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
We are a developer of next-generation biopharmaceuticals and pioneer of the sustainable FastPharming Manufacturing System. The Company applies its licensed and owned technologies to develop novel products to treat or prevent fibrotic diseases, cancers, and infectious diseases. We use our FastPharmingManufacturing System (“FastPharming” or the “FastPharming System”) and Glycaneering Services TM to more rapidly build a portfolio of high quality biologic drug candidates in human clinical trials. We are also using the FastPharming System to create proteins for others by contract or via the Company’s catalog.
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We operate in two segments: (i) Biopharmaceuticals: which includes development and licensing in two business units; Therapeutics (focused on oncology, as well as fibrotic and infectious diseases) and Vaccines (human and animal health vaccines), and (ii) Bioprocessing which includes Services (FastPharming Process Development and Manufacturing, as well as Bioanalytical and other services) and Products (growth factors, lectins, and monoclonal antibodies) for research and further manufacturing uses, collectively known as our Research & Bioprocess products (“RBP”).
Results of Operations
Revenue
Gross revenue for 2021 and 2020 was approximately $2.4 million and $1.6 million respectively, an increase of 50% The increase is primarily attributable to 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 2021, the Company 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 is in the process of being terminated. Additionally in 2021, Revenue earned from four other third-party customers totaled $1.5 million. In 2020, we entered into a strategic relationship with CC-Pharming earning $1.3 million in revenue in 2020 with an additional $.3 million generated from other customers.
Significant quarter-to-quarter revenue 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 first half of fiscal 2022 compared to the second half of fiscal 2021, followed by higher growth in the second half of fiscal 2022. Irrespective of quarterly fluctuations, continued year-on-year revenue growth is anticipated.
Research and Development Expenses
Research and development expenses for 2021 and 2020 were approximately $10.0 million and $3.6 million, respectively, an increase of $6.4 million. The increase primarily related to the ramp up of activities related to our internal pipeline including an increase in research and development personnel and consulting costs of approximately $2.6 million, an increase in lab consumables of $2.8 million, and other various expense increases. While iBio expects R&D will continue to grow in fiscal 2022, it anticipates a slower growth rate compared to fiscal 2021.
General and Administrative Expenses
General and administrative expenses for 2021 and 2020 were approximately $22.0 million and $11.4 million respectively, an increase of $10.6 million. 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 $2.7 million, facility repair and maintenance of $2.3 million, consulting fees of $2.0 million, legal fees of $1.6 million, and recruiting expense of $1.3 million. While iBio expect SG&A will continue to grow in fiscal 2022, it anticipates a slower growth rate compared to fiscal 2021.
Other Income (Expense)
Other income (expense) for 2021 and 2020 was $7.9 million and ($2.4) million, an increase of $10.3 million. The increase is primarily attributable to Settlement Income of $10.2 million related to the Fraunhofer IP settlement.
Net Loss Attributable to Noncontrolling Interest
This represents the share of the loss in iBio CDMO for the Eastern Affiliate in 2021 and 2020.
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Liquidity and Capital Resources
As of June 30, 2021, we had cash of $77.4 million as compared to $55.1 million as of June 30, 2020. Given that our total cash and investment in debt securities as of June 30, 2021, approximated $97.0 million, we believe that our current cash will be sufficient to support our current operations through the first quarter of calendar year 2023.
The following equity transactions occurred during Fiscal 2021:
Net Cash Used in Operating Activities
In Fiscal 2021, net cash used in operating activities was $30.1 million, compared to net cash used in operating activities of $13.3 million in Fiscal 2020. The increase in cash used in operating activities in 2021 as compared to 2020 was attributable to increased expenditures to support our business strategy.
Net Cash Used in Investing Activities
In Fiscal 2021, 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 offset by redemptions of debt securities. In Fiscal 2020, our net cash used in investing activities was $1.1 million, which primarily consisted of the purchase of fixed assets.
