SIGA Technologies — Diamond in the rough amid macro weakness

SIGA Technologies (NASDAQ: SIGA)

Last close As at 20/06/2024

USD6.32

0.00 (0.00%)

Market capitalisation

USD450m

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Research: Healthcare

SIGA Technologies — Diamond in the rough amid macro weakness

Ahead of its H123 results and an anticipated period of increased business activity in the second half of the year, we present a preview of SIGA Technologies, which continues to have strong fundamentals (despite the bearish macro environment) with several potential inflection points on the horizon. The nearest catalysts, in our opinion, are the upcoming TPOXX deliveries to the US strategic national stockpile (which we expect in Q3/Q423) and data readouts from the post-exposure prophylactic (PEP) label expansion trials, anticipated in Q323, positive results from which could materially expand SIGA’s addressable market. With a strong balance sheet and potential incremental income generation for shareholders (via dividends and buybacks), we believe that SIGA has a resilient business case in the biotech space.

Written by

Arron Aatkar

Associate analyst

Healthcare

SIGA Technologies

Diamond in the rough amid macro weakness

H223 preview

Pharma and biotech

5 July 2023

Price

US$5.11

Market cap

US$358m

Pro-forma net cash ($m) at 31 March 2023 (adjusted to reflect payment of June 2023 dividend)

83.6

Shares in issue

71.3m

Free float

56%

Code

SIGA

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.3)

(10.7)

(59.7)

Rel (local)

(12.8)

(17.8)

(65.4)

52-week high/low

US$26.2

US$5.0

Business description

SIGA Technologies is a commercial-stage health security company focused on the treatment of smallpox and other orthopoxvirus. It has contracts with both the US and Canadian governments for TPOXX, its treatment for smallpox, and is expanding internationally.

Next events

Q223 results

August 2023

Analysts

Dr Arron Aatkar

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

SIGA Technologies is a research client of Edison Investment Research Limited

Ahead of its H123 results and an anticipated period of increased business activity in the second half of the year, we present a preview of SIGA Technologies, which continues to have strong fundamentals (despite the bearish macro environment) with several potential inflection points on the horizon. The nearest catalysts, in our opinion, are the upcoming TPOXX deliveries to the US strategic national stockpile (which we expect in Q3/Q423) and data readouts from the post-exposure prophylactic (PEP) label expansion trials, anticipated in Q323, positive results from which could materially expand SIGA’s addressable market. With a strong balance sheet and potential incremental income generation for shareholders (via dividends and buybacks), we believe that SIGA has a resilient business case in the biotech space.

Year end

Revenue (US$m)

EBITDA*
(US$m)

PBT*
(US$m)

EPS*
(US$)

P/E
(x)

Net cash*
(US$m)

12/21

133.7

89.7

89.1

0.92

6.4

103.1

12/22

110.8

44.3

42.7

0.45

13.1

98.8

12/23e

175.2

97.2

96.7

1.05

5.6

110.7

12/24e

181.0

102.3

101.8

1.16

5.1

164.5

Note: *EBITDA, PBT and EPS (diluted) are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments. Net cash details in Exhibit 4.

Imminent BARDA deliveries mitigate topline risk

Amid the macro-led pressure on corporate toplines, we expect SIGA’s FY23 and FY24 revenues to be stable in light of the upcoming replenishment of US government stockpiles under the BARDA contract (totaling $225m; see our FY22 and Q123 notes for more details). We see this as a key differentiating factor in the biotech space that reduces risks for investors. Management anticipates $112.5m of US government orders will come through in Q3 or Q423, which should translate to significant cash earnings. At end Q123, SIGA’s cash position stood at $116m.

PEP label expansion a potential game changer

The PEP indication, with its longer treatment course (28 days vs 14 days of oral TPOXX) and therefore double the market opportunity, remains a key future value generator for SIGA, in our opinion. With patient enrolment for both immunogenicity and expanded safety trials under the PEP label expansion program now complete, we see the upcoming data readouts (expected in the next few weeks) and subsequent FDA filing (early 2024) as major upcoming catalysts for SIGA, with the potential to trigger a near-term share price re-rating, should the data be positive.

Dividends offer incremental returns potential

SIGA has distributed two consecutive years of healthy dividend payouts and consistently bought back shares, which has been welcomed especially considering the challenging macro environment, particularly in the biotech sector. With the balance sheet forecast to strengthen in the next two years, we think this trend is likely to continue (albeit it is not assured), which should support investor sentiment.

