SIGA TECHNOLOGIES INC (SIGA)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (filed with the SEC on March 12, 2024) for additional discussion of our financial condition and results of operations for the year ended December 31, 2023, as well as our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.

Overview

SIGA Technologies, Inc. (“SIGA” or the “Company”) is a commercial-stage pharmaceutical company. The Company sells its lead product, TPOXX® (“oral TPOXX®,” also known as "tecovirimat," "Tecovirimat SIGA," or "TEPOXX (tecovirimat)" in certain international markets), to the U.S. Government and international governments (including government affiliated entities). In certain international markets, the Company may sell TPOXX® through a distributor. Additionally, the Company sells the intravenous formulation of TPOXX® ("IV TPOXX®") to the U.S. Government.

TPOXX® is an antiviral drug for the treatment of human smallpox disease caused by variola virus. On July 13, 2018, the United States Food & Drug Administration (“FDA”) approved oral TPOXX® for the treatment of smallpox. The Company has been delivering oral TPOXX® to the U.S. Strategic National Stockpile ("Strategic Stockpile") since 2013.

On May 18, 2022 the FDA approved IV TPOXX® for the treatment of smallpox.

In addition to being approved by the FDA, oral TPOXX® (tecovirimat) has received regulatory approval from the European Medicines Agency ("EMA"), Health Canada, the Medicines and Healthcare Products Regulatory Agency ("MHRA") of the United Kingdom, and most recently, in December 2024, the Japanese Pharmaceuticals and Medical Devices Agency ("PMDA"). The EMA, MHRA and PMDA approved oral TPOXX® for the treatment of smallpox, monkeypox ("mpox"), cowpox, and vaccinia complications following vaccination against smallpox. Health Canada approved TPOXX® for the treatment of smallpox.

With respect to the regulatory approvals by the EMA, PMDA, MHRA and Health Canada, oral tecovirimat represents the same formulation approved by the FDA in July 2018 under the brand name TPOXX®.

In connection with a potential FDA label expansion of oral TPOXX® for an indication covering smallpox post-exposure prophylaxis (“PEP”), the Company has completed an immunogenicity trial and an expanded safety trial. The timing of a potential submission of a supplemental New Drug Application to the FDA (“Supplemental NDA”) for a smallpox PEP indication for oral TPOXX® will be based on the results of ongoing sample analyses from the immunogenicity trial; the Company is currently targeting a Supplemental NDA submission in the next twelve months.

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Procurement Contracts with the U.S. Government

19C BARDA Contract

On September 10, 2018, the Company entered into a contract with the U.S. Biomedical Advanced Research and Development Authority ("BARDA") pursuant to which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the Strategic Stockpile, and to manufacture and deliver to the Strategic Stockpile, or store as vendor-managed inventory, up to 212,000 courses of IV TPOXX®. In October 2023, the contract was modified so that a course of IV TPOXX® was redefined within the contract from being 14 vials to being 28 vials; as such, the 19C BARDA Contract currently specifies 106,000 courses of IV TPOXX® (for the same payment amount as originally specified). In addition to the delivery of TPOXX® courses, the contract includes funding from BARDA for a range of activities, including: advanced development of IV TPOXX®, post-marketing activities for oral and IV TPOXX®, development for a pediatric formulation, and procurement activities. As of December 31, 2024, the contract with BARDA (as amended, modified, or supplemented from time to time, the "19C BARDA Contract") contemplates up to approximately $602.5 million of payments, of which approximately $51.7 million of payments are included within the base period of performance, approximately $519.6 million of payments are related to exercised options and up to approximately $31.2 million of payments are currently specified as unexercised options. BARDA may choose in its sole discretion when, or whether, to exercise any of the unexercised options. The period of performance for options is up to ten years from the date of entry into the 19C BARDA Contract and such options could be exercised at any time during the contract term.

The base period of performance specifies potential payments of approximately $51.7 million for the following activities: payments of approximately $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile; payments of $8.0 million for the manufacture of 10,000 courses (as currently defined within the contract as being 28 vials) of final drug product of IV TPOXX® ("IV FDP"), of which $3.2 million of payments are related to the manufacture of bulk drug substance ("IV BDS") to be used in the manufacture of IV FDP; payments of approximately $32.0 million to fund reimbursed activities; and payments of approximately $0.6 million for supportive procurement activities. As of December 31, 2024, the Company had received $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the manufacture of IV BDS, $4.8 million for the delivery of IV FDP to the Strategic Stockpile and $25.3 million for other base period activities. IV BDS has been used for the manufacture of courses of IV FDP. The $3.2 million received for the completed manufacture of IV BDS had been recorded as deferred revenue as of December 31, 2021, but with the delivery of IV FDP to the Strategic Stockpile during 2022, $2.9 million was recognized as revenue. The remaining $0.3 million of deferred revenue was recognized in the second quarter of 2024 as the IV FDP containing such IV BDS was delivered to and accepted by the Strategic Stockpile.

The options that have been exercised as of December 31, 2024, provide for payments up to approximately $519.6 million. As of December 31, 2024, there are exercised options for the following activities: payments up to $450.2 million for the manufacture and delivery of up to 1.5 million courses of oral TPOXX®; payments up to $51.2 million for the manufacture of courses of IV FDP, of which $20.5 million of payments relate to the manufacture of IV BDS to be used in the manufacture of IV FDP; payments of up to approximately $3.6 million to fund post-marketing activities for IV TPOXX®; and payments of up to $14.6 million for funding of post-marketing activities for oral TPOXX®. As of December 31, 2024, a cumulative total of $396.9 million of oral TPOXX® has been delivered to the Strategic Stockpile and accepted, of which approximately $15 million was delivered in the first quarter of 2024, approximately $8 million was delivered in the third quarter of 2024, and approximately $51 million was delivered in the fourth quarter of 2024; a cumulative total of $25.4 million of IV FDP has been delivered to the Strategic Stockpile and accepted, of which approximately $17 million of revenue (including recognition of deferred revenue) was recorded in the second quarter of 2024 and approximately $8 million of revenue (including recognition of deferred revenue) was recorded in the fourth quarter of 2024; $10.3 million has been received for the manufacture of IV BDS (such amount is recorded as deferred revenue); and the Company has been cumulatively reimbursed $9.4 million in connection with post-marketing activities for oral and IV TPOXX®.

Unexercised options specify potential payments up to approximately $31.2 million in total (if all such options are exercised), of which approximately $5.6 million relates to supportive activities that we currently do not expect to be required. The remaining unexercised options specify payments of up to $25.6 million for the manufacture of courses of IV FDP, of which up to $10.2 million of payments would be paid upon the manufacture of IV BDS to be used in the manufacture of IV FDP.

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The options related to IV TPOXX® are divided into two primary manufacturing steps. There are options related to the manufacture of bulk drug substance (“IV BDS Options”), and there are corresponding options (for the same number of IV courses) for the manufacture of final drug product (“IV FDP Options”). BARDA may choose to exercise any, all, or none of these options in its sole discretion. The 19C BARDA Contract includes: three separate IV BDS Options, each providing for the bulk drug substance equivalent of 32,000 courses (as currently defined within the contract) of IV TPOXX®; and three separate IV FDP Options, each providing for 32,000 courses of final drug product of IV TPOXX®. BARDA has the sole discretion as to whether to simultaneously exercise IV BDS Options and IV FDP Options, or whether to exercise options at different points in time (or alternatively, to only exercise the IV BDS Option but not the IV FDP Option). To date, BARDA has exercised two of the three IV BDS options and two of the three IV FDP options. If BARDA decides only to exercise the remaining IV BDS Option, then the Company would receive payments up to $10.2 million; alternatively, if BARDA decides to exercise the remaining IV BDS Option and IV FDP Option, then the Company would receive payments up to $25.6 million. BARDA may also decide not to exercise either remaining option. For each set of options relating to a specific group of courses (for instance, the IV BDS and IV FDP options that reference the same 32,000 courses), BARDA has the option to independently purchase IV BDS or IV FDP. The Company estimates that sales of the IV formulation under this contract (under current terms), assuming the remaining IV FDP Option was exercised, would have a gross margin (sales less cost of sales, as a percentage of sales) that is less than 40%.

U.S. Department of Defense Procurement Contracts

In 2024, the Company had sales of approximately $10 million with the U.S. Department of Defense ("DoD"). Sales consist mostly of delivery of oral TPOXX®, with a minor amount of IV TPOXX® delivered.

In 2023, the Company had sales of approximately $11 million with the DoD. Sales consist of delivery of oral TPOXX®.

Over the past three years, the Company has received three procurement contracts from the DoD, including a $9 million contract in August 2024, which has been fulfilled.

International Sales Activity

In the year ended December 31, 2024, the Company had international sales of $23.0 million consisting of deliveries of oral TPOXX® to 13 countries. For international sales in the first and second quarters, Meridian Medical Technologies ("Meridian") was the counterparty to contracts under which the sales were made (see discussion and definition below regarding International Promotion Agreement). For international sales in the third and fourth quarters, the Company was the counterparty to the contracts under which the sales were made.

In the year ended December 31, 2023, the Company had international sales of $21.3 million consisting of deliveries of oral TPOXX® to seven countries.

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International Promotion Agreement

Under the terms of the current International Promotion Agreement, which was amended on March 27, 2024, and effective June 1, 2024, and further amended on August 30, 2024, the Company has primary responsibility for the advertising, promotion and sale of oral TPOXX® in all geographic regions. Meridian has limited, non-exclusive rights to advertise, promote, offer for sale and sell oral TPOXX® in the European Economic Area, Australia, Japan, Switzerland, the United Kingdom and the Association of Southeast Asian Nations and its member states (collectively, the “Current Territory”). Meridian also performs non-promotional activities under specified contracts with third parties entered into prior to June 1, 2024, that provide for the sale of oral TPOXX® in the Current Territory. The International Promotion Agreement entitles Meridian to receive a fee equal to a high single digit percentage of collected proceeds (whether collected by Meridian or the Company), net of certain expenses, of sales of oral TPOXX® in the Current Territory in the field of use specified in the International Promotion Agreement. The International Promotion Agreement has a fixed term that expires on May 31, 2026, with no automatic renewal.

Under the terms of the original International Promotion Agreement ("Pre-amendment International Promotion Agreement"), which had an initial term that expired on May 31, 2024, Meridian had been granted exclusive rights to market, advertise, promote, offer for sale, or sell oral TPOXX® in a field of use specified in the International Promotion Agreement in all geographic regions except for the United States (the “Territory”), and Meridian agreed not to commercialize any competing product, as defined in the Pre-amendment International Promotion Agreement, in the specified field of use in the Territory. Under the Pre-amendment International Promotion Agreement, as well as the current International Promotion Agreement, SIGA has always retained ownership, intellectual property, distribution and supply rights and regulatory responsibilities in connection with TPOXX®, and, in the United States market, also retained sales and marketing rights with respect to oral TPOXX®. SIGA’s consent is required prior to the entry by Meridian into any sales arrangement pursuant to the International Promotion Agreement.

Sales to international customers pursuant to the Pre-amendment International Promotion Agreement were invoiced and collected by Meridian, and such collections were remitted, less Meridian's fees, to the Company under a quarterly process specified in the Pre-amendment International Promotion Agreement; and Meridian was entitled to a specified percentage of the collected proceeds of sales of oral TPOXX®, net of certain expenses, for calendar years in which customer collected amounts net of such expenses were less than or equal to a specified threshold, and to a higher specified percentage of such collected net proceeds for calendar years in which such net collected amounts exceeded the specified threshold. Subsequent to June 1, 2024, only specified procurement contracts for the Current Territory entered into prior to June 1, 2024, continue to involve Meridian invoicing and collecting proceeds, and retaining a fee pursuant to the International Promotion Agreement.

