Beyond Air, Inc. (XAIR) Q4 2022 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Beyond Air Fiscal Year 2022 Financial Results and LungFit PH Approval Conference Call. [Operator Instructions] And now I would like to turn the call over to Corey Davis from LifeSci Advisors. Please go ahead, sir. You may begin.

Thank you, operator. Good afternoon, everyone and thank you for joining us. Today, after market close, we issued a press release announcing FDA approval for LungFit PH and a press release announcing the company’s fiscal fourth quarter and year end 2022 operational highlights and financial results. Copies of these press releases can be found on the Investor Relations page of Beyond Air’s website. Before we begin, I’d like to remind everyone that we will be making comments and various remarks about future expectations, plans and prospects, which constitute forward-looking statements for purposes of the Safe Harbor provisions of 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 Securities and Exchange Commission, 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, June 28, 2022. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. Joining me on today’s call are Steve Lisi, Chairman and Chief Executive Officer; Duncan Fatkin, Chief Commercial Officer; and Douglas Larson, Chief Financial Officer, Beyond Air. With that, I will turn the call over to Steve Lisi. Steve, go ahead.

Thanks, Corey, and good afternoon to everyone joining us today. Given the timing of PMA approval, coinciding with our fiscal year earnings call, I would like to begin with some slides focusing on LungFit PH, after which I will provide an update on our pipeline and Doug will go through the financials. I am very happy to finally state that LungFit PH has received FDA approval for the treatment of term and near-term neonates with hypoxic respiratory failure commonly referred to as persistent pulmonary hypertension of the newborn or PPHN. I hope the old saying is true that the first time is the toughest, because this was a Herculean task over the last 2.5 years. What an amazing group of engineers, regulatory and quality people, respiratory therapists and everyone who made this happen at Beyond Air. LungFit PH is the first and only FDA-approved nitric oxide generator that can safely deliver unlimited on-demand nitric oxide generated from ambient air to ventilated patients. Our product eliminates the complexities associated with cylinder-based systems. We believe LungFit PH will transform nitric oxide therapy. And this is only the beginning for us as a company, as we have developed a portfolio of devices around our platform technology that we believe are capable of treating numerous indications. Our patented ionizer technology is used in all of LungFit family devices that you see here. Our engineering team is the team that brought the world the first NO Delivery System over 20 years ago and has been innovating ever since. Beyond Air is the only company dedicated to harnessing the power of nitric oxide and this approval is evidence of our leadership. This is an overview of our ionizer where the magic happens. LungFit PH has two ionizers with the second acting as they are built in back up to the first. Since the system uses ambient air as a source for generating NO as long as you have a standard electric outlet, supply is unlimited. Ambient air drawn into the ionizer and passes between two electrodes, which are sparking rapidly with the equivalent output of about 60 watts. The oxygen and nitrogen molecules are disrupted by the sparks and reform at nitric oxide. Since NO converts to toxic nitrogen dioxide or NO2 in the presence of oxygen, the newly formed NO and NO2 passed through our patented NO2 smart filter just after exiting the ionizer. At this point, we have pure NO to be delivered to the ventilator circuit. This process performed on demand regardless of the dose or flow dictated by ventilator. Now, let’s review the NO market in the United States. Here we see our LungFit device on a cart for the convenience of the medical staff. Prior to 2020, the INOmax DSIR system for Mallinckrodt maintained a monopoly in the hospital setting for NO. For 20 years, they were the only option. In just the past couple of years, this has changed slightly as our LungFit PH will be just the fourth entrant into this market. There are two cylinder-based systems, which command about 95% share of the U.S. market. While prices come down with competition, the increased usage of NO associated with the pandemic has been a partial offset. Thus, the addressable market for Beyond Air in the United States is well in excess of $400 million. It is important to point out that for over 22 years in the United States, the use of 20 parts per million inhaled nitric oxide in PPHN has been the standard of care for term and near-term neonates, which are defined as greater than 34 weeks gestation with hypoxic respiratory failure associated with clinical or echocardiographic evidence of pulmonary hypertension in conjunction with ventilatory support and other appropriate agents. Nitric oxide at sub 80 parts per million acts as a vasodilator to improve oxygenation and reduce the need for extracorporeal membrane oxygenation. LungFit PH will not change how it would look to patients, but it provides a much, much better [indiscernible]. I want to say a few words about our lead inventors. I hate to use the word legacy when speaking about Fred Montgomery, our Vice President of Medical Systems and Duncan Bathe, our Vice President of Engineering, only because I will never get to the end of it. Yet these two gentlemen are the reason why NO generation is a reality. They were also indispensable in the development of the INOvent, the first nitric oxide delivery system ever approved and the subsequent INOmax DS and INOmax DSIR, the market-leading system. Fred and Duncan, along with several key members of the Beyond Air team, have been at the forefront of NO therapy for the last 30 years. And because they are here and able to attract such a talented team, the nitric oxide knowledge experience at Beyond Air is the best in the world. Amazingly, we are able to find two men named Duncan to work at Beyond Air and they both originally held from the UK. Duncan Fatkin, our Chief Commercial Officer, has over 30 years of experience in the medical device industry with household names like Johnson & Johnson, Smith & Nephew, Zimmer Biomet and Becton Dickinson. He has led teams in Asia, Europe and the U.S. His understanding of the industry is exceptional. His leadership at Beyond Air has been essential to our success. As expected, Duncan has brought together a fantastic team.

