Atossa Genetics, Inc. (now identified in request as Atossa Therapeutics, Inc.) — Form 10-Q Summary
Business context and reporting period
Quarterly report for the period ended September 30, 2017, filed November 13, 2017. The company was a clinical-stage pharmaceutical business focused on breast-cancer therapeutics and drug-delivery technologies, including topical and oral Endoxifen and intraductal microcatheter programs. It was not marketing products or services and had not established recurring revenue.
Key financial metrics
| Metric | Three months ended September 30, 2017 | Nine months ended September 30, 2017 | Prior comparable period |
|---|---|---|---|
| Revenue | No revenue reported | No revenue reported | No revenue reported |
| Operating expenses | $2.06 million | $5.64 million | $1.56 million and $5.44 million, respectively |
| Research and development | $0.74 million | $2.11 million | $0.09 million and $0.40 million, respectively |
| General and administrative | $1.31 million | $3.53 million | $1.47 million and $5.04 million, respectively |
| Operating loss | $2.06 million | $5.64 million | $1.56 million and $5.44 million, respectively |
| Net loss | $2.18 million | $6.13 million | $0.20 million net income and $3.85 million net loss, respectively |
| Net loss applicable to common stockholders | $2.18 million | $8.70 million | $0.20 million and $3.85 million, respectively |
| Basic and diluted loss per share | $0.18 loss | $1.10 loss | $0.07 income and $1.44 loss, respectively |
| Cash used in operating activities | Not separately provided | $4.91 million | $4.02 million |
At September 30, 2017, cash and cash equivalents were $2.73 million, restricted cash was $55,000, working capital was approximately $1.9 million, total assets were $3.63 million, and stockholders’ equity was $2.56 million. Current liabilities were $1.07 million, principally accounts payable, accrued expenses, payroll liabilities, and other current liabilities. The filing does not report conventional interest-bearing debt. Cash exceeded FDIC insurance limits by approximately $2.48 million.
Operating cash burn increased despite lower general and administrative spending, primarily because of increased clinical, manufacturing, personnel, and development costs for Endoxifen and the microcatheter program. Financing activities provided $4.62 million during the first nine months, including proceeds from unit offerings and warrant exercises. Investing cash use was $5,000.
Material changes versus the prior comparable period
- Third-quarter operating expenses increased 32.0% to $2.06 million; nine-month expenses increased 3.6% to $5.64 million.
- R&D expense increased 774.1% in the quarter and 422.5% for the nine-month period as clinical studies and Endoxifen manufacturing commenced.
- G&A expense decreased 10.8% in the quarter and 30.0% for the nine-month period due primarily to lower payroll, rent, consulting, and prior-year exit costs.
- The prior-year periods benefited from a $1.76 million termination payment from Besins Healthcare; no comparable payment was received in 2017.
- All warrants issued in the April 2017 financing were exercised by September 30, 2017. The company also converted all Series A convertible preferred stock into common stock.
- Shares outstanding increased materially, from 3.79 million at December 31, 2016 to 14.02 million at September 30, 2017, reflecting equity financings, preferred-stock conversions, and warrant exercises.
Guidance, outlook, risks, contingencies, and unusual items
- Going concern: The company reported recurring losses and negative operating cash flows and stated that substantial doubt existed regarding its ability to continue as a going concern without additional capital. Management expected existing resources to fund planned operations for approximately 8–12 months as of the filing date, but additional longer-term financing was required.
- Subsequent financing: A common-stock offering closed October 30, 2017, generating approximately $5.5 million of gross proceeds and $5.1 million of net proceeds. The offering included 12.5 million shares, including the underwriter’s over-allotment.
- Clinical outlook: Management planned to begin Phase 2 studies of topical and oral Endoxifen in the first quarter of 2018. The topical study was expected to enroll up to 480 subjects. A Phase 2 study of fulvestrant delivered through the company’s microcatheter was ongoing and targeted 30 patients.
- Development risk: Product candidates remained subject to clinical, manufacturing, regulatory, commercial, and intellectual-property risks. The TRAP CAR-T program was in the research and development stage and had not received regulatory approval.
- Litigation: A securities class action was remanded after the Ninth Circuit reversed in part the prior dismissal. The amended complaint asserted Exchange Act and Rule 10b-5 claims against the company and one officer. Potential damages could not be reasonably estimated, and no liability was recorded.
- NASDAQ listing: The company received notice that its stock did not meet the $1.00 minimum bid-price requirement. It requested an additional 180 days to regain compliance, creating delisting risk.
- Controls: Management concluded that disclosure controls and procedures were not effective at the reasonable-assurance level. Previously identified material weaknesses related to intangible-asset impairment analysis and weighted-average-share/EPS calculations remained under remediation.
- Unusual accounting items: The nine-month results included a $2.57 million deemed dividend related to the Series A convertible preferred stock and $0.28 million of warrant fair-value expense. These items increased the loss attributable to common stockholders but were not operating cash expenses.
Most important facts for investors to verify
- Whether the October 2017 equity offering materially extended the company’s cash runway and whether further financing was subsequently required.
- Progress, enrollment, safety, and efficacy results for the Endoxifen and fulvestrant clinical programs.
- The status and potential financial exposure of the remanded securities litigation.
- Whether the company regained compliance with NASDAQ’s minimum bid-price and other continued-listing requirements.
- Remediation and effectiveness of internal controls, particularly share-count/EPS calculations and intangible-asset valuations.
- Potential dilution from approximately 2.07 million outstanding stock options and 380,561 outstanding warrants at September 30, 2017.