Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read together with our financial statements and the notes thereto and other information included elsewhere in this Annual Report on Form 10-K.
Overview
iBio, Inc. (“we”, “us”, “our”, “iBio”, “iBio, Inc” or the “Company”) is a developer of next-generation biopharmaceuticals using our proprietary Artificial Intelligence (“AI”)-Driven Discovery Platform and FastPharming®Manufacturing System. We are focusing our technologies on the research and development of novel products at its Drug Discovery Center in California. We are currently using our FastPharming Manufacturing System (“FastPharming” or the “FastPharming
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System”) and GlycaneeringSM Technologies to develop our portfolio of proprietary biologic drug candidates. We also offer contract development and manufacturing services from its 130,000 square foot cGMP facility in Texas.
We operate in two segments: (i) Biopharmaceuticals; its large molecule discovery, development, and licensing activities, and (ii) Bioprocessing; its contract development and manufacturing services for recombinant proteins.
On September 19, 2022, we acquired substantially all of the assets of RubrYc Therapeutics, Inc. (“RubrYc”) which included:
We expect the addition of new therapeutic candidates and an AI-driven drug discovery platform for difficult to treat tumors to strengthen its Biopharmaceutical discovery and development capabilities. Meanwhile, IBIO-101 remains our lead immuno-oncology asset.
For our Bioprocessing area, the FastPharming System is our proprietary approach to recombinant protein production using plants. It uses hydroponically grown Nicotiana benthamiana (a relative of the tobacco plant), novel expression vectors, and transient transfection at scale to produce complex proteins emerging from our own development pipeline or for our clients.
In an effort to focus our resources on the promising new AI discovery platform and entering the clinic with our lead compounds, we have initiated a review of potential options to accelerate our transformation into a platform drug discovery and development company while extending our cash runway. These include a review of the pipeline, asset sales or licenses,
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partnerships, portfolio decisions, cost reductions, and efforts to raise additional capital, including non-dilutive additions of capital.
Results of Operations
Revenue
Gross revenue for 2022 and 2021 was approximately $2.4 million and $2.4 million, respectively, an increase of 1%. The increase is primarily attributable to the recognition of the Fraunhofer license fee of $1.8 million offset by a decrease in services revenue. which is based on the timing of the completion of deliverables for individual customers. We do not have recurring contracts, so revenue can be highly variable year to year. In 2022, we had a number of small customers with task and milestones completed. In 2021, we entered into a Master Manufacturing Services and Supply Agreement (“MSA”) with Lung Bio to produce recombinant human collagen-based bioinks for 3D-bioprinted organ transplants. Revenue earned from the MSA totaled $0.9 million. This MSA has been terminated. Additionally in 2021, revenue earned from four other third-party customers totaled $1.5 million.
Significant year-over-year variability is commonplace for early-stage pharma services companies, given the relatively small number of contracts and timing of revenue recognition. Based upon the current outlook, iBio expects a sequential decline in revenue during the fiscal 2023 compared to fiscal 2022.
Research and Development Expenses
Research and development expenses for 2022 and 2021 were approximately $17.7 million and $10.0 million, respectively, an increase of $7.7 million or 77%. The increase primarily related to the ramp up of activities related to our internal pipeline including an increase in research and development personnel costs of approximately $2.7 million, an increase in consulting fees and outside services of $3.4 million, an increase in lab consumables of $0.2M, and other various expense increases. While iBio expects R&D will continue to grow in fiscal 2023, it anticipates a slower growth rate compared to fiscal 2022.
General and Administrative Expenses
General and administrative expenses for 2022 and 2021 were approximately $34.1 million and $22.0 million, respectively, an increase of $12.1 million or 55%. 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, operational costs and other costs associated with being a publicly traded company. The increase is primarily attributable to additional personnel costs of $7.3 million, impairment of our equity investment in RubrYc of $1.8 million, facility expenses including repair and maintenance of $1.3 million, and various expense increases.
