SIGA is, in short, a story stock. The story above is intuitively compelling. If all goes according to plan, the contract will be awarded and SIGA will skyrocket to untold heights as it sells not only to the US Government but to governments and non-profits worldwide. Also, thanks to the compelling economics of the drug market, once the product is approved, marginal costs are extremely low and so the company should quickly become a free cash flow powerhouse.
For story stocks to be successful, three things must happen:
- The story must be a surprise. If it is not a surprise, then it is likely fully impounded in the stock price.
- The story must be meaningful. The surprise must make a meaningful difference in the company’s performance. There is no prize for making forecasts that will have no impact on the stock price.
- The story must come true. If the story doesn’t come true, then you may have fallen into a value trap and in retrospect the price paid may have been fairly (or worse, overly) valued.
Yesterday, SIGA fell ~18% in the first trading day after it released its annual report. The company’s revenues were lower (3.1m vs 4m) in Q4 and losses were greater (4.2m vs 3.7m). However, on the bright side, the company is still actively trying to make the “story” come true:
In addition to reporting financial results, SIGA is also reporting that it responded to the Request for Proposal 11-100-SOL-00007 from the Biomedical Advanced Research and Development Authority (“BARDA”) prior to the deadline.
Disclosure: No position