Good morning, ladies and gentlemen, thank you for standing by and welcome to the Atossa Therapeutics Q2 2023 Conference Call. Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Eric Van Zanten, Vice President of Investor and Public Relations. Mr. Van Zanten, you may begin.

Thank you, Kevin. Good morning, everyone, and welcome to Atossa's second quarter 2023 corporate and financial update conference call. Earlier this morning, we issued a press release providing an overview of our recent corporate highlights and financial results for the quarter ended June 30, 2023. The press release can be accessed on the Investor portion of our website at investors.atossatherapeutics.com. Joining me on the call today are Dr. Steven Quay, Atossa's President and Chief Executive Officer, and Greg Weaver, our Executive Vice President and Chief Financial Officer. During today's call, we will be making certain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from the anticipated or estimated future results. These forward-looking statements are based on current information, assumptions, and expectations that are subject to change. A description of potential risks can be found in our latest SEC disclosure documents and our press release. You're cautioned not to place undue reliance on these forward-looking statements, and Atossa disclaims any obligation to update these statements. I'll now turn the call over to Dr. Quay.

Thank you, Eric, and thank you to everyone who joined the call today. I'm very proud of the progress we've made in Q2. From a clinical perspective, each of the three ongoing Phase 2 trials investigating our proprietary (Z)-endoxifen reached important milestones. I'll start with the Karisma-Endoxifen trial, which is a randomized double-blind, placebo-controlled efficacy study of oral endoxifen in premenopausal women with measurable breast density. This is a single-site trial at the Karolinska Institute in Stockholm led by Dr. Per Hall, one of the world's foremost authorities in breast cancer epidemiology. Participants in the study are randomized into one of three cohorts to receive placebo, 1 milligram, or 2 milligrams of endoxifen daily. Participants will take endoxifen for six months over the course of which mammograms are conducted to measure reduction in breast density. Patients will also have a mammogram at 24 months to assess the durability of density changes. Last month, we announced that 70% or 170 of the anticipated 240 patients have been enrolled in the trial. We expect the study to fully enroll in the fourth quarter of this year and data to be available in mid-2024. Mammographic breast density is a growing health crisis. Between 40% and 50% of all women are estimated to have mammographically dense breasts, and there are currently no approved treatments. Cancer and dense breast tissue both appear white on a mammogram, which makes mammography less sensitive and more difficult to interpret. As a result, cancers are often larger, more advanced, and more difficult to treat when found in women with dense breast tissue. Additionally, mammographic breast density is a strong independent predictor of breast cancer risk, and women with the highest density are 4 to 6 times more likely to develop breast cancer compared to women with the least dense breasts. Our vision for endoxifen in the mammographic breast density setting is to both make mammograms more reliable and decrease the risk that women with dense breast tissue will develop cancer in their lifetimes. In addition to our MBD trial, there are two additional ongoing Phase 2 trials investigating endoxifen in the neoadjuvant setting, which is the window of time between the diagnosis and the primary treatment, which, with estrogen-sensitive breast cancer, is almost always surgery plus radiation and/or chemotherapy. The intent of neoadjuvant therapy is to slow cancer growth or even shrink the cancer prior to surgery. Doing this makes surgery more effective and, with breast cancer, it may alter the surgical approach, meaning some patients could have a lumpectomy instead of a mastectomy. Neoadjuvant therapy has also been shown to reduce the likelihood that cancer returns. The first of the two neoadjuvant trials investigating endoxifen is being conducted through the I-SPY network, a collaborative effort among academic investigators from major cancer research centers across the United States. The I-SPY trial is enrolling newly diagnosed pre and postmenopausal women with estrogen-receptor positive breast cancer. As a reminder, about 80% of all breast cancers are ER positive. Patients in the study received daily treatment with 10 milligrams of endoxifen for up to 24 weeks prior