SIGA Technologies, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. SIGA develops treatments for unmet medical needs and biothreats; its lead product, Tecovirimat, is an investigational smallpox antiviral supplied under a U.S. government contract. SIGA was operating as a debtor-in-possession in Chapter 11, filed September 16, 2014.
Financial results and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $1.33 million | $1.10 million | $3.99 million | $2.30 million |
| Operating expenses | $4.96 million | $182.83 million | $16.99 million | $194.41 million |
| Operating loss | $3.63 million | $181.73 million | $13.00 million | $192.11 million |
| Net loss | $5.63 million | $240.08 million | $19.36 million | $246.41 million |
| Loss per share, diluted | $0.10 | $4.49 | $0.36 | $4.62 |
- Revenue was from research and development contracts and grants; product-delivery receipts under the BARDA contract were generally recorded as deferred revenue. No conventional product gross margin is presented.
- Operating cash flow was positive $27.6 million for the first nine months, versus $18.6 million a year earlier. Cash increased $29.6 million to $129.3 million; the increase included BARDA receipts and substantial working-capital movements, including deferred revenue.
- At September 30, cash was $129.3 million, total assets $197.2 million, total liabilities $461.8 million, and stockholders’ deficit $264.7 million. Deferred revenue was $255.1 million; liabilities subject to compromise were $192.6 million.
- The $2.0 million GE term loan was repaid in January 2015; no current portion of long-term debt remained at quarter-end.
Changes versus the prior comparable period
- Revenue rose 20.7% in Q3 and 73.4% for the nine months, driven by increased Tecovirimat and dengue research funding.
- Q3 SG&A fell 46.5% to $2.32 million; nine-month SG&A declined 21.7% to $7.99 million. Q3 R&D decreased 10.8%, while nine-month R&D increased 4.6%.
- Net losses were far smaller than in 2014, principally because 2014 included a $175.5 million litigation accrual and large related tax effects. 2015 included $5.9 million of nine-month reorganization expenses.
- Cash increased from $99.7 million at December 31, 2014. Inventory declined from $19.0 million to $1.1 million, while deferred costs rose from $32.9 million to $54.3 million.
Outlook, significant matters, and risks
- PharmAthene litigation: A January 2015 Chancery Court judgment awarded PharmAthene $194.65 million, plus post-judgment interest then stated at $30,663.89 per day. SIGA appealed and PharmAthene cross-appealed; the Delaware Supreme Court heard argument October 7, 2015 and had not ruled by the filing date. SIGA accrued approximately $187.8 million for expectation damages and $3.2 million for legal and expert fees. Enforcement was stayed in connection with Chapter 11.
- Chapter 11 and going concern: SIGA had not filed a reorganization plan. The filing states that the litigation outcome and bankruptcy proceedings raise substantial doubt about the company’s ability to continue as a going concern, and that a plan could materially change reported asset and liability amounts or classifications. Management nevertheless expected existing resources and government funding to support operations beyond the next 12 months.
- BARDA contract: The contract is valued at approximately $463 million and runs through September 2020. BARDA had paid $249.2 million related to manufacture and delivery; 1.4 million courses had been delivered cumulatively. The contract requires dosage supplementation following a change in provisional dosage, at no additional charge to BARDA, and SIGA expected significant incremental production costs. BARDA had not exercised contract options.
- Tecovirimat was not FDA-approved. Further dosage guidance, regulatory requirements, contract performance, government funding, and the appeal and bankruptcy outcomes could materially affect results and liquidity.
- In April 2015, the bankruptcy court authorized assumption of the BARDA contract, the Albemarle manufacturing agreement, and the Corvallis facility lease. The manufacturing amendment improved future API pricing; the lease amendment reduced rent by approximately $35,000 per month.
- SIGA was delisted from Nasdaq in March 2015 and traded on OTC Markets under “SIGAQ.” Management reported disclosure controls were effective at a reasonable level of assurance.
Important facts for investors to verify
- Any subsequent Delaware Supreme Court ruling, updated judgment amount and interest, and the status and treatment of PharmAthene claims in Chapter 11.
- Whether SIGA filed and obtained confirmation of a reorganization plan, including the plan’s treatment of creditors and existing equity.
- Cash needs and production costs for dosage supplementation, remaining BARDA deliveries, revenue recognition, and any BARDA options or contract changes.
- Whether Tecovirimat receives FDA approval and whether additional regulatory requirements alter the delivery timetable or economics.
- Reconciliation and allowed amounts of bankruptcy claims, deferred revenue, deferred costs, and the reported going-concern uncertainty.