Atossa Therapeutics, Inc. — 2021 Q2 Form 10-Q Summary
Business context and reporting period
Atossa Therapeutics is a clinical-stage biopharmaceutical company developing therapeutics for oncology, breast conditions and COVID-19. Its principal programs include Endoxifen, AT-301 and AT-H201. The filing covers the quarter and six months ended June 30, 2021, with unaudited condensed consolidated financial statements.
The company is not currently marketing products and has no sustainable revenue source. It expects to remain in the research and development phase until its programs are developed and commercialized.
Financial condition and key metrics
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $3.8 million | $5.2 million |
| General and administrative expense | $3.2 million | $5.4 million |
| Total operating expenses | $7.0 million | $10.5 million |
| Net loss | $7.0 million | $10.6 million |
| Basic and diluted loss per share | $0.06 | $0.10 |
| Cash used in operating activities | Not separately reported | $9.7 million |
At June 30, 2021, cash and cash equivalents were $142.4 million, restricted cash was $0.1 million, working capital was approximately $144.0 million, and total stockholders’ equity was $144.1 million. Total assets were $145.9 million and current liabilities were $1.8 million. The company had no debt disclosed in the filing; current liabilities consisted primarily of accounts payable, accrued expenses, payroll liabilities and lease obligations.
Net cash provided by financing activities was $112.6 million, comprising approximately $69.7 million of net proceeds from common stock and warrant offerings and $43.0 million from warrant exercises. Capital expenditures were immaterial during the first six months of 2021.
Stock-based compensation expense was $1.9 million for the first six months of 2021. The company had an accumulated deficit of $119.2 million at June 30, 2021.
Material changes versus the prior comparable period
- Six-month operating expenses increased 53% to $10.5 million from $6.9 million in 2020.
- Six-month R&D expense doubled to $5.2 million, primarily due to approximately $1.3 million of higher clinical trial costs, approximately $0.2 million of additional compensation and a $1.0 million one-time fee for the exclusive right to negotiate the acquisition of worldwide rights to two oncology programs.
- Six-month G&A expense increased 25% to $5.4 million, reflecting higher insurance, professional fees and compensation, partly offset by lower legal fees.
- Six-month net loss increased to $10.6 million from $6.9 million, while loss per share improved to $0.10 from $0.75 because of the substantial increase in weighted-average shares outstanding.
- Cash and cash equivalents increased from $39.6 million at December 31, 2020 to $142.4 million at June 30, 2021, primarily from equity and warrant financing.
- Shares outstanding increased from 47.5 million at December 31, 2020 to 125.9 million at June 30, 2021. The company also had 22.6 million warrants outstanding at quarter-end and 10.6 million stock options outstanding.
- The company early adopted ASU 2020-06 and reclassified a $13.0 million warrant liability to equity and accumulated deficit. This was an accounting reclassification and did not provide cash.
Guidance, outlook, commentary and risks
Management stated that existing resources were expected to fund planned operations for approximately 18 months from the report date, depending on the timing and scope of clinical trials. The notes state that available funding was expected to support operations for at least one year from issuance of the financial statements. The company expects continuing operating losses and intends to seek additional capital through equity, debt, collaborations, licensing arrangements or other sources.
- Management expects R&D expenses to increase as it advances AT-H201, AT-301, Endoxifen and other pipeline programs.
- The company reported final results from its small Endoxifen window-of-opportunity study showing a 65% reduction in tumor-cell proliferation as measured by Ki-67. It plans to seek FDA guidance regarding a U.S. study, but stated that biomarker results may not support an approvable indication.
- A Phase 2 Endoxifen mammographic breast density study in Sweden was awaiting ethics approval and remained subject to COVID-19-related restrictions and enrollment delays.
- In July 2021, an Australian ethics committee approved commencement of the Phase 1/2a AT-H201 study, planned to enroll 60 healthy participants and moderately ill hospitalized COVID-19 patients. Additional approvals and sites may be required for later portions of the study.
- For AT-301, the company planned an additional preclinical study before seeking FDA authorization for a U.S. Phase 2 study.
- COVID-19 restrictions had slowed enrollment in the Australian Endoxifen study and could delay the Swedish study, AT-H201 enrollment, regulatory interactions and access to capital. The company had not experienced drug-supply delays as of the filing.
- The company has no approved commercial products and depends on future clinical, regulatory and manufacturing success. Failure to obtain approvals, adverse clinical results, supply interruptions, third-party performance issues, intellectual-property challenges and competition from vaccines or other therapies could materially impair the business.
- Management reported that disclosure controls and internal control over financial reporting were not effective as of June 30, 2021 because a material weakness involving accounting for complex financing transactions had not been fully remediated.
- The company reported no litigation expected to have a material effect, individually or in the aggregate, on its financial position, results of operations or cash flows.
Important facts for investors to verify
- Whether the company’s cash runway remains consistent with management’s approximately 18-month estimate given increasing clinical expenses and continuing losses.
- Timing, enrollment, regulatory status and results of the Endoxifen, AT-H201 and AT-301 clinical programs.
- Whether COVID-19 restrictions or changing treatment and vaccine conditions affect trial enrollment, program economics or regulatory timelines.
- The potential dilution from 22.6 million outstanding warrants, 10.6 million outstanding options and future equity financings.
- Remediation and testing of the material weakness in internal control over financial reporting.
- The outcome of negotiations concerning the potential acquisition of worldwide rights to two oncology programs after payment of the $1.0 million exclusive negotiation fee.
- Subsequent warrant and option exercises: from July 1 through August 6, 2021, the company received approximately $1.5 million and issued approximately 699,000 common shares.