SIGA TECHNOLOGIES INC quarterly report, Q2 FY2020

SIGA Technologies, Inc. — Q2 2020 Form 10-Q

Reporting period: Three and six months ended June 30, 2020. SIGA is a commercial-stage pharmaceutical company focused on health security; its lead product is oral TPOXX, an antiviral for smallpox.

Financial performance

MetricQ2 2020Q2 2019Six months 2020Six months 2019
Revenue$40.3 million$3.9 million$43.0 million$14.4 million
Operating income (loss)$28.8 million($1.7 million)$24.8 million$0.5 million
Net income (loss)$20.9 million($3.2 million)$12.0 million($1.5 million)
Diluted EPS$0.26($0.05)$0.15($0.06)
  • Q2 product sales and supportive-services revenue was $38.6 million, including $36.2 million from delivery of about 117,000 TPOXX courses to the U.S. Strategic National Stockpile and $2.3 million from a Canadian order. Product cost was $4.8 million; the resulting product gross margin was approximately 87.6%.
  • Calculated operating margins were approximately 71% in Q2 and 58% for the first half. These periods include contract research revenue and, for 2020, product deliveries.
  • Six-month operating cash flow was negative $5.8 million, versus negative $4.3 million in 2019. The increase in receivables used $32.4 million of cash, partly offset by $8.3 million of deferred-revenue inflows.
  • Cash and cash equivalents were $53.1 million at June 30, versus $65.2 million at year-end 2019. Restricted cash declined from $95.7 million to zero after repayment of the term loan. Current assets were $105.1 million and current liabilities $15.6 million (about 6.8x current ratio).
  • No debt remained at June 30. SIGA prepaid the term loan on March 13 for approximately $87.2 million, including principal, fees, interest and premium; it recorded a $5.0 million extinguishment loss. Six-month interest expense was $3.0 million, down from $7.9 million.

Material changes and business developments

  • Q2 revenue rose from $3.9 million to $40.3 million, primarily due to TPOXX product deliveries under the 2018 BARDA contract; there were no product deliveries in Q2 2019. First-half product revenue increased to $38.7 million from $7.1 million.
  • First-half R&D revenue fell to $4.2 million from $7.2 million, mainly because the 2019 comparison included a $3.3 million cumulative catch-up adjustment to a BARDA contract. Q2 2020 R&D revenue was $1.7 million versus $3.9 million.
  • The 2018 BARDA contract contemplated up to approximately $602.5 million in payments: $127.1 million related to exercised options and up to $423.7 million to unexercised options, which BARDA may elect not to exercise. Remaining performance obligations across contracts were $142.8 million.
  • The Department of Defense increased the value of the TPOXX post-exposure-prophylaxis research contract to $26 million in May 2020, with $23 million then available. The contract runs through July 2025.
  • SIGA repurchased 2.8 million shares for $16.2 million during the first half, including 2.55 million shares for $15.2 million in Q2. Its authorized program permits up to $50 million of repurchases through December 31, 2021.

Outlook, risks and unusual items

  • No quantified company-wide earnings or revenue guidance is provided. Future BARDA option exercises are discretionary; the company warns that options may not be exercised and government contracts may be modified, delayed or terminated.
  • SIGA reported that COVID-19 had not materially disrupted TPOXX manufacturing or supply and had not adversely affected liquidity as of the filing. It expected some delays in R&D activities, including clinical trials, and noted that government staff diverted to the pandemic had slowed contract execution. Prolonged disruption could affect business and cash flows.
  • Other risks include reliance on government procurement, development and regulatory uncertainty for new indications and IV TPOXX, international-market adoption, and intellectual-property challenges. The company had approximately $21.3 million in purchase commitments.
  • Net income includes noncash warrant fair-value effects: a $1.6 million loss in the first half of 2020, compared with a $3.8 million gain in 2019. The warrant liability was $7.8 million at June 30 and is sensitive to SIGA’s share price.
  • Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

  • Delivery acceptance, collection timing and receivables related to the 117,000-course BARDA shipment; the $32.6 million invoice was collected in July.
  • Timing and likelihood of BARDA exercising remaining options, and the company’s ability to fulfill procurement and manufacturing obligations.
  • Cash conversion and working-capital trends, especially the large receivables balance and deferred revenue.
  • Effects of COVID-19 on clinical and research timelines, government contract activity and the supply chain.
  • Future capital allocation, including further share repurchases, alongside liquidity needs and contract commitments.