SIGA Technologies, Inc. (SIGA) CEO Phil Gomez on Q4 2019 Results - Earnings Call Transcript
SIGA Technologies, Inc. (NASDAQ:SIGA) Q4 2019 Earnings Conference Call March 5, 2020 4:30 PM ET
Phil Gomez - Chief Executive Officer
Dan Luckshire - Chief Financial Officer
Conference Call Participants
Matthew Mark - Jet Capital
Welcome to the SIGA Business Update Call. Before we turn the call over to SIGA 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 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 ending December 31st, 2019 and its subsequent reports on Form 10-Q and Form 8-K.
It is now my pleasure to hand the call over to Phil Gomez, CEO of SIGA Technologies. Please go ahead.
Thank you for taking the time to join today's call. Today I am joined by Dan Luckshire, our CFO. We're pleased to have this opportunity to provide a business update.
On this call, we will primarily focus our prepared remarks on the following; review of 2019 financial results and a forecast of anticipated product deliveries under the 19C BARDA Contract; progress on international sales; our Post-Exposure Prophylaxis program for TPOXX; other TPOXX opportunities including Monkeypox and Oncology; the Board of Directors' authorization of a $50 million share repurchase program; and growing and diversifying SIGA's product mix through acquisition of assets or businesses.
Before I hand the call over to our CFO, Dan Luckshire, who will provide an update on our 2019 financial results and a forecast for product deliveries under the 19C BARDA Contract, I would like to provide some context on the 19C BARDA Contract.
The stated goal of the 19C BARDA Contract as outlined in the initial request for proposal or RFP is for the maintenance of a 1.7 million course stockpile of smallpox antiviral drug.
We have been preparing to deliver a substantial number of courses of TPOXX to the Strategic National Stockpile or SNS in 2020 since based on expiry of previously delivered product; the stockpile would otherwise drop below the 1.7 million course level.
In 2018, BARDA encouraged the start of manufacturing for the purpose of stockpile replenishment with a contract modification which allowed SIGA to invoice for an $11 million payment upon the purchase of raw materials for processing and manufacturing. We've been manufacturing product in anticipation of product deliveries in 2020.
For product deliveries to commence in 2020, we need procurement options to be exercised by BARDA under the 19C contract. As of today, the procurement options have yet to be exercised by BARDA. However, we do believe BARDA's funding of raw material purchases for product deliveries highlight BARDA's commitment to a robust smallpox antiviral stockpile.
We also believe the COVID-19 outbreak underlines the importance of preparedness and the critical role that ASPR, BARDA, CDC, and the NIH play in health security. As a starting point, we should keep in the mind that the recent news of cases expanding outside China is a sober reminder we do not know the ultimate impact of this virus.
Our partners at ASPR, BARDA, NIH, and CDC are leading the response to this outbreak and it will likely continue to strain their human resources. However, we do not expect an impact on anticipated replenishment of TPOXX stockpiles.
From a financial perspective, we would expect an outbreak like this to follow the same path as other prior outbreaks, for example, the Ebola outbreak, a few years ago in which Congress would appropriate supplemental funding to address COVID-19 and ensure existing high-priority programs such as ours are not interrupted.
Additionally, we believe the COVID-19 outbreak is a clear reminder of the human and economic impact an infectious disease outbreak can have globally. If this outbreak was smallpox which is much more lethal and from initial reports, much more contagious than COVID-19, the impact would be orders of magnitude higher on human lives and the economy. And therefore, a critical reminder that preparedness with medical countermeasures like TPOXX is essential.
With regard to SIGA, the bottom-line is that we continue to work with the Assistant Secretary for Preparedness and Response, BARDA, and the SNS to exercise contract options for product delivery. Our expectation for the number of courses to be delivered to the SNS between 2020 and 2024 to replace expiring TPOXX has not changed.
