SIGA Technologies, Inc. (SIGA) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for your patience. You've joined the SIGA Technologies Quarterly Business Update. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Managing Partner of KCSA Strategic Communications, Mr. Todd Fromer. Sir, you may begin.

Thank you, and thank you, all, for joining us today. This is Todd Fromer of KCSA Strategic Communications, Investor Relations Consultant to SIGA Technologies. Hosting the call today is 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 a reported 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 full year ended December 31, 2013. With that said, I'd now like to turn the call over to Mr. Dan Luckshire. Dan, the floor is yours.

Thank you, Todd. Good afternoon. Thank you, all, for joining us for our business update call. During this call, I will provide you with a business update, and then I will open the call for questions. Before I get into the prepared remarks, I would like to pass along my regards -- or regards from Eric Rose. Eric and I were both planning on being on this call, but Eric has come down with a stomach bug. All of us are subject to getting stomach bugs, and today is his day. So we look forward to Eric joining us for the next call. He's unable to join us for this call. I'd like to start by saying that we are excited about SIGA's future. We believe that we have built a strong, efficient foundation, and we believe there will be opportunities to grow our foundation. The Arestvyr business is the center of our current foundation. In 2013, the Arestvyr business achieved many important milestones. Let me name a few. In March of 2013, we made the first delivery of Arestvyr to the Strategic National Stockpile. This is a major achievement as Arestvyr's a novel small-molecule drug that addresses a very serious biothreat. This achievement was made possible by coordinated progress among our science team, our operations team, our regulatory team and our management team. Our proven ability to coordinate a successful R&D and commercialization effort is a rare and valuable asset. In the third quarter of 2013, we surpassed the 500,000-course delivery threshold, allowing us to receive payments from the government for product deliveries. Since surpassing this threshold, we have received $96 million from the government for the deliveries of Arestvyr. The third thing I'd like to recap is in total, we have delivered approximately 920,000 courses of Arestvyr to the SNS in 2013. We received payments from the government for approximately 725,000 courses that were delivered. And in accordance with the BARDA contract, the other 195,000 courses were delivered at no cost to the government. As a quick reminder, 300,000 courses in total are expected to be delivered to the SNS at no cost to the government, in accordance with the BARDA contract. As I recapped, you can see that 2013 was an important year. And in 2014, we expect to maintain momentum within the Arestvyr business. In February, we delivered approximately 256,000 courses of Arestvyr, approximately 192,000 courses were invoiced and the remainder are free. Between now and the end of the first quarter of 2015, we expect to deliver an addition of approximately 825,000 courses of Arestvyr, with the preponderance of the courses to be delivered in 2014. This would bring total deliveries to 2 million courses, which is the delivery number specified in the current BARDA contract. It should be noted that product deliveries planned to 2014 and the first quarter of 2015 are expected to generate gross cash proceeds of $129 million. In addition to making deliveries of Arestvyr courses under the current BARDA contract, there is a regulatory component of the Arestvyr business. With funding from BARDA, we have been conducting development activities for Arestvyr, working toward the goal of FDA approval. Current or planned development activities for Arestvyr include rabbitpox efficacy studies in rabbits and an expanded clinical safety trial. These studies, as well as other studies, are guided by the results of the December 2011 FDA Advisory Committee recommendation and take into account periodic subsequent meetings and communications with the FDA. Underpinning our development path is the Animal Efficacy Rule, which is a complex framework. Within that complex framework, we are making diligent progress, and we always maintain an eye toward moving regulatory activities forward as quickly as possible. Up to this point, I have focused the conversation on the Arestvyr business. Let me now discuss tangible steps that have been taken, or are being taken, to build upon our business foundation. We want to broaden and build upon our foundation. To that end, the optimization program announced late last year and the ongoing partnering process for our preclinical development programs are tangible steps toward expanding and broadening SIGA's foundation. The purpose of the optimization program is to organize resources and emphasize an efficient cost base in an effort to support growth investments to be made in the future and support the Arestvyr infrastructure. The purpose of the partnering process is to extend the footprint of SIGA by partnering preclinical programs such as the dengue program with companies who have long-term scientific horizons and are broadly committed to the development of preclinical drug candidates. With the implementation of the optimization program and the planned partnering of preclinical antiviral assets, we are positioning SIGA for growth and long-term value creation. With an efficient infrastructure and a flexible resource base, SIGA has the focus and resources to pursue multiple avenues of value creation. For instance, SIGA has the focus and resources to pursue further opportunities within the Arestvyr business. Whether it's new, domestic or international government contract for oral therapeutic Arestvyr, or new indications or forms of administration for Arestvyr. Separately, SIGA also has the focus and resources to pursue opportunities outside of the Arestvyr business such as acquiring or in-licensing attractive clinical space development programs. We believe initiatives such as these can expand and broaden SIGA's foundation. And importantly, can lead to value creation for shareholders. This concludes our prepared remarks in SIGA's business. Before I turn the call over to questions, let me provide a quick update on our litigation with PharmAthene. On January 15 of this year, after briefing on relevant issues, the parties appeared for oral arguments at the Delaware Court of Chancery regarding what, if any, remedies the Chancery Court should impose in light of last year's remand by the Supreme Court of Delaware. The case is currently under review by the Court of Chancery. As noted in our Form 10-K, no assurances can be given as to the Chancery Court's determinations on remand. We will have no further comments about the case during this call. This concludes our prepared remarks. Thank you for joining this Investor Call. We will now open the line for questions.