Other Income (Expense)
Other income (expense) for 2022 and 2021 was ($0.6) million and $7.9 million, a decrease of $8.5 million. The decrease is primarily attributable to the receipt of settlement Income of $10.2 million related to the Fraunhofer IP settlement in fiscal year 2021 offset by lower interest expense due to the purchase of the Bryan Site.
Net Loss Attributable to Noncontrolling Interest
This represents the share of the loss in iBio CDMO for the Eastern Affiliate in 2022 and 2021.
Liquidity and Capital Resources
We held cash, cash equivalents and investments in debt securities of $39.5 million as of June 30, 2022. Based on current trends and activities, there is significant doubt that we can continue as a going concern beyond Q3 of Fiscal 2023. We are currently evaluating a number of potential options to expand our cash runway, the implementation of which will impact
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our liquidity. Potential options being considered to increase liquidity include lowering our expenses through decreasing spending and focusing product development on a select number of product candidates, the sale or out-licensing of certain product candidates or parts of the business, raising money from capital markets, grant revenue or collaborations, or a combination thereof. Regardless of whether we are able to reduce our burn rate or sell or out-licensing certain assets or parts of the business, we will need to raise additional capital in order to fully execute our longer-term business plan. We believe based on input from expert advisors, that it is likely we will be able to implement one or more options that will extend our cash runway for 12 months or more from the date of the filing of this Annual Report on Form 10-K. However, there can be no assurance that we will be successful in implementing any of the options that we are evaluating.
On October 11, 2022, we and Woodforest entered into the First Amendment to the Credit Agreement pursuant to which the Credit Agreement was amended to: (i) include a payment of $5,500,000 of the outstanding principal balance owed under the Credit Agreement on the date of the amendment, (ii) include a payment of $5,100,000 of the outstanding principal balance owed under the Credit Agreement within two (2) business days upon our receipt of such amount owed to us by Fraunhofer as part of our legal settlement with them (see Item 3 – Legal Proceedings for more information), (iii) include principal payments of $250,000 per month in debt amortization for a 6 month period commencing the date of the amendment through March 2023, (iv) include an amendment fee of $22,375 and all costs and expenses, (v) require delivery of a report detailing cash flow expenditures every two (2) weeks for the period prior to the delivery of the last report and a monthly 12-month forecast (vi) reduce the liquidity covenant in the Guaranty (as defined in the Credit Agreement) from $10 million to $7.5 million with the ability to lower the liquidity covenant to $5.0 million upon the occurrence of a specific milestone in the Credit Agreement, and (vii) change the annual filing requirement solely for the fiscal year ending June 30, 2022, such that the filing is acceptable with or without a “going concern” designation. In addition, Woodforest cancelled the irrevocable letter of credit issued by JPMorgan Chase Bank upon closing of the amendment. If we fail to successfully extend our cash runway via strategic options or other alternatives as described we would be in violation of the liquidity covenant on December 31, 2022.
Between July 25, 2022, and August 17, 2022, Cantor Fitzgerald sold as sales agent pursuant to the Controlled Equity OfferingSM Sales Agreement, dated as of November 25, 2020, that we entered into, 175,973 post reverse split shares of common stock. We received net proceeds of approximately $1.2 million (see Note 17 Stockholders’ Equity for more detail).
On May 12, 2022, we entered into a securities purchase agreement with a certain accredited investor for the issuance and sale of 1,000 shares of Series 2022 Convertible Preferred Stock, $0.001 par value per share (the “Preferred Stock”), at a price of $0.27 per share. The Preferred Stock permitted the holder to vote at the Special Meeting, on the Reverse Stock Split proposal, with the holders of the common stock as a single class, with each share of Preferred Stock being entitled to 200,000 votes per share, provided that any votes cast by the Preferred Stock with respect to the Proposal must be voted in the same proportion as the aggregate shares of common stock are voted on the Proposal. Pursuant to the terms of the preferred stock, our Board of Directors converted the Preferred Stock to common stock at a conversion ratio of 1:1 on July 19, 2022.
