UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-38892
BEYOND AIR, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
900 Stewart Avenue, Suite 301
Garden City, NY
(Address of principal executive offices)
47-3812456
(I.R.S. Employer
Identification No.)
11530
(Zip Code)
516-665-8200
(Registrant’s telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, par value $0.0001 per share
Trading Symbol
XAIR
Name of each exchange on which registered:
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No X
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
Yes ☐
No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes X
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of the "large accelerated filer,” "accelerated filer,” "non-accelerated filer,” "smaller reporting company” and "emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
X
☐
Accelerated filer
Smaller reporting company
☐
X
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No X
As of September 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s voting
stock held by non-affiliates was approximately $257.1 million based on the last reported sale price of the registrant’s common stock on the Nasdaq Capital Market.
There were 29,888,004 shares of common stock outstanding as of June 28, 2022.
None.
INDEX
DOCUMENTS INCORPORATED BY REFERENCE
Beyond Air, Inc.
TABLE OF CONTENTS
FORM 10-K
For the Year Ended March 31, 2022
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
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References in this Annual Report on Form 10-K (this "Annual Report”) to the "Company,” "Beyond Air,” "we,” "our,” or "us” mean Beyond Air, Inc. and its subsidiaries except
where the context otherwise requires.
FORWARD-LOOKING STATEMENTS AND MARKET DATA
This Annual Report contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 27A of the Securities Act of 1933 (the "Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act”). All
statements other than statements of historical facts contained in this Annual Report, including statements regarding our future results of operations and financial position,
business strategy, approved product and product candidates, certifications or approvals, timing of our clinical development activities, research and development costs, our
commercialization plans and the expected timing thereof, timing and likelihood of success, and the plans and objectives of management for future operations and future results of
anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as "may,” "will,” "should,” "expect,” "plan,” "anticipate,” "expect,” "could,” "intend,” "target,”
"project,” "contemplate,” "believe,” "estimate,” "predict,” "potential,” or "continue” or the negative of these terms or other similar conditional expressions. The forward-looking
statements in this Annual Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events
and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this
Annual Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the
factors described under the sections in this Annual Report titled "Risk Factors” and "Management’s Discussion and Analysis of Financial Condition and Results of Operations”
as well as the following:
- our ability to successfully commercialize our LungFit® PH system in the U.S.;
- our ability to achieve a CE mark for LungFit® in the European Union (the "EU”);
- our expectation to incur losses for the next few years;
- our ability to predict accurately the demand for our products, and products under development and to develop strategies to address markets successfully;
- the possibility that products may contain undetected errors or defects or otherwise not perform as anticipated;
- the anticipated development of markets we sell our products into and the success of our products in these markets;
- our future capital needs and our need to raise additional funds;
- our ability to build a pipeline of product candidates and develop and commercialize our approved products;
- our ability to enroll patients in clinical trials, timely and successfully complete those trials and receive necessary certifications or regulatory approvals;
- our ability to maintain our existing or future collaborations or licenses;
- our ability to protect and enforce our intellectual property rights;
- federal, state, and foreign regulatory requirements, including the FDA regulation of our approved product and product candidates;
- our ability to obtain and retain key executives and attract and retain qualified personnel;
- our ability to successfully manage our growth, including as a commercial-stage company; and
- our ability to address business disruption and related risks resulting from the COVID-19 pandemic and the responses to curb the spear of COVID-19, which could have a material
adverse effect on our business plan.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all
risk factors and uncertainties.
You should read this Annual Report and the documents that we reference in this Annual Report completely and with the understanding that our actual future results may
be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan
to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Beyond Air, Inc. the Beyond Air logo, and other trademarks or service marks of Beyond Air, Inc. appearing in this Annual Report are the property of Beyond Air, Inc.
This Annual Report also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames
referred to in this Annual Report may appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest
extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and tradenames.
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MARKET, INDUSTRY AND OTHER DATA
This Annual Report contains estimates, projections, market research and other information concerning our industry, our business, markets for LungFit ® PH and our
product candidates and the size of those markets, the prevalence of certain medical conditions, LungFit® PH market access, prescription data and other physician, patient and
payor data. Unless otherwise expressly stated, we obtain this information from reports, research surveys, studies and similar data prepared by market research firms and other third
parties, industry, medical and general publications, government data and similar sources as well as from our own internal estimates and research and from publications, research,
surveys and studies conducted by third parties on our behalf. Information that is based on estimates, projections, market research or similar methodologies is inherently subject to
uncertainties and actual events or circumstances may differ materially from events and circumstances that are reflected in this information. As a result, you are cautioned not to
give undue weight to such information.
This summary briefly lists the principal risks and uncertainties facing our business, which are only a select portion of those risks. A more complete discussion of those
risks and uncertainties is set forth in Part I, Item 1A of this Annual Report, entitled Risk Factors. Additional risks not presently known to us or that we currently deem immaterial
may also affect us. If any of these risks occur, our business, financial condition or results of operations could be materially and adversely affected.
SUMMARY OF PRINCIPAL RISK FACTORS
Our business is subject to the following principal risks and uncertainties:
Risks Related to our Financial Position and Capital Requirements
● We have incurred significant losses since inception. We expect to incur losses over the next few years and may never achieve or maintain profitability.
● Our limited operating history may make it difficult for our stockholders to evaluate the success of our business to date and to assess our future viability.
● We will need additional funding.
● Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to technologies or product candidates.
Risks Related to Commercialization of our Approved Product or Product Candidates
● If the market opportunities for our approved product or product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may
suffer.
● Our approved product or any product candidate that we develop may become subject to unfavorable pricing regulations, third-party payor reimbursement practices or
healthcare reform initiatives that could harm our business.
● Intense competition and rapid technological changes may adversely affect our ability to successfully commercialize our approved product or product candidates.
● If we are unable to establish sales and marketing capabilities or enter into agreements with third-parties to market and sell our approved product or product candidates, we may
be unable to generate any revenue.
● Our approved product and any future product candidates that we may bring to market may fail to achieve the degree of market acceptance by physicians, patients, third-party
payors and others in the medical community necessary for commercial success, and the market opportunity for our approved product or product candidates may be smaller
than we estimate.
● Failure to comply with applicable privacy, data and security regulations could result in substantial penalties, liability and negative publicity which could adversely affect our
business operations.
● If we fail to properly manage our anticipated growth, our business could suffer.
● Pricing pressure from our competitors and our customers may impact our ability to sell our products at prices necessary to support our current business strategies.
● Many of our current and potential competitors have substantially greater financial, technical and marketing resources than we do, and they may succeed in developing
products that would render our approved product and any future product candidates obsolete or noncompetitive.
● We may be subject to enforcement action if we engage in improper marketing or promotion of our products.
● Healthcare legislative or regulatory reform measures may have a negative impact on our business and results of operations.
● Cybersecurity risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware, software, and Internet applications and related tools and
functions could result in harm to our business and/or subject us to costs, fines or lawsuits.
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Risks Related to the Discovery and Development of Our Product Candidates
● We cannot give any assurance that any of our product candidates will receive certification or regulatory approvals, which is necessary before they can be commercialized.
● We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of our product candidates.
● We have conducted, and may in the future conduct, clinical trials for certain of our product candidates at sites outside the United States, and the FDA may not accept data
from trials conducted in such locations.
● If we experience any of a number of possible unforeseen events in connection with clinical trials of our product candidates, potential certification or marketing approval or
commercialization of our product candidates could be delayed or prevented.
● We may experience delays or difficulties in the enrollment of patients in clinical trials.
● Serious adverse events ("SAEs”), or undesirable side effects of our product candidates may be identified.
● Even if we obtain certification or regulatory approvals for our product candidates, we will still face extensive, ongoing regulatory requirements and review, and our products
may face future development and regulatory difficulties.
Risks Related to our Reliance on Third-Parties
● We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily.
● Any failure by a third-party supplier or manufacturer to produce or deliver supplies for us or to provide necessary servicing may delay or impair our ability to complete our
clinical trials or commercialize our approved product or product candidates.
● We may seek to enter into collaborations with third parties for the development and commercialization of our product candidates. If we fail to enter into such collaborations, or
such collaborations are not successful, we may not be able to capitalize on the market potential of our approved product or product candidates.
● The third-party manufacturing facilities on which we rely are subject to significant regulation and may not continue to meet regulatory requirements.
● Our reliance on third-parties necessitates the sharing of trade secrets, which increases the possibility of their improper disclosure or appropriation.
Risks Related to our Intellectual Property
● If we fail to obtain and maintain sufficiently broad patent protection of our technology, our competitors could develop and commercialize technology and products similar or
identical to ours, and our ability to successfully commercialize our technology and products may be impaired.
● We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
● We may be subject to claims by third-parties asserting that we or our employees have misappropriated their intellectual property, or claiming ownership of what we regard as
our own intellectual property.
● Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our
issued patents.
● We may not be successful in obtaining or maintaining necessary intellectual or proprietary rights to our approved product or product candidates including, but not limited to
acquisitions and in-licenses.
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Risks Related to our Business Operations
● We manage our business through a small number of employees and key consultants.
● We will need to expand our operations and increase the size of our company, which may expose us to difficulties in managing growth as well as additional regulatory,
operational and financial risks.
● The degree to which our business is subject to government regulation and oversight may result in additional delays and the incursion of additional expenses associated with
any interruption in government-business, including, but not limited to a government shutdown.
● The use of our product or any of our product candidates could result in product liability or similar claims that could be expensive, damage our reputation and harm our
business.
● Our business has been and may continue to be adversely affected by the COVID-19 pandemic.
● We are dependent on information technology and our systems and infrastructure face certain risks, including from cybersecurity breaches and data leakage.
Risks Related to the Ownership of our Common Stock
● Stockholder disputes may be limited by the terms of our amended and restated certificate of incorporation.
● Recent trading in our common stock has been volatile and may continue to be volatile in the future.
● Antidilution provisions in certain of our outstanding warrants may affect the interests of our common stockholders.
● Equity issuances or raising additional capital may cause dilution to our stockholders or restrict our operations.
Risks Related to Employee Matters
● Our business could suffer if we lose the services of key members of our senior management, key advisors or personnel.
● Our employees may engage in misconduct.
● Employee litigation and unfavorable publicity could negatively affect our future business.
● We may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former
employees.
General Risk Factors
● The increasing use and relevance of social media platforms may present new risks.
● Our business may be affected by unfavorable global or U.S. economic conditions.
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PART I
ITEM 1. BUSINESS
Business Overview
We are a commercial-stage medical device and biopharmaceutical company developing a platform of nitric oxide ("NO”) generators and delivery systems (the "LungFit®
platform”) capable of generating NO from ambient air. Our first device, LungFit® PH received PMA approval from the FDA in June 2022. The NO generated by the LungFit® PH
System is indicated to improve oxygenation and reduce the need for extracorporeal membrane oxygenation in term and near-term (>34 weeks gestation) neonates with hypoxic
respiratory failure associated with clinical or echocardiographic evidence of pulmonary hypertension in conjunction with ventilatory support and other appropriate agents. This
condition is commonly referred to as persistent pulmonary hypertension of the newborn or "PPHN”. The LungFit® platform can generate NO up to 400 parts per million ("ppm”) for
delivery to a patient’s lungs directly or via a ventilator. LungFit ® can deliver NO either continuously or for a fixed amount of time at various flow rates and has the ability to either
titrate dose on demand or maintain a constant dose. LungFit® can be used to treat patients on ventilators that require NO, as well as patients with chronic or acute severe lung
infections via delivery through a breathing mask or similar apparatus. Furthermore, we believe that there is a high unmet medical need for patients suffering from certain severe lung
infections that the LungFit® platform can potentially address. Our current areas of focus with LungFit® are PPHN, community-acquired viral pneumonia ("CAVP”) including
COVID-19, bronchiolitis ("BRO”), nontuberculous mycobacteria ("NTM”) lung infection and those with various severe lung infections with underlying chronic obstructive
pulmonary disease ("COPD”). The Company’s current product candidates will be subject to premarket reviews and approvals by the FDA, certification through the conduct of a
conformity assessment by a notified body in the EU for the product to be CE marked, as well as comparable foreign regulatory authorities. The Company’s system will be marketed
as a medical device in the U.S.
An additional program of Beyond Air targets solid tumors, through our majority-owned affiliate Beyond Cancer, Ltd. ("Beyond Cancer”). The LungFit ® platform is not
utilized for the solid tumor indication due to need for ultra-high concentrations of gaseous nitric oxide ("UNO”). A proprietary delivery system has been developed that can safely
deliver UNO in excess of 10,000 ppm directly to a solid tumor. This program has advanced to phase 1 as enrollment is underway in the first human study.
Our approved product and active pipeline of product candidates is shown in the table below:
(1) All dates are based on projections and appropriate financing, anticipated first launch on a global basis pending appropriate certification or regulatory approvals
(2) Label expected to include cardiac surgery and PPHN
Our programs represent large market opportunities:
All figures are Company estimates for peak year sales: Global sales potential includes US sales potential
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LungFit® PH is the first FDA approved system using our patented ionizer technology to generate on-demand nitric oxide from ambient air and, regardless of dose or flow,
deliver it to a ventilator circuit. The device uses a medical air compressor to drive room air through a plasma chamber in the center of the unit where pulses of electrical discharge
are created between two electrodes. The system uses the power equivalent to a 60-watt lightbulb to ionize the nitrogen and oxygen molecules, which then combine as NO with low
levels of nitrogen dioxide ("NO2”) created as a byproduct. The products are then passed through a Smart Filter, which removes the toxic NO2 from the internal circuit. With respect
to PPHN, the novel LungFit® PH is designed to deliver a dosage of NO to the lungs that is consistent with current guidelines for delivery of 20 ppm NO with a range of 0.5 ppm –
80 ppm (low concentration NO) for ventilated patients.
We believe the ability of LungFit® PH to generate NO from ambient air provides us with many competitive advantages over the current standard of NO delivery systems
in the U.S., the E.U., Japan and other markets. For example, LungFit® PH does not require the use of a high-pressure cylinder, does not require cumbersome purging procedures
and places less burden on hospital staff in carrying out safety procedures.
Our novel LungFit® platform can also deliver a high concentration (>150 ppm) of NO directly to the lungs, which we believe has the potential to eliminate microbial
infections including bacteria, fungi and viruses, among others. We believe that current FDA-approved NO vasodilation treatments would have limited success in treating microbial
infections given the low concentrations of NO being delivered (<100 ppm). Given that NO is produced naturally by the body as an innate immunity mechanism, at a concentration
of 200 ppm, supplemental high dose NO should aid in the body’s fight against infection. Based on our preclinical and clinical studies, we believe that 150 ppm is the minimum
therapeutic dose to achieve the desired pulmonary antimicrobial effect of NO. To date, neither the FDA nor comparable foreign regulatory agencies in other countries or regions
have approved any NO formulation and/or delivery system for >80 ppm NO.
LungFit® PH for the treatment of Persistent Pulmonary Hypertension of the Newborn (PPHN)
In June 2022 the FDA approved LungFit® PH to treat PPHN. LungFit® PH is the inaugural device from the LungFit® platform of NO generators that use patented ionizer
technology and is the first FDA-approved product for Beyond Air.
We also expect to receive the CE Mark under the Medical Device Regulation ("MDR”) in the E.U. in the second half of calendar year 2022. According to the most recent
year-end report from Mallinckrodt Pharmaceuticals, sales of NO were $448.5 million in 2021 (down from $574.1 million in 2020) for the United States, Canada, Japan, Mexico and
Australia, with ~90% in the United States. Outside of the U.S. there are multiple market participants which translates to considerably lower sales than in the U.S. We believe the
U.S. sales potential of LungFit® PH in PPHN to be greater than $400 million and worldwide sales potential to be greater than $700 million. We initiated the first phase of our
commercial launch in June 2022 in the U.S. and will continue to work toward a potential launch in the EU and globally in 2022 and beyond.
LungFit® PRO for the treatment of viral lung infections in hospitalized patients
Community-Acquired Viral Pneumonia (including COVID-19)
Viral pneumonia in adults is most commonly caused by rhinovirus, respiratory syncytial virus ("RSV”) and influenza virus. However, newly emerging viruses (including
SARS-CoV-1, SARS-CoV-2, avian influenza A, and H1N1 viruses) have been identified as pathogens contributing to the overall burden of adult viral pneumonia. COVID-19 is an
infectious disease caused by SARS-CoV-2, that has resulted in a global pandemic, causing over 6.6 million hospitalizations and over 5 million deaths worldwide as of November
2021. Excluding the pandemic, there are approximately 350,000 annual viral pneumonia hospitalizations in the US, and up to 16 million annual viral pneumonia hospitalizations
globally. For the broader annual viral pneumonia hospitalizations, we believe U.S. market potential to be greater than $1.5 billion and worldwide market potential to be greater than
$3 billion.
We initiated a pilot study in late 2020 using our novel LungFit® PRO system at 150 ppm to treat patients with CAVP. The trial is a multi-center, open-label, randomized
clinical trial in Israel, including patients infected with COVID-19. Patients are randomized in a 1:1 ratio to receive either inhalations of 150 ppm NO given intermittently for 40 minutes
four times per day for up to seven days in addition to standard supportive treatment ("NO+SST”) or standard supportive treatment alone ("SST”). Endpoints related to safety
(primary endpoint), oxygen saturation and ICU admission, among others, were assessed.
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We reported interim data from this trial at the American Thoracic Society or ATS International Conference 2021, which was held virtually from May 14, 2021 through May
19, 2021. At the time of the data cut off, the intent-to-treat ("ITT”) analysis population included 19 COVID-19 patients (9 NO + SST vs 10 SST). The data readout showed that 150
ppm NO treatment administered via LungFit® PRO was safe and well tolerated and demonstrated encouraging efficacy signals. From a safety perspective, there were no treatment-
related, or possibly related, adverse events or severe adverse events. NO2 levels were below 4 ppm at all timepoints (trial safety threshold is 5 ppm) and methemoglobin ("MetHb”)
levels were below 4% at all times (trial safety threshold is 10%). With respect to the requirement of oxygen support beyond hospital stay, 22.2% of subjects in the NO + SST group
compared with 40% of control subjects had this requirement. There was an observable trend of shortening the duration of hospital stay and duration on oxygen support for treated
patients. The pilot study in adult viral pneumonia, including COVID-19, remained active with trial sites open for enrollment after these data were presented.
We presented additional detailed study results at the 32nd European Congress of Clinical Microbiology & Infectious Diseases (ECCMID 2022), which took place from
April 23, 2022 through April 26, 2022 as a hybrid event both onsite in Lisbon, Portugal and online. At the time of the data cut off, the trial enrolled a total of 40 subject hospitalized
for CAVP (SARS-CoV-2, n=39; other viruses n=1). The ITT population included 35 subjects with 16 in the inhaled NO group and 19 in the control group. Safety data from the study
showed that inhaled NO treatment was well tolerated overall with no treatment related adverse events as assessed by the investigators. NO2 levels were below 4.4 ppm at all
timepoints (trial safety threshold is 5 ppm) and MetHb levels were below 6.8% at all times (trial safety threshold is 10%). There were two SAEs reported in the group receiving
inhaled NO along with SST, which were determined to be related to underlying conditions and unrelated to study drug/device. From an efficacy perspective, results showed a trend
of shortening length of stay ("LOS”) in favor of the inhaled NO treatment group by a factor 1.8 in favor of inhaled NO treatment. Duration of oxygen support, measured in-hospital
and at home, was significantly shorter (p=0.0339) for inhaled NO treated subjects. In addition, of subjects with unstable oxygen saturation during hospitalization, 66.7% of the
inhaled NO treatment group reached stable saturation of ≥93% during hospital stay as compared to 26.7% in the SST group.
Bronchiolitis (BRO)
Bronchiolitis is the leading cause of hospital admission in children less than 1 year of age. The incidence is estimated to be 150 million new cases a year worldwide, with 2-
3% (over 3 million) of them severe enough to require hospitalization. Worldwide, 95%3 of all cases occur in developing countries. In the U.S., there are approximately 120,000
annual bronchiolitis hospitalizations and approximately 3.2 million annual child hospitalizations globally. Currently, there is no approved treatment for bronchiolitis. The treatment
for acute viral lung infections that cause bronchiolitis in infants is largely supportive care and is based primarily on prolonged hospitalization during which the infant receives a
constant flow of oxygen to treat hypoxemia, a reduced concentration of oxygen in the blood. In addition, systemic steroids and inhalation with bronchodilators are sometimes
utilized until recovery, but we believe that these treatments do not successfully reduce hospital length of stay. We believe the U.S. market potential for bronchiolitis to be greater
than $500 million and worldwide market potential to be greater than $1.2 billion.
Our BRO program is currently on hold due to the COVID-19 pandemic. The pivotal study for bronchiolitis was originally set to be performed in the winter of 2020/21 but
was delayed due to the pandemic. We have completed three successful pilot studies for bronchiolitis. A further analysis of the three previously reported pilot studies was
presented at the ATS International Conference 2021, which was held virtually from May 14, 2021 through May 19, 2021. Analysis across the studies (n=198 infants, mean age 3.9
months) showed that 150 ppm – 160 ppm NO administered intermittently was generally safe and well tolerated with adverse event rates similar among treatment groups with no
reported treatment-related serious adverse events. The short course of treatments with intermittent high concentration inhaled NO was effective in shortening hospital length of
stay and accelerating time to fit for discharge – a composite endpoint of clinical signs and symptoms to indicate readiness to be evaluated for hospital discharge. This treatment
was also effective in accelerating time to stable oxygen saturation – measured as SpO2 ≥ 92% in room air. Additionally, NO at a dose of 85 ppm NO showed no difference compared
to control for all efficacy endpoints, while 150 ppm NO showed statistical significance when compared to control.
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Additionally, long-term safety data for high concentration inhaled NO in bronchiolitis was presented at the Pediatric Academic Societies Meeting 2022 (PAS 22), which
was held in Denver, Colorado from April 21, 2022 through April 25, 2022. A total of 101 infants from the three prior pilot studies for bronchiolitis (n=198) participated in the long-
term follow-up study. Study endpoints for the long-term safety study included percentage of subjects re-hospitalized for bronchiolitis related reasons, such reasons included
wheezing episodes, pneumonia, asthma, etc., and the percentage of subjects re-hospitalized for any reason. Data from the study showed the re-hospitalization rate per 100 Patient
Exposure Years (PEY) due to bronchiolitis related reasons trended favorably for the inhaled NO group. In addition, the long-term subject re-hospitalization rate for any reason was
similar between inhaled NO and control groups. As such, the study concluded that the treatment of hospitalized infants with acute bronchiolitis by intermittent high dose inhaled
NO show a favorable long-term safety profile.
We believe that the entirety of data at 150 ppm - 160 ppm NO in both adult and infant patient populations supports further development of LungFit® PRO in a pivotal
study for patients hospitalized with CAVP or bronchiolitis.
LungFit® GO for the treatment of Nontuberculous mycobacteria (NTM)
NTM lung infection is a rare and serious pulmonary disease associated with increased morbidity and mortality. Patients with NTM lung disease may experience a
multitude of symptoms such as fever, weight loss, cough, lack of appetite, night sweats, blood in the sputum and fatigue. Patients with NTM lung disease, specifically
Mycobacterium abscessus (M. abscessus) representing 20% - 25% of all NTM and other forms of NTM that are refractory to antibiotic therapy, frequently require lengthy and
repeated hospital stays to manage their condition. There are no treatments specifically indicated for the treatment of M. abscessus lung disease in North America, Europe or Japan.
There are approximately 50,000 to 90,000 people with NTM infections in the U.S. In Asia, the number of patients suffering from NTM surpasses what is seen in the U.S.
There is one inhaled antibiotic approved for the treatment of refractory Mycobacterium avium complex ("MAC”). Current guideline-based approaches to treat NTM lung disease
involve multi-drug regimens of antibiotics that may cause severe, long lasting side effects, and treatment can be as long as 18 months or more. Median survival for NTM MAC
patients is approximately 13 years while median survival for patients with other variations of NTM is typically 4.6 years. The prevalence of human disease attributable to NTM has
increased over the past two decades. In a study conducted between 2007 and 2016, researchers found that the prevalence of NTM in the U.S. is increasing at approximately 7.5%
per year. M. abscessus treatment costs are estimated to be more than double that of MAC. In total, a 2015 publication by co-authors from several U.S. government departments
stated that annual cases in 2014 cost the U.S. healthcare system approximately $1.7 billion. For this indication, we believe U.S. sales potential to be greater than $1 billion and
worldwide sales potential to be greater than $2.5 billion.
In December 2020 we began a 12-week, multi-center, open-label clinical trial in Australia intended to enroll approximately 20 adult patients with chronic refractory NTM
lung disease. We received a grant of up to $2.17 million from the Cystic Fibrosis Foundation ("CFF”) to fund this study and advance the clinical development of inhaled NO to treat
NTM pulmonary disease. The trial is enrolling both cystic fibrosis ("CF”) and non-CF patients infected with MAC, M. abscessus or any strain of NTM. The study consists of a
run-in period followed by two treatment phases. The run-in period provides a baseline for the efficacy endpoints. The first treatment phase takes place over a two-week period and
begins in the hospital setting where patients will be titrated from 150 ppm NO up to 250 ppm NO over several days. During this phase patients receive NO for 40 minutes, four times
per day while MetHb levels are monitored. Patients are also trained to use LungFit® GO and subsequently discharged to complete the remaining portion of the two-week treatment
period at their home at the highest tolerated NO concentration. For the second treatment phase, a 10-week maintenance phase, the administration is twice daily. The study is
evaluating safety, quality of life, physical function, and bacterial load among other parameters.
We reported positive interim results in October 2021. At the time of data cutoff on September 6, 2021, eight subjects were successfully titrated up to 250 ppm NO in the
hospital setting, and none required dose reductions during the subsequent at-home portion of the study. The mean age of subjects was 56.6 years (range: 22 – 73 years) with the
majority female (87.5%), a distribution consistent with real-world NTM disease, and occurring at a higher rate in older adult women than men. 250 ppm NO was well-tolerated in all
subjects with no study discontinuations or treatment-related serious adverse events observed. Methemoglobin and NO2 concentrations remained within acceptable ranges in all
subjects during NO treatment, and below the safety thresholds of 10% and 5 ppm, respectively.
10
We reported additional positive interim results at the American Thoracic Society International Conference 2022 (ATS 2022), which was held in San Francisco from May 13,
2022 through May 18, 2022. At the time of data cutoff on April 4, 2022, a total of 15 subjects were enrolled in the pilot study. The mean age of subjects was 62.1 years (range: 22–82
years) with the majority female (80%), a distribution consistent with real-world NTM disease. The data show that high concentration inhaled NO was well tolerated following a total
of 2,323 inhalations self-administered at home with no treatment related discontinuations reported and overall high treatment compliance. All 15 subjects were successfully titrated
to 250 ppm NO in the hospital setting, and none have required dose reductions during the subsequent at-home portion of the study. Methemoglobin and NO2 concentrations
remained within acceptable ranges in all subjects during NO treatment, below the safety thresholds of 10% and 5 ppm, respectively. Patients are followed up for 12 weeks after the
12-week treatment period is completed and the last patient visit at the end of week 24 is expected to occur in August 2022. The totality of the data will be used to evaluate efficacy
measures, including quality of life, physical function, and sputum bacteria as compared to baseline measurements. The study is no longer enrolling patients, and we anticipate
reporting the complete efficacy and safety results later in calendar year 2022. If the trial is successful, we would anticipate commencing a pivotal study in calendar year 2024.
Our program in COPD is in the preclinical stage and, subject to obtaining additional financing, is expected to enter clinical trials in calendar year 2023.
Ultra-High Concentration NO in solid tumors through majority-owned affiliate Beyond Cancer, Ltd.
In the fourth calendar quarter of 2021, Beyond Cancer, our newly formed, majority-owned affiliate, raised $30 million in a private placement of common shares. The
investors purchased a 20% equity ownership in Beyond Cancer, while Beyond Air maintained 80%. The funding is expected to be used to accelerate ongoing preclinical work
including the completion of IND-enabling studies, completion of a Phase 1 study, expansion of preclinical programs for combination studies, hiring of additional Beyond Cancer
team members, and optimization of the delivery system, as well as for general corporate purposes.
Beyond Cancer will benefit from Beyond Air’s NO expertise, IP portfolio, preclinical oncology team, and regulatory progress, and will pay Beyond Air a single digit royalty
on all future revenues. Beyond Cancer will be led by a seasoned leadership team with experience in emerging healthcare companies and clinical oncology.
Selena Chaisson, MD, joined Beyond Cancer as Chief Executive Officer. Previously, Dr. Chaisson was the Director of Healthcare Investments at Bailard, where she spent
16 years focusing on highly specialized, emerging healthcare opportunities with more than one-third of her portfolio dedicated to investing in oncology companies. Prior to Bailard,
Dr. Chaisson held senior executive roles at RCM Capital Management and Tiger Management. RCM Capital Management was acquired and then merged with Allianz Global
Investors U.S. in 2013. Dr. Chaisson received a BS in microbiology in 1987 from Louisiana State University in Baton Rouge, LA, where she graduated summa cum laude. She earned
her MBA and MD from Stanford University in 1992 and 1993, respectively.
The Beyond Cancer Board of Directors consists of six members:
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Steve Lisi, Chairman of the Board, and CEO and Chairman of the Board of Beyond Air
Selena Chaisson, MD, Director, and Chief Executive Officer of Beyond Cancer
Amir Avniel, Executive Director, and COO and Co-Founder of Beyond Air
Robert Carey, Director, and Board Member of Beyond Air
David Dvorak, Director
Gregory Berk, M.D., Director
UNO has shown anticancer properties in preclinical trials by eliciting an immune response from the host. We have released this preclinical data at several
medical/scientific conferences showing the promise of delivering NO at concentrations of 20,000 ppm – 200,000 ppm directly to tumors. Results showed that local tumor ablation
with NO conveyed anti-tumor immunity to the host. We recently presented new in vivo and in vitro preclinical data at the American Association for Cancer Research ("AACR”)
Annual Meeting 2022. The in vivo study assessed the mode of action following a single 5-minute gaseous NO ("gNO”) treatment provided data showing an effect on the primary
tumor 14 days post treatment. These data showed that intratumoral injections of concentrations of gNO at 20,000 and 50,000 ppm led to increased recruitment of T cells, B cells,
macrophages and dendrocytes to the primary tumor. An elevated number of T cells and B cells were also detected in the spleen and blood 21 days following gNO treatment. In
addition, at the same timepoint, a marked reduction in the number of myeloid derived suppressor cells was seen in the spleen. Results from the in vitro study showed that exposure
of six different cancer cell lines – including human ovarian and pancreatic and mouse lung, melanoma, colon, and breast– to ultra-high concentrations of gNO ranging from 10,000
ppm to 100,000 ppm for up to 10 minutes resulted in a dose-dependent cytotoxic response. The higher concentration doses of gNO lead to near instant cell death, while the lower
concentration doses required a longer exposure period to elicit cell death. Cell viability was assessed using two assays: XTT and clonogenic assay. After one minute of exposure
to 25,000 ppm gNO, less than 10% viability was observed in all cell lines.
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COVID-19
The development of our product candidates and the commercialization of our approved product could be further disrupted and adversely affected by a resurgence of the
COVID-19 pandemic. We experienced significant delays in the supply chain for the LungFit® system due to the redundancy in parts and suppliers for ventilator manufacturing
which has since been remedied. We continuously assess the impact that COVID-19 may have on our business plans and our ability to conduct the preclinical studies and clinical
trials as well as on our reliance on third-party manufacturing and our supply chain. However, there can be no assurance that we will be able to avoid part or all of any impact from
COVID-19 or its consequences if a resurgence occurs.
Background and NO Mechanism of Action
NO is recognized as a vital molecule involved in many physiological and pathological processes. NO is naturally produced by the body’s immune system to provide a first
line of defense against invading pathogens. It is a powerful molecule with a short half-life of a few seconds in the blood, enabling it to be cleared rapidly from the body. NO has
been shown to play a critical role in the function of several body systems. For example, as vasodilator of smooth muscles, NO enhances blood flow and circulation. In addition, NO
is involved in regulation of a wound healing and immune responses to infection. The pharmacology, toxicity and other data for NO in humans is generally well known, and its use
has been approved by the FDA as a vasodilator. The precise effect of inhaled NO is dependent on concentration, oxidation state and type of pathogen.
NO has multiple immunoregulatory and antimicrobial functions that are likely to be of relevance to inhaled NO therapy. In vitro studies suggest that NO possesses anti-
microbial activity against common bacteria, gram positive and gram negative, as well as mycobacteria, fungi, yeast, parasites and helminths. It has the potential to eliminate multi-
drug resistant strains of the above. Anti-viral activity covers respiratory viruses such as influenza, corona viruses, RSV and others. In healthy humans, NO has been shown to
stimulate mucociliary clearance, and low levels of nasal NO correlate with impaired mucociliary function in the human upper airway. Unlike other inhaled drugs, NO is also a smooth
muscle relaxant and avoids the concomitant bronchial constriction often associated with inhaled antibiotics and mucolytics. A potential benefit of these multiple mechanisms may
be that in addition to treating lung infections in CF patients, this suggests that NO may be useful in directly treating the mucus caused by CF, which is the principal manifestation
of the disease.
Nitric Oxide and Infection
NO possesses broad-spectrum anti-microbial activity acting against bacteria, fungi and viruses. NO is produced at high output as part of the innate immune response. NO
and its by-products (for example, reactive nitrogen species, or RNS) are responsible for the process of killing microorganisms within white blood cells called macrophages and in
organs such as the lungs and other mucolytic tissues.
12
More than a decade ago, several research groups showed that NO and RNS possess anti-viral activity and affect several viruses including coxsackievirus, RSV, influenza,
severe acute respiratory syndrome, or SARS, coronavirus, rhinovirus, herpes simplex virus, Epstein-Barr virus, or EBV, and others. NO has also been shown to be useful in
preventing bacterial growth on surfaces.
Continuous exposure to 150 ppm NO and above, especially in the lungs, may have side effects and cause damage to host cells. Intermittent exposure to NO in cycles
retains NO anti-microbial activity both in vitro and in animal model of infection. Exposure of bacteria to concomitant 30-minute treatments with 160 ppm NO resulted in a significant
reduction in bacterial load. A similar dose has been shown to reduce viruses (common influenza) by 30-100% in a canine kidney infection model. In vivo, in a pneumonia model in
rats, inhaled 160 ppm NO, for 30 minutes, every 4 hours, resulted in significant reduction in bacteria counts in the lungs, without affecting the body’s defense mechanisms, and
without any other adverse effect. In addition, we believe a daily dose of 160 ppm of NO can treat bovine respiratory disease ("BRD”) in cattle.
Importantly, several studies report synergy between NO and antibiotic drugs. Adjunctive treatment combining NO together with inhaled tobramycin antibiotics or other
anti-microbial agents has been shown to greatly enhance the efficacy of the antibiotics in dispersing P. aeruginosa biofilms and to increase their ability to elicit anti-microbial
activity. These studies suggest that adjuvant treatment combining NO with antibiotics might have a beneficial role by reducing bacterial infectivity, and therefore reduce the
dependency on antibiotics.
Beyond Air Technology
We have developed the Beyond Air nitric oxide generator and delivery system which we call LungFit ®, a novel and precise delivery system that uses NO generated from
ambient air with a novel NO generator, the ionizer. Our system provides continuous monitoring and control of the gaseous content administered during intermittent and
continuous NO inhalation treatments, as well as a precise and reliable monitoring system that is able to monitor patient status and alert medical staff to any adverse effects.
The LungFit® system is innovatively designed to provide patients with a gaseous dose of NO (ranging from 0.5 ppm up to 400 ppm) combined with ambient air. The
gaseous blend is supplied to the patient via a ventilator, face mask, or similar apparatus. LungFit® is designed to minimize the time that NO is mixed with oxygen and air. The
system is also designed to continuously monitor inhaled NO concentration, NO2 concentration and oxygen. A dedicated screen allows for monitoring of the gas mixture. Further,
our approved product and product candidates resemble other inhalation systems, making them user friendly, with operation and maintenance that we believe will be immediately
familiar to medical staff. Our LungFit® system has been manufactured at commercial scale with a contract manufacturer.
When programmed for lung infections, the LungFit®, is designed to specifically deliver a NO dosage of 150 ppm and higher. We believe that the LungFit ® has a number
of advantages over other NO formulation delivery systems. For example, it is:
● optimized to deliver 150 ppm and higher of NO, whereas existing NO delivery systems on the market consist of a maximum deliverable NO concentration of 80
ppm;
● equipped with a monitoring system that continuously monitors system parameters (e.g., NO, NO2 and inhaled fraction of inspired oxygen ("FiO2”)
concentrations);
● capable of providing constant flow of NO, which we believe allows it to adequately cover the surface area of the lung to eliminate bacteria, viruses, fungi and
other microbes;
● programmable and able to deliver different dosage regimens for a wide range of lung infections;
● able to generate NO from ambient air, eliminating the need for the use of high-pressure cylinders;
● designed to be used by the patient, thus convenient and portable; and
● administered non-invasively through a facial mask, which has the potential to address severe infections in large, underserved chronic-care markets, such as CF
and COPD.
13
We believe that our solution has the potential for a number of additional benefits and opportunities, as follows:
● The antimicrobial and multiple other properties of the NO molecule delivered to the lungs suggest the potential for application in a wide range of respiratory
diseases. In contrast to the often arduous and slow drug discovery process for small molecules, proteins, peptides, etc., the use of NO in medicine is well-known,
and therefore the identification of conditions where NO provides benefits has been, and we expect will continue to be, much simpler, quicker and less costly.
● The FDA approved the use of NO as an inhaled drug for the treatment of pulmonary hypertension in newborns in 1999. More than 20 years of clinical experience
in the delivery, monitoring and understanding of NO in the clinical environment for vascular uses has been documented.
● NO is naturally produced by the immune system and acts as a first line of defense against infectious diseases. We believe therapeutic use of NO for viral and
bacterial co-infections would potentially improve the success of antimicrobial and anti-viral treatments by mimicking the body’s natural defense mechanism and
thereby directly reduce viral infectivity, as well as antibiotic drug resistant bacteria.
● NO is used naturally by the body for vasodilation and we believe that the benefits to patients with various medical conditions will be seen via vasodilation when
delivered with our system.
NitricGen License
On January 31, 2018, we entered into a definitive agreement to acquire a global, exclusive, perpetual, transferable license to the eNOGenerator and associated critical
assets including intellectual property, know-how, trade secrets and confidential information (the "License”) from NitricGen Inc. ("NitricGen”). The eNOGenerator is a novel and
precise delivery system that uses NO generated from ambient air with a novel NO generator.
The Beyond Air LungFit® system, which incorporates the eNOGenerator, has been designated as a medical device by the FDA. The eNOGenerator can generate NO on
demand for delivery to the lungs at concentrations ranging from 0.5 to 400 ppm. With the License, we expect that we will be able to target all conditions requiring NO at any
concentration, regardless of the need for intermittent or continuous dosing.
Under the terms of the License, we agreed to pay NitricGen an aggregate of $2 million in up-front, clinical, and regulatory milestone payments, with the majority pertaining
to regulatory milestones, as well as royalties on net sales of the delivery system containing the eNOGenerator at a percentage in the low-single digits. As partial consideration for
the License, we issued to NitricGen warrants to purchase 100,000 shares of our common stock at an exercise price of $6.90 per share. To date, $200 thousand has been paid for
milestones that were earned. The next milestone of $1.5 million became due to NitricGen upon approval by the FDA and is now payable within the next six months of the triggering
event.
Cystic Fibrosis Foundation Agreement
On February 10, 2021 we received a grant for up to $2.17 million from the CFF to advance the clinical development of high concentration NO for the treatment of
nontuberculous mycobacteria pulmonary disease, which disproportionally affects CF patients. Under the terms of the agreement, the funding will be allocated to the ongoing
LungFit® GO NTM pilot study. The Company met the second milestone and received a reimbursement of $425 thousand in the fiscal year ended March 31, 2022. The
reimbursement was recorded as an offset to research and development expenses for the year ended March 31, 2022.
14
Strategies
Our objective is to build a leading medical device and biopharmaceutical company that develops and commercializes patented and proprietary products for the treatment
of respiratory infections and diseases, with an initial focus on the treatment of PPHN, AVP, BRO, NTM and severe infections in COPD patients, among others. Additionally, we are
exploring the effects of NO on solid tumors. If our clinical trials for our product candidates are successful, we expect to seek certification or marketing approval from the FDA and
other worldwide authorities and notified regulatory bodies.