Mpox

In connection with the 2022 response to a global mpox outbreak, a series of observational and randomized, placebo-controlled clinical trials were initiated to assess the safety and efficacy of TPOXX® in participants with mpox. The purpose of these randomized clinical trials is to seek to collect data on the potential benefits of using TPOXX® as an antiviral treatment for active mpox disease. As of December 31, 2024, two of the randomized, placebo-controlled clinical trials reported preliminary topline results: a randomized, placebo-controlled clinical trial in the Democratic Republic of the Congo ("DRC") known as PALM 007 (Tecovirimat for Treatment of Monkeypox Virus - NCT05559099), which is funded and sponsored by the National Institutes of Health's (NIH) National Institute of Allergy and Infectious Diseases (NIAID); and the Study of Tecovirimat for Human Mpox Virus (STOMP) clinical trial (NCT05534984), which is a randomized, placebo-controlled, double-blind study sponsored and funded by NIAID to evaluate the safety and efficacy of tecovirimat for the treatment of people with laboratory-confirmed or presumptive mpox disease that included enrollees from Argentina, Brazil, Japan, Mexico, Peru, Thailand, and the United States. The PALM 007 study did not meet its primary endpoint of a statistically significant improvement in time to lesion resolution within 28 days post-randomization for patients in the DRC with mpox who received TPOXX® compared to patients who received placebo. Some improvement versus placebo was observed in patients receiving TPOXX® whose symptoms began seven days or fewer before randomization and patients with severe or grave disease, defined by the World Health Organization (WHO) as having 100 or more skin lesions, however the significance of these data have not been established. An interim analysis of data from the STOMP study showed that TPOXX® did not demonstrate efficacy in time to skin and mucosal lesion resolution compared to placebo in patients with mild to moderate clade II mpox. Based on this result and additional analyses, the study Data Safety and Monitoring Board (DSMB) recommended to stop enrolling patients in the randomized arms of the study. NIAID accepted this recommendation and subsequently decided to take a similar action in the open label arm of this study, which included severe and at-risk of developing severe disease patients. Data analysis is not yet complete for primary endpoint subgroups and detailed secondary and exploratory endpoints. In both studies, TPOXX® exhibited a safety profile comparable to placebo. These safety results are consistent with prior studies and further support the strong safety profile that has been observed with tecovirimat over the past 15 years.

Three randomized clinical trials, UNITY (Switzerland, Brazil, Argentina), Platinum-CAN (Canada), and EPOXI (EU), are enrolling mpox patients. Given the STOMP and PALM007 results and the design similarities across these mpox trials, the Company believes these ongoing trials are likely to yield similar results.

Research Agreements and Grants

In July 2019, the Company was awarded a multi-year research contract ultimately valued at approximately $27 million from the DoD to support work in pursuit of a potential label expansion for oral TPOXX® that would include post-exposure prophylaxis ("PEP") of smallpox (such work known as the "PEP Label Expansion Program" and the contract referred to as the "PEP Label Expansion R&D Contract"). As of December 31, 2023, the Company invoiced the full amount of available funding, and as a result, there is no remaining revenue to be recognized in the future under the PEP Label Expansion R&D Contract. Revenue from the performance obligation under the PEP Label Expansion R&D Contract was recognized over time using an input method using costs incurred to date relative to total estimated costs at completion.

Contracts and grants include, among other things, options that may or may not be exercised at the U.S. Government’s discretion. Moreover, contracts and grants contain customary terms and conditions including the U.S. Government’s right to terminate or restructure a contract or grant for convenience at any time. As such, the Company may not be eligible to receive all available funds.

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Critical Accounting Estimate

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our consolidated financial statements, which we discuss under the heading “Results of Operations” following this section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimate is revenue recognition over time.

Revenue Recognition

We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The unit of account in ASC 606 is a performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue connected with performance obligations related to product delivery and supportive services are recognized at a point in time. Revenue connected with performance obligations related to research and development are recognized over time.

Due to the nature of the work required to be performed on many of our performance obligations for which revenue is recognized over time, the estimation of total revenue and costs to satisfy the obligations may be complex, subject to many variables and requires significant judgment. The consideration associated with these types of performance obligations is considered variable. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur and when any uncertainty associated with variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our historical and anticipated performance, external factors, trends and all other information (historical, current and forecasted) that is reasonably available to us.

Contracts are often modified to account for additional services to be performed. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations, or changes existing enforceable rights and obligations. If the effect of a contract modification on the transaction price changes our measure of progress for the performance obligation to which it relates, the impact will be recognized in the period of modification as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

We have a process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management’s judgment about the ability and cost to achieve the schedule, technical requirements and other contract requirements. Management must make assumptions and estimates regarding labor productivity, the complexity of the work to be performed, customer behavior and execution by our subcontractors, among other variables.

Based on this analysis, any quarterly adjustments to revenues, research and development expenses and cost of sales and supportive services are recognized as necessary in the period they become known. Changes in estimates of revenues, research and development expenses and cost of sales and supportive services are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations.

Recently Issued Accounting Pronouncements

For discussion regarding the impact of accounting standards that were recently issued but are not yet effective, on our consolidated financial statements, see Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements.

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Results of Operations for the Years ended December 31, 2024 and 2023

Revenues from product sales and supportive services for the years ended December 31, 2024 and 2023 were $133.3 million and $130.7 million, respectively. Such revenues for the year ended December 31, 2024 include $73.9 million of oral TPOXX® sales and $26.2 million of IV TPOXX® sales to the U.S. Government under the 19C BARDA Contract; $23.0 million related to international sales of oral TPOXX®; and approximately $10.1 million of oral TPOXX® sales to the DoD. Such revenues for the year ended December 31, 2023 include $97.9 million of oral TPOXX® sales to the U.S. Government under the 19C BARDA Contract; $21.3 million related to international sales of oral TPOXX®; and approximately $10.7 million of oral TPOXX® sales to the DoD.

Revenues from research and development activities for the years ended December 31, 2024 and 2023, were $5.4 million and $9.2 million, respectively. The revenues for the year ended December 31, 2024, were mostly earned in connection with performance of research and development activities under the 19C BARDA Contract. The revenue for the year ended December 31, 2023, were mostly earned in connection with performance of research and development activities under the PEP Label Expansion R&D Contract and the 19C BARDA Contract. The decrease of $3.8 million of revenue is related to the completion of billable activities under the PEP Label Expansion R&D Contract in 2023.

Cost of sales and supportive services for the years ended December 31, 2024 and 2023 were $31.3 million and $17.8 million, respectively. Such costs in 2024 were primarily associated with the manufacture and delivery of oral TPOXX® courses to the U.S. Government, DoD and various international customers as well as the manufacture and delivery of IV TPOXX® courses to the U.S. Government. Such costs in 2023 were associated with the manufacturing and delivery of oral TPOXX® to the U.S. Government as well as various international countries. The difference in costs between years is primarily due to the inclusion of IV TPOXX® in 2024 sales; manufacturing costs for IV TPOXX® are significantly higher than manufacturing costs for oral TPOXX®.

Selling, general and administrative expenses for the years ended December 31, 2024 and 2023 were $25.1 million and $22.0 million, respectively. The increase of $3.1 million reflects higher compensation expense, including stock-based compensation, associated with the hiring of multiple executive officers in 2024.

Research and development expenses were $12.3 million for the year ended December 31, 2024, a decrease of approximately $4.1 million from the $16.4 million incurred during the year ended December 31, 2023. The decrease is primarily attributable to lower direct vendor-related expenses incurred in connection with a decrease in activities under the PEP Label Expansion R&D Contract, partially offset by an increase in compensation expense in connection with new hires.

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Other income, net for the years ended December 31, 2024 and 2023 was $6.1 million and $4.2 million, respectively. The increase relates to interest income earned on cash and cash equivalents as the average cash balance during the year ended December 31, 2024 was higher than in 2023. Additionally, the average investment return rates in the year ended December 31, 2024 were higher than those in 2023.

For the year ended December 31, 2024, we recognized a tax provision of $16.9 million on pre-tax income of $76.1 million. Our effective tax rate for the year ended December 31, 2024 was 22.2% and differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), shortfalls on stock-based compensation, and state and local taxes.

For the year ended December 31, 2023, we recognized a tax provision of $19.7 million on pre-tax income of $87.8 million. Our effective tax rate for the year ended December 31, 2023 was 22.5% and differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), and state and local taxes.

Liquidity and Capital Resources

As of December 31, 2024, we had $155.4 million in cash and cash equivalents, compared with $150.1 million at December 31, 2023. We believe that our liquidity and capital resources will be sufficient to meet our anticipated requirements for at least the next twelve months from the issuance of these financial statements.

Operating Activities

We prepare our consolidated statement of cash flows using the indirect method. Under this method, we reconcile net income to cash flows from operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments during the period. These reconciling items include but are not limited to stock-based compensation, deferred income taxes and changes in the fair value of our warrant liability; gains and losses from various transactions and changes in the consolidated balance sheet for working capital from the beginning to the end of the period.

Net cash provided by operations for the years ended December 31, 2024 and 2023 was $48.8 million and $94.8 million, respectively.  For the year ended December 31, 2024, net cash increase from operations is due to the receipt of approximately $122.5 million from sales of oral and IV TPOXX® to the U.S. Government and international customers, of which approximately $102 million relates to 2024 sales and the remainder to collection of accounts receivable on the December 31, 2023 balance sheet, partially offset by the payment of approximately $30 million of income taxes as well as the use of cash for customary operating activities. For the year ended December 31, 2023, the receipt of substantially all of the $45 million of accounts receivable as of December 31, 2022, the receipt of approximately $111 million of 2023 product sales of oral TPOXX®, as well as approximately $10 million received in connection with IV BDS deferred revenue was partially offset by the use of cash to proactively build inventory, and for operating activities.

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On December 31, 2024 and 2023, our accounts receivable balance was approximately $21.2 million (which includes approximately $0.5 million of unbilled receivables) and $21.1 million, respectively. Our accounts receivable balance as of December 31, 2024 primarily reflects sales of oral TPOXX® to various international countries and the DoD, of which approximately $20.1 million was received by the Company through the end of February 2025. The remaining amounts of the receivable balance are expected to be collected during the first or second quarter of 2025. Our accounts receivable balance as of December 31, 2023 primarily reflected sales of oral TPOXX® to the U.S. Government under the 19C BARDA Contract as well as various international countries, of which approximately $11.2 million was received by the Company through the end of February 2024. The remaining amounts of the receivable balance were collected during the second quarter of 2024.

Investing Activities

We used $42,450 and $21,686 for capital expenditures for the years ended December 31, 2024 and 2023, respectively.

Financing Activities

Cash used in financing activities for the years ended December 31, 2024 and 2023 was $43.5 million and $43.4 million, respectively. For the year ended December 31, 2024, we paid a special dividend of approximately $42.7 million as well as approximately $0.8 million associated with the payment of tax obligations for employee common stock tendered. For the year ended December 31, 2023, we paid a special dividend of approximately $32.1 million. In addition, we purchased approximately 1.7 million shares of common stock for approximately $11.0 million.

Future Cash Requirements

As of December 31, 2024, we have outstanding purchase orders associated with manufacturing obligations in the aggregate amount of approximately $2.4 million.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (filed with the SEC on March 2, 2023) for additional discussion of our financial condition and results of operations for the year ended December 31, 2022, as well as our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.

Overview

SIGA Technologies, Inc. (“SIGA” or the “Company”) is a commercial-stage pharmaceutical company. The Company sells its lead product, TPOXX® (“oral TPOXX®,” also known as "tecovirimat" in certain international markets), to the U.S. Government and international governments (including government affiliated entities). Additionally, the Company sells the intravenous formulation of TPOXX® ("IV TPOXX®") to the U.S. Government.

TPOXX® is an oral formulation antiviral drug for the treatment of human smallpox disease caused by variola virus. On July 13, 2018, the United States Food & Drug Administration (“FDA”) approved oral TPOXX® for the treatment of smallpox. The Company has been delivering oral TPOXX® to the U.S. Strategic National Stockpile ("Strategic Stockpile") since 2013.

In connection with IV TPOXX®, SIGA announced on May 19, 2022 that the FDA approved this formulation for the treatment of smallpox.

In addition to being approved by the FDA, oral TPOXX® (tecovirimat) has regulatory approval with the European Medicines Agency ("EMA"), Health Canada and the Medicines and Healthcare Products Regulatory Agency ("MHRA") of the United Kingdom. The EMA and MHRA approved label indication covers the treatment of smallpox, monkeypox ("mpox"), cowpox, and vaccinia complications following vaccination against smallpox. The Health Canada approved label indication covers the treatment of smallpox.

