Beyond Air, Inc. (XAIR) Earnings Call Transcript & Summary

Good afternoon, and welcome, everyone, to the Beyond Air financial results call for the fiscal quarter ended June 30, 2023. [Operator Instructions] And now I would like to turn the call over to Edward Barger, Head of Investor Relations at Beyond Air. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Today, after market close, we issued a press release announcing the fiscal first quarter 2024 operational highlights and financial results. A copy of this press release can be found on our website, www.beyondair.net under the News & Events section. Before we begin, I would like to remind everyone that we'll be making comments and various remarks about future expectations, plans and prospects which constitute forward-looking statements for the purposes of the Safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Beyond Air cautions that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated. We encourage everyone to review the company's filings with the SEC, including, without limitation, the company's most recent Form 10-K and Form 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Additionally, this conference call is being recorded and will be available for audio rebroadcast on our website, www.beyondair.net. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 10, 2023. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. Joining me today on the call are Steve Lisi, Chairman and Chief Executive Officer; Duncan Fatkin, Chief Commercial Officer; and Douglas Larson, Chief Financial Officer. And with that, I'll turn the call over to Steve Lisi. Steve?

Thanks, Ed, and good afternoon to everyone joining us today. Since it's only been about 6 weeks from the last time we spoke, we'll keep the prepared remarks short today. LungFit PH continues to be well-received in the market, and we have begun Phase 2 of the commercial launch. We're very happy to report that we have now in excess of $1 million in contracted annual revenue, but only a small portion of these revenues were recognized in the June quarter. We continue to match our momentum in the marketplace with the thoughtful expansion of our commercial team. Our Chief Commercial Officer will discuss this further in a few minutes. We provided a thorough review of our pipeline during the last call. Everything continues to be on track. Before turning the call over to Duncan, I'll reiterate a few near-term catalysts and highlights. By the end of the calendar year, we expect to submit a PMA supplement to FDA for the LungFit PH cardiac label expansion, received CE Mark in the EU, and present data from Beyond Cancer's first-in-human trial. Additionally, following agreement with FDA, we will be conducting a pilot study in viral community-acquired pneumonia in the United States this winter. Now I will turn the call over to our Chief Commercial Officer, Duncan Fatkin, for an update on the LungFit PH commercial launch. Duncan?

Thanks, Steve, and good afternoon to our investors. As Steve mentioned, we have eclipsed the $1 million mark for signed annual contracts. We're very pleased with the momentum our team is building as we progress with Phase 2 of our launch. The overall feedback from hospitals regarding LungFit PH continues to be extremely positive, and we would again like to thank all the hospitals and clinical staff that have partnered with us and committed to using our device. Our plan is to build out our field team based on the opportunities developed over the past year and the growing interest in LungFit PH as we broaden our reach. These additions will be carefully targeted and designed to ensure a strong and sustainable foundation for growth. We also expect to add to the team pending the anticipated cardiac label expansion, which we expect to significantly expand our reach in the hospital. We have planned for a thoughtful and measured increase in the size of our team through to the approval of our next-generation LungFit PH, which is anticipated in calendar year 2025. In closing, we are confident that LungFit PH is the best-in-class nitric oxide technology available today, and we continue to be excited by the support we have received from hospitals throughout the U.S. I'm looking forward to providing updates on progress in the upcoming quarters. With that, I will turn the call over to Doug Larson, our Chief Financial Officer, to provide an overview of our financial results for the fiscal quarter ended June 30, 2023. Doug?

Thanks, Duncan, and good afternoon, everyone. Our financial results for the fiscal quarter ended June 30, 2023 are as follows. Revenue for the fiscal quarter was $0.1 million as compared with 0 for the fiscal quarter ended June 30, 2022. Research and development expenses for the fiscal quarter ended June 30, 2023, were $4.7 million compared with $3.2 million for the fiscal quarter ended June 30, 2022. The $1.5 million increase was due to an increase in head count and incremental research mainly in cancer and autism. SG&A expenses for the fiscal quarter were $10.9 million compared with $8.2 million for the fiscal quarter ended June 30, 2022. Almost all of the $2.7 million increase was due to salaries, as additional head count is needed to scale operations in the field and in the back office. Other income and expense for the fiscal quarter showed a $0.8 million gain compared with a $0.2 million loss for the fiscal quarter ended June 30, 2022. The gain this year was mainly driven by the re-measurement of warrants and derivatives associated with our long-term debt. For the fiscal quarter ended June 30, 2023, the company recorded a net loss of $15.1 million, of which $14.1 million, or $0.45 per share, was attributable to the shareholders of Beyond Air, Inc. compared with a net loss of $10.9 million, or $0.37 a share, for the fiscal quarter ended June 30, 2022. Net cash used by the company, excluding onetime expenses, was $10.6 million during the fiscal quarter. We forecast our average quarterly cash burn to be approximately $10 million per quarter as we move through fiscal 2024. In June 2023, up to $40 million in debt financing was provided to the company by Avenue Capital, of which $17.5 million in gross funds were drawn in the quarter. As of June 30, 2023, the company had cash, cash equivalents and marketable securities of $57 million. And with that, I'll hand the call back to Steve.

