SIGA Technologies — US stockpiles front and center in Q1 and FY23

SIGA Technologies (NASDAQ: SIGA)

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Research: Healthcare

SIGA Technologies — US stockpiles front and center in Q1 and FY23

SIGA’s Q123 results were largely driven by US TPOXX deliveries under existing contracts. Q123 product revenues of $5.7m ($7.3m in Q122) were primarily attributed to $5.1m in TPOXX deliveries to the US Department of Defense (DoD). An additional $2.6m in R&D-related income took total revenue to $8.3m (down 21% y-o-y). While TPOXX deliveries (oral and intravenous, IV) to the US strategic national stockpile and international expansion remain key growth areas, the potential post-exposure prophylactic (PEP) label expansion following the projected data readout within the next two months (FDA submission targeted for early 2024) is anticipated to be the next key revenue growth catalyst. With a longer duration of treatment required (28 days versus 14 for smallpox), the PEP opportunity could materially expand SIGA’s addressable market, in our view. SIGA remains well capitalized (end-Q123 cash of $115.7m), resulting in the company announcing a special cash dividend of $0.45/share, payable in June 2023. We now obtain a valuation of $17.53/share (ex-dividend), from $17.70/share previously.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

Healthcare

SIGA Technologies

US stockpiles front and center in Q1 and FY23

Q123 update

Pharma and biotech

15 May 2023

Price

US$5.9

Market cap

US$421m

Net cash ($m) at 31 March 2023 (adjusted to reflect expected payment of FY23 dividend)

83.6

Shares in issue (as of April 2023)

71.3m

Free float

56%

Code

SIGA

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.0

(13.0)

(20.4)

Rel (local)

(0.8)

(13.7)

(24.1)

52-week high/low

US$26.15

US$5.23

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

Q223 results

August 2023

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

SIGA Technologies is a research client of Edison Investment Research Limited

SIGA’s Q123 results were largely driven by US TPOXX deliveries under existing contracts. Q123 product revenues of $5.7m ($7.3m in Q122) were primarily attributed to $5.1m in TPOXX deliveries to the US Department of Defense (DoD). An additional $2.6m in R&D-related income took total revenue to $8.3m (down 21% y-o-y). While TPOXX deliveries (oral and intravenous, IV) to the US strategic national stockpile and international expansion remain key growth areas, the potential post-exposure prophylactic (PEP) label expansion following the projected data readout within the next two months (FDA submission targeted for early 2024) is anticipated to be the next key revenue growth catalyst. With a longer duration of treatment required (28 days versus 14 for smallpox), the PEP opportunity could materially expand SIGA’s addressable market, in our view. SIGA remains well capitalized (end-Q123 cash of $115.7m), resulting in the company announcing a special cash dividend of $0.45/share, payable in June 2023. We now obtain a valuation of $17.53/share (ex-dividend), from $17.70/share previously.

Year
end

Revenue (US$m)

EBITDA*
(US$m)

PBT*
(US$m)

EPS*
(US$)

P/E
(x)

Net cash
(US$m)

12/21

133.7

89.7

89.1

0.92

6.4

103.1

12/22

110.8

44.3

42.7

0.45

13.1

98.8

12/23e

175.2

97.2

96.7

1.05

5.6

110.7

12/24e

181.0

102.3

101.8

1.16

5.1

164.5

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

FY23 BARDA deliveries in sight

In Q123, SIGA recorded $8.3m in revenue (vs $10.5m in Q122), mainly led by oral TPOXX deliveries ($5.1m) to the US DoD and R&D-related revenue ($2.6m) from the government-sponsored PEP label program. We project strong top-line performance in FY23, driven by anticipated oral and IV TPOXX deliveries (worth $113m and $26m, respectively) under the 19C BARDA contract, the pending $5.5m in deliveries to the US DoD and $8m from international orders (including $7m of orders contracted but not delivered in FY22). Further upside could come from any additional orders received through FY23.

