S.I.G.A. Technologies (NASDAQ: S.I.G.A.) shares appreciated from $7 to $11 in the past month, increasing 57 percent. The primary driver for this $700 million market cap biotech was the announcement on the 19th of May – an intravenous version of its T.P.O.X.X. treatment to treat smallpox. Still, it’s hard to overlook a secondary possible value driver, which is the spread of the Monkeypox virus in countries that are not endemic.
S.I.G.A.’s primary business has been providing oral T.P.O.X.X. for government agencies like the U.S.U.S. The government has been profitable and has thrown the biotech as an investment opportunity worth considering; however, the stakes have risen a bit with these two new catalysts. Investors must answer whether S.I.G.A. shares are worth the cost of the premium.
In this article, I’ll look at S.I.G.A.’s primary business more in-depth and then examine how the company is growing by introducing an intravenous product. Then, I’ll dive into S.I.G.A.’s involvement in the Monkeypox outbreak and attempt to determine if S.I.G.A. stock will experience the type of price increase that was typical of biotechs in mid-2020, the time when governments were trying to find treatments to treat the COVID outbreak and investors placed massive bets on biotechs that could solve the problem, however it was remote that the possibility existed.
Through its partnership with the U.S.U.S. government, it has also received an approval given for T.P.O.X.X. from the European Medicine Authority (“E.M.A.”), which includes “smallpox, monkeypox, cowpox, and vaccinia complications” S.I.G.A. appears to be one of the few companies that can assist in tackling a massive outbreak of Monkeypox however it is not clear at the moment if this is possible or even.
Let’s first take on S.I.G.A. Technologies and its core business.
S.I.G.A. Technologies Overview – Profitable Niche Business Buoyed by B.A.R.D.A. Contract
In the press release it issued last Thursday, the last Thursday of April, this New York-based biotech describes its business as the following:
Together with the U.S.U.S. government, specifically the Biomedical Advanced Research and Development Authority (“B.A.R.D.A.”), S.I.G.A. has created T.P.O.X.X., also called tecovirimat, also known as ST-246 originally as an oral remedy to treat human smallpox, a disease caused by the variola virus. It was approved for oral use in 2018 and is being sold to governments to store for the eventuality there is an outbreak.
S.I.G.A.’s contract in conjunction with the U.S.U.S. government is as follows: U.S.U.S. The government is the following:
In 2020 and 2021, S.I.G.A. earned $113m of product sales as part of its B.A.R.D.A. contract. The company also made operating profits of $85m and $89m. It also earned net earnings of $56m and $69m. This translates into an FY21 price-to-earnings ratio of around 11x about S.I.G.A.’s current price of $9.7, which suggests that S.I.G.A. is still a good value despite recent growth.
Oral T.P.O.X.X. comes with a seven-year shelf life, meaning that S.I.G.A. will always be required to replenish the U.S.U.S. inventory, which creates a lucrative recurring income stream. On the earnings call for Q421, SIGA CEO Philip Gomez said to analysts that replenishment orders were worth $300 million in the pipeline over the next three years.
However, there isn’t a need to replenish the stock in 2022, which means that revenues this year could suffer. I’ve not been able to locate any guidance for FY22 from the management. However, the U.S.U.S. government is already purchasing IV TPOXX worth $7 million in Q122. S.I.G.A. has recently been awarded a deal to provide T.P.O.X.X., an unidentified Asia Pacific company, with the country requesting $3 million to be delivered in 2022. It is also worth noting that the Public Health Agency of Canada (“PHAC”) has been a client with a $13m T.P.O.X.X. for FY22.
While these aren’t huge numbers, in January, the European Medicine Authority approved the marketing authorization application (“M.A.A.”) for oral T.P.O.X.X. that has a broader indication, as described above, which includes cowpox, Monkeypox, and smallpox, possibly creating a lucrative market within Europe, the E.U.E.U., Norway, Iceland, and Liechtenstein.
The Importance of IV TPOXX
The approval of IV TPOXX is crucial since smallpox may cause damage to the throats of patients, rendering it difficult for them to take oral medication.
Naturally, smallpox was eradicated all over the world in the 1980s. However, as S.I.G.A. says:
In the Edison study, $85 million in the B.A.R.D.A. contract is being used to purchase IV TPOXX, and 212k doses total. This will explain S.I.G.A.’s record-breaking share price upon approval, though it’s unclear if the increased purchase of IV TPOXX will mean fewer purchases of oral T.P.O.X.X. In any case, the extra potential for flexibility is only considered positive for the company.
S.I.G.A. is an exclusive partner overseas with Meridian Medical Technologies – a part of Pfizer, the Pharma major Pfizer (P.F.E.) and might successfully sell IV TPOXX in other countries to increase the success with oral T.P.O.X.X. in Canada, Asia, and possibly Europe.
The Significance of the Monkeypox Outbreak
According to CNBC, the day before this week, there had been confirmed cases of Monkeypox in 131 countries and 106 cases suspected spread across 19 countries, including those in the U.S.U.S., U.K., Canada, Australia, Italy, Spain, and Portugal. The U.K.U.K. has confirmed 56 cases, and Spain, with 41 confirmed cases, is the worst hit.
Monkeypox can be characterized by the appearance of rashes, fever, headache, muscle pain, swelling of lymph nodes, and general weakness and is transmitted by the World Health Organization (“WHO”):
Monkeypox is a prevalent disease in a few African countries, including Benin, Cameroon, the Central African Republic, the Democratic Republic of the Congo, Gabon, Ghana, Cote d’Ivoire, Liberia, Nigeria as well as the Republic of the Congo, and Sierra Leone – is a viral zoonosis that is passed on to humans through animals. It isn’t usually a fatal disease, with a death rate of 3.6 percent of those in the West African clade version – the one found during the outbreak, and 10.6 of those belonging to the Congo Basin clade.
