Beyond Air, Inc. (NASDAQ:XAIR) Q3 2024 Earnings Call Transcript

Beyond Air, Inc. (NASDAQ:XAIR) Q3 2024 Earnings Call Transcript February 13, 2024

Beyond Air, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome, everyone, to the Beyond Air Financial Results Call for the Fiscal Quarter ended December 31, 2023. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. And now, I’d like to turn the call over to Corey Davis, LifeSci Advisors. Please go ahead.

Corey Davis: Thank you, operator. Good afternoon, everyone, and thank you for joining us. Today, after the market close, we issued a press release announcing the fiscal third quarter 2024 operational highlights and financial results. A copy of this press release can be found on our website, www.beyondair.net under the News & Events section. Before we begin, I would like to remind everyone that we will be making comments and various remarks about future expectations, plans and prospects, which constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Beyond Air cautions that these forward-looking statements are subject to risks and uncertainties, 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 the 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, 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, February 12, 2024. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

Joining me today on the call are Steve Lisi, Chairman and Chief Executive Officer; and Douglas Larson, Chief Financial Officer. With that, I’ll turn it over to Steve Lisi. Go ahead, Steve.

Steve Lisi: Thanks, Corey, and good afternoon to everyone joining us today. Today, we announced a strong step in the right direction with a greater than 60% increase in revenue this quarter versus last quarter. While this is a small number in absolute terms, there are several factors that give us confidence in hitting our fiscal year 2025 revenue guidance of $12 million to $16 million. Filters shipped in fiscal 3Q grew by more than 100% compared with shipments in fiscal 2Q. It’s important to note that this growth does not yet reflect the software upgrade received from the FDA in September as it takes time for such a manufacturing change to result in upgraded systems. Our first new hospital start with the updated system was on February 1.

As this rollout of the new machines has just begun, the financial impact in the March quarter will be a bit muted as compared with the levels of revenue we expect to see in the June quarter. It is important to understand that we will maintain a balance for the next several months between upgrading our existing customer base and adding new customers. The increase in demand for product evaluations has surged since our upgraded system was displayed at the American Academy of Respiratory Care in early November. Since the conference, we have completed, started or definitively scheduled as many evaluations as we have completed in the previous 10 months. Prior to the upgraded system, we had zero multiyear contracts. I am pleased to announce today that we now have three such engagements with more multi-year requests than single-year requests by a wide margin.

For reference, upgrading our software removes all compatibility issues, reduces the system noise, improves alarms and improves sensor accuracy. We have told every hospital that we welcome a head-to-head comparison with any competitor in their hospital. However, not surprisingly, we have had very few instances where a competitor was willing to sit in the same room with us at a hospital to cycle through multiple use cases with our system and their system. While still in its early stages, we have also been pleased with the progress made since securing our innovative technology contract award from Vizient, the nation’s largest provider-driven healthcare performance improvement company. We’re excited by this opportunity to expand our reach through the Vizient customer network.

We also anticipate adding LungFit PH to more group purchasing organization platforms over the course of the next year. To capitalize on this positive growth trajectory, we will continue to build out a field team based on the growth opportunities as they evolve. One last point to make on the U.S. nitric oxide market. Our PMA supplement for the expansion of our label to include cardiac surgery was accepted and is under substantive review by the FDA. Our clinical and regulatory team is to be commended for putting together a strong submission. While there is no firm date for FDA to complete their review, we would expect a decision before the end of calendar 2024. Once approval is received, we anticipate an impact on revenue growth after a few months.

Looking outside of the United States, we still expect to receive CE Mark in the first half of calendar year 2024. As we have mentioned previously, in addition to opening up doors in Europe for our system, receiving this CE mark will trigger a milestone payment from our partner, Getz Healthcare, which has signed an agreement with us to commercialize LungFit PH in several countries in the Asia Pacific region, excluding Japan. Moving on to our pipeline. During the quarter, Beyond Cancer announced that its Phase 1 study evaluating ultra-high concentration nitric oxide, or UNO, in advanced relapsed or refractory unresectable primary or metastatic cutaneous and subcutaneous solid tumors has cleared the first cohort of 25,000 parts per million single-dose UNO by the Safety Review Committee with no reported dose-limiting toxicities.

