Welcome to the Talphera Fourth Quarter 2023 Financial Results Conference Call. This call is being webcast live via the events page of the Investors section of Talphera's website at www.talphera.com. This call is the property of Talphera, and any recording, reproduction, or transmission of this call without the expressed written consent of Talphera is strictly prohibited. As a reminder, this webcast is being recorded. You may listen to a replay of this webcast by going to the Investors section of Talphera's website. I would now like to turn the call over to Raffi Asadorian, Talphera Pharmaceuticals' Chief Financial Officer. Please go ahead.

Thank you for joining us on the call today. This afternoon, we announced our fourth quarter 2023 financial results and associated business updates in a press release. This press release can be found within the Investors section of our website. With me today are Vince Angotti, our Chief Executive Officer, and Dr. Pam Palmer, Talphera's Founder and Chief Medical Officer. Before we begin, I want to remind listeners that during this call, we will make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of Talphera. Please refer to our press release in addition to the company's periodic current and annual reports filed with the Securities and Exchange Commission at www.sec.gov for a discussion of the risks associated with such forward-looking statements. These documents can also be found on our website within the Investors section of talphera.com. I will now hand the call over to Vince.

Thank you, Raffi. Good afternoon to everyone and welcome to the first call we're having as Talphera. Throughout 2023, we focused on our objective of repositioning the company around a new portfolio of assets with an immediate priority on Niyad and a longer-term strategy on the broader nafamostat pipeline and other pipeline assets. As these assets have the traits to drive our vision to support healthcare providers in optimizing patient outcomes in medically supervised settings. 2023 was a productive year in achieving this objective, culminating in our ultimate rebranding to Talphera signifying the completion of this repositioning. With this transition, we believe we've successfully capitalized Talphera to achieve our 2024 goal to advance Niyad to a pre-market application submission, or PMA. Today, we'll number one, highlight the activities completed in 2023 that have positioned Talphera for success over the next 12 to 18 months. Two, identify the important upcoming milestones in 2024, and then three, update you on the status of our Niyad registrational study. As for 2023, in April, we closed the transaction with Alora to divest the DSUVIA to a partner with experience in manufacturing and commercializing controlled substances. This transaction allowed us to complete the reduction in our annual DSUVIA-related operating expenses by approximately $14 million and refocus these resources on the development of Niyad. With this transaction, we are in royalties of 15% on commercial sales, 75% on sales to the Department of Defense, and up to $116.5 million in potential milestone payments. We're confident that Alora is the right partner, and we expect they'll begin commercializing in 2024 after they complete all their work around restructuring and insourcing the supply chain. In October, another pivotal success was achieved. After several months of working on the Niyad study protocol and discussing modifications with the FDA, we received approval of our IDE from the FDA. This allowed us to start preparations for the single registrational study that we expect to begin enrolling in the coming weeks. The clinical and regulatory teams have designed a 166-patient study as agreed to with the FDA that many of our KOLs believe should be quickly enrolled. Remember, nafamostat is an approved and longstanding product in Japan and South Korea for anticoagulation and other indications with a wealth of safety and efficacy information. Our nafamostat product candidate Niyad has received breakthrough designation from the FDA. We believe all of this bodes well for a successful clinical trial this year. Dr. Palmer will provide an overview of the study and its status later in the call. Another key achievement in 2023 was the December publication in the journal Renal Failure of our market research with 150 physicians in the U.S. regarding the practices of anticoagulation of the extracorporeal CRRT circuit. Many of the authors of this study are in the process of becoming investigators in our clinical trial that provided us with valuable information and a better understanding of how physicians are currently using anticoagulants during CRRT and the potential issues with current standards of care. We hosted two authors of this study and a KOL panel discussion in December, which provided interesting insights into the market and clinical practices at two leading academic institutions. We believe that nafamostat approved in the U.S. would be an important addition to the market for anticoagulation during CRRT, particularly given the disadvantages raised in this publication of the two anticoagulants currently used, those being heparin and citrate. If approved by the FDA, Niyad would be the only regional anticoagulant approved in the U.S. for the extracorporeal circuit. After achieving these 2023 objectives to reposition the company, we were prepared to proceed with corporate rebranding to ensure all stakeholders were aware of our new vision with a focus on Niyad in the near term. Accordingly, in January, we rebranded the company to Talphera. The new name was derived in part from Talisman, meaning a strong leader and reflects the new pharmaceutical era for the company. This signals the beginning of our newly transformed company, and we're excited about the momentum we have gained and the positive feedback we've received from the many investors we've met with over the last couple of months. Soon after the rebranding, importantly, we announced the completion of two financing events focused on ensuring we have sufficient capital to get to a potential approval of Niyad in the second quarter of next year. The first was a non-dilutive royalty financing closed with Xoma Royalty, where we partially monetized our DSUVIA royalties and milestones. We received $8 million at closing from Xoma in exchange for the royalties and milestones being paid by all. Once Xoma receives a specified amount of payments, we will share equally in the Department of Defense royalties and the milestone payments. Separately, we closed an equity financing from two of our existing investors, Nantahala and Rosalind. The equity financing provides $18 million in total funds structured over two closings. We received $6 million at the first closing and another $10 million of committed capital will be received at the second closing upon the announcement of positive NEPHRO trial data by September 30 of this year and an additional $2 million if Talphera stock trades above $0.92 following that announcement. To be clear, this is committed capital once the milestones are met. In addition, should the milestone-based warrants from the July 2023 financing be exercised, an additional $14.4 million of capital would be injected into the company. Concurrent with the equity investment, we were delighted that Abi Jain from Nantahala agreed to be on our Board of Directors, which adds further depth to our experienced board. As you may have seen, we announced last week that the Board has decided to reduce the total number of directors to seven from the 10 we previously had. This reduction is consistent with the best governance practices of other companies our size. Accordingly, Howie Rosen, Rick Afable, and Pam Palmer voluntarily resigned from the Board. I'd like to expressly thank Howie Rosen and Rick Afable for all their valuable contributions over the years on our Board, and of course, look forward to continuing work with Dr. Palmer as our Chief Medical Officer. Finally, before handing the call over to Dr. Palmer, I'd like to remind everyone of all the upcoming milestones expected over the next 18 months. We anticipate our first patient in the Niyad study to be enrolled in the coming weeks. Once patients begin enrolling, we'll have a better overall sense of the timing, but based on feedback received from the various KOLs, we expect this study to enroll quickly. After 32 patients have been enrolled, there'll be a planned interim safety analysis. Top-line data readout from the completed study would then be expected by the end of the third quarter, with a PMA submission planned for the end of the year. Now, with a six-month FDA statutory timeline, this would put us on track for a potential PMA approval by the end of the second quarter of 2025. With that, I'll hand the call over to Dr. Palmer, who will provide an update on the NEFRO CRRT or Niyad clinical study. Pam?

