SIGA Technologies Inc (OTCMKTS:SIGA) Is Poised For Recovery

A few months ago, we highlighted SIGA Technologies, Inc. (OTCMKTS:SIGA) as a company to keep an eye on throughout the second half of 2016. Our bottom line was this: the company is a two sided entity, and it's one of the riskiest stocks out there with a clear path to zero. However, this fact was priced in to its then current market cap, and if the company could avoid the path to zero, it had the potential for a huge turnaround and a longer term recovery.Well, SIGA spent the twelve weeks subsequent to our initial analysis gaining gradually on aggregate, and traded up to a little over $3.2 a share at the end of last week. As this week hit, however, the company took a dive, and now trades around 20% off these highs.A couple of recent announcements have hinted that SIGA might be on the path to recovery, as opposed to zero, and as a result, our earlier-in-the-year bias remains, albeit a little bit strengthened since we first issued our analysis.Here's what's happened to reinforce our thesis.First, a bit of history on the company.The company is a biotech with a vaccine focus, and its flagship product is an antiviral called Tecovirimat, which is currently undergoing trials to establish safety and efficacy in the treatment of smallpox. As we noted last time, smallpox is pretty much wiped out globally, but the US government stockpiles drugs that can combat the infection in case it comes back as a result of any unforeseen circumstances – chemical warfare etc.Anyway, back in 2006, SIGA put together an agreement with a company called PharmAthene, Inc. (NYSEMKT:PIP); an agreement that subsequently fell apart and was never closed upon, or even really put into any form of formal documentation. However, when the deal fell apart (on the back of SIGA pulling out) PharmAthene took SIGA to court in an attempt to get the court to rule that the arrangement should've been held in good faith, and that the latter owes the former compensation for pulling out.The court in question upheld the ruling, and SIGA was given two options – pay more than $200 million in compensation costs to PharmAthene, or be absorbed by the latter. This absorption would give no consideration to SIGA shareholders, and is the thesis behind our above-mentioned path to zero.At the same time, and over the last couple of years, SIGA has been undertaking a clinical stage development program to improve the safety and efficacy of Tecovirimat, the drug it has been providing the US government with as part of its stockpile agreement. If the company can prove the drug effective, it is in line for a total of more than $460 million across the contract term (which kicked off back in 2011), with nearly $90 million of this due over the next 18 months or so. Enrollment just completed in a phase III pivotal, and SIGA is on track to meet its regulatory and development related milestones, which will almost certainly make it eligible for continued supply under the government contract.For a company valued at $144 million at last count, a potential $90 million in revenues across the next 18 months suggests there's plenty of room for upside revaluation. Of course, the company has to avoid being taken over by PharmAthene, and to do this it has to pay off the entirety of its debt.Whereas back in July, when we first looked at the company, it was 50-50 as to whether SIGA could scrape together the resources to pay off this debt, it now looks all but a certainty.The company had until October 19 to pay as per a chapter 11 related agreement, but on October 5, Siga completed a $100 million payment and picked up an extension to November 30 as final payment date. A loan facility, a public offering and a pretty healthy cash balance (prior to payment) as outlined in this S1, filed last month, suggests that SIGA is going to have no problem coming up with the rest of the cash before deadline.So what is the importance of this? Well, it essentially removes the risk that PharmAthene will absorb SIGA, and puts the company on track for recovery and successful completion of its government related contract across the next couple of years. We expect this fact to drive sentiment, and a number of near term catalysts to serve up some short-term upside momentum going forward.These catalysts relate to the closing of this liability obligation, which should come end November, and the completing of its phase III trial of Tecovirimat. We already know that the drug is safe and effective after the completion of a second cohort of dosing and a 14-day follow-up, and assuming no unexpected hiccups near-term, it should only be a matter of time before the FDA gives the drug a green light. In turn, by mid-to late 2017, Siga should be a company with no crippling liability, no path to zero, and an approved vaccine that is part of a government stockpile program.When we first highlighted this one, it was 82% down on last week's highs. Our subscribers logged these gains. Don't miss out on the next opportunity - subscribe below for free and we will keep you updated!Disclosure: We have no position in SIGA or PIP and have not been compensated for this article.