SIGA Technologies, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. SIGA is a commercial-stage pharmaceutical company focused on health security; its lead product is oral TPOXX for smallpox. The figures below are unaudited.
Financial results and liquidity
| Metric | Q2 2018 | Six months 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $2.66 million | $4.41 million | $4.26 million; $9.47 million |
| Operating expenses | $6.37 million | $12.65 million | $8.32 million; $17.79 million |
| Operating loss | $3.71 million | $8.24 million | $4.06 million; $8.33 million |
| Net loss | $7.05 million | $18.63 million | $7.50 million; $16.12 million |
| Loss per share, diluted | $0.09 | $0.24 | $0.10; $0.20 |
| Operating cash used | Not separately presented | $13.75 million | $2.61 million |
Revenue in these periods was from research and development contracts; BARDA product-delivery revenue remained deferred pending FDA approval. Q2 revenue fell 37.6% year over year and six-month revenue fell 53.4%, as fewer and smaller TPOXX studies were active after the oral product’s NDA filing. Six-month R&D expense declined 44.7% to $6.32 million; lower oral TPOXX activity and the absence of a prior-year inventory write-down contributed. Interest expense increased to $7.59 million for the six months, mainly reflecting the term loan.
At June 30, unrestricted cash and cash equivalents were $10.58 million and restricted cash was $12.73 million. Total cash, cash equivalents and restricted cash fell to $23.31 million from $37.10 million at year-end. Total assets were $128.34 million; total liabilities were $469.66 million, including $73.28 million of long-term debt and $376.56 million of deferred revenue. Stockholders’ deficiency was $341.32 million. The large deferred-revenue balance is a contract liability, not borrowings. No positive profit margin was reported; the company recorded operating and net losses.
Material developments, outlook and risks
- FDA approval and subsequent receipts: On July 13, 2018, after quarter-end, FDA approved oral TPOXX for smallpox and granted SIGA a Priority Review Voucher. SIGA said the approved product does not differ from courses already delivered to the Strategic National Stockpile. The approval resolved the product-replacement constraint; the company expected to recognize approximately $375.5 million of BARDA deferred revenue and associated deferred costs of approximately $94.4 million in Q3 2018.
- SIGA received the previously withheld $41 million following approval. On July 30, BARDA exercised an option tied to 84-month product expiry; SIGA invoiced $50 million, with payment due in August. Other BARDA options could provide up to $72.7 million in aggregate, but BARDA may decline to exercise them. The contract expires in September 2020.
- Management stated that, based on forecast operating costs and the approval-related receipt, it expected to continue as a going concern for more than one year from the financial-statement issuance date. This outlook depends in part on contract performance, receipts and operating-cost assumptions.
- The $80 million senior secured term loan carried an effective interest rate of 19.1% at June 30. It has no scheduled principal payments before maturity; $80 million principal plus an additional $4 million is due at maturity. The lender has a lien on substantially all assets, including intellectual property. The minimum cash covenant was $5 million until August 27, 2018, then rises to $20 million. SIGA reported covenant compliance at June 30; $5 million of reserve cash was released to operating cash on July 12.
- Risks include dependence on BARDA and government decisions, possible contract modification or cancellation, execution and regulatory risks for development programs, and significant judgment in estimating long-term contract revenue and costs. A 0.5 percentage-point increase in the specified LIBOR rate would raise annual loan interest by about $0.4 million, according to the filing. Warrant remeasurement also creates earnings volatility; the liability was $14.41 million at June 30.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing states that pending legal matters, if any, were not expected to have a material adverse effect, though litigation could still impose costs and divert management resources.
Investor facts to verify
- Whether BARDA paid the $50 million invoiced in July and SIGA recognized the expected deferred revenue and related costs in Q3.
- Cash available after restricted funds, subsequent receipts and the increase in the minimum-cash covenant; confirm ongoing covenant compliance.
- Actual operating cash use, loan interest burden and plans for repayment at maturity.
- BARDA’s future exercise of remaining options and SIGA’s ability to perform under the contract through its September 2020 expiry.
- The value and any eventual sale or use of the Priority Review Voucher, and progress and funding for IV TPOXX and other development programs.