Thank you Vince, and good afternoon to everyone. Today I'll provide a brief update on the NEPHRO study status as we've been eager to get the study started. Most of our clinical sites undergoing contracting with us are large academic institutions across the country, and we've experienced delays in administrative efforts to have our contracts and budgets in place to begin enrolling patients. We had expected to have our first patient enrolled already, but our CRO has confirmed that they are seeing similar administrative delays with institutions across many other studies as well. We do not expect to have any significant delays in enrolling patients once each site is set to start. As Vince mentioned, the feedback provided by KOLs is that they believe once they are set up to initiate the study, enrolling should be fairly rapid given the relatively short study period and broad inclusion criteria for the trial. Patients are considered completers after only 72 hours on CRRT, and all primary and secondary endpoints are assessed during this period. This said, we expect the first patient to be enrolled in the coming weeks at our first site, as we have recently completed the site initiation visit with an additional site initiation visit, another institution scheduled for next week. As a reminder, our clinical study will include 166 patients with half receiving an infusion of Niyad into the CRRT circuit, while the other half will receive an infusion of saline as a placebo into the circuit. The primary endpoint will be the CRRT post-filter activated clotting time over the first 24 hours, with a key secondary endpoint including the same measurement over 72 hours. Additional secondary endpoints evaluate filter lifespan, number of transfusions, and dialysis efficacy. There are a number of reasons we are confident in the successful study outcome. First and foremost being the three decades of nafamostat's safe and effective clinical use in Japan and South Korea. Secondly, an independent meta-analysis evaluating almost 3,000 patients published in 2022 analyzing the use of nafamostat as an anticoagulant for the extracorporeal circuit provides insightful data on mortality, bleeding risk, and filter life, all of which were favorable for nafamostat as compared to conventional anticoagulant therapy or in the absence of an anticoagulant. Thirdly is the NEFRO CRRT straightforward study design in which we are comparing a proven powerful anticoagulant to saline and measuring an activated clotting time as a primary endpoint. The use of saline as a comparator in our study is ethical, as we know from our recent published market research that nearly a third of CRRT patients receive no anticoagulant. KOLs have informed us the main reason for not using an anticoagulant is that the current available options, heparin and citrate carry risks that many patients cannot tolerate. Heparin is a systemic anticoagulant with a half-life of up to three hours. Therefore, it circulates back into the patient from the circuit and should not be used in patients at risk of bleeding. By comparison, nafamostat has an ultra-short half-life of only eight minutes, reducing the risk of systemically anticoagulating the patient. Various citrate formulations used either off-label or under an EUA are complex to administer and have their own complications, including hypocalcemia, citrate toxicity, and ventricular arrhythmias. While we do not have enough time here today to discuss all the disadvantages of citrate and heparin, suffice it to say we believe that nafamostat, if approved, will be an important addition to the current anticoagulants being used. More information on the disadvantages of heparin and citrate, as well as the risk of using no anticoagulant is detailed in the recently published market research study in the journal Renal Failure, as well as by the KOL panel discussion that we hosted in December of last year. Both the publication and a webcast recording of the KOL panel can be found on our website. I will now turn the call back over to Vince.

