SIGA Technologies Inc (SIGA) 2012 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the SIGA Technologies Quarterly 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.

(Operator Instructions)

As a reminder, this program is being recorded. I would now like to introduce you host for today's program, Mr. Todd Fromer, Investor Relations with SIGA. Please go ahead, sir.

Thank you, Jonathan, 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 Daniel Luckshire, the Chief Financial Officer.

Today's call is being simultaneously webcasted, 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 would like to remind everyone that this conference call contains statements that constitute forward-looking statements. A Safe Harbor statement covering this call will be read at the end of the call, and can be found in our press release for financial results for the third quarter ended September 30, 2012.

With that said, I'd 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 business update call. During the call we'll provide you with a business update, and then we'll open the call for questions.

Starting with our business operations, I'm pleased to tell you that the FDA just concurred with our product labeling strategy for ST-246 courses to be delivered into the strategic national stockpile. With this FDA concurrence, we have invoiced BARDA for a total of $12.3 million, a milestone payment. Achieving this milestone required dedicated effort and successful coordination among different agencies within the United States Department of Health and Human Services.

This is yet another sign of tangible progress in our performance of the BARDA contract. We expect to receive payments of the invoice labeling plan milestone by early December.

Payments on the labeling plan milestone will represent the third payment to be received from BARDA as part of our $435 million contract. As a quick reminder, we received two advanced payments totaling $41 million in the fourth quarter of 2011. I mention the payment progression here because each payment reflects a successful step in the performance of our contact.

The next performance step we are targeting is the initial delivery of ST-246 into the SNS. As noted in prior calls, we expect to begin delivering ST-246 into the Strategic National Stockpile by the end of the first quarter of 2013.

This is less than 6 months from today's date. Once we make our first delivery, we expect to deliver the full 2 million courses under the BARDA contract within 24 months since the date of the initial delivery. And once we meet the 500,000 course delivery threshold, as specified in the BARDA contract, we'll be able to start invoicing BARDA for payment on delivered product.

Shifting gears with respect to activity on the legal front, there have been a series of scheduled filings related to the PharmaAthene litigation during the past four months. In July, we filed our opening brief on appeal with the Delaware Supreme Court.

In August, PharmAthene filed its opening brief. The final brief was filed in early October. Oral arguments have been set for January 10, 2013. Oral arguments are scheduled to be heard by the Delaware Supreme Court en banc.

In other words, all five justices of the Supreme Court are scheduled to preside over the appeal and cross-appeal. We believe a decision by the Supreme Court to preside over our case en banc is appropriate given the complexity of the case, and in light of certain novel features of the remedy fashioned by the Delaware Chancery Court in its ruling.

This concludes our prepared remarks. Thank you for attending this business update, and we'll now open the line for questions.

Certainly. (Operator Instructions). Our first question comes from Greg Wade from Wedbush. Your question, please.

Good afternoon, and thanks for taking my questions.

Good afternoon.

Hey, hope you're well. With respect to the other milestones that are called for in the contract, what other milestones are potentially available to the company, and what's your expected timing for them, including, I guess, filing the NDA?

The filing and the approval of the NDA, obviously, are additional milestones that we expect will be after we've delivered the courses that we're expecting to deliver over the next two years, and I can't give any more specific guidance on those dates yet, Greg.

Okay. Dan has some additional --

And also, there is a third milestone for a commercial validation report. We will be targeting that for 2013. As we get close to that point, we'll be able to firm up a date, or arrange a date.

Okay. I just want to just ask one other before I jump back in the queue.

Sure.

With respect to a sort of a potential follow-on contract, do you have any insight from your discussion with the government as to the potential timing that they might file or publish a new RFP? And then lastly, what is the expected shelf life that you'll be shipping into the SNS with, and do you expect that that could change over time with additional data? Thanks.

Sure. Let me start in reverse order. Our target shelf life is 5 years. We are incented, and expect a bonus payment, if we can prove seven years of shelf life. And with respect to the -- give me your first question again, I apologize for --

RFP.

Oh, the RFP's, then that's probably why I'm avoiding an answer here, Greg, because I really don't have a specific answer to it. This is not something where the government in any way gives us any kinds of signaling prior to it.

We can say, we're pleased that our progress on the IV formulation and filing an IND has moved along, and we filed that IND as we expected to without yet full action on that. But we think that as the products become available that we're making that there will be interest in our new products as well to, perhaps, generate new RFPs as well.

