SIGA Technologies, Inc. (SIGA) Earnings Call Transcript & Summary

Greetings, and welcome to the SIGA Technologies Second Quarter 2020 Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. Before we begin today's call and turn it over to management, please note that any forward-looking statements made during this call are based on management's current expectations and observations and are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of these factors that could cause results to differ, please see the company's filings with the Securities and Exchange Commission, including, without limitation, the company's annual report on Form 10-K for the year ended December 31, 2019, and its subsequent reports on Form 10-Q and Form 8-K. At this time, I'd like to turn the floor over to Mr. Phil Gomez to begin today's conference. Please go ahead, sir.

Thank you for taking the time to join today's call. Today, I'm joined by Dan Luckshire, our CFO. And we are pleased to have this opportunity to provide an update on the significant progress we've made in 2020 and our goals for the remainder of the year. On this call, Dan will be providing an update on our second quarter and year-to-date 2020 financial results, recent deliveries of TPOXX to BARDA and the Canadian military and expectations related to the procurement contracts with BARDA and the Canadian military. Additionally, I will provide updates on our anticipated regulatory filings for 2020 and an overall business update. Before I hand the call over to Dan, I would like to provide an update on SIGA in the context of the continuing COVID-19 pandemic. As evident in daily life, the global pandemic continues to impact our nation's health and our economy. Our thoughts are with so many that have been dramatically impacted here in the U.S. and around the globe by this devastating disease and with all those in the public and private sector who are working tirelessly to develop the tools to help bring this pandemic under control. The pandemic has continually reminded us how impactful an infectious disease outbreak can be to health and the economy. And it has illustrated some of the challenges in responding once an outbreak occurs and the importance of preparedness. At SIGA, we fortunately have not been adversely impacted in any material respect by the pandemic. As evidenced by our recent deliveries to BARDA and the Canadian military, we continue to manufacture and deliver TPOXX on a timely basis. I'd like to express my gratitude for our employees for all their hard work to make this happen. For our programs that have clinical trials, such as the post-marketing commitments required by FDA approval for oral TPOXX and potentially the post-exposure prophylaxis, or PEP program, we do anticipate potential near-term delays due to the COVID-19 pandemics based upon adjustments that must be made to protect the safety and welfare of participants, clinical trial sites and their partners. We do not expect any such delays would have a material impact on the overall time line or requirements of these programs or any potential regulatory approvals. Later on the call, I will provide an update regarding progress within our business. At this point, I will turn the call over to Dan for a financial update.

Thanks, Phil. For the 3 and 6 months ended June 30, 2020, SIGA's revenue was approximately $40 million and $43 million, respectively. Included in these amounts is approximately $36 million of revenue related to the delivery of approximately 117,000 courses of oral TPOXX to the Strategic National Stockpile, or SNS, and approximately $2 million of revenue in connection with the oral TPOXX delivery to the Canadian military. Operating income, which excludes costs in connection with the term loan retirement, interest expense, interest income, taxes and adjustments to the fair value of the warrant, was approximately $29 million and $25 million for the 3 and 6 months ended June 30, 2020, respectively. Net income for the 3 and 6 months ended June 30, 2020, was approximately $21 million and $12 million, respectively. In turn, fully diluted EPS was $0.26 per share and $0.15 per share, respectively. On June 30, the cash balance for the company was approximately $53 million. During the second quarter, SIGA repurchased approximately 2.5 million shares of its common stock for approximately $15 million. Looking forward, we expect to continue our momentum with respect to procurement activity within the U.S. and internationally. In the U.S., SIGA expects to deliver an approximately 246,000 courses of oral TPOXX to the Strategic National Stockpile in addition to those courses recently delivered by April 2021, and such deliveries may occur in their entirety in 2020. These deliveries of 246,000 courses of oral TPOXX are expected to generate revenues of approximately $76 million. In addition to these expectations, and 19C BARDA contract has up to $414 million of procurement-related options remaining for future exercise by BARDA. With regard to the international market, Phil will discuss our overall progress on this front in a few minutes. As a general note, we believe the contract with the Canadian military is a starting point for expanding our opportunities in the international market. Under this contract, the Canadian military has procurement options for the delivery of up to 12,825 courses of oral TPOXX, which have a value of approximately $12 million. We are anticipating procurement under these options to occur under the contract with Meridian Medical Technologies, Inc. after regulatory approval of royaltypox in Canada, which we are targeting for 2021. This concludes the financial section of the call. At this point, I'll turn the call over to Phil.

