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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended December 31, 2019
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Or
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ________ to ___________
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Commission File No. 0-23047
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
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Delaware
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13-3864870
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(State or other jurisdiction of
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(IRS Employer Identification. No.)
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incorporation or organization)
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31 East 62nd Street
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10065
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New York, NY
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(zip code)
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(Address of principal executive offices)
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Registrant’s telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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common stock, $.0001 par value
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SIGA
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The Nasdaq Global Market
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes o No x.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act Yes o No x.
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (check one): Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o Emerging growth company o.
If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x.
Indicate by check mark whether the registrant has filed all documents and reports required by section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes oNo o.
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based upon the closing sale price of the common stock on June 30, 2019 as reported on The Nasdaq Global Market was approximately $321,463,623.
As of February 18, 2020 the registrant had outstanding 81,272,518 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated herein by reference:
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Document
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Parts Into Which Incorporated
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Proxy Statement for the Company’s 2020 Annual
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Part III
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Meeting of Stockholders
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SIGA TECHNOLOGIES, INC.
FORM 10-K
FORM 10-K
Table of Contents
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Page No.
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Principal Accounting Fees and Services
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Exhibits, Financial Statement Schedules
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Part I
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K, including certain statements contained in “Business” and “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, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements relating to the progress of SIGA’s development programs and timelines for bringing products to market, delivering products to the U.S Strategic National Stockpile ("Strategic Stockpile") and the enforceability of the 2011 BARDA Contract and the 19C BARDA Contract (each as defined below, and collectively, the "BARDA Contracts") with the U.S. Biomedical Advanced Research and Development Authority ("BARDA"). 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 Contracts, 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 Contracts on schedule or in accordance with contractual terms, (iii) the risk that the BARDA Contracts 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 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 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 and (xiii) the risk that the U.S. government’s responses (including inaction) to the national or global economic situation or infectious disease such as COVID-19 may affect SIGA’s business adversely, as well as the risks and uncertainties included in Item 1A “Risk Factors” of this Form 10-K. 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.
Item 1. Business
Overview
SIGA Technologies, Inc. is referred to throughout this report as “SIGA,” “the Company,” “we” or “us.”
We are a commercial-stage pharmaceutical company focused on the health security and infectious disease markets. Health security comprises countermeasures for biological, chemical, radiological and nuclear attacks (biodefense market), vaccines and therapies for emerging infectious diseases, and health preparedness. Our lead product is an oral formulation of TPOXX® (“oral TPOXX®”), an antiviral drug for the treatment of human smallpox disease caused by variola virus.
BARDA Contracts-TPOXX®
19C BARDA Contract (2018 BARDA Contract)
On September 10, 2018, the Company entered into a contract with BARDA pursuant to which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the 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 advanced development of IV TPOXX®; post-marketing activities for oral and IV TPOXX®, and procurement activities. As of February 18, 2020, the contract with BARDA (as amended, modified,
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or supplemented from time to time, the "19C BARDA Contract" or “2018 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 $25.8 million of payments are related to exercised options and up to approximately $525.0 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. On May 20, 2019, an option for the manufacture and delivery of 363,070 courses of oral TPOXX® was modified to divide it into four procurement-related options. One of the four modified procurement-related options provides for the payment of $11.2 million for the procurement of raw materials to be used in the manufacture of at least 363,070 courses of oral TPOXX®. This option was exercised simultaneously with the aforementioned modification. Each of the other three options individually specifies the delivery of approximately 121,000 courses of oral TPOXX® for consideration of approximately $33.8 million. In total, the four options under the May 2019 modification provide for the purchase of raw material for and the manufacture and delivery of 363,070 courses of oral TPOXX® for consideration of approximately $112.5 million. The option modification did not change the overall total potential value of the 19C BARDA Contract, nor did it change the total amount to be paid in connection with the manufacture and delivery of oral TPOXX® courses.
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 December 31, 2019, the Company had received $11.1 million for the successful delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the manufacture of IV BDS and $4.7 million for other base period activities. IV BDS is expected to be used for the manufacture of 20,000 courses of IV FDP. The $3.2 million received for the manufacture of IV BDS has been recorded as deferred revenue as of December 31, 2019 and 2018; such amount is expected to be recognized as revenue when IV TPOXX containing the BDS is delivered to the National Stockpile or placed in vendor-managed inventory.
The options that have been exercised to date provide for additional potential payments up to approximately $25.8 million. There are exercised options for the following activities: payments up to $11.2 million for the procurement of raw materials to be used in the manufacture of at least 363,070 courses of oral TPOXX®; and, payments of up to $14.6 million for funding of post-marketing activities for oral TPOXX®, of which, $2.3 million had been received as of December 31, 2019.
Unexercised options specify potential payments up to approximately $525.0 million in total (if all options are exercised). There are options for the following activities: payments of up to $439.0 million for the delivery of up to approximately 1,452,000 courses of oral TPOXX® to the Strategic Stockpile; payments of up to $76.8 million for the manufacture of up to 192,000 courses of IV FDP, of which up to $30.7 million of payments would be paid upon 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 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 make independent exercise decisions. If BARDA decides to only exercise IV BDS Options, then the Company would receive payments up to $30.7 million; alternatively, if BARDA decides to exercise both IV BDS Options and IV FDP Options, then the Company would receive payments up to $76.8 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.
2011 BARDA Contract
On May 13, 2011, the Company signed a contract with BARDA pursuant to which BARDA agreed to buy from the Company 1.7 million courses of oral TPOXX®. Additionally, the Company agreed to contribute to BARDA 300,000 courses at no additional cost to BARDA.
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The contract with BARDA (as amended, modified, or supplemented from time to time the "2011 BARDA Contract”) includes a base contract, as modified, (“2011 Base Contract”) as well as options. The 2011 Base Contract specifies approximately $508.4 million of payments (including exercised options), of which, as of December 31, 2019, $459.8 million had been received by the Company for the manufacture and delivery of 1.7 million courses of oral TPOXX® and $44.9 million had been received for certain reimbursements in connection with development and supportive activities. Approximately $3.7 million remains eligible to be received in the future for reimbursements of development and supportive activities.
For courses of oral TPOXX® that have been physically delivered to the Strategic Stockpile under the 2011 BARDA Contract, there are product replacement obligations, including: (i) a product replacement obligation in the event that the final version of oral TPOXX® approved by the U.S. Food & Drug Adinistration ("FDA") was different from any courses of oral TPOXX® that had been delivered to the Strategic Stockpile (the "FDA Approval Replacement Obligation"); (ii) a product replacement obligation, at no cost to BARDA, in the event that oral TPOXX® is recalled or deemed to be recalled for any reason; and (iii) a product replacement obligation in the event that oral TPOXX® does not meet any specified label claims. On July, 13, 2018, the FDA approved oral TPOXX® for the treatment of smallpox, and there was no difference between the approved product and courses in the Strategic Stockpile. As such, the possibility of the FDA Approval Replacement Obligation resulting in any future replacements of product within the Strategic Stockpile is remote.
The 2011 BARDA Contract includes options. On July 30, 2018, the 2011 BARDA Contract was modified and BARDA exercised its option relating to FDA approval of 84-month expiry for oral TPOXX® for which the Company was paid $50.0 million in August 2018. With the option exercise, the 2011 BARDA Contract was modified so that the 2011 Base Contract increased by $50.0 million. Remaining options, if all would be exercised by BARDA, would result in aggregate payments to the Company of $72.7 million, including up to $58.3 million of funding for development and supportive activities such as work on a post-exposure prophylaxis ("PEP") indication for TPOXX® and/or $14.4 million of funding for production-related activities related to warm-base manufacturing. BARDA may choose in its sole discretion not to exercise any or all of the unexercised options. In 2015, BARDA exercised two options related to extending the indication of the drug to the geriatric and pediatric populations. The stated value of those exercises was minimal.
The 2011 BARDA Contract expires in September 2020.
International Promotion Agreement for Oral TPOXX®
On June 3, 2019, the Company entered into an international promotion agreement with Meridian Medical Technologies, Inc. (“Meridian”), a Pfizer company (the “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 and South Korea (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 will retain ownership, intellectual property, distribution and supply rights and regulatory responsibilities in connection with TPOXX, and, in the United States and South Korean markets, will also retain sales and marketing rights with respect to oral TPOXX®. SIGA’s consent shall be required for the entry into any sales arrangement pursuant to the International Promotion Agreement.
The International Promotion Agreement did not provide for any cash payments at signing, and each party is responsible for the costs and expenses associated with its activities. The fee Meridian retains pursuant to the International Promotion Agreement will be a specified percentage of the collected proceeds of sales of oral TPOXX® net of certain expenses, for years in which customer invoiced 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 years in which such net invoiced amounts exceed the specified threshold.
The International Promotion Agreement provides for an initial term of five years, and automatic renewals for successive three-year terms unless (i) either party provides the other party with written notice of non-renewal prior to the end of the initial term or any renewal term or (ii) the International Promotion Agreement is earlier terminated in accordance with its terms. Either party may terminate the agreement immediately by written notice in connection with certain customary events. Either party shall have the right to terminate the agreement (overall and on a country-by-country basis) in the event of an uncured material breach. The Company shall have the right to terminate the agreement (i) as to certain countries on a country-by-country basis in the event Meridian does not promote oral TPOXX® in the subject country for a period of time, or (ii) in certain other limited circumstances. Meridian shall have the right to terminate the Agreement (overall or on a country-by-country basis) without cause subject to a prior written notice period.
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The International Promotion Agreement also contains customary representations, warranties and covenants, including provisions related to regulatory matters, reporting obligations, indemnity, limitation of liability, confidentiality and other matters.
On December 5, 2019 SIGA announced that the Canadian Department of National Defence ("CDND") issued an advanced contract award notice ("ACAN"), indicating that the CDND intends to purchase up to 15,235 courses of oral TPOXX® over four years as specified in the ACAN, with an initial purchase of 2,500 courses. As with any international sale of TPOXX® pursuant to the agreement, Meridian would be the counterparty of any contract award issued by the Canadian government and SIGA would be responsible for the manufacture, regulatory obligations and delivery of product.
Lead Product-TPOXX®
SIGA believes that TPOXX® is among the first new small-molecule drugs delivered to the Strategic Stockpile under Project BioShield. Oral TPOXX® is a novel, patented drug that is easy to store, transport and administer. On July 13, 2018, the FDA approved oral TPOXX® for the treatment of smallpox. Oral TPOXX® labeling, approved by the FDA, limits sales of oral TPOXX® in the U.S. to those for the Strategic Stockpile. Under the 2011 BARDA Contract, 1.7 million courses of oral TPOXX® were sold to BARDA and delivered to the Strategic Stockpile between 2013 and 2017. Courses delivered under the 2011 BARDA Contract have an FDA-approved shelf life of seven years. Under the 19C BARDA Contract, SIGA can deliver up to 1.7 million courses of TPOXX® (of which 1,488,000 courses would be oral TPOXX® and 212,000 courses would be IV TPOXX®) to the Strategic Stockpile, at the option of BARDA.
For IV TPOXX®, SIGA has reached concurrence with the FDA that no further clinical studies are required. Such concurrence will permit the Company to file a new drug application ("NDA") for IV TPOXX®. The Company believes such NDA can be filed as early as the second half of 2020. Based on its review of the NDA, the FDA will decide whether to approve IV TPOXX® and whether to impose any marketing restrictions or require additional post-approval clinical studies. This review process will typically take ten months. There can be no assurance that any approval will be granted on a timely basis, if at all.
As noted above, the FDA approved oral TPOXX® for the treatment of smallpox. The Company is currently planning to seek regulatory approval of oral TPOXX® in Europe and Canada as well. Based on conversations with regulatory authorities, the Company is currently planning to submit applications for regulatory approval of oral TPOXX® in Europe and Canada during the next twelve months and to seek an expanded indications to cover treatment of orthopox infections.
Manufacturing
SIGA does not have a manufacturing infrastructure and does not intend to develop one for the manufacture of TPOXX®. SIGA relies on and uses third parties known as Contract Manufacturing Organizations (“CMOs”) to procure commercial raw materials and supplies, and to manufacture TPOXX®. SIGA's CMOs apply methods and controls in facilities that are used for manufacturing, processing, packaging, testing, analyzing and holding pharmaceuticals which conform to current good manufacturing practices (“cGMP”), the standard set by the FDA for manufacture and storage of pharmaceuticals intended for human use.
Oral TPOXX®:
For the manufacture of oral TPOXX®, the Company uses the following CMOs: Albemarle Corporation (“Albemarle”); Powdersize, LLC (“Powdersize”); Catalent Pharma Solutions LLC (“Catalent”); and Packaging Coordinators, LLC ("PCI").
In August 2011, SIGA entered into an agreement with Albemarle. Such agreement was amended in April 2015 and expired in April 2018. On October 1, 2018, SIGA entered into a new agreement with Albemarle pursuant to which Albemarle manufactures, tests and supplies active pharmaceutical ingredient (“API”) for use in TPOXX®. The agreement provides that, during the term of the new agreement, SIGA will purchase 100% of its internal and external API requirements for TPOXX® from Albemarle until the later of (i) September 30, 2021 and (ii) such time as SIGA has purchased twelve metric tons of API from Albemarle under the new agreement. From and after the later of: (i) September 30, 2021, or (ii) such time as SIGA has purchased twelve metric tons of API from Albemarle, SIGA will purchase at least 70% of its internal and external API requirements for TPOXX® from Albemarle until the end of the term of the new agreement (as described below), unless the Company receives an offer to purchase API at a price that Albemarle is unable to match, in which event SIGA will purchase at least 30% of its internal and external API requirements for TPOXX® from Albemarle until September 30, 2023. There is no minimum amount of API kilograms that must be used or acquired by SIGA. The following events are excluded from the “100% API” requirement: (i) if a contract entered into by SIGA for the sale of final drug product (“FDP”) requires that the product used as the API for such FDP be manufactured outside the U.S.
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and Albemarle is unwilling or unable to subcontract such manufacture to a party or parties that meet the terms of the agreement; (ii) if a contract entered into by SIGA for the sale of FDP in an intravenous formulation requires different specifications than those provided for under the agreement and the parties are not able to reach agreement on the necessary changes to the specifications or on pricing; or (iii) if Albemarle fails to perform any of its obligations under the agreement and does not cure such failure within 30 days of written notice from SIGA. SIGA is required to pay Albemarle within 45 days of its invoice date. Pricing for API is at a fixed price per kilogram, subject to adjustment for increases in raw material costs and/or general manufacturing costs. Albemarle is required to deliver API that conforms to specifications outlined in the agreement; the Company is not required to pay for API that does not meet specifications. The Company has 120 days to reject any shipments that do not meet such specifications or are damaged. In addition to receiving payments for API deliveries, Albemarle is also paid for related services, such as stability testing. The Company’s agreement with Albemarle is currently scheduled to expire upon the earlier of: (i) September 30, 2023, or (ii) the fulfillment of delivery obligations under the 19C BARDA Contract. Thereafter, the agreement shall renew for successive one-year renewal terms until either the Company or Albemarle provides notice of non-renewal at least 90 days prior to the expiration date of a term.
Powdersize, a Lonza Group company, micronizes and tests API for use in oral TPOXX®. The Company’s agreement with Powdersize was amended on January 11, 2019. The amended term ends on the tenth anniversary of the amendment date.
Catalent granulates, encapsulates, and tests oral TPOXX®. In addition, Catalent provides services related to commercial stability testing of drug product and preparation for tabulated stability and trend analysis for each time point. The Company’s agreement with Catalent has an initial term that ends on June 28, 2021. Thereafter, this agreement automatically renews for three years unless either party provides six months' notice of its desire to terminate the agreement prior to the expiration of the term. During the term of the agreement, SIGA will purchase all of its requirements for bulk product under the 19C BARDA contract from Catalent.
PCI provides packaging services in connection with oral TPOXX®. Additionally, PCI has contracted with the Company to provide packaging services in connection with the intravenous formulation of TPOXX®. The Company’s agreement with PCI has an initial term that ends on March 1, 2022. Thereafter, this agreement automatically renews for successive one-year periods unless either party provides 120 days' notice of its desire to terminate the agreement prior to the expiration of the term. The agreement can be terminated earlier than March 1, 2022 under certain conditions.
Intravenous (IV) formulation of TPOXX®:
For the manufacture of IV TPOXX® under the BARDA contracts, the Company has agreed to use the following CMOs: Roquette America, Inc. (“Roquette”); Patheon Manufacturing Services LLC (“Patheon”); and PCI.
Roquette provides an excipient to be used in the manufacturing of the intravenous formulation of TPOXX®. The Company's agreement with Roquette has no minimum amount of manufacturing services that must be used. The Company’s agreement with Roquette has an initial term that ends on December 31, 2023. Thereafter, this agreement automatically renews on a year-by-year basis unless either party provides four months’ notice of its desire to terminate the agreement prior to the expiration of the term.
Patheon manufactures, tests and packages the intravenous formulation of TPOXX®. SIGA agreed that Patheon will be entitled to manufacture at least 80% of the intravenous formulation of TPOXX® offered for sale by SIGA during the first three years of the agreement, provided Patheon adheres to reasonable manufacturing standards. Thereafter, the manufacturing percentage will be as mutually agreed upon by the parties. The Company’s agreement with Patheon has an initial term that ends on the later of: December 31, 2022 or, such date as all government contracts related to the intravenous formulation of TPOXX® are terminated. Thereafter, this agreement automatically renews for two-year increments unless either party provides twelve months’ notice of its desire to terminate the agreement prior to the expiration of the term.
As noted above, PCI is expected to provide packaging services for the intravenous formulation of TPOXX®.
Corporate Responsibility and Sustainability
SIGA focuses on the health security market and seeks to advance global health while promoting a sustainable environment.
SIGA seeks to advance global public health though its development and commercial activities, which include (i) delivering medical counter measures to governments and/or non-governmental organizations ("NGOs") so that governments can cost-effectively stockpile treatments for potential public health emergencies and (ii) donating therapies to NGOs to treat patients with serious infectious diseases in developing countries or those who are being treated on a compassionate basis and/or within clinical trials.
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SIGA seeks to promote a sustainable environment by tracking the involvement of its manufacturing supply chain in initiatives and organizations that prioritize a sustainable environment. All manufacturers within SIGA’s supply chain, including Albemarle, Powdersize, Catalent, PCI, Patheon and Roquette maintain corporate social responsibility and/or sustainability programs and publicly report on those programs.
SIGA also pursues such policies within its own corporate environment, although the scale is too small to report separately their impact.
Market for Biological Defense Programs
The market for biodefense countermeasures reflects continued awareness of the threat of global terror and biowarfare activity. The U.S. government is the largest source of development and procurement funding for academic institutions and biopharmaceutical companies conducting biodefense research or developing vaccines, anti-infectives and immunotherapies directed at potential agents of bioterror or biowarfare. U.S. government spending on biodefense programs includes development funding awarded by the National Institute of Allergy and Infectious Diseases, BARDA and the Department of Defense (“DoD”), and procurement of countermeasures by BARDA, the Strategic Stockpile and the DoD. For the fiscal year ending September 30, 2020, the budget for the U.S. Department of Health and Human Services provides an annual appropriation of approximately $2.0 billion for activities related to advanced development and procurement of medical countermeasures for biological and other threats to civilian populations.
In addition to the U.S. government, we believe that potential additional markets for the sale of biodefense countermeasures include:
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foreign governments, including both defense and public health agencies;
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non-governmental organizations and multinational companies, including transportation and security companies
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healthcare providers, including hospitals and clinics; and
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state and local governments, which may be interested in these products to protect, among others, emergency responders, such as police, fire and emergency medical personnel.
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At present, oral TPOXX® is not approved for sale in the U.S. beyond sales to the U.S. government for the purpose of stockpiling and/or usage by the Strategic Stockpile. The Company would need to meet additional regulatory requirements before sales were made in the U.S. beyond the U.S government.
Research Agreements and Grants
The Company has an R&D program for IV TPOXX®. This program is funded by the 19C BARDA Contract and a separate development contract with BARDA ("IV Formulation R&D Contract"). The IV Formulation R&D Contract has a period of performance that terminates on December 30, 2020. As of December 31, 2019, the IV Formulation R&D Contract provides for future aggregate research and development funding of approximately $3.1 million. See Note 3 to the consolidated financial statements regarding the 19C BARDA Contract.
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"). The term of the initial award is five years. As of December 31, 2019 the PEP Label Expansion R&D Contract provides for future aggregate research and development funding under the initial award of approximately $12.2 million.
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, we may not be eligible to receive all available funds.
General
We receive cash payments from BARDA on a monthly basis, as services are performed or goods are purchased. Amounts under contract and grant agreements are not guaranteed and can be canceled at any time for reasons such as non-performance or convenience of the U.S. government and, if canceled, we will not receive funds for additional work under the agreements.
7
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and intense competition. Our competitors include many major pharmaceutical companies, each of which has financial, technical and marketing resources significantly greater than ours. Biotechnology and other pharmaceutical competitors in the biodefense space include, but are not limited to, Emergent BioSolutions Inc., Bavarian Nordic AS, and Chimerix Inc. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint ventures.
TPOXX® faces significant competition for government funding for both development and procurement of medical countermeasures for biological, chemical, radiological and nuclear threats, diagnostic testing systems, and other emergency preparedness countermeasures.
Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects, are more convenient or are less expensive than products that we may develop. In addition, we may not be able to compete effectively if our product candidates do not satisfy governmental procurement requirements, particularly requirements of the U.S. government with respect to biodefense products.
Human Resources and Research Facilities
As of February 18, 2020, we had 41 full-time employees. None of our employees are covered by a collective bargaining agreement, and we consider our employee relations to be satisfactory. Our research and development facilities are located in Corvallis, Oregon, where we lease approximately 10,276 square feet under a lease agreement that commenced on January 1, 2018 and which expires in December 2021. This lease has one remaining renewal option for an additional three years.
Intellectual Property and Proprietary Rights
SIGA’s commercial success will depend in part on its ability to obtain and maintain patent and other intellectual property protection in the U.S. and the rest of the world for its proprietary technologies, drug targets, and potential products and to preserve its trade secrets. Because of the substantial length of time and expense associated with bringing potential products through the development and regulatory clearance processes to reach the marketplace, the pharmaceutical industry places considerable importance on obtaining patent and trade secret protection. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents across various jurisdictions has emerged to date. Accordingly, SIGA cannot predict the type and extent of claims that will be allowed in pending patent applications.
SIGA also relies upon trade secret protection for its confidential and proprietary information. No assurance can be given that other companies will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to SIGA’s trade secrets or that SIGA can meaningfully protect its trade secrets.
SIGA exclusively owns its key patent portfolios, which relate to its leading drug candidate TPOXX® (also known as ST-246, tecovirimat). As of January 30, 2020, the TPOXX® patent portfolio has seven patent families consisting of 23 U.S. utility patents, 70 issued foreign patents, six U.S. utility patent applications, and 38 foreign patent applications.
The principal and material issued patents covering TPOXX® are described in the table below.
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Patent Number
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Country
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Protection Conferred
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Issue Date
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Expiration Date
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US 7737168
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United States
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Method of treating orthopoxvirus infection with ST-246
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June 15, 2010
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May 3, 2027^
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US 8039504
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United States
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Pharmaceutical compositions and unit dosage forms containing ST-246
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October 18, 2011
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July 23, 2027
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US 7687641
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United States
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Method of manufacturing ST-246
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March 30, 2010
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September 27, 2024
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US 8124643
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United States
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Composition of matter for the ST-246 compound and Pharmaceutical compositions containing ST-246
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February 28, 2012
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June 18, 2024^
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US 7956197
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United States
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Method of manufacturing ST-246
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June 7, 2011
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June 18, 2024
|
|
US 8530509
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United States
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Pharmaceutical compositions containing a mixture of compounds including ST-246
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September 10, 2013
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June 18, 2024
|
8
9
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JP 6594303
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Japan
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Rehydration of micronized Tecovirimat monohydrate
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October 4, 2019
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November 14, 2034
|
|
CN 2011800245893
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China
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Certain polymorphs of ST-246, method of preparation of the polymorphs and pharmaceutical compositions containing the polymorphs
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August 26, 2015
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March 23, 2031
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|
CN 2013800429237
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China
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Methods of preparing Tecovirimat
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June 20, 2017
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August 14, 2033
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CA 2529761
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Canada
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Use of ST-246 to treat orthopoxvirus infection, pharmaceutical compositions containing ST-246 and composition of matter for the ST-246 compound
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August 13, 2013
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June 18, 2024
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CA 2685153
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Canada
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Pharmaceutical compositions containing ST-246 and one or more additional ingredients and dosage unit forms containing ST-246
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December 16, 2014
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April 23, 2027
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CA 2866037
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Canada
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Chemicals, compositions and methods for treatment and prevention of orthopoxvirus infections and associated diseases
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May 16, 2017
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April 23, 2027
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CA 2807528
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Canada
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Liquid Pharmaceutical formulations containing ST-246
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September 25, 2018
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August 2, 2031
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CA 2793533
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Canada
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Certain polymorphs of ST-246, method of preparation of the polymorphs and pharmaceutical compositions containing the polymorphs
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February 26, 2019
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March 23, 2031
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AU 2004249250
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Australia
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Method of treating orthopoxvirus infection, pharmaceutical composition containing ST-246 and composition of matter for the ST-246 compound
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March 29, 2012
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June 18, 2024
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AU 2007351866
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Australia
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Pharmaceutical compositions containing ST-246 and one or more additional ingredients and dosage unit forms containing ST-246
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January 10, 2013
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June 18, 2024
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AU 2011232551
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Australia
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Certain polymorphs of ST-246, method of preparation of the polymorphs and their use in treating orthopoxvirus
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February 26, 2015
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March 23, 2031
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AU 2011285871
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Australia
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Liquid Pharmaceutical formulations containing ST-246
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August 6, 2015
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August 2, 2031
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AU 2013302764
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Australia
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Methods of preparing Tecovirimat
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April 5, 2018
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August 14, 2033
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AU 2012268859
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Australia
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Pharmaceutical compositions containing ST-246 and one or more additional ingredients and dosage unit forms containing ST-246
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August 18, 2016
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June 18, 2024
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AU 2014290333
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Australia
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Amorphous Tecovirimat preparation
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February 21, 2019
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July 11, 2034
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AU 2014353235
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Australia
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Rehydration of micronized Tecovirimat monohydrate
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August 22, 2019
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November 14, 2034
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AP 3221
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ARIPO*/Africa
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Certain polymorphs of ST-246, method of preparation of the polymorphs and their use in treating orthopoxvirus
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April 3, 2015
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March 23, 2031
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ZA 2012/07141
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South Africa
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Certain polymorphs of ST-246, method of preparation of the polymorphs and pharmaceutical compositions containing the polymorphs
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June 29, 2016
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March 23, 2031
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ZA 2013/00930
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South Africa
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Liquid Pharmaceutical formulations containing ST-246
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November 25, 2015
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August 2, 2031
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IL 201736
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Israel
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Pharmaceutical compositions containing ST-246 and one or more additional ingredients and dosage unit forms containing ST-246
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October 1, 2016
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April 23, 2027
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IL 236944
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Israel
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Methods of preparing Tecovirimat
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February 1, 2017
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August 14, 2033
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|
IL 242666
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Israel
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Compounds, compositions and methods for treatment and prevention of orthopoxvirus infections and associated diseases
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December 1, 2018
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April 23, 2027
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IL 221991
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Israel
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Certain polymorphs of ST-246, method of preparation of the polymorphs and pharmaceutical compositions containing the polymorphs
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October 1, 2019
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March 23, 2031
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10
11
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HK 1179824
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Hong Kong
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Certain polymorphs of ST-246, method of preparation of the polymorphs and pharmaceutical compositions containing the polymorphs
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June 21, 2019
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March 23, 2031
|
|
IE 1638938
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Ireland
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Compounds, compositions and methods for treatment and prevention of orthopoxvirus infections and associated diseases
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April 12, 2017
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June 18, 2024
|
|
IT 502017000078377
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Italy
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Compounds, compositions and methods for treatment and prevention of orthopoxvirus infections and associated diseases
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April 12, 2017
|
June 18, 2024
|
|
NL 1638938
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Netherlands
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Compounds, compositions and methods for treatment and prevention of orthopoxvirus infections and associated diseases
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April 12, 2017
|
June 18, 2024
|
|
PL 1638938
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Poland
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Compounds, compositions and methods for treatment and prevention of orthopoxvirus infections and associated diseases
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April 12, 2017
|
June 18, 2024
|
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SE 1638938
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Sweden
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Compounds, compositions and methods for treatment and prevention of orthopoxvirus infections and associated diseases
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April 12, 2017
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June 18, 2024
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^ A Patent Term Extension Application is pending for US 7737168, which would change the expiration date from May 3, 2027 to September 4, 2031. A Patent Term Extension Application is also pending for US 8124643, which would change the expiration date from June 18, 2024 to December 13, 2027. In the event that both US 7737168 and US 8124643 are found to be eligible for a patent term extension, SIGA would only be able to elect one of the two patents for which the extension is sought and would elect to extend US 7737168.
