SIGA Technologies, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing was dated March 7, 2017. SIGA develops treatments for unmet medical needs and biothreats; its lead product is investigational antiviral TPOXX, supplied to the U.S. Strategic National Stockpile under a BARDA contract. TPOXX was not FDA-approved at year-end.
Financial results and liquidity
| Metric | FY2016 | FY2015 | Change / context |
|---|---|---|---|
| Revenue | $15.0 million | $8.2 million | Up 83%; recognized revenue was for research and development services, not product deliveries. |
| Operating expenses | $46.0 million | $39.1 million | Includes $11.7 million of interest on the PharmAthene liability in 2016; FY2015 included a $14.4 million litigation accrual. |
| Operating loss | $31.0 million | $31.0 million | Operating margin was approximately negative 207% in 2016. |
| Net loss | $39.7 million | $39.5 million | Loss per share was $0.69 versus $0.73. |
| Cash from operations | $(115.6) million | $11.1 million | 2016 outflow was driven principally by PharmAthene payments, operating costs and TPOXX manufacturing. |
| Cash and cash equivalents | $28.7 million | $112.7 million | Year-end balance; an additional $27.5 million was restricted, primarily for loan interest. |
| Debt | $80 million principal | None reported | $66.6 million carrying value at year-end; first-priority secured loan, maturing November 2020. |
All 2016 revenue came from U.S. government contracts and grants (BARDA and NIH). Product-delivery receipts are generally deferred because of replacement obligations: year-end deferred revenue was $367.5 million, with $72.6 million of deferred costs. The filing does not provide a clear product gross margin; deliveries’ related costs and revenue are deferred under the company’s accounting policy.
Total assets were $161.0 million and stockholders’ deficit was $287.4 million at year-end. Inventory increased to $26.2 million from $12.4 million. The company reported a $6.7 million warrant liability and a $0.9 million loss from its increase in fair value.
Material changes and significant events
- Revenue rose 83%, reflecting more and larger TPOXX development studies; R&D expense increased 50% to $19.7 million, and SG&A increased 30% to $13.7 million.
- SIGA emerged from Chapter 11 on April 12, 2016, and the case closed in December. It paid PharmAthene a cumulative $217 million, including interest, to satisfy the judgment.
- To fund the settlement, SIGA completed a $35.3 million gross rights offering and received an $80 million secured term loan. It issued 23.5 million shares in the offering and 708,530 shares as a backstop fee.
- The BARDA contract modification left total contract value unchanged but shifted $61.5 million of payment from the FDA-approval holdback to earlier delivery payments, reducing the holdback from $102.5 million to $41 million. SIGA also received a $20.5 million milestone payment after meeting revised study-documentation requirements.
Outlook, risks and contingencies
- TPOXX milestones: Phase III enrollment and dosing were completed in August 2016, with no drug-related serious adverse events reported. Management targeted completion of study analyses in Q2 or Q3 2017 and an NDA filing by year-end 2017. These are targets, not assurances; FDA approval is uncertain.
- BARDA payments and deliveries: After an $8.5 million delivery payment received in February 2017, SIGA expected no further procurement-related payment under the current contract until FDA approval and delivery of 2.0 million courses. Meeting those conditions would trigger a $41 million holdback. SIGA expected to deliver approximately 467,000 additional courses at no cost to BARDA, largely reflecting the higher provisional dosage and supplementation of earlier deliveries.
- Liquidity risk: Management anticipated possible significant funding needs beginning in Q3 2018 if it did not receive a substantial portion of the holdback. It cited financing, new contracts, asset sales, expense reductions or loan modification as possible responses, with no assurance any would be available. The auditor highlighted these potential liquidity needs.
- Debt burden: The loan bears interest at adjusted LIBOR plus 11.50%; its effective rate was 18.30% at year-end. It is secured by substantially all assets, including intellectual property, and includes minimum-cash and regulatory-milestone covenants. A default could raise the rate and permit acceleration. SIGA reported covenant compliance at December 31, 2016.
- Execution and contract risks: SIGA depends heavily on BARDA and NIH funding, government appropriations and discretionary contract options. The BARDA contract expires in September 2020 and includes product-replacement obligations. The dosage change creates significant incremental manufacturing costs. SIGA relies on third-party manufacturers and has no manufacturing infrastructure of its own.
- Other risks: TPOXX remains unapproved and relies on the animal-rule regulatory pathway; approval, timing, efficacy and safety are uncertain. The business also faces government-contract cancellation or modification risk, competition, patent and product-liability exposure, and limited access to capital. The stock traded on OTC Pink Sheets after its 2015 Nasdaq delisting.
- SIGA’s dengue antiviral remains preclinical; it was seeking development partners. The NIH grant had approximately $1.0 million available at year-end and was extended through April 2017.
Most important facts for investors to verify
- Whether the TPOXX NDA was filed on schedule and how FDA review, approval and any labeling or replacement requirements progress.
- Whether SIGA completes the required 2.0 million course deliveries and qualifies for the $41 million BARDA holdback; confirm delivery timing and incremental dosage costs.
- Cash runway, restricted-cash availability, projected operating cash needs and ability to maintain loan minimum-cash and regulatory covenants through 2018.
- Actual loan interest costs, principal repayment requirements and any amendments, defaults or refinancing plans.
- Revenue recognition and the recoverability of deferred costs and revenue, given product replacement obligations and the concentration of revenue in government contracts.
- Manufacturing capacity, quality, shelf-life and third-party supplier performance, as well as any changes in BARDA funding or optional awards.