation, to develop and manufacture plant-made pharmaceuticals.
As of December 31, 2015, we owned 100% of iBio CMO. On January 13, 2016, we entered into a contract manufacturing joint venture
with an affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the Company (the “Eastern Affiliate”).
The Eastern Affiliate contributed $15 million in cash for a 30% interest in iBio CMO. We retained a 70% interest in iBio CMO and
contributed a royalty bearing license which grants iBio CMO a non-exclusive license to use our proprietary technologies for research
purposes and an exclusive U.S. license for manufacturing purposes. We retained the exclusive right to grant product licenses to
those who wish to sell or distribute products made using our technology.
On February 23, 2017, the Company entered
into an exchange agreement with the Eastern Affiliate, pursuant to which the Company acquired substantially all of the interest
in iBio CMO held by the Eastern Affiliate in exchange for one share of the Company’s iBio CMO Preferred Tracking Stock, par
value $0.001 per share. After giving effect to the transaction, the Company owns 99.99% of iBio CMO.
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 139,000 facility is a Class A life sciences building on the campus of Texas A&M University, designed and equipped for plant-made
manufacture of biopharmaceuticals. The Second Affiliate granted iBio CMO a 34-year sublease for the facility. Commercial operations
commenced in January 2016. iBio CMO expects to operate on the basis of three parallel lines of business: (1) Development and manufacturing
of third party products; (2) Development and production of iBio’s proprietary product(s) for treatment of fibrotic diseases;
and (3) Commercial technology transfer services.
In addition to iBio CMO, the Company’s
other 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 below) 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.
Proprietary iBio technologies have been
used to advance development of certain products that have been commercially infeasible to develop with conventional technologies
such as Chinese hamster ovary cell systems and microbial fermentation methods. They can be used to create and operate manufacturing
facilities at substantially lower capital and operating costs. These include development and manufacture of both vaccine and therapeutic
product candidates. iBio CMO is promoting commercial collaborations with third parties on the basis of these technology advantages
and plans to work with customers to achieve laboratory scale technical milestones that can form the basis of longer-term manufacturing
business arrangements. iBio itself is a client of iBio CMO for further IND advancement of its proprietary products beginning with
IBIO-CFB03 for the treatment of a range of fibrotic diseases. iBio will work with iBio CMO on the production of IBIO-CFB03 for
clinical trials and, with clinical success, for commercial launch.
Due to the lower capital and operating
cost requirements for pharmaceutical production via iBio technology versus legacy methods, certain corporations and governments
that have not already established manufacturing capacity for biologic products are client prospects for both development and for
commercial technology transfer services to enable autonomous manufacturing in the market being served. For example, in Brazil,
iBio has been collaborating with the Oswaldo Cruz Foundation (Fiocruz) to develop a recombinant yellow fever vaccine based on iBio
technology. iBio’s contract with Fiocruz provides for commercial technology transfer services as the product candidates enters
human clinical trials. Over time, iBio expects to work closely with iBio CMO to provide such technology transfer services for a
variety of both commercial and government clients.
Our Business
Our Technology Platforms – iBioLaunch,
iBioModulator, and iBio Advanced Technologies
iBioLaunch
iBioLaunch is the name iBio uses to describe
iBio’s proprietary, transformative platform comprising multiple technologies for the development and production of therapeutic
proteins and vaccines using transient gene expression in green plants. Based upon the results of successful Phase 1 clinical trials
demonstrating the safety of vaccine candidates against H1N1 influenza and H5N1 influenza, immunogenicity data from in vivo preclinical
studies in well-established highly predictive animal models and results from feasibility studies and other discovery and development
work we have performed, we believe that the iBioLaunch platform can produce therapeutic proteins and vaccines more efficiently,
as measured by time, cost and yield, than current conventional biologics manufacturing methods. As awareness of these advantages
increases, we expect broader adoption of the iBioLaunch platform by biologics market participants.
An additional advantage of the iBioLaunch
platform includes successful production of proteins that are difficult or impossible to produce on a commercially practical basis
with conventional systems. This unique capability has been demonstrated by production of antigens for vaccine candidates for both
hookworm and malaria, each of which requires production and purification of proteins that could not be feasibly made with other
systems. For companies developing proprietary product opportunities, challenges often include overcoming obstacles to efficient
production of complex or multiple proteins with simultaneous control of enzymes that modify the properties of the desired end product.
iBioLaunch technology offers the flexibility and sophistication necessary to enable practical development of such complex products.
With iBioLaunch, it is possible to manufacture
product candidates in less than a month from identifying the protein of interest. This rapid production cycle makes iBioLaunch
particularly well-suited for producing treatments and vaccines for pandemic diseases and for bioterror response. The rapid production
cycle is also advantageous to researchers and others seeking to develop new products as a greater number of experiments can be
conducted in any time period at a cost less than that associated with conventional expression systems.
Utilizing expression technology which is
transient, occurring over a period of four to seven days after introducing a foreign gene, iBioLaunch eliminates the initial steps
upon which other conventional expression technologies are dependent – namely the need to isolate a high producing cell clone
from millions of non-productive cells and then grow the clonal cells in a sterile fermenter to start the manufacturing process.
This saves the year of process development time commonly associated with mammalian cell systems and eliminates the need for expensive
fermenters and a sterile liquid-handling system to prevent bacterial, fungal, or viral contamination of the protein drug. In the
iBioLaunch system, no animal- or human-derived materials are used, eliminating the risk of contamination by human infectious agents.
In place of such materials, normal green plants, grown under clean and controlled conditions, provide the biomass for pharmaceutical
protein manufacturing. Because this entire process uses commonly available materials, we are not dependent on unique sources of
raw material, nor are we limited to purchasing from single suppliers.
The iBioLaunch process begins with robotic
seeding into an inert matrix for hydroponic growth, followed by automated infiltration of the young seedlings for gene expression
and protein production. The innovation of the iBioLaunch technology is typified by its proprietary vector technology. The iBioLaunch
vectors are designed to bring foreign DNA to the nucleus of cells in the leaves of plants by allowing a vector and bacterial host
to be introduced into the plant by “infiltrating” the bacterial vector host under a slight vacuum. The bacterial vector
“launches” the foreign DNA into the plant nucleus, where it is coded into instructions that direct the plant’s
own protein manufacturing apparatus to make foreign proteins. A clever arrangement of genes for plant viral enzymes causes these
protein production instructions to be copied hundreds of thousands of times in each plant cell. Our proprietary gene transfer vectors
combine the desirable features of the DNA mobilization plasmid of
Agrobacterium tumefaciens
with gene control
elements taken from single-stranded RNA plant viruses.
Subsequent to the incorporation of the
iBioLaunch vector in the plant tissues, the following steps lead to target protein synthesis:
|
·
|
The vector is transported to the nucleus of each cell,
where RNA polymerase II transcribes viral-related sequences and the gene(s) of interest into messenger RNA.
|
|
·
|
The viral-related messenger RNA moves to the plant cell
cytoplasm, and is translated on ribosomes to make proteins representing the viral replicase gene, movement protein, and our protein
of interest.
|
|
·
|
The viral replicase protein causes the production of hundreds
of additional messenger RNA molecules encoding the production of our protein of interest, and these messengers dominate the plant
protein production machinery.
|
|
·
|
Large amounts of the protein of interest accumulate and
await purification.
|
The net effect of applying the iBioLaunch
system is that the natural plant protein production capability becomes devoted to the expression of the desired gene, and the target
protein rapidly accumulates to extremely high levels suitable for commercial use.
iBioModulator
In addition to iBioLaunch, we have developed
iBioModulator, a technology platform that is designed to improve the potency and duration of effect of both prophylactic and therapeutic
vaccines produced with any recombinant expression technology including iBioLaunch. We developed our iBioModulator technology based
on the use of a modified form of the cellulose degrading enzyme lichenase from
Clostridium thermocellum
, a thermophilic
and anaerobic bacterium.
iBioModulator technology enables an adjuvant
component to be fused directly to preferred recombinant antigens to create a single protein for use in vaccine applications.
The iBioModulator platform has been shown
to be applicable to a range of vaccine proteins, and can significantly modify the immune response to a vaccine in two important
ways. Animal efficacy studies have demonstrated that it can increase the strength of the initial immune response to a vaccine antigen
(as measured by antibody titer) and also extend the duration of the immune response. These results suggest the possibility that
use of the iBioModulator platform may lower vaccine antigen requirements and enable fewer doses to establish prolonged protective
immunity. We believe that the ability to provide better immune response and longer-term protection with fewer or zero booster inoculations
would add significant value to a vaccine by reducing the overall costs and logistical difficulties of its use.
iBio Advanced Technologies
iBio has developed and acquired rights
to additional proprietary technologies that are superior to our earlier technologies for certain applications and that in some
cases are associated with individual products such as our IBIO-CFB03 product candidate for fibrotic diseases. iBio Advanced Technologies
include rights to certain patented and unpatented technologies developed by Novici Biotech LLC, patents and unpatented inventions
licensed from the University of Pittsburgh, and novel manufacturing methods and processes developed by iBio CMO LLC.
Application of iBio Technologies - Target
Markets and Product Candidates
Target Markets and Commercialization
Activities
Based on the scientific data that have
been derived from the successful Phase 1 clinical trials of the iBioLaunch-derived influenza vaccine candidates and the results
of the feasibility and preclinical studies conducted to date evaluating iBioLaunch-produced and iBioModulator-enhanced product
candidates, we believe that we have demonstrated the suitability and applicability of these platform technologies to a broad range
of therapeutic protein classes and both prophylactic and therapeutic vaccines.
Currently, we are engaged in efforts to
commercialize our technology platforms. Our strategy is to enter important markets through license agreements, commercial collaborations,
and manufacturing contracts. Our current marketing efforts focus on those decision makers whom we expect will be attracted to the
cost and efficiency advantages that may be obtained through use of our platforms. We believe that the advantages of our platforms
will enable us to compete effectively against the providers of other manufacturing systems that may be slower, more capital intensive
and more costly to operate. We anticipate realizing revenues in connection with licenses we may grant and technology transfer services
we may provide.
In all geographic regions, including the
U.S. and Western Europe, the robust ability of our technology platforms to favorably produce a wide range of protein types, including
our ability to produce product candidates that are otherwise not feasible to commercially manufacture, offers us the opportunity
to obtain value through exclusive, individual product licenses which can be worldwide or geographically limited. In other geographic
regions, such as Brazil, India and China where the economies and middle classes are growing rapidly and decision-makers are building
domestic biologics infrastructures, we anticipate entering into and deriving revenues from licenses that may include multiple product
categories to which our technology applies.
Additionally, we believe that governments
and state corporations seeking to establish and maintain autonomous biodefense capabilities will also be attracted to the advantages
realizable with our platforms. The market for biodefense countermeasures reflects continued awareness of the threat of global terror
and biowarfare activity as well as the need to have capacities to quickly manufacture both vaccines and therapeutics to a numerous
and ever evolving list of biological agents that could be used to harm populations.
To enhance our success in the commercialization
of our multiple technologies, we are engaging in efforts to advance select iBio sponsored product candidates. Our current internal
efforts focus on the further development of a proprietary recombinant protein product candidate, IBIO-CFB03, for the treatment
of idiopathic pulmonary fibrosis, systemic sclerosis, and other fibrotic diseases. We have selected this product candidate for
further advancement on the basis of its individual commercial value and its value as representative of a class of products in an
attractive market that may be successfully derived from the iBio platform. We believe that demonstration of successful utilization
of technologies by each of us and our license partners will enhance market awareness of the broad applicability and potential advantages
realizable with the platforms and generate increased opportunities for us to realize value from these assets.
Product Candidates
The table below summarizes key information
regarding examples of the categories and product classes and the status of product candidates generated from our platforms:
Market
|
|
Class
|
|
Product
|
|
Status /Other
|
|
|
|
|
|
|
|
Therapeutic Protein
|
|
Anti-fibrosis Protein
Plasma-Derived Proteins
|
|
IBIO-CFB03
C1 Esterase Inhibitor
Alpha-1 Antitrypsin
|
|
Preclinical Orphan Designation
Feasibility Demonstrated
Feasibility Demonstrated
|
|
|
Enzyme Replacement
|
|
Alpha-Galactosidase
|
|
Feasibility Demonstrated
|
|
|
Monoclonal Antibodies
|
|
Palivizumab
|
|
Feasibility Demonstrated
|
|
|
|
|
|
|
|
Vaccines
|
|
Viral Disease Vaccines
|
|
H1N1 Influenza
|
|
Phase I – Completed
|
|
|
|
|
H5N1 Influenza
|
|
Phase I – Completed
|
|
|
|
|
Yellow Fever
|
|
Preclinical
|
|
|
Parasitic Pathogen Vaccine
|
|
Malaria
|
|
Phase I
|
|
|
|
|
Hookworm
|
|
Phase I
|
|
|
Therapeutic Vaccine
|
|
Human Papillomavirus (HPV)
|
|
Feasibility Demonstrated
|
|
|
|
|
|
|
|
Biodefense
|
|
Bacterial Disease Vaccine
|
|
Anthrax
|
|
Phase I
|
|
|
Bacterial Disease Vaccine
|
|
Anthrax/Plague
|
|
Feasibility Demonstrated
|
|
|
Monoclonal Antibody
|
|
Anthrax
|
|
Feasibility Demonstrated
|
Therapeutic Protein Product Candidates
Using our proprietary technologies, we
have expressed and demonstrated the feasibility of production of many classes of therapeutic proteins. The proteins that we have
successfully produced range from large and complex monoclonal antibodies to smaller proteins such as interferons, growth factors,
and enzymes.
IBIO-CFB03, a Proprietary Product for
Treatment of Fibrosis
iBio has exclusively licensed and is developing,
on its iBioLaunch™ platform and with its more advanced technology, an innovative new product we have designated “IBIO-CFB03”
for treatment of idiopathic pulmonary fibrosis (IPF) and systemic sclerosis (SSc), both fatal and incurable diseases. The total
number of people affected by systemic sclerosis and IPF, while large in comparison to many biotechnology target markets, is small
enough for iBio’s drug to qualify for the regulatory and financial benefits available under U.S. and European Orphan Drug
incentives.
iBio’s candidate product has demonstrated
efficacy in both animal disease models and through the reversal of fibrosis in human skin organ culture. Preclinical studies have
established a strong safety profile for IBIO-CFB03 with no toxicity seen at concentrations well above the predicted effective doses.
The drug is readily diffusible into organs and tissues and can reach its target site via several modes of administration. Systemic
administration is effective at reducing skin and lung fibrosis. The anti-fibrotic effects of IBIO-CFB03 are observed even after
the onset of fibrosis, suggesting that it is capable of reversing fibrosis—an effect not observed with any of the potential
anti-fibrotic therapies that are currently in clinical use. Patients with existing fibrosis enter the clinic long after the onset
of their disease, and thus do not benefit significantly from a drug used to prevent fibrosis rather than treat existing fibrosis.
Experimental drugs demonstrating efficacy
against life-threatening diseases in early clinical trials are given higher priority review for marketing approval by regulatory
agencies in the U.S. and Europe. In addition, both the U.S. and Europe offer financial and regulatory incentives for the development
of new drugs for the treatment of smaller patient populations (Orphan Drugs), and such drugs can be approved for marketing faster
and with less total investment than drugs that are intended to treat major diseases. iBio has obtained Orphan Drug designation
for its drug candidate for systemic sclerosis.
Recombinant forms of Plasma Derived
Products
Using iBioLaunch, we have successfully
produced human C1 esterase inhibitor and human alpha 1-antitrypsin, each of which is an important therapeutic product that has
been traditionally derived from human blood plasma. The production via the iBioLaunch system of plasma-sparing recombinant forms
of these products offers an alternative process that may lessen reliance on human blood supplies and eliminate the safety concerns
that may be associated with use of animal and human cells or other tissue components.
Other Therapeutic Proteins
In addition to the recombinant form of
plasma derived products, using iBioLaunch, we have been able to express and demonstrate the feasibility of production of substantially
all other classes of therapeutic proteins. The therapeutic proteins that we have successfully produced range from large and complex
monoclonal antibodies to smaller proteins such as interferons, growth factors, and enzymes. All the candidate therapeutic proteins
manufactured using iBioLaunch have correctly assembled and demonstrated full activity in relevant bioassays. We are currently evaluating
several potential proprietary iBioLaunch produced therapeutic protein candidates for further development internally at iBio or
together with collaborators.
Vaccine Candidates
We have used iBioLaunch to successfully
express and demonstrate the feasibility of production of a broad array of vaccine candidates, including vaccine candidates that
have to date been impossible to produce on a commercially practical basis using conventional manufacturing systems. Additionally,
we have used iBioModulator to improve the performance of therapeutic vaccine candidates.
The ability of the iBioLaunch platform
to manufacture proteins that are difficult or impossible to produce on a commercially practical basis with conventional manufacturing
systems has been demonstrated by the production of antigens for vaccine candidates for both hookworm and malaria. These iBioLaunch-produced
vaccine candidates are being developed by the Sabin Institute and the Bill and Melinda Gates Foundation, respectively, and each
is being advanced to Phase 1 clinical trials that are expected to commence in the next 12 months, subject availability of funding
at each respective organization and satisfaction of other conditions.
The safety of an iBioLaunch-produced H1N1
influenza vaccine candidate and an iBioLaunch H5N1 influenza vaccine has been demonstrated in successfully completed Phase 1 human
clinical trials and the efficacy of these iBioLaunch derived vaccine candidates has been demonstrated in well established, highly
predictive animal models. We have also demonstrated the efficiencies of our iBioLaunch technology at the laboratory level by producing
candidate influenza vaccines in weeks versus the months required for commercially used chicken egg methods. The rapid production
of an iBioLaunch derived vaccine candidate for the recently emerged new strain of influenza, H7N9, demonstrates the flexibility
and responsiveness of the platform. This speed of production is an advantage that we believe may be particularly attractive to
public health authorities seeking to protect citizens in the case of a pandemic outbreak.
Our collaborator, Fiocruz, is advancing
the development of an iBioLaunch-produced yellow fever vaccine candidate. In addition to furthering preclinical IND enabling studies
of this vaccine candidate, in April 2013, Fiocruz committed to the design of a new plant-based multipurpose manufacturing facility
in Brazil and anticipates construction of such facility in the next few years. This multipurpose facility is being designed in
manner that will enable the incorporation and utilization of our iBioLaunch platform.
Biodefense Countermeasures
Our technology platforms have advantages
that we believe are particularly well suited for the biodefense market. Speed of production and capability to produce both vaccines
and therapeutic proteins using the iBioLaunch platform and the potential to improve performance of vaccines through the application
of the iBioModulator platform are each key features of biologics manufacturing systems that may be sought by governments and state
corporations seeking to establish autonomous capabilities to protect their populations from bioterrorism threats. In addition to
our demonstration of the feasibility of iBioLaunch produced monoclonal antibody candidates for the treatment of anthrax, next generation
anthrax vaccine candidates derived from the iBioLaunch platform have been evaluated by our collaborator, Fraunhofer, pursuant to
a funding award granted to Fraunhofer in December 2012 by the National Institute of Allergy and Infectious Diseases. With Fraunhofer,
we are evaluating opportunities and seeking funding from additional sources to further demonstrate the applicability and advantages
of our platforms in connection with the development of biodefense countermeasures.
Strategic Alliances and Collaborations
A significant component of our business
plan is to enter into strategic alliances and collaborations with other for-profit entities, governments, foundations, and others
as appropriate to gain access to funding, capabilities, technical resources and intellectual property to further our development
efforts, commercialize our technology and to generate revenues.
Collaboration with Fraunhofer Center
for Molecular Biology (“Fraunhofer”)
In 2003, we engaged Fraunhofer to perform
research and development activities to develop the iBioLaunch platform and to create our first product candidate. Pursuant to the
Technology Transfer Agreement (“TTA”) between our company and Fraunhofer, effective in January 2004, we paid $3.6 million
to Fraunhofer to acquire the exclusive rights to intellectual property owned by Fraunhofer which, as subsequently enhanced and
improved, constitutes the iBioLaunch platform.
Following this initial engagement, we expanded
our relationship with Fraunhofer to include additional and continuing research and development activities and we benefited from
the establishment of numerous non-commercial arrangements among the Company, certain government entities, a non-governmental organization
(which we refer to as a “NGO”) and Fraunhofer which allowed us to further advance the development of our technology
platforms and select product candidates through indirect access to non-dilutive funding.
To evidence these expanded activities,
at various times, we entered into additional agreements with Fraunhofer and periodically amended the TTA, including most recently
a settlement agreement we entered into with Fraunhofer in September 2013 (the “Settlement Agreement”). The amendments
to the TTA include a commitment by Fraunhofer to further develop exclusively for and transfer to us rights to proprietary technology
and intellectual property rights in the fields defined in the agreements comprising principally plant-based human vaccines, human
antibodies, and human therapeutic proteins and veterinary applications of plant-based influenza vaccines. Additionally the TTA
provides that Fraunhofer will pay to us a royalty payment equal to 9% of all receipts, if any, realized by Fraunhofer from sales,
licensing or commercialization of the intellectual property licensed from us.
Prior to the effective date of the Settlement
Agreement, we were obligated to make non-refundable payments to Fraunhofer aggregating $10,000,000, in installments of $2,000,000
per year over a five year period commencing in November 2009 and expiring in November 2014, and Fraunhofer was required to expend
an amount at least equal to the amounts payable by us for the purpose of engaging in services to further the development of our
technology. In addition to the annual research service payments, we were required to make royalty payments to Fraunhofer equal
to 1% of all receipts derived by us from sales of products utilizing our proprietary technology and 15% of all receipts derived
by us from licensing our propriety technology to third parties for a period of fifteen years. Additionally, beginning in 2010 and
continuing until 2024, the TTA provided that we remit minimum annual royalty payments to Fraunhofer in the amount of $200,000 (the
“Minimum Annual Payment”).
The Settlement Agreement, which was intended
to better align the mutual interests of iBio and Fraunhofer, has the following effects:
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Our liabilities to Fraunhofer in the amount of approximately
$2.9 million as of June 30, 2013 were released and terminated;
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Our obligation under the TTA, prior to the Settlement Agreement,
to make three $1 million payments to Fraunhofer in April 2013, November 2013, and April 2014 (“Guaranteed Annual Payments”)
was terminated and replaced with an undertaking to engage Fraunhofer for at least $3 million in work requested and directed by
iBio before December 31, 2015. We believed that our right to select and direct specific projects would improve the efficiency
of our product development activities and that the extension of the period over which this commitment must be fulfilled would
enhance our ability to manage our cash outflow;
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We terminated and released Fraunhofer from the obligation
to make further financial contributions toward the enhancement, improvement and expansion of our technology in an amount at least
equal to the Guaranteed Annual Payments, because we believed our technology development phase was completed and prospectively
would be focusing on product development. In addition, we terminated and released Fraunhofer from the obligation to further reimburse
us for certain past and future patent-related expenses;
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Our obligation to remit to Fraunhofer minimum annual royalty
payments in the amount of $200,000 was terminated. Instead we will be obligated to remit royalties to Fraunhofer only on technology
license revenues that we actually receive and on revenues from actual sales by us of products derived from our technology until
the later of November 2023 or until such time as the aggregate royalty payments total at least $4 million;
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The rate at which we will be obligated to pay royalties
to Fraunhofer on iBioLaunch and iBioModulator license revenues we receive was reduced from 15% to 10%; and
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Any and all other claims of each party to any other amounts
due at June 30, 2013 were mutually released.
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Additionally, we and Fraunhofer entered
into research and development service agreements with respect to two projects, specifically the further development of the recombinant
form of C1 esterase inhibitor and additional development services in connection with the transfer of our technology related to
facility design to Fiocruz. The technology transfer for facility design was completed for $97,767. The C-1 program was suspended
after payment of $544,687.
Our relationship with Fraunhofer is the
subject of current litigation initiated by iBio based on claims of Fraunhofer’s material and continuing breaches of their
contracts with the Company, as described under “Legal Proceedings – Lawsuits”.
Alliance with GE Healthcare
In July 2012, we formed a global alliance
with GE Healthcare (“GEHC”) to commercialize our plant-based technologies for the manufacture of biopharmaceuticals
and vaccines. The alliance builds on the development and marketing agreement which we entered into with GEHC in 2010 and seeks
to combine the iBioLaunch platform with GEHC’s capabilities in start-to-finish technologies for biopharmaceutical manufacturing.
Under the terms of global alliance agreement, iBio will be the preferred provider of vaccine or therapeutic product manufacturing
technology incorporating a plant based protein expression system, while GEHC will be the preferred provider of engineering services
and bioprocess solutions, to any customers that may be interested in a bio-manufacturing facility incorporating a plant-based expression
system. The global alliance agreement further specifies allocation of responsibilities for product development, process scale-up,
facilities design and development, and technology transfer among iBio, Fraunhofer, and GEHC. Additionally, the global alliance
agreement also sets forth the terms of a non-exclusive commercial license to iBio’s technology that we have agreed to offer
to any customer referred to it by GEHC as a part of the global alliance.
In April 2013, together with GEHC, we announced
that Fiocruz had committed to build and had recently contracted with GEHC for the design of new plant-based manufacturing facility
that would use our iBioLaunch technology.
Although the Fiocruz project is proceeding,
and was the subject of a recent visit of the Fiocruz team to the iBio CMO facility for discussions with senior iBio management,
political and economic conditions in Brazil have affected the original schedule and may continue to affect the prospective schedule
for development and completion.
Fiocruz Collaboration and License
In January 2011, we entered into collaboration
and granted a commercial, royalty-bearing license to Fiocruz for the use of our proprietary technology in connection with the development,
manufacture and commercialization by Fiocruz of certain vaccine products. Fiocruz, a unit of the Oswaldo Cruz Foundation, a central
agency of the Ministry of Health of Brazil, is a leader in the production, development and commercialization in Latin America of
vaccines, reagents and biopharmaceuticals. Additionally, Fiocruz, a certified World Health Organization provider to United Nations
agencies, is a global leader in the manufacture of yellow fever vaccine. Fiocruz manufactures and exports yellow fever vaccine
to over 60 countries. The World Health Organization has estimated that 200,000 unvaccinated people contract yellow fever each year,
and approximately 30,000 die from the disease.
Pursuant to the terms of the collaboration
and license agreement among iBio, Fraunhofer and Fiocruz, Fiocruz has the right to develop and commercialize yellow fever vaccine
derived from the use of our iBioLaunch technology in Latin America, the Caribbean and Africa. Fiocruz will fund development of
this vaccine product and if successfully developed and commercialized, iBio will receive royalty payments from the sales of the
product in those territories. iBio has retained the right, which is sublicenseable, to commercialize the product in all other territories
subject to payment of a royalty back to Fiocruz. Additionally, Fiocruz has engaged iBio to perform certain research and development
activities associated with the yellow fever vaccine project. Based upon the expertise possessed by Fraunhofer, we engaged Fraunhofer
as a subcontractor to perform these research and development services.
In April 2013, Fiocruz committed to the
design of a new plant-based multipurpose manufacturing facility in Brazil and anticipates construction of such facility in the
next few years. This multipurpose facility is being designed in manner that will enable the incorporation and utilization of our
iBioLaunch platform.
On June 12, 2014, Fiocruz, Fraunhofer and
iBio executed an amendment to the Agreement (the “Amended Agreement”) which provides for revised research and development,
work plans, reporting, objectives, estimated budget, and project billing process. The effect of the amendment resulted in a charge
of approximately $1.007 million to general and administrative expenses for the noncollectibility of an accounts receivable from
Fiocruz for revenues recorded for the year ended June 30, 2013 and a credit of approximately $1.007 million to research and development
expenses and a corresponding adjustment to accounts payable relating to expenses accrued at June 30, 2013 owed to Fraunhofer.
For the year ended June 30, 2014, under
the Amended Agreement, the Company recognized revenue of $205,000 for work performed for Fiocruz pursuant to the Amended Agreement
by the Company’s subcontractor, Fraunhofer, and recognized research and development expenses of the same amount — $205,000
– due Fraunhofer for that work.
For the year ended June 30, 2015, under
the Amended Agreement, the Company recognized revenue of $1,851,000 for work performed for Fiocruz pursuant to the Amended Agreement
by the Company’s subcontractor, Fraunhofer, and recognized research and development expenses of the same amount — $1,851,000
- due Fraunhofer for that work.
For the year ended June 30, 2016, under
the Amended Agreement, the Company recognized revenue of $758,000 for work performed for Fiocruz pursuant to the Amended Agreement
by the Company’s subcontractor, Fraunhofer, and recognized research and development expenses of the same amount — $758,000
– due Fraunhofer for that work.
License and Collaboration with Caliber
Biotherapeutics LLC
In February 2013, we entered into a license
with Caliber Biotherapeutics LLC, a for-profit biotechnology company that is focused on the development and commercialization of
therapeutic proteins. This license to Caliber is for use of the iBioLaunch platform in connection with the development of an undisclosed
monoclonal antibody-based therapeutic protein for an oncology indication. Caliber will conduct and fund the development of the
product candidate and if successfully developed and commercialized, iBio will receive royalties on the sale of such product and
other revenues. Although the license is still valid, product development and other activities by Caliber have been suspended without
a disclosed plan for resumption.
The 139,000 square foot Class A life sciences
building located on approximately 21 acres in Bryan, Texas previously owned by Caliber Biotherapeutics LLC is now controlled by
an affiliate of Eastern Capital Limited, a stockholder of the Company. Our subsidiary, iBio CMO LLC, has a 34-year sublease for
the facility and began commercial operations at the facility 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.
