Spectral AI - Q1 2024

Transcript

Operator (participant)

Good day and welcome to the Spectral AI First Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Devin Sullivan, Managing Director of The Equity Group. Please go ahead.

Devin Sullivan (Managing Director)

Thank you, Chad. Good afternoon, everyone, and thank you for joining us for Spectral AI's 2024 First Quarter Financial Results Conference Call. Our speakers for today will be Peter Carlson, Chief Executive Officer of Spectral AI, and Vince Capone, the company's Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, certain statements may be made that constitute forward-looking statements within the meaning of the Safe Harbor Provisions of the United States Private Securities Litigation Reform Act of 1995, including statements regarding the company's strategy, plans, objectives, initiatives, and financial outlook. When used in these discussions, the words estimates, projected, expects, anticipates, forecasts, plans, intends, believes, seeks, may, will, should, future, propose, and variations of those words or similar expressions, or the negative versions of such words or expressions, are intended to identify forward-looking statements.

These forward-looking statements are not guarantees of future performance, conditions, or results, and involve a number of known and unknown risks, uncertainties, assumptions, and other important factors, many of which are outside the company's control, and cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Investors are cautioned not to place undue reliance on forward-looking statements. Investors should carefully consider the foregoing factors and other risks and uncertainties described in the risk factors sections of the company's filings with the SEC, including the registration statement and other documents filed by the company. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. With that said, I'd now like to turn the call over to Pete Carlson, Spectral AI's Chief Executive Officer. Pete, please go ahead.

Peter Carlson (CEO)

Thank you, Devin, and good afternoon, everyone. We appreciate you joining us today for our First Quarter Financial Results Conference Call. We had a strong start to the year with significant accomplishments in the areas of product advancement and deployment, clinical studies, and executive appointments. We also strengthened our financial profile and created a well-defined cash runway to support our growth initiatives. We are continuing to evolve from the clinical environment to commercialization and have a well-defined business focus for 2024 and beyond. As previously announced, in February 2024, we received UKCA authorization to commence sales of DeepView AI-Burn in the U.K. We are excited to share the deployment of DeepView systems at three U.K. hospitals: Royal Victoria Infirmary in Newcastle, Stoke Mandeville Hospital in Buckinghamshire, and Broomfield Hospital in Essex.

First and foremost, we believe these deployments help professionals at these facilities provide more effective and more efficient care to patients. Additionally, having machines deployed increases clinician familiarity with the device, integrates our technology into the facility's workflow, and provides real-world data related to its usage and outcomes. We will deploy a total of 6 DeepView devices at locations across the U.K. this summer. After a period of customer evaluation, we expect to initiate commercial transactions in the second half of this year. While we do not expect these transactions to represent a significant contribution to revenues in 2024, we are pleased to begin commercial activities. Our clinical work to develop the DeepView platform continues, and let me share these updates. For Burn, we are enrolling patients for a pivotal study at multiple burn centers and emergency departments across the U.S.

The study is expected to enroll 240 patients, both adult and pediatric. As of today, we are approximately 20% towards our enrollment goal. This is expected to be the final clinical trial for Burn before seeking FDA approval in 2025. For diabetic foot ulcers, or DFUs, we are advancing our training and validation clinical studies in both the U.S. and the U.K. To date, we have enrolled 470 patients across 14 total sites and anticipate completing enrollment at both studies this year. We are often asked about timing of cash flows from the contracts with BARDA, and I want to take a few minutes to summarize this critical partnership. Through March 31st, 2024, we have received approximately $113 million in cash payments from BARDA, most of which related to the Burn 1 and Burn 2 contracts that were completed in 2019 and 2023, respectively.

This total includes approximately $11 million under the first portion of the Project BioShield, or PBS, contract awarded in September 2023. The initial award of nearly $55 million from the PBS contract will take us through the first quarter of 2026 in support of the clinical validation and FDA approval processes for the burn indication. The next award, which we expect to commence in the first half of 2026, is estimated to be $95 million for procurement and deployment of devices to burn centers and select emergency departments across the U.S., along with funding several years of annual license fees for the devices deployed. Final amounts under this next award are subject to discussions with BARDA. In summary, to date, BARDA has awarded contracts to Spectral AI totaling $250 million and, since 2013, has paid $113 million to the company under these contracts.

Turning to updates on the continued strengthening of our leadership team and the board, we welcome Jeremiah Sparks as Chief Commercial Officer beginning April 1st, and I am pleased to say he hit the ground running, including joining our team in Chicago at the annual meeting of the American Burn Association. Jeremiah was an executive at AVITA Medical prior to joining Spectral AI and brings more than 20 years of medical device marketing and business strategy, including experience in launching new products both nationally and globally. Prior to AVITA Medical, Jeremiah worked at Johnson & Johnson, Healthpoint, and Allergan. Additionally, we named Stan Micek as interim Chief Operating Officer on April 8th, providing continuing leadership to our engineering teams. Stan brings extensive experience in product deployments along with strong project management skills. As disclosed in our proxy filing last month, we nominated Marion Snyder to our board of directors.

Marion is a highly accomplished healthcare executive, currently serving as Senior Director Corporate Accounts at Shockwave Medical, a medical device focused on the treatment of cardiovascular disease. Her prior experience is in both med device and pharmaceuticals, with executive positions at MiMedx and Pfizer. My last update is about our newly formed healthcare intellectual property-focused subsidiary, Spectral IP. We are fortunate to have a well-known expert in intellectual property, Eric Spangenberg, as our largest shareholder. As you saw, we named Eric as CEO of this subsidiary, and his primary focus will be identifying assets for this entity to acquire and exploring the potential spinoff of Spectral IP to shareholders, providing additional value for our current investors. It is important to know that the activities of this IP-focused subsidiary require limited management resources and no additional capital from the company.

Additionally, no core operating assets of the company will be involved in the subsidiary. Before turning things over to Vince, I want to stress that we believe we are on the proper path to deliver reduced pain and suffering, faster and more appropriate treatment plans, and reduced risk from complications for patients, better information for treatment decisions by clinicians, improved efficiencies and lower healthcare delivery costs for facilities, meaningful economic benefits for payers through objective and validated assessments, and long-term value for our shareholders. With that, I will have Vince Capone, our Chief Financial Officer, provide an update on our financial results. Vince?

Vincent Capone (CFO)

Thanks, Pete, and thank you all for joining us today. We issued our press release this afternoon, which contains additional detail of our operating results, and we are filing our 10-Q with the SEC today as well. With that in mind, I will focus my remarks on select highlights and key items. We are pleased to report that research and development revenue for the first quarter rose 24.6% to $6.3 million from $5.1 million in the first quarter of last year. This growth reflects an increased level of activity under the BARDA Project BioShield contract, which was awarded to the company in September 2023.

Gross margin also improved, rising to 46.6% from 42.9% in the first quarter of last year due to the higher reimbursement rate under the BARDA Project BioShield contract as compared to the reimbursement rate in the BARDA Burn 2 contract under which we operated in last year's first quarter. General and administrative expenses in the first quarter were flat at $5.1 million. Non-revenue-generating research and development activities decreased by approximately $100,000 for the three months ended March 31st, 2024, compared to the first quarter of 2023, and that's offset by an increase of approximately $100,000 related to other administrative expenses for the three months ended March 31st, 2024, as compared to the first quarter of 2023.

Other expenses for the first quarter of 2024 were up approximately $500,000 from the first quarter of 2023 and reflected borrowing-related costs of $300,000 and transaction costs of $1 million, each related to the company's previously announced financing arrangements. We trimmed our net loss for the quarter to $3.2 million, or $0.19 per share, as compared to a net loss of $3.6 million, or $0.27 per share, last year. At March 31st, 2024, we had 17,482,333 shares outstanding. Moving to the balance sheet, as of March 31st, 2024, cash and cash equivalents totaled $10.2 million, up from $4.8 million at year-end. We enhanced our access to capital by completing a common stock purchase agreement with an investment bank under which the company netted $2.7 million. The company still has the ability to draw down an additional $3 million under this facility.

In addition, we entered into a standby equity purchase agreement with a long-only investor that includes $12.5 million of prepaid advances. As of March 31st, 2024, the company received $4.6 million net from the standby equity purchase agreement, and the company anticipates receiving $5 million shortly after our May 14th, 2024, annual meeting and the final advance of $2.5 million, 60 days thereafter. As a reminder, any drawdowns above the prepaid advances of $12.5 million are solely at the discretion of the company. For 2024, we are reaffirming our revenue guidance of approximately $28 million and expect an increase of 55% from the $18.1 million we reported in 2023. This growth reflects our work on the BARDA Project BioShield contract with additional contributions from the ongoing handheld contract.

As a reminder, we recently announced a new contract with the Defense Health Agency that provides significant additional support for the development of the handheld version of our DeepView system device, valued at over $500,000, bringing the total for the development of this device to greater than $6 million. This guidance does not include contributions from sales of the DeepView system for Burn in the U.K. in the second half of 2024, which is not expected to be material. Thank you for your time, and with that, I will turn the conversation back over to Pete.

Peter Carlson (CEO)

Thank you, Vince. We are pleased with our progress in the first quarter as we welcome both Jeremiah and Stan to our leadership team and strengthened our financial position. I want to thank our entire team for their dedication and commitment to our promise to develop and commercialize our DeepView system. Their achievements to date and those on the horizon drive our success. Chad, let's open the call for questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one, on your touch-tone phone. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question will be from Ryan Zimmerman from BTIG. Please go ahead.

Iseult McMahon (Equity Research Associate)

Hi, Pete. Vince, this is Iseult McMahon for Ryan. Thanks for taking the questions, and congrats on the progress so far. So just to start out, it's great to see that you guys have these initial placements in the U.K., and I was wondering if you could provide any feedback on what you guys are hearing from those initial placements. Just qualitatively, what are surgeons thinking about the system?

Peter Carlson (CEO)

Thanks, Iseult. Good to talk to you. We've had positive reactions from the field. Surgeons are excited about the opportunity to use the tool. The interesting aspect is, in the U.K., with the single payer system, they are very focused on the quality of care, and the economics are just so different than here in the U.S. So as we've talked to them and as we hit and receive this feedback, it is all about the improving quality of care. They find the device easy to use. In easy to use, it is usable by all people in the clinics. So nurse practitioners, nurses are able to take these images and get the diagnosis back from the device, which essentially gives them the ability to get that critical diagnosis regardless of how skilled they are on assessing a burn.

The facilities enjoy the consistency and the quality of the assessment that happens by using the device.

Iseult McMahon (Equity Research Associate)

Good. That's helpful to hear. Next, on the U.S. burn trial, I heard you guys say that enrollment's up to 20%, which is great to see. But we've heard some commentary from others in the industry saying that incidents of burns were down in the first quarter for the U.S. So I was just wondering if you guys have seen any impact in terms of the pace of enrollment so far.

Peter Carlson (CEO)

We would agree with that about the incidence of burns. We hear the same industry analysis and updates. For us, the other aspect is we were just getting going in the quarter. But yes, we did see that there were fewer burns. There is some seasonality to burns. Some holiday weekends and things like that can be indications of it. One of the things we've seen is, unfortunately, a greater concentration of burns in pediatrics. So that's gone quicker than we anticipated. But I do think your assessment is correct, that the burn incidence rate was lower in the first quarter, and we would expect it to be higher here in the second and summer months in the U.S.

Iseult McMahon (Equity Research Associate)

Got it. Then last one for me before I jump back in queue. Your BARDA revenue for the quarter came in just a little bit shy of our estimates. Given you guys are still expecting to see that $28 million for the full year, I was just wondering if you provide some commentary around how you're thinking about the cadence of revenue for the rest of the year. Thanks for taking the question.

Peter Carlson (CEO)

Thanks, Iseult, again. One of the drivers of the revenue is enrollment in the trial. That is a specific trigger for the billings. And so the ramp-up period in the first quarter was, as I said, just a touch slower than what we had anticipated. But we're very pleased with where we are to date and the current momentum. That being said, we do think the revenue would be a little bit back-ended to the second half of the year. So as you think about the next quarter, I think we would see a somewhat of an increase, but it may not get up to that pro rata amount for the remaining three quarters. And we think the second half would so maybe there's more than half of the revenue is in the second half of the year.

Operator (participant)

Thank you. The next question will come from RK Ramakanth from HC Wainwright. Please go ahead.

Swayampakula Ramakanth (Managing Director and Senior Equity Analyst)

Thank you. This is RK from HCW. Good afternoon, Pete. So.

Peter Carlson (CEO)

Hello.

Swayampakula Ramakanth (Managing Director and Senior Equity Analyst)

Continuing on some of the thoughts on the clinical trials. So the DFU training study that got completed, and also you plan to get the validation study completed in the second half. So two things. One is, what sort of data should we expect from these two studies? And two, the data that comes out of these two studies, is that enough for any filings? Or you take these data and try to plan for a pivotal study so that you can use that to file with the FDA?

Peter Carlson (CEO)

RK, appreciate the questions. Good to talk. A couple of different things here. The training study well, the work we've done to date, kind of combined, the information we've done to date, we think provides us the data needed to prepare a submission for the U.K. So we're on track for that. It's probably a couple of months, two, three months away as we synthesize that data and prepare the submission. But we do have enough data in hand to begin our preparation of that submission in the U.K. It is completion of the validation study that would be the information we believe we will need for a U.S. submission. So again, that's something we look to complete this year and thus would be in a position to begin preparing that submission end of this year, early next year for the diabetic foot ulcer.

What I will say is, as we think about burn and diabetic foot ulcer, we very well may end up in a spot where we think burn is the better first submission to the FDA. We're going for a de novo application here, and we have 10+ years of data on burn. And so that's our strong point to leverage the first triple crown race here in the U.S. So you ride your good horse in. And so I think we're considering the order, but separately, the data would be there and the information needed for also the diabetic foot ulcer submission. And we'll work with the FDA on kind of timing of all of this.

Swayampakula Ramakanth (Managing Director and Senior Equity Analyst)

Very good. Thanks. And then I'm assuming, from what you just said, the 76-patient study that is being conducted in Ireland, that also kind of plugs into what you were just talking about, the study that's going on in the U.S. Is that how we should think about it? And the other question is, at a later point, once you get through the burn indication in the U.S., can you take some of this data and use it for U.S.? Or do you need to kind of do separate studies?

Peter Carlson (CEO)

We can use the data from the U.K. for activities in the U.S. associated with reimbursement and procurement, so with payers and with buyers. The FDA does look for us to have U.S. data. And again, we think we have a robust set of the training data. We have more work to do on the validation side to meet what we think is the threshold here in the U.S. with U.S.-specific data. The way to think about that work in the U.K. is it's a subset of the overall study, but it does give us a concentrated group on which to think about, assess, and maybe potentially do some publications.

Swayampakula Ramakanth (Managing Director and Senior Equity Analyst)

Okay. Now that you have Jeremiah on board, so I'm sure he is kind of tasked with kind of watching the deployment in the U.K. And as you stated, U.K. is kind of weird in terms of reimbursement because we only have one entity to work with. But what sort of learnings would Jeremiah be looking from that experience? Because once we come back to this side of the pond, things are quite different, both in terms of commercialization and also in terms of reimbursement.

Peter Carlson (CEO)

Yes. So there's several aspects of it, a couple of which were in my prepared remarks. It's how clinicians and facilities are using the device. It's capturing the real-world data. It also is a start to commercial transactions. And so understanding the ebb and flow or puts and takes of entering into commercial transactions with facilities and caregivers, that certainly is a good help for us. Anytime you can begin commercial, get through terms and conditions, get financial terms in place, all of those are very helpful input into our strategy here in the U.S. And we do look to leverage the continuing real-world data we receive in the U.K. for payers and for facilities as we have those conversations. We think that will be very useful while also leveraging the trial here in the U.S. for the FDA discussions.

Swayampakula Ramakanth (Managing Director and Senior Equity Analyst)

Okay. One last question from me. BARDA is a huge force behind you, behind the company, which is excellent. So I'm trying to understand where all BARDA can actually help you, or is it part of the plan in terms of how much they can help you in terms of not only regulatory process but also in the commercial process? Certainly, in the regulatory process, are they anyway involved in trying to make sure that you run your studies in such a way that you can get the product approved? Of course, for BARDA, they don't care about the FDA approval. They can still take the product as long as they're comfortable with the data and the utility of the product. But I'm just trying to understand what sort of help are you getting in terms of the regulatory process in the U.S.?

Peter Carlson (CEO)

BARDA is a great partner. We very much enjoy working with them. We think our interaction with them has created a good discipline inside our company for interacting with a federal agency. We think we're well prepared for interactions with the FDA. BARDA certainly is holding us to standards that they think are appropriate for the clinical trials. I do believe that's informed by their experience with other companies working with the FDA. They do have a working relationship. I think it's formalized somewhat in a document between the two groups. We like the advice we receive from BARDA relative to the clinical trial work. They've been informative on, for instance, wanting the specific participation of the pediatrics. They're focused on having the device in both the burn centers and the emergency departments.

We think those that not only support BARDA's mission but are good for approval by the FDA. Then as far as deployment, we think of BARDA as a bit of a distribution channel in that they are funding but also supporting and encouraging users, facilities, to take the device on. There'll be some number of facilities covered within this next round or option of the Project BioShield contract. Then we'll work together with BARDA on further penetration across emergency departments in the U.S.

Swayampakula Ramakanth (Managing Director and Senior Equity Analyst)

Perfect. Thank you very much, Pete, for taking all my questions. I appreciate it. I'm looking forward to continued discussions.

Peter Carlson (CEO)

Thank you, RK.

Operator (participant)

The next question will be from John Vandermosten from Zacks. Please go ahead.

John Vandermosten (Senior Biotechnology Analyst)

Great. Thank you. Hello and good afternoon, Pete and Vince. I've been going down the rabbit hole of how providers are diagnosing DFU and burn and triaging and things like that. Are we aware of the factors that the AI systems consider when making a diagnosis and how that relates to and how that relates to how the system and the provider would do that? Any correlation there between those two that you've been able to tease out?

Peter Carlson (CEO)

I don't know that I'd say there's been a correlation we've been able to tease out as we're still in our early days of working with the payers here in the U.S. Obviously, the care setting matters. Just even the difference between a burn center and an emergency department is going to be important on reimbursements. Those are two different reimbursement schemes, if you will, or approaches. What we believe this device does is better informs existing diagnoses. So the process is still going to be the same, I think, for once you get into the caregiving.

What we're doing, what this device will do, is allow practitioners to be better informed in a couple of ways, just a more consistent, we think, and certainly as you get away from experts into the emergency departments, a better informed assessment of viability of the skin as well as some pretty specific measurements of where the viability, non-viability edge is. So how much of a burn, for instance, needs to be addressed through skin grafts or something else versus doesn't. And what's important there is the more precise you can be there, the less impact you have to the patient. Generally, these skin grafts are autologous. So the less impact you have to the patient somewhere else in their body at what is already a traumatic time.

John Vandermosten (Senior Biotechnology Analyst)

Okay. And it's been my sense, AI, we're still in kind of the early days of approval for AI-type, ML-type products. And my sense has been that regulatory authorities and payers, they kind of want to know how it works and what it's looking at. I mean, do you have that same sense as well, or are they just looking for kind of the end result, looking at those high percentage of accurate assessment?

Peter Carlson (CEO)

I think they very much want to understand what is going on. The thing that's important for people to understand about our device is this is a closed-loop AI. It is not an iterative AI. It does not have some of the risks and concerns you have with a different approach to AI, such as some of these chatbots or things like that. Said a different way, our artificial intelligence tool is running an algorithm against a closed database. It is making an instantaneous assessment considering millions and millions of data points within that database. That's what the power of the algorithm is. This is helping practitioners see what the human eye cannot see. But again, it's within a closed I'll call it closed-loop. I don't think that's the most technical term.

But within a finite amount of data, and there is not iterative learning where the device starts going different ways. There is iterative learning from adding additional data into the database, but it is still a closed environment.

John Vandermosten (Senior Biotechnology Analyst)

Okay. Yeah. It's static.

Peter Carlson (CEO)

That being said, I do think, to your point, the regulators very much want to understand what is going on. It's even where there's really an approval process needed per indication because they want to understand as we understand it now, they want to know what's going on with each dataset and each indication.

John Vandermosten (Senior Biotechnology Analyst)

Okay. I wanted to also ask about how sales will go forward. As I understand it, there are BARDA sales, and then there are non-BARDA sales in the U.S. related to burn. Maybe you can explain that just so I understand a little bit better. I assume that there's probably certain hospitals that they would target first, and then you could expand out from there to other locations that might also be appropriate candidates for buying. Is that how it works, or is there another methodology that you expect to apply when it's approved and ready to be deployed and sold?

Peter Carlson (CEO)

You are generally on point, John. What I would say is it's a partnership working together with them. Yes, this next phase, next option of the PBS contract has revenue that you would think of as a commercial sale because it would be for deployment of a device and for annual license fees. We will work together with BARDA on what centers and which emergency departments the devices would go. So they will have a significant say in where we get the first wave and the sites for which they're paying. But again, the goal is to have this penetrate across the 5,000 emergency departments in the U.S. in a significant way. That's what BARDA wants us to do. We'll be working with them.

Even if it's not through a direct funding situation, we would be working with them to strategize on the priority locations and to leverage their contacts in those locations. And we sort of have a warm lead across the emergency department population, is the way we think about it.

John Vandermosten (Senior Biotechnology Analyst)

Okay. And would you sell all of them? There may be some capacity constraints. Would you sell all the incremental units to the BARDA contract targets first and then go to the other ones that aren't included as part of the contract, or would you kind of do them in parallel? I mean, there could be, I guess, capacity constraints that might limit you to do that. What is your sense on how that might play out?

Peter Carlson (CEO)

We don't see any capacity constraints relative to getting these devices out. We think we can work with our well, we know we can work with our manufacturing partner to produce the devices needed to not only distribute to the locations anticipated within the BARDA contract but to others. I do think it would be something relatively parallel, whether there's a lead time where we work exclusively within the BARDA deployment for a quarter or two. But overall, I think it would be a parallel process.

John Vandermosten (Senior Biotechnology Analyst)

Okay. Last one for me is on the IP subsidiary. I think you alluded a little bit to this in the call, that there wouldn't be any cash, I guess, exchanging hands. So will that entity, I guess, raise cash separately after it's spun off, or will they allocate any cash to you, maybe in terms of debt or something like that? I just was wondering how the cash flow might work between the two entities when it spins off.

Peter Carlson (CEO)

Yeah. So we don't anticipate any cash flow between the two entities. It is looking to be self-funding. And it's demonstrated that through $1 million funding from an affiliate of Eric, our large shareholder. And as part of the work he will do as CEO is he would also secure additional funding for the activities of that subsidiary. That would be separate and different sources than we would go to for capital for our organization. And no, we don't see that there would be cash flow going between the two entities.

John Vandermosten (Senior Biotechnology Analyst)

Got it. All right. Thank you, Pete.

Peter Carlson (CEO)

Thanks, John. Good to talk.

Operator (participant)

And again, if you would like to ask a question, please press star, then one. The next question is from Christopher Recouso from Partner Capital Group. Please go ahead.

Christopher Recouso (Certified Valuation Analyst)

Good afternoon, Peter and Vincent. I have a couple of, I think, brief questions. The first one, apart from the efforts that you've obviously made in the United States and the U.K., can you comment on any efforts in other regions of the world? I know that you've spent a fair amount of time in the Middle East. If you could characterize how those efforts are going and any timing in terms of potential yields, so to speak, on those efforts. Also, I know that you've given guidance for a full year of 2024. Is it possible to look out beyond that? And if not, citing nominal numbers, at least what your aspiration is in terms of compound annual growth rates over the next few years in terms of your revenues?

Peter Carlson (CEO)

Christopher, good to talk. Thanks for the questions. You got a couple of different ones in there. First, as far as geographies, we are focused on the U.S. and the U.K. primarily here. That being said, we do have interactions going on in the Gulf Council Countries. I don't know that I'd characterize it a significant amount of time, but we have interacted with parties there. We have attended some conferences. And we do think that's a situation where there's an opportunity to get some devices in the field and begin some testing and understand what the market opportunity might be. That environment, the Gulf Council Countries generally will look to a U.K. approval like this UKCA mark that we have for the regulatory. So it sort of removes one burden.

Obviously, you're dealing with a totally different regulatory environment in that, and particularly, say, in Saudi Arabia, where it can be almost an individual decision-maker that can make some things happen as far as allowing the device in the region. Whatever we did would be putting a toe in the water, I would say, to start testing and trials and understand the interest and things of that nature. And there are other markets that we would look at a little bit. But our primary focus is going to be here in the U.S. and the U.K. Another one you would hear us talk about seeking approval would be in mainland Europe. That's the CE mark. That's a longer process than what the U.K. process was. And then you also have to go a little bit country by country after that.

So we want to do that, but we want to really focus on meeting the timelines we've established here in the U.S. and the U.K. Secondly, now I'm going to forget what your other part of your question didn't write it down.

Christopher Recouso (Certified Valuation Analyst)

Yeah. The other part of the question was I know that you provided.

Peter Carlson (CEO)

Oh, the growth rates. Yeah, growth rates. Sorry. I would not think about it as compounded growth rates right now because the nature of our revenue is going to shift. What we've talked about is $28 million for 2024, and that's our R&D revenue. I would remind you what I talked about regarding this first part of the Project BioShield contract that has a value total of $55 million and runs through the first quarter of 2026. So you can probably do some math and figure out the order of magnitude of 2025 revenues from that. And then the $95 million would be reflected over several years, as well as we would begin the commercialization and would begin to add up in the UK along with the deployments, as we just talked about, that would be parallel to our activity under the BARDA Project BioShield contract.

So it's not necessarily such chunky and almost contract-driven revenue that I wouldn't necessarily talk about growth rates. But there will be some growth in that. It's not that there's not growth, but it's just not a recurring item on which to base the number. We'll have this first phase R&D revenue for the first quarter of 2026, and then we'll have some commercial revenue beginning that will grow. And so you would see compounding there. And then we would have new commercial revenue coming in in the U.S. for burn or in the U.S. for DFU, and then the U.K. for DFU. So multiple types of revenue coming in. And it's not until we get into the commercial transactions that you really would look at something on which it would be appropriate to start building growth rates.

Christopher Recouso (Certified Valuation Analyst)

I see. And one more brief question, if I may. In terms of this spinoff announcement that you gentlemen made, should I be conceptualizing this as almost like a holdco-opco structure or somewhat of a true subsidiary or if you think about it from a schematic perspective, is it essentially like a sidebar subsidiary where MDAI holds an either significant minority or majority stake in it?

Peter Carlson (CEO)

It would be a brother-sister type arrangement within an org chart. So no, it's not a holdco-opco. Spectral AI is the holding company. Spectral MD is our US operating company. There's a U.K. company in the U.S. And then there is the Spectral IP. So they're all that one tier down from the holding company.

Christopher Recouso (Certified Valuation Analyst)

Okay. Thank you. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes today's question and answer session. I would like to turn the conference back over to Pete Carlson for any closing remarks.

Peter Carlson (CEO)

Thank you, Chad. Thank you, everyone, for your participation and continued interest in Spectral AI. We're very pleased with the progress we continue to make and remain optimistic about our prospects for growth. We hope to speak with some of you at upcoming events, including the Sidoti Microcap Virtual Conference on May 8th and 9th later this week, at our annual meeting of shareholders next week on May 14th, at the Northland Virtual Growth Conference in late June, and various other investor conferences that we will announce throughout the year. Thank you, and have a good evening.

Operator (participant)

Thank you, sir. The conference has now concluded. Thank you for joining today's presentation. You may now disconnect.