The following discussion should be read in conjunction with our condensed
consolidated financial statements and notes to those statements and other
financial information appearing elsewhere in this Quarterly Report on Form 10-Q
and in the Company's Annual Report on Form 10-K filed on March 3, 2022 (the
"2021 Form 10-K"). In addition to historical information, the following
discussion and other parts of this Quarterly Report contain forward-looking
information that involves risks and uncertainties. SIGA's actual results could
differ materially from those anticipated by such forward-looking statements due
to a number of factors. See the factors set forth under the heading "Safe Harbor
Statement" at the end of this Item 2.
Overview
We are a commercial-stage pharmaceutical company. Our lead product,
TPOXX® ("oral TPOXX®", also known as "tecovirimat" in certain international
markets), is an oral formulation antiviral drug for the treatment of human
smallpox disease caused by variola virus. On July 13, 2018, the United States
Food & Drug Administration ("FDA") approved oral TPOXX® for the treatment of
smallpox. The Company has been delivering oral TPOXX® to the U.S. Strategic
National Stockpile ("Strategic Stockpile") since 2013.
In addition to being approved by the FDA, oral TPOXX® (tecovirimat) has
regulatory approval with the European Medicines Agency ("EMA"), Health Canada
and the Medicines and Healthcare Products Regulatory Agency ("MHRA") of the
United Kingdom. The EMA and MHRA approved label indication covers the treatment
of smallpox, monkeypox, cowpox, and vaccinia complications following vaccination
against smallpox. The Health Canada approved label indication covers the
treatment of smallpox.
With respect to the regulatory approvals by the EMA, MHRA and Health Canada,
oral tecovirimat represents the same formulation that was approved by the
FDA in July 2018 under the brand name TPOXX®.
For the intravenous formulation of TPOXX® ("IV TPOXX®"), SIGA announced on May
19, 2022 that the FDA approved this formulation for the treatment of smallpox.
Monkeypox Outbreak
Starting in June 2022, procurement orders for oral TPOXX® from new international
jurisdictions, as well as orders under existing contracts, have occurred as SIGA
has received ongoing inquiries about accessing oral TPOXX® in connection with a
global monkeypox outbreak. The Company believes that a portion of the courses
of oral TPOXX® delivered under these orders are being used for the treatment of
active monkeypox cases as part of a response to this outbreak by the global
health community.
Monkeypox is a disease caused by infection with the monkeypox virus. The
monkeypox virus is part of the same family of viruses as smallpox. Monkeypox
symptoms are similar to smallpox but are not as severe, with historical fatality
in Africa of less than 1% to 10% depending on region and clade. The first human
case of monkeypox was recorded in 1970. Since then, monkeypox has been reported
in several central and western African countries, with case numbers greatly
increasing in recent years. Prior to the ongoing 2022 outbreak, nearly all
monkeypox cases in people outside of Africa were linked to international travel
to countries where the disease commonly occurs, or through imported animals,
including two cases in the United States in 2021. These cases are currently
occurring on multiple continents. On July 23, 2022, the World Health
Organization declared the monkeypox outbreak as a public health emergency of
international concern. On August 4, 2022, the U.S. Government declared the
monkeypox outbreak as a public health emergency.
Starting in the third quarter of 2022, in connection with the monkeypox
outbreak, randomized, placebo-controlled clinical trials have been initiated
in the United States, United Kingdom and Democratic Republic of Congo ("DRC") to
further assess the safety and efficacy of TPOXX® in participants with monkeypox.
These randomized clinical trials are now enrolling patients to collect data on
the potential benefits of using TPOXX® as an antiviral treatment for active
monkeypox disease.
Study of Tecovirimat for Human Monkeypox Virus (STOMP; A5418) is a U.S.-based
clinical trial sponsored by the National Institute of Allergy and Infectious
Diseases ("NIAID"), part of the National Institutes of Health. The NIAID-funded
AIDS Clinical Trials Group is leading the study, which may later expand to
international sites. Study investigators aim to enroll more than 500
participants, including children and those who are pregnant or breastfeeding,
from clinical research sites. The trial will also include an open label arm that
will include children, pregnant/breastfeeding individuals and those who are
immunocompromised or have severe monkeypox disease.