Thanks, Steve, and good morning to our investors. I am extremely excited that we have finally achieved this groundbreaking approval and that I will have the privilege of leading the commercial team tasked with fulfilling the enormous potential for LungFit PH. We are fortunate to have gathered a highly experienced team to support this launch, including our field-based leadership shown here. Rebecca Van Doren, Head of Sales, joined our organization last year and has a proven track record of building and leading sales organizations, specifically in the nitric oxide industry. Rebecca has gathered an outstanding group of regional managers, all with nitric oxide experience to lead our efforts during the initial phase of our LungFit PH launch and our customer outreach, which begins today. Jeff Griebel, joined Beyond Air at the end of last year and is responsible for our clinical services team in the U.S. Jeff is a registered respiratory therapist with a distinguished record in the nitric oxide industry and is well known to key opinion leaders and customers in the U.S. Jeff has gathered a group of respiratory therapists to lead our clinical training and education program as we introduced LungFit PH to the market. In addition, we are also fortunate to have strong leaders to support this field-based activity, all of whom have many years of experience in the nitric oxide industry. We are very pleased with the team we have gathered and confident this will help us quickly access key decision-makers. As we now look at LungFit PH as the commercial product, we believe more than ever that the benefits of the LungFit PH design have the power to transform the way nitric oxide is delivered to patients in the U.S. As Steve mentioned, LungFit PH is the first and only FDA-approved system that generates nitric oxide using room air. And there are some very clear potential competitive advantages over antiquated cylinder-based systems. Nitric oxide delivery with LungFit PH will be fast, precise and simple. In fact, nitric oxide can be delivered within 1 minute of the system being powered on, allowing for the team in the NICU to spend more time on other patient care priorities. We expect the most, if not all, nitric oxide users will be happy to move away from using large, highly pressurized cylinders. This is the foundation of many of the benefits of our system. And as such, we will use the tagline, all you need is air, to reinforce the unique position that we will hold in the nitric oxide market. In a critical care environment, any improvements in efficiency and eliminated steps are highly valuable. Not only do we have a simple pre-use setup with LungFit PH, we eliminate the need for pressure testing, manual purging and the potential for NO2 exposure due to leaks. We think our safety profile is going to be very attractive as customers consider making a change. Finally, having nitric oxide available on demand is a game changer. Since all you need is air, there is an unlimited raw material for the generation of nitric oxide regardless of the dose being given or the flow rates being used. Eliminating cylinders dramatically reduces the hassle and complexity in managing nitric oxide in a hospital. I mentioned some of the key differences between LungFit PH and the current market-leading cylinder system and the benefits that provides. As Steve mentioned, LungFit PH was designed by the same inventors who developed the first nitric oxide delivery system launched in the U.S. With this experience, when the LungFit PH system was designed, we recognize the importance of keeping features that are working well and are familiar to users. As you can see in these images, this is particularly the case when you look at the front of both delivery systems. For example, gas monitoring is organized in a similar manner on the user interface and the connection ports will be straightforward for most users. The most obvious differences are that our system does not require a water tap. So, there is no need to worry about emptying or cleaning this component after therapy is complete. And since we do not use gas cylinders, we have a location for our smart NO2 filter. This familiarity is expected to support a smooth transition for hospitals when staff are trained and begin using LungFit PH. The rear of the device is where there are obvious differences between the devices. For a cylinder-based system, there are a number of connections and of course, the two 45-pound, pressurized gas cylinders. LungFit PH simply has an on/off button and the power connection since the device itself pulls in room air to generate nitric oxide. Removing all of these connections should save time and hassle and also has the potential to reduce user error. We understand the importance of providing highly responsive service for our customers in this critical care environment, which is why we have developed the LungFlex 24/7 partnership and support program. There are three key components of this program that together make up what we believe will become the gold standard for the nitric oxide industry. Firstly, we have designed the LungFlex business model to be flexible and transparent, providing an all-inclusive contract that includes the necessary number of LungFit PH systems, backup systems and accessories for the period of their contracts. This will allow for hospitals to budget for their nitric oxide system with certainty. Secondly, we have recruited a very experienced clinical specialist team that will not only provide initial training, onsite clinical expertise and support. They will also be available on demand. All of our clinical specialist team are registered respiratory therapists and have specific experience in the nitric oxide industry. Finally, the LungFlex service and support line will provide 24/7 access to all customers to technical, clinical and commercial support. Our team will handle everything from routine orders and billing inquiries to emergency deliveries using our rapid replacement program. This takes me to the most important part, which is our go-to-market strategy. First of all, I am pleased to report that our team is ready for commercial launch. Consistent with our prior guidance, the initial phase of our commercial program represents a limited release of LungFit PH with both personnel and supplies secured. Our team will work closely with our initial customers to ensure that we have optimized our logistics, customer service and product performance in the first 6 to 9 months. This short limited launch period will allow us to work out any kinks and ensure that we are prepared to scale up to meet the needs of a much broader range of customers in the planned second phase of our commercialization strategy. During Phase 1, we will target a few dozen hospitals currently using nitric oxide. For context, around 20% of all U.S. hospitals use nitric oxide, which includes the 850 or so Level 3 and 4 NICUs. Once we get past Phase 1, we will then enter Phase 2, where we will expand our commercial team and target the next 25% to 50% of U.S. hospitals that use nitric oxide. We will also anticipate launching internationally through a partner during this phase. We expect the second phase to take approximately 2 years as we expand our commercial team to full scale. At this point, our commercial team will allow us to target hospitals that have been limiting their use of nitric oxide due to access, efficiency or value for money, which we consider Phase 3 of our strategy. As we enter Phase 3, we expect to have our second generation LungFit PH system available, which will help to consolidate our existing business and grow our market share further. At this point, we hope to have truly transformed the nitric oxide market. With that as an overview of our long-term strategy, let me take a step back to the initial phase of our launch, which is rolling out as we speak. In the immediate future, we will begin targeting a select number of hospitals that have Level 3 or Level 4 NICUs and staff experience with inhaled nitric oxide. To optimize the launch for both our Phase 1 customers and for Beyond Air, we are being careful to ensure that our team members are conveniently located near the target hospitals. And these hospitals meet other criteria that maximize the chances of success. These initial hospitals will not necessarily require an abundance of devices upfront. However, they will have a sufficient volume of hours per month to provide a rigorous test for LungFit PH and the Beyond Air team. Also we are acutely aware that hospitals are currently in annual or multiyear contracts for nitric oxide. Because of the restrictions these agreements could put on their ability to transition, we will be targeting hospitals with less than 12 months left on their existing contracts. Due to the many advantages of the LungFit PH system, we have no plans to compete on price. In fact, since removing cylinders leads to the many potential workflow and logistical benefits I’ve mentioned, there is a strong healthcare economic argument that even a higher price will still lead to reduction in the overall cost of delivering nitric oxide for hospitals. I will close out my review of our launch by saying that our team is prepared and has been waiting for this approval. Our clinical and commercial teams are in place. Our marketing plan is finalized and our LungFlex service and partnership program is ready. In support of this commercial launch, today, we are premiering the Lungfitph.com microsite that includes everything we believe hospital administrators and healthcare professionals may need to know about LungFit PH. The micro site will feature a wealth of resources such as how the LungFit PH system works, the key messages and benefits as well as more about our LungFlex partnership and support program. Customers can sign up for updates on this site, and we are ready to provide live demonstrations of our device as well as run virtual demonstrations and webinars to make sure we reach as many hospitals as possible. This is the virtual destination for any nitric oxide users who want to experience the innovation and simplicity of the LungFit PH system. Of course, FDA approval is just the start of our commercialization journey. As we launch in the U.S., we will finalize our CE submission and anticipate our CE mark being granted in the second half of 2022. In the same time frame, we are planning to submit our supplemental PMA for an expanded cardiac label. In Q1 2023, we anticipate Phase 2 of our launch beginning and we will be expanding our commercial team to support this. I can’t express enough just how amazing it feels to be able to say that LungFit PH is FDA approved. Our goal is clear to harness the power of nitric oxide to allow physicians and patients to benefit from this breakthrough technology. As we learn more about the challenges and opportunities for the PPHN population, we’re even more excited to provide the innovation and simplicity of LungFit PH, the all-in-one nitric oxide generator monitoring and delivery system to the U.S. market and eventually to the world so we can start to turn our goal into reality. With that, I’ll hand the call back to Steve.

