Beyond Air, Inc.
Q3 2021 Earnings Call Transcript

Published: 9 Feb 2021

[Operator:]

Greetings, and welcome to Beyond Air Incorporated Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Maria Yonkoski, Head of IR.

[Maria Yonkoski:]

Thank you, operator. Good afternoon, everyone, and thank you for joining us on Beyond Air’s conference call. Today, after the close, we issued a press release announcing the financial results for the third quarter of fiscal year 2021. A copy of which can be found on the Investor Relations page of our website.

[Steve Lisi:]

Thanks, Maria, and good afternoon, everyone. I hope you’re all staying safe and healthy during the current pandemic, which we all hope will subside this year. We appreciate you taking the time today to listen to our story, which we believe given our progress is an even more compelling investment opportunity now than it was in 2019 and 2020. Of course, this progress is attributable to the very strong capabilities of the Beyond Air team and their intense enthusiasm for what we are trying to accomplish for patients and our investors. I will spend a few minutes to provide a recap of our recent achievements and review our expected milestones, ahead of what I believe to be a transformative year for Beyond Air. Doug will conclude our prepared remarks with the review of our financial results, and then we will open up the call for questions. As you all know, we submitted a pre-market approval application to FDA for our LungFit PH this past November for the treatment of persistent pulmonary hypertension of the newborn or PPHN. The currently pending PMA is subject to a 180-day review period. Just in case, anyone was curious about our interactions with FDA, let me provide you with this. I will not be commenting on our interactions at this time, other than to say that we are very happy to be working with FDA on this application. In the meantime, we are actively preparing for a commercial launch of LungFit PH in the United States, which we expect will commence approximately four to six weeks after FDA approval.

[Douglas Beck:]

Thank you, Steve. Here’s a brief review of our financials for the third quarter of fiscal 2021, which ended on December 31, 2020. revenue for the quarter ended December 31, 2020 was $149,000 as compared to $314,000 for the three months ended December 31, 2019, all of which was from deferred licensing revenue.

[Steve Lisi:]

Thanks, Doug. Now, moving to questions. operator?

[Operator:]

Our first question is from Suraj Kalia with Oppenheimer & Company. Please proceed with your question.

[Suraj Kalia:]

Good afternoon, everyone. Steve, can you hear me all right?

[Steve Lisi:]

Yes, Suraj, I can.

[Suraj Kalia:]

Okay, perfect. So Steve, first and foremost, congrats on all the progress. I know it’s been a long haul with COVID, but looks like we are nearing the finish line at least on a PPHN indication. So congrats. And I know Steve, you specifically made a comment, you are not going to talk about the FDA interactions. So that throws out my first question. So, let me move on to the second one, Steve, remind us how many filters per case has your team analyzed internally on a per case basis in PPHN, when you launch in the first 12 or 20 hospitals, our NICUs that you guys believe are the key targets.

[Steve Lisi:]

I’m sorry. what do you mean filters per case?

[Suraj Kalia:]

So, each patient on average will require so many days of usage. Remind us that filters, they will not be in a – is it one per case or is it required to be changed on the daily basis? Forgive me, my memory fails me here.

[Steve Lisi:]

No problem. So, the filters are 12 hours. They last 12 hours. So, you’re changing it at that point in time. So, it’s two filters per day. And patients will require different lengths of therapy, but you can figure the average is somewhere around three, four days per patient, right, which you could see shorter than that longer than that, but that’s a good average to use.

[Suraj Kalia:]

Got it. Okay. And the thought process is pricing is going to be similar to what the cylinder based therapies for, let’s say, four days that are publicly reported, it’s going to be plus or minus the same.

[Steve Lisi:]

Yes. I mean, I have Duncan Fatkin here, our chief commercial officer. So, Suraj, I’d love to introduce him to everyone and let him answer some of these questions. So, if you don’t mind, I’ll let him address this question for you, if it’s commercials, if that’s okay.

[Suraj Kalia:]

Sure. Hey, Duncan.

