ATOSSA GENETICS INC. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018; filed August 13, 2018. The filing identifies the registrant as Atossa Genetics Inc. and describes a clinical-stage pharmaceutical company developing Endoxifen formulations and intraductal drug-delivery technologies for breast cancer and other breast conditions.
Financial position and operating results
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.47 million | $1.94 million |
| General and administrative expense | $2.67 million | $4.08 million |
| Total operating expenses | $4.14 million | $6.02 million |
| Net loss | $4.14 million | $6.02 million |
| Net loss applicable to common stockholders | $8.92 million | $10.80 million |
| Basic and diluted loss per share | $2.90 loss | $3.77 loss |
| Net cash used in operating activities | Not separately provided | $4.22 million |
The company has no commercial revenue and no cost of revenue. Profit margins are therefore not meaningful. As of June 30, 2018, cash and cash equivalents were $15.24 million, restricted cash was $55,000, working capital was approximately $13.4 million, and total current liabilities were $3.01 million. Total assets were $16.58 million and stockholders’ equity was $13.57 million. The filing does not report outstanding debt; liabilities were primarily current operating, payroll, and stock-based compensation obligations.
Material changes versus the prior comparable period
- Three-month operating expenses increased 118% to $4.14 million from $1.90 million; six-month expenses increased 67% to $6.02 million from $3.60 million.
- General and administrative expense increased primarily because of approximately $1.0 million of additional stock-based compensation, retroactive salary increases, and $350,000 of one-time bonus payments.
- Research and development expense increased 78% for the quarter and 42% for the six-month period, primarily due to higher stock-based compensation. Management expects R&D spending to increase as Phase 2 programs advance.
- Six-month operating cash usage increased to $4.22 million from $3.21 million, reflecting higher compensation, consulting, and patent expenses.
- Cash increased by $8.02 million during the six months, principally because of a May 2018 rights offering that generated approximately $12.3 million of net proceeds.
- The company issued 13,624 Series B convertible preferred shares and 3,869,216 warrants. During the quarter, 7,822 preferred shares converted into 2,222,147 common shares.
- A 1-for-12 reverse stock split became effective April 20, 2018; historical share and per-share amounts were retrospectively adjusted.
Guidance, outlook, risks and unusual items
- Management expects existing resources to fund planned operations for approximately 12 to 18 months from the filing date, but states that additional capital will be required for longer-term operations.
- The financial statements contain a going-concern warning. The company has incurred losses and negative operating cash flows since inception, has no established recurring revenue source, and cannot assure that future financing will be available on acceptable terms.
- Potential future funding sources include equity offerings, warrant exercises, short-term borrowings, collaboration agreements, debt financing, or licensing arrangements. Additional equity or convertible financing could materially dilute existing stockholders.
- Clinical and regulatory risks include successful enrollment and completion of Endoxifen and intraductal-therapy trials, FDA and foreign regulatory approval, manufacturing and third-party service-provider performance, intellectual-property protection, commercialization timing, and retention of key personnel.
- The company is conducting or preparing Phase 2 studies involving topical Endoxifen for mammographic breast density, oral Endoxifen in the pre-surgery window, and intraductal delivery of fulvestrant. A Phase 1 topical Endoxifen study in men began in March 2018.
- A $3.5 million securities class-action settlement was approved July 20, 2018 and was fully funded by defendants’ insurers; the filing states it is not expected to materially affect the company’s finances.
- Unusual noncash items included a $4.78 million deemed dividend attributable to Series B preferred stock and $1.56 million of stock-based compensation liability expense related to executive option awards.
- Approximately $14.99 million of cash exceeded FDIC insurance limits at June 30, 2018, creating concentration-of-credit-risk exposure.
Most important facts for investors to verify
- Whether the company can achieve the stated 12-to-18-month cash runway while advancing multiple clinical programs.
- Future financing needs, dilution from the 3.87 million 2018 warrants, preferred-stock conversions, and substantial outstanding options and warrants.
- Clinical-trial enrollment, safety, efficacy, timing, and regulatory milestones for Endoxifen and intraductal delivery programs.
- The pace of operating-expense growth, particularly stock-based compensation and planned R&D spending.
- The status and terms of the going-concern mitigation plan and any subsequent capital raises.
- Whether the July 2018 litigation settlement creates any residual obligations despite the insurer funding.