Business Context and Reporting Period
Atossa Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on therapies for breast cancer and other breast conditions, cancer-treatment-related lung injury, and COVID-19. The company is not marketing products and has no sustainable revenue. This Form 10-Q covers the three and six months ended June 30, 2022; amounts are in thousands except per-share data.
Key programs include oral Endoxifen, AT-H201 for compromised lung function caused by cancer treatments, and AT-301, a COVID-19 nasal spray. The company had 126.6 million common shares outstanding as of August 5, 2022.
Financial Results and Position
| Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $3,433 | $3,799 | $4,937 | $5,177 |
| General and administrative expense | $3,162 | $3,205 | $6,411 | $5,357 |
| Total operating expenses | $6,595 | $7,004 | $11,348 | $10,534 |
| Net loss | $(6,672) | $(7,039) | $(11,457) | $(10,577) |
| Basic and diluted loss per share | $(0.05) | $(0.06) | $(0.09) | $(0.10) |
- Margins: Gross and operating margins are not meaningful because the company generated no revenue. The operating loss equaled operating expenses.
- Cash flow: Net cash used in operating activities was $10,827 for the first six months of 2022, compared with $9,745 in the prior-year period. Investing cash use was $13, primarily for office equipment. There were no financing cash flows in 2022, versus $112,624 of financing cash inflows in 2021.
- Liquidity: Cash and cash equivalents were $125,537 at June 30, 2022, and cash, cash equivalents and restricted cash totaled $125,647. Working capital was $129,629.
- Balance sheet: Total assets were $134,048 and total liabilities were $3,792. The filing does not disclose debt balances; liabilities consisted of current accounts payable, accrued expenses, payroll liabilities and other current liabilities.
- Equity: Stockholders’ equity was $130,256, compared with $138,136 at December 31, 2021. Accumulated deficit increased to $140,691.
- Non-cash items: Stock-based compensation was $3,577 for the first six months of 2022, compared with $1,854 in the prior-year period.
Material Changes Versus the Prior Comparable Period
- Second-quarter operating expenses declined $409, or 6%, primarily because the prior-year quarter included a $1,000 one-time fee for exclusive acquisition negotiations. R&D expense declined 10%, while G&A expense was substantially unchanged.
- First-half operating expenses increased $814, or 8%, despite a 5% decrease in R&D expense, because G&A expense rose $1,054, or 20%.
- First-half R&D expense benefited from a $1,000 refund after a prior acquisition-negotiation agreement was canceled, but this benefit was partly offset by higher clinical and nonclinical trial costs, drug manufacturing costs, compensation and stock-based compensation.
- First-half G&A expense increased primarily due to $1,020 of additional stock-based compensation, higher employee compensation, and increased legal fees related to patent activity.
- Operating cash burn increased $1,082, or 11%, year over year, reflecting higher clinical-trial costs, increased prepaid clinical expenses and payments related to the CAR-T negotiation.
- Unlike the first six months of 2021, when the company raised $69,668 through stock and warrant issuance and received $42,956 from warrant exercises, the company completed no financing transactions in the first six months of 2022.
Guidance, Outlook, Risks and Unusual Items
- Management expects continuing operating losses and states that substantial additional capital will be required. It believes available funding is sufficient to finance operations for at least one year from issuance of the financial statements, but no specific cash runway beyond that period is provided.
- Funding may come from equity offerings, debt financing, collaborations, licensing arrangements or other sources. Availability and terms are uncertain; failure to obtain financing could require the company to curtail, delay or suspend development programs.
- On May 31, 2022, the company submitted an IND for a Phase 2 neoadjuvant Endoxifen study. The FDA requested additional information, and the study is on clinical hold pending submission and acceptance of that information. Management planned to submit the information by the end of the third quarter and target enrollment in the fourth quarter, but commencement is not assured.
- The Karisma-Endoxifen Phase 2 breast-density study was enrolling approximately 240 premenopausal women in Stockholm. The company cautions that breast-density reduction may not be an approvable indication without evidence of reduced breast-cancer incidence.
- In July 2022, the company completed dosing in Parts A, B and C of an AT-H201 Phase 1/2a study and decided not to proceed with the COVID-19-infected-patient Part D. Development was redirected toward lung injury associated with cancer treatment.
- On July 1, 2022, the company paid $2,700 for an exclusive right to negotiate the potential acquisition of a preclinical CAR-T company through November 1, 2022. If no definitive agreement is reached and no specified material adverse event occurs, the company may be required to pay an additional $2,000 for a 19.99% preferred-stock interest. The acquisition is not required and may not occur.
- The filing also describes a $300 payment in June 2022 for a separate or related CAR-T no-shop/exclusive negotiation arrangement; investors should reconcile this payment with the subsequent $2,700 payment.
- Principal risks include clinical-trial failure or delay, regulatory holds or non-approval, reliance on third-party manufacturers and CROs, supply-chain disruption, COVID-19 effects, inability to raise capital, dilution from future equity financing, volatility and possible Nasdaq delisting if listing standards are not maintained.
- The company had $125,332, including restricted cash, in deposits exceeding FDIC insurance limits at June 30, 2022. Management reported no material litigation exposure and determined that disclosure controls were effective.
Most Important Facts to Verify
- Whether the FDA accepts Atossa’s additional information and releases the Endoxifen neoadjuvant study from clinical hold.
- Actual enrollment, safety and efficacy results for the Karisma-Endoxifen study and the timing of future Endoxifen trials.
- Clinical results and next development steps for AT-H201 following the decision to discontinue Part D.
- Whether the CAR-T transaction proceeds, including the potential additional $2,000 payment and 19.99% preferred equity interest.
- Cash burn, remaining cash runway and the timing, structure and dilution impact of future financing.
- Reconciliation and accounting treatment of the $300 CAR-T-related payment in June and the $2,700 payment in July.
- Potential impacts from COVID-19, clinical-trial enrollment, manufacturing capacity, regulatory delays and third-party dependence.