SIGA Technologies Inc (SIGA) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to today's SIGA Technologies third quarter 2009 earnings conference call. As a reminder, today's call is being recorded.

At this time, it is my pleasure to turn the call over to Mr. Todd Fromer. Please go ahead, sir.

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

Hosting the call today are Dr. Eric Rose, Chief Executive Officer and Chairman, and Ayelet Dugary, Chief Financial Officer. Today's call is being webcast simultaneously and is available on SIGA's website. A replay of the call will also be available in a recorded format and on the Company's website.

Also, I want to remind everyone that this morning's conference call -- this afternoon'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 potential products that appeared promising to SIGA or its 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 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 in its products, including sufficient patent protections for its products; regulatory approval for SIGA's products may require further or additional testing that will delay or prevent approval; the Biomedical Advanced Research and Development Authority may not complete the procurement set forth in its solicitation for the acquisition of a smallpox antiviral for the strategic national stockpile, or may complete it on different terms; SIGA's proposed drug candidate for responding to any governmental solicitation for purchase may not meet the requirements of the solicitation; the volatile and competitive nature of the biotechnology industry may hamper SIGA's efforts; changes in domestic and foreign economic and market conditions may adversely affect SIGA's ability to advance its research or its products; and changing federal, state and foreign regulation on SIGA's businesses may adversely affect SIGA's ability to advance its research or its products.

More detailed information about SIGA and risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this conference call, 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, 2008, 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 these documents free of charge from SIGA.

Forward-looking statements speak only as to the date they are made, and excepting 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.

I would now like to turn the call over to Dr. Eric Rose.

Eric, the floor is yours.

Thank you very much, Todd, and good afternoon to all that are on the call. We're delighted that so many of our longstanding investors are on the call, and I'd also like to welcome the many newly interested in SIGA.

I want to state that we're quite optimistic that SIGA's efforts to transition the Company to a commercial-stage enterprise from the advanced research and development enterprise that we currently are, those efforts are ongoing, and we believe will reach fruition on a hopefully close timeline.

I want to explain to those new to our story, though, that our path to commercialization is not a typical one. We are in the biodefense space, and our primary customer is the United States government through Project BioShield, which is administered by the Biomedical Advanced Research Development Authority, or BARDA. BARDA is empowered to procure biodefense countermeasures before they are FDA approved so long as they are judged to be eventually potentially eligible for use -- not potentially -- they're judged to be eligible to be used for emergency use.

BARDA has stated that they would also like and I think intend that such countermeasures ultimately do get FDA approval. But FDA approval is not the point at which our commercialization begins. Our commercialization begins with the completion of a contract with BARDA, and that process began with BARDA's issuing an RFP to acquire a smallpox antiviral drug in March. We responded to that RFP in May. We were told that we were in the competitive range approximately six weeks after our response was submitted. And we are now in active pre-award process with the Biomedical Advanced Research Development Authority, with the only point of contact being between us and the contract office and officer, Michelle Gray.

As part of that process, they have answered questions from us, and we continue to answer a flow of questions from them. We have had a thorough security audit of our own company facilities and every single facility in our supply chain. We are in the process of finalizing a final security plan using outside security experts as well as our own internal expertise to be sure that we are in a position to afford the level of security that BARDA expects from its contractors. We've also had financial audits from the Defense Contract Audit Agency that, at least for the time being, are finished, but there may be further pre-award audits, as well. We believe that the activity and work needed in this process makes it difficult to speculate when a decision or finalization of this process will be reached, but the process is quite active.

In terms of ST-246 itself, I want to turn to the regulatory pathway, because this essentially defines the progress of our drug. There are four modules that one must deal with in preparing a new drug application to the FDA. A toxicology module -- and we submit these on a rolling basis because we have fast track status -- that essentially is complete, and the drug has a remarkably good safety profile. The CMC module essentially, in terms of chemistry and formulation -- we have reached a final formulation for the drug, which is being manufactured in 200-mg capsules. We have demonstrated three years of stability of the API. The three-year stability is a requirement of the RFP. The API itself is stable. Obviously, we also have to show that the final product is stable, but we're optimistic about that, as well.