PLATINUM is a U.K.-based clinical trial commissioned and funded by the National
Institute for Health Care and Research. The trial is led by researchers at
Oxford University and aims to recruit at least 500 participants, including
children weighing ?13 kg, across the U.K.
PALM 007 is a DRC-based clinical trial sponsored by NIAID and Institute National
de Recherche Biomédicale. Study investigators aim to enroll more than 450
participants, including children weighing ?3 kg and women who are pregnant or
breastfeeding, at clinical sites in the DRC.
COVID-19 Pandemic
The COVID-19 pandemic has caused significant societal and economic disruption.
The continuing direct and indirect impacts of the pandemic are significant and
broad-based, including supply chain disruptions and labor shortages that started
during the pandemic and continue to represent business and financial risks. As
such, the Company is continually coordinating with service providers and
vendors, in particular Contract Manufacturing Organizations ("CMOs") that
constitute our supply chain, with respect to risks and mitigating actions.
As of the filing date of this report, the Company has not identified or been
notified by government customers of impediments to the continued full
performance of their government contracts. With regard to day-to-day operations,
the COVID-19 pandemic, and the secondary effects of the pandemic, have at times
slowed the pace of execution of government contracts as well as new contract
generation. Additionally, the COVID-19 pandemic, and the secondary effects of
the pandemic have increased the risk of delays in connection with a broad range
of operational activities, including: supply chain procurement of raw materials
and manufacturing; and certain research and development activities, such as
those that involve clinical trials. Furthermore, the pandemic and related
secondary effects could result in a slower pace of future product deliveries if
there are shortages or delays in the receipt by the supply chain of raw
materials or supplies, or if labor shortages become more acute. While the
Company does not currently expect such delays to have a material adverse impact
on the financial condition of the Company or its long-term operating
performance, and while the COVID-19 pandemic has not adversely affected the
liquidity position of the Company, the Company cannot give assurances as to the
full extent of the impact at this time.
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Procurement Contracts with the U.S. Government
19C BARDA Contract
On September 10, 2018, the Company entered into a contract with the U.S.
Biomedical Advanced Research and Development Authority ("BARDA") pursuant to
which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the U.S.
Strategic National Stockpile ("Strategic Stockpile"), and to manufacture and
deliver to the Strategic Stockpile, or store as vendor-managed inventory, up
to 212,000 courses of the intravenous (IV) formulation of TPOXX® ("IV TPOXX®").
Additionally, the contract includes funding from BARDA for a range of
activities, including: advanced development of IV TPOXX®, post-marketing
activities for oral and IV TPOXX®, and procurement activities. As of September
30, 2022, the contract with BARDA (as amended, modified, or supplemented from
time to time, the "19C BARDA Contract") contemplates up to approximately $602.5
million of payments, of which approximately $51.7 million of payments are
included within the base period of performance of five years, approximately
$268.9 million of payments are related to exercised options and up to
approximately $281.9 million of payments are currently specified as unexercised
options. BARDA may choose in its sole discretion when, or whether, to exercise
any of the unexercised options. The period of performance for options is up to
ten years from the date of entry into the 19C BARDA Contract and such options
could be exercised at any time during the contract term, including during the
base period of performance.
The base period of performance specifies potential payments of approximately
$51.7 million for the following activities: payments of approximately $11.1
million for the delivery of approximately 35,700 courses of oral TPOXX® to the
Strategic Stockpile; payments of $8.0 million for the manufacture of 20,000
courses of final drug product of IV TPOXX® ("IV FDP"), of which $3.2 million of
payments are related to the manufacture of bulk drug substance ("IV BDS") to be
used in the manufacture of IV FDP; payments of approximately $32.0 million to
fund advanced development of IV TPOXX®; and payments of approximately $0.6
million for supportive procurement activities. As of September 30, 2022, the
Company has received $11.1 million for the delivery of approximately 35,700
courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the
manufacture of IV BDS, $4.3 million for the delivery of IV FDP to the Strategic
Stockpile and $17.1 million for other base period activities. IV BDS has been
used for the manufacture of courses of IV FDP. The $3.2 million received for the
completed manufacture of IV BDS had been recorded as deferred revenue as of
December 31, 2021, but with the delivery of IV FDP to the Strategic Stockpile
during the nine months ended September 30, 2022, $2.9 million was recognized as
revenue. The remaining $0.3 million of deferred revenue will be recognized as IV
FDP containing such IV BDS is delivered to the Strategic Stockpile.
