SIGA Technologies, Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing also presents unaudited quarterly results, including the fourth quarter. Filed March 6, 2013.
Business context
SIGA develops antiviral medicines for high-priority infectious disease and biodefense threats. Its lead candidate, Arestvyr (tecovirimat, ST-246), is an investigational smallpox antiviral and is not FDA-approved. Revenue in 2012 was from U.S. government research and development contracts and grants; SIGA had not yet begun recognizing revenue from Arestvyr course deliveries under its BARDA procurement contract.
The modified BARDA contract has an approximately $463 million base value, including $54 million for development and support, and covers BARDA’s purchase of 1.7 million courses. SIGA is to contribute another 300,000 courses, manufactured primarily with prior federal funding. An originally included option for up to 12 million additional courses was removed after a competitor protest.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $9.0 million | $12.7 million |
| Operating expenses | $31.5 million | $44.1 million |
| Operating loss | $22.5 million | $31.4 million |
| Net income (loss) | $(14.5) million | $13.6 million |
| Operating cash flow | $(20.2) million | $25.6 million |
| Cash and cash equivalents | $32.0 million | $49.3 million |
Revenue fell 30%, primarily reflecting lower contract and grant activity, including the restructuring of an NIH Arestvyr contract and the conclusion of federal grants. The operating loss narrowed mainly because SG&A declined by $12.5 million, including a substantial reduction in non-cash stock compensation and the absence of a 2011 legal-contingency expense. R&D expense was broadly flat at $18.2 million. Operating loss was 251% of revenue in 2012, versus 247% in 2011.
The 2012 net loss contrasts with 2011 net income, which included a $36.0 million income-tax benefit and an $8.9 million warrant fair-value gain. In 2012 SIGA recorded a $7.8 million tax benefit and a $0.3 million warrant fair-value gain. These items materially affect year-to-year net results.
Fourth-quarter 2012 revenue was $2.5 million, operating loss $5.3 million, net loss $3.2 million, and loss per share $0.06. For fourth-quarter 2011, revenue was $5.0 million, operating loss $7.8 million, net loss $5.8 million, and loss per share $0.11.
Cash declined by $17.2 million during 2012. Operating cash use included $17.6 million for Arestvyr manufacturing and $1.4 million for development and support, partly offset by a $12.3 million BARDA milestone payment. SIGA received a $5.0 million term loan (approximately $4.9 million net proceeds), bearing 9.85% interest and due by December 2015. A $7.0 million receivables-based revolver had no availability at year-end. Cash and short-term investments were $32.0 million at year-end; the filing reports no short-term investments separately in the balance sheet.
Year-end assets were $105.8 million, including $17.6 million of Arestvyr work-in-process inventory and $43.7 million of net deferred tax assets. Liabilities were $76.9 million, including $57.1 million of deferred revenue. Stockholders’ equity was $28.9 million. Accounts payable, accrued expenses and other current liabilities totaled $14.5 million.
Material developments, outlook and risks
- BARDA delivery and cash timing: Contract payments for product deliveries and reimbursement of covered research costs do not begin until SIGA delivers the first 500,000 courses. Management expected to reach that threshold and receive related funds during 2013. Revenue recognition is also deferred pending delivery and satisfaction of product-replacement obligations. The filing’s liquidity outlook depends materially on achieving this milestone and receiving payment.
- Management outlook: Management believed existing capital, anticipated BARDA cash flows and continuing government contracts and grants would support operations beyond the next 12 months. It cautioned that failure to deliver 500,000 courses or receive payment in 2013 would significantly reduce forecast cash resources and could require additional financing or scaled-back operations.
- PharmAthene litigation: A Delaware Chancery Court judgment awarded PharmAthene 50% of SIGA’s net profits from Arestvyr sales after SIGA reaches $40 million in net profits, for ten years following the first commercial sale, plus fees and expenses. SIGA recorded a $2.5 million contingency for the fee, expense and interest portion and posted $1.3 million collateral for a surety bond. SIGA’s appeal and PharmAthene’s cross-appeal were argued in January 2013 and remained under advisement at the filing date. SIGA warned that the judgment could materially harm future results unless changed on appeal.
- Other key risks: SIGA depends heavily on U.S. government contracts and grants, appropriations and BARDA demand; government contracts may be modified or terminated. Arestvyr remains investigational and faces regulatory, manufacturing and delivery risks. Other candidates are largely early-stage and depend on continued funding. The company also cites competition, third-party manufacturing dependence, intellectual-property risk, debt obligations and possible sequestration-related funding effects.
- Accounting and controls: PwC issued an unqualified audit opinion and concluded internal control over financial reporting was effective as of December 31, 2012. Management likewise reported effective disclosure controls.
Important facts for investors to verify
- Whether SIGA delivered the first 500,000 Arestvyr courses and received the resulting BARDA payments, and the timing and accounting for those receipts.
- The status and eventual outcome of the PharmAthene appeal and cross-appeal, including any effect on Arestvyr profits, the recorded contingency and deferred tax assets.
- Whether BARDA contract milestones, options, delivery requirements and replacement obligations changed, and whether federal funding remained available.
- Whether manufacturing inventory can be completed, delivered and recovered at its recorded value; year-end inventory was $17.6 million.
- Cash burn, financing needs, debt service and covenant compliance; the revolver had no year-end availability and the term loan carries 9.85% interest.
- The assumptions supporting realization of $43.7 million in net deferred tax assets, given operating losses and dependence on future Arestvyr-related taxable income.