SIGA Technologies Inc (SIGA) 2008 Q3 法說會逐字稿

Good day, everyone. Welcome to the SIGA Technologies third-quarter 2008 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Todd Fromer, KCSA Strategic Communications.

Thank you all for joining us today. This is Todd Fromer, Managing Partner with KCSA Strategic Communications, investor relations consultants to SIGA Technologies.

At this point, you should have all received the third-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 Chairman, and Thomas N. 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. A transcript of this call will be furnished to the SEC on Form 8-K.

Also, I want to remind everyone that this morning's conference call will include certain 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, the 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 statement.

Factors that may cause such differences include the risks that A, potential products that appeared promising to SIGA or its collaborators cannot be shown to be efficacious or safe in subsequent preclinical or clinical trials; B, SIGA or its collaborators will not obtain appropriate or necessary governmental approvals to market these or other potential products; C, SIGA may not be able to obtain anticipated funding for its development projects or other needed funding; SIGA may not be able to secure funding from anticipated government contracts and grants; SIGA may not be able to secure or enforce sufficient legal rights to its products, including sufficient patent protections for its products and regulatory approval for SIGA's products that may require further or 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 the Securities and Exchange Commission, including SIGA's annual report on Form 10-K for the fiscal year ended December 31, 2007, and other documents that SIGA has filed with the Commission. SIGA urges investors and securities holders to read those documents free of charge at the Commission's website at www.SEC.gov. Interested parties may also obtain these documents free of charge from SIGA.

Forward-looking statements speak only as to the date that they are made and, except for any obligation under the US federal securities laws, SIGA undertakes no obligation to publicly update any forward-looking statement as a result of new information, future events, or otherwise.

Finally, I would like to turn the call over to Dr. Eric Rose, Chairman, Chief Executive Officer of SIGA.

Thank you, and thanks, everybody, for joining us this morning. Needless to say, this has been a very eventful quarter for SIGA, as we continue in the process of transitioning from a research and development stage company to a commercial stage biotechnology company.

Most importantly in this quarter, we entered into $80 million in new contracts, with BARDA and NIH. These new contracts relate predominantly to ST-246, but we've also had a new grant -- a new contract, rather -- with regard to our Dengue Fever drug development efforts and a very substantial milestone in our Lassa Fever contracting.

I want to speak specifically to what the new contracts mean with regard to ST-246. First, the $20 million extension of our original $15.5 million grant for the oral formulation of ST-246 for the -- for therapeutic use in the event of a smallpox outbreak. That $20 million in additional funding was directed and has been directed towards speeding and enlarging our production capability. We now are reasonably confident that within fiscal '09, we will be able to deliver several hundred thousand courses of the drug.

In addition, the new contract, the new $55 million BAA contract that we were awarded from BARDA, is directed towards two things. One, it provides full NDA-directed funding for a prophylactic indication for the oral formulation of ST-246. So the original grant funded through all NDA-enabling activities for a therapeutic use; the new grant funds us for the same drug for prophylactic use, which we believe will expand the size of the market for this agent.

The other key issue in the new grant is that it also provides funding for what, for SIGA, is essentially a new pharmacologic product. And that is a parenteral formulation of ST-246. We would view this as analogous to the monoclonal antibodies that have been purchased for critically-ill patients for anthrax. We believe that there will be procurement of this for our critically-ill patients, and that this will be a product that is priced in the range of typical intravenously-administered anti-infective drugs, considerably higher price point we would anticipate than for the oral version of the drug.

We keep our eyes open for an RFP for acquisition of the oral formulation of the drug. BARDA has stated -- the director of BARDA has stated that that RFP will be out in fiscal '09, which began October 1 of this year. We at SIGA do not know more than that time horizon at this time.

We added two new Directors to our Board as we anticipate the transition to a commercial stage company. [Ruth] Slotkin, a very successful business person who adds business savvy and depth to the Board, and Michael [Baird], who has particular expertise with regard to contracting and relationships with the Department of Defense.

That is the -- last thing, let me mention also is that on the European regulatory front, we continue to make progress with EMEA.

That's the total of my prepared comments. I'm going to turn the discussion over now to Tom Konatich with regard to our financial highlights of the quarter.

As Eric has already indicated, the biggest highlight of the quarter was the receipt of two additional contracts associated with ST-246 and a grant for the further development of our Dengue drugs. There is virtually no revenue recognized from these new contracts and grant in the nine months -- nine months ended September 30, as they were all awarded toward the end of the quarter.