Net Cash Provided by Financing Activities
In Fiscal 2021, net cash provided by financing activities was $78.8 million, compared to net cash provided by financing activities of $65.2 million in Fiscal 2020. Net cash generated by financing activities in 2021 and 2021 was primarily the result of the issuance of common stock.
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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, 2021, our accumulated deficit was approximately $173.6 million, and we used approximately $30.1 million of net cash for operating activities for Fiscal 2021.
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 settlement 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. 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.
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, 2021, 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 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, 2021 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
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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.
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, 2021. 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, 2021.
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
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statement preparation and presentation. Management has performed an assessment of the effectiveness of iBio’s internal control over financial reporting as of June 30, 2021, 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 were effective as of June 30, 2021.
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, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 September 23, 2021, the Board of Directors approved the award of a cash bonus to Mr. Isett of $509,000 and a grant of an option to purchase two million (2,000,000) shares of our common stock with an exercise price of $1.17, which vest in equal monthly installments over a 36-month period following the grant date, subject to the conditions of the iBio, Inc. 2020 Omnibus Incentive Plan, as amended.
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 2021 Annual Meeting of Stockholders is incorporated herein by reference.
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
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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 2021 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 2021 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 2021 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 2021 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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4.10* Description of Securities of iBio, Inc.
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21.1* Subsidiaries of Registrant
23.1* Consent of Independent Registered Public Accounting Firm
101.INS XBRL Instance*
101.SCH XBRL Taxonomy Extension Schema*
101.CAL XBRL Taxonomy Extension Calculation*
101.DEF XBRL Taxonomy Extension Definition*
101.LAB XBRL Taxonomy Extension Labeled*
101.PRE XBRL Taxonomy Extension Presentation*
* Filed herewith.
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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: September 28, 2021 /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 September 28, 2021
Thomas F. Isett 3rd Officer (Principal Executive Officer)
/s/ Robert Lutz Chief Financial Officer September 28, 2021
/s/Linda Armstrong Director September 27, 2021
Linda Armstrong
/s/Alexandra Kropotova Director September 27, 2021
Alexandra Kropotova
/s/William Clark Director September 27, 2021
William Clark
/s/Eef Schimmelpennink Director September 27, 2021
Eef Schimmelpennink
/s/Robert B. Kay Director September 27, 2021
Robert B. Kay
/s/Glenn Chang Director September 27, 2021
Glenn Chang
/s/James T. Hill Director September 27, 2021
General James T. Hill, USA (Retired)
/s/John D. McKey, Jr. Director September 27, 2021
John D. McKey, Jr.
/s/Gary Sender Director September 27, 2021
Gary Sender
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Annual Financial Statements
iBio, Inc.
Financial Statement Index
Page
Report of Independent Registered Public Accounting Firm F-2
Financial Statements:
Consolidated Balance Sheets – June 30, 2021, and 2020 F-4
Notes to Consolidated Financial Statements F-9
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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, 2021 and 2020, 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, 2021 and 2020, 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.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 entity’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 Matter
The critical audit matter 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.
Settlement Agreement
Critical Audit Matter Description
As described in the notes to the consolidated financial statements, the Company entered into a confidential settlement agreement and mutual release to settle all claims and counterclaims associated with a lawsuit over ownership of, among other things, certain plant-based technology (“Settlement Agreement”). The Company evaluated the terms of the
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Settlement Agreement as well as an additional license agreement (“License Agreement”) negotiated in conjunction with the Settlement Agreement in accordance with the requirements of Accounting Standards Codification (“ASC”) 450, Gain Contingencies, and ASC 606, Revenue Recognition.
The financial reporting for the terms of the Settlement Agreement and License Agreement was identified as a critical audit matter because of the significant judgments made by management in assessing the substance of the components of the payments required under the Settlement Agreement, the likelihood of collectability of the future payments due under the Settlement Agreement as well as the consideration due under the License Agreement and the determination of whether a gain had been realized or is realizable. The assessment of the financial reporting for the terms of the Settlement Agreement and License Agreement required auditor judgement, subjectivity and significant audit effort in performing audit procedures to evaluate the reasonableness of management’s conclusions on the Settlement Agreement.