Thanks, Doug. We'll now take any questions you may have.

[Operator Instructions] And our first question comes from Les Sulewski from Truist Securities.

Just to confirm, the $1 million is now the annual base? And then can you quantify the market opportunity out there that's remaining over the remaining of this year? Do you have a sense of how many hospitals are out there near end of contracts with a competing product that are marked in your book for an opportunity to convert? And then I have a follow-up.

So yes, I guess the $1 million is the base, but that would not be starting at the beginning of this fiscal year. So it wouldn't be a start from April 1. It would be a start from this quarter when we obviously signed the contracts to get us above that level. So I just want to be clear on that. Look, I don't think that we're going to really reveal how many hospitals we're speaking to right now and what it looks like for the rest of the fiscal year in terms of opportunities for us. I don't think we want to share that information. But I do think that we will be in a position, when we report our next quarter in November, to give you some guidance on that and probably some guidance for our anticipated revenues for the full year.

And then on the cardiac label expansion opportunity, what size is that potential to TAM? I mean, is that essentially kind of calculated into your figures that you initially rolled out? Or is there more to the story here? Just kind of walk us through the high level overview of what you think of the cardiac label expansion.

Okay. So cardiac surgeries, nitric oxide use there, it's the biggest of all the, I guess, subcategories for use of nitric oxide in the hospital would be cardiac surgeries. So I think it's very important to get this label expansion. It will help us have access into an area that's exclusively now off-label. So that's an area where we don't market and we don't detail. So that's certainly going to open things up in a good way, I would think.

And our next question comes from Marie Thibault from BTIG.

Now that we have revenue, I want to try to understand how many contracts were signed, how many hospitals now have LungFit PH. Any details on contract value and length of some of these contracts? Just any additional detail you can offer at this time would be really helpful.

Probably not too much, but most of the contracts are annual contracts. Sometimes they renew for another year or 3 years, but we haven't said. I don't think there's too many contracts beyond 3 years out there, but there might be a few; not for us but perhaps for others. Again, we're not really discussing the number of hospitals we have. There are multiple hospitals. There's plenty for us to get plenty of feedback from our customers that they're very happy with our service and with the product, but we're not going to give an exact number. I apologize for that. I'm not really sure how much really more we want to say. [ There's ] a competitive environment, so we'll kind of keep things close to the vest, if you can understand that. There are other people listening.

And maybe I can ask about gross margins. It's not surprising, of course, that they're negative to start this early in the launch. But how do you think about that flipping positive? What's sort of the right level to think about for gross margins and those COGS in the first year of expansion?

So this is Doug. I can jump in with that one. In the next couple of quarters, at least, that gross margin is going to turn positive. The drivers behind that are actually the devices that we're producing. We're starting to depreciate them, so there's some costs there for devices that aren't actually deployed yet and then setting up our supply chain infrastructure so that we can expand across the U.S. for wherever we have an opportunity. So those are basically the fixed costs, if you will, that are going to be absorbed very quickly as we expand. So again, my expectation is that either next quarter or the following quarter we'll be in positive territory.

And our next question comes from Scott Henry from ROTH Capital.

A couple of questions. First, with regards to selling expenses, I guess what would you estimate the quarterly selling expenses are today? And where would they be at peak? Just trying to get a sense of how much cost to market, pay all the reps, how we should think about that number.

So Scott, there is an industry standard for a fully loaded rep. So I'm sure you know that. You've been modeling this for a long time. We're certainly on the low end of things. We just started our second phase where we're starting to bring more people in and hire them. So from a pure headcount, we're probably around 15 people or so on the commercial side and growing. And that number is probably going to get up well north of 50, probably close to 70, 75 people at peak. And that peak will probably be 2 to 3 years from now, depending on how quickly we bring people in. So it's not going to be a very rapid expansion. But I would say to use that industry average is a good number, because not all those people that I've mentioned in those numbers will be reps, but when we get out to peak, the vast majority will be reps. Right now, it's a much lower ratio for reps to others because we really need our clinical specialists. The respiratory therapists are the ones that are out there training the hospitals that are working with us, right? So we need to train in the beginning. It's very important to have the customer service level very high, and the reps will be expanded later.

And then the $57 million of cash, how much of that is in Beyond Cancer, just so I get a sense of the net cash you have?

About 30% or so, about 1/3, maybe?