Research and Development
Our research and development activities
are directed and led by our President and by our Chief Scientific Officer. Excepting such direction and management, we outsource
all our research and development activities. Outsourcing our research and development work allows us to develop our product candidates,
and thereby promote the value of such product candidates and our technology platforms for licensing and product development purposes,
without bearing the full risk and expense of establishing and maintaining our own research and development staff and facilities.
Fraunhofer was our principal research and
development contractor and provided research and development services to us and our predecessor company from 2003 through 2014.
As a part of our collaboration with Fraunhofer, we established a business structure that allowed us to enlarge and broaden the
scope of applications of our platform technology and enhance the value of our retained commercial rights by leveraging certain
funding received by Fraunhofer from governmental entities, NGOs and other similar organizations.
We achieved this result by granting licenses
(a) to the government and NGO entities for not-for-profit applications of the intellectual property for which they have provided
funding, and (b) to Fraunhofer for research purposes and applications in fields other than those retained by iBio or granted to
the governmental entity or NGO. iBio retained ownership of the intellectual property and exclusive worldwide commercial rights
in the fields of human health and veterinary influenza applications of the intellectual property. At this time, we are not pursuing
development of such intellectual property in the field of veterinary influenza.
Through June 30, 2016, Fraunhofer has been
awarded a total of approximately $33 million in grants from the Bill & Melinda Gates Foundation for development of product
candidates based on the iBioLaunch platform and for research and development of vaccines against influenza, including H5N1 avian
influenza, malaria and African sleeping sickness (trypanosomiasis). To facilitate the grant and continuing support by the Bill
& Melinda Gates Foundation of the activities undertaken by Fraunhofer, we agreed to make our iBioLaunch platform available
to various programs to complete development and provide “Global Access” to vaccines against influenza, rabies virus,
malaria and trypanosomiasis, provided that if the Bill & Melinda Gates Foundation and Fraunhofer do not pursue such programs
to completion, the subject rights revert to us. The term “Global Access” means access for people most in need within
the developing world in low income and lower-middle-income countries, as identified by the World Bank. Because we have exclusive
commercial rights to the technology and these products for human health applications, this grant and any further similar grants
benefit us by enabling the enhancement of Fraunhofer to enhance our platform technology and expansion of the information about
the technical performance of product candidates derived from our technology. We may decide to commercially license such technology
to collaborators for advancement into human clinical evaluation and eventual commercial development.
DoD has also provided funding to Fraunhofer
for advanced development of our technology platform and for preclinical and clinical studies of an anthrax-plague combination vaccine
and for an H1N1 influenza vaccine project. Through June 30, 2015, Fraunhofer received funding and funding commitments for these
projects totaling approximately $34 million. This funding is similarly beneficial to us because we have retained the commercial
rights to any technology improvements resulting from those projects.
In December 2012, the National Institute
of Allergy and Infectious Diseases, a part of the National Institutes of Health, awarded a contract to Fraunhofer, for the development
of a new generation anthrax vaccine. Fraunhofer is developing this new generation vaccine using the iBioLaunch platform and the
funding it receives pursuant to the National Institute of Allergy and Infectious Diseases. We expect funded work to advance our
technology.
In summary, the advancement of our technology
has indirectly benefited from the funding and funding commitments of research and development activities at Fraunhofer in recent
years by U.S. government and non-governmental organizations in aggregate amounts exceeding $67 million.
Manufacturing
In addition to the platform and product
development engagements, in 2006, we engaged Fraunhofer to create a prototype production module for products made through the use
of the iBioLaunch platform. The purpose of this engagement was to attract grants for the improvement of the prototype to become
a pilot plant and to demonstrate the ease and economy with which iBioLaunch-derived products could be manufactured in order to
attract potential licensees and increase the value of our share of business arrangements entered into with entities. The prototype
design, which encompassed the entire production process from seeding, pre-infiltration plant growth, infiltration of plants with
agrobacteria, harvesting of plant tissue and purification of target proteins, was completed in May 2008. A pilot plant based upon
this prototype funded substantially by DARPA was subsequently constructed by Fraunhofer at its facility in Newark, Delaware. The
physical assets consisting of the pilot plant, and the equipment in it, are owned by Fraunhofer and have been validated for current
Good Manufacturing Practices (“cGMP”) production, but all the proprietary intellectual property pertaining to those
physical assets is property of iBio. We are not limited to the use of this facility. We have access to manufacturing facilities
operated by our subsidiary iBio CMO, described below, and we also expect to contract with other third party providers for development,
manufacturing, fill and finish services.
In January 2016, we entered into a contract
manufacturing joint venture operated through our subsidiary iBio CMO. 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. We contributed to iBio CMO a royalty
bearing license which grants iBio CMO a non-exclusive license to use our proprietary technologies for research purposes and an
exclusive U.S. license for manufacturing purposes.
On February 23, 2017, the Company entered
into an exchange agreement with our joint venture partner in iBio CMO, pursuant to which the Company acquired substantially all
of the interest in iBio CMO held by our joint venture partner in exchange for one share of the Company’s iBio CMO Preferred
Tracking Stock, par value $0.001 per share. After giving effect to the transaction, the Company owns 99.99% of iBio CMO.
iBio CMO’s operations take place
in Bryan, Texas in a facility controlled by another affiliate of Eastern, as sublandlord. The facility is a Class A life sciences
building on the campus of Texas A&M University, designed and equipped for plant-made manufacture of biopharmaceuticals and
the facility and equipment in it are validated for cGMP production. iBio CMO has been granted a 34-year sublease for the facility.
Commercial operations commenced in January 2016.
Proprietary iBio technologies have been
used to advance development of certain products that have been commercially infeasible to develop with conventional technologies
such as Chinese hamster ovary cell systems and microbial fermentation methods. They can be used to create and operate manufacturing
facilities at substantially lower capital and operating costs. These include development and manufacture of both vaccine and therapeutic
product candidates. iBio CMO plans to promote commercial collaborations with third parties on the basis of these technology advantages
and to work with customers to achieve laboratory scale technical milestones that can form the basis of longer-term manufacturing
business arrangements. iBio itself will be a client of iBio CMO for further IND advancement of its proprietary products beginning
with IBIO-CFB03 for the treatment of a range of fibrotic diseases. iBio will work with iBio CMO on the production of IBIO-CFB03
for clinical trials and, with clinical success, for commercial launch.
Due to the lower capital and operating
cost requirements for pharmaceutical production via iBio technology versus legacy methods, certain corporations and governments
that have not already established manufacturing capacity for biologic products are client prospects for both development and for
commercial technology transfer services to enable autonomous manufacturing in the market being served. For example, in Brazil,
iBio has been collaborating with the Oswaldo Cruz Foundation (Fiocruz) to develop a recombinant yellow fever vaccine based on iBio
technology. iBio’s contract with Fiocruz provides for commercial technology transfer services as the product candidates enters
human clinical trials. Over time, iBio expects to work closely with iBio CMO to provide such technology transfer services for a
variety of both commercial and government clients.
Intellectual Property
We exclusively control intellectual property
developed at Fraunhofer for human health applications. We also exclusively control the veterinary field for plant-made influenza
vaccines. In addition, we have an exclusive worldwide license agreement with the University of Pittsburgh covering U.S. and foreign
patents and patent applications and related intellectual property owned by the University of Pittsburgh pertinent to the use of
endostatin peptides for the treatment of fibrosis. Our success will depend in part on our ability to obtain and maintain patent
protection for our technologies and products and to preserve our trade secrets. Our policy is to seek to protect our proprietary
rights, by among other methods, filing patent applications in the U.S. and foreign jurisdictions to cover certain aspects of our
technology.
We currently own 21 U.S. patents and 49
international patents. We have an exclusive license to four U.S. patents and one application. Additionally, we have one U.S. and
two international patent applications allowed, as well as three U.S. and 14 international applications pending. International patents
and applications include numerous foreign countries including Australia, Brazil, Canada, China, Hong Kong, India, Korea, and several
countries in Europe. We continue to prepare patent applications relating to our expanding technology in the U.S. and abroad.
The technology and products covered by
our issued and pending patent applications is summarized below:
Technology and Product
Patents (U.S.)
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Virus-induced gene silencing in plants
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Transient expression of foreign genes in plants
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Production of foreign nucleic acids and polypeptides in
sprout systems
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Production of pharmaceutically active proteins in sprouted
seedlings
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Systems and method for clonal expression in plants
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Recombinant carrier molecule for expression, delivery and
purification of target polypeptides
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Influenza antigens, vaccine compositions, and related methods
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Plague antigens, vaccine compositions, and related methods
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Influenza therapeutic antibodies
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Trypanosomiasis vaccine
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Anthrax antigens, vaccine compositions, and related methods
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Use of endostatin peptides for the treatment of fibrosis
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Pending Technology
Patent Applications (U.S. and International)
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Virus-induced gene silencing in plants
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Activation of transgenes in plants by viral vectors
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Protein production in seedlings
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Agroinfiltration of plants with launch vector
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Transient expression of proteins in plants
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Thermostable carrier molecule
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Protein expression in clonal root cultures
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Production of proteins in plants with launch vector
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In vivo deglycosylation of recombinant proteins in plants
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Pending Product Patent
Applications (U.S. and International)
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Influenza therapeutic antibodies
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Trypanosomiasis vaccine
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Endostatin fragments and variants for use in treating fibrosis
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Competition
The biotechnology and pharmaceutical industries
are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face
competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions,
government agencies and private and public research institutions. Our commercial opportunities will be reduced or eliminated if
our competitors develop and commercialize products that are safer, more effective, have fewer side effects or are less expensive
than any products that we or our collaborators may develop based on the use of our platform technology.
While we believe that the potential advantages
of our technologies will enable us to compete effectively against other providers of technology for biologic product manufacturing,
many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing,
preclinical testing, clinical trials, regulatory approvals and marketing approved products than we do. Smaller or early stage companies
may also prove to be significant competitors, particularly through arrangements with large and established companies, and this
may reduce the value of our platform technologies for the purposes of establishing license agreements. In addition, these third
parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial
sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary
to our programs or advantageous to our business.
We expect to rely upon licensees, collaborators
or customers for support in advancing certain of our drug candidates and intend to rely on additional work with our collaborators
during our efforts to commercialize our product candidates. Our licensees, collaborators or customers may be conducting multiple
product development efforts within the same disease areas that are the subjects of their agreements with us. Agreements with collaborators
may not preclude them from pursuing development efforts using a different approach from that which is the subject of our agreement
with them. Any of our drug candidates, therefore, may be subject to competition with a drug candidate under development by a customer.
There are currently approved vaccines and
therapies for many of the diseases and conditions addressed by the product candidates in our pipeline. There are also a number
of companies working to develop new drugs and other therapies for diseases of commercial interest to us that are undergoing various
stages of testing including clinical trials. The key competitive factors affecting the success of our platforms for commercial
product candidates are likely to be efficacy, safety profile, price, and convenience.
Government Regulation and Product Approval
Regulation by governmental authorities
in the U.S. and other countries is a significant factor in the development, manufacturing and marketing of pharmaceutical drugs
and vaccines. All of the vaccine and therapeutic products developed from our platform technologies will require regulatory approval
by governmental agencies prior to commercialization. In particular, pharmaceutical drugs and vaccines are subject to rigorous preclinical
testing and clinical trials and other pre-marketing approval requirements by the FDA and regulatory authorities in other countries.
In the U.S., various federal, and, in some cases, state statutes and regulations, also govern or impact the manufacturing, safety,
labeling, storage, record-keeping and marketing of vaccines and pharmaceutical products. The lengthy process of seeking required
approvals and the continuing need for compliance with applicable statutes and regulations requires the expenditure of substantial
resources. Regulatory approval, if and when obtained for any of our product candidates, may be limited in scope, which may significantly
limit the indicated uses for which our product candidates may be marketed. Further, approved vaccines and drugs are subject to
ongoing review and discovery of previously unknown problems that may result in restrictions on their manufacture, sale or use or
in their withdrawal from the market.
Before any product candidates with potential
immunization or therapeutic value may be tested in human subjects, we must satisfy stringent government requirements for preclinical
studies. Preclinical testing includes both
in vitro
and
in vivo
laboratory evaluation and characterization
of the safety and efficacy of the product candidate. “
In vitro
” refers to tests conducted with cells in culture
and “
in vivo
” refers to tests conducted in animals. Preclinical testing results obtained from studies in several
animal species, as well as data from
in vitro
studies, are submitted to the FDA as part of an IND and are reviewed
by the FDA prior to the commencement of human clinical trials. These preclinical data must provide an adequate basis for evaluating
both the safety and the scientific rationale for the initial clinical trials. In the case of vaccine candidates, animal immunogenicity
and immune protection tests must establish a sound scientific basis to believe that the product candidate may be beneficial when
administered to humans.
An IND becomes effective automatically
30 days after receipt by the FDA, unless the FDA raises concern or questions about the conduct of the clinical trials as outlined
in the IND prior to that time. In such an event, the IND sponsor and the FDA must resolve any outstanding concerns before clinical
trials can proceed. For additional information on the most recent FDA regulations and guidance on vaccine and therapeutic product
testing and approval, visit its website at http://www.fda.gov.
Any products we or a licensee manufactures
or distributes under FDA approval are subject to continuing regulation by the FDA, including record-keeping requirements and reporting
of adverse experiences with the products. Drug manufacturers and their subcontractors are required to register with the FDA and,
where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance
with current cGMPs, which are the standards the FDA requires be met during the manufacturing of drugs and biologic products, and
which impose procedural and documentation requirements upon us and any third party manufacturers we utilize.
To the extent we conduct vaccine or therapeutic
product development activities outside the United States, we will also be subject to a wide variety of foreign regulations governing
the development, manufacture and marketing of our product candidates. Whether or not FDA approval has been obtained, approval of
a product by the comparable regulatory authorities of foreign countries must still be obtained prior to manufacturing or marketing
the product in those countries. The approval process varies from country to country and the time needed to secure approval may
be longer or shorter than that required for FDA approval. We cannot assure you that clinical trials conducted in one country will
be accepted by other countries or that approval in one country will result in approval in any other country. The product testing
and clinical trial requirements that must be met before a product candidate can be marketed are substantial, time-consuming, and
require investments of millions of dollars per product candidate.
Property
Our corporate office is located in subleased
space, leased on a month-to-month basis, at 600 Madison Avenue, New York, New York, and includes shared use of common facilities.
In this space, we perform or maintain oversight of our administrative, clinical development, regulatory affairs and business development
functions.
iBio CMO’s operations take place
in Bryan, Texas in a facility controlled by an affiliate of Eastern Capital Limited as sublandlord. The facility is a 139,000 square
foot Class A life sciences building on the campus of Texas A&M University, designed and equipped for plant-made manufacture
of biopharmaceuticals. iBio CMO has a 34-year sublease for the facility. 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. Commercial operations commenced in January,
2016.
Employees
As of June 30, 2017, we had eight employees
in iBio and eighteen employees in iBio CMO. Our employees are not represented by any union and are not the subject of a collective
bargaining agreement. We consider our relations with our employees to be good. Since our business strategy is based on outsourcing
some of our development and clinical trial work to third parties, we believe this staffing level will be sufficient to meet our
needs.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONs
The following discussion of our financial
condition and results of operations should be read together with our financial statements and the notes thereto and other information
included elsewhere in this Registration Statement.
Forward-Looking Information and Factors That May Affect Future
Results
The following discussion contains forward-looking
statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements
contained in the following discussion, other than statements that are purely historical, are forward-looking statements. Forward-looking
statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,”
“will,” “should,” “potential,” “anticipates,” “plans,” or “intends”
or the negative thereof, or other variations thereof, or comparable terminology, or by discussions of strategy. Forward-looking
statements are based upon management’s present expectations, objectives, anticipations, plans, hopes, beliefs, intentions
or strategies regarding the future and are subject to known and unknown risks and uncertainties that could cause actual results,
events or developments to be materially different from those indicated in such forward-looking statements, including the risks
and uncertainties set forth above in –“Risk Factors”. These risks and uncertainties should be considered carefully
and readers are cautioned not to place undue reliance on such forward-looking statements. As such, no assurance can be given that
the future results covered by the forward-looking statements will be achieved.
Overview
We are a biotechnology company focused
on commercializing our proprietary technologies and product candidates and providing product development and manufacturing services
to clients and collaborators. The Company’s technologies constitute a proprietary, transformative platform for development
and production of biologics in hydroponically grown green plants.
Stated simply, iBio’s technologies
harness the natural protein production capability that plants use to sustain their own growth, and direct it instead to produce
proteins for a range of applications including for vaccines and biopharmaceuticals. The Company’s technologies can be used
to produce a wide array of biologics and also to create and produce proprietary derivatives of preexisting products with improved
properties. The Company has used its technologies and its collaborative relationships to demonstrate the applicability of its technologies
to a diverse range of product candidates including products against fibrotic diseases, vaccines, enzyme replacements, monoclonal
antibodies, and recombinant versions of marketed products that are currently derived from human blood plasma.
In addition to the broad array of biological
products that can be produced with the Company’s technologies we believe our technologies offer other advantages that are
not available with conventional manufacturing systems. These anticipated advantages may include reduced production time and lower
operating costs. Further, we believe that the capital investment required to create facilities that will manufacture proteins using
the Company’s technologies will be substantially less than the capital investment which would be required for the creation
of similar capacity facilities utilizing conventional manufacturing methods dependent upon animal cells, bacterial fermenters and
chicken eggs. Additionally, operating costs in a manufacturing facility using iBio’s platform are expected to be reduced
significantly in comparison to conventional manufacturing processes due to the rapid nature of our production cycle and the elimination
of the expenses associated with the operation and maintenance of bioreactors, fermenters, sterile liquid handling systems and other
expensive equipment which is not required in connection with the use of the Company’s technologies.
Among the Company’s proprietary technologies
are the patented iBioLaunch technology, the patented iBioModulator technology, and additional newer and more advanced technologies.
Bio-Manguinhos/Fiocruz, or Fiocruz, a unit of the Oswaldo Cruz Foundation, a central agency of the Ministry of Health of Brazil,
is sponsoring the development an iBioLaunch-produced yellow fever vaccine to replace the vaccine it currently makes in chicken
eggs for the populations of Brazil and more than 20 other nations. These advances are occurring subsequent to the demonstration
of safety of iBioLaunch-produced vaccine candidates against each of the H1N1 “Swine” flu virus and the H5N1 avian flu
virus in successfully completed Phase 1 clinical trials.
We developed our iBioModulator technology
based on the use of a modified form of the cellulose degrading enzyme lichenase from
Clostridium
thermocellum
,
a thermophilic and anaerobic bacterium. iBioModulator enables an adjuvant component to be fused directly to preferred recombinant
antigens to create a single protein for use in vaccine applications.
The iBioModulator platform has been shown
to be applicable to a range of vaccine proteins and can significantly modify the immune response to a vaccine in two important
ways. Animal efficacy studies have demonstrated that it can increase the strength of the initial immune response to a vaccine antigen
(as measured by antibody titer) and also extend the duration of the immune response. These results suggest the possibility that
use of the iBioModulator platform may lower vaccine antigen requirements and enable fewer doses to establish prolonged protective
immunity.
In addition to technology developed for
iBio pursuant to agreements with Fraunhofer U.S.A., Inc., iBio’s more recently developed technologies provide us with higher
expression yields of certain proteins and increased efficiency in adapting gene sequences to achieve specific product objectives.
In addition, we are developing improved, proprietary manufacturing processes that we expect to protect as trade secrets.
Our near-term focus is to realize two key
objectives: (1) the establishment of additional business arrangements pursuant to which commercial, government and not-for-profit
licensees will utilize the Company’s technologies in connection with the development and manufacturing of therapeutic proteins
and vaccine products; and (2) the further development of select product candidates based upon or enhanced by our technology platforms.
These objectives are the core components of our strategy to commercialize the proprietary technologies we have developed and validated.
Our strategy to engage in partnering and
out-licensing of our technologies seeks to preserve the opportunity for iBio to share in the successful development and commercialization
of product candidates by our licensees while enhancing our own capital and financial resources for development, alone or through
commercial alliances with others, of high-potential product candidates based upon our technologies. In addition to financial resources
we may receive in connection with the license of our technologies, we believe that successful development by third party licensees
of iBio technology-enhanced product candidates will further validate our technologies, increase awareness of the advantages that
may be realized by the use of such platforms and promote broader adoption of our technologies by additional third parties.
The advancement of iBio technology-enhanced
product candidates is a key element of our strategy. We believe that selecting and developing products which individually have
substantial commercial value and are representative of classes of pharmaceuticals that can be successfully produced using our technology
platforms will allow us to maximize the near and longer term value of our technologies while exploiting individual product opportunities.
To realize this result, we are currently internally advancing through preclinical IND enabling studies a proprietary recombinant
protein we call IBIO-CFB03 for treatment of idiopathic pulmonary fibrosis, systemic sclerosis, and potentially other fibrotic diseases.
To the extent that we anticipate the opportunity to realize additional value, we may elect to further the development of this or
other product candidates through the early stages of clinical development before seeking to license the product candidate to other
industry participants for late stage clinical development and if successful, commercialization.
On December 16, 2015, we formed iBio CMO
LLC (“iBio CMO”), a Delaware limited liability corporation, to develop and manufacture plant-made pharmaceuticals.
As of December 31, 2015, we owned 100% of iBio CMO. On January 13, 2016, we entered into a contract manufacturing joint venture
with an affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the Company (the “Eastern Affiliate”).
The Eastern Affiliate contributed $15 million in cash for a 30% interest in iBio CMO. We retained a 70% interest in iBio CMO and
contributed a royalty bearing license which grants iBio CMO a non-exclusive license to use our proprietary technologies for research
purposes and an exclusive U.S. license for manufacturing purposes. We retained the exclusive right to grant product licenses to
those who wish to sell or distribute products made using our technology.
On February 23, 2017, we entered into an
exchange agreement with the Eastern Affiliate, pursuant to which we acquired substantially all of the interest in iBio CMO held
by the Eastern Affiliate in exchange for one share of our iBio CMO Preferred Tracking Stock, par value $0.001 per share. After
giving effect to the transaction, we own 99.99% of iBio CMO.
iBio CMO’s operations take place
in Bryan, Texas in a facility controlled by another affiliate of Eastern (the “Second Eastern Affiliate”) as sublandlord.
The facility is a Class A life sciences building on the campus of Texas A&M University, designed and equipped for plant-made
manufacture of biopharmaceuticals. The Second Affiliate granted iBio CMO a 34-year sublease for the facility. Commercial operations
commenced in January 2016. iBio CMO operates on the basis of three parallel lines of business: (1) Development and manufacturing
of third party products; (2) Development and production of iBio’s proprietary product(s) for treatment of fibrotic diseases;
and (3) Commercial technology transfer services.
Proprietary iBio technologies have been
used to advance development of certain products that have been commercially infeasible to develop with conventional technologies
such as Chinese hamster ovary cell systems and microbial fermentation methods. They can be used to create and operate manufacturing
facilities at substantially lower capital and operating costs. These include development and manufacture of both vaccine and therapeutic
product candidates. iBio CMO plans to promote commercial collaborations with third parties on the basis of these technology advantages
and to work with customers to achieve laboratory scale technical milestones that can form the basis of longer-term manufacturing
business arrangements. iBio itself will be a client of iBio CMO for further IND advancement of its proprietary products beginning
with IBIO-CFB03 for the treatment of a range of fibrotic diseases. iBio will work with iBio CMO on the production of IBIO-CFB03
for clinical trials and, with clinical success, for commercial launch.
Due to the lower capital and operating
cost requirements for pharmaceutical production via iBio technology versus legacy methods, certain corporations and governments
that have not already established manufacturing capacity for biologic products are client prospects for both development and for
commercial technology transfer services to enable autonomous manufacturing in the market being served. For example, in Brazil,
iBio has been collaborating with the Oswaldo Cruz Foundation (Fiocruz) to develop a recombinant yellow fever vaccine based on iBio
technology. iBio’s contract with Fiocruz provides for commercial technology transfer services as the product candidates enters
human clinical trials. Over time, iBio expects to work closely with iBio CMO to provide such technology transfer services for a
variety of both commercial and government clients.
Results of Operations
Comparison of Three Months ended March
31, 2017 (“Fiscal 2017”) versus March 31, 2016 (“Fiscal 2016”)
Revenue
Gross revenue for Fiscal 2017 and Fiscal
2016 was approximately $37,000 and $379,000, respectively, a decrease of $342,000.
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 $1,136,000 and $1,048,000, respectively, an increase of approximately $88,000. The increase was primarily
related to the addition of iBio CMO operations for a full year offset by a decrease in contracted research expenses.
General and administrative expenses
General and administrative expenses for
Fiscal 2017 and Fiscal 2016 were $2,838,000 and $2,403,000, an increase of approximately $435,000. 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 due to an increase
in the expenses related to iBio CMO operations which commenced in December 2015 of approximately $690,000 net of a reduction of
expenses incurred by iBio, Inc.
Other income (expense)
Other income (expense) for the three month
period ended March 31, 2017 and 2016 was approximately ($469,000) and ($313,000), respectively.
As discussed above, iBio CMO’s operations
take place in a facility in Bryan, Texas under a 34-year 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. Such sublease is accounted for as a capital lease.
In Fiscal 2017, other income (expense) included interest expense of $482,000 incurred under the capital lease and interest and
royalty income of $13,000. Other income (expense) in Fiscal 2016 included interest expense of $323,000 incurred under the capital
lease and interest and royalty income of $10,000.
Net loss attributable to noncontrolling
interest
This represents the share of the loss in
iBio CMO for the Eastern Affiliate for Fiscal 2017 and Fiscal 2016.
Results of Operations - Comparison
of Nine Months ended March 31, 2017 (“Fiscal 2017”) versus March 31, 2016 (“Fiscal 2016”)
Revenue
Gross revenue for Fiscal 2017 and Fiscal
2016 was approximately $247,000 and $673,000, respectively, a decrease of $426,000.
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 $3,004,000 and $2,303,000, respectively, an increase of approximately $701,000. The increase was primarily
related to the addition of iBio CMO operations net of the decrease in contracted research expenses.
General and administrative expenses
General and administrative expenses for
Fiscal 2017 were approximately $7,658,000, as compared to approximately $5,509,000 for Fiscal 2016, an increase of approximately
$2,149,000. 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 due to an increase in the expenses related to iBio CMO operations which commenced in December
2015 of approximately $2,834,000 net of a reduction of expenses incurred by iBio, Inc.
Other income (expense)
Other income (expense) for Fiscal 2017
and Fiscal 2016 was approximately ($1,394,000) and ($297,000), respectively.
As discussed above, iBio CMO’s operations
take place in a facility in Bryan, Texas under a 34-year 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. Such sublease is accounted for as a capital lease.
In Fiscal 2017, other income (expense) included interest expense of $1,447,000 incurred under the capital lease and interest and
royalty income of $53,000. Other income (expense) in Fiscal 2016 included interest expense of $323,000 incurred under the capital
lease and interest and royalty income of $26,000.
Net loss attributable to noncontrolling
interest
This represents the share of the loss in
iBio CMO for the Eastern Affiliate for Fiscal 2017 and Fiscal 2016.
Results of Operations - Comparison of
Years ended June 30, 2016 (“2016”) versus June 30, 2015 (“2015”)
Revenue
Gross revenue for 2016 and 2015 was approximately
$.95 million and $1.85 million, respectively, a decrease of $.9 million.
Revenue has been primarily attributable
to technology services provided to Bio-Manguinhos/Fiocruz (“Fiocruz”) in connection with the development by Fiocruz
of a yellow fever vaccine using our iBioLaunch™ technology. To fulfill our obligations, we engaged Fraunhofer USA Inc. (“Fraunhofer”)
as a subcontractor to perform the services required. During 2013, the Company, Fiocruz and Fraunhofer were awaiting approval by
the Brazilian government of a contract amendment reflecting a new work plan. During this waiting period, no revenues were recognized
by the Company in connection with services provided to Fiocruz through the subcontract arrangement with Fraunhofer. In June 2014,
the Company, Fiocruz and Fraunhofer amended their Collaboration and License Agreement reflecting the new work plan and work was
resumed by Fraunhofer for the Company to continue development of a yellow fever vaccine using the Company’s iBioLaunch™
technology. In 2016, revenue was lower due to laboratory tasks performed pursuant to the agreement with Fiocruz nearing completion,
in some cases being completed and, therefore, requiring less total work than previously necessary.
Research and Development Expenses
Research and development expenses for 2016
and 2015 were approximately $3.2 million and $3.5 million, respectively, a decrease of $.3 million. Research and development expenses
in 2015 include a reconciliation for services rendered prior to October 1, 2014. In 2016, expenses were increased to reflect the
addition of iBio CMO operations and decreased due to changes in the laboratory work with Fiocruz for a net decrease of $.3 million.
General and Administrative Expenses
General and administrative expenses for
2016 and 2015 were approximately $7.7 million and $5.0 million, respectively, an increase of $2.7 million. General and administrative
expenses principally include officer and employee salaries and benefits, legal and accounting fees, insurance, consulting services,
investor and public relations services, and other costs associated with being a publicly traded company. The increase was primarily
due to the expenses related to iBio CMO operations which commenced in December 2015 of approximately $3.0 million.
Other Income (Expense)
Other income (expense) for 2016 and 2015
was approximately ($764,000) and $41,000, respectively.
