SIGA Technologies Inc (SIGA) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen. You've joined the SIGA second quarter business update. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. And instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Todd Fromer. You may begin.

Thank you. And thank you, all, for joining us today. This is Todd Fromer, Managing Partner of KCSA Strategic Communications, Investor Relations Consultant 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 simultaneously webcast 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. Before we begin today, I want to remind everyone that this afternoon's conference call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended, including statements regarding efficacy of potential products, the timeline for bringing such products to market, and the continued development and possible eventual approval for such products.

Forward-looking statements are based on management's estimates, assumptions, and projects 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, including the risk that potential products that appear 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 products 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 efficient patent protection 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 the solicitation for the acquisition of the smallpox antiviral for the strategic national stockpile or may complete it on different terms; SIGA's proposed drug candidate corresponding to any governmental solicitation for purchase may not meet the requirement 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 research on its products; and changing federal state and foreign regulation on SIGA's business 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, 2009, and in other documents that SIGA has filed with the commission. SIGA urges investors and security holders to read these 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 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 statements that are a result of new information, future events, or otherwise. With that said, I would like to turn the call over to Dr. Eric Rose. Eric, the floor is yours.

Thank you, Todd. Good afternoon. And thank you, all, for joining us for our second quarter call. I will start with my prepared remarks, which I'll keep brief. Ayelet will review our financial results. And we will then open the call to your questions.

Let me begin by reiterating three things we've said before. First, we remain highly confident of the near-term commercialization prospects of our drug candidate ST-246 as at any time in our corporate history. Second, we believe that interest on the part of the United States government in our drug remains strong. And third, we continue to be deeply involved in the BARDA RFP smallpox antiviral acquisition process.

Having said all that, we also continue to think that it is not appropriate to be making any public comments on the particulars of the acquisition process while it remains pending. We know that you would like further details. But given the complexity and stringency of federal acquisition regulations, SIGA's shareholders' best interests are served by discretion at this time.

During the last six months, we've made substantial progress with the manufacturing, clinical and animal efficacy activities, which are required to achieve FDA full marketing approval for ST-246. Regarding our commercial scale manufacturing validation campaign, which is currently underway, we're nearing completion of the manufacture of three commercial scale validation batches. The FDA requires we produce three complete commercial batches using current manufacturing practices standards.

The API, the active ingredient that has been manufactured under this campaign would be micronized and then mixed with excipients and filled into capsules. Once the process is complete, we believe our results will satisfy an important requirement for seeking FDA approval by demonstrating that we can manufacture ST-246 on the scale needed for commercial use.

Additionally, we continue our process of rolling fast-track FDA submission and interactions regarding both human safety and animal efficacy. Most recently, we've submitted results from the four human clinical trials to the FDA in support of the safety and tolerability of the anticipated adult therapeutic dose of ST-246, which we expect will be 400 milligrams per day for 14 days.

Safety findings from the trial were in line with the encouraging results from previous smaller studies. The study generated data from 107 volunteers that were assigned randomly to one of three groups, receiving 400 or 600 milligrams of drug or placebo once a day for 14 days. No serious adverse events were observed in any subject, while one subject dropped out of the study due to a headache considered related to the drug.

We have contracted with independent experts to analyze the pharmacokinetics and pharmacodynamics modeling for both the human and non-human primate data we have. Preliminary analysis of this data is strongly supportive of our anticipated dosage.

We're now planning the largest study of approximately 450 volunteers with the final clinical dose. We've established the protocol for the trial and are waiting to receive confirmation from the FDA on the final human dosage before enrollment begins. On the current course, we expect the trial to begin in the fourth quarter of 2010.

During the past six months, we've made substantial progress in developing an IV formulation of ST-246 and now believe we have found an appropriate formulation, which can be advanced to clinical evaluation. Non-human primate infusion studies demonstrated good controlled exposure.

Finally, with regard to ST-246, the drug has been recommended for the orphan medicinal product designation from the European Medicine Agency, or EMA, for smallpox, monkey pox, and cow pox. The designation is similar to the orphan drug status we've already been granted in the United States. Both considerations were put into place as a indirect incentive for pharmaceutical companies to develop drugs that have a small market.

The Committee on Orphan Medicinal Products with EMA oversees the process in the EU and uses a shared application process with the FDA. These designations come with incentives should ST-246 be improved in their respective markets. In the US, we would have seven years of market exclusivity and the EU ten years. The EU designation would provide us with financial incentives and protocol assistance. The US provides potential tax credit benefits, potential grant funding for research and development, and reduced filing fees for marketing implications.