[Duncan Fatkin:]

Hi, Suraj. Thanks for letting me answer the question. So, from a pricing point of view, we are expecting that the price is going to decline a little bit. We’ve guided that in the past and we are going to be competitive with the pricing that’s out there for the gas cylinders. And so yes, we will be pretty consistent with what is currently used over three or four-day period and we have the flexibility if we need to, to be more competitive, but we’re hoping that we can demonstrate the additional value of not having to have cylinders and maintain the price, somewhat close to that.

[Suraj Kalia:]

Got it. Okay, fair enough. Steve, maybe, I missed it. Were any patients recruited in the NTM trial, the LungFit GO NTM trial?

[Steve Lisi:]

Yes.

[Suraj Kalia:]

Sorry, I must have missed the number then.

[Steve Lisi:]

I didn’t give you the number. How many patients we’re just saying that yes, there was – basically, we have begun our enrollment.

[Suraj Kalia:]

Got it. Okay. Steve, just on – moving on to COVID, obviously that has been the prospect of INO in COVID and even Mallinckrodt towards the end of 2020 announced trial, I believe it was with farmer at. More specifically, Steve, as we all are evolving enough thought processes, do you think inhaled nitric oxide, could there be a differential to be demonstrated with some of the COVID variants that we are seeing over vaccines? I guess I’d love to get your updated thoughts, given everything we are seeing with vaccines with what’s happening with variants and where INO fits in this matrix?

[Steve Lisi:]

Look, Suraj, we haven’t tested a nitric oxide against these variants. They’re so new. I don’t know of anybody else, who’s tested against these variants, but what I can say is that we do have data that came out of Sweden back in 2004, which was against SARS-CoV-1, and nitric oxide was clearly effective in that study, it’s been published and we actually have a copy of – or at least a picture of that front page of that publication in our corporate presentation, and then the same group put out a publication late last year against SARS-CoV-2, and had very similar results to what happened with SARS-CoV-1. So, you can make your own conclusions there, but I would say nitric oxide seems to be a broad spectrum against viruses and specifically, the coronaviruses here. we did work on the OC43 human coronavirus, in vitro, and we had success there. So, you can’t say for short, so you actually test it in these mutations and these new strains. but from the previous information we have about nitric oxide against SARS and against other coronaviruses, it would seem to look very promising.

[Suraj Kalia:]

Got it. And Steve, just generally speaking and maybe, we can take this offline. Do you ever envision LungFit GO to have a role in COPD? Thanks for taking my questions, everyone.

[Steve Lisi:]

Thanks, Suraj. So yes and no, I’ll do the no part first. We’re not going to be treating the underlying COPD – nitric oxide wouldn’t treat COPD per se, but most COPD patients, especially those that are progressing to moderate-to-severe COPD will be experiencing lung infections that are causing severe exacerbations. So, they are more susceptible to these than healthy patients or those with mild COPD and those exacerbations again, can be very severe cost hospitalizations, and there are data out there showing that if you are hospitalized due to a severe exacerbation with underlying COPD, this will reduce your life expectancy. So that’s where nitric oxide can be beneficial. We believe that we can treat these patients, who are hospitalized and they can go home with nitric oxide and hopefully, improve their – the mortality rates. And we can reduce that mortality rate for those types of patients and perhaps in these patients, who are at high risk for these exacerbations, we could be treating them chronically in their home, so that we prevent these exacerbations from ever happening. That’s really the target for COPD. And I think this study in NTM, we’re treating patients in their home, where they’re self-administering in their home is the first step towards having LungFit GO in the home and treating these COPD patients.

[Suraj Kalia:]

Thank you.

[Operator:]

Our next question is from Scott Henry with ROTH Capital. please proceed with your question.

[Scott Henry:]

Thank you and good afternoon, just a couple of questions. I guess first, when it comes to the launch, I think you mentioned that two thirds of the launch team is already in place. How should we think about the kind of the promotional budget as well? Should that be, is that also partially in the current expenses, when you think about trade shows and any sort of sampling or anything that you’ll have to do in line with a launch?

