UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
xx
¨¨
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2014
OR
For the transition period from ___ to ___
Commission file number 001-35023
iBio, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
26-2797813
(I.R.S. Employer Identification No.)
9 Innovation Way, Suite 100, Newark, DE
(Address of principal executive offices)
19711
(Zip Code)
Registrant’s telephone number, including area code: (302) 355-0650
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Name of exchange on which registered
NYSE MKT
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act:
Large accelerated filer ¨
Non-accelerated filer ¨
Accelerated filer ¨
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately
$11,540,000 as of December 31, 2013, based upon the closing sale price on the NYSE MKT of $0.34 per share reported for such date.
There were 67,460,267 shares of the registrant’s common stock issued and outstanding as of September 26, 2014.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2014 Annual Meeting of Stockholders, to be filed with the Commission not later
than 120 days after the close of the registrant’s fiscal year, are incorporated by reference, in whole or in part, into Part III, Items 10, 11, 12, 13
and 14 of this Annual Report on Form 10-K.
and 14 of this Annual Report on Form 10-K.
iBio, Inc.
Annual Report on Form 10-K
Table of Contents
PART I
PART II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
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Unless the context requires otherwise, references in this Annual Report on Form 10-K to “iBio,” the “Company,” “we,” “us,” “our” and
similar terms mean iBio, Inc.
Certain statements in this Annual Report on Form 10-K may constitute forward-looking statements as defined in Section 27A of the Securities
Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation
Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (the “SEC”), all as may be amended
from time to time. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the
intention of obtaining the benefits of the “safe harbor” provisions of such laws. All statements contained in this Annual Report on Form 10-K,
other than statements that are purely historical, are forward-looking statements. Forward looking-statements can be identified by, among other
things, the use of forward-looking language, such as the words “plans,” “intends,” “believes,” “expects,” “anticipates,” “estimates,” “projects,”
“potential,” “may,” “will,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar words, or the negative of these terms or
other variations of these terms or comparable language, or by discussion of strategy or intentions. Forward-looking statements are based upon
management’s present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future and are subject
to known and unknown risks and uncertainties that could cause actual results, events or developments to be materially different from those
indicated in such forward-looking statements, including the risks and uncertainties set forth in Item 1A of this Annual Report on Form 10-K
and in other securities filings by the Company. These risks and uncertainties should be considered carefully, and readers are cautioned not to
place undue reliance on such forward-looking statements. As such, no assurance can be given that the future results covered by the forward-
looking statements will be achieved. All information in this Annual Report on Form 10-K is as of September 29, 2014, unless otherwise
indicated. The Company does not intend to update this information to reflect events after the date of this report.
We maintain a website at www.ibioinc.com to provide information to the general public and our stockholders on iBio and its management,
financial results and press releases. Copies of this Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports
on Form 8-K and our other reports filed with the SEC can be obtained free of charge as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC on our website at www.ibioinc.com or directly from the SEC’s website at www.sec.gov .
Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form
10-K.
3
Item 1. Business.
Overview
PART I
We are a biotechnology company focused on commercializing our proprietary platform technologies, iBioLaunch™ and
iBioModulator™, and developing select product candidates derived from these platforms. iBioLaunch is a proprietary, transformative platform
technology for development and production of biologics using transient gene expression in hydroponically grown, unmodified green plants.
iBioModulator is a proprietary technology platform that is designed to improve the potency and duration of effect of both prophylactic and
therapeutic vaccines produced with any recombinant expression technology including iBioLaunch.
Stated simply, iBioLaunch harnesses the natural protein production capability that plants use to sustain their own growth, and directs
it instead to produce proteins that comprise the active pharmaceutical ingredients in vaccines and biopharmaceuticals. The platform’s ability to
produce a wide array of biologics is evidenced by, among other things, our validated pipeline of iBioLaunch-produced product candidates. The
iBio pipeline includes vaccines, enzyme replacements, monoclonal antibodies, and recombinant versions of marketed products that are
currently derived from human blood plasma.
In addition to the broad array of biological products that can be produced with iBioLaunch, we believe this technology offers other
advantages that are not available with conventional manufacturing systems. These anticipated advantages may include reduced production time
and lower capital and operating costs. In May 2013, the speed of iBioLaunch production was demonstrated when a third party laboratory
using the iBioLaunch platform was able, in a 21 day period from receipt of antigen sequence information to purification of recombinant
protein, to successfully produce a vaccine candidate for the newly emerged H7N9 influenza virus. We believe the successful production of this
vaccine candidate demonstrates, among other things, that it is possible to utilize the iBioLaunch platform to produce vaccine doses for
emergency use against pandemic and bioterrorism threats in weeks rather than the months necessary with the use of engineered or attenuated
virus strains. Further, we believe that the capital investment required to construct facilities that will manufacture proteins on the iBioLaunch
platform will be substantially less than the capital investment which would be required for the construction of similar capacity facilities
utilizing conventional manufacturing methods dependent upon animal cells, bacterial fermenters and chicken eggs. Additionally, operating
costs in a manufacturing facility using the iBioLaunch platform are expected to be reduced significantly in comparison to conventional
manufacturing processes due to the rapid nature of the iBioLaunch production cycle and the elimination of the expenses associated with the
operation and maintenance of bioreactors, fermenters, sterile liquid handling systems and other expensive equipment which is not required in
connection with the use of the iBioLaunch platform.
The ability of the iBioLaunch platform to manufacture proteins that are difficult or impossible to produce on a commercially
practicable basis with conventional manufacturing systems has been demonstrated by the production of antigens for vaccine candidates for
both hookworm and malaria. These iBioLaunch-produced vaccine candidates are being developed by the Sabin Institute and the Bill and
Melinda Gates Foundation, respectively. Phase 1 clinical trials for each have commenced.
In addition to the clinical development of these vaccine candidates, the U.S. Department of Defense, or DoD, is currently sponsoring
the development of an iBioLaunch-produced anthrax vaccine, and Bio-Manguinhos/FioCruz, or FioCruz, a unit of the Oswaldo Cruz
Foundation, a central agency of the Ministry of Health of Brazil, is sponsoring the development an iBioLaunch-produced yellow fever vaccine
to replace the vaccine it currently makes in chicken eggs for the populations of Brazil and more than 20 other nations. These advances are
occurring subsequent to the demonstration of safety of iBioLaunch-produced vaccine candidates against each of the H1N1 “Swine” flu virus
and the H5N1 avian flu virus in successfully completed Phase 1 clinical trials.
We developed our iBioModulator technology based on the use of a modified form of the cellulose degrading enzyme lichenase, or
LicKM, from Clostridium thermocellum, a thermophilic and anaerobic bacterium. iBioModulator enables an adjuvant component to be fused
directly to preferred recombinant antigens to create a single protein for use in vaccine applications. Multiple proteins or antigenic domains of
proteins can be fused to various portions of LicKM to enhance vaccine performance.
The iBioModulator platform has been shown to be applicable to a range of vaccine proteins and can significantly modify the immune
response to a vaccine in two important ways. Animal efficacy studies have demonstrated that it can increase the strength of the initial immune
response to a vaccine antigen (as measured by antibody titer) and also extend the duration of the immune response. These results suggest the
possibility that use of the iBioModulator platform may lower vaccine antigen requirements and enable fewer doses to establish prolonged
protective immunity. We believe that the ability to provide better immune response and longer-term protection with fewer or zero booster
inoculations would add significant value to a vaccine by reducing the overall costs and logistical difficulties of its use.
Our near-term focus is to realize two key objectives: (1) the establishment of additional business arrangements pursuant to which
commercial, government and not-for-profit licensees will utilize iBioLaunch and iBioModulator in connection with the production and
development of therapeutic proteins and vaccine products; and (2) the further development of select product candidates derived from or
enhanced by our technology platforms. These objectives are the core components of our strategy to commercialize the proprietary technology
we have developed and validated.
4
Our strategy to engage in partnering and out-licensing of our technology platforms seeks to preserve the opportunity for iBio to share
in the successful development and commercialization of product candidates by our licensees while enhancing our own capital and financial
resources for development, alone or through commercial alliances with others, of high-potential product candidates derived from our
platforms. In addition to financial resources we may receive in connection with the license of our platform technologies, we believe that
successful development by third party licensees of iBioLaunch-derived and iBioModulator-enhanced product candidates will further validate
our technology, increase awareness of the advantages that may be realized by the use of such platforms and promote broader adoption of our
technologies by additional third parties.
The advancement of iBioLaunch-derived and iBioModulator-enhanced product candidates is a key element of our strategy. We
believe that selecting and developing products which individually have substantial commercial value and are representative of classes of
pharmaceuticals that can be successfully produced using either or both of our technology platforms will allow us to maximize the near and
longer term value of each platform while exploiting individual product opportunities. To realize this result, we are currently advancing
designated product candidates through the preclinical phase of development and undertaking the studies required for submission of
Investigational New Drug Applications, or INDs. The most advanced product candidate we are currently internally advancing through
preclinical IND enabling studies is a proprietary recombinant protein we call IBIO-CFB03 for treatment of idiopathic pulmonary fibrosis,
systemic sclerosis, and potentially other fibrotic diseases. To the extent that we anticipate the opportunity to realize additional value, we may
elect to further the development of this or other product candidates through the early stages of clinical development before seeking to license
the product candidate to other industry participants for late stage clinical development and if successful, commercialization.
Recent Business Highlights
Purchase Agreement with Aspire Capital Fund LLC
On August 25, 2014, the Company entered into a common stock purchase agreement with Aspire Capital Fund, LLC, an Illinois
limited liability company (referred to below as “Aspire Capital”), which provides that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common
stock over the approximately 24-month term of the purchase agreement. In consideration for entering into the purchase agreement, following
the approval of the issuance of the shares by NYSE MKT, Aspire Capital received 681,818 shares of the Company’s common stock as a
commitment fee. In addition, on September 19, 2014 following approval of the issuance of the shares by NYSE MKT, Aspire Capital
purchased 1,136,354 shares of common stock for $500,000 pursuant to the terms of the purchase agreement.
Concurrently with entering into the purchase agreement, we also entered into a registration rights agreement with Aspire Capital, in
which we agreed to file one or more registration statements as permissible and necessary to register under the Securities Act of 1933, as
amended, the sale of the shares of our common stock that have been and may be issued to Aspire Capital under the purchase agreement. After
the Securities and Exchange Commission has declared effective the registration statement, on any trading day on which the closing sale price
of our common stock exceeds $0.44 (the closing sale price of our shares on the business day before we entered into the purchase agreement
with Aspire Capital), we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, directing Aspire Capital (as
principal) to purchase up to 150,000 shares of our common stock per trading day, provided that the aggregate price of such purchase shall not
exceed $500,000 per trading day, up to an additional $9.5 million of our common stock in the aggregate at a per share price equal to the lesser
of the lowest sale price of our common stock on the purchase date, or the arithmetic average of the three lowest closing sale prices our
common stock during the ten consecutive trading days ending on the trading day immediately preceding the purchase date.
In addition, on any date on which we submit a purchase notice to Aspire Capital in an amount equal to 150,000 shares of common
stock and the closing sale price of our common stock is equal to or greater than $0.44, we also have the right, in our sole discretion, to present
Aspire Capital with a volume-weighted average price (VWAP) purchase notice directing Aspire Capital to purchase an amount of stock equal
to up to 30% of the aggregate shares of our common stock traded on the NYSE MTK on the next trading day, subject to a maximum number
of shares that we may determine, and a minimum trading price which is equal to the greater of (a) 80% of the closing price of our common
stock on the business day immediately preceding the date of the VWAP purchase, or (b) such higher price as set forth by us in the notice for
the VWAP purchase. The purchase price per share pursuant to such VWAP purchase notice shall be the lower of (i) the closing sale price on
the date of sale and (ii) 97% of the volume-weighted average price for our common stock traded on the NYSE MKT on (i) the date of the
VWAP purchase if the aggregate stock to be purchased on that date does not exceed the volume maximum stated in our notice for the VWAP
purchase, or (ii) the portion of such business day until such time as aggregate stock to be purchased will equal the volume maximum stated in
our notice or the time at which the sale of the stock falls below the minimum trading price described above.
The purchase agreement provides that iBio and Aspire Capital shall not effect any sales under the purchase agreement on any
purchase date where the closing sale price of our common stock is less than $0.44 (the closing sale price of our shares on the business day
before we entered into the purchase agreement). Further, the purchase price for any purchases of shares under the purchase agreement may not
be less than $0.44 per share, unless stockholder approval is obtained. The respective prices and share numbers in the preceding paragraphs
shall be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar
transaction. There are no trading volume requirements or restrictions under the purchase agreement with Aspire Capital, and we will control
the timing and amount of any sales of our common stock to Aspire Capital. Aspire Capital has no right to require any sales by us, but is
obligated to make purchases from us as we direct in accordance with the purchase agreement. There are no limitations on use of proceeds,
financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in
the purchase agreement. The purchase agreement may be terminated by us at any time, at our discretion, without any penalty or cost to us.
5
Our Business
Our Technology Platforms – iBioLaunch and iBioModulator
iBioLaunch
iBioLaunch is a proprietary, transformative platform technology for the development and production of therapeutic proteins and
vaccines using transient gene expression in unmodified green plants. Based upon the results of successful Phase 1 clinical trials demonstrating
the safety of vaccine candidates against H1N1 influenza and H5N1 influenza, immunogenicity data from in vivo preclinical studies in well-
established highly predictive animal models and results from feasibility studies and other discovery and development work we have
performed, we believe that the iBioLaunch platform can produce therapeutic proteins and vaccines more efficiently, as measured by time, cost
and yield, than current conventional biologics manufacturing methods. As awareness of these advantages increases, we expect broader
adoption of the iBioLaunch platform by biologics market participants.
An additional advantage of the iBioLaunch platform includes successful production of proteins that are difficult or impossible to
produce on a commercially practical basis with conventional systems. This unique capability has been demonstrated by production of antigens
for vaccine candidates for both hookworm and malaria, each of which require production and purification of proteins that could not be feasibly
made with other systems. For companies developing proprietary product opportunities, challenges often include overcoming obstacles to
efficient production of complex or multiple proteins with simultaneous control of enzymes that modify the properties of the desired end
product. iBioLaunch technology offers the flexibility and sophistication necessary to enable practical development of such complex products.
With iBioLaunch, it is possible to manufacture product candidates in less than a month from identifying the protein of interest. This
rapid production cycle makes iBioLaunch particularly well-suited for producing treatments and vaccines for pandemic diseases and for
bioterror response. The rapid production cycle is also advantageous to researchers and others seeking to develop new products as a greater
number of experiments can be conducted in any time period at a cost less than that associated with conventional expression systems.
Utilizing expression technology which is transient, occurring over a period of four to seven days after introducing a foreign gene,
iBioLaunch eliminates the initial steps upon which other conventional expression technologies are dependent – namely the need to isolate a
high producing cell clone from millions of non-productive cells and then grow the clonal cells in a sterile fermenter to start the manufacturing
process. This saves the year of process development time commonly associated with mammalian cell systems and eliminates the need for
expensive fermenters and a sterile liquid-handling system to prevent bacterial, fungal, or viral contamination of the protein drug. In the
iBioLaunch system, no animal- or human-derived materials are used, eliminating the risk of contamination by human infectious agents. In
place of such materials, normal green plants, grown under clean and controlled conditions, provide the biomass for pharmaceutical protein
manufacturing. Because this entire process uses commonly available materials, we are not dependent on unique sources of raw material, nor
are we limited to purchasing from single suppliers.
The iBioLaunch process begins with robotic seeding into an inert matrix for hydroponic growth, followed by automated infiltration
of the young seedlings for gene expression and protein production. The innovation of the iBioLaunch technology is typified by its proprietary
vector technology. The iBioLaunch vectors are designed to bring foreign DNA to the nucleus of cells in the leaves of plants by allowing a
vector and bacterial host to be introduced into the plant by “infiltrating” the bacterial vector host under a slight vacuum. The bacterial vector
“launches” the foreign DNA into the plant nucleus, where it is coded into instructions that direct the plant’s own protein manufacturing
apparatus to make foreign proteins. A clever arrangement of genes for plant viral enzymes causes these protein production instructions to be
copied hundreds of thousands of times in each plant cell. Our proprietary gene transfer vectors combine the desirable features of the DNA
mobilization plasmid of Agrobacterium tumefaciens with gene control elements taken from single-stranded RNA plant viruses.
6
Subsequent to the incorporation of the iBioLaunch vector in the plant tissues to incorporate the vector, the following steps lead to
target protein synthesis:
·
·
·
·
The vector is transported to the nucleus of each cell, where RNA polymerase II transcribes viral-related sequences and the gene(s) of
interest into messenger RNA.
The viral-related messenger RNA moves to the plant cell cytoplasm, and is translated on ribosomes to make proteins representing the
viral replicase gene, movement protein, and our protein of interest.
The viral replicase protein causes the production of hundreds of additional messenger RNA molecules encoding the production of our
protein of interest, and these messengers dominate the plant protein production machinery.
Large amounts of the protein of interest accumulate and await purification.
The net effect of applying the iBioLaunch system is that the natural plant protein production capability becomes devoted to the
expression of the desired gene, and the target protein rapidly accumulates to extremely high levels suitable for commercial use.
iBioModulator
In addition to iBioLaunch, we have developed iBioModulator, a technology platform that is designed to improve the potency and
duration of effect of both prophylactic and therapeutic vaccines produced with any recombinant expression technology including iBioLaunch.
We developed our iBioModulator technology based on the use of a modified form of the cellulose degrading enzyme lichenase, or LicKM,
from Clostridium thermocellum, a thermophilic and anaerobic bacterium.
Using LicKM, iBioModulator enables an adjuvant component to be fused directly to preferred recombinant antigens to create a single
protein for use in vaccine applications. Multiple proteins or antigenic domains of proteins can be fused to various portions of LicKM to
enhance vaccine performance.
The iBioModulator platform has been shown to be applicable to a range of vaccine proteins, and can significantly modify the immune
response to a vaccine in two important ways. Animal efficacy studies have demonstrated that it can increase the strength of the initial immune
response to a vaccine antigen (as measured by antibody titer) and also extend the duration of the immune response. These results suggest the
possibility that use of the iBioModulator platform may lower vaccine antigen requirements and enable fewer doses to establish prolonged
protective immunity. We believe that the ability to provide better immune response and longer-term protection with fewer or zero booster
inoculations would add significant value to a vaccine by reducing the overall costs and logistical difficulties of its use.
Completed preclinical studies demonstrating the ability of the iBioModulator platform to improve the performance of vaccines include
the following:
· An iBioModulator-Pfs 25 antigen malaria vaccine candidate in advanced pre-IND testing elicited transmission blocking activity at
lower doses and for a longer period of time following immunization compared to a vaccine candidate containing the antigen alone; titers
of specific immunoglobulins to Pfs 25 were approximately ten-fold higher across dose levels when the iBioModulator was used.