On November 3, 2021, as part of consideration for the purchase of the Bryan site and other rights, iBio issued a warrant to purchase 51,583 post reverse split shares of the Common Stock at an exercise price of $33.25 post reverse split per share to affiliates of Eastern Capital Limited. The Warrant expires October 10, 2026, is exercisable immediately, provides for a cashless exercise at any time and automatic cashless exercise on the expiration date if on such date the exercise price of
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the Warrant exceeds its fair market value as determined in accordance with the terms of the Warrant and adjustments in the case of stock dividends and stock splits.
Also, as part of the consideration for the purchase of the Bryan site and other rights, iBio entered into a $22,375,000 Senior Secured Term Loan with Woodforest National Bank. The loan bears interest at 3.25% and matures November 3, 2023.
As discussed above, the Company completed a reverse stock split at a ratio of one-for-twenty five (1 : 25) shares of the Company's common stock. The effective date of the reverse stock split was October 7, 2022. All share and per share amounts of common stock presented have been retroactively adjusted to reflect the one-for-twenty five reverse stock split.
Net Cash Used in Operating Activities
In Fiscal 2022, net cash used in operating activities was ($37.5) million, compared to net cash used in operating activities of ($30.1) million in Fiscal 2021. The increase in net cash used in operating activities was primarily driven by an increase of approximately $13.6 million for cash operating expenses to support our business strategy offset primarily by the positive impact in Fiscal 2022 of $6 million in cash received related to the Fraunhofer settlement and license agreements.
Net Cash Used in Investing Activities
In Fiscal 2022, net cash used in investing activities was ($5.1) million, which primarily consisted of investments in Purchase of RubrYc equity and Additions to Intangible Assets related to our license of IBIO-101 offset by the net redemption of debt securities. In Fiscal 2021, our net cash used in investing activities was $ (26.5) million, which primarily consisted of the purchase of debt securities and the purchase of fixed assets.
Net Cash Provided by Financing Activities
In Fiscal 2022, net cash provided by financing activities was ($6.1) million, compared to net cash provided by financing activities of $78.8 million in Fiscal 2021. Net cash spent by financing activities in 2022 related to the purchase of the Bryan site while the net cash funds generated in 2021 was primarily the result of the issuance of common stock.
Funding Requirements
We have incurred significant losses and negative cash flows from operations since our spin-off from Integrated BioPharma in August 2008. As of June 30, 2022, our accumulated deficit was approximately ($223.9) million, and we used approximately ($48.7) million of net cash in Fiscal 2022.
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 iBio CDMO, through the collection or proceeds from our license agreement with Fraunhofer, through potential proceeds from the sale or out-licensing of assets, 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. Based on current trends and activities, there is significant doubt that iBio can continue as a going concern beyond Q3 of Fiscal 2023. If we fail to successfully extend our cash runway via strategic options or other alternatives as described we would be in violation of the liquidity covenant on December 31, 2022. 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.
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Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually limited purposes. As of June 30, 2022, we were not involved in any SPE transactions.
Critical Accounting 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 consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All applicable U.S. GAAP accounting standards effective as of June 30, 2022, have been taken into consideration in preparing the consolidated financial statements. The preparation of 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 consolidated financial statements:
● valuation of intellectual property;
● revenue recognition;
● legal and contractual contingencies;
● research and development expenses; and
● share-based compensation expenses.
We base our estimates, to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates. See Note 3 to the consolidated financial statements in this Annual Report for a complete discussion of our significant accounting policies and estimates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information under this Item is not required to be provided by smaller reporting companies.
Item 8. Financial Statements and Supplementary Data.
Financial statements and notes thereto appear on pages F-1 to F-44 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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Item 9A. Controls and Procedures.
(a)Evaluation of Disclosure Controls and Procedures
Our management, under the direction of our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2022.
Management’s Report on Internal Control over Financial Reporting
It is the responsibility of the management of iBio to establish and maintain effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance to iBio’s management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles.
iBio’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of iBio; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of iBio are being made only in accordance with authorizations of management and directors of iBio; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of iBio’s assets that could have a material effect on the financial statements of iBio.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management has performed an assessment of the effectiveness of iBio’s internal control over financial reporting as of June 30, 2022, based upon criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO Framework).
