SIGA Technologies, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. SIGA develops treatments for unmet medical needs and biothreats; its lead product is Tecovirimat (ST-246), an investigational antiviral being supplied to the U.S. Strategic National Stockpile under a BARDA contract. The product was not FDA-approved as of the filing.
Financial results
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue, primarily R&D contract and grant revenue | $651,000 | $965,000 | $1.2 million | $2.3 million |
| Operating loss | $4.75 million | $5.63 million | $10.38 million | $11.44 million |
| Net loss | $2.95 million | $3.06 million | $6.33 million | $7.94 million |
| Loss per share, basic and diluted | $0.06 | $0.06 | $0.12 | $0.15 |
| Operating cash flow | Not stated for the quarter | $8.52 million | $(6.89) million |
- Liquidity: Cash and cash equivalents were $99.0 million at June 30, up from $91.3 million at December 31, 2013. Current assets were $129.7 million and current liabilities $8.4 million.
- Debt: Long-term debt, including current portion, totaled approximately $3.0 million, down from approximately $4.0 million at year-end. SIGA repaid $1.0 million during the first half.
- Deferred balances: Deferred revenue was $188.1 million, versus $162.2 million at year-end; deferred costs were $30.1 million, versus $22.6 million. Product delivery and acceptance cash receipts are generally deferred rather than recognized as revenue, in part because of product replacement obligations.
- Other balance-sheet items: Inventory was $16.8 million, down from $20.5 million; stockholders’ equity was $11.6 million, down from $17.0 million.
Changes and operating developments
- R&D revenue fell 33% in Q2 and 48% for the first half, chiefly due to lower Lassa fever and dengue fever grant revenue; the six-month decline also reflected lower Tecovirimat contract revenue.
- SG&A declined 12% in Q2 and 5% in the first half, primarily from lower professional fees and, for the first half, lower office expenses. R&D expense declined 24% in Q2 and 23% in the first half, mainly from reduced employee compensation under the Optimization Program.
- The program targets $6 million in annual operating-expense reductions, with a substantial portion implemented by year-end 2013. First-half R&D expense included inventory write-downs of $0.9 million.
- SIGA sold laboratory equipment for $534,607, recording a $321,887 gain. The gain contributed to lower reported R&D expense.
- First-half operating cash flow improved primarily because SIGA received about $26.5 million from BARDA for product delivery, partially offset by $7.0 million of payments to contract manufacturers for Tecovirimat-related manufacturing, development, and support.
Outlook, risks, and contingencies
- The BARDA contract has a stated base value of approximately $463 million, including $54 million for development and support; its performance period for those activities runs through 2020. As modified, BARDA is to purchase 1.7 million courses, and SIGA is to provide 300,000 courses at no cost. Certain options remain subject to BARDA’s discretion.
- As of July 24, 2014, approximately 1.3 million courses had been accepted, including 259,000 provided at no cost. SIGA reported about $136.8 million received for accepted courses and $61.5 million in upfront payments and milestones. In July, 115,000 courses were accepted for approximately $15.3 million.
- Management expected existing capital, BARDA receipts, and continuing government contracts and grants to support operations beyond the next 12 months. This assessment is subject to the outcome of the PharmAthene litigation and the timing and performance of government contracts and grants.
- PharmAthene litigation: Delaware’s Supreme Court affirmed SIGA’s breach of its duty to negotiate in good faith, reversed prior promissory-estoppel and equitable-damages rulings, and remanded the case to determine whether expectation damages or other relief are warranted. SIGA recorded a $2.7 million contingency for fees, expenses, and interest; the ultimate remedy is uncertain and could be materially greater. A $1.3 million surety-bond collateral amount is recorded in other assets.
- SIGA recorded income-tax benefits despite losses. Deferred tax assets totaled $57.5 million, net of a $4.5 million valuation allowance; their realization depends on future taxable income, which may be affected by litigation and business results.
- Tecovirimat remained investigational and unapproved. The FDA did not accept “Arestvyr” as a proprietary name; SIGA was discussing the determination and considering an appeal, with no expected material operational or financial effect. The filing also identifies risks involving regulatory approval, BARDA contract performance or modification, grant funding, litigation, and deferred-revenue recognition.
Key facts for investors to verify
- Developments and potential damages in the PharmAthene remand, including any effect on SIGA’s retained Tecovirimat profits and deferred tax assets.
- Further BARDA acceptance, cash receipts, contract performance, and the timing and conditions for recognizing deferred revenue and related costs.
- Tecovirimat’s regulatory and clinical status, including any FDA decisions and whether further testing or documentation is required.
- Whether expense reductions and government funding sustain liquidity, and how operating cash flow changes as deliveries and manufacturing payments continue.
- The recoverability of deferred tax assets and any changes to the litigation contingency or other material estimates.