NRX Pharmaceuticals, Inc.

Good morning, everyone, and welcome to the NRX Pharmaceuticals, Inc. fourth quarter and full year 2023 results conference call. Currently, all participants are in a listen-only mode. As a reminder, this conference call is being recorded. I will now turn the call over to Matthew Duffy, the company's chief business officer. Please go ahead.

Thank you, Camilla, and welcome, everyone.

Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ from statements made on this call is contained in our periodic reports filed with the SEC. The forward-looking statements made during this call speak only as of the date hereof. and the company undertakes no obligation to update or revise the forward-looking statements. Information presented on this call is contained in the pre-announced press release issued Thursday, the company's Form 10-K filed Friday, and the press release issued this morning, all of which may be accessed from the investor page of the NRX Pharmaceuticals website. Joining me today are Jonathan Javitt, our Chairman and Chief Scientist, Stephen Willard, Chief Executive Officer, and Richard Dorito, Chief Financial Officer and Treasurer. Jonathan and Stephen will provide a summary of the company's progress. Rich will review the company's financial results, and then Jonathan will review upcoming milestones before making closing comments. Following their prepared remarks, we will address investor questions. I will now turn the call over to Jonathan. Jonathan?

Thank you, Matt. Good morning, everyone, and thank you for joining us. 2023 has been a pivotal year, both for NRX and for the field of interventional psychiatry. and its approach to suicidal depression and PTSD. Last week, we were invited to give a keynote presentation at the 2024 International Ketamine Conference held at Oxford University. It's now 37 years since Daniel Javits and his colleagues at the Albert Einstein School of Medicine made the unprecedented discovery that the NMDA receptor of the brain is key to understanding schizophrenia and depression. It's 25 years since Rob Berman and his colleagues at Yale University made the equally surprising discovery that NMDA antagonists, in this case ketamine, can achieve rapid reversal of depression and later discovered the same for suicidality. Now, on the tail of the COVID pandemic that practically put the science on hold for two years, it's clear that thought leaders in psychiatry have concluded that ketamine is a standard of care treatment for acute depression and suicidality, and is at least as effective, if not more effective, than electroconvulsive therapy. Ketamine infusion has moved from the hospital and the emergency ward to community clinics, and some believe it should move to the home. We at NRX are on the cusp of that conversation. The problem with ketamine, of course, is that while it's dramatically effective in the short term, well-designed studies reported in the past two years have demonstrated that it's neurotoxic. In other words, it kills brain cells when given for months at a time, even if the low dose is used to treat depression. Data from Stanford and elsewhere document conclusively that ketamine not only blocks the NMDA receptor, but also binds to the opioid receptors that have been so central to the opioid crisis in the United States. That's why even as we launch Hope Therapeutics to seek to make short-term ketamine available to all insured patients as a life-saving therapy, not just to those who can pay out of pocket. We focus on NRX 101 and perhaps future non-addictive, non-neurotoxic medicines that also target the NMDA receptor without those side effects. We already have scientific evidence that NRX 101 works to preserve the ketamine effect. As a follow-on drug for ketamine, It has the potential to help hundreds of thousands of patients. In the next few weeks, now that we're completing database lock on our clinical trial, we will have a first glimpse of whether NRX-101 is also sufficiently potent to treat severe depression and suicidality without prior use of ketamine and to do so in the outpatient setting. We made a brief comment about a new opportunity that's still evolving to partner with the French Fundation Fundamental on a new drug with an entirely different mechanism of action that may represent the first drug in human history to reverse the brain injury that causes schizophrenia, not merely to treat schizophrenia's devastating symptoms. Thus, we deeply appreciate the trust that you, our shareholders, have imparted as we emerged from the COVID pandemic and returned to our core mission in CNS disease. At the end of 2022, the company's board and management had a single clinical trial initiated in bipolar depression, had no commercial stage partners, and $11 million in debt. In 2023 and the year to date, We've secured a global commercial partnership for the first indication of our lead drug, NRX 101. We've received a $5 million advance on potentially $330 million in milestones for that indication. We've expanded our patent portfolio to include the use of NRX 101 in chronic pain. We've opened an FDA IND and await efficacy data for chronic pain. We've obtained efficacy data for the use of ketamine in suicidal depression from both national clinical trials and positioned ourselves to seek FDA approval for ketamine in 2024. And finally, we've obtained unexpected data that demonstrates the efficacy of NRX101 in treating complicated UTI and pyelonephritis with accompanying recognition from the FDA in the form of qualified infectious disease products and fast-track designation. We've done that with a dedicated team of fewer than a dozen scientists and business leaders, together with your financial support. While achieving these scientific advances, we've created a new subsidiary, Hope Therapeutics, which has completed manufacturing of the first batch of releasable ketamine that will be distributed under national pharmacy licenses even as we seek FDA new drug approval. Our 2023 development partnership with Alvagen and Lotus Pharmaceuticals to develop our lead candidate, NRX101, in suicidal bipolar depression is key to a global launch of NRX101 to treat bipolar depression worldwide. In March, we recorded last patient, last visit in that clinical trial of NRX101 versus lorazodone, In 2023, we published a peer-reviewed randomized trial led by Professor Andrew Nirenberg from Harvard Mass General, demonstrating that NRX-101 significantly reduces both depression and suicidality after ketamine compared to that standard of care drug. The purpose of this trial is to see if we can demonstrate effectiveness of NRX-101 without prior use of ketamine. We expect to lock the database from the trial this week, and we expect to be reporting top-line results from the trial this month. Positive results from this trial and comments from the FDA will trigger an additional $4 million milestone from Alvagen and begin transfer of all expenses related to NRX101 for bipolar depression to our partners. In addition, we're eligible for an additional $320 million in milestones, plus a royalty that reaches 15% on net sales. Should NRX 101 demonstrate success, either as a standalone drug, as a drug to preserve the known efficacy of ketamine, or both? NRX 101 has the potential to be used in the therapy of millions of Americans and many more around the world who suffer from bipolar depression. and whose only approved therapy today is electroshock therapy. The partnership agreement leaves NRX the potential to continue to own and to develop NRX 101 for the much larger indications of PTSD and chronic pain. With the database locked, we expect to report top line data later this month. Our