How the Critical Audit Matter was addressed in the Audit
Our principal audit procedures related to the Company’s financial reporting for the Settlement Agreement and License Agreement included, among others:
/s/ CohnReznick LLP
We have served as the Company's auditor since 2010.
Holmdel, New Jersey
September 28, 2021
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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 426 75
Settlement receivable - current portion 5,100 —
Subscription receivable — 5,549
Investments in debt securities 19,570 —
Work in progress 27 798
Prepaid expenses and other current assets 2,070 214
Note receivable and accrued interest 1,556 —
Settlement receivable - noncurrent portion 5,100 —
Fixed assets, net of accumulated depreciation 8,628 3,657
Intangible assets, net of accumulated amortization 952 1,144
Security deposits 24 24
Liabilities and Equity
Current liabilities:
Finance lease obligations - current portion 367 301
Note payable - PPP loan - current portion 600 261
Deferred revenue / Contract liabilities 423 1,810
Total Current Liabilities 6,645 5,236
Note payable - PPP loan - net of current portion — 339
Finance lease obligations - net of current portion 31,755 32,007
Commitments and Contingencies
Equity
iBio, Inc. Stockholders’ Equity:
Accumulated other comprehensive loss (63) (33)
Total iBio, Inc. Stockholders’ Equity 108,585 56,618
Noncontrolling interest (17) (11)
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 1,462 703
Operating expenses:
Research and development (related party of $0 and $97) 9,989 3,573
Other income (expense):
Interest income 140 15
Royalty income 12 10
Settlement income 10,200 —
Total other income (expense) 7,898 (2,441)
Net loss attributable to noncontrolling interest 6 5
Net loss attributable to iBio, Inc. (23,207) (16,439)
Preferred stock dividends – iBio CMO Tracking Stock (260) (261)
Net loss attributable to iBio, Inc. stockholders $ (23,467) $ (38,260)
Comprehensive loss:
Other comprehensive loss - unrealized loss on debt securities (29) —
Other comprehensive loss - foreign currency translation adjustments (1) (2)
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, 2021 and 2020
(In Thousands)
Accumulated
Additional Other
Shares Amount Shares Amount Capital Loss Deficit Interest Total
Compensation shares — — 1,316 1 (1) — — — —
Exercise of stock options — — 140 — 130 — — — 130
Share-based compensation — — — — 388 — — — 388
Exercise of stock options — — 53 — 54 — — — 54
Vesting of RSU's — — 10 — 1 — — — 1
Conversion of preferred stock to common stock (6) — 28,925 29 (29) — — — —
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:
Share-based compensation 1,586 388
Amortization of intangible assets 291 298
Amortization of finance lease right-of-use assets 1,651 1,661
Depreciation of fixed assets 472 282
Accrued interest income on note receivable (56) —
Amortization of premiums on debt securities 216 —
Loss on abandonment of intangible assets 143 —
Changes in operating assets and liabilities:
Accounts receivable – trade (426) 22
Accounts receivable – other (112) —
Settlement receivable (10,200) —
Prepaid expenses and other current assets (1,746) 77
Accounts payable 48 498
Deferred revenue / contract liabilities (1,387) 531
Net cash used in operating activities (30,064) (13,345)
Cash flows from investing activities:
Purchases of debt securities (23,816) —
Additions to intangible assets (242) (76)
Purchases of fixed assets (4,920) (1,078)
Redemption of debt securities 4,000 —
Issuance of note receivable (1,500) —
Net cash used in investing activities (26,478) (1,154)
Cash flows from financing activities:
Proceeds from sales of preferred and common stock 78,276 62,363
Proceeds from subscription receivable 5,549 —
Proceeds from exercise of warrants — 6,330
Proceeds from the exercise of stock options 54 130
Costs to raise capital (4,713) (2,170)
Proceeds from PPP loan — 600
Payments of notes payable – warrant exchange — (1,995)
Payment of finance lease obligation (331) (66)
Net cash provided by financing activities 78,835 65,192
Effect of exchange rate changes (1) (2)
Net increase in cash and cash equivalents 22,292 50,691
Cash and cash equivalents – beginning 55,112 4,421