This means that there is an UNO dose of 25,000 parts per million nitric oxide that is safe for human use. And given the data shown in November at the SITC conference, there should be confidence there is an immune response much like we saw in preclinical studies. As a reminder, this is a first-in-human study that is being conducted in two parts, dose escalation and dose expansion. The dose escalation part will consist of three UNO dose cohorts, 25,000, 50,000 and 100,000 parts per million nitric oxide, or possibly a concentration below 25,000 parts per million. The dose expansion portion of the study will begin once the recommended dose is determined with the primary objective of the trial to assess safety and tolerability of UNO with a secondary objective of assessment of efficacy by immune biomarker response to UNO therapy.

One last note is that we anticipate completing the Phase 1a study and presenting the data in the first half of this calendar year and then initiating a Phase 1b study in the back half of the calendar year, which will include combination therapy with anti-PD-1 therapy, given the strong combination data shown to-date in the preclinical setting. I encourage all of you to visit Beyond Cancer website to get better educated on this potential transformational therapy for those suffering from solid tumors. Our viral community-acquired pneumonia, or VCAP, study is underway. As a reminder, this randomized, double-blind, placebo-controlled pilot study will treat hospitalized patients with 150 parts per million nitric oxide intermittently for up to seven days.

Due to viral pneumonia following seasonal patterns of activity, this is a seasonal study running through the fall and winter months. As a result, we have decided to conduct this study over two seasons. Thus, we expect to announce top line data by the middle of calendar year 2025, with interim data updates when appropriate. This will not change the timing for a pivotal study in the ’25-’26 season. Obviously, viral pneumonia is a significant unmet medical need given the times we live in. Turning to our autism program. We are pleased that the program remains on track for human data in 2025. Please recall that this early stage development program is being conducted in partnership with The Hebrew University of Jerusalem, which continued to produce exciting preclinical data.

As a reminder, the data thus far have shown that reducing nitric oxide production by inhibiting neuronal nitric oxide synthase, reduces nitrosative stress biomarkers in the brain and reverses the molecular, synaptic and behavioral autism spectrum disorder associated phenotypes. To be clear, a reversal of behaviors associated with autism was demonstrated in several different genetic mouse models of autism. We believe this program offers tremendous potential and look forward to providing updates as we progress throughout the year. Now, I will turn it over to our CFO, Doug Larson. Doug?

Douglas Larson: Thanks, Steve, and good afternoon, everyone. Our financial results for the fiscal quarter ended December 31, 2023, are as follows: Revenue for the fiscal quarter was $0.4 million as compared with $0.2 million for the previous quarter and $0 for the fiscal quarter ended December 31, 2022. While we are seeing positive operating margins on our individual contracts, there are three reasons why our overall gross margin remains negative. First, we incurred costs related to the software upgrade of the LungFit devices. Note, there will be similar costs for the next two quarters as we complete the upgrade of all of our devices. Second, because we prebuilt several hundred devices that are currently being upgraded, we have depreciation of devices that are not currently generating revenue.

Third, consistent with this early stage of growth, we are suboptimal in our physical warehousing infrastructure, but as we grow this effect will dissipate. Our supply chain is committed to being a great partner to the hospitals we engage with and having the right number of high-quality upgraded systems in the right location is key. Research and development expenses for the fiscal quarter were $6.8 million, compared with $5 million for the fiscal quarter ended December 31, 2022. Of the $1.8 million incremental spend, $1.2 million was due to development costs associated with our pipeline, mainly from the start of our VCAP study. Investment continued to ramp up in Beyond Cancer, but this was mostly offset by favorable comps in NTM and autism. The remaining $0.6 million was almost exclusively due to loaded salaries in Beyond Air’s R&D teams.

