Beyond Air Inc (XAIR) 2021 Q4 法說會逐字稿

Good afternoon, and welcome, everyone, to the Beyond Air Financial Results Call for the Fourth Quarter and Full Fiscal Year 2021 Financial Results ended March 31, 2021. (Operator Instructions) And now I would like to turn the call over to Maria Yonkoski, Head of Investor Relations at Beyond Air. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Today, after market close, we issued a press release announcing the fourth quarter 2021 operational highlights, along with the summary of our year-end financial results. A copy of this press release can be found on the Investor Relations page of our website and will be on file with the 10-K filed today.

Before we begin, I would like to remind everyone that we will be making comments and various remarks about future expectations, plans and prospects that 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 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 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.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 10, 2021. 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, our Chairman and Chief Executive Officer; Douglas Beck, our Chief Financial Officer; and Duncan Fatkin, our Chief Commercial Officer, who will be available only during the Q&A. With that, I will turn the call over to Steve Lisi, our CEO. Steve?

Thanks, Maria. Good afternoon to everyone, and thank you for joining us on today's call. The last 12 months have been very productive for Beyond Air, during which we laid the foundation for success over the next few years by achieving several key milestones, including the submission of our first ever PMA to the FDA for our LungFit device; the significant expansion of our commercial organization by hiring several nitric oxide industry veterans to key leadership positions, including heads of sales and marketing; and we made important progress in each of our clinical programs, which I'll provide further details on in a few minutes.

We entered the current fiscal year executing on our vision of harnessing the power of nitric oxide in order to transform the lives of patients. Most importantly, when approved, LungFit PH will be the first in our portfolio of devices able to generate nitric oxide from ambient air to reach the market, further validating our technology. As we look to the approval of our pending PMA application for LungFit PH, we envision a future of tankless inhaled nitric oxide delivery in NICUs across the U.S. and eventually the world.

LungFit PH is designed to offer hospitals a simple, safe, cost-effective and convenient alternative to products that are currently on the market. We are excited for the opportunity to introduce LungFit PH to the over 800 Level 3 and Level 4 NICUs in the U.S. over the next few years, starting with a phased commercial launch that is scheduled to begin after PMA approval.

Recall, our strategy is to spend the first 6 to 9 months in a limited release phase, targeting a group of select hospitals using a small number of systems at launch. This will not require a significant spend and is easily attained with the amount of cash we have on hand today. As our commercial plan comes together, we aim to partner with the hospital staff to embrace the efficiency, flexibility and innovation around which our system has been built. Our user interface is designed to be an easy transition from existing user interfaces for NO delivery. We are also able to avoid purging procedures, which, along with the simplicity of our user interface, will significantly reduce the training burden and time spent on system operation through clinical staff.

LungFit PH allows for the removal of the burdensome inventory storage and disposal requirements that are necessary for cylinder-based solutions offered by competitors. Additionally, our system minimizes the likelihood of physical injury for health care workers while also reducing the risk of nitrogen dioxide or NO2 exposure for all.

NO2 is toxic byproduct of NO, combining with oxygen, that can irritate the airways of the human respiratory system and may have fatal consequences, which is the main reason behind the special storage requirements imposed by our competitors.

In contrast, our system relies on easy to store and dispose of smart filters that can last for 12 hours of continuous use. NO2 levels are monitored constantly and maintained well below the safety threshold while NO is being generated and delivered by our system. Not only does the Beyond Air smart filter protect the patients and medical staff from NO2 toxicity in all devices in the LungFit family via a uniquely encrypted RFID chip, rendering the system unusable for NO generation in its absence, but the smart filter also acts as the razor blade in our razor-razor blade business model.

In terms of current status for the FDA review process, as you all know, we submitted our PMA application to the FDA for our LungFit PH system this past November, which would normally have been subject to a 180-day review period. I want to reiterate what I have been consistently communicating and note that due to the ongoing pandemic, distribute process has been prolonged. We continue to expect approval towards the end of the third quarter of calendar 2021, with a subsequent commercial launch in the fourth quarter. I am unable to comment further on the PMA review at this time other than to say that we are happy to report a collaborative effort with FDA.

