Beyond Air Inc (XAIR) 2021 Q2 法說會逐字稿

Greetings, and welcome to Beyond Air, Inc. Second Quarter 2021 Earnings and Corporate Update Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Maria Yonkoski, Head of Investor Relations for Beyond Air. Thank you. You may begin.

Thank you, operator, and good afternoon, everyone. Welcome to Beyond Air's Second Quarter of Fiscal year 2021 Earnings Call. Speaking on today's call are Steve Lisi, our Chairman of the Board and Chief Executive Officer; and Douglas Beck, our Chief Financial Officer. This afternoon, we issued -- this morning, we issued a press release announcing the submission of the PMA for LungFit PH to treat persistent pulmonary hypertension of the newborn or PPHN. In addition, after the close, we issued a press release announcing the financial results for the second quarter of fiscal year 2021. A copy of both releases can be found on the Investor Relations page of our website.

Before we begin, I would like to remind everyone that comments and various remarks about future expectations, plans and prospects 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. Beyond Air encourages you to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's Form 10-K, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

As a reminder, this conference call is being recorded. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, November 11, 2020. Beyond Air undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that, I would like now to turn over the call to Steve Lisi, our Chief Executive Officer. Steve?

Thanks, Maria. Good afternoon, everyone, and thank you for joining our call. Before we get started, I wanted to extend a huge thank you and congratulations to every member of the Beyond Air team for the submission of the PMA for LungFit PH to treat persistent pulmonary hypertension of the newborn or PPHN. Despite the difficulties imposed by the ongoing pandemic, our team was able to execute on this critical step keeping us on track for a U.S. commercial launch in the second calendar quarter of 2021, pending FDA approval.

As a reminder, LungFit PH is a lead product from our broader LungFit platform. It is a novel cylinder-free device that is capable of generating nitric oxide, or NO, from ambient air that flows through a reaction chamber where pulses of electrical discharge are created between 2 electrodes, simulating a lightning strike.

The desired concentration of NO is achieved by controlling the voltage and duration of each electrical pulse, giving us the capability to titrate dose on demand or maintain a constant dose for treatment.

For PPHN, LungFit PH is designed to deliver a dosage that is consistent with current approved guidelines of 20 parts per million NO, with a range of 0.5 to 80 parts per million. Since nitrogen dioxide or NO2 is a toxic byproduct of NO generation, our proprietary NO2 filters encrypted with RFID chips are required to be securely put in place for the device to generate and safely deliver NO.

Our smart filters serve as the razor in our razor blade model. Overall, the LungFit PH is a much smaller and lighter alternative than the traditional fixed supply cylinder-based systems. It is important to note that our system operates with any standard electrical outlet. We believe that the removal of the cylinder makes it a more cost-effective, convenient and safe alternative for patients and medical staff.

I would like to now pivot slightly and discuss our initial target indication. PPHN is a serious breathing condition that occurs at birth when a newborn circulatory system is unable to adapt to breathing outside the womb. The newborn's lung vessels -- or blood vessels are so constricted that oxygen and blood flow are restricted and manual ventilation is required.

Since FDA approval in 1999, NO has been the standard of care for PPHN in the U.S. acting as a pulmonary vasodilator to improve oxygenation and reduce the need for ventilation. We estimate there are over -- a little over 850 level III and level IV neonatal intensive care units or NICUs that are equipped for NO delivery to treat PPHN today.

According to published reports, the use of NO in hospital setting had sales of greater than $500 million in 2019 in the United States alone. Additionally, NO has been approved for PPHN in Europe since 2001, with a subsequent label expansion for use in certain cardiovascular surgeries, more recently NO received regulatory approval in Australia and Japan for pulmonary hypertension in conjunction with heart surgery, further expanding NO use to the worldwide cardiac market.

From a commercial perspective in the U.S., cylinder systems have dominated for the past 20 years, distributed -- dominated by 1 company until new players recently entered the market. These new players have the same, if not more disadvantages when compared to our LungFit PH. As I mentioned before, we believe that our novel technology has many advantages over the current standard. First of all, our ability to generate NO from ambient air eliminates the space requirements and NO volume limitations of cylinders. In today's environment, the hospitals are left to shoulder the burden, as each cylinder can weigh up to 45 pounds and require special storage. Instead, our system relies on safely disposable smart filters that weigh approximately 2.5 ounces and last for 12 hours of continuous use.

To be clear, our systems will not work without a filter in place, confirmed by the RFID technology, preventing both NO2 toxicity while protecting our business model. Additionally, our smart filter design ensures that hospitals are only charged of what they use, which is an advantage over some of our competitors that employ more aggressive pricing strategies. From a manufacturing perspective, our fixed costs are significantly lower than our competitors because you do not have any expenses associated with manufacturing, logistics and transport of NO cylinders.

Finally, our user interface is designed to be easy to use for providers, and we also avoid purging procedures, which both reduced training burden. Overall, operating economics and safety are vastly improved for the hospital. If approved, after the 180-day FDA review period, the Beyond Air team will be ready for a U.S. commercial launch in the second quarter of 2021. We will discuss our commercial plan in greater detail as we approach this next milestone. Commercial launches outside of the U.S. are dependent on our ongoing partnering discussions and approval time lines in each jurisdiction.

