Thursday, September 22, 2011

Judge Rules Against SIGA

I predicted that the lawsuit between SIGA and Pharmathene (the company it failed to merge with years ago) presented little peril to SIGA. But the judge has just ruled, splitting net revenues of ST-246 between SIGA and Pharmathene (SIGA gets to keep the first $40M net).

So I was wrong. And the lawyers and corporate experts I spoke to were wrong. And several respected analysts were wrong. And Fidelity and Vanguard, major institutional investors who'd taken a large stake in SIGA (surely only after having checked out this lawsuit) were wrong.

Well, either that or the judge was wrong. Hey, it happens.

But, lousy news though this is, the recent collapse of SIGA's stock price has overshadowed the legal drama. That collapse was not the result of insiders banking on this decision, because Pharmathene's stock price tanked, too. It was the result of uncertainty from this dragged-out lawsuit, plus the implosion of biotech prices as a sector, plus (as I wrote back in August) the lack of immediate further revenue on SIGA's horizon (they'd recently won a huge contract, but the market, as usual, wanted to know "what's next)?".

So now there's a great big pile of salt on that wound. Having plummeted from $15 to $5 already, perhaps now we'll sink to $2 or $3 once trading resumes. That would not be a happy thing, but neither will it be an entirely new level of pain. On the other hand, bargain hunters may step in, along with investors long sidelined by the uncertainty. I continue to worry about a take-under by Ron Perelman, but that would come at a substantial premium (likely giving me - and most Slog readers who've invested - their investment back plus some). I'd still hate that result, because even shared, SIGA's fantastic potential would still leave enough profit to go around.

The star of the show, and the focus of my attention, is ST-246, an amazing and versatile drug. Whether revenues are split with Phamathene or not (my guess is still not; I can't imagine this will stand on appeal), SIGA is worth better than single digits.

And here's the thing: while a windfall is due from the recent BARDA contract, that revenue will arrive piecemeal, as the drug is gradually delivered. In their last conference call, SIGA gave a very slow forecast for fulfilling the order (in fact, this was one reason the stock tanked). Bearing in mind that SIGA keeps the first $40M in revenue, it will take at least a year before that mark is hit and PIP starts getting their share (and even then, their cut is after expenses, which have been huge). And the appeal will likely be wrapped up by then. This, I suspect, is why SIGA had worked out such a strangely protracted fulfillment process. The revenue comes slowly.

So it's not utter disaster. But that's not to say that I'm not going out right now to drink about fourteen shots of whiskey (cheap stuff, too, as I can no longer afford single malts).

While I never promised anyone SIGA's rise would happen quickly - in fact, I was clear from the start it'd be long and painful - this was a development I never foresaw. But we're still undervalued.

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