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· Therapeutic HPV (human papilloma virus) vaccine candidates constructed with iBioModulator provided superior protection from
HPV-16 E7-induced tumors and extended survival in a mouse model when compared with vaccination with native E7 protein alone.
The HPV tumor protection was both prophylactic and therapeutic. It produced tumor-free survival of mice immunized with the E7
iBioModulator antigen.
·
·
iBioModulator has been used as a fusion to express peptide or protein domain antigens in a number of other successful vaccine
candidates, including those for anthrax.
iBioModulator has been used improve the solubility and stability of recombinant vaccine antigens.
Application of iBioLaunch and iBioModulator - Target Markets and Product Candidates
Target Markets and Commercialization Activities
Based on the scientific data that have been derived from the successful Phase 1 clinical trials of the iBioLaunch-derived influenza
vaccine candidates and the results of the feasibility and preclinical studies conducted to date evaluating iBioLaunch-produced and
iBioModulator-enhanced product candidates, we believe that we have demonstrated the suitability and applicability of these platform
technologies to a broad range of therapeutic protein classes and both prophylactic and therapeutic vaccines.
Currently, we are engaged in efforts to commercialize our iBioLaunch and iBioModulator platforms. Our strategy is to enter
important markets through license agreements and commercial collaborations and our current marketing efforts focus on those decision makers
whom we expect will be attracted to the cost and efficiency advantages that may be obtained through use of our platforms. We believe that the
advantages of our platforms will enable us to compete effectively against the providers of other manufacturing systems that may be slower,
more capital intensive and more costly to operate. We anticipate realizing revenues in connection with licenses we may grant and technology
transfer services we may provide.
In all geographic regions, including the U.S. and Western Europe, the robust ability of the iBioLaunch platform to favorably produce
virtually all biologics, including its ability to produce product candidates that are otherwise not feasible to commercially manufacture, offers us
the opportunity to obtain value through exclusive, individual product licenses which can be worldwide or geographically limited. In other
geographic regions, such as Brazil, India and China where the economies and middle classes are growing rapidly and decision-makers are
building domestic biologics infrastructures, we anticipate entering into and deriving revenues from licenses that may include multiple product
categories to which the iBioLaunch and iBioModulator technology applies.
Additionally, we believe that governments and state corporations seeking to establish and maintain autonomous biodefense
capabilities will also be attracted to the advantages realizable with our platforms. The market for biodefense countermeasures reflects continued
awareness of the threat of global terror and biowarfare activity as well as the need to have capacities to quickly manufacture both vaccines and
therapeutics to a numerous and ever evolving list of biological agents that could be used to harm populations.
To enhance our success in the commercialization of our two platforms, we are engaging in efforts to advance select iBioLaunch-
produced product candidates. Our current internal efforts focus on the further development of a proprietary recombinant protein product
candidate, IBIO-CFB03, for the treatment of idiopathic pulmonary fibrosis, systemic sclerosis, and other fibrotic diseases. We have selected
this product candidate for further advancement on the basis of its individual commercial value and its value as representative of a class of
products in an attractive market that may be successfully derived from the iBioLaunch platform. We believe that demonstration of successful
utilization of our two platforms by each of us and our license partners will enhance market awareness of the broad applicability and potential
advantages realizable with the platforms and generate increased opportunities for us to realize value from these assets.
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Product Candidates
The table below summarizes key information regarding the category and product class and the status of the most advanced product candidates
generated from our platforms:
Market
Class
Product
Status /Other
Therapeutic Protein
Anti-fibrosis Protein
Plasma-Derived Proteins
Enzyme Replacement
Monoclonal Antibodies
IBIO-CFB03
C1 Esterase Inhibitor
Alpha-Galactosidase
Palivizumab
Preclinical
Preclinical
Preclinical Orphan Designation
Preclinical
Vaccines
Viral Disease Vaccines
Parasitic Pathogen Vaccine
H1N1 Influenza
H5N1 Influenza
Yellow Fever
Malaria
Hookworm
Therapeutic Vaccine
Human Papillomavirus (HPV)
Phase I - Completed
Phase I - Completed
Preclinical
Preclinical – IND filed
Preclinical – IND filed
Preclinical
Biodefense
Bacterial Disease Vaccine
Bacterial Disease Vaccine
Monoclonal Antibody
Anthrax
Anthrax/Plague
Anthrax
Preclinical
Preclinical
Preclinical
Therapeutic Protein Product Candidates
Using iBioLaunch, we have expressed and demonstrated the feasibility of production of substantially all classes of therapeutic
proteins. The proteins that we have successfully produced range from large and complex monoclonal antibodies to smaller proteins such as
interferons, growth factors, and enzymes.
IBIO-CFB03, a Proprietary Product for Treatment of Fibrosis
iBio has exclusively licensed and is developing, on its iBioLaunch™ platform, an innovative new product we have designated
“IBIO-CFB03” for treatment of idiopathic pulmonary fibrosis (IPF) and systemic sclerosis (SSc), both fatal and incurable diseases. The total
number of people affected by IPF, while large in comparison to many biotechnology target markets, is small enough for iBio’s drug to qualify
for the regulatory and financial benefits available under U.S. and European Orphan Drug incentives.
No available therapy, other than lung transplantation, is available to stop or reverse the progression of IPF. Two drug candidates that
have recently completed Phase 3 clinical trials are expected to be approved and available for use in the United States and Europe during 2015.
However, clinical data on these new product candidates suggest that individual patients are unlikely to perceive the benefit, if any, provided by
either drug because their disease will continue to worsen since those drugs only slow the pace of disease progression with no evidence of
disease reversal.
The prevalence of IPF, depending on the diagnostic criteria used, is up to 70,000 persons in the U.S. (up to 53,000 new cases
diagnosed each year) and up to 82,000 in Europe (European Respiratory Review, 2012). The total number of people in the U.S. and Europe
with either IPF or systemic sclerosis, a related fibrotic disease, exceeds 250,000. A successful product for treatment of IPF will likely be
effective against additional untreatable fibrotic diseases such as systemic sclerosis and localized scleroderma, and iBio intends to pursue those
indications in parallel with its IPF program.
iBio’s candidate product has demonstrated efficacy in both animal disease models and through the reversal of fibrosis in human skin
organ culture. Preclinical studies have established a strong safety profile for IBIO-CFB03 with no toxicity seen at concentrations well above
the predicted effective doses. The drug is readily diffusible into organs and tissues and can reach its target site via several modes of
administration. Systemic administration is effective at reducing skin and lung fibrosis. The anti-fibrotic effects of IBIO-CFB03 are observed
even after the onset of fibrosis, suggesting that it is capable of reversing fibrosis—an effect not observed with any of the potential anti-fibrotic
therapies that are currently known or that have been tested, including the most recently reported candidates completing phase 3 clinical trials.
Fibrosis is a complex disease unlikely to respond for long, if at all, to drugs that target only one of several key disease drivers. In addition,
patients with existing fibrosis enter the clinic long after the onset of their disease, and thus do not benefit significantly from a drug used to
prevent fibrosis rather than treat existing fibrosis.
Experimental drugs demonstrating efficacy against life-threatening diseases in early clinical trials are given higher priority review for
marketing approval by regulatory agencies in the U.S. and Europe. In addition, both the U.S. and Europe offer financial and regulatory
incentives for the development of new drugs for the treatment of smaller patient populations (Orphan Drugs), and such drugs can be approved
for marketing faster and with less total investment than drugs that are intended to treat major diseases. iBio plans to seek Orphan Drug
designation for its drug candidate for both IPF and for SSc.
9
Recombinant forms of Plasma Derived Products
Using iBioLaunch, we have successfully produced human C1 esterase inhibitor and human alpha 1-antitrypsin, each of which are
important therapeutic products that have been traditionally derived from human blood plasma. The production via the iBioLaunch system of
plasma sparing recombinant forms of these products offers an alternative process that may lessen reliance on human blood supplies and
eliminate the safety concerns that may be associated with use of animal and human cells or other tissue components.
Other Therapeutic Proteins
In addition to the recombinant form of plasma derived products, using iBioLaunch, we have been able to express and demonstrate the
feasibility of production of substantially all other classes of therapeutic proteins. The therapeutic proteins that we have successfully produced
range from large and complex monoclonal antibodies to smaller proteins such as interferons, growth factors, and enzymes. All the candidate
therapeutic proteins manufactured using iBioLaunch have assembled correctly assembled and demonstrated full activity in relevant bioassays.
We are currently evaluating several potential proprietary iBioLaunch produced therapeutic protein candidates for further development internally
at iBio or together with collaborators.
Vaccine Candidates
We have used iBioLaunch to successfully express and demonstrate the feasibility of production of a broad array of vaccine
candidates, including vaccine candidates that have to date been impossible to produce on a commercially practical basis using conventional
manufacturing systems. Additionally, we have used iBioModulator to improve the performance of therapeutic vaccine candidates.
The ability of the iBioLaunch platform to manufacture proteins that are difficult or impossible to produce on a commercially practical
basis with conventional manufacturing systems has been demonstrated by the production of antigens for vaccine candidates for both
hookworm and malaria. These iBioLaunch-produced vaccine candidates are being developed by the Sabin Institute and the Bill and Melinda
Gates Foundation, respectively, and each is being advanced to Phase 1 clinical trials that are expected to be commenced in the next 12 months,
subject availability of funding at each respective organization and satisfaction of other conditions.
The safety of an iBioLaunch-produced H1N1 influenza vaccine candidate and an iBioLaunch H5N1 influenza vaccine has been
demonstrated in successfully completed Phase 1 human clinical trials and the efficacy of these iBioLaunch derived vaccine candidates has been
demonstrated in well established, highly predictive animal models. We have also demonstrated the efficiencies of our iBioLaunch technology
at the laboratory level by producing candidate influenza vaccines in weeks versus the months required for commercially used chicken egg
methods. The rapid production of an iBioLaunch derived vaccine candidate for the recently emerged new strain of influenza, H7N9,
demonstrates the flexibility and responsiveness of the platform. This speed of production is an advantage that we believe may be particularly
attractive to public health authorities seeking to protect citizens in the case of a pandemic outbreak.
Our collaborator, FioCruz, is advancing the development of an iBioLaunch-produced yellow fever vaccine candidate. In addition to
furthering preclinical IND enabling studies of this vaccine candidate, in April 2013, FioCruz committed to the design of a new plant-based
multipurpose manufacturing facility in Brazil and anticipates construction of such facility in the next few years. This multipurpose facility is
being designed in manner that will enable the incorporation and utilization of our iBioLaunch platform.
Biodefense Countermeasures
The iBioLaunch and iBioModulator platforms have advantages that we believe are particularly well suited for the biodefense market.
Speed of production and capability to produce both vaccines and therapeutic proteins using the iBioLaunch platform and the potential to
improve performance of vaccines through the application of the iBioModulator platform are each key features of biologics manufacturing
systems that may be sought by governments and state corporations seeking to establish autonomous capabilities to protect their populations
from bioterrorism threats. In addition to our demonstration of the feasibility of iBioLaunch produced monoclonal antibody candidates for the
treatment of anthrax, next generation anthrax vaccine candidates derived from the iBioLaunch platform are currently being developed by our
collaborator, Fraunhofer, pursuant to a funding award granted to Fraunhofer in December 2012 by the National Institute of Allergy and
Infectious Diseases. With Fraunhofer, we are evaluating opportunities and seeking funding from additional sources to further demonstrate the
applicability and advantages of our platforms in connection with the development of biodefense countermeasures.
Strategic Alliances and Collaborations
A significant component of our business plan is to enter into strategic alliances and collaborations with other for-profit entities,
governments, foundations, and others as appropriate to gain access to funding, capabilities, technical resources and intellectual property to
further our development efforts, commercialize our technology and to generate revenues.
10
Collaboration with Fraunhofer Center for Molecular Biology (“Fraunhofer”)
In 2003, we engaged Fraunhofer to perform research and development activities to develop the iBioLaunch platform and to create our
first product candidate. Pursuant to the Technology Transfer Agreement (“TTA”) between our company and Fraunhofer, effective in January
2004, we paid $3.6 million to Fraunhofer to acquire the exclusive rights to intellectual property owned by Fraunhofer which, as subsequently
enhanced and improved, constitutes the iBioLaunch platform.
Following this initial engagement, we have expanded our relationship with Fraunhofer to include additional and continuing research
and development activities and we have been benefited from the establishment of numerous non-commercial arrangements among the
Company, certain government entities, a non-governmental organization (which we refer to as a “NGO”) and Fraunhofer which has allowed
us to further advance the development of our technology platforms and select product candidates through indirect access to non-dilutive
funding.
To evidence these expanded activities, at various times, we have entered into additional agreements with Fraunhofer and periodically
amended the TTA, including most recently a settlement agreement we entered into with Fraunhofer in September 2013 (the “Settlement
Agreement”). The amendments to the TTA include a commitment by Fraunhofer to further develop exclusively for and transfer to us rights to
proprietary technology and intellectual property rights in the fields defined in the agreements comprising principally plant-based human
vaccines, human antibodies, and human therapeutic proteins and veterinary applications of plant-based influenza vaccines. Additionally the
TTA provides that Fraunhofer will pay to us a royalty payment equal to 9% of all receipts, if any, realized by Fraunhofer from sales, licensing
or commercialization of the intellectual property licensed from us.
Prior to the effective date of the Settlement Agreement, we were obligated to make non-refundable payments to Fraunhofer
aggregating $10,000,000, in installments of $2,000,000 per year over a five year period commencing in November 2009 and expiring in
November 2014, and Fraunhofer was required to expend an amount at least equal to the amounts payable by us for the purpose of engaging in
services to further the development of our technology. In addition to the annual research service payments, we were required to make royalty
payments to Fraunhofer equal to 1% of all receipts derived by us from sales of products utilizing our proprietary technology and 15% of all
receipts derived by us from licensing our propriety technology to third parties for a period of fifteen years. Additionally, beginning in 2010
and continuing until 2024, the TTA provided that we remit minimum annual royalty payments to Fraunhofer in the amount of $200,000 (the
“Minimum Annual Payment”).
The Settlement Agreement, which is intended to better align the mutual interests of iBio and Fraunhofer, has the following effects:
· Our liabilities to Fraunhofer in the amount of approximately $2.9 million as of June 30, 2013 were released and terminated;
· Our obligation under the TTA, prior to the Settlement Agreement, to make three $1 million payments to Fraunhofer in April 2013,
November 2013, and April 2014 (“Guaranteed Annual Payments”) was terminated and replaced with an undertaking to engage Fraunhofer
for at least $3 million in work requested and directed by iBio before December 31, 2015. We believe that our right to select and direct
specific projects will improve the efficiency of our product development activities and that the extension of the period over which this
commitment must be fulfilled will enhance our ability to manage our cash outflow;
· We terminated and released Fraunhofer from the obligation to make further financial contributions toward the enhancement, improvement
and expansion of our technology in an amount at least equal to the Guaranteed Annual Payments, because we believe our technology
development phase is completed and now are focusing on product development. In addition, we terminated and released Fraunhofer from
the obligation to further reimburse us for certain past and future patent-related expenses;
· Our obligation to remit to Fraunhofer minimum annual royalty payments in the amount of $200,000 was terminated. Instead we will be
obligated to remit royalties to Fraunhofer only on technology license revenues that we actually receive and on revenues from actual sales
by us of products derived from our technology until the later of November 2023 or until such time as the aggregate royalty payments total
at least $4 million;
·
The rate at which we will be obligated to pay royalties to Fraunhofer on iBioLaunch and iBioModulator license revenues we receive was
reduced from 15% to 10%; and
· Any and all other claims of each party to any other amounts due at June 30, 2013 were mutually released.
Additionally, we and Fraunhofer entered into research and development service agreements with respect to two projects, specifically
the further development of the recombinant form of C1 esterase inhibitor and additional development services in connection with the transfer
of our technology related to facility design to FioCruz. The technology transfer for facility design was completed for $97,767. The C-1
program was suspended after payment of $544,687.
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Alliance with GE Healthcare
In July 2012, we formed a global alliance with GE Healthcare (“GEHC”) to commercialize our plant-based technologies for the
manufacture of biopharmaceuticals and vaccines. The alliance builds on the development and marketing agreement which we entered into with
GEHC in 2010 and seeks to combine the iBioLaunch platform with GEHC’s capabilities in start-to-finish technologies for biopharmaceutical
manufacturing. Under the terms of global alliance agreement, iBio will be the preferred provider of vaccine or therapeutic product
manufacturing technology incorporating a plant based protein expression system, while GEHC will be the preferred provider of engineering
services and bioprocess solutions, to any customers that may be interested in a bio-manufacturing facility incorporating a plant-based
expression system. The global alliance agreement further specifies allocation of responsibilities for product development, process scale-up,
facilities design and development, and technology transfer among iBio, Fraunhofer, and GEHC. Additionally, the global alliance agreement
also sets forth the terms of a non-exclusive commercial license to iBio’s technology that we have agreed to offer to any customer referred to it
by GEHC as a part of the global alliance.
In April 2013, together with GEHC, we announced that FioCruz has committed to build and has recently contracted with GEHC for
the design of new plant-based manufacturing facility that will use our iBioLaunch technology.
The design contract is the first contract resulting from our global alliance which GE Healthcare and we believe it is an example of
how the respective capabilities of iBio and GE Healthcare can be adopted by governments, state corporations and others seeking to
manufacture biologics in a capital and cost efficient manner.
FioCruz Collaboration and License
In January 2011, we entered into collaboration and granted a commercial, royalty-bearing license to FioCruz for the use of our
proprietary technology in connection with the development, manufacture and commercialization by FioCruz of certain vaccine products.
FioCruz, a unit of the Oswaldo Cruz Foundation, a central agency of the Ministry of Health of Brazil, is a leader in the production,
development and commercialization in Latin America of vaccines, reagents and biopharmaceuticals. Additionally, FioCruz, a certified World
Health Organization provider to United Nations agencies, is a global leader in the manufacture of yellow fever vaccine. FioCruz manufactures
and exports yellow fever vaccine to over 60 countries. The World Health Organization has estimated that 200,000 unvaccinated people
contract yellow fever each year, and approximately 30,000 die from the disease.
Pursuant to the terms of the collaboration and license agreement among iBio, Fraunhofer and FioCruz, FioCruz has the right to
develop and commercialize yellow fever vaccine derived from the use of our iBioLaunch technology in Latin America, the Caribbean and
Africa. FioCruz will fund development of this vaccine product and if successfully developed and commercialized, iBio will receive royalty
payments from the sales of the product in those territories. iBio has retained the right, which is sublicenseable, to commercialize the product in
all other territories subject to payment of a royalty back to FioCruz. Additionally, FioCruz has engaged iBio to perform certain research and
development activities associated with the yellow fever vaccine project. Based upon the expertise possessed by Fraunhofer, we engaged
Fraunhofer as a subcontractor to perform these research and development services.