The options that have been exercised to date provide for payments up to
approximately $268.9 million. There are exercised options for the following
activities: payments up to $11.2 million for the procurement of raw
materials used in the 2020 manufacture of certain courses of oral
TPOXX®; payments up to $213.9 million for the delivery of up to 726,140 courses
of oral TPOXX®; payments up to $25.6 million for the manufacture of courses of
IV FDP, of which $10.2 million of payments relate to the manufacture of IV
BDS to be used in the manufacture of IV FDP, payments of up to approximately
$3.6 million to fund post-marketing activities for IV TPOXX®, and payments of up
to $14.6 million for funding of post-marketing activities for oral TPOXX®. As of
September 30, 2022, the Company has received $225.1 million for the delivery
(and related procurement of raw materials) of oral TPOXX® to the Strategic
Stockpile; received $10.2 million for the completed manufacture of IV BDS, which
has been recorded as deferred revenue as of September 30, 2022; and received or
billed $8.1 million in connection with post-marketing activities for oral
TPOXX®.
Unexercised options specify potential payments up to approximately $281.9
million in total (if all such options are exercised). There are options for the
following activities: payments of up to $225.1 million for the delivery of oral
TPOXX® to the Strategic Stockpile; payments of up to $51.2 million for the
manufacture of courses of IV FDP, of which up to $20.5 million of payments would
be paid upon the manufacture of IV BDS to be used in the manufacture of IV FDP;
and payments of up to approximately $5.6 million for supportive procurement
activities.
The options related to IV TPOXX® are divided into two primary manufacturing
steps. There are options related to the manufacture of bulk drug substance ("IV
BDS Options"), and there are corresponding options (for the same number of IV
courses) for the manufacture of final drug product ("IV FDP Options"). BARDA may
choose to exercise any, all, or none of these options in its sole discretion.
The 19C BARDA Contract includes: three separate IV BDS Options, each providing
for the bulk drug substance equivalent of 64,000 courses of IV TPOXX®; and three
separate IV FDP Options, each providing for 64,000 courses of final drug product
of IV TPOXX®. BARDA has the sole discretion as to whether to simultaneously
exercise IV BDS Options and IV FDP Options, or whether to exercise options at
different points in time (or alternatively, to only exercise the IV BDS Option
but not the IV FDP Option). To date, BARDA has exercised one of the three IV BDS
options and one of the three IV FDP options, both of which were exercised
simultaneously in 2022. If BARDA decides to only exercise the remaining IV BDS
Options, then the Company would receive payments up to $20.5 million;
alternatively, if BARDA decides to exercise all the remaining IV BDS Options and
IV FDP Options, then the Company would receive payments up to $51.2 million. For
each set of options relating to a specific group of courses (for instance, the
IV BDS and IV FDP options that reference the same 64,000 courses), BARDA has the
option to independently purchase IV BDS or IV FDP. The Company estimates that
sales of the IV formulation under this contract (under current terms), assuming
the IV FDP Options were exercised, would have a gross margin (sales less cost of
sales, as a percentage of sales) that is less than 40%.
Under the terms of this contract, exercise of procurement options is at the sole
discretion of BARDA. The request for proposal that preceded the award of the 19C
BARDA Contract indicated that the expected purpose of the contract was to
maintain the level of smallpox antiviral preparedness in the Strategic
Stockpile. Based on prior product delivery activity, and current FDA-approved
shelf life of oral TPOXX®, the Company estimates that approximately 940,000
courses of smallpox antiviral treatment would need to be delivered to the U.S.