SG&A expenses for the fiscal quarter were $9.8 million compared with $8.9 million for the fiscal quarter ended December 31, 2022. The $0.8 million increase was mainly due to stock-based compensation and salaries with the majority being noncash compensation. Other income and expense for the fiscal quarter showed a $0.2 million loss compared with a $0.2 million gain for the fiscal quarter ended December 31, 2022. There’s a lot of moving parts again this quarter, but the biggest movers are an increase in interest expense of $0.8 million, being partially offset by a $0.4 million increase from gains in our marketable securities. For the fiscal quarter ended December 31, 2023, on a GAAP basis, the company recorded a net loss of $17.1 million, of which $16.1 million or $0.50 per share was attributable to the shareholders of Beyond Air, Inc.

compared with a net loss of $12.7 million or $0.43 a share for the fiscal quarter ended December 31, 2022. Net cash used in the quarter ended December 31, 2023 was $12.7 million. We alluded to a higher cash burn this quarter in our last call, with payments required towards our VCAP study, development of our Gen 2 device, continued in-human trials in Beyond Cancer and advances in our autism program. We also raised $5.5 million on our ATM in the quarter to partially compensate the planned cash burn. As of December 31, 2023, the company had cash, cash equivalents and marketable securities of $31.4 million. And as a reminder, we also have $5.2 million held on deposit by our contract manufacturer. And with that, I’ll hand the call back to Steve.

Steve Lisi: Thanks, Doug. We will now take any questions you may have.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your question.

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Q&A Session

Jason Bednar: Hey, good afternoon. Thanks for taking the questions here, guys. If I could just start maybe on some of the recent developments, clearly, some more steps forward on the contracting front, some wins you mentioned there, that’s all good. When I step back and think about where we’re at in the context of your $12 million to $16 million revenue guidance for next year, you’re clearly signaling confidence about future contracting as well. So, I guess, when I back that up and needing a good jumping off point to exit this year in order to move into that $12 million to $16 million range, and also consider January tends to be, I think, a good contracting period or at least a lot of discussions happening here at the new year, can you talk about maybe the commercial signals you’ve seen here early in calendar ’24?

Steve Lisi: Sure. Thanks, Jason. Appreciate the question. Like we mentioned in some of the prepared remarks, seeing customers asking for longer-term contracts with us, locking us in, which is very good. We’re very happy to do so. They want to contract for the long term with us. That’s confidence in our system, especially with the upgraded software. We’re seeing, as I said earlier in the prepared remarks, a massive increase for us in requests for evaluating our system. So, we are scheduled consistently over the next six to eight weeks, and we’re scheduling more beyond that. So, the interest is certainly there. Again, we are attending to our existing customers as well as entertaining new customers in parallel now and for the next couple of months.

Our existing customer base is very important to us. They’ve helped us understand how to optimize our system and they’ve been working with the system prior to the software update. So, we appreciate that. And we’re going to take care of them as well as bring in some new customers as well. So, once they’re taken care of and we can focus our efforts 100% on new customers, that will be very exciting for us as a team. This is not just a Jan 1 start for hospitals. You mentioned that’s certainly a busy time at Jan 1, beginning of the year. But there are other points in the year where there’s lots of contracts starting up, July 1 being probably the biggest along with Jan 1. So, there’s a lot going on. There are starts, we just — like I mentioned earlier, we have a start on Feb 1.

There’re hospitals starting mid-month. There’re hospitals starting on the 1st of every month. So, it’s just a matter of us having the supply available and making sure that our existing customers are taken care of. So, we see what’s coming. We’re very excited about it. We’ll be adding people to the team to be able to handle what’s coming in the next three to six months. So that’s all I can say. I mean, I don’t know what else you’d want, what are the metrics you need, but if you need some more metrics, just go ahead and ask.

Jason Bednar: No, that’s super helpful. I’m just trying to get more anecdotal and qualitative to get a sense, and it sounds like things are moving in the right direction for sure. Maybe I’ll use your personnel reference there to segue to the next question is more — just any more color you can give around Duncan’s departure? Just maybe how quickly you’re looking to backfill this spot? You’re, obviously, at a critical inflection point commercially. I just want to make sure there’s, call it, a seamless and quick transition here.