Moving on to acute viral pneumonia and COVID-19. We see a significant opportunity to use our novel LungFit platform technology to target acute viral pneumonia, including infections caused by SARS-Cov-2. LungFit PRO is a direct delivery, nonventilated compatible system for use by an appropriate medical professional. It is designed to deliver NO at a concentration of 150 parts per million for 40 minutes, 4 times per day, which can be easily adjusted for other indications.

LungFit PRO was previously referred to as LungFit BRO, named after our bronchiolitis program has since been renamed because this device is applicable to many indications in the hospital setting. Nitric oxide is well understood to have an inhibitory effect on many viral infections. Beyond Air and the broader scientific community have published data that show nitric oxide's ability to inhibit the replication cycle of coronavirus, including severe acute respiratory syndrome, otherwise known as SARS-Cov.

In vitro. In fact, in October, we presented our new positive in vitro data at the CHEST Annual Meeting 2020 that show anticoronavirus properties against OC43 human coronavirus when administered either prior to or post infection at 150 to 250 parts for million nitric oxide. We believe this data suggests that the LungFit PRO system may be effective for both prevention and treatment of human coronavirus infection at the 150 PPM dose.

I'd like to provide an update on our clinical program in this indication. We have previously announced that we received approval from the FDA to run a study in COVID-19 patients using our LungFit system at 80 parts per million. We've also received approval from Health Canada to run similar -- or a similar study to the one approved by the FDA. The results from these studies, along with other data, has enabled us to receive approval from the Israeli Ministry of Health to perform a clinical study at 150 parts per million for the treatment of acute viral pneumonia, including COVID-19.

The study is a multicenter, open-label, randomized clinical trial, targeting approximately 90 adult patients with an emphasis on patients infected with SARS-CoV-2. The enrolled patients will be randomized in a 1:1 ratio to receive inhalations of 150 parts million nitric oxide given intermittently 40 minutes, 4 times per day for up to 7 days in addition to standard supportive treatment or standard supportive treatment alone. Endpoints related to safety oxygen saturation, fever and ICU admission, among others, will be assessed. This is currently the only active trial that our company is performing in the acute viral pneumonia or COVID-19 setting. We expect to begin screening patients shortly. We anticipate results to be available around midyear 2021, and we'll continue to provide updates as needed.

Sticking with LungFit PRO, I would like to provide a quick update on our bronchiolitis program. We recently presented data at the CHEST Annual Meeting from our bronchiolitis pilot study which was a respective, multi-center double-blind randomized study that included 87 hospitalized infants. Patients treated with 150 parts per million NO in addition to standard supportive therapy had a statistically significant shortening in time to fit for discharge the primary endpoint of the study. And patients who received 85 parts per minute in addition to standard supportive therapy or just standard supportive therapy alone.

We found no statistical difference between the lower dose of 85 parts per million NO and control. Importantly, on the key secondary endpoint of hospital length of stay, the 150 parts per million arm was also statistically significant compared to both the 85 PPM and control arms. All treatments had similar safety profiles and were well tolerated with no serious adverse events associated with nitric oxide therapy.

We look forward to publishing these data just as the previous 2 pilot studies have been published. This is our third consecutive successful study in infants hospitalized of viral lung infections. And along with the previous 2 studies, provide the evidence we need to move forward with a definitive study to establish the efficacy and safety of nitric oxide generated and delivered by our LungFit PRO. The pivotal study for bronchiolitis was delayed due to COVID-19. We are planning on starting a pivotal bronchiolitis study in the fourth quarter of 2021, pandemic permitting. Please note that bronchiolitis is seasonal.

I will now provide updates for our LungFit GO, which was previously named LungFit Home. LungFit GO is a non-ventilated compatible system being developed for home use in nontuberculous mycobacteria lung infections or NTM. The GO is similar to the PRO with reduced functionality, significantly reducing potential user error. For our LungFit GO program, we are aiming to initiate a single-arm multicenter, 12-week, self-administered, at-home pilot study in 20 patients with NTM lung infection.

We had delays due to the pandemic but are expecting to begin screening patients in December of this year. We are focused on enrolling refractory NTM patients infected with either mycobacterium avium complex or MAC or mycobacterium abscessus. Patients will be titrated up to 250 parts per million NO in the hospital over several days and then sent home to complete the 12-week treatment period. The first 2 weeks will see 40-minute administrations 4 times per day and the remaining 10 weeks will be twice per day. The study will evaluate safety, quality of life, physical function and bacteria load.

The FDA has emphasized the importance of quality of life improvement in physical function as well as improved safety profile as markers of success versus solely eradication of the bacteria. Based on our current expectations, we expect to report interim data from the at-home study towards the middle of 2021 and final results toward the end of 2021.

We recently published data from a compassionate use study performed at the National Institute of Health or NIH, using our LungFit system. The 24-year old female cystic fibrosis patient with chronic and progressive pulmonary mycobacterium abscessus disease was treated with 160 parts per million nitric oxide for 3 weeks and then subsequently treated with 160 parts per million titrated up to 240 parts per million NO 5 months later. Over the course of the follow-up period after the first course of treatment, that included 160 PPM inhaled NO. The patient had improved respiratory symptoms and quality of life and was able to lead a more active life.

