SIGA Technologies, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. SIGA develops and commercializes products for unmet medical needs and biothreats; its lead product is TPOXX (tecovirimat), an investigational smallpox antiviral supplied to the U.S. Strategic National Stockpile under a BARDA contract. SIGA emerged from Chapter 11 on April 12, 2016.
Financial results and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue, primarily R&D contracts and grants | $4.7 million | $1.3 million | $7.8 million | $4.0 million |
| Operating loss | $8.1 million | $3.6 million | $24.4 million | $13.0 million |
| Net loss | $9.2 million | $5.6 million | $29.3 million | $19.4 million |
| Loss per share, basic and diluted | $0.17 | $0.10 | $0.54 | $0.36 |
Revenue growth reflected increased TPOXX development activity under federal contracts. The filing reports no product gross margin; BARDA product-delivery receipts and associated costs are generally deferred until related obligations are satisfied. No conventional margin measure is therefore provided.
At September 30, cash and cash equivalents were $20.5 million, down from $112.7 million at December 31, 2015. Current assets were $86.6 million and current liabilities $108.3 million. Total liabilities were $476.0 million, including a $93.7 million current PharmAthene obligation and $367.1 million of deferred revenue. Stockholders’ deficit was $313.2 million. The company reported $74.4 million of deferred BARDA contract costs and $17.8 million of inventory.
Net cash used in operating activities was $90.9 million for the nine months, versus $27.6 million provided in the comparable 2015 period. Cash outflows included $115 million paid toward the PharmAthene claim and approximately $23 million paid to contract manufacturers; BARDA receipts partly offset these uses. Capital expenditures were approximately $11,000. The filing does not report funded loan proceeds available to SIGA at quarter-end.
Material changes and notable items
- Q3 R&D expense rose to $6.1 million from $2.4 million, mainly due to increased TPOXX study activity. Nine-month R&D expense increased to $11.6 million from $8.2 million.
- Q3 SG&A increased to $2.9 million from $2.3 million; nine-month SG&A was $9.3 million versus $8.0 million. The filing cites professional services and incentive compensation as key drivers.
- Interest on the PharmAthene liability was $3.6 million in Q3 and $7.4 million for the nine months. A newly issued warrant was recorded as a liability; its fair-value increase generated a $1.1 million loss in the period.
- Following a June BARDA contract modification, SIGA received $32.6 million in July and a $20.5 million milestone payment in August. At September 30, it had recorded a $36.8 million receivable for a delivery paid in October. BARDA contract receipts for delivered product remain deferred revenue under SIGA’s accounting policy.
Outlook, financing, and key risks
- Going concern: Management disclosed substantial doubt about SIGA’s ability to continue as a going concern, citing the $93.7 million PharmAthene obligation, $313 million net capital deficiency, and uncertainty over financing and the Rights Offering. The filing states there is no assurance the financing plans will close or that SIGA can otherwise satisfy the claim.
- PharmAthene settlement: SIGA elected to pay the claim in cash under its reorganization plan. It had paid $115 million through September 30; the remaining obligation was approximately $93.7 million at that date. An additional $10 million was paid in October, leaving approximately $83.7 million as of October 31. If the claim is not resolved under the plan, PharmAthene may receive newly issued shares representing 100% of SIGA, with existing shares cancelled without consideration.
- Proposed loan: An $80 million first-priority secured term loan was placed in escrow on September 30 but was not available to SIGA pending conditions, including completion of the Rights Offering and full satisfaction of the PharmAthene claim. The stated interest rate is Adjusted LIBOR plus 11.50%; substantially all assets, including intellectual property, would secure the loan after release. If release conditions were not met by November 30, 2016, the loan maturity provision specified December 1, 2016.
- Rights Offering: Commenced October 21, 2016, targeting approximately $35.3 million gross proceeds and expected to expire November 8. Backstop parties agreed to purchase unsubscribed shares, subject to conditions; the backstop fee is $1.76 million. The offering price depends on the lower of $1.50 or 85% of the applicable volume-weighted average price. These are subsequent events, not completed proceeds as of quarter-end.
- Product and regulatory risks: TPOXX was not FDA-approved as of the filing. Future BARDA payments, including a $41 million holdback tied to FDA approval, depend on contract and regulatory requirements. SIGA expects significant incremental production costs to supplement previously delivered courses following a dosage change. BARDA options, including a potential $50 million payment tied to an 84-month expiry extension, are discretionary.
- The plan imposes financial and operating covenants while the PharmAthene claim remains unresolved. A covenant default could trigger cash-collateral requirements, a monitor, and changes to the board. Loan covenants would also impose minimum cash and regulatory milestone requirements if the loan is released.
Important facts for investors to verify
- Whether the Rights Offering and backstop closed, and the final proceeds and share dilution.
- Whether the escrowed loan was released, its final terms and fees, and whether the PharmAthene claim was fully satisfied.
- Current cash, remaining PharmAthene liability, and compliance with the reorganization plan’s covenants.
- Progress toward FDA approval, BARDA delivery obligations, product replacement costs, and eligibility for remaining BARDA payments or options.
- Whether the substantial doubt regarding going concern was alleviated after the financing and settlement outcomes became known.