Item 1. Financial Statements.
iBio, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, except share and per share
amounts)
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
|
|
(Unaudited)
|
|
|
(See Note 2)
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16,010
|
|
|
$
|
15,934
|
|
Accounts receivable - trade
|
|
|
119
|
|
|
|
75
|
|
Prepaid expenses and other current assets
|
|
|
206
|
|
|
|
276
|
|
Total Current Assets
|
|
|
16,335
|
|
|
|
16,285
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation
|
|
|
24,981
|
|
|
|
25,152
|
|
Intangible assets, net of accumulated amortization
|
|
|
1,554
|
|
|
|
1,620
|
|
Security deposit
|
|
|
26
|
|
|
|
26
|
|
Total Assets
|
|
$
|
42,896
|
|
|
$
|
43,083
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable (related party of $185 and $189 as of September 30, 2018 and June 30, 2018, respectively)
|
|
$
|
692
|
|
|
$
|
790
|
|
Accrued expenses (related party of $812 and $789 as of September 30, 2018 and June 30, 2018, respectively)
|
|
|
1,125
|
|
|
|
1,048
|
|
Capital lease obligation – current portion
|
|
|
201
|
|
|
|
197
|
|
Deferred revenue
|
|
|
3,018
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
5,036
|
|
|
|
2,035
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation - net of current portion
|
|
|
24,832
|
|
|
|
24,884
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
29,868
|
|
|
|
26,919
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
iBio, Inc. Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock – no par value; 1,000,000 shares authorized;
iBio CMO Preferred Tracking Stock; 1 share authorized, issued and outstanding as of both September 30, 2018 and June 30, 2018
|
|
|
-
|
|
|
|
-
|
|
Series A Convertible Preferred Stock - $1,000 stated value; 6,300 shares authorized; 5,493 and 6,210 shares issued and outstanding as of September 30, 2018 and June 30, 2018, respectively
|
|
|
-
|
|
|
|
-
|
|
Series B Convertible Preferred Stock - $1,000 stated value; 5,785 shares authorized; 5,785 shares issued and outstanding as of both September 30, 2018 and June 30, 2018
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.001 par value; 275,000,000 shares authorized; 18,336,792 and 16,040,126 shares issued and outstanding as of September 30, 2018 and June 30, 2018, respectively
|
|
|
18
|
|
|
|
16
|
|
Additional paid-in capital
|
|
|
105,670
|
|
|
|
104,408
|
|
Accumulated other comprehensive loss
|
|
|
(31
|
)
|
|
|
(30
|
)
|
Accumulated deficit
|
|
|
(92,626
|
)
|
|
|
(88,228
|
)
|
Total iBio, Inc. Stockholders’ Equity
|
|
|
13,031
|
|
|
|
16,166
|
|
Noncontrolling interest
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Total Equity
|
|
|
13,028
|
|
|
|
16,164
|
|
Total Liabilities and Equity
|
|
$
|
42,896
|
|
|
$
|
43,083
|
|
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
|
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
$
|
45
|
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development (related parties of $259 and $176), net of $0 and $44 in grant income
|
|
|
1,124
|
|
|
|
985
|
|
General and administrative (related parties of $261 and $206)
|
|
|
2,871
|
|
|
|
2,498
|
|
Total operating expenses
|
|
|
3,995
|
|
|
|
3,483
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,950
|
)
|
|
|
(3,361
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense (related party of $476 and $480)
|
|
|
(476
|
)
|
|
|
(480
|
)
|
Interest income
|
|
|
21
|
|
|
|
5
|
|
Royalty income
|
|
|
6
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(449
|
)
|
|
|
(466
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
|
(4,399
|
)
|
|
|
(3,827
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
1
|
|
|
|
1
|
|
Net loss attributable to iBio, Inc.
|
|
|
(4,398
|
)
|
|
|
(3,826
|
)
|
Preferred stock dividends
|
|
|
(66
|
)
|
|
|
(66
|
)
|
Net loss available to iBio, Inc.
|
|
$
|
(4,464
|
)
|
|
$
|
(3,892
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(4,399
|
)
|
|
$
|
(3,827
|
)
|
Other comprehensive loss - foreign currency translation adjustments
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(4,400
|
)
|
|
$
|
(3,827
|
)
|
|
|
|
|
|
|
|
|
|
Loss per common share attributable to iBio, Inc. stockholders – basic and diluted
|
|
$
|
(0.25
|
)
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding – basic and diluted
|
|
|
17,894
|
|
|
|
9,185
|
|
Share and per share data for the three months
ended September 30, 2017 have been adjusted to reflect the one-for-ten reverse stock split effective June 8, 2018.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
iBio, Inc. and Subsidiaries
Condensed Consolidated Statement of Equity
Three Months Ended September 30, 2018 and
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, 2018
|
|
|
12
|
|
|
$
|
-
|
|
|
|
16,040
|
|
|
$
|
16
|
|
|
$
|
104,408
|
|
|
$
|
(30
|
)
|
|
$
|
(88,228
|
)
|
|
$
|
(2
|
)
|
|
$
|
16,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
1
|
|
|
|
1,349
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs to raise capital
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
797
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,398
|
)
|
|
|
(1
|
)
|
|
|
(4,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2018
|
|
|
11
|
|
|
$
|
-
|
|
|
|
18,337
|
|
|
$
|
18
|
|
|
$
|
105,670
|
|
|
$
|
(31
|
)
|
|
$
|
(92,626
|
)
|
|
$
|
(3
|
)
|
|
$
|
13,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
8,912
|
|
|
$
|
9
|
|
|
$
|
81,057
|
|
|
$
|
(29
|
)
|
|
$
|
(72,123
|
)
|
|
$
|
1
|
|
|
$
|
8,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment fee for issuance of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
120
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
205
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,826
|
)
|
|
|
(1
|
)
|
|
|
(3,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
9,282
|
|
|
$
|
9
|
|
|
$
|
82,262
|
|
|
$
|
(29
|
)
|
|
$
|
(75,949
|
)
|
|
$
|
-
|
|
|
$
|
6,293
|
|
Share and per share data have been adjusted
for the three months ended September 30, 2017 presented to reflect the one-for-ten reverse stock split effective June 8, 2018.
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)
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(4,399
|
)
|
|
$
|
(3,827
|
)
|
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
73
|
|
|
|
205
|
|
Amortization of intangible assets
|
|
|
83
|
|
|
|
85
|
|
Depreciation
|
|
|
360
|
|
|
|
338
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
|
(44
|
)
|
|
|
(85
|
)
|
Work in process
|
|
|
-
|
|
|
|
26
|
|
Prepaid expenses and other current assets
|
|
|
70
|
|
|
|
77
|
|
Accounts payable
|
|
|
(16
|
)
|
|
|
(78
|
)
|
Accrued expenses
|
|
|
77
|
|
|
|
123
|
|
Deferred revenue
|
|
|
3,018
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(778
|
)
|
|
|
(3,017
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions to intangible assets
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Purchases of fixed assets
|
|
|
(274
|
)
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(289
|
)
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
1,350
|
|
|
|
1,000
|
|
Costs to raise capital
|
|
|
(159
|
)
|
|
|
-
|
|
Payment of capital lease obligation
|
|
|
(48
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,143
|
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
76
|
|
|
|
(2,172
|
)
|
Cash - beginning of period
|
|
|
15,934
|
|
|
|
8,088
|
|
Cash - end of period
|
|
$
|
16,010
|
|
|
$
|
5,916
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash activities:
|
|
|
|
|
|
|
|
|
Unpaid intangible assets included in accounts payable
|
|
$
|
3
|
|
|
$
|
7
|
|
Intangible assets included in accounts payable in prior period, paid in current period
|
|
$
|
2
|
|
|
$
|
11
|
|
Unpaid fixed assets included in accounts payable
|
|
$
|
-
|
|
|
$
|
9
|
|
Fixed assets included in accounts payable in prior period, paid in current period
|
|
$
|
85
|
|
|
$
|
87
|
|
Conversion of preferred stock into common stock
|
|
$
|
1
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
477
|
|
|
$
|
481
|
|
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 using our proprietary technologies and production facilities
to provide product development and manufacturing services to clients, collaborators and third-party customers as well as developing
and commercializing our own product candidates.
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:
iBio CDMO LLC
(“iBio
CDMO”) (originally named iBio CMO LLC) – iBio CDMO is a Delaware limited liability company formed on December 16, 2015
as iBio CMO, LLC to develop and manufacture plant-made pharmaceuticals and provide related services to clients. Effective July
1, 2017, iBio CMO changed its name to iBio CDMO. As of December 31, 2015, the Company owned 100% of iBio CDMO. 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 CDMO. The Company retained a 70% interest in iBio CDMO and contributed a royalty-bearing license which grants
iBio CDMO 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 CDMO 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 CDMO. See Note 9 for
a further discussion.
iBio CDMO’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 located on land owned by the Texas A&M
system, designed and equipped for plant-made manufacture of biopharmaceuticals. The Second Eastern Affiliate granted iBio CDMO
a 34-year capital lease for the facility as well as certain equipment (see Note 8). iBio CDMO commenced commercial operations in
January 2016. iBio CDMO 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/or other proprietary iBio products; and (3) Commercial technology transfer services including facility design, as needed.
