Fear In The Time Of Ebola Stocks: Debunking The IBIO Short Thesis 12 comments
Nov 2, 2014 11:01 PM | about stocks: IBIO
Disclosure: The author is long IBIO. The author wrote this article himself, and it expresses his own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
As a retail investor and physician, I was excited to come upon a stock, iBio Inc. (NYSE: IBIO), that I thought had the potential to revolutionize the production of vaccines and other medications through plant-based mass production. I was shocked and thrilled when on the day after I first bought the stock, the price per share went from $1.89 close on 10/16/14, to a $3.21 close on Friday 10/17/14, up about 70% in one day. After apparent profit-taking led to a closing price of 2.18 on 10/20/14. The following day an article by Adam Feuerstein of TheStreet made the case that iBio was overvalued at a market cap of almost $200 million.
http://www.thestreet.com/story/12920076/1/...tals-outweigh-fear.html?
The iBio stock price fell steadily to close at $1.77 on 10/22/14. On the following day an article by Melissa Davis of the StreetSweeper appeared, IBIO: A Wannabe Ebola Player Infecting Buyers with False Hope. It was disclosed that the StreetSweeper holds a short position in iBio.
http://seekingalpha.com/article/...r-infecting-buyers-with-false-hope
Perhaps more damaging than the article itself to the stock price was the barrage of 10 or so legal investigations and attempted class action lawsuits by various law firms, all parroting the Davis article's argument that iBio had somehow mislead investors and claiming to help recoup losses for investors. The first was by the Rosen Law firm and came the same day as the Davis article.
http://www.businesswire.com/news/home/...ecurities-Fraud#.VFU4byg2G9w
Price per share cascaded, eventually falling to a $0.95 close on 10/29/14. Many formerly long investors sold their shares with a substantial loss, with major profits for those holding short positions, apparently including StreetSweeper. As of market close Friday 10/31/14, price per share stands at $1.03 per share, now giving iBio a market cap of only $69.48 million.
Since the market cap for iBio is now so low, the Adam Feuerstein argument is hardly relevant at the current price per share. But the StreetSweeper article certainly deserves further scrutiny. Davis pumps her short thesis as veritable truth, stating, "Get ready for the truth to unfold and reality to exact its inevitable toll."
Her first point is that since MAPP pharmaceuticals has worked for many years with Icon Genetics AG (Halle, Germany) and Kentucky Bioprocessing (Owensboro, KY), therefore they will continue to. The easiest way to refute that argument is simply to ask yourself, "How much ZMAPP did their collaboration produce?" Davis completely misses the point that the whole problem is that the previous collaboration has left the world with no ZMAPP available, just at the time we really need it.
Davis points out that several years ago MAPP, Icon, and Kentucky Bioprocessing were even talking about a merger. Well the fact is, the merger didn't happen. And when engagements don't result in a marriage, sometimes one or more parties leaves on bad terms. And perhaps MAPP had a very good reason to decide against the merger.
Davis touts the New York Times and other sources regarding the importance and history of Icon Genetics, but what she failed to tell investors that on 10/01/14 the New York Times stated, "Mapp is said to be working with another small company, Novici Biotech, which has a method of tweaking the genetic instructions for the antibodies in a way that could boost production."
http://www.nytimes.com/2014/10/02/world/...-not-meet-demand.html?_r=0
Novici Biotech is not only a partner with iBio on other projects, but the President and CEO of iBio, Robert Erwin, is also the Chairman of Novici Biotech. Erwin was also in fact the Chairman of Icon Genetics from 1999 until a subsidiary of Bayer AG bought them in 2006. None of this is disclosed to investors in the StreetSweeper article.
http://ibioinc.com/...sive-product-collaboration-with-novici-biotech/
http://www.bloomberg.com/profiles/people/3118019-robert-l-erwin
http://www.forbes.com/profile/robert-erwin/
From the New York Times and other sources, it seems pretty clear that MAPP is looking at changing partners, rather than staying in an old and relatively unproductive relationship.
But Davis says that the head of the government lab has "virtually ruled out" changes to the existing production process, and that somehow a change in production process would preclude a change to iBio production techniques. But what Dr. Brett Giroir actually said was:
"We believe there are substantial opportunities to increase the yield of ZMapp" in plants while keeping the product the same, Giroir said in an interview. The compound needs to be identical to what Mapp has already vetted in animals "or you would have to go back to the beginning for safety testing," he said.
http://www.reuters.com/article/2014/10/17/...ve-idUSKCN0I624P20141017
It seems clear from Giroir's actual words that he believes he can increase the yield using new production methods while not changing the ZMAPP product. But would changing the production method require 'going back to the beginning'? The US government's 'decider' on ZMAPP production, the Biomedical Advanced Research and Development Authority (BARDA), doesn't seem to think so. It is even requesting a proposal involving production of ZMAPP using Chinese hamster ovary cells, which would obviously be a radically different production technique.
http://www.bloomberg.com/news/2014-10-17/...drug-to-boost-supply.html
But back to Dr. Giroir and the Texas A&M Health Science Center. All credible sources state that the partner for the plant-based production will be Caliber Biotherapeutics.
http://uk.reuters.com/article/2014/10/17/...ive-idUKKCN0I624Q20141017
Caliber has a history of partnering with iBio, not Icon Genetics. Davis' argument for Icon Genetics completely collapses when the history of iBio and Caliber partnership is considered. Davis fails to produce any evidence that Caliber has ever worked with Icon Genetics AG or is planning to.
http://...t-product-under-license-and-collaboration-agreement-4160869
Regarding the financial position of iBio, Davis writes,
"Mere weeks ago, before it suddenly exploded as a speculative Ebola name, iBio felt willing to sell a mountain of new shares at a fraction of their current market price. Low on cash and poised to sell a ton of dilutive shares, iBio relied on hype to set its stock on fire - and might try that same trick again."