Thanks, Duncan. Before we discuss our pipeline, I just want to emphasize what this slide states. Everyone at Beyond Air and those that use nitric oxide on a regular basis know that this is the start of the NO revolution, and it will significantly improve medical practice. Congratulations to the Beyond Air team for this amazing achievement. Now on to our pipeline discussion, where I will begin with our 12-week multicenter open-label LungFit GO NTM lung infection pilot study. As you may recall, in December of 2020, we began screening for refractory NTM patients for this pilot trial in Australia. And we released positive interim safety data on the first eight refractory NTM patients enrolled in 2021. This was followed up in May 2022 when we presented updated interim data at the American Thoracic Society International Conference. At the time of the data cut off on April 4, 2022, we reported that a total of 15 refractory NTM patients had been titrated up to the maximum dose of 250 parts per million nitric oxide in the hospital and then sent home to self-administered therapy. There were no dose reductions, no treatment-related discontinuations and generally high compliance following a total of 2,323 self-administered inhalations at home using the LungFit GO device. Methemoglobin and nitrogen dioxide concentrations. The two key safety markers remain within acceptable ranges in all subjects during NO treatment below the safety thresholds of 10% and 5 parts per million, respectively. Most importantly, in addition to the strong safety and tolerability data, patients reported quality of life benefits from receiving the at-home NO treatment in the majority of quality of life endpoints with the most improved benefits being NTM symptoms and digestive symptoms. The totality of these data will be used to evaluate efficacy measures, including quality of life, physical function and sputum bacteria as compared to baseline measurements, and we expect to report complete results later in calendar year 2022. The success of this trial signifies that LungFit GO has the potential to be a game changer for this patient population and, if approved, open up the enormous potential of the home market for our system. We have always had an interest in investing in other indications with our LungFit GO system and have announced our intention of beginning a pilot study to treat severe exacerbations due to lung infections in COPD patients in 2023. We previously have shown in vitro and in vivo data demonstrating the killing potential of NO in various microbes with greater success than refractory NTM bacterial strains. Hence, our enthusiasm for treating a broad spectrum of microbes in lung-infected patients with various underlying conditions in the home setting. Moving on to our viral lung infection program, which uses the LungFit Pro system at 150 parts per million NO to treat community-acquired viral pneumonia in adults and bronchiolitis in children under 2 years of age. In April 2022, we presented data from our adult cohort of hospitalized patients from the ongoing pilot study at the 32nd European Congress of Clinical Microbiology and Infectious Disease. At the time of the cutoff period for these data, we analyze a total of 35 subjects on an intent-to-treat basis, 16 in the NO treatment arm, and 19 in the control arm, all but one of which were COVID-19 patients. The data showed that 150 parts of million NO will continue to be well tolerated with no treatment-related adverse events. The efficacy data in this small study showed statistical significance for duration of oxygen support and time to achieve oxygen saturation of at least 93% in room air. Length of hospital stay was shortened by a factor of 1.8 in favor of NO, but did not reach statistical significance. We intend to propose a trial designed to FDA in the near-term with the goal of starting a U.S. study in the fourth quarter of calendar 2023. This April, we also presented positive safety data from a longitudinal data collection study that evaluated the long-term safety profile of high concentration inhaled nitric oxide in bronchiolitis at the Pediatric Academic Societies meeting. Out of the 190 infants that participated in our prior three bronchiolitis pilot studies conducted from 2012 to 2020. 101 infants participated in the long-term follow-up study with 39 in the control arm and 62 receiving either 85 parts million, 150 parts per million, 160 parts per million nitric oxide. Study endpoints for the long-term safety study included the percentage of subjects rehospitalized for bronchiolitis related reasons, such as the leasing episodes of pneumonia, asthma, among others, and the percentage of subjects we hospitalize for any reason. Results showed that rehospitalization due to bronchiolitis related reasons trended favorably for the inhaled NO Group and the long-term subject rehospitalization rate for any reason was similar between inhaled NO and control groups. We believe this study demonstrates that intermittent high-concentration nitric oxide has a favorable long-term safety profile, which warrants further investigation into its therapeutic benefit for both adult and infant hospitalized viral pneumonia patients. Finally, I would like to provide updates on our private affiliate Beyond Cancer, which presented two abstracts at the American Association for Cancer Research Annual Meeting in April of this year. These new in vivo data show that intratumoral injection of ultra-high concentrations of NO at 20,000 and 50,000 parts per million, led to increased recruitment of lymphocytes and T cells, B cells, macrophages and dendrocytes to the treated primary tumor. Additionally, increased T cells and B cells were detected in the spleen and blood 21 days post NO treatment and decreased myeloid-derived suppressor cells were detected in the spleen. These data are indicative of an anti-tumor immune response that underlies the rejection of secondary tumors in gaseous nitric oxide treated mice. These data continue to build upon our growing body of evidence supporting ultra-high nitric oxide therapy. Additionally, with respect to our Phase 1 clinical trial, I am very pleased to say that the screening for patients is underway. Another great job by our team. I will now turn the call over to Doug Larson, the Chief Financial Officer of Beyond Air to provide a review of our financials.