Cash and cash equivalents - end $ 77,404 $ 55,112
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:
Legal costs related to Fraunhofer litigation $ (16,000) $ —
Legal cost recovery - Fraunhofer litigation $ 16,000 $ —
Increase in ROU assets under ASC 842 $ 146 $ 7,489
Subscription receivable for capital raise $ — $ 5,549
Costs related to subscription receivable, net of costs $ — $ 172
Deemed dividend – non-cash warrant exchange $ — $ 6,600
Issuances of common stock under warrant exchange $ — $ 3,300
Issuances of notes payable under warrant exchange $ — $ 3,300
Unpaid fixed assets included in accounts payable $ 791 $ 268
Unrealized loss on available-for-sale debt securities $ 29 $ —
Conversion of preferred stock shares into common stock shares $ 29 $ 29
Compensation shares — 1
Supplemental cash flow information:
Cash paid for interest during Fiscal Year 2021 $ 2,446 $ 2,372
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”) are a developer of next-generation biopharmaceuticals and pioneer of the sustainable FastPharming Manufacturing System ®. The Company is applying its licensed and owned technologies to develop novel product candidates to treat or prevent fibrotic diseases, cancers, and infectious diseases. The Company is using its FastPharming Manufacturing System (“FastPharming” or the “FastPharming System”) and Glycaneering Services TM to rapidly and cost effectively build a portfolio of biologic drug candidates for internal use. The Company is also using the FastPharming System to create proteins for others by contract or via the Company’s catalog.
The Company operates in two segments: (i) Biopharmaceuticals: its biologics development and licensing segment which is focused on drug development in two primary areas: Therapeutics (currently Fibrotics and Oncology) and Vaccines (human and animal health vaccines), and (ii) Bioprocessing: focused on two business lines: CDMO Services and Research & Bioprocess Products (“RBP”).
Biopharmaceuticals:
Therapeutics
Anti-Fibrotics
Fibrosis is a pathological disorder in which connective tissue replaces normal parenchymal tissue to the extent that it goes unchecked, leading to considerable tissue remodeling and the formation of permanent scar tissue. Fibrosis can occur in many tissues within the body, including the lungs (e.g., idiopathic pulmonary fibrosis (“IPF”) and skin (e.g. systemic scleroderma).
Oncology
iBio’s oncology efforts seek to identify therapeutics to aid in the treatment of cancer. Although there are a large number of cancer treatments available, significant unmet need exists in many types of cancer for improved treatments. In May 2021, the Company announced plans to establish drug development capabilities in the San Diego, California area, with an initial focus on monoclonal antibodies for use in oncology.
Vaccines
Human Health: SARS-CoV-2
Coronavirus disease 2019 is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) (“COVID”). It was first identified in December 2019 in Wuhan, Hubei, China, and has resulted in an ongoing pandemic. Common symptoms include fever, cough, fatigue, shortness of breath or breathing difficulties, and loss of smell and taste. Some people develop acute respiratory distress syndrome (ARDS), possibly precipitated by cytokine dysregulation, multi-organ failure, septic shock, and blood clots.
Animal Health: Classical Swine Fever
Classical swine fever (“CSF”) is a contagious, often fatal disease affecting both feral and domesticated pigs. Outbreaks in Europe, Asia, Africa, and South America have not only adversely impacted animal health and food security, but have also had severe socioeconomic impacts on both the pig industry worldwide and small-scale pig farming. Currently available vaccines can be efficient at triggering rapid animal immune response and protecting swine populations when combined with culling of infected pigs, but do not allow the differentiation of infected from vaccinated animals (DIVA), nor are they approved for use in the U.S. The development of DIVA compatible and efficacious vaccination solutions remains a top priority to prevent the economic impacts of a CSF outbreak including supply disruptions, export restrictions and reduced food security.
