UPDATE 3-US to pay SIGA up to $2.8 bln in biodefense deal

Wed Oct 13, 2010 5:33pm EDT

* Says Dept of Health & Human Services to give contract

* Contract to supply 1.7 mln courses of smallpox drug

* Contract pending small business protest by rival bidder

* Shares close up 46 pct (Rewrites; updates with closing share price)

By Shravya Jain

BANGALORE, Oct 13 (Reuters) - The United States is spending up to $2.8 billion to shore up its defenses against biological warfare, according to a drugmaker who expects to get a government contract to supply smallpox antiviral drugs.

SIGA Technologies Inc (SIGA.O) shares jumped 50 percent to their lifetime high on Wednesday after the company said it expects to get a contract to supply 1.7 million courses of its smallpox drug for the strategic national stockpile, with the base contract worth about $500 million in revenue.

The contract value can go up to $2.8 billion if all options are exercised, the company said.

"The price of the contract is much better than what we were expecting," said National Securities' analyst Jason Kolbert.

The company, which develops products for use in defense against biological warfare agents, had annual revenue of $13.8 million for 2009.

SIGA's Chief Financial Officer Ayelet Dugary declined to reveal the term of the contract from the U.S. Department of Health and Human Services.

However, Noble Financial Capital Markets analyst Raghuram Selvaraju said the contract is for an initial term of five years, where the first portion of 1.7 million doses should be for a year and a half.

Selvaraju said he expected the contract to be awarded to SIGA because ST-246 is the only drug that has gone through late-stage safety testing review for smallpox -- a potential biodefense threat.

The drug works by blocking the ability of the virus to spread to other cells. It also has a fast-track status by the U.S. health regulators, according to SIGA website.

RIVAL PROTESTS

The contract is subject to pending resolution of certain issues as a rival bidder Chimerix Inc has filed a protest against SIGA that it was not a small business, the company said in a statement.

SIGA said it was "appropriately qualified" as a small business concern for the deal.

The company said it intends to respond promptly to the Small Business Administration concerning Chimerix's protest.

"We see this just as a competitor's delay tactic and not as a fundamental issue," Kolbert said, adding that he does not expect to see revenue benefit from the contract until the first half of 2011.

Furthermore, analysts are also looking at the company's on-going litigation with PharmAthene (PIP.A) on a tussle over the exclusive development and marketing rights to the smallpox drug.

In December 2006, PharmAthene had filed a case against SIGA pursuant to a merger agreement between the companies that was terminated in October 2006. The trial is expected to start on Jan. 3, 2011.

Selvaraju expects the court case with PharmAthene to be ruled in the latter's favour with PharmAthene getting a percentage of SIGA's contract with the government.

Roth Capital Partners analyst Joseph Pantginis said the contract has positive implications to PharmAthene that can now identify the exact measure of potential damages.

New York-based SIGA's shares, which have gained 25 percent since it completed successful human safety trial on the drug in June, closed up $3.91 at $12.47 on Wednesday.

The stock touched a high of $12.85 earlier in the day and was one of the top percentage gainers on Nasdaq.

PharmAthene shares closed up 16 percent at $1.67 on the American Stock Exchange. They touched a high of $1.81 earlier in the day. (Additional reporting by Esha Dey; Editing by Gopakumar Warrier, Unnikrishnan Nair)