SIGA TECHNOLOGIES INC - Quarter Report: 2010 June (Form 10-Q)

 

 

x		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the Quarterly Period Ended June 30, 2010
OR
o		Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the Transition Period from __________ to __________

 

 

Delaware	13-3864870
(State or other jurisdiction of	(I.R.S. Employer Identification. No.)
incorporation or organization)
35 East 62nd Street	10065
New York, NY	(zip code)
(Address of principal executive offices)

 

 

 

 

 

 

 

 

 

			Page No.
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements				2
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations				11
Item 3 – Quantitative and Qualitative Disclosures About Market Risk				15
Item 4 – Controls and Procedures				15
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings		16
Item 1A.		Risk Factors		16
Item 2.		Unregistered Sale of Equity Securities and Use of Proceeds		16
Item 3.		Defaults upon Senior Securities		16
Item 4.		Reserved		16
Item 5.		Other Information		16
Item 6.		Exhibits		16
SIGNATURES				17

 

 

 

 

 

		June 30,				December 31,
		2010				2009
ASSETS
Current assets
Cash and cash equivalents		$	6,540,003			$	14,496,313
Short term investments			8,749,800				4,999,300
Accounts receivable			3,445,347				2,405,861
Prepaid expenses			605,903				1,585,072
Total current assets			19,341,053				23,486,546
Property, plant and equipment, net			1,651,810				1,225,656
Goodwill			898,334				898,334
Other assets			268,665				304,751
Total assets		$	22,159,862			$	25,915,287
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	4,403,759			$	3,458,013
Accrued expenses and other			747,928				740,333
Deferred revenue			600,927				1,570,234
Common stock warrants			4,082,000				3,260,000
Total current liabilities			9,834,614				9,028,580
Common stock warrants			8,495,057				6,398,216
Total liabilities			18,329,671				15,426,796
Stockholders' equity
Common stock ($.0001 par value, 100,000,000 shares authorized,
43,671,893 and 43,061,635 issued and outstanding at June 30, 2010,
and December 31, 2009, respectively)			4,367				4,306
Additional paid-in capital			103,737,034				101,417,677
Accumulated other comprehensive income			3,361				-
Accumulated deficit (See Note 2)			(99,914,571	)			(90,933,492	)
Total stockholders' equity			3,830,191				10,488,491
Total liabilities and stockholders' equity		$	22,159,862			$	25,915,287

 

 

 

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Revenues
Research and development		$	4,446,753			$	4,008,959			$	9,521,964			$	5,934,736
Operating expenses
Selling, general and administrative		$	2,233,825				1,801,746				4,202,616				3,860,778
Research and development			4,929,961				4,712,863				10,756,984				7,410,245
Patent preparation fees			305,661				84,426				626,000				193,556
Total operating expenses			7,469,447				6,599,035				15,585,600				11,464,579
Operating loss			(3,022,694	)			(2,590,076	)			(6,063,636	)			(5,529,843	)
Increase in fair value of common stock rights,
common stock warrants, and treasury securities			(1,548,927	)			(7,763,035	)			(2,917,443	)			(11,707,770	)
Net loss		$	(4,571,621	)		$	(10,353,111	)		$	(8,981,079	)		$	(17,237,613	)
Unrealized gain on securities			3,361				-				3,361				-
Comprehensive loss		$	(4,568,260	)		$	(10,353,111	)		$	(8,977,718	)		$	(17,237,613	)
Weighted average shares outstanding: basic and diluted			43,620,212				36,747,909				43,408,287				36,293,128
Net loss per share: basic and diluted		$	(0.10	)		$	(0.28	)		$	(0.21	)		$	(0.47	)

 

 

 

 