Before I talk about our other funded programs, I want to mention that our scientists have moved into a newly remodeled and expanded laboratory space. This space allows us to enhance our analytic capability and accelerate our drug development. It also provides expanded [high] screening capability. We launched a new screening campaign in July that will query our entire library against a number of important viral pathogens, including influenza.

Now let me begin the update of our other programs. Here I'd like to start with dengue fever, which has been in the news quite frequently in recent weeks. The disease, while not usually fatal, is quite unpleasant and is earned the label breakbone fever. Other symptoms typically include high fever, headache, chills, and very severe fatigue. Symptoms are very similar to mononucleosis.

Dengue is a very serious emerging disease threat. And cases in Florida have been reported recently by CDC for the first time since the 1930s. The virus is transmitted by mosquitoes that are now endemic in 26 states in the United States.

First, let's start with the virus itself. Like influenza, there are multiple strains of virus so that infection of one strain does not protect from reinfection by another. In fact, previous infection predisposes victims with reinfection to development of a much more severe form of disease termed dengue hemorrhagic fever.

According to the World Health Organization, about 2.5 billion people or 40% of the world's population live in dengue-prone regions. It's endemic in at least 100 countries in Asia, the Pacific, the Americas, Africa, and the Caribbean. An estimated 50 million to 100 million infections occur yearly, including 500,000 cases of the hemorrhagic form, resulting in 22,000 deaths, mostly among children.

While the death toll from dengue is relatively low, epidemics occur widely enough that one could potentially cripple a country's productivity and economy. For this reason, dengue, like smallpox, is classified as a category A agent by the CDC due to its great risk to public health and national safety. Currently, there is no approved antiviral or vaccine for the treatment or prevention of the disease itself. Serious therapy is limited to easing symptoms.

Over the past three years, we've made substantial progress on our dengue program. Like our smallpox program, we've received early stage grant money to fund lead optimization and animal efficacy trials. On the basis of our high throughput screening, we first identified four candidate drug series, each with activity against all four serotypes of virus. Compounds from two of these series have recently been shown to have efficacy in a mouse model of disease. Both series are efficacious in the animal models tested to date. And we have identified the unique viral encoded target for each of these drug series. Encouragingly, one compound shows full viral availability.

We are performing aggressive chemical optimization to improve drug-like attributes of these lead molecules. We've met recently with our federal partners to discuss our dengue program and how we can work together to accelerate progress. Our goal is to declare a free clinical lead on which to file an IND and to identify that lead by the end of 2010.

Let me also talk a bit about where we stand with our arenavirus program that many of you refer to as the Lassa program. We're in the final stages of the chemistry optimization program here as well. This is similar to what we're currently performing in our dengue program to improve the attributes of the lead molecule. In tandem, we are performing a BSL-4 analog challenge, which requires specialized lab facilities outside of what we have at SIGA. These studies can only be performed at research labs authorized to handle diseases that are communicable between humans and animals and for which there's no known cure.

A final program update for this afternoon concerns our broad-spectrum antiviral program and supported by [AMRIID] and Defense Threat Reduction Agency, DTRA, grants. We've adopted a multi-faceted approach to identify the target of this chemical and are moving forward with aggressive chemistry optimization here as well. Let me now turn the call over to Ayelet.

Thank you, Eric. We released our financial results for the quarter ended June 30, 2010, and filed our quarterly report on Form 10-Q just before this call at the close of the market today. Both the press release and the quarterly report are available on our website for your review. I will now provide a brief highlight of our financial results and then follow with the details.

For the second quarter in 2010, revenues were $4.4 million compared to $4 million in the second quarter of 2009. And net operating loss was $3 million compared to $2.6 million in the second quarter of 2009. Net loss per common share for the second quarter of 2010 were $0.10 compared to $0.28 in 2009.

For the first half in 2010, revenues were $9.5 million compared to $5.9 million in 2009. And net operating loss was $6 million compared to $5.5 million in 2009. Net loss per common share was $0.21 compared to $0.47 in 2009.

Our performance in 2010 was driven by the continued development of ST-246, continuation of our commercial manufacturing validation contained, and the preparation for our Phase II multi-dose safety trial. We also launched new activities related to the development of our broad-spectrum antiviral drug candidate and the development of countermeasures for arenavirus pathogens.

I will now discuss the results of operations in more detail, starting with our revenue. For the second quarter of 2010, revenues from research and development contracts and grants were for $4.4 million. The increase of $400,000 or 11% was generated by $960,000 of revenue recognized from our grant and contract for the development of a broad-spectrum antiviral drug that commenced in 2010 in addition to an increase of $550,000 in revenue generated from our grants for the development of drug candidates for arenavirus pathogens. Revenue generated from programs supporting the advanced development of ST-246 declined $1.1 million compared to the second quarter in 2009.