We're in the midst of clinical safety trials that have had good progress. There was a satisfactory interim review by a data safety monitoring board for our safety trials earlier this quarter which has allowed us to continue enrollment of these important safety trials. We are preparing for the ultimate safety trial of the final chosen dose sometime later in 2010.

We continue to do animal efficacy work in order to define the lowest effective dose of the drug in very challenging lethal challenges using monkeypox as well as rigorous variola challenges using the actual smallpox virus itself. We are confident that we have established unquestionably proof of concept of the efficacy of the drug as an effective treatment for orthopox virus infection. We're just simply looking to define the parameters around dosage of the drug to finish our preclinical animal modeling work.

With regard to the formulation, our registration batches are done and the commercial validation process has been launched.

We have reported on compassionate use of the drug in two additional patients this past year, and we're happy to report that both the San Diego patient and the more recent patient in Pennsylvania have both been discharged from the hospital, are doing well.

We continue to make process -- progress in developing an IV formulation of the drug. Those who are not new to us know that we were funded with a contract from BARDA to develop that IV formulation last year. We've made good progress with it. And we've continued to work to develop the indication of postexposure prophylaxis of the drug and expect to file an IND amendment to get us the postexposure prophylactic indication in the second quarter of 2010.

I want to briefly speak about our product pipeline, as well. We continue to make progress in these, and they highlight the depth, the scientific depth, of our Company, but all these programs are at a much earlier stage than ST-246.

Our arenavirus program, concentrating on ST-193, continues vigorously. We are in discussions, pre-IND discussions, with the FDA about this agent. Lassa is identified as a category agent -- A agent by BARDA, and acquisition of arenavirus antivirals is part of the PHEMCE Implementation Plan. We believe that these -- that this drug and others in our portfolio, while we've targeted experimentally Lassa fever, we believe that this drug may also have effect in New World as well as the Old World arenaviruses.

We continue to make good progress in Dengue, with four different classes of compounds identified. Our broad-spectrum antiviral ST-669 has also progressed. We completed a $1.6-million DTRA TMTI contract -- rather, that is still actually in negotiation. We expect to complete that negotiation soon. And we continue to negotiate a BAA award for that drug for the broad-spectrum antiviral, as well. We have increased our drug screening capabilities of high-throughput screens, and we have already begun screening activities against additional viral targets, including influenza.

At a corporate level, we continue to expand our workforce in Oregon and to build the supporting infrastructure to meet the needs of our commercial and our scientific progress.

That concludes my formal remarks, and I'll turn the discussion over the Ayelet Dugary, our Chief Financial Officer.

Thank you, Eric.

I'll quickly review the financial results for the three months and the nine months ended September 30, 2009. Our revenue for the three months ended September 2009 was approximately $3.9 million, an increase of about $2 million, or about 100%, from the $1.9 million that we recognized in 2008. For the nine-month period, we recognized $9.8 million, almost $9.9 million for the 2009 period, an increase of about $4.3 million from the $5.6 million that we recognized in 2008.

The consistent increase in revenue across both the three-month and nine-month periods is driven by expanded research and development activities supporting our ST-246 and its alternative formulation contract. A key factor is the launch of the manufacturing of our ST-246 commercial demonstration and validation campaign, an activity which is fully funded under our $36.5 million contract with the NIAID.

On the operating expense side, general and administrative expenses for the three months ended September 2009 were approximately $1.5 million. For the nine months we incurred approximately $5.4 million. The increase both in the three- and nine-month periods from the comparable periods in 2008 relate to higher accounting service fees which we incurred in connection with required government audits of our (inaudible) and contracts in addition to higher legal and liquidation support fees. And during the nine-month period we incurred an increase of approximately $650,000 in our stock-based compensation.

Our research and development costs for the three months in 2009 were approximately $4.8 million, an increase of 2 point -- of $2 million from the $2.8 million in 2008. For the nine-month period in 2009, we recognized more than $12 million in R&D expenses, in comparison to $8 million in 2008. The main factor driving the expenses higher in R&D is -- are the increased activities related to ST-246 which I highlighted before. Also of note is the increasing of our R&D personnel. We had about 36 people at the end of September of last year, and we increased our personnel to 45 full-time personnel at the end of 2009.

