PharmAthene - All Is Not Lost Yet

| About: Altimmune, Inc. (ALT)
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On Friday August 10, 2012, it was reported that PharmAthene, Inc. (PIP), a biodefense company developing medical countermeasures against biological and chemical threats, had its anthrax vaccine program put on clinical hold by the U.S. Food and Drug Administration.

As a result of this news, the stock ended down 13% and near its 52 week low. From the outside looking in, it would appear that this news is devastating to the Company and a reason to immediately jump ship.

A closer look however reveals that all is not lost. Just a day earlier, the Department of Defense announced that it had elected to exercise its option to accelerate funding for PharmAthene's nerve agent countermeasure program contingent on the achievement of key milestone activities.

Even that news is really just side noise while Siga Technologies Inc. (NASDAQ:SIGA) appeals a Delaware Court of Chancery ruling awarding PharmAthene a portion of profits received by Siga from its smallpox drug. PharmAthene is entitled to 50% of the net profits over 10 years from all sales of Siga's smallpox antiviral agent once SIGA receives the first $40 million in net profits. This is where PIP will either rise or fall.

In 2011, the Biomedical Advanced Research and Development Authority (BARDA) awarded SIGA a base contract for the initial procurement of 1.7 million treatment courses of its smallpox drug. The five-year base contract award is valued at $433 million, of which approximately $412.5 million is for purchase of the product. If you do the math, PIP would be entitled to approximately $200 million. Furthermore, in May 2011, SIGA estimated that if the government were to purchase an additional 12 million treatment courses of its smallpox drug the total value for the current U.S. market, including the initial base contract for 1.7 million courses of therapy, could be approximately $2.8 billion.

Currently PIP only has a little more than 48 million shares outstanding, so the upside is substantial. Even if SIGA does not receive any additional orders beyond the initial BARDA contract for $400 million, PIP stand to potentially receive almost $4 per share in proceeds.

Therefore, the ultimate outcome of the litigation is the binary event for PharmAthene and everything that happens in the interim is just white noise and jockeying for position leading up to the Delaware Supreme Court decision.

Whether the FDA ultimately allows PIP's vaccine program to continue, does not matter nearly as much as the results of the Delaware Supreme Court appeal. Any revenue from the anthrax vaccine is years away, and PIP needs to find success in the Delaware Supreme Court in the interim. A failure to secure success in the litigation and to continue advancement of its anthrax vaccine could well spell the end for PIP.


Ultimately PharmAthene might be a bet worth placing and at these levels and one could consider initiating a small position with a tight stop. As evidenced by the amount of revenue that might be seen upon success before the Delaware Supreme Court, the upside is high. However, plan to hold for the long haul, as I do not expect any form of run-up until we are closer to a final decision from the Court.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Nothing contained herein shall constitute financial, investment, legal and/or other professional advice. Investors buy and sell securities at their own risk. I am currently hold no position in any stock mentioned in this article and have no plans to initiate any positions within the next 72 hours.