atos20221231

atos20221231_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

☒	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2022

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from: to

Commission File Number: 001-35610

ATOSSA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	26-4753208
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

107 Spring Street

Seattle, WA 98104

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (206) 588-0256

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.18 par value	ATOS	The Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ See Note. 1 below

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ See Note.1 below

Note 1. Disclosure is not being provided under this item pursuant to guidance issued by the staff of the Securities and Exchange Commission.

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $137,982,260. Shares of common stock held by each officer and director and by each person who is known by the Company to own 10% or more of the outstanding common stock have been excluded, as such persons may be deemed to be affiliates of the Company. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for other purposes.

The number of shares outstanding of the registrant's common stock, par value $0.18, as of March 16, 2023, was 126,624,110.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required to be disclosed in Part III of this Annual Report on Form 10-K (the Annual Report) incorporated by reference from the registrant’s Definitive Proxy Statement for its 2023 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of the fiscal year covered by this Annual Report.

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ATOSSA THERAPEUTICS, INC.
2022 FORM 10-K REPORT
TABLE OF CONTENTS

		PAGE

	PART I

Item 1.	Business	6
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	32
Item 2.	Properties	32
Item 3.	Legal Proceedings	32
Item 4.	Mine Safety Disclosures	32

	PART II

Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6.	Reserved	33
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 8.	Financial Statements and Supplementary Data	38
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 9A.	Controls and Procedures	39
Item 9B.	Other Information	39
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	39
	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	40
Item 11.	Executive Compensation	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
Item 13.	Certain Relationships and Related Transactions, and Director Independence	40
Item 14.	Principal Accountant Fees and Services	40

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	40
Item 16.	Form 10-K Summary	40
	Signatures	59

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements made in this Annual Report on Form 10-K (this Annual Report) that are not statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial positions, are 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 that our assumptions underlying our forward-looking statements are reasonable as of the date of this Annual Report we cannot assure you that the forward-looking statements set out in this Annual Report will prove to be accurate. We may identify these forward-looking statements by the use of forward-looking words, including, but not limited to, such as “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “plan,” “estimate,” “anticipate,” “future,” “believe,” “design,” “predict,” “potential” or the negative versions of these words or other similar expressions. Forward-looking statements contained in this Annual Report include, but are not limited to, statements about:

	●	the impact of the ongoing COVID-19 pandemic and the degree to which the pandemic negatively impacts our supply chain, clinical trial enrollment and 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 current and planned (Z)-endoxifen trials, and to sell, market and distribute our therapeutics under development;

	●	our ability to identify and partner with organizations to commercialize any of our products once they are approved for marketing;

	●	our ability to successfully initiate and complete clinical trials of our products under development, including our proprietary (Z)-endoxifen (an active metabolite of Tamoxifen);

	●	the success, costs and timing of our development activities, such as clinical trials, including whether our studies using our (Z)-endoxifen therapies will enroll a sufficient number of subjects in a timely fashion or be completed in a timely fashion or at all;

	●	whether we will successfully complete our clinical trial of oral (Z)-endoxifen in women with mammographic breast density and our trials of (Z)-endoxifen in women with breast cancer, and whether the studies will meet their objectives;

	●	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 that we might identify in the future and in the time frames currently expected;

	●	our ability to successfully defend 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 increased risk of theft or misappropriation of our intellectual property and other proprietary technology outside of the U.S.;

	●	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 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.

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This Annual Report also contains estimates and other statistical data provided by third-parties and by us relating to market size and growth, and other industry data. These and other forward-looking statements, unless otherwise indicated, are presented as of the date of the filing of this Annual Report. We have included important factors in the cautionary statements included in this Annual Report, particularly in the section titled “ITEM 1A. RISK FACTORS,” that we believe could cause our actual results, or 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 Annual Report. Except as required by law, we expressly disclaim any intent to update any forward-looking statements, whether as a result of new information, future events, circumstances or otherwise.

CORPORATE INFORMATION

Our corporate website is located at www.atossatherapeutics.com. The information contained on or connected to our website is not deemed to be incorporated by reference into this Annual Report or filed with the Securities and Exchange Commission (the SEC) and should not be considered part of this Annual Report. We make available, free of charge through our website or upon written request, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other periodic SEC reports, along with amendments to all of those reports, as soon as reasonably practicable after we file the reports with the SEC.