With respect to the regulatory approvals by the EMA, MHRA and Health Canada, oral tecovirimat represents the same formulation that was approved by the FDA in July 2018 under the brand name TPOXX®.

In connection with a potential FDA label expansion of oral TPOXX® for an indication covering smallpox post-exposure prophylaxis (“PEP”), the Company completed an immunogenicity trial and an expanded safety trial in early 2023. The nature and timing of a submission of a supplemental New Drug Application to the FDA (“Supplemental NDA”) for a smallpox PEP indication for oral TPOXX® will be based on the results of the trials; the Company is currently targeting a Supplemental NDA filing in 2024.

In connection with the 2022 global response to an mpox outbreak, a series of observational and randomized, placebo-controlled clinical trials were initiated to assess the safety and efficacy of TPOXX® in participants with mpox. As of December 31, 2023, there were five randomized, placebo-controlled clinical trials enrolling patients, when available, in locations including the United States, United Kingdom, the Democratic Republic of Congo ("DRC"), South America and Europe. These randomized clinical trials are enrolling patients to collect data on the potential benefits of using TPOXX® as an antiviral treatment for active mpox disease.

The Company may be able to use data from the trials noted above, as well as from other trials, to potentially pursue an FDA label expansion of oral TPOXX® for an indication covering the treatment of mpox. The viability, and timing, of a potential FDA submission for an mpox indication will be impacted by a series of factors, including the magnitude and severity of future mpox cases, the location of future cases, enrollment in clinical trials, and results of randomized, placebo-controlled and observational clinical trials.

Recent Developments

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Procurement Contracts with the U.S. Government

19C BARDA Contract

On September 10, 2018, the Company entered into a contract with the U.S. Biomedical Advanced Research and Development Authority ("BARDA") pursuant to which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the Strategic Stockpile, and to manufacture and deliver to the Strategic Stockpile, or store as vendor-managed inventory, up to 212,000 courses of IV TPOXX®. In October 2023, the contract was modified so that a course of IV TPOXX® was redefined within the contract from being 14 vials to being 28 vials; as such, the 19C BARDA Contract currently specifies 106,000 courses of IV TPOXX® (for the same payment amount as originally specified). In addition to the delivery of TPOXX® courses, the contract includes funding from BARDA for a range of activities, including: advanced development of IV TPOXX®, post-marketing activities for oral and IV TPOXX®, and procurement activities. As of December 31, 2023, the contract with BARDA (as amended, modified, or supplemented from time to time, the "19C BARDA Contract") contemplates up to approximately $602.5 million of payments, of which approximately $51.7 million of payments are included within the base period of performance, approximately $407.1 million of payments are related to exercised options and up to approximately $143.7 million of payments are currently specified as unexercised options. BARDA may choose in its sole discretion when, or whether, to exercise any of the unexercised options. The period of performance for options is up to ten years from the date of entry into the 19C BARDA Contract and such options could be exercised at any time during the contract term.

The base period of performance specifies potential payments of approximately $51.7 million for the following activities: payments of approximately $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile; payments of $8.0 million for the manufacture of 10,000 courses (as currently defined within the contract as being 28 vials) of final drug product of IV TPOXX® ("IV FDP"), of which $3.2 million of payments are related to the manufacture of bulk drug substance ("IV BDS") to be used in the manufacture of IV FDP; payments of approximately $32.0 million to fund reimbursed activities; and payments of approximately $0.6 million for supportive procurement activities. As of December 31, 2023, the Company had received $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the manufacture of IV BDS, $4.3 million for the delivery of IV FDP to the Strategic Stockpile and $22.1 million for other base period activities. IV BDS has been used for the manufacture of courses of IV FDP. The $3.2 million received for the completed manufacture of IV BDS had been recorded as deferred revenue as of December 31, 2021, but with the delivery of IV FDP to the Strategic Stockpile during 2022, $2.9 million was recognized as revenue. The remaining $0.3 million of deferred revenue will be recognized as IV FDP containing such IV BDS is delivered to and accepted by the Strategic Stockpile.

The options that have been exercised to date provide for payments up to approximately $407.1 million. There are exercised options for the following activities: payments up to $337.7 million for the manufacture and delivery of up to 1.1 million courses of oral TPOXX®; payments up to $51.2 million for the manufacture of courses of IV FDP, of which $20.4 million of payments relate to the manufacture of IV BDS to be used in the manufacture of IV FDP; payments of up to approximately $3.6 million to fund post-marketing activities for IV TPOXX®; and payments of up to $14.6 million for funding of post-marketing activities for oral TPOXX®. As of December 31, 2023, the Company has cumulatively delivered $323.0 million of oral TPOXX® to the Strategic Stockpile, of which $97.9 million was delivered in the fourth quarter of 2023; has cumulatively received $20.5 million for the completed manufacture of IV BDS, of which $20.5 million has been recorded as deferred revenue as of December 31, 2023; and has been cumulatively reimbursed $7.9 million in connection with post-marketing activities for oral and IV TPOXX®. In the first two months of 2024 ended February 29, 2024, approximately $15 million of oral TPOXX® was delivered to the Strategic Stockpile.

Unexercised options specify potential payments up to approximately $143.7 million in total (if all such options are exercised), of which approximately $5.6 million relates to supportive activities that we currently do not expect to be required. There are options for the following activities: payments of up to $112.5 million for the delivery of oral TPOXX® to the Strategic Stockpile; and payments of up to $25.6 million for the manufacture of courses of IV FDP, of which up to $10.2 million of payments would be paid upon the manufacture of IV BDS to be used in the manufacture of IV FDP.

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The options related to IV TPOXX® are divided into two primary manufacturing steps. There are options related to the manufacture of bulk drug substance (“IV BDS Options”), and there are corresponding options (for the same number of IV courses) for the manufacture of final drug product (“IV FDP Options”). BARDA may choose to exercise any, all, or none of these options in its sole discretion. The 19C BARDA Contract includes: three separate IV BDS Options, each providing for the bulk drug substance equivalent of 32,000 courses (as currently defined within the contract) of IV TPOXX®; and three separate IV FDP Options, each providing for 32,000 courses of final drug product of IV TPOXX®. BARDA has the sole discretion as to whether to simultaneously exercise IV BDS Options and IV FDP Options, or whether to exercise options at different points in time (or alternatively, to only exercise the IV BDS Option but not the IV FDP Option). To date, BARDA has exercised two of the three IV BDS options and two of the three IV FDP options. If BARDA decides to only exercise the remaining IV BDS Option, then the Company would receive payments up to $10.2 million; alternatively, if BARDA decides to exercise the remaining IV BDS Option and IV FDP Option, then the Company would receive payments up to $25.6 million. For each set of options relating to a specific group of courses (for instance, the IV BDS and IV FDP options that reference the same 32,000 courses), BARDA has the option to independently purchase IV BDS or IV FDP. The Company estimates that sales of the IV formulation under this contract (under current terms), assuming the remaining IV FDP Option was exercised, would have a gross margin (sales less cost of sales, as a percentage of sales) that is less than 40%.

Under the terms of this contract, exercise of procurement options is at the sole discretion of BARDA. The request for proposal that preceded the award of the 19C BARDA Contract indicated that the expected purpose of the contract was to maintain the level of smallpox antiviral preparedness in the Strategic Stockpile. Based on prior product delivery activity, and current FDA-approved shelf life of oral TPOXX®, the Company estimates that the remaining options under the 19C BARDA Contract for 363,000 courses of oral TPOXX® (value of $112.5 million) and 32,000 courses of IV FDP (value of $25.6 million) would need to be exercised in 2024 in order to approximately maintain historical stockpile levels of unexpired TPOXX® treatment in the Strategic Stockpile.

U.S. Department of Defense Procurement Contracts

On May 12, 2022, the Company announced a contract with the U.S. Department of Defense ("DoD") for the procurement of oral TPOXX® ("DoD Contract #1").  The DoD Contract #1 included a firm commitment for the DoD to procure approximately $3.6 million of oral TPOXX®, and an option, exercisable at the sole discretion of the DoD, for the procurement of an additional approximately $3.8 million of oral TPOXX®.  In the second quarter of 2022, the Company delivered oral TPOXX® to the DoD and recognized revenue of $3.6 million, fulfilling the firm commitment in DoD Contract #1. In the third quarter of 2022, the DoD exercised the option for $3.8 million of oral TPOXX® and the Company satisfied its obligation by delivering product in September 2022 and recognized the related revenue.

On September 28, 2022, the Company and the DoD signed a new procurement contract ("DoD Contract #2"). The DoD Contract #2 included a firm commitment for the DoD to procure approximately $5.1 million of oral TPOXX®, and an option, exercisable at the sole discretion of the DoD for the procurement of an additional approximately $5.5 million of oral TPOXX®.

In March 2023, the Company fulfilled the firm commitment by delivering $5.1 million of oral TPOXX® to the DoD, and recognized the related revenue.  Additionally, in March 2023 the DoD exercised the $5.5 million option in DoD Contract #2 for the procurement of oral TPOXX® and the Company delivered these courses to the DoD in the fourth quarter of 2023.

In February 2024, DoD Contract #2 was amended and approximately $1 million of oral TPOXX® was ordered by the DoD.

International Procurement Contracts

In 2023, the Company has delivered, and received acceptance for, approximately $21.3 million of oral TPOXX® to five European countries, one Middle Eastern country, and one Asia Pacific country. In the first two months of 2024 ending February 29, 2024, the Company delivered an additional approximately $7 million of oral TPOXX® to six countries in Europe, completing greater than 95% of deliveries under the $18 million of firm commitment orders from 13 countries under the European Commission’s DG HERA (Health Emergency Preparedness and Response Authority) joint procurement mechanism, which was announced by the Company in October 2022. Additionally, $0.7 million of oral TPOXX® was delivered to the Canada Department of National Defence ("CDND") in February 2024. These deliveries were made in connection with orders and contracts under the International Promotion Agreement (defined and discussed below). Through the International Promotion Agreement, Meridian Medical Technologies, Inc. ("Meridian") is the counterparty to international contracts under which orders are placed for the purchase of oral TPOXX®.

In addition to the above-mentioned orders and deliveries, the Company has a contract with the CDND under which the CDND has an option until December 31, 2025, exercisable at its sole discretion, for the purchase of up to an additional $6.7 million of oral TPOXX®. As an international contract, this contract is also administered under the International Promotion Agreement. The contract with the CDND (the "Canadian Military Contract"), issued in April of 2020 and subsequently amended, is option-based and initially specified that the CDND would purchase up to $14 million of oral TPOXX® if all options were exercised.

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International Promotion Agreement

Under the terms of the International Promotion Agreement, as amended, which has an initial term that expires on May 31, 2024, Meridian was granted exclusive rights to market, advertise, promote, offer for sale, or sell oral TPOXX® in a field of use specified in the International Promotion Agreement in all geographic regions except for the United States (the “Territory”), and Meridian has agreed not to commercialize any competing product, as defined in the International Promotion Agreement, in the specified field of use in the Territory. SIGA retains ownership, intellectual property, distribution and supply rights and regulatory responsibilities in connection with TPOXX®, and, in the United States market, also retains sales and marketing rights with respect to oral TPOXX®. SIGA’s consent is required for the entry into any sales arrangement pursuant to the International Promotion Agreement.

Sales to international customers pursuant to the International Promotion Agreement are invoiced and collected by Meridian, and such collections are remitted, less Meridian's fees, to the Company under a quarterly process specified in the International Promotion Agreement. The fee Meridian retains pursuant to the International Promotion Agreement is a specified percentage of the collected proceeds of sales of oral TPOXX®, net of certain expenses, for calendar years in which customer collected amounts net of such expenses are less than or equal to a specified threshold, and a higher specified percentage of such collected net proceeds for calendar years in which such net collected amounts exceed the specified threshold. We exceeded the specified threshold in 2022 and therefore recorded the higher specified percentage for all International Promotion Agreement sales in 2022. Taking into account Meridian’s fee and manufacturing costs of oral TPOXX®, it is currently estimated by the Company that international sales of oral TPOXX® each year will have a contribution margin (as expressed as a percentage of product sales, and before any consideration of expenses not directly related to manufacturing or Meridian activities) of between approximately 65% and 80%, depending on the international sales levels each year. For purposes of this disclosure, contribution margin (in amount) represents international product sales less applicable cost of sales and the Meridian fee (which is included within selling, general and administrative expenses within the income statement).

