Beyond Air, Inc.

Greetings and welcome to Beyond Air Incorporated's third quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Maria Yankovsky, head of IR.

Thank you, operator. Good afternoon, everyone, and thank you for joining us on Beyond Air's conference call. Today, after the close, we issued a press release announcing the financial results for the third quarter of fiscal year 2021, a copy of which can be found on the investor relations page of our website. Before we begin, I would 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 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. Beyond Air encourages you to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's Form 10-K, 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.beyonddare.net. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 9th, 2021. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. I am joined today by Steve Lisi, our chairman and chief executive officer, who will provide business updates. Douglas Beck, our chief financial officer, who will review our financial results for the third quarter of fiscal year 2021. And Duncan Fatkin, our chief commercial officer, who will be available during the Q&A. With that, I would like to now turn the call over to Steve Lisi, our chief executive officer. Steve?

Thanks, Maria, and good afternoon, everyone. I hope you're all staying safe and healthy during the current pandemic, which we all hope will subside this year. We appreciate you taking the time today to listen to our story, which we believe, given our progress, is an even more compelling investment opportunity now than it was in 2019 and 2020. Of course, this progress is attributable to the very strong capabilities of the Beyond Air team and their intense enthusiasm for what we are trying to accomplish for patients, and our investors. I will spend a few minutes to provide a recap of our recent achievements and review our expected milestones ahead of what I believe to be a transformative year for Beyond Air. Doug will conclude our prepared remarks with a review of our financial results, and then we will open up the call for questions. As you all know, we submitted a premarket approval application to FDA for our lung fit pH this past November for the treatment of persistent pulmonary hypertension of the newborn, or PPHN. The currently pending PMA is subject to a 180-day review period. Just in case anyone was curious about our interactions with FDA, let me provide you with this. I will not be commenting on our interactions at this time, other than to say that we are very happy to be working with FDA on this application. In the meantime, we are actively preparing for a commercial launch of LungFit PH in the United States, which we expect will commence approximately four to six weeks after FDA approval. Please take note that we already employ about two-thirds of our launch team, including several respiratory therapists. We continue to guide for controlled phased launch, which requires low upfront costs. We will spend the first six to nine months post-approval in a limited release phase where we will work closely with a select number of hospitals who have staff experience with ENO to perfect our customer service and support functions. Once our commercial plan has proven to be successful during this limited release phase, we will expand our team and reach out to the rest of the market. As a reminder, there are over 800 Level 3 and Level 4 neonatal intensive care units, or NICUs, in the U.S., which most likely all use ENO therapy. We estimate that approximately 20% of hospitals using NO represent roughly 80% of the market, which is the classic model. According to published reports, the use of NO in the hospital setting represents sales of greater than $500 million over the last 12 months in the United States alone. It is important to note that the majority of sales are in cardiovascular-related indications, which are only on label outside of the U.S. We are planning to partner LungFit PH outside of the U.S. with the first agreement expected to be in place by the end of this calendar year, in line with the anticipated receipt of CE mark. Considering the many advantages our novel technology offers compared to the legacy cylinder-based systems that have dominated the NO market for the past 20 years, we expect LungFit PH to be a disruptive force. Our goal is to revolutionize this industry with a truly integrated system. a device that generates NO from ambient air and delivers it to the ventilator circuit. We are not limited by the space requirements of 45 pound cylinders or special storage requirements that are necessary for toxic chemical substances. Instead, our systems rely on easy to dispose nitrogen dioxide or NO2 smart filters that weigh approximately two and a half ounces and last for 12 hours of continuous use. To be clear, Our systems will not deliver NO without a BeyondAir smart filter in place. This prevents NO2 toxicity to patients and staff while protecting our business model. LungFit PH offers hospitals a simple, safe, and convenient alternative to products that are currently on the market. Our system eliminates NO2 purging procedures, and our user interface is designed to be easy to use for providers. Overall, Operational economics and safety are vastly improved for the hospital. Our fixed costs are significantly lower than our competitors because we do not have any expenses associated with NO manufacturing or logistics associated with NO cylinders. I would like to emphasize that for the LungFit system to work, all you need is air. In preparation for launch, we have our global supply chain set up through our subsidiary in Ireland. and have everything on track with our contract manufacturers for our systems and filters. We secured our calibration gas supply more than a year ago and are confident that we will have sufficient inventory available at launch. As a reminder, these NO and NO2 calibration gases are manufactured solely for the purpose of calibrating sensors specific to nitric oxide and nitrogen dioxide. Our LungFit systems are all equipped with appropriate NO, oxygen, and NO2 sensors for monitoring proper delivery of NO and oxygen, and safety levels of NO2. Leading the preparation for the commercial launch of LungFit PH is our chief commercial officer, Duncan Fatkin, who has been with us for more than two years now. Prior to joining BeyondAir, Duncan was the worldwide vice president of the Becton Dickinson diabetes injection franchise, with prior experience at Zimmer Biomet, Smith & Nephew, and Johnson & Johnson. He has over 30 years of experience in hospital-based medical devices, and has worked in Europe, Asia, and for the last 10 years in the US. Duncan choosing to lead our commercial efforts is yet another vote of confidence in our product. As Maria mentioned earlier, Duncan