SIGA Technologies — Momentum building as the year progresses

Q224 was another solid quarter for SIGA, with the Q2 sales momentum driven by IVT deliveries (versus oral TPOXX in Q124). The company recorded overall revenue of $21.8m during the quarter, a material growth over the Q223 figure of $5.9m and comparable to the previous quarter’s figure of $25.4m. This included $20.7m in product sales, comprising $17.6m in IVT deliveries to the Biomedical Advanced Research and Development Authority (BARDA) under the August 2022 order worth $26m and another $3.1m in international deliveries of oral TPOXX. We understand that the majority of the international sales are related to the contract covering the 10 member states of the Association of Southeast Asian Nations (ASEAN; c $2.7m). This agreement was signed in June 2024. R&D-related revenues amounted to $1.1m ($4.6m in Q223) and comprised activities under the 19C BARDA contract. This lower figure was due to the conclusion of the $27m BARDA funding in Q223 for the PEP label expansion program.

We note that the quarter saw a dip in gross margins: 40.5% in Q224 versus 86.5% in the previous quarter (COGS of $12.3m in Q224 versus $3.2m in Q124, despite comparable revenues). This can be attributed to the different sales mix in the quarter, with a greater topline contribution from the lower-margin (c 40%) IVT. In contrast, oral TPOXX has a gross margin of 85%. As expected, R&D expenses remained soft at $2.9m (43.5% decline y-o-y), due to lower expenses following reduced activity from the PEP label extension trial. SG&A expenses were up 25% y-o-y to $5.5m due to increased promotional fees related to international sales during the quarter, as well as higher executive compensation, partially offset by lower professional service fees. Overall, operating and net profit for the quarter were $1.1m and $1.8m, respectively, versus an operating and net loss of $4.6m and $2.9m in Q223.

Cash flow from operations was $6.0m in Q224 versus an outflow of $3.6m during the comparable period. This partially offset the decline in cash balance due to the $42.8m dividend payout in April 2024. SIGA ended Q224 with a strong net cash position of $106.9m. Given the strong orderbook for H224, we expect the balance sheet to remain robust for the foreseeable future.

In July 2024, BARDA exercised the remaining $112.5m option for oral TPOXX deliveries under the original 19C contract. During the Q224 results, management indicated that deliveries under the order will commence in the next 90 days, and a ‘meaningful’ portion of the order will be delivered within 2024. In the absence of further clarity, we now assume that SIGA will deliver 80% of the order value ($90m) in Q424, with the remaining $22.5m to be delivered in Q125. We adjust our estimates for this change and now project the FY24 and FY25 revenues to be $160.5m and $186.9m, respectively, versus $177.6m and $161.7m previously. Note that our FY24 revenue estimate assumes that the full August 2022 order will be delivered in 2024 ($17.6m was delivered in Q224 and we expect the remaining $8.4m to be serviced in H224). Management also indicated that it expects the pending IVT option worth $26.5m to be exercised in 2025. This does not affect our estimates as we had projected deliveries under this order only in 2026; we keep this assumption unchanged for now. We also continue to assume that the July 2023 IVT order ($25m) will be delivered in 2025.

Further, we have made very slight amendments to our operating expenses estimate, primarily reducing our R&D expectations for FY24 to reflect the H124 trend ($12.3m now from $13.1m previously) and increasing our SG&A estimate ($29.6m versus $27.4m previously). Overall, we now expect FY24 and FY25 operating profit to be $85.7m and $109.2m, respectively, versus $101.1m and $91.3m previously.

