SIGA Technologies Inc (SIGA) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen. You've just joined the SIGA third 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, today's conference call is being recorded. I would now like to turn the call over to your host, Ms. Marybeth Csaby. Ma'am, you may begin.

Thank you, Kevin. And thank you, all, for joining us today. This is Marybeth Csaby, Director of Investor Relations at 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 recorded format and on the Company's website.

Before we begin today, I want to remind everyone that 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 timeline for bringing such products to market, and the continued development of possible eventual approval for 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 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 government 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 legal -- sufficient legal rights in its products, including efficient patent protection for its products; any challenge to SIGA's patent and/or other proprietary rights, if adversely determined, could affect its business and, even if determined favorably, could be costly; regulatory requirements applicable to SIGA's products may result in the need for further or additional testing or documentation that will delay or prevent seeking or obtaining needed approvals to market these products; BARDA may not complete the procurement set forth in its solicitation for the acquisition of the smallpox antiviral for the strategic national stockpile, or may complete it on different terms; third parties may protest contracts awarded to us through an RFP process, which may cause such potential awards to be delayed or overturned; the pending protest or another future protest may cause a contract award to us through the RFP process to be delayed or overturned; 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 the effect of federal, state, and foreign regulation on SIGA's business.

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, are 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 sec.gov. Interested parties may also obtain these 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 as a result of new information, future events, or otherwise. With that said, I'd like to turn the call over to Dr. Eric Rose. Eric, the floor is yours.

Thank you, Marybeth. Good afternoon and thank you, all, for joining us for our third quarter call. As usual, I'll offer brief prepared remarks. And Ayelet will review third quarter financials. We'll then open the call and take your questions.

First and foremost, let me begin with what is undoubtedly top of mind with all of our shareholders, BARDA's notice that it intends to award us a contract for delivery of 1.7 million courses of a smallpox antiviral to the strategic national stockpile subject to resolution of the pending protest before the Small Business Administration or SBA.

Base award is for 1.7 million courses and is expected to generate $500 million in revenues. If all options are exercised, the contract has the potential to generate $2.8 billion in revenues. While BARDA has indicated its intention to award the contract to SIGA, I must caution that there is no executed contract at this time. A protest was filed with SBA by Chimerix after receiving pre-award notice from HHS that it was an unsuccessful bidder.

To put this protest in context, BARDA's request for proposal or RFP was writing as what's called a small business set-aside, meaning the offer was opened only to businesses that SBA defines as small. We believe that SIGA qualified for the RFP. And we have responded to the protest by filing with SBA our reasons for that conclusion. We are not releasing the details of those arguments at this time because the protest remains pending.

Now let me turn the discussion to an update on the status of drug candidates in our antiviral pipeline as well as outline other activities surrounding ST-246 [pico varimat]. Starting first with the NDA-enabling activities relating to the therapeutic use of ST-246, during the third quarter, we continued to file with the FDA the necessary regulatory paperwork and submissions in support of our eventual NDA application.

Additionally, we have had a number of interactions with the agency on various topics to move the program forward. The 430-patient Phase III safety clinical study and a cardiac repolarization study are expected to begin in 2011. These studies must be completed before filing a new drug application with the FDA.

The commercial scale validation campaign continues and is meeting all the required specifications. We expect to complete this campaign early in the second quarter of 2011 with approximately 300,000 courses of ST-246 pico varimat.

Regarding the development of other formulations and indications for our drug, good progress continues to be made on developing an IV formulation of ST-246. As we reported last quarter, we believe we have found the appropriate preclinical human formulation. We're also continuing to design the development plan to achieve approval for the use of our drug for post-exposure prophylactic indication.

I just want to remind those participating on today's call, particularly those new to the SIGA story, that the development of our drug candidate, ST-246, including R&D for post-exposure prophylaxis and the IV formulation, is being funded by NIAID and BARDA.

Before I move to our other programs, I want to follow up on the orphan drug designation that I mentioned on the second quarter call. In fact, ST-246 has received two designations, one from the European Medicines Agency or EMA and the other from the FDA that extends a previous designation. The EMA Committee on Orphan Medicinal Products formally granted the orphan medicinal products designation to ST-246 with respect to the treatment of cowpox.

Last call, I mentioned we were being reviewed for the designation. The new designation for FDA recognizes the potential therapeutic use of ST-246 for all varieties of orthopoxvirus infections. SIGA previously received the designation in December 2006 for the use of ST-246 in the treatment of smallpox only. Both designations come with specific benefits, including potential periods of regulatory exclusivity and assistance in the process of filing for marking approval.

