SIGA Technologies, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. SIGA develops and commercializes treatments for serious medical needs and biothreats; its lead product, TPOXX, is an investigational antiviral for orthopoxvirus infections, including smallpox. TPOXX was not FDA-approved as of the filing.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $5.2 million | $1.3 million; up 310% |
| Operating expenses | $9.5 million | $8.3 million |
| Operating loss | $4.3 million | $7.1 million loss |
| Net loss | $8.6 million | $10.4 million loss |
| Loss per share, diluted | $0.11 | $0.19 |
| Net cash from (used in) operations | $1.6 million | $(8.6) million |
Revenue was from research and development contracts and grants, including approximately $4.7 million of BARDA-reimbursed R&D. Revenue from delivered TPOXX courses remains deferred because of product-replacement obligations; accordingly, the filing does not report product-sales revenue or a gross margin. The company recorded a $115,000 tax provision despite its pretax loss, as it recognized no tax benefit for current-period losses.
At March 31, cash and cash equivalents were $30.1 million, with an additional $24.9 million of restricted cash, primarily reserved for loan interest. Current assets were $65.2 million and current liabilities $12.6 million. The company reported total liabilities of $457.0 million, including $376.2 million in deferred revenue and a $67.7 million term-loan carrying balance; stockholders’ deficit was $296.1 million. The loan’s estimated fair value was $71.8 million.
Material changes and unusual items
- Revenue rose $3.9 million as more and larger TPOXX development studies were supported by federal contracts.
- R&D expense increased 151% to $6.4 million, largely due to $3.5 million of additional direct vendor costs; the quarter included an inventory write-down expense net of related CMO payments.
- Interest expense was $3.6 million on the term loan, including $2.5 million paid from restricted cash and $1.1 million accrued to the loan balance. A $626,000 warrant fair-value loss was also recorded.
- Unlike Q1 2016, Q1 2017 had no PharmAthene judgment interest or Chapter 11 reorganization expense. The bankruptcy case closed in December 2016; SIGA had paid PharmAthene $217 million in total to satisfy the judgment.
- Operating cash flow improved from an $8.6 million use to $1.6 million provided, partly reflecting BARDA receipts and working-capital movements, including a reduction in inventory.
Outlook, risks, and contingencies
- SIGA targeted filing a TPOXX New Drug Application by year-end 2017 and anticipated eligibility for a $41 million BARDA holdback in the second half of 2018, contingent on FDA approval and cumulative delivery of 2 million courses. These are targets, not assured outcomes.
- After March 31, the company expected to deliver approximately 467,000 additional courses at no cost to BARDA, largely to meet the current dosage requirements. Product replacement obligations and the related costs remain significant.
- If SIGA does not receive a substantial portion of the holdback by Q3 2018, management said additional funding would be needed to continue operations and avoid a potential loan default. Possible responses include financing, new contracts, asset sales, expense reductions, or loan modification; none is assured.
- The $80 million senior secured term loan bears interest at an effective rate of 18.30% at quarter-end, matures no later than four years after its November 2016 release, and has no scheduled principal payments before maturity. A further $4 million is payable with principal. The lender has a security interest in substantially all company assets, including intellectual property. SIGA reported covenant compliance at March 31, 2017; minimum-cash and regulatory milestone covenants apply.
- BARDA’s additional contract options, including a potential $50 million payment tied to FDA approval for an 84-month shelf life, are discretionary and not assured. Delivery, regulatory, funding, replacement-obligation, and deferred-revenue recognition risks could affect results and liquidity.
Key facts for investors to verify
- Progress toward the targeted NDA filing, FDA approval, and the 2 million-course delivery condition for the $41 million holdback.
- Unrestricted cash runway, restricted-cash availability, and compliance with loan minimum-cash and regulatory covenants.
- Updated production costs and replacement obligations, including the planned no-cost courses and the impact on deferred costs.
- Whether BARDA exercises any contract options and whether deferred revenue can ultimately be recognized.
- Debt servicing requirements and potential funding needs if the anticipated BARDA payment is delayed or not received.