SIGA Technologies, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Unaudited consolidated results; filed August 5, 2013.
Business context
SIGA develops and commercializes treatments for high-priority infectious diseases. Its lead product, Arestvyr (tecovirimat/ST-246), is an investigational antiviral and is not FDA-approved. Under its BARDA contract, SIGA is to deliver 1.7 million courses to the U.S. Strategic National Stockpile and contribute 300,000 courses. The contract’s base value is approximately $463 million, including development and supportive activities.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue, primarily R&D contracts and grants | $0.965 million | $2.701 million | $2.293 million | $4.167 million |
| Operating expenses | $6.597 million | $9.034 million | $13.732 million | $16.048 million |
| Operating loss | $5.633 million | $6.332 million | $11.439 million | $11.881 million |
| Net loss | $3.061 million | $3.767 million | $7.937 million | $8.382 million |
| Loss per share, basic and diluted | $0.06 | $0.07 | $0.15 | $0.16 |
| Cash used in operating activities | — | — | $6.893 million | $12.733 million |
- Gross margin is not clearly stated; BARDA product-delivery revenue was deferred, so reported revenue largely reflects research and development contracts and grants.
- At June 30, cash and cash equivalents were $32.963 million, versus $32.017 million at December 31, 2012. Current assets were $145.614 million and current liabilities $30.963 million.
- Debt was approximately $12.0 million, compared with $5.0 million at December 31, 2012; SIGA drew $7.0 million under a revolving credit line in May. Balance-sheet current and long-term debt totaled approximately $11.936 million.
- Deferred revenue was $119.069 million. The company also reported $57.597 million of current receivables from long-term contract and $14.235 million of deferred costs.
Changes versus prior period
- Quarterly and six-month revenue fell 64% and approximately 45%, respectively, mainly because of lower federal contract and grant activity.
- R&D expense declined 40% in Q2 and 30% for the six-month period, principally reflecting lower Arestvyr and other antiviral development costs. SG&A fell 9% in Q2 but rose 9% for the six months, including higher employee compensation and stock-based compensation.
- Six-month operating cash use improved by approximately $5.8 million year over year. Cash flow was affected by significant contract-related working-capital movements, including Arestvyr deliveries and deferred revenue.
- Q2 2013 included a $0.980 million non-cash gain from a decrease in warrant fair value; six-month 2013 included only a $0.006 million gain. The 2012 comparative figures were revised for warrant-liability accounting; the revisions were non-cash.
Outlook, risks and unusual items
- By July 31, SIGA had delivered approximately 590,000 courses, meeting a key BARDA contract requirement. It invoiced approximately $79 million for delivered product and approximately $5 million for R&D services and expected payment in Q3 2013. These were expectations as of the filing, not reported subsequent receipts.
- SIGA expected to begin recognizing revenue in Q3 for BARDA-reimbursable covered R&D services after delivery exceeded 500,000 courses; procurement cash receipts and related product costs were expected to remain deferred until the associated obligations were satisfied.
- Management believed BARDA proceeds, existing capital and continuing government grants and contracts would fund operations beyond the next 12 months. The company nevertheless reported cumulative losses and dependence on government funding.
- PharmAthene litigation remains a major uncertainty. Delaware’s Supreme Court affirmed SIGA’s breach of its duty to negotiate in good faith, but reversed the promissory-estoppel finding and equitable damages award. The case was remanded for possible expectation damages if proven with reasonable certainty and possible reconsideration of fees. SIGA recorded a $2.6 million contingency for fees, expenses and interest; the ultimate award was uncertain and could be materially higher.
- The company’s Arestvyr contract profits are subject to the litigation outcome. Other risks include BARDA contract modification or termination, regulatory and development uncertainties, inability to obtain funding, and delays or additional testing before potential FDA approval.
- Management concluded disclosure controls were ineffective at June 30, 2013 because of a material weakness in warrant accounting. The company had revised prior-period statements for warrants that should have been liabilities, and said it was redesigning quarterly controls.
Important facts for investors to verify
- Whether the expected Q3 BARDA payment of approximately $79 million was received, and the timing and recognition of related revenue and costs.
- The remand proceedings and any PharmAthene damages or fee award, including the impact on contract profits and deferred tax assets.
- Progress on the BARDA delivery schedule, remaining contract obligations, and any changes to the contract or government funding.
- Remediation of the warrant-accounting material weakness and the reliability of subsequent filings.
- Debt repayment terms, including repayment of revolving borrowings as eligible receivables are collected.