patents on NRX 101 cover both composition of matter and its method of use to treat many forms of depression, PTSD, and chronic pain. In 2023, we partnered with Professor Vania Abkarian and his research team at Northwestern University around the use of NRX 101 in treating chronic pain. Their 2016 clinical trial demonstrated efficacy on a post-hoc analysis, and this week they're achieving data lock on a 200-person Department of Defense-funded trial that seeks to replicate that efficacy finding. In today's world, there's essentially nothing to treat chronic pain that bridges the relatively mild effects of Tylenol and Motrin-like drugs on the one hand, and the potent but addictive and dangerous class of opioids on the other. The magnitude of the effect in chronic low back pain seen in the 2016 trial was such that a replication of that finding could provide a pain drug that has an effectiveness that's close to opioids, but a safety profile that's far closer to the non-opioid pain drugs. We aspire to unlock a path to break through non-toxic addictive pain drugs that could improve the lives of some 50 million American adults who suffer from chronic pain, and nearly half a billion around the world. This partnership in 2023 on chronic pain for NRX101 has not diminished our interest in pursuing an indication for NRX101 in post-traumatic stress disorder. And the Oxford Conference last week made clear that NMDA antagonists have enormous potential to treat PTSD. Thus, we hope to initiate our work in PTSD later in 2024. As we announced, we incorporated Hope Therapeutics as a specialty pharmaceutical company to advance and commercialize intravenous ketamine for suicidal depression. Initially, we expected that ketamine would be developed by others for the treatment of bipolar depression. However, the scientific record thus far suggests that intravenous racemic ketamine, i.e., the form that we're manufacturing and expect to deliver, is effective in rapidly reducing suicidality and depression, while nasal and other forms of administration may be less effective. In 2023, we partnered with leading researchers to be able to submit definitive efficacy findings of government-supported placebo-controlled trials to the FDA in support of new drug approval for ketamine. When we embarked on this mission, we always expected ketamine to outperform placebo based on 20 years of academic research findings. The surprise of 2023 was the release of the 400-person Harvard-led Patient-Centered Outcomes Research Initiative, or PCORI initiative, that demonstrated a larger antidepressant effect for ketamine than for electroshock therapy. with none of the undesirable side effects of ECT, such as short-term memory loss. The PCORI group is now embarking on a larger trial in patients with suicidal depression, and we look forward to partnering with them in that process. Hope is a specialty pharma company, not a drug development company. We've already been offered term sheets proffering more than $60 billion of funding for Hope because of the recognition that the paradigm for treating suicidal depression is changing as we speak, and understanding the old model of hospitalization and electroshock is rapidly becoming a second-line therapy. Yet the evidence is clear that the ketamine effect is measured in days to weeks, and that long-term repeated use of ketamine may lead to addiction and neurotoxicity. Therefore, we believe that NRX 101 may well have a long-term role in transforming the lives of those who suffer from suicidal depression. HOPE will incorporate other therapies, including potentially digital therapeutics, as it seeks to build a network of life-saving care around patients who today have a higher mortality risk than those who suffer from breast cancer, prostate cancer, and other common malignancies. The rate-limiting step in filing a new drug application for ketamine is having a new drug in your hands with which to apply. It's easy to say, well, let's just apply to the FDA for a label, but you actually have to have a drug with which to do it. The formulation and presentation of ketamine as an anesthetic dates to the Korean War. It's an old drug that is increasingly plagued by critical drug shortages as reflected on the FDA database. We partnered with Nefron Pharmaceuticals of South Carolina to develop a new formulation and diversion-resistant presentation. FDA regulations require at least nine months of stability in the presentation you intend to market before you can file for new drug approval, and we will reach that time point this quarter. At the same time, given the critical drug shortage of ketamine that's been announced by FDA, We're partnered with Nefron to deliver ketamine immediately to high-quality clinics who will one day form the backbone of Hope's delivery system. Last week, the first batch of ketamine was approved for shipment in a pharmacy presentation and on the loading dock. To augment and extend the efficacy of IV ketamine, we're beginning to work on a companion digital therapeutic. I previously participated in developing such a digital therapeutic for the US Navy to reduce stress in war fighters. It's an effective product that's still in use. We'll build on that learning and technological advances to help suicidal patients get back on track. Additionally, as a proprietary product, this will enhance our market exclusivity. We're sure that some of you are curious about why we invested small amount of capital, really less than $100,000, in establishing an indication for complicated UTI and pyelonephritis for NRX101. First of all, this condition affects 20% of Americans who develop urinary tract infections, and that percentage is climbing as antibiotics that have served us well for 50 years increasingly fail. Of the 15 million Americans who develop UTI every year, 3 million progressed to complicated UTI, and at least 15,000 died of urinary sepsis. D-cycloserine is an interesting drug. It works by a completely different mechanism than other antibiotics, and it's the only antibiotic that's highly concentrated in the urine. There's no evidence that it can cause the debilitating diarrhea and other side effects of the new fourth-line antibiotic. And most importantly, it can be given by mouth, whereas many of those require intravenous administration. DCS fell out of favor as an antibiotic in the 1960s, in part because of its propensity to cause mild CNS side effects. However, we seem to have neutralized those side effects with the addition of lorazodone to NRX-101. The mechanism of action is simple. In a brain cell, DCS mimics the amino acid glycine and inhibits the NMDA receptor. In a bacterium, however, BCS mimics the amino acid alanine, gets incorporated into the cell wall, and causes the bacteria to explode. Animal cells don't have cell walls, so this effect is seen only in bacteria. The peer-reviewed data for NRX101 in the treatment of bugs that cause complicated UTI were just published in the peer-reviewed literature last week. and we invite you to read the results. At any rate, now that we know that NRX-101 is a potent agent against resistant bacteria that harm millions of Americans, we expect to identify a product already engaged in antibiotic marketing for this opportunity. It's important to understand what that FDA QIDP designation means. It means that even without a patent for use of DCSs in antibiotics, We're entitled to five years of market exclusivity, fast-track designation, and priority review. That's why we think this drug has a real application as we identify a partner in the anti-infective space. Steve's now going to address some of our corporate achievements during 2023 and the quarter that follows.