As discussed above, iBio CMO’s operations
take place in a facility in Bryan, Texas under a 34-year sublease. 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. Such sublease is accounted for as a capital lease.
In 2016, other income (expense) included interest expense of $807,000 incurred under the capital lease and interest and royalty
income of $43,000. Other income in 2015 consisted of interest and royalty income.
Net loss attributable to noncontrolling
interest
This represents the share of the loss in
iBio CMO for the Eastern Affiliate for the year ended June 30, 2016.
Liquidity and Capital Resources
As of March 31, 2017, we had cash of $12.4
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.
As of June 30, 2016, we had cash of $23.0
million as compared to $9.5 million as of June 30, 2015. The increase in cash was primarily attributable to proceeds received from
stock purchase agreements from Eastern and a contribution for the formation of iBio CMO.
Net Cash Used in Operating Activities
Operating activities used $9.4 million
in cash for Fiscal 2017 to fund the loss for the period.
Operating activities used $8.1 million
in cash in 2016 to fund the loss for the period.
Net Cash Used in Investing Activities
In Fiscal 2017, net cash used in investing
activities was approximately $1,068,000. Cash used in investing activities was attributable to additions to intangible assets of
$259,000 and fixed assets primarily for iBio CMO of $809,000.
In 2016, net cash used in investing activities was approximately
$68,000 for additions to fixed assets.
Net Cash Provided by Financing Activities
In Fiscal 2017, net cash used in financing
activities was $126,000, which represented payments of the capital lease obligation.
In 2016, net cash provided by financing activities was approximately
$21.7 million. The Company received approximately $7.2 million from Eastern from the sale of common stock and the exercise of warrants
and $15 million from a capital contribution for the formation of iBio CMO, offset by payments of $565,000 under the capital lease
obligation.
Funding Requirements
We have incurred significant losses and
negative cash flows from operations since our spin-off from Integrated BioPharma, Inc. in August 2008. As of March 31, 2017, our
accumulated deficit was approximately $67.8 million, and we used approximately $9.4 million of cash for operating activities for
Fiscal 2017. As of March 31, 2017, cash on hand is approximately $12.4 million.
We plan to fund our future business operations
using cash on hand, through proceeds from the sale of additional equity or other securities, including sales of common stock to
Lincoln Park Capital pursuant to the common stock purchase agreement entered into on July 24, 2017, and through proceeds realized
in connection with license and collaboration arrangements and the operation of our subsidiary, iBio CMO. We 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. 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.
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. We currently have no 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 March 31, 2017 and June 30, 2016, we
were not involved in any SPE transactions.
Critical Accounting Policies and Estimates
A critical accounting policy is one that
is both important to the portrayal of a company’s financial condition and results of operations and requires management’s
most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.
Our financial statements are presented
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All applicable
U.S. GAAP accounting standards effective as of March 31, 2017 have been taken into consideration in preparing the unaudited interim
financial statements contained in this registration statement and all applicable U.S. GAAP accounting standards effective as of
June 30, 2016 have been taken into consideration in preparing the audited financial statements contained in this registration statement.
The preparation of financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. Some of those estimates are subjective and complex, and, consequently, actual results
could differ from those estimates. The following accounting policies and estimates have been highlighted as significant because
changes to certain judgments and assumptions inherent in these policies could affect our financial statements.
The preparation of the financial statements
requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.
Some of those estimates are subjective and complex, and, consequently, actual results could differ from those estimates. The following
accounting policies and estimates have been highlighted as significant because changes to certain judgments and assumptions inherent
in these policies could affect our financial statements:
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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.
Revenue Recognition
The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured.
Deferred revenue represents billings to a customer to whom the services have not yet been provided.
The Company’s contract revenue consists
primarily of amounts earned under contracts with third-party customers and reimbursed expenses under such contracts. The Company
analyzes its agreements to determine whether the elements can be separated and accounted for individually or as a single unit of
accounting. Allocation of revenue to individual elements that qualify for separate accounting is based on the separate selling
prices determined for each component, and total contract consideration is then allocated pro rata across the components of the
arrangement. If separate selling prices are not available, the Company will use its best estimate of such selling prices, consistent
with the overall pricing strategy and after consideration of relevant market factors.
The Company generates (or may generate
in the future) contract revenue under the following types of contracts:
Fixed-Fee
Under a fixed-fee contract, the Company
charges a fixed agreed upon amount for a deliverable. Fixed-fee contracts have fixed deliverables upon completion of the project.
Typically, the Company recognizes revenue for fixed-fee contracts after projects are completed, delivery is made and title transfers
to the customer, and collection is reasonably assured.
Time and Materials
Under a time and materials contract, the
Company charges customers an hourly rate plus reimbursement for other project specific costs. The Company recognizes revenue for
time and material contracts based on the number of hours devoted to the project multiplied by the customer’s billing rate
plus other project specific costs incurred.
Grant Income
Grants are recognized as income when all
conditions of such grants are fulfilled or there is a reasonable assurance that they will be fulfilled. Grant income is classified
as a reduction of research and development expenses.
Fixed Assets
Fixed assets are stated at cost net of
accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets,
generally three to five years.
Assets held under the terms of capital
leases are included in fixed assets and are depreciated on a straight-line basis over the shorter of terms of the leases or the
economic lives of the assets.
Intangible Assets
The Company accounts for intangible assets
at their historical cost and records amortization utilizing the straight-line method based upon their estimated useful lives. Patents
are amortized over a period of ten years and other intellectual property is amortized over a period from 16 to 23 years. The Company
reviews the carrying value of its intangible assets for impairment whenever events or changes in business circumstances indicate
the carrying amount of such assets may not be fully recoverable. Evaluating for impairment requires judgment, and recoverability
is assessed by comparing the projected undiscounted net cash flows of the assets over the remaining useful life to the carrying
amount. Impairments, if any, are based on the excess of the carrying amount over the fair value of the assets.
Research and Development Costs
All research and development costs are
expensed as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development
costs are expensed when the contracted work has been performed or as milestone results have been achieved.
Share-based Compensation
The Company recognizes the cost of all
share-based payment transactions at fair value. Compensation cost, measured by the fair value of the equity instruments issued,
adjusted for estimated forfeitures, is recognized in the financial statements as the respective awards are earned over the performance
period. The Company uses historical data to estimate forfeiture rates.
The impact that share-based payment awards
will have on the Company’s results of operations is a function of the number of shares awarded, the trading price of the
Company’s stock at the date of grant or modification, and the vesting schedule. Furthermore, the application of the Black-Scholes
option pricing model employs weighted-average assumptions for expected volatility of the Company’s stock, expected term until
exercise of the options, the risk-free interest rate, and dividends, if any, to determine fair value. Expected volatility is based
on historical volatility of the Company’s common stock; the expected term until exercise represents the weighted-average
period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s
historical exercise patterns; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
grant for periods corresponding with the expected life of the option. The Company has not paid any dividends since its inception
and does not anticipate paying any dividends for the foreseeable future, so the dividend yield is assumed to be zero.
Income Taxes
Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect of a change
in tax rates or laws on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment
date of the rate change. A valuation allowance is established to reduce the deferred tax assets to the amounts that are more likely
than not to be realized from operations.
Tax benefits of uncertain tax positions
are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return.
CONTROLS
AND PROCEDURES
We maintain disclosure controls and procedures
that are designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) under the
Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our principal
executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls
and procedures. Based on the foregoing and as described in the following paragraphs, our principal executive officer and principal
financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms.
There have been no changes in our internal
control over financial reporting during the quarter ended March 31, 2017 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
MANAGEMENT
The following table sets forth the names and ages of our directors
and our executive officers:
Name
|
|
Age
|
|
Position Held With Us
|
Robert B. Kay
|
|
77
|
|
Executive Chairman and Chief Executive Officer
|
Robert L. Erwin
|
|
63
|
|
President
|
James P. Mullaney
|
|
46
|
|
Chief Financial Officer
|
Terence Ryan, Ph.D.
|
|
62
|
|
Chief Scientific Officer
|
General James T. Hill (ret.)
|
|
70
|
|
Director
|
Glenn Chang
|
|
69
|
|
Director
|
John D. McKey, Jr.
|
|
73
|
|
Director
|
Philip K. Russell, M.D.
|
|
85
|
|
Director
|
Seymour Flug
|
|
81
|
|
Director
|
Arthur Y. Elliott, Ph.D.
|
|
81
|
|
Director
|
The following are brief biographies of
each director and executive officer:
Robert B. Kay
has served as
our Executive Chairman and Chief Executive Officer since we became a publicly traded company in August 2008. Previously, Mr. Kay
was a founder and senior partner of the New York law firm of Kay Collyer & Boose LLP, with a particular focus on mergers and
acquisitions and joint ventures. Mr. Kay received his B.A. from Cornell University’s College of Arts & Sciences and his
J.D. from New York University Law School.
Robert L. Erwin
has been our
President since we became a publicly traded company in August 2008. Mr. Erwin led Large Scale Biology Corporation from its founding
in 1988 through 2003, including a successful initial public offering in 2000, and continued as non-executive Chairman until 2006.
He served as Chairman of Icon Genetics AG from 1999 until its acquisition by a subsidiary of Bayer AG in 2006. Mr. Erwin recently
served as Managing Director of Bio-Strategic Directors LLC, providing consulting services to the life sciences industry. He is
currently Chairman of Novici Biotech, a private biotechnology company and a Director of Oryn Therapeutics. Mr. Erwin’s non-profit
work focuses on applying scientific advances to clinical medicine, especially in the field of oncology. He is co-founder, President
and Director of the Marti Nelson Cancer Foundation, Oncology. Mr. Erwin received his BS degree with Honors in Zoology and an MS
degree in Genetics from Louisiana State University.
James P. Mullaney
has served as our Chief Financial Officer since March 2017.
Mr. Mullaney served as Corporate Controller at Citihub Inc.,
a global, independent IT advisory firm, from September 2011 to February 2017. He is a Certified Public Accountant
.
Terence E. Ryan, Ph.D.
has been
our chief scientific officer since March 2012, and prior to that served as senior vice president since joining the Company in July
2010. Dr. Ryan previously served as assistant vice president, Systems Biology at Wyeth Pharmaceuticals (later Pfizer, Inc.) from
2007 to 2010, and director of Integrative Biology at GlaxoSmithKline from 2003 to 2007. He has also been director, Cell Biology
at Celera Genomics from 2000 to 2003 and associate director of Cell Technologies and Protein Sciences at Regeneron Pharmaceuticals,
Inc. Dr. Ryan received his A.B. in Biology from Princeton University, his M.S. and Ph.D. in Microbiology from Rutgers University
and was a post-doctoral fellow in Molecular Virology at the University of Wisconsin.
General (Ret.) James T. Hill
has
been a director since we became a publicly traded company in August 2008. General Hill was the Commander of the 4-Star United States
Southern Command, reporting directly to the President and Secretary of Defense at the time of his retirement from active duty.
As such he led all U.S. military forces and operations in Central America, South America and the Caribbean, worked directly with
U.S. Ambassadors, foreign heads of state, key Washington decision-makers, foreign senior military and civilian leaders, developing
and executing United States policy. His responsibilities included management, development and execution of plans and policy within
the organization including programming, communications, manpower, operations, logistics and intelligence. General Hill’s
experience of implementing plans and policies within diverse geographic regions and his insights regarding the conduct of business
affairs in Central and South America is a key resource for us.
Glenn Chang
has
been a director since we became a publicly traded company in August 2008.
Since February 2014, Mr. Chang serves as the Chief
Financial Officer of Singer Vehicle Design, a private company in the business of automotive design and restoration.
Mr.
Chang served as the Chief Financial Officer of Alma Bank, a New York headquartered bank with over $900 million of assets and 13
branches in the New York City Metropolitan area since late 2012. Before joining Alma, from 1999 to 2012, Mr. Chang served as a
founder, Director, Chief Financial Officer and consultant to First American International Bank which is the largest locally owned
Chinese American Bank. Prior to that he spent 20 years at Citibank, N.A as Vice President. Mr. Chang is a Certified Public Accountant.
Mr. Chang’s extensive executive and financial leadership in his current and former positions and his training and experience
as a Certified Public Accountant adds vital expertise to our board of directors and our Audit Committee in the form of financial
understanding, business perspective and audit expertise. Mr. Chang is qualified as an Audit Committee Financial Expert as defined
in Regulation S-K Item 407(d)(5)(ii).
John D. McKey, Jr.
has been
a director since we became a publicly traded company in August 2008. Since 2003, Mr. McKey has served as of counsel at McCarthy,
Summers, Bobko, Wood, Sawyer & Perry, P.A. in Stuart, Florida, and previously was a partner from 1987 through 2003. From 1977
to 1987, Mr. McKey was a partner at Gunster Yoakley in Palm Beach, Florida. Mr. McKey received his B.B.A at the University of Georgia
and his J.D. from the University of Florida College Of Law. Mr. McKey’s extensive experience representing private and public
companies operating in varied business sectors brings our board insights and acumen to best corporate practices and implementation
of strategic and financial plans.
Philip K. Russell, M.D.
has
been a director since March 2010. Major General (retired.) Russell served in the U.S. Army Medical Corps from 1959 to 1990, pursuing
a career in infectious disease and tropical medicine research. Following his military service, Dr. Russell joined the faculty of
Johns Hopkins University’s School of Hygiene and Public Health and worked closely with the World Health Organization as special
advisor to the Children’s Vaccine Initiative. He was founding board member of the International AIDS Vaccine Initiative,
and is an advisor to the Bill & Melinda Gates Foundation. He has served on numerous advisory boards of national and international
agencies, including the Centers for Disease Control (“CDC”), the National Institutes of Health (“NIH”)
and the Institute of Medicine. Dr. Russell is a past Chairman of the Albert B. Sabin Vaccine Institute. Dr. Russell’s extensive
experience and expertise in the field of infectious diseases and his association with leading governmental and not-for-profit entities
engaged in pioneering work throughout the world provides us with invaluable insights into priorities for these entities and business
development opportunities for us.
Seymour Flug
has been a director
since December 2012. Prior to retiring, Mr. Flug was Chairman of the Board and CEO of Diners Club International and a Managing
Director of Citibank. Prior to joining Citibank, Mr Flug served as Senior Vice President of Hess Oil Company. Mr. Flug began his
career as Certified Public Accountant at Deloitte & Touche, a predecessor to the firm now known as Deloitte. Mr. Flug received
his B.B.A from Baruch College. Mr. Flug’s experience leading a multinational company and his experience as a certified public
accountant allow him to offer us unique perspectives on global business opportunities, best business practices and additional audit
expertise. Mr. Flug is qualified as an Audit Committee Financial Expert as defined in Regulation S-K Item 407(d)(5)(ii).
Arthur Y.
Elliott, Ph.D.
has been a director since October 2010. Dr. Elliott serves as a member of the American Association for
Advancement of Science, American Society for Microbiology, and American Tissue Culture Association. Prior to retiring, Dr. Elliott
spent 16 years with Merck & Co., serving ultimately as Executive Director of Biological Operations, Merck Manufacturing Division,
responsible for the bulk manufacture, testing, release and registration of all biological products sold. Dr. Elliott also directed
the manufacturing, process development, and other operations of North American Vaccine, Inc. for six years, and most recently
served as consultant to Aventis (Sanofi Pasteur) Pharmaceutical Corporation in its design and implementation of new, highly automated
manufacturing facilities for influenza vaccines. Dr. Elliott has served with the United States Department of Health and Human
Services (“HHS”) in the Avian Influenza Pandemic Preparedness Program in Washington, D.C. as Senior Program Manager
for the Antigen Sparing Project since 2006. The program involves the cooperation of three pharmaceutical companies and four government
groups (NIH, CDC, United States Food and Drug Administration, and HHS). While at Merck, he worked closely with both Merck Research
Laboratories and the Merck Vaccine Division to forecast the timely transfer of technology for new and improved products from the
research laboratories through the manufacturing area and into the marketing division for sales introductions. He has served as
a biological consultant to the World Health Organization, NIH and The Bill & Melinda Gates Foundation. Dr. Elliott holds a
Ph.D. in Virology from Purdue University, and an M.S. in Microbiology and a B.A. in Biology from North Texas State University.
Dr. Elliot’s extensive experience and expertise with the manufacture of vaccines and therapeutics is particularly relevant
to our business and our efforts to manufacture such products which in a key component of our business.
EXECUTIVE
COMPENSATION
Summary Compensation Table
The table below summarizes the total compensation
paid or earned by our principal executive officer, principal financial officer and our two other most highly compensated executive
officers who were serving as executive officers at June 30, 2017, the end of our last completed fiscal year. We refer to the executive
officers identified in this table as our “named executive officers”.
Name and
Principal Position
|
|
Fiscal
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards (1)
|
|
|
Total
|
|
Robert B. Kay
|
|
|
2017
|
|
|
$
|
310,732
|
|
|
|
0
|
|
|
|
107,085
|
|
|
|
417,817
|
|
Executive Chairman
|
|
|
2016
|
|
|
|
310,732
|
|
|
|
0
|
|
|
|
470,495
|
|
|
|
781,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James P. Mullaney (2)
|
|
|
2017
|
|
|
|
66,667
|
|
|
|
20,000
|
|
|
|
52,966
|
|
|
|
139,633
|
|
Chief Financial Officer
|
|
|
2016
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Giannone(3)
|
|
|
2017
|
|
|
|
112,500
|
|
|
|
0
|
|
|
|
0
|
|
|
|
112,500
|
|
Former Chief Financial Officer
|
|
|
2016
|
|
|
|
99,000
|
|
|
|
0
|
|
|
|
94,099
|
|
|
|
193,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Erwin
|
|
|
2017
|
|
|
|
230,0000
|
|
|
|
0
|
|
|
|
107,085
|
|
|
|
337,085
|
|
President
|
|
|
2016
|
|
|
|
230,000
|
|
|
|
0
|
|
|
|
470,495
|
|
|
|
700,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terence E. Ryan, Ph.D.
|
|
|
2017
|
|
|
|
200,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
200,000
|
|
Chief Scientific Officer
|
|
|
2016
|
|
|
|
200,000
|
|
|
|
0
|
|
|
|
62,733
|
|
|
|
262,733
|
|
|
(1)
|
Reflects the aggregate grant date fair value computed in
accordance with FASB ASC 718.
|
|
(2)
|
James P. Mullaney was appointed as the Company’s
Chief Financial Officer on March 1, 2017.
|
|
(3)
|
Mr. Giannone’s employment ended March 1, 2017.
|
Outstanding Equity Awards at Fiscal Year-End
The following table shows information regarding
unexercised stock options held by our named executive officers as of June 30, 2017.
Name
|
|
Unexercised
Options
|
|
|
Exercise
Price
|
|
|
Expiration
Date
|
|
Market
Value (1)
|
|
Robert Kay (2)
|
|
|
250,000
|
|
|
$
|
0.20
|
|
|
2/13/19
|
|
$
|
47,500
|
|
Robert Kay (2)
|
|
|
250,000
|
|
|
$
|
0.66
|
|
|
8/10/19
|
|
$
|
-
|
|
Robert Kay (2)
|
|
|
300,000
|
|
|
$
|
1.73
|
|
|
8/16/20
|
|
$
|
-
|
|
Robert Kay (3)
|
|
|
500,000
|
|
|
$
|
3.07
|
|
|
12/30/20
|
|
$
|
-
|
|
Robert Kay (3)
|
|
|
500,000
|
|
|
$
|
3.07
|
|
|
12/30/20
|
|
$
|
-
|
|
Robert Kay (4)
|
|
|
300,000
|
|
|
$
|
1.96
|
|
|
10/21/21
|
|
$
|
-
|
|
Robert Kay (4)
|
|
|
300,000
|
|
|
$
|
1.10
|
|
|
7/24/22
|
|
$
|
-
|
|
Robert Kay (4)
|
|
|
300,000
|
|
|
$
|
0.50
|
|
|
7/16/23
|
|
$
|
-
|
|
Robert Kay (5)
|
|
|
600,000
|
|
|
$
|
1.00
|
|
|
9/5/24
|
|
$
|
-
|
|
Robert Kay (5)
|
|
|
750,000
|
|
|
$
|
1.72
|
|
|
9/4/25
|
|
$
|
-
|
|
Robert Kay (5)
|
|
|
300,000
|
|
|
$
|
0.40
|
|
|
5/1/27
|
|
|
-
|
|
Robert Erwin (2)
|
|
|
250,000
|
|
|
$
|
0.20
|
|
|
2/13/19
|
|
$
|
47,500
|
|
Robert Erwin (2)
|
|
|
250,000
|
|
|
$
|
0.66
|
|
|
8/10/19
|
|
$
|
-
|
|
Robert Erwin (2)
|
|
|
300,000
|
|
|
$
|
1.73
|
|
|
8/16/20
|
|
$
|
-
|
|
Robert Erwin (4)
|
|
|
300,000
|
|
|
$
|
1.96
|
|
|
10/21/21
|
|
$
|
-
|
|
Robert Erwin (4)
|
|
|
300,000
|
|
|
$
|
1.10
|
|
|
7/24/22
|
|
$
|
-
|
|
Robert Erwin (4)
|
|
|
300,000
|
|
|
$
|
0.50
|
|
|
7/16/23
|
|
$
|
-
|
|
Robert Erwin (5)
|
|
|
600,000
|
|
|
$
|
1.00
|
|
|
9/5/24
|
|
$
|
-
|
|
Robert Erwin (5)
|
|
|
750,000
|
|
|
$
|
1.72
|
|
|
9/4/25
|
|
$
|
-
|
|
Robert Erwin (5)
|
|
|
300,000
|
|
|
$
|
0.40
|
|
|
5/1/27
|
|
|
-
|
|
Terence Ryan (6)
|
|
|
100,000
|
|
|
$
|
1.38
|
|
|
7/14/20
|
|
$
|
-
|
|
Terence Ryan (6)
|
|
|
100,000
|
|
|
$
|
1.96
|
|
|
10/21/21
|
|
$
|
-
|
|
Terence Ryan (5)
|
|
|
100,000
|
|
|
$
|
1.72
|
|
|
9/4/25
|
|
$
|
-
|
|
Mark Giannone (5)
|
|
|
100,000
|
|
|
$
|
0.58
|
|
|
1/24/24
|
|
$
|
-
|
|
Mark Giannone (5)
|
|
|
50,000
|
|
|
$
|
0.49
|
|
|
9/5/24
|
|
$
|
-
|
|
Mark Giannone (5)
|
|
|
150,000
|
|
|
$
|
1.72
|
|
|
9/4/25
|
|
$
|
-
|
|
James Mullaney (5)
|
|
|
150,000
|
|
|
$
|
0.40
|
|
|
3/1/27
|
|
|
-
|
|
|
(1)
|
The market value for each award is based upon the closing
stock price of $0.39 per share of common stock on June 30, 2017, less the exercise price of the option.
|
|
(2)
|
Options vested in five equal annual installments on the
anniversary date of grant. Options fully vested as of June 30, 2017.
|
|
(3)
|
Options vested on the vesting commencement date of the
grant. Options fully vested as of June 30, 2016.
|
|
(4)
|
Options vest in five equal annual installments on the anniversary
date of grant.
|
|
(5)
|
Options vest in three equal annual installments on the
anniversary date of grant.
|
|
(6)
|
Options vested in three equal annual installments on the
anniversary date of grant. Options fully vested as of June 30, 2017.
|
Employment Agreements
The Company and its Chief Financial Officer,
James P. Mullaney, entered into an employment offer letter, dated December 30, 2016. Pursuant to the offer letter, Mr. Mullaney
was offered an initial annual base salary of $200,000, which was increased to $240,000 in July 2017. He also received a sign-on
bonus of $20,000. He is entitled to participate as a member of senior management in any plan adjusting senior management compensation
that may be adopted by the Company, based on goals and objectives agreed, and on a formula approved by, the Company’s Board
of Directors. In addition, pursuant to the offer letter, Mr. Mullaney was awarded an initial option to purchase 150,000 shares
of the Company’s common stock. The option vests annually over three years. Mr. Mullaney is employed on an at-will basis.
As of June 30, 2017, we did not have any other employment contracts
or other similar agreements or arrangements with any of our named executive officers.
Equity Incentive Plan
On August 12, 2008, the Company adopted
the iBioPharma 2008 Omnibus Equity Incentive Plan (the “Plan”) for employees, officers, directors and external service
providers. In December 2013 our stockholders approved an amendment to the Plan to increase the number of shares of our common stock
authorized for issuance thereunder from 10 million shares to 15 million shares. Under the provisions of the Plan, the Company may
grant options to purchase stock and/or make awards of restricted stock up to an aggregate amount of 15 million shares. Stock options
granted under the Plan may be either incentive stock options (as defined by Section 422 of the internal Revenue Code of 1986, as
amended) or non-qualified stock options at the discretion of the board of directors. Vesting of awards occurs ratably on the anniversary
of the grant date over the service period as determined at the time of grant.
DIRECTOR
COMPENSATION
Compensation for our non-employee directors
has historically consisted of a grant of stock options vesting over a three-year period and additional cash compensation. We do
not have a fixed policy with respect to this compensation, but the compensation is generally equal for each non-employee director
except in cases where a director assumes additional responsibilities above and beyond standard board service. Directors who are
also our employees receive no additional compensation for their services as directors.
Director Compensation Table
The following table sets forth summary information concerning
the total compensation paid to our non-employee directors for services to the Company during the fiscal year ended June 30, 2017:
Name
|
|
Fees
Earned
or Paid
in Cash
|
|
|
Option
Awards(1)(2)
|
|
|
Total
|
|
General James T. Hill
|
|
$
|
27,496
|
|
|
$
|
60,000
|
|
|
$
|
87,496
|
|
Glenn Chang
|
|
|
15,000
|
|
|
|
60,000
|
|
|
|
75,000
|
|
John D. McKey
|
|
|
15,000
|
|
|
|
60,000
|
|
|
|
75,000
|
|
Philip K. Russell, M.D.
|
|
|
15,000
|
|
|
|
60,000
|
|
|
|
75,000
|
|
Arthur Elliot
|
|
|
15,000
|
|
|
|
60,000
|
|
|
|
75,000
|
|
Seymour Flug
|
|
|
15,000
|
|
|
|
60,000
|
|
|
|
75,000
|
|
|
|
|
102,496
|
|
|
|
360,000
|
|
|
|
462,496
|
|
|
(1)
|
Reflects the aggregate grant date fair value computed
in accordance with FASB ASC 718.
|
|
(2)
|
The aggregate number of stock options outstanding
for each non-employee director was as follows: Gen. Hill 550,000, Mr. Chang 650,000, Mr. McKey 650,000, Dr. Russell 460,000, Dr.
Elliott 460,000, and Mr. Flug 340,000.
|
CORPORATE
GOVERNANCE
Board Committees
Our board of directors has the authority to appoint committees
to perform certain management and administrative functions. Our board of directors has constituted audit, compensation and nominating
committees.
Nominating Committee and Nomination Process
The Nominating Committee was formed to
address general governance and policy oversight; succession planning; to identify qualified individuals to become prospective board
members and make recommendations regarding nominations for our board of directors; to advise the board with respect to appropriate
composition of board committees; to advise the board about and develop and recommend to the board appropriate corporate governance
documents and assist the board in implementing guidelines; to oversee the annual evaluation of the board and our chief executive
officer, and to perform such other functions as the board may assign to the committee from time to time. The Nominating Committee
has a charter which is available on our website at www.ibioinc.com. The Nominating Committee consists of three independent directors:
Arthur Y. Elliott, Ph.D., (Nominating Committee Chairman), Glenn Chang and General James T. Hill.
Our directors take a critical role in guiding
our strategic direction and oversee the management of our company. Board candidates are considered based upon various criteria,
such as their broad-based business and professional skills and experiences, a global business and social perspective, concern for
the long-term interests of our stockholders and personal integrity and judgment. In addition, directors must have time available
to devote to board activities and to enhance their knowledge of the life sciences industry. Accordingly, we seek to attract and
retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities.
Our board of directors believes given the
diverse skills and experience required to grow our company that the input of all members of the Nominating Committee is important
for considering the qualifications of individuals to serve as directors but does not have a diversity policy. Further, the Nominating
Committee believes that the minimum qualifications for serving as our director are that a nominee demonstrate, by significant accomplishment
in his or her field, an ability to make a meaningful contribution to the board’s oversight of our business and affairs of
and have an impeccable record and reputation for honest and ethical conduct in both his or her professional and personal activities.
Whenever a new seat or a vacated seat on the board is being filled, candidates that appear to best fit the needs of the board and
our company are identified and unless such individuals are well known to the board, they are interviewed and further evaluated
by the Nominating Committee. Candidates selected by the Nominating Committee are then recommended to the full board for their nomination
to stockholders. The Nominating Committee recommends a slate of directors for election at the annual meeting. In accordance with
NYSE American rules, the slate of nominees is approved by a majority of the independent directors.
In carrying out its responsibilities, our
board will consider candidates suggested by stockholders. If a stockholder wishes to formally place a candidate’s name in
nomination, however, he or she must do so in accordance with the provisions of our First Amended and Restated Bylaws. Suggestions
for candidates to be evaluated by the Nominating Committee must be sent to Secretary, iBio, Inc. 600 Madison Avenue, Suite 1601,
New York, NY 10022.
