SIGA Technologies, Inc. (SIGA) Q2 2007 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Second Quarter 2007 SIGA Technologies’ investor update conference call. My name is Feb [ph] and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions]. I would now like to turn the presentation over to Dr. Eric Rose, Chairman and Chief Executive Officer, please proceed sir.

Thank you operator. Good morning everyone and welcome to this investor update conference call. Today’s call is being broadcast over this conference line and is also available via the Web as noted in our press release. It will be available after the call in a recorded format through the conference service and on our website. A transcript of this call will be furnished to the SEC on Form 8-K. With me on the line today is Tom Konatich, our Chief Financial Officer as well as Al Palombo from our Investor Relations firm Cameron Associates. While it has been a relatively quiet quarter from a news perspective, we continue to make deliberative substantive progress with our antiviral drug portfolio. We are going to keep our comments in today’s call relatively brief so that we can get to the question-and-answer portion of the call sooner. The question-and-answer session will be open to analysts and institutional investors and we will also be taking your questions by email at info@siga.com. Before we begin our review of operations, I will ask Al to read our disclaimer regarding forward looking statements.

Thanks Eric. This morning’s conference call will include certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the efficacy of potential products, the timelines for bringing such products to market and the availability of funding sources for continued development of such products. Forward-looking statements are based on management's estimates and assumptions and are subject to uncertainties, many of which are beyond SIGA’s control. Actual results may differ materially from those anticipated in any forward-looking statement. Factors that may cause such differences include the risk that (a) potential products that appear promising to SIGA or its collaborators cannot be shown to be efficacious or safe in subsequent pre-clinical or clinical trials, (b) SIGA or its collaborators will not obtain appropriate or necessary governmental approvals to market these or other potential products, (c) SIGA may not be able to obtain anticipated funding for its development projects or other needed funding, (d) SIGA may not be able to secure funding from anticipated government contracts and grants, (e) SIGA may not be able to secure or enforce adequate legal protection, including patent protection for its products and (f) regulatory approval for SIGA’s products may require further or additional testing that will delay or prevent approval. More detailed information about SIGA and risk factors that may affect the realization of the forward looking statements, including the forward-looking statements made this morning are set forth in SIGA's filings with the SEC, including its Annual Report on form 10-K for the fiscal year ended December 31, 2006. SIGA urges investors and security holders to read those documents free of charge at the Commission's website at www.sec.gov or obtain them from SIGA. Forward looking statements speak only as of the date they are made, and SIGA undertakes no obligation to publicly update any of the forward looking statement as a result of new information, future events or otherwise, except as required by law. Finally, I need to say a quick word about the FDA approval process. As you know, SIGA’s principal product is an unapproved drug. As such, the FDA has strict rules regarding what can be said about the drug’s safety and effectiveness. SIGA respects those rules and nothing said today should be taken as a definitive claim regarding the safety and/or effectiveness of ST-246. With that said I’ll now turn the call back to Eric.

Thank you Al. We continue to make progress on our primary objective of bringing ST 246, our lead drug candidate, for the treatment of smallpox through the regulatory pathway. Before we get started Tom will provide you with the financial highlights of the quarters.