Thanks, Steve. Our financial results for the fiscal year, which ended on March 31, 2022, are as follows: Revenue for the fiscal year ended March 31, 2022, was zero as compared to $0.9 million for the fiscal year ended March 31, 2021, all of which was licensing revenue. Research and development expenses for the fiscal year ended March 31, 2022, were $11.8 million compared to $12.6 million for the fiscal year ended March 31, 2021. General and administrative expenses for the fiscal year ended March 31, 2022, increased to $18.4 million from $10.5 million for the fiscal year ended March 31, 2021, mainly due to the structural investments required to prepare the company for a commercial launch in the U.S. Other operating expenses for the fiscal year ended March 31, 2022, were $10.5 million, entirely related to the contingent liability for the Circassia settlement from May of 2021. Other income and expense for the fiscal year ended March 31, 2022, was a loss of $3.4 million compared to $0.7 million for the fiscal year ended March 31, 2021. If you recall, in the third fiscal quarter of 2022, the company recorded an estimated liability for contingent loss related to a lawsuit for $2.4 million. For the fiscal year ended March 31, 2022, the company had a net loss of $44.1 million of which $43.2 million or $1.68 per share was attributable to the shareholders of Beyond Air, Inc. compared to a net loss of $22.9 million or $1.27 a share for the fiscal year ended March 31, 2021. As of March 31, 2022, the company had cash and cash equivalents of $80.2 million. We believe this cash is sufficient to fund operations well beyond the next 12 months, including through the initial commercial launch phase of LungFit PH in the U.S. And with that, I’ll hand the call back to Steve.

