Atossa Therapeutics(ATOS) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related notes, along with management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements - Unaudited This section presents the unaudited condensed consolidated financial statements of Atossa Therapeutics, Inc. for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $57,857 | $71,084 | | Total current assets | $62,517 | $74,457 | | Total assets | $64,515 | $76,444 | | Total current liabilities | $6,820 | $4,967 | | Total liabilities | $6,820 | $4,967 | | Total stockholders' equity | $57,695 | $71,477 | Condensed Consolidated Statements of Operations | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $5,502 | $3,553 | $9,659 | $7,302 | | General and administrative | $3,538 | $3,552 | $6,795 | $6,784 | | Total operating expenses | $9,040 | $7,105 | $16,454 | $14,086 | | Operating loss | $(9,040) | $(7,105) | $(16,454) | $(14,086) | | Interest income | $645 | $1,073 | $1,365 | $2,211 | | Net loss | $(8,423) | $(6,049) | $(15,141) | $(11,927) | | Net loss per share (basic and diluted) | $(0.07) | $(0.05) | $(0.12) | $(0.10) | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $71,477 thousand at December 31, 2024, to $57,695 thousand at June 30, 2025, primarily due to a net loss of $15,141 thousand for the six months ended June 30, 2025, partially offset by stock-based compensation[13] Total Stockholders' Equity (in thousands) | Metric (in thousands) | December 31, 2024 | June 30, 2025 | | :-------------------- | :---------------- | :------------ | | Common Stock Amount | $23,488 | $23,488 | | Additional Paid-in Capital | $261,256 | $262,615 | | Accumulated Deficit | $(211,792) | $(226,933) | | Total Stockholders' Equity | $71,477 | $57,695 | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(13,218) | $(9,229) | | Net cash used in investing activities | $(9) | $(9) | | Net cash provided by financing activities | $— | $304 | | Net decrease in cash, cash equivalents and restricted cash | $(13,227) | $(8,934) | | Cash, cash equivalents and restricted cash, ending balance | $57,967 | $79,636 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, financial instruments, equity, and commitments, supporting the consolidated financial statements NOTE 1: NATURE OF OPERATIONS - Atossa Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing proprietary innovative medicines in oncology, specifically breast cancer and other breast conditions, since its incorporation in 2009[19] NOTE 2: LIQUIDITY AND CAPITAL RESOURCES - The Company has incurred net losses and negative operating cash flows since inception, with a net loss of $15.1 million and $13.2 million cash used in operations for the six months ended June 30, 2025[20] - As of June 30, 2025, the Company had $57.9 million in cash and cash equivalents and $55.7 million in working capital, which management believes is sufficient to fund operations for at least one year[20] - Future funding will rely on public/private equity offerings, debt financings, or corporate collaborations, with no assurance of availability or favorable terms[20] NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The financial statements are prepared under GAAP for interim information, with all necessary adjustments included, and operating results for the six months ended June 30, 2025, are not indicative of the full year[21][22] - Significant estimates include stock-based compensation and clinical trial accruals, which may differ from actual results[23] - R&D costs, including manufacturing, preclinical/clinical trials, and associated compensation, are expensed as incurred[32] - The Company is assessing the impact of recently issued FASB ASUs on disaggregation of income statement expenses (ASU 2024-03) and income tax disclosures (ASU 2023-09), effective for annual periods beginning after December 15, 2026, and December 15, 2024, respectively[37][38] NOTE 4: PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid Expenses and Other Current Assets (in thousands) | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Prepaid pre-clinical and clinical trial deposits | $366 | $350 | | Prepaid insurance | $278 | $628 | | Prepaid professional services | $231 | $68 | | Other | $200 | $119 | | Total | $1,075 | $1,165 | NOTE 5: ACCRUED EXPENSES Accrued Expenses (in thousands) | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Accrued pre-clinical and clinical trial costs | $1,777 | $700 | | Accrued professional services and other | $423 | $219 | | Total | $2,200 | $919 | NOTE 6: PAYROLL LIABILITIES Payroll Liabilities (in thousands) | Category (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Accrued bonuses | $615 | $1,305 | | Accrued vacation | $261 | $226 | | Accrued payroll and benefits | $178 | $331 | | Total | $1,054 | $1,862 | NOTE 7: OTHER CURRENT LIABILITIES - The Company recorded a $1.5 million liability in Other current liabilities as of June 30, 2025, and December 31, 2024, related to uncertainty regarding the sustainability of its Australian R&D tax incentive position under audit, following a taxpayer alert in December 2023[43] NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS Fair Value of Financial Instruments (in thousands) | Asset (in thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :------------------- | :----------------------- | :--------------------------- | | Money market fund | $57,395 | $68,543 | - All money market fund assets are