SIGA Technologies — Geographic expansion underway

SIGA recently reported FY21 results: it generated $133.7m in revenue, growing 9.8% versus FY20’s $125.0m. Revenues included $112.6m in revenues related to oral TPOXX in the United States (as BARDA exercised its latest option in September for delivery per the 19C contract), $10.3m from PHAC and $2.3m from the Canadian Department of National Defence (CDND), with the remaining revenue primarily connected with government-funded research activities (which mostly offset R&D expense). Operating income was $89.1m, up from FY20’s $84.5m. Normalized net income also grew to $69.2m or $0.91 per diluted share as compared to FY20’s $64.3m or $0.81 per diluted share. SIGA also continued its trend of share buybacks, repurchasing 3.8m shares of its common stock for $26m or about 5% of shares outstanding at the beginning of the fiscal year.

BARDA’s 19C contract has four procurement options for oral TPOXX, each worth $112.5m. Oral TPOXX has a seven-year shelf life, and over FY20 and FY21, BARDA exercised the first two options to replenish materials manufactured in 2013/14 that were facing expiration. However, in FY15 no final drug product was manufactured, so management does not expect any product expiration this year. As a result, management expects the final two options for oral TPOXX will be exercised across the next three years (FY22–24), with potentially none this year. This optionality is a prime factor behind the lumpiness in SIGA’s revenues. According to management, it is working with BARDA to plan on exercising options further in advance, as well as developing a future 10-year contract with annual options to smooth out deliveries to better manage budgets and supply chains.

The Russian invasion of Ukraine has not significantly affected SIGA’s operations, though any expansion of the war could have an impact on the company in the future, as it could affect material costs, the ability to expand into Europe and the perception of outbreak risk, etc.

A key part of SIGA’s strategy is international expansion, and SIGA has partnered with Meridian Medical Technologies to internationally market TPOXX, as the latter has existing relationships that can be beneficial for SIGA. The two initial Canadian contracts (PHAC and CDND) were signed for up to $47m and the companies are working on other markets. Furthermore, SIGA is working on an order from an additional jurisdiction, although the precise timing is unknown due to COVID-19 and the war in Ukraine.

As mentioned earlier, sales in Canada grew from $2m in FY20 to nearly $13m in FY21. Moreover, PHAC proposed an amendment to the existing contract, increasing the total procurement of oral TPOXX to up to $38m, with firm commitments to purchase $23m by 31 March 2023. Management expects this amendment to lay the groundwork for $12m of oral TPOXX deliveries to PHAC in FY22 and $3–4m to CDMD in FY22.

SIGA also received approval from Health Canada and the EMA for oral TPOXX. The Health Canada approval, received 1 December 2021, covers oral TPOXX for the treatment of smallpox, while the EMA approval, received 10 January 2022, relates to all human orthopoxvirus pathogens such as smallpox, monkeypox and cowpox. Note the oral TPOXX that was approved represented the same formulation approved by the FDA in July 2018. An important implication of the EMA approval is that it should aid expansion into Europe. According to management, some EU countries would not discuss or advance potential procurement opportunities until SIGA obtained EMA approval. Now that approval has been secured, management expects sales discussions with European jurisdictions to accelerate, as it mentioned numerous talks with potential customers, such as public health and military personnel.

The company is also pursuing expansion beyond its current oral TPOXX approval, as IV TPOXX is under FDA review with approval targeted for H122. The IV formulation would be used to treat those who are either too sick or unable to swallow oral TPOXX capsules. A total of up to $85m of the 2018 BARDA contract is allocated for the procurement of up to 212,000 doses of an IV version of TPOXX.

A key development program for SIGA is its PEP label expansion. As discussed in our prior note, PEP would be used to bridge the one- to two-week gap in potential treatment of smallpox infection, when an exposed person would be unprotected by a vaccine and not likely to receive TPOXX under the current labelling. Management expects data to come in late this year, although delays may occur as it competes with many of the ongoing COVID-19 vaccine studies for access to clinical sites and volunteers.