The second course of therapy was requested by the patient. This course of treatment at 240 parts per million nitric oxide was stopped in the eighth day for reasons unrelated to nitric oxide therapy. These results demonstrate the potential clinical benefits of NO in the treatment of this patient population, and we look forward to initiating the 12-week pilot study next month.

As a reminder, our system is very easy to use. And that's our enthusiasm for a successful outcome in the at-home study. I will walk you through the 4-step process for administration: turn on the power switch, insert the smart filter into the system, place the breathing mask on the face and press the start button. With a successful study, we believe our LungFit GO system opens the door to a very significant underserved market for chronic, severe lung infections that can be treated in the home.

Last but not least, we come to our solid tumor program. This program has generated exciting preclinical data demonstrating nitric oxide's ability to elicit an antitumor systemic immune response when high concentration gaseous NO or GNO is administered directly to solid tumors.

Our hypothesis is that GNO at extremely high concentrations greater than 10,000 parts per million and even up to 200,000 parts per million will cause local cell death when injected into solid tumors, thus exposing tumor antigens to the immune system. This exposure may result in a memory immune response that will recognize and attack subsequent primary tumor regrowth as well as distant metastases. For the same type of tumor, creating a type of in situ cancer vaccination. This program is early in development and will not use our Lungfit platform due to the ultra-high concentrations of NO.

We have developed a novel delivery device, which we'll discuss at a later date. We are extremely excited about this program, especially since the checkpoint inhibitor market alone saw over $23 billion in revenue in 2019 and is still growing.

We have presented our preclinical data at 3 different major conferences this year, including the American Association for Cancer Research, or AACR Conference in June; the NACLC for lung cancer; as well as the AACR subsection conference on tumor immunology and immunotherapy this past October.

Given our goal of systemic antitumor immunity, we used a tumor-challenged model to test this hypothesis in mice. Simply put, we treated tumor-bearing mice with a single treatment of high concentration gNO intratumorally with the intent to cause tumor cell death, not complete tumor ablation. After initial treatment, the remaining primary tumor was surgically removed. A challenged tumor with the same cancer cells as the initial primary tumor was introduced on the opposite side of the body. The percentage of tumor take or tumor regrowth was monitored as well as survival. They were control arms for comparison. In our largest study to date, colon tumor-bearing mice received either 20,000 or 50,000 parts per million gNO. There are 11 mice per arm. Treatment was for 5 minutes during this -- for a single treatment. And then the mice were inoculated with a challenge tumor 21 days later. At day 45 post challenge tumor inoculation, 0% of the colon tumor-bearing mice treated with 50,000 parts per million were observed with a challenge tumor versus 100% of naive mice and 27% of 20,000 parts per million mice. So again, 0% for 50,000 PPM arm, 27% for 20,000 PPM arm and 100% of the naive mice at tumor growth.

Similarly designed trials in breast tumor-bearing mice and lung tumor-bearing mice with smaller numbers of mice showed similar trends. To date, we have not observed any safety issues with these experimental models. The possibility of treating solid tumors and potentially treating and preventing metastases may be truly groundbreaking.

To our knowledge, ours is the first and only program testing the concept of injecting high-concentration NO gas into solid tumors. Solid tumors and their metastases are responsible for approximately 90% of all cancer-related deaths, and we are humbled by the huge unmet need for these patients. With that, I will now turn the call over to Doug for the financial review. Doug?

Thank you so much, Steve. Here's a brief review of our financial results for the second quarter of fiscal '21, which ended September 30, 2020.

Revenue for the quarter ended September 30, 2020, was $350,000 as compared to $646,000 for the 3 months ended September 30, 2019, all of which was from deferred licensing revenue.

Research and development expenses for the quarter ended September 30, 2020, were $3.1 million compared to $2.8 million for the 3 months ended September 30, 2019. General and administrative expenses for the quarter ended September 30, 2020, were $2.2 million compared to $2.1 million for the 3 months ended September 30, 2019. For the quarter ended September 30, 2020, the company had a net loss of $5.1 million or $0.30 per share compared to a net loss of $4.1 million or $0.38 per share for the 3 months ended September 30, 2019.

As of September 30, the company had cash, cash equivalents and restricted cash of $22.4 million. This cash is sufficient to fund operation well beyond the next 12 months. I'll now hand it back to Steve.

Thanks, Doug. We'll take questions now. Operator?

(Operator Instructions) Our first question comes from the line of Suraj Kalia with Oppenheimer & Company.

Steve, can you hear me all right?

Yes, Suraj.

Congrats on your PMA filing. So I know it's been a long journey, but hopefully, we are coming to the end of it. So Steve, a bunch of questions. The 850 level III NICUs treating PPHN. For the audience, can you just walk us through the PPHN volume per center per year? How many feet on the ground would you need? And again, have you all decided on the pricing of filters? And also, what else -- at what point would the FDA need to review -- come and review your manufacturing as we plan for commercial launch?

