Nov 6, 2013
Executives
Josh Dver Eric A. Rose - Executive Chairman, Chief Executive Officer and Member of National Biodefense Science Board Daniel J.
Luckshire - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Secretary
Analysts
Joaquin Philip Horton
Operator
Good day, ladies and gentlemen, and welcome to the SIGA Technologies Quarterly Business Update Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference, Josh Dver. Please proceed, sir.
Josh Dver
Thank you, and thank you all for joining us today. This is Josh Dver, KCSA Strategic Communications' Investor Relations Consultant to SIGA Technologies.
With me on the call today are Dr. Eric Rose, Chief Executive Officer and Chairman; and Daniel Luckshire, the Chief Financial Officer.
Today's call is being simultaneously webcasted and is available on SIGA's website. A replay of the call will also be available on a reported format and on the company's website.
Before we begin today, I would like to remind everyone that this conference call contains statements that constitute forward-looking statements. A Safe Harbor statement covering this call will be read at the end of the call and can be found in our press release for financial results for the third quarter ended September 30, 2013.
With that said, I'd like to turn the call over to Dr. Eric Rose.
Eric, the floor is yours.
Eric A. Rose
Thanks, Josh. Good afternoon, and thank you all for joining us for our business update call.
During the call, we'll provide you with a business update, and then we will open the call for questions. Today, as part of our quarterly earnings release, we made 2 related announcements.
First, we announced that in the third quarter, we received approximately $101 million from the Biomedical Advanced Research and Development Authority, BARDA. Of that amount, approximately $96 million was for the aggregate delivery of approximately 725,000 courses of Arestvyr, our smallpox antiviral drug, to the United States' Strategic National Stockpile, and approximately $5 million was for reimbursement of expenses related to research and development services and support of activities related to Arestvyr.
I should note that substantially all the amounts received from BARDA have been accounted for as deferred revenue in accordance with generally accounted accounting principles. With the receipt of payments for delivery of product, SIGA had $105 million of cash, cash equivalents and investments as of September 30.
And going forward, we plan to deliver more than 1 million additional courses within the next year, of which approximately 975,000 courses will be invoiced for the government, and the remaining courses will be free of charge. These milestones mark the culmination of many years of hard work, teamwork and perseverance on the part of our employees.
I'd like to personally thank all of our employees and partners who've made this possible. With the successes just enumerated, there also comes responsibility constantly to evaluate the best path forward.
This brings me to the second announcement made with our earnings release, that is the implementation of a series of initiatives to optimize our efficiency within our operations. At this point, I'll turn the call over to Dan Luckshire, who will discuss the optimization plan.
Daniel J. Luckshire
Thank you, Eric. Good afternoon to those on the call.
As Eric mentioned, and as noted in today's earnings release, we have commenced the implementation of an optimization program. This program is based on a comprehensive review of our operations and of external opportunities.
At the heart of the optimization program is a commitment to match the company's resources, staff and efforts with near- and long-term opportunities. One element of the optimization program will be a reduction in the workforce.
Other elements of the program include the discontinuation of our early-stage drug discovery operations and our decision to seek a partner or partners for the further development of our dengue lead candidate and other preclinical antiviral candidates. We believe such decisions are warranted in order to support efficiently the Arestvyr business and to provide the necessary financial strength and strategic focus to pursue the best growth prospects.
Going forward, we're targeting approximately $6 million in annual cost savings from the optimization program. We expect to implement most of the changes by the end of this year.
We expect to layer on the remaining changes during 2014. As part of the optimization program, we expect to incur restructuring charges of between $500,000 and $800,000.
This range includes noncash charges for assets that may be impaired. Approximately $275,000 to $350,000 of the anticipated expenses are expected to result in cash outlays.
The remaining restructuring charges are expected to be noncash in nature. At this point, I will hand the call back to Eric for closing remarks.
Eric A. Rose
Thank you, Dan. You can tell from our comments we believe this is, and continues to be, a period of value-creating transformation for our company.
As evidenced by the cash received to date, the Arestvyr business is bearing fruit. And as a result of our Arestvyr business, our financial position has never been better.
Lastly, and importantly, we are laying the groundwork for the next phase of innovation and growth at SIGA. Thank you for joining this investor call, and we'll now open the line for questions.
Operator
[Operator Instructions] Our first question will come from the line of Joaquin Horton from Sterne, Agee.
Joaquin Philip Horton
A question. Our headcount is currently what, 71 employees?
Daniel J. Luckshire
Correct.
Joaquin Philip Horton
And so, how many are in New York? And how many are in Oregon?
Daniel J. Luckshire
Prior to these reductions, we had 11 in New York and the rest in Corvallis.
Joaquin Philip Horton
So -- okay. And so, the reductions have already taken place.
