Beyond Air, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2023, the company’s fiscal first quarter. Comparisons are with the three months ended June 30, 2022 unless otherwise noted. Amounts are in U.S. dollars.
Business context
Beyond Air is a commercial-stage medical device and biopharmaceutical company. Its LungFit platform generates nitric oxide from ambient air. LungFit PH received FDA approval in June 2022 for persistent pulmonary hypertension of the newborn (PPHN), and U.S. marketing began in July 2022. The company also develops LungFit applications for severe lung infections, an ultra-high-concentration nitric oxide cancer program through its 80%-owned Beyond Cancer affiliate, and nNOS inhibitors for neurological conditions.
Financial results and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $59,000 | $0 |
| Cost of revenue / gross loss | $303,000 / $244,000 loss | $0 / $0 |
| Research and development | $4.695 million | $3.226 million |
| Selling, general and administrative | $10.936 million | $8.214 million |
| Operating loss | $15.875 million | $11.440 million |
| Net loss | $15.055 million | $11.654 million |
| Net loss attributable to Beyond Air stockholders | $14.095 million; $0.45 per share | $10.934 million; $0.37 per share |
| Cash used in operating activities | $17.153 million | $6.840 million |
- Revenue remained nominal as LungFit PH commercialization was at an early stage. Cost of revenue exceeded revenue, primarily due to supply-chain infrastructure costs.
- At June 30, 2023, cash and cash equivalents were $31.348 million and marketable securities were $25.644 million, or approximately $57.0 million combined. Restricted cash was another $2.740 million. The filing reports $38.2 million of cash, cash equivalents and marketable securities excluding Beyond Cancer.
- Cash, cash equivalents and restricted cash totaled $34.088 million at quarter-end, down from $39.287 million at March 31, 2023. Investing activities used $9.653 million, principally for marketable securities purchases and equipment; financing activities provided $21.567 million.
- Quarter-end total assets were $73.044 million and total liabilities were $33.901 million. The company received $17.5 million in initial principal under a new secured term loan; net proceeds were $15.8 million. It also raised $5.8 million net through its ATM equity offering and issued 930,232 shares under that program.
Material changes and notable items
- Net loss attributable to Beyond Air stockholders increased from $10.934 million to $14.095 million. R&D expense rose by $1.5 million, mainly reflecting cancer, autism and NTM development costs and increased staffing. SG&A rose by $2.7 million, including higher stock-based compensation, salaries, rent and consulting fees.
- Operating cash use increased year over year. The company says the current-period amount included a $7.6 million payment resolving the Empery litigation, which had been accrued at March 31, 2023.
- The company recorded $0.8 million of total other income, compared with $0.2 million of expense a year earlier. This included non-cash fair-value gains on loan-related warrant and derivative liabilities; interest and investment income was partly offset by a $0.2 million estimated contingent-loss charge.
- Stock-based compensation was $6.1 million, versus $4.6 million in the prior-year quarter. It is a significant non-cash expense.
- Restricted cash fell by approximately $7.4 million after collateral for the Empery appeal bond was released following payment of the judgment.
Outlook, financing, risks and contingencies
- Management stated that available cash, cash equivalents and marketable securities were expected to fund operating requirements for at least one year from the financial statements’ filing date. The filing also says operations beyond the first fiscal quarter of 2025 depend substantially on LungFit PH commercialization, international partners and/or additional financing. No specific revenue or earnings guidance is provided.
- The June 2023 loan agreement provides for up to $40 million of senior secured term loans: $17.5 million was advanced initially, up to $10 million may be drawn in April–September 2024 subject to a product-revenue test, and a further $12.5 million is discretionary and requires lender approval and mutual agreement. The loan bears interest at the greater of prime plus 3.75% or 12%, is secured by substantially all company and specified subsidiary assets, and requires at least $5 million of unrestricted cash. Principal payments are scheduled to begin January 2025; maturity is June 2027.
- The company had $40.5 million remaining available under its $50 million ATM at quarter-end. Additional financing may be needed; availability and terms are uncertain.
- Management expected a LungFit PH CE mark in the EU during fiscal 2024. It anticipated a VCAP clinical trial in calendar Q4 2023, an NTM pivotal trial in 2025 following FDA discussions, and a COPD clinical trial in 2024 subject to financing and regulatory approval. Beyond Cancer expected top-line Phase 1 data before year-end 2023. The nNOS program was expected to enter Phase 1 by early 2025.
- Contingencies include $8.0 million accrued under the Circassia settlement: $3.5 million scheduled for fiscal Q2 2024 and $4.5 million for fiscal Q2 2025. A Hudson Bay warrant-related lawsuit was settled in July 2023, after quarter-end; $2.9 million was payable in fiscal Q2 2024.
- Outstanding non-cancellable purchase orders with a supplier were approximately $6.2 million; that supplier held $2.6 million of restricted cash as partial security. Two vendors supplied approximately 84% of materials purchased in the quarter, creating supplier-concentration risk.
- Key risks include limited commercialization to date, continued losses and cash consumption, regulatory and clinical-trial uncertainty, the need for future financing, market acceptance, and reliance on third-party suppliers. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether LungFit PH sales and hospital adoption grow enough to improve revenue and gross margins, and whether the company meets the loan’s revenue condition for the potential second tranche.
- Cash runway assumptions, actual spending and financing needs, including the effect of the secured loan, ATM share issuance and future debt or equity financing.
- Progress and timing of the EU CE mark and the clinical programs identified in management’s outlook.
- Payment timing and amounts for Circassia and the Hudson Bay settlement, along with any other material legal or contingent obligations.
- Supplier concentration and the company’s ability to secure materials and meet commercialization plans.