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Grant Zeng, CFA
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Grant Zeng has over 10 years of professional experience in equity research and analysis. Grant joined Zacks Investment Research Inc. in March 2006, and currently is a senior equity analyst covering biotech/pharma industry. Before joining Zacks, Grant worked for TheStreet.com as a biotech analyst... More
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  • The FDA Letter Won't Impact Atossa’S Business Much

    On Feb 25, 2013, Atossa Genetics, Inc. (ATOS) received a Warning Letter from the FDA regarding its Mammary Aspirate Specimen Cytology Test (MASCT) System and MASCT System Collection Test.

    The Letter arises from certain FDA findings during a July 2012 inspection, to which the Company responded in August 2012, explaining why the Company believed it was in compliance with applicable regulations and/or was implementing changes responsive to the findings of the FDA inspection. The FDA alleges in the Letter that following 510(k) clearance the Company changed the System in a manner that requires submission of an additional 510(k) notification to the FDA. Specifically, the FDA observes that the Instructions For Use (IFU) in the original 510(k) submission stated that the user must "Wash the collection membrane with fixative solution into the collection vial…" and the current IFU states "…apply one spray of Saccomanno's Fixative to the collection membrane…" and that "this change fixes the NAF specimen to the filter paper rather than washing it into a collection vial." At the time that the changes were made the Company determined that a new 510(k) was not required in accordance with the FDA's guidance document entitled "Deciding When to Submit a 510(k) for a Change to an Existing Device."

    The Company is working with the FDA to resolve these issues in the best interests of patients and their doctors. The Company has until March 14, 2013 to respond to the Letter and is currently working to prepare that response. Among other things, the Company currently expects that the response will explain why the Company believes that the System in its current form has been and continues to be appropriately marketed under a cleared 510(k) premarket notification, and why it is in substantial compliance with applicable regulations, including cGMP.

    We think the FDA letter won't impact Atossa's major business much based on our following analysis.

    First, based on our conversation with the Company, we have reasons to believe that the new version of MASCAT System is in compliance with the FDA regulations and not required for 510(NYSE:K) clearance. In such a best scenario, the MASCAT System and The ForeCYTE Test will continue to operate as usual.

    Second, if the FDA does not agree with the Company's position concerning clearance of the new version of the MASCAT System, Atossa may be required to submit and receive clearance of a new 510(k) notice for the current form of the System. Even in such a case, we think the business of ForeCYTE Test and the MASCAT System itself won't be much impact. Below are the reasons:

    • Atossa's previous version of the MASCAT System has been approved by the FDA under 510(k). The Company can still use the old version of the System for NAF collection and processing and conduct the ForeCYTE Test.
    • The difference between the old version and the new version of the System is not huge in our view. The old System washs the collection membrane with fixative solution into the collection vial. The new System only applies one spray of Saccomanno's Fixative to the collection membrane, and this change fixes the NAF specimen to the filter paper rather than washing it into a collection vial.
    • Since the new version of the System is more convenient for patients and physicians, Atossa may resubmit the new System to the FDA for 510(k) clearance and at the same time use the old System for NAF collection and processing.
    • If Atossa decides to resubmit the new System to the FDA for 510(k) clearance, it won't take a long time. Since the device is going to be filed as a new version of an already approved device, we estimate that time from submission to clear will be less than six months.

    Therefore, we have a fair reason to believe that the FDA letter has only very limited impact on the Company's MASCAT System and the ForeCYTE Test business. We reminder investors that in addition to the ForeCYTE Test, Atossa has another test The ArgusCYTE Test on the market, and will launch two more tests in 2013. These three tests won't be impacted by the FDA requirement at all.

    Based on our analysis, we think it is a great opportunity to accumulate Atossa shares if there is any correction after the FDA letter. We are firmly optimistic about Atossa's prospect as a pure play breast health testing company.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: ATOS
    Feb 26 12:08 AM | Link | 1 Comment
  • APDN: A Unique Anti-counterfeit Company Poised To Resume Growth In Second Half Of 2013

    First Quarter Financials Disappointing, but Top Line Growth Should Resume in 2H13

    On February 14, 2013, Applied DNA Sciences (OTCQB:APDN) reported financial results for the first fiscal quarter of 2013 ending December 31, 2012.

    For the fiscal 1Q13 ended December 31, 2012, APDN generated $317,670 in revenues from operations compared to $516,904 for the three months ended December 31, 2011, a 38.5% decline. The decrease in sales was primarily caused by the expiration of certain contracts and delays in transition to new contracts with products in target markets.

    SG&A expenses were $2.5 million for the three months ended December 31, 2012, compared to $2.2 million for the three months ended December 31, 2011. The increase of $368,739, or 17.1%, is primarily attributable to higher professional and service fees incurred.