I also want to take this opportunity to reiterate that the same data we submit to the FDA in support of an NDA filing is also being submitted to the EMA. We hope that this will accelerate review by both agencies.

Moving on now to our dengue program, as we've previously indicated, we've identified two compounds in our development work, both of which have recently shown efficacy in a mouse-model disease. Our plan is to narrow our focus to one compound that will become our preclinical candidate in 2011. Additionally, we'll be presenting data on this program at the Antiviral Congress in Amsterdam on November 7th.

In our broad-spectrum antiviral program, mechanism of action studies are underway. And we've accelerated research and development activities in order to nominate a preclinical candidate in 2011. This program is supported by NIAID and Transformation Medical Technology or TMT, which is an affiliate of the Defense Threat Reduction Agency or DTRA.

In our arenavirus program, we're working to enhance the preclinical candidate that has shown efficacy in guinea pigs and nonhuman primates. During third quarter, we have added five key new employees to support our increasing array of activities. Finally, we continue to seek appropriate opportunities for federal funding and support for our research and development activities beyond those which we already have in hand. Ayelet will now review the financials. Ayelet?

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

For the third quarter in 2010, our revenue was $6.6 million compared to $3.9 million in the first quarter of 2009. Net operating loss was $2.4 million compared to $2.6 million in 2009. And net loss per common share for the third quarter of 2010 was $0.10 compared to $0.03 in 2009.

For the nine months ended September 30, 2010, our revenue was $16.2 million compared to $9.9 million in 2009. And net operating loss was $8.5 million compared to $8.1 million in 2009. Net loss per common share was $0.33 compared to $0.59 in 2009.

Our operating results for 2010 were in line with SIGA's internal expectations. Our cash and short-term investments continued to strongly support our balance sheet. The development of our pipeline continues to advance within our expectations. And we continue to make progress developing alternative formulations and indications for the use of ST-246 or pico varimat.

I will now discuss the results of operations in more detail, starting with our revenue. For Q3 2010, revenue from research and development contracts and grants was $6.6 million compared to $3.9 million in Q3 2009. The increase of $2.7 million was generated by $2.1 million in revenue recognized from grants for the development of drug candidates for arenavirus pathogens compared to $130,000 recognized in Q3 of 2009.

Revenue generated from federal programs supporting the development of a broad-spectrum antiviral drug increased by $461,000 for the third quarter in 2010. And revenue generated from contracts supporting the advanced development of ST-246 pico varimat and its alternative formulations rose $360,000 compared to the third quarter in 2009.

Turning now to our operating expenditures, I'll start with research and development. In Q3 2010, we continued to advance the development of our product pipeline, including our preclinical programs for the development of countermeasures for dengue and hemorrhagic fevers and activities relating to the development of our broad-spectrum antiviral drug candidate.

Specifically, research and development expenses in Q3 2010 were $7.4 million compared to $4.8 million in 2009. Higher R&D expenses in 2010 primarily relate to an increase of $1.4 million in expenditures supporting the development of antiviral drugs for hemorrhagic fevers.

Expenses supporting the development of broad-spectrum antiviral drugs increased $244,000 from Q3 2009. Expenses supporting the development of ST-246 pico varimat increased $607,000. And employee-related compensation increased $220,000 for Q3 2010, reflecting our continued investment in strengthening our scientific capabilities.

SIGA's selling, general, and administrative expenses were $1.39 million in Q3 2010 and $1.5 million in Q3 2009. We do continue to be very disciplined with regard to our overhead and SG&A, while ensuring that we are well positioned for potential future growth.

Patent expenses in Q3 2010 were $235,000 compared to $190,000 in 2009. Higher expenses in 2010 highlight our efforts to continue protecting our lead drug candidate in expanded geographic territories, pardon me.

Our bottom line net loss for Q3 2010 was $4.4 million compared to $1.9 million in Q3 2009. And net loss for the nine months in 2010 was $14.6 million compared to $21.9 million in 2009. I do want to highlight that our bottom line net result fluctuates primarily because they include non-cash gains and losses, reflecting changes in the fair value of outstanding warrants that are classified as liabilities on our balance sheet.

