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Siga Overview
I last covered SIGA Technologies, Inc. (NASDAQ:SIGA) for Seeking Alpha in a deep dive note just over two months ago, giving the stock a “Hold” recommendation.
Shares initially dipped following the post, then rose as the company reported that it had:
received a procurement order for approximately $113 million of oral TPOXX from the U.S. Government under the 19C BARDA contract, for delivery to the U.S. Strategic National Stockpile (SNS).
TPOXX, otherwise known as tecovirimat, is described as follows in Siga’s Q2 2024 quarterly report /10Q submission:
TPOXX® is an oral formulation antiviral drug for the treatment of human smallpox disease caused by variola virus. On July 13, 2018, the United States Food & Drug Administration (“FDA”) approved oral TPOXX® for the treatment of smallpox. The Company has been delivering oral TPOXX® to the U.S. Strategic National Stockpile (“Strategic Stockpile”) since 2013.
Siga also sells an IV version of TPOXX. Furthermore, according to the latest 10Q:
In addition to being approved by the FDA, oral TPOXX® (tecovirimat) has regulatory approval with the European Medicines Agency (“EMA”), Health Canada and the Medicines and Healthcare Products Regulatory Agency (“MHRA”) of the United Kingdom.
The EMA and MHRA approved label indication covers the treatment of smallpox, monkeypox (“mpox”), cowpox, and vaccinia complications following vaccination against smallpox. The Health Canada approved label indication covers the treatment of smallpox.
Shares reached a high of $10.5 in late July, but fell quite sharply after Q2 2024 earnings were announced, which is slightly surprising, as revenues for the quarter were $21m, including $18 million of IV TPOXX sales to the U.S. Government. In the prior year quarter, product revenues were just $1.3m. Siga reported net income for the quarter of $1.8m, and $12.1m for the first six months of 2024.
Failed Mpox Study Sends Siga Stock Plummeting
Yesterday, Siga stock began the day trading at $12 per share, its highest value since August 2022. This was when an outbreak of Monkey Pox — 131 confirmed cases of monkeypox, and 106 suspected cases across 19 different countries, including the U.S., U.K. Canada, Australia, Italy, Spain, and Portugal — sent Siga stock all the way — briefly — to $25 per share.
Why? Because, as mentioned above, TPOXX is approved to treat Mpox, in Europe at least. Therefore, it seemed likely that the antiviral would be in high demand, although ultimately the outbreak seemed to quickly pass and Siga did not realize any additional revenue from this source.
Yesterday, the World Health Organization (“WHO”) declared a Mpox global health emergency — according to BBC News, an outbreak has caused up to 450 deaths in the Democratic Republic of Congo, and is spreading across central and East Africa — the BBC also states:
There are two main types of mpox – Clade 1 and Clade 2.
A previous mpox public health emergency, declared in 2022, was caused by the relatively mild Clade 2. However, this time it is the far more deadly Clade 1 – which has killed up to 10% of those getting sick in previous outbreaks – that is surging.
We may therefore expect Siga’s stock price to surge, which is what initially happened. That is, until — in a case of very unfortunate timing — Siga reported today that the clinical study it had been running — PALM 007, evaluating TPOXX as a therapy for Mpox:
did not meet its primary endpoint of a statistically significant improvement in time to lesion resolution within 28 days post-randomization for patients in the Democratic Republic of the Congo (DRC) with monkeypox (mpox), who were administered SIGA’s tecovirimat, a highly targeted antiviral treatment, versus placebo.
Not unexpectedly, this news was followed by a sharp market sell-off of Siga stock, dropping its price by ~28% in trading today (at the time of writing).
Terrible Timing — But Has The Study Miss Been Overblown?
Clearly, missing on the primary study endpoint is bad news for Siga, however the company has pointed to elements of the study that appear successful. For example, in its press release, Siga states:
A meaningful improvement was observed in patients receiving tecovirimat whose symptoms began seven days or fewer before randomization and in those with severe or greater disease, defined by the World Health Organization (WHO) as having 100 or more skin lesions.
While more analysis is required, the Company believes these data support further trials to assess the potential benefit of tecovirimat in those who present to medical care soon after symptoms and in those with severe disease.
There are very few currently available therapies that can be used to treat Mpox — according to the Centers For Disease Control (“CDC”):
Tecovirimat is typically the first therapeutic that should be considered if patients with mpox require more than supportive care. Brincidofovir and Vaccinia Immune Globulin (VIGIV) are additional therapeutics, available from the Strategic National Stockpile (SNS), that can be considered for treatment of mpox in certain patients who necessitate an additional or alternative treatment to tecovirimat. Cidofovir is a commercially available antiviral that has the same mechanism of action as brincidofovir and could also be considered.
As such, despite its study miss, Tecovirimat may still end up being used to treat Mpox in the event of a global breakout (the company has already donated 500 cases of TPOXX capsules to the DRC as part of the PALM-007 study) if the spread continues. Earlier today, it was revealed that one case of Clade-1 Mpox has been reported in Sweden.
