SIGA Technologies — International momentum building towards year-end

SIGA Technologies (NASDAQ: SIGA)

Last close As at 04/03/2024

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Research: Healthcare

SIGA Technologies — International momentum building towards year-end

SIGA recapped several key developments in its Q3 update, signalling strong top-line momentum going into Q423. Most notably, the recent $18m procurement deal with the European Health Emergency Preparedness and Response Authority (HERA) has surprised to the upside, with more value to be unlocked, in our opinion. With upcoming BARDA (oral and IV TPOXX), Department of Defense (DoD) and HERA deliveries, Q423 will likely be a busy quarter for SIGA. We have increased our FY23 product revenue estimates to c $164m ($155m previously) to reflect the HERA orders, although this has been offset by lower R&D revenue estimates ($8.9m vs $20.5m previously) following the receipt of the final payment under the PEP research contract with the DoD (in Q323). Management continues to target the PEP regulatory submission in 2024 (despite undertaking a trial data reanalysis) and we view this as a next significant milestone for SIGA. Incorporating the results and latest net cash figure, our valuation adjusts to $17.24/share ($17.46/share previously).

Jyoti Prakash

Written by

Jyoti Prakash

Analyst, Healthcare

Healthcare

SIGA Technologies

International momentum building towards year-end

Q323 results update

Pharma and biotech

9 November 2023

Price

US$4.82

Market cap

US$343m

Net cash (US$m) at 30 September 2023

71.1

Shares in issue

71.1m

Free float

56%

Code

SIGA

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.2)

(16.5)

(48.8)

Rel (local)

(11.8)

(14.2)

(55.3)

52-week high/low

US$9.69

US$4.32

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

FY23 results

March 2024

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

SIGA Technologies is a research client of Edison Investment Research Limited

SIGA recapped several key developments in its Q3 update, signalling strong top-line momentum going into Q423. Most notably, the recent $18m procurement deal with the European Health Emergency Preparedness and Response Authority (HERA) has surprised to the upside, with more value to be unlocked, in our opinion. With upcoming BARDA (oral and IV TPOXX), Department of Defense (DoD) and HERA deliveries, Q423 will likely be a busy quarter for SIGA. We have increased our FY23 product revenue estimates to c $164m ($155m previously) to reflect the HERA orders, although this has been offset by lower R&D revenue estimates ($8.9m vs $20.5m previously) following the receipt of the final payment under the PEP research contract with the DoD (in Q323). Management continues to target the PEP regulatory submission in 2024 (despite undertaking a trial data reanalysis) and we view this as a next significant milestone for SIGA. Incorporating the results and latest net cash figure, our valuation adjusts to $17.24/share ($17.46/share previously).

Year end

Revenue
(US$m)

EBITDA*
(US$m)

PBT*
(US$m)

EPS*
(US$)

P/E
(x)

Net cash
(US$m)

12/21

133.7

89.6

89.1

0.91

5.3

103.1

12/22

110.8

43.2

43.7

0.46

10.5

98.8

12/23e

172.6

98.8

101.8

1.08

4.5

117.4

12/24e

177.3

99.1

102.1

1.11

4.3

179.5

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

A late sales surge albeit a solid one

SIGA reported Q323 revenues of $9.2m ($72.2m in Q222), which includes c $8m in international orders and $1.3m in R&D-related revenues. Management expects the strong orderbook for the year ($164m worth of new orders) to be largely realized in Q423 (management is targeting up to $128m to BARDA, $5m to DoD and $15–18m of international deliveries) or latest by January 2024. We are encouraged by the recent $18m international contract with HERA and see material upside potential given the agency’s growing scope and coverage across Europe. We increase our FY23 product sales estimates to reflect the latest guidance (assuming deliveries in Q423), although this has been offset by reduced R&D revenue forecasts.

PEP optionality continues to be in play

Following a slight setback in the previous quarter (see our note), we believe SIGA’s reassurances on the PEP opportunity remaining on track are likely to assuage the market (as the PEP label potentially offers double the market opportunity to oral TPOXX). SIGA is conducting some precautionary reanalysis of the TPOXX + JYNNEOS immunogenicity trial data and plans to file for regulatory approval in 2024. We currently maintain our estimates for a 2025 launch under the PEP label.

Valuation: Adjusts to $17.24 per share

We update our estimates for the revised revenue expectations (higher product sales and lower R&D revenue) and incorporate the latest net cash balance ($71.1m vs $76.2m previously). Overall, our valuation for SIGA adjusts to $1.23bn or $17.24/share ($1.24bn or $17.46/share previously).

Financials

Operating performance

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.

Estimates revision

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.

HERA agreement expands international scope

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.

