SIGA Technologies Inc (SIGA) 2008 Q2 法說會逐字稿

Good day and welcome to the SIGA Technologies second-quarter 2008 earnings conference call. Today's conference is being recorded. At this time I would like to turn the call over to David Burke, KCSA Strategic Communications. Please go ahead sir.

Thank you all for joining us today. This is David Burke with KCSA Strategic Communications, Investor Relations Consultant to SIGA Technologies. At this point you should've all received a second quarter 2008 earnings press release. If you have not received the release please refer to SIGA's corporate website at www.SIGA.com.

Hosting the call today are Dr. Eric A. Rose, Chief Executive Officer; and Thomas Konatich, SIGA's Chief Financial Officer. Today's call is being broadcast simultaneously and is available via the Web as noted in our press release. It will be available after the call in a recorded format through the conference service and on our website. Transcript of this call will be furnished to SEC on Form 8-K.

Also I want to remind everyone that this morning's conference call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended including statements regarding the efficacy of potential products, timelines for bringing such products to market and the continued development and possible eventual approval of such products. Forward-looking statements are based on management's estimates, assumptions and projections and are subject to uncertainties, many of which are beyond SIGA's control.

Actual results may differ materially from those anticipated in any forward-looking statements. Factors that may cause such differences include the risk that potential products that appear promising to SIGA or as collaborators cannot be shown to be efficacious or safe in subsequent preclinical or clinical trials.

SIGA or its collaborators will not obtain appropriate or necessary governmental approvals to market these or other potential products. SIGA may not be able to obtain anticipated funding for its development projects or other need funding.

SIGA may not be able to secure funding from anticipated government contracting grants. SIGA may not be able to secure or enforce legal rights in its products including sufficient patent protection for its products and regulatory approval for SIGA's products may require further additional testing that will delay or prevent approval.

More detailed information about SIGA and risk factors that may affect the realization of forward-looking statements including the forward-looking statements in this press release is set forth in SIGA's filings with Securities and Exchange Commission including SIGA's annual report on Form 10-K for the fiscal year ended December 31, 2007 and in other documents that SIGA has filed with the commission.

SIGA urges investors and security holders to read those documents free of charge at the commission's website at www.SEC.gov. Interested parties may also obtain those documents free of charge from SIGA.

Forward-looking statements speak only as to the date they are made and except for any obligation under the US federal securities law, SIGA undertakes no obligation to publicly update any forward-looking statement as a result of new information, future events or otherwise. Finally I need to say that quick word about the FDA approval process.

As you know SIGA's principal product is an unapproved drug. As such, the FDA has strict rules regarding what can be said about the drug safety and effectiveness. SIGA respects those rules and nothing said today should be taken as definitive claim regarding the safety and/or effectiveness of ST-246.

Lastly the question-and-answer session will be open to analysts and institutional investors following management's remarks. With that said, I will now turn the call over to Eric.

This has been a productive quarter for us. We have made very substantial progress with regard to ST-246 and its commercialization. We have secured adequate financing that should be able to carry the Company to the point of its transformation into a robust commercial enterprise and we have continued to make substantial progress with on our pipeline. Let me start with a discussion of 246 and where we believe the acquisition process is at this point.

We have continuing frequent informal contacts with people from BARDAthat are responsible for the BioShield acquisition process at BARDA. We previously indicated that we thought there would be a request for information prior to an RFP for an acquisition of a smallpox antiviral. We've now been told that there will not be an RFI process so the RFP will come out without any preliminary announcements.

Our discussions with people at BARDA indicate that they have substantial interest and in fact have listed purchase (inaudible) acquisition of a smallpox antiviral as one of their top priorities at this point. And we have also had indications from them that in addition to interest in our oral version of ST-246 that they also will have interest in acquiring an injectable form of the drug as well as a pediatric formulation of the drug.