is on the call with us today and will be available to answer questions during the Q&A portion of our call. In addition to a potential FDA decision on our PMA, we also have two ongoing pilot studies that we expect to report interim data from, all within the next six months. Let's start with our acute viral pneumonia study, which includes COVID-19. We began our pilot study in acute viral pneumonia, including patients infected with SARS-CoV-2, with the first site activating last November in Israel. Enrollment is ongoing, and we have had more sites come online each subsequent month post initiation. As to be expected, at this time, the majority of patients enrolled are confirmed COVID cases. But we expect to see an increase in other viral infections as Israel's population continues to receive the COVID-19 vaccine at warp speed. As you may recall, our study is a multicenter, open-label, randomized clinical trial enrolling approximately 90 adult patients with an emphasis on patients infected with SARS-CoV-2. Patients are randomized in a one-to-one ratio to receive inhalations of 150 parts per million NO given intermittently for 40 minutes four times per day for up to seven days. IN ADDITION TO STANDARD SUPPORTIVE TREATMENT, OR STANDARD SUPPORTIVE TREATMENT ALONE. END POINTS RELATED TO SAFETY, OXYGEN SATURATION, FEVER, AND ICU ADMISSION, AMONG OTHERS, ARE BEING ASSESSED. TO DATE, THE LUNG FIT PRO DEVICE IS PERFORMING WELL WITH NO SAFETY ISSUES. WE EXPECT TO RELEASE INTERIM RESULTS IN SPRING 2021 WITH THE TOP LINE FOR THE FULL DATA SET EXPECTED OVER THE SUMMER. MOVING ON TO our ongoing non-tuberculosis mycobacteria, or NTM, pilot study. As you may remember, we began screening patients for our LungFit Go program and NTM in December 2020. We recently dosed the first patient and are continuing to enroll. This is a single-arm, multicenter, 12-week trial in Australia that aims to enroll 20 cystic fibrosis or non-CF bronchiectasis patients with refractory NTM lung infection. Both mycobacterium avium complex or MAC or mycobacterium abscess strains will be included. Patients are titrated up to 250 parts per million NO in the hospital over several days and then sent home to complete the 12-week treatment period. Yes, I said sent home for the remaining 11-plus weeks. We specifically designed our system to be simple to use by non-medical professionals and are confident in our ability to eventually bring NO treatment into the home for patients suffering from chronic severe lung infection. Unfortunately, there are a lot of these patients and we believe will become a key weapon in this ongoing battle. Going back to the trial design during the 1st, 2 weeks patients receive 40 minute administrations 4 times per day, which then moves to 2 administrations per day for the remaining 10 weeks. The studies evaluating safety, quality of life, physical function and bacterial load among others. If this trial is successful, we believe our LungFit Go system will be a game changer for the home setting, helping underserved patients such as those with chronic severe lung infections with various underlying conditions such as cystic fibrosis, bronchiectasis, and, of course, COPD. Consistent with prior guidance, we expect to report interim data from the at-home study around the middle of 2021 with top-line data about six months later. I would like to now turn to our solid tumor program, which is a relatively new indication for us and will not use the long-fit platform due to the ultra-high concentrations of nitric oxide that are necessary to achieve anti-tumor immunity. Though this program is in early development, it has demonstrated exciting preclinical data which we have presented at three different major conferences, the most recent being the AACR Subsection Conference on Tumor Immunology and Immunotherapy this past October. Our hypothesis is that gaseous nitric oxide at extremely high concentrations, greater than 10,000 parts per million and even up to 200,000 parts per million, will cause local cell death when administered directly to a cell or tumor, thus exposing tumor antigens and triggering the host immune system. This exposure may create a memory immune bank that will recognize and attack subsequent primary tumor regrowth as well as distal metastases for the same type of tumor, creating a cancer vaccination. Our goal for this program is to initiate a first in human study by the end of this calendar year. I would like to point out that at this stage our expenditure is less than 10% of our spend through fiscal year 2022 for our solid tumor program. Lung fit remains the overwhelming focus for the company, but the promise is evident and this program demands our commitment. Turning to our bronchiolitis program, it remains on hold due to the ongoing pandemic. Bronchiolitis is the inflammation of the lower respiratory tract in children younger than two years old and is the leading cause of infant hospitalizations globally. The most common cause of bronchiolitis is respiratory syncytial virus, or RSV. But other respiratory viruses, such as rhinovirus, influenza, and parainfluenza, as well as coronaviruses, can also be the cause, though data thus far has showed that SARS-CoV-2 is not likely to trigger bronchiolitis. According to the CDC, RSV season onset has historically ranged from mid-September to mid-November, with season peak from late December to mid-February in the United States. In early 2020, SARS-CoV-2 appeared in the U.S. just as the RSV bronchiolitis season was waning, and we have seen more than a 90% reduction in bronchiolitis so far this season. While information is limited as to why bronchiolitis has essentially disappeared, one could surmise that parents of infants under the age of 12 months are not exposing them the same social environment as they had been prior to COVID. Experts and regulatory bodies remain unsure how SARS-CoV-2 or its mutations could influence the upcoming 2021-22 bronchiolitis season. This situation brings our program to a standstill as the BeyondAIR team is unable to justify committing resources and capital for a study that would have to begin in nine months. BeyondAIR remains committed to reducing the burden for hospitals, bronchiolitis patients, and their families. We have completed three pilot studies to date demonstrating strong safety and efficacy data at 150 parts per million and our pivotal study ready. However, we must make the best R&D investment decision related to bronchiolitis now, and that is to reallocate resources and funds to our other programs. The uncertainty surrounding this program with respect to potential enrollment difficulties will only be resolved, we believe, when we have more visibility on COVID-19 waning and infants getting back to their normal social calendars. With that, I WILL NOW TURN THE CALL OVER TO DOUG FOR THE FULL FINANCIAL REVIEW. DOUG?