Our Clinical Results to Date
We have conducted several clinical trials to assess our ≥ 150 ppm NO inhalation-treatment in various indications. These trials include:
Date
2011
2013 – 2014
2013 – 2014
2016
2017
2017
2017-2018
2018
2019-2020
2020-2022
Study
Pilot Safety (n=10)
Proof of Concept ("POC”) double
blind randomized (n=43)
Pilot open label (n=9)
Compassionate use investigator
sponsored research ("ISR”) (n=2)
Compassionate use National
Institute of Health, US (n=1)
Pilot open label (n=9)
Pilot; double blind randomized
(n=68)
Compassionate use ISR (n=1)
Pilot; double blind randomized
(n=87)
Indication
All comers
Bronchiolitis (due to any
virus)
Cystic Fibrosis (CF)
NTM abscessus (CF)
Primary
Safety
Safety & Efficacy
Results
No SAEs
No SAEs; 24 hour reduction in hospital length of stay
Safety & Efficacy
Safety & Efficacy
No SAEs; Lowered bacterial load
No SAEs; clinical & surrogate endpoints improved
NTM abscessus (CF)
Safety & Efficacy
No SAEs; Improvements in clinical endpoints
NTM abscessus
Bronchiolitis (due to any
virus)
NTM abscessus (CF)
Bronchiolitis (due to any
virus)
Safety & Efficacy
Safety & Efficacy
No SAEs; clinical & surrogate endpoints improved
No SAEs; 27 hour reduction in hospital length of stay
Safety
Safety & Efficacy
No SAEs at 250 ppm NO dose
No SAEs; 150 ppm treatment showed statistically
significant improvements in primary and key secondary
endpoints compared to both 85 ppm and control
No SAEs related to treatment; 150 ppm NO showed
statistically significant improvement in duration of
Pilot; randomized, controlled
(n=35)
CAVP (due to any virus,
including COVID-19)
Safety & Efficacy
2020-2022
Pilot open label (n=15)
NTM (all strains)
Safety & Efficacy
2021-2022
Pilot; randomized, controlled
(n=101)
Bronchiolitis Long Term
Follow-up
Safety
15
oxygen use
All patients titrated to 250 ppm NO with no treatment
related discontinuations during 11+ weeks of self-
administration at home; Improvements in QoL
Favorable long term safety profile based on re-
hospitalization rate
Cystic Fibrosis and NTM Clinical Development
In 2011, a prospective, open label, controlled, single-center pilot safety study was conducted on ten healthy adults between 20 and 62 years of age. The data were
published in the Journal of Cystic Fibrosis in 2012. Subjects received 160 ppm NO for 30 minutes, five times a day, for five consecutive days via direct inhalation to the lungs using
a prototype delivery system. The primary objective of the study was to determine the effect of inhaled 160 ppm NO on pulmonary function tests and characterize the relationship
between high-concentration NO administration and MetHb – a form of hemoglobin that is a biproduct of NO and hemoglobin that cannot bind oxygen – and establish a MetHb
safety threshold level to assess adverse events associated with the treatment. Secondary objectives of the study were to assess the changes in cytokine levels. Multiple safety
markers were continuously monitored including: NO levels, NO2 (a biproduct of NO and O2 that can be toxic at high concentrations), FiO2, as well as MetHb and oxygen saturation
("SaO2”). Vital signs, lung function, blood chemistry (including nitrite/nitrates), hematology, prothrombin time, inflammatory cytokine/chemokines levels and endothelial activation
(angiopoietin ratio) were also closely monitored. All individuals tolerated the NO formulation treatment courses well. No significant adverse events occurred. The maximum amount
of air one can forcefully exhale in one second, known as forced expiratory volume in one second ("FEV1”) and other lung function parameters, serum nitrites/nitrates, prothrombin,
pro-inflammatory cytokine and chemokine levels did not differ between baseline and day five, while MetHb increased during the study period by an average of 0.9%, as expected.
These data suggest that inhalation of 160 ppm NO for 30 minutes, five times a day, for five consecutive days is well tolerated in healthy individuals.
In 2014, we completed a pilot open label, multi-center study in nine CF patients (≥10 years old). Patients received intermittent (30 minutes, three times a day) inhalation of
160 ppm NO formulation, five days a week, over a two-week period. The study was performed in two centers, Soroka Medical Center and Schneider Children’s Medical Center of
Israel. The primary endpoints of the study were to determine the MetHb percentage, adverse events associated with inhaled NO and the percentage of subjects who prematurely
discontinued the study due to adverse events ("AEs”) and/or severe adverse events ("SAEs”), or for any other reason. AEs were reported by five (55.5%) subjects. There were no
SAEs related to NO therapy, no treatment-related withdrawals due to AEs, and no deaths. AEs considered by the investigator as possibly or probably related to treatment were
reported for two (22.2%) subjects. There were no AEs of MetHb elevation >5% or NO 2 elevation >5 ppm (study safety threshold of MetHb and NO2, respectively). In total, seven
cases of hemoptysis were reported in two subjects and all events were mild in severity. There was no cumulative effect of MetHb exposure during the study. The maximum MetHb
level reported was 4.6%. Several secondary efficacy analyses were conducted in this study, and though the study was not powered for efficacy, results show various positive
effects of the treatment regime. Bacterial and fungal sputum load analysis results were highly variable, though marked reductions of MSSA, Achromabacter, P. aeruginosa, and
Aspergillus were seen in several subjects. These results suggest non-specific targeting of bacteria and fungi that commonly manifest in CF patients. In subjects with systemic
inflammation (CRP >5 mg/mL) at baseline, CRP levels decreased over the treatment period, showing the effect of NO in the reduction of systemic inflammation. There were no
statistically significant or clinically relevant changes in FEV1 over time, and lung function indices also remained relatively constant throughout the study duration.
In 2016, Rambam healthcare campus in Israel conducted a compassionate use treatment for two patients with CF who suffer from M, abscessus lung infections. The data
were published in the Pediatric Infectious Disease Journal in 2017. The NO treatment regime, as well as the device for this treatment, was supplied by BA Ltd. our wholly owned
subsidiary. Patients received intermittent 30-minute treatments of 160 ppm NO, with two different regimes including hospitalization (5 times a day) and ambulatory treatment (2-3
inhalations a day). Treatment was well tolerated with no evidence of any serious side effects. We observed significant improvement in sputum production (up to 5-10 time more
sputum), and subjective improvement in the well-being of both patients. Significant reduction in systemic inflammation was observed in the first patient, as observed by reduction
of CRP (C-reactive protein, a systemic inflammation marker that rises in response to inflammation) levels during treatment. In addition, the first patient had a 2 log (100-fold)
reduction in M. abscessus during treatment (an effect that was lost after the treatment regime changed to ambulatory). The second patient showed a significant increase in the 6-
minute walk ("6MW”) test and the sputum culture became negative, which is consistent with eradication of M. abscessus. Further information is needed, but we believe these
results suggest that the treatment of M. abscessus with high-concentration inhaled NO is effective.
16
In 2017, we treated one patient with CF who suffered from NTM infections (specifically, M. abscessus) under compassionate use in the United Sates at the National Heart,
Lung and Blood Institute with our generator based NO delivery system. The patient saw improvements in 6MW, FEV1, most Quality of Life measures and had no SAEs. The
bacteria was not eradicated. The patient requested to be treated again and this treatment was commenced in February 2018. A total of 38 treatments were administered over 8 days,
29 of them at a concentration of 240 ppm, with no SAEs believed to be related to NO reported.
Additionally in 2017, we completed a single-arm, open-label Pilot trial in nine patients with M. abcessus lung disease, who were refractory to standard-of-care. The patients
were treated with inhaled NO at a concentration of 160 ppm for 30 minutes, in addition to treatment with standard-of-care. Our inhaled NO treatment was administered intermittently
five times per day over a 14-day period, followed by a seven-day period with three treatments per day. The primary endpoint of safety, as measured by NO-related SAEs, over the
21-day treatment period was met with no SAEs reported. Secondary endpoints of a 6MW test FEV1, Quality of Life and M. abscessus load in sputum all trended positively. 6MW
showed an increase of >40 meters at the end of treatment at day 21 versus baseline and an increase of >25 meters on day 81 (60 days after the cessation of therapy). The mean
percentage change in FEV1 at day 21 and day 51 (30 days after the cessation of treatment) was > 3.5% with FEV1 returning to baseline at day 81 (60 days after the cessation of
therapy). At day 81 (60 days after the cessation of therapy) bacterial load was 65% lower than baseline. 1 of 9 patients saw culture conversion. This study was published in the
Journal of Cystic Fibrosis in 2019.
In 2018, an additional CF patient infected with M. abscessus was treated over a 4-week period with 76 of 84 treatments at 250 ppm NO in Israel at Soroka Medical Center.
The patient saw improvements in 6MW, FEV1 and most Quality of Life measures. The bacteria was not eradicated. Importantly, there were no SAE’s reported and all treatments
were completed without incident.
CAVP and BRO Clinical Development
In 2014, we completed a double blind, randomized Pilot study for infants with bronchiolitis (n=43) for which the data were published in the Pediatric Pulmonology Journal
in 2017. The study was performed at Soroka University Medical Center in Israel. Forty-three infants between the ages of two to 12 months diagnosed with bronchiolitis were
randomly assigned to either the treatment group or the control group. The treatment group comprised 21 subjects who received intermittent (30 minutes, five times a day) inhalation
of 160 ppm NO formulation, in addition to supportive O2 treatment for up to five days. The control group, 22 subjects, received ongoing inhalation of the supportive O2 treatment.
Primary endpoints included determination of the MetHb levels, adverse events associated with the inhaled NO formulation and proportion of subjects who prematurely
discontinued the study. Baseline clinical score, indicating disease severity at screening, was similar between treatment groups (~8). Results were encouraging, with similar overall
incidence of AEs between the treatment groups. Out of 43 patients, 39 (~90%) completed the study per protocol ("PP”), with similar percentages (90%) for both the control and the
treatment groups, individually. Only one subject from the treatment group discontinued treatment due to an adverse event, namely – repeated MetHb levels above 5%. Adverse
events were reported by 23 (53.5%) subjects overall, with ten (47.6%) subjects in the NO group reporting a total of 22 AEs, and 13 (59.1%) subjects in the control group reporting a
total of 22 AEs. Serious adverse events were reported by four (19.0%) subjects in the NO group and four (18.2%) in the standard treatment group. There were no treatment-related
SAEs in the NO treatment group.
In the NO group, six (28.6%) subjects had any MetHb measurement >5% during the study treatment period, and three of these subjects had more than one MetHb >5%.
The maximum MetHb level was 5.6% in one subject in the NO group. There was no cumulative effect of MetHb exposure during the study. The MetHb levels in this study were
defined to <5% as a safety measure, though previous findings have shown that higher levels (6.4%) are non-toxic in children. Secondary and exploratory analyses were performed,
and results show positive impact of the treatment regime. In a subgroup of subjects that stayed at the hospital at least 24 hours (Length of Stay ("LOS”) >24 hours), a statistically
significant treatment benefit of NO versus standard treatment was demonstrated. Mean results for subjects with LOS > 24 hours show that LOS was shortened by approximately
34% in the NO group compared to the standard treatment group, with a one-day difference between the groups (PP, N=24). Time to normal oxygenation ((SaO2 of 92%) was
shortened by approximately 44% (27.75 hours) in the NO group compared to the standard treatment group (PP, N=24). An 80% improvement in time to clinical score (indicating
improvement in disease severity) and time to normal oxygenation (92%) was observed in favor of the NO group (PP, N=24).
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In 2018 we completed a second pilot study in bronchiolitis in 6 centers in Israel. The data were published in Nature in 2020. The prospective, randomized, double-blind,
controlled pilot study enrolled 67 patients, aged 0-12 months, who were hospitalized due to bronchiolitis. The patients received either standard of care ("SOC”) (typically oxygen
and hydration) or SOC plus inhaled NO at a concentration of 160 ppm for 30 minutes 5 times per day for up to 5 days. The primary endpoint of hospital LOS was met with a 26.7-
hour reduction in hospital length of stay demonstrated (p=0.04). Secondary endpoints of time required to achieve a clinical score of 5 or less on the modified Tal score and time
required to achieve oxygen saturation (SaO2) of 92% or greater showed improvement versus the standard-of-care. There were no issues with NO2 or MetHb and no SAEs were
recorded.
In 2020 we completed a third pilot study in bronchiolitis in 8 centers in Israel and presented the data at CHEST Annual Meeting 2020. The prospective, randomized,
double-blind, controlled pilot study enrolled 89 patients (ITT n=87), aged 0-12 months, who were hospitalized due to bronchiolitis. The patients were randomized 1:1:1 to receive
either SOC (typically oxygen and hydration) or SOC plus inhaled NO at 85 ppm or SOC plus inhaled NO at 150 ppm for 40 minutes 4 times per day for up to 5 days. There were no
SAEs related to NO therapy. Efficacy results are shown in the table below.
Fit for Discharge
Hospital Length of Stay (LOS)
Oxygen Saturation of > 92%
150 ppm vs. 85 ppm
Hazard Ratio (p-value)
2.11 (0.041)
2.01 (0.046)
2.15 (0.056)
150 ppm vs. SST
Hazard Ratio (p-value)
2.32 (0.049)
2.28 (0.043)
2.62 (0.039)
We plan to seek certification or regulatory approval for our remaining current product candidates and, if approved, we expect they will be marketed as medical devices.
If we reach the commercialization stage for any of our remaining product candidates, we expect that we will collaborate with companies outside the U.S. for all indications.
We are still determining whether to attempt to collaborate for any indication in the U.S. We are commercializing LungFit ® PH for PPHN in the U.S. ourselves and expect to partner
with third-parties to commercialize LungFit® PH outside the U.S.
Our Pre-Clinical Results to Date
We have completed 4 separate toxicology studies in animals.
● Rats: 30 days of intermittent treatments with LungFit® at 400 ppm NO showed no observations (differences) between control rats and treated rats on observation during
the treatment period prior to sacrifice and no observations on histopathology
● Rats: 12 weeks of intermittent treatments with LungFit® at 250 ppm NO showed no observations (differences) between control rats and treated rats on observation during
the treatment period prior to sacrifice and no observations on histopathology
● Dogs: 12 weeks of intermittent treatments with LungFit® at 250 ppm NO showed no observations (differences) between control dogs and treated dogs on observation
during the treatment period prior to sacrifice and no observations on histopathology
● Rats: Geno toxicology study of intermittent with LungFit® NO at 200 – 400 ppm showed a non-genotoxic response at all concentrations
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Competition
The biotechnology, pharmaceutical and medical device industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, medical
device companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to our approved
product or product candidates. We are aware of several companies currently developing and selling NO therapies for various indications such as pulmonary hypertension. For
example, Mallinckrodt Pharmaceuticals ("Mallinckrodt”) commercializes INOMAX® (nitric oxide) for inhalation, which is approved for use to treat newborns suffering from HRF-
PPHN, in the U.S., Canada, Australia, Mexico and Japan. Praxair markets a generic version of the Mallinckrodt offering with their delivery system called NOxBOX®, acquired from
Bedfont, in the United States. The Linde Group has marketing rights to INOMAX® in Europe. Air Liquide sells a similar product in Europe, called VasoKINOX™, together with
their delivery platform called OptiKINOX™, for the treatment of pulmonary hypertension that occurs during or after heart surgery. In Europe, Bedfont Scientific Ltd. has a delivery
system called NOxBOX® and Air Products PLC has a gas product called NOXAP®, each used in delivering inhaled NO formulations. Bellerophon Therapeutics is developing NO-
based products for pulmonary arterial hypertension ("PAH”) and pulmonary hypertension associated with COPD. VERO Biotech LLC (formerly known as Geno LLC) received FDA
approval for their delivery system GENOSYL DS for PPHN in 2019. In addition, other companies may be developing generic NO formulation delivery systems for various dosages.
Ceretec, Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market a NO gas product for use in membrane diffusing capacity
testing in pulmonary function laboratories in the U.S. Novoteris, LLC previously received orphan drug designation from the FDA and the European Medicines Agency ("EMA”)
for the use of inhaled NO-based treatments in treating CF. SaNOtize has an NO nasal spray that has received approval in India for preventing COVID-19 after high-risk exposure.
Third Pole has reported that they are developing a NO generator and delivery system for use in PPHN and PAH, but we are not aware of any display of any product at any
medical/scientific conference in recent years. Our patents surrounding LungFit® have priority date over those of Third Pole.
Some of our competitors, either alone or through their strategic partners, might have substantially greater name recognition and financial, technical, manufacturing,
marketing and human resources than we do and greater experience and infrastructure in the research and clinical development of pharmaceutical products, obtaining FDA and
other regulatory approvals of those products and commercializing those products around the world.
We have contracted with third-party contract manufacturers, Spartronics LLC ("Spartronics”), and Medisize Ireland Limited ("Medisize”) who have completed a
substantial portion of the commercial manufacturing process for our LungFit® PH system. In addition, we will be reliant on our partners for commercial manufacture of our systems
for both clinical studies and commercial supply.
Intellectual Property
We own or have exclusively licensed patents, pending patent applications, know-how and trade secrets that relate to our NO generator, NO2 filtration, delivery systems,
devices configured for delivering NO to patients by inhalation, methods of exposing patients to inhalation of NO, and methods for treating subjects in need of NO inhalation.
In particular, we are party to a global, exclusive, transferable license agreement with NitricGen, Inc. for the eNOGenerator, its components, and all associated patents and
know how related thereto. Additionally, we have a broad intellectual property portfolio directed to our product candidates and mode of delivery, monitoring parameters and
methods of treating specific disease indications. Our intellectual property portfolio consists of issued patents and pending applications, which includes patents we acquired
pursuant to the exercise of an option in 2017 granted to us by Pulmonox Technologies Corporation ("Pulmonox”).
CareFusion Non-Exclusive License Agreement. In October 2013, we entered into a non-exclusive worldwide license agreement with CareFusion, whereby we licensed
seven issued U.S. patents and corresponding foreign counterparts. Our intellectual property licensed from CareFusion, for which the earliest expiring patent term was 2019 and the
last to expire is 2025. The term of the agreement extends through the life of the patents and may be terminated by either party with 60 days’ prior written notice in the event of a
breach of the agreement, and may be terminated unilaterally by CareFusion with 30 days’ prior written notice in the event that we do not meet certain milestones. Pursuant to the
agreement, we are required to pay CareFusion royalty payments of 5% of the net sales of a covered licensed product by the Company and an annual fee of $50 thousand, which is
creditable against the royalty payments for the respective year.
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Pulmonox Patents and Assets - Option to Acquire. On August 31, 2015, we entered into an agreement with Pulmonox (the "Option Agreement”) whereby we acquired the
option to purchase certain intellectual property assets, including Pulmonox’s rights in 17 issued U.S. patents, including eight patents jointly owned with CareFusion which are
directed to:
● devices and methods for delivering NO formulations to a patient at steady and alternating concentrations (80-400 ppm), including intermittent delivery of
NO;
● a device and methods for treatment of surface infections; and
● use of NO as a mucolytic agent and for treatment and disinfection of biofilms.
We exercised the Option in January 2017, acquiring Pulmonox’s rights in the patents described above. Upon exercise of the Option, we became obligated to make certain
one-time development and sales milestone payments to Pulmonox, commencing with the date on which we receive regulatory approval for the commercial sale of the first product
candidate qualifying under the agreement. These milestone payments are almost entirely sales-related and are capped at a total of $87 million across three separate and distinct
indications that fall under the agreement with the majority of them, approximately $83 million, being sales-related based on cumulative sales milestones for each of the three
products. In addition, the Company issued a fully vested warrant to purchase up to 178,570 shares of our common stock at an exercise price of $4.80 per share for each share of
common stock. On May 10, 2018, we issued to Pulmonox, an additional fully vested warrant to purchase up to 29,763 shares of our common stock at an exercise price of $4.80 per
share.
Patent Applications. We have filed over 35 US and foreign patents and patent applications, including Patent Corporation Treaty ("PCT”) patent applications.
A PCT patent application is a filing under the Patent Cooperation Treaty to which the U.S. and a number of other countries are a party. It provides a unified procedure for
filing a single patent application to protect inventions in those countries. A search with respect to the application is conducted by the International Searching Authority,
accompanied by a written opinion regarding the patentability of the invention. A PCT application does not itself result in the grant of a patent, and the grant of patent is a
prerogative of each national or regional authority where the PCT application is filed during national phase filings.
Settlement Agreement
On January 23, 2019, we entered into an agreement for commercial rights (the "Circassia Agreement”) with Circassia Limited and its affiliates (collectively, "Circassia”) for
PPHN and future related indications at concentrations of < 80 ppm in the hospital setting in the United States and China. On December 18, 2019, we terminated the Circassia
Agreement. Circassia contended that the termination was wrongful.
On May 25, 2021, we and Circassia Limited entered into a Settlement Agreement resolving all claims by and between both parties and mutually terminating the Circassia
agreement disclosed in Note 10 of the consolidated financial statements included in this Annual Report. Pursuant to the terms of the Settlement Agreement, we agreed to pay
Circassia $10.5 million in three installments, the first being a payment of $2.5 million to Circassia within fifteen (15) days following FDA approval of the LungFit® PH (the "Initial
Payment Due Date”). Thereafter, we shall pay $3.5 million to Circassia on the first anniversary of the Initial Payment Due Date and $4.5 million on the second anniversary of the
Initial Payment Due Date. Additionally, beginning in year three post-approval, Circassia will receive a quarterly royalty payment equal to 5% of LungFit ® PH net sales in the U.S.
This royalty will terminate once the aggregate payment reaches $6 million. $10.5 million was accrued as a liability as of March 31, 2022 when management deemed the approval of
LungFit® PH by the FDA was probable. FDA approval was received on June 28, 2022.
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Government Regulation
U.S. Regulation. In the U.S., the FDA regulates drug and medical device products under the Federal Food, Drug, and Cosmetic Act ("FD&C Act - The Act”), and its
implementing regulations. Our products have been designated as devices by the FDA and will be regulated by the Center for Devices and Radiological Health (CDRH). Given that
currently approved NO products and delivery systems were approved either separately (NO drug approval and NO delivery systems cleared as devices) or as drug-device
combinations in the United States, we expect our device to not only be reviewed by CDRH, but also have input from the Center for Drug Evaluation and Research ("CDER”).
FDA Premarket Clearance and Approval Requirements for Medical Devices. Unless an exemption applies, each medical device commercially distributed in the United
States requires either FDA clearance of a 510(k) premarket notification, approval of a de novo application, or approval of a premarket approval ("PMA”) application. Under the
FFDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent
of manufacturer and regulatory control needed to ensure its safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and
effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the Quality System
Regulation (QSR) facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials.
Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These
special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents.
While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a
premarket notification under Section 510(k) of the FFDCA requesting permission to commercially distribute the device. The FDA’s permission to commercially distribute a device
subject to a 510(k) premarket notification is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting or
some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed
in Class III, requiring approval of a PMA. Some pre-amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be
commercially distributed.
510(k) Clearance Marketing Pathway. To obtain 510(k) clearance, a company must submit to the FDA a premarket notification submission demonstrating that the
proposed device is "substantially equivalent” to a predicate device already on the market. A predicate device is a legally marketed device that is not subject to PMA, i.e., a device
that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a
device that was found substantially equivalent through the 510(k) process. The FDA’s 510(k) clearance process usually takes from three to twelve months, but often takes longer.
The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence. In addition, the FDA collects user fees for certain
medical device submissions and annual fees for medical device establishments.
If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device.
If the FDA determines that the device is "not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device. The device
sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the "de novo” process, which
is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.
After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or
modification in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval. The FDA requires each manufacturer to determine whether
the proposed change requires submission of a 510(k) or a PMA in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. If
the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k)
marketing clearance or PMA approval is obtained. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.
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PMA Approval Pathway. Class III devices require approval of a PMA before they can be marketed, although some pre-amendment Class III devices for which the FDA
has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. In a PMA application, the
manufacturer must demonstrate that the device is safe and effective, and the PMA application must be supported by extensive data, including data from preclinical studies and
human clinical trials. The PMA application must also contain a full description of the device and its components, a full description of the methods, facilities, and controls used for
manufacturing, and proposed labeling. Following receipt of a PMA application, the FDA determines whether the application is sufficiently complete to permit a substantive review.
If the FDA accepts the application for review, it has 180 days under the FFDCA to complete its review of a PMA application, although in practice, the FDA’s review often takes
significantly longer, and can take up to several years. An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide
recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a pre-
approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR. PMA devices are also
subject to the payment of user fees.
The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA application constitute valid scientific evidence
and that there is reasonable assurance that the device is safe and effective for its intended use(s). A PMA may include post-approval conditions intended to ensure the safety and
effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the
clinical study that supported the PMA or requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market
surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those
patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance
specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement. PMA supplements often require submission of the same type of
information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as
extensive clinical data or the convening of an advisory panel. Certain other changes to an approved device require the submission of a new PMA, such as when the design change
causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be
developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness. None of
our products are currently marketed pursuant to a PMA.
On November 10, 2020 we submitted a PMA application to the FDA for the use of LungFit® PH in PPHN and subsequently received PMA approval in June 2022.
De-Novo Pathway. Another pathway, known as de-novo down-classification also can be used for lower risk devices for which there is no existing product code or
predicate device. The Food and Drug Administration Modernization Act of 1997 established the de-novo down-classification procedure as a new route to market for low to
moderate risk medical devices that automatically require a PMA due to the absence of a predicate device. This procedure allows a manufacturer whose novel device automatically
requires a PMA to request down-classification of its medical device (to allow clearance through the 510(k) pathway) on the basis that the device presents low or moderate risk,
rather than requiring the submission and approval of a PMA application. Manufacturers can request de-novo down-classification directly without first submitting a 510(k)
premarket notification to the FDA and receiving a "not substantially equivalent” determination. Under this pathway, the FDA is required to classify the device within 120 days
following receipt of the de-novo application. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are
necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. In addition, the FDA may reject the reclassification petition if it identifies a
legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk or that general controls would be inadequate to
control the risks and special controls cannot be developed.
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Clinical Trials. Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission. All clinical investigations of
devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion
of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a
"significant risk,” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to
commencing human clinical trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used
in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or
otherwise presents a potential for serious risk to a subject. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is
safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA
notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the
FDA may permit a clinical trial to proceed under a conditional approval.
In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board (IRB) for each clinical site. The IRB is responsible for
the initial and continuing review of the IDE study, and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or
more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-
significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still
follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements.
Acceptance of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, the FDA may or may not
determine that the data derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials. An IDE supplement must be
submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the
rights, safety or welfare of human subjects.
During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and
providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on
making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA regulations and must obtain patient informed consent,
rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements.
Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects
outweigh the anticipated benefits.
Post-market Regulation. After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:
● establishment registration and device listing with the FDA;
● QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality
assurance procedures during all aspects of the design and manufacturing process;
● labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of ‘‘off-label’’ uses of cleared or approved products;
● requirements related to promotional activities;
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● clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change
in intended use of one of our cleared devices, or approval of certain modifications to PMA-approved devices;
● medical device reporting regulations which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to death or serious
injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction
were to recur.
● correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if
undertaken to reduce a risk to health posed by the device or to remedy a violation of the FFDCA that may present a risk to health;
● the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and
regulations; and
● post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety
and effectiveness data for the device.
The manufacturing processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls
for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for
human use. The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files. These requirements impose certain procedural
and documentation requirements upon us and our third-party manufacturers related to the methods used in and the facilities and controls used for designing, manufacturing,
packaging, labeling, storing, medical devices. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA. Following these inspections, the
FDA may assert noncompliance with QSR requirements on a Form 483, which is a report of observations from an inspection, or by way of "untitled letters” or "warning letters” that
could cause us or any third-party manufacturers to modify certain activities. A Form 483 notice, if issued at the conclusion of an FDA inspection, can list conditions the FDA
investigators believe may have violated QSR or other FDA requirements. We cannot be certain that we or our present or any future third-party manufacturers or suppliers will be
able to comply with QSR or other FDA regulatory requirements to the agency’s satisfaction. Failure to comply with these obligations may lead to possible legal or regulatory
enforcement action by the FDA.
The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that we failed to comply with applicable regulatory requirements, it can take a
variety of compliance or enforcement actions, which may result in any of the following sanctions:
● untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
● unanticipated expenditures to address or defend such actions;
● customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;
● operating restrictions, partial suspension or total shutdown of production;
● refusing or delaying our requests for regulatory approvals or clearances of new products or modified products;
● withdrawing a PMA that has already been granted;
● refusal to grant export approval for our products; or
● criminal prosecution.
Advertising and Promotion. The FDA and comparable foreign regulatory authorities closely regulate the post-approval marketing and promotion of medical devices,
including standards and regulations for direct-to-consumer advertising, communications about unapproved uses, industry- sponsored scientific and educational activities and
promotional activities involving the internet. Devices may be marketed only for the approved or cleared indications and in accordance with the provisions of the approved or
cleared label.
Healthcare providers are permitted to prescribe approved devices for "off-label” uses—that is, uses not approved by the FDA and therefore not described in the
product’s labeling. These off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied
circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’
communications regarding off-label use. Thus, we may market our products, if approved by the FDA, only for their approved indications, but under certain conditions may engage
in non-promotional, balanced communication regarding off-label uses. Failure to comply with applicable FDA requirements and restrictions in this area may subject us to adverse
publicity and a variety of sanctions, which could harm our business and financial condition.
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Combination Products. A combination product is the combination of two or more regulated components, i.e., drug/device, biologic/device, drug/biologic, or
drug/device/biologic, that are combined or mixed and produced as a single entity; packaged together in a single package or as a unit; or a drug, device, or biological product
packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device, or biological
product where both are required to achieve the intended use, indication, or effect.
To determine which FDA center or centers will review a combination product candidate submission, companies may submit a request for assignment to the FDA. Those
requests may be handled formally or informally. In some cases, jurisdiction may be determined informally based on FDA experience with similar products. However, informal
jurisdictional determinations are not binding on the FDA. Companies also may submit a formal Request for Designation to the FDA Office of Combination Products. The Office of
Combination Products will review the request and make its jurisdictional determination within 60 days of receiving a Request for Designation.
FDA will determine which center or centers within the FDA will review the product candidate and under what legal authority the product candidate will be reviewed.
Depending on how the FDA views the product candidates that are developed, the FDA may have aspects of the product candidate reviewed by CBER, CDRH, or CDER, though
one center will be designated as the center with primary jurisdiction, based on the product candidate’s primary mode of action. The FDA determines the primary mode of action
based on the single mode of action that provides the most important therapeutic action of the combination product candidate – the mode of action expected to make the greatest
contribution to the overall intended therapeutic effects of the combination product candidate. The review of such combination product candidates is often complex and time
consuming, as the FDA may select the combination product candidate to be reviewed and regulated by one or multiple of the FDA centers identified above, which could affect the
path to regulatory clearance or approval. Furthermore, the FDA may also require submission of separate applications to multiple centers.
The post-market requirements that apply to the cleared or approved product will largely be aligned with the agency center determined to have primary jurisdiction over the
product candidate and that provided marketing authorization, but manufacturers must also comply with certain post-market requirements with respect to the constituent parts of
combination products. In April 2019, FDA published a final guidance document entitled Compliance Policy for Combination Product Post-Marketing Safety Reporting, which is
intended to assist manufacturers of combination products comply with reporting requirements applicable to such products.
After issuing marketing authorizations, the FDA has discretion in determining post-approval compliance requirements for combination products. The FDA has also
promulgated regulations pertaining to compliance with certain current good manufacturing practices ("cGMP”) requirements for drug components as well as QSR requirements for
device constituents of a combination product. Other post-market requirements in the same vein as those described above for medical devices and drugs will also apply, depending
on the application type and center overseeing regulation of the combination product, including:
● Other record-keeping requirements;
● Post-market adverse event and Medical Device Reporting requirements;
● Labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses;
● Advertising and promotion requirements;
● Restrictions on sale, distribution or use of the product;
● Requirements for recalls being conducted and recall reporting;
● An order of repair, replacement or refund;
● Product tracking requirements; and
● Post-market surveillance or clinical trials.
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Coverage and Reimbursement. Coverage and reimbursement for medical devices in the U.S. is determined by third-party payors, including Medicare and Medicaid,
commercial health insurers, and managed care organizations. Each payor has a unique process for determining whether to cover a device for a particular indication and how to set
reimbursement rates for the device. A payor can decide to cover a device yet not provide adequate reimbursement to ensure access to the device. New devices often face
significant uncertainty about coverage and reimbursement. Payors may require additional evidence, beyond the data required for FDA approval, to demonstrate that a device
should be covered for a particular indication or that it should be reimbursed at a higher rate than other technologies. In addition, health care spending continues to be a concern for
federal and state governments, as well as for commercial payors. Governments continue to debate methods of controlling health care costs, including reductions in reimbursement
or additional controls on utilization of new technologies in Medicare and Medicaid, and commercial payors may similarly seek to limit spending on new devices. Restrictions on
coverage and reimbursement could harm our future revenues and ability to realize an appropriate return on our investment.
Orphan Drug Designation and Exclusivity. Under the Orphan Drug Act, the FDA may grant orphan drug designation to products that are intended to treat rare diseases
or conditions (i.e., those affecting fewer than 200,000 individuals in the U.S.), or diseases or conditions that affect more than 200,000 individuals in the U.S. but there is no
reasonable expectation that the cost of developing and making the drug product would be recovered from sales in the U.S. Although orphan drug designation does not convey
any advantage in the regulatory review and approval process, it can provide certain tax benefits and access to certain grants. Additionally, FDA user fees, which can be
substantial, are waived for products that obtain orphan drug designation. Further, if a product with orphan drug designation subsequently receives FDA approval for the
designated disease or condition, the product is generally granted seven years of orphan drug exclusivity, which (with certain limited exceptions) blocks for seven years FDA
approval of another product with the same active ingredient for the same indication. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the
same disease or condition, or the same drug for a different disease or condition.
Healthcare Fraud and Abuse Laws. In addition to the FDA’s ongoing post-approval regulation of devices discussed above, manufacturers are also subject to several
other types of laws and regulations, subject to differing enforcement regimes. In recent years, marketing and promotional activities regarding FDA-regulated products have come
under intense scrutiny and have been the subject of enforcement action brought by the Department of Justice and the Office of Inspector General of the Department of Health and
Human Services, as well as state authorities and even private individuals.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and selection of medical devices for patients. Arrangements with third-
party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state
healthcare laws and regulations include the following:
● The federal health care program Anti-Kickback Statute ("AKS”) prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of
any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. This statute has been
interpreted to apply to arrangements between pharmaceutical or device manufacturers, on the one hand, and prescribers, purchasers and formulary managers and
others on the other. The term "remuneration” has been broadly interpreted to apply to anything of value including, for example, gifts, cash payments, donations,
waivers of payment, ownership interests, and providing any item, service, or compensation for something other than fair market value. Liability under the AKS may be
established without proving actual knowledge of the statute or specific intent to violate it. Although there are a number of statutory exceptions and regulatory safe
harbors to the AKS protecting certain common business arrangements and activities from prosecution or regulatory sanctions, the exceptions and safe harbors are
drawn narrowly. Practices that involve remuneration to those who prescribe, purchase, or recommend medical device products, including certain discounts, or
engaging such individuals as consultants, advisors and speakers, may be subject to scrutiny if they do not fit squarely within an exception or safe harbor. Moreover,
there are no safe harbors for many common practices, such as educational grants and reimbursement support programs. Violations are punishable by up to 10 years in
prison, criminal fines, administrative civil monetary penalties and exclusion from participation in federal healthcare programs. Any sales or marketing practices that
involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny under the AKS;
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● the federal civil False Claims Act ("FCA”) imposes liability on individuals or entities for, among other things, knowingly presenting, or causing to be presented, false
or fraudulent, claims for payment of government funds, knowingly making, using, or causing to be made or used a false statement or record material to an obligation
to pay money to the government, or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal
government. A claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA. Actions under
the FCA may be brought by the government or as a qui tam action by a private individual in the name of the government, who may also share in any monetary
recovery. Qui tam actions are filed under seal and impose a mandatory duty on the U.S. Department of Justice to investigate such allegations. Manufacturers have
faced liability under the FCA for providing inaccurate billing or coding information to customers or promoting a product off-label. FCA liability is potentially
significant in the healthcare industry because the statute provides for treble damages and significant mandatory penalties per false or fraudulent claim or statement
for violations, as well as exclusion from participation in federal healthcare programs;
● the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, and
their respective implementing regulations (collectively, "HIPA”), imposes criminal and civil liability for, among other things, knowingly and willfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or knowingly and willfully falsifying, concealing, or
covering up a material fact or making any materially false, fictitious, or fraudulent statement or representation, or using any false writing or document knowing the
same to contain any materially false, fictitious, or fraudulent statement or entry, in connection with the delivery of or payment for healthcare benefits, items, or
services;
● the federal Physician Payments Sunshine Act requires applicable manufacturers of devices, biologics and medical supplies for which payment is available under
Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments and other
transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.
Beginning in 2022, applicable manufacturers also will be required to report information regarding payments and transfers of value provided (in 2021) to physician
assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives.
● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims
involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. Several states have enacted legislation
requiring medical device manufacturers to, among other things, establish marketing compliance programs; file periodic reports with the state, including reports on
gifts and payments to individual health care providers; and/or register their sales representatives. Some states prohibit certain sales and marketing practices,
including the provision of gifts, meals, or other items to health care providers.
Additionally, other laws such as the federal Lanham Act and similar state laws allow competitors and others to initiate litigation relating to advertising claims. If we sell our
device outside the United States, it must comply with the Foreign Corrupt Practices Act ("FCPA”) and local laws of other countries. FCPA is a complex patchwork of laws can
change rapidly with relatively short notice.
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Environmental Laws. Elements of our potential products may be classified as hazardous materials, subject to regulation by the Department of Transportation, the
International Air Transportation Association, the International Maritime Organization, the Environmental Protection Agency and the Occupational Safety and Health
Administration, which may impose various requirements pertaining to the way we manufacture, transport, store, handle and dispose of our products.
European Regulation of Medical Devices. In the European Economic Area ("EEA”), we expect our products to be regulated as a medical device product falling within
the scope of EU MDR.
In the EEA, medical devices must currently comply with the General Safety and Performance Requirements laid down in Annex I to the EU MDR. Compliance with these
requirements is a prerequisite to be able to affix the CE mark on products, without which they cannot be marketed or sold in the EEA. To demonstrate compliance with the General
Safety and Performance Requirements of the EU MDR and obtain the right to affix the CE mark, medical devices manufacturers must undergo a conformity assessment procedure,
which varies according to the type of medical device and its classification. Apart from low risk medical devices (Class I with no measuring function and which are not sterile), in
relation to which the manufacturer may issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the General Safety and
Performance Requirements, a conformity assessment procedure requires the intervention of a notified body, which is an organization designated by a Competent Authority of an
EEA country to conduct conformity assessments. Depending on the relevant conformity assessment procedure, the notified body would audit and examine the technical
documentation and the quality system for the manufacture, design and final inspection of the medical devices. The notified body issues a CE Certificate of Conformity following
successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the General Safety and
Performance Requirements. This Certificate and the related conformity assessment process entitles the manufacturer to affix the CE mark to its medical devices after having
prepared and signed a related EC Declaration of Conformity. Notified bodies must be accredited by the EEA countries’ accreditation bodies to conduct assessment procedures for
medical devices in accordance with the EU MDR. There are currently a relatively small number of notified bodies that have been accredited to conduct these assessments. This
may delay conformity assessment procedures in the future in the EU.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the General Safety and Performance Requirements must be based, among
other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must
demonstrate that the device achieves its intended performance during normal conditions of use and that the known and foreseeable risks, and any adverse events, are minimized
and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device (e.g., product labeling and
instructions for use) are supported by suitable evidence. This assessment must be based on clinical data, which can be obtained from (1) clinical studies conducted on the devices
being assessed, (2) scientific literature from similar devices whose equivalence with the assessed device can be demonstrated or (3) both clinical studies and scientific literature.