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 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.
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, 2018, from which the accompanying condensed consolidated balance sheet dated June 30, 2018 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.
Reverse Stock Split
On
May 23, 2018, the Company's Board of Directors approved the implementation of a reverse stock split at a ratio of one-for-ten (1
:
10)
shares of the Company's Common Stock. The reverse stock split was effective as of June 8, 2018. All share and per share amounts
of our common stock presented for the three months ended September 30, 2017 have been retroactively adjusted to reflect the one-for-ten
reverse stock split. See Note 9 for more information.
Liquidity
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 September 30, 2018, the Company’s accumulated deficit was $92.6 million. For the three months ended September 30, 2018,
the Company’s net loss was approximately $4.4 million and it had cash used in operating activities of $778,000. As of September
30, 2018, cash on hand is approximately $16.0 million which is expected to support the Company's activities until at least November
15, 2019.
On June 26, 2018,
the Company closed on an underwritten public offering with total gross proceeds of approximately $16,000,000, before deducting
underwriting discounts, commissions and other offering expenses payable by the Company. The securities offered by the Company consisted
of (i) 4,350,000 shares of Common Stock at $0.90 per share, (ii) 6,300 shares of Series A Convertible Preferred Stock, with a stated
value of $1,000 per preferred share, and convertible into an aggregate of 7,000,000 shares of Common Stock at $0.90 per share,
(iii) 5,785 shares of Series B Convertible Preferred Stock, with a stated value of $1,000 per preferred share, and convertible
into an aggregate of 6,427,778 shares of Common Stock at $0.90 per share. The Company granted the underwriters, Alliance Global
Partners, a 45-day option to purchase up to an additional 2,666,666 shares of common stock to cover over-allotments, if any. On
July 12, 2018, the Company received approximately $1,350,000, before deducting underwriting discounts, commissions and other offering
expenses payable by the Company, from the proceeds of the sale of 1,500,000 over-allotment shares of Common Stock purchased at
$0.90 by the underwriter during the 45-day provision.
In addition, in June 2018, iBio established
a strategic commercial relationship with CC-Pharming Ltd. of Beijing, China (“CC-Pharming”) for the joint development
of products and manufacturing facilities for the Chinese biopharmaceutical market, utilizing iBio’s technology. The first
product focus selected pursuant to the Master Joint Development Agreement executed between iBio and CC-Pharming is a therapeutic
antibody, and during the quarter ending September 30, 2018, iBio received prepayments of $2.9 million classified as deferred revenue
on the September 30, 2018 balance sheet.
In the past, the
history of significant losses, the negative cash flow from operations, the limited cash resources 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 had raised substantial doubt about the Company's ability to continue as a going
concern. The Company will fund its business operations using cash on hand and through proceeds realized in connection with the
commercialization of its technologies and proprietary products, license and collaboration arrangements and the operation of iBio
CDMO. We believe the total gross proceeds from the June 26, 2018, public offering and related over allotment totaling $17,350,000
described above, in conjunction with the generation of revenue from the implementation of our new business plan will provide the
Company with adequate cash on hand to support the Company's activities for at least one year from this report date.
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.
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. For the three months
ended September 30, 2018 and 2017, any translation adjustments were considered immaterial and did not have a significant impact
on the Company's consolidated financial statements.
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, 2018.
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
Effective July 1, 2018, the Company adopted
ASU No. 2014-09, "
Revenue from Contracts with Customers
" ("ASU 2014-09") and other associated standards.
Under the new standard, the Company recognizes revenue when a customer obtains control of promised services or goods in an amount
that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the
standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts.
The Company evaluated the new guidance and its adoption did not have a significant impact on the Company’s financial statements
and a cumulative effect adjustment under the modified retrospective method of adoption was not necessary. There is no change to
the Company’s accounting policies. Prior to the adoption of ASU 2014-09, the Company recognized revenue when persuasive evidence
of an arrangement existed, delivery occurred, the fee was fixed or determinable, and collectability was 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. For the quarter ending September 30, 2018
and during Fiscal 2018, the Company did not have any revenue arrangements with multiple deliverables.
The Company generates (or may generate in the future)
contract revenue under the following types of contracts:
Fixed-Fee
Under a fixed-fee contract, the
Company charges a fixed agreed upon amount for a deliverable. Fixed-fee contracts have fixed deliverables upon completion of the
project. Typically, the Company recognizes revenue for fixed-fee contracts after projects are completed, delivery is made and title
transfers to the customer, and collection is reasonably assured.
Time and Materials
Under a time and materials contract,
the Company charges customers an hourly rate plus reimbursement for other project specific costs. The Company recognizes revenue
for time and material contracts based on the number of hours devoted to the project multiplied by the customer’s billing
rate plus other project specific costs incurred.
Grant Income
Grants are recognized as income
when all conditions of such grants are fulfilled or there is a reasonable assurance that they will be fulfilled. Grant income is
classified as a reduction of research and development expenses. Grant income amounted to approximately $0 and $44,000 for the three
months ended September 30, 2018 and 2017, respectively.
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 $0 at both September
30, 2018 and June 30, 2018.
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 Notes 5 and 8).
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 three months ended September 30, 2018 and 2017.
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. For the three months ended September 30, 2018 and 2017, any translation adjustments were considered immaterial and did not
have a significant impact on the Company's consolidated financial statements.
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.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
“
Leases (Topic 842)
” (“ASU 2016-02”) which supersedes existing guidance on accounting for leases
in “
Leases (Topic 840)
.” The standard requires lessees to recognize the assets and liabilities that arise
from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease payments (the
lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new
guidance is effective for annual reporting periods beginning after December 15, 2018 (quarter ending September 30, 2019 for the
Company) and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period
presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual
reporting period. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements.
Effective July 1, 2017, the Company adopted
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. The Company will
continue to estimate forfeitures at each reporting period, rather than electing an accounting policy change to record the impact
of such forfeitures as they occur. The adoption of ASU 2016-09 did not have a significant impact on the Company's consolidated
financial statements.
Effective July 1, 2018, the Company adopted
ASU 2016-15, “
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
”
(“ASU 2016-15”). ASU 2016-15 made eight targeted changes to how cash receipts and cash payments are presented and classified
in the statement of cash flows. The new standard requires 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 adoption of ASU
2016-15 did not have a significant impact on the Company's consolidated financial statements.
Effective July 1, 2018, the Company adopted
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 requires entities to recognize the income tax consequences of an intra-entity transfer of non-inventory asset
when the transfer occurs. The adoption of ASU 2016-16 did not have a significant impact on the Company's consolidated financial
statements.
Effective July 1, 2017, the Company adopted
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. The adoption of ASU 2016-17 did not have a significant impact on the Company's consolidated
financial statements.
Effective July 1, 2018, the Company adopted
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 adoption of ASU 2017-01 did not have
a significant impact on the Company’s consolidated financial statements.
Effective July 1, 2018, the Company adopted
ASU 2017-09, “
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting”(“ASU 2017-09”)
which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. The adoption of ASU 2017-09 did not have a significant impact on the Company’s consolidated
financial statements.
Effective April 1, 2018, the Company adopted
ASU No. 2017-11, “
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and
Hedging (Topic 815)
” (“ASU 2017-11”). The amendments in Part I of ASU 2017-11 change the classification analysis
of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain
financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity
classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing
disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded
conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down
round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings
per share (“EPS”) in accordance with ASC 260 to recognize the effect of the down round feature when it is triggered.
That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments
with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial
conversion features (in ASC 470-20, “
Debt—Debt with Conversion and Other Options
”), including related
EPS guidance (in ASC 260). The amendments in Part II of ASU 2017-11 recharacterize the indefinite deferral of certain provisions
of ASC 480 that now are presented as pending content in the codification, to a scope exception. Those amendments do not have an
accounting effect. As a result of the adoption of ASU 2017-11, the Company classified the proceeds received from the sale of its
preferred stock as equity (see Note 9).
In June 2018, the FASB issued ASU No. 2018-07,
“
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
”
(“ASU 2018-07”). ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring
goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions
in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based
payment awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years (quarter ending September 30, 2019 for the Company). Early adoption is permitted, but no earlier than an entity’s
adoption date of Topic 606. The Company will evaluate the effects of adopting ASU 2018-07 if and when it is deemed to be applicable.
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
condensed consolidated financial statements. Most of the newer standards issued represent technical corrections to the accounting
literature or application to specific industries which have no effect on the Company’s condensed consolidated financial statements.