Across trading message boards and social media, criticism has also been levelled at the National Institutes of Health’s (“NIH”) National Institute of Allergy and Infectious Diseases (“NIAID”). They were study sponsors alongside Siga with the design and management of the study, which may have allowed patients to receive treatment more than a week after their illness started, potentially clouding the picture.
Siga itself says that all patients — placebo and Tecovirimat — were hospitalized for the duration of their treatment, which ultimately meant that:
patients in the placebo arm had much more favorable outcomes than those in the observational studies from the DRC that were used to plan this trial, which could have reduced the measured benefit of tecovirimat compared to placebo. The exact impact of this controlled environment on the trial results is not yet known.
Another element to consider is the high level of short interest in Siga stock — according to MarketBeat, 14% of the float was held short as of July 31st, so there has been downward pressure on the share price.
Looking Ahead — Long-Term Effect On Siga’s Share Price
It’s important to remember that Siga’s core business is not treating cases of Mpox, it is supplying oral and IV TPOXX to the U.S. Government and other government’s around the world. This is the key determinant of Siga’s share price fortunes, while the “black swan” threat of a Mpox outbreak had the potential to send Siga’s share price skyrocketing, due to the paucity of treatment options (and the market’s hype machine).
As I wrote back in June:
Since 2018, revenue generation has primarily come from this source (government stockpiling), and has been consistent – $125m, $134m, $111m and $140m in 2020, 2021, 2022 and 2023, and margins have been impressive – net income in those years amounts to $56m, $70m, $34m, and $68m. In short, this is an efficient, profitable company, however there are potential downsides.
Clearly, this is a niche indication. Therefore, — outbreaks of Mpox aside — revenue growth potential is somewhat restricted. It should also be noted that, although the US government made its $113m procurement order earlier this year, this relates to an old contract between BARDA and Siga, which has yet to be renewed. According to Siga’s CEO, speaking on the Q2 call with analysts:
All in all, based on our conversations with the government officials as well as other SNS contracts to procure medical countermeasures, we are confident that the government is receptive to a new, long-dated contract, most likely between five years and 10 years, and the aggregate value of this contract should surpass the aggregate value of our current contract, under which most options have now been exercised.
Such a contract win would obviously be excellent news for Siga and its shareholders. The last contract, signed in 2018, had a procurement value of $546 million. Thus, a similar or higher figure would almost guarantee Siga 5-10 more years of triple-digit million revenues, while a new, post-exposure prophylaxis (“PEP”) version of TPOXX, if approved, could add a fresh source of revenue.
Nevertheless, while the contract remains unsigned, and even accepting that there is a paucity of other smallpox therapies (brincidofovir is part of the SNS, and cidofovir is commercially available, although not FDA approved), there is some risk to acknowledge. We do not yet know how long the next contract will be, how much it will pay, and even if it will be offered at all, although the likeliest outcome is that some form of new contract is signed. If it is not, Siga’s share price losses would be devastating.
With its current market cap of $617m, Siga is trading at a historic price to sales ratio of ~4x, and a historic P/E ratio of ~9x. These are ratios that are low enough to imply upside potential, even if management has not shared any 2024 guidance, which can sometimes be considered a cause for concern.
If Tecovirimat is ultimately not considered to be an effective treatment for Mpox, then if this current outbreak intensifies, a golden opportunity for Siga’s share price to take flight may have been missed. When we consider how rapidly its share price rose and fell in 2022, however — shares traded at >$20 for a matter of days — this is clearly not the outcome the majority of Siga’s shareholders are invested in. Rather, they would prefer steady, solid revenue streams and handsome profits from the core business.
Concluding Thoughts — Am I Altering My “Hold” Rating After Today’s Events?
Given that yesterday’s and today’s news, and the share price volatility, affects the “black swan” Mpox opportunity, much more so than the core business (would the failed Mpox study have any influence whatsoever on the next BARDA contract?), I would not be inclined to change my “Hold” rating at this time.
As much as the next contract may be a formality, while it remains unsigned, with no details around timings and value, I’d prefer to stay on the sidelines, as I don’t see a compelling enough growth opportunity here.
However you look at it, Siga’s Mpox study miss is an unfortunate moment for the company. This is even though there will be more studies to come. Eventual success is absolutely not out of the question, and if an outbreak begins to grow, Tecovirimat could still secure an Emergency Use Authorization (“EUA”) and earn a substantial windfall for Siga.
As such, while SIGA Technologies, Inc. remains a stock worth monitoring, there is some uncertainty to contemplate across elements of the business, although for those with a more risk-on approach, the price volatility around Mpox may continue.
The company plays a crucial role in the healthcare landscape. However, for how long it will continue doing so with such limited competition, and whether the study miss announced today will have long-term repercussions, remain unknowns for now.
