Business Context and Reporting Period
Atossa Genetics, Inc. (the filing entity associated with Atossa Therapeutics, Inc.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The company is a clinical-stage pharmaceutical business focused on breast-cancer therapeutics and drug-delivery methods. Its principal programs were intraductal fulvestrant delivered through patented microcatheters and oral endoxifen. The former laboratory subsidiary, NRLBH, was sold in December 2015 and is reported as discontinued operations.
Financial Metrics
| Metric | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | Comparable Period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 from continuing operations; 2015 discontinued-operation revenue was $2.7 million and $4.6 million, respectively |
| Operating expenses | $1.72 million | $4.05 million | $3.17 million and $6.44 million |
| Net loss | $1.72 million | $4.05 million | $3.15 million and $6.48 million |
| Loss per share | $0.05 | $0.12 | $0.11 and $0.25 |
| Cash used in operating activities | Not separately stated in the financial statements | $4.65 million | $6.52 million total operating cash use |
- Gross profit and operating margins were not meaningful because continuing-operations revenue was zero.
- Cash and cash equivalents were $1.19 million at June 30, 2016, compared with $3.72 million at December 31, 2015. Restricted cash was $55,000.
- Working capital was approximately $0.9 million. Current liabilities were $874,265, compared with $2.50 million at year-end 2015.
- The balance sheet does not present a material debt balance or separate borrowings line; the filing text does not provide a clear total-debt value.
- Total assets were $3.28 million and stockholders’ equity was $2.41 million at June 30, 2016.
- Financing activities provided $2.13 million, principally from common-stock and warrant issuances. The company issued 6.91 million common shares during the first six months, including 746,046 shares as a commitment fee.
- There were 39.57 million common shares outstanding at August 12, 2016, plus 5.91 million outstanding stock options and 6.03 million warrants at June 30, 2016.
Material Changes Versus the Prior Comparable Period
- Continuing-operations operating expenses declined 45.7% in the second quarter and 37.1% for the first six months, primarily because the company stopped pursuing device commercialization and reduced development of certain programs.
- General and administrative expense decreased 36.7% in the quarter and 22.4% year to date.
- Research and development expense decreased 54.7% in the quarter and 66.0% year to date, although management expected R&D spending to increase as the fulvestrant trial and endoxifen program progressed.
- The prior-year laboratory revenue and related costs are presented as discontinued operations following the sale of approximately 81% of NRLBH. The company no longer expected revenue from laboratory testing or device sales unless new pharmaceutical programs were launched.
- Net loss improved from $3.15 million to $1.72 million for the quarter and from $6.48 million to $4.05 million for the six months, but the company remained entirely pre-revenue from continuing operations.
- The company terminated its prior Aspire Capital stock-purchase agreement and entered into a new agreement on May 25, 2016, allowing potential sales of up to $10 million of common stock over 30 months. No shares had been sold under the new agreement as of the filing date.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that existing resources, together with expected proceeds from the Besins settlement, were expected to fund planned operations for approximately four to six months. Additional financing was considered necessary.
- The financial statements disclose substantial doubt about the company’s ability to continue as a going concern. Management planned to seek equity financing and potentially short-term borrowings, but provided no assurance that financing would be available on acceptable terms.
- On August 4, 2016, after the quarter-end, the company settled its dispute with Besins. Besins agreed to assume the Afimoxifene Topical Gel program and pay Atossa $1.76 million, including reimbursement of certain out-of-pocket expenses. Atossa relinquished its rights to the program and related development materials.
- The company initiated a Phase 2 study of intraductal fulvestrant in March 2016. The study was intended to enroll 30 patients and evaluate safety, tolerability, drug distribution, and related biological endpoints. Regulatory approval and clinical success remained uncertain.
- The company had a $136,000 purchase commitment to KriSan Biotech for endoxifen manufacturing-related research and an initial supply.
- A securities class-action lawsuit remained on appeal following dismissal of the claims against the company. Potential damages were unspecified, no liability was recorded, and the possible financial effect could not be reasonably estimated.
- The company recognized a $163,333 loss on termination and write-off of capitalized license costs related to its discontinued NextCYTE program.
- Management reported that disclosure controls and procedures were effective as of June 30, 2016, with no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether the $1.76 million Besins settlement was received and how it affected subsequent liquidity and the company’s going-concern assessment.
- The timing, pricing, and dilution associated with future equity sales under the new Aspire Capital agreement and other financing plans.
- Actual cash burn and available liquidity relative to the stated four-to-six-month funding horizon.
- Progress, enrollment, safety results, and regulatory feedback for the intraductal fulvestrant Phase 2 study.
- Development milestones and funding requirements for oral endoxifen.
- The status and ultimate resolution of the securities litigation appeal and any related insurance coverage.
- The effect of 5.91 million options and 6.03 million warrants on potential dilution.