Based on this assessment, management has concluded that our internal control over financial reporting was effective as of June 30, 2022.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report by CohnReznick LLP ("CohnReznick"), our independent registered public accounting firm, regarding internal control over financial reporting. As a smaller reporting company, our internal control over financial reporting was not subject to audit by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report.
Item 9B. Other Information.
On October 11, 2022, Mr. Glenn Chang provided notice of his retirement from the Board, which retirement will become effective immediately following the date of the Company’s 2022 Annual Meeting of Shareholders. Mr. Chang’s retirement from the Board was in accordance with the Company’s Corporate Governance Guidelines in respect of a director’s retirement age and not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
On October 11, 2022, the Company and Woodforest entered into the First Amendment to the Credit Agreement pursuant to which the Credit Agreement was amended to: (i) include a payment of $5,500,000 of the outstanding principal balance owed under the Credit Agreement on the date of the amendment, (ii) include a payment of $5,100,000 of the outstanding principal balance owed under the Credit Agreement within two (2) business days upon our receipt of such amount owed to us by Fraunhofer as part of our legal settlement with them (see Item 3 – Legal Proceedings for more information), (iii) include principal payments of $250,000 per month in debt amortization for a 6 month period commencing the date of the amendment through March 2023, (iv) include an amendment fee of $22,375 and all costs and expenses, (v) require delivery of a report detailing cash flow expenditures every two (2) weeks for the period prior to the delivery of the last report and a monthly 12-month forecast (vi) reduce the liquidity covenant in the Guaranty (as defined in the Credit Agreement) from $10 million to $7.5 million with the ability to lower the liquidity covenant to $5.0 million upon the occurrence of a specific milestone in the Credit Agreement, and (vii) change the annual filing requirement solely for the fiscal year ending June 30, 2022, such that the filing is acceptable with or without a “going concern” designation. In addition, Woodforest cancelled the irrevocable letter of credit issued by JPMorgan Chase Bank upon closing of the amendment.
The foregoing summary of the First Amendment to the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the First Amendment to the Credit Agreement that is filed as an exhibit to this Annual Report.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
Not applicable
PART III
Certain information required by Part III is omitted from this Annual Report because we intend to file our definitive proxy statement for our 2021 Annual Meeting of Stockholders, pursuant to regulation 14A of The Exchange Act, not later than 120 days after the end of the fiscal year covered by this Annual Report and certain information to be included in the definitive proxy statement is incorporated herein by reference.
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item that will appear under the headings “Governance,” “Executive Officers,” and “Delinquent Section 16(a) Reports” in the definitive proxy statement to be filed with the SEC relating to our 2022 Annual Meeting of Stockholders is incorporated herein by reference.
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Code of Ethics
We have adopted a written code of ethics within the meaning of Item 406 of SEC Regulation S-K, which applies to all of our employees, including our principal executive officer and our chief financial officer, a copy of which can be found on our website at www.ibioinc.com. If we make any waivers or substantive amendments to the code of ethics that are applicable to our principal executive officer or our chief financial officer, we will disclose the nature of such waiver or amendment in a Current Report on Form 8-K in a timely manner. No waivers from any provision of our policy have been granted.
Item 11. Executive Compensation and Director Compensation
Information required by this Item that will appear under the heading “Executive Compensation” and “Director Compensation” in the definitive proxy statement to be filed with the SEC relating to our 2022 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item that will appear under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the definitive proxy statement to be filed with the SEC relating to our 2022 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item that will appear under the headings “Certain Relationships and Related Transactions” and “Independence of Board” in the definitive proxy statement to be filed with the SEC relating to our 2022 Annual Meeting of Stockholders is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this Item that will appear under the heading “Independent Auditor Fees and Other Matters” in the definitive proxy statement to be filed with the SEC relating to our 2022 Annual Meeting of Stockholders is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Exhibits and Index
Item 16. Form 10-K Summary
Not Applicable
Exhibit No. Description
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21.1* Subsidiaries of Registrant
23.1* Consent of Independent Registered Public Accounting Firm
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101.INS Inline XBRL Instance Document*
101.SCH Inline XBRL Taxonomy Extension Schema Document *
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document *
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document *
* Filed herewith.
