Atossa Therapeutics, Inc. — Q1 2020 Form 10-Q Summary
Business context and reporting period
Atossa is a clinical-stage biopharmaceutical company focused on COVID-19, breast cancer and breast-health therapies. The company reported unaudited results for the three months ended March 31, 2020, filed May 13, 2020. It had no commercial products or sustainable revenue and changed its name from Atossa Genetics Inc. on January 6, 2020.
Key programs included oral and topical Endoxifen, intraductal delivery of fulvestrant and other therapies, and AT-H201, a proprietary formulation intended to improve lung function in mechanically ventilated COVID-19 patients.
Financial condition and key metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $0.94 million | $1.45 million | Down 35% |
| General and administrative expense | $2.00 million | $2.61 million | Down 24% |
| Total operating expenses | $2.94 million | $4.06 million | Down 28% |
| Net loss | $2.95 million | $4.07 million | Improved by $1.13 million |
| Basic and diluted loss per share | $0.32 loss | $0.62 loss | Improved |
| Cash used in operating activities | $3.23 million | $2.15 million | Use increased 50% |
There was no meaningful operating margin because the company had no revenue and incurred an operating loss equal to operating expenses. Stock-based compensation was $0.69 million in Q1 2020 versus $0.28 million in Q1 2019; Q1 2019 also included $1.74 million of expense related to canceled liability options.
At March 31, 2020, cash and cash equivalents were $9.35 million, restricted cash was $0.11 million, and total cash, cash equivalents and restricted cash were $9.46 million. Working capital was approximately $10.8 million. Total assets were $11.81 million, total liabilities were $0.92 million, and stockholders’ equity was $10.90 million. The company reported no debt other than operating lease liabilities, which totaled approximately $37,400.
The accumulated deficit was $97.02 million. Approximately $8.97 million of cash exceeded FDIC insurance limits. The company recorded no income tax expense or benefit because of continuing losses and a full valuation allowance against deferred tax assets.
Material changes versus the prior comparable period
- Operating expenses declined by $1.13 million, primarily because Q1 2019 included significant non-cash compensation associated with canceled liability options.
- R&D expense declined by approximately $0.51 million, mainly from lower non-cash stock-based compensation, while management expected R&D spending to increase as additional clinical programs began.
- G&A expense declined by approximately $0.62 million, primarily from lower stock-based compensation, partly offset by higher salaries, legal fees and professional fees.
- Operating cash use increased by approximately $1.08 million, principally because of higher payroll and prepaid R&D spending.
- Q1 2019 included $11.34 million of warrant-exercise proceeds; there were no comparable financing proceeds in Q1 2020.
- As of March 31, 2020, 1,070,028 warrants remained outstanding with a $4.05 exercise price and May 30, 2022 expiration date.
Guidance, outlook, commentary and risks
Management stated that available funding was expected to support operations for only four to seven months from the filing date, depending on the timing and scope of clinical trials. These conditions raised substantial doubt about the company’s ability to continue as a going concern. Management planned to seek additional funding through equity sales, strategic partnerships, warrant exercises and potential short-term borrowings, but provided no assurance that funding would be available on acceptable terms.
In February 2020, the company established a $5.0 million at-the-market offering. By May 8, 2020, it had sold 68,098 shares under the program for net proceeds of $150,253. Subsequent financing could dilute existing shareholders.
The COVID-19 pandemic presented material risks to supply, clinical-trial enrollment, trial-site availability, regulatory reviews, operations and access to capital. The FDA requested additional preclinical and other information before approving the proposed COVID-19 HOPE Trial of AT-H201; the company could not assure that it would satisfy the request or receive authorization to begin the study.
Management expected R&D expenses to increase during 2020 as it pursued AT-H201, additional Endoxifen trials, the intraductal fulvestrant study and other delivery programs. The company remained dependent on regulatory approvals, third-party manufacturers, clinical research organizations and medical institutions.
Subsequent to quarter-end, on April 9, 2020, the company granted executives options to purchase 2.09 million shares at $1.48 per share, subject in part to stockholder approval of the 2020 Stock Incentive Plan. The filing also disclosed preliminary May 2020 Endoxifen study results and regulatory developments; these were not Q1 financial results and remain subject to further evaluation and regulatory risk.
Other notable risks included continued operating losses, inability to commercialize products, clinical and regulatory failure, product liability, supply-chain disruption, intellectual-property challenges, potential Nasdaq minimum-bid-price noncompliance, stock-price volatility and dilution from equity offerings or warrant exercises. Management stated that ordinary-course legal proceedings were not expected to have a material effect.
Most important facts for investors to verify
- Current cash runway and whether subsequent financings extended the stated four-to-seven-month liquidity period.
- Actual sales and remaining capacity under the $5.0 million ATM program, including dilution.
- FDA and institutional review board status of the AT-H201 COVID-19 HOPE Trial.
- Timing, enrollment and results of Endoxifen and intraductal-therapy clinical trials, including the impact of COVID-19 disruptions.
- Outstanding options, warrants and executive equity awards and their potential dilution.
- Compliance with Nasdaq listing requirements, particularly the $1.00 minimum bid-price requirement.
- Whether the company obtained sufficient capital or strategic partnerships to address the going-concern uncertainty.