Mr. Chris Seto reports

SPECTRAL MEDICAL ANNOUNCES FOURTH QUARTER AND FISCAL 2023 RESULTS AND PROVIDES CORPORATE UPDATE

Spectral Medical Inc. has released its financial results for the fourth quarter and for the year ended Dec. 31, 2023, and has provided a corporate update.

The company made significant progress throughout 2023, both clinically and operationally, specifically, regarding its Tigris trial, a phase 3 clinical trial evaluating toraymyxin for endotoxic septic shock. The company has enrolled 97 patients to date, out of the 150 total patients to be enrolled, and focused on the final push to fully enroll and finish the Tigris trial. The company believes that the continued on-boarding of new Tigris sites since the fourth quarter of 2023 could further accelerate enrolment experienced to date and allow Spectral to rapidly reach the 150-patient target, bringing the company closer to Food and Drug Administration submission and potential FDA approval. In parallel to its clinical trial, the company continues to work closely with its commercialization partner, Baxter. Recently, Baxter exercised its right to maintain its exclusive distribution rights for PMX products in the United States and Canada, and paid Spectral a non-dilutive milestone payment. Additionally, the company and Baxter mutually agreed to amend the initial term of their commercial partnership to 10 years post-Food and Drug Administration approval of PMX. The company believes this amendment provides a mutually beneficial runway for the parties to maximize PMX commercial economics while providing motivation for continued support and allocation of resources to the PMX partnership.

Dr. John Kellum, chief medical officer of Spectral, stated: "We have witnessed robust enrolment activity to start 2024. This pace of enrolment continues the momentum since we communicated our enhanced recruitment initiatives last April, and it's fair to say that our steady enrolment over the last 12 months is a culmination of many of these initiatives, which the company implemented throughout 2023. As we enter the final push to fully enroll and finish Tigris, our clinical team is focused on trial site management activities such as site visits, refresher training, and clinical communications, workshops and round tables. Ultimately, we want to ensure that our Tigris sites have the support and resources to enroll patients as efficiently as possible. We are committed to advancing Tigris and believe PMX, if ultimately approved, will play a major role in reducing the tragic rates of mortality caused by sepsis."

Corporate highlights during and subsequent to the fourth quarter and fiscal year ended Dec. 31, 2023

Tigris:

• Total of 97 patients randomized to date out of the 150 total patients to be enrolled in the Tigris trial:
  • Accelerated enrolment experienced in 2024 to date, with 16 patients enrolled so far -- represents the most robust enrolment rates since the start of the Tigris trial;
• Currently, 22 Tigris sites on-boarded:
  • Addition of two new trial sites in the fourth quarter -- the Mayo Clinic and Emory Healthcare;
  • Subsequent to the fourth quarter, the company added three new sites -- University of Texas Health Sciences Center at Houston, the Institute for Extracorporeal Life Support (San Antonio, Tex.) and UCLA, with two additional sites in the pipeline;
• Investigator meeting held March 12 and March 13:
  • The company held a Tigris trial investigator meeting in conjunction with the 29th International Conference on Advances in Critical Care Nephrology in San Diego;
  • In-person meeting well attended with multiple stakeholders present, including: principal investigators and clinical research co-ordinators from existing and new trial sites; CRO, Beaufort; and representatives from the company's strategic partner Baxter;
  • Focus of the meeting was on the practical aspects of diagnosing endotoxic septic shock and treating with PMX, as well as featuring several talks from trial sites on how EAA and PMX could be implemented into routine clinical practice after potential regulatory approval of PMX;
• Completion of Eden observational study:
  • The company completed its Eden study in the fourth quarter with 92 patients enrolled; the ancillary observational study collected data on patients with sepsis even if ineligible for Tigris and captured much needed data on the full range of septic shock and its relation to organ failure and endotoxin activity; these data will inform subsequent discussions with the FDA on labelling for PMX, as well as to provide the medical community and the company a better picture of the addressable population in the United States for PMX; the company expects final analysis of the data in mid-2024.

PMX commercialization:

• 90-patient enrolment interim milestone achieved:
  • On Feb. 15, 2024, Spectral announced that it had reached the 90-patient enrolment threshold and provided written notification to Baxter of this achievement; subsequently, Baxter exercised its option to maintain exclusive distribution rights and paid Spectral an approximately $2-million non-dilutive payment;
  • Since inception of partnership, financing support from Baxter has amounted to approximately $15-million -- composed of non-dilutive payments and convertible note subscriptions;
• Amendment of initial term of exclusive distribution agreement:
  • In February, 2024, the company and Baxter mutually agreed to amend the initial term of the exclusive distribution agreement to 10 years post-FDA approval; the company believes the 10-year term provides mutually beneficial runway to maximize PMX commercial economics;
• Commercialization activities:
  • In anticipation of a positive Tigris trial outcome, the company has been working closely with Baxter on postapproval marketing plans for PMX commercialization; this includes developing product branding, pricing and rollout plans with numerous Baxter departments, including marketing, regulatory, clinical and reimbursement; Baxter has communicated its intention to undertake a broad marketing campaign on day one of FDA approval for PMX;
  • The company is also working with Baxter on a substudy to obtain FDA clearance for hemoperfusion for Baxter's Prismax device; the Prismax, with its leading installed base in ICUs throughout the United States, is anticipated to be the primary ICU device utilized for PMX treatments on commercial launch.

i-Dialco Inc.

