Slim Vaccine Chances Make iBio Stock Too Speculative Here

IBIO stock is an especially risky investment as it's unclear if its coronavirus vaccine will succeed

If iBio (NYSEMKT:IBIO) gets U.S. Food and Drug Administration approval for its plant-based vaccine for the novel coronavirus, the stock could soar. IBIO stock presently has a $190 million market capitalization. If FDA approval comes through, the market cap could exponentially multiply.

Here’s why. The company claims it can produce 500 million doses of its vaccine using its FastPharming system. The Wall Street Journal discussed this new area of biotech manufacturing called “pharming.”

The system uses plants to grow protein particles from viruses. This type of vaccine production can be quickly expanded by simply growing more plants.

iBio’s original technology was funded by the U.S. Defense Advanced Research Agency (DARPA). Its 130,000-square-foot plant is in Bryan, Texas, on land owned by Texas A&M.

How Much Can iBio Make?

The company has not discussed any trials of its vaccine, in terms of its efficacy. In fact, iBio’s latest 10-Q report with the U.S. Securities and Exchange Commission says the company remains in very early stages with the vaccine. iBio is collaborating on this vaccine with Beijing CC-Pharming.

In a sense, then, its announcement that it could manufacture 500 million doses of a Covid-19 vaccine was premature. But theoretically, assuming the company obtains approval for one of its vaccines, it could begin production and produce 500 million doses annually.

Assuming that the average dose would wholesale at $10 to $20 per dose, that implies revenue of $5 billion to $10 billion annually.

But, as I said, there is no indication that the FDA will approve any vaccine, especially since the company has not yet begun clinical studies. However, iBio filed a patent application on March 12, 2020, for two prospective virus platforms.

Cash Burn Will Be an Impediment to IBIO Stock

The company had $10 million in cash as of the end of March. But it burnt through $9.8 million in the first quarter alone. This is the amount of cash used in investing activities, based on its 10-Q filing.

The company raised $16 million in stock and warrants that were exercised.

So, the company is going to have to raise more cash before the end of the year. At the rate it is presently burning cash, it will need another $20 million to $30 million.

Lincoln Park Capital has agreed to fund up to $50 million in cash for the company. I previously wrote about how this “equity line of credit” facility works.

Suffice it to say that you can expect plenty of dilution from the issuance of more shares. Whether the stock rises though is highly dependent on whether the company can produce a viable, FDA-approved vaccine.

The Bottom Line: Will IBIO Stock Be Worth It?

Here is what we know about iBio’s Covid-19 vaccine efforts. There is very little information available about the company’s clinical trials. The company needs further financing. It is also in a major legal battle over its technology.

So, all of this adds up to a speculative play. IBIO stock has no margin of safety. There’s very little visibility into its potential trials, profitability, funding needs and lots of risks.

Given its present $190 million market value, there is little to justify that valuation. For example, let’s assume there is no more than just a 10% chance that its vaccine could get off the ground. Given my estimate above that its revenue could be $5 billion, and assuming a normal 20% profit margin, that would give the company a $1 billion profit estimate. But with just a 10% chance of that happening any time soon, that gives it a value of just $100 million.

In fact, there would have to be greater than a 20% chance that the company could get this vaccine off the ground for an IBIO stock investment to be worthwhile. Here is the math: 20% probability times the $1 billion estimated profits equals $200 million; greater than the $190 million market value. And that does not include any estimate for future dilution. That alone adds in another 10% to 20% risk factor.

So, unless you think there is greater than a 40% chance iBio can succeed, IBIO stock is likely to be a very speculative play.

As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide, which you can review here.