SIGA TECHNOLOGIES INC quarterly report, Q1 FY2020

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SIGA Technologies, Inc. — Q1 2020 Form 10-Q

Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless stated otherwise. SIGA is a commercial-stage pharmaceutical company focused on biodefense and health security; its lead product is oral TPOXX, used to treat smallpox.

Financial performance and liquidity

  • Revenue: $2.62 million, down from $10.46 million. Product sales and supportive services were $0.11 million versus $7.14 million; R&D revenue was $2.51 million versus $3.32 million.
  • Profitability: Operating loss was $4.00 million, compared with operating income of $2.19 million. Net loss was $8.90 million ($0.11 per share), versus net income of $1.63 million ($0.02 per share).
  • Key unusual expense: The March 2020 Term Loan repayment produced a $4.98 million extinguishment loss. Interest expense was $3.02 million, down from $3.93 million. An income-tax benefit of $2.70 million partly offset the pretax loss.
  • Cash flow: Operating activities provided $3.32 million, versus less than $0.1 million in Q1 2019. Investing used $0.02 million; financing used $86.92 million, primarily for debt repayment.
  • Cash and debt: Cash and cash equivalents were $77.38 million at March 31, up from $65.25 million at year-end. Restricted cash fell from $95.74 million to zero after the Term Loan was repaid. The company paid approximately $87.2 million in total and reported no current debt at quarter-end.
  • Balance sheet: Total assets were $118.57 million, total liabilities $30.43 million, and stockholders’ equity $88.14 million. Inventory increased to $16.34 million from $9.65 million; deferred revenue was $13.60 million.
  • Margins: The filing does not provide a highlighted consolidated margin measure; no margin conclusion is inferred here.

Material changes and business developments

  • The revenue decline chiefly reflected no TPOXX product deliveries in Q1 2020, compared with delivery of about 23,000 courses in Q1 2019. Q1 2020 revenue came primarily from contract-funded R&D and other activities.
  • R&D expense fell 21% to $3.15 million, mainly from lower IV TPOXX vendor costs, partly offset by higher oral TPOXX development costs. SG&A remained approximately $3.18 million.
  • On March 13, SIGA voluntarily repaid and terminated its Term Loan. The repayment released restrictions on cash accounts.
  • The 19C BARDA contract has potential payments of approximately $602.5 million: $51.7 million in the base period, $127.1 million associated with exercised options, and up to $423.7 million from unexercised options. As of April 29, 2020, BARDA exercised three options for delivery of approximately 363,070 oral TPOXX courses, bringing the related total consideration to approximately $112.5 million. These options are subject to BARDA’s discretion and the exercise occurred after quarter-end.
  • The 2011 BARDA contract expires in September 2020. Up to $72.7 million of remaining options could be exercised, at BARDA’s discretion.
  • The Department of Defense increased the value of its five-year PEP label-expansion R&D contract to $19.5 million in February 2020; approximately $19.2 million remained available for future funding at quarter-end.
  • On April 3, 2020, SIGA announced a Canadian contract through Meridian for up to 15,325 courses over four years, with a stated total value of $14.3 million. Initial purchases are contingent on the terms disclosed, and further purchases depend on Canadian regulatory approval.

Outlook, risks, and contingencies

  • Management said COVID-19 had not materially disrupted TPOXX manufacturing or the supply chain as of the filing, and had not materially affected liquidity or day-to-day operations. It reported slower execution of government contract work as government staff focused on the pandemic, and expected delays in some R&D activities, including clinical trials. Management could not assure the extent of future effects.
  • Future BARDA and other government-contract proceeds are uncertain: options may not be exercised, and government contracts may be modified, restructured, or terminated for convenience. The filing reports $47.0 million in remaining performance obligations, distinct from unexercised contract options.
  • Purchase commitments were approximately $22.5 million at March 31, 2020. The filing says these commitments do not exceed planned commercial and R&D needs.
  • SIGA authorized repurchases of up to $50 million through December 31, 2021 and bought 225,094 shares for approximately $1.0 million during Q1. Approximately $49.0 million remained under the program at March 31.
  • The liability-classified warrant was valued at $6.13 million and covers approximately 1.5 million shares. Its value is sensitive to SIGA’s share price; management estimated each $1 increase in the share price would increase intrinsic value by approximately $1.5 million.
  • The company reported no off-balance-sheet arrangements. Management stated that disclosure controls and procedures were effective as of March 31, 2020.

Important facts for investors to verify

  • Whether and when BARDA exercises additional options, and SIGA’s timing and cost of fulfilling the April 2020 procurement options.
  • Expected delivery and revenue-recognition timing for deferred amounts, including raw-material and IV bulk-drug-substance funding.
  • Whether COVID-19 causes further government-contract, clinical-trial, or supply-chain delays beyond those described in the filing.
  • Funding and contract status after the 2011 BARDA contract’s September 2020 expiration, and the progress and regulatory prospects for the Canadian contract and PEP program.
  • Cash use following debt repayment, including future share repurchases, and the effect of the warrant liability and remaining purchase commitments.