* *Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
iBio, Inc.
(Registrant)
Dated: October 11, 2022 /s/ Thomas F. Isett 3rd
Thomas F. Isett 3rd
Chairman and Chief Executive Officer
/s/ Robert Lutz
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Name Title Date
/s/Thomas F. Isett 3rd Chairman, Chief Executive October 11, 2022
Thomas F. Isett 3rd Officer (Principal Executive Officer)
/s/ Robert Lutz Chief Financial Officer October 11, 2022
/s/Linda Armstrong Director October 11, 2022
Linda Armstrong
/s/Alexandra Kropotova Director October 11, 2022
Alexandra Kropotova
/s/William Clark Director October 11, 2022
William Clark
/s/Eef Schimmelpennink Director October 11, 2022
Eef Schimmelpennink
/s/Glenn Chang Director October 11, 2022
Glenn Chang
/s/James T. Hill Director October 11, 2022
General James T. Hill, USA (Retired)
/s/Gary Sender Director October 11, 2022
Gary Sender
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Annual Financial Statements
iBio, Inc.
Financial Statement Index
Page
Report of Independent Registered Public Accounting Firm – PCAOB ID 596 F-2
Financial Statements:
Consolidated Balance Sheets – June 30, 2022, and 2021 F-5
Notes to Consolidated Financial Statements F-10
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Report of Independent Registered Public Accounting Firm
The Board of Directors and
Stockholders of iBio, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of iBio, Inc. and Subsidiaries (the “Company”) as of June 30, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operating activities for the years ended June 30, 2022 and 2021 and has an accumulated deficit as of June 30, 2022. These matters, among others, raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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Collaboration and License Agreement
Critical Audit Matter Description
As discussed in the notes to the consolidated financial statements, on August 23, 2021, the Company entered into a series of agreements with RubrYc Therapeutics, Inc. (“RubrYc”). The Company accounted for the agreements as an asset purchase and allocated the consideration to the various assets acquired.
The financial reporting for the terms of the Collaboration and License Agreement (the “Agreement”) involved significant estimation by management in its determination of the fair value of the assets acquired and the related fair value allocation of the Agreement. Given these factors, the related audit effort in evaluating management’s judgments of the fair value of the assets acquired and related fair value allocation related to the Agreement was challenging, subjective, and complex and required a high degree of auditor judgment.
How the Critical Audit Matter was addressed in the Audit
Our principal audit procedures related to the Company’s financial reporting for the Agreement included, among others:
● We verified the total consideration included among the terms of the Agreement.
Acquired License Impairment Assessment
As disclosed in notes to the consolidated financial statements, the Company acquired an indefinite-lived license of approximately $4.175 million. This asset is assessed for impairment at least annually and upon the occurrence of a triggering event. The impairment test for indefinite lived licenses consists of comparing the fair value, which is estimated using the income approach, to its carrying value. If the carrying value exceeds the fair value, an impairment loss is recognized in an amount equal to such excess. The determination of the fair value is primarily based on discounted future cash flows projected to be generated from the license, including the estimates of future revenue, future development costs, the probability of success in various phases of development programs, and potential post-launch cash flows. Changes in these assumptions could have a significant impact on either the fair value, the amount of any impairment charges, or both.
Significant judgment is exercised by management when developing the fair value measurement of the license. Given these factors, the related audit effort in evaluating management’s judgments of the fair value of the acquired license was challenging, subjective, and complex and required a high degree of auditor judgment.
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How the Critical Audit Matter was addressed in the Audit
Our principal audit procedures related to the Company’s financial reporting relating to potential impairment of the license included, among others:
● We tested management’s process for developing the fair value of the license.
/s/ CohnReznick LLP
We have served as the Company's auditor since 2010.