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Bioprocessing
Services
iBio’s contract development and manufacturing services use iBio’s FastPharming intellectual property and know how to develop or manufacture proteins for others per a contract or to provide bioprocess services.
Research & Bioprocess Products
iBio is developing proteins for use in cutting-edge research and cGMP manufacturing where the demand for high-quality products continues to evolve. The Company offers recombinant proteins for third parties on a catalog and custom basis. These catalog products often can lead to opportunities to provide CDMO services or identify in-licensing opportunities for our proprietary biotech pipeline.
FastPharming
The FastPharming System is iBio’s proprietary approach to plant-made pharmaceutical and protein production. It uses hydroponically-grown, transiently-transfected plants, (typically Nicotiana benthamiana, a relative of the tobacco plant), novel expression vectors, a large-scale transient transfection method, and other technologies that can be used to produce complex therapeutic proteins emerging from our own, our clients’ and our potential clients’ pipelines.
2. Basis of Presentation
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of iBio Inc. and our 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 the Eastern Affiliate. See Note 19 – Related Party Transactions for additional information.
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 was uncertainty – to obtain additional financing to fund its operations after the current cash resources are exhausted raised substantial doubt about the Company's ability to continue as a going concern. Based on the total cash and cash equivalents plus investments in debt securities of approximately $97 million as of June 30, 2021, the Company believes it has adequate cash on hand to support the Company’s activities through March 31, 2023.
3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include liquidity assertions, 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.
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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, 2021 and 2020, the Company determined that an allowance for doubtful accounts was not needed.
Revenue Recognition
The Company accounts for its revenue recognition under Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) and other associated standards. Under this 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 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.
In general, the Company applies the following steps when recognizing revenue from contracts with customers: (i) identify the contract, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when a performance obligation is satisfied. The nature of the Company’s contracts with customers generally fall within the three key elements of the Company’s business plan: CDMO Facility Activities; Product Candidate Pipeline, and Facility Design and Build-out / Technology Transfer services.
Recognition of revenue is driven by satisfaction of the performance obligations using one of two methods: revenue is either recognized over time or at a point in time. Contracts containing multiple performance obligations classify those performance obligations into separate units of accounting either as standalone or combined units of accounting. For those performance obligations treated as a standalone unit of accounting, revenue is generally recognized based on the method appropriate for each standalone unit. For those performance obligations treated as a combined unit of accounting, revenue is generally recognized as the performance obligations are satisfied, which generally occurs when control of the goods or services have been transferred to the customer or client or once the client or customer is able to direct the use of those goods and / or services as well as obtaining substantially all of its benefits. As such, revenue for a combined unit of accounting is generally recognized based on the method appropriate for the last delivered item but due to the specific nature of certain project and contract items, management may determine an alternative revenue recognition method as appropriate, such as a contract whereby one deliverable in the arrangement clearly comprises the overwhelming majority of the value of the overall combined unit of accounting. Under this circumstance, management may determine revenue recognition for the combined unit of accounting based on the revenue recognition guidance otherwise applicable to the predominant deliverable.
If a loss on a contract is anticipated, such loss is recognized in its entirety when the loss becomes evident. When the current estimates of the amount of consideration that is expected to be received in exchange for transferring promised goods or services to the customer indicates a loss will be incurred, a provision for the entire loss on the contract is made. At June 30, 2021 and 2020, the Company had no contract loss provisions.
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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.
Revenue can be recognized either 1) over time or 2) at a point in time and is summarized below (in thousands).
Revenue recognized at a point in time $ 2,371 $ 1,491
Revenue recognized over time — 147
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.