* ARIPO has 19 member African States as follows: Botswana, The Gambia, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Sierra Leone, Liberia, Rwanda, Sao Tome and Principe, Somalia, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
In addition to the patents listed in the above chart, the principal and material patent applications covering TPOXX® include patent filings in multiple jurisdictions, including the United States, Europe, Asia, Australia, and other commercially significant markets. We hold 44 patent applications currently pending with respect to various compositions of TPOXX®, methods of manufacturing, methods of treatment, and dosage forms. Expiration dates for pending patent applications, if granted, will fall between 2024 and 2037.
FDA regulations require that patented drugs be sold under brand names that comply with various regulations. SIGA must develop and make efforts to protect these brand names for each of its products in order to avoid product piracy and to secure exclusive rights to these brand names. SIGA may expend substantial funds in developing and securing rights to adequate brand names for our products. SIGA currently has proprietary trademark rights in SIGA®, TPOXX® and other brands used by us in the United States and certain foreign countries, but we may have to develop additional trademark rights in order to comply with regulatory requirements. SIGA may need to pursue different names and trademarks ex-U.S. in light of native language and other jurisdictional considerations. SIGA considers securing adequate trademark rights to be important to its business.
Government Regulation
Regulatory Approval Process
Regulation by governmental authorities in the United States and other countries is a significant factor in the manufacture and marketing of any biopharmaceutical product that we may develop. The nature and the extent to which such regulations may apply to us will vary depending on the nature of any particular product. Virtually all of our potential pharmaceutical products will require regulatory approval by governmental agencies prior to non-governmental commercialization. In particular, human therapeutic products are subject to rigorous pre-clinical and clinical testing and other approval procedures by the FDA and similar health authorities in foreign countries. Various federal statutes and regulations also govern or regulate the manufacturing, safety, labeling, storage, record keeping and marketing of such products. The process of obtaining these approvals and the subsequent compliance with appropriate federal and foreign statutes and regulations is complex and requires expertise and the expenditure of substantial resources.
In order to test clinically, and to manufacture and market products for diagnostic or therapeutic use, a company must comply with mandatory procedures and safety standards established by the FDA and comparable agencies in foreign countries. Before beginning human clinical testing of a potential new drug in the United States, a company must file an IND application and
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receive clearance from the FDA. An IND application is a summary of the pre-clinical studies that were conducted to characterize the drug, including toxicity and safety studies, information on the drug’s composition and the manufacturing and quality control procedures used to produce the drug, as well as a discussion of the human clinical studies that are being proposed to evaluate the safety and efficacy of the product.
The pre-marketing clinical program required for approval by the FDA for a new drug typically involves a time-consuming and costly three-phase process. In Phase I, trials are conducted with a small number of healthy subjects to determine the early safety profile, the pattern of drug distribution, metabolism and elimination. In Phase II, trials are conducted with small groups of patients afflicted with a target disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase III, large scale, multi-center comparative trials, which may include both controlled and uncontrolled studies, are conducted with patients afflicted with a target disease in order to provide enough data for statistical proof of efficacy and safety required by the FDA and other authorities. Additional trials may be required to evaluate how a new drug interacts with other drugs as well as if the drug has any impact on cardio-vascular or other potential risks.
The FDA closely monitors the progress of each of the three phases of clinical testing and may, in its discretion, reevaluate, alter, suspend or terminate the testing based on the data that have been accumulated to that point and its assessment of the risk/benefit ratio to the patients involved in the testing. Estimates of the total time typically required for carrying out such clinical testing vary between two and 10 years. Upon completion of such clinical testing, a company typically submits an NDA to the FDA that summarizes the results and observations of the drug during the clinical testing. Based on its review of the NDA, the FDA will decide whether to approve the drug and whether to impose any marketing restrictions or require additional post-approval clinical studies. This review process can be quite lengthy, and approval for the production and marketing of a new pharmaceutical product can require a number of years and substantial funding. There can be no assurance that any approval will be granted on a timely basis, if at all. In some circumstances, a new formulation of an approved product may be reviewed through a supplemental NDA process which relies in part on the prior approval of the initial formulation.
The FDA amended its regulations, effective June 30, 2002, to include the “Animal Rule” in circumstances that would permit the typical clinical testing regime to approve certain new drug and biological products used to reduce or prevent the toxicity of chemical, biological, radiological, or nuclear agents not otherwise naturally present for use in humans based on evidence of safety in healthy subjects and evidence of effectiveness derived only from appropriate animal studies and any additional supporting data. The FDA has indicated that approval for therapeutic use of TPOXX® was determined under the “Animal Rule.”
Once the product is approved for sale, FDA regulations govern the manufacturing and marketing activities, and a post-marketing testing and surveillance program may be required to monitor a product’s usage and effects. Product approvals may be withdrawn if compliance with regulatory standards is not maintained. Many other countries in which products developed by us may be marketed impose similar regulatory processes.
FDA regulations also make available an alternative regulatory mechanism that may lead to use of the product under limited circumstances. The Emergency Use Authorization (“EUA”) authority allows the FDA Commissioner to strengthen the public health protections against biological, chemical, radiological and nuclear agents that may be used to attack the American people or the U.S. armed forces. Under this authority, the FDA Commissioner may allow medical countermeasures to be used in an emergency to diagnose, treat or prevent serious or life-threatening diseases or conditions caused by such agents when appropriate findings are made concerning the nature of the emergency, the availability of adequate and approved alternatives, and the quality of available data concerning the drug candidate under consideration for emergency use.
Legislation and Regulation Related to Bioterrorism Counteragents and Pandemic Preparedness
Because our drug candidates are intended for the treatment of diseases that may result from acts of bioterrorism or biowarfare or for pandemic preparedness, they may be subject to the specific legislation and regulation described below and elsewhere in this Annual Report on Form 10-K.
Project BioShield
Project BioShield and related 2006 federal legislation provide procedures for biodefense-related procurement and awarding of research grants, making it easier for the U.S. Department of Health and Human Services (“HHS”) to commit funds to countermeasure projects. Project BioShield provides alternative procedures under the Federal Acquisition Regulation, the general rubric for acquisition of goods and services by the U.S. government, for procuring property or services used in performing, administering or supporting biomedical countermeasure research and development. In addition, if the Secretary of HHS deems that there is a pressing need, Project BioShield authorizes the Secretary of HHS to use an expedited award process, rather than
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the normal peer review process, for grants, contracts and cooperative agreements related to biomedical countermeasure research and development activity.
Under Project BioShield, the Secretary of HHS, with the concurrence of the Secretary of the U.S. Department of Homeland Security and upon the approval of the President, can contract to purchase unapproved countermeasures for the Strategic Stockpile in specified circumstances. The U.S. Congress is notified of a recommendation for a Strategic Stockpile purchase after Presidential approval. Project BioShield specifies that a company supplying the countermeasure to the Strategic Stockpile is paid on delivery of a substantial portion of the countermeasure. To be eligible for purchase under these provisions, the Secretary of HHS must determine that there are sufficient and satisfactory clinical results or research data, including data, if available, from pre-clinical and clinical trials, to support a reasonable conclusion that the countermeasure will qualify for approval or licensing within eight years. Project BioShield also allows the Secretary of HHS to authorize the emergency use of medical products that have not yet been approved by the FDA. To exercise this authority, the Secretary of HHS must conclude that:
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the agent for which the countermeasure is designed can cause serious or life-threatening disease;
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the product may reasonably be believed to be effective in detecting, diagnosing, treating or preventing the disease;
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the known and potential benefits of the product outweigh its known and potential risks; and
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there is no adequate alternative to a product that is approved and available.
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Although this provision permits the Secretary of HHS to circumvent FDA approval (entirely, or in part) for procurement and use, its use in this manner would likely be limited to rare circumstances. Prior to the award of the BARDA Contract in May 2011, the Secretary of HHS concluded that TPOXX® would qualify within eight years for approval by the FDA for therapeutic use against smallpox.
Public Readiness and Emergency Preparedness Act
The Public Readiness and Emergency Preparedness Act (the "PREP Act") provides immunity for manufacturers from claims under state or federal law for “loss” arising out of the administration or use of a “covered countermeasure” in the United States. However, injured persons may still bring a suit for “willful misconduct” against the manufacturer under some circumstances. “Covered countermeasures” include security countermeasures and “qualified pandemic or epidemic products,” including products intended to diagnose or treat pandemic or epidemic disease, as well as treatments intended to address conditions caused by such products. For these immunities to apply, the Secretary of HHS must issue a declaration in cases of public health emergency or “credible risk” of a future public health emergency. Since 2007, the Secretary of HHS has issued eight declarations under the PREP Act to protect from liability countermeasures that are necessary to prepare the nation for potential pandemics or epidemics, including a declaration on October 10, 2008 that provides immunity from tort liability as it relates to smallpox. The PREP Act was amended in 2015 to extend protection for smallpox and other countermeasures from December 31, 2015 to December 31, 2022.
Foreign Regulation
As noted above, in addition to regulations in the United States, we might be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our drug candidates. Regardless of any FDA approval of a product, we may have to obtain approval of that product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The actual time required to obtain clearance to market a product in a particular foreign jurisdiction varies substantially, based upon the type, complexity and novelty of the pharmaceutical drug candidate, the specific requirements of that jurisdiction, and in some countries whether the FDA has previously approved the drug for marketing. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary from country to country. Certain foreign jurisdictions, including the European Union and Health Canada, have adopted certain biodefense-specific regulations akin to that available in the United States such as a procedure similar to the “Animal Rule” promulgated by the FDA for review and potential approval of biodefense products.
Regulations Regarding Government Contracting
The status of an organization as a government contractor in the United States and elsewhere means that the organization is also subject to various statutes and regulations, including the Federal Acquisition Regulation, which governs the procurement of goods and services by agencies of the United States. These governing statutes and regulations can impose stricter penalties than those normally applicable to commercial contracts, such as criminal and civil damages liability and suspension and debarment
14
from future government contracting. In addition, pursuant to various statutes and regulations, government contracts can be subject to unilateral termination or modification by the government for convenience in the United States and elsewhere, detailed auditing requirements, statutorily controlled pricing, sourcing and subcontracting restrictions and statutorily mandated processes for adjudicating contract disputes.
Availability of Reports and Other Information
We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Securities Exchange Act of 1934. The public may read and copy any material that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any document that we file with or furnish to the SEC at www.sec.gov.
In addition, our website can be found on the internet at www.siga.com. The website contains information about us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q, and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. To view the reports, access www.siga.com, click on “Investor Relations” and “Financial Information.”
The following corporate governance related documents are also available on our website:
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Audit Committee Charter;
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Compensation Committee Charter;
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Nominating and Corporate Governance Committee Charter;
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Code of Ethics and Business Conduct;
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Procedure for Sending Communications to the Board of Directors;
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Procedures for Security Holder Submission of Nominating Recommendations;
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Policy on Confidentiality of Information and Securities Trading; and
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Conflict of Interest Policy.
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To review these documents, access www.siga.com and click on “Investor Relations” and “Corporate Governance.”
Any of the above documents can also be obtained in print by any shareholder upon request to the Secretary, SIGA Technologies, Inc., 31 E 62nd Street, 5th floor, New York, New York 10065.
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Item 1A. Risk Factors
This report contains forward-looking statements and other prospective information relating to future events. These forward-looking statements and other information are subject to risks and uncertainties that could cause our actual results to differ materially from our historical results or currently anticipated results including the following:
Risks Related to Our Dependence on U.S. Government Contracts
U.S. government contracts require ongoing funding decisions by the government, and the majority of the potential revenue under the 19C BARDA Contract is tied to options which may or may not be exercised at the sole discretion of BARDA. Reduced or discontinued BARDA funding, or the non-exercise of contract options under the 19C BARDA contract, could cause our business, financial condition and operating results, to suffer materially.
The funding of government programs, which fund BARDA’s purchases under the 19C BARDA Contract, is subject to Congressional appropriations, generally made on a fiscal year basis even though a program may continue for several years. Our government customers are subject to political considerations and budgetary constraints. Our government customers are also subject to uncertainties as to continued funding of their budgets.
Additionally, government-funded contracts typically consist of a base period of performance and options for the performance of certain future activities. The value of goods and services subject to options may constitute the majority of the total value of the underlying contract, as in the case of the 19C BARDA Contract.
The 19C BARDA Contract is primarily option-based, with more than 80% of contract value tied to options which are exercisable in the sole discretion of BARDA. There is no guarantee that any options will be exercised, or how many options will be exercised. If some or all of the options under the 19C BARDA Contract are not exercised, whether because levels of government expenditures and authorizations for biodefense decrease or shift to programs other than those under which BARDA purchases are funded for any reason, our business, financial condition and operating results, our business development efforts or our product development efforts may suffer materially.
Government procurement contracts are mostly set at fixed prices and such pricing is based on estimates of the time, resources and expenses required to perform these contracts. If our estimates are not accurate, we may not be able to earn an adequate return or may incur a loss under these arrangements.
The remaining unexercised options under the 19C BARDA Contract are predominately fixed-price. We expect that our future contracts with the U.S. government for TPOXX® as well as contracts for other biodefense product candidates would also be fixed-price arrangements. Under a fixed-price contract, we are required to deliver our products at a fixed price regardless of the actual costs we incur and to absorb any costs incurred in satisfaction of our obligations. Estimating costs that are related to performance in accordance with contract specifications can be difficult, particularly where the period of performance is over several years. Our failure to anticipate technical problems, estimate costs accurately or control costs during performance of a fixed-price contract could reduce the profitability of such contract or cause a loss, which could in turn negatively affect our operating results.
We expect future operating revenues to come significantly from contracts with BARDA for the provision and maintenance of the U.S. Government’s stockpile of TPOXX®. If BARDA does not enter into additional contracts after the 19C BARDA Contract to maintain or expand the stockpile of TPOXX®, our long-term business, financial condition and operating results could be materially harmed.
The success of our business and our operating results for the foreseeable future will be substantially dependent on the U.S. government’s commitment to maintaining or expanding its stockpile of TPOXX®. Failure to secure and perform additional contracts after the 19C BARDA Contract to substantially maintain or expand the stockpile of TPOXX® could have a material adverse effect on our long-term business, financial condition and operating results. Additionally, the 19C BARDA Contract does not necessarily increase the likelihood that we will secure future comparable contracts with the U.S. government.
The success of our business with the U.S. government depends on our compliance with laws, regulations and obligations under our U.S. government contracts and various federal statutes and authorities.
Our business with the U.S. government is subject to specific procurement regulations and a variety of other legal and compliance obligations. These laws and rules include those related to:
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procurement integrity;
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rates and pricing of services and goods to be reimbursed by the U.S. government;
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export control;
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government security regulations;
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employment practices;
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protection of the environment;
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accuracy of records and the recording and reporting of costs; and
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foreign corrupt practices.
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Compliance with these obligations increases our performance and compliance costs. A finding that we have failed to comply with these regulations and requirements could lead to suspension or debarment, for cause, from government contracting or subcontracting for a period of time. The termination of a government contract or grant or relationship as a result of our failure to satisfy any of these obligations would have a material negative impact on our operations and harm our reputation and ability to procure other government contracts or grants in the future.
Unfavorable provisions in government contracts and grants, some of which may be customary, may harm our future business, financial condition and potential operating results.
Government contracts and grants customarily contain provisions that give the government substantial rights and remedies, many of which are not typically found in commercial contracts, including (but not limited to) provisions that allow the government to:
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terminate existing contracts or grants, in whole or in part, for any reason or no reason;
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unilaterally reduce or modify grants, contracts or subcontracts, including through the use of equitable price adjustments;
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cancel multi-year contracts or grants and related orders if funds for performance for any subsequent year become unavailable;
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decline to exercise an option to renew a contract or grant;
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exercise an option to purchase only the minimum amount specified in a contract or grant;
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decline to exercise an option to purchase the maximum amount specified in a contract or grant;
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claim rights to products, including intellectual property, developed under a contract or grant;
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take actions that result in a longer development timeline or higher costs than expected;
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suspend or debar the contractor from doing business with the government or a specific government agency due to regulatory or compliance failures;
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pursue criminal or civil remedies under the False Claims Act and the False Statements Accountability Act; and
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control or prohibit the export of products.
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Generally, government contracts contain provisions permitting unilateral termination or modification, in whole or in part, at the government’s convenience. Under general principles of government contracting law, if the government terminates a contract or grant for convenience, the terminated company may recover only its incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the government terminates a contract or grant for default, the defaulting company is entitled to recover costs incurred and associated profits on accepted items only and may be liable for excess costs incurred by
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the government in procuring undelivered items from another source. Our government contracts and grants, including the 19C BARDA Contract, could be terminated under these circumstances.
Some government contracts and grants permit the government the right to use, for or on behalf of the U.S. government, any technologies developed by the contractor under a government contract. For any technology we develop under a contract or grant with such a provision, we might not be able to prohibit third parties, including our competitors, from using that technology in providing products and services to the government.
Changing political or social factors and opposition, including protests and potential related litigation, may delay or impair our ability to market TPOXX® and any other biodefense product candidates and may require us to spend time and money to address these issues.
Products developed to treat diseases caused by or to combat the threat of bioterrorism or biowarfare will be subject to changing political and social environments. The political and social responses to bioterrorism and biowarfare have been unpredictable and much debated. Changes in the perception of the risk that military personnel or civilians could be exposed to biological agents as weapons of bioterrorism or biowarfare may delay or cause resistance to bringing investigational products to market or limit pricing or purchases of approved products, any of which could materially harm our business.
Lawsuits, publicity campaigns or other negative publicity may adversely affect the degree of market acceptance of, and thereby limit the demand for, TPOXX® and our biodefense product candidates. In such event, our ability to market and sell such products may be hindered, the commercial success of TPOXX® and other products we develop may be harmed and we may need to expend time, attention and resources addressing such legal or publicity issues, thereby reducing our revenues and having a material adverse impact on us.
A U.S. Government shutdown could negatively impact our business and liquidity
Each year, the U.S. Congress must pass all spending bills in the federal budget. If any such spending bill is not timely passed, a government shutdown may close many federally run operations, and halt work for federal employees unless they are considered essential or such work is separately funded by industry. If a government shutdown were to occur, we could experience a delay in contract funding decisions by the government. Additionally, we could be materially and permanently harmed by any prolonged government shutdown.
Risks Related to Sales of Biodefense Products to the U.S. Government
Our business could be adversely affected by a negative audit by the U.S. government.
U.S. government agencies such as the Defense Contract Audit Agency (the “DCAA”), routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts and grants, cost structure, and compliance with applicable laws, regulations and standards.
The DCAA also reviews the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any cost found to be improperly allocated to a specific contract will not be reimbursed, and such costs already reimbursed must be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including:
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termination of contracts;
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forfeiture of profits;
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suspension of payments;
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fines; and
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suspension, debarment or prohibition from doing business with the U.S. government.
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Such actions would also negatively affect our reputation.
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Laws and regulations affecting government contracts and grants might make it more costly and difficult for us to conduct our business.
We must comply with numerous laws and regulations relating to the formation, administration and performance of government contracts and grants, which can make it more difficult for us to retain our rights under these contracts. These laws and regulations affect how we do business with federal, state and local governmental agencies. Among the most significant government contracting regulations that affect our business are:
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the Federal Acquisition Regulation and other agency-specific regulations supplemental to the Federal Acquisition Regulation, which comprehensively regulate the procurement, formation, administration and performance of government contracts;
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the business ethics and public integrity obligations, which govern conflicts of interest and the hiring of
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former government employees, restrict the granting of gratuities and funding of lobbying activities and incorporate other requirements such as the Anti-Kickback Act and the Foreign Corrupt Practices Act;
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export and import control laws and regulations; and
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laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.
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Risks Related to Regulatory Approvals
If we are not able to obtain regulatory approvals for certain additional indications or formulations of TPOXX® from the FDA, we may not be able to realize the full benefits of any BARDA contracts and may not be able to commercialize such formulations or indications other than through sales to BARDA, and our ability to generate revenue could be materially impaired.
The development and full commercialization of additional indications or formulations of TPOXX® in the U.S., including the testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries and jurisdictions. We could fail to achieve FDA or other regulatory approval of certain indications or formulations of TPOXX®, or there could be delays in such approval of TPOXX®, or the approved version of TPOXX® may differ from expectations. Failure to obtain regulatory approval of certain indications or formulations for TPOXX® may prevent us from fully commercializing TPOXX® in the United States other than through sales to BARDA under Project BioShield or from commercializing TPOXX® in other countries at all, and delays or alterations to regulatory applications could also have a material adverse effect on the Company.
Failure to obtain regulatory approval in international jurisdictions could prevent us from marketing our products abroad.
To market our products in the European Union and many other foreign jurisdictions, we may need to obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval.
The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA. In addition, failure to obtain approval in one jurisdiction may impact our ability to obtain approval elsewhere. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any non-U.S. market. If we fail to obtain the non-U.S. approvals required to market our product candidates outside the United States or if we fail to comply with applicable non-U.S. regulatory requirements, our target market may be reduced and our ability to realize the full market potential of our product candidates may be harmed and our business, financial condition, results of operations and prospects may be adversely affected.
Risks Related to Commercial Activities
Because we must obtain regulatory clearance or otherwise operate under strict legal requirements in order to manufacture and market our products in the U.S., we cannot predict whether or when we will be permitted to commercialize our products other than the oral formulation of TPOXX® for smallpox antiviral treatment.
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While we have received FDA approval for oral TPOXX® for use in smallpox treatment, we have not received FDA approval for the IV formulation of TPOXX® or any other indications for TPOXX®. FDA approval is limited only to those conditions for which a product is demonstrated through clinical trials to be safe and efficacious as set forth in its approved product label. We cannot ensure that other formulations of TPOXX® or any other compound developed by us, alone or with others, will prove to be safe and efficacious in pre-clinical or clinical trials or animal efficacy studies, or that oral TPOXX® will prove to be safe and efficacious in pre-clinical or clinical trials or animal efficacy studies for other indications, nor whether all of the applicable regulatory requirements needed to receive full marketing clearance for other indications or other formulations will be met.
Our ability to grow our business may depend in part on our ability to achieve sales of TPOXX® to customers other than the U.S. government.
An element of our business strategy is to sell TPOXX® to customers other than the U.S. government. These potential customers include foreign governments, as well as state and local governments, non-governmental organizations focused on global health like the World Health Organization, health care institutions like hospitals (domestic and foreign) and certain large business organizations interested in protecting their employees against global threats and protecting first responders in cases of emergencies.
To the extent we seek such non-government sales in the U.S., we will need to meet additional regulatory requirements in light of the current labeling approved by the FDA for the Strategic Stockpile only.
The market for sales of TPOXX® to customers other than the U.S. government is undeveloped, and we may not be successful in generating meaningful sales of TPOXX®, if any, to these potential customers.
If we fail to increase our sales of TPOXX® to customers other than the U.S. government, our business and opportunities for growth could be limited.
If we are unable to expand our internal sales and marketing capabilities or enter into agreements with third parties with expertise in sales and marketing, we may be unable to generate cash flows from product sales to customers other than the U.S. government.
To achieve commercial success for any approved product, we may need to enhance our own sales and marketing capabilities, enter into collaborations with third parties able to perform these services or outsource these functions to third parties.
We recently entered into the International Promotion Agreement described under “Business”, pursuant to which we granted a third party, Meridian, exclusive rights to market, advertise, promote, offer for sale, or sell oral TPOXX® in all geographic regions except for the United States and South Korea (the “Territory”), and Meridian agreed not to commercialize any competing product, as defined in the International Promotion Agreement, in the specified field of use in the Territory. Our future revenues may depend heavily on the success of the efforts of Meridian pursuant to the International Promotion Agreement, which may not be successful.
