SIGA Technologies, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. SIGA develops TPOXX, an investigational antiviral for orthopoxvirus infections, including smallpox. The product had not received FDA approval as of the filing.
Financial performance and position
| Metric | Q3 2017 | First nine months 2017 |
|---|---|---|
| Revenue | $1.4 million | $10.9 million |
| Operating loss | $5.7 million | $14.0 million |
| Net loss | $9.8 million | $25.9 million |
| Loss per share, basic and diluted | $0.12 | $0.33 |
| Net cash used in operating activities | $2.6 million for the nine-month period |
Revenue was from research and development contracts and grants; product-delivery receipts remain deferred pending satisfaction of contractual and regulatory conditions. At September 30, unrestricted cash and cash equivalents were $25.8 million and restricted cash was $19.8 million. Current assets were $40.9 million, including $10.4 million of short-term restricted cash; current liabilities were $13.0 million. Long-term debt had a $69.9 million carrying value and a $73.2 million estimated fair value. The term loan’s effective interest rate was 18.6%. Stockholders’ deficiency was $312.8 million.
Changes versus prior comparable periods
- Q3 revenue fell 70% from $4.7 million in 2016, mainly because fewer and smaller TPOXX development studies were active.
- Nine-month revenue rose 39% from $7.8 million, reflecting increased development activity earlier in 2017.
- Q3 net loss increased from $9.2 million to $9.8 million. The nine-month net loss narrowed from $29.3 million to $25.9 million.
- Q3 R&D expense declined 59% to $2.5 million; nine-month R&D expense increased 20% to $13.9 million, including a $536,000 net inventory-related charge.
- 2017 interest expense reflects the term loan; 2016 included PharmAthene judgment interest and reorganization costs. SIGA paid PharmAthene $217.0 million in total in 2016 to satisfy the judgment.
- Operating cash use was $2.6 million, versus $90.9 million in the prior-year nine-month period, which included substantial PharmAthene-related payments.
Outlook, risks and unusual items
- SIGA had delivered 2.0 million TPOXX courses to the Strategic National Stockpile. The BARDA contract provides for a $40.9 million holdback, payable only after FDA approval and satisfaction of delivery and product-replacement conditions. Management targeted an NDA filing by year-end 2017 and anticipated eligibility for the payment in the second half of 2018; receipt was not assured.
- The filing states that, if a substantial holdback or other cash inflow is not received by October 2018, additional funding would be needed to continue operations and avoid a term-loan default. Potential measures include financing, new contracts, asset sales, BARDA contract changes, expense reductions or loan modifications. Management concluded that substantial doubt existed about SIGA’s ability to continue as a going concern for one year from the financial statement issuance date.
- The $80 million term loan is secured by substantially all company assets, including intellectual property. It has an $80 million principal repayment at maturity plus an additional $4 million payment, and includes minimum-cash and regulatory-milestone covenants. SIGA reported compliance at September 30, 2017; minimum cash was $10 million for the remainder of 2017.
- Delivered courses remain subject to replacement obligations if the FDA-approved product differs or specified quality, expiry or recall conditions arise. BARDA options totaling $122.7 million are discretionary and may not be exercised.
- A headquarters lease transition produced a $1.2 million Q3 charge, primarily for estimated future rent-discrepancy payments. SIGA also reported a $627,624 nine-month loss from the change in fair value of warrant liabilities.
Key facts for investors to verify
- Progress and timing of the TPOXX NDA and FDA review, and whether approval will satisfy BARDA’s holdback and product-replacement conditions.
- Cash runway, restricted-cash availability, and capacity to meet minimum-cash, milestone and other term-loan covenants if expected cash inflows are delayed.
- Actual interest burden and repayment obligations under the high-cost secured term loan, including the additional $4 million payment.
- Whether BARDA exercises any discretionary options or provides further funding, and whether deferred revenue and related deferred costs can ultimately be recognized.
- Potential inventory replacement requirements and the costs or delays associated with regulatory, manufacturing, product-quality and contract risks.