SIGA Technologies, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. SIGA develops treatments for serious medical needs and biothreats; its lead product is TPOXX (tecovirimat), an investigational smallpox antiviral being supplied to the U.S. Strategic National Stockpile under a BARDA contract. SIGA emerged from Chapter 11 on April 12, 2016.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue, entirely R&D contract and grant revenue | $1.90 million | $1.47 million | $3.17 million | $2.66 million |
| Operating loss | $9.28 million | $4.33 million | $16.34 million | $9.37 million |
| Net loss | $9.57 million | $6.57 million | $20.01 million | $13.73 million |
| Loss per share, basic and diluted | $0.18 | $0.12 | $0.37 | $0.26 |
| Cash used in operating activities | Not separately stated | Not separately stated | $34.68 million | Cash provided: $13.93 million |
- At June 30, cash and cash equivalents were $78.02 million, down from $112.71 million at year-end 2015. Accounts receivable were $34.49 million; inventory was $28.93 million; and current assets totaled $143.57 million.
- Current liabilities were $216.88 million, including a $203.65 million current PharmAthene liability. Total liabilities were $505.74 million, against a stockholders’ deficit of $304.07 million. The filing reports no outstanding liability-classified warrants; it does not identify interest-bearing debt at June 30.
- Deferred revenue was $288.29 million and deferred BARDA contract costs were $56.19 million. Delivery-related receipts and costs are deferred because of product-replacement obligations; therefore, reported revenue does not reflect the full value of TPOXX deliveries. The filing does not provide a clear gross-margin figure.
Changes versus the prior comparable periods
- Revenue increased 29.6% in Q2 and 19.2% for the six-month period, primarily from higher federal TPOXX development-contract revenue, partly offset by lower dengue research grant revenue.
- SG&A rose 44.2% in Q2 to $3.74 million and 12.9% for the half year to $6.39 million, mainly due to professional fees for strategic initiatives. Six-month R&D expense decreased 5% to $5.48 million.
- Net loss widened in both periods. Higher PharmAthene-related interest expense was a major factor: $4.26 million in Q2 and $7.18 million for the six months, compared with $13,000 and $27,000, respectively, in 2015.
- Operating cash flow shifted from $13.93 million provided in the first half of 2015 to $34.68 million used in 2016. The 2016 use included increased receivables and inventory, manufacturing payments, Chapter 11 costs, creditor payments, and PharmAthene-related payments.
Outlook, material events and risks
- PharmAthene claim and going concern: The Delaware judgment was affirmed, and the accrued claim, including interest and fees, was approximately $204 million at June 30. The Plan allows cash payment, issuance of 100% of newly issued SIGA shares to PharmAthene (with existing shares canceled for no consideration), or another mutually agreed treatment. SIGA disclosed substantial doubt about its ability to continue as a going concern.
- After quarter-end, SIGA notified PharmAthene of its intention to pay the claim in cash and paid $20 million on July 8. A joint motion proposed extending the treatment deadline to November 30, 2016, conditional on a further $100 million payment by October 19; a court hearing was scheduled for August 15. The filing cautions that financing or rights-offering plans may not be completed and that existing shareholders could lose their investment.
- The Plan imposes broad operating and financial covenants. A covenant default could require cash above $50 million to be placed in collateral, grant liens, install a PharmAthene-appointed monitor, and reconstitute the board with a PharmAthene-appointed majority.
- BARDA: The contract’s total value remained approximately $470 million. A June modification shifted $61.5 million from the FDA-approval holdback to payments for manufacture and delivery and revised a $20.5 million milestone. SIGA received $32.6 million in July for prior deliveries, invoiced $21.3 million for July deliveries, and invoiced $20.5 million for the milestone on August 2. As of June 30, $160.6 million remained eligible under the Base Contract, subject to delivery, milestone, and FDA-approval conditions. BARDA options are discretionary and may not be exercised.
- SIGA expected to deliver approximately 845,000 additional TPOXX courses from August 2016 through late 2017, including courses at no additional cost to BARDA. The revised provisional dosage is expected to create significant incremental production costs. TPOXX was not FDA-approved; regulatory review, study outcomes, contract performance, funding, and product replacement obligations remain material risks.
- No formal earnings guidance was provided. Management stated that ordinary-course activities were not expected to be materially affected by the Plan covenants, but the filing’s going-concern disclosure and funding uncertainty qualify that outlook.
Important facts for investors to verify
- Whether SIGA can fund and resolve the approximately $204 million PharmAthene claim by the applicable Plan deadlines, and the resulting effect on existing shareholders.
- Results of the proposed deadline extension, any required additional PharmAthene payment, and the status and terms of any debt issuance or rights offering.
- Collection and timing of BARDA receivables and milestone payments, future deliveries, FDA approval, and any exercise of BARDA options.
- The cash cost and financial impact of dosage supplementation and product-replacement obligations, including how they affect liquidity and deferred contract balances.