We have made many strides on the commercial front over the last year, cementing our strategy in logistics plan. In 2020, we set up our global supply chain through our subsidiary in Ireland and worked with our state-of-the-art contract manufacturers to have everything on track for our systems and filters. We secured our calibration gas supplier well over a year ago and are confident that we will have sufficient inventory available at launch.

Like I said earlier, we will spend the first 6 to 9 months in a limited release space where we will work closely with a select number of hospitals who have staff experience with inhaled nitric oxide in order to perfect our customer service and support functions. This phase will not require a significant inventory build since we are launching with a small number of systems. I am pleased to report that we have a strong balance sheet heading into this event. For reference, we had $34.9 million in cash as of April 30, 2021, which is sufficient to get us through the next 12 months and beyond, inclusive of the initial launch phase. Our actual cash burn for the March quarter was $5 million. And we anticipate that the burn for the current June quarter will be even less than that. Only once our go-to-market approach has been proven and stress tested will we begin our ramp phase, which will include expanding our team and reaching out to the rest of the market.

Leading the preparation for the commercial launch of LungFit PH is our Chief Commercial Officer, Duncan Fatkin, who has been with us for 2.5 years now. He has over 30 years of experience in hospital-based medical devices and has worked in both Europe, Asia and has spent the last 11 years in the United States. Over the past several months, Duncan has been expanding his team and recruiting nitric oxide industry veterans to key leadership positions within our organization.

In May, we announced the appointments of Rebecca Van Doren as Head of Sales and Kori-Ann Taylor as Head of Marketing. Both of these talented women have worked with IKARIA, and subsequently, Mallinckrodt Pharmaceuticals, to drive sales and marketing initiatives for the current NO market leader. They have extensive knowledge of the competitive landscape and have had first row seats to both the successes and challenges faced by our competitors. These 2 appointments, along with a number of others, are part of our strategy to build a strong commercial team, which is crucial to the success of LungFit PH and an essential part of growing the entire LungFit franchise. As Maria mentioned earlier, Duncan is on the call with us today and will be able to answer questions during the Q&A portion of our call.

Outside of the U.S., I am pleased to report that we remain on track to obtain CE Mark for LungFit PH in Europe around the end of this calendar year. As I have said in the past, we have every intention of partnering this program ex U.S. In fact, we recently appointed Peter Senior to the newly created position of Director of Business Development to spearhead this effort. Peter joined our team after spending 26 years at Linde, where he most recently served as Director of Healthcare Partnerships and External Relations. Peter is responsible for expanding Linde's health care portfolio after the merger with Praxair, which made Linde he largest gas company in the world. He is intimately familiar with the nitric oxide market, the technology available, and is hitting the ground running as we look to secure an ex U.S. partner in 2022 for LungFit PH.

Our ability to recruit unparalleled talent speaks volumes for not only the capabilities of LungFit PH, but also to the LungFit franchise and Beyond Air as a whole. As an organization, we are ready to bring the incredible benefits of inhaled nitric oxide therapy to patients.

Additionally, in May of this year, we reached a settlement agreement with former LungFit PH commercial licensee Circassia. We retained full global rights to the asset in exchange for returning $10.5 million in upfront and milestone payments received by the company in early 2019. We have secured an advantageous payment structure for the $10.5 million that we are returning to Circassia. Beyond Air will begin making payments only after receiving FDA approval for LungFit PH, with the first payment being only $2.5 million, the second at .5 million 1 year after the first, and the last payment 1 year after that. Additionally, beginning in the third year post FDA approval, Circassia will receive a quarterly royalty payment equal to 5% of LungFit PH net sales in the U.S. It is important to note that this royalty will terminate once the aggregate payment reaches $6 million. This structure allows us to make payments over time only after we have a revenue-generating asset, and will have no impact on our ability to adequately fund the launch of LungFit PH as well as invest in our pipeline development.

Our fiscal responsibility is in no way at the expense of our programs. Expenses associated with submitting the PMA were significant and have now subsided. Our spend for our LungFit PRO programs is winding down as we await the 2022, '23 pneumonia season when spend will certainly grow. Our LungFit GO study spend is more than adequate as we received the grant from the Cystic Fibrosis Foundation. In fact, we have made progress on our 2 ongoing pilot studies this year. Let's start with our viral lung infection program, for which we recently reported acute bronchial pneumonia interim data, along with a further analysis of our bronchiolitis studies.