to surgery. This is a smaller trial with only 20 subjects expected to participate, and we announced in June that the trial was already 30% enrolled. Given the size of the I-SPY network, which includes 41 of the largest cancer centers in the United States, we expect full enrollment either later this year or in early 2024. The third Phase 2 trial is the EVANGELINE study, which was profiled at the American Society of Clinical Oncology meeting in Chicago in June. This is also a neoadjuvant study, although it differs from the I-SPY trial as only premenopausal women are being enrolled. The EVANGELINE trial will enroll up to 175 women. The primary objective is to evaluate the endocrine sensitive disease rate measured by Ki-67 after four weeks of treatment with endoxifen compared to treatment with current standard-of-care, which consists of an aromatase inhibitor plus ovarian function suppression. Ki-67 is a measure of tumor cell proliferation or how fast the tumor is growing. The importance of this is that studies have shown that Ki-67 above 10% at the time of surgery confers a higher risk of recurrence and a worse survival rate in patients with early breast cancer. The EVANGELINE trial started with a six patient pharmacokinetic run-in cohort, which was designed to determine if the 40 milligram dose delivers steady state plasma levels of between 501,000 nanograms per milliliter, which is optimal to target protein kinase C beta inhibition and enhance endoxifen's anti-tumor mechanism of action. We already know that endoxifen binds to estrogen receptors in breast cells and stops the body's own natural estrogen from attaching to them. This cuts off the cancer's fuel source and prevents it from growing and spreading. By further targeting PKC beta, we expect endoxifen to have an even greater anti-tumor effect by both blocking the estrogen receptor and inducing apoptosis, which is a cellular equivalent of a self-destruct button. This is where we could see not only slower progression but also a reduction in the size of the tumor. We recently received data from the initial 40 milligrams per day PK run-in cohort. As with our previous trials, no treatment-related safety or tolerability issues were identified. While the 40 milligram per day dose was well tolerated, it did not achieve optimal plasma concentrations, which means, per the protocol, we are in the process of initiating a second dose level at 80 milligrams. Based on concentration levels achieved at 40 milligrams per day, we expect the 80 milligram per day dose will deliver the desired steady state plasma concentrations. Efficacy data was also captured as part of the PK run-in, including Ki-67 at baseline and at four weeks as well as MRIs taken at diagnosis and again after 12 weeks of treatment. We are extremely encouraged by these results and we hope to share them in detail at an upcoming medical conference. Before I turn things over to Greg for a financial update, I wanted to touch on one additional project that we have recently announced, which is our research partnership with Weill Cornell Medicine in New York City, to study the potential of inducing estrogen receptor expression in triple negative breast cancer. The term triple negative breast cancer refers to the fact that the cancer cells don't have either estrogen or progesterone receptors and also don't make any of the other receptors including the Human Epidermal Growth Factor Receptor 2 or HER2 protein. The tumor cells, thus, test negative on all three tests. Triple negative breast cancer or TNBC accounts for about 10% to 15% of all breast cancers, and it differs from other types of invasive breast cancer, in that it tends to grow and spread faster, has fewer treatment options, has a higher risk of recurrence, and tends to have a worse prognosis. The goal of the research we are doing with Weill Cornell is to determine if treating TNBC with extracellular vesicles carrying the estrogen receptor will change the cancer phenotype and turn on the estrogen receptor. Converting the tumor to ER positive would make it sensitive to hormone therapy, including treatment with (Z)-endoxifen. This would fundamentally transform the treatment approach and outlook for these patients. With that, I'll turn things over to Greg. Greg recently joined us as CFO, but he knows the company extremely well, having served on the Board for over 10 years. He is a seasoned financial executive with over 30 years of experience leading finance, operations, and business development at several publicly traded biotech companies. I am thrilled to have him as part of our executive team and will turn things over to him for a financial update. Greg, take it away.

