Earnings Transcript for NRXP - Q4 Fiscal Year 2023

Operator: Good morning everyone and welcome to the NRx Pharmaceuticals, Inc. Fourth Quarter and Full Year 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the call over to Matthew Duffy, the Company's Chief Business Officer. Please go ahead.

Matthew Duffy: Thank you, Camilla [ph] and welcome everyone. Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. Federal Securities Laws. These statements subject to risks and uncertainties and could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause actual results to differ from statements made on is call is contained in our periodic reports filed with the SEC. The forward-looking statements made during this call speak only as of the date hereof and the company undertakes no obligation to update or revise the forward-looking statements. Information presented on this call is contained in the preannounced press release issued Thursday, the company's Form 10-K filed Friday and the press release issued this morning, all of which may be accessed on the Investor page of the NRx Pharmaceuticals website. Joining me today are Jonathan Javitt, our Chairman and Chief Scientist; Stephen Willard, Chief Executive Officer; and Richard Narido, Chief Financial Officer and Treasurer. Jonathan and Stephen will provide a summary of the company's progress. Rich will review the company's financial results and then Jonathan will review upcoming milestones before making closing comments. Following their prepared remarks, we will address investor questions. I will now turn the call over to Jonathan. Jonathan?

Jonathan Javitt: Thank you, Matt. Good morning, everyone and thank you for joining us. 2023 has been a pivotal year, both for NRx and for the field of interventional psychiatry and its approach to suicidal depression in PTSD. Last week, we were invited to give a ketamine presentation of the 2024 International Ketamine Conference held at Oxford University. It's now 37 years since Daniel Javitt and his colleagues at the Albert Einstein School of Medicine made the unprecedented discovery at the NMDA receptor of the brain is key to understanding schizophrenia and depression. It's 25 years since Rob Berman and his colleagues at the Yale University made the equally surprising discovery that NMDA antagonist in this case, ketamine can achieve rapid reversal of depression and later discovered the same for suicidality. Now on the tale of the COVID pandemic that practically put the science on hold for 2 years, it's clear that thought leaders in psychiatry have concluded that ketamine is a standard of care treatment for acute depression and suicidality and is at least as effective, if not more effective, than electro-convulsive therapies. Ketamine infusion has moved from the hospital and the emergency ward to community clinics and some believe it should move to the home. We at NRx are on the cusp of that conversation. The problem with ketamine, of course, is that while it's dramatically effective in the short term, well-designed studies reported in the past 2 years, have demonstrated that it's neurotoxic. In other words, it kills brain cells when given for months at a time, even at the low dose it is used to treat depression. Data from Stanford and elsewhere documents conclusively that ketamine not only blocks the NMDA receptor but also binds to the opioid receptors that have been so central to the opioid crisis in the United States. That's why even as we launch Hope Therapeutics to cease to make short-term ketamine available to all insured patients as a life-saving therapy, not just to those who can pay out of pocket. We focus on NRX-101 and perhaps future non-addictive, non-neurotoxic medicines that also target the NMDA receptor without those side effects. We already have scientific evidence that NRX-101 works to preserve the ketamine effect. As a follow-on drug for ketamine, it has the potential to help hundreds of thousands of patients. In the next few weeks, now that we're completing database lock on our clinical trial. We will have a first glimpse of whether NRX-101 is also sufficiently potent to treat severe depression and suicidality without prior use of ketamine and to do so in the outpatient setting. In our 10-K, we made a brief comment about a new opportunity that's still evolving to partner with the French