PEP trial data readout a crucial upcoming milestone

With patient enrolment for both immunogenicity and expanded safety trials under the PEP label expansion program complete, we expect all eyes to be focused on data readouts, expected within the next two months. If favourable, this should lead to a supplementary new drug application by early 2024, followed by a possible initiation of PEP sales in 2025.

Valuation: Adjusts to $17.53 per share (ex-dividend)

SIGA ended Q123 with a strong balance sheet, allowing it to announce a $32.1m ($0.45/share) cash dividend (similar to FY22). The 8% dividend yield, in particular, is encouraging, given the current macro market environment. Incorporating the ex-dividend cash balance ($83.6m), lower share count (71.3m vs 72.2m previously), and slight tweaks to our FY23 and FY24 estimates, we have adjusted our valuation (ex-dividend) to $1.25bn ($17.53/share), from $1.28m ($17.7/share).

Financials

SIGA reported total revenue of $8.3m in Q123, of which $5.7m ($7.3m in Q122) were product-related revenues, primarily attributed to oral TPOXX deliveries for the existing US DoD contract ($5.1m of the total $10.7m order). The Q122 product revenues in comparison were related to sales of IV TPOXX to the US government under the 19C BARDA contract. R&D-related revenue was also lower year-on-year in the quarter ($2.6m vs $3.2m in Q122) and was primarily related to a change in the estimated profitability of the PEP label expansion R&D contract. Based on the upcoming expirations in the US strategic national stockpile, we continue to estimate oral TPOXX deliveries for BARDA of $112.5m each in FY23 and FY24. Additionally, we anticipate upside from international oral TPOXX orders of c $8m (including $1m or oral TPOXX delivered in April 2023 and $7m in pending order deliveries for contracts signed in FY22 and to be delivered by July 2023) and IV TPOXX orders worth c $26m, to be fulfilled during the year. We also expect the pending $5.5m of deliveries under the original $10.7m DoD contract (oral TPOXX worth $5.1m delivered in Q123) to materialise in FY23. Though we expect a strong operating performance in FY23 and FY24, we note the possibility of variability in timings of these orders.

Gross profit on product sale for the period improved to $4.6m from $2.6m (Q122), due to a significant decline in cost of sales ($1.2m in Q123 vs $4.7m in Q122), primarily related to lower manufacturing cost associated with oral TPOXX deliveries during the quarter as compared to IV TPOXX deliveries in Q122. We note that stockpile orders for oral TPOXX under the 19c BARDA contract have a relatively higher margin (c 85% gross margin) versus IV TPOXX (less than 40% gross margin).

Operating loss for the quarter came in at $2.1m in Q123 ($1.4m in Q122). Of the total operating expenses, R&D expenses rose to $5.0m (Q123) from $3.5m (Q122) due to higher fees for EMA regulatory submissions and increased vendor-related expenses for the PEP label expansion study and BARDA contract, which could not be fully offset by the R&D revenue recognized during the quarter. SG&A expenses were up 14.1% y-o-y to $4.2m, primarily due to higher professional service fees. SIGA recorded net loss of $0.9m in Q123 compared to $0.4m in Q122.

We make minor adjustments to our revenue forecasts, deferring some of the anticipated deliveries under the Canadian Department of National Defence’s option (until 31 March 2024) to purchase up to $6m of additional oral TPOXX. We now forecast FY23 and FY24 revenue of $175m and $181m versus $176m and $177m, respectively. Our revised estimates for operating profit are $96.7m and $101.8m ($97.6m and $98.8m previously) for FY23 and FY24, respectively.

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. Our updated valuation for SIGA stands at $1.25bn or $17.53 per share ($1.28bn or $17.70/share previously). Incorporating the discussed changes to our estimates, rolling forward our model and incorporating the updated net cash figure (adjusted for the $0.45/share cash dividend announced post-period) has resulted in our valuation re-adjusting to $1.25bn or $17.53 per share from $1.28bn or $17.70/share previously.