Research Agreements and Grants

In July 2019, the Company was awarded a multi-year research contract ultimately valued at approximately $27 million from the DoD to support work in pursuit of a potential label expansion for oral TPOXX® that would include post-exposure prophylaxis ("PEP") of smallpox (such work known as the "PEP Label Expansion Program" and the contract referred to as the "PEP Label Expansion R&D Contract").  As of December 31, 2023, the Company invoiced the full amount of available funding. As of December 31, 2023, there is no remaining revenue to be recognized in the future under the PEP Label Expansion R&D Contract. Revenue from the performance obligation under the PEP Label Expansion R&D Contract was recognized over time using an input method using costs incurred to date relative to total estimated costs at completion.

Contracts and grants include, among other things, options that may or may not be exercised at the U.S. Government’s discretion. Moreover, contracts and grants contain customary terms and conditions including the U.S. Government’s right to terminate or restructure a contract or grant for convenience at any time. As such, the Company may not be eligible to receive all available funds.

Critical Accounting Estimates

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our consolidated financial statements, which we discuss under the heading “Results of Operations” following this section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include revenue recognition over time, and income taxes (including realization of deferred tax assets).

Revenue Recognition

We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The unit of account in ASC 606 is a performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue connected with performance obligations related to product delivery and supportive services are recognized at a point in time. Revenue connected with performance obligations related to research and development are recognized over time.

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Due to the nature of the work required to be performed on many of our performance obligations for which revenue is recognized over time, the estimation of total revenue and costs to satisfy the obligations may be complex, subject to many variables and requires significant judgment. The consideration associated with these types of performance obligations is considered variable. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur and when any uncertainty associated with variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our historical and anticipated performance, external factors, trends and all other information (historical, current and forecasted) that is reasonably available to us.

Contracts are often modified to account for additional services to be performed. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations, or changes existing enforceable rights and obligations. If the effect of a contract modification on the transaction price changes our measure of progress for the performance obligation to which it relates, the impact will be recognized in the period of modification as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

We have a process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management’s judgment about the ability and cost to achieve the schedule, technical requirements and other contract requirements. Management must make assumptions and estimates regarding labor productivity, the complexity of the work to be performed, customer behavior and execution by our subcontractors, among other variables.

Based on this analysis, any quarterly adjustments to revenues, research and development expenses and cost of sales and supportive services are recognized as necessary in the period they become known. Changes in estimates of revenues, research and development expenses and cost of sales and supportive services are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations.

Income Taxes

Our income tax expense and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid. We are subject to U.S. federal income tax and state income tax in numerous jurisdictions. Significant judgments and estimates are required in the determination of our income tax expense.

Deferred income taxes arise from temporary differences between the tax basis of assets and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. Each reporting period, we assess the realizability of our deferred tax assets to determine if the deductible temporary differences will be utilized on a more-likely-than-not basis. In making this determination, we assess all available positive and negative evidence to determine if our existing deferred tax assets are realizable on a more-likely-than-not basis. Significant weight is given to positive and negative evidence that is objectively verifiable. We consider the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results.

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The amount of deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income change and/or if significant objective negative evidence is no longer present or if significant negative evidence becomes available. Such changes could lead to a change in judgment related to the realization of the net deferred tax asset. Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our financial statements in the period the estimate is changed with a corresponding adjustment to operating results.

Income tax benefits are recognized for a tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. We have recorded a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an income tax return. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. Uncertain tax positions are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.

Recently Issued Accounting Pronouncements

For discussion regarding the impact of accounting standards that were recently issued but are not yet effective, on our consolidated financial statements, see Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements.

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Results of Operations for the Years ended December 31, 2023 and 2022

Revenues from product sales and supportive services for the years ended December 31, 2023 and 2022 were $130.7 million and $86.7 million, respectively. Such revenues for the year ended December 31, 2023 include $97.9 million of oral TPOXX® sales to the U.S. Government under the 19C BARDA Contract; $21.3 million related to international sales of oral TPOXX®; and approximately $10.7 million of oral TPOXX® sales to the DoD. Such revenues for the year ended December 31, 2022 include $71.0 million related to international sales of oral TPOXX®; $7.5 million of oral TPOXX® sales to the DoD; and approximately $7.2 million of sales of IV TPOXX® to the U.S. Government under the 19C BARDA Contract.

Revenues from research and development activities for the years ended December 31, 2023 and 2022, were $9.2 million and $24.1 million, respectively. These revenues are mostly earned in connection with performance of research and development activities under the PEP Label Expansion R&D Contract and 19C BARDA Contract. The decrease of $14.9 million of revenue is primarily related to a decrease in clinical trial activity.

Cost of sales and supportive services for the years ended December 31, 2023 and 2022 were $17.8 million and $10.4 million, respectively. Such costs in 2023 were primarily associated with increases in the manufacture and delivery of oral TPOXX® courses to the U.S. Government and various international countries. Such costs in 2022 were primarily associated with the manufacture and delivery of oral TPOXX® courses to various international countries and approximately $4.4 million of costs for the manufacture and delivery of IV TPOXX®.

Selling, general and administrative expenses for the years ended December 31, 2023 and 2022 were $22.0 million and $35.1 million, respectively. The decrease of $13.1 million mostly reflects a decrease in promotion fees to Meridian as international sales decreased from approximately $71 million in 2022 (in response to the mpox outbreak) to approximately $21 million in 2023, partially offset by higher professional fees.

Research and development expenses were $16.4 million for the year ended December 31, 2023, a decrease of approximately $6.1 million from the $22.5 million incurred during the year ended December 31, 2022. The decrease is mostly attributable to lower direct vendor-related expenses incurred in connection with clinical activity, partially offset by an increase in regulatory costs associated with EMA regulatory submissions and related activities.

Changes in the fair value of the liability classified warrant to acquire common stock were recorded within the income statement. The warrant was fully exercised during the year ended December 31, 2022. For the year ended December 31, 2023, we recorded no activity. For the year ended December 31, 2022, we recorded a gain of approximately $0.4 million, reflecting a decrease in the fair value of the liability-classified warrant primarily due to the decrease in our stock price.

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Other income, net for the years ended December 31, 2023 and 2022 was $4.2 million and $1.0 million, respectively. The increase relates to interest income earned on cash and cash equivalents at rates that are substantially higher in 2023 in comparison to 2022.

For the year ended December 31, 2023, we recognized a tax provision of $19.7 million on pre-tax income of $87.8 million. Our effective tax rate for the year ended December 31, 2023 was 22.5% and differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), shortfalls on stock-based compensation, and state and local taxes.

For the year ended December 31, 2022, we recognized a tax provision of $10.2 million on pre-tax income of $44.1 million. Our effective tax rate for the year ended December 31, 2022 was 23.2% and differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), and state and local taxes.

Liquidity and Capital Resources

As of December 31, 2023, we had $150.1 million in cash and cash equivalents, compared with $98.8 million at December 31, 2022. We believe that our liquidity and capital resources will be sufficient to meet our anticipated requirements for at least the next twelve months from the issuance of these financial statements.

Operating Activities

We prepare our consolidated statement of cash flows using the indirect method. Under this method, we reconcile net income to cash flows from operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments during the period. These reconciling items include but are not limited to stock-based compensation, deferred income taxes and changes in the fair value of our warrant liability; gains and losses from various transactions and changes in the consolidated balance sheet for working capital from the beginning to the end of the period.

Net cash provided by operations for the years ended December 31, 2023 and 2022 was $94.8 million and $41.6 million, respectively.  For the year ended December 31, 2023, the receipt of substantially all of the $45 million of accounts receivable as of December 31, 2022, the receipt of approximately $111 million of 2023 product sales of oral TPOXX®, as well as approximately $10 million received in connection with IV BDS deferred revenue was partially offset by the use of cash to proactively build inventory, and for operating activities. For the year ended December 31, 2022, the receipt of approximately $80 million for the product delivery and acceptance of oral TPOXX® courses delivered to the Strategic Stockpile in December 2021, as well as the receipt of approximately $27 million in connection with 2022 product deliveries and advance payments were partially offset by the payment of $31 million of federal and state income taxes; an increase in inventory investment in connection with broadening of the customer base for TPOXX® and mitigation of increasing general supply chain risks; and costs in relation to customary operating activities.

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On December 31, 2023 and 2022, our accounts receivable balance was approximately $21.1 million (which includes approximately $10.3 million of unbilled receivables) and $45.4 million, respectively. Our accounts receivable balance as of December 31, 2023 primarily reflects sales of oral TPOXX® to the U.S. Government under the 19C BARDA Contract as well as various international countries, of which approximately $11.2 million was received by the Company through the end of February 2024. The remaining amounts of the receivable balance are expected to be collected during the first or second quarter of 2024. Our accounts receivable balance as of December 31, 2022 primarily reflected sales of oral TPOXX® to various international countries, of which approximately $35 million was received by the Company in February 2023. The remaining amounts of the receivable balance were collected during the second quarter of 2023.

Investing Activities

We used $21,686 for capital expenditures for the year ended December 31, 2023. For the year ended December 31, 2022, there were no cash-related activities.

Financing Activities

Cash used in financing activities for the years ended December 31, 2023 and 2022 was $43.4 million and $46.0 million, respectively. For the year ended December 31, 2023, we paid a special dividend of approximately $32.1 million. In addition, we purchased approximately 1.7 million shares of common stock for approximately $11.0 million. For the year ended December 31, 2022, we paid a special dividend of approximately $32.9 million. In addition, we purchased approximately 1.8 million shares of common stock for approximately $13.0 million.

Future Cash Requirements

As of December 31, 2023, we have outstanding purchase orders associated with manufacturing obligations in the aggregate amount of approximately $14.8 million.

On March 12, 2024, the Board of Directors declared a special dividend of $0.60 per share on the common stock of the Company. The special dividend is payable on April 11, 2024 to shareholders of record at the close of business on March 26, 2024.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (filed with the SEC on March 3, 2022) for additional discussion of our financial condition and results of operations for the year ended December 31, 2021, as well as our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.

Overview

SIGA Technologies, Inc. (“SIGA” or the “Company”) is a commercial-stage pharmaceutical company. The Company sells its lead product, TPOXX® (“oral TPOXX®,” also known as "tecovirimat" in certain international markets), to the U.S. government and international governments (including government affiliated entities). Additionally, the Company sells the intravenous formulation of TPOXX® ("IV TPOXX®") to the U.S. Government.

TPOXX® is an oral formulation antiviral drug for the treatment of human smallpox disease caused by variola virus. On July 13, 2018, the United States Food & Drug Administration (“FDA”) approved oral TPOXX® for the treatment of smallpox. The Company has been delivering oral TPOXX® to the U.S. Strategic National Stockpile ("Strategic Stockpile") since 2013.

In connection with IV TPOXX®, SIGA announced on May 19, 2022 that the FDA approved this formulation for the treatment of smallpox.

In addition to being approved by the FDA, oral TPOXX® (tecovirimat) has regulatory approval with the European Medicines Agency ("EMA"), Health Canada and the Medicines and Healthcare Products Regulatory Agency ("MHRA") of the United Kingdom. The EMA and MHRA approved label indication covers the treatment of smallpox, monkeypox ("mpox"), cowpox, and vaccinia complications following vaccination against smallpox. The Health Canada approved label indication covers the treatment of smallpox.

With respect to the regulatory approvals by the EMA, MHRA and Health Canada, oral tecovirimat represents the same formulation that was approved by the FDA in July 2018 under the brand name TPOXX®.

In connection with a potential FDA label expansion of oral TPOXX® for an indication covering smallpox post-exposure prophylaxis (“PEP”), the Company has recently completed enrollment of an immunogenicity trial and is planning to meet target enrollment for an expanded safety trial in March of 2023.  Provided unblinded results from these trials are supportive of a regulatory submission, the Company expects to commence in 2023 the preparation of a supplemental New Drug Application (“Supplemental NDA”) for a smallpox PEP indication for oral TPOXX®, targeting early 2024 for its submission to the FDA.

