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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 as a biotech analyst... More
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  • ATOS: Any Retreat In Share Price Should Provide A Good Entry Opportunity  3 comments
    May 9, 2013 3:10 PM | about stocks: ATOS

    In the past one and a half months, share price of Atossa Genetics (NASDAQ:ATOS) retreated dramatically from $12.37 on March 19 to current $5 per share on May 9, 2013.

    The major reason for the retreat in our view is that investors are concerned about the end of lock up period which ended on May 7, 2013 related to its recent IPO.

    We think the retreat is not warranted and provides a good entry opportunity for both new and existing investors. The fundamentals of Atossa remain strong and there is lots of room for price appreciation in the next 12 months when the Company rolls out its two approved diagnostics nationally and launches two new products in 2013.

    Atossa Currently Offers Two Diagnostic Tests

    The ForeCYTE Breast Health Test

    In December 2011, Atossa began limited marketing of the ForeCYTE Test to physicians, primarily obstetric-gynecologists, as well as breast health and mammography clinics, for use in conjunction with other health screening examinations, including annual physical examinations and regularly scheduled cervical Pap smears and mammograms. Atossa, together with Clarity Women's Health, formally launched the ForeCYTE Test nationally on January 14, 2013.

    The ForeCYTE Test uses the company's patented MASCT System medical device for the collection, shipment and clinical laboratory analysis of nipple aspirate fluid (NAF). The NAF specimen is collected by a physician and returned to Atossa's CLIA-certified laboratory for analysis. The NAF is analyzed by microscopy for cytological abnormalities and by a patent-pending IHC staining technique for five biomarkers of hyperplasia and a sample integrity marker.

    The results of the ForeCYTE Test provide personalized information about the 10-year and lifetime risk of breast cancer for women between ages 18 and 65.

    The ForeCYTE Test provides Atossa with two revenue sources:

    • Revenue from the sale of the MASCT System device and patient kits to physicians, breast health clinics, and mammography clinics;
    • Service revenue from the preparation and interpretation of the NAF samples sent to the company's laboratory for analysis.

    The ArgusCYTE Breast Health Test

    The ArgusCYTE Breast Health Test, launched in December 2011, provides information to help inform breast cancer treatment options and to help monitor potential recurrence. It involves collecting a blood specimen from a patient using the company's patented, FDA 510(k)-Exempt blood collection tube and submitting it to its CLIA-certified laboratory.

    The ArgusCYTE Breast Health Test tells physicians two important things:

    • If circulating breast cancer tumor cells are present;
    • And if they are present, what type of cells they are.

    This tells the physician what type of treatment to give to kill the circulating tumor cells and hopefully prevent metastatic recurrence.

    To our best knowledge, the ArgusCYTE Test is the only CLIA-certified test for circulating breast tumor cells. The ArgusCYTE test identifies mRNA expression levels for estrogen receptors (ER), progesterone receptors (PR), and HER-2 antigen in a single blood draw. This will help guide treatment selection. The test can identify circulating tumor cells immediately after a woman begins breast cancer therapy or at the time of diagnosis or biopsy so that she and her healthcare provider can make better-informed decisions about effective treatment options.

    Atossa Plans to Launch Two New Products in 2013

    In addition to ForeCYTE and ArgusCYTE which are already on the market, Atossa plans to offer two additional tests in 2013.

    The FullCYTE Breast Health Test

    The FullCYTE Breast Health Test, which is currently in development, and will be launched in mid-2013, is designed to assess the individual breast ducts for pre-cancerous changes in women previously identified to be at high risk for breast cancer.

    The FullCYTE Test first collect ductal lavage samples from each of the five to seven individual breast milk ducts using the company's patented and FDA-cleared Mammary Ductal Microcatheter System and then analyze the samples by the same molecular and cellular biomarkers used in the ForeCYTE test.

    The FullCYTE test enables physicians to ascertain which individual duct contains pre-malignant or malignant changes. Therefore, the test allows the physician to better target treatment to the specific duct with the pre-malignant changes or malignant changes. This will avoid side effects associated with systemic treatment. Traditional biopsies, involving invasive procedures in which tissue is removed surgically, typically cut across the natural anatomy of the breast ductal system, making subsequent intraductal treatment difficult or, in certain cases, impossible.

    The NextCYTE Breast Cancer Test

    The NextCYTE Breast Cancer Test, which is in the pre-validation phase and will be launched in 2013, is designed to profile breast cancer specimens for prediction of treatment outcomes and distant recurrence in women newly diagnosed with breast cancer.

    The test uses surgical biopsy specimens that have been routinely processed into formalin-fixed, paraffin embedded tissue blocks to extract RNA and analyze the whole-genome mRNA (transcriptome) expression profiles of the extracted RNA to predict breast cancer 10-year survival.

    The NextCYTE Breast Cancer Test uses advanced genome sequencing techniques to quantify and analyze the entire tumor genetic transcriptome, which represents all genes that are being actively expressed within the tumor. Atossa's scientists made inventions regarding this technology and have filed a PCT patent application related to the NextCYTE test to the use of full transcriptome analysis of 22,000 human genes in predicting breast cancer recurrence.

    Physicians will be able to use the information provided by the NextCYTE test to better customize treatment options for women, based on the genetic composition of the individual tumor.

    Revenue will Accelerate and Valuation is Attractive

    We estimate revenue will accelerate in the coming years thanks to its focused marketing strategy and continued new products/services offering. The Company also expanded its reimbursement network recently with FedMed, Inc. as well as with MultiPlan, Inc.

    We see total revenue growing at an impressive 83% compound annual growth rate (OTCPK:CAGR) from fiscal 2013 to 2018 according to our financial model. We model that the company will break even in 2014, and become profitable in fiscal 2015 with earnings per share (NYSEARCA:EPS) of $0.05 based on total revenue of $15.5 million. We forecast EPS will grow to $1.08 per share based on revenue of $66.5 million in fiscal 2018. This is impressive considering the relatively short history of the operations and the small size of the company.

    Based on Atossa's strong fundamentals, we think the valuation is attractive at this point. Currently, Atossa shares are trading at about $5.00 per share which values the company at $65 million in terms of market cap based on 13 million shares outstanding. We think Atossa shares should trade at 35 x P/E multiple which is similar to the biotech industry average P/E ratio. If we use this P/E multiple, coupled with our estimated EPS of $1.08 in 2018, discounted at 20% for five years, we come up with a price target of $15.00 per share.

    We think downside risk for Atossa is relatively low while upside potential is high at this time.

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

    Stocks: ATOS
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Comments (3)
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  • microman
    , contributor
    Comments (42) | Send Message
    Grant - are you covering TROV at all? Similar in some ways to ATOS.
    9 May 2013, 03:30 PM Reply Like
  • Grant Zeng, CFA
    , contributor
    Comments (31) | Send Message
    Author’s reply » Sorry, I don't cover TROV.
    15 May 2013, 12:20 AM Reply Like
  • Stock Reversals
    , contributor
    Comments (349) | Send Message
    Millions of shares are in the money from 3 rounds of early financings....many below 1.75 per share. Fully diluted may be closer to 19 million shares. They should have set up a secondary to arrange to soak these up. Pressure will continue awhile until absorbed.
    9 May 2013, 08:07 PM Reply Like
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