Audit Committee
The Audit Committee of the board of directors
makes recommendations regarding the retention of the independent registered public accounting firm, reviews the scope of the annual
audit undertaken by our independent registered public accounting firm and the progress and results of their work, reviews our financial
statements, and oversees the internal controls over financial reporting and corporate programs to ensure compliance with applicable
laws and regulations. The Audit Committee reviews all services performed for us by the independent registered public accounting
firm and determines whether they are compatible with maintaining the registered public accounting firm's independence. The Audit
Committee has a charter, which is reviewed annually and as may be required due to changes in industry accounting practices or the
promulgation of new rules or guidance documents. The Audit Committee charter is available on our website at www.ibioinc.com. The
Audit Committee consists of two independent directors as determined by NYSE American listing standards: Glenn Chang (Audit Committee
Chairman) and Seymour Flug. Mr. Chang and Mr. Flug are each qualified as an Audit Committee Financial Expert as defined in Regulation
S-K Item 407(d)(5)(ii).
Compensation Committee
The Compensation Committee of the Board
of Directors reviews and approves executive compensation policies and practices, reviews salaries and bonuses for our senior executive
officers, administers our equity incentive plan and other benefit plans, and considers other matters as may, from time to time,
be referred to them by our board of directors. The Compensation Committee has a charter which is available on our website at www.ibioinc.com.
The members of the Compensation Committee are General James T. Hill (Compensation Committee Chairman), Arthur Y. Elliott, Ph.D.
and Philip K. Russell, M.D.
Board Leadership Structure and Role in Risk Oversight
Our chief executive officer also serves
as the executive chairman of our board of directors. We do not have a lead independent director. Our executive chairman, when present,
presides over all meetings of our board. We believe this leadership structure is appropriate for our Company at this time because
(1) of our size, (2) of the size of our bard, (3) our chief executive officer is responsible for our day-to-day operation and implementing
our strategy, and (4) discussion of developments in our business and financial condition and results of operations are important
parts of the discussion at meetings of our board of directors and it makes sense for our chief executive officer to chair those
discussions.
Our board of directors oversees our risk
management. This oversight is administered primarily through the following:
|
·
|
Our board’s review and approval of our business
strategy, including the projected opportunities and challenges facing our business;
|
|
·
|
At least quarterly review of our business developments
and financial results;
|
|
·
|
Our Audit Committee’s oversight of our internal
controls over financial reporting and its discussions with management and the independent registered public accountants regarding
the quality and adequacy of our internal controls and financial reporting; and
|
|
·
|
Our board’s review and recommendations regarding
our executive officer compensation and its relationship to our business objectives and goals.
|
Meetings of the Board of Directors and Committees
During the fiscal year ended June 30, 2017,
the board of directors held four meetings in person or by telephone and acted by unanimous written consent on three occasions and
the Audit Committee held four meetings in person or by telephone. The Nominating Committee acted by unanimous written consent on
one occasion, and no meetings in person or by telephone were held by the Nominating Committee. No meetings in person or by telephone
were held and no actions were taken by the Compensation Committee as matters addressable by such committee were considered and
approved by the full board. Between meetings, members of the board of the directors are provided with information regarding our
operations and are consulted on an informal basis with respect to pending business. Each director attended at least 75% of the
aggregate of the total number of meetings of the board and the total number of meetings of the committees on which such director
serves.
Although we do not have a policy with regard
to board members’ attendance at our annual meetings of stockholders, all of the directors are encouraged to attend such meetings.
Stockholder Communications with the Board of Directors
Interested parties may communicate with
the board of directors or specific members of the board of directors, including the independent directors and the members of the
Audit Committee, by submitting correspondence addressed to the Board of Directors of iBio, Inc. c/o any specified individual director
or directors at 600 Madison Avenue, Suite 1601, New York, NY 10022. Any such correspondence will be forwarded to the indicated
directors.
Code of Ethics
We have adopted a written code of ethics
within the meaning of Item 406 of SEC Regulation S-K, which applies to all of our employees, including our principal executive
officer and our chief financial officer, a copy of which can be found on our website at www.ibioinc.com. If we make any waivers
or substantive amendments to the code of ethics that are applicable to our principal executive officer or our chief financial officer,
we will disclose the nature of such waiver or amendment in a Current Report on Form 8-K in a timely manner. No waivers from any
provision of our policy have been granted.
Available information about iBio
Previously filed SEC current reports, quarterly
reports, annual reports, and reports under Section 16(a) of the Securities Exchange Act of 1934 are available on our website at
www.ibioinc.com and in print for any stockholder upon written request to our Secretary.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is traded on NYSE American under the trading
symbol “IBIO.”
The following table sets forth the high and low sale prices
for our common stock during the years ended June 30, 2017 and 2016 as reported by the NYSE American. The quotations shown represent
inter-dealer prices without adjustment for retail markups, markdowns or commissions, and may not necessarily reflect actual transactions.
As of August 10, 2017, the closing price of our Common Stock was $0.31 as reported on NYSE American.
|
|
High
|
|
|
Low
|
|
Year ended June 30, 2017:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.75
|
|
|
$
|
0.53
|
|
Second Quarter
|
|
$
|
0.56
|
|
|
$
|
0.33
|
|
Third Quarter
|
|
$
|
0.56
|
|
|
$
|
0.37
|
|
Fourth Quarter
|
|
$
|
0.47
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2016:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.95
|
|
|
$
|
0.62
|
|
Second Quarter
|
|
$
|
0.71
|
|
|
$
|
0.55
|
|
Third Quarter
|
|
$
|
0.65
|
|
|
$
|
0.45
|
|
Fourth Quarter
|
|
$
|
0.74
|
|
|
$
|
0.56
|
|
Holders
As of August 10, 2017, there were 103 holders of record of our
common stock.
Dividends
We have never declared or paid any cash dividends on our common
stock.
Equity Compensation Plans
The following table provides information regarding the status
of our existing equity compensation plans at June 30, 2017
|
|
Number of
Shares of Common
Stock to be Issued Upon
Exercise
of Outstanding
Options
|
|
|
Weighted Average
Exercise
Price of Outstanding
Options and
Warrants
|
|
|
Number of Options
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected
in the previous columns)
|
|
Equity compensation plans approved by stockholders
|
|
|
13,698,334
|
|
|
$
|
1.21
|
|
|
|
1,301,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by stockholders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,698,334
|
|
|
$
|
1.21
|
|
|
|
1,301,666
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information
with respect to the beneficial ownership of our outstanding common stock as of August 10, 2017:
|
·
|
each person who is known by us to be the beneficial
owner of 5% or more of our outstanding common stock;
|
|
·
|
each of our directors including our chief executive
officer;
|
|
·
|
each of our other named executive officers; and
|
|
·
|
all of our current executive officers and directors
as a group.
|
Except as otherwise noted in the footnotes
below, to our knowledge, each of the persons named in this table has sole voting and investment power with respect to the securities
indicated as beneficially owned.
|
|
Number of
|
|
|
Percent of
|
|
|
|
Shares
|
|
|
Shares
|
|
Name and Address of Beneficial Owner(1)
|
|
Beneficially
|
|
|
Beneficially
|
|
5% Stockholders
|
|
Owned (2)
|
|
|
Owned(2)
|
|
|
|
|
|
|
|
|
Eastern Capital Limited
|
|
|
33,744,000
|
(3)
|
|
|
36.4
|
%
|
E. Gerald Kay
|
|
|
5,945,695
|
(4)
|
|
|
6.4
|
%
|
Carl DeSantis
|
|
|
5,014,873
|
(5)
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert B. Kay
|
|
|
4,770,962
|
(6)
|
|
|
4.9
|
%
|
Glenn Chang
|
|
|
468,817
|
(7)
|
|
|
0.5
|
%
|
Arthur Y. Elliott, Ph.D.
|
|
|
366,667
|
(8)
|
|
|
0.4
|
%
|
John McKey, Jr.
|
|
|
1,043,225
|
(9)
|
|
|
1.1
|
%
|
Seymour Flug
|
|
|
246,667
|
(8)
|
|
|
0.3
|
%
|
General James T. Hill
|
|
|
471,667
|
(10)
|
|
|
0.5
|
%
|
Philip K. Russell, M.D.
|
|
|
366,667
|
(8)
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
Other Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert L. Erwin
|
|
|
2,740,000
|
(8)
|
|
|
2.9
|
%
|
Terence E. Ryan, Ph.D.
|
|
|
266,667
|
(8)
|
|
|
0.3
|
%
|
James P. Mullaney(11)
|
|
|
-
|
|
|
|
|
|
Mark Giannone
|
|
|
9,248,001
|
(12)
|
|
|
0.2
|
%
|
All current directors and executive officers as a group (10 persons)
|
|
|
10,741,339
|
(13)
|
|
|
10.5
|
%
|
|
(1)
|
The address of Eastern Capital Limited (“Eastern”)
is Box 31363, Grand Cayman, E9 KY1 1206. The address of E. Gerald Kay is c/o Integrated BioPharma, Inc., 225 Long Avenue, Box
278, Hillside, New Jersey 07205. The address of Carl DeSantis is c/o CDS International Holdings, Inc., 3299 NW 2nd Avenue, Boca
Raton, FL 33431. The address of each of our directors and executive officers is c/o iBio, Inc., 600 Madison Avenue, Suite 1601,
New York, New York 10022-1737.
|
|
(2)
|
Beneficial ownership is determined in accordance with the
rules of the SEC and includes voting or investment power with respect to shares of our common stock. On August 10, 2017, there
were 92,818,510 shares of common stock outstanding. Shares of common stock issuable under stock options that are exercisable within
60 days after August 10, 2017 are deemed outstanding and are included for purposes of computing the number of shares owned and
percentage ownership of the person holding the option but are not deemed outstanding for computing the percentage ownership of
any other person.
|
|
(3)
|
Consists of 33,744,000 shares of common stock. This information
is based solely on information set forth in a Schedule 13D/A Amendment No. 8 filed with the SEC on February 27, 2017 by Kenneth
B. Dart.
|
|
(4)
|
Consists of 5,945,695 shares of common stock. This information
is based solely on information set for forth in a Schedule 13D filed with the SEC on June 13, 2013 by E. Gerald Kay and EGK, LLC.
The number of shares of common stock beneficially owned by these entities may have changed since the filing of the Schedule 13D.
|
|
(5)
|
Consists of 5,014,873 shares of common stock. This information
is based solely on information set forth in a Schedule 13D/A Amendment No. 3 filed with the SEC on November 18, 2014 by Carl DeSantis,
the DeSantis Revocable Trust, and CD Financial LLC.
|
|
(6)
|
Includes (i) 211,333 shares of common stock, (ii) 819,629
shares of common stock held by EVJ LLC, of which Mr. Kay is the manager, and (iii) 3,740,000 shares of common stock underlying
vested stock options held by Mr. Kay.
|
|
(7)
|
Includes (i) 12,150 shares of common stock and (ii) 456,817
shares of common stock underlying vested stock options.
|
|
(8)
|
All shares listed are shares of common stock underlying
vested stock options.
|
|
(9)
|
Includes (i) 486,558 shares of common stock and (ii) 556,667
shares of common stock underlying vested stock options.
|
|
(10)
|
Includes (i) 15,000 shares of common stock and (ii) 456,667
shares of common stock underlying vested stock options.
|
|
(11)
|
James P. Mullaney was appointed Chief Financial Officer
of the Company on March 1, 2017. Pursuant to an offer letter between the Company and Mr. Mullaney, dated December 30,
2016, Mr. Mullaney has been granted an initial option to purchase 150,000 shares of the Company’s common stock, which has
not yet vested. The option will vest annually over three years.
|
|
(12)
|
Includes (i) 22,834 shares of common stock and (ii) 150,000
shares of common stock underlying vested stock options. Mr. Giannone’s employment ended March 1, 2017.
|
|
(13)
|
Includes 9,196,819 shares of common stock underlying vested
stock options.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Director Independence
Our board of directors has determined that
Messrs. Chang, Flug and McKey, Drs. Elliott and Russell and General Hill are each “independent directors” as such term
is defined in Section 803 of the New York Stock Exchange MKT Company Guide.
Policies and Procedures for Related
Person Transactions
The policy our board of directors is to
review with management and our independent registered public accounting firm any related party transactions brought to the board’s
attention which could reasonably be expected to have a material impact on our financial statements. The Company’s practice
is for management to present to the board of directors each proposed related party transaction, including all relevant facts and
circumstances relating thereto, and to update the board of directors as to any material changes to any approved related party transaction.
In connection with this requirement, each of the transactions or relationships disclosed below were disclosed to and approved by
our board of directors. In addition, transactions involving our directors and their affiliated entities were disclosed and reviewed
by our board of directors in its assessment of our directors’ independence requirements.
Transactions with Eastern Capital Limited
and its Affiliates
On January 13, 2016, we entered into a
share purchase agreement with Eastern Capital Limited (“Eastern”), our largest stockholder, which was amended as of
February 25, 2016 (as amended, the “6.5M Purchase Agreement”). Pursuant to the 6.5M Purchase Agreement, Eastern agreed
to purchase 6,500,000 shares of our common stock (the “Eastern Shares”), for a purchase price of $0.622 per share,
subject to the approval of our stockholders. Our stockholders approved the issuance of such shares at our 2015 Annual Meeting.
On the same day that we entered into the
6.5M Purchase Agreement, we also entered into a separate share purchase agreement pursuant to which Eastern agreed to purchase
3,500,000 shares of our common stock (the “3.5M Purchase Agreement”) for a purchase price of $0.622 per share (the
“3.5M Purchase Agreement” and together with the 6.5M Purchase Agreement, the “Purchase Agreements”). Stockholder
approval was not required for the issuance of the 3,500,000 shares of our common stock pursuant to the 3.5M Purchase Agreement
and the sale of those shares was completed on January 25, 2016.
Simultaneously with the issuance of shares
under the 3.5M Purchase Agreement, Eastern exercised warrants, dated April 26, 2013, which Eastern acquired previously, to purchase
1,784,000 shares of common stock for a purchase price of $0.53 per share.
Concurrently with the execution of the
Purchase Agreements, we entered into a contract manufacturing joint venture with affiliates of Eastern to develop and manufacture
plant-made pharmaceuticals through iBio’s recently formed subsidiary, iBio CMO LLC (“iBio CMO”). Bryan Capital
Investors LLC (“Bryan Capital Investors”), an affiliate of Eastern, 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. 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 technology, including
the iBioLaunch technology, for research purposes and an exclusive U.S. license for manufacturing purposes. iBio retains all other
rights in its intellectual property, including the rights to commercialize products based on its proprietary technology. On February
23, 2017, we entered into an Exchange Agreement with Bryan Capital Investors, pursuant to which we issued to Bryan Capital Investors
one share of our iBio CMO Preferred Tracking Stock, par value $0.001 per share, in exchange for 29,990,000 units of limited liability
company interests of iBio CMO held by Bryan Capital Investors. After giving effect to the transactions contemplated in the Exchange
Agreement, we own 99.99% of iBio CMO and Bryan Capital Investors owns 0.01% of iBio CMO. iBio has the right to appoint a majority
of the members of the Board of Managers that manages the iBio CMO joint venture. Specified material actions by the joint venture
require the consent of iBio and Bryan Capital Investors.
In connection with the joint venture, an
affiliate of Eastern (the “Eastern Affiliate”), which controls the subject property as sublandlord, granted iBio CMO
a 34-year sublease of a 139,000 square foot 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. iBio CMO began operations at the facility on December 22,
2015 pursuant to agreements between iBio CMO and the 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 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 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. In addition to the base rent, iBio CMO is required to pay, for each calendar year during the term,
a portion of the total gross sales for products manufactured or processed at the facility, equal to 7% of the first $5,000,000
of gross sales, 6% of gross sales between $5,000,001 and $25,000,000, 5% of gross sales between $25,000,001 and $50,000,000, 4%
of gross sales between $50,000,001 and $100,000,000, and 3% of gross sales between $100,000,001 and $500,000,000. However, if for
any calendar year period from January 1, 2018 through December 31, 2019, iBio CMO’s applicable gross sales are less than
$5,000,000, or for any calendar year period from and after January 1, 2020, its applicable gross sales are less than $10,000,000,
then iBio CMO is required to pay the amount that would have been payable if it had achieved such minimum gross sales and shall
pay no less than the applicable percentage for the minimum gross sales for each subsequent calendar year. iBio CMO is responsible
for all costs and expenses in connection with the ownership, management, operation, replacement, maintenance and repair of the
property under the Sublease. General and administrative expenses related to the Eastern Affiliate were approximately $565,000 in
2016. Interest expense incurred under the capital lease obligation amounted to $807,000 in 2016.
As part of the transactions between Eastern
and the Company, Eastern entered into a three year standstill agreement (the “Standstill Agreement”) that restricts
additional acquisitions of our common stock by Eastern and its controlled affiliates to limit its beneficial ownership of our outstanding
shares of common stock to a maximum of 38%, absent approval by a majority of our Board of Directors. With respect to the Standstill
Agreement, our Board of Directors, acting unanimously, invited Bryan Capital Investors to enter into the Exchange Agreement described
above and approved the issuance of one share of our Preferred Tracking Stock to Bryan Capital Investors.
Eastern does not have a right to appoint
a director designee or any other special rights with respect to our management and affairs aside from its ability to vote the shares
of common stock that it owns as it determines. Eastern has not been granted any board, management or special voting rights in connection
with the transactions contemplated in the Purchase Agreements.
Research and Development Services Vendor
In January 2012, the Company entered into
an agreement with Novici Biotech, LLC (“Novici”) in which iBio’s President is a minority stockholder. Novici
performs platform technology development services for iBio, including laboratory feasibility analyses of gene expression, protein
purification and preparation of research samples. The transaction has been conducted on an arm’s length basis at market terms.
The accounts payable balance includes amounts due to Novici of approximately $200,000 and $153,000 at June 30, 2016 and 2015, respectively.
Research and development expenses related to Novici were approximately $1,036,000 and $995,000 for the years ended June 30, 2016
and 2015, respectively.
Operating Lease with Minority Stockholder
Effective January 1, 2015, the Company
is leasing office space on a month-to-month basis from an entity owned by a minority stockholder of the Company for approximately
$7,500 per month.
Limitation of Liability of Officers
and Directors and Indemnification
Our certificate of incorporation, as amended,
provides for indemnification of our officers and directors to the extent permitted by Delaware law, which generally permits indemnification
for actions taken by officers or directors as our representatives if the officer or director acted in good faith and in a manner
he or she reasonably believed to be in the best interest of the corporation.
As permitted under Delaware law, the By-laws
contain a provision indemnifying directors against expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with an action, suit or proceeding if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best interests of our Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful.
Historical Relationship with Integrated
BioPharma, Inc.
We were a subsidiary of Integrated BioPharma,
Inc. (“Integrated BioPharma”) from February 21, 2003 until August 18, 2008. On that date, Integrated BioPharma spun
off iBio in a transaction that was intended to be a tax free distribution to Integrated BioPharma and its U.S. stockholders. As
part of that transaction, we entered into a number of agreements with Integrated BioPharma including an indemnification and insurance
matters agreement and a tax responsibility allocation agreement. Messrs. E. Gerald Kay and Carl DeSantis, affiliates of Integrated
BioPharma, were in 2008 and continue to remain beneficial holders of more than 5% of our common stock. The agreements are described
below.
Indemnification.
In general, under
the indemnification and insurance matters agreement, we agreed to indemnify Integrated BioPharma, its affiliates and each of its
and their respective directors, officers, employees, agents and representatives from all liabilities that arise from:
|
·
|
any breach by us of the separation and distribution agreement or any ancillary agreement;
|
|
·
|
any of our liabilities reflected on our consolidated balance sheets included in the information
statement relating to the spin-off;
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our assets or businesses;
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the management or conduct of our assets or businesses;
|
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·
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the liabilities allocated to or assumed by us under the separation and distribution agreement,
the indemnification and insurance matters agreement or any of the other ancillary agreements;
|
|
·
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various on-going litigation matters in which we are named defendant, including any new claims asserted
in connection with those litigations, and any other past or future actions or claims based on similar claims, facts, circumstances
or events, whether involving the same parties or similar parties, subject to specific exceptions;
|
|
·
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claims that are based on any violations or alleged violations of U.S. or foreign securities laws
in connection with transactions arising after the distribution relating to our securities and the disclosure of financial and other
information and data by us or the disclosure by Integrated BioPharma as part of the distribution of our financial information or
our confidential information; or
|
|
·
|
any actions or claims based on violations or alleged violations of securities or other laws by
us or our directors, officers, employees, agents or representatives, or breaches or alleged breaches of fiduciary duty by our board
of directors, any committee of our board or any of its members, or any of our officers or employees.
|
Integrated BioPharma agreed to indemnify
us and our affiliates and our directors, officers, employees, agents and representatives from all liabilities that arise from:
|
·
|
any breach by Integrated BioPharma of the separation and distribution agreement or any ancillary
agreement;
|
|
·
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any liabilities allocated to or to be retained or assumed by Integrated BioPharma under the separation
and distribution agreement, the indemnification and insurance matters agreement or any other ancillary agreement;
|
|
·
|
liabilities incurred by Integrated BioPharma in connection with the management or conduct of Integrated
BioPharma’s businesses; and
|
|
·
|
various ongoing litigation matters to which we are not a party.
|
Integrated BioPharma is not obligated to
indemnify us against any liability for which we are also obligated to indemnify Integrated BioPharma. Recoveries by Integrated
BioPharma under insurance policies will reduce the amount of indemnification due from us to Integrated BioPharma only if the recoveries
are under insurance policies Integrated BioPharma maintains for our benefit. Recoveries by us will in all cases reduce the amount
of any indemnification due from Integrated BioPharma to us.
Under the indemnification and insurance
matters agreement, a party has the right to control the defense of third-party claims for which it is obligated to provide indemnification,
except that Integrated BioPharma has the right to control the defense of any third-party claim or series of related third- party
claims in which it is named as a party whether or not it is obligated to provide indemnification in connection with the claim and
any third-party claim for which Integrated BioPharma and we may both be obligated to provide indemnification. We may not assume
the control of the defense of any claim unless we acknowledge that if the claim is adversely determined, we will indemnify Integrated
BioPharma in respect of all liabilities relating to that claim. The indemnification and insurance matters agreement does not apply
to taxes covered by the tax responsibility allocation agreement.
Offset
. Integrated BioPharma is
permitted to reduce amounts it owes us under any of our agreements with Integrated BioPharma, by amounts we may owe to Integrated
BioPharma under those agreements.
Assignment.
We may not assign or
transfer any part of the indemnification and insurance agreement without Integrated BioPharma’s prior written consent. Nothing
contained in the agreement restricts the transfer of the agreement by Integrated BioPharma.
Tax Responsibility Allocation Agreement
In order to allocate our responsibilities
for taxes and certain other tax matters, we and Integrated BioPharma entered into a tax responsibility allocation agreement prior
to the date of the distribution. Under the terms of the agreement, with respect to consolidated federal income taxes, and consolidated,
combined and unitary state income taxes, Integrated BioPharma will be responsible for, and will indemnify and hold us harmless
from, any liability for income taxes with respect to taxable periods or portions of periods ending prior to the date of distribution
to the extent these amounts exceed the amounts we have paid to Integrated BioPharma prior to the distribution or in connection
with the filing of relevant tax returns. Integrated BioPharma is also responsible for, and will indemnify and hold us harmless
from, any liability for income taxes of Integrated BioPharma or any member of the Integrated BioPharma group (other than us) by
reason of our being severally liable for those taxes under U.S. Treasury regulations or analogous state or local provisions. Under
the terms of the agreement, with respect to consolidated federal income taxes, and consolidated, combined and unitary state income
taxes, we are responsible for, and will indemnify and hold Integrated BioPharma harmless from, any liability for our income taxes
for all taxable periods, whether before or after the distribution date. With respect to separate state income taxes, we are also
responsible for, and will indemnify and hold Integrated BioPharma harmless from, any liability for income taxes with respect to
taxable periods or portions of periods beginning on or after the distribution date. We are also responsible for, and will indemnify
and hold Integrated BioPharma harmless from, any liability for our non-income taxes and our breach of any obligation or covenant
under the terms of the tax responsibility allocation agreement, and in certain other circumstances as provided therein. In addition
to the allocation of liability for our taxes, the terms of the agreement also provide for other tax matters, including tax refunds,
returns and audits.
LEGAL PROCEEDINGS
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. 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, 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 was entitled
to receive a technology transfer from Fraunhofer. Fraunhofer’s motion to dismiss iBio’s contract claims
was denied by the Court on February 24, 2017. The Court at that time also granted, over Fraunhofer’s opposition,
iBio’s motion to supplement and amend the Complaint to add additional state law claims against Fraunhofer. Fraunhofer
has argued that the Settlement Agreement entered into between Fraunhofer and the Company in 2013, described under “Business-
Strategic Alliances and Collaborations-
Collaboration with Fraunhofer
Center for Molecular Biology,” constituted a general release and barred the Company’s claims. The Court has not accepted
this argument, but the Settlement Agreement did modify certain disputed amounts and prospective obligations of the Company under
the then existing agreements with Fraunhofer. The parties have 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 final hearing was held on April 24, 2017. On May 3, 2017, the Court entered
a Final Order and Judgment approving the settlement and dismissing the action. The settlement was funded by the Company’s
insurance carriers.
DESCRIPTION
OF SECURITIES
Capital Stock
We are authorized to issue 175,000,000
shares of common stock, par value $0.001 per share, of which 92,818,510 shares were issued and outstanding as of August 10, 2017,
and 1,000,000 shares of preferred stock, no par value, one of which is designated as iBio CMO Preferred Tracking Stock, par value,
$0.001. As of March 31, 2017, one share of iBio CMO Preferred Tracking Stock is issued and outstanding and no other shares of preferred
stock are outstanding.
Provisions of our certificate of incorporation,
bylaws and provisions of applicable Delaware law may discourage, delay or prevent a merger or other change in control that a stockholder
may consider favorable. Pursuant to our certificate of incorporation, our Board of Directors may issue additional shares of common
or preferred stock. Any additional issuance of common stock could have the effect of impeding or discouraging the acquisition of
control of us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders
would receive a premium over the market price for their shares, and thereby protect the continuity of our management. Specifically,
if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal was not
in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions
that might prevent or render more difficult or costly the completion of the takeover by:
• Diluting
the voting or other rights of the proposed acquirer or insurgent stockholder group,
• Putting
a substantial voting block in institutional or other hands that might undertake to support the incumbent Board of Directors, or
• Effecting
an acquisition that might complicate or preclude the takeover.
Our certificate of incorporation also allows
our Board of Directors to fix the number of directors in the by-laws. Cumulative voting in the election of directors is specifically
denied in our certificate of incorporation. The effect of these provisions may be to delay or prevent a tender offer or takeover
attempt that a stockholder may determine to be in his, her or its best interest, including attempts that might result in a premium
over the market price for the shares held by the stockholders.
Common Stock
Holders of common stock are entitled to
one vote per share on all matters to be voted upon by the stockholders and are not entitled to cumulative voting for the election
of directors. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor subject to the rights of preferred stockholders. We do not intend
to pay any cash dividends to the holders of common stock and anticipate reinvesting our earnings. In the event of liquidation,
dissolution or winding up of our company, the holders of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the preferences of preferred stockholders. Shares of common stock have no preemptive, conversion or
other subscription rights. There are no redemption or sinking fund provisions applicable to common stock.
Preferred Stock
We are authorized to issue 1,000,000 shares
of preferred stock, with no par value, and the Board of Directors is authorized to create one or more series of preferred stock,
and to designate the rights, privileges, restrictions, preferences and limitations of any given series of preferred stock. Accordingly,
the Board of Directors may, without stockholder approval, issue shares of preferred stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other rights of the holders of common stock.
On February 23, 2017, our Board of Directors
created a series of preferred stock, designated as the “iBio CMO Preferred Tracking Stock,” par value $0.001 per share
(the “Preferred Tracking Stock”), out of the our 1,000,000 authorized shares of preferred stock. On February 23, 2017,
we filed with the Secretary of State of the State of Delaware a certificate of designation (the “Certificate of Designation”)
which became effective on February 23, 2017, authorizing one share of Preferred Tracking Stock and establishing the designation,
powers, preferences and rights of the Preferred Tracking Stock. The Preferred Tracking Stock accrues dividends at the rate of 2%
per annum on the original issue price of $13 million per share. The holders of Preferred Tracking Stock, voting separately as a
class, are entitled to approve by the affirmative vote of a majority of the shares of Preferred Tracking Stock outstanding any
amendment, alteration or repeal of any of the provisions of, or any other change to, our Certificate of Incorporation or the Certificate
of Designation that adversely affects the rights, powers or privileges of the Preferred Tracking Stock, any increase in the number
of authorized shares of Preferred Tracking Stock, the issuance or sale of any additional shares of Preferred Tracking Stock or
any securities convertible into or exercisable or exchangeable for Preferred Tracking Stock, the creation or issuance of any shares
of any additional class or series of capital stock unless the same ranks junior to the Preferred Tracking Stock, or the reclassification
or alteration of any of our existing securities that are junior to or pari passu with the Preferred Tracking Stock, if such reclassification
or alteration would render such other security senior to the Preferred Tracking Stock. Except as required by applicable law, the
holders of Preferred Tracking Stock have no other voting rights. Accrued dividends are payable if and when declared by the Board
of Directors, upon an exchange of the shares of Preferred Tracking Stock and upon a liquidation, winding up or deemed liquidation
(such as a merger) of the Company. No dividend may be declared or paid or set aside for payment or other distribution declared
or made upon our common stock and no common stock may be redeemed, purchased or otherwise acquired for any consideration by us
unless all accrued dividends on all outstanding shares of Preferred Tracking Stock are paid in full.
