SIGA Technologies, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; balance-sheet comparisons are with December 31, 2011. SIGA is a pharmaceutical company developing and commercializing treatments for serious infectious diseases, with ST-246 as its lead product.
Key financial results
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Grant and research revenue | $1.47 million | $1.70 million, down 14% |
| Operating expenses | $7.01 million | $8.16 million |
| Operating loss | $5.55 million | $6.46 million |
| Net loss | $4.05 million | $4.70 million |
| Loss per share | $0.08 | $0.09 |
| Operating cash used | $6.49 million | $4.30 million |
Revenue came from grants; the filing says SIGA could not recognize BARDA contract revenue until specified performance conditions were met. Gross margin is not clearly presented. SG&A fell 48% to $2.21 million, primarily from lower stock-based compensation and legal fees; R&D rose 25% to $4.46 million, including increased ST-246 development and manufacturing activity. A $1.93 million income-tax benefit reduced the reported net loss. A $437,000 warrant remeasurement loss also affected results, compared with a $1.76 million gain in Q1 2011.
Liquidity, assets and liabilities
- Cash and cash equivalents were $42.59 million at March 31, down $6.67 million from year-end. Operating cash use, capital expenditures of $183,000 and minimal financing proceeds drove the decrease.
- Current assets were $46.64 million and current liabilities $7.14 million; the filing reports no conventional debt balance. Total liabilities were $51.08 million, including $42.73 million of deferred revenue and $1.06 million of warrant liabilities.
- Deferred revenue included approximately $41 million in BARDA advance payments, refundable if contract conditions are not met. SIGA also recorded about $1.7 million in accounts receivable and deferred revenue for BARDA services, payable upon minimum delivery thresholds.
- Inventory was $923,000 and deferred BARDA costs were $1.51 million. Net deferred tax assets were approximately $37.8 million, net of a $4.6 million valuation allowance.
Business outlook, material developments and risks
- The five-year BARDA base contract was described as worth approximately $435 million. As modified, BARDA agreed to buy 1.7 million courses of ST-246, while SIGA would contribute 300,000 federally funded courses. Options cover further work on pediatric and geriatric formulations and smallpox prophylaxis; the previously contemplated option for up to 12 million additional courses was deleted.
- Management said cash on hand, expected BARDA cash flows and continuing government grants should support operations for at least the next 12 months. SIGA also cautioned that it expects further R&D losses and may need additional financing; funding on commercially reasonable terms is not assured.
- In the PharmAthene litigation, the Delaware Court of Chancery ruled that SIGA breached its duty to negotiate in good faith and awarded PharmAthene 50% of net profits from ST-246 sales after SIGA first earns $40 million in net profits, for ten years after the first commercial sale. The court also awarded a share of reasonable legal and expert costs. SIGA accrued approximately $2.0 million for those costs, but could not estimate the future profit-share payments; it warned the ruling could have a materially adverse effect absent a successful appeal.
- Other material risks include BARDA contract modification, cancellation or delay; regulatory approval and product safety or efficacy; reliance on government contracts and grants; and the possibility that deferred tax assets may not be realized. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Current status and financial impact of the PharmAthene proceedings, including any final judgment, appeal and calculation of the profit share.
- BARDA delivery milestones, performance conditions, payment timing and the extent to which deferred revenue can be recognized.
- Whether the expected BARDA and grant cash flows materialize, and how operating cash use and financing needs develop.
- ST-246 regulatory and development progress, product delivery and inventory quality or recoverability.
- Assumptions supporting realization of the substantial deferred tax assets.