ATOSSA THERAPEUTICS, INC. The following discussion of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements, which are based on assumptions about the future of the Company's business. The actual results could differ materially from those contained in the forward-looking statements. Please read "Forward-Looking Statements" included below for additional information regarding forward-looking statements.
Forward-Looking Statements
This report contains, in addition to historical information, certain information, assumptions and discussions that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have made these statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected or anticipated. Although we believe our assumptions underlying our forward-looking statements are reasonable as of the date of this report, we cannot assure you that the forward-looking statements set out in this report will prove to be accurate. We may identify these forward-looking statements by the use of forward-looking words such as "expect," "potential," "continue," "may," "will," "should," "could," "would," "seek," "intend," "plan," "estimate," "anticipate," "believe," "future," or the negative version of these words or other comparable words. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this report are forward-looking. Forward-looking statements contained in this report include, but are not limited to, statements about:
? The impact of the ongoing coronavirus pandemic and the degree to which the
pandemic negatively impacts our supply chain, clinical trial enrollment and
timing, nonclinical study timing, and our ability to access capital markets;
? the impact of inflation, rising interest rates, general economic slowdown or
a recession, foreign exchange rate volatility, changes in monetary policy
and increasing geopolitical instability on our business, our ability to
access capital markets our operating costs and our supply chain;
? whether we can obtain approval from the U.S. Food and Drug Administration
(FDA), and foreign regulatory bodies, to commence our clinical trials,
including our planned (Z)-Endoxifen trials, and to sell, market and
distribute our therapeutics under development;
? our ability to successfully initiate and complete clinical trials of our
pharmaceutical candidates under development, including (Z)-Endoxifen (an
active metabolite of Tamoxifen), and whether those trials will meet their
objectives;
? the success, cost and timing of our product and drug development activities
and clinical trials, including whether our studies using our
(Z)-Endoxifen will enroll a sufficient number of subjects or be completed in
a timely fashion or at all;
? whether we will successfully complete potential acquisitions;
? our ability to contract with third-party suppliers, manufacturers and
service providers, including clinical research organizations, and their
ability to perform adequately;
? our ability to successfully develop and commercialize new therapeutics
currently in development, or new therapeutics that we might identify in the
future, and within the time frames we currently expect;
? our ability to successfully defend ourselves against litigation and other
similar complaints that may be brought in the future, in a timely manner and
within the coverage, scope and limits of our insurance policies;
? our ability to establish and maintain intellectual property rights covering
our products;
? our expectations regarding, and our ability to satisfy, federal, state and
foreign regulatory requirements;
? the accuracy of our estimates of the size and characteristics of the markets
that our products and services may address;
? whether final study results will vary from preliminary study results that we
may announce;
? our expectations as to future financial performance, expense levels and
capital sources;
? our ability to attract and retain key personnel; and
? our ability to raise capital.
17--------------------------------------------------------------------------------
Table of Contents
These and other forward-looking statements made in this report are presented as of the date of the filing of this report. We have included important factors in the cautionary statements in this report, selected risks and uncertainties particularly in the section titled "ITEM 1A. RISK FACTORS," that we believe could cause our actual results, events or outcomes to differ materially from the anticipated results, events or outcomes. Our forward-looking statements do not reflect the potential impact of any new information, future events or circumstances that may affect our business after the date of this report. Except as required by law, we do not intend to update any forward-looking statements after the date on which the statement is made, whether as a result of new information, future events or circumstances or otherwise.
Company Overview
We are a clinical-stage biopharmaceutical company seeking to develop proprietary innovative medicines in areas of significant unmet medical need in oncology, with a current focus on the treatment of breast cancer and adjunctive treatments for lung injury caused by cancer treatments. Our current drug under development for the treatment of breast cancer and other breast conditions is (Z)-Endoxifen, which is being developed primarily in two settings: one to reduce tumor cell activity in breast cancer patients in the neoadjuvant setting, meaning prior to surgery; and another to reduce dense breast tissue in women. Our drug under development for lung injury caused by cancer treatments is AT-H201, an inhalation therapy.
Our business strategy is to advance our programs through clinical studies, including with partners, and to opportunistically add programs in areas of high unmet medical need through acquisition, collaboration, or internal development.
All dollar amounts presented in this section are in thousands unless otherwise noted.