And then, when we think about this burn of kind of $10 million a quarter, and at the same time you'll be expanding sales, would it be safe to say this is kind of the low point; and by low point, I mean this is where the burn is going to max out? As you add sales, you'll also be bringing in gross profit. So I mean, should we think about this being the maximum burn decreasing, maybe not this year but soon thereafter?

Yes and no, Scott. I mean, it does depend on what we do with our pipeline. So if we move into a pivotal study in calendar '25, whether that be for pneumonia and/or NTM, we're going to spend, so that's going to cost money. But obviously, it will be for a very good reason. We've done 4 pneumonia studies that have worked. We're entering our fifth pneumonia study in a few months. We would expect #5 to look just like the first 4 in terms of overall efficacy and safety profile. So with that kind of confidence going into a pivotal study, we're going to spend money on it. We don't know how big it will be yet. We're still waiting to get this last study done and speak with the FDA. But I can't say that those costs wouldn't force us to spend more money than $10 million in one quarter. I just don't know. But if we're not running a pivotal studies, then yes, you're right.

And that leads into kind of a bigger-picture question for you and the Board. From the standpoint of is there any concern that you might cast too wide that? I mean, a lot of these programs are great, but it's the working capital problem a new business office faces, that if you stretch yourself too thin, there can be financial distress. How do you balance that? I know you have a pretty good balance sheet right now, but you got a lot of good ideas that you're chasing right now.

Yes, Scott, we're not chasing them all, that's for sure, for that reason. I mean, we're not chasing COPD at the moment, NTMs not until '25, so we're not stretching. I mean, we're almost 2 years away from an NTM study starting, and COPD is going to be based on available funds. We'd love to do it. I mean, I'd love to do it in 3 months, but we can't. This launch is the most important thing. So the other programs like cancer is funded. We haven't entered into the real expensive part of cancer yet. We haven't gone into Phase II human studies, which is where the big money will be spent. That's another '25 occurrence, most likely. And the autism program, there's not much being spent at the moment on that. It's still obviously in preclinical stage with our partner in Israel. So again, heavy expenses won't kick in until '26 or '27 calendar. So can we accelerate these things? Sure, if we have more cash or sales come in and we have a good gross profit, then yes, we can. But right now, we're being very prudent in terms of which programs we're working on and how quickly we're pushing them. So right now, pneumonia is full steam ahead and cancer and autism are moving, but the other programs are not moving right now just because you're right, we don't have the balance sheet to do everything that we want to do. And it's not everything we want to do. I mean, it's everything that the data tells us to do, right? Our NTM data are very strong, pneumonia very strong. And with NTM and pneumonia being as strong as they are, it begs the question why we're not doing a COPD study. But again, the answer is we're not funded to do that study. So we're just going to bide our time, make sure that this launch is successful, or more successful. It's already been successful. And we'll see how that works out. But yes, we're being very prudent with our cash. Doug doesn't like spending money. He's a very good CFO. He beats up everybody.

And our next question comes from Jason Bednar from Piper Sandler.

Congrats on reaching that $1 million milestone. Maybe if I could start on the contracting so far and where we're going in the future. I totally understand there's only so much you might be able to share. But can you speak to whether the contract sizes are what you expect them to be so far? And is there any difference in overall contract size you'd expect as maybe you move further down the road with Phase 2 of your commercial plans? Just anything you can share there?

I think that they're fairly in line with what we thought in terms of overall size. There's a mix, right, that the volume at hospitals is a huge range in the U.S. You have hospitals doing 1,000 hours, 500 hours, 2,000 hours, your hospitals doing 50,000-plus hours of nitric oxide a year. So it varies all over the place. So I think it's in line with what we had expected. And I would say the same thing about the pricing, pretty much what we expected as well. So right now, we're not really seeing anything that's outside of the parameters that we had entering into the market.

And then I'd be curious just maybe on the competitive response from some of your closest peers. Just thinking again, given where you're at and where you maybe hope to be in a year or 2, I think having some perspective today would be enlightening. Just how are you seeing them behave as they start to lose contracts to you? Are they getting more aggressive in follow-up contracting efforts? Are they holding the line on where they're pricing? Again, just curious how the success you're starting to have in contracting is influencing their behavior at all.

They've been aggressive from day 1. I don't think it's changed. I think they're nervous, they're worried. That's how they're acting. It's how they're behaving. I might do the same thing if I were in their shoes. So I don't think that there's anything that they're doing that, again, is surprising to us. I would expect some of the things they're doing to be done. I might not do everything they're doing, but certainly some of the things they're doing, if I were in their shoes, I would do. But it's a competitive environment. There's no doubt about it. And you would expect all the players to do everything they can to either keep customers or take customers from a competitor. So, I mean, Duncan, you're on the line, if you have anything else to add to that. You're a little closer than I am.