Thank you, Steve. And thank you to everyone for joining today's call. As this is our first earnings call, as we reinvigorate our communications with investors, these quarterly calls will be an important pillar of that going forward. From my perspective as an investor in Atossa, it's a pivotal time for the company. With Phase 2 trials in multiple settings, (Z)-endoxifen is positioned to read out data over the next 12 to 18 months, providing investors with the opportunity to join in the value creation and innovation for breast cancer patients. Looking ahead, strategically, our clinical development strategy for the breast density and the neoadjuvant breast cancer indications includes forming alliances for future Phase 3 development and commercialization. So as the clinical data continues to mature, one of the key objectives we have is to build relationships with prospective partners, and brokering alliances is something I've done previously in my career and look forward to leveraging that experience here at Atossa. Okay, let's turn to the financial update. Beginning with cash, the end of Q2 total cash position was $99.4 million, as compared to $104 million at March 31st and $111 million at year-end 2022. The six-month year-to-date change in cash was $11.5 million, with $4.5 million used in Q2 and $7 million in Q1. As we model our cash runway going forward, you can clearly see the multi-year resources available to drive our multiple Phase 2 clinical programs to their next significant value and inflection points, and through to completion. The strong cash position we have is also strategically important longer-term as we position ourselves to invest in the Phase 3 registration trials and potentially consider adding to the pipeline. Let's move to the comparison of the three-month numbers ended June 30 with total operating expenses of $7.8 million for the three months ended June 30, an increase of $1.2 million from the three months ended June 30 of the prior year. R&D expense for the three months ended June 30, 2023, was $3.7 million compared to $3.4 million in the same quarter of the prior year, which is an increase of just under $300,000, primarily due to increased spending on clinical trials and nonclinical activities. G&A expense for the three months ended June 30 was $4.1 million compared to $3.2 million for the same quarter in the prior year. The increase of just under $1 million is due to G&A compensation expense, which increased primarily due to severance costs to our former CFO and the increase in overall compensation, along with legal and professional fees increasing due primarily to higher patent activity for (Z)-endoxifen and higher investor relations and accounting fees. Interest income was $1 million for the three months ended June 30, a sharp increase compared to the prior year due to a higher average invested balance and higher earned interest rates. Non-cash charges in the second quarter included an impairment charge we booked for $2.9 million on an investment in Dynamic Cell Therapies or DCT and a non-cash stock compensation charge of $1.6 million. Finally, on the quarterly numbers, a net loss of $9.8 million for the second quarter compared to a net loss of $6.3 million in the first quarter and $6.7 million for the comparative second quarter of last year. Pivoting to the six months ended June 30 numbers, total operating expenses were $14.9 million for the six months, which is an increase of $3.5 million from the prior year with R&D expenses for the six months at $7.2 million compared to $4.9 million in the same quarter of the prior year. The increase of $2.3 million is due primarily to increased spending of roughly $1.8 million related to the endoxifen clinical trial costs and increased API drug product formulation and development costs, also due to fluctuations in R&D compensation expense attributable to non-cash stock-based comp and a decrease in some year-over-year costs related to prior year payments, which were made to establish alliances with several research institutions. Pivoting to G&A expenses for the six months ended June 30, they totaled $7.7 million, an increase of $1.3 million compared to the prior year's $6.4 million with the key fluctuations again being the compensation expense increase, in part attributable to the increase in overall compensation of roughly $900,000, a decrease in non-cash stock-based comp, and an increase in the severance cost for our exiting CFO. Also, again, legal and professional fees increased due to higher activity in both areas. Interest income for the six months was $1.8 million, also increased related to higher average balances invested and higher average interest rates. Non-cash charges for the six months included the Q2 impairment charge on the investment in DCT and non-cash stock compensation. The net loss for the six months was $16.1 million, compared to the net loss of $11.5 million year-to-date prior year. One additional topic to touch on is that we announced a share repurchase program in June to purchase up to 10 million shares of our common stock. This program is authorized through the year-end 2023, and the rationale for the program is to recognize, in our view, the disconnect in the market value of Atossa shares. In Q2 2023, we purchased just under 120,000 shares of stock at a cost of approximately $150,000. To date, we purchased approximately 840,000 shares for $1 million. This activity has no material impact on our operating cash runway. Thank you for your attention. I'll turn the call back to Steve.