Thank you, Dan. As you heard from Dan, the second quarter was important from a financial point of view. I'd like to highlight that the second quarter represented an important milestone as we started delivering meaningful amounts of TPOXX to the SNS under the 19C BARDA contract. We expect the deliveries made in the second quarter to be the starting point of significant product deliveries to occur in the upcoming second half of 2020 and years to come. Furthermore, the recent deliveries are a demonstration of the importance of TPOXX to our customers and the ability of SIGA to deliver value to our shareholders, including the purchase of $15 million worth of shares as part of our active stock repurchase plan. Shifting gears, I'm happy to report that good news extends to the international regulatory front. I'm pleased to note that we filed for EMA approval of TPOXX in late July. We believe this is an important step in positioning SIGA for accelerating future EU product sales of oral TPOXX. Please note that this is the first time we've applied for a broader label indication for TPOXX. Our application includes treatment of smallpox, cowpox, monkeypox and vaccinia complications. We plan to file the same set of indications with Health Canada late this year and to pursue similar label expansion discussions with the FDA in the future. As previously noted, these international regulatory submissions are being pursued in support of international business development. On this front, we continue to advance conversations with a broad range of countries. And based on the current status of conversations, we believe prospects are good for additional international contracts and/or orders for oral TPOXX to materialize within the next 6 months. Stepping back and looking at the broader international picture, our comments on the last business update call are still very relevant. As noted then, the COVID-19 pandemic has slowed some conversations in the short term, but we believe it will increase focus on pandemic preparedness broadly, which is good for TPOXX. Before I make closing remarks, I'd like to briefly touch on the PEP and IV programs. With respect to PEP, it continues to be an important development program in that it addresses the likely uses of oral TPOXX for a majority of people in the event of a smallpox outbreak. We will provide updates on this program as we hit milestones in the coming years. With regard to the IV program, we expect to file the IV NDA with the U.S. FDA, either late this year or early in 2021. This is an important program to ensure TPOXX would be available to those too sick or unable to swallow an oral capsule. This concludes the business update. For my closing remarks, I'd like to highlight that SIGA has significant financial momentum with a delivery of approximately 120,000 courses of oral TPOXX in the second quarter. And at least twice this number, of course, is expected to be delivered in the coming near term. Additionally, I'd like to note that as part of our $50 million share repurchase authorization, we repurchased approximately $15 million of our common stock in the second quarter, which amounts to total year-to-date repurchases and of $16 million as of June 30. In summary, we believe the future of SIGA is bright, and we will continue to execute on our strategy, which includes continued delivery of oral TPOXX courses under the 19C BARDA contract, expanding the U.S. stockpile to cover PEP, pursuit of additional international sales with Meridian Medical Technologies, seeking approval for label expansions for TPOXX to include PEP and other orthopoxviruses, expanding and supporting ongoing oncology collaborations for TPOXX, and finally, leveraging our capabilities for new formulations and products. This concludes our prepared remarks, and we will now begin the Q&A session.

[Operator Instructions] Our first question is coming from Paul Saunders of Hutch Capital.

Congrats on a good quarter and all the progress you've made. My question really is just if you can provide any more color, sort of commentary around an increase of the U.S. stockpile, or U.S. stockpile expansion, presumably, for PEP purposes like you mentioned. And really, I would say, with regard to kind of accelerating maybe the stockpile expansion before the PEP-label expansion. And I say that really just obviously, given the COVID-19 pandemic, we kind of have a real-life case study here of a virus and how quickly it can spread. And so just from the numbers that I see, we've got almost 5 million COVID cases in about 4 months. People are generally in agreement that the number is probably around 10x that amount. So you're talking about 50 million people for a virus that's anywhere from 1/3 or half is contagious as smallpox. So I guess I'm just kind of wondering the rationale on the government side that 1.7 million courses of TPOXX is sufficient to really provide much protection for potential smallpox outbreak.

