SIGA Technologies, Inc. — Q1 2018 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2018. SIGA is a commercial-stage biodefense pharmaceutical company whose lead product is TPOXX, an oral smallpox antiviral. TPOXX had not yet received FDA approval; SIGA had delivered 2.0 million courses to the U.S. Strategic National Stockpile under its BARDA contract. All reported revenue was from research and development contracts, not approved-product sales.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $1.75 million | $5.20 million; down 66.4% |
| Operating expenses | $6.28 million | $9.47 million |
| Operating loss | $4.53 million | $4.27 million |
| Interest expense | $3.75 million | $3.61 million |
| Loss on warrant fair-value change | $3.30 million | $0.63 million |
| Net loss / loss per share | $11.58 million / $0.15 | $8.61 million / $0.11 |
| Cash used in operations | $8.56 million | $0.93 million |
| Cash and cash equivalents at quarter-end | $13.93 million unrestricted; $14.61 million restricted | Unrestricted cash was $19.86 million at December 31, 2017 |
| Term loan carrying value | $72.16 million | $71.05 million at December 31, 2017 |
The effective loan interest rate was 18.96%. Q1 interest expense included $2.6 million paid from restricted cash and $1.1 million of noncash accretion. Current assets were $30.93 million and current liabilities were $4.02 million. Total liabilities were $467.75 million, including $376.03 million of deferred revenue; stockholders’ deficiency was $334.62 million. Gross margin is not presented as a clear value in the filing; product-delivery revenue and related costs remained deferred pending resolution of regulatory and replacement contingencies.
Material changes versus the prior comparable period
- R&D-contract revenue declined $3.45 million as fewer and smaller TPOXX development studies were active.
- R&D expense fell $3.35 million, reflecting lower vendor costs and no comparable inventory write-down; Q1 2017 included a net inventory-related loss of approximately $536,000.
- SG&A increased 6.5% to $3.06 million, primarily due to the Nasdaq listing application fee.
- Net loss increased by approximately $2.97 million, in part because the warrant-liability fair-value loss rose to $3.30 million, primarily reflecting the increase in SIGA’s stock price.
- Operating cash use increased to $8.56 million. Q1 2017 included $8.5 million of BARDA receipts for product delivery; Q1 2018 had no investing or financing cash flows.
- SIGA adopted ASC 606 on January 1, 2018. Adoption reduced opening deferred revenue by about $1.8 million and deferred costs by about $2.1 million, increased receivables by about $0.1 million, and increased opening accumulated deficit by about $0.2 million net of tax. Adoption increased Q1 2018 revenue by about $0.2 million; prior-year results were not restated.
Outlook, risks, contingencies and unusual items
- The FDA granted priority review of the TPOXX NDA; its target final action date was August 8, 2018. The filing said approval and the final scope of SIGA’s product-replacement obligation were uncertain.
- SIGA expected to qualify for a $41 million BARDA holdback after FDA approval and resolution of the replacement obligation, then expected in Q3 2018. The company stated that if it did not receive a substantial portion of that payment or other substantial cash inflows by October 2018, it would need additional funding to continue operations and avoid a term-loan default. Management disclosed substantial doubt about SIGA’s ability to continue as a going concern for one year after issuance.
- The BARDA contract’s product-delivery revenue remained constrained; $375.5 million was deferred under that contract at March 31, 2018. Related deferred direct costs were approximately $94.3 million. The filing expected the replacement issue to be addressed by the FDA action date, but timing and outcome were not assured.
- BARDA options could provide up to $122.7 million if exercised, including a conditional $50 million payment tied to approval for an 84-month product expiry. BARDA retained discretion over unexercised options.
- The $80 million senior secured term loan bears interest at Adjusted LIBOR plus 11.5%, matures four years after its November 2016 release, and is secured by substantially all assets, including intellectual property. It has minimum-cash and regulatory-milestone covenants; SIGA reported covenant compliance at quarter-end. The filing noted that a 0.5 percentage-point increase in minimum LIBOR would raise annual interest payments by about $0.4 million.
- The liability-classified warrant was valued at $14.77 million at quarter-end. Its fair-value remeasurement is noncash but affects reported earnings; the filing estimated that each $1 increase in SIGA’s share price increases the warrant’s intrinsic value by about $2.7 million.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. The company said it had no material off-balance-sheet arrangements other than leases; routine litigation was not expected by management to have a material adverse effect.
Important facts for investors to verify
- FDA’s decision and the final product-replacement requirements for TPOXX, including their effect on the $41 million holdback and deferred revenue and costs.
- Cash runway, timing and availability of the holdback or other funding, and compliance with the loan’s cash and regulatory covenants.
- BARDA’s decisions on remaining options, particularly the potential 84-month-expiry payment, and any changes to the BARDA contract.
- Whether the large deferred revenue balance and associated costs can be recognized as expected, and whether contract estimates or ASC 606 judgments change.
- Term-loan interest-rate exposure, maturity and security terms, and warrant-liability valuation sensitivity.