Turning now to our operating expenditures, I'll start with research and development. In the second quarter in 2010, we launched new activities related to the development of our broad-spectrum antiviral drug candidate and continued to advance the development of our product pipeline, including our preclinical programs for the development of countermeasures for dengue and hemorrhagic fevers.

Specifically, research and development expenses in the second quarter of 2010 were $4.9 million compared to $4.7 million in 2009. I also want to highlight that we continue to strengthen our scientific capabilities, expand our skill set, and increase our R&D headcount. In 2010, we welcomed six new employees in Oregon and currently have a total of 53.

Selling, general, and administrative expenses in the second quarter 2010 were $2.2 million compared to $1.8 million in 2009, an increase of $400,000 or 22%. This increase is mainly due to higher employee-related compensation charges, including stock-based compensation and to a smaller extent an increase in legal fees.

In Q2 2010, patent expenses increased to $306,000 from $84,000 in 2009. Higher expenses in 2010 highlights our expansive effort to protect our lead drug candidate in expanded geographic territories. Our net loss for Q2 2010 was $4.6 million compared to $10.4 million in Q2 2009. Net loss in Q2 2010 included non-cash charges of $1.5 million for mark to market of warrants to purchase common stock compared to $7.8 million of similar non-cash charges recognized in Q2 2009.

Turning now to the balance sheet, on June 30, 2010, we had $6.5 million in cash and cash equivalents and $8.8 million in short-term investments. On July 26, 2010, we received gross proceeds of $5.5 million from MacAndrews and Forbes in exchange for the issuance of 1.8 million of common stock and warrants to acquire almost 719,000 of SIGA common stock under a letter agreement that was dated in June 8 of 2008. Our current resources are sufficient to support our operations well beyond the next 12 months.

In conclusion, we continue to heavily invest in the development of ST-246 and feel confident and optimistic about the commercial prospects of the drug. We have also made progress in the development of our pre-clinical drug candidate, expanded our analytical and screening capabilities, and strengthened our employee skill set. Our balance sheet remains strong. However, we continue to pursue additional funding opportunities in support of our development programs. With that, I will now open the line for your questions.

Thank you.

(Operator Instructions)

Our first question comes from Jason Kolbert of National Securities. Your line is open.

Good afternoon, Dr. Rose. Things sound like they're progressing very nicely. I'd like to just ask you a couple of questions. There was also a date -- on July 22nd, there was a summary judgment. Can you just talk a little bit about what's happening, what happened on that date, and what you see going forward in terms of I guess the legal entanglements with PharmAthene?

Sure. As you know, PharmAthene commenced a lawsuit against SIGA in September 2006 in the Delaware Chancery Court claiming that it had rights in ST-246. Discovery in this case is complete. We asked the court to dismiss certain aspects of the case by means of a motion seeking a so-called partial summary judgment on which there was a hearing on July 22nd.

That motion was fully submitted to the court a few weeks ago on that date and remains pending. Since we did not move to dismiss the entire case, so no matter what happens on our motion, there will be a trial on PharmAthene's claim, which we expect to occur in early January of 2011. We believe that PharmAthene's claims have no merit. But we obviously cannot predict with certainty the outcome of either the motion or the eventual trial.

So thank you. I'd like to ask a question. And without giving us details on ST-246 and what's actually happening with BARDA, I'd like to ask if BARDA were to come back, if you were, what might the sequence of events look like over the next six months or the next 12 months? Just remind us how the process unfolds in terms of actually fulfilling an RFP.

Sure. Okay. Do you want -- ?

Jason --

Yes.

-- the process with BARDA is very fresh. There aren't any companies that have been in this acquisition process before SIGA. We are -- there are probably a handful of companies. So I think this will all (inaudible) the same type of newness. However, as everybody already knows, we have been speaking to BARDA. And we have submitted our proposal. And from now on, we are awaiting to hear back.

I guess what I'm asking is, with three validated batches, does -- if BARDA comes back, help me understand what the best outcome would be. Could BARDA come back between now and the end of the year and say you've cleared the RFP process and filled the first order? And what would the first -- what might the first order look like?

We can't discuss it now Jason. I am sorry. But it's -- we prefer to keep it quiet and wait for --

Okay. Sure.

-- BARDA to respond.

I respect that. So my last question and before I go back into the queue is I wondered if you could give us any light in terms of -- you talked about an IND on the dengue program by the end of 2010 from the government --

In the case of the lead candidate, we --

Thank you.