[Steve Lisi:]

Thanks, Scott. I’ll take a little bit of the question. I’ll pass it over to Duncan. I mean, obviously, promotional expenses and marketing expenses are very minimal now since we can’t promote. So, there are a few things that we are covering in our current budget, but obviously, the bulk of that will be once we do launch the product, but I’ll let Duncan expand upon this. As you can imagine, this is not a – we’re not doing any DTC advertising, that’s for sure. So Duncan?

[Duncan Fatkin:]

yes. thanks for the question, Scott. So, we have accounted and budgeted for some significant activity, obviously for launch. but prior to launch, we continue to respond to inbound calls. We’re building on the conferences that we attended pre-COVID. We continue to attend those virtually and the cost of doing that is certainly not prohibitive and that’s really not a problem. when we get into the launch phase and we are starting, as Steve said, with a limited release, a specific number of hospitals. and we think that the actual trial phase will only be a matter of weeks that they actually have to trial the system and it’s going to be relatively cost effective for us. So, we certainly have all of that covered. We don’t anticipate it to be very difficult at all.

[Scott Henry:]

Okay, great. Thank you for that color. And then Steve, I believe you said, we would start to see first-in-man for the oncology indications by the end of calendar year 2021. How should I think about – how long till we see some data there? Should these be relatively marker – shorter marker based trials? Just trying to get a sense of when we should get readouts in that area.

[Steve Lisi:]

Yes, Scott, I would – it’s tough at this point to really predict when we’ll be able to show data from that, but I think you’re on the right path that this is not going to be a very long-term first-in-human study. It will be – there will be biomarkers we’ll be targeting and there’ll be safety and so forth. So it should be relatively short for oncology studies. So it’s hard for me to commit to a specific quarter that we would be showing data. But if we can get started by the end of 2021, I think it’s fair to say we could probably have something out there by the end of 2022. But again, let’s see how that goes. It’s almost two years from now, so got a couple of things to accomplish before I can really nail down that timing.

[Scott Henry:]

Okay, great. Thank you. And then just final question, I believe with regards to the balance sheet a real-time cash figure was given. Was $30.5 million? And if I hear that correctly, is the difference mostly warrant exercises? Just trying to think like how we should think about that there is an outstanding line?

[Steve Lisi:]

Thanks, Scott. So, yes, it was $30.5 million was what Doug said in the prepared remarks. And it was a mix of the warrant exercises as well as use of our ATM and equity line of credit. So it was a combination of those three things.

[Scott Henry:]

Okay, perfect. Thanks for the clarification, and thank you for taking the questions.

[Steve Lisi:]

Thanks, Scott.

[Operator:]

Our next question is with Matt Kaplan with Ladenburg. Please proceed with your question.

[Matt Kaplan:]

Thanks. Good afternoon, guys.

[Steve Lisi:]

Hey, Matt. How are you?

[Matt Kaplan:]

Doing well, thanks. Just want to ask you a couple of questions with respect to the planned launch that you have for LungFit PH. You mentioned a phased launch. Can you describe kind of how – what the phases are and how the – what the first phase will look like as you kind of launch the product later this year?

[Steve Lisi:]

Matt, I’m going to pass that over to Duncan. Thank you.

[Matt Kaplan:]

Thank you.

[Duncan Fatkin:]

Hey, Matt.

[Matt Kaplan:]

Hi, Duncan.

[Duncan Fatkin:]

Thanks for the question. I certainly regard it as a best practice for us to take a steady approach where we call it limited release. So that first phase is probably going to be around six to nine months and we expect to go to something like 10 to 12 hospitals. And the purpose of that phase is to optimize the supply chain, the service model and learn whatever we can, particularly anything that we haven’t anticipated. And the goal is to make sure that after that period, when we get to the 9 to 12 month phase, we can then broaden it to a much larger group of hospitals. And we will be able to accelerate at a much faster rate with a lot of confidence. We don’t have any constraints on our supply chain that have made us made that decision. We just think it’s prudent and the appropriate way to launch a medical device something that I’ve certainly had plenty of experience that has gone well and some haven’t gone well, it tells me this is the right thing to do. And then the pace that we expand across the U.S. will obviously depend on how things play out after that first phase, as we start to accelerate. We’re hoping that we’ll be able to go quickly and just move as fast as supply chain allows at that time.