In connection with the global response to an mpox outbreak, a series of observational and randomized, placebo-controlled clinical trials were initiated, starting in the third quarter of 2022, to assess the safety and efficacy of TPOXX® in participants with mpox.  The first three randomized, placebo-controlled clinical trials to be launched were in the United States, United Kingdom and the Democratic Republic of Congo ("DRC"). These randomized clinical trials are now enrolling patients to collect data on the potential benefits of using TPOXX® as an antiviral treatment for active mpox disease.

Study of Tecovirimat for Human Monkeypox Virus (STOMP; A5418) is a U.S.-based clinical trial sponsored by the National Institute of Allergy and Infectious Diseases ("NIAID"), part of the National Institutes of Health. The NIAID-funded AIDS Clinical Trials Group is leading the study, which may later expand to international sites. Study investigators aim to enroll more than 500 participants, including children and those who are pregnant or breastfeeding, at clinical research sites. The trial will also include an open label arm that will include children, pregnant/breastfeeding individuals and those who are immunocompromised or have severe mpox disease.

PLATINUM is a U.K.-based clinical trial commissioned and funded by the National Institute for Health Care and Research. The trial is led by researchers at Oxford University and aims to recruit at least 500 participants, including children weighing ≥13 kg, across the U.K.

PALM 007 is a DRC-based clinical trial sponsored by NIAID and Institute National de Recherche Biomédicale. Study investigators aim to enroll more than 450 participants, including children weighing ≥3 kg and women who are pregnant or breastfeeding, at clinical sites in the DRC.

The Company may be able to use data from the trials noted above to potentially pursue an FDA label expansion of oral TPOXX® for an indication covering the treatment of mpox. The viability, and timing, of a potential FDA submission for an mpox indication will be impacted by a series of factors, including the magnitude and severity of future mpox cases, the location of future cases, enrollment in clinical trials, and results of randomized, placebo-controlled and observational clinical trials.

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Impact of COVID-19 Pandemic

The COVID-19 pandemic has caused significant societal and economic disruption. The continuing direct and indirect impacts of the pandemic are significant and broad-based, including supply chain disruptions and labor shortages that started during the pandemic and continue to represent business and financial risks.  As such, the Company is continually coordinating with service providers and vendors, in particular Contract Manufacturing Organizations ("CMOs") that constitute our supply chain, with respect to risks and mitigating actions.

As of the filing date of this report, the Company has not identified or been notified by government customers of impediments to the continued full performance of their government contracts. With regard to day-to-day operations, the COVID-19 pandemic, and the secondary effects of the pandemic, have at times slowed the pace of execution of government contracts as well as new contract generation. Additionally, the COVID-19 pandemic, and the secondary effects of the pandemic have increased the risk of delays in connection with a broad range of operational activities, including: supply chain procurement of raw materials and manufacturing; and certain research and development activities, such as those that involve clinical trials. Furthermore, the pandemic and related secondary effects could result in a slower pace of future product deliveries if there are shortages or delays in the receipt by the supply chain of raw materials or supplies, or if labor shortages become more acute.  While the Company does not currently expect such delays to have a material adverse impact on the financial condition of the Company or its long-term operating performance, and while the COVID-19 pandemic has not adversely affected the liquidity position of the Company, the Company cannot give assurances as to the full extent of the impact at this time.

Procurement Contracts with the U.S. Government

19C BARDA Contract

On September 10, 2018, the Company entered into a contract with the U.S. Biomedical Advanced Research and Development Authority ("BARDA") pursuant to which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the Strategic Stockpile, and to manufacture and deliver to the Strategic Stockpile, or store as vendor-managed inventory, up to 212,000 courses of IV TPOXX®. Additionally, the contract includes funding from BARDA for a range of activities, including: advanced development of IV TPOXX®, post-marketing activities for oral and IV TPOXX®, and procurement activities. As of December 31, 2022, the contract with BARDA (as amended, modified, or supplemented from time to time, the "19C BARDA Contract") contemplates up to approximately $602.5 million of payments, of which approximately $51.7 million of payments are included within the base period of performance of five years, approximately $268.9 million of payments are related to exercised options and up to approximately $281.9 million of payments are currently specified as unexercised options. BARDA may choose in its sole discretion when, or whether, to exercise any of the unexercised options. The period of performance for options is up to ten years from the date of entry into the 19C BARDA Contract and such options could be exercised at any time during the contract term, including during the base period of performance.

The base period of performance specifies potential payments of approximately $51.7 million for the following activities: payments of approximately $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile; payments of $8.0 million for the manufacture of 20,000 courses of final drug product of IV TPOXX® ("IV FDP"), of which $3.2 million of payments are related to the manufacture of bulk drug substance ("IV BDS") to be used in the manufacture of IV FDP; payments of approximately $32.0 million to fund reimbursed activities; and payments of approximately $0.6 million for supportive procurement activities. As of December 31, 2022, the Company had received $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the manufacture of IV BDS, $4.3 million for the delivery of IV FDP to the Strategic Stockpile and $18.8 million for other base period activities. IV BDS has been used for the manufacture of courses of IV FDP. The $3.2 million received for the completed manufacture of IV BDS had been recorded as deferred revenue as of December 31, 2021, but with the delivery of IV FDP to the Strategic Stockpile during 2022, $2.9 million was recognized as revenue. The remaining $0.3 million of deferred revenue will be recognized as IV FDP containing such IV BDS is delivered to and accepted by the Strategic Stockpile.

The options that have been exercised to date provide for payments up to approximately $268.9 million. There are exercised options for the following activities: payments up to $11.2 million for the procurement of raw materials used in the 2020 manufacture of certain courses of oral TPOXX®; payments up to $213.9 million for the delivery of up to 726,140 courses of oral TPOXX®; payments up to $25.6 million for the manufacture of courses of IV FDP, of which $10.2 million of payments relate to the manufacture of IV BDS to be used in the manufacture of IV FDP; payments of up to approximately $3.6 million to fund post-marketing activities for IV TPOXX®; and payments of up to $14.6 million for funding of post-marketing activities for oral TPOXX®. As of December 31, 2022, the Company had received $225.1 million for the delivery (and related procurement of raw materials) of oral TPOXX® to the Strategic Stockpile; $10.2 million for the completed manufacture of IV BDS, which has been recorded as deferred revenue as of December 31, 2022; and $7.3 million in connection with post-marketing activities for oral and IV TPOXX®.

Unexercised options specify potential payments up to approximately $281.9 million in total (if all such options are exercised). There are options for the following activities: payments of up to $225.1 million for the delivery of oral TPOXX® to the Strategic Stockpile; payments of up to $51.2 million for the manufacture of courses of IV FDP, of which up to $20.5 million of payments would be paid upon the manufacture of IV BDS to be used in the manufacture of IV FDP; and payments of up to approximately $5.6 million for supportive procurement activities.

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The options related to IV TPOXX® are divided into two primary manufacturing steps. There are options related to the manufacture of bulk drug substance (“IV BDS Options”), and there are corresponding options (for the same number of IV courses) for the manufacture of final drug product (“IV FDP Options”). BARDA may choose to exercise any, all, or none of these options in its sole discretion. The 19C BARDA Contract includes: three separate IV BDS Options, each providing for the bulk drug substance equivalent of 64,000 courses of IV TPOXX®; and three separate IV FDP Options, each providing for 64,000 courses of final drug product of IV TPOXX®. BARDA has the sole discretion as to whether to simultaneously exercise IV BDS Options and IV FDP Options, or whether to exercise options at different points in time (or alternatively, to only exercise the IV BDS Option but not the IV FDP Option). To date, BARDA has exercised one of the three IV BDS options and one of the three IV FDP options, both of which were exercised simultaneously in 2022. If BARDA decides to only exercise the remaining IV BDS Options, then the Company would receive payments up to $20.5 million; alternatively, if BARDA decides to exercise all the remaining IV BDS Options and IV FDP Options, then the Company would receive payments up to $51.2 million. For each set of options relating to a specific group of courses (for instance, the IV BDS and IV FDP options that reference the same 64,000 courses), BARDA has the option to independently purchase IV BDS or IV FDP. The Company estimates that sales of the IV formulation under this contract (under current terms), assuming the IV FDP Options were exercised, would have a gross margin (sales less cost of sales, as a percentage of sales) that is less than 40%.

Under the terms of this contract, exercise of procurement options is at the sole discretion of BARDA. The request for proposal that preceded the award of the 19C BARDA Contract indicated that the expected purpose of the contract was to maintain the level of smallpox antiviral preparedness in the Strategic Stockpile. Based on prior product delivery activity, and current FDA-approved shelf life of oral TPOXX®, the Company estimates that approximately 920,000 courses of smallpox antiviral treatment would need to be delivered to the Strategic Stockpile in 2023 and 2024 in order to maintain historical stockpile levels of unexpired TPOXX® treatment in the Strategic Stockpile.

U.S. Department of Defense Procurement Contracts

On May 12, 2022, the Company announced a contract with the U.S. Department of Defense ("DoD") for the procurement of oral TPOXX® ("DoD Contract #1").  The DoD Contract #1 included a firm commitment for the DoD to procure approximately $3.6 million of oral TPOXX®, and an option, exercisable at the sole discretion of the DoD, for the procurement of approximately $3.8 million of oral TPOXX®.  In the second quarter of 2022, the Company delivered and recognized revenue of $3.6 million for the delivery of oral TPOXX® to the DoD, fulfilling the firm commitment in DoD Contract #1. In the third quarter of 2022, the DoD exercised the option for $3.8 million of oral TPOXX® and the Company satisfied its obligation by delivering product and recognized the related revenue in September 2022.

On September 28, 2022, the Company and the DoD signed a new procurement contract ("DoD Contract #2"). The DoD Contract #2 includes a firm commitment for the DoD to procure approximately $5.2 million of oral TPOXX®, and an option, exercisable at the sole discretion of the DoD for the procurement of approximately $5.5 million of oral TPOXX®.

International Procurement Contracts

In 2022, the Company received firm commitment orders from 13 international customers (including Canada) for the delivery of approximately $77 million of oral TPOXX®, of which approximately $39 million is for Canada and approximately $38 million is for jurisdictions in Europe, Asia-Pacific, and the Middle East.  Additionally, the contract with the Canadian Department of National Defence ("CDND") has an option until March 31, 2024, exercisable at its sole discretion, for the purchase of up to an additional $6 million of oral TPOXX®. With respect to the $77 million of firm commitment orders that were received this year, approximately $71 million of oral TPOXX® was delivered and recorded as revenue in 2022, and the remaining order is expected to be fulfilled by July 31, 2023. Through an International Promotion Agreement (defined and discussed below), Meridian Medical Technologies, Inc. (“Meridian”) is the counterparty to international contracts under which orders are placed for the purchase of oral TPOXX®.  The Public Health Agency of Canada (“PHAC”) and the CDND are among the contracting parties for the purchase of oral TPOXX® (see below for a summary description of these contracts).

On January 13, 2021, PHAC awarded a contract to Meridian (the “PHAC Contract”) for the purchase of up to approximately $33 million of oral TPOXX® (tecovirimat) within five years. In March 2022 and July 2022, PHAC executed amendments in which total procurement of oral TPOXX® under the PHAC Contract was increased to an amount of approximately $45 million. Prior to 2022, approximately $10 million of oral TPOXX® had been ordered and delivered to PHAC. During 2022, all remaining amounts under the PHAC Contract of approximately $35 million of oral TPOXX® were delivered to PHAC and recognized as revenue.

On April 3, 2020, the Company announced that the CDND awarded a contract (the "Canadian Military Contract") to Meridian, pursuant to which the CDND would purchase up to approximately $14 million of oral TPOXX® over four years in an option-based contract. Prior to 2022, approximately $4 million of oral TPOXX® had been ordered and delivered to the CDND. In 2022, approximately $4 million of oral TPOXX® was delivered and recognized as revenue under this contract, leaving approximately $6 million of unexercised options, exercisable at the sole discretion of CDND, remaining under this contract.

