SIGA Technologies, Inc. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. SIGA develops treatments for serious medical needs and biothreats; its lead product, investigational antiviral Tecovirimat, is being supplied to the U.S. Strategic National Stockpile under a BARDA contract.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $1.1 million | $2.3 million | $2.3 million | $4.6 million |
| Net loss | $240.1 million | $4.9 million | $246.4 million | $12.8 million |
| Loss per share, basic and diluted | $4.49 | $0.09 | $4.62 | $0.25 |
- Q3 operating expenses were $182.8 million, including a $175.5 million PharmAthene litigation accrual. The nine-month total was $194.4 million, including the same litigation accrual. The reported losses also included a non-cash tax provision of approximately $58.0 million for Q3 and $53.9 million for the nine-month period, reflecting a valuation allowance against deferred tax assets.
- SG&A rose 34% in Q3 to $4.3 million; nine-month SG&A increased 8% to $10.1 million. R&D fell 36% in Q3 to $2.7 million and 28% for nine months to $7.9 million, mainly due to lower compensation and vendor costs.
- Cash and cash equivalents were $104.7 million at September 30, 2014, up from $91.3 million at year-end; an additional $4.0 million was restricted as loan collateral. Nine-month operating cash flow was $18.6 million, versus $72.8 million in 2013. Investing activities used $3.5 million and financing activities used $1.8 million.
- Total assets were $164.7 million and total liabilities $392.7 million, including $386.9 million of liabilities subject to compromise. Stockholders’ deficit was $228.0 million. Term debt was approximately $2.5 million; the revolving commitment was terminated.
- BARDA-related direct costs deferred on the balance sheet were $32.8 million. Revenue from product deliveries remains deferred pending satisfaction of replacement obligations; therefore, the filing does not provide a clear current-period product gross margin.
Material changes and business developments
- On September 16, 2014, SIGA filed for Chapter 11 protection and continued operating as a debtor-in-possession. The filing was intended to preserve operations and BARDA performance while SIGA pursued an appeal in its dispute with PharmAthene.
- The company recorded $386.9 million of liabilities subject to compromise, including $203.5 million of deferred revenue and a $174.9 million PharmAthene expectation-damages accrual. These bankruptcy-related classifications and claim amounts may change.
- Revenue declined 52% in Q3 and 50% over nine months, primarily because of lower government grant and contract research revenue, including the transfer of the Lassa fever grant and assets to Kineta Four in July 2014.
- Approximately 1.3 million Tecovirimat courses had been accepted into the Strategic Stockpile, including 259,000 courses supplied at no cost under the contract. SIGA reported approximately $136.8 million received for deliveries and $61.5 million in upfront and milestone payments.
- The company sold certain laboratory equipment, generating $0.6 million in gross proceeds during the first nine months. Its optimization program targeted $6 million of annual operating-expense reductions; substantial implementation occurred by year-end 2013.
Outlook, risks, and contingencies
- Management said existing capital, BARDA receipts, and continuing government contracts and grants were expected to support operations beyond the next 12 months. It also stated that the PharmAthene exposure and Chapter 11 costs create substantial doubt about the company’s ability to continue as a going concern; available resources may not cover the ultimate litigation outcome.
- PharmAthene’s damages calculation was approximately $233 million, including prejudgment interest, while SIGA’s was approximately $173 million. SIGA accrued $175 million for expectation damages and separately accrued $3.2 million for fees and expenses. The court had not set a final judgment amount; SIGA said it intended to appeal and argued that any recovery should instead be limited to approximately $200,000. The ultimate loss could differ materially from the accrual.
- No plan of reorganization had been filed, and confirmation and emergence were uncertain. The unsecured creditors’ committee may take positions contrary to SIGA’s. The company’s Nasdaq listing was conditionally maintained, with emergence from Chapter 11 and initial-listing compliance required by March 16, 2015; continued listing was not assured.
- Tecovirimat was not FDA-approved. BARDA contract options are discretionary, and the government may terminate or restructure research funding. Product performance, regulatory approval, contract execution, litigation, bankruptcy proceedings, and access to financing remain material risks.
Key facts investors should verify
- Subsequent court rulings, final PharmAthene damages and fee awards, appeal status, and whether the accrual remains adequate.
- Chapter 11 plan terms, allowed creditor claims, funding needs, and progress toward emergence by the Nasdaq deadline.
- Cash availability, including restrictions and bankruptcy-related cash requirements, alongside debt service and ongoing professional fees.
- BARDA delivery acceptance, contract performance and options, deferred-revenue recognition, and costs required to complete deliveries.
- Whether revenue trends, operating costs, and the company’s going-concern assessment change in subsequent filings.