Government between 2022 and 2024 in order to maintain stockpile levels of
unexpired smallpox antiviral treatment during this period.
U.S. Department of Defense Procurement Contracts
On May 12, 2022, the Company announced a contract with the U.S. Department of
Defense ("DoD") for the procurement of oral TPOXX® ("DoD Contract #1"). The DoD
Contract #1 included a firm commitment for the DoD to procure approximately $3.6
million of oral TPOXX®, and an option, exercisable at the sole discretion of the
DoD, for the procurement of approximately $3.8 million of oral TPOXX®. In the
second quarter of 2022, the Company delivered and recognized revenue of $3.6
million for the delivery of oral TPOXX® to the DoD, fulfilling the firm
commitment in DoD Contract #1. In the third quarter of 2022, the DoD exercised
the option for $3.8 million of oral TPOXX® and the Company satisfied its
obligation by delivering product and recognized the related revenue in September
2022.
On September 28, 2022, the Company and the DoD signed a new procurement contract
("DoD Contract #2"). The DoD Contract #2 includes a firm commitment for the DoD
to procure approximately $5.2 million of oral TPOXX®, and an option, exercisable
at the sole discretion of the DoD for the procurement of approximately $5.5
million of oral TPOXX®.
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International Procurement Contracts
This year, through October 31, 2022, the Company has received firm commitment
orders from 13 international customers (including Canada) for the delivery of
approximately $77 million of oral TPOXX®, of which approximately $39 million is
for Canada and approximately $38 million is for jurisdictions in Europe,
Asia-Pacific, and the Middle East. Additionally, the contract with CDND
(defined below) has an option until March 31, 2024, exercisable at the sole
discretion of CDND, for the purchase of up to an additional $6 million of oral
TPOXX®. With respect to the $77 million of firm commitment orders that have been
received this year, approximately $66 million of oral TPOXX® was delivered and
recorded as revenue in the nine months ended September 30, 2022, and the
remaining orders are expected to be fulfilled between November 1, 2022 and July
31, 2023. Through an International Promotion Agreement (defined below), Meridian
Medical Technologies, Inc. ("Meridian") is the counterparty to international
contracts under which orders are placed for the purchase of oral TPOXX®. The
Public Health Agency of Canada ("PHAC") and the Canadian Department of National
Defence ("CDND") are among the contracting parties for the purchase of oral
TPOXX® (see below for a summary description of these contracts).
On January 13, 2021, PHAC awarded a contract to Meridian (the "PHAC Contract")
for the purchase of up to approximately $33 million of oral TPOXX® (tecovirimat)
within five years. In March 2022 and July 2022, PHAC executed amendments in
which total procurement of oral TPOXX® under the PHAC Contract was increased to
an amount of approximately $45 million. Prior to 2022, approximately $10 million
of oral TPOXX® had been ordered and delivered to PHAC. No courses of oral
TPOXX® were delivered under this contract for the first six months of 2022.
During the three months ended September 30, 2022, approximately $35 million of
oral TPOXX® was delivered to PHAC and recognized as revenue. Including the
deliveries in the third quarter of 2022, there are no current remaining amounts
specified in the PHAC Contract.
On April 3, 2020, the Company announced that the CDND awarded a contract (the
"Canadian Military Contract") to Meridian, pursuant to which the CDND would
purchase up to approximately $14 million of oral TPOXX® over four years. Prior
to 2022, approximately $4 million of oral TPOXX® had been ordered and delivered
to CDND. No courses of oral TPOXX® were delivered under this contract for the
first nine months of 2022. As of September 30, 2022, an approximate firm
commitment order of $4 million remains to be delivered under this contract.
Additionally, there are approximately $6 million of unexercised options,
exercisable at the sole discretion of CDND, remaining under this contract.
The above-listed contract awards were coordinated between SIGA and Meridian
under the international promotion agreement (as amended, the "International
Promotion Agreement") that was entered into by the parties on June 3, 2019.
