SIGA Technologies(SIGA) - 2022 Q4 - Annual Report

PART I Business SIGA Technologies focuses on TPOXX®, an antiviral for smallpox, with U.S. and international government procurement driving revenue and ongoing label expansion efforts Overview SIGA Technologies focuses on TPOXX®, an antiviral for smallpox, with both oral and IV formulations approved and label expansions underway - SIGA's primary product is TPOXX®, an antiviral drug for smallpox, with both oral and intravenous formulations approved by the FDA[17][18] - Oral TPOXX® also holds regulatory approval in Europe (EMA), the UK (MHRA), and Canada, with the EMA and MHRA labels including treatment for smallpox, mpox, cowpox, and vaccinia complications[19] - The company is pursuing an FDA label expansion for TPOXX® for smallpox post-exposure prophylaxis (PEP), targeting a supplemental New Drug Application submission in early 2024[21] - Multiple randomized, placebo-controlled clinical trials (STOMP in the U.S., PLATINUM in the U.K., and PALM 007 in the DRC) were initiated in 2022 to evaluate TPOXX®'s efficacy for treating mpox, potentially supporting another FDA label expansion[22][23][24] Procurement Contracts with the U.S. Government U.S. government contracts, primarily the $602.5 million BARDA agreement, drive TPOXX® procurement, with significant unexercised options 19C BARDA Contract Status (as of Dec 31, 2022) | Category | Value (approx.) | Description | | :--- | :--- | :--- | | Total Contract Value | $602.5M | Includes base period, exercised options, and unexercised options for oral and IV TPOXX® | | Base Period | $51.7M | Covers initial deliveries of oral TPOXX®, manufacture of IV TPOXX®, and R&D activities | | Exercised Options | $268.9M | Primarily for procurement of oral TPOXX®, raw materials, and post-marketing activities | | Unexercised Options | $281.9M | Potential future payments for oral and IV TPOXX® delivery and manufacturing, at BARDA's discretion | - The company estimates that approximately 920,000 courses of TPOXX® need to be delivered in 2023 and 2024 to maintain historical U.S. Strategic Stockpile levels, suggesting potential for future option exercises by BARDA[33] - In 2022, SIGA secured two contracts with the U.S. Department of Defense (DoD). DoD Contract 1, valued at $7.4 million, was fully exercised and delivered. DoD Contract 2 includes a $5.2 million firm commitment and a $5.5 million option[34][35] International Procurement Contracts and Promotion Agreement International TPOXX® sales, totaling $71 million in 2022, are managed via Meridian Medical Technologies, with strong contribution margins - In 2022, the company received firm orders worth approximately $77 million from 13 international customers, of which $71 million was delivered and recognized as revenue[37] - All remaining amounts under the Public Health Agency of Canada (PHAC) contract, totaling approximately $35 million, were delivered and recognized as revenue in 2022[38] - International sales are managed through an exclusive promotion agreement with Meridian Medical Technologies, Inc., which handles marketing, sales, invoicing, and collection in all regions except the U.S.[40][41] - SIGA estimates the contribution margin on international sales of oral TPOXX® to be between 65% and 80%, depending on annual sales levels[42] Manufacturing SIGA utilizes a capital-light model, relying entirely on third-party Contract Manufacturing Organizations (CMOs) for all TPOXX® production - SIGA does not have its own manufacturing infrastructure and relies on Contract Manufacturing Organizations (CMOs) for all TPOXX® production[45] Key Manufacturing Partners (CMOs) | Formulation | Process Step | Partner | | :--- | :--- | :--- | | Oral TPOXX® | API Manufacturing | W.R. Grace and Company | | | Micronization | Microsize | | | Encapsulation & Testing | Catalent Pharma Solutions LLC | | | Packaging | Packaging Coordinators, LLC (PCI) | | IV TPOXX® | Excipient Supply | Roquette America, Inc. | | | Manufacturing & Testing | Patheon Manufacturing Services LLC | | | Packaging | Packaging Coordinators, LLC (PCI) | Intellectual Property and Proprietary Rights SIGA protects TPOXX® through a robust patent portfolio, including 29 U.S. and 101 foreign patents, with expirations up to 2039 - As of January 10, 2023, the TPOXX® patent portfolio consists