Scott Gordon - IR, President of CorProminence LLC Steven Quay - Chairman and CEO Kyle Guse - CFO, General Counsel and Secretary

Good afternoon and welcome to the Atossa Genetics' Earnings Conference Call for First Quarter Ended March 31, 2016. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to Scott Gordon, President of CorProminence. Please go ahead, sir.

Thank you, Denise and thank you for joining today's conference call to discuss Atossa Genetics' corporate developments, financial results for the year ended March 31, 2016. With us today are Dr. Steven Quay, Chairman, CEO and President; and Mr. Kyle Guse, CFO and General Counsel. At 4:01 PM Eastern Time, Atossa released financial results for the quarter ended March 31, 2016. If you have not received Atossa’s earnings release, please visit www.atossagenetics.com. Before we begin, I would like to note that comments made during this call may include forward-looking statements regarding future events or the future financial performance of the Company. Such statements are predictions only and actual events or results could differ materially from those made in any forward-looking statements, due to a number of risks and uncertainties including assumptions about future events based on current expectations, plans, business development efforts, near and long-term objectives, regulatory actions, potential new business strategies or organizational changes, changing markets, future business performance and outlook. Please see Atossa's most recent filings with the SEC, including without limitations, Form 10-Q, 10-K and 8-K. I will now turn the call over to Dr. Quay.

Thank you, Scott and good afternoon. Atossa is a clinical stage pharmaceutical company focused on the development of novel therapeutics and delivery methods for the treatment of breast cancer and other breast conditions. Our leading program uses our patented intraductal microcatheters, which deliver locally administered pharmaceuticals through the breast ducts. We initiated a Phase II clinical study in March 2016 using our microcatheters to deliver fulvestrant as a potential treatment of ductal carcinoma in-situ or DCIS and breast cancer. Fulvestrant is commercially available in the U.S. as a monthly intramuscular injection. This study is being conducted by Columbia University Medical Center Breast Cancer Programs. Our second pharmaceutical program underdevelopment is Afimoxifene Topical Gel or AfTG for the treatment and prevention of hyperplasia of the breast. In addition to our clinical stage pharmaceuticals programs, we are in the process of evaluating several therapeutic candidates to treat other breast conditions including breast cancer. Factors we are considering in evaluating potential drug candidates include for example the ability to obtain expedited regulatory approval, significance of unmet medical need, the size of the patient population, intellectual property opportunities and the anticipated preclinical and clinical pathway. Before I provide an update, Kyle will summarize our 2015 financial results.

Thank you, Steve, and good afternoon, everyone. As a result of the sale of NRLBH in December 2015 - the 2015 financial results, the NRLBH are presented separately as discontinued operations in the company's consolidated statement of operations. We did not generate revenue or cost of revenue for the three months ended March 2016 to NRLBH had totaled net revenue of $1.9 million and cost of revenue of $1.2 million for the three months ended March 31, 2015 and consisting of mainly pharmacogenomics testing. Total operating expenses were $2.3 million for the three months ended March 31, 2016, consisting of G&A expenses of $2.2 million and R&D expenses of $150,000. As a result of the sale of NRLBH, operating expenses related to the NRLBH are presented separately as discontinued operations for the three months ended March 31, 2015. Operating expenses from continuing operations decreased $945,000 or 29%, from $3.3 million for the three months ended March 31, 2015, which are consisted of G&A expenses of $2.4 million, R&D expenses of $566,000 and selling expenses of $346,000. The decrease in operating expenses is mainly attributed to the 2015 launch of new devices and services which are not being pursued in 2016 and from investing more in new R&D programs in the first quarter of 2015 compared to 2016. The Company recorded a net loss of $2.3 million for the three months ended March 31, 2016. The loss from discontinued operations for the three months ended March 31, 2016 was $61,000. Our cash and cash equivalents as of March 31, 2016 were approximately $2.9 million. During the first quarter of 2016, we drew on our facility from Aspire Capital raising $2.2 million, as a result. This substantially contributed to our cash resources particularly in light of the fact that our burn rate has been reduced significantly for the sale of the NRLBH. We've now fully utilized the facility with Aspire Capital and no shares remain available for sale to them under the terms of our agreement. That concludes my comments. I would like to turn the call back over to Steve.

