Atossa Therapeutics, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Atossa Therapeutics is a clinical-stage biopharmaceutical company developing therapies for breast cancer, other breast conditions and COVID-19. Its principal programs are Endoxifen, AT-301 and AT-H201. The company has no approved products and is not currently generating revenue. This report covers the three months ended March 31, 2021, and was filed May 14, 2021.
Financial highlights
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $1.38 million | $0.94 million | Up 47% |
| General and administrative expense | $2.15 million | $2.00 million | Up 8% |
| Total operating expenses | $3.53 million | $2.94 million | Up 20% |
| Net loss | $3.54 million | $2.95 million | Loss increased 20% |
| Basic and diluted loss per share | $0.04 loss | $0.32 loss | Improved due primarily to share-count growth |
| Cash used in operating activities | $4.41 million | $3.23 million | Use increased 37% |
Margins are not meaningful because the company had no revenue. Stock-based compensation was $639,751, compared with $687,752 in Q1 2020.
At March 31, 2021, cash and cash equivalents were $137.57 million, restricted cash was $110,000, working capital was approximately $139.65 million, and total assets were $141.08 million. Current liabilities were $1.38 million. The filing does not identify material interest-bearing debt; liabilities primarily consisted of operating payables, payroll and other current obligations.
Net cash provided by financing activities was $102.43 million, comprising $69.67 million from stock and warrant offerings and $32.76 million from warrant exercises. The company reported $137.68 million of cash, cash equivalents and restricted cash at quarter-end.
Material changes versus the prior comparable period
- R&D expense increased $440,000, primarily from approximately $319,000 of additional clinical-trial expense and $118,000 of higher salaries.
- G&A expense increased $154,000, mainly because of higher insurance and professional fees, partially offset by lower legal fees and compensation.
- The company raised approximately $23.3 million net in a January offering and approximately $46.4 million net in a March offering, both involving common stock and warrants.
- Warrant exercises generated approximately $32.76 million and resulted in the issuance of approximately 32.1 million common shares during the quarter.
- Common shares outstanding increased from 47.55 million at December 31, 2020 to 120.82 million at March 31, 2021. Outstanding warrants totaled 27.66 million shares at quarter-end, creating potential future dilution.
- The company early adopted ASU 2020-06 and reclassified a $13.00 million warrant liability to equity through a cumulative opening-equity adjustment. This accounting change did not represent cash proceeds in the quarter.
- The company discontinued its Australian Phase 2 Endoxifen window-of-opportunity study after enrolling seven patients. Management cited positive preliminary results, including an approximately 74% reduction in tumor-cell proliferation among the first six patients, but stated that the study was not intended to continue enrollment.
Outlook, commentary, risks and unusual items
- Management expects continuing operating losses and increasing R&D spending as it advances Endoxifen, AT-301 and AT-H201 programs.
- The company stated in its liquidity note that available funding should support operations for at least one year from issuance of the financial statements. In MD&A, management stated that existing resources could fund planned operations into 2024, depending on the timing and extent of clinical trials. Neither statement eliminates the need for future financing if plans or spending change.
- Atossa has no sustainable revenue source and expects to require substantial additional capital. Future financing could involve equity dilution, debt obligations or relinquishment of rights through collaborations or licensing arrangements.
- COVID-19 had not disrupted drug supply as of the filing, but it slowed enrollment in the Australian Endoxifen study and affected the planned Swedish mammographic-breast-density study site. Regulatory reviews, trial enrollment and access to capital remain exposed to pandemic-related delays.
- The Swedish Endoxifen mammographic-breast-density study remained subject to regulatory and ethics approvals. AT-301 required an additional preclinical study before a planned Phase 2 application, while AT-H201 required additional information requested by the FDA and remained subject to regulatory authorization.
- Management reported ineffective disclosure controls and internal control over financial reporting because of a material weakness involving accounting for complex financing transactions and warrant classification. Remediation was in progress and had not been fully tested or completed.
- Concentration risk is material: approximately $137.32 million of cash deposits exceeded FDIC insurance limits at March 31, 2021.
- The company reported no material litigation expected to affect its financial position, results of operations or cash flows, but remains exposed to clinical, regulatory, product-liability, intellectual-property, supply-chain and third-party service-provider risks.
Important facts for investors to verify
- Progress, enrollment and regulatory status of the Endoxifen, AT-301 and AT-H201 clinical programs.
- Whether the preliminary Endoxifen tumor-proliferation results are confirmed in larger or later-stage studies and whether the proposed endpoints are acceptable to regulators.
- Cash burn, clinical-trial spending and the consistency of management’s stated cash runway with evolving development plans.
- Potential dilution from the 27.66 million outstanding warrants, 7.07 million stock options and any future equity financings.
- Completion and effectiveness of remediation for the material weakness in internal controls.
- Exposure of cash balances to uninsured deposits and the company’s investment or cash-management practices.
- Whether COVID-19, regulatory approvals, patient enrollment, manufacturing capacity or third-party providers cause further program delays.