Thanks Eric. Again as Al said, our financial statements are available at the www.sec.gov and you can look at our recently filed 10-Q for the quarter ended June 30th in more detail at your leisure, but the highlights of the month again. We had revenues of approximately $1.5 million from grants and contracts. This number is virtually identical to the revenue figure for the prior year. We reduced our operating loss to $2 million compared to $2.6 million last year; the reduction was primarily attributable to lower SG&A expense of approximately $350,000 which was due to lower-legal and professional fees incurred this year as compared to last year when we are involved in a proposed business transaction. R&D expenses were lower by approximately $230,000, most of that was a result of non cash amortization charges declining which was partially offset by some increases in manpower as we fully gear-up our laboratory R&D workforce. There was recognition of a non-cash gain of $2.4 million in the quarter which is a function of certain rights and warrants that were attributable to a financing we did in 2005. This is an accounting charge and as a result of this our fully-diluted earnings per share was actually earning of $0.01 per share. Last year our loss was $0.08 for the second quarter. The accounting charge that we incurred was a result of changes in market value of the securities that underlie these warrants, it’s not germane of the operation of the business. For the six months ended June 30, 2007 the company reported revenue of $3.3 million, an increase of approximately 17% to the $2.9 million reported for our last year. The increase is primarily attributable to increased revenues from our grants and contracts with the NIH. Operating loss for the period was approximately $3.8 million slightly less than the $3.9 million operating loss that we reported for the second quarter for the six months last year. Net loss per share for the periods ended June 30, 2007 and 2006 were $0.08 and $0.19 respectively. Reflected in net income was a non-cash gain of approximately $1 million in 2007 compared to a non-cash loss of $1.1 million in 2006, reflecting changes in the fair value of rights and warrants, approaches common shares. From a balance sheet perspective cash in equivalence and short-term investments as of June 30, 2007 were approximately $9.3 million as compared to approximately $10.7 million at December 31, 2006. As many of you will recall, the nature of funding is unusual in relation to a typical business. Since mid-2004 SIGA has been successful in financing a significant portion of its product development through grants and contracts with a number of federal government agencies including National Institute for Health and the Defense Department. We cooperate very closely with our governmental partners. During the two years ending 12/31/2006 we generated $15.8 million in revenue from research grants and contracts with these agencies. That funding represented approximately 75% of the cash used in our operations over this two year period. In addition, the cash received under the grants and contracts, federal agencies have performed critical studies on our products at no cost to SIGA. When considering SIGA’s financial resources the value of these services should not be overlooked or underestimated. As a normal course of business, we routinely apply for additional grants and contracts as we become aware of them and have several applications and proposals in the pipeline that we help to secure. We do not speculate on the probability or receipt of any additional grants funding, but we’re hopeful based on past experiences that we will continue to receive additional commitments as we go forward. Our near-term operations are largely funded by the grants and contracts we entered into in the second half of 2006, which totaled $29.6 million. The funding from these grants and contracts began in the first quarter of the federal fiscal year, which started October 1, 2006 and will continue through September 30, 2009. Before I hand the call back to Eric, I’d like to address a couple of housekeeping items. Our shareholders recently approved an increase in the number of authorized shares of our company’s common stock from 50 million to 100 million shares. As mentioned in the proxy, preceding the vote, the increase was needed to provide the company with flexibility as we go forward and to provide some options to key SIGA personnel. Finally, I would like everyone to know that I will be making a presentation at the upcoming Noble Financial Conference in South Carolina on August 21, at 12:30 p.m. Eastern. More information on the conference can be found at www.nobleresearch.com. With that I will now turn the call back to Eric for his comments.

Thanks Tom. Today’s call is primarily designed to provide a reconfirmation to our investors that our smallpox antiviral lead product ST-246 is fairly progressing on track through studies to support an NDA for regulatory approval and we have the resources to see this project through. As with most drug candidates progressing through the FDA process, this process is deliberate and thorough. We are relatively limited in the amount we cay say however, and we will do our best to answer any questions that you may have at the end of the call. In addition to continue our progress with ST-246, the quarter was highlighted by the progress we made with ST-193, our Lassa Fever drug. In mid-quarter we were pleased to announce that our Lassa Fever program generated a proof-of-concept data in a rigorous guinea pig model. The disease course in these guinea pigs mirrors what is seen in human Lassa Fever infections, and we expect that this model is one of the two animal models that will be required to fulfill the U.S. Food and Drug Administration’s Animal Efficacy Rule. This study should provide the basis for advancing this lead candidate into IND-enabling activities in the near future and it’s a significant milestone for our research group. Our other hemorrhagic fever programs are entering proof-of-concept animal studies, which is successful with support initiation of IND-enabling activities to begin in the near future for these programs as well. So, to summarize, our smallpox antiviral lead product ST-246 is fairly progressing on track through studies to support an NDA regulatory approval. ST-193 is now been validated in rigorous proof-of-concept animal model. The hemorrhagic fever programs other than Lassa are entering proof-of-concept animal studies, which is successful and will support initiation of IND-enabling activities. Our early stage of programs to identify inhibiters of other important viral biothreat agents are progressing and promise to expand our portfolio products even further. We have in place $29.6 million in grants and contracts to support our activities and we will continue to seek and compete for additional federal funds where and when appropriate. SIGA’s overall corporate mission remains unchanged, to discover and develop effective, selective and safe oral antiviral drugs directed at treating, preventing and complimenting vaccines for high threat biowarfare agents. Our goal is to lead the development and provision of these drugs domestically and throughout the world to ensure leading-edge biodefense capability, and to prevent and treat naturally occurring illness caused by agents that we target. Our progress with ST-246 and other drugs candidates in our pipeline is continued evidence of our work in this area. That’s the end of our prepared statements. We appreciate you taking the time to hear our update and before we open the call up for questions, I’d like to take the opportunity to see if we received any email questions. Al, can you help out here?

Yeah. Eric, currently nothing has come in, but why don’t we go ahead and open up the call for questions at this point and if anything pops up I’ll let you know.

Operator, can we have your help with this? Do we have an operator on the line?

[Operator Instructions] Your first question comes from the line of Joaquin (inaudible) from Nolan Berger Capital. Please proceed.

Good morning guys.

Hi Joaquin, how are you?

Great. Just a couple of questions; one, can you comment on the child that you treated with the ST-246 and how the results are there?

The child was discharged from the hospital and has done remarkably well. He is now free of orthopox virus infection, and a report of the child’s illness appeared in Morbidity & Mortality Weekly Report, which is the publication wing of the CDC. So, we are very pleased with his course.

