SIGA Technologies, Inc. (SIGA) Q3 2012 Earnings Report, Transcript and Summary

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. If anyone would acquire assistance during the program, please press star then zero on your touch tone telephone. As a reminder this program is being recorded. I would now like to introduce your 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. Both in 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 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 the business update and then we’ll open the call for questions. Starting with our business operations, I’m please to tell you that the FDA has 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 on 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 advance payments totaling $41 million in the fourth quarter of 2011. I mentioned the payment progression here because each payment reflects a successful step in the performance of our contract. The next performance step we are targeting is the initial delivery of ST-246 into the SNS. As noted in prior calls we’d expect to begin delivering ST-246 into the Strategic National Stockpile by the end of the first quarter of 2013. This is less than six 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 of 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 PharmAthene 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 10th, 2013. Oral arguments are scheduled to be heard by the Delaware Supreme Court en banc. In other words, all five justices at the Supreme Court are schedule to preside over the appeal and cross appeal. We believe the decision by the Supreme Court to preside over our case en banc is appropriate given the complexity of the case and why certain novel features of the revenue fashion by the Delaware Chancery Court in its ruling. That 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 the line of Greg Wade from Wedbush. Your question please? Greg Wade – Wedbush Securities Inc.: Good afternoon. Thanks for taking my questions.

Good afternoon. Greg Wade – Wedbush Securities Inc.: Eric, hey. I hope you’re well. Hey, 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 in 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. Greg Wade – Wedbush Securities Inc.: Okay. And then –

And then – yes, and Dan has some additional Greg.

Hey, Greg. And also there is a third milestone for a commercial validation report. We will be targeting that for 2013. As we get closer to that point, we’ll be able to firm up a date or a range of date. Greg Wade – Wedbush Securities Inc.: Okay. If I just might just ask one another question back in the queue.

Sure. Greg Wade – Wedbush Securities Inc.: With respect to the sort of a potential follow on contract, do you have any insights from your discussions 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 a reverse order, our target shelf life is five years. We are incented and expected bonus payments if we can prove seven years of shelf life. And with respect to the – give me your first question again. I had [inaudible] for – oh the RFPs and 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 kind of signaling prior to it. We can say we’re pleased that our progress on the IV formulation and filing on 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. Greg Wade – Wedbush Securities Inc.: Thank you, Rose.

Sure.

Thank you. Our next question comes from the line of Adnan Butt from RBC Capital Markets. Your question, please. Adnan Butt – RBC Capital Markets: Good afternoon. Hi. Thanks for taking my question. My first question, can you explain a bit on the level that you came to an agreement with the FDA and secondly, is the timing in terms of the oral delivery of the contract to about two years and could anything speed it up? And then lastly, I guess, how does [inaudible] payment be recognized please? Thanks.

Let me turn the labeling question over to the Dan.

Yes, Adnan. On how it will be recognized, they’ll be recognized similar to the advance payment and that it will be deferred revenue as the cash comes in. The labeling plan strategy is unique and that we are delivering – it’s an unapproved product and we are delivering into the Strategic National Stockpile so there’s a series of exemption. Of course, this type is a unique situation, there’s a lot of technical factors, some of which is simply how to label plan specifically for the Strategic National Stockpile. There are other budget technical features but – so it’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 and provide a strategy and that it is in concurred by the FDA. Was there a third question in there, Adnan? Adnan Butt – RBC Capital Markets: Yes. What’s the timing of delivery to the contract?

We’ve said many times at this point that we expectedly 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 2 million courses of drug per year. And once that’s up and going, our pump is primed [ph]. We think that we’ll be able to continue manufacturing that and hope that we can continue manufacturing and delivering further but I can’t speak to anything beyond those 2 million courses right now.

Just to add on to that quickly is we do plan as we go along, there will be some efficiencies. But if it’s – so as it’s pointed, if 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 in a more uniformed [ph] on delivery basis. Adnan Butt – RBC Capital Markets: Okay. That’s helpful. Thank you.

Thank you.

Thank you. (Operator Instructions). Our next question comes from the line Joaquin Horton from Sterne, Agee. Your question, please. Joaquin Horton – Sterne, Agee: Good afternoon, guys.