Thanks, Doug. Operator, we are now ready for Q&A.

[Operator Instructions] Our first question comes from the line of Matt Kaplan with Ladenburg Thalmann. You may proceed with your question.

Hi, Steve, congratulations on the approval. Terrific news today.

Thanks, Matt.

I guess I wanted to get into kind of the 3-phase launch. And maybe you can give us a little bit more detail with respect to the market size in each of those phases that you’re potentially addressing as you phase out the launch?

Okay. So obviously, the third phase will be the entire market. That’s easy. And you have to look at it more – we look at it more in terms of the hospitals themselves, not necessarily the revenues. And we’re looking for hospitals in this first phase that are high users, let’s say, above a certain number of hours per year so that they have a lot of experience with their team, so we can learn from them as we train them. So we can be better as we go out to the broader market. So that first phase is going to be what we would consider fairly high-volume hospitals. So let’s say, a hospital in Phase 1 is going to be worth multiples of a hospital in Phase 3. And Phase 2, you could have hospitals that are more closer to Phase 3 or closer to Phase 1. It’s just going to depend on how contracts are ending up with respect to how long they are locked in for, so to speak. Remember, there will be hospitals that are coming off contract every quarter for the next 3 years and some of these contracts can last that long. I’ll let Duncan expand upon this if you like to.

