SIGA Technologies, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. SIGA is a commercial-stage biodefense pharmaceutical company whose lead product is oral TPOXX, a smallpox treatment. Amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2019 | First half 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $3.91 million | $14.37 million | $2.66 million Q2; $4.41 million first half |
| Operating income (loss) | $(1.71) million | $0.49 million | $(3.71) million Q2; $(8.24) million first half |
| Net loss | $(3.16) million | $(1.53) million | $(7.05) million Q2; $(18.63) million first half |
| Basic loss per share | $(0.04) | $(0.02) | $(0.09) Q2; $(0.24) first half |
| Operating cash flow | Not separately presented | $(4.34) million | $(13.75) million first half |
- Q2 revenue was all research-and-development revenue; there were no product sales in the quarter. First-half product sales were $7.14 million, from delivery of approximately 23,000 oral TPOXX courses to the Strategic National Stockpile. Related cost of sales was $0.92 million.
- First-half R&D revenue increased to $7.22 million from $4.41 million. A roughly $3.3 million cumulative catch-up adjustment under the IV formulation R&D contract contributed to the increase. Q2 R&D revenue rose 47% year over year, despite lower quarterly research activity.
- First-half operating expenses were $13.88 million, versus $12.65 million. SG&A rose to $6.56 million from $5.94 million; R&D expense declined to $6.04 million from $6.32 million.
- First-half results included a $3.79 million gain from the lower fair value of the warrant liability; the prior-year period included a $2.94 million loss. The warrant remeasurement is non-cash and materially affects comparisons. Interest expense was $7.90 million, including $2.23 million of non-cash accretion.
Financial position and liquidity
- At June 30, 2019, cash and cash equivalents were $100.26 million and restricted cash was $75.73 million, for total cash and restricted cash of $175.99 million. Restricted cash is reserved for term-loan payments.
- Current assets were $121.53 million and current liabilities were $11.12 million. The company reported $77.78 million of long-term debt; estimated fair value was $86.6 million.
- The secured term loan has an effective interest rate of 19.3%, no scheduled principal payments before maturity, and matures November 16, 2020. The loan is secured by substantially all company assets, including intellectual property. SIGA reported compliance with its covenants at June 30.
- In July 2019, the restricted account was increased to approximately $100.5 million under a loan amendment. This subsequent-period balance is not included in the June 30 balance sheet.
- Net cash used in investing activities was $8,948 and net cash used in financing activities was $56,590 during the first half.
Contracts, outlook, and risks
- The 2018 BARDA contract contemplates up to approximately $600.1 million in payments: $51.7 million in the five-year base period, $23.4 million associated with exercised options, and up to $525.0 million in unexercised options. The unexercised options are at BARDA’s discretion and are not assured revenue.
- The 2011 BARDA contract expires in September 2020; approximately $4.2 million remained eligible for future development and supportive-activity reimbursements, with additional unexercised options also subject to BARDA’s discretion.
- In July 2019, SIGA received a DoD research contract valued at $19.5 million, including an initial $12.4 million award, for work toward a potential post-exposure-prophylaxis label expansion for oral TPOXX. This award occurred after quarter-end.
- The filing gives no company-wide financial guidance. Management notes that government contracts may be modified or terminated, and that the government may decline to exercise options. Other stated risks include schedule or performance issues, development and regulatory uncertainty for IV TPOXX and new indications, intellectual-property challenges, and uncertainty in international markets.
- Interest-rate exposure is notable: management estimated that a 0.5 percentage-point increase in the specified LIBOR rate would raise annual term-loan interest payments by about $0.4 million. Changes in SIGA’s share price also affect the fair value of its liability-classified warrant.
Most important facts for investors to verify
- How much of the BARDA option value is actually exercised, funded, and converted into deliveries and cash receipts.
- The timing and economics of remaining TPOXX deliveries, IV formulation development, and the DoD-funded prophylaxis program.
- Unrestricted cash needs and the ability to meet the secured loan’s high interest burden and November 2020 maturity; confirm terms of the July loan amendment.
- The repeatability of reported revenue and losses, particularly the effects of the $3.3 million revenue catch-up and non-cash warrant remeasurement.
- Progress toward regulatory, manufacturing, and delivery milestones, and any changes to contract or covenant status.