Atossa Genetics: a focused pure play breast health testing company with huge potential to grow - Analyst Blog

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Atossa Genetics: a focused pure play breast health testing company with huge potential to grow

By Grant Zeng, CFA

Atossa Genetics (NasdaqCM: ATOS) is a medical diagnostics company focused on the prevention of breast cancer through the development and commercialization of diagnostic tests that can detect precursors to breast cancer , and through the research, development, and ultimate commercialization of treatments for pre-cancerous lesions.

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Atossa's diagnostic tests consist of patented medical devices cleared by the FDA that can collect fluid samples from the breast milk ducts (nipple aspirate fluid, NAF), where over 85% of breast cancers arise. These samples are processed at the Company's wholly-owned National Reference Laboratory for Breast Health , which has been certified pursuant to the Clinical Laboratory Improvement Amendments (CLIA), has been licensed in the states of California, Florida, Maryland, Rhode Island, and Washington, and is in the process of obtaining a license to accept testing samples from New York. CLIA certification is legally required to receive reimbursement from federal or state medical benefit programs, like Medicare and Medicaid, and is a practical requirement for most third-party insurance benefit programs.

Atossa's CLIA-certified laboratory examines the specimens 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 (ADH), which may lead to cancer. These cytopathological results provide patients and physicians with information about the care path that should be followed, depending on the individual risk of future cancer as determined by the results.

Additionally, Atossa is conducting research on the treatment of these pre-cancerous cells by using its patented and FDA-cleared microcatheters to deliver, directly into the milk ducts, pharmaceutical formulations that can be used to treat these pre-cancerous lesions. By using this localized delivery method, patients receive high local concentrations of these drugs at the site of the pre-cancerous lesions, potentially promoting efficacy of the treatment while limiting systemic exposure, which has the potential to lower the overall toxicity of these treatments.

Atossa is currently marketing two diagnostic tests and plans to offer two additional tests in early 2013.

The Company launched the ForeCYTE test and the ArgusCYTE test in December 2011.

  • The ForeCYTE Test provides personalized information about the 10-year and lifetime risk of breast cancer for women between ages 18 and 65. The ForeCYTE test involves collecting a specimen of nipple aspirate fluid (NAF) using the Company's patented, FDA-cleared Mammary Aspirate Specimen Cytology Test (MASCT) System, which received 510(k) clearance from the FDA in 2003.

  • The ArgusCYTE Tes t 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. It can monitor breast cancer distant recurrence by obtaining a blood sample, and analyzing it for the presence of circulating tumor cells (CTCs), which can then be analyzed to determine the expression of Estrogen Receptor/Progesterone Receptor (ER/PR), and Human Epidermal Growth Factor Receptor (Her2), in those cells, a predictor of the cancer's sensitivity to existing treatment options.

Atossa also intends to launch two additional breast health tests in 2013.

  • The FullCYTE Test 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 NextCYTE Test is in the pre-validation phase and is designed to profile breast cancer specimens for prediction of treatment outcomes and distant recurrence in women newly diagnosed with breast cancer.

The Company holds numerous patents approved or pending and has built a strong portfolio which provides long term growth potential in the years to come.

We think revenue growth will accelerate in the coming years thanks to the focused marketing strategy and continued new products/services offering. We model the top line growing from $2.94 million in 2013 to $53.5 million in 2018, an impressive CAGR of 79%. We think Atossa will become profitable in 2016 with EPS of $0.05, which will grow to $0.62 per share in 2018.

Atossa has an appropriate growth strategy in place. Recent developments within the Company have made us believe this strategy will be well executed and we have a high confidence in management's ability to lead Atossa to the next level of growth in the next five years.

Based on the Company's strong fundamentals, we think its shares are undervalued. We think downside risk is low at this point and upside potential is high. We encourage investors to accumulate Atossa shares at current level.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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