Our operating loss for the three months ended September 2009 was approximately $2.6 million, compared to [$2.1] million for 2008. The increase is driven by the higher G&A cost.

Other -- I'm sorry, the net loss for the three months ended September 2009 was approximately $1.4 million for 2009 and $3 million for the period ended September 2008. The net loss per common share was approximately $0.04 in 2009, compared to $0.09 in 2008.

As of the end of September 2009, we had approximately $1.4 million in cash and equivalents. Of notice is the fact that during the nine months ended in September 2009 we raised $2.5 million from a letter of agreement, an investment letter of agreement, that we have with MacAndrews & Forbes, our most substantial investor. We also raised $3.3 million from (inaudible) fees from exercises of warrants and options from other holders.

I would like to highlight that, as you know, we filed a shelf registration for approximately $100 million, and, as many of you have asked me, I would like to highlight to all of the investors on the call that at this time we don't have any specific plans to draw on the shelf. We do have sufficient cash resources and other resources to support our operations through the next 12 months, and we will continue to evaluate our needs responsibly, as we have done in the past. Having said that, we filed the shelf to have the ability to quickly access capital and essentially have the flexibility when the time is right and when and if we have the opportunity to raise additional funds without [vastly] diluting our stock.

With that, I would conclude my remarks and turn the conference back to the operator, and we will follow up on any questions.

Thank you.

(Operator instructions).

And we'll take our first question from Jason Kolbert, with National Securities.

Good afternoon, guys, and congratulations on moving incrementally closer to a very exciting award, potentially, the contract. I wanted to ask you a little bit on how we should be thinking of pricing, given the fact -- and how we should be thinking on the delivery schedule. If you're awarded the contract, the initial phase is 1.7 million doses. Is that correct?

That's correct.

And when we talk about the cost of this, in the first group at 1.7 million for a medication like this, what kind of price range are you thinking about in terms of a therapeutic? And that's part one, and part two would be there's a government option for I think up to another 12 million doses behind this 1.7 million. If that were to be awarded, how does the pricing change based on the amount that's delivered? And I realize you're reading tea leaves into the future, but I'm just trying to get a feel for the magnitude of the order, possible.

Sure. Obviously, at this stage of the game I think for us to comment specifically on price is not in the best interest of our shareholders right now. We have an outstanding orally bioavailable antiviral that meets a major unmet need in biodefense. We have patent rights on the composition of matter through 2025. And the government has stated numerous times that despite the government support that we get for these -- for the advanced development that we're doing, that this intellectual property belongs to our shareholders. On that basis, we think that we're looking forward to pricing that's in a range that a proprietary antiviral drug for a unique unmet need, in that range.

And so can we talk a little bit about 1.7 million doses versus an option for 12 million doses behind it? Is it fair to assume that the 1.7 million doses is really just the tip of the iceberg given the real risk of a smallpox outbreak behind it?

I personally would agree with that statement. We've been pleased to see BARDA's behavior with contractors who have fulfilled initial orders, the most recent example being Human Genome Sciences, that once they fulfilled the initial order for 20,000 courses of their anthrax monoclonal antibody they received a second order for an additional 40,000 immediately upon the completion of that delivery. We are not privy to the planning scenarios that originate from Homeland Security in terms of a material threat assessment. We assume that these numbers have been derived from an analysis of the potential impact of a smallpox outbreak, and even the 1.7 million courses, even if that's an initial estimate, I think it's clear that the scenario that's contemplated would be an event that would be catastrophic.

And, Dr. Rose, thank you very much. I think we understand what that means. What kind of discussions do you have beyond the US government and BARDA? Because clearly the completion of the contract and the successful delivery of at least the first batch of doses, does that open the doors up for discussions with other governments outside the US?

That certainly is the case. Dr. Hruby presented our progress to the World Health Organization last week. I think this is the third year that he's been invited to present our progress in that domain. We have had discussions with health ministry representatives as well as defense ministry representatives from multiple Western European countries as well as Israel and Canada. We don't expect smallpox to follow any set of geographic borders if it becomes a problem, and I think it's viewed as a potential worldwide threat, and we believe that there will be considerable interest in the product. And certainly our credibility as a supplier of such a product, I think, would rise dramatically around the world with this contract, if we're awarded this contract.