Thank you very much, Jonathan. As you know, I joined NRX as CEO in July 2022. My job was to reduce a daunting cash burn and help align the management team into a dedicated group that has the potential to take our drugs to market. Although we have not yet generated our first dollar of revenue, we have demonstrated progress that motivated a discerning corporate partner to advance its milestone payments for our first clinical indications. Not only have we survived 2023, we expect to see the revenue flow from commercial operations begin by the end of 2024. That's clearly a forward-looking statement, but one that we believe is within our capacity to achieve. Everyone on this call knows that 2023 was possibly the worst year in the history of the biotechnology industry, and many premarket biotechnology companies did not survive. We emerged from 2023 on a more solid front than we entered and are poised for ongoing success, particularly if the clinical data we read out later this month is positive. Even if two highly promising trials don't give us the short-term answers we seek, we project that the ketamine foundation we have built will yield positive cash flow by the end of 2024, a belief that is reinforced by the response we have received from large institutional investors. On the corporate front, we have raised approximately $17 million in new capital in additions to working capital since the beginning of 2023. Additionally, we have reduced corporate debt by more than 50% from $11 million down to approximately $5.4 million through the first quarter of 2024. Finally, we have taken steps to maintain our NASDAQ listing by first achieving compliance with the market value of listed securities requirements. and then affecting a reverse split to comply with the $1 minimum bid price by their design and combating illegal shorting of NRX securities, all to support shareholder value. It's important that we keep our share price in a zone that is investable by high-quality institutions. I'm incredibly proud of our team, grateful to our partners and investors, as well as all of the patients who have participated in our clinical trials. We look forward to advancing the company and further continue this growth. In December, we were delighted to add nationally recognized attorney Janet Rehnquist to our company's board of directors. Janet brings vast experience and insight to our company in critical areas, and we welcome her. I expect you will see us add other members to our board who have direct experience in the commercialization of pharmaceuticals as we move from pure research and development to commercial operations. Jonathan has explained some of the value drivers that underline our focus on Hope Therapeutics. To build value for NRX shareholders, we intend to distribute shares of Hope Therapeutics to existing shareholders in the near term, and then to gain a public listing for the company on a national exchange. We have received considerable interest from investors, both for a bridge round to get our listing and a more substantial raise to support the launch of the product. We are actively building out our team, partners, and network with the goal of launching the product at the beginning of 2025. Delaware corporate law requires us to deliver on a dividend within 60 days of declaring it. Thus, we are waiting until we have the audits and SEC filings in place to launch hope prior to officially declaring the dividend. Some may ask, given that ketamine is a generic drug, why seek FDA approval for use in depression? Simply put, without FDA approval, the only people who have access to this life-saving treatment are those who can pay cash. FDA approval is key to insurance reimbursement. Our discussions with clinics to date have indicated the lack of reimbursement as the key impediment to patients getting the treatment they need. We aim to solve this problem. In advance of this, there is still considerable need for high-quality, reliable sources of ketamine. To that end, we have formed collaborations with a 503A and a 503B pharmacy to provide ketamine to clinics in need. First slots have recently become available and sales can commence shortly. Additionally, these near-term activities will serve as an excellent entree into those clinics once our NDA is approved and we have full licensed and reimbursable product to offer. As you can see, we have been careful stewards of your funds. We have trimmed our operating expenses, reduced our corporate indebtedness, brought in non-dilutive partnership support, realigned our executive team, and expanded our pipeline to a robust clinical development program with a multibillion-dollar potential. We will work hard every day to bring these to reality and to bring hope to life. I will now ask Rich Narita, our CFO, to review the fourth quarter financials. Rich?

