SIGA Technologies — Solid results marked by revenue diversification

FY22 has been a rewarding year for SIGA, with the company recording multiple contract wins across North America, Europe and Asia-Pacific. The sales momentum was driven by international deliveries of oral TPOXX as governments expedited stockpiling to manage the mpox threat. In FY22, SIGA received $77m in international orders for oral TPOXX from 13 international customers, of which 12 were new jurisdictions across Europe and Asia-Pacific. By the end of the year, SIGA had delivered $71m of orders, including $5m in Q422, $61m in Q322 and $5m in Q222. International sales made up c 82% of the product sales during the year. In addition, top-line growth was supported by $7.5m of oral TPOXX sales to the US DoD and $7.2m in sales of IV TPOXX to the US government under the 19C BARDA contract. We note that SIGA signed another $10.7m oral TPOXX contract with the US DoD in September 2022, of which $5.1m was targeted for delivery in FY22. However, based on the FY22 results, it appears the delivery has been delayed and we expect it to now take place in FY23. We also highlight that $35m of the $77m international orders were made up of deliveries to the Public Health Agency of Canada in Q322. We expect the pending $6m international order book to be delivered in FY23, with the possibility of incremental/recurring contracts, contingent on how mpox case numbers progress. Based on recent trends and current visibility, we expect the FY23 top-line growth to be driven by the BARDA contracts for oral and IV TPOXX.

With about 86,227 global cases and 30,225 cases in the United States to date, mpox has been a key concern for governments and health agencies. Mpox was declared a public health emergency in August 2022, with several countries announcing procurement of combination medicines (vaccines and treatments) from the United States, Europe and Asia-Pacific regions, which in turn drove orders for TPOXX from several international markets (where the treatment is approved for all orthopox viruses including mpox, unlike in the United States, where it is currently only approved for smallpox). However, the mpox outbreak has since been subsiding, with the current (February 2023) seven-day average of the US data showing two new cases a day, significantly lower than the peak of 450 cases a day in August 2022 (Exhibit 1).

Despite the declining numbers, the US CDC cautions that there may be future outbreaks, with the possibility of the virus mutating and new strains emerging. It continues to recommend the at-risk population get vaccinated against the virus. In February 2023, the independent vaccine advisers to the CDC voted unanimously in favor of the two-dose JYNNEOS mpox vaccine for adults at risk of catching the disease during an outbreak.

In this context, we continue to see an opportunity for TPOXX in mpox, given that it is currently the only antiviral treatment (for patients who are already infected, unlike the preventative nature of vaccines) approved for treatment of all orthopoxvirus pathogens, including mpox in both the UK (July 2022) and the European Union (January 2022). In the United States, TPOXX is approved for smallpox and has been made available by the CDC for the treatment of mpox under compassionate use (more than 6,500 patients treated to date, according to management), with clinical trials ongoing to drive broader applicability.

Given that TPOXX’s approval for mpox in the United States requires safety and efficacy to be demonstrated in human trials, SIGA has initiated several trials worldwide, including seven clinical trials that have already been launched, and an additional four planned for launch in the near term (Exhibit 2). Several of these are randomized, placebo-controlled trials, while others are observational studies.

In October 2022, SIGA provided an update on clinical trial progress, noting that in September and October randomized, placebo-controlled clinical trials were initiated in the United States, the UK and the Democratic Republic of Congo (DRC).

These trials are important considerations for the planned US FDA submissions for TPOXX in mpox. Management has indicated that the timing and final number of participants for the trials will depend on the path of the mpox outbreak and the speed of enrolment, which we expect has slowed down considerably given the reduced number of cases. While timelines for final data readouts and the subsequent FDA submission remain uncertain, we see the possibility of management publishing some interim data (both placebo-controlled and based on real-world evidence) in the next few quarters.

SIGA is currently focusing its efforts on its post-exposure prophylactic (PEP) label expansion program, which is supported by a $26m R&D grant from the US DoD. As of now, two clinical trials are ongoing, of which one is an expanded safety study, with nine clinical sites in the United States, where dosing commenced in Q222. The trial remains on track to complete target enrolment in March 2023. The second study is the TPOXX plus JYNNEOS immunogenicity trial, which is being conducted at two sites. The immunogenicity trial has already completed patient enrolment. At present, the company is working on the immunogenicity testing of the patient samples from the TPOXX JYNNEOS immunogenicity study and data readout is expected in the next 90 days. If results are favorable, SIGA plans to commence preparation for a supplemental new drug application for the smallpox PEP indication for oral TPOXX, targeting FDA submission by early 2024.