    Research and development expenses increased from $78,473 for the three months ended December 31, 2011 to $147,666 for the three months ended December 31, 2012. The increase of $69,193 is attributable to additional research and development activity needed with current operations.

    Total operating expenses for the three months ended December 31, 2012 were $2.7 million, compared to $2.4 million for the three months ended December 31, 2011, an increase of $360,554 which was primarily attributable to an increase in professional fees paid and in R&D expenditures.

    GAAP net loss for the three months ended December 31, 2012 increased to $8,704,757 or $0.01 per share from a net loss of $2,409,905 or $0.00 per share for the three months ended December 31, 2011 primarily attributable to the factors described above.

    Non-GAAP net loss was $2.4 million or $0.00 per share for the three months ended December 31, 2012, compared to $2.4 million or $0.00 per share for the three months ended December 31, 2011.

    Apparently, revenue for the fiscal first quarter was disappointing to investors, but we believe revenue growth will accelerate in the second half of the fiscal year of 2013. We believe the Company has spent the time and resources to lay the foundation on which to properly build its business.

    Business continues to grow in the past few months. New technology breakthroughs during the quarter strengthen the Company's position in verticals such as textiles and in optical reading (scanning). Meanwhile, contract with military electronics offering continues to have strong momentum.

    APDN opened new cash-in-transit business in Sweden for the Company's anti-theft product, smartDNA, in that country. A new patent was awarded for the APDN's linkage of SigNature® DNA marks to optical reporting (scanners), while new breakthroughs in SigNature DNA marking for textiles strengthen the Company's offerings in the vertical.

    In the military electronics area, APDN built new contractual relationships with firms that will provide third-party SigNature DNA marking on electronics, including in this effort the first test house in the program, Premier Semiconductor. The Company also pointed to expansion of its capacity in volume and speed in the authentication process, and hiring of new personnel in sales, scientific, and quality areas.

    Based on all these developments, we model the Company's top line will resume growth in the second half of this fiscal year. Total revenue for fiscal 2013 will reach the mark of $2 million.

    Balance Sheet Boosted by Recent Financing

    On January 10, 2013, APDN closed on an additional $5.5 million (second closing) financing, bringing the total amount of financing to $7.5 million with institutional accredited investor, Crede CG II, Ltd.

    In November 2012, the Company closed on the initial $2 million in financing with Crede for restricted common stock priced at $0.186/share.

    The additional $5,500,000 was invested by Crede in convertible preferred stock of the Company. The closing, on January 7, 2013, was at $1,000 per share of preferred stock which was subsequently fully converted into 25,462,963 shares of common stock by the Company on January 8, 2013 at a conversion price of $0.216/share.

    Series C Warrants to purchase 26,881,720 shares of Common Stock become exercisable for six months after the eleventh trading day following the second closing. It is the Company's intention to exercise its right to repurchase these Series C Warrants for $50,000 at the close of trading on the tenth trading day following the second closing.

    The investor is limited to 9.9% ownership at any given point in time. The investor is in a "passive" position and will not occupy a Board position.

    APDN intends to use the additional capital to take advantage of developments in its business verticals in recent months, including in electronics, textiles, and anti-theft products. The company has already expanded its plant and staff in order to accommodate this progression, and aims to continue and broaden that expansion.

    This financing comes at an excellent time. It greatly boosted balance sheet of the Company.

    Further, on Dec 20, 2012, APDN was named a recipient of an Empire State Development Corporation (ESDC) Consolidated Funding Application (NASDAQ:CFA) Round II grant award. Applied DNA Sciences was awarded $229,957 for their "Rapid Growth and Expansion Project." This money will be used to purchase new laboratory equipment to complement the new hires necessary for the rapid growth project. This new equipment will enhance the company's DNA formulation menu especially in defense and law enforcement applications.

    As of December 31, 2012, APDN had $0.98 million in cash. With the proceeds from the financing, the Company should have cash at the neighborhood of $4.5 million at the end of March, 2013. Current cash can last into 1Q14.

    APDN is at a crucial stage in the development of Applied DNA Sciences. Access to this capital enhances its capacity to respond to growth opportunities.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Feb 25 9:35 AM | Link | Comment!
  • Bio-Path Shares Are Attractive Now

    Pipeline Expanded by New Indications of Liposomal Grb-2

    Recently, Bio-Path Holdings (BPTH) announced that it is initiating development of its lead cancer drug BP-100-1.01 (Liposomal Grb-2) to treat triple negative breast cancer (TNBC) and inflammatory breast cancer (IBC), two cancers characterized by formation of aggressive tumors and relatively high mortality rates.

