SIGA Technologies — Solid results marked by revenue diversification

SIGA Technologies (NASDAQ: SIGA)

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Research: Healthcare

SIGA Technologies — Solid results marked by revenue diversification

SIGA’s FY22 results highlighted underlying revenue diversification and clinical progression during the year. Results were broadly in line with our expectations. Growth was driven by the material uptick in international orders due to the mpox (monkeypox) outbreak ($71m of $77m orders delivered in FY22), supported by orders from the US Department of Defense (DoD) and BARDA for IV TPOXX. Consistent with prior periods, variability in replenishment of government stockpiles is a key consideration in reported revenues and margins. For FY23 and FY24 we estimate replenishment of government stockpiles will continue to remain a pillar, driven by BARDA deliveries for oral ($225m in total over FY23 and FY24 for expiry replenishment) and IV TPOXX. SIGA remains well-capitalized, with net cash of $98.8m at FY22. We adjust our estimates for the Q422 results and near-term operational visibility (introducing a slower international sales ramp-up) resulting in our valuation adjusting to $17.70/share (from $19.64).

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

SIGA Technologies

Solid results marked by revenue diversification

FY22 results update

Pharma and biotech

14 March 2023

Price

US$5.4

Market cap

US$390m

Net cash ($m) at 31 December 2022

98.8

Shares in issue

72.2m

Free float

56%

Code

SIGA

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(21.4)

(34.4)

(24.9)

Rel (local)

(15.6)

(31.6)

(18.1)

52-week high/low

US$26.2

US$5.2

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

Q123 results

May 2023

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

SIGA Technologies is a research client of Edison Investment Research Limited

SIGA’s FY22 results highlighted underlying revenue diversification and clinical progression during the year. Results were broadly in line with our expectations. Growth was driven by the material uptick in international orders due to the mpox (monkeypox) outbreak ($71m of $77m orders delivered in FY22), supported by orders from the US Department of Defense (DoD) and BARDA for IV TPOXX. Consistent with prior periods, variability in replenishment of government stockpiles is a key consideration in reported revenues and margins. For FY23 and FY24 we estimate replenishment of government stockpiles will continue to remain a pillar, driven by BARDA deliveries for oral ($225m in total over FY23 and FY24 for expiry replenishment) and IV TPOXX. SIGA remains well-capitalized, with net cash of $98.8m at FY22. We adjust our estimates for the Q422 results and near-term operational visibility (introducing a slower international sales ramp-up) resulting in our valuation adjusting to $17.70/share (from $19.64).

Year

end

Revenue
(US$m)

EBITDA*
(US$m)

PBT*
(US$m)

EPS*
(US$)

P/E
(x)

Net debt/(cash)
(US$m)

12/21

133.7

89.7

89.1

0.92

5.9

(103.1)

12/22

110.8

44.2

42.7

0.45

12.0

(98.8)

12/23e

176.4

98.2

97.6

1.07

5.1

(124.2)

12/24e

177.0

99.3

98.8

1.13

4.8

(183.6)

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

Focus returns to BARDA deliveries in FY23

Based on the upcoming expirations, we estimate deliveries for BARDA oral TPOXX of $112.5m each in FY23 and FY24. Incrementally, we anticipate upside from international oral TPOXX orders of c $6m and IV TPOXX orders worth c $26m, to be fulfilled in FY23. We also think the $10.7m contract with the DoD will likely be delivered in FY23, with the possibility of the Canadian Department of National Defense exercising a portion of its option for an additional c $6m of oral TPOXX. We expect a strong operating performance from SIGA in FY23 and FY24 (albeit with some timing variability) and a strengthening balance sheet.

Upside optionality from mpox recurrence

Despite subsiding mpox cases (two new cases/day in the United States, down from a peak of 450 cases/day in August 2022), the US Centers for Disease Control and Prevention (CDC) cautions there may be a recurrence and emphasizes the importance of being prepared. SIGA has indicated that TPOXX has already been used to treat more than 6,500 mpox patients in the United States on a compassionate basis and the company is participating in multiple government-sponsored clinical trials globally to prove safety and efficacy. We expect interim readouts in the near term.

Valuation: Resets to $17.70 per basic share

We roll forward our model and adjust our estimates for the Q422 results and improved visibility on near-term revenues. We have revised our FY23 and FY24 estimates slightly and updated the latest net debt figure in our model. Our valuation now stands at $17.70/share, versus $19.64/share previously.

FY22 a year of ‘internationalization’

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.

Mpox: Down but not out

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).

Exhibit 1: US mpox seven-day daily average cases

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.

Data awaited from ongoing trials in mpox

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.

Exhibit 2: Overview of TPOXX clinical trials

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).

US trial – STOMP (A5418) is being sponsored by the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health. The trial targets enrolment of over 500 participants, including children and individuals who are pregnant or breastfeeding. The trial will also include an open-label arm, which will include children, pregnant/breastfeeding women and individuals who are immunocompromised or have severe mpox disease.

UK trial – PLATINUM has been commissioned and funded by the National Institute for Health Care and Research. The trial has the goal of recruiting at least 500 participants, including children weighing ≥13kg.

DRC – PALM 007 is sponsored by the NIAID and Institut National de Recherche Biomédicale, with a target enrolment of over 450 participants, including children weighing ≥3kg and women who are either pregnant or breastfeeding.

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.

FDA submission for PEP label expansion likely in FY24

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.

