Beyond Air, Inc.
Q4 2021 Earnings Call Transcript

Published: 10 Jun 2021

[Operator:]

Good afternoon and welcome everyone to the Beyond Air Financial Results Call for the Fourth Quarter and Full Fiscal Year 2021 Financial Results ended March 31st, 2021. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. And now, I would like to turn the call over to Maria Yonkoski, Head of Investor Relations at Beyond Air. Please go ahead.

[Maria Yonkoski:]

Thank you, operator. Good afternoon everyone and thank you for joining us. Today, after the close, we issued a press release announcing the fourth quarter 2021 operational highlights along with a summary of our year-end financial results. A copy of this press release can be found on the Investor Relations page of our website and will be on file with the 10-K filed today.

[Steve Lisi:]

Thanks Maria. Good afternoon to everyone and thank you for joining us on today's call. Last 12 months have been very productive for Beyond Air during which we laid the foundation for success over the next few years by achieving several key milestones, including the submission of our first ever PMA to the FDA for a LungFit device. The significant expansion of our commercial organization by hiring several nitric oxide industry veterans to keep leadership positions, including heads of sales and marketing. And we made important progress in each of our clinical programs, which I'll provide further details on in a few minutes. We ended the current fiscal year executing on our vision of harnessing the power of nitric oxide in order to transform the lives of patients. Most important, when approved LungFit PH will be the first in our portfolio of devices able to generate nitric oxide from ambient air to reach the market, further validating our technology. As we look to the approval of our pending PMA application for LungFit PH, we envision a future of tankless inhaled nitric oxide delivery in NICUs across the U.S. and eventually the world. LungFit PH is designed to offer hospitals a simple, safe, cost-effective and convenient alternative to products that are currently on the market.

[Douglas Beck:]

Thank you, Steve. Here's a brief review of our financial results of our fiscal 2021 which ended on March 31st, 2021. Revenue for the fiscal year ended March 31st, 2021 was $873,000 as compared to $1.4 million for the fiscal year ended March 31st, 2020 all of which was from differed licensing revenue. Research and development expenses for the fiscal year ended March 31st, 2021 were $12.6 million compared to $10.6 million for the fiscal year ended March 31st, 2020. General and administrative expenses for the fiscal year ended March 31st, 2021 were $10.5 million compared to $8.9 million for the fiscal year ended March 31st, 2020. For the fiscal year ended March 31st, 2021, the company had a net loss of $22.9 million or $1.27 per share compared to a net worth of $20.5 million or $1.78 per share for the fiscal year ended March 31st, 2020. As of March 31st, 2021, the company had cash, cash equivalents, and restricted cash of $35.3 million. I would like to reiterate our cash balance as of April 30th, 2021, which was $34.9 million given that we recently provided this information in a press release. As Steve said earlier, we believe this cash is sufficient to fund operations well beyond the next 12 months, including the initial U.S. commercial launch phase of LungFit PH. I'll now hand back this call to Steve.

[Steve Lisi:]

Thanks Doug. Operator, let's go straight to the Q&A.

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. Our first question is from Suraj Kalia with Oppenheimer. Please proceed.

[Suraj Kalia:]

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

[Steve Lisi:]

Yes, Yes, I can. Thanks, Raj.

[Suraj Kalia:]

Perfect. So, the obvious question I know you specifically said you don't want to talk much about the FDA discussions. If you could characterize the timeline for PPHN from late summer to end of Q3, I presume that is driven by your conservatism, rather than FDA specifically requesting any more testing or incremental data?

[Steve Lisi:]

No, surprise, summer ends and the end of September. So, it's almost the same thing. That's how I view it, the moon was the first day of fall is like September 21st, or 22nd, I believe. So it's just a different way of wording, it basically the same thing. I wasn't really trying to change any, any timing.

[Suraj Kalia:]

And Steve, when you talk about the PPHN launch, maybe you can talk about the number of sites you're expecting to target, feet on the ground, ROI calculation, how do you -- for the first few sites you're looking to target, maybe you all can just kind of walk us through X number of sites, this is how you're looking for, and then expand to a more broader population.

[Steve Lisi:]

Yes, so, I'll quickly comment on ROI and then I'll pass it over to Duncan. Our return on investment for these brushy sites is going to be small, I think we told people is first -- six to nine months after we launches. Again, target, as you're saying and we don't expect to see big numbers from that. I mean, there'll be a very small number of hospitals. So, the return on that investment is really the knowledge that we gain from this early phase so that we can branch out further once this phase is done. So, to answer the rest, I'll turn it over to Duncan.