Unless otherwise noted, the terms “Atossa Therapeutics,” “Atossa,” the “Company,” “we,” “us,” and “our” refer to Atossa Therapeutics, Inc., a Delaware corporation.

We are regulated by the FDA under the Federal Food Drug and Cosmetics Act, as well as by other U.S. and foreign federal, state and local agencies.

This Annual Report includes trademarks, trade names and service marks of third-parties, which are the property of their respective owners. You are advised to read this Annual Report on Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC.

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PART I

ITEM 1.

BUSINESS

Overview

We are a clinical-stage biopharmaceutical company developing proprietary innovative medicines in areas of significant unmet medical need in oncology, with a current focus on breast cancer and other breast conditions. Our lead drug candidate under development is oral (Z)-endoxifen which we are developing in two settings: one to treat breast cancer by reducing tumor cell activity prior to surgery and another to reduce breast tissue density in women. More than ten million women in the U. S and millions more worldwide have elevated breast density, which reduces the ability of mammograms to detect cancer and increases the risk of breast cancer. Currently, there is no FDA-approved treatment for breast density. We believe there is also a significant unmet need for breast cancer treatments in premenopausal women prior to surgery, as the typical treatment for the majority of early-stage breast cancer patients currently involves ovarian function suppression, which can induce premature menopause and dramatically impact a patient’s quality of life.

We have been granted two U.S. patents covering our proprietary (Z)-endoxifen and we have numerous applications pending in the U.S. and in other countries.

Our business strategy is to advance our programs through clinical studies, including with partners, and opportunistically add programs in areas of high unmet medical need through acquisition, minority investment, collaboration or internal development.

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 reduction of breast density. We have completed four Phase 1 clinical studies (including a study in men) and two Phase 2 clinical studies with our proprietary (Z)-endoxifen (including oral and topical formulations). We have also completed significant pre-clinical development and have established clinical manufacturing capabilities through qualified third-parties.

(Z)-endoxifen for Women with Measurable Breast Density. Mammographic breast density (MBD) is an emerging public health issue affecting over ten million women in the U.S. alone. Studies conducted by others have shown that MBD increases the risk of developing breast cancer and that reducing MBD may reduce the incidence of breast cancer.

In December 2021, we commenced a Phase 2 study of our proprietary oral (Z)-endoxifen. The study, known as the Karisma-(Z)-endoxifen study, is a Phase 2, randomized, double-blind, placebo-controlled, dose-response study of our proprietary oral (Z)-endoxifen in healthy premenopausal women with measurable breast density. The primary objective of the study is to determine the dose-response relationship of daily (Z)-endoxifen on breast density reduction. Secondary endpoints will assess safety and tolerability. The study also includes an exploratory endpoint to assess durability of the breast density changes. The study is being conducted in Stockholm, Sweden and will include approximately 240 participants, at full enrollment, who will receive daily doses of oral (Z)-endoxifen or placebo for six months after they enroll. We expect to complete enrollment in this study by the end of 2023.

Based on input from the FDA and Swedish Medical Products Agency, reduction in MBD may not be an approvable indication unless we can demonstrate that our (Z)-endoxifen also reduces the incidence of breast cancer. We may therefore conduct additional studies of (Z)-endoxifen to assess its correlation with the risk of breast cancer and/or reduction in the incidence of new breast cancers.

(Z)-endoxifen for Neoadjuvant Treatment of Breast Cancer. We are also developing (Z)-endoxifen to treat estrogen receptor positive (ER+) / human epidermal growth factor receptor 2 negative (HER2-) breast cancer in the neoadjuvant setting, which is the administration of a therapy before the main treatment, which is usually surgery. Although there are 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 and the treatments that are available typically involve ovarian function suppression which can induce premature menopause and significantly impact quality of life. We believe there is a compelling need for therapy with our (Z)-endoxifen in this setting.

In October 2022, we received authorization from the U.S. FDA for our Investigational New Drug (IND) application for oral (Z)-endoxifen. 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. In February 2023, we enrolled the first patient in this study.