As highlighted above, the latest $112.5m option exercise was the last one available for oral TPOXX under the current 2018 BARDA contract: $546m total procurement value, of which $520m has been ordered; only the $26.5m IVT option remains outstanding and is expected to be exercised in 2025. In the longer term, while there is currently limited visibility on a contract extension with BARDA, we believe that SIGA is engaged in discussions with several stakeholders in preparation for a potential long-term contract. SIGA is confident that it can secure a deal, citing:

The company is currently waiting for the US authorities to initiate the RFP process and believes that it will be able to secure a long-term (five to 10 years) deal with a higher value than the 2018 BARDA contract and with more regular purchases. We see high likelihood of this happening, given that TPOXX is the only currently approved treatment for smallpox with a differentiated and clean safety profile and that the government is likely at least maintain its TPOXX stockpiles (1.7m doses, equivalent to 0.5% of the US population), which would require periodic replenishment given the seven-year expiration period for the treatment.

While deliveries to the SNS will likely continue to underpin SIGA’s growth in the near to medium term, in the longer term we expect top-line support to increasingly come from international markets, and potentially under the PEP label, should it be approved by the FDA. SIGA has been able to leverage the opportunities borne from the mpox outbreak in 2022 to expand its international footprint (over 25 countries now), and we see the revised deal terms with international distribution partner Meridian as a clear signal of management’s focus on expanding its international presence. Most recently, SIGA (in partnership with Meridian) signed an agreement to deliver TPOXX to ASEAN member states, which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. We believe this deal could act as a stepping-stone for SIGA to expand its presence into the untapped Asian markets. Note that this follows the April 2024 NDA filing by SIGA’s partner, Japan Biotechno Pharma, for oral TPOXX under the broad orthopox label and the $18m Health Emergency Preparedness and Response Authority (HERA) deal in October 2023 to deliver TPOXX to 13 European Union member nations.

SIGA has also been pursuing the potential expansion of TPOXX usage under the PEP label. Given the 28-day PEP treatment, versus 14 days for TPOXX (see Exhibit 1), this has the potential to significantly increase the market opportunity for SIGA, provided it is approved and stockpiled by the US government. As noted previously, the R&D efforts for the PEP label were substantially funded by the US Department of Defense. Following certain unexpected delays (discussed in our previous note), the company plans to file a supplementary new drug application (sNDA) in the next 12 months. For our model we currently assume a 2026 launch but will revisit our estimates as we get more clarity on the sample reanalysis by the Centers for Disease Control and Prevention. As a reminder, the bottleneck relates to the immunogenicity trial with the approved smallpox vaccine Jynneos, as both treatments are likely to be administered together in the event of an outbreak.

While the number of mpox cases has waned since the 2022 outbreak, the virus continues to be a latent threat given the periodic surges and emergence of new, more serious strains such as Clade I in the Democratic Republic of the Congo (DRC), which is significantly more lethal than the Clade IIb strain, which spread globally in 2022 (5% death rate versus 0.2% with Clade II). The World Health Organization has called for serious action against this new strain, and SIGA’s management noted that unvaccinated people (or those who have received only one dose of the Jynneos vaccine) remain more vulnerable to this threat. We highlight that TPOXX is already approved in the EU and UK for all orthopoxviruses (including mpox), and several European nations hold stockpiles to cater to possible recurrences. However, US approval requires in-human studies, which remain ongoing. SIGA is currently supporting five randomized controlled trials, as well as several observational studies.

Patient recruitment, which had slowed in 2023, has picked up pace in 2024, and management has noted that the NIAID PALM 007 trial in the DRC has now completed patient enrollment. Moreover, the US-based STOMP trial has onboarded 515 patients, versus 350 patients as of the Q124 earnings call. With the target of 530 patients, we expect the enrollment to be completed soon. Management has indicated that if the trial data are supportive, SIGA will coordinate with the trial sponsors to file an sNDA as early as 2025. We continue to see an upside opportunity for SIGA from the potential approval of TPOXX for mpox in the US.

We value SIGA using our standard risk-adjusted net present value (rNPV) approach, forecasting each of its programs to the end of the patent life in each geography. Based on the previously discussed changes to our estimates, rolling forward our model, and incorporating the latest net cash figure, our overall valuation adjusts slightly to $1.13bn or $15.89/share (from $1.14bn or $16.01/share previously). See Exhibit 2 for a breakdown of our rNPV valuation.