Monday, June 9, 2008

Get Rich Slow with SIGA

THE MUCH PRAYED-FOR SMALLPOX CURE
SIGA Technologies has developed a clever new way of creating medicines and vaccines to treat infectious diseases. I don't really understand how it works, but results have validated their method. SIGA's smallpox drug, ST-246, seems completely effective in treating smallpox (and other poxes), and in boosting the preventive power of vaccines, all with no discernible side effects.

ST-246 is finally nearing the end of its (fast-tracked) FDA testing phase, but back over a year ago, during preliminary testing, when a child fell ill as a result of his father's smallpox vaccination, this is the drug the FDA recommended. Though he was "covered with 'mounds of pox'" and "suffered kidney failure and lost most of his skin," the boy fully recovered. His "skin grew back at a phenomenal rate and shows remarkably few signs of the ravages of the disease." Not bad, huh? All reported in the NY Times!

But SIGA's stock price bumped up and then fell back down again.

DEVELOPMENT COSTS PAID BY THE GOVERNMENT
The problem for upstart pharmaceutical companies is the obscene cost of discovering, testing, and approving their drugs. But SIGA is smart. They've labelled themselves a biodefense firm and taken on the gnarly catch-phrase "Human BioArmor". As a result, various agencies associated with the health angle of homeland defense have been funding them. And fast-tracking their approval process.

SIGA is working on lots of other drugs, too. While the smallpox drug is nearly ready to roll, there are upcoming candidates for Lassa Fever, Ebola, and Arenaviruses, and they're working on Bunyavirus, Dengue fever, and Anthrax - all horrendous cooties that terrorists apparently drool over.

So we have a company whose drug creation methods have been proven via a smallpox drug with sensational results and a unique real-life success story, and they're working on a portfolio of drugs the US government (and many other governments) would desperately like to buy.

But still the stock floundered.

THE PARTIES WHO FUNDED ARE THE PARTIES WHO'LL BUY
The CDC, FDA and similar agencies charged with protecting the nation's health are not just collaborating with SIGA, not just recommending their drugs when real-world tragedy strikes, and not just funding development costs. These are also the parties who will help make the decisions of which drugs to stockpile for counter-terrorism. Fickle markets won't decide; revenue will flow from the agencies who've acted for years as SIGA's veritable partners.

And the stock still flounders.

QUIETLY MUCH MORE THAN BIODEFENSE
Take a look at a dusty corner of SIGA's web site. Without the slightest fanfare, buried amid jargon-ish fine print, is the news that SIGA's drug for anthrax and botulism will, incidentally, la-di-da, have effectiveness against staphylococcus aureus (the most common cause of staph infections), streptococcus pyogenes (the cause of Group A strep infections), enterococcus faecalis (the highly drug-resistant cause of Group D Strep infections and some endocarditis), and streptococcus pneumoniae (a major cause of pneumonia)....and "their resistant derivatives" (emphasis mine).

Those aren't just biodefense pathogens. They're massive public health scourges, several with horrendous drug-resistance, and all of which are currently treated with drugs bearing side effects - which SIGAs high-tech, laser-like drugs seem to cause far less of. The potential here is massive, especially given that the company's unique model of drug creation has been validated.

So why is SIGA not trumpeting this? Vested interest, for now, in retaining the perqs attached to tight focus on biodefense, which might be jeopardized by winking at investors as a thinly-disguised, federally-subsidized Big Pharma wannabe.

But the stock still flounders.

A MEDICAL SUPERSTAR QUITS HIS DAY JOB
Eric Rose, arguably the nation's top cardiac surgeon, chief of surgery at Columbia Presbyterian, and a professor at Columbia's medical school, was widely lauded for his uncommonly broad medical knowledge and business savvy. He had, for many years, been sought-after to sit on the boards of medical firms and start-ups.

It's safe to say that Dr. Rose was doing quite well for himself, financially. But in March of last year, he chucked his medical and teaching careers to become CEO of SIGA. Of all the hot-prospect companies with which he's been involved, this one compelled him to quit his day job. It's clear that Dr. Rose expects a serious windfall. And by windfall, I mean an abandon-his-comfy-source-of-torrential-dough sort of windfall.

