SIGA Technologies — International momentum building towards year-end

SIGA’s Q323 revenues came in at $9.2m, comprising $8m in product sales and another $1.3m in R&D-related revenue. The product sales comprised entirely of deliveries made under international orders to one European country and one Middle-Eastern country. Of this, $7m comprised pending deliveries from the $77m in international orders received by SIGA in 2022. The R&D revenue of $1.3m included $0.9m received under the research contract with the US DoD. As a reminder, SIGA signed a multi-year research contract (PEP label expansion R&D contract) with the DoD, worth $19.5m, in September 2022 (the amount was subsequently raised to $27m). We note that the $0.9m received in Q323 was the last payment under this contract and we therefore anticipate the R&D-related revenue to fall materially in Q423 and beyond.

Q322 revenues, in contrast, were reported at $72.2m (including $66m in product sales and $7m in R&D revenue), driven by an influx of international orders during the peak of the mpox outbreak in 2022. We reiterate that SIGA’s business is lumpy in nature, which leads to variations in the timing of orders, deliveries and revenue recognition, making comparison across periods difficult.

Gross profit on product sales for the period was reported at $7.1m in Q323 (representing a gross margin of 89%) versus $61.7m in Q322 (gross margin of 94%), primarily reflecting manufacturing costs related to oral TPOXX deliveries across both periods. Mirroring the trend of the last couple of quarters, R&D expenses continued to decline with the Q323 figure coming in at $3.6m, a 36% decrease over the $5.7m recorded in Q322. This drop was attributed to lower vendor-related expenses in relation to clinical activities for the PEP label expansion study and BARDA contract, and was partially offset by higher regulatory fees related to the EMA regulatory submissions. SG&A expenses during the quarter ($6m) were significantly lower than the $19.7m recorded in Q322, with the comparable period figure inflated by high marketing and promotional fees related to the international sales push during the period. Overall SIGA reported a Q323 operating loss of $1.3m versus an operating profit of $42.9m in Q322. Net loss was $0.4m against a $33m profit in Q322.

Management has provided Q423 revenue guidance of up to $151m. This includes $113m from oral TPOXX and up to $15m in IV TPOXX deliveries to the US Strategic National Stockpile (SNS), $5m (of the pending $5.6m pending deliveries) to the US DoD and between $15m and $18m under the HERA procurement agreement (discussed in more detail in the subsequent section). Note that while the company is targeting the deliveries to be fulfilled in Q423, it has flagged potential issues related to packaging, which could push out some of the deliveries to January 2024. For our estimates and valuation, we continue to assume that all these deliveries will be concluded in Q423.

Based on year-to-date performance and visibility provided by management on deliveries related to recent contractual obligations, we have adjusted our revenue estimates for FY23 and FY24. While our FY23 estimates were already factoring in deliveries of oral and IV TPOXX to the SNS, we now increase our estimates for international sales (excluding Canada) from the $16m assumed previously to $26m, factoring in the incremental $18m order received under the HERA procurement agreement. Note that our estimates assume that SIGA will deliver the complete $18m of orders in Q423 versus management guidance of $15–18m. Our FY23 estimates also assume deliveries in Q423 of $112.5m worth of oral TPOXX and $15m worth of IV TPOXX (from the August 2022 order) to the SNS and another $5m to the US DoD. For FY24, our top-line estimates remain broadly unchanged, with the exception of international sales (excluding Canada) where we now assume higher revenues (c $25m vs $15m assumed previously, adjusted for a 55% probability of success) to reflect the incremental potential from the HERA agreement. Our revised FY23 and FY24 product sales estimates now stand at $163.7m and $166.6m, respectively (vs $154.7m and $160.3m previously). This growth, however, has been offset by our revised projections for R&D-related revenue, which we have cut materially, to reflect the completion of PEP-related R&D payments from the DoD (which has constituted the bulk of the R&D revenue in the past few quarters). Our revised R&D revenue estimates for FY23 and FY24 now stand at $8.9m and $10.7m, respectively ($20.5m and $20.7m previously).