Is that what you're saying?
Daniel J. Luckshire
Well, I gave you the number you asked. We said we had 71.
I gave you the breakdown of that 71. We're not disclosing the number going forward, the reductions, at this point in time.
Joaquin Philip Horton
Okay. So next question is regarding dengue fever.
I assume I heard right that you were going to try to find a partner to continue developing the small molecule that you have for dengue fever, correct?
Eric A. Rose
That's correct. The entire program, not just the lead drug candidate, yes.
Joaquin Philip Horton
So the entire program, meaning Lassa, West Nile virus?
Eric A. Rose
[Indiscernible]. We have a lead candidate that we've identified.
It has -- there's a class of drug candidates that, that represents in terms of the target, which we've not disclosed because that's proprietary. And we have several other series [ph] that target other genes in the dengue genome.
So all those intellectual assets, I think, are the basis for what we think could be a very strong collaboration with a partner to attack dengue fever.
Joaquin Philip Horton
So it's just for the dengue fever? It's not for any other program that you're working on now?
Eric A. Rose
Well, we're amenable to potentially partnering any of the programs that we have, as we have been in the past, Joaquin. So I don't think...
Joaquin Philip Horton
Well, this seems like a turn to the left. I mean, you've always done it on the inside.
I haven't seen anything really on the outside. Is that true?
Eric A. Rose
Well, we develop these, obviously, internally. We do think that the quality of the asset at this point and where we stand at this point is optimally managed by having a partner for dengue and perhaps for other programs as well.
I don't think it reflects any kind of turn in any directions. I'm not sure it means a turn to the left or to the right, but we do think, as with our smallpox antiviral drug as well where we're a partner with the government, that there is potentially worthwhile commercial opportunity in partnering our dengue antiviral program.
Joaquin Philip Horton
I think you're right. So, I mean, I agree with you 100%.
Eric A. Rose
Good.
Joaquin Philip Horton
Haven't you been working on some other programs though? I mean, is it -- are you going to stop your research and development?
Is it..
Eric A. Rose
We are stopping our early-stage antiviral drug discovery activities, which have been predominantly directed towards bio-defense targets because we think that right now, in our portfolio already, we now have a reasonable-sized portfolio of these assets at this point. We think that we can pursue what we have more in the spirit of -- or the direction of advanced development as opposed to early drug discovery because we think that there's more value to be created in development at this point than there is in early-stage drug discovery, but our assets at this point also, well, our financial assets, we think, will allow us to pursue many things.
Joaquin Philip Horton
For instance?
Eric A. Rose
I'm not going to speak about it, Fred [ph] -- or Joaquin.
Joaquin Philip Horton
Okay. I just thought it's really out there.
Eric A. Rose
Yes.
Joaquin Philip Horton
Anyway...
Eric A. Rose
Well, it's a very desirable new position for us, and we're pleased to be here.
Joaquin Philip Horton
I can understand that. Just doing a "back of the envelope" numbers, and I don't -- that $101 million that you received in cash from the -- from BARDA, and you had $73 million, was that $73 million for ST-246 that you received?
What I'm trying to figure out is, if you add the $101 million in cash to the cash that you had at the end of the second quarter, which would be $134 million, and you subtract out -- I'm trying to figure out what -- come on, mate, you're not going to tell me about what it cost you to produce a product?
Daniel J. Luckshire
Yes, we're -- I mean, if you look at the financials, -- but -- we had the receipts coming in, the $101 million, and then we have operating expenses, which you can see on the financials, as well as payments for the manufacturer, which you can...
Joaquin Philip Horton
Okay. I just -- I haven't got to the 10-Q yet.
So that's probably all in there.
Daniel J. Luckshire
You can see it. It's -- you'll see the buildup.
It's not going to be dragged in a separate line item, but you can get a sense for it once you look at the financials.
Joaquin Philip Horton
So getting back to dengue, I know you have somebody from -- on the board from Pfizer. Has he been a lot of help in looking for a partner?
Eric A. Rose
I think to outline the specific activities of our board members is not a direction that we want to take on our conference calls. All of our directors, I think, are helpful to us across the spectrum of our activities, and that includes certainly Jeff Kindler as well.
Operator
Our next question comes from the line of Fred Greenberg [ph] from Greenberg Advisors [ph].
Unknown Analyst
Congratulations on the receipts and the cash.
Eric A. Rose
Thanks, Fred [ph].
Unknown Analyst
It looks like it's over a couple of dollars a share, isn't it?
Daniel J. Luckshire
It's right around $2 a share. Yes, Fred [ph].
Unknown Analyst
Yes. So there's not much -- if you look at the market cap minus the cash, it's pretty modest.
I think you should have your complete P&L, so people don't have to go back to the Q. That's what most companies do on these press releases, by the way.