Sure. Thanks for the question, Matt. Yes, I think we said in our prepared remarks that the first phase is we’re targeting about 20% of the hospitals. And as Steve said, we’re really focused on the hospitals that have the experience that we need, so that we fully test our logistical process. We get the experience of the actual clinical use of the device. And then we’re going to expand as soon as we’re confident that everything is working as planned. So we really don’t see any constraint because as we mentioned, contracts are coming off all the time, and we don’t think we’re going to be limited by the number of hospitals that we’re going to be targeting. So I hope that answers your question.

No, that’s great. Thanks for all the detail. And I guess looking at this as kind of proof of concept that you can get this new technology approved. Just thinking about the pipeline, a little bit, Steve, maybe you can help us understand kind of the next steps for LungFit GO. You’ve got the pilot NTM study ongoing. What do you see as the net steps in NTM and development there?

Yes. Thanks, Matt. We have to wrap up the study. Our last patient last follow-up is going to be in August at some point. And then as you know, we will have to get all the data in-house analyzed and so forth and we will go to FDA. Since we’re a medical device, we use a pre-sub meeting instead of a pre-IND. This will be a pre-submission meeting, and we will sit down with FDA. It will probably happen in the first half of next year. It takes time to put the data together, submit and then they have time to schedule a meeting with us. And in that meeting, we will discuss with them what the next steps are. And hopefully, those steps are going to be pretty straightforward and clear. You never know, there might be some things we need to clear up for FDA before we go into the next study in the U.S. But I think we’re guiding to begin that study in 2024, and we feel very comfortable with that guidance. If it can be sooner, we will see. But I think that’s when the next study should be beginning is a 2024 start.

Okay. And that will potentially be a pivotal type study that you would be able to file for approval of the device?

Yes, that’s our intention. We need to speak with the FDA first, but our intention is to try to make it a pivotal.

Okay, great. And then just last question Beyond Cancer, can you give us a little bit more detail in terms of the Phase 1 study and what we should look for there as you get that underway?

Well, we’re over for business. You saw that in our press release. So we’re open for screening of patients and we would anticipate announcing the first patient dosed very shortly. So we’re looking for safety. This is the first in-human study. So we’re looking for safety in a small number of patients. And Matt, if we can – we will be looking at biomarkers, of course. And if we see any movement in these biomarkers on the immune system in a positive direction, that would just be kind of gravy on top of the safety data that we intend to gather. So, again, safety is the main point of this Phase 1 study, and we will be looking for efficacy from a biomarker perspective. And if we can see that, that would – it would really be something special.

Congrats again on the approval. Great news. Thanks for taking my questions.

Thanks.

Our next question comes from the line of Suraj Kalia with Oppenheimer. You may proceed with your question.

Good afternoon, Steve. Can you hear me alright?

Yes. Yes. Thanks, Suraj.

Perfect. Hey, congratulations to you and your team on the long overview approval. So, Steve, three questions from my side. The first one is a multipart question. For the initial launch of PPHN, the 8 to 10 sites that you all have been referencing for some time. Give us some guideposts in terms of how the conversations are going? How do you expect PH to be rolled out in terms of cases over the remainder of the year? What are the bogeys you are looking out for a broader launch beyond this case? And more specifically, maybe if you could just also the 850 NICUs that you all had referenced earlier, how does utilization look like in your three phases? How should we think about that? Sorry, a multipart question, but hopefully, you got the gist of it.

I will just talk about the bogeys and I will let Duncan go through the rest. So, the bogeys for us, in broad terms, we are looking to make sure that our training methods are honed and perfect and we have a very experienced team. But again, this is a generator. It’s a brand-new device, and we need to make sure that we are training everyone in the best manner. So, we are going to look for ways to optimize our training methods. I think we have done a hell of a job on optimizing it prior to launch, but we don’t want to be cavalier about this. Second, we want to make sure that our supply chain, our 3PL, everybody is doing well and everything is running smoothly. There are metrics that we use to look at this, but it’s very important that when we go from a dozen hospitals to 300, we have to make sure that supply chain is ready for that and our 3PL is ready for that. In addition, our team, our back office team, our operations team is ready for it as well. So, these are the things that we are looking for to kind of check the box to move to that next level. We don’t have any concerns about this, Suraj. I don’t want to give the impression that we have any concerns about our ability to do this. I think it’s the prudent thing. Everybody on our team thinks the prudent way to go is to have a measured launch in the first six months to nine months to make sure that we have got any kind of bugs ironed out if there are any.

