Atossa Therapeutics, Inc. — Q2 2020 Form 10-Q Summary
Business context and reporting period
Atossa Therapeutics is a clinical-stage biopharmaceutical company focused on COVID-19 therapies, breast cancer, and other breast conditions. The company is not marketing products and has no sustainable revenue. The filing covers the quarter and six months ended June 30, 2020; it was filed August 13, 2020.
- COVID-19 programs: AT-H201, an inhaled therapy for hospitalized patients, and AT-301, a nasal spray for patients not requiring hospitalization.
- Breast cancer programs: oral Endoxifen studies for the window between diagnosis and surgery and for mammographic breast density.
- The company discontinued its intraductal fulvestrant study to prioritize Endoxifen and COVID-19 programs.
Financial condition and key metrics
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1.65 million | $2.61 million | $2.59 million | $4.06 million |
| General and administrative expense | $2.28 million | $4.67 million | $4.28 million | $7.29 million |
| Total operating expenses | $3.94 million | $7.29 million | $6.87 million | $11.35 million |
| Net loss | $3.91 million | $7.26 million | $6.85 million | $11.34 million |
| Loss per share | $0.43 | $0.80 | $0.75 | $1.44 |
- Cash and cash equivalents were $7.46 million at June 30, 2020, compared with $12.58 million at December 31, 2019. Including restricted cash, total cash was $7.57 million.
- Net cash used in operating activities was $5.46 million for the six months ended June 30, 2020, compared with $4.65 million in the prior-year period.
- Net cash provided by financing activities was $347,627, consisting primarily of ATM equity sales, compared with $11.34 million from warrant exercises in the 2019 period.
- Working capital was approximately $8.2 million at June 30, 2020.
- Total assets were $10.21 million and total liabilities were $1.83 million. Liabilities primarily consisted of accounts payable, payroll liabilities, accrued expenses, and operating lease liabilities; the filing does not identify material conventional debt.
- Accumulated deficit was $100.92 million, compared with $94.07 million at December 31, 2019.
- There is no meaningful operating margin because the company has no revenue and is operating at a loss.
Material changes versus the prior comparable period
- Six-month operating expenses declined 39% to $6.87 million, primarily because stock-based compensation decreased. R&D expense declined 36%, while G&A expense declined 41%.
- Six-month net loss improved by approximately $4.48 million, or 40%, to $6.85 million. The improvement was substantially driven by lower non-cash stock compensation.
- Despite the lower net loss, operating cash use increased 17% to $5.46 million, reflecting increased payroll and prepaid R&D spending.
- The company sold 160,108 common shares under its $5 million ATM facility during the quarter and six-month period, generating $347,627 net proceeds.
- In July 2020, after quarter-end, the company sold 1,083,531 additional shares under the ATM for $4.47 million net of commissions, completing the full $5 million gross offering.
- Common shares outstanding increased to 9.30 million at June 30, 2020, from 9.13 million at December 31, 2019. At August 10, 2020, 10.40 million shares were outstanding.
- The company granted 2.915 million stock options during the six months ended June 30, 2020. Options outstanding totaled 7.22 million at June 30, 2020, creating significant potential dilution.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects existing resources to fund operations for approximately six to ten months from the filing date, depending on clinical-trial timing and spending.
- The financial statements state that recurring losses, negative operating cash flow, lack of revenue, and required future funding raise substantial doubt about the company’s ability to continue as a going concern.
- Management expects R&D spending to increase as AT-H201 and AT-301 studies and additional Endoxifen trials commence or progress.
- The FDA requested additional preclinical and other information before allowing the proposed AT-H201 clinical study to begin. Management anticipated approval to commence an initial study in the second half of 2020.
- Approval in Australia had been obtained for the AT-301 Phase 1 study, which management expected to begin in August 2020. The Endoxifen mammographic breast density study was expected to open in Stockholm in the second half of 2020, subject to regulatory and mammography-clinic availability.
- COVID-19 had not caused drug-supply delays as of June 30, 2020, but enrollment in the Endoxifen window-of-opportunity study was slow in part because of pandemic-related disruption. Potential risks include supply-chain interruptions, delayed regulatory reviews, slower enrollment, site restrictions, and reduced access to capital.
- Preliminary data from the Endoxifen window-of-opportunity study showed a reported 74% reduction in Ki-67 in six initial patients; the filing cautions that interim results may change as data are more fully evaluated.
- The topical Endoxifen mammographic-density study showed a reported 14.3% average reduction at the 20 mg dose, but adverse skin reactions caused participant withdrawals and the company planned to reassess that development strategy.
- The company had 1,070,028 warrants outstanding at June 30, 2020, exercisable at $4.05 per share through May 30, 2022, in addition to substantial outstanding options and convertible preferred stock.
- Management reported no material legal proceedings and stated that disclosure controls and procedures were effective as of June 30, 2020.
Most important facts for investors to verify
- Whether post-quarter-end ATM proceeds materially extended the company’s stated six-to-ten-month liquidity runway.
- The timing and terms of any additional equity, debt, warrant-exercise, or strategic financing, including resulting dilution.
- FDA responses and authorization status for the AT-H201 study and progress of the AT-301 Phase 1 study.
- Clinical-trial enrollment, safety, and confirmatory results for the Endoxifen programs, including whether preliminary findings are sustained.
- The effect of COVID-19 on trial enrollment, regulatory timelines, drug supply, and access to capital.
- The magnitude of potential dilution from 7.22 million options, 1.07 million warrants, and convertible preferred stock.
- Whether the company can continue as a going concern without curtailing or delaying development programs.