We began our pilot study in acute bronchopneumonia, including patients affected with SARS COVID 2, last November in Israel. As you may recall, our study is a multicenter open-label randomized clinical trial. Patients are randomized in a 1:1 ratio to receive inhalations of 150 parts million NO, given intermittently for 40 minutes 4x per day for up to 7 days in addition to standard supportive treat versus standard supportive treatment alone. End points related to safety, oxygen saturation, fever and ICU admission, among others, are being assessed.

We reported interim data at the American Thoracic Society International Conference, or ATS 2021, which was held virtually from May 14 through May 19. At the time of the cutoff for these data, we analyzed a total of 19 patients on an intent-to-treat basis; 9 in the NO treatment arm and 10 in control. I'm very happy to report that our 150 parts million NO treatment administered via LungFit PRO was safe and well tolerated, with no treatment-related or possibly related adverse events or severe adverse events. NO2 levels stayed below 4 ppm for all treated patients at all time points, below the study safety threshold of 5 parts per million.

Similarly, methemoglobin levels were below 4% at all times, well below the steady safety threshold of 10%. Methemoglobin levels followed a predictable pattern, rising during NO administration and falling back to normal baseline levels shortly after administration was stopped. The intermittent dosing regimen allowed for high-concentration NO to be administered without negative side effects, specifically addressing concerns of methemoglobin. Safety data alone would have been a success for the study since its primary purpose is to evaluate the safety of high concentration NO.

However, despite the small number of subjects included in this mid study analysis, we also observed encouraging efficacy signals for clinically meaningful endpoints. Only 22% of subjects in the NO-treated group required oxygen support beyond their hospitalization compared to 40% of control.

With respect to duration of oxygen support, NO treated patients averaged 2 days less than control. Additionally, we saw a 26-hour reduction in mean duration of hospital stay between the NO treatment group and control when adjusting for extreme outliers. To be clear, these 2 outliers, both in the control arm, were discharged from a hospital within 3 and 6 hours of enrollment, respectively, and therefore, were not included. Additional detailed study results will be submitted for presentation at an upcoming scientific meeting.

Today, the trial sites remain open and enrollment is ongoing. However, it is important for us to realistically consider the rate of enrollment going forward. With COVID cases receding, we anticipate recruiting patients with other viral lung infections, more representative of the broader viral lung infection pivotal study we are planning. Note that viral infection rates are extremely low during the summer months. Though this is a small pilot study, these efficacy and safety results in the adult population echo the results of the 3 pilot trials we have conducted in bronchiolitis.

Bronchiolitis is the term used for a viral lung infection in infants that are hospitalized rather than the term acute viral pneumonia that is used for everyone above 2 years of age. Just last month, we presented further analysis of our 3 previously reported pilot studies at ATS 2021. A total of 198 infants with a mean age of about 4 months participated across the 3 programs, with 84 of them receiving high-concentration NO at a dose of 150 or 160 parts per million. Analysis across the studies demonstrated that a short course of treatment with intermittent high-concentration inhaled NO was effective in shortening hospital length of stay by almost 1 day and accelerating the time to be fit for discharge from the hospital.

Additionally, inhaled nitric oxide was effective in accelerating time to stable oxygen saturation without supplemental oxygen. Importantly, in trial 3, which was completed in the 2019, 2020 winter, we studied NO at a dose of 85 parts per million, which showed no difference compared to control for all efficacy endpoints. While 150 parts per million NO showed statistical significance when compared to control for all efficacy endpoints.

In addition, when comparing 150-parts per million to 85 parts per million, 150 parts per million arm was statistically significant on time to fit to discharge and hospital length of stay. With respect to the efficacy endpoint of time to stable oxygen saturation without the need for supplemental oxygen, the 150 part per million arm narrowly missed [the small] significance in this small pilot study of 87 subjects across 3 arms. This leads us to view 150 parts per million nitric oxide is the minimum effective therapeutic dose to be used in further studies. NO treatment was generally safe and well tolerated across the 3 pilot trials with the adverse event rates similar among treatment groups.

We believe that taken together, the entirety of data at 150 to 160 parts per million NO in both hospitalized adult and infant viral pneumonia patient populations is reproducible and demonstrates that NO is safe. Our next steps would be to move to a pivotal all-comer trial for LungFit PRO in patients hospitalized with viral pneumonia. We plan on submitting the entire data package to the FDA as it is supportive of either an adult or pediatric trial. Due to the seasonality of most respiratory viruses, we anticipate starting this study in the fourth quarter of calendar 2022.