In March 2023, we announced that (Z)-endoxifen will be evaluated in a new study arm of the ongoing I-SPY endocrine program. This portion of the study targets patients with newly ER+ invasive cancer. The I-SPY trial is a collaborative effort among academic investigators from 20 major cancer research centers across the U.S., Quantum Leap Healthcare Collaborative, the FDA, and the Foundation for the National Institutes of Health (FNIH) Cancer Biomarkers Consortium. Atossa will supply (Z)-endoxifen and provide financial support to Quantum Leap for this study.

Inhaled HNAC, or "AT-H201." AT-H201 was under development as a potential treatment for COVID-19; however, due to the rapidly shifting treatment landscape and introduction of effective vaccines and treatments, in late 2022 we shifted to the treatment of patients with compromised lung function due to the damaging effects of cancer treatment. We are scheduled to conclude our study in healthy volunteers with AT-H201 in early 2023, but we do not expect to advance the program further in 2023, as we direct our focus on our (Z)-endoxifen programs.

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Recent Investment in CAR-T Company

On December 23, 2022, we closed our previously announced investment in Dynamic Cell Therapies, Inc. (DCT), a privately-held, venture-capital backed, developer of CAR-T therapies. DCT is in the pre-clinical phase of developing controllable CAR-T cells to address difficult-to-treat cancers. Its platform technology of dynamic control of engineered T-cells is designed to improve the safety, efficacy and durability of CAR-T cell therapies. While its initial focus is hematologic malignancies, it's possible that its innovative approach could also have broad applicability in solid tumors and autoimmune diseases. Atossa’s investment in DCT, which totaled $4.7 million, resulted in Atossa owning approximately 19% of the outstanding capital stock of DCT as of December 31, 2022.

Impact of the Ongoing Coronavirus Pandemic

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, 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 U.S. FDA and other health authorities, including similar entities/agencies in Sweden and Australia, which could result in delays in meetings, reviews and approvals. As the COVID-19 pandemic reaches endemic stages, the extent to which it may continue to impact our operations, including COVID-19-related delays or other impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy as a whole, remains highly uncertain and difficult to predict; however, as of March 16, 2023, we have not experienced a significant delay or disruption in the enrollment or the drug supply for our ongoing clinical studies.

Our Programs Under Development

(Z)-endoxifen Programs

Background

(Z)-endoxifen is the most active metabolite of the drug called tamoxifen, which has been FDA-approved and widely used for over 40 years to both treat and prevent breast cancer. Tamoxifen is a “pro-drug,” in that it must be metabolized into active components (“metabolites”) to be effective. Despite the success of tamoxifen in treating ER+ breast cancer, its systemic side effects have led to generally low acceptance as a therapy to reduce the risk of breast cancer. These systemic side effects relate to estrogen agonist activity on the endometrium and the activation of coagulation pathways, leading to an increased risk of uterine events and thromboembolism. Hot flashes and vaginal symptoms are additional barriers to tamoxifen being accepted in the prevention setting.

Other limiting aspects of tamoxifen are that some people lack liver enzymes to adequately metabolize it and it can take a long time for many patients to reach therapeutic levels. Up to 50% of breast cancer survivors who take tamoxifen do not achieve therapeutic (Z)-endoxifen levels (meaning they are “refractory”) for a number of reasons, including that they, due to their genotype, do not have the requisite liver enzymes. We believe our proprietary oral (Z)-endoxifen, in part because it is not a pro-drug and does not need to be metabolized by the liver, may overcome some of the shortcomings of tamoxifen.

We estimate that approximately ten million women in the U.S. have MBD, for which there is no FDA-approved treatment. MBD is an emerging public health issue and studies conducted by others have shown that MBD increases the risk of breast cancer and that reducing MBD may reduce the incidence of breast cancer. Although oral tamoxifen is approved to prevent breast cancer in “high-risk” women (typically based on responses to a questionnaire), it is used by less than 5% of women with an increased risk of developing breast cancer because of the actual or perceived side effects and risks of tamoxifen. We believe our (Z)-endoxifen may provide an option for women to proactively reduce the density of their breasts. Moreover, our (Z)-endoxifen may improve mammography accuracy and patient care by unmasking cancerous tumors that are otherwise hidden by breast density.