	Six Months Ended
	June 30,
	2010				2009
Cash flows from operating activities:
Net loss	$	(8,981,079	)		$	(17,237,613	)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation		300,751				232,471
Increase in fair value of rights and warrants		2,917,443				11,707,770
Stock based compensation		1,068,227				1,110,650
Changes in assets and liabilities:
Accounts receivable		(1,039,486	)			(893,357	)
Prepaid expenses		979,169				(72,106	)
Other assets		36,086				3,954
Deferred revenue		(969,307	)			26,520
Accounts payable and accrued expenses		953,341				796,164
Net cash used in operating activities		(4,734,855	)			(4,325,547	)
Cash flows from investing activities:
Capital expenditures		(726,905	)			(191,787	)
Proceeds from short term investments		8,750,000
Purchases of short term investments		(12,495,741	)			-
Net cash used in investing activities		(4,472,646	)			(191,787	)
Cash flows from financing activities:
Net proceeds from exercise of warrants and options		1,251,191				3,804,086
Net cash provided by financing activities		1,251,191				3,804,086
Net decrease in cash and cash equivalents		(7,956,310	)			(713,248	)
Cash and cash equivalents at beginning of period		14,496,313				2,321,519
Cash and cash equivalents at end of period	$	6,540,003			$	1,608,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	June 30,			December 31,
	2010			2009
Common stock warrants classified as current liabilities	$	4,082,000		$	3,260,000
Common stock warrants classified as long term liabilities	$	8,495,057			6,398,216
Total	$	12,577,057		$	9,658,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     The following discussion should be read in conjunction with our consolidated financial statements and notes to those statements and other financial information appearing elsewhere in this Quarterly Report. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties.

 

 

     Since our incorporation in 1995, SIGA has pursued the research, development and commercialization of novel products for the prevention and treatment of serious infectious diseases, including products for use in the defense against biological warfare agents such as smallpox and arenaviruses. Our lead product, ST-246®, is an orally administered antiviral drug that targets orthopoxviruses. In December 2006, the Food and Drug Administration (“FDA”) granted Orphan Drug designation to ST-246 for the prevention and treatment of smallpox. In May 2009, we submitted a response to a Request for Proposal (“RFP”) issued by the U.S. Biomedical Research and Development Agency (“BARDA”) with respect to the purchase of 1.7 million courses of a smallpox antiviral (the “BARDA Smallpox RFP”), and, in June 2009, BARDA informed us that our response to the BARDA Smallpox RFP was deemed technically acceptable and in the competitive range. There can be no assurance that SIGA or any other company will receive an award pursuant to this RFP. Further, any award on this RFP would be subject to negotiation of final contract terms and specifications; thus, the final terms under any contract with BARDA may be materially different than those indicated in the RFP.

 

 

     Note 2 of the Notes to the Consolidated Financial Statements includes a summary of all of the significant accounting policies. There were no significant changes to the critical accounting policies described in the 2009 Annual Report on Form 10-K.

 

 

 

     Revenue from research and development (“R&D”) grants and contracts was $4.4 million and $4.0 million, respectively for the three months ended June 30, 2010 and 2009, respectively. The increase of $400,000, or 10.9%, is principally due to $960,000 of revenue generated from our grant and contract for the development of a broad-spectrum anti-viral drug and an increase of $550,000 in revenue generated from our grants for the development of drug candidates for arenavirus pathogens. The increase was partially offset by a $1.1 million decline in revenue generated from our grants and contracts for the development of ST-246 and its alternative formulations.

 

     General and Administrative expenses (“G&A”) for the three months ended June 30, 2010 and 2009, were $2.2 million and $1.8 million, respectively, reflecting an increase of approximately $432,000 or 24.0%. Higher G&A expenses recognized during the three months ended June 30, 2010 relate mainly to an increase in legal fees and an increase in G&A personnel-related costs, including non-cash stock-based compensation.

 

     Research and Development (“R&D”) expenses were $4.9 million and $4.7 million for the three months ended June 30, 2010 and 2009, respectively. R&D expenses related to the development of our lead drug candidate, ST-246 declined $882,000 as compared to the same period in the prior year. The decline was offset by an increase in personnel-related costs, expenses incurred in connection with the development of a broad-spectrum antiviral drug and expenses related to the development of drug candidates for arenavirus pathogens.