Paul, so thanks so much for your question. So a couple of things in response to that. I think the short answer is, as you know from our calls, is we believe the $1.7 million would not be sufficient, and especially given the concept of PEP, the stockpile should increase. That process, though, is done with inside-the-U.S. government through threat determinations. The $1.7 million was articulated in RFPs. And the method for that, of course, is not publicly disclosed by the U.S. government. I would agree with you that there's a couple of things that are encouraging around potential future stockpile expansion. That is the current epidemic has shown exactly how impactful an infectious disease can be not only on health, but also in economy and ensuring rapid response that allows treatment of those that it would be too late to vaccinate would be an important part of that. And having the flexibility to use PEP would be very important. The second encouraging part, I would say, is that there is a recognition that we have not spent sufficiently in being prepared to this date. And as the budgeting processes are going through the U.S. government, there are encouraging signs. There's nothing that's been finalized yet, but we certainly believe that the spending in this space has not been commensurate with the threats that we face and getting us fully prepared. And that is always a lens that the government has to use at the end of the day as to how much they can purchase. So it is encouraging on the funding front. The bottom line, though, and I appreciate your question, do we accelerate that. We certainly have had conversations with leadership within the U.S. government. That leadership, though, is very focused on COVID. There's just no question. They're working around the clock. And I wish I could say they have bandwidth to do the assessments around smallpox. I just wouldn't be optimistic on that in the short term. Having said that, we've seen great progress inside the government on vaccines, the diagnostics and therapeutics. So we stand at a ready to have those conversation as soon as we can. And finally, I would reiterate that we do not have to wait for ultimate regulatory approval as we had previously with TPOXX. It was procured starting in 2011. And we started delivering in 2013 with FDA approval in 2018. So clearly, we can deliver product previous to that. So I appreciate the question, Paul.

Our next question is coming from Joaquin Horton of Raymond James.

Good quarter, guys. Paul Savas was -- had resigned from the Board. Will that have any effect on what's going on with the firm?

Good to talk to you, and I appreciate the question. We have actually filed an 8-K. We do have a new Board member. His name is Ed Taibi. He's the Senior Executive at MacAndrews & Forbes. And I think that Ed has, as you'll see in the 8-K, a great background, he's been at the firm a long time and has broad expertise. So we're very pleased with the Board. We've got a great set of expertise there. And so although Paul Savas was a long-standing member and certainly a great person, we believe we have the right skills on the Board to execute on our strategy. So we don't anticipate missing a beat.

And then a couple of other quick questions. So on the stock buyback, were you able to buy any stock since the end of the quarter?

So I'll hand over to Dan. Typically, we don't comment on active share repurchasing. But Dan, do you have any other comments overall on the stock repurchase program?

Yes. Joaquin, so we did disclose what we did for the quarter. And what we plan to do is continually disclose in our Qs, the activity. So right now, we don't have a comment on recent activity for July.

Okay. And then one thing on the -- as long as you're on the phone, on the taxes, we have a tax loss carryforward. So I see where we remain a provision for taxes, but it doesn't look like we will be paying any of it. Is that right?

Correct. We do have a deferred tax asset. And so while you see the provision in the income statement, you are correct. And that's really bring down the tax -- deferred tax asset on the balance sheet.

Phil, is there any comments on how our second molecule is doing or...?

Yes. Joaquin, it's a great question. We continue to collaborate with the NIH. It is preclinical. So it's early. It's in lead optimization. And as we get to points where we get readouts on kind of a go, no go, where it goes next, we'll certainly provide those updates. But as of right now, it continues to advance in that preclinical phase and the teams who are focused on finding out. Do we have a molecule, we can advance. So we'll certainly provide updates as we come to that, those decision points.

Our next question is coming from [ Teddy Green ], a private investor.