In April 2013, FioCruz committed to the design of a new plant-based multipurpose manufacturing facility in Brazil and anticipates
construction of such facility in the next few years. This multipurpose facility is being designed in manner that will enable the incorporation and
utilization of our iBioLaunch platform.
On June 12, 2014, Fiocruz, Fraunhofer and iBio executed an amendment to the Agreement (the “Amended Agreement”) which
provides for revised research and development, work plans, reporting, objectives, estimated budget, and project billing process. The effect of
the amendment resulted in a charge of approximately $1.007 million to general and administrative expenses for the noncollectibility of an
accounts receivable from Fiocruz for revenues recorded for the year ended June 30, 2013 and a credit of approximately $1.007 million to
research and development expenses and a corresponding adjustment to accounts payable relating to expenses accrued at June 30, 2013 owed
to Fraunhofer.
For the year ended June 30, 2014, under the Amended Agreement, the Company recognized revenue of $205,000 for work
performed for Fiocruz pursuant to the Amended Agreement by the Company’s subcontractor, Fraunhofer, and recognized research and
development expenses of the same amount — $205,000 – due Fraunhofer for that work.
License and Collaboration with Caliber Biotherapeutics LLC
In February 2013, we entered into a license with Caliber Biotherapeutics LLC, a for-profit biotechnology company that is focused on
the development and commercialization of therapeutic proteins. This license to Caliber is for use of the iBioLaunch platform in connection with
the development of an undisclosed monoclonal antibody-based therapeutic protein for an oncology indication. Caliber will conduct and fund
the development of the product candidate and if successfully developed and commercialized, iBio will receive royalties on the sale of such
product and other revenues.
Research and Development
Our research and development activities are directed and led by our President and by our Chief Scientific Officer. Excepting such
direction and management, we outsource all our research and development activities. Outsourcing our research and development work allows
us to develop our product candidates, and thereby promote the value of such product candidates and our technology platforms for licensing
and product development purposes, without bearing the full risk and expense of establishing and maintaining our own research and
development staff and facilities.
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Fraunhofer has been our principal research and development contractor and has been providing research and development services to
us and our predecessor company since 2003. As a part of our collaboration with Fraunhofer, we have established a business structure that has
allowed us enlarge and broaden the scope of applications of our platform technology and enhance the value of our retained commercial rights
by leveraging certain funding received by Fraunhofer from governmental entities, NGOs and other similar organizations.
We achieved this result by granting licenses (a) to the government and NGO entities for not-for-profit applications of the intellectual
property for which they have provided funding, and (b) to Fraunhofer for research purposes and applications in fields other than those
retained by iBio or granted to the governmental entity or NGO. iBio retained ownership of the intellectual property and exclusive worldwide
commercial rights in the fields of human health and veterinary influenza applications of the intellectual property. At this time, we are not
pursuing development of such intellectual property in the field of veterinary influenza.
Through June 30, 2014, Fraunhofer has been awarded a total of approximately $33 million in grants from the Bill & Melinda Gates
Foundation for development of product candidates based on the iBioLaunch platform and for research and development of vaccines against
influenza, including H5N1 avian influenza, malaria and African sleeping sickness (trypanosomiasis). To facilitate the grant and continuing
support by the Bill & Melinda Gates Foundation of the activities being undertaken by Fraunhofer, we agreed to make our iBioLaunch platform
available to various programs to complete development and provide “Global Access” to vaccines against influenza, rabies virus, malaria and
trypanosomiasis, provided that if the Bill & Melinda Gates Foundation and Fraunhofer do not pursue such programs to completion, the
subject rights revert to us. The term “Global Access” means access for people most in need within the developing world in low income and
lower-middle-income countries, as identified by the World Bank. Because we have exclusive commercial rights to the technology and these
products for human health applications, this grant and any further similar grants will benefit us by enabling Fraunhofer to enhance our
platform technology and expand the information about the technical performance of product candidates derived from our technology. We may
decide to commercially license such technology to collaborators for advancement into human clinical evaluation and eventual commercial
development.
DoD has also provided funding to Fraunhofer for advanced development of our technology platform and for preclinical and clinical
studies of an anthrax-plague combination vaccine and for an H1N1 influenza vaccine project. Through June 30, 2014, Fraunhofer has received
funding and funding commitments for these projects totaling approximately $34 million. This funding is similarly beneficial to us because we
have retained the commercial rights to any technology improvements resulting from those projects.
In December 2012, the National Institute of Allergy and Infectious Diseases, a part of the National Institutes of Health, awarded a
contract to Fraunhofer, for the development of a new generation anthrax vaccine. Fraunhofer is developing this new generation vaccine using
the iBioLaunch platform and the funding it receives pursuant to the National Institute of Allergy and Infectious Diseases. This funded work
will advance our technology.
In summary, the advancement of our technology has indirectly benefited from the funding and funding commitments of research and
development activities at Fraunhofer in recent years by U.S. government and non-governmental organizations in aggregate amounts exceeding
$67 million.
Manufacturing
In addition to the platform and product development engagements, in 2006, we engaged Fraunhofer to create a prototype production
module for products made through the use of the iBioLaunch platform. The purpose of this engagement was to attract grants for the
improvement of the prototype to become a pilot plant and to demonstrate the ease and economy with which iBioLaunch-derived products
could be manufactured in order to attract potential licensees and increase the value of our share of business arrangements entered into with
entities. The prototype design, which encompassed the entire production process from seeding, pre-infiltration plant growth, infiltration of
plants with agrobacteria, harvesting of plant tissue and purification of target proteins, was completed in May 2008. A pilot plant based upon
this prototype funded substantially by DARPA was subsequently constructed by Fraunhofer at its facility in Newark, Delaware. This pilot
plant, and the equipment in it, are owned by Fraunhofer and have been validated for current Good Manufacturing Practices (“cGMP”)
production. We anticipate using this facility for cGMP production of protein targets for any clinical trial we initiate. We will contract with third
party providers for fill and finish services.
Intellectual Property
We exclusively control intellectual property developed at Fraunhofer for human health applications. We also exclusively control the
veterinary field for plant-made influenza vaccines. Our success will depend in part on our ability to obtain and maintain patent protection for
our technologies and products and to preserve our trade secrets. Our policy is to seek to protect our proprietary rights, by among other
methods, filing patent applications in the U.S. and foreign jurisdictions to cover certain aspects of our technology.
We currently own 15 U.S. patents and 28 international patents. Additionally, we have three international patent applications allowed,
as well as 10 U.S. and 26 international applications pending. International patents and applications include numerous foreign countries
including Australia, Brazil, Canada, China, Hong Kong, India, Korea, and several countries in Europe. We continue to prepare patent
applications relating to our expanding technology in the U.S. and abroad.
The technology and products covered by our issued and pending patent applications is summarized below:
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Production of foreign nucleic acids and polypeptides in sprout systems
Production of pharmaceutically active proteins in sprouted seedlings
Systems and method for clonal expression in plants
Technology and Product Patents (U.S.)
o Virus-induced gene silencing in plants
o Transient expression of foreign genes in plants
o
o
o
o Recombinant carrier molecule for expression, delivery and purification of target polypeptides
o
o
o
o
o Anthrax antigens, vaccine compositions, and related methods
Influenza antigens, vaccine compositions, and related methods
Plague antigens, vaccine compositions, and related methods
Influenza therapeutic antibodies
Trypanosomiasis vaccine
Pending Technology Patent Applications (U.S. and International)
Protein production in seedlings
o Virus-induced gene silencing in plants
o Activation of transgenes in plants by viral vectors
o
o Agroinfiltration of plants with launch vector
o Transient expression of proteins in plants
o Thermostable carrier molecule
o
o
o
Protein expression in clonal root cultures
Production of proteins in plants with launch vector
In vivo deglycosylation of recombinant proteins in plants
Pending Product Patent Applications (U.S. and International)
Influenza vaccines
Influenza therapeutic antibodies
o Antibodies
o
o
o Anthrax vaccines
o
o HPV vaccines
o Trypanosomiasis vaccine
o Malaria vaccines
Plague vaccines
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a
strong emphasis on proprietary products. We face competition from many different sources, including commercial pharmaceutical and
biotechnology enterprises, academic institutions, government agencies and private and public research institutions. Our commercial
opportunities will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer
side effects or are less expensive than any products that we or our collaborators may develop based on the use of our platform technology.
While we believe that the potential advantages of the iBioLaunch and iBioModulator platforms will enable us to compete effectively
against other providers of technology for biologic product manufacturing, many of our competitors have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical testing, clinical trials, regulatory approvals and marketing
approved products than we do. Smaller or early stage companies may also prove to be significant competitors, particularly through
arrangements with large and established companies, and this may reduce the value of our platform technologies for the purposes of
establishing license agreements. In addition, these third parties compete with us in recruiting and retaining qualified scientific and management
personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses
complementary to our programs or advantageous to our business.
We expect to rely upon licensees, collaborators or customers for support in advancing certain of our drug candidates and intend to
rely on additional work with our collaborators during our efforts to commercialize our product candidates. Our licensees, collaborators or
customers may be conducting multiple product development efforts within the same disease areas that are the subjects of their agreements with
us. Agreements with collaborators may not preclude them from pursuing development efforts using a different approach from that which is the
subject of our agreement with them. Any of our drug candidates, therefore, may be subject to competition with a drug candidate under
development by a customer.
There are currently approved vaccines and therapies for many of the diseases and conditions addressed by the product candidates in
our pipeline. There are also a number of companies working to develop new drugs and other therapies for diseases of commercial interest to
us that are undergoing various stages of testing including clinical trials. The key competitive factors affecting the success of our platforms for
commercial product candidates are likely to be efficacy, safety profile, price, and convenience.
14
Government Regulation and Product Approval
Regulation by governmental authorities in the U.S. and other countries is a significant factor in the development, manufacturing and
marketing of pharmaceutical drugs and vaccines. All of the vaccine and therapeutic products developed from our platform technologies will
require regulatory approval by governmental agencies prior to commercialization. In particular, pharmaceutical drugs and vaccines are subject
to rigorous preclinical testing and clinical trials and other pre-marketing approval requirements by the FDA and regulatory authorities in other
countries. In the U.S., various federal, and, in some cases, state statutes and regulations, also govern or impact the manufacturing, safety,
labeling, storage, record-keeping and marketing of vaccines and pharmaceutical products. The lengthy process of seeking required approvals
and the continuing need for compliance with applicable statutes and regulations requires the expenditure of substantial resources. Regulatory
approval, if and when obtained for any of our product candidates, may be limited in scope, which may significantly limit the indicated uses for
which our product candidates may be marketed. Further, approved vaccines and drugs are subject to ongoing review and discovery of
previously unknown problems that may result in restrictions on their manufacture, sale or use or in their withdrawal from the market.
Before any product candidates with potential immunization or therapeutic value may be tested in human subjects, we must satisfy
stringent government requirements for preclinical studies. Preclinical testing includes both in vitro and in vivo laboratory evaluation and
characterization of the safety and efficacy of the product candidate. “In vitro” refers to tests conducted with cells in culture and “in vivo” refers
to tests conducted in animals. Preclinical testing results obtained from studies in several animal species, as well as data from in vitro studies,
are submitted to the FDA as part of an IND and are reviewed by the FDA prior to the commencement of human clinical trials. These
preclinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial clinical trials. In the case
of vaccine candidates, animal immunogenicity and immune protection tests must establish a sound scientific basis to believe that the product
candidate may be beneficial when administered to humans.
An IND becomes effective automatically 30 days after receipt by the FDA, unless the FDA raises concern or questions about the
conduct of the clinical trials as outlined in the IND prior to that time. In such an event, the IND sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. For additional information on the most recent FDA regulations and guidance on
vaccine and therapeutic product testing and approval, visit its website at http://www.fda.gov.
Any products we or a licensee manufactures or distributes under FDA approval are subject to continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experiences with the products. Drug manufacturers and their subcontractors
are required to register with the FDA and, where appropriate, state agencies, and are subject to periodic unannounced inspections by the FDA
and state agencies for compliance with current cGMPs, which are the standards the FDA requires be met during the manufacturing of drugs
and biologic products, and which impose procedural and documentation requirements upon us and any third party manufacturers we utilize.
To the extent we conduct vaccine or therapeutic product development activities outside the United States, we will also be subject to a
wide variety of foreign regulations governing the development, manufacture and marketing of our product candidates. Whether or not FDA
approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior to
manufacturing or marketing the product in those countries. The approval process varies from country to country and the time needed to secure
approval may be longer or shorter than that required for FDA approval. We cannot assure you that clinical trials conducted in one country will
be accepted by other countries or that approval in one country will result in approval in any other country. The product testing and clinical trial
requirements that must be met before a product candidate can be marketed are substantial, time-consuming, and require investments of millions
of dollars per product candidate.
Employees
As of September 29, 2014, we had seven employees. Our employees are not represented by any union and are not the subject of a
collective bargaining agreement. We consider our relations with our employees to be good. Since our business strategy is based on
outsourcing our development and clinical trial work to third parties, we believe this staffing level will be sufficient to meet our needs.
Management Update
On December 5, 2013, we appointed Mark Giannone to serve as our Chief Financial Officer, replacing Scott Kain, whose departure
was effective November 30, 2013.
Item 1A. Risk Factors.
Our business faces many risks. Past experience may not be indicative of future performance, and as noted elsewhere in this Annual
Report on Form 10-K, we have included forward-looking statements about our business, plans and prospects that are subject to change.
Forward-looking statements are particularly located in, but not limited to, the sections “Business” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” In addition to the other risks or uncertainties contained in this report, the risks
described below may affect our operating results, financial condition and cash flows. If any of these risks occur, either alone or in combination
with other factors, our business, financial condition or operating results could be adversely affected and the trading price of common stock
may decline. Moreover, readers should note this is not an exhaustive list of the risks we face; some risks are unknown or not quantifiable, and
other risks that we currently perceive as immaterial may ultimately prove more significant than expected. Statements about plans, predictions or
expectations should not be construed to be assurances of performance or promises to take a given course of action.
15
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception which has raised substantial doubt about our ability to continue as a going concern.
We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
Since our 2008 spinoff from Integrated BioPharma, Inc., we have incurred significant operating losses and negative cash flows from
operations. Our net loss was approximately $3.7 million for the year ended June 30, 2014 and approximately $6.2 million for the year ended
June 30, 2013. As of June 30, 2014, we had an accumulated deficit of approximately $41.2 million. Our operating losses since inception and
the financial resources we had on hand at June 30, 2014 to fund our operations for the succeeding 12 month period raised substantial doubt
about our ability to continue as a going concern. Subsequent to June 30, 2014, we entered into the agreement with Aspire Capital described
above for the sale at the option of the Company of up to $10 million of common stock of the Company upon the terms and conditions
described in the Agreement and received $500,000 for the first sale of shares pursuant to the Agreement. However, our ability to require
Aspire to purchase our shares and thereby provide additional capital to the Company is subject to uncertainty due to conditions not within the
Company’s control. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our
financial statements as of and for the year ended June 30, 2014 with respect to this uncertainty.
To date, we have financed our operations primarily through the sale of common stock and warrants. We have devoted substantially
all of our efforts to research and development, including the development and validation of our iBioLaunch and iBioModulator technology
platforms and the development of a proprietary therapeutic product against fibrosis based upon our platform. We have not completed
development of or commercialized any vaccine or therapeutic product candidates. We expect to continue to incur significant expenses and
operating losses for at least the next year. We anticipate that our expenses and losses will increase substantially if, without first securing
funding from one or more collaborators, we:
·
·
·
·
initiate clinical trials of our product candidates;
continue the research and development of our product candidates;
seek to discover additional product candidates; and
add operational, financial and management information systems and personnel, including personnel to support our product development
efforts.
To become and remain profitable, we must succeed in commercializing our iBioLaunch and iBioModulator platforms and we, alone
or with our licensees, must succeed in developing and eventually commercializing iBioLaunch-derived and iBioModulator-enhanced products
that generate significant revenue. This will require us, alone or with our licensees and collaborators, to be successful in a range of challenging
activities, including completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for these product
candidates and manufacturing, marketing and selling those iBioLaunch-produced or iBioModulator-enhanced products for which regulatory
approval is obtained or establishing collaborations with parties willing and able to provide necessary capital or other value. We may never
succeed in these activities and may never generate revenues that are significant or large enough to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure
to become and remain profitable would diminish the value of our company and could impair our ability to raise capital, expand our business,
diversify our product offerings or continue our operations. A decline in the value of our company could also cause you to lose all or part of
your investment.
We will need substantial additional funding to execute our business plan, which funding may not be available on commercially acceptable
terms or at all. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development
programs or commercialization efforts.
We have limited financial resources and will need substantial additional funding in connection with our continuing operations. To the
extent that we initiate or continue clinical development without securing collaborator or licensee funding, our research and development
expenses could increase substantially. Additionally, to the extent that our efforts to outlicense our technology platforms and product candidates
are unsuccessful or we find that it is necessary to advance the development of product candidates further than contemplated by our current
business plans to secure favorable licensing terms, we would require substantial additional capital.
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The extent to which we utilize the purchase agreement with Aspire Capital described under Item 1. Business – Overview – Recent
Business Highlights as a source of funding will depend on a number of factors, including the prevailing market price of our common stock,
the volume of trading in our common stock and the extent to which we are able to secure funds from other sources. The number of shares that
we may sell to Aspire Capital under the purchase agreement on any given day and during the term of the agreement is limited. Additionally,
we and Aspire Capital may not effect any sales of shares of our common stock under the purchase agreement during the continuance of an
event of default under the purchase agreement or on any trading day that the closing sale price of our common stock is less than $0.44 per
share. Even if we are able to access the full $10.0 million under the purchase agreement, we may still need additional capital to fully implement
our business, operating and development plans.
When we elect to raise additional funds or additional funds are required, we may raise such funds from time to time through public or
private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives, as well as through
sales of common stock to Aspire Capital under the purchase agreement. Additional equity or debt financing or corporate collaboration and
licensing arrangements may not be available on acceptable terms, if at all. If we are unable to raise capital in sufficient amounts when needed or
on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or commercialization efforts and
our ability to generate revenues and achieve or sustain profitability will be substantially harmed.