Stephen Willard: Thank you very much, Jonathan. As you know, I joined NRx as CEO in July 2022. My job was to reduce a daunting cash burn and help align the management team into a dedicated group that has the potential to take our drugs to market. Although we have not yet generated our first dollar of revenue, we have demonstrated progress that motivated a discerning corporate partner to advance its milestone payments for our first clinical indication. Not only have we survived 2023, we expect to see the revenue flow from commercial operations begin by the end of 2024. That's clearly a forward-looking statement but 1 that we believe is within our capacity to achieve. Everyone on this call knows that 2023 was possibly the worst year in the history of the biotechnology industry and many premarket biotechnology companies did not survive. We emerged from 2023 on a more solid front than we entered and are poised for ongoing success, particularly if the clinical data we read out later this month is positive. Even if 2 highly promising trials don't give us the short-term answers we seek, we project that the Ketamine foundation we have built will yield positive cash flow by the end of 2024, a belief that is reinforced by the response we have received from large institutional investors. On the corporate front, we have raised approximately $17 million in new capital in addition to working capital since the beginning of 2023. Additionally, we have reduced corporate debt by more than 50% from $11 million down to approximately $5.4 million through the first quarter of 2024. Finally, we have taken steps to maintain our NASDAQ listing by first, achieving compliance with the market value of listed securities requirement, and then affecting a reverse split to comply with the $1 minimum bid price by their design and combating illegal shorting of NRx securities, all to support shareholder value. It's important that we keep our share price in a zone that is investable by high-quality institutions. I'm incredibly proud of our team, grateful to our partners and investors as well as all of the patients who have participated in our clinical trials. We look forward to advancing the company and further continue this growth. In December, we were delighted to add nationally recognized attorney, Janet Rehnquist to our company's Board of Directors. Janet brings vast experience and insight to our company in critical areas and we welcome her. I expect you will see us add other members to our Board who have direct experience in the commercialization of pharmaceuticals as we move from pure research and development to commercial operations. Jonathan has explained some of the value drivers that underline our focus on Hope Therapeutics. To build value for NRx shareholders, we intend to distribute shares of Hope Therapeutics to existing shareholders in the near term. and then to gain a public listing for the company on a national exchange. We have received considerable interest from investors, both for a bridge round to get our listing and a more substantial rate to support the launch of the product. We are actively building out our team, partners and network with the goal of launching the product at the beginning of 2025. Delaware corporate law requires us to deliver on a dividend within 60 days of declaring it. Thus, we are waiting until we have the audit and SEC filings in place to launch Hope prior to officially declaring the dividend. Some may ask, given that Ketamine is a generic drug, why the FDA approved -- why seek FDA approval for use in depression? Simply put, without FDA approval, the only people who have access to this life-saving treatment are those who can pay cash. FDA approval is key to insurance reimbursement. Our discussions with clinics to date have indicated the lack of reimbursement as the key impediment to patients getting the treatment they need. We aim to solve this problem. In advance of this, there is still a considerable need for high-quality, reliable sources of ketamine. To that end, we have formed collaborations with the 503A and a 503B pharmacy to provide ketamine to clinics in need. First lots have recently become available and sales can commence shortly. Additionally, these near-term activities will serve as an excellent entree into those clinics once our NDA is approved and we have full licensed and reversible product to offer. As you can see, we have been careful stewards of your funds. We have trimmed our operating expenses, reduced our corporate indebtedness, brought in non-dilutive partnership support realigned our executive team and expanded our pipeline to a robust clinical development program with a multibillion-dollar potential. We will work hard every day to bring these to reality and to bring Hope to life. I will now ask Rich Narido, our CFO, to review the fourth quarter financials. Rich?

Richard Narido: Thank you, Steve and good morning, everyone. I will now review the highlights of our fourth quarter and full year 2023 financial results. Before reviewing the numbers, it's important to recognize that we have consistently reduced our cash expenditures and expect to further reduce those expenditures as we have completed the NRX-101 clinical trial, expecting data lock imminently and expecting data readout early in the second quarter of 2024. For the 3 months ended December 31, 2023, we at NRx Pharmaceuticals reduced our net loss from $10.2 million in the final quarter of 2022 to $4.3 million in 2023, representing nearly a 60% improvement year-over-year. For that same period, we reduced research and development expenses from $4.5 million in 2022 to $2.5 million in 2023, while substantially improving and finalizing our clinical trial enrollment. The $2 million decrease is related primarily to a decrease of $1.1 million clinical trial expenses, $0.6 million in stock-based compensation and $0.2 million in consulting and personnel wage costs. Also in that 3-month period, we recorded a 67% reduction in general and administrative expenses from $5.4 million in 2022 to $1.8 million in 2023. The decrease of $3.6 million is related primarily to a decrease of $1.3 million in insurance expense, $1.3 million in stock-based compensation, $0.5 million in employee expenses, $0.2 million in legal and professional consulting fees and $0.2 million in franchise tax expenses. For the year ended December 31, 2023, NRx Pharmaceuticals reduced net loss to $30.2 million compared to $39.8 million in the prior year. These efficiencies represent an improvement in net loss of nearly $10 million year-over-year and a $0.20 or 34% improvement in our net loss per share year-over-year. Over the annual period, we recorded $13.4 million of research and development expenses compared to $17 million for the same period in 2022, representing a 21% decrease year-over-year. The decrease of $3.6 million is related primarily to a decrease of $2.1 million in clinical trial and development expenses, $0.9 million related to fees paid to regulatory and process development consultants, $0.8 million in stock-based compensation, while offset by a $0.2 million increase in patent costs as our patent portfolio has expanded. Please note that the improvement in G&A expenses is even larger than the improvement in other areas. We decreased G&A by $13.1 million from $27.3 million in 2022 to $14.2 million in 2023, nearly a 50% decrease year-over-year. As of December 31, 2023, we had $4.6 million in cash and cash equivalents. Over the first 3 months of 2024, we improved our access to working capital by $8 million in total, representing $2.9 million from equity sales and $5.1 million from the Alvogen milestone advance, while reducing our corporate indebtedness by 50%. We continue to implement operational efficiencies to extend runway and focus on our path to generating revenue. We believe that the near-term delivery of clinical trial data and the planned launch of Hope Therapeutics, will be defining events in the second quarter of 2024. With that, I will turn it back to Jonathan for closing remarks. Jonathan?

Jonathan Javitt: I think it's time to take questions.

Operator: [Operator Instructions] Our first question comes from the line of Tim Moore with EF Hutton.

Tim Moore: You made a lot of great progress over the past few quarters. And like you said, it wasn't easy in biotech land last year and you came out even stronger. I was just wondering maybe, Jonathan and Matt, if you can elaborate more on the Hope in digital therapeutics, maybe give investors a little more color on the anatomical coherence, the software possibility there, just pathways and just what you're thinking as a development route over the next year or two?

