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ATOS Continues to make progress in distribution and reimbursement of its products

By Grant Zeng, CFA

On June 20, 2013, Atossa signed an agreement with Fisher HealthCare Inc., part of Thermo Fisher Scientific, for distribution of Atossa's ForeCYTE Breast Health devices, which consist of the patented MASCT pump and ForeCYTE patient collection kits.

Atossa's MASCT system is used by physicians and nurses to collect a small amount of nipple aspirate fluid for cytological and genomic analysis at Atossa's wholly-owned National Reference Laboratory for Breast Health.

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.

Fisher HealthCare is a recognized leader in providing diagnostic solutions to customers in the acute care, physician office and reference lab markets.

On Jun 17, 2013, Atossa entered into a contractual agreement with HealthSmart, a Preferred Provider Organization (PPO) network serving clients in all 50 states.

The agreement with HealthSmart affords preferred providers and their patients with greater access to Atossa's ForeCYTE Breast Health Test by ensuring timely reimbursement for the laboratory costs associated with the test.

For more than 40 years, HealthSmart has offered a wide array of customizable and scalable healthcare plans. It specializes in self-funded insurance solutions and comprehensive wellness programs for employers through its broker distribution network.

The agreement with Fisher Healthcare and HealthSmart will accelerate revenue growth in the coming quarters in our view.

Sales is picking up steam in 1Q13 following national rollout of ForeCYTE

On May 15, 2013, Atossa Genetics, Inc. (Nasdaq-small:ATOS) announced its first quarter of 2013 financial results and corporate developments.

Total revenue for the three months ended March 31, 2013, were $182,670, which included $13,440 of product revenue from the sale of MASCT Systems and $169,230 of diagnostic testing service revenue from the ForeCYTE breast health tests. This compares with total revenues of $54,713 for the first quarter ended March 31, 2012. The year-over-year increase in total revenue was driven by the national rollout of the ForeCYTE test in January 2013.

Gross profit for the three months ended March 31, 2013, was $116,206. This compares to gross profit of $27,709 for the quarter ended March 31, 2012.

Total operating expenses were $2.1 million for the three months ended March 31, 2013, consisting of G&A expenses of $1.6 million, selling expenses of $272,575 and research and development expenses of $220,192. This compares to total operating expenses of $1.1 million for the three months ended March 31, 2012, consisting of G&A expenses of $601,452, selling expenses of $70,435 and research and development expenses of $417,990. The increase in G&A expenses of $963,420, from the first quarter of 2012 to the first quarter of 2013, is attributed to the launch of the Company's MASCT System, ForeCYTE test and ArgusCYTE test and the related growth in expenses to hire additional staff and expand the Company's operations.

Net loss for the quarter ended March 31, 2013, was $1.9 million, or $(0.14) per share, compared with net loss of $1.1 million, or $(0.09) per share, for the first quarter ended March 31, 2012.

At March 31, 2013, Atossa had cash and cash equivalents of $1.4 million.

First quarter financials were in line with our estimates in general. As the Company continues to roll out its ForeCYTE tests nationally, we believe revenue growth will accelerate in the coming quarters.

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.

We see total revenue growing at an impressive 96% compound annual growth rate (CAGR) from fiscal 2013 to 2018 according to our financial model. We model that the company will become profitable in fiscal 2015 with earnings per share (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.

A copy of the latestl research report can be downloaded here >> 
 Atossa Genetics Report

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