Okay. So yes, that's 850, these level III and IV in NICUs in the U.S. roughly. There is a use off-label in cardiac surgery. So I think you have to add some more hospitals to those who use nitric oxide. So I don't know the total number, but it's probably another 300, 400, 500 hospitals you can add to that number. The market as reported by Mallinckrodt mostly is well over $500 million. So you can kind of just back into kind of volume per hospital. But this is pretty standard, top 20% of customers will roughly be 80% of the market, that classic 80-20 ratio. So I think you can kind of get an idea of what kind of revenues are generated by a certain number of hospitals, if that was -- that's your question.

I think you asked about when FDA is going to be inspecting us. This is a standard review, 180 days. We would expect FDA to do a pre-approval inspection at some point. My guess is probably somewhere around 90 to 120 days or so from now is pretty standard. So I really can't speak for the FDA. They'll schedule. They'll let us know. We don't let them know. But that's usually kind of the window that it's in.

And we haven't decided on price yet because we're seeing how the market is unfolding. There's been competitors onto the market. So in certain hospitals where there's been some competition, we've seen some rational price decline. So I think that we'll be looking at pricing our -- our pricing structure would be more in line with where you've seen some competition already, not really at the original pricing that now of course had in the market as monopoly. So we have to see how things kind of play out. But again, these price declines been very rational, well within the ranges we expected to see when the competition entered. So for us, it's as expected. So we're pretty happy about it. I don't know if I missed anything in there, Suraj, ask it again.

No, fair enough. I was just trying to squeeze in a number. So Steve, the market you talked about, there's a lot going on, right? And you guys tend to disrupt the market when you'll launch. Walk us through what's going on currently? And by that, I mean, one of the your -- one of the key players is going through bankruptcy. The other player is lowering prices and trying to go into the cylinder-based approach. And how does that factor in? And just kind of tell us here to the touch point or the stress points you are looking at, this is going to dictate your pricing, and this is what could change the market given the dynamics currently as you view it?

Yes. So I really can't speak for what's happening with Mallinckrodt. I had no idea what their focus is or attention is on this market. We all know what we hear in the marketplace from our initial commercial team. So there's -- again, pretty classic competition, nothing out of the ordinary from what we would expect from a new player coming into the market. I don't think it's really impacting how we're going to approach these things.

Again, I think you earlier mentioned, you asked how many -- what a commercial sales force would look like. Our initial launch will be with a small force targeting small number of hospitals to kind of get our feet wet. And then as we get more comfortable, we'll branch out, but we don't really see the total number of sales for some commercial organization being -- it will still be in double digits. We don't think we need to be well below 100 people. I don't think we have to even get close to that at peak.

So again, the pressure points, I guess, for dealing with these accounts for hospitals is we need to give them what they need. They need relief from the price, which is already happening to an extent, but I think we can give them more, not just in the price that we offer, but also in the savings at the hospital level. We take up less space, we take up less time, less hassle. It's much easier to track the usage of a filter where they count down and how much is left in a cylinder. These are benefits that we provide to the hospital that save them direct costs rather than just saving them cost by charging them less.

So I think it's a combination of all these things to help the hospital understand how much better our system is for them. I mean again, I mentioned on the call, and you can see on our website. I mean our system is much smaller. It's 65 pounds on a cart versus 175 pounds which can be taken off a cart for use. Again, there are no cylinders. I mean this is a huge, huge thing when the cylinder is taken out of the equation. There's just so many factors that the different people in the hospital will tell you. An RT will give you a different reason why they're happy than the neonatologists or the anesthesiologist or the cardiac surgeon or the CFO. They all have different reasons why they're happy to get rid of the cylinder.

Again, our challenge as a company is to make sure that our system is reliable, which obviously, we believe that it is. And that we, as an organization, are reliable in customer service. It's very important, I think, that -- I think Mallinckrodt has done an excellent job of customer service, and we need to match that. I think it's very important that we match that. And I think that -- I think many of you, if you attended our Analyst Day early this year, you met our Chief Commercial Officer, and he's quite impressive. So we're not too concerned.

Got it. And Steve, final 2 questions, I'll hop back in the queue. First, does it make sense to still pursue COVID studies, given everything going on with vaccines? So that's one thing. And the second thing, on the solid tumor side, Steve, it's a fascinating approach you and I have talked offline about this. And I appreciate you not wanting to hold off on the details of the delivery device for gNO. I guess my question, Steve, is how do you control the residence time for gNO to achieve a certain clinical response? And is there a limit to the physiologic tumor access with such a device mechanism? Any color there would be greatly appreciated. Congrats again.

All right. Thanks, Suraj. I'll start with COVID-19. I can't really speak for vaccines. I know what you know from the minimal information released recently. So we'll have to see what happens. I think we've all been in this industry a long time. And I don't think any of us have ever seen anything developed in 6 to 9 months at any level of therapy, so let alone a vaccine. But we'll see what happens. And hopefully, this is actually real and will help patients and help everything get back to normal.

