Beyond Air, Inc. — Form 10-Q Summary
Business and period: The company is developing nitric oxide (NO) generation and delivery systems for medical use. This unaudited report covers the three months ended June 30, 2019, the first quarter of fiscal 2020, and compares results with the three months ended June 30, 2018.
Financial performance and position
| Metric | Quarter ended June 30, 2019 | Prior-year quarter |
|---|---|---|
| License revenue | $627,469 | $0 |
| Research and development expense | $2,323,513 | $1,063,145 |
| General and administrative expense | $2,182,558 | $693,005 |
| Operating loss | $3,878,602 | $1,756,150 |
| Net loss | $6,180,821 | $1,723,750 |
| Basic and diluted loss per share | $0.67 | $0.20 |
| Net cash used in operating activities | $2,909,911 | $2,304,089 |
Revenue was license revenue from the Circassia agreement; the company reported no revenue from product sales and does not expect product-sale revenue until regulatory approval and commercialization. The reported $2.3 million loss on marketable securities materially increased net loss.
At June 30, 2019, cash and cash equivalents were $636,193, marketable securities were $11.0 million, and restricted cash was $16,827. Current assets were $12.3 million versus current liabilities of $5.1 million. Total liabilities were $5.3 million, including a $147,238 loan payable and $242,912 in operating lease liabilities. Accumulated deficit was $43.8 million. No gross margin was reported.
Changes and notable items
- License revenue began under the Circassia commercial-rights agreement. The company recognized $627,469 of previously deferred revenue during the quarter; deferred revenue was $1.64 million at quarter-end.
- R&D expense increased by $1.26 million, primarily due to NO generator and delivery-system development and preclinical studies. G&A expense increased by $1.49 million, including higher stock-based compensation, professional fees, and employee costs.
- Operating expenses and the securities loss drove net loss substantially higher year over year. The Circassia shares held as marketable securities were valued at $2.8 million at quarter-end.
- Financing activities provided $8.98 million, mainly from a $7.84 million net private placement and $1.17 million of at-the-market sales. Shares outstanding increased during the quarter through these offerings and option exercises.
- Investing activities used $6.78 million, primarily reflecting purchases and redemptions of marketable securities. Cash, cash equivalents, and restricted cash declined by $704,117 during the quarter.
Outlook, risks, and contingencies
- Management estimated available funds would support operations through the end of the third calendar quarter of 2020, assuming the sale of all marketable securities. The company cautioned that additional financing will be needed and may not be available on acceptable terms.
- The company expected to file a PMA application for its first product near the end of the third calendar quarter of 2019. Regulatory review, clinical development, manufacturing readiness, and securing partners remain important dependencies; delays or failure to obtain approvals could adversely affect liquidity and plans.
- On July 2, 2019, the SEC declared effective a shelf registration allowing up to $100 million in equity sales. The company also had a $20 million Lincoln Park purchase agreement; it reported subsequent sales of 160,000 shares for $808,184 through August 2019.
- Key operating risks include dependence on third-party manufacturers and the Aeronox delivery/monitoring system, which is not approved in the U.S. above 80 ppm and is modified by a contractor for higher concentrations. The company may need an alternative system for relevant U.S. trials.
- A New York lawsuit over adjustments to certain warrants seeks monetary damages and declaratory relief. The company intends to defend the claims; it said the outcome could not be assessed at this early stage.
- Other commitments include potential milestone payments under intellectual-property and technology agreements. The filing identifies up to $87 million of sales and development milestone payments under one agreement and $1.8 million of remaining NitricGen milestone payments.
Important facts for investors to verify
- Whether the expected PMA submission and subsequent regulatory milestones occurred, and the status and cost of clinical programs.
- Actual cash burn and runway, including the liquidity and realizable value of marketable securities, particularly the Circassia shares.
- Future equity issuance, remaining availability under the shelf registration and Lincoln Park agreement, and resulting dilution.
- The outcome and potential financial exposure from the warrant litigation and the timing or amount of contractual milestone obligations.
- Reconcile inconsistencies in the filing narrative: certain MD&A descriptions of investing cash flows conflict with the cash-flow statement, and some Circassia revenue allocation and accumulated-deficit figures differ across sections.