Moving on to our ongoing non-tuberculous mycobacteria or NTM pilot study. There is currently significant unmet medical need for treatment of chronic NTM lung infection, and NTM is a disease area of focus for FDA. Refractory NTM infection in the lungs has a high mortality rate. In fact, 50% of patients will die in less than 5 years from the initial diagnosis of the abscessus infection. Additionally, as this is a progressive condition, quality of life is substantially reduced prior to death.

We began screening patients for our LungFit GO program in NTM in December 2020. 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. Either mycobacterium avium complex or MAC or mycobacterium abscessus. Patients are titrated up from 150 parts per million to 250 parts per million NO in the hospital over several days, and then sent home to complete the 12-week treatment period. We specifically designed our system to be simple to use by nonmedical professionals and are confident in our ability to eventually bring LungFit GO into the home to treat patients suffering from chronic severe lung infections.

Coming back to the trial design. During the first 2 weeks, patients received 40 NO administrations 4x per day followed by 2 administrations per day for the remaining 10 weeks. Study evaluate safety, quality of life, physical function and bacterial load, among others. At this point, we are pleased with the performance of LungFit GO in this study and would like to note that the rate of enrollment, though slow at first, has picked up in the last few months, and we are on track to deliver top line results in the first half of 2022. If this trial is successful, we believe our LungFit GO system will be a game changer for the home setting, potentially helping underserved patients with chronic severe lung infections with various underlying conditions such as cystic fibrosis, bronchiectasis and, of course, COPD. NO treatment should be thought of as pan microbial, and the broad spectrum activity of NO may allow for the treatment of a variety of different indications and markets.

Specific to the mechanism for eliminating bacteria, NO causes bacterial DNA damage, bacterial enzyme inhibition and induction of lipid for oxidation. Additionally, NO penetrates (inaudible) which may result in the improved delivery of concomitantly delivered antibiotics and activation of the immune system.

Our product guidance has reported interim data in the middle of 2021. However, we believe that we will be fortunate enough to have the opportunity to show these data at a conference in the fall of 2021. We believe this is preferable to a simple press release.

I would like to now turn to our solid tumor program, which will not use the LungFit platform due to the ultra-high concentrations of nitric oxide that are necessary to achieve antitumor effects.

This program is early in development, but is rapidly approaching a submission to regulatory authorities into human studies. As a reminder, we have presented data in mice at several conferences in 2020. The key take-home message is that NO as a monotherapy conveyed immunity to the host after a single administration of 5 minutes. In our studies, tumor-bearing mice were treated intratumorally with a single 5-minute 50,000 part per million nitric oxide administration. 2 weeks later, a challenged tumor of the same cell time was implanted contra laterally in the treated mice as well as untreated controls. 100% of the treated mice resisted secondary tumor growth for the 45-day activation period, while tumor growth was observed in all of the control animals within 10 days after tumor inoculation. These and other data, all available on our website, suggests that tumor immunity may be conferred by NO treatment.

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 of fiscal '21, which ended on March 31, 2021.

Revenue for the fiscal year ended March 31, 2021 was $873,000 as compared to $1.4 million for the fiscal year ended March 31, 2020, all of which was from deferred licensing revenue.

Research and development expenses for the fiscal year ended March 31, 2021 were $12.6 million compared to $10.6 million for the fiscal year ended March 31, 2020. General and administrative expenses for the fiscal year ended March 31, 2021 were $10.5 million compared to $8.9 million for the fiscal year ended March 31, 2020. For the fiscal year ended March 31, 2021, the company had a net loss of $22.9 million or $1.27 per share, compared to a net loss of $20.5 million or $1.78 per share for the fiscal year ended March 31, 2020.

As of March 31, 2021, the company had cash, cash equivalents and restricted cash of $35.3 million. I would like to reiterate our cash balance as of April 30, 2021, which was $34.9 million, given that we recently provided this information in a press release. As Steve said earlier, we believe this cash is sufficient to fund operations well beyond the next 12 months, including the initial U.S. commercial launch phase of LungFit PH. I'll now hand back this call to Steve.