Yes, Suraj, just to add a little bit of color. I mentioned that we focused on the experience of the leadership team because we think it’s really important. These – Rebecca and Jeff have incredible teams that they have brought together and a significant amount of experience of dealing with a lot of hospitals that we will be speaking to. And we are very confident in their interest and enthusiasm for the product that they have been contacting us routinely over the last several months and even beyond that, they are planning to visit with us at the conferences that we are lining up for the rest of this year. And we have a virtual demonstration room set up as well as, obviously, now we can physically go and talk to people directly. So, they are looking forward to seeing another alternative on the market, eliminating cylinders as far as they can. And in terms of utilization, this group of incredible experienced professionals, particularly on the clinical side, will help them through their evaluation of the system and then hopefully, we will get into contracting very soon. So, the utilization is going to be initially controlled by us because we want to deal with everything that Steve just mentioned. And then once we are confident in everything that’s working both clinically and logistically, then we start to release the valve and will expand and we will see utilization rapidly increase at that point.

Got it. I will ask both my questions, Steve, and I will hop back in queue. Duncan, I missed your comments about the CE mark status and timeline? And Steve, maybe if you could just expand on how you are now thinking about the moat around real-time on-demand NO, non-cylinder-based NO now that you have the first PMA in hand, more indications. Just kind of walk us through how you are thinking about the regulatory and intellectual moat around your technology. Gentlemen, congrats again and thank you for taking my questions.

Thank you. I think CE mark, we were pretty clear. It’s a second half event. So, there is not much more to say there. We – our resources were focused on FDA approval. So, we didn’t have the resources to keep the CE mark process on the track that we had originally hoped to. But I think we are pretty happy with FDA approval. So, it’s a small sacrifice on the timing on CE mark. As for our moat, as you call it, we are always very confident in our patent portfolio around our generator. We are growing even more confident with some things that have happened in the last few months. And with a PMA approval, as you know, Suraj, PMA approval is something that happens about 25 times, 30 times a year in the U.S. So, it’s not a frequent occurrence, and it is certainly a barrier to entry to others who try to come down this route. So, others will have to follow us with a PMA just as we did. So, we are obviously more confident now that we have approval that it’s going to be that much harder for anyone to come with the generator. But again, I think the most important barrier to entry to others is our patent portfolio. We do believe it will be very difficult for anyone to get around our patents with respect to our generator, especially in the high concentration area. I don’t think anybody is going to be able to come in at 150-plus parts per million with a generator given our portfolio. That’s our opinion. I am sure others will have a different one, but let’s see what happens as it unfolds over the next 10 years. With respect to the PPHN, we don’t know of anybody else who is coming. We have heard lots of rumors, but so far, we are the only game in town. So, first-mover advantage is very important in the medical device. So, we are quite happy with it. We think there are barriers up, and we will have to wait and see what unfolds. But we are very, very confident.

Thank you.

Our next question comes from the line of Greg Fraser with Truist Securities. You may proceed with your question.

Hi. Good afternoon both. Thank you for taking the question. Congrats on the approval. Can you remind us how much of the current nitric oxide market is cardiac surgery? And what’s the pathway to expand the label into that area?

Yes. So, it’s about 70-30 split, 70% being the cardiac. That’s a rough estimate. So again, there is no real data on that, Greg. It’s just kind of best guess. So, the pathway to get cardiac on label is just going to FDA and talking to them about that pathway and then making a submission. We believe that we will be able to make an official submission or PMA supplement for that indication prior to the end of this calendar year. That’s our goal.

Got it. And then when you move into the Phase 2 of the launch, by how much do you plan to expand the commercial team?

Well, I will let Duncan handle that question.

Yes. Thanks for the question, Greg. The good news about the nitric oxide business is, firstly, there is a pretty well-established use of nitric oxide in some very experienced hospitals. So, it actually doesn’t need a large commercial organization. So, even at peak, we don’t expect to be more than around 60 staff. But in the second phase, we expect to be at least half of that fully established team. So, we will be somewhere between the sort of 30 – in the 30s, I would expect, and continuing to grow depending on how the launch is going at that time. And then we will peak somewhere in that 60 zone depending on the level of nitric oxide usage, because there are actually a significant number of hospitals that have backed off on the use of nitric oxide either because they don’t like the current business model or they have limited access to the technology, and we think we can help in both of those areas. So, that’s what we are seeing going forward.