[Operator Instructions] Our first question comes from Joaquin Horton of Sterne Agee.

Dan, just a couple of questions. One, did we deliver any ST-246 to the government where they paid us or were the -- all the courses -- part of the 300,000 courses that we had to deliver on a free basis?

You're referring to the fourth quarter?

Yes, I am.

Yes. All the courses delivered in the fourth quarter were free of charge.

Okay, and so the decrease in the balance sheet from, I think, it was down maybe around $14 million, was that because of -- what reasons?

Culmination of normal operating expenses, as well as we pay a lot of our CMO cost or supply chain costs upfront before deliveries.

Okay. So you had a lot of prepaid expense in there then?

Yes, so we had a lot of cash payments, but as we mentioned, in February, we did deliver 256,000 courses, of which 192,000 we will be invoicing for. The value of that 192,000 courses is approximately $25 million. So we -- the cash balance, we expect, will be going up.

Okay. As far as, well you can't really tell us how far down the line you are in finding partners for dengue or Lassa or whatever, I did see that the government awarded a contract to someone in Galveston for about $28 million for development of a Lassa vaccine or parvo [ph] vaccine. How are we doing in that area?

So in the area of partnering?

Yes.

In the area of partnering, it's -- these things do take some time. What I would say is we're not going to comment specifically about that the process is active. We're having conversations in due diligence with multiple parties.

Okay. Now after the layoffs, how -- at the end of the year, how do you feel the morale is in the company?

Right. Whenever you go through a process of optimization and refocusing resources and losing some good people as that can be tough, but the good thing is that we have a lot of long-standing key employees that are driving the signs forward in Corvallis and they're still in place and they've been -- they've seen a lot and they are committed to the program. And so I would say that morale is good. It's tough to go through any change, but we've gone through a lot of change over the years and it's very integrative -- innovative and robust group in Corvallis, so the way they've handled this is commendable, and we're moving forward at the normal fast pace.

Yes, I did see that you guys got a patent on the Lassa fever molecule.

[Operator Instructions] Our next question comes from Nathan Cali of Noble Financial.

Just a couple of quick follow-up questions. So is there any expectation on approval time for FDA approval?

We -- what I would just say is that, as we mentioned, the Animal Efficacy Rule, it is a complex framework. And have -- going through the complex framework, we don't provide timing estimates on that. What I would say is that the timeline for the regulatory process is longer than the timeline for the product delivery that we are making right now. And one thing to keep in mind as we go through the Animal Efficacy Rule is it's iterative, and we're under this concept of triangulation. And triangulation means using a variety of models to build a case for FDA approval, and as you go through and you do one step, the results of that determine how much more steps you have to take to build your case before you can go for FDA approval. So it's an iterative process and we continue to pursue it diligently and look for every opportunity possible to be efficient and move it as quickly as possible.

Okay. So you've got about half of the contract delivered and you're expecting to deliver the remaining this year?

By the end of the first quarter of 2015.

By the end of the first quarter of 2015, okay. And then has BARDA or the government indicated any additional contracts that may be coming along where you guys could offer more of your product to the stockpile?

No, it's the government contracting process, it's not transparent. We'll have to wait for an RFP to really have any view on that. We're doing what we can to put ourselves in the best position, including delivering quality product on a timely basis. We do believe that there's a case that the SNS should have more than 2 million courses. But ultimately, that's BARDA's decision, and as I mentioned, it's an opaque process so we don't have any insight into that.

And then IV in pediatrics formulation, are you still moving forward with that?

Yes, we're still focused on IV, as well as oral suspension.

Okay. Now is that process the same as going forward and getting FDA approval for the oral formulation? Would you have to have FDA approval prior to stockpiling that? Or they've indicated that they have interest in stockpiling the IV formulation pre an FDA approval?

I would say that it's possible that they could approve -- BARDA's mandate is to purchase unapproved product versus -- I think it gets into another bucket once you're approved. I don't think we would have to be approved in order for BARDA to make an acquisition of IV or oral suspension.

And is there any status update on that, the IV formulation?

No status update on that right now.

At this time, I'd like to turn the call back over to management for any closing remarks.

Okay. 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 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 risk that potential products that appear promising to SIGA or its collaborators cannot be shown to be efficacious or safe in subsequent preclinical or clinical trials; SIGA or its collaborators will not obtain appropriate or necessary 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 a 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 procurement 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, 2013, and in other documents that SIGA has filed with the commission. In addition, the risk of what appears now to be attributes of our lead candidate compound may turn out to be different as development progresses; The risk that our lead candidate compound may, at any point, fail to meet our developmental objectives; and the risk that the expense, unpredictability and extraordinary time-consuming process of developing drugs may prevent us from ever realizing any value from those efforts. 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 U.S. 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, that concludes our comments. Thank you very much.

Thank you, sir, and thank you, ladies and gentlemen, for your participation. This does conclude SIGA Technologies' quarterly business update. You may disconnect your lines at this time. Have a great day.