Thank you, Pam. We've previously discussed the peak sales potential of Niyad of $200 million, which is split fairly evenly between CRRT in the hospital setting and intermittent hemodialysis use in the outpatient setting. We will initially start concentrating on CRRT in the hospital as this is the focus of the NEFRO CRRT clinical study. We're currently working on additional market research to inform potential updates to the market opportunity pricing and market penetration potential of Niyad. Our peak sales potential assumes only a 19.5% market penetration in the hospital CRRT setting. However, feedback we're receiving from our KOLs indicates we may be underestimating our market penetration potential. We'll share any updates needed to our estimated peak sales following the completion of our additional market research. Now, I'll handle the call over to Raffi to take you through the details of the financial results.

Thank you, Vince. 2023 was clearly a year of transformation for Talphera, and we're excited about the prospects of our lead asset Niyad as well as the longer-term potential within the nafamostat portfolio. We are thankful for the support from our investors, including Nantahala and Rosalind who participated in the January 2024 equity financing with the objective to ensure we have sufficient capital to reach a potential Q2 2025 PMA approval of Niyad. The company-friendly structure of this equity financing, the majority of which requires the investors to fund the company at the second closing, should we achieve the pivotal trial milestone regardless of the stock price at the time demonstrates the investors' conviction and belief in the company. Cash and cash equivalents were $9.4 million at the end of the quarter or $23.4 million on a pro forma basis if you include the $16 million of initial proceeds received from the January financings. We continue to remain vigilant over our cash expenditures for the year. Our combined R&D and SG&A expenses excluding non-cash stock compensation for the year were $15.8 million, slightly better than the guidance range of $16 million to $20 million we provided. For the quarter, the combined R&D and SG&A expenses excluding $0.3 million of non-cash stock compensation were $4.3 million. Our estimated full year 2024 combined R&D and SG&A expenses excluding non-cash stock-related expense are expected to range from $21 million to $23 million. Revenues for the fourth quarter of $0.3 million were generated from royalties on the sales of DSUVIA, principally from sales to the Department of Defense on which we earn a 75% royalty from Alora, as stated earlier. We will continue to account for these royalties and milestones as revenues. However, there will be no cash flow impact going forward until Xoma receives their specified return, and we begin sharing equally in the DoD royalties and the milestones. Given the historically variable nature of these revenues, we do not plan to provide any guidance on the expected timeframe on when these royalties and milestones will begin to generate cash flow to Talphera. I'll now turn the call back over to Vince.

Thank you, Raffi. I'd now like to open the line for any questions you may have. Operator?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Ed Arce of H.C. Wainwright.

Good afternoon, everyone. This is Thomas Yip. Hi, everyone. This is Thomas Yip asking a couple of questions for Ed. Thank you for particular questions. So, first, good to see that PMA submission is still on target by year-end 2024. Just trying to tease out as we close to the end of first quarter, should we expect the first patient to be enrolled by the end of the quarter? I know you said within the coming weeks, and also, I believe top-line data is still on target, sometime in the third quarter of this year.

Yeah. So, I'll answer the first part of that. So again, reiterating what you mentioned, our target remains by the end of the year to have the PMA submission occurred. We've already completed a site initiation visit with one of the sites, and another one is scheduled for next week, and we'll monitor the enrollment from that point moving forward. Dr. Palmer might be able to give you some additional color as it relates to discussions with the sites and the availability of patients moving forward, and really what we just heard from the site we're visiting next week.

Yeah. So the sites are really excited to move forward. They're as frustrated, I think, by these administrative delays as we've been. They've even said to me, Hey, Pam, I had two patients last week that would've qualified for the study. So, they see these patients that they want to get in, and we're just trying to get these site initiation visits done so they can quickly start enrolling. It is competitive enrollment, so there is no cap on any site. That means the first up and running will get to enroll more patients than the last. So, we're really trying to move this forward and keep it on the timeline.