[Duncan Fatkin:]

Thanks Steve. So, throughout this first phase, we're going to be working with about a dozen hospitals over that six to nine month period. We don't -- as Steve said, we don't anticipate a significant investment, we just announced the appointment of two outstanding leaders on the sales and the marketing side. And they have a really good experience in the nitric oxide market. We know the sites that are interested in working with us and we -- it's a fairly straightforward exercise to bring them on to run an evaluation. And during that period, we're going to be focusing on refining our supply chain, understanding any logistical nuances with specific hospitals, and learning, as Steve said, so that we can make sure that we have the optimal product when we expand after that phase one period.

[Suraj Kalia:]

Got it. And finally, Steve, in terms of CE Mark, maybe you can walk us through the timing of filing and when do you all expect discussions with potential partners? Because the statements seem to be pretty definitive, that you will sign a partnership, an FY 2022? Maybe you can just walk us through how you see the cadence, the regulatory filing discussions with potential partners, any colors that would be greatly appreciate it. Thank you for taking my question,

[Douglas Beck:]

Sure. Thanks Raj. So, Europe is a little different than the U.S. We work through a notified body like everyone else. So, it's a bit more of a fluid process. There's really no hard date we submitted and it was accepted for review, like FDA does, it's more of an ongoing process. And based upon that process and where we are right now, we think that will happen around the end of this year, this calendar year. From our perspective, it's best for us to, to wait to partner until after we've received our CE Mark. We think that puts us in the best position to optimize the terms that we partner on. So, that's where we are -- and Suraj that in the U.S. you can you can go-to-market relatively quickly after approval, wherein Europe, there are several steps after approval on a country-by-country basis that you need to take which makes launching the product there take quite a bit longer than in the U.S. So, we do have some time and I don't think we're losing much by waiting to optimize our terms. until after CE Mark I don't think we're going to be delaying the launch by much if at all.

[Operator:]

Thank you. Our next question is from Matt Kaplan, with Ladenburg Thalmann. Please proceed.

[Matt Kaplan:]

Hi, Steve and thanks for taking the questions. Congrats on the progress. First one a follow-on on Raj's question in terms of -- can you talk a little bit about thoughts on the expansion phase falling the first six to nine months and how we should think about that, that phase of the launch as you -- after you get all of your systems and everything in place, and in that first few months of the launch? And then what happens there?

[Steve Lisi:]

Sure. I'll let Duncan take that.

[Duncan Fatkin:]

Yes. Thanks, Matt. So, after that first period, we should have all the information we need to optimize the supply chain, et cetera. So, it's really a question of just building the sales organization and with the leadership that we brought in. Rebecca Van Doren has 10 years' experience building a sales organization nitric oxide industry and Kori-Ann Taylor has been working in the healthcare marketing space for a long time, including working on nitric oxide. So, both of them understand what's required. We're very clear about how we would ramp up and it's not going to take much for us to expand ourselves organization. In terms of targeting, there's already a really a very good awareness in the respiratory community of nitric oxide. So, we don't spend much trouble finding the right locations to expand and depending on when contracts fall, we estimate, they're typically between one and three years. Of the 850 hospitals with NICU unit, we still think there's plenty of hospitals will be ready to do evaluations and then start to contract. So, for us the investment is not significant the expansion of the sales team. Bear in mind that the market leader never had more than really 50 to 60 salespeople on the road for their $500 million worth of business. So, we don't think it's going to be a big challenge for us to have the right team in place to expand. So, really -- it's really about execution at that point.

[Matt Kaplan:]

And is there a metric you put on it for kind of revenues for hospitals? Is that a way to think about it? Or is there another way?

[Steve Lisi:]

Matt, I wouldn't look at it that way. These are hospitals vary in size and in demand of nitric oxide. So, I would look at it more, it's hard for me to tell you which hospitals, we're going to get first, a lot of it is based upon the contracts that these hospitals are currently under. So, they could be up to three years left in their contract that we might get a shot at them, they could be the big ones or big ones coming up when we launch. So, -- but it's -- you can use the classic 80/20 rule, 80% of the revenue is going to be generated by 20% of the customers. I just -- it's just not -- it's not that we can target those top 20% day one. It's like -- it's more of a timing issue of which hospitals we can target and when, and that's not a bad thing for us. As Duncan has mentioned, you know, this, this kind of a phased approach gives us the opportunity to kind of map things out over the first two years post approval of where we're going to go geographically and, and which hospitals we'll be targeting. So, it actually works very well on our favorite to be -- to have it -- kind of staggered over the next few years in terms of the opportunity to target hospitals.