classified as Level 1 in the fair value hierarchy, indicating they are valued using quoted market prices in active markets[44] NOTE 9: STOCKHOLDERS' EQUITY - The Company is authorized to issue 350,000,000 shares of common stock ($0.18 par value) and 10,000,000 shares of preferred stock ($0.001 par value)[45][46] - During the three and six months ended June 30, 2025, 5 shares of Series B convertible preferred stock were converted into 1,420 shares of common stock[48] - As of June 30, 2025, 15,025,000 warrants to purchase common stock were outstanding, with expiration dates in July and September 2025. No warrant exercises occurred in the first six months of 2025[59][60] NOTE 10: NET LOSS PER SHARE - Potentially dilutive shares (stock options, convertible preferred stock, and warrants) were excluded from diluted net loss per share calculations for all periods presented because their inclusion would be anti-dilutive[61] Potentially Dilutive Shares | Potentially Dilutive Shares | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Options to purchase common stock | 22,588,052 | 16,910,002 | 21,615,289 | 17,110,496 | | Series B convertible preferred stock | 164,916 | 165,338 | 165,126 | 165,338 | | Warrants to purchase common stock | 17,528,434 | 21,217,343 | 17,682,113 | 21,358,065 | | Total | 40,281,402 | 38,292,683 | 39,462,528 | 38,633,899 | NOTE 11: INCOME TAXES - No income tax provision was recorded for the three and six months ended June 30, 2025, and 2024, due to a full valuation allowance against net deferred tax assets resulting from cumulative losses[63][64] NOTE 12: COMMITMENTS AND CONTINGENCIES - Intas Pharmaceuticals Ltd. filed two petitions (PGR and IPR) with the USPTO's PTAB on April 3, 2025, seeking to invalidate two of the Company's patents (U.S. Patent No. 12,071,391 and 11,261,151) related to 'Methods for Making and Using Endoxifen'[65][66] - The Company intends to vigorously contest these petitions, believing the patents are valid and enforceable, with decisions expected by September 8, 2025[67] - As of June 30, 2025, the Company's estimated non-cancellable commitment under third-party clinical trial service provider agreements was $7.9 million[69] NOTE 13: STOCK BASED COMPENSATION Stock-Based Compensation Expense (in thousands) | Expense Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $157 | $120 | $288 | $236 | | General and administrative | $639 | $232 | $1,071 | $533 | | Total stock-based compensation expense | $796 | $352 | $1,359 | $769 | - As of June 30, 2025, unrecognized compensation cost for unvested options was $4.7 million, expected to be recognized over a weighted-average period of 1.7 years[72] - The Company granted 4,242,547 options to purchase common stock to employees and directors during the three months ended June 30, 2025, with a weighted average grant date fair value of $0.75 for options granted during the six months ended June 30, 2025[71] NOTE 14: DEFINED CONTRIBUTION PLAN Employer Matching Contributions (in thousands) | Employer Matching Contributions (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Defined contribution plan | $63 | $37 | $138 | $114 | NOTE 15: SEGMENTS - The Company operates as a single segment, with the Chief Operating Decision Maker (CEO Steven C. Quay) evaluating performance and allocating resources at the Company-level using condensed consolidated financial statements[74][75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key financial trends, operational activities, and future outlook. It covers the company's strategic focus on breast cancer therapeutics, progress in clinical trials for (Z)-endoxifen, and detailed analysis of operating expenses, liquidity, and capital resources Forward-Looking Statements - The report contains forward-looking statements regarding future results, industry prospects, and financial position, made in reliance on safe harbor provisions, but actual outcomes may differ materially due to various risks and uncertainties[77][78] - Key uncertainties include macroeconomic conditions, regulatory approvals, ability to commercialize products, success of clinical trials, intellectual property protection, and ability to raise capital[77][84] Company Overview - Atossa Therapeutics is a clinical-stage biopharmaceutical company focused on developing innovative medicines for breast cancer and other breast conditions, with oral (Z)-endoxifen as its lead drug candidate[79] - The company holds six U.S. and ten international patents for (Z)-endoxifen, providing protection through at least November 17, 2038[80] - In early 2025, Atossa strategically decided to pursue a metastatic breast cancer indication for (Z)-endoxifen, receiving positive FDA feedback for a proposed dose optimization trial, targeting an IND submission in Q4 2025[82] Summary of Our Leading Programs - The company has completed four Phase 1 and two Phase 2 clinical studies for its proprietary oral (Z)-endoxifen, a Selective Estrogen Receptor Modulator (SERM)[87] - The Karisma-(Z)-endoxifen Phase 2 study for mammographic breast density (MBD) showed significant MBD reduction (17.3% for 1mg, 23.5% for 2mg) with a favorable safety profile for the 1mg dose, but MBD reduction alone may not be an approvable indication without demonstrating breast cancer incidence reduction[89][90][91][92] - The EVANGELINE Phase 2 study for neoadjuvant treatment of ER+/HER2- breast cancer is comparing (Z)-endoxifen 40 mg/day plus OFS to