Dr. Rose.

Sure.

Thank you. Our next question comes from Adnan Butt from RBC Capital Markets. Your question, please.

Good afternoon.

Hi, thanks for taking my questions. The first question, can you expound a bit on the label that you came to an agreement with the FDA? And secondly, is the timing in terms of the overall delivery of the contract still about two years, and could anything speed it up? And then lastly, I guess, how will the milestone payment be recognized to you? Thanks.

Let me turn the labeling question over to Dan.

On how will it be recognized? It will be recognized similar to the advance payment in that it will be deferred revenue as the cash comes in. The labeling plan strategy is unique in that we are delivering -- it's an unapproved product, and we are delivering into the Strategic National Stockpile, so there's a series of exemptions for these types of unique situations.

There's a lot of technical factors, some of which is simply how to label plans specifically for the Strategic National Stockpile. There's other bunch of technical features, but there's not really much we can go into in detail. They are private filings, but the nature of it is, it's a unique situation, so we had to apply for an exemption, provide a strategy, and that is then concurred by the FDA. Was there a third question in there, Adnan?

Yes that was the timing of the delivery for the contract.

Well, in terms of our -- we've said many times at this point that we expect to be able to deliver over the following two years. I don't think we expect to accelerate that, or make those deliveries any faster than that. We estimate that our present supply chain can manufacture approximately 1 million courses of drug per year.

And once that's up and going, our pump is primed. We think that we'll be able to continue manufacturing that, and hope that what we'll -- that we can continue manufacturing and delivering further. But can't speak to anything beyond those 2 million courses right now.

Just to add onto that quickly is we do plan as we go along there will be some efficiencies, so at this point as we get bigger contracts in the future, we will be able to meet that capacity. So, we will get more efficient, but in terms of the first 2 million, I think the best way to look at it right now at this point in time, is to look at it as a more uniform delivery basis.

Okay, that's helpful. Thank you.

Thank you.

Thank you. (Operator Instructions). Our next question comes from Joaquin Horton from Sterne, Agee. Your question, please.

Good afternoon, guys.

Good afternoon.

Good afternoon.

In 2011, we got a grant from the NIH for Dengue Fever and one for Lassa Fever, and we haven't had any update on how those programs are progressing. I assume they're progressing. I assume there's been some progress. Can you kind of fill us in on that?

Sure. I can briefly state that we have made very good progress on both. In Dengue, we actually have three series of potential drug candidates for three different targets. And our feeling about it is that we are looking to have an optimized drug candidate before we declare a candidate our lead, and before we expend the necessary resources on toxicology to file a formal IND.

We feel very optimistic about it. If anything, each of those series, we are seeing nanomolar concentrations of efficacy in in-vitro models, and confirmatory evidence in what animal models do exist for this. But we haven't made a decision, yet, about which target is the first to pursue, and which theories will be our first.

In the field of rhinoviruses, there we think we have narrowed down the field to a drug candidate, but that still requires toxicology work in order to progress to an IND, and it would be foolish to say that the tox work is going to be fine. That's the reason we have to do it. It just simply has to be done, and it's six months to a year of additional work, and additional expense as well.

So, as I said, we've made progress, good progress in both, and I think our progress here does confirm that we are a skilled, highly competent, anti-viral drug discovery company that's focused in the areas of bio-defense, and that our special talents in that direction have been bearing fruit. That coupled with our commercialization over the next couple years, we think augurs very well for the future of the company.

Along those lines, knowing that the government is going to be tight for monies, would you look for monies in the private sector to help develop these products?

Let me first say that we're expecting to have monies in our own coffers over the next two years, so we do not envision the need to pursue specifically any financing or any other sources of private sector monies, in particular, if the issue that you're asking is -- do we intend to partner these drug candidates in -- or potential drug candidates in Lassa and Dengue, we think we can create more value ourselves with our own capital at this point, but as those opportunities potentially arise, of course, we would be interested in pursuing them. But we don't feel we need anybody else's capital at this point in order to progress them scientifically.

I know at one time, we were working on influenza, bird flu. Have we done anything in that area recently, or is that completely gone by the wayside.

We have a very strong high throughput screening program that is always active. We are always screening for other viruses. We don't report what those screenings are showing as news flow from the company, because we don't think they're newsworthy until they become meaningful drug candidates.

If anything, we've been very conservative in publicizing any of this work, or the specific results of this work until it's meaningful in terms of a product or in terms of an important scientific publication. That's been our strategy towards that, Joaquin.