Got it. That’s very helpful. For Europe, have you had preliminary discussions with potential partners, or do you have to wait for the CE mark before engaging with folks?

No. We have spoken to people. I think it’s appropriate to have CE mark before we push on moving forward to definitive terms. But it’s – I wouldn’t say we haven’t talked to anybody. That’s for sure.

Got it. Thanks for taking the questions and congrats again.

Thanks Greg.

Our next question comes from the line of Yale Jen with Laidlaw & Company. You may proceed with your question.

Good afternoon. Thanks for taking the questions again and my congrats on the approval. Maybe if we just little bit look backward to see that what were the major sort of hurdle during the last few months before you get approval, was something specific or anything you can talk about?

Yes, I don’t think I can really reveal that what the issue was, just keep that between us and the FDA, I think it’s the best thing to do. But it was clearly resolved and we are very happy. And we are happy that FDA was working with us.

Okay. Great. That’s helpful. Maybe two more questions here. The first one is that on the slide, you show that the current market is about 408 – the estimate about $480 million versus it was $500 million before hand, presumably due to some price erosion. What’s the general thought you guys have in terms of going forward? Is this price erosion start to stop or change or maybe even reverse?

Yes. I think the price, as we sit here today, it’s probably fairly stable. I don’t see much decline on the price going forward. I don’t know if I would predict a rise back up in price. I wouldn’t say that. But I do think that in 2022 for this full year, you might see a little more softening that $480 million number may come down, just a little bit, 5%, 10% more. Recall that there was an increase in nitric oxide usage during the pandemic. So, I think that 2020 and 2021, while there was a price decline in those 2 years, I think the volume due to the pandemic offset that quite a bit. So, I wouldn’t – so us as a company, as a team, we don’t think that the volumes we saw at the peak of the pandemic are going to be maintained. But we also don’t think you are going to lose 100% of that volume you saw during the pandemic. We think that there seems to be a place for nitric oxide in these patients who are hospitalized for COVID or COVID-like conditions. So, we don’t know exactly where it will settle. You will see in our corporate presentation that the new one that should be up this evening that we are calling this a greater than $400 million market. In the past, we had said greater than $300 million. But again, I think we increased usage due to COVID as well as the price did not decline as much as we had anticipated a few years ago. So, we think it’s going to be a $400-plus million market. I don’t know if it’s going to stay up at $480 million, but it should be in the $400 million plus range.

Okay. That’s a very – appreciate it. And two quick ones, one is in terms of the cardiac line expansion. Was there additional – what type of material you need to prepare for getting that in next year? Would that be any kind of study or simply just like the one you just got approval for the NICU?

I hope it’s not as hard as getting the approval for the NICU. But, we haven’t said exactly what we are going to submit to the FDA. So, I am going to hold that information back, yes. If you don’t mind, we don’t want to let anybody know what our exact plans are.

Okay. Maybe the last one is a housekeeping one. In terms of this quarter, there is quite a big jump in a number of lines in operating side in terms of R&D, SG&A. As we are modeling for the next year or next fiscal year, was there any sort of directional guidance you could provide?

SG&A is probably going to go up. I mean we are launching the product, so I would anticipate increases there. Whereas R&D, I don’t really see an increase there to be flattish maybe probably flattish as best we can think give or take. Look, our diseases are seasonal, and we won’t be starting studies until the back half of ‘23. So, the rest of this fiscal year, which ends in March of ‘23, there is really not much going on in the R&D side only because of the seasonality of the conditions that we are attempting to treat. There will be some spend, obviously, in preparation to get things going, the spend to finish up our NTM study. But again, there will be a bump in the fiscal ‘24 timeframe. You will see a bump towards the back half of fiscal ‘24 in R&D spend. That’s when it should start to ramp up with our studies commencing. So, I hope that helps.

Absolutely. And again, I appreciate that all the details. And again, congrats on the long-weighted outcome.

Thanks, Yale. Appreciate it.

Ladies and gentlemen, we have reached the end of today’s question-and-answer session. I would like to turn this call back over to Mr. Steve Lisi for closing comments.

Thank you. Thanks everyone for joining us today. Again, a great day for Beyond Air and our investors. We will be speaking to you soon. Thank you.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.