Atossa Genetics Inc. 2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. The filing identifies the registrant as Atossa Genetics Inc.; the request metadata refers to Atossa Therapeutics, Inc. The company was a clinical-stage pharmaceutical business focused on breast-cancer therapeutics and targeted drug-delivery methods.
Business Context
- Primary programs included topical and oral Endoxifen and intraductal microcatheter delivery of fulvestrant, CAR-T therapies and immunotherapies.
- The company completed a 48-subject Phase 1 study of oral and topical Endoxifen. Management reported no clinically significant safety signals or adverse events and stated that oral Endoxifen reached therapeutic serum levels with a median seven-day time to steady state.
- A Phase 2 fulvestrant study using intraductal microcatheters was ongoing at Montefiore Medical Center.
- Management planned to begin two Phase 2 Endoxifen studies in the first half of 2018 and expected completion in the second half of 2018.
- The company was not marketing products or services and had no sustainable revenue source.
Financial Performance and Liquidity
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No sustainable revenue in either year |
| Operating expenses | $7.65 million | $7.97 million | Down 4.0% |
| Research and development expense | $2.33 million | $0.77 million | Up approximately 202% |
| General and administrative expense | $4.86 million | $6.48 million | Down 25.0% |
| Impairment of intangible assets | $0.46 million | $0.72 million | Lower impairment charge |
| Operating loss | $7.65 million | $7.97 million | Improved by approximately $0.32 million |
| Net loss | $8.12 million | $6.37 million | Loss increased |
| Net loss attributable to common stockholders | $10.69 million | $6.37 million | Includes $2.57 million deemed preferred-stock dividend |
| Basic and diluted loss per share | $0.91 loss | $2.16 loss | Per-share loss improved due primarily to higher share count |
| Cash used in operating activities | $6.59 million | $5.37 million | Use increased 22.7% |
| Cash and cash equivalents | $7.22 million | $3.03 million | Increased $4.19 million |
| Working capital | Approximately $6.7 million | Not clearly stated in the filing text | Not clearly comparable |
Margins: Revenue was zero, so gross and operating margins are not meaningful. The company remained loss-making and generated negative operating cash flow.
Balance sheet and debt: Total assets were $8.16 million, total current liabilities were $1.23 million, and stockholders’ equity was $6.94 million at December 31, 2017. The filing does not identify material interest-bearing debt. Restricted cash was $55,000. Approximately $6.97 million of cash exceeded FDIC insurance limits.
Material Changes Versus 2016
- R&D spending increased substantially as Endoxifen manufacturing and clinical studies commenced.
- G&A expense declined because of lower headcount, rent, professional fees and the absence of certain 2016 exit and severance costs.
- Operating cash burn increased despite lower total operating expenses, reflecting greater clinical-development spending.
- 2016 included $1.76 million of income from the Besins settlement; 2017 had no comparable settlement proceeds.
- The company raised approximately $10.78 million of net financing proceeds in 2017 through public offerings, warrant exercises and related transactions.
- Shares outstanding increased from 3.79 million at December 31, 2016 to 31.82 million at December 31, 2017, reflecting significant equity issuance, preferred-stock conversion and warrant exercises.
- The company recorded a $461,715 impairment charge and reduced the carrying value of Acueity-related intangible assets to zero.
Guidance, Outlook, Risks and Unusual Items
- Management expected existing resources to fund planned operations for only approximately six to eight months from the filing date and stated that additional capital would be required for longer-term operations.
- The auditor included an explanatory paragraph regarding substantial doubt about the company’s ability to continue as a going concern.
- Management expected R&D expenses to increase during 2018 as Endoxifen Phase 2 studies, the fulvestrant trial and additional CAR-T and immunotherapy research progressed.
- Future financing was expected to rely primarily on equity offerings, warrant exercises, potential borrowings and collaboration or licensing arrangements. Additional equity financing could materially dilute existing holders.
- The company had 10.98 million warrants outstanding at December 31, 2017, including 10.6 million warrants issued in the December 2017 private placement with an exercise price of approximately $0.315 per share.
- NASDAQ had notified the company that its stock price failed to meet the $1.00 minimum bid requirement. The company received an extension until May 7, 2018 to regain compliance, creating delisting risk.
- A securities class action remained subject to settlement proceedings after the parties reached an agreement in principle in February 2018. The settlement was expected to be funded by insurance and required court approval.
- Principal operating risks included clinical-trial delays or failure, regulatory nonapproval, dependence on third-party manufacturers and clinical organizations, limited operating history, intellectual-property challenges, reimbursement uncertainty and inability to obtain additional capital.
- The company relied on third parties for drug manufacturing, clinical trials, storage and distribution and identified single-vendor concentration risk for certain key activities.
Most Important Facts for Investors to Verify
- Whether the planned 2018 Endoxifen Phase 2 trials opened and achieved enrollment and completion targets.
- Whether the Montefiore fulvestrant study produced favorable safety, distribution or biological-activity results.
- Actual cash burn after December 31, 2017 and the timing, terms and dilution associated with subsequent financings.
- Whether the company resolved its going-concern funding requirement without materially curtailing development programs.
- Whether the company regained NASDAQ’s minimum bid-price compliance by May 7, 2018.
- Status and final approval of the securities-litigation settlement and any related insurance coverage.
- Regulatory status of Endoxifen and intraductal microcatheter programs, including whether any 505(b)(2), FDA, foreign regulatory or device approvals were obtained.
- Potential dilution from outstanding warrants, stock options and future equity issuance.