Atossa Therapeutics, Inc. — Q3 2020 Form 10-Q Summary
Business context and reporting period
Atossa Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on therapeutics for COVID-19, breast cancer and other breast conditions. The company is not marketing products and has no sustainable revenue. The filing covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
Key programs include oral Endoxifen for breast cancer and mammographic breast density, AT-301 nasal spray for COVID-19, and AT-H201 for hospitalized COVID-19 patients. The company changed its name from Atossa Genetics Inc. to Atossa Therapeutics, Inc. in January 2020.
Financial condition and key metrics
| Metric | Three months ended September 30, 2020 | Nine months ended September 30, 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $1.66 million | $4.25 million | $1.68 million and $5.75 million |
| General and administrative expense | $1.85 million | $6.13 million | $1.61 million and $8.90 million |
| Total operating expenses | $3.51 million | $10.38 million | $3.30 million and $14.65 million |
| Net loss | $3.49 million | $10.34 million | $3.29 million and $14.62 million |
| Basic and diluted loss per share | $0.34 loss | $1.09 loss | $0.36 loss and $1.77 loss |
The company had no gross profit or operating margin because it generated no revenue. Nine-month operating expenses decreased 29%, primarily because of lower stock-based compensation; third-quarter operating expenses increased 6% year over year.
- Cash and cash equivalents were $9.11 million at September 30, 2020, compared with $12.58 million at December 31, 2019.
- Restricted cash was $110,000, resulting in total cash, cash equivalents and restricted cash of $9.22 million.
- Working capital was approximately $9.8 million and total assets were $11.44 million.
- Total liabilities were $1.57 million, consisting primarily of current operating liabilities; the company reported no material debt financing, with only lease liabilities outstanding.
- Accumulated deficit was $104.42 million at September 30, 2020.
- Net cash used in operating activities was $8.14 million for the nine months, compared with $6.42 million in 2019.
- Net cash used in investing activities was $9,000, primarily for equipment purchases.
- Net cash provided by financing activities was $4.67 million, primarily from ATM equity sales.
Material changes versus the prior comparable period
- Third-quarter net loss increased to $3.49 million from $3.29 million, while nine-month net loss improved to $10.34 million from $14.62 million.
- Third-quarter R&D expense was essentially unchanged year over year. Nine-month R&D expense declined 26%, primarily due to approximately $2.17 million less stock-based compensation, partly offset by higher salaries, professional fees and clinical-trial costs.
- Third-quarter G&A expense increased 15%, primarily due to higher legal, professional and insurance costs. Nine-month G&A expense declined 31%, primarily due to approximately $3.54 million less stock-based compensation, partly offset by higher legal, professional and insurance costs.
- Operating cash burn increased 27% year over year, reflecting lower noncash stock compensation and higher payroll and prepaid R&D spending.
- Under the Oppenheimer ATM, the company sold 1,243,639 shares during the nine months for net proceeds of $4.69 million and completed the $5.0 million gross offering in July 2020.
- On September 25, 2020, the company entered into a new Maxim ATM permitting up to $10.0 million of gross sales. No shares had been sold under that arrangement as of September 30, 2020; subsequent to quarter-end, 84,016 shares were sold for $135,400 net.
- Common shares outstanding increased to 10,464,250 at September 30, 2020 from 9,130,984 at December 31, 2019. Potential dilution was substantial, including 7.08 million outstanding options, 1.07 million warrants and convertible preferred stock equivalents.
Guidance, outlook, risks and unusual items
- Management expects existing funds to finance operations for only approximately six to ten months from the filing date, depending on clinical-trial timing and spending.
- The filing states that recurring losses, negative operating cash flows and the need for additional financing raise substantial doubt about the company’s ability to continue as a going concern.
- Management expects R&D expenses to increase through the remainder of 2020 and into 2021 as it advances AT-H201, completes AT-301 activities, launches an oral Endoxifen mammographic breast density trial and continues other development programs.
- Management plans to seek capital through equity offerings, strategic partnerships, potential warrant exercises and possible borrowings. Additional financing may be unavailable or may dilute existing stockholders or require unfavorable terms.
- COVID-19 has slowed enrollment in the Endoxifen window-of-opportunity study in Australia. The company reported no drug-supply delays as of September 30, 2020.
- AT-301 enrollment opened in the third quarter and the company reported preliminary Phase 1 observations of no serious adverse events, no discontinuations and generally mild adverse events. Dosing was complete, with data expected in January 2021.
- The company planned to submit an FDA pre-IND meeting request for AT-301 in December 2020 and expected to begin an initial AT-H201 clinical study in the first quarter of 2021, subject to regulatory and development requirements.
- The FDA requested additional preclinical and other information regarding the proposed AT-H201 study, creating regulatory and timing uncertainty.
- Prior topical Endoxifen mammographic breast density results showed potential efficacy but also skin reactions and participant withdrawals. The company intends to reevaluate the topical program after its oral Endoxifen study.
- Principal risks include clinical-trial failure or delay, regulatory nonapproval, slow enrollment, dependence on third-party manufacturers and CROs, COVID-19 disruption, intellectual-property challenges, product liability, competition from vaccines or other therapies, Nasdaq listing compliance and continued access to capital.
- Stock-based compensation was $2.39 million for the nine months ended September 30, 2020, including $663,593 in the third quarter. The filing also reports 2.75 million unvested options with approximately $3.93 million of remaining unrecognized compensation cost.
- Management stated that disclosure controls and procedures were effective as of September 30, 2020, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether additional financing was completed after the filing and whether available liquidity extended beyond management’s six-to-ten-month estimate.
- Actual cash burn, clinical-trial spending and enrollment progress for AT-301, AT-H201 and both Endoxifen programs.
- Final AT-301 safety data and whether the FDA permitted progression to a Phase 2 study.
- Regulatory status and timing of the planned AT-H201 study and the oral Endoxifen mammographic breast density trial.
- Whether preliminary clinical findings are confirmed in larger or completed studies and whether adverse-event rates affect development plans.
- The dilution impact of future ATM sales, outstanding options, warrants and preferred-stock conversions.
- Compliance with Nasdaq’s minimum bid-price and other continued-listing requirements.
- Whether COVID-19, third-party supply constraints or clinical-site disruptions materially affect development timelines or liquidity.