THANK YOU, STEVE. HERE'S A BRIEF REVIEW OF OUR FINANCIAL RESULTS FOR THE THIRD QUARTER OF FISCAL 21, WHICH ENDED ON DECEMBER 31, 2020. REVENUE FOR THE QUARTER ENDED DECEMBER 31, 2020 WAS $149,000 AS COMPARED TO $314,000 FOR THE THREE MONTHS ENDED DECEMBER 31, 2019, ALL OF WHICH WAS deferred licensing revenue. Research and development expenses for the quarter ended December 31, 2020, with $3.3 million compared to $2.6 million for the three months ended December 31, 2019. General administrative expenses for the quarter ended December 31, 2020, with $2.5 million compared to $2.5 million for the three months ended December 31, 2019. For the quarter ended December 31st, 2020, the company had a net loss attributed to common shareholders of 5.8 million or 33 cents per share compared to a net loss of 4.9 million or 43 cents per share for the three months ended December 31st, 2019. As of December 31st, 2020, the company had cash, cash equivalents and restricted cash of 22.7 million. I would like to provide our cash balance as of January 31st, 2021, which is $30.5 million. We have previously mentioned that we had in-the-money warrants expiring in February 21, as well as access to equity lines, which provided this increase in cash for January. We believe this cash is sufficient to fund operations well beyond the next 12 months. I'll now hand it back to Steve.

Thanks, Doug. Now onto questions. Operator?

At this time, we will 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. 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 poll for questions. Our first question is from Suraj Kalia with Oppenheimer and Company. Please proceed with your question.

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

Yes, Suraj, I can.

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

I'm sorry, what do you mean filters per case?

So, you know, each patient on average will require so many days of usage. Right. Remind us, you know, filters, they will, you know, is it one per case or is it required to be changed on a daily basis? Forgive me, my memory fails me here.

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

Okay. And the thought process is pricing is going to be similar to what the cylinder-based therapy is for, let's say, four days that are publicly reported. It's going to be plus or minus the same.

Yeah, I mean, I had Duncan back in here, our chief commercial officer. So, you know, Siraj, I'd love to introduce him to everyone and let him answer some of these questions. So if you don't mind, I'll let him address this question for you if it's commercial, if that's okay. Sure. Hey, Duncan.

