SIGA Technologies, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. SIGA is a commercial-stage pharmaceutical company focused on health security; its lead product is oral TPOXX, an antiviral for smallpox. Amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $44.3 million | $8.1 million | $87.2 million | $22.5 million |
| Operating income | $32.9 million | $0.7 million | $57.7 million | $1.1 million |
| Net income (loss) | $24.2 million | ($1.2 million) | $36.2 million | ($2.7 million) |
| Diluted EPS | $0.31 | ($0.03) | $0.45 | ($0.09) |
| Operating margin | 74.3% | 8.1% | 66.1% | 5.1% |
- Revenue mix: Q3 product sales and supportive services were $41.8 million, primarily from delivery of about 134,000 oral TPOXX courses to the U.S. Strategic National Stockpile. Nine-month product revenue was $80.5 million, including $77.7 million from BARDA deliveries and $2.3 million from Canada. Research and development revenue was $2.5 million in Q3 and $6.7 million year to date.
- Cash flow: Operating activities provided $25.6 million in the first nine months, versus $3.9 million used in 2019. Investing activities used $0.02 million. Financing activities used $107.9 million, primarily for debt repayment and share repurchases. Accounts receivable increased by $36.2 million and was a significant operating cash use.
- Liquidity and debt: September 30 cash and cash equivalents were $78.7 million, with no restricted cash; current assets were $131.1 million and current liabilities $16.3 million. The company voluntarily repaid its Term Loan in March for approximately $87.2 million, including principal, premium, fees and accrued interest; no debt remained at quarter-end. Total liabilities were $28.5 million.
- Equity actions: SIGA repurchased 3.7 million shares for $21.8 million during the first nine months under a $50 million authorization through December 31, 2021. Approximately $28.2 million remained available at September 30.
Material changes and unusual items
- Revenue rose substantially year over year, driven mainly by larger oral TPOXX deliveries under the 2019 BARDA contract. Q3 deliveries were about 134,000 courses versus about 12,700 in Q3 2019; nine-month deliveries were about 251,000 versus about 35,700.
- R&D revenue declined year over year: the 2019 comparison included a $3.3 million cumulative catch-up adjustment related to reimbursement rates, and IV TPOXX development activity also declined. R&D expense decreased 38% in Q3 and 15% year to date.
- Q3 SG&A increased 12%, chiefly from European marketing-authorization application regulatory costs and professional fees. Nine-month SG&A rose 9%, including Canadian-sale commission and higher regulatory costs.
- Nine-month results included a $5.0 million loss on extinguishment of the Term Loan. Interest expense fell to $3.0 million from $11.9 million year over year, and was zero in Q3 after repayment. Fair-value remeasurement of the liability-classified warrant produced a $2.9 million nine-month loss, versus a $4.8 million gain in 2019.
Outlook, commentary and risks
- Contracts and potential revenue: The 2019 BARDA contract contemplates up to approximately $602.5 million in total payments. About $127.1 million of options had been exercised and up to $423.7 million remained unexercised; BARDA decides at its sole discretion whether to exercise them. Remaining performance obligations across active contracts totaled $100.9 million at September 30. These amounts are not guaranteed revenue.
- SIGA delivered about 112,000 additional courses to the Strategic Stockpile in October 2020; related revenue was expected in Q4. It also received the $37.3 million receivable for the September delivery in October.
- The DoD increased the value of the post-exposure prophylaxis research contract to $26 million, with $23 million currently funded and up to approximately $22.5 million of future funding described in the filing. The Canadian contract permits purchases of up to 15,325 courses over four years, subject to options and Canadian regulatory approval for remaining purchases.
- No numerical full-year revenue or earnings guidance is provided. Management said COVID-19 had not materially disrupted TPOXX manufacturing, supply, liquidity or day-to-day operations as of filing, but expected delays in some R&D activities, including those involving clinical trials. It cautioned that prolonged or more severe effects could affect operations and cash flows.
- Key risks include BARDA or other government customers not exercising options, contract modification or cancellation, performance or delivery delays, regulatory approval and clinical-development uncertainty, international market development, intellectual-property challenges, and possible COVID-19 effects on suppliers, research and government-contract execution. Government contracts may be terminated or restructured for convenience.
- The company reported approximately $31.3 million in purchase commitments. It also disclosed product replacement obligations under the older BARDA contract, though the FDA-approval-related replacement risk was described as remote. Management said pending legal matters, if any, were not expected to materially harm results or financial condition. Disclosure controls were judged effective; no material change in internal control was reported.
Important facts for investors to verify
- Whether BARDA exercises remaining procurement and IV TPOXX options, and the timing and economics of future deliveries.
- Collection and conversion to cash of the substantial receivables from product deliveries, and the effects of delivery timing on quarterly cash flow.
- Regulatory and development progress for IV TPOXX, the PEP label expansion and the European marketing-authorization application, including any COVID-related delays.
- Whether the Canadian market obtains regulatory approval and exercises its remaining purchase options, and the commercial terms retained by Meridian.
- The impact of future share repurchases on cash available for operations and strategic needs, and changes in the fair value of the warrant liability.