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USD226m
Research: Healthcare
SIGA’s Q124 results were marked by material BARDA and international TPOXX deliveries and highlighted the company’s strategic push towards international expansion, reflected in its revised deal terms with partner Meridian. Robust product revenues of $23.9m (not including $1.6m in R&D income) made up of high margin oral TPOXX deliveries (gross margin upwards of 85%), translated to strong operating profitability of $11.3m compared to an operating loss of $2.1m in Q123. We expect the remaining c $140m option from BARDA for TPOXX to be exercised this year. Despite the $43m dividend payout in April 2024, SIGA retains a healthy balance sheet (pro-forma, post-dividend cash of c $100m and no debt), which we expect will improve further in FY24 with anticipated product deliveries. Reflecting the Q124 results, dividend payout and adjustments to our near-term estimates (to capture the slight uncertainty in IV TPOXX deliveries), we readjust our valuation to $16.01/share ($16.51/share previously).
Written by
SIGA Technologies |
Optimizing the TPOXX value proposition |
Q124 results update |
Pharma and biotech |
13 May 2024 |
Share price performance
Business description
Next events
Analysts
SIGA Technologies is a research client of Edison Investment Research Limited |
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SIGA’s Q124 results were marked by material BARDA and international TPOXX deliveries and highlighted the company’s strategic push towards international expansion, reflected in its revised deal terms with partner Meridian. Robust product revenues of $23.9m (not including $1.6m in R&D income) made up of high margin oral TPOXX deliveries (gross margin upwards of 85%), translated to strong operating profitability of $11.3m compared to an operating loss of $2.1m in Q123. We expect the remaining c $140m option from BARDA for TPOXX to be exercised this year. Despite the $43m dividend payout in April 2024, SIGA retains a healthy balance sheet (pro-forma, post-dividend cash of c $100m and no debt), which we expect will improve further in FY24 with anticipated product deliveries. Reflecting the Q124 results, dividend payout and adjustments to our near-term estimates (to capture the slight uncertainty in IV TPOXX deliveries), we readjust our valuation to $16.01/share ($16.51/share previously).
Year end |
Revenue |
EBITDA* |
PBT* |
EPS* |
P/E |
Net cash |
12/22 |
110.8 |
43.2 |
43.7 |
0.46 |
16.2 |
98.8 |
12/23 |
139.9 |
84.2 |
87.8 |
0.95 |
7.8 |
150.1 |
12/24e |
177.6 |
101.7 |
107.9 |
1.18 |
6.3 |
166.6 |
12/25e |
161.7 |
91.8 |
97.9 |
1.07 |
7.0 |
189.6 |
Note: *EBITDA, PBT and EPS (basic) are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.
Strong quarter with positive growth signals
SIGA fulfilled all pending orders of oral TPOXX in Q1, both in domestic (BARDA $14.7m, US Department of Defense $1.1m) and international ($8m including $0.7m to the Canadian Department of National Defense) markets, after an improvement in manufacturing-related bottlenecks. However, the $26m August 2022 order of IV TPOXX (against which partial payment has been received) remains unfulfilled and we expect it to be delivered fully in 2024. We also believe that BARDA will exercise its final oral TPOXX option in 2024 ($112.5m) and potentially the $26.5m of IV TPOXX. Longer term, we expect traction from expansion in labels (PEP; pediatric) and geography (note that the TPOXX NDA was filed in Japan in April 2024, a key market for SIGA). Revised deal terms with Meridian should give greater control over international plans and we anticipate further upside optionality from possible commercial (ex-government) sales (akin to Bavarian Nordics’ JYNNEOS vaccine).
Healthy balance sheet to support expansion efforts
Recent deliveries to the US strategic national stockpile (SNS) and associated cash inflows have allowed the company to build its balance sheet strength and reward shareholders. Q124-end net cash balance stood at a healthy $143.9m, utilized partially to payout the previously announced $43m dividend in April 2024. We expect the orderbook to strengthen in 2024, improving liquidity to support its growth plans for the foreseeable future.
Valuation: Readjusted to $16.01 per share
We have adjusted our estimates (to account for the slight uncertainty in IV TPOXX delivery timings and the revised fee structure with Meridian), rolled forward our model and incorporated the latest post-dividend net cash figure. Our valuation is now $1.14bn or $16.01/share ($1.17bn or $16.51/share previously).
