Trodde ikke det var et emne om dette selskapet her inne på TI, men brått så var det jo det! Det er et av favoritt casene mine, så hadde vært morro å sett hva folk her på Tekinvestor syns. Jeg inkluderer min write-up som jeg gjorde for microcapclub.com tilbake i August 2021. Den er litt utdatert på et par punkter, men stort sett gir den en veldig god introduksjon til selskapet.
The Company
Beyond Air, Inc. (XAIR) is a biopharmaceutical & medical device company focused on the use of Nitric Oxide (NO) to treat respiratory patients. Based out of Garden City, NY, the company went public through a reverse merger in mid 2017. While a lot has happened behind the scenes, there have not been many tangible data driven catalysts to help boost the share price, since the reverse merger. I believe that is about to change.
The company is developing a device named LungFit. LungFit is able to produce Nitric Oxide (NO) from ambient air. In vitro studies suggest that NO possesses anti-microbial activity not only against common bacteria, both gram- positive and gram-negative, but also against other diverse organisms including mycobacteria, fungi, yeast and parasites, and it has the potential to eliminate multi-drug resistant strains.
Current NO devices include large cylinders which makes the logistics less than ideal for hospitals. Once the cylinders are empty, they must be brought to an off-site facility, re-filled, and brought back to the hospitals, or are out right replaced. The cylinder systems are also quite heavy, weighing 175 lbs. In comparison, the LungFit PH device only weighs 38 lbs., and including the cart the whole system weighs in at a mere 78 lbs. Instead of having to re-fill cumbersome tanks, with LungFit PH you only have to change the smart filters, which come in a small pack, and weigh about 2.5 oz. In addition, while current NO systems (cylinders) can only produce NO reliably at 20PPM, LungFit can produce NO at high concentrations, 250PPM+.
This results in several advantages for the hospital: improved operating economics, no significant capital investment, no burdensome inventory and storage requirements, and reduced risk of NO2 exposure, just to mention a few.
The company is targeting several indication; Persistent Pulmonary Hypertension of the Newborn (PPHN) & cardiac surgery, acute viral pneumonia (including COVID-19), bronchiolitis, nontuberculous mycobacteria (NTM) lung infection, COPD, and they also have a program for solid tumors (oncology). In other words, this is not a one trick pony.
NO is also known to kill viruses, but only at high concentrations (150-250PPM). Cylinders systems can’t produce NO reliably at these levels, and so competitors using the cylinder systems can’t compete with Beyond Air’s LungFit in indications beyond PPHN.
Significant Insider Buying
There’s been significant insider buying both recently and in the past. Over the last 12 months, there’s been 13 open market buys by insiders. Of the 1M shares owned by Steve Lisi, CEO, almost all of them are acquired by open market buys and he has most of his net worth in the company. The most recent purchases include a massive 350K share purchase at $5.36 by director Robert Carey on 06/17/2021. Robert knows his stuff as he previously served as Executive Vice President and Chief Business Officer at Horizon Therapeutics plc (HZNP) from March 2014 to September 2019, during which Horizon Therapeutics deployed in excess of $3.5 billion to acquire or license eight commercial products and three products in development and grew net sales from $74 million in 2013 to approximately $1.2 billion in 2018, a compound annual growth rate of 75%. The fact that he chooses to increase his position from 131,418 to 481,418 shares right before a crucial PMA decision, is certainly worth noting.
CEO Steve Lisi has also continued his buying with two recent purchases. One 25K ($5.36) share purchase on the 06/17/2021 and one as recent as just a few of days ago on 08/13/2021, 25K shares at $7.85. Since 11/11/2019, Steve has had 11 open market buys, ranging from $3.66 to $7.85, and at the same time doubling his position from 500K shares to 1M. It’s certainly interesting that he continues to buy shares this close to a possible PMA decision, and that it’s his most expensive purchase in terms of share price.
Impressive Hires
There’s been three recent hires that are noteworthy. One is the hiring of Peter Senior as Director of Business Development. The reason this hire is impressive, is that Peter joins Beyond Air after spending 26 years at Linde plc (one of XAIR main competitors) where he most recently served as the Director of Healthcare Partnerships and External Relations. In this role, Peter was responsible for expanding Linde’s healthcare portfolio after the merger with Praxair, which made Linde the largest gas company in the world. Linde has sold INOmax (Sold by MNK in the US, Beyond Air’s largest competitor) in over 20 countries outside the US over the past 15 years and recently entered the US nitric oxide market with the NOxBOXi delivery system via the Praxair merger. In other words, Peter leaves a $160 billion company (in market cap) where he worked for 26 years, and one of Beyond Air’s competitors, to join a small micro-cap company.
