SIGA Technologies, Inc. — Q1 2014 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2014. SIGA develops treatments for serious unmet medical needs and biothreats. Its lead product, Arestvyr (tecovirimat, also known as ST-246), is an investigational antiviral that is not FDA-approved. Under its BARDA contract, SIGA supplies Arestvyr to the Strategic National Stockpile and conducts related development and support work.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Revenue, primarily R&D contract and grant revenue | $549,000 | $1.33 million |
| Operating expenses | $6.19 million | $7.13 million |
| Operating loss | $5.64 million | $5.81 million |
| Net loss | $3.38 million | $4.88 million |
| Loss per share, basic and diluted | $0.06 | $0.09 |
| Cash from (used in) operating activities | $16.59 million | $(8.09) million |
| Cash and cash equivalents | $107.07 million at March 31, 2014 | $91.31 million at December 31, 2013 |
| Total debt | $3.47 million at March 31, 2014 | $3.96 million at December 31, 2013 |
Revenue fell 59%, reflecting lower Lassa fever grant revenue and lower federal-contract revenue for Arestvyr development. Operating expenses declined 13%, principally due to lower employee compensation following the Optimization Program. The net loss narrowed 31%; a $156,000 gain from the change in warrant fair value, versus a $974,000 loss in the prior-year quarter, also contributed. The income-tax benefit was $2.24 million, and management reported a 39.9% effective tax rate.
Operating cash flow improved mainly because SIGA received approximately $25.4 million from BARDA for product delivery; cash payments to contract manufacturers and other operating changes partly offset the receipt. Cash used in financing was $821,000, including $500,000 of scheduled debt repayment and $416,000 of share repurchases for employee tax withholding, partly offset by $95,000 from option and warrant exercises. Capital expenditures were $14,000.
At March 31, current assets were $133.33 million and current liabilities were $11.14 million. Deferred revenue was $187.78 million, up from $162.22 million at year-end; deferred costs were $29.18 million, up from $22.58 million. Stockholders’ equity was $13.94 million, down from $16.98 million at year-end. Product-delivery revenue and related costs remain deferred under the contract’s replacement obligations, so the filing does not report a meaningful recognized product gross margin for these deliveries.
Contract status, outlook, and material risks
- The BARDA contract has a stated base value of approximately $463 million, including $54 million for development and supportive activities, with those activities running through 2020. As modified, BARDA agreed to buy 1.7 million courses; SIGA contributes 300,000 courses manufactured primarily with prior federal funding. Options include additional development work, subject to BARDA’s discretion. The original option for up to 12 million additional courses was deleted.
- By March 31, approximately 1.2 million courses had been accepted into the stockpile, including 259,000 at no cost to BARDA. SIGA reported receiving approximately $121.5 million for delivered courses and $61.5 million in upfront payments and milestones. The company recognized $360,000 of BARDA-reimbursed R&D revenue in Q1; cash associated with product deliveries remains deferred revenue.
- Management said existing capital, BARDA receipts, and continuing government contracts and grants were expected to support operations beyond the next 12 months. It targeted a $6 million annual operating-expense reduction through its Optimization Program, with a substantial portion implemented by year-end 2013. SIGA also noted it did not expect to use all available funding under certain grants for dengue and arenavirus development.
- The central contingency is PharmAthene litigation. Delaware’s Supreme Court affirmed SIGA’s breach of its duty to negotiate in good faith, reversed prior equitable damages and promissory-estoppel findings, and remanded the case for consideration of possible expectation damages and fees. The amount and outcome remain uncertain; SIGA had recorded a $2.7 million loss contingency for fees, expenses, and interest and posted $1.3 million as surety-bond collateral. The company warned that an adverse outcome could affect profits under the BARDA contract, operations, and deferred-tax-asset realizability.
- Other risks include Arestvyr’s investigational status and need for regulatory approval, clinical and product-safety uncertainty, potential BARDA contract delays, changes, or cancellation, dependence on government funding, intellectual-property challenges, and the possibility that some deferred revenue will not ultimately be recognized. Management reported effective disclosure controls as of March 31, 2014 and no material change in internal control during the quarter.
Important facts for investors to verify
- Developments and any resulting damages or fee award in the PharmAthene remand, including the effect on SIGA’s retained BARDA-contract profits.
- BARDA course acceptance, payment and delivery schedules, contract options, and the timing and conditions for recognizing deferred revenue and deferred costs.
- Arestvyr’s regulatory and clinical progress; it was not FDA-approved as of the filing.
- Whether the company achieves its targeted cost reductions and how ongoing research spending and government funding affect cash use.
- Assumptions supporting the value and recoverability of deferred tax assets, given continuing losses and litigation uncertainty.