Exhibit 3: The PEP opportunity

FY22 financials and estimate revisions

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.

Exhibit 4: Expected order deliveries in FY23 and FY24

FY23e

FY24e

Domestic (US)

US BARDA contract – Oral

112.6

112.6

US BARDA contract – IV

26.0

25.8

US Department of Defense

10.7

N/A

International

Canada

Revenues Military

4.0

2.0

Canada PHAC

N/A

7.5

EU, Australia, Japan

2.7

8.4

Total deliveries (product revenue)

156.0

156.3

Source: Edison Investment Research

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.

Valuation

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.

Exhibit 5: SIGA Technologies 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

376

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

29

TPOXX US PEP

Post-exposure prophylaxis following exposure to smallpox

Development

50%

2025

128

233

TPOXX EU, Japan, Korea, Australia

Treatment of smallpox

EMA approved

55%

2022

346

223

Commercialization of TPOXX, PEP.

US, Canada, Europe, Asia

Treatment of mpox

2024

173

269

Total

 

 

 

 

 

1,179

Net cash (Q422) ($m)

98.8

Total firm value ($m)

1,278

Total basic shares (m) as of Q422

72.2

Value per basic share ($)

17.7

Source: Edison Investment Research

Exhibit 6: Financial summary

$000s

2020

2021

2022

2023e

2024e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

 

 

Revenue

 

124,959

133,670

110,776

176,443

176,974

Cost of Sales

(14,797)

(16,602)

(10,433)

(34,438)

(32,860)

Gross Profit

110,162

117,069

100,343

142,004

144,114

Research & Development

(10,939)

(9,942)

(22,526)

(22,751)

(22,978)

General & Administrative

(14,722)

(18,034)

(35,117)

(21,616)

(22,323)

EBITDA

 

88,579

89,716

44,250

98,155

99,331

Operating Profit (before amort. and excepts.)

 

84,501

89,093

42,700

97,638

98,813

Intangible Amortisation

-

-

-

-

-

Other

532

101

1,032

-

-

Exceptionals

(8,507)

118

401

-

-

Reported operating Profit

 

84,501

89,093

42,700

97,638

98,813

Net Interest

(3,017)

-

-

-

-

Other

-

-

-

-

-

Profit Before Tax (norm)

 

81,484

89,093

42,700

97,638

98,813

Profit Before Tax (reported)

 

73,509

89,312

44,133

97,638

98,813

Tax

(17,167)

(19,861)

(10,228)

(23,433)

(23,715)

Deferred tax

-

-

-

-

-

Profit After Tax (norm)

64,317

69,232

32,472

74,205

75,098

Profit After Tax (reported)

56,342

69,451

33,905

74,205

75,098

Average Number of Shares Outstanding (m)

79

75

73

70

67

EPS - normalized ($), basic

 

0.81

0.92

0.45

1.07

1.13

EPS - normalised fully diluted ($)

 

0.81

0.91

0.44

1.06

1.12

EPS - reported ($)

 

0.70

0.92

0.46

1.07

1.13

 

 

Gross Margin (%)

88

88

91

80

81

EBITDA Margin (%)

71

67

40

56

56

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

68

67

39

55

56

 

 

BALANCE SHEET

 

 

Fixed Assets

 

6,223

5,973

9,250

9,250

9,250

Intangible Assets

898

898

898

898

898

Tangible Assets

2,104

2,366

1,848

1,848

1,848

Other

3,221

2,709

6,503

6,503

6,503

Current Assets

 

143,608

208,753

185,786

243,218

302,853

Stocks

-

19,510

39,273

35,000

35,000

Debtors

3,340

83,650

45,407

81,720

81,891

Cash

117,890

103,139

98,791

124,183

183,646

Other

22,378

2,453

2,316

2,316

2,316

Current Liabilities

 

(10,484)

(30,488)

(21,518)

(20,208)

(20,208)

Creditors

(1,278)

(2,028)

(3,355)

(3,355)

(3,355)

Short term borrowings

-

-

-

-

-

Other

(9,205)

(28,460)

(18,162)

(16,853)

(16,853)

Long Term Liabilities

 

(9,555)

(9,924)

(3,358)

(3,358)

(3,358)

Long term borrowings

-

-

-

-

-

Other long term liabilities

(9,555)

(9,924)

(3,358)

(3,358)

(3,358)

Net Assets

 

129,793

174,314

170,160

228,902

288,537

Minority Interests

-

-

-

-

-

Shareholder equity

 

129,793

174,314

170,160

228,902

288,537

 

 

CASH FLOW

 

 

Operating Cash Flow

 

71,519

11,495

41,611

43,152

77,224

Net Interest

-

-

-

-

-

Tax

-

-

-

-

-

Capex

(16)

(51)

-

-

-

Acquisitions/disposals

-

-

-

-

-

Financing

-

-

-

-

-

Dividends

-

-

(32,940)

-

-

Other (including share buybacks)

(114,600)

(26,195)

(13,019)

(17,760)

(17,760)

Net Cash Flow

(43,097)

(14,751)

(4,348)

25,392

59,464

Opening net debt/(cash)

 

(80,942)

(117,890)

(103,139)

(98,791)

(124,183)

HP finance leases initiated

-

-

-

-

-

Exchange rate movements

-

-

-

-

-

Other

80,045

0

0

-

-

Closing net debt/(cash)

 

(117,890)

(103,139)

(98,791)

(124,183)

(183,646)

Source: Company reports, Edison Investment Research

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United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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