There is a new BARDA Director, Dr. Robin Robinson who is a very experienced scientist, industry leader and government leader. He has led the government efforts in the Avian influenza program which has done I think substantially good work in acquiring countermeasures to Avian flu and his effectiveness in that we hope is going to translate into the biodefense portion of BARDA as well.

That is the acquisition side of BARDA. On the research side of BARDA as well BARDA's research and development support in the form of grants and contracts is something from which we already derive support and expect to be eligible for considerably more support for our programs and expect news flow on that over the coming months.

In international markets with ST-246 we've begun working with the EMEA, have made our first formal submission to the European regulatory authorities. And then on the commercial manufacturing processes we've made very substantial progress and feel comfortable that we will be able to deliver as many as 25 million courses per year of the drug with our present production processes and facilities.

With regard to our financing, with our recent financing from MacAndrews & Forbes and our current cash, we believe we're now financially viable for the next six quarters which as I said before we think will suffice to bring us to the point of becoming a commercially viable enterprise. In our other pipeline products we continue to make substantial progress in dengue Fever.

This is an area that has attracted an intense amount of interest including its prioritization for research by the National Institutes of Health as well as the Gates Foundation. And as we announced before we have now substantial progress in our drug candidates that in tissue culture have effectively targeted all four (inaudible) types of dengue and will be moving into animal testing in the very near future.

We also continue to make progress with our (inaudible) program which impacts anthrax as well as methicillin resistant staph and we have numerous other earlier antivirals programs that also continue to make progress. That's where we stand with ST-246 with regard to our financing and with regard to our early programs. I'm going to turn the program over at this time to Tom Konatich for a financial update.

Revenues in the second quarter of the year were up 19% to $1.7 million from the prior year level of approximate $1.5 million. Our SG&A expenses were essentially unchanged at $1.1 million from prior year. Our R&D expenses increased to $2.5 million which was approximately 14% higher than the amounts incurred in the prior year.

Our operating loss for the quarter was up slightly at $2.1 million from $2 million last year. The increase in revenue and R&D expense which essentially offset each other was due to increased clinical and preclinical testing on our lead products. Our net loss per share was $0.09 for the current year which included a recognition of a non-cash loss of $1.1 million reflecting an increase of the fair market value of certain rights and warrants to purchase our stock. The prior year had a $2.4 million non-cash gain.

For the six months ended June 30, 2008 our revenues were $3.7 million which is an approximate 12% increase from last year. For the six months ended June 30 our SG&A expenses were approximately $2.2 million which were roughly 7% higher than the same period of last year and this is due primarily to some business development expenses we incurred.

Our R&D expenses if approximately $5.3 million were roughly 10% higher than the prior year period of $4.9 million of expenses. Our operating loss increased approximately 6% from $3.8 million last year to $4 million this year and this increase again like in the second quarter was attributable to an increase in activity in the preclinical and clinical expenses of our lead products.

Again our loss per share is impacted by these non-cash gains and losses that were attributable to certain rights to securities. The loss for the period ended June 30, 2008 was $0.12 compared to $0.08 last year.

At the end of June, we had cash on hand of $5.4 million which is compared to $6.8 million at December 31 of last year. During the June 30 quarter, we received approximately $2.8 million of proceeds from the exercise of warrants and options.

And finally as Eric mentioned earlier we concluded an agreement with MacAndrews & Forbes whereby we will be provided by MacAndrews & Forbes as needed with up to $8 million in equity funding for a period of one year. We believe as Eric had mentioned that the access to this capital will allow us to take our initial products into full commercialization. With that, I'd like to turn it back to Eric who's got a few other points he'd like to make.

Sure. Prior to this call we've had a number of questions that have been e-mailed to us. So let me address some of those now.

The first question relates to the use of ST-246 in monkey pox victims. Has the durg been used?

And the answer to that right now is that it has not. There is substantial interest on the part of the United States Army to employ the drug potentially in the Congo with monkey pox victims.