Under the International Promotion Agreement, Meridian is the counterparty in
connection with international contracts for oral TPOXX® and SIGA is responsible
for manufacture and delivery of any oral TPOXX® purchased thereunder.
International Promotion Agreement
Under the terms of the International Promotion Agreement, Meridian was granted
exclusive rights to market, advertise, promote, offer for sale, or sell oral
TPOXX® in a field of use specified in the International Promotion Agreement in
all geographic regions except for the United States (the "Territory"), and
Meridian has agreed not to commercialize any competing product, as defined in
the International Promotion Agreement, in the specified field of use in the
Territory. SIGA retains ownership, intellectual property, distribution and
supply rights and regulatory responsibilities in connection with TPOXX®, and, in
the United States market, also retains sales and marketing rights with respect
to oral TPOXX®. SIGA's consent is required for the entry into any sales
arrangement pursuant to the International Promotion Agreement.
The fee Meridian retains pursuant to the International Promotion Agreement is a
specified percentage of the collected proceeds of sales of oral TPOXX® net of
certain expenses, for calendar years in which customer collected amounts net of
such expenses are less than or equal to a specified threshold, and a higher
specified percentage of such collected net proceeds for calendar years in which
such net collected amounts exceed the specified threshold. It is probable that
we will exceed the specified threshold in 2022 and, as a result, the Company has
recorded and will continue to record the higher specified percentage for all
International Promotion Agreement sales in 2022. Taking into account Meridian's
fee and manufacturing costs of oral TPOXX®, it is currently estimated by the
Company that international sales of oral TPOXX® will have a contribution margin
(as expressed as a percentage of product sales, and before any consideration of
expenses not directly related to manufacturing or Meridian activities) of
between approximately 65% and 80%, depending on the international sales levels
each year. For purposes of this disclosure, contribution margin (in amount)
represents international product sales less applicable cost of sales and the
Meridian fee (which is included within selling, general and administrative
expenses within the income statement).
Research Agreements and Grants
In July 2019, the Company was awarded a multi-year research contract valued at a
total of $19.5 million, with an initial award of $12.4 million, from the DoD to
support work in pursuit of a potential label expansion for oral TPOXX® that
would include post-exposure prophylaxis ("PEP") of smallpox (such work known as
the "PEP Label Expansion Program" and the contract referred to as the "PEP Label
Expansion R&D Contract"). In subsequent modifications, the DoD increased the
scope and the available funding under the PEP Label Expansion R&D Contract to
approximately $27 million. The period of performance for this contract, as
modified, terminates on January 31, 2025. As of September 30, 2022, remaining
revenue to be recognized in the future under the PEP Label Expansion R&D
Contract is up to $11.2 million. Revenue from the performance obligation under
the PEP Label Expansion R&D Contract is recognized over time using an input
method using costs incurred to date relative to total estimated costs at
completion.
Contracts and grants include, among other things, options that may or may not be
exercised at the U.S. Government's discretion. Moreover, contracts and grants
contain customary terms and conditions including the U.S. Government's right to
terminate or restructure a contract or grant for convenience at any time. As
such, the Company may not be eligible to receive all available funds.
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Critical Accounting Estimates
The methods, estimates and judgments we use in applying our accounting policies
have a significant impact on the results we report in our condensed consolidated
financial statements, which we discuss under the heading "Results of Operations"
following this section of our Management's Discussion and Analysis of Financial
Condition and Results of Operations. Some of our accounting policies require us
to make difficult and subjective judgments, often as a result of the need to
make estimates of matters that are inherently uncertain. Information regarding
our critical accounting policies and estimates appears in Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations of our 2021 Form 10-K. Our most critical accounting estimates include
revenue recognition over time, the valuation of stock-based awards issued by the
Company and income taxes.
Results of Operations
Three Months Ended September 30, 2022 and 2021
For the three months ended September 30, 2022, revenues from product sales and
supportive services were $65.6 million. Such revenues primarily relate to
international sales of oral TPOXX® of approximately $61.3 million and sales of
oral TPOXX® to the DoD of approximately $3.8 million. For the three months ended
September 30, 2021, revenues from product sales and supportive services were
$2.3 million, which primarily relate to the acceptance of courses of oral TPOXX®
delivered to CDND.