4.
|
Financial Instruments and Fair Value Measurement
|
The carrying values of cash, accounts receivable
and accounts payable in the Company’s condensed consolidated balance sheets approximated their fair values as of September
30, 2018 and June 30, 2018 due to their short-term nature. The carrying value of the capital lease obligation approximated its
fair value as of September 30, 2018 and June 30, 2018 as the interest rate used to discount the lease payments approximated market.
iBio CDMO 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):
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
Facility under capital lease
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Equipment under capital lease
|
|
|
6,000
|
|
|
|
6,000
|
|
Facility improvements
|
|
|
1,049
|
|
|
|
982
|
|
Medical equipment
|
|
|
1,161
|
|
|
|
1,038
|
|
Office equipment and software
|
|
|
402
|
|
|
|
404
|
|
|
|
|
28,612
|
|
|
|
28,424
|
|
Accumulated depreciation – assets under capital lease
|
|
|
(3,333
|
)
|
|
|
(3,027
|
)
|
Accumulated depreciation – other
|
|
|
(298
|
)
|
|
|
(245
|
)
|
|
|
|
(3,631
|
)
|
|
|
(3,272
|
)
|
Net fixed assets
|
|
$
|
24,981
|
|
|
$
|
25,152
|
|
Depreciation expense was approximately
$360,000 and $338,000 for the three months ended September 30, 2018 and 2017, respectively. Depreciation of the assets under the
capital lease amounted to approximately $306,000 for both of the three months ended September 30, 2018 and 2017.
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 further developed by and acquired from Fraunhofer as
iBioLaunch™ technology or as iBioModulator™ technology. The value on the Company’s books attributed to patents
owned or controlled by the Company is based only on payments for services and fees related to the protection of the Company’s
patent portfolio. The intellectual property also includes certain trademarks.
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") – initially became due on December 1, 2015, and on August 11,
2016, the agreement was amended and subsequent six-month extensions have been automatically granted extending the due date until
December 31, 2017, at which time, the Company and the university agreed to set a new milestone schedule and are currently undergoing
an analysis based on new data and revised forecasted timelines.
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 10 years and other intellectual property is amortized over a period from 16 to 23 years. The Company
reviews the carrying value of its intangible assets for impairment whenever events or changes in business circumstances indicate
the carrying amount of such assets may not be fully recoverable. Evaluating for impairment requires judgment, and recoverability
is assessed by comparing the projected undiscounted net cash flows of the assets over the remaining useful life to the carrying
amount. Impairments, if any, are based on the excess of the carrying amount over the fair value of the assets. There were no impairment
charges during Fiscal 2019 and Fiscal 2018.
The following table summarizes by category the gross carrying
value and accumulated amortization of intangible assets (in thousands):
|
|
September 30,
2018
|
|
|
June 30,
2018
|
|
Intellectual property – gross carrying value
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
Patents – gross carrying value
|
|
|
2,501
|
|
|
|
2,484
|
|
|
|
|
5,601
|
|
|
|
5,584
|
|
Intellectual property – accumulated amortization
|
|
|
(2,282
|
)
|
|
|
(2,243
|
)
|
Patents – accumulated amortization
|
|
|
(1,765
|
)
|
|
|
(1,721
|
)
|
|
|
|
(4,047
|
)
|
|
|
(3,964
|
)
|
Net intangible assets
|
|
$
|
1,554
|
|
|
$
|
1,620
|
|
Amortization expense was approximately
$83,000 and $85,000 for the three months ended September 30, 2018 and 2017, 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 $178,000 and $181,000 at September
30, 2018 and June 30, 2018, respectively. Research and development expenses related to Novici were approximately $259,000 and $176,000
for the three months ended September 30, 2018 and 2017, 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 and a decrease 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 as of both September 30, 2018 and June 30, 2018. 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. In both Fiscal 2019 and Fiscal 2018, under the
Amended Agreement, no revenue was recognized 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. iBio
and Fiocruz are currently evaluating plans for further collaboration without prospective reliance on older Fraunhofer-derived
technology and data.
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. On November 3, 2017, the Company filed a Verified Complaint in the Court of Chancery of the State of Delaware against
Fraunhofer-Gesellschaft, the European unit of Fraunhofer. This complaint follows iBio’s pending litigation filed in March
2015 against Fraunhofer USA, Inc., the U.S. unit of Fraunhofer. See Note 14 - Lawsuits for additional information.
8.
|
Capital Lease Obligation
|
As discussed above, iBio CDMO is leasing
its facility in Bryan, Texas as well as certain equipment from the Second Eastern Affiliate under a 34-year sublease (the “sublease”).
iBio CDMO began operations at the facility on December 22, 2015 pursuant to agreements between iBio CDMO and the Second Eastern
Affiliate granting iBio CDMO temporary rights to access the facility. These temporary agreements were superseded by the Sublease
Agreement, dated January 13, 2016, between iBio CDMO and the Second Eastern Affiliate. The 34-year term of the sublease may be
extended by iBio CDMO for a ten-year period, so long as iBio CDMO is not in default under the sublease. Under the sublease, iBio
CDMO 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 (“CPI”). 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 CDMO 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 CDMO
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 CDMO’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 CDMO 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 $87,000 and $17,000 for the three months ended September
30, 2018 and 2017, respectively.
Interest expense incurred under the capital
lease obligation amounted to approximately $476,000 and $480,000 for the three months ended September 30, 2018 and 2017, respectively.
Future minimum payments under the capitalized
lease obligation are due as follows:
Fiscal period ending on September 30,:
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
2019
|
|
$
|
201,198
|
|
|
$
|
1,898,802
|
|
|
$
|
2,100,000
|
|
2020
|
|
|
216,947
|
|
|
|
1,883,053
|
|
|
|
2,100,000
|
|
2021
|
|
|
233,928
|
|
|
|
1,866,072
|
|
|
|
2,100,000
|
|
2022
|
|
|
252,238
|
|
|
|
1,847,762
|
|
|
|
2,100,000
|
|
2023
|
|
|
271,982
|
|
|
|
1,828,018
|
|
|
|
2,100,000
|
|
Thereafter
|
|
|
23,857,311
|
|
|
|
31,792,689
|
|
|
|
55,650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
25,033,604
|
|
|
$
|
41,116,396
|
|
|
$
|
66,150,000
|
|
Less: current portion
|
|
|
(201,198
|
)
|
|
|
|
|
|
|
|
|
Long-term portion of minimum lease obligations
|
|
$
|
24,832,406
|
|
|
|
|
|
|
|
|
|
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 Eastern Affiliate pursuant to which the Company acquired substantially all of the interest
in iBio CDMO 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”), in exchange for 29,990,000 units of limited liability company interests
of iBio CDMO held by the Eastern Affiliate at an original issue price of $13 million. After giving effect to the transactions contemplated
in the Exchange Agreement, the Company owns 99.99% and the Eastern Affiliate owns 0.01% of iBio CDMO.
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 September 30, 2018, no dividends have been declared. Accrued dividends total approximately $416,000 and $350,000 at September 30, 2018 and June 30, 2018, respectively.
|
|
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 CDMO. 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 CDMO. In addition,
such exchange will take effect upon a change in control of iBio CDMO.
Series A Convertible Preferred Stock
(“Series A Preferred”)
On June 20, 2018, the Board of Directors
of the Company created the Series A Preferred, par value $0.001 per share, out of the Company’s 1 million authorized shares
of preferred stock. Terms of the Series A Preferred include the following:
|
1.
|
Each share of Series A Preferred is convertible into an amount of shares of common stock determined by dividing the stated value of $1,000 by the conversion price of $0.90. The number of shares of common stock to be received is limited by the beneficial ownership limitation as defined in the certificate of designation. Subject to limited exceptions, a holder of Series A Preferred will not have the right to exercise any portion of its Series A Preferred if such holder, together with its affiliates, would beneficially own over 4.99% of the number of shares of our common stock outstanding immediately after giving effect to such exercise; provided, however, that upon 61 days’ prior notice to us, such holder may increase the such limitation, provided that in no event will the limitation exceed 9.99%.
|
|
2.
|
Holders
are entitled to dividends on shares of Series A Preferred equal (on an as-if-converted-to-common stock basis, without regards
to conversion limitations) to and in the same form as dividends actually paid on shares of the common stock, when, as and if such
dividends are paid on shares of common stock. No other dividends shall be paid or accrued on the shares of Series A Preferred.
|
|
3.
|
Holders
have no voting rights except as defined in the certificate of designation.
|
|
4.
|
If at any time the Company grants, issues or sells any common stock equivalents or rights to purchase stock, warrants, securities or other property pro rata to the holders of any class of common stock, then the holder(s) of Series A Preferred will be entitled to acquire, upon the terms applicable to such purchase rights, the aggregate purchase rights which the holder could have acquired if the holder had held the number of shares of common stock acquirable upon the complete conversion of such holder’s Series A Preferred (as defined).
|
|
5.
|
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders shall be entitled to receive the same amount that a holder of common stock would receive if the Series A Preferred were fully converted (disregarding for such purposes any conversion limitations hereunder) into common stock at the conversion price of $0.90 per share. Such amounts shall be paid pari passu with all holders of common stock and the Series B Convertible Preferred Stock.
|
|
6.
|
The Company is required that it will at all times, reserve and keep available out of its authorized and unissued shares of common stock, for the sole purpose of issuance upon the conversion of the Series A Preferred, not less than such aggregate number of shares of the common stock as shall be issuable upon the conversion of the then outstanding shares of the Series A Preferred.
|
On June 26, 2018, the Company issued 6,300
shares of Series A Preferred as part of a public offering. As the market price of the Company’s common stock was $0.90 on
the date of the issuance of the Series A Preferred, no beneficial conversion feature was recognized on the conversion option. At
September 30, 2018, 807 shares of Series A Preferred had been converted into 896,666 shares of common stock. See the section below
entitled
“Public Offering - Alliance Global Partners”
for further information.