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

Got it. Okay. Fair enough. Steve, maybe I missed it. Were any patients recruited in the NTM trial, the Lungford Go NTM trial?

Yes.

Sorry, I must have missed the number then. I didn't give the number. Okay.

I didn't have any patients. We're just saying that, yes, we have begun our enrollment. Got it. Okay.

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

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

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

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

Our next question is from Scott Henry with Roth Capital. Please proceed with your question.

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

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

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

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

Yeah, Scott, I would, you know, it's tough at this point to really predict when we'd be able to show data from that, but I think you're on the right path that this is not going to be a very long-term first in human study. It will be, you know, there will be biomarkers we'll be targeting, and there'll be safety and so forth. So, it should be relatively short for oncology studies. So, yeah. You know, it's hard for me to commit to a specific, you know, quarter that we would be showing data, but if we can get started by the end of 21, I think it's fair to say we could probably have something out there by the end of 22. But again, let's see how that goes. It's almost two years from now, so I've got a couple things to accomplish before I can really nail down that timing.

Okay, great. Thank you. And then just final question, I believe with regards to the balance sheet, a real-time cash figure was given. Did I hear that correct in that it was $3.5 million? And if I hear that correct, is the difference mostly warrant exercises? That's how I should think about that. There's an outstanding line.

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

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

Thanks, Scott.

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

Thanks. Good afternoon, guys.

Hey, Matt. How are you?

Doing well, thanks. I just wanted to ask you a couple questions with respect to the planned launch that you have for LogZip PH. You mentioned a phased launch. Can you describe what the phases are and what the first phase will look like as you launch the product later this year?

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

Thank you. Hi, Duncan.

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

Makes sense. Okay. Great. That's very helpful. And in terms of what are you thinking about in terms of how you charge for the device itself and then what's called the razor and then the razor blades, how are you going to monetize each of those?

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

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

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

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

Yeah, we'll see. You know, we will have, you know, a point where we'll have to cut the Cut the data in terms of this is it. This is the date and we're going to compile it and then put that release out. You know, we're not looking for any specific number per se. It's more of a timing issue from a date. We just have to kind of pick one at some point and say that's it. And whatever we have at that point, we'll put out in the press release. So, you know, we haven't really made that decision at this point in time of what that date will be. But, you know, the season's pretty much over by the time we get into May unless we you know, COVID just continues to go the way it's going. But Israel seems to be vaccinating very quickly, so I don't think it's going to last too much longer than that. So, you know, that's why we feel that we'll have something out in the spring, clearly, you know, on an interim basis. But I don't know the exact number of patients it would be. Sure. Enough to, you know, enough to draw some, you know, initial conclusions, that's for sure.

And then, I guess, similarly for the LungFit Go program in NTM, interim data, you know, you're expecting, I guess, mid this year. What should we be looking for there? Will you have kind of culture conversion data at that point? What efficacy data will you have at that point?

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

Thanks, Steve, and thanks for the detail.

All right. Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is with Yale Jen with Laidlaw & Co. Please proceed with your question.

Good afternoon, Steve, and congrats to finally getting to the finish line for long-term Ph.D.

Thank you.

We're not finished yet, but we're close. Thank you. It's 95 out of 96 yards, I guess. The first question is that how do you guys see the market at this point that being, giving the one sort of generic machine already at the cylinder already be in the market? Do you see the total market value being eroded, and what do you anticipate? Should you guys coming in, would that be further reduced because of a competition reason?

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

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

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

Yeah, no, thanks for that question. I mean, we know the usage pattern that already exists. So, of course, we can't promote that off-label use, but we certainly can promote to hospitals with a nickel, and we tend to do that. And as we enter the market, we'll definitely be looking to expand our own indication to include cardiovascular use as well. So, we're going to respond to the inquiries of our customers. And we're going to just make sure that it's easy for them to use our system. And we'll have clinical specialists and people who can respond to any off-label requests. So we certainly hope that we can be part of expanding the use formally and getting some reimbursement. Okay.

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

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

Okay. Maybe just tag a lot more questions that... In terms of the European CE mark, you anticipate potentially approval by, I guess, year end. Question is that is there additional information that you need to supply to the agency over there or the process already ongoing, you know, whether the train already left the station?

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

Okay, great. Spencer, I really appreciate it. Just one more yard to go. Thanks, Gail.

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

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

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

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

Yep, it does. Thanks. Now on to Steve's buffet.

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

Thanks, Greg.

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

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

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