ATOSSA THERAPEUTICS, INC. annual report, FY2023

Atossa Therapeutics, Inc. — FY2023 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. Although the request references 2023 Q4, this filing is an annual Form 10-K covering the full year. Atossa is a clinical-stage biopharmaceutical company focused on breast cancer and other breast conditions, with oral (Z)-endoxifen as its lead candidate. The company has no marketed products or recurring revenue.

Financial Position and Results

Metric	FY2023	FY2022	Change
Revenue	$0	$0	No change
Research and development expense	$17.3 million	$15.1 million	+$2.3 million
General and administrative expense	$14.0 million	$12.6 million	+$1.4 million
Total operating expenses	$31.4 million	$27.7 million	+$3.7 million
Net loss	$30.1 million	$27.0 million	Loss increased by $3.1 million
Net loss per share	$0.24	$0.21	Loss per share increased
Cash used in operating activities	$20.9 million	$20.8 million	+$0.2 million
Cash and cash equivalents	$88.5 million	$110.9 million	-$22.4 million

• Interest income increased to $4.3 million from $0.9 million because of higher cash balances invested in money market funds and higher interest rates.
• A $3.0 million impairment charge was recorded on the company’s investment in Dynamic Cell Therapies, Inc. The investment had a carrying value of $1.7 million at year-end.
• Working capital was approximately $87.0 million, and total assets were $96.3 million. Total liabilities were $5.2 million.
• The filing does not disclose conventional long-term debt. Current liabilities consisted primarily of accounts payable, accrued expenses, payroll liabilities and an $1.8 million accrued liability related to the Australian R&D tax rebate estimate.
• Operating margin and other revenue-based margins are not meaningful because the company generated no revenue.
• Cash used in investing activities was $14 thousand. Financing cash outflow was $1.5 million for common-stock repurchases.

Material Changes and Unusual Items

• R&D expense increased primarily because of higher clinical and nonclinical trial spending and a $1.4 million adjustment related to Australian R&D tax rebates.
• G&A expense increased because of higher legal, investor-relations and accounting costs, as well as a $0.4 million Australian tax-rebate estimate adjustment. Lower stock-based compensation and insurance costs partially offset the increase.
• The company repurchased 1,320,046 shares for $1.5 million during 2023. The board extended the $10.0 million repurchase authorization through December 31, 2024, leaving $8.5 million available at year-end.
• Atossa accrued $1.8 million after concluding that its full Australian R&D tax-rebate position was no longer reasonably assured under a potential Australian Taxation Office audit. Future adjustments, penalties or repayment obligations remain possible.
• The company changed its independent auditor during 2023: Ernst & Young audited the 2023 financial statements, while BDO audited the 2022 financial statements.

Programs, Outlook and Management Commentary

• EVANGELINE: Phase 2 neoadjuvant study in premenopausal women with ER+/HER2- breast cancer. The 40 mg pharmacokinetic run-in was well tolerated and showed encouraging efficacy, but did not reach the desired steady-state exposure; an 80 mg cohort was initiated.
• Karisma-Endoxifen: Phase 2 breast-density study fully enrolled in November 2023. Primary data are expected in the second half of 2024. The FDA and Swedish regulators have indicated that breast-density reduction alone may not be an approvable indication unless a reduction in breast-cancer incidence is also demonstrated.
• I-SPY 2: The 20-patient (Z)-endoxifen cohort completed enrollment in the first quarter of 2024, with data expected in the second half of 2024.
• RECAST DCIS: Phase 2 study initiated in October 2023 to evaluate whether (Z)-endoxifen could help identify DCIS patients suitable for active surveillance. The first patient was dosed in February 2024.
• Atossa expects continuing operating losses and does not anticipate revenue until its pharmaceutical programs are developed, approved and commercialized.
• Management believes existing cash will fund projected operations for at least 12 months from issuance of the financial statements, but states that substantial additional capital will be required over the next several years.
• Estimated non-cancellable clinical-trial commitments were $6.1 million at December 31, 2023, with the related trials expected to be completed in 2025.

Risks, Contingencies and Other Matters

• The company has an accumulated deficit of approximately $186.3 million and no established source of recurring revenue. Future financing may require equity issuance, debt, collaborations or licensing transactions and could dilute shareholders or limit operating flexibility.
• Clinical-stage development is subject to trial delays, enrollment shortfalls, unfavorable safety or efficacy results, clinical holds, manufacturing constraints and failure to obtain FDA or foreign approvals.
• Atossa relies extensively on third-party manufacturers, contract research organizations, clinical sites and information-technology providers.
• Intas Pharmaceuticals filed a U.S. Patent and Trademark Office post-grant review petition challenging a patent covering methods for making and using endoxifen. Atossa is contesting the petition, but the outcome is uncertain. An Indian pre-grant opposition also challenges a related pending patent application.
• Atossa’s investment in DCT is a private, illiquid investment subject to further impairment risk.
• The company received a Nasdaq minimum-bid-price deficiency notice in September 2023 but reported regaining compliance on March 15, 2024.
• Known cybersecurity incidents had not materially affected the company during the last fiscal year, although management states that ongoing cybersecurity threats could materially affect the business if realized.
• Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023. As a non-accelerated filer, the company’s independent auditor was not required to provide an internal-control attestation.

Most Important Facts for Investors to Verify

• Timing, enrollment, safety and efficacy data for EVANGELINE, Karisma, I-SPY 2 and RECAST DCIS.
• Whether the company can obtain additional financing before cash resources become constrained, and the potential dilution or contractual terms of that financing.
• Resolution and potential financial impact of the Intas patent post-grant review and the Indian patent opposition.
• Final determination by the Australian Taxation Office regarding R&D rebates, including possible repayment, interest or penalties beyond the $1.8 million accrual.
• Future cash burn, clinical-trial commitments and the duration of the company’s cash runway.
• Whether (Z)-endoxifen can demonstrate sufficient clinical benefit and obtain regulatory approval for any indication, particularly because breast-density reduction alone may not be approvable.
• Potential additional impairment of the DCT investment and the company’s use of capital for acquisitions, investments or share repurchases.