I guess one last question, just staying on this topic, relates to how complex a molecule this is to make, or how relatively simple it is to make. And my understanding is it's a relatively simple synthesis. So if I look at that and I think about other biologics, I assume around a 20% cost of goods sold. Is that in the right ballpark?

Well, first of all, we're not a biologic. This is a small molecule.

Right. Sorry. That's what I meant.

Yes, it's a 375 molecular weight active pharmaceutical ingredient. We think that --

And as a relatively easy synthesis, it therefore doesn't have the expensive COGS associated with a complex biologic.

That's correct.

Okay. Good.

And also we have been able to create a supply chain that does not require a large capital expenditure on our part to produce it.

Okay. Can you just take one more minute with me and review what's involved in kind of the warm capacity requirements around the manufacturing plant and what that means?

One of the optional cost line items in the RFP is to fund our maintenance of a supply chain that would allow immediate scale-up for any reason without restarting the FDA process. Certainly BARDA has contracted with other vendors to provide such warm production capacity for their products. We estimate that that warm production capacity would necessitate our producing about 400,000 courses per year, and, while it is an optional cost line item, based on BARDA's previous behavior we think that there's a reasonable likelihood that it's something that they would -- an option they would exercise during the course of the contract -- of a contract.

Thank you so much for taking my calls today.

Thank you. Appreciate it.

And now we'll hear from Stephen Dunn, with Jesup & Lamont.

Hi. I'd like a little color on the active pre-award visits and process. Is there anything ongoing right now that's not operational? In other words, are they done with their review of the data that you've submitted, or are there still ongoing discussions on the data? And a little more color on the stability requirement, what time frame that is, and how many validation batches are required, is it three or some other number?

There is an active process overall that addresses both operational aspects and other aspects, and we're in the process of responding to their questions as well as they respond to our questions. And to your questions about how many commercial validation batches are necessary, I believe it's three.

Well, we've had three registration batches that have completed. Dennis, can you answer that question on the --

Yes, for commercial validation it's like FDA registration. It requires three batches at full operational scale.

Yes, that's what I was -- that's what I thought. On the stability, what kind of stability are they looking for in terms of months or years, rather?

Three years. And, as I said, we've already established three years of stability of the API, and we have stability testing now that's ongoing in the registration batches that have been completed.

So the ongoing, then, is concerned mostly with the capsule material?

Could you say that again?

So the ongoing stability is more a function of the stability of the capsule material?

Well, it's the entire final drug product, which includes the capsule and the excipients and the API.

Okay, but the API is already stable three years or more.

Correct.

Okay. A little clarity on the timelines here, in Q2 you said you expect or you hope to start a postexposure prophylactic trial. Is that going to fall into the --

An IND for postexposure prophylaxis.

I'm sorry --

Yes, an investigational new drug, an amendment to our existing IND for therapeutic use.

Could you describe what that trial would be structured like in your mind?

I think the most important characteristic of that additional work is a larger safety trial than what we plan for therapeutic use, and the reason for that is simply that the risk for reward calculation for prophylactic use requires demonstration of a lower level of risk than would be acceptable for someone who actually has the disease.

So it's just a matter of enrolling a larger number of patients.

That's correct.

Okay. And then when you say later in 2010 your NDA-enabling study, your safety study, is that -- when you say later, is that -- could you give us more granularity, like Q3 or Q4, or --?

Dennis, do you want to answer that?

Well, we currently have target dates somewhere in 2010. The exact quarter that theses studies launch will depend on ongoing discussions between us and the FDA to make sure we're in agreement on the final dose as well as the protocol.

One final question, on the BARDA 0935 RFP, when they gave a September 30 date, obviously we roll into a new federal fiscal year on October 1, is there an issue with reallocating the appropriation, or are those funds automatically carried forward for this RFP?

Our understanding of the BioShield legislation, it does not -- BioShield does not require annual reallocation, so the BioShield dollars do roll over to subsequent years. We don't think that that's a gating issue for us.

Great. Fantastic. Thanks very much.

Good. Thank you.

(Operator instructions).

And now we'll go to Garden State Securities, Kevin Martin.

Good afternoon. Dr. Rose, I think earlier you had mentioned, I may have missed this, that another case or a patient was treated with the ST-246 in the San Diego area. Is that true?