Pediatric program making progress

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.

PEP continues to be a future value generator

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.

Valuation

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.

Exhibit 1: 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

335

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

26

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

243

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

Treatment of mpox

2024

173

269

Total

 

 

 

 

 

1,155

Net cash (Q323) ($m)

71.1

Total firm value ($m)

1,226

Total basic shares (m) outstanding

71.1

Value per basic share ($)

$17.24

Source: Edison Investment Research


Exhibit 2: Financial summary

$000s

2021

2022

2023e

2024e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

 

 

Revenue

 

 

133,670

110,776

172,588

177,282

Of which Product revenue

126,803

86,662

163,650

166,557

Of which R&D revenue

6,868

24,114

8,938

10,726

Cost of Sales

(16,602)

(10,433)

(28,848)

(33,989)

Gross Profit on product sales

110,201

76,229

134,802

132,568

Research & Development

(9,942)

(22,526)

(20,273)

(20,476)

General & Administrative

(18,034)

(35,117)

(25,157)

(24,275)

EBITDA

 

 

89,615

43,218

98,843

99,076

Operating Profit (before amort. and excepts.)

 

 

89,093

42,700

98,309

98,542

Net Interest

101

1,032

3,458

3,522

Exceptionals

118

401

-

-

Profit Before Tax (norm)

 

 

89,194

43,732

101,767

102,064

Profit Before Tax (reported)

 

 

89,312

44,133

101,767

102,064

Tax

(19,861)

(10,228)

(24,424)

(24,495)

Deferred tax

-

-

-

-

Profit After Tax (norm)

69,333

33,504

77,343

77,568

Profit After Tax (reported)

69,451

33,905

77,343

77,568

Average Number of Shares Outstanding (m)

75

73

72

70

EPS - normalized ($), basic

 

 

0.92

0.46

1.08

1.11

EPS - normalised fully diluted (c)

 

 

90.75

45.56

109.63

114.84

EPS - reported ($)

 

 

0.92

0.46

1.08

1.11

Gross Margin (%)

87

88

82

80

EBITDA Margin (%)

67

39

57

56

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

67

39

57

56

BALANCE SHEET

Fixed Assets

 

 

5,973

9,250

10,912

10,377

Intangible Assets

898

898

898

898

Tangible Assets

2,366

1,848

1,314

780

Other

2,709

6,503

8,699

8,699

Current Assets

 

 

208,753

185,786

219,454

289,237

Stocks

19,510

39,273

43,200

45,360

Debtors

83,650

45,407

54,488

59,937

Cash

103,139

98,791

117,392

179,489

Other

2,453

2,316

4,373

4,451

Current Liabilities

 

 

(30,488)

(21,518)

(20,807)

(20,767)

Creditors

(2,028)

(3,355)

(2,644)

(2,605)

Short term borrowings

-

-

-

-

Other

(28,460)

(18,162)

(18,162)

(18,162)

Long Term Liabilities

 

 

(9,924)

(3,358)

(3,358)

(3,358)

Long term borrowings

-

-

-

-

Other long term liabilities

(9,924)

(3,358)

(3,358)

(3,358)

Net Assets

 

 

174,314

170,160

206,200

275,489

Minority Interests

-

-

-

-

Shareholder equity

 

 

174,314

170,160

206,200

275,489

CASH FLOW

Operating Cash Flow

 

 

11,495

41,611

62,024

72,497

Net Interest

Tax

Capex

(51)

-

-

-

Acquisitions/disposals

-

-

-

-

Financing

-

-

-

-

Dividends

-

(32,940)

(32,135)

-

Other (including share buybacks)

(26,195)

(13,019)

(11,287)

(10,400)

Net Cash Flow

(14,751)

(4,348)

18,602

62,097

Opening net debt/(cash)

 

 

(117,890)

(103,139)

(98,791)

(117,392)

HP finance leases initiated

Exchange rate movements

-

-

-

-

Other

-

-

-

-

Closing net debt/(cash)

 

 

(103,139)

(98,791)

(117,392)

(179,489)

Source: Company reports, Edison Investment Research


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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.

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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.

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United Kingdom

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In Q323, all three of Foxtons’ divisions outperformed their respective markets, taking market share – the direct result of management action to avoid the same mistakes made during previous downcycles where costs were cut, a position from which it would subsequently struggle to recover. Foxtons’ new strategy focuses growth on non-cyclical revenue streams and decouples performance from sales market cycles. The latest value-enhancing acquisition leads to a net upgrade in estimates in FY24. We therefore raise our ‘base’ case valuation from 59p/share to 62p, which implies more than 60% upside, and our preferred ‘bull’ case valuation from 124p/share to 127p.

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