Series B Convertible Preferred Stock
(“Series B Preferred”)
On June 20, 2018, the Board of Directors
of the Company created the Series B Preferred, par value $0.001 per share, out of the Company’s 1 million authorized shares
of preferred stock. Terms of the Series B Preferred include the following:
|
1.
|
Each share of Series B Preferred is convertible into an amount of shares of common stock determined by dividing the stated value of $1,000 by the conversion price of $0.90. The number of shares of common stock to be received is limited by the beneficial ownership limitation as defined in the certificate of designation. Subject to limited exceptions, a holder of Series B Preferred will not have the right to exercise any portion of its Series B Preferred if such holder, together with its affiliates, would beneficially own over 48% of the number of shares of our common stock outstanding immediately after giving effect to such exercise.
|
|
2.
|
Holders are entitled to dividends on shares of Series B Preferred equal (on an as-if-converted-to-common stock basis, without regards to conversion limitations) to and in the same form as dividends actually paid on shares of the common stock, when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid or accrued on the shares of Series B Preferred.
|
|
3.
|
Holders have no voting rights except as defined in the certificate of designation.
|
|
4.
|
If at any time the Company grants, issues or sells any common stock equivalents or rights to purchase stock, warrants, securities or other property pro rata to the holders of any class of common stock, then the holder(s) of Series B Preferred will be entitled to acquire, upon the terms applicable to such purchase rights, the aggregate purchase rights which the holder could have acquired if the holder had held the number of shares of common stock acquirable upon the complete conversion of such holder’s Series B Preferred (as defined).
|
|
5.
|
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders shall be entitled to receive the same amount that a holder of common stock would receive if the Series B Preferred were fully converted (disregarding for such purposes any conversion limitations hereunder) into common stock at the conversion price of $0.90 per share. Such amounts shall be paid pari passu with all holders of common stock and the Series A Convertible Preferred Stock.
|
|
6.
|
The Company is required that it will at all times, reserve and keep available out of its authorized and unissued shares of common stock, for the sole purpose of issuance upon the conversion of the Series B Preferred, not less than such aggregate number of shares of the common stock as shall be issuable upon the conversion of the then outstanding shares of the Series B Preferred.
|
On June 26, 2018, the Company issued 5,785
shares of Series B Preferred as part of a public offering. Since the market price of the Company’s common stock was $0.90
on the date of the issuance of the Series B Preferred, no beneficial conversion feature was recognized on the conversion option.
At September 30, 2018, no shares of Series B Preferred had been converted into shares of common stock. See the section below entitled
“Public Offering - Alliance Global Partners”
for further information.
Common Stock
On December 19, 2017, the Company’s
stockholders approved an amendment of the Company’s certificate of incorporation increasing the number of authorized shares
of its common stock to 275 million. The Company had been authorized to issue up to 175 million shares of common stock. In addition,
as of September 30, 2018, the Company had reserved up to 1.5 million shares of common stock for incentive compensation (stock options
and restricted stock) and approximately 12.5 million shares of common stock for the conversion of the Series A Preferred and Series
B Preferred. No shares are reserved for the exercise of warrants.
On April 23,
2018, the Company held a special meeting of its stockholders at which the stockholders approved a proposal to effect an
amendment
to the Company's certificate of incorporation, as amended,
to implement a reverse stock split at a ratio to be determined by the Company's Board of Directors in a range not less than one-for-two
(1:2) and not greater than one-for-ten (1:10). On May 23, 2018, the Company's Board of Directors approved the implementation of
a reverse stock split at a ratio of one-for-ten (1
:
10)
shares of the Company's Common Stock. As a result of the reverse stock split, every ten (10) shares of the Company's Common Stock
either issued and outstanding or held by the Company in its treasury immediately prior to the effective time was, automatically
and without any action on the part of the respective holders thereof, combined and converted into one (1) share of the Company's
common stock. No fractional shares were issued in connection with the reverse stock split. Stockholders who otherwise were entitled
to receive a fractional share in connection with the reverse stock split instead were eligible to receive a cash payment, which
was not material in the aggregate, instead of shares.
On June 8, 2018, the Company filed a Certificate of Amendment of its
Certificate of Incorporation, as amended with the Secretary of State of Delaware effecting a one-for-ten (1:10) reverse stock split
of the shares of the Company’s common stock, either issued and outstanding or held by the Company as treasury stock, effective
as of 4:10 p.m. (Eastern Time), June 8, 2018. The Company’s common stock began trading on a reverse split adjusted basis
on the Exchange when the market opened Monday, June 11, 2018.
Recent issuances of common stock include
the following:
Lincoln Park Purchase Agreement
On July 24, 2017, the Company entered into
a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), an Illinois limited liability
company, pursuant to which Lincoln Park agreed to purchase from the Company up to an aggregate of $16,000,000 of the Company’s
common stock (subject to certain limitations) from time to time over the 36-month term of the agreement (the “Lincoln Park
Purchase Agreement”). Also on July 24, 2017, we entered into a registration rights agreement with Lincoln Park pursuant to
which the Company filed with the Securities and Exchange Commission (the “SEC”) the registration statement 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. The registration statement was effective as of August 11, 2017.
On July 24, 2017, 120,000 newly issued
shares of the Company's common stock, equal to three percent of the $16 million availability, were issued to Lincoln Park as consideration
for Lincoln Park's commitment to purchase shares of the Company's common stock under the agreement, and 250,000 newly issued shares
of common stock, valued at $4.00 per share, were sold to Lincoln Park in an initial purchase for an aggregate gross purchase price
of $1,000,000.
Under the terms and subject to the conditions
of the Lincoln Park Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln
Park is obligated to purchase up to, an additional $15.0 million worth of shares of the Company’s common stock. Such future
sales of common stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s
option, over the 36-month term of the agreement.
As contemplated by the Lincoln Park Purchase
Agreement, and so long as the closing price of the Company’s common stock exceeds $2.50 per share, then the Company may
direct Lincoln Park, at its sole discretion to purchase up to 10,000 shares of its common stock on any business day, provided
that one business day has passed since the most recent purchase. The price per share for such purchases will be equal to the lower
of: (i) the lowest sale price on the applicable purchase date and (ii) the arithmetic average of the three (3) lowest closing
sale prices for the Company’s common stock during the ten (10) consecutive business days ending on the business day immediately
preceding such purchase date (in each case, to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend,
stock split or other similar transaction that occurs on or after the date of the purchase agreement). The maximum amount of shares
subject to any single regular purchase increases as the Company’s share price increases, subject to a maximum of $1.0 million.
In addition to regular purchases, the Company
may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional purchases if the closing sale
price of the common stock exceeds certain threshold prices as set forth in the purchase agreement. In all instances, the Company
may not sell shares of its common stock to Lincoln Park under the purchase agreement if it would result in Lincoln Park beneficially
owning more than 9.99% of its common stock. There are no trading volume requirements or restrictions under the purchase agreement
nor any upper limits on the price per share that Lincoln Park must pay for shares of common stock.
The Lincoln Park Purchase Agreement and
the registration rights agreement contain customary representations, warranties, agreements and conditions to completing future
sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the purchase agreement
at any time, at no cost or penalty. During any “event of default” under the purchase agreement, all of which are outside
of Lincoln Park’s control, Lincoln Park does not have the right to terminate the purchase agreement; however, the Company
may not initiate any regular or other purchase of shares by Lincoln Park, until such event of default is cured. In addition, in
the event of bankruptcy proceedings by or against the Company, the purchase agreement will automatically terminate.
Actual sales of shares of common stock
to Lincoln Park under the purchase agreement will depend on a variety of factors to be determined by the Company from time to time,
including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate
sources of funding for the Company and its operations. Lincoln Park has no right to require any sales by the Company, but is obligated
to make purchases from the Company as it directs in accordance with the purchase agreement. Lincoln Park has covenanted not to
cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares.
During March 2018, the Company sold an
additional 60,000 shares of common stock to Lincoln Park pursuant to the Lincoln Park Purchase Agreement for an aggregate gross
purchase price of $121,290. As of September 30, 2018, Lincoln Park is obligated to purchase an additional $14,878,710 worth of
shares of the Company’s common stock.
Public offering – Aegis Capital
Corp. (“Aegis”)
On November 30, 2017, the Company closed
a public offering of 2,250,000 shares of its common stock at a public offering price of $2.00 per share raising gross proceeds
of $4,500,000. The shares of common stock were issued pursuant to an underwriting agreement entered into between the Company and
Aegis.
The common stock was offered and sold pursuant
to the Company’s effective shelf registration statement on Form S-3 and an accompanying prospectus (Registration Statement
No. 333-200410) filed with the SEC on November 20, 2014, and declared effective by the SEC on December 2, 2014, a preliminary prospectus
supplement filed with the SEC on November 28, 2017, and a final prospectus supplement filed with the SEC on November 30, 2017,
in connection with the Company’s shelf takedown relating to the offering.