At our election or the election of holders
of a majority outstanding shares of Preferred Tracking Stock, each outstanding share of Preferred Tracking Stock may be exchanged
for 29,990,000 units of limited liability company interests of iBio CMO. Such exchange may be effected only after March 31, 2018,
or in connection with a winding up, liquidation or deemed liquidation (such as a merger) of the Company or iBio CMO. In addition,
such exchange will take effect upon a change in control of iBio CMO.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Certificate of Incorporation will provide
for indemnification of our officers and directors to the extent permitted by Delaware law, which generally permits indemnification
for actions taken by officers or directors as our representatives if the officer or director acted in good faith and in a manner
he or she reasonably believed to be in the best interest of the corporation.
As permitted under Delaware law, our By-laws
contain a provision indemnifying directors against expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with an action, suit or proceeding if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best interests of our company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful.
The separation and distribution agreement
that we have entered into with Integrated BioPharma provides for indemnification by us of Integrated BioPharma and its directors,
officers and employees for some liabilities, including liabilities under the Securities Act and the Securities Exchange Act of
1934 in connection with the distribution, and a mutual indemnification of each other for product liability claims arising from
their respective businesses, and also requires that we indemnify Integrated BioPharma for various liabilities of iBio, and for
any tax that may be imposed with respect to the distribution and which result from our actions or omissions in that regard.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
PLAN OF
DISTRIBUTION
The common stock offered by this prospectus
is being offered by the selling stockholder, Lincoln Park. The common stock may be sold or distributed from time to time by the
selling stockholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents
at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. The sale of the common stock offered by this prospectus could be effected in one or more of
the following methods:
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·
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ordinary brokers’ transactions;
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|
·
|
transactions involving cross or block trades;
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|
·
|
through brokers, dealers, or underwriters who may act solely as agents;
|
|
·
|
“at the market” into an existing market for the common stock;
|
|
·
|
in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected
through agents;
|
|
·
|
in privately negotiated transactions; or
|
|
·
|
any combination of the foregoing.
|
In order to comply with the securities
laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition,
in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption
from the state’s registration or qualification requirement is available and complied with.
Lincoln Park is an “underwriter”
within the meaning of Section 2(a)(11) of the Securities Act.
Lincoln Park has informed us that it intends
to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant
to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current
market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities
Act. Lincoln Park has informed us that each such broker-dealer will receive commissions from Lincoln Park that will not exceed
customary brokerage commissions.
Brokers, dealers, underwriters or agents
participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions
from the selling stockholder and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation
paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor Lincoln Park can presently
estimate the amount of compensation that any agent will receive.
We know of no existing arrangements between
Lincoln Park or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares
offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed
that will set forth the names of any agents, underwriters or dealers and any compensation from the selling stockholder, and any
other required information.
We will pay the expenses incident to the
registration, offering, and sale of the shares to Lincoln Park. We have agreed to indemnify Lincoln Park and certain other persons
against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising
under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Lincoln Park has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information
furnished to us by Lincoln Park specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts
required to be paid in respect of such liabilities.
Lincoln Park has represented to us that
at no time prior to the Purchase Agreement has Lincoln Park or its agents, representatives or affiliates engaged in or effected,
in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the
Exchange Act) of our common stock or any hedging transaction, which establishes a net short position with respect to our common
stock. Lincoln Park agreed that during the term of the Purchase Agreement, it, its agents, representatives or affiliates will not
enter into or effect, directly or indirectly, any of the foregoing transactions.
We have advised Lincoln Park that it is
required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling
stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price
of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities
offered by this prospectus.
This offering will terminate on the date
that all shares offered by this prospectus have been sold by Lincoln Park.
Our common stock is quoted on NYSE American
under the symbol “IBIO”.
LEGAL MATTERS
The legality of the securities offered hereby
has been passed on for us by Andrew Abramowitz, PLLC, New York, New York.
EXPERTS
The financial statements of iBio, Inc.
(formerly iBioPharma, Inc.) as of June 30, 2016 and June 30, 2015, and for the years then ended, included in this prospectus and
the registration statement of which this prospectus is a part, have been so included in reliance on the audit report of CohnReznick
LLP, an independent registered public accounting firm, included in this prospectus and the registration statement of which this
prospectus is a part, given the authority of that firm as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a Registration
Statement on Form S-1 under the Securities Act covering the sale of the securities offered by this prospectus. This prospectus,
which is a part of the Registration Statement, does not contain all of the information in the Registration Statement and the exhibits
filed with it, portions of which have been omitted as permitted by the SEC rules and regulations. For further information concerning
us and the securities offered by this prospectus, please refer to the Registration Statement and to the exhibits filed therewith.
The Registration
Statement, including all exhibits, and other materials that we filed with the SEC may be inspected without charge at the SEC’s
Public Reference Room at the SEC’s principal office at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. You may
obtain information on the operation of this public reference room by calling 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC and state the address of that site (http://www.sec.gov). The Registration Statement, including all exhibits and schedules
and amendments, has been filed with the SEC through the Electronic Data Gathering Analysis and Retrieval system and is available
to the public from the SEC’s web site at
http://www.sec.gov
.
INDEX TO FINANCIAL INFORMATION
Annual Financial Statements
iBio, Inc.
Financial Statement Index
Report of Independent Registered Public Accounting
Firm
The Board of Directors and
Stockholders of iBio, Inc.
We have audited the accompanying consolidated
balance sheets of iBio, Inc. and Subsidiaries (the “Company”) as of June 30, 2016 and 2015, and the related consolidated
statements of operations and comprehensive loss, stockholders’ equity and cash flows for the years then ended. The Company’s
management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of iBio, Inc. and Subsidiaries as
of June 30, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ CohnReznick LLP
Roseland, New Jersey
October 13, 2016
iBio, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, except share and per share amounts)
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
23,014
|
|
|
$
|
9,494
|
|
Accounts receivable - trade
|
|
|
484
|
|
|
|
445
|
|
Accounts receivable - unbilled
|
|
|
122
|
|
|
|
-
|
|
Work in process
|
|
|
22
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
264
|
|
|
|
182
|
|
Total current assets
|
|
|
23,906
|
|
|
|
10,121
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation
|
|
|
25,574
|
|
|
|
13
|
|
Intangible assets, net of accumulated amortization
|
|
|
2,092
|
|
|
|
2,360
|
|
Security deposit
|
|
|
28
|
|
|
|
-
|
|
Total Assets
|
|
$
|
51,600
|
|
|
$
|
12,494
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable (related party of $200 and $153 as of June 30, 2016 and 2015, respectively)
|
|
$
|
1,177
|
|
|
$
|
1,104
|
|
Accrued expenses (related party of $623 and $0 as of June 30, 2016 and 2015, respectively)
|
|
|
920
|
|
|
|
159
|
|
Capital lease obligation - current portion
|
|
|
170
|
|
|
|
-
|
|
Deferred revenue
|
|
|
24
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
2,291
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation - net of current portion
|
|
|
25,265
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
27,556
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
iBio, Inc. Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock - no par value; 1,000,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.001 par value; 175,000,000 shares authorized; 89,109,410 and 77,205,410 shares issued and outstanding as of June 30, 2016 and 2015, respectively
|
|
|
89
|
|
|
|
77
|
|
Additional paid-in capital
|
|
|
67,468
|
|
|
|
59,006
|
|
Accumulated other comprehensive loss
|
|
|
(29
|
)
|
|
|
(25
|
)
|
Accumulated deficit
|
|
|
(57,591
|
)
|
|
|
(47,827
|
)
|
Total iBio, Inc. Stockholders’ Equity
|
|
|
9,937
|
|
|
|
11,231
|
|
Noncontrolling interest
|
|
|
14,107
|
|
|
|
-
|
|
Total Equity
|
|
|
24,044
|
|
|
|
11,231
|
|
Total Liabilities and Equity
|
|
$
|
51,600
|
|
|
$
|
12,494
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Operations and
Comprehensive Loss
(In Thousands, except per share amounts)
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
948
|
|
|
$
|
1,851
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development (related party of $1,036 and $995), net of $65 in grant income
|
|
|
3,156
|
|
|
|
3,495
|
|
General and administrative (related party of $565 and $0)
|
|
|
7,685
|
|
|
|
5,022
|
|
Total operating expenses
|
|
|
10,841
|
|
|
|
8,517
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(9,893
|
)
|
|
|
(6,666
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense (related party of $807 and $0)
|
|
|
(807
|
)
|
|
|
-
|
|
Interest income
|
|
|
22
|
|
|
|
9
|
|
Royalty income
|
|
|
21
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(764
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
|
(10,657
|
)
|
|
|
(6,625
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
893
|
|
|
|
-
|
|
Net loss attributable to iBio, Inc.
|
|
$
|
(9,764
|
)
|
|
$
|
(6,625
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(10,657
|
)
|
|
$
|
(6,625
|
)
|
Other comprehensive loss - foreign currency translation adjustments
|
|
|
(4
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(10,661
|
)
|
|
$
|
(6,650
|
)
|
|
|
|
|
|
|
|
|
|
Loss per common share attributable to iBio, Inc. stockholders - basic and diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic and diluted
|
|
|
80,973
|
|
|
|
71,495
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Stockholders’
Equity
Years Ended June 30, 2016 and 2015
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
65,642
|
|
|
$
|
66
|
|
|
$
|
47,235
|
|
|
$
|
-
|
|
|
$
|
(41,202
|
)
|
|
$
|
-
|
|
|
$
|
6,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
8,769
|
|
|
|
9
|
|
|
|
9,991
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment fee
|
|
|
-
|
|
|
|
-
|
|
|
|
1,132
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1,663
|
|
|
|
1
|
|
|
|
866
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,625
|
)
|
|
|
-
|
|
|
|
(6,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
77,206
|
|
|
$
|
77
|
|
|
$
|
59,006
|
|
|
$
|
(25
|
)
|
|
$
|
(47,827
|
)
|
|
$
|
-
|
|
|
$
|
11,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
77,206
|
|
|
$
|
77
|
|
|
$
|
59,006
|
|
|
$
|
(25
|
)
|
|
$
|
(47,827
|
)
|
|
$
|
-
|
|
|
$
|
11,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution - noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
10
|
|
|
|
6,210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
1,904
|
|
|
|
2
|
|
|
|
1,007
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,245
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,764
|
)
|
|
|
(893
|
)
|
|
|
(10,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
89,110
|
|
|
$
|
89
|
|
|
$
|
67,468
|
|
|
$
|
(29
|
)
|
|
$
|
(57,591
|
)
|
|
$
|
14,107
|
|
|
$
|
24,044
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,657
|
)
|
|
$
|
(6,625
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
1,245
|
|
|
|
914
|
|
Amortization of intangible assets
|
|
|
363
|
|
|
|
358
|
|
Depreciation
|
|
|
577
|
|
|
|
5
|
|
Loss on abandonment of intangible assets
|
|
|
33
|
|
|
|
48
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable – trade
|
|
|
(39
|
)
|
|
|
(240
|
)
|
Accounts receivable – unbilled
|
|
|
(122
|
)
|
|
|
-
|
|
Work in process
|
|
|
(22
|
)
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
(82
|
)
|
|
|
(64
|
)
|
Security deposit
|
|
|
(28
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
(125
|
)
|
|
|
806
|
|
Accrued expenses
|
|
|
761
|
|
|
|
73
|
|
Deferred revenue
|
|
|
24
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,072
|
)
|
|
|
(4,725
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to intangible assets
|
|
|
-
|
|
|
|
(202
|
)
|
Purchases of fixed assets
|
|
|
(68
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(68
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
6,220
|
|
|
|
10,000
|
|
Proceeds from exercise of warrants
|
|
|
1,009
|
|
|
|
867
|
|
Capital contribution – noncontrolling interest
|
|
|
15,000
|
|
|
|
-
|
|
Payment of capital lease obligation
|
|
|
(565
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
21,664
|
|
|
|
10,867
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
(4
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
13,520
|
|
|
|
5,904
|
|
Cash - beginning of year
|
|
|
9,494
|
|
|
|
3,590
|
|
Cash - end of year
|
|
$
|
23,014
|
|
|
$
|
9,494
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash activities:
|
|
|
|
|
|
|
|
|
Purchases of fixed assets financed by capital lease
|
|
$
|
26,000
|
|
|
$
|
-
|
|
Unpaid intangible assets included in accounts payable – net
|
|
$
|
129
|
|
|
$
|
-
|
|
Unpaid intangible assets included in accrued expenses – net
|
|
$
|
-
|
|
|
$
|
(12
|
)
|
Unpaid fixed assets included in accounts payable
|
|
$
|
71
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
485
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
iBio, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
iBio, Inc. and Subsidiaries (“iBio”
or the “Company”) is a biotechnology company focused on the commercialization of its proprietary plant-based protein
expression technologies for vaccines and therapeutic proteins and on developing and commercializing select biopharmaceutical product
candidates. The advantages of iBio’s technology include reduced production time, capital and operating costs for biopharmaceuticals
and the ability to manufacture therapeutic proteins that are difficult or commercially infeasible to produce with conventional
methods.
iBio was established as a public company in
August 2008 as the result of a spinoff from Integrated BioPharma, Inc. The Company operates in one business segment under the direction
of its Executive Chairman. The Company’s wholly-owned and majority-owned subsidiaries are as follows:
iBioDefense Biologics LLC (“iBioDefense”)
– iBioDefense, a wholly-owned subsidiary, is a Delaware limited liability company formed in July 2013 to explore development
and commercialization of defense-specific applications of the Company’s proprietary technology. iBioDefense did not commence
any business activities and was dissolved on June 10, 2016.
iBio Peptide Therapeutics LLC (“iBio
Peptide”) – iBio Peptide, a wholly-owned subsidiary, is a Delaware limited liability company formed in November 2013.
iBio Peptide did not commence any business activities and was dissolved on June 9, 2016.
iBIO DO BRASIL BIOFARMACÊUTICA LTDA.
(“iBio Brazil”) – iBio Brazil is a subsidiary organized in Brazil in which the Company has a 99% interest. iBio
Brazil was formed to manage and expand the Company’s business activities in Brazil. The activities of iBio Brazil are intended
to include coordination and expansion of the Company’s existing relationship with Fundacao Oswaldo Cruz/Fiocruz (“Fiocruz”)
beyond the current Yellow Fever Vaccine program (see Note 8) and development of additional products with private sector participants
for the Brazilian market. iBio Brazil commenced operations during the first quarter of the fiscal year ended June 30, 2015.
iBio Manufacturing LLC (“iBio Manufacturing”)
– iBio Manufacturing, a wholly-owned subsidiary, is a Delaware limited liability company formed in November 2015. iBio Manufacturing
has not commenced any activities to date.
iBio CMO LLC (“iBio CMO”) –
iBio CMO is a Delaware limited liability company formed on December 16, 2015 to develop and manufacture plant-made pharmaceuticals.
As of December 31, 2015, the Company owned 100% of iBio CMO. On January 13, 2016, the Company entered into a contract manufacturing
joint venture with an affiliate of Eastern Capital Limited (“Eastern”), a stockholder of the Company (the “Eastern
Affiliate”). The Eastern Affiliate contributed $15 million in cash for a 30% interest in iBio CMO. The Company retained a
70% interest in iBio CMO and contributed a royalty bearing license which grants iBio CMO a non-exclusive license to use the Company’s
proprietary technologies for research purposes and an exclusive U.S. license for manufacturing purposes. The Company retained the
exclusive right to grant product licenses to those who wish to sell or distribute products made using the Company’s technologies.
iBio CMO’s operations take place in Bryan,
Texas in a facility controlled by another affiliate of Eastern (the “Second Eastern Affiliate”) as sublandlord. The
facility is a 139,000 square foot Class A life sciences building on the campus of Texas A&M University, designed and equipped
for plant-made manufacture of biopharmaceuticals. The Second Affiliate granted iBio CMO a 34-year sublease for the facility as
well as certain equipment (see Note 10). Commercial operations commenced in January 2016. iBio CMO expects to operate on the basis
of three parallel lines of business: (1) Development and manufacturing of third party products; (2) Development and production
of iBio’s proprietary product(s) for treatment of fibrotic diseases; and (3) Commercial technology transfer services.
Liquidity
The Company’s primary sources of liquidity
are cash on hand and cash available from the sale of common stock of the Company. At this time, cash flows from operating activities
represent net outflows for operating expenses and expenses for technology and product development. As of June 30, 2016, the Company
had $23.0 million in cash on hand which is expected to support the Company’s activities through June 30, 2017.
Since its spin-off from Integrated BioPharma,
Inc. in August 2008, the Company has incurred significant losses and negative cash flows from operations. As of June 30, 2016,
the Company’s accumulated deficit was $57.6 million, and it had cash used in operating activities of $8.1 million and $4.7
million for the years ended June 30, 2016 and 2015, respectively. The Company has historically financed its activities through
the sale of common stock and warrants. Through June 30, 2016, the Company has dedicated most of its financial resources to investing
in its iBioLaunch™ and iBioModulator™ platforms, its proprietary candidates for treatment of fibrotic diseases, advancing
its intellectual property, and general and administrative activities.
On May 15, 2015, the Company entered into a
common stock purchase agreement with Aspire Capital Fund, LLC (“Aspire Capital”) pursuant to which the Company has
the option to require Aspire Capital, upon and subject to the terms of the agreement, to purchase up to $15 million of its common
stock, over a three-year term.
No shares have been sold under the 2015 Facility as of the date of
the filing of this report. See Note 11 for a further description of the agreement.
Coincident with the entry into the iBio CMO
joint venture, Eastern agreed to acquire 10 million shares of the Company's common stock at $0.622 per share. The closing for the
sale of 3,500,000 of such shares occurred on January 25, 2016. The sale of the remaining 6,500,000 shares occurred on April 13,
2016. In addition, Eastern agreed to, and on January 25, 2016 did, exercise warrants it previously acquired to purchase 1,784,000
shares of the Company's common stock at $0.53 per share. As of the date of the filing of this report, the Company has received
$15 million for the capitalization of iBio CMO and approximately $7.2 million from Eastern for the acquisition of 10 million shares
of common stock and the exercise of the warrants. See Note 11 for a further description of the transactions.
The Company plans to fund its future business
operations using cash on hand, through proceeds from the sale of additional equity or other securities, including sales of common
stock to Aspire Capital pursuant to the common stock purchase agreement entered into on May 15, 2015, and through proceeds realized
in connection with license and collaboration arrangements. The Company cannot be certain that such funding will be available on
favorable terms or available at all. To the extent that the Company raises additional funds by issuing equity securities, its stockholders
may experience significant dilution.
The Company's financial statements were prepared
under the assumption that the Company will continue as a going concern. If the Company is unable to raise funds when required or
on favorable terms, this assumption may no longer be operative, and the Company may have to: a) significantly delay, scale back,
or discontinue the product application and/or commercialization of its proprietary technologies; b) seek collaborators for its
technology and product candidates on terms that are less favorable than might otherwise be available; c) relinquish or otherwise
dispose of rights to technologies, product candidates, or products that it would otherwise seek to develop or commercialize; or
d) possibly cease operations.
|
3.
|
Summary of Significant Accounting Policies
|
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated as part of the
consolidation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management
to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
These estimates include the valuation of intellectual property, legal and contractual contingencies and share-based compensation.
Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable
under the circumstances, actual results could differ from these estimates.
Accounts Receivable
Accounts receivable are reported at their outstanding
unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables
based on management's estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate.
The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible.
At June 30, 2016 and 2015, the Company determined that an allowance for doubtful accounts was not needed.
Revenue Recognition
The Company recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured.
Deferred revenue represents billings to a customer to whom the services have not yet been provided.
The Company’s contract revenue consists
primarily of amounts earned under contracts with third-party customers and reimbursed expenses under such contracts. The Company
analyzes its agreements to determine whether the elements can be separated and accounted for individually or as a single unit of
accounting in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
605-25, “
Revenue Arrangements with Multiple Deliverables
,” and Staff Accounting Bulletin 104, “
Revenue
Recognition
.” Allocation of revenue to individual elements that qualify for separate accounting is based on the separate
selling prices determined for each component, and total contract consideration is then allocated pro rata across the components
of the arrangement. If separate selling prices are not available, the Company will use its best estimate of such selling prices,
consistent with the overall pricing strategy and after consideration of relevant market factors. For the years ended June 30, 2016
and 2015, the Company did not have any revenue arrangements with multiple deliverables.
The Company generates (or may generate in the
future) contract revenue under the following types of contracts:
Fixed-Fee
Under a fixed-fee contract, the Company charges
a fixed agreed upon amount for a deliverable. Fixed-fee contracts have fixed deliverables upon completion of the project. Typically,
the Company recognizes revenue for fixed-fee contracts after projects are completed, delivery is made and title transfers to the
customer, and collection is reasonably assured.
Time and Materials
Under a time and materials contract, the Company
charges customers an hourly rate plus reimbursement for other project specific costs. The Company recognizes revenue for time and
material contracts based on the number of hours devoted to the project multiplied by the customer’s billing rate plus other
project specific costs incurred.
Grant Income
Grants are recognized as income when all conditions
of such grants are fulfilled or there is a reasonable assurance that they will be fulfilled. Grant income is classified as a reduction
of research and development expenses. In 2016, grant income amounted to approximately $65,000. No grant income was recognized in
2015.
Work in Process
Work in process consists primarily of the cost
of labor and other overhead incurred on contracts that have not been completed as of June 30, 2016.
Research and Development
The Company accounts for research and development
costs in accordance with the FASB ASC 730-10, “
Research and Development
” (“ASC 730-10”). Under
ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development
costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed
or as milestone results have been achieved.
Fixed Assets
Fixed assets are stated at cost net of accumulated
depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from
three to fifteen years.
Assets held under the terms of capital leases
are included in fixed assets and are depreciated on a straight-line basis over the terms of the leases or the economic lives of
the assets. Obligations for future lease payments under capital leases are shown within liabilities and are analyzed between amounts
falling due within and after one year (see Note 10).
Intangible Assets
The Company accounts for intangible assets
at their historical cost and records amortization utilizing the straight-line method based upon their estimated useful lives. Patents
are amortized over a period of ten years and other intellectual property is amortized over a period from 16 to 23 years. The Company
reviews the carrying value of its intangible assets for impairment whenever events or changes in business circumstances indicate
the carrying amount of such assets may not be fully recoverable. Evaluating for impairment requires judgment, and recoverability
is assessed by comparing the projected undiscounted net cash flows of the assets over the remaining useful life to the carrying
amount. Impairments, if any, are based on the excess of the carrying amount over the fair value of the assets. There were no impairment
charges for the years ended June 30, 2016 and 2015.
Derivative Instruments
The Company does not use derivative instruments
in its ordinary course of business.
In connection with the issuances of debt and/or
equity instruments, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options
or warrants may be classified as liabilities rather than as equity. In addition, the debt and/or equity instrument may contain
embedded derivative instruments, such as conversion options or anti-dilution features, which in certain circumstances may be required
to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company
accounts for derivative liability instruments under the provisions of FASB ASC 815, “
Derivatives and Hedging
.”
There are no options or warrants of the Company
presently outstanding that require accounting as a derivative liability.
Foreign Currency
The Company accounts for foreign currency
translation pursuant to FASB ASC 830, “
Foreign Currency Matters.
” The functional currency of iBio Brazil is
the Brazilian Real. Under FASB ASC 830, all assets and liabilities are translated into United States dollars using the current
exchange rate at the end of each fiscal period. Revenues and expenses are translated using the average exchange rates prevailing
throughout the respective periods. All transaction gains and losses from the measurement of monetary balance sheet items denominated
in Reals are reflected in the statement of operations as appropriate. Translation adjustments are included in accumulated other
comprehensive loss.
Share-based Compensation
The Company recognizes the cost of all share-based
payment transactions at fair value. Compensation cost, measured by the fair value of the equity instruments issued, adjusted for
estimated forfeitures, is recognized in the financial statements as the respective awards are earned over the performance period.
The Company uses historical data to estimate forfeiture rates.
The impact that share-based payment awards
will have on the Company’s results of operations is a function of the number of shares awarded, the trading price of the
Company’s stock at the date of grant or modification, and the vesting schedule. Furthermore, the application of the Black-Scholes
option pricing model employs weighted-average assumptions for expected volatility of the Company’s stock, expected term until
exercise of the options, the risk-free interest rate, and dividends, if any, to determine fair value. Expected volatility is based
on historical volatility of the Company’s common stock; the expected term until exercise represents the weighted-average
period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s
historical exercise patterns; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
grant for periods corresponding with the expected life of the option. The Company has not paid any dividends since its inception
and does not anticipate paying any dividends for the foreseeable future, so the dividend yield is assumed to be zero.
Income Taxes
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect of a change
in tax rates or laws on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment
date of the rate change. A valuation allowance is established to reduce the deferred tax assets to the amounts that are more likely
than not to be realized from operations.
Tax benefits of uncertain tax positions are
recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return.
The Company has no liability for uncertain tax positions as of June 30, 2016 and 2015. Interest and penalties, if any, related
to unrecognized tax benefits would be recognized as income tax expense. The Company does not have any accrued interest or penalties
associated with unrecognized tax benefits, nor was any significant interest expense recognized during the years ended June 30,
2016 and 2015.
|
4.
|
New Accounting Pronouncements
|
In May 2014, ASU No. 2014-09, “
Revenue
from Contracts with Customers
” (“ASU 2014-09”) was issued. The amendments in ASU 2014-09 affect any entity
that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial
assets unless contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede
the revenue recognition requirements in ASC 605, “
Revenue Recognition
,” and most industry-specific guidance.
The core principle of the guidance is that
an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle,
an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations
in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the
performance obligations in the contract.
Step 5: Recognize revenue when (or as) the
entity satisfies a performance obligation.
ASU 2014-09 was scheduled to be effective for
annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application
is not permitted. In August 2015, the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers (Topic 606): Deferral
of Effective Date”
(“ASU 2015-14”) which defers the effective date of ASU 2014-09 by one year. ASU 2014-09
is now effective for annual reporting periods after December 15, 2017 including interim periods within that reporting period.
Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting
periods within that reporting period. The Company is currently evaluating the effects of adopting ASU 2014-09 on its consolidated
financial statements.
Effective January 1, 2016, the Company adopted
ASU 2014-12, “
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be
Achieved after the Requisite Service Period
” (“ASU No. 2014-12”). ASU No. 2014-12 requires that
a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance
condition. An entity should recognize compensation cost in the period in which it becomes probable that the performance target
will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already
been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the
remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total
amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are
expected to vest and should be adjusted to reflect those awards that ultimately vest. ASU 2014-12 became effective for interim
and annual periods beginning on or after December 15, 2015. The adoption of ASU 2014-12 did not have a significant impact on the
Company’s consolidated financial statements.
In June 2014, ASU
2014-15, “
Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern
” (“ASU No. 2014-15”) was issued. Before the
issuance of ASU 2014-15, there was no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is
substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. This
guidance is expected to reduce the diversity in the timing and content of footnote disclosures. ASU 2014-15 requires management
to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that
are currently in U.S. auditing standards as specified in the guidance. ASU 2014-15 becomes effective for the annual period ending
after December 15, 2016 (year ended June 30, 2017 for the Company) and for annual and interim periods thereafter. Early adoption
is permitted. The Company is currently evaluating the effects of adopting ASU 2014-15 on its consolidated financial statements
but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.
Effective January 1, 2016, the Company adopted
ASU 2015-01, “
Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation
by Eliminating the Concept of Extraordinary Items”
(“ASU 2015-01”). ASU 2015-01 eliminates the concept of
an extraordinary item from accounting principles generally accepted in the United States of America. As a result, an entity will
no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary
item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share
data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items
that are unusual in nature and occur infrequently. ASU 2015-01 became effective for interim and annual periods beginning on or
after December 15, 2015. The adoption of ASU 2015-01 did not have a significant impact on the Company’s consolidated financial
statements.
In April 2015, the FASB issued ASU 2015-03,
“
Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
”
(“ASU 2015-03”) as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative).
The FASB received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount
and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different
from the guidance in International Financial Reporting Standards, which requires that transaction costs be deducted from the carrying
value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance
costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, “
Elements of Financial Statements
,”
which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing
the effective interest rate. FASB Concepts Statement No. 6 further states that debt issuance costs cannot be an asset because they
provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in this update require that
debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs
are not affected by the amendments in this update. For public business entities, the amendments in this update are effective for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.
The Company will evaluate the effects of adopting ASU 2015-03 if and when it is deemed to be applicable.
In November 2015, the FASB issued ASU 2015-17,
“
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
” (“ASU 2015-17”). ASU
2015-17 requires deferred tax assets and liabilities to be classified as noncurrent in the consolidated balance sheet. ASU 2015-17
becomes effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted.
A reporting entity should apply the amendment prospectively or retrospectively. The Company is currently evaluating the effects
of adopting ASU 2015-17 on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
“
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities
” (“ASU 2016-01”). The amendments require all equity investments to be measured at fair value
with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting
or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit
risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial
instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured
at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost
on the balance sheet for public business entities. This guidance is effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The Company will evaluate the effects of adopting ASU 2016-01 if and when
it is deemed to be applicable.