As a reminder, the typical treatment cycle with oral TPOXX involves a 14-day course of therapy. In comparison, a PEP indication involves a longer course of therapy (28 days, or twice the length of the current FDA-approved treatment label). Typically, an infected individual would receive a 14-day course of treatment, whereas an individual at risk of exposure (but not showing symptoms) would receive a PEP treatment (over 28 days). Given that the US stockpile expansion opportunity (over the next few years) for SIGA is centered around expanding oral TPOXX usage to include PEP, if approved and contracted with the US government, we estimate that the same number of oral treatments will be ordered as in the current BARDA contract (about 1.7m), but there would be four bottles allocated per treatment rather than two (as in previous orders). Given the probable high volumes of sales, the PEP label expansion has significant upside potential for the company’s top line and is a meaningful catalyst to expand its addressable market. We currently assume a 50% probability of success for SIGA’s PEP label expansion opportunity.

The company reported Q422 revenues of $11.4m, of which c $6m was attributable to international sales and the balance to R&D activities. As expected, the timing of stockpile expirations and the associated change in revenue mix adversely affected overall profitability, with the company reporting an operating loss of $1.8m during the quarter. We highlight that SIGA’s revenue recognition is inherently lumpy in nature due to uncertainty in the timing of TPOXX orders and deliveries, making comparison over periods difficult and somewhat imprecise. FY22 total revenue stood at $110.8m, 17.1% (y-o-y) lower than $133.7m in FY21. This was due to lower product revenues, at $86.7m ($126.8m in FY21), though supported by higher R&D revenues of $24.1m (vs $6.9m in FY21) attributed to increased clinical activity under the government-sponsored PEP label expansion study. The company closed the year with PBT of $44.1m and net profit of $33.9m. Operating margins for the year were 39%, versus 67% in FY21, mainly driven by the timing of stockpile expirations and product revenue mix. We note that stockpile orders for oral TPOXX under the BARDA 19C contract have a relatively higher margin (c 85% gross margin) versus IV TPOXX (less than 40% gross margin; c $7m in revenue in FY22) and international orders (65–80% contribution margin on international orders when including the Meridian promotion fee). The increase in SG&A expenses of $35.1m (FY22) from $18.0m (FY21) was largely driven by fees to Meridian (SIGA’s international distribution partner) and are related to FY22 international sales of $71m versus c $13m in FY21. While R&D expenses increased to $22.5m in FY22 ($9.9m in FY21), this was more than offset by R&D reimbursement during the year under the government-sponsored PEP label expansion clinical study.

Based on the Q422 results and current visibility on upcoming contractual obligations and the order book, we have made some adjustments to our forecasts. We have revised our FY23 revenue estimates, to $176.4m, from our previous forecast of $169.0m, on account of the DoD deliveries now expected in FY23 versus FY22 previously. We have also introduced FY24 estimates, with revenue projected at $177.0m. We expect revenue contributions for both FY23 and FY24 to be dominated by deliveries to the US government under the BARDA contract (920k doses estimated during FY23 and FY24) against the upcoming stockpile expirations (from the 2016/17 stock; shelf life is seven years). This amounts to $225m, which we have divided equally between FY23 and FY24. We also incorporate the $26m in IV TPOXX deliveries to BARDA expected in FY23. Of the remaining $51.0m in IV options, we assume exercise of $26m in FY24. In addition, we factor in the $10.7m contract signed with the DoD in October 2022, to be delivered in FY23. The remaining revenue contributions are based on our estimates for orders from international markets. Exhibit 4 presents a breakdown of our product revenue estimates for FY23 and FY24.

The variability in gross margins between oral TPOXX and IV TPOXX is incorporated in our cost of goods sold estimates for FY23 and FY24. We make very minor adjustments to our operating expense estimates, therefore our FY23 EBITDA margin estimate improves to 56% from 53% previously. For FY24, we estimate an EBITDA margin similar to FY23 (56%). Our FY23 EPS estimate changes to $1.07, from $0.96 previously. We estimate FY24 EPS at $1.13.

We value SIGA on a risk-adjusted NPV basis for its various programs and contracts, forecasting to the end of the patent life in each geography. Incorporating the discussed changes to our estimates, rolling forward our model (which gets us closer to patent expiry) and incorporating the new net cash figure has resulted in our valuation re-adjusting to $1.28bn or $17.7/share, from $1.43bn or $19.64 per share previously. Timing of stockpile replenishment is the primary driver of revenues and margins. We have also revised international estimates (ex-Canada), incorporating a slower ramp-up than previously assumed following the reduced mpox incidence. However, this has a lesser impact as products outside of US stockpile expirations have lower margins (and lower revenue contribution).

After share buybacks and a $32.9m dividend payout during the year, SIGA closed FY22 with a $98.8m cash balance and remains well-capitalized to support its clinical and market expansion plans.