So I would ask in the future you have the complete P&Ls and balance sheet on the press release. The -- so this is an interesting development in the dengue.
There aren't too many partners out there, as you know and as I know. But do you do this speculatively?
Let's do this and look for a partner, of which there may be a handful? Or is your research and communications and -- whatever you want to call it, which we just talked about Jeff Kindler about all this, set you on a path to this decision?
It seemed like you wouldn't make this decision without knowing what the outcome was going to be?
Daniel J. Luckshire
Let's say that this decision is within the context of a broader encompassing process. This process affects the whole company.
It is done with the eye toward positioning the company for growth going forward and really looking at the opportunities that are most attractive and making sure that we're positioned for these opportunities and that -- and the assets we currently have, we're managing them efficiently. Within that context, the decision was made to look for a partner for dengue and other programs with the idea that, that would be the most -- or the best path going forward to getting...
Unknown Analyst
Well, I think the question is, to put it in a simple question, you have -- you know there's a partner for you? I mean, this is a...
Eric A. Rose
Fred [ph], we can't speak to specific partnerships. So...
Unknown Analyst
No, I'm not talking about specific partnerships.
Eric A. Rose
No.
Unknown Analyst
You guys, you gentlemen made this move, this kind of move that's very calculated and very important. But it can't be just half thought out.
You have to have it be full thought out. So that's why I'm asking is it...
Eric A. Rose
I think this is a part of the strategy that we think will propel SIGA to deliver the value that its shareholders deserve. We have a...
Unknown Analyst
So this is what the company is doing. And so...
Eric A. Rose
We shall say, product in -- that we've developed in smallpox. We have some earlier stage assets with regard to antiviral drug discovery that we think are partnerable.
And we believe that a company with our existing assets now is in a very strong position to pursue multiple opportunities.
Unknown Analyst
Okay, this is not different than other, let's call, higher -- high-tech or biotech, or whatever you want to call it, research companies do, end up with partners. You would -- if you were successful in dengue, you'd have to find a partner to market it, we know that, or you will never market it yourself.
So it just was a little surprising to us, at least to me, that it was just done now. Maybe it's because you're coming to year end or maybe someone was knocking on your door with a deal.
Eric A. Rose
We're -- we can't comment on that.
Unknown Analyst
So that leaves us thinking that you're smart guys and you know what to do, and there's not a -- this is a room, this is not a big dance hall, as they say. We're all wondering what the other opportunities are.
You're not saying...
Eric A. Rose
We can't be more specific about that at this point, Fred [ph].
Daniel J. Luckshire
Well, Fred [ph]...
Unknown Analyst
Why is that? Why is that?
And I don't know if I'm being unfair in asking a question, but it would seem that if you're doing all these things, you've already thought all these things out. So I was wondering why you couldn't be generally specific.
Is there such a word?
Eric A. Rose
Sure.
Joaquin Philip Horton
I'm just trying to understand what you have in mind.
Daniel J. Luckshire
Well, yes, to, in your words, to be generally specific, it's -- we're interested in growth opportunities that are going to create near-term value creation, whether that's through cash inflows or just a -- the point of which the value is transparent to all. So those are the types of things that we are interested in.
Unknown Analyst
Shareholder interest. And just last question.
So is there any signal, understanding we're all -- we're all worried about the government, but the stock market doesn't seem to care, by the way. Things maybe were better with a dysfunctional market because we're getting new highs.
Do you expect life after 2 million doses?
Eric A. Rose
We think that this is an important bio-defense asset for the country. As you know, there is a very complicated budgetary situation in Washington now.
And in particular, bio-defense acquisitions were funded through a budget mechanism that was put in place in 2003. That expired on September 30, 2013.
We're optimistic that especially because this is a bipartisan issue in terms of support for a strong bio-defense, we believe that BARDA and the CDC and all the related agencies within HHS will maintain a strong bio-defense posture for us, and we think our drug is meaningfully part of that. Specifically what that looks like, there's really nothing more I can say at this point.
Unknown Analyst
Well, it was their idea to ask for 10 million doses, when you think about it, in your calculation as far as protecting the U.S. population.
It wasn't SIGA's idea or my idea. So just sort of an...
Eric A. Rose
The requirements that the government sets are something that are set by the government. And that -- the processes for that are, I'd say, dynamic.
They change over time. And we've got to be diligent in our navigation of those processes and knowing those processes.
But we also, at this point, have to be patient around our legislative process, ultimately, to fund this type of purchase.
Unknown Analyst
Okay. Yes, EBS seems to be doing pretty well, by the way, your friends up a block, so to speak, or down a block.
Eric A. Rose
We think that all the bio-defense suppliers that have products that are in the Strategic National Stockpile have generally continued to add to those stockpiles and to replenish those stockpiles. We don't think we're in any different position in that regard.