Thank you, Kyle. As I mentioned on our March 30, 2016 conference call, Atossa Genetics has experienced a significant transformation last year from a device diagnostic company to a focused clinical stage company Now I'll spend our time today focusing on the progress we've made with our therapeutic program in developing pharmaceuticals to treat breast conditions including breast cancer. Difference where we are now focusing our financial and human resources and we'll continue to do for the foreseeable future. Our 007 trail, a Phase 2 study in women with DCIS or evasive cancer slated for mastectomy or lumpectomy opened for enrollment in March 2016 after gaining IRB approval. This study will assess the safety and tolerability of fulvestrant when delivered directly into the breast milk ducts of these patients. Although breast cancers and precancerous lesions are detected at an earlier stage and despite the use of systemically administered agents, such as tamoxifen or fulvestrant, marketed under the brand name Faslodex, serious side effects remain a major challenge, and may lead to poor patient compliance with these drug regimens. Clinically the American Cancer Society estimates that over 292,000 American women were diagnosed with breast cancer both local and invasive in 2015. They also estimate that over 40,000 women died in 2015 due to their disease. Providing drug directly into the ducts targeting the site of the localized cancerous lesions could reduce the need for systemic anti-cancer drugs and potentially reduce or eliminate the systemic side effects of the drugs and morbidity in such patients and ultimately improve drug regimen compliance. Let me now describe our clinical trial in more detail and provide further context regarding the end points of the trial to which we hope to begin reviewing study data in the second half of 2016. Our Phase II clinical trial is an open-label comparative study of the distribution of fulvestrant in women scheduled for mastectomy or lumpectomy. The first six study participants will receive the standard intramuscular fulvestrant dose of 500 milligrams to establish the reference drug distribution. The subsequent 24 participants will then receive fulvestrant by intraductal installation using Atossa’s patented microcatheter device. The total dose administered in this manner will not exceed 500 milligrams. The renowned Columbia University Medical Center Break Cancer Program is conducting our first clinical study on intraductal fulvestrant. I want to reiterate our endpoint of the study, which I mentioned on our last conference call for which daily PD for shaping our expectations. The primary endpoint of the clinical trial is to assess the safety and tolerability of intraductal administration fulvestrant in women with DCIS or Stage I or II invasive ductal carcinoma prior to surgery. The secondary objective of the study is to determine if there are changes in the expression of KI67 a marker of how fast cells are growing as well as estrogen and progesterone receptors between a pre-fulvestrant biopsy and the post-fulvestrant surgical specimen. This will help us assess the degree that the drug is permeating the breast tissue. Mammography before and after drug administration in both groups will be performed to determine the effect of fulvestrant on breast density of the participants. Of note, Atossa owns one issued patent and several pending applications directed to the treatment of breast conditions including cancer by the intraductal administration of fulvestrant and other pharmaceuticals. In order to understand our main clinical program, it's important to understand the current uses and market for this FDA approved intramuscularly injected drug and how it will compare to our introductally administered product. As a reminder, the intraductal administrations takes less than 30-minutes in the physician's office and uses local anesthetic. To frame the potential market opportunity that's successfully delivering our lead ways according to the prescribing information fulvestrant is administered monthly as an injection of two shots typically given into the buttocks. In 2012, a published study documented that a single-dose cost of intramuscular fulvestrant was approximately $12,000, which thus could exceed a $140,000 per patient per year. So the first potential market for intraductal therapy is to take advantage of the huge difference in the amount of drug that gets into the tissue with the intramuscular injection in the buttocks versus the intraductal route. One analysis suggests that the drug levels in tissue might be over 20,000 times higher when administered intraductally. This provides the potential to test a one-in-done intraductal treatment modality instead of the monthly injections and to figure out how to get better tissue levels that are possible with intramuscular administration. Doing so would save the healthcare system a lot of money and at the same time while potentially improving the safety and efficacy of the drug by delivering directly to the breast. Even if it turned out the intraductal administration needs to be performed let's say every six months, there is still a huge potential to obtain efficacy with much lower cost. Again we have an issued patent for the intraductal use of fulvestrant as well as many other pharmaceuticals. The second potential for use for our patented microcatheter is in the Neoadjuvant setting, meaning that a drug would be delivered before the primary treatment of surgery, just exactly as we're doing in this Phase 2 trail. High drug concentration at the site of the tumor and lack of systemic exposure and subsequent toxicity could represent real treatment advances. The current Neoadjuvant schedules can run for three months before surgery and the ability to shorten that by one or even two months could have immense value to the patient and the healthcare system. As I mentioned previously, with respect to the regulatory path forward, we expect that our program could qualify for designation under what is called the 505(b)(2) status, allowing us to file with clinical data only and without having to perform additional significant clinical or preclinical studies. So the path to market is both faster and less expensive than a standard NDA program. As a clinical stage pharmaceutical company, Atossa is fully focused on the development of novel therapeutics and delivery methods for the treatment of breast cancer and other breast conditions. We're now solely focused on our business of pharmaceutical programs. Our key objectives are to advance our pharmaceutical candidates through Phase II trial and then evaluate further development independently or through partners and to advance one or more of our preclinical programs into the clinical trial stage. Now I would like to discuss our second pharmaceutical program under development. Afimoxifene Topical Gel for the treatment and prevention of hyperplasia of the breast, which we licensed on an exclusive basis for Besins Healthcare on May 14, 2015. As I noted on our last conference call, we became aware that Besins had started development of Afimoxifene Gel in our exclusive field and on January 28, 2016, we filed a complaint in the United States District Court for the District of Delaware captioned Atossa Genetics Inc., versus Besins Healthcare Luxembourg SARL. The complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing and for declaratory relief against Besins. Although we have received written FDA guidance pertaining to our Afimoxifene Gel development program, all work is on hold pending resolution of our dispute with Besins. In addition to our clinical stage pharmaceutical programs, we are in the process of evaluating other therapeutic candidates to treat other breast conditions including breast cancer, which represent tremendous potential value and potentially shortened pathways to clinical development. We'll be announcing updates of our programs about developments on these programs in the coming quarters as they occur. It is important for you our valued investors to know the depth of our commitment to delivering upon our promise of developing and commercializing treatments for DCIS and other breast diseases is steadfast and we will keep you informed of our latest developments and achievements. This concludes our prepared remarks. I will now turn the call over to the operator for any additional questions.

Well, I want to thank you for your attention this afternoon and if you have any additional questions, by all means you can reach out to us at the company. Thank you very much for this call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.