Good afternoon.

Good afternoon. Joaquin Horton – Sterne, Agee: In 2011, we got a grant from 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 this. We have made very good progress on both. In dengue, we actually have three series of potential drug candidates to three different targets. And our feeling about it is that we are looking to have an optimized drug candidate before we declare a candidate of our lead and before we expand 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 model 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 series will be our first. In the field of arena viruses, 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 [ph] work is going to be fine, that’s the reason we have to do it is to simply have 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 biodefense. And as we – and that our special talents in that direction have been bearing fruit. That coupled with our commercialization over the next couple of years, we think [inaudible] very well for the future of the company. Joaquin Horton – Sterne, Agee: Along those lines, knowing that the government is going to be tight for monies, would you look for monies in the private sectors to help develop these products?

Well, let me first state that we’re expecting to have monies in our own clusters 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 and then – or potential drug candidates in Lassa and dengue, we think we could create more value ourselves with our own capital at this point, but as those opportunities potentially arise, of course, we will 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. Joaquin Horton – Sterne, Agee: I know at one time we were working on influenza and bird flu and have we done anything in that area recently or is that completely gone by the way side?

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. We don’t – 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 whole team. Joaquin Horton – Sterne, Agee: Okay. Well thank you for your time.

Sure.

Thank you. Our next question comes from the line of Nathan Cali from Noble Financial. Your question please? Nathan Cali – Noble Financial Capital Markets: Hey, guys. Thanks for taking the question this afternoon.

Sure. Nathan Cali – Noble Financial Capital Markets: Any if you could just provide a quick update on moving towards the NDA for ST-246, I know there are 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 climate experiments. We’ve performed multiple road experiments as well. The specific experiments that we still need to do we can’t codify yet. We are confident that we can do them as we come to agreement with the FDA to pursue them, but this is not something we’re going to put forward each animal laboratory experiment that we’re going to do as a public disclosure. Nathan Cali – Noble Financial Capital Markets: Got you, okay. As far as – I’m just looking at milestone payments and I know you touched on these a little bit. But should we look at the submission of the NDA towards a 2014 timeframe as far as trying to calculate these milestones for you guys as revenue? Or how should we look at that? The completion of validation batches, you’re getting at 8.2 for that, so I’m just trying to get a sense on how we model this out.

Right. For the NDA milestones, the way to look at it is happening after we fulfill our delivery requirements product. Nathan Cali – Noble Financial Capital Markets: Okay.

For the commercial validation, our report is that – we’re working on it. We’re targeting 2013. That’s the wide range. We’ll be able to come back with a little more specificity as we go on, but that’s something that we would anticipate happening either at the start of delivery or during this delivery time period of product. Nathan Cali – Noble Financial Capital Markets: Okay, great. Thanks a lot for taking the questions again.

Thank you, Nathan.

Thank you. Our next question is a follow-up question from the line of Greg Wade from Wedbush. Your question please?

Welcome back. Greg Wade – Wedbush Securities Inc.: My question – thanks. Dan didn’t get enough time on the call, so I figured I could bug him [ph].

No problem. Greg Wade – Wedbush Securities Inc.: Dan, can 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 or 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 do you have enough to build all that you need to in order to shift into the government? Thanks.

Right, right. You’re correct in that. Here’s the catch, 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. And specifically you’ll see that inventory has been moving up and materially as well as the first cost. That’s the big driver of the usage of cash. Of course there’s also operation, so a lot of the operation, those come to the income statement. In terms of cash balance going forward, we don’t give guidance on the – of the [inaudible] cash balances going forward. The catch is, the gist of your question 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 as you look at the opportunities we have and then we look at the cash we did 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 needed in the near term to produce product and start delivering it into the SNS. Greg Wade – Wedbush Securities Inc.: 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 the 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 14-day course. And 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 argues very well for our business and validates us as a commercial stage biodefense 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 US Biomedical Advanced Research and Development Authority may not complete the procurements set forth in its solicitation of 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. Change in domestic and foreign economic 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 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 31st, 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 in 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/or 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 line.