[Matt Kaplan:]

Great, great. And just shifting gears a little bit in terms -- you mentioned, LungFit Go the ongoing NTM at-home study, the interim results that are expected this fall, what's -- how should we think about those in terms of number of patients that we should see potentially as well with the result?

[Steve Lisi:]

So, this is a study we're looking to enroll 20 patients, so I wouldn't look for 20 patients in that in that look. And the exact numbers tough to get to because we're not exactly sure if the cut off for when we'll be able to put the data into any presentation that we'd be accepted for a conference. So, it's tough number to nail down that, but it'll be enough patients that it'll be -- in our opinion, it'll be meaningful to people when they see it.

[Matt Kaplan:]

Okay. Thanks. And then lastly, the EU opportunity for PPHN -- the LungFit PH, can you give us some color on that?

[Duncan Fatkin:]

Yes, so as far as the EU is concerned the two -- I mean, the big five are the obvious markets that we would be expecting to target. And of those U.K. and Germany, are probably the most advanced. In terms of the market opportunities, it's clearly significantly less than the U.S. because price is depressed compared to the U.S. But we think there's an opportunity because there are a lot of restrictions on the use of nitric oxide in Europe as its matured and that's how they've driven the price and the usage down. And we think that our system is going to be more simple and flexible to use and will be potentially used in a broader a broader set of circumstances. So, it's definitely a significantly smaller opportunity, but still a lot of opportunity for growth and by the markets that we're targeting initially.

[Matt Kaplan:]

Okay, thank you. That's helpful. Thanks. Thanks for taking the question.

[Steve Lisi:]

Thanks Matt.

[Operator:]

Thank you. Our next question is from Greg Fraser with Truist Securities. Please proceed.

[Greg Fraser:]

Good afternoon, folks and thanks for taking the question. Nitric oxide is a large cost item for many hospitals and commanding utilization is clearly important to hospitals and control cost. Do you see any material goods to the NO market pushing the use of alternatives to save money like Sildenafil that might contribute to volume erosion over time?

[Steve Lisi:]

Not at all. I think Sildenafil and the other PD4s are not going to be able to replace nitric oxide in this context. Perhaps in the pulmonary arterial hypertension space, they may have some benefits and may be able to impact that market. But I think with respect to PPHN and outside the U.S., obviously on labels cardiac surgery patients, I don't see the Sildenafil type products having an impact here.

[Greg Fraser:]

Got it. Okay. And then just following up on the LungFit Go study for NTM lung infections, will the interim results include safety and efficacy data? And how would you set the bar on what you need to see in the study efficacy-wise to consider it a success?

[Steve Lisi:]

So, most -- in this interim look, we'll see safety, obviously, safety, tolerability, I think it's important to see the dose that we go to we titrating, from 150 to 250 parts per million, like to see 250 in as many patients as possible, with -- again, patients tolerating it for the full 12 weeks of the treatment. From an efficacy standpoint and the early data, I think we'll be we should get a decent look at quality of life, possibly physical function data, which are two critical endpoints, I think that bacterial load is going to take longer, I don't think we're going to see much, if any, on the interim look. As this type of data takes time. We sent it out to a lab, a central lab and work is done there. And that's something that will take a bit longer. And remember that we do follow these patients for 12 weeks after the 12-week treatment period, the 12 weeks of observation where we're still gathering data, especially on bacterial load. So, I think that safety, tolerability, as well as quality of life, and physical functions is what you should be looking for. And as for what do we need to see to be excited or happy about that improvement, improvement, quality of life, improvement in physical function. This is an open label study, single arm, and we are getting baseline numbers. So, these patients will act as their own controls. So, you'll be able to see the effect on these patients, whatever however many it is, if that interim look. I mean, we expect to see improvement. If we see a decline in physical function quality of life, that's bad, but we expect to see improvement and that will be a big positive for these patients.

[Greg Fraser:]

Got it, that's very helpful. And then just on the planned pivotal study for patients hospitalized with viral lung infections, it sounds like you're going to make a decision on whether the target ADP or bronchiolitis, is that correct? And if that is right, how you decide which way to go?