The Company paid Aegis a discount of 7%
to the public offering price with respect to shares purchased in the offering by investors who did not have a pre-existing relationship
with the Company prior to the offering (the “New Investors”), and a discount of 3.5% to the public offering price with
respect to shares purchased in the offering by investors who did have a pre-existing relationship with the Company. In addition
to the underwriting discounts, the Company issued to the Underwriter 11,000 shares of its common stock, equal to 2% of the aggregate
shares of common stock sold in the offering to the New Investors.
The Company incurred underwriting discounts,
commissions and other offering expenses of $311,000 related to closing and completion of this public offering.
Public Offering – A.G.P./Alliance
Global Partners (“Alliance”)
On June 26, 2018, the Company completed
a public offering of 4,350,000 shares of its common stock, 6,300 shares of Series A Preferred and 5,785 shares of Series B Preferred.
The public offering price per share for each of the foregoing securities was as follows: (i) $0.90 per share of common stock; (ii)
$1,000 per Series A Preferred share; and (iii) $1,000 per Series B Preferred share. This public offering raised gross proceeds
of $16,000,000. The shares of common stock and preferred stock were issued pursuant to an underwriting agreement entered into between
the Company and Alliance. The Company incurred underwriting discounts, commissions and other offering expenses of approximately
$854,000 related to closing and completion of this public offering.
Pursuant to the Underwriting Agreement,
subject to certain exceptions, (i) the Company agreed not to sell or otherwise dispose of any shares of common stock for a period
ending ninety (90) days after the date of the Underwriting Agreement and (ii) the Company’s officers, directors and certain
key shareholders agreed not to sell or otherwise dispose of any of Common Stock held by each of them for a period ending ninety
(90) days after the date of the Underwriting Agreement, in each case, without first obtaining the written consent of the Underwriter.
The Company has granted a forty-five (45)-day
option to the Underwriter to purchase up to 2,666,666 additional shares (the “Option Shares”) of common stock. The
over-allotment option may be exercised by the Underwriter as to all (at any time) or any part (from time to time) of the Option
Shares.
The Company paid Alliance a discount of
(i) 7% to the public offering price with respect to the common stock, Series A Preferred, and Series B Preferred purchased in the
offering by investors who did not have a pre-existing relationship with the Company, and (ii) 3.5% to the public offering price
with respect to the common stock, Series A Preferred, and Series B Preferred purchased in the offering by certain investors who
have a pre-existing relationship with the Company.
On July 12, 2018, 1,500,000 shares
of common stock were sold to Alliance in connection with Alliance partially exercising its over-allotment option at the public
offering price of $0.90 per share. The Company received gross proceeds of $1,350,000 before deducting $159,000 of underwriting discounts,
commissions and other offering expenses payable by the Company. In addition, during July and August 2018, an additional 717 shares
of Series A Preferred were converted into 796,666 shares of common stock.
As of September 30, 2018, a total of 807
shares of Series A Preferred have been converted into 896,666 shares of common stock.
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 350,000 shares of the Company's common
stock at a price of $6.22 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 178,400 shares of the Company's common
stock at an exercise price of $5.30 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 650,000 shares of the Company's
common stock at a price of $6.22 per share, subject to the approval of the Company's stockholders. The Company's stockholders approved
the issuance of the 650,000 shares to Eastern at the Company's annual meeting on April 7, 2016. On April 13, 2016, the Company
issued the 650,000 shares and received proceeds of $4,043,000. These shares were subject to a three-year standstill agreement (the
“Standstill Agreement”) which will restrict additional acquisitions of the Company's equity by Eastern and its controlled
affiliates to limit its beneficial ownership of the Company's outstanding shares of common stock to a maximum of 38% (the “Eastern
Beneficial Ownership Limitation”), absent the approval by a majority of the Company's Board of Directors.
On November 27, 2017, the Company's Board
of Directors authorized the Company’s Chief Executive Officer to invite Eastern to purchase shares in the November 2017 public
offering with Aegis described above, provided that such purchase did not result in Eastern being the beneficial owner of more than
40% of the aggregate number of shares the Company’s outstanding common stock rather than the limit of 38% set forth in the
Standstill Agreement.
On June 26, 2018, in connection with the
public offering with Alliance, the Company entered into an amendment (the “Amendment”) to the share purchase agreement
for 650,000 shares, dated January 13, 2016 (the “Purchase Agreement”), with Eastern. Pursuant to the Purchase Agreement,
Eastern was subject to the Standstill Agreement (amended to 40%) and the Eastern Beneficial Ownership Limitation therein. The
Amendment increased the Eastern Beneficial Ownership Limitation to 48% and extended the restrictions under the Standstill Agreement
until June 26, 2020. In accordance with the terms of the Standstill Agreement, as amended, the Company’s Board of Directors
duly authorized the Company’s Chief Executive Officer to offer Eastern to purchase shares in the public offering with Alliance,
provided that, when taken together with all other equity securities of the Company beneficially owned by Eastern and its controlled
affiliates following consummation of the public offering with Alliance, Eastern and its controlled affiliates would not beneficially
own more than 48% of the aggregate number of shares of common stock outstanding as of the closing of the public offering with
Alliance, including all shares of common stock issuable upon conversion of all outstanding shares of Series A Preferred and Series
B Preferred, and provided, further, that Eastern agreed to extend the standstill restrictions for two (2) additional years beginning
with the date of Eastern’s or its controlled affiliate’s purchase of securities in the public offering with Alliance.
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 CDMO 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”), in exchange for 29,990,000 units of limited liability company interests
of iBio CDMO held by the Eastern Affiliate at an original issue price of $13 million. After giving effect to the transactions contemplated
in the Exchange Agreement, the Company owns 99.99% of iBio CDMO and the Eastern Affiliate owns 0.01% of iBio CDMO.
Aspire Capital Fund, LLC (“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
upon and subject to the terms of the 2015 Aspire Purchase Agreement. In consideration for entering into the 2015 Aspire Purchase
Agreement, Aspire Capital received a commitment fee of 45,000 shares.
No shares were sold under the
2015 Facility and the
2015 Aspire Purchase Agreement was terminated on July 21, 2017.
Working Capital Contributions
In December 2017, the Eastern Affiliate
contributed $1.05 million to iBio for working capital purposes which has been recorded as additional paid-in capital. Subsequently,
the Company contributed $3.5 million into iBio CDMO. The $3.5 million contribution has been eliminated in the consolidated financial
statements.
In May 2018, the Eastern Affiliate contributed
$1.093 million to iBio for working capital purposes which has been recorded as additional paid-in capital.
10.
|
Earnings (Loss) Per Common Share
|
Basic earnings (loss) per common share
is computed by dividing the net income (loss) allocated to common stockholders by the weighted-average number of shares of common
stock outstanding during the period. For purposes of calculating diluted earnings (loss) per common share, the denominator includes
both the weighted-average number of shares of common stock outstanding during the period and the number of common stock equivalents
if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options
and warrants using the treasury stock method. The following table summarizes the components of the earnings (loss) per common share
calculation (in thousands, except per share amounts):
|
|
Three Months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Basic and diluted numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to iBio, Inc. stockholders
|
|
$
|
(4,398
|
)
|
|
$
|
(3,826
|
)
|
Preferred stock dividends
|
|
|
(66
|
)
|
|
|
(66
|
)
|
Net loss available to iBio, Inc. stockholders
|
|
$
|
(4,464
|
)
|
|
$
|
(3,892
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
17,894
|
|
|
|
9,185
|
|
|
|
|
|
|
|
|
|
|
Per share amount
|
|
$
|
(0.25
|
)
|
|
$
|
(0.42
|
)
|
In Fiscal 2019 and Fiscal 2018, the Company
incurred net losses which cannot be diluted; therefore, basic and diluted loss per common share is the same. As of September 30,
2018 and 2017, shares issuable which could potentially dilute future earnings were as follows:
|
|
Three Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Stock options
|
|
|
1,364
|
|
|
|
1,360
|
|
Series A Preferred
|
|
|
6,103
|
|
|
|
-
|
|
Series B Preferred
|
|
|
6,428
|
|
|
|
-
|
|
Shares excluded from the calculation of diluted loss per share
|
|
|
13,895
|
|
|
|
1,360
|
|
Share and per share data for 2017 have
been adjusted to reflect the one-for-ten reverse stock split effective June 8, 2018.
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
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
9
|
|
|
$
|
14
|
|
General and administrative
|
|
|
64
|
|
|
|
191
|
|
Total
|
|
$
|
73
|
|
|
$
|
205
|
|
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 1 million shares. On December 18, 2013, the Plan was amended to increase the number of shares reserved
for awards under the Plan from 1 million to 1.5 million. As of June 30, 2018, there were approximately 136,000 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.
The 2008 Plan had a term of ten (10) years
and, as a result, the 2008 Plan expired by its terms on August 12, 2018. As such, the Company is in the process of reviewing its
options for the adoption of a new equity incentive plan the purpose of which is to promote the success and enhance the value of
the Company by linking the personal interests of the participants to those of the Company’s shareholders, and by providing
participants with an incentive for outstanding performance.
No stock options were issued during Fiscal 2019.