This is a Marine that was treated for progressive vaccinia, which he developed after being inoculated as a routine recruit and was discovered then to have acute myelogenous leukemia.

Oh, okay, so this has been reported before, then.

Yes.

Okay. And as far as the audits that are ongoing for security purposes, there's a lot of security that has to go out to manufacturing facilities and everything else that SIGA is not in control of. Have they come back with certain items that need to be done at all these different locations to -- for your response, and have you implemented anything?

There is a thorough set of requirements that BARDA requires of us and of our entire supply chain, and we have had terrific cooperation from all of our suppliers to be fully compliant with BARDA's requirements, and that's been a tremendous effort, but one which we're confident we'll be able to put in place for the award.

And you mentioned that with the RFP there were certain monies that was in the RFP for that cost, for those manufacturers?

Yes.

Okay.

The security costs both for us and our supply chain are a cost-plus cost line item as part of the RFP.

So then the audit that goes on for the manufacturing of the drug and the cost of ST-246 would take all that into consideration, then.

Well, there is a -- we've had a specific security audit --

Okay.

-- with security professionals from BARDA as well as BARDA consultants to look at our existing security, our plans and plans that we need to add --

So that's complete --

-- to meet all their requirements, and our understanding is that all of that would be reimbursed or paid for in the final contract.

-- and that audit has all been completed on the security end.

They completed their audit.

They completed the audit, yes.

Okay. And then, as far as the audit, I guess on the financial --

Before we leave that, though, my understanding is that we will be subject to ongoing security audits. Obviously if awarded the contract we would be subjected to ongoing security audits, and as a major contract of BARDA we have security expectations already.

Okay. And then there is also another audit for the cost of the drug which is separate from, obviously, the security issue. Has that been done and completed?

The audit that was done and completed was for the items that are cost-plus items in the proposal, not for the cost of the drug.

So that financial audit on the cost of the drug has not been done yet?

No, and we don't have any expectations that it --

We don't believe it's required.

Okay.

And, but we have disclosed to BARDA what we believe are the range of costs for the drug.

And my one last question was on the shelf registration. I know that you said you have no plans at this time and it's there for quick access. Was this something that was maybe you are engaged with a banking firm that has suggested that you do the shelf, or is that something that the Company brought on themselves?

The Company, management thought about it on their own.

Okay. And when, or what event, would trigger the Company to say, "Hey, this is a time that we would like to access that shelf money"?

Well, like I indicated before, when we have the right opportunity and when we identify the right opportunity to raise funds without causing significant dilution to our shareholders, we will consider it then.

Okay. And you said there was a flow of questions back and forth and it was an ongoing process. Has that flow of questions started to trickle down to a minimal, and are they away from the drug and just more or less on the security issues? What is the nature of the questions now?

The questions have been, one, on the security; two, technical, on the drug itself; and, three, on the financial aspects. And it's an ongoing process on the three levels.

Okay. And have they started to dwindle down, the flow, or are they still a number of questions coming in?

It's an ongoing process.

Okay. Thank you.

Sure.

You're welcome.

And now we'll hear from Bill Gibson, with (inaudible) Capital.

Hi, Dr. Rose. I want to look out a little further than everyone else, and when you were going through the progress on ST-669 I got a little confused as to what exactly has happened. Have we completed one contract, or are we negotiating one, or what's going on there?

Well, there are two contracts. I'll let Dr. Hruby address this. We've been awarded an ARRA contract --

We received one contract for approximately $2 million, and that's already in place. And we are in the process of negotiating another contract with DTRA, like we indicated before, and we believe that we are getting very close to final negotiating steps.

Oh, okay, good. No, I just wanted to clarify that. I appreciate it. Thank you.

[No problem.]

There's two awards, yes.

Yes.

And there are no further questions in the queue.

(Operator instructions).

There appear to be --

Well, let me thank you again for joining our call this afternoon. This is an exciting time at SIGA as we pursue our transition to becoming a commercial-stage company, and we look forward to keeping in touch to inform you of our progress. Thanks very much.

Ladies and gentlemen, that does conclude our conference for today. Again, thank you for your participation. You may now disconnect.