Steve Lisi: Yeah. I think that the transition will be seamless. I don’t know when we’ll have someone new in that role starting up. But we have a pretty strong team here internally. So, we’re certainly working together as a team to bring these things forward. I wish Duncan the best and he’s done a great job for us. But we’re focused on the task at hand. And I think we have the right people at the company right now. And obviously, we need to add as we grow as opportunities come our way. But we’re going to wait for the right person, bringing in the wrong person because we need someone quickly is not the right attitude. So, I think that with what we have in place, we certainly can wait for the right person to come our way, whether that be in 30 days, 60 days or 180 days, I can’t tell you that right now, I don’t know. But I want the right person in that role.

Jason Bednar: Okay. All right. Makes sense. And then, one last one. Doug, I appreciate the help on some of the gross margin moving parts. I know it’s super early days here, but just trying to get a sense if — is there a way to quantify or strip out what some of those one-time costs would have been? It sounds like they were elevated here in the second quarter — sorry, your fiscal third quarter and — but they’re going to be there for the next two quarters. Just trying to get a sense as we model this out appropriately, what maybe an adjusted gross margin would have looked like or adjusted cost of goods sold would have looked like for you in the quarter?

Douglas Larson: Yeah. Thanks, Jason. I am a little hesitant to break out the pieces. But between the depreciation on machines that aren’t deployed and refits for the devices that we were upgrading the software on, we’re talking somewhere between $400,000 and $500,000 in the quarter. So that — I hope that gives you kind of an idea of — I think that will recur next quarter again. And then, as the sales pick up and we are done upgrading all the devices, those numbers are going to disappear. And then, as we get more revenue, obviously, those — that depreciation just becomes a normal part of our cost of sales.

Jason Bednar: All right. Perfect. All right, thanks so much.

Operator: Our next question comes from the line of Les Sulewski with Truist. Please proceed with your question.

Les Sulewski: Good evening. Thanks for taking my questions. Steve, just on the environment in the hospital setting, can you just true up how the pricing environment is driving the decisions among the hospital groups that you are engaging? And then, I guess, second part to that, give a little bit more color, if you could, around the sizing of the new — of the three new engagements you’ve mentioned? And what would be your expectations on the conversion rate on that?

Steve Lisi: Let me start with that. What do you mean by conversion rate on that?

Les Sulewski: Conversion of contract…

Steve Lisi: The three new engagement we mentioned — so, we have those contracts. Those are inked. Those are just multi-year deals.

Les Sulewski: Got it. okay.

Steve Lisi: Those are already done there.

Les Sulewski: Can you give a little more color on the sizing of that, if that’s possible?

Steve Lisi: I would say that two of them are probably slightly below market average, and one of them is probably double what you consider market average. So, these are — they’re good-sized contracts. I really want to give too much detail on it, but these are good-sized hospitals. They’re doing pretty good volume, even the two ones that I would consider to be a little bit below what the average-sized hospital would be, do pretty good volume. But the other one is a lot of volume. I mean, there’s patients, a lot of patients on every single day. I mean, we’ve got over 20 machines in that hospital. It’s a big hospital. So I hope that helps.

Les Sulewski: It does.

Steve Lisi: So, let me go back to your price question. It’s — price certainly plays a role. There’s no doubt about it. I think that’s true in any situation, the hospital wants to get the best price that they can, but that’s not the only thing that plays into a decision for the hospital, but it certainly plays a role. I mean, we can’t be naive to that fact. And I think that — I’ve said this before, I think that the pricing environment is not too far off from what we expected when we entered this market. It’s pretty much within the range that we anticipated. Some hospitals will get better pricing than others based on certain factors, volume being probably the biggest factor. But I don’t think it’s the only factor, and I don’t want to give you the impression that this is a race to the bottom in this market for price, it’s just not true. I think it’s a healthy pricing environment.

Les Sulewski: Got it. Very helpful. On the VCAP study, can you just give a little bit more color how this was extended into two seasons? And then separately, on the one-fold increase on your filter shipments, can you translate that into utilization, or is this a seasonal inventory stocking? Just give a little more commentary on that, if you could.