The following table summarizes all stock option activity during
Fiscal 2019:
|
|
Stock
Options
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding as of July 1, 2018
|
|
|
1,364,583
|
|
|
$
|
12.01
|
|
|
|
4.9
|
|
|
$
|
-
|
|
Forfeited/expired
|
|
|
(833
|
)
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2018
|
|
|
1,363,750
|
|
|
$
|
12.02
|
|
|
|
4.6
|
|
|
$
|
-
|
|
Vested and, as of September 30, 2018, expected to vest
|
|
|
1,361,939
|
|
|
$
|
12.03
|
|
|
|
4.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2018
|
|
|
1,242,572
|
|
|
$
|
12.76
|
|
|
|
4.2
|
|
|
$
|
-
|
|
The
following table summarizes information about options outstanding and exercisable at September 30, 2018:
|
|
Options Outstanding and Exercisable
|
|
|
|
Number
Outstanding
|
|
|
Weighted-
Average
Remaining Life
In Years
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
Exercise prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.70 - $3.01
|
|
|
73,000
|
|
|
|
1.0
|
|
|
$
|
2.01
|
|
|
|
68,166
|
|
$3.10 - $4.90
|
|
|
270,416
|
|
|
|
7.0
|
|
|
|
4.04
|
|
|
|
163,072
|
|
$5.00 - $7.70
|
|
|
206,334
|
|
|
|
3.7
|
|
|
|
5.84
|
|
|
|
201,334
|
|
$8.40 - $13.80
|
|
|
272,000
|
|
|
|
4.2
|
|
|
|
10.47
|
|
|
|
272,000
|
|
$14.00 - $22.50
|
|
|
428,000
|
|
|
|
4.9
|
|
|
|
17.86
|
|
|
|
424,000
|
|
$26.90 - $30.70
|
|
|
114,000
|
|
|
|
2.3
|
|
|
|
30.30
|
|
|
|
114,000
|
|
|
|
|
1,363,750
|
|
|
|
4.6
|
|
|
$
|
12.02
|
|
|
|
1,242,572
|
|
The total fair value of stock options that
vested during Fiscal 2019 and Fiscal 2018 was approximately $571,000 and $773,000, respectively. As of September 30, 2018, there
was approximately $304,000 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 aggregate intrinsic value in the table
above represents the total intrinsic value, based on the Company’s closing stock price of $0.85 as of September 30, 2018
and $0.90 as of July 1, 2018, which would have been received by the option holders had all option holders exercised their options
as of that date.
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 for further details.
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.
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 CDMO. The Eastern Affiliate contributed $15.0 million in cash to iBio CDMO, for a 30%
interest in iBio CDMO. iBio retained a 70% equity interest in iBio CDMO. 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 CDMO 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 CDMO a royalty
bearing license, which grants iBio CDMO a non-exclusive license to use the iBio’s proprietary 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 CDMO 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 September 30, 2018 and June 30, 2018 due to the Second Eastern Affiliate amounted to
$812,000 and $789,000, respectively. General and administrative expenses related to Second Eastern Affiliate were approximately
$238,000 and $184,000 for the three months ended September 30, 2018 and 2017, respectively. Interest expense related to the Second
Eastern Affiliate was approximately $476,000 and $480,000 for the three months ended September 30, 2018 and 2017, respectively.
The terms of the Sublease are described in Note 8.
The Standstill Agreement took effect upon
the issuance of the shares to Eastern pursuant to a share purchase agreement for the acquisition of 650,000 shares of common stock.
The Standstill Agreement has been amended twice so that Eastern and its controlled affiliates are limited to its beneficial ownership
of the Company's outstanding shares of common stock to a maximum of 48%, absent approval by a majority of the Company's Board of
Directors. Eastern agreed to extend the standstill restrictions for two (2) additional years beginning with the date of Eastern’s
or its controlled affiliate’s purchase of securities in the public offering with Alliance. See Note 9 for further information.
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 CDMO held by the Eastern Affiliate and issued one share of the iBio CMO Preferred Tracking Stock in exchange for 29,990,000
units of limited liability company interests of iBio CDMO held by the Eastern Affiliate at an original issue price of $13 million.
After giving effect to the transactions in the Exchange Agreement, the Company owns 99.99% of iBio CDMO and the Eastern Affiliate
owns 0.01% of iBio CDMO.
The Company recorded no income tax expense
for the three months ended September 30, 2018 and 2017 because the estimated annual effective tax rate was zero. As of September
30, 2018, 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.
In December 2017, the United States Government
passed new tax legislation that, among other provisions, lowered the corporate tax rate from 35% to 21%. In addition to applying
the new lower corporate tax rate to any taxable income we may have, the legislation affects the way we can use and carryforward
net operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our
balance sheet. Given that current deferred tax assets are offset by a full valuation allowance, these changes will have no net
impact on the balance sheet. However, if we become profitable, we will receive a reduced benefit from such deferred tax assets.
14.
|
Commitments
and Contingencies
|
Agreements
Fraunhofer
In September 2013,
the Company and Fraunhofer entered into an agreement, the Terms of Settlement for the TTA Seventh Amendment (the “2013 Settlement
Agreement”). Under the terms of the 2013 Settlement Agreement, various payment obligations, including accrued payment obligations
existing at June 30, 2013, were released, terminated or modified. The significant modifications are as follows:
The Company’s obligation under the
TTA, prior to the 2013 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
for at least $3 million in work requested and directed by iBio before December 31, 2015. As of December 31, 2015, the total engagement
of Fraunhofer for such work requested 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, the 2013 Settlement Agreement
provided that, for a period of up to 15 years, the Company would 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 those technologies to third parties. The 2013 Settlement Agreement provided
for royalty payments to Fraunhofer only on technology license revenues that iBio actually would receive, and on revenues from actual
sales by iBio of products derived from the technology developed by Fraunhofer under the TTA, until the later of November 2023 or
until such time as the aggregate royalty payments totaled at least $4 million. All new intellectual property invented by Fraunhofer
during the period of the TTA is owned by and was required to be transferred to iBio, and Fraunhofer was required to make technology
transfer, which Fraunhofer refused to perform. In the lawsuit against Fraunhofer, iBio is seeking rescission of these royalty provisions
of the 2013 Settlement Agreement. In any event, the 2013 Settlement Agreement does not apply to, and the Company has no financial
obligations to Fraunhofer with respect to, the Company’s use of, or revenues derived from, 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. By its execution of the Amended Agreement, iBio again engaged Fraunhofer to act as the Company’s subcontractor for
performance of research and development services for the new research and development plan covered by the Amended Agreement and
to have Fraunhofer bill Fiocruz directly on behalf of the Company at the rates, amounts and times provided in the Amended Agreement
with the proceeds of such billings and only the proceeds paid to Fraunhofer for its services so the Company’s expense is
equal to its revenue and no profit would be 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 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.
University of Pittsburgh (“UP”)
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.
Lease – Bryan, Texas
As discussed above, iBio CDMO is leasing
its facility in Bryan, Texas from the Second Eastern Affiliate under the Sublease. See Note 8 for more details of the sublease.
The base rent is subject to increase annually
in accordance with increases in the Consumer Price Index (“CPI”). The Company incurred rent expense of $12,000 and
$15,000 for the three months ended September 30, 2018 and 2017, respectively, related to the increases in the CPI.
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 filed an answer and counterclaims in March 2017, but in May 2017,
Fraunhofer obtained new counsel, and with iBio’s agreement (as a matter of procedure), filed an amended answer and amended
counterclaims in July 2017. The Company replied to those counterclaims on August 9, 2017. In November 2017, the Company engaged
new counsel to further lead its litigation efforts, and on November 3, 2017, the Company filed a Verified Complaint in the Court
of Chancery of the State of Delaware against Fraunhofer-Gesellschaft, the European unit of Fraunhofer. This complaint follows iBio’s
pending litigation filed in March 2015, described above, against Fraunhofer USA, Inc., the U.S. unit of Fraunhofer. The parties
have continued to proceed with written discovery. The Company is unable to predict the further outcome of this action
at this time.
Commencing January 1, 2018, the Company
established the iBio, Inc. 401(K) Plan (the “Plan”). Eligible employees of the Company may participate in the Plan,
whereby they may elect to make elective deferral contributions pursuant to a salary deduction agreement and receive matching contributions
upon meeting age and length-of-service requirements. The Company will make a 100% matching contribution that is not in excess of
5% of an eligible employee’s compensation. In addition, the Company may make qualified non-elective contributions at its
discretion. For the three months ended September 30, 2018 and 2017, employer contributions made to the Plan totaled approximately
$33,000 and $0, respectively.
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 CDMO. 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. Please note that certain totals may not sum due to rounding.