 

     During the three months ended June 30, 2010 and 2009, we spent $2.3 million and $3.1 million, respectively, on the development of our lead drug candidate, ST-246. For the three months ended June 30, 2010, we spent $449,000 on internal human resources and $1.9 million mainly on manufacturing. For the three months ended June 30, 2009, we spent $433,000 on internal human resources and $2.67 million mainly on manufacturing and clinical testing.

 

     During the three months ended June 30, 2010 and 2009, we spent $547,000 and $122,000, respectively, to support the development of ST-193, a drug candidate for Lassa fever virus, ST-294, a drug candidate for certain arenavirus pathogens, and other drug candidates for hemorrhagic fevers. For the three months ended June 30, 2010, we spent $56,000 on internal human resources and $491,000 mainly on analysis of the ST-193 compounds. For the three months ended June 30, 2009, we spent $47,000 on internal human resources and $75,000 on pre-clinical testing of our drug candidates.

 

 

     During the three months ended June 30, 2010, we spent $413,000 to support the development of a broad-spectrum antiviral drug candidate, of which $162,000 was mainly spent on internal human resources, and $251,000 mainly on the optimization of lead antiviral compounds.

 

     Patent preparation expenses increased to $306,000 for the three months ended June 30, 2010, from $84,000 for the same period in the prior year mainly as a result of our increased efforts to protect our lead drug candidates in expanded geographic territories.

 

     Changes in the fair value of certain warrants to acquire common stock are recorded as gains or losses. For the three months ended June 30, 2010 and 2009, we recorded losses of $1.6 million and $7.6 million, respectively, reflecting changes in the fair market value of warrants to purchase common stock during the respective three month periods.

 

 

     Revenues from research and development contracts and grants for the six months ended June 30, 2010 were $9.5 million, an increase of $3.6 million or 60% from the $5.9 million of revenues recognized for the six months ended June 30, 2009. Higher revenues in 2010 relate to an increase of $1.7 million in revenues generated from grants and contracts supporting the development of our lead drug candidate, ST-246, an increase of $520,000 in revenues generated from grants supporting the development of drug candidates for arenavirus pathogens and $1.3 million of revenues generated from our grant and contract for the development of a broad-spectrum antiviral drug.

 

     G&A expenses for the six months ended June 30, 2010 and 2009 were $4.2 million and $3.9 million, respectively. The increase of $342,000 million or 9% relates mainly to $105,000 increase in insurance premiums and an increase of $210,000 in legal fees.

 

     Research and development expenses for the six months ended June 30, 2010 and 2009 were $10.8 million and $7.4 million, respectively, an increase of $3.3 million or 45%. Expenditures related to the continued development of ST-246 and its alternative formulations, including costs associated with our commercial validation campaign increased $1.9 million from the same period in the prior year. Higher R&D costs also relate to $431,000 incurred in connection with the development of a broad-spectrum antiviral drug, an increase of $387,000 in costs related to the development of drug candidates for arena virus pathogens and an increase of $433,000 in employee compensation expenses.

 

     During the six months ended June 30, 2010 and 2009, we spent $6.3 million and $4.4 million, respectively, on the development of ST-246. For the six months ended June 30, 2010, we spent $906,000 on internal human resources and $5.4 million mainly on manufacturing. For the six months ended June 30, 2009, we spent $770,000 on internal human resources and $3.6 million mainly on manufacturing and clinical testing. From inception of the ST-246 development program to-date, we expended a total of $32.2 million related to the program, of which $6.1 million was spent on internal human resources, and $26.1 million was spent on manufacturing, clinical and pre-clinical work. These resources reflect SIGA’s R&D expenses directly related to the program. They exclude additional expenditures such as the cost to acquire the program, patent costs, allocation of indirect expenses, and the value of other services received from the NIH and the Department of Defense (“DoD”).