In the United States and South Korean markets, we will retain sales and marketing rights with respect to oral TPOXX®. In these markets, we currently employ a small, targeted group to support development and business activities related to TPOXX®. For the South Korean market, we are continually assessing the best approach for business development. Even if we deem it necessary or advisable, we may have difficulty establishing relationships with third parties with respect to this market on terms that are acceptable to us or at all. For the United States market, we plan to continue our current approach for sales to the U.S. government of any other biodefense product candidates that we may successfully develop. If we are unable to adequately support our development and business activities in the United States, we may be unable to expand our sales of TPOXX® or other product candidates, which could have an adverse effect on our growth.
We may be required to perform additional clinical trials or change the labeling of TPOXX® if we or others identify side effects after we are on the market, which could harm future sales of such product.
If we or others identify side effects of any approved product, or if manufacturing problems occur:
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regulatory approval may be withdrawn;
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reformulation of our products, additional clinical trials or other testing or changes in labeling of our products may be required;
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changes to or re-approvals of manufacturing facilities used by SIGA may be required;
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sales of the affected products may drop significantly;
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our reputation in the marketplace may suffer; and
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lawsuits, including class action suits, may be brought against us.
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Any of the above occurrences could harm or prevent future sales of the affected product or could increase the costs and expenses of commercializing and marketing these products.
The biopharmaceutical market in which we compete and will compete is highly competitive.
The biopharmaceutical industry is characterized by rapid and significant technological change. Our success will depend on our ability to develop and apply our technologies in the design and development of our product candidates and to establish and maintain a market for our product candidates. In addition, there are many companies, both public and private, including major pharmaceutical and chemical companies, specialized biotechnology firms, universities and other research institutions engaged in developing pharmaceutical and biotechnology products. Many of these companies have substantially greater financial, technical, research and development resources, and human resources than us. Competitors may develop products or other technologies that are more effective than any that are being developed by us or may obtain FDA approval for products more rapidly than us. If we commence commercial sales of products, we still must compete in the manufacturing and marketing of such products, areas in which it is very difficult to succeed and in which we have limited experience and in which we are partially dependent on third parties. Many potential competitors have manufacturing facilities and established marketing capabilities that would enable such companies to market competing products through existing channels of distribution which could provide a substantial advantage.
Product liability lawsuits could cause us to incur liabilities, which could be substantial, and require us to limit commercialization of any products that we may develop.
We face an inherent business risk related to the sale of TPOXX® and any other products that we successfully develop and the testing of our product candidates in clinical trials.
TPOXX® is currently identified as a covered countermeasure under the PREP Act declaration issued in October 2008, as amended, which provides us with substantial immunity with respect to the manufacture, administration or use of TPOXX®. Under our BARDA Contracts, the U.S. government should indemnify us against claims by third parties for death, personal injury and other damages related to TPOXX®, including reasonable litigation and settlement costs, to the extent that the claim or loss results from specified risks not covered by insurance or caused by our grossly negligent or criminal behavior. The collection process under the PREP Act can be lengthy and complicated, and there is no guarantee that we will be able to recover these amounts from the U.S. government.
If we cannot successfully defend ourselves against future claims that our product or product candidates caused injuries and we are not entitled to or able to obtain indemnity by the U.S. government with respect to such claims, or if the U.S. government does not honor its indemnification obligations, we may incur liabilities, which could be substantial. Regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand for any product candidate or product that we may develop;
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injury to our reputation;
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withdrawal of a product from the market;
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costs and management time and focus to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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loss of revenue;
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harm to our reputation; and
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the inability to commercialize any products that we may develop.
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We currently have product liability insurance with coverage up to a $10 million annual aggregate limit and a $10 million per occurrence limit. The amount of insurance that we currently hold may not be adequate to cover all liabilities that may occur. Product liability insurance is difficult to obtain and increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to maintain or obtain insurance coverage that will be adequate to satisfy any liability that may arise.
Additionally, a successful product liability claim or series of claims brought against us could cause our stock price to fall, could decrease our financial resources and materially exhaust our existing insurance or limit our ability to obtain insurance going forward, all of which would materially adversely affect our business.
If we seek to sell TPOXX® to non-government customers, healthcare reform and controls on healthcare spending may limit the price we charge for our products and the amounts that we can sell.
There have been a number of legislative and regulatory proposals in the United States to change the health care system in ways that could affect our ability to sell our products profitably if we seek to sell TPOXX® to non-government customers. One enacted proposal, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Healthcare Reform Act”), substantially changed the way healthcare is financed by both governmental and private insurers and could have a substantial effect on the pharmaceutical industry. The Healthcare Reform Act contains a number of provisions, including those governing enrollment in federal healthcare programs like Medicare, reimbursement changes and rules protecting against fraud and abuse that will change existing healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program. If we obtain marketing approval for sale of TPOXX® beyond the Strategic Stockpile, it is possible that some of our revenue may be derived from governmental healthcare programs, including Medicare. Furthermore, beginning in 2011, the Healthcare Reform Act imposed a non-deductible excise tax on pharmaceutical manufacturers or importers who sell “branded prescription drugs,” which includes innovator drugs and biologics (excluding orphan drugs or generics) to U.S. government programs. The Healthcare Reform Act and other healthcare reform measures that may be adopted in the future could have an adverse effect on our industry generally and potential future sales and profitability of our current or future products specifically.
Laws and regulations governing international operations may preclude us from developing, manufacturing and selling certain product candidates outside of the United States and require us to revise and implement costly compliance programs.
If we expand our operations outside of the United States, we must comply with numerous laws and regulations relating to business operations in each jurisdiction in which we plan to operate. The creation and implementation of international business practices and compliance programs may be costly and such programs can be difficult to enforce, particularly where reliance on third parties is required.
The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the Company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the U.S. Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA.
If we expand our operations outside of the U.S., compliance with the FCPA may be expensive and can be difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical studies and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions. In addition, biodefense companies like SIGA often sell their products directly to foreign governments.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it may require us to dedicate additional resources to compliance with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.
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The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties that can be levied on the Company and its executives.
Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices could have a material negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on United States exchanges for violations of the FCPA’s accounting provisions.
Other countries such as the UK have anti-bribery laws similar to or more expansive in scope than the FCPA which may be applicable to our operations if we expand outside the U.S.
In connection with our International Promotion Agreement with Meridian, Meridian will serve as the entity that markets and promotes oral TPOXX® (except in the U.S. and South Korea) and will be the counterparty to any agreements with covered foreign jurisdictions. As such, Meridian will be responsible for anti-corruption compliance related to their activities.
Risks Related to Product Development
Growth of our business may be impacted significantly by our success in completing development and commercialization of drug candidates, or additional indications for TPOXX®. If we are unable to commercialize new drug candidates or additional indications, or experience significant delays in doing so, our business may be materially harmed.
We have invested a substantial amount of our efforts and financial resources in the development of our drug candidates. Our ability to generate near-term cash flows is primarily dependent on the success of our smallpox antiviral drug TPOXX®, which has only been approved by the FDA in oral form. The commercial success of our current and future drug candidates, or additional indications for TPOXX®, will depend on many factors, including:
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successful development, formulation and cGMP scale-up of drug manufacturing that meets FDA requirements;
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successful development of animal models;
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successful completion of non-clinical development, including studies in approved animal models;
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our ability to pay the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
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successful completion of clinical trials;
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receipt of marketing approvals from FDA for IV TPOXX® and similar foreign regulatory authorities;
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establishing arrangements on reasonable terms with suppliers and contract manufacturers;
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manufacturing stable commercial supplies of drug candidates, including availability of raw materials;
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launching commercial sales of the product, whether alone or in collaboration with others; and
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acceptance of the product by potential government customers, public health experts, physicians, patients, healthcare payors and others in the medical community.
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We may rely on FDA regulations known as the “Animal Rule” to obtain approval for most of our biodefense drug candidates. The Animal Rule permits the use of animal efficacy studies together with human clinical safety trials to support an application for marketing approval. These regulations are relied upon only occasionally. It is possible that results from these animal efficacy studies may not be predictive of the actual efficacy of our drug candidates in humans. If we are not successful in completing the development and commercialization of our drug candidates, whether due to our efforts or due to concerns raised by our governmental regulators or customers, our business could be materially adversely harmed.
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We may not be able to fully commercialize the IV formulation of TPOXX®, or other additional indications for TPOXX®, if our clinical trials do not demonstrate adequate safety or our animal studies do not demonstrate adequate efficacy.
Before obtaining regulatory approval for the sale of our drug candidates, extensive development is required. The goal of development is to use clinical studies to demonstrate the safety of our drug candidates and animal trials to demonstrate the efficacy of our drug candidates. Clinical trials and animal studies, and related work, are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials or animal efficacy studies will be successful, and interim results of a clinical trial or animal efficacy study do not necessarily predict final results.
A failure of one or more of our clinical trials or animal efficacy studies can occur at any stage of development. We may experience numerous unforeseen events during, or as a result of, pre-clinical testing and the clinical trial or animal efficacy study process that could delay or prevent our ability to receive regulatory approval or commercialize our drug candidates, including:
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regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may decide, or regulators may require us, to conduct additional pre-clinical testing or clinical trials, or we may abandon projects that we expect to be promising, if our pre-clinical tests, clinical trials or animal efficacy studies produce negative or inconclusive results;
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we might have to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks;
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regulators or institutional review boards may require that we hold, suspend or terminate clinical development for various reasons, including noncompliance with regulatory requirements;
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the cost of our clinical trials could escalate and become cost prohibitive;
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our governmental regulators may impose requirements on clinical trials, pre-clinical trials or animal efficacy studies that we cannot meet or that may prohibit or limit our ability to perform or complete the necessary testing in order to obtain regulatory approval;
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any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the product not commercially viable;
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we may not be successful in recruiting a sufficient number of qualifying subjects for our clinical trials; or
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the effects of our drug candidates may not be the desired effects or may include undesirable side effects or the drug candidates may have other unexpected characteristics; or
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the costs, regulations, or challenges associated with animal studies may increase and make our studies more difficult.
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IV TPOXX® is currently in product development and there can be no assurance of successful commercialization beyond the 19C BARDA contract.
The fact that the FDA has approved the oral formulation of TPOXX® does not guarantee that our approach to drug development will be effective or will result in the successful commercialization of any other drug, the IV formulation of TPOXX® or any new indication of TPOXX®. We cannot predict with certainty whether any other drug candidate or expanded indication resulting from our research and development efforts will be approved by the FDA.
All of our potential drug candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that our drug candidates will not or cannot:
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be shown to be safe, non-toxic and effective;
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otherwise meet applicable regulatory standards;
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receive the necessary regulatory approvals;
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develop into commercially viable drugs;
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be manufactured or produced economically and on a large scale;
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be successfully marketed;
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be paid for by governmental procurers or be reimbursed by governmental or private insurers; or
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achieve customer acceptance.
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In addition, third parties may seek to preclude us from marketing our drugs through enforcement of their proprietary or intellectual property rights that we are not aware of, or third parties may succeed in marketing equivalent or superior drug products that do not infringe our intellectual property. Our failure to develop safe, commercially viable future drug candidates or obtain approval for expanded indications and formulations of TPOXX® would have a material adverse effect on our ability to grow our business, and impair our financial condition and operations.
Risks Related to Our Dependence on Third Parties
If third parties on whom we rely for manufacturing and raw materials of TPOXX®, and managing our inventory, do not perform as contractually required or as we expect, we may not be able to successfully satisfy our obligations under the 19C BARDA Contract and our business would suffer.
We currently rely on third-party manufacturers and service providers to provide raw materials and manufacture, package, test and ship TPOXX®. Under the 19C BARDA Contract, we are responsible for the performance of these third-party contractors, and our contracts with these third parties give us certain supervisory and quality control rights, but we do not exercise day-to-day control over their activities.
Additionally, we may rely on a third-party provider, or multiple providers, to store a portion of the stockpile of IV TPOXX® under the 19C BARDA Contract, entrusting such vendor or vendors with the care and handling of a substantial portion of our inventory of IV TPOXX®.
If a third-party provider fails to comply with applicable laws and regulations, fails to meet expected deadlines, experiences shortages or delays, or otherwise does not carry out its contractual duties to us, or encounters physical damage or natural disaster or disruptions at its facilities, for example as a result of the coronavirus outbreak, our ability to meet our obligations under the 19C BARDA Contract could be significantly impaired. We do not currently have the internal capacity to perform these important functions, and we may not be able to maintain commercial arrangements for these services on reasonable terms.
Our reliance on third parties that we do not control does not relieve us of the responsibilities and requirements imposed by the 19C BARDA Contract. Third parties may not complete activities on schedule, or may not conduct trials in accordance with regulatory requirements or our stated protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of IV TPOXX® or other drug candidates.
Risks Related to Manufacturing and Manufacturing Facilities
Problems related to large-scale commercial manufacturing could cause us to delay product launches, an increase in costs or shortages of products.
Manufacturing API and finished drug products, especially in large quantities, is complex. Our drug candidates require several manufacturing steps at multiple facilities, and may involve complex techniques to assure quality and sufficient quantity, especially as the manufacturing scale increases. Our products must be made consistently and in compliance with a clearly defined manufacturing process. Accordingly, it is essential to be able to validate and control the manufacturing process to assure that it is reproducible. Slight deviations anywhere in the manufacturing process, including obtaining materials, filling, labeling, packaging, storage, shipping, quality control and testing, some of which all pharmaceutical companies, including SIGA, experience from time to time, may result in lot failures, delay in the release of lots, product recalls or spoilage. Success rates can vary dramatically at different stages of the manufacturing process, which can lower yields and increase costs. We may experience deviations in the manufacturing process that may take significant time and resources to resolve and, if unresolved, may affect manufacturing output and/or cause us to fail to satisfy contractual commitments, lead to delays in our clinical trials or result in litigation or regulatory
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action. Such actions would hinder our ability to meet contractual obligations and could cause material adverse consequences for our business.
If third parties do not manufacture our drug candidates or products in sufficient quantities and at an acceptable cost or in compliance with regulatory or contractual requirements and specifications, the fulfillment of contractual requirements under the 19C BARDA Contract, or any other procurement contract, or the development of our drug candidates could be delayed, prevented or impaired.
We currently rely on third parties to manufacture drug candidates, including TPOXX®. Any significant delay in obtaining adequate supplies of our drug candidates could adversely affect our ability to develop drug candidates or perform commercial contracts. If our contract manufacturers are unable to generate enough materials to meet commercial obligations or satisfy clinical needs, for example as a result of disruption resulting from the coronavirus outbreak, the success of drug products may be jeopardized. Our current and anticipated future dependence upon others for the manufacture of our drug candidates may adversely affect our ability to develop drug candidates and perform on commercial contracts on a timely and competitive basis. If our third-party manufacturers’ production processes malfunction or contaminate our drug supplies during manufacturing, we may incur significant inventory loss that may not be covered by our contractual provisions or insurance policies.
We currently rely on third parties to demonstrate regulatory compliance, for regulatory and science support and for quality assurance with respect to the drug candidates manufactured for us. We intend to continue to rely on these third parties for these purposes with respect to production of commercial supplies of drugs that we successfully develop. Manufacturers are subject to ongoing, periodic, unannounced inspection by the FDA and corresponding state and foreign agencies or their designees to ensure strict compliance with applicable laws and regulations.
We cannot be certain that our present or future manufacturers will be able to comply with these regulations and other FDA regulatory requirements or similar regulatory requirements outside the U.S. Our contracts and grants call for compliance with all applicable legal and regulatory requirements, however, we do not control third-party manufacturers and their methods for ensuring adherence to regulatory and legal standards. If we or these third parties fail to comply with applicable regulations, sanctions could be imposed on us which could significantly delay and adversely affect supplies of our drug candidates.
Our activities may involve hazardous materials, use of which may subject us to environmental regulatory liabilities.
Our biopharmaceutical research and development sometimes may involve the use of hazardous and radioactive materials and generation of biological waste. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and certain waste products. Although we believe that our CMO's safety procedures for handling and disposing of these materials comply with legally prescribed standards, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of an accident, we could be held liable for damages, and this liability could exceed our resources. We use through third parties, for example, small amounts of radioactive isotopes commonly used in pharmaceutical research, which are stored, used and disposed of in accordance with Nuclear Regulatory Commission regulations. Our general liability policy provides coverage up to annual aggregate limits of $2 million and coverage of $2 million per occurrence.
We believe that we are in compliance in all material respects with applicable environmental laws and regulations and currently do not expect to make material additional capital expenditures for environmental control facilities in the near term. However, we may have to incur significant costs to comply with current or future environmental laws and regulations.
Risks Related to Our Business
We could incur net losses in the future if options are not exercised under the 19C BARDA Contract.
While our current cash position is strong, our ability to continue to fund future operations will be substantially impacted by cash flows from the 19C BARDA Contract, which may not be sufficient if BARDA elects, in its sole discretion, not to exercise or to significantly delay exercise of some or all of the options under the 19C BARDA Contract. Given the nature of option-based government contracts, we cannot guarantee that we can sustain or enhance our current level of operations. Cash flows could fluctuate significantly and could be delayed from one quarter to another based on several factors. As such, if cash flows from the 19C BARDA Contract are different from expectations, or if operating expenses or other expenses exceed our expectations or cannot be adjusted accordingly, then our business, results of operations, and financial condition could be materially adversely affected.
26
Future acquisitions, strategic investments, partnerships or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our operating results and financial condition.
We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our services, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing businesses. In addition, we may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target or consummating any such agreement. Even if we do consummate an agreement, we may not be able to integrate successfully the acquired personnel, operations and technologies, or effectively manage the combined business following the acquisitions. Acquisitions could also result in dilutive issuances of equity securities or the issuance of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or a deficiency in our cyber-security.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Also, confidential patient and other information may be compromised in a cyber-attack or cyber-intrusion. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability, damage to our reputation, and the further development of our drug candidates could be delayed.
Global economic, infectious disease or climate-related matters could negatively impact our business.
Occurrence of a global infectious disease outbreak, such as coronavirus (COVID-19) or other climate-related disasters, could have a broad impact on global economic conditions, sourcing of raw materials and may impact our ability to promote our products successfully to international governments who may need to divert resources to address such matters.
The loss of key personnel or our ability to recruit or retain qualified personnel could adversely affect our results of operations.
We rely upon the ability, expertise, judgment, discretion, integrity and good faith of our senior management team. Our success is dependent upon our personnel and our ability to recruit and train high quality employees. We must continue to recruit, retain and motivate management and other employees sufficient to maintain our current business and support our projected growth. The loss of services of any of our key management could have a material adverse effect on our business.
Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel. The loss of the services of any key executive might impede the achievement of our research, development and commercial objectives. Replacing key employees may be difficult and time-consuming because of the limited number of individuals in our industry with the skills and experiences required to develop, gain regulatory approval of and commercialize our product candidates successfully. We generally do not maintain key person life insurance to cover the loss of any of our employees. Recruiting and retaining qualified scientific personnel, clinical personnel and business development personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms, if at all, given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from other companies, universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development, regulatory and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
27
We may have difficulty managing our growth.
Potential future growth could place a significant strain on our management and operations. Our ability to manage any future growth will depend upon our ability to broaden our management team and our ability to attract, hire and retain skilled employees. Our success will also depend on the ability of our officers and key employees to continue to implement and improve our operational and other systems and to hire, train and manage our employees.
Our ability to use our net operating loss carryforwards may be limited.
As of December 31, 2019, we had federal net operating loss carryforwards, or NOLs, of $38.2 million to offset future taxable income. The remaining federal NOLs expire in 2036, if not utilized. Under the provisions of the Internal Revenue Code, substantial changes in our ownership, in certain circumstances, will limit the amount of NOLs that can be utilized annually in the future to offset taxable income. In particular, section 382 of the Internal Revenue Code imposes a limitation on a company’s ability to use NOLs if the company experiences a more-than-50% ownership change over a three-year period. If we are limited in our ability to use our NOLs in future years in which we have taxable income, we may be required to pay more taxes than if we were able to utilize our NOLs fully.
Risks Related to Our Intellectual Property
Our ability to compete may decrease if we do not adequately protect our intellectual property rights.
Our commercial success will depend in part on our ability to obtain and maintain patent and intellectual property protection for our proprietary technologies, drug targets and potential products and to preserve our trade secrets and trademark rights. Because of the substantial length of time and expense associated with bringing potential products through the development and regulatory clearance processes to reach the marketplace, the pharmaceutical industry places considerable importance on obtaining patent and trade secret protection. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents worldwide has emerged to date. Accordingly, we cannot predict the type and breadth of claims allowed in patents covering our products.
SIGA exclusively owns its key patent portfolios, which relate to its leading drug candidate TPOXX® (also known as ST-246, tecovirimat). As of January 30, 2020, the TPOXX® patent portfolio has seven patent families consisting of 23 U.S. utility patents, 70 issued foreign patents, six U.S. utility patent applications, and 38 foreign patent applications.
We also rely on trade secrets, know-how, continuing technological innovation and licensing opportunities. In an effort to maintain the confidentiality and ownership of trade secrets and proprietary information, we require our employees, consultants and some collaborators to execute confidentiality and invention assignment agreements upon commencement of a relationship with us. These agreements may not provide meaningful protection for our trade secrets, confidential information or inventions in the event of unauthorized use or disclosure of such information, and adequate remedies may not exist in the event of such unauthorized use or disclosure.
If our technologies are alleged or found to infringe the patents or proprietary rights of others, we may be sued, we may have to pay damages or be barred from pursuing a technology, or we may have to license those rights and pay royalties to or from others on unfavorable terms. If we are sued, even if we prevail, such litigation may be costly.
Our commercial success will depend significantly on our ability to operate without infringing the patents or proprietary rights of third parties. Our technologies, or the technologies of third parties on which we may depend, may infringe the patents or proprietary rights of others. If there is an adverse outcome in any dispute concerning rights to these technologies, then we could be subject to significant liability, required to license disputed rights from or to other parties and/or required to cease using a technology necessary to carry out our research, development and commercialization activities.
If our patents are challenged and found to be invalid or unenforceable, the value of our products could be harmed, and we could be subject to competition earlier than we anticipated.
The costs to establish or defend against claims of infringement or interference with patents or other proprietary rights can be expensive, distracting and time-consuming, even if the outcome is favorable. An outcome of any patent or proprietary rights administrative proceeding or litigation that is unfavorable to us may have a material adverse effect on us. We could incur substantial costs if we are required to defend ourselves in suits brought by third parties or if we initiate such suits. We may not have sufficient
28
funds or resources in the event of litigation. Additionally, we may not prevail in any such action and such litigation often takes years to resolve creating business uncertainty if we are not able to resolve it quickly.
Any dispute resulting from claims based on patents and proprietary rights could result in a significant reduction in the coverage of the patents or proprietary rights owned, optioned by or licensed to us and limit our ability to obtain meaningful protection for our rights. If patents are issued to third parties that contain competitive or conflicting claims, we may be legally prohibited from researching, developing or commercializing potential products or be required to obtain licenses to these patents that carry royalty payments or to develop or obtain alternative technology. We may be legally prohibited from using technology owned by others, may not be able to obtain any license to the patents or technologies of third parties on acceptable terms, if at all, or may not be able to obtain or develop alternative technologies.
Furthermore, like many biopharmaceutical companies, we may from time to time hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities conducted by us. It is possible that we and/or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations.
Risks Related to Our Financial Position and Need for Additional Financing
We may need additional funding, which may not be available to us, and which may force us to delay, reduce or eliminate any of our product development programs or commercial efforts.
While we have raised funds through credit facilities and the issuance of new equity or the exercise of options or warrants in the past, there is no guarantee that we will continue to be successful in raising such funds should we need to seek to do so. If we are unable to raise additional funds, we could be forced to discontinue, cease or limit certain operations and equity investors could experience significant or total losses of their investments. Our cash flows may fall short of our projections or be delayed, or our expenses may increase, which could result in our capital being consumed significantly faster than anticipated.
Although our current cash position is strong, we may require additional financing and we may not be able to raise additional funds. If we are able to obtain additional financing through the sale of equity or convertible debt securities, such sales may contain terms, such as liquidation and other preferences that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that may not be favorable to us. Debt financing arrangements, if available, may require us to pledge certain assets or enter into covenants that could restrict our business activities or our ability to incur further indebtedness and may be at interest rates and contain other terms that are not favorable to our stockholders.
Indebtedness may make it more difficult to obtain additional financing or reduce our flexibility to act in our best interests, and default on our indebtedness would have a material adverse effect on our business, financial condition and results of operations.
The level of our indebtedness under our $80.0 million loan and security agreement dated September 2, 2016 (as amended from time to time, the "Loan Agreement") with OCM Strategic Credit SIGTEC Holdings, LLC ("Lender), could affect us by: making it more difficult to obtain additional financing for working capital, capital expenditures, debt service requirements or other purposes; shortening the duration of available revolving credit because lenders may seek to avoid conflicting maturity dates; constraining our ability to react quickly in an unfavorable economic climate or to changes in our business or the pharmaceutical industry; or potentially requiring the dedication of substantial amounts to service the repayment of outstanding debt, including periodic interest payments, thereby reducing the amount of cash available for other purposes. In addition, the Loan Agreement contains customary covenants which could impact our ability to obtain additional financing and restrict our flexibility in carrying out our business strategy.
Under the Loan Agreement, we are obligated to make periodic interest payments on the outstanding principal amount. Any accrued and unpaid interest or unpaid principal will be due on the maturity date of the loan (November 16, 2020). If we do not generate sufficient operating cash flows to fund these payments or obtain additional funding from external sources at acceptable terms, we may not have sufficient funds to satisfy our principal and interest payment obligations when those obligations are due, which would place us into default under the terms of the Loan Agreement (as further described below).
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants. These covenants, among other things, require a minimum cash balance throughout the term of the loan under the Loan Agreement and the achievement of regulatory milestones by certain dates, and contain certain limitations on the ability of the Company to incur unreimbursed research and development expenditures over a certain threshold, make capital expenditures over a certain threshold, incur indebtedness, dispose of assets outside of the ordinary course of business and enter into certain merger
29
or consolidation transactions. These covenants could impact our ability to obtain additional financing and restrict our flexibility in carrying out our business strategy.