Contract Assets
A contract asset is an entity's right to payment for goods and services already transferred to a customer if that right to payment is conditional on something other than the passage of time. Generally, an entity will recognize a contract asset when it has fulfilled a contract obligation but must perform other obligations before being entitled to payment.
Contract assets consist primarily of the cost of project contract work performed by third parties whereby the Company expects to recognize any related revenue at a later date, upon satisfaction of the contract obligations. At both June 30, 2021 and 2020, contract assets were $0.
Contract Liabilities
A contract liability is an entity’s obligation to transfer goods or services to a customer at the earlier of (1) when the customer prepays consideration or (2) the time that the customer’s consideration is due for goods and services the entity will yet provide. Generally, an entity will recognize a contract liability when it receives a prepayment.
Contract liabilities consist primarily of consideration received, usually in the form of payment, on project work to be performed whereby the Company expects to recognize any related revenue at a later date, upon satisfaction of the contract obligations. At June 30, 2021 and 2020, contract liabilities were $423,000 and $1,810,000, respectively. The Company recognized revenue of $1,087,000 in 2021 that was included in the contract liabilities balance as of June 30, 2020.
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Leases
Effective July 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) (“ASC 842”) and other associated standards using the modified retrospective approach for all leases entered into before the effective date. The new standard establishes a right-of-use (“ROU”) model requiring a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classified as either an operating or finance lease. The adoption of ASC 842 had a significant effect on the Company’s balance sheet, resulting in an increase in non-current assets and both current and non-current liabilities. The adoption of ASC 842 had no impact on retained earnings as the assets recognized under the sublease and the associated lease obligation were accounted for as a capital lease under Topic 840. The Company did not have any operating leases, therefore there was no change in accounting treatment required. For comparability purposes, the Company will continue to comply with prior disclosure requirements in accordance with the then existing lease guidance under Topic 840 as prior periods have not been restated.
As the Company elected to adopt ASC 842 at the beginning of the period of adoption, the Company recorded the ROU and finance lease obligation as follows:
1. ROU measured at the carrying amount of the leased assets under Topic 840.
The Company elected the package of practical expedients as permitted under the transition guidance, which allowed it: (1) to carry forward the historical lease classification; (2) not to reassess whether expired or existing contracts are or contain leases; and, (3) not to reassess the treatment of initial direct costs for existing leases.
In accordance with ASC 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially all the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less under practical expedient in paragraph ASC 842-20-25-2. For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration and to account for the lease and non-lease components as a single lease component.
The lease liability and the corresponding ROU assets were recorded based on the present value of lease payments over the expected remaining lease term. The implicit rate within our capital lease was determinable and, therefore, used at the adoption date of ASC 842 to determine the present value of lease payments under the finance lease.
An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option.
For periods prior to the adoption of ASC 842, the Company recorded interest expense based on the amortization of the capital lease obligation. The expense recognition for finance leases under Topic 842 is substantially consistent with prior guidance for capital leases. As a result, there are no significant differences in our results of operations presented.
Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents at June 30, 2021 consisted of money fund accounts. The Company did not have any cash equivalents at June 30, 2020.
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Investments in Debt Securities
Debt investments are classified as available-for-sale. Changes in fair value are recorded in other comprehensive income (loss). Fair value is calculated based on publicly available market information. Discounts and/or premiums paid when the debt securities are acquired are amortized to interest income over the terms of the debt securities.
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 amounted to $27,000 and $798,000 as of June 30, 2021 and 2020, respectively.
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.
Right-of-Use Assets
Assets held under the terms of finance (capital) leases are amortized on a straight-line basis over the terms of the leases or the economic lives of the assets. Obligations for future lease payments under finance (capital) leases are shown within liabilities and are analyzed between amounts falling due within and after one year. See Note 8 - Finance Lease ROU’s and Note 14 - Finance Lease Obligation for additional information.
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.
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 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.
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 both 2021 and 2020, any translation adjustments were considered immaterial and did not have a significant impact on the Company's consolidated financial statements.
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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, the vesting schedule and forfeitures. 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.