Valuation: Unchanged at $17.53/share (ex-dividend)

Our valuation remains at $1.25bn or $17.53/share pending the H123 results.

Upcoming BARDA deliveries in focus

We expect SIGA’s FY23 topline performance to be driven by domestic deliveries under BARDA contracts for oral and IV TPOXX. Based on upcoming expirations in the US strategic national stockpile, we continue to estimate oral TPOXX deliveries for BARDA of $112.5m each in FY23 and FY24. Additionally, we anticipate upside from international oral TPOXX orders of c $8m including $1m of oral TPOXX delivered in April 2023 and $7m in pending order deliveries for contracts signed in FY22 and to be delivered by July 2023, along with IV TPOXX orders worth c $26m, to be fulfilled (at least partially) during the year. Out of total $10.7m contract from US Department of Defense (DoD), signed in September 2022, the company delivered oral TPOXX worth $5.1m in Q123. We expect the pending $5.5m of deliveries under the contract to be delivered in FY23 as the US DoD exercised an option for the remaining $5.5m of oral TPOXX orders in March 2023. Though we expect a strong operating performance in FY23 and FY24, we note the possibility of variability in the timings of the orders. As per the latest company release, management expects to receive $112.5m of US government orders in Q323, which suggests the FY23 performance will be driven by the second half of the year. Currently, our FY23 and FY24 estimates remain unchanged.

Next growth opportunity lies in PEP label expansion

Under its PEP label expansion program, SIGA is currently running two clinical trials for oral TPOXX in smallpox treatment. Of the two clinical trials, one is an expanded safety study, with nine clinical sites in the United States, where dosing commenced in Q222. The second study is the TPOXX plus JYNNEOS immunogenicity trial, which is being conducted at two sites. This trial is a comparison of the enrolled participants’ immune response with the JYNNEOS smallpox vaccines compared with the immune response with JYNNEOS while on TPOXX treatment. The study is designed to determine if TPOXX interferes with the development of an effective immune response to the vaccine. With patient enrolment complete for both clinical trials, the upcoming data readout from these trials, expected in July 2023, remains the key potential revenue growth catalyst in medium term. If results are favorable, this should lead to a supplementary new drug application by early 2024, followed by a possible initiation of PEP sales in 2025.

As a reminder, SIGA received a multi-year research contract (PEP Label Expansion R&D Contract) from the US DoD, worth $19.5m, in September 2022, for conducting research work for potential label expansion for oral TPOXX that includes PEP for smallpox treatment. In following revisions, the DoD increased the scope and funding of the contract to c $27m and the contract runs until 31 January 2025. As the PEP study is nearing its completion, as of 31 March 2023, up to $5m in research revenue remains to be recognized under the contract.

We note that the typical treatment cycle with oral TPOXX involves a 14-day course of therapy. In comparison, a PEP indication involves a longer course of therapy (28 days, or twice the length of the current FDA-approved treatment label). Typically, an infected individual would receive a 14-day course of treatment, whereas an individual at risk of exposure (but not showing symptoms) would receive a PEP treatment (over 28 days). Given that the US stockpile expansion opportunity (over the next few years) for SIGA is centered around expanding oral TPOXX usage to include PEP, if approved and contracted with the US government, we estimate that the same number of oral treatments will be ordered as in the current BARDA contract (about 1.7m), but there would be four bottles allocated per treatment rather than two (as in previous orders). Given the probable high volumes of sales, in our view the PEP label expansion has significant upside potential for the company’s topline and is a meaningful catalyst to expand its addressable market. We continue to assume a 50% probability of success for SIGA’s PEP label expansion opportunity.

Exhibit 1: PEP label expansion opportunity

Source: SIGA May 2023 presentation

Dividends: An incremental income opportunity

SIGA is a profitable company, with operating margins of 39% in FY22 and 67% in FY21. In May 2023, SIGA declared a $0.45/share special cash dividend, supported by a strong net cash balance of $115.7m as of 31 March. At the current outstanding share count of 71.3m, this comes to a payout of $32.1m and translates to a healthy 8% dividend yield and a payout ratio of c 44% of our projected FY23 net income of $73.5m. We note that the company announced a similar dividend payout in May 2022, highlighting sustained balance sheet strength.

SIGA is a dividend-paying, commercial-stage, revenue-generating company, which differentiates it from the typical development-stage or non-profitable biotechs. SIGA also continued share buybacks in Q123 and we calculate a total 1.14m shares were bought back in the quarter for $7.6m. We note that (including the recent dividend declaration) the company has spent close to $150m in share buybacks and dividends since early 2020. Note that our current valuation of SIGA ($17.53/share) incorporates pro-forma cash that is ex-dividend ($83.6m). However, it is uncertain whether the company expects to provide similar payouts in future years.