The Loan Agreement includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) the material inaccuracy of representations or warranties made thereunder, (iii) non-compliance with covenants thereunder, (iv) non-payment of amounts due under, or the acceleration of, other material indebtedness of the Company and (v) bankruptcy or insolvency events. Such default would have a material adverse effect on our business, financial condition and results of operations. Upon the occurrence and during the continuance of an event of default under the Loan Agreement, the interest rate may increase by 2.00% per annum above the rate of interest otherwise in effect, and the Lender would be entitled to accelerate the maturity of the Company’s outstanding obligations thereunder. In addition, our indebtedness under the Loan Agreement is secured by a first priority lien on all of our existing and after-acquired property, including intellectual property. If we default on our obligations under the Loan Agreement, the Lender could foreclose on our assets.
We may issue additional debt or incur other types of indebtedness in the future, subject to compliance with the terms of the Loan Agreement, and such additional indebtedness may carry with it similar risks.
Risks Related to Our Common Stock
Our stock price is, and we expect it to remain, volatile, which could limit investors’ ability to sell stock at a profit.
The volatile price of our stock makes it difficult for investors to predict the value of their investments, to sell shares at a profit at any given time, or to plan purchases and sales in advance. A variety of factors may affect the market price of our common stock. These include, but are not limited to:
|
•
|
publicity regarding actual or potential clinical or animal test results relating to products under development by our competitors or us;
|
|
•
|
initiating, completing or analyzing, or a delay or failure in initiating, completing or analyzing, pre-clinical or clinical trials or animal trials or the design or results of these trials for products in development;
|
|
•
|
achievement or rejection of regulatory approvals for products in development by our competitors or us;
|
|
•
|
announcements of technological innovations or new commercial products by our competitors or us;
|
|
•
|
developments concerning our collaborations and supply chain;
|
|
•
|
regulatory developments in the United States and foreign countries;
|
|
•
|
economic or other crises and other external factors;
|
|
•
|
period-to-period fluctuations in our revenues and other results of operations;
|
|
•
|
changes in financial estimates by securities analysts; or
|
|
•
|
publicity or activity involving possible future acquisitions, strategic investments, partnerships or alliances.
|
Additionally, because the volume of trading in our stock fluctuates significantly at times, any information about us in the media or public domain may result in significant volatility in our stock price.
We will not be able to control many of these factors, and we believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.
In addition, the stock market in general, and the market for biotechnology companies in particular, has experienced extreme price and volume fluctuations that may have been unrelated or disproportionate to the operating performance of individual companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price could decline.
30
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who may cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline.
A future issuance of preferred stock may adversely affect the rights of the holders of our common stock.
Our certificate of incorporation allows our Board of Directors to issue up to 20,000,000 shares of preferred stock and to fix the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of these shares without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and could be adversely affected by, the rights of the holders of any preferred stock that we may issue in the future. The issuance of preferred stock, while providing desirable flexibility in connection with our future activities, could also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying, deferring or preventing a change of control.
Concentration of ownership of our capital stock could delay or prevent a change of control.
Our directors, executive officers and principal stockholders beneficially own a significant percentage of our common stock. As a result, these stockholders, if acting together, have the ability to influence the outcome of corporate actions requiring stockholder approval. Additionally, this concentration of ownership may have the effect of delaying or preventing a change of control of SIGA. As of February 24, 2020 , directors, executive officers and principal stockholders (excluding index funds) beneficially owned approximately 42% of our outstanding common stock. In addition to owning common stock of the Company, directors and certain executive officers have the right to acquire additional stock through the exercise or conversion of certain securities.
Our stock repurchase program could affect the price of our common stock and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock.
On March 5, 2020 our Board of Directors authorized a share repurchase program for up to $50 million of our common stock through December 31, 2021. This stock repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of our common stock and may be suspended or discontinued at any time, which could cause the market price of our common stock to decline. Repurchases pursuant to our stock repurchase program could affect the price of our common stock and increase its volatility. Important factors that could cause us to limit, suspend or delay the Company’s stock repurchases, without prior notice, and that could in any event impact on management’s exercise of its discretion as to the amount and timing of such repurchases include exercise of procurement options under government contracts, alternative opportunities for strategic uses of cash, the stock price of the Company’s common stock, market conditions, and other corporate liquidity requirements and priorities. The existence of our stock repurchase program could cause the price of our common stock to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our common stock. Additionally, repurchases under our stock repurchase program would diminish our cash reserves, which could impact our ability to pursue other opportunities, further develop our technology or adversely affect our operating results. There can be no assurance that any stock repurchases would enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased such shares. Any failure to repurchase shares could negatively impact our reputation and investor confidence in us and our stock price.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our headquarters are located in New York, NY and our research and development facilities are located in Corvallis, Oregon. In January 2013, we entered into a sublease for approximately 6,676 square feet with a related party to sublet office space in a New York, NY location to serve as our corporate headquarters. The sublease commenced in April 2013 and was scheduled to expire in 2020. In July 2017, we terminated this sublease. In May 2017, we entered into a new 10-year lease with a related party to let 3,200 square feet in New York, NY to serve as our new corporate headquarters.
In Corvallis, we lease approximately 10,276 square feet. Until its expiration on December 31, 2017, this facility was leased under an amended lease agreement signed in January 2007, and most recently changed through an addendum in April 2015. On November 3, 2017 we entered into a new lease for the same space which was scheduled to expire in December 2019. In the second quarter of 2019, we exercised the first renewal option which expires in December 2021. This lease has one remaining renewal option for three years.
Item 3. Legal Proceedings
From time to time, we may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although such claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of such current pending matters, if any, will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures
No disclosure is required pursuant to this item.
31
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Price Range of Common Stock
On March 22, 2018, the Company's common stock commenced trading on The Nasdaq Global Market under the symbol "SIGA." From March 20, 2015 through March 21, 2018, the Company's common stock had been traded on the OTC Pink Sheets. The Company's common stock traded under the symbol “SIGAQ” from March 20, 2015 until April 17, 2016, and since April 18, 2016, it has traded under the Symbol “SIGA.” From September 9, 1997 through September 2, 2009, the Company's common stock was traded on the Nasdaq Capital Market and from September 3, 2009 until March 19, 2015 it was traded on the Nasdaq Global Market under the symbol “SIGA.” Prior to September 9, 1997 there was no public market for our common stock.
The following table sets forth, for the periods indicated, the high and low sales prices for our common stock, as reported on The Nasdaq Global Market and OTC Pink Sheets, as applicable:
|
2019
|
High
|
|
Low
|
||||
|
First Quarter
|
$
|
8.09
|
|
|
$
|
5.52
|
|
|
Second Quarter
|
6.31
|
|
|
5.02
|
|
||
|
Third Quarter
|
6.08
|
|
|
4.92
|
|
||
|
Fourth Quarter
|
6.02
|
|
|
4.28
|
|
||
|
|
|
|
|
||||
|
2018
|
High
|
|
Low
|
||||
|
First Quarter
|
$
|
6.78
|
|
|
$
|
4.21
|
|
|
Second Quarter
|
7.54
|
|
|
5.72
|
|
||
|
Third Quarter
|
8.47
|
|
|
5.77
|
|
||
|
Fourth Quarter
|
7.94
|
|
|
4.68
|
|
||
As of February 18, 2020, the closing sale price of our common stock was $4.82 per share. There were 28 holders of record as of February 18, 2020. We believe that the number of beneficial owners of our common stock is substantially greater than the number of record holders, because a large portion of common stock is held in broker “street names.”
In March 2020, the Board of Directors authorized the repurchase of up to a total of $50 million of the Company’s common stock. The timing and actual number of shares repurchased will depend on a variety of factors, including: exercise of procurement options under government contracts, alternative opportunities for strategic uses of cash, the stock price of the Company’s common stock, market conditions, and other corporate liquidity requirements and priorities. Prior to executing any repurchases under this program, the Company’s current term loan would need to be fully repaid or its terms would need to be amended to allow for share repurchases. To date, no share repurchases have been made under this share repurchase program.
32
Performance Graph
The following line graph compares the cumulative total stockholder return through December 31, 2019, assuming reinvestment of dividends, by an investor who invested $100 on December 31, 2014 in each of (i) our common stock; (ii) the Nasdaq Composite; and (iii) the Nasdaq Biotech Composite.
|
|
|
|||||||||||||||||||||||
|
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
||||||||||||
|
SIGA Technologies, Inc.
|
|
$
|
100
|
|
|
$
|
29
|
|
|
$
|
200
|
|
|
$
|
337
|
|
|
$
|
515
|
|
|
$
|
332
|
|
|
NASDAQ Composite Index
|
|
$
|
100
|
|
|
$
|
106
|
|
|
$
|
114
|
|
|
$
|
146
|
|
|
$
|
140
|
|
|
$
|
189
|
|
|
NASDAQ Biotech Composite Index
|
|
$
|
100
|
|
|
$
|
111
|
|
|
$
|
87
|
|
|
$
|
106
|
|
|
$
|
96
|
|
|
$
|
119
|
|
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item concerning securities authorized for issuance under equity compensation plans is set forth in Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
33
Item 6. Selected Financial Data
The selected consolidated financial operating data for the years ended December 31, 2019, 2018 and 2017 and the consolidated balance sheet data as of December 31, 2019 and 2018 have been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected consolidated financial operating data for the years ended December 31, 2016 and 2015 and the consolidated balance sheet data as of December 31, 2017, 2016 and 2015 have been derived from applicable audited consolidated financial statements not included in this Annual Report on Form 10-K. The following table should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes to those statements included elsewhere in this Annual Report on Form 10-K.
|
|
Year Ended December 31,
|
||||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
||||||||||
|
|
(in thousands, except share and per share data)
|
||||||||||||||||||
|
Revenues
|
$
|
26,742
|
|
|
$
|
477,054
|
|
|
$
|
12,269
|
|
|
$
|
14,988
|
|
|
$
|
8,176
|
|
|
Cost of sales and supportive services
|
1,783
|
|
|
95,269
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
|
Selling, general and administrative
|
13,252
|
|
|
12,880
|
|
|
12,303
|
|
|
13,714
|
|
|
10,582
|
|
|||||
|
Research and development
|
13,303
|
|
|
13,016
|
|
|
16,680
|
|
|
19,711
|
|
|
13,131
|
|
|||||
|
Patent expenses
|
726
|
|
|
789
|
|
|
910
|
|
|
909
|
|
|
1,009
|
|
|||||
|
Litigation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,407
|
|
|||||
|
Lease termination
|
—
|
|
|
—
|
|
|
1,225
|
|
|
—
|
|
|
—
|
|
|||||
|
Interest on PharmAthene liability
|
—
|
|
|
—
|
|
|
—
|
|
|
11,669
|
|
|
—
|
|
|||||
|
(Loss) income from operations
|
(2,322
|
)
|
|
355,100
|
|
|
(18,849
|
)
|
|
(31,015
|
)
|
|
(30,953
|
)
|
|||||
|
Decrease (increase) in fair value of common stock warrants
|
5,091
|
|
|
(6,923
|
)
|
|
(4,739
|
)
|
|
(895
|
)
|
|
—
|
|
|||||
|
Interest expense, net
|
(15,770
|
)
|
|
(15,478
|
)
|
|
(14,758
|
)
|
|
(2,396
|
)
|
|
(267
|
)
|
|||||
|
Backstop fee
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,764
|
)
|
|
—
|
|
|||||
|
Other income, net
|
2,822
|
|
|
78,941
|
|
|
17
|
|
|
102
|
|
|
42
|
|
|||||
|
Reorganization items, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,717
|
)
|
|
(7,811
|
)
|
|||||
|
(Loss) income before income taxes
|
(10,178
|
)
|
|
411,640
|
|
|
(38,329
|
)
|
|
(39,685
|
)
|
|
(38,989
|
)
|
|||||
|
Benefit from (provision for) income taxes
|
2,937
|
|
|
10,168
|
|
|
2,094
|
|
|
(14
|
)
|
|
(462
|
)
|
|||||
|
Net (loss) income
|
$
|
(7,241
|
)
|
|
$
|
421,808
|
|
|
$
|
(36,235
|
)
|
|
$
|
(39,699
|
)
|
|
$
|
(39,451
|
)
|
|
Basic (loss) earnings per common share
|
$
|
(0.09
|
)
|
|
$
|
5.28
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.73
|
)
|
|
Diluted (loss) earnings per common share
|
$
|
(0.15
|
)
|
|
$
|
5.18
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.73
|
)
|
|
Weighted average common shares outstanding: basic
|
81,031,254
|
|
|
79,923,295
|
|
|
78,874,494
|
|
|
57,188,503
|
|
|
53,777,687
|
|
|||||
|
Weighted average common shares outstanding: diluted
|
82,175,023
|
|
|
82,708,472
|
|
|
78,874,494
|
|
|
57,188,503
|
|
|
53,777,687
|
|
|||||
|
Cash and cash equivalents and restricted cash
|
$
|
160,987
|
|
|
$
|
180,397
|
|
|
$
|
37,102
|
|
|
$
|
56,174
|
|
|
$
|
112,711
|
|
|
Total assets
|
198,566
|
|
|
203,444
|
|
|
144,670
|
|
|
160,982
|
|
|
185,733,000
|
|
|||||
|
Long-term obligations
|
2,930
|
|
|
76,811
|
|
|
71,891
|
|
|
66,801
|
|
|
332
|
|
|||||
|
Stockholders’ equity (deficiency)
|
97,784
|
|
|
102,915
|
|
|
(323,138
|
)
|
|
(287,418
|
)
|
|
(284,429
|
)
|
|||||
|
Net cash (used in) provided by operating activities
|
$
|
(18,204
|
)
|
|
$
|
68,871
|
|
|
$
|
(18,387
|
)
|
|
$
|
(116,813
|
)
|
|
$
|
11,109
|
|
34
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (filed with the SEC on March 5, 2019) for additional discussion of our financial condition and results of operations for the year ended December 31, 2017, as well as our financial condition and results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.
Overview
We are a commercial-stage pharmaceutical company focused on the health security market. Health security comprises countermeasures for biological, chemical, radiological and nuclear attacks (biodefense market), vaccines and therapies for emerging infectious diseases, and health preparedness. Our lead product is an oral formulation of TPOXX® (“oral TPOXX®”), an 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. Oral TPOXX® is a novel small-molecule drug that has been delivered to the U.S. Strategic National Stockpile (“Strategic Stockpile”) under the Project BioShield Act of 2004 (“Project BioShield”). Concurrent with the approval, the FDA granted the Company's request for a Priority Review Voucher (“PRV”). A PRV is a voucher that may be used to obtain an accelerated FDA review of a product candidate. On October 31, 2018, the Company sold its PRV for cash consideration of $80.0 million.
Lead Product-TPOXX®
19C BARDA Contract (2018 BARDA Contract)
On September 10, 2018, the Company entered into a contract with BARDA pursuant to which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the 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 advanced development of IV TPOXX®; post-marketing activities for oral and IV TPOXX®, and procurement activities. As of February 18, 2020, the contract with BARDA (as amended, modified, or supplemented from time to time, the "19C BARDA Contract" or “2018 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 $25.8 million of payments are related to exercised options and up to approximately $525.0 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. On May 20, 2019, an option for the manufacture and delivery of 363,070 courses of oral TPOXX® was modified to divide it into four procurement-related options. One of the four modified procurement-related options provides for the payment of $11.2 million for the procurement of raw materials to be used in the manufacture of at least 363,070 courses of oral TPOXX®. This option was exercised simultaneously with the aforementioned modification. Each of the other three options individually specifies the delivery of approximately 121,000 courses of oral TPOXX® for consideration of approximately $33.8 million. In total, the four options under the May 2019 modification provide for the purchase of raw material for and the manufacture and delivery of 363,070 courses of oral TPOXX® for consideration of approximately $112.5 million. The option modification did not change the overall total potential value of the 19C BARDA Contract, nor did it change the total amount to be paid in connection with the manufacture and delivery of oral TPOXX® courses.
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 December 31, 2019, the Company had received $11.1 million for the successful delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the manufacture of IV BDS and $4.7 million for other base period activities. IV BDS is expected to be used for the manufacture of 20,000 courses of IV FDP. The $3.2 million received for the manufacture of IV BDS has been recorded as deferred revenue as of December 31, 2019 and 2018; such amount is expected to be recognized as revenue when IV TPOXX containing the BDS is delivered to the National Stockpile or placed in vendor-managed inventory.
35
The options that have been exercised to date provide for additional potential payments up to approximately $25.8 million. There are exercised options for the following activities: payments up to $11.2 million for the procurement of raw materials to be used in the manufacture of at least 363,070 courses of oral TPOXX®; and, payments of up to $14.6 million for funding of post-marketing activities for oral TPOXX®, of which, $2.3 million had been received as of December 31, 2019.
Unexercised options specify potential payments up to approximately $525.0 million in total (if all options are exercised). There are options for the following activities: payments of up to $439.0 million for the delivery of up to approximately 1,452,000 courses of oral TPOXX® to the Strategic Stockpile; payments of up to $76.8 million for the manufacture of up to 192,000 courses of IV FDP, of which up to $30.7 million of payments would be paid upon 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 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 make independent exercise decisions. If BARDA decides to only exercise IV BDS Options, then the Company would receive payments up to $30.7 million; alternatively, if BARDA decides to exercise both IV BDS Options and IV FDP Options, then the Company would receive payments up to $76.8 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.
2011 BARDA Contract
On May 13, 2011, the Company signed a contract with BARDA pursuant to which BARDA agreed to buy from the Company 1.7 million courses of oral TPOXX®. Additionally, the Company agreed to contribute to BARDA 300,000 courses at no additional cost to BARDA.
The contract with BARDA (as amended, modified, or supplemented from time to time the "2011 BARDA Contract”) includes a base contract, as modified, (“2011 Base Contract”) as well as options. The 2011 Base Contract specifies approximately $508.4 million of payments (including exercised options), of which, as of December 31, 2019, $459.8 million has been received by the Company for the manufacture and delivery of 1.7 million courses of oral TPOXX® and $44.9 million has been received for certain reimbursements in connection with development and supportive activities. Approximately $3.7 million remains eligible to be received in the future for reimbursements of development and supportive activities.
For courses of oral TPOXX® that have been physically delivered to the Strategic Stockpile under the 2011 BARDA Contract, there are product replacement obligations, including: (i) a product replacement obligation in the event that the final version of oral TPOXX® approved by the FDA was different from any courses of oral TPOXX® that had been delivered to the Strategic Stockpile (the "FDA Approval Replacement Obligation"); (ii) a product replacement obligation, at no cost to BARDA, in the event that oral TPOXX® is recalled or deemed to be recalled for any reason; and (iii) a product replacement obligation in the event that oral TPOXX® does not meet any specified label claims. On July, 13, 2018, the FDA approved oral TPOXX® for the treatment of smallpox and there was no difference between the approved product and courses in the Strategic Stockpile. As such, the possibility of the FDA Approval Replacement Obligation resulting in any future replacements of product within the Strategic Stockpile is remote.
The 2011 BARDA Contract includes options. On July 30, 2018, the 2011 BARDA Contract was modified and BARDA exercised its option relating to FDA approval of 84-month expiry for oral TPOXX® for which the Company was paid $50.0 million in August 2018. With the option exercise, the 2011 BARDA Contract was modified so that the 2011 Base Contract increased by $50.0 million. Remaining options, if all would be exercised by BARDA, would result in aggregate payments to the Company of $72.7 million, including up to $58.3 million of funding for development and supportive activities such as work on a post-exposure prophylaxis ("PEP") indication for TPOXX® and/or $14.4 million of funding for production-related activities related to warm-base manufacturing. BARDA may choose in its sole discretion not to exercise any or all of the unexercised options. In 2015, BARDA exercised two options related to extending the indication of the drug to the geriatric and pediatric populations. The stated value of those exercises was minimal.
The 2011 BARDA Contract expires in September 2020.
36
International Promotion Agreement for oral TPOXX®
On June 3, 2019, the Company entered into an international promotion agreement with Meridian Medical Technologies, Inc. (“Meridian”), a Pfizer company (the “International Promotion Agreement”).
Under the terms of the International Promotion Agreement, Meridian has been 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 and South Korea (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 will retain ownership, intellectual property, distribution and supply rights and regulatory responsibilities in connection with TPOXX®, and, in the United States and South Korean markets, will retain sales and marketing rights with respect to oral TPOXX®. SIGA’s consent shall be required for the entry into any sales arrangement pursuant to the International Promotion Agreement.
The International Promotion Agreement did not provide for any cash payments at signing, and each party is responsible for the costs and expenses associated with its activities. The fee Meridian retains pursuant to the International Promotion Agreement will be a specified percentage of the collected proceeds of sales of oral TPOXX® net of certain expenses, for years in which customer invoiced 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 years in which such net invoiced amounts exceed the specified threshold.
The International Promotion Agreement provides for an initial term of five years, and automatic renewals for successive three-year terms unless (i) either party provides the other party with written notice of non-renewal prior to the end of the initial term or any renewal term or (ii) the International Promotion Agreement is earlier terminated in accordance with its terms. Either party may terminate the agreement immediately by written notice in connection with certain customary events. Either party shall have the right to terminate the agreement (overall and on a country-by-country basis) in the event of an uncured material breach. The Company shall have the right to terminate the agreement (i) as to certain countries on a country-by-country basis in the event Meridian does not promote oral TPOXX® in the subject country for a period of time, or (ii) in certain other limited circumstances. Meridian shall have the right to terminate the Agreement (overall or on a country-by-country basis) without cause subject to a prior written notice period.
The International Promotion Agreement also contains customary representations, warranties and covenants, including provisions related to regulatory matters, reporting obligations, indemnity, limitation of liability, confidentiality and other matters.
On December 5, 2019 SIGA announced that the Canadian Department of National Defence ("CDND") issued an advanced contract award notice ("ACAN"), indicating that the CDND intends to purchase up to 15,235 courses of oral TPOXX® over four years as specified in the ACAN, with an initial purchase of 2,500 courses. Meridian would be the counterparty of any contract award issued by the Canadian government and SIGA would be responsible for the manufacture and delivery of product.
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 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. Our most critical accounting estimates include revenue recognition, the valuation of warrants granted or issued by us, and income taxes (including realization of deferred tax assets).
Revenue Recognition
All of our revenue is derived from long-term contracts that can span multiple years. We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The unit of account in ASC 606 is a performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time.
Substantially all of our revenue associated with research and development performance obligations is recognized over time. Because control transfers over time with these performance obligations, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for performance obligations connected with research and development activities because it best depicts the transfer of
37
control to the customer, which occurs as we incur costs under our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to fully satisfy the performance obligation. Contract costs include labor, material, overhead and third-party services. Any loss on a research and development performance obligation would be recognized at the point in time that it became probable that a loss was going to be incurred.
Revenue under the 2011 BARDA Contract (see Note 3 to the consolidated financial statements) connected with courses of oral TPOXX® that are manufactured and delivered to the Strategic Stockpile and related services, milestones and advance payments (activities in combination that constitute one performance obligation) has been recognized at a point in time. Revenue associated with this performance obligation was recognized when BARDA obtained control of the asset, which was upon delivery to and acceptance by the customer and at the point in time when the constraint on the consideration was resolved due to FDA approval of oral TPOXX®. The consideration, which is variable, was constrained until the FDA approved oral TPOXX® for the treatment of smallpox on July 13, 2018. Prior to FDA approval, consideration had been constrained because the possibility of the FDA Approval Replacement Obligation (as defined herein) had not been quantified or specified. Following FDA approval, the possibility of having to replace product pursuant to the FDA Approval Replacement Obligation was essentially eliminated and deemed to be remote since there is no difference between the approved product and the courses of oral TPOXX® that had been delivered to the Strategic Stockpile. As a result, the deferred revenue associated with the performance obligation was recorded as product sales and supportive services for the year ended December 31, 2018.
Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and costs to satisfy the obligations is complex, subject to many variables and requires significant judgment. The consideration associated with these types of performance obligations is considered variable. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur and when any uncertainty associated with variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our historical and anticipated performance, external factors, trends and all other information (historical, current and forecasted) that is reasonably available to us.
Contracts are often modified to account for additional services to be performed. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations, or changes existing enforceable rights and obligations. If the effect of a contract modification on the transaction price changes our measure of progress for the performance obligation to which it relates, the impact will be recognized in the period of modification as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.
We have a process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management’s judgment about the ability and cost to achieve the schedule, technical requirements and other contract requirements. Management must make assumptions and estimates regarding labor productivity, the complexity of the work to be performed, customer behavior and execution by our subcontractors, among other variables.
Based on this analysis, any quarterly adjustments to revenues, research and development expenses and cost of sales and supportive services are recognized as necessary in the period they become known. Changes in estimates of revenues, research and development expenses and cost of sales and supportive services are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations.
Income Taxes
Our income tax expense and, deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid. We are subject to US federal income tax and state income tax in numerous jurisdictions. Significant judgments and estimates are required in the determination of our income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. Each reporting period, we assess the realizability of our deferred tax assets to determine if the deductible temporary differences will be utilized on a more-likely-than-not basis. In making this determination, we assess all available positive and negative evidence to determine if our existing deferred tax assets are realizable on a more-likely-than-not basis. Significant weight is given to positive and negative evidence that is objectively verifiable. We consider the reversal of existing taxable temporary differences, projected future taxable income, tax
38
planning strategies and recent financial operating results. The realization of a deferred tax asset is ultimately dependent on our generation of sufficient taxable income within the available net operating loss carryback and/or carryforward periods to utilize the deductible temporary differences. During the year ended December 31, 2018, we received FDA approval and recorded revenue related to the delivery of our oral TPOXX® product. We also recorded revenue related to the FDA holdback payment and the payment for 84-month expiry for oral TPOXX®. In addition, we entered into a new contract with BARDA for the sale of up to 1.7 million courses of TPOXX®. Based on these factors, we determined that sufficient positive evidence existed to conclude that substantially all of our deferred tax assets were realizable on a more-likely-than-not basis.
The amount of deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the net operating loss carryforward period change and/or if significant objective negative evidence is no longer present. Such changes could lead to a change in judgment related to the realization of the net deferred tax asset. Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our financial statements in the period the estimate is changed with a corresponding adjustment to operating results.
