SIGA Technologies Inc (SIGA) 2012 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the SIGA Technologies quarterly business update conference call. At this time all participants are in a listen-only mode. Later we will have a question and answer session, and instructions will follow at that time. (Operator Instructions).

As a reminder, today's call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Todd Fromer, Managing Partner of KCSA Strategic Communications. Sir you may begin.

Thank you Mary. 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 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 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 fourth quarter and year ended December 31, 2012.

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 business update call. During this call we will provide you with a business update, and then we will open the line for questions.

It has been quite a fruitful period of time since the last investor call. In November, we branded our smallpox antiviral treatment as Arestvyr. Also known as ST-246, our smallpox antiviral treatment is becoming increasingly better known around the world and adopting the Arestvyr name represents another step in our commercial stage transformation.

In December we entered into a loan agreement with GE Capital, which expanded our capital base with additional non dilutive funding. In January, oral arguments relating to the PharmAthene litigation were heard by the Delaware Supreme Court En Banc.

Based on the Court's historical response rate, we believe that a ruling by the Supreme Court is likely to occur in the near term, either this month or in April.

Now it is March, and this month we expect that approximately 190,000 courses of Arestvyr will be accepted by BARDA and fit with the Strategic National Stockpile.

The acceptance of approximately 190,000 courses into the SNS will be an important achievement for SIGA. It will confirm our Company's capability to successfully execute on long range strategies, and is expected to lead to significant cash inflows in 2013 and beyond. We are looking forward to building on this momentum.

On the regulatory front, we have begun to carry out specific development activities based on regulatory guidance from the FDA. The development activities we are performing build upon recommendations from the FDA Advisory Committee, which was held in December 2011, and are expected to involve a series of animal studies and human safety studies.

We expect that the incremental animal studies will clear theconfirmation of efficacy results achieved in our previously performed non human primate tests.

As of December 31, 2012 SIGA had $54 million of available funding from BARDA that is expected to be mostly used for development activities related to our drugs.

We expect that these development activities will have a timeline that probably extends beyond our product delivery schedule, which we expect to achieve over the next two years.

At this point I would like to hand the call over to Dan.

Thank you, Eric. Good afternoon to those on the call. I would like to start with further discussion on the product delivery expectations for the next six months and thereafter.

As Eric mentioned, we expect that approximately 190,000 courses of Arestvyr will be accepted into the Strategic National Stockpile in March. This is a substantial step towards the cumulative 500,000 course delivery threshold, which we must meet in order to invoice and receive payment for delivered products.

We expect to surpass the 500,000 course delivery threshold within the next six months. Additionally we expect to fully deliver 2 million courses of Arestvyr within the next two years.

Please note that revenue recognition for cash received related to product delivery has been deferred up to this point, and it is expected that revenue will continue to be deferred after we surpass the 500,000 course threshold.

Revenue on these items is expected to be deferred until we satisfy all obligations related to the delivery of courses. Cash receipts from the delivery of product when they occur in the future are expected to materially enhance our cash resources.

At December 31, 2012 our cash, cash equivalents, and short-term investments were $32 million. This amount includes $4.9 million from the issuance of debt in December

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

(Operator Instructions). Our first question comes from Adnan Butt from RBC Capital Markets, your line is open.

Thanks for taking my questions. I will ask and hopefully you can address something about this, but naturally it is about thelitigation process, can you discuss what the potential outcomes could be, and what would be the steps beyond those outcomes?

Sure. It is not something that we speculate on, and I think I really can't comment beyond that.

Then let me try a second question, and then I will get back in line. You mentioned something about 246 getting better known around the world. Is there any interest from outside the US in terms of stockpiling the drug at this stage, or do you feel that it is something that would require approval before something can materialize on that front?

I think as it grows, I think there is considerable awareness of our drug, of its potential use in biodefense and certainly the acquisition of the drug into the United States SNS is something that is drawing attention from other countries.

There is no analogous legal framework in other countries to the emergency use authorization type of mechanism that is the basis for the BARDA acquisition of drugs like ours, and I would say also like most of the other drugs that BARDA has acquired which have later gone on typically to full approval.

I think there is considerable interest on the part of policy people in these other countries that we have discussed this with to explore potential mechanisms that would allow them to acquire drugs earlier at an earlier stage than FDA approval.

Beyond that, I don't think we can say anything more as to whether or not such countries might acquire our drug prior to regulatory approvals.

If I could just ask one question about the ruling that might occur in March/April. You expect to pass that hearing, that ruling, and then would you consider holding a conference call based upon the ruling?

Can you repeat the question again Adnan?

Would you be press releasing the results of the ruling that is expected?