[Matt Kaplan:]

It makes sense. Okay, great. That’s very helpful. And in terms of – what are you thinking about in terms of how you charge for the device itself? And then, let’s call it the razor and then the razor blades, is it – how are you going to monetize each of those?

[Duncan Fatkin:]

Sure. Thank you. Yes, I think that we’re still working through the specifics of that model, but we have a pretty good idea. You can imagine we don’t want to reveal exactly the details because we want to maintain that competitive advantage, but I will say that we intend to be flexible. We intend to make sure that there is an incentive for people to increase their usage of nitric oxide, which I think is something that hasn’t been there. In fact, I think there’s been a trend to put in protocols to kind of restrict usage because of the business model that’s in existence. And we’re going to just make it easy for us to do – easy for them to do business with us.

[Matt Kaplan:]

All right. All right. Thanks. And then I guess, Steve, for you. You have some, I guess, significant initial data readouts coming up in the relative near-term. Can you help us understand what we should be looking for, I guess in the – from a LungFit PRO acute viral pneumonia interim data that you expect to present or announce it in the spring?

[Steve Lisi:]

Yes, I think, obviously most important is safety. LungFit PRO being used in this number of patients for the first time in a study, it’s important to make sure that it’s a reliable system, it’s safe and simple to use as we’ve been telling you for the past couple of years here. In addition, we will have F-Scan points there obviously. And typical, whatever we’ve been doing with – for COVID-19 studies, what you’ve been seeing, people are looking for patients resolving symptoms, how quickly they resolve them, how quickly they get out of a hospital, how patients not progressing and going to the ICU. Those kinds of things will all be recorded. And again, I mentioned COVID because most of the patients are COVID at this time. And for acute viral pneumonia patients as well, you would look for the same things. So it’s pretty consistent there. So I think it’s pretty standard of what you’re seeing from other companies right now.

[Matt Kaplan:]

And then out of the 90 patients that you plan to enroll in the study, how many should we expect in the spring?

[Steve Lisi:]

Yes, we’ll see. We will have a point where we’ll have to cut the data in terms of this is it, this is the date and we’re going to compile it and then put that release out. We’re not looking for any specific number per se. It’s more of a timing issue from a date. We just have to kind of pick one at some point and say that’s it. And whatever we have at that point, we’ll put out in the press release. So, no, we haven’t really made that decision at this point in time of what that date will be, but the season’s pretty much over in – by the time we get into May, unless COVID just continues to go the way it’s going. But Israel seems to be vaccinating very quickly. So I don’t think it’s going to last too much longer than that. So that’s why we feel that we’ll have something out in the spring clearly on an interim basis, but I don’t know the exact number of patients who would be.

[Matt Kaplan:]

Sure.

[Steve Lisi:]

Enough to draw some initial conclusions. That’s for sure.

[Matt Kaplan:]

Great. And then I guess similarly for the LungFit GO program and NTM interim data, you’re expecting I guess mid this year. And what should we be looking for there? Will you have kind of culture conversion data at that point? What efficacy data we would have at that point?

[Steve Lisi:]

Yes, I don’t know think there’s going to be anything on cultural conversion at that point, it will be too early. This is a 12-week treatment, 12-week observation. So the culture conversion stuff would be after 24 weeks. So we won’t have anything on that, but we’ll have physical function, data and safety and tolerability data. I don’t know if we’ll have any quality of life data at that point in time, to be honest with you, I’m not sure we can compile it that quickly. But I think it’s important, Matt, that we see patients going home with the system and that they’re using it themselves safely in their home, and that the machine is holding up and without many problems and the patients aren’t complaining and they’re taking their doses and they’re happy with it, and we get good feedback from these patients, I mean, that’s the most important thing here. And when we put the final dataset out, then we can talk about cultural conversion, but it would be interesting to see how the safety and tolerability of our system at home looks as well as data on physical function.