As a reminder, we expect to deliver approximately 1.66 million courses of oral and IV TPOXX to the SNS between 2020 and 2024 worth a value of approximately $532 million.
At this point I'll turn the call over to Dan.
Thanks Phil. Financially, 2019 was a transition year and operationally, it was a groundwork year. On the financial front, the 2019 financial results reflect the transition from the 1C BARDA contract also known as the 2011 BARDA contract to the 19C contract with substantial completion of the 1C contract occurring in 2018 and substantial product deliveries and revenues under the 19C contract expected to commence in 2020.
SIGA's revenue for the year ended December 31, 2019, was approximately $27 million, which is divided between approximately $11 million in connection with the delivery of approximately 36,000 courses of oral TPOXX and approximately $16 million in connection with research and development activities. The R&D revenue amount includes approximately $3 million of revenue attributable to a negotiated update to government contract rates.
In this transition year, SIGA had a pre-tax operating loss of approximately $2 million and a net loss per diluted share of $0.15. The per-share calculation includes items such as adjustments to the fair value of warrants, interest expense on the term loan and benefit from income taxes.
We ended the year in a solid financial position with cash and cash equivalents including amounts in restricted accounts of approximately $161 million as of December 31, 2019. Amounts in restricted accounts approximately $96 million as of December 31, 2019 are available to pay interest, fees and principal related to the outstanding term loan.
On the operational front, it has been a busy and productive year. Phil will address most of the operational, regulatory and scientific activities in his comments to come. One operational item, I would like to briefly highlight relates to manufacturing. In 2019, we proactively worked with our supply chain to forward process API, active pharmaceutical ingredient in order to be in a position to start delivering meaningful numbers of TPOXX treatment courses in 2020. This enabled us to be where we are well-positioned to meet SNS product delivery needs in 2020 and beyond.
With regard to this year and early next year, SIGA expects procurement options under the 19C BARDA contract; we exercised in the near-term and to deliver oral TPOXX courses with a value of approximately $101 million to the SNS by April 2021 with product deliveries in connection with option exercises to start in the second quarter of 2020.
These estimates are based on among other things, the expiration schedule of courses currently in the Strategic National Stockpile, as well as other considerations such as customer input and manufacturing schedules. The aforementioned estimates do not include any product sales related to IV TPOXX or any domestic or international procurement contracts that may be awarded after this date. It's important to note that after the anticipated exercise of procurement options under CLIN 0009 of the 19C BARDA contract, SIGA's 19C BARDA contract will have up to $414 million of procurement related options remaining for future exercise.
This concludes the financial section of the call. Back to you Phil.
Thanks Dan. I'd like to provide a few additional updates on the 19C BARDA contract, which as a quick reminder also provides important funding for non-procurement initiatives, i.e. R&D and platform support activities.
First, we recently have been allocated funding under the 19C contract for full development of the pediatric liquid formulation of TPOXX, which is an expansion of scope of the 19C contract. We believe the availability of a liquid formulation of TPOXX would be an important addition to the stockpile to ensure broader protection for the U.S. population including both pediatric patients and those who have difficulty swallowing oral medication.
Second, we've also been allocated funding to develop qualified backup manufacturing in certain parts of our supply chain to encourage resiliency and optionality in the production of TPOXX, which is important for U.S. preparedness. We have a U.S.-based supply chain that includes four key contract manufacturing organizations that have been excellent partners in the production of TPOXX since 2011. We believe both of these developments reinforce the strength and value of the TPOXX franchise, which will include oral IV and liquid formulations.
Before I turn my comments to the international markets, I would like to note one additional mark of progress with the 19C contract. As we have previously reported, we received feedback from the FDA that no additional clinical studies will be required and we are preparing the new drug application for the IV formulation that is expected to be filed in 2020 with an anticipated approval in 2021.
While FDA approval of the IV formulation is not a requirement for product deliveries of IV TPOXX under the 19C contract, it is important progress nonetheless as we engage in R&D programs with the goal of FDA approval. And FDA approval of the IV formulation will be part of the overall label expansion initiative.