Jonathan Javitt: Thank you, Tim. And it's really exciting to see you and people of your caliber joining our calls. So this area of digital therapeutics really began in the military. It began with a recognition that if you can teach someone to synchronize breathing and heart rate which for years has been achieved through medication but that's extraordinarily difficult for most people to master. You actually reduce physiologic evidence of stress you can show reduction in serum cortisol levels and other hard laboratory findings. So what was done back in the early 2000s with funding from DARPA, the Defense Advanced Research Projects Agency, was to build something that looks like a video game but you actually win the video game by synchronizing breathing and heart rate. And the target audience at the time was special forces operators. I was involved in a demonstration project where a group of Navy special forces operators went through the combat simulator in Quantico, both with and without using this technology and demonstrated not only improved combat performance but substantially reduced measures of stress and depression on the back end. So much so that the product remains for sale within the military. Well, the challenge we have is as the paradigm shifts and people recognize that ketamine achieves a rapid reduction in both suicidality and depression, the question is how do you maintain that effect? Because if you keep giving ketamine for months at a time, at least the clear evidence from primates is that you're going to kill brain cells. So one of the things we're pursuing is civilianizing that population that was developed with millions of dollars of Department of Defense R&D into something that can be useful for patients who are coming to ketamine clinics. Of course, we hope that they'll take NRX-101 on a long-term basis once we have demonstrated that efficacy and gotten FDA approval for it. But we also think that these kinds of digital technologies have real potential. And not only that, if they become part of the label of the drug, they extend the intellectual property horizon of that drug. So, I hope that begins to give you a sense and we're going to hope to do a teaching on that sometime over the next quarter.

Tim Moore: That's very helpful. Yes, I look forward to that key chain [ph] but I can get a better sense of the optionality there and it just seems like it's such a good untapped market nobody else is playing in and you have a pretty good first mover advantage. My other question is around your database lock occurring, it sounds like this week, top line data probably by the end of this month. Can you just walk us through the next 2 steps you plan to take? And maybe just provide more details on that. If you were to just give us a sense of kind of the road map over the next 12 months now that the top line data will be coming out.

Jonathan Javitt: Well, database lock means that we have once and for all confirmed every endpoint from the patient forms in the study site through the database and at that point we hand the data file to the statisticians and they perform the statistical analysis according to the SAP, the statistical analysis plan. And we've put that up on clinicaltrials.gov so anybody who wants to read it should be able to. If the data are positive, the plan is to conduct a meeting together with Alvogen with the FDA and to gain FDA's alignment on a registration study that would bring NRX-101 to market for patients with severe depression and suicidal ideation. Remember, we previously showed that the drug works after ketamine. That's why FDA gave us breakthrough therapy. So the purpose of this trial is to see whether the drug can work without priorities of ketamine. Either way, depending on the results of this trial, we're going to be going to FDA and saying we want to bring the drug to market, either with or without requiring prior use of ketamine and aligning on the final design of that study. Now one of the things we're likely to be able to do, is to do the trial against placebo if we're not working with acutely suicidal patients which is a much easier trial and a trial that has a much higher probability of success. Remember, in this trial, we're comparing NRX-101 to a known effective drug, namely lurasidone. If we're comparing NRX-101 to placebo -- that cut comparisons already succeeded in numerous academic studies.

Tim Moore: Great. Thanks for those added details and color. And I really appreciate your methodical strategic plan that you shared. And that’s it for my questions this morning.

Operator: Our next question comes from the line of Ed Woo with Ascendiant Capital Markets.

Ed Woo: Congratulations on the progress you've done. Have you talked about your pricing or reimbursement strategy for ketamine?

Jonathan Javitt: Well, as you know, there is an approved form of ketamine that's for sale in the marketplace today, it's offered by J&J. And J&J's reported sales in, I think, above $600 million associated with that drug. So there's an established market. The problem is that drug is not only not indicated for bipolar depression. And you know that about 40% of the people who commit suicide have bipolar depression, there's a REMS around that drug that precludes its use in people with bipolar depression. So we think there's a real pricing opportunity. You're in a better position than we are to advise the public as to the current pricing of that currently marketed drug. But as we have third-party indications of pricing, we'll certainly report them. Suffice it to say that if you can get insurance coverage for people, payers have indicated a real willingness to pay for the therapy because the alternative of psychiatric hospitalization and electroshock therapy is something that -- first of all, is horrible for patients. And second of all, costs payers the better part of $40,000 in the first year. So we believe there is a market opportunity but we're certainly going to be guided by the security analysts as well.

Ed Woo: Great for the details. And thank you for answering my questions. I wish you guys good luck. Thank you.

Operator: There are no further questions at this time. I would like to turn the floor back to Matt Duffy for any closing remarks.

Matthew Duffy: Thank you, everyone. That's all the time we have for today. We appreciate you joining us this morning and this concludes the NRx Pharmaceuticals fourth quarter '23 and full year conference call. Thank you all for participating.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.