U.S. federal and state legislation require that women be notified if they have MBD. These notifications typically state that women with MBD have a higher risk of developing breast cancer, and that mammography may not be as effective in detecting breast cancer because the MBD can “mask” cancers which can hinder detection.

Our Phase 1 Studies

In 2020, we completed a Phase 1, randomized double-blinded, placebo-controlled study in 12 healthy females in Australia to evaluate safety, tolerability and pharmacokinetics of 4 mg delayed release tablets. There were no adverse safety signals in this single dose study.

In 2019, we completed a double-blinded, parallel design Phase 1 study in 24 healthy females randomized to either active or placebo in Australia to evaluate pharmacokinetics of our 4 mg capsule (Z)-endoxifen and a new 4 mg modified-release tablet form of our (Z)-endoxifen, as well as to assess safety and tolerability. Study results showed that the capsule and tablet were safe and well-tolerated.

In 2018, we completed a placebo controlled, three arm, Phase 1, dose escalation study of our topical (Z)-endoxifen (2, 6 and 10 mg) for 28 days in 24 healthy males in Australia. Results showed that various dose levels of our topical (Z)-endoxifen were safe and well tolerated.

In 2017, we completed a Phase 1 study in 49 healthy women in Australia using both the topical and oral capsule forms of our proprietary (Z)-endoxifen to assess the pharmacokinetics of our proprietary (Z)-endoxifen dosage forms as single (oral) and repeat (oral capsule 1, 2 and 4 mg and topical 2, 6 and10 mg) doses, as well as to assess safety and tolerability. The study was conducted in two parts based on route of administration. There were no clinically significant safety signals and no clinically significant adverse events: both the oral and topical (Z)-endoxifen were well tolerated.

In the topical arm of the study, there were low but detectable (Z)-endoxifen levels in the blood in a dose-dependent fashion, and in the oral arm of the study, participants exhibited dose-dependent (Z)-endoxifen levels consistent with published reports of the therapeutic range. The median time for patients in the study to reach the steady-state serum levels of (Z)-endoxifen while taking daily doses of oral (Z)-endoxifen was approximately seven days. Published literature indicates that it takes approximately 50-200 days for patients to reach steady-state (Z)-endoxifen levels when taking daily doses of oral tamoxifen. Finally, the median time for patients in the study to reach the maximum serum level of (Z)-endoxifen after taking Atossa’s oral (Z)-endoxifen ranged from four to eight hours (depending on dose). The 4 mg dose of (Z)-endoxifen produced a maximum serum level of (Z)-endoxifen in four to eight hours at levels above the generally accepted threshold for a therapeutic effect on estrogen-dependent breast cancer.

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Our Phase 2 Studies

In October 2022, we received authorization from the FDA to initiate our Phase 2 study of neoadjuvant (Z)-endoxifen in premenopausal women with ER+/HER2- breast cancer. This study is now open for enrollment. 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 U.S., is expected to enroll approximately 175 patients and is designed with two cohorts: (1) a pharmacokinetics (PK) Run-In Cohort to investigate pharmacokinetics and identify a dose for the Treatment Cohort, and (2) a Treatment Cohort. In February 2023, we enrolled our first patient in the study.

The primary objective of the study is to assess whether the endocrine sensitive disease rate at four 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.

In December 2021, we began to enroll participants in a Phase 2 clinical study of oral (Z)-endoxifen in women with elevated MBD. The study, known as the Karisma-Endoxifen study, is a Phase 2, randomized, double-blind, placebo-controlled, dose-response study of our proprietary (Z)-endoxifen in healthy pre-menopausal women with elevated breast density. The primary endpoint of the study is the change from baseline MBD at six months, with secondary endpoints to assess safety and tolerability, and an exploratory endpoint to assess durability of the MBD changes after the study drug has been discontinued. It is being conducted by South General Hospital in Stockholm and is expected to include approximately 240 participants, at full enrollment, who will receive daily doses of oral (Z)-endoxifen or placebo for six months after they enroll. The study is being conducted in Stockholm, Sweden.