Three Months Ended September 30, 2018 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CDMO
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues – external customers
|
|
$
|
45
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45
|
|
Revenues – intersegment
|
|
|
364
|
|
|
|
57
|
|
|
|
(421
|
)
|
|
|
-
|
|
Research and development
|
|
|
558
|
|
|
|
587
|
|
|
|
(21
|
)
|
|
|
1,124
|
|
General and administrative
|
|
|
1,037
|
|
|
|
2,202
|
|
|
|
(368
|
)
|
|
|
2,871
|
|
Operating loss
|
|
|
(1,185
|
)
|
|
|
(2,765
|
)
|
|
|
-
|
|
|
|
(3,950
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(476
|
)
|
|
|
-
|
|
|
|
(476
|
)
|
Interest and other income
|
|
|
23
|
|
|
|
4
|
|
|
|
-
|
|
|
|
27
|
|
Consolidated net loss
|
|
|
(1,162
|
)
|
|
|
(3,237
|
)
|
|
|
-
|
|
|
|
(4,399
|
)
|
Total assets
|
|
|
40,131
|
|
|
|
15,505
|
|
|
|
(12,740
|
)
|
|
|
42,896
|
|
Fixed assets, net
|
|
|
4
|
|
|
|
24,977
|
|
|
|
-
|
|
|
|
24,981
|
|
Intangible assets, net
|
|
|
1,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,554
|
|
Depreciation expense
|
|
|
1
|
|
|
|
359
|
|
|
|
-
|
|
|
|
360
|
|
Amortization of intangible assets
|
|
|
83
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83
|
|
Three Months Ended September 30, 2017 (in thousands)
|
|
iBio, Inc.
|
|
|
iBio CDMO
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues – external customers
|
|
$
|
84
|
|
|
$
|
38
|
|
|
$
|
-
|
|
|
$
|
122
|
|
Revenues – intersegment
|
|
|
301
|
|
|
|
210
|
|
|
|
(511
|
)
|
|
|
-
|
|
Research and development
|
|
|
618
|
|
|
|
484
|
|
|
|
(117
|
)
|
|
|
985
|
|
General and administrative
|
|
|
1,099
|
|
|
|
1,698
|
|
|
|
(299
|
)
|
|
|
2,498
|
|
Operating loss
|
|
|
(1,332
|
)
|
|
|
(2,029
|
)
|
|
|
-
|
|
|
|
(3,361
|
)
|
Interest expense
|
|
|
-
|
|
|
|
(480
|
)
|
|
|
-
|
|
|
|
(480
|
)
|
Interest and other income
|
|
|
12
|
|
|
|
2
|
|
|
|
-
|
|
|
|
14
|
|
Consolidated net loss
|
|
|
(1,321
|
)
|
|
|
(2,506
|
)
|
|
|
-
|
|
|
|
(3,827
|
)
|
Total assets
|
|
|
18,810
|
|
|
|
27,485
|
|
|
|
(12,862
|
)
|
|
|
33,433
|
|
Fixed assets, net
|
|
|
7
|
|
|
|
25,261
|
|
|
|
-
|
|
|
|
25,268
|
|
Intangible assets, net
|
|
|
1,757
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,757
|
|
Depreciation expense
|
|
|
1
|
|
|
|
337
|
|
|
|
-
|
|
|
|
338
|
|
Amortization of intangible assets
|
|
|
85
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85
|
|
17.
|
Notice
of Delisting or Failure to Satisfy a Continued Listing Rule or Standard
|
On January 4, 2018, the Company received
notification from the NYSE AMERICAN LLC (“NYSE American” or the “Exchange”) pursuant to Section 1003(f)(v)
of the NYSE American’s Company Guide that, due to the Company’s current low selling share price, the Company’s
continued listing on the NYSE American was predicated on our effecting a reverse stock split or otherwise demonstrating sustained
improvement in our share price within a reasonable period of time, which the NYSE American has determined to be no later than July
5, 2018.
On
April 23, 2018, the Company held a special meeting of its stockholders at which the stockholders approved a proposal to effect
an
amendment
to the Company's certificate of incorporation,
as amended, to implement a reverse stock split at a ratio to be determined by the Company's Board of Directors in a range not less
than one-for-two (1:2) and not greater than one-for-ten (1:10).
On
May 23, 2018, the Company's Board of Directors approved the implementation of a reverse stock split at a ratio of one-for-ten (1
:
10)
shares of the Company's common stock. As a result of the reverse stock split, every ten (10) shares of the Company's common stock
either issued and outstanding or held by the Company in its treasury immediately prior to the effective time was, automatically
and without any action on the part of the respective holders thereof, combined and converted into one (1) share of the Company's
common stock. The reverse split also applied to common stock issuable upon the exercise of the Company’s outstanding stock
options. The reverse stock split did not affect the par value of the Company’s common stock or the shares of common stock
the Company is authorized to issue under its Certificate of Incorporation, as amended. No fractional shares were issued in connection
with the reverse stock split. Stockholders who otherwise were entitled to receive a fractional share in connection with the reverse
stock split instead were eligible to receive a cash payment, which was not material in the aggregate, instead of shares. The effective
date of the reverse stock split was June 8, 2018. On July 5, 2018, the Company received a letter from NYSE American informing the
Company that it has resolved the deficiency with respect to low selling price, described in Section 1003(f)(v) of the Company guide
and was back in compliance.
On November 2, 2018, the closing price of the Company’s common stock was $0.78.
On June 6, 2018, the Company received notification
from the NYSE American that it is not in compliance with the continued listing standards as set forth in Section 1003(a)(iii) of
the NYSE American’s Company Guide that, which applies if a listed company has stockholders’ equity of less than $6,000,000
and has sustained losses from continuing losses and/or net losses in its five most recent fiscal years. NYSE American indicated
that a review of the Company shows that it is below compliance with Section 1003(a)(iii) since it reported stockholders’
equity of $4.2 million as of March 31, 2018 and net losses in its five most recent fiscal years.
In order to maintain its listing, the Company
submitted a plan for compliance addressing how it intends to regain compliance with Section 1003(a)(iii) of the Company Guide by
December 6, 2019. On August 16, 2018, the Company received notice from NYSE American that NYSE Regulation had accepted the
Company’s July 16, 2018 plan and granted a plan period through December 6, 2019, subject to periodic review by the Exchange,
including quarterly monitoring, for compliance with the initiatives outlined in the plan. If the Company is not in compliance with
the continued listing standards by December 6, 2019, or if the Company does not make progress consistent with the plan during the
plan period, NYSE Regulation staff may initiate delisting proceedings as appropriate. As of September 30, 2018, the Company’s
stockholders’ equity balance is $13.0 million.
The NYSE American
notifications did not affect the Company’s business operations or its reporting obligations under the Securities and Exchange
Commission regulations and rules and did not conflict with or cause an event of default under any of the Company’s material
agreements.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
The following information should be read
together with the financial statements and the notes thereto and other information included elsewhere in this Quarterly Report
on Form 10-Q and in our Annual Report on Form 10-K for the year ended June 30, 2018. Unless the context requires otherwise, references
in this Quarterly Report on Form 10-Q to “iBio,” the “Company,” “we,” “us,” or
“our” and similar terms mean iBio, Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains
“forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
For this purpose, any statements contained herein regarding our strategy, future operations, financial position, future revenues,
projected costs and expenses, prospects, plans and objectives of management, other than statements of historical facts, are forward-looking
statements. The words “anticipate”, “believe”, “estimate”, “may”, “plan”,
“will”, “would” and similar expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. Such statements reflect our current views with respect to future
events. Because these forward-looking statements involve known and unknown risks and uncertainties, actual results, performance
or achievements could differ materially from those expressed or implied by these forward-looking statements for a number of important
reasons, including those discussed in this “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and elsewhere in this Quarterly Report on Form 10-Q, as well as in the section titled “Risk Factors”
in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018. We cannot guarantee any future results, levels
of activity, performance or achievements. Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated,
believed, estimated or expected. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our estimates
as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated) and should not be relied upon as representing
our expectations as of any other date. While we may elect to update these forward-looking statements, we specifically disclaim
any obligation to do so.
Overview
We are a biotechnology company focused
on using our proprietary technologies and production facilities to provide product development and manufacturing services to clients,
collaborators and third-party customers as well as developing and commercializing our own product candidates. Our assets and capabilities
include proprietary and transformative methods for the development, improvement, and production of biologics using hydroponically
grown, transiently-transfected green plants for recombinant protein production.
Our technologies have been successfully
used with a diverse range of biopharmaceutical 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. 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. We have also used
our technologies to create and produce experimental, proprietary derivatives of pre-existing products with improved properties.
We believe that our technologies and our
development and manufacturing capabilities offer clients and collaborators multiple advantages over the use of legacy methods,
including increased efficiency in early-stage product screening, more predictable and shorter time frames during preclinical product
development and testing, and significant time and cost savings in making the transitions between clinical trial phases and eventual
product launch. In addition, our technologies are applicable to both improving process efficiency and also to improving product
quality and performance characteristics. We expect demand for our technologies and services to increase steadily and to provide
significant revenue opportunities with clients addressing the expanding global market for biopharmaceutical products because the
competitive success of new products often depends on improved efficacy and safety or on reduced development time and cost-effective
manufacturing processes. We believe our technologies and capabilities deliver these benefits to our collaborators and clients.
We expect to provide services and
participate in collaborative development programs with a diverse group of clients and collaborators to enable us to achieve positive
cash flow from operations sufficient for use in developing our own product candidates and enabling us to participate in the success
of selected products developed jointly with collaborators. Our current product pipeline is comprised of proprietary candidates
for the treatment of a range of fibrotic diseases including systemic scleroderma and idiopathic pulmonary fibrosis. IBIO-CFB03,
based on exclusively in-licensed university patents and newer patent applications filed by iBio, is our lead therapeutic candidate
being advanced for IND development. On an ongoing basis, we evaluate product candidate opportunities originating in both academic
institutions and corporate research programs, to which iBio technologies can add value, as potential opportunities for iBio.