As with the U.S. FDA approval of oral TPOXX we believe the approval of the IV formulation would help maximize the international sales opportunities. We expect initial deliveries of IV TPOXX to begin in 2020. As a reminder the 19C contract specifies the delivery of 20,000 courses of IV final drug product for approximately $5 million.
Now let's discuss the international markets. The pursuit of international sales for oral TPOXX is a key focus for us at SIGA. Our partnership with Meridian Medical Technologies that we announced last June has been excellent. However as I've said many times the sales cycle is long for international government procurement of these types of products and each country has its own set of internal dynamics.
As such we generally expect the international market to be slow, lumpy and somewhat difficult to predict in the near term. The international sales process is long given decision-making processes that are required to execute a full sale to a government.
We must begin with the education of health officials on the threat, support procurement planning for responsible agencies, educate funders for national budgets, respond to request for proposal, negotiate awards and plan for product deliveries. Ultimately this process can take several years to play out. As I mentioned before each country is unique with their own timelines and internal dynamics.
I have been asked why we do not provide a country-by-country update on sales progress. We do not comment on specific progress with countries for two main reasons. First, we respect the confidentiality of our customers who would not want their deliberations to become public. And second, we would not want to signal to competitors which countries may be undergoing an expansion in their spending for biodefense.
With that context in mind, we are pleased to share a progress report regarding the Canadian military, who announced in December and intend to issue contracts to support a Health Canada, regulatory filing and the purchase of up to 15,825 courses of oral TPOXX for the Canadian military.
A procurement order of this size would represent about 25% of the active military forces in Canada. Although this is a relatively modest number of courses it is precedent for military preparedness by a U.S. NATO ally. The contract to support Canadian regulatory filing has recently been awarded to SIGA.
Total funding will be approximately CAD 700,000 and we anticipate filing with Health Canada in 2020 with approval targeted for the second half of 2021. We anticipate delivery of 2500 TPOXX courses this year with the remaining procurement options to be exercised following Health Canada regulatory approval.
Important to know, we continue to support Meridian discussions with the civilian agencies in Canada on their potential procurement of additional treatment courses of oral TPOXX.
Beyond Canada and North America, we continue to support Meridian's broad-based discussions with potential international customers and see a pattern evolving where individual or country military authorities best understand the threat and are most likely to pursue procurement first with the civilian agencies following with potentially larger orders thereafter.
We have attended multiple international conferences with Meridian over the past 12 months including ones in Austria, Sweden and Malaysia. We have also had extensive meetings with decision-makers in more than 10 countries and initial conversations with many more. It is too early to project annual sales level, but we continue to believe the international market will have the potential to be a meaningful revenue stream for SIGA in the coming years.
To support the European sales effort, we are preparing an EMA marketing authorization application and continue to focus on a broad set of indications for TPOXX in that submission, including the treatment of smallpox, monkeypox, cowpox and vaccinia complications.
We plan to submit our MAA this year with an anticipated approval in 2021. Like Canada, some countries or militaries in Europe may purchase in advance of regulatory approval, while other countries may wait to purchase until the final EMA is approved.
I would now like to move to our post exposure prophylaxis program which would expand the current treatment indication for TPOXX. We've been in very active discussions with the FDA on the development pathway for this label expansion for PEP. We're pleased to share that the FDA has given us feedback that no additional animal studies will be required. Instead we plan to conduct a human study of TPOXX administered in combination with the newly FDA-licensed Jynneos smallpox vaccine.
This study will look for any decrease in the immune response to Jynneos, which is given as an initial shot followed by a booster shot 28 days later. We will compare the immune response to those given Jynneos alone with those given Jynneos while on 28-day TPOXX therapy.