In February 2021, we concluded a Phase 2 study of our oral (Z)-endoxifen in Australia. The study enrolled patients newly-diagnosed with ER+ and HER2- stage 1 or 2 invasive breast cancer, requiring mastectomy or lumpectomy. Patients received our proprietary oral (Z)-endoxifen for at least 14 days from the time of diagnosis up to the day of surgery. The primary endpoint was to determine if the administration of oral (Z)-endoxifen reduces tumor activity as measured by Ki-67. The secondary endpoints were safety and tolerability and assessment of the study drug on expression levels of both estrogen and progesterone receptors. In June 2021, we concluded that the study produced substantially positive results and that continuing enrollment in the study would not be useful in advancing the program. The final results from the seven women in the study indicated a 65% reduction in Ki-67. There were no adverse safety signals or laboratory findings.

In April 2019, we completed a randomized, double-blinded placebo-controlled Phase 2 study of our topical endoxifen in women with measurable MBD in Stockholm, Sweden. The primary endpoint of this pilot study was to determine if topical endoxifen reduces individual MBD as measured by mammography. Secondary endpoints included demonstrating safety and tolerability. The study enrolled 90 participants who were equally randomized to three different groups (30 participants per group): placebo; 10 mg topical endoxifen; and 20 mg topical endoxifen. Participants applied the study drug to each breast daily for a maximum of six months. Each participant received a baseline (pre-treatment) mammogram, and additional mammograms at months three and six, or at the time of study exit. Once the study was completed, all mammograms were interpreted and MBD determined, and any changes that occurred were recorded.

In June 2019, we reported preliminary analysis from our Phase 2 study of proprietary daily topical endoxifen to reduce MBD, showing significant (p=0.02) and rapid reduction in MBD at the 20 mg daily dose level. MBD was reduced by an average of 14.3% in the group applying 20 mg daily topical endoxifen, which was statistically significant (p = 0.02). In the 10 mg dose group, MBD was reduced by an average of 9.0%, but was not statistically significant. Approximately 70% of participants receiving 20 mg topical endoxifen experienced a reduction in MBD, and of those, the mean reduction in MBD was 27%. There were no differences in systemic endocrine or vascular side effects (for example, hot flashes) in the placebo versus active groups. Systemic side effects were measured using a modified validated symptom questionnaire. Approximately 72 participants eventually developed skin rashes and local irritation and did not complete a full six months of dosing. However, these results which are based on MBD measurements at the time of enrollment in the study and again at the time dosing ended, showed that even in those participants who dropped out of the study due to skin reactions, endoxifen reduced MBD in a mean of 55 and 88 days in the 20 mg and 10 mg groups, respectively. Our initial evaluation indicates that the skin reactions are due to the active pharmaceutical ingredient. We are not currently planning to further develop our topical endoxifen.

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 July 2022, we completed dosing in a placebo-controlled Phase 1/2a study of AT-H201 in healthy participants in Australia. The study originally had four cohorts: Part A – a single ascending dose cohort; Part B – a multiple ascending dose cohort; Part C – a combination part in healthy individuals; and cohort D – a combination in COVID-19 infected patients. After we completed dosing in cohorts A, B and C of the study, we decided not to proceed with cohort D; rather, we shifted the development of AT-H201 due to the rapidly shifting treatment landscape and introduction of effective vaccines and treatments for COVID-19, which more closely aligns with our oncology focus by continuing development of AT-H201 in patients with compromised lung-function due to the damaging effects of cancer treatment, including, for example, lung injury caused by radiation treatment, which is poorly treated with current therapies and is often irreversible.

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.

We do not plan to advance our AT-H201 program in 2023 as we focus our resources on our (Z)-endoxifen programs.

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Other Programs; Immunotherapy/CAR-T Programs

Recent Investment in CAR-T Company. On December 23, 2022, we closed our previously announced investment in DCT, a privately-held, venture-capital backed, developer of CAR-T therapies. DCT is in the pre-clinical phase of developing controllable CAR-T cells to address difficult-to-treat cancers. Its platform technology of dynamic control of engineered T-cells is designed to improve the safety, efficacy, and durability of CAR-T cell therapies. While its initial focus is hematologic malignancies, it's possible that its innovative approach could also have broad applicability in solid tumors and autoimmune diseases. Atossa’s investment in DCT, which totaled $4.7 million, resulted in Atossa owning approximately 19% of the outstanding capital stock of DCT.