In that we are not an approved drug, the use of the drug now for this purpose would have to be conducted in the context of a clinical trial. And the logistics and obstacles to doing that in the Congo, to get IRB approval to do informed consent in the language of the patients that would be taking the drug, the distribution issues and the follow-up issues in a remote area are substantial obstacles at this point to its use. So at least for the time being we don't anticipate use of the drug in monkey pox victims.

We were asked about progress in relation to our dengue fever portfolio. I've already mentioned that we have continued to refine our pipeline to have multiple classes of drugs with strong potency against all four (inaudible) types of dengue and anticipate taking one or multiple agents into animal efficacy trials in the very near future. Those trials in fact are being set up now.

We also have been asked about progress with regard to ST-193, our Lassa fever drug. That drug will go into a primate Lassa fever trial in the fall and we expect from there if that shows what we expect to then be able to move it into human trials in Africa and have already had contacts with groups at National Institutes of Health that are in a position to do clinical trials with the drug.

We have had a question with regard to our NDA registration batches. We've made very good progress with those, feel very confident in our production technique and our final formulation of the drug and have had productive discussions with the FDA with regard to our (inaudible) formulation that lead us to believe that we're secure with regard to that issue of our upcoming applications.

There was also a question about the newest trial of ours that's appeared on clinicaltrials.gov. That trial is essentially a bridging study. Our original formulation in our early clinical trials was done with a crystal and polymorph of the drug.

That is not the most stable polymorph, was not the most stable crystalline form of the drug. We have reformulated to a new polymorph configuration.

Our required testing with that new configuration simply requires our documentation that the new polymorph formulation is absorbed as well as the original employed and in primates we have already confirmed that absorption is equivalent and the small study that you see on clinicaltrials.gov is simply to confirm that that bioavailability in humans is the same as we see in primates and expect results in that quickly. The purpose of that trial again is primarily to confirm our dosing with the final formulation of the drug.

Those are all the questions that we have had prior to this conference and we will open it up now to questions from those of you that are on the call.

(OPERATOR INSTRUCTIONS) Joaquin Horton, Nollenberger Capital.

Just a question -- a couple of questions. One, regarding in April you announced that you were in negotiations for a grant with the government. Is there any indication as to the size of that grant? Is it similar to the grant you received maybe a year and a half ago or something like that in size?

It's substantial and I would say in the same ballpark but we can't really state for sure until we complete the negotiations as to what the size of the grant would be or until we complete the negotiations that a grant has been awarded.

We are moving forward with that completion and hopefully we will have something assuming everything goes as we hope it goes, we expect to have something to say about that in the very near future.

Great. You announced that you have -- you want to produce up to 25 million courses a year. Is that correct?

We now believe that our manufacturing processes would allow us to produce up to 25 million courses per year.

Do we have any idea what we would receive per course for this product?

We've paid a lot of attention to potential pricing for it but those ultimately would be part of a negotiation in response to an RFP.

Gary Siperstein, Elliot Rose Asset Management.

Great progress so far. Eric, you mentioned the smallpox antiviral being a top priority at BARDA and you mentioned in addition to oral the interest in injectable and pediatric. How do you see the timeline evolving for that?

You're waiting for an RFP now I presume on the oral. Will the injectable be after that is all wrapped up. Do they come sequentially in terms of a timeline?

I think you're correct that the oral certainly will be first and that's obviously a product that we are beginning to manufacture now. For the other two formulations, we have had informally expressed interest in those. There actually is in the (inaudible) implementation plan the intent to acquire a smallpox injectable monoclonal antibody by the year 2015.

I think that 246 in an injectable form could obviously fill that niche. (inaudible) the intended size of that as indicated in the implementation plan was 100,000 courses which is actually more I believe than the amount of monoclonal antibody that's been acquired so far to treat anthrax.

So I think there is a perceived need that there is a need for an injectable for patients that are hospitalized in the event of an outbreak and I think you'll see from BARDA and BioShield increasing recognition of the need for specific countermeasures for children. 15% of the American population is nine years of age or younger and to think that they can take the same types of formulations as adults is recognized as not feasible and obviously issues around dosing children in a range of sizes and weights is something that I'm sure there will be interest in as well.