[Steve Lisi:]

Yes, we will choose one or the other going into winter season, doing a pivotal study for both of those at the same time, it's just not possible. So, we will pick one and that decision will be made towards the end of this year, when we've gathered all the data that we're gathering -- still gathering, and we've made an evaluation with the experts internally and beyond there, as well as those experts that are working with us from outside the company. And we'll figure it out at that point in time. Right now, we don't have the answer.

[Greg Fraser:]

Got it. Okay. Thanks for taking the question.

[Steve Lisi:]

Thanks Greg.

[Operator:]

Thank you. Our next question is from Scott Henry with ROTH Capital. Please proceed.

[Scott Henry:]

Thank you and good afternoon. I've been jumping around, so I apologize if any of these questions have been asked. Starting on the clinical side, see the Australian study for the at-home pilot study, did you say how many patients were going to be in that trial?

[Steve Lisi:]

Yes, but the target is 20 patients total.

[Scott Henry:]

Okay. And it sounds like we should be pretty comfortable that the COVID is not going to have any significant delays there based on your statements, is that fair?

[Steve Lisi:]

Yes, I think the delays related to COVID have already occurred. I can't say for sure that it won't have an impact over the next several months, I don't know. Australia is handling it differently than we have in other places. So, they are pretty tight over there. So, I just don't know. Let's hope there's no more impact from COVID anywhere, especially on our trial. But we certainly faced challenges over the first half of this year or the first six months of this year. And I think they're subsiding and like I said in my prepared remarks, that enrollment is certainly picking up recently. And we're very happy to see that.

[Scott Henry:]

Great. Fair enough. And then the pilot study in Israel, when should we expect data from that trial?

[Steve Lisi:]

So, the data that we showed at ATS is the data that we've -- that was available at the time. I think that the next time we show data from this trial will probably be in the first half of next year. Right now, the team is focused on gathering this information. Again, we still have the sites open in case more patients are rolling in on a slow basis in the summer months. But our goal is to do our best to analyze all the data and put it together for FDA, so that we can approach them around the end of this year, and have a discussion about a pivotal study beginning in the fourth quarter of 2022. So, that's our goal. Our goal is not to try to get more data out by the end of this year. Our goal is to prepare for FDA and get rid of them by the end of this year. And perhaps in the first half of 2022, we would show more data from this study.

[Scott Henry:]

Okay, great. Thank you. And then cleaning up the Circassia deal, obviously, a nice positive for the company. Is there any accounting noise we should expect from that, any one-time charges or any changes? Just factor into the model?

[Steve Lisi:]

No, I think it's pretty much laid out as is this is going to be payment due once we get approval, and then the other payments would obviously be due as well. So, right now, there's no accounting changes until we see approval. And once that happens, you'll see the payments made as they were laid out in the press release a month or so ago.

[Scott Henry:]

Okay. Perfect. And then just final question, I know you've kind of -- you've given us a lot of bits and pieces around that already. But how should we think about the first year of that PPN or -- of the PPHN launch? In terms of how long from when you launch to when you start accruing revenues? And how should we just think about revenues in that first year be just as far as expectations?

[Steve Lisi:]

Yes, I think based on GAAP accounting, you're going to be a crew, you're trying to match the revenues with the period that you and your expenses in the same period. So we may recognize revenues fairly quickly, with cash coming in a few months after. So, it should be -- if we launch in this fourth quarter of this calendar year or the third quarter of our fiscal year, which is what we're planning on doing, I would say you would see revenues in the following quarter. So, you would see revs in our fiscal fourth quarter. Again, I would caution everyone that we're not looking at large revenues, we're looking at low level of revenues for that quarter. So, I think that -- did that answer your whole question, Scott?

[Scott Henry:]

Yes. I mean that's helpful. But I guess what I'm just trying to think about from a ramp, it sounds like we should think about those first 12 months as sort of a pilot process with kind of an inflection point perhaps later in the cycle. I just want to make sure I'm thinking about that in the right way.

[Steve Lisi:]

I think you're thinking about in that in the right way, that this -- we're calling in a six to nine-month period of a focus launch. And that won't start, the day we get approval is going to be probably about I don't know, close to two months before we start to really get out there 16 weeks, call it. And that would take us to close to the first 12 months after approval and I think that, yes, that should be very modest expectations for topline revenues for that during this period. And, again, Duncan said we once we get that confirmation that everything is, is all the wrinkles are smoothed out in the process, we'll be moving very quickly to expand. So, I would see a quite large expansion off of that first 12 months and the second 12 months in terms of revenues that we'll be bringing in.