The conduct of clinical studies in the EEA is governed by detailed regulatory obligations. These may include the requirement of prior authorization by the Competent Authorities
of the country in which the study takes place and the requirement to obtain a positive opinion from a competent Ethics Committee. This process can be expensive and time-
consuming.
The EU MDR repeals and replaces the EU Medical Devices Directive 93/42/EEC. Unlike directives, which must be implemented into the national laws of the EEA countries,
the regulations is directly applicable, i.e., without the need for adoption of EEA country laws implementing them, in all countries and are intended to eliminate current differences in
the regulation of medical devices among EEA countries. The EU MDR, among other things, establishes a uniform, transparent, predictable and sustainable regulatory framework
across the EEA for medical devices and ensures a high level of safety and health while supporting innovation. The EU MDR entered into application on May 26, 2020, and among
others things:
● strengthens the rules on placing devices on the market and reinforce surveillance once they are available;
● establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;
● improves the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
● sets up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU;
● strengthens rules for the assessment of certain high-risk devices which may have to undergo an additional check by experts before they are placed on the market.
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Continuing Regulation. As in the U.S., manufacturers of medical devices are subject to comprehensive regulatory oversight by notified bodies and the competent
authorities of the EEA countries. This oversight applies both before and after certification. It includes control of compliance with the EU MDR General Safety and Performance
Requirements and post-market surveillance.
In the EEA, the advertising and promotion of our products will also be subject to EEA countries national laws implementing Directive 2006/114/EC concerning misleading
and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national legislation of individual EEA countries governing the advertising
and promotion of medical devices. EEA countries’ legislation may also restrict or impose limitations on our ability to advertise our products directly to the general public. In
addition, voluntary EU and national Codes of Conduct provide guidelines on the advertising and promotion of our products to the general public and may impose limitations on
our promotional activities with healthcare professionals. Violations of the rules governing the promotion of medical devices in the EEA could be penalized by administrative
measures, fines and imprisonment.
Data Privacy Regulation. The collection and use of personal health data in the EEA is governed by the data protection laws and regulations adopted by the EEA
countries and the EU General Data Protection Regulation ("GDPR”). The GDPR became applicable on May 25, 2018 and repealed the EU Data Protection Directive. The GDPR is
directly applicable in each EEA country and imposes several requirements on companies that process personal data, strict rules on the transfer of personal data out of the EEA,
including to the U.S., and fines and penalties for failure to comply with the requirements of the GDPR and the related national data protection laws of the EAA countries. The GDPR
confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for
damages resulting from violations of the GDPR. Failure to comply with the requirements of GDPR may result in fines of up to 20,000,000 Euros or up to 4% of the total worldwide
annual turnover of the preceding financial year, whichever is higher, and other administrative penalties.
Orphan Designation and Exclusivity. In the European Union, the Committee for Medicinal Products for Human Use grants orphan drug designation to promote the
development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000
persons in the European Union Community and for which no satisfactory method of diagnosis, prevention or treatment has been authorized (or the product would be a significant
benefit to those affected). Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or
serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in
developing the medicinal product.
In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is
granted following medicinal product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that
the product is sufficiently profitable not to justify maintenance of market exclusivity.
Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or
shorten the duration of, the regulatory review and approval process.
Exceptional Circumstances/Conditional Approval. Orphan medicinal product or products for unmet medical needs may be eligible for EU approval under exceptional
circumstances or with conditional approval. Approval under exceptional circumstances is applicable to orphan products and is used when an applicant is unable to provide
comprehensive data on the efficacy and safety under normal conditions of use because the indication for which the product is intended is encountered so rarely that the applicant
cannot reasonably be expected to provide comprehensive evidence, when the present state of scientific knowledge does not allow comprehensive information to be provided, or
when it is medically unethical to collect such information. Conditional marketing authorization is applicable to orphan medicinal products, medicinal products for seriously
debilitating or life- threatening diseases or medicinal products to be used in emergency situations in response to recognized public threats. Conditional marketing authorization can
be granted on the basis of less complete data than is normally required in order to meet unmet medical needs and in the interest of public health, provided the risk-benefit balance is
positive, it is likely that the applicant will be able to provide the comprehensive clinical data, and unmet medical needs will be fulfilled.
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Conditional marketing authorization is subject to certain specific obligations to be reviewed annually .
Other Regulations. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and
regulations now or in the future.
Regulation in Israel. In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from the ethics committee and
general manager of the institution in which the clinical studies are scheduled to be conducted, as required under the Guidelines for Clinical Trials in Human Subjects implemented
pursuant to the Israeli Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. These regulations require
authorization by the institutional ethics committee and general manager as well as from the Israeli Ministry of Health, except in certain circumstances, and in the case of genetic
trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s overseeing ethics committee. The institutional ethics committee must,
among other things, evaluate the anticipated benefits that are likely to be derived from the project to determine if it justifies the risks and inconvenience to be inflicted on the
human subjects, and the committee must ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of the information gathered in
the course of the clinical testing. Since we perform a portion of the clinical studies on certain of our therapeutic candidates in Israel, we are required to obtain authorization from the
ethics committee and general manager of each institution in which we intend to conduct our clinical trials, and in most cases, from the Israeli Ministry of Health.
Corporate History
We were incorporated on April 24, 2015. On June 25, 2019, our name was changed to Beyond Air, Inc. from AIT Therapeutics, Inc. We have the following wholly-owned
subsidiaries:
Beyond Air Ltd. ("BA Ltd.”), incorporated in Israel on May 1, 2011.
Advanced Inhalation Therapies ("AIT”), a wholly-owned subsidiary of BA Ltd., incorporated on August 29, 2014, in Delaware. AIT was dissolved on March 1, 2021.
Beyond Air Australia Pty Ltd., incorporated on December 17, 2019 in Australia.
Beyond Air Ireland Limited, incorporated on March 5, 2020 in Ireland.
Beyond Air Bermuda Limited, incorporated on August 13, 2021 in Bermuda. In September 2022, its name was changed to Beyond Cancer Bermuda Limited.
XAIR Israel Ltd, incorporated on October 3, 2021 in Israel.
Beyond Air Cyprus Limited, incorporated on October 13, 2021 in Cyprus.
Beyond Cancer U.S., Inc., incorporated on March 17, 2022 in Delaware.
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Emerging Growth Company Status
For the fiscal year ended March 31, 2022, we were an "emerging growth company” as defined in the Jumpstart Our Business Startups Act enacted on April 5, 2012,
referred to as the JOBS Act. For as long as were are an emerging growth company, we were able to take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation
requirements in the assessment of our internal control over financial reporting, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding advisory "say-on-pay” and "say-when-on-pay” votes on executive compensation and shareholder advisory votes on
golden parachute compensation.
The JOBS Act also provides that an emerging growth company may utilize the extended transition period provided for complying with new or revised accounting
standards. We had irrevocably elected to take advantage of this extended transition period. Because we were not required to comply with new or revised accounting standards on
the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of
companies that comply with the effective dates of those accounting standards.
Under the JOBS Act, we remained an emerging growth company until March 31, 2022.
Available Information
We file electronically with the Securities and Exchange Commission (the "SEC”) our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K, and amendments related thereto, pursuant to Section 13(a) or 15(d) of the Exchange Act. We make available on our website at www.beyondair.net free of charge, copies
of these reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Reports filed with the SEC may be viewed at
www.sec.gov. The information in or accessible through the SEC and our website are not incorporated into, and are not considered part of, this filing. Further, our references to the
URLs for these websites are intended to be inactive textual references only.
Human Capital
As of June 15, 2022, we had 70 employees globally, all of whom were full time employees. None of our employees are represented by a labor union and we consider our
employee relations to be good.
Our workforce is highly educated and diverse, which we believe is important for our continued success as a leading innovator in the medical device market. We employ a
number of strategies to best enable us to attract, retain, and engage our team members. Our human capital resources objectives include, as applicable, identifying, recruiting,
retaining, and incentivizing our management team and our clinical, scientific and other employees and consultants. The principal purposes of our equity and cash incentive plans
are to attract, retain and motivate personnel through the granting of stock-based and cash-based compensation awards, in order to align our interests and the interests of our
stockholders with those of our employees and consultants.
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ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should consider carefully the risks described below, together with the other information included or
incorporated by reference in this Annual Report. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could
be materially and adversely affected. In these circumstances, the market price of our common stock could decline. Other events that we do not currently anticipate or that we
currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
Risks Related to Our Financial Position and Capital Requirements
We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We have generated no revenue to date
and may never generate revenue or achieve profitability.
Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These are not the only
risks we face. These risks include, among others, that:
● we are a medical device and biopharmaceutical company with only one FDA-approved product and a limited operating history on which to assess our business, have
incurred significant losses since our inception and incurred a net cash used in operating activities for the year ended March 31, 2022 of approximately $23.1 million. As of
March 31, 2022, we have an accumulated deficit of approximately $123.6 million and we anticipate to continue to incur significant losses for the foreseeable future;
● we are unable to predict the extent of future losses or when we will become profitable based on the sale of any product, if at all. Even if we succeed in developing and
commercializing our approved product or product candidates, we may never generate revenue to sustain profitability;
● we have only one FDA-approved product, and we expect that we will need to raise additional funding before we can expect to become profitable from sales of our
products;
● we are heavily dependent upon the success of our approved product and product candidates (which are in various stages of clinical development), and we cannot
provide any assurance that the FDA or comparable foreign regulatory authorities will allow us to conduct further clinical trials;
● we are in the process of developing our proprietary NO delivery system, and unexpected delays will adversely impact the timing of our U.S.-based clinical trials and
approvals;
● we might be unable to develop product candidates that will achieve commercial success in a timely and cost-effective manner, or ever;
● our competitors may develop or commercialize products faster or more successfully than us;
● because some of the target patient populations of our approved product or product candidates are small, we must be able to successfully identify patients and achieve a
significant market share to maintain profitability and growth;
● our reliance on third parties to help conduct our preclinical studies, clinical trials and commercial scale manufacturing;
● if we are unable to obtain and maintain effective intellectual property rights for our technologies, approved product or current or future product candidates, we may not be
able to compete effectively in our markets; and
● our future success depends in part upon our ability to retain our executive and scientific teams, and to attract, retain and motivate other qualified personnel.
Because of the numerous risks and uncertainties associated with drug development and commercialization, we are unable to accurately predict the timing or amount of
expenses or when, or if, we will be able to achieve profitability. If we are required by regulatory authorities to perform studies in addition to those expected or if there are any delays
in the initiation and completion of our clinical trials or the development of any of our product candidates, our expenses could increase.
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It is highly likely that we will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain, and
could dilute current stockholders’ ownership interests.
Our future capital requirements will depend on many factors, including the success and costs of our commercialization activities, including product marketing, sales, and
distribution progress, the results of our clinical trials, the timing and outcome of regulatory review of our product candidates, commercial manufacturing success, and the number
and development requirements of product candidates that we pursue. Because of the numerous risks and uncertainties associated with the development and commercialization of
our approved product and product candidates, we are unable to reasonably estimate the amounts of additional capital outlays and operating expenditures that our business will
require. It is likely that we will need to raise additional funds through public or private debt or equity financings to meet various objectives including, but not limited to:
● commercialization of our approved product;
● clinical trials for our product candidates;
● researching and developing new products;
● pursuing growth opportunities, including more rapid expansion;
● acquiring complementary businesses or technologies;
● making capital improvements to improve our infrastructure;
● hiring qualified management and key employees;
● responding to competitive pressures;
● complying with regulatory requirements; and
● maintaining compliance with applicable laws.
Any additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership in us and could also result in a decrease
in the market price of our common stock. The terms of those securities issued by us in future capital transactions may be more favorable to new investors and may include
preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect.
Furthermore, any debt or equity financing that we may need may not be available on terms favorable to us, or at all.
Additionally, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as
convertible notes and warrants, which may adversely impact our financial condition.
If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business, and we may not be able to continue
operating if we do not generate sufficient revenues from operations needed to stay in business.
Risks Related to Commercialization of Our Approved Product or Product Candidates
If the market opportunities for our approved product or product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may
suffer.
Our projections of both the number of people who have our target diseases, as well as the subset of people with these diseases who have the potential to benefit from
treatment with LungFit® PH and our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the
scientific literature, surveys of clinics, patient foundations or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or
prevalence of these diseases. The number of patients may turn out to be lower than expected. The effort to identify patients with diseases we seek to treat is in early stages, and we
cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population for LungFit ® PH and each of
our product candidates may be limited or may not be amenable to treatment with LungFit® PH or our product candidates, and new patients may become increasingly difficult to
identify or gain access to, which would adversely affect our results of operations and our business.
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The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or
current products could limit our ability to market those products and decrease our ability to generate revenue.
The pricing, coverage and reimbursement of our approved product and product candidates, if approved, must be adequate to support our commercial infrastructure. Our
per-patient prices must be sufficient to recover our development and manufacturing costs and potentially achieve profitability. Accordingly, the availability and adequacy of
coverage and reimbursement by governmental and private payors are essential for most patients to be able to afford expensive treatments such as ours, assuming certification or
approval. Sales of our approved product and product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our approved
product and product candidates will be paid for by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by
government authorities, private health insurers and other third-party payors. If coverage and reimbursement are not available, or are available only to limited levels, we may not be
able to successfully commercialize our approved product and product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to
allow us to establish or maintain pricing sufficient to realize a return on our investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the U.S., there is no uniform system among payors
for making coverage and reimbursement decisions. In addition, the process for determining whether a payor will provide coverage for a product or service may be separate from the
process for setting the price or reimbursement rate that the payor will pay for the product or service once coverage is approved. Payors may limit coverage to specific products or
services on an approved list, or formulary, which might not include all of the FDA-approved or -cleared products for a particular indication. In the U.S., the principal decisions
about coverage and reimbursement for new medical devices are typically made by the Centers for Medicare & Medicaid Services ("CMS”), an agency within the U.S. Department of
Health and Human Services, as CMS decides whether and to what extent a new device will be covered and reimbursed under Medicare. Private payors tend to, but are not required
to, follow the coverage and reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for
products such as ours.
Outside the U.S., international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing
emphasis on cost-containment initiatives in the EEA, Canada and other countries has and will continue to put pressure on the pricing and usage of our approved product or
product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of
medical devices under such systems are substantially lower than in the U.S. Other countries allow companies to fix their own prices for medical products, but monitor and control
company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our approved product or product
candidates. Accordingly, in markets outside the U.S., the reimbursement for our products may be reduced compared with the U.S. and may be insufficient to generate commercially
reasonable revenue and profits.
Moreover, increasing efforts by governmental and third-party payors in the U.S. and abroad to cap or reduce healthcare costs may cause such organizations to limit both
coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our approved product and product
candidates. We expect to experience pricing pressures in connection with the sale of any of our approved product and product candidates due to the trend toward managed
healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly
prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
We face intense competition and rapid technological change and the possibility that our competitors may discover, develop or commercialize therapies that are similar, more
advanced or more effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize LungFit® PH and our product
candidates.
We are working on PPHN which is a highly competitive market. A delivery system with a generator of NO has never been commercialized anywhere in the world, and
market acceptance at an appropriate price may prove to be a difficult and lengthy process. The biotechnology, pharmaceutical and medical device industries are also highly
competitive. There are many pharmaceutical companies, biotechnology companies, medical device companies, public and private universities and research organizations actively
engaged in the research and development of products that may be similar to LungFit® PH or our product candidates. We are aware of several companies currently developing and
selling NO therapies for various indications such as pulmonary hypertension. For example, Mallinckrodt commercializes INOMAX® (nitric oxide) for inhalation, which is approved
for use to treat newborns suffering from HRF-PPHN, in the U.S., Canada, Australia, Mexico and Japan. Praxair markets a generic version of the Mallinckrodt offering with their
delivery system called NOxBOX®, acquired from Bedfont, in the United States. The Linde Group has marketing rights to INOMAX® in Europe. Air Liquide sells a similar product in
Europe, called VasoKINOX™, together with their delivery platform called OptiKINOX™, for the treatment of pulmonary hypertension that occurs during or after heart surgery. In
Europe, Bedfont Scientific Ltd. has a delivery system called NOxBOX® and Air Products PLC has a gas product called NOXAP®, each used in delivering inhaled NO formulations.
Bellerophon Therapeutics is developing NO-based products for pulmonary arterial hypertension ("PAH”) and pulmonary hypertension associated with COPD. VERO Biotech LLC
(formerly known as Geno LLC) received FDA approval for their delivery system GENOSYL DS for PPHN in 2019. In addition, other companies may be developing generic NO
formulation delivery systems for various dosages. Ceretec, Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market a NO
gas product for use in membrane diffusing capacity testing in pulmonary function laboratories in the U.S. Novoteris, LLC previously received orphan drug designation from the
FDA and the EMA for the use of inhaled NO-based treatments in treating CF. SaNOtize has a nitric oxide nasal spray that has received approval in India for preventing COVID-19
after high-risk exposure. Third Pole has reported that they are developing a NO generator and delivery system for use in PPHN and PAH, but we are not aware of any display of
any such product at any medical/scientific conference in recent years. Our patents surrounding LungFit® have a priority date over those of Third Pole.
In addition to NO treatments currently available or under development, we also face competition from non-NO-based drugs and therapies. For example, the successful
development of immunizations for bronchiolitis may render useless any product we develop for that indication. Also, antibiotic treatments for infections associated with CF and
other underlying lung conditions may be preferred over any product that we develop. Even if we successfully develop our product candidates, and obtain certification or approval
for them, other treatments may be preferred and we may not be successful in commercializing our product candidates.
Some of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and
manufacturing organizations. Additional mergers and acquisitions in the medical device, biotechnology and pharmaceutical industries may result in even more resources being
concentrated in our competitors. As a result, these companies may obtain certification or regulatory approval more rapidly than we are able to and may be more effective in selling
and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large,
established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in
these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than LungFit® PH or any
product candidate that we may develop, or achieve earlier patent protection, certification or regulatory approval, product commercialization and market penetration than we do.
Additionally, technologies developed by our competitors may render LungFit® PH or our potential product candidates uneconomical or obsolete, and we may not be successful in
marketing LungFit® PH or our product candidates against competitors.
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We currently have a limited marketing and sales organization. If we are unable to fully establish sales and marketing capabilities or enter into agreements with third parties
to market and sell LungFit® PH or our product candidates, we may be unable to generate any revenue.
Although our employees may have sold other similar products in the past while employed at other companies, we as a company have no experience selling and marketing
our product candidates and we currently have a limited marketing or sales organization. To successfully commercialize LungFit® PH or any other products that may result from our
development programs, we will need to further develop these capabilities, either on our own or with others. If the initial commercialization efforts for LungFit® PH are successful,
we intend to establish a more complete sales and marketing organization with technical expertise to potentially reach all U.S. hospitals using or capable of using NO. This will be
expensive, difficult and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the
commercialization of our products.
Further, given our lack of prior experience in marketing and selling medical device products, our initial estimate of the size of the required sales force may be materially
more or less than the size of the sales force actually required to effectively commercialize LungFit® PH and our product candidates. As such, we may be required to hire
substantially more sales representatives to adequately support the commercialization of LungFit® PH and our product candidates, or we may incur excess costs as a result of hiring
more sales representatives than necessary. With respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and
distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If our future collaborators do not commit sufficient resources to
commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue
to sustain our business. We may be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the
support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
The commercial success of LungFit® PH and any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party
payors and others in the medical community.
Even with approval from the FDA and potential future certification or approvals from comparable foreign regulatory authorities, the commercial success of LungFit® PH
and our product candidates will depend in part on the medical community, patients and third-party payors accepting LungFit® PH and our product candidates as medically useful,
cost-effective and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community.
The degree of market acceptance of LungFit® PH and any of our product candidates that become approved for commercial sale will depend on a number of factors, including:
● the safety and efficacy of the product as demonstrated in clinical trials and potential advantages over competing treatments;
● the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;
● The clinical indications for which certification or approval is granted;
● relative convenience and ease of administration;
● the cost of treatment, particularly in relation to competing treatments;
● the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
● the strength of marketing and distribution support and timing of market introduction of competitive products;
● publicity concerning our products or competing products and treatments; and
● sufficient third-party insurance coverage and reimbursement.
Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known
until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require significant resources and may
never be successful. If our product candidates are approved but fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and others in the
medical community, we will not be able to generate sufficient revenue to become or remain profitable.
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If we fail to properly manage our anticipated growth, our business could suffer.
Our rapid growth has placed, and will continue to place, a significant strain on our management and on our operational and financial resources and systems. Failure to
manage our growth effectively could cause us to over-invest or under-invest in infrastructure, and result in losses or weaknesses in our infrastructure, which could materially
adversely affect us. Additionally, our anticipated growth will increase the demands placed on our suppliers, resulting in an increased need for us to carefully monitor for quality
assurance. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals.
Pricing pressure from our competitors and our customers may impact our ability to sell our products at prices necessary to support our current business strategies.
The industry is characterized by intense competition, and the market continues to attract numerous new companies and technologies, which has encouraged more
established companies to intensify competitive pricing pressure. As a result of this increased competition, as well as the challenges of third-party coverage and reimbursement
practices, we believe there will be continued pricing pressure in the future. If competitive forces drive down the prices we are able to charge for our products, our profit margins will
shrink, which will adversely affect our ability to maintain our profitability and to invest in and grow our business.
We may be subject to enforcement action if we engage in improper marketing or promotion of our products.
We are not permitted to promote or market our investigational products. After approval, our promotional materials and training methods must comply with FDA and other
applicable laws and regulations, including the prohibition of the promotion of unapproved, or off-label, use. Physicians may use our products off-label, as the FDA does not
restrict or regulate a provider’s choice of treatment within the practice of medicine. However, if the FDA determines that our promotional materials or training constitutes promotion
of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled
letter, a warning letter, injunction, seizure, civil fine, or criminal penalties. It is also possible that other federal, state, or foreign enforcement authorities might take action if they
consider our promotional or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such
as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the products could be impaired. In addition, the off-label use of
our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention, result in substantial
damage awards against us, and harm our reputation.
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Cybersecurity risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware, software, and Internet applications and related tools
and functions could result in harm to our business and/or subject us to costs, fines or lawsuits.
We rely on sophisticated information technology systems and network infrastructure to operate and manage our business. We also maintain personally identifiable
information ("PII”) about our employees, and given the nature of our business, we have access to protected health information (PHI). Our business therefore depends on the
continuous, effective, reliable, and secure operation of our computer hardware, software, networks, Internet servers, and related infrastructure. To the extent that our hardware or
software malfunctions or access to our data by internal personnel, suppliers or customers through the Internet is interrupted or compromised, our business could suffer.
The integrity and protection of our customer, personnel, financial, research and development, and other confidential data is critical to our business, and our customers
and employees have a high expectation that we will adequately protect their personal information. The regulatory environment governing information, security and privacy laws is
increasingly demanding and continues to evolve and a number of states have adopted laws and regulations that may affect our privacy and data security practices regarding the
use, disclosure and protection of PII. For example, California recently enacted legislation, the California Consumer Privacy Act, that, among other things, creates new individual
privacy rights and imposes increased obligations on companies handling PII.
Although our computer and communications hardware is protected through physical and software safeguards, it is still vulnerable to system malfunction, computer
viruses, malware and ransomware, and other cybersecurity threats such as phishing and social engineering attacks. These events could lead to the unauthorized access of our
information technology systems and result in financial loss and the misappropriation or unauthorized disclosure of confidential information belonging to us, our employees,
partners, customers, or our suppliers. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less
regulated and remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. If our information
technology systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, incur financial losses, suffer reputational damage, and lose trade
secrets or other confidential information, each of which could significantly harm our business.
Healthcare legislative or regulatory reform measures, including government restrictions on pricing and reimbursement, may have a negative impact on our business and
results of operations.
In the U.S., there have been and continue to be a number of legislative and regulatory changes and proposed changes to contain healthcare costs. For example, in March
2010, the Patient Protection and Affordable Care Act ("ACA”) was enacted, which, among other things, substantially changes the way health care is financed by both
governmental and private insurers, and significantly impacts the U.S. medical device industry. Some of the provisions of the ACA have been subject to judicial challenges as well
as efforts to modify them or alter their interpretation or implementation. For example, the Tax Cuts and Jobs Act of 2017 ("Tax Act”), includes a provision that eliminated the tax-
based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, commonly referred to as
the "individual mandate,” effective January 1, 2019. It is unclear how efforts to modify or invalidate the ACA or its implementing regulations, or portions thereof, will affect our
business. Additional legislative changes, regulatory changes and judicial challenges related to the ACA remain possible. We cannot predict what effect further changes related to
the ACA would have on our business.
We cannot be sure whether additional legislative changes will be enacted, or whether government regulations, guidance or interpretations will be changed, or what the
impact of such changes would be on the certification or marketing approvals, sales, pricing, or reimbursement of our approved product or product candidates, if any, may be. We
expect that any such healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price
that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private
payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our
approved product or product candidates.
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Moreover, in order to obtain reimbursement for our products in some EEA countries, including some EU Member States, we may be required to compile additional data
comparing the cost-effectiveness of our products to other available therapies. Health Technology Assessment ("HTA”) of both medicinal products and medical devices is
becoming an increasingly common part of the pricing and reimbursement procedures in some EU Member States, including those representing the larger markets. The HTA
process, which is currently governed by national laws in each EU Member State, is the procedure to assess therapeutic, economic and societal impact of a given medical product in
the national healthcare systems of the individual country. The outcome of an HTA will often influence the pricing and reimbursement status granted to these medical products by
the competent authorities of individual EU Member State. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific medical product
currently varies between EU Member States. On December 13, 2021, the EU adopted a new HTA Regulation which entered into force on January 11, 2022 and will become
applicable to all EU Member States from January 12, 2025. The new EU HTA regulation aims to harmonize the clinical benefit assessment of HTA across the EU and provides the
basis for permanent and sustainable cooperation at the EU level for joint clinical assessments in these areas.
We are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws could have a material adverse effect on
our results of operations and financial conditions.
We are subject to additional health care regulation and enforcement by the federal government and the states in which we conduct our business. The laws that may affect
our ability to operate include the following:
● the federal health care program Anti-Kickback Statute, prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering, or providing
remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, or order or arranging for the
purchase, lease or order of any good or service, for which payment may be made, in whole or in part, under federal health care programs such as Medicare and Medicaid.
This statute has been interpreted to apply to arrangements between pharmaceutical or device manufacturers, on the one hand, and prescribers, purchasers and formulary
managers and others on the other. The term "remuneration” has been broadly interpreted to apply to anything of value including, for example, gifts, cash payments,
donations, waivers of payment, ownership interests, and providing any item, service, or compensation for something other than fair market value. Liability under the AKS
may be established without proving actual knowledge of the statute or specific intent to violate it. Although there are a number of statutory exceptions and regulatory
safe harbors to the AKS protecting certain common business arrangements and activities from prosecution or regulatory sanctions, the exceptions and safe harbors are
drawn narrowly. Practices that involve remuneration to those who prescribe, purchase, or recommend medical device products, including certain discounts, or engaging
such individuals as consultants, advisors and speakers, may be subject to scrutiny if they do not fit squarely within an exception or safe harbor. Moreover, there are no
safe harbors for many common practices, such as educational grants and reimbursement support programs;
● the federal civil False Claims Act that prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent,
claims for payment of government funds, knowingly making, using or causing to be made or used a false statement or record material to an obligation to pay money to the
government, or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. A claim
including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA. Actions under the FCA may be brought
by the government or as a qui tam action by a private individual in the name of the government, who may also share in any monetary recovery. Qui tam actions are filed
under seal and impose a mandatory duty on the U.S. Department of Justice to investigate such allegations. Manufacturers have faced liability under the FCA for
providing inaccurate billing or coding information to customers or promoting a product off-label. FCA liability is potentially significant in the healthcare industry because
the statute provides for treble damages and significant mandatory penalties per false or fraudulent claim or statement for violations, as well as exclusion from participation
in federal healthcare programs;
● HIPAA imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program, including private third-party payors, or knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious, or
fraudulent statement or representation, or using any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or
entry, in connection with the delivery of or payment for healthcare benefits, items, or services;
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● the federal Physician Payments Sunshine Act requires applicable manufacturers of devices, biologics and medical supplies for which payment is available under Medicare,
Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments and other transfers of value to
physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable
manufacturers also will be required to report information regarding payments and transfers of value provided (in 2021) to physician assistants, nurse practitioners, clinical
nurse specialists, certified nurse anesthetists, and certified nurse-midwives; and
● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving
healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. Several states have enacted legislation requiring medical
device manufacturers to, among other things, establish marketing compliance programs; file periodic reports with the state, including reports on gifts and payments to
individual health care providers; and/or register their sales representatives. Some states prohibit certain sales and marketing practices, including the provision of gifts,
meals, or other items to health care providers.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Because of
the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to
challenge under one or more of such laws. The scope and enforcement of these laws is uncertain and subject to change in the current environment of health care reform. We
cannot predict the impact on our business of any changes in these laws. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any
such challenge, even if we are able to successfully defend against it, could have a material adverse effect on our reputation, business, results of operations, and financial condition.
Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming. If our operations are found to be in violation of any of the laws
described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from
participation in government health care programs, such as Medicare and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could
adversely affect our ability to operate our business and our results of operations.
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If we fail to comply with applicable privacy, data protection and data security laws and regulations, we could face substantial penalties, liability and adverse
publicity and our business, operations and financial condition could be adversely affected.
We are subject to various laws and regulations globally regarding privacy and data protection, including laws and regulations relating to the collection, storage, handling,
use, disclosure, transfer and security of personal data. The restrictions under applicable privacy, data protection and data security laws and regulations that may affect our ability
to operate include but are not limited to:
● HIPAA governs the use, disclosure, and security of protected health information by HIPAA "covered entities” and their "business associates.” Covered entities are
health plans, health care clearinghouses and health care providers that engage in specific types of electronic transactions. A business associate is any person or entity
(other than members of a covered entity’s workforce) that performs a service on behalf of a covered entity involving the use or disclosure of protected health information.
Most healthcare providers who prescribe our products and from whom we obtain patient health information are subject to privacy and security requirements under
HIPAA, as are we in certain circumstances. HHS (through the Office for Civil Rights) has direct enforcement authority against covered entities and business associates
with regard to compliance with HIPAA regulations. We also could be subject to criminal penalties if we knowingly obtain individually identifiable health information from
a covered entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting and/or conspiring to commit a violation of HIPAA. We are unable to
predict whether our actions could be subject to prosecution in the event of an impermissible disclosure of health information to us;
● numerous U.S. federal and state laws and regulations, including state data breach notification laws, state health information privacy laws and federal and state consumer
protection laws, govern the collection, use, disclosure and protection of personal information. These laws may impose a number of compliance obligations on us,
including requiring that we obtain consent before we collect, use, or disclose personal information, implement certain security protections to safeguard personal
information, and notify individuals or regulators in the event of a breach;
● other countries also have, or are developing, laws governing the collection, use, disclosure and protection of personal information. The GDPR, for example, imposes
restrictions on the processing (e.g., collection, use, disclosure) of personal data in the EEA and also imposes strict restrictions on the transfer of personal data out of the
EU to the U.S. Our business could be adversely impacted if our ability to transfer personal data outside of the EEA or Switzerland is restricted, which could adversely
impact our operating results. For example, in July 2020, the Court of Justice of the European Union, or the CJEU, declared the EU-U.S. Privacy Shield framework between
the EU and U.S. to be invalid and raised concerns about other data transfer mechanisms in a case known colloquially as "Schrems II”, which could adversely impact our
ability to transfer personal data from the EU to the U.S or otherwise may cause us to incur significant costs to do so legally. At present, there are few viable alternatives to
the EU-U.S. Privacy Shield and the Standard Contractual Clauses ("SCCs”). If the level of protection in the U.S. or any other importing country is called into question
under the SCCs, this could further impact our ability to transfer data outside of the EEA or Switzerland. Furthermore, following the Brexit and the UK’s exit from the EU,
the UK became a third country to the EU in terms of personal data transfers. The European Commission has adopted an Adequacy Decision concerning the level of
personal data protection in the UK under which personal data may now flow freely from the EU to the UK. However, personal data transfers from the EU to the UK may
nevertheless be at a greater risk than before because the Adequacy Decision could in theory someday be suspended. On March 25, 2022, the European Commission and
the U.S. announced that they have agreed in principle on a new Trans-Atlantic Data Privacy Framework, as a successor arrangement to the EU-U.S. Privacy Shield. The
two sides are now expected to finalize the details of this agreement in principle and translate it into legal texts that will form the basis of a draft adequacy decision to be
proposed by the European Commission; and
● the legislative and regulatory landscape for privacy and data security continues to evolve, and there has been an increasing amount of focus on privacy and data security
issues with the potential to affect our business. For example, the CCPA contains new disclosure obligations for businesses that collect personal information about
California residents and affords those individuals new rights relating to their personal information that may affect our ability to use personal information. Other states,
including Virginia, and the federal government, have considered and/or enacted similar privacy laws that could impose new obligations or limitations in areas affecting our
business.
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These privacy and data security laws and regulations could increase our cost of doing business, and failure to comply with these laws and regulations could result in
government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could materially and negatively affect our operating
results and business. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws and regulations, the risks cannot be entirely
eliminated. Any action against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert
our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal, state, and foreign privacy and data
security laws and regulations may prove costly.
If we or our suppliers fail to comply with ongoing FDA or other foreign regulatory authority requirements, or if we experience unanticipated problems with our products,
these products could be subject to restrictions or withdrawal from the market.
Once we obtain certification or marketing authorization for our product candidates, any product for which we obtain certification, clearance or approval, and the
manufacturing processes, post-market surveillance, post-certification/approval clinical data and promotional activities for such product, will be subject to continued regulatory
review, oversight, requirements, and periodic inspections by the FDA and other domestic and foreign regulatory authorities and notified bodies. We must comply with equivalent
standards in third countries.
In particular, we and our suppliers are required to comply with FDA’s QSR in the U.S. and other regulations enforced outside the United States which cover the
manufacture of our products and the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of
medical devices. Regulatory authorities, such as the FDA, and notified bodies enforce the QSR in the U.S. and other regulations through periodic inspections. The failure by us or
one of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately respond to any adverse inspectional
observations or product safety issues, could result in, among other things, any of the following enforcement actions:
● untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
● unanticipated expenditures to address or defend such actions;
● customer notifications for repair, replacement, refunds;
● recall, detention or seizure of our products;
● operating restrictions or partial suspension or total shutdown of production;
● refusing or delaying our requests for 510(k) clearance or PMA approval of new products or modified products;
● operating restrictions;
● withdrawal of 510(k) clearances on PMA approvals that have already been granted;
● refusal to grant export approval for our products; or
● criminal prosecution.
If any of these actions were to occur it would harm our reputation and cause our product sales and profitability to suffer and may prevent us from generating revenue.
Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements which could result in our
failure to produce our products on a timely basis and in the required quantities, if at all.
In addition, we are required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and we must comply with
medical device reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discovery of previously unknown problems with
our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory
requirements such as QSR, may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or
mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of certification or regulatory approval,
product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.
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Moreover, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products in the EEA. We must comply
with medical device reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discovery of previously unknown problems
with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory
requirements may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory
recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of certification, regulatory clearances or approvals,
product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.
Our products may cause or contribute to adverse medical events or be subject to failures or malfunctions that we are required to report to the FDA or comparable foreign
regulatory authorities, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations. The
discovery of serious safety issues with our products, or a recall of our products either voluntarily or at the direction of the FDA or comparable foreign regulatory authorities,
could have a negative impact on us.
As a commercial-stage company, we are subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require us to report to the FDA
when we receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or
malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our obligation to report is triggered by the date
we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events of which we become aware within the prescribed timeframe. We may
also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is
unexpected or removed in time from the use of the product. If we fail to comply with our reporting obligations, the FDA could take action, including warning letters, untitled letters,
administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance or approval, seizure of our products or delay in clearance or
approval of future products.
The FDA and comparable foreign regulatory authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects
in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that
there is reasonable probability that the device could cause serious injury or death. We may also choose to voluntarily recall a product if any material deficiency is found. A
government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or
design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. Product defects or other errors may occur in the future.
Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new
clearances or approvals for the device before we may market or distribute the corrected device. Seeking such clearances or approvals may delay our ability to replace the recalled
devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA
warning letters, product seizure, injunctions, administrative penalties or civil or criminal fines.
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We may initiate voluntary withdrawals or
corrections for our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, it could require us to report those
actions as recalls and we may be subject to enforcement action. A future recall announcement could harm our reputation with customers, potentially lead to product liability claims
against us and negatively affect our sales. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our
time and capital, will distract management from operating our business and may harm our reputation and financial results.
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All manufacturers placing medical devices on the market in the EEA are legally bound to report to the relevant competent authorities (a) any serious incident involving
devices made available on the EEA market, except expected side-effects which are clearly documented in the product information and quantified in the technical documentation and
are subject to trend reporting, and (b) any field safety corrective action in respect of devices made available on the EEA market, including any field safety corrective action
undertaken in a third country in relation to a device which is also legally made available on the EEA market, if the reason for the field safety corrective action is not limited to the
device made available in the third country. Reports should be submitted through the electronic system set up and managed by the European Commission in collaboration with EEA
countries. Report of serious incidents will be automatically transmitted to the competent authority of the EEA country in which the incident occurred and reports on field safety
corrections actions will be automatically transmitted to the competent authority of the EEA country in which the field safety corrective action is being or is to be undertaken and
the EEA country in which the manufacturer has its registered place of business.
Under the EU MDR, a "serious incident” means any incident that directly or indirectly led, might have led or might lead to any of the following: (a) the death of a patient,
user or other person; (b) the temporary or permanent serious deterioration of a patient’s, user’s or other person’s state of health; or (c) a serious public health threat. A ‘field safety
corrective action’ means corrective action taken by a manufacturer for technical or medical reasons to prevent or reduce the risk of a serious incident in relation to a device made
available on the market.
Malfunction of our products could result in future voluntary corrective actions, such as recalls, including corrections, or customer notifications, or agency action, such as
inspection or enforcement actions. If malfunctions do occur, we may be unable to correct the malfunctions adequately or prevent further malfunctions, in which case we may need
to cease manufacture and distribution of the affected products, initiate voluntary recalls, and redesign the products. Regulatory authorities may also take actions against us, such
as ordering recalls, imposing fines, or seizing the affected products. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and capital,
distract management from operating our business, and may harm our reputation and financial results.
Our approved product or product candidates may in the future be subject to product recalls that could harm our reputation, business and financial results.
Medical devices can experience performance problems in the field that require review and possible corrective action. The occurrence of component failures, manufacturing
errors, software errors, design defects or labeling inadequacies affecting a medical device could lead to a government-mandated or voluntary recall by the device manufacturer, in
particular when such deficiencies may endanger health. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after the recall is
initiated. Comparable foreign regulatory authorities impose similar deadlines. Companies are required to maintain certain records of recalls, even if they are not reportable to the
FDA or to comparable foreign regulatory authorities. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the
FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. Product recalls may divert management attention and financial
resources, expose us to product liability or other claims, harm our reputation with customers and adversely impact our business, financial condition and results of operations.
We may be subject to regulatory or enforcement actions if we engage in improper marketing or promotion of our approved product or product candidates.
Our educational and promotional activities and training methods must comply with FDA and other applicable laws, including the prohibition of the promotion of a medical
device for a use that has not been cleared or approved by the FDA. Use of a device outside of its cleared or approved indications is known as "off-label” use. Physicians may use
our products off-label in their professional medical judgment, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if
the FDA determines that our educational and promotional activities or training constitutes promotion of an off-label use, it could request that we modify our training or promotional
materials or subject us to regulatory or enforcement actions, including the issuance of warning letters, untitled letters, fines, penalties, injunctions, or seizures, any of which could
have an adverse impact on our reputation and financial results.
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It is also possible that other federal, state or comparable foreign regulatory authorities might take action if they consider our educational and promotional activities or
training methods to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false
claims for reimbursement. In that event, our reputation could be damaged, and adoption of the products could be impaired. Although our policy is to refrain from statements that
could be considered off-label promotion of our products, the FDA or comparable foreign regulatory authorities could disagree and conclude that we have engaged in off-label
promotion. It is also possible that other federal, state or comparable foreign regulatory authorities might take action, including, but not limited to, through a whistleblower action
under the FCA, if they consider our business activities constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal,
civil or administrative penalties, treble damages, fines, disgorgement, exclusion from participation in government healthcare programs, reporting requirements and compliance
oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or
restructuring of our operations. In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and
could divert our management’s attention, result in substantial damage awards against us, and harm our reputation.