Financials show a solid start to the year
Q124 was strong for sales performance, with SIGA booking $25.4m in revenue, driven by deliveries to the SNS as well as fulfillment of the remaining orders under the $18m deal signed with the European Health Emergency Preparedness and Response Authority (HERA) in October 2023. Although not strictly comparable (due to the lumpiness in government orders and deliveries), this was a 206% y-o-y growth over the Q123 revenue of $8.3m. Product sales were $23.9m and comprised the remaining $14.7m in oral TPOXX stockpile deliveries to the BARDA from the 2023 order, $1.1m to the US Department of Defense, $7m of orders to seven European countries under the HERA deal and a further $0.7m to the Canadian Department of National Defense. R&D-related revenues amounted to $1.6m ($2.6m in Q123) and comprised activities under the 19C BARDA contract.
Gross margins for the period remained strong at 86% (c 80% in Q123), given 100% of the deliveries were for oral TPOXX, a higher-margin product than IV TPOXX (which has gross margin <40%). R&D expenses declined c 40% y-o-y to $3.1m, due to lower expenses related to the post-exposure prophylactic (PEP) label extension trial. SG&A expenses increased to $7.9m (+86% over the Q123 figure of $4.2m) driven by the promotional fees paid out to Meridian with respect to international sales (there were no international sales in Q123). Overall, operating and net profit in Q124 were $11.3m and $10.3m, versus an operating and net loss of $2.1m and $0.9m in Q123.
Despite the strong profitability, SIGA recorded an operating cash outflow of $6.1m in Q124, which was primarily attributed to a $19m cash tax payment. This affected the cash balance slightly, which declined to $144m at end-Q124 ($150.1m at end-FY23). These cash reserves were utilized to payout $43m in dividends in April 2024 ($0.6/share; a payout ratio of 60% of the FY23 net income). Note that this payment marked the third consecutive year of dividend payout by the company ($0.45/share in 2023 and 2022), reflective of a strong business model.
There is more to come
BARDA has one remaining option for oral TPOXX deliveries under the original 19C contract ($112.5m) and, given the upcoming stockpile expiries in 2024 (of the 2017 deliveries), we expect it to exercise this option in the calendar year, generating significant sales potential for SIGA. We also note that BARDA also holds one remaining option for IV TPOXX ($26.5m). While management has not commented on this, we expect this option to be exercised as well, although delivery may be protracted as we expect the August 2022 and July 2023 order to be delivered first. It should be noted that the two outstanding orders add up to a combined $51m in IV TPOXX, to be delivered in the future.
While our previous estimates captured this upside, we now adjust our FY24 and FY25 forecasts to reflect the possible flexibility in delivery timelines for IV TPOXX. We had previously assumed the entire $26m of the August 2022 order and another $15m of the July 2023 order would be delivered in 2024, but now expect the former to be fulfilled in 2024 with the complete $25m July 2023 order to be delivered in 2025. Moreover, while we expect BARDA to exercise the third and final $25.6m IV TPOXX option in 2024, we now estimate delivery will take place in 2026. All other assumptions for upcoming deliveries remain unchanged. Our top-line estimates for FY24 and FY25 therefore move downwards to $177.6m and $161.7m ($190.6m and $169.3m previously).
We have also adjusted our expense estimates based on the Q124 results. We now assume lower cost of sales in FY24 ($35.9m vs $44.9m previously) due to the small proportion of the lower margin IV TPOXX in the sales mix. We have increased our SG&A estimates for FY25 ($29.6m vs $26.4m previously) as we expect increased direct spending by SIGA on sales efforts during the initial periods following the revision in its deal terms (effective June 2024) with distribution partner Meridian (see below). Overall, we now expect FY24 and FY25 operating profit to be $101.1m and $91.3m versus $103.9m and $95.8m previously. Longer term, we have upgraded our operating margin estimates as we expect the benefits from the internationalization efforts (after the Meridian deal revision) to flow down to the bottom line as sales gain traction.
TPOXX market expansion the long-term focus
A clear takeaway from the Q124 results was the company’s longer-term focus on optimizing the market potential for TPOXX using a multi-pronged approach, as detailed below:
■
Growing its partnership with the US government – SIGA’s current contract with BARDA has been restricted to maintaining a steady stockpile of TPOXX, which has resulted in a lumpy order book. SIGA is now seeking a long-term annual recurring order with the US government, which should provide greater sales visibility and growth potential. We believe SIGA continues to coordinate on this topic with the US government, and we expect an update from management on this in the coming quarters.
■
PEP label extension – SIGA’s PEP label expansion program positions TPOXX as a prophylaxis treatment for individuals at high risk of exposure, which offers double the market opportunity for the company given the expected 28-day treatment course versus 14 days for TPOXX. While SIGA has completed all clinical trial-related activities (the expanded safety study did not indicate any drug-related serious adverse events), samples from the immunogenicity trial (testing TPOXX plus JYNNEOS, an FDA-approved smallpox vaccine) are being retested by the Centers for Disease Control and Prevention after the trial indicated the measurable immune response to the JYNNEOS vaccine in both groups was lower than expected. The company now plans to file a supplementary new drug application by early 2025 (vs 2024 previously). In our last update we cautiously extended the launch expectations under the PEP label to 2026 (from 2025), which we continue to feel comfortable with at the moment.