Summary of Leading Programs
(Z)-Endoxifen. (Z)-Endoxifen is an active metabolite of tamoxifen, which is an FDA-approved drug to treat and prevent breast cancer in high-risk women. We are developing a proprietary form of (Z)-Endoxifen, which is administered orally for the potential treatment of breast cancer and for the reduction of breast density. We have successfully completed three Phase 1 clinical studies (including a study in men) and two Phase 2 clinical studies with our proprietary (Z)-Endoxifen. We have also completed numerous pre-clinical studies and have established clinical manufacturing capabilities through qualified third parties.
(Z)-Endoxifen for Women with Breast Density. Mammographic breast density
(MBD) is an emerging public health issue affecting over 10 million women in the
In
Based on input from the FDA and
(Z)-Endoxifen for Neoadjuvant Treatment of Breast Cancer. We are also developing (Z)-Endoxifen to treat breast cancer in the neoadjuvant setting, which is the administration of a therapy before surgical treatment, with a current focus on breast cancers that are classified as estrogen receptor positive (ER+). Although there are numerous neoadjuvant treatments for breast cancers that are not ER+, there are few neoadjuvant treatments for ER+ breast cancer, which comprises about 78% of all breast cancers. We believe there is a compelling need for therapy with our (Z)-Endoxifen in this setting.
In
18
--------------------------------------------------------------------------------
Table of Contents
We engaged the Director of the Mayo Clinic Breast Cancer SPORE, as the lead principal investigator for this multi-center study. We plan to commence the study in the fourth quarter 2022.
The study, "A Randomized Phase 2 Noninferiority Trial of (Z)-Endoxifen and Exemestane + Goserelin as Neoadjuvant Treatment in Premenopausal Women with ER+/HER2- Breast Cancer," also known as "EVANGELINE," is an open-label, randomized, Phase 2 study designed to investigate (Z)Endoxifen for the neoadjuvant treatment of premenopausal women ages 18 and older with early stage (Grade 1 or 2) ER+/HER2- breast cancer.
This study is a multicenter study in the
The primary objective of the study is to assess whether the endocrine sensitive disease rate at 4 weeks with (Z)-Endoxifen is non-inferior to exemestane plus goserelin in premenopausal women with ER+/HER2- breast cancer. Endocrine sensitivity, or the effect of endocrine therapy on the tumor, will be measured by Ki-67%, a biomarker for tumor cell proliferation. Ki-67 is known to be prognostic for 5-year disease-free survival in the neoadjuvant endocrine treatment of ER+/HER2- breast cancer. The neoadjuvant setting of this study will allow Atossa to investigate several translational endpoints using paired tumor samples. Patients will be enrolled with the intent of surgical treatment in the involved breast(s) after completing neoadjuvant treatment. Patients will receive neoadjuvant treatment for up to six months. Surgery will be performed within seven days of the last dose of treatment.
We also completed a Phase 2 study in
AT-H201 for Lung Injury Caused by Cancer Treatments. AT-H201 consists of a
proprietary combination of two drugs previously approved by the FDA to treat
other diseases. AT-H201 is intended to be inhaled via nebulizer with the goal
of preventing or reducing lung injury from COVID-19. In
One type of injury caused by cancer treatment is radiation induced lung injury (or, RILI) which is damage to the lungs caused by ionizing radiation administered to treat cancer. RILI is a significant issue for patients undergoing radiation treatment for various forms of cancer and is often irreversible. For instance, RILI affects 30-40% of lung cancer patients, and approximately 35% of esophageal cancer patients. In non-small cell cancer patients receiving concurrent chemotherapy and radiation therapy, the incidence of RILI is estimated to be greater than 60%. We believe RILI affects a significant number of patients across multiple cancer types and that there is a meaningful need for new treatments.
AT-301 for COVID-19. In
Impact of the Coronavirus
The ongoing COVID-19 pandemic may affect our operations and those of third
parties on which we rely, including causing possible disruptions in the supply
of (Z)-Endoxifen and AT-H201, the pace of enrollment in our clinical trials and
the conduct of current and future clinical trials. In addition, the COVID-19
pandemic may affect the operations of the
19
--------------------------------------------------------------------------------
Table of Contents
Research and Development Phase
We are in the research and development phase and are not currently marketing any products. We do not anticipate generating revenue unless and until we develop and launch our pharmaceutical programs.
Commercial Lease Agreements
Refer to Note 14 to the condensed consolidated financial statements.
Critical Accounting Policies and Significant Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in
While our significant accounting policies are more fully described in Note 3 to our condensed consolidated financial statements included in this Form 10-Q, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements.