In February 2016, the FASB issued ASU 2016-02,
“
Leases (Topic 842)
” (“ASU 2016-02”) which supersedes existing guidance on accounting for leases
in “
Leases (Topic 840)
.” The standard requires lessees to recognize the assets and liabilities that arise
from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease payments (the
lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new
guidance is effective for annual reporting periods beginning after December 15, 2018 (fiscal year ended June 30, 2020 for the Company)
and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period presented
using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting
period. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “
Improvements
to Employee Share-Based Payment Accounting
” (“ASU 2016-09”). ASU 2016-09 affects entities that issue share-based
payment awards to their employees. ASU 2016-09 is designed to simplify several aspects of accounting for share-based payment award
transactions which include – the income tax consequences, classification of awards as either equity or liabilities, classification
on the statement of cash flows and forfeiture rate calculations. This guidance is effective for annual periods beginning after
December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-09
on its consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10,
“
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
” (“ASU
2016-10”) related to identifying performance obligations and licensing. ASU 2016-10 is meant to clarify the guidance in FASB
ASU 2014- 09, “
Revenue from Contracts with Customers
.” Specifically, ASU 2016-10 addresses an entity’s
identification of its performance obligations in a contract, as well as an entity’s evaluation of the nature of its promise
to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. The
pronouncement has the same effective date as the new revenue standard, which is effective for fiscal years, and for interim periods
within those fiscal years, beginning after December 15, 2017. The Company is currently evaluating the impact of ASU 2016-10 on
its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12,
"
Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients
" ("ASU
2016-12"). The amendments in ASU 2016-12 affect the guidance in ASU 2014-09 by clarifying certain specific aspects of the
guidance, including assessment of collectability, treatment of sales taxes and contract modifications, and providing certain technical
corrections. ASU 2016-12 will have the same effective date and transition requirements as ASU 2014-09. The Company is currently
evaluating the impact of ASU 2016-12 on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
“
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
” (“ASU
2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified
in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard
will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply
the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact
of ASU 2016-15 on its consolidated financial statements.
Management does not believe that any other
recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying
consolidated financial statements.
|
5.
|
Financial Instruments and Fair Value Measurement
|
The carrying values of cash, accounts receivable,
prepaid expenses and other current assets, accounts payable and accrued expenses in the Company's consolidated balance sheets approximated
their fair values as of June 30, 2016 and 2015 due to their short-term nature. The carrying value of the capital lease obligation
approximated its fair value at June 30, 2016 as the interest rate used to discount the lease payments approximated market.
iBio CMO is leasing its facility in Bryan,
Texas as well as certain equipment from the Second Affiliate under a 34-year sublease. See Note 10 for more details of the terms
of the sublease.
The economic substance of the sublease
is that the Company is financing the acquisition of the facility and equipment and, accordingly, the facility and equipment are
recorded as assets and the lease is recorded as a liability. As the sublease involves real estate and equipment, the Company separated
the equipment component and accounted for the facility and equipment as if each was leased separately.
The following table summarizes by category
the gross carrying value and accumulated depreciation of fixed assets (in thousands):
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Facility under capital lease
|
|
$
|
20,000
|
|
|
$
|
-
|
|
Equipment under capital lease
|
|
|
6,000
|
|
|
|
-
|
|
Facility improvements
|
|
|
42
|
|
|
|
-
|
|
Office equipment and software
|
|
|
137
|
|
|
|
40
|
|
|
|
|
26,179
|
|
|
|
40
|
|
Accumulated depreciation – assets under capital lease
|
|
|
(571
|
)
|
|
|
-
|
|
Accumulated depreciation – other
|
|
|
(34
|
)
|
|
|
(27
|
)
|
|
|
|
(605
|
)
|
|
|
(27
|
)
|
Net fixed assets
|
|
$
|
25,574
|
|
|
$
|
13
|
|
Depreciation expense was approximately $577,000
and $4,600 in 2016 and 2015, respectively. Depreciation of the assets under the capital lease amounted to approximately $571,000
in 2016.
The Company has two categories of intangible
assets – intellectual property and patents. Intellectual property consists of all technology, know-how, data, and protocols
for producing targeted proteins in plants and related to any products and product formulations for pharmaceutical uses and for
other applications. Intellectual property includes, but is not limited to, certain technology for the development and manufacture
of novel vaccines and therapeutics for humans and certain veterinary applications acquired in December 2003 from Fraunhofer USA
Inc., acting through its Center for Molecular Biotechnology (“Fraunhofer”), pursuant to a Technology Transfer Agreement,
as amended (the “TTA”). The Company designates such technology acquired from Fraunhofer as iBioLaunch technology or
as iBioModulator technology. The value attributed to Patents owned or controlled by the Company is based on payments for services
and fees related to the further development and protection of the Company’s patent portfolio.
In January 2014, the Company entered into a
license agreement with a U.S. university whereby iBio acquired exclusive worldwide rights to certain issued and pending patents
covering specific candidate products for the treatment of fibrosis (the “Licensed Technology”). The license agreement
provides for payment by the Company of a license issue fee, annual license maintenance fees, reimbursement of prior patent costs
incurred by the university, payment of a milestone payment upon regulatory approval for sale of a first product, and annual royalties
on product sales. In addition, the Company has agreed to meet certain diligence milestones related to product development benchmarks.
As part of its commitment to the diligence milestones, the Company successfully commenced production of a plant-made peptide comprising
the Licensed Technology before March 31, 2014. The next milestone – filing a New Drug Application with the FDA or foreign
equivalent covering the Licensed Technology (“IND”) – became due on December 1, 2015. A six-month extension was
automatically granted until June 1, 2016 under the license agreement. On August 11, 2016, the agreement was amended and replaced
the original milestone schedule to provide that the IND filing be accomplished by June 30, 2017.
The following table summarizes by category
the gross carrying value and accumulated amortization of intangible assets (in thousands):
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Intellectual property – gross carrying value
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
Patents – gross carrying value
|
|
|
2,265
|
|
|
|
2,181
|
|
|
|
|
5,365
|
|
|
|
5,281
|
|
Intellectual property – accumulated amortization
|
|
|
(1,932
|
)
|
|
|
(1,776
|
)
|
Patents – accumulated amortization
|
|
|
(1,341
|
)
|
|
|
(1,145
|
)
|
|
|
|
(3,273
|
)
|
|
|
(2,921
|
)
|
Net intangible assets
|
|
$
|
2,092
|
|
|
$
|
2,360
|
|
Amortization expense, included in general and
administrative expenses, was approximately $363,000 and $358,000 for 2016 and 2015. In addition, in 2016 and 2015, the Company
incurred losses on the abandonment of patents of approximately $33,000 and $48,000, respectively. The weighted-average remaining
life for intellectual property and patents at June 30, 2016 was approximately 7.5 years and 6.6 years, respectively. The estimated
annual amortization expense for the next five years and thereafter is as follows (in thousands):
For the Year Ending
June 30,
|
|
|
|
2017
|
|
$
|
345
|
|
2018
|
|
|
327
|
|
2019
|
|
|
297
|
|
2020
|
|
|
265
|
|
2021
|
|
|
244
|
|
Thereafter
|
|
|
614
|
|
Total
|
|
$
|
2,092
|
|
Fraunhofer
Fraunhofer was the Company’s most
significant vendor solely on the basis of the three-party Yellow Fever vaccine development program among Fiocruz/Bio-Manguinhos,
the Company, and Fraunhofer (described in greater detail below). The accounts payable balance under this three-party agreement
includes amounts due Fraunhofer of approximately $341,000 and $445,000 as of June 30, 2016 and 2015, respectively, and accrued
expenses of $122,000 and $0 as of June 30, 2016 and 2015, respectively. See Note 16 – Commitments and Contingencies.
On January 4, 2011, the Company entered
into the Collaboration and License Agreement (the “CLA”) which is a three party agreement involving the Company, Fraunhofer
and Fiocruz, a public entity, member of the Indirect Federal Public Administration and linked to the Health Ministry of Brazil,
acting through its unit Bio-Manguinhos. The CLA provides for the development of a Yellow Fever vaccine to be manufactured and distributed
within Latin America and Africa by Fiocruz. The CLA was supplemented by a bilateral agreement between iBio and Fraunhofer dated
December 27, 2010 in which the Company engaged Fraunhofer as a contractor to provide the research and development services (both,
together, the “Agreement”). The services are billed to Fiocruz at Fraunhofer’s cost, so the Company’s revenue
is equivalent to expense and there is no profit.
On June 12, 2014, Fiocruz, Fraunhofer and iBio
executed an amendment to the CLA (the “Amended Agreement”) which provides for revised research and development, work
plans, reporting, objectives, estimated budget, and project billing process. In 2016 and 2015, under the Amended Agreement, the
Company recognized revenue of $758,000 and $1,851,000, respectively, for work performed for Fiocruz pursuant to the Amended Agreement
by the Company’s subcontractor, Fraunhofer, and recognized research and development expenses of the same amount due Fraunhofer
for that work.
In September 2013,
the Company and Fraunhofer completed the Terms of Settlement for the TTA Seventh Amendment (the “Settlement Agreement”).
Under the terms of the Settlement Agreement various contractual obligations existing at June 30, 2013 were released, terminated
or modified. See Note 16 - Commitments and Contingencies for significant modifications.
On March 17, 2015, the Company filed a
Verified Complaint in the Court of Chancery of the State of Delaware against Fraunhofer and Vidadi Yusibov, Fraunhofer's Executive
Director. See Note 16 - Lawsuits for additional information.
Novici Biotech, LLC
In January 2012, the Company entered into an
agreement with Novici Biotech, LLC (“Novici”) in which iBio’s President is a minority stockholder. Novici performs
laboratory feasibility analyses of gene expression, protein purification and preparation of research samples. In addition, the
Company and Novici collaborate on the development of new technologies and product candidates for exclusive worldwide commercial
use by the Company. The accounts payable balance includes amounts due to Novici of approximately $200,000 and $153,000 at June
30, 2016 and 2015, respectively. Research and development expenses related to Novici were approximately $1,036,000 and $995,000
in 2016 and 2015, respectively.
Accrued expenses consist of the following (in
thousands):
|
|
June 30,
2016
|
|
|
June 30,
2015
|
|
Interest – related party (see Note 14)
|
|
$
|
323
|
|
|
$
|
-
|
|
Rent and real estate taxes – related party (see Note 14)
|
|
|
300
|
|
|
|
-
|
|
Research and development
|
|
|
122
|
|
|
|
-
|
|
Salaries and benefits
|
|
|
55
|
|
|
|
39
|
|
Facility expenses
|
|
|
53
|
|
|
|
-
|
|
Stock exchange fees
|
|
|
-
|
|
|
|
65
|
|
Other accrued expenses
|
|
|
67
|
|
|
|
55
|
|
Total accrued expenses
|
|
$
|
920
|
|
|
$
|
159
|
|
|
10.
|
Capital Lease Obligation
|
As discussed above, iBio CMO is leasing its
facility in Bryan, Texas as well as certain equipment from the Second Affiliate under a 34-year sublease. iBio CMO began operations
at the facility on December 22, 2015 pursuant to agreements between iBio CMO and the Second Affiliate granting iBio CMO temporary
rights to access the facility. These temporary agreements were superseded by the Sublease Agreement, dated January 13, 2016, between
iBio CMO and the Second Affiliate (the “sublease”). The 34-year term of the sublease may be extended by iBio CMO for
a ten-year period, so long as iBio CMO is not in default under the sublease. Under the sublease, iBio CMO is required to pay base
rent at an annual rate of $2,100,000, paid in equal quarterly installments on the first day of each February, May, August and November.
The base rent is subject to increase annually in accordance with increases in the Consumer Price Index. The base rent under the
Second Affiliate’s ground lease for the property is subject to adjustment, based on an appraisal of the property, in 2030
and upon any extension of the ground lease. The base rent under the sublease will be increased by any increase in the base rent
under the ground lease as a result of such adjustments. iBio CMO is also responsible for all costs and expenses in connection with
the ownership, management, operation, replacement, maintenance and repair of the property under the sublease.
In addition to the base rent, iBio CMO is required
to pay, for each calendar year during the term, a portion of the total gross sales for products manufactured or processed at the
facility, equal to 7% of the first $5,000,000 of gross sales, 6% of gross sales between $5,000,001 and $25,000,000, 5% of gross
sales between $25,000,001 and $50,000,000, 4% of gross sales between $50,000,001 and $100,000,000, and 3% of gross sales between
$100,000,001 and $500,000,000. However, if for any calendar year period from January 1, 2018 through December 31, 2019, iBio CMO’s
applicable gross sales are less than $5,000,000, or for any calendar year period from and after January 1, 2020, its applicable
gross sales are less than $10,000,000, then iBio CMO is required to pay the amount that would have been payable if it had achieved
such minimum gross sales and shall pay no less than the applicable percentage for the minimum gross sales for each subsequent calendar
year. Percentage rent amounted to $27,000 in 2016.
Interest expense incurred under the capital
lease obligation amounted to $807,000 and $0 in 2016 and 2015, respectively.
Future minimum payments under the capitalized
lease obligations are due as follows:
Year Ending:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2017
|
|
$
|
169,818
|
|
|
$
|
1,930,182
|
|
|
$
|
2,100,000
|
|
2018
|
|
|
183,110
|
|
|
|
1,916,890
|
|
|
|
2,100,000
|
|
2019
|
|
|
197,443
|
|
|
|
1,902,557
|
|
|
|
2,100,000
|
|
2020
|
|
|
212,898
|
|
|
|
1,887,102
|
|
|
|
2,100,000
|
|
2021
|
|
|
229,562
|
|
|
|
1,870,438
|
|
|
|
2,100,000
|
|
Thereafter
|
|
|
24,441,676
|
|
|
|
35,933,324
|
|
|
|
60,375,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
25,434,507
|
|
|
$
|
45,440,493
|
|
|
$
|
70,875,000
|
|
Less: current portion
|
|
|
(169,818
|
)
|
|
|
|
|
|
|
|
|
Long-term portion of minimum lease obligations
|
|
$
|
25,264,689
|
|
|
|
|
|
|
|
|
|
Preferred Stock
The Company’s Board of Directors is authorized
to issue, at any time, without further stockholder approval, up to 1 million shares of preferred stock. The Board of Directors
has the authority to fix and determine the voting rights, rights of redemption and other rights and preferences of preferred stock.
As of June 30, 2016 and 2015, there were no shares of preferred stock issued and outstanding.
Common Stock
As of June 30, 2016 and 2015, the Company was
authorized to issue up to 175 million shares of common stock. As of June 30, 2016, the Company had reserved up to 15 million
shares of common stock for incentive compensation (stock options and restricted stock). No shares are reserved for the exercise
of warrants.
Issuances of common stock were as follows:
Aspire Capital – 2014 Facility
On August 25, 2014, the Company entered into
a common stock purchase agreement with Aspire Capital Fund, which provided that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital was committed to purchase up to an aggregate of $10.0 million of shares of the Company’s
common stock over the approximately 24-month term of the purchase agreement. As of April 28, 2015, Aspire Capital fulfilled its
commitment to purchase $10.0 million of the Company’s common stock under the agreement.
In consideration for entering into the purchase
agreement, following the approval of the issuance of the shares by NYSE MKT, Aspire Capital received a commitment fee of $300,000
– 3% of the $10 million commitment – payable in 681,818 shares of the Company’s common stock priced at $0.44
per share, the closing price on the day preceding execution of the agreement. In addition, on September 19, 2014 following approval
of the issuance of the shares by NYSE MKT, Aspire Capital purchased 1,136,354 shares of common stock at $0.44 per share for $500,000
pursuant to the terms of the purchase agreement.
Concurrently with entering into the purchase
agreement, the Company also entered into a registration rights agreement with Aspire Capital, in which the Company agreed to file
one or more registration statements as permissible and necessary to register under the Securities Act of 1933, as amended, the
sale of shares of the Company’s common stock under the purchase agreement.
After the Securities and Exchange Commission
declared effective the registration statement, on any trading day on which the closing sale price of the Company’s common
stock exceeded the “Floor Price” of $0.44 (the closing sale price of the Company’s shares on the business day
before the Company entered into the purchase agreement with Aspire Capital), the Company had the right, in its sole discretion,
to present Aspire Capital with a purchase notice, directing Aspire Capital (as principal) to purchase up to 150,000 shares of common
stock per trading day, provided that the aggregate price of such purchase did not exceed $500,000 per trading day, up to an additional
$9.5 million of common stock in the aggregate at a per share price equal to the lesser of the lowest sale price of common stock
on the purchase date, or the arithmetic average of the three lowest closing sale prices of common stock during the ten consecutive
trading days ending on the trading day immediately preceding the purchase date.
In addition, on any date on which the Company
submitted a purchase notice to Aspire Capital in an amount equal to 150,000 shares of common stock and the closing sale price of
common stock was equal to or greater than the Floor Price of $0.44, the Company also had the right, in its sole discretion, to
present Aspire Capital with a volume-weighted average price (“VWAP”) purchase notice directing Aspire Capital to purchase
an amount of stock equal to up to 30% of the aggregate shares of the Company’s common stock traded on the NYSE MTK on the
next trading day, subject to a maximum number of shares determined by the Company, and a minimum trading price equal to the greater
of (a) 80% of the closing price of common stock on the business day immediately preceding the date of the VWAP purchase, or (b)
such higher price as set forth by the Company in the notice for the VWAP purchase. The purchase price per share pursuant to such
VWAP purchase notice was the lower of (i) the closing sale price on the date of sale and (ii) 97% of the volume-weighted average
price for common stock traded on the NYSE MKT on (i) the date of the VWAP purchase if the aggregate stock to be purchased on that
date did not exceed the volume maximum stated in the Company’s notice for the VWAP purchase, or (ii) the portion of such
business day until such time as aggregate stock to be purchased equaled the volume maximum stated in the Company’s notice
or the time at which the sale of the stock fell below the minimum trading price described above.
The purchase agreement provided that the Company
and Aspire Capital could not effect any sales under the purchase agreement on any purchase date where the closing sale price of
common stock is less than $0.44 (the closing sale price of shares on the business day before the Company entered into the purchase
agreement referred to as the “Floor Price”). A lower Floor Price of $0.20 per share of Common Stock applied, if the
Company’s stockholders approved the transaction contemplated by the Purchase Agreement. The Company was under no obligation
to request our stockholders to approve the transaction contemplated by the Purchase Agreement. However, the purchase price for
any purchases of shares under the purchase agreement could not be less than $0.44 per share, unless stockholder approval was obtained.
There were no trading volume requirements or restrictions under the purchase agreement with Aspire Capital, and the Company controlled
the timing and amount of any sales of our common stock to Aspire Capital. Aspire Capital had no right to require any sales by the
Company, but was obligated to make purchases from the Company as directed in accordance with the purchase agreement. There were
no limitations on use of proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation
rights, penalties or liquidated damages in the purchase agreement.
Aspire Capital purchased 8,768,806
shares of common stock for $10,000,000 pursuant to the terms of the purchase agreement, fulfilling its commitment to purchase $10.0
million of the Company’s common stock under the agreement.
Aspire Capital – 2015 Facility
On May 15, 2015,
the Company entered into a common stock purchase agreement (the “2015 Aspire Purchase Agreement”) with Aspire Capital,
pursuant to which the Company has the option to require Aspire Capital to purchase up to an aggregate of $15.0 million of shares
of the Company’s common stock (the “Purchase Shares”) upon and subject to the terms of the 2015 Aspire Purchase
Agreement.
In consideration for entering into the purchase agreement, Aspire Capital received a commitment fee of
450,000 shares
(the “Commitment Shares”)
.
On any business day after the
Commencement Date (as defined below) and over the 36-month term of the 2015 Aspire Purchase Agreement, the Company has the right,
in its sole discretion, to present Aspire Capital with a purchase notice (each, a “Purchase Notice”) directing Aspire
Capital to purchase up to 200,000 Purchase Shares per business day; however, no sale pursuant to such a Purchase Notice may exceed
five hundred thousand dollars ($500,000) per business day, unless the Company and Aspire Capital mutually agree. The Company and
Aspire Capital also may mutually agree to increase the number of shares that may be sold to as much as an additional 2,000,000
Purchase Shares per business day. The purchase price per Purchase Share pursuant to such Purchase Notice (the “Purchase Price”)
is the lower of (i) the lowest sale price for the Company’s common stock on the date of sale or (ii) the average of the three
lowest closing sale prices for the Company’s common stock during the 10 consecutive business days ending on the business
day immediately preceding the purchase date. The applicable Purchase Price will be determined prior to delivery of any Purchase
Notice.
In addition,
on any date on which the Company submits a Purchase Notice to Aspire Capital for at least 150,000 Purchase Shares and the closing
sale price of the Company’s common stock is higher than $0.40, the Company also has the right, in its sole discretion, to
present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing
Aspire Capital to purchase an amount of the Company’s common stock equal to up to 35% of the aggregate shares of common
stock traded on the next business day (the “VWAP Purchase Date”), subject to a maximum number of shares determined
by the Company (the “VWAP Purchase Share Volume Maximum”). The purchase price per Purchase Share pursuant to such
VWAP Purchase Notice (the “VWAP Purchase Price”) shall be the lesser of the closing sale price of the Company’s
common stock on the VWAP Purchase Date or 97% of the volume weighted average price for the Company’s common stock traded
on the VWAP Purchase Date if the aggregate shares to be purchased on that date does not exceed the VWAP Purchase Share Volume
Maximum, or the portion of such business day until such time as the sooner to occur of (1) the time at which the aggregate shares
traded has exceeded the VWAP Purchase Share Volume Maximum, or (2) the time at which the sale price of the Company’s common
stock falls below the VWAP Minimum Price Threshold (to be appropriately adjusted for any reorganization, recapitalization, non-cash
dividend, stock split, reverse stock split or other similar transaction). The VWAP Minimum Price Threshold is the greater of (i)
80% of the closing sale price of the Company’s common stock on the business day immediately preceding the VWAP Purchase
Date or (ii) such higher price as set forth by the Company in the VWAP Purchase Notice
.
The number of Purchase Shares
covered by and timing of each Purchase Notice or VWAP Purchase Notice are determined at the Company’s discretion. The aggregate
number of shares that the Company can sell to Aspire Capital under the 2015 Aspire Purchase Agreement may in no case exceed 15,343,406
shares of our common stock (which is equal to approximately 19.99% of the common stock outstanding on the date of the 2015 Aspire
Purchase Agreement, including the 450,000 Commitment Shares issued to Aspire Capital in consideration for entering into the 2015
Aspire Purchase Agreement) (the “Exchange Cap”), unless (i) shareholder approval is obtained to issue more, in which
case the Exchange Cap will not apply; provided that at no time shall Aspire Capital (together with its affiliates) beneficially
own more than 19.99% of the Company’s common stock.
The 2015 Aspire Purchase Agreement
contains customary representations, warranties, covenants, closing conditions and indemnification and termination provisions. Sales
under the 2015 Aspire Purchase Agreement could commence only after certain conditions were satisfied (the date on which all requisite
conditions have been satisfied being referred to as the “Commencement Date”), which conditions included the delivery
to Aspire Capital of a prospectus supplement covering the Commitment Shares and the Purchase Shares, approval for listing on NYSE
MKT of the Purchase Shares and the Commitment Shares, the issuance of the Commitment Shares to Aspire Capital, and the receipt
by Aspire Capital of a customary opinion of counsel and other certificates and closing documents. Either party had the option to
terminate the 2015 Aspire Purchase Agreement in the event the Commencement Date had not occurred by July 1, 2015. The 2015 Aspire
Purchase Agreement may be terminated by the Company at any time, at its discretion, without any cost or penalty.
The Company’s net proceeds
will depend on the Purchase Price, the VWAP Purchase Price and the frequency of the Company’s sales of Purchase Shares to
Aspire Capital; subject to the maximum $15.0 million available amount. The Company’s delivery of Purchase Notices and VWAP
Purchase Notices will be made subject to market conditions, in light of the Company’s capital needs from time to time. The
Company expects to use proceeds from sales of Purchase Shares for general corporate purposes and working capital requirements.
In connection with the 2015
Aspire Purchase Agreement, the Company also entered into a Registration Rights Agreement (the “Registration Rights Agreement”)
with Aspire Capital, dated May 15, 2015. The Registration Rights Agreement provides, among other things, a requirement to register
the sale of the Commitment Shares and the Purchase Shares to Aspire Capital pursuant to the Company’s existing shelf registration
statement (the “Registration Statement”). The Company further agreed to keep the Registration Statement effective and
to indemnify Aspire Capital for certain liabilities in connection with the sale of the Securities under the terms of the Registration
Rights Agreement. On May 29, 2015, the Company filed a prospectus supplement to the Company’s existing Registration Statement
on Form S-3, registering $15.0 million of the Company’s common stock that it may issue and sell to Aspire Capital from time
to time pursuant to the 2015 Aspire Purchase Agreement, together with the 450,000 Commitment Shares issued to Aspire Capital in
consideration for entering into the 2015 Aspire Purchase Agreement.
No shares have been sold under
the 2015 Facility as of the date of the filing of this report.
Eastern – Share Purchase Agreements
On January 13, 2016, the Company entered into
a share purchase agreement with Eastern pursuant to which Eastern agreed to purchase 3,500,000 shares of the Company’s common
stock at a price of $0.622 per share. The Company received proceeds of $2,177,000 and the shares were issued on January 25, 2016.
In addition, Eastern agreed to exercise warrants it had previously acquired to purchase 1,784,000 shares of the Company’s
common stock at an exercise price of $0.53 per share. The Company received proceeds of approximately $945,000 from the exercise
of the warrants and the shares were issued on January 25, 2016.
On January 13, 2016, the Company entered into
a separate share purchase agreement with Eastern pursuant to which Eastern agreed to purchase 6,500,000 shares of the Company’s
common stock at a price of $0.622 per share, subject to the approval of the Company’s stockholders. The Company’s stockholders
approved the issuance of the 6,500,000 shares to Eastern at the Company’s annual meeting on April 7, 2016. On April 13, 2016,
the Company issued the 6,500,000 shares and received proceeds of $4,043,000. These shares are subject to a three-year standstill
agreement which will restrict additional acquisitions of the Company’s common stock by Eastern and its controlled affiliates
to limit its beneficial ownership of the Company’s outstanding shares of common stock to a maximum of 38%, absent the approval
by a majority of the Company’s board of directors.
Exercises of Warrants
In 2015, t
he Company
issued 1,636,000 shares of common stock for the exercise of warrants and received proceeds of approximately $867,000. In addition,
the Company issued 26,691 shares of common stock for the cashless exercise of 75,000 warrants
.
In 2016, in addition to the exercise of warrants
by Eastern discussed above, t
he Company issued 120,000 shares of common stock for the exercise of
warrants and received proceeds of approximately $64,000.
Warrants
The Company has historically financed its operations
through the sale of common stock and warrants, sold together as units.
The following table summarizes all warrant
activity for 2016 and 2015:
|
|
Warrants
|
|
|
Weighted-
average
Exercise
Price
|
|
Outstanding as of July 1, 2014
|
|
|
8,769,911
|
|
|
$
|
1.38
|
|
Exercised
|
|
|
(1,711,000
|
)
|
|
$
|
0.51
|
|
Expired
|
|
|
(425,587
|
)
|
|
$
|
0.66
|
|
Outstanding as of June 30, 2015
|
|
|
6,633,324
|
|
|
$
|
1.63
|
|
Exercised
|
|
|
(1,904,000
|
)
|
|
$
|
0.53
|
|
Expired
|
|
|
(4,729,324
|
)
|
|
$
|
2.08
|
|
Outstanding as of June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
12.
|
Earnings
(Loss) Per Common Share
|
Basic earnings (loss) per common share is computed
by dividing the net income (loss) allocated to common stockholders by the weighted-average number of shares of common stock outstanding
during the period. For purposes of calculating diluted earnings per common share, the denominator includes both the weighted-average
number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such
common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and warrants using the
treasury stock method. The following table summarizes the components of the earnings (loss) per common share calculation (in thousands,
except per share amounts):
|
|
Years ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Basic and diluted numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to iBio, Inc. stockholders
|
|
$
|
(9,764
|
)
|
|
$
|
(6,625
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
80,973
|
|
|
|
71,495
|
|
|
|
|
|
|
|
|
|
|
Per share amount
|
|
$
|
(0.12
|
)
|
|
$
|
(0.09
|
)
|
In 2016 and 2015, the Company incurred net
losses which cannot be diluted; therefore, basic and diluted loss per common share is the same. As of June 30, 2016, shares issuable
which could potentially dilute future earnings included approximately 12.3 million stock options. As of June 30, 2015, shares
issuable which could potentially dilute future earnings included approximately 9.5 million stock options and 6.6 million warrants.
|
13.
|
Share-Based Compensation
|
The following table summarizes the components of share-based compensation expense in the Consolidated
Statements of Operations (in thousands):
|
|
Year Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Research and development
|
|
$
|
20
|
|
|
$
|
-
|
|
General and administrative
|
|
|
1,245
|
|
|
|
914
|
|
Totals
|
|
$
|
1,265
|
|
|
$
|
914
|
|
Stock Options
On August 12, 2008, the Company adopted the
iBioPharma 2008 Omnibus Equity Incentive Plan (the “Plan”) for employees, officers, directors and external service
providers. The original Plan provided that the Company may grant options to purchase stock and/or make awards of restricted stock
up to an aggregate amount of 10 million shares. On December 18, 2013, the Plan was amended to increase the number of shares reserved
for awards under the Plan from 10 million to 15 million. As of June 30, 2016, there were approximately 2.9 million shares of common
stock reserved for future issuance under the Plan. Stock options granted under the Plan may be either incentive stock options (as
defined by Section 422 of the Internal Revenue Code of 1986, as amended) or non-qualified stock options at the discretion of the
Board of Directors. Vesting of service awards occurs ratably on the anniversary of the grant date over the service period, generally
three or five years, as determined at the time of grant. Vesting of performance awards occurs when the performance criteria have
been satisfied. The Company uses historical data to estimate forfeiture rates.
