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This column
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Current Opinion:
Date Posted: 04/05/13
Atossa Genetics, Inc. (NASDAQ: ATOS)
Comment Re This Update
I covered ATOS in my Conservative Speculator newsletter on 1/5/2013 when I reported that it traded at $4.384 on 12/28/2012, with a market cap of $56.64 million. I suggested that you seriously check this emerging growth situation. I then did an update in my Stock Pick column at www.WallStreetCorner.com on 2/16/2013 when its share price had risen to $7.14, & a market cap of $92.24 million, rises then of 62.8 %.
I hope that you followed my 1/5/2013 issue of Conservative Speculator, because today (4/5/2013) at 3:23 PM, ATOS is trading at $8.03, another rise, making the rise since 1/5/2013 an attractive 83.16%. Also, the market cap today is $103.74 million, a rise of 83.15%.
A Bit about ATOS
ATOS, called the “The Breast Health Company™”, based in Seattle, WA, is focused on preventing breast cancer through the commercialization of patented, FDA-cleared diagnostic medical devices & patented, laboratory developed tests (LDT) that can detect precursors to breast cancer up to eight years before mammography, & through R&D that will permit it to commercialize treatments for pre-cancerous lesions.
The National Reference Laboratory for Breast Health (NRLBH), a wholly owned subsidiary of Atossa Genetics, Inc., is a CLIA-certified high-complexity molecular diagnostic laboratory located in Seattle, WA, that provides the patented ForeCYTE Breast Health Test, a risk assessment test for women 18 to 73 years of age akin to the Pap Smear, & the ArgusCYTE Breast Health Test, a blood test for recurrence in breast cancer survivors that provides a "liquid biopsy" for circulating cancer cells and a tailored treatment plan for patients and their caregivers.
Most Recent News
3/28/2013 -- ATOS entered into a $30 million stock purchase agreement with Aspire Capital, LLC. Under terms of the agreement, Aspire has made an initial purchase of $1 million of ATOS common stock at a price of $12.00 per share. In addition, after the SEC declares the registration statement related to the transaction effective, Aspire has committed to purchase up to an additional $29 million of ATOS’ common stock over the next three years at prices based on prevailing market prices over a period preceding each sale.
"We look forward to working with Aspire Capital as a financial partner & to Aspire Capital being a long-term investor in Atossa," stated Dr. Steven Quay, chairman, CEO, & president. "Our agreement with Aspire provides added financial strength & flexibility, allowing us to raise equity opportunistically based on market conditions & our working capital needs. We believe that Aspire's initial investment & ongoing commitment, along with their reputation as a long-term, institutional investor, demonstrates confidence in our ForeCYTE & ArgusCYTE tests, other breast health tests in development, & our business model. We presently do not expect to need to raise additional equity capital in the near term other than under this agreement. However, we may decide to opportunistically raise equity or debt capital or enter into a strategic transaction in which equity capital is issued.”
Steven G. Martin, Managing Member of Aspire Capital said: "Over the past few months we have spent a lot of time with the management team & done significant due diligence on Atossa as well as talked with physicians & users of its products. During this process, we have come to see the tremendous opportunity that Atossa presents as the 'Pap Smear' for the breast & for early non-invasive treatment of breast cancer. Atossa's products can help save the lives of our mothers, our daughters, & our wives. The Company's success is personal to all of us. We are extremely proud to be a long-term shareholder in Atossa & a financial partner to this experienced management team."
Key aspects of the agreement with Aspire Capital include:
• $30 million financing with $1 million of common stock sold at $12.00 per share by ATOS on 3/27/2013;
• ATOS will control the timing & amount of any additional sales of common stock to Aspire & will know the sales price before directing Aspire to purchase shares;
• Aspire has no right to require any sales by ATOS, but is obligated to make purchases as ATOS directs, in accordance with the terms of the purchase agreement;
• Aspire has agreed to a long-only position;
• There are no limitations on use of proceeds, financial covenants, restrictions on future financings, rights of first refusal, participation rights, penalties, or liquidated damages in the purchase agreement;
• The purchase agreement may be terminated by ATOS at any time, at its discretion, without any additional cost or penalty; &
• ATOS has issued shares of its common stock to Aspire Capital as a commitment fee in connection with entering into the purchase agreement.
ATOS will use the net proceeds from the sales of common stock for general corporate purposes & working capital requirements. Dawson James Securities, Inc. was the placement agent for the sale of 83,333 shares of common shares at $12 per share as well as the $30 million stock purchase agreement.