We expect that our existing cash on hand as of June 30, 2014 in the amount of $3.6 million, together with funds we expect to develop
from sales pursuant to the Aspire Agreement, will be sufficient to meet our projected operating requirements through fiscal year ending June
30, 2015. We have based this projection on assumptions that may prove to be wrong, in which case we may deplete our cash resources sooner
than we currently anticipate. Our future capital requirements will depend on many factors, including:
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our ability to attract additional licensees or other third parties willing to fund development, and if successful, commercialization of
iBioLaunch-produced and iBioModulator-enhanced product candidates;
the success and expansion of our existing collaborations with each of Fraunhofer, FioCruz and GE Healthcare and any new license
agreements we may enter into;
the costs, timing and regulatory review of our product candidates;
the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related
claims; and
the extent to which we acquire or invest in businesses, products and technologies.
Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete,
and we may never generate the data necessary to attract additional licensees and we and our current licensees may never generate the data
required for iBioLaunch-derived or iBioModulator-enhanced product candidates to obtain the regulatory approvals necessary for product
sales. Even if approved, iBioLaunch-derived and iBioModulator- enhanced product candidates may not achieve commercial success.
Currently, we expect our commercial revenues, if any, to be product development fees, development milestone payments, and other license
proceeds, including royalties derived from sales of products that we do not expect to be commercially available for several years, if at all.
Accordingly, to achieve our business objectives we will need to continue to rely on additional financing which may not be available to us on
acceptable terms, or at all.
If we are unsuccessful in raising additional capital or other alternative financing, we might have to defer or abandon our efforts to
commercialize our intellectual property and decrease or even cease operations.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our
technologies or product candidates.
Until such time as we can generate substantial license or product revenues, we expect to finance our cash needs through a
combination of equity offerings, collaborations, strategic alliances, licensing and other arrangements. Sources of funds may not be available or,
if available, may not be available on terms satisfactory to us.
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would
result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity
that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise
additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our
business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable to continue our
operations.
To the extent that we raise additional capital through a public or private offering and sale of equity securities, your ownership interest
will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder.
If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not
be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we
require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable
require it, our business, operating results, financial condition and prospects could be materially and adversely affected and we may be unable
to continue our operations.
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We have a limited operating history, which may limit the ability of investors to make an informed investment decision.
We commenced independent operations in 2008, and our operations to date have included organizing and staffing our company,
business planning, raising capital, acquiring and developing our proprietary iBioLaunch and iBioModulator technology platforms, identifying
potential product candidates and undertaking, through third parties, preclinical trials and clinical trials of product candidates derived from our
technologies .. Excepting two iBioLaunch-derived vaccine candidates that have recently been evaluated in completed Phase 1 clinical trials, all
our other vaccine and therapeutic protein product candidates are still in preclinical development. Neither we nor our collaborators have
completed any other clinical trials for any iBioLaunch-derived or iBioModulator-enhanced vaccine or therapeutic protein product candidate. As
a result, we have not yet demonstrated our ability to successfully complete any Phase 2 or pivotal clinical trials, obtain regulatory approvals,
manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary
for successful product commercialization. Consequently, any conclusion you reach about our future success or viability may not be as
predictive as it might be if we had a longer operating history.
Risks Related to the Development and Commercialization of Our Platform Technologies and Product Candidates
We may expend our limited resources to pursue a particular technology or product candidate and fail to capitalize on technologies or
product candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on specific product candidates derived from or enhanced by
our technologies. As a result, we may forego or delay pursuit of opportunities with other technology platforms or product candidates that later
prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products
or profitable market opportunities. Our spending may not yield any commercially viable products.
We have based our research and development efforts on our iBioLaunch and iBioModulator platforms and product candidates
derived from such platforms. Notwithstanding our large investment to date and anticipated future expenditures in these platforms, we have not
yet developed, and may never successfully develop, any marketed products using these technologies. As a result of our exclusive use of the
iBioLaunch and iBioModulator platforms, we may fail to address or develop product candidates based on other scientific approaches that may
offer greater commercial potential or for which there is a greater likelihood of success.
We also may not be successful in our efforts to identify or discover additional product candidates using our iBioLaunch and
iBioModulator platforms. Research programs to identify new product candidates require substantial technical, financial and human resources.
These research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical
development.
If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through collaboration, licensing or other royalty arrangements on terms less favorable to us than
possible.
We are very early in our development efforts. If we or our collaborators are unable to successfully develop and commercialize product
candidates or experience significant delays in doing so, our business will be materially harmed.
We are very early in our development efforts and the clinical experience with iBioLaunch-derived and iBioModulator-enhanced
product candidates is very limited. Excepting two iBioLaunch-derived vaccine candidates that have recently been evaluated in completed Phase
1 clinical trials, all our other vaccine and therapeutic protein product candidates are still in preclinical development We have invested
substantially all of our efforts and financial resources in developing iBioLaunch and iBioModulator, identifying potential product candidates,
and conducting preclinical studies. Our ability to generate product sales revenues, which we do not expect will occur for many years, will
depend heavily on the successful development and eventual commercialization of our product candidates. The success of our product
candidates will depend on several factors, including the following:
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completion of preclinical studies and clinical trials with positive results;
receipt of marketing approvals from applicable regulatory authorities;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
• making arrangements with third-party manufacturers for commercial manufacturing capabilities;
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launching commercial sales of our products, if and when approved, whether alone or in collaboration with others;
successfully maintaining existing collaborations and entering into new ones throughout the development process as appropriate, from
preclinical studies through to commercialization;
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acceptance of the products, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other products;
obtaining and maintaining coverage and adequate reimbursement by third-party payors, including government payors, for any products
we successfully develop;
protecting our rights in our intellectual property portfolio; and
• maintaining a continued acceptable safety profile of the products following approval.
If we or our collaborators do not achieve one or more of these factors in a timely manner or at all, we could experience significant
delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business.
We may not be successful in our efforts to use iBioLaunch and iBioModulator to build a pipeline of product candidates and develop
marketable products.
While we believe that data we and our collaborators have obtained from preclinical studies and Phase 1 clinical trials of iBioLaunch-
derived and iBioModulator-enhanced product candidates has validated these technology platforms, our platforms have not yet, and may never
lead to, approvable or marketable products. Even if we are successful in further validating our platforms and continuing to build our pipeline,
the potential product candidates that we identify may not be suitable for clinical development for many possible reasons, including harmful
side effects, limited efficacy or other characteristics that indicate that such product candidates are unlikely to be products that will receive
marketing approval and achieve market acceptance. If we and our collaborators do not successfully develop and commercialize product
candidates based upon our technological approach, we will not obtain product or collaboration revenues in future periods, which likely would
result in significant harm to our financial position and adversely affect our stock price.
Neither we nor our licensees will be able to commercialize product candidates based on our platform technologies if preclinical studies do
not produce successful results or clinical trials do not demonstrate safety and efficacy in humans.
Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and has an uncertain
outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a
clinical trial do not necessarily predict final results. We and our licensees may experience numerous unforeseen events during, or as a result of,
preclinical testing and the clinical trial process that could delay or prevent the commercialization of product candidates based on our
iBioLaunch and iBioModulator technologies, including the following:
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Preclinical or clinical trials may produce negative or inconclusive results, which may require additional preclinical testing, additional
clinical trials or the abandonment of projects that we expect to be promising. For example, promising animal data may be obtained about
the anticipated efficacy of a therapeutic protein product candidate and then human tests may not result in such an effect. In addition,
unexpected safety concerns may be encountered that would require further testing even if the therapeutic protein product candidate
produced an otherwise favorable response in human subjects.
Initial clinical results may not be supported by further or more extensive clinical trials. For example, a licensee may obtain data that
suggest a desirable immune response from a vaccine candidate in a small human study, but when tests are conducted on larger numbers of
people, the same extent of immune response may not occur. If the immune response generated by a vaccine is too low or occurs in too
few treated individuals, then the vaccine will have no commercial value.
Enrollment in our or our licensee’s clinical trials may be slower than projected, resulting in significant delays. The cost of conducting a
clinical trial increases as the time required to enroll adequate numbers of human subjects to obtain meaningful results increases.
Enrollment in a clinical trial can be a slower-than-anticipated process because of competition from other clinical trials, because the study is
not of interest to qualified subjects, or because the stringency of requirements for enrollment limits the number of people who are eligible
to participate in the clinical trial.
· We or our licensees might have to suspend or terminate clinical trials if the participating subjects are being exposed to unacceptable health
risks. Animal tests do not always adequately predict potential safety risks to human subjects. The risk of any candidate product is
unknown until it is tested in human subjects, and if subjects experience adverse events during the clinical trial, the trial may have to be
suspended and modified or terminated entirely.
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Regulators or institutional review boards may suspend or terminate clinical research for various reasons, including safety concerns or
noncompliance with regulatory requirements.
Any regulatory approval ultimately obtained may be limited or subject to restrictions or post-approval commitments that render the
product not commercially viable.
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The effects of iBioLaunch-derived or iBioModulator-enhanced product candidates may not be the desired effects or may include
undesirable side effects.
Significant clinical trial delays could allow our competitors to bring products to market before we or our licensees do and impair our
ability to commercialize our technology platform and product candidates based on our technology platform. Poor clinical trial results or delays
may make it impossible to license a product candidate or so reduce its attractiveness to prospective licensees that we will be unable to
successfully develop and commercialize such a product candidate.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our
product candidates or will not be able to do so as soon as anticipated, and our ability to generate revenue will be materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design, testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to
comprehensive regulation by the FDA and by similar regulatory authorities outside the United States. Failure to obtain marketing approval for
a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any of our product
candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary
to gain marketing approvals and expect to rely on third parties to assist us in this process. Securing marketing approval requires the
submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to
establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the
product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be
effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that
may preclude our obtaining marketing approval or prevent or limit commercial use. If any of our product candidates receives marketing
approval, the accompanying label may limit the approved use in such a restrictive manner that it is not possible to obtain commercial viability
for such product.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years. If
additional clinical trials are required for certain jurisdictions, these trials can vary substantially based upon a variety of factors, including the
type, complexity and novelty of the product candidates involved, and may ultimately be unsuccessful. Changes in marketing approval policies
during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review process for
each submitted product application, may cause delays in the review and approval of an application. Regulatory authorities have substantial
discretion in the approval process and may refuse to accept a marketing application as deficient or may decide that our data is insufficient for
approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical
and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may
be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Although the FDA and other regulatory authorities have approved plant-based therapeutics in the past, consistent with the oversight
of all products, the FDA is monitoring whether these plant-based therapeutics pose any health and human safety risks. While they have not
issued any regulations to date adverse to plant-based vaccines or therapeutics, it is possible that the FDA and other regulatory authorities could
issue regulations in the future that could adversely affect our product candidates.
If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for
our product candidates may be harmed and our ability to generate revenues will be materially impaired.
Alternative technologies may supersede our technologies or make them noncompetitive, which would harm our ability to generate future
revenue.
The manufacture of biologics and the methods of such manufacture are intensely competitive fields. Each of these fields is
characterized by extensive research efforts, which result in rapid technological progress that can render existing technologies obsolete or
economically noncompetitive. If our competitors succeed in developing more effective technologies or render our technologies obsolete or
noncompetitive, our business will suffer. Many universities, public agencies and established pharmaceutical, biotechnology, and other life
sciences companies with substantially greater resources than we have are developing and using technologies and are actively engaging in the
development of products similar to or competitive with our technologies and products. To remain competitive, we must continue to invest in
new technologies and improve existing technologies. To make such renewing investment we will need to obtain additional financing. If we are
unable to secure such financing, we will not have sufficient resources to continue such investment.
Our competitors may devise methods and processes for protein expression that are faster, more efficient or less costly than that which
can be achieved using iBioLaunch. There has been and continues to be substantial academic and commercial research effort devoted to the
development of such methods and processes. If successful competitive methods are developed, it would undermine the commercial basis for
iBioLaunch and iBioModulator.
We have no experience in the sales, marketing and distribution of pharmaceutical products.
If we fail to establish commercial licenses for our iBioLaunch and iBioModulator platforms or fail to enter into arrangements with
partners with respect to the sales and marketing of any of our future potential product candidates, we might need to develop a sales and
marketing organization with supporting distribution capability in order to directly market product candidates we successfully develop.
Significant additional expenditures would be required for us to develop such an in-house sales and marketing organization.
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Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may
develop.
We face the risk of product liability exposure in connection with the testing of our product candidates in human clinical trials and will
face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims
that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability
claims may result in:
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decreased demand for any product candidates or products that we may develop;
injury to our reputation and significant negative media attention;
• withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
loss of revenue;
reduced resources of our management to pursue our business strategy; and
the inability to commercialize any products that we may develop.
Prior to commencing human clinical trials, we will seek to obtain product liability insurance coverage. Such insurance coverage is
expensive and may not be available in coverage amounts we seek or at all. If we obtain such coverage, we may in the future be unable to
maintain such coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to Dependence on Third Parties
Establishing and maintaining collaborations is a key component of our business strategy. If we are unable to establish new collaborations
and maintain both new and existing collaborations, or if these collaborations are not successful, our business could be adversely affected.
Our current business plan contemplates that we will in the future derive significant revenues from collaborators and licensees that
successfully utilize iBioLaunch and iBioModulator in connection with the production, development and commercialization of vaccines and
therapeutic protein product candidates. Our realization of these revenues and dependence on existing collaborations, and any future
collaborations we enter into, is subject to a number of risks, including the following:
• Collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators may not perform their obligations as expected;
collaborators may not pursue development and, if successful, commercialization of product candidates or may elect not to continue or
renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or
available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or
product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be
commercialized under terms that are more economically attractive than ours, which may cause collaborators to cease to devote resources
to the commercialization of our product candidates;
collaborators with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not
commit sufficient resources to the marketing and distribution of such product or products; or commercialization of product candidates,
might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which
would be time-consuming and expensive;
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way
as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential
litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
collaborations may be terminated for the convenience of the collaborator and, if terminated, we would potentially lose the right to pursue
further development or commercialization of the applicable product candidates;
collaborators may learn about our technology and use this knowledge to compete with us in the future;
results of collaborators’ preclinical or clinical studies could produce results that harm or impair other products using our technology;
there may be conflicts between different collaborators that could negatively affect those collaborations and potentially others; and
the number and type of our collaborations could adversely affect our attractiveness to future collaborators or acquirers.
If our collaborations do not result in the successful development and commercialization of products or if one or more of our
collaborators terminates its agreement with us, we may not receive any future research and development funding or milestone or royalty
payments under the collaboration. If we do not receive the funding we expect under these agreements, our continued development of our
product candidates could be delayed and we may need additional resources to develop additional product candidates. There can be no
assurance that our collaborations will produce positive results or successful products on a timely basis or at all.
We seek to establish and collaborate with additional pharmaceutical and biotechnology companies for development and potential
commercialization of iBioLaunch-produced and iBioModulator- enhanced product candidates. We face significant competition in seeking
appropriate collaborators. Our ability to reach a definitive agreement for a collaboration depends, among other things, upon our assessment of
the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation
of a number of factors. If we fail to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have
to curtail the development of a product candidate, reduce or delay its development or the development of one or more of our other product
candidates, or increase our expenditures and undertake additional development or commercialization activities at our own expense. If we elect
to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional
capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or
expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product
candidates or bring them to market or continue to develop our product platform and our business may be materially and adversely affected.
If third parties on whom we or our licensees will rely for the conduct of preclinical studies and clinical trials do not perform as contractually
required or as we expect, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business
may suffer.
We do not have the ability to independently conduct the preclinical studies and clinical trials required to obtain regulatory approval for
our product candidates. We have not yet contracted with any third parties to conduct clinical trials of product candidates we develop
independently of collaborators. We will depend on licensees or on independent clinical investigators, contract research organizations and other
third party service providers to conduct the clinical trials of our product candidates. We will rely heavily on these parties for successful
execution of our clinical trials but will not control many aspects of their activities. For example, the investigators participating in our clinical
trials will not be our employees. However, we will be responsible for ensuring that each of our clinical trials is conducted in accordance with
the general investigational plan and protocols for the trial. Third parties may not complete activities on schedule, or may not conduct our
clinical trials in accordance with regulatory requirements or our stated protocols. The failure of these third parties to carry out their obligations
could delay or prevent the development, approval and commercialization of our product candidates.
Risks Related to Intellectual Property
If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent
protection obtained is not sufficiently broad, competitors could develop and commercialize technology and products similar or identical to
ours, and our ability to successfully commercialize our technology and products may be impaired.
Our success depends in part on our ability to obtain and maintain patent and other intellectual property protection in the United States
and other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent
applications in the United States and abroad related to our novel technologies and product candidates.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or
desirable patent applications at a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify
patentable aspects of our research and development output before it is too late to obtain patent protection.
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The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual
questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the
same extent as the laws of the United States and we may fail to seek or obtain patent protection in all major markets. For example, European
patent law restricts the patentability of methods of treatment of the human body more than United States law does. Publications of discoveries
in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are
typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the
first to make the inventions claimed in our owned patents or pending patent applications, or that we were the first to file for patent protection of
such inventions, nor can we know whether those from whom we license patents were the first to make the inventions claimed or were the first
to file. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and
future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which
effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of
the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and
the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act,
was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that
affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or U.S. PTO,
recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to
patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013.
Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith
Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the
enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
Moreover, we may be subject to a third-party pre-issuance submission of prior art to the U.S. PTO, or become involved in
opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the
patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our
patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in
our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of
protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license,
develop or commercialize current or future product candidates.
Even if our pending or future patent applications issue as patents, they may not issue in a form that will provide us with any
meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors
may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged
in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in
patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or
commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such
candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with
sufficient rights to exclude others from commercializing products similar or identical to ours.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-
consuming and ultimately unsuccessful.
Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be
required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could
provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement
proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or
refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An
adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly, which
could adversely affect us and our collaborators.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be
uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our
product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable
intellectual property litigation in the biotechnology and pharmaceutical industries. While no such litigation has been brought against us and we
have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology, products
or use of our products do not infringe third-party patents. It is also possible that we have failed to identify relevant third-party patents or
applications. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed
outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published
approximately 18 months after the earliest filing, which is referred to as the priority date. Therefore, patent applications covering our products
or technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published
can, subject to certain limitations, be later amended in a manner that could cover our technologies, our products or the use of our products.
23
23
We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with
respect to our products and technology, including interference or derivation proceedings before the U.S. PTO and similar bodies in other
countries. Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual property rights
that may be granted in the future.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to
continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially
reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the
same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product.
In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully
infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our
business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade
secrets of third parties could have a similar negative impact on our business.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur
significant expenses, and could distract our limited number of personnel from their normal responsibilities. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors
perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings
could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or
distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of
our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater
financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our
ability to compete in the marketplace.