-- I don't think we can get the toxicology done by then, Jason. But --

But by identifying a lead candidate puts you in a position to be thinking about an IND in early 2011 and moving that --

Yes, but before we do --

And what --

-- $2 million worth of toxicology spending, we want to be convinced that we have an optimized drug candidate.

And what kind of medicinal chemistry capability do you have to do that?

We have very robust medicinal chemistry capability, which we did not have even just a few years ago. But we've expanded that capability quite dramatically. And that in no small part is why we've made the dramatic progress that we have made.

The drug -- the candidate molecules that we have now for dengue have EC50s, effective concentrations of reducing viral replication by 50% that are in the range of 3 nanomolar at this point. So that's from starting at micromolar concentration. So in less than a year's time, we've become 1,000 times more potent.

And we've also been -- on the virology side, we've been able to identify the viralogic target, which is -- goes hand in hand with our medicinal chemistry. By knowing the target and having good medicinal chemistry, that really accelerates the process.

Great. Thank you so much. We look forward to learning more about it.

Thank you, Jason.

Thank you.

(Operator Instructions)

Our next question comes from Jason Kantor of RBC Capital Markets. Your line is open.

Hi. This is [Adnan] on behalf of Jason Kantor. Thanks for taking our question.

Sure.

The first question we have -- and hopefully you can address this -- is that, should a contract come pretty soon, how soon would you be able to deliver the drug and over what time? And would this timeline change if the contract will become, let's say, in two months or six months or something?

Well, as we did announce publicly before, we do believe that we should be in a position to deliver sometime towards the end of 2012. And that timeline is reasonable even if the contract comes today or in six months.

Okay. And how would you be booking revenues once that comes?

Well, revenue -- the model for revenue is quite straightforward obviously if we get there. But under the RFP that was published, there will be an upfront payment, which will be deferred and will be recognized upon delivery of the drug.

Okay. And I mean, is the expectation to fill the entire order no matter what the size by the end of the year? Or would it be kind of divided up throughout 2011, let's say?

We don't have enough information from the US government at this point to have -- to answer that, Adnan.

Can you say how many doses the three batches cover?

The three batches that we have manufactured or will have manufactured by the end of the year will generate 300,000 courses of therapy. And we expect to have sufficient API if we have the need to manufacture another 300,000 courses of therapy.

Okay. And one more question, and I'll get back into the queue. In terms of the regulated timeline, you said that you're waiting to get the dose approved from the FDA. Once the dose is approved, do you have any estimate as to how long enrollment and final submission to the FDA might take?

These types of trials, Adnan, enroll pretty quickly. The trials are done in paid volunteers at multiple sites. And the course of administration of the drug is only 14 days. So I think it's likely that we could get enrollment done in three to six months.

Okay. Thanks. I'll get back in the queue.

Sure.

Thank you. Our next question comes from [Kevin Martin] of Garden State Securities. Your line is open.

Hi, Dr. Rose. I just had a question. Recently, there was a solicitation from the Army for a GLP. I was just wondering. Is that part of the process for BARDA to award a contract? And if not, what would that be for? Could you expand on that?

Sure. We were very encouraged actually by that RFP. A good deal of our animal efficacy work is obviously BSL-4 high-security laboratory work that we can't do ourselves. And most of it is done by the United States Army at Fort Dietrich in Maryland. Some of it's done at CDC in Atlanta.

The FDA's formats, the writing of these experiments are prodigiously long. And by -- and we have encouraged our partners that are doing these experiments to get formal consultation and help to draft these reports, which because of their length and complexity we were really delighted to see them put out an RFP to have that kind of help with their report drafting because that helps us enormously.

But that has nothing to do with the process ongoing now for the stockpiling of this BARDA contract?

No, it's immaterial to our production process. It's quite material to our generation of the paperwork that FDA needs with regard to efficacy for us.

Thank you very much.

Thank you.

Thank you. I'm showing we have a follow-up question from Jason Kantor of RBC Capital Market. Your line is open. Pardon me, Mr. Kantor. If your line is on mute, could you please unmute it?

Hi, it's Adnan again.

Sure.

You may not be able to answer. But I just thought we'd ask. But in terms of -- given the pricing concerns for worldwide, is there any sort of an expectation or an update of that expectation in terms of pricing that you might expect for the treatment?

At this point, we are not providing any updated expectation on the pricing.

Sure. Thanks.

Thank you, Adnan.

Thank you.

(Operator Instructions)

Okay. I'm showing no further questions at this time.

Thank you very much. And we're -- we look forward to updating you again at our next quarterly update conference. Thanks.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect. And have a wonderful day.