Okay. Well, thank you for your time.

Sure.

Thank you. Our next question comes from Nathan Cali from Noble Financial. Your question, please.

Hey, guys. Thanks for taking the questions this afternoon.

Sure.

Any -- just can you provide a quick update on moving towards the NDA for ST-246. I know there's a couple of studies that need to be done. Are there any updates there as you move forward that progress?

Nathan, we don't have any more specific updates in that regard. We have performed multiple primate experiments. We've performed multiple rodent experiments as well. The specific experiments that we still need to do, we can't codify yet. We're confident that we can do them as we come to agreement with the FDA to pursue them. But this is not something where we're going to put forth each animal laboratory experiment that we're going to do as of public disclosure.

Got you. Okay. As far as -- I'm just looking at milestone payments. I know you touched on these a little bit, but --

Yes.

Should we look at the submission of the NDA towards the 2014 time frame, as far as trying to calculate these milestones for you guys as revenue, or how should we look at that? Completion of validation batches, you're going to get 8.2 for that, so just trying to get a sense on how we model this out.

Right, so, for the NDA milestones, the way to look at it is happening after we fulfill our delivery requirements.

Okay.

But for the commercial validation, our report is, we're working on it. We're targeting 2013. That's a wide range. We'll be able to come back with a little more specificity as we go on. But that has something that we would anticipate happening either at the start of delivery, or during the delivery time period of product.

Okay. Great. Thanks a lot for taking the questions again.

Thank you, Nathan.

Thank you. Our next question is a follow-up question from Greg Wade from Wedbush. Your question, please.

Welcome back.

Thanks. Dan didn't get enough time on the call so I thought I'd --

No problem.

Dan, could you help us with the moving parts of the balance sheet in the third quarter here. It seems like a little more use of cash than the income statement would suggest, so perhaps there's been some growth in inventory. What do you expect that number to be at the end of the year? And could you also tell us what you're targeting year end cash to be? And do you think you have enough to build all that you need to in order to start shipping to the government? Thanks.

Right. Right. You're correct in that use of cash is really being driven to drive the execution of the program, and you see a lot of it is capitalized on the balance sheet, as opposed to running through the income statement. Specifically, you'll see that inventory has been moving up in materials, as well as deferred costs. That's the big driver of the usage of cash. Of course, there's also operations, but a lot of the operations does come through the income statement.

In terms of cash balance going forward, we won't give guidance on the projected cash balances going forward. To catch the gist of your question, though, is that we feel like we have -- with the cash on hand as well as the $12 million labeling plan milestone, in the near term we have what we need to do what we want, and then once you start moving beyond the near term, it always comes down to is, you look at the opportunities we have, and then we look at the cash we need, and then we figure out whether we have enough, or whether we need to look elsewhere for funding.

But I think the way to really think about this is, we have what we need in the near term to produce product, and start delivering it into the SNS.

Thanks, Dan.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks.

Well, thank you very much. We have continued our march towards commercialization. Again, to reiterate, we reached a milestone with regard to our labeling plan that we're very happy with.

I should mention that that labeling plan does include the dosage, which we've disclosed already. It's 600 milligrams once a day for fourteen day course. And that we expect to start delivering ST-246 into the Strategic National Stockpile in early 2013, and to deliver on our $435 million contract over the ensuing two years or so, once that delivery is made. We think that augurs very well for our business, and validates us as a commercial stage bio-defense company. Thanks again for tuning in.

Thank you, everyone, and as a reminder this call included certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended, including statements regarding the efficacy or potential of 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 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 risks of 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 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 patent protection for its products.

Any challenge to SIGA's patents and other proprietary rights, as is 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.

The U.S. Biomedical Advanced Research and Development Authority may not complete the procurements set forth in its solicitation to the acquisition of the smallpox antiviral for the Strategic National Stockpile, or may complete it on different terms.

Any contractual award we may receive to supply a smallpox antiviral may be subject to one or more protests, which may cause contract awards to be delayed or denied. The volatile and competitive nature of the biotechnology industry may hamper SIGA's efforts. Changes in domestic and foreign economic marketing 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 businesses.

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, 2011, 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 these documents free of charge from SIGA. Forward-looking statements speak only to the date 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.

Once again, I'd like to thank you all for your time today. Operator, you can please ask our audience to disconnect their lines.

Certainly, thank you, and thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.