Yup. The stock languished.

$100M IMMINENT, WILL FUEL MASSIVE FURTHER DEVELOPMENT
SIGA has announced that a $100 million purchase of their smallpox drug by the US government may be imminent. They've completed the application procedure, and the next step is for their buddies in the government (with whom they work closely, and who trusted this medicine sufficiently to have given it to a desperately ill two year old) to unleash their enormo budget on a first purchase toward a massive stockpile to protect the public from one of its gravest threats. European health agencies have also been approached.

SIGA has stated its intention to channel any such revenue into expedited development of their drug pipeline. Strep, staph, and pneumonia, watch out.

The stock? Nothin'!

BIG-MONEY INVESTORS WATCH AND WAIT WHILE DAY TRADERS NIBBLE AND RUN
So why has SIGA's stock mostly languished? Two reasons, one of them interesting. The first is that there are so many pharm upstarts that the sector's like a vast thorny tree whose ripest plums can remain surprisingly concealed (also, few investors seems to have read the NY Times on 5/18/07). The second is that while there are traders who do have SIGA in their sights, and who expect a tremendous run-up, they don't want to park their money. Not even on an apparent sure thing (one exception is Ron Perelman, who I've heard holds a stake). These cowboys don't just want to make tons and tons of money, they want to make tons and tons of money RIGHT NOW. The old school investment model of finding unsung gems early and sticking with them (which, by the way, was the traditional means for unsung gems to be funded into well-sung-ness) is history. And SIGA does not yet have in hand its first big order. It has not shown the proverbial money.

If you study SIGA's stock price chart , you'll notice a curious see-sawing which bears no relationship with company news or overall market swings. It's been painful for small investors like me to watch the stock price randomly build and sink, again and again. But here's what I think is happening. Day traders, who know investors are watching for a run-up, are doing occasional bouts of buying to drive up the price and trigger broader purchase (e.g. preset automatic "buy" orders), and then getting out quick.

I HATE PRE-FAB ROAST BEEF, BUT...
Of course I realize nothing's a sure thing. And I've seen my SIGA investment flounder for some time. I've endured traumatic ups and downs triggered by wise guy day traders. But I'll say this: if the stock price ($2.92 as of this writing) doesn't pass $10 within a year and $35 within a decade, I'll eat Arbie's for an entire month.

Disclosure: I, duh, own stock in this company. But I write this not to goose the share price by .01 cents, but rather as a thank-you gift for visiting and reading my Slog.

UPDATE: While the ordinarily circumspect SIGA has boasted of an imminent $$$M order of their smallpox drug (ST-246) from the government (they're talking to European governments, as well), the order has not yet been announced...and the stock remains in the dumps. But have a look at these two slides from recent government presentations, which seem to confirm that it's a done deal.

5 comments:

Big Fella said...

If you end up eating Arby's for a month, you will need more than a miracle drug to recover from that. Let's hope the stock comes up from the basement.

pat said...

This is the only stock I've thought of as a sure thing. If I live long enough!

Dave said...

Interesting that Oprah's Dr. Oz somehow obtained shares not in the open market. Ron Perelman and Dr. Oz -- not an obviously compatible pair.

Jim Leff said...

How about Ron Perelman, Dr. Oz, and me???

Good find, btw.

Jim Leff said...

The following is from an hedge-fund-managing seen-it-all banker (or, to use his term, "banker/wanker") eating buddy, whose vast and impressive savvy can be gleaned by the fact that I'm leaving this comment FOR him. He has, in other words, "people" for this sort of thing, and the people is me.

Anyway, take it away, banker/wanker:

-------

nice write up!

one thing fyi - the stocks mkt value is very tiny - which is why you get the swings. there are no long term investors other than the company insiders and they cant sell. its virtually ALL day traders. in any case, the long term trade is for the insiders to sell the company eventually to big pharma.

and thats the rub - by the time a company gets to where they look like they may have a viable product, the bidding war with big pharma starts: its simply to risky for pfizer to let bayer pick up patented technology on the cheap without bidding for it itself. so if they are as close to printing as it seems, i'd enquire at the companys investment relations office if there have been any (publicly known) big pharma bids rebuffed etc.

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