The advertising and promotion of our products in the EEA is subject to EEA countries’ national laws implementing Directive 2006/114/EC concerning misleading and
comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national legislation of individual EEA country governing the advertising and
promotion of medical devices. EEA country legislation may also restrict or impose limitations on our ability to advertise our products directly to the general public. In addition,
voluntary EU and national Codes of Conduct provide guidelines on the advertising and promotion of our products to the general public and may impose limitations on our
promotional activities with healthcare professionals.
We face extensive, ongoing regulatory requirements and review, and our products may face future development and regulatory difficulties.
The holder of an approved PMA or cleared 510(k) also is subject to obligations to monitor and report adverse events and instances of the failure of a product to meet the
specifications in the marketing application. Application holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved
product, product labeling, or manufacturing process. Legal requirements have also been enacted to require disclosure of clinical trial results on publicly available databases.
In addition, manufacturers of FDA regulated products and their facilities are subject to continual review and periodic inspections by the FDA and comparable foreign
regulatory authorities for compliance with the FDA’s QSR and, as applicable, cGMP regulations. Our relationships with healthcare providers, physicians and third-party payors
must comply with FDA laws and regulations, the AKS, the FCA, HIPAA, various transparency laws, and similar state and foreign laws. GMPs regulations. If products are made
available to authorized users of the Federal Supply Schedule of the General Services Administration and to low income patients of certain hospitals, additional laws and
requirements apply. Our activities are also potentially subject to federal and state consumer protection and unfair competition laws. If we or our third-party collaborators fail to
comply with applicable regulatory requirements, a regulatory authority may take any of the following actions:
● conduct an investigation into our practices and any alleged violation of law;
● issue warning letters or untitled letters asserting that we are in violation of the law;
● seek an injunction or impose civil or criminal penalties or monetary fines;
● suspend or withdraw certification or regulatory approval;
● require that we suspend or terminate any ongoing clinical trials;
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● refuse to approve pending applications or supplements to applications filed by us;
● suspend or impose restrictions on operations, including costly new manufacturing requirements;
● seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall; or
● exclude us from providing our products to those participating in government health care programs, such as Medicare and Medicaid, and refuse to allow us to enter into
supply contracts, including government contracts.
The occurrence of any of the foregoing events or penalties may force us to expend significant amounts of time and money and may significantly inhibit our ability to bring
to market or continue to market our products and generate revenue. Similar regulations apply in foreign jurisdictions.
Risks Related to the Discovery and Development of Our Product Candidates
We are heavily dependent on the success of our product candidates, which are in various stages of clinical development. We cannot give any assurance that any of our
product candidates, beyond LungFit® PH, will receive certification or regulatory approval, which is necessary before they can be commercialized.
To date, we have invested substantially all of our efforts and financial resources to design and develop our product candidates, including conducting clinical trials and
providing general and administrative support for these operations. Our future success is dependent on our ability to successfully develop, obtain regulatory certification or
approval for, and then successfully commercialize one or more product candidates. We currently generate no revenue from sales of any product, and we may never be able to
develop or commercialize a marketable product.
Two of our product candidates are in the early stages of development and will require additional clinical development (and in some cases additional preclinical
development), management of nonclinical, clinical and manufacturing activities, certification or regulatory approval, obtaining adequate manufacturing supply, building of a
commercial organization and significant marketing efforts before we generate any revenue from product sales. To date, we have conducted 3 pilot clinical trials involving 198
patients with bronchiolitis (mainly caused by RSV) and a pilot clinical trial in nine patients with CF. In addition, Rambam healthcare campus in Israel conducted a compassionate
treatment for two patients with CF who suffer from NTM infections (specifically M. abscessus). All of these trials were conducted outside the U.S. and were not conducted
pursuant to an FDA IND. The results of these trials demonstrated improvements in various endpoints and clinical outcomes. The trials were small, however, and it is likely that the
FDA will view them as not significant because of their size and scope. In addition, the delivery systems were different from the one that we intend to test and market, subject to
FDA approval, in the U.S., further reducing the likelihood that FDA would view these test results as adequate or sufficient to support marketing applications. Two pilot clinical
trials are ongoing, one in viral pneumonia and one in NTM lung infection. Both of these studies are using our LungFit® system (PRO and GO, respectively) and are being
conducted outside the United States. Once completed, if the data are favorable, these trials would support our efforts towards obtaining FDA approval. We therefore intend to
conduct larger clinical trials aiming for statistically and clinically significant favorable results, or we will not be able to obtain certification or regulatory approval to market such
product candidates. It may be years before a pivotal trial is initiated, if at all, for such product candidates. Before a medical device clinical trial can be undertaken in the U.S., the
sponsor of the trial must submit an IDE application for a medical device and the FDA must permit the trial to go forward. We cannot assure that we will obtain such agency
acquiescence in a timely manner, or at all.
We as a company received our first PMA approval of LungFit® PH from the FDA. We can make no assurances as to what any other comparable foreign regulatory
authorities and notified bodies where we are seeking certification or regulatory approval will do. We will expend significant resources to commercialize LungFit® PH in the U.S. and
we can make no assurances that our efforts will be successful. We cannot be certain that any of our product candidates will be successful in clinical trials or receive certification or
regulatory approval. Further, our product candidates may not receive certification or regulatory approval even if they are successful in clinical trials. If we do not receive
certification or regulatory approvals for our product candidates, we may not be able to continue our operations.
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We generally plan to seek certification or regulatory approval to commercialize our approved product and product candidates in the U.S., the EU and in additional foreign
countries. To obtain certification or regulatory approvals we must comply with the numerous and varying regulatory requirements of such countries regarding safety, efficacy,
chemistry, manufacturing and controls, clinical trials, commercial sales, pricing and distribution of our approved product and product candidates. Even if we are successful in
obtaining marketing certification or regulatory approval in one jurisdiction, we cannot ensure that we will obtain certification or regulatory approval in any other jurisdictions. If we
are unable to obtain certification, clearance or approval for our product candidates in multiple jurisdictions, our revenue and results of operations would be negatively affected.
Some of our product candidates may be considered a drug/device combination and the process for obtaining regulatory approval in the U.S. will require compliance with
complex procedures because concordance between two centers of the FDA (CDRH and CDER) is necessary for approval of this combination product. A change in the FDA’s prior
determination that CDRH would lead the review of a marketing application for our product candidates would adversely impact our development timeline and significantly raise our
costs to complete clinical development and obtain regulatory approvals.
The success of our business may also depend upon our ability to identify, license or discover additional product candidates.
Although a substantial amount of our effort will focus on the continued clinical testing, potential certification, regulatory approval and commercialization of LungFit® PH
and our existing product candidates, the success of our business may also depend upon our ability to identify, license or discover additional product candidates. Our research
programs or licensing efforts may fail to yield additional product candidates for clinical development for a number of reasons, including but not limited to the following:
● our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;
● we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
● our product candidates may not succeed in preclinical or clinical testing;
● our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the product candidates unmarketable or
unlikely to receive certification or marketing approval;
● competitors may develop alternatives that render our product candidates obsolete or less attractive;
● product candidates we develop may be covered by third parties’ patents or other exclusive rights;
● the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;
● a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
● a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license or discover
additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new
product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
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The certification or regulatory approval processes of the FDA and comparable foreign regulatory authorities and notified bodies are lengthy, time consuming and inherently
unpredictable. If we are ultimately unable to obtain certification or regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain certification or regulatory approval by the FDA or notified bodies in the EU is unpredictable, typically takes many years following the
commencement of clinical trials and depends upon numerous factors. In addition, certification or regulatory approval policies, regulations or the type and amount of clinical data
necessary to gain certification or regulatory approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may
cause delays in the certification or regulatory approval or the decision not to certify or approve an application. We have not obtained certification or regulatory approval for any
product other than LungFit® PH, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain
certification or regulatory approval.
The process required by the FDA before a new medical device may be marketed in the U.S. generally involves the following:
● completion of or reference to extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory Practice
("GLP”);
● performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the medical device candidate for each proposed indication; and
● submission to the FDA of a 510(k) or PMA, after completion of all pivotal clinical trials.
Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
● the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
● we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is
acceptable;
● the FDA may determine that the population studied in the clinical program was not sufficiently broad or representative to assure safety in the full population for which we
seek approval;
● the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;
● the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a PMA in the U.S. or elsewhere;
● the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party
manufacturers with which we contract for clinical and commercial supplies;
● the approval policies or regulations of the FDA or comparable foreign regulatory authorities and notified bodies may significantly change in a manner rendering our
clinical data insufficient for certification or approval; and
This lengthy certification or regulatory approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain certification or
regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations and prospects.
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Our business and eventual sale of our approved product and product candidates are subject to extensive regulatory requirements, including compliance with labelling,
manufacturing and reporting controls. If we fail or are unable to timely obtain the necessary 510(k) clearances, de-novo authorizations, or PMA, approvals for new products,
or equivalent steps in third countries including the EEA, our ability to generate revenue could be materially harmed.
Our approved product and product candidates are classified as medical devices and are subject to extensive regulation in the United States by the FDA and other federal,
state and local authorities and by comparable foreign regulatory authorities. The FDA can delay, limit or deny 510(k) clearance or PMA approval of a device for many reasons,
including:
● we may not be able to demonstrate to the FDA’s satisfaction that our systems are safe and effective for its intended use;
● the data from our preclinical studies and clinical trials may be insufficient to support clearance or approval, where required;
● the manufacturing process or facilities we use or contract to use may not meet applicable requirements; and
● disruptions at the FDA caused by funding shortages or global health concerns, including the COVID-19 pandemic.
The FDA may refuse our requests for 510(k) clearance, de-novo or PMA of new products, new intended uses or modifications to existing products.
From time to time, legislation is drafted and introduced in the United States that could significantly change the statutory provisions governing any regulatory approval or
clearance that we receive in the United States. In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or
take other actions which may prevent or delay approval or clearance of our test kits under development or impact our ability to modify our currently approved or cleared test kits
on a timely basis.
Our products are also subject to approval, certification and regulation by foreign regulatory and safety agencies. For example, the EU has adopted the EU MDR, which
imposes stricter requirements for the marketing and sale of medical devices, including in the area of clinical evaluation requirements, quality systems and post-market surveillance.
Complying with the requirements of the EU MDR may require us to incur significant expenditures. Failure to meet these requirements could adversely impact our business in the
EEA and other regions that tie their product registrations to the EU requirements.
Once commercialized, modifications to our marketed products may require new 510(k) clearances or approval of PMA supplements, or equivalent steps in other countries or
regions including the EEA, or may require us to cease marketing or recall the modified products until certification, clearances or regulatory approvals are obtained.
Modifications to any of our products once they are commercialized may require new regulatory approvals or clearances, including 510(k) clearances or approval of PMA
supplements, or require us to recall or cease marketing the modified systems until these clearances or approvals are obtained. The FDA requires device manufacturers to initially
make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine that a modification could
not affect safety or efficacy and does not represent a major change in its intended use, so that no new clearance or approval is necessary. However, the FDA can review a
manufacturer’s decision and may disagree. The FDA may also on its own initiative determine that a new clearance or approval of a PMA Supplement is required. We may make
modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA disagrees and requires new clearances or approvals for the
modifications, we may be required to recall and to stop marketing our products as modified, which could require us to redesign our products and/or seek new marketing
authorizations and harm our operating results. In these circumstances, we may be subject to significant enforcement actions.
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For example, if a manufacturer determines that a modification to a PMA approved device could affect its safety or effectiveness or would constitute a major change in its
intended use, then the manufacturer must file for a new a new PMA or approval of a PMA supplement. Where we determine that modifications to our products require a new PMA
approval, we may not be able to obtain those additional approvals for the modifications or additional indications in a timely manner, or at all. Obtaining new approvals can be a
time-consuming process, and delays in obtaining required future approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in
turn would harm our future growth.
For those products sold in the EEA, we must notify our EU notified body if significant changes are made to the products or if there are substantial changes to our quality
assurance systems affecting those products. Obtaining certification can be a time-consuming process, and delays in obtaining required future clearances or approvals would
adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth.
Medical device development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.
The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates that have
shown promising results in early-stage clinical trials may still suffer significant setbacks in subsequent advanced clinical trials. There is a high failure rate for medical devices
proceeding through clinical trials, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed
satisfactorily through preclinical studies and initial clinical trials. A number of companies in the medical device and biopharmaceutical industry have suffered significant setbacks
in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies. Moreover, preclinical and clinical data are often
susceptible to varying interpretations and analyses. We do not know whether any pivotal clinical trials we may conduct will demonstrate consistent or adequate efficacy and
safety sufficient to obtain certification or regulatory approval to market our product candidates. Nor do we know whether the FDA will permit us to proceed directly to pivotal trials
without performing pilot trials in the U.S. using the same delivery system that we will seek approval by the agency.
Legislative or regulatory reforms may make it more difficult and costly for us to obtain certification, regulatory clearance or approval of any future products and to
manufacture, market and distribute our products after certification, clearance or approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval,
manufacture and marketing of regulated products or the reimbursement thereof. In addition, the FDA may change its clearance and approval policies, adopt additional regulations
or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our future products under development or impact our ability to modify our
currently cleared products on a timely basis. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of
planned or future products. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of
such changes, if any, may be.
FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new statutes,
regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to obtain
clearance or approval for, manufacture, market or distribute our products. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when
and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require: additional testing prior to obtaining clearance or
approval; changes to manufacturing methods; recall, replacement or discontinuance of our products; or additional record keeping.
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The FDA’s and comparable foreign regulatory authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or
delay certification, regulatory clearance or approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from
future legislation or administrative action, either in the U.S. or abroad. For example, the results of the upcoming mid-term Congressional elections may impact our business and
industry. Any change in the laws or regulations that govern the clearance and approval processes relating to our current, planned and future products could make it more difficult
and costly to obtain clearance or approval for new products or to produce, market and distribute existing products. Significant delays in receiving clearance or approval or the
failure to receive clearance or approval for any new products would have an adverse effect on our ability to expand our business. If we are slow or unable to adapt to changes in
existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing clearance that we may
have obtained and we may not achieve or sustain profitability.
In addition, on May 25, 2017, the new EU MDR entered into force for medical devices marketed in the EEA. Implementation of the EU MDR was delayed by one year due
to the COVID-19 pandemic. Following its entry into application on May 26, 2021, the EU MDR introduced substantial changes to the obligations with which medical device
manufacturers must comply in the EEA. High risk medical devices are subject to additional scrutiny during the conformity assessment procedure. Specifically, the EU MDR repeals
and replaces the EU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA countries, the regulations is directly applicable, i.e.,
without the need for adoption of EEA country laws implementing them, in all EEA countries and are intended to eliminate current differences in regulation of medical devices
among EEA countries. The EU MDR, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for
medical devices to ensure a high level of safety and health while supporting innovation. The EU MDR entered into application on May 26, 2021 and among other things:
● strengthens the rules on placing devices on the market and reinforce surveillance once they are available;
● establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;
● improves the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
● sets up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EEA; and
● strengthens rules for the assessment of certain high-risk devices which may have to undergo an additional check by experts before they are placed on the market.
The EU MDR imposes a number of new requirements on manufacturers of medical devices. Notified bodies need to be accredited by the EU Member States’ accreditation
bodies to conduct assessment procedures for medical devices in accordance with the Regulation. There are currently a relatively small number of notified bodies that have been
accredited to conduct these assessments. This may delay conformity assessment procedures in the future in the EEA. This may impact our activities in the EEA and the UK, the
renewal of our existing CE Certificates of Conformity and conformity assessment related to future bodies.
Further, the EU MDR imposes increased compliance obligations for us to access the EEA market. Our failure to comply with applicable foreign regulatory requirements,
including those administered by authorities of the EEA countries, could result in enforcement actions against us, including refusal, suspension, variation, or withdrawal of our CE
Certificates of Conformity by our EU notified body, which could impair our ability to market products in the EEA in the future. Any changes to the membership of the EU, such as
the recent departure of the United Kingdom (Brexit), may impact the regulatory requirements for the impacted countries and impair our business operations and our ability to market
products in such countries.
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Brexit, has created significant uncertainty concerning the future relationship between the UK and the EU. On 24 December 2020, the EU and UK reached an agreement in
principle on the framework for their future relationship, the EU-UK Trade and Cooperation Agreement, which took effect on May 1, 2021. The Agreement primarily focuses on
ensuring free trade between the EU and the UK in relation to goods. The Agreement does not however, specifically address medical devices. The Agreement seeks to ensure that
the parties ensure "regulatory cooperation”. Among the changes that will now occur are that Great Britain (England, Scotland and Wales) will be treated as a third country.
Northern Ireland will, with regard to EU regulations, continue to follow the EU regulatory rules. In light of the fact that the CE marking process is set out in EU law, which no longer
applies in the UK, the UK has devised a new route to market culminating in a UK Conformity Assessed ("UKCA”) mark to replace the CE mark. Northern Ireland will, however,
continue to be covered by the regulations governing CE marks. As part of the Agreement, the EU and the UK have agreed to continue to recognize declarations of conformity
based on a self-assessment in the other territory. Given the lack of comparable precedent to Brexit, it is unclear what the financial, regulatory, and legal implications of Brexit will be
and how it will affect us. However, potentially changing regulatory schemes and tariffs engendered by Brexit may add additional complexity, cost and delays in marketing or selling
our products in the United Kingdom.
We are working on NTM lung infection which is very rare.
NTM lung infection is a very rare disease and only a small number of people suffer from this condition. As a result of these small numbers, we may not be able to complete
the study related to NTM or, even if approved, the device for that indication may never be profitable.
We are working on bronchiolitis in infants that usually is caused by the RSV virus.
RSV is a seasonal virus (only in the winter). In our trial, we are heavily dependent on the occurrence and the severity of this virus. Treating for RSV is highly reliant on the
weather conditions in winter. The weather in the winter is not predictable. For example, if the winter is warm or short, or the RSV infection was not severe enough when we
conducted our trial, or the length of stay in the hospital at the year that trial was conducted was different from previous seasons, then we might miss the season or the results can
be significantly different between two seasons or between different countries or even between different sites.
Clinical trials may be necessary to support future product submissions to the FDA. The clinical trial process is lengthy and expensive with uncertain outcomes, and often
requires the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. Delays or failures in our clinical trials will prevent us from
commercializing any modified or new products and will adversely affect our business, operating results and prospects.
Initiating and completing clinical trials necessary to support any future PMAs, and additional safety and efficacy data beyond that typically required for a 510(k)
clearance, for our possible future product candidates, will be time-consuming and expensive and the outcome uncertain. Moreover, the results of early clinical trials are not
necessarily predictive of future results, and any product we advance into clinical trials may not have favorable results in later clinical trials. The results of preclinical studies and
clinical trials of our products conducted to date and ongoing or future studies and trials of our current, planned or future products may not be predictive of the results of later
clinical trials, and interim results of a clinical trial do not necessarily predict final results. Our interpretation of data and results from our clinical trials do not ensure that we will
achieve similar results in future clinical trials. In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have
believed their products performed satisfactorily in preclinical studies and earlier clinical trials have nonetheless failed to replicate results in later clinical trials. Products in later
stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials. Failure can occur at any
stage of clinical testing. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and non-
clinical testing in addition to those we have planned.
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The initiation and completion of any of clinical trials may be prevented, delayed, or halted for numerous reasons. We may experience delays in our ongoing clinical trials
for a number of reasons, which could adversely affect the costs, timing or successful completion of our clinical trials, including related to the following:
● we may be required to submit an IDE application to the FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and
the FDA may reject our IDE application and notify us that we may not begin clinical trials;
● regulators and other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials;
● regulators and/or an IRB, or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or continue a clinical trial at a
prospective or specific trial site;
● we may not reach agreement on acceptable terms with prospective contract research organizations ("CROs”) and clinical trial sites, the terms of which can be subject
to extensive negotiation and may vary significantly among different CROs and trial sites;
● clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product
development programs;
● the number of subjects or patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we
anticipate, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients
may drop out of these clinical trials at a higher rate than we anticipate;
● our third-party contractors, including those manufacturing products or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or
meet their contractual obligations to us in a timely manner, or at all;
● we might have to suspend or terminate clinical trials for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;
● we may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which we may be required to
submit to an IRB and/or regulatory authorities for re-examination;
● regulators, IRBs, or other parties may require or recommend that we or our investigators suspend or terminate clinical research for various reasons, including safety
signals or noncompliance with regulatory requirements;
● the cost of clinical trials may be greater than we anticipate;
● clinical sites may not adhere to the clinical protocol or may drop out of a clinical trial;
● we may be unable to recruit a sufficient number of clinical trial sites;
● regulators, IRBs, or other reviewing bodies may fail to approve or subsequently find fault with our manufacturing processes or facilities of third-party manufacturers
with which we enter into agreement for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be
insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply;
● approval policies or regulations of the FDA or comparable foreign regulatory authorities may change in a manner rendering our clinical data insufficient for
certification or approval;
● our current or future products may have undesirable side effects or other unexpected characteristics; and
● impacts of regional or global public health crises including the ongoing COVID-19 pandemic could adversely affect any clinical trials we are conducting or plan to
conduct, including delays or difficulties in enrolling or onboarding patients, initiating clinical sites, or obtaining the requisite certification or regulatory approvals,
interruption of key clinical trial activities, or supply chain disruptions that delay or make it more difficult or costly to obtain the supplies and materials we need for
clinical trials.
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Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the
commencement or completion of clinical trials may also ultimately lead to the denial of certification or regulatory approval of our product candidates.
Clinical trials must be conducted in accordance with the laws and regulations of the FDA and other comparable foreign regulatory authorities’ legal requirements,
regulations or guidelines, and are subject to oversight by these governmental authorities and IRBs at the medical institutions where the clinical trials are conducted. Conducting
successful clinical trials will require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and
completion of patient participation and follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the
discomforts and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators, support staff, and proximity of patients
to clinical sites and able to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance. For example, patients may be discouraged
from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our
products or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts.
We depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in compliance with GCP requirements. To the extent our collaborators
or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including
achieving full enrollment, we may be affected by increased costs, program delays or both. In addition, clinical trials that are conducted in countries outside the United States may
subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. CROs, as well as expose us
to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care.
Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required and we may not adequately develop such protocols to
support clearance and approval. Further, the FDA may require us to submit data on a greater number of patients than we originally anticipated and/or for a longer follow-up period
or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure of patients to continue to participate in a clinical
trial may cause an increase in costs and delays in the approval and attempted commercialization of our products or result in the failure of the clinical trial. In addition, despite
considerable time and expense invested in our clinical trials, the FDA may not consider our data adequate to demonstrate safety and efficacy. Such increased costs and delays or
failures could adversely affect our business, operating results and prospects.
Even if our products are approved or cleared in the United States and CE marked in the EEA, comparable regulatory authorities of additional foreign countries must also
approve the manufacturing and marketing of our products in those countries. Certification, approval and clearance procedures vary among jurisdictions and can involve
requirements and administrative review periods different from, and greater than, those in the United States or the EEA, including additional preclinical studies or clinical trials. Any
of these occurrences may harm our business, financial condition and prospects significantly.
In the EEA, we consider that our products would be classified as a medical device. However, competent regulatory authorities in EEA countries or notified bodies could
disagree and consider our products to be a drug-delivery combination product composed of a medical device and a medicinal product. In the EEA, a drug-delivery systems can fall
within the scope of the medical device legislation or the pharmaceutical legislation depending on their combination with the relevant medicinal substance.
If our device is considered as being intended to administer a medicinal product and our device and the medicinal product are placed on the market in such a way that they
form a single integral product which is intended exclusively for use in the given combination and which is not reusable, that single integral product shall be governed by Directive
2001/83/EC and be subject to a marketing authorization. The medical device part of the drug-delivery combination product would not need to be CE marked. However, the relevant
general safety and performance requirements set out in Annex I to the EU MDR would apply as far as the safety and performance of the device part of the single integral product
are concerned. As a result, we would need to pursue different regulatory pathways for placing our product on the EEA market which may lead to additional costs and time.
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We may find it difficult to enroll patients in our clinical trials. Difficulty in enrolling patients could delay or prevent clinical trials of our product candidates.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends in part on the
speed at which we can recruit patients to participate in testing our product candidates, and we may experience delays in our clinical trials if we encounter difficulties in enrollment.
Some of the conditions for which we plan to evaluate our current product candidates are for rare diseases. For example, we estimate that 15,000 patients suffer from
refractory NTM lung infection in the U.S. Accordingly, there is a limited patient pool from which to draw for clinical trials. Further, the eligibility criteria of our clinical trials will
further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe
enough or not too advanced to include them in a study.
Additionally, the process of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients to complete our
clinical trials because of the perceived risks and benefits of the product candidate under study, particularly the toxicity of NO in certain doses, the availability and efficacy of
competing therapies and clinical trials, the proximity and availability of clinical trial sites for prospective patients and the patient referral practices of physicians. If patients are
unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining certification or regulatory approval of potential products
will be delayed.
If we experience delays in the completion or termination of any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed,
and our ability to generate product revenue from any of these product candidates could be delayed or prevented. In addition, any delays in completing our clinical trials will
increase our costs, slow down our product candidate development and certification or approval process and jeopardize our ability to commence product sales and generate
revenue. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the
commencement or completion of clinical trials may also ultimately lead to the denial of certification or regulatory approval of our product candidates.
We may encounter substantial delays in our clinical trials, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
Before obtaining certification or marketing approval from regulatory authorities and notified bodies for the sale of our product candidates, we must conduct extensive
clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time consuming and uncertain as to outcome. We cannot
guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Our clinical trials involve infants, children, and adults and, before we are permitted
to enroll them in clinical trials, we must demonstrate that although the research may pose a risk to the subjects, there is a prospect of direct benefit to each patient. We must do so
to the satisfaction of each research site’s IRB. If we fail to adequately demonstrate this to the satisfaction of the relevant IRB, it will decline to approve the research, which could
have significant adverse consequences for us.
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A failure of one or more clinical trials can occur at any stage of testing, and our future clinical trials may not be successful. Events that may prevent successful or timely
completion of clinical development include but are not limited to:
● inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of human clinical trials;
● delays in reaching a consensus with regulatory authorities on study design;
● delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary
significantly among different CROs and clinical trial sites;
● delays in obtaining required IRB approval at each clinical trial site;
● imposition of a clinical hold by regulatory authorities, after review of an IDE application, or equivalent application, or an inspection of our clinical trial operations or study
sites;
● delays in recruiting suitable patients to participate in our clinical trials;
● difficulty collaborating with patient groups and investigators;
● failure by our CROs, other third parties or us to adhere to clinical trial requirements;
● failure to perform in accordance with the FDA’s GPC requirements, or applicable regulatory guidelines in other foreign countries;
● delays in having patients complete participation in a study or return for post-treatment follow-up;
● occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
● changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
● the cost of clinical trials of our product candidates being greater than we anticipate;
● clinical trials of our product candidates producing negative or inconclusive results, which may result in us deciding, or regulators requiring us, to conduct additional
clinical trials or abandon product development programs; and
● delays in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates for use in clinical trials or the inability
to do any of the foregoing.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. We may also be
required to conduct additional safety, efficacy and comparability studies before we will be allowed to start clinical trials. Clinical trial delays could also shorten any periods during
which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize
our product candidates and may harm our business and results of operations.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their certification or regulatory approval, limit the
commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more
restrictive marketing label or the delay or denial of certification or regulatory approval by the FDA or other comparable foreign regulatory authorities. There is currently limited data
regarding possible side effects for an antimicrobial dosage of NO treatments, such as our product candidates. Potential side effects of NO treatments may include high MetHb,
NO2 toxicity, nose bleeding and low blood pressure. Results of our studies may identify unacceptable severity and prevalence of these or other side effects. In such an event, our
studies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities or notified bodies could order us to cease further development of or deny
certification or approval of our product candidates for any or all targeted indications.
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NO-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product liability claims.
Additionally, if our product candidates receive certification or marketing approval, and we or others later identify undesirable side effects caused by such products, a
number of potentially significant negative consequences could result, including but not limited to:
● regulatory authorities and notified bodies may withdraw certification or approvals of such product;
● regulatory authorities may require additional warnings on the label;
● we could be sued and held liable for harm caused to patients; and
● our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our
business, results of operations and prospects.
Risks Related to our Reliance on Third Parties
We rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their
contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain certification or regulatory approval for or commercialize
our approved product or product candidates and our business could be substantially harmed.
We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these
parties for execution of our preclinical studies and clinical trials, and we directly control only certain aspects of their activities, although from a regulatory perspective we are
responsible for their actions. We are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific
standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with GCP, QSR and GLP,
which are regulations and guidelines enforced by the FDA, the competent authorities of the EEA countries, and comparable foreign regulatory authorities for all of our product
candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other
contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA
or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon
inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be
conducted with products that are produced under QSR regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the
certification or regulatory approval process, or have other adverse consequences.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially
reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether they
devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or
meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols,
regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain certification or regulatory approval for or
successfully commercialize our approved product or product candidates. CROs may also generate higher costs than anticipated. As a consequence, our results of operations and
the commercial prospects for our approved product or product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.
Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO
commences work. As a result, delays may occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our
relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a
material adverse impact on our business, financial condition and prospects.
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We rely on third parties to manufacture our NO generator and delivery system. Our business could be harmed if those third parties fail to provide us with sufficient quantities
of our needed supplies, or fail to do so at acceptable quality levels or prices.
We do not currently have the infrastructure or capability internally to manufacture the components of our NO generator and delivery system, and we lack the resources
and the capability to manufacture our approved product or any of our product candidates on a clinical or commercial scale. We plan to rely on third parties for such supplies. There
are a limited number of manufacturers who have the ability to produce our delivery system, and there may be a need to identify alternate manufacturers to prevent a possible
disruption of our clinical trials. Any significant delay or discontinuity in the supply of these components could considerably delay commercialization of our approved product,
completion of our clinical trials, product testing and potential certification or regulatory approval of our product candidates, which could harm our business and results of
operations.
We and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our approved product or product candidates. The
manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
All entities involved in the preparation of medical devices for clinical trials or commercial sale, including our existing contract manufacturers for our approved product and
product candidates, are subject to extensive regulation. Components of a finished medical device product approved for commercial sale or used in late-stage clinical trials must be
manufactured in accordance with QSR in the U.S., and similar requirements in foreign countries. These regulations govern manufacturing processes and procedures (including
record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control
of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our approved product or product candidates that
may not be detectable in final product testing. We, our collaborators or our contract manufacturers must supply all necessary documentation in support of any marketing
application on a timely basis and must adhere to GLP and QSR regulations enforced by the FDA and comparable foreign regulatory authorities through their facilities inspection
program. The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable
regulations as a condition of certification or regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at
any time, audit or inspect a manufacturing facility involved with the preparation of our approved product, product candidates or our other potential products or the associated
quality systems for compliance with the regulations applicable to the activities being conducted. We do not control the manufacturing process of, and are completely dependent
on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, certification or regulatory
approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time following certification or approval of a product for sale, audit the manufacturing facilities of our collaborators and third-
party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations
occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a
third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales, or the temporary or permanent closure of a facility. Any
such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. If we, our collaborators, or any of our third-party
manufacturers fail to maintain regulatory compliance, the FDA or comparable foreign regulatory authorities can impose regulatory sanctions including, among other things, refuse
to approve a pending application for a new drug product, withdrawal of a certification or approval, suspend production, suspend clinical trials, require a recall or suspension of
production. As a result, our business, financial condition and results of operations may be materially harmed.
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Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through a PMA Supplement or Marketing
Authorization Application amendment, or equivalent foreign regulatory filing, which could result in further delays. The regulatory authorities may also require additional studies if
a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and
commercial timelines.
These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required certification or approvals or
commercialization of our approved product or product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more
replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
If we encounter issues with our contract manufacturers or suppliers, we may need to qualify alternative manufacturers or suppliers, which could impair our ability to
sufficiently and timely manufacture and supply LungFit® PH.
We currently depend on contract manufacturers and suppliers for LungFit® PH and its components. Although we could obtain each of these components from other
third-party suppliers, we would need to qualify and obtain FDA approval for another contract manufacturer or supplier as an alternative source for each such component, which
could be costly and cause significant delays. Each of our current commercial manufacturing and supply agreements include limitations on our ability to utilize alternative
manufacturers or suppliers for these components above certain specified thresholds during the terms of the agreements, which impairs our ability to fully implement any future
manufacturing strategies to prevent supply shortages or quality issues.
In addition, some of our suppliers and contract manufacturers, including Spartronics and Medisize, conduct their manufacturing operations for us at a single facility.
Unless and until we qualify additional facilities, we may face limitations in our ability to respond to manufacturing and supply issues. For example, if regulatory, manufacturing or
other problems require one of these manufacturers or suppliers to discontinue production at their respective facility, or if the equipment used for the production of LungFit® PH in
these facilities is significantly damaged or destroyed by fire, flood, earthquake, power loss or similar events, the ability of such manufacturer or supplier to provide components
needed for LungFit® PH, or to manufacture LungFit® PH may be significantly impaired. In the event that these parties suffer a temporary or protracted loss of its facility or
equipment, we would still be required to obtain FDA approval to qualify a new manufacturer or supplier, as applicable, as an alternate manufacturer or source for the respective
component before any components manufactured by such manufacturer or by such supplier could be sold or used.
Any production shortfall that impairs the supply of LungFit® PH or any of these components could have a material adverse effect on our business, financial condition
and results of operations and adversely affect our ability to satisfy demand for LungFit® PH, which could adversely affect our product sales and operating results materially.
We depend on third-party manufacturers, including sole source suppliers, to manufacture LungFit® PH and our product candidates and the materials we require for our
clinical trials. We may not be able to maintain these relationships and could experience supply disruptions outside of our control.
We rely on a network of third-party manufacturers to manufacture and supply LungFit® PH for commercial sale and post-certification/approval clinical trials, and our drug
candidates for clinical trials and any commercial sales if they are approved. As a result of our reliance on these third-party manufacturers and suppliers, including sole source
suppliers of certain components of LungFit® PH and our product candidates, we could be subject to significant supply disruptions. Our supply chain for sourcing raw materials
and manufacturing drug product ready for distribution is a multi-step endeavor. Third-party contract manufacturers supply us with raw materials, and contract manufacturers in the
United States convert these raw materials into drug substance and convert the drug substance into final dosage form. Establishing and managing this supply chain requires a
significant financial commitment and the creation and maintenance of numerous third-party contractual relationships. Although we attempt to effectively manage the business
relationships with companies in our supply chain, we do not have control over their operations.
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We require a supply of LungFit® PH for sale in the United States, and we will require a supply of LungFit® PH for sale in international markets if we obtain certification or
marketing approvals outside of the United States. We currently rely, and expect to continue to rely, on sole source third-party manufacturers to produce starting materials, drug
substance, and final drug product, and to package and label LungFit® PH and our product candidates. While we have identified and expect to qualify and engage back-up third
party manufacturers as additional or alternative suppliers for the commercial supply of LungFit® PH, we currently do not have such arrangements in place. Moreover, some of
these alternative manufacturers will have to be approved by the FDA before we can use them for manufacturing LungFit® PH. It is also possible that supplies of materials that
cannot be second-sourced can be managed with inventory planning. There can be no assurance, however, that failure of any of our original sole source third party manufacturers
to meet our commercial demands for LungFit® PH in a timely manner, or our failure to engage qualified additional or back-up suppliers for the commercial supply of LungFit® PH,
would not have a material adverse effect on commercialization of LungFit® and our business.
Supply disruptions may result from a number of factors, including shortages in product raw materials, labor or technical difficulties, regulatory inspections or restrictions,
shipping or customs delays or any other performance failure by any third-party manufacturer on which we rely. Any supply disruptions could disrupt sales of LungFit ® PH and/or
the timing of our clinical trials, which could have a material adverse impact on our business. Furthermore, we may be required to modify our production methods to permit us to
economically manufacture our drugs for sale and our drug candidates for clinical trials. These modifications may require us to re-evaluate our resources and the resources of our
third-party manufacturers, which could result in abrupt changes in our production methods and supplies.
In the course of providing its services, a contract manufacturer may develop process technology related to the manufacture of our products or drug candidates that the
manufacturer owns, either independently or jointly with us. This would increase our reliance on that manufacturer or require us to obtain a license from that manufacturer in order
to have LungFit® PH or our drug candidates manufactured by other suppliers utilizing the same process.
The failure of our third party manufacturers to meet our commercial demands for LungFit® PH in a timely manner, or our failure to engage qualified additional or back-up
suppliers for the commercial supply of LungFit® PH, would have a material adverse effect on our business, results of operations and financial position.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be
misappropriated or disclosed.
Because we rely on third parties to develop and manufacture LungFit® PH and our product candidates, we must, at times, share trade secrets with them. We seek to
protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting
agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These
agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when
working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are
inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our
know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material
adverse effect on our business.
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Risks Related to Our Intellectual Property
If we are unable to obtain and maintain effective patent rights for LungFit® PH, our product candidates or any future product candidates, we may not be able to compete
effectively in our markets.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies, approved
product and product candidates. Our success depends in large part on our and our licensors’ ability to obtain and maintain intellectual property protection in the U.S. and in other
countries with respect to our proprietary technology and products.
We have sought to protect our proprietary position by filing patent applications in the U.S. and abroad related to our novel technologies and products that are important
to our business. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or
in a timely manner. We may also fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
The patent position of medical device, biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for
which legal principles remain unsolved. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our approved product or
product candidates in the U.S. or in other foreign countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been
found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our
approved product or product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, found unenforceable
or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our
approved product or product candidates or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third
parties, which may have an adverse impact on our business.
We have filed several patent applications directed to various aspects of our approved product and product candidates. We cannot offer any assurances about which, if
any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful
opposition to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of our
approved product or any product candidates that we may develop. Further, if we encounter delays in certification or regulatory approvals, the period of time during which we could
market a product candidate under patent protection could be reduced. In addition, some or all of our patent applications may not result in issued patents.
If we cannot obtain and maintain effective patent rights for our approved product or product candidates, we may not be able to compete effectively and our business and
results of operations would be harmed.
Intellectual property rights of third parties could adversely affect our ability to commercialize our approved product or product candidates, and we might be required to
litigate or obtain licenses from third parties in order to develop or market our approved product or product candidates. Such litigation or licenses could be costly or not
available on commercially reasonable terms.
Given the number of companies developing various types of NO devices, it is difficult to conclusively assess our freedom to operate without infringing on third party
rights. There are numerous companies that have pending patent applications and issued patents in the field of therapeutic NO delivery. Our competitive position may suffer if
patents issued to third parties or other third-party intellectual property rights cover our products or elements thereof, or our manufacture or uses relevant to our development
plans. In such cases, we may not be in a position to develop or commercialize our approved product or product candidates unless we successfully pursue litigation to nullify or
invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable
terms. There may be pending patent applications of which we are not aware, that if they result in issued patents, could be alleged to be infringed by our approved product or
product candidates. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, be forced to abandon our approved
product or product candidates or seek a license from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.
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It is also possible that we have failed to identify relevant third-party patents or applications. Patent applications in the U.S. and elsewhere are published approximately 18
months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our
approved product, product candidates or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been
published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our approved product or product candidates or the use of
our approved product or product candidates. Third-party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we
will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required
to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or
marketing our approved product or product candidate. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited
from commercializing our approved product or product candidate that is held to be infringing. We might, if possible, also be forced to redesign our approved product or product
candidate so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial
financial and management resources that we would otherwise be able to devote to our business.
Patent terms are limited and we may not be able to effectively protect our products and business.
Patents have a limited lifespan. In the U.S., the natural expiration of a patent is generally 20 years after it is filed. Although various extensions may be available, the life of a
patent, and the protection it affords, is limited.
In addition, upon issuance in the U.S., the patent term may be extended based on certain delays caused by the applicant(s) or the U.S. Patent and Trademark Office
("USPTO”). Even if we obtain effective patent rights for our approved product or product candidates, we may not have sufficient patent terms or regulatory exclusivity to protect
our products, and our business and results of operations would be adversely affected.
Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our
issued patents.
Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries may diminish the value of our patents or narrow the scope of our
patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. Publications of discoveries in the scientific literature often lag
behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We
therefore cannot be certain that we or our licensor were the first to make the invention claimed in our owned and licensed patents or pending applications, or that we or our licensor
were the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, in the U.S. prior to March 15, 2013, the first to invent the
claimed invention is entitled to the patent, while outside the U.S., the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America
Invents Act ("Leahy-Smith Act”), enacted on September 16, 2011, the U.S. has moved to a first to file system. The Leahy-Smith Act also includes a number of significant changes
that affect the way patent applications will be prosecuted and may also affect patent litigation. The effects of these changes are currently unclear as the USPTO must still
implement various regulations, the courts have yet to address these provisions and the applicability of the act and new regulations on specific patents discussed herein have not
been determined and would need to be reviewed. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of
our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
If we are unable to maintain effective proprietary rights for our approved product, product candidates or any future product candidates, we may not be able to compete
effectively in our markets.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable
or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that
involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary
technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the
integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology
systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies
for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
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All of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology enter into confidentiality
agreements and we expect they will assign all rights in their inventions to us pursuant to the terms of such agreements; however, we cannot provide any assurances that all such
agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access
to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair
our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have
insufficient recourse against third parties for misappropriating the trade secret.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There have been many lawsuits and other
proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including with respect to NO delivery systems and
formulations, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO and corresponding foreign patent offices.
Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As
the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our approved product or product candidates may be subject to claims
of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to
materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our approved product or product candidates. We do not know
whether there are any third-party patents that would impair our ability to commercialize our approved product or such product candidates. We also cannot be sure that we have
identified each and every patent and pending patent application in the U.S. and abroad that is relevant or necessary to the commercialization of our approved product and product
candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our approved
product or product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any
third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our approved product or any of our product candidates, any molecules
formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize our approved product or
such product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, the
holders of any such patents may be able to block our ability to develop and commercialize our approved product or the applicable product candidate unless we obtained a license
or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our
approved product or one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a
substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including
treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be
impossible or require substantial time and monetary expenditure.
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We may not be successful in obtaining or maintaining necessary rights to our approved product or product candidates through acquisitions and in-licenses.
We currently own and have in-licensed rights to intellectual property through licenses from third parties and under patents that we own, to develop our approved product
and product candidates. Because our programs may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to
acquire, in-license or use these proprietary rights. In addition, our approved product or product candidates may require specific formulations to work effectively and efficiently and
the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual
property rights from third parties that we identify as necessary for our approved product or product candidates. The licensing and acquisition of third-party intellectual property
rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may
consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and
commercialization capabilities.
For example, we sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development underwritten agreements with
these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration.
Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution
may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party
intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party
intellectual property rights, we may have to abandon development of that program and our business and financial condition could suffer.
If we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third parties or otherwise experience
disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
We are currently a party to intellectual property license agreements that are important to our business, and we may enter into additional license agreements in the future.
Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise regarding
intellectual property subject to a licensing agreement, including but not limited to:
● the scope of rights granted under the license agreement and other interpretation-related issues;
● the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
● the sublicensing of patent and other rights;
● our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
● the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and
● the priority of invention of patented technology.
If disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable
terms, we may be unable to successfully develop and commercialize the affected approved product or product candidates.
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We may be involved in lawsuits or post-grant proceedings to protect or enforce our patents or the patents of our licensor, which could be expensive, time consuming and
unsuccessful.
Competitors may infringe the patents of our licensor. If our licensing partner were to initiate legal proceedings against a third party to enforce a patent covering one of our
product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the U.S., defendant
counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory
requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with
prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity
and unenforceability is unpredictable.
Pending patent applications may be subject to third-party pre-issuance submission of prior art to the USPTO, and any patents issuing thereon may become involved in
derivation, reexamination, inter parties review, post grant review, interference proceedings or other patent office proceedings in the U.S. challenging our patent rights.
Proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or
patent applications or those of our licensor. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing
party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or proceedings may fail and,
even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material
adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties or enter
into development partnerships that would help us bring our approved product and product candidates to market.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim
proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that
our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential
competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work
for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property,
including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these
claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely
impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other
employees.
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We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation with respect to our patents or other
intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in
developing our approved product or product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to
compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of,
or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction to management and other employees. To the extent that our employees have not effectively waived the right to
compensation with respect to inventions that they helped create, they may be able to assert claims for compensation with respect to our future revenue may be successful. As a
result, we may receive less revenue from future products if such claims are successful which in turn could impact our future profitability.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in
the biotechnology industry involves both technological and legal complexity. Therefore, obtaining and enforcing biotechnology patents is costly, time consuming and inherently
uncertain. In addition, the U.S. has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the
scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to
our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on future actions by
the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new
patents or to enforce our existing patents and patents that we might obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our approved product or product candidates in all countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as federal and state laws in the U.S.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise
infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. These products may compete with our products and our
patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain
countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to
biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights
generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from
other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third
parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property
that we develop or license.
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Risks Related to Our Business Operations
We manage our business through a small number of employees and key consultants.
As of March 31, 2022, we had a total of 62 full-time employees and a number of dedicated consultants, of whom work for us on a part-time basis. In addition, any of our
employees and consultants may leave our company at any time, subject to certain notice periods. The loss of the services of any of our executive officers or any key employees or
consultants would adversely affect our ability to execute our business plan and harm our operating results.
We do not currently carry "key person” insurance on the lives of members of management.
We will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations.
As our development and commercialization plans and strategies develop, we will need additional managerial, operational, sales, marketing, financial, legal and other
resources. The competition for qualified personnel in the life sciences field is intense. Due to this intense competition, we may be unable to attract and retain qualified personnel
necessary for the development of our business or to recruit suitable replacement personnel. The impact of the COVID-19 pandemic has also resulted in higher employee costs,
increased attrition and significant shifts in the labor market and employee expectations. We may experience difficulty retaining and motivating existing employees and attracting
qualified personnel to fill key positions. In addition, labor shortages and employee mobility may make it more difficult to hire and retain employees.
Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing
these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss
of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may
divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our
expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future
financial performance and our ability to commercialize our approved product and compete effectively will depend, in part, on our ability to effectively manage any future growth.
International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the U.S.,
the EEA or Israel.
Other than our operations that are located in the EEA and Israel (as further described below), we currently have limited international operations, but our business strategy
incorporates potentially significant international expansion, particularly in anticipation of certification or regulatory approval of our product candidates. We plan to maintain non-
commercial infrastructure and conduct physician and patient association outreach activities, as well as clinical trials, outside of the U.S., the EEA and Israel. Doing business
internationally involves a number of risks, including but not limited to:
● multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements
and other governmental certification, approvals, permits and licenses;
● failure by us to obtain certification or regulatory approvals for the use of our products in various countries;
● additional potentially relevant third-party patent rights;
● complexities and difficulties in obtaining protection and enforcing our intellectual property;
● difficulties in staffing and managing foreign operations;
● complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
● limits on our ability to penetrate international markets;
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● financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our
products and exposure to foreign currency exchange rate fluctuations;
● natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business
restrictions;
● certain expenses including, among others, expenses for travel, translation and insurance; and
● regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the FCPA, its books
and records provisions or its anti-bribery provisions.
Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
The use of any of our products could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.
Our business exposes us to an inherent risk of potential product liability or similar claims. The medical device industry has historically been litigious, and we face financial
exposure to product liability or similar claims if the use of any of our products were to cause or contribute to injury or death. There is also the possibility that defects in the design
or manufacture of any of our products might necessitate a product recall. Although we plan to maintain product liability insurance, the coverage limits of these policies may not be
adequate to cover future claims. In the future, we may be unable to maintain product liability insurance on acceptable terms or at reasonable costs and such insurance may not
provide us with adequate coverage against potential liabilities. A product liability claim, regardless of merit or ultimate outcome, or any product recall could result in substantial
costs to us, damage to our reputation, customer dissatisfaction and frustration and a substantial diversion of management attention. A successful claim brought against us in
excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations.
We face business disruption and related risks resulting from the COVID-19 pandemic, which could have a material adverse effect on our business plan.
The development of our product candidates or commercialization of our approved product could be further disrupted and adversely affected by the ongoing COVID-19
pandemic. The spread of COVID-19 resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic on March 11, 2020. The Company has
assessed the impact COVID-19 may have on our business plans and its ability to conduct the preclinical studies and clinical trials as well as on our reliance on third-party
manufacturing and our supply chain. The Company experienced significant delays in the supply chain for LungFit® PH due to the redundancy in parts and suppliers for ventilator
manufacturing, which has since been remedied. However, there can be no assurance that we will be able to further avoid part or all of any impact from COVID-19 or its
consequences. The extent to which the COVID-19 pandemic and global efforts to contain its spread may impact our operations will depend on future developments.
We are dependent on information technology and our systems and infrastructure face certain risks, including from cybersecurity breaches and data leakage.
We rely to a large extent upon sophisticated information technology systems to operate our businesses, some of which are managed, hosted provided and/or used for
third-parties or their vendors. We collect, store and transmit large amounts of confidential information (including personal information and pseudonymized information), and we
deploy and operate an array of technical and procedural controls to maintain the confidentiality and integrity of such confidential information. A significant breakdown, invasion,
corruption, destruction, interruption, or unavailability of critical information technology systems or infrastructure, by our workforce, others with authorized access to our systems
or unauthorized persons could negatively impact operations. Hardware, software, or applications we develop or obtain from third parties may contain defects in design or
manufacture or other supply chain problems that could unexpectedly compromise our information and network security.
The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional
destruction of confidential information stored in our or our third-party providers’ systems, portable media or storage devices. We could also experience a business interruption,
theft of confidential information or reputational damage from industrial espionage attacks, malware or other cyber-attacks (including ransomware), which may compromise our
system infrastructure or lead to data leakage, either internally or at our third-party providers. While we have invested in the protection of data and information technology, there
can be no assurance that our efforts will prevent service interruptions or security breaches. Any such interruption or breach of our systems could adversely affect our business
operations and/or result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business and reputational harm to us.
In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing
requirements applicable to our business, compliance with those requirements could also result in additional costs.
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Risks Related to the Ownership of our Common Stock
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes
between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for (A) any derivative action or proceeding brought on
behalf of us; (B) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (C) any action
asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our Amended and Restated Certificate of Incorporation or our Bylaws; or
(D) any action asserting a claim against us governed by the internal affairs doctrine. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to
enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to
enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act
creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations
thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Securities Act or any other claim for which the
federal and state courts have concurrent jurisdiction.
The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or
other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum
provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other
jurisdictions, which could adversely affect our business and financial condition.
Recent trading in our common stock has been volatile and may continue to be volatile in the future.
The stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of biotechnology and specialty pharmaceutical
companies, particularly companies like ours without product revenues and earnings, have been highly volatile and may continue to be highly volatile in the future. This volatility
has often been unrelated to the operating performance of particular companies.
The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:
● announcements of technological innovations or new products by us or our competitors;
● announcement of FDA approval, disapproval or delay of approval of our product candidates or other product-related actions;
● developments involving our discovery efforts and clinical trials;
● developments or disputes concerning patents or proprietary rights, including announcements of infringement, interference or other litigation against us or our potential
licensees;
● developments involving our efforts to commercialize our products, including developments impacting the timing of commercialization;
● announcements concerning our competitors, or the biotechnology, pharmaceutical or drug delivery industry in general;
● public concerns as to the safety or efficacy of our approved product or product candidates or our competitors’ products;
● changes in government regulation of the pharmaceutical or medical industry;
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● changes in the reimbursement policies of third party insurance companies or government agencies;
● actual or anticipated fluctuations in our operating results;
● changes in financial estimates or recommendations by securities analysts;
● developments involving corporate collaborators, if any;
● changes in accounting principles; and
● the loss of any of our key scientific or management personnel. In the past, securities class action litigation has often been brought against companies that experience
volatility in the market price of their securities. Whether or not meritorious, litigation brought against us could result in substantial costs and a diversion of management’s attention
and resources, which could adversely affect our business, operating results and financial condition.
We cannot assure you that our common stock price and volume will remain at current levels in which case investors may sustain large losses.
In addition, the stock market in general, and the stocks of small-cap biotechnology companies in particular, have experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our
common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in these
"Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.
Antidilution provisions in certain of our outstanding warrants may affect the interests of our common stockholders.
On March 16, 2018, Empery Asset Master, Ltd., Empery Tax Efficient, LP and Empery Tax Efficient II, LP, (collectively, "Empery”) filed a complaint in the Supreme Court of
the State of New York (the "Trial Court”) against us relating to the notice of adjustment of both the exercise price of and the number of warrant shares issuable under warrants
issued to Empery in January 2017. Empery alleges that, as a result of certain circumstances in connection with a February 2018 financing transaction, the 166,672 warrants issued to
Empery in January 2017 provide for adjustments to both the exercise price of the warrants and the number of warrant shares issuable upon such exercise.
On August 20, 2020, the Trial Court denied our summary judgment motion as to the first and third claims for relief, but dismissed the second claim for declaratory judgment
as moot (the "August 20 Decision”). The Appellate Division First Department denied our appeal of the August 20 Decision on September 30, 2021. Following a three-day bench
trial, the Trial Court issued a decision on October 14, 2021, finding in favor of Empery on the two remaining claims, granting reformation of the Warrant Agreement, and awarding
Empery damages in the aggregate amount of approximately $5.8 million. On November 12, 2021, we filed a notice of appeal. Pending appeal, we are required to use approximately
$7.4 million of cash as collateral to secure a supersedeas bond for the full amount of damages and interest in case we are unsuccessful in our appeal. On September 30, 2021, we
recorded an estimate for a contingent loss of $2.4 million related to the Empery litigation. In consultation with outside legal counsel, we believe that we have several meritorious
defenses against the claims, and the decision of the Trial Court.
On December 28, 2021 Hudson Bay Master Fund ("Hudson”) filed a lawsuit against us related to the notice of adjustment of the exercise price of and the number of
warrant shares issuable under warrants issued to Hudson in January 2017. Hudson received 83,334 warrants in connection with the January 2017 offering.
Hudson’s complaint alleges breach of contract and that Hudson is entitled to damages estimated at approximately $2.6 million as a result of certain adjustments to the
exercise price and number of warrant shares issuable following the February 2018 financing transaction. In consultation with outside legal counsel, we believe that we have several
meritorious defenses against Hudson’s claims. We believe that Hudson’s claims have no merit and we will vigorously defend such lawsuit.
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Anti-takeover provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of Delaware law, might
discourage, delay or prevent a change in control of our company or changes in our Board of Directors or management and, therefore, depress the trading price of our
common stock.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may depress the market price of our
common stock by acting to discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which
you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove
members of our Board of Directors or our management. Our corporate governance documents include provisions:
● providing that directors may be removed by stockholders with or without cause;
● limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;
● requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our
Board of Directors;
● authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock; and
● limiting the liability of, and providing indemnification to, our directors and officers.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which limits the ability of
stockholders owning in excess of 15% of our outstanding voting stock from engaging in certain business combinations with us. Any provision of our amended and restated
certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our
stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common
stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
Our business could suffer if we lose the services of key members of our senior management, key advisors or personnel.
Risks Related to Employee Matters
We are dependent upon the continued services of key members of our senior management and a limited number of key advisors and personnel. The loss of any one of
these individuals could disrupt our operations or our strategic plans. Additionally, our future success will depend on, among other things, our ability to continue to hire and retain
the necessary qualified scientific, technical and managerial personnel, for whom we compete with numerous other companies, academic institutions and organizations. The loss of
members of our management team, key advisors or personnel, or our inability to attract or retain other qualified personnel or advisors, could have a material adverse effect on our
business, results of operations and financial condition. Though members of our sales force generally enter into noncompetition agreements that restrict their ability to compete
with us, most of the members of our executive management team are not subject to such agreements. Accordingly, the adverse effect resulting from the loss of certain executives
could be compounded by our inability to prevent them from competing with us.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to
provide accurate information to the FDA, to comply with federal and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately, to
disclose unauthorized activities to us or to comply with our code of business conduct and ethics. In particular, sales, marketing and business arrangements in the healthcare
industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, false claims, inappropriate promotion, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and
serious harm to our reputation. The precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are
instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the
imposition of significant fines or other sanctions.
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Employee litigation and unfavorable publicity could negatively affect our future business.
Our employees may, from time to time, bring lawsuits against us regarding injury, creating a hostile work place, discrimination, wage and hour disputes, sexual harassment,
or other employment issues. In recent years, there has been an increase in the number of discrimination and harassment claims generally. Coupled with the expansion of social
media platforms and similar devices that allow individuals access to a broad audience, these claims have had a significant negative impact on some businesses. Certain companies
that have faced employment- or harassment-related lawsuits have had to terminate management or other key personnel, and have suffered reputational harm that has negatively
impacted their business. If we were to face any employment-related claims, our business could be negatively affected.
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the
expertise of some of our former employees.
We generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our employees and certain key
consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce these
agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former
employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee
to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the
courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be
harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be
diminished.
The increasing use of social media platforms presents new risks and challenges.
General Risk Factors
Social media is increasingly being used to communicate about our research, development candidates, investigational medicines, and the diseases our development
candidates and investigational medicines are being developed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such
use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business, resulting in potential regulatory actions against
us. For example, subjects may use social media channels to comment on their experience in an ongoing blinded clinical trial or to report an alleged adverse event. When such
disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend our business or the
public’s legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our development candidates
and investigational medicines. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social
networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face regulatory actions, or incur other
harm to our business.
Unfavorable U.S. or global economic conditions could adversely affect our business, financial condition, or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and financial markets, including by the current COVID-19 pandemic,
recent geopolitical events, unfavorable changes related to interest rates and rising inflation. The most recent global financial crisis caused extreme volatility and disruptions in the
capital and credit markets. A severe or prolonged economic downturn, such as the most recent global financial crisis, could result in a variety of risks to our business, including
weakened demand for our investigational medicines and our ability to raise additional capital when needed on favorable terms, if at all. A weak or declining economy could strain
our suppliers, possibly resulting in supply disruption, or cause delays in payments for our services by third-party payors or our collaborators. Any of the foregoing could harm our
business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
71
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our executive office is located at 900 Stewart Avenue, Suite 310, Garden City, NY 11530 under a lease that expires in June 2031. We also lease office space in Garden City,
New York under a lease that expires in June 2023, an office in Dublin, Ireland under a lease that expires in September 2026 and office spaces in Rehovot, Israel under several lease
agreements that expire over the course of the next fiscal year. The Company has a research and development facility in Madison, Wisconsin under a lease that expires in May 2026
ITEM 3. LEGAL PROCEEDINGS
On March 16, 2018, Empery filed a complaint in the Trial Court against us relating to the notice of adjustment of both the exercise price of and the number of warrant
shares issuable under warrants issued to Empery in January 2017. Empery alleges that, as a result of certain circumstances in connection with a February 2018 financing
transaction, the 166,672 warrants issued to Empery in January 2017 provide for adjustments to both the exercise price of the warrants and the number of warrant shares issuable
upon such exercise.
On August 20, 2020, the Trial Court denied our summary judgment motion as to the first and third claims for relief, but dismissed the second claim for declaratory judgment
as moot. The Appellate Division First Department denied our appeal of the August 20 Decision on September 30, 2021. Following a three-day bench trial, the Trial Court issued a
decision on October 14, 2021, finding in favor of Empery on the two remaining claims, granting reformation of the Warrant Agreement, and awarding Empery damages in the
aggregate amount of approximately $5.8 million. On November 12, 2021, we filed a notice of appeal. Pending appeal, we are required to use approximately $7.4 million of cash as
collateral to secure a supersedeas bond for the full amount of damages and interest in case we are unsuccessful in our appeal. On September 30, 2021, we recorded an estimate for a
contingent loss of $2.4 million related to the Empery litigation. In consultation with outside legal counsel, we believe that we have several meritorious defenses against the claims,
and the decision of the Trial Court.
On December 28, 2021 Hudson Bay Master Fund ("Hudson”) filed a lawsuit in the Supreme Court of the State of New York against us relating to the notice of adjustment
of the exercise price of and the number of warrant shares issuable under warrants issued to Hudson in January 2017. Hudson received 83,334 warrants in connection with the
January 2017 offering.
Hudson’s complaint alleges breach of contract and that Hudson is entitled to damages estimated at approximately $2.6 million as a result of certain adjustments to the
exercise price and number of warrant shares issuable following the February 2018 financing transaction. In consultation with outside legal counsel, we believe that we have several
meritorious defenses against Hudson’s claims. We believe that Hudson’s claims have no merit and we will vigorously defend such lawsuit.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
72
PART II
Our common stock has been listed under the symbol "XAIR” on the Nasdaq Capital Market since May 7, 2019. From August 28, 2018 until May 6, 2019, our common stock was
quoted on the OTC Pink.
Stockholders
As of January 15, 2022, there were approximately 106 holders of record for shares of our common stock. This does not reflect beneficial stockholders who held their common
stock in "street” or nominee name through brokerage firms.
Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding securities authorized for issuance under our equity compensation plans is contained in Part III, Item 12 of this Annual Report.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations
and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future.
Unregistered Sales of Equity Securities
(a) Sales of Unregistered Securities
None.
(b) Use of Proceeds
None.
(c) Issuer Purchases of Equity Securities
None.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "our consolidated financial statements
and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report contain forward-looking statements that
involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results could differ materially from
those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A "Risk
Factors.”
Introduction
We are a commercial stage medical device and biopharmaceutical company developing a platform of nitric oxide ("NO”) generators and delivery systems (the "LungFit®
platform”) capable of generating NO from ambient air. Our first device, LungFit® PH received approval for PPHN in June 2022. LungFit® can deliver NO either continuously or for a
fixed amount of time at various flow rates and has the ability to either titrate dose on demand or maintain a constant dose. We believe that LungFit® can be used to treat patients
on ventilators that require NO, as well as patients with chronic or acute severe lung infections via delivery through a breathing mask or similar apparatus. Furthermore, we believe
that there is a high unmet medical need for patients suffering from certain severe lung infections that the LungFit® platform can potentially address. Our current areas of focus with
LungFit® is PPHN, AVP including COVID-19, BRO NTM lung infection and those with various severe lung infections with underlying COPD. Our current product candidates will
be subject to premarket reviews and certifications or regulatory approvals by the FDA, as well as comparable foreign regulatory authorities in other countries or regions.
We also expect to be certified under the EU MDR in the second half of calendar year 2022. We also expect to make certain regulatory filings outside of the U.S. this year. If
certifications or regulatory approvals are obtained, we anticipate a product launch in 2023 outside of the U.S.
COVID-19
The development of our product candidates and the commercialization of our approved product could be further disrupted and adversely affected by a resurgence of the
COVID-19 pandemic. We experienced significant delays in the supply chain for the LungFit® system due to the redundancy in parts and suppliers for ventilator manufacturing,
which have since been remedied. We continually assess the impact that COVID-19 may have on our business plans and our ability to conduct the preclinical studies and clinical
trials as well as on our reliance on third-party manufacturing and our supply chain. However, there can be no assurance that we will be able to avoid part or all of any impact from
COVID-19 or its consequences if a resurgence occurs.
Financial Operations Overview
Critical Accounting Policies and Use of Estimates
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. On an ongoing basis, we evaluate our significant estimates
and assumptions including expense recognition and accrual assumptions under consulting and clinical trial agreements, stock-based compensation, impairment assessments,
accounting for licensed rights to use technologies and other long-lived assets, contingency recognition and accruals and the determination of valuation allowance requirements on
deferred tax attributes.
Research and Development
Research and development expenses are charged to the statement of operations as incurred. Research and development expenses include salaries, benefits, stock-based
compensation and costs incurred by outside laboratories, manufacturers, clinical research organizations, consultants, and accredited facilities in connection with clinical trials and
preclinical studies. Research and development expenses are partially offset by the benefit of tax incentive payments for qualified research and development expenditures from the
Australian tax authority ("AU Tax Rebates”). We do not record AU Tax Rebates until payment is received due to the uncertainty of receipt. As of March 31, 2022, we have not
received any AU Tax Rebates.
74
Stock-Based Compensation
We measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. Fair
value for restricted stock awards is valued using the closing price of our common stock on the date of grant. The grant date fair value is recognized over the period during which an
employee and non-employee is required to provide service in exchange for the award – the requisite service period. The grant date fair value of employee share options is estimated
using the Black-Scholes option pricing model. The risk-free interest rate assumptions were based upon the observed interest rates appropriate for the expected term of the equity
instruments. The expected dividend yield was assumed to be zero as we have not paid any dividends since our inception and do not anticipate paying dividends in the foreseeable
future. Due to our limited trading history, we utilize an implied volatility based on an aggregate of guideline companies. In 2020, we began to incorporate and weight our historical
volatility with our peer group in order to obtain expected volatility. The peer companies selected have similar characteristics, including industry and market capitalization. We
routinely review our calculation of volatility based on our life cycle, our peer group, and other factors. We use the simplified method to estimate the expected term.
Licensed Right to Use Technology
Licensed right to use technology that is considered platform technology with alternative future uses is recorded as an intangible asset and is being amortized on a
straight-line method over its estimated useful life, determined to be thirteen years.
Income Taxes
We account for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is
probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before
we are able to realize the benefit, or that future deductibility is uncertain. As of March 31, 2022 and March 31, 2021, we recorded a valuation allowance to the full extent of our net
deferred tax assets since the likelihood of realization of the benefit does not meet the more likely than not threshold.
We file U.S. Federal, various state, and International income tax returns. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing
facts and circumstances. Such adjustment is reflected in the tax provision when appropriate. We will recognize interest and penalties, if any, related to unrecognized tax benefits in
income taxes in the statements of operations. Tax years 2018 through 2022 remain open to examination by federal and state tax jurisdictions. We file tax returns in Israel for which
tax years 2016 through 2022 remain open. In addition, we file tax returns in Ireland and Australia and the tax years 2021 and 2022 remain open.
COMMITMENTS AND CONTINGENCIES
License Agreements
On October 22, 2013, the Company entered into a patent license agreement (the "CareFusion Agreement”) with SensorMedics Corporation, a subsidiary of CareFusion
Corp. ("CareFusion”), pursuant to which the Company agreed to pay to CareFusion a non-refundable upfront fee of $150 thousand that is credited against future royalty payments,
and is obligated to pay 5% royalties of any licensed product net sales, but at least $50 thousand per annum during the term of the agreement. As of March 31, 2021, the Company
has not paid any royalties to CareFusion since the Company has not received any revenues from the technology associated with the license under the CareFusion Agreement. The
term of the CareFusion Agreement extends through the life of applicable patents and may be terminated by either party with 60 days’ prior written notice in the event of a breach of
the CareFusion Agreement, and may be terminated unilaterally by CareFusion with 30 days’ prior written notice in the event that the Company does not meet certain milestones.
75
In August 2015, BA Ltd. entered into the Option Agreement with Pulmonox whereby BA Ltd. acquired the option to purchase certain intellectual property assets and
rights on September 7, 2016 for $25 thousand. On January 13, 2017, we exercised the Option and paid $500 thousand to Pulmonox. We become obligated to make certain one-time
development and sales milestone payments to Pulmonox, commencing with the date on which we receive regulatory approval for the commercial sale of the first product candidate
qualifying under the Option Agreement. These milestone payments are capped at a total of $87 million across three separate and distinct indications that fall under the agreement,
with the majority of them, approximately $83 million, being sales-related based on cumulative sales milestones for each of the three products.
On January 31, 2018, we entered into the NitricGen Agreement to acquire a global, exclusive, transferable license and associated assets including intellectual property,
know-how, trade secrets and confidential information from NitricGen related to the LungFit® We acquired the licensing right to use the technology and agreed to pay NitricGen a
total of $2 million in future payments based upon achieving certain milestones, as defined in the NitricGen Agreement, and royalties on sales of the LungFit® We paid NitricGen
$100 thousand upon the execution of the NitricGen Agreement, $100 thousand upon achieving the next milestone and issued to NitricGen 100,000 warrants to purchase our
common stock valued at $295 thousand upon executing the NitricGen Agreement. The remaining future milestone payments are $1.8 million, of which $1.5 million are due within six
months.
Contingencies
On March 16, 2018, Empery filed a complaint in the Trial Court against us relating to the notice of adjustment of both the exercise price of and the number of warrant
shares issuable under warrants issued to Empery in January 2017. Empery alleges that, as a result of certain circumstances in connection with a February 2018 financing
transaction, the 166,672 warrants issued to Empery in January 2017 provide for adjustments to both the exercise price of the warrants and the number of warrant shares issuable
upon such exercise.
On August 20, 2020, the Trial Court denied our summary judgment motion as to the first and third claims for relief, but dismissed the second claim for declaratory judgment
as moot. The Appellate Division First Department denied our appeal of the August 20 Decision on September 30, 2021. Following a three-day bench trial, the Trial Court issued a
decision on October 14, 2021, finding in favor of Empery on the two remaining claims, granting reformation of the Warrant Agreement, and awarding Empery damages in the
aggregate amount of approximately $5.8 million. On November 12, 2021, we filed a notice of appeal. Pending appeal, we are required to use approximately $7.4 million of cash as
collateral to secure a supersedeas bond for the full amount of damages and interest in case we are unsuccessful in our appeal. On September 30, 2021, we recorded an estimate for a
contingent loss of $2.4 million related to the Empery litigation. In consultation with outside legal counsel, we believe that we have several meritorious defenses against the claims,
and the decision of the Trial Court including, but not limited to, the quantification of damages.
On December 28, 2021 Hudson filed a lawsuit against us related to the notice of adjustment of the exercise price of and the number of warrant shares issuable under
warrants issued to Hudson in January 2017. Hudson received 83,334 warrants in connection with the January 2017 offering.
Hudson’s complaint alleges breach of contract and that Hudson is entitled to damages estimated at approximately $2.6 million as a result of certain adjustments to the
exercise price and number of warrant shares issuable following the February 2018 financing transaction. The fact pattern of these claims differs from the claims associated with the
initial Empery judgment and in consultation with outside legal counsel, we believe that we have several meritorious defenses against Hudson’s claims. We believe that Hudson’s
claims have no merit and we will vigorously defend such lawsuit.
76
On May 25, 2021, we and Circassia Limited entered into a Settlement Agreement resolving all claims by and between both parties and mutually terminating the Circassia
agreement disclosed in Note 10 of the consolidated financial statements included in this Annual Report. Pursuant to the terms of the Settlement Agreement, we agreed to pay
Circassia $10.5 million in three installments, the first being a payment of $2.5 million on the Initial Payment Due Date. Thereafter, we shall pay $3.5 million to Circassia on the first
anniversary of the Initial Payment Due Date and $4.5 million on the second anniversary of the Initial Payment Due Date. Additionally, beginning in year three post-approval,
Circassia will receive a quarterly royalty payment equal to 5% of LungFit® PH net sales in the U.S. This royalty will terminate once the aggregate payment reaches $6 million.
Results of Operations and Other Comprehensive Income (Loss)
(in thousands, except number of shares and loss per share)
Year Ended
March 31, 2022
Year Ended
March 31, 2021
License revenue
$
-
$
Operating expenses
Research and development
General and administrative
Liability from settlements contingent on FDA approval
Loss from operations
Other income (expense)
Estimated liability for contingent loss
Dividend and interest income
Interest expense and financing expense
Foreign exchange loss (gain)
Total other loss
Net loss before income taxes
Benefit for income taxes
Net loss
Less : Net loss attributable to non-controlling interests
Net loss attributed to Beyond Air, Inc.
Other Comprehensive Income:
Foreign currency translation gain
Comprehensive loss attributable to Beyond Air, Inc.
Net loss per share – basic and diluted
(11,802)
(18,408)
(10,500)
(40,710)
(2,435)
4
(775)
(144)
(3,350)
(44,060)
-
(44,060)
$
(882)
(43,177)
$
96
(43,081)
(1.68)
$
$
$
$
873
(12,618)
(10,468)
-
(22,214)
-
17
(642)
(37)
(661)
(22,875)
-
(22,875)
-
(22,875)
-
(22,875)
(1.27)
Weighted average number of shares of common stock outstanding – basic and diluted
25,668,230
18,005,226
Comparison of the year ended March 31, 2022 to the year ended March 31, 2021
License Revenue
77
On January 23, 2019, we entered into the Circassia Agreement for PPHN and future related indications at concentrations of < 80 ppm in the hospital setting in the United
States and China. On December 18, 2019, we terminated the Circassia Agreement. On May 25, 2021, we entered into a settlement with Circassia whereby we retain all rights to
LungFit®.
As of March 31, 2022, we met our performance obligation under the Circassia Agreement and revenue therefrom has been previously recognized. License revenue of $0
and $873 thousand associated with the Company’s second performance obligation has been recognized for the year ended March 31, 2022 and March 31, 2021, respectively. No
further revenue will be recognized from the former performance obligations due to the settlement entered into in May 2021. See Note 10.
Revenue from the commercialization of LungFit® PH is expected to commence in the second half of fiscal 2023.
Research and Development
Research and development expenses for the year ended March 31, 2022 were $11.8 million, as compared to $12.6 million for the year ended March 31, 2021. The decrease of
$0.8 million was attributed primarily to a decrease in investment in Covid studies ($1.2 million), a reduction in stock-based compensation and salaries ($0.6 million) and a reduction
in the development costs for PH (for $0.5 million) partially offset by an increased pre-clinical expense in Oncology (including Beyond Cancer) of $1.5 million.
General and Administrative Expenses
General and administrative expense for the year ended March 31, 2022 and March 31, 2021 were $18.4 million and $10.5 million, respectively. The increase of $7.9 million
was attributed primarily to an increase in stock-based compensation ($3.1 million) and salaries ($2.2 million) mainly driven by an increase of 16 positions globally, legal and
professional fees ($1.0 million), leases and related office costs ($0.5 million), IT costs ($0.5 million) and increased insurance costs ($0.4 million).
Other Operating Expenses
Other operating expenses for the year ended March 31, 2022 were ($10.5) million, attributed to the recognition of liabilities that were contingent on FDA approval of
LungFit PH with Circassia ($10.5 million).
Other Income and Expense
Net other expense for the year ended March 31, 2022 and March 31, 2021 were ($3.4) million and ($0.7) million, respectively. The increase of $2.7 million was attributed
primarily to an estimated liability for a contingent loss on a lawsuit ($2.4 million) and accretion of debt discount costs ($0.4 million).
Net Loss Attributable to Non-controlling Interests
Net loss attributed to non-controlling interests for the year ended March 31, 2022, was $0.9 million, compared to $0 for the year ended March 31, 2021. Non-controlling
interests represent 20% of the net loss of our Beyond Cancer subsidiary which was established in November 2021.
Net Loss Attributed to Common Stockholders
Net loss attributed to common stockholders for the year ended March 31, 2022, was ($43.2) million or a loss of ($1.68) per share, basic and diluted. As a result of the
foregoing, our net loss attributed to common stockholders for the year ended March 31, 2021, was ($22.9) million or a loss of ($1.27) per share, basic and diluted.
78
Liquidity and Capital Resources
We have not generated any revenue from the sale of products, but now that we have obtained regulatory approval LungFit® PH, we expect to begin generating revenue in
fiscal 2023. We had an operating cash flow decrease of $23.1 million for the year ended March 31, 2022 and we have experienced an accumulated loss of $123.6 million since
inception through March 31, 2022. As of March 31, 2022, we had cash and cash equivalents of $80.2 million and $10.0 million restricted cash. We believe that our cash and cash
equivalents as of March 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements into the fourth fiscal quarter of 2024.
Our future capital needs and the adequacy of its available funds beyond one year from the date of filing these financial statements will depend on many factors, including,
but not necessarily limited to, the cost and time necessary for the development, clinical studies and certification or regulatory approval of our other medical devices, indications as
well as the commercial success of our approved product and any product candidates that receive marketing approval by the FDA. We may be required to raise additional funds
through sale of equity or debt securities or through strategic collaborations and/or licensing agreements in order to fund operations until we are able to generate enough product
or royalty revenues, if any. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could have a material adverse effect on our
strategic objectives, results of operations and financial condition.
On March 17, 2020, we entered into a facility agreement with certain lenders for up to $25.0 million in five tranches of $5.0 million per tranche (the "Facility Agreement”). We
received proceeds from the first tranche in fiscal year 2020. During October 2021, we amended the Facility agreement to offer the lenders the ability to accept redemption of all
amounts outstanding from the first tranche of $5.0 million and to terminate the Facility Agreement without penalty. The Facility Agreement was terminated on November 10, 2021.
In connection with the termination of the Facility Agreement, on November 8, 2021, the Company entered into a modification of the Facility Agreement for one lender to allow for
repayment of $0.2 million on unchanged payment terms. The loan is unsecured with interest at 10% per year which is to be paid quarterly. The loan shall be repaid in installments
commencing on June 15, 2023 with all outstanding amounts due on March 17, 2025.
On April 2, 2020, we entered an At-The-Market Equity Offering Sales Agreement with SunTrust Robinson Humphrey, Inc. and Oppenheimer & Co. (the "2020 ATM”).
Under the 2020 ATM, we may sell shares of our common stock having aggregate sales proceeds of up to $50 million, from time to time and at various prices. If shares of our
common stock are sold, there is a 3% fee paid to the sales agent. As of March 31, 2022, there were no remaining funds available under the 2020 ATM.
On February 4, 2022, we entered into a new At-The-Market Equity Offering Sales Agreement with Truist Securities, Inc. and Oppenheimer & Co, Inc. (the "2022 ATM”).
Under the 2022 ATM, we may sell shares of our common stock having aggregate sales proceeds of up to $50 million, from time to time and at various prices. If shares of our
common stock are sold, there is a 3% fee paid to the sales agent. As of March 31, 2022, there was a balance of $50 million available under the 2022 ATM.
On May 14, 2020, we entered into a $40 million stock purchase agreement (the "New Stock Purchase Agreement”) with Lincoln Park Capital Fund, LLC ("LPC”), which
replaced the former $20 million purchase agreement with LPC, dated August 10, 2018. The New Stock Purchase Agreement provides for the issuance of up to $40 million of our
common stock, which we may sell from time to time in our sole discretion, to LPC over a period of 36 months, subject to the conditions and limitations in the New Stock Purchase
Agreement. As of March 31, 2022, there was a balance of approximately $18.1 million available under the New Stock Purchase Agreement.
Our ability to continue to operate beyond the fourth fiscal quarter of 2024 will be largely dependent upon the successful commercial launch of LungFit® PH, as well as
obtaining partners in other parts of the world, and raising additional funds to finance our activities until we are generating cash flow from operations. Further, there are no
assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of our other product candidates.
79
There are numerous risks and uncertainties associated with the development of our NO delivery system and we are unable to estimate the amounts of increased capital outlays and
operating expenses associated with completing the research and development of our product candidates.
Our future capital requirements will depend on many factors, including:
● the effects of the COVID-19 pandemic on our business, the medical community and the global economy;
● the progress and costs of our preclinical studies, clinical trials and other research and development activities;
● the costs of commercializing the LungFit® system;
● the scope, prioritization and number of our clinical trials and other research and development programs;
● the costs and timing of obtaining certification or regulatory approval for our product candidates;
● the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
● the costs of, and timing for, strengthening our manufacturing agreements for production of sufficient clinical quantities of our product candidate;
● the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally;
● the costs of acquiring or undertaking the development and commercialization efforts for additional, future therapeutic applications of our product candidate;
● the magnitude of our general and administrative expenses; and
● any cost that we may incur under current and future in-and out-licensing arrangements relating to our product candidate.
Cash Flows
Below is a summary of the statements of cash flows for the years ended March 31, 2022 and March 31, 2021.
(in thousands)
For The Year Ended
March 31, 2022
For The Year Ended
March 31, 2021
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Net increase in cash, cash equivalents and restricted cash
Comparison between March 31, 2022 and March 31, 2021
$
$
$
$
$
(23,134) $
(1,450) $
79,450 $
96 $
54,962 $
(19,639)
(890)
30,332
-
9,803
For the year ended March 31, 2022, net cash used by operating activities was $23.1 million which was primarily due to our net loss of $44.1 million, which included non-
cash stock based compensation of $7.8 million and an increase in liabilities for the recognition of contingent liabilities of $10.5 million and a contingent liability for a lawsuit of $2.5
million. For the year ended March 31, 2021, net cash used by operating activities was $19.6 million which was primarily due to our net loss of $22.9 million, an increase in grant
receivable of $0.4 million, a net decrease in deferred revenue of $0.9 million, partially offset by non-cash stock based compensation of $4.9 million.
