Beyond Air, Inc.

Good afternoon, and welcome to the Beyond Air Fiscal Year 2022 Financial Results and LungFit PH Approval Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. And now, I would like to turn the call over to Corey Davis from LifeSite 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 Lung Fit 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. harbor provisions under the Private Securities Litigation Reform Act of 1995. The ONDAIR 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 of 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 two and a half 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 a built-in backup to the first. Since the system uses ambient air as the source for generating NO, as long as you have a standard electric outlet, supply is unlimited. Ambient air is 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 as nitric oxide. Since NO converts to toxic nitrogen dioxide or NO2 in the presence of oxygen, the newly formed NO and NO2 pass 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 is performed on demand regardless of the dose or flow dictated by the ventilator. Now let's review the NO market in the United States. Here you see our LungFit device on a cart for the convenience of the medical staff. Prior to 2020, the InaMax DSRI system from 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 lumped-in 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 for and reduce the need for extracorporeal membrane oxygenation. Lung-fit pH will not change how NO is delivered to patients, but it provides a much, much better mouse drive. 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 Bates, our Vice President of Engineering, only because I will never hear 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 Inavent, the first nitric oxide delivery system ever approved, and the subsequent InaMax DS and InaMax DSIR, the market-leading system. Fred and Duncan, along with several key members of the BeyondAir team, have been at the forefront of NL therapy for the last 30 years. And because they are here and able to attract such a talented team, the nitric oxide knowledge and experience at BeyondAir is the best in the world. Amazingly, we're able to find two men named Duncan to work at BeyondAir, and they both originally hailed from the UK. Duncan Facken, our chief commercial officer, has over 30 years of experience in the medical device industry with household names like Johnson & Johnson, Smith & Nephew, Zimmer Environment, and Beck & Dickens. He has led teams in Asia, Europe, and the US. His understanding of the industry is exceptional. His leadership at BeyondAir has been essential to our success. As expected, Duncan has brought together a fantastic team.

Thanks, Steve, and good morning to our investors. I'm 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 build-in and lead-in 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 BeyondAir 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 introduce LungFit PH to the market. In addition, we're 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 a 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 one 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 recognized 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 trap, 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 lung fit 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 P8 simply has an on-off button and a 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 lung fit 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 supports. Our team will handle everything from routine orders and billing inquiries to emergency deliveries using our rapid replacement programs. 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 six to nine 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 one, 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 three and four NICUs. Once we get past phase one, we will then enter phase two, 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 two 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 three of our strategy. As we enter phase three, 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 three or level four NICUs and staff experience with inhaled nitric oxide. To optimize the launch for both our phase one customers and for BeyondAir, 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 BeyondAir team. Also, we are acutely aware that hospitals are currently in annual or multi-year contracts for nitric oxide. Because of the restrictions these agreements could put on their ability to transition, We'll be targeting hospitals with less than 12 months left on their existing contracts. Due to the many advantages of the lung fit 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 microsite 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 timeframe, we are planning to submit our supplemental PMA for an expanded cardiac label. In Q1 2023, we anticipate phase two 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 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 BeyondAir 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 BeyondAir team for this amazing achievement. Now, on to our pipeline discussion, where I will begin with our 12-week multicenter open-label LungFitGo NTM lung infection pilot study. As you may recall, in December 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 cutoff on April 4th, 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 five 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 two 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 analyzed 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 per million NO continued 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 Society's meeting. Out of the 198 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 per million, 150 parts per million, or 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 wheezing episodes, pneumonia, asthma, among others, and the percentage of subjects rehospitalized 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, NT 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 one 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 BeyondAir, 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 31st, 2022 was zero as compared to $0.9 million for the fiscal year ended March 31st, 2021, all of which was licensing revenue. Research and development expenses for the fiscal year ended March 31st, 2022 were $11.8 million compared to $12.6 million for the fiscal year ended March 31st, 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 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 31st 2022 was a loss of 3.4 million dollars compared to 0.7 million dollars for the fiscal year ended march 31st 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 31st, 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 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.

At this time, we will be conducting a question and answer session. If you would like to use your question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question comes from the line of Matt Kaplan with Landenburg-Solomon. You may proceed with your question.

Hi, Steve. Congratulations on the approval. It's perfect news today. Thanks, Matt. I guess I wanted to get into kind of the three-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 you're potentially addressing as, as you, as you, as you, as you phase out the launch.

Okay. So obviously the third phase will be the entire market. That's easy. And, you know, you have to look at it more. We look at it more in terms of, of the hospitals themselves, not necessarily the revenues. And, you know, we're looking for hospitals in this first phase that, that, that are, you know, are high users, let's say, above a certain number of hours per year so that they have a lot of experience with their teams 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, you know, fairly high volume hospitals. So let's say, you know, a hospital in phase one is going to be worth multiples of a hospital in phase three. And, you know, phase two, you could have hospitals that are more closer to phase three or closer to phase one. It's just going to depend on how contracts are ending up with respect to, you know, with respect to how long they're locked in for, so to speak. Remember, there will be hospitals that are coming off contract every quarter for the next, you know, three years. Some of these contracts can last that long. I'll let Duncan expand upon this if he'd like to.

Sure, thanks for the question, Matt. Yeah, 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 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's 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 the added 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 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 next steps in NTM and development there?

Yeah, thanks, Matt. You know, 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'll have to get all the data in-house, analyze it, 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'll 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'll discuss with them what the next steps are. And, you know, hopefully those steps are going to be pretty straightforward and clear. You know, 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, you know, we'll see. But I think that's when the next study should be beginning is a 2024 start.