Thanks, Doug.

Operator, let's go straight to the Q&A.

(Operator Instructions) Our first question is from Suraj Kalia with Oppenheimer.

Steve, can you hear me all right?

Yes, yes, I can. Thanks, Suraj.

So Steve, the obvious question, I know you specifically said you don't want to talk much about the FDA discussions. Maybe you could characterize the time line shift for PPHN from late summer to end of Q3. I presume that is driven by your conservatism rather than FDA specifically requesting any more testing or incremental data?

No. Suraj, summer ends in the end of September, so it's almost the same thing. That's how I view it. And what's the first day it fall? It's like September 21st or 22nd, I believe. So it's just a different way of working it. It's basically the same thing. I wasn't really trying to change any timing.

And Steve, when you talk about the PPHN launch, maybe you can talk about the number of the sites you all are expecting to target, feet on the ground, ROI calculations. How do you, for the first few sites you'll are looking to target, maybe you all can just kind of walk us through x number of sites. This is how you are looking for, and then expand to a more broader population?

Yes. So I'm -- I'll quickly comment on ROI, and then I'll pass it over to Duncan. Our return on investment for these [fresh use] sites is going to be small. I think we told people this first 6 to 9 months after we launch is, again, target as you're saying, and we don't expect to see big numbers from that. I mean it will be a very small number of hospitals. So the return on that investment is really the knowledge that we gain from this early phase so that we can branch out further once this phase is done. So to answer the rest, I'll turn it over to Duncan.

Thanks, Steve. So Suraj, this first phase, we're going to be working with about a dozen hospitals over that 6- to 9-month period. We don't -- as Steve said, we don't anticipate a significant investment. We just announced the appointment of 2 outstanding leaders on the sales and the marketing side, and they have a really good experience in the nitric oxide market. We know the sites that are interested in working with us. And we -- it's a fairly straightforward exercise to bring them on to run an evaluation.

And during that period, we're going to be focusing on refining our supply chain, understanding any logistical nuances with specific hospitals and learning, as Steve said, so that we can make sure that we have the optimal product when we expand after that Phase 1 period.

Got it. And finally, Steve, in terms of CE Mark, maybe you can walk us through the timing of filing and when do you all expect discussions with potential partners? Because the statements seem to be pretty definitive that you all will sign a partnership in FY '22. Maybe you can just walk us through how you see the cadence, the regulatory filing discussions with potential partners. Any color there would be greatly appreciated.

Sure. Thanks, Suraj. So Europe is a little different than the U.S. We work through a notified body, like everyone else. So it's more of a fluid process. There's really no hard date we submitted and it was accepted for review like FDA does it. It's more of an ongoing process. And based upon that process and where we are right now, we think that it will happen around the end of this year, this calendar year.

From our perspective, it's best for us to wait to partner until after we've received our CE Mark. We think that puts us in the best position to optimize the terms that we partner on. So that's where we are. And you know, Suraj, that in the U.S., you can go to market relatively quickly after approval, where in Europe, there are several steps after approval on a country-by-country basis that you need to take, which makes launching the product there take quite a bit longer than in the U.S. So we do have some time. And I don't think we're losing much by waiting to optimize our terms until after CE Mark. I don't think we're going to be delaying the launch by much, if at all.

Our next question is from Matt Kaplan with Ladenburg Thalmann.

Steve, congrats on the progress. Just wanted to -- just a follow-on to Suraj's question in terms of, can you talk a little bit about thoughts on the expansion phase following the first 6 to 9 months and how we should think about that phase of the launch as you -- after you get all of your systems and everything in place in the first few months of the launch? And then what happens next.

Okay. Sure. I'll let Duncan take that.

Yes. Thanks, Matt. So after that first period, we should have all the information we need to optimize the supply chain, et cetera. So it's really a question of just building the sales organization, and with the leadership that we brought in, Rebecca Van Doren has 10 years experience building a sales organization nitric of oxide industry; and Kori-Ann Taylor has been working in the health care marketing space for a long time, including working on nitric oxide. So both of them understand what's required. We're very clear about how we would ramp up, and it's not going to take much for us to expand our sales organization.