Revenues from research and development activities for the three months ended
September 30, 2022 and 2021, were $6.6 million and $2.5 million, respectively.
The increase of $4.1 million of revenue is primarily related to an increase in
clinical trial activity under the PEP Label Expansion R&D Contract in connection
with the PEP development program, as well as an increase in R&D activity under
the BARDA Contract.
Cost of sales and supportive services for the three months ended September 30,
2022 and 2021 were $3.9 million and $0.1 million, respectively. Such costs in
2022 were associated with the manufacture and delivery of courses of oral TPOXX®
for international sales and sales to the DoD. Such costs in 2021 were primarily
associated with the manufacture and delivery of courses of oral TPOXX® to CDND.
Selling, general and administrative ("SG&A") expenses for the three months ended
September 30, 2022 and 2021 were $19.7 million and $4.5 million, respectively.
The increase of approximately $15.2 million mostly reflects promotion fees
incurred in connection with international sales that substantially increased
from the comparable period in 2021.
Research and development ("R&D") expenses for the three months ended September
30, 2022 and 2021 were $5.7 million and $3.2 million, respectively, reflecting
an increase of approximately $2.5 million. The increase is primarily
attributable to an increase in direct vendor-related expenses incurred in
connection with activities under the PEP Label Expansion R&D Contract and the
BARDA Contract.
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Changes in the fair value of the liability-classified warrant to acquire common
stock were recorded within the statement of operations. The warrant was fully
exercised during the three months ended June 30, 2022. For the three months
ended September 30, 2022, we recorded no activity. For the three months
ended September 30, 2021, we recorded a loss of approximately $1.1 million,
reflecting an increase in the fair value of the liability-classified warrant
primarily due to the increase in our stock price.
For the three months ended September 30, 2022 and 2021, we recorded pre-tax
income/(loss) of $43.1 million and ($4.0) million, respectively, and a
corresponding income tax (provision)/benefit of ($10.1) million
and $0.9 million, respectively. The effective tax rates during the three months
ended September 30, 2022 and 2021 were 23.4% and 21.9%, respectively. Our
effective tax rate for the periods ended September 30, 2022 and 2021 differ from
the statutory rate primarily as a result of state taxes, and non-deductible
executive compensation under Internal Revenue Code Section 162(m).
Nine Months Ended September 30, 2022 and 2021
For the nine months ended September 30, 2022, revenues from product sales and
supportive services were $81.6 million. Such revenues primarily relate to
approximately $66.2 million of international sales of oral TPOXX®; approximately
$7.5 million of oral TPOXX® sales to the DoD; and approximately $7.2 million
of sales of IV TPOXX® to the U.S. Government under the 19C BARDA Contract. For
the nine months ended September 30, 2021, revenues from product sales and
supportive services were $12.8 million. Such revenues in 2021 primarily
relate to the delivery and acceptance of courses of oral TPOXX® delivered to
PHAC and CDND.
Revenues from research and development activities for the nine months ended
September 30, 2022 and 2021, were $17.9 million and $5.5 million, respectively.
Most of the increase of $12.4 million relates to clinical trial activity under
the PEP Label Expansion R&D Contract in connection with the PEP development
program, with R&D activity under the BARDA Contract also contributing to the
increase.
Cost of sales and supportive services for the nine months ended September 30,
2022 and 2021 were $9.6 million and $1.3 million, respectively. The increase
mostly relates to an increase in international sales of oral TPOXX® and
approximately $4.4 million of cost for the manufacture and sale of IV TPOXX® in
2022; manufacturing costs per unit are higher for IV TPOXX® than oral TPOXX®.
SG&A expenses for the nine months ended September 30, 2022 and
2021 were $29.2 million and $14.1 million, respectively. The increase of
approximately $15.1 million mostly reflects promotion fees incurred in
connection with international sales that substantially increased from the
comparable period in 2021.