Let me now quickly run through our balance sheet and our liquidity. Cash, cash equivalents, and short-term investments were $19.5 million at September 30, 2010, reaffirming our confidence that our strong balance sheet can support our operations and fund our research programs beyond the next 12 months.

To summarize, this has been, as you all know, an eventful for SIGA. We continue to feel confident and optimistic about the commercial prospects of ST-246 pica varimat. And while we await resolution of our small business issues with the SBA, we continue to expand our operating capabilities, increase our skill set by adding new talent, and make scientific progress on all of our research and development programs. With that, I will now open the line for your questions.

(Operator Instructions)

Our first question comes from Jason Kantor from RBC Capital Markets.

It's Adnan on Jason's behalf from RBC. Thanks for taking my questions. And congrats on the BARDA contract. A couple of questions about Chimerix protest, so firstly, is Chimerix the only one that's challenged the small business status at this time? And what's the potential timing of protest resolution with the SBA? And what do you intend to disclose once there is some kind of resolution? That's the first question. Thanks.

Our understanding is that Chimerix was the only other company who submitted a response to the BARDA's [notice] RFP. And our understanding is that that company is the only company that submitted a protest. With regards to the timing of an SBA decision, we hope that it will be soon. But we can't really say for sure at this time.

And if you do hear back, I mean, one way or the other, what kind of -- I mean, do you expect to press release that announcement?

We will notify our investors, yes.

Okay. And in terms of your ability to ship product, I mean, how soon once there is a resolution, there's a contract signed by BARDA? How soon after that can you start shipping the product?

So, Adnan, we -- as far as this relates to our contract with BARDA, we will provide more details about the contract and related timelines once the contract has been executed and the timelines are agreed with BARDA, but not at this point.

Okay. And so then if I can turn to the pipeline, you mentioned that the pivotal trial will be starting in 2011. Can you give an estimate as to when an NDA might be filed? And is the cardiac polarization study, is that separate from the bigger safety study?

Let me take it in reverse order. The cardiac repolarization study is a separate study. But we think that our NDA filing is likely at this point in 2012 in order to give us time to complete the 430-patient trial.

Okay. And so do you -- I mean, are they -- will the trials be conducted in parallel or in sequence?

They can be conducted in parallel.

Okay. And in terms of R&D expenses, the run rate seemed a bit higher this quarter. Is that kind of what our expectation should be going forward? That's the first question.

And second, in terms of a cash guidance, that's -- my understanding is that doesn't include -- does that include any contract assumption? Or is that guidance for 12 months operations with given cash? And I will get in the queue. Thanks.

Adnan, the R&D expenses go hand in hand with our revenue. R&D expenses support our revenue. And obviously, we recognize our revenue base on the rate of spend between -- it relates to grants and contracts. So you should see the same trend in R&D -- that you see in R&D expenses also on the revenue line.

With regards to our cash forecast, the cash that we have on hand and our statement that we expect that we should be able to support our operations beyond the next 12 months does not include expenses that relate to the BARDA contract, mainly because we expect that expenses directly related to the BARDA contract will be reimbursed under the contract.

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

You're welcome.

(Operator Instructions)

Our next question comes from [Ryan Lane] with [Emory Asset Management].

Hi, how are you?

Great.

Good.

I have a question regarding the litigation or pending case between you and PharmAthene. If this -- if the judge does rule and the opinion does send you to trial, do you envision going to trial? Or would this settle before trial?

We envision going to trial.

Okay. That's all I had.

Okay.

Our next question comes from Jason Kolbert with National Securities.

Good afternoon. This is Jason's associate Ario. My first question is will the pricing on the optional 12 million doses be at the same price level as the initial lot of the 1.7 million doses?

No. The pricing is set as a separate rate.

Do we have an idea of what that pricing will be at this moment?

We have an idea. But we -- at this point, we're not providing the specific details.

Okay. And my second question is can you talk a bit about the process working with other foreign governments? Does a US order have to occur first?

We don't think that a US order has to occur first. I think it's clear that a US order would be helpful with regard to other governments. But we're -- we've had ongoing discussions with multiple other governments.

Okay. Thank you. I'll jump back in the queue.

Thank you.

The next question comes from Jason Kantor with RBC Capital Markets.

Actually, the question has been answered. Thanks.

I'm not actually showing any other questions at this time.

Well, thank you very much. This concludes our conference call for the quarter. It's been an important an interesting quarter for us. And we expect a similar interesting and important quarter coming forward and look forward to talking to you again.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect.