Welcome to the Talphera Fourth Quarter and Full Year 2024 Financial Results Conference call. This call is being webcast live via the Events page of the Investors section of Talphera's website, www.talphera.com. 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's Chief Financial Officer. Please go ahead.

Thank you for joining us on the call today. Today we announced our fourth quarter and full year 2024 financial results and associated business updates in a press release. With me today are Vincent Angotti, our Chief Executive Officer, and Dr. Shakil Aslam, Talphera's Chief Medical Officer. Before we begin, I want to remind listeners that during this call, we will likely make forward-looking statements within the meeting 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 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. I'll now hand the call over to Vince.

Thanks, Raffi. Good afternoon, and thank you to everyone joining our call today. We made strong progress in 2024 and anticipate furthering that progress in 2025 with the expectation that our NEPHRO CRRT study should be completed by the end of the year. We have a number of important updates to share with you today, all of which support the timely development of Niyad and the planned submission of the PMA in the first quarter of next year. I'll first provide an overview and then hand it over to Dr. Aslam to provide additional details on all the improvements being made in the study and with the clinical sites. First, as announced earlier today, I'm pleased to highlight an agreement with existing and new investors for a private placement investment of up to $14.8 million in gross proceeds should all milestones be achieved. I want to thank Nantahala Capital and Rosalind Advisors, who remain committed investors supporting the company. This financing should provide us capital to a potential completion of the study by the end of the year. Raffi will provide additional details on the financing later in the call. I'll now provide key updates we've made to the NEPHRO CRRT study. As a reminder, the nafamostat has been approved and used for multiple indications in Japan and South Korea, including as an anticoagulant for the extracorporeal circuit for well over 30 years. This extensive clinical use demonstrating its safety and efficacy in those territories, as well as multiple studies performed outside the US, we believe will be corroborated by the data being produced from the NEPHRO CRRT clinical study. If approved, Niyad would become the only FDA approved regional anticoagulant for use during continuous renal replacement therapy. We believe this profile would be impactful given the many disadvantages of…

Thank you, Vince. We have been busy making changes to the study protocol, as well as evaluating the characteristics of clinical sites to improve the study enrollment. I'm happy to say, as Vince highlighted, we have had success on both fronts as the FDA has approved the changes we requested. We now better understand the profile of an ideal clinical site for our registrational trial. The three newer sites have our target profile with the higher CRRT volumes, and two of these sites are just beginning to screen patients. This brings our current total enrollment ready sites to eight, seven of which are screening today. Before providing more information on the study site, I would like to elaborate on the reasons we believe the FDA agreed with our request to significantly reduce the study size from 166 patients to 70. With 166 patients, the study was overpowered with over 99% power to meet the primary endpoint. Despite a significant size reduction, it's important to note that even with 70 patients, the study has at least 90% power to meet the primary endpoint. You are probably wondering why this study was so overpowered in the first place. It is our understanding that Lowell Therapeutics proposed a study size of 166 patients to assure the FDA that a sufficient number of patients would be exposed to Niyad from a safety perspective. In our meeting with the FDA in January, we presented the safety data from the existing large safety data sets and the published literature on the real-world use of nafamostat across multiple indications in Japan and South Korea for over 30 years. We were able to assure the FDA that nafamostat had a well-characterized safety and a favorable benefit-risk profile based on over three decades of use across multiple indications, including…

Thank you, Dr. Aslam. I'd like to highlight Dr. Aslam's expertise in CRRT and experience both drug and device trials during this accomplished career that have facilitated these enhancements to the program. I'll now hand the call over to Raffi for a financial update.

Thanks, Vince. As mentioned, we have been highly focused on delivering a completed NEPHRO study by the end of this year. Accordingly, we have reduced our operating expenses to reflect this objective. Also, as announced earlier today, we signed agreements with investors regarding a private placement financing with existing and new fundamental investors led by Nantahala Capital and Rosalind Advisors who remain committed and supportive shareholders. The amount of the financing is expected to provide capital to support the targeted completion of the study by the end of 2025. The financing was structured in three equal tranches of $4.925 million with the first tranche received at the initial closing expected shortly here in April, and the two additional tranches based on achieving an enrollment of 17 patients and 35 patients and with the stock trading above $0.73 per share. In total, the $14.8 million commitment is expected to be achieved later this year as we expect acceleration in enrollment rates given all the changes made to the NEPHRO CRRT study and the new sites that are coming online. As mentioned, this financing, combined with the $8.9 million in cash at December 31, 2024, supports the completion of the study anticipated by the end of the year. Our combined R&D and SG&A expenses for the fourth quarter of 2024 totaled $3 million compared to $4.6 million for the fourth quarter of 2023. Excluding non-cash, stock-based compensation expense, these amounts were $2.8 million for the fourth quarter of 2024, compared to $4.3 million for the fourth quarter of 2023. The decrease in combined R&D and SG&A expenses in the fourth quarter of 2024 was primarily due to reductions in personnel expense and other general and administrative expenses. We expect cash operating expenses, or SG&A and R&D, excluding stock-based compensation, to be in the range of $18 million to $19 million in 2025. I'll now turn the call back to you, Vince.

Thank you, Raffi. Before we open the line for questions, I reiterate that we've made significant improvements in the study design in concert with the FDA. We now have an improved trial design with the right types of ICUs as operating sites. I look forward to sharing our progress on the Niyad registrational trial over the course of the year. And I'd like to open this line up for any questions you might have. Operator?

[Operator Instructions] Your first question is from Ed Arce from H.C. Wainwright. Please go ahead.

Hi, good afternoon, everyone. This is Thomas Yip asking a couple of questions for Ed. Thank you so much for taking our questions. So first, regarding the changes and the inclusion criteria, those are formally approved now by the FDA. Sounds like it makes a lot of sense, but can you discuss what the original line of thoughts for excluding these patients in the previous protocol?

So we'll have that over to Shakil. Again, the question is changes in the inclusion criteria. What were the original thoughts on, I just want to be sure, Thomas, why that protocol was written originally as it was with Lowell?

Yes, yes, that's what I meant. Thank you.

Okay. So, Shakil, you want to answer that? That's relative to the heparin and relative to the 48 hours on CRRT and why they were originally included that way.

Sure. So, since I was not part of the initial protocol development, so I can only guess the reasons that make the -- a medical sense from my point of view. So, 48 hours restriction perhaps was done if you were to look at some important clinical endpoint. And my thinking on this was since we are not really looking at clinical endpoint as a primary efficacy endpoint, time on CRRT, it had no impact on how somebody's going to respond to Niyad. So that's why we changed it. But my understanding is that because of impact that longer duration on CRRT, for example, could have patients who are longer on CRRT, they may take longer time to recover their kidney function or they may have higher mortality because they're not recovering their kidney failure quick enough. So that's my guess that that was the reason. The second in terms of contraindication to use of heparin, FDA's position has been that heparin is FDA approved for this indication, and it is, and perhaps should be used, or at least offered to every patient who starts on CRRT. As we approached many of these sites and activated these sites, we did not find that to be the case. What we found was most of the sites were not offering heparin at all to their patients. So, as a result, it didn't really make any sense for us to require these sites to document contraindication to use of heparin. FDA, as Vince mentioned, also agreed to remove that restriction. Does that answer your question?

Yes, thank you so much for clarification for updating the end point [from our sense] (ph).

Shakil, can I ask you also to quickly elaborate on why have these institutions decided not to use heparin for the most part? In your clinical experience and discussion with these sites, what has been their main rationale for those on the phone today to understand why they're not using the heparin even though it's indicated for this condition?

Right. So there are many reasons. I think, overall, most institutions do not feel that the risks from heparin justify the use of heparin routinely in all patients. Heparin is kind of difficult to use in this patient population. Number one, it has a long half-life, approximately two to three hours, and the half-life can change within the same patient, so that makes it very difficult to use. And titration of heparin is quite difficult. It takes a while before you titrate to the target therapeutic activated prothrombin time, which is the marker that we use in the clinic. And I think the most important thing perhaps is that it's a systemic anticoagulant. So, you were trying to prevent clotting in a circuit which is outside the body. So there really is no justification to expose the whole patient to anticoagulation, because these patients are very high risk of bleeding from many organs. And so this increases their risk of systemic bleeding. So those are, I think, my top few reasons why I never like heparin, and most physicians don't.

Thanks, Shakil.

Got it. Thank you so much. Perhaps a couple of questions regarding the private placement that was announced today. Just wondering the second and third milestones tied to the patient enrollment, 17 and 35 patients respectively. Is there any time limit tied to these achievements of the milestones?

No, they're not.

Okay, so just to be clear, the funding will trigger as soon as both the number of patients being enrolled and also the share price hitting the five-day average.

That's correct, as opposed to -- and some normal closing conditions. But yes, that is correct.

Okay. And then one final question also on the private placement. Just wonder, you have disclosed, which member of the management team participated and then also what were the amounts?

Yeah, I mean, we didn't, but it's Vince.

That would be me, Thomas.

The member of management.

And you'll see the amounts I suspect with the filing.

Great. Thank you so much for taking our questions again. Looking forward to hearing progress for the study throughout the year.

Thanks, Thomas.

The next question is from Jim Molloy from Alliance Global Partners. Please go ahead.

Hey, guys. It's Matt on for Jim. Congrats on the quarter and the private placement this morning. First question, I wanted to follow up on the private placement for those milestones in 17 and 35 patients. Have you guided at all to when you might see that come in? 17, maybe next quarter, is that a fair assumption?

Yeah, we haven't, but yeah, we're expecting kind of mid-year for the first one and the third quarter or so for the second one.

Thanks. Got you. And then as far as the existing sites, do you have any plans to shift the PIs to nephrologists and maybe make those sites look a little bit more like the highest enrolling? Is that a possibility?

Yeah, I'm going to turn that one over to Shakil and just preface it. But, Shakil, can you also include in your answer, as we continue to find highly productive sites that really meet our criteria with a high number of CRRT patients, one, would you ever consider deactivating the unproductive sites? And two, especially with the demand that we're starting to see to get into the trial, and two, for those sites that we have been very close with, which is all of them, the work you're doing to potentially shift those PIs over to the specialty that most fit our needs?

Absolutely, so yeah, that is the case. We are in discussions with these PIs to see if either they can shift the primary responsibility to a nephrologist or they can broaden their patient population by including medical ICUs. In terms of closing any of the sites that are not being productive, I think that's possible. Once we recognize or close to getting the 14 sites up and running, and by then if any of these sites have not performed, we would like to swap them for better performing sites. So, right now we have a lot of interest in joining this study, and we are activating those sites as quickly as we can.

I think an important additional color I'll add on that is, these sites were the ones that really brought to our attention the challenges that they were experiencing with the protocol and the two particular exclusion criteria. So, kudos to them, even though they haven't been as productive on their engagement, enthusiasm for the study. And I think you have to remember, these are very prominent sites around the country related to the reputation of the institutions. And the PIs are extraordinary, but these are the same PIs that worked with the founding company, Lowell, and prior to that, La Jolla on GIAPREZA, which is a vasopressin, and then it starts to make a lot of sense, the comfort level that was with these PIs as intensivists in the ICUs they were pulling from being cardiothoracic and/or surgical. And I think that Lowell/La Jolla leaned on those relationships, extraordinary talents of what might not be the best fit as Dr. Aslam explained for many reasons, for this particular study.

Okay. Thank you for the color. I appreciate that. And lastly, do you have any clues yet to the enrollment rate with this new revised criteria? And -- or should we assume those six patients that have completed the study are the six patients fully that have been enrolled as of right now?

Yeah. Yeah. So those are the original six. Again, I'll reiterate what we said in the script that five of those six are coming from one of the institutions that we had identified to add into the study that really met the criteria that Dr. Aslam has framed out moving forward.

Got it. And any clues to the enrollment rate going forward based on these new criteria that have been agreed upon by the FDA, or is it too early to tell?

No, I think it's too early to tell. Again, I'll reiterate what we said, that we had 25 patients excluded since the enrollment started the trial for these two criteria, 10 on one and 15 on another. I think it was 15 on the 48 hours, 10 on the heparin exclusion. So you can see a number of patients were screened out from these original sites based off of those two criteria. We expect those original sites to have some production moving forward, but we really expect that change in the criteria to more heavily affect these higher potential sites. Remember, as Dr. Aslam said, our most productive site to date is averaging about 20 CRRT patients per month. With the sites that Dr. Aslam just activated and just started screening, they're averaging historically, now there's peaks and troughs, but on average between 90 and 100 CRRT patients per month. So you see the magnitude of potential penetration of that population. And then the additional sites Dr. Aslam is engaged that we planned up having by mid-year, some of those are even larger than those sites that are averaging 90 to 100 CRRT patients per month. So it starts exponentially rising the pool of patients we can pull from, and that should work in concert with the inclusion-exclusion criteria the FDA just granted us.

All right, great. Thanks for the color, guys. Congrats on the progress, and thanks for taking my questions.

Thanks, Matt.

The next question is from Naz Rahman from Maxim Group. Please go ahead.

Hi, everyone. Thanks for taking my question, and congrats on the progress. I guess in context of everything that's happened, what ultimately gives you confidence that you could have the faith [you can get the] (ph) data by the end of the year? You're saying that it still takes four months, give or take, to initiate it, which is faster than before, but that still seems like it would take a while to initiate additional green and initiate additional sites which kind of takes us into mid-year. All that considered, what gives you confidence you could have the data by the end of the year?

Yeah. So I can start on the answer to that question. Shakil, maybe you can add some additional color. So of our original seven sites you mentioned, we have two more we plan on adding here, actually, in April. So, it's very early on. It's not an additional four months from here. And then the balance of the sites to get us to the 13 that we're currently engaged with will be by mid-year. So, it's not four months starting from now. We're already well into it with two of the sites and then fairly far along with the additional sites to get us to the 13 by mid-year. When you just do the math on that, Naz, I mean, you're looking at 13 sites with a balance of 64 patients left to enroll. So 1 to 1.5 patients per month with exponentially larger populations, as I just outlined. I think from an engagement standpoint or other, maybe Shakil, you can add some color on the new sites, the engagement, the teams and the profile that we've kind of already reiterated.

Did we lose Shakil?

Shakil, you might be muted. There you are. There you are.

All right. Thank you. Yeah, so the biggest change that we are seeing is the level of engagement that we have from the nephrologists. And now, nephrologists deal with this issue of anticoagulating these patients and how do you anticoagulate just the circuit and not the patient. They deal with this issue, and every single time they start a patient on CRRT. So this is an issue which really is very, very close to them. So, the biggest difference that I see is these nephrologists, they are helping us with the paperwork. They want nafamostat available for their patients. Most of them don't use heparin. Most of them do not use citrate. And they want an option so that they don't have to throw away these circuits every six to eight hours in some of these patients. So that level of engagement is what gives me a lot of confidence that they are actually going to go and look for those patients. They know that this is not a big study and if they can help us and we can actually get this product in their hand next year. So I think that is the most confident inspiring part of this new site that I'm seeing. And, Vince, you've been talking to some of those people as well. I don't know how you felt about their degree of involvement and how enthusiastic they are.

Yeah, I think it's very similar to Dr. Aslam. They've all been engaged. Not that the engagement from the previous ones wasn't high, but the nephrologists make a big difference because this is their world every day that they're in the hospital doing the CRRT.

All right. Thank you. That was very helpful.

Thanks, Naz.

There are no further questions at this time. Please proceed with closing remarks.

Okay. Again, thank you for joining our 4Q earnings call. We're excited about the study modifications to address enrollment in the continued alignment with the FDA, in particular, with the goal of completing the NEPHRO trial in 2025 and an FDA approval of Niyad in 2026. We will remain disciplined on our cash management, and we look forward to providing additional updates on our progress. Thank you for all your interest and that concludes our call.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and I ask that you please disconnect your lines.