If we are unable to protect our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented
know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part,
by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate
collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also seek to enter into
confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties
may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate
remedies for such breaches. Our trade secrets may also be obtained by third parties by other means, such as breaches of our physical or
computer security systems. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-
consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to
protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no
right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade
secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
Risks Related to Business Operations
If we acquire companies, products or technologies, we may face integration risks and costs associated with those acquisitions that could
negatively impact our business, results from operations and financial condition.
If we are presented with appropriate opportunities, we may acquire or make investments in complementary companies, products or
technologies. We may not realize the anticipated benefit of any acquisition or investment. If we acquire companies or technologies, we will
face risks, uncertainties and disruptions associated with the integration process, including difficulties in the integration of the operations of an
acquired company, integration of acquired technology with our products, diversion of our management’s attention from other business
concerns, the potential loss of key employees or customers of the acquired business, and impairment charges if future acquisitions are not as
successful as we originally anticipate. In addition, our operating results may suffer because of acquisition-related costs or amortization
expenses or charges relating to acquired intangible assets. Any failure to successfully integrate other companies, products or technologies that
we may acquire may have a material adverse effect on our business and results of operations. Furthermore, we may have to incur debt or issue
equity securities to pay for any additional future acquisitions or investments, the issuance of which could be dilutive to our existing
stockholders.
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Risks Relating to Our Common Stock
Our operating results may vary significantly in the future, which may adversely affect the price of our common stock.
It is likely that our operating results may vary significantly in the future and that period-to-period comparisons of our operating
results are not necessarily meaningful indicators of the future. You should not rely on the results of one quarter as an indication of our future
performance. It is also possible that in some future quarters our operating results will fall below our expectations or the expectations of market
analysts and investors. If we do not meet these expectations, the price of our common stock may decline significantly.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Provisions of our certificate of incorporation, bylaws and provisions of applicable Delaware law may discourage, delay or prevent a
merger or other change in control that a stockholder may consider favorable. Pursuant to our certificate of incorporation, our Board of
Directors may issue additional shares of common or preferred stock. Any additional issuance of common stock could have the effect of
impeding or discouraging the acquisition of control of us by means of a merger, tender offer, proxy contest or otherwise, including a
transaction in which our stockholders would receive a premium over the market price for their shares, and thereby protect the continuity of our
management. Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal
was not in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions that
might prevent or render more difficult or costly the completion of the takeover by:
• Diluting the voting or other rights of the proposed acquirer or insurgent stockholder group,
•
•
Putting a substantial voting block in institutional or other hands that might undertake to support the incumbent Board of Directors, or
Effecting an acquisition that might complicate or preclude the takeover.
Our certificate of incorporation also allows our Board of Directors to fix the number of directors in the by-laws. Cumulative voting in
the election of directors is specifically denied in our certificate of incorporation. The effect of these provisions may be to delay or prevent a
tender offer or takeover attempt that a stockholder may determine to be in his, her or its best interest, including attempts that might result in a
premium over the market price for the shares held by the stockholders.
We also are subject to Section 203 of the Delaware General Corporation Law. In general, these provisions prohibit a Delaware
corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder, unless the transaction in which the person became an interested stockholder is approved in a
manner presented in Section 203 of the Delaware General Corporation Law. Generally, a “business combination” is defined to include
mergers, asset sales and other transactions resulting in financial benefit to a stockholder. In general, an “interested stockholder” is a person
who, together with affiliates and associates, owns, or within three years did own, 15% or more of a corporation’s voting stock. This statute
could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
We do not anticipate paying cash dividends for the foreseeable future, and therefore investors should not buy our stock if they wish to receive
cash dividends.
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future
earnings to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in
the foreseeable future.
The sale of our common stock through current or future equity offerings may cause dilution and could cause the price of our common stock
to decline.
We are entitled under our certificate of incorporation to issue up to 175 million shares of common stock, par value $.001 per share,
and 1 million shares of preferred stock, with no par value. As of June 30, 2014, we had issued and outstanding approximately 65.6 million
shares of common stock, and 8.8 million and 8.5 million warrants and options, respectively, to purchase shares of common stock.
Additionally, we had approximately 6.5 million shares of common stock reserved for future issuance of additional option grants under our
2008 Omnibus Equity Incentive Plan. Accordingly, we will be able to issue up to approximately 85.6 million additional shares of common
stock and 1.0 million shares of preferred stock. Sales of our common stock offered through current or future equity offerings may result in
substantial dilution to our stockholders. The sale of a substantial number of shares of our common stock to investors, or anticipation of such
sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise
wish to effect sales.
25
The issuance of preferred stock or additional shares of common stock could adversely affect the rights of the holders of shares of our
common stock.
Our Board of Directors is authorized to issue up to 1,000,000 shares of preferred stock without any further action on the part of our
stockholders. Our Board of Directors has the authority to fix and determine the voting rights, rights of redemption and other rights and
preferences of preferred stock. Currently, we have no shares of preferred stock outstanding. Our Board of Directors may, at any time,
authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to
receive dividend payments before dividends are distributed to the holders of common stock, and the right to the redemption of the shares,
together with a premium, before the redemption of our common stock, which may have a material adverse effect on the rights of the holders of
our common stock. In addition, our Board of Directors, without further stockholder approval, may, at any time, issue large blocks of preferred
stock. In addition, the ability of our Board of Directors to issue shares of preferred stock without any further action on the part of our
stockholders may impede a takeover of our company and may prevent a transaction that is favorable to our stockholders.
Risks Related to Our Agreement with Aspire Capital
We are filing a Registration Statement registering 23,418,172 shares of common stock that may be issued under the purchase agreement with
Aspire Capital. The sale of such shares could depress the market price of our common stock.
We are filing a Registration Statement on Form S-1 registering an aggregate of 23,418,172 shares of our common stock for issuance pursuant
to the purchase agreement with Aspire Capital. The 23,418,172 shares represent approximately 26.3% of our shares of common stock
outstanding immediately after issuance of all 23,418,172 shares pursuant to the purchase agreement.
The sale of our common stock to Aspire Capital may cause substantial dilution to our existing stockholders and the sale of the shares of
common stock acquired by Aspire Capital could cause the price of our common stock to decline.
We are registering for sale 681,818 commitment shares and 1,136,354 initial purchase shares that we have issued to Aspire Capital and
21,600,000 shares that we may sell to Aspire Capital under the purchase agreement. It is anticipated that such shares will be sold over a period
of up to approximately 24 months from the date the Registration Statement is declared effective. The number of shares ultimately offered for
sale by Aspire Capital is dependent upon the number of shares we elect to sell to Aspire Capital under the purchase agreement. Depending
upon market liquidity at the time, sales of shares of our common stock under the purchase agreement may cause the trading price of our
common stock to decline.
Aspire Capital may ultimately purchase all, some or none of the $9.5 million of common stock that, together with the 681,818 commitment
shares and the 1,136,354 initial purchase shares, we are registering on Form S-1.
Aspire Capital may sell all, some or none of our shares that it holds or comes to hold under the purchase agreement. Sales by Aspire Capital of
shares acquired pursuant to the purchase agreement under the Registration Statement on Form S-1 may result in dilution to the interests of
other holders of our common stock. The sale of a substantial number of shares of our common stock by Aspire Capital, or anticipation of such
sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise
wish to effect sales. However, we have the right to control the timing and amount of sales of our shares to Aspire Capital, and the purchase
agreement may be terminated by us at any time at our discretion without any penalty or cost to us.
We may not have access to the full amount available under the purchase agreement with Aspire Capital.
Under the terms of the purchase agreement, we may submit purchase notices to Aspire Capital only on trading days on which the closing sale
price of our common stock exceeds $0.44 (the closing sale price of our shares on the business day before we entered into the purchase
agreement). Further, the purchase price for any purchases of shares under the purchase agreement may not be less than $0.44 per share, unless
stockholder approval is obtained. If the price of our common stock declines, we may not be able to access the full amount under the purchase
agreement during its 24 month term.
Upon effectiveness of the Registration Statement on Form S-1, future sales of our Common Stock in the public market could result in
significant volatility and depress the market price.
Upon the effectiveness of the Registration Statement on Form S-1 registering the shares under the purchase agreement with Aspire Capital,
most of the stock covered under the registration will be immediately available for trading. Due to a limitation in the number of shares traded on
a regular basis, there may be significant swings in the bid and ask prices of our stock or there may not be any significant volume of the stock
available to trade.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our facilities currently consist of approximately 500 square feet of office space at our headquarters in Newark, Delaware, which is leased on a
month-to-month basis from Fraunhofer. In this space, we perform or maintain oversight of our administrative, clinical development, regulatory
affairs and business development functions.
26
Item 3. Legal Proceedings.
There is currently no pending material litigation to which we are a party or to which any of our property is subject.
Item 4. Mine Safety Disclosures.
Not applicable.
27
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
PART II
Market Information
Our common stock is traded on the NYSE MKT under the trading symbol “IBIO.”
The following table sets forth the high and low sale prices for our common stock during the years ended June 30, 2014 and 2013 as reported
by the NYSE MKT. The quotations shown represent inter-dealer prices without adjustment for retail markups, markdowns or commissions,
and may not necessarily reflect actual transactions.
Year ended June 30, 2014:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended June 30, 2013:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
$
$
$
$
$
$
$
0.62 $
0.45 $
0.68 $
0.52 $
1.46 $
1.15 $
0.87 $
0.64 $
0.42
0.29
0.35
0.36
0.71
0.62
0.51
0.38
Holders
As of September 26, 2014, there were 81 holders of record of our common stock.
Dividends
We have never declared or paid any cash dividends on our common stock.
Item 6. Selected Financial Data.
The information under this Item is not required to be provided by smaller reporting companies.
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.
Forward-Looking Information and Factors That May Affect Future Results
The following discussion contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform
Act of 1995. All statements contained in the following discussion, other than statements that are purely historical, are forward-looking
statements. Forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,”
“will,” “should,” “potential,” “anticipates,” “plans,” or “intends” or the negative thereof, or other variations thereof, or comparable
terminology, or by discussions of strategy. Forward-looking statements are based upon management’s present expectations, objectives,
anticipations, plans, hopes, beliefs, intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties
that could cause actual results, events or developments to be materially different from those indicated in such forward-looking statements,
including the risks and uncertainties set forth in Item 1A - Risk Factors. These risks and uncertainties should be considered carefully and
readers are cautioned not to place undue reliance on such forward-looking statements. As such, no assurance can be given that the future
results covered by the forward-looking statements will be achieved.
Overview
We are a biotechnology company focused on commercializing our proprietary platform technologies: the iBioLaunch™ platform for vaccines
and therapeutic proteins, and the iBioModulator™ platform for vaccine enhancement. We plan on developing and commercializing select
product candidates that may benefit from the iBioLaunch platform, which is a proprietary, transformative technology for development and
production of biologics using transient gene expression in hydroponically grown, unmodified green plants. The iBioModulator platform is
complementary to the iBioLaunch platform and is designed to significantly improve vaccine products with both higher potency and greater
duration of effect. The iBioModulator platform can be used with any recombinant expression technology for vaccine development and
production. We believe our technology offers advantages that are not available with conventional manufacturing systems. These anticipated
advantages may include the ability to manufacture therapeutic proteins that are difficult or commercially infeasible to produce with
conventional methods, reduced production time, and lower capital and operating costs.
28
Our near-term focus is to realize two key objectives: (1) the establishment of additional business arrangements pursuant to which commercial,
government and not-for-profit licensees will utilize our platform technology in connection with the production and development of products
for both therapeutic and vaccine uses; and (2) the further advancement of product candidates selected for clinical development including our
proprietary product candidate for treatment of idiopathic pulmonary fibrosis, systemic sclerosis, and other fibrotic diseases. These objectives
are a part of our strategy to commercialize the proprietary technology we have developed and validated.
Our strategy to engage in partnering and out-licensing of our technology preserves the opportunity for iBio to share in the successful
development and commercialization of product candidates while conserving our own capital and financial resources as licensees undertake to
conduct and fund the development and commercialization of the product candidates derived under our platform. In addition to financial
resources we may receive, we believe that successful development by licensees of product candidates derived from the iBio platforms will
further validate our technology, increase awareness of the advantages that may be realized by its use and promote broader adoption of our
transformative technology.
The advancement of product candidates which may benefit from the iBioLaunch platform is also a key element of our strategy. We believe
that selecting and developing products which individually have substantial commercial value and are representative of classes of
pharmaceuticals that can be successfully produced using the iBioLaunch technology will allow us to maximize the near and longer term value
of our technology. To realize this result, we believe that we should seek to advance designated product candidates through the preclinical
stage required for submission of Investigational New Drug Applications and, in some instances, early stage clinical development.
Results of Operations
Revenue
Gross revenue for the years ended June 30, 2014 (“2014”) and 2013 (“2013”) was approximately $0.2 million and $1.0 million, respectively.
Revenue in 2013 was attributable to technology services provided to FioCruz in connection with the development by FioCruz of a yellow
fever vaccine using our iBioLaunch technology. To fulfill our obligations, we engage Fraunhofer as a subcontractor to perform the services
required. In 2014, the Company, FioCruz and Fraunhofer amended their Collaboration and License Agreement (the “Amendment”) reflecting
the agreed modifications to the work plan. Gross revenue totaled $0.2 million for 2014.
Research and Development Expenses
Research and development expenses for 2014 were approximately ($0.2) million, as compared to approximately $3.4 million for 2013.
However, research and development expenses for 2014 included (i) a credit of $1.04 million resulting from the reversal of expenses accrued
through June 30, 2013 under the TTA prior to the Settlement Agreement with Fraunhofer completed in September 2013 and (ii) the reversal of
expenses totaling $1.007 million incurred during 2013 as the result of the Amendment discussed above. Adjusting for this, research and
development spending was approximately $1.9 million for 2014, a decline of approximately $1.5 million. The decline in spending compared to
the prior nine months was attributable to lower expenses associated with Fraunhofer as a subcontractor rendering research and development
services to FioCruz while awaiting approval of the contract amendment and lower spending on Company projects directly with Fraunhofer.
General and Administrative Expenses
General and administrative expenses for both 2014 and 2013 were approximately $4.2 million. However, general and administrative expenses
for 2014 included (i) a credit of $0.7 million resulting from the reversal of royalty expenses accrued through June 30, 2013 under the TTA
prior to the Settlement Agreement with Fraunhofer completed in September 2013 and (ii) the write-off of an accounts receivable of $1.007
million recorded in 2013 as a result of the Amendment discussed above. Adjusting for this, general and administrative spending was
approximately $3.9 million for 2014, a decline of approximately $0.3 million attributable to lower spending on consulting and investor
relations services. General and administrative expenses principally include officer and employee salaries and benefits, legal and accounting
fees, insurance, consulting services, investor and public relations services, and other costs associated with being a publicly traded company.
Other Income (Expense)
Other income (expense) for 2014 was approximately $174,000, as compared to approximately $469,000 for 2013. However, other income
(expense) for 2014 includes a credit of $122,000 resulting from the reversal in interest expense accrued through June 30, 2013 under the TTA
prior to the Settlement Agreement with Fraunhofer completed in September 2013. Adjusting for this, other income (expense) was
approximately $52,000. Other income (expense) in 2013 included $520,000 of non-cash income related to the change in the fair value of the
warrant derivative liability resulting from the anti-dilution provision of the August 2008 Warrants. These warrants expired in August 2013,
and the warrant derivative liability was eliminated. Interest expense in 2013 totaled approximately $90,000 and was incurred to Fraunhofer for
past due balances owed.
Liquidity and Capital Resources
As of June 30, 2014, we had cash of $3.6 million as compared to $4.4 million as of June 30, 2013.
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Net Cash Used in Operating Activities
Net cash used in operating activities was $4.1 million. The decrease in cash was primarily attributable to funding the loss for the period.
Net Cash Used in Investing Activities
Net cash used in investing activities was $0.3 million. Cash used in investing activities was attributable primarily to additions to intangible
assets.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $3.6 million.
On October 15, 2013, we announced that we were providing holders of our warrants issued as part of the January 2012 equity offering (the
“January 2012 Warrants”) the opportunity to exercise at a reduced price for a limited period of time. The original exercise price of $0.88 was
reduced to $0.40 until 5:00 p.m. on November 12, 2013 (the “Expiration Time”), after which the exercise price reverted back to $0.88 until
these January 2012 Warrants expired on January 14, 2014. Except for the temporarily reduced exercise price, the terms of the January 2012
Warrants remained unchanged. Pursuant to this warrant exercise inducement, we issued 7.75 million shares of common stock and received
exercise proceeds of approximately $3.1 million, net of expenses.
In November 2013, we completed a private placement offering of 1.2 million shares of our common stock at a price of $0.40 per share,
resulting in net proceeds of approximately $0.5 million.
Funding Requirements
We have incurred significant losses and negative cash flows from operations since our spinoff from Integrated BioPharma, Inc. in August
2008. As of June 30, 2014, our accumulated deficit was approximately $41.2 million, and we used approximately $4.1 million of cash for
operating activities for 2014. As of June 30, 2014 cash on hand of approximately $3.6 million, together with funds subsequently obtained and
to be obtained pursuant to the Aspire Agreement, are expected to support the Company’s activities through the quarter ending June 30, 2015.
We have historically financed our activities through the sale of common stock and warrants, sold together as units. We plan to fund our future
business operations using cash on hand, through proceeds from the sale of additional equity and other securities, including sales of our
common stock pursuant to the Purchase Agreement with Aspire Capital Fund, LLC described under [Item 1 Business – Recent Business
Highlights], and through proceeds realized in connection with license and collaboration arrangements. The extent to which we utilize the
Purchase Agreement with Aspire Capital as a source of funding will depend on a number of factors, including the prevailing market price of
our common stock, the volume of trading in our common stock and the extent to which we are able to secure funds from other sources. The
number of shares that we may sell to Aspire Capital under the Purchase Agreement on any given day and during the term of the agreement is
limited. Additionally, we and Aspire Capital may not effect any sales of shares of our common stock under the Purchase Agreement during
the continuance of an event of default or on any trading day that the closing sale price of our common stock is less than $0.44 per share. Even
if we are able to access the full $10.0 million under the Purchase Agreement, we may still need additional capital to fully implement our
business, operating and development plans for periods beyond June 30, 2015. We cannot be certain that such funding will be available on
favorable terms or available at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience
significant dilution. If we are unable to raise funds when required or on favorable terms, we may have to: a) significantly delay, scale back, or
discontinue the product application and/or commercialization of our proprietary technologies; b) seek collaborators for our technology and
product candidates on terms that are less favorable than might otherwise be available; c) relinquish or otherwise dispose of rights to
technologies, product candidates, or products that we would otherwise seek to develop or commercialize; or d) possibly cease operations.
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, 2014, we were not involved
in any SPE transactions.