The above-listed contract awards were coordinated between SIGA and Meridian under the international promotion agreement (as amended, the "International Promotion Agreement") that has an effective date of May 31, 2019. Under the International Promotion Agreement, Meridian is the counterparty in connection with international contracts for oral TPOXX® and SIGA is responsible for manufacture and delivery of any oral TPOXX® purchased thereunder.

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International Promotion Agreement

Under the terms of the International Promotion Agreement, which has an effective date of May 31, 2019 and an initial term that expires on May 31, 2024, Meridian was granted exclusive rights to market, advertise, promote, offer for sale, or sell oral TPOXX® in a field of use specified in the International Promotion Agreement in all geographic regions except for the United States (the “Territory”), and Meridian has agreed not to commercialize any competing product, as defined in the International Promotion Agreement, in the specified field of use in the Territory. SIGA retains ownership, intellectual property, distribution and supply rights and regulatory responsibilities in connection with TPOXX®, and, in the United States market, also retains sales and marketing rights with respect to oral TPOXX®. SIGA’s consent is required for the entry into any sales arrangement pursuant to the International Promotion Agreement.

Sales to international customers pursuant to the International Promotion Agreement are invoiced and collected by Meridian, and such collections are remitted, less Meridian's fees, to the Company under a quarterly process specified in the International Promotion Agreement. The fee Meridian retains pursuant to the International Promotion Agreement is a specified percentage of the collected proceeds of sales of oral TPOXX® net of certain expenses, for calendar years in which customer collected amounts net of such expenses are less than or equal to a specified threshold, and a higher specified percentage of such collected net proceeds for calendar years in which such net collected amounts exceed the specified threshold. We exceeded the specified threshold in 2022 and therefore recorded the higher specified percentage for all International Promotion Agreement sales in 2022. Taking into account Meridian’s fee and manufacturing costs of oral TPOXX®, it is currently estimated by the Company that international sales of oral TPOXX® each year will have a contribution margin (as expressed as a percentage of product sales, and before any consideration of expenses not directly related to manufacturing or Meridian activities) of between approximately 65% and 80%, depending on the international sales levels each year. For purposes of this disclosure, contribution margin (in amount) represents international product sales less applicable cost of sales and the Meridian fee (which is included within selling, general and administrative expenses within the income statement).

Research Agreements and Grants

In July 2019, the Company was awarded a multi-year research contract valued at a total of $19.5 million, with an initial award of $12.4 million, from the DoD to support work in pursuit of a potential label expansion for oral TPOXX® that would include post-exposure prophylaxis ("PEP") of smallpox (such work known as the "PEP Label Expansion Program" and the contract referred to as the "PEP Label Expansion R&D Contract"). In subsequent modifications, the DoD increased the scope and the available funding under the PEP Label Expansion R&D Contract to approximately $27 million. The period of performance for this contract, as modified, terminates on January 31, 2025. As of December 31, 2022, remaining revenue to be recognized in the future under the PEP Label Expansion R&D Contract is up to $6.4 million. Revenue from the performance obligation under the PEP Label Expansion R&D Contract is recognized over time using an input method using costs incurred to date relative to total estimated costs at completion.

Contracts and grants include, among other things, options that may or may not be exercised at the U.S. Government’s discretion. Moreover, contracts and grants contain customary terms and conditions including the U.S. Government’s right to terminate or restructure a contract or grant for convenience at any time. As such, the Company may not be eligible to receive all available funds.

Critical Accounting Estimates

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our consolidated financial statements, which we discuss under the heading “Results of Operations” following this section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include revenue recognition over time, and income taxes (including realization of deferred tax assets).

Revenue Recognition

We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The unit of account in ASC 606 is a performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue connected with performance obligations related to product delivery and supportive services are recognized at a point in time. Revenue connected with performance obligations related to research and development are recognized over time.

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Due to the nature of the work required to be performed on many of our performance obligations for which revenue is recognized over time, the estimation of total revenue and costs to satisfy the obligations is complex, subject to many variables and requires significant judgment. The consideration associated with these types of performance obligations is considered variable. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur and when any uncertainty associated with variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our historical and anticipated performance, external factors, trends and all other information (historical, current and forecasted) that is reasonably available to us.

Contracts are often modified to account for additional services to be performed. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations, or changes existing enforceable rights and obligations. If the effect of a contract modification on the transaction price changes our measure of progress for the performance obligation to which it relates, the impact will be recognized in the period of modification as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

We have a process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management’s judgment about the ability and cost to achieve the schedule, technical requirements and other contract requirements. Management must make assumptions and estimates regarding labor productivity, the complexity of the work to be performed, customer behavior and execution by our subcontractors, among other variables.

Based on this analysis, any quarterly adjustments to revenues, research and development expenses and cost of sales and supportive services are recognized as necessary in the period they become known. Changes in estimates of revenues, research and development expenses and cost of sales and supportive services are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations.

Income Taxes

Our income tax expense and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid. We are subject to U.S. federal income tax and state income tax in numerous jurisdictions. Significant judgments and estimates are required in the determination of our income tax expense.

Deferred income taxes arise from temporary differences between the tax basis of assets and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. Each reporting period, we assess the realizability of our deferred tax assets to determine if the deductible temporary differences will be utilized on a more-likely-than-not basis. In making this determination, we assess all available positive and negative evidence to determine if our existing deferred tax assets are realizable on a more-likely-than-not basis. Significant weight is given to positive and negative evidence that is objectively verifiable. We consider the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results.

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The amount of deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income change and/or if significant objective negative evidence is no longer present or if significant negative evidence becomes available. Such changes could lead to a change in judgment related to the realization of the net deferred tax asset. Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our financial statements in the period the estimate is changed with a corresponding adjustment to operating results.

Income tax benefits are recognized for a tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. We have recorded a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an income tax return. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. Uncertain tax positions are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.

In August 2022, the Inflation Reduction Act (“IRA”) and CHIPS and Science Act (“CHIPS Act”) were both enacted. This new legislation includes the implementation of a new corporate alternative minimum tax, an excise tax on stock buybacks, and tax incentives for energy and climate initiatives, among other provisions. The IRA and CHIPS Act did not have a material impact on our consolidated financial statements for the year ended December 31, 2022.

Recently Issued Accounting Pronouncements

For discussion regarding the impact of accounting standards that were recently issued but are not yet effective, on our consolidated financial statements, see Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements.

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Results of Operations for the Years ended December 31, 2022 and 2021

Revenues from product sales and supportive services for the years ended December 31, 2022 and 2021 were $86.7 million and $126.8 million, respectively. Such revenues for the year ended December 31, 2022 include $71.0 million related to international sales of oral TPOXX®; $7.5 million of oral TPOXX® sales to the DoD; and approximately $7.2 million of sales of IV TPOXX® to the U.S. Government under the 19C BARDA Contract. Such revenues for the year ended December 31, 2021 include $112.5 million of sales of oral TPOXX® to the U.S. Government under the 19C BARDA Contract and $12.7 million of international sales of oral TPOXX®.

Revenues from research and development contracts and grants for the years ended December 31, 2022 and 2021, were $24.1 million and $6.9 million, respectively. Most of the increase of $17.2 million relates to an increase in clinical trial activity under the PEP Label Expansion R&D Contract in connection with the PEP development program, and the remainder relates to an increase in R&D activity under the BARDA Contract.

Cost of sales and supportive services for the years ended December 31, 2022 and 2021 were $10.4 million and $16.6 million, respectively. Such costs in 2022 were primarily associated with the manufacture and delivery of oral TPOXX® courses to various international countries and approximately $4.4 million of costs for the manufacture and delivery of IV TPOXX®. Such costs in 2021 were primarily associated with the manufacture and delivery of oral TPOXX® courses to the U.S. Government under the 19C BARDA Contract.

Selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were $35.1 million and $18.0 million, respectively. The increase of $17.1 million mostly reflects promotion fees to Meridian incurred in connection with international sales that substantially increased from the comparable period in 2021.

Research and development expenses were $22.5 million for the year ended December 31, 2022, an increase of approximately $12.6 million from the $9.9 million incurred during the year ended December 31, 2021. The increase is mostly attributable to an increase in direct vendor-related expenses incurred in connection with an increase in activities under the PEP Label Expansion R&D Contract and the BARDA Contract.

Changes in the fair value of the liability classified warrant to acquire common stock were recorded within the income statement. The warrant was fully exercised during the year ended December 31, 2022. For the years ended December 31, 2022 and December 31, 2021, we recorded a gain of approximately $0.4 million and $0.1 million, respectively, reflecting a decrease in the fair value of the liability-classified warrant primarily due to the decrease in our stock price.

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Other income, net for the years ended December 31, 2022 and 2021 was $1.0 million and $0.1 million, respectively. Other income primarily reflects interest income on the Company's cash and cash equivalent balance. The increase of approximately $0.9 million is driven by higher interest rates for 2022 when compared to 2021.

For the year ended December 31, 2022, we recognized a tax provision of $10.2 million on pre-tax income of $44.1 million. Our effective tax rate for the year ended December 31, 2022 was 23.2% and differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), and state and local taxes.

For the year ended December 31, 2021, we recognized a tax provision of $19.9 million on pre-tax income of $89.3 million. Our effective tax rate for the year ended December 31, 2021 was 22.2% and differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), and state and local taxes.

Liquidity and Capital Resources

As of December 31, 2022, we had $98.8 million in cash and cash equivalents, compared with $103.1 million at December 31, 2021.

Operating Activities

We prepare our consolidated statement of cash flows using the indirect method. Under this method, we reconcile net income to cash flows from operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payments during the period. These reconciling items include but are not limited to stock-based compensation, deferred income taxes and changes in the fair value of our warrant liability; gains and losses from various transactions and changes in the consolidated balance sheet for working capital from the beginning to the end of the period.

Net cash provided by operations for the years ended December 31, 2022 and 2021 was $41.6 million and $11.5 million, respectively.  For the year ended December 31, 2022, the receipt of approximately $80 million for the product delivery and acceptance of oral TPOXX® courses delivered to the Strategic Stockpile in December 2021, as well as the receipt of approximately $27 million in connection with 2022 product deliveries and advance payments were partially offset by the payment of $31 million of federal and state income taxes; an increase in inventory investment in connection with broadening of the customer base for TPOXX® and mitigation of increasing general supply chain risks; and costs in relation to customary operating activities. For the year ended December 31, 2021, the receipt of approximately $43.7 million in connection with U.S. Government and international sales of oral TPOXX® was partially offset by net cash usage primarily related to manufacturing of inventory and customary operating activities.

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On December 31, 2022 and 2021, our accounts receivable balance was approximately $45.4 million (which includes approximately $40.9 million of unbilled receivables) and $83.7 million, respectively. Our accounts receivable balance as of December 31, 2022 primarily reflects sales of oral TPOXX® to various international countries, of which approximately $35 million was received by the Company in February 2023. The remaining amounts of the receivable balance are expected to be collected during the first or second quarter of 2023. Our accounts receivable balance as of December 31, 2021 primarily reflects deliveries of approximately $79.7 million of oral TPOXX® to the U.S. Government in December 2021, for which we received full payment in January 2022.

Investing Activities

There were no cash-related investing activities for the year ended December 31, 2022. For the year ended December 31, 2021, we used $50,620 for capital expenditures.

Financing Activities

Cash used in financing activities for the years ended December 31, 2022 and 2021 was $46.0 million and $26.2 million, respectively. For the year ended December 31, 2022, we paid a special dividend of approximately $32.9 million. In addition, we purchased approximately 1.8 million shares of common stock for approximately $13.0 million. For the year ended December 31, 2021, $26.0 million of cash usage was associated with our repurchase of approximately 3.8 million shares of common stock.

Future Cash Requirements

As of December 31, 2022, we have outstanding purchase orders associated with manufacturing obligations in the aggregate amount of approximately $33.8 million.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (filed with the SEC on March 4, 2021) for additional discussion of our financial condition and results of operations for the year ended December 31, 2020, as well as our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.

Overview

We are a commercial-stage pharmaceutical company. Our lead product, TPOXX® (“oral TPOXX®”), is a United States Food & Drug Administration ("FDA")-approved oral formulation antiviral drug for the treatment of human smallpox disease caused by variola virus. On July 13, 2018, the FDA approved oral TPOXX® for the treatment of smallpox.