 

     R&D expenses of $653,000 and $251,000 during the six months ended June 30, 2010 and 2009, respectively, were used to support the development of ST-193, a drug candidate for Lassa fever virus, ST-294, a drug candidate for certain arenavirus pathogens, and other drug candidates for hemorrhagic fevers. For the six months ended June 30, 2010, we spent $96,000 on internal human resources and $558,000 mainly on the analysis of the Lassa fever drug compounds. For the six months ended June 30, 2009, we spent $106,000 on internal human resources and $145,000 mainly on pre-clinical testing. From inception of our program to develop ST-193, ST-294 and other drug candidates for hemorrhagic fevers, to-date, we spent a total of $6.5 million related to the program, of which $2.3 million and $4.2 million were expended on internal human resources and pre-clinical work, respectively. These resources reflect SIGA’s R&D expenses directly related to the program. They exclude additional expenditures such as the cost to acquire the program, patent costs, allocation of indirect expenses, and the value of other services received from the NIH and the DoD.

 

 

     During the six months ended June 30, 2010, we spent $568,000 to support the development of a broad-spectrum antiviral drug candidate, of which $212,000 was mainly spent on internal human resources, and $357,000 mainly on the optimization of lead anti-viral compounds. From the inception of our program to develop a broad-spectrum anti-viral drug to date, we have spent a total of $635,000 related to the program, of which $253,000 and $382,000 were mainly expended on internal human resources and supporting medicinal chemistry and the optimization of lead antiviral compounds, respectively. These resources reflect SIGA’s R&D expenses directly related to the program. They exclude additional expenditures such as the cost to acquire the program, patent costs, allocation of indirect expenses, and the value of other services received from the NIH and the DoD.

 

     Patent preparation expenses for the six months ended June 30, 2010 and 2009 were $626,000 and $194,000, respectively. Higher costs in 2010 reflect heightened efforts to protect our lead drug candidates in expanded geographic territories.

 

     Changes in the fair value of certain warrants to acquire common stock are recorded as gains or losses. For the six months ended June 30, 2010 and 2009, we recorded a loss of $2.9 million and a loss of $11.7 million, respectively, reflecting changes in the fair market value of warrants to purchase common stock during the respective six month periods.

 

 

 

     Operating activities
     Net cash used in operations during the six months ended June 30, 2010 and 2009 was approximately $4.7 million and $4.3 million, respectively. Our operating loss for the six months ended June 30, 2010 and 2009 was $6.1 million and $5.5 million, respectively, and changes in our accounts receivable and accounts payable for the six-month period in 2010 remained substantially similar to the six-month period in 2009.

 

     Investing activities
     Capital expenditures of $727,000 during the six months ended June 30, 2010 mainly supported acquisitions of laboratory and computer equipment. In addition, SIGA invested $3.75 million in U.S. Treasury bills and maintained a total position of approximately $8.75 million invested in U.S. Treasury bills on each of March 31, and June 30, 2010.

 

     Financing activities
     Cash provided by financing activities during the six months ended June 30, 2010 and 2009 was $1.3 million and $3.8 million, respectively, generated from exercises of options and warrants to purchase SIGA common stock.

 

     Other
     On June 19, 2008, SIGA entered into a letter agreement (the “Letter Agreement”) expiring on June 19, 2010, with MacAndrews & Forbes, LLC (“M&F”), a related party, for M&F’s commitment to invest, at SIGA’s discretion and at M&F’s option, up to $8 million in exchange for (i) SIGA common stock and (ii) warrants to purchase 40% of the number of SIGA shares acquired by M&F.

 

     On June 18, 2010, M&F notified us of its intention to exercise its right to invest $5.5 million, the remaining amount available under the Letter Agreement and entered into a Deferred Closing and Registration Rights Agreement dated as of June 18, 2010 with the Company. On July 26, 2010, upon satisfaction of certain customary closing conditions, including the expiration of the applicable waiting period pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, M&F funded the $5.5 million purchase price to SIGA in exchange for the issuance of (i) 1,797,386 shares of SIGA common stock and (ii) warrants to purchase 718,954 shares of SIGA common stock at an exercise price of $3.519 per share.

 

     We have incurred cumulative net losses and expect to incur additional losses to perform further research and development activities. We do not have commercial products and have limited capital resources. We will need additional funds to complete the development of our products. Our plans with regard to these matters include continued development of our products as well as seeking additional capital through a combination of collaborative agreements, strategic alliances, research grants, and future equity and debt financing. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining future financing on commercially reasonable terms or that we will be able to secure funding from anticipated government contracts and grants.

