4/29- Research Report on recent IPO ATOS

Editors Note: This was originally sent to Email Alert members only on April 29th. Also this article was published on Seeking Alpha on May 1st that we authored. You must subscribe to our Email alerts to get reports.  Our last two HIMX is up 45% and YY so far 13%.

After our alert… and our article… we saw 2 more positive articles on ATOS published on Seeking Alpha, A positive update from Zacks Research, and a PR from ATOS on a new sale to a medical distributor. We like to be early… 

http://seekingalpha.com/article/1389151-atossa-genetics-pullback-in-shares-of-breast-cancer-testing-firm-present-opportunity

ATOS Genetics (ATOS)-A Breast Cancer Paradigm Shift in the making?

Current Price $6.90 as of 4/29 Report

Short Term-Intermediate target is $9.00-$9.50 for a potential 30% plus gain

52 week high 12.40; 52 week low 3.44

13mm shares o/s ;800,000 float ; 75% insider held ;

Market cap: 90 million

Addressable Market: 100 Billion (Per CEO Steven Quay)

Potential to be the “Pap Smear” test for Breast cancer detection

Some of the best gains in growth stocks if not most, start off with a healthy dose of skepticism and or misunderstanding of business models. The list is very long, but to mention just a few: Amazon (AMZN), Apple (AAPL), Linked-In (LNKD), Green Mountain Coffee (GMCR), Netflix (NFLX) and on and on. It takes guts and foresight to sit through some of the drama, misinterpretations, skepticism, and pullbacks that occur along the way to great gains. All of those companies had huge addressable markets in front of them, and they had the mousetrap everyone wanted. ATOS Genetics we think fits the same bill right now in the huge worldwide addressable market of Breast Cancer detection, testing, and therapy.

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 precancerous lesions. If you want a company that has the potential to create dramatic change in the way Breast Cancer is treated, detected, and managed then we think it requires further consideration and due diligence by investors. The recent pullback in the shares we think is a combination of traders, confusion, and misinterpretation of very good news and developments.

One of the ingredients we look for prior to entering a position in a small cap growth stock is skepticism, misinterpretation of news or filings, and or confusion by investors ahead of major catalysts or fundamentally meaningful changes that are just around the corner. Samples recently include our article on Wearable computing and HIMX, (HIMX) which rallied some 50% in the weeks after our article pointing out the opportunity. There was confusion there regarding supplying components to Google and a bit of research and digging would have cleared that up.

Atossa Genetics we also think represents a dramatic opportunity for long term investors and is at a psychological buy point right now. Small Cap Biotech-Healthcare Analyst, Grant Zeng of Zacks Research recently projected a 79% annualized compounded growth rate over the next 5 years alone and upped their target to $15.  There is skepticism, a lack of awareness, and in a recent case a misunderstanding of a stock filing to boot. Let’s examine the Bull case for Atossa and why we think the shares represent extreme value and timeliness for purchase.

Confusion: Recently on April 5th for example, a headline from Fly on The Wall was totally misleading and probably led inexperienced investors to sell the stock. The headline read : “Atossa Genetics files to sell 2.83m shares of common stock for holders”. This headline could not be further from the truth, a perfect sample of confusion and an inappropriate use of the English language. As part of their recent share purchase agreement with the Institutional Investor, Aspire Capital LLC, it was agreed that a prospectus would be filed and therefore shares would be “registered” for future sale under SEC regulations. When the registration was filed on April 5th by ATOS, it was to meet the terms of the agreement, and not for any shareholder to be selling anything near term. Aspire in fact has only just begun to purchase shares from ATOS, most recently at $12.00 per share for 83,000 shares. These shares are now fully registered and the 2.8 million figure is simply a mathematical guesstimate of the number of shares that may be sold to Aspire in the future based on a weighted average price at the time of the filing and the $30 million investment agreement.

If you read that headline, you may have assumed that insiders were selling 2.83 million shares of ATOS, when in fact the opposite is true. Insiders are holding some 10 million shares of the 13 million total outstanding, and in this case, Aspire Capital is expected to purchase millions of shares at varying prices going forward, and those prices are actually dictated by ATOS, and not the market nor Aspire. These shares were approved and registered by the SEC on April 24th this past week, yet another filing headline that probably caused selling late in the trading week. Those who don’t take the time to research and understand SEC Filings probably assumed 3 million shares are about to hit the market, when the opposite is actually true.