Much of the recent successes in the field of chimeric antigen receptor therapy, or CAR-T, has relied on the systemic delivery (for example, a needle injection into the blood stream) of the CAR-T which is intended to treat various non-solid tumor cancers, such as blood cancers. One concern with this systemic approach is that it does not target the location of the cancer and it can have adverse effects, including deadly “cytokine storms.” Moreover, CAR-T treatments delivered systemically can be as high as $500,000 per patient.

Our immunotherapy/CAR-T programs are in early stage of development. On November 26, 2020, we entered into a sponsored research agreement with Dana-Farber Cancer Institute, Inc. The agreement provides that Atossa will support research of cytokine-coated nanoparticles for the potential treatment of breast cancer, which was conducted by Carl Novina, MD, Ph.D. This research project is now substantially complete.

We have filed patent applications on a novel method to deliver CAR-T cells or other types of immunotherapy into the milk ducts of the breast, the location where most breast cancers originate for the potential targeted treatment of breast cancer. This approach uses targeted intraductal delivery of either T-cells that have been genetically modified to attack breast cancer cells or various other immune-therapies. We believe this intraductal method has several potential advantages, including the reduction of toxicity by limiting systemic exposure of the T-cells or immunotherapy; improved efficacy by placing the T-cells or immunotherapy in direct contact with the target ductal epithelial cells that are undergoing or have undergone malignant transformation; and, lymphatic migration of the CAR-T cells or immunotherapy potentially extending their cytotoxic actions into the regional lymph system, which could limit tumor cell dissemination or metastasis. Moreover, our approach may be more cost effective if lower doses of therapy can be delivered compared to systemic CAR-T. We have not begun, and may not be successful in completing, pre-clinical and clinical studies of our CAR-T technology.

Markets

Potential Breast Cancer Market Opportunities

We believe that, based in part on a study by Defined Health Inc. (now Lumanity), a leading market research firm, the potential U.S. market for our (Z)-endoxifen in the breast cancer treatment and prevention settings is up to $1 billion annually. The American Cancer Society (ACS) estimates that in the U.S. in 2023, 297,790 women will be diagnosed with breast cancer and about 43,700 women will die from breast cancer. Approximately 80% of breast cancers are ER+.

Breast cancer also affects men, though the incidence is around 100 times lower than in women. The ACS estimates that in the U.S. in 2023, 2,800 new cases of invasive breast cancer will be diagnosed in men, and 530 men will die from breast cancer.

Our Capital Resources

We have not yet established an ongoing source of revenue sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. We plan to obtain additional capital resources by selling our equity securities and borrowing from stockholders or others when needed. However, we cannot assure you that we will be successful in accomplishing any of these plans and, if we are unable to obtain adequate capital, we could be forced to cease operations. We do not anticipate any revenue until our pharmaceutical programs are developed, including receipt of all necessary regulatory approvals, and we successfully commercialize these programs.

As of December 31, 2022, we had cash and cash equivalents of approximately $111 million. We did not raise any capital in the past fiscal year.

Potential Uses of Capital Resources

We intend to use our capital resources to execute on our business plan, which may include acquiring or in-licensing additional programs. We may also use our capital resources to invest directly or indirectly in business opportunities in healthcare or other industries including through purchases of equity in other companies. These investments may include investing in special purpose acquisition companies either as a sponsor or as an equity investor. Our business plan may evolve to require more capital resources than currently contemplated either because our existing programs progress more quickly or at a greater cost than currently anticipated or because we may add additional programs.

Research and Development Phase

We are in the research and development phase and are not currently marketing any products or services. We do not anticipate generating revenue unless and until we develop and launch our pharmaceutical programs.

Research and development (R&D) costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expense for our drugs under development, expenses associated with clinical trials and associated salaries and benefits. We have entered into various research and development contracts with research institutions, clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying consolidated balance sheets as prepaid expenses. We accrue for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued expenses, we analyze the progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid expense or accrued expense balances at the end of any reporting period. Actual results could differ from our estimates.

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 total hours expended on research and development activities. Our CEO is involved in the development of the Company's drug candidates and oversight of the related clinical trial activity.