Unknown Analyst
Right. The -- just a technical question on dengue.
The -- I see the use of the drug, if it ever gets to the market as a therapeutic not just for travelers who are going to Indonesia, India, or Brazil or here in the Florida Keys, where we have dengue, I think if one of us got dengue, we would want to be treated.
Eric A. Rose
We view our drug as both therapeutic and a prophylactic drug essentially [ph].
Unknown Analyst
Okay, I just want to...
Eric A. Rose
Get that.
Unknown Analyst
And let's see. Did I take up all your time?
Eric A. Rose
No.
Unknown Analyst
No? We -- Sunset's coming down.
We can look at the sunset together. Let's see.
Yes, are you still involved in the lawsuit?
Daniel J. Luckshire
Yes, it is still ongoing.
Eric A. Rose
Yes.
Unknown Analyst
And the next activity is planned for next year, if I recall, from the Delaware courts?
Daniel J. Luckshire
So this active litigation, as you know, we...
Eric A. Rose
I'm not going to comment on active litigation on these calls, Fred [ph].
Unknown Analyst
[Indiscernible] in 2014 [indiscernible]?
Eric A. Rose
I think we have a technical problem hearing you now, Fred [ph].
Unknown Analyst
Okay, you hear me now?
Eric A. Rose
Now we got you.
Daniel J. Luckshire
It's better, Fred [ph].
Unknown Analyst
Okay. Well, we're -- I'm at the end of the world here.
Didn't the courts set a -- or you said or say you were...
Eric A. Rose
Fred [ph], we're not going to comment on the schedule of what's going on, on the Delaware court on the call. But the hearings, as I understand it, are in the public domain.
Unknown Analyst
Yes, okay. That's -- I was just trying to remember what they said in the public -- all right, I'm finished.
And good luck with Louie [ph] or anyone else you find, okay?
Eric A. Rose
Yes. Thank you.
Operator
Thank you. And at this time, I'm not showing any further questions.
I would like to turn the call back over to Josh Dver.
Josh Dver
Thank you. As a reminder, this call included certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, including statements regarding the efficacy or potential of products, the time line for bringing such products to market and the continued development and possible eventual approval of -- for such products.
Forward-looking statements are based on management's estimates, assumptions and projections and are subject to uncertainties, many of which are beyond SIGA's control. Actual results may differ materially from those anticipated in any forward-looking statements.
Factors that may cause such differences include: the risk that potential products that appear promising to SIGA or its collaborators cannot be shown to be efficacious or safe in subsequent preclinical or clinical trials; SIGA or its collaborators will not obtain appropriate or necessary governmental approvals to market these or other potential products; SIGA may not be able to obtain anticipated funding for its development projects or other needed funding; SIGA may not be able to secure funding from anticipated government contracts and grants; SIGA may not be able to secure or enforce sufficient legal rights in its products, including patent protection for its products; any challenge to SIGA's patents and other proprietary rights, as is adversely determined, could affect its business and, even if determined favorably, could be costly; regulatory requirements applicable to SIGA's products may result in a need for further or additional testing or documentation that will delay or prevent seeking or obtaining needed approvals to market these products; the U.S. Biomedical Advanced Research and Development Authority may not complete the procurement set forth in its solicitation to the acquisition of the smallpox antiviral for the Strategic National Stockpile or may complete it on different terms; any contractual award we may receive to supply smallpox antiviral may be subject to one or more protests, which may cause contract awards to be delayed or denied; the volatile and competitive nature of the biotechnology industry may hamper SIGA's efforts; changes in domestic and foreign economic marketing conditions may adversely affect SIGA's ability to advance its research or its products and the effect of federal, state and foreign regulation on SIGA's businesses.
More detailed information about SIGA and risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this conference call, is set forth in SIGA's filings with the Securities and Exchange Commission, including SIGA's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and in other documents that SIGA has filed with the commission. In addition, the risk of what appears now to be attributes of our lead candidate compound may turn out to be different as development progresses; the risk that our lead candidate compound may, at any point, fail to meet our development objectives; and the risk that the expense, unpredictability and extraordinarily time-consuming process of developing drugs may prevent us from ever realizing any value from these efforts.
SIGA urges investors and security holders to read these documents free of charge at the commission's website at www.sec.gov. Interested parties may also obtain these documents free of charge from SIGA.
Forward-looking statements speak only to the date they are made. And except for any obligation under the U.S.
federal securities laws, SIGA undertakes no obligation to publicly update any forward-looking statements as a result of new information, future events or otherwise. Operator?
Operator
Thank you, ladies and gentlemen, for participating in today's conference. This does conclude the program, and you may all disconnect.
Everyone, have a great day.