Thank you, Steve, and good morning, everyone. I will now review the highlights of our fourth quarter and full year 2023 financial results. Before reviewing the numbers, it's important to recognize that we have consistently reduced our cash expenditures and expect to further reduce those expenditures as we have completed the NRX 101 clinical trial, expecting data lock imminently, and expecting data readout early in the second quarter of 2024. For the three months ended December 31, 2023, we at NRX Pharmaceuticals reduced our net loss from $10.2 million in the final quarter of 2022 to $4.3 million in 2023, representing nearly a 60% improvement year over year. For that same period, we reduced research and development expenses from $4.5 million in 2022 to $2.5 million in 2023, while substantially improving and finalizing our clinical trial enrollment. The $2 million decrease is related primarily to a decrease of 1.1 million clinical trial expenses, 0.6 million stock-based compensation, and 0.2 million consulting and personnel wage costs. Also in that three-month period, we record a 67% reduction in general and administrative expenses, from 5.4 million in 2022 to 1.8 million in 2023. The decrease of 3.6 million is related primarily to a decrease of 1.3 million in insurance expense, $1.3 million in stock-based compensation, $0.5 million in employee expenses, $0.2 million in legal and professional consulting fees, and $0.2 million in franchise tax expenses. For the year ended December 31, 2023, NRX Pharmaceuticals reduced its net loss to $30.2 million compared to $39.8 million in the prior year. These deficiencies represent an improvement in net loss of nearly $10 million year-over-year and a 20 cent or 34% improvement in our net loss per share year-over-year. Over the annual period, we recorded $13.4 million of research and development expenses compared to $17 million for the same period in 2022, representing a 21% decrease year-over-year. The decrease of $3.6 million is related primarily to a decrease of $2.1 million in clinical trial and development expenses, 0.9 million related to fees paid to regulatory and process development consultants, 0.8 million in stock-based compensation, while offset by a 0.2 million increase in patent costs as our patent portfolio has expanded. Please note that the improvement in G&A expenses is even larger than the improvement in other areas. We decreased G&A by 13.1 million from $27.3 million in 2022 to $14.2 million in 2023, nearly a 50% decrease year-over-year. As of December 31, 2023, we had $4.6 million in cash and cash equivalents. Over the first three months of 2024, we improved our access to working capital by $8 million in total, representing $2.9 million from equity sales and $5.1 million from the Alvagen milestone advance, while reducing our corporate indebtedness by 50%. We continue to implement operational efficiencies to extend runway and focus on our path to generating revenue. We believe that the near-term delivery of clinical trial data and the planned launch of Hope Therapeutics will be defining events in the second quarter of 2024. With that, I will turn it back to Jonathan for closing remarks.