Mpox: A fading but ongoing opportunity

With mpox cases significantly declining globally, in May 2023, the WHO declared that the mpox outbreak is not a global health emergency anymore. Between January 2022 and April 2023, there were more than 87,000 cases of mpox globally, with over 30,000 cases reported in the US. In the three months to 30 April 2023, mpox cases dropped by 90% compared to the previous 90 days. Despite the waning numbers globally, an increased number of cases have been reported recently in certain Asian countries, such as Japan, South Korea and China. While not alarming, this highlights the continued latent threat of future escalations and therefore the ongoing requirement for both preventative vaccines and therapeutics, such as TPOXX, which is currently the only antiviral treatment approved for treatment of all orthopoxvirus pathogens, including mpox, in both the UK (approved in July 2022) and the European Union (approved in January 2022).

Exhibit 2: US mpox seven-day average cases

Though US mpox cases have declined significantly to a seven-day average of one to two cases, we continue to see an opportunity (though limited) for TPOXX for mpox treatment. As a reminder, TPOXX has been used to treat more than 6,900 mpox patients in the United States on a compassionate basis and SIGA is participating in a total of nine trials (from Q322) to assess the safety and efficacy of TPOXX in participants with mpox (the trials are required to receive regulatory approval from the US FDA). Five of these are randomized, placebo-controlled clinical trials and, as per latest the available information, 175 patients have been enrolled across the studies. The pace of recruitment has been hindered by the reducing caseload globally, creating uncertainty in terms of full enrolment, readouts and FDA submission. SIGA has highlighted possible discussions with regulators to allow pooling of interim data from various studies as an alternative to completing the originally planned enrolment targets from a single study. If there is progress on this front, it may allow for faster regulatory submission.

Valuation

We maintain our valuation for SIGA at $1.25bn or $17.53 per share, based on a risk-adjusted net present value (rNPV) for its various programs and contracts, forecasting to the end of the patent life in each geography. Exhibit 3 provides detailed overview of our rNPV estimates across different geographies:

Exhibit 3: SIGA’s valuation

Product/program

Main indication

Status

Probability of success

Approval/launch/
first contract year

Peak sales ($m)

rNPV
($m)

TPOXX (US base – oral)

Treatment of smallpox

On market

100%

2018

123

363

TPOXX (Canada)

Treatment of smallpox

On Market

100%

2020

19

49

TPOXX US IV and pediatric formulations

Treatment of smallpox

IV (NDA approved May 2022), pediatric (being formulated)

60–100%

2022–25

30

29

TPOXX US PEP

Post-Exposure Prophylaxis following exposure to smallpox

Development

50%

2025

128

234

TPOXX EU, Japan, Korea, Australia

Treatment of smallpox

EMA approved

55%

2022

346

223

Commercialization of TPOXX, PEP. US, Canada, Europe, Asia

Treatment of monkeypox

2024

173

269

Total

 

 

 

 

 

1,166

Pro-forma net cash (Q123) ($m)

83.61

Total firm value ($m)

1,249

Total basic shares outstanding (m)

71.3

Value per basic share ($)

$17.53

Source: Edison Investment Research

Exhibit 4: Financial summary

$000s

2020

2021

2022

2023e

2024e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

 

 

Revenue

 

 

124,959

133,670

110,776

175,159

180,974

Of which Product revenue

115,471

126,803

86,662

154,684

160,294

Of which R&D revenue

9,488

6,868

24,114

20,476

20,681

Cost of Sales

(14,797)

(16,602)

(10,433)

(34,391)

(33,059)

Gross Profit on product sales

100,674

110,201

76,229

120,293

127,235

Research & Development

(10,939)

(9,942)

(22,526)

(22,751)

(22,978)

General & Administrative

(14,722)

(18,034)

(35,117)

(21,360)

(23,123)

EBITDA

 

 

88,579

89,716

44,250

97,183

102,338

Operating Profit (before amort. and excepts.)