In addition, we will conduct an expanded safety study of TPOXX for 28 days of treatment. This contrasts with our therapeutic indication which requires only 14 days of treatment. We ultimately plan to seek approval for PEP with both ACAM2000 and Jynneos.
Given the TPOXX safety profile and unlikely interference with the vaccine based on previous animal data, we are optimistic regarding the merits of a PEP regulatory approval. We will provide updates on the time lines as they become available. We note that we expect these studies will continue to be funded as they have been under our contract with the Department of Defense.
We believe PEP would be an important expansion of the label for TPOXX and it is very likely that TPOXX would be heavily used for PEP in an outbreak as discussed and noted during the 2018 FDA Advisory Committee meeting for oral TPOXX.
The implication of this type of uses of TPOXX would be that more drug would be used per patient with the expected 28-day versus 14-day dosing. As such, more capsules of TPOXX will be needed in order to maintain the current stockpile coverage of 1.7 million courses.
For example, if the entire stockpile was used for PEP, it will result in only 850,000 doses available for use, given the longer duration of treatment. We have highlighted this to our key customers at the Department of Defense, BARDA, ASPR and the SNS. They will review the potential label expansion and determine whether any changes to the stockpile are needed. This type of review would occur in the context of government preparedness priorities in the coming year.
Continuing this thread, I would like to provide updates on other potential use for TPOXX. We continue to gain traction with oncology companies that are developing oncolytic immunotherapeutic platforms based on vaccinia virus. Given the recent failures of some vaccinia vectors more aggressive next-generation vectors are progressing to clinical trials.
We are collaborating with companies developing these therapies in two main ways. First, we supply TPOXX to clinical studies to treat any serious adverse events that may arise using the vector. An example of this is our collaboration with Turnstone announced earlier this week. Turnstone is one of the leaders in the field developing vaccinia-based oncolytic viral therapies for cancer.
I should note that TPOXX is not approved yet for the treatment of vaccinia complications, so we are providing TPOXX to companies in these types of trials free of charge. And in return we gather data on the effectiveness of TPOXX treatment of complications that may arise from these therapies. We plan to use this data to support a label expansion for complications with vaccinia-based oncolytic virus therapies. There are examples of rescue therapies like this in the field of cancer and we believe it would have substantial value to patients.
Second, we enter into preclinical testing collaborations to explore delivery of TPOXX in combination with vaccinia vectors, which might allow for stronger and potentially more efficacious cancer therapies to be deployed. In all cases, our strong intellectual property position provides flexibility as we develop commercialization strategies to capture this opportunity.
In summary, although it's early, we continue to be intrigued by TPOXX's potential to enable new products to achieve efficacy in oncology and we'll provide updates as we progress the program.
I would like to note that we're very pleased with the recent DoD press release on the assignment of a national stock number for TPOXX, which allows DoD to purchase TPOXX to help mitigate the threat of smallpox and monkeypox to military personnel. We are pursuing a label that includes smallpox, monkeypox vaccinia complications and cowpox with the European Medicines Agency. And ultimately we plan to seek these label expansions with the U.S. FDA as well.
Having discussed key elements of our operations, I'd like to circle back to two important core topics: one, the just announced Board authorization of a $50 million share repurchase program; and two, corporate strategy going forward.
As noted in today's press release, our Board of Directors have authorized a share repurchase program, under which the company may repurchase up to $50 million worth of stock. The program is authorized through December 31, 2021. The timing and actual number of shares repurchased will depend on a variety of factors including exercise of procurement options under government contracts, alternative opportunities for strategic uses of cash, the stock price of the company's common stock and market and industry conditions. We believe that this share repurchase program announced today highlights our commitment to seeking value creation through a full range of approaches.
Now I'd like to say a few words about our corporate strategy going forward. We continue to find new ways to expand our business with and beyond TPOXX, which is keeping our team fully engaged as we execute our plans. We also have a second mechanism of action antiviral drug for smallpox treatment that we are collaborating with NIH to advance its development. We'll provide updates on our second compound as we hit key milestones.