Holmdel, New Jersey
October 11, 2022
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iBio, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, except share and per share amounts)
Assets
Current assets:
Accounts receivable - trade 1,000 426
Settlement receivable - current portion 5,100 5,100
Prepaid expenses and other current assets 1,549 2,070
Restricted cash 5,996 —
Convertible promissory note receivable and accrued interest 1,631 1,556
Settlement receivable - noncurrent portion — 5,100
Finance lease right-of-use assets, net of accumulated amortization 74 26,111
Operating lease right-of-use asset 5,020 —
Fixed assets, net of accumulated depreciation 36,661 8,628
Intangible assets, net of accumulated amortization 4,851 952
Prepaid expenses - noncurrent 74 —
Security deposits 29 24
Liabilities and Equity
Current liabilities:
Finance lease obligations - current portion 46 367
Operating lease obligation - current portion 101 —
Note payable - PPP loan - current portion — 600
Term note payable - net of deferred financing costs 22,161 —
Contract liabilities 100 423
Finance lease obligations - net of current portion 30 31,755
Operating lease obligation - net of current portion 5,455 —
Equity
iBio, Inc. Stockholders’ Equity:
Accumulated other comprehensive loss (213) (63)
Total iBio, Inc. Stockholders’ Equity 63,485 108,585
Noncontrolling interest — (17)
Share and per share data have been adjusted for all periods presented to reflect the one-for-twenty five reverse stock split effective October 7, 2022.
The accompanying notes are an integral part of these consolidated financial statements.
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iBio, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(In Thousands, except per share amounts)
Years Ended
June 30,
Cost of goods sold 216 1,462
Operating expenses:
Other income (expense):
Royalty income 7 12
Settlement income — 10,200
Forgiveness of note payable and accrued interest - SBA loan 607 —
Other 6 —
Total other income (expense) (614) 7,898
Net loss attributable to noncontrolling interest 1 6
Net loss attributable to iBio, Inc. (50,303) (23,207)
Preferred stock dividends (88) (260)
Net loss attributable to iBio, Inc. stockholders $ (50,391) $ (23,467)
Comprehensive loss:
Other comprehensive loss - unrealized loss on debt securities (150) (29)
Other comprehensive loss - foreign currency translation adjustments — (1)
Weighted-average common shares outstanding - basic and diluted 8,721 7,825
Share and per share data have been adjusted for all periods presented to reflect the one-for-twenty five reverse stock split effective October 7, 2022.
The accompanying notes are an integral part of these consolidated financial statements.
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iBio, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Years Ended June 30, 2022 and 2021
(In Thousands)
Accumulated
Additional Other
Shares Amount Shares Amount Capital Loss Deficit Interest Total
Capital raises — — 1,953 2 78,274 — — — 78,276
Costs to raise capital and warrant exchange — — — — (4,713) — — — (4,713)
Exercise of stock options — — 2 — 54 — — — 54
Vesting of RSUs — — — — 1 — — — 1
Share-based compensation — — — — 1,586 — — — 1,586
Net loss — — — — — — (23,207) (6) (23,213)
Sale of preferred stock 1 — — — — — — — —
Vesting of RSUs — — 9 — — — — — —
Warrant issued for Transaction — — — — 967 — — — 967
Exercise of stock options — — 3 — 77 — — — 77
Share-based compensation — — — — 4,377 — — — 4,377
Net loss — — — — — — (50,303) (1) (50,304)
Share and per share data have been adjusted for all periods presented to reflect the one-for-twenty five reverse stock split effective October 7, 2022.
The accompanying notes are an integral part of these consolidated financial statements.