Jonathan? I think it's time to take questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Tim Moore with EF Hutton. Please proceed with your question.

Thanks, and good morning, everyone. You know, you made a lot of great progress over the past few quarters, and like you said, it wasn't easy in biotech land last year, and you came out even stronger. You know, I was just wondering maybe, Jonathan and Matt, if you can elaborate more on the hope in digital therapeutics, maybe give investors a little more color on the anatomical coherence, the software possibility there, just pathways and just what you're thinking as a development route over the next year or two.

Thank you, Tim. It's really exciting to see you and people of your caliber joining our calls. This area of digital therapeutics really began in the military. It began with recognition that if you can teach someone to synchronize breathing and heart rate, which for years has been achieved through meditation, but that's extraordinarily difficult for most people to master. You actually reduce physiologic evidence of stress. You can show reduction in serum cortisol levels and other you know, hard laboratory findings. So, what was done back in the early 2000s with funding from DARPA, the Defense Advanced Research Process Agency, was to build something that looks like a video game, but you actually win the video game by synchronizing breathing and heart rate. And the target audience at the time was special forces operators. I was involved in a demonstration project where a group of Navy Special Forces operators went through the combat simulator in Quantico, both with and without using this technology, and demonstrated not only improved combat performance, but substantially reduced measures of stress and depression on the back end, so much so that the product remains for sale within the military. Well, the challenge we have is, you know, as the paradigm shifts and people recognize that ketamine achieves a rapid reduction in both suicidality and depression, the question is how do you maintain that effect? Because if you keep giving ketamine for months at a time, at least the clear evidence from primates is that you're going to kill brain cells. So one of the things we're pursuing is civilianizing that population that was developed with millions of dollars of Department of Defense R&D into something that can be useful for patients who are coming to ketamine clinics. Of course, we hope that they'll take NRX 101 on a long-term basis once we have demonstrated that efficacy and gotten FDA approval for it. But we also think that these kinds of digital technologies have real potential. Not only that, if they become part of the label of the drug, they extend the intellectual property horizon of that drug. So I hope that begins to give you a sense, and we're going to hope to do a teaching on that sometime over the next quarter.

