Atossa Therapeutics (NASDAQ:ATOS) is a clinical-stage biotech company whose surge in 2021 soon proved to be unsustainable. It underwent a meteoric rise from $1.52 in April to a 52-week high of $9.80 in June. But now it’s back down to the $3.20 area. And looking at key financial metrics it is enough for me to offer my verdict about ATOS stock. But what is the business model of Atossa Therapeutics?

Well, it has a few things to offer. According to Yahoo! Finance “Atossa Therapeutic … discovers and develops medicines in the areas of oncology and infectious diseases. The company’s lead program is Endoxifen, an active metabolite of tamoxifen, which is in Phase II clinical trials to treat and prevent breast cancer. It is also developing AT-301, a proprietary drug candidate for nasal administration in patients diagnosed with COVID-19; AT-H201, a drug candidate to improve lung function in COVID-19 patients; and immunotherapy/chimeric antigen receptor therapy programs for the treatment of breast cancer.”

OK, so this biotech company has a pipeline of drugs related to breast cancer, oncology and Covid-19.

This could be great news if there was not a missing piece in the investment puzzle. But if you ignore that piece then you are not investing, you are speculating and hoping for the best. That’s fine if it’s what you want to do, but let’s be clear. As for the missing puzzle piece? The company has not yet any of its drugs approved by the FDA therefore it has zero revenue.

Revenue: The Starting Point for Evaluating Stocks

Revenue is one of the most important key financial metrics for analyzing stocks. From revenue comes gross margin, operating income, net income and free cash flows. Without having revenue than any company, publicly traded or private, will soon come to big financial trouble. Running expenses to operate the business turn to net losses. An axiom in finance and economics is that in the short-term any business can operate at a loss. In the long run, it cannot without going bankrupt.

I could end the article on ATOS stock here and simply say that in the absence of any revenue at all, the stock should be avoided. But I will mention a few more crucial pieces of information you should know in the case you want to examine the option of investing in this biotech stock. After all, from a financial and valuation perspective investing in ATOS stock does not make any sense. But this is my opinion based on facts, not emotions or any other investment reason that is not a plausible one.

But of course, many investors may be betting on a coming drug approval. So then let’s ask — when will Atossa Therapeutics see drug approval so that the company can start making revenue? The answer is we simply do not know. And this is a very serious risk factor to consider.

Stock Dilution Is a Hard Fact Approaching Fast

How can Atossa Therapeutics continue its operations and possibly fund its growth? The cheapest way and most effective one is to raise funds by issuing shares.

The probability of raising cash by issuing shares seems to be very likely as an article on Investorplace pointed out “ATOS Stock Dips Sharply Ahead of Special Meeting.”

According to this article, “The special meeting will see ATOS shareholders vote to approve a contentious amendment to the company’s certificate to incorporation. If the amendment sees approval, the total number of common shares of stock will be raised by 100 million. The increase in the supply of common stock would help the company raise funds for operation. Currently, its operating cash flow stands at a $12.75 million loss.”

The special meeting is scheduled for early September, 2021.

If this meeting approves the issuing of shares, a stock dilution will be very negative for the shareholders.

But on the flip side, there was very positive news earlier in June as Atossa Therapeutics joined the Russell 2000 and Russell 3000 Indexes.

This news explains in part why the stock made a rally in June and reached its 52-week high price of $9.80. Institutional investors and index funds had to buy the stock due to its inclusion in these major stock indexes.

Nevertheless, I do not believe that right now, ATOS stock is a good buy.

Financials: Cash Burn Is A Major Problem

The year-end 2020 financial results are self-explanatory for my main argument that the ATOS stock is too pricey and too risky. It had no revenue.

And what is more worrisome is the fact that data from MarketWatch shows that not only the company is burning cash, but this burning cash phenomenon gets even worse as in 2019 the free cash flow was -$9.14 million and in 2020 it increased to -$11.58 million.

ATOS Stock: Bottom Line

With zero revenue, negative free cash flow, and an unknown year when it will start generating revenue, I cannot see any positive factors right now for ATOS stock. There’s a chance it could eventually be a gold mine — but there’s no way to know when or if those drugs get approved. I am not surprised by its sell-off down to the $3 area. I am surprised why this company was included in the Russell 2000 and Russell 3000. This one’s for the speculators.

On the date of publication, Stavros Georgiadis, CFA  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

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.