I recently came across a small biotech that has huge potential revenue growth ahead of it, but some legal complications that has put a major cloud over the stock. The company is SIGA Technologies (NASDAQ:SIGA). It signed a 5 year/$433mm contract in May, 2011 with the government to supply 1.7mm doses of its core product, ST-246. Unfortunately this game changing announcement was also accompanied by some bad news soon thereafter. A Delaware court ruled that its former partner PharmAthene (NYSEMKT:PIP) is entitled to half the profits on ST-246 for the next ten years after SIGA recovers the first $40mm. The defense contract is under review but still should be honored in full. I believe the market is severely discounting this bad news and that SIGA has significant upside ahead of it.
7 Reasons to buy SIGA at under $3 a share:
- The stock is way below analysts' price targets. The median price target for the three analysts that cover this stock is $7. The low price target is $4.50.
- Insiders seem to believe in the company's prospects given that there has been over $500k in new buying over the last eight months, most of it at much higher prices.
- The company has about 35% of its market capitalization in net cash.
- The company is appealing the verdict with PharmaAthene. The judgement could eventually be overturned or a lower settlement negotiated. This potential development is not priced into the stock.
- The company late last year received a $36mm payment from the government as its first major installment from its contract.
- The three analysts that cover the company have a median earnings estimate of 96 cents a share in earnings for FY2013. This would mean the stock is selling for less than 3 times potential 2013 earnings. In addition, the company's biology-driven discovery process is being used to develop other drugs besides ST-246. The market does not seem to be giving the company any credit for its pipeline.
- This equity was selling for over $14 around a year ago. The stock is now selling just above long term technical support (See Chart).
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SIGA over the next 72 hours.