However it is interesting to note that Davis uses the past tense and does not try to make the case that iBio is actually "low on cash" at present, just that they were prior to the past offering. In fact Davis herself states that the shares were offered a low price and before the price run-up due to Ebola speculation. This would appear to discredit any legal case claiming a "pump and dump" scheme, because the shares were offered at a low price before the alleged "pump".
Davis repeatedly makes the point that the word 'Ebola' is not mentioned in the company's latest 10K report. Well why would it be? ZMAPP and Ebola vaccine production is a new and emerging business opportunity. Rest assured that when it becomes an established part of iBio's business that it will be mentioned in future 10Ks. Until business details have been worked out it would have been irresponsible to mention it, and Davis and other shorts would have almost certainly ripped iBio even harder if they had mentioned Ebola opportunities with specifics not yet in place.
Davis and the pack of law firms that followed her make a big point of saying that an iBio spokesperson has reportedly stated that "any lab that wants to make a ZMapp vaccine using plant-based technology would have to license it from IBIO". Davis asserts that this claim is false. CEO Robert Erwin has been quoted in a recent interview as follows:
"Technology used to produce the ZMapp antibodies in plants is covered by issued U.S. patents owned by iBio, and iBio also has additional proprietary technology that can be applied to increase the antibody yields over current levels. However, we cannot speculate on contracts that might or might not be awarded."
http://www.smallcapnetwork.com/...ia/24698/article/view/p/mid/1/id/3/
A previous SeekingAlpha author has looked at the details of the patent claims, and determined the following:
"The plant expression vector technology for antibody development in plants used by Mapp was obtained under a research license from Icon Genetics AG; however, issued U.S. patents owned by iBio dominate the Icon technology.
Therefore, to avoid patent infringement in the U.S. any manufacturer of the ZMapp product, unless the production process is degraded to using public domain methods alone, will require a commercial license from iBio."
http://seekingalpha.com/article/...-illustrates-the-companys-strength
Perhaps the final nail in the coffin for the StreetSweeper short thesis will come from another long-term iBio partner-one that Davis conveniently fails to mention-the Bill and Melinda Gates Foundation. The Gates Foundation and iBio have an exclusive partnership in place for the production of plant-based medicine that goes back to 2010, which includes the Defense Advanced Research Projects Agency (DARPA) as a stakeholder.
http://www.businesswire.com/news/home/...echnology-Enter#.VFURMCg2G9x
While the PR for the Gates-iBio agreement does not specifically mention Ebola, Gates-funded research for plant-based production of medicines has consistently involved the use of iBio technology. Here is one of many possible examples of the history of the Gates-iBio partnership, this time involving the avian flu vaccine:
http://www.proactiveinvestors.com/companies/news/...nology-32558.html
So if production and development of an Ebola vaccine or medicine will involve some of the $50 million in funds that the Gates Foundation has already pledged, and the additional funds that will surely follow, then all evidence indicates that iBio will be the partner, not Icon Genetics. The Gates Foundation has no such agreement in place with Icon Genetics. But according to Davis and the StreetSweeper, iBio will play "no role" in the urgent mass production of ZMapp.
Besides the Gates Foundation connection, Davis fails to mention that iBio might be involved not just with the production of ZMAPP, but also with the development and production of a potential Ebola vaccine. Does anyone really think that the Gates Foundation won't be a primary driving force behind both ZMAPP and the Ebola vaccine production? Who else do investors think will be buying the eventual vaccine in large quantities and providing it to those at risk in afflicted areas such as West Africa? And it is iBio, not Icon Genetics, who has an active partnership with the Gates Foundation for the plant-based production of vaccines. Bill Gates himself states that we should have "vaccines and some drugs that, if stockpiled, should stop a major Ebola outbreak in the future."
http://www.washingtonpost.com/opinions/...f3a-7e28799e0549_story.html
Melissa Davis writes, "Shame on iBio for pulling a dangerous stunt that could soon cost its shareholders a staggering fortune." Well looking at the facts and best evidence, it appears that while claiming that they have done "extensive research", the StreetSweeper is most likely the one pulling a "dangerous stunt" by presenting incomplete and misleading information about the prospects of iBio and Icon Genetics to the investing community.
Meanwhile giddy short sellers post comments on social media championing Icon Genetics and talk about driving iBio price per share down to ten cents per share or lower. Considering the longstanding relationships iBio has with pivotal players including the Gates Foundation, DARPA, Caliber Biotherapeutics, and Novici Biotech-while iBio short sellers like the StreetSweeper surely have nice short-term profits, I guess we'll have to wait and see how shorting iBio in the middle of a major Ebola outbreak works out for them in the long run.
Going into the BARDA 11/10/14 deadline for ZMAPP production proposals, if short selling investors continue to believe delusional street sweepings like this 'iCon job' by Melissa Davis and the StreetSweeper, then perhaps they will eventually learn a lesson the hard way about the value of due diligence in investing.
Disclosure: The author is long IBIO.
Themes: biotechnology, health Stocks: IBIO
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