of 7 patent families, including 29 U.S. utility patents, 101 issued foreign patents, and 25 pending applications worldwide[69][80] Key U.S. Patents for TPOXX® | Patent Number | Protection Conferred | Expiration Date | | :--- | :--- | :--- | | US 8124643 | Composition of matter for the ST-246 compound | June 18, 2024 | | US 7737168 | Method of treating orthopoxvirus infection | September 4, 2031 | | US 9233097 | Liquid Pharmaceutical formulations | August 2, 2031 | | US 9546137 | Methods of preparing ST-246 | August 14, 2033 | | US 9670158 | Amorphous Tecovirimat preparation | July 11, 2034 | | US 11433051 | ST-246 suspension formulations | November 27, 2039 | Government Regulation SIGA's operations are subject to extensive government regulation, including FDA approval processes, the Animal Rule, Project BioShield, and the PREP Act - The company's products are subject to rigorous testing and approval procedures by the FDA in the U.S. and similar authorities in foreign countries[82] - TPOXX® was approved for smallpox under the FDA's "Animal Rule," which allows for approval based on animal efficacy data when human trials are not ethical or feasible[87] - Project BioShield provides expedited procedures for the U.S. government to procure biomedical countermeasures, allowing for purchases of unapproved products for the Strategic Stockpile under certain conditions[95][96] - The Public Readiness and Emergency Preparedness (PREP) Act provides manufacturers like SIGA with immunity from tort liability for losses arising from the use of covered countermeasures, including those for smallpox and mpox[98] Risk Factors Key risks include heavy reliance on government contracts, regulatory approval complexities, third-party dependencies, and potential patent challenges - A substantial percentage of potential revenue comes from government contracts, with over 85% of the remaining value of the 19C BARDA Contract tied to options exercisable at BARDA's sole discretion[107][110] - The business is highly dependent on the U.S. Government's commitment to maintaining its TPOXX® stockpile after the current BARDA contract ends[112] - The company relies on third-party manufacturers (CMOs) for all production of TPOXX®, exposing it to risks of performance failure, supply chain disruptions, and compliance issues[144][147] - International revenues depend heavily on the performance of Meridian Medical Technologies under a promotion agreement, including their ability to collect and remit payments[133][134] - The company's ability to grow may be impacted by its success in developing and commercializing new formulations or additional indications for TPOXX®, such as for post-exposure prophylaxis or mpox[151] Properties SIGA leases its corporate headquarters in New York and R&D facilities in Corvallis, Oregon, with the latter's lease expiring in 2024 - Corporate headquarters are leased in New York, NY (3,200 sq ft)[188] - Research and development facilities are leased in Corvallis, Oregon (10,276 sq ft), with the lease set to expire in December 2024[189] Legal Proceedings Management anticipates no material adverse effect from current legal proceedings on the company's business or financial position - The company states that it does not expect any current legal proceedings to have a material adverse effect on its business or financial condition[190] PART II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities SIGA's common stock trades on Nasdaq, with an active share repurchase program authorized for up to $50 million through 2023 - The company's common stock is traded on The Nasdaq Global Market under the symbol "SIGA"[194] Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | Oct 2022 | - | $- | $35,325,830 | | Nov 2022 | 88,705 | $9.22 | $34,507,731 | | Dec 2022 | 260,252 | $7.83 | $32,469,204 | | Total Q4 | 348,957 | $8.19 | $32,469,204 | - A share repurchase program for up to $50 million of common stock is authorized through December 31, 2023[196] Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues decreased to $110.8 million in 2022, driven by lower U.S. government sales, impacting net income despite strong international growth Results of Operations Total revenues decreased to $110.8 million in 2022, primarily due to lower U.S. product sales, resulting in a net income of $33.9 