[Matt Kaplan:]

Great. Thanks, Steve, and thanks for the added detail.

[Steve Lisi:]

All right. Thank you.

[Operator:]

Our next question is with Yale Jen with Laidlaw & Co. Please proceed with your question.

[Yale Jen:]

Good afternoon, Steve, and congrats for finally getting to the finish line for LungFit PH.

[Steve Lisi:]

Thanks, Yale. We’re not finished yet, but we’re close, but thank you.

[Yale Jen:]

It’s 95 or 96 yards, I guess? The first question is that how do you guys see the market at this point that being – giving the one sort of generic machine already at the cylinder already been in the market? Do you see the total market value being eroded? And what do you anticipate, should you guys coming in, would that be further so to reduce, because of a competition reason?

[Steve Lisi:]

So, the first thing I’ll say, Yale, is that we’ve been saying since 2017 that this is a $300 million plus market, knowing that the sales in there were at that time pushing $500 million run rate. And now before Praxair started to take market share, it was pushing closer to $600 million run rate. And we’ve always said, we think it’ll settle in around $300 million plus, just because Praxair was coming. It was well-known, well telegraph, they were coming. And we think that it won’t go much lower than that in terms of the price has kind of been set by Praxair’s entry. So, I think we were anticipated as well. We projected this market would be the size, and I think it’s actually occurring as we anticipated over the last couple of years. And then I’ll let Duncan talk about what he thinks will happen when we come in.

[Duncan Fatkin:]

Yes. thanks, Steve. I think that Steve’s comments, I think that’ll hold with the optimistic view that we’ll start to grow the market again. We do know, as I said earlier that a lot of hospitals have put in protocols to try and restrict the use of nitric oxide. And we’re hoping that our business model encourages them to change those protocols and increase to use, as well as the ease of use of our system and the relative reduction in time for them to use any efficiency, removing all the obstacles around logistics, et cetera, et cetera, so, our goal is that more patients are treated with nitric oxide. So that would be the cancer. We’re certainly not expecting that we will quarterly market further down. We think that we’ve got enough advantages to a strong enough story to prevent that from happening. But obviously, it’s a competitive world and it’ll depend from hospital to hospital, but certainly, that’s our goal.

[Yale Jen:]

Okay, great. That’s very helpful. Maybe, it’s just a one more question, at least on the marketing side, which is the cardiovascular use, presumably the large portion of nitric oxide, also that’s off-label. I know you guys cannot promote that, but was there any strategy, at least on top of –from 10,000 feet inch point for you guys to the thinking entering that market?

[Duncan Fatkin:]

Yes. Thanks for that question. I mean, we know the usage pattern that already exists. So of course, we can’t promote that off-label use, but we certainly can promote the hospitals with a NICU and we tend to do that. And as we enter the market, we’ll definitely be looking to expand our own indication to include cardiovascular use as well. So, we’re going to respond to the inquiries of our customers and we’re going to just make sure that it’s easy for them to use our system, and we’ll have clinical specialists and people who can respond to any off-label requests. So, we certainly hope that we can be part of expanding the use formerly and getting some reimbursement.

[Yale Jen:]

Okay. Maybe, a last question here, I know, Steve, you say, I’m not going to ask about the interaction between you guys and the FDA, but a general question in terms of have the agency already inspected, for instance, the manufacturer and other aspects>? or that’s still something in progress at this moment.

[Steve Lisi:]

Yes. Thanks, Yale. I will answer this one now. So, FDA has not yet done formal inspections of the facilities. It’s a little bit early in the process for them to do that. So, you will see that will occur in the last about 30 days, 45 days before the 180-day clock is up. So, we’re not quite there yet. So, when we get there, I’m sure it will happen and we’re looking forward to it.

[Yale Jen:]

Okay. Maybe, just tackle one more question that in terms of the European CE Mark, you anticipate potentially approval by, I guess, year-end. question is that is there additional information that you need to supply to the agency over there, or the process already ongoing, whether the train already left this station?