Research and Development Expenses
As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and work orders, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the associated cost incurred for the services, including, in some cases, when we have not yet been invoiced or otherwise notified of actual costs. R&D costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expense for our drugs under development, expenses associated with pre-clinical studies, clinical trials and associated salaries, bonuses, stock-based compensation and benefits. R&D expenses also include an allocation of the CEO's salary and related benefits, including bonus and non-cash stock-based compensation expense based on an estimate of his total hours expended on research and development activities.
We have entered into various research and development contracts with research institutions, clinical research organizations (CRO), clinical manufacturing organizations (CMO) and other companies. The majority of our service providers invoice us monthly for services performed, however, payments under some of these contracts may be required in advance of the services being performed, for example, when a contract requires an initial payment at the outset of the contract. Payments made in advance of performance of services are reflected in the accompanying condensed consolidated balance sheets as prepaid expenses.
We base our expenses related to pre-clinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs and other companies that conduct and manage pre-clinical studies and clinical trials on our behalf. The financial terms of these vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. We make estimates of our accrued expenses as of each balance sheet date in the condensed consolidated financial statements based on facts and circumstances known to us at that time. However, additional information may become available to us, which may allow us to make a more accurate estimate in future periods. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.
Stock-Based Payments
We measure all stock option awards granted to employees, non-employee directors and consultants based on the fair value on the date of grant and recognize compensation expense over the estimated requisite service period, which is generally the vesting period of the respective award. The straight-line method of expense recognition is applied to all awards with service-only conditions. We account for forfeitures as they occur.
The fair value of each option grant is estimated using the Black-Scholes option-pricing model, which requires assumptions regarding the expected volatility of our stock options, the expected life of the options, an expectation regarding future dividends on our common stock and estimation of an appropriate risk-free interest rate. Our expected common stock price volatility assumption is based upon the historic volatility of our stock price. The expected life assumption for stock option grants is based an average of the contractual term of the options of ten years, with the average vesting term of one to four years. The dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options.
While assumptions used to calculate and account for share-based compensation awards represent management's best estimates, these estimates involve inherent uncertainties and the application of management's judgement. As a result, if revisions are made to our underlying assumptions and estimates, our share-based compensation expense could vary significantly from period to period.
20
--------------------------------------------------------------------------------
Table of Contents Results of Operations
Comparison of the three months ended
Revenue and Cost of Revenue: For the three months ended
Operating Expenses: Total operating expenses were
Research and Development Expenses: R&D expenses for the three months ended
General and Administrative Expenses: G&A expenses were
Income Taxes: We have incurred net operating losses since inception; we did not
record an income tax benefit for our incurred losses for the three months ended
Comparison of the nine months ended
Revenue and Cost of Revenue: For the nine months ended
Operating Expenses: Total operating expenses were
Research and Development Expenses: R&D expenses for the nine months ended
General and Administrative Expenses: G&A expenses were
Income Taxes: We have incurred net operating losses since inception; we did not
record an income tax benefit for our incurred losses for the nine months ended
21
--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
We have incurred net losses and negative operating cash flows since inception.
For the nine months ended
Cash Flows
As of
Net Cash Flows from Operating Activities: Net cash used in operating activities
was
Net Cash Flows from Investing Activity: Net cash used in investing activities
was
Net Cash Flows from Financing Activities: There were no financing activities
during the nine months ended
Funding Requirements
We expect to incur ongoing operating losses for the foreseeable future as we continue to develop our planned therapeutic programs, including related clinical studies and other programs in the pipeline.
If we are unable to raise additional capital when needed, however, we could be forced to curtail or cease operations. Our future capital uses and requirements will depend on the timing and expenses needed to begin and continue clinical trials for new drug development. Additionally, the consummation of strategic transactions may also deplete our capital resources. Further, the ongoing COVID-19 pandemic could adversely impact the timing and enrollment of our clinical trials, which would increase our projected development costs and overall timelines.
Additional funding may not be available to us on acceptable terms or at all. The continued spread of COVID-19 and uncertain market conditions, including due to inflationary pressures, rising interest rates, general economic slowdown or a recession, foreign exchange rate volatility, changes in monetary policy and increasing geopolitical instability may limit our ability to access capital. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling debt securities, if convertible, further dilution to our existing stockholders would result. To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements.
If adequate funds are not available, we may be required to terminate, significantly modify or delay our development programs, reduce our planned commercialization efforts, or obtain funds through collaborators that may require us to relinquish rights to our technologies or product candidates that we might otherwise seek to develop or commercialize independently. Further, we may elect to raise additional funds even before we need them if we believe the conditions for raising capital are favorable.
Recently Adopted Accounting Pronouncements
Refer to Note 3 to the condensed consolidated financial statements for recently adopted accounting pronouncements.
22
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