 

 

84,501

89,093

42,700

96,658

101,814

Intangible Amortization

-

-

-

-

-

Other

532

101

1,032

-

-

Exceptionals

(8,507)

118

401

-

-

Reported operating Profit

 

 

76,525

89,312

44,133

96,658

101,814

Net Interest

(3,017)

-

-

-

-

Other

-

-

-

-

-

Profit Before Tax (norm)

 

 

81,484

89,093

42,700

96,658

101,814

Profit Before Tax (reported)

 

 

73,509

89,312

44,133

96,658

101,814

Tax

(17,167)

(19,861)

(10,228)

(23,198)

(24,435)

Deferred tax

-

-

-

-

-

Profit After Tax (norm)

64,317

69,232

32,472

73,460

77,379

Profit After Tax (reported)

56,342

69,451

33,905

73,460

77,379

Average Number of Shares Outstanding (m)

79

75

73

70

67

EPS - normalized ($), basic

 

 

0.81

0.92

0.45

1.05

1.16

EPS - normalized fully diluted (c)

 

 

80.97

90.61

44.15

104.47

114.90

EPS - reported ($)

 

 

0.70

0.92

0.46

1.05

1.16

 

 

Gross Margin (%)

87

87

88

78

79

EBITDA Margin (%)

71

67

40

55

57

Operating Margin (before GW and except.) (%)

68

67

39

55

56

 

 

BALANCE SHEET

 

 

Fixed Assets

 

 

6,223

5,973

9,250

10,659

10,134

Intangible Assets

898

898

898

898

898

Tangible Assets

2,104

2,366

1,848

1,324

799

Other

3,221

2,709

6,503

8,437

8,437

Current Assets

 

 

143,608

208,753

185,786

208,014

269,068

Stocks

-

19,510

39,273

43,200

45,360

Debtors

3,340

83,650

45,407

49,948

54,942

*Cash

117,890

103,139

98,791

110,733

164,482

Other

22,378

2,453

2,316

4,133

4,283

Current Liabilities

 

 

(10,484)

(30,488)

(21,518)

(20,730)

(20,846)

Creditors

(1,278)

(2,028)

(3,355)

(2,568)

(2,683)

Short term borrowings

-

-

-

-

-

Other

(9,205)

(28,460)

(18,162)

(18,162)

(18,162)

Long Term Liabilities

 

 

(9,555)

(9,924)

(3,358)

(3,358)

(3,358)

Long term borrowings

-

-

-

-

-

Other long-term liabilities

(9,555)

(9,924)

(3,358)

(3,358)

(3,358)

Net Assets

 

 

129,793

174,314

170,160

194,585

254,998

Minority Interests

-

-

-

-

-

Shareholder equity

 

 

129,793

174,314

170,160

194,585

254,998

 

 

CASH FLOW

 

 

Operating Cash Flow

 

 

71,519

11,495

41,611

62,613

72,349

Net Interest

-

-

-

-

-

Tax

-

-

-

-

-

Capex

(16)

(51)

-

-

-

Acquisitions/disposals

-

-

-

-

-

Financing

-

-

-

-

-

Dividends

-

-

(32,940)

(32,071)

-

Other (including share buybacks)

(114,600)

(26,195)

(13,019)

(18,600)

(18,600)

Net Cash Flow

(43,097)

(14,751)

(4,348)

11,942

53,749

Opening net debt/(cash)

 

 

(80,942)

(117,890)

(103,139)

(98,791)

(110,733)

HP finance leases initiated

-

-

-

-

-

Exchange rate movements

-

-

-

-

-

Other

80,045

0

0

0

0

Closing net debt/(cash)

 

 

(117,890)

(103,139)

(98,791)

(110,733)

(164,482)

Source: Company reports, Edison Investment Research. Note: Our cash balance is net cash, incorporating estimated dividend payment, working capital changes and share buybacks.

General disclaimer and copyright

This report has been commissioned by SIGA Technologies and prepared and issued by Edison, in consideration of a fee payable by SIGA Technologies. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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General disclaimer and copyright

This report has been commissioned by SIGA Technologies and prepared and issued by Edison, in consideration of a fee payable by SIGA Technologies. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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Research: Healthcare

Oryzon Genomics — Positive safety data for vafidemstat in PORTICO

Oryzon has announced positive aggregate safety data for vafidemstat, which is being evaluated in the ongoing PORTICO trial as a potential treatment for borderline personality disorder (BPD). The independent data monitoring committee (DMC) has reviewed the safety data from the first 167 patients treated in the trial and reported no cases of treatment-related serious adverse events (AEs) or deaths. The DMC has therefore recommended that PORTCIO proceeds without modification until patient enrolment is completed (expected n=188), which is anticipated to be in Q323. We view this as an encouraging update for the clinical development of vafidemstat and believe that the announcement of top-line data, expected in Q124, may represent the next most significant catalyst for the PORTICO trial and for Oryzon’s central nervous system (CNS) portfolio.

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