Exhibit 1: SIGA’s 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

363

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

234

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

 

 

 

 

 

1,166

Pro-forma net cash (Q123) ($m)

83.6

Total firm value ($m)

1,249

Total basic shares (m) outstanding

71.3

Value per basic share ($)

$17.53

Source: Edison Investment Research

SIGA ended Q123 with a healthy net cash balance of $115.7m, which enabled it to declare a $0.45/share special cash dividend in May 2023. At the current outstanding share count of 71.3m, this comes to a payout of $32.1m and translates to a healthy 8% dividend yield and a payout ratio of c 44% of our projected FY23 net income of $73.5m. The dividend is payable on 1 June 2023 to shareholders of record at the close of business on 16 May 2023. We note that the company announced a similar dividend payout in May 2022, highlighting sustained balance sheet strength. This is particularly encouraging given the recent challenging macroeconomic environment for the biotech sector. We do note that SIGA is a commercial-stage, revenue generating company, which differentiates it from the typical development-stage or non-profitable biotechs. SIGA also continued share buybacks in Q123 and we calculate a total 1.14m shares bought back in the quarter for $7.6m. We note that (including the recent dividend declaration) the company has spent close to $150m in capital management since early 2020.

Note that our current valuation of SIGA ($17.53/share) incorporates pro-forma cash that is ex-dividend ($83.6m) and therefore investors may consider the incremental income from dividends (in addition to the expected capital gains) while evaluating return potential from the business. However, it is uncertain if the company expects to provide similar payouts in future years.

Mpox still a potential opportunity, albeit uncertain timing

In our last note, we had highlighted the US Centers for Disease Control and Prevention cautioning regarding mpox (monkeypox) recurrence and possible future outbreaks, and emphasizing the importance of being prepared. Despite the waning numbers globally, an increased number of cases has been reported recently in certain Asian countries such as Japan, South Korea and China. While not alarming, this highlights the continued latent threat of future escalations and therefore the ongoing requirement for both preventative vaccines and therapeutics, such as TPOXX, which is currently the only antiviral treatment approved for treatment of all orthopoxvirus pathogens, including mpox, in both the UK (July 2022) and the European Union (January 2022).

TPOXX has been used to treat more than 6,900 mpox patients in the United States on a compassionate basis and SIGA is participating in a total of nine trials (Q322 onwards) to assess the safety and efficacy of TPOXX in participants with mpox (the trials are required to receive regulatory approval from the US FDA). Five of these are randomized, placebo-controlled clinical trials and, as per latest available information, 175 patients have been enrolled across the studies. The pace of recruitment has been hindered by the reducing caseload globally, creating uncertainty in terms of full enrolment, readouts and FDA submission. SIGA has highlighted possible discussions with regulators to allow pooling of interim data from various studies as an alternative to completing the originally planned enrolment targets from a single study. If things progress of this front, it may allow for faster regulatory submission.


Exhibit 2: 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

175,159

180,974

Of which Product revenue

115,471

126,803

86,662

154,684

160,294

Of which R&D revenue

9,488

6,868

24,114

20,476

20,681

Cost of Sales

(14,797)

(16,602)

(10,433)

(34,391)

(33,059)

Gross Profit on product sales

100,674

110,201

76,229

120,293

127,235

Research & Development

(10,939)

(9,942)

(22,526)

(22,751)

(22,978)

General & Administrative

(14,722)

(18,034)

(35,117)

(21,360)

(23,123)

EBITDA

 

 

88,579

89,716

44,250

97,183

102,338

Operating Profit (before amort. and excepts.)