R&D expenses for the nine months ended September 30, 2022 and
2021 were $16.1 million and $7.8 million, respectively. The increase of $8.3
million is mostly attributable to an increase in direct vendor-related expenses
incurred in connection with activities under the PEP Label Expansion R&D
Contract and the BARDA Contract.
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Changes in the fair value of the liability-classified warrant to acquire common
stock were recorded within the statement of operations. The warrant was fully
exercised during the nine months ended September 30, 2022. For the nine months
ended September 30, 2022 and 2021, we recorded a gain of approximately $0.4
million and $0.3 million, respectively, reflecting a decrease in the fair value
of the liability-classified warrant primarily due to the decrease in our stock
price.
For the nine months ended September 30, 2022, we recorded pre-tax income
of $45.3 million and a corresponding income tax provision of ($10.5) million.
For the nine months ended September 30, 2021, we recorded a pre-tax loss
of ($4.6) million and a corresponding income tax benefit of $0.8 million. The
effective tax rates during the nine months ended September 30, 2022 and
2021 were 23.3% and 17.7%, respectively. Our effective tax rate for the
period ended September 30, 2022 differs from the statutory rate primarily as a
result of state taxes and non-deductible executive compensation under Internal
Revenue Code Section 162(m). Our effective tax rate for the nine months ended
September 30, 2021 differs from the statutory rate primarily as a result of
state taxes, non-deductible executive compensation under Internal Revenue Code
Section 162(m) and a non-taxable adjustment for the fair market value of the
Warrant.
Liquidity and Capital Resources
As of September 30, 2022, we had $109.7 million in cash and cash equivalents
compared with $103.1 million at December 31, 2021.
Operating Activities
We prepare our condensed consolidated statement of cash flows using the indirect
method. Under this method, we reconcile net income/(loss) to cash flows from
operating activities by adjusting net income/(loss) for those items that impact
net income/(loss) but may not result in actual cash receipts or payments during
the period. These reconciling items include but are not limited to stock-based
compensation, deferred income taxes, changes in the fair value of our warrant
liability, inventory write offs, gains and losses from various transactions and
changes in the condensed consolidated balance sheet for working capital from the
beginning to the end of the period.
Net cash provided by/(used in) operating activities for the nine months ended
September 30, 2022 and 2021 was $49.7 million and ($4.6) million, respectively.
For the nine months ended September 30, 2022, the receipt of approximately
$80 million for product delivery and acceptance of oral TPOXX® courses delivered
to the Strategic Stockpile in December 2021, as well as the receipt of
approximately $23 million in connection with 2022 product deliveries and advance
payments were partially offset by the payment of approximately $19 million of
federal income taxes in connection with the 2021 tax year; an increase in
inventory investment in connection with a broadening of the customer base for
TPOXX® and mitigation of increasing general supply chain risks; and costs in
relation to customary operating activities. For the nine months ended September
30, 2021, net cash usage related to support of ordinary working capital
(accounts receivable, accounts payable, inventory, and prepaids, among other
items) and customary operating activity was partially offset by the receipt of
cash from international sales.
Investing Activities
There was no cash-related investing activity for the nine months ended September
30, 2022. For the nine months ended September 30, 2021, we used cash
of $24,424 for capital expenditures.
Financing Activities
Cash used in financing activities for the nine months ended September 30,
2022 was $43.1 million, which was primarily attributable to our special cash
dividend of approximately $32.9 million. In addition, we repurchased
approximately 1.5 million shares of common stock for approximately $10.1
million. Cash used in financing activities for the nine months ended September
30, 2021 was $20.4 million, which was substantially all attributable to our
repurchase of approximately 3.0 million shares of common stock.
On May 5, 2022, the Board of Directors declared a special dividend of $0.45 per
share on the common stock of the Company, which resulted in an overall
dividend payment of $32.9 million. The special dividend was paid on June 2, 2022
to shareholders of record at the close of business on May 17, 2022.
