SIGA Technologies, Inc. — Q1 2016 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2016. SIGA develops treatments for unmet medical needs and biothreats; its lead product is TPOXX (tecovirimat), an investigational smallpox antiviral that was not FDA-approved at the filing date. SIGA operated as a Chapter 11 debtor-in-possession during the quarter and emerged from bankruptcy on April 12, 2016, after confirmation of its reorganization plan.
Key financial metrics
| Metric | Q1 2016 / March 31, 2016 | Comparable / prior period |
|---|---|---|
| Revenue | $1.27 million, from research and development contracts and grants | $1.19 million in Q1 2015 |
| Operating expenses | $8.33 million | $6.23 million in Q1 2015 |
| Operating loss | $7.06 million | $5.04 million in Q1 2015 |
| Net loss | $10.45 million; $0.19 per share | $7.15 million; $0.13 per share in Q1 2015 |
| Cash from operations | $(8.64) million | $(6.17) million in Q1 2015 |
| Cash and cash equivalents | $104.06 million | $112.71 million at December 31, 2015 |
| Current assets / current liabilities | $128.46 million / $13.54 million | $129.46 million / $7.33 million at December 31, 2015 |
| Deferred revenue | $255.47 million | $255.26 million at December 31, 2015 |
| Liabilities subject to compromise | $209.88 million, including about $208 million accrued for PharmAthene | $206.97 million at December 31, 2015 |
| Stockholders’ deficit | $294.68 million | $284.43 million at December 31, 2015 |
The filing reports no material funded debt at March 31, 2016; the GE term loan had been repaid in 2015. Operating and net margins are not meaningful indicators here given minimal recognized revenue and the company’s loss position. No product-delivery revenue was recognized: BARDA-related delivery receipts and associated costs are deferred while replacement obligations remain.
Material changes versus prior comparable period
- Revenue increased $78,000 (6.5%), reflecting higher federal-contract R&D revenue, partly offset by lower dengue-grant revenue.
- SG&A fell $422,000 (13.7%) to $2.66 million; R&D fell $271,000 (9.8%) to $2.54 million. Patent costs also declined.
- Operating expenses rose overall, largely because SIGA recorded $2.92 million of PharmAthene litigation accrual expense, versus $13,000 in Q1 2015, and reorganization expense increased to $3.39 million from $1.78 million.
- Cash used in operations increased to $8.64 million from $6.17 million. The company cited recurring costs, Chapter 11 expenses and $5.8 million of payments to contract manufacturers, versus $1.0 million in Q1 2015.
- Work-in-process inventory increased to $22.84 million from $12.45 million, principally reflecting TPOXX manufacturing activity.
Outlook, risks and unusual items
- PharmAthene judgment and restructuring: The Delaware Supreme Court affirmed a judgment against SIGA; the accrued obligation was about $208 million at March 31, 2016. Under the plan effective April 12, SIGA had 120 days from March 23, potentially extendable by 90 days, to choose full cash payment, issuance of 100% of newly issued SIGA stock to PharmAthene (with existing shares cancelled for no consideration), or another mutually agreed treatment. SIGA paid PharmAthene $5 million on the effective date. The filing does not state which ultimate treatment was selected.
- Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern, citing the judgment, uncertainty over its treatment and a $295 million net capital deficiency. The statements do not include adjustments that might be required if the company cannot continue as a going concern.
- BARDA contract and TPOXX: The contract is valued at approximately $470 million and runs through September 2020. SIGA had received $249.2 million under the base contract by March 31, 2016; $255.5 million was recorded as deferred revenue. A change in provisional dosage requires additional courses for previously delivered product at no additional charge, and SIGA expects significant incremental manufacturing costs. BARDA options, including a potential $50 million payment tied to FDA approval of an 84-month expiry, are discretionary and not assured.
- Regulatory and operating risks: TPOXX remained investigational and unapproved. Risks include FDA approval and testing requirements, BARDA contract performance or cancellation, funding needs, and product replacement obligations.
- No quantitative earnings guidance is provided. Management cautioned that interim results are not necessarily indicative of full-year results. The company reported effective disclosure controls and no material changes in internal control during the quarter.
Important facts for investors to verify
- Which POR option was ultimately chosen for PharmAthene’s claim, and what effect it has on existing shareholders and liquidity.
- Cash available after the post-quarter $5 million PharmAthene payment and subsequent bankruptcy-related claim payments.
- Updated TPOXX production, dosage-supplementation costs, BARDA delivery milestones and any BARDA option exercises.
- FDA review status, product approval prospects and the status of replacement obligations for delivered courses.
- Reconciliation and final treatment of remaining prepetition claims and any resulting adjustments to liabilities or financial statements.