Income tax benefits are recognized for a tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. As of December 31, 2019, we recorded an uncertain tax position attributable to a reduction related to state net operating loss carryforwards. In the event that we conclude that we are subject to interest and/or penalties arising from uncertain tax positions, we will present interest and penalties as a component of income taxes.
Warrant Liability
We account for warrants in accordance with the authoritative guidance which requires that free-standing derivative financial instruments with certain cash settlement features be classified as assets or liabilities at the time of the transaction, and recorded at their fair value. Fair value is estimated using a model-derived valuation. Determining the fair value for warrants includes the expected volatility of our stock. Any changes in the fair value of the warrants are reported in earnings or loss as long as they are classified as assets or liabilities.
Recently Issued Accounting Pronouncements
For discussion regarding the impact of accounting standards that were recently issued but are not yet effective, on our consolidated financial statements, see Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements.
39
Results of Operations for the Years ended December 31, 2019 and 2018
Revenues from product sales and supportive services for the years ended December 31, 2019 and 2018 were $11.2 million and $468.9 million, respectively. Such revenues for the year ended December 31, 2019 were associated with the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile under the 19C BARDA Contract. Such revenues for the year ended December 31, 2018 were primarily associated with revenue recognition in such period of all cash consideration received in periods prior to FDA approval of oral TPOXX® under the 2011 BARDA Contract that was related to the delivery to the Strategic Stockpile of courses of oral TPOXX® and related services, milestones and advance payments ($375.6 million in total). In prior periods, those receipts had been deferred on the balance sheet since revenue recognition had been constrained by the possibility of a product replacement obligation being applicable. Following FDA approval of oral TPOXX® in the third quarter 2018, the possibility of replacement had been quantified and deemed to be remote, thus resulting in the recognition of revenues that previously had been deferred. In addition to the above-mentioned amounts, 2018 product sale revenues also included $91 million received in the third quarter of 2018 under the 2011 BARDA Contract including a $41 million holdback payment and a $50 million payment for achieving 84-month expiry for oral TPOXX® (see Note 3 to the consolidated financial statements for further detail on these payments).
Revenues from research and development contracts and grants for the years ended December 31, 2019 and 2018, were $15.6 million and $8.1 million, respectively. The increase of $7.5 million, or 91.2%, partially reflects the conclusion of historical rate reconciliations under the IV Formulation R&D Contract and a change in the projected amount of contract funding expected to be available for future activities under the IV Formulation R&D Contract. Such events impacted the progress-towards-completion calculation as required under ASC 606, and resulted in a cumulative catch-up adjustment to revenue of approximately $3.3 million. The revenue increase is also attributable to an increase in reimbursed post-marketing activities for oral TPOXX® and an increase in the scale and scope of reimbursed IV TPOXX® development activities. The increase in oral TPOXX® activities increased revenues by $2.1 million and the increase in IV TPOXX® activities increased revenues by $2.1 million.
Cost of sales and supportive services for the years ended December 31, 2019 and 2018 were $1.8 million and $95.3 million, respectively. Such costs in 2019 were associated with the delivery of approximately 35,700 courses of oral TPOXX® during the year ended December 31, 2019. In contrast, following FDA approval on July 13, 2018, all costs incurred in previous periods which had been deferred in connection with the deferral of related revenues were recognized in 2018.
Selling, general and administrative expenses for the years ended December 31, 2019 and 2018 were $13.3 million and $12.9 million, respectively, reflecting an increase of $0.4 million, or 2.9%. The increase is primarily attributable to an approximate $0.5 million increase in equity compensation expense and an approximate $0.2 million increase in consulting and professional service costs, partially offset by lower cash compensation costs of approximately $0.1 million as well as the non-recurrence of Nasdaq application fees that were incurred in 2018.
Research and development expenses were $13.3 million for the year ended December 31, 2019, an increase of approximately $0.3 million, or 2.2% from the $13.0 million incurred during the year ended December 31, 2018. The increase is primarily attributable to a $0.3 million increase in direct vendor-related expenses supporting the development of IV and oral TPOXX® as well as a $0.2 million increase in FDA annual fees, partially offset by a decrease of $0.4 million in compensation expense. Compensation expense decreased primarily as a result of the vesting of one-time equity grants in 2018 in connection with the FDA approval of oral TPOXX®.
Patent expenses for the years ended December 31, 2019, and 2018 were $0.7 million and $0.8 million, respectively. These expenses reflect our ongoing efforts to protect our lead drug candidates in varied geographic territories.
Interest expense on the term loan facility under the Loan Agreement (the "Term Loan") for the year ended December 31, 2019 was $15.8 million, an increase of approximately $0.3 million from the $15.5 million incurred during the year ended December 31, 2018. The $15.8 million of interest for the year ended December 31, 2019 includes $4.5 million of accretion of unamortized costs and fees related to the Term Loan balance. The $15.5 million of interest for the year ended December 31, 2018 includes $4.5 million of accretion of unamortized costs and fees related to the Term Loan balance.
Changes in the fair value of liability classified warrants to acquire common stock were recorded within the income statement. For the year ended December 31, 2019, we recorded a gain of approximately $5.1 million reflecting a decrease in the fair value of the liability-classified warrant primarily due to the decrease in our stock price. For the year December 31, 2018, we recorded a loss of approximately $6.9 million reflecting an increase in fair value of liability-classified warrant primarily due to an increase in the price of our common stock.
40
Other income, net for the years ended December 31, 2019 and 2018 was $2.8 million and $78.9 million, respectively. Other income for 2019 reflects interest income on the Company's cash balance held in restricted and unrestricted accounts. Other income for 2018 reflects the sale of our PRV for $80.0 million, net of related expenses as well as interest income on cash accounts. See Note 4 to the consolidated financial statements regarding the PRV transaction.
For the year ended December 31, 2019, we recognized a tax benefit of $2.9 million on pre-tax loss of $10.2 million. Our effective tax rate for the year ended December 31, 2019 was 28.9%. For the year ended December 31, 2019, our effective tax rate differs from the statutory rate of 21% primarily as a result of a non-taxable adjustment for the fair market value of the Warrant, partially offset by non-deductible executive compensation under IRC Section 162(m).
FASB Accounting Standards Codification Topic 740, Income Taxes ("ASC 740") requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. At each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. During the year ended December 31, 2018, we received FDA approval and recorded revenue related to the previous delivery of our oral TPOXX® product. We also recorded revenue related to the FDA holdback payment and the payment for 84-month expiry of oral TPOXX®. In addition, we entered into a new contract with BARDA for the purchase of up to 1.7 million courses of TPOXX®. Based on these factors, we determined that sufficient positive evidence existed to conclude that substantially all of our deferred tax assets were realizable on a more-likely-than-not basis.
For the year ended December 31, 2018, we recognized a tax benefit of approximately $10.2 million on a pre-tax income of $411.6 million. Our effective tax rate for the year ended December 31, 2018 was 2.5%. During 2018, we recognized a benefit of approximately $25.8 million primarily related to the Company's assessment that our deferred tax assets are realizable on a more-likely-than-not basis and the resulting reduction of the related valuation allowance. Our effective tax rate for the year ended December 31, 2018 differs from the statutory rate primarily as a result of the reduction of the valuation allowance.
Liquidity and Capital Resources
As of December 31, 2019, we had $65.2 million in cash and cash equivalents, compared with $100.7 million at December 31, 2018. Additionally, as of December 31, 2019, we had $95.7 million of restricted cash and cash equivalents compared with $79.7 million at December 31, 2018. The restricted cash and cash equivalents are available to pay interest, fees and principal on the Term Loan.
The cash and cash equivalents balance in the restricted account increased from $79.7 million to $100.5 million, as of July 24, 2019, in connection with an amendment to the Term Loan that allowed the Company to diversify the financial institutions at which its remaining unrestricted cash and cash equivalents are held. The remaining balance in the restricted account represents an approximation of total payments that would be required pursuant to the Term Loan if it were to remain outstanding until its maturity.
Operating Activities
We prepare our consolidated statement of cash flows using the indirect method. Under this method, we reconcile net (loss) income to cash flows from operating activities by adjusting net (loss) income 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 and changes in the fair value of our warrant liability; gains and losses from various transactions and changes in the consolidated balance sheet for working capital from the beginning to the end of the period.
Net cash (used in) provided by operations for the years ended December 31, 2019 and 2018 was $(18.2) million and $68.9 million, respectively. For the year ended December 31, 2019, we incurred $11.3 million of cash interest expense on the Term Loan and used approximately $10.6 million in support of ordinary course working capital (accounts receivable, accounts payable, prepaids, among other items). Additionally, cash was used for customary operating activities. These cash uses were partially offset by the receipt of approximately $11.1 million from BARDA for product delivery; $15.5 million from R&D contracts; and $2.8 million of interest income. For the year ended December 31, 2018, the primary sources of cash inflows were a $41.0 million holdback payment under the 2011 BARDA Contract (see Note 3 to the consolidated financial statements) and a $50.0 million payment from BARDA in connection with a modification made to the 2011 BARDA Contract, in which BARDA exercised an option relating to FDA approval of 84-month expiry for oral TPOXX®. These receipts were partially offset by net operating costs and $11.0 million of cash interest expense on the Term Loan.
41
On December 31, 2019 and 2018, our accounts receivable balance was approximately $4.2 million (which includes approximately $1.0 million of unbilled receivables) and $2.0 million, respectively. Our accounts receivable balances primarily reflect work that is reimbursable by BARDA and was performed during December 31, 2019 and 2018, respectively, in connection with TPOXX®.
Investing Activities
Net cash (used in) provided by investing activities for the years ended December 31, 2019 and 2018 was $(29,094) and $78.2 million, respectively. In 2019, net cash used related to capital expenditures. In 2018, we received net proceeds of approximately $78.3 million related to the sale of our PRV.
Financing Activities
Net cash used in financing activities for the years ended December 31, 2019 and 2018 was $1.2 million and $3.8 million, respectively. For the year ended December 31, 2019, $1.2 million was attributable to the payment of tax obligations for employee common stock tendered. For the year ended December 31, 2018, approximately $4.1 million was attributable to the payment of tax obligations for employee common stock tendered, partially offset by $0.3 million of proceeds received from option exercises.
42
Contractual Obligations, Commercial Commitments and Purchase Obligations
Future contractual obligations and commercial commitments as of December 31, 2019 are expected to be as follows:
|
|
Total
|
|
Less than 1 year
|
|
1 to 3 years
|
|
3 to 5 years
|
|
Greater than 5 years
|
||||||||||
|
Operating lease obligations (1)
|
$
|
3,300,386
|
|
|
$
|
542,340
|
|
|
$
|
968,829
|
|
|
$
|
806,336
|
|
|
$
|
982,881
|
|
|
Term loan obligations at maturity
|
84,000,000
|
|
|
84,000,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
|
Interest payment obligations on the Term Loan (2)
|
10,516,596
|
|
|
10,516,596
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
|
Purchase obligations (3)
|
26,787,677
|
|
|
25,715,897
|
|
|
575,326
|
|
|
379,189
|
|
|
117,265
|
|
|||||
|
Payments under Lease Termination Agreement
|
231,102
|
|
|
231,102
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
|
Total contractual obligations
|
$
|
124,835,761
|
|
|
$
|
121,005,935
|
|
|
$
|
1,544,155
|
|
|
$
|
1,185,525
|
|
|
$
|
1,100,146
|
|
|
(1)
|
Includes facilities and office space under two operating leases expiring in 2021 and 2027, respectively. These obligations assume non-termination of agreements and represent expected payments, which are subject to change.
|
|
(2)
|
Includes amounts to be paid with restricted cash. Assumes cash interest rate of 13.4% (the rate at December 31, 2019) throughout the duration of the Term Loan.
|
|
(3)
|
Includes purchase orders for manufacturing and R&D activities.
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our investment portfolio includes cash and cash equivalents. Our main investment objective is the preservation of investment capital. 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. As such, we believe that, the securities we hold are subject to market risk, 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. Additionally, we are also subject to the risk of rising LIBOR rates; whenever the minimum rates for one-month, two-month, three-month and six-month LIBOR rates (“minimum LIBOR rate”) are above 1%, then the interest rate charged on the Term Loan could increase materially depending on the magnitude of any increase in LIBOR rates. For every increase of 0.5% in the minimum LIBOR rate (e.g., an increase from a LIBOR rate of 1.50% to 2.00%), annual interest payments on the Term Loan would increase by approximately $0.4 million. Furthermore, we are subject to the impact of stock price fluctuations of our common stock in that we have a liability-classified warrant in which 1.5 million shares of SIGA common stock can be purchased at a strike price of $1.50 per share. For every $1 increase in the stock price of SIGA, the intrinsic value of the liability-classified warrant will increase by approximately $1.5 million.
43
Item 8. Financial Statements and Supplementary Data
Index to the Consolidated Financial Statements
|
|
|
|
|
|
|
Consolidated Statements of Operations and Comprehensive Income (Loss)
|
|
|
|
|
|
Consolidated Statements of Changes in Stockholders’ Equity/(Deficiency)
|
|
|
|
|
|
|
|
44
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of SIGA Technologies, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of SIGA Technologies, Inc. and its subsidiary (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive income (loss), of changes in stockholders' equity/(deficiency) and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers and the manner in which it accounts for the classification and presentation of restricted cash in the consolidated statement of cash flows in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
45
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 5, 2020
We have served as the Company’s auditor since 1997.
46
SIGA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
As of
|
|
December 31, 2019
|
|
December 31, 2018
|
||||
|
ASSETS
|
|
|
|
||||
|
Current assets
|
|
|
|
||||
|
Cash and cash equivalents
|
$
|
65,249,072
|
|
|
$
|
100,652,809
|
|
|
Restricted cash and cash equivalents, short-term
|
95,737,862
|
|
|
11,452,078
|
|
||
|
Accounts receivable
|
4,167,996
|
|
|
1,959,133
|
|
||
|
Inventory
|
9,652,855
|
|
|
2,908,210
|
|
||
|
Prepaid expenses and other current assets
|
5,234,000
|
|
|
4,317,615
|
|
||
|
Total current assets
|
180,041,785
|
|
|
121,289,845
|
|
||
|
|
|
|
|
||||
|
Property, plant and equipment, net
|
2,618,303
|
|
|
171,274
|
|
||
|
Restricted cash and cash equivalents, long-term
|
—
|
|
|
68,292,023
|
|
||
|
Deferred tax asset, net
|
14,151,002
|
|
|
11,733,385
|
|
||
|
Goodwill
|
898,334
|
|
|
898,334
|
|
||
|
Other assets
|
856,766
|
|
|
1,058,880
|
|
||
|
Total assets
|
$
|
198,566,190
|
|
|
$
|
203,443,741
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
||||
|
Current liabilities
|
|
|
|
||||
|
Accounts payable
|
$
|
3,054,032
|
|
|
$
|
1,688,488
|
|
|
Accrued expenses and other current liabilities
|
8,636,911
|
|
|
9,648,917
|
|
||
|
Term debt, current
|
80,044,866
|
|
|
—
|
|
||
|
Total current liabilities
|
91,735,809
|
|
|
11,337,405
|
|
||
|
Warrant liability
|
6,116,882
|
|
|
12,380,939
|
|
||
|
Other liabilities
|
2,929,743
|
|
|
1,263,113
|
|
||
|
Long-term debt
|
—
|
|
|
75,547,597
|
|
||
|
Total liabilities
|
100,782,434
|
|
|
100,529,054
|
|
||
|
Commitments and contingencies (Note 14)
|
|
|
|
||||
|
Stockholders' equity
|
|
|
|
||||
|
Common stock ($.0001 par value, 600,000,000 shares authorized, 81,269,868 and 80,763,350 issued and outstanding at December 31, 2019, and December 31, 2018, respectively)
|
8,127
|
|
|
8,076
|
|
||
|
Additional paid-in capital
|
220,808,037
|
|
|
218,697,872
|
|
||
|
Accumulated deficit
|
(123,032,408
|
)
|
|
(115,791,261
|
)
|
||
|
Total stockholders' equity
|
97,783,756
|
|
|
102,914,687
|
|
||
|
Total liabilities and stockholders' equity
|
$
|
198,566,190
|
|
|
$
|
203,443,741
|
|
The accompanying notes are an integral part of these financial statements.
47
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31
|
|
2019
|
|
2018
|
|
2017
|
||||||
|
Revenues
|
|
|
|
|
|
||||||
|
Product sales and supportive services
|
$
|
11,190,064
|
|
|
$
|
468,918,468
|
|
|
$
|
—
|
|
|
Research and development
|
15,552,021
|
|
|
8,135,314
|
|
|
12,268,960
|
|
|||
|
Total revenues
|
26,742,085
|
|
|
477,053,782
|
|
|
12,268,960
|
|
|||
|
|
|
|
|
|
|
||||||
|
Operating expenses
|
|
|
|
|
|
||||||
|
Cost of sales and supportive services
|
1,782,838
|
|
|
95,268,974
|
|
|
—
|
|
|||
|
Selling, general and administrative
|
13,252,136
|
|
|
12,879,738
|
|
|
12,303,050
|
|
|||
|
Research and development
|
13,303,149
|
|
|
13,016,183
|
|
|
16,679,712
|
|
|||
|
Patent expenses
|
726,105
|
|
|
789,489
|
|
|
909,946
|
|
|||
|
Lease termination
|
—
|
|
|
—
|
|
|
1,225,421
|
|
|||
|
Total operating expenses
|
29,064,228
|
|
|
121,954,384
|
|
|
31,118,129
|
|
|||
|
Operating (loss) income
|
(2,322,143
|
)
|
|
355,099,398
|
|
|
(18,849,169
|
)
|
|||
|
Gain (loss) from change in fair value of warrant liability
|
5,091,256
|
|
|
(6,922,624
|
)
|
|
(4,738,753
|
)
|
|||
|
Interest expense
|
(15,769,768
|
)
|
|
(15,478,203
|
)
|
|
(14,758,140
|
)
|
|||
|
Other income, net
|
2,822,232
|
|
|
78,940,985
|
|
|
16,788
|
|
|||
|
(Loss) income before income taxes
|
(10,178,423
|
)
|
|
411,639,556
|
|
|
(38,329,274
|
)
|
|||
|
Benefit for income taxes
|
2,937,276
|
|
|
10,168,272
|
|
|
2,093,790
|
|
|||
|
Net and comprehensive (loss) income
|
$
|
(7,241,147
|
)
|
|
$
|
421,807,828
|
|
|
$
|
(36,235,484
|
)
|
|
Basic (loss) earnings per share
|
$
|
(0.09
|
)
|
|
$
|
5.28
|
|
|
$
|
(0.46
|
)
|
|
Diluted (loss) earnings per share
|
$
|
(0.15
|
)
|
|
$
|
5.18
|
|
|
$
|
(0.46
|
)
|
|
Weighted average shares outstanding: basic
|
81,031,254
|
|
|
79,923,295
|
|
|
78,874,494
|
|
|||
|
Weighted average shares outstanding: diluted
|
82,175,023
|
|
|
82,708,472
|
|
|
78,874,494
|
|
|||
The accompanying notes are an integral part of these financial statements.
48
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIENCY)
For the Years Ended December 31, 2019, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|||||||||||
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
Total
|
|||||||||||
|
|
Common Stock
|
|
Paid-In
|
|
Accumulated
|
|
Comprehensive
|
|
Stockholders’
|
|||||||||||||
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Income (Loss)
|
|
Equity/ (Deficiency)
|
|||||||||||
|
Balances, December 31, 2016
|
78,692,612
|
|
|
$
|
7,869
|
|
|
$
|
213,714,154
|
|
|
$
|
(501,140,292
|
)
|
|
$
|
—
|
|
|
$
|
(287,418,269
|
)
|
|
Net loss
|
|
|
|
|
|
|
(36,235,484
|
)
|
|
|
|
(36,235,484
|
)
|
|||||||||
|
Issuance of common stock upon exercise of stock options
|
33,870
|
|
|
3
|
|
|
89,495
|
|
|
|
|
|
|
89,498
|
|
|||||||
|
Issuance of common stock upon vesting of RSUs and exercise of stock-settled appreciation rights
|
466,328
|
|
|
47
|
|
|
(47
|
)
|
|
|
|
|
|
—
|
|
|||||||
|
Payment of common stock tendered for employee stock-based compensation tax obligations
|
(153,810
|
)
|
|
(15
|
)
|
|
(591,052
|
)
|
|
|
|
|
|
(591,067
|
)
|
|||||||
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
1,101,031
|
|
|
|
|
|
|
1,101,031
|
|
|||||||
|
Buy-back of stock options
|
—
|
|
|
—
|
|
|
(84,000
|
)
|
|
|
|
|
|
(84,000
|
)
|
|||||||
|
Balances, December 31, 2017
|
79,039,000
|
|
|
$
|
7,904
|
|
|
$
|
214,229,581
|
|
|
$
|
(537,375,776
|
)
|
|
$
|
—
|
|
|
$
|
(323,138,291
|
)
|
|
Net income
|
|
|
|
|
|
|
421,807,828
|
|
|
|
|
421,807,828
|
|
|||||||||
|
Issuance of common stock upon exercise of stock options
|
426,366
|
|
|
42
|
|
|
261,837
|
|
|
|
|
|
|
261,879
|
|
|||||||
|
Issuance of common stock upon vesting of RSUs and exercise of stock-settled appreciation rights
|
1,184,283
|
|
|
118
|
|
|
(118
|
)
|
|
|
|
|
|
—
|
|
|||||||
|
Issuance of common stock upon exercise of warrants
|
760,626
|
|
|
77
|
|
|
6,007,770
|
|
|
|
|
|
|
6,007,847
|
|
|||||||
|
Payment of common stock tendered for employee stock-based compensation tax obligations
|
(646,925
|
)
|
|
(65
|
)
|
|
(4,074,375
|
)
|
|
|
|
|
|
(4,074,440
|
)
|
|||||||
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
(223,313
|
)
|
|
|
|
(223,313
|
)
|
|||||||||
|
Stock-based compensation
|
|
|
|
|
2,273,177
|
|
|
|
|
|
|
2,273,177
|
|
|||||||||
|
Balances, December 31, 2018
|
80,763,350
|
|
|
$
|
8,076
|
|
|
$
|
218,697,872
|
|
|
$
|
(115,791,261
|
)
|
|
$
|
—
|
|
|
$
|
102,914,687
|
|
|
Net loss
|
|
|
|
|
|
|
(7,241,147
|
)
|
|
|
|
(7,241,147
|
)
|
|||||||||
|
Issuance of common stock upon exercise of stock options
|
9,769
|
|
|
1
|
|
|
(1
|
)
|
|
|
|
|
|
—
|
|
|||||||
|
Issuance of common stock upon vesting of RSUs and exercise of stock-settled appreciation rights
|
515,888
|
|
|
52
|
|
|
(52
|
)
|
|
|
|
|
|
—
|
|
|||||||
|
Issuance of common stock to employees
|
53,332
|
|
|
5
|
|
|
(5
|
)
|
|
|
|
|
|
—
|
|
|||||||
|
Issuance of common stock upon exercise of warrants
|
159,782
|
|
|
16
|
|
|
1,172,785
|
|
|
|
|
|
|
1,172,801
|
|
|||||||
|
Payment of common stock tendered for employee stock-based compensation tax obligations
|
(232,253
|
)
|
|
(23
|
)
|
|
(1,176,556
|
)
|
|
|
|
|
|
(1,176,579
|
)
|
|||||||
|
Stock-based compensation
|
|
|
|
|
2,113,994
|
|
|
|
|
|
|
2,113,994
|
|
|||||||||
|
Balances, December 31, 2019
|
81,269,868
|
|
|
$
|
8,127
|
|
|
$
|
220,808,037
|
|
|
$
|
(123,032,408
|
)
|
|
$
|
—
|
|
|
$
|
97,783,756
|
|
The accompanying notes are an integral part of these financial statements.