Congratulations on the quarter. I'd love to see those numbers. We're very happy to see the share buyback also that you were very active, very happy to see that. A couple of good questions earlier. And the question I have is in regards to what BARDA and SNS -- you said about maintenance stockpile of existing stockpile, 1.7 million courses. Noticed the house I passed in it Resolution 7574. And also the fiscal year '21 budget incorporates an SNS stockpiling provisions, which seems to me that the government seems to want to guarantee that the content of the stockpile are functioning effectively and they don't expire. So what I would like to know is how BARDA and SNS is? Are they looking at the courses that are expiring from the original contractor literally? Or is there more of a new nuanced version of that?

So Teddy, it's a great question. I appreciate it. You had a couple of comments there. I want to make sure I talk about and then answer your question. So the -- and maybe I'll answer the question you had at the end, first. So the government really only talks through their RFPs and their procurement documents on statements of requirements. And so in the RFP, they've stated they want to maintain the 1.7 million courses. We work closely with them and have ongoing conversations around it. I don't think they talk exactly about what they have, when and where and the specifics of it. But suffice it to say, they stated their intent in their RFP. Our option exercise this year allow them to continue that. And so we look forward to seeing that happen in the years to come. The other point you brought up, which I think is a really important one is, COVID showed that the SNS did not have everything that we probably wished it would have had in retrospect. There's been a variety of people, including Greg Burrell, who is the past SNS Director, who's repeatedly said in public interviews that the SNS was not fully funded that they had wanted to get additional products. They felt like they didn't have enough funding. The Assistant Secretary for Preparedness Response, Bob Kadlec, has said similar statements over the years and has said, we really need to fully fund that. And what you point out is that at least in the house budget, they've included some potential to increase that funding substantially and make sure that we have a fully funded SNS. And we do think there's a greater recognition in the policymakers that we don't want to be caught short again and that we have to not only look at what's in the stockpile, but what really should be there and have broader conversations. So we're encouraged by that and continue to work through policy organizations and in our conversations to educate the stakeholders, including those on Capitol Hill and the administration of the importance of ensuring that everything is there that we know is going to be needed, should we ever have an outbreak of smallpox, which we know would be much more devastating than COVID, unfortunately. So we have to be really well prepared with IT.

Great. Yes. I do believe that provides a very good fundamental backdrop for your company and other companies in medical countermeasures. I have 2 other quick questions, and I hope you could just answer them. Shouldn't take long. Has the contract transitioned fully from Project BioShield to the SNS budget yet? And then what is the minimum amount of lead time that SIGA needs to produce API for the other options?

So Teddy, I'll answer the second question maybe first. I don't like this answer, but on the lead time, it depends. We've had a variety of conversations, both with ASPR and quite frankly, with people and Capital Health Administration that it would be advantageous for industry and the government if they were able to do options well in advance of when they needed to be delivered. And so companies could plan well in advance, start production after an order is made being able to do delivery. The reality is the organizations within the government haven't caught up with their budgets to what they can deliver and place orders in advance. So as you saw, we had an option exercise. We delivered soon thereafter. And obviously, we do that in consultation with the government, but they're hamstrung because they have to wait until they actually get their funding every year. So I wish we could have a longer cycle time. We have, in a supply chain, the ability to forward place materials, whether they're raw materials, active ingredients. And so we are being proactive in managing our ability to manufacture, and what we believe is a responsive time line to the U.S. government. So there's an answer that says, if you went from a get-go. We've said previously, it's over a year. But we know that we want to be responsive to customers here in the U.S. and internationally. So we're proactively managing our supply chain like most pharmaceutical companies to make sure that we can be as responsive as possible to customers.

Got you on that. Okay. And then the other question, yes.

And then the first question on -- Yes. On the SNS. So that's not visible to the outside world. It's a BARDA contract. So funding comes there. They do negotiations internally, and that's not disclosed. We do anticipate in the long run, as we've seen with other medical countermeasures, we would transition to an SNS contract. And that contract would be for a longer time period. We've seen recently several issued for 10-year time period. So that's the type of contract we would like to move to. We've certainly started discussions on. And so that would be our next phase. And to your point, that goes away from the BARDA funding line item to the SNS side. So stay tuned on that development.