But I still think there's a need for treatments. And if you notice in our study, we're not just treating COVID-19. We are treating acute viral pneumonia, which is the broader condition. So acute viral pneumonia can be caused by a number of viruses, as you all know, whether it be RSV or coronaviruses or what -- and such. Or SARS-CoV-2 is a coronavirus, that's coronavirus. So we're enrolling all-comers in this study. Obviously, we want focus, we want to have a good number of SARS-CoV-2 infected patients in our study so we can get a good sample in case COVID does last a lot longer and the vaccines are not as effective as they're claiming to be.

So if they are effective, and of course, COVID dissipates, acute viral pneumonia doesn't go away. This has been around for a long time. I don't think we're going to get rid of acute viral pneumonia. So we're looking at a broader indication. And if we could help in COVID, obviously, we will. We think what's going to work and whether it's SARS-CoV-2 or SARS-CoV-1 or RSV or adenovirus or you name it. We don't care what virus is. We think our therapy is going to be successful. And if we can help with the pandemic, that will be fantastic. We're ready to go. We're ready to go as soon as we're asked. We just need to generate some data, I believe, before anybody is going to ask us.

But again, if there's no opportunity in COVID, I believe there's still an opportunity acute viral pneumonia, which is quite a large market. So this is why we are embarking upon this study. And again, if we were just doing COVID, I would understand your question. It will be a very good question for us to decide whether it's good use of our resources to go after COVID-only, but that's not what we're doing. We're covering the entire spectrum of viral pneumonia.

So with respect to cancer, it's obviously certainly very exciting. And I'm glad you understand we're not going to talk too much about our delivery system at this moment in time. Certainly not optimized yet, but we have a good idea of exactly what it will be.

And look, I can't even answer your question as to where the limits are. I think we're still going through that to learn those limits, but I can tell you that we have efficacy and we haven't seen -- we haven't bumped up against these limits where we're putting so much nitric oxide and these problems. We haven't seen any safety. We haven't seen migration. We haven't seen issues with too much gas or too much NO or NO2 or what have you. We haven't seen any of that at this point in time. I'm not saying we might not bump into it or run into it, but we are trying to figure out where those limits are. We've just got an efficacy before we've hit those limits.

So we're not too concerned about that at this moment in time. We're more concerned about optimizing the delivery system and optimizing the concentration of nitric oxide and the amount of time we're delivering it. I think that needs to be optimized at this moment in time before we progress to a first-in-man study. So that's our goal right now is to optimize the delivery so that we can grow into a first-in-man study towards the end of next year with our best shot on goal, so to speak.

Next comes from the line of Matt Kaplan with Ladenburg Thalmann.

Congrats on the PMA filing. Yes. Wanted to zero in on your commercial strategy a little bit for the PPHN indication LungFit PH. You mentioned razor blade being your filter. What are your expectations in terms of the device? Will you sell the device, provide it for free, lend to hospital the device, what's your expectation in terms of that part of the program?

Well, Matt, it's -- I don't think we have 100% settled in on exactly what we're going to do. But I think to give you some parameters, I'm not sure the vast majority of hospitals are going to want to have a big upfront payment to buy a system. So I don't think that's a good way to go, whether we'll lease it or rent it or so to speak, for an amount of money, a nominal amount of money or what have you. I think that the main focus really needs to be on filters. So I think that's where the bulk of revenues will come from. I think it's the best model for the hospitals. Again, we'll get more information from them.

Now that we've submitted, I think they'll be willing to talk more with us about how things are going to look. Obviously, we can't do that much until we get approval. We have to be aware that we can't be marketing our product prior to approval, but I do think that it certainly -- we'll have some inbound calls from people asking us questions and we'll do our very best to answer them within all the rules that are out there for what we can do as a premarketed product.

But I think, again, the best thing for the hospital is for them to look at the filters and see them as a pay-as-you-go type of instrument. So again, truly think of the razors ratably. We got our razors at home. We paid for it. We got it, doesn't really cost much -- most of the time, those razors come in a pack of razorblades, kind of they just throw it in there for an extra $0.50 or something to keep it. And you go buy as many blades as you want. You buy the 4-pack, the 8-pack, 12-pack, whatever you want, and every time you buy more, it's a little bit of a discount. So you can think that there will be volume discounts, and there are many different ways to do that volume discount. Whether it's buying a box 10, 20 or 30 or whether it's ordering a fixed amount for a month or a quarter or a year or what have you.

There are many different ways of doing it, but I think you should think about focusing on how do we, as a company, price our filters, so that we are helping the hospital, have their costs to them In line with the reduced prices we've seen with the competitors that have come into the market where they've competed. So some hospitals may still be paying original Mallinckrodt prices and some may be paying more of the newer prices where there's been competition.

So you look at those lower prices that would've been competition, and I think we have to design a system for hospitals where they're paying for our filters when they need them, and that price is coming in on an annual basis, roughly in line with the others. That's what we're trying to do. But it's really the filter that's most important. We don't want to have big upfront payments. I think that's not -- it's a nonstarter for most of them. And we also want to have something that's not going to hurt them, where there's hidden costs or there's penalties at the end of the year, things like that. We want to be very careful and helpful to the hospital.