PEP is essentially the same product as oral TPOXX but for a 28-day course of therapy, or twice the number of days as the approved treatment indication. If someone is sick, they receive a treatment for 14 days and if they are at risk of exposure but not showing symptoms, they receive PEP over 28 days.

Given the US stockpile expansion opportunity over the next few years is centred on expanding the indication of oral TPOXX to include PEP, we have refined our financial model. The update reflects a more conservative stance as our prior model reflected the possibility of the US TPOXX stockpile expanding even more than would have resulted from doubling the number of bottles per treatment course (ie, to reflect the anticipated PEP expansion). We now estimate the same total combined number of treatments will be ordered as in the recent BARDA contract (about 1.7m), but there will now be allocated as four bottles per treatment rather than two (as in previous orders). We are also including a price appreciation for PEP treatment courses given inflation, as we think SIGA can pass on cost increases. Once the impact of PEP is realized in the future, or if geopolitical events change the parameters for stockpile sizing, we may update stockpile sizing estimates.

This PEP work is supported by a $26m R&D contract with the US Department of Defense. As Col Ryan Eckmeier explains, ‘There have been long-standing concerns that smallpox could be used as a bioweapon. This PEP indication could help protect a wider range of warfighters against that threat.’ SIGA and the FDA have agreed on trial design and two human studies are planned: there will be an immunogenicity trial to evaluate if there is interference with the Jynneos smallpox vaccine and a 28-day safety study. On 2 March 2022, SIGA announced the start of the immunogenicity clinical trials (evaluating potential interference with the Jynneos vaccine) and it expects to commence the 28-day safety study in CY22.

In January 2022, SIGA announced a research collaboration with Bioarchitech, a UK-based biotech firm developing immunotherapy for treating cancer. The collaboration is investigating TPOXX in combination with Bioarchitech’s proprietary vaccinia-based immunotherapy platform in pre-clinical studies. This collaboration could further diversify SIGA’s revenue stream into other indications besides smallpox and related conditions.

We have revised our SIGA valuation to $648m or $8.80 per basic share, from $940m or $12.68 per basic share. This adjustment in valuation is due to reducing the incremental opportunity from PEP, greater cash levels from the 2021 BARDA delivery, rolling the model forward a year, the reduction in share count due to buybacks, the increase in the Canada contract with PHAC and a slight raise of the probability of success for international expansion into the EU due to EMA approval.

Following the FY21 results, exercise of the third BARDA oral TPOXX option and change in the PHAC contract, we have lowered our FY22e revenue estimate to $122m and set our FY23e forecast at about $121m, as the timing of the next BARDA options for oral TPOXX (the third and fourth contractual options) and IV TPOXX (the three options) are uncertain and could occur in FY22, FY23 or FY24. We have decreased our operating profit forecast to $61m for FY22 to account for the lower run rate in oral TPOXX.

We model IV TPOXX revenue beginning in FY22e at about $28m, assuming one option is exercised during the fiscal year. However, this results in a relative increase in COGS for FY22e as IV TPOXX tends to run at less than 40% gross margins, lower than the c 85% gross margins for oral TPOXX.

SIGA fulfilled its prior $50m stock repurchase program, which was announced in March 2020 and ran through the end of 2021, repurchasing the maximum amount allowable, including 3.2m shares in FY21 or at a cost of about $21.5m in FY21. In August 2021, the company announced an additional $50m share repurchase program running through 2023 and purchased 0.6m shares for about $4.3m. Shares under the new plan can be repurchased until the maximum amount is used or the plan expires.

We forecast $109m in net cash at the end of FY22, assuming all payments for BARDA deliveries are made and the trend in stock buybacks continues, as we estimate that SIGA purchases $26.0m in stock, or 3.8m shares at about $6.8 per share, under the new buyback program.