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

Yeah, 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 I study and what we should look for there as you get that underway?

Well, we're open 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 a first in human study. So we're looking for safety in a small number of patients. And You know, Matt, if we can, we'll 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 one 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, and thanks for taking 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 all right?

Yes, yes. Thanks, Suraj.

Perfect. Hey, congratulations to you and your team on the long overdue approval. So, Steve, three questions from my side. The first one is a multi-part question. For the initial launch of PPHN, the eight 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 bogies you all are looking out for 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 multi-part question, but hopefully you got the gist of it.

I'll just talk about the bogeys and I'll let Duncan go through the rest. So, you know, the bogeys for us, you know, in broad terms, you know, we're 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're training everyone in the best manner. So we're going to look for ways to optimize our training methods. I think we've 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's doing well and everything's 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. These are the things that we're 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 to nine months to make sure that we've got any kind of bugs ironed out, if there are any.

Yes, Suraj, just to add a little bit of color. I mentioned and we focused on the experience of the leadership team because we think it's really important. Rebecca and Jeff have incredible teams that they've brought together and a significant amount of experience of dealing with a lot of hospitals that we'll be speaking to. And we're very confident in their interest and enthusiasm for the product. They have been contacting us routinely over the last several months and even beyond that. they're planning to visit with us at the conferences that we're 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 that they're looking forward to seeing another alternative on the market eliminating cylinders as far as they can and in terms of utilization this this group of incredible experienced professionals, particularly on the clinical side, will help them through their evaluation of the system and then hopefully 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're confident in everything that's working both clinically and logistically, then we start to release the valve and we'll expand and we'll see utilization rapidly increase at that point.

Got it. I'll ask both my questions, Steve, and I'll 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 all 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're thinking about the regulatory and intellectual mode around your technology. Gentlemen, congrats again, and thank you for taking my questions.

Thank you. Thank you. I think seeing Mark, we're pretty clear it's a second half event. So there's not much more to say there. You know, 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're pretty happy with FDA approval. So it's a small sacrifice on the timing on CE mark. As for our, you know, moat, as you call it, You know, we're always very confident in our patent portfolio around our generator. You know, we're growing even more confident with some things that have happened in the last few months. And, you know, with a PMA approval, as you know, Suraj, a PMA approval is, you know, something that happens about, you know, 25, 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're obviously more confident now that we have approval that it's going to be that much harder for anyone to come with a 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's going to be able to come in at 150 plus parts per million with a generator given our portfolio. That's our opinion. I'm sure others will have a different one, but let's see what happens and unfolds over the next 10 years. With respect to the PPHN, You know, we don't know of anybody else who's coming. We've heard lots of rumors, but so far we're the only game in town. So first mover advantage is very important in a medical device. So we're quite happy with it. We think there are barriers up, and we'll have to wait and see what unfolds.

But we're very, very confident. Thank you.

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

Great. Good afternoon, folks, and thanks for taking the questions, and 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?

Yeah, so it's about 70-30 split, 70% being cardiac. It's a rough estimate. So, again, there's no real data on that, Greg. It's just, you know, kind of, you know, best guess. So the pathway to get cardiac on label is just, you know, going to FDA and talking to them about that pathway and then making a submission. We believe that we'll 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 two of the launch, by how much do you plan to expand the commercial team?

Well, I'll let Duncan handle that question.

To answer the question, Greg, the good news about the nitric oxide business is, firstly, there's a pretty well-established use of nitric oxide in some very experienced hospitals. 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'll 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'll 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 their 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're 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've spoken to people. I think it's appropriate to have a CE mark before we push on moving forward to definitive terms. But 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 and Company. You may proceed with your question.

Good afternoon. Thanks for taking questions again and my congrats on the approval. Maybe it's a 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?

Yeah, I don't think I can really reveal that, you know, 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, you know, You know, we're very happy, and we're 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 showed that the current market is about 480 million versus it was 500 beforehand, presumably due to some price erosion. What's the general thoughts you guys have in terms of going forward? Is this price erosion start to stop or change or maybe even reverse?

Yeah, I think the price, as we sit here today, is 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 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 price decline in those two years, I think the volume due to the pandemic offset that quite a bit. So I wouldn't So us, you know, 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're 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'll see in our corporate presentation, that the new one that should be up this evening, that we're calling this a greater than $400 million market. In the past, we had said greater than $300 million, but again, I think the increased usage due to COVID, as well as the price, did not decline as much as we 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 very appreciated. And two quick ones. One is in terms of the cardiac line extension, 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. We haven't said exactly what we are going to submit to the FDA, so I'm going to hold that information back. Yale, 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's quite a big jump in a number of lines operating in terms of R&D SG&A. As we are, you know, modeling for the next year, next fiscal year, was there any sort of directional guidance you could provide?

SG&A is probably going to go up. I mean, we're launching the product, so I would anticipate increases there. Whereas R&D, I don't really see an increase there. It could be flattish. Maybe, it's probably flattish as best we can think give or take. Look, you know, 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's really not much going on on the R&D side, only because of the seasonality of the conditions that we are attempting to treat. There'll be some spend, obviously, in preparation to get things going, there's spend to finish up our NTM study. But again, there'll be a bump in the fiscal 24 timeframe. You'll 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.

So absolutely. And again, appreciate all the details. And again, congrats on the long-awaited outcome.

Thanks, Yo. 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'll 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.