Well, I think it is fair to say that the ruling will be material to us, and of course, we will meet our regulatory obligations, and our obligations to shareholders of course, to discuss it.

Okay thanks.

When it is available it will be publicly available immediately. That is the nature of the releases as I understand it from the Delaware Court system.

Okay. Thanks. Let me get back in line.

Sure. Good.

Thank you. Our next question comes from Greg Wade from Wedbush. Your line is open.

Good afternoon. Thanks for taking my questions.

Sure.

Dan, with respect to revenue recognition did I hear you correctly when you said that you won't be able to recognize any of the revenue until all obligations are met, does that include FDA approval?

Yes, we have been deferring revenues to this point, and yes, we will continue to defer revenue until we meet all of those obligations, and correct, there are multiple elements to the contract, one of which is FDA approval, so you are correct in that, that is part of the elements that has to be satisfied before revenue recognition.

All of these elements are when you go through the accounting of this contract are linked together, and so you revenue will be deferred it until that obligation is filled.

Okay. How should we think about taxes?

Well, taxes are is are is separate versus GAAP. We will be in a position of using NOLs. It will be taxable income as we receive cash related to deliveries, but we do have a significant NOLs to apply againstthat income.

Okay. A couple more questions. With respect to the supply chain for Arestvyr, are you producing on a continuous basis about 190,000 courses a month?

We have now a validated production process, that is now morphing into a commercial production process, and we expect over the next two years, 24 months to produce approximately 2 million courses. So I guess the math for that would come out to a little bit less than 190,000 courses per month. But in that 100,000 to 200,000 course per month goal mark.

Yes, I think to summarize what Eric said is that, there is flexibility in the supply chain to move up and down in terms of capacity. Right now it is not 190,000 per month, it is, there is a lumpiness to it. So 190,000 per month would be a little fast. We have the supply chain supplied to the point where we can be pretty consistent within a certain framework. 190,000 is too high, though.

Okay. Sort of then for modeling purposes we shouldn't assume that you are going to make a bunch, and then three months until you can make a bunch more. Dan, just remind us did you provide financial guidance for this year?

No, we do not provide financial guidance.

Okay. Great.

That is probably not surprising to you.

I just wanted to check. I will get back in queue, thank you.

Thank you. (Operator Instructions). Our next question comes from Nathan Cali from Noble Financial. Your line is open.

Hi, guys. Good afternoon. Thanks for taking the questions.

Sure.

Just a couple follow-up questions with regards to you receiving FDA approval for ST-246, how would that revenue then begin to be recognized since you guys are starting to shift product? Would it be a big lump-sum payment of the $433 million broken out into its payment provisions? So in other words, milestone payments that you are receiving now is going to be used for the development process, but price per course, is that going be paid in one lump-sum payment at the end?

The cash flows are different from the revenue recognition of once we surpass the 500,000 course threshold, we will be paid for the delivery of those 500,000 courses, and then thereafter as we make deliveries we will be paid on a timely basis, a normal net 30 type basis. So the cash flows are going to be different than the revenue recognition.

So will you see that on the revenue line though, as far as after you hit that 500,000 threshold, will you see a revenue line starting to come in?

No, as we mentioned revenue will be deferred until all of the elements of the procurement component are satisfied.

Okay.

Right now you see revenue related to development activities. We will continue to see that.

Okay.

But related to the [petroma] part of the contract, that will be deferred.

Okay. So the $12.3 million payment, I think it was roughly that, that was pushed into December of 2012 from November. Did you guys receive that payment already?

We have, yes.

Okay. So that is why we didn't see it on the revenue line because it is deferred revenue?

Correct, yes.

Okay. And then so it will be recognized as revenue but until you meet all of the requirements you guys can't use that money?

No, it will not be recorded as revenue. We will --

So deferred revenue?

It is the other way,I think. We will have the cash but it will not be revenue.

Got you. And when do you expect to maybe getting, maybe get closer, you probably don't have an exact date on when you would get approval obviously, but when could you guys start to see expectations improve there, so that we can get some clarity on approval?

I think speculating on the date of FDA approval is something that we are not going to do. I think it has been encouraging to see the FDA make approvals using the animal rule in just the last quarter. They approved raxibacumab from BMS, I think it is BMS that acquired human genome, and so we had been concerned that we might have to be the first company out of the gate to get a new molecular entity approved by the mechanism. But it was encouraging to see that, and we see that the FDA I think has been a lot more receptive and interactive on the subject, but to say specifically when that will happen, we can't do that.

Alright. And then just one follow-up question to the litigation. This is a factual question, I hope. As far as the litigation goes, if it stays where it is now, 50/50 profit split, the money that you are getting now that is going into deferred revenue, will 50% of that is based on the breakout be deferred to PharmAthene. Is that how that is going to work?