Typically, Monkeypox does not lead to severe cases among patients with a compromised immune system, pregnant women, or children. However, it can be sufficient to trigger speculation by the media regarding an uncontrollable outbreak. This is because those diagnosed with the disease do not have a history of the illness and are not traveling to countries that have endemic cases of the disease.
The majority of experts agree that the chance of another outbreak is minimal. Before the 2017 outbreak that saw 42 cases of the disease were very uncommon, with only one point being reported within Nigeria from 1978. Experts believe that the virus has utilized the “sexual network” to travel worldwide. Even though some mutations have been detected, there is no evidence to suggest that the virus is becoming more transmittable.
Existing Vaccines and Medicines For Monkeypox, & S.I.G.A.’s Opportunity
There are a variety of vaccines to treat Monkeypox. A smallpox vaccination developed in the company of Emergent BioSolutions (E.B.S.) is one, along with a brand new vaccine developed by the specialist in vaccine maker Bavarian Nordic. Both companies are classified as direct rivals in S.I.G.A. within its 2020 10k Submittal. Emergent’s stock jumped between $28 and $40 this week, in the range of $32, while Bavarian Nordic stock – listed on the Danish stock exchange – increased from 120DKK up to 200DKK (~$17 between $28 and $17).
The Center for Disease Control (“C.D.C.”) in the U.S.U.S. has released a portion of its Bavarian Nordic’s Jynneos vaccine to healthcare professionals in close contact with this disease. There are just 1k doses available, with the C.D.C. vowing to increase supplies, even though there are over 100m of Emergent’s vaccines.
S.I.G.A. management hasn’t yet started a response to this outbreak. Still, the website of S.I.G.A. management declares that it “is monitoring the growing monkeypox outbreak and supports the response” and provides an email address to allow governments or medical professionals to reach them directly.
S.I.G.A. isn’t likely to be able to create the monkeypox vaccine within the shortest amount of time. It could be ineffective considering that the virus has afflicted a mere 150 individuals, and for the same reason that its treatment will not be required in large quantities, considering that patients are typically likely to recover with no medical intervention.
Given the events that led to the Coronavirus pandemic, T.P.O.X.X. is likely to generate some additional demand, in my opinion, and it will not require several more cases to create the market be much more significant for any treatment that is designed for treating Monkeypox. While T.P.O.X.X. doesn’t have this designation in the U.S.U.S. however, it is available in Europe, and the F.D.A. may soon alter the label for the U.S.U.S. in the event it becomes essential, due to the similarity between smallpox and the monkeypox virus – the former is, in my opinion, much less dangerous than the latter.
In addition, due to the Coronavirus virus, the media attention surrounding this outbreak will likely be significant, making the market volatile as a result.
The reaction to COVID proves this the COVID response is not just a coincidence. For example, when the F.D.A. issued an emergency Use Authorization (“E.U.A.”) for convalescent plasma Liminal BioSciences (L.M.N.L.) – a biotech company that ran convalescent plasma collection facilities, saw its shares go up over $20 before plummeting after the thesis was disproved. Claims are down over 98 percent from the previous high. In the same way, Alpha Pro Tech (A.P.T.) shares jumped from $3 and then to $22 when it was discovered to be a scarce provider of masks that protect against an era of shortages across the country. The shares are currently trading at $4.6.
Conclusion – Tough To Speculate On Monkeypox “Hype,” But Underlying Business Supports A Bullish Outlook for S.I.G.A.
However, an under-reported stock that operates in a niche market is a profitable one. the price of S.I.G.A.’s shares has fluctuated for several years, yet it was always expected to rise following the approval of the IV TPOXX as well as the potential market that opens
S.I.G.A. management appears to be treating its shareholders well. In June of this year, it is set to pay special dividends of $0.45 per share. Additionally, In Q122, S.I.G.A. purchased back 1 million parts of the stock it owns at $6.6m. Its share repurchase program has resulted in the purchase of shares worth $61 million in March. Cash reserves are also healthy at $153 million.
Investors shouldn’t consider the recent price increase because of the “hype” surrounding Monkeypox and the handful of companies equipped to launch treatments or vaccines. My research indicates that the company merited a slight increase in its valuation.
With $300 million of sales guarantee for the U.S.U.S. government for the next three years and new markets opening up in A.P.A.C. and Europe, This would have been an exciting time for S.I.G.A. regardless of the outbreak of Monkeypox however the possibility that S.I.G.A. could be able to aid should the situation worsen is an exciting opportunity to think about.
It is hoped that S.I.G.A.’s T.P.O.X.X. treatment is not stocked instead of being distributed to an increasing number of patients. But that is its main business regardless, and the management appears to be doing a good job. 2022’s revenues could be a problem, as oral T.P.O.X.X. isn’t required from the U.S.U.S. government. The company suffered small losses in its Q122, but this should level out over 3-5 years.
It is a matter of whether investors who are interested in investing should hold off until the monkeypox hysteria ends and then capitalize on a price correction for S.I.G.A. to purchase shares at a lower cost or if it’s more beneficial to buy now to be prepared for a further growth driven by the epidemic in addition to the belief that S.I.G.A.’s primary business can justify it’s the current valuation of $780 million or perhaps a larger one taking into account the available growth opportunities. I am in favor of the latter option.
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