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Investing Activities
For the year ended March 31, 2022, cash used in investing activities was $1.4 million which was from purchase of property and equipment. For the year ended March 31,
2021, cash used in investing activities was $0.9 million which was from the purchase of property and equipment.
Financing Activities
For the year ended March 31, 2022, net cash provided by financing activities was $79.5 million which was primarily from the issuance of common stock in connection with
our New Stock Purchase Agreement and 2020 ATM ($11.1 million and $36.5 million, respectively), issuance of common stock in connection with the exercise of warrants and stock
options ($6.0 million and $0.3 million, respectively), and proceeds from the sale of common stock of Beyond Cancer for $30.0 million less ($4.8) million from lenders in our retired
loan facility. For the year ended March 31, 2021, net cash provided by financing activities of $30.3 million which was primarily from the net proceeds from New Stock Purchase
Agreement ($11.6 million), net proceeds from the 2020 ATM ($11.9 million) and from the exercise from the issuance of common stock for warrants ($6.7 million).
The effect of exchange rates changes on entities using a functional currency other than US dollars was $96 thousand for the year ended March 31, 2022.
Contractual Obligations
The following tables sets forth our contractual obligations for the next five fiscal years and thereafter for the year ended March 31, 2022:
(in thousands)
2023
2024
2025
2026
2027
Thereafter
Total
Circassia settlement
NitricGen payments
Rent
Long-term loan
Loan
Total
$
$
2,500 $
1,500
462
-
927
5,389 $
3,500 $
-
443
-
-
3,943 $
4,500 $
-
434
80
-
5,014 $
- $
-
441
120
-
561 $
- $
-
325
-
-
325 $
- $
-
1,081
-
-
1,081 $
10,500
1,500
3,186
200
927
16,313
ITEM 7A. Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse
changes in financial market prices and rates. Our market risk exposure is primarily a result of foreign currency exchange rates.
Foreign Currency Exchange Risk
Our results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. Certain of our expenses are denominated in New
Israeli Shekels ("NIS”), the Euro and the Australian Dollar. Our results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency
exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. We do not hedge our foreign currency exchange risk. In the future, we may
enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These
measures, however, may not adequately protect us from significant changes in such fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements together with the report of our independent registered public accounting firm, required to be filed pursuant to this Item 8 are appended to this
Annual Report. An index of those consolidated financial statements is found in Item 15 of this Annual Report.
81
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that information required to be disclosed in this
Annual Report and filed with the SEC is recorded, processed, summarized and reported timely within the time period specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits
under the Exchange Act, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure. There can be no assurance that our disclosure controls and procedures will detect or
uncover all failures of persons within the Company to disclose information otherwise required to be set forth in our reports. Nevertheless, our disclosure controls and procedures
are designed to provide reasonable assurance of achieving the desired control objectives. Based on our evaluation, our Chief Executive Officer (our principal executive officer) and
Chief Financial Officer (our principal financial officer) have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Exchange
Act) were effective at such reasonable assurance level as of March 31, 2022.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Our management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer),
conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2022, based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that our
internal control over financial reporting was effective as of March 31, 2022.
(c) Attestation Report of Registered Public Accounting Firm
This report does not include an attestation report of our registered public accounting firm as we are not an accelerated filer or a large accelerated filer.
(d) Changes in Internal Controls over Financial Reporting
On April 1, 2021, management implemented an Enterprise Resource Planning (ERP) solution that allows for enhanced segregation of duties, workflows for invoice
approvals and issuance of purchase orders. Management has continued to enhance functionality throughout the year and continues to add functionality (budget and spend
analytics, banking integration and Material Resource Planning and inventory management). Management has also invested in a Customer Relationship Management (CRM) with
an integrated contract management solution to enhance its control environment. An expense reporting solution was implemented in the third quarter of fiscal 2022. Nothing has
been identified with regards to internal controls that occurred during the year ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
82
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The table below sets forth the name, age and position of each of our directors and executive officers and as of the date of this Annual Report on Form 10-K.
Name
Steven A. Lisi
Amir Avniel
Douglas Q. Larson
Ron Bentsur
Erick J. Lucera
Yoori Lee
Dr. William Forbes
Robert F. Carey
Age
51
48
52
54
55
49
60
63
Position
Chief Executive Officer and Chairman of the Board of Directors
President, Chief Operating Officer and Director
Chief Financial Officer
Director
Director
Director
Director
Director
Steven A. Lisi, Chief Executive Officer and Chairman of the Board
Steven Lisi has served on our Board of Directors since January 13, 2017, and has served on the Board of Directors of BA Ltd., our wholly-owned subsidiary, since June
2016. Mr. Lisi has served as our Chief Executive Officer since June 14, 2017.
Mr. Lisi was previously Senior Vice President of Business and Corporate Development at Avadel Pharmaceuticals (AVDL) where he was instrumental in restructuring the
company, raising over $125m and transforming it from a $100 million enterprise value to $1 billion in three years. Prior to his position at Avadel, Mr. Lisi spent 18 years investing in
the global healthcare industry at Deerfield Management, Millennium Management and SAC Capital, amongst others. Mr. Lisi serves as Chairman of the Board of Beyond Cancer, a
nitric oxide based immuno-oncology company targeting solid tumors. He received his master’s degree in International Business from Pepperdine University.
Our Board of Directors believes that Mr. Lisi’s experience and perspective as our Chief Executive Officer, as well as his depth of operating and senior management
experience and specific skills in the areas of general operations and financial operations, provide him with the qualifications and skills to serve as a director.
Amir Avniel, President, Chief Business Officer and Director
Amir Avniel has served on BA Ltd.’s Board since 2011 and became BA Ltd.’s Chief Executive Officer in August 2014. He has served on our Board of Directors since
January 2017 and served as our Chief Executive Officer from January 13, 2017 to June 14, 2017. He has more than fifteen years of management experience in the biotechnology
industry. From 2013 through 2014, Mr. Avniel served as Strategy and Business Development of A.B. Seeds, a wholly owned subsidiary of Monsanto Company. Mr. Avniel served
as the Chief Executive Officer of Rosetta Green Ltd. from 2010 through 2013 and led Rosetta Green in its acquisition by Monsanto. He also served as the president and the Chief
Executive Officer of Rosetta Genomics from 2006 to 2009, and Mr. Avniel is a named inventor in over 20 patent applications. Mr. Avniel serves on the Board of Beyond Cancer Ltd.
He studied computer science at the Academic College of Tel Aviv - Jaffa Israel and earned a Bachelor’s degree in Social Sciences and Humanities - from Open University in Israel.
Prior to his academic studies, he served as an officer in the Israel Defense Force, where he was awarded four commendations for excellence.
Our Board of Directors believes that Mr. Avniel’s experience and perspective as our President and Chief Operating Officer, as well as his depth of operating and senior
management experience in the biotechnology industry, provide him with the qualifications and skills to serve as a director.
83
Douglas Larson, Chief Financial Officer
Douglas Larson joined Beyond Air as its Chief Financial Officer on September 1, 2021 with over 20 years of international and operational financial leadership experience.
Most recently, he served as an independent consultant providing operational and financial consulting services from February 2021 to August 2021. Prior to that, Mr. Larson served
as Vice President, Finance and Head of Global Controlling at DBV Technologies, Inc. (Nasdaq: DBVT), a global clinical stage biopharmaceutical company headquartered in France,
from June 2017 to September 2020. Previously, Mr. Larson served as the Chief Financial Officer of The Scotts Miracle-Gro Company’s International division, based in Lyon, France
from January 2001 to May 2015. Mr. Larson graduated from the Certified General Accountant’s Association of Canada in 2001 and HEC Paris’ Executive MBA program in 2015.
Ron Bentsur, Director
Ron Bentsur joined BA Ltd. in August 2015 and serves as a director. Mr. Bentsur has 20 years of senior leadership experience in the biotechnology industry. He currently
serves as Chairman, CEO and President of Nuvectis Pharma (Nasdaq: NVCT). He served as CEO of UroGen Pharma, Inc. (NASDAQ: URGN) from 2015 until 2019, and as CEO of
Keryx Biopharmaceuticals, Inc. (acquired by Akebia Therapeutics) from 2009 until 2015. At UroGen and Keryx, Mr. Bentsur led the clinical development, regulatory approvals and
the commercial infrastructure buildouts for the US commercial launches of Jelmyto and Auryxia, respectively. Mr. Bentsur also led the establishment of a successful worldwide
partnership for an earlier-stage program at UroGen and an ex-US development partnership for Auryxia at Keryx. Mr. Bentsur served as CEO of XTL Biopharmaceuticals, Inc.
(NASDAQ: XTLB) from 2006 until 2009 and as Investor Relations and CFO of Keryx from October 2000 until January 2006. Mr. Bentsur worked as an investment banker in NYC and
Tel Aviv, Israel, from 1994 until 2000. Mr. Bentsur served as a member of the Board of Directors of Stemline Therapeutics, Inc. from 2009 through the approval and launch of
Elzonris and the subsequent acquisition of the company by the Menarini Group in June 2020. Mr. Bentsur holds a B.A. in Economics and Business Administration with distinction
from the Hebrew University of Jerusalem and an M.B.A., magna cum laude, from New York University’s Stern Graduate School of Business. Mr. Bentsur also serves as Director of
Stemline Therapeutics, Inc.
Our Board of Directors believes that Mr. Bentsur’s experience and perspective advising the Company and other life sciences companies, as well as his depth of operating
and senior management experience in the biopharma industry, provide him with the qualifications and skills to serve as a director.
Yoori Lee, Director
Yoori Lee joined Beyond Air’s Board of Directors in January 2018. She has served as Co-founder and President of Trio Health Advisory Group, Inc. since 2013. Trio
Health’s mission is to improve the quality of care in patient outcomes through coordinating the efforts of all patient care stakeholders. Prior to Trio Health, Ms. Lee spent over 15
years at Leerink Partners LLC, a leading healthcare investment bank, where she was Managing Director, and Director of MEDACorp Services. Additionally, she helped found the
MEDACorp network, a cadre of experts including more than 35,000 healthcare professionals in diverse areas of practice such as clinical medicine, biomedical research, regulatory
affairs, public policy, healthcare administration and healthcare information technology.
Our Board of Directors believes that Ms. Lee’s experience and perspective advising the Company as well as her experience with Leerink Partners LLC and MEDACorp.
provide her with the qualifications and skills to serve as a director.
84
Dr. William Forbes, Director
Dr. William Forbes joined Beyond Air’s board of Director in August 2018. He brings to the Board of Directors more than 30 years of pharmaceutical product development
experience and, working with health authorities in the US and Europe, has contributed to numerous marketing approvals spanning a diverse range of therapeutic areas. Dr. Forbes
currently serves as the Chief Development Officer of Trevi Therapeutics, a clinical-stage pharmaceutical company focused on serious neurologically mediated diseases. Prior to
joining Trevi, Dr. Forbes was at Salix Pharmaceuticals as the Chief Development Officer and also Head of Medical and R&D. Prior to Salix, Dr. Forbes spent 15 years in Clinical
Development & Regulatory Affairs and Clinical Research at a number of global pharmaceutical companies.
Our Board of Directors believes that Dr. Forbes’ experience and perspective advising the Company, as well as his depth of operating and senior management experience in
our industry, provide him with the qualifications and skills to serve as a director.
Robert F. Carey, Director
Robert Carey joined Beyond Air’s Board of Directors in February 2019. He has an extensive track record of accomplishment within the biopharmaceutical and healthcare
investment banking industry. He has assisted biotech and specialty pharma companies raise more than $10 billion in initial public offerings, follow-on offerings, debt offerings, and
private placements. He has served as a financial advisor on mergers, acquisitions, and strategic alliance transactions with a total deal value of more than $10 billion. In 2020, Mr.
Carey co-founded and served as President and Chief Operating Officer of ACELYRIN, INC., a biopharmaceutical company that will invest in, develop and commercialize life-
changing drug therapies. Mr. Carey previously served as Executive Vice President and Chief Business Officer at Horizon Therapeutics plc 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%. Before Horizon, he spent more than 11 years as Managing Director and Head of the
Life Sciences Investment Banking Group at JMP Securities. Mr. Carey was also Managing Director in the healthcare groups at Dresdner Kleinwort Wasserstein and Vector
Securities. He received his B.B.A. in Accounting from the University of Notre Dame. Mr. Carey currently serves on the Board of Beyond Cancer Ltd., Sangamo Therapeutics, Inc.
and Hawthorne Race Course, Inc.
Our Board of Directors believes that Mr. Carey’s experience and perspective advising the Company and other life sciences companies in connections with financings and
strategic transactions, as well as his depth of operating and senior management experience in our industry, provide him with the qualifications and skills to serve as a director.
Erick J. Lucera, Director
Erick J. Lucera joined our Board of Directors in August 2017 and serves on our audit committee. He was appointed Chief Financial Officer for AVEO Oncology (Nasdaq:
AVEO), a Nasdaq traded biopharmaceutical company focused on targeted medicines for oncology and other unmet medical needs in 2020. Mr. Lucera was the Chief Financial
Officer of Valeritas Holdings, Inc., a U.S. Nasdaq traded commercial stage company developing new technology for diabetes, from 2016 to 2019. Mr. Lucera served as Chief
Financial Officer, Treasurer and Secretary of Viventia Bio from 2015 to 2016. From 2012 to 2015, he was Vice President, Corporate Development at Aratana Therapeutics, a
veterinary biopharmaceutical company. While at Aratana, he helped grow the company’s product pipeline through a series of acquisitions and in licensing transactions financed
through five public and private offerings of nearly $250 million. Before his career as a healthcare company executive, Mr. Lucera spent over 15 years in investment management as a
healthcare analyst at Eaton Vance, the portfolio manager of the Triathlon Life Sciences Fund at Intrepid Capital and as head of the healthcare research team at Independence
Investments. He has served on the board of directors of Bone Biologics, a Nasdaq traded orthobiologics company, since October 2021. He holds a Certificate in Public Health from
Harvard University, an MS in quantitative finance from Boston College, an MBA from Indiana University Bloomington, and a BS in accounting from the University of Delaware.
Mr. Lucera has obtained CFA, CMA, and CPA designations.
Our Board of Directors believes that Mr. Lucera’s experience and perspective advising the Company and other life sciences companies on strategic transactions and
financings, as well as his depth of operating and senior management experience in our industry, provide him with the qualifications and skills to serve as a director.
85
Term of Office of Directors
Our directors are elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his or her successor is duly elected and qualified or
until his earlier death, resignation or removal.
Family Relationships
There are no family relationships among any of our current or former directors or executive officers.
Involvement in Certain Legal Proceedings
Erick J. Lucera was the Chief Financial Officer of Valeritas Holdings, Inc. until January 3, 2020. On February 9, 2020, Valeritas Holdings, Inc. filed a voluntary petition for
bankruptcy protection under Chapter 11 of Title 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware in order to facilitate its sale to a
Denmark-based biotechnology company. The plan of liquidation was approved on June 8, 2020 and became effective on June 30, 2020.
Except as set forth above, none of our directors, executive officers, significant employees, promoters or control persons has been involved in any legal proceeding in the
past ten years that would require disclosure under Item 401(f) of Regulation S-K promulgated under the Securities Act.
Board Committees
Our Board of Directors has established three standing committees: the audit committee, the compensation committee and the nominating committee. The current members
of our audit committee are Erick Lucera, Ron Bentsur and Robert F. Carey with Erick Lucera serving as chairperson. The current members of our compensation committee are Yoori
Lee, Erick J. Lucera, and Ron Bentsur with Yoori Lee serving as chairperson. The current members of our nominating committee are Erick Lucera, Yoori Lee and Dr. William Forbes,
with Erick Lucera serving as chairperson.
Our Board of Directors has determined that Erick Lucera, Ron Bentsur and Robert F. Carey meet the additional test for independence for audit committee members imposed
by Securities and Exchange Commission ("SEC”) regulations and Section 5605(c)(2)(A) of the Nasdaq Stock Market listing rules and that Erick J. Lucera, Yoori Lee and Ron
Bentsur meet the additional test for independence for compensation committee members imposed by Section 5605(d)(2)(A) of the Nasdaq Stock Market listing rules.
Audit Committee
The primary purpose of our audit committee is to assist the Board of Directors in the oversight of the integrity of our accounting and financial reporting process, the
audits of our consolidated financial statements, and our compliance with legal and regulatory requirements. Our audit committee met four times during the year ended March 31,
2022. The functions of our audit committee include, among other things:
● hiring the independent registered public accounting firm to conduct the annual audit of our consolidated financial statements and monitoring its
independence and performance;
● reviewing and approving the planned scope of the annual audit and the results of the annual audit;
86
● pre-approving all audit services and permissible non-audit services provided by our independent registered public accounting firm;
● reviewing the significant accounting and reporting principles to understand their impact on our consolidated financial statements;
● reviewing our internal financial, operating and accounting controls with management, our independent registered public accounting firm and our internal
audit provider;
● reviewing with management and our independent registered public accounting firm, as appropriate, our financial reports, earnings announcements and our
compliance with legal and regulatory requirements;
● periodically reviewing and discussing with management the effectiveness and adequacy of our system of internal controls;
● in consultation with management and the independent auditors, reviewing the integrity of our financial reporting process and adequacy of disclosure
controls;
● reviewing potential conflicts of interest under and violations of our code of conduct;
● establishing procedures for the treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and
confidential submissions by our employees of concerns regarding questionable accounting or auditing matters;
● reviewing and approving related-party transactions; and
● reviewing and evaluating, at least annually, our audit committee’s charter.
With respect to reviewing and approving related-party transactions, our audit committee will review related-party transactions for potential conflicts of interests or other
improprieties. Under SEC rules, related-party transactions are those transactions to which we are or may be a party in which the amount involved exceeds the lesser of $120
thousand or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors or executive officers or any other related
person had or will have a direct or indirect material interest, excluding, among other things, compensation arrangements with respect to employment and Board of Directors
membership. Our audit committee could approve a related-party transaction if it determines that the transaction is in our best interests. Our directors are required to disclose to this
committee or the full Board of Directors any potential conflict of interest, or personal interest in a transaction that our Board of Directors is considering. Our executive officers are
required to disclose any related-party transaction to the audit committee. We also poll our directors on an annual basis with respect to related-party transactions and their service
as an officer or director of other entities. Any director involved in a related-party transaction that is being reviewed or approved must recuse himself or herself from participation in
any related deliberation or decision. Whenever possible, the transaction should be approved in advance and if not approved in advance, must be submitted for ratification as
promptly as practical.
The financial literacy requirements of the SEC require that each member of our audit committee be able to read and understand fundamental financial statements. In
addition, at least one member of our audit committee must qualify as an audit committee financial expert, as defined in Item 407(d)(5) of Regulation S-K promulgated under the
Securities Act, and have financial sophistication in accordance with the Nasdaq Stock Market listing rules. Our Board of Directors has determined that Erick Lucera qualifies as an
audit committee financial expert.
Both our independent registered public accounting firm and management periodically meet privately with our audit committee.
87
Compensation Committee
The primary purpose of our compensation committee is to assist our Board of Directors in exercising its responsibilities relating to compensation of our executive officers
and employees and to administer our equity compensation and other benefit plans. In carrying out these responsibilities, this committee reviews all components of executive officer
and employee compensation for consistency with its compensation philosophy, as in effect from time to time. Our compensation committee met one time during the year ended
March 31, 2022. The functions of our compensation committee include, among other things:
● designing and implementing competitive compensation, retention and severance policies to attract and retain key personnel;
● reviewing and formulating policy and determining the compensation of our Chief Executive Officer, our other executive officers and certain employees;
● reviewing and recommending to our Board of Directors the compensation of our non-employee directors;
● reviewing and evaluating our compensation risk policies and procedures;
● administering our equity incentive plans and granting equity awards to our employees, consultants and directors under these plans;
● administering our performance bonus plans and granting bonus opportunities to our employees, consultants and non-employee directors under these plans;
● if required from time to time, preparing the analysis or reports on executive officer compensation required to be included in our annual proxy statement;
● engaging compensation consultants or other advisors it deems appropriate to assist with its duties; and
● reviewing and evaluating, at least annually, our compensation committee’s charter.
The compensation committee retains sole authority to hire any compensation consultant, approve such consultant’s compensation, determine the nature and scope of its
services, evaluate its performance, and terminate its engagement.
The compensation committee reviews our compensation policies and practices for all employees, including our named executive officers, as they relate to risk management
practices and risk-taking incentives to assess and determine that there are no risks arising from these policies and practices that are reasonably likely to have a material adverse
effect on us.
Nominating committee
The primary purpose of our nominating committee is to assist our Board of Directors in promoting the best interest of our company and our stockholders through the
implementation of sound corporate governance principles and practices. Our nominating committee met one time during the year ended March 31, 2022. The functions of our
nominating committee include, among other things:
● identifying, reviewing and evaluating candidates to serve on our Board of Directors;
● determining the minimum qualifications for service on our Board of Directors;
● developing and recommending to our Board of Directors an annual self-evaluation process for our Board of Directors and overseeing the annual self-evaluation
process;
● developing, as appropriate, a set of corporate governance principles, and reviewing and recommending to our Board of Directors any changes to such principles;
and
● periodically reviewing and evaluating our nominating committee’s charter.
Director Candidates
Our Board of Directors has a critical role in guiding our strategic direction and overseeing the management of our business, and accordingly, we seek to attract and retain
highly qualified directors who have sufficient time to engage in the activities of our Board of Directors and to understand and enhance their knowledge of our industry and
business plans. In evaluating the suitability of individual candidates, our Board of Directors, in approving (and, in the case of vacancies, appointing) such candidates, may take
into account many factors, including: personal and professional integrity; ethics and values; experience in corporate management, such as serving as an officer or former officer of
a publicly held company; strong finance experience; experience relevant to our industry; experience as a board member or executive officer of another publicly held company;
relevant academic expertise or other proficiency in an area of our operations; diversity of expertise and experience in substantive matters pertaining to our business relative to other
board members; diversity of background and perspective, including, but not limited to, with respect to age, gender, race, place of residence and specialized experience; practical
and mature business judgment, including, but not limited to, the ability to make independent analytical inquiries; and any other relevant qualifications, attributes or skills. The core
competencies of directors should address accounting or finance experience, market familiarity, business or management experience, industry knowledge, customer-base experience
or perspective, crisis response, leadership, and/or strategic planning. Our Board of Directors evaluates each individual in the context of the Board as a whole, with the objective of
assembling a group that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of
experience in these various areas.
88
Diversity
The table below provides certain highlights of the composition of our Board members. Each of the categories listed in the below table has the meaning as it is used in
Nasdaq Rule 5605(f)(1).
Board Diversity Matrix (as of June 28, 2022)
Total Number of Directors
Part I: Gender Identity
Directors
Part II: Demographic Background
African American or Black
Alaskan Native or Native American
Asian (other than South Asian)
South Asian
Hispanic or Latinx
Native Hawaiian or Pacific Islander
White
Two or More Races or Ethnicities
LGBTQ+
Persons with Disabilities
Did Not Disclose Demographic Background
Male
Female
Non-Binary
Did Not Disclose
Gender
7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7
-
-
-
-
-
-
-
-
-
7
-
-
-
-
-
-
-
-
Stockholder Communications
Although we do not have a formal policy regarding stockholder communications with our Board of Directors, stockholders may communicate with our Board of Directors,
or any individual director on our Board of Directors, by writing to us at the address of our principal executive offices, addressing the communication to the attention of our Chief
Executive Officer, and specifying the Board of Directors or, if applicable, the individual member thereof as the intended recipient of the communication. Our Corporate Secretary will
forward to the directors all communications that, in his judgment, are appropriate for consideration by the directors. Examples of communications that would not be appropriate for
consideration by the directors include commercial solicitations and matters not relevant to the stockholders, to the functioning of the Board of Directors or to the affairs of our
Company. Any correspondence received that is addressed generically to the Board of Directors will be forwarded to the Chairman of the Board of Directors.
Board Leadership Structure and Role in Risk Oversight
The Board of Directors does not have a formal policy on whether or not the roles of Chairman of the Board and Chief Executive Officer should be separate and believes
that it should retain the flexibility to make this determination in the manner it believes will provide the most appropriate leadership for our company from time to time. Currently,
Steven A. Lisi serves as Chairman of the Board and Chief Executive Officer, working closely with former CEO and present COO and President, Amir Avniel. We do not have a lead
independent director. Mr. Lisi sets the strategic direction for the company and provides day-to-day leadership. As Chairman of the Board of Directors, Mr. Lisi further oversees the
agenda for board meetings in collaboration with the other board members. Our Board believes that it is in the best interest of the company and its stockholders for Mr. Lisi to serve
in both roles at this time given his knowledge of our company and industry. We believe that this structure provides appropriate leadership and oversight of the company and
facilitates effective functioning of both management and our Board of Directors. Our Board of Directors will continue to reassess the structure to determine what is in the best
interests of the Company and stockholders.
89
The Board of Directors oversees our exposure to risk through its interaction with management and receipt from management of periodic reports outlining matters related to
financial, operational, regulatory, legal and strategic risks. Risk assessment and oversight are an integral part of our governance and management processes. Our Board of
Directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management
discusses strategic and operational risks at regular management meetings and conducts specific strategic planning and review sessions during the year that include a focused
discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the Board of Directors at regular board meetings as part of
management presentations that focus on particular business functions, operations or strategies and presents the steps taken by management to mitigate or eliminate such risks.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers (including our Chief Executive Officer, Chief Financial Officer and any
person performing similar functions) and employees. We have made our Code of Ethics available on our website at www.beyondair.net under " Investors—Governance—
Governance Documents”. We expect that any future amendments to our Code of Business Conduct and Ethics or any waiver of its requirements, will be disclosed on our website.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file
with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Executive officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
SEC regulations require us to identify in this Annual Report anyone who filed a required report late during the most recent fiscal year. To our knowledge, based solely on
a review of the copies of such reports furnished to us and written representations that no other reports were required, during the year ended March 31, 2022, all of our officers,
directors and greater than 10% beneficial owners have complied with Section 16(a) filing requirements on a timely basis, other than as set forth below:
Filer
Robert Carey
Steven Lisi
Number of Late Reports
Two Form 4s and one Form 5
One Form 4
Three
One
Number of Transactions not
Reported Timely
ITEM 11. EXECUTIVE COMPENSATION
Processes and Procedures for Compensation Decisions
Our compensation committee is responsible for the executive compensation programs for our executive officers and reports to our Board of Directors on its discussions,
decisions and other actions. Our compensation committee reviews and approves corporate goals and objectives relating to the compensation of our Chief Executive Officer,
evaluates the performance of our Chief Executive Officer in light of those goals and objectives and determines and approves the compensation of our Chief Executive Officer based
on such evaluation. Our compensation committee has the sole authority to determine our Chief Executive Officer’s compensation. In addition, our compensation committee, in
consultation with our Chief Executive Officer, reviews and approves all compensation for other officers, as well as the directors.
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The compensation committee is authorized to retain the services of one or more executive compensation and benefits consultants or other outside experts or advisors as it
sees fit, in connection with the establishment of our compensation programs and related policies.
The compensation committee has full authority to form and delegate authority to one or more subcommittees consisting solely of one or more members of the
compensation committee as it deems appropriate from time to time. The compensation committee may delegate to the Chief Executive Officer or any other executive officer the
authority to grant equity awards to employees of the Company who are not directors or officers of the Company, on such terms and subject to such limitations as the
compensation committee may determine in compliance with Delaware corporate law.
Summary Compensation Table
The following table provides information regarding the compensation earned by our named executive officers for the years ended March 31, 2022 and March 31, 2021.
Name and
Principal Position
Year
Salary Cost
Restricted
Stock
Awards
(A)(C)
Option
Awards
(B)(C)
Total
Steven A. Lisi.
2022
$
450,000
$
2,000,800
$
6,942,000
$
9,392,800
Chief Executive Officer and Chairman of the
Board
Amir Avniel
President, Chief Operating Officer and Director
Douglas Larson
Chief Financial Officer
Douglas Beck, CPA (D)
Previous Chief Financial Officer
2021
2022
2021
2022
2022
2021
$
$
$
$
$
$
450,000
400,000
400,000
160,417
291,667
250,000
$
$
$
$
$
$
-
1,000,400
-
103,050
25,975
-
$
$
$
$
$
$
1,088,000
2,921,000
544,000
755,800
-
136,000
$
$
$
$
$
$
1,538,000
4,321,400
944,000
1,019,267
317,642
386,000
(A) The fair market value of the restricted stock units for stock-based expense is equal to the closing price of the Company’s stock at the date of grant based upon the total award.
The restricted stock units vest over five years.
(B) This column represents the grant date fair value of the award in accordance with stock-based compensation rules under Accounting Standards Codification "(ASC”) Topic
718. For a more detailed discussion of the valuation model and assumptions used to calculate the fair value of each restricted stock award and option award, refer to Note 5.
(C) The respective agreements include a change of control provision that would automatically vest any unvested restricted stock units or unvested stock options if triggered.
(D) Salary cost includes 6 months of severance per Mr. Beck’s employment agreement plus $62,500 paid to Mr. Beck for consulting services.
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Employment Agreements with Executive Officers
Our employment agreements with our executive officers contain provisions standard for a company in our industry regarding non-competition, confidentiality of
information and assignment of inventions.
Employment Agreement with Steven Lisi
On June 30, 2018, we entered into an employment agreement with Mr. Lisi to serve as our Chief Executive Officer with an annual salary of $450 thousand, subject to review
of the compensation committee at least annually. In addition to his base salary, Mr. Lisi is eligible to receive a short-term incentive bonus equal to a percentage of his base salary in
effect at the end of the fiscal year, based partially on performance weighted bonus objectives established for Mr. Lisi by the Board of Directors (which includes both corporate
objectives and individual objectives) for the fiscal year, with such objectives to be discussed with Mr. Lisi prior to being established, and partially based on the discretion of the
Board of Directors. The target bonus percentage each fiscal year is an amount equal to 60% of Mr. Lisi’s base salary in effect at the end of each fiscal year. However, the actual
short-term incentive bonus as determined by the Board of Directors may range from 0% to higher than 100% of the base salary. Any short-term incentive bonus shall be paid on or
before April 15 of the following year and may include cash, stock options and restricted stock awards. If paid in stock options or restricted stock awards, the short-term incentive
bonus must be paid separately from, and independently of, any long-term equity incentive award. Pursuant to the employment agreement, Mr. Lisi is also eligible to receive awards
of stock options or restricted stock grants as may be determined from time to time by the Board of Directors or the compensation committee of the Board of Directors. Pursuant to
the terms and conditions of employment, Mr. Lisi received options to purchase 400,000 shares of our common stock at an exercise price of $4.25 per share. 25% of the options
vested on June 30, 2018 and thereafter an additional 25% vested on December 31, 2018 and December 31st of each of the two ensuing years thereafter until the options vested in
full. The options expire on the tenth anniversary of the date of grant and were fully vested as of March 31, 2022.
In the event of Mr. Lisi’s termination without "cause” or his resignation for "good reason”, as such terms are defined in his employment agreement, Mr. Lisi, subject to his
execution and non-revocation of a release of claims and compliance with the restrictive covenants set forth in his employment agreement, will be entitled to (i) severance equal to
twenty-four months of base salary, payable in a lump sum, (ii) a lump sum payment equal to 1.5 times that of the most recent earned short-term incentive award, (iii) all outstanding
options and restricted common stock awards held by Mr. Lisi would automatically vest and (iv) provided Mr. Lisi timely elects to continue health care coverage under the
Consolidated Omnibus Reconciliation Act of 1985 ("COBRA”), continued participation by Mr. Lisi and his eligible dependents in our standard group medical and dental plans until
the earlier of (a) the end of the 18th month following Mr. Lisi’s termination and (b) the date Mr. Lisi secures subsequent employment with medical and dental coverage.
In the event of Mr. Lisi’s termination without "cause” or his resignation for "good reason”, in each case within three months prior to a "change of control”, as such term
is defined in Mr. Lisi’s employment agreement, or within 18 months following a "change of control”, Mr. Lisi, subject to his execution and non-revocation of a release of claims and
compliance with the restrictive covenants set forth in his employment agreement, will be entitled to (i) a one-time grant of 650,000 shares of our common stock, (ii) all outstanding
options and restricted common stock awards held by Mr. Lisi would automatically vest and (iii) provided Mr. Lisi timely elects to continue health care coverage under COBRA,
continued participation by Mr. Lisi and his eligible dependents in our standard group medical and dental plans until the earlier of (a) the end of the 24th month following Mr. Lisi’s
termination and (b) the date Mr. Lisi secures subsequent employment with medical and dental coverage.
Mr. Lisi’s employment agreement contains restrictive covenants relating to non-disclosure of confidential information, assignment of inventions, and non-solicitation of
employees and customers that runs for a period of one year following his termination of employment for any reason.
92
Employment Agreement with Amir Avniel
On June 30, 2018, we entered into an employment agreement with Mr. Avniel to serve as our President and Chief Operating Officer with an annual salary of $400 thousand,
subject to review of the compensation committee at least annually. In addition to his base salary, Mr. Avniel is eligible to receive a short-term incentive bonus equal to a
percentage of his base salary in effect at the end of the fiscal year, based partially on performance weighted bonus objectives established for Mr. Avniel by the Board of Directors
(which includes both corporate objectives and individual objectives) for the fiscal year, with such objectives to be discussed with Mr. Avniel prior to being established, and
partially based on the discretion of the Board of Directors. The target bonus percentage each fiscal year is an amount equal to 60% of Mr. Avniel’s base salary in effect at the end
of each fiscal year. However, the actual short-term incentive bonus as determined by the Board of Directors may range from 0% to higher than 100% of the base salary. Any short-
term incentive bonus shall be paid on or before April 15 of the following year and may include cash, stock options and restricted stock awards. If paid in stock options or restricted
stock awards, the short-term incentive bonus must be paid separately from, and independently of, any long-term equity incentive award. Pursuant to the employment agreement,
Mr. Avniel is also eligible to receive awards of stock options or restricted stock grants as may be determined from time to time by the Board of Directors or the compensation
committee of the Board of Directors. Pursuant to the terms and conditions of employment, Mr. Avniel received options to purchase 250,000 shares of our common stock at an
exercise price of $4.25 per share. 25% of the options vested on June 30, 2018 and thereafter an additional 25% vested on December 31, 2018 and December 31st of each of the two
ensuing years thereafter until the options vested in full. The options expire on the tenth anniversary of the date of grant and the options were fully vested as of March 31, 2022.
In the event of Mr. Avniel’s termination without "cause” or his resignation for "good reason”, as such terms are defined in his employment agreement, Mr. Avniel,
subject to his execution and non-revocation of a release of claims and compliance with the restrictive covenants set forth in his employment agreement, will be entitled to (i)
severance equal to twenty-four months of base salary, payable in a lump sum, (ii) a lump sum payment equal to 1.5 times that of the most recent earned short-term incentive award,
(iii) all outstanding options and restricted common stock awards held by Mr. Avniel would automatically vest and (iv) provided Mr. Avniel timely elects to continue health care
coverage under COBRA, continued participation by Mr. Avniel and his eligible dependents in our standard group medical and dental plans until the earliest of (a) the end of the
18th month following Mr. Avniel’s termination and (b) the date Mr. Avniel secures subsequent employment with medical and dental coverage.
In the event of Mr. Avniel’s termination without "cause” or his resignation for "good reason”, in each case within three months prior to a "change of control”, as such
term is defined in Mr. Avniel’s employment agreement, or within 18 months following a "change of control”, Mr. Avniel, subject to his execution and non-revocation of a release of
claims and compliance with the restrictive covenants set forth in his employment agreement, will be entitled to (i) a one-time grant of 350,000 shares of our common stock, (ii) all
outstanding options and restricted common stock awards held by Mr. Avniel would automatically vest and (iii) provided Mr. Avniel timely elects to continue health care coverage
under COBRA, continued participation by Mr. Avniel and his eligible dependents in our standard group medical and dental plans until the earliest of (a) the end of the 24th month
following Mr. Avniel’s termination and (b) the date Mr. Avniel secures subsequent employment with medical and dental coverage.
Mr. Avniel’s employment agreement contains restrictive covenants relating to non-disclosure of confidential information, assignment of inventions, and non-solicitation
of employees and customers that runs for a period of one year following his termination of employment for any reason.
Employment Agreement with Douglas Larson
Pursuant to the terms of an employment agreement between the Company and Mr. Larson dated August 20, 2021. Mr. Larson will be paid an annual salary of $275
thousand per year. In connection with the commencement of his employment, we issued Mr. Larson options to purchase 75,000 shares of common stock at an exercise price of
$10.68 per share. The options vest over four years at 25% per year and were 0% vested as of March 31, 2022. Pursuant to Mr. Larson’s employment agreement, in the event of his
termination of employment without "cause” or resignation for "good reason,” as such terms are defined in his employment agreement, subject to Mr. Larson’s execution of a
release, Mr. Larson will be entitled to receive (i) his base salary for a period of six months, payable in accordance with the Company’s regular payroll practices, with an accelerated
payment of any balance upon the occurrence of a "change in control,” as such term is defined in his employment agreement, provided that if such termination of employment
occurs within three months before or within 12 months after the occurrence of a change in control, the severance payable to Mr. Larson will be increased to an amount equal to Mr.
Larson’s base salary for a period of 18 months and be payable in a single lump sum payment; and (ii) payment or reimbursement (upon presentation of proof of payment) of Mr.
Larson’s medical insurance premiums at the same level as was in effect on the termination date for a period of six months, which period will increase to 18 months if such
termination of employment occurs within three months before or within 12 months after the occurrence of a change in control.
Mr. Larson’s employment agreement contains restrictive covenants relating to non-disclosure of confidential information, assignment of inventions, and non-solicitation
and non-competition covenants that run for a period of 12 months following his termination of employment for any reason.
93
Option Awards Granted During the Year Ended March 31, 2022
On September 1, 2021, Mr. Larson was granted options to purchase 75,000 shares of our common stock, with an exercise price of $10.68, in connection with the
commencement of his employment. The options vest annually over 4 years, with the first tranche vesting on September 1, 2022.
On October 5, 2021, Messrs. Lisi and Avniel were granted restricted stock units to receive 100,000 and 50,000 shares of our common stock, respectively. The restricted
stock units vest annually over five years commencing on December 23, 2021.
On January 4, 2022, Messrs. Lisi, Avniel and Larson were granted options to purchase 625,000, 250,000 and 6,000 shares of the common stock of Beyond Cancer,
respectively, with an exercise price of $2.76 per share, which was determined independently in compliance with Internal Revenue Service Code Section 409A, and the stock
compensation expense in compliance with ASC 718, issued by the Financial Accounting Standards Board ("FASB”). The options vest annually over four years commencing on
December 31, 2022.
On March 3, 2022, Messrs. Lisi, Avniel and Larson were granted options to purchase 280,000, 140,000 and 20,000 shares of our common stock, respectively, with an
exercise price of $6.87 per share, which was equal to the closing price of our common stock on the date of grant. The options vest annually over four years commencing on
December 31, 2022.
On March 3, 2022, Messrs. Lisi, Avniel and Larson were granted restricted stock units to receive 140,000, 70,000 and 15,000 shares of our common stock, respectively. The
restricted stock units vest annually over five years commencing on December 15, 2022.
