SIGA Technologies (Nasdaq: SIGA) – Prepared for big things
“In science the credit goes not to the one who first thinks of the idea, but to the one who convinces the world." - Sir William Osler (1849-1919), famous Canadian medical researcher and physician.If you want to read a book that’ll make you scared and sad at the same time get hold of Biohazard by Ken Alibek. This is the story, told in 1999 (with Steven Handelman), of the Soviet Union’s biological weapons programme. Ken Alibek had worked in the 1980s on covertly weaponising anthrax, Ebola and tularaemia, just to name a few really bad microbes, before he defected to the United States in 1992. Alibek and his colleagues didn’t do things by halves when they created a biological weapon. They scoured the world looking for the worst possible viruses and bacteria and inevitably they ended up with tonnes of the stuff in storage. And this is the scary part – no-one seems to know where it all went after the Soviet Union came to a screaming halt in 1991. If you read the book you might have a little more sympathy with the Bush Administration over its decision to invade Iraq in 2003 to deal with all those Weapons of Mass Destruction said to be lurking there. You might also feel a bit sad that a historically destructive virus that was supposed to have disappeared from Planet Earth forever – smallpox – is in fact still around thanks to those devious Communists.
Back in the 1950s the Soviets had championed a clever smallpox eradication strategy where teams of health workers would quickly converge on the scene of a smallpox outbreak and vaccinate the nearest 50-200 people. This ‘ring vaccination’ strategy markedly reduced transmission rates. By the late 1970s the outbreaks had become rare enough to say that smallpox was no longer a global health concern, and in 1980 smallpox was officially declared history. The same strategy had almost rid us of polio ten years ago but these days the world’s population is much more mobile and less organised, politically speaking, so it doesn’t surprise me to learn that there’s an outbreak in Peshawar in Pakistan going on right now. With smallpox the idea post-eradication was that only two samples of the virus would remain, one with the US and the other with the Soviets. Once the genome of smallpox had been sequenced, these would be destroyed. The Soviets, regrettably, were so caught up in their Cold War mindset that they decided to secretly weaponise their sample instead. So smallpox is still with us, and since 2002 US military personnel have been vaccinated. Most of the rest of the human race is vulnerable because routine vaccination ended decades ago. If you wanted proof that ideas have consequences, this is it. When I was a kid back in the 1980s a lot of people thought Das Kapital was relatively harmless. Well, this is one of the evil things that book led to.
That’s the bad news part of today’s Biotech Buzz post, and sorry if I wrecked your day making you think about what a dangerous place the world has become. The good news is that SIGA Technologies (Nasdaq: SIGA) can make it a little less dangerous. That’s right – there’s a Nasdaq-listed biotech company in America whose core competency is ‘pharmaceutical solutions for some of the most lethal disease-causing pathogens in the world - smallpox, Ebola, dengue, Lassa fever and other dangerous viruses’. Its CEO is Dr Eric Rose, a heart surgeon who ran the heart transplant programme at Columbia Presbyterian in New York for a long time and was once Silviu Itescu’s colleague at that hospital. Rose now sits on the board of Itescu’s world-leading stem cell company Mesoblast (ASX: MSB) down here in Australia, but his main gig is looking after Life Sciences investments at MacAndrews & Forbes, which is the holding company of the billionaire investor Ron Perelman (the world's 79th richest person) and which has a sizable investment in SIGA.
SIGA has been built on the fact that since the US Congress passed the Project BioShield Act of 2004 Uncle Sam is obliged to maintain a Strategic Stockpile of drugs and vaccines that could deal with acts of bioterrorism. The lead product cooked up by SIGA’s drug developers out in Corvallis, Oregon is Arestvyr, a small molecule specific for smallpox, and in May 2011 the company signed a contract with BARDA, the US Biomedical Advanced Research and Development Authority, to sell two million courses of Arestvyr into the Strategic Stockpile. That’s enough to treat a smallpox outbreak in one US city. The contract is worth US$463m and runs until 2020. SIGA started delivering into the stockpile in March 2013 and became eligible to receive payments under the contract in July after the first half-million courses were delivered. This makes SIGA almost unique among biotech companies – it is able to commercially sell a drug (albeit to only one customer) for which there is no FDA approval. The biotech intellectual heirs of Karl Marx wouldn’t have blinked an eyelid at the thought of double-blind placebo-controlled ‘challenge’ studies of a smallpox drug in humans but, this being ethically unacceptable in civilised countries today, one has to rely on animal studies to show efficacy. The FDA revised the ‘Animal Rule’ to allow SIGA and others to do this. Arestvyr has worked in non-human primates challenged with smallpox’s cousin, monkeypox, but in the case of Arestvyr the Agency has not yet formally said Yes.