Would the pediatric delivery system be injectable or oral or would that be intravenous?

No, I think most likely we would envision that as a liquid formulation, an elixir or something.

In terms of the RFP you're waiting for, is there any -- has there been any announcement as to the dollar value of that RFP?

No, there's not. And there are a few things that we have informally learned about the RFP process and I think that BARDA has shown in their more recent acquisitions.

One is that they have stated the intent to combine the BioShield acquisitions together with DOD acquisitions and as we have said before we have had interest from DOD in acquisition of a smallpox antiviral medication. I think there's a good chance that any RFP that we see will include acquisition for both the military and the civilian population. So, we had thought initially that those were going to be processes and they very well may still be but if the two are combined we think that would be auspicious with regard to the size of the eventual RFP.

So you will know that information once the RFP is let?

Yes.

Assuming the RFP gets let between now and year-end, how long will it take you to respond to it and then how long do you think it'll be before the government makes their award decision?

Typically they look for a response to an RFP within 60 days and we feel very well prepared to provide such a response. And then a period of negotiation afterwards I would say can be as long as six months. But that's hard to predict at this point.

Who do you see if anyone as your competition in this area? I think I recently read somewhere where one of the competitors was testing their medication on some monkeys and the monkeys died. Is that accurate?

I certainly can't speak for the experiments of our competitors. To our knowledge there is no agent smallpox antiviral which has proven efficacious in prolonging survival in the primate challenges that we have been able to show efficacy in. That is to our knowledge. I can't say whether or not there's been success with any other agents but nothing that we are aware of.

Just a couple more questions and I'll give someone else a turn. So again on the timeline if the RFP is let in the next few months and you respond to it and then you negotiate with the government if you're one of two potential sources or sole source etc.; so let's say hypothetically by next summer you have won a portion of this RFP and let's say that portion hypothetically is $50 million. How soon will you be able to manufacture it and start delivering it and recognizing revenues or how soon can you take down some of that $50 million?

Our understanding is that with any contract that we would be able to take down immediately 10% of the contract value. And we would be able to take down up to 60% of it based on achievement of developmental milestones.

Given where we stand with regard to production, we feel confident that we could deliver on an order fairly quickly. We do not have a complex biologic product that requires extensive batch validation and supervision of a production facility.

It is a simple product to manufacture through a three-step synthesis and we feel -- and Albemarle is certainly an experienced producer of small molecule drugs. And we and they feel confident that we would be able to actually deliver goods on such an order fairly quickly.

As far as recognizing revenue upon delivery, we would recognize the revenue. If we receive money upfront that would just sit in deferred revenue until we actually delivered product. So if it's a $100 million, $200 million contract whatever (inaudible) get 10 to $20 million upfront it sits in deferred revenue until we deliver that amount of drug to the stockpile in which case it's then brought in through the P&L.

Eric, you said fairly quickly a couple of times. Do you define that as less than three months, less than six months?

Could you repeat the questions?

You said you could deliver -- manufacturing you could deliver on a potential contract fairly quickly. Is that less than three months? Is that less than six months from the end of negotiations and the winning of the order?

I really can't walk into saying how quickly we could. But I think it would be in a range of one year or less that we could deliver.

To clarify a point, any money we get upfront is not returnable. It is ours primarily to facilitate the production of the drug. So it would not necessarily be as revenue until we deliver product but it's not something we're obligated to return.

My last question is in terms of ST-246 the smallpox treatment for international customers I guess I'm thinking specifically about the UK and maybe Israel. Is that a function of the first domestic USA order [then] something could happen internationally? Or could they -- if you have something that works and you can manufacture it pretty quickly is there any possibility they could give orders prior to a US win?