In terms of targeting, there's already a really a very good awareness in the respiratory community of nitric oxide. So we don't anticipate much trouble finding the right locations to expand. And depending on when contracts fall, we estimate they're typically between 1 and 3 years of the 850 hospitals with the NICU unit, we still think there's plenty hospitals will be ready to do evaluations and then start to contract. So for us, the investment is not significant, the expansion of the sales team. Bear in mind that the market leader never had more than really 50 to 60 salespeople out on the road for their $500 million worth of business. So we don't think it's going to be a big challenge for us to have the right team in place to expand. So it's really about execution at that point.

And is there a metric you put on it for kind of revenues per hospital? Is that a way to think about it? Or is there another way?

Matt, I wouldn't look at it that way. These are -- hospitals vary in size and in demand of nitric oxide. So I would look at it more -- it's hard for me to tell you which hospitals we're going to get first. A lot of it is based upon the contracts that these hospitals are currently under. So they could be up 2 or 3 years left in their contract and we may not get a shot at them. They could be the big ones, or the big ones coming up when we launch. So -- but it's -- you can use the classic 80-20 rule, 80% of the revs are going to be generated by 20% of the customers. I just -- it's just -- it's not that we can target those top 20% day 1. It's more of a timing issue of which hospitals we can target and when. And that's not a bad thing for us, as Duncan has mentioned. This kind of a phased approach gives us the opportunity to kind of map things out over the first 2 years post approval of where we're going to go geographically and which hospitals we'll be targeting. So it actually works very well in our favor to be -- to have it kind of staggered over the next few years in terms of the opportunity to target hospitals.

Great. Great. And just shifting gears a little bit in terms of you mentioned LungFit GO, the ongoing NTM at-home study. The interim results that are expected this fall, what -- how should we think about those in terms of number of patients that we should see potentially a small result?

This is a study we're looking to enroll 20 patients. So I wouldn't look for 20 patients in that look. And the exact number is tough to get to because we're not exactly sure of the cutoff for when we'll be able to put the data into any presentation that we'd be accepted for at a conference. So it's a tough number to nail down, Matt, but it will be enough patients that it will be -- in our opinion, it will be meaningful to people when they see it.

Okay. And then lastly, the EU opportunity for PPHN, LungFit PH. Can you give us some color on that?

Yes. So as far as the EU is concerned, the 2 -- mean the big 5 are the obvious markets that we would be expecting to target. And of those, U.K. and Germany are probably the most advanced. In terms of the market opportunities, it's clearly significantly less than the U.S. because price is depressed compared to the U.S. But we think there's an opportunity because there are a lot of restrictions on the use of nitric oxide in Europe as it's matured, and that's how they've driven the price and the usage down. And we think that our system is going to be more simple and flexible to use and will be potentially using a broader set of circumstances. So it's definitely a significantly smaller opportunity, but still a lot of opportunity for growth and by the markets that we're targeting initially.

Our next question is from Greg Fraser with Truist Securities.

Nitric oxide is a large cost item for many hospitals and managing utilization is clearly important to hospital to control costs. Do you see any material risks to the NO market and hospitals pushing the use of alternatives to save money like sildenafil that might contribute to volume erosion over time?

Not at all. I think sildenafil and the other PD4s are not going to be able to replace nitric oxide in this context. Perhaps in the pulmonary arterial hypertension space, they may have some benefits and may be able to impact that market. But I think with respect to PPHN and outside the U.S., obviously, on label is the cardiac surgery patients, I don't see the sildenafil-type products having an impact here.

Got it. Okay. And then just following up on the LungFit GO study for NTM lung infections. Will the interim results include safety and efficacy data? And how would you set the bar on what you need to see in the study efficacy-wise to consider it a success?

So most -- in this interim, look, we'll see safety, obviously; safety, tolerability. I think it's important to see the dose that we go to. Remember, we're titrating from 150 to 250 parts per million. I'd like to see 250 in as many patients as possible with, again, patients tolerating it for the full 12 weeks of treatment.

From an efficacy standpoint, on the early data, I think we'll be -- we should get a decent look at quality of life, possibly physical function data, which are 2 critical end points. I think that the bacterial load is going to take longer. I don't think we're going to see much, if any, on the interim look as this these type of data takes time. We send it out to a lab, a central lab, and work is done there, and that's something that will take a bit longer. And remember that we do follow these patients for 12 weeks after the 12-week treatment period, so it'll be 12 weeks of observation where we're still gathering data, especially on bacterial load. So I think that safety, tolerability as well as quality of life and physical functions is what you should be looking for.

