Litigation is not yet complete, but precedence is indicative of a positive vote within the first half 2013. Following the final ruling of the Delaware Supreme Court in May, SIGA Technologies appealed the verdict, and PharmAthene cross-appealed, challenging other parts of the court's ruling. The maneuvers yet again delayed the finality of the decision. The oral arguments, which concluded on Thursday, represent the last stage before a final ruling, which the court is expected to issue by the second quarter of 2013 (60 to 90 days after oral arguments), although we believe a ruling could come towards the earlier end of that range. We see little reason for the Delaware Supreme Court to overrule its previous decision in favor of PharmAthene, and in fact, the court has ruled in favor of PharmAthene on four separate occasions, suggesting that PIP will receive 50% of net Arestvyr profits. SIGA, by appealing the May verdict, has done little more than delay the inevitable, and with sales of Arestvyr to the U.S. government set to begin in the first quarter, it looks like PharmAthene may see revenues in relation quite soon.
PIP’s current valuation is not factoring in a positive ruling. After a rally last June when PharmAthene announced the positive ruling from the Delaware Supreme Court, PIP has trended downwards, declining 30% over eight months. PIP trades at $1.13, a $55M market capitalization, and considering the stock’s pop to $1.82 following the announcement of the final ruling last year, PIP could again make a major move on a similar announcement in the first quarter of this year. A positive ruling and 50% of Arestvyr profits (sales of $412M+) are indicative of a substantially higher valuation for the small developer. The company’s own lead candidate, Sparvax, is currently under an FDA clinical hold, but PharmAthene believes that they have assembled a comprehensive response that addresses the FDA’s concerns and will file the response shortly. The clinical hold is in relation to a proposed Phase II trial for the anthrax vaccine, which has already been through two Phase II clinical trials involving more than 700 healthy humans. To date, the U.S. government has awarded commitments of roughly $240M for PIP’s pipeline development. In addition, PharmAthene has a solid balance sheet, with approximately $18M in cash/equivalents at the end of 2012 and an expected burn rate for the 2012 fiscal year of just $6M.
Regardless, the upcoming Supreme Court ruling will drive considerable value for PharmAthene if positive. While certainly not guaranteed, the court has ruled on four separate occasions in favor of PharmAthene, and its unlikely to overrule its latest decision. PIP has room for upside of 60% if shares jump to the $1.80 levels that succeeded its last positive ruling, suggesting a quality risk/reward ratio for PIP in the near-term.