SIGA Technologies, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. SIGA develops antiviral and biodefense products; its lead candidate, ST-246, is being produced for the U.S. Strategic National Stockpile. The filing is unaudited.
Financial results
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Grant revenue | $2.70 million | $2.49 million | $4.17 million | $4.19 million |
| Operating expenses | $9.03 million | $13.60 million | $16.05 million | $21.76 million |
| Operating loss | $6.33 million | $11.11 million | $11.88 million | $17.57 million |
| Net income (loss) | $(4.35) million | $23.84 million | $(8.40) million | $19.14 million |
| Basic loss per share | $(0.08) | $0.47 | $(0.16) | $0.38 |
Grant revenue was essentially flat year over year in the first half. Lower SG&A—primarily reduced non-cash stock compensation—offset higher R&D spending. The prior-year profits chiefly reflected a $32.9 million income-tax benefit; 2012 tax benefits were $1.7 million for Q2 and $3.6 million for the first half.
Cash, liquidity and balance sheet
- Cash and cash equivalents were $34.9 million at June 30, down from $49.3 million at December 31, 2011.
- First-half operating cash use was $12.7 million, versus $8.8 million in 2011. Investing activities used $1.6 million, including $1.3 million posted as collateral for a litigation surety bond; financing provided approximately $2,000.
- Current assets were $46.6 million and current liabilities $14.5 million. Deferred revenue was $43.0 million, largely reflecting BARDA advance payments that remain subject to performance and delivery conditions.
- Inventory was $8.9 million, consisting of work in process for ST-246; deferred contract costs were $1.9 million. No debt balance is separately identified on the balance sheet.
- Management said existing funds, expected BARDA contract cash flows and government grants should support operations for at least the next 12 months, while noting future financing may be needed and is not assured.
Business, outlook and material risks
- The five-year BARDA base contract is approximately $435 million for two million courses of ST-246: 1.7 million courses purchased by BARDA and 300,000 courses contributed by SIGA using prior federal funding. The option for up to 12 million additional courses was deleted; other options remain at BARDA’s discretion.
- SIGA had received approximately $41 million in BARDA advances. Revenue cannot be recognized until contract conditions are met; amounts are refundable if SIGA fails to satisfy them. The filing reports $2.0 million recorded as accounts receivable and deferred revenue for services, payable after minimum delivery thresholds.
- Four active government research grants could provide approximately $23.5 million in aggregate future funding for specified projects, including options subject to government discretion and termination rights.
- The Delaware Court of Chancery awarded PharmAthene 50% of SIGA’s ST-246 net profits after the first $40 million, for ten years following the first commercial sale, plus fees and expenses. SIGA accrued $2.4 million for the fee-and-expense award and appealed; PharmAthene cross-appealed. SIGA warned the judgment could materially adversely affect future results unless the appeals materially change the profit-sharing ruling. The ultimate outcome and financial impact remain uncertain.
- Other risks include BARDA contract modification or cancellation, product safety and efficacy, regulatory approval, grant funding, commercialization, financing needs, and potential impairment or realization of deferred tax assets. SIGA stated it had no off-balance-sheet arrangements.
Important facts for investors to verify
- Progress of the PharmAthene appeals, the final profit-sharing obligation and related cash exposure.
- ST-246 manufacturing, delivery milestones, contract conditions and timing of revenue recognition under BARDA.
- Whether cash burn, grant funding and contract receipts support operations beyond management’s stated 12-month horizon.
- Inventory recoverability and deferred tax asset assumptions, which depend on future commercialization and taxable income.