exemestane plus OFS, based on findings from an 80 mg/day cohort that showed substantial tumor suppression (85% Ki-67 response) and good tolerability[96][97][98] - Updated results from the I-SPY 2 EOP study showed 95% participant completion, median Ki-67 reduction from 10.5% to 5% by Week 3, and a 77.7% decrease in median functional tumor volume from baseline to surgery, with (Z)-endoxifen being well tolerated[100] Research and Development Phase - The Company is currently in the research and development phase and does not anticipate generating revenue until its pharmaceutical programs are developed and launched[102] Commercial Lease Agreement - The Company entered into a new operating lease for office space in Seattle, Washington, on March 3, 2025, for $2 thousand per month for 12 months, replacing a previous lease[103] - An additional operating lease for office space was entered into on December 20, 2024, for $1 thousand per month for 12 months[104] Critical Accounting Estimates - There have been no material changes to the Company's critical accounting estimates during the six months ended June 30, 2025, from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024[106] Results of Operations - The Company generated no revenue for the three and six months ended June 30, 2025, and 2024[107] - Total operating expenses increased by $1.9 million (27%) to $9.0 million for the three months ended June 30, 2025, and by $2.4 million (17%) to $16.5 million for the six months ended June 30, 2025, compared to the same periods in 2024[108] Operating Expenses (in thousands) | Expense Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | % Change (YoY) | | :--------------- | :--------------------------- | :--------------------------- | :----------- | :------------- | :--------------------------- | :--------------------------- | :----------- | :------------- | | R&D Expenses | $5,502 | $3,553 | $1,949 | 55% | $9,659 | $7,302 | $2,357 | 32% | | G&A Expenses | $3,538 | $3,552 | $(14) | (0)% | $6,795 | $6,784 | $11 | 0% | | Interest Income | $645 | $1,073 | $(428) | (40)% | $1,365 | $2,211 | $(846) | (38)% | - R&D expenses increased primarily due to higher clinical and non-clinical trial costs ($1.6 million for Q2, $1.5 million for H1) and increased compensation ($0.2 million for Q2, $0.4 million for H1) and professional fees ($0.2 million for Q2, $0.5 million for H1) related to (Z)-endoxifen trials and headcount[109][110] - G&A compensation increased due to non-cash stock-based compensation, while professional fees decreased due to lower legal and investor relations costs[115] Liquidity and Capital Resources - The Company had $57.9 million in cash and cash equivalents and $55.7 million in working capital as of June 30, 2025, believing it has sufficient cash for at least the next 12 months[114] - Net cash used in operating activities increased by $4.0 million to $13.2 million for the six months ended June 30, 2025, compared to $9.2 million in the prior year, driven by increased clinical trial and compensation expenses, partially offset by lower interest income and professional fees[114][115] - The Company expects ongoing operating losses and will require substantial additional capital, which may be raised through equity offerings, debt financings, or collaborations, with no assurance of availability or acceptable terms[118][119] - The Company received a Nasdaq non-compliance letter on February 21, 2025, for failing to maintain a minimum $1.00 bid price and has until August 20, 2025, to regain compliance[120] - The estimated non-cancellable commitment for third-party clinical trial service providers was $7.9 million as of June 30, 2025[121] Recently Issued Accounting Pronouncements - Refer to Note 3 for details on recently issued accounting pronouncements, including FASB ASUs on disaggregation of income statement expenses and income tax disclosures[125] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Atossa Therapeutics, Inc. is exempt from providing quantitative and qualitative disclosures about market risk as per Item 305(e) of Regulation S-K - The Company is not required to provide quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[126] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting. Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control during the quarter Evaluation of Disclosure Controls and Procedures - As of June 30, 2025, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level[129] Changes in Internal Control Over Financial Reporting - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[130] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits, providing comprehensive disclosures beyond financial statements Item 1. Legal Proceedings This section refers to Note 12 of the Condensed Consolidated Financial Statements for a discussion of the Company's legal proceedings, stating that no other current proceedings are expected to have a material adverse effect on its financial position, results of operations, or cash flows - The Company is involved in legal proceedings, as detailed in Note 12, but does not believe any other current matters will have a material adverse effect on its financial position, results of operations, or cash flows[133] Item 1A. Risk Factors This section outlines significant risks and uncertainties that could adversely affect Atossa Therapeutics' business, financial condition, and stock price. These risks span operational