[Steve Lisi:]

Yes. All the trains already left the station there. I mean we – the data is extremely similar. There are some subtle differences and you need to be aware of them. And we have a great team that’s dealt with Europe before. so, we’re at the beginning of this process with the EU. And like you said, by the end of the year, we expect to get CE Mark and there’s no more work left to be done per se in terms of generating data for them. It’s just a matter of working through the process with the EU, which is obviously, different than FDA.

[Yale Jen:]

Okay, great. I really appreciate that just one more you have to go.

[Steve Lisi:]

Thanks, Yale.

[Operator:]

Our next question is with Gregg Gilbert with Truist. Please proceed with your question.

[Gregg Gilbert:]

Thank you. Steve, on the inspection theme, can you speak to your confidence in your partners? I know you can’t talk about how and when, and whether they get inspected, but can you talk about maybe, historical track record in your confidence overall? And then maybe, for Duncan, can you speak to what degree customers are locked up with contracts and how those tend to work in terms of when they roll off? And the second part of that, is the all-you-can-eat consumption model becoming more popular among your potential customers? or is that still the exception and how they’re doing business with the incumbents? Thanks.

[Steve Lisi:]

Thanks, Greg. I will be hitting all-you-can-eat buffet tonight, that’s for sure. So, the manufacturers, the contract manufacturers, we’re using our partners for both the filter and the LungFit system, obviously they’re two separate contractors. They are at the top of their game. They are at that the top tier of this industry with the kind of products that were – the product that we’re manufacturing with them. They have a very clean record with the FDA. They do manufacture many products globally. Really, we went with these guys, because of their vacation many years ago. And it’s certainly worth every penny that we spent with these guys and we get to this point, and there’s just really not much of a concern on our part. They’re – it’s – I don’t lose sleep over the fact that they’re going to go in and see our contractor for LungFit or for our filters in any way, shape or form. So, I hope that answers your question on that side. And Duncan?

[Gregg Gilbert:]

Yes. Thanks.

[Duncan Fatkin:]

Yes. So, Gregg, the first part of the question, the contract lens. they typically are between one and three years. Definitely, one of the strategies of the incumbent is try and lengthen those contracts. At the same time, the hospitals and particularly, respiratory therapy community, which is very tight-knit community, are very aware of the comment of Beyond Air and we’ve definitely talked to a lot of them. So, they’re resisting those changes. So, I think it’s a mixed bag. There are also clauses in a lot of these contracts that allow hospitals to break for new technology, and we would certainly regard ourselves to differentiate from that point of view. So, I think that when you consider that there are about 850 hospitals in the U.S. with NICUs that we can speak to, I think there should be plenty that are going to be coming off contract, and I don’t see that as a NICU . So, I’ll pause to see if that answers your question, Gregg, before I go on to the second half.

[Gregg Gilbert:]

Yes, it does. Thanks. Now, on to Steve’s buffet.

[Duncan Fatkin:]

Yes. So, the all-you-can-eat, we haven’t trademarked that, but I’ll think about that one. So again, that definitely was the trend the last few years was to try and sort of lock down longer term contracts and the trade-off would be to provide sort of incentives so unlimited type contracts. So, the reality is that they’re not really unlimited, they’re only unlimited for the period of the contract, and in some cases, less than that. Our goal is to make sure that our business model isn’t restrictive in any way. And we’re also in a very strong position from a point of view of the more people use our cost structure certainly can handle that much better than our competitors, but we’re going to try and change the way people think about the use of nitric oxide. So, it doesn’t really matter to us. The kind of contract is more making sure that they are available to speak with us in a reasonable timeframe.

[Gregg Gilbert:]

Thanks, guys. Good luck with the review.

[Duncan Fatkin:]

Thank you, Gregg.

[Steve Lisi:]

Thanks, Gregg.

[Operator:]

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to management for closing remarks.

[Steve Lisi:]

Thanks, everyone for joining us today. I really appreciate the interest and we’ll see you at the buffet.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.