Outstanding Equity Awards as of March 31, 2022
Number of
securities
underlying
unexercised
options (#)
exercisable
400,000(1)
187,500(2)
35,000(2)
50,000(2)
-(8)
-(2)
-(4)
-(4)
-(4)
-(4)
-(5)
-(5)
100,000(3)
250,000(1)
105,000(2)
20,000(2)
Number of
securities
underlying
unexercised
options (#)
unexercisable
-
62,500
35,000
150,000
625,000
280,000
-
-
-
-
-
-
-
-
35,000
20,000
Date of
Grant
08/31/2018
03/31/2019
03/11/2020
03/04/2021
01/04/2022
03/03/2022
12/31/2018
01/01/2019
12/31/2019
01/04/2020
10/05/2021
03/03/2022
02/20/2017
08/31/2018
03/31/2019
03/11/2020
Equity awards
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options (#)
Option
exercise
price ($)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4.25
4.80
5.32
5.45
2.76
6.87
-
-
-
-
-
-
4.25
4.25
4.80
5.32
Market
value of
shares or
units of
stock
that
have not
vested ($)
(7)
-
417,500
233,800
1,002,000
6,250,000
1,870,400
235,136
32,064
418,836
62,124
534,400
935,200
-
-
233,800
133,600
Number of
shares or
units of
stock
that
have not
vested (#)
-
-
-
-
-
-
35,200
4,800
62,700
9,300
80,000
140,000
-
-
-
-
Option
expiration
date
08/13/2029
03/31/2029
03/11/2030
03/04/2031
01/04/2032
03/03/2032
-
-
-
-
-
-
02/20/2027
08/13/2029
03/31/2029
03/11/2030
Name
Steven A. Lisi
Amir Avniel
03/04/2021
01/04/2022
03/03/2022
12/31/2018
01/01/2019
12/31/2019
01/04/2020
10/05/2021
03/03/2022
09/01/2021
01/04/2022
03/03/2022
03/03/2022
11/01/2018
03/31/2019
03/11/2020
03/04/2021
25,000(2)
-(8)
-(2)
-(4)
-(4)
-(4)
-(4)
-(5)
-(5)
-(6)
-(8)
-(2)
-(5)
69,063(9)
11,250(9)
10,000(9)
6,250(9)
75,000
250,000
140,000
-
-
-
-
-
-
75,000
6,000
20,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5.45
2.76
6.87
-
-
-
-
-
-
10.68
2.76
6.87
-
4.25
4.80
5.32
5.45
03/04/2031
01/04/2032
03/03/2032
-
-
-
-
-
-
09/01/2031
01/04/2032
03/03/2032
-
11/01/2028
03/31/2029
03/11/2030
03/04/2031
-
-
-
18,000
4,800
30,300
8,700
40,000
70,000
-
-
-
15,000
-
-
-
-
501,000
2,500,000
935,200
120,240
32,064
202,404
58,116
267,200
467,600
501,000
60,000
133,600
100,200
-
-
-
-
Douglas
Larson
Douglas Beck, CPA
(1) 25% options vests immediately, 25% vests December 31, 2018, 25% vests each following December 31.
(2) 25% options vests in December of the year of grant, 25% vests each following December.
(3) Options vested over three years equally on a quarterly basis.
(4) Restricted stock units vest 20% per year at the date of grant.
(5) Restricted stock units vest 20% per year, with the first tranche vesting in December in the year of grant.
(6) 25% options vests on the anniversary date of the grant, 25% each following year on the anniversary date.
(7) Market value was calculated based upon the stock price at the last trading day of the fiscal year ended March 31, 2022 ($6.68).
(8) Stock options for common stock in Beyond Cancer, market value is based on most recent financing.
(9) Stock options vested through severance period, exercisable through February 28, 2023.
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Director Compensation
Persons serving as both an Officer and a Director of the Company are only included in the Summary Compensation Table above for the year ended March 31, 2022.
Name
Dr. William Forbes
Ron Bentsur
Erick J. Lucera
Yoori Lee
Robert F. Carey
Fees
earned
or paid
in cash
($)
Stock
awards
($)
Option
awards
($)
(1) (2)
Non-equity
incentive
plan
compensation
($)
Nonqualified
deferred
compensation
earnings
($)
All Other
Compensation
($)
-
-
-
-
-
-
-
-
-
-
154,500
154,500
154,500
154,500
257,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
($)
154,500
154,500
154,500
154,500
257,500
(1) During the year ended March 31, 2022, each director on the Board of Directors received options to purchase 30,000 shares of Beyond Air’s common stock and each option
expires in ten years from the date of grant. Mr. Carey also serves on the Board of Directors of Beyond Cancer and received options to purchase 50,000 shares of Beyond
Cancer’s common stock. Compensation expense was based upon the grant date fair value of the award in accordance with stock-based compensation rules under ASC Topic
718. As of March 31, 2022, the aggregate number of options to purchase Beyond Air’s common stock held by each director on the Board of Directors was as follows: (i)
133,000 by Dr. Forbes; (ii) 104,000 by Mr. Bentsur; (iii) 125,000 by Mr. Lucera; (iv) 120,000 by Ms. Lee; and (v) 106,000 by Mr. Carey. As of March 31, 2022, Mr. Carey
additionally held an aggregate of 50,000 options to purchase Beyond Cancer’s common stock.
(2) The respective agreements include a change of control provision that would automatically vest any unvested stock options if triggered.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information with respect to the beneficial ownership of our common stock by each person known by us to beneficially own more than 5.0% of
any class of our voting securities together with:
● each of our directors;
● each of our named executive officers; and
● all of our directors and executive officers as a group.
The percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities.
Except as indicated in the footnotes to this table, each beneficial owner named in the table below has sole voting and sole investment power with respect to all shares beneficially
owned. Percentage computations are based on 29,886,173 shares of our common stock outstanding as of March 31, 2022.
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Under the terms of the warrants issued by the Company to the holders listed below, no holder may exercise a warrant to the extent such exercise would cause such holder,
together with its affiliates and any other persons acting as a group with such holder or any of its affiliates, to have acquired a number of shares of common stock which would
exceed 4.99%, or, in the case of certain holders indicated below, 9.985%, (subject to an increase of such percentage to 9.99% on 61 days’ notice by the holder to the Company) of
our then outstanding common stock, excluding for purposes of such determination shares of common stock issuable upon exercise of warrants that have not been exercised. We
refer to the foregoing limitation applicable to each individual holder or group as the "Ownership Cap.” The share numbers in the table below do not reflect the Ownership Cap, but
the figures contained in the "Percentage of Outstanding Shares” column reflect the Ownership Cap applicable to each holder.
Name and Address of Beneficial Owner (1)
5% Owners
Charles Mosseri Marlio
Executive Officers and Directors
Steven A. Lisi
Amir Avniel
Ron Bentsur
Dr. William Forbes
Robert F. Carey
Erick Lucera
Yoori Lee
Douglas Larson
Executive Officers and Directors as a Group (Eight persons)
Number of
Shares
Percentage of
Outstanding
Shares % (2)
2,312,627(3)
1,825,945(4)
863,527(5)
219,186(6)
48,355(7)
605,573(8)
61,092(9)
64,539(10)
500
3,688,717
7.7
6.0
2.8
*
*
1.8
*
*
*
11.6
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Less than one percent (1.0%).
The address of these persons, unless otherwise noted, is c/o Beyond Air, Inc., 900 Stewart Avenue, Suite 301 Garden City, New York, 11530.
Shares of common stock beneficially owned and, except as limited by the Ownership Cap, the respective percentages of beneficial ownership of common stock includes for
each person or entity shares issuable on the exercise of all options and warrants and the conversion of other convertible securities beneficially owned by such person or
entity that are currently exercisable or will become exercisable or convertible within 60 days following June 15, 2022. Such shares, however, are not included for the purpose
of computing the percentage ownership of any other person.
Based, in part, on information provided on Schedule 13G/A filed with the SEC on February 9, 2022. Includes 108,816 shares of common stock issuable upon exercise of the
warrants issued to Mr. Mosseri Marlio in connection with Facility Agreement in March 2020.
Includes 672,500 vested options to purchase shares of common stock.
Includes 500,000 vested options to purchase common stock and 32,666 shares of common stock held by Dandelion Investments Ltd., over which Mr. Avniel has sole voting
and dispositive power.
Includes 36,750 vested options to purchase shares of common stock.
Includes 43,500 vested options to purchase shares of common stock.
Includes 38,250 vested options to purchase shares of common stock.
Includes 58,750 vested options to purchase shares of common stock.
(10)
Includes 55,000 vested options to purchase shares of common stock.
96
Equity Compensation Plan Information
We maintain the Third Amended and Restated 2013 Beyond Air Equity Incentive Plan (the "2013 BA Plan”). The 2013 BA Plan provides for the grant of incentive stock
options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance share awards, and other stock-based awards
(collectively, the "stock awards”). Stock awards may be granted under the 2013 BA Plan to our employees, directors and consultants, other than incentive stock options which may
only be granted to employees of the Company. The maximum number of shares of common stock available for issuance under the 2013 BA Plan is 7,600,000 shares.
The 2013 BA Plan is scheduled to terminate on August 13, 2028. No stock awards shall be granted pursuant to the 2013 BA Plan after such date, but Awards theretofore
granted may extend beyond that date. The Board may suspend or terminate the Plan at any earlier date pursuant to the 2013 BA Plan. No stock awards may be granted under the
Plan while the Plan is suspended or after it is terminated.
The following table summarizes the total number of outstanding options and shares available for other future issuances of options under the 2013 BA Plan as of March 31,
2022
Number of
Shares
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
Weighted-
Average
Exercise Price
of
Outstanding
Options,
Warrants
and Rights
Number of
Shares
Remaining
Available for
Future
Issuance
Under the
Equity
Compensation
Plan
(Excluding
Shares
in First
Column)
4,171,750
1,336,881
$
$
5.92
4.62
1,168,761(3)
-
Plan Category
Equity compensation plans approved by stockholders (1)
Equity compensation plans not approved by stockholders (2)
Total
5,508,631
$
5.60
1,168,761
(1) Represents shares of common stock reserved for future issuance upon exercise of outstanding stock options under the 2013 BA Plan that were approved by our stockholders.
(2) Represents shares of common stock issuable upon exercise of outstanding stock options under the 2013 BA Plan that were not approved by our stockholders including 75,000
options issued as an inducement award.
(3) Represents 418,761 shares of common stock reserved for future issuance under the 2013 BA Plan and 750,000 shares of common stock reserved for future issuance under the
2021 Employee Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
Under SEC rules, related-party transactions are those transactions to which we are or may be a party in which the amount involved exceeds the lesser of $120 thousand or
1% of the average of total assets at year-end for the last two completed fiscal years, and in which any of our directors or executive officers or any other related person had or will
have a direct or indirect material interest, excluding, among other things, compensation arrangements with respect to employment and Board of Directors membership. Our audit
committee could approve a related-party transaction if it determines that the transaction is in our best interests. Our directors are required to disclose to this committee or the full
Board of Directors any potential conflict of interest, or personal interest in a transaction that our Board of Directors is considering. Our executive officers are required to disclose
any related-party transaction to the audit committee. We also poll our directors on an annual basis with respect to related-party transactions and their service as an officer or
director of other entities. Any director involved in a related-party transaction that is being reviewed or approved must recuse himself or herself from participation in any related
deliberation or decision. Whenever possible, the transaction should be approved in advance and if not approved in advance, must be submitted for ratification as promptly as
practical.
97
Since April 1, 2020, there were no transactions to which we have been a party in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent
of the average of the company’s total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or beneficial owners of more
than 5% of our capital stock, or any members of their immediate family, had or will have a direct or indirect material interest, other than compensation arrangements that are
described in the "Executive Compensation” and "Director Compensation” sections of this Annual Report .
Director Independence
Our Board of Directors has determined that each of Ron Bentsur, Erick Lucera, Yoori Lee, William Forbes and Robert F. Carey is independent within the meaning of Rule
5605(a)(2) of the Nasdaq Listing Rules and the rules and regulations promulgated by the SEC. In making its independence determinations, the Board of Directors sought to identify
and analyze all of the facts and circumstances related to any relationship between a director, his immediate family and our company and our affiliates and did not rely on categorical
standards other than those contained in the Nasdaq rule referenced above.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed for the fiscal years ended March 31, 2022 and March 31, 2021 for professional services rendered by Friedman LLP for the audit of our annual
financial statements provided by Friedman LLP in connection with statutory and regulatory filings or engagements for this fiscal period were as follows:
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
Total
Year Ended
March 31,
2022
Year Ended
March 31,
2021
$
$
$
$
$
215,800 $
- $
- $
- $
215,800 $
150,600
-
-
-
150,600
In the above table, "audit fees” are fees billed by our independent registered public accounting firm for services provided in auditing our annual financial statements for
the subject year. Audit fees also include professional services performed for filing of our registration statement on Form S-3 for equity offerings, Form S-8 for shares of our
common stock underlying our 2013 Equity Incentive Option Plan and for the resale of certain shares of our common stock and other filings. "Audit-related fees” are fees not
included in audit fees that are billed by the independent registered public accounting firm for assurance and related services that are reasonably related to the performance of the
audit review of our financial statements. "Tax fees” are fees billed by the independent registered public accounting firm for professional services rendered for tax compliance, tax
advice and tax planning. "All other fees” are fees billed by the independent registered public accounting firm for products and services not included in the foregoing categories.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The audit committee pre-approves all services provided by our independent registered public accounting firm. All of the above services and fees were reviewed and
approved by the audit committee before the respective services were rendered.
The Board of Directors has considered the nature and amount of fees billed by Friedman LLP and believes that the provision of services for activities unrelated to the
audit, if any, is compatible with maintaining Friedman LLP’s independence.
98
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
6. Financial Statements.
See Index to Consolidated Financial Statements on page F-1.
2. Finance Statement Schedules.
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits
2.1
2.2
2.3
3.1
3.2
3.3
3.4
4.1
4.2
4.3
10.1
10.2
10.3
10.4^
10.5
10.6
Agreement and Plan of Merger and Reorganization, dated as of December 29, 2016, by and among AIT Therapeutics, Inc. and Advanced Inhalation Therapies
Ltd., filed as Exhibit 2.1 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017 and incorporated herein by reference.
First Amendment to Agreement and Plan of Merger and Reorganization, dated as of January 12, 2017, by and among AIT Therapeutics, Inc. and Advanced
Inhalation Therapies Ltd., filed as Exhibit 2.2 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017 and incorporated herein
by reference.
Merger Completion Certificate, dated as of December 29, 2016, by and among Red Maple Ltd. And Advance Inhalation (AIT) Ltd., filed as Exhibit 2.3 to our
Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017 and incorporated herein by reference.
Amended and Restated Certificate of Incorporation of AIT Therapeutics, Inc., dated as of January 9, 2017, filed as Exhibit 3.1 to our Current Report on Form 8-
K, as amended and filed with the SEC on March 15, 2017 and incorporated herein by reference.
Amended and Restated Bylaws of AIT Therapeutics, Inc. filed as Exhibit 3.2 to our Current Report on Form 8-K, as amended and filed with the SEC on March
15, 2017 and incorporated herein by reference.
Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated as of June 25, 2019, filed as Exhibit 3.3 to our Annual Report on Form 10-
K filed with the SEC on June 28, 2019 and incorporated herein by reference.
99
Form of Second Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Beyond Air, Inc. (included in Appendix C to our
Definitive Proxy Statement, as filed with the SEC on January 22, 2021 and incorporated herein by reference).
Form of Common Stock Certificate, filed as Exhibit 4.1 to our Current Report on Form 8-K, as filed with the SEC on March 15, 2017 and incorporated herein by
reference.
Form of Warrant to Purchase Common Stock, by and among Beyond Air, Inc. and the Holders party thereto, filed as Exhibit 4.1 to our Current Report on Form 8-
K, as filed on March 20, 2020 and incorporated herein by reference
Description of the Company’s Securities Registered under Section 12 of the Securities Exchange Act of 1934, as amended, filed as Exhibit 4.7 to our Annual
Report on Form 10-K, as filed with the SEC on June 23, 2020 and incorporated herein by reference.
Amended and Restated Agreement for the Transfer and Assumption of Obligations Under the Securities Purchase and Registration Rights Agreements, dated
as of January 12, 2017, by and among AIT Therapeutics, Inc. and Advanced Inhalation Therapies Ltd., filed as Exhibit 10.1 to our Current Report on Form 8-K,
as amended and filed with the SEC on March 15, 2017 and incorporated herein by reference.
Securities Purchase and Registration Rights Agreement, by and among Advanced Inhalation Therapies Ltd. And the Investors party thereto, filed as Exhibit
10.2 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017 and incorporated herein by reference.
License Agreement, dated as of November 1, 2011, by and between Advanced Inhalation Therapies Ltd. And The UBC, filed as Exhibit 10.10 to our Current
Report on Form 8-K, as amended and filed with the SEC on March 15, 2017 and incorporated herein by reference.
Non-Exclusive Patent License Agreement, dated as of October 22, 2013, by and between Advanced Inhalation Therapies Ltd. And SensorMedics Corporation,
filed as Exhibit 10.9 to our Current Report on Form 8-K. as filed with the SEC on January 20, 2017 Registration Statement on Form S-1(File No. 333-216287), and
incorporated herein by reference.
Option Agreement, dated as of August 31, 2015, by and between Advanced Inhalation Therapies Ltd. And Pulmonox Technologies Corporation, filed as Exhibit
10.13 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017 and incorporated herein by reference.
Tenth Amendment to Option Agreement, dated as of December 31, 2016, by and between Advanced Inhalation Therapies Ltd. And Pulmonox Technologies
Corporation, filed as Exhibit 10.14 to our Current Report on Form 8-K, as amended and filed with the SEC on March 15, 2017 and incorporated herein by
reference.
10.7+
Executive Employment Agreement, dated as of June 30, 2018, by and between AIT Therapeutics Inc. and Steven Lisi, filed as Exhibit 10.2 to our Quarterly
Report on Form 10-Q, as filed with the SEC on August 10, 2021 and incorporated herein by reference.
100
10.8+
10.9+
Stock Purchase and Registration Rights Agreement, dated as of March 31, 2017, by and among AIT Therapeutics, Inc. and the Investors party thereto, filed as
Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on April 4, 2017 and incorporated herein by reference.
Stock Purchase and Registration Rights Agreement, dated as of March 31, 2017, by and among AIT Therapeutics, Inc. and the Investors party thereto, filed as
Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on April 4, 2017 and incorporated herein by reference.
10.10+
Form of Subscription Agreement, dated as of March 31, 2017, by and among AIT Therapeutics, Inc. and the Investors party thereto, filed as Exhibit 10.2 to our
Current Report on Form 8-K, as filed with the SEC on April 4, 2017 and incorporated herein by reference.
10.11
10.12
10.13
Securities Purchase Agreement, dated as of August 10, 2018, by and between AIT Therapeutics, Inc. and Lincoln Park Capital Fund, LLC., filed as Exhibit 10.1
to our Current Report on Form 8-K, as filed with the SEC on August 13, 2018 and incorporated herein by reference.
Registration Rights Agreement, dated as of August 10, 2018, by and between AIT Therapeutics, Inc. and Lincoln Park Capital Fund, LLC, filed as Exhibit 10.2 to
our Current Report on Form 8-K, as filed with the SEC on August 13, 2018 and incorporated herein by reference.
Employment Agreement, dated as of August 20, 2021, by and between Beyond Air, Inc. and Douglas Larson, filed as Exhibit 10.1 to our Current Report on Form
8-K, filed with the SEC on August 25, 2021 and incorporated herein by reference.
10.14
10.15*
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Form of Subscription Agreement, dated as of June 3, 2019, by and among AIT Therapeutics, Inc. and the Purchasers party thereto, filed as Exhibit 10.1 to our
Current Report on Form 8-K, as filed with the SEC on June 7, 2019 and incorporated herein by reference.
License, Development and Commercialization Agreement, dated January 23, 2019, by and between AIT Therapeutics, Inc. and Circassia Limited, filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q on February 14, 2019 and incorporated herein by reference.
Settlement Agreement and Release, dated May 26, 2021, by and between Beyond Air, Inc. and Circassia Limited, filed as Exhibit 10.1 to our Quarterly Report on
Form 10-Q, as filed with the SEC on August 10, 2021 and incorporated herein by reference.
Form of Purchase Agreement, dated as of December 10, 2019, by and among Beyond Air, Inc. and the U.S. Investors party thereto, filed as Exhibit 10.1 to our
Current Report on Form 8-K, as filed with the SEC on December 12, 2019 and incorporated herein by reference.
Form of Purchase Agreement, dated as of December 10, 2019, by and among Beyond Air, Inc. and the Foreign Investors party thereto, filed as Exhibit 10.2 to
our Current Report on Form 8-K, as filed with the SEC on December 12, 2019 and incorporated herein by reference.
Facility Agreement, dated as of March 17, 2020, by and among Beyond Air Ireland Limited and the Original Lenders party thereto, filed as Exhibit 10.1 to our
Current Report on Form 8-K, as filed with the SEC on March 20, 2020 and incorporated herein by reference.
At-The-Market Equity Offering Sales Agreement, dated as of April 2, 2020, by and among Beyond Air, Inc., SunTrust Robinson Humphrey, Inc. and
Oppenheimer & Co., filed as Exhibit 1.1 to our Current Report on Form 8-K, as filed with the SEC on April 3, 2020 and incorporated herein by reference.
101
At-The-Market Equity Offering Sales Agreement, dated as of February 4, 2022, by and among Beyond Air, Inc., Truist Securities, Inc., and Oppenheimer & Co.
Inc., filed as Exhibit 1.1 to our Current Report on Form 8-K, as filed with the SEC on February 4, 2022 and incorporated herein by reference.
Purchase Agreement, dated as of May 14, 2020, by and between Beyond Air, Inc. and Lincoln Park Capital Fund, LLC, filed as Exhibit 10.1 to our Current Report
on Form 8-K, as filed with the SEC on May 20, 2020 and incorporated herein by reference.
Registration Rights Agreement, dated as of May 14, 2020, by and between Beyond Air, Inc. and Lincoln Park Capital Fund, LLC, filed as Exhibit 4.1 to our
Current Report on Form 8-K, filed with the SEC on May 20, 2020 and incorporated herein by reference.
10.24*
Supply Agreement, dated as of August 6, 2020, by and between Beyond Air, Inc. and Spartronics Watertown, LLC, filed as Exhibit 10.1 to our Current Report
on Form 8-K, as filed with the SEC on August 12, 2020 and incorporated herein by reference.
10.25* Manufacture and Supply Agreement, dated as of July 30, 2020, by and between Beyond Air, Inc. and Medisize Ireland Limited, filed as Exhibit 10.1 to our
Current Report on Form 8-K, as filed with the SEC on August 18, 2020 and incorporated herein by reference.
10.26+
10.27+
Beyond Air, Inc. Fourth Amended and Restated 2013 Equity Incentive Plan (included in Appendix A to our Definitive Proxy Statement filed on January 21, 2022
and incorporated herein by reference).
Beyond Air, Inc. 2021 Employee Stock Purchase Plan, filed as Exhibit 10.2 to our Current Report on Form 8-K, as filed with the SEC on March 9, 2021 and
incorporated herein by reference.
21.1**
List of subsidiaries of Beyond Air, Inc.
23.1**
Consent of Friedman LLP
31.1*** Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer
31.2*** Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer
32.1***
Section 1350 Certification of Principal Executive Officer
32.2***
Section 1350 Certification of Principal Financial Officer
101.INS
Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the XBRL
document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+ Management contract or compensation plan arrangement
* Pursuant to Item 601(b)(10) of Regulation S-K, portions of this exhibit have been omitted as the registrant has determined that the omitted information is not material and is the
type that registrant treats as private or confidential.
** Filed herewith
*** Furnished herewith.
Item 16. Form 10-K Summary
Information with respect to this item is not required and has been omitted at the Company’s option.
102
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: June 28, 2022
BEYOND AIR, INC.
By:
/s/ Steven Lisi
Steven Lisi
Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Name
/s/ Steven Lisi
Steven Lisi
/s/ Douglas Larson
Douglas Larson
/s/ Amir Avniel
Amir Avniel
/s/ Erick Lucera
Erick Lucera
/s/ Yoori Lee
Yoori Lee
/s/ William Forbes
William Forbes
/s/ Ron Bentsur
Ron Bentsur
/s/ Robert Carey
Robert Carey
Title
Chairman and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
Date
June 28, 2022
June 28, 2022
Chief Operating Officer, President and Director
June 28, 2022
June 28, 2022
June 28, 2022
June 28, 2022
June 28, 2022
June 28, 2022
Director
Director
Director
Director
Director
103
BEYOND AIR, INC. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2022
INDEX
Report of Independent Registered Public Accounting Firm (PCAOB ID:711)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-7
F-8 – F-25
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Beyond Air, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Beyond Air, Inc. and Subsidiaries (the "Company”) as of March 31, 2022 and March 31, 2021, and the related
consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the two-year period ended March 31, 2022,
and the related notes (collectively referred to as the "financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of March 31, 2022 and March 31, 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2022, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Contracted Research & Development Cost Recognition:
As discussed in Note 2 to the financial statements, the Company records costs for clinical trial activities as costs are incurred through the balance sheet date for services
performed by clinical research organizations, consultants and accredited facilities in connection with pre-clinical and clinical trials necessary for regulatory approval.
Auditing the recognition of such costs associated with contracted organizations is challenging due to the significant judgment required to determine the nature and level of
services that have been received, including determining the progress to completion of specific tasks and activities conducted in relation to what has been invoiced and recorded.
The primary procedures we performed to address this critical audit matter included:
● Obtained an understanding of the design and operating effectiveness of internal controls for pre-clinical and clinical cost recognition
● Tested the completeness and accuracy of the underlying data used in the estimates including, but not limited to, the estimated costs per project milestone and
duration
● Assessed the reasonableness of the significant assumptions, corroborated the progress of the pre-clinical and clinical trials with the Company’s operations personnel
and to information obtained by the Company directly from third parties, as well as to information in contracts or statements of work including costs for those
activities and project duration
● Examined subsequent invoicing received from such third parties
Contingency Loss Recognition
As discussed in Note 15 to the financial statements, the Company is party to claims associated with a financing from a prior year. Contingent liabilities are recorded in the financial
statements when management determines it is probable that a liability has been incurred and the amount can be reasonably estimated. This determination requires significant
judgment by management.
In assessing whether the Company should accrue a liability for such claims, management considers various factors, including the legal and factual circumstances of the claims and
advisement from their outside legal counsel. The Company’s management determined an initial accrual was necessary for one such claim. Management does not believe the
remaining amount of such claim is considered probable.
We identified these contingent liabilities and disclosures as a critical audit matter because evaluating the likelihood of potential outcomes involves significant judgment by
management. Accordingly, it also required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the Company’s
assertion that an additional loss is not probable as of March 31, 2022.
The primary procedures we performed to address this critical audit matter included:
●
●
●
Obtained an understanding of the Company’s process that addresses the risks of material misstatement relating to claims as well as the accounting treatment, based
on the most recent facts and circumstances.
Obtained and evaluated analysis and confirmations from the Company’s internal and external legal counsel confirming the facts and circumstances of the claims along
with follow up inquiries to understand the basis for the management’s conclusion.
Evaluated the accuracy and completeness of management’s disclosures in the consolidated financial statements by comparing the disclosures to management’s
internal analysis of the claims, the information provided by the Company’s external legal counsel, and court rulings.
/s/ Friedman LLP
We have served as the Company’s auditor since 2019.
East Hanover, New Jersey
June 28, 2022
F-2
BEYOND AIR, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, 2022
March 31, 2021
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Grant receivable
Other current assets and prepaid expenses
Total current assets
Licensed right to use technology
Right-of-use lease assets
Property and equipment, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued expenses
Operating lease liability
Loan payable
Total current liabilities
Operating lease liability
Long-term loan, net
Other long-term liabilities
Total liabilities
Stockholders’ equity
Preferred Stock, $0.0001 par value per share: 10,000,000 shares authorized, 0 shares issued and outstanding
Common Stock, $0.0001 par value per share: 100,000,000 shares authorized, 29,866,173 and 21,828,244 shares
issued and outstanding as of March 31, 2022 and 2021, respectively
Treasury stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total stockholders’ equity attributable to Beyond Air, Inc.
Non-Controlling Interests
Total equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of these consolidated financial statements
F-3
$
$
$
$
80,242
9,988
322
2,393
92,945
1,837
2,216
1,995
207
99,199
1,129
8,374
281
927
10,712
2,079
200
8,000
20,990
-
3
(25)
196,269
(123,639)
96
72,704
5,505
78,209
99,199
$
$
$
$
34,631
637
425
1,530
37,223
375
1,861
929
138
40,525
1,325
1,805
113
557
3,800
1,789
4,472
-
10,061
-
2
(25)
110,948
(80,462)
-
30,464
-
30,464
40,525
BEYOND AIR, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands except share data)
Year Ended
March 31, 2022
Year Ended
March 31, 2021
License revenue
Operating expenses
Research and development
General and administrative
Settlement expense contingent on FDA approval
Loss from Operations
Other income (expense)
Estimated liability for contingent loss
Dividend and interest income
Interest and finance expense
Foreign exchange loss
Total other loss
Net loss before income taxes
Benefit for income taxes
Net loss
Less: Net Loss attributed to non-controlling interests
Net loss attributed to Beyond Air, Inc.
Other Comprehensive (Loss) Income, net of tax:
$
-
$
(11,802)
(18,408)
(10,500)
(40,710)
(2,435)
4
(775)
(144)
(3,350)
(44,060)
-
(44,060)
$
(882)
(43,177)
$
$
$
873
(12,618)
(10,468)
-
(22,214)
-
17
(642)
(37)
(661)
(22,875)
-
(22,875)
-
(22,875)
Foreign currency translation gain
Comprehensive loss attributed to Beyond Air, Inc.
Net loss per share – basic and diluted
96
(43,081)
(1.68)
$
$
-
(22,875)
(1.27)
$
$
Weighted average number of shares of common stock outstanding – basic and diluted
25,668,230
18,005,226
The accompanying notes are an integral part of these consolidated financial statements
F-4
BEYOND AIR, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED MARCH 31, 2021
(in thousands except share data)
Balance as of April 1, 2020
At The Market Equity Offering stock issuance of common
stock, net
Issuance of common stock pursuant to a Purchase
Agreement, net
Issuance of common stock upon the exercise of warrants
Issuance of common stock upon cashless excise of
warrants
Issuance of common stock upon exercise of options
Issuance of common stock to investor relations firm
Vested restricted stock
Stock-based compensation
Net loss
Balance as of March 31, 2021
Common Stock
Number
16,056,360
$
Amount
1,961,201
1,975,511
1,583,028
65,204
2,340
30,000
154,600
-
-
21,828,244
$
F-5
Treasury
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
2
$
(25)
$
75,703
$
(57,587) $
-
-
-
-
-
-
-
-
-
2
-
-
-
-
-
-
-
-
(25)
$
$
11,855
11,583
6,672
-
1
242
-
4,893
-
110,948
-
-
-
-
-
-
-
(22,875)
(80,462) $
$
BEYOND AIR, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED MARCH 31, 2022
(in thousands except share data)
Balance as of April 1, 2021
At The Market Equity Offering stock
issuance of common stock, net
Issuance of common stock pursuant to a
Purchase Agreement, net
Issuance of common stock upon the
exercise of warrants – for cash
Issuance of common stock upon excise of
warrants – cashless
Issuance of common stock upon exercise
of options – for cash
Issuance of common stock upon exercise
of options – cashless
Vested restricted stock
Beyond Cancer issuance of stock
Net recovery of short swing profits
Stock-based compensation
Other comprehensive income
Net loss
Balance as of March 31, 2022
Common Stock
Number
21,828,244 $
Amount
Treasury
Stock
(25)
$
2
Additional
Paid-in Accumulated
Capital
$ 110,948
(80,462)
Deficit
$
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interest
-
-
$
4,053,424
1,100,000
1,630,002
894,823
55,875
121,205
202,600
-
-
-
29,886,173
-
-
-
-
-
-
-
-
-
-
3
36,489
11,138
251
-
5,966
-
-
24,000
33
7,444
(25)
-
196,269
(43,177)
(123,639)
6,000
387
(882)
5,505
96
96
The accompanying notes are an integral part of these consolidated financial statements
F-6
BEYOND AIR, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except share data)
For The Year
Ended March 31,
For The Year
Ended March 31,
18,092
11,855
11,583
6,672
-
1
242
-
4,893
(22,875)
30,464
Total
Equity
30,464
36,489
11,138
251
-
5,966
-
-
30,000
33
7,831
96
(44,060)
78,209
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss used in provided by operating activities
Depreciation and amortization
Stock-based compensation
Operating lease expense
Amortization of licensed right to use technology
Gain on cancellation of operating lease
Foreign currency adjustment
Amortization of debt issuance cost and deferred financing fees
Changes in:
Grant receivable
Other current assets and prepaid expenses
Accounts payable
Current Accrued expenses
Long-term Accrued Liabilities
Deferred revenue
Net cash used in operating activities
Cash flows from investing activities
Security deposits made on rental properties
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities
Issuance of common stock in connection with a Purchase Agreement
Issuance of common stock in connection with At The Market Offering
Proceeds from the exercise of warrants
Proceeds from the exercise of stock options
Net proceeds from the sale of common stock of Beyond Cancer ($30.0m including $1.1m from related parties, less
$4.8m from retired loan facility)
Proceeds from the net recovery of short-swing profits from related parties
Proceeds from loan
Payment of loan
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of non-cash financing and investing activities:
Right-of-use lease assets
Operating lease liability
Accelerated accretion of debt discount
Increase Licensed Right to use Technology from NitricGen agreement
NitricGen accrued liability due to FDA approval
Supplemental disclosure of cash flow items:
Interest paid
Income taxes paid
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements
F-7
NOTE 1 ORGANIZATION AND BUSINESS
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2022
2021
$
(44,060)
$
(22,875)
314
7,831
236
38
-
144
528
103
(816)
(327)
4,874
8,000
-
(23,134)
(69)
(1,380)
(1,450)
11,138
36,489
5,966
251
25,200
33
1,029
(658)
79,450
96
54,962
35,268
90,230
693
693
390
1,500
1,500
340
68
$
$
$
$
$
$
211
4,895
38
-
(2)
37
133
(425)
(518)
(968)
707
-
(873)
(19,639)
-
(890)
(890)
11,583
11,855
6,672
1
625
(404)
30,332
-
9,803
25,465
35,268
1,777
1,777
-
508
-
Beyond Air, Inc. (together with its subsidiaries, "Beyond Air” or the "Company”) was incorporated on April 28, 2015 under Delaware law. On June 25, 2019, the Company’s name
was changed to Beyond Air, Inc. from AIT Therapeutics, Inc.
The Company is a commercial stage medical device and biopharmaceutical company developing a platform of nitric oxide ("NO”) generators and delivery systems (the "LungFit®
platform”) capable of generating NO from ambient air. The Company’s first device, LungFit ® PH ("LungFit® PH”) received approval from the FDA, for persistent pulmonary
hypertension of the newborn ("PPHN”), in June 2022. The LungFit® platform can generate NO up to 400 parts per million ("ppm”) for delivery to a patient’s lungs directly or via a
ventilator. LungFit® can deliver NO either continuously or for a fixed amount of time at various flow rates and has the ability to either titrate dose on demand or maintain a constant
dose. The Company believes that LungFit® can be used to treat patients on ventilators that require NO, as well as patients with chronic or acute severe lung infections via delivery
through a breathing mask or similar apparatus. Furthermore, the Company believes that there is a high unmet medical need for patients suffering from certain severe lung infections
that the LungFit® platform can potentially address. The Company’s current areas of focus with LungFit® are PPHN, community-acquired viral pneumonia ("CAVP”) including
COVID-19 (previously acute viral pneumonia ("AVP”)), bronchiolitis ("BRO”) and nontuberculous mycobacteria ("NTM”) lung infection and those with various severe lung
infections with underlying chronic obstructive pulmonary disease ("COPD”). The Company’s current product candidates will be subject to premarket reviews and approvals by the
U.S. Food and Drug Administration, (the "FDA”), CE certification through the conduct of a conformity assessment by a notified body in the EU, as well as comparable foreign
regulatory authorities’ reviews or approvals in other countries or regions.
On November 4, 2021, Beyond Air reorganized its oncology business into a new and independently managed, private company called Beyond Cancer, Ltd ("Beyond Cancer”).
Beyond Air’s preclinical oncology team and the exclusive right to the intellectual property portfolio utilizing ultra-high concentrated nitric oxide ("UNO”) for the treatment of solid
tumors now reside with Beyond Cancer. The new subsidiary secured $30 million in private placement of common shares, including $4.8 million in conjunction with the retirement of
long-term debt, providing investors with 20% equity ownership in Beyond Cancer. Beyond Air retained 80% ownership in Beyond Cancer (see Note 16).
F-8
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and the accounts of all of the Company’s subsidiaries and a variable interest entity ("VIE”) for
which the Company is the primary beneficiary. As the Company has both the power to direct activities of Beyond Cancer that most significantly impact Beyond Cancer’s economic
performance and the right to receive benefits and losses that may potentially be significant, these financial statements are fully consolidated with those of the Company. The non-
controlling owners’ 20% interest in Beyond Cancer’s net assets and result of operations is reported as "non-controlling interest” on the Company’s consolidated balance sheets
and as "net income (loss) attributable to non-controlling interest” in the Company’s consolidated statement of operations and comprehensive income (loss). All intercompany
balances and transactions have been eliminated in the accompanying financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("U.S. GAAP”) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company evaluates its significant estimates
including accruals for expenses under consulting, licensing agreements, and clinical trials, stock-based compensation, contingency recognition and the determination of deferred
tax attributes and the valuation allowance thereon.
Liquidity Risks and Uncertainties
The Company used cash in operating activities of $23.1 million for the year ended March 31, 2022, and has accumulated losses attributable to the stockholders of Beyond Air of
$123.6 million. The Company had cash and cash equivalents of $80.2 million as of March 31, 2022. Based on management’s current business plan, the Company estimates that its
cash and liquidity is sufficient to finance its operating requirements for at least one year from the date of filing these financial statements.
The Company’s future capital needs and the adequacy of its available funds will depend on many factors, including, but not necessarily limited to the success and costs of
commercialization of the Company’s approved product and the actual cost and time necessary for current and anticipated preclinical studies, clinical trials and other actions needed
to obtain certification or regulatory approval of the Company’s product candidates.
The Company’s access to capital and liquidity currently includes a $40 million stock purchase agreement with Lincoln Park Capital Fund, LLC ("LPC”) dated as of May 14, 2020 (the
"New Stock Purchase Agreement”), of which approximately $18.1 million remains available as of March 31, 2022. The New Stock Purchase Agreement provides for issuances
through May 2023 at the Company’s discretion (see Note 5).
The Company entered into an At-The-Market Offering Sales Agreement, dated February 4, 2022 for $50 million (see Note 5). $50 million funds are available under this agreement as
of March 31, 2022.
The Company may be required to raise additional funds through equity or debt securities offerings or strategic collaboration and/or licensing agreements in order to fund
operations until it is able to generate enough product or royalty revenues, if any. Such financing may not be available on acceptable terms, or at all, and the Company’s failure to
raise capital when needed could have a material adverse effect on its strategic objectives, results of operations and financial condition.
Other Risks and Uncertainties
The Company is subject to risks common to development and early stage medical device companies including, but not limited to, new technological innovations, certifications or
regulatory approval, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market
acceptance of approved products and the potential need to obtain additional financing. The Company is also dependent on third-party suppliers and, in some cases single-source
suppliers.
The Company’s products require approval or clearance from the FDA prior to commencement of commercial sales in the United States. There can be no assurance that the
Company’s products beyond LungFit® PH in the U.S. will receive all of the required approvals or clearances. Certifications, approvals or clearances are also required in foreign
jurisdictions in which the Company may license or sell its products. If the Company is denied such certifications or approvals or clearances or such certifications, approvals or
clearances are delayed, such denial or delay may have a material adverse impact on the Company’s results of operations, financial position and liquidity. Further, there can be no
assurance that the Company’s product will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an
acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all.
F-9
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
The development of the Company’s product candidates or commercialization of its approved product could be further disrupted and adversely affected by a resurgence of the
COVID-19 pandemic. The Company experienced significant delays in the supply chain for LungFit® due to the redundancy in parts and suppliers with ventilator manufacturing
which has since been remedied. The Company continuously assesses the impact COVID-19 may have on the Company’s business plans and its ability to conduct the preclinical
studies and clinical trials as well as on the Company’s reliance on third-party manufacturing and global supply chains. However, there can be no assurance that the Company will
be able to avoid part or all of any impact from COVID-19 or its consequences if a resurgence occurs.
Cash and Cash Equivalents and Concentration of Credit Risk
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase and an investment in a U.S. government money market
fund to be cash equivalents. The Company maintains its cash and cash equivalents in highly rated financial institutions in Israel, Ireland and the U.S., the balances of which, at
times, may exceed federally insured limits.
As of March 31, 2022 and March 31, 2021, restricted cash included approximately $2.6 million and $0.6 million designated for a contract manufacturer, respectively. This cash is
expected to be used for materials and parts that require long lead times. As of March 31, 2022, restricted cash also included $7.4 million held as collateral to secure a supersedeas
bond for an appeal of a lawsuit (see Note 15).
