Atossa Therapeutics, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 26, 2020. The company changed its name from Atossa Genetics, Inc. to Atossa Therapeutics, Inc. on January 6, 2020.
Business context
Atossa is a clinical-stage biopharmaceutical company focused on breast cancer therapeutics and drug-delivery technologies. Its lead program is oral Endoxifen, an active metabolite of tamoxifen, for reducing mammographic breast density and potentially treating or preventing breast cancer. The company is also developing topical Endoxifen and intraductal delivery of fulvestrant, immunotherapies and CAR-T therapies. No products were approved or commercially marketed during 2019.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No sustainable revenue |
| Research and development expense | $6.65 million | $4.21 million | Up 58% |
| General and administrative expense | $10.62 million | $7.22 million | Up 47% |
| Total operating expenses | $17.27 million | $11.43 million | Up 51% |
| Net loss | $17.24 million | $11.40 million | Loss increased |
| Net loss per common share | $2.03 loss | $5.50 loss | Improved; 2018 included a $11.48 million deemed dividend |
| Cash used in operating activities | $9.13 million | $8.96 million | Up 2% |
| Cash and cash equivalents | $12.58 million | $10.38 million | Up $2.20 million |
| Working capital | Approximately $13.0 million | Approximately $8.6 million | Improved |
| Total liabilities | $1.33 million | $2.92 million | Down primarily due to elimination of stock-based compensation liability |
| Accumulated deficit | $94.07 million | $76.83 million | Increased |
Margins are not meaningful because the company had no revenue. The company reported no conventional debt; disclosed liabilities primarily consisted of accounts payable, payroll obligations and operating lease liabilities. Cash, cash equivalents and restricted cash totaled $12.69 million at year-end, including $110,000 of restricted cash.
Material changes versus 2018
- R&D spending increased due to Endoxifen clinical activities, salaries and approximately $2.3 million of additional non-cash stock compensation.
- G&A expense increased largely because of non-cash stock compensation. Total stock-based compensation expense rose to $7.10 million from $1.05 million.
- In March 2019, warrant exercises generated approximately $11.3 million and resulted in the issuance of approximately 2.8 million common shares. Approximately 1.07 million warrants remained outstanding at year-end, exercisable at approximately $4.05 per share through May 30, 2022.
- Common shares outstanding increased to 9.13 million at December 31, 2019, from 5.85 million at December 31, 2018.
- The company completed a Phase 2 topical Endoxifen study in Sweden. Preliminary results showed a statistically significant 14.3% average reduction in mammographic breast density at the 20 mg dose, but approximately 72 participants developed skin rashes or local irritation.
- In December 2019, the company contracted for a Phase 2 oral Endoxifen study expected to enroll approximately 1,000 pre-menopausal women.
Guidance, outlook, risks and unusual items
- Management expects ongoing operating losses and does not anticipate revenue until its pharmaceutical programs receive regulatory approvals and are commercialized.
- Existing resources were expected to fund planned operations for only six to nine months from the date of the financial statements. The auditor reported substantial doubt about the company’s ability to continue as a going concern.
- Management planned to seek additional equity financing, strategic partnerships, warrant exercises and possible short-term borrowings. On February 7, 2020, the company established a $5.0 million at-the-market equity offering; no shares had been sold under it as of March 24, 2020.
- COVID-19 could delay regulatory reviews, clinical-trial enrollment, manufacturing and supply chains, and access to capital.
- The oral Endoxifen mammographic-density Phase 2 study was expected to open for enrollment in the second quarter of 2020, subject to regulatory and institutional approvals.
- The topical Endoxifen program and potential gynecomastia indication were to be reevaluated after the oral mammographic-density study.
- Key risks include clinical or regulatory failure, adverse events, patient-enrollment delays, dependence on third-party manufacturers and clinical research organizations, intellectual-property challenges, dilution from future financings, Nasdaq listing compliance and substantial stock-price volatility.
- The 2019 results included significant non-cash stock compensation related to cancellation of liability-classified options and replacement executive option grants. The prior year included a $11.48 million deemed dividend related to Series B convertible preferred stock.
- The company had no material legal proceedings reported as of filing. A prior securities class action was settled in 2018 for $3.5 million funded by insurers.
Investor verification checklist
- Verify the company’s current cash balance, burn rate and financing activity relative to the six-to-nine-month liquidity statement.
- Confirm whether the $5.0 million ATM facility has been used and quantify any resulting share dilution.
- Track regulatory approvals, enrollment and data from the approximately 1,000-patient oral Endoxifen Phase 2 study.
- Assess whether topical Endoxifen’s skin-irritation findings affect future development plans.
- Monitor progress and safety results for the Australian oral Endoxifen study and Johns Hopkins intraductal fulvestrant study.
- Review updated COVID-19 effects on trials, suppliers, regulatory timelines and capital access.
- Reconcile outstanding options and warrants with fully diluted share counts and evaluate future dilution risk.