 

 

     We believe that our existing funds combined with cash flows primarily from continuing government grants and contracts will be sufficient to support our operations for at least the next 12 months. The success of the Company is dependent upon commercializing its R&D programs and the Company’s ability to obtain adequate future financing. If the Company is unable to raise adequate capital and/or achieve profitable operations, future operations might need to be scaled back or discontinued. The financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties.

 

     Our technical operations are based in our research facility in Corvallis, Oregon. We continue to seek to fund a major portion of our ongoing antiviral programs through a combination of government grants, contracts and strategic alliances. While we have had success in obtaining strategic alliances, contracts and grants, there is no assurance that we will continue to be successful in obtaining funds from these sources. Until additional relationships are established, we expect to continue to incur significant R&D costs and costs associated with the manufacturing of product for use in clinical trials and pre-clinical testing. It is expected that general and administrative costs, including patent and regulatory costs, necessary to support clinical trials and R&D will continue to be significant in the future. We expect to incur operating losses for the foreseeable future and there can be no assurance that we will ever achieve profitable operations.

 

 

 

 

     This report contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, including statements regarding the efficacy of potential products, the 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, assumptions and projections, and are subject to uncertainties, many of which are beyond the control of SIGA. Actual results may differ materially from those anticipated in any forward-looking statement. Factors that may cause such differences include (i) the risk that 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, (ii) the risk that SIGA or its collaborators will not obtain appropriate or necessary governmental approvals to market these or other potential products, (iii) the risk that SIGA may not be able to obtain anticipated funding for its development projects or other needed funding, (iv) the risk that SIGA may not be able to secure funding from anticipated government contracts and grants, (v) the risk that SIGA may not be able to secure or enforce sufficient legal rights in its products, including patent protection for its products, (vi) the risk that any challenge to our patent and other property rights, if adversely determined, could affect our business and, even if determined favorably, could be costly, (vii) 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 seeking or obtaining needed approvals to market these products, (viii) the risk that BARDA may not complete the procurement set forth in its solicitation for the acquisition of smallpox antiviral for the strategic national stockpile, or may complete it on different terms, (ix) the risk that third parties may protest contracts awarded to us through an RFP process which may cause such potential awards to be delayed or overturned, (x) the risk that the volatile and competitive nature of the biotechnology industry may hamper SIGA’s efforts, (xi) the risk that the changes in domestic and foreign economic and market conditions may adversely affect SIGA’s ability to advance its research or its products, and (xii) 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 presentation, 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, 2009, and in other documents that SIGA has filed with the Commission. SIGA urges investors and security holders to read those documents free of charge at the Commission's Web site at http://www.sec.gov. Interested parties may also obtain those documents free of charge from SIGA. Forward-looking statements speak only as of the date they are made, and except for our ongoing obligations under the United States of America federal securities laws, we undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

 

 

 

     Our investment portfolio includes cash, cash equivalents and short-term investments. Our main investment objectives are the preservation of investment capital and the maximization of after-tax returns on our investment portfolio. We believe that our investment policy is conservative, both in the duration of our investments and the credit quality of the investments we hold. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities and our interest income is sensitive to changes in the general level of U.S. interest rates, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

 

 

     (a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective.

 

     (b) Changes in Internal Control Over Financial Reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

 

 

 

 

 

 

     There are no material changes to the Risk Factors disclosed in our Annual report on Form 10-K for the fiscal year ended December 31, 2009.

 

 

 

 

 

 

 

 

 

		10.1		Deferred Closing and Registration Rights Agreement, dated as of June 18, 2010 (incorporated by reference to the Current Report on Form 8-K of the Company filed June 22, 2010).
*		31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*		31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*		32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*		32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herein

 

 

 

	SIGA Technologies, Inc.
	(Registrant)
Date: August 5, 2010	By:	/s/ Ayelet Dugary
	Ayelet Dugary
	Chief Financial Officer