ATOS also entered into a registration rights agreement with Aspire in connection with its entry into the purchase agreement that requires the Company to file a registration statement regarding the shares sold to Aspire Capital. A more complete & detailed description of the transaction is set forth in the Company's Annual Report on Form 10-K, filed today with the U.S. SEC.
About Aspire Capital Fund, LLC: Aspire Capital Fund, LLC is an institutional investor based in Chicago, IL with a fundamental investment approach. Aspire Capital Invests in a wide range of companies & industries emphasizing life sciences, energy, & technology.
3/28/2013 -- ATOS announced its 2012 financial results, corporate developments, & its recent accomplishments & highlights.
"We continue to make steady progress in the national rollout of our patented ForeCYTE Breast Health Test, advancing our ambition to arm women & their physicians with information that will enable improved breast health management & prevent breast cancer," stated Dr. Steven Quay, chairman, CEO, & president. "We are very encouraged by the enthusiastic response we are seeing from doctors & their patients for the ForeCYTE test during the early phases of our national rollout. We believe that widespread adoption of the ForeCYTE test could lead to a dramatic lowering of the incidence of breast cancer, much as the Pap smear has led to a 75 percent reduction in cervical cancer."
Developments in 2012 & early 2013 include:
• In January 2013, the Company initiated the national rollout of the ForeCYTE Breast Health Test in partnership with Clarity Women's Health, a division of Diagnostic Test Group, LLC. Clarity distributes the Clarity-branded ForeCYTE product line with major national distributors. These distributors collectively have more than 5,000 employee sales representatives &/or independent sales representatives selling their products to a target market of 33,000 obstetric-gynecologists in the U.S. Progress in the first quarter of 2013 includes:
• Conducted a teaching session in Florida with about 20 representatives from Clarity Women's Health.
o Continued the national launch of the ForeCYTE test at the Pri-Med South 2013 meeting in Florida, which generated 275 office leads from primary care physicians & practices.
o Presented at the Pri-Med Southwest 2013 meeting in Texas, which resulted in 150 primary care physician leads. Product codes were established with the medical supply distributors Henry Schein, PSS World Medical (PSS), & McKesson, which together have a total of 1,809 representatives nationwide. Establishing these product codes will enable physicians to purchase Atossa's ForeCYTE device & test kits from these distributors. Outreach & teaching also began with these medical supply distributors.
o Atossa also began its own sales program by recruiting and training independent sales representatives.
• To help ensure that more doctors & their patients have access to the ForeCYTE & ArgusCYTE Breast Health Tests & that patients will receive insurance reimbursement for the laboratory costs associated with these tests, Atossa entered into two contracts with third parties to facilitate the reimbursement process from insurers, one with MultiPlan, Inc. in September 2012, & another with FedMed, Inc., in February 2013:
o MultiPlan is a leading provider of healthcare cost management solutions for diagnostic laboratory testing involving Atossa's tests. Approximately 20 percent of Americans are covered by MultiPlan. The agreement allows Atossa to participate in the MultiPlan, PHCS & PHCS Savility Networks.
o FedMed is one of the largest proprietary Preferred Provider Organization (PPO) networks in the U.S., for diagnostic laboratory testing. FedMed's network is comprised of over 550,000 total providers, including 4,000 hospitals & more than 60,000 ancillary facilities, serving over 40 million Americans. See the extra information on FedMed following this news release.
• The Company obtained CLIA certification for the Company's National Reference Laboratory for Breast Health, a high-complexity molecular diagnostic laboratory where Nipple Aspirate Fluid (NAF) samples collected by the Company's medical device, the Mammary Aspirate Specimen Cytology Test System (MASCT System), are examined by microscopy for the presence of normal, pre-malignant, or malignant changes as determined by cytopathology and biomarkers that distinguish "usual" ductal hyperplasia, a benign condition, from atypical ductal hyperplasia, which may lead to cancer.
• In September 2012, Atossa acquired assets of Acueity Healthcare, Inc., including 35 issued patents (18 issued in the U.S. & 17 issued in foreign countries), 41 patent applications (32 in the U.S. & nine in foreign countries), six 510(k) FDA marketing authorizations related to the manufacturing, use, & sale of the Viaduct Miniscope & accessories, the Manoa Breast Biopsy system, the Excisor Bioptome, the Acueity Medical Light Source, the Viaduct Microendoscope & accessories, & cash in the amount of $0.4 million. The microendoscopes are less than 0.9 mm outside diameter & permit a physician to pass a microendoscope into the milk duct system of the breast & view the duct system via fiberoptic video images. Abnormalities that are visualized can then be biopsied from inside the duct with the biopsy tools that are inserted adjacent to the microendoscope.