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iBio, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Years Ended
June 30,
Cash flows from operating activities:
Amortization of intangible assets 401 291
Amortization of finance lease right-of-use assets 599 1,651
Amortization of operating lease right-of-use assets 516 —
Depreciation of fixed assets 2,275 472
Amortization of premiums on debt securities 312 216
Loss on abandonment of intangible assets — 143
Amortization of deferred financing costs 107 —
Forgiveness of note payable and accrued interest - SBA loan (607) —
Settlement of revenue contract (84) —
Impairment of investment in equity security 1,760 —
Changes in operating assets and liabilities:
Accounts receivable – trade (886) (426)
Accounts receivable – other — (112)
Prepaid expenses and other current assets 307 (1,746)
Prepaid expenses - noncurrent (74) —
Security deposit (5) —
Operating lease obligations (15) —
Contract liabilities 7 (1,387)
Net cash used in operating activities (37,480) (30,064)
Cash flows from investing activities:
Purchases of debt securities (5,355) (23,816)
Redemption of debt securities 13,618 4,000
Purchase of equity security (1,760) —
Additions to intangible assets (4,300) (242)
Purchases of fixed assets (7,330) (4,920)
Issuance of note receivable — (1,500)
Net cash used in investing activities (5,127) (26,478)
Cash flows from financing activities:
Payment of finance lease obligation (5,830) (331)
Proceeds from sales of preferred and common stock — 78,276
Proceeds from subscription receivable — 5,549
Proceeds from exercise of stock options 77 54
Cost to attain term note (322) —
Acquisition of noncontrolling interest (50) —
Costs to raise capital — (4,713)
Net cash (used in) provided by financing activities (6,125) 78,835
Effect of exchange rate changes — (1)
Cash, cash equivalents - beginning 77,404 55,112
Cash, cash equivalents and restricted cash - end $ 28,672 $ 77,404
The accompanying notes are an integral part of these consolidated financial statements.
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iBio, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Years Ended
June 30,
Schedule of non-cash activities:
Conversion of preferred stock shares into common stock shares $ — $ 29
Unrealized loss on available-for-sale debt securities $ 150 $ 29
Lease incentive for construction in progress $ 82 $ —
Unpaid fixed assets included in accounts payable $ 1,769 $ 791
Termination of finance ROU assets including issuance of warrant $ 25,386 $ —
Note payable to acquire Facility $ 22,375 $ —
Settlement of revenue contract $ 580 $ —
Issuance of warrant for final finance lease obligation payment $ 217 $ —
Acquisition of noncontrolling interest $ 18 $ —
Legal costs related to Fraunhofer litigation $ — $ (16,000)
Legal cost recovery - Fraunhofer litigation $ — $ 16,000
Supplemental cash flow information:
Cash paid during the period for interest $ 1,045 $ 2,446
The accompanying notes are an integral part of these consolidated financial statements.
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1. Nature of Business
iBio, Inc. (“we”, “us”, “our”, “iBio”, “iBio, Inc” or the “Company”) is a developer of next-generation biopharmaceuticals using our proprietary Artificial Intelligence (“AI”)-Driven Discovery Platform and FastPharming®Manufacturing System. We are focusing our technologies on the research and development of novel products at its Drug Discovery Center in California. We are currently using our FastPharming Manufacturing System (“FastPharming” or the “FastPharming System”) and GlycaneeringSM Technologies to develop our portfolio of proprietary biologic drug candidates. We also offer contract development and manufacturing services from its 130,000 square foot cGMP facility in Texas.
We operate in two segments: (i) Biopharmaceuticals; its large molecule discovery, development, and licensing activities, and (ii) Bioprocessing; its contract development and manufacturing services for recombinant proteins.
On September 19, 2022, we acquired substantially all of the assets of RubrYc Therapeutics, Inc. (“RubrYc”) which included:
We expect the addition of new therapeutic candidates and an AI-driven drug discovery platform for difficult to treat tumors to strengthen its Biopharmaceutical discovery and development capabilities. Meanwhile, IBIO-101 remains our lead immuno-oncology asset.
For our Bioprocessing area, the FastPharming System is our proprietary approach to recombinant protein production using plants. It uses hydroponically grown Nicotiana benthamiana (a relative of the tobacco plant), novel expression vectors, and transient transfection at scale to produce complex proteins emerging from our own development pipeline or for our clients.