49
SIGA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31
The accompanying notes are an integral part of these financial statements
|
|
2019
|
|
2018
|
|
2017
|
||||||
|
Cash flows from operating activities:
|
|
|
|
|
|
||||||
|
Net (loss) income
|
$
|
(7,241,147
|
)
|
|
$
|
421,807,828
|
|
|
$
|
(36,235,484
|
)
|
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
||||||
|
Depreciation and other amortization
|
526,997
|
|
|
69,630
|
|
|
132,189
|
|
|||
|
(Gain) loss on change in fair value of warrant liability
|
(5,091,256
|
)
|
|
6,922,624
|
|
|
4,738,753
|
|
|||
|
Lease termination
|
—
|
|
|
—
|
|
|
1,225,421
|
|
|||
|
Stock-based compensation
|
2,113,994
|
|
|
2,273,177
|
|
|
1,101,031
|
|
|||
|
Net realization of deferred revenue and costs due to FDA approval
|
—
|
|
|
(281,950,853
|
)
|
|
—
|
|
|||
|
Deferred income taxes benefit
|
(2,417,617
|
)
|
|
(9,301,422
|
)
|
|
(2,718,029
|
)
|
|||
|
Write down of inventory, net
|
—
|
|
|
—
|
|
|
536,000
|
|
|||
|
Non-cash interest expense
|
4,497,271
|
|
|
4,497,273
|
|
|
4,497,271
|
|
|||
|
Gain on sale of priority review voucher
|
—
|
|
|
(78,338,826
|
)
|
|
—
|
|
|||
|
Changes in assets and liabilities:
|
|
|
|
|
|
||||||
|
Accounts receivable
|
(2,208,863
|
)
|
|
(49,723
|
)
|
|
1,352,263
|
|
|||
|
Inventory
|
(6,744,644
|
)
|
|
39
|
|
|
22,690,715
|
|
|||
|
Deferred costs
|
—
|
|
|
—
|
|
|
(23,943,057
|
)
|
|||
|
Prepaid expenses and other assets
|
(714,272
|
)
|
|
(2,579,329
|
)
|
|
(1,125,657
|
)
|
|||
|
Accounts payable, accrued expenses and other liabilities
|
936,839
|
|
|
2,045,191
|
|
|
(2,051,081
|
)
|
|||
|
Deferred revenue
|
(1,861,605
|
)
|
|
3,475,714
|
|
|
11,412,898
|
|
|||
|
Net cash (used in) provided by operating activities
|
(18,204,303
|
)
|
|
68,871,323
|
|
|
(18,386,767
|
)
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|
||||||
|
Capital expenditures
|
(29,094
|
)
|
|
(102,264
|
)
|
|
(100,124
|
)
|
|||
|
Net proceeds from sale of priority review voucher
|
—
|
|
|
78,338,826
|
|
|
—
|
|
|||
|
Net cash (used in) provided by investing activities
|
(29,094
|
)
|
|
78,236,562
|
|
|
(100,124
|
)
|
|||
|
Cash flows from financing activities:
|
|
|
|
|
|
||||||
|
Net proceeds from exercise of stock options
|
—
|
|
|
261,879
|
|
|
89,498
|
|
|||
|
Buy back of stock options
|
—
|
|
|
—
|
|
|
(84,000
|
)
|
|||
|
Payment of employee tax obligations for common stock tendered
|
(1,176,579
|
)
|
|
(4,074,440
|
)
|
|
(591,067
|
)
|
|||
|
Net cash used in financing activities
|
(1,176,579
|
)
|
|
(3,812,561
|
)
|
|
(585,569
|
)
|
|||
|
Net (decrease) increase in cash and cash equivalents
|
(19,409,976
|
)
|
|
143,295,324
|
|
|
(19,072,460
|
)
|
|||
|
Cash, cash equivalents and restricted cash at the beginning of period
|
180,396,910
|
|
|
37,101,586
|
|
|
56,174,046
|
|
|||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
160,986,934
|
|
|
$
|
180,396,910
|
|
|
$
|
37,101,586
|
|
|
|
|
|
|
|
|
||||||
|
Supplemental disclosure of cash inflows information:
|
|
|
|
|
|
||||||
|
Conversion of warrant to common stock
|
$
|
1,172,801
|
|
|
$
|
6,007,847
|
|
|
$
|
—
|
|
|
Issuance of common stock upon cashless exercise
|
$
|
118,500
|
|
|
$
|
1,681,426
|
|
|
$
|
—
|
|
|
Cash income taxes (refund) paid, net
|
$
|
(1,276,129
|
)
|
|
$
|
251,961
|
|
|
$
|
325,000
|
|
50
SIGA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Description of Business
SIGA Technologies, Inc. (“SIGA” or the “Company”) is a commercial-stage pharmaceutical company focused on the health security market. Health security comprises countermeasures for biological, chemical, radiological and nuclear attacks (biodefense market), vaccines and therapies for emerging infectious diseases, and health preparedness. Our lead product is TPOXX®, an orally administered 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 the Company’s orally-administered drug TPOXX® (“oral TPOXX®”).
2. Summary of Significant Accounting Policies
Use of Estimates
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. The most significant estimates include the variables used in the calculation of fair value of warrants granted or issued by the Company, reported amounts of revenue, and the valuation of deferred tax assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary. Actual results could differ from these estimates.
Basis of Presentation
The consolidated financial statements and related disclosures are presented in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and reflect the consolidated financial position, results of operations and cash flows for all periods presented.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Restricted Cash and Cash Equivalents
Under the terms of the Loan Agreement (as defined below), net cash proceeds from the Company's Priority Review Voucher ("PRV") sale on October 31, 2018 (see Note 4) are restricted and are held in a reserve account. Cash and cash equivalents held in the reserve account are available to pay interest, fees and principal related to the Term Loan (see Note 8 for additional information). Prior to the second quarter of 2019, there was also a reserve account for certain proceeds of the Loan Agreement. This account was also restricted. Amounts in this reserve account were primarily used to pay interest on the Loan Agreement. This reserve account was closed in the second quarter of 2019.
The following table reconciles cash, cash equivalents and restricted cash per the consolidated statements of cash flows to the consolidated balance sheet for each respective period:
|
|
As of December 31,
|
||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
||||||||
|
Cash and cash equivalents
|
$
|
65,249,072
|
|
|
$
|
100,652,809
|
|
|
$
|
19,857,833
|
|
|
$
|
28,701,824
|
|
|
Restricted cash - short-term
|
95,737,862
|
|
|
11,452,078
|
|
|
10,701,305
|
|
|
10,138,890
|
|
||||
|
Restricted cash - long-term
|
—
|
|
|
68,292,023
|
|
|
6,542,448
|
|
|
17,333,332
|
|
||||
|
Cash, cash equivalents and restricted cash
|
$
|
160,986,934
|
|
|
$
|
180,396,910
|
|
|
$
|
37,101,586
|
|
|
$
|
56,174,046
|
|
Concentration of Credit Risk
The Company has cash in bank accounts that exceeds the Federal Deposit Insurance Corporation insured limits. The Company has not experienced any losses on its cash accounts and no allowance has been provided for potential credit losses because management believes the potential for losses is remote.
51
Accounts Receivable
Accounts receivable are recorded net of provisions for doubtful accounts. At December 31, 2019 and 2018, 100% of accounts receivable represented receivables from the U.S. government. An allowance for doubtful accounts is based on specific analysis of the receivables. At December 31, 2019 and 2018, the Company had no allowance for doubtful accounts.
Inventory
Inventory is stated at the lower of cost or net realizable value. The Company capitalizes inventory costs associated with the Company’s products when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. Inventory is evaluated for impairment periodically to identify inventory that may expire prior to expected sale or has a cost basis in excess of its net realizable value. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to write down such unmarketable inventory to its net realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided on a straight-line method over the estimated useful lives of the various asset classes. The estimated useful lives are as follows: five years for laboratory equipment; three years for computer equipment; and seven years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term. Maintenance, repairs and minor replacements are charged to expense as incurred.
Warrant Liability
The Company accounts for warrants in accordance with the authoritative guidance which requires that free-standing derivative financial instruments with certain cash settlement features be classified as assets or liabilities at the time of the transaction, and recorded at their fair value. Fair value is estimated using model-derived valuations. Any changes in the fair value of the derivative instruments are reported in earnings or loss as long as the derivative contracts are classified as assets or liabilities.
Revenue Recognition
All of the Company’s revenue is derived from long-term contracts that span multiple years. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).
Adoption of ASC 606. On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605, Revenue Recognition.
The cumulative impact of adopting ASC 606 as of January 1, 2018 was a decrease to deferred revenue of approximately $1.8 million; a decrease to deferred costs of approximately $2.1 million; an increase to receivables of approximately $0.1 million and a net increase to opening accumulated deficit of $0.2 million, net of tax. For the year ended December 31, 2018, the impact to revenues as a result of applying ASC 606 was an increase of approximately $1.0 million.
Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. As of December 31, 2019, the Company's active performance obligations, for the contracts outlined in Note 3, consist of the following: five performance obligations relate to research and development services; one relates to manufacture and delivery of product; and one is associated with storage of product.
Contract modifications may occur during the course of performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing contract.
The Company’s performance obligations are satisfied over time as work progresses or at a point in time. Substantially all of the Company’s revenue related to research and development performance obligations is recognized over time, because control transfers continuously to our customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, and third-party services.
52
Revenue connected with the performance obligations related to the delivery of oral TPOXX® to the U.S. Strategic National Stockpile ("Strategic Stockpile") ("Delivery Performance Obligation") is recognized at a point in time. The Delivery Performance Obligation under the 2011 BARDA Contract (Note 3) has been completed. With respect to this performance obligation, revenue was recognized when the U.S. Biomedical Advanced Research and Development Authority ("BARDA") obtained control of the asset, which was upon delivery to and acceptance by the customer and at the point in time when the constraint on the consideration was resolved due to FDA approval of oral TPOXX®. The consideration, which was variable consideration, was constrained until the FDA approved oral TPOXX® for the treatment of smallpox on July 13, 2018. Prior to FDA approval, consideration had been constrained because the FDA Approval Replacement Obligation (as defined in Note 3) had not been quantified or specified. Following FDA approval, the possibility of having to replace product pursuant to the FDA Approval Replacement Obligation was essentially eliminated and deemed to be remote since there was no difference between the approved product and the courses of oral TPOXX® that had been delivered to the Strategic Stockpile.
Contract Estimates. Accounting for long-term contracts and grants involves the use of various techniques to estimate total contract revenue and costs.
Contract estimates are based on various assumptions to project the outcome of future events that often span multiple years. These assumptions include labor productivity; the complexity of the work to be performed; external factors such as customer behavior and potential regulatory outcomes; and the performance of subcontractors, among other variables.
The nature of the work required to be performed on many of the Company’s performance obligations and the estimation of total revenue and cost at completion are complex, subject to many variables and require significant judgment. The consideration associated with research and development services is variable as the total amount of services to be performed has not been finalized. The Company estimates variable consideration as the most likely amount to which it expects to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur and when any uncertainty associated with variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our historical and anticipated performance, external factors, trends and all other information (historical, current and forecasted) that is reasonably available to us.
A significant change in one or more of these estimates could affect the profitability of the Company’s contracts. As such, the Company reviews and updates its contract-related estimates regularly. The Company recognizes adjustments in estimated revenues, research and development expenses and cost of sales and supportive services under the cumulative catch-up method. Under this method, the impact of the adjustment on revenues, research and development expenses and cost of sales and supportive services recorded to date on a contract is recognized in the period the adjustment is identified.
During the year ended December 31, 2019, the Company recognized a cumulative catch-up adjustment to revenue of approximately $3.3 million related to the conclusion of historical rate reconciliations in connection with the IV Formulation R&D Contract (defined in Note 3), and changes in the projected amount of contract funding expected to be available under the IV Formulation R&D Contract, which impacts the progress-towards-completion calculation required under ASC 606.
Contract Balances. The timing of revenue recognition, billings and cash collections may result in billed accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) in the consolidated balance sheets. Generally, amounts are billed as work progresses in accordance with agreed-upon contractual terms either at periodic intervals (monthly) or upon achievement of contractual milestones. Under typical payment terms of fixed price arrangements, the customer pays the Company either performance-based payments or progress payments. For the Company’s cost-type arrangements, the customer generally pays the Company for its actual costs incurred, as well as its allocated overhead and G&A costs. Such payments occur within a short period of time. When the Company receives consideration, or such consideration is unconditionally due, prior to transferring goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. During the year ended December 31, 2019, the Company recognized revenue of $1.0 million that was included in deferred revenue at the beginning of the period.
Remaining Performance Obligations. Remaining performance obligations represent the transaction price for which work has not been performed and excludes unexercised contract options. As of December 31, 2019, the aggregate amount of transaction price allocated to remaining performance obligations was $30.0 million. The Company expects to recognize this amount as revenue over the next five years as the specific timing for satisfying the performance obligations is subjective and outside the Company’s control.
Leases
The Company accounts for leases in accordance with ASC 842, Leases (“ASC 842”)
53
Adoption of ASC 842. On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach as of the effective date of the standard without revising prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward its historical lease classification. In addition, the Company elected the hindsight practical expedient to determine the lease term for existing leases. The Company’s election of the hindsight practical expedient resulted in the extension of the Oregon lease term as it was determined that the first renewal option under this lease was expected to be exercised with a reasonable degree of certainty. In the second quarter of 2019, the Company exercised the first renewal option under the Oregon lease. The Company was required to record an operating lease right-of-use ("ROU") asset and a corresponding operating lease liability, equal to the present value of the lease payments at the adoption date. In the determination of future lease payments, the Company has elected to aggregate lease components such as payments for rent, taxes and insurance costs with non-lease components such as maintenance costs and account for these payments as a single lease component. The present value of the lease payments was determined using the Company's incremental borrowing rate. The impact of adopting ASC 842 as of January 1, 2019 was the recording of operating lease right-of-use assets of approximately $2.9 million; the recording of operating lease liabilities of approximately $3.3 million; and a decrease to deferred rent of approximately $0.4 million.
The Company determines if an arrangement is a lease at inception. Leases with an initial term less than one year are not recorded on the balance sheet and the lease costs for these costs are recorded as an expense on a straight-line basis over the lease term. Operating leases with terms greater than one year result in a lease liability recorded in other liabilities with a corresponding ROU asset recorded in property, plant and equipment.
Operating lease liabilities are recognized at the commencement date based on the present value of future minimum lease payments over the lease term. ROU assets are recognized based on the corresponding lease liabilities adjusted for qualifying initial direct costs, prepaid or accrued lease payments and unamortized lease incentives. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease. Lease terms may include options to extend or terminate the lease which are incorporated into the Company's measurement when it is reasonably certain that the Company will exercise the option.
Research and Development
Research and development expenses include costs directly and indirectly attributable to the conduct of research and development programs, and performance pursuant to the BARDA contracts, including employee related costs, materials, supplies, depreciation on and maintenance of research equipment, the cost of services provided by outside contractors, including services related to the Company’s clinical trials and facility costs, such as rent, utilities, and general support services. All costs associated with research and development are expensed as incurred. Costs related to the acquisition of technology rights, for which development work is still in process, and that have no alternative future uses, are expensed as incurred.
Goodwill
The Company evaluates goodwill for impairment at least annually or as circumstances warrant. The impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. The Company operates as one business and one reporting unit. Therefore, the goodwill impairment analysis is performed on the basis of the Company as a whole, using the market capitalization of the Company as an estimate of its fair value.
Share-based Compensation
Stock-based compensation expense for all share-based payment awards made to employees and directors is determined on the grant date; for options awards, fair value was estimated using the Black-Scholes model. These compensation costs are recognized net of an estimated forfeiture rate over the requisite service periods of the awards. Forfeitures are estimated on the date of the respective grant and revised if actual or expected forfeiture activity differs from original estimates.
Income Taxes
The Company recognizes income taxes utilizing the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities at enacted tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is established if it is more likely than not that some or the entire deferred tax asset will not be realized. The recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about the Company’s future profitability which are inherently uncertain. The Company may recognize tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company re-evaluates uncertain tax positions and considers factors, including, but not limited to, changes in tax law, the measurement of tax
54
positions taken or expected to be taken on tax returns, and changes in circumstances related to a tax position. The Company recognizes interest and penalties related to income tax matters in income tax expense.
(Loss) Earnings per Share
Basic earnings per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the period, assuming potentially dilutive common shares from option exercises, SSARs, RSUs, warrants and other incentives had been issued and any proceeds received in respect thereof were used to repurchase common stock at the average market price during the period. The assumed proceeds used to repurchase common stock is the sum of the amount to be paid to the Company upon exercise of options and the amount of compensation cost attributed to future services not yet recognized.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and other current liabilities approximates fair value due to the relatively short maturity of these instruments. Common stock warrants which are classified as liabilities are recorded at their fair market value as of each reporting period.
The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:
|
•
|
Level 1 – Quoted prices for identical instruments in active markets.
|
|
•
|
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.
|
|
•
|
Level 3 – Instruments where significant value drivers are unobservable to third parties.
|
The Company uses model-derived valuations where certain inputs are unobservable to third parties to determine the fair value of common stock warrants on a recurring basis and classifies such liability-classified warrants in Level 3.
The Company used a discounted cash flow model to estimate the fair value of the debt by applying a discount rate to future payments expected to be made as set forth in the Loan Agreement. The fair value of the loan was measured using Level 3 inputs. The discount rate was determined using market participant assumptions.
There were no transfers between levels of the fair value hierarchy during 2019 or 2018. As of December 31, 2019, the Company had approximately $5.6 million and $90.0 million of restricted cash and cash equivalents classified as Level 1 and Level 2 financial instruments, respectively. There were no Level 1 or Level 2 financial instruments as of December 31, 2018.
The following table presents changes in the liability-classified warrant measured at fair value using Level 3 inputs:
|
|
Fair Value Measurements of Level 3 liability-classified warrant
|
||
|
Warrant liability at December 31, 2018
|
$
|
12,380,939
|
|
|
Decrease in fair value of warrant liability
|
(5,091,256
|
)
|
|
|
Exercise of warrants
|
(1,172,801
|
)
|
|
|
Warrant liability at December 31, 2019
|
$
|
6,116,882
|
|
Loss Contingencies
The Company is subject to certain contingencies arising in the ordinary course of business. The Company records accruals for these contingencies to the extent that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued. The Company expenses legal costs associated with loss contingencies as incurred. We record anticipated recoveries under existing insurance contracts when recovery is assured.
55
Segment Information
The Company is managed and operated as one business. The entire business is managed by a single management team that reports to the chief executive officer, who is the Chief Operating Decision Maker. The Company does not operate separate lines of business or separate business entities with respect to any of its product candidates. Accordingly, the Company does not prepare discrete financial information with respect to separate product areas or by location and has only one reportable segment.
Recent Accounting Pronouncements
On January 26, 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective for fiscal years beginning after December 15, 2019. The Company believes the adoption of ASU No. 2017-04 will not have a significant impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 requires an entity to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.
3. Procurement Contract and Research Agreements
19C BARDA Contract (2018 BARDA Contract)
On September 10, 2018, the Company entered into a contract with BARDA pursuant to which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the 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 advanced development of IV TPOXX®, post-marketing activities for oral and IV TPOXX®, and procurement activities. As of February 18, 2020, the contract with BARDA (as amended, modified, or supplemented from time to time, the "19C BARDA Contract" or “2018 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 $25.8 million of payments are related to exercised options and up to approximately $525.0 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. On May 20, 2019, an option for the manufacture and delivery of 363,070 courses of oral TPOXX® was modified to divide it into four procurement-related options. One of the four modified procurement-related options provides for the payment of $11.2 million for the procurement of raw materials to be used in the manufacture of at least 363,070 courses of oral TPOXX®. This option was exercised simultaneously with the aforementioned modification. Each of the other three options individually specifies the delivery of approximately 121,000 courses of oral TPOXX® for consideration of approximately $33.8 million. In total, the four options under the May 2019 modification provide for the purchase of raw material for and the manufacture and delivery of 363,070 courses of oral TPOXX® for consideration of approximately $112.5 million. The option modification did not change the overall total potential value of the 19C BARDA Contract, nor did it change the total amount to be paid in connection with the manufacture and delivery of oral TPOXX® courses.
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 December 31, 2019, the Company had received $11.1 million for the successful delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the manufacture of IV BDS and $4.7 million for other base period activities. IV BDS is expected to be used for the manufacture of 20,000 courses of IV FDP.
56
The $3.2 million received for the manufacture of IV BDS has been recorded as deferred revenue as of December 31, 2019 and 2018; such amount is expected to be recognized as revenue when IV TPOXX containing the BDS is delivered to the National Stockpile or placed in vendor-managed inventory.
The options that have been exercised to date provide for additional potential payments up to approximately $25.8 million. There are exercised options for the following activities: payments up to $11.2 million for the procurement of raw materials to be used in the manufacture of at least 363,070 courses of oral TPOXX®; and, payments of up to $14.6 million for funding of post-marketing activities for oral TPOXX®, of which, $2.3 million had been received as of December 31, 2019.
Unexercised options specify potential payments up to approximately $525.0 million in total (if all options are exercised). There are options for the following activities: payments of up to $439.0 million for the delivery of up to approximately 1,452,000 courses of oral TPOXX® to the Strategic Stockpile; payments of up to $76.8 million for the manufacture of up to 192,000 courses of IV FDP, of which up to $30.7 million of payments would be paid upon 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 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 make independent exercise decisions. If BARDA decides to only exercise IV BDS Options, then the Company would receive payments up to $30.7 million; alternatively, if BARDA decides to exercise both IV BDS Options and IV FDP Options, then the Company would receive payments up to $76.8 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.
Revenues in connection with the 19C BARDA Contract are recognized either over time or at a point in time. Performance obligations related to product delivery generate revenue at a point in time. Other performance obligations under the 19C BARDA Contract generate revenue over time. For the years ended December 31, 2019 and 2018, the Company recognized revenues of $7.4 million and $0.4 million, respectively, on an over time basis. In contrast, revenue recognized for product delivery and therefore at a point in time for the year ended December 31, 2019 was $11.1 million. There was no revenue recognized at a point in time during 2018.
2011 BARDA Contract
On May 13, 2011, the Company signed a contract with BARDA pursuant to which BARDA agreed to buy from the Company 1.7 million courses of oral TPOXX®. Additionally, the Company agreed to contribute to BARDA 300,000 courses at no additional cost to BARDA.
The contract with BARDA (as amended, modified, or supplemented from time to time the "2011 BARDA Contract") includes a base contract, as modified, ("2011 Base Contract") as well as options. The 2011 Base Contract specifies approximately $508.4 million of payments (including exercised options), of which, as of December 31, 2019, $459.8 million has been received by the Company for the manufacture and delivery of 1.7 million of oral TPOXX® and $44.9 million has been received for certain reimbursements in connection with development and supportive activities. Approximately $3.7 million remains eligible to be received in the future for reimbursements of development and supportive activities.
For courses of oral TPOXX® that have been physically delivered to the Strategic Stockpile under the 2011 BARDA Contract, there are product replacement obligations, including: (i) a product replacement obligation in the event that the final version of oral TPOXX® approved by the FDA was different from any courses of oral TPOXX® that had been delivered to the Strategic Stockpile (the “FDA Approval Replacement Obligation”); (ii) a product replacement obligation, at no cost to BARDA, in the event that oral TPOXX® is recalled or deemed to be recalled for any reason; and (iii) a product replacement obligation in the event that oral TPOXX® does not meet any specified label claims. On July 13, 2018, the FDA approved oral TPOXX® for the treatment of smallpox and there is no difference between the approved product and courses in the Strategic Stockpile. As such, the possibility of the FDA Approval Replacement Obligation resulting in any future replacements of product within the Strategic Stockpile is remote.
57
The 2011 BARDA Contract includes options. On July 30, 2018, the 2011 BARDA Contract was modified and BARDA exercised its option relating to FDA approval of the aforementioned 84-month expiry for oral TPOXX® for which the Company was paid $50.0 million in August 2018. With the option exercise, the 2011 BARDA Contract was modified so that the 2011 Base Contract increased by $50.0 million. Remaining options, if all were exercised by BARDA, would result in aggregate payments to the Company of $72.7 million, including up to $58.3 million of funding for development and supportive activities such as work on a post-exposure prophylaxis ("PEP") indication for TPOXX® and/or $14.4 million of funding for production-related activities related to warm-base manufacturing. BARDA may choose, in its sole discretion not to exercise any or all of the unexercised options. In 2015, BARDA exercised two options related to extending the indication of the drug to the geriatric and pediatric populations. The stated value of those exercises was immaterial.
The 2011 BARDA Contract expires in September 2020.
As described in Note 2, cash inflows related to delivery of courses under the 2011 BARDA Contract had been recorded as deferred revenue prior to FDA approval of oral TPOXX®, which occurred in the third quarter 2018. The deferral was due to the constraint on the consideration received related to the FDA Approval Replacement Obligation. During the third quarter 2018, the constraint was satisfied with FDA approval of oral TPOXX®. As such, $375.6 million associated with cash consideration received in prior periods under the 2011 BARDA Contract was recognized as revenue for the year ended December 31, 2018. Separately, as discussed above, $90.9 million of revenues were recognized in the third quarter of 2018 in connection with a $40.9 million holdback payment (under the 2011 BARDA Contract) and a $50.0 million payment for achieving 84-month expiry for oral TPOXX® (under the 2011 BARDA Contract). Direct costs incurred by the Company to manufacture and fulfill the delivery of courses had also been deferred. As of December 31, 2017, deferred direct costs under the 2011 BARDA Contract were approximately $96.5 million. In connection with the FDA approval of oral TPOXX®, all related deferred costs were recognized in the consolidated statement of operations during the third quarter of 2018.
Revenues in connection with the 2011 BARDA Contract are recognized either over time or at a point in time. Performance obligations related to product delivery generate revenue at a point in time. Remaining performance obligations under the 2011 BARDA Contract generate revenue over time. For the years ended December 31, 2019 and 2018, the Company recognized revenue of $0.3 million and $1.7 million, respectively, on an over time basis. In contrast, revenue recognized for product delivery and therefore at a point in time for the years ended December 31, 2019 and 2018, were $0.1 million and $468.9 million, respectively.
Research Agreements and Grants
The Company has an R&D program for IV TPOXX®. This program is funded by the 19C BARDA Contract and a development contract with BARDA ("IV Formulation R&D Contract"). The IV Formulation R&D Contract has a period of performance that terminates on December 30, 2020. As of December 31, 2019, the IV Formulation R&D Contract provides for future aggregate research and development funding of approximately $3.1 million.
Revenues in connection with the IV Formulation R&D Contract are recognized over time. For the years ended December 31, 2019 and 2018, the Company recognized revenue of $7.5 million and $6.0 million, respectively, under this contract. During the year ended December 31, 2019, the Company recognized a cumulative catch-up adjustment to revenue of approximately $3.3 million related to the conclusion of historical rate reconciliations in connection with the IV Formulation R&D Contract and changes in the projected amount of contract funding expected to be available under the IV Formulation R&D Contract, which impacts the progress-towards-completion calculation required under ASC 606.
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"). The term of the initial award is five years. As of December 31, 2019 the PEP Label Expansion R&D Contract provides for future aggregate research and development funding under the initial award of approximately $12.2 million. For the year ended December 31, 2019, the Company, under the PEP Label Expansion R&D Contract, recognized revenue of $0.3 million on an over time basis.
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.
4. Sale of Priority Review Voucher
58
Concurrent with the approval of oral TPOXX®, the FDA granted the Company's request for a Priority Review Voucher (“PRV”). A PRV is a voucher that may be used to obtain an accelerated FDA review of a product candidate. On October 31, 2018 the Company sold its PRV for cash consideration of $80 million which was recognized as other income.
5. Inventory
Inventory consisted of the following:
|
|
As of
|
||||||
|
|
December 31, 2019
|
|
December 31, 2018
|
||||
|
Work in-process
|
$
|
8,693,457
|
|
|
$
|
1,950,445
|
|
|
Finished goods
|
959,398
|
|
|
957,765
|
|
||
|
Inventory
|
$
|
9,652,855
|
|
|
$
|
2,908,210
|
|
6. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
As of
|
||||||
|
|
December 31, 2019
|
|
December 31, 2018
|
||||
|
Leasehold improvements
|
$
|
2,420,028
|
|
|
$
|
2,420,028
|
|
|
Computer equipment
|
601,797
|
|
|
618,248
|
|
||
|
Furniture and fixtures
|
377,859
|
|
|
377,859
|
|
||
|
Operating lease right-of-use-asset
|
2,944,932
|
|
|
—
|
|
||
|
|
6,344,616
|
|
|
3,416,135
|
|
||
|
Less-accumulated depreciation
|
(3,726,313
|
)
|
|
(3,244,861
|
)
|
||
|
Property, plant and equipment, net
|
$
|
2,618,303
|
|
|
$
|
171,274
|
|
Depreciation and amortization expense on property, plant, and equipment was $526,997, $69,630, and $132,189 for the years ended December 31, 2019, 2018, and 2017, respectively. In connection with the lease termination discussed in Note 15, the Company wrote off $129,000 of leasehold improvements and furniture and fixtures during the year ended December 31, 2017.