The following table is the reconciliation of the presentation and disclosure of cash, cash equivalents and restricted cash as shown on the Company’s consolidated statements of
cash flows (in thousands):
Cash and cash equivalents
Restricted cash
Total
March 31,
2022
March 31,
2021
80,242 $
9,988
90,230 $
34,631
637
35,268
$
$
F-10
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be
entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the
contract(s) with a customer, (ii) identify the performance obligation(s) in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligation(s) in the contract and (v) recognize revenue when (or as) the Company satisfies the performance obligation(s). At contract inception, the Company assesses the goods
or services promised within each contract, assesses whether each promised good or service is distinct and identifies those promised goods or services that are performance
obligations.
The Company uses judgment to determine (a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations
are distinct from other performance obligations in the contract (b) the transaction price under step (iii) above and (c) the stand-alone selling price for each performance obligation
identified in the contract for the allocation of the transaction price in step (iv) above. The Company also uses judgment to determine whether milestones or other variable
consideration, except for royalties, should be included in the transaction price. The transaction price is allocated to each performance obligation on an estimated stand-alone
selling price basis, for which the Company recognizes revenue as or when the performance obligations under contract are satisfied. Where a portion of non-refundable up-front
fees or other payments received are allocated to continuing performance obligations under the terms of a license arrangement, such fees or other payments are recorded as contract
liabilities and recognized as revenue when (or as) the underlying performance obligation is satisfied.
Grant receivable
Under a collaboration arrangement with the Cystic Fibrosis Foundation ("CFF”), grant milestones are achieved subject to certain performance steps and requirements under a
development program. Grant milestones are recorded as reimbursements against the applicable portion of the Company’s research and development expenses. Such
reimbursements are reflected as a reduction of research and development expenses in the Company’s consolidated statements of operations and comprehensive income (loss), as
the performance of research and development services for reimbursement is not considered to be an ongoing component or central to the Company’s operations. See Note 11.
Segment Reporting
Commencing with the creation of Beyond Cancer in November 2021 (see Note 16), the Company’s operations became classified into two segments, Beyond Air and Beyond
Cancer. Each segment has its own Management team, Board of Directors, Corporate Officers and legal entities. As of March 31, 2022, Beyond Air, Ltd. Owns 80% of the common
stock of Beyond Cancer. The segment reporting is based on the manner in which the Company’s CEO as chief operating decision maker assesses performance and allocates
resources across the organization. The Beyond Air segment includes unallocated corporate expenses associated with the public company fees as well as all corporate related
assets and liabilities.
The following table summarizes segment financial information by business segment for the year ended March 31, 2022:
(in thousands)
Beyond Air
Beyond Cancer (1)
Net loss for the period (2)
Operating activities included in Net loss:
Depreciation and amortization
Stock-based compensation expense
Cash and cash equivalents
All other Assets
Total Liabilities
Net Assets – Net Liabilities
Non-Controlling Interests
Cash used in Operations
$
$
$
$
$
(39,150) $
312
5,813
52,515 $
18,674
(20,505)
50,684 $
- $
(20,975) $
(4,910)
2
2,018
27,727
283
(485)
27,525
5,505
(2,159)
(1) Beyond Cancer began stand-alone operations in November 2021, see Note 16.
(2) The Beyond Cancer segment includes $0.5 million of R&D expenses related to oncology incurred prior to the formation of Beyond Cancer. No prior year comparison is
presented as the Beyond Cancer segment was not material.
Research and Development
Research and development expenses are charged to the statement of operations as incurred. Research and development expenses include salaries, benefits, stock-based
compensation and costs incurred by outside laboratories, manufacturers, clinical research organizations, consultants, and accredited facilities in connection with preclinical
studies and clinical trials. Research and development expenses are partially offset by the benefit of tax incentive payments for qualified research and development expenditures
from the Australian tax authority ("AU Tax Rebates”). The Company does not record AU Tax Rebates until payment is received due to the uncertainty of receipt. As of March 31,
2022, the Company has not received any AU Tax Rebates.
F-11
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Exchange Transactions
The Company’s subsidiaries transact in U.S. dollars, Euros, New Israeli Shekels and Australian dollars. The Company’s main operations are in the United States and the U.S. dollar
is the currency of the primary economic environment in which the Company operates and expects to continue to operate in the foreseeable future. The Company translated its non-
U.S. operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at
the average exchange rate for the reporting period. Gains or losses from foreign currency transactions are included in other income (expense) in the statement of operations as
foreign currency exchange gain/(loss).
In consolidating international subsidiaries, balance sheet currency effects are recorded as a component of accumulated other comprehensive income. The other current and non-
current assets line within the Statement of Cash flows includes the impact of foreign currency translation. This equity account includes the results of translating certain balance
sheet assets and liabilities at current exchange rates and some accounts at historical rates. For the year ended March 31, 2022, the we recorded a gain of $96 thousand in
accumulated other comprehensive income.
Stock-Based Compensation
The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant date fair value of the award.
Fair value for restricted stock unit awards is valued using the closing price of the Company’s common stock on the date of grant. The grant date fair value is recognized over the
requisite service period during which an employee and non-employee is required to provide service in exchange for the award. The grant date fair value of employee and non-
employee share options is estimated using the Black-Scholes option pricing model. The risk-free interest rate assumptions were based upon the observed interest rates appropriate
for the expected term of the equity instruments. The expected dividend yield was assumed to be zero as the Company has not paid any dividends since its inception and does not
anticipate paying dividends in the foreseeable future. Due to the Company’s limited trading history, the Company utilizes weighting of its historical volatility and the implied
volatility based on an aggregate of guideline companies. The Company uses the simplified method to estimate the expected term.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and accumulated amortization. Depreciation and amortization are calculated using the straight-line method
over the estimated useful life of the assets as follows:
Computer equipment
Furniture and fixtures
Clinical and medical equipment
Leasehold improvements
Licensed Right to Use Technology
Three years
Seven years
Five or Fifteen years
Shorter of term of lease or estimated useful life of the asset
Licensed right to use technology that is considered platform technology with alternative future uses is recorded as an intangible asset and is amortized on a straight-line method
over its estimated useful life, determined to be thirteen years (see Note 15).
The expected amortization expense for the next five years and thereafter is as follows for the year ended March 31 (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total
Long-Lived Assets
$
$
208
208
208
208
208
798
1,837
The Company assess the impairment of long-lived assets on an ongoing basis and whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors that the Company considers as potential triggers of an impairment review include the following:
●
●
●
●
significant underperformance relative to expected historical or projected future operating results,
significant changes in the manner of the Company’s use of the acquired assets or the strategy for its overall business,
significant negative regulatory or economic trends, and
significant technological changes, which would render the platform technology, equipment, and manufacturing processes obsolete.
F-12
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Recoverability of assets that will continue to be used in the Company’s operations is measured by comparing the carrying value to the future net undiscounted cash flows
expected to be generated by the asset or asset group. Future undiscounted cash flows include estimates of future revenues, driven by market growth rates, and estimates of future
costs. There were no events during the reporting periods that were deemed to be a triggering event that would require an impairment assessment.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is
probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before
the Company is able to realize the benefit, or that future deductibility is uncertain. As of March 31, 2022, the Company recorded a valuation allowance to the full extent of the
Company’s net deferred tax assets since the likelihood of realization of the benefit does not meet the more-likely-than-not threshold.
The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely
than not to be realized following resolution of any potential contingencies present related to the tax benefit. As of March 31, 2022, the Company had no unrecognized tax benefits
or related interest and penalties accrued. The Company has not, as yet, conducted a study of research and development (R&D) credit carryforwards. This study may result in an
adjustment to the Company’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax
position. A full valuation allowance has been provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to
the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required. The Company would recognize both
accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject to
examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local
income tax authorities for all tax years in which a loss carryforward is available.
Net Income (Loss) Per Share
Basic and diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to Beyond Air, Inc., by the weighted average number of
shares of common stock outstanding for the period. The dilutive effect of outstanding options, warrants, restricted stock and other stock-based compensation awards is reflected
in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) attributed to common stockholders per share
excludes all anti-dilutive shares of common stock. For periods in which the Company has reported net losses, diluted net loss per share attributable to common stockholders is the
same as basic net loss per share attributable to common stockholders, because such shares of common stock are not assumed to have been issued if their effect is anti-dilutive, see
Note 9.
Recently Issued Accounting Standards Adopted
The Financial Accounting Standards Board ("FASB”) recently issued Accounting Standards Update ("ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic
470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to
reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting for
convertible debt instruments and convertible preferred stock by removing the existing guidance that requires entities to account for beneficial conversion features and cash
conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded
conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from
derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’
equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity
classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU
2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-
converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The
amendments in ASU 2020-06 are effective for public entities, excluding smaller reporting companies, for fiscal years beginning after December 15, 2021. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The
adoption of ASU 2020-06 did not have a material impact on the Company’s condensed consolidated financial statements or disclosures.
Recently Issued Accounting Standards, Not Yet Adopted
In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU sets forth a "current expected credit loss” (CECL) model which
requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable
supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and
applies to some off-balance sheet credit exposures. In February 2020, the FASB issued ASU 2020-02, Financial Instruments – Credit Losses (Topic 326), which amends the effective
date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal
years beginning after December 15, 2022. We are currently assessing the impact of the adoption of this ASU on our financial statements.
F-13
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 FAIR VALUE MEASUREMENT
The Company’s financial instruments primarily include cash, cash equivalents, restricted cash, accounts payable, and a short-term loan. Due to the short-term nature of these
financial instruments, the carrying amounts of these assets and liabilities approximate their fair value. The long-term debt approximates fair value due to the prevailing market
conditions for similar debt with remaining maturity and terms.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the
reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value. A fair value
hierarchy has been established for valuation inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The fair value hierarchy is as follows:
Level 1 -
quoted prices in active markets for identical assets or liabilities;
Level 2 -
inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices
for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities; or
Level 3 -
unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
F-14
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31,
2022
March 31,
2021
Clinical and medical equipment
Computer equipment
Furniture and fixtures
Leasehold improvements
Accumulated depreciation and amortization
$
$
1,682 $
364
311
404
2,762
(767)
1,995 $
1,074
152
133
22
1,381
(453)
929
Depreciation and amortization expense for the years ended March 31, 2022 and March 31, 2021 was $314 thousand and $173 thousand, respectively.
NOTE 5 STOCKHOLDERS’ EQUITY
On April 2, 2020, the Company entered into an At-The-Market Equity Offering Sales Agreement (the "2020 ATM”), allowing the Company to sell its common stock for aggregate
sales proceeds of up to $50 million from time to time and at various prices, subject to the conditions and limitations set forth in the sales agreement. When shares of the Company’s
common stock were sold, there was a 3% fee paid to the sales agent. For the twelve months ended March 31, 2022 and March 31, 2021, the Company received net proceeds of $36.5
million and $11.9 million from the sale of 4,053,424 and 1,961,201 shares of the Company’s common stock, respectively. As of March 31, 2022, there were no remaining funds
available under the 2020 ATM.
On May 14, 2020, the Company entered into the Stock Purchase Agreement with LPC (the "New Stock Purchase Agreement”), which provides for the issuance of up to $40 million
of its common stock which the Company may sell from time to time in its sole discretion to LPC over 36 months, provided that the closing price of the Company’s common stock is
not below $0.25 per share and subject to certain other conditions and limitations set forth in the New Stock Purchase Agreement. For the twelve months ended March 31, 2022 and
March 31, 2021, the Company received net proceeds of $11.1 million and $11.6 million from the sale of 1,100,000 and 1,975,511 shares of common stock, respectively. As of March
31, 2022, there was a balance of approximately $18.1 million available under the Stock Purchase Agreement.
On January 24, 2022, the Company filed a shelf registration statement on Form S-3 (the "Registration”) registering an indeterminate number of shares of common stock and
preferred stock, such indeterminate principal amount of debt securities, such indeterminate number of warrants to purchase common stock, preferred stock and/or debt securities,
and such indeterminate number of units as may be sold by the Company from time to time, which together shall have an aggregate initial offering price not to exceed $200 million.
The Registration was declared effective by the SEC on February 1, 2022.
On February 4, 2022, the Company entered into a new At-The-Market Equity Offering Sales Agreement (the "2022 ATM”), allowing the Company to sell its common stock for
aggregate sales proceeds of up to $50 million from time to time and at various prices, subject to the conditions and limitations set forth in the 2022 ATM. If shares of the
Company’s common stock are sold, there is a 3% fee paid to the sales agent. As of March 31, 2022, there were $50.0 million in funds available under the 2022 ATM.
F-15
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 STOCKHOLDERS’ EQUITY (continued)
Restricted Stock Units
The fair value for the restricted stock unit awards was valued at the closing price of the Company’s common stock on the date of grant. Restricted stock units vest annually over
five years.
A summary of the Company’s restricted stock unit awards for the period ended March 31, 2022 is as follows:
Unvested as of March 31, 2020
Granted
Vested
Unvested as of March 31, 2021
Granted
Vested
Forfeited
Unvested as of March 31, 2022
Stock Option Plans
Number Of
Shares
Weighted
Average Grant
Date Fair
Value
646,800
62,000
(154,600)
554,200
615,000
(202,600)
(17,000)
949,600 $
4.99
5.81
5.02
5.07
8.37
6.32
5.23
6.92
The Company’s Third Amended and Restated 2013 Beyond Air Equity Incentive Plan (the "2013 BA Plan”) allows for awards to officers, directors, employees, and consultants of
stock options, restricted stock units and restricted shares of the Company’s common stock. The vesting terms of the options issued under the 2013 BA Plan are generally four
years and expires in ten years from the grant date. The 2013 BA Plan has 7,600,000 shares authorized for issuance. On January 9, 2022, the Company’s Board of Directors approved
an amendment to the 2013 BA Plan to increase the number of shares in the 2013 BA Plan by 2,000,000, which was approved by the Company’s stockholders at the 2022 annual
stockholder meeting on March 3, 2022. As of March 31, 2022, 418,761 shares were available under the 2013 BA Plan.
A summary of the change in options for the year ended March 31, 2022 and March 31, 2021 is as follows:
Weighted
Average
Exercise
Price–-
Options
Weighted
Average
Remaining
Contractual
Life-
Options
Number Of
Options
Options outstanding as of March 31, 2020
Granted
Exercise
3,061,187 $
1,142,500
(2,340)
4.77
5.41
0.23
Aggregate
Intrinsic
Value
(thousands)
8.4 $
9,878
Forfeited
Options outstanding as of March 31, 2021
Granted
Exercise
Forfeited
Outstanding as of March 31, 2022
Exercisable as of March 31, 2022
(6,250)
4,195,097 $
1,673,500
(259,904)
(100,062)
5,508,631 $
2,510,256 $
4.80
4.91
7.14
4.97
5.11
5.60
4.71
-
8.4 $
-
8.1 $
6.9 $
2,609
6,831
4,961
The Company’s 2021 Beyond Cancer Ltd Equity Incentive Plan (the "2021 BC Plan”) allows for awards to officers, directors, employees, and consultants of stock options,
restricted stock units and restricted shares of Beyond Cancer Ltd.’s common stock. The vesting terms of the options issued under the 2021 BC Plan are generally four years and
they expire in ten years from the grant date. On December 1, 2021, the Company’s Board of Directors approved to reserve for issuance 2,000,000 shares of common stock. As of
March 31, 2022, 236,500 shares were available under the 2021 BC Plan.
Options outstanding as of March 31, 2021
Granted
Exercise
Forfeited
Outstanding as of March 31, 2022
Exercisable as of March 31, 2022
Number Of
Options
- $
1,763,500
-
-
1,763,500 $
- $
Weighted
Average
Exercise
Price–-
Options
Weighted
Average
Remaining
Contractual
Life-
Options
-
2.76
-
-
2.76
-
F-16
Aggregate
Intrinsic
Value
(thousands)
- $
-
-
9.7 $
- $
-
12,768
-
NOTE 5 STOCKHOLDERS’ EQUITY (continued)
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2022, the Company had unrecognized stock-based compensation expense in the 2013 BA Plan of approximately $10.7 million which is expected to be expensed over
the weighted average remaining service period of 1.9 years. For the year ended March 31, 2022 and March 31, 2021, the weighted average fair value of options granted was $5.58
and $5.35 per share, respectively.
As of March 31, 2022, The Company had unrecognized stock-based compensation expense in the 2021 BC Plan of approximately $13.6 million which is expected to be expensed
over the weighted average remaining service period of 3.7 years. For the year ended March 31, 2022, the weighted average fair value of options granted was $8.80 per share.
The following was utilized to calculate the fair value of options on the date of grant:
Risk -free interest rate
Expected volatility
Dividend yield
Expected terms (in years)
March 31,
2022
March 31,
2021
0.9 – 2.2%
89.3 - 91.1%
0%
6.25
0.6% - 1.1%
91.3 – 91.8%
0%
6.25
The following summarizes the components of stock-based compensation expense which included stock options and restricted stock for the years ended March 31, 2022 and March
31, 2021, in thousands:
Research and development
General and administrative
Total
Year Ended
March 31,
2022
2021
$
$
1,820 $
6,011
7,831 $
2,013
2,882
4,895
On March 4, 2021, the stockholders approved the 2021 Employee Stock Purchase Plan "ESPP”. The purpose of the ESPP is to encourage and to enable eligible employees of the
Company, through after-tax payroll deductions, to acquire proprietary interests in the Company through the purchase and ownership of shares of Stock. The ESPP is intended to
benefit the Company and its stockholders by (a) incentivizing participants to contribute to the success of the Company and to operate and manage the Company’s business in a
manner that will provide for the Company’s long-term growth and profitability and that will benefit its stockholders and other important stakeholders and (b) encouraging
participants to remain in the employ of the Company. As of March 31, 2022, no shares were issued under the ESPP.
Warrants
A summary of the Company’s outstanding warrants as of March 31, 2022 are as follows:
Warrant Holders
Third-party license agreement
March 2020 loan (see Note 12)
NitricGen Agreement
Total
Number Of
Warrants
Exercise
Price
208,333
172,187
80,000
460,520
$
$
$
$
F-17
Intrinsic Value
(thousands)
$
$
4.80
7.26
6.90
6.08
Date of
Expiration
392
January 2024
- March 2025
-
January 2028
392
NOTE 5 STOCKHOLDERS’ EQUITY (continued)
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended March 31, 2022 and March 31, 2022, 1,630,002 and 1,583,028 warrants were exercised into common shares from the proceeds of $6.0 million and $6.7 million
respectively. For the year ended March 31, 2022 and 2021, warrant holders exercised 1,358,896 and 165,405 warrant shares on a cashless basis for 894,823 and 65,204 shares of
common stock, respectively.
NOTE 6 OTHER CURRENT ASSETS AND PREPAID EXPENSES
A summary of current assets and prepaid expenses is as follows (in thousands):
Research and development
Insurance
Inventory
Professional
Value added tax receivable
Other
Total
NOTE 7 ACCRUED EXPENSES
A summary of the accrued expenses is as follows (in thousands):
Research and development
Professional fees
Employee salaries and benefits
Accrual for Contingent Liabilities (Note 10)
Accrued Circassia Settlement First Payment due in 2022 (Note 10)
Accrued NitricGen agreement post FDA approval (Note 10)
Other
Total short-term accrued expenses
Accrued Circassia Settlement payments due in more than 12 months (Note 15)
Total Other long-term liabilities
F-18
March 31,
2022
March 31,
2021
216 $
1,037
350
3
282
505
2,393 $
March 31,
2022
March 31,
2021
1,006 $
442
409
2,435
2,500
1,500
82
8,374 $
8,000 $
8,000 $
272
971
-
-
41
246
1,530
585
709
270
-
-
-
242
1,805
-
-
$
$
$
$
$
$
NOTE 8 LEASES
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lessees are required to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and provide disclosures surrounding the
amount, timing and uncertainty of cash flows arising from leasing arrangements. During the year ended March 31, 2022, the Company entered into one new lease, which resulted in
the recognition of operating lease liabilities and right-of-use assets of same amount of $693 thousand. The right-of use assets and operating lease liability are as follows (in
thousands):
Right-of-use assets
Operating lease liability short-term
Operating lease liability long-term
Total
March 31,
2022
March 31,
2021
$
$
$
2,216 $
281 $
2,079
2,361 $
1,861
113
1,789
1,903
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain
adjustments to the right-of-use asset may be required for items such as prepaid or accrued rent. The interest rate implicit in the Company’s leases is typically not readily
determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount
of the lease payments in the same currency, for a similar term, in a similar economic environment. Operating lease expense is recognized on a straight-line basis over the lease term
and is included in general and administrative and research development expenses. The Company has other operating lease agreements with commitments of less than one year or
that are not significant. The Company elected the practical expedient option and as such these lease payments are expensed as incurred.
Other Information For The Year Ended March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid
Right-of-use assets obtained in exchange for new operating lease liabilities:
Weighted-average remaining lease term — operating leases
Weighted-average discount rate — operating leases
Maturity of Lease Liabilities
$
310
7.5
8.3%
Operating Leases
Payments remaining for the year ended March 31:
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: interest
Present value of lease liabilities
$
$
462
443
434
441
325
1,081
3,187
(826)
2,361
NOTE 9 BASIC AND DILUTED NET INCOME (LOSS) PER SHARE OF COMMON STOCK
The following potentially dilutive securities were not included in the calculation of diluted net income (loss) per share attributable to common stockholders of Beyond Air, Inc.
because their effect would have been anti-dilutive for the periods presented:
Common stock warrants
Common stock options
Restricted shares
Total
NOTE 10 LICENSE AGREEMENT
March 31,
2022
March 31,
2021
460,520
5,508,631
949,600
6,918,751
3,433,623
4,195,097
554,200
8,182,920
On January 23, 2019, the Company entered into an agreement for commercial rights (the "Circassia Agreement”) with Circassia Limited and its affiliates (collectively, "Circassia”) for
PPHN and future related indications at concentrations of < 80 ppm in the hospital setting in the United States and China. On December 18, 2019, the Company terminated the
Circassia Agreement.
On May 25, 2021, the Company and Circassia Limited entered into a Settlement Agreement resolving all claims by and between both parties and mutually terminating the Circassia
Agreement. Pursuant to the terms of the Settlement Agreement, the Company agreed to pay Circassia $10.5 million in three installments, the first being a payment of $2.5 million
upon FDA approval (the "Initial Payment Due Date”). Thereafter, the Company will pay $3.5 million to Circassia on the first anniversary of the Initial Payment Due Date and $4.5
million on the second anniversary of the Initial Payment Due Date. Additionally, beginning in year three post-approval, Circassia will receive a quarterly royalty payment equal to
5% of LungFit® PH net sales in the US. This royalty will terminate once the aggregate payment reaches $6 million. Management concluded that it was probable that the product
candidate would be approved by the FDA and, as such, a liability of $10.5 million has been recognized as of March 31, 2022. FDA approval for the product candidate occurred on
June 28, 2022.
As of March 31, 2021, the Company met its performance obligation under the Circassia Agreement and revenue therefrom has been previously recognized. License revenue of $0
and $873 thousand associated with the Company’s second performance obligation has been recognized for the twelve months ended March 31, 2022 and March 31, 2021,
respectively.
F-19
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 GRANT COLLABORATON AGREEMENT
On February 10, 2021, the Company received a grant for up to $2.17 million from the CFF to advance the clinical development of high concentration NO for the treatment of
Nontuberculous Mycobacteria, or NTM pulmonary disease, which disproportionally affects CF patients. Under the terms of the agreement, the funding will be allocated to the
ongoing LungFit® GO NTM pilot study. The grant provides milestones based upon achieving performance steps and requirements under a development program. The grant
provides for royalty payments to CFF upon the commercialization of any product developed under the grant program at a rate of 10% of net sales. The royalties are capped at four
times the grant actually paid to the Company. Since the beginning of the pilot study, the Company has received two milestone payments of $425 thousand each and accrued an
additional $322 thousand as of March 31, 2022. A total of $1,172 thousand has been recognized as a reduction of R&D costs from this grant to date.
NOTE 12 LONG-TERM LOAN
On March 17, 2020, the Company entered into the Facility Agreement with certain lenders for up to $25.0 million in five tranches of $5.0 million per tranche. The Company received
proceeds from the first tranche in fiscal year 2020. During October 2021, the Company amended the Facility agreement to offer the lenders the ability to accept redemption of all
amounts outstanding from the first tranche of $5.0 million and to terminate the Facility Agreement without penalty. The Facility Agreement was terminated on November 10, 2021.
In connection with the first tranche, the Company issued, in March 2020, warrants to the lenders for the purchase of 172,826 shares of the Company’s common stock at $7.26 per
share. The warrants expire in five years. The Company allocated the fair market value of the warrants at the date of grant to stockholders’ equity and reflected a debt discount of
$595 thousand. Debt discount and debt issuance costs are amortized over the life of the loan. Upon termination of the Facility Agreement, the Company accelerated amortization of
debt discount and debt issuance costs and have recognized the full amount as of March 31, 2022.
A lender who is an over 5% stockholder loaned the Company $3,160 thousand of the first tranche and, as such, related party interest expense for the twelve months ended March
31, 2022 and March 31, 2021 was $206 thousand and $316 thousand (not including amortization of debt discount and deferred offering costs), respectively. See Note 17.
In connection with the termination of the Facility Agreement, on November 8, 2021, the Company entered into a modification of the Facility Agreement for one lender to allow for
repayment of $200 thousand on unchanged payment terms. The loan is unsecured with interest at 10% per year which is to be paid quarterly. The loan shall be repaid in
installments commencing on June 15, 2023 with all outstanding amounts due on March 17, 2025.
Maturity of Long-Term Loan (thousands)
2022
2023
2024
2025
March 31, 2022
$
-
-
80
120
Total
$
200
F-20
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 LOAN PAYABLE
As of March 31, 2022 and March 31, 2021 in connection with the Company’s insurance policy, a loan was used to finance part of the premium. The details concerning the loan are
as follows:
Amount outstanding
Monthly payments
Number of monthly payments
Interest rate
Due date
NOTE 14 INCOME TAXES
March 31,
2022
March 31,
2021
$
$
$
$
927
104
10
1.3%
557
70
9
3.2%
December 2022
November 2021
As of March 31, 2022, the Company has approximately $61.9 million, $23.0 million, $3.0 million and $1.2 million of net operating losses (NOL) carryforwards for US federal, Israeli,
Irish and Australian tax purposes, respectively. The US federal NOL carryforwards of approximately $1.4 million, which were generated prior to March 2018 expire through 2037.
The NOL of approximately $60.5 million can be carried forward indefinitely, but limited to offset 80% of taxable income. The entire NOL for Israel, Ireland and Australia can be
carried forward indefinitely. The Company also has state NOL carryforwards in the amount of approximately $61.7 million expiring during the years from 2035 to 2041.
Pursuant to Section 382 of the Internal Revenue Code, changes in the Company’s ownership may limit the amount of its NOL carryforwards that could be utilized annually to offset
future taxable income, if any. This limitation would generally apply in the event of a cumulative change in ownership of the Company of more than 50% within a three-year period.
The Company has performed a study as of March 31, 2021 and determined that on or around February 15, 2017 and February 15, 2020 ownership changes for purposes of Section
382 have occurred. The annual limitations caused by these prior ownership changes will no longer impact the utilizations of NOL’s after March 31, 2022. The Company has not
updated the study since March 31, 2021 and therefore has not determined if any other NOL limitations exist.
The components of net loss before the provision for income taxes are as follows (in thousands):
Domestic
Foreign
Total
For the Year
Ended
March 31,
2022
For the Year Ended
March 31,
2021
$
$
(39,148) $
(4,912)
(44,060) $
(21,417)
(1,458)
(22,875)
There is zero provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.
The valuation allowance increased by approximately $12,916 thousand during the year ended March 31, 2022.
F-21
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 INCOME TAXES (continued)
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows (in thousands):
Net operating loss carry forward
Research and development tax credits
Other
Reserves and allowances - foreign
Stock-based compensation
Capital loss carry forward
Reserves and Accruals
Right-of-use asset
Lease liability
Net deferred tax
Valuation allowance
Net deferred tax asset
March 31,
2022
March 31,
2021
$
$
22,952 $
1,226
(162)
-
3,268
1,559
3,580
(464)
495
32,454
(32,454)
- $
15,121
939
(48)
-
1,956
1,559
(516)
527
19,538
(19,538)
-
A reconciliation of income tax expense calculated at the federal enacted statutory rate of 21% is as follows:
Federal income tax at statutory rate
State income tax, net of federal benefit
Permanent items
Change in valuation allowance
March 31,
2022
March 31,
2021
(21.00)%
(6.21)
(0.86)
29.31
(21.00)%
(6.25)
-
29.19
Research and development tax credits
Other
Effective income tax expense rate
NOTE 15 COMMITMENTS AND CONTINGENCIES
License Agreements
(0.65)
(0.59)
0.00%
(1.82)
(0.12)
0.00%
On October 22, 2013, the Company entered into a patent license agreement (the "CareFusion Agreement”) with SensorMedics Corporation, a subsidiary of CareFusion Corp.
("CareFusion”), pursuant to which the Company agreed to pay to CareFusion a non-refundable upfront fee of $150 thousand that is credited against future royalty payments, and
is obligated to pay 5% royalties of any licensed product net sales, but at least $50 thousand per annum during the term of the agreement. As of March 31, 2022, the Company has
not paid any royalties to CareFusion since the Company has not received any revenues from the technology associated with the license under the CareFusion Agreement. The
term of the CareFusion Agreement extends through the life of applicable patents and may be terminated by either party with 60 days’ prior written notice in the event of a breach of
the CareFusion Agreement, and may be terminated unilaterally by CareFusion with 30 days’ prior written notice in the event that the Company does not meet certain milestones.
In August 2015, BA Ltd. entered into an Option Agreement (the "Option Agreement”) with Pulmonox whereby BA Ltd. acquired the option (the "Option”) to purchase certain
intellectual property assets and rights. On January 13, 2017, the Company exercised the Option and paid $500 thousand to Pulmonox. The Company becomes obligated to make
certain one-time development and sales milestone payments to Pulmonox, commencing with the date on which the Company receive regulatory approval for the commercial sale of
the first product candidate qualifying under the Option Agreement. These milestone payments are capped at a total of $87 million across three separate and distinct indications that
fall under the agreement, with the majority of them, approximately $83 million, being sales-related based on cumulative sales milestones for each of the three products.
F-22
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 COMMITMENTS AND CONTINGENCIES (continued)
On January 31, 2018, the Company entered into an agreement (the "NitricGen Agreement”) with NitricGen, Inc. ("NitricGen”) to acquire a global, exclusive, transferable license and
associated assets including intellectual property, know-how, trade secrets and confidential information from NitricGen related to the LungFit®. The Company acquired the licensing
right to use the technology and agreed to pay NitricGen a total of $2.0 million in future payments based upon achieving certain milestones, as defined in the NitricGen Agreement,
and single-digit royalties on sales of the LungFit®. The Company paid NitricGen $100 thousand upon the execution of the NitricGen Agreement, $100 thousand upon achieving the
next milestone and issued 100,000 warrants to purchase the Company’s common stock valued at $295 thousand upon executing the NitricGen Agreement. The remaining future
milestone payments are $1.8 million of which $1.5 million is due six months after approval of the LungFit® by the FDA, which was accrued in the fourth quarter of fiscal 2022.
Employment Agreements
Certain agreements between the Company and its officers contain a change of control provision for payment of severance arrangements.
Supply Agreement and Purchase Order
In August 2020, the Company entered into a supply agreement expiring on December 31, 2024. The agreement will renew automatically for successive three-year periods unless and
until the Company provides twelve months’ notice of intent not to renew. The Company has opened several non-cancellable purchase orders and the outstanding amount
remaining under the purchase order as of March 31, 2022 was approximately $3.0 million with this supplier.
Contingencies
On March 16, 2018, Empery Asset Master, Ltd., Empery Tax Efficient, LP and Empery Tax Efficient II, LP, (collectively, "Empery”) filed a complaint in the Supreme Court of the State
of New York (the "Trial Court”) against us relating to the notice of adjustment of both the exercise price of and the number of warrant shares issuable under warrants issued to
Empery in January 2017. Empery alleges that, as a result of certain circumstances in connection with a February 2018 financing transaction, the 166,672 warrants issued to Empery
in January 2017 provide for adjustments to both the exercise price of the warrants and the number of warrant shares issuable upon such exercise.
On August 20, 2020, the Trial Court denied our summary judgment motion as to the first and third claims for relief, but dismissed the second claim for declaratory judgment as moot
(the "August 20 Decision”). The Appellate Division First Department denied our appeal of the August 20 Decision on September 30, 2021. Following a three-day bench trial, the
Trial Court issued a decision on October 14, 2021, finding in favor of Empery on the two remaining claims, granting reformation of the Warrant Agreement, and awarding Empery
damages in the aggregate amount of approximately $5.8 million. On November 12, 2021, we filed a notice of appeal. Pending appeal, we are required to use approximately $7.4 million
of cash as collateral to secure a supersedeas bond for the full amount of damages and interest in case we are unsuccessful in our appeal. On September 30, 2021, we recorded an
estimate for a contingent loss of $2.4 million related to the Empery litigation. In consultation with outside legal counsel, we believe that we have several meritorious defenses
against the claims, and the decision of the Trial Court including, but not limited to, the quantification of damages.
On December 28, 2021 Hudson Bay Master Fund ("Hudson”) filed a lawsuit against us related to the notice of adjustment of the exercise price of and the number of warrant shares
issuable under warrants issued to Hudson in January 2017. Hudson received 83,334 warrants in connection with the January 2017 offering.
Hudson’s complaint alleges breach of contract and that Hudson is entitled to damages estimated at approximately $2.6 million as a result of certain adjustments to the exercise price
and number of warrant shares issuable following the February 2018 financing transaction. The fact pattern of these claims differs from the claims associated with the initial Empery
judgment and in consultation with outside legal counsel, we believe that we have several meritorious defenses against Hudson’s claims. We believe that Hudson’s claims have no
merit and we will vigorously defend such lawsuit.
F-23
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 CREATION OF BEYOND CANCER
On November 4, 2021, the Company announced that Beyond Air and Beyond Cancer, Ltd agreed to terms to which the Company, through its subsidiaries would be licensing
certain intellectual property and other assets related to, or necessary for the development, commercialization, manufacture and distribution of certain cancer treatment products
and/or technologies to a subsidiary of the Company (the "Transaction”). In connection and concurrently with the closing of the Transaction, Beyond Cancer issued and sold
common shares, par value $1.00 to certain investors pursuant to a subscription agreement (the "Offering”). The Offering consisted of an aggregate of 3 million common shares of
Beyond Cancer at a purchase price of $10.00 per share. On November 18, 2021, the Company announced that the maximum amount of shares offered had been purchased for a total
of $30 million (including $4.8 million from the terminated Loan Facility and $1.1 million from related parties) for 20% of the equity in Beyond Cancer. The Company retained 80%
ownership of Beyond Cancer, which will have exclusive right to the intellectual property portfolio utilizing UNO for the treatment of solid tumors. Beyond Cancer will pay Beyond
Air a single digit royalty on all future revenues.
Members of the Board of Directors of Beyond Air who are also member of the Board of Directors of Beyond Cancer, and their families, are considered related parties to the
Offering. Related parties invested $1.1 million in the Offering. See Note 17.
Beyond Cancer was created as a new company where under there were no pre-existing employees, and there was no organized workforce contributed to Beyond Cancer; the only
contributions were the rights to access certain intellectual property and access to certain employees of Beyond Air, as outlined in the License Agreement, and cash paid by the
subscribers in the Offering. Any development work that was being performed was being conducted pursuant to the License Agreement by Beyond Air’s preclinical team.
Therefore, Beyond Cancer did not have employees constituting a workforce that would be able to create outputs and enable Beyond Cancer to become revenue producing. As
such, it was concluded that there was no substantive process and Beyond Cancer was deemed not to be a business under ASC 805-10 and the Company has not provided any
financial support to Beyond Cancer since it was established in November 2021.
We concluded that we are the primary beneficiary of Beyond Cancer as we have the power to direct the activities of Beyond Cancer that most significantly impact the economic
performance of the entity because we hold a majority interest in substantially all of the assets and certain liabilities of Beyond Cancer, as well as a majority voting interest, and
Beyond Cancer’s Board has the full power to direct all activities of Beyond Cancer, including those specifically related to the ongoing research and development. The Board is
comprised of four (4) directors, for which Beyond Air holds two (2) seats and a Board member of Beyond Air, a de facto agent of Beyond Air, holds a third seat. The other party
does not have the substantive rights to veto or block decisions made by Beyond Air. Therefore, it was determined that Beyond Air has the unilateral right to control all decisions
related to the significant activities of Beyond Cancer. Although we are considered to have control over Beyond Cancer under ASC 810 as a result of our majority ownership
interest, the assets of Beyond Cancer can only be used to satisfy the obligations of Beyond Cancer. As a result of our majority ownership interest in the entity and our primary
beneficiary conclusion, we consolidated Beyond Cancer in our consolidated financial statements beginning in November 2021.
The carrying amount of net assets and net liabilities of the VIE included in the consolidated financial statements, after the elimination of intercompany balances and transactions,
was $27.5 million (including $27.7 million of cash) at March 31, 2022. See Note 2, Segment Reporting for additional disclosure of the VIE assets and liabilities. Beyond Cancer
generated $4.4 million of losses (before elimination of intercompany amounts) from inception through March 31, 2022. The Company’s attributed losses as the primary beneficiary
was proportional to its equity interest in Beyond Cancer (80%) for the period from inception until March 31, 2022.
F-24
BEYOND AIR, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 RELATED PARTY TRANSACTIONS
In March 2020, as part of the first tranche of the Company’s Facility Agreement, a lender who is an over 5% stockholder loaned the Company $3,160 thousand and, as such, related
party interest expense for the twelve months ended March 31, 2022 and March 31, 2021 was $206 thousand and $316 thousand, respectively.
Members of the Board of Directors of Beyond Air who are also members of the Board of Directors of Beyond Cancer, and their families, are considered related parties to this
transaction. Related parties invested $1.1 million in the Offering in November 2021.
In the fourth quarter of fiscal year 2022, the Company recorded approximately $37 thousand related to the net recovery of short-swing profits from one of the Company’s
shareholders under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized these related party proceeds, net of $4 thousand related legal fees,
as an increase to additional paid-in capital as of March 31, 2022 as well as cash proceeds of approximately $33 thousand as cash provided by financing activities in the
consolidated statement of cash flows for the fiscal quarter ended March 31, 2022.
NOTE 18 SUBSEQENT EVENTS
FDA approval for LungFit® PH for PPHN was received on June 28, 2022.
F-25
Subsidiary
Beyond Air Ltd.
Beyond Air Ireland Limited
Beyond Air Australia Pty. Ltd.
Beyond Cancer Bermuda Limited
Beyond Cancer U.S., Inc.
XAIR Israel Ltd
Beyond Cancer Cyprus Limited
Exhibit 21.1
Jurisdiction of
Incorporation
Israel
Ireland
Australia
Bermuda
Delaware
Israel
Cyprus
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-231416, 333-233283, 333-237958, and 333-262311) and Form S-8 (No. 333-
227697, 333-238239, 333-257562) of Beyond Air, Inc. and Subsidiaries of our report dated June 28, 2022 relating to the consolidated financial statements of Beyond Air, Inc., which
appear in this Form 10-K.
Exhibit 23.1
/s/ Friedman LLP
East Hanover, NJ
June 28, 2022
Exhibit 31.1
I, Steven A. Lisi, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Beyond Air, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
June 28, 2022
/s/ Steven A. Lisi
Steven A. Lisi
Chairman and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Douglas Larson, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Beyond Air, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
June 28, 2022
/s/ Douglas Larson
Douglas Larson
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Steven A. Lisi, Chairman and Chief Executive Officer of Beyond Air, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.
2.
The Annual Report on Form 10-K of the Company for the year ended March 31, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
June 28, 2022
/s/ Steven A. Lisi
Steven A. Lisi
Chairman and Chief Executive Officer
(Principal Financial Officer and Principal Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Douglas Larson, Chief Financial Officer of Beyond Air, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act
of 2002, that, to the best of my knowledge:
1.
2.
The Annual Report on Form 10-K of the Company for the year ended March 31, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
June 28, 2022
/s/ Douglas Larson
Douglas Larson
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)