In the last call you mentioned that your current trials of ST-246 with the NIH would be finalized in September or over within September, is that still on track?

I think they will be finished some time in the fall. I can’t say specifically they will be fully complete in September.

Let me ask you, if you can comment on this. Is there any reason why you would have to wait or someone would have to wait for FDA approval before they order your product?

Based on the ordering pattern for the other smallpox products that are now in the stockpile both the Acambis vaccine and the recently purchased MVA vaccine from Bavarian Nordic, neither of those is an FDA approved product. So, we do think that there is an opportunity for us to have a request for proposals for smallpox antiviral sale prior to FDA approval.

Will the product be sold other than, say, to the US government; are there opportunities to sell it to other foreign countries or, say, the World Health Organization or the UN or whatever.

There certainly are opportunities to sell this to foreign governments and in addition to the opportunity to sell into the BioShield program in the United States, there are also the opportunity to sell to the Department of Defense, and to analogous to Tamiflu and other bird flu antivirals, there is a market for this type of drug for private industry to protect their workforce.

I am sure you’ll noodle this around, but what the size of the potential market is?

We have expressed our view to the prudent sized purchase for a combination of the stockpile for treatment of smallpox and prevention of smallpox in a post exposure outbreak scenario would be about 30 million courses in the United States. We are particularly excited about the prospect of using the drug as an adjunct to standard vaccination, which we believe could have a substantial positive effect on decreasing the well known and severe side effects of the vaccine. Most of which are probably due to viremia [ph] with which our drug is particularity prone (ph). If that is the case, if the standard of care were to become vaccination plus ST-246 and arguably and that should be stockpiled or ideally should be stockpiled equivalent to the amount of vaccine that is stockpiled. Right now there is vaccine stockpiled in the United States for every citizen.

That is huge market then.

That is a substantial market.

Right.

Any comments back from the Judge on the PharmAthene lawsuit?

We can’t comment on that other than to say that to my knowledge there has been no response yet.

Okay, thank you. I will let somebody ask some questions.

Thanks.

Your next question comes from the line of Ronald Brown, please proceed.

Yes, Tom a question for you. I am still showing institutional ownership at about 5% and if you guys could just talk about what you are doing to increase awareness to institutions? And the other question that I have is you talked a little bit about the rest your portfolio and if you could talk about, you specifically mentioned ST-193. If you could talk about the stages of development in those other arena viruses and (inaudible) if you just elaborate on that a little more if you would please.

Let me answer the institutional investor part and Eric can do the other part. We have with the help of Al Palombo and our own resources set up meetings with a goodly number of institutional investors. We are going to be going on some road trips; Eric is scheduled to make one soon, I believe out of the West Coast. We will be presenting at certain conferences. As mentioned earlier, I am going to be at the Noble Financial Conference in Charleston next week. We had an institutional investor who just filed a filing stating that they now own 1.1 millions shares of SIGA Technologies that is Baker [ph] Brothers and that should be on the SEC website and we are starting to see our efforts bare fruit, which began several months ago and we will continue to do that. We were making some trips to Europe to see if we can bring in some Europeans institutional investors and Eric you can comment on the developmental aspects of the question.

Sure, essentially a wide array of targets that are in the implementation plan for the Public Health Emergency Countermeasures Enterprise called PHEMCE, all of these or many of them are in our sites. And the developmental process is very much the same and much of it being performed by the same scientists that created ST-246. We essentially study the viruses in cell culture models where the viruses are available for agents like Ebola. We make pseudo viruses, essentially an HIV construct that has biochemical elements of the specific virus on the surface. Obviously, we can’t work in the laboratory with agents like that safely or legally. But in both the pseudo constructs and the actual virus constructs we screen a very large library that we have, more than 300,000 compounds that did yield the ST-246 and look for agents that inhabit file replication in the cell culture, and have many, many hits across many of our programs at this point and with the most prominent [ph] of those hits we see to dissect out essentially through growth of resistance frames what’s specifically in the viral molecular biology is required for that resistance. We then impute that resistant component of the virus is what the drug is targeting and then goes specifically and much more specifically at designing small molecules that go after the specific target. That’s exactly how we developed ST-246 and that is certainly the path that we are following for these other agents as well.

Now, Eric and Tom, we have just received an email inquiry here and Eric it has to with the current trial. I think it might make sense just to review what’s happening or the nature of that trial. I’ll read the question, the question states; it’s been almost six months since the first ST-246 trials ended, what’s taking so long to get the results published? Can you just review the nature of the trial, and how that actually, its not actually a 21-day trial but it actually takes an extended period of time.