I think it's unlikely that -- we think that the US process is moving along reasonably quickly. I think it's very unlikely that any international purchaser will emerge before we see the American RFP.

We do believe though that the American RFP will trigger substantial interest in a number of countries. With the European Union though they have their own regulatory process. We actually feel pretty comfortable with it at this point. And whether or not they would start ordering even before such approval is something we just don't know at this point.

(OPERATOR INSTRUCTIONS) (inaudible)

First of all I want to congratulate you. You're doing a very good job by focusing the Company, Dr. Rose, in the right direction the way it seems like anyway.

Thank you.

I wanted to ask you doc -- if you don't mind if I call you that -- I bet your patients call you that too, right?

Sure.

As long as you don't cut me up then after I can say it. When do you believe SIGA will receive a clearance from the applications that were submitted at the I believe at the end of April to the US and the European agencies to sell ST-246?

If you are referring to our emergency use authorization (multiple speakers)

That is what I'm referring to; yes, doctor. That's what I'm referring (multiple speakers)

We have continuing dialogue with the FDA and meetings upcoming scheduled with them and multiple submissions. In fact I would say this week we probably sent them almost 10,000 pages worth of documentation with regard to animal efficacy which is what efficacy of this drug will be determined by with the FDA and feel that we're making very good progress with them.

As we have said before though, the acquisition of ST-246 is not dependent upon any specific regulatory action. If BARDA makes a judgment that a product is eligible in the future for an emergency use authorization and typically those are only authorized in the face of an actual emergency. So we don't expect a declaration of an emergency in smallpox unless it actually happens.

BARDA can make those acquisitions based on the judgment that a product is eligible for an EUA. That's been how the (inaudible) vaccine was acquired. That's been how the anthrax monoclonal antibodies from Human Genome Sciences have been acquired and we think that will be the case and have been led to believe by our BARDA contacts that that is the case here as well.

[Jeremy Weissen].

I wanted to ask you about public relations. I was expecting that we would be getting some stories and some coverage especially with the interest recently in bioterrorism. And I remember that when the last public relations firm left they said they thought it was because new PR firm would have -- investor relations firm would -- had a PR arm that we get some information out about our company.

But when I called the PR firm last week they said that they only started about two weeks ago. They didn't know they were supposed to do public relations. I mean out there you've got Howard Rubenstein who would love our Company and story (inaudible) MacAndrews & Forbes and me in the past with great success. Are we doing enough to get this story out or do we not want to do that at this point?

Let me answer that by we feel that our profile to our primary customer is substantial, substantive and progressing. I don't think that the behavior of BARDA towards us is going to be influenced by anything in the [late] media at this point.

We have arguably a very effective countermeasure for a [dread] biodefense threat. We think that is very well understood and the need for a countermeasure like ours I think is very well understood. And the progress that we have made and the organizational progress that they have in our opinion they have had to make in order to formalize an acquisition we think is moving at a reasonable pace.

Obviously, we would love to see it happen faster and we know all of our investors would like to see that happen even faster. But we feel confident we're going to get to a stage of robust commercial viability at SIGA in the not too distant future.

(OPERATOR INSTRUCTIONS) Nancy Hull, Ladenburg Thalmann.

Two quick questions. With regard to the arrangement with MacAndrews & Forbes announced in June, just want to verify you haven't taken down any of that $8 million that was committed thus far, correct?

That is correct. We have not.

And then with regard to your comments about a little bit of a shift in BARDA's direction not putting out the RFI in advance of the RFP, can you just give us a little more color on that if they gave you any indication of what their thoughts of why -- what was behind their desire to change the process?

Yes, what my discussions on the subject brought to light is their view is that they can cut two to three months off of the RFP process by not doing the RFI process and that's what we have been told is the rationale behind their dropping that step.

Okay. That make sense. That was my assumption but just wanted to verify that. That's all, thank you.

[Jeremy Weissen].

I just wanted to follow up and say (inaudible) public relations would be more to help bring new investors into the Company rather than trying to influence the (multiple speakers) would that make any sense?