The highlights for the quarter -- we had revenue from R&D contracts and grants of $1.86 million in 2008, which is about 16% higher than the $1.61 million that we received last year, and the increase is the result of an increase in recognition of revenue from our contract, the existing $16.5 million contact with the NIH, that supports the development of ST-246.

Our selling, general, and administrative expenses were $945,000 in the 2008 quarter, which was a 19% increase from the $793,000 worth of expenses incurred in 2007. The increase was a result of higher legal and accounting fees. R&D expenses for the current-year quarter were $2.8 million, which is a 21% increase from the $2.3 million level of last year. The increase was largely due to the increase in clinical and preclinical testing of our lead drug candidates, as well as an increase in the number of R&D employees to carry those contracts out.

Our operating loss for the current quarter was $2.13 million, which was an increase of 34% from the prior-year loss of $1.58 million. The approximate $550,000 increase was the result of the increase in operating costs and other involved, which more than offset the increase of revenue.

Our net loss for 2008 was three points -- essentially, three point million -- $3 million, or $0.09 -- a loss of $0.09 a share compared to a loss of $2.49 million last year, or $0.07 a share. Included in the loss for the current year was a non-cash charge of $912,000 to reflect an increase in the fair market value of certain common stock warrants. In 2007, that charge was $998,000.

For the nine months ended September 30, revenue was $5.58 million, compared to $9.4 million last year, a 13% increase was that, as noted before, is the result of the $2.3 million increase in revenue reported from our contract with the NIH that supports the development of our lead programs. This was partially offset by a decline in revenue reported for our program with the United States Air Force which was completed in April of 2008.

SG&A expenses were $3.12 million in 2008, an 11% increase from the $2.81 million incurred in 2007. The result was -- the increase was the result of higher insurance costs, business development expenses, and a non-cash charge for stock-based compensation. Research and development expenses for the nine months of the current year were $8.19 million, a $1 million or 14% increase over the $7.19 million level of last year. Spending on our lead programs increased by $1.8 million, which was partially offset by reduced spending associated with the completed United States Air Force program and a reduction in depreciation expense.

Our operating loss for the current year through September was $6.19 million, an increase of 15% from the prior-year loss of $5.39 million. The increase was a result of the increase in operating costs as we noted above. Net loss from the nine months of 2008 was $7 million, or roughly $0.20 a share, compared to a loss of $5.1 million, or $0.15 a share, in 2007. Included in the loss for the current year was a non-cash charge of $923,000 to reflect an increase in the fair-market value of certain common stock warrants. In 2007, that charge was only $32,000.

From a liquidity perspective, it's important to note our cash balance at the end of September was $3 million. In the -- included in third quarter, we made a deposit of approximately $1.2 million for future manufacturing of ST-246 validation badges. That $1.2 million is going to be billed here in this fourth quarter. It's important to note that we still have in existence the $8 million line -- equity line of credit that was established with MacAndrews & Forbes back in the late second quarter. We have, at this point, not taken any of that funding down. That money, in addition to the monies we have on hand in our receivable balance, are more than enough liquidity to carry us through at least the next 12 months.

With that, I will turn the conference back to Eric and Todd for questions from the audience.

(Operator Instructions). Joaquin Horton, Nollenberger Capital Partners Inc..

Good morning. A couple of questions. I think in the last conference call you stated something -- what your production capabilities were with Albemarle producing your product, as far as the ST-246. What was that number?

We now believe we have production capacity to make up to about 55 million courses per year.

55 million courses per year, and that's -- a full course is what, 14 pills or -- ?

It's 28 pills of the 200 mg, assuming that the therapeutic dose is 400 mg a day (multiple speakers)

For 14 days.

Right.

28 pills, okay. There's been a lot in the press recently on Dengue Fever and how it affects, maybe, up to 50 million people in the world. Maybe -- hospitalizing, maybe as much as 500,000. Can you elaborate on where you are in your research, vis-a-vis people that are doing the vaccine, and so forth and so on?

Sure. There is certainly increasing recognition of the public health challenge that Dengue Fever represents. It generates about half a million hospitalizations per year worldwide. And with climate change, the vector -- mosquito vector for this disease continues to move towards the poles. So, concern about this as an emerging disease threat is high, and it's also viewed as a biodefense threat as well. There have been cases of Dengue Fever in American military personnel stationed overseas.