Issuances of stock options during 2015 were as follows:
On September 4, 2014, the Company
granted stock options to members of the Board of Directors, officers and employees to purchase 1.64 million shares of common stock.
These options vest ratably on the anniversary of the date of grant over a three year service period, expire ten years from the
date of grant, and have an exercise price of $0.49 per share.
Issuances of stock options during 2016 were
as follows:
On September 4, 2015 and March 1, 2016, the Company granted stock
options to members of the Board of Directors, officers and employees to purchase 2.75 million shares of common stock. These options
vest ratably over a three to five year service period, expire ten years from the date of grant, and have a weighted average exercise
price of $1.64 per share.
Issuances of stock options during 2015 were as follows:
On September 5, 2014, the Company granted stock
options to members of the Board of Directors, officers and employees to purchase 1.64 million shares of common stock. These options
vest ratably on the anniversary of the date of grant over a three year service period, expire ten years from the date of grant,
and have a weighted-average exercise price of $0.86 per share.
On November 20, 2014, the Company granted stock
options to a consultant to purchase 100,000 shares of common stock. These options vest over a three year service period, expire
four years from the date of grant, and have an exercise price of $1.15 per share.
On October 17,
2014, a consulting agreement dated March 1, 2012 with a former employee was terminated for cause. As a result, 500,000 options
with an exercise price of $0.87 were cancelled
.
The following table summarizes all stock option activity during the years
ended June 30, 2016 and 2015:
|
|
Stock
Options
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding as of July 1, 2014
|
|
|
8,483,334
|
|
|
$
|
1.25
|
|
|
|
7.0
|
|
|
$
|
179
|
|
Granted
|
|
|
1,740,000
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(700,000
|
)
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2015
|
|
|
9,523,334
|
|
|
$
|
1.22
|
|
|
|
6.6
|
|
|
$
|
1,848
|
|
Granted
|
|
|
2,750,000
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2016
|
|
|
12,273,334
|
|
|
$
|
1.31
|
|
|
|
6.4
|
|
|
$
|
993
|
|
As of June 30, 2016 vested and expected to vest
|
|
|
12,225,441
|
|
|
$
|
1.31
|
|
|
|
6.4
|
|
|
$
|
991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2016
|
|
|
7,583,357
|
|
|
$
|
1.31
|
|
|
|
5.1
|
|
|
$
|
773
|
|
The total fair value of stock options that
vested during 2016 and 2015 was approximately $800,000 and $1.1 million, respectively. As of June 30, 2016, there was approximately
$1.6 million of total unrecognized compensation cost related to non-vested stock options that the Company expects to recognize
over a weighted-average period of 1.9 years.
The weighted-average grant date fair value
of stock options granted during 2016 and 2015 was $0.62 and $0.43 per share, respectively. The Company estimated the fair
value of options granted using the Black-Scholes option pricing model with the following assumptions:
|
|
2016
|
|
|
2015
|
|
Risk-free interest rate
|
|
|
1.83% - 2.13%
|
|
|
|
1.3% - 2.3%
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
Volatility
|
|
|
109.49% - 112.17%
|
|
|
|
96.7% - 113.9%
|
|
Expected term (in years)
|
|
|
9
|
|
|
|
4 - 9
|
|
|
14.
|
Related Party Transactions
|
Novici Biotech, LLC
In January 2012, the Company entered into an
agreement with Novici Biotech, LLC (“Novici”) in which iBio’s President is a minority stockholder. Novici performs
laboratory feasibility analyses of gene expression, protein purification and preparation of research samples. In addition, the
Company and Novici collaborate on the development of new technologies and product candidates for exclusive worldwide commercial
use by the Company. The accounts payable balance includes amounts due to Novici of approximately $200,000 and $153,000 at June
30, 2016 and 2015, respectively. Research and development expenses related to Novici were approximately $1,036,000 and $995,000
in 2016 and 2015, respectively.
Agreements with Eastern Capital Limited
and its Affiliates.
As more fully discussed in Note 11, the Company
entered into two share purchase agreements with Eastern and sold 10 million shares of common stock at a price of $0.622 per share.
The Company received proceeds of $6,220,000. In addition, Eastern agreed to exercise warrants it had previously acquired to purchase
1,784,000 shares of the Company’s common stock at an exercise price of $0.53 per share. The Company received proceeds of
approximately $945,000 from the exercise of the warrants.
Concurrently with the execution of the Purchase
Agreements, iBio entered into a contract manufacturing joint venture with an affiliate of Eastern to develop and manufacture plant-made
pharmaceuticals through iBio’s recently formed subsidiary, iBio CMO. The Eastern Affiliate contributed $15.0 million in cash
to iBio CMO, for a 30% interest in iBio CMO. iBio retained a 70% equity interest in iBio CMO. As the majority equity holder, iBio
has the right to appoint a majority of the members of the Board of Managers that manages the iBio CMO joint venture. Specified
material actions by the joint venture require the consent of iBio and the Eastern Affiliate. iBio contributed to the capital of
iBio CMO a royalty bearing license, which grants iBio CMO a non-exclusive license to use the iBio’s proprietary technologies,
including the iBioLaunch technology and additional iBio technologies, for research purposes and an exclusive U.S. license for manufacturing
purposes. iBio retains all other rights in its intellectual property, including the right for itself to commercialize products
based on its proprietary technologies or to grant licenses to others to do so.
In connection with the joint venture, the
Second Eastern Affiliate, which controls the subject property as sublandlord, granted iBio CMO a 34-year sublease of a Class A
life sciences building in Bryan, Texas, on the campus of Texas A&M University, designed and equipped for plant-made manufacture
of biopharmaceuticals. Accrued expenses at June 30, 2016 due to the Second Eastern Affiliate is $623,000. General and administrative
expenses related to Second Eastern Affiliate were approximately $565,000 in 2016. Interest expense related to the Second Eastern
Affiliate was approximately $807,000 in 2016. The terms of the sublease are described in Note 10.
A three-year standstill agreement (the
“Standstill Agreement”) that took effect upon the issuance of the Eastern Shares pursuant to the 6,500,000 Purchase
Agreement restricts additional acquisitions of iBio common stock by Eastern and its controlled affiliates to limit its beneficial
ownership of the Company’s outstanding shares of common stock to a maximum of 38%, absent approval by a majority of the Company’s
Board of Directors.
Operating Lease with Minority Stockholder
Effective January 1, 2015, the Company is leasing
office space on a month-to-month basis from an entity owned by a minority stockholder of the Company. Rent was $2,200 per month
through November 2015 and increased to $2,500 per month effective December 2015. Rent expense totaled $28,500 and $13,200 in 2016
and 2015, respectively.
The components of net loss consist of the following
(in thousands):
|
|
For the Years Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
(10,635
|
)
|
|
$
|
(6,532
|
)
|
Brazil
|
|
|
(22
|
)
|
|
|
(93
|
)
|
Total
|
|
$
|
(10,657
|
)
|
|
$
|
(6,625
|
)
|
The components of the provision (benefit) for
income taxes consist of the following (in thousands):
|
|
For the Years Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Current – Federal, state and foreign
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred – Federal
|
|
|
(260
|
)
|
|
|
(2,299
|
)
|
Deferred – State
|
|
|
(9
|
)
|
|
|
(377
|
)
|
Deferred – Foreign
|
|
|
(1
|
)
|
|
|
(12
|
)
|
Total
|
|
|
(270
|
)
|
|
|
(2,688
|
)
|
Change in valuation allowance
|
|
|
270
|
|
|
|
2,688
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has deferred income taxes due to
income tax credits, net operating loss carryforwards, and the effect of temporary differences between the carrying values of certain
assets and liabilities for financial reporting and income tax purposes.
The components of the Company’s deferred
tax assets and liabilities are as follows (in thousands):
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
17,172
|
|
|
$
|
14,213
|
|
Share-based compensation
|
|
|
726
|
|
|
|
3,992
|
|
Research and development tax credits
|
|
|
1,097
|
|
|
|
890
|
|
Suspended losses in iBio CMO
|
|
|
255
|
|
|
|
-
|
|
Basis in iBio CMO
|
|
|
145
|
|
|
|
-
|
|
Intangible assets
|
|
|
(219
|
)
|
|
|
(188
|
)
|
Vacation accrual and other
|
|
|
17
|
|
|
|
16
|
|
Valuation allowance
|
|
|
(19,193
|
)
|
|
|
(18,923
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has a valuation allowance against
the full amount of its net deferred tax assets due to the uncertainty of realization of the deferred tax assets due to operating
loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it is more likely
than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced or
eliminated based on future earnings and future estimates of taxable income.
Federal net operating losses of approximately
$5.5 million were used by the Former Parent prior to June 30, 2008 and are not available to the Company. The Former Parent allocated
the use of the Federal net operating losses available for use on its consolidated Federal tax return on a pro rata basis based
on all of the available net operating losses from all the entities included in its control group.
U.S. Federal and state net operating losses
of approximately $44.7 million and $33.5 million, respectively, are available to the Company as of June 30, 2016 and will expire
at various dates through 2036. These carryforwards could be subject to certain limitations in the event there is a change in control
of the Company pursuant to Internal Revenue Code Section 382, though the Company has not performed a study to determine if the
loss carryforwards are subject to these Section 382 limitations. The Company has a research and development credit carryforward
of approximately $1.1 million at June 30, 2016. In addition, the Company has foreign net operating losses totaling approximately
$89,000 with no expiration date.
A reconciliation of the statutory tax rate
to the effective tax rate is as follows:
|
|
Years Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Statutory federal income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State (net of federal benefit)
|
|
|
6
|
%
|
|
|
6
|
%
|
Research and development tax credit
|
|
|
1
|
%
|
|
|
1
|
%
|
Permanent differences
|
|
|
(7
|
)%
|
|
|
-
|
%
|
Expiration of stock options and warrants
|
|
|
(31
|
)%
|
|
|
-
|
%
|
Change in valuation allowance
|
|
|
(3
|
)%
|
|
|
(41
|
)%
|
Effective income tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The Company has not been audited in connection
with income taxes. iBio files U.S. Federal and state income tax returns subject to varying statutes of limitations. The 2011 through
2015 tax returns generally remain open to examination by U.S. Federal and state tax authorities. In addition, the 2014 and 2015
Brazilian federal tax return remains open to examination by Brazil federal tax authorities.
|
16.
|
Commitments and Contingencies
|
Agreements
In September 2013,
the Company and Fraunhofer completed the Terms of Settlement for the TTA Seventh Amendment (the “Settlement Agreement”).
Under the terms of the Settlement Agreement various contractual obligations existing at June 30, 2013 were released, terminated
or modified. The significant modifications post June 30, 2013 are of follows:
The Company’s obligation under the TTA,
prior to the Settlement Agreement, to make three $1 million payments to Fraunhofer in April 2013, November 2013, and April 2014
(the “Guaranteed Annual Payments”) was terminated and replaced with an undertaking to engage Fraunhofer to perform
for at least $3 million in work requested and as directed by iBio before December 31, 2015. For the year ended June 30, 2015, $2.7
million in research and development services were performed by Fraunhofer. As of December 31, 2015, the total engagement of Fraunhofer
for work requested by iBio is $3.0 million. In addition to the foregoing, the Company sought to engage Fraunhofer for substantial
additional other work, but Fraunhofer did not respond to the Company’s requests for proposals for such work.
The Company’s obligation to remit
to Fraunhofer minimum annual royalty payments in the amount of $200,000 was terminated. Instead under the terms of the TTA and
for a period of 15 years, the Company shall pay Fraunhofer one percent (1%) of all receipts derived by the Company from sales of
products produced utilizing the iBioLaunch or iBioModulator technology and ten percent (10%) of all receipts derived by the Company
from licensing either of those technologies to third parties. The Company will be obligated to remit royalties to Fraunhofer only
on technology license revenues that iBio actually receives and on revenues from actual sales by iBio of products derived from the
technology developed under the TTA until the later of November 2023 or until such time as the aggregate royalty payments total
at least $4 million. All new intellectual property invented by Fraunhofer during the period of the TTA is owned by and is required
to be transferred to iBio. The Company has no financial obligations to Fraunhofer with respect to the Company’s use of technologies
developed independently of Fraunhofer.
On June 12, 2014, Fiocruz, Fraunhofer
and iBio executed an amendment to the CLA (the “Amended Agreement”) to create a new research and development plan
for the development of a recombinant Yellow Fever vaccine providing revised reporting, objectives, estimated budget, and project
billing process. Under the CLA and bilateral agreement between iBio and Fraunhofer dated December 27, 2010, Fraunhofer, which
has been engaged to act as the Company’s subcontractor for performance of research and development services for the new
research and development plan, will bill Fiocruz directly on behalf of the Company at the rates, amounts and times provided in
the Amended Agreement, and the proceeds of such billings and only the proceeds will be paid to Fraunhofer for its services so
the Company’s expense is equal to its revenue and no profit is recognized for these activities under the Amended Agreement.
For the year ended June 30, 2015, $2.1 million in research and development services were performed by Fraunhofer for the Company
pursuant to the amended CLA. As of December 31, 2015, the total engagement of Fraunhofer for work requested by iBio is $3.0 million.
See Note 8 - Significant Vendors for additional information. In addition to the foregoing, the Company sought to engage Fraunhofer
for substantial additional other work, but Fraunhofer did not respond to the Company’s requests for proposals for such work.
On January 14, 2014 (the “Effective Date”),
the Company entered into an exclusive worldwide License Agreement (“LA”) with the University of Pittsburgh (“UP”)
covering all of the U.S. and foreign patents and patent applications and related intellectual property owned by UP pertinent to
the use of endostatin peptides for the treatment of fibrosis. The Company paid an initial license fee of $20,000 and is required
to pay all of UP’s patent prosecution costs that were incurred prior to, totaling $30,627, and subsequent to the Effective
Date. On each anniversary date the Company is to pay license fees ranging from $25,000 to $150,000 for the first five years and
$150,000 on each subsequent anniversary date until the first commercial sale of the licensed technology. Beginning with commercial
sales of the technology or approval by the FDA or foreign equivalent, the Company will be required to pay milestone payments, royalties
and a percentage of any non-royalty sublicense income to UP.
On December 30, 2013, the Company entered into
a Project Agreement with the Medical University of South Carolina (“MUSC”) providing for the performance of research
and development services by MUSC related to peptides for the treatment of fibrosis. The agreement requires the Company to make
payments totaling $78,000 through December 1, 2014 and provides the Company with certain intellectual property rights. Effective
September 1, 2014, the Company and MUSC executed an Amendment to the agreement. The Amendment extended the term of the agreement
to December 31, 2015 and increased the total payments due MUSC from the Company by $161,754.
New Lease
As discussed above, iBio CMO is leasing its
facility in Bryan, Texas from the Second Affiliate under a 34-year sublease. See Note 10 for more details of the sublease.
Lawsuits
On October 22, 2014, the Company filed a Verified
Complaint in the Court of Chancery of the State of Delaware against PlantForm Corporation (“PlantForm”) and PlantForm’s
president seeking equitable relief and damages based upon PlantForm’s interference with several contracts between the Company
and Fraunhofer USA, including its Center for Molecular Biotechnology unit, (“Fraunhofer”) and one of the Company’s
consultants and misappropriating the Company’s intellectual property including trade secrets and know-how. On May 14,
2015, after mediation ordered and supervised by the Chancery Court, PlantForm represented and agreed that all drug development
and manufacturing activities of PlantForm with Fraunhofer had ceased and would not be renewed at least until after the termination
of the Company’s litigation regarding similar subject matter with Fraunhofer, and all of the accrued claims between the Company
and PlantForm and its President were voluntarily dismissed with prejudice.
On March 17, 2015, the Company filed a Verified
Complaint in the Court of Chancery of the State of Delaware against Fraunhofer and Vidadi Yusibov (“Yusibov”), Fraunhofer’s
Executive Director, seeking monetary damages and equitable relief based on Fraunhofer’s material and continuing breaches
of their contracts with the Company. On September 16, 2015, the Company voluntarily dismissed its action against Yusibov, without
prejudice, and thereafter on September 29, 2015, the Company filed a Verified Amended Complaint against Fraunhofer alleging material
breaches of its agreements with the Company and seeking monetary damages and equitable relief against Fraunhofer. Briefing was
completed on a motion to dismiss filed by Fraunhofer in lieu of filing an answer to the complaint. Fraunhofer also moved for a
protective order in connection with certain discovery served by iBio. The Court bifurcated the action to first resolve the threshold
question in the case – the scope of iBio’s ownership of the technology developed or held by Fraunhofer — before
proceeding with the rest of the case and the parties stipulated their agreement to that approach. After considering the parties’
written submissions and oral argument on this threshold issue on April 29, 2016, the Court resolved the threshold issue in favor
of iBio on July 29, 2016, holding that iBio owns all proprietary rights of any kind to all plant-based technology of Fraunhofer
developed or held as of December 31, 2014, including know-how, and is entitled to receive a transfer of the technology from Fraunhofer.
On September 19, 2016, Fraunhofer informed the Court that it does not intend to pursue its motion for protective order at this
time. iBio intends to seek leave of Court to supplement and amend its current complaint to add additional state law claims against
Fraunhofer. The Company is unable to predict the further outcome of this action at this time.
On October 24, 2014, a putative class action
captioned
Juan Pena, Individually and on Behalf of All Others Similarly Situated v. iBio, Inc. and Robert B. Kay
was filed
in the United States District Court for the District of Delaware. The action alleged that the Company and its Chief Executive Officer
made certain statements in violation of federal securities laws and sought an unspecified amount of damages. On February 23, 2015,
the Court issued an order appointing a new lead plaintiff. On April 6, 2015, the plaintiffs filed an amended class action complaint
in the same matter captioned Vamsi Andavarapu, Individually And On Behalf Of All Others Situated v. iBio, Inc., Robert B. Kay,
and Robert Erwin. The action alleged that the Company, its Chief Executive Officer, and its President made certain statements in
violation of federal securities laws and sought an unspecified amount of damages. On May 6, 2015, the Company, Mr. Kay, and Mr.
Erwin filed a motion to dismiss the amended class action complaint. On September 15, 2015, after voluntary mediation, the Plaintiffs
and the Company reached an agreement-in-principle to settle the action. On December 16, 2015, the Plaintiffs and the Company entered
a Stipulation and Agreement of Settlement that provides, among other things, for settlement payments totaling $1,875,000 in exchange
for the releases described therein. That stipulation was filed with the Court on December 18, 2015 and, on April 21, 2016, the
Court entered an Order and Final Judgment approving the settlement and dismissing the case. The settlement has been funded by the
Company’s insurance carrier.
On December 4, 2015, a putative derivative
action captioned
Savage, Derivatively on Behalf of iBio, Inc., Plaintiff, v. Robert B. Kay, Arthur Y. Elliott, James T. Hill,
Glenn Chang, Philip K. Russell, John D. McKey, and Seymour Flug, Defendants, and iBio, Inc., Nominal Defendant
was filed in
the Supreme Court of the State of New York, County of New York. The action alleged that the Company and its management made misstatements
about the Company’s business resulting either from (i) a failure by iBio’s directors to establish a system of controls
over the Company’s disclosures, or (ii) the directors’ consciously ignoring “red flags” relating to disclosures,
and sought to recover an unspecified amount of damages. On January 15, 2016, the defendants filed a motion to dismiss all claims
against them. On March 16, 2016, the plaintiff filed a Verified Amended Complaint that added an additional named plaintiff and
alleged derivative claims generally along the same lines as the original complaint, together with purported direct breach of fiduciary
duty and unjust enrichment claims based on the same conduct. The Verified Amended Complaint seeks to recover an unspecified amount
of damages. On April 29, 2016, the defendants filed a motion to dismiss all claims against them. Plaintiffs’ opposition
to the motion was filed on June 6, 2016. On June 22, 2016, the plaintiffs advised the Court that the parties had reached a settlement
in principle, and on July 1, 2016, the Court ordered that the defendants’ pending motion to dismiss be withdrawn without
prejudice. The terms of the settlement are subject to preliminary and final approval by the Court. The Company expects that the
settlement will be funded by the Company’s insurance carrier.
As discussed above, iBio Brazil began operations
in the first quarter of fiscal 2015. In accordance with FASB ASC 280, “
Segment Reporting
,” the Company discloses
financial and descriptive information about its reportable geographic segments. Geographic segments are components of an enterprise
about which separate financial information is available and regularly evaluated by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
Year ended June 30, 2016
|
|
United States
|
|
|
Brazil
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
948
|
|
|
$
|
-
|
|
|
$
|
948
|
|
Research and development expenses
|
|
|
3,156
|
|
|
|
-
|
|
|
|
3,156
|
|
General and administrative expenses
|
|
|
7,663
|
|
|
|
22
|
|
|
|
7,685
|
|
Operating loss
|
|
|
(9,871
|
)
|
|
|
(22
|
)
|
|
|
(9,893
|
)
|
Interest expense
|
|
|
(807
|
)
|
|
|
-
|
|
|
|
(807
|
)
|
Interest and other income
|
|
|
43
|
|
|
|
-
|
|
|
|
43
|
|
Consolidated net loss
|
|
|
(10,635
|
)
|
|
|
(22
|
)
|
|
|
(10,657
|
)
|
Total assets
|
|
|
51,580
|
|
|
|
20
|
|
|
|
51,600
|
|
Fixed assets, net
|
|
|
25,574
|
|
|
|
-
|
|
|
|
25,574
|
|
Intangible assets, net
|
|
|
2,092
|
|
|
|
-
|
|
|
|
2,092
|
|
Depreciation expense
|
|
|
575
|
|
|
|
2
|
|
|
|
577
|
|
Amortization of intangible assets
|
|
|
363
|
|
|
|
-
|
|
|
|
363
|
|
Year ended June 30, 2015
|
|
United States
|
|
|
Brazil
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,851
|
|
|
$
|
-
|
|
|
$
|
1,851
|
|
Research and development expenses
|
|
|
3,495
|
|
|
|
-
|
|
|
|
3,495
|
|
General and administrative expenses
|
|
|
4,929
|
|
|
|
93
|
|
|
|
5,022
|
|
Operating loss
|
|
|
(6,573
|
)
|
|
|
(93
|
)
|
|
|
(6,666
|
)
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest and other income
|
|
|
41
|
|
|
|
-
|
|
|
|
41
|
|
Consolidated net loss
|
|
|
(6,532
|
)
|
|
|
(93
|
)
|
|
|
(6,625
|
)
|
Total assets
|
|
|
12,448
|
|
|
|
46
|
|
|
|
12,494
|
|
Fixed assets, net
|
|
|
3
|
|
|
|
10
|
|
|
|
13
|
|
Intangible assets, net
|
|
|
2,360
|
|
|
|
-
|
|
|
|
2,360
|
|
Depreciation expense
|
|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
Amortization of intangible assets
|
|
|
358
|
|
|
|
-
|
|
|
|
358
|
|
Unaudited Interim Financial Statements
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
iBio, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, except share and per share amounts)
|
|
March 31, 2017
|
|
|
June 30, 2016
|
|
|
|
(Unaudited)
|
|
|
(See Note 2)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,422
|
|
|
$
|
23,014
|
|
Accounts receivable - trade
|
|
|
128
|
|
|
|
484
|
|
Accounts receivable - unbilled
|
|
|
-
|
|
|
|
122
|
|
Work in process
|
|
|
60
|
|
|
|
22
|
|
Prepaid expenses and other current assets
|
|
|
374
|
|
|
|
264
|
|
Total current assets
|
|
|
12,984
|
|
|
|
23,906
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation
|
|
|
25,794
|
|
|
|
25,574
|
|
Intangible assets, net of accumulated amortization
|
|
|
1,895
|
|
|
|
2,092
|
|
Security deposit
|
|
|
25
|
|
|
|
28
|
|
Total Assets
|
|
$
|
40,698
|
|
|
$
|
51,600
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable (related party of $199 and $200 as of March 31, 2017 and June 30, 2016, respectively)
|
|
$
|
1,391
|
|
|
$
|
1,177
|
|
Accrued expenses (related party of $784 and $623 as of March 31, 2017 and June 30, 2016, respectively)
|
|
|
957
|
|
|
|
920
|
|
Capital lease obligation - current portion
|
|
|
180
|
|
|
|
170
|
|
Deferred revenue
|
|
|
93
|
|
|
|
24
|
|
Total Current Liabilities
|
|
|
2,621
|
|
|
|
2,291
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation - net of current portion
|
|
|
25,129
|
|
|
|
25,265
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
27,750
|
|
|
|
27,556
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
iBio, Inc. Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock - $0.001 value; 1,000,000 shares authorized; 1 and 0 shares issued and outstanding as of March 31, 2017 and June 30, 2016, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.001 par value; 175,000,000 shares authorized; 89,118,510 and 89,109,410 shares issued and outstanding as of March 31, 2017 and June 30, 2016, respectively
|
|
|
89
|
|
|
|
89
|
|
Additional paid-in capital
|
|
|
80,680
|
|
|
|
67,468
|
|
Accumulated other comprehensive loss
|
|
|
(29
|
)
|
|
|
(29
|
)
|
Accumulated deficit
|
|
|
(67,794
|
)
|
|
|
(57,591
|
)
|
Total iBio, Inc. Stockholders’ Equity
|
|
|
12,946
|
|
|
|
9,937
|
|
Noncontrolling interest
|
|
|
2
|
|
|
|
14,107
|
|
Total Equity
|
|
|
12,948
|
|
|
|
24,044
|
|
Total Liabilities and Equity
|
|
$
|
40,698
|
|
|
$
|
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
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
37
|
|
|
$
|
379
|
|
|
$
|
247
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (related party of $225, $244, $670 and $723), net of grant income of ($44, $7, $84 and $7)
|
|
|
1,136
|
|
|
|
1,048
|
|
|
|
3,005
|
|
|
|
2,303
|
|
General and administrative (related party of $191, $303, $553 and $395)
|
|
|
2,837
|
|
|
|
2,403
|
|
|
|
7,657
|
|
|
|
5,509
|
|
Total operating expenses
|
|
|
3,973
|
|
|
|
3,451
|
|
|
|
10,662
|
|
|
|
7,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,936
|
)
|
|
|
(3,072
|
)
|
|
|
(10,415
|
)
|
|
|
(7,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (related party of $481, $323, $1,447 and $323)
|
|
|
(481
|
)
|
|
|
(323
|
)
|
|
|
(1,447
|
)
|
|
|
(323
|
)
|
Interest income
|
|
|
8
|
|
|
|
5
|
|
|
|
33
|
|
|
|
9
|
|
Royalty income
|
|
|
4
|
|
|
|
5
|
|
|
|
20
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(469
|
)
|
|
|
(313
|
)
|
|
|
(1,394
|
)
|
|
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
|
(4,405
|
)
|
|
|
(3,385
|
)
|
|
|
(11,809
|
)
|
|
|
(7,436
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
492
|
|
|
|
349
|
|
|
|
1,606
|
|
|
|
349
|
|
Net loss attributable to iBio, Inc.
|
|
|
(3,913
|
)
|
|
|
(3,036
|
)
|
|
|
(10,203
|
)
|
|
|
(7,087
|
)
|
Preferred stock dividends
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
Net loss available to iBio, Inc.
|
|
$
|
(3,939
|
)
|
|
$
|
(3,036
|
)
|
|
$
|
(10,229
|
)
|
|
$
|
(7,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(4,405
|
)
|
|
$
|
(3,385
|
)
|
|
$
|
(11,809
|
)
|
|
$
|
(7,436
|
)
|
Other comprehensive income (loss) - foreign currency translation adjustments
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(4,405
|
)
|
|
$
|
(3,383
|
)
|
|
$
|
(11,809
|
)
|
|
$
|
(7,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share attributable to iBio, Inc. stockholders - basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic and diluted
|
|
|
89,109
|
|
|
|
81,158
|
|
|
|
89,109
|
|
|
|
78,587
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
iBio, Inc. and Subsidiaries
Condensed Consolidated Statement of Equity
Nine Months Ended March 31, 2017
(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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
713
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred
stock for acquisition of additional interest in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,499
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,499
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,203
|
)
|
|
|
(1,606
|
)
|
|
|
(11,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
March 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
89,119
|
|
|
$
|
89
|
|
|
$
|
80,680
|
|
|
$
|
(29
|
)
|
|
$
|
(67,794
|
)
|
|
$
|
2
|
|
|
$
|
12,948
|
|
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)
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(11,809
|
)
|
|
$
|
(7,436
|
)
|
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
713
|
|
|
|
940
|
|
Amortization of intangible assets
|
|
|
264
|
|
|
|
274
|
|
Depreciation
|
|
|
987
|
|
|
|
263
|
|
Loss on abandonment of intangible assets
|
|
|
-
|
|
|
|
33
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
|
357
|
|
|
|
(9
|
)
|
Accounts receivable - unbilled
|
|
|
122
|
|
|
|
-
|
|
Work in process
|
|
|
(38
|
)
|
|
|
(58
|
)
|
Prepaid expenses and other current assets
|
|
|
(110
|
)
|
|
|
(136
|
)
|
Security deposit
|
|
|
3
|
|
|
|
(28
|
)
|
Accounts payable
|
|
|
7
|
|
|
|
342
|
|
Accrued expenses
|
|
|
37
|
|
|
|
489
|
|
Deferred revenue
|
|
|
69
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(9,398
|
)
|
|
|
(5,250
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to intangible assets
|
|
|
(259
|
)
|
|
|
-
|
|
Purchases of fixed assets
|
|
|
(809
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,068
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
-
|
|
|
|
2,178
|
|
Proceeds from exercise of warrants
|
|
|
-
|
|
|
|
1,009
|
|
Capital contribution - noncontrolling interest
|
|
|
-
|
|
|
|
15,000
|
|
Payment of capital lease obligation
|
|
|
(126
|
)
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(126
|
)
|
|
|
17,662
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(10,592
|
)
|
|
|
12,399
|
|
Cash - beginning of period
|
|
|
23,014
|
|
|
|
9,494
|
|
Cash - end of period
|
|
$
|
12,422
|
|
|
$
|
21,893
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash activities:
|
|
|
|
|
|
|
|
|
Issuance of preferred stock for acquisition of additional interest in subsidiary
|
|
$
|
12,499
|
|
|
$
|
-
|
|
Unpaid intangible assets included in accounts payable
|
|
$
|
197
|
|
|
$
|
87
|
|
Fixed assets included in accounts payable in FY 2016, paid in FY 2017
|
|
$
|
71
|
|
|
$
|
-
|
|
Unpaid fixed assets included in accounts payable
|
|
$
|
468
|
|
|
$
|
17
|
|
Purchases of fixed assets financed by capital lease
|
|
$
|
-
|
|
|
$
|
26,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
1,449
|
|
|
$
|
-
|
|
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.