• On March 13, 2013, Atossa responded to an FDA Warning Letter dated 2/21/2013, alleging, among other things, that following 510(k) clearance the Company changed the MASCT System in a manner that requires submission of an additional 510(k) notification. While Atossa believes that there was no evidence of safety- or efficacy-related issues, Atossa intends to submit a new 510(k) notification for the MASCT System & plans to continue to market its MASCT System.
• Atossa strengthened the senior management team with the hiring of Kyle Guse, CFO, & general counsel, Chris Destro, VP of sales & marketing, & Michael Malafronte, VP operations.
Full-Year 2012 Financial Results: Net loss for the year ended 12/31/2012 was $5.1 million, or $(0.41) per share, compared with net loss of $3.4 million, or $(0.38) per share, for the year ended 12/31/2011. The increase in net loss was primarily attributable to an increase in general & administrative expense of $1.8 million.
Revenues for the 12 months ended 12/31/2012 were $481,842, which included $6,440 of product revenue from the sale of MASCT Systems & $475,402 of diagnostic testing service revenue from the ForeCYTE & ArgusCYTE breast health tests. This compares with total revenues of $1,500 for the year ended 12/31/2011. The year-over-year increase in total revenues was driven by the launch of the ForeCYTE test near the end of 2011 in a field experience trial & sales of the ArgusCYTE test.
Gross profit for the 12 months ended 12/31/2012 was $416,213. This compares to gross loss of $95,690 for the year ended 12/31/2011. Loss on reduction of inventory to lower of cost or market was $29,884 for the 12 months ended 12/31/2012, & $92,026 for the 12 months ended 12/31/2011, primarily due to write-off of parts purchased during the year for the assembly of MASCT System which was determined at zero net realizable value as a result of lower of cost or market analysis at year end. The MASCT System is currently sold at a price substantially lower than its cost to encourage sales & because the MASCT System is currently manufactured by Atossa's suppliers only in small quantities. For these reasons, the manufacturing cost allocated to each inventory unit is high.
Total operating expenses were $5.5 million for the 12 months ended 12/31/2012, consisting of G&A expenses of $5.0 million & selling expenses of $0.5 million. This compares to total operating expenses of $3.3 million for the 12 months ended 12/31/2011, consisting of G&A expenses of $3.2 million & selling expenses of $0.1 million. The increase in G&A expenses of $1.8 million, or approximately 56%, from 2011 to 2012 is attributed to the launch of the Company's MASCT System, ForeCYTE test & ArgusCYTE test & the related growth in expenses to hire additional staff, expand our operations, invest additional funds in R&D & increased legal fees & other costs associated with our initial public offering. Atossa expects that its G&A expenses will continue to increase as it adds additional full time employees & incurs additional costs as a publicly traded company. Additionally, G&A costs are expected to rise as the Company increases headcount to coordinate the production & manufacture of the MASCT System, & the expected increase in service revenues. At 12/31/2012, Atossa had cash & cash equivalents of $1.7 million.
Please be sure to check the future news releases that will be issued.
More on FedMed, Inc.
ATOS’ ForeCYTE Breast Health Test, which painlessly collects a small sample of fluid from the nipple & examines the cells in that fluid for signs of abnormalities on the pathway to cancer, can, as I have told you, spot precancerous changes up to eight years before tumors develop & are large enough to be seen on a mammogram. Taking the ATOS test will avoid the painful mannogram experience – my wife Rosanne had her most recent mammogram a few weeks ago & said “Absolutely never again!” ATOS gives women far more accurate assessments of their risk of breast cancer than any other method of testing. Its ArgusCYTE Breast Health Test collects a sample of blood to look for cancer cells, & offers an early accurate warning for possible breast cancer recurrence in the over three million U.S. cancer survivors.
The ForeCYTE test & ArgusCYTE test are difficult to get reimbursement from insurance companies, which can take months. Companies like ATOS have to negotiate with insurers to get their products covered by the insurers’ networks. That could take years, but after the products are in the network, payment is quick & automatic.
To solve this problem, ATOS signed a contract with FedMed on 3/13/2013. Headquartered in Rockville, MD, FedMed (www.fedmedinc.com) is one of the largest proprietary Preferred Provider Organization (PPO) networks in the U.S., for diagnostic laboratory testing. FedMed works with most insurance companies & more than 550,000 physicians, 4,000 hospitals, & 60,000 ancillary care providers. It processes more than $4 billion in annual medical claims for the products & services in its network. Thanks to the new contract, that network now includes ATOS’ tests.