There has been research for years, searching for vaccines. The problem with them being that vaccines have to cover all four serotypes, and this is one instance where, at least with experimental vaccines, there have been instances where the vaccine has actually allowed the disease to happen, but more severe disease than arguably would otherwise happen because infection with one type of Dengue serotype actually predisposes towards the more serious hemorrhagic Dengue Fever.

We have made substantial progress searching for antiviral drugs that are directed at targets that we now know are conserved across all four serotypes. Dengue is a -- belongs to the family of flaviviruses. Those include West Nile, yellow fever, and even hepatitis C virus, and some of the targets that we're now developing drug candidates to, we see conservation across several other members of this family of viruses.

We see an increasing interest in Dengue and in funding Dengue research and development and acquisition, both at BARDA and at NIAID. And this is a space where we think our greatest strength can be brought to bear. So we're very optimistic about it. We received our first grant -- just this past quarter, to fund our Dengue antiviral development. We think that there will be a similar pipeline of grants for the Dengue antiviral drugs, as we've had for ST-246, and we are bringing to bear essentially the same drug discovery technology and proprietary know-how in order to make those agents.

I just want to add, our U.S. Air Force contract, one of those was focused on waterborne diseases. So, some development into the early Dengue work was funded by that U.S. Air Force contract. So it's not new to us. We've been working on it for a couple of years.

Okay. Could you kind of elaborate on the progress with the European Union on the ST-246 approval? Is it -- have you found that you've had any hitches, or is it moving along smoothly?

To say that there are no hitches with any regulatory process would say -- would, I think, be unrealistic. But we have been very pleased with the progress that we have made with EMEA. We've begun making small phonebook-sized regulatory submissions to them. We've had ongoing dialogues with experts in this area from multiple companies who have been assigned to this drug. I think -- on their part, we have the sense that they understand the unique nature of this drug, and the nature of the threat that it is designed to address. We're pleased with how that's going.

One more question and I'll get back in the queue. At one time, you mentioned that we would have two orders, one from BARDA and one from the military. This is for the ST-246. Is that still a possibility?

I think it's probable. It's also possible that the two will be combined. It's hard to know. We saw with Emergent with order of -- some of the anthrax vaccines that DOD and HS orders were combined, but there have also been separate DOD orders, Emergent's, for their vaccine. So it's hard -- we just don't know. I think they're trying to coordinate those processes more closely.

Certainly, we see that on the research side, and development side, the collaboration between DOD and HHS, from our perspective, is seamless. But whether or not that will make it to the acquisition side, I think it's just too early to say.

The other unique difference between the two is that HHS is empowered through BARDA to acquire for stockpiling our products before an NDA. DOD's rules of acquisition preclude their completing an acquisition until there is an NDA. So, at least our delivery to the defense stockpile for these governmental reasons, we'll deliver to the defense stockpile at a later date than we will, presumably, the civilian stockpile. Now, whether or not those two can be shared and mixed and matched, I suspect in the event of an outbreak that those distinctions would change. But that's the way -- that's the lay of the land right now.

Thanks and I'll get back in line.

(Operator Instructions). Joaquin Horton, Nollenberger Capital Partners Inc..

I guess I'm only guy on the call. (multiple speakers)

There's actually a lot of people on the call, but you're the only one with questions (multiple speakers)

I guess you're asking the right ones, so -- .

Your last press release was something to do with hold harmless in case your product is used in an emergency. You had seen that this was -- kind of the last straw before you got an RFP.

I think -- you know, we were pleased to see that. I think the intent that it signals, we were pleased with it. This was not the only hold harmless announcement that was put into the Federal Register. I think it reflects a comprehensive strategy to enable the acquisition of countermeasures and to limit liability for manufacturers like us across the full spectrum of biodefense threats. But we're pleased to see that that groundwork is being laid since -- systematically by the federal government.

Okay. Thank you.

We have one question from someone who emailed to us. The question is really a progress update on MRSA.

We continue to do early-stage drug development with drug candidates to a target called Sortase, which we think may be usable for MRSA. But we have no other progress to report, other than that.

Operator, will you poll one more time for questions? If there's no more questions, then we will turn the call back over to Eric for closing comments.

(Operator Instructions). And it appears we have no further questions at this time.

Let me then thank you all for joining us for this update. We have had a very eventful quarter. We're anticipating even more eventful quarters as this year progresses. And we're delighted with our progress towards becoming a commercial stage company. Thanks again for joining us.

(multiple speakers) Once again, that does conclude today's call. We do appreciate your participation. You may disconnect at this time.