SIGA Technologies, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. SIGA develops and commercializes products for high-priority infectious-disease threats. Its lead product, Arestvyr (tecovirimat/ST-246), is investigational and was not FDA-approved for smallpox or another indication as of the filing.
Financial results and position
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue, primarily R&D contracts and grants | $1.33 million | $1.47 million |
| Operating expenses | $7.13 million | $7.01 million |
| Operating loss | $5.81 million | $5.55 million |
| Net loss | $4.88 million | $4.62 million, revised |
| Basic and diluted loss per share | $0.09 | $0.09, revised |
| Net cash used in operating activities | $8.09 million | $6.49 million |
No product-sale revenue or gross margin was reported; BARDA-related revenue and costs were largely deferred under the contract’s accounting terms. At March 31, cash and cash equivalents were $24.69 million, down from $32.02 million at year-end. Total assets were $128.73 million and total liabilities were $103.23 million. Debt was approximately $4.92 million, including current and long-term portions. Deferred revenue was $83.51 million. The company reported no off-balance-sheet arrangements.
Working capital was approximately $88.38 million. However, $30.23 million of current assets consisted of BARDA contract receivables, and cash use exceeded financing inflows in the quarter. Approximately 52.12 million common shares were outstanding at quarter-end.
Business developments and changes versus prior period
- SIGA delivered approximately 190,000 Arestvyr courses to the Strategic National Stockpile in March. The company recorded about $30.2 million in contract receivables and deferred revenue associated with deliveries and services; it said BARDA payment would begin only after delivery of 500,000 courses.
- R&D revenue declined 9% year over year, primarily due to lower federal-contract revenue. SG&A rose 37% to $3.03 million, mainly reflecting higher stock compensation, employee compensation, and headquarters-change costs. R&D expense fell 18% to $3.65 million, largely from lower vendor costs.
- Operating cash use increased year over year, principally due to Arestvyr manufacturing and contract-support spending. Inventory declined to $13.15 million from $17.64 million at December 31, while deferred contract costs rose to $8.67 million from $2.84 million.
- The filing revised prior-period financial statements to account for certain warrants as liabilities and to recognize non-cash fair-value changes. Q1 2012 net loss was revised from $4.05 million to $4.62 million, and loss per share from $0.08 to $0.09. The company said the warrant adjustments did not affect Q1 2012 operating cash flow.
Outlook, risks, and unusual items
- Management said existing resources, expected BARDA contract funds, and ongoing government grants and contracts should support operations beyond the next 12 months. It expected to reach the 500,000-course delivery threshold and receive related payments during 2013. If delivery or payment did not occur in 2013, SIGA said it would need additional capital; failure to obtain funding could force operations to be scaled back or discontinued.
- In May 2013, BARDA notified SIGA that it had met requirements for a commercial-validation milestone. SIGA invoiced approximately $8.2 million and expected payment in Q2 2013. This was a subsequent event, not cash received by March 31.
- In PharmAthene litigation, a Delaware Chancery Court judgment awarded PharmAthene 50% of net profits from Arestvyr sales after SIGA reaches $40 million in net profits, for ten years after the first commercial sale, plus fees and expenses. Appeals and cross-appeals were pending; the Delaware Supreme Court heard argument in January 2013. SIGA recorded a $2.5 million contingency for fees, expenses, and interest and warned that the judgment could materially adversely affect future results.
- Disclosure controls were deemed ineffective as of March 31, 2013 because of a material weakness related to warrant accounting. Management described a remediation plan to redesign quarterly controls. The filing also reports a related-party services agreement and warrants issued to MacAndrews & Forbes in April 2013.
- Other key risks include product safety, efficacy and regulatory approval; dependence on government funding and BARDA performance; possible contract modification or cancellation; patent protection; litigation; and the effect of outstanding debt or government budget actions.
Investor facts to verify
- Whether SIGA reached the 500,000-course BARDA delivery threshold and received the related payments, including the approximately $8.2 million milestone payment expected in Q2.
- Updated cash runway, manufacturing spending, contract receivables, deferred revenue, and timing of BARDA cash collections.
- Outcome and financial impact of the PharmAthene appeal and cross-appeal, including any effect on Arestvyr profits and deferred tax assets.
- Completion and effectiveness of the warrant-accounting control remediation, and whether further financial-statement revisions are required.
- Arestvyr regulatory and development progress, and the availability and terms of future government funding or other financing.