challenges, intellectual property concerns, industry-specific regulatory and competitive pressures, and factors related to its public securities Summary of Risk Factors - Investing in the Company's securities involves a high degree of risk, and potential investors should carefully consider the detailed risks outlined in this report[134] - Risks include those related to business operations, intellectual property, the pharmaceutical industry, and the securities markets[134][135][136][137][138] Risks Related to our Business - The Company has a history of operating losses, with a net loss of $15.1 million for the six months ended June 30, 2025, and expects to continue incurring losses, making profitability uncertain[141][144] - Substantial additional capital will be needed to fund future operations, and the Company may be unable to raise funds on acceptable terms, potentially forcing it to curtail or cease operations[144][147] - The Company is highly dependent on third-party service providers for manufacturing, testing, and clinical trial activities, and any failure or delay by these parties could harm the business[168][171] - The Company's ability to use net operating loss carryforwards (NOLs) and research tax credits may be limited by ownership changes under Sections 382 and 383 of the Internal Revenue Code[186] - The Company recorded a $1.5 million liability for potential Australian R&D tax rebate disqualification, and future changes in estimates could further increase expenses[189] Risks Related to our Intellectual Property - Commercial success depends on protecting proprietary technology through patents, trade secrets, and trademarks, but the Company faces challenges in obtaining and enforcing patent protection globally, especially given the complex and uncertain patent landscape in the biotechnology and pharmaceutical industries[192][194][195] - Third-party claims of intellectual property infringement could prevent or delay drug development, incur substantial expenses, and potentially lead to injunctions, damages, or the need for costly licenses[207][209] - Changes in U.S. patent law, including post-issuance review procedures like IPR, could diminish patent value and increase prosecution and enforcement costs, as demonstrated by the invalidation of U.S. Patent No. 11,572,334[197][202] Risks Related to Our Industry - Legislative or regulatory reforms, including changes by the FDA and foreign agencies, could make it more difficult and costly to obtain regulatory approval, manufacture, market, and distribute products[213][214] - Disruptions at government agencies, such as the FDA, due to budget cuts, workforce reductions, or policy changes, could negatively affect the review of regulatory submissions and delay clinical trial timelines[215][216] - Failure to comply with complex government regulations concerning patient privacy (HIPAA, GDPR, UK GDPR) and medical records could result in significant fines, penalties, litigation, and reputational harm[217][222][223][224] - The Company faces intense competition from large pharmaceutical and biotechnology companies, as well as academic institutions, many of which have greater financial resources and experience, particularly in the rapidly evolving field of AI-driven drug discovery[232][233] Risks Related to the Securities Markets and Investment in our Securities - The Company received a Nasdaq non-compliance letter on February 21, 2025, for failing to maintain a minimum $1.00 bid price and has until August 20, 2025, to regain compliance, with potential delisting consequences[239][240] - The sale of a substantial number of common stock shares, including through 'at the market' offerings or by existing stockholders/warrant holders, could cause substantial dilution and a decline in the stock price[241] - The trading price of the Company's common stock has been and is likely to remain highly volatile due to various factors, including operating results, market conditions, regulatory actions, and geopolitical events[243][246] - The Company has never paid dividends and does not anticipate doing so in the future, meaning capital appreciation is the sole source of gain for stockholders[244] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or issuer purchases of securities during the reporting period - No unregistered sales of equity securities occurred during the reporting period[253] - No issuer purchases of securities were made during the reporting period[254] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[255] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[256] Item 5. Other Information This section reports that no director or Section 16 officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No director or Section 16 officer adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[257] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and Inline XBRL documents - Exhibits include certifications of the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and Inline XBRL documents[260] Signatures This section contains the required signatures for the Form 10-Q, confirming its submission on behalf of Atossa Therapeutics, Inc. by its Chairman, President, and Chief Executive Officer, Steven C. Quay, and Chief Financial Officer, Heather Rees, on August 12, 2025 - The report was signed on August 12, 2025, by Steven C. Quay, Chairman, President and Chief Executive Officer, and Heather Rees, Chief Financial Officer[264]