Throughout 2023, the company became aware of significant changes in the i-Dialco business plan that impacted the ability of the company to forecast the recoverability of the investment. Accordingly, the net investment was assessed for a non-cash impairment loss. As part of this assessment, the company noted significant changes from the initial business plan at inception, including the identification that the period of negative cash flows for the entity increased substantially as a result of a shift in both the regulatory and commercialization timelines mainly due to further device developments and improvements required for clinical adoption of the Sami and Dimi devices. The company maintains a 30-per-cent ownership and voting rights within i-Dialco, and will continue to track any future losses or gains booked by i-Dialco.

"I am pleased with the increased level of activity across the company and its impact on establishing robust trial sites, thus resulting in a significant ramp-up of patient enrolment. The recent pace of enrolment, combined with the quality and focus of the current and planned trial sites, provide us with confidence in continued robust enrolment activity. The potential to sustain our current pace of enrolment could see us rapidly advance the trial towards completion in the late 2024 to early 2025 time frame," said Chris Seto, chief executive officer of Spectral. "During the quarter, we took a non-cash impairment charge relating to our investment in i-Dialco. Consistent with our assessment at the time of spinning off this business, i-Dialco has proven to be more challenged with delivering on its business plan based on what was initially envisioned."

Financial review

Revenue for the three months ended Dec. 31, 2023, was $365,000 compared with $553,000 for the same three-month period last year. Total revenue for the year ended Dec. 31, 2023, was $1,598,000 compared with $1,667,000 for the prior year, representing a decrease of $69,000, or 4 per cent. The decrease in product revenue was mainly due to the timing of orders in addition to certain supply chain constraints.

For the quarter ended Dec. 31, 2023, the company reported operating expenses of $6,813,000 compared with $1,767,000 for the same period in 2022. When excluding the impact of the $193,000 loss (2022: $998,000 gain) on investment in i-Dialco and $600,000 impairment loss on joint venture arrangement, operating expenses for the quarter ended Dec. 31, 2023, were $6.02-million compared with $2,766,000 for the same period in the prior year. The increase of $3,254,000 (excluding investment loss and impairment) was due primarily to increased consulting and professional services majorly due to increased site and patient fees related to the Tigris trial and Eden observational study, and a non-cash expense attributed to a fair value adjustment on derivative liabilities (the increase was primarily due to change in the market assumptions and market price considered for the calculation of the option feature).

Loss for the three months ended Dec. 31, 2023, was $6,479,000, or two cents per share, compared with a loss of $2,537,000, or one cent per share, for the same quarter last year. The loss for the year ended Dec. 31, 2023, was $15,662,000, or six cents per share, compared with a loss of $11,281,000, or four cents per share, for 2022.

The company concluded the 2023 year with cash of $2,952,000 compared with $8,414,000 cash on hand as of Dec. 31, 2022.

The total number of common shares outstanding for the company was 278,576,261 at Dec. 31, 2023.

About Spectral Medical Inc.

Spectral is a phase 3 company seeking U.S. FDA approval for its unique product for the treatment of patients with septic shock, toraymyxin (PMX). PMX is a therapeutic hemoperfusion device that removes endotoxin, which can cause sepsis, from the bloodstream and is guided by the company's endotoxin activity assay, the only FDA cleared diagnostic for the risk of developing sepsis.

PMX is approved for therapeutic use in Japan and Europe, and has been used safely and effectively on more than 340,000 patients to date. In March, 2009, Spectral obtained the exclusive development and commercial rights in the United States for PMX, and in November, 2010, signed an exclusive distribution agreement for this product in Canada. In July, 2022, the U.S. FDA granted breakthrough device designation for PMX for the treatment of endotoxic septic shock. Approximately 330,000 patients are diagnosed with septic shock in North America each year.

The Tigris trial is a confirmatory study of PMX in addition to standard care versus standard care alone, and is designed as a 2 to 1 randomized trial of 150 patients using Bayesian statistics. Endotoxic septic shock is a malignant form of sepsis.

The trial methods are detailed in "Bayesian methods: a potential path forward for sepsis trials."

Spectral is listed on the Toronto Stock Exchange under the symbol EDT.

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