7. Accrued Expenses
Accrued expenses and other current liabilities consisted of the following:
|
|
As of
|
||||||
|
|
December 31, 2019
|
|
December 31, 2018
|
||||
|
Compensation
|
$
|
2,966,139
|
|
|
$
|
2,600,839
|
|
|
Deferred revenue
|
2,298,341
|
|
|
4,159,946
|
|
||
|
Interest payable
|
977,724
|
|
|
35,567
|
|
||
|
Research and development vendor costs
|
707,685
|
|
|
1,446,410
|
|
||
|
Lease liability, current portion
|
419,709
|
|
|
—
|
|
||
|
Professional fees
|
288,707
|
|
|
242,043
|
|
||
|
Vacation
|
256,402
|
|
|
294,794
|
|
||
|
Other
|
722,204
|
|
|
869,318
|
|
||
|
Accrued expenses and other current liabilities
|
$
|
8,636,911
|
|
|
$
|
9,648,917
|
|
8. Debt
59
On September 2, 2016, the Company entered into a loan and security agreement (as amended from time to time, the “Loan Agreement”) with OCM Strategic Credit SIGTEC Holdings, LLC (“Lender”), pursuant to which the Company received $80.0 million (less fees and other items) on November 16, 2016 having satisfied certain pre-conditions. Such $80.0 million had been placed in an escrow account on September 30, 2016 (the “Escrow Funding Date”). Prior to the Escrow Release Date (November 16, 2016), the Company did not have access to, or any ownership interest in, the escrow account. Until the Escrow Release Date occurred, the Company did not have an obligation to make any payments under the Loan Agreement, no security was granted under the Loan Agreement and no affirmative or negative covenants or events of default were effective under the Loan Agreement. Amounts were held in the escrow account until the satisfaction of certain conditions including the closing of the Rights Offering (see Note 11) on November 16, 2016. As part of the satisfaction of a litigation claim, funds were released from the escrow account (the date on which such transfer occurred, the “Escrow Release Date”).
The Loan Agreement provides for a first-priority senior secured term loan facility in the aggregate principal amount of $80.0 million (the “Term Loan”), of which (i) $25.0 million was placed in a reserve account (the “Reserve Account”) only to be utilized to pay interest on the Term Loan as it becomes due; (ii) an additional $5.0 million was also placed in the Reserve Account and up to the full amount of such $5.0 million was eligible to be withdrawn after June 30, 2018 upon the satisfaction of certain conditions, provided that any of such amount was required to fund any interest to the extent any interest in excess of the aforementioned $25.0 million was due and owing and any of such $5.0 million remained in the Reserve Account; and (iii) $50.0 million (net of fees and expenses then due and owing to the Lender) was paid as part of the final payment to satisfy a litigation claim. Interest on the Term Loan is at a per annum rate equal to the Adjusted LIBOR rate plus 11.5%, subject to adjustments as set forth in the Loan Agreement. At December 31, 2019, the effective interest rate on the Term Loan, which includes interest payments and accretion of unamortized costs and fees, was 19.1%. The Company incurred $15.8 million of interest expense during the year-ended December 31, 2019, of which $4.5 million accreted to the Term Loan balance. For the year ended December 31, 2018, the Company incurred $15.5 million of interest expense, of which $4.5 million accreted to the Term Loan balance. On July 12, 2018, upon confirmation that there had been no events of default, $5 million was withdrawn by the Company from the Reserve Account and was placed in the Company's cash operating account. On October 31, 2018, the Loan Agreement was amended to expand the definition of permitted dispositions to include a sale of the PRV. In connection with the amendment, net cash proceeds from the sale of the PRV ($78.3 million) were placed in a restricted cash account; such restricted account to be used only for interest, fees and principal payments (other than those in connection with an event of default) on the Term Loan. The cash and cash equivalents balance in the restricted account was increased to $100.5 million as of July 24, 2019, in connection with an amendment to the Term Loan that allows the Company to diversify the financial institutions at which its remaining unrestricted cash and cash equivalents can be held. The balance in the restricted account represents an approximation of total payments that would be required pursuant to the Term Loan if it were to remain outstanding until its maturity.
The Term Loan matures on the earliest to occur of (i) the four-year anniversary of the Escrow Release Date, and (ii) the acceleration of certain obligations pursuant to the Loan Agreement. At maturity, $80.0 million of principal will be repaid, and an additional $4.0 million will be paid (see below). Prior to maturity, there are no scheduled principal payments.
Through the three and one-half year anniversary (May 17, 2020) of the Escrow Release Date, any prepayment of the Term Loan is subject to a make-whole provision in which interest payments related to the prepaid amount are due (subject to a discount of treasury rate plus 0.50%).
In connection with the Term Loan, the Company has granted the Lender a lien on and security interest in all of the Company’s right, title and interest in substantially all of the Company’s tangible and intangible assets, including all intellectual property.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants. These covenants, among other things, require a minimum cash balance throughout the term of the Term Loan and the achievement of regulatory milestones by certain dates, and contain certain limitations on the ability of the Company to incur unreimbursed research and development expenditures over a certain threshold, make capital expenditures over a certain threshold, incur indebtedness, dispose of assets outside of the ordinary course of business, make cash distributions (including share repurchases and dividends) and enter into certain merger or consolidation transactions. The minimum cash requirement was $5.0 million until August 27, 2018 (45 days after FDA approval of oral TPOXX®), at which point the minimum cash requirement became $20.0 million.
The Loan Agreement includes customary events of default, including, among others: (i) non-payment of amounts due thereunder, (ii) the material inaccuracy of representations or warranties made thereunder, (iii) non-compliance with covenants thereunder, (iv) non-payment of amounts due under, or the acceleration of, other material indebtedness of the Company and (v) bankruptcy or insolvency events. Upon the occurrence and during the continuance of an event of default under the Loan Agreement, the interest rate may increase by 2.00% per annum above the rate of interest otherwise in effect, and the Lenders would be entitled to accelerate the maturity of the Company’s outstanding obligations thereunder.
60
As of December 31, 2019, the Company is in compliance with the Loan Agreement covenants.
At December 31, 2019, the fair value of the debt was $85.7 million and the carrying value of the debt was $80.0 million. The Company used a discounted cash flow model to estimate the fair value of the debt by applying a discount rate to future payments expected to be made as set forth in the Loan Agreement. The fair value of the loan was measured using Level 3 inputs. The discount rate was determined using market participant assumptions.
In connection with the Loan Agreement, the Company incurred $8.2 million of costs (including interest on amounts held in the escrow account between September 30, 2016 and November 15, 2016). Furthermore, an additional $4.0 million will become payable when principal of the Term Loan is repaid. As part of the Company's entry into the Loan Agreement, the Company issued the Warrant (see Note 10) with a fair market value of $5.8 million. The fair value of the Warrant, as well as costs related to the Term Loan issuance, were recorded as deductions to the Term Loan balance on the Balance Sheet. These amounts are being amortized on a straight-line basis over the life of the related Term Loan. The Company compared the amortization under the effective interest method with the straight-line basis and determined the results were not materially different. The $4.0 million that will be paid when principal is repaid is being accreted to the Term Loan balance.
9. Per Share Data
The Company computes, presents and discloses earnings per share in accordance with the authoritative guidance which specifies the computation, presentation and disclosure requirements for earnings per share of entities with publicly held common stock or potential common stock. The objective of basic EPS is to measure the performance of an entity over the reporting period by dividing income (loss) by the weighted average shares outstanding. The objective of diluted EPS is consistent with that of basic EPS, except that it also gives effect to all potentially dilutive common shares outstanding during the period.
The following is a reconciliation of the basic and diluted (loss) earnings per share computation:
|
|
Year Ended December 31,
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
|
Net (loss) income for basic earnings per share
|
$
|
(7,241,147
|
)
|
|
$
|
421,807,828
|
|
|
$
|
(36,235,484
|
)
|
|
Less: Change in fair value of warrants
|
5,091,256
|
|
|
(6,922,624
|
)
|
|
—
|
|
|||
|
Net (loss) income, adjusted for change in fair value of warrants for diluted earnings per share
|
$
|
(12,332,403
|
)
|
|
$
|
428,730,452
|
|
|
$
|
(36,235,484
|
)
|
|
Weighted-average shares
|
81,031,254
|
|
|
79,923,295
|
|
|
78,874,494
|
|
|||
|
Effect of potential common shares
|
1,143,769
|
|
|
2,785,177
|
|
|
—
|
|
|||
|
Weighted-average shares: diluted
|
82,175,023
|
|
|
82,708,472
|
|
|
78,874,494
|
|
|||
|
(Loss) earnings per share: basic
|
$
|
(0.09
|
)
|
|
$
|
5.28
|
|
|
$
|
(0.46
|
)
|
|
(Loss) earnings per share: diluted
|
$
|
(0.15
|
)
|
|
$
|
5.18
|
|
|
$
|
(0.46
|
)
|
For the year ended December 31, 2019, the diluted earnings per share calculation reflects the effect of the assumed exercise of outstanding warrants and any corresponding elimination of the impact included in operating results from the change in fair value of the warrants. When applicable, weighted-average diluted shares include the dilutive effect of in-the-money options and warrants, unvested restricted stock and unreleased restricted stock units. The dilutive effect of warrants and options is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee or director must pay for exercising stock options, the average amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible, are collectively assumed to be used to repurchase shares.
The Company incurred losses for the twelve months ended December 31, 2019 and 2017 and as a result, for such years the equity instruments listed below are excluded from the calculation of diluted earnings (loss) per share as the effect of the exercise, conversion or vesting of such instruments would be anti-dilutive. The weighted average number of equity instruments excluded consisted of:
61
|
|
Year Ended December 31,
|
|||||
|
|
|
2019
|
|
2017
|
||
|
Stock Options
|
|
340,284
|
|
|
1,386,176
|
|
|
Stock-Settled Stock Appreciation Rights
|
|
1,666
|
|
|
333,252
|
|
|
Restricted Stock Units
|
|
525,741
|
|
|
1,396,730
|
|
|
Warrants
|
|
—
|
|
|
2,690,950
|
|
As discussed in Note 12, the appreciation of each stock-settled stock appreciation right was capped at a determined maximum value. As a result, the weighted average number shown in the table above for stock-settled stock appreciation rights reflects the weighted average maximum number of shares that could be issued.
10. Financial Instruments
2016 Warrant
On September 2, 2016, in connection with the entry into the Loan Agreement (see Note 8 for additional information), the Company issued a warrant (the “Warrant”) to the Lender to purchase a number of shares of the Company’s common stock equal to $4.0 million divided by the lower of (i) $2.29 per share and (ii) the subscription price paid in connection with the Rights Offering (as defined in Note 11). The subscription price paid was $1.50 in connection with the Rights Offering; accordingly, the exercise price of the Warrant was set at $1.50 per share, and there were 2.7 million shares underlying the Warrant. During the year ended December 31, 2019, approximately 0.2 million shares on the warrant were exercised. Subsequent to partial exercises of the Warrant, there are approximately 1.5 million shares underlying the Warrant as of December 31, 2019. The Warrant provides for weighted average anti-dilution protection and is exercisable in whole or in part for ten (10) years from the date of issuance.
The Company accounted for the Warrant in accordance with the authoritative guidance which requires that free-standing derivative financial instruments with certain anti-dilution and cash settlement features be classified as assets or liabilities at the time of the transaction, and recorded at their fair value. Any changes in the fair value of the derivative instruments are reported in earnings or loss as long as the derivative contracts are classified as assets or liabilities. Accordingly, the Company classified the Warrant as a liability and reports its change in fair value in the consolidated statement of operations.
On September 2, 2016, the issuance date of the Warrant, the fair value of the liability-classified Warrant was $5.8 million. The Company applied a Monte Carlo Simulation-model to calculate the fair value of the Warrant and compared the Monte Carlo simulation model calculation to a Black-Scholes model calculation as of December 31, 2016. These models generated substantially equivalent fair values for the Warrant. As such, the Company utilized a Black-Scholes model at December 31, 2019 and 2018 to determine the fair value of the Warrant.
As of December 31, 2019, the fair value of the Warrant was $6.1 million. A Black Scholes model was applied to calculate the fair value of the Warrant using the following assumptions: risk free interest rate of 1.81%; no dividend yield; an expected life of 6.7 years; and a volatility factor of 70%.
As of December 31, 2018, the fair value of the Warrant was $12.4 million. A Black Scholes model was applied to calculate the fair value of the Warrant using the following assumptions: risk free interest rate of 2.6%; no dividend yield; an expected life of 7.7 years; and a volatility factor of 70%.
At December 31, 2019, pursuant to the Warrant agreement, there were no conditions under which current assets would have been required to satisfy the Warrant obligation.
11. Stockholders’ Equity
On December 31, 2019, the Company’s authorized share capital consisted of 620,000,000 shares, of which 600,000,000 are designated common shares and 20,000,000 are designated preferred shares. The Company’s Board of Directors is authorized to issue preferred shares in series with rights, privileges and qualifications of each series determined by the Board. As of December 31, 2019 and 2018, no preferred shares were outstanding or issued.
62
12. Stock Compensation Plans
The Company’s 2010 Stock Incentive Plan (the “2010 Plan”) was initially adopted in May 2010. The 2010 Plan provided for the issuance of stock options, restricted stock and unrestricted stock with respect to an aggregate of 2,000,000 shares of the Company’s common stock to employees, consultants and outside directors of the Company. On May 17, 2011, the 2010 Plan was amended to provide for the issuance of restricted stock units (“RSUs”) and on February 2, 2012, the 2010 Plan was amended to provide for the issuance of SSARs. Effective April 25, 2012 and May 23, 2017, the 2010 Plan was amended to increase the maximum number of shares of common stock available for issuance to an aggregate of 4,500,000 shares and 8,500,000 shares, respectively. The vesting period for awards granted under the 2010 Plan, is determined by the Compensation Committee of the Board of Directors. The Compensation Committee also determines the expiration date of each equity award, however, stock options and SSARs may not be exercisable more than ten years after the date of grant as the maximum term of equity awards issued under the 2010 Plan is ten years.
For the years ended December 31, 2019, 2018 and 2017, the Company recorded stock-based compensation expense, including stock options, SSARs, RSUs and certain warrant amortization, of approximately $2.1 million, $2.3 million and $1.1 million, respectively.
Stock Options
Stock option awards provide holders the right to purchase shares of Common Stock at prices determined by the Compensation Committee, at the time of grant, and must have an exercise price equal to or in excess of the fair market value of the Company’s common stock at the date of grant.
The fair value of options granted is estimated at the date of grant. Expected volatility has been estimated using a combination of the historical volatility of the Company's common stock and the historical volatility of a group of comparable companies’ common stock, both using historical periods equivalent to the options’ expected lives. The expected dividend yield assumption is based on the Company’s intent not to issue a dividend in the foreseeable future. The risk-free interest rate assumption is based upon observed interest rates for securities with maturities approximating the options’ expected lives. The expected life was estimated based on historical experience and expectation of employee exercise behavior in the future giving consideration to the contractual terms of the award.
A summary of the Company’s stock option activity is as follows:
|
|
Number of
Options
|
|
Weighted
Average Exercise
Price
|
|
Weighted
Average
Remaining Life
(in years)
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|||||
|
Outstanding at January 1, 2019
|
402,400
|
|
|
$
|
9.03
|
|
|
|
|
|
||
|
Granted
|
25,000
|
|
|
5.90
|
|
|
|
|
|
|||
|
Exercised
|
(25,000
|
)
|
|
4.74
|
|
|
|
|
|
|||
|
Canceled/Expired
|
(121,400
|
)
|
|
7.75
|
|
|
|
|
|
|||
|
Outstanding at December 31, 2019
|
281,000
|
|
|
$
|
9.68
|
|
|
2.51
|
|
$
|
53,750
|
|
|
Vested at December 31, 2019
|
281,000
|
|
|
$
|
9.68
|
|
|
2.51
|
|
$
|
53,750
|
|
|
Exercisable at December 31, 2019
|
281,000
|
|
|
$
|
9.68
|
|
|
2.51
|
|
$
|
53,750
|
|
As of December 31, 2019, there is no remaining unrecognized stock-based compensation cost related to stock options expected to be recognized. The total fair value of stock options which vested during the years ended December 31, 2019 and 2017 was approximately $120,000 and $73,000, respectively. For the year ended December 31, 2018 there were no stock options that vested.
The total intrinsic value of stock options exercised was approximately $76,000, $2,900,000 and $65,000 for the years ended December 31, 2019, 2018 and 2017, respectively. The intrinsic value represents the amount by which the market price of the underlying stock exceeds the exercise price of an option.
Stock Appreciation Rights
SSARs provided holders the right to purchase shares of Common Stock at prices determined by the Compensation Committee, at the time of grant, and had to have an exercise price equal to or in excess of the fair market value of the Company’s common stock at the date of grant. Upon exercise, the gain, or intrinsic value, was settled by the delivery of SIGA stock to the employee.
63
There were no SSARs granted during the years ended December 31, 2019 or 2018. During the year ended December 31, 2012, the Company granted 1.4 million shares of SSARs at a weighted average grant-date fair value of $0.68 per share. The exercise price of a SSAR was equal to the closing market price on the date of grant. The granted SSARs vested in equal annual installments over a period of three years and expired no later than seven years from the date of grant. Moreover, the appreciation of each SSAR was capped at a determined maximum value.
The fair value of granted SSARs was estimated utilizing a Monte Carlo method. The Monte Carlo method is a statistical simulation technique used to provide the grant-date fair value of an award. As the issued SSARs were capped at maximum values, such attribute was considered in the simulation.
The Company calculated the expected volatility using a combination of historical volatility of SIGA's common stock and the volatility of a group of comparable companies' common stock. The expected life from grant date was estimated based on the expectation of exercise behavior in consideration of the maximum value and contractual term of the SSARs. The dividend yield assumption was based on the Company’s intent not to issue a dividend in the foreseeable future. The risk-free interest rate assumption was based upon observed interest rates appropriate for the expected life of the SSARs.
A summary of the Company’s SSAR activity is as follows:
|
|
Number of
SSARs
|
|
Weighted
Average Exercise
Price
|
|
Weighted
Average
Remaining Life
(in years)
|
|
Aggregate
Intrinsic Value
(in thousands)
|
||||||
|
Outstanding at January 1, 2019
|
34,100
|
|
|
$
|
3.53
|
|
|
|
|
|
|||
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
||||
|
Exercised
|
(34,100
|
)
|
|
3.53
|
|
|
|
|
|
||||
|
Canceled/Expired
|
—
|
|
|
—
|
|
|
|
|
|
||||
|
Outstanding at December 31, 2019
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||
|
Vested at December 31, 2019
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Exercisable at December 31, 2019
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
The total intrinsic value of SSARs exercised was approximately $0.1 million, $0.7 million and $0.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Restricted Stock Awards/Restricted Stock Units
RSUs awarded to employees vest in equal annual installments over a two or three-year period and RSUs awarded to directors of the Company vest over a one-year period. A summary of the Company’s RSU activity is as follows:
|
|
Number of
RSUs
|
|
Weighted
Average Grant-Date Fair Value
|
|||
|
Outstanding at January 1, 2019
|
499,116
|
|
|
$
|
3.26
|
|
|
Granted
|
255,292
|
|
|
5.84
|
|
|
|
Vested and released
|
(499,116
|
)
|
|
3.26
|
|
|
|
Canceled/Expired
|
(15,000
|
)
|
|
5.90
|
|
|
|
Outstanding at December 31, 2019
|
240,292
|
|
|
$
|
5.83
|
|
As of December 31, 2019, $0.8 million of total remaining unrecognized stock-based compensation cost related to RSUs is expected to be recognized over the weighted-average remaining requisite service period of 1.4 years. The weighted average fair value at the date of grant for restricted stock awards granted during the years ended December 31, 2019, 2018 and 2017 was $5.84, $6.53 and $3.51 per share, respectively. Based on the grant date, the total fair value of restricted stock and restricted stock units vested and released during the years ended December 31, 2019, 2018 and 2017 was approximately $1.6 million, $2.9 million and $0.6 million, respectively.
13. Income Taxes
The Company's (benefit) provision for income taxes comprises the following:
|
|
For the year ended December 31,
|
||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||
|
Current:
|
|
|
|
|
|
||||||
|
Federal
|
$
|
(663,114
|
)
|
|
$
|
(1,326,022
|
)
|
|
$
|
623,060
|
|
|
State and local
|
143,455
|
|
|
459,172
|
|
|
1,179
|
|
|||
|
Total current (benefit) provision
|
(519,659
|
)
|
|
(866,850
|
)
|
|
624,239
|
|
|||
|
Deferred:
|
|
|
|
|
|
||||||
|
Federal
|
(2,092,585
|
)
|
|
(9,256,661
|
)
|
|
(2,724,371
|
)
|
|||
|
State and local
|
(325,032
|
)
|
|
(44,761
|
)
|
|
6,342
|
|
|||
|
Total deferred (benefit)
|
(2,417,617
|
)
|
|
(9,301,422
|
)
|
|
(2,718,029
|
)
|
|||
|
Total (benefit)
|
$
|
(2,937,276
|
)
|
|
$
|
(10,168,272
|
)
|
|
$
|
(2,093,790
|
)
|
64
The Company’s deferred tax assets and liabilities comprise the following:
|
|
As of December 31,
|
||||||
|
|
2019
|
|
2018
|
||||
|
Deferred income tax assets:
|
|
|
|
||||
|
Net operating losses
|
9,353,603
|
|
|
$
|
9,798,319
|
|
|
|
Deferred research and development costs
|
—
|
|
|
60,535
|
|
||
|
Amortization of intangible assets
|
113,910
|
|
|
171,044
|
|
||
|
Share-based compensation
|
451,818
|
|
|
508,089
|
|
||
|
Property, plant and equipment
|
—
|
|
|
371,804
|
|
||
|
Deferred revenue
|
719,304
|
|
|
—
|
|
||
|
Interest expense carryforward
|
2,617,951
|
|
|
—
|
|
||
|
Lease liability
|
678,993
|
|
|
—
|
|
||
|
Alternative minimum tax credits
|
663,114
|
|
|
1,326,228
|
|
||
|
Other
|
1,338,046
|
|
|
1,028,083
|
|
||
|
Deferred income tax assets
|
15,936,739
|
|
|
13,264,102
|
|
||
|
Less: valuation allowance
|
(1,047,008
|
)
|
|
(1,051,307
|
)
|
||
|
Deferred income tax assets, net of valuation allowance
|
$
|
14,889,731
|
|
|
$
|
12,212,795
|
|
|
Deferred income tax liabilities:
|
|
|
|
||||
|
Amortization of goodwill
|
(201,930
|
)
|
|
(192,146
|
)
|
||
|
Property, plant and equipment
|
(175,581
|
)
|
|
—
|
|
||
|
Other
|
(361,218
|
)
|
|
(287,264
|
)
|
||
|
Deferred income tax asset (liability), net
|
$
|
14,151,002
|
|
|
$
|
11,733,385
|
|
The recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about the Company’s future profitability which is inherently uncertain. The Company assesses all available positive and negative evidence to determine if its existing deferred tax assets are realizable on a more-likely-than-not basis. In making such assessment, the Company considered the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results. The ultimate realization of a deferred tax asset is ultimately dependent on the Company's generation of sufficient taxable income within the available net operating loss carryback and/or carryforward periods to utilize the deductible temporary differences. As of December 31, 2019 and 2018, the Company has a valuation allowance on certain state and local net operating losses which the Company determined were not realizable on a more-likely-than-not basis.
During the year ended December 31, 2018, the Company received FDA approval and recorded revenue related to the delivery of our oral TPOXX® product. The Company also received payments for the FDA holdback, the expiry option under the 2011 Base Contract, and for the sale of its PRV. In addition, the Company entered into a new contract with BARDA for the sale of up to 1.7 million courses of (oral and IV) TPOXX®. Based on these factors, management determined that sufficient positive evidence existed to conclude that substantially all of our deferred tax assets were realizable on a more-likely-than-not basis and reversed our valuation allowance. During 2018, the valuation allowance decreased by $101.5 million which relates to the reversal of substantially all of the Company's valuation allowance against its deferred tax assets with the exception of those related to certain state net operating losses.
As of December 31, 2019, the Company had $38.2 million of federal net operating loss carryforwards, which expire in 2036, to offset future taxable income.
65
The benefit for income taxes differs from the expected amount calculated by applying the Company's statutory rate to the income or loss before benefit for income taxes as follows:
|
|
As of December 31,
|
|||||||
|
|
2019
|
|
2018
|
|
2017
|
|||
|
Statutory federal income tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
|
State taxes
|
1.3
|
%
|
|
0.8
|
%
|
|
3.9
|
%
|
|
Change in fair value of common stock warrant
|
10.5
|
%
|
|
0.4
|
%
|
|
(4.3
|
)%
|
|
Section 162(m) limitation
|
(6.0
|
)%
|
|
0.3
|
%
|
|
—
|
%
|
|
Other
|
2.1
|
%
|
|
(0.3
|
)%
|
|
1.8
|
%
|
|
U.S. federal tax law change
|
—
|
%
|
|
—
|
%
|
|
5.1
|
%
|
|
Valuation allowance on deferred tax assets
|
—
|
%
|
|
(24.7
|
)%
|
|
(36.0
|
)%
|
|
Effective tax rate
|
28.9
|
%
|
|
(2.5
|
)%
|
|
5.5
|
%
|
For the year ended December 31, 2019, the Company’s effective tax rate differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m) and a non-taxable adjustment for the fair market value of the Warrant. For the year ended December 31, 2018, the Company's effective tax rate differs from the statutory rate of 21% due to the reversal of the Company's valuation allowance as substantially all of the Company's deferred tax assets became realizable on a more-likely-than-not basis.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
For the year ended December 31,
|
|||||
|
|
2019
|
2018
|
||||
|
Balance at beginning of year
|
$
|
5,738,964
|
|
$
|
—
|
|
|
Tax positions related to the current and prior years:
|
—
|
|
—
|
|
||
|
Additions
|
—
|
|
5,738,964
|
|
||
|
Reductions
|
(89,776
|
)
|
—
|
|
||
|
Settlements
|
—
|
|
—
|
|
||
|
Lapses in applicable statutes of limitation
|
—
|
|
—
|
|
||
|
Balance at the end of the year
|
$
|
5,649,188
|
|
$
|
5,738,964
|
|
Included in the balance of unrecognized tax benefits as of December 31, 2019, are potential benefits of $5.6 million that, if recognized, would affect the effective tax rate. There are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized benefits will significantly increase or decrease within twelve months from December 31, 2019.