In an effort to focus our resources on the promising new AI discovery platform and entering the clinic with our lead compounds, we have initiated a review of potential options to accelerate our transformation into a platform drug discovery
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and development company while extending our cash runway. These include a review of the pipeline, asset sales or licenses, partnerships, portfolio decisions, cost reductions, and efforts to raise additional capital, including non-dilutive additions of capital.
2. Basis of Presentation
The consolidated financial statements have been prepared in accordance with conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of iBio Inc. and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. Non-controlling interest in the consolidated financial statements represents the share of the loss in iBio CDMO for two affiliates of Eastern Capital Limited (the “Eastern Affiliates”). See Note 21 – Related Party Transactions for additional information.
Going Concern
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 was uncertainty – to obtain additional financing to fund its operations after the current cash resources are exhausted raises substantial doubt about the Company's ability to continue as a going concern. The Company is currently evaluating a number of potential options to expand its cash runway, the implementation of which will impact the Company’s liquidity. Potential options being considered to increase liquidity include lowering our expenses through a decreasing spending and focusing product development on a select number of product candidates, the sale or out-licensing of certain product candidates or parts of the business, raising money from capital markets, grant revenue or collaborations, or a combination thereof.
The Company’s cash, cash equivalents and investments in debt securities of $39.5 million as of June 30, 2022, is not anticipated to be sufficient to support operations beyond Q3 of Fiscal 2023 unless the Company reduces its burn rate or increases its capital as described above. Regardless of whether the Company is able to reduce its burn rate or sell or out-license certain assets or parts of the business, the Company will need to raise additional capital in order to fully execute its longer-term business plan. It is the Company’s belief, in part based on input from expert advisors, that iBio will be able to implement one or more potential options that will allow the Company to have a cash runway for at least 12 months from the date of the filing of this Annual Report on Form 10-K and the goal is to implement one or more options that will allow the Company to have a cash runway longer than 12 months. There can be no assurance that the Company will be successful in implementing any of the options that we are evaluating.
On October 11, 2022, we and Woodforest amended the Credit Agreement to: (i) include a payment of $5,500,000 of the outstanding principal balance owed under the Credit Agreement on the date of the amendment, (ii) include a payment of $5,100,000 of the outstanding principal balance owed under the Credit Agreement within two (2) business days upon our receipt of such amount owed to us by Fraunhofer as part of our legal settlement with them (see Item 3 – Legal Proceedings for more information), (iii) include principal payments of $250,000 per month in debt amortization for a 6 month period commencing the date of the amendment through March 2023, (iv) include an amendment fee of $22,375 and all costs and expenses, (v) require delivery of a report detailing cash flow expenditures every two (2) weeks for the period prior to the delivery of the last report and a monthly 12-month forecast (vi) reduce the liquidity covenant in the Guaranty (as defined in the Credit Agreement) from $10 million to $7.5 million with the ability to lower the liquidity covenant to $5.0 million upon the occurrence of a specific milestone in the Credit Agreement, and (vii) change the annual filing requirement solely for the fiscal year ending June 30, 2022, such that the filing is acceptable with or without a “going concern” designation. In addition, Woodforest cancelled the irrevocable letter of credit issued by JPMorgan Chase Bank upon closing of the amendment. If we fail to successfully extend our cash runway via strategic options or other alternatives as described we would be in violation of the liquidity covenant on December 31, 2022.
The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
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Reverse Stock Split
On September 22, 2022, the Company's Board of Directors approved the implementation of a reverse stock split at a ratio of one-for-twenty five (1 : 25) shares of the Company's Common Stock. The reverse stock split was effective as of October 7, 2022. All share and per share amounts of our common stock presented have been retroactively adjusted to reflect the one-for-twenty five reverse stock split. See Note 17 for more information.
3. Summary of Significant Accounting Policies
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 liquidity assertions, the valuation of intellectual property including impairment considerations, legal and contractual contingencies and share-based compensation. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ from these estimates.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible. At June 30, 2022, and 2021, the Company determined that an allowance for doubtful accounts was not needed.
Revenue Recognition
The Company accounts for its revenue recognition under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Under this 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 Company 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’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.