[Scott Henry:]

Okay, great. Thank you for taking the questions.

[Steve Lisi:]

Sure. Thanks, Scott.

[Operator:]

Thank you. Our next question is from Yale Jen with Laidlaw & Co. Please proceed.

[Yale Jen:]

Good afternoon and thanks for taking the questions. I just started with some housekeeping questions that the last quarter, the R&D expense has been substantially lower than the prior quarters and how should we think about that for the fiscal 2022, specifically in R&D quarter-over-quarter?

[Steve Lisi:]

Thanks Yale. Yes so, we spent a lot of money on the R&D side and we think of R&D in two ways, R&D for clinical studies, as well as R&D for engineering. And the R&D engineering numbers went down significantly since we had submitted the PMA and the spend subsided on that variable spend for engineering. Even on the clinical trials side, we didn't have a lot of expenses on the NTM side. And that's obviously picked up. But again, there'll be offset by the CF grant. And the study in Israel, a lot of those expenses occurred upfront in the December quarter. So, yes, that number went down a bit and I don't anticipate it going up much. In my prepared remarks, I said that overall, actual cash expenditure will be lower in the June quarter than it was in the march quarter. And that's going to come from R&D because, again, we're not spending on trials now, we're kind of in a little bit of a low here. And that spend, obviously will pick up again, not on the R&D side, but we'll pick up on the commercial side once we're get approval. So, I think the R&D spend, will begin to pick up in the back half of calendar 2022. At that time, we'll be prepping for a pivotal study, in either bronchiolitis or viral pneumonia, as well as the expenses of probably picking up as well on our cancer program. We should be quite a ways through our Phase 1 study. And as you can surmise, there'll be a little bit of -- kind of Phase 1a/1b, where 1b will be a little more expensive and that will be later in the year. And as we wrap up the NTM study and plan for a pivotal there, I don't know if those expenses kick in in 2022, but it's probably more in the first half of calendar 2023 and we start to see those expenses pick up. So, that kind of back half of 2022 into the first half of 2023 is when R&D expenses will start to ramp back up. Until then, it's going to remain fairly low.

[Yale Jen:]

Okay, great. That's very helpful. And maybe along the same thing, first of all, in terms of CF foundation funding would that be recorded as part of the license revenue for the -- or that's separate?

[Steve Lisi:]

It's an offset of expenses, that's how we report it.

[Yale Jen:]

And in terms of you're starting from -- presumably starting at a marketing for -- into the fourth quarter -- in the fourth quarter of this year. Should we anticipate from P&L perspective, a separate line of marketing and sales expenditure or that will be blended into the SG&A altogether?

[Steve Lisi:]

Yes, we'll -- I don't know yet, Yale. I mean, I know some companies are breakout their sales marketing and G&A separately. I don't know if we're going to do that in the next couple of quarters, we might do it maybe in the next year or two? I don't see it happening in the near-term, but we'll see what we can do.

[Yale Jen:]

Okay, maybe just one more marketing question here, which is that, for the nitroxide sales, the revenues go, predominant portion come from the cardiovascular labs and I understand that the off label use. And the what are your thoughts at this moment also expand into that space, would that be something after the initial test -- soft launch or something you will contemplate sometime in the future?

[Duncan Fatkin:]

Yes, Yale, its Duncan here. Thanks for the question. So, as far as the cardiovascular label, it's something we plan to submit for as soon as possible post approval. Obviously, right now, the indications for PPHN and that's how we will promote the product. We said we'll respond to all the hospitals that want to use it in any other fashion. And that the -- because the nitric oxide has been used for over 20 years, the plans are very well established. So, we don't expect it to be particularly different for us. But obviously, we'll do it in exactly the right manner. So, that's how we're going to move forward.

[Yale Jen:]

Are you referring that you will have a formal permission of approval or simply -- is that what you're suggesting?

[Duncan Fatkin:]

We'll be submitting for --

[Steve Lisi:]

It’s a label expansion. It’s a label expansion.

[Yale Jen:]

Okay, great. That's great and congrats on the other processes.

[Steve Lisi:]

Thanks Yale.

[Operator:]

There are no more questions at this time and I would like to turn the call back to management for closing remarks.

[Steve Lisi:]

Thanks operator. Thanks everyone for joining today. We'll be around if there's any more questions.

[Operator:]

This end today's conference. You may disconnect your lines at this time. Thank you very much for your participation. Have a great day.