■
Extension as a treatment for mpox – While TPOXX is approved in the EU and UK for all orthopoxviruses (including mpox), US approval requires SIGA to conduct in-human studies. Management is supporting several clinical trials (funded by government entities) evaluating TPOXX as a treatment for mpox and recruitment is ongoing. Encouragingly, the Q124 earnings report indicated the pace of recruitment has improved after the recent surge in cases and the emergence of a new, more serious, virus strain – 522 patients have now been enrolled in the PALM 007 trial (vs 425 at the end of FY23) in the Democratic Republic of the Congo. The US-based STOMP trial has now recruited 350 patients versus 267 at the time of our last update, with April 2024 witnessing the highest recruitment to date. Based on current visibility, management anticipates patient enrollment will be completed in 2025, a key catalyst for the company, in our opinion.
■
International expansion – The mpox outbreak in 2022 allowed SIGA to expand its geographic footprint and it now seeks to capitalize on this opportunity to grow its user base. A clear step in this direction is the revision in deal terms with its international distribution partner Meridian. In April 2024, SIGA amended its deal terms with Meridian, allowing it greater control over planning and executing its international development efforts. Under the new terms, Meridian will now be eligible to a high single-digit fee (as percentage of sales; c 20% previously) for any new contracts in the EU, Australia, Japan, Switzerland and the UK. No fee will apply for other international markets. We expect the renegotiated terms to benefit the bottom line in the medium term as SIGA gains traction internationally. We also note the potential market opportunity in Japan following the recent NDA filing by SIGA’s partner, Japan Biotechno Pharma. Importantly, the label includes all orthopoxviruses, maximizing TPOXX’s commercial potential in the country.
Valuation
We continue to 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 post-dividend net cash figure, our overall valuation readjusts to $1.14bn or $16.01/share ($1.17bn or $16.51/share previously). Exhibit 1 presents a breakdown of our valuation.
Exhibit 1: Edison’s valuation of SIGA
Product/program |
Main indication |
Status |
Probability of success |
Approval/launch/ |
Peak sales ($m) |
rNPV |
TPOXX (US base – Oral) |
Treatment of smallpox |
On market |
100% |
2018 |
128 |
324 |
TPOXX (Canada) |
Treatment of smallpox |
On market |
100% |
2020 |
15 |
36 |
TPOXX US IV and pediatric formulations |
Treatment of smallpox |
IV (NDA approved May 2022), pediatric (being formulated) |
50–100% |
2022–26 |
30 |
31 |
TPOXX US PEP |
Post-exposure prophylaxis following exposure to smallpox |
Development |
50% |
2026 |
126 |
219 |
TPOXX EU, Japan, Korea, Australia |
Treatment of smallpox |
EMA approved |
55% |
2022 |
279 |
233 |
Commercialization of TPOXX, PEP in US, Canada, Europe, Asia |
Treatment of mpox |
2025 |
104 |
195 |
||
Total |
|
|
|
|
|
1,038 |
Adjusted net cash (Q124) ($m) |
100.8 |
|||||
Total firm value ($m) |
1,139 |
|||||
Total basic shares (m) outstanding |
71.1 |
|||||
Value per basic share ($) |
$16.01 |
|||||
Source: Edison Investment Research. Note: *The net cash figure has been adjusted for the $43m dividend payout in April 2024.
Note that our valuation assumes a launch under the pediatric program in 2026, which we maintain for now pending further updates from the company. During the Q323 earnings call, management indicated that a clinical trial showed that the equivalence of drug exposure to TPOXX oral capsules and the powder for the reconstitution liquid formulation (targeted at younger patients) has been completed and a clinical development program is being designed. We expect further updates on this during the year and will reassess our assumptions accordingly.
Since the release of the Q124 results SIGA’s share price has dropped c 28% but we believe this to be a general market correction (given the near-doubling of the share price since the FY23 results in early March), rather than any underlying operational issue. We maintain our long-term assessment of the company’s business model and potential.