Two more hires of note, is the hire of Rebecca Van Doren as Head of Sales and Kori-Ann Taylor as Head of Marketing. Rebecca worked 8 years at IKARIA as a regional business director. IKARIA was the owner of INOmax before they were acquired by Mallinckrodt (MNK) in 2015. As a regional business director, Rebecca sales region was the western half of the US for INOmax. After IKARIA was acquired by MNK, she worked as the National Director of Sales and Marketing for INOmax in Australia and New Zealand. She most recently worked at Fresenius Medical Care for about 2 years before recently joining Beyond Air. But just as with Peter, Rebecca joins Beyond Air after having spent a decade working for its largest competitor.
Lastly, Kori-Ann Taylor worked for Fingerpaint from 2014-2018. While at Fingerpaint, she was the marketing account lead for the industry nitric oxide leader, under both Ikaria and Mallinckrodt Pharmaceuticals. So Kori-Ann knows the nitric oxide market and has worked with Beyond Air’s largest competitor before.
PPHN & Cardiac Surgery
Focusing on the most imminent commercial opportunity, we look at PPHN & cardiac surgery. “Pulmonary hypertension is a life-threatening syndrome from increased pulmonary vascular resistance (PVR) resulting in restricted blood flow through the pulmonary arterial circulation and ultimately in right heart failure and potentially death.” The standard of care (SOC) for PPHN has been NO since 1999, but as I’ve mentioned earlier, this is currently being administered with the cumbersome cylinder systems. The same goes for the patients requiring cardiac surgery.
Beyond Air has already submitted their premarket approval (PMA) in November of 2020, but because of COVID, there’s been significant delays at the FDA. While a 180 day review period is the norm, the company now believes they will receive the decision by the end of September, give or take a couple of weeks. Should this timeline be correct, commercial launch will be 4Q 2021. I see a high likelihood of approval, as NO is already the SOC (so no new human data trials needed), and all Beyond Air needs to prove is that the device actually produces NO and that NO can be administrated safely. In that sense, the PMA is similar to a generic ANDA and that’s a much lower hurdle to overcome. I’ve also asked the company what they view as their biggest hurdle for approval, with the CEO answering: “I have no idea what the main roadblock would be with FDA. We are confident that we can address all of their questions and complete a PMA worth approval.” They also expect to secure CE Mark in the European Union around the end of calendar year 2021; followed by ex-U.S. commercial partnership in 2022.
Mallinckrodt (MNK) had a monopoly on the PPHN & cardiac patient market from 1999 to 2019 with INOmax, when two competitors, NOxBOXi (sold by LIN) and Genosyl DS (sold by Vero Biotech, private company), entered the market. MNK Inomax sales for 2020, totaled $574M. However, with the increased competition and Beyond Air entering the market, the global PPHN & cardiac patient market size is estimated to be $600M world-wide ($300M US). Beyond Air has said they will not compete on price, but rather focus on the broader value proposition which is around eliminating the cylinders, optimizing the workflow and ultimately increasing access to nitric oxide. The business model is a razor-razorblade model, where the hospitals buys LungFit PH (the razor) once, but will have to continuously buy filters (the razorblade). They will then be charging on an hourly-basis similar to the cylinder players via the encrypted 12-hour Smart Filter, that ensures safety, protects the business model and leads to a predictable and steady revenue stream of consumables. The smart filter has an RFID chip, that ensures the device won’t work without, or with any one other filter, than Beyond Air’s filters.
The current market structure is 80% cardiac surgery and 20% PPHN. It is important to note that the NO use in cardiac surgery is off-label. So as of right now, there’s very little reimbursement risk for the company. This is most likely changing. MNK had a monopoly so they did not care about a cardiac label. However, with the introduced competition, they have stated recently that they will submit for label expansion. Vero has said the same. According to Steve Lisi, CEO, “Cardiac surgery on the label should lead to an increase in volume, but it will not be immediate as it will take time to get a proper code in place and also for hospitals to adjust their policies”. So while a possible label expansion leads to more reimbursement risk for the company, they also believe that it will lead to an increase in NO use. Once approved, Beyond Air has said they will also submit for label expansion almost immediately.
In terms of their commercialization strategy, the company is preparing for a limited release in the first 6-9 months post-launch. The rationale for doing so is that the generator is a novel device that will require proper training and support for hospital staff. The company also explains “Our team will work closely with these providers to ensure that we have optimized our logistics, customer service and product performance in the first limited release phase, so that we are confident in our ability to scale up, to meet the needs of a much broader range of customers in the planned second phase of our commercialization strategy.” In that sense it seems prudent to have a limited release phase. There’s a total of 850 NICU’s in the US today using NO, and so it’s a small hospital population to target. Hence, when MNK had a monopoly, they only employed 50-60 sales reps covering the entire US. Also, most NICU’s are on annual or multiyear contracts, ranging anywhere from 1-3 years on average. Because of that, XAIR will be targeting hospitals with less than 12 months left on their existing contracts and they anticipate it taking about four years to have a shot at every hospital that uses NO in the United States. The CEO has stated that they are aiming for 50%+ market share withing 4 years.
