One of my favorite InvestorPlace commentators is Josh Enomoto. He tells it like it is while providing a balanced analysis. For example, Enomoto recently discussed seven penny stocks getting lots of attention from the Reddit crowd. One of the names on his list was Atossa Therapeutics (NASDAQ:ATOS) stock.
Atossa develops novel therapeutics and delivery methods for the treatment of various conditions, including Covid-19. I’ve never written about Atossa before, so it was encouraging to see that my colleague was willing to include it in a group of penny stocks worth a closer look.
I looked up the current top 25 Reddit stocks in terms of mentions on r/WallStreetBets. Alas, Atossa didn’t make the cut. But before you run out and sell your ATOS stock, comments can only be made on WSB for those stocks with a market capitalization of $1 billion or more.
Atossa’s about halfway there.
So, instead, I went to the Atossa subreddit to get a feel for what retail investors are thinking about when it comes to the company and its products in development.
Here are my thoughts on what I found.
ATOS Stock and Pending Acquisition
I’ve noticed many comments about Atossa getting taken out by a larger biopharma. Someone who goes by buysellWTH wondered on Aug. 26 why Redditors believe a buyout will happen. They are into Atossa to the tune of $6,500.
“Relatively small cap biotech companies with trial success have a tendency to be absorbed by larger companies. The big dogs let them go through all the headaches and hoop-jumping of clinical trials and then just throw some money at them for their patents,” wrote TsunamiSurferDude a day later in response to the buyout question.
However, TsunamiSurferDude then says, “See Otezla, Allergan, Celgene, Actelion are a few of the larger acquisitions in the past few years.”
I don’t see how that second part is even remotely related to a buyout of a $460 million company with clinical trials underway. Otezla was taken out by Amgen (NASDAQ:AMGN) in late 2019 for $13.4 billion. They are two completely different kettles of fish.
More likely, a mid-cap clinical-stage pharmaceutical company such as Amarin (NASDAQ:AMRN) would buy it if it were interested in expanding its work beyond cardiovascular therapeutics.
A more humorous rumor came from u/mahpkcaj approximately six months ago. This Redditor suggested Pfizer (NYSE:PFE) was a potential candidate to take Atossa out. Never mind that Pfizer’s expected to generate $33.5 billion or more from its Covid-19 vaccine alone in 2021. So I don’t think it needs Atossa’s help to generate sales.
If I had $1 for every buyout rumor I read, I’d be a wealthy man.
Could Atossa be bought out? Absolutely. Will it be bought out? That’s impossible to say. Instead, investors should focus on what’s in front of them, such as earnings, revenue growth, and actual research and development.
Where It’s at on Development Front
Atossa reported its Q2 2021 results on Aug. 13. As part of its report, it provided shareholders with a corporate update. However, since it generates no revenue, the only financial relevance is that it had an operating loss of $10.5 million through the first six months of fiscal 2021.
With the cash on hand ($142.4 million at the end of June) it won’t have any problems paying for the ongoing clinical trials, including research and development and its general and administrative costs for the remainder of the year and well into 2022.
So, that part is fine.
The corporate update delivered good news on its Phase 2 clinical study for Endoxifen, the company’s breast cancer treatment. The data showed Endoxifen reduced tumor cell activity by 65% between screening and surgery. In addition, Swedish regulators approved a Phase 2 clinical study of Endoxifen to reduce mammographic breast density (MBD).
On the downside, a patient with ovarian cancer taking oral Endoxifen in combination with Apelisib has stopped taking the treatment as the disease has progressed to the point it wouldn’t be useful.
As for its two Covid-19 treatments: AT-H201 and AT-301, the former is going into a Phase 1 clinical study in Australia. The latter is headed to Phase 2 after the Phase 1 clinical study found its nasal spray safe and tolerated by both male and female trial participants.
So, it looks as though Endoxifen could enter a Phase 3 “window of opportunity” clinical study in Australia at some point in the future. Other than that, most of its work is still ahead of it.
The Bottom Line
Unless I’m mistaken, all of the Reddit WallStreetBets stocks in the top 25 have legitimate revenues. Many of them even make money.
As my InvestorPlace colleague, Stavros Georgiadis, said recently, it’s hard to get excited about Atossa when it has zero revenue. And while biopharma stocks are a different breed and it is a common theme among smaller companies in this space, my colleague is right to emphasize that ATOS stock moves on hopes, not fundamental facts.
To buy this stock because you think it will be bought out is nothing more than a hope and a prayer. If you want to make money on merger arbitrage, buy one of the existing ETFs to bet on mergers and acquisitions.
In the meantime, if you can’t stand risk, ATOS is not something you should ever entertain. So, for the rest of you, I wish you the best of luck. You will need it.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.