Clearly Arestvyr is valuable or the company wouldn’t be locked in legal proceedings with a competitor from Annapolis, Md named PharmAthene (NYSE MKT: PIP), which wants a piece of the drug (click here for some background on that matter). However the question needs to be asked: Is Arestvyr the base for a real business? In one sense it is. The day the bioterrorists strike with smallpox Uncle Sam will want much more than 2 million courses of Arestvyr, since smallpox is as contagious as influenza (where there are 80 million courses of Tamiflu in the stockpile) but kills a whole lot more people once it has incubated. However you can’t really build a company on the expectation of really bad things happening. Look at it another way. When CSL Ltd (ASX: CSL), now the world's 27th largest pharma company, was awarded a contract by the Australian government for influenza vaccines to deal with the H1N1 outbreak of 2009, my old colleague Charlie Aitken at Bell Potter remarked that for valuation purposes the contract ought to be ‘put on a P/E of 1'. It was, in his view, a one-off event that didn’t justify an increase in the notional value of CSL’s vaccine business. I broadly agree with this approach even though I would have argued that the probable effect of the outbreak was to boost routine influenza vaccination rates in the long-run, which would be good for CSL’s regular vaccine business. Since there’s no comparable ‘GP vigilance effect’ here, the real value for SIGA from Arestvyr from an investor’s perspective lies in where the company is parleying its revenues from that drug.
Which is why SIGA’s Dengue programme will be worth watching. For a long time Dengue held no appeal for drug developers. This mosquito-borne virus, the cause of 50-100 million cases of Dengue fever a year and perhaps 25,000 deaths, was only a problem in that tropical part of the world where poor people lived, even though those poor people constituted a third of the world’s population. Then in 2009 Dengue showed up in the continental US for the first time in 65 years (click here). Okay, it was only the Florida Keys, but this was clear evidence that Global Warming, man-made or natural, was bringing tropical diseases onto Rich World turf. Nowadays if you tell the Business Development folks at Big Pharma you have a potential Dengue drug in the pipeline they are all ears because there’s no current vaccine and Sanofi’s vaccine candidate, now in Phase III and expected to launch commercially in 2015, has pretty low efficacy (click here). SIGA is a great way to play the Dengue story because the folks in Corvallis have developed small molecules with activity against all four serotypes of the virus and they’ve been able to register efficacy in a mouse model. SIGA announced in August 2013 that it had selected a lead candidate for Dengue.
Of course, there’s still value to be created from the next Arestvyr. Even if he doesn’t think he needs another drug to combat bioterrorism, Uncle Sam still has to think about fighting wars in tropical countries, and that’s where a drug from SIGA specific for arenaviruses – the ones which cause haemorrhagic fevers such as Lassa in Africa and Junin in South America – may come in handy. Beyond that SIGA is working on a broad-spectrum antiviral specific for a range of viruses. So long as Congress reauthorises Project BioShield, which it has to do before the end of the year if it wants to keep the programmes going, there will likely be plenty of American taxpayer dollars out there for SIGA to develop new drugs against bioterror threats. It’s a reasonable bet that Congress will do something. 9/11 may have happened 12 years ago but we’re all still scared stiff, especially those of us who read Ken Alibek’s book. It’s good to know that this amazing biotech industry that has emerged in the last 30 years can come up something to help us to sleep a little better at night.
Stuart Roberts, Australian Life Sciences consultant, with global focus
+61 (0)447 247 909
Twitter @Biotech_buzz
About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. Over the twelve years to 2013 I built a reputation as one of Australia's leading biotech analysts. I am currently consulting to the Australian biotech industry. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.
Previous Australian Biotechnology Buzz posts:
Advanced Cell Technology (OTCBB: ACTC), 4 September 2013
Alcobra Pharma (Nasdaq: ADHD), 17 September 2013
Amicus Therapeutics (Nasdaq: FOLD), 22 September 2013
Aradigm (OTCBB: ARDM), 8 September 2013
BioSpecifics Technologies (Nasdaq: BSTC), 26 September 2013
Cellular Dyamics (Nasdaq: ICEL), 3 September 2013
ImmunoCellular Therapeutics (NYSE MKT: IMUC), 27 August 2013
Immunomedics (Nasdaq: IMMU), 21 August 2013
Inovio Pharmaceuticals (NYSE MKT: INO), 24 August 2013
Merrimack Pharmcaceuticals (Nasdaq: MACK), 26 August 2013
Oncolytics Biotech (Nasdaq: ONCY), 22 August 2013
Pharmacyclics (Nasdaq: PCYC), 2 September 2013
Regulus Therapeutics (Nasdaq: RGLS), 23 August 2013
SIGA Technologies (Nasdaq: SIGA) - 30 September 2013
SIGA Technologies (Nasdaq: SIGA) - 30 September 2013
Sunshine Heart (Nasdaq: SSH), 28 August 2013
Synta Pharmaceuticals (Nasdaq: SNTA), 1 September 2013
TrovaGene (Nasdaq: TROV), 15 September 2013
Verastem (Nasdaq: VSTM), 5 September 2013
Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.
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