SIGA Technologies, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. SIGA develops and commercializes products for unmet medical needs and biothreats; its lead product is investigational antiviral Tecovirimat (ST-246), being delivered to the U.S. Strategic National Stockpile under a BARDA contract. SIGA was operating as a debtor-in-possession in Chapter 11.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Research and development revenue | $1.47 million | $0.65 million | $2.66 million | $1.20 million |
| Operating expenses | $5.80 million | $5.40 million | $12.03 million | $11.58 million |
| Operating loss | $4.33 million | $4.75 million | $9.37 million | $10.38 million |
| Net loss | $6.57 million | $2.95 million | $13.73 million | $6.33 million |
| Loss per share, basic and diluted | $0.12 | $0.06 | $0.26 | $0.12 |
| Operating cash flow | Not separately presented for the quarter | $13.93 million | $8.52 million |
- Revenue increased 126% in Q2 and 122% for the six-month period, reflecting higher reimbursements under federal development contracts and grants, including dengue research. Revenue was from research and development activities; the filing does not report product-sales revenue.
- Q2 net loss increased year over year, principally reflecting $2.15 million of Chapter 11 reorganization costs and the absence of the prior-year tax benefit. Six-month reorganization costs were $3.93 million. Operating loss narrowed versus both comparable periods.
- At June 30, cash and cash equivalents were $115.66 million, versus $99.71 million at December 31, 2014. Current assets were $133.17 million and current liabilities $8.02 million. The company had repaid its GE term loan in January 2015; no current portion of long-term debt remained at quarter-end.
- Total liabilities were $441.85 million, including $192.64 million classified as liabilities subject to compromise; stockholders’ deficit was $259.39 million. Deferred revenue was $233.74 million, while deferred contract costs were $45.96 million.
- Six-month operating cash flow included approximately $29.7 million received from BARDA. Cash-flow movements also reflected changes in deferred revenue, deferred costs, inventory, and liabilities subject to compromise; operating cash flow should not be read as equivalent to recurring earnings.
Material changes and developments
- BARDA contract and grant revenue increased, while SG&A declined modestly: Q2 SG&A was down 7% and six-month SG&A down 3% year over year. R&D expense rose 25% in Q2 and 11% for the six months, including higher vendor costs for Tecovirimat and a dengue candidate.
- BARDA and FDA discussions led to a revised provisional Tecovirimat dosage of 600 mg twice daily, versus once daily for earlier deliveries. SIGA expected to supplement previously delivered courses at no additional charge to BARDA and warned of significant incremental production costs. Approximately 1.5 million courses had been accepted into the Strategic Stockpile by June 30.
- In April, the Bankruptcy Court authorized assumption of the BARDA contract, the Albemarle manufacturing agreement as amended, and the Corvallis facility lease as amended. The Albemarle amendment improved future active pharmaceutical ingredient pricing. The lease amendment reduced rent by approximately $35,000 per month beginning May 1.
- SIGA’s shares were delisted from Nasdaq in March and began trading on OTC Markets under “SIGAQ.”
Outlook, risks, and contingencies
- Chapter 11 and going concern: Management stated that existing capital, BARDA funding, and ongoing government contracts and grants were expected to support operations beyond the next twelve months. However, the filing states that the PharmAthene judgment and Chapter 11 proceedings raise substantial doubt about the company’s ability to continue as a going concern. No reorganization plan had been filed; on August 3, 2015, SIGA sought an extension of its plan-filing and solicitation exclusivity periods. The plan’s terms, confirmation, and treatment of claims and equity remained uncertain.
- PharmAthene litigation: A January 2015 Delaware judgment awarded PharmAthene $194.65 million, with post-judgment interest stated at $30,663.89 per day, subject to periodic adjustment. SIGA accrued approximately $187.8 million for expectation damages and separately accrued $3.2 million for legal and expert fees. SIGA appealed and PharmAthene cross-appealed; briefing was complete, but oral argument had not been scheduled. The outcome was uncertain, and the Chapter 11 stay barred enforcement at that time.
- BARDA contract: The contract was described as worth approximately $463 million, including $409.8 million for manufacture and delivery and $54 million of potential reimbursements. BARDA had not exercised contract options as of June 30. Tecovirimat was not FDA-approved; the provisional dosage could change with further FDA guidance. Performance, replacement obligations, and eventual recognition of deferred revenue and costs carry uncertainty.
- The filing also identifies risks related to government contract performance or cancellation, regulatory approval and testing, funding, intellectual property, Chapter 11 costs, and the possibility that deferred amounts may not be recognized as revenue. No specific earnings or revenue guidance was provided.
Most important facts for investors to verify
- Progress and outcome of SIGA’s appeal and PharmAthene’s cross-appeal, including any change to the judgment, interest, or allowed bankruptcy claim.
- Status and proposed treatment of creditors and equity in any Chapter 11 plan, and whether the court grants the requested exclusivity extension.
- Cash availability and operating needs as Tecovirimat dosage supplementation and manufacturing obligations proceed.
- BARDA acceptance, contract performance, any exercise of options, and the timing and accounting for deferred revenue and deferred costs.
- Regulatory developments for Tecovirimat, including any further dosage guidance or FDA approval progress, and SIGA’s trading and liquidity conditions following its Nasdaq delisting.