We developed and implemented a new business
model as a result of the ongoing litigation against our original research and development contractor. Our new business model comprises
three key elements:
|
1.
|
CDMO Facility Activities
- the creation of a contract development and manufacturing organization to produce revenue through the provision of services based on our technologies and capabilities;
|
|
2.
|
Product Candidate Pipeline
- the advancement of select product candidates developed by iBio or through partnering with collaborators, and
|
|
3.
|
Facility Design and Build-out / Technology Transfer
- the design and development for others of facilities based on our new technologies and experience along with the provision of commercial technology transfer.
|
We accomplished the first part of our new
business plan through the acquisition of control of the large manufacturing facility that is now controlled and operated by our
subsidiary, iBio CDMO, under a capital lease. The facility includes human resources, laboratory and pilot-scale operations, and
large-scale automated hydroponic systems capable of growing over four million plants as "in process inventory" and delivering
over 300 kilograms of therapeutic protein active pharmaceutical ingredient per year. The facility capacity for large scale manufacturing
can also be doubled by adding additional plant growth equipment in a space already available for that purpose.
We have integrated into our iBio CDMO operations
the rights iBio has obtained to certain patented and unpatented technologies developed for it by Novici, in addition to novel manufacturing
methods and processes developed by iBio CDMO. These technologies, methods, and processes are applied by iBio CDMO to a variety
of tasks performed for clients, collaborators, and for iBio itself, including product and process development, analytical, and
manufacturing services. iBio CDMO 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.
In addition to the generation of revenue
from services through iBio CDMO, a second goal of our new business model is through partnering and out-licensing of our new technologies,
to create opportunities for iBio to share in the successful development and commercialization of selected product candidates by
our collaborators and licensees as well as advance our own product candidates. We expect to accomplish this objective through both
investments we make to acquire or develop our own proprietary product candidates and also by participating with select customers
and collaborators in the value created through the development, with our technologies, and manufacture of their product candidates. iBio
itself is a client of iBio CDMO for further IND advancement of its proprietary products beginning with IBIO-CFB03 for the treatment
of a range of fibrotic diseases.
The third element of our new business
model is the use of iBio technologies to create and operate manufacturing facilities at substantially lower capital and operating
costs. Due to the lower capital and operating cost requirements for biopharmaceutical (both vaccines and therapeutics) production
via iBio technologies 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. In some cases, we have additional opportunities to increase the value of
these uses of our technologies by offering custom facility design services.
Results of Operations - Comparison of
Three Months ended September 30, 2018 (“Fiscal 2019”) versus September 30, 2017 (“Fiscal 2018”)
Revenue
Gross revenue for the three months ended
September 30, 2018 and 2017 were approximately $45,000 and $122,000, respectively, a decrease of approximately $77,000, primarily
attributable to a decrease in third-party proof of concept, feasibility study and small-scale production contracts delivered under
our new business model for the three months ending September 30, 2018.
Research and development expenses
Research and development expenses for the
three months ended September 2018 and 2017 were $1,124,000 and $985,000, respectively, an increase of approximately $139,000, primarily
related to an increase in research and development personnel costs at iBio CDMO.
General and administrative expenses
General and administrative expenses for
the three months ended September 30, 2018 and 2017 were approximately $2,871,000 and $2,498,000, respectively, an increase of $373,000.
General and administrative expenses principally include officer and employee salaries and benefits, depreciation and amortization,
professional fees, facility repairs and maintenance, rent, utilities, consulting services, and other costs associated with being
a publicly traded company. The increase resulted primarily from an increase in maintenance and facility repair costs, percentage
rent, consulting costs associated with marketing and business development, and personnel costs associated with the CDMO.
Other Income (Expense)
Other income (expense) for the three months
ended September 30, 2018 and 2017 were approximately ($449,000) and ($466,000), respectively.
As discussed above, iBio CDMO’s operations
take place in a facility in Bryan, Texas under a 34-year sublease with the Second Eastern Affiliate. Such sublease is treated as
a capital lease. For the three months ended September 30, 2018, other income (expense) included interest expense of approximately
$476,000 incurred under the capital lease offset by interest and royalty income of approximately $27,000. For the three months
ended September 30, 2017, other income (expense) included interest expense of approximately $480,000 incurred under the capital
lease offset by interest and royalty income of approximately $14,000.
Net loss attributable to noncontrolling
interest
This represents the share of the loss in
iBio CDMO for the Eastern Affiliate for the three months ended September 30, 2018 and 2017.
Liquidity and Capital Resources
As of September 30, 2018, we had cash of
$16.0 million as compared to $15.9 million as of June 30, 2018.
Net Cash Used in Operating Activities
Net cash used in operating activities was
approximately $778,000 for the three months ended September 30, 2018. The decrease in cash was attributable to funding our net
loss for the period offset by an increase in deferred revenue.
Net Cash Used in Investing Activities
Net cash used in investing activities was
approximately $289,000 for the three months ended September 30, 2018. Cash used in investing activities was attributable to the
additions of intangible assets of $15,000 and fixed assets primarily for iBio CDMO of $274,000.
Net Cash Provided by Financing Activities
Net cash provided by financing activities
was $1,143,000 for the three months ended September 30, 2018, which represented the proceeds from the sale of 1,500,000 shares
of our common stock to
A.G.P./Alliance Global Partners (“Alliance”)
for an aggregate purchase price of $1,350,000
less underwiring costs and discounts of $159,000 (see discussion below) offset against the principal payments on our capital lease
obligation of $48,000.
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 September 30, 2018,
our accumulated deficit was approximately $92.6 million, and we used approximately $778,000 of cash for operating activities for
Fiscal 2019. As of September 30, 2018, cash on hand is approximately $16.0 million which is expected to support the Company’s
activities through November 15, 2019.
We plan to fund our future business operations
using cash on hand, through proceeds realized in connection with the commercialization of our technologies and proprietary products,
license and collaboration arrangements and the operation of our subsidiary, iBio CDMO, and through proceeds from the sale of additional
equity or other securities. 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 we are unable to raise funds when required or on favorable terms, this assumption may no longer be operative, and 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.
Recent equity raises were as follows:
On June 26, 2018, we closed a public offering
raising gross proceeds of $16,000,000 before deducting $854,250 of underwriting discounts, commissions and other offering expenses
payable by the Company. The securities offered by the Company consisted of the following:
|
i)
|
4,350,000 shares of its common stock at $0.90 per share;
|
|
ii)
|
6,300 shares of Series A Convertible Preferred Stock with a stated value of $1,000 per preferred share, and convertible into an aggregate of 7,000,000 shares of Common Stock at $0.90 per share; and,
|
|
iii)
|
5,785 shares of Series B Convertible Preferred Stock, with a stated value of $1,000 per preferred share, and convertible into an aggregate of 6,427,778 shares of Common Stock at $0.90 per share.
|
The Company granted the underwriters a
45-day option to purchase up to an additional 2,666,666 shares of common stock to cover over-allotments, if any. On July 12, 2018,
1,500,000 shares of common stock were sold to the Company’s underwriter in connection with the underwriter partially exercising
its over-allotment option at the public offering price of $0.90 per share. The Company received gross proceeds of $1,350,000 before
deducting $159,000 of underwriting discounts, commissions and other offering expenses payable by the Company.
On November 30, 2017, we closed a public
offering of 2,250,000 shares of its common stock at a public offering price of $2.00 per share raising gross proceeds of $4,500,000
before deducting $311,000 of underwriting discounts, commissions and other offering expenses payable by the Company. The shares
of common stock were issued pursuant to an underwriting agreement entered into between the Company and Aegis.
On July 24, 2017, we entered into the Lincoln
Park 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 36-month term of the agreement. As a result, on July 24,
2017, 125,000 shares of our common stock were issued to Lincoln Park as consideration for Lincoln Park’s commitment to purchase
shares of our common stock under the agreement, and 250,000 shares of common stock were sold to Lincoln Park in an initial purchase
for an aggregate gross purchase price of $1,000,000.
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.
During March 2018, we sold 60,000 shares
of common stock to Lincoln Park pursuant to the Lincoln Park Purchase Agreement for an aggregate gross purchase price of $121,290.
Despite any further proceeds we may receive
pursuant to the
Lincoln Park Purchase Agreement
, we may still need additional capital to fully
implement our business, operating and development plans for periods beyond September 30, 2019.
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 September 30, 2018, we were not involved
in any SPE transactions.
Critical Accounting Policies and Estimates
A critical accounting policy is one that
is both important to the portrayal of a company’s financial condition and results of operations and requires management’s
most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.
Our condensed consolidated financial statements
are presented in accordance with U.S. GAAP, and all applicable U.S. GAAP accounting standards effective as of September 30, 2018
have been taken into consideration in preparing the condensed consolidated financial statements. The preparation of condensed consolidated
financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses
and related disclosures. Some of those estimates are subjective and complex, and, consequently, actual results could differ from
those estimates. The following accounting policies and estimates have been highlighted as significant because changes to certain
judgments and assumptions inherent in these policies could affect our condensed consolidated financial statements:
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Valuation of intellectual property;
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Revenue recognition;
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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.