Table of Contents

Research and development expenses for the years ended December 31, 2022 and 2021 were approximately $15.1 million and $9.2 million, respectively.

Intellectual Property

We own patents directed to (Z)-endoxifen and patent applications directed to (Z)-endoxifen, therapies for respiratory conditions, other therapies, and immunotherapies such as CAR-T therapies. We commonly seek patent claims directed to compositions of matter of therapeutics, including (Z)-endoxifen, as well as methods of using such compositions. For each of our products, we have filed multiple patent applications and expect to file multiple additional patent applications. As of January 31, 2023, based on a review of our patent estate, we own two issued patents (one U.S. patent and one international patent) directed to our (Z)-endoxifen therapies, therapies for respiratory conditions, other therapies, immunotherapies such as CAR-T therapies, and viral detection programs and are pursuing 75 pending patent applications (19 U.S. applications, including one allowed U.S. application, and 56 international applications, including two allowed international applications). Subsequent to January 31, 2023, we were issued an additional U.S. patent directed to our (Z)-endoxifen therapies. We continue to evaluate our patent portfolio on an ongoing basis and, as a clinical-stage pharmaceutical company, no longer file, prosecute, maintain, or defend our patents and patent applications directed to any devices or diagnostics, and compositions not core to our business or to methods of using the foregoing due to short patent terms remaining on them and changed business goals.

As of January 31, 2023, the following are the estimated number of patents related to our programs that we are currently pursuing.

	Issued Patents (1,2,3)		Pending Applications (1, 2, 3)		Approximate Expiry Date (3)
	U.S.	International	U.S.	International
(Z)-endoxifen programs	1	1	8	27	2038	-	2044
Respiratory and viral programs	-	-	3	8	2041	-	2043
Immunotherapy/CAR-T program	-	-	5	21	2037	-	2044
Other therapies programs	-	-	3	-	2043	-	2044

1. Each patent application includes at least one claim or disclosure directed to a listed therapeutic/program.

2. The patent counts in the table above may differ from the total numbers of the patent applications in the Atossa portfolio as the patent counts in the table above reflect that a patent application may have claims directed to more than one type of therapeutic/program.

3. The patent counts and the approximate expiration dates disclosed herein and in our patent estate are subject to change, for example, in the event of changes in the law, post-grant patent challenges, or legal rulings affecting our patents and applications or if we become aware of new information or amend our business goals. The standards that the U.S. Patent and Trademark Office, or USPTO, and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change. Consequently, our pending patent applications may not be allowed and, if allowed, may not contain the type and extent of patent claims that would be adequate to conduct our business as planned. Additionally, any issued patents we currently own or may obtain in the future may have a shorter patent term than expected or may not contain claims that will permit us to stop competitors from using our technology or similar technology or from copying our products.

Manufacturing, Clinical Studies and Associated Operations

Our drug development strategy utilizes third-party contractors for the procurement and manufacture, as applicable, of raw materials, active pharmaceutical ingredients and finished drug products, as well as for storage, and distribution of our products and associated supply chain operations. We also rely on third-parties to conduct nonclinical and clinical studies of our drugs under development. As our development programs advance, we expect that our manufacturing, pre-clinical and clinical studies, and related operational requirements will correspondingly increase. We require that each third-party contractor is qualified by Atossa subject matter experts prior to signing any service agreement and initiating any third-party work.

Integral to our development strategy is our quality program, which includes standard operating procedures and specifications with the goal that our work complies with Good Clinical Practices (GCP), Good Laboratory Practices (GLP) and Current Good Manufacturing Practices (cGMP), and other applicable global regulations, when appropriate. We expect and confirm that selected service providers meet or exceed our expectations for compliance with these standards in providing services and products that meet our requirements.

We believe our operational strategy of utilizing qualified contractors and suppliers in the foregoing manner allows us to direct our financial and managerial resources to development and commercialization activities, rather than to the establishment and maintenance of manufacturing and clinical infrastructure.

Government Regulation

Drug Regulations

We are subject to extensive regulation by the FDA and other federal, state, and local regulatory agencies

SEC Form 10-K filed by Atossa Therapeutics Inc.