Oral TPOXX® is a novel, patented drug that is easy to store, transport and administer. Oral TPOXX® labeling, approved by the FDA, limits sales of oral TPOXX® in the U.S. to those for the U.S. Strategic National Stockpile ("Strategic Stockpile"). The Company has been delivering oral TPOXX® to the Strategic Stockpile since 2013.

On December 1, 2021, the Company announced that Health Canada approved oral tecovirimat as an extraordinary use drug.

On January 10, 2022, a Marketing Authorisation Application ("MAA") with the European Medicines Agency ("EMA") for oral tecovirimat was approved. The MAA was filed under the centralized application process, which authorized the sale of oral tecovirimat in European Union member states, as well as Norway (which granted separate follow-on approval), Iceland, and Liechtenstein. The EMA approved label indication covers the treatment of smallpox, monkeypox, cowpox, and vaccinia complications following vaccination against smallpox.

With respect to the regulatory approvals by Health Canada and the EMA, oral tecovirimat represents the same formulation that was approved by the FDA in July 2018 under the brand name TPOXX®.

For the intravenous formulation of TPOXX® ("IV TPOXX®"), SIGA filed a New Drug Application ("NDA") with the FDA on April 30, 2021. Based on its review of the NDA, the FDA will decide whether to approve IV TPOXX® and whether to impose any marketing restrictions or require additional post-approval clinical studies. The Company is targeting the first half of 2022 for completion of this review process. There can be no assurance that any approval will be granted on a timely basis, if at all.

COVID-19 Pandemic

The COVID-19 pandemic has caused significant societal and economic disruption. Such disruption, and the associated risks and costs, are expected to continue for an indeterminate period of time. Given the uncertain future course of the COVID-19 pandemic, and the uncertain scale and scope of its future direct and indirect impact, the Company is continually reviewing business and financial risks related to the pandemic and seeking coordination with its government partners with respect to the performance of current and future government contracts. Additionally, the Company is continually coordinating with service providers and vendors, in particular Contract Manufacturing Organizations ("CMOs") that constitute our supply chain, with respect to actions and risks caused by the COVID-19 pandemic.

As of the filing date of this report, the Company has not identified or been notified by government customers of impediments to the continued full performance of their government contracts. With regard to day-to-day operations, the COVID-19 pandemic, and the secondary effects of the pandemic, have at times slowed the daily pace of execution of government contracts as well as new contract generation. For example, U.S. and foreign government staffs overseeing health security preparedness have been involved directly or indirectly in governmental responses to the pandemic, which has diverted government staff time that would normally be directed toward contract matters involving SIGA. Additionally, the COVID-19 pandemic, and the secondary effects of the pandemic have increased the risk of delays in connection with a broad range of operational activities, including: supply chain procurement of raw materials and manufacturing; and certain research and development activities, such as those that involve clinical trials. While the Company does not currently expect any pandemic-related delays in such operational activities to have a material adverse impact on the financial condition or annual financial results of the Company, or its long-term performance, the Company cannot give assurances as to the full extent of the impact at this time.

Overall, while the COVID-19 pandemic has not adversely affected the liquidity position of the Company, the pandemic has diverted foreign government staff time normally directed toward contract matters involving SIGA and has affected and could continue to affect the timing of international contract awards for oral TPOXX®. Additionally, although SIGA has completed delivery of TPOXX® courses covered by the procurement option exercised in 2021, the pandemic could result in a slower pace of future product deliveries if the pandemic results in shortages or delays in the receipt by the supply chain of raw materials or supplies. Furthermore, Executive Order 14042 by the President of the United States, which subjects federal prime contractors and subcontractors to certain vaccination requirements and other COVID-19 related safety measures, could have a material impact on the availability and/or timing of services provided to SIGA by certain vendors for supply chain activities and research and development activities. The mandate has been challenged in several cases that are currently pending, and in at least one case a nationwide injunction has barred enforcement of the mandate while the cases are being pursued. The future outcome of such litigation is uncertain, and consequently the scope and enforceability of the underlying vaccine mandate as it applies to federal contractors and subcontracts, is not known at this time. If the general negative effect of the COVID-19 pandemic becomes more acute, including due to resurgences in infections or lack of vaccination, there could be material adverse effects to our business and cash flows.

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Procurement Contracts with the U.S. Government

19C BARDA Contract

On September 10, 2018, the Company entered into a contract with the U.S. Biomedical Advanced Research and Development Authority ("BARDA") pursuant to which SIGA agreed to deliver up to 1,488,000 courses of oral TPOXX® to the U.S. Strategic National Stockpile ("Strategic Stockpile"), and to manufacture and deliver to the Strategic Stockpile, or store as vendor-managed inventory, up to 212,000 courses of the intravenous (IV) formulation of TPOXX® (“IV TPOXX®”). Additionally, the contract includes funding from BARDA for a range of activities, including: advanced development of IV TPOXX®, post-marketing activities for oral and IV TPOXX®, and procurement activities. As of December 31, 2021, the contract with BARDA (as amended, modified, or supplemented from time to time, the "19C BARDA Contract") contemplates up to approximately $602.5 million of payments, of which approximately $51.7 million of payments are included within the base period of performance of five years, approximately $239.7 million of payments are related to exercised options and up to approximately $311.1 million of payments are currently specified as unexercised options. The $239.7 million of payments related to exercised options includes an option exercised on September 7, 2021 for the manufacture and delivery of approximately $112.6 million of oral TPOXX®. BARDA may choose in its sole discretion when, or whether, to exercise any of the unexercised options. The period of performance for options is up to ten years from the date of entry into the 19C BARDA Contract and such options could be exercised at any time during the contract term, including during the base period of performance.

The base period of performance specifies potential payments of approximately $51.7 million for the following activities: payments of approximately $11.1 million for the delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile; payments of $8.0 million for the manufacture of 20,000 courses of final drug product of IV TPOXX® ("IV FDP"), of which $3.2 million of payments are related to the manufacture of bulk drug substance ("IV BDS") to be used in the manufacture of IV FDP; payments of approximately $32.0 million to fund advanced development of IV TPOXX®; and payments of approximately $0.6 million for supportive procurement activities. As of December 31, 2021, the Company has received $11.1 million for the successful delivery of approximately 35,700 courses of oral TPOXX® to the Strategic Stockpile, $3.2 million for the manufacture of IV BDS and $13.8 million for other base period activities. IV BDS is expected to be used for the manufacture of 20,000 courses of IV FDP. The $3.2 million received for the completed manufacture of IV BDS has been recorded as deferred revenue as of December 31, 2021 and December 31, 2020; such amount is expected to be recognized as revenue when IV TPOXX® containing such IV BDS is delivered to the Strategic Stockpile or placed in vendor-managed inventory.

The options that have been exercised to date provide for payments up to approximately $239.7 million. There are exercised options for the following activities: payments up to $11.2 million for the procurement of raw materials used in the 2020 manufacture of certain courses of oral TPOXX®; payments up to $213.9 million for the delivery of up to 726,140 courses of oral TPOXX®; and payments of up to $14.6 million for funding of post-marketing activities for oral TPOXX®. As of December 31, 2021, the Company has delivered approximately $225.1 million (including the value of raw materials) of oral TPOXX® to the Strategic Stockpile, of which approximately $112.5 million was delivered in 2021 (including approximately $79.7 million of oral TPOXX® that was delivered and invoiced in December 2021, for which full payment was received in January 2022); and $7.3 million has been received or billed for in connection with post-marketing activities for oral TPOXX®.

Unexercised options specify potential payments up to approximately $311.1 million in total (if all such options are exercised). There are options for the following activities: payments of up to $225.1 million for the delivery of oral TPOXX® to the Strategic Stockpile; payments of up to $76.8 million for the manufacture of courses of IV FDP, of which up to $30.7 million of payments would be paid upon the manufacture of IV BDS to be used in the manufacture of IV FDP; payments of up to approximately $3.6 million to fund post-marketing activities for IV TPOXX®; and payments of up to approximately $5.6 million for supportive procurement activities.

The options related to IV TPOXX® are divided into two primary manufacturing steps. There are options related to the manufacture of bulk drug substance (“IV BDS Options”), and there are corresponding options (for the same number of IV courses) for the manufacture of final drug product (“IV FDP Options”). BARDA may choose to exercise any, all, or none of these options in its sole discretion. The 19C BARDA Contract includes: three separate IV BDS Options, each providing for the bulk drug substance equivalent of 64,000 courses of IV TPOXX®; and three separate IV FDP Options, each providing for 64,000 courses of final drug product of IV TPOXX®. BARDA has the sole discretion as to whether to simultaneously exercise IV BDS Options and IV FDP Options, or whether to exercise options at different points in time (or alternatively, to only exercise the IV BDS Option but not the IV FDP Option). If BARDA decides to only exercise IV BDS Options, then the Company would receive payments up to $30.7 million; alternatively, if BARDA decides to exercise both IV BDS Options and IV FDP Options, then the Company would receive payments up to $76.8 million. For each set of options relating to a specific group of courses (for instance, the IV BDS and IV FDP options that reference the same 64,000 courses), BARDA has the option to independently purchase IV BDS or IV FDP. The Company estimates that sales of the IV formulation under this contract (under current terms), assuming the IV FDP Options were exercised, would have a gross margin (sales less cost of sales, as a percentage of sales) that is less than 40%.

Under the terms of this contract, exercise of procurement options is at the sole discretion of BARDA. The request for proposal that preceded the award of the 19C BARDA Contract indicated that the expected purpose of the contract was to maintain the level of smallpox antiviral preparedness in the Strategic Stockpile. Based on prior product delivery activity, and current FDA-approved shelf life of oral TPOXX®, the Company estimates that approximately 940,000 courses of smallpox antiviral treatment would need to be delivered to the U.S. Government between 2022 and 2024 in order to maintain stockpile levels of unexpired smallpox antiviral treatment during this period.

1C BARDA Contract (2011 BARDA Contract)

On May 13, 2011, the Company signed a contract with BARDA ("1C BARDA Contract" or "2011 BARDA Contract") pursuant to which BARDA agreed to buy from the Company 1.7 million courses of oral TPOXX®, as well as provide development funding for certain activities.

The 1C BARDA Contract specifies approximately $508.4 million of payments, of which, as of December 31, 2021, $459.8 million had been received by the Company for the manufacture and delivery of oral TPOXX® and $45.9 million had been received for certain reimbursements in connection with development and supportive activities. Approximately $2.7 million remains eligible to be received in the future for reimbursements of development and supportive activities.

The 1C BARDA Contract expires in December 2024.

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International Procurement Contracts

Contract with Public Health Agency of Canada

On January 13, 2021, the Public Health Agency of Canada ("PHAC") awarded a contract to Meridian Medical Technologies, Inc. (“Meridian") (the “Contract”) for the purchase of up to approximately $33 million of oral TPOXX® (tecovirimat) within five years. In January 2022, PHAC published a proposed amendment in which total procurement of oral TPOXX® under the Contract would be increased to an amount of up to $38 million, with firm commitments for the cumulative purchase of approximately $23 million of oral TPOXX® by March 31, 2023; the remaining courses under the Contract are targeted for delivery after March 31, 2023 and are subject to option exercise by PHAC. As of December 31, 2021, approximately $10 million of oral TPOXX® courses had been delivered to and accepted by PHAC. Such courses were delivered in the first six months of 2021. The contract award was coordinated between SIGA and Meridian under an international promotion agreement, as amended (the "International Promotion Agreement") that was entered into by the parties on June 3, 2019. As such, Meridian is the PHAC's counterparty under the Contract, and SIGA is responsible for manufacture and delivery of any oral TPOXX® purchased thereunder.

Canadian Military Contract

On April 3, 2020, the Company announced that the Canadian Department of National Defence (“CDND”) awarded a contract (the "Canadian Military Contract") to Meridian, pursuant to which the CDND will purchase up to approximately $14 million of oral TPOXX® over four years.  In the second quarter 2020, CDND purchased approximately $2 million of oral TPOXX®. In the third quarter of 2021, CDND purchased another approximately $2 million of oral TPOXX® courses. The remaining purchases are at the option of the CDND. Meridian is the CDND's counterparty under the Canadian Military Contract, and SIGA is responsible for manufacture and delivery of any oral TPOXX® purchased thereunder.