The Company files federal income tax returns and income tax returns in various state and local tax jurisdictions. The federal tax years open to examination are 2017 to 2019. The Company's state and local tax years open to examination are 2015-2019.
14. Commitments and Contingencies
Operating lease commitments
The Company leases its Corvallis, Oregon, facilities and office space under an operating lease which was signed on November 3, 2017 and commenced on January 1, 2018. This lease expires December 31, 2021. The Company had a lease for the same location prior to this lease. On May 26, 2017 the Company and M&F Incorporated entered into a ten-year office lease agreement (the “New HQ Lease”), pursuant to which the Company agreed to lease 3,200 square feet at 31 East 62nd Street, New York, New York. The Company is utilizing premises leased under the New HQ Lease as its corporate headquarters. The Company has no leases that qualify as finance leases.
Operating lease costs totaled $0.6 million and $0.7 million for the year ended December 31, 2019 and 2018, respectively. Cash paid for amounts included in the measurement of lease liabilities from operating cash flows was $0.6 million and $0.6 million for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019, the weighted-average remaining lease term of the Company’s operating leases was 6.3 years while the weighted-average discount rate was 4.53%.
66
The following is a maturity analysis of the Company's lease liabilities as of December 31, 2019:
|
2020
|
$
|
542,340
|
|
|
2021
|
600,362
|
|
|
|
2022
|
368,467
|
|
|
|
2023
|
402,078
|
|
|
|
2024
|
404,258
|
|
|
|
Thereafter
|
982,881
|
|
|
|
Total undiscounted cash flows under operating leases
|
3,300,386
|
|
|
|
Less: Imputed interest
|
(482,097
|
)
|
|
|
Present value of lease liabilities
|
$
|
2,818,289
|
|
As of December 31, 2019, approximately $2.4 million of the lease liability is included in Other liabilities on the consolidated balance sheet with the current portion included in accrued expenses.
As previously disclosed in the Company's 2018 Annual Report on Form 10-K and pursuant to ASC 840, Leases, the predecessor to ASC 842, future minimum lease payments for operating leases having initial or remaining noncancellable lease terms in excess of one year as of December 31, 2018 were as follows:
|
2019
|
|
$
|
541,376
|
|
|
2020
|
|
304,000
|
|
|
|
2021
|
|
304,000
|
|
|
|
2022
|
|
320,774
|
|
|
|
2023
|
|
352,000
|
|
|
|
Thereafter
|
|
1,197,778
|
|
|
|
Total
|
|
$
|
3,019,928
|
|
Legal Proceedings
From time to time, we may be involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, collections claims, breach of contract claims, labor and employment claims, tax and other matters. Although such claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of such current pending matters, if any, will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of legal costs, diversion of management resources and other factors.
Purchase Commitments
In the course of our business, the Company regularly enters into agreements with third party organizations to provide contract manufacturing services and research and development services. Under these agreements, the Company issues purchase orders which obligate the Company to pay a specified price when agreed-upon services are performed. Commitments under the purchase orders do not exceed our planned commercial and research and development needs. As of December 31, 2019 the Company has approximately $26.8 million of purchase commitments.
67
15. Related Party Transactions
Board of Directors and Outside Counsel
A member of the Company’s Board of Directors is a member of the Company’s outside counsel. During the years ended December 31, 2019, 2018 and 2017, the Company incurred expenses of approximately $468,000, $450,000 and $400,000, respectively, related to services provided by the outside counsel. On December 31, 2019 the Company’s outstanding payables and accrued expenses included a $40,000 liability to the outside counsel.
Board of Directors-Consulting Agreement
On October 13, 2018, the Company, entered into a consulting agreement with a member of the Company’s Board of Directors. Under the agreement, the consulting services will include assisting the Company on expanded indications for TPOXX® and other business development opportunities as requested by the Company. The term of the agreement is for two years, with compensation for such services at an annual rate of $200,000. During the year ended December 31, 2019, the Company incurred $200,000 related to services under this agreement. As of December 31, 2019, the Company’s outstanding payables and accrued expenses included a $50,000 liability associated with this agreement.
Real Estate Leases
On May 26, 2017 the Company and M&F Incorporated entered into the New HQ Lease, pursuant to which the Company agreed to lease 3,200 square feet at 31 East 62nd Street, New York, New York. The Company is utilizing premises leased under the New HQ Lease as its corporate headquarters. The Company's rental obligations consist of a fixed rent of $25,333, per month in the first sixty-three months of the term, subject to a rent abatement for the first six months of the term. From the first day of the sixty-fourth month of the term through the expiration or earlier termination of the lease, the Company's rental obligations consist of a fixed rent of $29,333 per month. In addition to the fixed rent, the Company will pay a facility fee in consideration of the landlord making available certain ancillary services, commencing on the first anniversary of entry into the lease. The facility fee will be $3,333 per month for the second year of the term and increase by five percent each year thereafter, to $4,925 per month in the final year of the term.
On July 31, 2017, the Company and M&F, entered into a Termination of Sublease Agreement (the “Old HQ Sublease Termination Agreement”), pursuant to which the Company and M&F agreed to terminate the sublease dated January 9, 2013 for 6,676 square feet of rental square footage located at 660 Madison Avenue, Suite 1700, New York, New York (such sublease being the “Old HQ Sublease” and the location being the “Old HQ”).
Effectiveness of the Old HQ Sublease Termination Agreement was conditioned upon the commencement of a sublease for the Old HQ between M&F and a new subtenant (the “Replacement M&F Sublease”), which occurred on August 2, 2017. The Old HQ Sublease Termination Agreement obligates the Company to pay, on a monthly basis, an amount equal to the discrepancy (the “Rent Discrepancy”) between the sum of fixed rent and Additional Rent (as defined below) under the Old HQ Overlease (as defined below) and the sum of fixed rent and Additional Rent under the Replacement M&F Sublease. Under the Old HQ Sublease Termination Agreement, the Company and M&F release each other from any liability under the Old HQ Sublease.
Under the Old HQ Sublease, the Company was obligated to pay fixed rent of approximately $60,000 per month until August 2018 and approximately $63,400 per month thereafter until the Old HQ Sublease expiration date of August 31, 2020. Additionally, the Company was obligated to pay certain operating expenses and taxes (“Additional Rent”), such Additional Rent being specified in the overlease between M&F and the landlord at 660 Madison Avenue (the “Old HQ Overlease”).
Under the Replacement M&F Sublease, the subtenant’s rental obligations were excused for the first two (2) months of the lease term (“Rent Concession Period”). Thereafter, the subtenant was obligated to pay fixed rent of $36,996 per month for the first twelve (12) months, and is obligated to pay $37,831 per month for the next 12 months, and $38,665 per month until the scheduled expiration of the Replacement M&F Sublease on August 24, 2020. In addition to fixed rent, the subtenant is also obligated to pay, pursuant to the Replacement M&F Sublease, a portion of the Additional Rent specified in the Old HQ Overlease.
For the time period between August 2, 2017 and August 31, 2020 (the expiration date of the Old HQ Sublease), the Company estimates that it will pay a total of approximately $0.9 million combined in fixed rent and additional amounts payable under the New HQ Lease and a total of approximately $1.1 million in Rent Discrepancy under the Old HQ Sublease Termination Agreement, for a cumulative total of $2.0 million. In contrast, fixed rent and estimated Additional Rent under the Old HQ Sublease, for the aforementioned time period, would have been a total of approximately $2.4 million if each of the New HQ Lease, Replacement M&F Sublease and Old HQ Sublease Termination Agreement had not been entered into by each of the parties thereto. Because
68
amounts such as operating expenses and taxes may vary, the foregoing totals can only be estimated at this time and are subject to change.
As a result of the above-mentioned transactions, the Company discontinued usage of Old HQ in the third quarter of 2017. As such, for the year ended December 31, 2017 the Company recorded a loss of approximately $1.1 million in accordance with ASC 420, Exit or Disposal Obligations. This loss primarily represented the discounted value of estimated Rent Discrepancy payments to occur in the future, and included costs related to the termination of the old HQ Sublease. The Company also wrote-off approximately $0.1 million of leasehold improvements and furniture and fixtures related to the Old HQ.
The following table summarizes activity relating to the liability that was recorded as a result of the lease termination:
|
|
For the years ended December 31,
|
||||||
|
|
2019
|
|
2018
|
||||
|
Beginning Balance
|
$
|
509,937
|
|
|
$
|
814,622
|
|
|
Charges
|
45,374
|
|
|
35,861
|
|
||
|
Cash Payments
|
(352,935
|
)
|
|
(340,546
|
)
|
||
|
Lease Termination Liability
|
$
|
202,376
|
|
|
$
|
509,937
|
|
For the year ended December 31, 2019, the entire lease termination liability is included in accrued expenses on the consolidated balance sheet. For the year ended December 31, 2018, approximately $0.2 million of the lease termination liability is included in Other liabilities on the consolidated balance sheet with the remainder in accrued expenses.
16. Financial Information By Quarter (Unaudited)
|
|
Three Months Ended
|
|
||||||||||||||
|
2019
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
||||||||
|
|
(in thousands, except for per share data)
|
|
||||||||||||||
|
Revenues
|
$
|
10,459
|
|
|
$
|
3,908
|
|
|
$
|
8,111
|
|
|
$
|
4,264
|
|
|
|
Cost of sales and supportive services
|
915
|
|
|
—
|
|
|
737
|
|
|
130
|
|
|
||||
|
Selling, general & administrative
|
3,167
|
|
|
3,392
|
|
|
3,196
|
|
|
3,497
|
|
|
||||
|
Research and development
|
3,997
|
|
|
2,038
|
|
|
3,344
|
|
|
3,924
|
|
|
||||
|
Patent preparation fees
|
188
|
|
|
182
|
|
|
174
|
|
|
182
|
|
|
||||
|
Operating income (loss)
|
2,192
|
|
|
(1,705
|
)
|
|
661
|
|
|
(3,470
|
)
|
|
||||
|
Net income (loss)
|
1,630
|
|
|
(3,162
|
)
|
|
(1,206
|
)
|
|
(4,503
|
)
|
|
||||
|
Net loss per share: basic
|
$
|
0.02
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
|
Net loss per share: diluted
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
Three Months Ended
|
|
||||||||||||||
|
2018
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
||||||||
|
|
(in thousands, except for per share data)
|
|
||||||||||||||
|
Revenues
|
$
|
1,748
|
|
|
$
|
2,661
|
|
|
$
|
471,075
|
|
|
$
|
1,569
|
|
|
|
Cost of sales and supportive services
|
—
|
|
|
—
|
|
|
95,166
|
|
|
103
|
|
|
||||
|
Selling, general and administrative
|
3,057
|
|
|
2,880
|
|
|
3,115
|
|
|
3,828
|
|
|
||||
|
Research and development
|
3,008
|
|
|
3,312
|
|
|
3,723
|
|
|
2,973
|
|
|
||||
|
Patent expenses
|
218
|
|
|
178
|
|
|
186
|
|
|
207
|
|
|
||||
|
Operating income (loss)
|
(4,535
|
)
|
|
(3,710
|
)
|
|
368,885
|
|
|
(5,541
|
)
|
|
||||
|
Net income (loss)
|
(11,582
|
)
|
|
(7,051
|
)
|
|
388,050
|
|
|
52,391
|
|
A
|
||||
|
Net loss per share: basic
|
$
|
(0.15
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
4.85
|
|
|
$
|
0.65
|
|
|
|
Net loss per share: diluted
|
$
|
(0.15
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
4.71
|
|
|
$
|
0.65
|
|
|
69
A- Includes sale of PRV in October 2018. See Note 4 for additional information
70
17. Subsequent Event
On March 5, 2020, the Company's Board of Directors authorized a share repurchase program under which the Company may repurchase up to $50 million of the Company's common stock through December 31, 2021. Repurchases under the program may be made from time to time at the Company's discretion in open market transactions, through block trades, in privately negotiated transactions and pursuant to any trading plan that may be adopted by the Company's management in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or otherwise. Prior to executing any repurchase under this program, the Company's Term Loan would need to be amended or fully repaid.
71
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019 in accordance with the framework on Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Management recognizes that any disclosure controls and procedures no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on that evaluation, our Chief Executive Office and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2019 at a reasonable level of assurance.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or Rule 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
|
a.
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the Company’s assets;
|
|
b.
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and
|
|
c.
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 using the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation using the COSO criteria, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which appears herein.
Item 9B. Other Information
72
None.
73
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Information required by this item is incorporated herein by reference to our definitive proxy statement for the 2020 Annual Meeting of Stockholders.
Item 11. Executive Compensation
Information required by this item is incorporated herein by reference to our definitive proxy statement for the 2020 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item is incorporated herein by reference to our definitive proxy statement for the 2020 Annual Meeting of Stockholders.
Equity Compensation Plan Information
The following table sets forth certain compensation plan information with respect to compensation plans as of December 31, 2019:
|
Plan Category
|
Number of Securities to be
Issued Upon Exercise of
Outstanding Options, Warrants and Restricted Stock Units (1)
|
|
Weighted-average
Exercise Price of
Outstanding Options, Warrants and Restricted Stock Units
|
|
Number of Securities
Available for Future
Issuance under Equity Compensation Plans (2)
|
||||
|
Equity compensation plans approved by security holders
|
521,292
|
|
|
$
|
7.91
|
|
|
4,776,433
|
|
|
Equity compensation plans not approved by security holders
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Total
|
521,292
|
|
|
$
|
7.91
|
|
|
4,776,433
|
|
|
(1)
|
Consists of the 1996 Incentive and Non-Qualified Stock Option Plan and the 2010 Stock Incentive Plan.
|
|
(2)
|
Consists of the 2010 Stock Incentive Plan.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item is incorporated herein by reference to our definitive proxy statement for the 2020 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services
Information required by this item is incorporated herein by reference to our definitive proxy statement for the 2020 Annual Meeting of Stockholders.
74
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) (1) and (2). Financial Statements.
See Index to Financial Statements under Item 8 in Part II hereof where these documents are listed. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
(a) (3). Exhibits.
The following is a list of exhibits:
|
Exhibit
No.
|
|
Description
|
|||
|
|
Asset Purchase Agreement, dated October 31, 2018, by and between Eli Lilly and Company and SIGA Technologies, Inc. (incorporated by referenced to the Current Report on Form 8-K of the Company filed on November 1, 2018).
|
|
|||
|
|
|
|
|
||
|
|
Amended and Restated Certificate of Incorporation of SIGA Technologies, Inc. (incorporated by reference to the Current Report on Form 8-K of the Company filed on April 14, 2016).
|
|
|||
|
|
|
|
|
||
|
|
Amended and Restated Bylaws of SIGA Technologies, Inc. (incorporated by reference to the Current Report on Form 8-K of the Company filed on April 14, 2016).
|
|
|||
|
|
|
|
|
||
|
|
Amendment to Amended and Restated Bylaws of SIGA Technologies, Inc. (incorporated by reference to the Current Report on Form 8-K of the Company filed on December 13, 2016).
|
|
|||
|
|
|
|
|
||
|
4(a)
|
|
Form of Common Stock Certificate (incorporated by reference to the Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
|
|
||
|
|
|
|
|
||
|
|
Description of the Registrant's Securities Registered pursuant to Section 12 of the Securities Exchange Act of 1934.
|
|
|||
|
|
|
|
|
||
|
|
Contract dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Current Report on Form 8-K of the Company filed on May 17, 2011).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract dated as of June 24, 2011, to Agreement dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Current Report on Form 8-K of the Company filed on June 28, 2011).
|
|
|||
|
|
|
|
|
||
|
|
Director Compensation Program, effective January 1, 2012 (incorporated by reference to the Definitive Proxy Statement on Form DEF 14A of the Company filed on April 27, 2012).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract dated as of September 28, 2011, to Agreement dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on May 7, 2012).
|
|
|||
|
|
|
|
|
||
75
|
|
Amendment of Solicitation/Modification of Contract dated as of October 7, 2011, to Agreement dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on May 7, 2012).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract dated as of January 25, 2012 to Agreement, dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on May 7, 2012).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract dated as of February 7, 2012, to Agreement, dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on May 7, 2012).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract dated as of December 19, 2012, to Agreement, dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Annual Report on Form 10-K of the Company filed on March 6, 2013).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract dated as of February 28, 2013, to Agreement, dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (incorporated by reference to the Annual Report on Form 10-K of the Company filed on March 10, 2014).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract dated as of April 9, 2013, to Agreement, dated as of May 13, 2011, between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (incorporated by reference to the Annual Report on Form 10-K of the Company filed on March 10, 2014).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract 0009, dated April 29, 2015, to Agreement, dated May 13, 2011 by and between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on May 6, 2015).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract 0010, dated July 1, 2015, to Agreement, dated May 13, 2011 by and between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Annual Report on Form 10-K of the Company filed on March 4, 2016).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract 0011, dated December 9, 2015, to Agreement, dated May 13, 2011 by and between SIGA and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment)(incorporated by reference to the Annual Report on Form 10-K of the Company filed on March 4, 2016).
|
|
|||
|
|
|
|
|
||
|
|
Amended and Restated Employment Agreement, dated April 12, 2016, between SIGA Technologies, Inc. and Daniel J. Luckshire (incorporated by reference to the Current Report on Form 8-K of the Company filed on April 14, 2016).
|
|
|||
|
|
|
|
|
||
76
|
|
Amended and Restated Employment Agreement, dated April 12, 2016, between SIGA Technologies, Inc. and Dennis E. Hruby (incorporated by reference to the Current Report on Form 8-K of the Company filed on April 14, 2016).
|
|
|||
|
|
|
|
|
||
|
|
Amendment of Solicitation/Modification of Contract 0013, dated June 28, 2016, to Agreement, dated May 13, 2011, between the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services and SIGA (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Current Report on Form 8-K of the Company filed on July 5, 2016).
|
|
|||
|
|
Loan and Security Agreement, dated as of September 2, 2016, by and among SIGA Technologies, Inc., OCM Strategic Credit SIGTEC Holdings, LLC, Cortland Capital Market Services LLC, in its capacity as administrative agent and collateral agent, OCM Strategic Credit SIGTEC Holdings, LLC, as sole lead arranger, and each of the other persons who are or thereafter become parties to the Loan Agreement as guarantors (incorporated by reference to the Current Report on Form 8-K of the Company filed on September 7, 2016).
|
|
||
|
|
|
|
|
|
|
|
Warrant, dated as of September 2, 2016, by the Company in favor of OCM Strategic Credit SIGTEC Holdings, LLC or its registered assigns (incorporated by reference to the Current Report on Form 8-K of the Company filed on September 7, 2016).
|
|
||
|
|
|
|
|
|
|
|
Employment Agreement, dated as of October 13, 2016, between SIGA and Phillip Louis Gomez, III (incorporated by reference to the Current Report on Form 8-K of the Company filed on October 13, 2016).
|
|
||
|
|
|
|
|
|
|
|
Investment Agreement, dated October 13, 2016, by and among SIGA Technologies, Inc., ST Holdings One LLC, Blackwell Partners LLC-Series A, Nantahala Capital Partners Limited Partnership, Nantahala Capital Partners II Limited Partnership, Silver Creek CS SAV, L.L.C. and Nantahala Capital Partners SI, LP (incorporated by reference to the Current Report on Form 8-K of the Company filed on October 19, 2016).
|
|
||
|
|
|
|
|
|
|
|
Amendment of Solicitation/Modification of Contract 0012, dated April 22, 2016, to Agreement, dated May 13, 2011, between the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services and SIGA (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on May 4, 2017).
|
|
||
|
|
|
|
|
|
|
|
Amendment of Solicitation/Modification of Contract 0014, dated September 21, 2016, to Agreement, dated May 13, 2011, between the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services and SIGA (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on May 4, 2017).
|
|
||
|
|
|
|
|
|
|
|
Office Lease, dated as of May 26, 2017, by and between SIGA Technologies, Inc. and MacAndrews & Forbes Incorporated (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Current Report on Form 8-K of the Company filed on May 30, 2017).
|
|
||
|
|
|
|
|
|
|
|
Termination of Sublease, dated as of July 31, 2017 (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on August 3, 2017).
|
|
||
|
|
|
|
|
|
|
|
Amendment, dated August 29, 2017, to that certain Loan and Security Agreement, dated as of September 2, 2016, by and among SIGA Technologies, Inc., OCM Strategic Credit SIGTEC Holdings, LLC, Cortland Capital Market Services LLC, in its capacity as administrative agent and collateral agent, OCM Strategic Credit SIGTEC Holdings, LLC, as sole lead arranger, and each of the other persons who are or thereafter become parties to the Loan Agreement as guarantors (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on November 7, 2017).
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Commercial Lease Agreement for Corvallis, Oregon dated November 3, 2017 (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on November 7, 2017).
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77
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Second Amendment to Loan and Security Agreement, dated June 25, 2018, by and among the Company, OCM Strategic Credit SIGTEC Holdings, LLC, as lender, Cortland Capital Market Services LLC, in its capacity as administrative agent and collateral agent, and OCM Strategic Credit SIGTEC Holdings, LLC, as sole lead arranger (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on August 7, 2018).
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Amendment of Solicitation/Modification of Contract 0015, dated July 30, 2018, to Agreement, dated May 13, 2011, between the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services and SIGA (incorporated by reference to the Current Report on Form 8-K of the Company filed on August 1, 2018).
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Second Amended and Restated Employment Agreement, dated August 1, 2018, between SIGA Technologies, Inc. and Robin E. Abrams (incorporated by reference to the Current Report on Form 8-K of the Company filed on August 3, 2018).
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Addendum, dated August 10, 2018, to Seconded Amended and Restated Employment Agreement, dated April 12, 2016, between SIGA Technologies, Inc. and Dennis E. Hruby (incorporated by reference to the Current Report on Form 8-K of the Company filed on August 10, 2018).
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Contract, dated as of September 10, 2018, between SIGA Technologies, Inc. and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Current Report on Form 8-K of the Company filed on September 11, 2018).
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Amendment of Solicitation/Modification of Contract 0016, dated September 21, 2018, to Agreement, dated May 13, 2011, between the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services and SIGA (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on November 6, 2018).
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Amendment of Solicitation/Modification of Contract 0017, dated September 28, 2018, to Agreement, dated May 13, 2011, between the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services and SIGA (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on November 6, 2018).
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Amendment of Solicitation/Modification of Contract 0018, dated September 28, 2018 to Agreement, dated June 1, 2011, between the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services and SIGA (incorporated by reference to the Quarterly Report on Form 10-Q of the Company filed on November 6, 2018).
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Consulting Agreement and Release, dated October 13, 2018, between SIGA Technologies, Inc. and Dr. Eric A. Rose (incorporated by reference to the Current Report on Form 8-K of the Company filed on October 18, 2018).
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Third Amendment to Loan and Security Agreement, dated October 31, 2018, by and among the Company, OCM Strategic Credit SIGTEC Holdings, LLC, as lender, Cortland Capital Market Services LLC, in its capacity as administrative agent and collateral agent, and OCM Strategic Credit SIGTEC Holdings, LLC, as sole lead arranger (incorporated by reference to the Current Report on Form 8-K of the Company filed on November 1, 2018).
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Commercial Manufacturing Agreement, dated October 1, 2018, by and between Albemarle Corporation and SIGA (portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment) (incorporated by reference to the Annual Report on Form 10-K of the Company filed on March 6, 2019).
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Amendment of Solicitation/Modification of Contract 0001, dated February 21, 2019, to Agreement, dated September 10, 2018, between the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services and SIGA (incorporated by reference to the Annual Report on Form 10-K of the Company filed on March 6, 2019).
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78
79
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101.INS
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Inline XBRL Instance Document
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101.SCH
|
Inline Taxonomy Extension Schema Document
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101.CAL
|
Inline Taxonomy Extension Calculation Linkbase Document
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101.DEF
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Inline Taxonomy Extension Definition Linkbase Document
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101.LAB
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Inline Taxonomy Extension Labels Linkbase Document
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101.PRE
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Inline Taxonomy Extension Presentation Linkbase Document
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80
Item 16. Form 10-K Summary
None
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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SIGA TECHNOLOGIES, INC.
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(Registrant)
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Date:
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March 5, 2020
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By:
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/s/ Phillip L. Gomez
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Phillip L. Gomez
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Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature
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Title of Capacities
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Date
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/s/ Phillip L. Gomez
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March 5, 2020
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Phillip L. Gomez
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Chief Executive Officer and Director
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/s/ Daniel J. Luckshire
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Daniel J. Luckshire
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Executive Vice President and
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March 5, 2020
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Chief Financial Officer
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(Principal Financial Officer and
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Principal Accounting Officer)
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/s/ Eric A. Rose
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Eric A. Rose, M.D.
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Chairman
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March 5, 2020
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/s/ James J. Antal
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James J. Antal
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Director
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March 5, 2020
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/s/ Thomas E. Constance
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Thomas E. Constance
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Director
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March 5, 2020
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/s/ Julie M. Kane
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Julie M. Kane
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Director
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March 5, 2020
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/s/ Jeffrey Kindler
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Jeffrey Kindler
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Director
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March 5, 2020
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/s/ Joseph Marshall
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Joseph Marshall
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Director
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March 5, 2020
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/s/ Michael Plansky
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Michael Plansky
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Director
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March 5, 2020
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/s/ Paul G. Savas
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Paul G. Savas
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Director
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|
March 5, 2020
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82