The way we will comment on that is first of all, we do have an appeal outstanding, so we are going to see what happens there, if in the event after the appeal the Chancery Court ruling still stands, we will just follow the ruling of the Chancery Court.

Okay. Alright. Thanks a lot, guys.

Thank you. Our next question comes from Joaquin Horton, Sterne, Agee. Your line is open.

Good afternoon.

Good afternoon.

I am not going to be redundant and ask how the development is going on Dengue fever andLassa fever. I assume it is going fine.

I think it is. The last quarter we think we have made progress. To be specific about it is not something that we are going to do. But our work in both of those areas is very active.

Well, good I want to get back to the IV formulation and its filing an IND, are we there, are we past there, or what is the status of that?

We haven't filed the IND so there is one in place right now.

For the IV formulation then?

Yes.

And we are working on a pediatric formulation?

Yes, I mean our development efforts are pretty broad-based on Arestvyr in terms of we have the oral therapeutic, we have the IV, and then there is pediatric and geriatric. There are a lot different things. We are balancing them all, so it depends on what we are focused on at that intermediate time. We don't do them all at the same time, but they are all important to us.

But to give you some color for the pediatric formulation, we are doing things like testing palatability of the API, the active ingredient, in various things like apple juice, cranberry juice, other things in which you would put the API in order to administer to children.

Okay. A question about camelpox and monkeypox and cowpox,I assume that with the ST-246 product it would cure those three diseases, correct?

Yes. We have seen a reasonable conclusion. We have tested Arestvyr against all of the orthopox viruses, against which I would say it is reasonably possible to test at least in vitro efficacy, in some of them we have had for vaccine,obviously we have had animal models. There is not an animal model that we have worked with for camelpox. But the molecular mechanism of the drug attacks a specific target that we know is common to all of the orthopox viruses, so there is every reason to think that our drug would be effective in those instances.

In the Scientific American this last month there was an article about monkeypox in the Congo, and according to one scientist from UCLA, she felt that it was getting to epidemic proportions, and starting to spread to the cities now. Would our product be useful?

I think that is a potential use for it, but I think it would be complicated to do, and for us to speculate on it now is something that I don't think we should be doing.

Okay. Well, thanks for your time.

Thank you.

Thank you. Our next question comes from Fred [Greenberg from G.A.] Advisors. Your line is open.

Hi, good afternoon from sunny Florida.

Good afternoon, Fred.

Hey, Fred.

Hi. A couple of quick questions. First of all, the quote cash that you are getting someone asked in some way, is that restricted?I assume you can use it for anything you want?

Correct, yes.

This is more of an accounting situation that is going to show up in cash flow on your balance sheet like many other companies?

Yes. We will have a floating cash balance.

Okay. That wasn't clear as you presented. What animals are you using for, you weren't sure whether it was mice, rats, monkeys. Have you decided on the animals that the FDA will review?

We have obviously extensive non human primate animal work. There are multiple species in which we have worked in the past. And that includes mice, rats, rabbits, and the like, but we are not going to comment about the specific animal species in which we test at any specific time.

The Chancery Court can bifurcate their ruling I believe, is that correct?

We are not going to speculate on what the Chancery Court can do. I am sure it can do a lot of things.

Okay.

In fact, it is Supreme Court now.

Supreme Court.

Correct.

Do we know of any actual threat,we have seen what is happening in Syria, has anyone talked, or do you know of any actual smallpox threat out there, leaving out the Congo which is a different situation?

I don't think we can speak specifically to any threat. This is something that the intelligence community I am sure is actively following.

Your stock price would tell us instantly if it was out there probably better than the community.

We are not going to speculate on that either. We have said in the past though, that aside from any potentially existing stores of the smallpox virus, the technology to make it denovo, by synthesizing it using available technology which could generate the virus, or modification of viruses like camelpox that are remarkably close genetically. Camelpox differs from smallpox by less than 50 base pairs, and as we have said before, it is more than feasible to change a base pair in a very short period of time, by scientists that we think available all over the world.

Yes. That is a real problem, unfortunately. Any backlash effect, backwash risk from this sequester which came down dramatically, and resulted in a lot of instant potential cutbacks? Would you be in line for being cut back in some way?

Our understanding of our contract is that it is in budgets that are not part of the sequester.

The money funding our contract came from a special reserve fund that was appropriated.

In 2004.

In 2004. So it is not part of the annual appropriation process, and so that amount has been obligated to our contract.

Okay. I see you have had some, I will give up this phone in a second, three major new investors including GE, which is an investor that I have had in some of my funds, they do a great job and due diligence, and Blackrock, and I guess FMR came in, so congratulations.