million Results of Operations (in millions) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Product Sales Revenue | $86.7 | $126.8 | ($40.1) | | R&D Revenue | $24.1 | $6.9 | $17.2 | | Total Revenues | $110.8 | $133.7 | ($22.9) | | Cost of Sales | $10.4 | $16.6 | ($6.2) | | SG&A Expenses | $35.1 | $18.0 | $17.1 | | R&D Expenses | $22.5 | $9.9 | $12.6 | | Operating Income | $42.7 | $89.1 | ($46.4) | | Net Income | $33.9 | $69.5 | ($35.6) | - The decrease in product sales revenue was primarily due to lower deliveries to the U.S. Government under the 19C BARDA Contract, partially offset by a significant increase in international sales of oral TPOXX® to $71.0 million[247] - Selling, general and administrative (SG&A) expenses increased by $17.1 million, mostly reflecting higher promotion fees paid to Meridian in connection with the substantial increase in international sales[250] - Research and development (R&D) expenses increased by $12.6 million, mainly due to increased clinical trial activity for the PEP Label Expansion program[251] Liquidity and Capital Resources SIGA maintained a strong cash position of $98.8 million at year-end 2022, with $41.6 million from operations and significant financing outflows Cash and Cash Equivalents | Date | Amount (in millions) | | :--- | :--- | | Dec 31, 2022 | $98.8 | | Dec 31, 2021 | $103.1 | Cash Flow Summary (Year Ended Dec 31, 2022, in millions) | Activity | Amount | | :--- | :--- | | Net Cash from Operations | $41.6 | | Net Cash from Investing | $0.0 | | Net Cash from Financing | ($46.0) | - Major financing activities in 2022 included the payment of a $32.9 million special dividend and the repurchase of $13.0 million of common stock[263] - As of December 31, 2022, the company has approximately $33.8 million in outstanding purchase commitments for manufacturing obligations[264] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, including balance sheets, statements of operations, cash flows, and related notes Consolidated Balance Sheet Data (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $98.8 | $103.1 | | Total current assets | $185.8 | $208.8 | | Total assets | $195.0 | $214.7 | | Total current liabilities | $21.5 | $30.5 | | Total liabilities | $24.9 | $40.4 | | Total stockholders' equity | $170.2 | $174.3 | Consolidated Statement of Operations Data (in millions) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total revenues | $110.8 | $133.7 | | Total operating expenses | $68.1 | $44.6 | | Operating income | $42.7 | $89.1 | | Net and comprehensive income | $33.9 | $69.5 | | Diluted earnings per share | $0.46 | $0.91 | - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[272] - A critical audit matter identified was the revenue recognition for R&D services, specifically management's significant judgments in estimating the total costs to complete performance obligations under the 19C BARDA and PEP Label Expansion R&D contracts[280][281] Controls and Procedures Management and independent auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[404] - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[408] - There were no changes in internal control over financial reporting during the quarter ended December 31, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[405] PART III Directors, Executive Compensation, Security Ownership, and Principal Accountant Fees Information on directors, executive compensation, security ownership, and related party transactions is incorporated by reference from the 2023 Proxy Statement - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, and related transactions is incorporated by reference from the Company's 2023 Proxy Statement[414][417][418] Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Weighted-average Exercise Price | Securities Available for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 505,328 | $7.68 | 4,106,840 | | Not approved by security holders | — | — | — | | Total | 505,328 | $7.68 | 4,106,840 | PART IV Exhibits and Financial Statement Schedules This section provides an index of all exhibits filed with the Form 10-K, including financial statements, material contracts, and certifications - This section provides an index of all exhibits filed with the Form 10-K, including material contracts, corporate documents, and required certifications[425]