Respiratory therapists or RTs play an important role in the NO space. These providers are the ones directly responsible for administering inhaled NO therapy to severely-ill patients and they will be the ones using LungFit. As such, you could think of RTs as the champions or gatekeepers of NO devices being adopted by hospitals. Beyond Air has carefully designed the LungFit PH’s user interface to facilitate an easy transition from any prior device that an RT is familiar with. According to a Truist report that came out in April, they spoke to a RT who serves as the Director of Respiratory Services at a large hospital system. The RT had experience using the LungFit PRO system in COVID-19 patients and was impressed with the sophistication and ease of use of the system. The report also said that the RT believed that LungFit PH will be rapidly adopted for current uses of NO, and he was particularly impressed with the clinical work that XAIR is doing to broaden the use of NO to new indications with unmet need. Again, I have not personally spoken to this RT, it’s strictly from the Truist report. Beyond Air has numerous RTs on staff.
Nontuberculous Mycobacteria
The company has an ongoing pilot study, with interim data expected in the fall 2021 and top-line results coming in Q2 2022. This is a self-administered at-home study. The fact that patients can conduct part of this treatment at home, by themselves, is a real game-changer for this indication. There are limited treatment options for NTM, and current treatment guidelines suggest a combination of multiple antibiotics dosed chronically for as long as two years. If Beyond Air can show that LungFit helps treat this infection, it would be significant for patients. Recently, the company received a grant for $2.17 million from the Cystic Fibrosis Foundation to help fund their trial.
Beyond Air’s single arm study completed at 160 ppm NO showed a reduction in bacterial load and improvements in quality of life of patients. I think there’s a very good chance that the at-home trial data will be promising, given that they had decent data for the 13 compassionate use patients already treated. The current study is being administered at 250 ppm versus 160 ppm, and 12 weeks of therapy versus the 3 weeks done prior. Also, patients will have tracked for average severity and length of disease versus the compassionate trial which was administered to sickest patients and those that had had the disease the longest, which is much harder to treat.
NTM has a global TAM of $2.5B ($1B US), so if the studies show significant QoL improvements and/or eradicates bacteria in 20-25% of patients, Beyond Air becomes a very attractive partnership target for this indication alone. In that sense, this results in some great optionality/call option for the company.
Acute Viral Pneumonia/COVID-19 & Bronchiolitis
In May, the company presented interim data from 19 patients from their AVP trial, all of which were COVID-19 patients. Results were encouraging as we observed clinically meaningful endpoints, including a two-day mean reduction in oxygen support in NO-treated patients versus controlled, a 26-hour reduction in mean duration of hospital stay between the NO treatment group and controlled, and only 22% of subjects in the NO treated group required oxygen support beyond their hospitalization compared to 40% control subjects. The trial still remains open and the company plans on submitting additional detailed study results at a future scientific meeting. The TAM for AVP is $3B worldwide ($1.5B US).
The bronchiolitis program is currently on hold due to COVID-19. The company has already completed two double-blind, randomized, single-center, 2-arm studies. Both studies have already shown very promising results. A third pilot study also showed top line data where statistical significance were met on both the primary (time to fit-to-discharge) and secondary endpoint (hospital length of stay). The standard treatment for BRO is just O2, so using NO could be a huge improvement. The global bronchiolitis market size is $1.2B ($500M U.S).
The company is deciding on whether to pursue the AVP program or Bronchiolitis program in 4Q 2022. Both trials are using LungFit PRO. The company has expressed that whether they chose AVP or BRO will be decided based on the data and talks with the FDA. But again, this provides a call option with a significant TAM, and no/low competition for the company.
Solid Tumor/Oncology
Lastly we have their solid tumor program (oncology). This program exists outside of the LungFit platform during the ultra-high concentrations of nitric oxide that are necessary to achieve anti-tumor effects. The company is rapidly approaching submission to regulatory authorities to enter human studies. The goal is to receive regulatory approval to move into humans on the end of calendar year 2021 and subsequently begin recruiting patients in the first quarter of calendar year 2022. Results from the study in mice, show that nitric oxide as a monotherapy, convey tumor-immunity to the host after a single five-minute local administration of 50,000 parts per million using Beyond Air’s proprietary delivery system in 11 of 11 mice. It’s pretty much impossible to predict anything here, but again, a nice call option for the company.
Financials
According to the latest Q1 report, the company had $39.6M in cash. This should be more than enough to fund operations well beyond the next 12 months. However, it is likely that the company will have to do one final raise at some point. I think the CEO is hoping that this will be at much higher prices than the current share price.
Risks
There are obviously plenty of risks here. First of all, it’s a story stock. They are not generating any revenue, and they don’t even have an approved product yet. While I do feel confident in an approval, there’s obviously some regulatory risk there. If the company does see approval for their LungFit PH device then you will have commercialization/execution risk. Overall, I could see why most investors wouldn’t touch this right now.