We had made only minor tweaks to our operating expense estimates, reflecting the 9M22 trend and run rate. We have lowered our FY23 R&D estimate to $20.3m from $22.8m previously and have increased our FY23 SG&A estimate slightly to $25.2m from $24.1m, reflecting higher expected SG&A expenses related to international sales. Our revised FY24 R&D and SG&A estimates are $20.5m and $24.3m, respectively ($23.0m and $23.1m previously). Our FY23 operating profit estimates stands at $98.3m, which is at the upper end of the guidance range of $90–100m.

In October 2023, SIGA announced the formation of a joint procurement mechanism by the European Commission’s HERA, which would help EU nations in centrally procuring oral TPOXX for their national stockpiles. HERA was created in September 2021 in the aftermath of the COVID-19 pandemic to help prepare the EU for any future pandemics or health threats and emergencies. The agency has been allocated a budget of €6bn for the period 2022–27.

The initial procurement order under the HERA agreement involves 13 countries and is open to all countries in the EU and European Free Trade Association (EFTA). The HERA agreement allows participating EU/EFTA member countries to acquire courses of oral TPOXX and efficiently order additional quantities, provided the minimum quantity thresholds are met. SIGA anticipates an initial order worth $18m in Q423 (of which it expects to deliver between $15–18m). We view this joint procurement mechanism as a key stepping stone to SIGA’s internationalization plans, providing an important gateway to several key European markets and expedited growth potential.

During the Q323 earnings call, management disclosed that SIGA has completed a clinical trial demonstrating equivalence of drug exposure between TPOXX oral capsules and the powder for reconstitution liquid formulation (the formulation targeted at younger patients). With a focus on further development, the company has chosen a manufacturer for clinical supplies and is currently designing a clinical development program. We remind that TPOXX is currently only approved for adults and children weighing at least 13kg. About 4% of the US population weighs less than 13kg, highlighting the unmet need in this space.

Under its PEP label expansion program (for oral TPOXX covering smallpox post-exposure prophylaxis), SIGA completed all clinical trial-related activities in early 2023. Of the two clinical trials, the expanded safety study did not indicate any drug-related serious adverse events and was successfully concluded. The second study, an immunogenicity trial (testing TPOXX plus JYNNEOS, an FDA approved smallpox vaccine), was a supplemental study to compare the enrolled patients’ immune response between JYNNEOS + placebo group and JYNNEOS + TPOXX group. As explained in our August update note, while the preliminary analysis of the trial data did not throw up any meaningful difference in immunogenicity between the two groups, subsequent observations indicated that the measurable immune response to the JYNNEOS vaccine in both groups was lower than expected. This could potentially prevent non-inferior statistical determination from being the primary endpoint of the study as originally planned.

SIGA has since then arranged for some JYNNEOS + TPOXX samples to be tested by the Centers for Disease Control and Prevention, which, encouragingly, demonstrated the expected immune response to the vaccine. SIGA is undertaking precautionary reanalysis of the trial data but continues to target a supplementary new drug application filing for 2024. We do not currently see this development affecting our estimates for a 2024 regulatory filing and a 2025 approval.

We continue to view the PEP label expansion as a key growth driver for SIGA, given that the indication calls for a longer treatment course (28 days vs 14 days of oral TPOXX) and therefore offers potentially double the market opportunity for the company.

We value SIGA on a risk-adjusted NPV (rNPV) basis for its various programs and contracts, forecasting to the end of the patent life in each geography. Incorporating the most recent results and improved visibility on certain financial line-items, we have made some adjustments to our rNPV calculations. Our rNPV for oral TPOXX sales in the US goes down to $335m from $363m as we cut our estimates for R&D-related revenue (explained above). This has been partially offset by the increase in rNPV for international sales of TPOXX ($243m vs $224m previously) following the recent procurement deal with HERA, which we believe can accelerate SIGA’s growth trajectory in European countries. Valuation for the remaining programs remains largely unchanged.

Reflecting the aforementioned changes and incorporating the latest net cash figure ($71.1m at end-Q323) in our model results in our overall valuation shifting slightly to $1.23bn, from $1.24bn previously. We note that SIGA has not undertaken any share buybacks in Q323 ($11m worth of buybacks in H123), resulting in the shares outstanding figure staying constant at 71.1m. As a result our per-share valuation adjusts to $17.24/share from $17.46/share previously.