Exhibit 2: Financial summary
$000s |
2022 |
2023 |
2024e |
2025e |
||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
PROFIT & LOSS |
|
|
|
|||
Revenue |
|
|
110,776 |
139,917 |
177,561 |
161,655 |
Of which Product revenue |
86,662 |
130,668 |
173,861 |
157,216 |
||
Of which R&D revenue |
24,114 |
9,249 |
3,700 |
4,440 |
||
Cost of Sales |
(10,433) |
(17,825) |
(35,887) |
(27,511) |
||
Gross Profit on product sales |
76,229 |
112,843 |
137,975 |
129,704 |
||
Research & Development |
(22,526) |
(16,428) |
(13,142) |
(13,274) |
||
General & Administrative |
(35,117) |
(22,043) |
(27,412) |
(29,608) |
||
EBITDA |
|
|
43,218 |
84,159 |
101,658 |
91,801 |
Operating profit (before amort. and excepts.) |
|
|
42,700 |
83,621 |
101,120 |
91,262 |
Net Interest |
1,032 |
4,156 |
6,757 |
6,643 |
||
Exceptionals |
401 |
- |
- |
- |
||
Profit Before Tax (norm) |
|
|
43,732 |
87,777 |
107,876 |
97,905 |
Profit Before Tax (reported) |
|
|
44,133 |
87,777 |
107,876 |
97,905 |
Tax |
(10,228) |
(19,708) |
(24,221) |
(21,982) |
||
Deferred tax |
- |
- |
- |
- |
||
Profit After Tax (norm) |
33,504 |
68,069 |
83,656 |
75,923 |
||
Profit After Tax (reported) |
33,905 |
68,069 |
83,656 |
75,923 |
||
Average Number of Shares Outstanding (m) |
73 |
71 |
71 |
71 |
||
EPS - normalized ($), basic |
|
|
0.46 |
0.95 |
1.18 |
1.07 |
EPS - normalised fully diluted ($) |
|
|
0.46 |
0.95 |
1.18 |
1.07 |
EPS - reported ($) |
|
|
0.46 |
0.95 |
1.18 |
1.07 |
|
|
|
||||
Gross Margin (%) |
88 |
86 |
79 |
83 |
||
EBITDA Margin (%) |
39 |
60 |
57 |
57 |
||
Operating Margin (before GW and except.) (%) |
39 |
60 |
57 |
56 |
||
|
|
|
||||
BALANCE SHEET |
|
|
|
|||
Fixed Assets |
|
|
9,250 |
15,362 |
14,845 |
14,328 |
Intangible Assets |
898 |
898 |
898 |
898 |
||
Tangible Assets |
1,848 |
1,332 |
815 |
298 |
||
Other |
6,503 |
13,132 |
13,132 |
13,132 |
||
Current Assets |
|
|
185,786 |
238,991 |
261,389 |
290,183 |
Stocks |
39,273 |
64,218 |
67,429 |
70,801 |
||
Debtors |
45,407 |
21,131 |
23,244 |
25,568 |
||
Cash |
98,791 |
150,146 |
166,064 |
189,608 |
||
Other |
2,316 |
3,496 |
4,652 |
4,206 |
||
Current Liabilities |
|
|
(21,518) |
(54,118) |
(33,408) |
(33,496) |
Creditors |
(3,355) |
(1,456) |
(1,535) |
(1,623) |
||
Short term borrowings |
- |
- |
- |
- |
||
Other |
(18,162) |
(52,661) |
(31,873) |
(31,873) |
||
Long Term Liabilities |
|
|
(3,358) |
(3,376) |
(3,376) |
(3,376) |
Long term borrowings |
- |
- |
- |
- |
||
Other long term liabilities |
(3,358) |
(3,376) |
(3,376) |
(3,376) |
||
Net Assets |
|
|
170,160 |
196,859 |
239,450 |
267,640 |
Minority Interests |
- |
- |
- |
- |
||
Shareholder equity |
|
|
170,160 |
196,859 |
239,450 |
267,640 |
|
|
|
||||
CASH FLOW |
|
|
|
|||
Operating Cash Flow |
|
|
41,611 |
94,799 |
59,057 |
73,351 |
Capex |
- |
(22) |
(22) |
(22) |
||
Acquisitions/disposals |
- |
- |
- |
- |
||
Financing |
- |
- |
- |
- |
||
Dividends |
(32,940) |
(32,135) |
(43,117) |
(49,786) |
||
Other (including share buybacks) |
(13,019) |
(11,287) |
- |
- |
||
Net Cash Flow |
(4,348) |
51,355 |
15,918 |
23,544 |
||
Opening net debt/(cash) |
|
|
(103,139) |
(98,791) |
(150,146) |
(166,064) |
Exchange rate movements |
- |
- |
- |
- |
||
Other |
- |
- |
- |
- |
||
Closing net debt/(cash) |
|
|
(98,791) |
(150,146) |
(166,064) |
(189,608) |
Source: Company reports, Edison Investment Research
|
|
Research: Healthcare
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