SIGA - SIGA's Q4 Could Astonish Not In A Good Way

Summary

• Global and regional cases of the 2022 mpox outbreak are slowly winding down.
• The company hasn’t reported additional orders for its sole product TPOXX since the third quarter earnings call.
• Despite the outbreak, SIGA may incredibly have less revenue this year than in 2021.

Shares of SIGA Technologies ( SIGA ) have declined 43% since the previous coverage to a more reasonable market cap in the $500 million range. This was expected, although the author did not have the conviction to rate the stock a Sell. Since then, the World Health Organization (WHO) and other agencies have transitioned into using "mpox" as a new preferred synonym for monkeypox. Prices are currently below $7.50, but ended in positive territory for the year and therefore greatly outperformed the general market. However, investors should be prepared for a muted annual report.

Points brought up in the earlier article are still valid.

• The number of mpox cases continue to plummet worldwide since mid-September (Figure 1), especially in the European theater (Figure 2). In Q3, SIGA sold and delivered approximately $61 million of the $77 million in international orders for 2022, and of the 13 customers for these orders, 12 are new. One of them was the European Commission, which ordered $10 million . Subtracting the $5 million delivered in Q2, around $11 million worth remains outstanding.

Figure 1. 2022 Mpox Outbreak: Global Trends. Geneva: World Health Organization, 2022. Available online: 2022 Mpox (Monkeypox) Outbreak:Global Trends (last cited: 12/30/2022).

Figure 2. 2022 Mpox Outbreak: Trends in the European Union, as of December 20, 2022 .

• It was a similar trend nationally (Figure 3). This is great from a public health standpoint. Therefore, the Department of Health and Human Services won't be renewing the Public Health Emergency declaration for mpox when it expires on January 31, 2023 .

Figure 3. 2022 Mpox Outbreak: U.S. Daily Cases and 7-Day Daily Average as of December 21, 2022.

• U.S. approval for TPOXX as a mpox treatment won't generate more sales. More clinical trials were initiated in the third quarter, but fortunately not on SIGA's dime, as they are funded by government agencies.
• It was also previously brought up that future revenue growth is dependent on recurring orders, which in turn are necessitated by outbreaks. The world won't be caught by surprise a second time, so it is unlikely that another mpox outbreak will approach the magnitude of 2022.
• Finally, 2022 revenues may fall short of $125 million. The most recent order reported was the new Department of Defense ("DoD") procurement contract for the purchase of up to $10.7 million of oral TPOXX awarded on September 29. This brought the 2022 total to $18.1 million worth of DoD contracts of oral TPOXX. About $5.1 million of this oral TPOXX was targeted for delivery in 2022. Q3 saw $99.4 million in cumulative revenues, with $16 million scheduled for Q4.

Risks and Takeaways

How will the market react to a year of earnings that, after the biggest outbreak in history, will probably be less than either 2021 or 2020? Although pockets of local mpox infections remain, the U.S. and Europe are no longer the major hot spots. Government health agencies from these territories are the most likely to pay top dollar for TPOXX, but no further orders from these territories are expected because they are probably already sufficiently stockpiled. There is also a concern the disease may evolve, and the Centers for Disease Control and Prevention has recently warned of cases of resistance to TPOXX and have planned for contingencies. However, currently circulating mpox viruses despite mutations are likely to remain sensitive to TPOXX , which is still the best treatment option.

SIGA may end fiscal 2022 with $98 million in product sales and $25 million in Research and development revenues to remain profitable with more than $50 million in operational income. However, this is less than the $69 million net income from 2021. So it is reasonable that share prices are likely to be range-bound at $7-10. To surpass last year's totals, the company needs purchases from new customers, possibly Mexico and Brazil (see Figure 4) for example. Any little bit would help. Seeking Alpha's Quant system doesn't rate SIGA's fundamentals, but price/sales is comparable to the sector , so the stock isn't a particularly good value play. Enterprise value ratios are also relatively low, so perhaps management has to do something with its cash ($109 million at Q3 end) to entice investors with more than the prospects of waiting 7 years for customers to replenish expiring products.

Figure 4. 2022 Mpox Outbreak: Confirmed weekly cases, Region of the Americas as of December 29, 2022.

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