Siga's (NASDAQ:SIGA) dropping share price over the months since being awarded a government contract for its smallpox antiviral ST-246 is evidence enough that many in the market predicted a negative decision from the judge that would rule on the legal battle with PharmAthene (NYSEMKT:PIP), that revolved around a merger that never materialized back in 2006. As alleged by PIP, Siga backed away from the deal after it was supposedly consummated, leaving PIP entitled to share the profits that Siga might rake in from ST-246. In what could be termed a contradictory ruling, the judge agreed with Siga that there was no binding agreement, although the judge also declared that Siga breached its negotiated agreement and was ordered to pay half of all ST-246 profits to PIP for ten years, less the first $40 million earned.
Naturally, Siga plans to appeal the decision, but investors shouldn't hold their breath waiting for a reversal of fortune - it's time now to decide whether SIGA is worth the investment moving forward, or whether it's time to pull chocks and move on.
Maybe even to PIP.
SIGA's share price was crushed on the news, closing Thursday at $2.69 with a market cap of under 140 million. Volume was huge into the drop, with well over ten times the daily norm trading hands.
PIP, on the other hand, closed at $2.74, up roughly fifty cents on volume not quite as impressive as that of SIGA and with a market cap that is now pretty close to SIGA's.
Both companies, given their pipelines, potential and recent developments, can be considered growing players in the defense contracting world, in my opinion, and the BARDA contract awarded Siga earlier this year looks to give both companies a boost over the mid to long term. Especially when considering that there might be more money rolling in from the contract later on down the road.
It would appear that both companies are worth taking a look at as a mid to long term investment. But there's potential over the short term as well.
The size of the initial BARDA contract awarded for ST-246 totals more than the market caps of SIGA and PIP combined, so from the current prices, there could be room for growth from both stocks. PIP's volume was somewhat unimpressive after receiving such positive news, and while the headlines read that its share price "soared," the move higher was also ho-hum, when considering the moves that sometimes materialize in the speculative biotech world.
It looks like PIP might be trading somewhat below the radar, especially as the market downturn pushes some speculative money to the sidelines.
That could be beneficial for those looking to jump in now.
SIGA, however, drew big volume and experienced a more pronounced move - albeit to the downside. This has been a heavily shorted stock over the past year, and that could be a factor in the strong downward volume. The short will want this as low as they can push it in order to cover, but we can't ignore the fact that many playing the trial catalyst have bailed out and moved on.
There's still room for SIGA to bounce from these levels, in my opinion, even following the news that was more severe to the negative than many thought it would be.
As mentioned before, the amount of the contract - and potential for it to grow - does justify a recovery (but not to the level of the previous highs) and it's still very possible that other countries, such as Israel, will jump on the ST-246 bandwagon to boost their own national biodefense stockpiles.
It's also noteworthy that companies such as these two can live for years off government grants, as long as they are making somewhat of progress on their pipelines.
For a prime example, take a look at AVI BioPharma (AVII). The government loves dishing out money to that company, and both SIGA and PIP are similarly positioned.
It's sure to be a volatile ride - especially for SIGA - over the coming days and possibly weeks, but after moves such as the ones experienced by both of these companies, it's time to take a level-headed approach and reassess the two companies for their long and short term potential.
And it looks like both might make the cut. Stay tuned, watch the wires and the share price, but don't expect too much in terms of a reversal on appeal. Even though the fifty percent mark does seem quite steep. PIP gets half of the profits now for doing - absolutely nothing except going to court? Gotta love the American legal system.
Disclosure: Long SIGA.