Right. That's helpful. And then you mentioned kind of a stage rollout. How should we think about that stage rollout into hospitals for the -- starting in the second quarter of next year? And can you give us maybe some of your thoughts in terms of the number of devices you hope to have in place by the end of the year? Or number of hospitals you hope to have engaged by kind of end of year next year, something like that?

Yes. I mean in the beginning, I think it's a small number, a dozen, give or take, in the first 6 months. And I think that's kind of where we want to be. We want to be targeted. We want to work through with hospitals that really want switch, that really want to learn and understand, that have higher volume, a lot of experience. And we need to learn too, Matt. You don't just do these all these studies and then go out there and do 1,000 hospitals and say it's going to be perfect. So we need to go a little bit slow. It's a new device, it's life-saving. We need to make sure that the hospitals are comfortable. I don't know if there's any little tweaks that need to be made in how we train or anything like that, need to figure it out early.

And then hopefully, by the end of '21, which will be about 6, 7 months or so on the market, we hope to start expanding. How quickly do we expand? I just don't know. That's the big question. So we certainly will be looking to expand our team towards the end of next year, our calendar year that is. And we'll see if that dozen or so hospitals goes to 2 or 3 dozens or more. But we'll know more after the first 6 months on the market. I think the best thing to do is kind of track us on how we -- how quickly or how many hospitals we're able to convert. I think that's probably the best metrics. And your guess -- I mean we have good guesses internally. I'm just not going to tell you exactly what our guesses are, but I'm sure you can do some research with the hospitals and figure out how long it's going to take the switch and what we need to do. But again, we're not going out to 100. We're going out to a dozen, give or take and see how it goes and then we'll branch out from there.

Great. In terms of the program for bronchiolitis. You said you're on track to start next year, next fall. What are kind of the rate-liming steps to getting that -- the bronchiolitis pivotal study off the ground next fall?

Right. We need to submit to the FDA for an IDE, so they can approve our pivotal study. I mean we -- if you recall at the beginning of this year, we did submit and then the pandemic hit. So kind of put that to the side, obviously. Hopefully, when we talk to FDA over the winter, again, the pandemic doesn't seem to be going away and decisions have to be made early part of next year to be able to start in November of next year. As you know, it's -- you need a good 7, 8, 9 months to get all the sites up and running and everything. I mean for COVID studies, everybody's running them crazy. Normally, it takes time to get these sites up and running. So we really need to press the go button early part of next year. And it's a difficult decision. I don't know if FDA is going to say, well, we're going to approve our study with infants in the hospital with a pandemic going on, you're out of your mind. I don't know if that's going to be their decision. And it's really going to be up to FDA about how things are progressing with the pandemic. And if it seems like it's more under control and more studies are being done, again, we're talking about 3, 4-month old babies going into the hospital for these studies.

Now obviously, if the world is open and these babies are going on hospital anyway, we can do the study. But we do anticipate that this winter is going to be 1 of the lowest on record for bronchiolitis hospitalizations because of the social distancing. So we're glad we're not running at this winter because we never enrolled the patients. So if this is going to be a situation next winter, like we're coming into the winter where there's a lot of social distancing, we wouldn't be able to understand anyway. So it doesn't really matter. But I don't know anybody has a crystal ball who can tell me that we're going to be wide open next winter or we're going to be like this next winter.

So the first step is to get FDA to agree that we can run the study. And then the second step is to make an educated guess in, I don't know, September, October of next year to see if we're still in a lockdown. If we are, we can't run the study. So we need to have hospitalizations to be able to get babies in the trial. So again, that's kind of where we stand. I wish I had a better answer for you, Matt, but this is an ungrateful situation.

Just to be clear, it sounds like you'll file -- you plan to file the IDE sometime early next year and then make the go, no-go decision in terms of actually running the study depending on where the pandemic -- status of the pandemic sometime in the early fall, something like that, late summer.

Yes, yes. I mean good things and bad things. We get a COVID vaccine, we can run our bronchiolitis study. We don't get a COVID vaccine, maybe the COVID-19 treatment is a winner. So we win both ways, I guess. I guess we can't lose, I don't know.

All right. And then last question, there's some very interesting data in the oncology cancer indication with high-dose gaseous NO. What are your thoughts in terms of being able to move that into the clinic? What are your -- what are the hurdles you overcome to get into the clinic as you hope to late next year?

Yes. I mean look, we -- as I said earlier, we need to optimize this delivery system and our regimen. It needs to be optimized. I mean we have had success at -- as you've seen all of our data, we've seen success at 20,000 parts per million all the way to 200,000 parts per million. So we've seen the 50. We've seen different concentrations and for different durations of administration. So we kind of work out what's the best, and mice are obviously different than humans in the situation. So we're talking to a lot of experts to try to figure out what's the best way to go with respect to the best safety environment in humans. So there's a couple of different factors that we're working on with our consultants because, obviously, we can go 20,000 up to 200,000. We can -- we know we have efficacy in that range. It's a very wide range, but there are a lot of other factors that have to be taken into consideration. So we need to do that work and satisfy the regulators so that we've proven that we believe it's safe to go into humans.