And as for what do we need to see to be excited or happy about that, improvement; improvement in quality of life, improvement in physical function. This is an open-label study single arm. And we are getting baseline numbers, so these patients will act as their own controls. So you'll be able to see the effect on these patients whatever -- however many it is at that interim look. I mean we expect to see improvement. If we see a decline in physical function and quality of life, that's bad. But we expect to see improvement. That would be a big positive for these patients.

Got it. That's very helpful. And then just on the planned pivotal study for patients hospitalized with viral lung infections, it sounds like you're going to make a decision on whether to target AVP or bronchiolitis, is that correct? And if that is right, how do you decide which way to go?

Yes. We will choose one or the other. Going into a winter season, doing a pivotal study for both of those at the same time is just not possible. So we will pick one, and that decision will be made towards the end of this year when we've gathered all of the data that we're gathering -- are still gathering. And we've made an evaluation with the experts internally at Beyond Air as well as those experts that are working with us from outside the company. We'll figure it t at that point in time. Right now, we don't have the answer.

Our next question is from Scott Henry with ROTH Capital.

I've been jumping around, so I apologize if any of these questions have been asked. Starting on the clinical side, Steve, the Australian study for the at-home pilot study, did you say how many patients were going to be in that trial?

Yes. The target is 20 patients total.

Okay. And it sounds like we should be pretty comfortable that COVID's not going to have any significant delays there based on your statements. Is that fair?

Yes. I think the delays related to COVID have already occurred. I can't say for sure that it won't have any impact over the next several months. I don't know. Australia is handling it differently than we have in other places. So they're pretty tight over there. So I just don't know. Let's hope there's no more impact from COVID anywhere, especially on our trial. But we certainly faced challenges over the first half of this year or the first 6 months of this year. And I think they're subsiding. And like I said in my prepared remarks, that enrollment is certainly picking up recently, and we're very happy to see that.

Great. Fair enough. And then the pilot study in Israel, when should we expect data from that trial?

So the data that we showed at ATS is the data that we've -- that was available at the time. I think that the next time we show data from this trial will probably be in the first half of next year. Right now, the team is focused on gathering this information. Again, we still have the sites open in case more patients are rolling in on a slow basis in the summer months. But our goal is to do our best to analyze all the data and put it together for FDA so that we can approach them around the end of this year and have a discussion about a pivotal study beginning in the fourth quarter of '22.

So that's our goal. Our goal is not to try to get more data out by the end of this year. Our goal is to prepare for FDA and get with them by the end of this year. And perhaps in the first half of '22, we would show more data from this study.

Okay. Great. And then cleaning up the Circassia deal, obviously, a nice positive for the company. Is there any accounting noise we should expect from that, any onetime charges or any changes just to factor into the model?

No. I think it's pretty much laid out as is. This is going to be a payment due once we get approval. And then the other payments would obviously be due as well. So right now, there's no accounting changes until we see approval. And once that happens, you'll see the payments made as they were laid out in the press release a month or so ago.

Perfect. And then just final question. I know you've kind of -- you've given us a lot of bits and pieces around it already. But how should we think about the first year of that PPN or of the PPHN launch in terms of how long from when you launch to when you start accruing revenues? And how should we just think about revenues in that first year? I mean, just as far as expectations?

Yes. I think based on GAAP accounting, you're going to be a -- you're going to try to match the revenues with the period that you -- in your expenses in the same period. So we may recognize revenues fairly quickly with cash coming in a few months after.

So it should be -- if we launch in this fourth quarter of this calendar year or the third quarter of our fiscal year, which is what we're planning on doing, I would say you would see revenues in the following quarter. So you would see revs in our fiscal fourth quarter. Again, I would caution everyone that we're not looking at large revenues. We're looking at a low level of revenues for that quarter. So I think -- did that answer your whole question, Scott?

Yes. Yes. I mean, that's helpful. But I guess what I'm just trying to think about from a ramp, it sounds like we should think about those first 12 months as sort of a pilot process with kind of an inflection point, perhaps later in the cycle. I just want to make sure I'm thinking about that the right way.