 

 

84,501

89,093

42,700

96,658

101,814

Intangible Amortisation

-

-

-

-

-

Other

532

101

1,032

-

-

Exceptionals

(8,507)

118

401

-

-

Reported operating Profit

 

 

76,525

89,312

44,133

96,658

101,814

Net Interest

(3,017)

-

-

-

-

Other

-

-

-

-

-

Profit Before Tax (norm)

 

 

81,484

89,093

42,700

96,658

101,814

Profit Before Tax (reported)

 

 

73,509

89,312

44,133

96,658

101,814

Tax

(17,167)

(19,861)

(10,228)

(23,198)

(24,435)

Deferred tax

-

-

-

-

-

Profit After Tax (norm)

64,317

69,232

32,472

73,460

77,379

Profit After Tax (reported)

56,342

69,451

33,905

73,460

77,379

Average Number of Shares Outstanding (m)

79

75

73

70

67

EPS - normalized ($), basic

 

 

0.81

0.92

0.45

1.05

1.16

EPS - normalised fully diluted (c)

 

 

80.97

90.61

44.15

104.47

114.90

EPS - reported ($)

 

 

0.70

0.92

0.46

1.05

1.16

Gross Margin (%)

87

87

88

78

79

EBITDA Margin (%)

71

67

40

55

57

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

68

67

39

55

56

BALANCE SHEET

Fixed Assets

 

 

6,223

5,973

9,250

10,659

10,134

Intangible Assets

898

898

898

898

898

Tangible Assets

2,104

2,366

1,848

1,324

799

Other

3,221

2,709

6,503

8,437

8,437

Current Assets

 

 

143,608

208,753

185,786

208,014

269,068

Stocks

-

19,510

39,273

43,200

45,360

Debtors

3,340

83,650

45,407

49,948

54,942

Cash

117,890

103,139

98,791

110,733

164,482

Other

22,378

2,453

2,316

4,133

4,283

Current Liabilities

 

 

(10,484)

(30,488)

(21,518)

(20,730)

(20,846)

Creditors

(1,278)

(2,028)

(3,355)

(2,568)

(2,683)

Short term borrowings

-

-

-

-

-

Other

(9,205)

(28,460)

(18,162)

(18,162)

(18,162)

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

194,585

254,998

Minority Interests

-

-

-

-

-

Shareholder equity

 

 

129,793

174,314

170,160

194,585

254,998

CASH FLOW

Operating Cash Flow

 

 

71,519

11,495

41,611

62,613

72,349

Net Interest

-

-

-

-

-

Tax

-

-

-

-

-

Capex

(16)

(51)

-

-

-

Acquisitions/disposals

-

-

-

-

-

Financing

-

-

-

-

-

Dividends

-

-

(32,940)

(32,071)

-

Other (including share buybacks)

(114,600)

(26,195)

(13,019)

(18,600)

(18,600)

Net Cash Flow

(43,097)

(14,751)

(4,348)

11,942

53,749

Opening net debt/(cash)

 

 

(80,942)

(117,890)

(103,139)

(98,791)

(110,733)

HP finance leases initiated

-

-

-

-

-

Exchange rate movements

-

-

-

-

-

Other

80,045

0

0

0

0

Closing net debt/(cash)

 

 

(117,890)

(103,139)

(98,791)

(110,733)

(164,482)

Source: Company reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by SIGA Technologies and prepared and issued by Edison, in consideration of a fee payable by SIGA Technologies. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

This report has been commissioned by SIGA Technologies and prepared and issued by Edison, in consideration of a fee payable by SIGA Technologies. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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United Kingdom

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Georgia Capital — Staying on course

Georgia Capital (GCAP) continued to make progress on its strategic priorities in Q123: reduction in the net capital commitment (NCC) ratio, deleveraging its portfolio companies, selling subscale businesses, executing tactical buybacks (a US$10m programme was announced in April 2023), further investments in the renewable energy and education businesses and moving to the LSE standard listing. GCAP operates against the backdrop of strong GDP growth in Georgia at 7.2% y-o-y in Q123 (after 10.1% in 2022), where inflation seems largely contained, with headline and core inflation rates of 2.7% and 4.7% in April 2023, respectively. GCAP’s share price has been rising but is yet to catch up with the growing NAV and implies a 64% discount to the ‘live’ NAV estimate.

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