Future Cash Requirements
As of September 30, 2022, we had outstanding purchase orders associated with
manufacturing obligations in the aggregate amount of approximately $21.8
million.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
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Recently Issued Accounting Standards
The Company did not adopt any accounting standards this quarter.
Safe Harbor Statement
Certain statements in this Quarterly Report on Form 10-Q, including certain
statements contained in the foregoing "Management's Discussion and Analysis of
Financial Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Exchange Act, including
statements relating to the progress of SIGA's development programs and timelines
for bringing products to market, delivering products to the Strategic
Stockpile, the enforceability of our procurement contracts, such as the
19C BARDA Contract (the "BARDA Contract"), with BARDA, and responding to the
global outbreak of monkeypox. The words or phrases "can be," "expects," "may
affect," "may depend," "believes," "estimate," "project" and similar words and
phrases are intended to identify such forward-looking statements. Such
forward-looking statements are subject to various known and unknown risks and
uncertainties, and SIGA cautions you that any forward-looking information
provided by or on behalf of SIGA is not a guarantee of future performance.
SIGA's actual results could differ materially from those anticipated by such
forward-looking statements due to a number of factors, some of which are beyond
SIGA's control, including, but not limited to, (i) the risk that BARDA elects,
in its sole discretion as permitted under the BARDA Contract, not to exercise
all, or any, of the remaining unexercised options under those contracts, (ii)
the risk that SIGA may not complete performance under the BARDA Contract on
schedule or in accordance with contractual terms, (iii) the risk that the BARDA
Contract, DOD Contract #2 or PEP Label Expansion R&D Contract are modified or
canceled at the request or requirement of the U.S. Government, (iv) the risk
that the nascent international biodefense market does not develop to a degree
that allows SIGA to continue to successfully market TPOXX® internationally, (v)
the risk that potential products, including potential alternative uses or
formulations of TPOXX® that appear promising to SIGA or its collaborators,
cannot be shown to be efficacious or safe in subsequent pre-clinical or clinical
trials, (vi) the risk that SIGA or its collaborators will not obtain appropriate
or necessary governmental approvals to market these or other potential products
or uses, (vii) the risk that SIGA may not be able to secure or enforce
sufficient legal rights in its products, including intellectual property
protection, (viii) the risk that any challenge to SIGA's patent and other
property rights, if adversely determined, could affect SIGA's business and, even
if determined favorably, could be costly, (ix) the risk that regulatory
requirements applicable to SIGA's products may result in the need for further or
additional testing or documentation that will delay or prevent SIGA from seeking
or obtaining needed approvals to market these products, (x) the risk that the
volatile and competitive nature of the biotechnology industry may hamper SIGA's
efforts to develop or market its products, (xi) the risk that changes in
domestic or foreign economic and market conditions may affect SIGA's ability to
advance its research or may affect its products adversely, (xii) the effect of
federal, state, and foreign regulation, including drug regulation and
international trade regulation, on SIGA's businesses, (xiii) the risk of
disruptions to SIGA's supply chain for the manufacture of TPOXX®, causing delays
in SIGA's research and development activities, causing delays or the
re-allocation of funding in connection with SIGA's government contracts, or
diverting the attention of government staff overseeing SIGA's government
contracts, (xiv) the risk that the U.S. or foreign governments' responses
(including inaction) to national or global economic conditions or infectious
diseases, such as COVID-19, are ineffective and may adversely affect SIGA's
business, and (xv) risks associated with responding to the current monkeypox
outbreak, as well as the risks and uncertainties included in Item 1A "Risk
Factors" of our Annual Report on Form 10-K for the year ended December 31,
2021 and SIGA's subsequent filings with the Securities and Exchange Commission.
SIGA urges investors and security holders to read those documents free of charge
at the SEC's website at http://www.sec.gov. All such forward-looking statements
are current only as of the date on which such statements were made. SIGA does
not undertake any obligation to update publicly any forward-looking statement to
reflect events or circumstances after the date on which any such statement is
made or to reflect the occurrence of unanticipated events. The information
contained on any website referenced in this Form 10-Q is not incorporated by
reference into this filing.
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