Aspire Capital is a well respected investment firm with a history of being a long term holder and investor in biotech and health related companies. They are also an active shareholder and will be sure to assist ATOS in reaching their long term potential. Per the CEO of Aspire, “Over the past few months we have spent a lot of time with the management team and done significant due diligence on Atossa as well as talked with physicians and users of its products. During this process, we have come to see the tremendous opportunity that Atossa presents as the ‘Pap Smear’ for the breast and for early non-invasive treatment of breast cancer,” commented Steven G. Martin, Managing Member of Aspire Capital.” (Source: Market Wired Press Release March 28th, 2013)

Other catalysts and value propositions to consider:

May 4th-8th Conference: Atossa will be exhibiting and presenting at the upcoming 61st annual Clinical Meeting of the American Congress of Obstetrics and Gynecology in New Orleans. The ForeCYTE Breast Health Test, developed and marketed by Atossa Genetics, detects reversible precancerous conditions in the breast up to eight years before they become cancer. The test uses a hand-held, FDA Class II medical device that is quick, painless, and non-invasive and can be administered during an OB/GYN office visit. Unlike mammograms, which are commonly recommended for women starting at age 40 to 50, the ForeCYTE Breast Health Test is more age agnostic, uses no radiation and does not require invasive biopsy needles or surgical incisions.

Insider ownership: Extremely high on ATOS at over 75%. The CEO himself owns nearly 5 million shares of the 13 million share count. Dr. Steven Quay is the original brains behind the various breast cancer tests themselves, and the $50 million invested over 14 years with 179 patents and quite a few more pending represents real value by itself. Chief Scientific Officer Shu-Chih Chen holds nearly as many shares as the CEO.

Share Float: Only 800,000 shares were sold in the IPO at $5 per share, so barely 6% of the shares outstanding are freely trading. 83,000 shares were recently sold to Aspire Capital at $12.00 per share, a 140% premium to the IPO price. Therefore less than 1,000,000 shares of trading stock is available and often why for now, the shares can move sharply higher or lower on any given day. This also though is an ingredient we look for in small companies that have a lot of catalysts and developments to drive shares much higher.

Nationwide Rollout: The company is aggressively rolling out 4 Breast Cancer detection and RNAi based tests this year, with 2 already being met with rapid adoption and 2 more to come. (two early detection tests (ForeCYTE and FullCYTE) and two cancer survivor tests (NextCYTE and ArgusCYTE). With 40 million mammograms administered each year, Atossa’s aim is to eventually replace these with their own tests. This revenue potential alone at even a fraction of that market is many multiples over the total market cap of the company today. In fact, two major health provider and management organizations have already signed on for reimbursement and distribution related agreements with FedMed, which covers 40 million Americans, and Multi-Plan with another 20% of Americans covered under their diagnostic management plans. As the company rolls out the additional two tests this calendar year we expect wider adoption and further share price appreciation.

Growth: One the top small cap biotech analysts in the country is Grant Zeng, who is with Zacks Research. He has written about or commented on ATOS a few times in the past 4-6 weeks. Recently he upgraded his 12 month target to $15 per share based on the recent agreement with FedMed and his expectations of 79% compounded growth rates in sales over the next 5 years. His upgraded price came with ATOS trading at $10.90 per share only 4 weeks ago, and now you can enter at a much better discount near $7.00. Any additional agreements with HMO providers or others this year are likely to spark a sharp rally in the shares of ATOS in our opinion. In addition, Sidoti recently recommended the stock on April 15th with their own buy rating, joining Mr. Zeng in early coverage.

Technicals: The stock has just recently retraced a Fibonacci 61% of the gains from the 3′s to the 12′s over the several weeks as traders have moved on. We argue that these types of retracements are commonplace in emerging growth stocks and usually the tail end of them revolves around poor interpretation of news, filings, or misunderstandings and low sentiment. Often traders who chased the stock up to $12 placed stop loss orders and they finally trigger, ushering in a new wave of stronger hands from the weak hands.

In summary, we like ATOS Genetics to accumulate during this pullback with the potential to rally towards the 52 week highs in the low 12′s in the coming months as further developments are announced. Sidoti and also Grant Zeng of Zacks Research are early in coverage and we would like to join them as well while the opportunity presents itself. Once investors re-interpret recent developments correctly and put 2 and 2 together, and with only 800,000 shares in the public float, we think the shares will quickly recover.

Obviously this equity will be very volatile and may not be suitable for many investors due to the higher risk reward nature. Consider your own risk tolerance and profile and be aware of our terms of use agreement you agreed to before agreeing to receive our alerts.