So again, I don't know what else to say. So that we're optimizing this, and we also need to do it in more animals. I mean we've done, I don't know, about 80 to 100 animals total. I think we need to get that number up by a couple of multiples.

So again, it's not hard to do, Matt. It just takes time as to do it properly. And you can't just rush through this. This is to be done systematically, done properly, documented properly. We have to do everything as per the regulatory agencies require. So that's why we're giving ourselves about a year to get the -- to start before we start the study. And I think the team has a good plan, and we'll hit that timeline.

Our next question comes from the line of Scott Henry with ROTH Capital.

Congratulations on the filing. Just a couple of questions. Steve, when it comes to the product launch, are you preparing to launch it yourself? Or are you committed to launching it yourself? I mean, would you still consider a partnership? Or is it just too late at this?

I mean Scott, I'd say it's pretty late, but there's a price for everything. So I can't say that I'm telling you 100%, there's no way we talk to anybody. But I would say if we don't -- if you don't hear anything from us by, I don't know, by the new year, and I think it's impossible to get a partner because there is not enough time to bring somebody in and get this launch right away. I mean again, there's always a number, but I mean it's a big number right now. So we're fully committed to launching this one. We've got -- we probably have, I don't know, like 2/3 of the people on board right now that we need to launch with. So have -- obviously, the rest of them will be hired right before the launch, but we're carrying these people right now. And those expenses are already in our P&L for this quarter. So we're ready.

Okay. Great. That makes sense. And do you need clarification of the situation with Circassia to launch? Or can those 2 things go in parallel?

Yes. No. We don't need any clarification there.

Okay. And then I believe you talked about enrolling the pilot study for NTM. I didn't get how many patients do you expect to have in that pilot study? And how long would you expect it to take to complete enrollment?

So it's 20 patients. Probably finish enrollment in the second quarter of next year, sometime. It's our best guess. And then it's 12 weeks of treatment and 12 weeks of follow-up. So if we're able to that, I said in the prepared remarks, we'll show the final data set towards the end of next year. So if we're able to get the enrollment done by the end of June, 12 weeks treatment, 12 weeks observation were good. And it's an open-label study. So it won't take too much time to put the data together and get it out.

Okay. Great. And then on the oncology front, I know you put a target out there, first-in-man, perhaps end of next year. Any catalyst data points that we should focus on over -- in the interim? Or I guess, we'll find out as we go?

For the cancer, you're saying?

Yes.

Okay. So it depends, Scott. If we get data and we're -- and it comes into our hands and we haven't missed a deadline for a conference, then we'll show it. That's probably what we do. I'm not so sure we press release anything at this point, that might change. But I think if we have a conference that we'd like to show data at, and we have new and meaningful data, we'll show it. So I think it's going to be real tough given how quick -- how early deadlines are for conferences to see anything in the first half of next year, but maybe in the early part of the second half, there might be some conferences that we can get some data at.

But again, that will just depend on the conference and what their dates are for submission to be able to show you data there. But I don't think we're going to be press releasing data as we have in the past for cancer. I think we've got enough data out there for proof of concept, and we're just focused on getting it to first in man.

But again, we do want to show it to the scientific and medical community. So if there's an opportunity, we'll do it. I just don't know if it would make it before we start first-in-man space on those deadlines.

Our next question comes from the line of Yale Jen with Laidlaw & Company.

Congrats on the progress, Steve. In terms of the PMA, the filing, I just want to confirm or understand. If FDA has a time for making decisions to whether to accept the application or not like the drug or they can just accept the -- once they receive it and start to eventually review it?

No. They just -- the device division, just like the drug division has time lines and time points where they say whether they've accepted it for review or not. They do. They have the same kind of structure. So we're not at that point yet.

Is that, again, maybe 2 months or 60 days? Or is there an exact date for that?

Yes. It's around there.

Right. So would you also, I guess, report now that FDA accepted application? Or I guess you just wait until the full 180 days for the decision?

Yes, I'll tell you if they don't accept it. But I mean this is a very, very rare occurrence. And we -- you got to understand the team that we have at Beyond Air. We've got a team of engineers. I mean these guys invented the nitric oxide delivery market. They wrote the rules at FDA. And these are the best guys in the business. Our regulatory team, I mean, they've been doing this for 40 years, ex FDA people. I mean this -- I wouldn't want anybody else to file something in nitric oxide other than this team. I don't care what company you're talking about.

I mean remember, what -- remember, what the INOmax system is. I mean they came from another company, it went through like 5 companies before it became part of Mallinckrodt. I mean these are the guys who built it, built everything. So I'm not really worried about this. I mean that's just a -- I know it's a technicality and it's a good question to ask, but when you look at the team we have here, this is not something that really occurs to us as a possibility. I mean it's just not something we're thinking about. It's just the formality.

Okay. Great. I mean I appreciate the confidence, and I think that's very helpful for investors as well. In terms of the NTM study, was individual with the CF also to be included in the study or they will be excluded (inaudible). Will patients...