Yeah. I think an indirect answer to your question by the end of Q1, that's certainly our goal, Thomas, and with the feedback, hopefully that's what we'll achieve here in short order.

Got it. And then, perhaps a follow-up on that for Dr. Palmer. Can you discuss the nature of these administrative delays? You mentioned these delays in all of the sites or just some of the sites that have been chosen?

It's actually a widespread issue. We've noticed that many large academic centers have experienced a significant loss of administrative staff over the last few years, with many working from home. As a result, there are fewer people in the contracting and budgeting offices. Consequently, when we submit contracts and budgets, we have to wait longer for their attention. We're actively reaching out through calls and emails to follow up, and while progress is slow, we are beginning to see some movement, which is encouraging. Almost all institutions seem to be on a similar timeline now, with site initiation visits starting to be scheduled, which we are very excited about. Once we meet with the teams during these visits, we expect to work with top-notch researchers who have qualified patient populations, as they see these patients daily in their ICUs. We believe that once these sites are initiated, we can achieve rapid enrollment.

Pam, can you comment quickly? We used the words or shortening of SIVs, site initiation visits, so we just started completing them, have more now scheduled. What is the site initiation?

The site initiation visit is the final step in the process. Initially, you need to complete confidentiality agreements and site feasibility questionnaires, and then negotiate a contract and budget. This entire process is time-consuming. The site initiation visit involves going to the site to review the pharmacy and data entry procedures. There is a significant amount of paperwork involved, and it takes time to navigate through it. However, once we are through this process and operational, we are optimistic about the feedback from the sites and believe they will be able to enroll participants quickly.

And just to add a little additional color on their site initiation visits, we've already started completing. Some have the additional ones really in the process of scheduling. They happen within a day. These aren't extended visits. It's less than a day visit at the site by the CRO. Just finishing up the final details. Hope that gives you some insight, Thomas on that.

Yeah. Definitely. Thank you both for the other details. And then, I believe Dr. Pam, you mentioned on the call or maybe Vince, that there will be an interim analysis from NEFRO after patients have been enrolled. Will this be a blinded safety analysis and what can they expect from after this analysis?

Yeah. It's a DSMB, data safety management board. And what they do is they're evaluating. Yes, it is actually unblinded because they're selected to look at the data to make sure there's no safety signals. That's very typical for a new chemical entity that has not been approved yet in the U.S. before. Although, it's got great 30 years of great history in Japan and South Korea, it's coming over here for the first time. So the first 32 patients, which will be 16 active, 16 placebo in general are going to be evaluated by this unblinded committee, and they give thumbs up or thumbs down to continue the study.

Okay. Got it. Understood. Thanks for clarity. And perhaps one question for Raffi. So, cash runway up to the second quarter next year, I believe so that includes the $16 million pro forma cash influx during the first quarter of 2024. Is that right?

Yeah. Just I need to correct what I said in the prepared remarks. Actually, it's $14 million on that first closing plus the royalty financing, not $16 million. So, correct that there. So yes, that includes that plus the additional $12 million that we're expecting once we announce the pivotal trial milestone or the top-line data, which we're planning for in the third quarter. It does not include, I mean, obviously, as we mentioned in the prepared remarks on top of that, should those July 2023 warrants be exercised, there's additional capital that comes into the company.

Got it. Okay. Thank you. Thank you everyone for taking the questions and looking forward to the first patient's enrollment in the study.

Yeah. Well, operator, additional questions.

Thanks, Thomas.

There are no further questions at this time. I would hand over the call to Vince Angotti for closing comments. Please go ahead.

Thank you, operator. Before I give final comments, there's clearly a high interest in the study and execution thereof, and Dr. Palmer mentioned a component of the call called competitive enrollment. Dr. Palmer, can you just give a quick elaboration on competitive enrollment?

Essentially, no site has a limit, so the first site to receive the SIV and enroll the first patient has a longer time frame to enroll more patients. This creates an incentive for all sites to become operational as quickly as possible, as those that delay will face restrictions on the number of patients they can enroll.

I think a pretty important feature of the study design and contracts that we have with the sites. So with that as the final Q&A, I want to thank everyone for joining us today, as the new Talphera and also for your continued support. We certainly remain focused on driving long-term shareholder value as a newly positioned company with a focus on executing this NEPHRO study to make Niyad available to the healthcare providers moving forward. We look forward to sharing future developments with you, and thank you again for your continued interest in supporting our company. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.