Our next question is coming from Andrew Sole of Esopus Creek.

Thank you for your excellent work on behalf of the company. There have been some publish reports where Colorado researchers seem to be utilizing the vaccinia virus in the development of a potential COVID-19 vaccine. Do you have any thoughts around this research that's going on there? And whether you think TPOXX could play any sort of role in light of the risks of administering a vaccinia virus to possibly address COVID?

So thanks, Andrew. I'm not entirely sure the one you're referring to. Most of what I've seen, I think, there was a City of Hope publication, are using what's called vaccinia -- Modified Vaccinia Ankara, which is the virus used in a genius vaccine. As Dennis would explain much better than I, that's replication in confident, that's been specifically developed by the Germans as a "safer" smallpox vaccine many years ago, it was passage so that it loses the ability to replicate. So you don't have the risks associated with adverse events. If the Colorado researchers -- and I believe there is one company that's considering a replication confident vaccinia, then yes, we would have relevance to potentially be a rescue therapy. The live ones, as you know, however, do have higher probability for adverse events and have historically not been used for prophylactic vaccine development. But unfortunately, I don't know the specific one you mentioned, but we'll certainly look it up.

Okay. Yes, it was -- from what I saw, it was coming out of Colorado State University, but I can switch over the article. And really, thanks for a great quarter and all the wonderful work that you and the whole team are doing over there.

[Operator Instructions] Our next question is coming from Matthew Mark of Jet Capital.

I had a couple of questions on the international side. First, did I hear you right? Phil, did you say you expect international orders within the next 6 months?

Yes. We expect to have additional orders and/or contracts within the next 6 months. We believe our conversations are progressing. And so we hope to make continued progress on that front.

That's very, very good to hear. So fingers crossed on that. Are those orders going to require regulatory approvals, do you think, for the product or not?

So it's a mix. As we saw with Canada, they did a smaller procurement upfront and then potentially larger after. We do see countries that are apparently willing and interested in getting deliveries before regulatory approval. And we've also had conversations with countries that want to wait until after a regulatory approval. We focused on the European application as our highest party because Europe is where we've gotten some of that feedback. A few countries have said they would not want to have deliveries of orders until we get EMA approval, but there's been other countries that have said they would. So it's a mixed bag. We think we have a great package in the U.S. FDA to be low-risk for someone. But it is up to their internal procedures.

Our next question is coming from [ Ralph Wheel ] of [ Our Wheel Investment Management ].

Okay. A very nice quarter. I'm aware of Emergent BioSolutions work on smallpox vaccine and workings with the government also. Can you just elaborate, are they a direct competitor? Or do they do something which is somewhat different from what SIGA does?

Well, thank you, [ Ralph ]. Pleasure to talk to you, and I appreciate the question from you. So in the response to smallpox, there are multiple, what we call medical, countermeasures that are important to mitigate the outbreak. And so Emergent BioSolutions makes a vaccine called ACAM2000, which historically was used to eradicate smallpox. If you get the vaccine before infection or within a few days after, it provides quite good protection. If you do not get vaccinated, however, as we've talked about, smallpox has a 14-day asymptomatic incubation period. And so you can be asymptomatic. You might have been exposed after you got the vaccine or you may not have gotten the vaccine. And when you start to have fever after 14 days and go on to lesion, you have about a 30% chance of mortality. So at that stage, only TPOXX will work. We're the only FDA-approved therapeutic for a smallpox. And so it's very important to have a therapeutic because not everyone will get a vaccine in time because we're not routinely immunized against small pots. And so that's why the government in the U.S. is focused so much on a therapeutic. And we're so pleased, ours has a good safety profile, great efficacy in the animal models. And so we're not direct competitors. We certainly are complementary in helping mitigate the devastated impacts of the smallpox outbreak. So thank you for the question.

Ladies and gentlemen, that brings us to the end of today's question-and-answer session. We would like to thank you for your interest in SIGA Technologies. You may now disconnect your lines or log off the webcast, and have a wonderful day.