I think you raised a good point Jeremy so let us digest that.

Gary Siperstein, Elliot Rose Asset Management.

Eric, in terms of the laserlike focus you got on the smallpox, with the backup programs that are further down the line -- dengue fever, Lassa fever, staph infections, etc. -- does it make sense while we're going full throttle with smallpox because that is the one that is happening now and as you said it can move quickest to commercialization, does it make sense to partner off these others as you approve efficacy in animal models?

We think those programs particularly dengue now, there is a lot of commercial interest in dengue. The other thing that -- dengue is in the same family of viruses as hepatitis C and West Nile and yellow fever.

We have identified a proprietary target that seems to be what our drugs are hitting. It's too early to say whether or not these drugs would be usable in the context of the other viruses but we are exploring that as well. So we do think that there is -- we think there's considerable value in those programs as well.

Okay so to my question then, so you're going to keep 100% of them and you feel that you guys can handle all the work involved once you've got smallpox (inaudible) commercialization, manufacturing and delivering?

Our burn remains I think essentially very respectable.

Essentially, it runs about $1 million a quarter -- $1.5 million a quarter. I think where we are with ST-246, most of that work is being done with third parties. So that allows the SIGA internal personnel to increase their efforts on these other drugs such as dengue fever and as they make progress they will re-prioritize.

And if anything shows lack of promised it will be dropped from the chain. But right now everything we have seen particularly in (inaudible) like dengue is extremely positive and we will continue to go forward with them.

To some degree the flexibility of that, the equity line that we have entered into with MacAndrews & Forbes when an opportunity presents itself in one of these drugs, we will not have to wait for the government to finance it. We can begin some of the work ourselves and take it down the road a little bit further and then the government can come on later rather than earlier and we can make progress more rapidly than we did potentially with ST-246.

And Lassa in particular, we are already funded for the Lassa work. We have a substantial grant to move that a long. So we're really not burning any of SIGA's resources to do that.

And dengue, we see the grant and contract mechanisms from NIAID, from the Gates Foundation, from the Burroughs Wellcome Foundation. There is an enormous amount of interest in developing effective antivirals to dengue and we feel we are in a very, very strong position to capture the funding that is clearly being put out and to request for proposals for grants now.

Thank you and back to smallpox. We have seen some over the last several years awards in the anthrax area -- $200 million, $300 million etc. What do we think the government appetite is in smallpox? And then if the rest of the world comes on board whether it's NATO or Israel etc. what is the opportunity, I mean the size of the potential stockpiling of smallpox?

We obviously can't speak to the government but if you look just simply at their own behavior they have stockpiled enough vaccine for the entire population, 300 million courses of it and they just contracted with Acambis in a 10-year $400 million plus deal to continue to maintain a capacity to produce live smallpox vaccine.

We think our antiviral fits nicely into a concerted strategy to use together with vaccine in the event of an outbreak. But to measure it in terms of the number of courses that they're going to want to have on board in the stockpile -- if the sole purpose of having the drug is to use it in patients who are already showing signs and symptoms of the disease, that is a smaller stockpile than if your intent is to use it for post-exposure prophylaxis or for example to immediately treat first responders for example in the event of an outbreak.

We think that there is interest in the prophylactic as well as the therapeutic uses of our drug. And whether or not that prophylactic use will be in an initial RFP, we don't know. But ultimately we think there will be acquisitions both for therapeutic use and for prophylactic use.

As well as the other dosage forms, IV and pediatric. It will be I think a process that will go over several years and several (inaudible) in all likelihood.

We think there is a robust multi-product, multi-indication strategy for the ST-246 franchise.

That concludes our question-and-answer session. I would like to turn things back to our speakers for any closing remarks.

Once again we want to thank you for joining us this morning and hope to be able to continue our work and report our progress to you on a systematic basis. Thank you very much.

Thank you everyone. That does conclude today's conference. You may now disconnect.