    Liposomal Grb-2 (L-Grb-2) is the Company's lead drug candidate currently in a Phase I clinical trial. L-Grb-2 is a liposomal delivered antisense cancer drug that targets an multibillion dollar annual market for Chronic Myelogenous Leukemia (NYSE:CML), Acute Myeloid Leukemia (AML), Acute Lymphoblastic Leukemia (NYSE:ALL), and Myelodysplastic Syndrome (NYSE:MDS).

    Grb-2 (growth factor-bound protein-2) is an adaptor protein which is essential to cancer cell signaling because it is utilized by oncogenic tyrosine kinases to induce cancer progression. Suppressing the function or expression of Grb-2 should interrupt its vital signaling function and have a therapeutic application in cancer. L-Grb-2 is a neutral-charge, liposome-incorporated antisense drug substance designed to inhibit Grb-2 expression.

    • Discussions with senior breast cancer researchers at the MD Anderson Cancer Center indicated strong scientific case that blocking Grb-2 protein using L-Grb-2 has the potential to be an effective treatment for TNBC and IBC
    • Bio-Path's plan is to develop Liposomal Grb-2 as a targeted therapy against TNBC and IBC
    • Treatment goals are two-pronged:
    • the first is to develop Liposomal Grb-2 as a tumor reduction agent in combination with other approved drugs in pre-operative settings;
    • the second is to develop Liposomal Grb-2 as a drug to treat and control or eliminate cancer metastasis in TNBC and IBC patients;
    • Both of these treatment goals address high need situations for patients.
    • Development plan: 2013 comprised of pre-clinical development followed immediately by Phase I clinical trial;
    • The preclinical programs are expected to start in 2013 and last one year, after which time the Phase I clinical trial could begin after FDA approval to proceed;
    • Safety of L-Grb-2 established in leukemia trial can speed dosing in the TNBC/IBC trial

    We think the development of Liposomal Grb-2 for the treatment of TNBC and IBC is a major milestone for Bio-Path that has the opportunity to produce substantial value for the Company. Successful development of these applications will be of great benefit to TNBC and IBC patients. Further, the treatment goal for tumor inhibition and reduction in a pre-operative setting provides a potential pathway for rapid approval by the FDA of Liposomal Grb-2, while the longer term effects of controlling or eliminating metastasis will build long term use of our drug.

    The new development of L-Grb-2 also expands Bio-Path's pipeline.

    Market for TNBC and IBC is Rather Large

    Triple negative breast cancer (TNBC) tumors do not express estrogen receptors, progesterone receptors, and low HER2. These negative results mean that the growth of the cancer is not supported by the hormones estrogen and progesterone, or by the presence of too many HER2 receptors. Therefore, TNBC does not respond to hormonal therapy or therapies that target HER2 receptors. In addition, TNBC tumors are very aggressive. Approximately 15 to 20 percent of breast cancers are triple-negative.

    Inflammatory breast cancer (IBC) is a rare and very aggressive disease in which cancer cells block lymph vessels in the skin of the breast. This type of breast cancer is called "inflammatory" because the breast often looks swollen and red, or "inflamed." IBC accounts for two to five percent of all breast cancers. IBC tumors are very aggressive and are frequently hormone receptor negative, which means hormone therapies may not be effective. Five year survival rate for IBC is 40 percent versus 87 percent for all breast cancers combined, making IBC a priority area for development of new treatments.

    The combined market for TNBC and IBC is very large in our view due to the huge market for breast cancer in our view. Together with the CML, AML and MDS, L-Grb-2 is targeting a multibillion dollar market.

    In addition to CML, L-Grb-2 also targets AML and MDS as well as the TNBC and IBC, each has a significant market.

    (click to enlarge)

    Valuation is Attractive

    We are moving to Buy rating on Bio-Path Holdings Inc. from Neutral. Our new twelve-month price target is $1.00 per share.

    Our call is based on recent progress the Company has made and current valuation of the Company's shares.

    We believe Bio-Path's neutral lipid drug delivery platform technology has great potential to systemically deliver antisense drug candidates in human bodies. Its pipeline has been expanded by new indications and can be easily expanded into other therapeutic areas if the delivery platform technology proves successful for current cancer indications.

    We are encouraged by the progress BPTH has made with its lead drug candidate Liposomal Grb-2. We are impressed by the interim results, which have demonstrated the safety and potential efficacy of the candidate. We are especially impressed by the suggestion of possible anti-leukemia activity at the very low dosage, which was an unexpected and very positive result. We are also pleased to see the Company is expanding its pipeline by developing new indications of its lead compound L-Grb-2.

    In terms of valuation, we think Bio-Path shares are undervalued at this point. By comparing to its peers in the biotech industry and considering the potential of its drug delivery technology and progresses the Company has made in the past few months, we think Bio-Path's stock should be trading around $1.00 per share, which value the Company at about $62 million in market cap.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Feb 20 5:29 PM | Link | Comment!
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