Atossa Genetics, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. The filing identifies the registrant as Atossa Genetics, Inc.; the request metadata refers to Atossa Therapeutics, Inc. The company develops breast-health diagnostics, medical devices, and pharmaceutical candidates, including Afimoxifene Gel.
Financial performance and position
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Net revenue | $2.7 million | $4.6 million | $9,875 / $33,999 |
| Gross profit | $0.8 million | $1.5 million | $9,875 / $33,999 |
| Gross margin | 31.2% | 32.9% | Not meaningful because 2014 cost of revenue was zero |
| Operating loss | $(3.2) million | $(6.5) million | $(3.2) million / $(5.6) million |
| Net loss | $(3.1) million | $(6.5) million | $(3.2) million / $(5.6) million |
| Loss per share | $(0.11) | $(0.25) | $(0.13) / $(0.24) |
- Six-month operating expenses were $8.0 million, up 42% year over year. Selling expense increased 177%, research and development expense increased 40%, and general and administrative expense increased 27%.
- Cash used in operating activities was $6.5 million for the six months, compared with $4.9 million in 2014. Investing cash use was $81,665.
- Financing activities provided $9.5 million, primarily from equity and warrant issuances. Cash increased to $11.4 million from $8.5 million at December 31, 2014.
- At June 30, 2015, total assets were $16.6 million, current assets were $13.8 million, and working capital was approximately $10.3 million.
- Total liabilities were $3.4 million. The filing reports no conventional debt; liabilities primarily comprised accounts payable, accrued expenses, payroll liabilities, and lease obligations.
- Accounts receivable increased to $2.0 million from $298,000 at year-end, while accrued expenses increased to $1.9 million from $445,000, principally due to accrued commissions and royalties.
- The accumulated deficit was $41.7 million at June 30, 2015.
Material changes versus the prior comparable period
- Revenue increased sharply because pharmacogenomics testing began generating substantial revenue after the 2013 product recall and the 2014 launch of the test. Six-month revenue rose to $4.6 million from $33,999, but substantially all revenue came from pharmacogenomics testing rather than device sales.
- The company began launching the FullCYTE Breast Aspirator in the United States and the ForeCYTE Breast Aspirator in Europe in March 2015, but reported no 2015 product-sales revenue through June 30.
- Higher revenue was accompanied by $3.1 million of six-month cost of revenue and significant increases in selling, research and development, and general and administrative costs. The six-month net loss increased from $5.6 million to $6.5 million.
- The company issued 2.65 million shares to Aspire Capital for gross proceeds of $4.3 million during the first quarter and, in June, sold 1.45 million shares and pre-funded warrants for 3.61 million shares, generating $5.8 million of gross proceeds and approximately $5.2 million net proceeds.
- Outstanding warrants totaled 9.6 million shares at June 30, 2015, and outstanding stock options totaled 4.3 million shares, creating substantial potential dilution.
Guidance, outlook, risks, and unusual items
- Management projected 2015 total gross revenue of approximately $8 million; the company reported $4.6 million for the first six months. The filing does not provide updated full-year guidance after the Medicare reimbursement change.
- Management stated that existing resources were expected to fund planned operations through the first quarter of 2016. The company has incurred recurring losses and negative operating cash flows and disclosed substantial doubt about its ability to continue as a going concern without additional capital.
- A Medicare local coverage determination effective June 22, 2015 limited reimbursement for pharmacogenomics tests to specified drugs and conditions and reduced reimbursement to approximately $243–$669 per test, compared with a historical average of approximately $1,100. The company shifted its payer focus toward commercial payors; by April 2015, the payer mix was 64% non-Medicare and 36% Medicare.
- Management expects selling, general and administrative, research and development, commercialization, and clinical-development costs to increase. Planned activities include development of Afimoxifene Gel, additional laboratory tests, and clinical studies involving breast-health devices and therapeutics.
- The company entered into an exclusive worldwide license for Afimoxifene Gel. Key obligations include royalties of 8%–9% of net sales and potential milestone payments of $5 million and $20 million for certain additional indications.
- The securities class action previously dismissed by the trial court remained on appeal. No liability was recorded because the potential loss could not reasonably be estimated.
- Additional commitments include a $647,700 Affymetrix purchase commitment, minimum annual Luminex product purchases of $452,408, and potential payments of up to $1.2 million under the A5 Genetics agreement upon regulatory clearance of NextCYTE.
- The filing states that internal controls and disclosure controls were effective as of June 30, 2015, with no material change in internal control over financial reporting during the quarter.
Investor verification checklist
- Verify the effect of the Medicare coverage determination on test volume, payer mix, reimbursement rates, accounts receivable, and future revenue.
- Reconcile the $8 million 2015 revenue projection with reported six-month revenue and determine whether device sales begin contributing meaningfully.
- Assess cash burn, available financing capacity, and the likelihood and terms of additional equity financing before the stated first-quarter 2016 funding horizon.
- Evaluate dilution from the 9.6 million outstanding warrants, 4.3 million options, and the Aspire Capital purchase agreement for up to $25 million of additional common stock.
- Review the going-concern disclosure and whether operating revenue can cover the company’s expanded commercialization, research, and clinical-development spending.
- Monitor the securities litigation appeal and the potential financial and operational consequences if the dismissal is overturned.
- Confirm regulatory and commercialization status for FullCYTE, ForeCYTE, pharmacogenomics testing, Afimoxifene Gel, and other products under development.