Thank you, Greg. And from a clinical development perspective, we expect to see data from all three of our ongoing Phase 2 trials over the next 12 to 24 months. This data, along with feedback from the FDA, will allow us to design Phase 3 protocols, which will support strategic business development alliances. Short-term, you can expect to hear from us with enrollment updates and other developments. You should also expect these quarterly update calls to continue with our next one being our Q3 call in November. I would now like to ask the operator to open the call for Q&A. Thank you, operator.

First question comes from Jason McCarthy with Maxim Group. Your line is open.

This is Michael Okunewitch on the line for Jason. Thank you for taking my questions today. First, with the Karisma-Endoxifen trial nearing full enrollment by year-end and expected completion in 2024, could you remind us if there is a specific level of density reduction or an upper threshold that must be achieved for it to be considered a significant result that would lead to improvements in early detection or reductions in breast cancer incidence? I'm trying to understand how you measure a meaningful reduction in breast density.

Yes. That's a great question, Michael. There are two main measures of density on the mammograms themselves, and then I will discuss the concept of statistical significance and clinical significance, which comes up in every single clinical trial of any drug you would be involved with. So the first, the measurement endpoint. Radiologists have for almost two decades used an A, B, C, D categorization of approximately quartiles where A is the lowest density and D is the highest density. There is an abundance of research results looking at those density measurements. And for example, the effect on the sensitivity of finding cancers, the effect on a 5-year incidence of cancers going forward. So the long history in mammographic density is that A, B, C, D categorization. Now we have gotten to the point where we now have 5, 10 cleared measurements, which are quantitative. The machine does it for you with software. Those give you a score from zero to 100. We have less long-term experience with those, but they do map onto what you'd expect where a radiologist calls a breast A, the machine calls it zero to 25, 26 to 50, 51 to 75, 76 to 100. So the biggest winners are when you cross the thresholds between groups because that's the highest level. Statistical significance will probably require a pretty small amount, perhaps 3% or 4% will be enough. The breast in these premenopausal women will be changing less than 1% per year when they get near menopause, and you'll see a 5% or 6% drop over a couple of years. So statistical significance would be a couple of percent, clinical significance will be larger drops and perhaps changes in the A, B, C, D categorization.

Then in terms of the EVANGELINE study, I'd like to see how many sites you plan to open in Canada, and how many would that bring it to total?

Yes. I mean, we have one site in Canada, which was the requirement for getting the filing and getting permission to go forward there, and we'll continue to recruit additional trial centers on an ongoing basis. So we haven't disclosed the number of centers that are open currently, but there is a website that you can go to if you have patients with premenopausal ER positive breast cancer, the EVANGELINE trial website.

Then one last one for me and I'll hop back into the queue. So you guys have a fairly impressive cash balance right now. Are there any plans to expand the earlier mid-stage pipeline with additional M&A or are you focused on deploying that capital pretty much purely to get this current set of studies through those readouts over the next 12 to 24 months?

Thanks, Michael. Great question. I'm going to let Greg weigh in on that, if you would?

Happy to, Michael. A great question. We're blessed with a very strong balance sheet. As I look at it in my first weeks here as the CFO, it really strategically positions us to not only fully fund the current protocols, execute on the trials that we just discussed in full and through completion, but it appears to me that there's additional bandwidth here to seriously consider adding to the pipeline. As we go forward, we'll be with some discretion having a look to be honest. I would just say we don't have any disclosures at this time except that there's an intent to take a look at the landscape and see what might be a good strategic fit for us.

Our next question comes from Edward Woo with Ascendiant Capital.

My question is on Dynamic Cell Therapies, what drove the impairment charge this quarter?

I'll let Greg go into that. It's a financial analysis exercise.

Yes. Thank you. Ed, good morning. The Dynamic Cell Therapies investment was made into their CAR-T business as a strategic investment in the second half of last year. The accounting treatment for GAAP is to look at the fundamentals of the actual business under investment. In this case, the accountants considered the cash runway for that investment business is less than a year. As they looked at that, they ran it through their parameters for investment carrying value on the balance sheet and recommended an impairment charge be booked against it. It's a non-cash evaluation. We still think that there's value in that investment, and they continue to carry it going forward.

Great. Then my next question is on the three trials that are going on right now. How would you characterize patient enrollment? Is it as expected, faster or slower than you expected?

Oh, it’s a good question. I have got seven approved drugs and about 30 clinical trials under my belt. I can say, pretty definitively, that there is a high correlation between good enrollment and a successful drug after FDA approval and marketing. With respect to the I-SPY trial and neoadjuvant, we have already indicated that we had 30% enrollment within a couple of months. The trial at the Karolinska Institute in breast density is accruing right on schedule, despite the Swedish culture, I guess, where they take a full month off in the summer, for example, things like that. So it's enrolling very well. There is a buzz about the trial, the EVANGELINE trial happening at the Mayo Clinic. We are trying to see if we can step into the standard of care which is effective and safe, but has a quality of life issue. It's sort of the third leg of a stool in clinical development with ovarian function suppression. This is the standard of care now, but it produces an extremely strong decrement in the standard of care for these patients. We're seeing if our endoxifen is so strong at stopping the estrogen receptor that it can tolerate the upregulation of estrogen that happens in women that have functioning ovaries in the presence of hormonal therapy. If we can achieve the same equivalent efficacy, the same safety profile, and an improved quality of life, it will be a game changer. All three of the trials have the non-statistically significant edition of being really strong trials.

Great. Thanks for answering my questions, and I wish you guys good luck. Thank you.

I'm not showing any further questions at this time. I'd like to turn the call back over to Dr. Quay for any closing remarks.

I want to thank everyone for listening and to our analysts for their questions. We appreciate the support and look forward to next quarter's call with you in November. Until then, take care, and you can now disconnect.

This concludes today's conference call. Thank you for joining us. You may now disconnect your lines and have a wonderful day.