Tuesday, August 2, 2011

SIGA: No New Revenue Soon

After an unsurprising quarterly conference call yesterday, SIGA has plunged still lower. I believe the name of this game is "No New Revenue Soon".

Short version (for those who don't want to read through all this):
Buy, baby, buy.

Long version:
SIGA's stock languished for years, even as it became clear they had a magnificently safe and effective cure (not vaccine) for smallpox - including weaponized varieties - one of the main bioterror worries. It languished even as the government created an entity (BARDA) to help companies exactly like SIGA develop drugs exactly like SIGA's and to purchase them for a national stockpile. It languished as a kid with vaccinia (a smallpox-like vaccine reaction) was given special permission to be magically cured by SIGA's drug. His skin was falling off and he was near death, but a couple days later, he was good as new.

SIGA's stock languished as the science looked better and better. Its stock languished as a promising drug candidate for dengue (a major scary scourge) was found and began development. And it only slightly ticked upward when BARDA gave notice that it was planning to buy $500M to $2.3B worth.

As that contract drew closer and closer, finally the stock price went up....because there was a concrete timeline to revenue.

SIGA got the contract, but the timing is poor, as multiple clouds accompanied it. First, a baloney lawsuit was being trumped up in the press by their opponent as a ploy to force a settlement. This clouded the stock price. Second, a competitor with a smallpox drug that's less safe and which doesn't prove itself with non-human primates has been shrilly protesting every step of the way. Third, a congressman with ties to that competitor put out a well-timed press release hinting that SIGA might be investigated for using unfair influence to get the contract. That was the final straw; the stock price has tanked.

The congressman will almost certainly never be heard from again. The competitor can protest, but can't stop the inevitable (every country with concern about bioterrorism stockpiling ST-246, and replenishing their stockpile a few years later as it expires). And the legal decision is due momentarily. So none of the threat is serious.

That brings us to a few weeks ago, as the price settled into the $8s - a price barely reflecting the value of this first in-the-bag half-billion-dollar contract.

So why's the stock still dropping? No new money soon. BARDA has expressed need for another $1.5B or so worth of the drug. Israel has signaled keen interest. Other countries (and World Health Org) know about it. It's useful not only for bioterrorism, but for treating complications from any sort of vaccine. It doesn't need FDA approval for emergency governmental stockpiling, but the only remaining step prior to applying for their final approval is a decision on dosage, which should be done this year.

So there's bad stuff that won't happen, and lots of good stuff that will, but no timetable for it. There's no new revenue specifically and concretely on the horizon. And investors just hate that. It's a show-me-the-money market, not a buy-and-hold market. On the other hand, SIGA has recently shown quite a sum of money - and the stock price is barely reflecting even that.

Often, when a stock drops precipitously, it's a sign that insiders "know something". But it's hard to see a secret peril that could produce this result. Dilution isn't a big risk; they have $15M on hand plus a $44M prepayment to keep the lights on and help ramp up production of the government order.

So this stock trajectory is a combination of manipulation and antsy-pants investors. The only dire scenario I can see is that this company is approaching the point where it can be bought for little more than the value of the signed contract. If it was taken over (for a substantial premium), I'd deem that a nightmare, as I've been patiently waiting for the aforementioned goodies to come in, and for their drug pipeline to develop, bringing us to $40. But I'd still make a large profit over my initial investment (averaging under $4), and a decent one over the current price.

And so while I've got a whopping percentage of my savings in SIGA, and never imagined buying more, I'm starting to itch to do just that. If you don't own any, and can afford to put some money on ice for a few years, this is a mind-blowing opportunity.

Like most small biotech stocks, SIGA's has been greatly manipulated. But I agree with a poster on Yahoo who points out that even one of the most manipulated stocks of all time, Dendreon, eventually shot to around $40...and stayed there. Nearly all the individual investors bailed out before this happened. But if they had simply waited, the value of the company was realized, and they made out like bandits.

And so we wait...

Update: one bit of good news: SIGA today presents to Goldman Sachs, along with another undervalued biotech with socko potential, Dynavax (DVAX). That's a helluva handpicked couple of biotechs. Whoever chose, chose well. I find this very encouraging.

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