I think you are thinking about that in the right way, that this -- we're calling in a 6- to 9-month period of a focused launch. And that won't start -- the day we get approval is going to be probably about, I don't know, close to 2 months before we start to really get out there, 6 to 8 weeks, call it. And that would take us to close to the first 12 months after approval. And I think that, yes, there should be very modest expectations for top line revenues for that during this period.

And again, Duncan said we -- once we get that confirmation that everything is -- the wrinkles are smoothed out in the process, we'll be moving very quickly to expand. So I would see a quite large expansion off of that first 12 months and the second 12 months in terms of revenues that we'll be bringing in.

Our next question is from Yale Jen with Laidlaw & Company.

Just start with some housekeeping questions. At the last quarter, the R&D expense seems substantially lower than the prior quarters. And how should we think about that for the fiscal 2022 specifically in R&D quarter-over-quarter?

Thanks, Yale. Yes, so we spent a lot of money on the R&D side. And we think of R&D in 2 ways, R&D for our clinical studies as well as R&D for engineering. And the R&D engineering numbers went down significantly since we had submitted the PMA, and the spend subsided on that variable spend for engineering. Even on the clinical trial side, we didn't have a lot of expenses on the NTM side. And that's obviously picked up, but again, it will be offset by the CF grant. And the study in Israel, a lot of those expenses occurred upfront in the December quarter. So yes, that number went down a bit, and I don't anticipate it going up much. In my prepared remarks, I said that overall actual cash expenditure will be lower in the June quarter than it was in the March quarter. And that's going to come from R&D because, again, we're not spending on trials now. We're kind of in a little bit of a low here. And that spend, obviously, will pick up, again, not on the R&D side, but it will pick up on the commercial side once we get approval.

So I think the R&D spend will begin to pick up in the back half of calendar '22. At that time, we'll be prepping for a pivotal study in either bronchiolitis or viral pneumonia as well as the expenses will be probably picking up as well on our cancer program. We should be quite a ways through our Phase I study. And as you can surmise, there'll be a little bit of kind of Phase Ia/Ib, where Ib will be a little more expensive, and that will be later in the year.

And as we wrap up the NTM study and plan for a pivotal there, I don't know if those expenses kick in, in '22, but it's probably more in the first half of calendar '23 when we start to see those expenses pick up. So that kind of back half of '22 into the first half of '23 is when R&D expenses will start to ramp back up. Until then, it's going to remain fairly low.

Okay. Great. That's been very helpful. Maybe just along the same thing. First of all, in terms of CF Foundation funding, would that be recorded as part of the license revenue for the year? Or that's separate?

It's an offset of expenses. That's how we report it.

Okay. And in terms of you're starting -- presumably starting sort of marketing efforts into the fourth of this year, should we anticipate, from P&L perspective, a separate line of marketing and sales expenditure? Or that will be blended into the SG&A altogether?

Yes. We'll -- I don't know yet, Yale. I mean, I know some companies will break out their sales and marketing and their G&A separately. I don't know if we're going to do that in the next couple of quarters. We might do it maybe in the next year or 2. I don't see it happening in the near term, but we'll see what we can do.

Okay. Maybe just one more marketing questions here, which is that for the nitric oxide sales, the revenue sales, predominant caution come from the cardiovascular labs. And I understand that the off-label -- you quote the off-label use. And what's your thoughts at this moment also sort of expand into that space? Would that be something after the initial sort of launch? Or that's something you will contemplate at some time in the future?

Yes. Yale, it's Duncan here. Thanks for the question. So as far as the cardiovascular label, it's something we plan to submit for as soon as possible post approval. Obviously, right now, the indication is for PPA churn, and that's how we'll promote the product. We certainly will respond to all the hospitals that want to use it in any other fashion. And the -- because the nitric oxide has been used for over 20 years, the patents are very well established. So we don't expect it to be particularly different for us. But obviously, we'll do it in exactly the right manner. So that's how we're going to move forward.

Are you referring that you will have a formal submission of approval? Or simply -- is that what you're suggesting?

We'll be submitting for cardio.

It's a label expansion. Yes. It's a label expansion.

(Operator Instructions) There are no more questions at this time. And I would like to turn the call back to management for closing remarks.

Thanks, operator. Thanks, everyone, for joining today. We'll be around if there's any more questions.

This ends today's conference. You may disconnect your lines at this time. Thank you very much for your participation, and have a great day.