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of a company’s financial condition and results of operations and
requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Our financial statements are presented in accordance with accounting principles that are generally accepted in the U.S. (“U.S. GAAP”). All
applicable U.S. GAAP accounting standards effective as of June 30, 2014 have been taken into consideration in preparing the financial
statements. The preparation financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. Some of those estimates are subjective and complex, and, consequently, actual results could differ
from those estimates. The following accounting policies and estimates have been highlighted as significant because changes to certain
judgments and assumptions inherent in these policies could affect our financial statements.
30
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.
Intangible Assets
The Company accounts for intangible assets at their historical cost and records amortization utilizing the straight-line method based upon their
estimated useful lives. Patents are amortized over a period of ten years and other intellectual property is amortized over a period from 16 to 23
years. The Company reviews the carrying value of its intangible assets for impairment whenever events or changes in business circumstances
indicate the carrying amount of such assets may not be fully recoverable. Evaluating for impairment requires judgment, and recoverability is
assessed by comparing the projected undiscounted net cash flows of the assets over the remaining useful life to the carrying amount.
Impairments, if any, are based on the excess of the carrying amount over the fair value of the assets.
Derivative Instruments
The Company does not use derivative instruments in its ordinary course of business.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collectability is reasonably assured. Deferred revenue represents billings to a customer to whom the services have not yet been provided.
Research and Development Costs
All research and development costs are expensed as incurred. These expenses consist primarily of payments to third-party contractual service
providers and internal personnel costs.
Share-based Compensation
The Company recognizes the cost of all share-based payment transactions at fair value. Compensation cost, measured by the fair value of the
equity instruments issued, adjusted for estimated forfeitures, is recognized in the financial statements as the respective awards are earned over
the performance period. The Company uses historical data to estimate forfeiture rates.
The impact that share-based payment awards will have on the Company’s results of operations is a function of the number of shares awarded,
the trading price of the Company’s stock at the date of grant or modification, and the vesting schedule. Furthermore, the application of the
Black-Scholes option pricing model employs weighted-average assumptions for expected volatility of the Company’s stock, expected term
until exercise of the options, the risk-free interest rate, and dividends, if any, to determine fair value. Expected volatility is based on historical
volatility of the Company’s common stock; the expected term until exercise represents the weighted-average period of time that options
granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns; and the risk-
free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the
option. The Company has not paid any dividends since its inception and does not anticipate paying any dividends for the foreseeable future, so
the dividend yield is assumed to be zero.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect of a change in tax
rates or laws on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date of the rate change.
A valuation allowance is established to reduce the deferred tax assets to the amounts that are more likely than not to be realized from
operations.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken
on an income tax return. The Company has no liability for uncertain tax positions. Interest and penalties, if any, related to unrecognized tax
benefits would be recognized as income tax expense. The Company does not have any accrued interest or penalties associated with
unrecognized tax benefits, nor was any significant interest expense recognized during the years ended June 30, 2014 and 2013.
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-20 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
31
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Our management, under the direction of our Executive Chairman and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15 under the Exchange Act) as of June 30, 2014. Based on that evaluation, our Executive
Chairman and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2014.
(b) 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) under the Exchange Act,
during the quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
(c) Management’s Report on Internal Control over Financial Reporting
It is the responsibility of the management of iBio, Inc. 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, 2014 based
upon criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) (1992 Framework). Based on this assessment, management has concluded that our internal control over financial
reporting was effective as of June 30, 2014.
/s/Robert B. Kay
Robert B. Kay
Executive Chairman
(Principal Executive Officer)
September 29, 2014
/s/Mark Giannone
Mark Giannone
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
September 29, 2014
(d) Report of Independent Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report by CohnReznick LLP, 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.
None.
32
PART III
The information required by Item 10. Directors, Executive Officers and Corporate Governance; Item 11. Executive Compensation; Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Item 13. Certain Relationships and
Related Transactions, and Director Independence; and Item 14. Principal Accountant Fees and Services is incorporated into Part III of this
Annual Report on Form 10-K by reference to the proxy statement for our 2014 Annual Meeting of Stockholders, which proxy statement is
expected to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended June 30,
2014.
Item 15. Exhibits and Financial Statement Schedules.
(a) Exhibits and Index
PART IV
(1) A list of the financial statements filed as part of this report is set forth in the index to financial statements at page F-1 and is
incorporated herein by reference.
(2) An index of exhibits incorporated by reference or filed with this Report is provided below:
Exhibit No. Description
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
10.1
Certificate of Incorporation of the Company (1)
Certificate of Amendment of the Certificate of Incorporation of the Company (1)
First Amended and Restated Bylaws of the Company (2)
Form of Common Stock Certificate (3)
Form of Investor Warrant (2010) (4)
Form of Common Stock Purchase Warrant (2012) (5)
Form of Common Stock Purchase Warrant (2013) (6)
Form of Registration Rights Agreement (2010) (4)
Registration Rights Agreement, dated August 25, 2014, between the Company and Aspire Capital Fund, LLC (7)
Technology Transfer Agreement, dated as of January 1, 2004, between the Company and Fraunhofer USA Center for
Molecular Biotechnology, Inc. as amended (8)
10.2
Ratification dated September 6, 2013 of Terms of Settlement by and between the Company and Fraunhofer USA Center for
Molecular Biotechnology, Inc. (9)+
10.3
23.1
31.1
Common Stock Purchase Agreement, dated August 25, 2014 between the Company and Aspire Capital Fund, LLC (10)
Consent of Independent Registered Public Accounting Firm *
Certification of Periodic Report by Chief Executive Officer Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2
Certification of Periodic Report by Chief Financial Officer Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1
Certification of Periodic Report by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 *
32.2
Certification of Periodic Report by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 *
101
The following materials from iBio, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2014, formatted in XBRL
(Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii)
Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flow, and (v) Notes to Consolidated
Financial Statements *
(1) Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2014.
(2) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 14, 2009.
(3) Incorporated herein by reference to the Company’s Form 10-12G filed with the SEC on July 11, 2008.
(4) Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 15, 2010.
(5) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 10, 2012
(6) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on April 23, 2013.
(7) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 26, 2014.
(8) Incorporated herein by reference to the Company’s Form 10-12G filed with the SEC on June 18, 2008.
(9) Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013, filed with
the SEC on September 30, 2013.
(10) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 26, 2014.
* Filed herewith.
+ Confidential treatment requested as to certain portions, which portions have been separately filed with the Securities and Exchange
Commission.
33
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.
SIGNATURES
Dated: September 29, 2014
Dated: September 29, 2014
iBio, Inc.
(Registrant)
/s/Robert B. Kay
Robert B. Kay
Executive Chairman
(Principal Executive Officer)
/s/Mark Giannone
Mark Giannone
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/Robert B. Kay
Robert B. Kay
/s/Mark Giannone
Mark Giannone
/s/Glenn Chang
Glenn Chang
/s/Arthur Y. Elliott
Arthur Y. Elliott, Ph.D.
/s/Seymour Flug
Seymour Flug
/s/James T. Hill
General James T. Hill, USA (Retired)
/s/John D. McKey, Jr.
John D. McKey, Jr.
/s/Philip K. Russell
Philip K. Russell, M.D.
Executive Chairman
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
34
September 29, 2014
September 29, 2014
September 29, 2014
September 29, 2014
September 29, 2014
September 29, 2014
September 29, 2014
September 29, 2014
iBio, Inc.
Financial Statement Index
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets – June 30, 2014 and 2013
Consolidated Statements of Operations – Fiscal years ended June 30, 2014 and 2013
Consolidated Statements of Stockholders’ Equity – Fiscal years ended June 30, 2014 and 2013
Consolidated Statements of Cash Flows – Fiscal years ended June 30, 2014 and 2013
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
Report of Independent Registered Public Accounting Firm
The Board of Directors and
Stockholders of iBio, Inc.
We have audited the accompanying consolidated balance sheets of iBio, Inc. and Subsidiaries (the “Company”) as of June 30, 2014 and 2013,
and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. The Company’s
management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of iBio, Inc.
and Subsidiaries as of June 30, 2014 and 2013 and the results of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated 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 incurred net losses and negative cash flows from operating
activities for the years ended June 30, 2014 and 2013 and has an accumulated deficit as of June 30, 2014. These matters, among others, raise
substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described
in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ CohnReznick LLP
Eatontown, New Jersey
September 29, 2014
F-2
iBio, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, except share and per share amounts)
June 30, 2014
June 30, 2013
Assets
Current assets:
Cash
Accounts receivable - trade
Prepaid expenses and other current assets
Total current assets
Fixed assets, net of accumulated depreciation
Intangible assets, net of accumulated amortization
Total Assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable (related party of $38 and $93 as of June 30, 2014 and 2013, respectively)
Accrued expenses
Total Liabilities
$
$
$
Commitments
Stockholders' Equity
Preferred stock - no par value; 1,000,000 shares authorized; no shares issued and outstanding
Common stock - $0.001 par value; 175,000,000 shares authorized at June 30, 2014 and
100,000,000 shares authorized at June 30, 2013; 65,642,095 shares issued and outstanding at
June 30, 2014 and 56,692,095 shares issued and outstanding at June 30, 2013
Additional paid-in capital
Accumulated deficit
Total Stockholders' Equity
3,590 $
205
118
3,913
6
2,575
6,494 $
297 $
98
395
4,414
1,007
1,214
6,635
6
2,713
9,354
2,401
1,885
4,286
-
-
66
47,235
(41,202)
6,099
57
42,547
(37,536)
5,068
Total Liabilities and Stockholders' Equity
$
6,494 $
9,354
The accompanying notes are an integral part of these consolidated financial statements.
F-3
iBio, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, except per share amounts)
Revenues
Operating expenses:
Research and development (related party of $527 and $424)
Research and development - effect of Settlement Agreement (Note 8)
Research and development - effect of amendment to Collaboration and License Agreement
(Note 8)
General and administrative
General and administrative - effect of Settlement Agreement (Note 8)
General and administrative - effect of amendment to Collaboration and License Agreement
(Note 8)
Total operating expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Interest expense - effect of Settlement Agreement (Note 8)
Royalty income
Other income (expenses)
Loss on disposal of fixed assets
Change in fair value of warrant derivative liability
Total other income (expense)
Net loss
Loss per common share - basic and diluted
Years Ended
June 30,
2014
2013
$
205 $
1,007
1,898
(1,041)
(1,007)
3,888
(700)
1,007
4,045
(3,840)
8
-
122
42
3
(1)
-
174
3,431
-
-
4,243
-
-
7,674
(6,667)
9
(90)
-
34
(4)
-
520
469
$
$
(3,666) $
(6,198)
(0.06) $
(0.13)
Weighted-average common shares outstanding - basic and diluted
62,968
49,381
The accompanying notes are an integral part of these consolidated financial statements.
F-4
iBio, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Years Ended June 30, 2014 and 2013
(In Thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Deficit
Total
Balance as of July 1, 2012
47,767 $
48 $
37,459 $
(31,338) $
6,169
Issuance of comon stock in connection with April 2013 equity
offering, net of expenses
Share-based compensation
Net loss
8,925
9
3,825
-
-
-
-
1,263
-
(6,198)
(6,198)
-
-
3,834
1,263
Balance as of June 30, 2013
56,692
57
42,547
(37,536)
5,068
Common stock issued for warrant exercises
Common stock issued for private placement
Costs to raise capital
Share-based compensation
Expiration of warrants
Net loss
Balance as of June 30, 2014
7,750
1,200
-
-
-
-
8
1
-
-
-
-
3,092
479
(29)
1,075
71
-
-
-
-
-
3,100
480
(29)
1,075
71
-
(3,666)
(3,666)
65,642 $
66 $
47,235 $
(41,202) $
6,099
The accompanying notes are an integral part of these consolidated financial statements.
F-5
iBio, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Effect of Settlement Agreement
Share-based compensation
Amortization of intangible assets
Depreciation
Loss on disposal of fixed assets
Loss on abandonment of intangible assets
Change in the fair value of derivative financial liability
Changes in operating assets and liabilities
Accounts receivable - trade
Prepaid expenses and other current assets
Accounts payable
Accrued expenses
Years Ended
June 30,
2014
2013
$
(3,666) $
(6,198)
(1,863)
1,075
358
3
1
56
-
(205)
97
56
(28)
-
1,263
336
2
-
3
(520)
(656)
(289)
(445)
1,655
Net cash used in operating activities
(4,116)
(4,849)
Cash flows from investing activities:
Additions to intangible assets
Purchases of fixed assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from sale of common stock
Proceeds from exercise of warrants
Costs to raise capital
Net cash provided by financing activities
Net decrease in cash
Cash - beginning of year
Cash - end of year
Schedule of non-cash activities:
Reversal of accrued warrants
Unpaid intangible assets included in accounts payable
Unpaid intangible assets included in accrued expenses
Effect of amendment to Collaboration and License Agreement on accounts receivable and
accounts payable
(255)
(4)
(259)
480
3,100
(29)
3,551
(824)
4,414
3,590 $
71 $
12 $
20 $
1,007 $
(188)
(7)
(195)
4,284
-
(450)
3,834
(1,210)
5,624
4,414
-
-
-
-
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
iBio, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business
iBio, Inc. and Subsidiaries (“iBio” or the “Company”) is a biotechnology company focused on the commercialization of its proprietary plant-
based protein expression technologies - the iBioLaunch™ platform for vaccines and therapeutic proteins and the iBioModulator™ platform
for vaccine enhancement – and on developing and commercializing select biopharmaceutical product candidates. The advantages of iBio’s
technology include the ability to manufacture therapeutic proteins that are difficult or commercially infeasible to produce with conventional
methods, and reduced production time, capital and operating costs for biopharmaceuticals. iBio was established as a public company in August
2008 as the result of a spinoff from Integrated BioPharma, Inc. The Company operates in one business segment under the direction of its
Executive Chairman. The Company has two wholly-owned subsidiaries, iBioDefense Biologics LLC (“iBioDefense”), a Delaware limited
liability company formed in July 2013 to explore development and commercialization of defense-specific applications of the Company’s
proprietary technology, and iBio Peptide Therapeutics LLC, a Delaware limited liability company formed in November 2013 to explore
development and commercialization of plant based peptide for the treatment of Fibrosis. Additionally the Company has a 99% interest in a
subsidiary organized in Brazil, iBIO DO BRASIL BIOFARMACÊUTICA LTDA. (“iBio Brazil”), to manage and expand the Company’s
business activities in Brazil. The activities of iBio Brazil are intended to include coordination and expansion of the Company’s existing
relationship with FioCruz (part of the Ministry of Health of Brazil) beyond the current Yellow Fever Vaccine program and development of
biosimilar products with private sector participants for the Brazilian market. The subsidiaries have not conducted any activity through June 30,
2014.
2. Basis of Presentation
Going Concern
Since its spin-off from Integrated BioPharma, Inc. in August 2008, the Company has incurred significant losses and negative cash flows from
operations. As of June 30, 2014, the Company’s accumulated deficit was $41.2 million, and it had cash used in operating activities of $4.1
million and $4.8 million for the years ended June 30, 2014 and 2013, respectively. The Company has historically financed its activities
through the sale of common stock and warrants. Through June 30, 2014, the Company has dedicated most of its financial resources to
investing in its iBioLaunch™ and iBioModulator™ platforms, advancing its intellectual property, and general and administrative activities.
Cash on hand as of June 30, 2014 of $3.6 million and the results of the common stock purchase agreement with Aspire Capital Fund LLC are
expected to support the Company’s activities through June 30, 2015. The extent to which the Company utilizes the purchase agreement with
Aspire Capital as a source of funding will depend on a number of factors, including the prevailing market price of the Company’s common
stock and the volume of trading in its common stock. See Note 18 Subsequent Events for additional information.
The history of significant losses, the negative cash flow from operations, the limited cash resources currently on hand and the dependence by
the Company on its ability - about which there can be no certainty - to obtain additional financing to fund its operations after the current cash
resources are exhausted raises substantial doubt about the Company’s ability to continue as a going concern. These financial statements were
prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result from
the outcome of this uncertainty.
The Company plans to fund its future business operations using cash on hand, through proceeds from the sale of additional equity or other
securities and through proceeds realized in connection with license and collaboration arrangements. The Company cannot be certain that such
funding will be available on favorable terms, or available at all. To the extent that the Company raises additional funds by issuing equity
securities, its stockholders may experience significant dilution. If the Company is unable to raise funds when required or on favorable terms, it
may have to: a) significantly delay, scale back, or discontinue the product application and/or commercialization of its proprietary technologies;
b) seek collaborators for its technology and product candidates on terms that are less favorable than might otherwise be available; c) relinquish
or otherwise dispose of rights to technologies, product candidates, or products that it would otherwise seek to develop or commercialize; or d)
possibly cease operations.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current period presentation. In 2013, loss on abandonments of
intangibles was classified as other under cash flows from operating activities. In 2014, loss on abandonments is seperately stated.
F-7
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions
have been eliminated as part of the consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. These estimates include the valuation of intellectual property, legal and contractual contingencies and share-based compensation.
Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the
circumstances, actual results could differ from these estimates.
Fixed Assets
Fixed assets are stated at cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally three to five years.
Intangible Assets
The Company accounts for intangible assets at their historical cost and records amortization utilizing the straight-line method based upon their
estimated useful lives. Patents are amortized over a period of ten years and other intellectual property is amortized over a period from 16 to 23
years. The Company also expenses the remaining book value of previously capitalized patents that are later abandoned. The Company reviews
the carrying value of its intangible assets for impairment whenever events or changes in business circumstances indicate the carrying amount
of such assets may not be fully recoverable. Evaluating for impairment requires judgment, and recoverability is assessed by comparing the
projected undiscounted net cash flows of the assets over the remaining useful life to the carrying amount. Impairments, if any, are based on the
excess of the carrying amount over the fair value of the assets. There were no impairment charges for the years ended June 30, 2014 and 2013.
Derivative Instruments
The Company does not use derivative instruments in its ordinary course of business.
In connection with the issuances of debt and/or equity instruments, the Company may issue options or warrants to purchase common stock. In
certain circumstances, these options or warrants may be classified as liabilities rather than as equity. In addition, the debt and/or equity
instrument may contain embedded derivative instruments, such as conversion options or anti-dilution features, which in certain circumstances
may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The
Company accounts for derivative liability instruments under the provisions of FASB ASC 815, “Derivatives and Hedging.”
Some of the Company’s warrants issued in prior periods contained an anti-dilution provision which qualified as an embedded derivative and
was accounted for separately as a derivative liability. This liability was recognized on the balance sheet at fair value each reporting period, and
changes in the fair value were charged to other income or expense, as appropriate, and reflected in the current period earnings. Those warrants
expired and there are no warrants of the Company presently outstanding that require accounting as a derivative liability.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collectability is reasonably assured. Deferred revenue represents billings to a customer to whom the services have not yet been provided.