Sure, first going back to our first trial, our first trial was just single dose of – and a dose ranging study to look at safety in the pharmacokinetics of single doses of ST-246, and what we gleaned [ph] from that was that the drug was probably a once-a-day drug and that we are capable of achieving blood levels that are in the same range as we see efficacy in our most stringent animal particularly the primate models. The more recent studies have been 21-day courses of ST-246 in a dose-escalation mode. That’s where we are, we are in the midst of that dose escalation at this point and while each individual subject in these trials receives drugs for 21 days, they are not all started at the same time, so that enrolling a group takes longer than 21 days. In addition, after each step-up in dosed our protocol which is on clinical trials that requires a routine safety monitoring Board review of outcomes after each dose escalation. So, that’s the process that’s been going on; we had projected that we would be done with the final dose escalation, probably some time in September, I think it might be a little bit later than that; we feel that we are reasonably on track with that.

Great, we have one more inbound question here, this is addressed to Tom; it has to do with the authorized shares Tom. Hello! I think the recent decline in SIGA shares has at least partially been due to the increased number of authorized shares. Do you expect to use these shares to fund operations or do you have enough cash/grant money to fund operations for the foreseeable future, i.e. the next year?

You will note in our 10-Q filing, we state that we have sufficient cash to carry us through the warp [ph] beyond the next 12 months, and that really is all we are allowed to say under the ordering rules and SEC rules. Again, as I have mentioned earlier when I was making my prepared remarks, we had a number of employees or key employees; Dennis, Ruby, Eric and a lot of individuals out on the west coast, who had not received any stock options in a long time because the number of authorized shares we had did not allow that room. That was the primary reason for asking for that increase. You are not going to go ask for an increase of 5 million shares or 10 million shares, which you don’t want to have to keep coming back for the shareholders. So, we just went to a larger number, and I said in the proxy beyond the immediate need which we have issued these options to people and we mentioned that in our 10-Q to those individuals - those officers who got it and a lot of the options that were granted are contingent on certain performances issues have and things happening for the company. We at this point in time, have no plans beyond that. So, it is there to permit flexibility we do not know what’s going to occur three months from now, six months from now, or next year. An opportunity to acquire some technology, opportunity to do other things that might requires some additional shares. They are there when we need it, we don’t want to have to go get them and not have enough time to do transactions that would be very beneficial to the company, but again all that has been done now, and all that’s in our plans is issuing some of those options that I discussed.

That’s it for the inbound email questions.

Your next question comes from the line of Andre Garnet from Advent Financial, please proceed.

Hello, good afternoon. My first question is this; it is about ST-246 and the upcoming large scale pivotal trial. Will that trial be the last one before the submission of the NDA?

Well, we are in the midst of the dose escalation that I described, and following the acquisition of that data we will decide what we think is the appropriate dose of the drug. We still believe it will be a once-a-day drug. The pivotal safety trial will follow upon that which we anticipate will be about a 400-500 Patient Safety Trial, at the dose that we believe is the therapeutic and preventive dose. We think those are likely to be the same although we are still investigating that as well with our animal models. That would be, we believe, the last and pivotal trial that we will need to do in humans.

So, are you still expecting to file an NDA in early 2009?

We think that, that is still feasible that’s correct.

Okay, I have another question about ST-246. There have been rumors that camelpox could be used as a bioweapons. Now, figures have shown that ST-246 is effective against camelpox. My question is this, in order for camelpox to become an approved application for ST-246, would it be necessary to perform some additional efficacy trials.

That’s an excellent question to which I do not have an immediate answer. We do know without question that the S13LG [ph] and the ST-246 attacks is ubiquitous across the pathogenic orthopox viruses. So, we would have every expectation that the drug would be effective against camelpox. Actually, one of the things that has been pointed out to us by people in this field is that camelpox is probably the closest of the still widely occurring orthopox virus infections that’s the closest in terms of its gene structure to the smallpox virus. It’s only about a 145, 146 base pairs that are different between the camelpox virus and smallpox. So, it’s conceivable that a rouge molecular biology pursuit could convert camelpox to the orthopox virus. So, I think your question is very, very pertinent. I do believe that if there were a camelpox outbreak and our drug have been stockpiled and was available that it would be used to deal with it, but still our primary focus and I think the BioShield purchasing pattern right now is to focus on smallpox antivirals and to make sure that we get to that stage of an order we are going to focus on smallpox first.

I understand, thank you that was my last question.

I guess that was his last question.

There are no further questions at this time. I would now like to turn the call back over to Dr. Eric Rose for closing remarks.

Yes, thank you very much operator. We appreciate this opportunity to bring you all to up to date on our progress. We continue to make progress with ST-246. We continue to make progress on our other antiviral programs. We have a first rate scientific and clinical team and I believe our story is being better understood by the investment community as well and we look forward to future communications with you as well. Thanks so much.

Thank you for your participation in today's conference; this concludes the presentation. You may now disconnect. Have a wonderful day.