What this means for patients & doctors is that they don’t have to worry about getting speedy reimbursement. FedMed handles that part, for a fee of about 15% of the cost. That smoothes the path to rapid & widespread adoption of the tests.
“We expect that Atossa’s diagnostic tests will eventually be included in the networks of every major insurer,” said CEO Steven C. Quay. “But in the meantime, we are doing everything possible to ensure that doctors who use our products will be promptly reimbursed & that patients don’t have to worry about getting billed. This arrangement with FedMed is a key part of that strategy. It will help us improve the health of the millions of women who will benefit from our tests.”
My Current Recommendation of ATOS
I like this solid emerging growth company, & suggest that you take a position in its shares to have the advantage of its future growth potential. With the FedMed contract, another really valuable milestone has been reached, & as I pointed out in my Comment section at the beginning of this update, the market acceptance of ATOS has resulted in some rather attractive appreciation since I originally recommended it to you in January & again in February.
I noticed that ATOS’ shares were somewhat affected last week, probably by a negative online anonymous article last week. I didn’t like the article, & here are a few of my personal comments regarding it:
First of all, it wasn’t well written, indicating to me that the writer evidently didn’t do their homework very well, & probably isn’t too familiar with the medical device industry. Incidentally, when I was the marketing director of a NYSE company in the medical device business, the U.S. government sent me to Italy to help the Italian medical device industry, so I am a bit sensitive about medical industry writers.
Second, I never like articles that say unpleasant things about any of the people associated with the company they are writing about. Many such articles that I have seen during the last quarter century, ended up with a big short list, & in some cases the writer who said negative things about the company was one of the heavy shorters. I do not know that this situation is like that, but I always am wary of writers who write negative articles. That’s why if I investigate a company and find negative things, I do not write about the company. My readers want to know about companies that I feel have a rather good chance to do well with an investment – they aren’t interested in reading negative comments – they too are concerned about possible shorters.
Third, I do not like it when something is said about a recent officer appointment & leaves out some very positive information about the new officer – that looks like the intent is to refrain from saying anything that puts the company into a positive light.
Fourth, I am really annoyed when an important matter is reported inaccurately, resulting in a bad impression.
These & similar negative statements have always made me wonder why a writer wants to present a company in a bad light. I occasionally report on something that I feel that the reader may want to look at, but that is only done when I really like a company but want to give my readers the opportunity to do a bit of research on some point in order to be as accurate as possible.
Do I want my readers to do some of their own investigation? Absolutely -- I have often reminded them that they have the responsibility to make their own investment decisions, & should not give up that responsibility.
Bottom line here, I think that ATOS is a highly desirable situation. I suggest that you check their web site at www.atossagenetics.com.
Contact
You can call CEO Steven C. Quay, M.D. at 800-351-3902, or email at steven.quay@atossagenetics.com.
My comments in this column are strictly my personal opinion. At times, I will include forward-looking information as that term is defined in the Private Security Reform Act of 1995. Such information & the related company are subject to many risks & uncertainties. There can be no assurance that actual results, business conditions, business developments, losses & contingencies, local & foreign factors, & other matters will not differ materially from those suggested in any of my forward-looking statements. Such differences are the result of all sorts of factors (some examples: market conditions, competition, advances in technology, acquisitions, mergers, potential litigation, personnel changes, market changes, capital availability, etc., etc.).
Do not run out & buy a stock just because I am enthusiastic about the situation. Call the company before you buy -- satisfy yourself first. I always include a phone number for that purpose. My purpose in this column is to respond to your request for my personal opinion. You have the responsibility of making your own investment decisions. Do not give up that responsibility.
My editorial coverage has always been, is now, and always will be without charge. That includes what I write in Conservative Speculator, and what I write in "Larry Oakley's Opinion, " "Larry Oakley's Stock Pick," "Larry Oakley's Comment," & "Larry Oakley's Bold Ventures" columns. It also includes what I write in such venues as articles submitted to other publications, interviews on radio & television, and at the investment seminars and conferences at which I am a featured speaker. By doing all my editorial work free of charge, I have the advantage of writing about what companies I particularly like. There are occasions when I will write about a company that is a paying participant on WallStreetCorner -- that's because I like the company. I always make it clear to them that editorial coverage is free and is not a part of the fee they pay to have their Profile researched, prepared, & posted at WallStreetCorner.
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