We are also continuing to scan for assets that would be accretive and add value to our efficient corporate platform. We have and continue to look at adjacencies in infectious disease, government contracting and other complementary businesses.
To date, we've examined over 100 potential opportunities, which include potential partnerships, product licenses, acquisitions and strategic investments. We continue to be selective and do not know if we will ultimately find assets with the right fit, but do believe that using cash to invest in assets and our businesses to grow and diversify our product mix is an important potential avenue for value creation.
In summary, we will continue to drive value for our shareholders on the operating front through deliver oral TPOXX courses with a value of approximately $101 million to the SNS by April 2021, with deliveries starting in the second quarter of 2020; pursuing international sales with Meridian; pursuing approval for label expansion for PEP and other orthopoxviruses; expanding and supporting oncology collaborations for TPOXX; and leveraging our capabilities for new products.
Additionally, beyond current operations, we are exploring deployment of cash as another way that we may create value. On this front, we've just announced a $50 million share repurchase program and we are actively looking for assets and businesses that could add to SIGA's product mix.
This concludes our prepared remarks and we now begin the Q&A session.
Thank you. [Operator Instructions] Our first questions come from the line of Matthew Mark of Jet Capital. Please proceed with your question.
Hi, guys. Phil, I very much appreciate the enhanced disclosure in the release and then also in your presentation. So thank you for that. I had two questions. First, the section in the press release that discussed the 19C contract and product delivery expectations, was that language shown to the customer before it was published?
So, this is a projection that comes from us. We're, obviously, sensitive with our customer that we stay in close contact with them, but I wouldn't comment on exactly what we get approval for from BARDA when we do those.
Okay. Second the $50 million repurchase, can you speak to, as a Director and as a Board, how that number was arrived at? In light of the disclosure it's -- I mean, it's not a lot. It's a small percent of the cash on the balance sheet looking out over the period of time, during which you project to complete the program. How did you come up with the $50 million? And also how do you think about that allocation of cash to shareholders, finally a return for shareholders over time past this two-year window?
So, thanks, Mark. It's a great question. I think I'd first like to start by saying; we are reaching in 2020 a new era. As Dan said, we were in a transition period last year between one contract to the next. And so, we recognize that we're now in a new position starting to deliver product in 2020. We haven't however started to deliver that.
And so, we wanted to do what many companies do, as they signal share repurchase, that we think our share price has been undervalued. And so, we wanted to be able to have the ability to repurchase our shares, if we believe the circumstances make sense for that. And we thought $50 million was a very meaningful number given where we are with our future contract and we believe it provides a substantial signal to the market that we see great value in our shares for doing that.
So, that's where we really came out with the number. And going forward, we'll continue to look at opportunities both in share repurchase and assets on the outside and be very disciplined about how we make investment decisions and which ones to use.
I appreciate the answer but there's $80 million cash on the balance sheet and there's another north of $80 million that will be generated by the company between now and December of 2021. So, it's a small fraction of that and most of us have been waiting for a long time to see returns.
So, I would encourage you and the other members of the Board most of whom have been on the Board for well over a decade when the company's performance over their tenure has been for to think harder about a capital return program and one that would be ongoing as a payback for shareholders who waited for a very long time. But I appreciate your answer and I appreciate the enhanced disclosure. Thanks Phil.
Thanks Mark. Appreciate it.
[Operator Instructions] There are no further questions at this time. I'd like to turn the call back over to Phil Gomez for any closing remarks.
So, I'd like to thank everybody for joining the call today. As Matthew Mark said we appreciate that we're entering a new era and part of that is us being able to communicate the activities as they go forward and providing frequent updates and engagement with our shareholders.
So, we really appreciate you joining today and we look forward to continuing those conversations as we go forward and providing additional updates. So, thank you all very much.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great evening.
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