Research and Development Costs
All research and development costs are expensed as incurred. These expenses consist primarily of payments to third-party contractual service
providers and internal personnel costs.
Share-based Compensation
The Company recognizes the cost of all share-based payment transactions at fair value. Compensation cost, measured by the fair value of the
equity instruments issued, adjusted for estimated forfeitures, is recognized in the financial statements as the respective awards are earned over
the performance period. The Company uses historical data to estimate forfeiture rates.
The impact that share-based payment awards will have on the Company’s results of operations is a function of the number of shares awarded,
the trading price of the Company’s stock at the date of grant or modification, and the vesting schedule. Furthermore, the application of the
Black-Scholes option pricing model employs weighted-average assumptions for expected volatility of the Company’s stock, expected term
until exercise of the options, the risk-free interest rate, and dividends, if any, to determine fair value. Expected volatility is based on historical
volatility of the Company’s common stock; the expected term until exercise represents the weighted-average period of time that options
granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns; and the risk-
free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the
option. The Company has not paid any dividends since its inception and does not anticipate paying any dividends for the foreseeable future, so
the dividend yield is assumed to be zero.
F-8
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect of a change in tax
rates or laws on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date of the rate change.
A valuation allowance is established to reduce the deferred tax assets to the amounts that are more likely than not to be realized from
operations.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken
on an income tax return. The Company has no liability for uncertain tax positions as of June 30, 2014 and 2013. Interest and penalties, if any,
related to unrecognized tax benefits would be recognized as income tax expense. The Company does not have any accrued interest or penalties
associated with unrecognized tax benefits, nor was any significant interest expense recognized during the years ended June 30, 2014 and
2013.
F-9
4. New Accounting Pronouncements
The Company adopted Accounting Standards Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”) on
January 1, 2014. ASU 2013-11 is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax
benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result
from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The
amendments in this update are applied prospectively for annual and interim periods beginning after December 15, 2013. The adoption of ASU
2013-11 did not have a material effect on the Company’s consolidated financial statements.
In May 2014, ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”) was issued. The amendments in ASU 2014-
09 affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of
nonfinancial assets unless contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will
supersede the revenue recognition requirements in ASC 605, “Revenue Recognition,” and most industry-specific guidance, and creates an
ASC 606, “Revenue from Contracts with Customers.”
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that
core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting
period. Early application is not permitted. The Company is currently evaluating the effects of adopting ASU 2014-09 on its consolidated
financial statements.
In June 2014, ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period” (“ASU No. 2014-12”) was issued. ASU No. 2014-12 requires that a performance
target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should
recognize compensation cost in the period in which it becomes probable that the performance target will be achieved and should represent the
compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes
probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized
prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite
service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest.
ASU 2014-12 becomes effective for interim and annual periods beginning on or after December 15, 2015. Early adoption is permitted. The
Company is currently evaluating the effects of adopting ASU 2014-12 on its consolidated financial statements but the adoption is not expected
to have a significant impact on the Company’s consolidated financial statements.
In June 2014, ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern” (“ASU No. 2014-15”) was issued. Before the issuance of ASU 2014-15, there was no
guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue
as a going concern or to provide related footnote disclosures. This guidance is expected to reduce the diversity in the timing and content of
footnote disclosures. ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and
expanding upon certain principles that are currently in U.S. auditing standards as specified in the guidance. ASU 2014-15 becomes effective
for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. Early adoption is permitted. The Company
is currently evaluating the effects of adopting ASU 2014-15 on its consolidated financial statements but the adoption is not expected to have a
significant impact on the Company’s consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a
material effect on the accompanying consolidated financial statements.
F-10
5. Financial Instruments and Fair Value Measurement
The carrying values of cash, accounts receivable – trade, prepaid expenses and other current assets, accounts payable and accrued expenses in
the Company’s consolidated balance sheets approximated their fair values as of June 30, 2014 and 2013 due to their short-term nature.
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Prepaid expenses - Fraunhofer – semi-annual TTA payments (1)
Prepaid expenses – Fraunhofer – other R&D projects
Other prepaid expenses
Other current assets
Total prepaid expenses and other current assets
(1) See Note 8 – Significant Vendor.
7.
Intangible Assets
June 30,
2014
June 30,
2013
- $
-
110
8
118 $
1,000
106
77
31
1,214
$
$
The Company has two categories of intangible assets – intellectual property and patents. Intellectual property consists of technology for
producing targeted proteins in plants for the development and manufacture of novel vaccines and therapeutics for humans and certain
veterinary applications (the “Technology”) acquired in December 2003 from Fraunhofer USA Inc., acting through its Center for Molecular
Biotechnology (“Fraunhofer”), pursuant to a Technology Transfer Agreement, as amended (the “TTA”). Patents consist of payments for
services and fees related to the further development and protection of the Company’s patent portfolio.
In January 2014, the Company entered into a license agreement with a U.S. university whereby iBio acquired exclusive worldwide rights to
certain issued and pending patents covering specific candidate products for the treatment of fibrosis (the “Licensed Technology”). The license
agreement provides for payment by the Company of a license issue fee, annual license maintenance fees, reimbursement of prior patent costs
incurred by the university, payment of a milestone payment upon regulatory approval for sale of a first product, and annual royalties on
product sales. In addition, the Company has agreed to meet certain diligence milestones related to product development benchmarks. As part of
its commitment to the diligence milestones, the Company successfully commenced production of a plant-made peptide comprising the
Licensed Technology before March 31, 2014. The next milestone – filing a New Drug Application with the FDA covering the Licensed
Technology – becomes due on December 1, 2015.
The following table summarizes by category the gross carrying value and accumulated amortization of intangible assets (in thousands):
Intellectual property – gross carrying value
Patents – gross carrying value
Intellectual property – accumulated amortization
Patents – accumulated amortization
Net intangible assets
June 30,
2014
June 30,
2013
3,100 $
2,068
5,168
(1,621)
(972)
(2,593)
2,575 $
3,100
1,869
4,969
(1,465)
(791)
(2,256)
2,713
$
$
Amortization expense, included in general and administrative expenses, was approximately $0.36 million and $0.34 million for the years
ended June 30, 2014 and 2013, respectively. In addition, for the years ended June 30, 2014 and 2013, the Company incurred losses on the
abandonment of patents of approximately $56,000 and $3,000, respectively. The weighted-average remaining life for intellectual property and
patents at June 30, 2014 was approximately 10 years and 5 years, respectively. The estimated annual amortization expense for the next five
years and thereafter is as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
For the Year Ending
June 30,
F-11
$
$
360
346
332
305
270
962
2,575
8. Significant Vendor
Fraunhofer continued to be the Company’s most significant vendor. The accounts payable balance includes amounts due Fraunhofer of
approximately $0.2 million and $2.2 million as of June 30, 2014 and 2013, respectively. In addition, the accrued expenses balance includes
amounts due Fraunhofer of approximately $0 and $1.7 million as of June 30, 2014 and 2013, respectively. The Company is charged interest
by Fraunhofer on certain outstanding balances at the rate of prime plus 2%. For the years ended June 30, 2014 and 2013, research and
development expenses related to Fraunhofer were approximately $0.8 million and $2.7 million, respectively. Interest expense related to
Fraunhofer were approximately $0 and $88,000 for the years ended June 30, 2014 and 2013, respectively.
In September 2013, the Company and Fraunhofer completed the Terms of Settlement for the TTA Seventh Amendment (the “Settlement
Agreement”), the significant terms of which are as follows:
·
·
·
·
·
·
The Company’s liabilities to Fraunhofer in the amount of approximately $2.9 million as of June 30, 2013 were released and
terminated;
The Company’s obligation under the TTA, prior to the Settlement Agreement, to make three $1 million payments to Fraunhofer in
April 2013, November 2013, and April 2014 (the “Guaranteed Annual Payments”) was terminated and replaced with an
undertaking to engage Fraunhofer to perform for at least $3 million in work requested and as directed by iBio before December
31, 2015. See Note 16 – Commitments for additional information;
T h e Company terminated and released Fraunhofer from the obligation to make further financial contributions toward the
enhancement, improvement and expansion of iBio’s technology in an amount at least equal to the Guaranteed Annual Payments.
In addition, the Company terminated and released Fraunhofer from the obligation to further reimburse iBio for certain past and
future patent-related expenses;
The Company’s obligation to remit to Fraunhofer minimum annual royalty payments in the amount of $200,000 was terminated.
Instead the Company will be obligated to remit royalties to Fraunhofer only on technology license revenues that iBio actually
receives and on revenues from actual sales by iBio of products derived from the Company’s technology until the later of
November 2023 or until such time as the aggregate royalty payments total at least $4 million;
The rate at which the Company will be obligated to pay royalties to Fraunhofer on iBioLaunch and iBioModulator license
revenues received was reduced from 15% to 10%; and
Any and all other claims of each party to any other amounts due at June 30, 2013 were mutually released.
The effect of the Settlement Agreement was the elimination of approximately $1.7 million of accrued expenses and $1.2 million of accounts
payable from the Company’s books, as well as a $1 million reduction in prepaid expenses and an approximately $1.9 million positive impact
on earnings resulting from the reversal of expenses incurred by the Company under the terms of the previous agreement. This $1.86 million is
composed of credits of $1.04 million to research and development expenses, $0.7 million to general and administrative expenses, and $0.12
million to interest expense.
On January 4, 2011, the Company entered into the Collaboration and License Agreement (the “CLA”) which is a three party agreement
involving the Company, Fraunhofer and Fundacao Oswaldo Cruz/Fiocruz, a public entity, member of the Indirect Federal Public
Administration and linked to the Health Ministry of Brazil, acting through its unit Bio-Manguinhos (“Fiocruz”). The CLA provides for the
development of a yellow fever vaccine to be manufactured and distributed within Latin America and Africa by Fiocruz. The CLA was
supplemented by a bilateral agreement between iBio and Fraunhofer dated December 27, 2010 in which the Company engaged Fraunhofer as
a contractor to provide the research and development services (both, together, the “Agreement”). The services are billed to Fiocruz at
Fraunhofer’s cost, so revenue is equivalent to expense and there is no profit. At June 30, 2013, the Company had a receivable of $1.007
million and an accounts payable of the same amount.
On June 12, 2014, Fiocruz, Fraunhofer and iBio executed an amendment to the Agreement (the “Amended Agreement”) which provides for
revised research and development, work plans, reporting, objectives, estimated budget, and project billing process. The effect of the
amendment resulted in a charge of approximately $1.007 million to general and administrative expenses for the noncollectibility of an accounts
receivable from Fiocruz for revenues recorded for the year ended June 30, 2013 and a credit of approximately $1.007 million to research and
development expenses and a corresponding adjustment to accounts payable relating to expenses accrued at June 30, 2013 owed to Fraunhofer.
For the year ended June 30, 2014, under the Amended Agreement, the Company recognized revenue of $205,000 for work performed for
Fiocruz pursuant to the Amended Agreement by the Company’s subcontractor, Fraunhofer, and recognized research and development
expenses of the same amount -- $205,000 – due Fraunhofer for that work.
F-12
9. Accrued Expenses
Accrued expenses consist of the following (in thousands):
Fraunhofer – semi-annual TTA payment (1)
Fraunhofer – minimum annual royalty (1)
Consulting fees
Public company costs
Salaries and benefits
Other accrued expenses
Total accrued expenses
(1) See Note 8 – Significant Vendor.
10. Warrant Derivative Liability
June 30,
2014
June 30,
2013
- $
-
-
-
32
66
98 $
1,000
700
71
45
44
25
1,885
$
$
In August 2013, approximately 5.0 million of the Company’s outstanding warrants expired. These warrants were issued in August 2008 (the
“August 2008 Warrants”) as part of a private placement completed concurrently with the spin-off from Integrated BioPharma, Inc. The
warrants contained an anti-dilution provision which was accounted for separately as a derivative liability and measured at fair value on a
recurring basis. Changes in fair value were charged to other income or expense, as appropriate. The fair value of the warrant derivative liability
was determined based on Level 2 inputs utilizing observable quoted prices for similar instruments in active markets and observable quoted
prices for identical or similar instruments in markets that are not very active. Using the Black-Scholes option pricing model, the Company
developed its own assumptions based on observable inputs and available market data to support the reported fair value of $- 0 - as of June 30,
2013. The Company recognized a gain of approximately $0.5 million for the year ended June 30, 2013.
F-13
The following table summarizes the inputs and assumptions used to calculate the fair value of the warrant derivative liability:
Common stock price
Exercise price
Risk-free interest rate
Dividend yield
Volatility
Remaining contractual term (in years)
11. Stockholders’ Equity
June 30,
2013
$
0.42
$ 1.53 - $1.97
0.04%
0%
97.9%
0.2
Preferred Stock
The Company’s Board of Directors is authorized to issue, at any time, without further stockholder approval, up to 1 million shares of
preferred stock. The Board of Directors has the authority to fix and determine the voting rights, rights of redemption and other rights and
preferences of preferred stock. As of June 30, 2014 and 2013, there were no shares of preferred stock issued and outstanding.
Common Stock
As of June 30, 2013, the Company was authorized to issue up to 100 million shares of common stock. On December 18, 2013, the
Company amended its certificate of incorporation and increased the number of authorized shares of common stock to 175 million. As of June
30, 2014, the Company had reserved up to 15 million shares of common stock for incentive compensation (stock options and restricted stock)
and approximately 12.6 million shares of common stock for the exercise of warrants.
Issuances of common stock were as follows:
Warrant Exercise Inducement
On October 15, 2013, the Company announced that it was providing holders of its warrants issued as part of the January 2012 equity offering
(the “January 2012 Warrants”) the opportunity to exercise at a reduced price for a limited period of time. The original exercise price of $ 0.88
was reduced to $0.40 until 5:00 p.m. on November 12, 2013 (the “Expiration Time”), after which the exercise price reverted back to $ 0.88
until these January 2012 Warrants expired on January 14, 2014. In October 2013, pursuant to this warrant exercise inducement, the Company
issued 7.75 million shares of common stock and received exercise proceeds of approximately $3.1 million, net of expenses.
November 2013 Private Placement Offering
In November 2013, the Company completed a private placement offering of 1.2 million shares of its common stock at a price of $0.40 per
share, resulting in net proceeds of approximately $0.5 million. The shares were issued in January 2014.
April 2013 Equity Offering
On April 26, 2013, the Company, under its effective Registration Statement on Form S-3 (File No. 333-175420) (the “Registration
Statement”), raised approximately $3.8 million in net proceeds by issuing 8,925,000 shares of common stock and warrants to purchase up to
3,570,000 shares of common stock. The common stock and warrants were sold together as units (the “2013 Units”), with each 2013 Unit
consisting of one share of common stock and 0.40 (or 4/10ths) of one warrant to purchase one share of common stock. The public offering
price of each 2013 Unit was $0.48. The warrants have an August 2013 exercise price of $0.53 per share, are immediately exercisable and will
expire on the third anniversary of the date of issuance.
Prior to this offering, there were outstanding approximately 4.2 million August 2008 Warrants. In connection with this offering, the anti-
dilution provision was triggered and the Company was required to both increase the number of shares issuable upon exercise and decrease the
exercise prices of the August 2008 Warrants. As a result, the number of August 2008 Warrants outstanding increased by approximately 0.8
million and the exercise prices decreased from $1.82 and $2.34 per share to $1.53 and $1.97 per share, respectively. After this adjustment,
there were outstanding approximately 2.5 million warrants with an August 2013 exercise price of $1.53 per share and approximately 2.5
million warrants with an exercise price of $1.97 per share. There was no change in the expiration date of the August 2008 Warrants as a result
of this adjustment.
January 2013 ATM Facility
On January 31, 2013, the Company entered into an At-the-Market Equity Offering Sales Agreement (the “ATM Facility”) with Further Lane
Securities, L.P. (“Further Lane”) pursuant to which the Company could sell, at its option, up to an aggregate of $10 million in shares of its
common stock through Further Lane, as sales agent. The Company agreed to pay Further Lane a commission equal to 3% of the gross
proceeds from the sale of shares of its common stock under the ATM Facility, if any. The Company also agreed to reimburse Further Lane for
certain expenses incurred in connection with entering into the ATM Facility and provided Further Lane with customary indemnification rights.
F-14
There were no sales of the Company’s common stock pursuant to the ATM Facility during the year ended June 30, 2013. The Company
incurred legal, accounting and filing fees of approximately $121,000, including expenses reimbursed to Further Lane, in connection with entry
into the ATM Facility. As a result of the Company’s decision to move forward with an alternate financing strategy that effectively eliminated
the capacity under the Registration Statement necessary to utilize the ATM Facility, these costs were charged to general and administrative
expenses. On April 26, 2013, the Company voluntarily terminated the ATM Facility prior to making any sales of its common stock under
such agreement.
January 2012 Equity Offering
On January 13, 2012, the Company, under its effective Registration Statement, raised approximately $9.0 million in net proceeds by issuing
15,385,000 shares of common stock and warrants to purchase up to 11,538,750 shares of common stock. The common stock and warrants
were sold together as units (the “2012 Units”), with each 2012 Unit consisting of one share of common stock and 0.75 (or 3/4ths) of one
warrant to purchase one share of common stock. The public offering price of each 2012 Unit was $0.65. The warrants had an exercise price of
$0.88 per share, became exercisable on the first anniversary of the date of issuance and would expire on the second anniversary of the date of
issuance, which was January 13, 2014.
Prior to this offering, there were outstanding approximately 2.8 million August 2008 Warrants. In connection with this offering, the anti-
dilution provision was triggered and the Company was required to both increase the number of shares issuable upon exercise and decrease the
exercise prices of the August 2008 Warrants. As a result, the number of August 2008 Warrants outstanding increased by approximately 1.4
million and the exercise prices decreased from $2.68 and 3.45 per share to $1.82 and $2.34 per share, respectively. After this adjustment, there
were outstanding approximately 2.1 million warrants with an exercise price of $1.82 and approximately 2.1 million warrants with an exercise
price of $2.34 per share. There was no change in the August 2013 expiration date of the August 2008 Warrants as a result of this adjustment.
Warrants
The Company has historically financed its operations through the sale of common stock and warrants, sold together as units.
The following table summarizes all warrant activity for the years ended June 30, 2014 and 2013:
Outstanding as of July 1, 2012
Granted – consulting services
Granted – April 2013 equity offering
Granted – Anti-dilution adjustment on August 2008 warrants
Outstanding as of June 30, 2013
Exercised
Expired
Outstanding as of June 30, 2014
Exercisable as of June 30, 2014
Weighted-
average
Exercise
Price
1.39
1.00(1)
0.53
1.75
1.23(2)
0.40
1.18
1.38
Warrants
20,940,796 $
100,000 $
3,570,000 $
785,144 $
25,395,940 $
(7,750,000) $
(8,876,029) $
8,769,911 $
8,769,911 $
1.38
(1) See Note 13 – Share-based Compensation.
