SIGA Technologies, Inc. — FY2017 Form 10-K
Reporting period: Year ended December 31, 2017. The filing was signed March 6, 2018. It is an annual report, not a report limited to fourth-quarter results.
Business context
SIGA is a commercial-stage pharmaceutical company focused on health security. Its lead product, oral TPOXX (tecovirimat), is intended to treat smallpox and is being supplied to the U.S. Strategic National Stockpile under a BARDA contract. TPOXX was not FDA-approved at year-end; SIGA submitted an NDA in December 2017. In February 2018, the FDA granted priority review with an August 8, 2018 target action date.
SIGA had delivered the contract-required 2.0 million courses by December 31, 2017. Its BARDA contract expires in September 2020. The company also has an IV TPOXX development program; its dengue candidate remained preclinical, with further development dependent on finding a partner.
Financial performance and position
| Metric | FY2017 / Dec. 31, 2017 | FY2016 / Dec. 31, 2016 |
|---|---|---|
| Revenue | $12.3 million | $15.0 million |
| Operating loss | $18.8 million | $31.0 million |
| Net loss | $36.2 million | $39.7 million |
| Basic and diluted loss per share | $0.46 | $0.69 |
| Cash and cash equivalents | $19.9 million | $28.7 million |
| Restricted cash | $17.2 million | $27.5 million |
| Long-term debt | $71.1 million | $66.6 million |
| Deferred revenue | $377.6 million | $367.5 million |
| Net cash used in operating activities | $8.2 million | $115.6 million |
- Revenue fell 18.1%, primarily because fewer and smaller TPOXX development studies were active. All recognized revenue came from BARDA and NIH; reported revenue was primarily for reimbursed development work.
- Most cash received for TPOXX courses and related deliverables remains deferred because SIGA has product-replacement obligations. Deferred direct costs were $96.6 million at year-end.
- Operating expenses were $31.1 million, down from $46.0 million. FY2017 included $1.2 million of lease-termination expense. The company recorded $14.8 million of interest expense, including $10.3 million paid from restricted cash and $4.5 million of noncash accretion, and a $4.7 million loss from an increase in warrant liability fair value.
- Operating cash use improved year over year largely because FY2016 included substantial payments related to the PharmAthene judgment and higher contract-manufacturing payments. FY2017 cash inflows included $8.5 million received from BARDA for deliveries and reimbursements.
- Quarterly FY2017 revenue and net loss were $5.2 million and $8.6 million in Q1, $4.3 million and $7.5 million in Q2, $1.4 million and $9.8 million in Q3, and $1.4 million and $10.3 million in Q4. Q4 2016 revenue and net loss were $7.2 million and $10.4 million.
Material changes and unusual items
- Compared with 2016, operating loss narrowed by $12.2 million, mainly as operating expenses declined and PharmAthene-related interest expense ceased. Net loss improved by $3.5 million, partly offset by substantially higher term-loan interest and warrant remeasurement loss.
- SIGA emerged from Chapter 11 in April 2016; the case closed in December 2016. It paid PharmAthene an aggregate $217.0 million to satisfy the judgment in 2016.
- In 2017, SIGA recognized approximately $1.2 million of expense related to terminating its former headquarters sublease and recorded a $0.5 million net inventory write-down.
- The 2017 tax benefit was $2.1 million, primarily reflecting refundable alternative-minimum-tax credits under the Tax Cuts and Jobs Act. The company reported $174.3 million of federal net operating loss carryforwards.
Liquidity, debt, outlook and risks
- Management stated that substantial doubt exists about SIGA’s ability to continue as a going concern within one year after issuance of the financial statements. Without a substantial portion of the approximately $40.9 million BARDA holdback payment, or other substantial cash inflows, by October 2018, the company expected to need additional funding to continue operations and avoid a term-loan default.
- The holdback is contingent on FDA approval and resolution of product-replacement obligations. SIGA expected a determination in the third quarter of 2018; neither approval nor timely receipt of the payment was assured. A separate potential $50 million payment depends on BARDA exercising an option tied to approval of an 84-month shelf life.
- The $80 million term loan matures in November 2020 and requires $84 million of principal-related repayment at maturity, before interest. Its rate is Adjusted LIBOR plus 11.5%; the effective rate was 18.8% at year-end. The loan is secured by substantially all assets, including intellectual property, and includes minimum-cash and regulatory-milestone covenants. SIGA reported compliance at December 31, 2017.
- Of $17.2 million in restricted cash, most was reserved for loan interest; up to $5 million could be withdrawn after June 30, 2018 if conditions were satisfied. The company reported $121.0 million of total contractual obligations, including debt, interest, leases, purchase commitments and lease-termination payments.
- Key risks include dependence on U.S. government contracts and appropriations, fixed-price contract cost exposure, FDA approval and replacement requirements, reliance on outside manufacturers, and the possibility of delayed or canceled government funding. BARDA options are discretionary and government contracts may be modified or terminated.
- Potential additional funding sources identified by management included financing, new contracts, asset sales, BARDA contract modification, expense reductions, or loan-term changes; there was no assurance these would be available. The company had no stated financial guidance for future revenue or earnings.
Most important facts for investors to verify
- FDA review outcome and timing for the TPOXX NDA, and whether the approved product matches courses already delivered.
- Whether the approximately $40.9 million BARDA holdback is received, when it is received, and whether replacement obligations affect payment.
- Cash runway, access to restricted cash, and compliance with term-loan cash and regulatory covenants.
- Debt service capacity and refinancing or other funding options ahead of the November 2020 maturity.
- BARDA’s future procurement, exercise of remaining contract options, and the timing and recognition of deferred revenue and related costs.
- Potential proceeds from a medical-countermeasure priority review voucher, which SIGA said was not assured.