In the NTM study. Yes. So in the NTM study, we can take CF or non-CF bronchiectasis patients. It doesn't matter. We're not forcing either one, it will be up to the physicians. We've given them a leeway, whether their CF patients or non-CF patients is fine, whether their NTM abscessus or NTM MAC patients is fine. That's really up to the investigators. We obviously have done all-CF patients in the past. So we obviously prefer to get some non-CF patients. And we've done only abscessus in the past, so we prefer to get some MAC patients as well. But again, it's -- we're not restricting the sites.

So pretty much all-comer in that regard?

Yes.

Okay. Maybe 2 more quick questions. The first one is really rephrasing a question asked a little bit earlier. Which is -- what do you anticipate the capacity in terms of manufacturing in either the machine or the filter, let's say, in the second half of this year, maybe third quarter, roughly the time of next year and whether the manufacture capability can catch up to it? Or you would need additional production capacity?

So with respect to the filters, our contract manufacturer was worried we wouldn't order enough filters for them. So 1 commercial line can make an enormous amount of filters. So we're good there. We could probably make 3 years' worth of filter needs in about I don't know, 4, 5 months. I mean it's just not -- volume on filters is not a problem. Lead time on filters is not a problem. That -- we're just not concerned with it. We have a great partner. The facility is outstanding. And again, we're looking forward to making them happy so we can get up to a volume where they can appreciate us.

With respect to the LungFit device, look, we have a commercial line, Spartronics now. They were Sparton before they called Spartronics. They have the line up in their facility. They're excellent. I mean what we have given us so far has been fantastic. It's only getting better every time we make more machines, it gets better and better. The lead time on this is long. That's probably the biggest challenge is lead time and estimating what we're going to need when we need it. Capacity is not the issue. We can -- with that 1 line, we could probably make enough systems to cover the entire United States in 1 year. If you said in a year, make it many as you can. I can make enough to cover the entire U.S. for the next 5, 6 years, no problem. So that's really not the issue. No one wants to do that. We don't have the money. It's a waste of everyone's time. So we have to try to figure out how to work with them so that we are able to manage that inventory properly. That's really the biggest challenge. It's not about capacity. It's more about managing the inventory property because there's a lot of components many different lead times on things.

So we're actually very, very happy with Spartronics on the commercial side with their ability to help us manage that process. So we're not really worried about not being able to make enough. We're really more worried about making sure our supply chain is in great shape so that when we need things, we can get them in a timely manner. That's the biggest challenge for us.

Again, putting up a second line, it's, I don't know, 90 days, give or take, we could put up another line. So it's not really hard for us to increase capacity. And when you go to the LungFit PROs, which would be for, acute viral pneumonia, COVID-19 and bronchiolitis, we already have a commercial line up for those as well, for that line as well the LungFit PRO line. So that one's up early. Obviously, we put it up early just in case there was success with COVID and the devices were needed. So we're ready to go there, and that actually has more annual capacity than the LungFit PH line. So we can make more per year than we can for PH. So capacity is not an issue for us at the moment at all.

Okay. Great. Maybe the last quick question here or maybe not so quick, which is that, as you know, in the cardiosurgical or treatment side revenues presumably is bigger -- is greater than from the NICU in the real world, although that's sort of off-label use? Is there any thoughts how would you be able to penetrate in that market and without violating any law or other things?

We're not going to do anything different than what others are doing out there. Like, I mean, again, there's no intent to break any laws. There's no -- nothing -- we're just going to market, just like Mallinckrodt and Praxair do going after PPHN. And physicians in the United States have every right to use drugs or products off-label at their discretion. So it will be at their discretion. It won't be us doing any kind of marketing.

We will, at some point, request to FDA to expand the label officially. I believe one of the companies in the market has already said recently that they're going to be requesting that as well. So I hope they do. I hope it becomes on label for the good of patients and reimbursement for hospitals. So everybody will be happy.

So again, I don't see that's a competitive disadvantage. No one has it on label. So there's no competitive disadvantage here. We're just going to do what others do and let the chips fall where they will. Getting it on label, obviously, be a big help, but I think if 1 company gets it on label, it won't be too long for the others to get it on label as well. I don't believe that it would really be a competitive advantage for anybody for any significant length of time. But I do think it's important to get it on label. I do think on label would help expand the market, it would give hospitals a little bit more comfort that they can use it a bit more freely in these patients who need it.

Okay. Great. And maybe just tap on that one. Have you noticed whether the Mallinckrodt at this stage, have decided or not decided to do that study you mentioned?

So I only go by what they've announced publicly. And I think they did announce publicly that they would, if I recall, and you can check their public information that they said they'd be submitting at some point. And they may already have, I don't know, for -- I believe it was juvenile cardiac surgery if not mistaken is the wording, but I think it was in children, adolescence. If I'm not mistaken.

But I don't know if they have submitted yet or not, I don't know, but they did talk about them submitting it. So we'll see. I don't know what -- I don't know what the timing is. You have to ask them. But again, if they get it or we get it first, I think the other one will just piggyback off the other one. So it's good for patients and good for the expansion of market. Again, like I said, I don't think it's a huge win for either company to get it first.

That is all the time we have for questions today. I'd like to hand the call back to management for closing remarks.

I'd just like to thank everyone for attending the call. And look forward to talking to you in the near term. Good bye.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.