(2) Includes the effect of reduction in exercise price for previously granted August 2008 warrants.
F-15
12. Loss Per Common Share
Basic earnings per share (“EPS”) per common share is computed by dividing the net income (loss) allocated to common stockholders by the
weighted-average number of shares of common stock outstanding during the period. For purposes of calculating diluted EPS, the denominator
includes both the weighted-average number of shares of common stock outstanding during the period and the number of common stock
equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options
and warrants using the treasury stock method. The following table summarizes the components of the EPS calculation (in thousands, except
per share amounts):
Basic Numerator:
Net loss
Basic Denominator
Per Share Amount
Years ended
June 30,
2014
2013
$
$
(3,666) $
62,968
(0.06) $
(6,198)
49,381
(0.13)
For the years ended June 30, 2014 and 2013, the Company incurred net losses which cannot be diluted; therefore, basic and diluted loss per
common share is the same. As of June 30, 2014, shares issuable which could potentially dilute future earnings included approximately 8.5
million stock options and 8.8 million warrants. As of June 30, 2013, shares issuable which could potentially dilute future earnings included
approximately 6.7 million stock options and 25.4 million warrants.
13. Share-Based Compensation
The following table summarizes the components of share-based compensation expense in the Consolidated Statements of Operations (in
thousands):
Research and development
General and administrative
Totals
Year Ended
June 30,
2014
2013
$
$
97 $
978
1,075 $
192
1,071
1,263
Stock Options
On August 12, 2008, the Company adopted the iBioPharma 2008 Omnibus Equity Incentive Plan (the “Plan”) for employees, officers,
directors and external service providers. The original Plan provided that the Company may grant options to purchase stock and/or make
awards of restricted stock up to an aggregate amount of 10 million shares. On December 18, 2013, the Plan was amended to increase the
number of shares reserved for awards under the Plan from 10 million to 15 million. As of June 30, 2014, there were approximately 6.5 million
shares of common stock reserved for future issuance under the Plan. Stock options granted under the Plan may be either incentive stock
options (as defined by Section 422 of the Internal Revenue Code of 1986, as amended) or non-qualified stock options at the discretion of the
Board of Directors. Vesting of service awards occurs ratably on the anniversary of the grant date over the service period, generally three or
five years, as determined at the time of grant. Vesting of performance awards occurs when the performance criteria have been satisfied. The
Company uses historical data to estimate forfeiture rates.
During the years ended June 30, 2014 and 2013, the Company granted stock options to members of the Board of Directors and officers to
purchase approximately 1.1 million and 1.2 million shares of common stock. These options vest ratably on the anniversary of the date of grant
over a three to five year service period, expire ten years from the date of grant, and have a weighted-average exercise price of $.51 per share
and $1.01 per share, respectively.
F-16
The following table summarizes all stock option activity during the years ended June 30, 2014 and 2013:
Outstanding as of July 1, 2012
Granted
Forfeited
Outstanding as of June 30, 2013
Granted
Forfeited
Outstanding as of June 30, 2014
As of June 30, 2014 vested and expected to vest
Exercisable as of June 30, 2014
Weighted-
average
Exercise
Price
Weighted-
average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
(in thousands)
1.56
1.02
1.55
1.45
0.47
0.62
1.25
1.25
1.48
8.1 $
7.5 $
7.0 $
7.0 $
6.2 $
494
161
179
178
161
Stock
Options
5,510,000 $
1,330,000 $
(80,000) $
6,760,000 $
1,990,000 $
(266,666) $
8,483,334 $
8,396,500 $
5,288,542 $
The total fair value of stock options that vested during the years ended June 30, 2014 and 2013 was approximately $1.1 million and $2.5
million, respectively. As of June 30, 2014, there was approximately $1.4 million of total unrecognized compensation cost related to non-vested
stock options that the Company expects to recognize over a weighted-average period of 2.4 years.
The weighted-average grant date fair value of stock options granted during the year ended June 30, 2014 and 2013 was $0.40 and $0.90 per
share, respectively. The Company estimated the fair value of options granted using the Black-Scholes option pricing model with the following
assumptions:
Risk-free interest rate
Dividend yield
Volatility
Expected term (in years)
2014
2013
2.3% - 2.7% 1.3% - 2.0%
0%
0%
97.4% - 100.6% 98.9% - 100.8%
9
9
In November and December 2011, the Board of Directors modified the cancellation provision of previously issued options, permitting an
option holder, upon termination without cause, to exercise the vested portion of an option post-termination for up to ten years after the grant
date (the life of the option). Option awards granted in the current period also include this provision. Effective September 30, 2011, the
Company ceased using the simplified method for share-based compensation expense and now estimates the expected term for each award to
approximate its contractual term. The Company determined the effect of the modification to be approximately $633,000, based upon the
difference in the fair market value of the options immediately before and after the modification occurred. For the year ended June 30, 2014, the
Company recorded modification charges to research and development and to general and administrative expenses of approximately $0 and
$14,000, respectively. For the year ended June 30, 2013, the Company recorded modification charges to research and development and to
general and administrative expenses of approximately $16,000 and $49,000, respectively.
On February 29, 2012, the Company’s former Chief Scientific Officer terminated his employment with the Company and became a consultant
to the Company as its Chief Scientific Advisor effective March 1, 2012. As Chief Scientific Officer, this individual received on February 25,
2010, an option grant to purchase 500,000 shares of common stock at an exercise price of $0.87, of which 200,000 options were vested at the
time employment ceased. As compensation for the prospective role of Chief Scientific Advisor, the 300,000 unvested options were allowed to
continue to vest in accordance with the original terms of the option grant, which vested ratably on the anniversary of the date of grant over a
five year service period. The fair market value of the non-employee portion of option grant was initially estimated at $234,000. Options
granted to non-employees are required to be marked-to-market each reporting period and their value will fluctuate accordingly. The grant will
continue to be expensed over the remainder of the original five year service period.
Warrants
In July 2012, the Company issued 100,000 fully vested warrants to a consultant as payment for investor relations services. These warrants
had an exercise price of $1.00 per share and expired two years from the date of issuance. The grant date fair value of approximately $33,000
was determined using the Black-Scholes option pricing model with similar inputs to those used to value stock options with the exception of
the expected term. The warrants expired in July 2014.
F-17
14. Related Party Transactions
Research and Development Services Vendor
In January 2012, the Company entered into an agreement with a vendor in which iBio’s President is a minority stockholder. The vendor
performs laboratory feasibility analyses of gene expression, protein purification and preparation of research samples. The transaction has been
conducted on an arm’s length basis at market terms. The accounts payable balance includes amounts due this vendor of approximately $38,000
and $93,000 at June 30, 2014 and 2013, respectively. Research and development expenses related to this vendor were approximately
$527,000 and $424,000 for the years ended June 30, 2014 and 2013, respectively.
Consulting Services by Board Member
In February 2012, the Company entered into a business development consulting agreement with a member of the Board of Directors. The six
month agreement included monthly payments of $15,000 and 60,000 stock options which vested in six equal monthly installments of 10,000
options per month. The options have an exercise price of $0.93 per share and will expire ten years from the date of grant. The consulting
expense for the years ended June 30, 2014 and 2013 was $0 and $15,000, respectively, and is included in general and administrative
expenses. Additionally, members of the Board of Directors receive $10,000 per year of cash compensation for their services to the Company.
15. Income Taxes
The components of the provision for income taxes consist of the following (in thousands):
Current - Federal and state
Deferred - Federal
Deferred - State
Total
Change in valuation allowance
Income tax expense
For the Years Ended
June 30,
2014
2013
$
- $
(1,267)
(215)
(1,482)
1,482
$
- $
-
(2,447)
(366)
(2,813)
2,813
-
The Company has deferred income taxes due to income tax credits, net operating loss carryforwards, and the effect of temporary differences
between the carrying values of certain assets and liabilities for financial reporting and income tax purposes.
The components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets (liabilities):
Net operating loss
Share-based compensation
Research and development tax credits
Intangible assets
Vacation accrual
Valuation allowance
Total
As of June 30,
2014
2013
$
$
11,954 $
3,626
764
(122)
13
(16,235)
- $
10,856
3,198
737
(56)
18
(14,753)
-
The Company has a valuation allowance against the full amount of its net deferred tax assets due to the uncertainty of realization of the
deferred tax assets due to operating loss history of the Company. The Company currently provides a valuation allowance against deferred
taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be
reduced or eliminated based on future earnings and future estimates of taxable income.
Federal net operating losses of approximately $5.5 million were used by the Former Parent prior to June 30, 2008 and are not available to the
Company. The Former Parent allocated the use of the Federal net operating losses available for use on its consolidated Federal tax return on a
pro rata basis based on all of the available net operating losses from all the entities included in its control group.
Federal and state net operating losses of approximately $31.6 and $20.4 million, respectively, are available to the Company as of June 30,
2014 and will expire at various dates through 2034. These carryforwards could be subject to certain limitations in the event there is a change in
control of the Company pursuant to Internal Revenue Code Section 382, though the Company has not performed a study to determine if the
loss carryforwards are subject to these Section 382 limitations. The Company has a research and development credit carryforward of
approximately $764,000 at June 30, 2014.
F-18
A reconciliation of the statutory tax rate to the effective tax rate is as follows:
Statutory federal income tax rate
State (net of federal benefit)
Non-deductible expenses - change in fair value of derivative financial
liability
Research and development tax credit
Other
Change in valuation allowance
Effective income tax rate
Years Ended
June 30,
2014
2013
34%
6%
-%
1%
-%
(41)%
0%
34%
6%
3%
4%
(2)%
(45)%
0%
The Company has not been audited by the Internal Revenue Service or any states in connection with income taxes. The Company files federal
and state income tax returns subject to varying statutes of limitations. The 2009 through 2013 tax returns generally remain open to examination
by federal and state tax authorities.
16. Commitments
Under the terms of the Settlement Agreement described in Note 8 – Significant Vendor above, the Company is obligated to engage Fraunhofer
for at least $3 million in work requested and directed by iBio before December 31, 2015. Effective January 31, 2014, the Company terminated
a $1.5 million research services agreement with Fraunhofer. The Company had incurred $0.8 million in research and development expense
related to such agreement. As of June 30, 2014, the Company had entered into research services agreements with Fraunhofer representing
approximately $0.8 million of the $3 million commitment.
Under the terms of the TTA (described in Note 8 – Significant Vendor) and for a period of 15 years: 1) the Company shall pay Fraunhofer a
defined percentage (per the agreement) of all receipts derived by the Company from sales of products produced utilizing the Technology and a
defined percentage (per the agreement) of all receipts derived by the Company from licensing the Technology to third parties. The Company
will be obligated to remit royalties to Fraunhofer only on technology license revenues that iBio actually receives and on revenues from actual
sales by iBio of products derived from the Company’s technology until the later of November 2023 or until such time as the aggregate royalty
payments total at least $4 million. All new intellectual property invented by Fraunhofer during the period of the TTA is owned by and is
required to be transferred to iBio.
On June 12, 2014, Fiocruz, Fraunhofer and iBio executed an amendment to the CLA (the “Amended Agreement”) which provides for revised
research and development, work plans, reporting, objectives, estimated budget, and project billing process. Under the CLA and bilateral
agreement between iBio and Fraunhofer dated December 27, 2010, Fraunhofer, the Company’s subcontractor for performance of research and
development services, bills Fiocruz directly on behalf of the Company at the rates, amounts and times provided in the Amended Agreement,
and the proceeds of such billings and only the proceeds are paid to Fraunhofer for its services, so the Company's expense is equal to its
revenue and no profit is recognized for these activities under the Amended Agreement. See Note 8 – Significant Vendor for additional
information.
On January 14, 2014 (the “Effective Date”), the Company entered into an exclusive worldwide License Agreement (“LA”) with the University
of Pittsburgh (“UP”) covering all of the U.S. and foreign patents and patent applications and related intellectual property owned by UP
pertinent to the use of endostatin peptides for the treatment of fibrosis. The Company paid an initial license fee of $20,000 and is required to
pay all of UP’s patent prosecution costs that were incurred prior to, totaling $30,627, and subsequent to the Effective Date. On each
anniversary date the Company is to pay license fees ranging from $25,000 to $150,000 for the first five years and $150,000 on each
subsequent anniversary date until the first commercial sale of the licenced technology. Beginning with commerical sales of the technology or
approval by the FDA or foreign equivalent, the Company will be required to pay milestone payments, royalties and a percentage of any non-
royalty sublicense income to UP.
On December 30, 2013, the Company entered into a Project Agreement with the Medical University of South Carolina (“MUSC”) providing
for the performance of research and development services by MUSC related to peptides for the treatment of fibrosis. The agreement requires
the Company to make payments totaling $78,000 through December 1, 2014 and provides the Company with certain intellectual property
rights. Effective September 1, 2014, the Company and MUSC executed an Amendment to the agreement. The Amendment extends the term of
the agreement to December 31, 2015 and increases the total payments due MUSC from the Company by $161,754.
17. NYSE Listing Compliance
On October 25, 2013, the Company received notice from NYSE Regulation that the Company had resolved all previously cited continued
listing deficiencies with respect to listing standards of the NYSE MKT LLC's (the " Exchange ") Company Guide, and therefore continues its
listing eligibility, subject, as is the case for all listed issuers, to assessment on an ongoing basis by the Exchange.
F-19
18. Subsequent Events
On August 25, 2014, the Company entered into a common stock purchase agreement with Aspire Capital Fund, LLC, an Illinois limited
liability company (referred to below as “Aspire Capital”), which provides that, upon the terms and subject to the conditions and limitations set
forth therein, Aspire Capital is committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock over the
approximately 24-month term of the purchase agreement. In consideration for entering into the purchase agreement, following the approval of
the issuance of the shares by NYSE MKT, Aspire Capital received 681,818 shares of the Company’s common stock as a commitment fee. In
addition, on September 19, 2014 following approval of the issuance of the shares by NYSE MKT, Aspire Capital purchased 1,136,354 shares
of common stock for $500,000 pursuant to the terms of the purchase agreement.
Concurrently with entering into the purchase agreement, the Company also entered into a registration rights agreement with Aspire Capital, in
which the Company agreed to file one or more registration statements as permissible and necessary to register under the Securities Act of
1933, as amended, the sale of shares of the Company’s common stock that have been and may be issued to Aspire Capital under the purchase
agreement. After the Securities and Exchange Commission has declared effective the registration statement, on any trading day on which the
closing sale price of the Company’s common stock exceeds $0.44 (the closing sale price of the Company’s shares on the business day before
the Company entered into the purchase agreement with Aspire Capital), the Company has the right, in its sole discretion, to present Aspire
Capital with a purchase notice, directing Aspire Capital (as principal) to purchase up to 150,000 shares of common stock per trading day,
provided that the aggregate price of such purchase shall not exceed $500,000 per trading day, up to an additional $9.5 million of common
stock in the aggregate at a per share price equal to the lesser of the lowest sale price of common stock on the purchase date, or the arithmetic
average of the three lowest closing sale prices of common stock during the ten consecutive trading days ending on the trading day immediately
preceding the purchase date.
In addition, on any date on which the Company submits a purchase notice to Aspire Capital in an amount equal to 150,000 shares of common
stock and the closing sale price of common stock is equal to or greater than $0.44, the Company also has the right, in its sole discretion, to
present Aspire Capital with a volume-weighted average price (“VWAP”) purchase notice directing Aspire Capital to purchase an amount of
stock equal to up to 30% of the aggregate shares of the Company’s common stock traded on the NYSE MTK on the next trading day, subject
to a maximum number of shares that the Company may determine, and a minimum trading price which is equal to the greater of (a) 80% of the
closing price of common stock on the business day immediately preceding the date of the VWAP purchase, or (b) such higher price as set
forth by the Company in the notice for the VWAP purchase. The purchase price per share pursuant to such VWAP purchase notice shall be
the lower of (i) the closing sale price on the date of sale and (ii) 97% of the volume-weighted average price for common stock traded on the
NYSE MKT on (i) the date of the VWAP purchase if the aggregate stock to be purchased on that date does not exceed the volume maximum
stated in the Company’s notice for the VWAP purchase, or (ii) the portion of such business day until such time as aggregate stock to be
purchased will equal the volume maximum stated in the Company’s notice or the time at which the sale of the stock falls below the minimum
trading price described above.
The purchase agreement provides that the Company and Aspire Capital shall not effect any sales under the purchase agreement on any
purchase date where the closing sale price of common stock is less than $0.44 (the closing sale price of shares on the business day before the
Company entered into the purchase agreement). Further, the purchase price for any purchases of shares under the purchase agreement may not
be less than $0.44 per share, unless stockholder approval is obtained. The respective prices and share numbers in the preceding paragraphs
shall be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar
transaction. There are no trading volume requirements or restrictions under the purchase agreement with Aspire Capital, and the Company will
control the timing and amount of any sales of our common stock to Aspire Capital. Aspire Capital has no right to require any sales by the
Company, but is obligated to make purchases from the Company as directed in accordance with the purchase agreement. There are no
limitations on use of proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights,
penalties or liquidated damages in the purchase agreement. The purchase agreement may be terminated by the Company at any time, at its
discretion, without any penalty or cost to the Company.
F-20
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-171315 and File No. 333-175420) of
iBio, Inc. and Subsidiaries of our report dated September 29, 2014, on our audits of the consolidated financial statements of iBio, Inc. and
Subsidiaries as of June 30, 2014 and 2013 and for the years then ended, which report includes an explanatory paragraph relating to iBio, Inc.
and Subsidiaries’ ability to continue as a going concern, included in this Annual Report on Form 10-K.
/s/ CohnReznick LLP
Eatontown, New Jersey
September 29, 2014
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Robert B. Kay, certify that:
1.
I have reviewed this Annual Report on Form 10-K of iBio, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
September 29, 2014
/s/Robert B. Kay
Robert B. Kay
Executive Chairman
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Mark Giannone, certify that:
1.
I have reviewed this Annual Report on Form 10-K of iBio, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
September 29, 2014
/s/Mark Giannone
Mark Giannone
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of iBio, Inc. (the Company) on Form 10-K for the year ended June 30, 2014 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Robert B. Kay, Executive Chairman of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
2.
September 29, 2014
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/Robert B. Kay
Robert B. Kay
Executive Chairman
(Principal Executive Officer)
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to iBio, Inc. and will
be furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of iBio, Inc. (the Company) on Form 10-K for the year ended June 30, 2014 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Mark Giannone, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
2.
September 29, 2014
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ Mark Giannone
Mark Giannone
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to iBio, Inc. and will
be furnished to the Securities and Exchange Commission or its staff upon request.