On February 23, 2017, the Company entered
into an exchange agreement with the Eastern Affiliate, pursuant to which the Company acquired substantially all of the interest
in iBio CMO held by the Eastern Affiliate in exchange for one share of the Company’s iBio CMO Preferred Tracking Stock, par
value $0.001 per share. After giving effect to the transaction, the Company owns 99.99% of iBio CMO. See Note 9 for a further discussion.
iBio CMO’s operations take place
in Bryan, Texas in a facility controlled by another affiliate of Eastern (the “Second Eastern Affiliate”) as sub-landlord.
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.
Going Concern
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 March 31, 2017,
the Company’s accumulated deficit was $67.8 million and it had cash used in operating activities of $9.4 million for the
nine months ended March 31, 2017. The Company has historically financed its activities through the sale of common stock and warrants.
Through March 31, 2017, 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 history of significant losses, the
negative cash flow from operations, the limited cash resources currently on hand and the dependence by the Company on its ability
– about which there can be no certainty – to obtain additional financing to fund its operations after the current cash
resources are exhausted raises substantial doubt about the Company’s ability to continue as a going concern. These financial
statements were prepared under the assumption that the Company will continue as a going concern and do not include any adjustments
that might result from the outcome of this uncertainty.
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. 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. For the three and nine months ended March 31, 2017, grant income amounted
to approximately $44,000 and $84,000, respectively. For each of the three and nine months ended March 31, 2016, grant income amounted
to approximately $7,000.
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 $60,000
and $22,000 at March 31, 2017 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, 2016, including interim periods within that reporting period. Early application
is not permitted. In August 2015, the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers (Topic 606): Deferral
of Effective Date”
(“ASU 2015-14”) which defers the effective date of ASU 2014-09 by one year. ASU 2014-09
is now effective for annual reporting periods after December 15, 2017 (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, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating
the effects of adopting ASU 2014-09 on its consolidated financial statements.
Effective January 1, 2016, the Company adopted
ASU 2014-12, “
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be
Achieved after the Requisite Service Period
” (“ASU No. 2014-12”). ASU No. 2014-12 requires that
a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance
condition. An entity should recognize compensation cost in the period in which it becomes probable that the performance target
will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already
been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the
remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total
amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are
expected to vest and should be adjusted to reflect those awards that ultimately vest. ASU 2014-12 became effective for interim
and annual periods beginning on or after December 15, 2015. The adoption of ASU 2014-12 did not have a significant impact on the
Company’s consolidated financial statements.
In June 2014, ASU 2014-15, “
Presentation
of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern
” (“ASU No. 2014-15”) was issued. Before the issuance of ASU 2014-15, there
was no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s
ability to continue as a going concern or to provide related footnote disclosures. This guidance is expected to reduce the diversity
in the timing and content of footnote disclosures. ASU 2014-15 requires management to assess an entity’s ability to continue
as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards as specified
in the guidance. ASU 2014-15 becomes effective for the annual period ending after December 15, 2016 (year ended June 30, 2017 for
the Company) and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the
effects of adopting ASU 2014-15 on its consolidated financial statements but the adoption is not expected to have a significant
impact on the Company’s consolidated financial statements.
Effective January 1, 2016, the Company adopted
ASU 2015-01, “
Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation
by Eliminating the Concept of Extraordinary Items”
(“ASU 2015-01”). ASU 2015-01 eliminates the concept of
an extraordinary item from accounting principles generally accepted in the United States of America. As a result, an entity will
no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary
item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share
data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items
that are unusual in nature and occur infrequently. The adoption of ASU 2015-01 did not have a significant impact on the Company’s
consolidated financial statements.
On January 1, 2017, the Company adopted 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. A reporting
entity should apply the amendment prospectively or retrospectively. The adoption of ASU 2015-17 did not have a significant impact
on its consolidated financial statements 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 (fiscal year ended June 30, 2020 for the Company)
and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period presented
using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting
period. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements 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 March 31, 2017 and June 30, 2016 due to their short-term nature. The carrying value
of the capital lease obligation approximated its fair value as of March 31, 2017 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):
|
|
March 31,
2017
|
|
|
June 30,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Facility under capital lease
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Equipment under capital lease
|
|
|
6,000
|
|
|
|
6,000
|
|
Facility improvements
|
|
|
332
|
|
|
|
42
|
|
Medical equipment
|
|
|
867
|
|
|
|
-
|
|
Office equipment and software
|
|
|
161
|
|
|
|
137
|
|
|
|
|
27,360
|
|
|
|
26,179
|
|
Accumulated depreciation – assets under capital lease
|
|
|
(1,500
|
)
|
|
|
(571
|
)
|
Accumulated depreciation – other
|
|
|
(66
|
)
|
|
|
(34
|
)
|
|
|
|
(1,566
|
)
|
|
|
(605
|
)
|
Net fixed assets
|
|
$
|
25,794
|
|
|
$
|
25,574
|
|
Depreciation expense was approximately
$337,000 and $260,000 for the three months ended March 31, 2017 and 2016, respectively, and for the nine months ended March 31,
2017 and 2016, depreciation expense was approximately $987,000 and $263,000, respectively. Depreciation of the assets under the
capital lease amounted to approximately $306,000 and $929,000 for the three and nine months ended March 31, 2017, respectively,
and $259,000 for each of the three and nine months ended March 31, 2016.
The Company has two categories of intangible
assets – intellectual property and patents. Intellectual property consists of all technology, know-how, data, and protocols
for producing targeted proteins in plants and related to any products and product formulations for pharmaceutical uses and for
other applications. Intellectual property includes, but is not limited to, certain technology for the development and manufacture
of novel vaccines and therapeutics for humans and certain veterinary applications acquired in December 2003 from Fraunhofer USA
Inc., acting through its Center for Molecular Biotechnology (“Fraunhofer”), pursuant to a Technology Transfer Agreement,
as amended (the “TTA”). The Company designates such technology acquired from Fraunhofer as iBioLaunch technology or
as iBioModulator technology. The value attributed to patents owned or controlled by the Company is based on payments for services
and fees related to the further development and protection of the Company’s patent portfolio.
In January 2014, the Company entered into a
license agreement with a U.S. university whereby iBio acquired exclusive worldwide rights to certain issued and pending patents
covering specific candidate products for the treatment of fibrosis (the “Licensed Technology”). The license agreement
provides for payment by the Company of a license issue fee, annual license maintenance fees, reimbursement of prior patent costs
incurred by the university, payment of a milestone payment upon regulatory approval for sale of a first product, and annual royalties
on product sales. In addition, the Company has agreed to meet certain diligence milestones related to product development benchmarks.
As part of its commitment to the diligence milestones, the Company successfully commenced production of a plant-made peptide comprising
the Licensed Technology before March 31, 2014. The next milestone – filing a New Drug Application with the FDA or foreign
equivalent covering the Licensed Technology (“IND”) – became due on December 1, 2015. A six-month extension was
automatically granted until June 1, 2016 under the license agreement. On August 11, 2016, the agreement was amended and replaced
the original milestone schedule to provide that the IND filing be accomplished by June 30, 2017.
The 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 the nine months ended March 31, 2017 and 2016.
The following table summarizes by category
the gross carrying value and accumulated amortization of intangible assets (in thousands):
|
|
March 31,
2017
|
|
|
June 30,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Intellectual property – gross carrying value
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
Patents – gross carrying value
|
|
|
2,332
|
|
|
|
2,265
|
|
|
|
|
5,432
|
|
|
|
5,365
|
|
Intellectual property – accumulated amortization
|
|
|
(2,049
|
)
|
|
|
(1,932
|
)
|
Patents – accumulated amortization
|
|
|
(1,488
|
)
|
|
|
(1,341
|
)
|
|
|
|
(3,537
|
)
|
|
|
(3,273
|
)
|
Net intangible assets
|
|
$
|
1,895
|
|
|
$
|
2,092
|
|
Amortization expense was approximately
$88,000 and $92,000 for the three months ended March 31, 2017 and 2016, respectively, and for the nine months ended March 31, 2017
and 2016, amortization expense was approximately $264,000 and $274,000, respectively. For each of the three and nine months ended
March 31, 2017, the Company did not incur losses on the abandonment of patents. For the three and nine months ended March 31, 2016,
the Company incurred losses on the abandonment of patents of approximately $16,000 and $33,000, respectively.
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 $199,000 and $200,000 at March
31, 2017 and June 30, 2016, respectively. Research and development expenses related to Novici were approximately $225,000 and $244,000
for the three months ended March 31, 2017 and 2016, respectively, and approximately $670,000 and $723,000 for the nine months ended
March 31, 2017 and 2016, respectively.
Fraunhofer
Previously, Fraunhofer had been 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) but expenses have decreased due to changes in technology services
performed pursuant to the agreement with Fiocruz. The accounts payable balance under this three-party agreement includes amounts
due Fraunhofer of approximately $75,000 and $341,000 as of March 31, 2017 and June 30, 2016, respectively, and accrued expenses
of $0 and $122,000 as of March 31, 2017 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 $0 and $357,000 for the three months ended March 31, 2017 and 2016, respectively, and $137,000 and $635,000 for the
nine months ended March 31, 2017 and 2016, 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.
|
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 $75,000 for the three and nine months
ended March 31, 2017, respectively. The percentage rent for the fiscal year ended June 30, 2016 amounted to approximately $27,000.
Interest expense incurred under the capital
lease obligation amounted to $481,000 and $323,000 for the three months ended March 31, 2017 and 2016, respectively, and $1,447,000
and $323,000 for the nine months ended March 31, 2017 and 2016, respectively.
Future minimum payments under the capitalized lease obligations
are due as follows:
Fiscal period ending on:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
March 31, 2018
|
|
$
|
179,693
|
|
|
$
|
1,920,307
|
|
|
$
|
2,100,000
|
|
March 31, 2019
|
|
|
193,758
|
|
|
|
1,906,242
|
|
|
|
2,100,000
|
|
March 31, 2020
|
|
|
208,924
|
|
|
|
1,891,076
|
|
|
|
2,100,000
|
|
March 31, 2021
|
|
|
225,277
|
|
|
|
1,874,723
|
|
|
|
2,100,000
|
|
March 31, 2022
|
|
|
242,911
|
|
|
|
1,857,089
|
|
|
|
2,100,000
|
|
Thereafter
|
|
|
24,257,788
|
|
|
|
34,542,212
|
|
|
|
58,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
25,308,351
|
|
|
$
|
43,991,649
|
|
|
$
|
69,300,000
|
|
Less: current portion
|
|
|
(179,693
|
)
|
|
|
|
|
|
|
|
|
Long-term portion of minimum lease obligations
|
|
$
|
25,128,658
|
|
|
|
|
|
|
|
|
|
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.
iBio CMO Preferred Tracking Stock
On February 23, 2017, the Company entered
into an exchange agreement with the minority owner of the Company’s subsidiary iBio CMO and affiliate (the “Eastern
Affiliate”) of Eastern Capital Limited (“Eastern”), a stockholder of the Company, pursuant to which the Company
acquired substantially all of the interest in iBio CMO held by the Eastern Affiliate and issued one share of a newly created iBio
CMO Preferred Tracking Stock, par value $0.001 per share (the “Preferred Tracking Stock”), to the Eastern Affiliate
at an original issue price of approximately $12.5 million.
As described below under “
Eastern
– Share Purchase Agreements
”, on January 13, 2016, the Company entered into a share purchase agreement with Eastern
which contained a three-year standstill agreement restricting 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. With respect to the standstill agreement,
the Company’s Board of Directors, acting unanimously, invited the Eastern Affiliate to enter into the Exchange Agreement
and approved the issuance of one share of the Company’s Preferred Tracking Stock to the Eastern Affiliate.
On February 23, 2017, the Board of Directors
of the Company created the Preferred Tracking Stock out of the Company’s 1 million authorized shares of preferred stock.
Terms of the Preferred Tracking Stock include the following:
|
1.
|
The Preferred Tracking Stock accrues dividends at
the rate of 2% per annum on the original issue price. Accrued dividends are cumulative and are payable if and when declared by
the Board of Directors, upon an exchange of the shares of Preferred Tracking Stock and upon a liquidation, winding up or deemed
liquidation (such as a merger) of the Company. As of March 31, 2017, no dividends have been declared. Accrued dividends total
approximately $26,000 at March 31, 2017.
|
|
2.
|
The holders of Preferred Tracking Stock, voting separately as a class, are entitled to approve
by the affirmative vote of a majority of the shares of Preferred Tracking Stock outstanding any amendment, alteration or repeal
of any of the provisions of, or any other change to, the Certificate of Incorporation of the Company or the Certificate of Designation
that adversely affects the rights, powers or privileges of the Preferred Tracking Stock, any increase in the number of authorized
shares of Preferred Tracking Stock, the issuance or sale of any additional shares of Preferred Tracking Stock or any securities
convertible into or exercisable or exchangeable for Preferred Tracking Stock, the creation or issuance of any shares of any additional
class or series of capital stock unless the same ranks junior to the Preferred Tracking Stock, or the reclassification or alteration
of any existing security of the Company that is junior to or pari passu with the Preferred Tracking Stock, if such reclassification
or alteration would render such other security senior to the Preferred Tracking Stock.
|
|
3.
|
Except as required by applicable law, the holders of Preferred Tracking Stock have no other voting
rights.
|
|
4.
|
No dividend may be declared or paid or set aside for payment or other distribution declared or
made upon the Company’s common stock and no common stock may be redeemed, purchased or otherwise acquired for any consideration
by the Company unless all accrued dividends on all outstanding shares of Preferred Tracking Stock are paid in full.
|
At the election of the Company or holders
of a majority outstanding shares of Preferred Tracking Stock, each outstanding share of Preferred Tracking Stock may be exchanged
for 29,990,000 units of limited liability company interests of iBio CMO. Such exchange may be effected only after March 31, 2018,
or in connection with a winding up, liquidation or deemed liquidation (such as a merger) of the Company or iBio CMO. In addition,
such exchange will take effect upon a change in control of iBio CMO.
Common Stock
As of March 31, 2017 and June 30, 2016,
the Company was authorized to issue up to 175 million shares of common stock. As of March 31, 2017, 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. The increase of 9,100 shares of common stock outstanding
from 89,109,410 as of June 30, 2016, to 89,118,510 as of March 31, 2017, reflects a correction to the calculation of the number
of outstanding shares of common stock based on a review of the Company’s records.
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 $2,178,000 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 $945,520 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 restricts 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 March 31, 2017 and June
30, 2016.
|
10.
|
Loss Per Common Share
|
Basic loss per common share is computed by
dividing the net loss allocated to common stockholders by the weighted-average number of shares of common stock outstanding during
the period. For purposes of calculating diluted 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 loss per common share calculation (in thousands, except per
share amounts):
|
|
Three Months ended
March 31,
|
|
|
Nine Months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic and diluted numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to iBio, Inc.
|
|
$
|
(3,913
|
)
|
|
$
|
(3,036
|
)
|
|
$
|
(10,203
|
)
|
|
$
|
(7,087
|
)
|
Preferred stock dividends
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
Net loss available to iBio, Inc. stockholders
|
|
$
|
(3,939
|
)
|
|
$
|
(3,036
|
)
|
|
$
|
(10,229
|
)
|
|
$
|
(7,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
89,109
|
|
|
|
81,158
|
|
|
|
89,109
|
|
|
|
78,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amount
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
In Fiscal 2017 and Fiscal 2016, the Company
incurred net losses which cannot be diluted; therefore, basic and diluted loss per common share is the same. As of March 31, 2017,
shares issuable which could potentially dilute future earnings included approximately 12.3 million stock options. As of
March 31, 2016, shares issuable which could potentially dilute future earnings included approximately 12.3 million stock options
and 30,000 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
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
5
|
|
|
$
|
6
|
|
General and administrative
|
|
|
202
|
|
|
|
291
|
|
Totals
|
|
$
|
207
|
|
|
$
|
297
|
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
16
|
|
|
$
|
15
|
|
General and administrative
|
|
|
697
|
|
|
|
925
|
|
Totals
|
|
$
|
713
|
|
|
$
|
940
|
|
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 March 31, 2017, 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.
On March 1, 2017, the Company granted stock options to an officer
to purchase 150,000 shares of common stock. These options vest ratably over a three-year service period, expire ten years from
the date of grant, and have a weighted-average exercise price of $0.40 per share.
The following table summarizes all stock option
activity during the nine months ended March 31, 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
|
|
|
150,000
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(116,665
|
)
|
|
|
1.54
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2017
|
|
|
12,306,669
|
|
|
$
|
1.30
|
|
|
|
5.6
|
|
|
$
|
196
|
|
Vested and, as of March 31, 2017, expected to vest
|
|
|
12,276,498
|
|
|
$
|
1.30
|
|
|
|
5.6
|
|
|
$
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2017
|
|
|
9,478,362
|
|
|
$
|
1.30
|
|
|
|
4.8
|
|
|
$
|
191
|
|
The weighted-average grant date fair value
of stock options granted during the nine months ended March 31, 2017 was $0.35 per share. As of March 31, 2017, there was approximately
$906,000 of total unrecognized compensation cost related to non-vested stock options that the Company expects to recognize over
a weighted-average period of 1.4 years.
The Company estimated the fair value of options granted using the
Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate
|
|
|
2.37
|
%
|
Dividend yield
|
|
|
0
|
%
|
Volatility
|
|
|
104.38
|
%
|
Expected term (in years)
|
|
|
9
|
|
|
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 $945,520 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 March 31, 2017 and June 30, 2016 due to the Second Eastern Affiliate amounted to $784,000
and $623,000, respectively. General and administrative expenses related to Second Eastern Affiliate were approximately $179,000
and $296,000 for the three months ended March 31, 2017 and 2016, respectively, and approximately $526,000 and $374,000 for the
nine months ended March 31, 2017 and 2016, respectively. The terms of the sublease are described in Note 8.
A three-year standstill agreement (the
“Standstill Agreement”) that took effect upon 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.
iBio CMO Preferred Tracking Stock
On February 23, 2017, the Company entered
into an exchange agreement with the minority owner of the Company’s subsidiary iBio CMO and affiliate (the “Eastern
Affiliate”) of Eastern Capital Limited (“Eastern”), a stockholder of the Company, pursuant to which the Company
acquired substantially all of the interest in iBio CMO held by the Eastern Affiliate and issued one share of a newly created iBio
CMO Preferred Tracking Stock, par value $0.001 per share (the “Preferred Tracking Stock”) to the Eastern Affiliate
at an original issue price of approximately $12.5 million.
On February 23, 2017, the Board of Directors
of the Company created the Preferred Tracking Stock out of the Company’s 1 million authorized shares of preferred stock.
Terms of the Preferred Tracking Stock include the following:
|
1.
|
The Preferred Tracking Stock accrues dividends at the rate of 2% per annum on the original issue
price. Accrued dividends are cumulative and are payable if and when declared by the Board of Directors, upon an exchange of the
shares of Preferred Tracking Stock and upon a liquidation, winding up or deemed liquidation (such as a merger) of the Company.
As of March 31, 2017, no dividends have been declared. Accrued dividends total approximately $26,000 at March 31, 2017.
|
|
2.
|
The holders of Preferred Tracking Stock, voting separately as a class, are entitled to approve
by the affirmative vote of a majority of the shares of Preferred Tracking Stock outstanding any amendment, alteration or repeal
of any of the provisions of, or any other change to, the Certificate of Incorporation of the Company or the Certificate of Designation
that adversely affects the rights, powers or privileges of the Preferred Tracking Stock, any increase in the number of authorized
shares of Preferred Tracking Stock, the issuance or sale of any additional shares of Preferred Tracking Stock or any securities
convertible into or exercisable or exchangeable for Preferred Tracking Stock, the creation or issuance of any shares of any additional
class or series of capital stock unless the same ranks junior to the Preferred Tracking Stock, or the reclassification or alteration
of any existing security of the Company that is junior to or pari passu with the Preferred Tracking Stock, if such reclassification
or alteration would render such other security senior to the Preferred Tracking Stock.
|
|
3.
|
Except as required by applicable law, the holders of Preferred Tracking Stock have no other voting
rights.
|
|
4.
|
No dividend may be declared or paid or set aside for payment or other distribution declared or
made upon the Company’s common stock and no common stock may be redeemed, purchased or otherwise acquired for any consideration
by the Company unless all accrued dividends on all outstanding shares of Preferred Tracking Stock are paid in full.
|
At the election of the Company or holders
of a majority outstanding shares of Preferred Tracking Stock, each outstanding share of Preferred Tracking Stock may be exchanged
for 29,990,000 units of limited liability company interests of iBio CMO. Such exchange may be effected only after March 31, 2018,
or in connection with a winding up, liquidation or deemed liquidation (such as a merger) of the Company or iBio CMO. In addition,
such exchange will take effect upon a change in control of iBio CMO.
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, increased to $2,500 per month effective December 2015 and increased again to $7,400 per month
effective March 2017. Rent expense totaled $12,500 and $7,500 for the three months ended March 31, 2017 and 2016, respectively,
and $27,500 and $21,300 for the nine months ended March 31, 2017 and 2016, respectively.
The Company recorded no income tax expense
for the nine months ended March 31, 2017 and 2016 because the estimated annual effective tax rate was zero. As of March 31, 2017,
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 was at least $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 was at least $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. 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, 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 was entitled to receive a
technology transfer from Fraunhofer. Fraunhofer’s motion to dismiss iBio’s contract claims was denied
by the Court on February 24, 2017. The Court at that time also granted, over Fraunhofer’s opposition, iBio’s
motion to supplement and amend the Complaint to add additional state law claims against Fraunhofer. 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 final hearing was held on April 24, 2017. On May 3, 2017, the Court entered a Final
Order and Judgment approving the settlement and dismissing the action. 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 nine months ended March 31, 2017 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 March 31, 2017 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CMO
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers
|
|
$
|
-
|
|
|
$
|
37
|
|
|
$
|
-
|
|
|
$
|
37
|
|
Revenues – intersegment
|
|
|
283
|
|
|
|
361
|
|
|
|
(644
|
)
|
|
|
-
|
|
Research and development
|
|
|
1,033
|
|
|
|
472
|
|
|
|
(369
|
)
|
|
|
1,136
|
|
General and administrative
|
|
|
1,276
|
|
|
|
1,836
|
|
|
|
(275
|
)
|
|
|
2,837
|
|
Operating loss
|
|
|
(2,026
|
)
|
|
|
(1,910
|
)
|
|
|
-
|
|
|
|
(3,936
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(481
|
)
|
|
|
-
|
|
|
|
(481
|
)
|
Interest and other income
|
|
|
8
|
|
|
|
4
|
|
|
|
-
|
|
|
|
12
|
|
Consolidated net loss
|
|
|
(2,018
|
)
|
|
|
(2,387
|
)
|
|
|
-
|
|
|
|
(4,405
|
)
|
Total assets
|
|
|
20,573
|
|
|
|
32,680
|
|
|
|
(12,555
|
)
|
|
|
40,698
|
|
Fixed assets, net
|
|
|
8
|
|
|
|
25,786
|
|
|
|
-
|
|
|
|
25,794
|
|
Intangible assets, net
|
|
|
1,895
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,895
|
|
Depreciation expense
|
|
|
1
|
|
|
|
336
|
|
|
|
-
|
|
|
|
337
|
|
Amortization of intangible assets
|
|
|
88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
Three Months Ended March 31, 2016 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CMO *
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers
|
|
$
|
371
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
379
|
|
Revenues – intersegment
|
|
|
-
|
|
|
|
129
|
|
|
|
(129
|
)
|
|
|
-
|
|
Research and development
|
|
|
951
|
|
|
|
226
|
|
|
|
(129
|
)
|
|
|
1,048
|
|
General and administrative
|
|
|
1,532
|
|
|
|
871
|
|
|
|
-
|
|
|
|
2,403
|
|
Operating loss
|
|
|
(2,112
|
)
|
|
|
(960
|
)
|
|
|
-
|
|
|
|
(3,072
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(323
|
)
|
|
|
-
|
|
|
|
(323
|
)
|
Interest and other income
|
|
|
8
|
|
|
|
2
|
|
|
|
-
|
|
|
|
10
|
|
Consolidated net loss
|
|
|
(2,104
|
)
|
|
|
(1,281
|
)
|
|
|
-
|
|
|
|
(3,385
|
)
|
Total assets
|
|
|
11,015
|
|
|
|
39,690
|
|
|
|
(40
|
)
|
|
|
50,665
|
|
Fixed assets, net
|
|
|
13
|
|
|
|
25,762
|
|
|
|
-
|
|
|
|
25,775
|
|
Intangible assets, net
|
|
|
2,139
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,139
|
|
Depreciation expense
|
|
|
2
|
|
|
|
259
|
|
|
|
-
|
|
|
|
261
|
|
Amortization of intangible assets
|
|
|
92
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2017 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CMO
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers
|
|
$
|
161
|
|
|
$
|
86
|
|
|
$
|
-
|
|
|
$
|
247
|
|
Revenues – intersegment
|
|
|
695
|
|
|
|
950
|
|
|
|
(1,645
|
)
|
|
|
-
|
|
Research and development
|
|
|
2,733
|
|
|
|
1,240
|
|
|
|
(968
|
)
|
|
|
3,005
|
|
General and administrative
|
|
|
3,864
|
|
|
|
4,470
|
|
|
|
(677
|
)
|
|
|
7,657
|
|
Operating loss
|
|
|
(5,741
|
)
|
|
|
(4,674
|
)
|
|
|
-
|
|
|
|
(10,415
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(1,447
|
)
|
|
|
-
|
|
|
|
(1,447
|
)
|
Interest and other income
|
|
|
35
|
|
|
|
18
|
|
|
|
-
|
|
|
|
53
|
|
Consolidated net loss
|
|
|
(5,706
|
)
|
|
|
(6,103
|
)
|
|
|
-
|
|
|
|
(11,809
|
)
|
Total assets
|
|
|
20,573
|
|
|
|
32,680
|
|
|
|
(12,555
|
)
|
|
|
40,698
|
|
Fixed assets, net
|
|
|
8
|
|
|
|
25,786
|
|
|
|
-
|
|
|
|
25,794
|
|
Intangible assets, net
|
|
|
1,895
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,895
|
|
Depreciation expense
|
|
|
3
|
|
|
|
984
|
|
|
|
-
|
|
|
|
987
|
|
Amortization of intangible assets
|
|
|
264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
264
|
|
Nine Months Ended March 31, 2016 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CMO *
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers
|
|
$
|
665
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
673
|
|
Revenues – intersegment
|
|
|
-
|
|
|
|
129
|
|
|
|
(129
|
)
|
|
|
-
|
|
Research and development
|
|
|
2,192
|
|
|
|
240
|
|
|
|
(129
|
)
|
|
|
2,303
|
|
General and administrative
|
|
|
4,550
|
|
|
|
959
|
|
|
|
-
|
|
|
|
5,509
|
|
Operating loss
|
|
|
(6,077
|
)
|
|
|
(1,062
|
)
|
|
|
-
|
|
|
|
(7,139
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(323
|
)
|
|
|
-
|
|
|
|
(323
|
)
|
Interest and other income
|
|
|
24
|
|
|
|
2
|
|
|
|
-
|
|
|
|
26
|
|
Consolidated net loss
|
|
|
(6,053
|
)
|
|
|
(1,383
|
)
|
|
|
-
|
|
|
|
(7,436
|
)
|
Total assets
|
|
|
11,015
|
|
|
|
39,690
|
|
|
|
(40
|
)
|
|
|
50,665
|
|
Fixed assets, net
|
|
|
13
|
|
|
|
25,762
|
|
|
|
-
|
|
|
|
25,775
|
|
Intangible assets, net
|
|
|
2,139
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,139
|
|
Depreciation expense
|
|
|
4
|
|
|
|
259
|
|
|
|
-
|
|
|
|
263
|
|
Amortization of intangible assets
|
|
|
274
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274
|
|
|
*
|
iBio CMO commenced operations in December 2015
|
PROSPECTUS
IBIO, INC.
17,814,790
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August 14,
2017
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