SIGA Technologies, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. SIGA is a commercial-stage pharmaceutical company focused on health security; its lead product is oral TPOXX, approved to treat smallpox. Financial statements are unaudited.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $8.1m | $471.1m | $22.5m | $475.5m |
| Operating income | $0.7m | $368.9m | $1.1m | $360.6m |
| Net income (loss) | $(1.2)m | $388.1m | $(2.7)m | $369.4m |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(3.9)m | $72.5m |
2019 product sales and supportive-services revenue was $3.9m for Q3 and $11.1m for nine months; R&D revenue was $4.2m and $11.4m, respectively. The 2019 nine-month R&D revenue includes an approximately $3.3m cumulative catch-up adjustment. The filing does not provide a clearly comparable gross-margin measure; reported operating income was modest in 2019.
At September 30, 2019, cash and cash equivalents were $78.1m and restricted cash was $98.1m. Total cash, cash equivalents and restricted cash were $176.2m, versus $180.4m at year-end 2018. Total current assets were $98.6m and current liabilities $11.8m. Long-term debt was $78.9m carrying value; its estimated fair value was $85.8m. Stockholders’ equity was $102.9m.
Changes and drivers versus prior period
- The exceptionally high 2018 revenue and profit mainly reflected recognition, after FDA approval of oral TPOXX in July 2018, of previously deferred BARDA contract revenue and related costs, plus a $41m holdback and a $50m payment for 84-month product expiry. Accordingly, the large year-over-year declines do not represent a like-for-like operating trend.
- 2019 product revenue came from deliveries under the 2018 BARDA contract. R&D revenue rose 90% in Q3 and 74% for nine months, mainly reflecting increased IV TPOXX development activity; the nine-month increase also included the catch-up adjustment.
- Nine-month operating cash flow moved to a $3.9m use from $72.5m provided in 2018, when the $91m of BARDA payments were received. In 2019, operating cash use included $8.5m of cash interest and working-capital needs, partially offset by BARDA receipts and interest income.
- Interest expense was $11.9m for nine months, up from $11.5m; the company cited higher LIBOR rates. A $4.8m gain from the lower fair value of the warrant partly offset financing costs in reported results.
Contracts, outlook and risks
- The 2018 BARDA contract contemplates up to approximately $602.5m in total payments. As of September 30, about $51.7m related to the base period, $25.8m to exercised options, and up to $525.0m to unexercised options. BARDA has sole discretion whether to exercise unexercised options; these amounts are not assured revenue.
- The 2011 BARDA contract expires in September 2020; approximately $3.9m remained eligible for future reimbursement. The company also reported a five-year DoD research award valued at $19.5m, with an initial award of $12.4m, for research supporting a potential post-exposure-prophylaxis label expansion.
- Remaining performance obligations were $36.1m at September 30, 2019. Management provided no specific revenue or earnings guidance in the supplied filing text.
- The $80m term loan matures November 16, 2020, with no scheduled principal payments before maturity. Its effective interest rate was 19.2%; an additional $4m is payable when principal is repaid. Restricted cash is designated for loan interest, fees and principal. The company reported covenant compliance and unrestricted cash above the $20m minimum requirement.
- Key risks include BARDA’s ability to decline options or modify or terminate contracts, execution and delivery timing, development and regulatory uncertainty for IV TPOXX and new indications, and market-development and intellectual-property risks. A 0.5% increase in the applicable LIBOR minimum would increase annual loan interest by about $0.4m, according to the filing.
Important facts for investors to verify
- Whether BARDA exercises further options and the timing and economics of future TPOXX deliveries.
- Whether operating cash generation can cover ongoing costs and high loan interest as restricted cash remains dedicated to debt service.
- Progress, funding and regulatory milestones for IV TPOXX and the DoD-supported PEP program.
- The term-loan repayment and any refinancing or prepayment implications before its November 2020 maturity.
- The effects of revenue-recognition estimates, including contract funding assumptions and the $3.3m catch-up adjustment.