Atossa Genetics Novel Test Could Generate Nice Profits

May. 2.13 | About: Atossa Genetics, (ATOS)

Atossa Genetics Inc. (NASDAQ:ATOS), a development stage healthcare company, has had an excellent run--now up over 72% year-to-date. However, in the past month the company stock has given back over 23% of its value. So, has Atossa Genetics lost its steam? Atossa focuses on the prevention of breast cancer through the commercialization of diagnostic tests to detect precursors to breast cancer. The company also focuses on treatments of pre-cancerous lesions. Second to non-melanoma skin cancers, breast cancer is the most common cancer among women. In 2012 there were approximately 226,870 women diagnosed with invasive breast cancer and an additional 63,300 women with in situ breast cancer. Roughly 39,510 women will die of the disease. The U.S. breast cancer detection and diagnostic technologies market is expected to exceed $2.8 billion in 2013, and is expected to grow annually at 5.4%.

There are over 150 million women in the U.S., and 1 in 8 will develop breast cancer at some point in their lives. The vast majority of these women had no breast cancer in their family history. Ergo, a company that can develop tests for early signs of breast cancer could save hundreds of thousands of these women's lives. Atossa has three non-invasive diagnostic tests. The first is the MASCT system, an early detection system designed to categorize the women who could be susceptible to breast cancer. Utilizing a hydrophilic membrane in contact with the nipple to "wick" fluid from the orifice of the milk ducts, the MASCT system enables the medical practitioner, via regular assessment and tracking, to track any cellular changes in the milk ducts, where 95% of the breast cancers begin.

The second product, ForeCYTE is a non-invasive test that detects breast cancer at its earliest stages by collecting and analyzing individual cells from breast tissue and can determine if the cells are normal, atypical, or cancerous. The test can detect cancer in as little as 10 abnormal cells, enabling intervention at a much earlier stage and provides personalized information about the 10-year and lifetime risk of breast cancer for women between ages 18 and 65. The third product, ArgusCYTE, designed for breast cancer patients, is an early warning system that can identify circulating cancer cells at the level of less than 10 cells/5mL of whole blood, providing information to help inform breast cancer treatment options and to monitor potential recurrence. The hope is that these three tests may one day augment or even replace the nearly 40 million mammograms performed annually in the U.S. Mammography can only detect masses of at least 100 million cells, plus mammograms do not provide information on the type of cell contained in the mass.

Interestingly, new recommendations published on April 16th by the U.S. Preventative Services Task Force (USPSTF) suggests that healthy women at high risk for breast cancer should take tamoxifen or raloxifene to prevent the disease. Though calling the recommendation a step forward, but incomplete, Dr. Steven Quay, chairman, CEO and president of Atossa Genetics, commented about the company's product:

"The identification of high-risk women based largely on family history is woefully inadequate as over 85 percent of women will have no family history. New, personalized diagnostic tools exist that can provide a precise determination of a woman's risk -- and also detect pre-cancerous changes early, for those women without a family history".

Dr. Quay continued, "Rather than treat women thought to be at high risk for breast cancer because of family history, we believe that a test like ForeCYTE can identify those who really are at high risk or who already show pre-cancerous changes, and thus more precisely identify the women who will truly benefit from preventive treatments."

Earlier this year Atossa launched its newest breast cancer test, FullCYTE, which is designed to assess individual breast ducts (since, mentioned earlier, that's where 95% of breast cancer originates) for precancerous changes in women previously identified to be at high risk. Furthermore, the company is in the prevalidation phase for NextCYTE, which is designed to profile breast cancer specimens for prediction of treatment outcomes and distant recurrence in women newly diagnosed with the disease.

March was a busy month for Atossa, as it saw its stock rise to $12.42 per share after the announcement of a contractual agreement for diagnostic laboratory testing with FedMed, Inc., one of the largest proprietary Preferred Provider Organization networks in the U.S. FedMed serves over 40 million Americans with a network of more than 550,000 providers, including 4,000 hospitals and more than 60,000 ancillary facilities. A concern was raised in an earlier report about the monetary reimbursement the company would receive. However, Atossa responded to that concern by stating, "The prescribed rate of reimbursement is within the range of reimbursement that we have historically received."

Atossa has a market cap just under $100 million, and as most development companies is in need of working capital. In late March the company announced, for working capital and general corporate purposes, it entered into a $30 million stock purchase agreement with Aspire Capital, LLC., with Aspire Capital making an initial purchase of $1 million shares of common stock at $12.00 per share. Aspire has committed to purchase up to an additional $29 million shares of common stock over the next three years at prices based on prevailing market price. On March 27th, Dawson James Securities reiterated, in a research note, its buy rating with a price target of $16. Atossa stock closed on Tuesday April 30th at $6.69, down $0.38.

Conclusion

As earlier stated there are over 150 million women in the U.S., and about 1 in 8 women will develop breast cancer over the course of her lifetime. Atossa believes it can test these women with its novel cellular and molecular diagnostic risk assessment products for early detection of breast cancer. The company believes it can end breast cancer by 2020, which is possible because 98% of all breast cancers are treatable if detected early enough. Whether Atossa will actually be able to eradicate breast cancer is yet to be seen. At any rate, a product that can detect breast cancer early-- before it spreads--can be worth billions. Though the company is not profitable yet, it appears to be on the right track with its novel breast cancer tests. As a development stage company, expect large price swings and for its stock to move up or down on good or bad news. Albeit there are risks, I think the stock has good potential to rise considerably over the next few years as the company grows.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.