SIGA Technologies, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; compared with the three months ended March 31, 2018. SIGA is a commercial-stage biodefense pharmaceutical company whose lead product is oral TPOXX, with IV TPOXX in development.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 or prior balance-sheet date |
|---|---|---|
| Total revenue | $10.46 million | $1.75 million |
| Operating income (loss) | $2.19 million | $(4.53) million |
| Net income (loss) | $1.63 million | $(11.58) million |
| Operating cash flow | $9,379 | $(8.56) million |
| Cash and cash equivalents | $102.09 million at March 31, 2019 | $100.65 million at December 31, 2018 |
| Restricted cash | $78.26 million at March 31, 2019 | $79.74 million at December 31, 2018 |
| Term-loan carrying value | $76.66 million at March 31, 2019 | $75.55 million at December 31, 2018 |
Product sales and supportive-services revenue was $7.14 million, arising from delivery of approximately 23,000 oral TPOXX courses to the Strategic National Stockpile; related cost was $0.92 million. Approximate product gross margin was 87%. R&D revenue was $3.32 million, up 90%, while R&D expense rose 33% to $4.00 million, mainly due to increased IV TPOXX development activity. Total operating margin was approximately 21%.
Interest expense was $3.93 million, including $1.11 million of noncash loan-cost and fee accretion. A $3.14 million noncash gain from the warrant’s fair-value decline materially affected reported earnings. Basic EPS was $0.02, but diluted EPS was a loss of $0.02 because diluted EPS adjusts for the warrant fair-value gain. Total assets were $206.44 million and stockholders’ equity was $106.07 million at quarter-end. Cash, cash equivalents, and restricted cash totaled $180.34 million; restricted cash is designated for term-loan interest, fees, and principal and is not equivalent to unrestricted operating cash.
Changes versus the comparable period
- Revenue increased by $8.71 million, primarily because Q1 2019 included oral TPOXX deliveries under the 2018 BARDA contract; there were no product-sales revenues in Q1 2018.
- R&D revenue and expense increased with the expanded scope and cost of IV TPOXX development.
- The company moved from an operating loss and net loss in Q1 2018 to operating and net income in Q1 2019. The comparison also reflects a $3.14 million warrant fair-value gain in 2019 versus a $3.30 million loss in 2018.
- Operating cash flow was approximately breakeven versus $8.56 million used in Q1 2018. The filing attributes the 2019 result in part to the $7.1 million BARDA receipt, offset by operating costs and approximately $2.8 million of cash interest.
Contracts, outlook, and risks
The 2018 BARDA contract contemplates up to approximately $600.1 million in payments: $51.7 million in the five-year base period, $12.2 million associated with exercised options, and up to $536.2 million in unexercised options. BARDA decides in its sole discretion whether to exercise those options. The company reported $60.0 million of remaining performance obligations across the 2011 BARDA contract, 2018 BARDA contract, and IV formulation R&D contract. The 2011 BARDA contract expires in September 2020; remaining options under it could provide up to $72.7 million if exercised. The filing gives no formal revenue or earnings guidance.
The $80.0 million term loan bears interest at adjusted LIBOR plus 11.5%; its effective rate was 19.4% at quarter-end. No principal payments are scheduled before maturity, when $80.0 million of principal plus an additional $4.0 million is due. The debt is secured by substantially all company assets, including intellectual property. The company reported covenant compliance. Risks include BARDA’s ability not to exercise options, contract modification or cancellation, performance and delivery timing, regulatory or development setbacks for IV TPOXX, market development, intellectual-property challenges, and rising LIBOR. Management said disclosure controls were effective and there were no material changes in internal control over financial reporting.
An unusual accounting change was adoption of ASC 842 on January 1, 2019, which added approximately $2.9 million of operating-lease right-of-use assets and $3.3 million of lease liabilities. The filing also describes ordinary-course claims and proceedings but states that pending matters are not expected to have a material adverse effect.
Important facts for investors to verify
- Whether BARDA exercises unexercised options and the timing of future TPOXX deliveries and IV-product development.
- How much of reported revenue converts to cash, given Q1 operating cash flow of only $9,379 and the distinction between unrestricted and restricted cash.
- The loan’s repayment timetable, high effective interest rate, restricted-cash availability, and continued covenant compliance.
- The effect of warrant valuation changes on reported earnings and the difference between basic and diluted EPS.
- Whether IV TPOXX development, regulatory milestones, and contract performance proceed as planned; the filing does not provide formal financial guidance.