SIGA Stress

I started buying stock in SIGA (a firm that's developed an impeccably safe and effective cure for smallpox - including the weaponized varieties which are a major bioterror threat) at about $3.50 (my average is about $6), and, after remaining in the mid-teens as recently as June, it's now down to $1.90. I'll be holding onto my eight year old Toyota for a while.

All of this story is painful, but some of it's interesting, even if you aren't a SIGA investor. I'll compress it as tersely as possible. First, let's review the villains:

SIGA lost a lawsuit this year. Pharmathene, the company with whom they long ago discussed merger (but never signed a deal - all paperwork was stamped - by Pharmathene! - "Non-Binding") was awarded 50% of profits from SIGA's lead drug, ST-246, without any risk or participation in development or marketing. Nice work if you can get it! If that seems crazy, thank Delaware Chancery judge Donald Parsons. Oh, and just before this judgement came out, SIGA's stock was shorted massively

Note: a "short" is a bet that a stock will go down, and it can be hugely profitable when it works - because you don't put up any actual money.

Chimerix is SIGA's only competitor in smallpox antivirals (not vaccines; ST-246 is an out-and-out cure, which works even after infection, and works on weaponized varieties, which vaccines do not). Their drug doesn't cure smallpox in monkeys, and since we can't infect humans with smallpox in order to test it, that makes it a deal-killer, according to the FDA, according to the government agencies that want to stockpile a smallpox cure, and according to most scientists in the field. Chimerix won't go quietly into the night, however. They've protested every effort of the government to award a large stockpiling contract to SIGA. Their monkey-killing drug couldn't win the contract, but they could stall the bejesus out of the process via endless protests (finally, the government, in frustration, made it a sole source contract just to get the damned thing done). And, oh: before each stall, SIGA's stock was shorted massively.

Darrell Issa is an extraordinarily wealthy Republican congressman with numerous ethical and financial issues (for starters, this and this). A few months ago he made noise about a potential investigation of SIGA's contract. Issa proclaimed that this was a sweetheart deal, using a slippery sole-source contract, perpetrated by Obama (never mind that SIGA was supported and nurtured during the Bush administration, or that it might actually be good to protect millions of citizens from bioterror).

The investigation never occurred. But neither did Issa ever retract his allegations. The threat tanked the stock (already weakened from the lawsuit and the collapse of the biotech sector as a whole in light of the Tea Party slash-and-burn ethos - which actually won't affect SIGA, because funding for bioterror countermeasures is pre-allocated). And...just before Issa made his announcement, SIGA's stock was shorted massively.

Getting the picture?

It was revealed that Chimerix' lobbyist, McKenna, Long, and Aldrigde, is a longtime contributor to Issa. So the football was handed off to the right-wing press, salivating for another Solyndra-like boondoggle to trumpet. Last week's press wave was started by a journalist with impeccable credentials and no visible ties to Issa, Chimerix, or McKenna, Long, and Aldrigde, who published a wildly unbalanced and inaccurate hatchet job in the LA Times. I won't take time to rebut the article point for point, so let me just characterize it with a single word: "No."

Fox News picked it up, as did Rush and Glen and all the rest. Obama is throwing big money to SIGA (even though smallpox has been eradicated!) as payback to Ron Pereleman, the company's major investor, because he's a Democratic contributor (Pereleman also contributes to Republicans, and Frances Townsend, Bush's homeland security advisor, sits on SIGA's board, and, again, this deal was brewed by the Bush administration, plus - yes, I'm nearly hysterical at this point - this is the sole safe/effective cure for a major national security gap considering that any smart scientist with the right tools can synthesize smallpox virus in a lab and it's a dandy way to make tens of millions of Americans die....but, hey, let's not quibble).

Need I mention that SIGA's stock was massively shorted before this press onslaught launched? You see, shorting's where the real money is! It's hard to make a stock go up, so better to bet that it'll go down, and then do stuff to make it go down! That's a much smarter bet! Not unrelated, you may have seen the 60 Minutes report last week revealing that congressmen are free to short the bejesus out of stocks without restraint - even stocks impacted by their own actions.

Meanwhile, SIGA's drug is very close to FDA approval...and has been for a couple years. The hold-up is determination of dosage - a technicality. Why's FDA stalling? They're not an apolitical agency, so the aforementioned shenanigans are almost surely at play. Next month FDA makes a crucial ruling as to whether, gee whiz, monkeys are really the best test after all. Obviously, Chimerix - which is about to IPO, by the way - would love to see the rule overturned. This has been their game plan: use political leverage to overturn the monkey rule while stalling SIGA in every possible way. FDA's super-sluggish treatment of SIGA indicates they may be sympathetic - or even shorting! Stay tuned for more laughs and excitement.

So that's how my "sure thing" wound up at $1.90. It's basically deus ex machina. And if, meanwhile, terrorists unleash smallpox, just duck and cover. Works like a charm.

On the positive side: forces this titanic aren't randomly unleashed. This is all happening because there are, indeed, gobs and gobs of money at stake (which is why I invested in the first place). So unless SIGA completely dies, which I don't think it will, there should be eventual success. They may be forced to share profits with Pharmathene, thanks to the nutty judge. And they may split contracts with Chimerix, thanks to the crooked Congress and agencies. But it's a great big pot. And right now the stock price doesn't even reflect the $40M shortly due free/clear as down payment for their signed contract with BARDA. But even at $1.90, the shorts are still all in. So it may well go lower before then. The upshot is, as I wrote in September, the stock will go nowhere until multiple contracts are signed (for example, with any country concerned with bioterror) and money's in hand. At this point, news won't do it; only revenue will. So I hold and wait.

The best potential of all is completely undiscussed: ST-246 cures eczema vaccinatum (EV), a rare but life-threatening complication of vaccines that's very similar to smallpox. And lots of major impending medical breakthroughs depend on delivery via vaccine. Plus: don't even get me started on SIGA's pipeline of other drugs (it would be nice if SIGA would update us on them).

On the negative side, SIGA is not defending itself or talking to stockholders. They have not even issued a press release to (easily) rebut the outrageous claims of the recent press blitz. Which makes me wonder about Ron Pereleman's role in all this. I'm not nearly smart enough to see through the veil, but one thing's certain: so long as this company, with prospects so bright as to attract a blitzkrieg of nefariousness, remains a near-penny stock, we'll need to worry about Perelman finding some way to take it private....so he gets all the money (could he be shorting? My head hurts!). This remains my main long-term concern.

In the short and medium term, it's all about yet more patient waiting. Hey, I said from the start that the way would be slow and bumpy!

[Update: there've been some good comments to this post. You may want to give them a read]