That's very helpful. Yeah, I'll look forward to that teaching, but that can be a better sense of the... the optionality there and just seems like it's such a good untapped market. Nobody else is playing in and you have a pretty good first, first mover advantage. My other questions around, you know, your database lock occurring, it sounds like this week, you know, top line data, you know, probably by the end of this month, can you just walk us through the next two steps you plan to take and maybe just provide more details on that? You know, if you were to just give us a sense of kind of the roadmap over the next 12 months now that the top line data will be coming out.

Well, you know, database law means that, you know, we have once and for all confirmed every endpoint, you know, from the patient forms in the study site through the database. And at that point, we hand the data file to the statisticians, and they perform the statistical analysis according to the SAP, the statistical analysis plan. And we've put that up on clinicaltrials.gov, so anybody who wants to read it, should be able to. If the data are positive, the plan is to conduct a meeting together with Alvagen with the FDA and to gain FDA's alignment on a registration study that would bring NRX 101 to market for patients with severe depression and suicidal ideation. Remember, we previously showed that the drug works after ketamine. That's why FDA gave us breakthrough therapy. So, the purpose of this trial is to see whether the drug can work without prior use of ketamine. Either way, depending on the results of this trial, we're going to be going to FDA and saying we want to bring the drug to market either with or without requiring prior use of ketamine and aligning on the final design of that study. Now, one of the things we're likely to be able to do is to do the trial against placebo if we're not working with acutely suicidal patients, which is a much easier trial and a trial that has a much higher probability of success. Remember, in this trial, we're comparing NRX-101 to a known effective drug, namely liracidone. If we're comparing NRX-101 to placebo, you know, That comparisons already succeeded in numerous academic studies.

Great. Thanks for those added details and color. I really appreciate your methodical strategic plan that you share. That's it for my questions this morning.

Our next question comes from the line of Ed Wood with Ascendant Capital Markets. Please proceed with your question.

Yeah, congratulations on the progress you've done.

Have you talked about your pricing or reversing strategy for ketamine?

Well, as you know, there is an approved form of ketamine that's for sale in the marketplace today. It's offered by J&J. And, you know, J&J has reported sales in... I think, you know, above $600 million associated with that drug. So, there's an established market. The problem is that drug is not only not indicated for bipolar depression, and you know that about 40 percent of the people who commit suicide have bipolar depression, there's a REMS around that drug that precludes its use in people with bipolar depression. So, we think there's a real pricing opportunity. You're in a better position than we are to advise the public as to the current pricing of that currently marketed drug. But as we have third party indications of pricing, we'll certainly report them. Suffice it to say that if you can get insurance coverage for people, payers have indicated a real willingness to pay for this therapy because the alternative of psychiatric hospitalization and electroshock therapy is something that, you know, first of all, is horrible for patients, and second of all, costs payers the better part of $40,000 in the first year. So, you know, we believe there's a market opportunity, but we're certainly going to be guided by the security analysts as well.

Great for the detail. Thank you for answering my question. I wish you guys good luck. Thank you. Thank you, Ed.

Thank you. There are no further questions at this time. I would like to turn the floor back to Matt Duffy for any closing remarks.

Thank you, everyone. That's all the time we have for today. We appreciate you joining us this morning. And this concludes the NRX Pharmaceuticals fourth quarter 23 and full year conference call.

Thank you all for participating.

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