International Promotion Agreement

Under the terms of the International Promotion Agreement, Meridian was granted exclusive rights to market, advertise, promote, offer for sale, or sell oral TPOXX® in a field of use specified in the International Promotion Agreement in all geographic regions except for the United States (the “Territory”), and Meridian has agreed not to commercialize any competing product, as defined in the International Promotion Agreement, in the specified field of use in the Territory. SIGA retains ownership, intellectual property, distribution and supply rights and regulatory responsibilities in connection with TPOXX®, and, in the United States market, also retains sales and marketing rights with respect to oral TPOXX®. SIGA’s consent is required for the entry into any sales arrangement pursuant to the International Promotion Agreement.

The fee Meridian retains pursuant to the International Promotion Agreement is a specified percentage of the collected proceeds of sales of oral TPOXX® net of certain expenses, for years in which customer invoiced amounts net of such expenses are less than or equal to a specified threshold, and a higher specified percentage of such collected net proceeds for years in which such net invoiced amounts exceed the specified threshold. Taking into account Meridian’s fee and manufacturing costs of oral TPOXX®, it is currently estimated by the Company that international sales of oral TPOXX® will have a contribution margin (as expressed as a percentage of product sales, and before any consideration of expenses not directly related to manufacturing or Meridian activities) of between approximately 65% and 80%. For purposes of this disclosure, contribution margin (in amount) represents international product sales less applicable cost of sales and the Meridian fee (which is included within selling, general and administrative expenses within the income statement).

Critical Accounting Estimates

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our consolidated financial statements, which we discuss under the heading “Results of Operations” following this section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include revenue recognition over time, the valuation of warrants granted or issued by the Company, and income taxes (including realization of deferred tax assets).

Revenue Recognition

All of our revenue is derived from long-term contracts that can span multiple years. We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The unit of account in ASC 606 is a performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue connected with performance obligations related to product delivery and supportive services are recognized at a point in time. Revenue connected with performance obligations related to research and development are recognized over time.

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Due to the nature of the work required to be performed on many of our performance obligations for which revenue is recognized over time, the estimation of total revenue and costs to satisfy the obligations is complex, subject to many variables and requires significant judgment. The consideration associated with these types of performance obligations is considered variable. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur and when any uncertainty associated with variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our historical and anticipated performance, external factors, trends and all other information (historical, current and forecasted) that is reasonably available to us.

Contracts are often modified to account for additional services to be performed. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations, or changes existing enforceable rights and obligations. If the effect of a contract modification on the transaction price changes our measure of progress for the performance obligation to which it relates, the impact will be recognized in the period of modification as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

We have a process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management’s judgment about the ability and cost to achieve the schedule, technical requirements and other contract requirements. Management must make assumptions and estimates regarding labor productivity, the complexity of the work to be performed, customer behavior and execution by our subcontractors, among other variables.

Based on this analysis, any quarterly adjustments to revenues, research and development expenses and cost of sales and supportive services are recognized as necessary in the period they become known. Changes in estimates of revenues, research and development expenses and cost of sales and supportive services are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations.

Income Taxes

Our income tax expense and deferred tax assets and liabilities reflect management’s best estimate of current and future taxes to be paid. We are subject to U.S. federal income tax and state income tax in numerous jurisdictions. Significant judgments and estimates are required in the determination of our income tax expense.

Deferred income taxes arise from temporary differences between the tax basis of assets and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. Each reporting period, we assess the realizability of our deferred tax assets to determine if the deductible temporary differences will be utilized on a more-likely-than-not basis. In making this determination, we assess all available positive and negative evidence to determine if our existing deferred tax assets are realizable on a more-likely-than-not basis. Significant weight is given to positive and negative evidence that is objectively verifiable. We consider the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results.

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The amount of deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income change and/or if significant objective negative evidence is no longer present or if significant negative evidence becomes available. Such changes could lead to a change in judgment related to the realization of the net deferred tax asset. Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in our financial statements in the period the estimate is changed with a corresponding adjustment to operating results.

Income tax benefits are recognized for a tax position when, in management’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the tax benefit is measured as the largest amount that is judged to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. As of December 31, 2021, we recorded an uncertain tax position attributable to a reduction related to state net operating loss carryforwards. In the event that we conclude that we are subject to interest and/or penalties arising from uncertain tax positions, we will present interest and penalties as a component of income taxes.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes, including among other things: (i) increasing the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest; (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k); (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes; and (iv) enhancing recoverability of AMT tax credit carryforwards.

Warrant Liability

We account for warrants in accordance with the authoritative guidance which requires that free-standing derivative financial instruments with certain cash settlement features be classified as assets or liabilities at the time of the transaction, and recorded at their fair value. Fair value is estimated using a model-derived valuation. Determining the fair value for warrants includes the expected volatility of our stock. An increase or decrease in the expected volatility of our stock of 10% would result in an additional gain or loss of approximately $0.1 million. Any changes in the fair value of the warrants are reported in earnings or loss as long as they are classified as assets or liabilities.

Recently Issued Accounting Pronouncements

For discussion regarding the impact of accounting standards that were recently issued but are not yet effective, on our consolidated financial statements, see Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements.

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Results of Operations for the Years ended December 31, 2021 and 2020

Revenues from product sales and supportive services for the years ended December 31, 2021 and 2020 were $126.8 million and $115.5 million, respectively. Such revenues for the year ended December 31, 2021 include $112.5 million of revenue related to sales of oral TPOXX® to the U.S. Government under the 19C BARDA Contract and $12.7 million of revenue related to international sales of oral TPOXX®. Such revenues for the year ended December 31, 2020 include $112.6 million of revenue related to sales of oral TPOXX® to the U.S. Government under the 19C BARDA Contract and $2.3 million of revenue related to international sales of oral TPOXX®.

Revenues from research and development contracts and grants for the years ended December 31, 2021 and 2020, were $6.9 million and $9.5 million, respectively. The decrease of $2.6 million, or 27.6%, primarily reflects a decrease in revenue in connection with a decrease in direct vendor-related costs for IV TPOXX® and post-marketing regulatory activities for oral TPOXX®, partially offset by higher revenues associated with the PEP Label Expansion R&D Contract.

Cost of sales and supportive services for the years ended December 31, 2021 and 2020 were $16.6 million and $14.8 million, respectively. Such costs in 2021 and 2020 were primarily associated with the manufacture and delivery of oral TPOXX® courses to the U.S. Government under the 19C BARDA Contract and in connection with international sales. Additionally, there was an inventory-related loss of $0.6 million in 2021.

Selling, general and administrative expenses for the years ended December 31, 2021 and 2020 were $17.3 million and $14.0 million, respectively, reflecting an increase of $3.3 million, or 23.7%. The increase primarily reflects the promotion fees paid in connection with the courses delivered to PHAC and the CDND in 2021 as well as an increase in certain insurance, business development and consulting costs.

Research and development expenses were $9.9 million for the year ended December 31, 2021, a decrease of approximately $1.0 million, or 9.1% from the $10.9 million incurred during the year ended December 31, 2020. The decrease is primarily attributable to a decrease in direct vendor-related expenses incurred under the BARDA 19C Contract in connection with supporting the development of IV TPOXX® and post-marketing regulatory activities for oral TPOXX®, partially offset by higher costs associated with the PEP Label Expansion R&D Contract.

Patent expenses for the years ended December 31, 2021 and 2020 were $0.7 million. These expenses reflect our ongoing efforts to protect our lead drug candidates in varied geographic territories.

In connection with the voluntary repayment of the term loan facility under the Loan Agreement (the "Term Loan") on March 13, 2020, we recognized a loss on the extinguishment of the Term Loan of approximately $5.0 million for the year ended December 31, 2020.

Interest expense on the Term Loan for the year ended December 31, 2020 was $3.0 million. The $3.0 million of interest for the year ended December 31, 2020 includes $0.9 million of accretion of unamortized costs and fees (prior to repayment of the Term Loan). There was no interest expense recognized for the year ended December 31, 2021 as our Term Loan was paid off in March 2020.

Changes in the fair value of the liability classified warrant to acquire common stock were recorded within the income statement. For the year ended December 31, 2021, we recorded a gain of approximately $0.1 million reflecting a decrease in the fair value of the liability-classified warrant. For the year ended December 31, 2020, we recorded a loss of approximately $3.5 million reflecting an increase in fair value of the liability-classified warrant primarily due to an increase in the price of our common stock.

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Other income, net for the years ended December 31, 2021 and 2020 was $0.1 million and $0.5 million, respectively. Other income primarily reflects interest income on the Company's cash balance held in restricted and unrestricted accounts. The decrease of approximately $0.4 million is driven by lower cash balances during the year as well as lower interest rates for 2021 when compared to 2020.

For the year ended December 31, 2021, we recognized a tax provision of $19.9 million on pre-tax income of $89.3 million. Our effective tax rate for the year ended December 31, 2021 was 22.2% and differs from the statutory rate of 21% primarily as a result of non-deductible executive compensation under IRC Section 162(m), and state and local taxes.

For the year ended December 31, 2020, we recognized a tax provision of $17.2 million on pre-tax income of $73.5 million. Our effective tax rate for the year ended December 31, 2020 was 23.4% and differs from the statutory rate of 21% primarily as a result of a non-taxable adjustment for the fair market value of the Warrant, non-deductible executive compensation under IRC Section 162(m), and state and local taxes.

Liquidity and Capital Resources

As of December 31, 2021, we had $103.1 million in cash and cash equivalents, compared with $117.9 million at December 31, 2020. There was no restricted cash as of December 31, 2021 or December 31, 2020 given that the Term Loan was repaid in March 2020. The restricted cash and cash equivalents were available to pay interest, fees and principal on the Term Loan. The Company voluntarily prepaid the Term Loan on March 13, 2020 in an approximate amount of $87.2 million, including accrued interest. As a result of repayment of the Term Loan, there are no restrictions on the use of our cash and cash equivalents.

Operating Activities

We prepare our consolidated statement of cash flows using the indirect method. Under this method, we reconcile net income (loss) to cash flows from operating activities by adjusting net income (loss) for those items that impact net income (loss) but may not result in actual cash receipts or payments during the period. These reconciling items include but are not limited to stock-based compensation and changes in the fair value of our warrant liability; gains and losses from various transactions and changes in the consolidated balance sheet for working capital from the beginning to the end of the period.

Net cash provided by operations for the years ended December 31, 2021 and 2020 was $11.5 million and $71.5 million, respectively.  For the year ended December 31, 2021, the receipt of approximately $43.7 million in connection with U.S. Government and international sales of oral TPOXX® was partially offset by net cash usage primarily related to manufacturing of inventory and customary operating activities. For the year ended December 31, 2020, the receipt of approximately $114.9 million in connection with U.S. Government and international sales of oral TPOXX® was partially offset by net cash usage primarily related to manufacturing of inventory and customary operating activities.

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On December 31, 2021 and 2020, our accounts receivable balance was approximately $83.7 million (which includes approximately $2.2 million of unbilled receivables) and $3.3 million, respectively. Our accounts receivable balance as of December 31, 2021 primarily reflects deliveries of approximately $79.7 million of oral TPOXX® to the U.S. Government in December 2021, for which we received full payment in January 2022. Our accounts receivable balance as of December 31, 2020 primarily reflects work that was reimbursable by BARDA and was performed during the year ended December 31, 2020 in connection with oral and IV TPOXX®.

Investing Activities

Cash used in investing activities for the years ended December 31, 2021 and 2020 was $50,620 and $15,501, respectively, related to capital expenditures.

Financing Activities

Cash used in financing activities for the years ended December 31, 2021 and 2020 was $26.2 million and $114.6 million, respectively. For the year ended December 31, 2021, $26.0 million was associated with our repurchase of approximately 3.8 million shares of common stock. For the year ended December 31, 2020, $85.9 million was associated with our voluntary prepayment of the Term Loan and approximately $28.5 million was associated with the repurchase of approximately 4.6 million shares of common stock.

Future Cash Requirements

As of December 31, 2021, we have outstanding purchase orders associated with manufacturing obligations in the aggregate amount of approximately $20.1 million.

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