Thank you.

Okay. Thank you.

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

Thanks for taking the follow-up question. Eric, could you just run you through the milestones associated with the development activity you are going to do on Arestvyr towards approval this year, and what timeline towards the filing are you working towards?

Well, there aretwo remaining milestones as I understand. One is obviously the FDA approval.

Greg, are you asking about the contract milestones, or just is generally development-wise?

What general development activities. There are no real clinical studies, it is mostly animal model work that is ongoing, what are some of the things you are doing this year?

Probably highest on our list is to reach the 500,000 course threshold, which we expect to meet by the end of the second quarter, and following that to continue to produce in compliance with our contract.

But actually working towards FDA approval, what development activities are taking place this year?

There are multiple development activities that include both animal models, and at some point that we have not yet defined, a pivotal human safety study as well. But that study because of the remarkably safe toxicology, and lack of adverse events in the studies that we have had before, I think there is still a sense that until there is further animal work, that additional confirmatory human safety studies are not necessary at this point.

Okay.

Relevant to, they are obviously going to be necessary for the FDA approval, but they are not necessary at this point with regard to the procurement.

Okay. I mean I think investors are a little bit in the dark as to what actually is going to happen this year, that is on the critical path towards a filing, and what your timeline assumptions are to an FDA filing. Perhaps you could just run through the key activities that are going to take place, whether there are successes or failures in each one of those key activities, and tell us what timeline you are working towards to an NDA filing?

Let me stay first that we are not going to speak about the specific activities as we work towards a filing, because this is a very new area I think for the FDA, and to say that there is a defined pathway, like an SPA or anything else is just not true. As we do the work, we discuss it with the FDA. File reports as we file the information, and then decide whether or not there are additional studies that should be done or not as we get through those. That is a very active process.

In the recent past it has included, for example, a repeat exploration of the drug in an actual [viral] model, the smallpox model, and that from our perspective was a dramatic confirmation of the effectiveness of the drug at a dose that we think is comparable to the dose that we think is now about to be in the Strategic National Stockpile. I think that is information for example that is in the process of being digested, and in terms of what further studies should be required in non human primates, or any other species, is something that I think is still under active discussion. I can't be more specific than that, Greg.

Okay. Just one last one. I didn't realize it was such a nebulous process.

Yes. I think it was a nebulous process before the panel meeting on December 11. While it is not a specific process, I think it is a very active process, and a very iterative process.

Okay. Does the firm have a sort of a plan or timeline that you are working towards to get to an NDA, and if so what is your expectation?

We are not going to comment any further on that, Greg.

Okay. Thanks.

Sure.

Thank you. Our next question is a follow-up from Nathan Cali from Noble Financial. Your line is open.

Yes, thanks for taking the follow-up. I just wanted to make sure I have got this correct for modeling purposes. In a situation where you may not receive FDA approval, the monies that you generate from the initial 1.7 million courses, that will be recognized as revenue at some point no matter what, even if you don't receive FDA approval?That has been my understanding all along. I don't know if that has changed or not?

At some point if it becomes clear that we cannot achieve FDA approval at some point in the future, if we get to that point, at some point the deferred revenue will become revenue. But there has to, that would be fulfilling one of the elements, or main element of the contract. That is at a point far into the future, so I wouldn't really want to speculate about it. But at some point it becomes revenues, but the preferred path is for them to become revenues in the event of FDA approval.

And is that something that BARDA is making you guys do, or is that something that you are doing on your own as far as deferment of the revenues for the 1.7 million courses?

No, this is just GAAP.

Okay. Alright. Thanks a lot.

Thank you.

Thank you. I would like to turn it back to Eric Rose for closing remarks.

Thanks everybody. Appreciate the vigorous questioning today. I think that is reflective of the extent of activities in this past quarter. Again, I think it has been a crucial quarter for us as we move towards the commercialization, and becoming a commercial and cash flow positive entity. And we look to updating you on our next quarterly update, and I will turn it back to Todd.

Thank you, Eric. Thank you all. 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 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 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 government approvals to market these or other potential products. SIGA may not be able to obtain anticipated funding for its development projects, or other needed funds.

SIGA may note 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 further need or additional testing or documentation that would delay or prevent seeking or obtaining these approvals to market these products.

The US biomedical advanced research and development authority 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.

Any contractual award we may receive to supply a smallpox antiviral, may lead toone or more protests which may cause contract awards to be delayed or denied.

The volatile and competitive nature of the biotechnology industry may hamper its 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 regulations 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 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, 2012, 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, atwww.SEC.gov. Interested parties may also obtain these documents free of charge from SIGA.

Forward-looking statements speak only to the time and 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.

Operator, we can now conclude the call.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.